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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1995.
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________.
COMMISSION FILE NUMBER:1-11311
LEAR SEATING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3386776
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
21557 TELEGRAPH ROAD, SOUTHFIELD, MI 48034
(Address of principal executive offices) (zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (810) 746-1500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, par value $.01 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. __X__
As of March 1, 1996, the aggregate market value of the registrant's Common
Stock, par value $.01 per share, held by non-affiliates of the registrant was
$1,156,366,496. The closing price of the Common Stock on March 1, 1996 as
reported on the New York Stock Exchange was $32 per share.
As of March 1, 1996, the number of shares outstanding of the registrant's
Common Stock was 56,572,178 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant's Notice of Annual Meeting of Stockholders
and Proxy Statement for its Annual Meeting of Stockholders to be held on May 9,
1996, as described in the Cross-Reference Sheet and a Table of Contents
included herewith, are incorporated by reference into Part III of this Report.
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CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS
PAGE NUMBER
OR REFERENCE (1)
----------------
PART I
ITEM 1. Business............................................................................... 1
ITEM 2. Properties............................................................................. 15
ITEM 3. Legal proceedings...................................................................... 16
ITEM 4. Submission of matters to a vote of security holders.................................... 16
PART II
ITEM 5. Market for registrant's common stock and related stockholder matters................... 17
ITEM 6. Selected financial data................................................................ 18
ITEM 7. Management's discussion and analysis of financial condition and results of operations.. 19
ITEM 8. Consolidated financial statements and supplementary data............................... 25
ITEM 9. Changes in and disagreements with accountants on accounting and financial disclosure... 56
PART III
ITEM 10. Directors and executive officers of the registrant (2)................................. 57
ITEM 11. Executive compensation (3)............................................................. 57
ITEM 12. Security ownership of certain beneficial owners and management (4)..................... 57
ITEM 13. Certain relationships and related transactions (5)..................................... 57
PART IV
ITEM 14. Exhibits, financial statement schedules, and reports on Form 8-K....................... 58
- -----------------
(1) Certain information is incorporated by reference, as indicated below,
from the registrant's Notice of Annual Meeting of Stockholders and Proxy
Statement for its Annual Meeting of Stockholders to be held on May 9, 1996
(the "Proxy Statement").
(2) Proxy Statement sections entitled "Election of Directors" and
"Management."
(3) Proxy Statement section entitled "Executive Compensation," "Compensation
Committee Interlocks and Insider Participation," and "Report of
Compensation Committee - Annual Incentives"
(4) Proxy Statement section entitled "Management - Security Ownership of
Certain Beneficial Owners and Management."
(5) Proxy Statement section entitled "Certain Transactions."
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PART I
ITEM 1 - BUSINESS
As used in this Report, unless the context otherwise requires, the "Company" or
"Lear" refers to Lear Seating Corporation and its consolidated subsidiaries
after giving effect to the merger of Lear Holdings Corporation, the former
parent of Lear Seating Corporation, with and into Lear Seating Corporation,
which occurred on December 31, 1993. In addition, the term "AI Division"
refers to the business formerly owned by Automotive Industries Holding, Inc.,
which the Company acquired in August 1995.
GENERAL
Lear is the largest independent supplier of automotive interior systems in
the $23 billion North American and Western European automotive interior systems
market. The Company's principal products include finished automobile and light
truck seat systems, seat frames, seat covers and other seat components. With
the acquisition of Automotive Industries Holding, Inc. ("AI" or "Automotive
Industries") in August, 1995, the Company has expanded its product offerings to
include interior trim products such as door panel and overhead systems and
other interior components, as well as a variety of blow molded products and
other automotive components such as fluid reservoirs, fuel tank shields, and
front grille assemblies. The acquisition of AI also provided Lear with the
capability to engineer, design, and deliver products for a complete vehicle
interior. The Company's present customers include 24 original equipment
manufacturers ("OEMs"), the most significant of which are General Motors, Ford,
Fiat, Chrysler, Volvo, Saab, Volkswagen, Audi and BMW. As of December 31,
1995, the Company employed approximately 35,000 people in 18 countries and
operated 107 manufacturing, research and development, product engineering and
administration facilities.
The Company's seat systems, which are designed, manufactured and assembled
at the Company's manufacturing facilities, are shipped to customer assembly
plants on a sequential parts delivery ("SPD") basis for installation in
vehicles near the end of the assembly process. The SPD process not only
enables the Company to deliver seat systems to customers on a just-in-time
("JIT") basis but also permits delivery in the color and order in which the
products are used in the OEMs' assembly lines. Lear's JIT seat operations are
strongly complemented by the AI Division's vast array of manufacturing
processes designed to satisfy their customers' different cost and functionality
specifications. In order to capitalize on and integrate these manufacturing
processes, the Company has implemented a program of dedicated teams consisting
of interior trim and seat systems personnel who are able to meet all of a
customer's interior needs. These teams provide a single interface for
customers and avoid duplication of sales and engineering efforts.
Lear's sales have grown rapidly from approximately $159.8 million in the
fiscal year ended June 30, 1983, to approximately $4.7 billion in the year
ended December 31, 1995, a compound annual growth rate of approximately 33%.
This increase in sales, which has been achieved through internal growth as well
as acquisitions, is attributable primarily to the Company's strategy of
capitalizing on two significant trends in the automotive industry: (i) the
outsourcing of automotive components and systems by OEMs; and (ii) the
consolidation and globalization of the OEM's supply base. Outsourcing of
interior components and systems has increased in response to competitive
pressures on OEMs to improve quality and reduce capital needs, costs of labor,
overhead and inventory. Consolidation among automotive industry suppliers has
occurred as OEMs have more frequently awarded long-term sole source contracts
to the most capable global suppliers. Increasingly, the criteria for selection
include not only cost, quality and responsiveness, but also certain
full-service capabilities, including design, engineering and project management
support. OEMs now have rigorous programs for evaluating and rating suppliers,
which encompass quality, cost control, reliability of delivery, new technology
implementation and overall management. Under these programs, each facility
operated by a supplier is evaluated independently. The suppliers who obtain
superior ratings from an OEM are considered for new business; those who do not
may continue their existing contracts, but are unlikely to be considered for
additional business. As a result, the OEMs' new supplier policies have sharply
reduced the number of component and system suppliers. The Company believes
that OEMs in North America and Europe will continue to pursue outsourcing and
supplier consolidation as a means of cost reduction.
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The principal beneficiaries of the trend to outsourcing have been
independent suppliers, such as the Company, with proven design, engineering,
program management and SPD manufacturing capabilities. Companies with such
capabilities are generally referred to as Tier I suppliers. The Company
believes that early involvement in the design and engineering of new seat
products and other interior components and systems affords the Company a
competitive advantage in securing new business and provides its customers with
significant cost reduction opportunities through the coordination of the design,
development and manufacturing processes. See "Business-Business Strategy."
Lear is the largest independent seat systems supplier to the $11 billion
North American and Western European seat market and is also the largest
supplier of seat systems and seat components in Mexico. With the addition of
AI, the Company more than doubled the size of the market it sells to, as Lear
is now the largest independent supplier in the $23 billion North American and
Western European automotive interior systems market. Most non-seat related
portions of the automotive interior market are highly fragmented, contain no
dominant supplier and are just starting to experience the outsourcing and
consolidation process. The Company believes that the same competitive
pressures that contributed to the rapid expansion of its seat systems business
in North America since 1983 will continue to encourage automakers in the North
American and European markets to outsource more of their automotive interior
requirements. Over the past three years, the Company has aggressively pursued
expansion in Europe and in emerging markets, with both existing and new
customers.
The Company's North American content per vehicle has increased from $12 in
1983 to $227 in 1995. In Western Europe, the content per vehicle has grown from
$3 in 1983 to $102 in 1995. These increases have resulted from the Company's
ability to capitalize on a number of industry trends including outsourcing,
greater design responsibility by suppliers and the increased sophistication of
seat systems as OEMs add convenience features and luxury items into vehicle
models. The increases in content per vehicle also resulted from several recent
acquisitions, including Automotive Industries and the Fiat Seat Business (See
Business - Acquisitions). In addition, the Company has been at the forefront in
the development of more advanced automobile safety features, such as side impact
airbags and fully integrated seatbelts.
The Company's continued expansion as a Tier I supplier resulted in the
Company beginning sixteen new seat programs in 1995 including programs for
Ford, General Motors, Volkswagen, Chrysler, Fiat and BMW. This new business,
combined with the full integration of the December 1994 acquisition of the Fiat
Seat Business and the acquisition of Automotive Industries, has contributed
significantly to the Company's overall growth.
The Company is the successor to a seat frame manufacturing business
founded in 1917 that served as a supplier to General Motors and Ford from its
inception. Lear Holdings Corporation ("Holdings"), the former parent of the
Company, was organized in August 1988 to effect the acquisition (the "1988
Acquisition") of all of the outstanding common stock of Lear Seating
Corporation (formerly known as Lear Siegler Seating Corp.) and certain other
subsidiaries of Lear Siegler Holdings Corp. comprising its seating group. On
December 31, 1993, Holdings merged with and into the Company (the "Holdings
Merger"), and the separate corporate existence of Holdings ceased on that date.
As a result of the expansion of the Company's business from automotive
seat systems to products for a vehicle's complete interior, the Company has
proposed changing its name to "Lear Corporation" from "Lear Seating
Corporation." Formal approval of the name change will be sought at the annual
meeting of stockholders.
The Company's world headquarters are located at 21557 Telegraph Road, P.O.
Box 5008, Southfield, Michigan 48034-5008. Its telephone number at that
location is (810) 746-1500. The Company was incorporated in Delaware on
January 13, 1987.
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BUSINESS STRATEGY
Lear's business objective is to expand its position as the global leader
of automotive interior systems to OEMs. To achieve this objective, the Company
will continue to pursue a strategy based upon the following elements:
- Strong Relationships with the OEMs. The Company's management has
developed strong relationships with its 24 OEM customers which allow Lear to
identify business opportunities and anticipate customer needs in the early
stages of vehicle design. Management believes that working closely with OEMs
in the early stages of designing and engineering vehicle interior systems gives
it a competitive advantage in securing new business. Lear maintains an
excellent reputation with the OEMs for timely delivery and customer service and
for providing world class quality at competitive prices. As a result of the
Company's service and performance record, many of the Company's facilities have
won awards from OEMs with which they do business.
- Product Technology and Design Capability. Lear has made substantial
investments in product technology and product design capability to support its
products. The Company maintains three research and development centers (in
Southfield, Michigan, Rochester Hills, Michigan, and Turin, Italy) where it
develops and tests current and future products to determine compliance with
safety standards, quality and durability, response to environmental conditions
and user wear and tear. At its 15 customer-dedicated product engineering
centers, specific program applications are developed and tested. Benchmarking
studies are also conducted to aid in developing innovative interior design
features. The Company has also made substantial investments to upgrade its
advanced computer-aided engineering ("CAE") and computer-aided
design/computer-aided manufacturing ("CAD/CAM") systems. Several tools
recently added to electronically create a product and evaluate its performance
include advanced design modeling software, dynamic crash simulation, linear and
non-linear finite element analysis and solids modeling. In addition, the
Company has developed a program management process to ensure that customers'
expectations are met. The proprietary "Visions" program allows Lear to manage
all aspects of product development. The process ensures that employees,
customers and suppliers of the Company work as a team to deliver high quality,
cost-effective products on a timely basis.
- Lean Manufacturing Philosophy. Lear's "lean manufacturing" philosophy
seeks to eliminate waste and inefficiency in its own operations and in those of
its customers and suppliers. The Company believes that it provides superior
quality automotive interior products at lower costs than the OEMs. The
Company, whose seating facilities are linked by computer directly to those of
its suppliers and customers, receives components from its suppliers on a JIT
basis, and delivers seat systems and components to its customers on a
sequential JIT basis, which provides products to an OEM's manufacturing
facility in the color and order in which the products are used. The process
minimizes inventories and fixed costs for both the Company and its customers
and enables the Company to deliver products on as little as 90 minutes' notice.
For the year ended December 31, 1995, the Company's overall annual inventory
turnover rate was 30 times and up to 200 times in the case of certain of the
Company's JIT plants. The Company also minimizes fixed costs by using existing
suppliers to the OEMs and the OEMs themselves for certain components. In cases
where one of the Company's seating manufacturing facilities is underutilized,
the Company is able to redistribute products to increase facility utilization.
The JIT seat manufacturing facilities are strongly complemented by AI's
manufacturing facilities, with their vast array of manufacturing processes. AI
has historically added value to its customers by being a "one-stop-shop" for
OEMs interior trim needs. This objective has been achieved by offering a wide
variety of manufacturing solutions to satisfy their customers' needs.
- Global Presence. In 1995, almost one half of total worldwide vehicle
production occurred outside of North America and Western Europe. Due to
significant cost savings and improved product quality and consistency, OEMs
have increasingly required their suppliers to manufacture seat systems and
other components in multiple geographic markets. By expanding its operations
outside the United States in the early 1990's, through Lear's expansion into
Western Europe and currently through the Company's expansion into emerging
markets, Lear has sought to provide its products on a global basis to its OEM
customers. A global market presence also affords Lear some protection against
cyclical downturns in any single market. For the year ended December 31, 1995,
approximately 52% of the Company's sales were outside the United States.
During 1995, in furtherance of its global expansion strategy, the Company
entered into three joint ventures and expanded its wholly-owned operations into
a new country. The first joint venture agreement was with an affiliate of
Industria Espanola del Polieter, S.A. ("INESPO"), a Spanish corporation, to
supply seat systems in Brazil for the Volkswagen Gol. The Company also entered
into a joint venture agreement with Grupo R.B., the largest independent
automotive supplier in Argentina, to supply seat systems to Volkswagen in
Argentina for the Gol and the Cordoba models and with Trambusti, a Brazilian
company, to supply seat systems to Fiat in Brazil for the 178 World Car, the
Tempra, and several light trucks. In addition, Lear further expanded its
presence internationally by opening a facility in South Africa to provide seats
to BMW.
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- Growth Through Strategic Acquisitions. Strategic acquisitions have been,
and management believes will continue to be, an important element in the
Company's growth worldwide and in its efforts to capitalize on automotive
industry trends described above. The Company's recent acquisitions have
expanded its OEM customer base and worldwide presence and enhanced its
relationships with existing customers. The AI acquisition has also given the
Company a significant presence in the non-seating segment of the automobile and
light truck interior market. The Company believes that these markets hold
significant growth potential for Lear because currently there is no dominant
supplier of these products and they are just beginning to experience the
outsourcing and consolidation trends that have contributed to the expansion of
the seat systems industry since the early 1980's. The Company will continue to
consider strategic acquisitions that expand its global presence, enhance its
technological capabilities or represent an outsourcing opportunity.
RECENT ACQUISITIONS
To supplement its internal growth and implement its business strategy, the
Company has made several strategic acquisitions since 1990. The following is a
summary of recent major acquisitions:
Automotive Industries (AI) Acquisition
In August 1995, AIHI Acquisition Corp., a wholly-owned subsidiary of Lear,
acquired all the outstanding common stock of AI and subsequently merged with
and into AI. The aggregate purchase price for the acquisition of Automotive
Industries (the "AI acquisition") was $885.0 million (including the assumption
of $250.5 million of AI's existing indebtedness and fees and expenses of $18.1
million). These funds were provided by borrowings under the Company's senior
revolving credit facility with a syndicate of lenders. See Notes 5 and 10 to
the Company's Consolidated Financial Statements included in this Report.
The acquisition of AI, a leading designer and manufacturer of high quality
interior trim systems and blow molded parts to automobile and light truck
manufacturers, made Lear the largest independent Tier I supplier of automotive
interior systems in the North American and Western European light vehicle
interior market. In addition to significantly increasing the Company's
potential market, management believes that the AI acquisition provides Lear
with a competitive advantage as OEMs continue to reduce their supplier base
while demanding improved quality and additional Tier I services. In this
regard, management believes that OEM's will increasingly ask their lead
interior suppliers to fill the role of "Systems Integrator" to manage the
design, purchasing and supply of the total automobile interior. As a result of
the AI acquisition, Lear is well-positioned to fill this role.
Prior to its acquisition by Lear, Automotive Industries itself augmented
its substantial internal growth with selected strategic acquisitions. The
acquisitions allowed AI to expand its interior trim systems product
capabilities and substantially increased AI's ability to provide advanced
design, engineering and program management services to its customers. At the
same time, they increased AI's global presence and provided AI access to new
customers and new technologies. As a division of Lear, it is anticipated that
AI will continue to consider strategic acquisitions as a means to further
growth.
FSB Acquisition
On December 15, 1994, the Company, through its wholly-owned subsidiary,
Lear Seating Italia Holdings, S.r.L., purchased from Gilardini S.p.A.
("Gilardini"), a subsidiary of Fiat, all the shares of SEPI S.p.A. ("SEPI"),
the primary automotive seat systems supplier to Fiat. SEPI and its
wholly-owned subsidiary, SEPI Sud S.p. A. ("SEPI Sud"), operate eight
facilities in Italy producing automotive seat systems for 85% of Fiat's Italian
vehicle production under the Fiat, Lancia, Alfa Romeo and Ferrari nameplates as
well as seat frames for certain Fiat models for which SEPI and SEPI Sud do not
supply the seat systems (collectively the "FSB acquisition"). In connection
with this acquisition, Lear also acquired from Gilardini interests in seat
systems and seat covers businesses in Poland, Spain and Turkey. Lear and Fiat
also entered into a long-term supply agreement for Lear to produce all
outsourced automotive seat systems for Fiat and affiliated companies worldwide.
The acquisition of the Fiat Seat Business (the "FSB") not only established
Lear as the market leader in automotive seat systems in Europe, but combined
with its leading position in North America, made Lear the largest automotive
seat systems manufacturer in the world. In addition, it gave the Company
access to rapidly expanding markets in South America and has resulted in the
formation of new joint ventures which will supply automotive seat systems to
Fiat or its affiliates in Brazil and Argentina.
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NAB Acquisition
On November 1, 1993, Lear significantly strengthened its position in the
North American automotive seating market by purchasing the North American seat
cover and seat systems business (the "NAB") of Ford Motor Company. The NAB
consists of an integrated United States and Mexican operation which produces
seat covers for approximately 80% of Ford's North American vehicle production
(as well as for several independent suppliers) and manufactures seat systems
for certain Ford models. The acquisition of the NAB (the "NAB Acquisition")
included the machinery, equipment, real property and other assets used in the
operations of the NAB as well as all of the issued and outstanding capital
stock of Favesa S.A. de C.V., a maquiladora operation located in Juarez,
Mexico.
Prior to the NAB Acquisition, the Company outsourced a significant portion
of its seat cover requirements. The expansion of the Company's seat cover
business has provided Lear with better control over the costs and quality of one
of the critical components of a seat system. In addition, by virtue of the NAB
Acquisition, the Company was able to enhance its relationship with one of its
largest OEM customers, entering into a five year supply agreement with Ford
covering models for which the NAB had produced seat covers and seat systems at
the time of the acquisition. The Company also assumed during the term of the
supply agreement primary engineering responsibility for a substantial portion of
Ford's car models, providing Lear with greater involvement in the planning and
design of seat systems and related products for future light vehicle models.
PRODUCTS
Lear's products have evolved from the Company's many years of experience
in the seat frame market where it has been a major supplier to General Motors
and Ford since its inception in 1917. The seat frame has structural and safety
requirements which make it the basis for overall seat design and was the
logical first step to the Company's emergence as a dominant supplier of entire
seat systems. With the acquisition of Automotive Industries, the Company has
expanded its product offerings and can now provide customers with interior trim
systems and components such as door panel and overhead systems, quarter panels,
package trays, armrests, sunvisors, headliners and consoles. Through its AI
Division, the Company also produces a variety of blow molded products and other
automotive components such as fluid reservoirs, fuel tank shields, exterior
airdams, front grille assemblies, engine covers, battery trays/covers and
insulators. Lear believes that as OEMs continue to seek ways to improve
vehicle quality while simultaneously reducing the costs of the various vehicle
components, they will increasingly look to suppliers such as Lear with the
capability to engineer, design and deliver products for a complete vehicle
interior.
The market for seat systems developed as a result of North American
automobile manufacturers' need to restructure assembly plant methods in
response to vigorous foreign competition in the early 1980's. The Company was
positioned to take advantage of this growing market through its long standing
relationships with customers. These relationships have been fostered through
the Company's performance in seat frame manufacturing over the years and its
demonstrated ability to supply and manage total seat systems. The Company
believes that its position in the seat systems market will improve as seats
with advanced features become an increasingly important criterion for
distinguishing between competing vehicle models. Moreover, with the
acquisition of Automotive Industries, the Company believes it has tremendous
cross-selling opportunities across both customers and vehicle platforms and is
well-positioned to be the world's leading interior systems integrator.
The following is the approximate composition by product category of the
Company's net sales in the year ended December 31, 1995, after giving pro forma
effect to the AI acquisition: 71% seat systems; 16% interior trim products and
other; 13% seat components.
- Seat Systems. The seat systems business consists of the manufacture,
assembly and supply of entire seating requirements for a vehicle or assembly
plant. The Company produces seat systems for automobiles and light trucks that
are fully finished and ready to be installed in a vehicle. High performance
seats are fully assembled seats, designed to achieve maximum passenger comfort
by adding a wide range of manual and power features such as lumbar supports,
cushion and back bolsters and leg and thigh supports. As OEMs continue to view
seat systems as a distinguishing marketing feature, the advanced features
incorporated initially in high performance seats are more frequently becoming
standard features in a wider variety of later production vehicles.
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As a result of its product technology and product design strengths, the
Company can provide ergonomic designs which offer styling flexibility at low
cost. In addition, the Company is able to incorporate many convenience
features and safety improvements into its seat designs, such as storage
armrests, rear seat fold down panels, integrated restraint systems, child
restraint seats, and side impact air bags.
Lear's position as a market leader in seat systems is largely attributable
to seating programs on new vehicle models launched in the past five years. The
Company believes that supplying seating for these new vehicle models will
provide it with a long-term revenue stream throughout the lives of these
models. The Company is currently working with customers in the development of
a number of seat systems products to be introduced by automobile manufacturers
in the late 1990's, which it expects will lead to an increase in outsourcing
opportunities in the future.
- Seat Components. Lear produces seat covers at its Fairhaven, Michigan
and Saltillo, Mexico facilities, which deliver seat covers primarily to other
Company plants. In addition, the Company is producing approximately 80% of
the seat covers for Ford's North American vehicles. The Company's major
external customers for seat covers are Ford and other independent seat systems
suppliers. The expansion of the Company's seat cover business allows the
Company better control over the costs and quality of one of the critical
components of a seat system. Typically, seat covers comprise approximately
30% of the aggregate cost of a seat system.
Lear produces steel and aluminum seat frames for passenger cars and light
and medium trucks. Seat frames are primarily manufactured using precision
stamped, tubular steel and aluminum components joined together by highly
automated, state-of-the-art welding and assembly techniques. The manufacture
of seat frames must meet strict customer specified safety standards. The
Company's seat frames are either delivered to its own plants where they become
part of a completed seat that is sold to the OEM customer, to customer-operated
assembly plants or to other independent seating suppliers where they are used
in the manufacture of assembled seating systems. The Company's product
development engineers continue to advance its technological position with such
innovative material applications as magnesium and plastic frames and new seat
designs which dramatically reduce seat weight while increasing usable
automotive vehicle interior space or increasing safety.
The Company designs and manufactures plastic storage armrests and other
plastic components for inclusion in seat systems at its plant in Mendon,
Michigan. Vehicles in which these components are found include the Dodge Ram
Pick-up Truck, the Ford F-Series Pick-up Truck, the Ford Taurus, the Mercury
Sable, the GMC C/K Pickup Truck, the Buick LeSabre and the Oldsmobile Delta 88.
The Company also manufactures decorative, painted and assembled injection molded
components at its Mendon, Michigan facility that are used in automotive vehicle
interiors.
- Interior Trim Products. With the acquisition of AI, Lear has expanded
its product offerings to include a variety of interior trim systems and
components as well as blow molded plastic parts. The primary interior trim
products are described below:
- - Complete door panel assemblies - Seatbacks
- - Armrests and consoles - Windshield washer
reservoirs
- - Custom injection molded interior trim - Fuel tank shields
including "A," "B" and "C" pillars, - Coolant reservoirs
cowl panels, scuff plates, trunk liners - Front grille assemblies
and quarter panels - HVAC ducts
- - Sun visors - Interior insulators
- - Headliners and package trays - Hood insulators
- - Appliques and bolsters - Engine shrouds
- - Load floors - Air intake ducts
- - Spare tire covers - Exterior air dams
- Vapor canisters
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The core technologies used in the AI Division's interior trim systems
include injection molding, low-pressure injection molding, rotational molding
and urethane foaming, compression molding of Wood-Stock(TM) (a proprietary
process that combines polypropylene and wood flour), glass reinforced urethane
and a proprietary headliner process. One element of the AI Division's strategy
is to focus on more complex, value-added products such as door panel systems and
armrests. The AI Division delivers these integrated systems at attractive
prices to the customer because certain services such as design and engineering
and sub-assembly are provided more cost efficiently by AI.
Door panel systems and armrests represent the AI Division's most complex
products. A door panel consists of several component parts that are attached
to a base molded substrate by various methods. Specific components include
vinyl- or cloth-covered appliques, armrests, radio speaker grilles, map pocket
compartments or carpet and sound reducing insulation. Upon assembly, each
component must fit precisely, with a minimum of misalignment or gap, and must
match the color of the base substrate. Armrests are produced by either
rotational molding or injection molding of a vinyl covering and are then
combined with an insert and filled with a resilient polyurethane foam to
produce the finished product.
The AI Division produces a variety of blow molded products. In contrast
to AI's interior systems products, blow molded products require little
assembly. However, the manufacturing process for such parts demands
considerable expertise in order to consistently produce high-quality products.
Blow molded parts are produced by extruding a shaped parison or tube of plastic
material and then clamping a mold around the parison. High pressure air is
introduced into the tube causing the hot plastic to take the shape of the
surrounding mold. The part is removed from the mold after cooling and finished
by trimming, drilling and other operations.
The combined pressures of cost reduction and fuel economy enhancement have
caused automotive manufacturers to concentrate their efforts on developing and
employing lower cost, lighter materials. As a result, plastic content in cars
and light trucks has grown significantly. Plastics are now commonly used in
such nonstructural components as interior and exterior trim, door panels,
instrument panels, grilles, bumpers duct systems, taillights and fluid
reservoirs. Increasingly, automobile content requires large plastic injection
molded assemblies for both the interior and exterior. For interior trim
applications, substitution of plastics for other materials is largely complete,
and little growth through substitution is expected. However, further advances
in injection molding technologies are improving the performance and appearance
of parts molded in reinforced thermoplastics.
MANUFACTURING
All of the Company's seating plants use JIT manufacturing techniques, and
most of the Company's seating related products are delivered to the OEMs on a
JIT basis. The JIT concept, first broadly utilized by Japanese automobile
manufacturers, is the cornerstone of the Company's manufacturing and supply
strategy. This strategy involves many of the principles of the Japanese
system, but was redeveloped for compatibility with the greater volume
requirements and geographic distances of the North American market. The
Company first developed JIT operations in the early 1980s at its seat frame
manufacturing plants in Morristown, Tennessee and Kitchener, Ontario, Canada.
These plants previously operated under traditional manufacturing practices,
resulting in relatively low inventory turnover rates, significant scrap and
rework, a high level of indirect labor costs and long production set-up times.
As a result of JIT manufacturing techniques, the Company has been able to
consolidate plants, increase capacity and significantly increase inventory
turnover, quality and productivity.
The JIT principles first developed at Lear's seat frame plants in 1983
were next applied to the Company's growing seat systems business and have now
evolved to SPD principles. The Company's seating plants are typically no more
than 30 minutes or 20 miles from its customers' assembly plants and manufacture
seats for delivery to the customers' facilities in as little as 90 minutes.
Orders for the Company's seats are received on a weekly basis, pursuant to
blanket purchase orders for annual requirements. These orders detail the
customers' needs for the ensuing week. In addition, constant computer and
other communication is maintained between personnel at the Company's plants and
personnel at the customers' plants to keep production current with the
customers' demand.
7
10
Seat assembly techniques fall into two major categories, traditional
assembly methods (in which fabric is affixed to a frame using Velcro, wire or
other material) and more advanced bonding processes. There are two bonding
techniques employed by the Company, the Company's patented SureBond process, a
technique in which fabric is affixed to the underlying foam padding using
adhesives, and the Company's licensed foam-in-place process, in which foam is
injected into a fabric cover. The SureBond process has several major
advantages when compared to traditional methods, including design flexibility,
increased quality and lower cost. The SureBond process, unlike alternative
bonding processes, results in a more comfortable seat in which air can
circulate freely. The SureBond process, moreover, is reversible, so that seat
covers that are improperly installed can be removed and repositioned properly
with minimal materials cost. In addition, the SureBond process is not capital
intensive when compared to competing technologies. Approximately one-third of
the Company's seats are manufactured using the SureBond process.
The seat assembly process begins with pulling the requisite components
from inventory. Inventory at each plant is kept at a minimum, with each
component's requirement monitored on a daily basis. This allows the plant to
devote the maximum space to production, but also requires precise forecasts of
the day's output. Seats are assembled in modules, then tested and packaged for
shipment. The Company operates a specially designed trailer fleet that
accommodates the off-loading of vehicle seats at the assembly plant.
The Company's AI Division uses numerous manufacturing processes. AI's
manufacturing processes include numerous molding, bonding, trimming and
finishing processes. The wide variety of manufacturing processes help to
satisfy their customers' different cost and functionality specifications. AI's
ability and experience in producing interior products for such a vast array of
applications enhances the Company's ability to provide total interior solutions
to OEMs globally. In addition, the Company intends to integrate into its
interior trim facilities some of the JIT principles used at its seating
facilities.
The Company obtains steel, aluminum and foam chemicals used in its seat
systems from various producers under various supply arrangements. The principal
raw materials used in the production of polyurethane foam used in seating are
polyol (poly oxyalkylene) and TDI (toluene discyanate). These materials are
supplied under various arrangements with major chemical companies and are
readily available. Leather, fabric and purchased components are generally
purchased from various suppliers under contractual arrangements usually lasting
no longer than one year. Some of the purchased components are obtained through
the Company's own customers. The principal purchased components for interior
trim systems are polyethylene and polypropylene resins which are purchased under
long-term agreements and are available from multiple suppliers.
CUSTOMERS
Lear serves the worldwide automobile and light truck manufacturers, which
produces approximately 50 million vehicles annually. The Company's OEM
customers currently include General Motors, Ford, Fiat, Chrysler, Volvo, Saab,
Opel, Jaguar, Volkswagen, Audi, BMW, Rover, Honda USA, Daimler-Benz,
Mitsubishi, Mazda, Toyota, Subaru, Nissan, Isuzu, Peugeot, Porsche, Renault,
and Suzuki. During the year ended December 31, 1995, General Motors and Ford,
the two largest automobile and light truck manufacturers in the world,
accounted for approximately 34% and 33%, respectively, of the Company's net
sales. For additional information regarding customers, foreign and domestic
operations and sales, see Note 17, "Geographic Segment Data," to the
Consolidated Financial Statements of the Company included in this Report.
In the past six years, in the course of retooling and reconfiguring plants
for new models and model changeovers, OEMs have eliminated seating production
from certain of their facilities, thereby committing themselves to purchasing
seat systems and components from outside suppliers. During this period, the
Company became a supplier of these products for a significant number of new
models, many on a JIT basis.
The purchase of seat systems on a JIT basis has allowed the Company's
customers to realize a competitive advantage as a result of (i) a reduction in
labor costs since suppliers like the Company generally enjoy lower direct labor
rates, (ii) the elimination of working capital and personnel costs associated
with the production of seat systems by the OEM, (iii) a reduction in net
overhead expenses and capital investment due to the availability of
approximately 60,000 to 80,000 square feet of plant space for expansion of
other manufacturing operations which was previously associated with seat
production at the OEM facilities and (iv) a reduction in transaction costs
because of the customer's ability to deal with a limited number of
sophisticated system suppliers as opposed to numerous individual component
suppliers. In addition, the Company offers improved quality and on-going cost
reductions to its customers through design improvements.
8
11
The Company's sales of value-added assemblies and component systems have
increased as a result of the decision by most OEM's to reduce their internal
engineering and design resources. In recent years, the Company has
significantly increased its capacity to provide complete engineering and design
services to support its product line. Because assembled parts such as door
panels, armrests and consoles need to be designed at an early stage in the
development of new automobiles or model revisions, the Company is increasingly
given the opportunity to participate earlier in the product planning process.
This has resulted in opportunities to add value by furnishing engineering and
design services and managing the sub-assembly process for the manufacturer, as
well as providing the broader range of parts that are required for the
assembly.
The Company has implemented a program of dedicated teams consisting of
interior trim and seat system personnel who are able to meet all of a
customer's interior needs. These teams provide a single interface for Lear's
customers and avoid duplication of sales and engineering efforts. As
innovative designs are developed which integrate components into a single unit,
the potential to provide the Company's customers with additional cost and time
savings should significantly increase.
The Company receives blanket purchase orders from its customers that
normally cover annual requirements for its products to be supplied for a
particular vehicle model. Such supply relationships typically extend over the
life of the model, which is generally four to seven years, and do not require
the purchase by the customer of any minimum number of seats. Although such
purchase orders may be terminated at any time, the Company does not believe
that any of its customers have terminated a material purchase order prior to
the end of the life of a model. The primary risk to the Company is that an OEM
will produce fewer units of a model than anticipated. In order to reduce its
reliance on any one model, the Company produces complete interior systems and
components for a broad cross-section of both new and more established models.
The Company's sales for the year ended December 31, 1995 were comprised of
the following vehicle categories: 41% light truck; 23% mid-size; 15% compact
and other; 12% luxury/sport; and 9% full-size. The following table presents an
overview of the major vehicle models for which the Company or its affiliates
produce seat systems, interior trim systems or other components and the
locations of such production:
9
12
UNITED STATES AND CANADA
BMW: FORD: GENERAL MOTORS: GENERAL MOTORS (CONT):
3 Series Ford Aerostar Buick Century Oldsmobile Cutlass Supreme
Z3 Ford Bronco Buick LeSabre Oldsmobile Eurosport
Ford Contour Buick Park Avenue Oldsmobile Silhouette
GENERAL MOTORS /SUZUKI: Ford Crown Victoria Buick Regal Pontiac Bonneville
Geo Metro Ford Econoline/Club Wagon Buick Riviera Pontiac Firebird
Geo Tracker Ford Escort Buick Skylark Pontiac Grand Am
Suzuki Sidekick Ford Explorer Cadillac DeVille/Concours Pontiac Grand Prix
Suzuki Swift Ford F-Series Pick-up Truck Cadillac Eldorado Pontiac Sunfire
Ford Mustang LX Chevrolet Astro Pontiac Transport
CHRYSLER: Ford Probe Chevrolet Beretta Saturn SC
Chrysler Cirrus Ford Ranger Chevrolet Blazer Saturn SL
Chrysler Concorde Ford Ranger Supercab/STX Chevrolet C/K Pick-up Truck
Chrysler LeBaron Ford Taurus Chevrolet Camaro HONDA:
Chrysler LHS Ford Taurus SHO Chevrolet Cavalier Accord
Chrysler Sebring Ford Thunderbird Chevrolet Corsica Civic
Chrysler Town & Country Ford Thunderbird SC Chevrolet Corvette Passport
Dodge Avenger Ford Windstar Minivan Chevrolet/GMC G-Van
Dodge Caravan Lincoln Continental Chevrolet Kodiak MAZDA:
Dodge Dakota Pick-up Truck Lincoln Mark VIII Chevrolet Lumina/Van 626
Dodge Intrepid Lincoln Town Car Chevrolet Monte Carlo B2000
Dodge Neon Mercury Cougar Chevrolet Sport Van/Van MX6
Dodge Ram Pick-up Truck Mercury Grand Marquis Chevrolet/GMC Suburban
Dodge Ram Van Mercury Mystique Chevrolet Tahoe/GMC Yukon MITSUBISHI:
Dodge Ram Wagon Mercury Sable GMC 10-30,15-35 Eclipse
Dodge Viper Mercury Tracer GMC C/K Pick-up Truck Gallant
Eagle Talon Mercury Villager GMC Rally/Vandura
Jeep Cherokee GMC Safari NISSAN:
Jeep Grand Cherokee SUBARU/ISUZU: GMC Top Kick King Cab Pick-up Truck
Jeep Wrangler Isuzu Rodeo Oldsmobile 88 Quest
Plymouth Neon Subaru Legacy Oldsmobile 98 Sentra
Plymouth Voyager Oldsmobile Achieva
Oldsmobile Aurora TOYOTA:
Oldsmobile Ciera Camry
MEXICO
------
BMW: FORD: GENERAL MOTORS: NISSAN:
3 Series Ford Contour Chevrolet Cavalier Pick-up
Ford Escort Chevrolet C/K Pick-up Truck Tsuru
CHRYSLER: Ford F-Series Chevrolet Tahoe/GMC Yukon
Chrysler Cirrus Mercury Mystique Opel Corsa VOLKSWAGEN:
Dodge Neon Mercury Tracer Pontiac Sunfire Golf
Dodge Ram Jetta
JX Convertible Derby
Plymouth Neon GPA Minivan
10
13
EUROPE
------
ALFA ROMEO: FIAT (CONT): LANCIA: ROVER (CONT):
Alfa 145/146 Punto Dedra Metro
Alfa 155 Tempra Delta MGA
Alfa 164 Tipo Kappa Mini
Coupe Uno Thema R3
Spider Y11 Range Rover
FORD:
AUDI: Escort MERCEDES: SAAB:
A Series Fiesta 200 Series Saab 900
B Series Mondeo C-Class Saab 900 Cabriolet
Scorpio E-Class Saab 9000
BMW: S-Class
3 Series GENERAL MOTORS - OPEL: TOYOTA:
5 Series Astra PORSCHE: Carina
Corsa/Van 911 Corolla
CHRYSLER: Omega 928
Voyager Eurostar Vectra 968 VOLVO:
800 Series
DINA: HONDA: RENAULT: 900 Series
Heavy Truck Accord Cabrio
Civic VOLKSWAGEN:
FIAT: ROVER: Golf
126 JAGUAR: 200/New 400 Passat
500 XJS 400/Saloon Taro
Barchetta X300 600 Transit
Brava/Bravo X330 800 Transporter T4
Coupe 500 Discovery T-4 Multivan
Croma MAN: Land Rover Viento
Ducato X230 Heavy Truck Maestro
OTHER
-----
FIAT (SOUTH AMERICA): GENERAL MOTORS - GENERAL MOTORS OPEL: VOLKSWAGEN:
178 HOLDEN (AUSTRALIA): S-10 Blazer (Indonesia) Gol (Brazil, Argentina)
Brava/Bravo Acclaim
Fiorino Berlina BMW (SOUTH AFRICA): VOLVO (THAILAND):
Tempra Caprice 3 Series 800 Series
Uno Commodore 900 Series
Statesman
Because of the economic benefits inherent in outsourcing to suppliers such
as Lear and the costs associated with reversing a decision to purchase seat
systems and other interior systems and components from an outside supplier, the
Company believes that automobile manufacturers' level of commitment to
purchasing seating and other interior systems and components from outside
suppliers, particularly on a JIT basis, will increase. However, under the
contracts currently in effect in the United States between each of General
Motors, Ford and Chrysler with the UAW, in order for any of such manufacturers
to obtain components that it currently produces itself from external sources,
it must first notify the UAW of such intention. If the UAW objects to the
proposed outsourcing, some agreement will have to be reached between the UAW
and the OEM. Factors that will normally be taken into account by the UAW and
the OEM include whether the proposed new supplier is technologically more
advanced than the OEM, cost and whether the OEM will be able to reassign union
members whose jobs are being displaced to other jobs within the same factories.
As part of its long-term agreement with General Motors, the Company operates
its Grand Rapids, Michigan, Rochester Hills, Michigan, Wentzville, Missouri and
Lordstown, Ohio facilities with General Motors employees and reimburses General
Motors for the wages of such employees on the basis of the Company's employee
wage structure. The Company enters into these arrangements to enhance its
relationship with its customers.
The Company's contracts with its major customers generally provide for an
annual productivity price reduction and, in some cases, provide for the
recovery of increases in material and labor costs. Cost reduction through
design changes, increased productivity and similar programs with the Company's
suppliers have generally offset changes in selling prices. The Company's cost
structure is comprised of a high percentage of variable costs. The Company
believes that this structure provides it with additional flexibility during
economic cycles.
11
14
As a result of the Company's worldwide customer base and the global
expansion of its operations, a significant portion of the Company's revenues
and expenses are denominated in currencies other than U.S. dollars and
therefore, fluctuations in exchange rates could have significant effects on the
Company's results of operations.
MARKETING AND SALES
Lear markets its products by maintaining strong relationships with its
customers fostered during its 78-year history through strong technical and
product development capabilities, reliable delivery of high quality products,
strong customer service, innovative new products and a competitive cost
structure. Close personal communications with automobile manufacturers are an
integral part of the Company's marketing strategy. Recognizing this, the
Company is organized into six independent divisions, each with the ability to
focus on its own customers and programs and each having complete responsibility
for the product, from design to installation. By moving the decision-making
process closer to the customer, and instilling a philosophy of "cooperative
autonomy," the Company is more responsive to, and has strengthened its
relationships with, its customers. Automobile manufacturers have increasingly
reduced the number of their suppliers as part of a strategy of purchasing
systems rather than individual components. This process favors suppliers like
Lear with established ties to OEMs and the demonstrated ability to adapt to the
new competitive environment in the automotive industry.
The Company's sales are originated entirely by its sales staff. This
marketing effort is augmented by design and manufacturing engineers who work
closely with automobile manufacturers from the preliminary design to the
manufacture and supply of seating systems or interior components.
Manufacturers have increasingly looked to suppliers like the Company to assume
responsibility for the introduction of product innovation, shorten the
development cycle of new models, decrease tooling investment and labor costs,
reduce the number of costly design changes in the early phases of production
and improve interior comfort and functionality. Once the Company is engaged to
develop the design for the seat or interior components of a specific vehicle
model, it is also generally engaged to supply these items when the vehicle goes
into production. The acquisition of AI gives Lear the ability to provide total
interior systems, not just components, to the OEMs. The Company has devoted
substantial resources toward improving its engineering and technical
capabilities and developing technical centers in the United States and in
Europe. The Company has also developed full-scope engineering capabilities,
including all aspects of safety and functional testing and comfort assessment.
In addition, the Company has established various remote engineering sites in
close proximity to several of its OEM customers to enhance customer
relationships and design activity.
TECHNOLOGY
Lear conducts advanced product design development at its technical centers
in Southfield, Michigan, Rochester Hills, Michigan and Turin, Italy and at 15
worldwide product engineering centers. At these centers, the Company tests its
products to determine compliance with applicable safety standards, the
products' quality and durability, response to environmental conditions and user
wear and tear. In the past, the Company has developed a number of designs for
innovative seat features which it has patented, including ergonomic features
such as adjustable lumbar supports and bolster systems and adjustable thigh
supports.
In addition, the Company incorporates many convenience, comfort and safety
features into its seat designs, including storage armrests, rear seat fold down
panels, integrated restraint systems and child restraint seats. The Company
has recently invested to further upgrade its CAE and CAD/CAM systems, including
three-dimensional color graphics, customer telecommunications and direct
interface with customer CAD systems. Research and development costs incurred
in connection with the development of new products and manufacturing methods,
to the extent not recoverable from the customer, are charged to operations as
incurred. Such costs amounted to approximately $53.3 million, $21.9 million,
and $16.2 million for the years ended December 31, 1995, 1994 and 1993.
Lear uses its patented SureBond process (the patent for which has
approximately 8 years remaining) in bonding seat cover materials to the foam
pads used in certain of its seats. The SureBond process is used to bond a
pre-shaped cover to the underlying foam to minimize the need for sewing and
achieve new seating shapes, such as concave shapes, which were previously
difficult to manufacture.
12
15
The Company, through its wholly-owned subsidiary, Progress Pattern Corp.
("Progress Pattern"), produces patterns and tooling for use in the automotive
casting industry. Its capabilities include foundry and vacuum form tooling,
porous mold design and lost foam tooling production. The Progress Pattern
operation is also integral to the Company's seating design programs, including
independent product design and development, contract design, engineering
services, manufacturing feasibility and engineering cost studies. Progress
Pattern also manufactures production tooling for the Company's plastic and foam
molding operations. In addition to providing support for the Company's
continuing seat design, Progress Pattern provides services to its own customers,
including Ford and General Motors. For example, it produced the casting tooling
for the General Motors Saturn engine.
Through its AI Division, the Company has virtually all technologies and
manufacturing processes available for interior trim and under-the-hood
applications. The manufacturing processes include, among other things, high and
low pressure injection molding, vacuum forming, blow molding, soft foam
molding, heat staking, water jet cutting, vibration welding, ultrasonic
welding, and robotic painting. This wide range of capabilities allows the
Company to assist its customers in selecting the technologies that are the most
cost effective for each application. Combined with its design and engineering
capabilities, AI provides comprehensive support to its OEM suppliers from
product development to production.
The Company holds a number of mechanical and design patents covering its
products and has numerous applications for patents currently pending. In
addition, the Company holds several trademarks relating to various
manufacturing processes. The Company also licenses its technology to a number
of seating manufacturers.
The Company has and will continue to dedicate resources to research and
development to maintain its position as a leading developer of technology in
the automotive interior industry.
JOINT VENTURES AND MINORITY INTERESTS
The Company conducts a portion of its business through joint ventures in
order to facilitate the exchange of technical information and the establishment
of business relationships with foreign automakers. In connection with the FSB
Acquisition, the Company obtained a 49% interest in Industrias Cousin Freres,
S.L., a Spanish joint venture with Bertrand Faure S.A. which produces seat
components, and a 35% interest in Markol Otomotiv Yan Sanayi Ve Ticart, a
Turkish joint venture which proposes to produce seat systems for Tofas, a Fiat
Affiliate, and seat covers for certain of the Company's Italian subsidiaries.
As part of the Company's effort to procure business in the Asia-Pacific market,
the Company holds a 49% interest in Lear Seating Thailand Corporation. The
Company also participates in joint ventures with NHK Spring Co., Ltd. of Japan
and certain other foreign automotive component suppliers. In connection with
the purchase of Automotive Industries, the Company obtained a 40% interest in
Interiores Automotrices Summa, S.A. de C.V., a Mexican joint venture, and a 33%
interest in Guildford Kast Plastifol Ltd., a United Kingdom joint venture, both
of which produce interior trim parts for automobiles. During 1995, the Company
entered into three new joint venture agreements. The first joint venture
agreement was with an affiliate of Industria Espanola del Polieter, S.A.
("INESPO"), a Spanish corporation, to supply seat systems in Brazil for the
Volkswagen Gol. The Company also entered into a joint venture agreement with
Grupo R.B., the largest independent automotive supplier in Argentina, to supply
seat systems to Volkswagen in Argentina for the Gol and the Cordoba models and
with Trambusti, a Brazilian company, to supply seat systems to Fiat in Brazil
for the 178 World Car, the Tempra, and several light trucks.
COMPETITION
Lear is one of the two primary suppliers in the outsourced North American
seat systems market. The Company's main independent competitor is Johnson
Controls, Inc., and it competes, to a lesser extent, with Douglas & Lomason
Company and Magna International, Inc. The Company's major independent
competitors in Europe, besides Johnson Controls, Inc., are Bertrand Faure
(headquartered in France) and Keiper Recaro (headquartered in Germany). The
Company's primary independent competitors in the interior trim and blow molded
product industries include Davidson Interior Trim (a division of Textron), UT
Automotive (a subsidiary of United Technologies), Prince Corporation, The
Becker Group and a large number of smaller operations. The Company also
competes with the OEM's in-house seat system and automotive interior suppliers.
The Company competes on the basis of technical expertise, reliability, quality
and price. The Company believes its technical resources, product design
capabilities and customer responsiveness are the key factors that allow it to
compete successfully in the automotive interior market.
13
16
SEASONALITY
Lear's principal operations are directly related to the automotive
industry. Consequently the Company may experience seasonal fluctuation to the
extent automotive vehicle production slows, such as in the summer months when
plants close for model year changeovers and vacation. Historically, the
Company's sales and operating profit have been the strongest in the second and
fourth calendar quarters. Net sales for the year ended December 31, 1995 by
calendar quarter broke down as follows: first quarter, 22%; second quarter,
24%; third quarter, 23%; and fourth quarter, 31%. See Note 18, "Quarterly
Financial Data," of the notes to the consolidated financial statements included
in this Report.
EMPLOYEES
As of December 31, 1995, the Company employed approximately 16,100 persons
in the United States and Canada, 11,600 in Mexico, 7,900 in Europe. Of these,
about 5,300 are salaried employees and the balance are paid on an hourly basis.
Approximately 24,000 of the Company's employees are members of unions. The
Company has collective bargaining agreements with several unions including:
the UAW; the Canadian Auto Workers; the Textile Workers of Canada; the
Confederation of Mexican Workers; the International Brotherhood of Teamsters,
Chauffeurs, Warehousemen, and Helpers of America; the International Association
of Machinists and Aerospace Workers; and the AFL-CIO. Each of the Company's
facilities has a separate contract with the union which represents the workers
employed there, with each such contract having an expiration date independent
of the Company's other labor contracts. The Company has experienced some labor
disputes at its plants, none of which has significantly disrupted production or
had a materially adverse effect on its operations. The Company has been able
to resolve all such labor disputes and believes its relations with its
employees are generally good.
ENVIRONMENTAL
The Company is subject to various laws, regulations and ordinances which
govern activities such as discharges to the air and water, as well as handling
and disposal practices for solid and hazardous wastes and which impose costs
and damages associated with spills, disposal or other releases of hazardous
substances. The Company believes that it is in substantial compliance with
such requirements. Management does not believe that it will incur compliance
costs pursuant to such requirements that would have a material adverse effect
on the Company's consolidated financial position or future results of
operations. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company - Environmental Matters."
14
17
ITEM 2 PROPERTIES
The Company's operations are conducted through 107 facilities, including
89 manufacturing facilities, 15 product engineering centers and 3 research and
development centers, in 18 countries employing approximately 35,600 people
worldwide. The Company's management is headquartered in Southfield, Michigan.
Of the 107 facilities, 49 are seat manufacturing facilities, 9 are seat
component facilities, 31 are interior trim product facilities, and 18 are
engineering centers. The facilities range in size from 10,000 square feet to
500,000 square feet. Substantially all owned facilities secure borrowings
under the Company's various debt agreements.
The Company's facilities are located in appropriately designed buildings
which are kept in good repair with sufficient capacity to handle present
volumes. The Company has designed its seat system facilities to provide for
efficient JIT manufacturing of its products. No facility is materially
underutilized. Of the 107 facilities, 60 are owned and 47 are leased with
expiration dates ranging from 1996 through 2005. Management believes
substantially all of the Company's property and equipment is in good condition
and that it has sufficient capacity to meet its current and expected
manufacturing and distribution needs. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Company
Capital Expenditures."
The following table summarizes the locations of the Company's facilities:
Argentina Germany Poland United States (continued)
- --------- ------- ------ -------------------------
Buenos Aires Ebersberg Myslowice Greencastle, IN
Eisenach Tychy Hammond, IN
Australia Gustavsburg Huron, OH
- ---------
Adelaide Munich South Africa Janesville, WI
------------
Brooklyn Plattling Brits Lebanon, VA
Quakenbruck Lorain, OH
Austria Rietberg Spain Lordstown, OH
- ------- -----
Koflach Pamploma Louisville, KY
Hong Kong Luray, VA
---------
Brazil Wanchai Sweden Madisonville, KY
- ------ ------
Belo Horizante Bengtsfors Marlette, MI
Sao Paolo Indonesia Trollhattan Marshall, MI
---------
Jakarta Mendon, MI
Canada Thailand Mequon, MI
- ------ --------
Ajax Italy Bangkok Midland, MI
-----
Kitchener Bruino Morristown, TN
Maple Caivano Turkey Rochester Hills, MI
------
Oakville Frosinone Bursa Romulus, MI
St. Thomas Grugliasco Sheboygan, WI
Whitby Melfi United States Southfield, MI
-------------
Woodstock Novara Allen Park, MI Strasburg, VA
Orbassano Atlanta, GA Warren, MI
England Pozzilli Bowling Green, OH Warren, OH
- -------
Coventry Bridgeton, MO Wentzville, MO
Lancashire Mexico Clawson, MI Winchester, VA
------
Nottingham Cuautitlan Dearborn, MI
Tipton Hermosillo Detroit, MI
La Cuesta Duncan, SC
France Naucalpan El Paso, TX
- ------
Meaux Puebla Fair Haven, MI
Paris Ramos Arizpe Fenton, MI
Rio Bravo Flint, MI
Saltillo Frankfort, IN
San Lorenzo Fremont, OH
Tlahuac Grand Rapids, MI
15
18
ITEM 3 LEGAL PROCEEDINGS
The Company is involved in certain legal actions and claims arising in the
ordinary course of business. Management of the Company does not believe that
any of the litigation in which the Company is currently engaged, either
individually or in the aggregate, will have a material effect on the Company's
consolidated financial position or future results of operations.
The Company has been identified as a potentially responsible party ("PRP")
under the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended ("CERCLA" or "Superfund"), for the cleanup of contamination
from hazardous substances at three Superfund sites where liability has not been
determined. The Company has also been identified as a PRP at three additional
sites. Management believes that the Company is, or may be, responsible for
less than one percent, if any, of total costs at the three Superfund sites.
Expected liability, if any, at the three additional sites is not material. The
Company has set aside reserves which management believes are adequate to cover
any such liabilities. Management believes that such matters will not result in
liabilities that will have a material adverse effect on the Company's
consolidated financial position or future results of operations.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1995.
16
19
PART II
ITEM 5 - MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "LEA." The Transfer Agent and Registrar for the Company's Common
Stock is The Bank of New York, located in New York, New York. On March 1,
1996, there were 241 holders of record of the Company's Common Stock.
To date, the Company has never paid a cash dividend on its Common Stock.
Any payment of dividends in the future is dependent upon the financial
condition, capital requirements, earnings of the Company and other factors.
However, the Company currently intends to retain all future earnings, if any,
to fund the development and growth of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. Also, the
Company is subject to certain contractual restrictions on the payment of
dividends. See Note 10, "Long-Term Debt," of the notes to the consolidated
financial statements included in this Report for information concerning such
restrictions.
The following table sets forth the high and low sales prices per share of
Common Stock, as reported by the New York Stock Exchange, for the periods
indicated:
Price Range of
Year Ended December 31, 1995: Common Stock
- ----------------------------- --------------------------
High Low
------------ ------------
1st Quarter 20 7/8 16 5/8
2nd Quarter 24 1/4 17 7/8
3rd Quarter 31 1/8 23
4th Quarter 32 1/2 26 1/4
Price Range of
Year Ended December 31, 1994 Common Stock
- ---------------------------- --------------------------
High Low
------------ ------------
1st Quarter N/A N/A
2nd Quarter 20 1/4 16 1/4
3rd Quarter 19 5/8 16
4th Quarter 21 1/8 17
17
20
ITEM 6 SELECTED FINANCIAL DATA
The following income statement and balance sheet data were derived from
the consolidated financial statements of the Company. The consolidated
financial statements of the Company for the years ended December 31, 1995, 1994
and 1993, for the six months ended December 31, 1993 and for the years ended
June 30, 1993, 1992, and 1991 have been audited by Arthur Andersen LLP. In
February 1994, the Company changed its fiscal year end from June 30 to December
31 effective December 31, 1993. The selected financial data below should be
read in conjunction with the consolidated financial statements of the Company
and the notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company" included in this Report.
YEAR YEAR YEAR SIX MONTHS YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
1995 (1) 1994 (1) 1993 (1) 1993 (1) 1993 1992 1991
------------ ------------ ------------ ------------ --------- ---------- ----------
(DOLLARS IN MILLIONS)(2)
OPERATING DATA:
Net sales $4,714.4 $3,147.5 $1,950.3 $1,005.2 $1,756.5 $1,422.7 $1,085.3
Gross profit 403.1 263.6 170.2 72.2 152.5 115.6 101.4
Selling, general and administrative
expenses 139.0 82.6 62.7 27.7 61.9 50.1 41.6
Incentive stock and other
compensation expense (3) -- -- 18.0 18.0 -- -- 1.3
Amortization 19.3 11.4 9.9 4.7 9.5 8.7 13.8
------------ ------------ ------------ ------------ ---------- ---------- ----------
Operating income 244.8 169.6 79.6 21.8 81.1 56.8 44.7
Interest expense, net 75.5 46.7 45.6 24.8 47.8 55.2 61.7
Other expense, net (4) 12.0 8.1 9.2 6.6 5.4 5.8 2.2
------------ ------------ ------------ ------------ ---------- ---------- ----------
Income (loss) before income taxes
and extraordinary items 157.3 114.8 24.8 (9.6) 27.9 (4.2) (19.2)
Income taxes 63.1 55.0 26.9 13.4 17.8 12.9 14.0
------------ ------------ ------------ ------------ ---------- ---------- ----------
Income (loss) before
extraordinary items 94.2 59.8 (2.1) (23.0) 10.1 (17.1) (33.2)
Extraordinary items (5) 2.6 -- 11.7 11.7 -- 5.1 --
------------ ------------ ------------ ------------ ---------- ---------- ----------
Net income (loss) $91.6 $59.8 $ (13.8) $ (34.7) $10.1 $ (22.2) $ (33.2)
============ ============ ============ ============ ========== ========== ==========
Income (loss) per share before
extraordinary items $1.79 $1.26 $ (.06) $ (.65) $.25 $ (.62) $ (2.01)
Net income (loss) per share $1.74 $1.26 $ (.39) $ (.98) $.25 $ (.80) $ (2.01)
Weighted average shares
outstanding (6) 52,642,672 47,560,436 35,500,014 35,500,014 40,049,064 27,768,312 16,493,499
BALANCE SHEET DATA:
Current assets $1,207.2 $818.3 $433.6 $325.2 $282.9 $213.8
Total assets 3,061.3 1,715.1 1,114.3 820.2 799.9 729.7
Current liabilities 1,276.0 981.2 505.8 375.0 344.2 287.1
Long-term debt 1,038.0 418.7 498.3 321.1 348.3 386.7
Common stock subject to limited
redemption rights, net -- -- 12.4 3.9 3.5 1.8
Stockholders' equity 580.0 213.6 43.2 75.1 49.4 4.4
OTHER DATA:
EBITDA (7) $336.8 $225.7 $122.2 $121.8 $91.8 $81.4
Capital expenditures $110.7 $103.1 $45.9 $31.6 $27.9 $20.9
Number of facilities (8) 107 79 61 48 45 40
North American Content per
Vehicle (9) $227 $169 $112 $98 $94 $84
North American vehicle production
(in millions) (10) 14.9 15.2 13.7 13.6 12.2 11.2
(1) On July 1, 1993, the Company adopted SFAS 106 (as defined herein). As a
result, the year and six months ended December 31, 1993 represents the
first periods during which the Company began to incur additional expense
associated with the adoption of SFAS 106. The additional expense for each
of these periods was $3.3 million. The additional expense in 1995 and
1994 was $6.4 million and $7.3 million, respectively.
(2) Except per share data and North American Content per Vehicle.
(3) Includes a one-time charge of $18.0 million, of which $14.5 million is
non-cash, for the year and six months ended December 31, 1993 for
incentive stock and other compensation expense (see Note 15 "Stock Options
and Warrants" in the consolidated financial statements included elsewhere
in this Report).
(4) Consists of foreign currency exchange gain or loss, minority interest in
net income (loss) of subsidiaries, equity (income) loss of affiliates,
state and local taxes and other expense.
(5) The extraordinary items resulted from the prepayment of debt.
(6) Weighted average shares outstanding is calculated on a fully-diluted
basis.
(7) "EBITDA" is operating income plus depreciation and amortization. EBITDA
does not represent and should not be considered as an alternative to net
income or cash flows from operations as determined by generally accepted
accounting principles.
(8) Includes facilities operated by the Company's less than majority-owned
affiliates and facilities under construction.
(9) "North American Content per Vehicle" is the Company's net sales in North
America divided by total North American vehicle production.
(10) "North American vehicle production" includes car and light truck
production in the United States, Canada and Mexico estimated from industry
sources.
18
21
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Year Ended December 31, 1995 Compared With Year Ended December 31, 1994.
Net sales of $4,714.4 million in the year ended December 31, 1995
represents the Company's fourteenth consecutive year of record sales and
increased by $1,566.9 million or 49.8% over net sales for the year ended
December 31, 1994. Net sales in the current year benefited from the
acquisitions of Automotive Industries Holding, Inc. (AI) on August 17, 1995 and
the Fiat Seat Business (FSB) on December 15, 1994 which together accounted for
$795.3 million of the increase. Further contributing to the growth in sales
were incremental volumes on new seating programs in North America and increased
production in Europe.
Gross profit (net sales less cost of sales) and gross margin (gross profit
as a percentage of net sales) were $403.1 million and 8.6% in 1995 as compared
to $263.6 million and 8.4% in 1994. Gross profit in the current year benefited
from the overall increase in North American and European sales activity,
including the acquisitions of AI and FSB, and production of certain new seat
programs in the United States and Mexico. Partially offsetting the increase in
gross profit were new program start-up expenses of $32.1 million versus $23.1
million in the prior year, and costs associated with new business opportunities
in the Pacific Rim, South America and South Africa.
Selling, general and administrative expenses, including research and
development, as a percentage of net sales increased to 2.9% in 1995 as compared
to 2.6% in the previous year. Actual expenditures in 1995 increased in
comparison to prior year primarily due to the inclusion of AI and FSB
engineering and administrative expenses in 1995. In addition, research and
development costs increased at the United States and European customer focused
technical centers in support of existing and potential business opportunities.
Operating income and operating margin (operating income as a percentage of
net sales) were $244.8 million and 5.2% in the year ended December 31, 1995 as
compared to $169.6 million and 5.4% in the year ended December 31, 1994. The
increase in operating income was primarily due to increased volumes on new and
existing light truck seating programs, improved performance at the Company's
European operations and the incremental operating income derived from
acquisitions. Partially offsetting the increase in operating income and
contributing to the decline in operating margins were design and development
costs associated with the expansion of business and program start-up expenses
for new seat programs to be introduced worldwide within the next twelve months.
Also contributing to the decline in operating margin were the increased sales
in Europe caused by the FSB which had lower margins. Non-cash depreciation and
amortization charges were $92.0 million and $56.1 million for the years ended
December 31, 1995 and 1994, respectively.
Interest expense in the year ended December 31, 1995 increased in
comparison to prior year as a result of interest incurred on additional debt
utilized to finance the AI and FSB acquisitions as well as higher interest
rates in 1995 under the Company's credit facility.
Other expenses in 1995 increased in comparison to prior year as foreign
exchange losses incurred at the Company's North American and European
operations, along with increased state and local taxes associated with the AI
acquisition, more than offset income derived from joint ventures accounted for
under the equity method.
Net income for the year ended December 31, 1995 was $91.6 million, or
$1.74 per share, as compared to $59.8 million, or $1.26 per share in the year
ended December 31, 1994. The provision for income taxes in fiscal 1995 was
$63.1 million, or an effective tax rate of 40.1%, versus $55.0 million and
47.9% for the previous year. The decrease in rate is largely the result of
changes in operating performance and related income levels among the various
tax jurisdictions. Earnings per share increased in 1995 by 38.1% despite an
increase in the number of shares outstanding and an extraordinary loss of $2.6
million ($.05 per share) for the early retirement of debt.
19
22
The following chart shows operating results of the Company by principal
geographic area:
GEOGRAPHIC OPERATING RESULTS
YEAR ENDED
-------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------- ------------- -------------
(in millions)
NET SALES:
United States and Canada $3,108.0 $2,378.7 $1,357.0
Europe 1,325.4 572.5 403.8
Mexico and other 281.0 196.3 189.5
------------- ------------- -------------
Net Sales $4,714.4 $3,147.5 $1,950.3
============= ============= =============
OPERATING INCOME:
United States and Canada $204.8 $155.6 $86.9
Europe 26.5 4.4 (9.6)
Mexico and other 13.5 9.6 20.3
Unallocated - - (18.0)
------------- ------------- -------------
Operating Income $244.8 $169.6 $79.6
============= ============= =============
United States and Canadian Operations
Net sales in the United States and Canada were $3,108.0 million and
$2,378.7 million in the years ended December 31, 1995 and 1994, respectively.
Sales in 1995 benefited from new Ford and General Motors passenger car
programs, the contribution of $248.1 million in sales from the AI acquisition
and incremental volume on light truck seating for previously existing programs.
Operating income and operating margin were $204.8 million and 6.6% in 1995
as compared to $155.6 million and 6.5% in 1994. Operating income in 1995
increased primarily due to increased volumes at certain of the Company's car
and light-truck seating facilities, the benefits derived from the AI
acquisition and increased productivity and cost reduction programs at existing
seat and seat component facilities. Partially offsetting this increase in
operating margin were engineering and administrative support expenses along
with preproduction costs at new business operations.
European Operations
Net sales in Europe were $1,325.4 million in the year ended December 31,
1995 and $572.5 million in the year ended December 31, 1994. Sales in the
current year benefited from $547.2 million in sales from the FSB and AI
acquisitions, incremental volume on existing programs in Sweden and England and
favorable exchange rate fluctuations in Germany and Sweden.
Operating income and operating margin were $26.5 million and 2.0% in 1995
as compared to $4.4 million and 0.8% in 1994. Operating income in 1995
benefited from incremental volume on mature Scandinavian and German seat
programs and the benefits derived from the FSB and AI acquisitions. Partially
offsetting the increase in operating income were engineering, preproduction and
facility costs associated with the start-up of a new seat program in Germany.
20
23
Mexico and other Operations
Net sales of $281.0 million in 1995 in the Company's remaining geographic
regions, consisting of Mexico, Pacific Rim, South Africa and South America
increased by $84.7 million or 43.1% as compared to $196.3 million in the
comparable period in the prior year. Sales in the year ended December 31, 1995
benefited from the overall growth in Mexican sales activity, including the
production of new General Motors and Ford passenger car and truck seat
programs. Further contributing to the increase in sales was the addition of
new business operations in Australia, South Africa, Brazil and Argentina.
Operating income and operating margin were $13.5 million and 4.8% in the
year ended December 31, 1995 and $9.6 million and 4.9% in the previous year.
The increase in operating income was largely the result of the benefits derived
from increased market demand for new and ongoing seat programs in Mexico.
Partially offsetting the increase in operating income were engineering and
preproduction costs for recently opened manufacturing facilities in the Pacific
Rim, South Africa and South America.
Year Ended December 31, 1994 Compared With Year Ended December 31, 1993
Net sales of $3,147.5 million in the year ended December 31, 1994
represented the thirteenth consecutive year of record sales and surpassed sales
of $1,950.3 million in the year ended December 31, 1993 by $1,197.2 million or
61.4%. Sales in 1994 benefited from internal growth from new programs and
increased seat content per vehicle, higher automotive production in the United
Sates and Europe and the acquisition of the North American seat and seat cover
business (NAB) from Ford Motor Company on November 1, 1993 which accounted for
$421 million of the increase.
Gross profit and gross margin were $263.6 million and 8.4% in the year
ended December 31, 1994 as compared to $170.2 million and 8.7% in the year
ended December 31, 1993. Gross profit in fiscal 1994 surpassed prior year due
to the benefit of higher sales volume including the effect of the NAB
acquisition and the Company's cost reduction programs. Partially offsetting
the increase in gross profit was $23.1 million of expense for engineering and
preproduction costs for new facilities in the United States, Canada and Europe,
lower margin contribution in Mexico and the $3.9 million increase in
post-retirement health care expenses (SFAS 106).
Selling, general and administrative expenses as a percentage of net sales
declined to 2.6% for the year ended December 31, 1994 as compared to 3.2% in
the prior year. The increase in actual expenditures was largely the result of
administration support expenses and research and development costs associated
with the expansion of domestic and foreign business and expenses related to new
business opportunities.
Operating income and operating margin were $169.6 million and 5.4% in the
year ended December 31, 1994 and $79.6 million and 4.1% in the year ended
December 31, 1993. The 113% increase in operating income was attributable to
the benefits of higher sales volume, including the effect of the NAB
acquisition, non-recurring incentive stock and other compensation expense of
$18 million in 1993 and the Company's cost reduction programs. Partially
offsetting the increase in operating income were new facility and engineering
costs for future seat programs, reduced margins in Mexico and SFAS 106.
Non-cash depreciation and amortization charges were $56.1 million and $42.6
million for the years ended December 31, 1994 and 1993, respectively.
Other expense for the year ended December 31, 1994, including state and
local taxes, foreign exchange gains and losses, minority interests and equity
in income of affiliates, decreased in comparison to the prior year as the
non-recurring write-off of equipment associated with a discontinued program in
Germany and non-seating related assets in the United States, along with a
foreign exchange gain, offset state and local tax expense associated with the
NAB acquisition.
Interest expense in 1994 increased in relation to the year ended December
31, 1993 as additional debt incurred to finance the NAB acquisition and higher
short-term interest expense in Europe offset the benefits derived from the
refinancing of subordinated debt at a lower interest rate and the Company's
equity offering in April, 1994.
Net income for the year ended December 31, 1994 was $59.8 million, or $1.26
per share, as compared to a net loss of $13.8 million, or $.39 per share,
realized in the year ended December 31, 1993. The net income of $59.8 million
in 1994 reflects a $55.0 million provision for national income taxes of which
$26.0 million relates to foreign operations. Further contributing to the
improvement in 1994 net income was the extraordinary expense in 1993 of $11.7
million for the early extinguishment of debt.
21
24
United States and Canadian Operations
Net sales in the United States and Canada increased by 75.3% from $1,357.0
million in the year ended December 31, 1993 to $2,378.7 million for the year
ended December 31, 1994. Sales for the year ended December 31, 1994 benefited
from the full year contribution of the NAB acquisition, vehicle production
increases on mature seating programs, incremental volume on new Chrysler truck,
Ford truck and Ford passenger car programs and sales generated by a lead vendor
program under which the Company assumed management of components for a seat
program with Ford.
Operating income and operating margin were $155.6 million and 6.5% in the
year ended December 31, 1994 and $86.9 million and 6.4% in the year ended
December 31, 1993. Operating income and operating margin in 1994 as compared
to the prior year benefited from the NAB acquisition, the overall increase in
vehicle production and cost reduction programs which offset new program costs
for new facilities, administrative expenses associated with the expansion of
business and increased research and development expenses.
European Operations
Net sales in Europe increased by 41.8% to $572.5 million for the year
ended December 31, 1994 compared to $403.8 million for 1993. The sales
increase was due primarily to the addition of new seat programs in Germany and
England and vehicle production increases on established programs in Germany,
Sweden and Austria.
Operating income in Europe was $4.4 million in the year ended December 31,
1994 as compared to an operating loss of $9.6 million sustained in the year
ended December 31, 1993. Operating income in 1994 as compared to the prior
year benefited from higher sales levels and cost reduction programs at existing
seat and seat component facilities. Partially offsetting the increase in
operating income were incremental costs associated with the start-up of a new
seat facility in England and the introduction of a replacement component
program within an established facility in Germany.
Mexican and Other Operations
Net sales in Mexico and other regions were $196.3 million in the year
ended December 31, 1994 and $189.5 million in the year ended December 31,
1993. Sales for the year ended December 31, 1994 surpassed the comparable
period in the prior year due to new Chrysler truck and Ford passenger car seat
programs and incremental volume on mature Ford programs. Partially offsetting
the increase in net sales was the product phase-out of a mature truck program
and participation in customer cost reduction programs.
Operating income and operating margin were $9.6 million and 4.9% in the
year ended December 31, 1994 and $20.3 million and 10.7% in the prior year.
Operating income and operating margin in 1994 declined in relation to the prior
year as a result of the Company's participation in customer cost reduction
programs in Mexico and costs associated with the introduction of replacement
products at new and established facilities.
LIQUIDITY AND FINANCIAL CONDITION
On August 17, 1995, the Company entered into a $1.5 billion secured
revolving credit agreement with a syndicate of financial institutions (the
"Credit Agreement"). Borrowings under the Credit Agreement were used to
finance a portion of the AI acquisition, to refinance certain existing
indebtedness of AI, to refinance the Company's prior $500 million credit
agreement (the "Prior Credit Facility") and for general corporate purposes. As
of December 31, 1995, the Company had $771.5 million outstanding under the
Credit Agreement ($54.4 million of which was outstanding under letters of
credit), resulting in $728.5 million unused and available. In addition the
Company had $60.8 million of long term debt outstanding with various
governmental authorities, banks and other financial institutions as well as
$270.0 million of subordinated debt. As of December 31, 1995, the Company had
$34.1 million in net cash and cash equivalents.
22
25
Amounts available under the Credit Agreement will be reduced by an
aggregate amount of $650.0 million prior to maturity on September 30, 2001.
The Company's scheduled principal payments on long-term debt are $9.9, $10.5,
$6.6, $5.5 and $128.2 million in 1996, 1997, 1998, 1999 and 2000 respectively.
Net cash provided by operating activities was $134.6 million during 1995
compared to $155.7 million in 1994. Net income excluding a non-cash
extraordinary loss of $2.6 million (the write-off of deferred finance fees
associated with the prior credit facility) increased 58%, from $59.8 million in
1994 to $94.2 million in 1995, as a result of increased activity resulting from
the acquisitions of AI and FSB, new business awarded, cost reduction programs
and increased production levels on existing programs. Total working capital
declined from a source of $30.4 million in 1994 to a use of $57.4 million in
1995. The use of working capital was the result of increases in receivable and
inventory levels consistent with the 33% increase in net sales (25% excluding
AI and FSB sales), timing of the AI acquisition, and factored European
receivables in 1994, offset by the associated increase in accounts payable, and
accrued liabilities. This working capital use was further offset by a $42.2
million increase in cash overdrafts (outstanding checks).
Net cash used by investing activities was $987.6 million and $195.6
million for years ended December 31, 1995 and 1994, respectively. As discussed
in Notes 5 and 6 of the Notes to Consolidated Financial Statements, the Company
acquired AI for $883.1 million cash plus assumed liabilities in August, 1995
and the FSB in December, 1994 for $88.0 million cash plus assumed liabilities.
Capital expenditures increased from $103.1 million in 1994 to $110.7 million to
support the new programs under production in 1995.
The Company's total debt as a percentage of total capitalization decreased
to 64.7% at December 31, 1995 from 70.3% at December 31, 1994. On September
25, 1995, the Company received net proceeds of $281.5 million from the issuance
of 10.0 million shares of common stock at $29.25 per share. On April 13,
1994, the Company received net proceeds of $103.7 million from the initial
public offering of 7,187,500 shares of its common stock at $15.50. The
proceeds of both public stock offerings were used to reduce the amount
outstanding under the Company's senior credit facility. The AI acquisition in
August, 1995 and FSB Acquisition in December, 1994 were both financed with
borrowings under the senior credit facility and in the case of FSB with $66.7
million of short-term debt. As a result, net cash provided by financing
activities increased to $841.9 million in 1995 from $17.6 million in 1994.
In February, 1994, the Company took advantage of the favorable interest
rate environment by refinancing $135.0 million in aggregate principal amount of
its 14% Subordinated Debentures due 2000 by issuing $145.0 million aggregate
principal amount of 8 1/4% Subordinated Notes due 2002. The additional
proceeds were used to pay a 5.4% call premium and a portion of the accrued
interest due on the redemption of the 14% Subordinated Debentures. In
addition, the Company has $125.0 million of Senior Subordinated Notes, due
2000, outstanding.
In the fourth quarter of 1995, Moody's Investors Services upgraded its
rating of the Company's $125.0 million 11 1/4% Senior Subordinated Notes from
B2 to B1 and affirmed its B2 rating of the $145.0 million 8 1/4% Subordinated
Notes. Standard and Poor's affirmed its B rating for both subordinated debt
issues.
During the years ended December 31, 1994 and 1995, cash generated from
operations and funds available under the Credit Agreement were sufficient to
meet the company's debt service and capital expenditure requirements. The
Company believes that cash flows from operations and funds available under
existing credit facilities (principally the Credit Agreement) will be
sufficient to meet its future debt service obligations, projected capital
expenditures and working capital requirements, as well as to provide the
flexibility to fund future acquisitions.
CAPITAL EXPENDITURES
During the year ending December 31, 1995, capital expenditures aggregated
approximately $110.7 million, of which approximately $43.9 million related to
the addition of new facilities and other expenditures for new programs, with
the remainder spent for increased capacity at existing facilities and ongoing
maintenance requirements. For the years ended December 31, 1994 and 1993,
capital expenditures of the Company were $103.1 million and $45.9 million,
respectively. For 1996, the Company anticipates capital expenditures of
approximately $160 million.
23
26
ENVIRONMENTAL MATTERS
The Company is subject to local, state, federal and foreign laws,
regulations and ordinances (i) which govern activities or operations that may
have adverse environmental effects and (ii) that impose liability for the costs
of cleaning up certain damages resulting from sites of past spills, disposal or
other releases of hazardous substances. The Company currently is engaged in the
cleanup of hazardous substances at certain sites owned, leased or operated by
the Company, including soil and groundwater cleanup at its facility in Mendon,
Michigan. Management believes that the Company will not incur compliance costs
or cleanup cost at its facilities with known contamination that would have a
material adverse effect on the Company's consolidated financial position or
future results of operations.
The Company has been identified as a potentially responsible party ("PRP")
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA" or "Superfund"), for the cleanup of contamination
from hazardous substances at three Superfund sites where liability has not been
completely determined. The Company has also been identified as a PRP at three
additional sites. Management believes that the Company is, or may be,
responsible for less than one percent, if any, of the total costs at the three
Superfund sites. Expected liability, if any, at the three additional sites is
not material.
INFLATION AND ACCOUNTING POLICIES
Lear's contracts with its major customers generally provide for an annual
productivity price reduction and provide for the recovery of increases in
material and labor costs in some contracts. Cost reduction through design
changes, increased productivity and similar programs with the Company's
suppliers generally have offset changes in selling prices. The Company's cost
structure is comprised of a high percentage of variable costs. The Company
believes that this structure provides it with additional flexibility during
economic cycles.
During 1995, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Recognition of Impairment
of Long-lived Assets", which specifies when and how impairment of virtually all
long-lived assets should be measured and recorded. In general, the statement
requires that whenever circumstances raise doubt about the recoverability of
long-lived assets, the Company should analyze the future cash flows expected
from such assets to determine if impairment exists. This statement will be
adopted prospectively on January 1, 1996, and the Company does not expect the
effects of adoption to be significant.
Also during 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which must be adopted by the Company in 1996 and requires that
stock compensation, including compensation in the form of stock options, be
calculated using a measure of fair value, compared with intrinsic value
required under current accounting principles. The new method may be either
reflected in the financial statements or disclosed in the notes to the
statements. The Company expects to adopt the statement by disclosing the
effects of the fair value method in the notes to its 1996 financial statements.
24
27
ITEM 8 CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants 26
Consolidated Balance Sheets as of December 31, 1995 and 1994 27
Consolidated Statements of Operations for the years ended December 31,
1995, 1994 and 1993. 28
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993 29
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993. 30
Notes to Consolidated Financial Statements 31
25
28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lear Seating Corporation:
We have audited the accompanying consolidated balance sheets of LEAR
SEATING CORPORATION AND SUBSIDIARIES ("the Company") as of December 31, 1995
and 1994 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1995 and 1994 and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note 13 to the consolidated financial statements, as of
July 1, 1993, the Company changed its method of accounting for post-retirement
benefits other than pensions.
/s/ ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 6, 1996.
26
29
CONSOLIDATED BALANCE SHEETS
LEAR SEATING CORPORATION AND SUBSIDIARIES
December 31,
1995 1994
- -------------------------------------------------------------------------------------------------------------
(In millions, except share data)
ASSETS
Current Assets:
Cash and cash equivalents $34.1 $32.0
Accounts receivable, net of reserves of $4.0 in 1995 and $3.1 in 1994 831.9 579.8
Inventories 196.2 126.6
Recoverable customer engineering and tooling 91.9 53.5
Other 53.1 26.4
- -------------------------------------------------------------------------------------------------------------
Total current assets 1,207.2 818.3
- -------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 642.8 354.2
Goodwill, net 1,098.4 499.5
Other 112.9 43.1
- -------------------------------------------------------------------------------------------------------------
$3,061.3 $1,715.1
- -------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $16.9 $84.1
Cash overdrafts 70.4 27.6
Accounts payable 786.6 656.7
Accrued liabilities 392.2 210.9
Current portion of long-term debt 9.9 1.9
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 1,276.0 981.2
- -------------------------------------------------------------------------------------------------------------
Long-Term Liabilities:
Deferred national income taxes 37.3 25.3
Long-term debt 1,038.0 418.7
Other 130.0 76.3
- -------------------------------------------------------------------------------------------------------------
Total long-term liabilities 1,205.3 520.3
- -------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Common Stock, par value $.01 per share, 150,000,000 shares authorized,
56,253,541 and 46,088,278 shares issued in 1995 and 1994, respectively .6 .5
Additional paid-in capital 559.1 274.3
Notes receivable from sale of common stock (.9) (1.0)
Common stock held in treasury, 10,230 shares at cost (.1) (.1)
Retained earnings (deficit) 42.2 (49.4)
Minimum pension liability (3.5) (5.8)
Cumulative translation adjustment (17.4) (4.9)
- -------------------------------------------------------------------------------------------------------------
Total stockholders' equity 580.0 213.6
- -------------------------------------------------------------------------------------------------------------
$3,061.3 $1,715.1
- -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
27
30
CONSOLIDATED STATEMENTS OF OPERATIONS
LEAR SEATING CORPORATION AND SUBSIDIARIES
For the year ended December 31,
1995 1994 1993
--------- ---------- ---------
(In millions, except per share amounts)
Net sales $4,714.4 $3,147.5 $1,950.3
Cost of sales 4,311.3 2,883.9 1,780.1
Selling, general and administrative expenses 139.0 82.6 62.7
Incentive stock and other compensation expense - - 18.0
Amortization of goodwill 19.3 11.4 9.9
--------- ---------- ----------
Operating income 244.8 169.6 79.6
Interest expense 75.5 46.7 45.6
Foreign currency exchange (gain) loss 8.6 (.3) .1
Other expense, net 7.8 8.6 7.8
--------- ---------- ----------
Income before provision for national income taxes,
minority interests in net income (loss) of subsidiaries
equity (income) loss of affiliates and extraordinary item 152.9 114.6 26.1
Provision for national income taxes 63.1 55.0 26.9
Minority interests in net income (loss) of subsidiaries (1.7) .5 .3
Equity (income) loss of affiliates (2.7) (.7) 1.0
--------- ---------- ----------
Income (loss) before extraordinary item 94.2 59.8 (2.1)
Extraordinary loss on early extinguishment of debt 2.6 - 11.7
--------- ---------- ----------
Net income (loss) $91.6 $59.8 $(13.8)
========= ========== ==========
Net income (loss) per common share, as adjusted (Note 1);
Income (loss) before extraordinary item $1.79 $1.26 $(.06)
Extraordinary loss (.05) - (.33)
--------- ---------- ----------
Net income (loss) per common share $1.74 $1.26 $(.39)
========= ========== ==========
The accompanying notes are an integral part of these statements.
28
31
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
LEAR SEATING CORPORATION AND SUBSIDIARIES
For the year ended December 31,
---------------------------------------
1995 1994 1993
----------- ------------- -----------
(In millions)
COMMON Balance at beginning of period $ .5 $ .4 $ -
STOCK Thirty-three-for-one stock split - - .4
Sale of common stock (Note 3) .1 .1 -
----------- ------------- -----------
Balance at end of period $ .6 $ .5 $ .4
=========== ============= ===========
ADDITIONAL Balance at beginning of period $ 274.3 $ 156.5 $ 151.0
PAID-IN Thirty-three-for-one stock split - - (.4)
CAPITAL Restate common stock subject to redemption
to maximum redemption value - - (8.6)
Elimination of common stock subject to redemption - 13.5 -
Incentive stock option compensation - - 14.5
Sale of common stock (Note 3) 281.4 103.5 -
Sale of treasury stock (11,220 shares) - .1 -
Stock options exercised .2 .2 -
Tax benefit of stock options exercised 1.3 .5 -
Conversion of AI stock options 1.9 - -
----------- ------------- -----------
Balance at end of period $ 559.1 $ 274.3 $ 156.5
=========== ============= ===========
COMMON Balance at beginning of period $ - $ 10.0 $ 10.0
STOCK Exercise of warrants - (10.0) -
WARRANTS ----------- ------------- -----------
Balance at end of period $ - $ - $ 10.0
=========== ============= ===========
TREASURY Balance at beginning of period $ (.1) $ (10.0) $ (10.0)
STOCK Purchase of treasury stock (21,450 shares) - (.1) -
Exercise of warrants - 10.0 -
----------- ------------- -----------
Balance at end of period $ (.1) $ (.1) $ (10.0)
=========== ============= ===========
NOTE RECEIVABLE Balance at beginning of period $ (1.0) $ - $ -
FROM SALE OF Elimination of common stock subject to redemption - (1.1) -
STOCK Repayment of stockholders' note receivable .1 .1 -
----------- ------------- -----------
Balance at end of period $ (.9) $ (1.0) $ -
=========== ============= ===========
RETAINED Balance at beginning of period $ (49.4) $ (109.2) $ (95.4)
EARNINGS Net income (loss) 91.6 59.8 (13.8)
(DEFICIT) ----------- ------------- -----------
Balance at end of period $ 42.2 $ (49.4) $ (109.2)
=========== ============= ===========
MINIMUM Balance at beginning of period $ (5.8) $ (4.2) $ (2.8)
PENSION Minimum pension liability adjustment 2.3 (1.6) (1.4)
LIABILITY ----------- ------------- -----------
Balance at end of period $ (3.5) $ (5.8) $ (4.2)
=========== ============= ===========
CUMULATIVE Balance at beginning of period $ (4.9) $ (.3) $ .7
TRANSLATION Cumulative translation adjustment (12.5) (4.6) (1.0)
ADJUSTMENT ----------- ------------- -----------
Balance at end of period $ (17.4) $ (4.9) $ (.3)
=========== ============= ===========
TOTAL STOCKHOLDERS' EQUITY $ 580.0 $ 213.6 $ 43.2
=========== ============= ===========
The accompanying notes are an integral part of these statements.
29
32
CONSOLIDATED STATEMENTS OF CASH FLOWS
LEAR SEATING CORPORATION AND SUBSIDIARIES
For the year ended December 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 91.6 $ 59.8 $ (13.8)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities-
Depreciation and amortization of goodwill 92.0 56.1 42.6
Incentive stock option compensation - - 14.5
Amortization of deferred financing fees 2.7 2.4 2.6
Deferred national income taxes (1.7) (.3) (12.3)
Post-retirement benefits accrued 6.4 7.3 3.3
Loss on retirement of property, plant and equipment - - 6.8
Extraordinary loss 2.6 - 11.7
Other, net (1.6) - (.5)
Net change in working capital items (57.4) 30.4 58.4
----------- ----------- -----------
Net cash provided by operating activities 134.6 155.7 113.3
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (110.7) (103.1) (45.9)
Acquisitions (Notes 5, 6 and 7) (883.1) (88.0) (172.1)
Proceeds from sale of property, plant and equipment .3 .5 1.0
Other, net 5.9 (5.0) 2.2
----------- ----------- -----------
Net cash used in investing activities (987.6) (195.6) (214.8)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term revolving credit borrowings, net (Note 10) 595.2 (108.8) 225.5
Additions to other long-term debt 8.0 164.0 -
Reductions in other long-term debt (3.5) (137.4) (103.6)
Short-term borrowings, net (72.2) (10.7) 12.8
Proceeds from sale of common stock, net 281.5 103.7 -
Deferred financing fees (9.6) (.7) (10.5)
Increase in cash overdrafts 42.2 7.5 3.3
Other, net .3 - -
----------- ----------- -----------
Net cash provided by financing activities 841.9 17.6 127.5
----------- ----------- -----------
Effect of foreign currency translation 13.2 (.7) (2.5)
----------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 2.1 (23.0) 23.5
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 32.0 55.0 31.5
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 34.1 $ 32.0 $ 55.0
=========== =========== ===========
CHANGES IN WORKING CAPITAL, NET OF EFFECTS OF ACQUISITIONS:
Accounts receivable, net $ (156.4) $ (120.4) $ (83.5)
Inventories (27.4) (31.5) 2.9
Accounts payable 42.6 183.3 94.0
Accrued liabilities and other 83.8 (1.0) 45.0
----------- ----------- -----------
$ (57.4) $ 30.4 $ 58.4
=========== =========== ===========
SUPPLEMENTARY DISCLOSURE:
Cash paid for interest $ 72.9 $ 35.5 $ 42.1
=========== =========== ===========
Cash paid for income taxes $ 85.7 $ 44.1 $ 15.7
=========== =========== ===========
The accompanying notes are an integral part of these statements.
30
33
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
Lear Seating Corporation, a Delaware corporation ("Lear"), and its
wholly-owned and majority-owned subsidiaries (collectively "the
Company"). Investments in less than majority-owned businesses are
generally accounted for under the equity method (Note 8).
The Company and its affiliates are involved in the design and
manufacture of interior components for automobiles. The Company's
main customers are automotive original equipment manufacturers.
The Company operates facilities worldwide (Note 17).
Prior to December 31, 1993, Lear was a wholly-owned subsidiary
of Lear Holdings Corporation ("Holdings"). On December 31, 1993,
Holdings was merged with and into Lear and the separate corporate
existence of Holdings ceased (the "Merger"). The Merger has been
accounted for and reflected in the accompanying consolidated
financial statements as a merger of companies under common control.
As such, the consolidated financial statements of the Company have
been restated as if the post-Merger structure had existed for all
periods presented.
Effective December 31, 1993, the Company changed its fiscal year-end
from June 30 to December 31. Certain foreign subsidiaries are
consolidated as of November 30.
Certain merchant banking partnerships affiliated with Lehman Brothers
Holdings, Inc. ("the Lehman Funds"), are the largest shareholders
of the Company. The Lehman Funds held approximately 29% of the
outstanding common stock of the Company as of December 31, 1995.
A 33-for-1 split of the Company's common stock was effective
as of the Company's initial public offering ("IPO") date (Note 3).
All references to the numbers of shares of common stock, stock
options, warrants and income (loss) per share in the accompanying
consolidated financial statements and notes thereto have been
adjusted to give effect to the split.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Significant transactions and balances among the Company and its
subsidiaries have been eliminated in the consolidated financial
statements.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined principally using the first-in, first-out method.
Finished goods and work-in-process inventories include material,
labor and manufacturing overhead costs.
Inventories are comprised of the following (in millions):
December 31,
----------------
1995 1994
-------- ------
Raw materials $139.4 $93.4
Work-in-process 18.0 13.9
Finished goods 38.8 19.3
------- --------
$196.2 $126.6
======= ========
31
34
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Recoverable Customer Engineering and Tooling
Costs incurred by the Company for certain engineering and
tooling projects for which customer reimbursement is anticipated
are capitalized and classified as either recoverable customer
engineering and tooling or other long-term assets dependent upon
when reimbursement is anticipated. Provisions for losses are
provided at the time the Company anticipates engineering and
tooling costs to exceed anticipated customer reimbursement.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciable
property is depreciated over the estimated useful lives of the
assets, using principally the straight-line method as follows:
Buildings and improvements 20 to 25 years
Machinery and equipment 5 to 15 years
A summary of property, plant and equipment is shown below (in millions):
December 31,
-----------------
1995 1994
------- -------
Land $45.5 $36.6
Buildings and improvements 254.3 141.1
Machinery and equipment 532.2 310.6
Construction in progress 28.4 16.2
------- -------
Total property, plant and equipment 860.4 504.5
Less accumulated depreciation (217.6) (150.3)
------- -------
Net property, plant and equipment $642.8 $354.2
======= =======
Goodwill
Goodwill consists of the excess of the purchase price and related
acquisition costs over the fair value of identifiable net assets
acquired. Goodwill is amortized on a straight-line basis over 40
years. The Company evaluates the carrying value of goodwill for
potential impairment on an ongoing basis. Such evaluations
compare operating income before amortization of goodwill of the
operations to which goodwill relates to the amortization
recorded. The Company also considers future anticipated
operating results, trends and other circumstances in making such
evaluations. Accumulated amortization of goodwill amounted to
$81.3 million and $62.3 million at December 31, 1995 and 1994,
respectively.
Research and Development
Costs incurred in connection with the development of new
products and manufacturing methods to the extent not recoverable
from the Company's customers are charged to operations as
incurred. Such costs amounted to $53.3 million, $21.9 million
and $16.2 million for the years ended December 31, 1995, 1994 and
1993, respectively.
32
35
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated into
U.S. dollars at the exchange rates in effect at the end of the
period. Revenue and expense accounts are translated using an
average of exchange rates in effect during the period.
Translation adjustments that arise from translating a foreign
subsidiary's financial statements from the functional currency to
U.S. dollars are reflected as cumulative translation adjustment
in the consolidated balance sheets.
Transaction gains and losses that arise from exchange rate
fluctuations on transactions denominated in a currency other than
the functional currency, except those transactions which operate
as a hedge of a foreign currency investment position, are
included in the results of operations as incurred.
Income Taxes
The consolidated financial statements reflect the
provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes", for all periods presented.
Since the year ended December 31, 1993 did not constitute a
fiscal year, the consolidated national income tax provision for
this period was determined based upon the provisions of APB
Opinion No. 28, "Interim Financial Reporting."
Deferred national income taxes represent the effect of cumulative
temporary differences between income and expense items reported
for financial statement and tax purposes, and between the bases
of various assets and liabilities for financial statement and tax
purposes. Deferred tax assets are reduced by a valuation
allowance if, based on the weight of evidence, it is deemed more
likely than not that the asset will not be realized.
Weighted Average Shares Outstanding
The weighted average number of common shares outstanding
for the years ended December 31, 1995, 1994 and 1993, were as
follows:
1995 1994 1993
---------- ---------- ----------
Primary shares 52,488,938 47,438,477 35,500,014
Fully-diluted shares 52,642,672 47,560,436 35,500,014
Shares exercisable pursuant to stock options and warrants (Note 15)
are included in the weighted average share calculation for all
years presented.
33
36
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Use of Estimates
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Although no
single asset or liability subject to estimation is material to
the Company's consolidated financial position, in aggregate such
items are material. Generally, assets and liabilities subject to
estimation and judgment include amounts related to unsettled
pricing discussions with customers and suppliers, pension and
post-retirement costs (Notes 12 and 13), plant closing reserves
(Note 6), self-insurance accruals, asset valuation reserves, and
accruals related to litigation and environmental remediation
costs. Management does not believe that the ultimate settlement
of any such assets or liabilities will materially affect the
Company's financial position or future results of operations.
Reclassifications
Certain items in prior years' financial statements have been
reclassified to conform with the presentation used in the year
ended December 31, 1995.
(3) PUBLIC STOCK OFFERINGS
In September 1995, the Company issued 10,000,000 shares of
common stock in a public offering ("the 1995 offering").
Concurrent with this issuance, 11,500,000 shares were sold by
certain stockholders of the Company. The total proceeds to the
Company from the stock issuance were $292.5 million. Fees and
expenses related to the 1995 offering totaled $11.0 million,
including approximately $3.9 million paid to Lehman Brothers, Inc.
Net of issuance costs, the Company received $281.5 million, which
was used to repay debt incurred in connection with the purchase of
AI (Note 5). See Note 19 for pro forma information.
In April 1994, the Company completed an initial public
offering of its common stock (the "IPO"), pursuant to which the
Company sold 7,187,500 shares of its common stock for total
proceeds of approximately $111.4 million. Fees and expenses
related to the IPO totaled $7.8 million, including approximately
$.9 million paid to Lehman Brothers, Inc. The net proceeds of the
offering were used to reduce outstanding borrowings under the
Company's existing senior credit facility (Note 10). In the same
offering, FIMA Finance Management Inc., ("FIMA") a wholly-owned
subsidiary of EXOR Group S.A. (formerly IFINT S.A.), sold 3,125,000
shares of the Company's common stock in the public market. The
Company received no proceeds from the sale of these shares. See
Note 19 for pro forma information.
(4) SUBORDINATED NOTES OFFERING
On February 3, 1994, the Company completed a public offering
of $145.0 million of 8 1/4% Subordinated Notes due 2002 (the "8
1/4% Notes"). The 8 1/4% Notes require interest payments
semi-annually on February 1 and August 1. Fees and expenses
related to the issuance of the 8 1/4% Notes were approximately $5.0
million, including underwriting fees of $2.4 million paid to Lehman
Brothers, Inc.
The net proceeds from the sale of the 8 1/4% Notes were used to
finance the redemption of the 14% Subordinated Debentures.
Simultaneous with the sale of the 8 1/4% Notes, the Company called
the 14% Subordinated Debentures for redemption on March 4, 1994, at
a redemption price equal to 105.4% of the outstanding principal
amount of $135.0 million, plus accrued interest to the redemption
date. The premium for early extinguishment of the 14% Subordinated
Debentures and the accelerated amortization
34
37
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
of deferred financing fees totaled approximately $10.7 million. This
amount has been reflected as an extraordinary loss in the year ended
December 31, 1993. The deferred tax benefit related to this
extraordinary loss was offset by a valuation allowance. See Note 19
for pro forma information.
(5) AI ACQUISITION
On August 17, 1995, the Company purchased the issued and
outstanding shares of common stock of Automotive Industries
Holding, Inc. ("AI") for an aggregate purchase price of
approximately $885.0 million, including the retirement of $250.5
million of AI's existing indebtedness and $18.1 million in fees and
expenses, including $4.8 million paid to Lehman Brothers, Inc.
("the AI acquisition"). AI is a leading designer and manufacturer
of high quality interior trim systems and blow molded products
principally for North American and European car and light truck
manufacturers.
The acquisition was accounted for as a purchase, and
accordingly, the assets purchased and liabilities assumed in the
acquisition have been reflected in the accompanying consolidated
balance sheet as of December 31, 1995 and the operating results of
AI have been included in the consolidated financial statements
since the date of acquisition. The purchase price was allocated as
follows (in millions):
Cash consideration paid to stockholders,
net of cash acquired of $9.1 million $614.5
Stock options issued to former AI option holders 1.9
Retirement of debt assumed 250.5
Fees and expenses 18.1
--------
Cost of acquisition $885.0
========
Property, plant and equipment $257.1
Net non-cash working capital 49.6
Other assets purchased and liabilities assumed, net 1.6
Debt assumed (33.9)
Goodwill 610.6
--------
Total cost allocation $885.0
========
The purchase price and related allocation may be revised in the
next year based on revisions of preliminary estimates of fair
values made at the date of purchase. Such changes are not expected
to be significant. See Note 19 for pro forma information.
(6) FSB ACQUISITION
On December 15, 1994, the Company purchased from Gilardini
S.p.A., an Italian Corporation, all of the outstanding common stock
of Sepi S.p.A., an Italian Corporation, all of the outstanding
common stock of Sepi Poland S.p. Z o.o. and a 35% interest in a
Turkish joint venture (collectively, the "Fiat Seat Business", or
"FSB"). The FSB is engaged in the design and manufacture of
automotive seating, with its principal customers being Fiat S.p.A.
and its affiliates ("Fiat"). In connection with this transaction,
the Company and Fiat entered into a long-term supply agreement for
certain products produced by the FSB.
35
38
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The acquisition was accounted for as a purchase, and
accordingly, the assets purchased and liabilities assumed in the
acquisition have been reflected in the accompanying consolidated
balance sheet as of December 31, 1994. The operations of the FSB
from the acquisition date to December 31, 1994 were not material to
the consolidated statement of operations of the Company for the
year ended December 31, 1994. The FSB's results of operations have
been included in the consolidated financial statements in 1995.
The purchase price was allocated as follows (in millions):
Cash consideration paid to seller,
net of cash acquired of $6.9 million $85.3
Deferred purchase price, due 1998 12.3
Short-term borrowings from Fiat assumed 66.7
Fees and expenses 4.2
Receivable from seller (1.2)
--------
Cost of acquisition $167.3
========
Property, plant and equipment $72.2
Investment in Industrias Cousin Freres, S.L. (Note 8) 4.9
Employee termination indemnities assumed (17.8)
Net non-cash working capital 9.3
Other assets purchased and liabilities assumed, net (12.5)
Goodwill 111.2
--------
Total cost allocation $167.3
========
The deferred portion of the purchase price is included in the
accompanying consolidated balance sheet as of December 31, 1995 and
1994 in other long-term liabilities. See Note 19 for pro forma
information.
At the time of the FSB acquisition, management made the
decision to close certain facilities of the FSB. During 1995, the
plans to close these plants were completed, and reserves for the
related costs were adjusted. Included in the final purchase price
allocation are approximately $6.1 million of such reserves, $2.6
million of which relate to valuation reserves on property, plant
and equipment, $2.4 million for expected severance costs, and an
additional $1.1 million for other plant closings and relocation
costs. Any plant closings do not represent a loss of business to
the Company as the production would be relocated to other Lear
facilities.
(7) NAB ACQUISITION
On November 1, 1993, the Company purchased certain assets of
the Plastics and Trim Products Division of Ford Motor Company
("Ford") consisting of (i) the U.S. operations that supply seat
trim and trimmed seat assemblies to Ford which are manufactured by
Favesa, S.A. de C.V.; (ii) all of the shares of Favesa, a
maquiladora operation located in Juarez, Mexico; and (iii) certain
inventories and assets employed in the operation of the NAB
(collectively, the "North American Business" or the "NAB"). In
connection with this transaction, the Company and Ford entered into
a long-term supply agreement for certain products produced by these
operations at agreed upon prices.
36
39
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
This acquisition was accounted for as a purchase, and
accordingly, the operating results of the NAB have been included in
the accompanying consolidated financial statements since the date
of acquisition. The purchase price, after giving effect to an
adjustment related to changes in the NAB working capital, consisted
of the following and has been allocated as follows (in millions):
Cash consideration paid to seller, net of cash
acquired of $2.7 million $170.7
Execution of promissory notes 10.5
Fees and expenses 1.4
------
Cost of acquisition $182.6
======
Property, plant and equipment $ 79.8
Net non-cash working capital 1.7
Other assets purchased and liabilities assumed, net (.3)
Goodwill 101.4
------
Total cost allocation $ 182.6
=======
As part of the NAB acquisition, the Company acquired and has
exercised an option to cause Ford to purchase two facilities in
consideration of Ford canceling a $19.9 million note payable. The
Company exercised this option, and the sale of these facilities
occurred in March 1994. The Company leased one of these facilities
until August 1994. Fees and expenses related to the acquisition
include $.5 million paid to Lehman Brothers, Inc.
Assuming the acquisition had taken place as of the beginning of 1993,
the consolidated pro forma results of operations of the Company
would have been as follows, after giving effect to certain
adjustments, including certain operations adjustments consisting
principally of management's estimates of the effects of product
pricing adjustments negotiated in connection with the acquisition
and incremental ongoing NAB engineering, overhead and
administrative expenses, increased interest expense and goodwill
amortization and the related income tax effects (Unaudited; in
millions, except per share data):
Year Ended
December 31,
1993
------------
Net sales $2,361.4
Income before extraordinary item 5.1
Net loss (6.6)
Income per common share before
extraordinary item .12
Net loss per common share (.16)
The pro forma information above does not purport to be
indicative of the results that actually would have been achieved if
the operations were combined during the periods presented, and is
not intended to be a projection of future results or trends.
37
40
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(8) INVESTMENTS IN AFFILIATES
The investments in affiliates are as follows:
Percent Beneficial Ownership
as of December 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
Industrias Cousin Freres, S.L. (Spain) 49% 49% -%
Lear Seating Thailand Corporation 49 49 -
Interiores Automotrices Summa, S.A. de C.V.
(Mexico) 40 - -
Markol Otomotiv Yan Sanayi Ve Ticart (Turkey) 35 35 -
General Seating of America, Inc. 35 35 35
General Seating of Canada, Ltd. 35 35 35
Guildford Kast Plastifol Ltd. (U.K.) 33 - -
Probel, S.A. (Brazil) 31 31 31
Pacific Trim Corporation Ltd. (Thailand) 20 20 20
The above businesses are generally involved in the manufacture
of automotive interiors and interior components.
All of the above investments in affiliates are accounted for
using the equity method, except Probel. In June 1993, the Company
revalued its investment in Probel, which was previously accounted
for using the cost method, to zero due to continued operating
losses and other factors impacting its potential recoverability. A
charge of approximately $1.7 million was recorded and is reflected
in equity income of affiliates in the consolidated statement of
operations for the year ended December 31, 1993. The investments
in Industrias Cousin Freres, S.L. and Markol Otomotiv Yan Sanayi Ve
Ticart were acquired as part of the FSB acquisition (Note 6). The
investments in Guildford Kast Plastifol Ltd., and Interiores
Automotrices Summa, S.A. de C.V. were acquired as part of the AI
acquisition (Note 5).
Summarized group financial information for affiliates accounted for
under the equity method is as follows (Unaudited; in millions):
December 31,
------------------------------
1995 1994
------------- -------------
Balance sheet data:
Current assets $57.6 $36.8
Non-current assets 42.0 25.6
Current liabilities 35.6 24.3
Non-current liabilities 16.9 14.5
Year Ended December 31,
1995 1994 1993
---- ---- ----
Income statement data:
Net sales $201.6 $140.4 $122.4
Gross profit 37.9 14.1 12.6
Income before provision for income taxes 14.2 6.0 7.3
Net income 10.0 3.9 5.0
38
41
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The aggregate investment in affiliates was $20.6 million and
$11.0 million as of December 31, 1995 and 1994, respectively. The
Company had sales to affiliates of approximately $12.8 million,
$14.0 million and $11.1 million for the years ended December 31,
1995, 1994 and 1993, respectively. Dividends of approximately $1.3
million, $.9 million and $1.0 million were received by the Company
for the years ended December 31, 1995, 1994 and 1993, respectively.
The Company has guaranteed certain obligations of its affiliates.
The Company's share of amounts outstanding under guaranteed
obligations as of December 31, 1995 amounted to $6.1 million.
(9) SHORT-TERM BORROWINGS
Short-term borrowings are comprised of the following (in millions):
December 31,
----------------
1995 1994
------- -------
Note payable to bank, LIBOR + 3/4% $ 11.5 $ 15.0
Revolving credit facility, Base + 1 3/4% 2.8 -
Note payable to bank, LIBOR + 3% 2.6 1.0
Short-term borrowing, Fiat S.p.A., 9 3/4% (Note 6) - 66.7
Unsecured notes payable --
NAB acquisition note payable, non-interest bearing
(Note 7) - 1.2
Trade acceptance payable, 6% at December 31, 1994 - .2
------- -------
$ 16.9 $ 84.1
======= =======
At December 31, 1995, the Company has lines of credit
available with foreign banks of approximately $79.7 million,
subject to certain restrictions imposed by the Credit Agreement
(Note 10). Weighted average interest rates under these agreements
at December 31, 1995 and 1994 were 7.4% and 9.1%, respectively.
(10) LONG-TERM DEBT
Long-term debt is comprised of the following (in millions):
December 31,
----------------
1995 1994
-------- ------
Domestic revolver $717.1 $121.9
Industrial revenue bonds 20.9 19.0
Capital lease obligations 12.1 -
German term loan 6.3 7.1
Loans from government agencies 5.0 2.0
Other 16.5 .6
-------- ------
777.9 150.6
Less -- Current portion (9.9) (1.9)
-------- ------
768.0 148.7
-------- ------
8 1/4% Subordinated Notes (Note 4) 145.0 145.0
11 1/4% Senior Subordinated Notes 125.0 125.0
-------- ------
270.0 270.0
-------- ------
$1,038.0 $418.7
======== ======
39
42
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In August, 1995, the Company entered into a $1.5 billion
secured revolving credit agreement with a syndicate of financial
institutions (the "Credit Agreement"), the purpose of which was to
finance the AI acquisition (Note 5), to refinance a portion of the
existing indebtedness of AI, to refinance the Company's prior $500
million credit agreement (the "Prior Credit Facility"), and for
general corporate purposes, including acquisitions. See Note 19
for pro forma information. The accelerated amortization of
deferred financing fees related to the Prior Credit Facility
totaled approximately $4.0 million. This amount, net of the
related tax benefit of $1.4 million, has been reflected as an
extraordinary loss in the consolidated results of operations for
the year ended December 31, 1995. Availability under the Credit
Agreement decreases semi-annually, in an aggregate amount of $650
million by the expiration date of September 30, 2001. Lehman
Commercial Paper, Inc., an affiliate of the Lehman Funds, is a
managing agent of the Credit Agreement and received fees of $.5
million in connection with this transaction.
In October, 1993 and again in November, 1994, the Company
amended and restated its prior credit agreement with a syndicate of
banks to increase available credit and modify certain other
provisions under the agreement. The accelerated amortization of
deferred financing fees related to the 1993 refinancing totaled
approximately $1.5 million. This amount, net of the related tax
benefit of $.5 million, has been reflected as an extraordinary loss
in the year ended December 31, 1993. In connection with these
transactions, the Company paid $.5 million to Lehman Brothers, Inc.
for consulting fees. In addition, Lehman Commercial Paper Inc.,
received fees of $.7 million as managing agent under the credit
agreement.
Loans under the Credit Agreement bear interest, at the election
of the Company, at a floating rate equal to (i) the higher of
Chemical Bank's prime rate and the federal funds rate plus 0.5% or
(ii) the Eurodollar rate plus 1/2% to 1%. The Company pays a
commitment fee on the unused balance of the facility of 1/5% to
3/8%, depending on a certain financial ratio.
The Company had available unused long-term revolving credit
commitments of $728.5 million at December 31, 1995, net of $54.4
million of outstanding letters of credit. Borrowings on revolving
credit loans were $4,979.5 million, $495.2 million, and $986.3
million for the years ended December 31, 1995, 1994, and 1993,
respectively. Repayments on revolving credit loans were $4,384.3
million, $604.0 million and $760.8 million for the years ended
December 31, 1995, 1994 and 1993, respectively. At December 31,
1995, interest was being charged at the Eurodollar rate plus 3/4%
for loans under the Credit Agreement and 1/4% for the commitment
fee on the unused portion of the Credit Agreement.
The City of Hammond and Development Authority of Clayton County
Industrial Revenue Bonds (IRBs), at $9.5 million each, are payable
in 2024, and bear interest at variable rates which are reset
periodically. At the Company's option, the rates can be reset
weekly or monthly, or can be fixed for a period of time or through
maturity. As of December 31, 1995, the City of Hammond IRB and the
Development Authority of Clayton County IRB bore interest rates of
4.25% and 4.55%, respectively. The remaining IRBs amortize
annually, mature in 1998 and 2004, and as of December 31, 1995 bore
interest of between 2.5% and 2.0%
The 8 1/4% Subordinated Notes, due in 2002, require interest
payments semi-annually on February 1 and August 1. The 11 1/4%
Senior Subordinated Notes, due in 2000, require interest payments
semi-annually on January 15 and July 15.
40
43
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Credit Agreement and Subordinated Debt Indentures contain
restrictive covenants. The most restrictive of these covenants are
financial covenants related to maintenance of certain levels of net
worth, operating profit and interest coverage. These agreements
also, among other things, restrict the Company's ability to incur
additional indebtedness, declare dividends, create liens, make
investments and advances, sell assets and limit capital
expenditures to specified amounts. The German Term Loan agreement
also contains certain restrictive covenants.
The Company uses interest rate swap contracts to hedge against
interest rate risks in future periods. As of December 31, 1995,
the Company has entered into five one-year swap contracts with an
aggregate notional value of $215.0 million which go into effect
between August 1996 and August 1997. Pursuant to each of the
contracts, the Company will make payments calculated at a fixed
rate of between 5.9% and 6.3% of the notional value and will
receive payments calculated at the Eurodollar rate. This
effectively fixes the Company's interest rate on the portion of the
indebtedness under the Credit Agreement covered by the contracts at
the fixed rates in the contracts plus a margin of 1/2% to 1% during
the time the contracts are effective. The fair value of these
contracts as of December 31, 1995 is negative $1.9 million.
As of December 31, 1995, the Company is able to declare
limited dividends of up to $2.5 million per quarter. Loans under
the Credit Agreement are collateralized by substantially all assets
of the Company.
The scheduled maturities of long-term debt at December 31, 1995
for the five succeeding years are as follows (in millions):
1996 $9.9
1997 10.5
1998 6.6
1999 5.5
2000 128.2
41
44
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(11) NATIONAL INCOME TAXES
A summary of income (loss) before provision for national
income taxes and components of the provision for national income
taxes is as follows (in millions):
Year Ended December 31,
-----------------------------
1995 1994 1993
-------- -------- ---------
Income (loss) before provision for national income taxes,
minority interests in net income (loss) of subsidiaries,
equity (income) loss of affiliates and extraordinary item:
Domestic $ 51.0 $ 56.4 $ (3.4)
Foreign 101.9 58.2 29.5
-------- -------- ---------
$ 152.9 $ 114.6 $ 26.1
========= ======== =========
Domestic provision for national income taxes:
Current provision $ 31.6 $ 31.2 $ 7.4
--------- -------- ---------
Deferred --
Deferred provision (12.2) - 1.0
Benefit of previously unbenefitted net
operating loss carryforwards (.4) (2.2) (3.0)
--------- -------- ---------
(12.6) (2.2) (2.0)
--------- -------- ---------
Total domestic provision 19.0 29.0 5.4
--------- -------- ---------
Foreign provision for national income taxes
Current provision 41.2 25.1 22.5
--------- -------- ---------
Deferred --
Deferred provision 5.3 .9 (1.0)
Benefit of previously unbenefitted net operating
loss carryforwards (2.4) - -
--------- -------- ---------
2.9 .9 (1.0)
--------- -------- ---------
Total foreign provision 44.1 26.0 21.5
--------- -------- ---------
Provision for national income taxes $ 63.1 $ 55.0 $ 26.9
========= ======== =========
42
45
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The differences between tax provisions calculated at the United
States Federal statutory income tax rate of 35% for the years ended
December 31, 1995, 1994 and 1993 and the actual consolidated
national income tax provision are summarized as follows (in
millions):
Year Ended December 31,
----------------------------
1995 1994 1993
-------- -------- --------
Income before provision for national
income taxes, minority interests in net
income (loss) of subsidiaries, equity
(income) loss of affiliates and
extraordinary item multiplied by the
United States Federal statutory rate $ 53.5 $ 40.1 $ 9.1
Utilization of domestic net
operating loss carryforwards (.4) (2.2) (3.0)
Utilization of foreign net
operating loss carryforwards (2.4) - -
Differences between domestic and
effective foreign tax rates (3.3) 1.3 3.7
Operating losses not tax benefited 11.4 3.0 4.9
Increase (decrease) in valuation allowance (4.2) 3.3 8.8
Domestic income taxes provided
on foreign earnings 2.6 6.4 .9
Amortization of goodwill 5.8 3.0 3.3
Other, net .1 .1 (.8)
-------- -------- --------
$ 63.1 $ 55.0 $ 26.9
========= ========= =========
43
46
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Deferred national income taxes represent temporary differences in the
recognition of certain items for income tax and financial reporting
purposes. The components of the net deferred national income tax
liability are summarized as follows (in millions):
December 31,
----------------
1995 1994
-------- ------
Deferred national income tax liabilities:
Property, plant and equipment basis differences $ 23.9 $ 22.1
Financing and intercompany transactions - 8.8
Taxes provided on unremitted
foreign earnings 15.6 19.4
Benefit plans 3.1 2.0
Other 7.5 5.4
-------- ------
$ 50.1 $ 57.7
======== ======
Deferred national income tax assets:
Tax credit carryforwards $ (3.5) $ (8.7)
Tax loss carryforwards (53.3) (46.8)
Benefit plans (14.1) (9.6)
Accruals (9.7) (15.9)
Minimum pension liability (1.7) (1.8)
Deferred compensation (6.2) (6.3)
Other (5.4) (4.8)
--------- -------
(93.9) (93.9)
Valuation allowance 57.4 58.1
--------- -------
(36.5) (35.8)
--------- -------
Net deferred national income tax liability $ 13.6 $ 21.9
========= =======
Deferred national income tax assets have been fully offset by a
valuation allowance in certain foreign tax jurisdictions due to
a history of operating losses. The classification of the net
deferred national income tax liability is summarized as follows
(in millions):
December 31,
--------------------
1995 1994
--------- ---------
Deferred national income tax assets:
Current $(13.2) $(1.8)
Long-term (15.8) (1.6)
Deferred national income tax liability:
Current 5.3 -
Long-term 37.3 25.3
--------- ---------
Net deferred national income tax liability $ 13.6 $21.9
========= =========
44
47
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Deferred national income taxes and withholding taxes have been provided
on earnings of the Company's Canadian subsidiary to the extent it
is anticipated that the earnings will be remitted in the form of
future dividends. Deferred national income taxes and withholding
taxes have not been provided on the undistributed earnings of the
Company's other foreign subsidiaries as such amounts are considered
to be permanently reinvested. The cumulative undistributed
earnings at December 31, 1995 on which the Company had not provided
additional national income taxes and withholding taxes were
approximately $41.2 million.
As of December 31, 1995, the Company had tax loss
carryforwards of $142.6 million which relate to certain foreign
subsidiaries. Of the total loss carryforwards, $50.3 million have
no expiration and $92.3 million expire in 1996 through 2002. As of
December 31, 1995 the Company had tax credit carryforwards of $3.5
million which expire in 2000.
(12) RETIREMENT PLANS
The Company has noncontributory defined benefit pension plans
covering substantially all domestic employees and certain employees
in foreign countries. The Company's salaried plans provide
benefits based on a career average earnings formula. Hourly
pension plans provide benefits under flat benefit formulas. The
Company also has contractual arrangements with certain employees
which provides for supplemental retirement benefits. In general,
the Company's policy is to fund these plans based on legal
requirements, tax considerations, and local practices.
Components of the Company's pension expense are as follows (in
millions):
Year Ended December 31,
----------------------------
1995 1994 1993
-------- -------- --------
Service cost $ 6.2 $ 4.3 $ 3.5
Interest cost on
projected benefit
obligation 7.4 6.3 6.1
Actual return on assets (12.1) (.1) (7.8)
Net amortization and
deferral 6.9 (4.6) 3.1
-------- ------- -------
Net pension expense $ 8.4 $ 5.9 $ 4.9
======== ======= =======
45
48
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table sets forth a reconciliation of the funded
status of the Company's defined benefit pension plans to the
related amounts recorded in the consolidated balance sheets (in
millions):
December 31, 1995 December 31, 1994
-------------------------- ------------------------------
Plans Whose Plans Whose Plans Whose Plans Whose
Assets Exceed ABO Exceeds Assets Exceed ABO Exceeds
ABO Assets ABO Assets
------------- ----------- ----------------- -----------
Actuarial present value of:
Vested benefit obligation $14.4 $82.6 $16.8 $54.8
Non-vested benefit obligation 1.0 5.2 1.3 2.2
------------- ----------- ----------------- -----------
Accumulated benefit obligation (ABO) 15.4 87.8 18.1 57.0
Effects of anticipated future
compensation increases 2.5 13.7 10.2 1.0
------------- ----------- ----------------- -----------
Projected benefit obligation 17.9 101.5 28.3 58.0
Plan assets at fair value 23.1 59.2 22.7 38.0
------------- ----------- ----------------- -----------
Projected benefit obligation in excess of
(less than) plan assets (5.2) 42.3 5.6 20.0
Unamortized net loss (.8) (10.6) (3.9) (9.5)
Unrecognized prior service cost (.4) (4.3) .2 (3.0)
Unamortized net asset (obligation)
at transition 3.0 (1.2) 3.1 (1.0)
Unamortized plan amendment obligation - (11.2) - -
Adjustment required to recognize
minimum liability - 21.4 - 12.0
------------- ----------- ----------------- -----------
Accrued pension (asset) liability recorded
in the consolidated balance sheets $ (3.4) $ 36.4 $ 5.0 $ 18.5
============= =========== ================= ===========
The actuarial assumptions used in determining pension expense
and the funded status information shown above were as follows:
Year Ended December 31,
-----------------------------
1995 1994 1993
--------- -------- --------
Discount rate:
Domestic plans 7.25-7.5% 7.5-8% 7.5-8%
Foreign plans 7-8% 7-8% 7-9%
Rate of salary progression:
Domestic plans 5.6% 5% 6%
Foreign plans 3-5% 3-5% 3-5%
Long-term rate of return on assets:
Domestic plans 7.75-9% 9% 9%
Foreign plans 8% 8% 8-9%
Plan assets include cash equivalents, common and preferred
stock, and government and corporate debt securities.
46
49
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Statement of Financial Accounting Standards No. 87, "Employers'
Accounting for Pensions," required the Company to record a minimum
liability as of December 31, 1995 and 1994. As of December 31,
1995, the Company recorded a long-term liability of $21.4 million,
an intangible asset of $16.2 million, which is included with other
assets, and a reduction in stockholders' equity of $3.5 million,
net of income taxes of $1.7 million.
The Company also sponsors defined contribution plans and
participates in government sponsored programs in certain foreign
countries. Contributions are determined as a percentage of each
covered employee's salary. The Company also participates in
multi-employer pension plans for certain of its hourly employees
and contributes to those plans based on collective bargaining
agreements. The aggregate cost of the defined contribution and
multi-employer pension plans charged to operations was $2.6
million, $2.1 million and $1.7 million for the years ended December
31, 1995, 1994 and 1993, respectively.
(13) POST-RETIREMENT BENEFITS
On July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for
Post-retirement Benefits Other Than Pensions" ("SFAS No. 106") for
its domestic plans. On January 1, 1995, the Company adopted SFAS
No. 106 for its foreign plans. This standard requires that the
expected cost of post-retirement benefits be charged to expense
during the years in which the employees render service to the
Company.
The Company's post-retirement plans cover a majority of the
Company's domestic employees and a portion of the Company's
Canadian employees. The plans generally provide for the
continuation of medical benefits for all employees who complete 10
years of service after age 45 and retire from the Company at age 55
or older. The Company does not fund its post-retirement benefit
obligation. Rather, payments are made as costs are incurred by
covered retirees.
As of July 1, 1993, the Company's accumulated post-retirement
benefit obligation was approximately $32.0 million. Because the
Company had previously recorded a liability of $6.3 million related
to these benefits, the net transition obligation was $25.7 million
and is being amortized over 20 years. As of January 1, 1995, the
Company's APBO for its foreign plans was approximately $9.7 million
which is being amortized over approximately 11 years, representing
the average remaining service life of the eligible employees. The
following table sets forth a reconciliation of the funded status of
the accrued post-retirement benefit obligation to the related
amounts recorded in the consolidated financial statements as of
December 31, 1995 and 1994 (in millions):
December 31,
-------------------
1995 1994
------- ---------
Accumulated Post-retirement Benefit
Obligation ("APBO"):
Retirees $18.0 $11.8
Fully eligible active plan participants 4.8 4.3
Other active participants 29.8 20.9
Unrecognized net gain 4.1 4.2
Unamortized transition obligation (31.6) (23.7)
------- ----------
Liability recorded in the consolidated balance sheet $25.1 $17.5
======= ==========
47
50
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Components of the Company's post-retirement benefit expense under SFAS
No. 106 were as follows (in millions):
Years Ended December 31,
----------------------------
1995 1994 1993
-------- -------- --------
Service cost $3.6 $3.5 $1.7
Interest cost on APBO 3.5 2.8 1.3
Unrecognized net gain .4 - -
Amortization of transition obligation 1.8 1.3 .7
-------- -------- --------
Net post-retirement benefit expense $9.3 $7.6 $3.7
======== ======== ========
For the domestic plans, the APBO was calculated using an
assumed discount rate of 7.5% and 8.0% as of December 31, 1995 and
1994, respectively. Domestic post-retirement benefit expense was
calculated using an assumed discount rate of 8.0% in 1995, and 7.5%
in 1994 and 1993. Domestic health care costs were assumed to
increase 10.0% in 1995, grading down over time to 5.5% in 11 years.
For the foreign plans, 1995 expense and the APBO as of December
31, 1995 were calculated using an assumed discount rate of 8.0%.
Foreign health care costs were assumed to increase 8.5% per year
for the next three years, grading down over time to 5.5% in 10
years and 5.0% in 20 years. To illustrate the significance of
these assumptions, a rise in the assumed rate of health care cost
increases of 1% each year would increase the APBO as of December
31, 1995 by $6.7 million and increase the net post-retirement
benefit expense by $1.1 million for the year ended December 31,
1995.
Prior to July 1, 1993, post-retirement benefit costs were
expensed as incurred. Benefit payments were approximately $.8
million for the year ended December 31, 1993.
In November 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 112,
"Employers Accounting for Post-Employment Benefits." This
statement requires that employers accrue the cost of
post-employment benefits during the employees' active service. The
Company adopted this statement effective January 1, 1994. The
adoption of this statement did not have a material effect on the
Company's financial position or results of operations.
(14) COMMITMENTS AND CONTINGENCIES
The Company is the subject of various lawsuits, claims and
environmental contingencies. In addition, the Company has been
identified as a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA" or "Superfund"), for the cleanup
of contamination from hazardous substances at three Superfund
sites, and may incur indemnification obligations for cleanup at
three additional sites. In the opinion of management, the expected
liability resulting from these matters is adequately covered by
amounts accrued, and will not have a material adverse effect on the
Company's consolidated financial position or future results of
operations.
Several of the Company's European subsidiaries factor their accounts
receivable with financial institutions subject to limited recourse
provisions and are charged a discount fee ranging from a fixed rate
per annum of 11% to the current LIBOR rate plus 0.4%. The amount
of such factored receivables, which is not included in accounts
receivable in the consolidated balance sheet at December 31, 1995
was approximately $64.4 million.
48
51
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Approximately 24,000 of the Company's workforce worldwide are subject to
collective bargaining agreements. 14% of the Company's workforce
are subject to collective bargaining agreements which expire within
one year. Relationships with all unions are good and management
does not anticipate any difficulties with respect to the
agreements.
Lease commitments at December 31, 1995 under noncancelable
operating leases with terms exceeding one year are as follows (in
millions):
1996 $22.7
1997 19.1
1998 15.7
1999 14.0
2000 12.8
2001 and thereafter 22.3
-------
Total $106.6
=======
The Company's operating leases cover principally buildings and
transportation equipment. Rent expense incurred under all
operating leases and charged to operations was $21.2 million, $16.5
million and $12.6 million for the years ended December 31, 1995,
1994 and 1993, respectively.
(15) STOCK OPTIONS AND WARRANTS
1988 Stock Option Plan
At December 31, 1995, 1,847,755 options granted under
stock option agreements dated September 29, 1988 were issued and
outstanding. The options vested over a three-year period and are
currently exercisable at $1.29 per share. The difference between
the exercise price and the market value at the date of grant was
amortized to expense over the vesting period.
1992 Stock Option Plan
Under the 1992 stock option plan, the Company may grant up
to 1,914,000 stock options to the management investors and
certain other management personnel. At December 31, 1995 there
were 1,886,500 options issued and outstanding under this plan.
Pursuant to a plan amendment effective December 31, 1993, all of
the options became immediately vested and will generally become
exercisable at $5 per share on September 28, 1996.
Stock option expense for the year ended December 31, 1993
was approximately $14.5 million, and is included in incentive
stock and other compensation expense in the accompanying
consolidated statements of operations. The expense recognized
reflects the immediate vesting of the previously unvested options
on December 31, 1993, based on the estimated market value of the
common stock of the Company of $13.64 per share.
In addition to the stock option expense, incentive stock
and other compensation expense in the accompanying statements of
operations includes $3.5 million in special management bonuses
approved by the Board of Directors in December 1993.
49
52
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1994 Stock Option Plan
Concurrent with the IPO (Note 3), the Company granted 498,750 options
which are exercisable at $15.50 per share beginning three years
after the date of grant. The options vest over a three year
period and expire seven years after they become exercisable. No
stock compensation expense was recognized related to these
options as the exercise price was equal to the market price as of
the grant date. In 1995, 36,000 options were granted under this
plan at exercise prices ranging from $19 5/8 to $30 1/4. As of
December 31, 1995 513,250 options were outstanding.
Options Issued to Former AI Optionholders
In connection with the AI Acquisition (Note 5), the
Company converted, at the optionholder's discretion, certain AI
stock options into options exercisable for Lear common stock
under new plans. All of the options converted were fully vested
and exercisable as of the date of acquisition of AI. At December
31, 1995, there were 58,446 options exercisable at $14.06 per
share which expire July 24, 2002, 89,975 options exercisable at
$20.41 per share which expire August 5, 2003, and 80,984 options
exercisable at $23.12 per share which expire August 7, 2004. The
value of these options as of the date of the AI Acquisition was
$1.9 million and was included in the purchase price of AI.
The changes in the number of options outstanding are as follows:
Year Ended December 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
Options outstanding
at beginning of period 4,425,768 4,045,272 3,507,372
Options granted 265,405 498,750 537,900
Options exercised (165,263) (100,797) -
Options revoked (49,000) (17,457) -
--------- --------- ---------
Options outstanding
at end of period 4,476,910 4,425,768 4,045,272
========= ========= =========
Warrants
In 1988, the Company sold warrants exercisable into
3,300,000 shares of common stock. The warrants, which entitled
the holder to receive one share of common stock for no additional
consideration, became exercisable on December 1, 1993. All
warrants were exercised or expired in 1994.
(16) FINANCIAL INSTRUMENTS
The Company hedges certain foreign currency risks through
the use of forward foreign exchange contracts and options. Such
contracts are generally deemed as and are effective as hedges of
the related transactions. As such, gains and losses from these
contracts are deferred and are recognized on the settlement date,
consistent with the related transactions. As of December 31,
1995, the Company and its subsidiaries have contracted to
exchange up to 26.8 million Canadian dollars and 60.0 million
German marks for fixed amounts of U. S. dollars. The contracts
mature during 1996. As of December 31, 1995, the unrealized
deferred gain on such contracts was $.4 million and $1.5 million,
respectively.
50
53
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The carrying values of the Company's subordinated notes
vary from the fair values of these instruments. The fair values
were determined by reference to market prices of the securities
in recent public transactions. As of December 31, 1995, the
carrying value of the Company's subordinated notes was $270.0
million compared to an estimated fair value of $275.4 million.
The carrying values of cash, accounts receivable, accounts
payable and notes payable approximate the fair values of these
instruments due to the short-term, highly liquid nature of these
instruments. The carrying value of the Company's senior
indebtedness approximates its fair value which was determined
based on rates currently available to the Company for similar
borrowings with like maturities.
(17) GEOGRAPHIC SEGMENT DATA
Worldwide operations are divided into four geographic segments --
United States, Canada, Europe and Mexico and other. The Mexico
and other segment includes operations in Mexico, South America,
South Africa and the Pacific Rim. Geographic segment information
is as follows (in millions):
Year Ended December 31,
------------------------------
1995 1994 1993
-------- -------- ----------
Net Sales:
United States $2,431.8 $1,916.5 $1,060.6
Canada 874.5 603.8 397.5
Europe 1,328.5 575.5 407.5
Mexico and other 307.4 222.7 208.6
Intersegment sales (227.8) (171.0) (123.9)
-------- -------- ----------
$4,714.4 $3,147.5 $1,950.3
======== ======== ==========
Operating Income:
United States $108.4 $109.3 $61.3
Canada 96.4 46.3 25.6
Europe 26.5 4.4 (9.6)
Mexico and other 13.5 9.6 20.3
Unallocated (a) - - (18.0)
-------- -------- ----------
$244.8 $169.6 $79.6
======== ======== ==========
Identifiable Assets:
United States $1,859.6 $784.7 $680.7
Canada 254.2 249.6 180.1
Europe 815.3 595.4 170.8
Mexico and other 116.5 72.5 68.3
Unallocated (b) 15.7 12.9 14.4
-------- -------- ----------
$3,061.3 $1,715.1 $1,114.3
======== ======== ==========
(a) Unallocated Operating Income primarily includes the impact of
incentive stock and other compensation expense (Note 15).
(b) Unallocated Identifiable Assets primarily consist of
deferred financing fees.
51
54
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The net assets of foreign subsidiaries were $326.8 million
and $323.7 million at December 31, 1995 and 1994, respectively.
The Company's share of foreign net income was $58.6 million,
$32.2 million, and $6.0 million, for the years ended December 31,
1995, 1994 and 1993, respectively.
A majority of the Company's sales are to automobile
manufacturing companies. The following is a summary of the
percentage of net sales to major customers:
Year Ended December 31,
----------------------------
1995 1994 1993
-------- -------- --------
Ford Motor Company 33% 39% 28%
General Motors Corporation 34 36 45
In addition, a significant portion of remaining sales are
to the above automobile manufacturing companies through various
other automotive suppliers or to affiliates of these automobile
manufacturing companies.
(18) QUARTERLY FINANCIAL DATA (Unaudited; in millions, except per share data)
Thirteen Weeks Ended
-------------------------------------------------------
April 1, July 1, September 30, December 31,
1995 1995 1995 1995
---------- ---------- ---------------- -------------
Net sales $1,043.5 $1,142.6 $1,080.6 $1,447.7
Gross profit 76.6 94.8 83.3 148.4
Net income before extraordinary item 17.0 28.9 11.1 37.2
Net income 17.0 28.9 8.5 37.2
Net income before extraordinary
item per common share .34 .58 .22 .62
Net income per common share .34 .58 .17 .62
Thirteen Weeks Ended
--------------------------------------------------------
April 2, July 2, October 1, December 31,
1994 1994 1994 1994
---------- ------------- --------------- ------------
Net sales $ 686.7 $ 822.2 $ 698.5 $ 940.1
Gross profit 50.0 78.6 48.9 86.1
Net income 6.5 21.2 6.3 25.8
Net income per common share .16 .43 .13 .52
52
55
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(19) PRO FORMA FINANCIAL DATA
The following pro forma unaudited financial data is
presented to illustrate the estimated effects of (i) the 1995
offering (Note 3), (ii) the AI acquisition (Note 5), (iii) the
refinancing of the Company's credit facility (Note 10), (iv)
certain acquisitions completed by AI prior to the acquisition of
AI by Lear, (v) the FSB Acquisition (Note 6), (vi) the initial
public offering of common stock by the Company (Note 3), and
(vii) the refinancing of the 14% Subordinated Debentures with
the net proceeds from the issuance of the 8 1/4% Subordinated
Notes (Note 4) as if these transactions had occurred as of the
beginning of each year presented. These pro forma results give
effect to certain adjustments, including certain operations
adjustments consisting principally of management's estimates of
the effects of product pricing adjustments negotiated in
connection with the acquisitions, estimated engineering savings,
the estimated effects on interest, depreciation and goodwill
amortization expense and the related income tax effects of these
adjustments.
Year Ended December 31, 1995 Year Ended December 31, 1994
------------------------------------------------ -------------------------------------------------------------
Operating and Pro Operating and Pro
Company AI Financing Company FSB AI Financing
Historical Acquisition Adjustments Forma Historical Acquisition Acquisition Adjustments Forma
---------- ----------- ------------- -------- ---------- ----------- ----------- ------------- --------
Net sales $4,714.4 $523.7 $ - $5,238.1 $3,147.5 $455.9 $ 752.2 $ - $4,355.6
Income before
extraordinary item 94.2 23.5 (15.5) 102.2 59.8 (24.2) 39.9 (15.9) 59.6
Net income 91.6 23.5 (12.9) 102.2 59.8 (24.2) 39.9 (15.9) 59.6
Income per
share before
extraordinary item 1.79 1.71 1.26 1.00
Net income
per share 1.74 1.71 1.26 1.00
The pro forma information above does not purport to be
indicative of the results that actually would have been achieved
if these transactions had occurred prior to the years presented,
and is not intended to be a projection of future results or
trends.
53
56
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lear Seating Corporation:
We have audited in accordance with generally accepted auditing standards
the consolidated financial statements of LEAR SEATING CORPORATION AND
SUBSIDIARIES ("the Company") included in this Form 10-K and have issued our
report thereon dated February 6, 1996. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule on page 55 is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Detroit, Michigan
February 6, 1996.
54
57
LEAR SEATING CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
BALANCE AT BALANCE
BEGINNING OTHER END
DESCRIPTION OF PERIOD ADDITIONS RETIREMENTS CHANGES OF PERIOD
- ----------- ---------- --------- ----------- ------------ ----------
FOR THE YEAR ENDED DECEMBER 31, 1993:
Valuation of accounts deducted from related assets:
Allowance for doubtful accounts $.5 $.3 $(.1) $(.1) $.6
Reserve for unmerchantable inventories 1.7 .6 (.2) (.2) 1.9
---------- --------- ----------- ------------ ----------
$2.2 $.9 $(.3) $(.3) $2.5
========== ========= =========== ============ ==========
FOR THE YEAR ENDED DECEMBER 31, 1994:
Valuation of accounts deducted from related assets:
Allowance for doubtful accounts $.6 $.6 $(.1) $2.0 $3.1
Reserve for unmerchantable inventories 1.9 4.0 (1.7) (.1) 4.1
---------- --------- ----------- ------------ ----------
$2.5 $4.6 $(1.8) $1.9 $7.2
========== ========= =========== ============ ==========
FOR THE YEAR ENDED DECEMBER 31, 1995:
Valuation of accounts deducted from related assets:
Allowance for doubtful accounts $3.1 $.5 $(.5) $.9 $4.0
Reserve for unmerchantable inventories 4.1 3.2 (2.1) 1.1 6.3
---------- --------- ----------- ------------ ----------
$7.2 $3.7 $(2.6) $2.0 $10.3
========== ========= =========== ============ ==========
55
58
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There has been no disagreement between the management of the Company and
the Company's accountants on any matter of accounting principles or practices
or financial statement disclosure.
56
59
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS
Incorporated by reference from the Proxy Statement sections entitled
"Election of Directors," and "Management."
ITEM 11 - EXECUTIVE COMPENSATION
Incorporated by reference from the Proxy Statement sections entitled
"Executive Compensation," "Compensation Committee Interlocks and Insider
Participation," and "Report of Compensation Committee - Annual Incentives."
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Incorporated by reference from the Proxy Statement section entitled
"Management - Security Ownership of Certain Beneficial Owners and Management."
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Proxy Statement section entitled
"Certain Transactions."
57
60
PART IV
ITEM 14 EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K.
1. Consolidated Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1995 and 1994.
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements
2. Financial Statements Schedules:
Report of Independent Public Accountants
Schedule II - Valuation and Qualifying Accounts
All other financial statement schedules are omitted
because such schedules are not required or the information
required has been presented in the aforementioned financial
statements.
3. The exhibits listed on the "Index to Exhibits" on pages 59
through 61 are filed with this Form 10-K or incorporated by
reference as set forth below.
(b) The following reports on Form 8-K were filed during the quarter ended
December 31, 1995.
None.
(c) The exhibits listed on the "Index to Exhibits" on pages 59 through 61 are
filed with this Form 10-K or incorporated by reference as set forth below.
(d) Additional Financial Statement Schedules.
None.
58
61
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------- -------
3.1 Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.3
to the Company's Transition Report on Form 10-K filed March 31, 1994).
3.2 Amended and Restated By-laws of Lear (incorporated by reference to Exhibit 3.4 to Lear's
Registration Statement on Form S-1 (No. 33-52565)).
3.3 Merger Agreement dated December 31, 1993, by and between Lear and Holdings (incorporated by
reference to Exhibit 3.4 to Lear's Registration Statement on Form S-1 (No. 33-51317)).
4.1 Indenture dated as of February 1, 1994 by and between Lear and The First National Bank of
Boston, as Trustee, relating to the 8 1/4% Subordinated Notes (incorporated by reference to
Exhibit 4.1 to the Company's Transition Report on Form 10-K filed on March 31, 1994).
4.2 Indenture dated as of July 15, 1992 by and between Lear and The Bank of New York, as Trustee,
relating to the 11 1/4% Senior Subordinated Notes (incorporated by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-1 (No. 33-47867)).
10.1 $1,500,000 Credit Agreement dated as of August 17, 1995 (the "Credit "Agreement") among the
Company, the several financial institutions party thereto (collectively, the "Banks"), Chemical
Bank, a New York banking corporation, as administrative agent for the Banks and the Managing
Agents, Co-Agents and Lead Managers identified therein (incorporated by reference to Exhibit
99.1 to the Company's Current Report on Form 8-K, dated August 17, 1995).
10.2 First Amendment and Consent to the Credit Agreement dated as of December 8, 1995, filed herewith.
10.3 $9,500,000 Loan Agreement dated as of July 1, 1994 between the Company and the City of Hammond,
Indiana (incorporated by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
10.4 $9,500,000 Loan Agreement dated as of September 1, 1994 between the Company and the Development
Authority of Clayton County, Georgia (incorporated by reference to Exhibit 10.26 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994).
10.5 Cdn. $25,000,000 Credit Agreement dated April 19, 1995 between Lear Seating Canada, Ltd. and the
Bank of Nova Scotia (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended April 1, 1995).
10.6 Employment Agreement dated March 20, 1995 between the Company and Kenneth L. Way (incorporated
by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.7 Employment Agreement dated March 20, 1995 between the Company and Robert E. Rossiter
(incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994).
10.8 Employment Agreement dated March 20, 1995 between the Company and James H. Vandenberghe
(incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994).
10.9 Employment Agreement dated March 20, 1995 between the Company and James A. Hollars (incorporated
by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
59
62
EXHIBIT
NUMBER EXHIBIT
- ------- -------
10.10 Employment Agreement dated July 12, 1995 between Automotive
Industries, Inc. and Frederick F. Sommer (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended October 1, 1995).
10.11 Employment Agreement dated June 1, 1992 between Lear and Donald J.
Stebbins (incorporated by reference to Exhibit 10.17 to the
Company's Registration Statement on Form S-1 (No. 33-51317)).
10.12 Stock Option Agreement dated as of September 29, 1988 between the
Company and certain management investors (the "Management Investors")
(incorporated by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-1 (No. 33-25256)).
10.13 Amendment to Stock Option Agreement dated as of March 2, 1995 between
the Company and Kenneth L. Way (incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 1, 1995).
10.14 Amendment to Stock Option Agreement dated as of March 2, 1995 between
the Company and Robert E. Rossiter (incorporated by reference to
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended July 1, 1995).
10.15 Amendment to Stock Option Agreement dated as of March 2, 1995 between
the Company and James H. Vandenberghe (incorporated by reference to
Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for
the quarter ended July 1, 1995).
10.16 Amendment to Stock Option Agreement dated as of March 2, 1995 between
the Company and James A. Hollars (incorporated by reference to Exhibit
10.6 to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 1, 1995).
10.17 Amendment to Stock Option Agreement dated as of March 2, 1995 between
the Company and Randal T. Murphy (incorporated by reference to
Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the
quarter ended July 1, 1995).
10.18 Lear's 1992 Stock Option Plan (incorporated by reference to Exhibit
10.7 to the Company's Annual Report on Form 10-K for the year ended
June 30, 1993).
10.19 Amendment to Lear's 1992 Stock Option Plan (incorporated by reference
to Exhibit 10.26 to the Company's Transition Report on Form 10-K
filed on March 31, 1994).
10.20 Lear's 1994 Stock Option Plan (incorporated by reference to
Exhibit 10.27 to the Company's Transition Report on Form 10-K filed on
March 31, 1994).
10.21 Senior Executive Incentive Compensation Plan of Lear (incorporated
by reference to Exhibit 10.14 to the Company's Registration Statement
on Form S-1 (No. 33-47867)).
10.22 Management Incentive Compensation Plan of Lear (incorporated by
reference to Exhibit 10.15 to the Company's Registration
Statement on Form S-1 (No. 33-47867)).
10.23 Lear's Supplemental Executive Retirement Plan, dated as of January 1,
1995, (incorporated by reference to Exhibit 10.28 to the Company's
Annual Report on Form 10-K, for the year ended December 31, 1994).
60
63
EXHIBIT
NUMBER EXHIBIT
- ------- -------
10.24 Amended and Restated Stockholders and Registration Rights
Agreement dated as of September 27, 1991 by and among the
Company, the Lehman Funds, Lehman Brothers Merchant
Banking Partners Inc., as representative of the Lehman
Partnerships, FIMA Finance Management Inc., a British
Virgin Islands corporation, and the Management Investors
(incorporated by reference to Exhibit 2.2 to Lear
Holdings Corporation's Current Report on Form 8-K dated
September 24, 1991).
10.25 Amendment to Amended and Restated Stockholders and
Registration Rights Agreement (incorporated by reference
to Exhibit 10.24 to the Company's Transition Report on
Form 10-K filed on March 31, 1994).
10.26 Waiver to Amended and Restated Stockholders and
Registration Rights Agreement dated August 15, 1995
(incorporated by reference to Exhibit 99.4 to the
Company's Registration Statement on Form S-3 (No.
33-61583).
10.27 Waiver and Agreement dated September 27, 1991, by and
among Lear Holdings Corporation, Kidder Peabody Group
Inc., KP/Hanover Partners 1988, L.P. General Electric
Capital Corporation, FIMA Finance Management Inc., a
Panamanian corporation, FIMA Finance Management Inc., a
British Virgin Islands corporation, MH Capital Partners
Inc., successor by merger and name change to MH Equity
Corp., SO.PA.F Societa Partecipazioni Finanziarie S.p.A.,
INVEST Societa Italiana Investimenti S.p.A., the Lehman
Partnerships and the Management Investors (incorporated
by reference to Exhibit 2.3 to Lear Holdings
Corporation's Current Report on Form 8-K dated September
24, 1991).
10.28 Stock Purchase Agreement dated as of July 21, 1992 among
the Company, the Lehman Funds and FIMA Finance Management
Inc., a British Virgin Islands corporation (incorporated
by reference to Exhibit 10.33 to the Company's
Registration Statement on Form S-1 (No. 33-47867)).
10.29 Agreement and Plan of Merger dated as of July 16, 1995,
among the Company, AIHI Acquisition Corp. and Automotive
Industries Holding, Inc. (incorporated by reference to
the Company's Current Report on Form 8-K dated August 17,
1995).
10.30 Stock Purchase Agreement, dated December 15, 1994, by and
between Gilardini S.p.A. and the Company (incorporated by
reference to Exhibit 2.1 to the Company's Current Report
on Form 8-K, dated December 15, 1994).
10.31 Purchase Agreement dated as of November 1, 1993 between
the Company and Ford Motor Company (incorporated by
reference to Exhibit 10 to the Company's Quarterly Report
on Form 10-Q for the quarter ended October 2, 1993).
10.32 Asset Purchase and Supply Agreement dated as of November
18, 1991 between Lear Seating Sweden, AB and Volvo Car
Corporation (incorporated by reference to Exhibit 10.34
to the Company's Registration Statement on Form S-1 (No.
33-47867)).
10.33 Automotive Industries Holding, Inc. 1992 Key Employee
Stock Option Plan (incorporated by reference to Exhibit
4.1 to the Company's Registration Statement on Form S-8
(No. 33-61739)).
10.34 Option Assumption Agreement between the Company and
Frederick F. Sommer dated August 21, 1995, filed
herewith.
11.1 Computation of income (loss) per share, filed herewith.
21.1 List of subsidiaries of the Company, filed herewith.
23.1 Consent of independent public accountants, filed herewith.
27.1 Financial Data Schedule, filed herewith.
61
64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on March 27, 1996.
Lear Seating Corporation
By: /s/ Kenneth L. Way
-------------------------
Kenneth L. Way
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Lear Seating
Corporation and in the capacities indicated March 27, 1996.
/s/ Kenneth L. Way /s/ Larry McCurdy
- ---------------------------------- ----------------------
Kenneth L. Way Larry McCurdy
Chairman of the Board and a Director
Chief Executive Officer
/s/ James H. Vandenberghe /s/ Jeffrey P. Hughes
- ---------------------------------- ----------------------
James H. Vandenberghe Jeffrey P. Hughes
Executive Vice President, a Director
Chief Financial Officer
and a Director
/s/ Robert E. Rossiter
- ---------------------------------- ----------------------
Robert E. Rossiter Gian Andrea Botta
President, Chief Operating Officer a Director
and a Director
/s/ David P. Spalding /s/ Robert Shower
- ---------------------------------- ----------------------
David P. Spalding Robert Shower
a Director a Director
/s/ Eliot Fried /s/ James A. Stern
- ---------------------------------- ----------------------
Eliot Fried James A. Stern
a Director a Director
/s/ Alan Washkowitz
- ----------------------------------
Alan Washkowitz
a Director
62
1
EXHIBIT 10.2
FIRST AMENDMENT AND CONSENT
FIRST AMENDMENT AND CONSENT, dated as of December 8, 1995
(this "Amendment"), to the Credit Agreement, dated as of August 17, 1995 (as
amended, supplemented or otherwise modified, the "Credit Agreement"), among
Lear Seating Corporation, a Delaware corporation (the "Borrower"), the several
financial institutions parties thereto (the "Banks"), Chemical Bank, as
administrative agent for the Banks (in such capacity, the "Agent"), and the
Managing Agents, Co-Agents and Lead Managers identified therein.
W I T N E S S E T H :
WHEREAS, pursuant to the Credit Agreement, the Banks have
agreed to make, and have made, extensions of credit to the Borrower; and
WHEREAS, the Borrower has requested that certain provisions of
the Credit Agreement and other Loan Documents be modified in the manner
provided for in this Amendment, and the Banks are willing to agree to such
modifications as provided for in this Amendment;
NOW, THEREFORE, in consideration of the premises and mutual
agreements contained herein, and for other good and valuable consideration, the
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Defined Terms. Unless otherwise defined herein,
terms defined in the Credit Agreement and used herein shall have the meanings
given to them in the Credit Agreement.
2. Amendments to Credit Agreement. (a) Subsection 1.1
of the Credit Agreement is hereby amended by (i) deleting the definition of
"Security Documents" contained therein in its entirety and (ii) adding the
following new definitions in correct alphabetical order:
"`Additional Subsidiary Guarantee': the Additional Subsidiary
Guarantee made by Lear Operations Corporation and NAB Corporation in
favor of the Agent, substantially in the form of Exhibit A of the
First Amendment and Consent, dated December 8, 1995, to this
Agreement, as the same may be amended, supplemented or otherwise
modified from time to time.
`Security Documents': the collective reference to the
Security Agreements, the Pledge Agreements, the Mortgages, the
Subsidiary Guarantee and the Additional Subsidiary Guarantee."
2
2
(b) Subsection 8.4(a) of the Credit Agreement is hereby
amended by deleting it in its entirety and inserting in lieu thereof the
following:
"(a) Guarantee Obligations in respect of the Subsidiary
Guarantee and the Additional Subsidiary Guarantee;"
(c) Subsection 8.5 of the Credit Agreement is hereby amended
by adding the following sentence to the end of such subsection:
"Notwithstanding any provision contained in paragraphs (a) and (c) of
this subsection, no Subsidiary of the Borrower may (i) be merged or
consolidated with or into either Lear Operations Corporation or NAB
Corporation or any Subsidiary thereof or (ii) sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to either Lear Operations Corporation or NAB
Corporation or any Subsidiary thereof unless, in each case, (A) the
Additional Subsidiary Guarantee shall have been amended in writing to
remove the limitation on such transferee's liability thereunder
contained in clause (ii) of paragraph 2(b) of the Additional
Subsidiary Guarantee or (B) the Agent shall have received a
certificate of a Responsible Officer of the Borrower in form and
substance satisfactory to the Agent describing such sale, lease,
transfer or other disposition and certifying the fair market value of
the assets to be so sold, leased, transferred or otherwise disposed.
Upon the Agent's approval of the certificate described in clause (B)
of the preceding sentence, the limitation on the transferee's
liability under clause (ii) of paragraph 2(b) of the Additional
Subsidiary Guarantee shall automatically increase by an amount equal
to the fair market value of the assets described in such certificate.
For purposes of the preceding two sentences, if the transferee is a
Subsidiary of either Lear Operations Corporation or NAB Corporation,
the term transferee in such two sentences shall refer to either Lear
Operations Corporation or NAB Corporation, whichever is the parent of
such Subsidiary."
(d) Subsection 8.6 of the Credit Agreement is hereby
amended by (i) deleting the word "and" at the end of paragraph (e) thereof,
(ii) deleting the period at the end of paragraph (f) thereof and inserting in
lieu thereof the word "; and" and (iii) adding the following to the end of such
subsection:
"(g) the transfer or other disposition of assets permitted
pursuant to subsection 8.9(e) to any Subsidiary."
(e) Subsection 8.8 of the Credit Agreement is hereby
amended by deleting the table contained therein in its entirety and inserting
in lieu thereof the following table:
3
3
"Fiscal Year Amount
----------- ------
1995 $150,000,000
1996 160,000,000
1997 125,000,000
1998 125,000,000
1999 100,000,000
2000 100,000,000
2001 100,000,000;"
(f) Subsection 8.9 of the Credit Agreement is hereby
amended by (i) deleting paragraph (d) thereof in its entirety and inserting in
lieu thereof the following:
"(d) investments, loans and advances listed on Schedule
8.9, together with any replacements, substitutions or refinancings
thereof that do not increase the amount thereof;",
(ii) deleting the word "and" at the end of paragraph (s) thereof, (iii)
deleting the period at the end of paragraph (t) thereof and inserting in lieu
thereof the word "; and" and (iv) adding the following to the end of such
subsection:
"(u) the contribution by the Borrower to a Subsidiary of the
Borrower formed under the laws of the Cayman Islands of loans or
participating interests in loans made to Lear Italia and permitted
pursuant to paragraph (o) of this subsection 8.9."
3. Consents and Waivers. (a) Notwithstanding any
provision contained in subsections 8.5 and 8.6 of the Credit Agreement,
paragraph 5(j) of the Security Agreement or any Mortgage to which the Borrower
is a party, the Banks consent to the Borrower's transfer of (i) substantially
all of its non-Michigan assets to Lear Operations Corporation, a Delaware
corporation and a newly formed, Wholly Owned Subsidiary of the Borrower
("LOC"), (ii) all of its assets obtained in connection with the November 1993
acquisition of Ford Motor Company's North American seat cover and seat systems
business, and assets currently used in the operation of such business, to NAB
Corporation, a Delaware corporation and a newly formed and Wholly Owned
Subsidiary of the Borrower ("NAB Co."), (iii) the Borrower's existing
participating interest in loans made to Lear Italia to a direct Subsidiary of
the Borrower to be formed under the laws of the Cayman Islands ("Cayman Co."),
provided that simultaneously with such transfer described in this clause (iii),
(A) the Borrower shall have executed and delivered a pledge agreement in form
and substance reasonably satisfactory to the Agent whereby the Borrower shall
have pledged 65% of the stock of Cayman Co. to the Agent, (B) the Agent shall
have received certificates of Cayman Co. representing such pledged stock
together with related executed stock transfer forms and (C) the Agent shall
have received, with a copy for each Bank, (I) the
4
4
opinion of Cayman Islands counsel in form and substance reasonably satisfactory
to the Agent and (II) the opinion of Winston & Strawn in form and substance
reasonably satisfactory to the Agent.
(b) Notwithstanding any provision contained in any Loan
Document, but subject to the adjustments provided in subsection 8.5 of the
Credit Agreement, the maximum liability of each of LOC and NAB Co. under the
Additional Subsidiary Guarantee and, without duplication, the maximum amount of
Obligations secured pursuant to the Security Agreements or Mortgages to which
either LOC or NAB Co. is a party or by assets owned or held by LOC or NAB Co.
(including, without limitation, any real property transferred by the Borrower
to either LOC or NAB Co., whether or not subject to a Mortgage) shall in no
event exceed $54,000,000, in the case of LOC, and $59,000,000, in the case of
NAB Co.
(c) Notwithstanding any provision contained in subsection 8.5
of the Credit Agreement or any provision of the Pledge Agreements, AIHI and any
of its Subsidiaries may merge, in one or more transactions, into Automotive
Industries Manufacturing Inc., a Delaware corporation and a newly formed and
Wholly Owned Subsidiary of the Borrower ("AII"), which shall be the surviving
corporation of such mergers.
(d) The Banks hereby waive compliance with the provisions
of subsection 8.18 of the Credit Agreement with respect to (i) each of LOC and
NAB Co. being parties to a Guarantee Supplement and (ii) having the stock of
each of LOC and NAB Co. pledged to the Agent, for the ratable benefit of the
Banks; provided that such waiver is given subject to the condition that the
Borrower, LOC and NAB Co., as applicable, execute and deliver the Additional
Subsidiary Guarantee, the First Amendment to the Domestic Pledge Agreement and
the Additional Security Agreement (as such documents are described in Section
5(b), (c) and (e) hereof).
(e) Notwithstanding any provision contained in the Lear
Seating Canada Ltd. Share Pledge Agreement, dated as of August 17, 1995, made
by the Borrower in favor of the Agent, the Banks consent to the amalgamation of
Lear Seating Canada Ltd. and 115335 Ontario Inc., a newly formed Subsidiary of
the Borrower ("Holdco"), provided that such consent is given subject to the
condition that upon the amalgamation of Lear Seating Canada Ltd. and Holdco
(the continuing corporation after such amalgamation being referred to herein as
"Lear Canada"), the Borrower and Lear Canada shall deliver the First Amendment
to the Lear Seating Canada Ltd. Share Pledge Agreement in substantially the
form of Exhibit E hereto, and the Borrower shall deliver to the Agent share
certificates in the name of the Agent representing 65% of the issued and
outstanding shares of each class of capital stock of Lear Canada.
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4. Agreements of Banks. The Banks hereby consent to (a)
the First Amendment to Domestic Pledge Agreement in substantially the form of
Exhibit D hereto, (b) the First Amendment to Lear Seating Canada Ltd. Share
Pledge Agreement in substantially the form of Exhibit E hereto and (c) after
the contribution of the capital stock of Lear Seating (U.K.) Limited into
Automotive Industries Holdings Limited ("AIHL"), the release of the charge over
65% of the stock of Lear Seating (U.K.) Limited pursuant to the Charge Over
Shares, dated August 17, 1995 (the "Old Charge"), between the Borrower and the
Agent, provided that simultaneously with such release (i) AII and the Agent
shall have executed and delivered a new Charge Over Shares in substantially the
form of the Old Charge whereby AII shall have pledged 65% of the stock of AIHL
to the Agent, (ii) the Agent shall have received certificates of AIHL
representing such pledged stock, together with related executed stock transfer
forms and (iii) the Agent shall have received, with a copy for each Bank, (A)
the opinion of English counsel to the Agent in form and substance reasonably
satisfactory to the Agent and (B) the opinion of Winston & Strawn in form and
substance reasonably satisfactory to the Agent.
5. Conditions to Effectiveness. This Amendment shall
become effective on the date (the "Amendment Effective Date") on which all of
the following conditions precedent have been satisfied or waived:
(a) execution and delivery of this Amendment by the
Borrower, the Agent and the Required Banks;
(b) receipt by the Agent, with a counterpart for each
Bank, of the Additional Subsidiary Guarantee in substantially the form
of Exhibit A hereto duly executed by each of LOC and NAB Co.;
(c) receipt by the Agent, with a counterpart for each
Bank, of the Additional Security Agreement in substantially the form
of Exhibit B hereto duly executed by each of LOC and NAB Co.;
(d) receipt by the Agent, with a counterpart for each Bank,
of the Second Additional Security Agreement in substantially the form
of Exhibit C hereto, duly executed by AII;
(e) receipt by the Agent, with a counterpart for each
Bank, the First Amendment to Domestic Pledge Agreement in
substantially the form of Exhibit D hereto duly executed by the
Borrower and consented to by AII, LOC and NAB Co.;
(f) receipt by the Agent of certificates representing
shares pledged pursuant to the First Amendment to Domestic Pledge
Agreement, together with an undated stock power for
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each such certificate executed in blank by a duly authorized officer
of the Borrower;
(g) receipt by the Agent of evidence in form and
substance satisfactory to it that all filings, recordings,
registrations and other actions, including, without limitation, the
filing of duly executed financing statements on form UCC-1, necessary
or, in the opinion of the Agent, desirable to perfect the Liens
created by the Additional Security Agreement, the Second Additional
Security Agreement and the First Amendment to Domestic Pledge
Agreement shall have been completed;
(h) receipt by the Agent of the results of a recent
search by a Person satisfactory to the Agent, of the Uniform
Commercial Code, judgment and the tax lien filings which may have been
filed with respect to personal property of each of LOC, NAB Co. and
AII, and the results of such search shall be reasonably satisfactory
to the Agent;
(i) receipt by the Agent, with a counterpart for each
Bank, of a certificate of the Secretary or Assistant Secretary of each
of the Borrower, LOC, NAB Co. and AII, dated the Amendment Effective
Date, as to the incumbency and signature of their respective officers
executing each of this Amendment, the Additional Subsidiary Guarantee,
the Additional Security Agreement, the Second Additional Security
Agreement and the First Amendment to Domestic Pledge Agreement, as
applicable, together with satisfactory evidence of the incumbency of
such Secretary or Assistant Secretary;
(j) receipt by the Agent, with a counterpart for each
Bank, of a copy of the resolutions in form and substance satisfactory
to the Agent, of the Board of Directors of each of the Borrower, LOC,
NAB Co., and AII authorizing (i) the execution, delivery and
performance of this Amendment and the other documents being executed
and delivered in connection herewith and (ii) the granting by it of
the pledge and security interest granted by it pursuant to such
documents, certified by their respective Secretary or an Assistant
Secretary as of the Amendment Effective Date, which certificate shall
state that the resolutions therein certified have not been amended,
modified revoked or rescinded as of the date of such certificate; and
(k) receipt by the Agent, with a copy for each Bank, of
an opinion, dated the Amendment Effective Date, of Winston & Strawn in
substantially the form of Exhibit F hereto.
6. Representations and Warranties. The Borrower
represents and warrants that the representations and warranties made by the
Borrower in the Loan Documents are true and correct
7
7
in all material respects on and as of the Amendment Effective Date, before and
after giving effect to the effectiveness of this Amendment, as if made on and
as of the Amendment Effective Date, except to the extent such representations
and warranties expressly relate to an earlier date.
7. Payment of Expenses. The Borrower agrees to pay or
reimburse the Agent for all of its out-of-pocket costs and reasonable expenses
incurred in connection with this Amendment and any other documents prepared in
connection herewith and the transactions contemplated hereby, including,
without limitation, the reasonable fees and disbursements of counsel to the
Agent.
8
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8. No Other Amendments; Confirmation. Except as
expressly amended, modified and supplemented hereby, the provisions of the
Credit Agreement, the Notes and the other Loan Documents are and shall remain
in full force and effect.
9. Governing Law; Counterparts. (a) This Amendment and
the rights and obligations of the parties hereto shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New
York.
(b) This Amendment may be executed by one or more of the
parties to this Amendment on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Amendment signed by all the parties
shall be lodged with the Borrower and the Agent. This Amendment may be
delivered by facsimile transmission of the relevant signature pages hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
LEAR SEATING CORPORATION
By:_____________________________
Title:
CHEMICAL BANK, as Agent and as a
Bank
By:____________________________
Title:
9
9
ABN AMRO BANK N.V.
By:____________________________
Title:
By:____________________________
Title:
THE ASAHI BANK, LTD.
By:____________________________
Title:
BANKERS TRUST COMPANY
By:____________________________
Title:
BANK OF AMERICA ILLINOIS
By:____________________________
Title:
BANK OF MONTREAL
By:____________________________
Title:
THE BANK OF NEW YORK
By:____________________________
Title:
THE BANK OF NOVA SCOTIA
By:____________________________
Title:
THE BANK OF TOKYO TRUST COMPANY
By:____________________________
Title:
10
10
BANQUE PARIBAS
By:____________________________
Title:
By:____________________________
Title:
CAISSE NATIONALE DE CREDIT AGRICOLE
By:____________________________
Title:
CIBC INC.
By:____________________________
Title:
CITICORP USA, INC.
By:____________________________
Title:
COMERICA BANK
By:____________________________
Title:
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
By:____________________________
Title:
By:____________________________
Title:
11
11
COOPERATIEVE CENTRALE RAIFFEISEN -
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
By:____________________________
Title:
By:____________________________
Title:
CREDITANSTALT CORPORATE FINANCE,
INC.
By:____________________________
Title:
By:____________________________
Title:
CREDIT LYONNAIS CHICAGO BRANCH
By:____________________________
Title:
CREDIT LYONNAIS CAYMAN ISLANDS
BRANCH
By:____________________________
Title:
THE DAI-ICHI KANGYO BANK, LTD.
By:____________________________
Title:
DEUTSCHE BANK AG, CHICAGO AND/OR
CAYMAN ISLANDS BRANCHES
By:____________________________
Title:
By:____________________________
Title:
12
12
DRESDNER BANK AG, CHICAGO AND GRAND
CAYMAN BRANCHES
By:____________________________
Title:
By:____________________________
Title:
FIRST AMERICAN NATIONAL BANK
By:____________________________
Title:
FIRST BANK NATIONAL ASSOCIATION
By:____________________________
Title:
THE FIRST NATIONAL BANK OF BOSTON
By:____________________________
Title:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By:____________________________
Title:
THE FUJI BANK, LIMITED
By:____________________________
Title:
THE INDUSTRIAL BANK OF JAPAN, LTD.,
CHICAGO BRANCH
By:____________________________
Title:
13
13
ISTITUTO BANCARIO SAN PAOLO
DI TORNIO SPA
By:____________________________
Title:
By:____________________________
Title:
KREDIETBANK N.V.
By:____________________________
Title:
By:____________________________
Title:
LEHMAN COMMERCIAL PAPER INC.
By:____________________________
Title:
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., CHICAGO BRANCH
By:____________________________
Title:
THE MITSUBISHI BANK, LIMITED
(CHICAGO BRANCH)
By:____________________________
Title:
THE MITSUBISHI TRUST & BANKING
CORPORATION, CHICAGO BRANCH
By:____________________________
Title:
14
14
NATIONAL BANK OF CANADA
By:____________________________
Title:
By:____________________________
Title:
NATIONSBANK, N.A. (CAROLINAS)
By:____________________________
Title:
NBD BANK
By:____________________________
Title:
THE NIPPON CREDIT BANK, LTD.
By:____________________________
Title:
ROYAL BANK OF CANADA
By:____________________________
Title:
THE ROYAL BANK OF SCOTLAND, PLC.
By:____________________________
Title:
THE SAKURA BANK, LIMITED
By:____________________________
Title:
THE SANWA BANK, LIMITED, CHICAGO
BRANCH
By:____________________________
Title:
15
15
SOCIETE GENERALE, CHICAGO BRANCH
By:____________________________
Title:
SOCIETY NATIONAL BANK
By:____________________________
Title:
THE SUMITOMO BANK, LIMITED,
CHICAGO BRANCH
By:____________________________
Title:
By:____________________________
Title:
THE SUMITOMO TRUST & BANKING CO.,
LTD., NEW YORK BRANCH
By:____________________________
Title:
THE TOKAI BANK, LTD. (CHICAGO
BRANCH)
By:____________________________
Title:
VIA BANQUE
By:____________________________
Title:
By:____________________________
Title:
WESTPAC BANKING CORPORATION
By:____________________________
Title:
16
16
THE YASUDA TRUST & BANKING COMPANY,
LTD.
By:____________________________
Title:
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By:____________________________
Title:
MITSUI TRUST & BANKING COMPANY,
LIMITED,NEW YORK BRANCH
By:____________________________
Title:
THE TOYO TRUST AND BANKING
COMPANY, LIMITED
By:____________________________
Title:
17
ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned corporations as guarantors under the
Subsidiary Guarantee, dated as of August 17, 1995, made by LS Acquisition Corp.
No. 14, Lear Seating Holdings Corp. No. 50, Progress Pattern Corp., Lear
Plastics Corp., LS Acquisition Corporation No. 24, Fair Haven Industries, Inc.
and Automotive Industries Holding, Inc. (as successor by merger to AIHI
Acquisition Corp.) in favor of the Agent as supplemented by the Guarantor
Supplements, each dated September 12, 1995, by ASAA, Inc., Gulfstream
Automotive, Inc. and Automotive Industries, Inc. hereby (a) consents to the
transaction contemplated by this Amendment and (b) acknowledges and agrees that
the guarantees contained in such Subsidiary Guarantee as supplemented by such
Guarantor Supplements (and all collateral security therefor) are, and shall
remain, in full force and effect after giving effect to this Amendment and all
prior modifications to the Credit Agreement.
LS ACQUISITION CORP., NO. 14
By:__________________________
Title:
LEAR SEATING HOLDINGS CORP.
No. 50
By:__________________________
Title:
PROGRESS PATTERN CORP.
By:__________________________
Title:
LEAR PLASTICS CORP.
By:__________________________
Title:
LS ACQUISITION CORPORATION
NO. 24
By:__________________________
Title:
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FAIR HAVEN INDUSTRIES, INC.
By:__________________________
Title:
AUTOMOTIVE INDUSTRIES HOLDING,
INC. (as successor by merger to
AIHI Acquisition Corp.)
By:__________________________
Title:
ASSA, INC.
By:__________________________
Title:
GULFSTREAM AUTOMOTIVE, INC.
By:__________________________
Title:
AUTOMOTIVE INDUSTRIES, INC.
By:__________________________
Title:
19
EXHIBIT A
FORM OF ADDITIONAL SUBSIDIARY GUARANTEE
ADDITIONAL SUBSIDIARY GUARANTEE, dated as of ________, 199_
(this "Guarantee"), made by each of the corporations that are signatories
hereto other than Chemical Bank (the "Guarantors"), in favor of CHEMICAL BANK,
as administrative agent (in such capacity, the "Agent") for the Banks parties
to the Credit Agreement referred to below.
W I T N E S S E T H:
WHEREAS, Lear Seating Corporation (the "Borrower") is a party
to the Credit Agreement, dated as of August 17, 1995 (as amended, supplemented
or otherwise modified from time to time, the "Credit Agreement") with the
financial institutions parties thereto (the "Banks"), the Agent and the
Managing Agents, Co-Agents and Lead Managers identified therein;
WHEREAS, pursuant to the Credit Agreement and the other Loan
Documents (as defined in the Credit Agreement), the Banks have agreed to make
certain Loans (as defined in the Credit Agreement) to or for the benefit of the
Borrower and, in the case of the Issuing Bank (as defined in the Credit
Agreement), issue and, in the case of the Participating Banks (as defined in
the Credit Agreement), participate in certain Letters of Credit (as defined in
the Credit Agreement);
WHEREAS, it is a condition precedent to the effectiveness of
the First Amendment and Consent, dated as of December 8, 1995 (the "First
Amendment"), to the Credit Agreement that each Guarantor shall have executed
and delivered this Guarantee to the Agent for the ratable benefit of the Banks;
and
WHEREAS, the Borrower and the Guarantors are engaged in
related businesses and each Guarantor will derive substantial direct and
indirect benefits from the making of the Loans and issuances of the Letters of
Credit;
NOW, THEREFORE, in consideration of the premises contained
herein and to induce the Agent, and the Banks to enter into the First Amendment
and to induce the Banks to make the Loans and to issue and participate in the
Letters of Credit under the Credit Agreement, each Guarantor hereby agrees with
the Agent, for the ratable benefit of the Banks, as follows:
1. Defined Terms. (a) Unless otherwise defined herein,
terms defined in the Credit Agreement and used herein shall have the meanings
given to them in the Credit Agreement.
(b) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Guarantee shall refer to this Guarantee as a
whole and not to any particular provision
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2
of this Guarantee, and Section and paragraph references are to this Guarantee
unless otherwise specified.
(c) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
2. Guarantee. (a) Subject to the provisions of paragraph
2(b), each of the Guarantors hereby, jointly and severally, unconditionally and
irrevocably, guarantees to the Agent, for the ratable benefit of the Banks and
their respective successors, indorsees, transferees and assigns, the prompt and
complete payment and performance by the Borrower when due (whether at the
stated maturity, by acceleration or otherwise) of the Obligations.
(b) Anything herein or in any other Loan Document to the
contrary notwithstanding, the maximum liability of each Guarantor hereunder and
under the other Loan Documents, and, without duplication, the maximum amount of
Obligations secured pursuant to the Security Documents by assets of such
Guarantor, shall in no event exceed the lesser of (i) the amount which can be
guaranteed by such Guarantor under applicable federal and state laws relating
to the insolvency of debtors and (ii) in the case of Lear Operations
Corporation, $54,000,000, and, in the case of NAB Corporation, $59,000,000,
provided that the amounts contained in this clause (ii) shall automatically
increase in accordance with subsection 8.5 of the Credit Agreement.
(c) Subject to the provisions of paragraph 2(b), each
Guarantor further agrees to pay any and all expenses (including, without
limitation, all fees and disbursements of counsel) which may be paid or
incurred by the Agent or any Bank in enforcing, or obtaining advice of counsel
in respect of, any rights with respect to, or collecting, any or all of the
Obligations and/or enforcing any rights with respect to, or collecting against,
such Guarantor under this Guarantee. This Guarantee shall remain in full force
and effect until the Obligations are paid in full and the Commitments are
terminated, notwithstanding that from time to time prior thereto the Borrower
may be free from any Obligations.
(d) Each Guarantor agrees that the Obligations may at any
time and from time to time exceed the amount of the liability of such Guarantor
hereunder without impairing this Guarantee or affecting the rights and remedies
of the Agent or any Bank hereunder.
(e) No payment or payments made by the Borrower, any of the
Guarantors, any other guarantor or any other Person or received or collected by
the Agent or any Bank from the Borrower, any of the Guarantors, any other
guarantor or any other Person by virtue of any action or proceeding or any
set-off or appropriation or application at any time or from time to time in
reduction of or in payment of the Obligations shall be deemed to
21
3
modify, reduce, release or otherwise affect the liability of any Guarantor
hereunder which shall, notwithstanding any such payment or payments other than
payments made by such Guarantor in respect of the Obligations or payments
received or collected from such Guarantor in respect of the Obligations, remain
liable for the Obligations up to the maximum liability of such Guarantor
hereunder until the Obligations are paid in full and the Commitments are
terminated.
(f) Each Guarantor agrees that whenever, at any time, or from
time to time, it shall make any payment to the Agent or any Bank on account of
its liability hereunder, it will notify the Agent in writing that such payment
is made under this Guarantee for such purpose.
3. Right of Contribution. Each Guarantor hereby agrees that
to the extent that a Guarantor shall have paid more than its proportionate
share of any payment made hereunder, such Guarantor shall be entitled to seek
and receive contribution from and against any other Guarantor hereunder who has
not paid its proportionate share of such payment. Each Guarantor's right of
contribution shall be subject to the terms and conditions of Section 5 hereof.
The provisions of this Section shall in no respect limit the obligations and
liabilities of any Guarantor to the Agent and the Banks, and each Guarantor
shall remain liable to the Agent and the Banks for the full amount guaranteed
by such Guarantor hereunder.
4. Right of Set-off. Upon the occurrence of any Event of
Default, each Guarantor hereby irrevocably authorizes each Bank at any time and
from time to time without notice to such Guarantor or any other Guarantor, any
such notice being expressly waived by each Guarantor, to set-off and
appropriate and apply any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by such Bank to or
for the credit or the account of such Guarantor, or any part thereof in such
amounts as such Bank may elect, against and on account of the obligations and
liabilities of such Guarantor to such Bank hereunder and claims of every nature
and description of such Bank against such Guarantor, in any currency, whether
arising hereunder, under the Credit Agreement, any Note, any other Loan
Documents or otherwise, as such Bank may elect, whether or not the Agent or any
Bank has made any demand for payment and although such obligations, liabilities
and claims may be contingent or unmatured. The Agent and each Bank shall
notify such Guarantor promptly of any such set-off and the application made by
the Agent or such Bank, provided that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of the Agent
and each Bank under this Section are in addition to other rights and remedies
(including,
22
4
without limitation, other rights of set-off) which the Agent or such Bank may
have.
5. No Subrogation. Notwithstanding any payment or payments
made by any of the Guarantors hereunder or any set-off or application of funds
of any of the Guarantors by any Bank, no Guarantor shall be entitled to be
subrogated to any of the rights of the Agent or any Bank against the Borrower
or any other Guarantor or any collateral security or guarantee or right of
offset held by the Agent or any Bank for the payment of the Obligations, nor
shall any Guarantor seek or be entitled to seek any contribution or
reimbursement from the Borrower or any other Guarantor in respect of payments
made by such Guarantor hereunder, until all amounts owing to the Agent and the
Banks by the Borrower on account of the Obligations are paid in full and the
Commitments are terminated. If any amount shall be paid to any Guarantor on
account of such subrogation rights at any time when all of the Obligations
shall not have been paid in full, such amount shall be held by such Guarantor
in trust for the Agent and the Banks, segregated from other funds of such
Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over
to the Agent in the exact form received by such Guarantor (duly indorsed by
such Guarantor to the Agent, if required), to be applied against the
Obligations, whether matured or unmatured, in such order as the Agent may
determine.
6. Amendments, etc. with respect to the Obligations; Waiver
of Rights. Each Guarantor shall remain obligated hereunder and under any other
Loan Document to which it is a party notwithstanding that, without any
reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, any demand for payment of any of the Obligations made
by the Agent or any Bank may be rescinded by such party and any of the
Obligations continued, and the Obligations, or the liability of any other party
upon or for any part thereof, or any collateral security or guarantee therefor
or right of offset with respect thereto, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised,
waived, surrendered or released by the Agent or any Bank, and the Credit
Agreement, the Notes and the other Loan Documents and any other documents
executed and delivered in connection therewith may be amended, modified,
supplemented or terminated, in whole or in part, as the Agent, the Required
Banks or all the Banks, as the case may be, may deem advisable from time to
time, and any collateral security, guarantee or right of offset at any time
held by the Agent or any Bank for the payment of the Obligations may be sold,
exchanged, waived, surrendered or released. Neither the Agent nor any Bank
shall have any obligation to protect, secure, perfect or insure any Lien at any
time held by it as security for the Obligations or for this Guarantee or any
property subject thereto. When making any demand hereunder against any of the
Guarantors, the Agent or any Bank may, but shall be under no obligation to,
make a similar demand on the Borrower or any other Guarantor or guarantor, and
any failure by
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the Agent or any Bank to make any such demand or to collect any payments from
the Borrower or any such other Guarantor or guarantor or any release of the
Borrower or such other Guarantor or guarantor shall not relieve any of the
Guarantors in respect of which a demand or collection is not made or any of the
Guarantors not so released of their several obligations or liabilities
hereunder, and shall not impair or affect the rights and remedies, express or
implied, or as a matter of law, of the Agent or any Bank against any of the
Guarantors. For the purposes hereof "demand" shall include the commencement
and continuance of any legal proceedings.
7. Guarantee Absolute and Unconditional. Each Guarantor
waives any and all notice of the creation, renewal, extension or accrual of any
of the Obligations and notice of or proof of reliance by the Agent or any Bank
upon this Guarantee or acceptance of this Guarantee; the Obligations, and any
of them, shall conclusively be deemed to have been created, contracted or
incurred, or renewed, extended, amended or waived, in reliance upon this
Guarantee; and all dealings between the Borrower and any of the Guarantors, on
the one hand, and the Agent and the Banks, on the other hand, likewise shall be
conclusively presumed to have been had or consummated in reliance upon this
Guarantee. Each Guarantor waives diligence, presentment, protest, demand for
payment and notice of default or nonpayment to or upon the Borrower or any of
the Guarantors with respect to the Obligations. Each Guarantor understands and
agrees that this Guarantee shall be construed as a continuing, absolute and
unconditional guarantee of payment without regard to (a) the validity,
regularity or enforceability of the Credit Agreement, any Note or any other
Loan Document, any of the Obligations or any other collateral security therefor
or guarantee or right of offset with respect thereto at any time or from time
to time held by the Agent or any Bank, (b) any defense, set-off or counterclaim
(other than a defense of payment or performance) which may at any time be
available to or be asserted by the Borrower against the Agent or any Bank, or
(c) any other circumstance whatsoever (with or without notice to or knowledge
of the Borrower or such Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Borrower for the
Obligations, or of such Guarantor under this Guarantee, in bankruptcy or in any
other instance. When pursuing its rights and remedies hereunder against any
Guarantor, the Agent and any Bank may, but shall be under no obligation to,
pursue such rights and remedies as it may have against the Borrower or any
other Person or against any collateral security or guarantee for the
Obligations or any right of offset with respect thereto, and any failure by the
Agent or any Bank to pursue such other rights or remedies or to collect any
payments from the Borrower or any such other Person or to realize upon any such
collateral security or guarantee or to exercise any such right of offset, or
any release of the Borrower or any such other Person or any such collateral
security, guarantee or right of offset, shall not relieve such Guarantor of any
liability
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6
hereunder, and shall not impair or affect the rights and remedies, whether
express, implied or available as a matter of law, of the Agent and the Banks
against such Guarantor. This Guarantee shall remain in full force and effect
and be binding in accordance with and to the extent of its terms upon each
Guarantor and the successors and assigns thereof, and shall inure to the
benefit of the Agent and the Banks, and their respective successors, indorsees,
transferees and assigns, until all the Obligations and the obligations of each
Guarantor under this Guarantee shall have been satisfied by payment in full and
the Commitments shall be terminated, notwithstanding that from time to time
during the term of the Credit Agreement the Borrower may be free from any
Obligations.
8. Reinstatement. This Guarantee shall continue to be
effective, or be reinstated, as the case may be, if at any time payment, or any
part thereof, of any of the Obligations is rescinded or must otherwise be
restored or returned by the Agent or any Bank upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower or any Guarantor, or
upon or as a result of the appointment of a receiver, intervenor or conservator
of, or trustee or similar officer for, the Borrower or any Guarantor or any
substantial part of its property, or otherwise, all as though such payments had
not been made.
9. Payments. Each Guarantor hereby guarantees that payments
hereunder will be paid to the Agent without set-off or counterclaim in Dollars
at the office of the Agent located at 270 Park Avenue, New York, New York
10017.
10. Representations and Warranties. Each Guarantor hereby
represents and warrants that:
(a) it is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation and
has the corporate power and authority and the legal right to own and operate
its property, to lease the property it operates and to conduct the business in
which it is currently engaged;
(b) it has the corporate power and authority and the legal
right to execute and deliver, and to perform its obligations under, this
Guarantee and each other Loan Document to which it is a party, and has taken
all necessary corporate action to authorize the execution, delivery and
performance of this Guarantee and each other Loan Document to which it is a
party;
(c) this Guarantee and each other Loan Document to which it
is a party constitutes a legal, valid and binding obligation of such Guarantor
enforceable in accordance with its terms, except as affected by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting the enforcement of creditors' rights
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generally, general equitable principles and an implied covenant of good faith
and fair dealing;
(d) the execution, delivery and performance of this Guarantee
and each other Loan Document to which it is a party will not violate any
provision of any Requirement of Law or Contractual Obligation of such Guarantor
and will not result in or require the creation or imposition of any Lien on any
of the properties or revenues of such Guarantor pursuant to any Requirement of
Law or Contractual Obligation of the Guarantor; and
(e) no consent or authorization of, filing with, or other act
by or in respect of, any arbitrator or Governmental Authority and no consent of
any other Person (including, without limitation, any stockholder or creditor of
such Guarantor) is required in connection with the execution, delivery,
performance, validity or enforceability of this Guarantee and each other Loan
Document to which it is a party.
Each Guarantor agrees that the foregoing representations and
warranties shall be deemed to have been made by such Guarantor on the date of
each borrowing or issuance of a Letter of Credit under the Credit Agreement and
as of such date of borrowing or issuance, as the case may be, as though made
hereunder on and as of such date. Each Guarantor hereby confirms that each of
the Mortgages and each other Security Document to which such Guarantor is a
party stands as collateral security for the payment and performance of such
Guarantor's obligations and liabilities under this Guarantee.
11. Authority of Agent. Each Guarantor acknowledges that the
rights and responsibilities of the Agent under this Guarantee with respect to
any action taken by the Agent or the exercise or non-exercise by the Agent of
any option, right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Guarantee shall, as between the
Agent and the Banks, be governed by the Credit Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Agent and such Guarantor, the Agent shall be conclusively
presumed to be acting as agent for the Banks with full and valid authority so
to act or refrain from acting, and no Guarantor shall be under any obligation,
or entitlement, to make any inquiry respecting such authority.
12. Notices. All notices, requests and demands to or upon
the Agent, any Bank or any Guarantor to be effective shall be in writing (or by
telex or telecopy confirmed in writing) and shall be deemed to have been duly
given or made (1) when delivered by hand or (2) if given by mail, five days
after being deposited in the mails by certified mail, return receipt requested
or (3) if by telex or telecopy, when sent and receipt has been confirmed,
addressed as follows:
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(a) if to the Agent or any Bank, at its address or
transmission number for notices provided in subsection 11.2 of the Credit
Agreement; and
(b) if to any Guarantor, at its address or transmission
number for notices set forth under its signature below.
The Agent, each Bank and each Guarantor may change its address
and transmission numbers for notices by notice in the manner provided in this
Section.
13. Counterparts. This Guarantee may be executed by one or
more of the parties to this Guarantee on any number of separate counterparts,
and all of said counterparts taken together shall be deemed to constitute one
and the same instrument. A set of the counterparts of this Guarantee signed by
all the parties hereto shall be lodged with the Agent.
14. Severability. Any provision of this Guarantee which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
15. Integration. This Guarantee represents the agreement of
each Guarantor with respect to the subject matter hereof and there are no
promises or representations by the Agent or any Bank relative to the subject
matter hereof not reflected herein.
16. Amendments in Writing; No Waiver; Cumulative Remedies.
(a) None of the terms or provisions of this Guarantee may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
each Guarantor and the Agent in accordance with subsection 11.1 of the Credit
Agreement, provided that any provision of this Guarantee may be waived by the
Agent and the Banks in a letter or agreement executed by the Agent or by
telecopy from the Agent.
(b) Neither the Agent nor any Bank shall by any act (except
by a written instrument pursuant to paragraph 16.(a) hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the Agent or any Bank, any right, power
or privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Agent or any Bank of any right or remedy
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9
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which the Agent or such Bank would otherwise have on any future
occasion.
(c) The rights and remedies herein provided are cumulative,
may be exercised singly or concurrently and are not exclusive of any other
rights or remedies provided by law.
17. Section Headings. The section headings used in this
Guarantee are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.
18. Successors and Assigns. This Guarantee shall be binding
upon the successors and assigns of each Guarantor and shall inure to the
benefit of the Agent and the Banks and their successors and assigns.
19. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
20. Submission to Jurisdiction; Waivers. Each Guarantor
hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal
action or proceeding relating to this Guarantee or any other Loan
Document to which it is a party, or for recognition and enforcement of
any judgment in respect thereof, to the non- exclusive general
jurisdiction of the courts of the State of New York, the courts of the
United States of America for the Southern District of New York, and
appellate courts from any thereof;
(b) consents that any such action or proceeding may be
brought in such courts and waives trial by jury and any objection that
it may now or hereafter have to the venue of any such action or
proceeding in any such court or that such action or proceeding was
brought in an inconvenient court and agrees not to plead or claim the
same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to such Guarantor at its address set forth under its
signature below or at such other address of which the Agent shall have
been notified pursuant to Section 12; and
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner
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permitted by law or shall limit the right to sue in any other
jurisdiction.
IN WITNESS WHEREOF, each of the undersigned has caused this
Guarantee to be duly executed and delivered as of the day and year first above
written.
LEAR OPERATIONS CORPORATION
By:_________________________
Title:
NAB CORPORATION
By:_________________________
Title:
Address for Notices:
c/o Lear Seating Corporation
21557 Telegraph Road
Southfield, Michigan 48034
Attention: Donald J. Stebbins
Telecopy: (810) 746-1593
29
EXHIBIT B
FORM OF ADDITIONAL SECURITY AGREEMENT
ADDITIONAL SECURITY AGREEMENT, dated as of _________, 199_,
made by each of the corporations that are signatories hereto other than
Chemical Bank (the "Grantors"), in favor of CHEMICAL BANK, as administrative
agent (in such capacity, the "Agent") for the Banks parties to the Credit
Agreement referred to below.
W I T N E S S E T H :
WHEREAS, Lear Seating Corporation (the "Borrower") is a party
to the Credit Agreement, dated as of August 17, 1995 (as amended, supplemented
or otherwise modified from time to time, the "Credit Agreement") with the
financial institutions parties thereto (the "Banks"), the Agent and the
Managing Agents, Co-Agents and Lead Managers identified therein;
WHEREAS, pursuant to the Credit Agreement and the other Loan
Documents (as defined in the Credit Agreement), the Banks have agreed to make
certain Loans (as defined in the Credit Agreement) to or for the benefit of the
Borrower and, in the case of the Issuing Bank (as defined in the Credit
Agreement), issue and, in the case of the Participating Banks (as defined in
the Credit Agreement), participate in certain Letters of Credit (as defined in
the Credit Agreement); and
WHEREAS, it is a condition precedent to the effectiveness of
the First Amendment and Consent, dated as of December 8, 1995 (the "First
Amendment"), to the Credit Agreement that the Grantors shall have executed and
delivered this Security Agreement to the Agent for the ratable benefit of the
Banks;
NOW, THEREFORE, in consideration of the premises contained
herein and to induce the Agent, and the Banks to enter into the First Amendment
and to induce the Banks to make the Loans and to issue and participate in the
Letters of Credit under the Credit Agreement, the Grantors hereby agree with
the Agent, for the ratable benefit of the Banks, as follows:
1. Defined Terms. (a) Unless otherwise defined herein,
terms which are defined in the Credit Agreement and used herein shall have the
meanings given to them in the Credit Agreement; the following terms which are
defined in the Uniform Commercial Code in effect in the State of New York on
the date hereof are used herein as so defined: Accounts, Chattel Paper,
Documents, Farm Products, General Intangibles, Instruments, Inventory and
Proceeds; and the following terms shall have the following meanings:
"Code" shall mean the Uniform Commercial Code as from time to
time in effect in the State of New York.
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2
"Collateral" shall have the meaning assigned to it in Section
2 of this Security Agreement.
"Contracts" shall mean each of the agreements listed on
Schedules I-A through B, as the same may from time to time be amended,
supplemented or otherwise modified, including, without limitation, (a)
all rights for each Grantor to receive monies due and to become due to
it thereunder or in connection therewith, (b) all rights of each
Grantor to damages arising out of, or for, breach or default in
respect thereof and (c) all rights of each Grantor to perform and to
exercise all remedies thereunder.
"Equipment" shall mean all equipment, as such term is defined
in Section 9-109(2) of the Code, now or hereafter acquired by each
Grantor, and, in any event, shall mean and include, but shall not be
limited to, all machinery, equipment, furnishings and fixtures now or
hereafter used in connection with the businesses of each Grantor or
located at the locations set forth on Schedules IV-A through B, and
any and all additions, substitutions and replacements of any of the
foregoing, together with all attachments, components, parts (including
spare parts), equipment and accessories installed thereon or affixed
thereto.
"Security Agreement" shall mean this Additional Security
Agreement, as amended, supplemented or otherwise modified from time to
time.
(b) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Security Agreement shall refer to this
Security Agreement as a whole and not to any particular provision of this
Security Agreement, and Section, paragraph and Schedule references are to this
Security Agreement unless otherwise specified.
(c) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
2. Grant of Security Interest. As collateral security for
the prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Obligations (subject to the
limitations set forth in paragraph 2(b) of the Additional Subsidiary Guarantee)
and in order to induce the Agent and the Banks to enter into the Credit
Agreement, each Grantor hereby sells, assigns, conveys, mortgages, pledges,
hypothecates and transfers to the Agent, and hereby grants to the Agent, for
the ratable benefit of the Banks, a security interest in all of the following
property now owned or at any time hereafter acquired by such Grantor or in
which such Grantor now has or at any time in the future may acquire any right,
title or interest (collectively, the "Collateral"):
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(i) all Accounts;
(ii) all Chattel Papers;
(iii) all Contracts;
(iv) all Documents;
(v) all Equipment;
(vi) all General Intangibles;
(vii) all Instruments;
(viii) all Inventory; and
(ix) to the extent not otherwise included, all Proceeds,
products, substitutions and replacements of any and all of the
foregoing.
3. Rights of Agent and Banks; Limitations on Agent's and
Banks' Obligations. (a) Anything herein to the contrary notwithstanding,
each Grantor shall remain liable under each of its respective Accounts and the
Contracts to observe and perform all the conditions and obligations to be
observed and performed by it thereunder, all in accordance with the terms of
any agreement giving rise to each such Account and in accordance with and
pursuant to the terms and provisions of the Contracts. Neither the Agent nor
any Bank shall have any obligation or liability under any Account (or any
agreement giving rise thereto) or under the Contracts by reason of or arising
out of this Security Agreement or the receipt by the Agent or any such Bank of
any payment relating to such Account or the Contracts pursuant hereto, nor
shall the Agent or any Bank be obligated in any manner to perform any of the
obligations of any Grantor under or pursuant to any Account (or any agreement
giving rise thereto), or under or pursuant to the Contracts, to make any
payment, to make any inquiry as to the nature or the sufficiency of any payment
received by it or as to the sufficiency of any performance by any party under
any Account (or any agreement giving rise thereto) or under the Contracts, to
present or file any claim, to take any action to enforce any performance or to
collect the payment of any amounts which may have been assigned to it or to
which it may be entitled at any time or times.
(b) At the Agent's request, each Grantor shall deliver to
the Agent all original and other documents evidencing, and relating to, the
sale and delivery of Inventory or the performance of labor or service which
created the Accounts, including, but not limited to, all Chattel Paper,
original purchase orders, invoices, shipping documents and delivery receipts
and duplicate copies of credit memoranda.
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(c) The Agent may at any time after the occurrence and
during the continuance of an Event of Default notify account debtors and
parties to Accounts that the Accounts have been assigned to the Agent, for the
ratable benefit of the Banks, and that payments shall be made directly to the
Agent. Upon the request of the Agent at any time after the occurrence and
during the continuance of an Event of Default, each Grantor will so notify such
account debtors and such parties to the Accounts. Upon prior notice to the
Grantors, the Agent may in its own name or in the name of others communicate
with account debtors and parties to Accounts in order to verify with them to
the Agent's satisfaction the existence, amount and terms of any Accounts.
(d) Upon prior notice to the Grantors, the Agent shall
have the right to make test verifications of the Collateral in any matter and
through any medium that it considers advisable, and each Grantor agrees to
furnish all such assistance and information as the Agent may require in
connection therewith. Each Grantor at its expense will furnish, or will cause
independent public accountants satisfactory to the Agent to furnish, to the
Agent at any time and from time to time promptly upon the Agent's request, the
following reports: (i) reconciliation of all Collateral, (ii) an aging of all
Collateral, (iii) trial balances, (iv) a test verification of such Collateral
and (v) a physical inventory of the Collateral by certified accountants
reasonably satisfactory to the Agent.
4. Representations and Warranties. Each Grantor hereby
represents and warrants that:
(a) Title; No Other Liens. Except for the Lien granted
to the Agent for the ratable benefit of the Banks pursuant to this
Security Agreement, such Grantor owns each item of the Collateral free
and clear of any and all Liens or claims of others other than Liens
permitted under subsection 8.3 of the Credit Agreement. No security
agreement, financing statement or other public notice with respect to
all or any part of such Collateral is on file or of record in any
public office, except (i) such as may have been filed in favor of the
Agent, for the ratable benefit of the Banks, pursuant to this Security
Agreement, (ii) financing statements filed with respect to equipment
leases or (iii) as may otherwise be permitted pursuant to the Credit
Agreement.
(b) Perfected First Priority Liens. Appropriate
financing statements having been filed in the jurisdictions listed on
Schedules II-A through B and all other appropriate action having been
duly taken, the Liens granted pursuant to this Security Agreement
constitute perfected Liens on the Collateral in favor of the Agent,
for the ratable benefit of the Banks, which are prior to all other
Liens on such Collateral created by such Grantor other than Liens
permitted under subsection 8.3 of the Credit Agreement and
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which are enforceable as such against all creditors of and purchasers
from such Grantor and against any owner or purchaser of the real
property where any of the Equipment or Inventory is located and any
present or future creditor obtaining a Lien on such real property.
(c) Accounts. The amount represented by such Grantor to
the Banks from time to time as owing by each account debtor or by all
account debtors in respect of the Accounts will at such time be the
correct amount actually owing by such account debtor or debtors
thereunder. No amount in excess of $100,000 payable to such Grantor
under or in connection with any of the Accounts is evidenced by any
Instrument or Chattel Paper which has not been delivered to the Agent.
The place where such Grantor keeps its records concerning the Accounts
is set forth on Schedule III-A through B.
(d) Consents. Except as previously disclosed to the
Banks in writing: (i) no consent of any party (other than such
Grantor) to each Contract is required, or purports to be required, in
connection with the execution, delivery and performance of this
Security Agreement by such Grantor; (ii) each Contract is in full
force and effect and constitutes a valid and legally enforceable
obligation of the parties thereto, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally;
(iii) no consent or authorization of, filing with or other act by or
in respect of any Governmental Authority is required in connection
with the execution, delivery, performance, validity or enforceability
of any Contract by any party thereto other than those which have been
duly obtained, made or performed, are in full force and effect and do
not subject the scope of any Contract to any material adverse
limitation, either specific or general in nature; (iv) neither such
Grantor nor (to the best of such Grantor's knowledge) any other party
to any Contract is in default or is likely to become in default in the
performance or observance of any of the terms thereof; (v) such
Grantor has fully performed all its obligations under each Contract;
(vi) the right, title and interest of such Grantor in, to and under
each Contract is not subject to any defense, offset, counterclaim or
claim which could materially adversely affect the value of such
Contract as Collateral, nor have any of the foregoing been asserted or
alleged against such Grantor as to each Contract; (vii) such Grantor
has delivered to the Agent a complete and correct copy of each
Contract, including all amendments, supplements and other
modifications thereto; and (viii) no amount payable to such Grantor
under or in connection with any Contract is evidenced by any
Instrument or Chattel Paper which has not been delivered to the Agent.
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(e) Inventory and Equipment. The Inventory and the
Equipment are kept only at the locations listed on Schedules IV-A
through B.
(f) Chief Executive Office. Such Grantor's chief executive
office and chief place of business is located at the address listed on
Schedules V-A through B.
(g) Farm Products. None of the Collateral constitutes, or is
the Proceeds of, Farm Products.
5. Covenants. Each Grantor covenants and agrees with the
Agent and the Banks that, from and after the date of this Security Agreement
until the Obligations have been paid in full:
(a) Further Documentation; Pledge of Instruments and Chattel
Paper. At any time and from time to time, upon the reasonable request
of any Bank, and at the sole expense of such Grantor, such Grantor
will promptly and duly execute and deliver such further instruments
and documents and take such further action as such Bank may reasonably
request for the purpose of obtaining or preserving the full benefits
of this Security Agreement and of the rights and powers herein
granted, including, without limitation, the filing of any financing or
continuation statements under the Uniform Commercial Code in effect in
any jurisdiction with respect to the Liens created hereby. Such
Grantor also hereby authorizes the Agent to file any such financing or
continuation statement without the signature of such Grantor to the
extent permitted by applicable law. A carbon, photographic or other
reproduction of this Security Agreement shall be sufficient as a
financing statement for filing in any jurisdiction.
(b) Pledge of Instruments and Chattel Paper. If any amount
in excess of $100,000 payable under or in connection with any of the
Collateral shall be or become evidenced by any Instrument or Chattel
Paper, such Instrument or Chattel Paper shall be immediately delivered
to the Agent, duly endorsed by such Grantor in a manner satisfactory
to the Agent, to be held as Collateral pursuant to this Security
Agreement.
(c) Indemnification. Such Grantor agrees to pay, and to save
the Agent and the Banks harmless from, any and all liabilities, costs
and expenses (including, without limitation, legal fees and expenses)
(i) with respect to, or resulting from, any delay in paying, any and
all excise, sales or other taxes which may be payable or determined to
be payable with respect to any of the Collateral, (ii) with respect
to, or resulting from, any delay in complying with any Requirement of
Law applicable to any of the Collateral or (iii) in connection with
any of the transactions contemplated by this Security Agreement. In
any suit,
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proceeding or action brought by the Agent or any Bank under any of the
Accounts for any sum owing thereunder, or to enforce any provisions of
any such Account, such Grantor will save, indemnify and keep the Agent
and such Bank harmless from and against all expense, loss or damage
suffered by reason of any defense, setoff, counterclaim, recoupment or
reduction or liability whatsoever of the account debtor or obligor
thereunder, arising out of a breach by such Grantor of any obligation
thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such account debtor or
obligor or its successors from such Grantor.
(d) Maintenance of Records. Such Grantor will keep and
maintain at its own cost and expense satisfactory and complete
records of the Collateral, including, without limitation, a record of
all payments received and all credits granted with respect to the
Accounts. Such Grantor will mark its books and records pertaining to
the Collateral to evidence this Security Agreement and the security
interests granted hereby. For the Agent's and the Banks' further
security, the Agent, for the ratable benefit of the Banks, shall have
a security interest in all of such Grantor's books and records
pertaining to the Collateral, and, subject to subsection 11.13 of the
Credit Agreement, such Grantor shall turn over any such books and
records to the Agent or to its representatives during normal business
hours at the request of the Agent.
(e) Right of Inspection. The Agent and the Banks shall at
all times, upon reasonable notice, have full and free access during
normal business hours to all the books, correspondence and records of
such Grantor, and the Agent and the Banks and their respective
representatives may examine the same, take extracts therefrom and make
photocopies thereof, and such Grantor agrees to render to the Agent
and the Banks, at such Grantor's cost and expense, such clerical and
other assistance as may be reasonably requested with regard thereto.
The Agent and the Banks and their respective representatives shall,
upon reasonable notice and at any reasonable time, also have the right
to enter into and upon any premises where any of the Inventory or
Equipment is located for the purpose of inspecting the same, observing
its use or otherwise protecting its interests therein.
(f) Compliance with Laws, etc. Such Grantor will comply in
all material respects with all Requirements of Law applicable to the
Collateral or any part thereof or to the operation of such Grantor's
business; provided that such Grantor may contest any Requirement of
Law in any reasonable manner which shall not, in the sole opinion of
the Agent, adversely affect the Agent's or the Banks' rights or the
priority of their Liens on the Collateral.
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(g) Compliance with Terms of Contracts, etc. Such Grantor
will perform and comply in all material respects with all its
obligations under the Contracts and all its other Contractual
Obligations relating to the Collateral.
(h) Payment of Obligations. Such Grantor will pay promptly
when due all taxes, assessments and governmental charges or levies
imposed upon the Collateral or in respect of its income or profits
therefrom, as well as all claims of any kind (including, without
limitation, claims for labor, materials and supplies) against or with
respect to such Collateral, except that no such charge need be paid if
(i) the validity thereof is being contested in good faith by
appropriate proceedings, and such charge is adequately reserved
against on such Grantor's books in accordance with GAAP or (ii) such
proceedings do not involve any danger of the sale, forfeiture or loss
of any of such Collateral or any interest therein.
(i) Limitations on Liens on Collateral. Such Grantor will
not create, incur or permit to exist, will defend the Collateral
against, and will take such other action as is necessary to remove,
any Lien or claim on or to such Collateral, other than the Liens
created hereby or Liens permitted under subsection 8.3 of the Credit
Agreement, and will defend the right, title and interest of the Agent
and the Banks in and to any of such Collateral against the claims and
demands of all Persons whomsoever.
(j) Limitations on Dispositions of Collateral. Such Grantor
will not sell, transfer, lease or otherwise dispose of any of the
Collateral, or attempt, offer or contract to do so except for
dispositions of assets permitted by subsection 8.6 of the Credit
Agreement.
(k) Limitations on Modifications, Waivers, Extensions of the
Contracts and Agreements Giving Rise to Accounts. Such Grantor will
not (i) amend, modify, terminate or waive any provision of any
Contract or any agreement giving rise to any of the Accounts in any
manner which could reasonably be expected to materially adversely
affect the value of any such Contract or Account as Collateral, (ii)
fail to exercise promptly and diligently each and every material right
which it may have under each agreement giving rise to the Accounts
(other than any right of termination) or (iii) fail to deliver to the
Agent a copy of each material demand, notice or document received by
it relating in any way to any Contract or any agreement giving rise to
an Account.
(l) Limitations on Discounts, Compromises, Extensions of
Accounts. Other than in the ordinary course of business as generally
conducted by the Grantor over a period of time, such Grantor will not
grant any extension of the time of payment of any of the Accounts,
compromise, compound or
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settle the same for less than the full amount thereof, release, wholly
or partially, any Person liable for the payment thereof, or allow any
credit or discount whatsoever thereon.
(m) Maintenance of Equipment. Such Grantor will maintain
each material item of the Equipment useful and necessary in its
business in good operating condition, ordinary wear and tear and
immaterial impairments of value and damage by the elements excepted,
and will provide all maintenance, service and repairs necessary for
such purpose.
(n) Maintenance of Insurance. Such Grantor will maintain,
with financially sound and reputable companies, insurance policies (i)
insuring the Inventory and Equipment against loss by fire, explosion,
theft and such other casualties customary for business of the same
type and (ii) insuring such Grantor, the Agent and the Banks against
liability for personal injury and property damage relating to the
Inventory and Equipment, such policies to be in the form and amounts
and having such coverage customary for business of the same type with
losses payable to such Grantor and the Agent as their respective
interests may appear. All such insurance shall (i) contain a breach
of warranty clause in favor of the Agent, (ii) provide that no
cancellation, material reduction in amount or material change in
coverage thereof shall be effective until at least 30 days after
receipt by the Agent and the Banks of written notice thereof, (iii)
name the Agent and the Banks as insured parties and (iv) be reasonably
satisfactory in all other respects to the Agent. Such Grantor shall
deliver to the Agent and the Banks a report of a reputable insurance
broker with respect to such insurance as the Agent may from time to
time reasonably request.
(o) Further Identification of Collateral. Upon the
reasonable request of the Agent, such Grantor will furnish to the
Agent and the Banks from time to time statements and schedules further
identifying and describing the Collateral and such other reports in
connection with the Collateral, all in reasonable detail.
(p) Notices. Such Grantor will advise the Agent and the
Banks promptly, in reasonable detail, at their respective addresses
set forth in the Credit Agreement, (i) of any Lien (other than Liens
created hereby or permitted under the Credit Agreement) on, or claim
asserted against, any of the Collateral and (ii) of the occurrence of
any other event which could reasonably be expected to have a material
adverse effect on the aggregate value of the Collateral or on the
Liens created hereunder.
(q) Changes in Locations, Name, etc. Such Grantor will not
(i) change the location of its chief executive
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office/chief place of business from that specified in paragraph 4(f)
or remove its books and records from the location specified in
paragraph 4(c), (ii) permit any of the Inventory or Equipment to be
kept at a location other than those listed in respect to such Grantor
on Schedules IV-A through or (iii) change its name, identity or
corporate structure to such an extent that any financing statement
filed by the Agent in connection with this Security Agreement could
become seriously misleading.
6. Agent's Appointment as Attorney-in-Fact. (a) Powers.
Each Grantor hereby irrevocably constitutes and appoints the Agent and any
officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of such Grantor and in the name of such Grantor or in its own name,
from time to time in the Agent's discretion, for the purpose of carrying out
the terms of this Security Agreement, to take any and all appropriate action
and to execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Security Agreement, and, without
limiting the generality of the foregoing, each Grantor hereby gives the Agent
the power and right, on behalf of such Grantor, without notice to or assent by
such Grantor, to do the following:
(i) upon the occurrence and during the continuance of
any Event of Default, in the name of such Grantor or its own name, or
otherwise, to take possession of and indorse and collect any checks,
drafts, notes, acceptances or other instruments for the payment of
moneys due under any Accounts, Instruments, General Intangibles or any
Contract or with respect to any other of the Collateral and to file
any claim or to take any other action or proceeding in any court of
law or equity or otherwise deemed appropriate by the Agent for the
purpose of collecting any and all such moneys due under any such
Account, Instrument or General Intangible or Contract or with respect
to any other such Collateral whenever payable;
(ii) to pay or discharge taxes and Liens levied or
placed on or threatened against the Collateral, to effect any repairs
or any insurance called for by the terms of this Security Agreement
and to pay all or any part of the premiums therefor and the costs
thereof; and
(iii) upon the occurrence and during the continuance of
any Event of Default, (A) to direct any party liable for any payment
under any of the Collateral to make payment of any and all moneys due
or to become due thereunder directly to the Agent or as the Agent
shall direct; (B) to ask or demand for, collect, receive payment of
and receipt for, any and all moneys, claims and other amounts due or
to become due at any time in respect of or arising out of any of the
Collateral; (C) to sign and indorse any invoices, freight or
39
11
express bills, bills of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications, notices and other
documents in connection with any of the Collateral; (D) to commence
and prosecute any suits, actions or proceedings at law or in equity in
any court of competent jurisdiction to collect the Collateral or any
thereof and to enforce any other right in respect of any such
Collateral; (E) to defend any suit, action or proceeding brought
against such Grantor with respect to any Collateral; (F) to settle,
compromise or adjust any suit, action or proceeding described in
clause (E) above and, in connection therewith, to give such discharges
or releases as the Agent may deem appropriate; and (G) generally, to
sell, transfer, pledge and make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as
though the Agent were the absolute owner thereof for all purposes, and
to do, at the Agent's option and such Grantor's expense, at any time,
or from time to time, all acts and things which the Agent deems
necessary to protect, preserve or realize upon the Collateral and the
Agent's and the Banks' Liens thereon and to effect the intent of this
Security Agreement, all as fully and effectively as the Grantor might
do.
Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
(b) Other Powers. Each Grantor also authorizes the Agent and
the Banks, at any time and from time to time, to execute, in connection with
the sale provided for in Section 9 hereof, any endorsements, assignments or
other instruments of conveyance or transfer with respect to the Collateral.
(c) No Duty on Agent or Banks' Part. The powers conferred on
the Agent and the Banks hereunder are solely to protect the Agent's and the
Banks' interests in the Collateral and shall not impose any duty upon the Agent
or any Bank to exercise any such powers. The Agent and the Banks shall be
accountable only for amounts that they actually receive as a result of the
exercise of such powers, and neither they nor any of their officers, directors,
employees or agents shall be responsible to any Grantor for any act or failure
to act hereunder, except for their own gross negligence or willful misconduct.
7. Performance by Agent of Grantor's Obligations. If any
Grantor fails to perform or comply with any of its agreements contained herein
and the Agent, as provided for by the terms of this Security Agreement, shall
itself perform or comply, or otherwise cause performance or compliance, with
such agreement, the expenses of the Agent incurred in connection with such
performance or compliance, together with interest thereon at a
40
12
rate per annum 2% above the ABR, shall be payable by such Grantor to the Agent
on demand and shall constitute Obligations secured hereby.
8. Proceeds. If an Event of Default shall occur and be
continuing:
(a) all Proceeds received by any Grantor consisting of cash,
checks and other near-cash items shall be held by such Grantor in
trust for the Agent and the Banks, segregated from other funds of the
Grantor, and shall, forthwith upon receipt by such Grantor, be turned
over to the Agent in the exact form received by such Grantor (duly
indorsed by such Grantor to the Agent, if required) and
(b) any and all such Proceeds received by the Agent (whether
from any Grantor or otherwise) may, in the sole discretion of the
Agent, be held by the Agent for the ratable benefit of the Banks as
collateral security for, and/or then or at any time thereafter may be
applied by the Agent against, the Obligations (whether matured or
unmatured), such application to be in such order as the Agent shall
elect. Any balance of such Proceeds remaining after the Obligations
shall have been paid in full and the Commitments shall have been
terminated shall be paid over to the Grantors or to whomsoever may be
lawfully entitled to receive the same.
9. Remedies. If an Event of Default shall occur and be
continuing, the Agent, on behalf of the Banks, may exercise, in addition to all
other rights and remedies granted to them in this Security Agreement and in any
other instrument or agreement securing, evidencing or relating to the
Obligations or any Obligations, all rights and remedies of a secured party
under the Code. Without limiting the generality of the foregoing, the Agent,
without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon the Grantors or any other Person (all and each of which
demands, defenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon any
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
an option or options to purchase, or otherwise dispose of and deliver any
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any exchange or broker's
board or office of the Agent or any Bank or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
The Agent and each Bank shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or
sales, to purchase the whole or any part of any Collateral so sold, free of any
right or equity of redemption in
41
13
the Grantors, which right or equity is hereby waived or released. Each Grantor
further agrees, at the Agent's request, to assemble the Collateral and make it
available to the Agent at places which the Agent shall reasonably select,
whether at the Grantor's premises or elsewhere. The Agent shall apply the net
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale, after deducting all reasonable costs and expenses of every kind
incurred therein or incidental to the care or safekeeping of any of such
Collateral or in any way relating to such Collateral or the rights of the Agent
and the Banks hereunder, including, without limitation, attorneys' fees and
disbursements, to the payment in whole or in part of the Obligations, in such
order as the Agent may elect, and only after such application and after the
payment by the Agent of any other amount required by any provision of law,
including, without limitation, Section 9-504(1)(c) of the Code, need the Agent
account for the surplus, if any, to the Grantors. To the extent permitted by
applicable law, the Grantor waives all claims, damages and demands it may
acquire against the Agent or any Bank arising out of the exercise by them of
any rights hereunder. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given at least ten days before such sale or other disposition. Each
Grantor shall remain liable for any deficiency if the proceeds of any sale or
other disposition of the Collateral are insufficient to pay the Obligations and
the fees and disbursements of any attorneys employed by the Agent or any Bank
to collect such deficiency.
10. Limitation on Duties Regarding Preservation of
Collateral. The Agent's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the Code or otherwise, shall be to deal with it in the same manner as the
Agent deals with similar property for its own account. Neither the Agent, any
Bank, nor any of their respective directors, officers, employees or agents
shall be liable for failure to demand, collect or realize upon all or any part
of the Collateral or for any delay in doing so or shall be under any obligation
to sell or otherwise dispose of any Collateral upon the request of any Grantor
or otherwise.
11. Powers Coupled with an Interest. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.
12. Severability. Any provision of this Security Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
42
14
13. Section Headings. The Section headings used in this
Security Agreement are for convenience of reference only and are not to affect
the construction hereof or be taken into consideration in the interpretation
hereof.
14. No Waiver; Cumulative Remedies. Neither the Agent nor
any Bank shall by any act (except by a written instrument pursuant to Section
15 hereof), delay, indulgence, omission or otherwise be deemed to have waived
any right or remedy hereunder or to have acquiesced in any Default or Event of
Default or in any breach of any of the terms and conditions hereof. No failure
to exercise, nor any delay in exercising, on the part of the Agent or any Bank,
any right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Agent or any Bank of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Agent or such Bank would otherwise have on any future
occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
15. Waivers and Amendments; Successors and Assigns; Governing
Law. None of the terms or provisions of this Security Agreement may be waived,
amended, supplemented or otherwise modified except by a written instrument
executed by each Grantor and the Agent in accordance with subsection 11.1 of
the Credit Agreement; provided that any provision of this Security Agreement
may be waived by the Agent and the Banks in a letter or agreement executed by
the Agent or by telecopy from the Agent. This Security Agreement shall be
binding upon the successors and assigns of each Grantor and shall inure to the
benefit of the Agent and the Banks and their respective successors and assigns.
THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
16. Notices. All notices, requests and demands to or upon
the Agent, any Bank or any Grantor to be effective shall be in writing (or by
telegraph or telecopy confirmed in writing) and shall be deemed to have been
duly given or made (a) when delivered by hand or (b) if given by mail, when
deposited in the mails by certified mail, return receipt requested or (c) if by
telegraph or telecopy, when sent and receipt has been confirmed, addressed at
its address or transmission number for notices provided in subsection 11.2 of
the Credit Agreement or Section 12 of the Subsidiary Guarantee. The Agent,
each Bank and the Grantor may change its address and transmission numbers for
notices by notice in the manner provided in this Section.
17. Authority of Agent. Each Grantor acknowledges that the
rights and responsibilities of the Agent under this
43
15
Security Agreement with respect to any action taken by the Agent or the
exercise or non-exercise by the Agent of any option, right, request, judgment
or other right or remedy provided for herein or resulting or arising out of
this Security Agreement shall, as between the Agent and the Banks, be governed
by the Credit Agreement and by such other agreements with respect thereto as
may exist from time to time among them, but, as between the Agent and each
Grantor, the Agent shall be conclusively presumed to be acting as agent for the
Banks with full and valid authority so to act or refrain from acting, and each
Grantor shall not be under any obligation, or entitlement, to make any inquiry
respecting such authority.
18. Release of Liens. In the event that any Grantor conveys,
sells, leases, assigns, transfers or otherwise disposes of any portion of the
Collateral in accordance with subsection 8.6 of the Credit Agreement or grants
a Lien with respect to any of the Collateral which Lien is permitted pursuant
to subsection 8.3(m) of the Credit Agreement, and so long as no Default or
Event of Default shall have occurred and be continuing, the Agent shall
promptly take such action as may be reasonably requested by such Grantor to
release, to the extent necessary, any Liens created by this Security Agreement
in respect of such Collateral.
19. Counterparts. This Security Agreement may be executed by
one or more of the parties to this Security Agreement on any number of separate
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the counterparts of this
Security Agreement signed by all the parties hereto shall be lodged with the
Agent.
IN WITNESS WHEREOF, each of the undersigned has caused this
Security Agreement to be duly executed and delivered as of the date first above
written.
LEAR OPERATIONS CORPORATION
By:______________________________
Title:
NAB CORPORATION
By:______________________________
Title:
44
SCHEDULE I-A
LEAR OPERATIONS CORPORATION
Contracts
None.
SCHEDULE I-B
NAB CORPORATION
Contracts
None.
45
SCHEDULE II-A
LEAR OPERATIONS CORPORATION
Financing Statements Filed
State Location
1. [To be provided] 1. [To be provided]
SCHEDULE II-B
NAB CORPORATION
Financing Statements Filed
State Location
1. [To be provided] 1. [To be provided]
46
SCHEDULE III-A
LEAR OPERATIONS CORPORATION
Location of Records Concerning Accounts
[To be provided]
SCHEDULE III-B
NAB CORPORATION
Location of Records Concerning Accounts
[To be provided]
47
SCHEDULE IV-A
LEAR OPERATIONS CORPORATION
Location of Inventory and Equipment
[To be provided]
48
SCHEDULE IV-B
NAB CORPORATION
Locations of Inventory and Equipment
[To be provided]
49
SCHEDULE V-A
LEAR OPERATIONS CORPORATION
Chief Executive Office
[21557 Telegraph Road
Southfield, Michigan 48034]
SCHEDULE V-B
NAB CORPORATION
Chief Executive Office
[21557 Telegraph Road
Southfield, Michigan 48034]
50
EXHIBIT C
FORM OF SECOND ADDITIONAL SECURITY AGREEMENT
SECOND ADDITIONAL SECURITY AGREEMENT, dated as of _________,
199_, made by AUTOMOTIVE INDUSTRIES MANUFACTURING INC. (the "Grantor"), in
favor of CHEMICAL BANK, as administrative agent (in such capacity, the "Agent")
for the Banks parties to the Credit Agreement referred to below.
W I T N E S S E T H :
WHEREAS, Lear Seating Corporation (the "Borrower") is a party
to the Credit Agreement, dated as of August 17, 1995 (as amended, supplemented
or otherwise modified from time to time, the "Credit Agreement") with the
financial institutions parties thereto (the "Banks"), the Agent and the
Managing Agents, Co-Agents and Lead Managers identified therein;
WHEREAS, pursuant to the Credit Agreement and the other Loan
Documents (as defined in the Credit Agreement), the Banks have agreed to make
certain Loans (as defined in the Credit Agreement) to or for the benefit of the
Borrower and, in the case of the Issuing Bank (as defined in the Credit
Agreement), issue and, in the case of the Participating Banks (as defined in
the Credit Agreement), participate in certain Letters of Credit (as defined in
the Credit Agreement); and
WHEREAS, it is a condition precedent to the effectiveness of
the First Amendment and Consent, dated as of December 8, 1995 (the "First
Amendment"), to the Credit Agreement that the Grantor shall have executed and
delivered this Security Agreement to the Agent for the ratable benefit of the
Banks;
NOW, THEREFORE, in consideration of the premises contained
herein and to induce the Agent, and the Banks to enter into the First Amendment
and to induce the Banks to make the Loans and to issue and participate in the
Letters of Credit under the Credit Agreement, the Grantor hereby agrees with
the Agent, for the ratable benefit of the Banks, as follows:
1. Defined Terms. (a) Unless otherwise defined herein,
terms which are defined in the Credit Agreement and used herein shall have the
meanings given to them in the Credit Agreement; the following terms which are
defined in the Uniform Commercial Code in effect in the State of New York on
the date hereof are used herein as so defined: Accounts, Chattel Paper,
Documents, Farm Products, Instruments, Inventory and Proceeds; and the
following terms shall have the following meanings:
"Code" shall mean the Uniform Commercial Code as from time to
time in effect in the State of New York.
"Collateral" shall have the meaning assigned to it in Section
2 of this Security Agreement.
51
2
"Security Agreement" shall mean this Second Additional
Security Agreement, as amended, supplemented or otherwise modified
from time to time.
(b) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Security Agreement shall refer to this
Security Agreement as a whole and not to any particular provision of this
Security Agreement, and Section, paragraph and Schedule references are to this
Security Agreement unless otherwise specified.
(c) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
2. Grant of Security Interest. (a) As collateral security
for the prompt and complete payment and performance when due (whether at the
stated maturity, by acceleration or otherwise) of the Obligations, the Grantor
hereby sells, assigns, conveys, mortgages, pledges, hypothecates and transfers
to the Agent, and hereby grants to the Agent, for the ratable benefit of the
Banks, a security interest in all of the following property now owned or at any
time hereafter acquired by the Grantor or in which the Grantor now has or at
any time in the future may acquire any right, title or interest (collectively,
the "Collateral"):
(i) all Accounts;
(ii) all Chattel Paper evidencing or constituting
Proceeds of an Account;
(iii) all Instruments evidencing or constituting Proceeds
an Account; and
(iv) to the extent not otherwise included, all Proceeds,
products, substitutions and replacements of any and all of the
foregoing.
(b) Anything herein to the contrary notwithstanding, this
Security Agreement shall terminate at such time the Additional Subsidiary
Guarantee shall be amended to remove the limitation contained in clause (ii) of
paragraph 2(b) thereof.
3. Rights of Agent and Banks; Limitations on Agent's and
Banks' Obligations. (a) Anything herein to the contrary notwithstanding, the
Grantor shall remain liable under each of its Accounts to observe and perform
all the conditions and obligations to be observed and performed by it
thereunder, all in accordance with the terms of any agreement giving rise to
each such Account. Neither the Agent nor any Bank shall have any obligation or
liability under any Account (or any agreement giving rise thereto) by reason of
or arising out of this Security Agreement or the receipt by the Agent or any
such Bank of any
52
3
payment relating to such Account pursuant hereto, nor shall the Agent or any
Bank be obligated in any manner to perform any of the obligations of any
Grantor under or pursuant to any Account (or any agreement giving rise
thereto), to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party under any Account (or any agreement giving rise
thereto) to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.
(b) At the Agent's request, the Grantor shall deliver to
the Agent all original and other documents evidencing, and relating to, the
sale and delivery of Inventory or the performance of labor or service which
created the Accounts, including, but not limited to, all Chattel Paper,
original purchase orders, invoices, shipping documents and delivery receipts
and duplicate copies of credit memoranda.
(c) The Agent may at any time after the occurrence and
during the continuance of an Event of Default notify account debtors and
parties to Accounts that the Accounts have been assigned to the Agent, for the
ratable benefit of the Banks, and that payments shall be made directly to the
Agent. Upon the request of the Agent at any time after the occurrence and
during the continuance of an Event of Default, the Grantor will so notify such
account debtors and such parties to the Accounts. Upon prior notice to the
Grantor, the Agent may in its own name or in the name of others communicate
with account debtors and parties to Accounts in order to verify with them to
the Agent's satisfaction the existence, amount and terms of any Accounts.
(d) Upon prior notice to the Grantor, the Agent shall
have the right to make test verifications of the Collateral in any matter and
through any medium that it considers advisable, and the Grantor agrees to
furnish all such assistance and information as the Agent may require in
connection therewith. The Grantor at its expense will furnish, or will cause
independent public accountants satisfactory to the Agent to furnish, to the
Agent at any time and from time to time promptly upon the Agent's request, the
following reports: (i) reconciliation of all Collateral, (ii) an aging of all
Collateral, (iii) trial balances, (iv) a test verification of such Collateral
and (v) a physical inventory of the Collateral by certified accountants
reasonably satisfactory to the Agent.
4. Representations and Warranties. The Grantor hereby
represents and warrants that:
(a) Title; No Other Liens. Except for the Lien granted
to the Agent for the ratable benefit of the Banks pursuant to this
Security Agreement, the Grantor owns each item of the Collateral free
and clear of any and all Liens
53
4
or claims of others other than Liens permitted under subsection 8.3 of
the Credit Agreement. No security agreement, financing statement or
other public notice with respect to all or any part of such Collateral
is on file or of record in any public office, except (i) such as may
have been filed in favor of the Agent, for the ratable benefit of the
Banks, pursuant to this Security Agreement, (ii) financing statements
filed with respect to equipment leases or (iii) as may otherwise be
permitted pursuant to the Credit Agreement.
(b) Perfected First Priority Liens. Appropriate
financing statements having been filed in the jurisdictions listed on
Schedule I and all other appropriate action having been duly taken,
the Liens granted pursuant to this Security Agreement constitute
perfected Liens on the Collateral in favor of the Agent, for the
ratable benefit of the Banks, which are prior to all other Liens on
such Collateral created by the Grantor other than Liens permitted
under subsection 8.3 of the Credit Agreement and which are enforceable
as such against all creditors of and purchasers from the Grantor and
against any owner or purchaser of the real property where any of the
Equipment or Inventory is located and any present or future creditor
obtaining a Lien on such real property.
(c) Accounts. The amount represented by the Grantor to
the Banks from time to time as owing by each account debtor or by all
account debtors in respect of the Accounts will at such time be the
correct amount actually owing by such account debtor or debtors
thereunder. No amount in excess of $100,000 payable to the Grantor
under or in connection with any of the Accounts is evidenced by any
Instrument or Chattel Paper which has not been delivered to the Agent.
The place where the Grantor keeps its records concerning the Accounts
is set forth on Schedule III-A through B.
(d) Chief Executive Office. The Grantor's chief executive
office and chief place of business is located at
___________________________.
(e) Farm Products. None of the Collateral constitutes, or is
the Proceeds of, Farm Products.
5. Covenants. The Grantor covenants and agrees with the
Agent and the Banks that, from and after the date of this Security Agreement
until the Obligations have been paid in full:
(a) Further Documentation; Pledge of Instruments and Chattel
Paper. At any time and from time to time, upon the reasonable request
of any Bank, and at the sole expense of the Grantor, the Grantor will
promptly and duly execute and deliver such further instruments and
documents and take such
54
5
further action as such Bank may reasonably request for the purpose of
obtaining or preserving the full benefits of this Security Agreement
and of the rights and powers herein granted, including, without
limitation, the filing of any financing or continuation statements
under the Uniform Commercial Code in effect in any jurisdiction with
respect to the Liens created hereby. The Grantor also hereby
authorizes the Agent to file any such financing or continuation
statement without the signature of the Grantor to the extent permitted
by applicable law. A carbon, photographic or other reproduction of
this Security Agreement shall be sufficient as a financing statement
for filing in any jurisdiction.
(b) Pledge of Instruments and Chattel Paper. If any amount
in excess of $100,000 payable under or in connection with any of the
Collateral shall be or become evidenced by any Instrument or Chattel
Paper, such Instrument or Chattel Paper shall be immediately delivered
to the Agent, duly endorsed by the Grantor in a manner satisfactory to
the Agent, to be held as Collateral pursuant to this Security
Agreement.
(c) Indemnification. The Grantor agrees to pay, and to save
the Agent and the Banks harmless from, any and all liabilities, costs
and expenses (including, without limitation, legal fees and expenses)
(i) with respect to, or resulting from, any delay in paying, any and
all excise, sales or other taxes which may be payable or determined to
be payable with respect to any of the Collateral, (ii) with respect
to, or resulting from, any delay in complying with any Requirement of
Law applicable to any of the Collateral or (iii) in connection with
any of the transactions contemplated by this Security Agreement. In
any suit, proceeding or action brought by the Agent or any Bank under
any of the Accounts for any sum owing thereunder, or to enforce any
provisions of any such Account, the Grantor will save, indemnify and
keep the Agent and such Bank harmless from and against all expense,
loss or damage suffered by reason of any defense, setoff,
counterclaim, recoupment or reduction or liability whatsoever of the
account debtor or obligor thereunder, arising out of a breach by the
Grantor of any obligation thereunder or arising out of any other
agreement, indebtedness or liability at any time owing to or in favor
of such account debtor or obligor or its successors from the Grantor.
(d) Maintenance of Records. The Grantor will keep and
maintain at its own cost and expense satisfactory and complete
records of the Collateral, including, without limitation, a record of
all payments received and all credits granted with respect to the
Accounts. The Grantor will mark its books and records pertaining to
the Collateral to evidence this Security Agreement and the security
55
6
interests granted hereby. For the Agent's and the Banks' further
security, the Agent, for the ratable benefit of the Banks, shall have
a security interest in all of the Grantor's books and records
pertaining to the Collateral, and, subject to subsection 11.13 of the
Credit Agreement, the Grantor shall turn over any such books and
records to the Agent or to its representatives during normal business
hours at the request of the Agent.
(e) Right of Inspection. The Agent and the Banks shall at
all times, upon reasonable notice, have full and free access during
normal business hours to all the books, correspondence and records of
the Grantor, and the Agent and the Banks and their respective
representatives may examine the same, take extracts therefrom and make
photocopies thereof, and the Grantor agrees to render to the Agent and
the Banks, at the Grantor's cost and expense, such clerical and other
assistance as may be reasonably requested with regard thereto.
(f) Compliance with Laws, etc. The Grantor will comply in
all material respects with all Requirements of Law applicable to the
Collateral or any part thereof or to the operation of the Grantor's
business; provided that the Grantor may contest any Requirement of Law
in any reasonable manner which shall not, in the sole opinion of the
Agent, adversely affect the Agent's or the Banks' rights or the
priority of their Liens on the Collateral.
(g) Payment of Obligations. The Grantor will pay promptly
when due all taxes, assessments and governmental charges or levies
imposed upon the Collateral or in respect of its income or profits
therefrom, as well as all claims of any kind (including, without
limitation, claims for labor, materials and supplies) against or with
respect to such Collateral, except that no such charge need be paid if
(i) the validity thereof is being contested in good faith by
appropriate proceedings, and such charge is adequately reserved
against on the Grantor's books in accordance with GAAP or (ii) such
proceedings do not involve any danger of the sale, forfeiture or loss
of any of such Collateral or any interest therein.
(h) Limitations on Liens on Collateral. The Grantor will not
create, incur or permit to exist, will defend the Collateral against,
and will take such other action as is necessary to remove, any Lien or
claim on or to such Collateral, other than the Liens created hereby or
Liens permitted under subsection 8.3 of the Credit Agreement, and will
defend the right, title and interest of the Agent and the Banks in and
to any of such Collateral against the claims and demands of all
Persons whomsoever.
56
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(i) Limitations on Dispositions of Collateral. The Grantor
will not sell, transfer, lease or otherwise dispose of any of the
Collateral, or attempt, offer or contract to do so except for
dispositions of assets permitted by subsection 8.6 of the Credit
Agreement.
(j) Limitations on Modifications, Waivers, Extensions of
Agreements Giving Rise to Accounts. The Grantor will not (i) amend,
modify, terminate or waive any provision of any agreement giving rise
to any of the Accounts in any manner which could reasonably be
expected to materially adversely affect the value of any such Account
as Collateral, (ii) fail to exercise promptly and diligently each and
every material right which it may have under each agreement giving
rise to the Accounts (other than any right of termination) or (iii)
fail to deliver to the Agent a copy of each material demand, notice or
document received by it relating in any way to any agreement giving
rise to an Account.
(k) Limitations on Discounts, Compromises, Extensions of
Accounts. Other than in the ordinary course of business as generally
conducted by the Grantor over a period of time, the Grantor will not
grant any extension of the time of payment of any of the Accounts,
compromise, compound or settle the same for less than the full amount
thereof, release, wholly or partially, any Person liable for the
payment thereof, or allow any credit or discount whatsoever thereon.
(l) Further Identification of Collateral. Upon the
reasonable request of the Agent, the Grantor will furnish to the Agent
and the Banks from time to time statements and schedules further
identifying and describing the Collateral and such other reports in
connection with the Collateral, all in reasonable detail.
(m) Notices. The Grantor will advise the Agent and the Banks
promptly, in reasonable detail, at their respective addresses set
forth in the Credit Agreement, (i) of any Lien (other than Liens
created hereby or permitted under the Credit Agreement) on, or claim
asserted against, any of the Collateral and (ii) of the occurrence of
any other event which could reasonably be expected to have a material
adverse effect on the aggregate value of the Collateral or on the
Liens created hereunder.
(n) Changes in Locations, Name, etc. The Grantor will not
(i) change the location of its chief executive office/chief place of
business from that specified in paragraph 4(f) or remove its books and
records from the location specified in paragraph 4(c) or (ii) change
its name, identity or corporate structure to such an extent that any
financing statement filed by the Agent in connection
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with this Security Agreement could become seriously misleading.
6. Agent's Appointment as Attorney-in-Fact. (a) Powers.
The Grantor hereby irrevocably constitutes and appoints the Agent and any
officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of the Grantor and in the name of the Grantor or in its own name,
from time to time in the Agent's discretion, for the purpose of carrying out
the terms of this Security Agreement, to take any and all appropriate action
and to execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Security Agreement, and, without
limiting the generality of the foregoing, the Grantor hereby gives the Agent
the power and right, on behalf of the Grantor, without notice to or assent by
the Grantor, to do the following:
(i) upon the occurrence and during the continuance of
any Event of Default, in the name of the Grantor or its own name, or
otherwise, to take possession of and indorse and collect any checks,
drafts, notes, acceptances or other instruments for the payment of
moneys due under any Account or with respect to any other of the
Collateral and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed
appropriate by the Agent for the purpose of collecting any and all
such moneys due under any such Account or with respect to any other
such Collateral whenever payable;
(ii) to pay or discharge taxes and Liens levied or
placed on or threatened against the Collateral, to effect any repairs
or any insurance called for by the terms of this Security Agreement
and to pay all or any part of the premiums therefor and the costs
thereof; and
(iii) upon the occurrence and during the continuance of
any Event of Default, (A) to direct any party liable for any payment
under any of the Collateral to make payment of any and all moneys due
or to become due thereunder directly to the Agent or as the Agent
shall direct; (B) to ask or demand for, collect, receive payment of
and receipt for, any and all moneys, claims and other amounts due or
to become due at any time in respect of or arising out of any of the
Collateral; (C) to sign and indorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, notices and other documents in
connection with any of the Collateral; (D) to commence and prosecute
any suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any thereof and to
enforce any other right in respect of any such Collateral; (E) to
defend any suit, action or proceeding brought against the Grantor with
respect to any
58
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Collateral; (F) to settle, compromise or adjust any suit, action or
proceeding described in clause (E) above and, in connection therewith,
to give such discharges or releases as the Agent may deem appropriate;
and (G) generally, to sell, transfer, pledge and make any agreement
with respect to or otherwise deal with any of the Collateral as fully
and completely as though the Agent were the absolute owner thereof for
all purposes, and to do, at the Agent's option and the Grantor's
expense, at any time, or from time to time, all acts and things which
the Agent deems necessary to protect, preserve or realize upon the
Collateral and the Agent's and the Banks' Liens thereon and to effect
the intent of this Security Agreement, all as fully and effectively as
the Grantor might do.
The Grantor hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
(b) Other Powers. The Grantor also authorizes the Agent and
the Banks, at any time and from time to time, to execute, in connection with
the sale provided for in Section 9 hereof, any endorsements, assignments or
other instruments of conveyance or transfer with respect to the Collateral.
(c) No Duty on Agent or Banks' Part. The powers conferred on
the Agent and the Banks hereunder are solely to protect the Agent's and the
Banks' interests in the Collateral and shall not impose any duty upon the Agent
or any Bank to exercise any such powers. The Agent and the Banks shall be
accountable only for amounts that they actually receive as a result of the
exercise of such powers, and neither they nor any of their officers, directors,
employees or agents shall be responsible to any Grantor for any act or failure
to act hereunder, except for their own gross negligence or willful misconduct.
7. Performance by Agent of Grantor's Obligations. If any
Grantor fails to perform or comply with any of its agreements contained herein
and the Agent, as provided for by the terms of this Security Agreement, shall
itself perform or comply, or otherwise cause performance or compliance, with
such agreement, the expenses of the Agent incurred in connection with such
performance or compliance, together with interest thereon at a rate per annum
2% above the ABR, shall be payable by the Grantor to the Agent on demand and
shall constitute Obligations secured hereby.
8. Proceeds. If an Event of Default shall occur and be
continuing:
(a) all Proceeds received by any Grantor consisting of cash,
checks and other near-cash items shall be held by the
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Grantor in trust for the Agent and the Banks, segregated from other
funds of the Grantor, and shall, forthwith upon receipt by the
Grantor, be turned over to the Agent in the exact form received by the
Grantor (duly indorsed by the Grantor to the Agent, if required) and
(b) any and all such Proceeds received by the Agent (whether
from any Grantor or otherwise) may, in the sole discretion of the
Agent, be held by the Agent for the ratable benefit of the Banks as
collateral security for, and/or then or at any time thereafter may be
applied by the Agent against, the Obligations (whether matured or
unmatured), such application to be in such order as the Agent shall
elect. Any balance of such Proceeds remaining after the Obligations
shall have been paid in full and the Commitments shall have been
terminated shall be paid over to the Grantor or to whomsoever may be
lawfully entitled to receive the same.
9. Remedies. If an Event of Default shall occur and be
continuing, the Agent, on behalf of the Banks, may exercise, in addition to all
other rights and remedies granted to them in this Security Agreement and in any
other instrument or agreement securing, evidencing or relating to the
Obligations or any Obligations, all rights and remedies of a secured party
under the Code. Without limiting the generality of the foregoing, the Agent,
without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon the Grantor or any other Person (all and each of which
demands, defenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon any
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
an option or options to purchase, or otherwise dispose of and deliver any
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any exchange or broker's
board or office of the Agent or any Bank or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
The Agent and each Bank shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or
sales, to purchase the whole or any part of any Collateral so sold, free of any
right or equity of redemption in the Grantor, which right or equity is hereby
waived or released. The Grantor further agrees, at the Agent's request, to
assemble the Collateral and make it available to the Agent at places which the
Agent shall reasonably select, whether at the Grantor's premises or elsewhere.
The Agent shall apply the net proceeds of any such collection, recovery,
receipt, appropriation, realization or sale, after deducting all reasonable
costs and expenses of every kind incurred therein or incidental to the care or
safekeeping of any of such Collateral or in any way relating
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to such Collateral or the rights of the Agent and the Banks hereunder,
including, without limitation, attorneys' fees and disbursements, to the
payment in whole or in part of the Obligations, in such order as the Agent may
elect, and only after such application and after the payment by the Agent of
any other amount required by any provision of law, including, without
limitation, Section 9-504(1)(c) of the Code, need the Agent account for the
surplus, if any, to the Grantor. To the extent permitted by applicable law,
the Grantor waives all claims, damages and demands it may acquire against the
Agent or any Bank arising out of the exercise by them of any rights hereunder.
If any notice of a proposed sale or other disposition of Collateral shall be
required by law, such notice shall be deemed reasonable and proper if given at
least ten days before such sale or other disposition. The Grantor shall remain
liable for any deficiency if the proceeds of any sale or other disposition of
the Collateral are insufficient to pay the Obligations and the fees and
disbursements of any attorneys employed by the Agent or any Bank to collect
such deficiency.
10. Limitation on Duties Regarding Preservation of
Collateral. The Agent's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the Code or otherwise, shall be to deal with it in the same manner as the
Agent deals with similar property for its own account. Neither the Agent, any
Bank, nor any of their respective directors, officers, employees or agents
shall be liable for failure to demand, collect or realize upon all or any part
of the Collateral or for any delay in doing so or shall be under any obligation
to sell or otherwise dispose of any Collateral upon the request of any Grantor
or otherwise.
11. Powers Coupled with an Interest. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.
12. Severability. Any provision of this Security Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
13. Section Headings. The Section headings used in this
Security Agreement are for convenience of reference only and are not to affect
the construction hereof or be taken into consideration in the interpretation
hereof.
14. No Waiver; Cumulative Remedies. Neither the Agent nor
any Bank shall by any act (except by a written instrument pursuant to Section
15 hereof), delay, indulgence, omission or
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otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default or in any breach of any of the
terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Agent or any Bank, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Agent or any Bank of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the Agent
or such Bank would otherwise have on any future occasion. The rights and
remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by law.
15. Waivers and Amendments; Successors and Assigns; Governing
Law. None of the terms or provisions of this Security Agreement may be waived,
amended, supplemented or otherwise modified except by a written instrument
executed by the Grantor and the Agent in accordance with subsection 11.1 of the
Credit Agreement; provided that any provision of this Security Agreement may be
waived by the Agent and the Banks in a letter or agreement executed by the
Agent or by telecopy from the Agent. This Security Agreement shall be binding
upon the successors and assigns of the Grantor and shall inure to the benefit
of the Agent and the Banks and their respective successors and assigns. THIS
SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
16. Notices. All notices, requests and demands to or upon
the Agent, any Bank or any Grantor to be effective shall be in writing (or by
telegraph or telecopy confirmed in writing) and shall be deemed to have been
duly given or made (a) when delivered by hand or (b) if given by mail, when
deposited in the mails by certified mail, return receipt requested or (c) if by
telegraph or telecopy, when sent and receipt has been confirmed, addressed at
its address or transmission number for notices provided in subsection 11.2 of
the Credit Agreement or Section 12 of the Subsidiary Guarantee. The Agent,
each Bank and the Grantor may change its address and transmission numbers for
notices by notice in the manner provided in this Section.
17. Authority of Agent. The Grantor acknowledges that the
rights and responsibilities of the Agent under this Security Agreement with
respect to any action taken by the Agent or the exercise or non-exercise by the
Agent of any option, right, request, judgment or other right or remedy provided
for herein or resulting or arising out of this Security Agreement shall, as
between the Agent and the Banks, be governed by the Credit Agreement and by
such other agreements with respect thereto as may exist from time to time among
them, but, as between the Agent and the Grantor, the Agent shall be
conclusively presumed to be
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acting as agent for the Banks with full and valid authority so to act or
refrain from acting, and the Grantor shall not be under any obligation, or
entitlement, to make any inquiry respecting such authority.
18. Release of Liens. In the event that any Grantor conveys,
sells, leases, assigns, transfers or otherwise disposes of any portion of the
Collateral in accordance with subsection 8.6 of the Credit Agreement or grants
a Lien with respect to any of the Collateral which Lien is permitted pursuant
to subsection 8.3(m) of the Credit Agreement, and so long as no Default or
Event of Default shall have occurred and be continuing, the Agent shall
promptly take such action as may be reasonably requested by the Grantor to
release, to the extent necessary, any Liens created by this Security Agreement
in respect of such Collateral.
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19. Counterparts. This Security Agreement may be executed by
one or more of the parties to this Security Agreement on any number of separate
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the counterparts of this
Security Agreement signed by all the parties hereto shall be lodged with the
Agent.
IN WITNESS WHEREOF, each of the undersigned has caused this
Security Agreement to be duly executed and delivered as of the date first above
written.
AUTOMOTIVE INDUSTRIES MANUFACTURING
INC.
By:______________________________
Title:
64
SCHEDULE I
Financing Statements Filed
State Location
1. [To be provided] 1. [To be provided]
65
SCHEDULE II
Location of Records Concerning Accounts
[To be provided]
66
EXHIBIT D
FORM OF FIRST AMENDMENT TO DOMESTIC PLEDGE AGREEMENT
FIRST AMENDMENT, dated as of _____________, 199__ (this
"Amendment"), to the Domestic Pledge Agreement, dated as of August 17, 1995 (as
amended, supplemented or otherwise modified from time to time, the "Pledge
Agreement"), made by Lear Seating Corporation, a Delaware corporation (the
"Pledgor"), in favor of Chemical Bank, as administrative agent (in such
capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, the Pledgor has formed three new Subsidiaries, Lear
Operations Corporation, NAB Corporation and Automotive Industries
Manufacturing, Inc.; and
WHEREAS, it is a condition precedent to the effectiveness of
the First Amendment and Consent, dated as of December 8, 1995, to the Credit
Agreement (as defined in the Pledge Agreement) that the Pledgor shall have
executed and delivered this Amendment;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein, and for other good and valuable consideration, the
sufficiency of which is hereby acknowledged, the Pledgor and the Agent agree as
follows:
1. Defined Terms. Unless otherwise defined herein,
terms defined in the Pledge Agreement shall have such meanings when used
herein.
2. Amendment to Pledge Agreement. Schedule I to the
Pledge Agreement is hereby amended by deleting it in its entirety and
substituting in lieu thereof Schedule I attached hereto.
3. Representations and Warranties. To induce the Agent
to enter into this Amendment, the Pledgor hereby represents and warrants that
the representations and warranties contained in the Pledge Agreement will be,
after giving effect to the modification provided herein, true and correct in
all material respects as if made on and as of the date hereof.
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4. No Other Modifications. Except as expressly modified
hereby, the Pledge Agreement is and shall continue to be in full force and
effect in accordance with its terms.
5. Counterparts. This Amendment may be executed by one
or more of the parties hereof on any number of separate counterparts and all
such counterparts shall be deemed to be one and the same instrument.
6. Effectiveness. This Amendment shall be effective
upon the execution and delivery of this Amendment by the Pledgor, the Agent,
Automotive Industries Corporation, Lear Industries Inc., and NAB Corporation.
7. Payment of Expenses. The Pledgor agrees to pay and
reimburse the Agent for all its costs and out-of-pocket expenses incurred in
connection with the preparation, execution and delivery of this Amendment,
including, without limitation, the reasonable fees and disbursements of Simpson
Thacher & Bartlett, counsel to the Administrative Agent.
8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
LEAR SEATING CORPORATION
By:_____________________________
Title:
CHEMICAL BANK, as Agent
By:______________________________
Title:
68
ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned Issuers referred to in the Pledge
Agreement hereby acknowledge receipt of a copy thereof, as amended by this
Amendment, and agree to be bound thereby and to comply with the terms thereof
insofar as such terms are applicable to it. Each of the undersigned agree to
notify the Agent promptly in writing of the occurrence of any of the events
described in paragraph 5(a) of the Pledge Agreement. Each of the undersigned
further agree that the terms of paragraph 9(c) of the Pledge Agreement shall
apply to it, mutatis mutandis, with respect to all actions that may be required
of it under or pursuant to or arising out of Section 9 of the Pledge Agreement.
AUTOMOTIVE INDUSTRIES MANUFACTURING
INC.
By:_______________________________
Title:
LEAR OPERATIONS CORPORATION
By:_______________________________
Title:
NAB CORPORATION
By:_______________________________
Title:
69
SCHEDULE I
DESCRIPTION OF PLEDGED STOCK
Class of Stock No. of Pct. of
Issuer Stock Certificate No. Shares Shares
------ -------- --------------- ------ ------
Progress Pattern Corp. Common 2 100 100%
Lear Plastics Corp. Common 2 100 100%
LS Acquisition Common 1 100 100%
Corporation No. 24
LS Acquisition Corp. No. 14 Common 3 100 100%
Lear Seating Holdings Corp. Common 3 100 100%
No. 50
Automotive Industries Common 1 100 100%
Manufacturing Inc.
Lear Operations Corporation Common 1 100 100%
NAB Corporation Common 1 100 100%
Lear Seating Common 10501- 19,500 65%
Sweden AB 30000
70
EXHIBIT E
FORM OF FIRST AMENDMENT
TO
LEAR SEATING CANADA LTD.
SHARE PLEDGE AGREEMENT
FIRST AMENDMENT, dated as of ____________, 199__ (this
"Amendment"), to the Lear Seating Canada Ltd. Share Pledge Agreement, dated as
of August 17, 1995 (as amended, supplemented or otherwise modified, the "Share
Pledge Agreement"), made by Lear Seating Corporation, a Delaware corporation
(the "Pledgor"), in favor of Chemical Bank, as administrative agent (the
"Agent").
W I T N E S S E T H :
WHEREAS, Lear Seating Canada Ltd. ("Lear Canada") and 115335
Ontario Inc., a subsidiary of the Pledgor and a corporation governed by the
Business Corporations Act (Ontario) ("Holdco"), plan to amalgamate pursuant to
an Arrangement Agreement, dated as of December 8, 1995 (the "Arrangement
Agreement"), among Lear Canada, Holdco and the Pledgor; and
WHEREAS, the Pledgor has requested, and upon this amendment
becoming effective, the Agent has agreed, that certain provisions of the Share
Pledge Agreement be modified in the manner provided for in this Amendment;
NOW, THEREFORE, in consideration of the premises and mutual
agreements contained herein, and for other good and valuable consideration, the
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Defined Terms. Unless otherwise defined herein,
terms defined in the Share Pledge Agreement shall have such meanings when used
herein.
2. Amendments to Share Pledge Agreement. (a) The term
"Issuer" as defined in the Share Pledge Agreement shall mean Lear Seating
Canada Ltd., the continuing corporation constituted upon the amalgamation of
Lear Canada and Holdco pursuant to the Arrangement Agreement.
(b) Schedule I to the Share Pledge Agreement is hereby
amended by deleting it in its entirety and substituting in lieu thereof
Schedule I attached hereto.
3. Representations and Warranties. To induce the Agent
to enter into this Amendment, the Pledgor hereby represents and warrants that
the representations and warranties contained in the Share Pledge Agreement will
be, after giving effect to the
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modifications provided herein, true and correct in all material respects as if
made on and as of the date hereof.
4. No Other Modifications. Except as expressly modified
hereby, the Share Pledge Agreement is and shall continue to be in full force
and effect in accordance with its terms.
5. Counterparts. This Amendment may be executed by one
or more of the parties hereof on any number of separate counterparts and all
such counterparts shall be deemed to be one and the same instrument.
6. Effectiveness. This Amendment shall be effective
upon the execution and delivery of this Amendment by the Pledgor and the Agent
and Lear Seating Canada Ltd.
7. Payment of Expenses. The Pledgor agrees to pay and
reimburse the Agent for all its costs and out-of-pocket expenses incurred in
connection with the preparation, execution and delivery of this Amendment,
including, without limitation, the reasonable fees and disbursements of Simpson
Thacher & Bartlett, counsel to the Agent.
8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
LEAR SEATING CORPORATION
By:_____________________________
Title:
CHEMICAL BANK, as Agent
By:______________________________
Title:
72
ACKNOWLEDGEMENT AND CONSENT
The undersigned Issuer referred to in the Share Pledge
Agreement hereby acknowledges receipt of a copy thereof, as amended by this
Amendment, and agrees to be bound thereby and to comply with the terms thereof
insofar as such terms are applicable to it. The undersigned agrees that it
shall not, without the prior written consent of the Agent, issue any shares or
other equity securities of any nature or to issue any other securities
convertible into or granting the right to purchase or exchange for any shares
or other equity securities of any nature. The undersigned further agrees that
the terms of paragraph 9(b) of the Share Pledge Agreement shall apply to it,
mutatis mutandis, with respect to all actions that may be required of it under
or pursuant to or arising out of Section 9 of the Share Pledge Agreement.
Dated: _______________, 199_
Address for Notices: LEAR SEATING CANADA LTD.
Lear Seating Canada Ltd.
530 Manitou Drive
Kitchener, Ontario
N2C 1L3 By: ___________________________
Name:
Title:
Telephone: (519) 895-1600
Facsimile: (519) 895-1608
73
SCHEDULE I
LIST OF PLEDGED SHARE CERTIFICATES
Certificate Class and
Issuer Number Number of Shares
-----------------------------------------------------------------------------------------
Lear Seating Canada Ltd. P-__ 10,747 preference
Lear Seating Canada Ltd. C-__ 170,682 common
74
EXHIBIT F
FORM OF OPINION OF WINSTON & STRAWN
[LETTERHEAD OF WINSTON & STRAWN]
______________, 199_
Chemical Bank, as Agent
270 Park Avenue
New York, New York 10017
And each of the Banks parties to the Credit
Agreement referred to below
We have acted as special counsel to Lear Seating Corporation, a
Delaware corporation (the "Borrower"), Lear Operations Corporation, a Delaware
corporation ("Newco"), NAB Corporation, a Delaware corporation ("NAB Co.") and
Automotive Industries Manufacturing Inc., a Delaware corporation ("New AIHI")
in connection with the First Amendment and Consent, dated as of December 8,
1995 (the "First Amendment"), to the Credit Agreement, dated as of August 17,
1995 (as amended, supplemented or otherwise modified, the "Credit Agreement"),
among the Borrower, the financial institutions parties thereto (the "Banks"),
Chemical Bank, as administrative agent for the Banks (in such capacity, the
"Agent"), and the Managing Agents, Co-Agents and Lead Managers (collectively,
the "Lead Banks") named therein.
The opinions expressed below are furnished to you pursuant to Section
5(l) of the First Amendment. Unless otherwise defined herein, terms defined in
the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement.
In arriving at the opinions expressed below,
(a) we have examined and relied on the originals, or copies
certified or otherwise identified to our satisfaction, of
(i) the Borrower's certificate of incorporation and
bylaws;
(ii) the certificates of incorporation and bylaws of each
of Newco, NAB Co. and New AIHI;
(iii) resolutions of the board of directors of the Borrower
and each of Newco, NAB Co. and New AIHI with respect
to the transactions referred to herein;
(iv) the Credit Agreement; and
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(v) the First Amendment and the other documents listed on
Schedule 1 attached hereto (collectively, the
"Transaction Documents").
(b) we have examined such corporate documents and records of the
Borrower, Newco, NAB Co. and New AIHI and such other instruments and
certificates of public officials, officers and representatives of the Borrower,
Newco, NAB Co. and New AIHI and other Persons as we have deemed necessary or
appropriate to enable us to render the opinions set forth herein; and
(c) we have made such inquiries of officers and representatives
of the Borrower, Newco, NAB Co. and New AIHI as we have deemed relevant or
necessary as the basis for the opinions set forth herein.
In rendering the opinions expressed below, we have assumed, with your
permission, without independent investigation or inquiry, (a) the authenticity
of all documents submitted to us as originals, (b) the genuineness of all
signatures on all documents that we examined (other than those of the Borrower,
Newco, NAB Co. and New AIHI and the officers of the Borrower, Newco, NAB Co.
and New AIHI) and (c) the conformity to authentic originals of documents
submitted to us as certified, conformed or photostatic copies. Additionally,
we have assumed and relied upon, the following:
(a) the accuracy of all certificates and other statements,
representations, documents, records, financial statements and papers reviewed
by us, and the accuracy and completeness of all representations, warranties,
schedules and exhibits contained in the Transaction Documents, with respect to
the factual matters set forth therein;
(b) all parties to the documents reviewed by us (other than the
Borrower, Newco, NAB Co. and New AIHI) are duly organized, validly existing
and in good standing under the laws of all jurisdictions where they are
conducting their businesses or otherwise required to be so qualified, and have
full power and authority to execute, deliver and perform under such documents
and all such documents have been duly authorized, executed and delivered by
such parties;
(c) each of Newco, NAB Co. and New AIHI has rights in each item of
Collateral (as such term is defined in the Additional Security Agreement and
the Second Additional Security Agreement (as defined in Schedule 1 attached
hereto)) existing on the date hereof and will have rights in each item of
Collateral arising after the date hereof;
(d) all items of Collateral for which possession must be taken by
a secured party in order to perfect its security interest under Section 9-304
of the Uniform Commercial Code of New York (the
76
3
"Code") are in the possession or constructive possession of the Agent and not
in the possession of Newco or NAB Co., affiliates or agents or any other Person
acting on behalf of Newco or NAB Co.;
(e) each Transaction Document constitutes the valid and binding
obligation of each party thereto (other than the Borrower, Newco, NAB Co. and
New AIHI) enforceable against such party in accordance with its terms; and
(f) the description of the Collateral reasonably describes the
property intended to be described as Collateral.
When our opinions expressed below are stated "to our knowledge," we
are referring to the actual knowledge of the lawyers in this firm who have
given substantive legal attention to the representation of the Borrower, Newco,
NAB Co. and New AIHI in connection with the execution and delivery of the
Transaction Documents. Except as expressly set forth herein, we have not
undertaken any independent investigation, examination or inquiry to determine
the existence of any facts (and have not caused the review of any court file or
indices) and no inference as to our knowledge concerning any facts should be
drawn as a result of the representation undertaken by us.
Based upon the foregoing and subject to the qualifications and matters
of reliance set forth herein, we are of the opinion that:
1. Each of the Borrower, Newco, NAB Co. and New AIHI (a) is duly
organized, validly existing and in good standing under the laws of the State of
Delaware, (b) has the corporate power and authority to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently engaged and (c) is duly qualified as a
foreign corporation and in good standing under the laws of each jurisdiction
where its ownership, lease or operation of property or the conduct of its
business requires such qualification, except where the failure to be so
qualified and in good standing would not have a material adverse effect on the
business, operations, property or financial condition of the Borrower and its
Subsidiaries taken as a whole and would not adversely affect the ability of any
of the Borrower, Newco, NAB Co. and New AIHI to perform its respective
obligations under the Transaction Documents to which it is a party.
2. Each of the Borrower, Newco, NAB Co. and New AIHI has the
corporate power and authority to execute, deliver and perform its obligations
under the Transaction Documents to which it is a party. Each of the Borrower,
Newco, NAB Co. and New AIHI has taken all necessary corporate action to
authorize the execution, delivery and performance of the Transaction Documents
to which it is a party. No consent or authorization of, filing with or other
act by or in respect of, any federal, State of Illinois or State
77
4
of New York governmental or public body or authority or under the General
Corporation Law of the State of Delaware is required by the Borrower, Newco,
NAB Co. and New AIHI in connection with the execution, delivery and performance
of the First Amendment and the other Transaction Documents, or the consummation
of any of the transactions contemplated by the Transaction Documents, except
for consents, authorizations, or filings which have been obtained and are in
full force and effect. We express no opinion, however, as to any such consent,
authorization or filing which may be required as a result of the involvement of
the Agent, the Lead Banks, the Banks or any of their respective affiliates in
the transactions contemplated by the Transaction Documents or because of their
legal or regulatory status.
3. Each of the Transaction Documents to which any of the
Borrower, Newco, NAB Co. and New AIHI is a party has been duly executed and
delivered on behalf of such party and each of the Transaction Documents to
which any of the Borrower, Newco, NAB Co. and New AIHI is a party constitutes a
valid and binding obligation of such party, enforceable against such party in
accordance with its terms.
4. The execution, delivery and performance by each of the
Borrower, Newco, NAB Co. and New AIHI of the Transaction Documents to which it
is a party (a) will not violate any Requirement of Law of the United States of
America, the State of Illinois, the State of New York or the General
Corporation Law of the State of Delaware applicable to such party (except we
express no opinion as to any law (i) which might be violated by any
misrepresentation or omission or a fraudulent act or (ii) to which such party
may be subject as a result of your, the Lead Banks' or the Banks' legal or
regulatory status, your syndication of the Loans or your involvement in the
transactions contemplated by the Transaction Documents), (b) will not violate
any Contractual Obligation of the Borrower, Newco, NAB Co. and New AIHI which
has been identified to us pursuant to an Officer's Certificate of the Borrower
and listed on such Certificate as being material (except we express no opinion
as to (i) violations under Contractual Obligations listed on such Certificate
where such violations would not have a material adverse effect on the
Borrower's consolidated financial condition or business, (ii) violations
resulting from cross-default provisions relating to defaults under an agreement
not listed on such Certificate or (iii) violations of financial covenants), and
(c) will not result in, or require, the creation or imposition of any Lien
(other than the Liens created by the Transaction Documents) on any of its or
their respective properties or revenues pursuant to any Requirement of Law of
the United States of America, the State of Illinois, the State of New York or
the General Corporation Law of the State of Delaware applicable to such party
or Contractual Obligations listed on such Certificate.
78
5
5. To our knowledge, no litigation, investigation or proceeding
of or before any arbitrator or Governmental Authority is pending or threatened
by or against the Borrower, Newco, NAB Co. and New AIHI or against any of its
or their respective properties or revenues (a) with respect to any Transaction
Document or any of the transactions contemplated thereby, (b) which, if
adversely determined, would have a material adverse effect on the business,
operations, property or financial or other condition of the Borrower and its
Subsidiaries taken as a whole or (c) which could adversely affect the ability
of any of the Borrower, Newco, NAB Co. and New AIHI to perform its obligations
under any of the Transaction Documents to which it is a party.
6. Based on our understanding that the Agent has taken and is
retaining possession of the stock certificates (the "Pledged Stock") evidencing
the shares of stock described in the Domestic Pledge Agreement (as amended by
the First Amendment thereto) and the Lear Seating Canada Ltd. Share Pledge
Agreement (as amended by the First Amendment thereto), and the Agent has taken
such Pledged Stock in good faith without notice (actual or constructive) of any
adverse claim within the meaning of the Code, there has been created
thereunder, and there has been granted to the Agent, for the benefit of the
Banks, a valid and perfected security interest and lien upon the Pledged Stock.
Assuming the Agent acquires its interest in the Pledged Stock in good faith and
without notice (actual or constructive) of any adverse claims and the Pledged
Stock is either in bearer form or in registered form, duly issued or indorsed
in the name of the Agent or in blank, the Agent will acquire its security
interest in the Pledged Stock free of adverse claims.
7. The shares of Pledged Stock of Newco, NAB Co. and New AIHI
have been duly authorized and validly issued by such corporations and are fully
paid and nonassessable.
8. The provisions of the Additional Security Agreement and the
Second Additional Security Agreement (as defined in Schedule 1 attached hereto)
create in favor of the Agent, for the benefit of the Banks, a security interest
in the Collateral (as such term is defined therein) in which a security
interest may be created under the Code. We express no opinion regarding the
perfection or priority of such security interests.
The opinions as expressed herein are subject to the following
qualifications:
(a) our opinions set forth in paragraphs 3, 6 and 7 hereof are
subject to the effect of bankruptcy, fraudulent conveyance or transfer,
insolvency, reorganization, arrangement and moratorium laws and limitations
imposed by other laws and judicial decisions relating to or affecting the
rights of creditors or secured creditors generally, and general principles of
equity (regardless of whether enforcement is considered in proceedings at law
or in
79
6
equity), including, without limitation, where (i) the breach of such covenants
or provisions imposes restrictions or burdens upon a debtor and it cannot be
demonstrated that the enforcement of such remedies, restrictions or burdens is
reasonably necessary for the protection of a creditor; (ii) a creditor's
enforcement of such remedies, covenants or provisions under the circumstances,
or the manner of such enforcement, would violate such creditor's implied
covenant of good faith and fair dealing, or would be commercially unreasonable;
or (iii) a court having jurisdiction finds that such remedies, covenants or
provisions were, at the time made, or are in application, unconscionable as a
matter of law or contrary to public policy;
(b) as to our opinions set forth in paragraph 3 hereof, we express
no opinion as to the enforceability of cumulative remedies to the extent such
cumulative remedies purport to or would have the effect of compensating the
party entitled to the benefits thereof in amounts in excess of the actual loss
suffered by such party;
(c) we express no opinion as to any Collateral (as such term is
defined in the Security Documents) as to which the creation of security
interests therein are not governed by Article 9 of the Code or any Collateral
consisting of goods that are or may become fixtures on any premises, nor do we
express any opinion with respect to the creation of security interests in
property in which it is illegal or violative of governmental rules or
regulations to grant a security interest, or "general intangibles" (as defined
in the Code) which terminate or become terminable (pursuant to the terms of an
agreement) if a security interest is granted therein, or any security interest
in any "accounts," "chattel paper," "documents," "instruments" or "general
intangibles" (as defined in the Code) with respect to which the account debtor
or obligor is the United States of America, any state, county, city,
municipality or other governmental body, or any department, agency or
instrumentality thereof, unless the same has been assigned to the Agent
pursuant to and in accordance with the Assignment of Claims Act of 1940, as
amended, or any similar law or regulation relating to the assignment or pledge
thereof;
(d) any purported assignment of any agreement or any governmental
approval, license or permit may be subject to restrictions upon assignment or
transfer which, although not necessarily applicable to assignments intended as
security, may be required to be satisfied before you will be treated as an
assignee (other than a collateral assignee) thereof, except to the extent that
consents to or approvals of such assignment have been obtained from the
appropriate governmental body or third party;
(e) the rights of debtors, guarantors and other secured parties to
receive notices under Sections 9-504 and 9-505 of the Code may not be waived
prior to default and the failure to comply with such notice requirements may
bar or limit the recovery of any
80
7
deficiency remaining after the retention or sale of repossessed collateral and
further, we express no opinion as to the right of the Agent to enforce any of
its rights without notice to the Borrower and without judicial hearing or
without bond, nor do we express any opinion as to whether the periods of notice
set forth in the Transaction Documents are enforceable;
(f) certain provisions of the Transaction Documents regarding the
application of proceeds realized from the sale of Collateral (as such term is
defined therein) do not make reference (although they do not have to in order
to enable you to exercise the rights and remedies of a secured party under the
Code) to your obligations to satisfy indebtedness due to the holders of
subordinate security interests in such Collateral under certain conditions
under Section 9-504 (1) (c) of the Code or to account to the Borrower for any
surplus proceeds;
(g) notwithstanding certain language of the Transaction Documents,
the Agent and the Banks may be limited to recovering only reasonable expenses
with respect to the retaking, holding, preparing for sale or lease, selling,
leasing and the like of collateral and reasonable attorneys' fees and legal
expenses and only reasonable compensation for funding losses, increased costs
or yield protection;
(h) the duties to exercise reasonable care in the custody and
preservation of Collateral (as such term is defined in the Additional Security
Agreement and the Second Additional Security Agreement) in a secured party's
possession, to deal with and to dispose of Collateral (as such term is defined
in the Additional Security Agreement and the Second Additional Security
Agreement) in a commercially reasonable manner as required by the Code or other
applicable law may not be disclaimed by agreement, waived or released prior to
a default;
(i) any rights of the Agent to foreclose its lien or enforce its
remedies against the personal property described in the Additional Security
Agreement and the Second Additional Security Agreement must be enforced
pursuant to the provisions of the Code;
(j) we express no opinion as to the enforceability of the
indemnification provisions of the Transaction Documents to the extent the same
purport to cover violations of the federal securities laws;
(k) requirements in the Transaction Documents specifying that
provisions thereof may only be waived in writing may not be valid, binding or
enforceable to the extent that an oral agreement or an implied agreement by
trade practice or course of conduct has been created modifying any provision of
such documents;
(l) we express no opinion with respect to the validity, binding
effect or enforceability of any provision which purports
81
8
to authorize the Agent to sign or file financing statements or other documents
without the signature of the Borrower, Newco, NAB Co. and New AIHI (except to
the extent a secured party may execute and file financing statements without
the signature of the debtor under Section 9-402(2) of the Code);
(m) the opinions contained herein are subject to limitations based
upon statutes or upon public policy regarding a person's right to waive the
benefit of statutory provisions or of a common law right;
(n) we express no opinion as to the Agent's ability to use
"self-help" remedies to repossess the Collateral (as such term is defined in
the Additional Security Agreement and the Second Additional Security Agreement)
if a breach of the peace were to occur;
(o) provisions in the Transaction Documents deemed to impose the
payment of interest on interest may be unenforceable, void or voidable under
applicable law;
(p) we express no opinion with respect to the validity, binding
effect or enforceability of any provision of the Transaction Documents
purporting to establish evidentiary standards or a consent to jurisdiction and
venue or waiving service of process or demand or notice and hearing or
constitutional rights (including jury trial) or purporting to eliminate any
obligation to marshall assets;
(q) we express no opinion with respect to any provisions of the
Transaction Documents purporting to appoint the Agent as attorney-in-fact or
agent for the Borrower, Newco, NAB Co. and New AIHI; and
(r) certain other rights, remedies and waivers contained in the
Transaction Documents may be rendered ineffective, or limited by, applicable
laws, rules, regulations, constitutional requirements or judicial decisions
governing such provisions, but such laws, rules, regulations, constitutional
requirements and judicial decisions do not, in our opinion, make the
Transaction Documents inadequate for the practical realization of the benefits
and/or security provided by such Transaction Documents, although they may
result in a delay thereof (and we express no opinion with respect to the
economic consequences of any such delay).
We are members of the bar of the States of Illinois and New York and
we express no opinion as to the laws of any jurisdiction other than the laws of
the States of Illinois and New York, the General Corporation Law of the State
of Delaware and the Federal laws of the United States of America to the extent
specifically referred to herein.
82
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This opinion is solely for the benefit of the addressees hereof in
connection with the execution and delivery of the First Amendment and, other
than permitted successors and assigns, may not be relied upon in any manner by
any other person without our prior written consent. In addition, this opinion
is as of the date hereof and we undertake no, and disclaim any, obligation to
advise you of any changes in any matter set forth herein.
Very truly yours,
83
Schedule 1
TRANSACTION DOCUMENTS
1. Additional Subsidiary Guarantee, dated as of ________, 199_, made by
Newco and NAB Co. in favor of the Agent.
2. Domestic Pledge Agreement, dated as of August 17, 1995, made by the
Borrower in favor of the Agent, as amended by the First Amendment
thereto, dated as of __________, 199_.
3. Lear Seating Canada Ltd. Share Pledge Agreement, dated as of August
17, 1995, made by the Borrower in favor of the Agent, as amended by
the First Amendment thereto, dated as of _____, 199_.
4. Additional Security Agreement, dated as of _________, 199_, made by
Newco and NAB Co. in favor of the Agent (the "Additional Security
Agreement").
5. Second Additional Security Agreement, dated as of _______, 199_, made
by New AIHI in favor of the Agent (the "Second Additional Security
Agreement").
1
EXHIBIT 10.34
OPTION ASSUMPTION AGREEMENT
THIS OPTION ASSUMPTION AGREEMENT (this "Agreement") is made as of August
21, 1995 by and between Lear Seating Corporation ("Lear") and the optionee (the
"Optionee") whose name is set forth on the signature page hereto.
WHEREAS, Lear, Automotive Industries Holding, Inc. ("AIH") and AIHI
Acquisition Corp. ("Acquisition Corp.") have entered into that certain
Agreement and Plan of Merger (the "Merger Agreement") dated as of July 16,
1995, whereby, among other things, Lear and Acquisition Corp. have offered to
purchase all of the outstanding shares of AIH's Class A Common Stock (the "AIH
Shares") at a price of $33.50 per share. Capitalized terms used but not
otherwise defined herein shall have the meanings assigned to such terms in the
Merger Agreement, and
WHEREAS, in connection with the transactions contemplated under the Merger
Agreement, Lear has agreed to assume AIH's obligations under the AIH 1992 Key
Employee Stock Option Plan (the "Stock Option Plan") upon consummation of the
merger of Acquisition Corp. into AIH in accordance with the terms of the Merger
Agreement (the "Merger"); and
WHEREAS, in connection with Lear's assumption of AIH's obligations under
the Stock Option Plan, Lear has agreed, if the Optionee so desires, to assume
upon consummation of the Merger AIH's obligations under each stock option
agreement entered into between AIH and the Optionee under the Stock Option
Plan, it being understood that AIH's grant to the Optionee of the right to
purchase AIH Shares has been evidenced by one or more of the following
agreements: (i) the stock option agreement dated July 25, 1992 between AIH and
the Optionee (the "1992 Option Agreement"); (ii) the stock option agreement
dated August 6, 1993 between AIH and the Optionee (the "1993 Option
Agreement"); and (iii) the stock option agreement dated August 8, 1994 between
AIH and the Optionee (the "1994 Option Agreement, and together with the 1992
Option Agreement, the 1993 Option Agreement, and any replacement stock option
agreements, the "Option Agreements"); and
WHEREAS, the Optionee desires to convert: (i) the Optionee's right to
purchase the number of AIH Shares set forth on the signature page hereto under
the caption "Number of AIH Option Shares to be converted into Lear Options"
opposite the number of shares granted pursuant to the 1992 Stock Option
Agreement (the "1992 AIH Option Shares") into the right to purchase (the "1992
Lear Option") shares of Lear's Common Stock, $.01 par value per share ("Lear
Shares") as set forth in this agreement; (ii) the Optionee's right to purchase
the number of AIH Shares set forth on the signature page hereto under the
caption "Number of AIH Option Shares to be Converted into Lear Options"
opposite the number of shares granted pursuant to the 1993 Stock Option
Agreement (the "1993 AIH Option Shares") into the right to purchase (the "1993
Lear Option") Lear Shares as set forth in this Agreement; and (iii) the
Optionee's right to purchase the number of AIH Shares set forth on the
signature page hereto under the caption "Number of AIH Option Shares to be
Converted into Lear Options" opposite the number of shares granted pursuant to
the 1994 Stock Option Agreement (the "1994 Option Shares") into the right to
2
purchase (the "1994 Lear Option") Lear Shares, as set forth in this Agreement
(the 1994 Lear Option, together with the 1992 Lear Option and the 1993 Lear
Option, shall hereinafter be referred to collectively as the "Lear Options").
NOW THEREFORE, the parties agree as follows:
1. Consummation of Merger. The obligations of Lear under this Agreement
are conditioned upon the consummation of the Merger. Upon the consummation of
the Merger, this Agreement shall entitle the Optionee to purchase Lear Shares,
subject to the terms and conditions of this Agreement, the Stock Option Plan
and the Stock Option Agreements. In the event that the Merger is not
consummated, neither Lear nor the Optionee shall have any rights, obligations
or remedies under this Agreement.
2. Conversion. Upon consummation of the Merger, the right of the Optionee
to purchase those AIH Option Shares set forth on the signature page hereto
under the caption "Number of AIH Option Shares to be converted into Lear
Options" shall be converted into the right to purchase that number of Lear
Shares determined in accordance with Section 4 below at a price per Lear Share
determined in accordance with Section 3 below. Upon the effectiveness of this
Agreement, the Optionee shall have no right to receive those AIH Option Shares
set forth on the signature page hereto under the caption "Number of AIH Option
Shares to be converted into Lear Options" under any Option Agreement, and
shall, with respect to those AIH Option Shares set forth on the signature page
hereto under the caption "Number of AIH Option Shares to be converted into Lear
Options", have the right to receive only those number of Lear Shares determined
in accordance with Section 4 below at a price per Lear Share determined in
accordance with Section 3 below.
3. Exercise Price of Lear Shares under the Lear Options. The exercise
price of the Lear Shares shall be determined under this Section 3 as follows:
(a) 1992 Exercise Price. The exercise price per share of Lear Shares
issuable under the 1992 Lear Option shall be the product of (i) the average
closing price of Lear Shares as reported on the New York Stock Exchange for the
period of the twenty (20) consecutive business days ending on the date of the
consummation of the Merger (the "Lear Market Price") multiplied by (ii) the
quotient of (x) $16.875 divided by (y) $33.50.
(b) 1993 Exercise Price. The exercise price per share of Lear Shares
issuable under the 1993 Lear Option shall be the product of (i) the Lear Market
Price multiplied by (ii) the quotient of (x) $24.50 divided by (y) $33.50.
(c) 1994 Exercise Price. The exercise price per share of Lear Shares
issuable under the 1994 Lear Option shall be the product of (i) the Lear
Market Price multiplied by (ii) the quotient of (x) $27.75 divided by
(y) $33.50.
-2-
3
Notwithstanding the foregoing, the exercise price per Lear Share
determined in accordance with this Section 3 shall be rounded to the nearest
whole cent.
4. Number of Lear Shares Issuable. The number of Lear Shares issuable
shall be determined under this Section 4 as follows:
(a) 1992 Lear Option. With respect to the 1992 Lear Option, the Optionee
shall have the right to receive that number of Lear Shares equal to the
quotient of (i) the product of (x) the number of 1992 AIH Option Shares
multiplied by (y) 16.625, divided by (ii) the difference of (1) the Lear Market
Price minus (2) the 1992 Exercise Price.
(b) 1993 Lear Option. With respect to the 1993 Lear Option, the Optionee
shall have the right to receive that number of Lear Shares equal to the
quotient of (i) the product of (x) the number of 1993 AIH Option Shares
multiplied by (y) 9.00, divided by (ii) the difference of (1) the Lear Market
Price minus (2) the 1993 Exercise Price.
(C) 1994 Lear Option. With respect to the 1994 Lear Option, the Optionee
shall have the right to receive that number of Lear Shares equal to the
quotient of (i) the product of (x) the number of 1994 AIH Option Shares
multiplied by (y) 5.75, divided by (ii) the difference of (y) the Lear Market
Price minus (2) the 1994 Exercise Price.
Notwithstanding the foregoing, the number of Lear Shares to be received by
the Optionee in accordance with this Section 4 shall be rounded to the nearest
whole Lear Share.
5. Vesting. Notwithstanding anything else to the contrary contained in the
Stock Option Plan or any Option Agreement, the Lear Options received by the
Optionee pursuant to this Agreement shall be automatically vested, and the
Optionee may exercise the option to purchase Lear Shares hereunder at any time.
6. Ratification. This Agreement is limited as specified herein. Except as
expressly set forth in this Agreement, the Stock Option Plan and each Option
Agreement are hereby ratified and confirmed in all respects.
7. General provisions.
(a) Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or enforceability will not affect any
other provision or any other jurisdiction, but this Agreement will be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
-3-
4
(b) Complete Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the
complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof
in any way.
(c) Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(d) Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
Optionee, Lear and their respective successors and assigns; provided that the
rights and obligations of the Optionee and Lear under this Agreement shall not
be assignable without the prior written consent of the other party.
(e) Amendment and Waiver. The provisions of this Agreement may be amended
and waived only with the prior written consent of Lear and the Optionee.
(f) Headings. Section and subsection headings are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purposes or be given substantive effect.
******
-4-
5
IN WITNESS WHEREOF, the parties hereto have executed this Option
Assumption Agreement on the date first written above.
LEAR SEATING CORPORATION
By /s/ Joseph McCarthy
------------------------------
Its Vice President - Secretary
------------------------------
OPTIONEE:
/s/ F. F. Sommer
------------------------------
F. F. Sommer
Number of AIH Option
Number of AIH Option Shares to be converted into
Shares granted Lear Options
-------------------- ---------------------------
1992 AIH Option Shares 15,000 --
1993 AIH Option Shares 25,000 --
1994 AIH Option Shares 12,500 12,500
1
EXHIBIT 11.1
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(In millions, except share information)
For the Year Ended For the Year Ended
December 31, 1995 December 31, 1994
------------------------------------ -----------------------------------
Primary Fully Diluted Primary Fully Diluted
------------- ------------------- ------------- ------------------
Income (loss) before
extraordinary items $ 94.20 $ 94.20 $ 59.80 $ 59.80
Extraordinary items $ (2.60) $ (2.60) $ - $ -
----------- ----------- ----------- -----------
Net income (loss) $ 91.60 $ 91.60 $ 59.80 $ 59.80
=========== =========== =========== ===========
Weighted Average Shares:
Common shares outstanding 48,944,181 48,944,181 42,602,167 42,602,167
Exercise of stock options (1) 3,544,757 3,698,491 3,321,954 3,443,913
Exercise of warrants (2) - - 1,514,356 1,514,356
----------- ----------- ----------- -----------
Common and equivalent shares
outstanding 52,488,938 52,642,672 47,438,477 47,560,436
=========== =========== =========== ===========
Per Common and Equivalent Share:
Income (loss) before
extraordinary items $ 1.79 $ 1.79 $ 1.26 $ 1.26
Extraordinary items (0.05) (0.05) - -
----------- ----------- ----------- -----------
Net income (loss) per share $ 1.74 $ 1.74 $ 1.26 $ 1.26
=========== =========== =========== ===========
For the Year Ended For the Six Months Ended
December 31, 1993 December 31, 1993
------------------------------------ -----------------------------------
Primary Fully Diluted (3) Primary Fully Diluted(3)
------------- ------------------- ------------- ------------------
Income (loss) before
extraordinary items $ (2.10) $ (2.10) $ (23.00) $ (23.00)
Extraordinary items $ (11.70) $ (11.70) (11.70) (11.70)
----------- ----------- ----------- -----------
Net income (loss) $ (13.80) $ (13.80) $ (34.70) $ (34.70)
=========== =========== =========== ===========
Weighted Average Shares:
Common shares outstanding 35,500,014 35,500,014 35,500,014 35,500,014
Exercise of stock options (1) - 2,801,372 - 2,801,372
Exercise of warrants (2) - 3,300,000 - 3,300,000
----------- ----------- ----------- -----------
Common and equivalent shares
outstanding 35,500,014 41,601,386 35,500,014 41,601.386
=========== =========== =========== ===========
Per Common and Equivalent Share:
Income (loss) before
extraordinary items $ (0.06) $ (0.05) $ (0.65) $ (0.55)
Extraordinary items (0.33) (0.28) (0.33) (0.28)
----------- ----------- ----------- -----------
Net income (loss) per share $ (0.39) $ (0.33) $ (0.98) $ (0.83)
=========== =========== =========== ===========
For the Year Ended For the Year Ended For the Year Ended
June 30, 1993 June 30, 1992 June 30, 1991
--------------------------- ----------------------------- --------------------------------
Primary Fully Diluted Primary Fully Diluted(3) Primary Fully Diluted (3)
--------- --------------- ------------ --------------- ------------ -------------------
Income (loss) before
extraordinary items $ 10.10 $ 10.10 $ (17.10) $ (17.10) $ (33.20) $ (33.20)
Extraordinary items - - (5.10) (5.10) - -
----------- ----------- ----------- ------------ ----------- -----------
Net income (loss) $ 10.10 $ 10.10 $ (22.20) $ (22.20) $ (32.20) $ (33.20)
=========== =========== =========== ============ =========== ===========
Weighted Average Shares:
Common shares outstanding 35,166,747 35,166,747 27,768,312 27,768,312 16,493,499 16,493,499
Exercise of stock options (1) 1,582,317 1,582,317 - 1,582,317 - 1,339,404
Exercise of warrants (2) 3,300,000 3,300,000 - 3,300,000 - 3,300,000
----------- ----------- ----------- ------------ ----------- -----------
Common and equivalent shares
outstanding 40,049,064 40,049,064 27,768,312 32,650,629 16,493,499 21,132,903
=========== =========== =========== ============ =========== ===========
Per Common and Equivalent Share:
Income (loss) before
extraordinary items $ 0.25 $ 0.25 $ (0.62) $ (0.52) $ (2.01) $ (1.57)
Extraordinary items - - (0.18) (0.16) - -
----------- ----------- ----------- ------------ ----------- -----------
Net income (loss) per share $ 0.25 $ 0.25 $ (0.80) $ (0.68) $ (2.01) $ (1.57)
=========== =========== =========== ============ =========== ===========
(1) Amount represents the number of shares issued assuming exercise of stock
options, reduced by the number of shares which could have been purchased
with the proceeds from the exercise of such options.
(2) Amount represents the number of common shares issued assuming exercise of
warrants outstanding.
(3) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of the
APB Opinion No. 15 because of the antidilutitive effect on net loss per
share.
1
Exhibit 21.1
SUBSIDIARIES OF THE COMPANY
AII, Inc (Delaware) Lear Seating Austria Autositze GmbH & Co. KG (Austria)
AII Automotive Industries Canada Inc. (Canada) Lear Seating Canada Ltd. (Canada)
American Woodstock Company (Wisconsin) Lear Seating Inespo do Brasil Ltda (50%) (Brazil)
Anlagen und Vorrichtungsban GmbH (55%) (Germany) Lear Seating GmbH (Germany)
ASAA International Inc. (Delaware) Lear Seating GmbH & Co. KG (Germany)
ASAA Technologies, Inc. (Wisconsin) Lear Seating Holdings Corp. No. 50 (Delaware)
ASAA Inc. (Wisconsin) Lear Seating Italia Holdings S.r.L. (Italy)
Automotive Industries Export Ltd (Barbados) Lear Seating Italia S.p.A. (Italy)
Automotive Industries (Holdings) Ltd. (U.K.) Lear Seating Italia Sud S.p.A. (Italy)
Automotive Industries (U.K.) Ltd. Lear Seating Poland Sp. zo.o. (Poland)
Automotive Industries Manufacturing, Inc. (Delaware) Lear Seating (S.A.)(Pty.) Ltd. (South Africa)
Automotive Industries Sales, Inc. (Michigan) Lear Seating Sweden, AB (Sweden)
Autotrim, S.A. de C.V. (Mexico) LS Acquisition Corporation No. 14 (Delaware)
Central Industrias S.A. de C.V. (99.6%) (Mexico) LS Acquisition Corporation No. 24 (Delaware)
Capitol Plastics of Ohio, Inc. (Ohio) LS Servicos Ltda (Brazil)
Davert Group Ltd. (U.K.) Manfred Rothe Verwaltungs GmbH (Germany)
Equipos Automotrices Totales S.A. de C.V. (Mexico) Markol A.S. (35%) (Turkey)
Fair Haven Industries, Inc. (Michigan) NAB Corporation (Delaware) (2)
Favesa S.A. de C.V. (Mexico) No Sag Drahtfedern GmbH (Germany)
Fibercraft/DESCon Engineering, Inc. (Michigan) No Sag Drahtfedern Spitzer & Co. KG (86%) (Austria)
General Panel B.V. (Delaware) NS Beteilgungs GmbH (Germany)
General Seating of Canada Ltd. (35%) (Canada) Pacific Trim Corporation Ltd. (20%) (Thailand)
General Seating of America, Inc. (35%) (Delaware) Plastifol Beteiligungs GmbH (Germany)
Guildford Kast Plastifol Ltd. (33%) (U.K.) Plastifol GmbH & Co. KG(Germany)
Industrias Cousin Freres, S.L. (49.9%) (Spain) Plastifol Holding GmbH (Germany)
Interiores Automotrices Summa S.A. de C.V. (40%)
(Mexico) Plastifol Manfred Rothe Iberia S.A. (71.4%) (Spain)
Interiores Para Autos, S.A. de C. V. (Mexico) Plastifol Verwaltungs GmbH (Germany)
Intertrim S.A. de C.V. (99.5%) (Mexico) Probel S.A. (30.86%) (Brazil)
John Cotton (Plastics) Ltd. (U.K.) Progress Pattern Corporation (Delaware)
Lear France S.A.R.L (France) Quadrestra Vermogensver Waltungs GmbH (Germany)
Lear Inespo Comercial Industrial Ltda. (Brazil) RAEL Handels GmbH (Austria)
Lear Operations Corporation (Delaware) (1) RDM Finance (Cayman Islands)
Lear Plastics Corporation (Delaware) Simplay Ltd. (U.K.)
Lear Seating Corporation (Delaware) Snider Mold Company, Inc.(60%) (Wisconsin)
Lear Seating (Thailand) Corp., Ltd. (49%) (Thailand) Societe No Sag Francaise (56%) (France)
Lear Seating (U.K.) Ltd. (United Kingdom) Spitzer GmbH (62.5%) (Austria)
Lear Seating Australia Pty., Ltd. (Australia) Teknoseating S.A. (50%) (Argentina)
Lear Seating Austria Autositze GmbH (Austria)
All Subsidiaries are wholly-owned unless otherwise indicated.
(1) Lear Operations Corporations also conducts business under the names
Lear Corporation, Lear Corporation of Georgia, Lear Corporation of
Kentucky and Lear Corporation of Ohio.
(2) NAB Corporation also conducts business under the name Lear
Corporation.
1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into Lear Seating
Corporation's previously filed Registration Statements on Form S-8 File
Nos. 33-55783, 33-57237, 33-59943, 33-61739, 33-62209, 333-01353, and Form
S-3 File Nos. 33-51317, 33-47867, and 33-61583.
ARTHUR ANDERSEN LLP
Detroit, Michigan
March 22, 1996.
5
1,000,000
YEAR
DEC-31-1995
JAN-01-1995
DEC-31-1995
34
0
832
4
196
1,207
860
217
3,061
1,276
1,038
1
0
0
579
3,061
4,714
4,714
4,311
4,311
170
1
76
157
63
94
0
2
0
92
1.74
1.74
