Exhibit 10.4


     Joint Venture Agreement




     between


     Siemens Aktiengesellschaft


     and


     Breed Technologies, Inc.



     concerning


     the establishment and operation of the joint venture company


     BST Restraint Systems International GmbH & Co. KG


                                                               

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     TABLE OF CONTENTS
Preamble
1.       Definitions

I.       ESTABLISHMENT OF THE COMPANY
2.       The COMPANY
3.       Contributions
4.       CHANGE OF CONTROL
5.       Disposal of CAPITAL INTERESTS

II.               ORGANIZATION OF THE COMPANY
6.       Bodies of the COMPANY
7.       PARTNERSHIP MEETING
8.       PARTNERS= BOARD
9.       MANAGEMENT
10.      Staff, Non-Solicitation of Employees
11.      Organizational Structure

III.              OPERATION OF THE COMPANY
12.      Initial Business Plan, Budget
13.      Profit and Loss, Financing, Corporate Opportunities
14.      Books and Records, FISCAL YEAR, Financial Statements
15.      Guidelines for the Operation of the COMPANY
16.      Contracts

IV.               TERM OF AGREEMENT, DISSOLUTION
17.      Term of Agreement
18.      Dissolution

V.       OTHER PROVISIONS
19.      Premerger Control
20.      Applicable Law
21.      DISPUTE Settlement
22.      Confidentiality
23.      Miscellaneous
24.      Notices


                                                               

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     This Agreement is made between

     (1) Siemens Aktiengesellschaft,  a corporation organized and existing under
the laws of Germany  and having its  registered  seats at  Nonnendammallee  101,
D-13599  Berlin  and  at  Wittelsbacher   Platz  2,  D-80333  Munich,   Germany,
hereinafter referred to as "SIEMENS"


     (2) Breed Technologies, Inc. a corporation organized and existing under the
laws of Delaware, USA and having its registered seat and head office at 5300 Old
Tampa Highway,  Lakeland,  Florida  33807-3050,  USA hereinafter  referred to as
"BREED"

     Preamble

     Passive Restraint Systems for cars are presently regarded to be stand-alone
components and subsystems  such as seatbelt,  steering  wheel,  airbag  sensors,
ECU's etc. and they are mainly  developed as applications for specific cars. The
airbag  successfully  achieved high penetration  rates (>50% worldwide,  >75% in
Europe) and now there are many airbags in the field. It is recognized,  that the
airbag saved many people from death or serious injury in accidents.  In certain,
but rare occasions, it caused damages to passengers unintentionally.

     While all safety  components  need to be  further  developed  and  improved
technically,  it is  imperative  to  begin  incorporating  the  components  into
integrated, smart systems that detect, monitor and control all related functions
and  actions.  The  critical  objectives  in  offering  maximum  benefit  to the
occupants  are adaptive  reactions and to avoid  malfunctions  and misuse of the
system.

     The most likely customer and legislative  requirements  for adaptive future
protection  systems shall be to improve e.g.  passenger size sensing,  passenger
position sensing,  adaptive air bag inflation adaptive seat belt pre-tensioning.
To facilitate  development of advanced systems which incorporate the appropriate
technologies a joint venture  between the PARTIES shall be formed to utilize the
respective  capabilities of each company,  to meet the evolving technical market
demands and to increase passenger safety as fast as possible.

     Through  the joint  venture it is ensured  that all  components  of a motor
vehicle  occupant  safety   restraint  system  are  indentified,   designed  and
manufactured  in  accordance  with  the  automotive  safety  standards  with the
objective to increase the overall quality level of all subcomponents.

     This AGREEMENT is being entered into under the following circumstances:

     WHEREAS SIEMENS,  through its Automotive  Systems Group, and its affiliated
companies,  are involved in the  development,  manufacturing  and sale of mainly
electronic components for motor vehicle occupant safety restraint systems;

     WHEREAS,   BREED  and  its   affiliated   companies  are  involved  in  the
development,  manufacturing and sale of mainly  mechanical  components for motor
vehicle occupant safety restraint systems;

     WHEREAS, SIEMENS and BREED are determined to cooperate on a worldwide basis
with respect to the worldwide research,  development,  engineering and marketing
of motor vehicle occupant safety restraint  systems as defined herein;  WHEREAS,
SIEMENS and BREED are  determined to appoint the joint venture as their reseller
in order to  market  and  sell  components  of  motor  vehicle  occupant  safety
restraint systems;

     WHEREAS,   the  PARTIES,   have  concluded  a  Non  Binding  Memorandum  of
Understanding on July, 27 1997 and a Memorandum of Understanding on October,  14
1997;

                                                                
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     WHEREAS the PARTIES have decided to carry out such a cooperation  through a
joint venture company to be incorporated and organized under German law; and

     WHEREAS the PARTIES  desire to set forth  herein their  rights,  duties and
responsibilities with respect to the joint venture company;

     NOW,  THEREFORE,  in  consideration  of these  premises  and of the  mutual
promises,  obligations  and agreements  contained  herein,  the PARTIES  hereto,
intending  to be  legally  bound,  subject  to  any  necessary  governmental  or
corporate approvals, do hereby agree as follows:

     1. Definitions

     Wherever the following  terms are used in this AGREEMENT in capital letters
in the  singular  or  plural  form,  or in any of its  ANNEXES,  they  shall  be
understood as defined below.

     "ACCOUNTING FIRM" means: the international independent certified accounting
firm      KPMG      Deutsche      Treuhand-Gesellschaft       Aktiengesellschaft
Wirtschaftsprhfungsgesellschaft,  located in Frankfurt/  Main,  Germany,  if the
PARTIES fail to agree on KPMG Deutsche Treuhand-Gesellschaft  Aktiengesellschaft
Wirtschaftsprhfungsgesellschaft  in special cases the  accounting  firm shall be
appointed by the president of the Chamber of Commerce of Munich, Germany;

     "AUDITOR"  means:  the auditor of the  COMPANY and of the  VERWALTUNGS-GMBH
designated by unanimous vote of the PARTNERSHIP MEETING according to SECTION 7.2
(F) and unanimous resolution of the SHAREHOLDERS'= MEETING;

     "AFFILIATE" means: related companies within the meaning of Secs. 15 et seq.
of the German Stock  Corporation  Act  ("Aktiengesetz"),  in which either of the
PARTIES has more than 50 % of all voting rights, directly or indirectly owned;

     "AGREEMENT" means: this Agreement and its ANNEXES;

     "ANNEX" means: an annex to this AGREEMENT;

     "ARTICLES OF LIMITED  PARTNERSHIP"  means:  the articles of organization of
the COMPANY as a limited partnership;

     BREED-FAMILY  means:  Allen K. Breed and Johnnie  Cordell  Breed  including
their heirs and legal sucessors;

     "CAPITAL  INTEREST"  means:  the capital interest in the COMPANY and/or the
VERWALTUNGS-GMBH as the case may be;

     "CEO" means: Chief Executive Officer  ("Vorsitzender der Gesch@ftsfhhrung")
of the COMPANY;

     "CFO" means: Chief Financial Officer ("Kaufm@nnischer  Gesch@ftsfhhrer") of
the COMPANY;

                                                                2

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     "CHANGE OF CONTROL" means:  (A) for SIEMENS that any person or entity other
than SIEMENS or its  AFFILIATES  acquires  directly or indirectly  fifty percent
(50%) or more of shareholders'  voting rights in the SIEMENS  Automotive Systems
Group;  (B) (i)  for  BREED  that  (i) any  person  or  entity  other  than  the
BREED-FAMILIY  acquires beneficial ownership (as defined in Rule 13d-3 under the
US  Security  Exchange  Act of  1934)  of  fifty  percent  (50%)  or more of the
outstanding  common stock of BREED; or (ii) any company which is a competitor of
SIEMENS  in  the  automotive  field  or a  competitor  of  the  COMPANY  or  its
SUBSIDIARIES either: (a) becomes the largest single shareholder in BREED; or (b)
makes a tender offer  resulting in the ownership of fifty percent (50 %) or more
of the shares of outstanding common stock of BREED

     "CLOSING" means:  the consummation of all transactions  which have to occur
under  this  AGREEMENT  after the  EFFECTIVE  DATE  including  all  governmental
authorizations  and approvals of any nature  necessary for the  effectiveness of
this transactions;

     "CLOSING  DATE" means:  the earliest  date on which the CLOSING will occur,
provided  that such date may not be later than  June,  6.1998  unless  otherwise
agreed by the PARTIES;

     "COMPANY" means: the joint-venture company under the laws of Germany in the
legal  form  of  a  limited  partnership   ("Kommanditgesellschaft")   with  the
VERWALTUNGS-GMBH  as general  partner and with SIEMENS and BREED or an AFFILIATE
of SIEMENS or an AFFILIATE of BREED each as limited  partners ("GmbH & Co. KG"),
to be established in accordance with this AGREEMENT;

     "COMPONENTS"A means: components of SRS-SYSTEMS as listed in ANNEX 1;

     "CONTRIBUTION  AGREEMENT" means: the contribution  agreement  regarding the
contribution  of shares in PARS to be  contributed by SIEMENS or an AFFILIATE of
SIEMENS to the COMPANY and the contribution agreement regarding the contribution
of interests in the US-PARTNERSHIP to be contributed by BREED or an AFFILIATE of
BREED to the COMPANY and to the VERWALTUNGS-GMBH;

     "DEADLOCK""  means:  a  situation  of  impasse  where a  decision  which is
required  for the  continuing  operations  of the  COMPANY  as a  going-business
concern  cannot be taken  because of a failure to agree upon a common  course of
action among the MANAGEMENT, the PARTNERS' BOARD, the PARTNERSHIP MEETING or the
SHAREHOLDERS MEETING or the PARTIES;

     "DISPUTE" means: any claims,  differences or disputes, arising out of or in
connection with this AGREEMENT,  including any question regarding its existence,
validity,  termination or its  performance,  or in connection with  arrangements
regarding the perfor mance of this AGREEMENT;

     "EFFECTIVE DATE" means: the date on which this AGREEMENT  becomes effective
according to SECTION 19. hereof;

     "FISCAL   YEAR"  means:   the  fiscal  year  of  the  COMPANY  and  of  the
VERWALTUNGS-GMBH, as provided for in this AGREEMENT.

                                                                

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     "MANAGEMENT"  means:  the  management  of the  VERWALTUNGS-GMBH  and/or the
COMPANY as the case may be,  consisting  of a CEO and a CFO, as provided  for in
this AGREEMENT;

     "OFFER"  means:  the offer to be made under the procedure  described in the
case of disposal of CAPITAL INTEREST as per SECTION 5 hereof;

     "OFFEREE"  means:  the offeree in the  procedure  described  in the case of
disposal of CAPITAL INTEREST as per SECTION 5 hereof;

     "OFFEROR" means:  the offeror under the procedure  described in the case of
disposal of CAPITAL INTEREST as per SECTION 5 hereof;

     "PARS"  means:  PARS Passive  Rhckhaltesysteme  GmbH,  a limited  liability
corporation  organized  and  existing  under the laws of Germany  and having its
registered seats at Carl-Zeiss-Strasse 9, D-63755 Alzenau, Germany, of which the
shares are to be  contributed  to the  COMPANY by  SIEMENS  or an  AFFILIATE  of
SIEMENS according to this AGREEMENT;

     "PARTNER" means: a limited partner  ("Kommanditist")  in the COMPANY,  i.e.
SIEMENS or BREED or an AFFILIATE of SIEMENS or BREED, as the case may be;

     "PARTNERSHIP  MEETING" means:  the  partnership  meeting for the COMPANY as
provided for in this AGREEMENT;

     "PARTY" means: SIEMENS or BREED;

     "PARTNERS'  BOARD" means:  the partners'  board for the COMPANY as provided
for in this AGREEMENT;

     "SECTION" means: a section of this AGREEMENT;

     "SHAREHOLDERS'   MEETING"  means:   the   shareholders'   meeting  for  the
VERWALTUNGS-GMBH as provided for in this AGREEMENT;

     "SIGNATURE  A means:  the date on which  the  AGREEMENT  is  signed by both
PARTIES;

     "SRS-BACKGROUND-TECHNOLOGY"   means:   the   technology   with  respect  to
SRS-SYSTEMS and COMPONENTS  available on the CLOSING DATE, whether in written or
oral form and whether under statutory  protection  such as patent  applications,
patents,  utility  models,  or not, at SIEMENS in its  Automotive  Systems Group
subdivision  safety  and  chassis  systems  location  Regensburg,   Germany  and
available  at BREED,  and which  technology  o is needed by the  COMPANY and its
SUBSIDIARIES  for the  development,  integration and application of SRS-SYSTEMS,
and o either PARTY is legally  entitled to license to the other PARTY and/or the
COMPANY and its

                                                                

<PAGE>



     SUBSIDIARIES;

     "SRS-FOREGROUND-TECHNOLOGY"   means:   the   technology   with  respect  to
SRS-SYSTEMS and COMPONENTS  available after the CLOSING DATE, whether in written
or oral form and whether under statutory protection such as patent applications,
patents, utility models, or not,

     o at  SIEMENS  in its  Automotive  Systems  Group  subdivision  sayety  and
chaissis systems location Regensburg, Germany and at BREED, and which technology
is needed by the COMPANY and its SUBSIDIARIES  for the development,  integration
and application of SRS-SYSTEMS, or
     o at the COMPANY and/or at its SUBSIDIARIES

     and which  technology  either  PARTY or the  COMPANY  or its  SUBSIDIARIES,
respectively, is legally entitled to license as laid down in this AGREEMENT.

     "SRS-SYSTEM"  means: a motor vehicle  occupant safety  restraint  system as
described in ANNEX 1.

     "STATUTES" means: the articles of organization of the  VERWALTUNGS-GMBH  as
provided for in this AGREEMENT;

     "SUBSECTION" means: a subsection of this AGREEMENT;

     "SUBSIDIARY  A means:  any  legal  entity,  in  which  the  COMPANY  or the
VERWALTUNGS-GMBH,  as the case may be, has more than 50 % of all voting  rights,
directly or indirectly owned, such as but not limited to the  US-PARTNERSHIP and
the PARS;

     "US-PARTNERSHIP"  means:  the  legal  entity  in  the  form  of  a  limited
partnership organized and existing under the laws of the State of Delaware, USA,
which is to be  founded  by BREED  and an  AFFILIATE  of BREED  and of which the
interests are to be contributed to the COMPANY and the VERWALTUNGS-GMBH by BREED
and an AFFILIATE of BREED under this AGREEMENT;

     "VERWALTUNGS-GMBH" means: a legal entity in the form of a limited liability
company  (GmbH) under the laws of Germany which assumes  personal  liability and
the  management  of  the  COMPANY  as  general  partner,  to be  established  in
accordance with this AGREEMENT;

     I. ESTABLISHMENT OF THE COMPANY


     2. The COMPANY

     2.1 The PARTIES or  AFFILIATES  designated  by the  respective  PARTY shall
establish  the COMPANY with ARTICLES OF LIMITED  PARTNERSHIP  set forth in ANNEX
2.1 A and the  VERWALTUNGS-GMBH  with  STATUTES  set  forth in ANNEX  2.1 B. The
COMPANY shall be  established  for an  indefinite  period of time subject to the
right of either PARTY to terminate this Agreement as per SECTION 17 hereof.


                                                                

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     2.2 The name of the COMPANY shall be: "BST Restraint Systems  International
GmbH & Co. KG" The name of the VERWALTUNGS-GMBH shall be: "BST Restraint Systems
Verwaltungs-GmbH"  On its corporate  stationary  the COMPANY may add to its name
the words: "A joint venture of Siemens and Breed"

     2.3 The COMPANY and the VERWALTUNGS-GMBH  shall have their registered seats
and administrative head offices at Alzenau, Germany.

     2.4 The scope of the COMPANY shall be: the worldwide research, development,
engineering,  assembly,  marketing  and sale of  SRS-SYSTEMS,  and the purchase,
marketing and sale of COMPONENTS, and the holding of participations in companies
which are engaged in  businesses  as  described  in  SUBSECTION  2.4.1 and 2.4.2
hereof.

     2.5 It is understood,  that the COMPANY and the SUBSIDIARIES shall exercise
the  worldwide  research,  development  and  engineering  of  SRS-SYSTEMS  on  a
contractual basis. The COMPANY may perform by itself or through its SUBSIDIARIES
on a worldwide  basis all  activities  related to this scope,  including but not
limited  to  the   representation,   administration   or  acquisition  of  other
enterprises  of  the  same  or  a  similar  nature  and  participation  in  such
enterprises. Furthermore, the COMPANY may establish branches and/or SUBSIDIARIES
worldwide.  The scope of the COMPANY may be extended by unanimous  resolution of
the PARTNERSHIP MEETING.

     2.6 It is understood, that any SUBSIDIARY established by the COMPANY or the
VERWALTUNGS-GMBH  shall  be  found  in the most  beneficial  way in  respect  of
taxation and liability.  All shares of SUBSIDIARIES in the form of a corporation
with  its  registered  seat  outside  Germany  shall  be  solely  owned  by  the
VERWALTUNGS-GMBH or any other legal entity agreed upon by the PARTIES.

     2.7 The COMPANY shall have a registered  liability capital  ("Haftkapital")
to be registered in the companies' register  ("Handelsregister") in an aggregate
amount of DM 10.000.000 (Deutsche Mark ten million) divided into one (1) CAPITAL
INTEREST of DM 5.020.000  (Deutsche Mark five million  twenty  thousand) held by
SIEMENS or an AFFILIATE  designated by SIEMENS and into one (1) CAPITAL INTEREST
of DM 4.980.000 (Deutsche Mark four million ninety eight thousand) held by BREED
or an AFFILIATE designated by BREED.

     2.8 The scope of the  VERWALTUNGS-GMBH as general partner  ("Komplement@r")
in the COMPANY  shall be the  assumption  of the personal  liability for and the
management of the COMPANY.  The VERWALTUNGS-  GMBH will not hold any interest in
the COMPANY'S capital.  Its aggregate share capital shall be DM 50,000 (Deutsche
Mark  fifty  thousand)  divided  into  one (1)  CAPITAL  INTEREST  of DM  25.100
(Deutsche  Mark  twenty  five  thousand  one  hundred)  held by  SIEMENS,  or an
AFFILIATE  designated  by SIEMENS,  and one (1) CAPITAL  INTEREST  of, DM 24.900
(Deutsche Mark twenty four thousand nine hundred) held by BREED, or an AFFILIATE
designated by BREED.

     2.9 As of the CLOSING  DATE,  the CAPITAL  INTERESTS in the COMPANY and the
CAPITAL INTERESTS in the VERWALTUNGS-GMBH shall be fully paid in as provided for
in SECTION 3 hereof and the ratio of  shareholding  of SIEMENS,  or an AFFILIATE
designated by SIEMENS, shall be 50,2 % and the ratio of shareholding of BREED or
an  AFFILIATE  designated  by  BREED,  shall  be 49,8 % in the  COMPANY  and the
VERWALTUNGS- GMBH, as provided for in SECTION 2.7 and 2.8 hereof.

     2.10 The CAPITAL  INTERESTS in the COMPANY and the CAPITAL INTERESTS in the
VERWALTUNGS-GMBH  may  only be  transferred  together  and to the  same  extent.
Therefore,  to the extent  that in this  AGREEMENT  or the  ARTICLES  OF LIMITED
PARTNERSHIP  any  provisions  have been  agreed for a voluntary  or  involuntary
transfer of CAPITAL  INTERESTS in the COMPANY,  such  provisions,  in particular
SECTION 5., shall apply

                                                                

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     mutatis mutandis to a transfer of CAPITAL INTERESTS in the VERWALTUNGS-GMBH
subject  to  the  hereof   condition   that  any  such   transfer   shall  occur
simultaneously. The same shall apply to any other disposal or encumbrance of the
CAPITAL INTERESTS.


     3. Contributions

     3.1  Immediately  after  the  EFFECTIVE  DATE,  SIEMENS,  or  an  AFFILIATE
designated by SIEMENS,  and BREED,  or an AFFILIATE  designated by BREED,  shall
jointly  form the  VERWALTUNGS-GMBH  and shall make their  contributions  to the
aggregate  share capital in cash in order to receive in return their  respective
CAPITAL INTERESTS, as provided for in SUBSECTION 2.8 hereof.

     3.2. After the incorporation of the VERWALTUNGS-GMBH,  the VERWALTUNGS-GMBH
as general  partner  ("Komplementar"),  SIEMENS,  or an AFFILIATE  designated by
SIEMENS,  and BREED, or an AFFILIATE  designated by BREED,  as limited  partners
("Kommanditisten")  shall jointly form the COMPANY and SIEMENS,  or an AFFILIATE
designated by SIEMENS,  as well as BREED,  or an AFFILIATE  designated by BREED,
shall make their  contributions to the aggregate share capital of the COMPANY in
kind as provided  for in  SUBSECTION  3.2.1,  3.2.2 and 3.2.3 hereof in order to
receive  in  return  their  respective  CAPITAL  INTERESTS  as  provided  for in
SUBSECTION 2.7 hereof:

     3.2.1 SIEMENS,  or an AFFILIATE  designated by SIEMENS,  shall according to
SECTION 3.2  contribute  all of the shares of PARS to the COMPANY with  economic
effect  as of  the  EFFECTIVE  DATE.The  value  of  the  shares  of  PARS  is DM
9.318.000,--  (Deutsche Mark nine million threehundred  eighteen thousand) as of
September 30, 1997.

     3.2.2 Prior to the  EFFECTIVE  DATE BREED,  and an AFFILIATE  designated by
BREED, shall form the US- PARTNERSHIP as a limited  partnership and transfer the
tangible assets with respect to development, research and testing of SRS-SYSTEMS
as described in ANNEX 3.2.2 into the US-PARTNERSHIP. Any licenses or transfer of
SRS-  BACKGROUND-TECHNOLOGY  shall be solely  provided  according to SECTION 15.
BREED shall be the limited partner in the US-PARTNERSHIP  with capital interests
of 99% and the AFFILIATE designated by BREED shall be the general partner in the
US-PARTNERSHIP  with capital  interest of 1 %. BREED shall  according to SECTION
3.2 contribute all its interests as a limited partner of the  US-PARTNERSHIP  to
the COMPANY and the AFFILIATE designated by BREED shall according to SECTION 3.2
transfer all its interests as a general  partner of the US-  PARTNERSHIP  to the
VERWALTUNGS-GMBH  with economic effect as of the EFFECTIVE DATE.The value of the
assets to be transfered by BREED, and an AFFILIATE designated by BREED, into the
US-PARTNERSHIP  and accordingly the value of the interests of the US-PARTNERSHIP
are DM  9.318.000,--  (Deutsche  Mark Mark nine  million  threehundred  eighteen
thousand) as of the EFFECTIVE DATE.

     3.2.3 The shares of PARS and interests in the US-PARTNERSHIP contributed by
the respective PARTNER shall be entered in the registered liability contribution
of the  contributing  PARTNER  in the  COMPANY  up to an amount of DM  5.020.000
(Deutsche  Mark five  million  twenty  thousand)  for  SIEMENS  or an  AFFILIATE
designated  by SIEMENS  and up to an amount of DM 4.980.00  (Deutsche  Mark four
million  ninety eight  thousand) for BREED or an AFFILIATE  designated by BREED.
The exceeding  amount of DM 8.636.000  (Deutsche  Mark eight million  sixhundred
thirty-six  thousand)  shall be  entered  in the joint  capital  reserve  of the
COMPANY.

     3.2.4 The shares in PARS shall be  contributed  by SIEMENS or an  AFFILIATE
designated by SIEMENS, to the COMPANY under the condition that any and all risks
resulting from product  liability or liability for  infringement  of proprietary
rights or any other  liabilities  for any  products  produced  or  developed  or
services  rendered  before the CLOSING  DATE shall remain with SIEMENS who shall
hold the COMPANY  harmless  from any and all claims of third  parties  resulting
therefrom. The interests in the US-PARTNERSHIP shall be contributed by BREED and
an AFFILIATE designated by BREED, to the COMPANY and the VERWALTUNGS-GMBH  under
the condition that any and all risks

                                                                

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     resulting  from  product   liability  or  liability  for   infringement  of
proprietary  rights  or any  other  liabilities  for any  products  produced  or
developed or services  rendered  before the CLOSING DATE shall remain with BREED
and the  AFFILIATE  designated  by BREED  who  shall  hold the  COMPANY  and the
VERWALTUNGS-GMBH  harmless  from any and all claims of third  parties  resulting
therefrom.

     3.2.5   The   CONTRIBUTION   AGREEMENTS   shall   each   contain   adequate
representations  and  warranties  substantially  in the form as  stated in ANNEX
3.2.5.

     3.3 With the exception of costs and expenses for counsel and auditors to be
borne solely by each PARTY,  SIEMENS and BREED shall  jointly bear all costs and
expenses related to the formation of the VERWALTUNGS-GMBH and the COMPANY unless
the ARTICLES OF LIMITED PARTNERSHIP or the STATUTES stipulate that the costs and
expenses,  such as for the notarized  application to and the registration in the
companies' register  ("Handelsregister") as well as the publication costs, shall
be borne directly by the  VERWALTUNGS-GMBH or the COMPANY.  SIEMENS shall solely
bear all cost and expenses  ,including any and all duties and taxes,  related to
the contribution of the shares in PARS to the COMPANY as per SUBSECTIONS  3.2.1.
and BREED shall solely bear all cost and expenses,  including any and all duties
and taxes, related to the contribution of the interests in the US-PARTNERSHIP to
the COMPANY and the VERWALTUNGS-GMBH as per SUBSECTION 3.2.2. BREED shall solely
bear all costs and expenses,  including any and all duties and taxes, related to
the formation of the  US-PARTNERSHIP  and the transfer of the assets  thereto as
per SUBSECTION 3.2.2.

     3.4 Third parties shall only be permitted to join the  VERWALTUNGS-GMBH and
the COMPANY if all PARTIES approve.


     3.5 After the  implementation  of the contribution  according to SUBSECTION
3.2.1 and 3.2.2 the corporate names of the SUBSIDIARIES  shall be changed as far
as legally possible

     3.5.1 PARS in "BST Restraint Systems-GmbH

     3.5.2  US-PARTNERSHIP  in BST Restraint  Systems-LP Any other SUBSIDIARY of
the COMPANY or the VERWALTUNGS-GMBH shall be named with a similar name as far as
legally possible.


     4. CHANGE OF CONTROL

     4.1 If,  after the  incorporation  of the COMPANY  and/or the  VERWALTUNGS-
GMBH, a CHANGE OF CONTROL occurs in respect of a PARTY,  this PARTY shall notify
this to the other  PARTY  without  undue delay and shall sell all or part of its
CAPITAL INTERESTS in the COMPANY and the  VERWALTUNGS-GMBH to the other PARTY if
and to the extent so requested by the other PARTY.  Such a request shall be made
in writing not later than three (3) months after the notification. The price for
the CAPITAL  INTERESTS  shall be agreed upon by the PARTIES  and,  failing  such
agreement,  shall be determined by an ACCOUNTING  FIRM jointly  appointed by the
PARTIES.  The  opinion  of the  ACCOUNTING  FIRM as to the price of the  CAPITAL
INTERESTS  shall be based on a  generally  accepted  valuation  method  being in
common use at the time of appointment of the ACCOUNTING FIRM and shall result in
a reasonable,  arm's-length  price on the basis of a willing buyer and a willing
seller  of the  relevant  CAPITAL  INTERESTS.  The  cost of the  opinion  of the
ACCOUNTING FIRM shall be paid by the selling PARTY.

     4.2 Insofar as the  conditions as set out in sentence 1 of  SUBSECTION  4.1
already exist and have been disclosed in writing at the time of SIGNATURE,  this
shall  not be  deemed  to be  CHANGE  OF  CONTROL  within  the  meaning  of this
provision.

                                                                

<PAGE>



     4.3 An  AFFILIATE of a PARTY shall be deemed not to be a third party within
the meaning of this provision, but only as long as it remains an AFFILIATE.


     5. Disposal of CAPITAL INTERESTS

     5.1 For a time period of six (6) years  commencing at the CLOSING DATE, the
transfer  of any  CAPITAL  INTERESTS  by a PARTY to a third  party or any  other
disposal or  encumbrance  thereof  shall not be permitted and after such six (6)
years time period shall  require the prior  written  consent of the other PARTY,
such consent to be given if and when the following conditions are fulfilled:

     (A) If a PARTY (the "OFFEROR")  wishes to transfer its CAPITAL INTERESTS in
the  COMPANY,  it shall  first  offer such  CAPITAL  INTERESTS  in writing  (the
"OFFER") to the other PARTY (the "OFFEREE").

     (B) If  within  one (1)  months  from  receipt  of the  OFFER  the  OFFEREE
indicates  in  writing  that he is not  interested  in  purchasing  the  CAPITAL
INTERESTS  or does not reply to the OFFER,  the OFFEROR  shall have the right to
offer its CAPITAL  INTERESTS to a third party of whose  identity the OFFEROR has
immediately  informed the OFFEREE.  In such a case, the OFFEREE may withhold its
approval  only  for  cause  which  must  relate  to the  potential  third  party
purchaser.  Such cause shall be deemed to be constituted  without  limitation if
such third party purchaser is a direct competitor of the OFFEREE.

     (C) If  within  one (1)  months  from  receipt  of the  OFFER  the  OFFEREE
indicates in writing that he is interested in purchasing the CAPITAL  INTERESTS,
the  PARTIES  shall  seek to agree on a  reasonable  purchase  price on an arm's
length basis.

     (D) If the  PARTIES  fail to agree on the  purchase  price  within  two (2)
months from the time the OFFER was received by the OFFEREE, they shall, within a
period  of one (1) month  commencing  after  the  elapse  of the  aforementioned
two-month period, ask an ACCOUNTING FIRM,  jointly appointed by the PARTIES,  to
prepare  an  opinion  on the  price to be paid for the  CAPITAL  INTERESTS.  The
opinion of the ACCOUNTING FIRM as to the price of the CAPITAL INTERESTS shall be
based on a generally  accepted  valuation method being in common use at the time
of  appointment  of the  ACCOUNTING  FIRM  and  shall  result  in a  reasonable,
arm's-length  price on the basis of a willing buyer and a willing  seller of the
relevant CAPITAL INTERESTS. The cost of the opinion of the ACCOUNTING FIRM shall
be shared by the OFFEROR and the OFFEREE in proportion to their then  respective
CAPITAL INTERESTS.

     (E) The  OFFEROR  shall  inform  the  OFFEREE  within  one (1)  month  from
receiving the opinion of the ACCOUNTING FIRM on the price whether he is prepared
to sell his CAPITAL INTERESTS at the price stated in the opinion. If the OFFEROR
refuses to sell his CAPITAL INTERESTS at that price or if he does not inform the
OFFEREE  within that one (1) month period,  he shall not be entitled to sell his
CAPITAL INTERESTS to such third party.

     (F) The OFFEREE  shall  inform the  OFFEROR  within one (1) month after the
OFFEROR has indicated his willingness to sell whether he is prepared to purchase
the CAPITAL  INTERESTS at the given price pursuant to SUBSECTION (E) hereof.  If
the OFFEREE  refuses to purchase  the CAPITAL  INTERESTS  at this price or if he
does not within the period of one (1) month  inform  the  OFFEROR,  the  OFFEROR
shall have the right to offer his CAPITAL INTERESTS for sale to a third party of
whose identity the OFFEROR has immediately informed the OFFEREE. In such a case,
the OFFEREE may withhold  its  approval  only for cause which must relate to the
potential  third party  purchaser.  Such cause shall be deemed to be constituted
without  limitation if such third party purchaser is a direct  competitor of the
OFFEREE.

     5.2 Before the transfer of CAPITAL  INTERESTS to a third party is executed,
the OFFEREE shall have the right to require the offered CAPITAL  INTERESTS to be
sold to him on the same terms and conditions as offered to the

                                                                

<PAGE>



     third  party.  Such right of first  refusal  shall be  exercised in writing
within a period of three (3) weeks after the OFFEROR has informed the OFFEREE in
writing of the name and the  address of the third  party and of the terms of the
transfer agreement.

     5.3 The  restrictions on transfer  contained in SECTIONS 5.1 and 5.2 hereof
shall  not  apply to a  transfer  of  CAPITAL  INTERESTS  in the  COMPANY  to an
AFFILIATE or from an AFFILIATE to the respective  PARTY. The transfer shall only
be made on the condition that the AFFILIATE  shall be bound by the terms of this
AGREEMENT,  the  ARTICLES OF LIMITED  PARTNERSHIP  and the  STATUTES  and, if so
required by the PARTIES,  if applicable,  will not permit the AFFILIATE to cease
to be an AFFILIATE without first procuring the transfer of the CAPITAL INTERESTS
in the COMPANY  owned by that  AFFILIATE  either to the other PARTY or to one of
its AFFILIATES.

     5.4 If so required by the OFFEREE,  the  OFFEROR,  when selling its CAPITAL
INTERESTS to a third party, shall undertake that, prior to and as a precondition
to such transfer,  the third party shall have entered into an agreement with the
OFFEROR,  whereby the third party shall be bound by the terms of this AGREEMENT,
the  ARTICLES  OF LIMITED  PARTNERSHIP  and the  STATUTES in every way as if the
third  party were a party to this  AGREEMENT  and had been such a party from the
date when this AGREEMENT came into force.

     5.5 Should one of the PARTIES be prevented from accepting the OFFER or from
exercising the  pre-emptive  right according to SUBSECTION 5.1 or 5.2 hereof due
to the laws in  force in  Germany  or the US or due to the  compliance  with any
order or regulation of  governmental  authorities in Germany or the US or of the
authorities of the European  Union,  such PARTY shall then be entitled to assign
such rights to a third  party to which the  respective  change in law,  order or
regulation does not apply.

     5.6 Except as  otherwise  provided  in  SUBSECTION  5.5 none of the PARTIES
shall assign all or part of its rights or  obligations  under this  AGREEMENT to
any other company or person without  obtaining the prior written  consent of the
other PARTY. Such consent is however not necessary in connection with a transfer
of CAPITAL  INTERESTS to an  AFFILIATE  or from an  AFFILIATE to the  respective
PARTY in accordance with SUBSECTION 5.3 hereof.

     5.7 Notwithstanding SUBSECTION 5.1 to 5.6 each PARTY shall inform the other
PARTY prior to any execution of transfer of CAPITAL INTERESTS in writing.

     II. ORGANIZATION OF THE COMPANY


     6. Bodies of the COMPANY

         6.1      The corporate bodies of the COMPANY are
                  -      the PARTNERSHIP MEETING;
                  -      the PARTNERS' BOARD.
                  -      the MANAGEMENT

         6.2      The  corporate  bodies  of  the  VERWALTUNGS-GMBH  are  -  the
                  SHAREHOLDERS' MEETING; - the MANAGEMENT.


     7. PARTNERSHIP MEETING

     7.1 The  PARTNERSHIP  MEETING is the supreme  authority of the COMPANY.  It
shall pass and ratify

                                                               

<PAGE>



     resolutions  with regard to all activities and business actions to which it
is  entitled.  Its  resolutions  shall be binding  upon all other  bodies of the
COMPANY.

     7.2 The PARTNERSHIP MEETING shall resolve upon

     (A)  amendments of the ARTICLES OF LIMITED  PARTNERSHIP,  including but not
limited to, changes of the scope of the COMPANY, the increase or decrease of the
partnership  capital,  the  increase or decrease  of PARTNERS  interests  in the
COMPANY, the sale of PARTNERS interests to third parties;

     (B) merger with or demerger  from or  management  contracts  with any other
company;

     (C) dissolution of the COMPANY and disposition of the COMPANY'S property in
case of its dissolution;

     (D) sale of all or substantially all of the assets of the COMPANY;

     (E) determination of the annual financial  statements and allocation of the
financial result (such as dividends and distributions);

     (F) designation of the AUDITOR;

     (G) appointment and dismissal of the MANAGEMENT  pursuant to the procedures
in SUBSECTION 9.3;

     (H) all other matters if so required by mandatory law.

     The  resolution  as  listed in  SUBSECTION  7.2  letter A to H  require  an
unanimous vote of the PARTNERS.

     7.3  PARTNERS   resolutions  shall  regularly  be  adopted  at  PARTNERSHIP
MEETINGS.  Unless mandatory law requires  otherwise,  resolutions may,  however,
also be adopted in writing or by telefax if all PARTNERS concerned agree thereto
in  writing  or by  telefax.  A  PARTNERSHIP  MEETING  may also be held by video
conference if all PARTNERS  agree. A PARTNERSHIP  MEETING need not to be held if
all PARTNERS agree in writing with the  resolution to be taken.  In such a case,
the MANAGEMENT  shall  immediately  after receipt of the written vote inform all
PARTNERS about the result thereof.

     7.4 Decisions of the  PARTNERSHIP  MEETING shall be taken by unanimous vote
of the liability capital according to SUBSECTION 2.7, unless otherwise  required
by this AGREEMENT,  in accordance with the ARTICELS OF LIMITED PARTNERSHIP or by
strictly  binding law.  Every  Deutsche  Mark one  thousand  (DM  1,000.00) of a
PARTNERS  CAPITAL  INTEREST  in the  COMPANY  shall  confer  one (1)  vote.  The
VERWALTUNGS-GMBH as general partner shall have no right to vote.

     7.5 Each of the PARTIES shall at all times exercise its powers and votes in
the COMPANY towards  procuring that the COMPANY will comply with all obligations
under this  AGREEMENT,  the  ARTICLES  OF LIMITED  PARTNERSHIP  and that all key
personnel of the COMPANY and any  representative  of either PARTY will implement
the provisions of this AGREEMENT in relation to the COMPANY and any other PARTY.

     7.6 A  PARTNERSHIP  MEETING  may  be  called  by the  MANAGEMENT  or by any
PARTNER.  The PARTNERSHIP MEETING shall be called by giving four (4) weeks prior
notice in writing or by telefax,  indicating the agenda,  the place and the date
of the PARTNERSHIP  MEETING.  PARTNERSHIP MEETINGS shall generally take place at
the head office of the COMPANY if not otherwise agreed upon by all PARTNERS.

                                                              

<PAGE>



     7.7 For the purpose of resolutions to be adopted by the PARTNERSHIP MEETING
each  PARTNER  may be  represented  by  written  proxy  given to a member of its
Company authorized to represent the same or to an attorney at law, an auditor or
a tax-advisor.

     7.8 A quorum  shall  exist in a  PARTNERSHIP  MEETING if all  PARTNERS  are
represented therein. If no quorum exists in a PARTNERSHIP MEETING, then a second
meeting  having the same agenda shall be called within one (1) week and a quorum
shall be deemed to exist in such  second  meeting  regardless  of the  liability
capital  represented  therein;  reference to this provision shall be included in
the notice for such PARTNERSHIP MEETING.

     7.9 The ordinary PARTNERSHIP MEETING shall be held within the first six (6)
months of the  running  FISCAL  YEAR.  It shall  resolve on the  approval of the
annual financial statement and the employment of the annual profit, the approval
of the acts of the MANAGEMENT for the previous  FISCAL YEAR and the  appointment
of the AUDITORS for the running FISCAL YEAR.

     7.10 Unless a notarial recording is required, the course of the PARTNERSHIP
MEETING  shall be  recorded  in  minutes  reflecting  the  place and date of the
PARTNERSHIP  MEETING,  the participants  therein,  the items of the agenda,  the
material  contents of negotiations and the resolutions  adopted by the PARTNERS.
The minutes shall be signed by the chairman and by the keeper of the minutes and
a copy shall be furnished to each of the PARTNERS and to the general partner.

     7.11 Any action challenging the validity of a PARTNERS' resolution shall be
excluded  unless it is filed  within one (1) month after  receipt of the minutes
pertaining thereto.

     7.12 If a DEADLOCK occurs in the PARTNERSHIP MEETING, then each PARTNER has
the right to request a new voting on the same item.  Such new voting shall occur
within one (1) month counting from the date of the last voting.

     7.13 If in the second voting pursuant to SUBSECTION  7.12 hereof  unanimity
cannot be reached  the  respective  upper  management  of each PARTY,  i.e.  the
chairman of BREED and the chairman of SIEMENS'  Automotive  Systems Group, shall
be asked for a final decision.

     7.14 If the upper management of the PARTIES cannot reach an unanimous final
decision  within  forty-five  (45) days  after the  second  voting  pursuant  to
SUBSECTION  7.13 hereof the PARTIES shall  immediately  consult each other as to
whether one of them wishes to purchase the entire CAPITAL  INTERESTS held by the
other PARTY or its AFFILIATE. If none of the PARTIES is willing to purchase then
each  PARTY  shall  have the  right to demand  the  dissolution  of the  COMPANY
according to SECTION 18 hereof. If one of the PARTIES is willing to purchase the
other PARTY shall be obligated to sell.  The purchase  price shall be determined
in accordance with SUBSECTION 5.1 letter D hereof,  provided,  however, that the
opinion of the ACCOUNTING FIRM shall be final and binding upon both PARTIES.  If
both PARTIES wish to  purchase,  then each PARTY shall submit to the  respective
other  PARTY a sealed  envelope  containing  the  purchase  price at which it is
prepared to purchase the CAPITAL INTERESTS of the other PARTY and at which it is
prepared to sell its own CAPITAL  INTERESTS  to the other  PARTY.  The  purchase
price offer  submitted by sealed  envelope  constitutes an irrevocable  offer to
purchase the CAPITAL  INTERESTS of the other PARTY at the purchase  price stated
therein.  The PARTY whose purchase price offer is higher shall  automatically be
entitled to purchase, and the other PARTY shall be obligated to sell the CAPITAL
INTERESTS at such higher purchase price.  The  transactions to sell and purchase
according to this SUBSECTION 7.14 shall be completed without undue delay.

     7.15 The provisions of this SECTION 7 shall apply mutatis  mutandis for the
SHAREHOLDERS MEETING of the VERWALTUNGS-GMBH.



                                                               

<PAGE>



     8. PARTNERS' BOARD

     8.1 A PARTNERS'  BOARD shall be formed for the COMPANY,  consisting  of six
(6)  members.  Three (3) members of the  PARTNERS'  BOARD shall be  appointed by
SIEMENS.  Three (3) members of the PARTNERS'  BOARD shall be appointed by BREED.
The members of the  PARTNERS'  BOARD may  represent  each other  mutually on the
basis of written or  telexed/telefaxed  power of attorney.  The PARTNERS'  BOARD
shall  elect from among its  members a chairman  and a vice  chairman,  it being
understood  that the chairman of the  PARTNERS'  BOARD shall be nominated by the
PARTNER not nominating the CEO and that the vice chairman of the PARTNERS' BOARD
shall be nominated by the PARTNER nominating the CEO, as provided for herein.

     8.2 The task of the PARTNERS' BOARD shall be to establish the principles of
business  policy and  ensuring  adherence  thereto.  The  PARTNERS'  BOARD shall
supervise  the  MANAGEMENT  and shall be  entitled  to issue  directions  to the
MANAGEMENT.

     8.3 The PARTNERS  BOARD shall decide on all matters which require  approval
of the  PARTNERS  BOARD  according  to this  AGREEMENT,  the ARTICELS OF LIMITED
PARTNERSHIP or the rules of procedure for the PARTNERS'  BOARD.  Further details
shall be  governed  by the  ARTICELS  OF  LIMITED  PARTNERSHIP  and the rules of
procedure for the PARTNERS'  BOARD to be adopted by the  PARTNERSHIP  MEETING in
accordance with ANNEX 8.3.

     8.4 The PARTNERS BOARD shall at least meet four (4) times a year.

     8.5 If a  DEADLOCK  occurs  in the  PARTNERS'  BOARD,  the  members  of the
PARTNERS' BOARD shall submit the item for decision to the PARTNERSHIP MEETING.

     8.6 A  supervisory  board  shall not be formed for the  COMPANY  and/or the
VERWALTUNGS-GMBH unless required by strictly binding law.


     9. MANAGEMENT

     9.1 The MANAGEMENT of the COMPANY shall be assumed by the VERWALTUNGS-GMBH.

     9.2 The  VERWALTUNGS-GMBH  shall act through the two (2) members of its own
MANAGEMENT,  a CEO and a CFO.  The  VERWALTUNGS-GMBH  itself and its  MANAGEMENT
shall be exempt from the  restrictions  of Section 181 of the German  Civil Code
("Buhrgerliches Gesetzbuch") to the extent that transactions between the COMPANY
and the VERWALTUNGS-GMBH  are concerned.  Any further exemptions shall require a
resolution of the shareholders of the  VERWALTUNGS-GMBH  according to a proposal
to be decided upon by the PARTNERS BOARD.

     9.3 Each PARTY has the right to nominate  one (1) member to the  MANAGEMENT
of the VERWALTUNGS-GMBH according to the following procedure.

     9.3.1 The initial CEO of the VERWALTUNGS-GMBH  will be nominated by SIEMENS
and is  subject  to  BREEDS  approval,  such  approval  not  to be  unreasonably
withheld. The CEO will be given a three-year term.

     9.3.2 The initial CFO of the  VERWALTUNGS-GMBH  will be  nominated by BREED
and is  subject to  SIEMENS'  approval,  such  approval  not to be  unreasonably
withheld.  The CFO will be given a term which  shall end on the same date as the
term of the CEO.

     9.3.3 If the CEO or the CFO is removed for any reason during his respective
term, then the PARTY which

                                                               

<PAGE>



     nominated such officer shall nominate his replacement, subject to the other
PARTY'S  approval,   such  approval  not  to  be  unreasonably  withheld.   Such
replacement officer's term shall end on the same date as the term of the officer
which he is replacing.

     9.3.4 At the end of the initial  three-year  term, if the  PARTNERS'  BOARD
agrees to renew the term of the CEO,  then the CEO shall be given an  additional
term of three years. In that event, at BREED'S  election,  the CFO shall either:
(i) be given an  additional  term ending on the same date as the CEO's new term;
or (ii) replaced by a new CFO nominated by BREED,  subject to SIEMENS' approval,
such approval not to be unreasonably withheld:  Such replacement CFO to be given
a term contract which shall end on the same date as the CEO's new term.

     9.3.5 At the end of the initial  three year term,  if the  PARTNERS'  BOARD
does not agree to renew the CEO's  employment,  then the  replacement CEO of the
VERWALTUNGS-GMBH will be nominated by BREED and is subject to SIEMENS' approval,
such approval not to be unreasonably withheld. The replacement CEO will be given
a three-year term.  Likewise,  if the CFO's employment will not be renewed,  the
replacement CFO will be nominated by SIEMENS,  subject to BREED'S approval, such
approval not to be  unreasonably  withheld.  The replacement CFO will be given a
term which  shall end on the same date as the term of the  replacement  CEO.  If
either of these  replacement  officers  is  removed,  they shall be  replaced in
accordance with the procedure described in SUBSECTION 9.3.3.

     9.3.6  Thereafter,  each time that the  PARTNERS'  BOARD  does not agree to
renew the CEO's  employment,  a new CEO will be nominated by the PARTY which did
not nominate such  non-renewed  CEO and a new CFO will be nominated by the other
PARTY.

     9.4 The CEO and the CFO shall jointly  represent the  VERWALTUNGS-GMBH  and
consistently  the  COMPANY.  As long as there is only one  manager on duty he is
entitled to represent the VERWALTUNGS-GMBH and consistently the COMPANY alone.

     9.5 The MANAGEMENT  shall have the broadest  powers to manage and supervise
the business  and the affairs of the COMPANY and to  supervise  the business and
the  affairs  of  its  SUBSIDIARIES   and,  being  the  head  of  the  executive
organization of the COMPANY,  shall have full authority to manage and direct its
business and affairs with the exception of those  matters  which are  explicitly
reserved to the PARTNERSHIP  MEETING or to the PARTNERS' BOARD by this AGREEMENT
or by the  ARTICLES OF LIMITED  PARTNERSHIP  or by  decision of the  PARTNERSHIP
MEETING or by the STATUTES or by mandatory law.

     9.6 The MANAGEMENT shall, in addition to other duties,  with respect to the
COMPANY and the VERWALTUNGS-GMBH

      - be responsible for the proper conduct of the business;  - be responsible
      for the efficient organization;  - be responsible for all their activities
      and all the personnel; - keep the PARTNERSHIP MEETING, the PARTNERS' BOARD
      and the SHAREHOLDERS'
MEETING informed about all major business activities;
      -  prepare all business plans and budgets;
      -  prepare the annual report, the balance sheet and the profit and loss
            statement;

     9.7 The  following  actions of the  MANAGEMENT  with respect to the COMPANY
including   its   SUBSIDIARIES   and/or  the   VERWALTUNGS-GMBH   including  its
SUBSIDIARIES  shall be submitted for consideration to the PARTNERS' BOARD and no
action may be taken on such matters  without the prior approval of the PARTNERS'
BOARD:

     (A) all business plans and amendments  thereto  including,  but not limited
to, the operating, financial and

                                                               

<PAGE>



     investment budgets and the headcount and sales plans;

     (B) substantial deviations from the approved business plans;

     (C) principles  concerning  general terms of employment  and  specification
thereof,  including without limitation the hiring and terms of employment of the
management of the SUBSIDIARIES;

     (D) conclusion, specification or termination of employment contracts if the
annual salary exceeds limits of 125.000 $ (onehundred and  twenty-five  thousand
US Dollar)  if the  salary is  defined  in US Dollar or 200.000 DM (two  hundred
thousand Deutsche Mark) if the salary is defined in Deutsche Mark or, in case of
a  termination,  if a  compensation  including  benefits of more than  125.000 $
(onehundred  and  twenty-five  thousand  US Dollar ) if  defined in US Dollar or
200.000 DM (two  hundred  thousand  Deutsche  Mark) if defined in Deutsche  Mark
shall be granted;

     (E) capital expenditures and investments (including capitalized leases) not
included  in the annual  business  plan and  exceeding  in  individual  instance
500.000 $ ( fivehundred thousand US Dollar),  except the use of surplus cash for
short-time  financial  investments  in highly rated  securities for a period not
exceeding one year;

     (F) acquisition and sale of investment in any other enterprises, or merging
or  consolidating  with any other enterprise or entering into or terminating any
joint venture or strategic alliance with other enterprises;

     (G)  establishment  of new business  sites and closing of existing ones, or
the purchase, sale or other disposition of real estate;

     (H) establishment of SUBSIDIARIES beyond PARS and US-PARTNERSHIP;

     (I) sale or disposal of fixed assets or other material assets other than in
the ordinary course of business;

     (J) issuing of debt  securities,  borrowing  money or  otherwise  incurring
indebtedness other than in the ordinary course of its business,  the mortgaging,
pledging or encumbering of assets to secure any  indebtedness,  or the incurring
of any other long-term (more than 12 months) obligations;

     (K) conclusion or termination of agreements regarding intellectual property
rights and know-how related to COMPONENTS and SRS-SYSTEMS;

     (L) conclusion or termination of agency and distribution agreements

     (M) conclusion of lease agreements with a term exceeding three (3) years or
with an aggregate annual payment  exceeding an aggregate annual limit of 250.000
$ (twohundred and fifty thousand US Dollar );

     (N)  establishment or change of any significant  accounting  principles and
practices;

     (O) startup of new or discontinuation of active product lines;

     (P) product and marketing strategy, including pricing policy, and marketing
the products of any third party;

     (Q) fundamental change in the scope or character of business of the COMPANY
and/or its  SUBSIDIARIES or actions outside the scope of the COMPANY  previously
defined in SUBSECTION 2.4.;

     (R) substantial changes in the organizational structure of the COMPANY;


                                                               

<PAGE>



     (S) initiating any legal or arbitral actions or settling any claims, causes
of action or rights  against any third parties (with the exception of collecting
outstanding  accounts   receivables)  or  commencing  bankruptcy  or  insolvency
proceedings;

     (T) conclusion or  termination of agreements  between either of the PARTIES
and the  COMPANY  and/or its  SUBSIDIARIES  except as  otherwise  stated in this
AGREEMENT;

     (U) the promise or granting of any employment benefits, pension commitments
or special  annual  payments  exceeding  the normal  salary  (including  without
limitation Christmas bonuses) or any modifications thereof;

     (V)    the    granting    of    commercial    power    of    representation
("Handlungsvollmacht") and commercial power of attorney ("Prokura");

     (W) all other  matters  exceeding  the  ordinary  course of business of the
COMPANY or the SUBSIDIARIES.

     9.8  Decisions of the  MANAGEMENT  shall be taken by unanimous  vote of its
members. In case unanimity cannot be reached, the PARTRNERS' BOARD shall decide.

     9.9 Rules of procedure for the members of the  MANAGEMENT  shall be adopted
by the SHAREHOLDERS' MEETING in accordance with ANNEX 9.9.


     10. Staff, Non-Solicitation of Employees

     10.1.  Before hiring new employees for the COMPANY and/or its SUBSIDIARIES,
the COMPANY and/or the VERWALTUNGS-GMBH shall examine whether employees with the
necessary qualification are available from the PARTIES or their AFFILIATES.

     10.2 Neither SIEMENS or BREED shall solicit or hire the employees of either
corporation  or the  COMPANY.  However,  the PARTIES  remain free to run general
advertisements for employment.


     11. Organizational Structure

     The COMPANY and its initial  SUBSIDIARIES,  i.e.  PARS and  US-PARTNERSHIP,
shall have the initial organizational  structure as set forth in ANNEX 11 and as
amended from time to time by resolution of the PARTNERS' BOARD.

     III. OPERATION OF THE COMPANY

     12. Initial Business Plan, Budget

     12.1 The initial  business plan as per ANNEX 12.1 shall be submitted by the
MANAGEMENT to the PARTNERS' BOARD for approval at its first meeting.

     12.2 The COMPANY shall operate  pursuant to an operating budget approved by
the PARTNERS' BOARD at its inaugural meeting and subject to annual review.



                                                               

<PAGE>



     13. Profit and Loss, Financing, Corporate Opportunities

     13.1 The PARTNERSHIP MEETING for the COMPANY and the SHAREHOLDERS'  MEETING
for the  VERWALTUNGS-GMBH  shall take the  resolution  on the  allocation of the
financial results as per SUBSECTION 7.2 letter (E) hereof.

     13.2 In case that any profit of the COMPANY and/or the  VERWALTUNGS-GMBH is
allocated to the PARTIES,  this profit shall be distributed among the PARTIES in
proportion to the value of their respective CAPITAL INTERESTS.

     13.3 The  COMPANY  and the  VERWALTUNGS-GMBH  shall  meet  their  financial
requirements  by their own means or by loans raised  locally from banks or other
third parties unless the PARTNERS' BOARD otherwise decides upon. The PARTIES are
not obliged to make further  contributions in addition to their  contribution as
per SECTION 3 hereof, unless otherwise provided for in this AGREEMENT.

     13.4  SIEMENS and BREED shall  provide  funding to the extent  revenues and
external  funding sources (such as but not limited to loans raised from banks or
other third  parties) are inadequate to cover  budgeted  operating  expenses and
capital  expenditures.  Neither  PARTY can be compelled  to provide  funding for
expenses and capital expenditures above budgeted amounts, except that each PARTY
must fund up to 500.000 $ (fivehundred thousand US Dollar), each FISCAL YEAR, if
required,  to prevent insolvency of the COMPANY for German statutory purposes or
to enable the PARTIES to transfer  losses of the COMPANY under Sect.  15a of the
German  Income  Tax  Code  ("Einkommensteuergesetz"),  as  decided  upon  by the
PARTNERS' BOARD.

     13.5  If a  research  and  development  opportunity  with  respect  to  new
SRS-SYSTEMS  or COMPONENTS  therefor are  presented to either PARTY,  such PARTY
shall  present such  opportunity  to the COMPANY.  If the other PARTY refuses to
fund it in the COMPANY and/or its  SUBSIDIARIES,  the  presenting  PARTY will be
permitted to take and exploit the opportunity for its own account.


     14. Books and Records, FISCAL YEAR, Financial Statements

     14.1 Full and  accurate  books of  account,  financial  records  and annual
financial  statements  shall be made  according to German  accounting  practices
showing  the  condition  of the  business  and  finances  of the COMPANY and the
VERWALTUNGS-GMBH  and the  ownership  of each  PARTY  and  shall  be kept at the
principal  office of the COMPANY and the  VERWALTUNGS-GMBH.  Each PARTY,  or its
designated  representatives,  shall have  access to and may inspect and copy any
part thereof. In addition,  the COMPANY and the  VERWALTUNGS-GMBH  shall forward
monthly  financial  reports to each PARTY,  which  reports shall be presented in
such format and shall  contain such  information  as the  PARTNERS'  BOARD shall
agree. The financial records and annual financial statements of the SUBSIDIARIES
shall be made according to the generally accepted accounting principles at their
registered seat.

     14.2 The COMPANY and the VERWALTUNGS-GMBH  shall also furnish to each PARTY
such  additional  financial   information  and  statements  as  such  PARTY  may
reasonably request for its internal reporting procedures and for the preparation
of its  consolidated  financial  statements  for any  FISCAL  YEAR in which  the
COMPANY and/or the VERWALTUNGS-GMBH  are included in its tax consolidation.  The
COMPANY and the VERWALTUNGS-GMBH shall provide BREED at August 1. each year with
the  reconciliation  of  the  net-earning  statement  of  the  COMPANY  and  the
VERWALTUNGS-GMBH from German-GAAP to US-GAAP for the period commencing from July
1 to June 30 of the consecutive year.

     14.3 The FISCAL YEAR of the COMPANY and of the  VERWALTUNGS-GMBH  shall run
from  October 1 to  September  30 of the  consecutive  year.  At the end of each
FISCAL YEAR, an audit of the COMPANY'S and the

                                                               

<PAGE>



     VERWALTUNGS-GMBH'S financial statements shall be performed by the AUDITOR.

     14.4 The MANAGEMENT shall, within the first three (3) months of each FISCAL
YEAR prepare the annual  financial  statements  (balance sheet,  profit and loss
account including notes and a statement of cash flow) plus an annual FISCAL YEAR
report for the previous  FISCAL YEAR,  for the COMPANY and the  VERWALTUNGS-GMBH
observing the respective  provisions on corporations as per Secs. 264 et seq. of
the German Commercial Code ("Handelgesetzbuch"). The annual financial statements
record shall, without undue delay, be submitted to the AUDITOR for auditing. The
audit shall be performed by observing Secs. 316 et seq. of the German Commercial
Code.

     14.5 The MANAGEMENT shall submit the audited financial  statements together
with  the  audit  report  immediately  after  their  completion  to  each of the
PARTNERS.  The PARTNERSHIP MEETING shall resolve within the first six (6) months
of the running FISCAL YEAR on the approval of the annual financial statement and
the employment of the annual profit,  the approval of the acts of the MANAGEMENT
for the previous FISCAL YEAR and the appointment of the auditors for the running
FISCAL YEAR, according to SUBSECTION 7.2 letter F hereof.


     15. Guidelines for the Operation of the COMPANY

     15.1  Concerning  the scope of the COMPANY as defined in  SUBSECTION  2.4.1
hereof,  the  PARTIES  agree to work  exclusively  together  through the COMPANY
and/or  the  SUBSIDIARIES,  insofar  as  legally  possible  and  insofar  as the
customers  do not wish to place an order  with only one of the  PARTIES or their
AFFILIATES,  alone or together with another Party. The PARTIES shall immediately
notify each other if any inquiries  concerning  the scope of the COMPANY  become
known to them.

     15.2 If a customer  of the COMPANY or the  SUBSIDIARIES  request the use of
components of third parties, the COMPANY or the SUBSIDIARY shall be permitted to
purchase  such  component  from such third  parties.  Under  such  circumstances
neither PARTY shall be obliged to provide technical support for such components.
Any  technical  information  generated by the COMPANY or the  SUBSIDIARIES  as a
result  of the  use  of  such  third  parties  components  shall  be  considered
SRS-FORGROUND TECHNOLOGY.

     15.3 The COMPANY  and/or its  SUBSIDIARIES  will act as a reseller  for the
PARTIES  on a  non-exclusive  basis  in  order to  market  and  sell  COMPONENTS
worldwide.  Customers  will be invoiced by the COMPANY or the  SUBSIDIARIES  and
SIEMENS  and BREED  will then  invoice  the  COMPANY  or the  SUBSIDIARIES.  The
external and  internal  pricing,  sales and  invoicing  of  COMPONENTS  shall be
handled according to the principles laid down in ANNEX 15.3.

     15.4 Each of the PARTIES agrees that it shall not sell  COMPONENTS,  either
directly or  indirectly,  to third parties which compete with the COMPANY or the
SUBSIDIARIES  in the sale of  SRS-SYSTEMS  and  COMPONENTS,  unless  such  PARTY
receives the prior written permission of the PARTNERS' BOARD.

     15.5 The preferred  suppliers of the COMPANY shall be the PARTIES and their
AFFILLIATES  under supply  contracts  if and to the extent that price,  quality,
technology  and  volume  are at  least  comparable  to those  obtainable  by the
PARTIES' competitors on the market.

     15.6 The  SRS-BACKGROUND  TECHNOLOGY  of  either  BREED or  SIEMENS  in its
Automotive  Systems  Group  subdivision  safety  and  chassis  systems  location
Regensburg,  Germany shall be licensed on an arms length,  non  exclusive  basis
under technology transfer contracts to the other PARTY as well as to the COMPANY
and its  SUBSIDIARIES  as of the  CLOSING  DATE to be used  exclusively  for the
purposes as described in SUBSECTION  2.4.1.  Upon  termination of this AGREEMENT
all  such  licenses  shall  immediately  terminate  except  for  the  use of the
fulfillment of existing contractual  commitments,  provided,  however, that upon
termination of this AGREEMENT as per

                                                               

<PAGE>



     SUBSECTION  17.6 (A), the licenses  granted to the PARTY  terminating  this
AGREEMENT and to the COMPANY and its SUBSIDIARIES shall remain in full force and
effect. At any time, no assignment or sublicensing of SRS- BACKGROUND TECHNOLOGY
shall be permitted  without the prior written  approval of the PARTY owning such
SRS- BACKGROUND TECHNOLOGY.

     15.7 Except as otherwise agreed in development  contracts between one PARTY
and the COMPANY or the SUBSIDIARIES  SRS-FOREGROUND-TECHNOLOGY  generated by the
COMPANY or the  SUBSIDIARIES on the basis of development or research  agreements
with  both  PARTIES  shall be owned  jointly  by  SIEMENS  and  BREED  and those
ownership rights shall continue following termination of this AGREEMENT.  Either
PARTY shall be entitled to assign or sublicense  such  SRS-FOREGROUND-TECHNOLOGY
to third parties with the other PARTY'S consent, which shall not be unreasonably
withheld,  during  the term of this  AGREEMENT  and  without  the other  PARTY'S
consent  following  termination  of this AGREEMENT or dissolution of the COMPANY
and the VERWALTUNGS-GMBH.

     15.8   SRS-FOREGROUND-TECHNOLOGY   generated  by  either   SIEMENS  in  its
Automotive  Systems  Group  subdivision  safety  and  chassis  systems  location
Regensburg,  Germany  and  BREED  outside  the  COMPANY  shall  remain  with the
generating  PARTY but shall be licensed on an arms length,  non exclusive  basis
under technology transfer contracts to the other PARTY as well as to the COMPANY
and its  SUBSIDIARIES  to be used  exclusively  for the purposes as described in
SUBSECTION  2.4.1.  Upon  termination  of this AGREEMENT all such licenses shall
immediately  terminate  except  for  the  use of  the  fulfillment  of  existing
contractual  commitments,  provided,  however,  that  upon  termination  of this
AGREEMENT  as per  SUBSECTION  17.6  (A),  the  licenses  granted  to the  PARTY
terminating this AGREEMENT and to the COMPANY and its SUBSIDIARIES  shall remain
in full force and effect.  At any time, no assignment  or  sublicensing  of such
SRS-FOREGROUND  TECHNOLOGY shall be permitted without the prior written approval
of the PARTY owning such SRS-FOREROUND TECHNOLOGY.

     15.9 The sole obligation of the PARTY,  COMPANY and the SUBSIDIARY which is
a  licensor  in  accordance  with  this  SECTION  15  under  any  SRS-BACKGROUND
TECHNOLOGY as well as  SRS-FOREGROUND  TECHNOLOGY shall be to forward same on an
"as  available  basis" to the  relevant  licensee as provided in the  applicable
technology transfer  agreement,  and, to correct errors that might have occurred
in the relevant  information  without undue delay after such errors become known
to the relevant licensor.

     THE  WARRANTIES  SET  FORTH  IN THIS  SUBSECTION  15.10  APPLY  TO ALL SRS-
BACKGROUND  TECHNOLOGY  AND  SRS-FOREGROUND  TECHNOLOGY  LICENSED  OR  KNOWINGLY
DISCLOSED  HEREUNDER  AND ARE IN  LIEU  OF ALL  WARRANTIES  EXPRESS  OR  IMPLIED
INCLUDING WITHOUT LIMITATION THE WARRANTIES THAT  SRS-BACKGROUND  TECHNOLOGY AND
SRS- FOREGROUND  TECHNOLOGY CAN BE USED WITHOUT  INFRINGING  STATUTORY AND OTHER
RIGHTS OF THIRD PARTIES.

     No licensor  shall be liable for any indirect or  consequential  damages of
its  licensee,  including  loss of profit  or  interest,  under any legal  cause
whatsoever and on account of whatsoever  reason,  except where such liability is
mandatory by applicable law.

     Nothing in this  AGREEMENT  shall  obligate  either  PARTY,  COMPANY or the
SUBSIDIARIES  to  apply  for,  take  out,  maintain  or  acquire  any  statutory
protection, in any country.

     15.10  Either  PARTY  shall be  responsible  for  warranty  and  liability,
including recall actions, arising from its COMPONENTS marketed by the COMPANY or
the  SUBSIDIARIES  to  customers,   and  shall  indemnify  the  COMPANY  or  the
SUBSIDIARIES  and the other  PARTY and hold them  harmless  from third  parties'
claims.  The  responsibility  for all other  cases of  warranty  and  liability,
including recall actions, which cannot be clearly allocated to a PARTY or to the
COMPANY or the  SUBSIDIARIES,  shall be deemed to be allocated to the COMPANY or
the SUBSIDIARIES,  which exercises the respective business, unless the PARTNERS'
BOARD otherwise decides on a case by case basis. The

                                                               

<PAGE>



     COMPANY  or  the  SUBSIDIARIES  shall  cover  such  risks  with  sufficient
insurances.

     15.11  Insofar as necessary  for the proper  operation of the COMPANY,  the
VERWALTUNGS-GMBH  and  their  SUBSIDIARIES,  SIEMENS  and  BREED  shall  provide
administrative, financial, legal, consultancy and other services of similar kind
to  the  COMPANY  and  the  VERWALTUNGS-GMBH  including  their  SUBSIDIARIES  as
requested  by the COMPANY or the  VERWALTUNGS-GMBH  under  service  contracts on
arm's length basis.


     16. Contracts

     The PARTIES shall take the necessary  steps to ensure that the contracts as
provided for in this AGREEMENT shall be concluded between themselves and/or with
the COMPANY or the SUBSIDIARIES as of the CLOSING DATE:

                  - research and  development  contracts 
                  - license  agreements 
                  - supply   contracts  
                  -  reseller   basic
                  -contracts   
                  -  service contracts


     IV. TERM OF AGREEMENT, DISSOLUTION


     17. Term of AGREEMENT

     17.1 Except as otherwise  stipulated in  SUBSECTION  17.2,  this  AGREEMENT
including its ANNEXES, if not a later date is agreed upon for the ANNEXES, shall
not become binding until the EFFECTIVE DATE.

     17.2  Notwithstanding  SUBSECTION 17.1 SUBSECTION 17.2, 19.2, 19.3, 20, 21,
22 and 23.9 shall become binding upon SIGNATURE.

     17.3 Except as provided  otherwise in this AGREEMENT,  this AGREEMENT shall
only  terminate upon either PARTY  disposing of its entire CAPITAL  INTERESTS in
the COMPANY and the  VERWALTUNGS-GMBH  in accordance  with the provisions  under
SECTIONS 4, 5 and SUBSECTION  7.14 of this  AGREEMENT or in accordance  with the
ARTICLES OF LIMITED  PARTNERSHIP  or the  STATUTES.  The same shall apply if the
COMPANY and the  VERWALTUNGS-GMBH  are dissolved and  liquidated  for any reason
whatsoever.

     17.4 This AGREEMENT may be ordinarily terminated by either PARTY giving six
(6) months  written  notice to the other PARTY prior to the end of a FISCAL YEAR
of the COMPANY, but not before the end of the sixth (6) FISCAL YEAR.

     17.5 Any notice of termination of this AGREEMENT shall automatically extend
to the COMPANY and the VERWALTUNGS-GMBH. The consequence of termination shall be
the dissolution of the COMPANY and the VERWALTUNGS-GMBH.  SECTION 18 shall apply
mutatis mutandis.

     17.6 The right to terminate  this AGREEMENT  extraordinarily  without prior
written notice for important cause shall remain  unaffected  thereby.  Important
cause shall be constituted without limitation if:


                                                               

<PAGE>



     (A) this  AGREEMENT or the ARTICLES OF LIMITED  PARTNERSHIP or the STATUTES
or any of the  related  agreements  provided  for herein and  necessary  for the
proper  operation  of the  COMPANY  and its  SUBSIDIARIES  has  been  materially
breached by the other PARTY and despite prior written notice by the  terminating
PARTY and an adequate opportunity to cure the breach, the other PARTY has failed
to cure the breach;

     (B) the other PARTY is permanently or for an  unforeseeable  period of time
prevented from fulfilling its  obligations  under this AGREEMENT or the ARTICLES
OF LIMITED PARTNERSHIP or the STATUTES or any of the related agreements provided
for herein  and  necessary  for the  proper  operation  of the  COMPANY  and its
SUBSIDIARIES;

     (C) the other PARTY undergoes bankruptcy, reorganization proceedings or any
other  insolvency  proceedings  opened  against it by a court or another  public
authority or has voluntarily  filed a respective  petition or has  involuntarily
filed against it a respective  petition which is not dismissed within sixty (60)
days;

     (D)  the  other  PARTY  has  become   insolvent  or  faces  a   substantial
deterioration,  actual or imminent, in its assets without an appropriate plan to
avoid such deterioration;

     (E) the other PARTY has an order  entered  against it either  appointing  a
receiver or trustee for, or issuing a levy  attachment  against,  a  substantial
portion of its assets,  without  such order being  vacated,  set aside or stayed
within sixty (60) days;

     (F) the other PARTY has its CAPITAL  INTERESTS  in the COMPANY  seized by a
creditor based on an executory title which is not only provisionally enforceable
or makes an assignment for the benefit of its creditors;

     (G) The other Party is dissolved.

     17.7 SECTION 20 and 21 shall survive the  termination of this AGREEMENT for
whatever reasons.


     18. Dissolution

     18.1 The COMPANY and the VERWALTUNGS-GMBH  shall be dissolved if so decided
unanimously  by  the  PARTNERSHIP  MEETING  and  the  SHAREHOLDERS'  MEETING  or
according to a respective provision of this AGREEMENT.

     18.2  Following any decision  about the  dissolution of the COMPANY and the
VERWALTUNGS-GMBH  the PARTIES shall commence an liquidation  procedure according
to the mandatory law. The liquidation shall be carried out as follows:

     18.2.1 The  assets of the  COMPANY  and the  VERWALTUNGS-GMBH  without  the
interests in the SUBSIDIARIES held by the COMPANY shall be distributed among the
PARTIES  taking into  consideration  the  respective  scope of business.  If the
assets,  including  any  intellectual  property  rights  like  patents  or other
know-how developed during the existence of the COMPANY, can be allocated clearly
to one of the  PARTIES,  this  PARTY  shall  have the right to take  over  these
assets.

     18.2.2 The  interests  in the  SUBSIDIARIES  held by the  COMPANY  shall be
retransfered to the PARTY,  which has contributed  such interests to the COMPANY
or the  VERWALTUNGS-GMBH  according to  SUBSECTION  3.2.1 and 3.2.2.  Each PARTY
shall  bear all costs and  expenses,  including  any and all  duties  and taxes,
related to such  retransfer of the shares and interests in the  SUBSIDIARIES  to
the respective PARTY.


                                                               

<PAGE>



     18.2.3 It is hereby  understood that the allocation and take-over of assets
as well as the  retransfer  of shares by one PARTY shall be  compensated  to the
other PARTY if it results in a shift of value distributed among the PARTIES. The
value of the assets and the interest in the SUBSIDIARIES  shall be determined by
an  ACCOUNTING  FIRM  jointly  appointed  by the  PARTIES.  The  opinion  of the
ACCOUNTING  FIRM  as to the  value  of  the  assets  and  the  interests  in the
SUBSIDIARIES  shall be based on a generally  accepted  valuation method being in
common  use at the time of  appointment  of the  ACCOUNTING  FIRM,  however  the
opinion of the  chartered  ACCOUNTING  FIRM shall be final and binding upon both
PARTIES.

     18.2.4 It is hereby  understood,  that all employees which were employed by
either  PARTY  at  the  CLOSING  DATE  and  transfered  to  the  COMPANY  or the
SUBSIDIARIES shall, as far as legally possible, return to the respective PARTY.

     18.3.  The  dissolution  of the COMPANY and the  VERWALTUNGS-GMBH  shall be
carried out in a manner that is most tax efficient for both PARTIES.

     18.4 The  dissolution  may be averted by a PARTY buying the entire  CAPITAL
INTERESTS of the other PARTY in the COMPANY and the VERWALTUNGS-GMBH.

     18.4.1 The PARTY  unwilling to buy the other PARTY'S  CAPITAL  INTERESTS is
obliged to sell its CAPITAL  INTEREST,  to the other PARTY.  The purchase  price
shall be agreed  upon by the  PARTIES  and,  failing  such  agreement,  shall be
determined by an ACCOUNTING FIRM jointly  appointed by the PARTIES.  The opinion
of the ACCOUNTING  FIRM as to the price of the CAPITAL  INTERESTS shall be based
on a  generally  accepted  valuation  method  being in common use at the time of
appointment  of  the   ACCOUNTING   FIRM  and  shall  result  in  a  reasonable,
arm's-length  price on the basis of a willing buyer and a willing  seller of the
relevant CAPITAL INTEREST; however, that the opinion of the chartered ACCOUNTING
FIRM shall be final and binding  upon both  PARTIES.  The cost of the opinion of
the ACCOUNTING FIRM shall be paid by the PARTY obliged to sell.

     18.4.2 If both PARTIES are willing to purchase, SUBSECTION 7.14 sentences 5
to 7 shall apply mutatis mandis.  The transaction to sell and purchase according
to SUBSECTION 18.5.1 shall be completed without undue delay.

     18.4.3 If neither  PARTY is willing to buy the entire  CAPITAL  INTEREST in
the COMPANY and in the VERWALTUNGS-GMBH and consent cannot be reached within two
(2) months after receipt of the  termination  notice or after  occurrence of any
other cause upon which this  AGREEMENT  ends,  the COMPANY and the  VERWALTUNGS-
GMBH have to be dissolved.

     V. OTHER PROVISIONS


     19. EFFECTIVE DATE, Premerger Control

     19.1 The  EFFECTIVE  DATE shall be the date on which each of the  following
conditions is fulfilled:

     19.1.1  Signature  of  both  PARTIES;  

     19.1.2  Approval of the Corporate  Executive Board  ("Zentralvorstand")  of
SIEMENS and the Board of Directors of BREED;

     19.1.3  Obtaining of all the  permissions or clearances,  which the PARTIES
jointly indentify to be relevant to the transaction under premerger control,  or
of any other competent antitrust authorities;


                                                               

<PAGE>



     19.1.4 Expiration of any required premerger notification waiting period;

     19.1.5  Submittal of the application for antitrust  clearance under Art. 85
EEC Treaty. to the European Commission

     19.2  Immediately  after  SIGNATURE,  the PARTIES  shall  jointly  file the
relevant  antitrust  notifications  and applications to any competent  antitrust
authority.  The PARTIES shall assist each other with respect to the  preparation
of  such  notifications  and  applications  and  provide  each  other  with  all
information requested by the competent antitrust authority.

     19.3 Except as otherwise provided for in the Stock Purchase Agreement dated
October,  14. 1997  including  its annexes  and the Make Whole  Agreement  dated
November,  07. 1997 the PARTIES shall have no claims, of whatever kind,  against
each other in case that the  creation of the  COMPANY  should not be approved in
the premerger control  procedure(s) or the antitrust clearance under Art. 85 EEC
Treaty should not be given.


20.      Applicable Law

     The  substantive  law applicable to this AGREEMENT and its ANNEXES,  unless
otherwise agreed upon in an ANNEX, is the law in force in Germany.


     21. DISPUTE Settlement

     21.1  DISPUTES in technical  matters  shall be referred to a single  expert
chosen by the PARTNERS'  BOARD.  Such expert's opinion shall be binding upon the
PARTIES and/or the COMPANY. The expert's costs shall be borne by the COMPANY.

     21.2 Any  DISPUTE  shall at first be settled by an  amicable  effort on the
part of the  PARTIES  affected.  An attempt to arrive at a  settlement  shall be
deemed to have failed as soon as one of the PARTIES so notifies  the other PARTY
in writing.

     21.3 If an attempt at settlement  has failed,  the DISPUTE shall be finally
and binding settled under the commercial arbitration rules of the United Nations
Commission on International Trade Law (the "Rules"). Each PARTY shall appoint an
arbitrator,  and then the two PARTY-appointed  arbitrators shall appoint a third
arbitrator,  or failing agreement on such choice, such third arbitrator shall be
appointed by the  President of the  International  Chamber of Commerce in Paris.
The third arbitrator shall have the qualifications to hold a judgeship.

     21.4 The seat of  arbitration  shall be The  Hague,  The  Netherlands.  The
procedural law of this place shall apply where the Rules are silent.

     21.5  The  language  to be used in the  arbitration  proceedings  shall  be
English.

     21.6 The arbitral  award shall be  substantiated  in writing.  The arbitral
tribunal  shall  decide  on the  matter of costs of the  arbitration  and on the
allocation  of  expenditure  among the  respective  PARTIES  to the  arbitration
proceedings.  The PARTY in whose favor a final  arbitral award is rendered shall
be entitled to be reimbursed its reasonable costs and reasonable  attorneys fees
by the other PARTY.


     22. Confidentiality

                                                               

<PAGE>



     22.1 Either PARTY shall use all business and technical information received
from the other PARTY or the COMPANY  and/or the  VERWALTUNGS-GMBH  in connection
with this  AGREEMENT  and its  performance  and which the other PARTY  expressly
states to be confidential, or the confidential nature of which can be assumed on
the basis of the  circumstances  of its disclosure,  solely for the purposes for
which it was  provided,  and shall treat it in the same way as its own  business
secrets and not make it  available  to any third  party,  unless the business or
technical information in question:

     (A) is generally available from public sources or in the public domain; or

     (B) is  received  at any time from any third  party  without  nondisclosure
obligation to the disclosing PARTY; or

     (C) is shown to have been developed  independently  by the receiving  PARTY
without reliance on the disclosing PARTY'S  confidential  information or to have
been known to the  receiving  PARTY prior to its  disclosure  by the  disclosing
PARTY; or

                  (D) must be  disclosed  to a third  party for the  purpose  of
     performing this AGREEMENT, if the third party is or becomes subject to an
equivalent confidentiality obligation.

     22.2 Through this SECTION 22 neither  PARTY shall be prevented  from making
available its technology others than SRS-BACKGROUND TECHNOLOGY or SRS-FOREGROUND
TECHNOLOGY  developed  independently  by one  PARTY  to  third  parties  if this
technology is derived in part from the cooperation under this AGREEMENT,  but is
inseparably connected with that PARTY'S own know-how.

     22.3 The obligations imposed by this SECTION 22 shall continue for a period
of five (5) years after termination of this AGREEMENT.

     22.4 The PARTIES shall cause the COMPANY AND THE  SUBSIDIARIES  to be bound
by the same  confidentiality  obligations  as  imposed  by this  SECTION 22 with
respect to the  business  and  technical  information  which the  COMPANY or the
SUBSIDARIES will receive from either PARTY.

     22.5 The  conclusion of this  AGREEMENT,  as well as its content,  is to be
treated  confidential by the PARTIES according to SUBSECTION 22.1. Any reference
to  business  links  between the  PARTIES to the  AGREEMENT  must not be made in
advertising  literature  until written approval has been received from the other
PARTY which shall not be unreasonably withheld.

     23. Miscellaneous

     23.1 This AGREEMENT  shall not be modified  except by a written  instrument
executed by duly authorized representatives of the PARTIES hereto.

     23.2 The  governing  language  between  the PARTIES  shall be English.  All
reports, statements, balance sheets and the like to be prepared and issued under
operation  of the  COMPANY  as  well  as any  auditing  shall,  in  addition  to
requirements  under the German  law,  also be done in the English  language,  if
reasonably  requested by a PARTY. The same applies for any kind of communication
in and between the corporate  bodies of the COMPANY and/or the  VERWALTUNGS-GMBH
and between the COMPANY  and/or the  VERWALTUNGS-GMBH  and the  PARTIES,  unless
otherwise decided by the PARTNERS' BOARD.

     23.3 In the event that any provision  herein shall be held to be invalid or
unenforceable,  the remaining  provisions  herein shall not be affected thereby.
Should an individual provision of this AGREEMENT be or become

                                                              

<PAGE>



     ineffective or  unenforceable  for reasons beyond the PARTIES'  control the
PARTIES  shall  attempt to arrive  amicably  at a new  provision  on a favorable
economic effect  corresponding to the ineffective or unenforceable  provision it
is replacing.

     23.4 Each PARTY  hereto  may  request  additional  audits  performed  by an
auditor  of its  choice  who  must be  certified  in  Germany.  The  cost of the
additional audit shall be borne by the PARTY requesting the audit.

     23.5 The PARTIES hereto shall ensure that their representatives or nominees
within the COMPANY  and the  VERWALTUNGS-GMBH,  in  executing  their  respective
functions,  will comply with the provisions of this  AGREEMENT,  the ARTICLES OF
LIMITED  PARTNERSHIP  and the  STATUTES  as well as with  any  other  agreements
concluded  or to be  concluded  between the PARTIES  with respect to the COMPANY
and/or the VERWALTUNGS-GMBH or any of their activities.

     23.6 The following ANNEXES form an integral part of this AGREEMENT:

ANNEX 1:    COMPONENTS/SRS-SYSTEM
ANNEX 2.1A: ARTICLES OF LIMITED PARTNERSHIP of the COMPANY
ANNEX 2.1B: STATUTES of the VERWALTUNGS-GMBH
ANNEX 3.2.2:Assets to be contributed by BREED to US-PARTNERSHIP
ANNEX 3.2.5:Representations and Warranties of the CONTRIBUTION AGREEMENTS
ANNEX 8.3:  Rules of Procedure for the PARTNERS' BOARD
ANNEX 9.9:  Rules of Procedure for the MANAGEMENT
ANNEX 11:   Initial Organizational Structure of the COMPANY and its SUBSIDIARIES
ANNEX 12.1: Business Plan
ANNEX 15.3: Principles for pricing, sales and invoicing of components of SRS-
                 SYSTEMS

     In the event of any ambiguity or conflict arising between the provisions of
this AGREEMENT and those of the ANNEXES this AGREEMENT shall prevail.

     23.7 In the event of any conflict  between the provisions of this AGREEMENT
and  ARTICLES  OF  LIMITED  PARTNERSHIP  and the  STATUTES  or  other  corporate
documents of the COMPANY  and/or the  VERWALTUNGS-  GMBH, the provisions of this
AGREEMENT  shall  prevail and the PARTIES  shall  exercise  all voting and other
rights and powers  available to them so as to give effect to the  provisions  of
this AGREEMENT and shall further procure any required  amendment to the ARTICLES
OF LIMITED PARTNERSHIP and/or the STATUTES and/or other constitutional documents
of the COMPANY and/or the VERWALTUNGS-GMBH, as may be necessary.

     23.8  This  AGREEMENT,   including  its  ANNEXES,   entirely  replaces  and
supersedes between the PARTIES the Non-Binding Memorandum of Understanding dated
July, 22. 1997 entered into by the PARTIES and the  Memorandum of  Understanding
including the Joint Venture Term Sheet dated  October,  14. 1997 entered into by
the PARTIES.

     23.9 Either PARTY shall bear its own expenses,  including  those of counsel
and auditors,  in connection  with this  AGREEMENT and the COMPANY  contemplated
herein,  unless  otherwise  provided  for in this  AGREEMENT  or the ARTICLES OF
LIMITED PARTNERSHIP or the STATUTES.  The administrative fees for the pre-merger
control  procedure(s)  as per  SUBSECTION  19.1.3  as well as any  expenses  for
outside  counsels  related to such premerge  controll  procedures and the filing
procedure for the clearance  under Art. 85 EEC Treaty shall be shared equally by
the PARTIES.


     24. Notices

     All  communications  and notices to be given under this AGREEMENT  shall be
delivered:

                                                               

<PAGE>



     if addressed to SIEMENS to:

                  Siemens Aktiengesellschaft
                  Rechtsabteilung
                  Werner-von-Siemens-Str. 50
                  D-91050 Erlangen, Germany
                  Telephone:                     ++49-9131-7-43592
                  Telefax:                       ++49-9131-7-29001

                  and if addressed to BREED to:

                  Breed Technologies, Inc.
                  Legal Department
                  5300 Old Tampa Highway
                  Lakeland Florida 33807-3050, USA
                  Telephone:                     ++1-941-688-6473
                  Telefax:                       ++1-941-688-6016

     or any other  address  and/or  telephone or telefax  number  designated  in
writing.


                                                               

<PAGE>



IN WITNESS WHEREOF, the PARTIES have duly executed this AGREEMENT
in Regensburg, Germany on [.....] [.......................].



Siemens Aktiengesellschaft                       Breed Technologies, Inc.



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