<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 1, 1997
FILE NO. 1-13093
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM 10/A
GENERAL FORM FOR
REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------------
111 HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 38-3354643
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
2135 WEST MAPLE ROAD 48084-7186
TROY, MICHIGAN (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (248) 435-1000
------------------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON
TO BE SO REGISTERED WHICH EACH CLASS IS TO BE REGISTERED
- ----------------------------------------------------------------------------
<S> <C>
COMMON STOCK, PAR VALUE $1 PER SHARE NEW YORK STOCK EXCHANGE
PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
================================================================================
<PAGE> 2
111 HOLDINGS, INC.
PART I
INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED IN FORM 10 BY REFERENCE
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
<TABLE>
<CAPTION>
ITEM
NO. CAPTION LOCATION IN INFORMATION STATEMENT
- ----- ------------------------------------------ ------------------------------------------
<S> <C> <C>
1. Business.................................. "Summary of Certain Information"; "Special
Factors"; "The
Distribution -- Introduction"; "The
Distribution -- Background and Reasons for
the Distribution"; "The Automotive
Business" and "Management's Discussion and
Analysis of Financial Condition and
Results of Operations".
2. Financial Information..................... "Summary of Certain Information"; "The
Distribution"; "Unaudited Pro Forma
Condensed Financial Statements of the
Company"; "Historical Selected Financial
Data"; "Management's Discussion and
Analysis of Financial Condition and
Results of Operations" and "Financial
Statements".
3. Properties................................ "The Automotive Business -- Properties".
4. Security Ownership of Certain Beneficial
Owners and Management..................... "The Distribution -- Listing and Trading
of Company Common Stock" and "Management
of the Company -- Ownership of Company
Common Stock".
5. Directors and Executive Officers.......... "Arrangements Between Rockwell and the
Company Relating to the Distribution";
"Management of the Company" and "Liability
and Indemnification of Directors and
Officers".
6. Executive Compensation.................... "Arrangements Between Rockwell and the
Company Relating to the Distribution" and
"Management of the Company".
7. Certain Relationships and Related Transactions... "Summary of Certain Information" and
"Arrangements Between Rockwell and the
Company Relating to the Distribution".
8. Legal Proceedings......................... "The Automotive Business -- Legal
Proceedings" and "Management's Discussion
and Analysis of Financial Condition and
Results of Operations -- Environmental
Matters".
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM
NO. CAPTION LOCATION IN INFORMATION STATEMENT
- ----- ------------------------------------------ ------------------------------------------
<S> <C> <C>
9. Market Price of and Dividends on the
Registrant's Common Equity and Related
Shareholder Matters....................... "Summary of Certain Information"; "Special
Factors"; "The
Distribution -- Introduction" and "The
Distribution -- Listing and Trading of
Company Common Stock".
10. Recent Sales of Unregistered Securities... Not Applicable.
11. Description of Registrant's Securities to
be Registered............................. "The Distribution -- Listing and Trading
of Company Common Stock" and "Description
of Company Capital Stock".
12. Indemnification of Directors and
Officers.................................. "Liability and Indemnification of
Directors and Officers".
13. Financial
Statements and Supplementary Data......... "Summary of Certain Information";
"Unaudited Pro Forma Condensed Financial
Statements of the Company"; "Historical
Selected Financial Data"; "Management's
Discussion and Analysis of Financial
Condition and Results of Operations" and
"Financial Statements".
14. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure................................ Not Applicable.
15. Financial Statements and Exhibits......... "Financial Statements" and "Index to
Financial Statements and Schedule".
</TABLE>
<PAGE> 4
[ROCKWELL NAME AND LOGO]
September [ ], 1997
Dear Shareowner:
On March 17, 1997, we announced that the Board of Directors of Rockwell
International Corporation ("Rockwell") had approved the distribution (the
"Distribution") to our shareowners of all of the outstanding shares of common
stock of 111 Holdings, Inc. (the "Company"), a newly-formed, wholly-owned
subsidiary of Rockwell, which after the Distribution will be a separately-traded
public company owning Rockwell's Automotive businesses. The Distribution will be
at the rate of one share of Company common stock for every three shares of
Rockwell common stock held as of the close of business on September 17, 1997.
Consummation of the Distribution is conditioned upon, among other things,
receipt of a favorable ruling of the Internal Revenue Service as to the tax-free
status of the Distribution. The enclosed Information Statement explains the
Distribution in detail and provides important financial and other information
regarding the Company. Holders of Rockwell common stock are not required to take
any action to participate in the Distribution. A shareowner vote is not
required, and, accordingly, your proxy is not being sought.
For over a decade, Rockwell has been shifting its business toward higher growth
commercial and international markets through a carefully managed program of
significant internal investments, coupled with strategic acquisitions and
divestitures. The Distribution will separate Rockwell's electronics and
automotive businesses and will result in your ownership of shares of two
separate and distinct publicly-traded companies: Rockwell, which will focus on
its Automation, Semiconductor Systems and Avionics & Communications businesses,
and the Company, which will focus on the Automotive businesses presently
operated by Rockwell. Your Board of Directors believes that the Distribution, by
enabling Rockwell and the Company to develop their respective businesses
separately, should better position the two companies to produce greater total
shareowner value over the long term. With this separation, investors will be
able to focus on the specific growth and value characteristics of each company.
The Company will begin its operations with all the key elements for growth and
continued success already in place: proven management, strong financial
resources and market-leading products. We are very excited about the future of
the Company as an independent public company.
For Rockwell, this strategic move will complete the transformation of our
company from a broadly diversified concern into an enterprise focused on
commercial electronics markets. Rockwell will emerge from this transaction with
leadership market positions in Automation, Semiconductor Systems and Avionics &
Communications, with projected fiscal 1997 sales of approximately $8 billion. We
look forward to continuing Rockwell's aggressive growth and achieving the full
potential of our electronics businesses.
Sincerely yours,
/s/ Donald R. Beall
Donald R. Beall
Chairman of the Board
and Chief Executive Officer
<PAGE> 5
[COMPANY NAME AND LOGO]
September [ ], 1997
Dear Future Shareowner:
The enclosed Information Statement includes detailed information about 111
Holdings, Inc. (the "Company"), of which you will soon become a shareowner. As
you know, the Board of Directors of Rockwell International Corporation
("Rockwell") has approved, subject to the satisfaction of certain conditions,
the distribution (the "Distribution") to its shareowners of all of the
outstanding shares of common stock of the Company. After consummation of the
Distribution, the Company will be an independent public company and will own and
operate the Automotive businesses now owned and operated by Rockwell (the
"Automotive Business").
We would like to take this opportunity to welcome you as a shareowner and to
introduce you to our company. The Automotive Business is a leading global
supplier of a broad range of components and systems for use in commercial,
specialty and light vehicles, with fiscal 1996 sales of over $3.1 billion. We
operate 46 manufacturing facilities in 15 countries and serve our customers
worldwide through Heavy Vehicle Systems ("HVS") and Light Vehicle Systems
("LVS"). HVS supplies drivetrain systems and components, including axles,
brakes, transmissions, clutches and drivelines, for heavy-duty and medium-duty
trucks, trailers, off-highway equipment, buses and coaches, as well as other
specialty and military vehicles. LVS supplies electromechanical and other
components and systems, including sunroofs, window regulators, door modules,
door latches and seat adjusting systems, as well as suspension products and
steel wheels, for passenger cars, light trucks and sport utility vehicles. Our
customers include truck manufacturers, light vehicle manufacturers, semi-trailer
producers and off-highway and specialty vehicle manufacturers worldwide.
We are excited about the Company's prospects as an independent public company.
Rockwell's heritage Automotive businesses are leading, world-class participants
in their served markets. The Company possesses a strong and highly motivated
management team, outstanding employees, impressive global manufacturing
resources, a well-deserved reputation for outstanding quality and customer
service and a solid track record of performance. Operating as an independent
company, the Automotive Business will be well positioned to serve its customers,
capitalize on exciting growth opportunities, generate value for shareowners and
provide new opportunities for our employees. We look forward to your
participation in our future.
Sincerely yours,
/s/ Larry D. Yost
Larry D. Yost
Chairman of the Board
and Chief Executive Officer
<PAGE> 6
SUBJECT TO COMPLETION, DATED AUGUST 1, 1997 -- FOR INFORMATION ONLY
INFORMATION STATEMENT
111 HOLDINGS, INC.
------------------
COMMON STOCK, PAR VALUE $1 PER SHARE
(INCLUDING ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS)
This Information Statement is being furnished to shareowners of Rockwell
International Corporation ("Rockwell") in connection with the distribution (the
"Distribution") by Rockwell to its shareowners of all of the outstanding shares
of common stock of its wholly-owned subsidiary, 111 Holdings, Inc. (the
"Company"). The Company is in the process of developing a new corporate name and
logo, which will be adopted prior to the Distribution.
The Distribution is expected to be made on September 30, 1997, to holders
of record of common stock, par value $1 per share, of Rockwell ("Rockwell Common
Stock") as of the close of business on September 17, 1997 (the "Record Date"),
on the basis of one share of common stock, par value $1 per share, of the
Company (the "Common Stock"; the Common Stock and the associated preferred share
purchase rights of the Company (described below) are collectively referred to
herein as the "Company Common Stock") for every three shares of Rockwell Common
Stock. No consideration will be paid by shareowners of Rockwell for the shares
of Company Common Stock to be received by them in the Distribution, nor will
they be required to surrender or exchange shares of Rockwell Common Stock or
take any other action in order to be entitled to Company Common Stock.
There is no current trading market for the Company Common Stock, although a
"when-issued" trading market is expected to develop prior to the Distribution
Date (as defined below). Application has been made to list the Company Common
Stock on the New York Stock Exchange, Inc. (the "NYSE") under the proposed
trading symbol " ".
SHAREOWNERS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
THE SECTION ENTITLED "SPECIAL FACTORS" IN THIS INFORMATION STATEMENT.
NO VOTE OF SHAREOWNERS IS REQUIRED IN CONNECTION WITH THE DISTRIBUTION. WE ARE
NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
The date of this Information Statement is September [ ], 1997.
<PAGE> 7
HEAVY VEHICLE SYSTEMS
PRODUCTS
[Diagram of truck and trailer illustrating the following HVS products
supplied by the Automotive Business: Anti-Lock Braking Systems (Truck); Drive
Axles; Trailer Axles; Trailer Air Suspensions; Anti-Lock Braking Systems
(Trailer); Cam and Wedge Brakes; Automatic Slack Adjusters; Drivelines; Air
Dryers; Disc Brakes; Steer Axles; Clutches; and Transmissions.]
LIGHT VEHICLE SYSTEMS
PRODUCTS
[Diagram of passenger car illustrating the following LVS products
supplied by the Automotive Business: Sunroofs; Trunk Latches; Fuel Flap Latches;
Window Regulators and Door Modules; Door Latches and Actuators; Seat Adjusting
Systems; Steel Wheels; Remote Keyless Central Controllers; Headlamp Actuators;
Hood Latches; Stabilizer Bars; Coil Springs; and Sunvisors. Diagram also
includes note that Torsion Bars are also supplied on light trucks.]
2
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION........................ 4
SUMMARY OF CERTAIN INFORMATION............... 5
The Distribution......................... 5
The Company.............................. 7
Summary Financial Data................... 10
Summary Pro Forma Financial Data......... 11
Pro Forma Capitalization................. 12
SPECIAL FACTORS.............................. 13
Cyclical Nature of the Automotive Industry... 13
Competition.............................. 13
Dependence on Large Customers............ 13
Industry Consolidation Trend............. 14
International Operations................. 14
Continued Implementation of the Company's
Operations Improvement Program......... 14
Absence of History as an Independent
Company; Future Capital Requirements... 14
No Prior Market For Company Common Stock;
Possibility of Substantial Sales of
Company Common Stock................... 15
Common Stock Dividend Policy............. 15
Certain Anti-takeover Effects............ 16
Certain Federal Income Tax
Considerations......................... 16
THE DISTRIBUTION............................. 17
Introduction............................. 17
Background and Reasons for the
Distribution........................... 17
Manner of Effecting the Distribution..... 17
Listing and Trading of Company Common
Stock.................................. 19
Dividend Policy.......................... 19
Certain Federal Income Tax Consequences
of the Distribution.................... 19
Conditions; Termination.................. 20
ARRANGEMENTS BETWEEN ROCKWELL AND THE COMPANY
RELATING TO THE DISTRIBUTION............... 21
Distribution Agreement................... 21
Employee Matters Agreement............... 22
Tax Allocation Agreement................. 24
Transition Agreement..................... 24
CREDIT FACILITY.............................. 25
HISTORICAL SELECTED FINANCIAL DATA........... 26
THE AUTOMOTIVE BUSINESS...................... 27
Industry Trends.......................... 28
Business Strategies...................... 29
Products................................. 30
Customers; Sales and Marketing........... 33
Competition.............................. 34
Raw Materials and Supplies............... 34
Joint Ventures........................... 34
Acquisitions and Dispositions............ 34
<CAPTION>
PAGE
----
<S> <C>
Research and Development................. 35
Patents and Trademarks................... 35
Employees................................ 35
Seasonality; Cyclicality................. 35
Properties............................... 36
Environmental Matters.................... 36
Legal Proceedings........................ 37
UNAUDITED PRO FORMA CONDENSED FINANCIAL
STATEMENTS OF THE COMPANY.................. 38
Unaudited Pro Forma Condensed Combined
Balance Sheet of the Company........... 38
Unaudited Pro Forma Condensed Combined
Statements of Income of the Company.... 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................. 40
Overview and Outlook..................... 40
Financial Condition...................... 40
Results of Operations.................... 42
Income Taxes............................. 43
Environmental Matters.................... 44
International Operations................. 44
Cautionary Statement..................... 45
MANAGEMENT OF THE COMPANY.................... 46
Directors of the Company................. 46
Committees of the Board of Directors..... 47
Compensation of Directors................ 48
Executive Officers of the Company........ 49
Historical Compensation of Executive
Officers............................... 50
Option Grants............................ 51
Aggregated Option Exercises and Fiscal
Year-End Values........................ 52
Long-Term Incentive Plan Awards.......... 52
Retirement Benefits...................... 53
Benefit Plans Following the
Distribution........................... 54
Ownership of Company Common Stock........ 61
DESCRIPTION OF COMPANY CAPITAL STOCK......... 63
Company Common Stock..................... 63
Company Preferred Stock.................. 63
Certain Provisions in the Company
Certificate and Company By-Laws........ 66
Company Rights Plan...................... 70
Anti-takeover Legislation................ 72
LIABILITY AND INDEMNIFICATION OF DIRECTORS
AND OFFICERS............................... 73
INDEX TO DEFINED TERMS....................... 74
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE... F-1
</TABLE>
3
<PAGE> 9
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form 10 (the "Registration Statement")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with
respect to the Company Common Stock. This Information Statement does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto. The Registration Statement and any amendments thereto,
including exhibits and schedules filed as a part thereof, are available for
inspection and copying as set forth below.
Following the Distribution, the Company will be subject to the
informational requirements of the Exchange Act, and in accordance therewith will
file reports, proxy statements and other information relating to its business,
financial condition and other matters with the Commission. Such reports, proxy
statements and other information filed by the Company, as well as the
Registration Statement and exhibits and schedules thereto, can be inspected and
copied at the public reference facilities of the Commission at the Commission's
office at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
Regional Offices of the Commission: 7 World Trade Center, Suite 1300, New York,
New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material may also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains a
World Wide Web site that contains reports, proxy and information statements and
other information regarding registrants (including the Company) that file
electronically with the Commission (http://www.sec.gov).
If the Company Common Stock is listed on the NYSE, reports, proxy
statements and other information concerning the Company can be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION WITH RESPECT TO THE MATTERS DESCRIBED IN THIS INFORMATION
STATEMENT OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS INFORMATION STATEMENT DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SECURITIES.
NEITHER THE DELIVERY OF THIS INFORMATION STATEMENT NOR ANY DISTRIBUTION OF
SHARES OF COMPANY COMMON STOCK MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
4
<PAGE> 10
SUMMARY OF CERTAIN INFORMATION
The following summary is not intended to be complete and is qualified by
reference to the more detailed information set forth elsewhere in this
Information Statement, which should be reviewed carefully in its entirety.
Unless the context otherwise indicates, as used in this Information Statement,
the term the "Company" means the Automotive Business (as defined below) for
periods prior to the Distribution and 111 Holdings, Inc. and its subsidiaries
for periods following the Distribution. For the convenience of the reader, an
index of defined terms used herein appears on page 74.
THE DISTRIBUTION
Distributing Company....... Rockwell International Corporation, a Delaware
corporation.
Shares to be Distributed... Approximately 70 million shares of Company Common
Stock, based on the number of shares of Rockwell
Common Stock outstanding as of June 30, 1997. No
consideration will be paid by shareowners of
Rockwell for the shares of Company Common Stock to
be received by them in the Distribution, nor will
they be required to surrender or exchange shares of
Rockwell Common Stock or take any other action in
order to be entitled to Company Common Stock. See
"The Distribution -- Manner of Effecting the
Distribution".
Distribution Ratio......... One share of Company Common Stock for every three
shares of Rockwell Common Stock. See "The
Distribution -- Manner of Effecting the
Distribution".
Direct (Book-Entry)
Registration; Share
Certificates............. Company stockholders initially will have their
ownership of Company Common Stock registered only
in book-entry form. Book-entry registration refers
to a method of recording stock ownership in the
Company's records in which no share certificates
are issued. On the Distribution Date, each holder
of Rockwell Common Stock as of the close of
business on the Record Date will be credited
through book-entry in the stock ownership
registration records of the Company with the number
of full shares of Company Common Stock to which the
shareowner is entitled. Each such Rockwell
shareowner will receive an account statement
indicating the number of shares of Company Common
Stock to which the shareowner is entitled.
Following the Distribution Date, any Company
stockholder whose ownership of Company Common Stock
is registered in book-entry form may obtain at any
time without charge a certificate to represent such
shares by contacting the Transfer Agent (as defined
below). See "The Distribution -- Manner of
Effecting the Distribution".
Fractional Share
Interests.................. Fractional shares of Company Common Stock will not
be distributed. Fractional shares will be
aggregated and sold in the public market by the
Distribution Agent (as defined below) and the
aggregate net proceeds will be distributed ratably
to those stockholders entitled to fractional
interests. The Distribution Agent is independent
from the Company. See "The Distribution -- Manner
of Effecting the Distribution". Although the
Distribution is intended to be tax-free,
stockholders will recognize gain or loss for tax
purposes in an amount equal to the difference
between the cash received in respect of any
fractional share and the amount of such
stockholder's tax basis allocable to such
fractional share.
5
<PAGE> 11
See "The Distribution -- Certain Federal Income Tax
Consequences of the Distribution".
Record Date................ The Record Date is the close of business on
September 17, 1997.
Distribution Date.......... The Distribution is expected to occur on September
30, 1997 (the "Distribution Date"). On or about the
Distribution Date, the Distribution Agent will
commence mailing account statements reflecting
ownership of shares of Company Common Stock to
holders of Rockwell Common Stock as of the close of
business on the Record Date.
Distribution Agent......... First Chicago Trust Company of New York has been
appointed as the distribution agent (the
"Distribution Agent") for the Distribution. First
Chicago Trust Company of New York also will serve
as transfer agent and registrar (the "Transfer
Agent") for the Company Common Stock. The address
of the Distribution Agent and Transfer Agent is
P.O. Box 2500, Jersey City, New Jersey 07303-2500,
and its telephone number is (800) 519-3111.
Federal Income Tax
Consequences............. The Distribution is conditioned upon the receipt of
a ruling (the "Tax Ruling") from the Internal
Revenue Service (the "IRS") to the effect that the
Distribution will qualify as a tax-free
reorganization within the meaning of Section
368(a)(1)(D) of the Internal Revenue Code of 1986,
as amended (the "Code"). See "The
Distribution -- Certain Federal Income Tax
Consequences of the Distribution".
Trading Market and
Symbol..................... There is no current trading market for the Company
Common Stock, although a "when-issued" trading
market is expected to develop prior to the
Distribution Date. Application has been made to
list the Company Common Stock on the NYSE under the
proposed trading symbol " ". See "The
Distribution -- Listing and Trading of Company
Common Stock".
Conditions to the
Distribution............... The Distribution is conditioned upon, among other
things: (i) receipt of the Tax Ruling; (ii) final
approval of the Distribution by the Board of
Directors of Rockwell; (iii) receipt of all
material consents required to effect the
Distribution; (iv) the Registration Statement being
declared effective by the Commission; and (v) the
Company Common Stock being approved for listing on
the NYSE. Regardless of whether the conditions are
satisfied, the Distribution Agreement (as defined
below) may be terminated and the Distribution
abandoned by Rockwell's Board of Directors, in its
sole discretion, without the approval of Rockwell
shareowners, at any time prior to the Distribution.
See "The Distribution -- Conditions; Termination".
Arrangements Between
Rockwell and the Company
Relating to the
Distribution............. For the purpose of governing certain of the
relationships between Rockwell and the Company
relating to the Distribution, and to provide for an
orderly transition, Rockwell and the Company will,
prior to the Distribution, enter into certain
agreements, including (i) the Distribution
Agreement providing for, among other things, the
principal corporate transactions required to effect
the separation of the Automotive Business from the
Electronics Business (as defined below) and the
Distribution, and certain other agreements
governing the relationship
6
<PAGE> 12
between Rockwell and the Company with respect to or
in consequence of the Distribution; (ii) the
Employee Matters Agreement (as defined below)
providing for, among other things, certain matters
relating to employees, employee benefit plans and
certain compensation arrangements for current and
former employees of the Automotive Business and
their beneficiaries; (iii) the Tax Allocation
Agreement (as defined below) providing for, among
other things, the allocation between Rockwell and
the Company of federal, state, local and foreign
tax liabilities relating to the Automotive
Business; and (iv) the Transition Agreement (as
defined below) providing for, among other things,
the provision by Rockwell to the Company, for
specified periods after the Distribution Date and
on mutually agreed terms, of certain services which
prior to the Distribution Date have been provided
to the Company by Rockwell. See "Arrangements
Between Rockwell and the Company Relating to the
Distribution".
THE COMPANY
The Company................ The Company, a Delaware corporation incorporated in
May 1997, is currently a wholly-owned subsidiary of
Rockwell with no material assets. Following
consummation of the Distribution, the Company will
be a separately-traded public company and will own
and operate the Automotive businesses now owned and
operated by Rockwell (the "Automotive Business").
Prior to the Distribution Date, Rockwell will
transfer substantially all of the operations,
assets and liabilities related to the Automotive
Business (including liabilities relating to former
operations) to the Company or to subsidiaries of
Rockwell that prior to the Distribution will become
wholly-owned subsidiaries of the Company. The
principal corporate offices of the Company are
located at 2135 West Maple Road, Troy, Michigan
48084-7186; and its telephone number is (248)
435-1000.
The Automotive Business.... The Automotive Business is a leading global
supplier of a broad range of components and systems
for use in commercial, specialty and light
vehicles. The Automotive Business serves its
customers worldwide through Heavy Vehicle Systems
("HVS") and Light Vehicle Systems ("LVS"). HVS
supplies drivetrain systems and components,
including axles, brakes, transmissions, clutches
and drivelines, for heavy-duty and medium-duty
trucks, trailers, off-highway equipment, buses and
coaches, as well as other specialty and military
vehicles. LVS supplies electromechanical and other
components and systems, including roof, door,
access control and seat adjusting systems, as well
as suspension products and steel wheels, for
passenger cars, light trucks and sport utility
vehicles. In fiscal 1996, the Automotive Business
had sales of over $3.1 billion and operating
earnings of $146 million (after restructuring
charges of $36 million). See "The Automotive
Business" and "Financial Statements".
Management of the Company has established long-term
financial goals, which include 8% average annual
sales growth, 15% average annual earnings per share
growth and long-term debt to capitalization of 45%,
with a strong emphasis on cash management. These
goals have been recently established by management
of the Company on the basis of the
7
<PAGE> 13
Company operating as an independent public company
after the Distribution. The long-term average
annual goals have been established with the
recognition that the industry in which the
Automotive Business operates has been characterized
historically by periodic fluctuations in overall
demand for commercial, specialty and light vehicles
for which the Automotive Business supplies
products, resulting in corresponding fluctuations
in demand for products of the Automotive Business.
Accordingly, the Company will measure its
performance against these goals over a multi-year
period. See "Management's Discussion and Analysis
of Financial Condition and Results of
Operations -- Cautionary Statement".
Management................. All of the initial executive officers of the
Company are expected to be persons who currently
serve as officers or other employees of the
Automotive Business or Rockwell. All such persons
who are employees of Rockwell will resign from
their positions with Rockwell prior to the
Distribution, so that the Company and Rockwell will
have no executive officers in common and none of
the executive officers of the Company will be
employees of Rockwell. It is expected that Donald
R. Beall, Chairman and Chief Executive Officer of
Rockwell, will serve as a non-executive director of
the Company. (Mr. Beall will step down as Chief
Executive Officer of Rockwell on September 30, 1997
and as Chairman of the Board of Rockwell in
February 1998, but will continue as a director of
Rockwell and is expected to be named chairman of
the Executive Committee of Rockwell in February
1998.) See "Management of the Company".
Pre-Distribution Payment to
Rockwell................. Prior to the Distribution, the Company will pay
approximately $445 million in cash to Rockwell
through a combination of dividends and other
payments, including repayments of intercompany
indebtedness (collectively, the "Pre-Distribution
Payment"). The Company will fund the
Pre-Distribution Payment through borrowings under
the Credit Facility (as defined below) to be
entered into with a group of banks. Rockwell will
use the proceeds of the Pre-Distribution Payment to
repay outstanding indebtedness. See "Credit
Facility". The effect of these payments will be to
adjust the post-Distribution capital structure of
each of Rockwell and the Company by decreasing the
consolidated debt of Rockwell and increasing the
consolidated debt of the Company. The amount of the
Pre-Distribution Payment was determined based on
the anticipated ability of the Company to generate
cash flow and with the intention of establishing a
strong capital structure for the Company.
Credit Facility............ Prior to the Distribution, the Company will enter
into a $1 billion five-year unsecured revolving
credit facility with a group of banks, which will
be used to fund the Pre-Distribution Payment and
for working capital and other general corporate
purposes of the Company and its subsidiaries
following the Distribution. See "Credit Facility".
8
<PAGE> 14
Certain Provisions of the
Company's Restated
Certificate
of Incorporation and
Amended
By-Laws; Rights
Agreement................ Certain provisions of the Company's Restated
Certificate of Incorporation (the "Company
Certificate") and the Company's Amended By-Laws
(the "Company By-Laws"), as each will be in effect
as of the Distribution Date, would have the effect
of making more difficult an acquisition of control
of the Company in a transaction not approved by the
Company's Board of Directors. See "Description of
Company Capital Stock -- Certain Provisions in the
Company Certificate and Company By-Laws". The
Rights Agreement to be entered into between the
Company and First Chicago Trust Company of New
York, as rights agent, also would make more
difficult an acquisition of control of the Company
in a transaction not approved by the Board of
Directors of the Company. See "Description of
Company Capital Stock -- Company Rights Plan".
Post-Distribution Dividend
Policy................... It is anticipated that following the Distribution,
the Company initially will pay quarterly cash
dividends which, on an annual basis, will equal
$.42 per share and Rockwell initially will pay
quarterly cash dividends which, on an annual basis,
will equal $1.02 per share. It is therefore
anticipated that the aggregate cash dividends
payable after the Distribution to a holder of
Rockwell Common Stock in respect of (i) shares of
Rockwell Common Stock held on the Distribution Date
and (ii) shares of Company Common Stock received in
the Distribution (giving effect to the distribution
ratio of one share of Company Common Stock for
every three shares of Rockwell Common Stock) will
initially equal the annual rate of the cash
dividend currently paid on Rockwell Common Stock of
$1.16 per share. However, no formal action with
respect to any such dividends has been taken and
the declaration and payment of dividends by the
Company and Rockwell will be at the sole discretion
of their respective Boards of Directors. See "The
Distribution -- Dividend Policy".
Special Factors............ Shareowners should carefully consider the matters
discussed under the section entitled "Special
Factors" in this Information Statement.
9
<PAGE> 15
SUMMARY FINANCIAL DATA
The following summary financial data (other than employee data) have been
derived from the financial statements of the Automotive Business. The data
should be read in conjunction with the financial statements of the Automotive
Business and notes thereto included elsewhere in this Information Statement. The
statement of income data for the years ended September 30, 1994, 1995 and 1996
and the balance sheet data as of September 30, 1995 and 1996 have been derived
from the audited financial statements of the Automotive Business. The statement
of income data for the years ended September 30, 1992 and 1993 and the balance
sheet data as of September 30, 1992, 1993 and 1994 have been derived from
unaudited financial information of the Automotive Business. The statement of
income data for the nine months ended June 30, 1996 and 1997 and the balance
sheet data as of June 30, 1996 and 1997 have been derived from the unaudited
financial information of the Automotive Business, which, in the opinion of
management, include all adjustments necessary for a fair presentation of assets
and liabilities as of such dates and results of operations for such periods.
Results for the nine months ended June 30, 1997 are not necessarily indicative
of the results that may be expected for the entire year ending September 30,
1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
-------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ ---------- ------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales........................................... $2,279 $2,358 $2,653 $3,125 $3,144 $2,397 $2,467
Operating earnings.............................. 71 100 91 178 146(1) 135(1) 164
As a percent of sales......................... 3.1% 4.2% 3.4% 5.7% 4.6% 5.6% 6.6%
Interest expense................................ $ 23 $ 13 $ 12 $ 11 $ 10 $ 8 $ 6
Income before income taxes...................... 60 102 88 185 182 148 168
Net income...................................... 30 57 51 123 114 94 100
BALANCE SHEET DATA: (at end of period)
Working capital(2).............................. $ 153 $ 185 $ 204 $ 216 $ 229 $ 243 $ 280
Property, net................................... 646 588 617 647 646 623 611
Total assets.................................... 1,608 1,488 1,638 1,766 1,833 1,816 1,897
Long-term debt.................................. 15 9 35 31 24 26 21
Minority interests.............................. 18 21 21 24 29 26 36
Equity.......................................... 496 468 509 561 599 595 631
OTHER DATA:
Cash provided by operating activities........... $ 113 $ 162 $ 156 $ 203 $ 197 $ 110 $ 99
Capital expenditures............................ 102 100 102 119 144 87 59
Depreciation and amortization................... 100 92 93 97 102 75 76
EBITDA(3)....................................... 183 207 193 293 294 231 250
Employees at year end........................... 16,500 16,300 17,200 16,700 15,300
</TABLE>
- ---------------
(1) Operating earnings for fiscal year 1996 and the nine months ended June 30,
1996 includes restructuring charges of $36 million and $6 million,
respectively.
(2) Working capital consists of all current assets and current liabilities,
including cash and short-term debt.
(3) EBITDA is defined as income before income taxes, plus interest expense,
depreciation and amortization. EBITDA should not be considered as a
substitute for operating earnings, net income, cash flow or other combined
statement of income or cash flow data computed in accordance with generally
accepted accounting principles or as a measure of a company's results of
operations or liquidity. Although EBITDA is not calculated in accordance
with generally accepted accounting principles, it is widely used as a
measure of a company's operating performance and its ability to service its
indebtedness because it assists in comparing performance on a consistent
basis across companies without regard to depreciation and amortization,
which can vary significantly depending on accounting methods (particularly
where acquisitions are involved) or non-operating factors such as historical
cost bases and capital structure.
10
<PAGE> 16
SUMMARY PRO FORMA FINANCIAL DATA
The following sets forth summary unaudited pro forma financial data of the
Automotive Business, giving effect to the Distribution, the incurrence of
indebtedness necessary to make the Pre-Distribution Payment to Rockwell in the
amount of $445 million and the reduction of corporate costs from those allocated
to the Company by Rockwell to management's estimate of stand-alone corporate
costs. For purposes of the pro forma statement of income data, such transactions
are assumed to have taken place on October 1, 1995. For purposes of the pro
forma balance sheet data, such transactions are assumed to have taken place on
June 30, 1997. The summary pro forma financial data should be read in
conjunction with the more detailed pro forma financial data and notes thereto
included in this Information Statement under "Unaudited Pro Forma Condensed
Financial Statements of the Company".
<TABLE>
<CAPTION>
PRO FORMA FINANCIAL DATA
----------------------------------------------------
FISCAL YEAR NINE MONTHS NINE MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, 1996 JUNE 30, 1996 JUNE 30, 1997
------------------ -------------- --------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales................................ $3,144 $2,397 $2,467
Operating earnings................... 156(1) 143(1) 172
Interest expense..................... (37) (28) (26)
Income before income taxes........... 165 136 156
Net income........................... 102 86 93
Earnings per share(2)................ 1.41 1.19 1.29
BALANCE SHEET DATA: (at end of
period)
Working capital...................... 280
Property, net........................ 611
Total assets......................... 1,957
Long-term debt....................... 466
Minority interests................... 36
Equity............................... 186
OTHER DATA:
Cash provided by operating
activities......................... 185 102 92
Depreciation and amortization........ 102 75 76
EBITDA(3)............................ 304 239 258
</TABLE>
- ---------------
(1) Operating earnings for fiscal year 1996 and the nine months ended June 30,
1996 includes restructuring charges of $36 million and $6 million,
respectively.
(2) Earnings per share are based on the anticipated post-Distribution capital
structure of the Company. These amounts are based on average outstanding
shares of Rockwell Common Stock of 217.6 million for the year ended
September 30, 1996, and 217.3 million and 215.7 million for the nine months
ended June 30, 1996 and 1997, respectively, and the distribution ratio of
one share of Company Common Stock for every three shares of Rockwell Common
Stock outstanding.
(3) EBITDA is defined as income before income taxes, plus interest expense,
depreciation and amortization. EBITDA should not be considered as a
substitute for operating earnings, net income, cash flow or other combined
statement of income or cash flow data computed in accordance with generally
accepted accounting principles or as a measure of a company's results of
operations or liquidity. Although EBITDA is not calculated in accordance
with generally accepted accounting principles, it is widely used as a
measure of a company's operating performance and its ability to service its
indebtedness because it assists in comparing performance on a consistent
basis across companies without regard to depreciation and amortization,
which can vary significantly depending on accounting methods (particularly
where acquisitions are involved) or non-operating factors such as historical
cost bases and capital structure.
11
<PAGE> 17
PRO FORMA CAPITALIZATION
The following table sets forth the unaudited pro forma cash, short-term
debt and capitalization of the Company as of June 30, 1997. This information
should be read in conjunction with the pro forma balance sheet and the
introduction to the pro forma financial statements appearing elsewhere herein.
The pro forma information may not reflect the cash, short-term debt and
capitalization of the Company in the future or as it would have been had the
Company been a stand-alone company on June 30, 1997. Assumptions regarding the
number of shares of Company Common Stock may not reflect the actual number
outstanding on the Distribution Date.
PRO FORMA CAPITALIZATION TABLE
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
AUTOMOTIVE
BUSINESS PRO FORMA COMPANY PRO
HISTORICAL ADJUSTMENTS FORMA
------------- ------------- -------------
(IN MILLIONS)
<S> <C> <C> <C>
Cash........................................ $ 68 $ 60(1) $ 128
========= ========= =========
Short-term debt............................. 23 23
========= ========= =========
Long-term debt.............................. 21 445(2) 466
Minority interests.......................... 36 36
Stockholders' equity:
Rockwell's net investment.............. 693 (693)(3) --
Common Stock........................... -- 70(3) 70
Additional paid-in capital............. -- 623(3) 178
(445)(2)
Retained earnings...................... -- --
Currency translation................... (62) (62)
--------- --------- ---------
Total stockholders' equity............. 631 (445) 186
--------- --------- ---------
Total capitalization.............. $ 688 $ $ 688
========= ========= =========
</TABLE>
- ---------------
(1) The Automotive Business will incur approximately $60 million in Canadian
income taxes in connection with the transfer of assets in Canada prior to
the Distribution and Rockwell will provide cash to fund the tax payment.
(2) Long-term debt incurred to finance the Pre-Distribution Payment to be made
by the Company to Rockwell.
(3) To reflect the Distribution as the elimination of Rockwell's net investment
and the issuance of an estimated 70 million shares of Company Common Stock,
par value $1 per share. This is based on the number of shares of Rockwell
Common Stock outstanding on June 30, 1997 of approximately 210 million
shares and the distribution ratio of one share of Company Common Stock for
every three shares of Rockwell Common Stock outstanding.
12
<PAGE> 18
SPECIAL FACTORS
Shareowners should carefully consider and evaluate all of the information
set forth in this Information Statement, including the special factors listed
below. In addition to the historical information included herein, this
Information Statement contains statements relating to future results of the
Company (including certain projections and business trends) that are
"forward-looking statements". Actual results may differ materially from those
projected as a result of certain risks and uncertainties, including but not
limited to the factors listed below and those detailed from time to time in the
filings of the Company with the Commission. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Cautionary
Statement".
CYCLICAL NATURE OF THE AUTOMOTIVE INDUSTRY
The industry in which the Automotive Business operates has been
characterized historically by periodic fluctuations in overall demand for
commercial, specialty and light vehicles for which the Automotive Business
supplies products, resulting in corresponding fluctuations in demand for
products of the Automotive Business. While the Automotive Business has sought
and will continue to seek to expand its operations globally so as, among other
things, to mitigate the effect of periodic fluctuations in demand of the
automotive industry in one or more particular countries, the cyclical nature of
the automotive industry presents a risk that is outside the control of the
Company and that cannot be accurately predicted. The Automotive Business also
experiences certain seasonal variations in the demand for its products to the
extent automotive vehicle production fluctuates. Historically, such demand has
been somewhat lower in the Company's first and fourth fiscal quarters (third and
fourth calendar quarters) when OEM (as defined below) plants may close during
model changeovers and vacation and holiday periods. See "The Automotive
Business -- Seasonality; Cyclicality".
COMPETITION
The Automotive Business operates in a highly competitive environment.
Principal competitive factors are price, quality, service, product performance,
design and engineering capabilities, new product innovation and timely delivery.
The Automotive Business competes worldwide with a number of United States and
international manufacturers that are both larger and smaller than the Company in
terms of resources and market shares. In North America, the major competitors of
HVS are Eaton Corporation and Dana Corporation. LVS has numerous competitors
across its various product lines worldwide. In addition, certain original
equipment manufacturers ("OEMs") manufacture for their own use products of the
type supplied by the Company.
DEPENDENCE ON LARGE CUSTOMERS
The Automotive Business is dependent upon large OEM customers with
substantial bargaining power, including with respect to price and other
commercial terms. Although the Automotive Business believes that it generally
enjoys good relations with its OEM customers, loss of all or a substantial
portion of the Automotive Business's sales to any of its large volume customers
for whatever reason (including, but not limited to, reduced or delayed customer
requirements or strikes or other work stoppages affecting production by such
customers) could have a significant adverse effect on the Company's financial
results. In addition, the Automotive Business sells products to certain OEM
customers under long-term arrangements that require the Automotive Business to
provide annual cost reductions (through price reductions or other cost benefits
to the OEMs) by certain percentages each year. If the Company were unable to
generate sufficient production costs savings in the future to offset such price
reductions, the Company's gross margins could be adversely affected. During
fiscal 1996, Freightliner Corporation and Mercedes-Benz AG (each of which is
owned by Daimler-Benz A.G.) and Ford Motor Company's heavy truck business (which
Freightliner Corporation has agreed to acquire pursuant to a definitive
agreement entered into with Ford Motor Company in May 1997) together accounted
for approximately 16% of total sales of the Automotive Business. See "The
Automotive Business -- Customers; Sales and Marketing".
13
<PAGE> 19
INDUSTRY CONSOLIDATION TREND
The industry in which the Automotive Business operates has recently
experienced significant consolidation among suppliers. Such consolidation is in
part attributable to OEMs more frequently awarding long-term, sole-source or
preferred supplier contracts to the most capable global suppliers, thereby
reducing the total number of suppliers from whom components and systems are
purchased. Globalization and increased outsourcing of product engineering and
manufacturing by OEMs have also contributed to this trend. While the Automotive
Business is a leading supplier of automotive components and systems in many of
the markets for its products and will consider acquisitions as a means of
further expansion, there can be no assurance that the Company will participate
in the industry consolidation or that it will not be disadvantaged as a result
of consolidation by other suppliers. See "The Automotive Business -- Industry
Trends", "-- Competition" and "-- Acquisitions and Dispositions".
INTERNATIONAL OPERATIONS
For the fiscal year ended September 30, 1996, approximately 44% of total
sales of the Automotive Business consisted of sales outside North America. The
Company's international operations are subject to a number of risks inherent in
operating abroad, including, but not limited to, risks with respect to currency
exchange rate fluctuations, local economic and political conditions, disruptions
of capital and trading markets, restrictive governmental actions (such as
restrictions on transfer of funds and trade protection measures, including
export duties and quotas and customs duties and tariffs), changes in legal or
regulatory requirements, import or export licensing requirements, limitations on
the repatriation of funds, difficulty in obtaining distribution and support,
nationalization, the laws and policies of the United States affecting trade,
foreign investment and loans, and tax laws. There can be no assurance that these
factors will not have a material adverse impact on the Company's ability to
increase or maintain its foreign sales or on its financial condition or results
of operations.
The Company enters into foreign currency forward exchange contracts to
minimize risk of loss from currency exchange rate fluctuations on firm and
identifiable foreign currency commitments entered into in the ordinary course of
business. The Company has not experienced nor does it anticipate any material
adverse effect on its results of operations or financial condition related to
these foreign currency forward exchange contracts. The Company has not entered
into foreign currency forward exchange contracts for other purposes, and the
Company's financial condition and results of operations could be affected
(negatively or positively) by currency fluctuations.
CONTINUED IMPLEMENTATION OF THE COMPANY'S OPERATIONS IMPROVEMENT PROGRAM
The Automotive Business has made significant efforts to increase operating
efficiencies, reduce costs and improve its core business processes. In 1994, the
Automotive Business began to implement a strategic program to realign
principally its HVS operations in order to improve product quality and customer
service, rationalize production, reduce costs and focus on its core strengths
and product lines. In 1996, the Automotive Business implemented restructuring
actions related to plant consolidations, staff reductions and outsourcing. The
Company intends to continue its efforts to increase operating efficiencies,
reduce costs and improve its core business processes. See "The Automotive
Business -- Business Strategies". While the Company believes the strategic
actions already taken have benefited the Automotive Business, there can be no
assurance that further benefits will be achieved.
ABSENCE OF HISTORY AS AN INDEPENDENT COMPANY; FUTURE CAPITAL REQUIREMENTS
The Company was formed for the purpose of effecting the Distribution and
does not have an operating history as an independent company. Accordingly, the
financial information included herein may not necessarily reflect the results of
operations, financial position and cash flows of the Automotive Business had the
Company been operated independently during the periods presented. While the
Automotive Business has been profitable as part of Rockwell, there is no
assurance that as a stand-alone company profits will continue at a similar
level. The Automotive Business has historically relied on Rockwell for various
financial and
14
<PAGE> 20
administrative services. After the Distribution, although Rockwell will provide
to the Company certain transitional services which prior to the Distribution
have been provided to the Automotive Business by Rockwell, the Company will
maintain its own banking relationships, sources of long-term funding and
administrative functions. See "Arrangements Between Rockwell and the Company
Relating to the Distribution -- Transition Agreement". Prior to the Distribution
the Company will enter into the Credit Facility, which will be used to fund the
Pre-Distribution Payment of approximately $445 million and for working capital
and other general corporate purposes of the Company and its subsidiaries
following the Distribution. See "Credit Facility". Although the Company believes
that cash flows from operations and available borrowings under the Credit
Facility will be sufficient to satisfy its future working capital, research and
development, capital expenditure and other financing requirements, there can be
no assurance that such will be the case.
NO PRIOR MARKET FOR COMPANY COMMON STOCK; POSSIBILITY OF SUBSTANTIAL SALES OF
COMPANY COMMON STOCK
There is no current trading market for the Company Common Stock, and while
a "when-issued" trading market is expected to develop prior to the Distribution
Date, there can be no assurance as to the prices at which trading in the Company
Common Stock will occur after completion of the Distribution. Until the Company
Common Stock is fully distributed and an orderly market develops, the prices at
which trading in such stock occurs may fluctuate significantly. There can be no
assurance that an active trading market in the Company Common Stock will develop
or be sustained in the future. The prices at which shares of Company Common
Stock trade will be determined by the marketplace and may be influenced by many
factors, including, among other things, the Company's performance and prospects,
the depth and liquidity of the market for Company Common Stock, investor
perception of the Company and the industry in which it operates, the Company's
dividend policy, general financial and other market conditions, and domestic and
international economic conditions. Application has been made to list the Company
Common Stock on the NYSE under the proposed trading symbol " ". See "The
Distribution -- Listing and Trading of Company Common Stock".
Substantially all of the shares of Company Common Stock distributed in the
Distribution will be eligible for immediate resale in the public market. In
spin-off transactions similar to the Distribution, it is not unusual for a
significant redistribution of shares to occur during the first few weeks or even
months following completion of the spin-off. Neither Rockwell nor the Company is
able to predict whether substantial amounts of Company Common Stock will be sold
in the open market following the Distribution or what effect such sales may have
on prices at which shares of Company Common Stock may trade. Any sales of
substantial amounts of Company Common Stock in the public market during this
period, or the perception that any redistribution has not been completed, could
materially adversely affect the market price of Company Common Stock. For a
description of the treatment of shares of Company Common Stock to be held by the
Rockwell International Corporation Savings Plan (the "Rockwell Savings Plan"),
see "Arrangements Between Rockwell and the Company Relating to the
Distribution -- Employee Matters Agreement".
COMMON STOCK DIVIDEND POLICY
The payment and amount of cash dividends on the Company Common Stock after
the Distribution will be subject to the sole discretion of the Company's Board
of Directors. The Company's dividend policy will be reviewed by the Company's
Board of Directors at such times as may be deemed appropriate, and payment of
dividends on the Company Common Stock will depend upon the Company's financial
position, capital requirements, profitability and such other factors as the
Company's Board of Directors deems relevant. Although no formal action with
respect to dividends payable after the Distribution has been taken, it is
anticipated that cash dividends payable by Rockwell and the Company in respect
of (i) shares of Rockwell Common Stock held on the Distribution Date and (ii)
shares of Company Common Stock received in the Distribution (giving effect to
the distribution ratio of one share of Company Common Stock for every three
shares of Rockwell Common Stock), respectively, will initially equal the annual
rate of the cash dividend currently paid on Rockwell Common Stock of $1.16 per
share. See "The Distribution -- Dividend Policy".
15
<PAGE> 21
CERTAIN ANTI-TAKEOVER EFFECTS
The Company Certificate, the Company By-Laws, the Company Rights Agreement
(as defined below) and the General Corporation Law of the State of Delaware (the
"DGCL") contain several provisions that would make more difficult the
acquisition of control of the Company in a transaction not approved by the
Company's Board of Directors. See "Description of Company Capital
Stock -- Certain Provisions in the Company Certificate and Company By-Laws" and
"-- Company Rights Plan".
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Distribution is conditioned upon receipt of the Tax Ruling from the IRS
to the effect that, among other things, for United States federal income tax
purposes the Distribution will be tax-free under Section 368(a)(1)(D) of the
Code. See "The Distribution -- Certain Federal Income Tax Consequences of the
Distribution". The continuing validity of any such ruling is subject to certain
factual representations and assumptions. Rockwell and the Company are not aware
of any facts or circumstances which would cause such representations and
assumptions to be untrue. The Tax Allocation Agreement provides that neither
Rockwell nor the Company is to take any action inconsistent with, nor fail to
take any action required by, the request for the Tax Ruling or the Tax Ruling
unless required to do so by law or the other party has given its prior written
consent or, in certain circumstances, a supplemental ruling permitting such
action is obtained. Rockwell and the Company have agreed to indemnify each other
with respect to any tax liability resulting from their respective failures to
comply with such provisions. In addition, the Tax Allocation Agreement provides
that the Company will be responsible for any taxes imposed on Rockwell, the
Company or Rockwell shareowners as a result of the failure of the Distribution
to qualify as a tax-free reorganization within the meaning of Section
368(a)(1)(D) of the Code if such failure is attributable to certain actions by
or in respect of the Company (including its subsidiaries) or its stockholders,
such as the acquisition of the Company by a third party at a time and in a
manner that would cause such a failure. In the event such taxes were to become
payable by the Company, such payment would have a material adverse effect on the
financial position, results of operations and cash flow of the Company. See
"Arrangements Between Rockwell and the Company Relating to the
Distribution -- Tax Allocation Agreement".
16
<PAGE> 22
THE DISTRIBUTION
INTRODUCTION
On March 15, 1997, the Board of Directors of Rockwell approved in principle
a plan to separate Rockwell into two companies by means of a tax-free spin-off
of the Automotive Business. Such approval is conditioned upon, among other
things, receipt of the Tax Ruling and final approval by Rockwell's Board of
Directors. The spin-off is intended to be effected through the Distribution. At
the time of the Distribution, the Company will own, through subsidiaries,
substantially all of the assets, liabilities (including liabilities relating to
former operations) and operations which prior to the Distribution Date comprise
the Automotive Business. See "The Automotive Business". On the Distribution
Date, Rockwell will effect the Distribution by delivering all of the outstanding
shares of Company Common Stock to the Distribution Agent for distribution to the
holders of record of Rockwell Common Stock as of the close of business on the
Record Date.
Shareowners of Rockwell with inquiries relating to the Distribution should
contact the Distribution Agent, telephone number (800) 519-3111 or Rockwell,
Shareowner Services, telephone number (412) 565-7120. After the Distribution
Date, stockholders of the Company with inquiries relating to the Distribution or
their investment in the Company should contact the Company at 2135 West Maple
Road, Troy, Michigan 48084, telephone number (248) 435-1000 or First Chicago
Trust Company of New York, the Company's Transfer Agent, at P.O. Box 2500,
Jersey City, New Jersey 07303-2500, telephone number (800) 519-3111.
BACKGROUND AND REASONS FOR THE DISTRIBUTION
Rockwell's Board of Directors believes that the Distribution will
accomplish a number of important business objectives and, by enabling Rockwell
and the Company to develop their respective businesses separately, should better
position the two companies to produce greater total shareowner value over the
long term. The Distribution will separate two business segments (with the
Company operating the Automotive Business and Rockwell retaining its Automation,
Semiconductor Systems and Avionics & Communications businesses (the "Electronics
Business")) with distinct financial, investment and operating characteristics so
that each can adopt strategies and pursue objectives appropriate to its specific
business. The Distribution will permit the management of each company to
prioritize the allocation of its respective management and financial resources
for achievement of its own corporate objectives. In particular, Rockwell
believes that the Distribution will permit each business to maximize its
strengths and provide greater flexibility to pursue business opportunities,
including acquisitions, joint ventures and other business combinations. In
addition, the establishment of Company Common Stock as a separate,
publicly-traded equity security will increase the Company's ability to
participate in the ongoing process of consolidation in its industry by
facilitating the Company's ability to effect acquisitions using Company Common
Stock as consideration. Further, the Distribution is expected to allow each of
Rockwell and the Company to attract, motivate and retain key personnel by
enabling Rockwell and the Company to provide more effective incentive
compensation programs that are based on the performance of the respective
business in which such individuals are employed without being influenced by the
results of the business in which they have no involvement. Moreover, the
Distribution will enable stockholders and potential investors to evaluate better
the financial performance of each business and its strategies, enhancing the
likelihood that each will achieve appropriate market recognition for its own
performance.
MANNER OF EFFECTING THE DISTRIBUTION
The Distribution was formally declared on [ ], 1997 (conditioned,
among other things, upon receipt of the Tax Ruling from the IRS) and will be
made on the Distribution Date to shareowners of record of Rockwell Common Stock
as of the close of business on the Record Date. In the Distribution, each
Rockwell shareowner will receive one share of Company Common Stock for every
three shares of Rockwell Common Stock held as of the close of business on the
Record Date. The delivery of a share of Company Common Stock in connection with
the Distribution also will constitute the delivery of the Company Right (as
defined below) associated with such share. Based on the number of shares of
Rockwell Common Stock
17
<PAGE> 23
outstanding as of June 30, 1997, approximately 70 million shares of Company
Common Stock will be distributed in the Distribution.
At the time of the Distribution, shares of Company Common Stock will be
delivered to the Distribution Agent. Company stockholders initially will have
their ownership of Company Common Stock registered only in book-entry form.
Book-entry registration refers to a method of recording stock ownership in the
Company's records in which no share certificates are issued.
On the Distribution Date, each owner of Rockwell Common Stock as of the
close of business on the Record Date will be credited through book-entry in the
stock ownership registration records of the Company with the number of full
shares of Company Common Stock to which the shareowner is entitled. Commencing
on or about the Distribution Date, the Distribution Agent will begin mailing
account statements to such Rockwell shareowners indicating the number of shares
of Company Common Stock to which each such shareowner is entitled. All shares of
Company Common Stock distributed in the Distribution will be fully paid and
nonassessable and holders thereof will not be entitled to preemptive rights. See
"Description of Company Capital Stock -- Company Common Stock". Following the
Distribution Date, any Company stockholder whose ownership of Company Common
Stock is registered in book-entry form may obtain at any time without charge a
certificate to represent such shares by contacting the Transfer Agent. The
Distribution Agent and the Transfer Agent is First Chicago Trust Company of New
York; its address is P.O. Box 2500, Jersey City, New Jersey 07303-2500, and its
telephone number is (800) 519-3111.
Fractional shares of Company Common Stock will not be distributed.
Fractional shares of Company Common Stock will be aggregated and sold in the
public market by the Distribution Agent and the aggregate net proceeds will be
distributed ratably to those stockholders entitled to fractional interests. See
"-- Certain Federal Income Tax Consequences of the Distribution".
Participants in the Rockwell Dividend Reinvestment Plan will be credited
with the number of shares (including fractional shares) of Company Common Stock
distributed in the Distribution in respect of the Rockwell Common Stock held in
their accounts. The Company will establish a comparable plan effective at the
time of the Distribution which will provide for reinvestment of dividends on
Company Common Stock and under which accounts will be established for
participants in the Rockwell Dividend Reinvestment Plan. Shares of Company
Common Stock credited as a result of the Distribution to participants in the
Rockwell Dividend Reinvestment Plan in respect of the Rockwell Common Stock held
in their accounts will be transferred to the participants' accounts in the new
Company plan.
Participants in the Rockwell Savings Plan will have their Rockwell Common
Stock accounts credited with the number of shares (including fractional shares)
of Company Common Stock distributed in the Distribution in respect of the
Rockwell Common Stock held in their Rockwell Savings Plan accounts. Individual
Rockwell Savings Plan participants, rather than the Rockwell Savings Plan, will
have authority to determine if and when shares of Company Common Stock held in
their Rockwell Savings Plan accounts will be sold. See "Arrangements Between
Rockwell and the Company Relating to the Distribution -- Employee Matters
Agreement".
NO CONSIDERATION WILL BE PAID BY SHAREOWNERS OF ROCKWELL FOR THE SHARES OF
COMPANY COMMON STOCK TO BE RECEIVED BY THEM IN THE DISTRIBUTION, NOR WILL THEY
BE REQUIRED TO SURRENDER OR EXCHANGE SHARES OF ROCKWELL COMMON STOCK OR TAKE ANY
OTHER ACTION IN ORDER TO BE ENTITLED TO COMPANY COMMON STOCK.
The Distribution will not affect the number of outstanding shares of
Rockwell Common Stock or the rights attendant thereto. Certificates representing
outstanding shares of Rockwell Common Stock will continue also to represent
rights to purchase shares of Series A Junior Participating Preferred Stock,
without par value, of Rockwell ("Rockwell Junior Preferred Stock") pursuant to
the Rights Agreement, dated as of November 30, 1996, between Rockwell and
ChaseMellon Shareholder Services, L.L.C., as rights agent.
18
<PAGE> 24
LISTING AND TRADING OF COMPANY COMMON STOCK
There is no current trading market for the Company Common Stock, and while
a "when-issued" trading market is expected to develop prior to the Distribution
Date, there can be no assurance as to the prices at which trading in the Company
Common Stock will occur after completion of the Distribution. See "Special
Factors -- No Prior Market For Company Common Stock; Possibility of Substantial
Sales of Company Common Stock".
Application has been made to list the Company Common Stock on the NYSE
under the proposed trading symbol " ". The Company initially will have
approximately 63,200 stockholders of record, based on the number of record
holders of Rockwell Common Stock as of June 30, 1997. The Transfer Agent for the
Company Common Stock will be First Chicago Trust Company of New York. For
certain information regarding employee options to purchase Company Common Stock
that will be or may become outstanding after the Distribution, see "Arrangements
Between Rockwell and the Company Relating to the Distribution -- Employee
Matters Agreement", "Management of the Company -- Historical Compensation of
Executive Officers" and "-- Benefit Plans Following the Distribution".
Shares of Company Common Stock distributed to Rockwell shareowners in the
Distribution will be freely transferable, except for shares received by persons
who may be deemed to be "affiliates" of the Company under the Securities Act of
1933, as amended (the "Securities Act"), and the rules promulgated thereunder.
Persons who may be deemed to be affiliates of the Company after the Distribution
generally include individuals or entities that control, are controlled by, or
are under common control with the Company, and may include certain officers and
directors of the Company as well as principal stockholders of the Company, if
any. Persons who are affiliates of the Company will be permitted to sell their
shares of Company Common Stock only pursuant to an effective registration
statement under the Securities Act or an exemption from the registration
requirements of the Securities Act, such as the exemption afforded by Rule 144
under the Securities Act.
DIVIDEND POLICY
It is anticipated that following the Distribution, the Company initially
will pay quarterly cash dividends which, on an annual basis, will equal $.42 per
share and Rockwell initially will pay quarterly cash dividends which, on an
annual basis, will equal $1.02 per share. It is therefore anticipated that the
aggregate cash dividends payable after the Distribution to a holder of Rockwell
Common Stock in respect of (i) shares of Rockwell Common Stock held on the
Distribution Date and (ii) shares of Company Common Stock received in the
Distribution (giving effect to the distribution ratio of one share of Company
Common Stock for every three shares of Rockwell Common Stock) will initially
equal the annual rate of the cash dividend currently paid on Rockwell Common
Stock of $1.16 per share. However, no formal action with respect to any such
dividends has been taken and the declaration and payment of dividends by the
Company and Rockwell will be at the sole discretion of their respective Boards
of Directors. See "Special Factors -- Common Stock Dividend Policy".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
Rockwell has requested the Tax Ruling from the IRS to the effect that,
among other things, the Distribution will qualify as a tax-free reorganization
within the meaning of Section 368(a)(1)(D) of the Code. So long as the
Distribution qualifies under Section 368(a)(1)(D) of the Code, the material
United States federal income tax consequences of the Distribution will be as
follows:
(i) no gain or loss will be recognized by or be includable in the
income of a holder of Rockwell Common Stock solely as a result of the
receipt of Company Common Stock in the Distribution, except, as described
below, in connection with cash received in lieu of fractional shares of
Company Common Stock;
(ii) no gain or loss will be recognized by Rockwell upon the
Distribution;
19
<PAGE> 25
(iii) assuming that a holder of Rockwell Common Stock holds such
Rockwell Common Stock as a capital asset, such holder's holding period for
Company Common Stock received in the Distribution will include the period
during which such Rockwell Common Stock was held;
(iv) a Rockwell shareowner who receives cash as a result of the sale
of a fractional share by the Distribution Agent on behalf of such
shareowner will be treated as having received such fractional share in the
Distribution and then as having sold such fractional share; such shareowner
will recognize gain or loss equal to the difference between the cash
received and the amount of tax basis allocable (as described below) to such
fractional share and such gain or loss will be capital gain or loss if such
fractional share would have been held by such shareowner as a capital
asset; and
(v) the tax basis of Rockwell Common Stock held by a Rockwell
shareowner immediately prior to the Distribution will be apportioned (based
upon relative fair market values at the time of the Distribution) between
such Rockwell Common Stock and Company Common Stock received (including any
fractional share of Company Common Stock deemed received) by such
shareowner in the Distribution.
Promptly following the Distribution, information with respect to the
allocation of tax basis between Rockwell Common Stock and Company Common Stock
will be made available to the holders of Rockwell Common Stock.
THE FOREGOING IS ONLY A SUMMARY OF THE MATERIAL UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW AND IS INTENDED
FOR GENERAL INFORMATION ONLY. EACH ROCKWELL SHAREOWNER SHOULD CONSULT HIS OR HER
TAX ADVISOR AS TO THE PARTICULAR CONSEQUENCES OF THE DISTRIBUTION TO SUCH
SHAREOWNER, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS, AND
AS TO POSSIBLE CHANGES IN TAX LAW THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED
ABOVE.
The Tax Allocation Agreement provides that neither Rockwell nor the Company
is to take any action inconsistent with, nor fail to take any action required
by, the request for the Tax Ruling or the Tax Ruling unless required to do so by
law or the other party has given its prior written consent or, in certain
circumstances, a supplemental ruling permitting such action is obtained. See
"Arrangements Between Rockwell and the Company Relating to the
Distribution -- Tax Allocation Agreement".
CONDITIONS; TERMINATION
The Distribution is subject to certain conditions as set forth in the
Distribution Agreement. Regardless of whether the conditions are satisfied,
Rockwell's Board of Directors, in its sole discretion, without approval of
Rockwell's shareowners, may terminate the Distribution Agreement and abandon the
Distribution at any time prior to the Distribution. See "Arrangements Between
Rockwell and the Company Relating to the Distribution -- Distribution
Agreement".
20
<PAGE> 26
ARRANGEMENTS BETWEEN ROCKWELL
AND THE COMPANY RELATING TO THE DISTRIBUTION
For the purpose of governing certain of the relationships between Rockwell
and the Company relating to the Distribution, and to provide for an orderly
transition, Rockwell and the Company will, prior to the Distribution, enter into
the agreements described below, forms of which (other than the Transition
Agreement) have been filed as exhibits to the Registration Statement of which
this Information Statement is a part. The following summaries of the material
terms of these agreements are qualified by reference to the agreements as so
filed.
DISTRIBUTION AGREEMENT
Rockwell and the Company will enter into a distribution agreement (the
"Distribution Agreement") providing for, among other things, the principal
corporate transactions required to effect the separation of the Automotive
Business from the Electronics Business and the Distribution, and certain other
agreements governing the relationship between Rockwell and the Company with
respect to or in consequence of the Distribution. The Distribution Agreement
provides for the Distribution to be effective as of the close of business on the
Distribution Date.
The Distribution Agreement further provides that prior to the Distribution
Date, Rockwell will transfer substantially all of the operations, assets and
liabilities related to the Automotive Business (including liabilities relating
to former operations) to the Company or to subsidiaries of Rockwell that prior
to the Distribution will become wholly-owned subsidiaries of the Company.
Rockwell will retain all cash and cash equivalents of the Company and its
wholly-owned subsidiaries at the time of the Distribution other than
approximately $35 million. In addition, subsidiaries of the Company that are not
wholly-owned will retain their cash (expected to be approximately $33 million)
and Rockwell will provide cash of approximately $60 million to fund the payment
of Canadian income taxes expected to be incurred by the Automotive Business in
connection with the transfer of assets in Canada prior to the Distribution. The
Distribution Agreement provides for the elimination of intercompany indebtedness
between Rockwell and the Company in existence at the time of the Distribution.
The Distribution Agreement also includes cross licenses by each of Rockwell and
the Company to the other of rights to use, subsequent to the Distribution,
intellectual property of the licensor to the extent the same is used by the
licensee at the time of the Distribution.
The Distribution Agreement provides that after the Distribution, Rockwell
will have all rights in and to the names "Rockwell" and "Rockwell International"
and all derivatives thereof, except for certain limited rights of use granted to
the Company and except that the Company may continue to apply the "Rockwell"
brand name to its products for a period of ten years after the Distribution. The
Company will change the names of its subsidiaries to eliminate therefrom the
names "Rockwell", "Rockwell International" and all derivatives thereof.
Subject to certain exceptions, the Distribution Agreement provides for
cross-indemnities principally designed to place financial responsibility for the
liabilities of the Automotive Business (including liabilities relating to former
operations) with the Company and financial responsibility for the liabilities of
the Electronics Business (including liabilities relating to former operations)
with Rockwell. In addition, the Distribution Agreement provides that each of
Rockwell and the Company will indemnify the other in the event of certain
liabilities arising under the Exchange Act.
The Distribution Agreement provides that prior to the Distribution the
Board of Directors of the Company will approve the Company Certificate and the
Company By-Laws and that the Company and Rockwell will take all actions which
may be required to elect or otherwise appoint as directors of the Company, at or
prior to the time of the Distribution, the persons named herein to constitute
the Company's Board of Directors at the time of the Distribution. See
"Management of the Company -- Directors of the Company".
The Distribution Agreement provides generally that all costs and expenses
incurred prior to the Distribution in connection with the Distribution, the
preparation, execution and delivery of the Distribution
21
<PAGE> 27
Agreement, the Employee Matters Agreement, the Tax Allocation Agreement and the
Transition Agreement and the consummation of the transactions contemplated
thereby will be charged to Rockwell, other than the costs and expenses of the
Credit Facility and other costs and expenses to the extent relating to
operations of the Automotive Business subsequent to the Distribution, which will
be charged to the Company. Except as otherwise expressly provided, all costs and
expenses incurred following the Distribution in connection with the
implementation thereof will be charged to the party for whose benefit the
expenses are incurred, with any expenses which cannot be allocated on such basis
to be split equally between Rockwell and the Company.
The Distribution Agreement provides that the Distribution will not be made
until all of the following conditions are satisfied or waived by Rockwell's
Board of Directors in its sole discretion: (i) the receipt of the Tax Ruling;
(ii) final approval by Rockwell's Board of Directors of the Distribution; (iii)
receipt of all material consents required to effect the Distribution; (iv) the
Registration Statement of which this Information Statement is a part being
declared effective by the Commission; (v) the Company Certificate, the Company
By-Laws and the Company Rights Agreement being adopted and in full force and
effect; (vi) the Company Common Stock being approved for listing on the NYSE;
(vii) the transactions contemplated by the Distribution Agreement in connection
with separating the Automotive Business and the Electronics Business being
consummated in all material respects; (viii) Rockwell and the Company having
entered into each of the agreements, instruments, understandings, assignments
and other arrangements to be entered into in connection with the transactions
contemplated by the Distribution Agreement, including, without limitation, any
conveyance documents, the Employee Matters Agreement, the Tax Allocation
Agreement and the Transition Agreement, and each such agreement being in full
force and effect; (ix) a "no-action" letter from the staff of the Commission
regarding certain aspects of the Distribution being issued and in full force and
effect; (x) no order, injunction or decree having been issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
consummation of the Distribution being in effect; and (xi) no suit, action or
proceeding by or before any court of competent jurisdiction or other
governmental entity having been commenced and pending to restrain or challenge
the Distribution, and no inquiry having been received that in the reasonable
judgment of the Board of Directors of Rockwell may lead to such a suit, action
or proceeding. The "no-action" letter from the staff of the Commission has been
received. Even if all the conditions have been satisfied, the Distribution
Agreement may be terminated and the Distribution abandoned by Rockwell's Board
of Directors, in its sole discretion, without the approval of Rockwell
shareowners, at any time prior to the Distribution.
EMPLOYEE MATTERS AGREEMENT
Rockwell and the Company will enter into an employee matters agreement (the
"Employee Matters Agreement") providing for certain matters relating to
employees, employee benefit plans and compensation arrangements for current and
former employees of the Automotive Business and their beneficiaries
(collectively, the "Company Participants").
The Employee Matters Agreement provides that, except as expressly set forth
therein, effective as of the time of the Distribution, the Company will or will
cause one or more of its subsidiaries to assume or retain, as the case may be,
all liabilities of Rockwell and its subsidiaries with respect to Company
Participants relating to employment by Rockwell or its subsidiaries, including
liabilities under pension, medical, retiree health and life insurance, short and
long-term disability, workers compensation and other employee benefit plans,
policies and agreements. The Employee Matters Agreement provides that effective
on or before the Distribution Date the Company will establish, and will maintain
for a period of at least one year after the Distribution Date, certain pension,
savings and welfare plans and other employee benefits that are substantially
similar in all material respects to those provided by Rockwell and its
subsidiaries for Company Participants prior to the time of the Distribution.
Pursuant to the Employee Matters Agreement and subject to the terms and
conditions thereof, Rockwell will retain liabilities for all vested benefits of
Company Participants accrued to the time of the Distribution under Rockwell's
U.S. and certain foreign pension plans and all related assets. Rockwell will
cause each employee participating in Rockwell's U.S. and such foreign pension
plans who will be employed by the Company on the Distribution Date to have a
fully non-forfeitable right to such employee's benefit under Rockwell's U.S. and
such foreign pension plans accrued as of the time of the Distribution.
Notwithstanding
22
<PAGE> 28
the foregoing, Rockwell shall not grant to Company Participants credit for any
purpose under the Rockwell U.S. and such foreign pension plans for service with
the Company after the Distribution Date, including without limitation, credit
for purposes of determining eligibility for any early retirement or disability
pension. The Company's pension plans will credit each Company employee who
participated in such Rockwell plans for all plan purposes (including
determinations of benefit accruals) with all service which had been credited to
such employee under such Rockwell plans immediately prior to the Distribution
(with certain limited exceptions). Notwithstanding the foregoing, service with
Rockwell and the Company will not be aggregated under the Company's U.S. pension
plan for any periods following the time at which the employee commences the
receipt of benefits under the Rockwell U.S. pension plan if the employee is not
also retired under the Company's U.S. pension plan. In addition, the benefits of
each employee under the Company's pension plans will be reduced by the benefit
to which such employee would be entitled under the Rockwell plans if the
employee commenced receipt of benefits under the Rockwell plans at the same time
as from the Company's pension plans.
The Employee Matters Agreement also provides for adjustment of outstanding
options to purchase Rockwell Common Stock ("Rockwell Options") held by employees
of the Automotive Business granted under the Rockwell International Corporation
1995 Long-Term Incentives Plan (the "Rockwell 1995 LTIP") and the Rockwell
International Corporation 1988 Long-Term Incentives Plan (the "Rockwell 1988
LTIP"). Pursuant to the Employee Matters Agreement, Rockwell Options held by
employees of the Automotive Business at the time of the Distribution that were
granted prior to October 1, 1996 will remain Rockwell Options, but the number of
shares covered thereby and the exercise price per share will be adjusted
pursuant to a formula designed to cause (i) the economic value of such Rockwell
Options (i.e., the difference between the aggregate fair market value of the
shares of Rockwell Common Stock subject to such options and the aggregate per
share exercise price thereof) to remain the same immediately before and
immediately after the Distribution, giving effect to any change in the fair
market value of Rockwell Common Stock resulting from the Distribution, and (ii)
the ratio of the exercise price to the fair market value of the underlying stock
to remain the same immediately before and immediately after the Distribution.
All Rockwell Options held by persons other than employees of the Automotive
Business at the time of the Distribution will be similarly adjusted.
The Employee Matters Agreement further provides that Rockwell Options held
by employees of the Automotive Business at the time of the Distribution that
were granted after September 30, 1996 will be replaced with options to purchase
shares of Company Common Stock ("Company Options"), with the number of shares
covered thereby and the exercise price per share to be determined pursuant to a
formula designed to cause (i) the economic value of such Company Options (i.e.,
the difference between the aggregate fair market value of the shares of Company
Common Stock subject to such options and the aggregate per share exercise price
thereof) immediately after the Distribution to be the same as the economic value
immediately prior to the Distribution of the Rockwell Options being replaced,
and (ii) the ratio of the exercise price to the fair market value of the
underlying stock to remain the same immediately before and immediately after the
Distribution. See "Management of the Company -- Benefit Plans Following the
Distribution -- 1997 Long-Term Incentives Plan".
Pursuant to the Employee Matters Agreement, following the Distribution,
Rockwell will retain sponsorship of the Rockwell Savings Plan and the trust
related thereto. Rockwell will cause each employee who will be employed by the
Company or one of its subsidiaries on the Distribution Date to have a fully
nonforfeitable right to such employee's account balances, if any, under the
Rockwell Savings Plan. The account balances of each such employee will be
maintained under the Rockwell Savings Plan until distributed in accordance with
the terms of the Rockwell Savings Plan and applicable law.
Based upon the Rockwell Savings Plan's ownership of Rockwell Common Stock
on June 30, 1997, the Rockwell Savings Plan is expected to hold approximately
14.3 million shares of Company Common Stock or approximately 20% of the Company
Common Stock outstanding immediately following the Distribution. It is expected
that the Rockwell Savings Plan will be amended in order to provide Rockwell
Savings Plan participants a high degree of flexibility with respect to continued
investment in Company Common Stock in their Rockwell Savings Plan accounts, so
that individual participants, rather than the Rockwell Savings Plan,
23
<PAGE> 29
would have authority to determine if and when shares of Company Common Stock
held in participant accounts will be sold and reinvested in accordance with the
provisions of the Rockwell Savings Plan. Such amendments would provide that a
participant in the Rockwell Savings Plan may elect at any time, but not more
frequently than twice during each calendar month, to have all or a portion of
the Company Common Stock in his or her accounts under the Rockwell Savings Plan
sold, with the net proceeds reinvested as provided for in the Rockwell Savings
Plan. Under the Rockwell Savings Plan, as so amended, dispositions of Company
Common Stock would be effected only at the direction and on behalf of individual
participants.
TAX ALLOCATION AGREEMENT
Through the Distribution Date, the results of the operations of the
Automotive Business have been and will be included in Rockwell's consolidated
United States federal income tax returns. As part of the Distribution, Rockwell
and the Company will enter into a tax allocation agreement (the "Tax Allocation
Agreement") which provides, among other things, for the allocation between
Rockwell and the Company of federal, state, local and foreign tax liabilities
relating to the Automotive Business.
The Tax Allocation Agreement also allocates between Rockwell and the
Company liability for any taxes which may arise in connection with separating
the Automotive Business and the Electronics Business. The Tax Allocation
Agreement provides, in general, that Rockwell will be responsible for any such
taxes. However, the Tax Allocation Agreement provides that neither Rockwell nor
the Company is to take any action inconsistent with, nor fail to take any action
required by, the request for the Tax Ruling or the Tax Ruling unless required to
do so by law or the other party has given its prior written consent or, in
certain circumstances, a supplemental ruling permitting such action is obtained.
Rockwell and the Company have agreed to indemnify each other with respect to any
tax liability resulting from their respective failures to comply with such
provisions. In addition, the Company will be responsible for any taxes imposed
on Rockwell, the Company or Rockwell shareowners as a result of the failure of
the Distribution to qualify as a tax-free reorganization within the meaning of
Section 368(a)(1)(D) of the Code if such failure is attributable to certain
actions by or in respect of the Company (including its subsidiaries) or its
stockholders, such as the acquisition of the Company by a third party at a time
and in a manner that would cause such a failure. In the event such taxes were to
become payable by the Company, such payment would have a material adverse effect
on the financial position, results of operations and cash flow of the Company.
Though valid as between the parties thereto, the Tax Allocation Agreement
is not binding on the IRS and does not affect the liability of each of the
Company, Rockwell and their respective subsidiaries to the IRS for all federal
taxes of the consolidated group relating to periods prior to the Distribution
Date.
TRANSITION AGREEMENT
Rockwell and the Company will enter into a transition services agreement
(the "Transition Agreement") on or prior to the Distribution Date. Pursuant to
the Transition Agreement, Rockwell will provide to the Company, for specified
periods after the Distribution Date and on mutually agreed terms, certain
services which prior to the Distribution Date have been provided to the
Automotive Business by Rockwell, including payroll and human resource services,
health and welfare benefit administration services, computing and
telecommunications services and research and development support services of the
Rockwell Science Center. Such services generally will be provided for periods of
one to three years.
24
<PAGE> 30
CREDIT FACILITY
The Company has obtained a commitment letter dated June 3, 1997 from First
Chicago Capital Markets, Inc. and NBD Bank to arrange for a group of lenders to
provide a $1 billion five-year unsecured revolving credit facility (the "Credit
Facility") to the Company. The Credit Facility will be used to fund the Pre-
Distribution Payment and for working capital and other general corporate
purposes of the Company and its subsidiaries following the Distribution. A
definitive credit agreement containing the terms described below is expected to
be executed prior to the Distribution Date.
Up to $500 million of the Credit Facility will be available for
eurocurrency loans to certain foreign subsidiaries of the Company and up to $100
million of the Credit Facility will be available for the issuance of standby
letters of credit. Loans obtained under the Credit Facility are expected to bear
interest, at the election of the Company, at (i) a fluctuating rate equal to the
higher of (a) the corporate base rate publicly announced from time to time by
Morgan Guaranty Trust Company of New York and (b) the Federal funds rate plus
1/2% per annum, (ii) a periodic fixed rate equal to, in the case of U.S. dollar
loans, the London Interbank Offered Rate ("LIBOR") plus an applicable margin or,
in the case of eurocurrency loans, a rate based on the cost of funding in the
relevant currency (determined under mutually agreed procedures to be set forth
in the definitive credit agreement) plus an applicable margin, in either case
with the applicable margin varying based on the Company's financial performance
or, if and when obtained, the ratings on the Company's long-term senior
unsecured indebtedness, or (iii) a competitive bid rate to be set through an
auction process. The Company anticipates that the applicable margin on
LIBOR-based and eurocurrency loans will initially be 20 basis points. The
Company will also pay a facility fee on the entire amount of the Credit Facility
at a per annum rate that will vary depending on the same criteria used to
determine the applicable margin, and which the Company anticipates will
initially be 10 basis points. The Company also will pay a letter of credit fee
with respect to any letters of credit and certain other customary fees.
The Credit Facility is expected to contain, among other terms, conditions
precedent, covenants, representations and warranties, mandatory and voluntary
prepayment provisions and events of default customary for facilities of this
type. Such covenants will include certain restrictions on incurrence of
indebtedness, consolidations and mergers, sales of assets and creation of liens
and encumbrances. The Credit Facility will also include financial covenants
requiring a minimum net worth and a maximum leverage ratio based on earnings
before interest, taxes, depreciation and amortization.
25
<PAGE> 31
HISTORICAL SELECTED
FINANCIAL DATA
The following selected financial data (other than employee data) have been
derived from the financial statements of the Automotive Business. The data
should be read in conjunction with the financial statements of the Automotive
Business and notes thereto included elsewhere in this Information Statement. The
statement of income data for the years ended September 30, 1994, 1995 and 1996
and the balance sheet data as of September 30, 1995 and 1996 have been derived
from the audited financial statements of the Automotive Business. The statement
of income data for the years ended September 30, 1992 and 1993 and the balance
sheet data as of September 30, 1992, 1993 and 1994 have been derived from
unaudited financial information of the Automotive Business. The statement of
income data for the nine months ended June 30, 1996 and 1997 and the balance
sheet data as of June 30, 1996 and 1997 have been derived from the unaudited
financial statements of the Automotive Business, which, in the opinion of
management, include all adjustments necessary for a fair presentation of assets
and liabilities as of such dates and results of operations for such periods.
Operating results for the nine months ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the entire year ending
September 30, 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
---------------------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- ------ ------
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT ANNUAL SALES PER EMPLOYEE)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales......................... $ 2,279 $ 2,358 $ 2,653 $ 3,125 $ 3,144 $2,397 $2,467
Annual sales growth rate...... 5.4% 3.5% 12.5% 17.8% 0.6%
Gross margin.................. $ 251 $ 282 $ 282 $ 381 $ 397 $ 299 $ 332
As a percent of sales....... 11.0% 12.0% 10.6% 12.2% 12.6% 12.5% 13.5%
Operating earnings............ $ 71 $ 100 $ 91 $ 178 $ 146(1) $ 135(1) $ 164
As a percent of sales....... 3.1% 4.2% 3.4% 5.7% 4.6%(1) 5.6%(1) 6.6%
Interest expense.............. $ 23 $ 13 $ 12 $ 11 $ 10 $ 8 $ 6
Income before income taxes.... 60 102 88 185 182 148 168
Net income.................... 30 57 51 123 114 94 100
BALANCE SHEET DATA: (at end of period)
Working capital(2)............ $ 153 $ 185 $ 204 $ 216 $ 229 $ 243 $ 280
Property (at cost)............ 1,456 1,361 1,440 1,535 1,558 1,527 1,551
Accumulated depreciation...... (810) (773) (823) (888) (912) (904) (940)
Property, net................. 646 588 617 647 646 623 611
Goodwill...................... 31 25 30 40 45 44 43
Total assets.................. 1,608 1,488 1,638 1,766 1,833 1,816 1,897
Short-term debt............... 48 28 17 14 8 20 23
Long-term debt................ 15 9 35 31 24 26 21
Minority interests............ 18 21 21 24 29 26 36
Equity........................ 496 468 509 561 599 595 631
OTHER DATA:
Cash provided by operating
activities.................. $ 113 $ 162 $ 156 $ 203 $ 197 $ 110 $ 99
Capital expenditures.......... 102 100 102 119 144 87 59
As a percent of sales....... 4.5% 4.2% 3.8% 3.8% 4.6% 3.6% 2.4%
Depreciation and
amortization................ $ 100 $ 92 $ 93 $ 97 $ 102 $ 75 $ 76
EBITDA(3)..................... 183 207 193 293 294 231 250
Employees at year end......... 16,500 16,300 17,200 16,700 15,300
Annual sales per
employee(4)................. $140,000 $150,000 $159,000 $182,000 $198,000
</TABLE>
- ---------------
(1) Operating earnings for fiscal year 1996 and the nine months ended June 30,
1996 includes restructuring charges of $36 million and $6 million,
respectively.
(2) Working capital consists of all current assets and current liabilities,
including cash and short-term debt.
(3) EBITDA is defined as income before income taxes, plus interest expense,
depreciation and amortization. EBITDA should not be considered as a
substitute for operating earnings, net income, cash flow or other combined
statement of income or cash flow data computed in accordance with generally
accepted accounting principles or as a measure of a company's results of
operations or liquidity. Although EBITDA is not calculated in accordance
with generally accepted accounting principles, it is widely used as a
measure of a company's operating performance and its ability to service its
indebtedness because it assists in comparing performance on a consistent
basis across companies without regard to depreciation and amortization,
which can vary significantly depending on accounting methods (particularly
where acquisitions are involved) or non-operating factors such as historical
cost bases and capital structure.
(4) Annual sales per employee is based on the average of the monthly ending
number of employees during the year.
26
<PAGE> 32
THE AUTOMOTIVE BUSINESS
The Automotive Business is a leading global supplier of a broad range of
components and systems for use in commercial, specialty and light vehicles.
Tracing its heritage to 1909 as one of the first suppliers to the emerging
automotive industry, the Automotive Business was conducted by Rockwell Standard
Company until 1967, when Rockwell Standard and North American Aviation, Inc.
merged to form the predecessor to Rockwell International Corporation. With
fiscal 1996 sales of over $3.1 billion, the Automotive Business has grown into a
major independent global supplier to the automotive industry. Sales outside
North America accounted for approximately 44% of total sales in fiscal 1996.
The Automotive Business serves a broad range of OEM customers worldwide,
including truck OEMs, light vehicle OEMs, semi-trailer producers and off-highway
and specialty vehicle manufacturers. Its ten largest customers accounted for 61%
of total fiscal 1996 sales. The Automotive Business operates 46 manufacturing
facilities around the world.
The Automotive Business serves its customers worldwide through HVS and LVS.
HVS, which had fiscal 1996 sales of approximately $1.8 billion, supplies
drivetrain systems and components, including axles, brakes, transmissions,
clutches and drivelines, for heavy-duty and medium-duty trucks, trailers,
off-highway equipment, buses and coaches, as well as other specialty and
military vehicles. LVS, which had fiscal 1996 sales of approximately $1.3
billion, supplies electromechanical and other components and systems, including
roof, door, access control and seat adjusting systems, as well as suspension
products and steel wheels, for passenger cars, light trucks and sport utility
vehicles.
Automotive Business sales by product class for the three fiscal years ended
September 30, 1996 and the nine months ended June 30, 1996 and 1997 were as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------------ ------------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Heavy Vehicle Systems:
Truck and Trailer Products...... $1,299 $1,504 $1,360 $1,043 $1,038
Off-Highway, Specialty and
Military Vehicle Products..... 454 433 467 347 381
Light Vehicle Systems................ 900 1,188 1,317 1,007 1,048
------ ------ ------ ------ ------
Total........................... $2,653 $3,125 $3,144 $2,397 $2,467
====== ====== ====== ====== ======
</TABLE>
The following charts depict HVS sales by product and geographic region for
the fiscal year ended September 30, 1996:
HEAVY VEHICLE SYSTEMS
1996 SALES BY PRODUCT
[Pie chart illustrating HVS 1996 Sales by Product: Truck and Trailer Axles and
Brakes - 66%; Off-Highway, Specialty and Military Vehicle Products - 26%;
Transmissions, Clutches, Drivelines and Other Products - 8%.]
1996 SALES BY GEOGRAPHIC REGION
[Pie chart illustrating HVS 1996 Sales by Geographic Region: Americas - 78%;
Europe - 20%; Asia-Pacific - 2%.]
In fiscal 1996, aftermarket sales represented 14% of total HVS sales and
were made primarily in North America across all product areas.
27
<PAGE> 33
The following charts depict LVS sales by product and geographic region for
the fiscal year ended September 30, 1996:
LIGHT VEHICLE SYSTEMS
1996 SALES BY PRODUCT
[Pie chart illustrating LVS 1996 Sales by Product: Roof Systems - 34%; Door
Systems - 30%; Access Control Systems - 12%, Suspension Products - 12%; Steel
Wheels - 9%; Seat Adjusting Systems - 3%.]
1996 SALES BY GEOGRAPHIC REGION
[Pie chart illustrating LVS 1996 Sales by Geographic Region: Europe - 55%;
Americas - 41%; Asia-Pacific - 4%.]
INDUSTRY TRENDS
The automotive industry is experiencing several significant trends that
present opportunities and challenges to industry suppliers. These trends, which
influence the Company's business strategies, include the globalization of OEMs
and their suppliers, increased outsourcing by OEMs, increased demand for modules
and systems by OEMs and the consolidation of suppliers worldwide.
Globalization is a major trend affecting automotive OEMs and suppliers. As
OEMs expand geographically to access new markets, they are able to achieve
significant cost savings and enhanced product quality and consistency by
sourcing from the most capable, full-service global suppliers. OEMs and
suppliers also have the opportunity to take advantage of economies of scale
through global sourcing of components and systems and by designing platforms
that can be used in different geographic markets, but still be adapted to local
preferences.
Another major trend in the automotive industry is increased outsourcing of
product engineering and manufacturing by OEMs. OEMs are responding to global
competitive pressures to improve quality and reduce manufacturing costs and
related capital investments by outsourcing products which they historically have
engineered and manufactured internally. Outsourcing enables OEMs to focus on
their core design, assembly and marketing capabilities. In markets addressed by
LVS, this increased outsourcing trend has extended not only to components, but
to entire modules and systems, requiring suppliers to provide a higher level of
engineering, design, electromechanical and systems integration expertise in
order to remain competitive. Increased outsourcing by light vehicle OEMs has
produced higher overall per vehicle sales by independent suppliers. Accordingly,
such increased outsourcing can result in supplier sales growth independent of
the overall automotive industry growth trend.
OEMs also are reducing their total number of suppliers and are more
frequently entering into supply arrangements with the most capable global
suppliers. Increasingly, the criteria for selection include not only quality,
cost and responsiveness, but also certain full-service capabilities, including
design and engineering. This trend among OEMs, as well as the globalization
trend described above, has contributed to the consolidation of automotive
suppliers into larger, more efficient and more capable companies.
As a major independent global supplier with strong customer relationships,
proven design, engineering and manufacturing capabilities, and facilities
located throughout the world, the Company believes it is well positioned to
capitalize on these automotive industry trends.
28
<PAGE> 34
BUSINESS STRATEGIES
The Automotive Business has developed many leadership market positions as
it has grown into a global supplier of a broad range of components and systems
for use in commercial, specialty and light vehicles worldwide. See "--
Products". The Automotive Business seeks to enhance its leadership positions and
capitalize on its existing customer, product and geographic strengths, as well
as the industry trends described above, and to increase its sales, earnings and
profitability by employing the following business strategies:
Continuously Improve Core Business Processes. A key strategy of the
Automotive Business is continuous improvement of its core business processes
through investment in information technology and capital equipment,
rationalization of production among facilities, deintegration of non-core
processes, establishment of highly flexible assembly sites and simplification
and increased commonality of products. These actions are designed to reduce
product costs and improve product quality while lowering required asset
investment levels, reducing product development times and increasing flexibility
to meet customer needs. Management believes the actions already taken to improve
core business processes have benefited the Automotive Business and better
position the Company to meet its long-term business goals.
Capitalize on Customer Outsourcing Activities. A significant growth
strategy of the Automotive Business is to provide lower cost and higher quality
products to customers in connection with their increasing outsourcing
activities. Since the early 1990s, for example, several North American customers
of LVS have selected the Automotive Business to supply suspension products which
these OEMs had historically manufactured internally. Management believes truck
and trailer OEMs in Europe will increasingly outsource in order to achieve cost
and efficiency advantages. The Automotive Business intends to work proactively
with current and prospective customers worldwide to identify and implement
mutually beneficial outsourcing opportunities.
Focus on Higher Value Integrated Systems. The Automotive Business has
sought and will continue to seek to utilize its broad product line and design,
engineering and manufacturing expertise by expanding its sales of higher value
modules and systems. For example, a new door system customer recently selected
the Automotive Business as its source for a high volume, integrated door module
for which LVS will coordinate the integration of the window regulator, acoustic
components, speaker brackets, anti-theft devices, wire harnesses and
electronics, among other components. Management believes that truck and trailer
OEMs in North America and light vehicle OEMs in all markets will increasingly
outsource complete systems to achieve further product quality and cost
improvements. The Company will seek to utilize its leadership positions in the
supply of electromechanical systems to light vehicle OEMs and its ability to
provide drivetrain systems to truck and specialty vehicle OEMs to capitalize on
this anticipated customer demand.
Leverage Geographic Strengths. Geographic expansion to meet the global
sourcing needs of customers and to address new markets will continue to be an
important element of the Automotive Business's growth strategy. Management
believes opportunities exist to increase further the Company's presence in the
North American light vehicle markets, where its sales of light vehicle products
increased from approximately $173 million in fiscal 1994 ($11.85 content per
light vehicle manufactured in North America) to approximately $415 million in
fiscal 1996 ($27.48 content per light vehicle manufactured in North America).
The Automotive Business also believes there are opportunities to increase sales
to heavy-duty and medium-duty commercial vehicle OEMs in Europe, building on
established customer relationships with their North American affiliates and the
Automotive Business's existing manufacturing presence in Europe. Emerging
markets such as the Asia-Pacific region and Latin America also present growth
opportunities as demand for commercial, specialty and light vehicles increases
in these areas.
Introduce New Products and Technologies. The Automotive Business is
considered a leader in its markets in offering new and enhanced products for its
customers. The Automotive Business plans to continue investing in new
technologies, including electronics, and product development and working closely
with its customers to develop and implement design, engineering, manufacturing
and quality improvements. The Company will draw upon the engineering resources
of its Technical Center in Troy, Michigan and its engineering centers of
expertise in the United States, Brazil, Canada, France, Germany and the United
29
<PAGE> 35
Kingdom, as well as its ongoing relationship with the Rockwell Science Center.
See "-- Research and Development".
Recent technological and product advancements of the Automotive Business
include the following:
- Engine Synchro Shift(TM) transmission -- An advanced truck transmission
system that significantly simplifies gear shifting efforts for drivers
in a cost efficient manner.
- Easy Steer Plus(TM) front axle -- A front truck axle with preassembled
and calibrated wheel ends that extends life and significantly reduces
installation and maintenance costs.
- Seat adjusting system -- A quieter and lighter weight seat adjusting
system featuring integrated electronic memory and electric motors
manufactured by the Automotive Business.
- Bplus sunroof -- An innovative sunroof designed for high volume
applications at reduced costs, the Bplus sunroof uses fewer components
and lighter materials and provides improved performance characteristics.
Management believes that its strategy of continuing to introduce new and
improved products and technologies will be an important factor in its efforts to
achieve its growth objectives.
Expand Aftermarket Business. The Automotive Business intends to pursue
growth of its aftermarket business, which historically has generated higher
profit margins than those associated with original equipment sales. The
Automotive Business's fiscal 1996 aftermarket sales exceeded $250 million,
representing sales of components and services principally to HVS North American
customers. The Automotive Business will seek to expand its aftermarket business
by utilizing its advanced distribution center in Florence, Kentucky, and
leveraging its existing aftermarket channels with new products, both those
manufactured by the Automotive Business and those manufactured by others and
sold by the Automotive Business under distribution agreements.
Selectively Pursue Strategic Opportunities. The Automotive Business
regularly evaluates various strategic and business development opportunities,
including license agreements, marketing arrangements, joint ventures and
acquisitions. The Automotive Business intends to continue selectively to pursue
alliances and acquisitions that would allow it to gain access to new customers
and technologies, penetrate new geographic markets and enter new product
markets.
PRODUCTS
The Automotive Business designs, develops, manufactures, markets,
distributes, sells, services and supports a broad range of products for use in
commercial, specialty and light vehicles. In addition to sales to the OEM
market, the Automotive Business provides its truck and trailer products and
off-highway and specialty products to OEMs, dealers, distributors, fleets and
other end-users in the aftermarket. Principal products of the Automotive
Business include the following:
HEAVY VEHICLE SYSTEMS
Truck and Trailer Products
Truck Axles. The Automotive Business is the world's leading independent
supplier of axles for heavy-duty commercial vehicles. The Company's five axle
manufacturing facilities located in the United States, Brazil, England and Italy
produced approximately 400,000 axles in fiscal 1996 for heavy-duty and medium-
duty commercial vehicles. The Company's extensive truck axle product line
includes a wide range of drive and non-drive front steer axles and single and
tandem rear drive axles, which can include driver-controlled differential lock
for extra traction, aluminum carriers to reduce weight and pressurized filtered
lubrication systems for longer life. The Company's front steer and rear drive
axles can be equipped with the Company's cam, wedge or air disc brakes,
automatic slack adjusters and anti-lock braking systems.
Brakes. The Automotive Business is a leading independent supplier of air
brakes to heavy-duty and medium-duty commercial vehicle manufacturers. Through
four manufacturing facilities located in the United States, Canada, England and
Italy, the Automotive Business manufactures a broad range of foundation air
30
<PAGE> 36
brakes, as well as automatic slack adjusters for brake systems. The Automotive
Business's foundation air brake products include cam drum brakes, which offer
improved lining life and tractor/trailer interchangeability, air disc brakes,
which provide fade resistant braking for demanding applications, and wedge drum
brakes, which are lightweight and provide automatic internal wear adjustment.
Through its 50%-owned joint venture with WABCO Automotive Products
("WABCO"), a wholly-owned subsidiary of American Standard, Inc., the Automotive
Business is the leading supplier of anti-lock braking systems ("ABS") and a
supplier of other electronic and pneumatic control systems for North American
heavy-duty commercial vehicles. In March 1997, the unconsolidated WABCO joint
venture announced the launch of its next generation ABS for air braked vehicles
which provides advanced control and diagnostics capability, and reduced size and
cost. Through the joint venture, the Automotive Business also supplies hydraulic
ABS to the North American medium-duty truck market.
In 1995, the United States Department of Transportation, National Highway
Traffic Safety Administration, adopted federal regulations requiring that new
heavy-duty and medium-duty vehicles sold in the United States be equipped with
ABS. The first phase of this regulation requiring truck-tractors to be ABS
equipped became effective in March 1997. ABS also will be required on all
trailers, single-unit trucks and buses with air brakes manufactured after March
1, 1998 and on all trucks and buses with hydraulic brakes manufactured after
March 1, 1999.
Trailer Products. The Automotive Business believes it is the world's
leading manufacturer of heavy-duty trailer axles, with leadership positions in
North America and in Europe, where the Company's ROR(TM) brand name is a
recognized leader in trailer axles. The Automotive Business's trailer axles are
available in over forty models in capacities from 20,000 to 30,000 pounds for
virtually all heavy trailer applications, and are available with the Automotive
Business's broad range of brake products, including anti-lock braking systems.
In addition to axles, brakes and brake systems, the Automotive Business supplies
trailer air suspension products, for which it has strong market positions in
Europe and growing market presence in North America.
Transmissions. The Automotive Business introduced its transmission product
line in 1989, enabling it to supply a complete drivetrain system to heavy-duty
commercial vehicle manufacturers in North America. The Automotive Business's
range of transmission models includes its recently developed Engine Synchro
Shift(TM) transmission for heavy-duty trucks that is designed to reduce gear
shifting effort for drivers and reduce wear on clutches and other drivetrain
components in a cost efficient manner by automatically synchronizing engine
speed to road speed shifts without use of the clutch. See "-- Legal
Proceedings".
Clutches, Drivelines and Other Products. The Automotive Business also
supplies universal joints and driveline components, as well as clutches,
including diaphragm-spring clutches, which together with transmissions are
designed to provide low pedal resistance for smooth release and engagement. The
Automotive Business believes that its Permalube(TM) universal joint is currently
the only permanently lubricated universal joint used in the high mileage
on-highway market. The Automotive Business also supplies Tripmaster(R) on-board
computers, which provide trip and vehicle diagnostics, to truck OEMs and fleet
operators.
Off-Highway, Specialty and Military Vehicle Products
Off-Highway Vehicle Products. The Automotive Business supplies heavy-duty
axles, brakes and drivelines for use in numerous off-highway vehicle
applications, including construction, material handling, agriculture, mining and
forestry, in North America, South America, Europe and China. These products are
designed to tolerate high tonnages and operate under extreme conditions.
Specialty Vehicle Products. The Automotive Business supplies axles, brakes
and transfer cases for use in buses, coaches and recreational, fire and other
specialty vehicles in North America and Europe, and is the leading supplier of
bus and coach axles and brakes in North America.
Military Vehicle Products. The Automotive Business supplies axles, brakes,
brake system components including ABS, trailer products, transfer cases and
drivelines for use in medium-duty and heavy-duty military tactical wheeled
vehicles, principally in North America.
31
<PAGE> 37
LIGHT VEHICLE SYSTEMS
Roof Systems. The Automotive Business is one of the world's leading
independent suppliers of sunroofs and roof systems products, including its
widely recognized Golde(R) brand sunroofs, for use in passenger cars, light
trucks and sport utility vehicles. The Automotive Business's roof system
manufacturing facilities in North America, Europe and Asia-Pacific supplied
approximately two million sunroofs and sunroof systems in fiscal 1996. The
Automotive Business's highly automated Gifhorn, Germany roof system facility is
noted in the industry for its advanced just-in-time manufacturing processes
which enable it to provide products in less than 2 1/2 hours after a customer
order is placed.
Door Systems. The Automotive Business is the world's leading supplier of
manual and power window regulators and a leading supplier of integrated door
modules and systems. The Automotive Business manufactures approximately 23
million window regulators annually at plants in North America, South America,
Europe and Asia-Pacific to meet the requirements of light vehicle and heavy-duty
commercial vehicle manufacturers. The Automotive Business's wide range of power
and manual door system products utilize numerous technologies and offer the
Automotive Business's own electric motors, which are designed for individual
applications and to maximize operating efficiency and reduce noise levels.
Access Control Systems. The Automotive Business supplies manual and power
activated latch systems to light vehicle and heavy-duty commercial vehicle
manufacturers, with leadership market positions in Europe and a growing market
presence in North America and the Asia-Pacific region. The Automotive Business's
access control products include modular and integrated door latches, actuators,
trunk and hood latches and fuel flap locking devices. From its access control
systems manufacturing facilities in North America, Europe and Asia-Pacific, the
Automotive Business manufactures over 18 million latches and 6 million actuators
annually.
Seat Adjusting Systems. The Automotive Business supplies manual and power
seat adjusting systems for passenger cars, light trucks and sport utility
vehicles, principally in North America. The Automotive Business's seat adjusting
system products, first introduced in 1994, feature systems with integrated
electronic memory and electric motors manufactured by the Automotive Business
which are designed with speed and power capabilities to meet the specific
requirements of each vehicle platform.
Suspension Products. Through its 57%-owned joint venture with Mitsubishi
Steel Mfg. Co., the Automotive Business is one of the leading independent
suppliers of products used in suspension systems for passenger cars, light
trucks and sport utility vehicles in North America. The Automotive Business's
suspension system products, which are manufactured at three facilities in the
United States and Canada, include coil springs, stabilizer bars and torsion
bars. This business has experienced significant sales growth over the past five
years as light vehicle OEMs have increased their outsourcing of suspension
system products and the light vehicle market has grown.
Steel Wheels. The Automotive Business is a leading supplier of steel
wheels to the light vehicle OEM market, principally in North and South America,
where the Automotive Business's Fumagalli(TM) brand name is a well-known leader
in steel wheels. The Automotive Business's wheel manufacturing facility in
Brazil, which has been consistently recognized with numerous supplier quality
and performance awards, and its recently established facility in Mexico, combine
to produce more than ten million wheels annually.
32
<PAGE> 38
CUSTOMERS; SALES AND MARKETING
The Automotive Business has numerous customers worldwide and has developed
long-standing business relationships with many of these customers. Customers
include, among others, the following:
<TABLE>
<CAPTION>
PRODUCTS
----------------------------------------------------------------------------
TRUCK/ SPECIALTY LIGHT
CUSTOMER TRAILER OFF-HIGHWAY VEHICLE MILITARY AFTERMARKET VEHICLE
- ---------------------------------------- -------- ------------ -------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BMW A.G................................. X
Case Corporation........................ X X
Chrysler Corporation.................... X
Fiat S.P.A.............................. X
Ford Motor Company...................... X X X X
Freightliner Corporation (a subsidiary
of
Daimler-Benz A.G.).................... X X X X X
General Motors Corporation.............. X X X
Gillig Corporation (a subsidiary of
Herrick-
Pacific Corporation).................. X X
Gradall Industries, Inc................. X X
Great Dane Ltd. Partnership............. X X
Grove Worldwide Co...................... X X
Honda Motor Company, Ltd................ X
Isuzu Motors Ltd........................ X X X
Iveco N.V. (a subsidiary of Fiat
S.P.A.)............................... X X
Johnson Controls, Inc................... X
Kia Motors Ltd.......................... X
Lear Corporation........................ X
Mack Trucks, Inc. (a subsidiary of
Renault S.A.)......................... X X X
Mazda Motor Corporation................. X
Mercedes-Benz A.G. (a subsidiary of
Daimler-Benz A.G.).................... X X
Mitsubishi Motors Ltd................... X
Montracon Tasker Ltd.................... X X
Motor Coach Industries, Inc............. X X
NACCO Materials Handling Group Inc...... X X
Navistar International Corporation...... X X X X
Nissan Motor Company, Ltd............... X X
Oshkosh Truck Corporation............... X X X
Ottawa Truck Inc........................ X X
PACCAR Inc.............................. X X X
Peugeot S.A............................. X
Renault S.A............................. X X
Sisu, Inc............................... X X
Stewart & Stevenson Services, Inc....... X X X
Suzuki Motor Corporation................ X
Terberg Benschop BV..................... X X
Terex Corporation....................... X X
Toyota Motor Corporation................ X
Volkswagen A.G.......................... X X X
Volvo AB................................ X X X X
Western Star Trucks Holding Ltd......... X X X
</TABLE>
The Automotive Business markets and sells its products principally to OEMs.
In North America, the Automotive Business also markets its truck and trailer
products directly to dealers, fleets and other end-users, who may designate the
components and systems of a particular supplier for installation in the vehicles
they purchase from OEMs. Most Automotive Business sales to OEMs, consistent with
industry practice, are made through open purchase orders, which do not require
the purchase of a minimum number of products and typically may be canceled by
the customer on reasonable notice without penalty. The Automotive Business also
sells products to certain customers under long-term arrangements that require
the Automotive Business to provide annual cost reductions to its customers. See
"Special Factors -- Dependence on Large Customers". In addition to sales to the
OEM market, the Automotive Business also provides its truck and trailer products
and off-highway and specialty products to OEMs, dealers, distributors, fleets
and other end-users in the aftermarket.
33
<PAGE> 39
During fiscal 1996, Freightliner Corporation and Mercedes-Benz AG (each of
which is owned by Daimler-Benz A.G.) together accounted for approximately 11% of
total sales of the Automotive Business. In May 1997, Freightliner Corporation
entered into a definitive agreement with Ford Motor Company for the purchase of
Ford's heavy truck business, also a customer of the Automotive Business.
Freightliner, Mercedes and Ford's heavy truck business together accounted for
approximately 16% of total fiscal 1996 sales of the Automotive Business. See
"Special Factors -- Dependence on Large Customers".
Except as noted above with respect to the North American market for
heavy-duty trucks, the Automotive Business generally competes for new business
from OEMs both at the beginning of the development of new vehicle platforms and
upon the redesign of existing platforms. New platform development generally
begins two to four years prior to start-up of production. Once a supplier has
been designated to supply products to a new platform, an OEM will generally
continue to purchase those products from the supplier for the life of the
platform, which typically lasts four to six years.
COMPETITION
The Automotive Business operates in a highly competitive environment.
Principal competitive factors are price, quality, service, product performance,
design and engineering capabilities, new product innovation and timely delivery.
The Automotive Business competes worldwide with a number of United States and
international manufacturers that are both larger and smaller than the Automotive
Business in terms of resources and market shares. In addition, certain OEMs
manufacture for their own use products of the type supplied by the Automotive
Business. In North America, the major competitors of HVS are Eaton Corporation
and Dana Corporation. LVS has numerous competitors across its various product
lines worldwide.
RAW MATERIALS AND SUPPLIES
The Automotive Business believes it has adequate sources for the supply of
raw materials and components for its manufacturing needs with suppliers located
around the world. The Automotive Business does, however, concentrate its
purchases of certain raw materials and parts over a limited number of suppliers
and is dependent upon the ability of its suppliers to meet performance and
quality specifications and delivery schedules. Although the Automotive Business
historically has not experienced any significant difficulties in obtaining an
adequate supply of raw materials and components necessary for its manufacturing
operations, the loss of a significant supplier or the inability of a supplier to
meet performance and quality specifications or delivery schedules could have an
adverse effect on the Automotive Business.
JOINT VENTURES
As the automotive industry has become more globalized, joint ventures and
other cooperative arrangements have become an important element of the business
strategies of the Automotive Business. The Automotive Business currently has
interests in 14 joint ventures with operations in the United States, Australia,
Brazil, Canada, China, India, Japan, Mexico and Turkey. In accordance with
generally accepted accounting principles, operating results of the eight joint
ventures more than 50% owned are consolidated in the financial statements of the
Automotive Business. Joint ventures of the Automotive Business include its
50%-owned joint venture with WABCO for the manufacture and supply of ABS systems
for heavy-duty commercial vehicles and its 57%-owned joint venture with
Mitsubishi Steel Mfg. Co. for the manufacture and supply of suspension products
for passenger cars, light trucks and sport utility vehicles. See "-- Products --
Heavy Vehicle Systems -- Truck and Trailer Products -- Brakes" and
"-- Products -- Light Vehicle Systems -- Suspension Products".
ACQUISITIONS AND DISPOSITIONS
The Company intends regularly to consider various strategic and business
opportunities, including license agreements, marketing arrangements and
acquisitions, and to review the prospects of its existing businesses to
determine whether any of them should be modified, sold or otherwise
discontinued. See "Special Factors -- Industry Consolidation Trend".
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<PAGE> 40
RESEARCH AND DEVELOPMENT
The Automotive Business has significant research, development, engineering
and product design capabilities. See "-- Business Strategies". The Automotive
Business spent approximately $57 million, $58 million and $51 million in fiscal
1994, 1995 and 1996, respectively, on research and development. At September 30,
1996, the Automotive Business employed approximately 560 professional engineers
and scientists. Rockwell's Science Center also provides assistance to the
Automotive Business in the development of various technological and product
advancements. See "-- Business Strategies -- Introduce New Products and
Technologies".
PATENTS AND TRADEMARKS
Numerous United States and foreign patents and patent applications are
owned or licensed by the Automotive Business in its manufacturing operations and
other activities. While in the aggregate the patents and licenses of the
Automotive Business are considered important to the operation of its business,
management does not consider them of such importance that the loss or
termination of any one of them would materially affect the Company.
Significant trademarks owned by the Automotive Business include Golde(R)
(sunroofs), Fumagalli(TM) (wheels) and ROR(TM) (trailer axles). The Company will
introduce its new name in the near future and will initiate federal trademark
applications seeking federally registered protection of its new name and logo.
Under the terms of the Distribution Agreement, the Company may continue to apply
the "Rockwell" brand name to its products after the Distribution.
EMPLOYEES
As of June 30, 1997, the Automotive Business had approximately 16,000
full-time employees. Approximately 3,200 Automotive Business employees in the
United States and Canada are covered by collective bargaining agreements. The
Automotive Business believes its relationship with unionized employees is
satisfactory. No significant work stoppages have occurred in the past five
years.
SEASONALITY; CYCLICALITY
The Automotive Business may experience seasonal variations in the demand
for its products to the extent automotive vehicle production fluctuates.
Historically, such demand has been somewhat lower in the Company's first and
fourth fiscal quarters (third and fourth calendar quarters) when OEM plants may
close during model changeovers and vacation and holiday periods.
In addition, the industry in which the Automotive Business operates has
been characterized historically by periodic fluctuations in overall demand for
trucks, passenger cars and other vehicles for which the Automotive Business
supplies products, resulting in corresponding fluctuations in demand for
products of the Automotive Business. Cycles in the major automotive industry
markets of North America and Europe are not necessarily concurrent or related.
35
<PAGE> 41
The following table sets forth vehicle production in principal markets
served by the Automotive Business for the last five fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Heavy Vehicles (In thousands):
North America, Heavy-Duty Trucks......... 128 179 214 248 204
North America, Medium-Duty Trucks........ 102 109 125 147 126
North America, Trailers.................. 180 211 270 327 266
Europe, Trailers......................... 89 79 75 95 94
Light Vehicles (In millions):
North America............................ 12.8 13.0 14.6 15.1 15.1
Europe................................... 14.1 11.5 12.1 12.9 13.0
Asia-Pacific (calendar year data)........ 16.1 15.5 15.6 15.6 16.8
</TABLE>
- ---------------
Source: Automotive industry publications and management estimates.
PROPERTIES
The Automotive Business operates 46 manufacturing facilities throughout the
United States and in Europe, Brazil, Canada, Mexico, Australia and the Far East.
It also has 19 engineering facilities, sales offices, warehouses and service
centers. These facilities have aggregate floor space of approximately 11 million
square feet, substantially all of which is in use. Of this floor space,
approximately 92% is owned and approximately 8% is leased. There are no major
encumbrances (other than financing arrangements which in the aggregate are not
material) on any of the Automotive Business's plants or equipment. In the
opinion of management, the Automotive Business's properties have been well
maintained, are in sound operating condition and contain all equipment and
facilities necessary to operate at present levels. A summary of floor space of
these facilities at September 30, 1996 is as follows:
<TABLE>
<CAPTION>
OWNED LEASED
LOCATION FACILITIES FACILITIES TOTAL
--------------------------------------------------- ---------- --------- -----------
(IN THOUSANDS OF SQUARE FEET)
<S> <C> <C> <C>
United States...................................... 4,421 251 4,672
Canada............................................. 661 38 699
Europe............................................. 3,123 244 3,367
Asia-Pacific....................................... 322 392 714
Latin America...................................... 1,413 -- 1,413
----- --- ------
Total.................................... 9,940 925 10,865
===== === ======
</TABLE>
ENVIRONMENTAL MATTERS
Federal, state and local requirements relating to the discharge of
substances into the environment, the disposal of hazardous wastes, and other
activities affecting the environment have had and will continue to have an
impact on the manufacturing operations of the Automotive Business. Thus far,
compliance with environmental requirements and resolution of environmental
claims have been accomplished without material effect on the Automotive
Business's liquidity and capital resources, competitive position or financial
statements.
Management believes that the Company's expenditures for environmental
capital investment and remediation necessary to comply with present regulations
governing environmental protection and other expenditures for the resolution of
environmental claims will not have a material adverse effect on the Company's
liquidity and capital resources, competitive position, or financial statements.
Management cannot assess the possible effect of compliance with future
requirements.
36
<PAGE> 42
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Environmental Matters".
LEGAL PROCEEDINGS
On July 17, 1997 Eaton Corporation filed suit against Rockwell in the U.S.
District Court in Wilmington, Delaware asserting infringement of Eaton's U.S.
Patent No. 4850236, which covers certain aspects of heavy-duty truck
transmissions, by the Automotive Business's Engine Synchro Shift(TM)
transmission for heavy-duty trucks. Eaton seeks preliminary and permanent
injunctions and unspecified damages. Management believes the Automotive
Business's truck transmissions do not infringe Eaton's patent. The Automotive
Business intends to defend the suit vigorously.
Various other lawsuits, claims and proceedings have been or may be
instituted or asserted against Rockwell or the Company or their respective
subsidiaries relating to the conduct of the Automotive Business, including those
pertaining to product liability, intellectual property, environmental, safety
and health, and employment matters.
Although the outcome of litigation cannot be predicted with certainty and
some lawsuits, claims or proceedings may be disposed of unfavorably to the
Company, management believes the disposition of matters which are pending or
asserted will not have a material adverse effect on the financial statements of
the Automotive Business.
Pursuant to the terms of the Distribution Agreement, if the Distribution is
consummated the Company will assume responsibility for all litigation (including
environmental proceedings) against Rockwell or its subsidiaries in respect of
the Automotive Business.
37
<PAGE> 43
UNAUDITED PRO FORMA CONDENSED
FINANCIAL STATEMENTS OF THE COMPANY
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET OF THE COMPANY
The unaudited pro forma condensed combined balance sheet of the Company has
been derived from the unaudited historical balance sheet of the Automotive
Business and has been prepared assuming the Distribution occurred on June 30,
1997.
The unaudited pro forma condensed combined balance sheet should be read in
conjunction with the historical financial statements of the Automotive Business
and the notes thereto for the three years in the period ended September 30, 1996
and for the nine months ended June 30, 1997 included elsewhere herein. The
unaudited pro forma condensed combined balance sheet is not necessarily
indicative of the financial position of the Company had the Distribution
occurred on June 30, 1997.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------
AUTOMOTIVE
BUSINESS PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS
Cash........................................................ $ 68 $ 60(1) $ 128
Receivables................................................. 564 564
Inventories................................................. 302 302
Other current assets........................................ 140 140
------ ------ ------
Total current assets.............................. 1,074 60 1,134
------ ------ ------
Property, net............................................... 611 611
Other assets................................................ 212 212
------ ------ ------
Total assets...................................... $1,897 $ 60 $1,957
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt............................................. $ 23 $ $ 23
Canadian income taxes payable............................... -- 60(1) 60
Accounts payable and accrued liabilities.................... 771 771
------ ------ ------
Total current liabilities......................... 794 60 854
------ ------ ------
Long-term debt.............................................. 21 445(2) 466
Accrued retirement benefits................................. 392 392
Other liabilities........................................... 23 23
Minority interests.......................................... 36 36
Stockholders' equity:
Rockwell's net investment................................... 693 (693)(3) --
Common stock................................................ -- 70(3) 70
Additional paid-in capital.................................. -- 623(3) 178
(445)(2)
Retained earnings........................................... -- --
Currency translation........................................ (62) (62)
------ ------ ------
Total stockholders' equity........................ 631 (445) 186
------ ------ ------
Total liabilities and stockholders' equity... $1,897 $ 60 $1,957
====== ====== ======
</TABLE>
- ---------------
(1) The Automotive Business will incur approximately $60 million in Canadian
income taxes in connection with the transfer of assets in Canada prior to
the Distribution and Rockwell will provide cash to fund the tax payment.
(2) Long-term debt incurred to finance the Pre-Distribution Payment to be made
by the Company to Rockwell.
(3) To reflect the Distribution as a reduction in Rockwell's net investment and
the issuance of an estimated 70 million shares of Company Common Stock, par
value $1 per share. This is based on the number of shares of Rockwell Common
Stock outstanding on June 30, 1997 of approximately 210 million shares and
the distribution ratio of one share of Company Common Stock for every three
shares of Rockwell Common Stock outstanding.
38
<PAGE> 44
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME OF THE COMPANY
The unaudited pro forma condensed combined statements of income of the
Company have been derived from the historical statements of income of the
Automotive Business and have been prepared assuming the Distribution occurred on
October 1, 1995.
The unaudited pro forma condensed combined statements of income should be
read in conjunction with the historical financial statements of the Automotive
Business and notes thereto for the three years in the period ended September 30,
1996 and for the nine month periods ended June 30, 1996 and 1997 included
elsewhere herein. The unaudited pro forma condensed combined statements of
income are not necessarily indicative of the financial results of the Company
had the Distribution occurred on October 1, 1995.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, 1996
--------------------------------------
AUTOMOTIVE
BUSINESS PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNT)
<S> <C> <C> <C>
Sales................................................... $3,144 $ $3,144
Cost of sales........................................... 2,747 2,747
------ ------ ------
Gross margin....................................... 397 397
Selling, general and administrative..................... 215 (10)(1) 205
Restructuring........................................... 36 36
------ ------ ------
Operating earnings................................. 146 10 156
Other income - net...................................... 46 46
Interest expense........................................ (10) (27)(2) (37)
------ ------ ------
Income before income taxes.............................. 182 (17) 165
Provision for income taxes.............................. 68 (5)(3) 63
------ ------ ------
Net income......................................... $ 114 $ (12) $ 102
====== ====== ======
Earnings per share...................................... $ 1.41(4)
======
Average outstanding shares.............................. 72.5(4)
======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30, 1997
--------------------------------------
AUTOMOTIVE
BUSINESS PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNT)
<S> <C> <C> <C>
Sales................................................... $2,467 $ $2,467
Cost of sales........................................... 2,135 2,135
------ ------ ------
Gross margin....................................... 332 332
Selling, general and administrative..................... 168 (8)(1) 160
------ ------ ------
Operating earnings................................. 164 8 172
Other income - net...................................... 10 10
Interest expense........................................ (6) (20)(2) (26)
------ ------ ------
Income before income taxes.............................. 168 (12) 156
Provision for income taxes.............................. 68 (5)(3) 63
------ ------ ------
Net income......................................... $ 100 $ (7) $ 93
====== ====== ======
Earnings per share...................................... $ 1.29(4)
======
Average outstanding shares.............................. 71.9(4)
======
</TABLE>
- ---------------
(1) To reflect the reduction of corporate costs from those allocated to the
Automotive Business by Rockwell to management's estimate of costs that would
have been incurred on a stand-alone basis.
(2) Interest expense at 6.0% for both the year ended September 30, 1996 and the
nine months ended June 30, 1997 related to the debt to be incurred by the
Company in connection with the Pre-Distribution Payment to Rockwell. The
interest rate represents the Company's estimated cost of borrowing for the
periods presented.
(3) Income tax effect of adjustments (1) and (2).
(4) Earnings per share and average outstanding shares are based on the
post-Distribution capital structure of the Company. These amounts are based
on average outstanding shares of Rockwell Common Stock of 215.7 million for
the nine months ended June 30, 1997 and 217.6 million for the year ended
September 30, 1996 and the distribution ratio of one share of Company Common
Stock for every three shares of Rockwell Common Stock outstanding.
39
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW AND OUTLOOK
The Automotive Business is a leading global supplier of a broad range of
components and systems for use in commercial, specialty and light vehicles, with
sales of over $3.1 billion in fiscal 1996. Operating earnings of the Automotive
Business in fiscal 1996 (after restructuring charges of $36 million) grew to
$146 million from $91 million in 1994. The Automotive Business serves a broad
range of OEM customers worldwide, including truck OEMs, light vehicle OEMs,
semi-trailer producers and off-highway and specialty vehicle manufacturers. In
fiscal 1996, Automotive Business sales were in the following geographic regions:
North America, 56%; Europe, 35%; South America, 6%; and Asia-Pacific, 3%.
The Company believes the Credit Facility (described below) and cash flows
provided by operations will provide an adequate source of funds and liquidity to
support the future cash requirements of the Automotive Business, including the
payment of dividends initially expected to be approximately $29.4 million per
year or 42 cents per share.
The Automotive Business has initiated ongoing programs to improve product
quality and customer service, rationalize production, reduce costs and focus on
its core strengths and product lines. These programs have included investments
to improve operational efficiencies, realignment of the worldwide manufacturing
function to improve asset utilization, introduction of new products and
expansion into new markets. In addition, in fiscal 1996 the Automotive Business
recorded restructuring charges of $36 million related to plant consolidations
and costs associated with staff reductions and outsourcing actions. Management
believes that these efforts have benefited financial performance over the past
three fiscal years.
Management of the Company has established long-term financial goals, which
include 8% average annual sales growth, 15% average annual earnings per share
growth and long-term debt to capitalization of 45%, with a strong emphasis on
cash management. These goals have been recently established by management of the
Company on the basis of the Company operating as an independent public company
after the Distribution. The long-term average annual goals have been established
with the recognition that the industry in which the Automotive Business operates
has been characterized historically by periodic fluctuations in overall demand
for commercial, specialty and light vehicles for which the Automotive Business
supplies products, resulting in corresponding fluctuations in demand for
products of the Automotive Business. Accordingly, the Company will measure its
performance against these goals over a multi-year period.
FINANCIAL CONDITION
Cash provided by operating activities was $99 million in the first nine
months of fiscal 1997, which was lower than the $110 million provided by
operating activities in the comparable period of fiscal 1996, primarily due to
the funding of the 1996 restructuring costs and lower funds provided by the
factoring of trade accounts receivable in France. Asset and liability changes
included a $98 million increase in receivables at June 30, 1997 and a $50
million increase at June 30, 1996, which relate principally to higher sales
volume during the third quarters of each fiscal year as compared to the fourth
quarters of the preceding fiscal years, due to the seasonality of sales.
Accounts payable increased by $39 million at June 30, 1997 primarily as a result
of the higher sales and inventory activity during the third quarter.
Cash provided by operating activities was $197 million in fiscal 1996, $203
million in fiscal 1995 and $156 million in fiscal 1994. Sales growth, primarily
related to LVS products for fiscal 1994 through fiscal 1996 and in HVS products
for fiscal 1993 through fiscal 1995, resulted in an increase in receivables and
payables at the end of each fiscal year.
These cash flows have allowed the Automotive Business to fund capital
expenditures of $59 million for the first nine months of fiscal 1997, $144
million for fiscal 1996, $119 million for fiscal 1995 and $102 million for
fiscal 1994. Capital expenditures included equipment to support new product
introductions (roof systems, door systems, seat adjusting systems and the
Permalube(TM) driveline products), capacity expansion (wheels
40
<PAGE> 46
and electric motors) and new production processes. Capital expenditures for the
fiscal year ending September 30, 1997 are expected to total approximately $115
million. In fiscal 1996, the $101 million of net cash used for investing
activities included, in addition to capital expenditures of $144 million,
proceeds of $58 million from the disposition of property and businesses,
primarily due to the sale of Brazilian assets, and $15 million used for
investments in joint ventures. In fiscal 1995, the $127 million of net cash used
for investing activities included $19 million in cash used for acquisitions and
investments, relating primarily to the Automotive Business's acquisition of a
window regulator business.
Net cash used for financing activities was $84 million in fiscal 1996, $80
million in 1995, and $41 million in fiscal 1994. The financing activities were
due primarily to cash distributions to Rockwell.
The Automotive Business has retirement medical and pension plans which
cover most of its United States and certain non-United States employees (see
Notes 10 and 11 to Notes to Combined Financial Statements). Retirement medical
plan cash payments aggregated $35 million in 1996 and are expected to
approximate this amount in 1997 and 1998. The Automotive Business, as a
participant in Rockwell pension plans, made, and expects to make, pension plan
contributions of approximately $2 million in each of 1996 and 1997. As an
independent company, the Automotive Business will establish a U.S. pension plan,
and will continue existing non-U.S. pension plans. Management expects pension
plan contributions in 1998 to approximate $25 million.
In May 1997, the Automotive Business began the initial steps to secure
financing on a stand-alone basis in order to operate as an independent company
and to make the Pre-Distribution Payment of approximately $445 million to
Rockwell. Prior to the Distribution, the Automotive Business will enter into the
$1 billion five-year unsecured revolving Credit Facility with a group of banks.
The initial interest rate on borrowings under the Credit Facility is expected to
be based on the Automotive Business's ratio of Debt to EBITDA (such ratio and
terms to be defined in the definitive credit agreement for the Credit Facility)
(the "Financial Ratio"), or based on the credit ratings the Automotive Business
receives from rating agencies when such ratings are received (the "Ratings
Grid"). Based on the Company's anticipated Financial Ratio, the initial
aggregate interest rate (including a facility fee of 10 basis points) on
borrowings under the Credit Facility is expected to be 30 basis points above
LIBOR, which is consistent with BBB and Baa2 ratings under the Ratings Grid. At
June 30, 1997, the interest rate based on the Company's anticipated Financial
Ratio and three-month LIBOR would have been approximately 6.0 percent. Pro forma
long-term debt to total capitalization would have been 68 percent at June 30,
1997 with pro forma pre-tax interest coverage of 7.3x for the nine months ended
June 30, 1997.
41
<PAGE> 47
RESULTS OF OPERATIONS
The following represents the sales and operating earnings of the Automotive
Business for the years ended September 30, 1994, 1995 and 1996 and for the nine
months ended June 30, 1996 and 1997, and pro forma for the year ended September
30, 1996 (dollars in millions):
<TABLE>
<CAPTION>
PRO FORMA
NINE MONTHS ENDED YEAR ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
-------------------------- ------------------- ------------------
1994 1995 1996 1996 1997 1996
------ ------ ------ ------ ------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Sales:
Heavy Vehicle Systems....... $1,753 $1,937 $1,827 $1,390 $1,419 $1,827
Light Vehicle Systems....... 900 1,188 1,317 1,007 1,048 1,317
------ ------ ------ ------ ------ ------
Total sales................... $2,653 $3,125 $3,144 $2,397 $2,467 $3,144
====== ====== ====== ====== ====== ======
Gross margin.................. $ 282 $ 381 $ 397 $ 299 $ 332 $ 397
====== ====== ====== ====== ====== ======
Operating earnings............ $ 91 $ 178 $ 146(1) $ 135(1) $ 164 $ 156(1)
Other income-net.............. 9 18 46 21 10 46
Interest expense.............. (12) (11) (10) (8) (6) (37)
Provision for income taxes.... (37) (62) (68) (54) (68) (63)
------ ------ ------ ------ ------ ------
Net income.................... $ 51 $ 123 $ 114 $ 94 $ 100 $ 102
====== ====== ====== ====== ====== ======
Operating earnings as % of
sales....................... 3.4% 5.7% 4.6%(1) 5.6%(1) 6.6% 5.0%(1)
</TABLE>
- ---------------
(1) Operating earnings for fiscal year 1996 and the nine months ended June 30,
1996 includes restructuring charges of $36 million and $6 million,
respectively.
NINE MONTHS ENDED JUNE 30, 1997 COMPARED TO NINE MONTHS ENDED JUNE 30, 1996
Sales for the first nine months of fiscal 1997 increased $70 million, or
three percent, over the first nine months of fiscal 1996. HVS sales increased
$29 million, primarily due to an increase in aftermarket sales, which resulted
from the introduction of new products. An increase in vehicle production in
North America also contributed to increased HVS sales, more than offsetting a
decrease in HVS European sales as vehicle production in Europe declined. LVS
sales increased $41 million due to strong demand for LVS products in North
America, resulting in part from increased vehicle production in North America.
Gross margin for the first nine months of fiscal 1997 improved by $33
million, or 11 percent, and operating earnings increased $29 million, or 21
percent, from the comparable 1996 period. These improvements were in part a
result of higher sales of higher margin aftermarket products, continued
improvement in production processes, and the $6 million restructuring charge
recorded during the third quarter of fiscal 1996. These benefits more than
offset investments in new product development, continuing launch costs for seat
adjusting systems and higher engineering costs.
Other income decreased by $11 million for the first nine months of fiscal
1997 as compared to the first nine months of fiscal 1996, primarily due to a $14
million gain on the sale of Brazilian assets in fiscal 1996.
1996 COMPARED TO 1995
Sales for fiscal 1996 were slightly higher than fiscal 1995 principally due
to an 11 percent sales increase in LVS products, which offset a 6 percent
decrease in HVS product sales. The increased sales of LVS products resulted
primarily from the expansion of the Automotive Business's customer base in the
light truck and sport utility vehicle markets in North America. This expansion
was fueled by product placement on new vehicle platforms, a strong vehicle
market and new product introductions.
The decrease in sales of HVS products was due to lower vehicle production
levels, principally in the North and South American markets. North American
heavy truck and trailer production decreased approximately 18 percent from the
high levels achieved in 1995. The Brazilian medium-duty and heavy-duty vehicle
markets experienced a 38 percent decline due to depressed economic conditions.
Gross margin for the 1996 period improved $16 million, or 4 percent, in
comparison to the 1995 period as a result of continued product cost reductions.
Operating earnings for 1996 decreased by 18 percent after
42
<PAGE> 48
restructuring charges of $36 million, referred to above. The $36 million
restructuring charges related to rationalizing manufacturing processes at
several locations, mostly outside the United States. The restructuring charges
include severance and other employee costs of $22 million, asset impairments of
$8 million, and other costs of $6 million. Such restructuring charges are
expected to result in reduced expenses of approximately $10 million (after tax)
in fiscal 1997. Operating earnings before the restructuring charges increased $4
million, or 2 percent, from 1995, principally due to continued product cost
reductions which were offset by launch costs related to the introduction of door
systems and seat adjusting systems products in the North American market and an
increase in selling, general and administrative expenses. Selling, general and
administrative expenses in fiscal 1996 increased $12 million, or 6 percent, over
fiscal 1995, primarily due to higher marketing costs and increased reserves for
uncollectible receivables. The increased reserves for uncollectible receivables
were established for certain trailer OEM customers, due to the downturn in the
trailer industry and such customers' financial condition.
Other income in 1996 increased by $28 million as compared to 1995 primarily
due to a $14 million gain on the sale of Brazilian assets and $15 million of
proceeds from the settlement of certain environmental insurance claims arising
in years prior to 1986.
On a pro forma basis, operating earnings for fiscal year 1996 would have
been $10 million higher than actual 1996 results, due to a reduction in
corporate costs from those allocated by Rockwell to management's estimate of
stand-alone corporate costs. Pro forma interest expense for 1996 would have been
$27 million higher than actual 1996 interest expense, due to additional interest
expense of approximately 6.0% on assumed borrowings of $445 million related to
the Pre-Distribution Payment to Rockwell.
1995 COMPARED TO 1994
Sales for fiscal 1995 increased $472 million, or 18 percent, over fiscal
1994, as both HVS and LVS experienced improved markets and benefited from new
product introductions.
LVS product sales increased 32 percent compared to fiscal 1994 principally
due to the introduction of new roof and door systems products which contributed
to higher sales in Europe. Sales in the North American market also improved due
to new product introductions and growth in the light truck market. In addition,
the acquisition of the window regulator business of Dura Automotive Systems,
Inc. contributed to these sales increases.
HVS product sales improved 11 percent over 1994 as worldwide vehicle
production levels increased. Heavy truck and trailer production in North America
in fiscal 1995 expanded by 16 percent and 21 percent, respectively, over 1994
levels. These increased levels more than offset a $62 million decline in
military product sales.
Gross margin increased $99 million, or 35 percent, and operating earnings
increased $87 million, or 96 percent, for fiscal 1995 over the comparable 1994
period. These improvements were the result of higher sales, improved operating
performance and lower product warranty costs for transmissions in 1995.
Operating earnings and gross margin in 1994 were depressed by $38 million of
higher product warranty provisions due to higher than anticipated costs related
to extended warranty programs as well as a non-recurring charge to recognize the
cost of inspections and potential field modifications of certain transmission
products. Cost reduction efforts initiated by the Automotive Business and
improved plant utilization also improved 1995 results.
INCOME TAXES
The Automotive Business's effective income tax rate in 1996 was 37.6
percent compared to 33.4 percent in 1995 and 41.5 percent in 1994. The lower tax
rate in 1995 was due principally to the realization of foreign net operating
loss carryforwards combined with relatively higher levels of U.S. taxable income
related to improved sales in the North American truck markets. The higher tax
rate in 1994 was due to losses at certain non-U.S. subsidiaries for which no tax
benefits were recorded.
43
<PAGE> 49
At September 30, 1996, the Automotive Business had unrecognized tax
benefits from foreign net operating loss carryforwards of approximately $15
million, which generally expire between 1997 and 2001 and are available to
reduce future income taxes of the Company.
ENVIRONMENTAL MATTERS
Federal, state and local requirements relating to the discharge of
substances into the environment, the disposal of hazardous wastes, and other
activities affecting the environment have had and will continue to have an
impact on the manufacturing operations of the Automotive Business. Compliance
with environmental requirements and resolution of environmental claims have been
accomplished without material effect on the Automotive Business's liquidity and
capital resources, competitive position or financial statements. The Company
will assume all liabilities in respect of environmental matters related to
current and former operations of the Automotive Business.
The Automotive Business has been designated as a potentially responsible
party at three Superfund sites, excluding sites as to which the Automotive
Business's records disclose no involvement or as to which the Automotive
Business's potential liability has been fully determined. Management estimates
the total reasonably possible costs the Automotive Business could incur for the
remediation of Superfund sites at September 30, 1996 to be about $22 million, of
which $13 million has been accrued.
Various other lawsuits, claims, and proceedings have been asserted against
the Automotive Business alleging violation of federal, state and local
environmental protection requirements, or seeking remediation of alleged
environmental impairments, principally at previously disposed of properties. For
these matters, management has estimated the total reasonably possible costs the
Automotive Business could incur at September 30, 1996 to be about $36 million.
The Automotive Business has recorded environmental accruals for these matters of
$11 million.
At September 30, 1996, the Automotive Business had no receivables recorded
from third parties related to environmental matters.
Management estimates the total reasonably possible costs that could be
incurred by the Automotive Business based on, among other factors, the
professional judgment of the Automotive Business's environmental engineers, in
consultation with outside environmental specialists and counsel, when necessary.
Based on its assessment, management believes that the Automotive Business's
expenditures for environmental capital investment and remediation necessary to
comply with present regulations governing environmental protection and other
expenditures for the resolution of environmental claims will not have a material
adverse effect on the Company's liquidity and capital resources, competitive
position or financial statements. Management cannot assess the possible effect
of compliance with future requirements.
INTERNATIONAL OPERATIONS
Nearly one-half of the Automotive Business's total assets and sales for the
year ended September 30, 1996 were outside North America, primarily in France,
the United Kingdom, Germany, Brazil and Italy. Management expects that the
long-term debt necessary to finance the Pre-Distribution Payment to Rockwell
will be incurred primarily in the United States, Canada, France, Germany and the
United Kingdom. Management believes that international operations have
significantly benefited financial performance of the Automotive Business.
The Company's international operations are subject to a number of risks
inherent in operating abroad, including risks with respect to currency exchange
rate fluctuations. See "Special Factors -- International Operations". The
Company enters into foreign currency forward exchange contracts to minimize risk
of loss from currency exchange rate fluctuations on firm and identifiable
foreign currency commitments entered into in the ordinary course of business.
The Company has not experienced nor does it anticipate any material adverse
effect on its results of operations or financial condition related to these
foreign currency forward exchange contracts. The Company has not entered into
foreign currency forward exchange contracts for other
44
<PAGE> 50
purposes, and the Company's financial condition and results of operations could
be affected (negatively or positively) by currency fluctuations.
CAUTIONARY STATEMENT
This Information Statement contains statements relating to future results
of the Company (including certain projections and business trends) that are
"forward-looking statements". Actual results may differ materially from those
projected as a result of certain risks and uncertainties, including but not
limited to global economic and market conditions, including but not limited to
the demand for commercial, specialty and light vehicles for which the Automotive
Business supplies products; risks inherent in operating abroad; demand for and
market acceptance of new and existing products; successful development of new
products; reliance on major OEM customers; labor relations of the Company, its
customers and suppliers; and competitive product and pricing pressures, as well
as other risks and uncertainties, including but not limited to those set forth
under "Special Factors" and those detailed from time to time in the filings of
the Company with the Commission.
45
<PAGE> 51
MANAGEMENT OF THE COMPANY
DIRECTORS OF THE COMPANY
Immediately after the Distribution Date, the Board of Directors of the
Company is expected to consist of the individuals named below. The Company
Certificate provides that the Company will have three classes of directors, the
initial terms of office of which will expire, respectively, at the annual
meetings of stockholders in 1998, 1999 and 2000. Successors to any directors
whose terms are expiring are elected to three-year terms and hold office until
their successors are elected and qualified. Also set forth below with respect to
each director is the class of which such director will be a member. Unless
otherwise indicated, (i) the business address for each person listed below is
111 Holdings, Inc., 2135 West Maple Road, Troy, Michigan 48084-7186 and (ii)
each individual listed below is a citizen of the United States. See "Description
of Company Capital Stock -- Certain Provisions in the Company Certificate and
Company By-Laws".
CLASS I DIRECTORS
Class I Directors will serve until the 1998 Annual Meeting of Stockholders
of the Company and until their respective successors are elected and qualified.
LARRY D. YOST -- Mr. Yost, age 59, will serve as Chairman of the Board and
Chief Executive Officer of the Company. Mr. Yost joined Allen-Bradley Company,
Inc. (automation), a subsidiary of Rockwell, as a manager in 1971 and, after
serving in a number of increasingly responsible management positions, served as
Senior Vice President of Allen-Bradley from July 1992 until November 1994. He
served as President, Heavy Vehicle Systems of Rockwell from November 1994 until
March 1997 and has been Senior Vice President and President, Automotive and
Acting President, Heavy Vehicle Systems of Rockwell since March 1997. Mr. Yost
is a director of Kennametal Inc. and the GMI Engineering and Management
Institute.
CHARLES H. HARFF -- Mr. Harff, age 67, is a consultant to Rockwell. From
November 1994 to February 1996, Mr. Harff served as Senior Vice President and
Special Counsel of Rockwell. From March 1984, when he joined Rockwell, until
November 1994, Mr. Harff served as Senior Vice President, General Counsel and
Secretary of Rockwell. He is a Director of the Fulbright Association, the
Christian A. Johnson Endeavor Foundation and several civic organizations.
CLASS II DIRECTORS
Class II Directors will serve until the 1999 Annual Meeting of Stockholders
of the Company and until their respective successors are elected and qualified.
HAROLD A. POLING -- Mr. Poling, age 71, is an investor in Metapoint
Partners, an investment partnership, and retired as Chairman of the Board and
Chief Executive Officer of Ford Motor Company (automotive manufacturer) in
January 1994. He joined Ford in 1951 and served in a number of senior management
positions prior to becoming President (in 1975) and Chairman (in 1977) of Ford
in Europe. Mr. Poling became President and Chief Operating Officer of Ford in
February 1985 and served as Chairman of the Board from March 1990 to January
1994. He is a director of Flint Ink Corporation, Kellogg Company, LTV
Corporation and Shell Oil Company. He is also a director, trustee or member of a
number of business, educational and civic organizations.
MARTIN D. WALKER -- Mr. Walker, age 65, retired as Chairman of the Board of
M.A. Hanna Company (specialty chemicals, plastics and rubber products) in June
1997. He joined Hanna in 1986 as Chairman of the Board and Chief Executive
Officer and served as Chief Executive Officer until December 1996. In 1972, Mr.
Walker joined Rockwell as a vice president and, after serving in a number of
increasingly responsible management positions, served as Senior Vice President
and President, Automotive of Rockwell from 1978 until 1982, as Executive Vice
President of Rockwell from 1982 until 1986 and as a director of Rockwell from
1979 until 1986. He is a director of Comerica, Inc., Goodyear Tire and Rubber
Co., Lexmark International Group, Reynolds & Reynolds Co., Textron Inc. and The
Timken Company. He is also a director, trustee or member of a number of
business, educational and civic organizations.
CLASS III DIRECTORS
Class III Directors will serve until the 2000 Annual Meeting of
Stockholders of the Company and until their respective successors are elected
and qualified.
46
<PAGE> 52
JOSEPH B. ANDERSON, JR. -- Mr. Anderson, age 54, is Chairman of the Board
and Chief Executive Officer of Chivas Products, Ltd. (automotive component
supplier). He has held that position since October 1994. From December 1992 to
October 1994, Mr. Anderson was President and Chief Executive Officer of
Composite Energy Management Systems, Incorporated (automotive component
supplier). Mr. Anderson served in a variety of positions, primarily in
manufacturing, with General Motors Corporation (automotive manufacturer) from
1979 until December 1992. He also served as an assistant to the U.S. Secretary
of Commerce from 1977 to 1979. Mr. Anderson is a director of the GMI Engineering
and Management Institute and Quaker Chemical Corporation.
DONALD R. BEALL -- Mr. Beall, age 58, is Chairman of the Board and Chief
Executive Officer of Rockwell, has been a director of Rockwell since 1978 and
was elected to his present position at Rockwell in February 1988 after serving
nine years as President and Chief Operating Officer. Mr. Beall joined Rockwell
in 1968 and served in a number of senior management positions prior to becoming
Executive Vice President in September 1977 and President in February 1979. Mr.
Beall will step down as Chief Executive Officer of Rockwell on September 30,
1997 and as Chairman of the Board of Rockwell in February 1998, but will
continue as a director of Rockwell and is expected to be named chairman of the
Executive Committee of Rockwell in February 1998. Mr. Beall is a director of
Amoco Corporation, The Procter & Gamble Company and The Times Mirror Company. He
is a trustee of the California Institute of Technology and a member of the
University of California -- Irvine Board of Overseers and the Board of Visitors
of its Graduate School of Management as well as The Business Council, The
Business Roundtable, the Chief Executives' Organization and the Council on
Competitiveness. He is also a director, trustee or member of a number of other
professional and civic organizations.
JOHN J. CREEDON -- Mr. Creedon, age 73, is a consultant and director of
certain corporations and retired President and Chief Executive Officer of
Metropolitan Life Insurance Company. He joined Metropolitan Life in 1942 and was
appointed Senior Vice President and General Counsel in 1973. He became an
Executive Vice President in 1976, President and a director in 1980, served as
Chief Executive Officer from 1983 through August 1989, and then as Chairman of
the Executive Committee until April 1991. He is a director of Corporate Partners
and Union Carbide Corporation and serves as a consultant to Rockwell pursuant to
a retirement arrangement for former directors. He is also a director, trustee or
member of a number of business, educational and civic organizations.
COMMITTEES OF THE BOARD OF DIRECTORS
The standing committees of the Board of Directors of the Company will
include an Audit Committee, a Compensation and Management Development Committee,
a Board Composition Committee and an Environmental and Social Responsibility
Committee, each of which will be comprised of non-employee directors. The
functions of each of these four committees are described below.
The Audit Committee will review the scope and effectiveness of audits of
the Company by the Company's independent public accountants and internal
auditors; select and recommend to the Board of Directors the employment of
independent public accountants for the Company, subject to approval of the
stockholders; review the audit plans of the Company's independent public
accountants and internal auditors; review and approve the fees charged by the
independent public accountants; review the Company's annual financial statements
before their release; review the adequacy of the Company's system of internal
controls and recommendations of the independent public accountants with respect
thereto; review and act on comments and suggestions by the independent public
accountants and by the internal auditors with respect to their audit activities;
and monitor compliance by the employees of the Company with the Company's
standards of business conduct policies.
The principal functions of the Compensation and Management Development
Committee (the "Compensation Committee") will be to evaluate the performance of
the Company's senior executives and plans for management succession and
development, to consider the design and competitiveness of the Company's
compensation plans, to review and approve senior executive compensation and to
administer the Company's incentive, deferred compensation, stock option and
long-term incentives plans pursuant to the terms of the respective plans. The
members of the Compensation Committee will be ineligible to participate in any
of the plans or programs which are administered by the Committee except the
Directors Plan (as defined below).
47
<PAGE> 53
The principal functions of the Board Composition Committee will be to
consider and recommend to the Board qualified candidates for election as
directors of the Company and periodically to prepare and submit to the Board for
adoption the Committee's selection criteria for director nominees. The Committee
will also periodically assess the performance of the Board of Directors and
report thereon to the Board. Stockholders of the Company may recommend
candidates for consideration by the Committee by writing to the Secretary of the
Company within certain specified time periods, giving the candidate's name,
biographical data and qualifications. See "Description of Company Capital
Stock -- Certain Provisions in the Company Certificate and Company By-Laws". Any
such recommendation should be accompanied by a written statement from the
individual of his or her consent to be named as a candidate and, if nominated
and elected, to serve as a director.
The Environmental and Social Responsibility Committee will review and
assess the Company's policies and practices in the following areas: employee
relations, with emphasis on equal employment opportunity and advancement; the
protection and enhancement of the environment and energy resources; product
integrity and safety; employee health and safety; and community and civic
relations including programs for and contributions to health, educational,
cultural and other social institutions.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company will receive a retainer at the rate
of $35,000 per year for Board service. Pursuant to the Directors Plan, each
non-employee director will receive a grant of 500 shares of Company Common Stock
immediately following the Distribution and thereafter will receive a grant of
1,000 shares of Company Common Stock immediately after each Annual Meeting of
Stockholders of the Company. In addition, pursuant to the Directors Plan, each
non-employee director will be granted an option to purchase, at the closing
price of the Company Common Stock on the NYSE Composite Transactions reporting
system on the date of grant, 1,500 shares of Company Common Stock effective
concurrently with the first grant of options under the 1997 LTIP (as defined
below) after the Distribution Date and thereafter will be granted an option for
3,000 shares of Company Common Stock immediately after each Annual Meeting of
Stockholders of the Company (in each case, subject to approval of the Directors
Plan at the 1998 Annual Meeting of Stockholders of the Company). Under the terms
of the Company's directors' deferred compensation plan, a director may elect to
defer all or part of the cash payment of retainer fees until such time as shall
be specified, with interest on deferred amounts accruing quarterly at 120% of
the Federal long-term rate set each month by the Secretary of the Treasury. Each
director shall also have the option each year to determine whether to defer all
the annual grant of shares and all or any portion of the cash retainers by
electing to receive restricted shares valued at the closing price of the Company
Common Stock on the NYSE Composite Transactions reporting system on the date of
the annual grant and the date each retainer payment would otherwise be made in
cash. See "-- Benefit Plans Following the Distribution -- Directors Stock Plan".
48
<PAGE> 54
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the name, age, position and office to be held with the
Company and principal occupations and employment during the past five years of
those individuals who are expected to serve as executive officers of the Company
immediately following the Distribution. Those individuals named below who are
currently officers or employees of Rockwell will resign from all such positions
prior to the Distribution. Executive officers of the Company will be elected to
serve until they resign or are removed, or are otherwise disqualified to serve,
or until their successors are elected and qualified.
<TABLE>
<CAPTION>
NAME, OFFICE AND POSITION, AND PRINCIPAL OCCUPATIONS AND EMPLOYMENT AGE
- -------------------------------------------------------------------------------------- ---
<S> <C>
LARRY D. YOST -- Chairman of the Board and Chief Executive Officer. Senior Vice
President, President, Automotive and Acting President, Heavy Vehicle Systems of
Rockwell since March 1997; President, Heavy Vehicle Systems of Rockwell from
November 1994 to March 1997; Senior Vice President, Operations of Allen-Bradley
Company, Inc. (automation), a subsidiary of Rockwell, prior thereto................. 59
ROBERT A. CALDER -- Senior Vice President and President, Light Vehicle Systems.
President, Light Vehicle Systems of Rockwell since November 1994; Executive Vice
President, Automotive Body and Chassis Systems of Rockwell from November 1992 to
November 1994; Vice President and General Manager, Automotive Body Systems of
Rockwell prior thereto.............................................................. 61
GARY L. COLLINS -- Senior Vice President, Human Resources. Vice President -- Human
Resources and Government Relations, Automotive of Rockwell since September 1991..... 51
DAVID W. GREENFIELD -- Senior Vice President, General Counsel and Secretary. Associate
General Counsel of Rockwell since July 1995; Assistant General Counsel of Rockwell
prior thereto....................................................................... 47
THOMAS J. JOYCE -- Vice President and Treasurer. Vice President, Investor and
Community Relations of Rockwell since May 1989...................................... 50
SUSAN P. KAMPE -- Senior Vice President and Chief Information Officer. Vice President
-- Information Technology, Heavy Vehicle Systems of Rockwell since August 1996;
Director of Global Information Systems and Services, Safety Restraints Business of
Allied-Signal Automotive (automotive component supplier) from August 1994 to August
1996; Manager, Manufacturing Systems, North America of ITT Automotive (automotive
component supplier) prior thereto................................................... 39
LAWRENCE J. LOCKWOOD -- Vice President and Controller. Vice President and Controller,
Automotive of Rockwell since August 1997; Vice President, Finance of Industrial
Control Group of Allen-Bradley Company, Inc. (automation), a subsidiary of Rockwell,
from April 1995 to August 1997; Vice President, Finance and Administration of
Operations Group of Allen-Bradley Company, Inc. prior thereto....................... 44
THOMAS A. MADDEN -- Senior Vice President and Chief Financial Officer. Vice President
and Senior Vice President -- Finance, Automotive of Rockwell since March 1997; Vice
President, Corporate Development of Rockwell from September 1996 to March 1997; Vice
President -- Finance & Administration, Light Vehicle Systems of Rockwell from May
1996 to September 1996; Vice President -- Finance & Administration, Automotive of
Rockwell from October 1994 to May 1996; Assistant Controller of Rockwell prior
thereto............................................................................. 43
PRAKASH R. MULCHANDANI -- Senior Vice President and President, Worldwide Truck and
Trailer Systems. President -- Worldwide Truck and Trailer Systems, Heavy Vehicle
Systems of Rockwell since April 1996; President -- North American Truck Systems,
Automotive of Rockwell from June 1994 to April 1996; General Manager -- Trailer
Products, Automotive of Rockwell prior thereto...................................... 52
RICHARD C. QUAID -- Senior Vice President and President, Off-Highway and Specialty
Products. President -- Off-Highway and Specialty Products, Heavy Vehicle Systems of
Rockwell since April 1996; President -- Off-Highway Products, Automotive of Rockwell
prior thereto....................................................................... 55
RODNEY J. WALTER -- Senior Vice President, Business Development and Communications.
Vice President -- Business Development, Heavy Vehicle Systems of Rockwell since June
1995; Director -- Business Development of Rockwell prior thereto................... 46
</TABLE>
49
<PAGE> 55
HISTORICAL COMPENSATION OF EXECUTIVE OFFICERS
There is shown below information concerning the annual and long-term
compensation for services rendered in all capacities to Rockwell and its
subsidiaries for the fiscal year ended September 30, 1996 of the individual who
will serve as chief executive officer of the Company and the other four most
highly compensated executive officers of the Company, based on their employment
by Rockwell or an affiliate of Rockwell at September 30, 1996 (the "Named
Executive Officers"). The compensation described in this table was paid by
Rockwell or an affiliate of Rockwell. References to "stock options" relate to
awards of Rockwell Options under the Rockwell 1995 LTIP. The services rendered
to Rockwell were, in many cases, in capacities not equivalent to those to be
provided to the Company and this table does not reflect the compensation to be
paid to executive officers of the Company in the future.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ALL OTHER
LONG-TERM COMPENSATION COMPENSATION(3)
------------------------- ---------------
ANNUAL COMPENSATION
----------------------------------- AWARDS PAYOUTS
OTHER ------------ ----------
NAME AND ANNUAL STOCK LONG- TERM
PRINCIPAL POSITION COMPEN- OPTIONS INCENTIVE
WITH THE COMPANY(2) YEAR SALARY BONUS SATION (SHARES) PAYOUTS
- ------------------------------ ------ ------------ ---------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Larry D. Yost................. 1996 $250,000 $200,000 $6,937 15,000 $405,000 $14,044
Chairman of the Board and
Chief Executive Officer
Robert A. Calder.............. 1996 240,000 145,000 16,318 15,000 80,520 17,343
Senior Vice President and
President, Light Vehicle
Systems
Thomas A. Madden.............. 1996 173,333 110,000 11,781 -- -- 10,870
Senior Vice President and
Chief Financial Officer
Prakash R. Mulchandani........ 1996 191,667 133,700 8,997 -- 80,520 12,263
Senior Vice President and
President, Worldwide Truck
and Trailer Systems
Richard C. Quaid.............. 1996 200,000 107,000 13,360 -- 80,520 13,923
Senior Vice President and
President, Off-Highway and
Specialty Products
</TABLE>
- ---------------
(1) In accordance with the executive compensation disclosure rules adopted by
the Commission, the compensation of the Named Executive Officers is not
shown for fiscal 1994 and 1995 because the Company was not a reporting
company under the Exchange Act for such years and such compensation
information has not been provided in a prior filing with the Commission.
(2) The positions reflected in the table are the positions to be held by the
Named Executive Officers with the Company at the time of the Distribution
and were not the positions held by the Named Executive Officers with
Rockwell during fiscal 1996, the period covered by the table. Compensation
reflected in the table for fiscal 1996 was paid by Rockwell to the Named
Executive Officers in the following capacities: Mr. Yost, President, Heavy
Vehicle Systems of Rockwell; Mr. Calder, President, Light Vehicle Systems of
Rockwell; Mr. Madden, Vice President, Corporate Development (September
1996), Vice President -- Finance & Administration, Light Vehicle Systems
(May 1996 to September 1996) and Vice President -- Finance & Administration,
Automotive (October 1995 to May 1996) of Rockwell; Mr. Mulchandani,
President -- Worldwide Truck and Trailer Systems, Heavy Vehicle Systems
(April 1996 to September 1996) and President -- North American Truck
Systems, Automotive (October 1995 to April 1996) of Rockwell; and Mr. Quaid,
President -- Off-Highway and Specialty Products, Heavy Vehicle Systems
(April 1996 to September 1996) and President -- Off-Highway Products,
Automotive (October 1995 to April 1996) of Rockwell.
(3) Amounts contributed or accrued for fiscal year 1996 for the Named Executive
Officers (other than Mr. Yost) under the Rockwell Savings Plan and the
related supplemental savings plan and amounts contributed or accrued for Mr.
Yost under Allen-Bradley's Employee Savings Plan for Salaried Employees and
the related supplemental savings plan.
Effective March 1997, Mr. Yost's annual salary was increased to $325,000 in
connection with his promotion to Senior Vice President and President, Automotive
of Rockwell. Effective September 1996, Mr. Madden's annual salary was increased
to $205,000 in connection with his promotion to Vice President, Corporate
Development of Rockwell. Effective October 1, 1997, the annual salaries of
Messrs. Yost, Calder, Madden, Mulchandani and Quaid are expected to be
$[ ], $[ ], $[ ], $[ ] and $[ ], respectively. It
is anticipated that options for shares of Company Common Stock will be granted
to employees of the Company,
50
<PAGE> 56
including the Named Executive Officers, in the last calendar quarter of 1997,
subject to approval of the Company's 1997 Long-Term Incentives Plan at the 1998
Annual Meeting of Stockholders of the Company.
Rockwell has entered into an arrangement with Mr. Calder providing for a
payment of $100,000 by Rockwell to Mr. Calder if he is employed by the Company
on the Distribution Date and a payment of $390,000 (the "Retention Payment") by
the Company to Mr. Calder 13 months after the Distribution Date if the
Distribution is consummated and Mr. Calder does not voluntarily terminate
employment with the Company for at least 12 months thereafter. In addition, a
severance payment of $585,000 (less the amount of the Retention Payment if it
has been paid) will be payable by the Company to Mr. Calder if he is
involuntarily terminated (other than for cause) or if he voluntarily terminates
employment after his responsibilities are substantially diminished, in either
case within two years after the Distribution Date.
OPTION GRANTS
Shown below is further information on grants to the Named Executive
Officers of stock options pursuant to the Rockwell 1995 LTIP during the fiscal
year ended September 30, 1996, which are reflected in the Summary Compensation
Table above.
<TABLE>
<CAPTION>
GRANT DATE
INDIVIDUAL GRANTS VALUE
- ---------------------------------------------------------------------------------------------- -----------
PERCENTAGE
OF TOTAL
OPTIONS
NUMBER OF GRANTED
SECURITIES TO
UNDERLYING ROCKWELL
OPTIONS EMPLOYEES EXERCISE OR GRANT DATE
GRANTED IN FISCAL BASE PRICE EXPIRATION PRESENT
NAME (SHARES)(1)(2) 1996 (PER SHARE)(2) DATE VALUE(3)
- ------------------------------ -------------- --------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Larry D. Yost................. 15,000 0.83% $ 51.875 12/06/05 $ 175,500
Robert A. Calder.............. 15,000 0.83% 51.875 12/06/05 175,500
Thomas A. Madden.............. -- -- % -- -- --
Prakash R. Mulchandani........ -- -- % -- -- --
Richard C. Quaid.............. -- -- % -- -- --
</TABLE>
- ---------------
(1) All options granted to the Named Executive Officers were granted on December
6, 1995 and the first of three substantially equal installments became
exercisable December 6, 1996.
(2) In connection with the acquisition by The Boeing Company of the Aerospace
and Defense Businesses of Rockwell on December 6, 1996, pursuant to the
adjustment provisions of the Rockwell 1995 LTIP, the Rockwell 1988 LTIP and
other Rockwell stock option plans (collectively, the "Rockwell Option
Plans"), the exercise price of options to purchase Rockwell Common Stock and
the number of shares of Rockwell Common Stock for which such options are
exercisable were adjusted to preserve for each optionee the aggregate
"spread" that existed immediately prior to such acquisition between the
aggregate fair market value of the Rockwell Common Stock for which such
options are exercisable and the aggregate per share exercise price of the
optionee's options to purchase Rockwell Common Stock.
(3) These values are based on the Black-Scholes option pricing model which
produces a per option share value of $11.70 using the following assumptions
and inputs: options exercised after 7 1/2 years, weighted five-year prior
stock price volatility and dividend yield of 0.1762 and 2.86%, respectively,
and an interest rate of 5.72%, which was the zero coupon 7 1/2-year Treasury
bond rate at date of grant. The actual value, if any, the executive officer
may realize from these options will depend solely on the gain in stock value
over the exercise price when the options are exercised.
The Black-Scholes option pricing methodology, on which the present value of
the stock options granted to the Named Executive Officers is based, attempts to
portray the value of an option at the date of grant. While the options have no
value if the stock price does not increase, were the $11.70 present value of the
options converted into a future stock price at the end of the 7 1/2-year period
when it is assumed the options would be exercised, the shareowners of the
approximately 217 million shares of Rockwell Common Stock outstanding on the
grant date of those options (assuming that number of shares remains outstanding)
would realize aggregate appreciation of $3,854.8 million compared to aggregate
appreciation on the options of approximately $0.5 million for the Named
Executive Officers (assuming that they held their options or the shares acquired
on exercise thereof for the whole 7 1/2-year period).
51
<PAGE> 57
On or after December 9, 1996, options to purchase an aggregate of 15,000,
13,500 and 22,500 shares of Rockwell Common Stock were granted under the
Rockwell 1995 LTIP to Messrs. Yost, Calder and Madden, respectively. Such
options are exercisable at average exercise prices of $61.50, $61.50 and
$63.625, respectively.
As set forth in the Employee Matters Agreement, any Rockwell Option granted
after September 30, 1996 held by an employee who will be employed by the
Automotive Business at the time of the Distribution will be converted into a
Company Option, having the same terms and vesting schedule as the original
Rockwell Option, but with adjustments in order to provide equivalent value to
each optionholder. All other Rockwell Options will continue as Rockwell Options
with adjustments in order to provide equivalent value to each optionholder after
giving effect to the Distribution. See "Arrangements Between Rockwell and the
Company Relating to the Distribution -- Employee Matters Agreement".
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES
Shown below is information with respect to (i) exercises by the Named
Executive Officers during fiscal 1996 of options to purchase Rockwell Common
Stock granted under the Rockwell Option Plans and (ii) the unexercised options
to purchase Rockwell Common Stock granted to the Named Executive Officers in
fiscal 1996 and prior years under the Rockwell Option Plans and held by them at
September 30, 1996.
<TABLE>
<CAPTION>
SHARES NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED VALUE OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
NAME ON EXERCISE REALIZED SEPTEMBER 30, 1996(1) SEPTEMBER 30, 1996(1)(2)
- ------------------------ ----------- ---------- --------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry D. Yost........... -- -- 4,000 23,000 $ 83,000 $ 233,500
Robert A. Calder........ -- -- 31,000 23,000 849,125 233,500
Thomas A. Madden........ 1,100 $ 37,538 23,700 -- 627,975 --
Prakash R.
Mulchandani........... -- -- 12,400 -- 407,038 --
Richard C. Quaid........ 4,500 158,906 8,500 -- 211,438 --
</TABLE>
- ---------------
(1) In connection with the acquisition by The Boeing Company of the Aerospace
and Defense Businesses of Rockwell on December 6, 1996, pursuant to the
adjustment provisions of the Rockwell Option Plans, the exercise price of
options to purchase Rockwell Common Stock and the number of shares of
Rockwell Common Stock for which such options are exercisable were adjusted
to preserve for each optionee the aggregate "spread" that existed
immediately prior to such acquisition between the aggregate fair market
value of the Rockwell Common Stock for which such options are exercisable
and the aggregate per share exercise price of the optionee's options to
purchase Rockwell Common Stock.
(2) Based on the closing price of Rockwell Common Stock on the NYSE Composite
Transactions reporting system on September 30, 1996, the last trading day in
that month ($56.375).
LONG-TERM INCENTIVE PLAN AWARDS
The following table shows for each Named Executive Officer the specified
information with respect to awards (other than stock options included in the
Summary Compensation Table above) during fiscal 1996 under long-term incentive
plans of Rockwell.
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE OR ESTIMATED FUTURE PAYOUT UNDER
SHARES, OTHER PERIOD UNTIL NON-STOCK PRICE-BASED PLANS(2)
UNITS OR OTHER MATURATION OR --------------------------------------
NAME RIGHTS(1) PAYOUT THRESHOLD TARGET(3) MAXIMUM(3)
- ------------------------------- ---------------- ------------------ --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Larry D. Yost.................. $200,000 3 years $ 0 $200,000 $600,000
Robert A. Calder............... 200,000 3 years 0 200,000 600,000
Thomas A. Madden............... 115,000 3 years 0 115,000 345,000
Prakash R. Mulchandani......... 249,000 3 years 0 249,000 747,000
Richard C. Quaid............... 249,000 3 years 0 249,000 747,000
</TABLE>
- ---------------
(1) Potential awards granted under the long-term incentive plans of Rockwell are
described in terms of target performance payouts expressed in cash amounts.
(2) A payout percentage of between 0% and 300%, based on actual performance over
the three-year performance period, as measured by sales growth, return on
average net assets (after tax) and return on sales (after tax), is applied
to the target performance payout amount.
(3) Does not include application of a stock price multiplier based on the
percentage change of the price of Rockwell Common Stock over the three-year
performance period, which can increase or decrease the final payout amount
actually paid.
52
<PAGE> 58
All liabilities in respect of outstanding Rockwell long-term incentive plan
awards granted to Automotive Business employees as of the time of the
Distribution will be assumed by the Company. Such outstanding long-term
incentive plan awards are based in part on achieving goals measured by sales
growth, return on sales and return on assets of the Automotive Business, and
performance of Rockwell Common Stock, for 3-year performance cycles ending on
each of September 30, 1997, September 30, 1998 and September 30, 1999. It is
anticipated that payments in respect of grants made for the 3-year performance
cycle ending September 30, 1997 will be paid by the Company in December 1997. It
is estimated that Messrs. Yost, Calder, Madden, Mulchandani and Quaid will earn
approximately $400,000, $95,000, $155,000, $540,000 and $540,000, respectively,
for such 3-year performance cycle and it is expected that the Compensation
Committee will determine that all amounts earned by such persons will be paid in
restricted shares of Company Common Stock that will vest after five years or
upon earlier retirement under the Company's retirement plans, or as the
Compensation Committee may otherwise determine. The number of restricted shares
delivered will be based on the market value of Company Common Stock on the date
the Compensation Committee makes its determination; assuming such market value
of Company Common Stock is between $20.00 and $30.00 per share, the foregoing
Named Executive Officers would receive between 13,333 and 20,000, 3,166 and
4,750, 5,166 and 7,750, 18,000 and 27,000, and 18,000 and 27,000 restricted
shares of Company Common Stock, respectively. Grants made in respect of the
3-year performance cycle ending September 30, 1998 will continue, with such
adjustments as may be deemed appropriate by the Compensation Committee to
reflect the Distribution. Grants made in respect of the 3-year performance cycle
ending September 30, 1999 will be terminated as of September 30, 1997, with pro
rated payments to be made in respect thereof based on performance during the
fiscal year ended September 30, 1997 and forecast results for fiscal 1998 and
1999. It is estimated that Messrs. Yost, Calder, Mulchandani and Quaid will earn
approximately $285,000, $160,000, $280,000 and $230,000, respectively, for such
3-year performance cycle. (Mr. Madden is not a participant in such performance
cycle.) It is anticipated that such amounts will be paid in cash or in
restricted shares of Company Common Stock, or partly in cash and partly in such
restricted shares, as the Compensation Committee shall determine. Assuming such
amounts are paid entirely in restricted shares of Company Common Stock and
assuming the market value of Company Common Stock is between $20.00 and $30.00
per share, the foregoing Named Executive Officers would receive between 9,500
and 14,250, 5,333 and 8,000, 9,333 and 14,000, and 7,666 and 11,500 restricted
shares of Company Common Stock, respectively. In addition, in consideration of
the early termination of the 3-year performance cycle ending September 30, 1999,
it is anticipated that Company Options will be granted to participants in such
cycle, including the foregoing four Named Executive Officers.
RETIREMENT BENEFITS
All of the Named Executive Officers are expected to participate in a
defined benefit pension plan which qualifies under Section 401(a) of the Code
and which the Company will establish effective as of the time of the
Distribution. The plan will be substantially similar in all material respects to
Rockwell's defined benefit pension plan in which the Named Executive Officers
(other than Mr. Yost) currently participate. See "Arrangements Between Rockwell
and the Company Relating to the Distribution -- Employee Matters Agreement".
The following table shows the estimated aggregate annual retirement
benefits payable on a straight life annuity basis to participating employees in
the earnings and years of service classifications indicated, under the
retirement plans of Rockwell and the Company which will cover most officers and
other salaried employees of the Company on a noncontributory basis. Such
benefits reflect a reduction to recognize in part the cost of Social Security
benefits related to service for Rockwell and the Company. The plans also provide
for the payment of benefits to an employee's surviving spouse or other
beneficiary.
<TABLE>
<CAPTION>
AVERAGE ESTIMATED ANNUAL RETIREMENT BENEFITS FOR YEARS OF SERVICE INDICATED
ANNUAL -------------------------------------------------------------------------
EARNINGS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$200,000................. $ 52,085 $ 78,117 $ 82,772 $ 87,427 $ 92,082 $ 96,738
300,000................. 78,755 118,117 125,272 132,427 139,582 146,738
400,000................. 105,425 158,117 167,772 177,427 187,082 196,738
500,000................. 132,095 198,117 210,272 222,427 234,582 246,738
600,000................. 158,765 238,117 252,772 267,427 282,082 296,738
700,000................. 185,435 278,117 295,272 312,427 329,582 346,738
800,000................. 212,105 318,117 337,772 357,427 377,082 396,738
</TABLE>
53
<PAGE> 59
Covered compensation includes salary and annual bonus. The calculation of
retirement benefits under the plans generally is based upon average earnings for
the highest five consecutive years of the ten years preceding retirement.
The credited years of service of Messrs. Calder, Madden, Mulchandani and
Quaid are 12, 16, 23 and 23, respectively.
The following table shows the estimated annual retirement benefits payable
on a straight life annuity basis to participating employees, in the earnings and
years of service classifications indicated, under the retirement plans of
Allen-Bradley Company, Inc. ("Allen-Bradley"), which cover Mr. Yost on a
non-contributory basis. Such benefits reflect a reduction to recognize in part
the cost of Social Security benefits related to service for Allen-Bradley and
also reflect supplemental benefits payable to provide eligible officers with at
least 20 years of service an annual retirement benefit that is at least 50% of
final average covered compensation. Allen-Bradley's plans also provide for the
payment of benefits to an employee's surviving spouse or other beneficiary.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFITS FOR YEARS OF
AVERAGE SERVICE INDICATED
ANNUAL --------------------------------------------------------
EARNINGS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- --------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$300,000............................... $146,290 $146,290 $146,290 $166,243
400,000............................... 200,840 200,840 200,840 223,521
500,000............................... 255,390 255,390 255,390 280,798
600,000............................... 309,940 309,940 309,940 338,076
700,000............................... 364,490 364,490 364,490 395,353
800,000............................... 419,040 419,040 419,040 452,631
</TABLE>
Covered compensation includes salary, bonus and the cash portion of
payments through fiscal 1996 under long-term incentive plans. The calculation of
retirement benefits under the plans generally is based upon average earnings for
the highest five years of the ten years preceding retirement. Mr. Yost has 25
credited years of service. It is contemplated that prior to the Distribution,
Mr. Yost will be covered by Rockwell retirement plans other than the
Allen-Bradley plans.
Sections 401(a)(17) and 415 of the Code limit the annual benefits which may
be paid from a tax-qualified retirement plan. As permitted by the Employee
Retirement Income Security Act of 1974, Rockwell has established and the Company
will establish supplemental plans which authorize the payment out of their
respective general funds of any benefits calculated under provisions of the
applicable retirement plan which may be above the limits under these sections.
Pursuant to the Employee Matters Agreement, the Company will assume all of
Rockwell's liabilities with respect to Company Participants under such
supplemental plans of Rockwell.
BENEFIT PLANS FOLLOWING THE DISTRIBUTION
The following are descriptions of certain benefit plans that are expected
to provide benefits to management employees of the Company after the
Distribution. Except as set forth below, the Company's 1997 Long-Term Incentives
Plan and the Directors Plan are substantially similar in all material respects
to the comparable plans currently maintained by Rockwell for its management
employees.
1997 LONG-TERM INCENTIVES PLAN
The Company's 1997 Long-Term Incentives Plan (the "1997 LTIP") will be
adopted by the Company's Board of Directors and approved by Rockwell as the
Company's sole stockholder. The 1997 LTIP will also be submitted to the
Company's stockholders for approval at the 1998 Annual Meeting of Stockholders
of the Company. The 1997 LTIP will permit grants to be made from time to time as
nonqualified stock options, incentive stock options, stock appreciation rights
("SARs") and restricted stock. In addition, the 1997 LTIP will authorize
establishment of performance plans applicable to one or more business units of
the Company.
Administration. The 1997 LTIP will be administered by the Compensation
Committee, consisting of two or more members of the Company's Board of Directors
who are not eligible to participate in the 1997 LTIP. In order to meet the
requirements of Section 162(m) of the Code and the rules under Section 16 of the
Exchange Act, however, all grants under the 1997 LTIP will be made by a Grant
Committee consisting of those members of the Compensation Committee who are both
"outside directors" as defined for purposes of
54
<PAGE> 60
Section 162(m) of the Code and regulations thereunder and "nonemployee
directors" as defined for purposes of Section 16 of the Exchange Act. In
addition, the Company's Board of Directors has authority to perform all
functions of the Compensation Committee and the Grant Committee under the 1997
LTIP.
Participation. The persons to whom grants are made under the 1997 LTIP
("1997 LTIP Participants") will be selected from time to time by the Grant
Committee in its sole discretion from among corporate officers and other key
employees of the Company and its subsidiaries and affiliates. In selecting 1997
LTIP Participants and determining the type and amount of their grants, the Grant
Committee may consider recommendations of the Chief Executive Officer of the
Company and shall take into account such factors as the 1997 LTIP Participant's
level of responsibility, performance, performance potential, level and type of
compensation and potential value of grants under the 1997 LTIP.
Shares Subject to 1997 LTIP. The 1997 LTIP will authorize the issuance or
transfer of an aggregate of 7 million shares of Company Common Stock, provided
that the total number of shares as to which grants may be made under the 1997
LTIP in any one fiscal year beginning after September 30, 1998 may not exceed
1.5% of the total outstanding and treasury shares of the Company.
Performance Plans. The 1997 LTIP will authorize the establishment by the
Compensation Committee of performance plans applicable to the Company or one or
more of its business units. Each such plan must include provision for
establishment of performance cycles (beginning no later than September 30, 2007)
of not less than three fiscal years and establishment of a performance measure
and performance objectives based on criteria selected by the Compensation
Committee for the affected business unit and may provide for adjustment (up or
down) of the performance objectives or modification of the performance measure,
or both, if the Compensation Committee (or with its approval, the person or
committee delegated to administer any plan except insofar as it relates to any
executive officer) determines that conditions, including changes in the economy,
changes in law or government regulations, changes in generally accepted
accounting principles or material acquisitions or divestitures, warrant such
adjustment. The Compensation Committee may authorize the Company's Chief
Executive Officer to approve the definitive terms and conditions of any
performance plan, including the employees or categories of employees eligible to
participate in each performance plan, but the Compensation Committee's
authorization is required for participation by any of the Company's executive
officers in a performance plan. Potential awards under performance plans are
expressed as cash amounts and are paid in cash unless the Compensation Committee
decides that payment should be in shares of Company Common Stock or a
combination of shares of Company Common Stock and cash. Payment in cash may be
made in a lump sum, in installments or on a deferred basis. Payment in Company
Common Stock may, in the discretion of the Compensation Committee, be made in
shares of restricted Company Common Stock. See "-- Long-Term Incentive Plan
Awards".
Stock Options, Stock Appreciation Rights and Restricted Stock. The 1997
LTIP authorizes grants to 1997 LTIP Participants of stock options, which may be
either incentive stock options eligible for special tax treatment or
nonqualified stock options, SARs and restricted stock.
Under the provisions of the 1997 LTIP authorizing the grant of stock
options, (a) other than with respect to Company Options issued in replacement of
Rockwell Options in connection with the Distribution, the option price may not
be less than the fair market value of the shares of Company Common Stock at the
date of grant, (b) the aggregate fair market value (determined as of the date
the option is granted) of the shares of Company Common Stock for which any
employee may be granted incentive stock options which are exercisable for the
first time in any calendar year may not exceed $100,000, (c) other than with
respect to Company Options issued in replacement of Rockwell Options in
connection with the Distribution, stock options generally may not be exercised
prior to one year nor after ten years from the date of grant and generally
become exercisable in three approximately equal installments on the first,
second and third anniversaries of the date of grant, and (d) at the time of
exercise of a stock option the option price must be paid in full in cash or in
shares of Company Common Stock or in a combination of cash and shares of Company
Common Stock. If a 1997 LTIP Participant who holds an outstanding stock option
or SAR dies, the 1997 LTIP permits the exercise thereof within three years of
the date of death (or the expiration date specified in the option if earlier)
even if it were not exercisable at such date. The 1997 LTIP permits the
Compensation
55
<PAGE> 61
Committee to make determinations as to exercisability upon other termination of
a 1997 LTIP Participant's employment, subject to certain limitations.
The 1997 LTIP permits the grant of SARs related to a stock option (a
"tandem SAR"), either at the time of the option grant or thereafter during the
term of the option, or the grant of SARs separate and apart from the grant of an
option (a "freestanding SAR"). Tandem SARs permit an optionee, upon exercise of
such rights and surrender of the related option to the extent of an equivalent
number of shares of Company Common Stock, to receive a payment equal to the
excess of the fair market value (on the date of exercise) of the portion of the
option so surrendered over the option exercise price of such shares of Company
Common Stock. Freestanding SARs entitle the grantee, upon exercise of such
rights, to receive a payment equal to the excess of the fair market value (on
the date of exercise) of all or part of a designated number of shares of Company
Common Stock over the fair market value of such shares of Company Common Stock
on the date such rights were granted. Such payment may be made in shares of
Company Common Stock (valued on the basis of the fair market value of the shares
of Company Common Stock on the date of exercise of the SARs), or in cash or
partly in cash and partly in shares of Company Common Stock, as the Compensation
Committee may determine.
Under the 1997 LTIP, the Grant Committee may also grant shares of Company
Common Stock subject to specified restrictions ("restricted stock") to 1997 LTIP
Participants. Grants of restricted stock are subject to forfeiture if the
grantee does not continue as an employee of the Company or a subsidiary or
affiliate (i) for a period of three years or longer, as may be specified by the
Grant Committee, from the grant date, or (ii) until performance criteria
specified by the Grant Committee are met, except that in the event of a
grantee's death, or retirement under a retirement plan of the Company after age
62 or becoming entitled to an unreduced benefit under the applicable retirement
plan, before the end of the restricted period, the grantee's heirs or the
grantee will be entitled to the shares of Company Common Stock. In the case of a
grantee whose employment terminates for any other reason before the end of the
restricted period, the Compensation Committee, taking into account the purpose
of the 1997 LTIP and such other factors as in its sole discretion it deems
appropriate, may waive the forfeiture of all or a portion of those shares of
restricted stock granted. During the restricted period, shares of restricted
stock have all the attributes of outstanding shares of Company Common Stock,
except that such shares of Company Common Stock and (unless the Grant Committee
determines otherwise at the time of grant) dividends thereon are delivered to
and held by the Company for the grantee's account. As and to the extent that
shares of restricted stock are no longer subject to forfeiture, such shares and
any dividends related thereto withheld by the Company, together with interest on
any such cash dividends computed at the same rate and in the same manner as
interest credited from time to time under the Company's deferred compensation
plan, are delivered to the grantee.
Under the 1997 LTIP, stock options, freestanding SARs and restricted stock
may not be granted after September 30, 2007 but tandem SARs may be granted with
respect to outstanding stock options granted before that date.
Initial Grants. It is anticipated that options to purchase shares of
Company Common Stock will be granted to employees of the Company, including the
Named Executive Officers, in the last calendar quarter of 1997, subject to
approval of the 1997 LTIP at the 1998 Annual Meeting of Stockholders of the
Company. It is also expected that (i) options to purchase approximately 382,000
shares of Company Common Stock will be issued to employees of the Company,
including options for approximately 153,000 shares to be issued to the Named
Executive Officers, in replacement of certain Rockwell Options held by such
employees on the Distribution Date, and (ii) options to purchase shares of
Company Common Stock will be granted in respect of early termination of
long-term incentive plan awards for the 3-year performance cycle ending
September 30, 1999. In addition, restricted shares of Company Common Stock are
expected to be delivered in respect of amounts earned by the Named Executive
Officers under certain long-term incentive plan awards. See "-- Long-Term
Incentive Plan Awards" and "Arrangements Between Rockwell and the Company
Relating to the Distribution -- Employee Matters Agreement".
56
<PAGE> 62
Tax Matters. The following is a brief summary of the material Federal
income tax consequences of benefits under the 1997 LTIP under present law and
regulations:
(a) Payments under Performance Plans. Any cash and the fair market
value of any shares of Company Common Stock (other than restricted stock,
as described below) received as payments under performance plans
established in accordance with the 1997 LTIP will constitute ordinary
income to the employee in the year in which paid, and the Company will be
entitled to a deduction in the same amount.
(b) Incentive Stock Options. The grant of an incentive stock option
will not result in any immediate tax consequences to the Company or the
optionee. An optionee will not realize taxable income, and the Company will
not be entitled to any deduction, upon the timely exercise of an incentive
stock option, but the excess of the fair market value of the shares of
Company Common Stock acquired over the option exercise price will be
includable in the optionee's "alternative minimum taxable income" for
purposes of the alternative minimum tax. If the optionee does not dispose
of the shares of Company Common Stock acquired within one year after their
receipt (and within two years after the option was granted), gain or loss
realized on the subsequent disposition of the shares of Company Common
Stock will be treated as long-term capital gain or loss. Capital losses of
individuals are deductible only against capital gains and a limited amount
of ordinary income. In the event of an earlier disposition, the optionee
will realize ordinary income in an amount equal to the lesser of (i) the
excess of the fair market value of the shares of Company Common Stock on
the date of exercise over the option exercise price or (ii) if the
disposition is a taxable sale or exchange, the amount of any gain realized.
Upon such a disqualifying disposition, the Company will be entitled to a
deduction in the same amount and at the same time as the optionee realizes
such ordinary income.
(c) Nonqualified Stock Options. The grant of a nonqualified stock
option will not result in any immediate tax consequences to the Company or
the optionee. Upon the exercise of a nonqualified stock option, the
optionee will realize ordinary income, and the Company will be entitled to
a deduction, equal to the difference between the option exercise price and
the fair market value of the shares of Company Common Stock acquired at the
time of exercise.
(d) Stock Appreciation Rights. The grant of either a tandem SAR or a
freestanding SAR will not result in any immediate tax consequences to the
Company or the employee. Upon the exercise of either a tandem SAR or a
freestanding SAR, any cash received and the fair market value on the
exercise date of any shares of Company Common Stock received will
constitute ordinary income to the grantee. The Company will be entitled to
a deduction in the same amount and at the same time.
(e) Restricted Stock. An employee normally will not realize taxable
income in connection with an award of restricted stock, and the Company
will not be entitled to a deduction, until the termination of the
restrictions. Upon such termination, the employee will realize ordinary
income in an amount equal to the fair market value of the shares of Company
Common Stock at that time, plus the amount of the dividends and interest
thereon to which the employee then becomes entitled. However, an employee
may elect to realize taxable ordinary income in the year the restricted
stock is awarded in an amount equal to its fair market value at that time,
determined without regard to the restrictions. The Company will be entitled
to a deduction in the same amount and at the same time as the employee
realizes income.
Other. During the period that SARs are outstanding, the Company will
accrue as an expense the amount, if any, by which the fair market value of the
shares of Company Common Stock as to which SARs are expected to be exercised
exceeds the exercise price of any related option shares of Company Common Stock
or the fair market value on the date of grant of the designated number of shares
of Company Common Stock for freestanding SARs.
Change of Control Benefits. In order to maintain the rights of 1997 LTIP
Participants in the event of a change of control of the Company, the 1997 LTIP
provides that unless prior to the occurrence of such a change the Company's
Board of Directors shall have determined otherwise by vote of at least
two-thirds of its members, all performance cycles (except those under
performance plans that do not provide for a change of control contingency) not
then complete shall be deemed completed, the respective performance objectives
shall be deemed to have been attained and all potential awards granted with
respect thereto shall be deemed to have been fully earned; all outstanding stock
options and SARs then outstanding shall become fully
57
<PAGE> 63
exercisable whether or not otherwise then exercisable; and the restrictions on
all shares of Company Common Stock granted as restricted stock would lapse. A
change of control is deemed to occur under the same circumstances as provided in
Article III, Section 13(I) of the Company By-Laws. This section of the Company
By-Laws defines "change of control" as a change of control of the Company at any
time after the Distribution of a nature that would be required to be reported in
a proxy statement pursuant to Section 14(a) of the Exchange Act or in a Form 8-K
pursuant to Section 13 of the Exchange Act (or in any similar form or schedule
under either of those provisions or any successor provision), whether or not the
Company is then subject to such reporting requirement; provided, however, that,
under the Company By-Laws a change of control will be deemed to have occurred if
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities without the prior approval of at least two-thirds of the
members of the Board of Directors of the Company in office immediately prior to
such person attaining such percentage interest; (ii) the Company is a party to a
merger, consolidation, sale of assets or other reorganization, or a proxy
contest, as a consequence of which members of the Board of Directors of the
Company in office immediately prior to such transaction or event constitute less
than a majority of the Board of Directors immediately thereafter; or (iii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors of the Company (including for
this purpose any director whose election became effective prior to or at the
time of the Distribution and any new director whose election or nomination for
election by the stockholders was approved by a vote of at least two-thirds of
the directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board of
Directors.
Amendment, Suspension or Termination of 1997 LTIP. The Compensation
Committee may at any time amend, suspend or terminate the 1997 LTIP or grants
made thereunder. In the event any change in or affecting shares of Company
Common Stock occurs, the Company's Board of Directors may make appropriate
amendments to or adjustments in the 1997 LTIP or grants made thereunder,
including changes in the number of shares of Company Common Stock which may be
issued or transferred under the 1997 LTIP and the number of shares of Company
Common Stock and price per share of Company Common Stock subject to outstanding
options and stock appreciation rights. The Company's Board of Directors and the
Compensation Committee may not, however (except in making amendments and
adjustments in the event of changes in or affecting shares of Company Common
Stock) (i) without the consent of the person affected, cancel or reduce any
grant theretofore made other than as provided for or contemplated in the
agreement evidencing the grant or (ii) without the approval of stockholders,
change the class of persons eligible to receive incentive stock options under
the 1997 LTIP, increase the number of shares of Company Common Stock that may be
issued or transferred under the 1997 LTIP, reduce the option exercise price of
any stock option below the fair market value of the shares of Company Common
Stock covered thereby at the date of grant or decrease the forfeiture period for
any restricted stock below that permitted under the 1997 LTIP.
DIRECTORS STOCK PLAN
The Company's Directors Stock Plan (the "Directors Plan") will be adopted
by the Company's Board of Directors and approved by Rockwell as the Company's
sole stockholder. The Directors Plan will also be submitted to the Company's
stockholders for approval at the Company's 1998 Annual Meeting of Stockholders.
An aggregate of 350,000 shares of Company Common Stock may be issued or
transferred under the Directors Plan, subject to appropriate adjustment in the
event of any change in or affecting shares of Company Common Stock, including
but not limited to stock dividends, stock splits and recapitalizations.
Participation. Participation in the Directors Plan will be limited to
directors who are not employees of the Company or any of its subsidiaries.
Issuance of Shares. Under the Directors Plan grants of 500 shares of
Company Common Stock will be made to each non-employee Director immediately
after the Distribution and thereafter grants of 1,000 shares of Company Common
Stock will be made to each non-employee director immediately after each Annual
Meeting of Stockholders beginning with grants immediately following the 1998
Annual Meeting of Stockholders. In addition, each non-employee director elected
at a meeting of the Company's Board of Directors will receive immediately
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<PAGE> 64
after that meeting an award of 1,000 shares of Company Common Stock if elected
after an annual meeting and prior to May 1; 750 shares if elected between May 1
and July 31; 500 shares if elected between August 1 and October 31; and 250
shares if elected between November 1 and the next annual meeting. Directors will
be encouraged to hold shares granted until their service on the Board of
Directors of the Company ends, and shares awarded under the Directors Plan may
not in any event be sold, transferred or otherwise disposed of for a period of
six months after receipt (except in the case of death or disability of the
director).
Directors may elect to receive their annual 1,000 shares of Company Common
Stock and their cash retainer for board service in the form of restricted shares
of Company Common Stock. Restricted shares, if elected, would be held by the
Company until ten days after the recipient retires from the Company's Board of
Directors after reaching age 72 and with at least three years of service or
ceases to be a director by reason of the antitrust laws, compliance with the
Company's conflict of interest policies, death, disability or other
circumstances the Company's Board of Directors determines not to be adverse to
the best interests of the Company. Restricted shares would have all the
attributes of outstanding shares including the right to vote and to receive
dividends thereon.
Stock Options. In addition, under the Directors Plan grants of options to
purchase 1,500 shares of Company Common Stock will be made to each non-employee
director effective concurrently with the first grant of options under the 1997
LTIP after the Distribution Date and thereafter grants of options to purchase
3,000 shares of Company Common Stock will be made annually to each non-employee
director immediately following each Annual Meeting of Stockholders beginning
with grants after the 1998 Annual Meeting of Stockholders (in each case, subject
to approval of the Directors Plan at the 1998 Annual Meeting of Stockholders of
the Company). In addition, each non-employee director elected at a meeting of
the Company's Board of Directors will receive immediately after that meeting an
option to purchase 3,000 shares of Company Common Stock if elected after an
annual meeting and prior to May 1; 2,250 shares if elected between May 1 and
July 31; 1,500 shares if elected between August 1 and October 31; and 750 shares
if elected between November 1 and the next annual meeting. The purchase price of
the shares subject to the option will be one hundred percent (100%) of the fair
market value on the date an option is granted. Upon exercise of an option, the
option price must be paid in full in cash, shares of Company Common Stock valued
at their fair market value on the date of exercise, or a combination of both.
Options granted under the Directors Plan may not be exercised prior to one
year nor after ten years from the date of grant and become exercisable in three
approximately equal installments on the first, second and third anniversaries of
the date of grant. If an optionee who holds an outstanding stock option dies,
the Directors Plan permits the exercise of such option within three years of the
date of death (or until the expiration date specified in the option, if
earlier), even if it were not exercisable at such date. If an optionee who holds
an outstanding stock option retires from the Company's Board of Directors after
reaching age 72 and with at least three years service, all options then held
will be exercisable even if they were not exercisable at such retirement date,
provided that such options shall expire at the earlier of five years from the
date of retirement or the expiration date specified in the options. The
Directors Plan permits the Compensation Committee to make determinations as to
exercisability upon other termination of an optionee's membership on the
Company's Board of Directors.
Administration and Amendment. The Directors Plan will be administered by
the Compensation Committee. The Company's Board of Directors may amend the
Directors Plan in any respect, provided that no amendment may be made without
stockholder approval that would materially (i) increase the maximum number of
shares of Company Common Stock available for delivery under the Directors Plan
(other than adjustments to reflect changes in or affecting shares of Company
Common Stock), (ii) increase the benefits accruing to participants under the
Directors Plan, or (iii) modify the requirements as to eligibility for
participation in the Directors Plan. The Company's Board of Directors also has
authority to terminate the Directors Plan at any time.
Change of Control Benefits. In order to maintain the rights of
participants in the Directors Plan in the event of a change of control of the
Company, the Directors Plan provides that unless prior to the occurrence of such
change the Company's Board of Directors shall have determined otherwise by vote
of at least two-thirds of its members, all outstanding stock options shall
become fully exercisable whether or not then exercisable. A
59
<PAGE> 65
change of control is deemed to occur under the same circumstances as provided in
Article III, Section 13(I) of the Company By-Laws. See "-- Benefit Plans
Following the Distribution -- 1997 Long-Term Incentives Plan -- Change of
Control Benefits".
Tax Matters. The material Federal income tax consequences of awards of
Company Common Stock under the Directors Plan under present law and regulations
are that the fair market value of shares of Company Common Stock awarded to a
director thereunder will constitute ordinary income to the director recognized
for Federal income tax purposes six months after the effective date of the award
unless the director makes an election under Section 83(b) of the Code to
recognize that income on the effective date of the award. The director's holding
period for tax purposes, including determining whether any gain or loss on the
shares of Company Common Stock is long or short term, will begin on the date
that income is recognized. The Company will be entitled to a deduction equal to
the income recognized by the director on the date of recognition.
The material Federal income tax consequences of the issuance or transfer of
restricted shares awarded in lieu of stock awards under the Directors Plan or
cash retainers is that the value thereof is not taxable to the recipient, and
the Company will not be entitled to its deduction, until the restriction lapses
(at the value of the shares on the date the restriction lapses).
The material Federal income tax consequences of the grant of options under
the Directors Plan are that the optionee realizes ordinary income, and the
Company is entitled to a deduction, equal to the difference between the option
exercise price and the fair market value of the shares acquired at the time of
exercise.
INCENTIVE COMPENSATION PLAN
The Company's Incentive Compensation Plan (the "ICP") will be adopted by
the Company's Board of Directors and approved by Rockwell as the Company's sole
stockholder. The ICP will also be submitted to the Company's stockholders for
approval at the 1998 Annual Meeting of Stockholders of the Company.
The purposes of the ICP will be to provide a reward and an incentive to
employees in managerial, staff or technical capacities who have contributed and,
in the future, are likely to contribute to the success of the Company and to
enhance the Company's ability to attract and retain outstanding employees to
serve in such capacities.
Administration. The ICP will be administered by the Compensation
Committee, which has sole authority to interpret the ICP. The Compensation
Committee will determine the amounts, if any, to be awarded under the ICP for
any fiscal year. The Company's Chief Executive Officer will submit to the
Compensation Committee, before its determinations are made, his recommendations
concerning awards. In its discretion, the Compensation Committee will determine:
(i) the extent to which awards, if any, shall be made; (ii) the employees to
whom any such awards shall be made; (iii) the amount of any award; and (iv) the
form, terms and conditions of awards. Among other things, the Committee may
determine whether and to what extent awards shall be paid in installments and in
cash or in shares of Company Common Stock or partly in cash and partly in shares
of Company Common Stock.
Eligibility. Any person in the salaried employ of the Company during some
part of the fiscal year for which awards are made may be selected for an award
by the Compensation Committee. Unless also an employee of the Company, no member
of the Company's Board of Directors will be eligible to participate in the ICP.
The total number of shares of Company Common Stock which may be awarded under
the ICP shall not exceed 300,000, subject to adjustment by the Company's Board
of Directors in the event of any changes in or affecting Company Common Stock.
Amendment and Termination. The Company's Board of Directors will have the
power, in its discretion, to amend, suspend or terminate the ICP at any time. It
will not have the power, however, (i) to take any such action that would
adversely affect rights under an award already made, without the consent of the
person affected, or (ii) without stockholder approval, to increase the total
number of shares of Company Common Stock subject to the ICP (except as otherwise
provided in the ICP).
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<PAGE> 66
OWNERSHIP OF COMPANY COMMON STOCK
The following table sets forth the number of shares of Company Common Stock
expected to be beneficially owned following the Distribution, directly or
indirectly, by each director, each Named Executive Officer and such persons and
other executive officers, as a group, based upon the beneficial ownership of
such persons of Rockwell Common Stock reported to Rockwell as of July 31, 1997,
including shares as to which a right to acquire ownership exists (for example,
through the exercise of stock options, conversions of securities or through
various trust arrangements) within the meaning of Rule 13d-3(d)(1) under the
Exchange Act.
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------------------------------------
NAME SHARES(1) PERCENT OF CLASS(2)
- ------------------------------ --------------- -------------------
<S> <C> <C> <C> <C>
Joseph B. Anderson, Jr........ [ ] [ ]
Donald R. Beall............... 125,515(3)(4) 0.18
John J. Creedon............... [ ] [ ]
Charles H. Harff.............. 11,620(3) --
Harold A. Poling.............. [ ] [ ]
Martin D. Walker.............. [ ] [ ]
Larry D. Yost................. 3,081(3) --
Robert A. Calder.............. 1,482(3) --
Thomas A. Madden.............. 2,327(3) --
Prakash R. Mulchandani........ 3,692(3) --
Richard C. Quaid.............. 3,699(3) --
All of the above and other
executive officers as a
group (17 persons).......... [152,436](3) 0.22
</TABLE>
- ---------------
(1) Each person has sole voting and investment power with respect to the shares
listed unless otherwise indicated.
(2) The shares owned by each person, and by the group, and the shares included
in the number of shares outstanding have been adjusted, and the percentage
of shares owned (where such percentage exceeds 0.1%) has been computed, in
accordance with Rule 13d-3(d)(1) under the Exchange Act.
(3) Includes shares expected to be beneficially owned in respect of shares of
Rockwell Common Stock held under Rockwell's savings plans.
(4) Includes shares, as to which beneficial ownership is disclaimed, as follows:
6,718 shares expected to be held for the benefit of family members and 3,333
shares expected to be owned by the Beall Family Foundation, of which Mr.
Beall is President and a director.
In addition to the expected beneficial ownership of Company Common Stock
set forth in the table above, the Named Executive Officers are expected to
obtain substantial additional ownership of Company Common Stock through grants
of restricted shares of Company Common Stock in payment of certain amounts
earned under long-term incentive plans. See "-- Long-Term Incentive Plan
Awards".
With the exception of Wells Fargo Bank, N.A., as trustee under the Rockwell
Savings Plan, which held approximately 20% of the outstanding shares of Rockwell
Common Stock as of June 30, 1997, there are no persons known to Rockwell who are
expected to be "beneficial owners" (as that term is defined in the rules of the
Commission) of more than 5% of any class of the Company's voting securities
outstanding as of the Distribution Date.
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<PAGE> 67
In order to align closely the financial interests of the Company's key
executives with those of the Company's stockholders, it is expected that the
Compensation Committee will adopt effective after the Distribution the following
minimum ownership guidelines requiring ownership of shares of Company Common
Stock with a market value equal to the multiple of base salary indicated:
<TABLE>
<CAPTION>
MULTIPLE OF BASE
SALARY
--------------------
<C> <S> <C>
- Chairman of the Board and Chief Executive Officer....... 5
- Senior Vice Presidents.................................. 3
- Other Executive Officers................................ 2
- Other Vice Presidents................................... 1.5
- Other U.S. based executives subject to the guidelines... 1
- Other non-U.S. based executives subject to the
guidelines.............................................. 0.5
</TABLE>
Only shares owned directly (including restricted shares) or through the
Company's savings plan or the Rockwell Savings Plan, but not shares subject to
unexercised stock options, will be considered for determining whether an
executive meets such ownership guidelines. The approximately 90 executives who
will be subject to the guidelines immediately following the Distribution will
have a transition period of 5 years beginning on the Distribution Date within
which to meet the guidelines. Other executives who become subject to the
guidelines after the Distribution Date will also have a transition period of 5
years within which to meet the guidelines.
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<PAGE> 68
DESCRIPTION OF COMPANY CAPITAL STOCK
Immediately prior to the Distribution, the Company will be authorized to
issue (i) 350,000,000 shares of Company Common Stock, of which (based on the
number of shares of Rockwell Common Stock outstanding as of June 30, 1997)
approximately 70 million shares of Company Common Stock will be issued to
shareowners of Rockwell in the Distribution, and (ii) 25,000,000 shares of
Preferred Stock, without par value ("Company Preferred Stock"), of which
1,000,000 shares will be designated as Series A Junior Participating Preferred
Stock ("Company Junior Preferred Stock") for issuance in connection with the
exercise of the Company Rights. See "-- Company Rights Plan".
The discussion of the material terms of the Company's capital stock
contained herein is qualified by reference to the Company Certificate, which
will be in effect immediately prior to the Distribution, a copy of which has
been filed as an exhibit to the Registration Statement of which this Information
Statement is a part.
COMPANY COMMON STOCK
The Company Certificate (except as to the numbers of authorized shares of
capital stock) and the Company By-Laws will be substantially similar to the
Restated Certificate of Incorporation of Rockwell (the "Rockwell Certificate")
and the By-Laws of Rockwell (the "Rockwell By-Laws"), including provisions
establishing a classified Board of Directors, requiring stockholders to provide
advance notice of any stockholder nominations of directors or any proposal of
new business to be considered at any meeting of stockholders, requiring a
supermajority vote to remove a director or to amend or repeal certain provisions
of the Company Certificate or the Company By-Laws and precluding stockholders
from calling a special meeting of stockholders. See "-- Certain Provisions in
the Company Certificate and Company By-Laws".
Holders of Company Common Stock will be entitled to such dividends as may
be declared by the Board of Directors of the Company out of any funds of the
Company legally available therefor. Dividends may not be paid on Company Common
Stock unless all accrued dividends on Company Preferred Stock, if any, have been
paid or set aside. In the event of any liquidation, dissolution or winding up of
the Company, the holders of Company Common Stock will be entitled to share pro
rata in the assets remaining after payment to creditors and after payment of the
liquidation preference plus any unpaid dividends to holders of any outstanding
Company Preferred Stock. Each holder of Company Common Stock will be entitled to
one vote for each such share outstanding in such holder's name. No holder of
Company Common Stock will be entitled to cumulate such holder's votes in voting
for directors. The Company Certificate provides that, unless otherwise
determined by the Board of Directors of the Company, no holder of Company Common
Stock will, as such holder, have any right to purchase or subscribe for any
stock of any class which the Company may issue or sell.
Except as described below under "-- Certain Provisions in the Company
Certificate and Company By-Laws", the rights, privileges and preferences of
Company Common Stock will otherwise be substantially similar to the rights,
privileges and preferences of Rockwell Common Stock.
COMPANY PREFERRED STOCK
GENERAL
The Company Certificate authorizes the Board of Directors of the Company to
establish one or more series of Company Preferred Stock (of up to an aggregate
of 25,000,000 shares) and to determine, with respect to any series of Company
Preferred Stock, the terms and rights of such series, including (i) the
designation of the series, (ii) the number of shares of the series, which number
the Board of Directors of the Company may thereafter (except where otherwise
provided in the applicable certificate of designation) increase or decrease (but
not below the number of shares thereof then outstanding), (iii) whether
dividends, if any, will be cumulative or noncumulative, and, in the case of
shares of any series having cumulative dividend rights, the date or dates or
method of determining the date or dates from which dividends on the shares of
such series shall be cumulative, (iv) the rate of any dividends (or method of
determining such dividends) payable to the holders of the shares of such series,
any conditions upon which such dividends will be paid and the date or dates or
the method for determining the date or dates upon which such dividends will be
payable, (v) the
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<PAGE> 69
redemption rights and price or prices, if any, for shares of the series, (vi)
the terms and amounts of any sinking fund provided for the purchase or
redemption of shares of the series, (vii) the amounts payable on and the
preferences, if any, of shares of the series in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Company, (viii) whether the shares of the series will be convertible or
exchangeable into shares of any other class or series, or any other security, of
the Company or any other corporation, and, if so, the specification of such
other class or series or such other security, the conversion or exchange price
or prices or rate or rates, any adjustments thereof, the date or dates as of
which such shares will be convertible or exchangeable and all other terms and
conditions upon which such conversion or exchange may be made, (ix) restrictions
on the issuance of shares of the same series or of any other class or series,
(x) the voting rights, if any, of the holders of the shares of the series and
(xi) any other relative rights, preferences and limitations of such series.
The Board of Directors of the Company believes that the ability of the
Board to issue one or more series of Company Preferred Stock will provide the
Company with flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs which might arise. The
authorized shares of Company Preferred Stock, as well as Company Common Stock,
will be available for issuance without further action by the Company's
stockholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which the Company's
securities may be listed or traded. If the approval of the Company's
stockholders is not so required, the Board of Directors of the Company may
determine not to seek stockholder approval.
Although the Board of Directors of the Company has no intention at the
present time of doing so (other than as described below with respect to the
Company Junior Preferred Stock), it could issue a series of Company Preferred
Stock that could, depending on the terms of such series, impede the completion
of a merger, tender offer or other takeover attempt. The Board of Directors of
the Company will make any determination to issue such shares based on its
judgment as to the best interests of the Company and its stockholders. The Board
of Directors of the Company, in so acting, could issue Company Preferred Stock
having terms that could discourage an acquisition attempt through which an
acquirer may be able to change the composition of the Board of Directors of the
Company, including a tender offer or other transaction that some, or a majority,
of the Company's stockholders might believe to be in their best interests or in
which stockholders might receive a premium for their stock over the then current
market price of such stock.
COMPANY JUNIOR PREFERRED STOCK
The summary of the material terms of the Company Junior Preferred Stock
contained herein is qualified by reference to the provisions of the Company
Certificate, a copy of which has been filed as an exhibit to the Registration
Statement of which this Information Statement is a part.
Prior to the Distribution, the Board of Directors of the Company will
authorize the issuance of up to 1,000,000 shares of Company Junior Preferred
Stock. The terms of the Company Junior Preferred Stock will be set forth in the
Company Certificate. The Company Junior Preferred Stock, when issued upon
exercise of the Company Rights, will be fully paid and nonassessable. See
"-- Company Rights Plan".
Ranking and Redemption. The Company Junior Preferred Stock will rank
junior to all series of any other class of Company Preferred Stock with respect
to payments of dividends and distribution of assets and will be non-redeemable.
Dividend Rights. Holders of Company Junior Preferred Stock will be
entitled to receive, when, as and if declared by the Board of Directors of the
Company out of funds legally available therefor, quarterly dividends equal to
the greater of (i) $1 or (ii) 100 times the amount of cash dividends and 100
times the amount (payable in kind) of non-cash dividends or other distributions
(other than stock dividends of Company Common Stock) declared per share of the
Company Common Stock. If the Company at any time declares or pays a stock
dividend payable in Company Common Stock, or effects a subdivision or
combination or consolidation of Company Common Stock, then the amount to which
holders of Company Junior Preferred Stock will be entitled under clause (ii) of
the previous sentence will be adjusted in accordance with the antidilution
provisions contained in the Company Certificate.
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<PAGE> 70
Dividends and distributions on the Company Junior Preferred Stock will be
declared immediately after the declaration of the dividend or distribution on
the Company Common Stock and will be payable quarterly on the second Monday of
March, June, September and December in each year (a "Dividend Payment Date"). In
the event that no dividend or distribution is declared on Company Common Stock,
then a dividend of $1 per share of Company Junior Preferred Stock will
nevertheless be payable on the next Dividend Payment Date. The Board of
Directors of the Company may fix a record date for the determination of the
holders of Company Junior Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date may not be more
than 60 days prior to the payment date. Dividends on the Company Junior
Preferred Stock will accrue and be cumulative. Accrued and unpaid dividends will
not bear interest.
If quarterly dividends or other dividends or distributions payable on the
Company Junior Preferred Stock are in arrears, until all accrued and unpaid
dividends and distributions on the Company Junior Preferred Stock are paid in
full, the Company may not (i) declare or pay any dividend or distribution with
respect to any stock ranking junior to the Company Junior Preferred Stock; (ii)
declare or pay any dividend or distribution with respect to any stock ranking on
parity with the Company Junior Preferred Stock, other than pro rata
distributions made on the Company Junior Preferred Stock and all such parity
stock; (iii) redeem or purchase or otherwise acquire shares of Company Junior
Preferred Stock or any stock ranking junior to the Company Junior Preferred
Stock (provided that the Company may redeem or purchase or otherwise acquire
shares of any such junior stock in exchange for shares of any stock ranking
junior to the Company Junior Preferred Stock); and (iv) redeem or purchase or
otherwise acquire shares of any stock ranking on parity with the Company Junior
Preferred Stock, except in accordance with a purchase offer made in writing or
publication to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among the
respective series or classes.
Liquidation Preference. In the event of any liquidation, dissolution or
winding up of the Company, no distributions will be made with respect to (i) any
shares of stock ranking junior to the Company Junior Preferred Stock, unless
holders of shares of Company Junior Preferred Stock have received an amount per
share equal to $100 plus an amount per share equal to any dividends accrued but
unpaid thereon, without interest, provided that such holders will be entitled to
receive an amount per share equal to 100 times the amount to be distributed per
share to holders of Company Common Stock or (ii) any shares of stock ranking on
parity with the Company Junior Preferred Stock, except for pro rata
distributions made on the Company Junior Preferred Stock and all such parity
stock. If the Company at any time declares or pays a stock dividend payable in
Company Common Stock, or effects a subdivision or combination or consolidation
of Company Common Stock, then the amount to which holders of Company Junior
Preferred Stock will be entitled will be adjusted in accordance with the
antidilution provisions contained in the Company Certificate.
Voting Rights. Each share of Company Junior Preferred Stock will be
entitled to 100 votes per share. If the Company at any time declares or pays a
stock dividend payable in Company Common Stock, or effects a subdivision or
combination or consolidation of Company Common Stock, then the number of votes
to which holders of Company Junior Preferred Stock will be entitled will be
adjusted in accordance with the antidilution provisions contained in the Company
Certificate. The Company Junior Preferred Stock shall vote together with the
Company Common Stock and any other capital stock of the Company having general
voting rights as one class on all matters submitted to a vote of stockholders of
the Company, except as otherwise provided in a certificate of designation for
any other class of Company Preferred Stock filed with the Secretary of State of
the State of Delaware or by law. Except as otherwise provided by law, the
Company Junior Preferred Stock will have no special voting rights, and except to
the extent the Company Junior Preferred Stock is entitled to vote with the
Company Common Stock, the consent of the Company Junior Preferred Stock will not
be required for taking any corporate action.
Rights Upon Consolidation, Merger or Combination. If the Company enters
into any consolidation, merger, combination or other transaction in which shares
of Company Common Stock are exchanged for or changed into other stock or
securities, cash and/or other property, then each share of Company Junior
Preferred Stock will at the same time be similarly exchanged or changed into an
amount per share equal to 100 times the aggregate amount of stock, securities,
cash and/or other property (payable in kind) into which
65
<PAGE> 71
or for which each share of Company Common Stock is changed or exchanged. If the
Company at any time declares or pays a stock dividend payable in Company Common
Stock, or effects a subdivision or combination or consolidation of Company
Common Stock, then the amount to which holders of Company Junior Preferred Stock
will be entitled with respect to such exchange or change will be adjusted in
accordance with the antidilution provisions contained in the Company
Certificate.
CERTAIN PROVISIONS IN THE COMPANY CERTIFICATE AND COMPANY BY-LAWS
Except as described below, the Company Certificate and the Company By-Laws
will be substantially similar to the Rockwell Certificate and the Rockwell
By-Laws. Accordingly, the Company Certificate and the Company By-Laws will
contain various provisions intended to (i) promote stability of the Company's
stockholder base and (ii) render more difficult certain unsolicited or hostile
attempts to take over the Company which could disrupt the Company, divert the
attention of the Company's directors, officers and employees and adversely
affect the independence and integrity of the Company's business. A summary of
the material terms of these provisions of the Company Certificate and the
Company By-Laws is set forth below.
CLASSIFIED BOARD OF DIRECTORS AND REMOVAL OF DIRECTORS
Pursuant to the Company Certificate, the number of directors of the Company
will be fixed by the Board of Directors of the Company. The directors (other
than those elected by the holders of any series of Company Preferred Stock or
any other series or class of stock, other than Company Common Stock) will be
divided into three classes, each class to consist as nearly as possible of
one-third of the directors. Directors elected by stockholders at an Annual
Meeting of Stockholders will be elected by a plurality of all votes cast at such
annual meeting. Initially, the terms of office of the three classes of directors
will expire, respectively, at the Annual Meeting of Stockholders in 1998, 1999
and 2000. The term of the successors of each such class of directors expires
three years from the year of election.
The Company Certificate provides that except as otherwise provided for or
fixed by or pursuant to a certificate of designations setting forth the rights
of the holders of any class or series of Company Preferred Stock and unless the
Board of Directors of the Company otherwise determines, newly created
directorships resulting from any increase in the number of directors and any
vacancies on the Board of Directors of the Company resulting from death,
resignation, disqualification, removal or other cause will be filled by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of the Board of Directors of the Company, and not by
the stockholders. Any director elected in accordance with the preceding sentence
will hold office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of directors constituting the Board of Directors of the Company will
shorten the term of any incumbent director. Subject to the rights of holders of
any Company Preferred Stock, any director may be removed from office only for
cause by the affirmative vote of the holders of at least 80 percent of the
voting power of all the outstanding capital stock of the Company entitled to
vote generally in the election of directors (the "Voting Power"), voting
together as a single class.
These provisions of the Company Certificate would preclude a third party
from removing incumbent directors and simultaneously gaining control of the
Board of Directors of the Company by filling the vacancies created by removal
with its own nominees. Under the classified board provisions described above, it
would take at least two elections of directors for any individual or group to
gain control of the Board of Directors of the Company. Accordingly, these
provisions could discourage a third party from initiating a proxy contest,
making a tender offer or otherwise attempting to gain control of the Company.
FAIR PRICE PROVISION
The Company Certificate contains a provision (the "Fair Price Provision")
pursuant to which a Business Combination (as defined below) between the Company
or a subsidiary of the Company and an Interested Stockholder (as defined below)
requires approval by the affirmative vote of the holders of not less than 80
percent of the Voting Power, unless the Business Combination is approved by at
least two-thirds of the
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<PAGE> 72
Continuing Directors (as defined below) or certain fair price criteria and
procedural requirements specified in the Fair Price Provision and described
below are met. If either the requisite Board of Directors approval or the fair
price and procedural requirements were met, the Business Combination would be
subject to the voting requirements otherwise applicable under the DGCL and the
NYSE, which for most types of Business Combinations currently would be the
affirmative vote of the holders of a majority of the outstanding shares of stock
of the Company entitled to vote thereon.
The general purpose of the Fair Price Provision is to protect stockholders
against so-called front-end loaded or two-tier tender offers which may afford
some stockholders a disproportionately higher price for their shares than
stockholders receive generally. The Fair Price Provision is intended to help
assure the Company's stockholders fair and equitable treatment in the event a
third party were to seek to acquire the Company.
A "Business Combination" is defined as: (i) a merger or consolidation of
the Company or any subsidiary with an Interested Stockholder; (ii) the sale,
lease, exchange, mortgage, pledge, transfer or other disposition by the Company
or a subsidiary of assets or securities having a value of $25 million or more if
an Interested Stockholder is a party to the transaction; (iii) the adoption of
any plan or proposal for the liquidation or dissolution of the Company proposed
by or on behalf of an Interested Stockholder; (iv) any reclassification of
securities, recapitalization, merger with a subsidiary or other transaction
which has the effect, directly or indirectly, of increasing an Interested
Stockholder's proportionate share of the outstanding capital stock of the
Company or a subsidiary; or (v) any agreement or contract providing for any of
the foregoing.
An "Interested Stockholder" is defined as any person who is the beneficial
owner of 10 percent or more of the Voting Power other than the Company, certain
of its subsidiaries, or the employee benefit plans of the Company, any
subsidiary or Rockwell and the trustees of such plans. A person is the
"beneficial owner" of stock that such person, directly or indirectly, owns or
has the right to acquire or vote. The Company is not aware of any person or
group who would have been within the definition of an "Interested Stockholder"
if the Distribution had occurred on July 31, 1997.
"Fair Price" Criteria. Under the Fair Price Provision, the fair price
criteria that must be satisfied to avoid the 80 percent stockholder voting
requirement include the requirements that the consideration paid to the
Company's stockholders in a Business Combination must be (i) either cash or the
same form of consideration used by the Interested Stockholder in acquiring its
beneficial ownership of the largest number of shares of the relevant class or
series of the Company's capital stock acquired by the Interested Stockholder and
(ii) at least equal to the highest of (A) the highest per share price paid by or
on behalf of the Interested Stockholder in the two-year period immediately
preceding the date of the first public announcement of the proposal of the
Business Combination or in the transaction in which it became an Interested
Stockholder, whichever is higher, (B) the fair market value per share of the
relevant class or series of the Company's capital stock on the date the
Interested Stockholder became an Interested Stockholder or the date of the first
public announcement of the proposal of the Business Combination, whichever is
higher, or (C) the liquidation preference of the relevant class or series of the
Company's capital stock (other than Company Common Stock). The Interested
Stockholder would be required to meet the fair price criteria with respect to
each class of the Company's capital stock, whether or not the Interested
Stockholder beneficially owned shares of that class prior to proposing the
Business Combination. If the Business Combination does not involve any cash or
other property being received by any of the other stockholders, such as a sale
of assets or an issuance of the Company's securities to an Interested
Stockholder, then the fair price criteria discussed above would not apply, and
approval by the holders of 80 percent of the Voting Power would be required
unless the transaction were approved by at least two-thirds of the Continuing
Directors.
Procedural Requirements. Under the Fair Price Provision, even if the
foregoing fair price criteria are met, the following procedural requirements
must be met if the Business Combination is not to require approval by at least
two-thirds of the Continuing Directors or approval by the holders of 80 percent
of the Voting Power: (i) the Company, after the Interested Stockholder became an
Interested Stockholder, must not have failed to pay full quarterly dividends on
the Company Preferred Stock, if any, or reduced the rate of dividends paid on
the Company Common Stock, unless such failure or reduction was approved by at
least two-thirds of the Continuing Directors; (ii) the Interested Stockholder
must not have acquired at any time after
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<PAGE> 73
becoming an Interested Stockholder any additional shares of the Company's
capital stock in any transaction unless after giving effect to such acquisition
there would be no increase in the Interested Stockholder's percentage beneficial
ownership of any class of the Company's capital stock; (iii) the Interested
Stockholder must not have received (other than proportionately as a stockholder)
at any time after becoming an Interested Stockholder, whether in connection with
the proposed Business Combination or otherwise, the benefit of any loans or
other financial assistance or any tax advantages provided by the Company; (iv) a
proxy or information statement describing the proposed Business Combination and
complying with the requirements of the Exchange Act must have been mailed to all
stockholders of the Company at least 30 days prior to the consummation of the
Business Combination; and (v) the Interested Stockholder must not have made any
material change in the Company's business or equity capital structure without
the approval of at least two-thirds of the Continuing Directors.
Continuing Director Approval. If the Business Combination with an
Interested Stockholder is approved by at least two-thirds of the Continuing
Directors, neither the fair price criteria and other procedural requirements nor
the 80 percent stockholder vote requirement would be applicable. A "Continuing
Director" is any member of the Board of Directors of the Company who is not
affiliated or associated with or a representative of the Interested Stockholder
and who was a director of the Company prior to the time the Interested
Stockholder became an Interested Stockholder, and any successor to such
Continuing Director who is not affiliated or associated with or a representative
of an Interested Stockholder and who was recommended or elected by at least
two-thirds of the Continuing Directors.
80 Percent Stockholder Vote. If the fair price criteria and procedural
requirements are not satisfied and the Business Combination is not approved by
at least two-thirds of the Continuing Directors, the Fair Price Provision
requires the approval of the holders of 80 percent of the Voting Power, voting
as a single class, in addition to any vote required by law or otherwise. If the
fair price criteria and other procedural requirements were met or at least
two-thirds of the Continuing Directors approved a particular Business
Combination, the normal voting requirements of the DGCL and the NYSE would
apply. Under current provisions of the DGCL, certain mergers, consolidations,
reclassifications of securities, sales of substantially all assets and plans of
dissolution would have to be approved by the holders of a majority of the
outstanding shares of stock of the Company entitled to vote thereon. Under the
current rules of the NYSE, on which shares of Company Common Stock are to be
listed, the issuance of additional shares of Company Common Stock aggregating 20
percent of the outstanding shares could, under certain circumstances, require
approval by a majority of the votes cast by the holders of the shares of the
stock of the Company entitled to vote thereon. Certain other transactions, such
as sales of less than substantially all assets, mergers involving a 90%-owned
subsidiary and recapitalizations not involving any amendments to the Company
Certificate, would not require stockholder approval under the DGCL or NYSE
rules, although such transactions may constitute Business Combinations subject
to the Fair Price Provision.
Amendment of the Fair Price Provision. Any amendment or repeal of the Fair
Price Provision, or the adoption of provisions inconsistent therewith, must be
approved by the affirmative vote of the holders of not less than 80 percent of
the Voting Power, voting together as a single class, unless such amendment,
repeal or adoption were approved by at least two-thirds of the Continuing
Directors, in which case the provisions of the DGCL would require the
affirmative vote of the holders of a majority of the outstanding shares of the
Company's stock entitled to vote thereon.
SPECIAL STOCKHOLDERS' MEETINGS AND RIGHT TO ACT BY WRITTEN CONSENT
The Company Certificate and the Company By-Laws provide that a special
meeting of stockholders may be called only by a resolution adopted by a majority
of the entire Board of Directors of the Company. Stockholders are not permitted
to call, or to require that the Board of Directors call, a special meeting of
stockholders. Moreover, the business permitted to be conducted at any special
meeting of stockholders is limited to the business brought before the meeting
pursuant to the notice of the meeting given by the Company. In addition, the
Company Certificate provides that any action taken by the stockholders of the
Company must be effected at an annual or special meeting of stockholders and may
not be taken by written consent in lieu of a meeting.
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<PAGE> 74
The provisions of the Company Certificate and the Company By-Laws
prohibiting stockholder action by written consent may have the effect of
delaying consideration of a stockholder proposal until the next annual meeting.
These provisions would also prevent the holders of a majority of the Voting
Power from unilaterally using the written consent procedure to take stockholder
action. Moreover, a stockholder could not force stockholder consideration of a
proposal over the opposition of the Board of Directors of the Company by calling
a special meeting of stockholders prior to the time the Board believes such
consideration to be appropriate.
PROCEDURES FOR STOCKHOLDER NOMINATIONS AND PROPOSALS
The Company By-Laws establish an advance notice procedure for stockholders
to nominate candidates for election as directors or to bring other business
before meetings of stockholders of the Company (the "Stockholder Notice
Procedure").
Only those stockholder nominees who are nominated in accordance with the
Stockholder Notice Procedure will be eligible for election as directors of the
Company. Under the Stockholder Notice Procedure, notice of stockholder
nominations to be made at an annual meeting (or of any other business to be
brought before such meeting) must be received by the Company not less than 60
days nor more than 90 days prior to the first anniversary of the previous year's
annual meeting (or, in the case of the 1998 Annual Meeting of Stockholders or if
the date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary date, not earlier than the 90th day prior to such meeting
and not later than the later of (i) the 60th day prior to such meeting or (ii)
the 10th day after public announcement of the date of such meeting is first
made). Notwithstanding the foregoing, in the event that the number of directors
to be elected is increased and there is no public announcement naming all of the
nominees for director or specifying the size of the increased Board of Directors
made by the Company at least 70 days prior to the first anniversary of the
preceding year's annual meeting, a stockholder's notice will be timely, but only
with respect to nominees for any new positions created by such increase, if it
is received by the Company not later than the 10th day after such public
announcement is first made by the Company.
The Company By-Laws provide that only such business may be conducted at a
special meeting as is specified in the notice of meeting. Nominations for
election to the Company's Board of Directors may be made at a special meeting at
which directors are to be elected only by or at the Company's Board of Directors
direction or by a stockholder who has given timely notice of nomination. Under
the Stockholder Notice Procedure, such notice must be received by the Company
not earlier than the 90th day before such meeting and not later than the later
of (i) the 60th day prior to such meeting or (ii) the 10th day after public
announcement of the date of such meeting is first made. Stockholders will not be
able to bring other business before special meetings of stockholders.
The Stockholder Notice Procedure provides that at an annual meeting only
such business may be conducted as has been brought before the meeting by, or at
the direction of the Company's Board of Directors or by a stockholder who has
given timely written notice (as set forth above) to the Company of such
stockholder's intention to bring such business before such meeting.
Under the Stockholder Notice Procedure, a stockholder's notice to the
Company proposing to nominate an individual for election as a director must
contain certain information, including, without limitation, the identity and
address of the nominating stockholder, the class and number of shares of stock
of the Company owned by such stockholder, and all information regarding the
proposed nominee that would be required to be included in a proxy statement
soliciting proxies for the proposed nominee. Under the Stockholder Notice
Procedure, a stockholder's notice relating to the conduct of business other than
the nomination of directors must contain certain information about such business
and about the proposing stockholder, including without limitation, a brief
description of the business the stockholder proposes to bring before the
meeting, the reasons for conducting such business at such meeting, the name and
address of such stockholder, the class and number of shares of stock of the
Company beneficially owned by such stockholder, and any material interest of
such stockholder in the business so proposed. If the Chairman or other officer
presiding at a meeting determines that an individual was not nominated, or other
business was not brought before the meeting, in accordance
69
<PAGE> 75
with the Stockholder Notice Procedure, such individual will not be eligible for
election as a director, or such business will not be conducted at such meeting,
as the case may be.
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure will afford the Company's Board of Directors an opportunity to
consider the qualifications of the proposed nominees and, to the extent deemed
necessary or desirable by the Company's Board of Directors, to inform
stockholders about such qualifications. By requiring advance notice of other
proposed business, the Stockholder Notice Procedure will provide a more orderly
procedure for conducting annual meetings of stockholders and, to the extent
deemed necessary or desirable by the Company's Board of Directors, will provide
the Company's Board of Directors with an opportunity to inform stockholders,
prior to such meetings, of any business proposed to be conducted at such
meetings, together with the Company's Board of Directors' position regarding
action to be taken with respect to such business, so that stockholders can
better decide whether to attend such a meeting or to grant a proxy regarding the
disposition of any such business.
Although the Company By-Laws do not give the Company's Board of Directors
any power to approve or disapprove stockholder nominations for the election of
directors or proposals for action, they may have the effect of precluding a
contest for the election of directors or the consideration of stockholder
proposals if the proper procedures are not followed, and of discouraging or
deterring a third party from conducting a solicitation of proxies to elect its
own slate of directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
the Company and its stockholders.
AMENDMENT OF THE COMPANY CERTIFICATE AND COMPANY BY-LAWS
The Company Certificate provides that the affirmative vote of at least 80
percent of the Voting Power, voting together as a single class, would be
required to (i) amend or repeal the provisions of the Company Certificate with
respect to (A) the election of directors, (B) the right to call a special
stockholders' meeting and (C) the right to act by written consent, (ii) adopt
any provision inconsistent with such provisions and (iii) amend or repeal the
provisions of the Company Certificate with respect to amendments to the Company
Certificate or the Company By-Laws. In addition, the Company Certificate
provides that the Board of Directors of the Company may make, alter, amend and
repeal the by-laws of the Company and that the amendment or repeal by
stockholders of any by-laws of the Company would require the affirmative vote of
at least 80 percent of the Voting Power, voting together as a single class.
COMPANY RIGHTS PLAN
The Company's Board of Directors will declare a dividend of one preferred
share purchase right ("Company Right") to be paid in respect of each share of
Company Common Stock to be issued in the Distribution. Each Company Right will
entitle the registered holder to purchase from the Company one one-hundredth of
a share of Company Junior Preferred Stock, at a price to be established by the
Board of Directors of the Company at the time the Company Rights Agreement is
entered into (the "Purchase Price"), subject to adjustment. The description and
terms of the Company Rights will be set forth in a Rights Agreement (the
"Company Rights Agreement") to be entered into between the Company and First
Chicago Trust Company of New York, as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 20% or more of the outstanding
Company Common Stock or (ii) 10 business days (or such later date as may be
determined by the Company's Board of Directors prior to such time as any person
or group becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 20% or more of the outstanding Company Common Stock (the earlier of
such dates being called the "Rights Distribution Date"), the Company Rights will
be attached to Company Common Stock and the Company Rights will be owned by the
registered owners of Company Common Stock.
70
<PAGE> 76
The Company Rights Agreement will provide that, until the Rights
Distribution Date (or until the earlier redemption or expiration of the Company
Rights), (i) the Company Rights will be transferred with and only with the
Company Common Stock, (ii) certificates representing Company Common Stock and
initial transaction statements in respect of shares of Company Common Stock
registered in book-entry form will contain a notation incorporating the terms of
the Company Rights by reference and (iii) the transfer of any shares of Company
Common Stock will also constitute the transfer of the Company Rights associated
therewith. As soon as practicable following the Rights Distribution Date,
separate certificates evidencing the Company Rights ("Rights Certificates") will
be mailed to holders of record of the Company Common Stock as of the close of
business on the Rights Distribution Date and such separate Rights Certificates
alone will evidence the Company Rights.
The Company Rights will not be exercisable until the Rights Distribution
Date. The Company Rights will expire on the tenth anniversary of the
Distribution (the "Final Expiration Date"), unless the Final Expiration Date is
extended or unless the Company Rights are earlier redeemed by the Company, in
each case, as described below.
The Purchase Price payable, and the number of shares of Company Junior
Preferred Stock or other securities or property issuable, upon exercise of the
Company Rights will be subject to adjustment from time to time to prevent
dilution (i) in the event of a stock dividend on, or a subdivision, combination
or reclassification of, Company Junior Preferred Stock, (ii) upon the grant to
holders of shares of Company Junior Preferred Stock of certain rights or
warrants to subscribe for or purchase shares of Company Junior Preferred Stock
at a price, or securities convertible into shares of Company Junior Preferred
Stock with a conversion price, less than the then current market price of the
shares of Company Junior Preferred Stock or (iii) upon the distribution to
holders of shares of Company Junior Preferred Stock of evidences of indebtedness
or assets (excluding regular periodic cash dividends or dividends payable in
shares of Company Junior Preferred Stock) or of subscription rights or warrants
(other than those referred to above).
The number of outstanding Company Rights and the number of one
one-hundredths of a share of Company Junior Preferred Stock issuable upon
exercise of each Company Right will also be subject to adjustment in the event
of a stock split of the Company Common Stock or a stock dividend on the Company
Common Stock payable in Company Common Stock or subdivisions, consolidations or
combinations of the Company Common Stock occurring, in any such case, prior to
the Rights Distribution Date.
Shares of Company Junior Preferred Stock purchasable upon exercise of the
Company Rights will not be redeemable. Each share of Company Junior Preferred
Stock will be entitled to a minimum preferential quarterly dividend payment of
$1 per share but will be entitled to an aggregate dividend of 100 times the
dividend declared per share of Company Common Stock whenever such dividend is
declared. In the event of liquidation, the holders of Company Junior Preferred
Stock will be entitled to a minimum preferential liquidation payment of $100 per
share but will be entitled to an aggregate payment of 100 times the payment made
per share of Company Common Stock. Each share of Company Junior Preferred Stock
will have 100 votes, voting together with the Company Common Stock. Finally, in
the event of any merger, consolidation or other transaction in which shares of
Company Common Stock are exchanged, each share of Company Junior Preferred Stock
will be entitled to receive 100 times the amount received per share of Company
Common Stock. These rights will be protected by customary antidilution
provisions.
Because of the nature of the Company Junior Preferred Stock's dividend,
liquidation and voting rights, the value of the one one-hundredth interest in a
share of Company Junior Preferred Stock purchasable upon exercise of each
Company Right should approximate the value of one share of Company Common Stock.
In the event that, at any time after a person has become an Acquiring
Person, the Company is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power is sold,
proper provision will be made so that each holder of a Company Right will
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Company Right, that number of shares of common
stock of the acquiring company which at the time of such transaction will have a
market value of two times the exercise price of the Company Right. In the event
that any person becomes an Acquiring Person, proper provision shall be made so
that each holder of a Company Right, other than
71
<PAGE> 77
Company Rights beneficially owned by the Acquiring Person (which will thereafter
be void), will thereafter have the right to receive upon exercise, in lieu of
shares of Company Junior Preferred Stock, that number of shares of Company
Common Stock having a market value of two times the exercise price of the
Company Right.
At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person, and prior to the acquisition by such person or
group of 50% or more of the outstanding shares of Company Common Stock, the
Company's Board of Directors may exchange the Company Rights for Company Common
Stock or Company Junior Preferred Stock (other than Company Rights owned by such
person or group, which will have become void after such person became an
Acquiring Person), in whole or in part, at an exchange ratio of one share of
Company Common Stock, or one hundredth of a share of Company Junior Preferred
Stock (or of a share of another series of Company Preferred Stock having
equivalent rights, preferences and privileges), per Company Right (subject to
adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Company Junior Preferred Stock will
be issued (other than fractions which are integral multiples of one
one-hundredth of a share of Company Junior Preferred Stock, which may, at the
election of the Company, be evidenced by depository receipts) and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Company Junior Preferred Stock on the last trading day prior to the date of
exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding
shares of Company Common Stock, the Board of Directors of the Company may redeem
the Company Rights in whole, but not in part, at a price of $.01 per Company
Right (the "Redemption Price"). The redemption of the Company Rights may be made
effective at such time, on such basis and with such conditions as the Company's
Board of Directors may determine, in its sole discretion. Immediately upon any
redemption of the Company Rights, the right to exercise the Company Rights will
terminate and the only right of the holders of Company Rights will be to receive
the Redemption Price.
The terms of the Company Rights may be amended by the Board of Directors of
the Company without the consent of the holders of the Company Rights, including
an amendment to decrease the threshold at which a person becomes an Acquiring
Person from 20% to not less than 10%, except that from and after such time as
any person becomes an Acquiring Person no such amendment may adversely affect
the interests of the holders of the Company Rights.
Until a Company Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends.
The Company Rights will have certain anti-takeover effects. The Company
Rights will cause substantial dilution to a person or group that attempts to
acquire the Company on terms not approved by the Company's Board of Directors,
except pursuant to an offer conditioned on a substantial number of the Company
Rights being acquired. The Company Rights should not interfere with any merger
or business combination approved by the Company's Board of Directors, since the
Company Rights may be redeemed by the Company at the Redemption Price prior to
the time that a person or group has become an Acquiring Person.
The foregoing summary of the material terms of the Company Rights is
qualified by reference to the form of the Company Rights Agreement, which has
been filed as an exhibit to the Registration Statement of which this Information
Statement is a part.
ANTI-TAKEOVER LEGISLATION
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any business combination
with any interested stockholder for a three-year period following the time that
such stockholder becomes an interested stockholder unless (i) prior to such
time, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction which resulted
in
72
<PAGE> 78
the stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding certain shares); or (iii) at or
subsequent to such time, the business combination is approved by the board of
directors of the corporation and by the affirmative vote of at least 66 2/3% of
the outstanding voting stock which is not owned by the interested stockholder.
Except as specified in Section 203 of the DGCL, an "interested stockholder" is
defined to include (x) any person that is the owner of 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within three years immediately prior to the
relevant date and (y) the affiliates and associates of any such person.
Under certain circumstances, Section 203 of the DGCL makes it more
difficult for a person who would be an interested stockholder to effect various
business combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. The Company Certificate does not exclude the Company from the
restrictions imposed under Section 203 of the DGCL. It is anticipated that the
provisions of Section 203 of the DGCL may encourage companies interested in
acquiring the Company to negotiate in advance with the Company's Board of
Directors, since the stockholder approval requirement would be avoided if a
majority of the directors then in office approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The DGCL permits Delaware corporations to eliminate or limit the monetary
liability of directors for breach of their fiduciary duty of care, subject to
certain limitations. The Company Certificate provides that Company directors are
not liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for willful or negligent violation of the laws governing
the payment of dividends or the purchase or redemption of stock or (iv) for any
transaction from which a director derived an improper personal benefit.
The DGCL provides for indemnification of directors, officers, employees and
agents subject to certain limitations. The Company By-Laws and the appendix
thereto provide for the indemnification of directors, officers, employees and
agents of the Company to the extent permitted by Delaware law. It is expected
that the Company's directors and officers will be insured against certain
liabilities for actions taken in such capacities, including liabilities under
the Securities Act.
73
<PAGE> 79
INDEX TO DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
1997 LTIP.............................. 54
1997 LTIP Participants................. 55
ABS.................................... 31
Acquiring Person....................... 70
Allen-Bradley.......................... 54
Automotive Business.................... 7
beneficial owner....................... 67
Business Combination................... 67
change of control...................... 58
Code................................... 6
Commission............................. 4
Common Stock........................... 1
Company................................ 5
Company By-Laws........................ 9
Company Certificate.................... 9
Company Common Stock................... 1
Company Junior Preferred Stock......... 63
Company Options........................ 23
Company Participants................... 22
Company Preferred Stock................ 63
Company Right.......................... 70
Company Rights Agreement............... 70
Compensation Committee................. 47
Continuing Director.................... 68
Credit Facility........................ 25
DGCL................................... 16
Directors Plan......................... 58
Distribution........................... 1
Distribution Agent..................... 6
Distribution Agreement................. 21
Distribution Date...................... 6
Dividend Payment Date.................. 65
Electronics Business................... 17
Employee Matters Agreement............. 22
Exchange Act........................... 4
Fair Price Provision................... 66
Final Expiration Date.................. 71
Financial Ratio........................ 41
freestanding SAR....................... 56
HVS.................................... 7
ICP.................................... 60
<CAPTION>
PAGE
------
<S> <C>
Interested Stockholder................. 67
interested stockholder................. 73
IRS.................................... 6
LIBOR.................................. 25
LVS.................................... 7
Named Executive Officers............... 50
NYSE................................... 1
OEMs................................... 13
Pre-Distribution Payment............... 8
Purchase Price......................... 70
Ratings Grid........................... 41
Record Date............................ 1
Redemption Price....................... 72
Registration Statement................. 4
restricted stock....................... 56
Retention Payment...................... 51
Rights Agent........................... 70
Rights Certificates.................... 71
Rights Distribution Date............... 70
Rockwell............................... 1
Rockwell 1988 LTIP..................... 23
Rockwell 1995 LTIP..................... 23
Rockwell By-Laws....................... 63
Rockwell Certificate................... 63
Rockwell Common Stock.................. 1
Rockwell Junior Preferred Stock........ 18
Rockwell Option Plans.................. 51
Rockwell Options....................... 23
Rockwell Savings Plan.................. 15
SARs................................... 54
Securities Act......................... 19
stock options.......................... 50
Stockholder Notice Procedure........... 69
tandem SAR............................. 56
Tax Allocation Agreement............... 24
Tax Ruling............................. 6
Transfer Agent......................... 6
Transition Agreement................... 24
Voting Power........................... 66
WABCO.................................. 31
</TABLE>
74
<PAGE> 80
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUTOMOTIVE BUSINESS
Independent Auditors' Report.......................................................... F-2
Combined Balance Sheet as of September 30, 1995 and 1996 and (Unaudited) June 30,
1997................................................................................ F-3
Combined Statement of Income for the years ended September 30, 1994, 1995 and 1996 and
(Unaudited) the nine months ended June 30, 1996 and 1997............................ F-4
Combined Statement of Cash Flows for the years ended September 30, 1994, 1995 and 1996
and (Unaudited) the nine months ended June 30, 1996 and 1997........................ F-5
Notes to Combined Financial Statements................................................ F-6
Independent Auditors' Report.......................................................... F-19
Schedule II -- Valuation and Qualifying Accounts...................................... F-20
111 HOLDINGS, INC.
Independent Auditors' Report.......................................................... F-21
Balance Sheet as of June 10, 1997 and Note to Balance Sheet........................... F-22
</TABLE>
F-1
<PAGE> 81
INDEPENDENT AUDITORS' REPORT
To the Directors and Shareowners of
Rockwell International Corporation:
We have audited the accompanying combined balance sheet of the Automotive
Business of Rockwell International Corporation (Rockwell), as described in Note
1 to the financial statements, as of September 30, 1996 and 1995, and the
related combined statements of income and cash flows for each of the three years
in the period ended September 30, 1996. These financial statements are the
responsibility of Rockwell'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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Automotive Business of Rockwell
at September 30, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1996 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
June 10, 1997
F-2
<PAGE> 82
AUTOMOTIVE BUSINESS
COMBINED BALANCE SHEET
(IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash.............................................................. $ 62 $ 74 $ 68
Receivables (less allowance for doubtful accounts: 1995, $8; 1996,
$14; 1997, $9).................................................. 454 485 564
Inventories....................................................... 319 294 302
Other current assets.............................................. 107 140 140
------ ------ ------
Total current assets.................................... 942 993 1,074
------ ------ ------
PROPERTY
Property at cost.................................................. 1,535 1,558 1,551
Less accumulated depreciation..................................... 888 912 940
------ ------ ------
Property, net..................................................... 647 646 611
------ ------ ------
OTHER ASSETS...................................................... 177 194 212
------ ------ ------
TOTAL ASSETS............................................ $1,766 $1,833 $ 1,897
====== ====== ======
CURRENT LIABILITIES
Short-term debt................................................... $ 14 $ 8 $ 23
Accounts payable.................................................. 420 441 464
Accrued compensation and benefits................................. 116 124 134
Other current liabilities......................................... 176 191 173
------ ------ ------
Total current liabilities............................... 726 764 794
LONG-TERM DEBT.................................................... 31 24 21
ACCRUED RETIREMENT BENEFITS....................................... 395 391 392
OTHER LIABILITIES................................................. 29 26 23
MINORITY INTERESTS................................................ 24 29 36
ROCKWELL'S NET INVESTMENT......................................... 561 599 631
------ ------ ------
TOTAL LIABILITIES AND ROCKWELL'S NET INVESTMENT......... $1,766 $1,833 $ 1,897
====== ====== ======
</TABLE>
See notes to combined financial statements.
F-3
<PAGE> 83
AUTOMOTIVE BUSINESS
COMBINED STATEMENT OF INCOME
(IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------ ---------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales................................................. $2,653 $3,125 $3,144 $2,397 $2,467
Cost of sales......................................... 2,371 2,744 2,747 2,098 2,135
------ ------ ------ ------ ------
GROSS MARGIN.......................................... 282 381 397 299 332
Selling, general, and administrative.................. 191 203 215 158 168
Restructuring......................................... -- -- 36 6 --
------ ------ ------ ------ ------
OPERATING EARNINGS.................................... 91 178 146 135 164
Other income - net.................................... 9 18 46 21 10
Interest expense...................................... (12) (11) (10) (8) (6)
------ ------ ------ ------ ------
INCOME BEFORE INCOME TAXES............................ 88 185 182 148 168
Provision for income taxes............................ 37 62 68 54 68
------ ------ ------ ------ ------
NET INCOME.................................. $ 51 $ 123 $ 114 $ 94 $ 100
====== ====== ====== ====== ======
</TABLE>
See notes to combined financial statements.
F-4
<PAGE> 84
AUTOMOTIVE BUSINESS
COMBINED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER ENDED JUNE
30, 30,
--------------------- -----------
1994 1995 1996 1996 1997
----- ----- ----- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................. $ 51 $ 123 $ 114 $ 94 $100
Adjustments to net income to arrive at cash provided by
operating activities:
Depreciation and amortization............................ 93 97 102 75 76
Loss (gain) on sale of property and businesses........... 4 (5) (19) (18) --
Restructuring, net of expenditures....................... -- -- 26 6 --
Deferred income taxes.................................... (13) (11) (20) (3) (4)
Net pension expense, net of contributions................ 19 26 23 19 18
Changes in assets and liabilities, excluding effects of
acquisitions, divestitures, and foreign currency
adjustments:
Receivables........................................... (51) (33) (32) (50) (98)
Inventories........................................... 4 (39) 19 8 (12)
Accounts payable...................................... 47 56 24 -- 39
Other assets and liabilities.......................... 2 (11) (40) (21) (20)
----- ----- ----- ---- ----
CASH PROVIDED BY OPERATING ACTIVITIES............ 156 203 197 110 99
----- ----- ----- ---- ----
INVESTING ACTIVITIES
Capital expenditures....................................... (102) (119) (144) (87) (59)
Acquisitions of businesses and investments................. (2) (19) (15) (10) (16)
Proceeds from the disposition of property and businesses... 5 11 58 50 6
----- ----- ----- ---- ----
CASH USED FOR INVESTING ACTIVITIES............... (99) (127) (101) (47) (69)
----- ----- ----- ---- ----
FINANCING ACTIVITIES
(Decrease) increase in short-term borrowings............... (14) -- (3) 7 17
Decrease in long-term debt................................. (3) (9) (7) (3) (3)
Net transfers to Rockwell.................................. (24) (71) (74) (52) (50)
----- ----- ----- ---- ----
CASH USED FOR FINANCING ACTIVITIES............... (41) (80) (84) (48) (36)
----- ----- ----- ---- ----
INCREASE (DECREASE) IN CASH................................ 16 (4) 12 15 (6)
CASH AT BEGINNING OF PERIOD................................ 50 66 62 62 74
----- ----- ----- ---- ----
CASH AT END OF PERIOD...................................... $ 66 $ 62 $ 74 $ 77 $ 68
===== ===== ===== ==== ====
</TABLE>
See notes to combined financial statements.
F-5
<PAGE> 85
AUTOMOTIVE BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On March 17, 1997, Rockwell International Corporation (Rockwell) announced
its intention to transfer its automotive businesses (the Automotive Business)
into a newly formed entity, 111 Holdings, Inc. (the Company). The shares of the
Company will be distributed to the shareowners of Rockwell in a tax-free spin-
off, with each Rockwell shareowner receiving one share of Company common stock
(including the associated right) for every three shares of Rockwell common stock
owned. The Company will be renamed and will become a separately traded, public
company. Prior to the spin-off, the Company will make a special payment of
approximately $445 million to Rockwell, which will be financed through bank
borrowings. The transaction, which is subject to several conditions, including
receipt of a ruling by the Internal Revenue Service that the transaction
qualifies as a tax-free distribution and final approval of Rockwell's board of
directors, is expected to be completed by September 30, 1997.
The accompanying financial statements present the historical financial
position, results of operations and cash flows of the ongoing Automotive
businesses of Rockwell to be spun off, and are not necessarily indicative of
what the financial position, results of operations or cash flows would have been
had the Automotive Business been an independent public company during the
periods presented. The actual assets and liabilities to be spun off are subject
to final determination, based on execution of a definitive Distribution
Agreement, which will occur shortly before the spin-off date.
The financial statements of the Automotive Business have been prepared in
accordance with generally accepted accounting principles which require
management to make estimates and assumptions that affect the amounts reported in
the financial statements. Actual results could differ from those estimates.
Rockwell provides certain services to the Automotive Business's United
States (U.S.) businesses, including payroll and employee benefits
administration, data processing, and telecommunications services. Rockwell
administers certain programs in which the Automotive Business's U.S. operations
participate, including active medical and insurance programs. Costs for these
services and programs are billed to the Automotive Business based on actual
usage and are included in the Automotive Business's statement of income. These
costs totaled $31 million, $27 million and $25 million in fiscal years 1994,
1995 and 1996, respectively, and $23 million and $21 million for the nine-month
periods ended June 30, 1996 and 1997, respectively. Management believes that the
methods of billing these costs are reasonable and that the costs charged to the
Automotive Business are approximately that which would be incurred on a
stand-alone basis.
Rockwell also provides management to the Automotive Business, including
corporate oversight, financial, legal, tax, corporate communications, and human
resources. The costs of providing these services are included in selling,
general and administrative expense on the statement of income and were $31
million, $34 million and $27 million in fiscal years 1994, 1995 and 1996,
respectively, and $21 million for each of the nine-month periods ended June 30,
1996 and 1997 and have been allocated to the Automotive Business based on the
Automotive Business's sales in proportion to total Rockwell sales. Management
believes that the method of allocating these costs to the Automotive Business is
reasonable. Management estimates the cost of providing these services on a
stand-alone basis to be approximately $17 million per year.
The Automotive Business's U.S. and certain of its non-U.S. operations
participate in Rockwell centralized cash management systems wherein receipts are
centrally deposited and disbursements are centrally funded. Accordingly, the
financial statements exclude cash, debt and interest income and expense in
countries with centralized cash management systems. Accounts payable includes
$18 million, $22 million and $19 million as of September 30, 1995 and 1996 and
June 30, 1997, respectively, related to outstanding checks drawn on centralized
disbursement accounts.
The balance sheet includes $35 million of cash related to wholly-owned
subsidiaries of the Automotive Business, plus all cash balances related to
consolidated subsidiaries that are not wholly-owned. Rockwell intends to retain
all other cash balances.
F-6
<PAGE> 86
AUTOMOTIVE BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The results of operations for the nine months ended June 30, 1997 are not
necessarily indicative of the results for the full year. In the opinion of
management, the unaudited interim financial statements contain all adjustments,
consisting solely of adjustments of a normal recurring nature, necessary to
present fairly the assets and liabilities, results of operations, and cash flows
for the periods presented. At the end of each interim reporting period
management makes an estimate of the effective tax rate expected to be applicable
for the full fiscal year. The rate so determined is used in providing for income
taxes on a year-to-date basis. All amounts in the financial statements as of or
for the nine months ended June 30, 1996 and 1997 are unaudited.
2. ACCOUNTING POLICIES
Basis of Combination
The combined financial statements of the Automotive Business include all
majority-owned subsidiaries of Rockwell which relate solely to the Automotive
Business and Automotive Business divisions of certain majority-owned
subsidiaries of Rockwell. All significant accounts and transactions between
Automotive locations have been eliminated. Intercompany accounts receivable and
payable between the Automotive Business and Rockwell or its subsidiaries as of
the date of the spin-off will be canceled or otherwise eliminated. Investments
in affiliates which are not majority-owned are reported using the equity method.
Inventories
Inventories are stated at the lower of cost (using LIFO, FIFO, or average
methods) or market (determined on the basis of estimated realizable values).
Tooling
Costs incurred by the Automotive Business for certain engineering and
tooling projects, principally on passenger car and light truck platforms, for
which customer reimbursement is anticipated are classified as other current
assets on the accompanying balance sheet. Provisions for losses are provided at
the time management anticipates engineering and tooling costs to exceed
anticipated customer reimbursement. Company-owned tooling is classified as
property and depreciated over its expected life or the life of the related
vehicle platform, whichever is shorter.
Property
Property is stated at cost. Depreciation of property is based on estimated
useful lives generally using the straight-line method. Significant renewals and
betterments are capitalized and replaced units are written off. Maintenance and
repairs, as well as renewals of minor amount, are charged to expense.
Intangible Assets
Goodwill represents the excess of the cost of purchased businesses over the
fair value of their net assets at the date of acquisition and is amortized by
the straight-line method over periods ranging from 5 to 40 years.
Impairment of Long-Lived Assets
The Automotive Business evaluates the carrying value of long-lived assets
for possible impairment in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of ".
F-7
<PAGE> 87
AUTOMOTIVE BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Environmental Matters
The Automotive Business records accruals for environmental issues in the
accounting period in which its responsibility is established and the cost can be
reasonably estimated. At environmental sites in which more than one potentially
responsible party has been identified, the Automotive Business records a
liability for its allocable share of costs related to its involvement with the
site as well as an allocable share of costs related to insolvent parties or
unidentified shares. At environmental sites in which the Automotive Business is
the only responsible party, the Automotive Business records a liability for the
total estimated costs of remediation before consideration of recovery from
insurers or other third parties. If recovery from a third party is determined to
be probable, the Automotive Business records a receivable for the estimated
recovery.
New Accounting Standards
In 1996, the Automotive Business adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of ". The adoption of this standard did not
have a material effect on the financial statements.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position No. 96-1, "Environmental Remediation Liabilities",
which is effective for fiscal year 1998. Management does not expect adoption of
this statement to have a material effect on the financial statements.
3. RESTRUCTURING
During 1996, the Automotive Business recorded restructuring charges of $36
million ($24 million after tax) related to rationalizing manufacturing processes
at several locations, mostly outside the United States. The provision includes
severance and other employee costs of $22 million related to 1,400 employees,
asset impairments of $8 million, and other costs of $6 million. Approximately
$10 million had been paid by September 30, 1996 and the remaining restructuring
actions are expected to be substantially completed by the end of the 1997 fiscal
year.
4. INVENTORIES
Inventories are summarized as follows (in millions):
<TABLE>
<CAPTION>
SEPTEMBER
30,
----------- JUNE 30,
1995 1996 1997
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Finished goods............................................... $109 $114 $ 114
Work in process.............................................. 163 146 132
Raw materials, parts, and supplies........................... 100 88 110
---- ---- ----
Total........................................................ 372 348 356
Less allowance to adjust the carrying value of certain
inventories (1995, $144; 1996, $125) to a LIFO basis....... 53 54 54
---- ---- ----
Inventories.................................................. $319 $294 $ 302
==== ==== ====
</TABLE>
F-8
<PAGE> 88
AUTOMOTIVE BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. OTHER CURRENT ASSETS
Other current assets are summarized as follows (in millions):
<TABLE>
<CAPTION>
SEPTEMBER
30,
----------- JUNE 30,
1995 1996 1997
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current deferred income taxes (see Note 13).................. $ 77 $ 95 $ 96
Customer tooling............................................. 16 21 20
Prepaid expenses............................................. 9 11 11
Other........................................................ 5 13 13
---- ---- ----
Other current assets......................................... $107 $140 $ 140
==== ==== ====
</TABLE>
6. PROPERTY
Property is summarized as follows (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Property at cost:
Land and land improvements.............................. $ 33 $ 32 $ 31
Buildings............................................... 299 282 282
Machinery and equipment................................. 947 950 978
Company-owned tooling................................... 178 188 193
Construction in progress................................ 78 106 67
------ ------ ------
Total..................................................... 1,535 1,558 1,551
Less accumulated depreciation............................. 888 912 940
------ ------ ------
Property, net............................................. $ 647 $ 646 $ 611
====== ====== ======
</TABLE>
7. OTHER ASSETS
Other assets are summarized as follows (in millions):
<TABLE>
<CAPTION>
SEPTEMBER
30,
----------- JUNE 30,
1995 1996 1997
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Net deferred income taxes (see Note 13)...................... $ 60 $ 66 $ 69
Goodwill (net of accumulated amortization of: 1995, $16;
1996, $18; 1997, $21)...................................... 40 45 43
Investments in affiliates.................................... 37 38 46
Prepaid pension costs (see Note 11).......................... 24 26 28
Other........................................................ 16 19 26
---- ---- ----
Other assets................................................. $177 $194 $ 212
==== ==== ====
</TABLE>
F-9
<PAGE> 89
AUTOMOTIVE BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. OTHER CURRENT LIABILITIES
Other current liabilities are summarized as follows (in millions):
<TABLE>
<CAPTION>
SEPTEMBER
30,
----------- JUNE 30,
1995 1996 1997
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued product warranties................................... $ 90 $ 99 $ 89
Accrued taxes other than income taxes........................ 26 24 28
Accrued restructuring........................................ -- 19 9
Other........................................................ 60 49 47
---- ---- ----
Other current liabilities.................................... $176 $191 $ 173
==== ==== ====
</TABLE>
The $18 million reduction in other current liabilities from September 1996
to June 1997 primarily relates to lower warranty accrual requirements and the
funding of the restructuring charge in 1996.
9. FINANCIAL INSTRUMENTS
The Automotive Business's financial instruments include cash, short- and
long-term debt, and foreign currency forward exchange contracts. As of September
30, 1995 and 1996 and June 30, 1997, the carrying values of the Automotive
Business's financial instruments approximated their fair values based on
prevailing market prices and rates.
It is the policy of the Automotive Business not to enter into derivative
financial instruments for speculative purposes. The Automotive Business does
enter into foreign currency forward exchange contracts to minimize risk of loss
from currency rate fluctuations on foreign currency commitments entered into in
the ordinary course of business. These commitments are generally for terms of
less than one year. The foreign currency forward exchange contracts are executed
with creditworthy banks and are denominated in currencies of major industrial
countries. The notional amount of outstanding foreign currency forward exchange
contracts aggregated $82 million, $85 million, and $129 million at September 30,
1995 and 1996, and June 30, 1997, respectively. The Automotive Business does not
anticipate any material adverse effect on its results of operations or financial
position relating to these foreign currency forward exchange contracts.
10. RETIREMENT MEDICAL PLANS
The Automotive Business has retirement medical plans which cover most of
its U.S. and certain non-U.S. employees and provide for medical payments to
eligible employees and dependents upon retirement.
The components of retirement medical expense are as follows (in millions):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits attributed to service during the year....... $ 3 $ 2 $ 2
Interest accrued on accumulated retirement medical obligation....... 25 27 27
Amortization of plan amendments and net actuarial losses............ (3) (3) (1)
---- ---- ----
Retirement medical expense.......................................... $25 $26 $28
==== ==== ====
</TABLE>
F-10
<PAGE> 90
AUTOMOTIVE BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The retirement medical obligation at September 30, 1995 and 1996 is
comprised of the following (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1995 1996
---- -----
<S> <C> <C>
Accumulated retirement medical obligation:
Retirees........................................................... $303 $ 336
Employees eligible to retire....................................... 21 20
Employees not eligible to retire................................... 45 35
---- -----
Total...................................................... 369 391
Unamortized amounts:
Plan amendments.................................................... 26 22
Actuarial (losses) gains:
Discount rate................................................... (42) (35)
Health care cost trend.......................................... 21 30
Demographic and other........................................... (63) (104)
---- -----
Recorded liability................................................... $311 $ 304
==== =====
Assumptions used (June 30 measurement date):
Discount rate...................................................... 7.5% 7.75%
Health care cost trend rates (decreasing to 5.5% after 2015)....... 8.5% 8.0%
</TABLE>
The actuarial losses relating to demographics are due principally to earlier
than assumed retirements resulting from plant closures and restructuring
actions. The net actuarial losses will be considered in the determination of
retirement medical expense in the future.
Changing the health care cost trend rates by one percentage point would change
the accumulated retirement medical obligation at September 30, 1996 by
approximately $29 million and would change retirement medical expense by
approximately $2 million. Retirement medical payments totaled $31 million, $30
million and $35 million for 1994, 1995 and 1996, respectively.
11. RETIREMENT PENSION PLANS
The Automotive Business participates in a Rockwell pension plan which
provides for monthly pension payments to eligible U.S. employees upon
retirement. Pension benefits for U.S. salaried employees are based on years of
credited service and compensation. Pension benefits for certain U.S. hourly
employees are based on years of service and specified benefit amounts.
In connection with the spin-off, Rockwell will retain the obligation for
vested benefits earned by the Automotive Business participants in the U.S.
pension plan and all related assets. The Automotive Business will establish a
pension plan with substantially similar benefits and which credits participants
for service earned with Rockwell. The benefits payable under the Automotive
Business plan will be equal to the difference between the total benefit earned
with both companies and the vested benefit obligation retained by Rockwell.
Accordingly, the balance sheet includes a liability for the U.S. pension plan
equal to the excess of the projected benefit obligation over the vested benefit
obligation retained by Rockwell. For the U.S. pension plan, the statement of
income includes interest cost on the obligation to be assumed by the Automotive
Business.
Certain non-U.S. pension plans, which relate solely to employees and
retirees of the Automotive Business, will be assumed by the Automotive Business.
F-11
<PAGE> 91
AUTOMOTIVE BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Net pension expense consisted of the following (in millions):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned during the year.................... $ 15 $ 14 $ 16
Interest accrued on projected benefit obligation.................. 13 16 17
Assumed return on plan assets..................................... (11) (12) (12)
Amortization of unrecognized amounts.............................. 4 11 4
---- ---- ----
Net pension expense............................................... $ 21 $ 29 $ 25
==== ==== ====
</TABLE>
The following table reconciles the funded status of the pension assets and
liabilities to be assumed by the Automotive Business to amounts included in the
balance sheet (in millions):
<TABLE>
<CAPTION>
1995 1996
------------------------- -------------------------
PLANS WITH PLANS WITH PLANS WITH PLANS WITH
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEEDING BENEFITS EXCEEDING BENEFITS
ACCUMULATED EXCEEDING ACCUMULATED EXCEEDING
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Accumulated benefit obligation,
principally vested.................... $ 92 $ 100 $ 94 $ 96
Effects of projected compensation
increases............................. 4 42 7 41
---- ----- ---- -----
Projected benefit obligation............ 96 142 101 137
Fair value of plan assets............... 113 29 136 25
---- ----- ---- -----
Plan assets in excess of (less than)
projected benefit obligation.......... 17 (113) 35 (112)
Items not yet recognized in the balance
sheet:
Net actuarial losses (gains).......... 11 21 (5) 10
Prior service cost.................... 15 5 14 3
Remaining initial net asset........... (19) (5) (18) (4)
Unfunded pension adjustment............. -- (7) -- (4)
---- ----- ---- -----
Prepaid (accrued) pension costs at
September 30.......................... $ 24 $ (99) $ 26 $(107)
==== ===== ==== =====
</TABLE>
Assumptions used (June 30 measurement date):
<TABLE>
<CAPTION>
1995 1996
-------- ---------
<S> <C> <C>
Discount rate................................................. 7.5-8.0% 7.75-8.0%
Compensation increase rate.................................... 4.5% 4.0-4.5%
Long-term rate of return on plan assets....................... 9.0% 9.0%
</TABLE>
The Automotive Business also participates in certain Rockwell defined
contribution savings plans for eligible employees. Expense related to these
plans was $5 million for 1994 and $6 million each for 1995 and 1996.
F-12
<PAGE> 92
AUTOMOTIVE BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
12. OTHER INCOME - NET
Other income - net is comprised of the following (in millions):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Gain (loss) on the sale of property and businesses.................. $(4) $ 5 $19
Equity in earnings of affiliates.................................... 6 6 11
Minority interests.................................................. (6) (8) (11)
Interest income..................................................... 3 4 4
Insurance settlement................................................ -- -- 15
Other............................................................... 10 11 8
--- --- ---
Other income - net.................................................. $ 9 $18 $46
=== === ===
</TABLE>
13. INCOME TAXES
Most of the Automotive Business's operations are included in the
consolidated U.S. and combined non-U.S. income tax returns of Rockwell. Rockwell
intends to indemnify the Automotive Business for all income tax liabilities and
retain rights to all tax refunds relating to operations included in consolidated
or combined tax returns for periods prior to the spin-off date. Accordingly, the
balance sheet does not include current or prior period income tax receivables or
payables related to wholly-owned subsidiaries which file on a consolidated or
combined basis with Rockwell. The income tax provisions included in the
statement of income have been determined as if the Automotive Business was a
separate taxpayer.
The components of the provision for income taxes are summarized as follows
(in millions):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Current tax expense:
United States............................................... $ 7 $ 21 $ 32
Foreign..................................................... 41 47 48
State and local............................................. 2 5 8
---- ---- ----
Total current tax expense........................... 50 73 88
---- ---- ----
Deferred tax (benefit) expense:
United States............................................... (15) (13) (15)
Foreign..................................................... 5 4 (2)
State and local............................................. (3) (2) (3)
---- ---- ----
Total deferred tax benefit.......................... (13) (11) (20)
---- ---- ----
Provision for income taxes.................................... $ 37 $ 62 $ 68
==== ==== ====
</TABLE>
F-13
<PAGE> 93
AUTOMOTIVE BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The deferred tax benefit represents the tax impact related to certain
accrued expenses, principally restructuring and warranty, that have been
recorded for financial statement purposes, but are not deductible for income tax
purposes until paid. Net deferred income tax benefits included in Other Current
Assets in the accompanying balance sheet consist of the tax effects of temporary
differences related to the following (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1995 1996
---- ----
<S> <C> <C>
Accrued product warranties............................................. $31 $36
Accrued compensation and benefits...................................... 22 26
Restructuring.......................................................... 3 12
Other - net............................................................ 21 21
---- ----
Current deferred income taxes.......................................... $77 $95
==== ====
</TABLE>
Net deferred income tax benefits included in Other Assets in the
accompanying balance sheet consist of the tax effects of temporary differences
related to the following (in millions):
<TABLE>
<CAPTION>
SEPTEMBER
30,
-----------
1995 1996
---- ----
<S> <C> <C>
Accrued retirement medical costs........................................ $110 $106
Property................................................................ (69) (69)
Pensions................................................................ 11 14
Loss carryforwards...................................................... 19 19
Other - net............................................................. 4 11
---- ----
Subtotal................................................................ 75 81
Valuation allowance..................................................... (15) (15)
---- ----
Long-term deferred income taxes......................................... $ 60 $ 66
==== ====
</TABLE>
Management believes it is more likely than not that current and long-term
deferred tax benefits will reduce future current income tax expense and
payments. Significant factors considered by management in its determination of
the probability of the realization of the deferred tax benefits included: (a)
the historical operating results of the Automotive Business, (b) expectations of
future earnings, and (c) the extended period of time over which the retirement
medical liability will be paid. The valuation allowance represents the amount of
tax benefits related to net operating loss carryforwards that have not yet been
recognized. The carryforward periods for $13 million of net operating losses
expire between 1997 and 2001. The carryforward period for the remaining net
operating losses is indefinite.
The Automotive Business's effective tax rate was different from the U.S.
statutory rate for the reasons set forth below:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate................................................ 35.0% 35.0% 35.0%
State and local income taxes...................................... (0.5) 1.2 2.0
Foreign income taxes.............................................. 5.1 2.2 2.3
Utilization of foreign loss carryforwards......................... (2.4) (6.6) (2.4)
Other............................................................. 4.3 1.6 0.7
---- ---- ----
Effective tax rate................................................ 41.5% 33.4% 37.6%
==== ==== ====
</TABLE>
F-14
<PAGE> 94
AUTOMOTIVE BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The income tax provisions were calculated based upon the following
components of income before income taxes (in millions):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
United States (loss) income....................................... $(41) $ 21 $ 43
Foreign income.................................................... 129 164 139
---- ---- ----
Total................................................... $ 88 $185 $182
==== ==== ====
</TABLE>
No provision has been made for U.S., state, or additional foreign income
taxes related to approximately $163 million of undistributed earnings of foreign
subsidiaries which have been or are intended to be permanently reinvested.
14. ROCKWELL'S NET INVESTMENT
Changes in Rockwell's net investment are summarized as follows (in
millions):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER
30, NINE MONTHS
---------------------- ENDED
1994 1995 1996 JUNE 30, 1997
---- ---- ---- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Beginning balance................................ $468 $509 $561 $ 599
Net income....................................... 51 123 114 100
Net transfers to Rockwell........................ (24) (71) (74) (50)
Currency translation gain (loss)................. 14 -- (2) (18)
---- ---- ---- ------
Ending balance................................... $509 $561 $599 $ 631
==== ==== ==== ==========
</TABLE>
The cumulative deferred currency translation loss was $42 million, $42
million, $44 million and $62 million as of September 30, 1994, 1995 and 1996 and
June 30, 1997, respectively.
15. SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Statement of income data:
Maintenance and repairs..................................................... $58 $65 $64
Research and development.................................................... 57 58 51
Rental expense.............................................................. 17 19 17
Statement of cash flows data:
Interest payments........................................................... $13 $12 $10
Income tax payments......................................................... 10 6 7
</TABLE>
16. CONTINGENT LIABILITIES
Federal, state and local requirements relating to the discharge of
substances into the environment, the disposal of hazardous wastes, and other
activities affecting the environment have had and will continue to have an
impact on the manufacturing operations of the Automotive Business. Compliance
with environmental requirements and resolution of environmental claims have been
accomplished without material effect on the Automotive Business's liquidity and
capital resources, competitive position or financial statements.
The Automotive Business has been designated as a potentially responsible
party at three Superfund sites, excluding sites as to which the Automotive
Business's records disclose no involvement or as to which the Automotive
Business's potential liability has been finally determined. Management estimates
the total
F-15
<PAGE> 95
AUTOMOTIVE BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
reasonably possible costs the Automotive Business could incur for the
remediation of Superfund sites at September 30, 1996 to be about $22 million, of
which $13 million has been accrued.
Various other lawsuits, claims, and proceedings have been asserted against
the Automotive Business alleging violations of federal, state and local
environmental protection requirements, or seeking remediation of alleged
environmental impairments, principally at previously disposed of properties. For
these matters, management has estimated the total reasonably possible costs the
Automotive Business could incur at September 30, 1996 to be about $36 million.
The Automotive Business has recorded environmental accruals for these matters of
$11 million.
At September 30, 1996, the Automotive Business had no receivables recorded
from third parties related to environmental matters.
Management estimates the total reasonably possible costs that could be
incurred by the Automotive Business based on, among other factors, the
professional judgment of the Automotive Business's environmental engineers, in
consultation with outside environmental specialists and counsel, when necessary.
Based on its assessment, management believes that the Automotive Business's
expenditures for environmental capital investment and remediation necessary to
comply with present regulations governing environmental protection and other
expenditures for the resolution of environmental claims will not have a material
adverse effect on the Company's liquidity and capital resources, competitive
position or financial statements. Management cannot assess the possible effect
of compliance with future requirements.
Various other lawsuits, claims and proceedings have been or may be
instituted or asserted against the Automotive Business relating to the conduct
of its business, including those pertaining to product liability, intellectual
property, safety and health and employment matters. Although the outcome of
litigation cannot be predicted with certainty and some lawsuits, claims, or
proceedings may be disposed of unfavorably to the Automotive Business,
management believes the disposition of matters which are pending or asserted
will not have a material adverse effect on the Automotive Business's financial
statements.
The Company will assume all contingent liabilities (including those in
respect of environmental matters) related to current and former operations of
the Automotive Business.
17. BUSINESS SEGMENT INFORMATION
The Automotive Business operates in one industry segment, the supply of
automotive components and systems, including:
HEAVY VEHICLE SYSTEMS -- Drivetrain systems and components, including
axles, brakes, transmissions, clutches and drivelines, for heavy-duty and
medium-duty trucks, trailers, off-highway equipment, buses and coaches, as
well as specialty and military vehicles.
LIGHT VEHICLE SYSTEMS -- Electromechanical and other components and
systems, including roof, door, access control and seat adjusting systems,
as well as suspension components and steel wheels, for passenger cars,
light trucks and sport utility vehicles.
F-16
<PAGE> 96
AUTOMOTIVE BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Sales by Geographic Area
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
North America........................................ $1,487 $1,712 $1,758
Europe............................................... 832 1,042 1,094
South America........................................ 257 270 206
Asia-Pacific......................................... 77 101 86
------ ------ ------
Total Sales................................ $2,653 $3,125 $3,144
====== ====== ======
</TABLE>
In 1994, 1995 and 1996, there were sales to two original equipment
manufacturers that represented 10% or more of total Automotive Business sales.
Sales to these customers were ($ in millions): 1994 -- customer A $274 (10%) and
customer B $259 (10%); 1995 -- customer A $325 (10%) and customer B $313 (10%);
1996 -- customer A $230 (7%) and customer B $338 (11%).
Earnings by Geographic Area
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
North America............................................. $ 33 $ 74 $102
Europe.................................................... 53 81 73
South America............................................. 6 16 1
Asia-Pacific.............................................. (1) 7 6
Restructuring charges..................................... -- -- (36)
---- ---- ----
Operating earnings........................................ 91 178 146
Other income - net........................................ 9 18 46
Interest expense.......................................... (12) (11) (10)
Provision for income taxes................................ (37) (62) (68)
---- ---- ----
Net income...................................... $ 51 $123 $114
==== ==== ====
</TABLE>
Identifiable Assets by Geographic Area
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
North America........................................ $ 860 $ 912 $ 962
Europe............................................... 520 569 593
South America........................................ 175 209 188
Asia-Pacific......................................... 83 76 90
------ ------ ------
Total...................................... $1,638 $1,766 $1,833
====== ====== ======
</TABLE>
18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1996 FISCAL QUARTERS
-------------------------------
FIRST SECOND THIRD FOURTH 1996
----- ------ ----- ------ ------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Sales...................................................... $ 756 $837 $ 804 $747 $3,144
Cost of sales.............................................. 675 724 699 649 2,747
Net income................................................. 22 43 29 20 114
</TABLE>
<TABLE>
<CAPTION>
1995 FISCAL QUARTERS
-------------------------------
FIRST SECOND THIRD FOURTH 1995
----- ------ ----- ------ ------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Sales...................................................... $ 727 $814 $ 836 $748 $3,125
Cost of sales.............................................. 636 708 735 665 2,744
Net income................................................. 28 34 34 27 123
</TABLE>
F-17
<PAGE> 97
AUTOMOTIVE BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Fourth quarter 1996 net income was reduced by a $30 million ($20 million
after-tax) charge related to restructuring, and increased by $15 million ($9
million after-tax) of proceeds from the settlement of certain environmental
insurance claims arising in years prior to 1986.
Third quarter 1996 net income was reduced by a $6 million ($4 million
after-tax) charge related to restructuring.
Second quarter 1996 net income was increased by an $11 million ($8 million
after-tax) gain on the sale of a product line.
F-18
<PAGE> 98
INDEPENDENT AUDITORS' REPORT
To the Directors and Shareowners of
Rockwell International Corporation:
We have audited the combined financial statements of the Automotive
Business of Rockwell International Corporation (Rockwell) as of September 30,
1996 and 1995, and for each of the three years in the period ended September 30,
1996, and have issued our report thereon dated June 10, 1997; such report is
included elsewhere in this amendment to Form 10/A. Our audits also included the
combined financial statement schedule of the Automotive Business of Rockwell
International Corporation, listed in the Index to Financial Statements and
Schedule at page F-1. This financial statement schedule is the responsibility of
Rockwell's management. Our responsibility is to express an opinion on this
schedule based on our audits. In our opinion, such combined financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
June 10, 1997
F-19
<PAGE> 99
SCHEDULE II
AUTOMOTIVE BUSINESS
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF YEAR(A) EXPENSES DEDUCTIONS YEAR(A)
- ----------------------------------------------- ----------- ---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Year ended September 30, 1996:
Allowance for doubtful accounts.............. $10.1 $ 10.5 $ 3.7(b) $ 16.9
Year ended September 30, 1995:
Allowance for doubtful accounts.............. 9.6 1.7 1.2(b) 10.1
Year ended September 30, 1994:
Allowance for doubtful accounts.............. 8.6 1.9 0.9(b) 9.6
</TABLE>
- ---------------
(a) Includes allowances for trade and other long-term receivables.
(b) Uncollectible accounts written off.
F-20
<PAGE> 100
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of 111 Holdings, Inc.:
We have audited the accompanying balance sheet of 111 Holdings, Inc. (a
wholly-owned subsidiary of Rockwell International Corporation) as of June 10,
1997. This balance sheet is the responsibility of the Company's management. Our
responsibility is to express an opinion on this balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of 111 Holdings, Inc. (a wholly-owned
subsidiary of Rockwell International Corporation) as of June 10, 1997 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
June 10, 1997
F-21
<PAGE> 101
111 HOLDINGS, INC.
BALANCE SHEET
JUNE 10, 1997
<TABLE>
<S> <C>
Stockholder's Equity:
Common stock, $1.00 par value, 1,000 shares authorized;
1 share issued and outstanding................................................... $ 1
Additional paid-in capital......................................................... 999
Receivable from Rockwell International Corporation................................. (1,000)
-------
Stockholder's Equity............................................................... $ --
=======
</TABLE>
NOTE TO BALANCE SHEET
BASIS OF PRESENTATION
The balance sheet of 111 Holdings, Inc. (111 Holdings) consists of the
accounts of an inactive wholly-owned subsidiary of Rockwell International
Corporation (Rockwell). 111 Holdings was incorporated in Delaware on May 5, 1997
in anticipation of a proposed spin-off of Rockwell's automotive businesses
(Automotive Business). The spin-off, which is expected to be completed by
September 30, 1997, will result in the transfer to 111 Holdings of the assets
and liabilities of the Automotive Business. 111 Holdings will be renamed and the
shares of 111 Holdings common stock (including the associated rights) will be
distributed in a tax-free spin-off, with each Rockwell shareowner receiving one
share of 111 Holdings common stock (including the associated right) for every
three shares of Rockwell common stock owned.
F-22
<PAGE> 102
PART II
INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ---------------------------------------------------------------------------------
<C> <C> <S>
**2 -- Form of Distribution Agreement
**3.1 -- Certificate of Incorporation of the Company
**3.2 -- By-Laws of the Company
**4.1 -- Form of Restated Certificate of Incorporation of the Company
**4.2 -- Form of Amended By-Laws of the Company
*4.3 -- Specimen certificate for Company Common Stock, par value $1 per share
**4.4 -- Form of Rights Agreement by and between the Company and the rights agent named
therein
*10.1 -- Form of Company's 1997 Long-Term Incentives Plan
*10.2 -- Form of Company's Directors Stock Plan
**10.3 -- Form of Employee Matters Agreement
*10.4 -- Form of Tax Allocation Agreement
*10.5 -- Form of Credit Agreement
*10.6 -- Form of Incentive Compensation Plan
**27 -- Financial Data Schedule (for Commission use only)
</TABLE>
- ---------------
* To be filed by amendment
** Previously filed
II-1
<PAGE> 103
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, as amended, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
111 HOLDINGS, INC.
By: /s/ THOMAS A. MADDEN
-----------------------------------
Name: Thomas A. Madden
Title: Senior Vice President and
Chief Financial Officer
Date: August 1, 1997
II-2
