DELCO REMY INTERNATIONAL INC, S-1/A, 1997-12-09

DELCO REMY INTERNATIONAL INC
S-1/A, 1997-12-09
MOTOR VEHICLE PARTS & ACCESSORIES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 1997.
REGISTRATION NO. 333-37675
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

----------------

AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

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DELCO REMY INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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2902 ENTERPRISE DRIVE, ANDERSON, INDIANA 46013, TELEPHONE: (765) 778-6499
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

----------------

SUSAN E. GOLDY, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
DELCO REMY INTERNATIONAL, INC.
2902 ENTERPRISE DRIVE, ANDERSON, INDIANA, 46013, TELEPHONE (765) 778-6799
(ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)

----------------

COPIES TO:

CHRISTOPHER G. KARRAS, ESQ. MARC S. ROSENBERG, ESQ.
DECHERT PRICE & RHOADS CRAVATH, SWAINE & MOORE
4000 BELL ATLANTIC TOWER WORLDWIDE PLAZA
1717 ARCH STREET 825 EIGHTH AVENUE
PHILADELPHIA, PENNSYLVANIA 19103-2793 NEW YORK, NEW YORK 10019
(215) 994-4000 (212) 474-1000

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<PAGE>

DELCO REMY INTERNATIONAL, INC.

CROSS-REFERENCE SHEET

PURSUANT TO ITEM 501 OF REGULATION S-K

<TABLE>
<CAPTION>
FORM S-1 PART I ITEM CAPTION OR LOCATION IN PROSPECTUS
-------------------- ---------------------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus....... Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus...... Inside Front
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges............... Prospectus Summary; Risk Factors
4. Use of Proceeds................. Use of Proceeds
5. Determination of Offering
Price.......................... Underwriters
6. Dilution........................ Dilution
7. Selling Security Holders........ Not Applicable
8. Plan of Distribution............ Outside Front Cover Page; Underwriters
9. Description of Securities to be
Registered..................... Description of Capital Stock
10. Interests of Named Experts and
Counsel........................ Not Applicable
11. Information with Respect to the
Registrant..................... Prospectus Summary; Risk Factors;
Company History; Use of Proceeds;
Dividend Policy; Capitalization;
Selected Consolidated Historical
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal Stockholders; Description of
Capital Stock; Description of
Indebtedness; Index to Financial
Statements

12. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities..... Not Applicable
</TABLE>
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)

Issued December 9, 1997

[LOGO OF DELCO REMY INTERNATIONAL APPEARS HERE]

4,000,000 Shares
Delco Remy International, Inc.

CLASS A COMMON STOCK
-----------

ALL OF THE SHARES OF CLASS A COMMON STOCK OFFERED HEREBY (THIS "OFFERING" OR
THE "EQUITY OFFERING") ARE BEING SOLD BY THE COMPANY. PRIOR TO THE EQUITY
OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE CLASS A COMMON STOCK. IT IS
CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE WILL BE
BETWEEN $14 AND $16. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS
CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.

PRIOR TO THIS OFFERING, CITICORP VENTURE CAPITAL LTD. ("CVC") BENEFICIALLY
OWNED 46.3% OF THE COMPANY'S COMMON STOCK, AND UPON CONSUMMATION OF THIS
OFFERING AND THE TRANSACTIONS (AS DEFINED), CVC WILL BENEFICIALLY OWN 41.3% OF
THE COMPANY'S COMMON STOCK (40.2% IF THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS
EXERCISED IN FULL). UPON CONSUMMATION OF THIS OFFERING AND THE TRANSACTIONS,
THE PARTIES TO THE STOCKHOLDERS AGREEMENT (AS DEFINED) WILL BENEFICIALLY OWN
73.8% OF THE COMPANY'S CLASS A COMMON STOCK (71.1% IF THE UNDERWRITERS' OVER-
ALLOTMENT OPTION IS EXERCISED IN FULL) AND WILL EFFECTIVELY CONTROL THE
COMPANY.

-----------

CONCURRENTLY WITH THE EQUITY OFFERING, $130,000,000 OF % SENIOR NOTES DUE
2007 ARE BEING OFFERED TO THE PUBLIC BY THE COMPANY (THE "NOTES OFFERING"
AND, TOGETHER WITH THE EQUITY OFFERING, THE "OFFERINGS"). THE NOTES OFFERING
AND THE EQUITY OFFERING ARE EACH CONTINGENT UPON CONSUMMATION OF THE OTHER.
-----------

THE CLASS A COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK
EXCHANGE, SUBJECT TO OFFICIAL NOTICE OF ISSUANCE, UNDER THE SYMBOL "RMY."

-----------

SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON
STOCK.

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

-----------
PRICE $ A SHARE
-----------

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
-------- --------------- -----------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total (3).................................. $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an aggregate of 600,000
additional shares of Class A Common Stock at the price to public less
underwriting discounts and commissions for the purpose of covering over-
allotments, if any. If the Underwriters exercise such option in full, the
total price to public, underwriting discounts and commissions and
proceeds to Company will be $ , $ and $ , respectively. See
"Underwriters."

-----------

The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Cravath, Swaine & Moore, counsel for the Underwriters. It is expected that
the delivery of the Shares will be made on or about December , 1997 at the
office of Morgan Stanley & Co. Incorporated, New York, New York, against
payment therefor in immediately available funds.

-----------

MORGAN STANLEY DEAN WITTER

CREDIT SUISSE FIRST BOSTON

SALOMON SMITH BARNEY

December , 1997
<PAGE>

CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS THAT ARE NOT RELATED TO
HISTORICAL RESULTS ARE FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE PROJECTED OR IMPLIED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE
NOT LIMITED TO, THOSE DISCUSSED UNDER "RISK FACTORS," "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS."
FURTHER, CERTAIN FORWARD-LOOKING STATEMENTS ARE BASED UPON ASSUMPTIONS AS TO
FUTURE EVENTS THAT MAY NOT PROVE TO BE ACCURATE. THESE FORWARD-LOOKING
STATEMENTS INVOLVE RISKS AND UNCERTAINTIES INCLUDING, BUT NOT LIMITED TO,
THOSE SET FORTH UNDER "RISK FACTORS."

----------------

UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

----------------

TABLE OF CONTENTS

<TABLE>
<S> <C>
Prospectus Summary........................................................... 4
Risk Factors................................................................. 11
Company History.............................................................. 19
Use of Proceeds.............................................................. 21
Dividend Policy.............................................................. 22
Dilution..................................................................... 22
Capitalization............................................................... 23
Selected Consolidated Historical
Financial Data.............................................................. 24
Pro Forma Condensed Consolidated
Financial Data (Unaudited).................................................. 26
Management's Discussion and Analysis
of Financial Condition and Results of
Operations.................................................................. 36
Business..................................................................... 46
Management................................................................... 61
Principal Stockholders....................................................... 67
Certain Transactions......................................................... 70
Description of Capital Stock................................................. 72
Description of Indebtedness.................................................. 74
Shares Eligible for Future Sale.............................................. 78
Certain United States Federal Tax Consequences to Non-United States Holders.. 79
Underwriters................................................................. 81
Legal Matters................................................................ 83
Experts...................................................................... 83
Additional Information....................................................... 84
Index to Financial Statements................................................ F-1
</TABLE>

----------------

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE CLASS A COMMON STOCK OFFERED HEREBY BY ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE ANY SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

----------------

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE
OFFERING, AND MAY BID FOR, AND PURCHASE, SHARES OF THE CLASS A COMMON STOCK IN
THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."

3
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. The disclosure contained throughout this Prospectus which is
identified as being presented on a pro forma ("pro forma") basis has been
prepared as if the following transactions (the "Transactions") occurred (a) for
purposes of statement of operations and cash flow data at the beginning of the
period being presented (August 1, 1996 or 1997) and (b) for purposes of balance
sheet data, on October 31, 1997 (except for (i) below, which is included in the
historical balance sheet data): (i) the acquisition by the Company of World
Wide Automotive, Inc. ("World Wide") on May 8, 1997, (ii) the acquisition by
the Company of Ballantrae Corporation ("Ballantrae") for which the Company has
entered into an Agreement and Plan of Merger dated October 30, 1997, (iii) the
completion of both Offerings, (iv) the payment in full by the Company of the 10
1/2% Senior Note due July 31, 2003 to World Subordinated Debt Partners, L.P.,
(v) the payment in full by the Company of the 11.50% Subordinated Notes due
July 31, 2004 to General Motors Corporation, (vi) the exchange of the 11%
Junior Subordinated Notes due July 31, 2004 (the "Junior Subordinated Notes")
for approximately 1.8 million shares of Class A Common Stock, (vii) the
exchange, in accordance with their terms, of the outstanding shares of 8%
preferred stock of Delco Remy America, Inc. ("DRA") to an 8% subordinated
debenture of DRA, (viii) a stock dividend to existing holders of Common Stock
resulting in a 16.8-for-one increase in the outstanding shares of Common Stock
(the "Stock Split"), (ix) the payment in full by the Company of subordinated
notes payable to certain former stockholders of A&B Group and certain current
and former stockholders of Power Investments (as defined) and (x) the amendment
of the Senior Credit Facility (as defined) in connection with the consummation
of the Offerings. Unless otherwise indicated, the information contained in this
Prospectus assumes no exercise of the over-allotment option in connection with
the Equity Offering. For purposes of this Prospectus, the "Company" shall refer
to Delco Remy International, Inc. ("DRI") and all of its consolidated
subsidiaries, unless the context otherwise requires.

THE COMPANY

GENERAL

The Company designs, manufactures, remanufactures and distributes electrical,
powertrain/drivetrain and related components for automobiles and light trucks,
medium and heavy duty trucks and other heavy duty vehicles. The Company's
products include starter motors ("starters"), alternators, engines,
transmissions, traction control systems and fuel systems. The Company serves
the aftermarket and the original equipment manufacturer ("OEM") market,
principally in North America as well as in Europe, Latin America and Asia-
Pacific. Net sales, EBITDA (as defined), Adjusted EBITDA (as defined) and net
loss for fiscal year 1997 were $689.8 million, $50.4 million, $87.3 million and
$14.3 million, respectively. Excluding restructuring charges, net income for
fiscal year 1997 would have been $10.5 million. For the same period, the
aftermarket accounted for approximately 45.2% of the Company's net sales and
62.8% of Adjusted EBITDA, with the OEM market accounting for the balance.

The Company believes that it is the largest manufacturer and remanufacturer
in North America of (i) starters for automobiles and light trucks (including
sport-utility vehicles, minivans and pickup trucks) and (ii) starters and
alternators for medium and heavy duty vehicles. The Company's products are
principally sold or distributed to OEMs for both original equipment manufacture
and aftermarket operations, as well as to warehouse distributors and retail
automotive parts chains. Major customers include General Motors ("GM"), General
Motors Service Parts Operations ("GM SPO"), Navistar, Caterpillar,
Freightliner, PACCAR, Auto Zone, Cummins, Western Auto, Ford, Detroit Diesel,
Volvo Trucks, Mack, Pep Boys, Advance Auto and O'Reilly Automotive.

4
<PAGE>

to the "Delco Remy" brand name, which was first used in 1918. The Company also
received the right to use "Delco Remy" as a corporate name until 2004 and the
"Remy" name in perpetuity. In addition, GM entered into a long-term contract to
purchase from the Company substantially all of its North American requirements
for automotive starters until 2004 and its U.S. and Canadian requirements for
heavy duty starters and alternators until 2000. GM also entered into a
distribution agreement to sell the Company's aftermarket products through the
GM SPO distribution system, the term of which extends until 2009 for automotive
products and until 1998 for heavy duty products. See "Risk Factors--Dependence
on General Motors" and "Business--Customers."

Citicorp Venture Capital Ltd. ("CVC") and Harold K. Sperlich, former
president of Chrysler Corporation, together with a subsidiary of MascoTech Inc.
("MascoTech") and certain senior management of the former Delco Remy Division
of GM (the "Former GM Division"), formed the Company for the purpose of
acquiring the assets of the automotive starter and the heavy duty starter and
alternator businesses of the Former GM Division (the "GM Acquisition"). Upon
consummation of the Offerings and the other Transactions, CVC, management of
the Company and other existing stockholders of the Company will beneficially
own approximately 82.1% of the Company's outstanding Common Stock (73.8% of the
voting power), and will be able to control the Company and elect its Board of
Directors. See "Management," "Dilution" and "Certain Transactions."

The Original Investors (as defined) in the Company have received a
substantial realized and unrealized return on their investment in the Company.
The following table summarizes the historical investments of CVC, MascoTech and
Messrs. Gerrity, Sperlich and Snyder (the "Original Investors") in the Company
and Ballantrae since July 29, 1994 and the total return, including unrealized
return, on such investments as of an assumed closing date for the Offerings of
December 22, 1997 (in thousands).

<TABLE>
<CAPTION>
MASCO
CVC TECH GERRITY SPERLICH SNYDER TOTAL
-------- ------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Total invested in the Com-
pany and Ballantrae........ $ 24,082 $ 4,200 $1,270 $ 100 $ 50 $ 29,702
Total cash received and
value of shares of Common
Stock held(a).............. $171,325 $42,220 $8,156 $13,960 $7,856 $243,517
</TABLE>
- --------

(a) Assumes an initial public offering price of $15.00 per share.

For additional details regarding such investment and return, see "Certain
Transactions."

Since the GM Acquisition, the Company has completed five strategic
acquisitions, substantially increasing the Company's aftermarket operations,
and entered into two international joint ventures. The Company is also in the
process of completing the strategic acquisition of Ballantrae, which will
expand the Company's drivetrain product position. Through Ballantrae's wholly
owned subsidiary, Tractech Inc. ("Tractech"), the Company will offer high
quality traction control systems to heavy duty OEMs and the aftermarket. These
acquisitions and joint ventures have broadened the Company's product line,
expanded its remanufacturing capability, extended its participation in
international markets and increased its penetration of the retail automotive
parts channel. As a result of these acquisitions and joint ventures and the
Company's focus on increasing its participation in the aftermarket, the
Company's reliance on GM has declined since the Company's formation. Net sales
to customers other than GM increased from 41.0% in fiscal year 1995 to 56.3% in
fiscal year 1997.

The Company's expanding aftermarket business benefits from the non-deferrable
nature of the repairs for which many of the Company's products are used.
Additionally, the Company's aftermarket business benefits from the design,
manufacturing and technological expertise of the Company's OEM operations. This
OEM expertise provides the Company with advantages over many of its aftermarket
competitors. The Company believes that its participation in both OEM and
aftermarket businesses and its diversified customer base reduce its exposure to
the cyclicality of the automotive industry. The Company's growth strategy is
designed to capitalize on its position as a consolidator in the large and
highly fragmented remanufacturing aftermarket.

GROWTH STRATEGY

The Company plans to continue to increase revenues and profitability of its
aftermarket and OEM businesses through a strategy of internal growth and growth
through acquisitions. Key elements of the Company's growth strategy include:

5
<PAGE>

INCREASING AFTERMARKET PRESENCE

Strengthening Customer Relationships. The Company intends to increase its
sales to new and existing customers by capitalizing on its balanced coverage of
the key channels of aftermarket distribution and its competitive strengths as
an OEM supplier. The Company plans to strengthen its customer relationships by
(i) continuing to expand its product offerings, (ii) capitalizing on the
expansion of the national automotive retail parts chains and warehouse
distributors that are customers of the Company, (iii) meeting the increasing
demands of OEMs and their dealer networks for high quality remanufactured
units, which enable them to reduce warranty and extended service costs, and
(iv) growing sales of existing and new product lines to OEM dealer networks as
dealers continue to capture an increasing percentage of vehicle repairs, due to
longer warranty and service programs and growing vehicle complexity.
Additionally, with the recent acquisition of World Wide, the Company expanded
its product line and now offers a full line of starters and alternators for
domestic and import vehicles. The acquisition also has improved the Company's
distribution capabilities, which now include a nationwide overnight delivery
service.

Consolidating the Fragmented Aftermarket. The portion of the aftermarket in
which the Company participates is large and highly fragmented, with most
participants being small, regional companies offering relatively narrow product
lines. Although the Company believes that it is the largest manufacturer and
remanufacturer of aftermarket starters and alternators in North America, its
sales of these products account for less than 12% of this market. Consolidation
of the aftermarket is occurring as many competitors are finding it difficult to
meet the increasing quality, cost and service demands of customers, who, in
turn, are seeking to rationalize their supplier base. With its OEM
capabilities, remanufacturing expertise, full product line, greater access to
"cores" and ability to capitalize on economies of scale, the Company is well
positioned to benefit from the consolidation of the aftermarket.

EXPANDING GLOBALLY

The Company is expanding its international operations in order to (i) benefit
from the trend toward international standardization of automotive and heavy
duty vehicle platforms and (ii) participate in rapidly growing foreign markets.
The Company has recently been awarded new business by GM, Volkswagen, Mercedes
Benz, Ford and Caterpillar in Brazil; Opel in Europe; Daewoo Motors in India
(in connection with the Company's pending strategic alliance in India); and
Mercedes Benz, Volvo Trucks, John Deere and Dina in Mexico. The Company intends
to supply its existing OEM customers on a global basis as they expand their
operations and require local supply of component parts that meet their demands
for quality, technology, delivery and service. The Company believes that its
global expansion will enable it to gain new international OEM customers who
will also require local production of high quality products. In addition, the
expansion of the Company's OEM business into international markets has provided
the Company with the infrastructure necessary to develop an aftermarket
presence in these countries. The Company has established manufacturing
operations and strategic ventures in Hungary, Korea and Mexico, and plans to
complete a strategic alliance in India and a joint venture in Brazil in fiscal
year 1998. The acquisition of Ballantrae will provide the Company with a
European manufacturing plant which has been in operation since 1983. Aided by
this facility, Ballantrae has developed strong relationships with European
customers for traction control systems, especially in the market for
construction equipment.

INTRODUCING TECHNOLOGICALLY ADVANCED NEW PRODUCTS

As a Tier 1 OEM supplier, the Company continues to provide technologically
advanced products by regularly updating and enhancing its product line. Since
the GM Acquisition, the Company has (i) completed the introduction of a new
family of gear reduction starters that will replace all straight drive starters
in GM vehicles by the end of the 1998 model year and (ii) introduced several
longer-life heavy duty alternators. The Company is also developing a small gear
reduction starter specifically designed for application on world car platforms.
These new products underscore the Company's commitment to developing state-of-
the-art products that address the higher output, lower weight and increased
durability requirements of OEM customers.

6
<PAGE>

OPERATING STRATEGY

The Company's operating strategy is designed to improve manufacturing
efficiency, reduce costs and increase productivity while continuing to achieve
the highest levels of product quality. Key elements of this operating strategy
include:

"FOCUS" FACTORIES TO DRIVE MANUFACTURING EXCELLENCE

The Company is shifting its OEM production from old, vertically-integrated
manufacturing plants to new, smaller and more efficient "focus" factories. The
Company's focus factories generally produce one product line in a plant
designed to facilitate lean manufacturing techniques. The Company has
successfully launched three new focus factories since 1996. When the currently
planned shift to focus factories is completed, the Company plans to occupy six
focus factories and expects to have reduced its floor space for OEM production
by more than 70%. The Company believes that the benefits of the focus factories
include reduced overhead costs, enhanced productivity, increased product
quality and lower inventories.

PRODUCTIVITY IMPROVEMENTS

In conjunction with its emphasis on focus factories, the Company continues to
work with its local union representatives to establish best-in-class work
practices, such as reducing the number of job classifications per focus factory
and implementing team-based manufacturing processes. Since the GM Acquisition,
employee productivity has increased by 33%. The Company's labor contract with
the UAW (as defined) contains provisions that are expected to permit the
Company to continue to achieve productivity improvements in the existing and
new focus factories. The increased productivity achieved since the GM
Acquisition is due primarily to continuous improvement initiatives and the
significant number of employees who have exercised their contract rights to
return ("flowback") to GM or to retire.

PRODUCT QUALITY AND CONTINUOUS IMPROVEMENT

In July 1997, the Company received one of the prestigious Supplier of the
Year awards from GM, an award given to fewer than 1% of all GM suppliers. The
Company's commitment to product quality and continuous improvement is further
evidenced by the QS9000 certification received by nine of its manufacturing and
remanufacturing facilities in 1997. The Company expects that the remainder of
its manufacturing and remanufacturing facilities will receive QS9000
certification by the end of fiscal year 1998. In addition, the Company's
powertrain/drivetrain operations that remanufacture products for Ford have
received the Q-1 rating, Ford's highest quality rating, and the Company is a
Ford Authorized Remanufacturer ("Ford FAR") in five of the seven Canadian
provinces. Global purchasing has further enhanced the Company's continuous
improvement efforts. The Company is utilizing its international ventures to
develop new, lower cost sources of materials and is consolidating its vendor
base to fewer, more competitive suppliers.

RECENT DEVELOPMENTS

On October 30, 1997, the Company entered into a definitive agreement to
acquire Ballantrae for $52.8 million (including assumed debt and the estimated
working capital adjustment and fees and expenses of Ballantrae). Ballantrae
operates through two subsidiaries: Tractech, a leading producer of traction
control systems for heavy duty OEMs and the aftermarket; and Kraftube, Inc., a
tubing assembly business which sells products to compressor manufacturers for
commercial air conditioners and refrigeration equipment. In fiscal year 1997,
Tractech accounted for approximately 70% of Ballantrae's $37.6 million of net
sales. The Company's acquisition of Ballantrae strengthens the Company's
overall market position by (i) adding traction control systems to the Company's
range of drivetrain products, (ii) increasing sales to existing heavy duty OEM
customers and (iii) expanding the Company's customer base. The acquisition is
expected to be completed at or prior to the consummation of the Offerings. The
terms of the Ballantrae Acquisition Agreement were not negotiated on an

7
<PAGE>

arm's-length basis. The Company believes, however, that the terms of such
agreement are fair to the Company and its subsidiaries from a financial
standpoint. See "Risk Factors--Acquisition of Ballantrae; Conflicts of
Interest," "Company History," "Business--Acquisition of Ballantrae" and
"Certain Transactions."

OTHER INFORMATION

For purposes of the financial information set forth in this Prospectus, (i)
EBITDA represents the sum of income from continuing operations before interest
expense, income taxes, preferred dividend requirement of subsidiary and
minority interest in income of subsidiaries, plus depreciation and
amortization; (ii) Adjusted EBITDA represents EBITDA plus restructuring charges
and non-cash post-retirement benefits other than pensions less the gain on sale
of building; and (iii) unless otherwise indicated, all references to years are
to the twelve months ended July 31, the Company's fiscal year end.

The Company's world headquarters are located at 2902 Enterprise Drive,
Anderson, Indiana, 46013, and its telephone number is (765) 778-6499.

THE OFFERING

<TABLE>
<S> <C>
Class A Common Stock offered hereby(1)....4,000,000.shares
Common Stock to be outstanding after the
Equity Offering and the
Transactions(2)(3).......................15,682,276 shares of Class A Common Stock
and.7,283,674 shares of Class B Common
Stock. See "Description of Capital Stock."

Concurrent Offerings......................Concurrently.with the Equity Offering, the
Company is offering $130,000,000 of %
Senior Notes Due 2007 (the "Notes"). The
Notes Offering and the Equity Offering are
each contingent upon consummation of the
other. See "Description of Indebtedness."
Use of Proceeds...........................The.net proceeds of the Offerings
(estimated to be approximately $180.1
million) will be used primarily to repay
outstanding indebtedness. See "Use of
Proceeds."
NYSE Symbol...............................RMY.
Risk Factors..............................See."Risk Factors" beginning on page 11 for
a discussion of certain factors that should
be considered by prospective purchasers of
the Class A Common Stock.
</TABLE>
- --------
(1) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriters."

(2) Does not include (i) up to approximately 500,000 shares of Class A Common
Stock reserved for issuance upon the exercise of stock options expected to
be outstanding under the Company's Stock Option Plans (as defined) upon
consummation of the Offerings; (ii) an additional 900,000 shares of Class A
Common Stock reserved for future grants or awards under the Company's Stock
Option Plans; and (iii) 1,680,000 shares of Class A Common Stock issuable
upon exercise of the Warrants (as defined). See "Management--Stock Options"
and "Description of Capital Stock."
(3) Shares of Class A Common Stock and Class B Common Stock are generally
convertible into each other on a one-for-one basis. Subject to certain
exceptions, shares of Class B Common Stock are non-voting. See "Description
of Capital Stock."

8
<PAGE>

SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA

The information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Consolidated Financial Statements of the Company, "Pro Forma Condensed
Consolidated Financial Data," related notes and other financial information
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
PRO FORMA
FOR THE
PRO FORMA FOR THE THREE MONTHS THREE MONTHS
FOR THE YEAR ENDED JULY 31, FOR THE YEAR ENDED OCTOBER 31, ENDED
------------------------------- ENDED JULY 31, ---------------------- OCTOBER 31,
1995 1996 1997 1997 1996 1997 1997
--------- --------- --------- -------------- ---------- ---------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $ 573,423 $ 636,852 $ 689,787 $776,621 $ 169,766 $ 209,020 $218,343
Gross profit........... 98,207 126,774 149,553 178,089 38,394 38,143 41,117
Selling, engineering
and administrative
expense............... 61,206 77,994 89,098 108,186 23,335 20,936 22,534
Restructuring charges.. -- 8,101 34,500 34,500 -- -- --
Operating income....... 37,001 40,679 25,955 35,403 15,059 17,207 18,583
Interest expense....... 18,432 27,367 38,774 35,346 9,391 10,521 8,931
Income (loss) from
continuing
operations............ 9,326 5,796 (10,263) (429) 2,834 3,062 5,332
Loss from discontinued
operations, net of
tax................... 2,363 10,637 1,682 -- 213 -- --
Net income (loss)...... 6,963 (4,841) (14,296) -- 270 3,062 --
Income (loss) from
continuing operations
per share............. $ .56 $ .33 $ (.59) $ (.02) $ .16 $ .18 $ .23
Net income (loss) per
share................. .42 (.28) (.82) -- .02 .18 --
FINANCIAL RATIOS AND
OTHER DATA:
Depreciation and
amortization.......... $ 14,533 $ 19,555 $ 22,323 $ 25,476 $ 5,300 $ 4,698 $ 5,307
Capital expenditures... 11,241 32,741 31,888 33,386 8,910 5,747 6,438
EBITDA (a)............. 51,534 60,234 50,360 63,558 20,359 21,905 23,890
Adjusted EBITDA (b) ... 55,968 72,087 87,269 100,467 21,494 22,970 24,955
Gross margin........... 17.1% 19.9% 21.7% 22.9% 22.6% 18.2% 18.8%
Cash provided by (used
in) operating
activities............ $ 21,921 $ (684) $ 22,537 $ -- $ (6,522) $ 11,415 $ --
Cash used in investing
activities............ (73,251) (79,061) (74,087) -- (10,236) (7,355) --
Cash provided by (used
in) financing
activities............ 27,119 80,790 57,786 -- 22,880 (5,063) --
EBITDA margin (c)...... 9.0% 9.5% 7.3% 8.2% 12.0% 10.5% 10.9%
Adjusted EBITDA margin
(c)................... 9.8% 11.3% 12.7% 12.9% 12.7% 11.0% 11.4%
Ratio of EBITDA to
interest expense...... 2.8x 2.2x 1.3x 1.8x 2.2x 2.1x 2.7x
Ratio of total debt to
EBITDA................ 3.8x 5.0x 7.2x 5.3x(d) -- -- --
Ratio of Adjusted
EBITDA to interest
expense............... 3.0x 2.6x 2.3x 2.8x 2.3x 2.2x 2.8x
Ratio of total debt to
Adjusted EBITDA....... 3.5x 4.1x 4.2x 3.4x(d) -- -- --
Ratio of earnings to
fixed charges(e)...... 1.8x 1.3x -- (f) 1.1x 1.5x 1.5x 2.0x
</TABLE>

<TABLE>
<CAPTION>
OCTOBER 31, 1997
-------------------
ACTUAL PRO FORMA
-------- ---------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................ $152,432 $169,047
Total assets............................................... 582,505 647,353
Total debt................................................. 358,705 336,643
Total stockholders' (deficit) equity....................... (6,976) 92,378
</TABLE>

9
<PAGE>

(a) EBITDA represents the sum of income from continuing operations before
interest expense, income taxes, preferred dividend requirement of
subsidiary and minority interest in income of subsidiaries, plus
depreciation and amortization. EBITDA should not be construed as a
substitute for income from operations, net income or cash flow from
operating activities for the purpose of analyzing the Company's operating
performance, financial position and cash flows. The Company has presented
EBITDA because it is commonly used by certain investors to analyze and
compare companies on the basis of operating performance and to determine a
company's ability to service debt. The definition of EBITDA differs from
the definition of EBITDA applicable to the covenants for the Notes and may
not be comparable to EBITDA as defined by other companies. EBITDA amounts
may not be fully available for management's discretionary use, due to
certain requirements to conserve funds for capital replacement, debt
service and other commitments.

(b) Adjusted EBITDA represents EBITDA plus restructuring charges and non-cash
post-retirement benefits other than pensions less the gain on sale of
building. This definition of Adjusted EBITDA conforms with the definition
of EBITDA applicable to the covenants for the Notes. Adjusted EBITDA should
not be construed as a substitute for income from operations, net income or
cash flow from operating activities for the purpose of analyzing the
Company's operating performance, financial position and cash flows.
Adjusted EBITDA amounts may not be fully available for management's
discretionary use, due to certain requirements to conserve funds for
capital replacements, debt service and other commitments.

(c) EBITDA margin and Adjusted EBITDA margin represent EBITDA and Adjusted
EBITDA, respectively, as a percent of net sales.

(d) Reflects pro forma total debt at October 31, 1997 divided by EBITDA or
Adjusted EBITDA, as appropriate, for the year ended July 31, 1997. This
calculation is presented because pro forma total debt was not calculated at
July 31, 1997.

(e) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income from continuing operations before income taxes, fixed
charges and minority interest. Fixed charges include preferred dividend
requirement of subsidiary, interest expense and the portion of operating
rents that is deemed representative of an interest factor.

(f) The deficiency of earnings to fixed charges was $13.5 million. Excluding
restructuring charges, the ratio of earnings to fixed charges would have
been 1.5x.

10
<PAGE>

RISK FACTORS

In evaluating an investment in the securities offered hereby, prospective
investors should carefully consider the following risk factors, as well as the
other information set forth elsewhere in this Prospectus.

SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS

The Company incurred substantial indebtedness in connection with the GM
Acquisition. After adjusting for the Transactions and the application of the
net proceeds therefrom, at October 31, 1997, the Company's total indebtedness
would have been $336.6 million (exclusive of unused commitments and
outstanding letters of credit), and the Company would have had common
stockholders' equity of $92.4 million. The degree to which the Company is
leveraged could have important consequences, including the following: (i) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired; (ii)
a substantial portion of the Company's cash flow from operations must be
dedicated to the payment of interest on its existing indebtedness, thereby
reducing the funds available to the Company for other purposes; (iii) the
Company's operations are restricted by the agreements governing the Company's
long-term indebtedness which contain certain financial and operating
covenants; (iv) certain indebtedness under the Senior Credit Facility will be
at variable rates of interest, which will cause the Company to be vulnerable
to increases in interest rates; (v) all of the indebtedness outstanding under
the Senior Credit Facility will be secured by substantially all the assets of
the Company and that indebtedness, together with the Senior Subordinated Notes
(as defined), will become due prior to the time the principal on the Notes
will become due; (vi) the Company may be hindered in its ability to adjust
rapidly to changing market conditions; and (vii) the Company's substantial
degree of leverage could make it more vulnerable in the event of a downturn in
general economic conditions or in its business.

The Company may be required to refinance all or a portion of its present
indebtedness, substantially all of which, including the Senior Subordinated
Notes, matures prior to the maturity of the Notes, at or prior to the maturity
of such indebtedness. In the event that the Company is unable to refinance its
existing indebtedness or otherwise raise funds to repay such indebtedness, the
Company's financial condition and ability to fund its operations would be
materially adversely affected. See "Description of Capital Stock,"
"Description of Indebtedness" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."

DEPENDENCE ON GENERAL MOTORS

GM accounted for approximately 97% of the Company's 1997 pro forma
automotive OEM net sales and approximately 3.9% of the Company's 1997 pro
forma heavy duty OEM net sales. GM SPO accounted for approximately 23.8% of
the Company's 1997 pro forma aftermarket net sales, and GM and GM SPO
collectively accounted for approximately 38.8% of the Company's total 1997 pro
forma net sales. In connection with the GM Acquisition, GM entered into long-
term contracts pursuant to which it has agreed to purchase from the Company
100% of its North American requirements for automotive starters (other than
for Saturn and Geo) and 100% of its U.S. and Canadian requirements for heavy
duty starters and alternators, in each case to purchase the existing product
line (as of August 1994). GM's obligations to purchase automotive starters and
heavy duty starters and alternators from the Company terminate in 2004 and
2000, respectively, except for automotive products released in 1996 and 1997,
for which GM's obligation will terminate in 2006 and 2007, respectively. GM's
commitments to purchase products from the Company in the future are subject,
however, to the Company's remaining competitive as to technology, design and
price. See "Business--Customers." There can be no assurance that GM will not
develop alternative sources for components currently produced by the Company
and purchase some or all of its requirements for starters and alternators from
these alternative sources at the expiration of its obligation to purchase such
components from the Company. In addition, GM has been designated as an
exclusive distributor of a significant amount of the Company's automotive and
heavy duty aftermarket products and has agreed to provide the Company with
purchasing support, which enables it to obtain raw materials at competitive
prices. The Company's exclusive distribution arrangements with GM for the

11
<PAGE>

Company's heavy duty aftermarket products and automotive aftermarket products
terminate on July 31, 1998 and in 2009, respectively. There can be no
assurance that the Company and GM will negotiate a new arrangement for the
distribution of heavy duty aftermarket products when the current distribution
arrangement terminates on July 31, 1998, or whether the Company or GM will
develop alternative distribution channels.

The loss of GM as a customer of OEM or aftermarket products, the default by
GM on its obligations to act as a distributor or to purchase the Company's OEM
or aftermarket products, a substantial decrease in demand for GM's automobile
models containing the Company's products or the failure of the Company to
obtain supply orders for its products used in GM's new automobile models could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, strikes and work stoppages affecting
GM's operations may postpone GM's need for components produced by the Company,
which, because of the Company's highly leveraged position, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors--Labor Negotiations."

RELOCATION OF FACILITIES

The Company is in the process of relocating certain of its manufacturing
facilities. Specifically, the Company has relocated certain production lines
from three of its OEM manufacturing facilities to three focus factories. The
Company has entered into leases for two additional focus factories and expects
to relocate additional production lines to those facilities and two additional
facilities over the next year. At the conclusion of the relocation, the
Company plans to have vacated the three plants leased from GM. In addition,
the Company expects to relocate certain of its aftermarket facilities due to
increased space requirements and the need for a regional presence. The
Company's subsidiaries have conducted these moves in the past without
significant disruption to operations. While the Company believes that it has
prepared for such relocations, there can be no assurance that the complicated
nature of such moves will not result in unforeseen costs or delays or result
in disruptions in the Company's operations at the affected facilities. The
Company's gross profit margin for the first quarter of fiscal 1998 was
adversely affected by the on-going transition to focus factories. There can be
no assurance that the transition to focus factories will not continue to
adversely affect the Company's gross profit margins. The restructuring charge
recorded by the Company in 1997 does not include startup costs the Company
expects to incur, based on its prior startups, in connection with the new
focus factories. The Company anticipates start up costs due to the relocation
to the three focus factories to be approximately $1.0 million per factory. See
"Risk Factors--Restructuring Charges; Recent Losses" and "Business--
Manufacturing and Facilities."

CONCENTRATION OF OWNERSHIP

Upon completion of the Offering and the Transactions, CVC will own
beneficially approximately 41.3% of the Company's outstanding Common Stock
(including non-voting Class B Common Stock which, subject to applicable law,
is convertible at the holder's option into voting Class A Common Stock and
after giving pro forma effect to the exchange of the Company's Junior
Subordinated Notes for Class A Common Stock) and members of the management of
the Company will own beneficially approximately 14.6% of the Company's
outstanding Common Stock. Certain other existing stockholders of the Company
will own beneficially approximately 27.4% of the Company's outstanding Common
Stock. If these stockholders were to vote all of their shares in a similar
manner, they would effectively control the Company. In most circumstances,
they would have sufficient voting power to elect the entire Board of Directors
of the Company and, in general, to determine (without the consent of the
Company's other stockholders) the outcome of any corporate transaction or
other matter submitted to the stockholders for approval, including mergers,
consolidations and the sale of all or substantially all of the Company's
assets, and to prevent or cause a change in control of the Company. Further,
CVC, certain members of management and other existing stockholders have
entered into a Stockholders' Agreement (as defined) whereby they have agreed
to vote their shares in such a manner as to elect the entire Board of
Directors of the Company. See "Principal Stockholders--Stockholders'
Agreement."

RESTRUCTURING CHARGES; RECENT LOSSES

The Company incurred restructuring charges totaling $34.5 million and $8.1
million in fiscal years 1997 and 1996, respectively. These charges contributed
to a loss from continuing operations and a net loss in fiscal

12
<PAGE>

year 1997 of $10.3 million and $14.3 million, respectively, and to a net loss
in fiscal year 1996 of $4.8 million. These charges substantially reduced the
Company's stockholders' equity. For a discussion of these charges and other
factors contributing to such losses, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations." There can be no assurance
that the Company (i) will be able to realize the benefits it anticipates from
the restructurings, (ii) will not incur additional charges in the future in
connection with these restructurings or other actions, (iii) will realize a
net profit in 1998 or in future years or (iv) will not need to seek additional
funds through borrowings or sales of equity or assets to pursue its strategy.
See "Risk Factors--Relocation of Facilities" and "Risk Factors--Labor
Negotiations."

RESTRICTIVE DEBT COVENANTS

The agreements governing the Company's bank and other indebtedness include
certain covenants that, among other things, restrict the Company's ability to:
(i) pay dividends and make certain other restricted payments; (ii) incur
additional indebtedness; (iii) grant liens, other than liens created pursuant
to such agreements and certain permitted liens; and (iv) sell material assets.
The Senior Credit Facility also requires the Company to maintain certain
financial ratios, including interest coverage and leverage ratios, and to
maintain a minimum level of consolidated cash flow. There can be no assurance
that these requirements will be met in the future. If they are not, the
holders of the indebtedness under such agreements would be entitled to declare
such indebtedness immediately due and payable. See "Description of Capital
Stock" and "Description of Indebtedness."

DEPENDENCE ON AUTOMOTIVE INDUSTRY; CYCLICAL BUSINESS

The sale of a significant portion of the Company's products is directly
related to the overall level of automobile, truck and heavy duty vehicle
production in North America, which is cyclical. Consequently, a decline in the
demand for new automobiles and trucks, particularly in North America, could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company has not yet operated during a general
economic downturn, and historical financial information for the Company during
adverse economic conditions is not available.

RISK RELATING TO ACQUISITIONS

To expand its markets and take advantage of the consolidation trend in the
automotive parts industry, the Company's business strategy includes growth
through acquisitions. Although the Company believes that the operations of the
five companies it has acquired since the GM Acquisition are being successfully
integrated with the Company's operations, there can be no assurance that such
integration will continue to be successful, that future acquisitions can be
consummated on acceptable terms or that any acquired companies can be
successfully integrated into the Company's operations. Other than pursuant to
the Ballantrae Acquisition Agreement and the expected completion in fiscal
year 1998 of a strategic joint venture in Brazil and a strategic alliance in
India (see "Company History"), the Company currently has no commitments,
understandings or arrangements with respect to any specific acquisitions or
joint ventures. However, the Company has commenced preliminary discussions to
acquire certain small remanufacturing operations in Europe. There can be no
assurance that the Company will complete these proposed transactions. The
Company is continually investigating opportunities for domestic and foreign
acquisitions. In connection with future acquisitions, the Company may incur
additional indebtedness or may issue additional equity. The Company's ability
to make future acquisitions may be constrained by its ability to obtain such
additional financing. To the extent the Company uses equity to finance future
acquisitions, there is a risk of dilution to holders of Class A Common Stock.
See "Risk Factors--Substantial Leverage and Debt Service Obligations," "Risk
Factors--Restrictive Debt Covenants," "Risk Factors--Acquisition of
Ballantrae; Conflicts of Interest," "Business--Business Strategy" and
"Description of Indebtedness."

In addition, acquisitions may involve a number of special risks, including:
initial reductions in the Company's reported operating results; diversion of
management's attention; unanticipated problems or legal liabilities; and a
possible reduction in reported earnings due to amortization of acquired
intangible assets in the event that such acquisitions are made at levels that
exceed the fair market value of net tangible assets. Some or all of these
items could have a material adverse effect on the Company. There can be no
assurance that businesses acquired in the future will achieve sales and
profitability that justify the investment therein. In addition, to the

13
<PAGE>

extent that consolidation becomes more prevalent in the industry, the prices
for attractive acquisition candidates may increase to unacceptable levels.

LABOR NEGOTIATIONS

As of October 31, 1997, the Company employed 5,137 people, 859 of whom were
in management, engineering, supervision and administration and 4,278 of whom
were hourly employees. Of the Company's hourly employees, 2,068 are
represented by unions. In the United States, 1,477 of the Company's hourly
workers are represented by the International Union, United Automobile,
Aerospace, and Agricultural Implement Workers of America ("UAW") under a
master agreement between DRA (a wholly owned subsidiary of the Company) and
the UAW. In March 1997, the Company signed a new master agreement with the UAW
that stipulated an approximately 3.2% annual wage and benefit increase (12.8%
over the four year term of the agreement) for the Company's UAW hourly
employees. If employment levels and productivity remain unchanged, the
agreement with the UAW would cause the Company to experience increases in wage
and benefit costs of approximately 2% per year over the next four years (which
represents approximately $3.3 million in the first such year). In addition,
grow-in provisions under the new agreement with the UAW will require the
Company to move certain lower wage and benefit employees to higher wage and
benefit levels. Under provisions of the national agreement, the UAW and the
Company have recently developed a special program of incentives for hourly
employees who agree to leave the Company, the cost of which is included in the
restructuring charges for fiscal year 1997 described herein. Based on
responses to this special incentive plan received to date, the Company would,
if no other cost reductions were realized, experience as a result of the grow-
in provision additional wage and benefit costs that increase each year of the
UAW contract to approximately $10.2 million annually in additional costs from
current levels by the fourth year. The Company expects the continued
implementation of the special incentive plan and other planned cost reduction
initiatives to substantially offset the effects of the grow-in provision. If
the responses to date to the special incentive plan were reversed (which the
Company considers unlikely) and the other cost-savings initiatives were not
implemented, the additional costs referred to above to the Company from the
grow-in provision would approximately double. There can be no assurance that
the Company will be able to effect cost reduction initiatives (including the
continued implementation of the special incentive plan) to offset the effects
of the grow-in provision or that the Company's labor costs will not otherwise
increase significantly, in which case the Company's competitive position and
results of operations would be adversely affected. The master agreement
between the UAW and DRA will expire on March 22, 2001.

As of October 31, 1997, 142 of the Company's 448 Canadian employees were
represented by the Canadian Auto Workers and 120 were represented by the
Metallurgists Unis d'Amerique. The agreements with these unions expire on
November 8, 1999 and September 30, 1998, respectively.

As of October 31, 1997, approximately 329 of Autovill's 449 employees were
affiliated with the Hungarian Steel Industry Workers Union. The agreement was
signed July 17, 1996 and is perpetual, subject to termination upon three
months' notice from either party.

The Company's other facilities are primarily non-union. The Company is
unaware of any current efforts to organize any of the Company's facilities.
There can be no assurance that there will not be any labor union efforts to
organize employees at facilities that are not currently unionized.

Since the GM Acquisition, the Company has not experienced any organized work
stoppages. There can be no assurance, however, that any actions taken by the
Company, including the current restructurings, will not adversely affect the
Company's relations with its employees. At the present time, the Company
believes that its relations with its employees are good. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
General."

COMPETITION

The motor vehicle parts industry in which the Company operates is highly
competitive. Some of the Company's OEM competitors are divisions or
subsidiaries of companies that are larger and have substantially

14
<PAGE>

greater resources than the Company. There can be no assurance that the Company
will be able to compete successfully with its competitors. See "Business--
Competition."

FOREIGN MARKETS

Approximately 20.2% of the Company's pro forma net sales in fiscal year 1997
were derived from sales in foreign markets. The Company expects sales from
international markets to represent an increasing portion of total sales.
Certain risks are inherent in international operations, including the
following: agreements may be difficult to enforce and receivables difficult to
collect through a foreign country's legal system; foreign customers may have
longer payment cycles; foreign countries may impose additional withholding
taxes or otherwise tax the Company's foreign income, impose tariffs or adopt
other restrictions on foreign trade or investment; U.S. export licenses may be
difficult to obtain; intellectual property rights may be more difficult to
enforce in foreign countries; fluctuations in exchange rates may affect
product demand and may adversely affect the profitability in U.S. dollars of
products and services provided by the Company in foreign markets where payment
for the Company's products and services is made in the local currency; general
economic conditions in the countries in which the Company operates could have
an adverse effect on the Company's earnings from operations in those
countries; unexpected changes in foreign laws or regulatory requirements may
occur; compliance with a variety of foreign laws and regulations; and overlap
of different tax structures. Tax rates in certain foreign countries may exceed
those of the United States and foreign earnings may be subject to withholding
requirements or the imposition of tariffs, exchange controls or other
restrictions. There can be no assurance that any of these factors will not
have a material adverse effect on the Company's business and results of
operations. See "Business--Growth Strategy" and "Company History."

AVAILABILITY OF CORES

In its remanufacturing operations, the Company obtains used components,
commonly known as "cores," from various sources, principally the Company's
existing aftermarket customers, which generally return cores when they
purchase remanufactured products. As a result, GM SPO and Navistar each
supplied greater than 10% of the cores used by the Company in 1997. The
Company also obtains cores from brokers who specialize in buying and selling
cores. No single broker supplies the Company with more than 10% of those cores
purchased by the Company. The ability to obtain cores of the types and
quantities required by the Company is essential to the Company's ability to
meet demand and expand production in the remanufacturing business.

A sufficient supply of cores may not always be available to the Company to
permit it to respond fully to customer demands for the Company's
remanufactured products. Shortages of cores could result from, among other
things, (i) a time lag between the initial customer order for a remanufactured
product and the return of cores for such products, (ii) an inability to
salvage cores for reuse due to excessive wear or deterioration or (iii) an
inability of the Company to acquire cores because of loss or significant
deterioration of the Company's relationships with its customers. Although the
Company believes that its relationships with several of its customers will
continue to provide it with access to cores, there can be no assurance that
the Company will continue to have an adequate supply of cores for its
remanufactured products.

ACQUISITION OF BALLANTRAE; CONFLICTS OF INTEREST

On October 30, 1997, the Company entered into an Agreement and Plan of
Merger to acquire Ballantrae (the "Ballantrae Acquisition Agreement").
Although the Company has entered into the Ballantrae Acquisition Agreement,
the consummation of the transactions contemplated thereby are subject to
customary closing conditions for a transaction of this type, including
termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the lack of any material adverse
change in the business of Ballantrae. Although the Company does not currently
foresee any impediments to the consummation of the acquisition of Ballantrae,
the Company cannot offer any assurances that the acquisition will be
consummated. Even if consummated, the Company cannot guarantee that the
businesses conducted by Ballantrae can be effectively integrated into the
Company's other operations or that the Company will realize the benefits it
expects

15
<PAGE>

to achieve through the acquisition of Ballantrae. The Company has incurred due
diligence, legal and other expenses in anticipation of the acquisition of
Ballantrae. If the acquisition is not consummated, these expenses will have to
be written off as non-recurring charges. See "Company History," "Business--
Acquisition of Ballantrae" and "Certain Transactions."

The terms of the Ballantrae Acquisition Agreement were not negotiated on an
arm's-length basis. As of July 31, 1997, CVC owned, on a fully-diluted basis,
71.9% of the outstanding common stock and 74.7% of the outstanding preferred
stock of Ballantrae. At that date, CVC also owned 46.3% of the Company's
Common Stock. See "Risk Factors--Concentration of Ownership." The Company
believes, however, that the terms of such agreement are fair to the Company
and its subsidiaries from a financial standpoint. In considering the
acquisition, the Company's directors owe a fiduciary duty to the Company and
its shareholders to act in good faith and with due care. The Company's
directors, excluding Messrs. Delaney, Cashin and Gerrity, have determined that
the acquisition of Ballantrae is in the best interests of the Company and its
stockholders and have approved the acquisition of Ballantrae. Because Mr.
Gerrity is a director of Ballantrae and as of July 31, 1997 beneficially
owned, on a fully-diluted basis, 20.0% of Ballantrae's common stock and 15.6%
of its preferred stock (including 5.0% and 5.2% of Ballantrae's common and
preferred stock, respectively, beneficially owned by Susan Gerrity, Mr.
Gerrity's wife) and Messrs. Delaney and Cashin are also each a stockholder and
director of Ballantrae, as well as each being a stockholder and director of
the Company, there is a conflict of interest with respect to the acquisition
of Ballantrae. As a consequence, their economic interest in the transaction
may result in decisions that do not reflect the interests of the Company. Any
damages which the Company may suffer which result from a breach of the
Ballantrae Acquisition Agreement will be subject to a $10 million cap and the
Company will be able to recover only a portion of its damages from CVC and Mr.
Gerrity (and, with respect to each of them, only on a pro rata basis). The
Company is also obligated to pay the expenses incurred by Ballantrae in
connection with the acquisition, whether or not the acquisition is
consummated. Approximately $30 million of the net proceeds of the Offerings
will be used to repay certain indebtedness of Ballantrae. See "Company
History," "Business--Acquisition of Ballantrae" and "Certain Transaction."

CVC was one of the original organizers of Ballantrae in 1996. During the
formation of Ballantrae, CVC purchased (i) 32.9% of the newly issued shares of
common stock of Ballantrae for $35,000, (ii) 74.7% of the newly issued shares
of preferred stock of Ballantrae for $2.1 million and (iii) warrants to
purchase an additional 147,500 shares of common stock of Ballantrae for an
aggregate exercise price of $147,500. CVC has exercised warrants for 122,500
shares of common stock of Ballantrae for an aggregate exercise price of
$122,500. Shortly after CVC's purchase of its interest in Ballantrae, Kraftube
Acquisition Corporation, a wholly owned subsidiary of Ballantrae, merged into
Kraftube Management, Inc. and during such merger CVC purchased 79.4% of the
preferred stock of Kraftube Management, Inc. for $6.4 million, $4.7 million of
which was paid in cash and $1.7 million of which was paid by cancellation of a
note in the original principal amount of $1.7 million issued by an affiliate
of Kraftube Management, Inc. in favor of CVC. Upon the consummation of the
transactions contemplated under the Ballantrae Acquisition Agreement, CVC will
receive 71.9% of the consideration paid by the Company to Ballantrae's common
stockholders and approximately up to 78.2% of the consideration paid by the
Company to Ballantrae's preferred stockholders (assuming that in connection
with the merger of Kraftube, Inc. into Kraftube Management, Inc., all Kraftube
Management, Inc. preferred stockholders elect to receive Ballantrae preferred
stock as opposed to cash and no dissenters' rights are exercised).

16
<PAGE>

The following table summarizes the history of CVC's investment in Ballantrae
and the payment of merger consideration to CVC in connection with the proposed
acquisition of Ballantrae by the Company.

<TABLE>
<CAPTION>
AMOUNT PAID
DATE EVENT BY CVC
---- ----- -----------
<C> <S> <C>
10/23/96 Acquisition of 32.9% of Ballantrae common stock........ $ 35,000
10/23/96 Acquisition of 74.7% of Ballantrae preferred stock..... 2,100,000
10/23/96 Acquisition of warrants for Ballantrae common stock.... --
Acquisition of 79.4% of preferred stock of Kraftube
10/23/97 Management, Inc.(a).................................... 6,400,000
02/07/97 Exercise of warrants for Ballantrae common stock(b).... 147,500
-----------
Total CVC investment in Ballantrae..................... $ 8,682,500
===========
Value of shares of Common Stock of the Company to be
received by CVC as merger consideration in connection
with the acquisition of Ballantrae(c) ................. $16,514,600
===========
</TABLE>
- --------

(a) In 1989, CVC invested $1.0 million to purchase Kraftube, Inc. preferred
stock and $2.1 million for which it received a note in the original
principal amount of $2.1 million. In addition, in 1989, CVC purchased
62.8% of the common stock of Kraftube Management, Inc. for $15,700. In
1993, the Kraftube, Inc. preferred stock plus accrued and unpaid dividends
was exchanged for a note in the principal amount of $1.7 million and the
$2.1 million note was repaid, together with accrued and unpaid interest
thereon. In 1996, the $1.7 million note was exchanged for 1.7 million
shares of Kraftube Management, Inc. preferred stock. The remaining 4.7
million shares of Kraftube Management, Inc. preferred stock were received
upon the exchange of Kraftube Management, Inc. common stock in a
transaction that valued the common stock held by CVC at $4.7 million.

(b) Includes $25,000 attributable to the exercise of a warrant to purchase
25,000 shares of Ballantrae common stock which CVC intends to exercise
prior to the consummation of the acquisition.

ENVIRONMENTAL RISKS

The Company's operations and properties are subject to federal, state, local
and foreign laws, regulations and ordinances relating to the use, storage,
handling, generation, transportation, treatment, emission, release, discharge
and disposal of certain materials, substances and wastes. The nature of the
Company's operations exposes it to the risk of liabilities or claims with
respect to environmental matters, including off-site disposal matters, and
there can be no assurance that material costs will not be incurred in
connection with such liabilities or claims or that the indemnities provided by
the sellers of the various businesses acquired will be applicable or
available.

Based upon the Company's experience to date, the Company believes that the
future cost of compliance with existing environmental laws, regulations and
ordinances (or liability for known environmental claims) will not have a
material adverse effect on the Company's business, financial condition and
results of operations. However, future events, such as changes in existing
laws and regulations or their interpretation, may give rise to additional
compliance costs or liabilities that could have a material adverse effect on
the Company's business, financial condition and results of operations.
Compliance with more stringent laws or regulations, as well as more vigorous
enforcement policies of regulatory agencies or stricter or different
interpretations of existing laws, may require additional expenditures by the
Company that may be material. See "Business--Regulatory Matters."

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Class A Common Stock prevailing from time to time. Sales of
substantial amounts of Class A Common Stock, or the perception that such sales
could occur, could adversely affect prevailing market prices of the Class A
Common Stock. The existing stockholders of the Company (the "Existing
Stockholders") were granted piggyback registration rights with respect to the
Company's Class A Common Stock when they purchased such shares. These
piggyback registration rights cover substantially all of the 11.0 million
shares of Class A Common Stock beneficially owned by the Existing
Stockholders. The Ballantrae stockholders (other than the Existing
Stockholders) who receive shares of the Company as merger consideration
pursuant to the Ballantrae Acquisition Agreement will benefit from piggyback
registration rights with respect to such shares for a period of one year
following the consummation of the acquisition of Ballantrae. Shares of the
Company received by Existing Stockholders as merger consideration pursuant to
the Ballantrae

17
<PAGE>

Acquisition Agreement will have the benefit of the piggyback and demand
registration rights granted in the Stockholders' Agreement. In addition, CVC
and (after the consummation of the Equity Offering) World Equity Partners,
L.P. have demand rights to require registration of the 11,162,013 shares of
Common Stock held by them (including shares of Common Stock issuable upon
exercise of the Warrants). Of the 22,645,950 shares of Common Stock to be
outstanding after the Offerings and the other Transactions, approximately
15,682,276 shares will be shares of Class A Common Stock, and 7,283,674 shares
will be shares of Class B Common Stock. In addition, (i) up to approximately
500,000 shares of Class A Common Stock are reserved for issuance upon the
exercise of stock options expected to be outstanding under the Company's Stock
Option Plans upon consummation of the Offerings; (ii) an additional 900,000
shares of Class A Common Stock are reserved for future grants or awards under
the Company's Stock Option Plans; and (iii) 1,680,000 shares of Class A Common
Stock are issuable upon exercise of the Warrants. The Company and each of the
Company's principal stockholders, directors, senior officers and warrant
holders have agreed, subject to certain exceptions, not to offer, sell or
transfer any shares of Common Stock for a period of 180 days after the date of
this Prospectus, without the prior written consent of Morgan Stanley & Co.
Incorporated. These agreements cover approximately 11.7 million shares of
Class A Common Stock and approximately 7.3 million shares of Class B Common
Stock. The Company expects that certain of its other stockholders, owning
approximately 4.2 million shares of Class A Common Stock, will be subject to
similar 180-day restrictions. The registration rights and related restrictions
described above apply to the shares of Class A Common Stock subject to the
Stock Option Plans and the Warrants and any shares of Class B Common Stock
converted into Class A Common Stock. See "Shares Eligible for Future Sale",
"Principal Stockholders--Registration Rights Agreement" and "Underwriters."

DILUTION

New investors purchasing Class A Common Stock in this Offering will
experience immediate and substantial dilution in pro forma net tangible book
value per share (as adjusted to give effect to the Offerings) of Class A
Common Stock from the initial public offering price. The Existing Stockholders
will experience an increase in net tangible book value per share as a result
of this Offering. Assuming an offering price of $15.00 per share (the midpoint
of the range of prices set forth on the cover of this Prospectus), the
dilution in pro forma net tangible book value to new investors purchasing
shares of Class A Common Stock in this Offering would be $15.88 per share, and
the Existing Stockholders, including certain members of the management of the
Company, CVC and current and former employees and directors of the Company,
would experience an increase in pro forma net tangible book value of $2.86 per
share as a result of this Offering. In addition, the price per share of Common
Stock paid by the Existing Stockholders is substantially lower than the
assumed price for the shares offered hereby. See "Dilution" and "Principal
Stockholders."

HOLDING COMPANY STRUCTURE

Because the Company is a holding company which derives all of its operating
income from its subsidiaries, the Company will be dependent on dividends and
other payments from its subsidiaries to generate the funds necessary to meet
its obligations and pay any dividends. The ability of the Company's
subsidiaries to pay dividends and make other payments are subject to certain
statutory, contractual and other restrictions. See "Description of
Indebtedness."

ABSENCE OF PUBLIC MARKET FOR THE CLASS A COMMON STOCK

Prior to the Offering, there has been no public market for the Class A
Common Stock. Although the Class A Common Stock has been approved for listing
on the New York Stock Exchange (subject to official notice of issuance), there
can be no assurance that an active or liquid trading market in the Class A
Common Stock will develop upon completion of the Equity Offering or, if
developed, that it will be sustained. The initial public offering price of the
Class A Common Stock will be determined through negotiations between the
Company and the Underwriters and may not be indicative of the market price for
the Class A Common Stock after the Equity Offering. The market price for
shares of the Company's Class A Common Stock may be highly volatile depending
on changes in general market and industry conditions. See "Underwriters."

18
<PAGE>

COMPANY HISTORY

The Company was formed in November 1993 for the purpose of acquiring certain
assets of the automotive starter business and the heavy duty starter and
alternator business of the Former GM Division, which businesses the Company
acquired in July 1994.

Between January 1995 and May 1997, the Company completed five strategic
acquisitions and two international joint ventures. On January 6, 1995, the
Company acquired all of the capital stock of Nabco, Inc. ("Nabco") (the "Nabco
Acquisition"), a producer of remanufactured automotive starters and
alternators. In addition to selling its products to national automotive parts
chains (primarily Western Auto), prior to its acquisition by the Company,
Nabco supplied remanufactured parts in bulk (known as "kits") to the Company
and GM for final assembly and distribution.

On March 31, 1995, the Company acquired all of the capital stock of The A&B
Group, Inc. ("A&B Group") (the "A&B Acquisition"), a remanufacturer of
automotive starters, heavy duty starters and alternators and related
subcomponents and parts. Prior to its acquisition by the Company, the A&B
Group was the Company's contract supplier of all heavy duty and certain
automotive remanufactured products.

On April 14, 1995, the Company acquired 96% of the capital stock of
Autovill, RT Ltd. ("Autovill") (the "Autovill Acquisition" and, together with
the Nabco Acquisition and the A&B Acquisition, the "1995 Acquisitions"), a
Budapest, Hungary-based producer of new and remanufactured heavy duty starters
and alternators both for the OEM market and the aftermarket in Western and
Eastern Europe. Principal customers of Autovill include Caterpillar and
Mercedes Benz. The remaining 4% of the capital stock of Autovill is owned by
current and former employees of Autovill.

On February 6, 1996, the Company acquired 82.5% of the capital stock of
Power Investments, Inc. ("Power Investments") (the "Power Investments
Acquisition"), a remanufacturer of diesel and gasoline engines, transmissions,
fuel systems, alternators and starters for medium and heavy duty trucks and
automobiles; and, to a lesser extent, a remanufacturer of brakes, water pumps,
power steering pumps and various other truck parts and assemblies. Power
Investments has 15 facilities located in the United States and in five
provinces of Canada and is designated as a Ford FAR in such provinces. The
remaining 17.5% of the capital stock of Power Investments is owned by current
management of Power Investments, subject to put/call arrangements at a formula
price for the purchase by the Company of the remaining 17.5% of the shares of
Power Investments beginning in 2001.

In December 1996, the Company formed a 50/50 joint venture in Korea with
individual Korean investors to purchase the assets related to the starter
motor operations of the Company's former Korean licensee. In April 1997, the
Company and its former Mexican licensee, Sistemas y Electricos Componetos
("Sistemas"), formed a joint venture, 76% of which is owned by the Company and
24% of which is owned by an affiliate of Sistemas. Each of these joint
ventures have been formed to manufacture starters and alternators for the OEM
market.

On May 8, 1997, the Company acquired 82.5% of the capital stock of World
Wide (the "World Wide Acquisition"), a remanufacturer and distributor of
import automotive starters and alternators. World Wide sells its products to
national automotive parts chains, including Auto Zone, Pep Boys, Advance Auto
and Discount Auto. The remaining 17.5% of the capital stock of World Wide is
owned by current management of World Wide, subject to put/call arrangements at
a formula price for the purchase by the Company of the remaining 17.5% of the
shares beginning in 2000.

On October 30, 1997, the Company entered into the Ballantrae Acquisition
Agreement to acquire Ballantrae for $52.8 million (including assumed debt and
the estimated working capital adjustment and fees and expenses of Ballantrae).
Ballantrae operates through two subsidiaries: Tractech, a leading producer of
traction control systems for heavy duty OEMs and the aftermarket; and
Kraftube, Inc., a tubing assembly business which sells products to compressor
manufacturers for commercial air conditioners and refrigeration equipment. In
fiscal year

19
<PAGE>

1997, Tractech accounted for approximately 70% of Ballantrae's $37.6 million
of net sales. The Company will exchange shares of its Common Stock with a
value (at the initial public offering price in the Equity Offering) of
approximately $22.1 million for the equity of Ballantrae and will repay
approximately $29.7 million of Ballantrae's debt. The Common Stock of the
Company received by Ballantrae's existing stockholders in the acquisition will
be subject to resale restrictions under applicable securities laws but will
have the benefit of piggyback registration rights. The acquisition is expected
to be completed at or prior to the consummation of the Offerings. See "Risk
Factors--Acquisition of Ballantrae; Conflicts of Interest," "Business--
Acquisition of Ballantrae" and "Certain Transactions."

On November 11, 1997, the Company entered into a Share Purchase Agreement to
acquire 37% of the outstanding shares of Sahney Paris Rhone Limited ("SPRL") a
manufacturer of starters, alternators and related components based in
Hyderabad, India, at a purchase price of approximately $3.7 million in the
aggregate. The Share Purchase Agreement provides that the shares will be
acquired by the Company through a combination of a tender offer for up to 20%
of such shares and the purchase of the remaining shares from the principal
shareholder of SPRL and his affiliates. The acquisition is expected to be
completed on or before March 31, 1998.

20
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the Offerings are estimated to be
approximately $180.1 million (approximately $188.4 million if the over-
allotment option in the Equity Offering is exercised in full) assuming an
initial public offering price of $15.00 per share in the Equity Offering and
after deduction of underwriting discounts and commissions and estimated
offering expenses. The proceeds of the Offerings, together with $.9 million of
available cash, will be used to repay in full (except as indicated in (vi)
below) the following indebtedness, which was incurred by the Company in
connection with the GM Acquisition and certain of the Company's subsequent
acquisitions: (i) the $75 million 10 1/2% Senior Note due July 31, 2003 to
World Subordinated Debt Partners, L.P., an affiliate of the holder of the
Warrants (the "World Note"), a portion of which will be prepaid at a 3%
premium to principal amount, (ii) the $59.2 million 11 1/2% Subordinated Note
due July 31, 2004 to GM (the "GM Acquisition Note"), (iii) the $8.3 million
9.86% Subordinated Notes due February 6, 2001 to the selling stockholders of
Power Investments (the "Power Investments Seller Notes"), (iv) the $3.5
million 10% Subordinated Notes due September 30, 2001 to the selling
stockholders of A&B Group (the "A&B Seller Notes"), (v) the $20.4 million of
borrowings outstanding under Ballantrae's senior credit facility (the
"Ballantrae Senior Bank Debt") and (vi) $9.2 million of Tractech's $10.0
million 11% Subordinated Note due October 31, 2006 to Dyneer Corporation (the
"Ballantrae Subordinated Debt"). Any accrued and unpaid interest on such
indebtedness will also be repaid with the proceeds of the Offerings.

The following table sets forth a summary of the expected sources and uses of
the estimated net proceeds from the Offerings, assuming no exercise of the
over-allotment option in the Equity Offering and including interest accrued to
December 22, 1997, the assumed date of the consummation of the Offerings (in
millions):

<TABLE>
<S> <C>
SOURCES OF FUNDS (net of underwriting discounts and commissions)
Equity Offering................................................... $ 55.8
Notes Offering.................................................... 126.8
Available Cash.................................................... 0.9
------
Total sources of funds.......................................... $183.5
======
USES OF FUNDS
Repayment of Indebtedness Due to Non-Affiliates of the Company
Repayment of GM Acquisition Note................................ $ 61.8
Repayment of A&B Seller Notes................................... 3.6
Repayment of Indebtedness of Entities Controlled by Affiliates of
the Company
Repayment of Ballantrae Senior Bank Debt........................ 20.5
Repayment of Ballantrae Subordinated Debt....................... 9.4
Repayment of Indebtedness Due to Affiliates of the Company
Repayment of Power Investments Seller Notes..................... 8.3
Repayment of World Note......................................... 77.4
Fees and expenses for the Offerings............................... 2.5
------
Total uses of funds............................................. $183.5
======
</TABLE>

21
<PAGE>

DIVIDEND POLICY

Payment of dividends is within the discretion of the Company's Board of
Directors and will depend, among other factors, upon the Company's earnings,
financial condition and capital requirements and the terms of the Company's
financing agreements. The Company plans to retain future earnings for use in
the business and, accordingly, the Company does not anticipate paying
dividends in the foreseeable future. The Company has not previously paid any
cash dividends to its stockholders. The Senior Credit Facility and the
indentures for the Notes and the Senior Subordinated Notes restrict the
ability of the Company to make dividend payments.

DILUTION

The pro forma net tangible book value (deficit) of the Company as of October
31, 1997 (as adjusted to give effect to the Transactions other than this
Offering) was $(76.7) million, or $(3.74) per share of Common Stock. Pro forma
net tangible book value (deficit) per share is determined by dividing the
tangible net worth of the Company (tangible assets less total liabilities) by
the aggregate number of shares of Class A and Class B Common Stock
outstanding, assuming the Transactions (other than this Offering) had taken
place on October 31, 1997. After giving effect to the sale of the 4,000,000
shares of Class A Common Stock offered by the Company hereby at an assumed
initial offering price of $15.00 per share (before deducting the estimated
underwriting discounts and commissions and estimated offering expenses), the
pro forma net tangible book value (deficit) of the Company as of October 31,
1997, would have been approximately $(21.7) million, or $(0.88) per share.
This change represents an immediate increase in net tangible book value of
$2.86 per share to the Existing Stockholders and an immediate dilution of
$15.88 per share to new investors purchasing shares of Class A Common Stock in
this Offering. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $15.00
Pro forma net tangible book value (deficit) per share before
this Offering.............................................. (3.74)
Increase in pro forma net tangible book value per share
attributable to new investors.............................. 2.86
-----
Pro forma net tangible book value per share after this
Offering................................................... (0.88)
------
Dilution in net tangible book value per share to new
investors in this Offering................................. $15.88
======
</TABLE>

The following table summarizes on a pro forma basis, as of October 31, 1997,
the differences between Existing Stockholders (and warrantholders) and new
investors purchasing shares of Class A Common Stock in this Offering (at an
assumed initial price to public of $15.00 per share, before deducting
estimated underwriting discounts and commissions and estimated offering
expenses) with respect to the number of shares of Common Stock purchased from
the Company (assuming no exercise of the Underwriters' over-allotment option
and including, in the case of Existing Stockholders, shares to be acquired at
the initial public offering price in connection with the acquisition of
Ballantrae), the total consideration paid and the average price per share
paid:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.. 20,645,950 83.8% $ 49,709 45.3% $ 2.44
New investors.......... 4,000,000 16.2 60,000 54.7 15.00
---------- ----- ----------- --------
Total................ 24,645,950 100.0% $ 113,934 100.0%
========== ===== =========== ========
</TABLE>

22
<PAGE>

CAPITALIZATION

The following table sets forth the current portion of the long-term debt and
the consolidated capitalization of the Company as of October 31, 1997 and pro
forma to give effect to the Transactions, including the Offerings (assuming no
exercise of the over-allotment option in connection with the Equity Offering),
and the application of the net proceeds thereof. See "Use of Proceeds." This
table should be read in conjunction with the unaudited "Pro Forma Condensed
Consolidated Financial Data," "Selected Consolidated Historical Financial
Data," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements and related
notes thereto included elsewhere in this Prospectus. See also "Description of
Capital Stock" and "Description of Indebtedness."

<TABLE>
<CAPTION>
AS OF OCTOBER 31, 1997
---------------------------
ACTUAL PRO FORMA
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt............. $ 535 $ 535
=========== ===========
Long-term debt:
Senior Credit Facility...................... $ 30,000 $ 30,000
Power Investments Seller Notes.............. 8,300 --
World Note.................................. 75,000 --
% Senior Notes Due 2007................... -- 130,000
8% Subordinated Debenture................... -- 18,354(a)
10 5/8% Senior Subordinated Notes Due 2006.. 140,000 140,000
GM Acquisition Note......................... 59,155 --
A&B Seller Notes............................ 3,500 --
Ballantrae Subordinated Debt................ -- 750
Other, including capital lease obligations.. 17,004 17,004
Junior Subordinated Notes................... 25,211 --
----------- -----------
Total long-term debt...................... 358,170 336,108
Minority interest............................. 8,570 8,570
Redeemable exchangeable preferred stock of
subsidiary................................... 16,483(a) --
Stockholders' equity (deficit):
Class A Common Stock (par value $.01;
authorized 49,400,000;
issued and outstanding 525,477 historical,
15,246,268 pro forma)...................... 88 103
Class B Common Stock (par value $.01;
authorized 17,600,000;
issued and outstanding 385,523 historical,
7,592,465 pro forma)....................... 65 65
Additional paid-in capital.................. 6,703 109,541
Retained earnings........................... (9,112) (12,611)
Cumulative translation adjustment........... (2,173) (2,173)
Stock purchase plan......................... (2,547) (2,547)
----------- -----------
Total stockholders' equity (deficit) ..... (6,976) 92,378
----------- -----------
Total capitalization...................... $ 376,247 437,056
=========== ===========
</TABLE>
- --------

(a) Reflects the fair value of the 8% Subordinated Debenture exchanged for the
redeemable exchangeable preferred stock of subsidiary as permitted by the
terms of such preferred stock. For details of this exchange, see footnote
(d) to the "Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Three Months Ended October 31, 1997." As of October 31,
1997, the principal amount of the 8% Subordinated Debenture would have
exceeded the fair value by $892.

23
<PAGE>

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA

The following table sets forth selected consolidated historical financial
data of the Company for the three years ended July 31, 1997 and the three-
month periods ended October 31, 1996 and 1997. The statement of operations
data for the years ended July 31, 1995, 1996 and 1997 and the balance sheet
data as of July 31, 1995, 1996 and 1997 were derived from audited Consolidated
Financial Statements of the Company, which have been audited by Ernst & Young,
LLP, independent auditors. The financial data for the three-month periods
ended October 31, 1997 and 1996 are derived from unaudited Consolidated
Financial Statements of the Company. The unaudited Consolidated Financial
Statements of the Company include all adjustments, consisting of normal
recurring accruals, which the Company considers necessary for a fair
presentation of the financial position and the results of operations for these
periods. Operating results for the three months ended October 31, 1997 are not
necessarily indicative of the results that may be expected for the entire year
ending July 31, 1998. The table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated Financial Statements of the Company and related
notes and the other financial information included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEAR ENDED JULY 31, ENDED OCTOBER 31,
------------------------------- ----------------------
1995 1996 1997 1996 1997
--------- --------- --------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............. $573,423 $636,852 $689,787 $169,766 $209,020
Gross profit.......... 98,207 126,774 149,553 38,394 38,143
Selling, engineering
and administrative
expenses............. 61,206 77,994 89,098 23,335 20,936
Restructuring
charges.............. -- 8,101 34,500 -- --
Operating income...... 37,001 40,679 25,955 15,059 17,207
Interest expense...... 18,432 27,367 38,774 9,391 10,521
Income (loss) from
continuing
operations........... 9,326 5,796 (10,263) 2,834 3,062
Loss from discontinued
operations, net of
tax benefit ......... 2,363 10,637 1,682 213 --
Net income (loss)..... 6,963 (4,841) (14,296) 270 3,062
Income (loss) from
continuing operations
per share............ $ .56 $ .33 $ (.59) $ .16 $ .18
Net income (loss) per
share................ .42 (.28) (.82) .02 .18
FINANCIAL RATIOS AND
OTHER DATA:
Depreciation and
amortization......... $ 14,533 $ 19,555 $ 22,323 $ 5,300 $ 4,698
Capital expenditures.. 11,241 32,741 31,888 8,910 5,747
EBITDA(a)............. 51,534 60,234 50,360 20,359 21,905
Adjusted EBITDA(b).... 55,968 72,087 87,269 21,494 22,970
Cash provided by (used
in) operating
activities........... 21,921 (684) 22,537 (6,522) 11,415
Cash used in investing
activities .......... (73,251) (79,061) (74,087) (10,236) (7,355)
Cash provided by (used
in) financing
activities .......... 27,119 80,790 57,786 22,880 (5,063)
Gross margin.......... 17.1% 19.9% 21.7% 22.6% 18.2%
EBITDA margin(c)...... 9.0% 9.5% 7.3% 12.0% 10.5%
Adjusted EBITDA margin
(c).................. 9.8% 11.3% 12.7% 12.7% 11.0%
Ratio of EBITDA to
interest expense..... 2.8x 2.2x 1.3x 2.2x 2.1x
Ratio of total debt to
EBITDA............... 3.8x 5.0x 7.2x -- --
Ratio of Adjusted
EBITDA to interest
expense.............. 3.0x 2.6x 2.3x 2.3x 2.2x
Ratio of total debt to
Adjusted EBITDA...... 3.5x 4.1x 4.2x -- --
Ratio of earnings to
fixed charges(d)..... 1.8x 1.3x --(e) 1.5x 1.5x
</TABLE>

24
<PAGE>

<TABLE>
<CAPTION>
AS OF JULY 31,
-------------------------- AS OF OCTOBER 31,
1995 1996 1997 1997
-------- -------- -------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............ $ 61,268 $113,801 $154,041 $152,432
Total assets............... 322,527 475,082 570,569 582,505
Total debt................. 196,988 298,796 363,768 358,705
Redeemable exchangeable
preferred stock of
subsidiary................ 12,903 14,420 16,071 16,483
Total stockholders' equity
(deficit)................. 8,430 1,589 (9,797) (6,976)
</TABLE>
- --------
(a) EBITDA represents the sum of income from continuing operations before
interest expense, income taxes, preferred dividend requirement of
subsidiary and minority interest in income of subsidiaries, plus
depreciation and amortization. EBITDA should not be construed as a
substitute for income from operations, net income or cash flow from
operating activities for the purpose of analyzing the Company's operating
performance, financial position and cash flows. The Company has presented
EBITDA because it is commonly used by certain investors to analyze and
compare companies on the basis of operating performance and to determine a
company's ability to service debt. The definition of EBITDA differs from
the definition of EBITDA applicable to the covenants for the Notes and may
not be comparable to EBITDA as defined by other companies. EBITDA amounts
may not be fully available for management's discretionary use, due to
certain requirements to conserve funds for capital replacement, debt
service and other commitments.

(b) Adjusted EBITDA represents EBITDA plus restructuring charges and non-cash
post-retirement benefits other than pensions less the gain on sale of
building. The definition of Adjusted EBITDA conforms with the definition
of EBITDA applicable to the covenants for the Notes. Adjusted EBITDA
should not be construed as a substitute for income from operations, net
income or cash flow from operating activities for the purpose of analyzing
the Company's operating performance, financial position and cash flows.
Adjusted EBITDA amounts may not be fully available for management's
discretionary use, due to certain requirements to conserve funds for
capital replacements, debt service and other commitments.

(c) EBITDA margin and Adjusted EBITDA margin represent EBITDA and Adjusted
EBITDA, respectively, as a percent of net sales.

(d) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income from continuing operations before income taxes, fixed
charges and minority interest. Fixed charges include preferred dividend
requirement of subsidiary, interest expense and the portion of operating
rents that is deemed representative of an interest factor.

(e) The deficiency of earnings to fixed charges was $13.5 million. Excluding
restructuring charges, the ratio of earnings to fixed charges would have
been 1.5x.

25
<PAGE>

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
(UNAUDITED)

The following unaudited pro forma condensed consolidated financial data are
based on the Consolidated Financial Statements included elsewhere in this
Prospectus, adjusted to give effect to the Transactions, including the
Offerings.

The unaudited pro forma condensed consolidated statement of operations for
the year ended July 31, 1997 and for the three months ended October 31, 1997
have been adjusted to give effect to the Transactions, including the
Offerings, as if they had occurred on August 1, 1996. The unaudited pro forma
condensed consolidated balance sheet at October 31, 1997 has been adjusted to
give effect to the Transactions, including the Offerings, as if they had
occurred on October 31, 1997 (other than the acquisition of World Wide, which
is reflected in the historical balance sheet data).

The unaudited pro forma financial data do not purport to be indicative of
the results of operations or the financial position that would actually have
been obtained if the Transactions, including the Offerings, had occurred on
the dates indicated or of the results of operations or the financial position
that may be obtained in the future. The unaudited pro forma financial data are
presented for comparative purposes only. The pro forma adjustments, as
described in the accompanying data, are based on available information and
certain assumptions that management believes are reasonable. The unaudited pro
forma financial data should be read in conjunction with the Consolidated
Financial Statements of the Company and related notes thereto included
elsewhere in this Prospectus.

The unaudited pro forma financial data with respect to the acquisitions of
World Wide and Ballantrae are based on the historical financial statements of
the businesses acquired and have been accounted for using the purchase method
of accounting. The purchase price, including the related fees and expenses,
have been allocated to the tangible and identifiable intangible assets and
liabilities of the acquired businesses based upon the Company's estimates of
their fair value, with the remainder allocated to goodwill. The pro forma
adjustments directly attributable to the acquisitions of World Wide and
Ballantrae include adjustments to interest expense related to the financing,
charges for amortization of intangible assets and depreciation of property and
equipment relating to the allocation of the purchase price and the related tax
effects.

26
<PAGE>

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
ACQUISITIONS
-----------------------------------------------------------------
HISTORICAL HISTORICAL
TWELVE TWELVE WORLD WIDE BALLANTRAE PRO FORMA
MONTHS MONTHS PRO FORMA PRO FORMA PRO FORMA FOR THE PRO FORMA
ENDED ENDED ADJUSTMENTS PURCHASE PURCHASE ACQUISITIONS ADJUSTMENTS
3/31/97 9/30/97 FOR ACCOUNTING ACCOUNTING OF WORLD WIDE FOR OTHER
HISTORICAL WORLD WIDE BALLANTRAE WORLD WIDE(A) ADJUSTMENTS(B) ADJUSTMENTS(C) AND BALLANTRAE TRANSACTIONS
---------- ---------- ---------- ------------- -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales......... $689,787 $78,100 $36,802 $(28,068) $ -- $ -- $776,621 $ --
Cost of goods
sold............. 540,234 53,400 24,276 (19,378) -- -- 598,532 --
-------- ------- ------- -------- ------ ----- -------- -------
Gross profit...... 149,553 24,700 12,526 (8,690) -- -- 178,089 --
Selling,
engineering, and
administrative
expenses......... 89,098 20,600 5,627 (8,078) 456 483 108,186 --
Restructuring
charges.......... 34,500 -- -- -- -- -- 34,500 --
-------- ------- ------- -------- ------ ----- -------- -------
Operating income.. 25,955 4,100 6,899 (612) (456) (483) 35,403 --
Other income
(expense):
Gain on sale of
building....... 2,082 -- -- -- -- -- 2,082 --
Interest
expense........ (38,774) (1,969) (2,948) 829 (1,182) (75) (44,119) 8,773 (d)
-------- ------- ------- -------- ------ ----- -------- -------
(Loss) income from
continuing
operations before
income taxes,
preferred
dividend
requirement of
subsidiary, and
minority
interest......... (10,737) 2,131 3,951 217 (1,638) (558) (6,634) 8,773
Minority interest
in income of
subsidiary....... 892 -- -- 247 (172) -- 967 --
Income taxes
(benefit)........ (3,014) 850 912 87 (655) (88) (1,908) 3,509 (e)
Preferred dividend
requirement of
subsidiary....... 1,648 -- 931 -- -- (931) 1,648 (1,648)(f)
-------- ------- ------- -------- ------ ----- -------- -------
(Loss) income from
continuing
operations....... $(10,263) $ 1,281 $ 2,108 $ (117) $(811) $ 461 $ (7,341) $ 6,912
======== ======= ======= ======== ====== ===== ======== =======
Loss from
continuing
operations
per share........ $ (.59)
========
<CAPTION>
PRO FORMA
FOR
TRANSACTIONS
------------
<S> <C>
Net sales......... $776,621
Cost of goods
sold............. 598,532
------------
Gross profit...... 178,089
Selling,
engineering, and
administrative
expenses......... 108,186
Restructuring
charges.......... 34,500
------------
Operating income.. 35,403
Other income
(expense):
Gain on sale of
building....... 2,082
Interest
expense........ (35,346)
------------
(Loss) income from
continuing
operations before
income taxes,
preferred
dividend
requirement of
subsidiary, and
minority
interest......... 2,139
Minority interest
in income of
subsidiary....... 967
Income taxes
(benefit)........ 1,601
Preferred dividend
requirement of
subsidiary....... --
------------
(Loss) income from
continuing
operations....... $ (429)
============
Loss from
continuing
operations
per share........ $ (.02)
============
</TABLE>

See Accompanying Notes

27
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1997
(IN THOUSANDS)

(a) This column adjusts the historical results of World Wide by eliminating
the period from April 1, 1996 through June 30, 1996 included in the
historical twelve months ended March 31, 1997. The remaining nine month
period ended March 31, 1997 is thus combined with the three months from
the date of acquisition, May 9, 1997 through July 31, 1997 included in the
Company's historical Statement of Operations. The net sales and net loss
for World Wide for the month of April 1997, which are excluded from the
pro forma results, were $5,191 and $692, respectively. The Pro Forma
Condensed Consolidated Statement of Operations includes both July 1996 and
1997 for World Wide. Net sales and net income for July 1996 were $6,209
and $280, respectively.

(b) This column gives effect to the acquisition of World Wide as if it had
taken place at the beginning of the year, reflecting the increase in
depreciation, amortization and interest expense offset by the minority
interest's share of the additional expenses and income taxes, as follows:

<TABLE>
<S> <C>
Increase in depreciation and amortization........................ $ (456)
Increase in interest expense to finance the acquisition.......... (1,182)
Minority interest's share of additional expenses................. 172
Income taxes..................................................... 655
-------
Effect on net income............................................. $ (811)
=======
</TABLE>

(c) This column gives effect to the acquisition of Ballantrae as if it had
taken place at the beginning of the year, reflecting the increase in
depreciation, amortization and interest expense. The preferred dividend
requirement of subsidiary is also eliminated to reflect the exchange of
the preferred stock for common stock in the acquisition as of the
beginning of the year. After the exchange, no further dividends will
occur. The months of August 1997 and September 1997 are included in the
pro forma results of operations for both the year ended July 31, 1997 and
the three months ended October 31, 1997. Sales and net income for August
1997 and September 1997 combined were $5,841 and $66, respectively.
Details regarding the pro forma purchase accounting adjustments are as
follows:

<TABLE>
<S> <C>
Increase in depreciation and amortization.......................... $(483)
Increase in interest expense....................................... (75)
Income taxes....................................................... 88
Preferred dividend requirement of subsidiary....................... 931
-----
Effect on net income............................................... $ 461
=====
</TABLE>

28
<PAGE>

(d) Reflects decreases (increases) of interest expense and amortization of
deferred financing costs as if the Transactions occurred on August 1, 1996
as follows:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
JULY 31, 1997
-------------
<S> <C>
Reduced interest from the amendment of the Senior Credit
Facility.................................................. $ 190
Amortization of deferred financing costs associated with
the amendment to the Senior Credit Facility............... (30)
Repayment of Power Investments Seller Notes................ 818
Repayment of World Note.................................... 7,875
Reversal of 1997 amortization of deferred financing costs
associated with repayment of the World Note............... 454
Interest expense for the % Senior Notes Due 2007.......... (11,050)
Amortization of deferred financing costs associated with
the % Senior Notes Due 2007.............................. (445)
Repayment of GM Acquisition Note........................... 6,552
Repayment of A&B Seller Notes.............................. 350
Repayment of Ballantrae Senior Bank Debt................... 1,848
Repayment of Ballantrae Subordinated Debt.................. 1,018
Conversion of Junior Subordinated Notes.................... 2,593
Interest expense relating to the 8% Subordinated Debenture
exchanged for the redeemable exchangeable preferred stock
of subsidiary............................................. (1,400)
--------
Net reduction in interest expense.......................... $ 8,773
========
</TABLE>

The interest rate on the % Senior Notes Due 2007 is assumed to be 8 1/2%.
For each 1/4% difference in the interest rate, the annual interest expense
would change by $325.

(e) Represents the income tax expense related to the pro forma interest
expense reduction at 40%.

(f) Represents the reversal of preferred dividend requirements of subsidiary
recorded in 1997 which results from the assumed exchange of the preferred
stock for the 8% Subordinated Debenture effective August 1, 1996.

A deemed preferred dividend of subsidiary arises from the exchange of the
redeemable exchangeable preferred stock of subsidiary for the excess of the
fair value of the 8% Subordinated Debenture over the carrying value of the
redeemable exchangeable preferred stock of subsidiary as shown below. This
nonrecurring charge, which has not been reflected in the pro forma
condensed consolidated statement of operations, will be charged against the
income of the Company in the period of exchange. Upon completion of the
exchange, no further dividends will occur.

<TABLE>
<S> <C>
Fair value of the 8% Subordinated Debenture at October 31, 1997.. $18,354
Carrying value of the redeemable exchangeable preferred stock of
subsidiary at October 31, 1997.................................. 16,483
-------
Deemed preferred dividend of subsidiary arising from exchange.... $ 1,871
=======
</TABLE>

(g) The following nonrecurring items (including the item described in (f)
above), resulting from the Transactions have not been reflected in the
unaudited pro forma condensed consolidated statement of operations for the
year ended July 31, 1997, but will be included in operations within 12
months succeeding the Transactions (amounts are based upon the assumptions
used in preparing the unaudited pro forma condensed consolidated balance
sheet as of October 31, 1997):

<TABLE>
<S> <C>
Early extinguishment penalty on World Note...................... $ (576)
Write-off of World Note deferred financing costs as a result of
early extinguishment........................................... (2,138)
Tax effect of early extinguishment.............................. 1,086
Deemed dividend of preferred stock of subsidiary................ (1,871)
-------
Net charge to retained earnings (deficit)....................... $(3,499)
=======
</TABLE>

29
<PAGE>

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)

See Accompanying Notes

30
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1997
(IN THOUSANDS)

(a) Represents adjustments for the acquisition of Ballantrae as if it had
taken place on August 1, 1996, reflecting the increase in depreciation,
amortization and interest expense for the quarter. The tax adjustment for
the three months ended October 31, 1997 is to adjust the income taxes to
an effective tax rate of 27%. The preferred dividend requirement of
subsidiary is also eliminated to reflect the exchange of the preferred
stock for common stock in the acquisition as of the beginning of the
quarter. After the exchange, no further dividends will occur.

<TABLE>
<S> <C>
Increase in depreciation and amortization............................ $(121)
Increase in interest expense......................................... (19)
Income taxes......................................................... (141)
Preferred dividend requirement of subsidiary......................... 263
-----
Effect on net income................................................. $ (18)
=====
</TABLE>

(b) Reflects decreases (increases) of interest expense and amortization of
deferred financing costs as if the Transactions occurred on August 1, 1996
as follows:

<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
OCTOBER 31, 1997
----------------
<S> <C>
Reduced interest from the amendment of the Senior Credit
Facility................................................. $ 38
Amortization of deferred financing costs associated with
the amendment to the Senior Credit Facility.............. (8)
Repayment of Power Investments Seller Notes............... 205
Repayment of World Note................................... 1,969
Reversal of amortization of deferred financing costs
associated with repayment of the World Note.............. 114
Interest expense for the % Senior Notes Due 2007........ (2,763)
Amortization of deferred financing costs associated with
the % Senior Notes Due 2007............................ (111)
Repayment of GM Acquisition Note.......................... 1,739
Repayment of A&B Seller Notes............................. 88
Repayment of Ballantrae Senior Bank Debt.................. 481
Repayment of Ballantrae Subordinated Debt................. 254
Conversion of Junior Subordinated Notes................... 709
Interest expense relating to the 8% Subordinated Debenture
exchanged for the redeemable exchangeable preferred stock
of subsidiary............................................ (350)
------
Net reduction in interest expense......................... $2,365
======
</TABLE>

The interest on the % Senior Notes Due 2007 is assumed to be 8 1/2%. For
each 1/4% difference in the interest rate, interest expense would increase
by $81 for each three month period.

(d) Represents the reversal of preferred dividend requirements of subsidiary
recorded in the three months ended October 31, 1997, which results from
the assumed exchange of the preferred stock for the 8% Subordinated
Debenture effective August 1, 1996.

<PAGE>

carrying value of the redeemable exchangeable preferred stock of subsidiary
as shown below. This nonrecurring charge, which has not been reflected in
the pro forma condensed consolidated statement of operations, will be
charged against the income of the Company in the period of exchange. Upon
the completion of the exchange, no further dividends will occur.

<TABLE>
<S> <C>
Fair value of the 8% Subordinated Debenture at October 31, 1997..... $18,354
Carrying value of the redeemable exchangeable preferred stock of
subsidiary at
October 31, 1997................................................... 16,483
-------
Deemed preferred dividend of subsidiary arising from exchange....... $ 1,871
=======
</TABLE>

(e) The following nonrecurring items (including the item described in (d)
above) resulting from the Transactions have not been reflected in the
unaudited pro forma condensed consolidated statement of operations for the
three months ended October 31, 1997, but will be included in operations
within the 12 months succeeding the Transactions (amounts are based upon
the assumptions used in preparing the unaudited pro forma condensed
consolidated balance sheet as of October 31, 1997):

<TABLE>
<S> <C>
Early extinguishment penalty on World Note........................ $ (576)
Write-off of World Note deferred financing costs as a result of
early extinguishment............................................. (2,138)
Tax effect of early extinguishments............................... 1,086
Deemed dividend of preferred stock of subsidiary.................. (1,871)
-------
Net charge to retained earnings (deficit)......................... $(3,499)
=======
</TABLE>

32
<PAGE>

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF OCTOBER 31, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
ACQUISITION
------------------------- PRO FORMA FOR ADJUSTMENTS PRO FORMA
HISTORICAL PRO FORMA THE ACQUISITION FOR OTHER FOR
HISTORICAL BALLANTRAE ADJUSTMENTS(A) OF BALLANTRAE TRANSACTIONS TRANSACTIONS
---------- ---------- -------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash
equivalents.......... $ 8,626 $ 843 $ -- $ 9,469 $ 1,250 (b) $ 10,719
Trade accounts
receivable........... 125,582 5,342 -- 130,924 -- 130,924
Other receivables..... 3,701 134 -- 3,835 -- 3,835
Recoverable income
tax.................. 2,889 -- -- 2,889 1,086 (g) 3,975
Inventories........... 167,456 10,337 -- 177,793 -- 177,793
Deferred income
taxes................ 20,757 -- -- 20,757 -- 20,757
Other current assets.. 5,210 81 -- 5,291 -- 5,291
-------- ------- -------- -------- -------- --------
Total current
assets............. 334,221 16,737 -- 350,958 2,336 353,294
Property and equipment.. 153,039 17,445 -- 170,484 -- 170,484
Less accumulated
depreciation........... 30,917 3,760 (3,760) 30,917 -- 30,917
-------- ------- -------- -------- -------- --------
122,122 13,685 3,760 139,567 -- 139,567
Deferred financing
costs.................. 8,651 -- 750 9,401 2,522 (c) 11,923
Goodwill (less
accumulated
amortization).......... 86,760 13,522 10,431 110,713 -- 110,713
Net assets held for
disposal............... 23,909 -- -- 23,909 -- 23,909
Investment in
affiliate.............. 4,727 -- -- 4,727 -- 4,727
Other assets............ 2,115 1,105 -- 3,220 -- 3,220
-------- ------- -------- -------- -------- --------
Total assets........ $582,505 $45,049 $ 14,941 $642,495 $ 4,858 $647,353
======== ======= ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
(DEFICIT) EQUITY:
Current liabilities:
Accounts payable...... $ 96,818 $ 2,474 $ -- $ 99,292 $ -- 99,292
Accrued interest
payable.............. 7,262 -- -- 7,262 (2,425)(b) 4,837
Accrued restructuring
charges.............. 37,922 -- -- 37,922 -- 37,922
Liabilities related to
discontinued
operations........... 2,685 -- -- 2,685 -- 2,685
Other liabilities and
accrued expenses..... 36,567 2,409 -- 38,976 -- 38,976
Current portion of
long-term debt....... 535 -- -- 535 -- 535
-------- ------- -------- -------- -------- --------
Total current
liabilities........ 181,789 4,883 -- 186,672 (2,425) 184,247
Deferred income taxes... 1,556 -- 1,015 2,571 -- 2,571
Long-term debt, less
current portion........ 358,170 30,384 -- 388,554 (52,446)(d) 336,108
Post-retirement benefits
other than pension..... 13,742 -- -- 13,742 -- 13,742
Accrued pension
benefit................ 5,272 -- -- 5,272 -- 5,272
Other non-current
liabilities............ 3,899 566 -- 4,465 -- 4,465
Minority interest in
subsidiary............. 8,570 -- -- 8,570 -- 8,570
Redeemable exchangeable
preferred stock of
subsidiary............. 16,483 12,205 (12,205) 16,483 (16,483)(e) --
Stockholders' (deficit)
equity:
Common Stock:
Class A Shares...... 88 1 14 103 -- 103
Class B Shares...... 65 1 (1) 65 -- 65
Paid-in capital....... 6,703 (5,133) 28,260 29,830 79,711 (f) 109,541
Retained earnings
(deficit)............ (9,112) 2,142 (2,142) (9,112) (3,499) (12,611)
Cumulative translation
adjustment........... (2,173) -- -- (2,173) -- (2,173)
Stock purchase plan... (2,547) -- -- (2,547) -- (2,547)
-------- ------- -------- -------- -------- --------
Stockholders'
(deficit) equity... (6,976) (2,989) 26,131 16,166 76,212 92,378
-------- ------- -------- -------- -------- --------
Total liabilities
and stockholders'
(deficit) equity... $582,505 $45,049 $ 14,941 $642,495 $ 4,858 $647,353
======== ======= ======== ======== ======== ========
</TABLE>

See Accompanying Notes

33
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF OCTOBER 31, 1997
(IN THOUSANDS)

(a) Represents the adjustments for the Ballantrae acquisition as if it had
occurred as of October 31, 1997. The acquisition will be accounted for by
the purchase method of accounting. Using the purchase method of
accounting, the total purchase price will be allocated to tangible and
intangible assets and liabilities of Ballantrae based upon the Company's
estimates of their respective fair values at the date of the acquisition.

(b) Represents the sources and uses of cash in connection with the
Transactions as follows:

<TABLE>
<CAPTION>
AS OF
OCTOBER 31, 1997
----------------
<S> <C>
Estimated proceeds from the Offerings (net of
underwriting discounts and commissions)............... $182,550
Senior Credit Facility refinancing fee................. (210)
Repayment of Power Investments Seller Notes............ (8,300)
Repayment of World Note................................ (75,576)
Repayment of GM Acquisition Note....................... (59,155)
Repayment of A&B Seller Notes.......................... (3,500)
Repayment of Ballantrae Senior Bank Debt............... (20,384)
Repayment of Ballantrae Subordinated Debt.............. (9,250)
Payment of accrued interest for debt repaid............ (2,425)
Other fees and expenses of the Offerings............... (2,500)
--------
Cash provided from the Transactions.................... $ 1,250
========
</TABLE>

(c) Represents the change in the deferred financing costs and related tax
benefit with respect to the World Note as follows:

<TABLE>
<CAPTION>
AS OF
OCTOBER 31, 1997
----------------
<S> <C>
Deferred financing costs related to the Offerings....... $ 4,450
Deferred financing costs related to the Senior Credit
Facility refinancing................................... 210
Write-off of World Note deferred financing costs as a
result of early extinguishment......................... (2,138)
-------
$ 2,522
=======
</TABLE>

34
<PAGE>

(d) Details regarding the changes to long-term debt are as follows:

<TABLE>
<S> <C>
Total long-term debt (historical)................................ $358,170
Ballantrae Senior Bank Debt...................................... 20,384
Ballantrae Subordinated Debt..................................... 10,000
--------
Total Ballantrae Debt............................................ 30,384
--------
Pro forma for Ballantrae acquisition............................. 388,554
--------
Power Investments Seller Notes................................... (8,300)
World Note....................................................... (75,000)
GM Acquisition................................................... (59,155)
A&B Seller Notes................................................. (3,500)
Ballantrae Senior Bank Debt...................................... (20,384)
Ballantrae Subordinated Debt..................................... (9,250)
Junior Subordinated Notes........................................ (25,211)
% Senior Notes Due 2007......................................... 130,000
8% Subordinated Debenture........................................ 18,354
--------
Adjusted for other Transactions.................................. (52,446)
--------
Pro forma for Transactions....................................... $336,108
========
</TABLE>

(e) Reflects the elimination of redeemable exchangeable preferred stock of
subsidiary exchanged for the 8% Subordinated Debenture.

(f) Details regarding the changes to equity, exchange of equity, issuance of
Common Stock and exchange of Junior Subordinated Notes are as follows:

<TABLE>
<CAPTION>
AS OF
OCTOBER 31, 1997
----------------
<S> <C>
Paid in capital (historical)............................. $ 6,703
Equity exchanged and transaction costs for Ballantrae
acquisition, less par value of $15 for shares of Common
Stock received.......................................... 23,127
--------
Pro forma for Ballantrae acquisition..................... 29,830
--------
Equity Offering.......................................... 55,800
Exchange of Junior Subordinated Notes.................... 25,211
Fees for Equity Offering................................. (1,300)
--------
Adjusted for other Transactions.......................... 79,711
--------
Pro forma for Transactions............................... $109,541
========
</TABLE>

(g) Represents the extraordinary loss relating to the early extinguishment of
the World Note net of taxes at a marginal rate of 40% and the deemed
preferred dividend of subsidiary arising from the exchange of the
redeemable exchangeable preferred stock of subsidiary as follows:

<TABLE>
<CAPTION>
AS OF
OCTOBER 31, 1997
----------------
<S> <C>
Early extinguishment penalty on World Note.............. $ (576)
Write-off of World Note deferred financing costs as a
result of early extinguishment......................... (2,138)
Tax effect of early extinguishments..................... 1,086
Deemed dividend of preferred stock of subsidiary........ (1,871)
-------
Net charge to retained earnings (deficit)............... $(3,499)
=======
</TABLE>

35
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

GENERAL

The Company sells its products in the aftermarket and the OEM market,
principally in North America and also in Europe, Latin America and Asia-
Pacific. In addition to purchasing newly manufactured parts for use in new
vehicle production, OEMs are also significant customers of the Company's
aftermarket products. These aftermarket products are distributed through the
OEMs' affiliated dealer networks.

The aftermarket is highly fragmented and competitive. The Company believes
that consolidation of aftermarket suppliers is occurring due, in part, to
higher quality standards for remanufactured products, which may be more
expensive or technically difficult for smaller remanufacturers to meet. The
Company plans to continue to increase its penetration of the aftermarket
through internal growth and strategic acquisitions.

The demand for components in the OEM market is cyclical. The Company
believes that opportunities for growth in the OEM market will come primarily
through the introduction of new products and expansion of the Company's global
operations. The Company believes that its aftermarket and OEM businesses are
complementary and provide the Company with a competitive advantage in meeting
customer needs and maintaining the high levels of expertise necessary to
compete successfully in both markets. The high capability necessary to meet
the stringent requirements for OEM technology and quality are transferable by
the Company to its aftermarket operations.

For 1997, the aftermarket accounted for approximately 45.2% of the Company's
net sales and approximately 62.8% of the Company's Adjusted EBITDA (as
defined). Net sales and Adjusted EBITDA attributable to the OEM market
accounted for the remainder.

The primary components of cost of goods sold in the Company's aftermarket
business include the cost of cores and component parts, labor costs and
overhead. While the availability and cost of cores fluctuate based on supply
and demand, the Company's relationships with dealers and other customers have
historically provided it with sufficient access to cores at favorable prices.

The primary components of cost of goods sold in the Company's OEM business
include material, labor and overhead. The Company is in the process of
shifting OEM production to focus factories, which the Company believes can
enhance operating efficiencies. The Company's domestic OEM labor force is
represented primarily by the UAW. In March 1997, the Company signed a new
master agreement with the UAW that stipulated an approximately 3.2% annual
wage and benefit increase (12.8% over the four year term of the agreement) for
the Company's UAW hourly employees. If employment levels and productivity
remain unchanged, the agreement with the UAW would cause the Company to
experience increases in wage and benefit costs of approximately 2% per year
over the next four years (which represents approximately $3.3 million in the
first such year). In addition, grow-in provisions under the new agreement with
the UAW will require the Company to move certain lower wage and benefit
employees to higher wage and benefit levels. Under provisions of the national
agreement, the UAW and the Company have recently developed a special program
of incentives for hourly employees who agree to leave the Company, the cost of
which is included in the restructuring charges for fiscal year 1997 described
herein. Based on responses to this special incentive plan received to date,
the Company would, if no other cost reductions were realized, experience as a
result of the grow-in provision additional wage and benefit costs that
increase each year of the UAW contract to approximately $10.2 million annually
in additional costs from current levels by the fourth year. The Company
expects the continued implementation of the special incentive plan and other
planned cost reduction initiatives to substantially offset the effects of the
grow-in provision. If the responses to date to the special incentive plan were
reversed (which the Company considers unlikely) and the other cost-saving
initiatives were not implemented, the additional costs referred to above to
the Company from the grow-in provision would approximately double. See "Risk
Factors--Labor Negotiations."

36
<PAGE>

Since the GM Acquisition, the Company has completed five strategic
acquisitions, substantially increasing the Company's aftermarket operations,
and entered into two international joint ventures. These acquisitions and
joint ventures have broadened the Company's product line, expanded its
remanufacturing capability, extended its participation in international
markets and increased its penetration of the retail automotive parts channel.
As a result of these acquisitions, joint ventures and the Company's focus on
increasing its participation in the aftermarket, the Company's reliance on GM
has declined since the Company's formation. Net sales to customers other than
GM increased from 41.0% in fiscal year 1995 to 56.3% in fiscal year 1997.

The portion of the Company's net sales derived from the aftermarket have
increased significantly over the past two years, from approximately 19.2% in
fiscal year 1995 to 45.2% in fiscal year 1997. For fiscal year 1997, GM
accounted for approximately 43.7% of the Company's total net sales, of which
31.8% were to GM's OEM businesses and 11.9% were to GM SPO. Substantially all
of the Company's fiscal year 1997 automotive OEM sales were to GM.

In connection with the GM Acquisition, GM entered into long-term contracts
(the "Supply Agreements") pursuant to which it has agreed to purchase from the
Company 100% of its North American requirements for automotive starters (other
than for Saturn and Geo) and 100% of its U.S. and Canadian requirements for
heavy duty starters and alternators, in each case with respect to the
Company's existing product line. In addition, GM has been designated as an
exclusive distributor of a significant amount of the Company's automotive and
heavy duty aftermarket products and has agreed to provide the Company with
purchasing support, which enables it to obtain raw materials at competitive
prices. GM's obligations to purchase the Company's automotive starters and
heavy duty starters and alternators under the Supply Agreements are subject to
such products remaining competitive as to price, technology and design.
However, GM may not terminate the Supply Agreement for the Company's prices of
automotive products for failing to be so competitive prior to July 31, 2001.
The Supply Agreements will terminate (i) with respect to automotive products,
on July 31, 2004 (except that GM's obligations with respect to automotive
products introduced in 1996 and 1997 will terminate on July 31, 2006 and July
31, 2007, respectively), and (ii) with respect to heavy duty products, July
31, 2000. GM's obligations to distribute the Company's heavy duty aftermarket
products terminate on July 31, 1998, and GM's obligations to distribute the
Company's automotive aftermarket products terminate on July 31, 2009. See
"Business--Customers." Although the Company expects that its automotive and
heavy duty products will remain competitive throughout the term of the
agreements with GM, there can be no assurance that GM will not develop
alternative sources for such components and purchase some or all of its
requirements from these sources prior to or following the expiration of the
agreements. See "Risk Factors--Dependence on General Motors."

In fiscal year 1997, the Company decided to restructure its OEM
manufacturing operations, incurring a restructuring charge of $34.5 million
and establishing a reserve for that amount. The Company's OEM business has
seven principal manufacturing operations, two in Meridian, Mississippi and
five in Anderson, Indiana. The Company has announced its intention to close
its two facilities in Meridian, Mississippi by the end of the 1998 fiscal
year, including one facility leased from GM at the time of the GM Acquisition.
The balance of the Company's OEM facilities are located in Anderson, Indiana.
Two of the Anderson facilities are leased from GM and the Company plans to
vacate these facilities by the end of 1999. The Company is operating three new
focus factories in Anderson and intends to begin operations in three
additional focus factories by the end of 1999. This restructuring is expected
to provide a reduction of over 70% in square footage from the Company's
existing plants to the focus factories due to streamlining of manufacturing
processes, phasing out of certain manufacturing equipment and elimination of
excess unutilized floor space or floor space used by GM in each of the
existing facilities. The restructuring reserve does not include approximately
$3 million in startup costs the Company expects to incur, based on its prior
focus factory startups, in connection with the three additional focus
factories. As discussed below, the transition to focus factories adversely
affected the Company's gross margins in the first quarter of fiscal 1998. See
"Risk Factors--Relocation of Facilities."

The restructuring plan included accelerating the Company's move to focus
factories and closing the Company's operations in three old, vertically-
integrated factories. These decisions resulted in the impairment of certain
production assets with a carrying amount of $30.3 million, which the Company
plans to dispose of. The

37
<PAGE>

Company has estimated the loss on disposal including related costs at $26.3
million. In addition, the Company has estimated a cost of $8.2 million for
reducing its workforce through several transition programs related to the
restructuring of the operations. The results of operations for the products
which will be discontinued are not separately identifiable. The 1997
restructuring reserve is expected to be utilized throughout 1998 and 1999. In
1998, the Company expects to reduce the 1997 restructuring reserve balance to
approximately $12.1 million through cash payments of $5.8 million and other
charges of $16.6 million. The remaining balance is expected to be completely
utilized in 1999 through cash payments of $4.5 million and other charges of
$7.6 million. As planned, no significant charges have been incurred with
respect to the 1997 restructuring reserve through the first quarter of fiscal
1998. The plan is on schedule and the Company continues to believe that the
reserve adequately provides for anticipated expenses. See "Risk Factors--
Restructuring Charges; Recent Losses."

In fiscal year 1996, the Company decided to eliminate the production of
certain parts and certain straight drive starter motors and offered a
voluntary retirement transition program to certain eligible salaried employees
resulting in the recognition of a restructuring charge of $8.1 million. The
Company purchased new, more efficient equipment for use in the production of
certain heavy duty alternators resulting in the impairment of certain
production equipment with a carrying amount of approximately $5.2 million,
which the Company plans to dispose of at an estimated loss of $4.4 million,
including disposal costs. The retirement transition program, which was charged
to operations for $3.7 million in 1996, was offered in conjunction with a
similar plan offered by GM which allowed employees special additional benefits
not typically provided upon retirement. These additional benefits included
salaried payments for six months and future supplemental payments under the
salaried retirement plan. Cost savings have been identified and realized in
the decisions to eliminate specific parts and motors and implement the
voluntary retirement transition program. The results of operations for the
parts and straight drive starter motors for which production will be
discontinued are not separately identifiable.

In fiscal year 1996, cash payments of $1.7 million and other charges of $0.9
million reduced the outstanding balance of the restructuring reserves to $5.5
million as of July 31, 1996. In 1997, cash payments of $0.8 million and other
charges of $1.8 million further reduce the outstanding balance to $2.9 million
as of July 31, 1997. This remaining balance is expected to be completely
utilized during 1998.

38
<PAGE>

The following table sets forth certain statement of operations data
expressed as a percentage of sales:

<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR MONTHS ENDED
ENDED JULY 31, OCTOBER 31,
------------------- --------------
1995 1996 1997 1996 1997
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Net sales................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold....................... 82.9 80.1 78.3 77.4 81.8
----- ----- ----- ------ ------
Gross profit............................. 17.1 19.9 21.7 22.6 18.2
Selling, engineering and administrative
expenses................................ 10.7 12.2 12.9 13.7 10.0
Restructuring charges.................... -- 1.3 5.0 -- --
----- ----- ----- ------ ------
Operating income......................... 6.4 6.4 3.8 8.9 8.2
Other income (expense):
Gain on sale of building................ -- -- 0.3 -- --
Interest expense........................ (3.2) (4.3) (5.7) (5.6) (5.0)
----- ----- ----- ------ ------
Income (loss) from continuing operations
before income taxes (benefit), preferred
divided requirement of subsidiary and
minority interest....................... 3.2 2.1 (1.6) 3.3 3.2
Minority interest in income of
subsidiaries............................ -- 0.1 0.1 0.1 0.2
Income taxes (benefit)................... 1.4 0.9 (0.4) 1.3 1.3
Preferred dividend requirement of
subsidiary.............................. 0.2 0.2 0.2 0.2 0.2
----- ----- ----- ------ ------
Income (loss) from continuing
operations.............................. 1.6 0.9 (1.5) 1.7 1.5
Discontinued operations:
Loss from operations of discontinued
businesses, net of income taxes of
$1,582, $1,042 and $395, respectively.. 0.4 0.3 0.1 0.1 --
Loss on disposal of businesses, net of
income taxes of $6,043 and $426,
respectively........................... -- 1.4 0.1 -- --
Extraordinary item:
Write-off of debt issuance costs, net of
income taxes of $1,147................. -- -- 0.3 1.4 --
----- ----- ----- ------ ------
Net income (loss)........................ 1.2% (0.8)% (2.0)% 0.2% 1.5%
===== ===== ===== ====== ======
</TABLE>

THREE MONTHS ENDED OCTOBER 31, 1997 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1996

Net Sales. Net sales were $209.0 million for the three months ended October
31, 1997, an increase of $39.3 million, or 23.1%, over the three months ended
October 31, 1996. The increase resulted primarily from the inclusion of $17.6
million of the net sales of World Wide and a $15.2 million increase in OEM
sales volume due to higher production levels at the Company's automotive and
heavy duty OEM customers.

Gross Profit. Gross profit was $38.1 million for the three months ended
October 31, 1997, a decrease of $.3 million compared to the three months ended
October 31, 1996. As a percentage of net sales, gross profit was 18.2% for the
three months ended October 31, 1997 compared to 22.6% for the three months
ended October 31, 1996. This 4.4% decrease as a percentage of net sales was
primarily attributable to a change in the mix of aftermarket sales volume from
higher margin heavy duty to lower margin light duty product lines (2.0%). In
addition, other differences include a change in allocation of certain expenses
in the aftermarket businesses from SE&A to overhead (.9%), transition
inefficiencies and costs associated with focus factory relocations (.6%), the
inclusion of World Wide in 1997, which has lower gross margins than the
Company's other businesses (.3%), and the impact of the startup costs
associated with a new engine remanufacturing program at Power Investments
(.3%).

Selling, Engineering and Administrative Expenses. Selling, engineering and
administrative ("SE&A") expenses were $20.9 million for the three months ended
October 31, 1997, a decrease of $2.4 million, or 10.3%, from the three months
ended October 31, 1996. As a percentage of net sales, SE&A expenses decreased
to 10.0% for the three months ended October 31, 1997 from 13.7% for the three
months ended October 31, 1996. The 3.7% decrease as a percent of net sales in
SE&A expenses resulted primarily from lower information systems and consulting
expenses related to the completion of certain projects during fiscal year 1997
(1.5%), a change in allocation of certain expenses in the aftermarket business
from SE&A to overhead (.9%), the inclusion of World Wide in 1997, which has
lower SE&A expenses as a percent of net sales (.6%), and the impact of the
higher sales volume in the OEM businesses without a commensurate increase in
SE&A expenses (.6%).

<PAGE>

Operating Income. Operating income was $17.2 million for the three months
ended October 31, 1997, an increase of $2.1 million, or 14.3%, over the three
months ended October 31, 1996. As a percent of net sales, operating income
decreased to 8.2% for the three months ended October 31, 1997 from 8.9% for
the three months ended October 31, 1996. This decrease was attributable to the
decrease in gross profit, and was partially offset by the decrease in SE&A
expenses as discussed above.

Interest Expense. Interest expense was $10.5 million for the three months
ended October 31, 1997, an increase of $1.1 million, or 12.0%, over the three
months ended October 31, 1996. The increased interest expense resulted from
additional debt incurred to finance acquisitions.

Income Taxes. Income tax expense was $2.7 million for the three months ended
October 31, 1997, an increase of $.4 million, or 15.9%, from the three months
ended October 31, 1996. The Company's effective tax rate was 40.0% for the
three months ended October 31, 1997 compared to 40.3% for the three months
ended October 31, 1996. The decrease in the effective tax rate is primarily
related to the implementation of certain international tax planning
strategies.

Loss from Discontinued Operations. The after-tax loss from discontinued
operations of $.2 million for the three months ended October 31, 1996 reflects
the results of the Company's discontinued large bore diesel remanufacturing
operations and marine operations. These operations were not part of the
Company's core strategic focus. A reserve for the disposal of these operations
of $1.3 million was established at July 31, 1997. Operating losses during the
three months ended October 31, 1997 were charged against this reserve.

Write Off of Debt Issuance Cost. In August 1996, certain debt was retired
out of the proceeds from the issuance of the Senior Subordinated Notes.
Unamortized issuance costs, net of income taxes, of $2.4 million relating to
the retired debt was written off in the three months ended October 31, 1996.

Net Income. Due to the factors noted above, net income was $3.1 million for
the three months ended October 31, 1997 an increase of $2.8 million from the
three months ended October 31, 1996. As a percentage of net sales, net income
increased to 1.5% for the three months ended October 31, 1997, from .2% for
the three months ended October 31, 1996.

FISCAL YEAR ENDED JULY 31, 1997 COMPARED TO FISCAL YEAR ENDED JULY 31, 1996

Net Sales. Net sales were $689.8 million for 1997, an increase of $52.9
million, or 8.3%, over the prior year. The increase resulted from the
inclusion of the net sales of World Wide from its acquisition date and Power
Investments for the entire 1997 fiscal year. These sales increases were
partially offset by the absence in 1997 of orders for the initial stocking of
stores that occurred when the Company added a new retail customer and one of
its existing retail customers acquired a significant number of retail stores.

Gross Profit. Gross profit was $149.6 million for 1997, an increase of $22.8
million, or 18.0%, over the prior year. As a percentage of net sales, gross
profit increased to 21.7% for the year ended July 31, 1997 from 19.9% for the
prior year. This 1.8% increase as a percentage of net sales was primarily
attributable to the higher gross profit margins resulting from improved
productivity and cost reductions in the Company's OEM operations (1.0%) and
the Power Investments Acquisition and the World Wide Acquisition (together,
.8%). These profitability improvements and cost reductions represent the
benefits from the restructuring actions begun in 1996 and were partially
offset by start-up costs for the focus factories. The Company also launched a
family of new gear reduction starters that initially are generating lower
margins than those of the mature straight drive starters. The continued
replacement of the straight drive starter with the new gear reduction starter
is expected to have a less adverse effect on gross profit margin in 1998.

Selling, Engineering and Administrative Expenses. SE&A expenses were $89.1
million for 1997, an increase of $11.1 million, or 14.2%, over the prior year.
As a percentage of net sales, SE&A expenses increased to 12.9% for 1997 from
12.2% during the prior year. The .7% increase as a percent of net sales in
SE&A expense as a percent of net sales resulted primarily from higher SE&A
expense as a percent of net sales for costs for information systems (.4%), the
acquired companies (.2%) and start-up costs for the focus factories (.2%).

<PAGE>

Operating Income. Operating income was $26.0 million for 1997, a decrease of
$14.7 million, or 36.2%, from the prior year. As a percent of net sales,
operating income decreased to 3.8% for the year ended July 31, 1997 from 6.4%
for the prior year. This decrease was attributable to the inclusion of $34.5
million of restructuring charges, as compared to restructuring charges of $8.1
million in 1996, as discussed above. Excluding the restructuring charges,
operating income was 8.8% of sales in 1997 and 7.7% in 1996.

Interest Expense. Interest expense was $38.8 million for 1997, an increase
of $11.4 million, or 41.7%, over the prior year. Approximately $5.3 million of
the increased interest expense was due to additional debt incurred to finance
acquisitions and approximately $6.1 million was due to increased borrowings to
fund working capital requirements.

Income Taxes. The Company had an income tax benefit of $3.0 million in 1997
as compared to income tax expense of $5.7 million for 1996. The tax benefit
was 28.1% of the loss from continuing operations before tax in 1997, and the
income tax expense was 43.1% of income from continuing operations before tax
for the prior year. Due to continuing tax planning initiatives, the Company
expects its effective tax rate to be approximately 38% in future years.

Loss From Discontinued Operations. The after-tax loss from discontinued
operations of $1.7 million for 1997 relates to the Company's plan to divest
its large bore diesel remanufacturing operations and its marine operations.
These operations were not part of the Company's core strategic focus. The loss
reflects the direct costs of production and identifiable SE&A expense expected
to be incurred by these businesses from the date the Company decided to
dispose of them until the expected disposal date, and a loss on disposal of
assets and an allocation of interest expense based on capital employed by the
business.

Net Income (Loss). Due to the factors noted above, the net loss was $14.3
million for 1997, compared to a loss of $4.8 million in the prior year.
Excluding restructuring charges and loss on discontinued operations, the
Company's net income for 1997 was $10.5 million and $10.7 million for 1996.

FISCAL YEAR ENDED JULY 31, 1996 COMPARED TO FISCAL YEAR ENDED JULY 31, 1995

Net Sales. Net sales were $636.9 million for 1996, an increase of $63.4
million, or 11.1%, over the prior year. The increase resulted from the
inclusion of the net sales of the 1995 Acquisitions for the entire 1996 fiscal
year and the net sales of the Power Investments Acquisition for the last six
months of the 1996 fiscal year. Sales increases from these newly-acquired
subsidiaries were partially offset by decreased sales to GM as a result of
certain work actions at GM, GM's high inventory levels at the beginning of
1996, and an industry-wide softening of OEM heavy duty truck production.

Gross Profit. Gross profit was $126.8 million for 1996, an increase of $28.6
million, or 29.1%, over the prior year. As a percentage of net sales, gross
profit increased to 19.9% for the year ended July 31, 1996 from 17.1% for the
prior year. This 2.8% increase as a percentage of net sales was attributable
primarily to improved productivity and cost reductions in the OEM operations
(2.0%), as well as the higher gross profit margins of the businesses acquired
(.7%). These benefits were partially offset by decreased sales to GM which
negatively affected gross profit margins at certain of the Company's OEM
operations.

Selling, Engineering and Administrative Expenses. SE&A expenses were $78.0
million for 1996, an increase of $16.8 million, or 27.4%, over the prior year.
As a percentage of net sales, SE&A expenses increased to 12.2% for 1996 from
10.7% during the prior year. The increase in SE&A expenses as a percent of net
sales reflects the relatively higher SE&A expenses the acquired businesses
incurred in order to service the aftermarket.

Operating Income. Operating income was $40.7 million for 1996, an increase
of $3.7 million, or 9.9%, over the prior year. As a percentage of net sales,
operating income decreased slightly to 6.4% for the year ended July 31, 1996
from 6.5% for the prior year. This decrease was attributable to the inclusion
of restructuring charges of $8.1 million, as discussed above. Excluding the
restructuring charges, operating income was 7.7% of sales in 1996.

41
<PAGE>

Interest Expense. Interest expense was $27.4 million for 1996, an increase
of $8.9 million, or 48.5% over the prior year. The increase was due primarily
to $5.5 million of interest on additional debt incurred to finance
acquisitions and $3.4 million of interest on increased borrowings to fund
working capital requirements.

Income Taxes. Income taxes were $5.7 million for 1996, a decrease of $2.1
million from the prior year. The Company's effective tax rate was 43.1% for
1996 and 42.3% for the prior year. The increase in the effective tax rate was
due, in part, to the inclusion of Power Investments and higher tax rates in
foreign operations.

Loss From Discontinued Operations. The after-tax loss from discontinued
operations of $10.6 million for 1996 relates principally to the Company's
Powder Metal Forge ("PMF") business. PMF manufactures products that are not
part of the Company's core business. This loss reflects the direct costs of
production and identifiable SE&A expense incurred by the PMF business, and
estimated losses from operations during a transition period from the date the
Company decided to dispose of PMF until production is relocated to the
seller's facility, as well as a loss on disposal of assets and an allocation
of interest expense based on capital employed by the business.

Net Income (Loss). Net loss was $4.8 million for 1996, an earnings decrease
of $11.8 million from the prior year. The decrease in net income was
attributable to the restructuring charges and the loss on discontinued
operations discussed above. Excluding loss from discounted operations and
restructuring charges, net income was $10.7 million in 1996.

QUARTERLY RESULTS OF OPERATIONS; SEASONALITY

The following table sets forth, for the periods shown, certain statements of
operations data for the Company:

<TABLE>
<CAPTION>
FISCAL
1998
FISCAL 1996 QUARTER ENDED FISCAL 1997 QUARTER ENDED QUARTER
------------------------------------- ---------------------------------- ENDED
OCT. 31 JAN. 31 APRIL 30 JULY 31 OCT. 31 JAN. 31 APRIL 30 JULY 31 OCT. 31
------- ------- -------- ------- ------- ------- -------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $156.7 $147.8 $165.3 $167.1 $169.8 $162.2 $177.7 $180.1 $209.0
Gross profit............ 31.1 28.3 34.3 33.2 38.4 31.6 38.1 41.5 38.1
SE&A.................... 17.8 17.5 21.8 20.9 23.3 19.7 22.7 23.3 20.9
Restructuring charges... -- 8.1 -- -- -- -- -- 34.5 --
Operating income
(loss)................. 13.3 2.7 12.5 12.3 15.1 11.8 15.4 (16.3) 17.2
Income (loss) from
continuing operations.. 3.9 (2.0) 2.2 1.7 2.8 0.9 2.5 (16.5) 3.1
Net income (loss)....... 3.0 (11.4) 2.0 1.6 0.3 0.8 2.3 (17.7) 3.1
Income (loss) from
continuing operations
per share.............. $ .22 $ (.11) $ .12 $ .10 $ .16 $ .05 $ .15 $ (.95) $ .18
Net income (loss) per
share.................. .17 (.65) .11 .09 .02 .05 .13 (1.03) .18
EBITDA.................. $ 17.6 $ 7.5 $ 17.2 $ 17.9 $ 20.4 $ 17.5 $ 20.9 $ (8.4) $ 21.9
Adjusted EBITDA......... 18.3 16.4 18.3 19.1 21.5 18.6 22.0 25.2 23.0
Cash flows from
operating activities... 15.2 (17.5) (13.1) 14.7 (6.5) 5.0 1.4 22.6 11.4
Cash flows from
investing activities... (6.7) (6.3) (53.6) (12.5) (10.2) (13.8) 0.3 (50.4) (7.4)
Cash flows from
financing activities... (7.7) 22.2 66.6 (0.3) 22.9 2.4 (1.3) 33.8 (5.1)
Ratio of earnings to
fixed charges.......... 2.1x -- (a) 1.5x 1.4x 1.5x 1.2x 1.4x --(a) 1.5x
</TABLE>
- --------

(a) The deficiency of earnings to fixed charges was $3.9 million and $24.8
million for the quarters ended January 31, 1996 and July 31, 1997,
respectively. Excluding restructuring charges, the ratio of earnings to
fixed charges would have been 1.6x and 1.9x, respectively.

42
<PAGE>

The following table sets forth, for the periods shown, certain statement of
operations data for the Company, expressed as a percent of sales:

<TABLE>
<CAPTION>
FISCAL
1998
FISCAL 1996 QUARTER ENDED FISCAL 1997 QUARTER ENDED QUARTER
-------------------------------- -------------------------------- ENDED
OCT. 31 JAN. 31 APRIL 30 JULY 31 OCT. 31 JAN. 31 APRIL 30 JULY 31 OCT. 31
------- ------- -------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............ 19.8% 19.1% 20.7% 19.8% 22.6% 19.5% 21.4% 23.1% 18.2%
SE&A.................... 11.4% 11.8% 13.2% 12.5% 13.7% 12.2% 12.8% 12.9% 10.0%
Restructuring charges... 0.0% 5.5% 0.0% 0.0% 0.0% 0.0% 0.0% 19.2% 0.0%
Operating income
(loss)................. 8.5% 1.8% 7.5% 7.3% 8.9% 7.3% 8.7% (9.1)% 8.2%
Income (loss) from
continuing operations.. 2.5% (1.4)% 1.3% 1.0% 1.6% 0.6% 1.4% (9.2)% 1.5%
Net income (loss)....... 1.9% (7.7)% 1.2% 1.0% 0.2% 0.5% 1.3% (9.8)% 1.5%
EBITDA.................. 11.2% 5.1% 10.4% 10.7% 12.0% 10.8% 11.8% (4.7)% 10.5%
Adjusted EBITDA ........ 11.7% 11.1% 11.1% 11.4% 12.7% 11.5% 12.4% 14.0% 11.0%
</TABLE>

The Company's business is moderately seasonal, as its major OEM customers
historically have one- to two-week summer shutdowns of operations during July.
In addition, the Company typically has shut down its own operations for one
week each July, depending on backlog, scheduled maintenance and inventory
buffers, as well as an additional week during the December holidays.
Consequently, the Company's second and fourth quarter results reflect the
effects of these shutdowns. The Company's gross profit as a percentage of
sales fluctuates with changes in sales volume, due to the fixed nature of
certain expenses. Gross profit is also impacted by fluctuations in the sales
and product mix between the Company's different business units. The Company's
sales and product mix have fluctuated, and are expected to continue to
fluctuate, quarter to quarter.

LIQUIDITY AND CAPITAL RESOURCES

The Company's liquidity needs include required debt service, working capital
needs and the funding of capital expenditures. The Company does not currently
have any significant maturities of long-term debt prior to 2006 other than the
Senior Credit Facility, any potential payments under the GM Contingent Note
and the 8% Subordinated Debenture. See "Description of Indebtedness." The
Company anticipates temporary additional working capital requirements for
increased inventories at its existing facilities in connection with the
relocation to focus factories.

The Company estimates that net proceeds from the Offerings will be
approximately $181.1 million, net of fees and related costs and assuming no
exercise of the over-allotment option in the Equity Offering. The net proceeds
will be used to repay (i) the World Note with a principal amount of $75.0
million at a price equal to 103% of the principal amount, (ii) the GM
Acquisition Note of $59.2 million, (iii) the Power Investments Seller Notes
and the A&B Seller Notes of in an aggregate of $11.8 million, (iv) the
Ballantrae Senior Bank Debt of $20.8 million and (v) the Ballantrae
Subordinated Debt of $9.3 million. Any accrued and unpaid interest on such
indebtedness will also be repaid with the proceeds of the Offerings. See "Use
of Proceeds."

In connection with the Offerings, the Company will amend and restate its
Senior Credit Facility to provide up to $180 million of revolving credit
availability. Each of the Company's domestic operating subsidiaries will be
parties to the Senior Credit Facility. The obligations under the Senior Credit
Facility of each domestic operating subsidiary will be unconditionally
guaranteed by each other domestic operating subsidiary and each of the Company
and its domestic subsidiaries which are holding companies.

Initially, the amount available to the Company for borrowing under the
Senior Credit Facility (the "Commitment Amount") will be $180 million, all of
which will be available for general corporate purposes including acquisitions
(with a sub-limit for letters of credit equal to the lesser of the Commitment
Amount at the time of issuance of a letter of credit and $30 million).
Beginning March 31, 2001, the Commitment Amount will

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decrease by $11.25 million at the end of each quarter thereafter through the
quarter ending December 31, 2004, at which time the Senior Credit Facility
terminates. As of October 31, 1997, after giving pro forma effect to the
Transactions, approximately $30.0 million in borrowings would have been
outstanding under the Senior Credit Facility, together with approximately $3.9
million in outstanding stand-by letters of credit thereunder.

Cash interest expense for 1995, 1996 and 1997 was $10.3 million, $19.5
million and $30.8 million, respectively. The portion of total interest
represented by non-cash interest for the three years was $8.1 million, $7.9
million and $7.9 million for 1995, 1996 and 1997 respectively. Cash interest
expense for the three months ended October 31, 1996 and 1997 was $7.5 million
and $8.8 million, respectively. The portion of total interest represented by
non-cash interest for the three months ended October 31, 1996 and 1997 was
$1.9 million and $1.7 million, respectively. Interest payments under the
Company's indebtedness will continue to result in significant liquidity
requirements for the Company. Following the Offerings, all of the Company's
interest payments must be made in cash.

The Company's capital expenditures were $31.9 million in 1997 and are
expected to be $22.5 million in 1998. Capital expenditures were $5.7 million
for the three months ended October 31, 1997, compared to $8.9 million for the
three months ended October 31, 1996. Planned capital expenditures consist
primarily of new capacity to accommodate the introduction of several new
products, including additional gear reduction starters for automotive
applications and alternators with enhanced features for the medium and heavy
duty truck market, as well as production equipment for the Company's new focus
factories. Cost reduction programs account for a significant portion of
planned capital expenditures and include upgrades in machinery technology, new
quality standards and environmental compliance. The Company's ability to make
capital expenditures is subject to certain restrictions under the Senior
Credit Facility.

The Company expects that the purchase price and related costs and expenses
of its pending acquisition of 37% of the outstanding shares of SPRL, a
manufacturer of starters, alternators and related components based in
Hyderabad, India, to equal approximately $4.5 million during fiscal 1998. The
Company granted put/call options in connection with the acquisitions of Power
Investments and World Wide that become exercisable in March 2001 for Power
Investments and November 2000 for World Wide. The exercise prices of the
put/call options are based on an earnings formula and cannot now be estimated.
See "Company History."

The Company's principal sources of cash to fund its liquidity needs will be
net cash from operating activities and borrowings under the Senior Credit
Facility. The Company's cash position increased to $10.0 million at year end
1997 compared to $3.4 million at year end 1996. Cash provided by operating
activities was $22.5 million in 1997 as compared to cash used in operating
activities of $684,000 in 1996. Non-cash items in 1997, including $22.3
million of depreciation and amortization and the $31.8 million restructuring
reserve, more than offset the Company's net loss and increased working capital
requirements. From July 31, 1996 to July 31, 1997, the Company's inventory
increased by $40.8 million. The increase in inventory was attributable
primarily to the Company's expanding aftermarket business, including inventory
associated with the World Wide acquisition as well as higher levels of
finished goods inventory required to service aftermarket customers. Cash used
in investing activities of $74.1 million in 1997 was composed of $42.4 million
for the acquisition of World Wide and $31.9 million of capital expenditures.
Cash provided by financing activities in 1997 was $57.8 million, as debt
issuances exceeded debt repayments. The components of net cash from operating
activities are detailed in the Consolidated Financial Statements and related
notes.

The Company's cash position decreased to $8.6 million at October 31, 1997
compared to $11.1 million at October 31, 1996. Cash provided by operations for
the three months ended October 31, 1997 was $11.4 million compared to cash
used in operating activities of $6.5 million for the three months ended
October 31, 1996. For the three months ended October 31, 1997 cash was
provided by a working capital decrease of $.2 million, as well as net income
of $3.1 million, non-cash expenses of $4.6 million, and depreciation and
amortization of $4.7 million. For the three months ended October 31, 1996, net
income of $.3 million, non-cash expenses of $7.1 million and depreciation and
amortization of $5.3 million were offset by a working capital increase of
$12.4

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million and deferred financing cost of $6.7 million. Cash used in investing
activities was $7.4 million for the three months ended October 31, 1997
compared to $10.2 million for the three months ended October 31, 1996. The
decrease in cash used for financing activities was primarily due to reductions
in property, plant, and equipment expenditures. Financing activities used $5.1
million during the three months ended October 31, 1997 and provided $22.9
million during the three months ended October 31, 1996. Financing activities
for the three months ended October 31, 1997 consisted primarily of repayment
of borrowings under the Senior Credit Facility and for the three months ended
October 31, 1996 included the net impact of the issuance of the Senior
Subordinated Notes and the use of the proceeds therefrom.

Under the terms of the GM Acquisition, GM retained the liability for post-
retirement benefits earned by the Company's employees while employed by GM. In
addition, GM retained the liability for post-retirement benefits for all of
the Company's employees that return to GM pursuant to contractual arrangements
at the time of the GM Acquisition. Since relatively senior employees have
returned to GM and have been replaced by the Company with employees who have
later retirement dates, the Company's actual cash expenditures for post-
retirement benefits will be significantly less than the amount recorded as an
expense over the next ten years. The excess of the amount accrued over the
cash paid for post-retirement benefits during 1995, 1996 and 1997 was $4.4
million, $3.8 million and $4.5 million, respectively.

The Company believes that cash generated from operations, together with the
amounts available under the Senior Credit Facility, will be adequate to meet
its debt service requirements, capital expenditures and working capital needs
for at least the next twelve months, although no assurance can be given in
this regard. The Company's future operating performance and ability to extend
or refinance its indebtedness will be dependent on future economic conditions
and financial, business and other factors that are beyond the Company's
control.

EFFECTS OF INFLATION

The Company believes that the relatively moderate inflation over the last
few years has not had a significant impact on the Company's revenues or
profitability and that it has been able to offset the effects of inflation by
increasing prices or by realizing improvements in operating efficiency. The
Company has provisions in many of its contracts which provide for the pass
through of fluctuations in the price of certain raw materials, such as copper
and aluminum.

FOREIGN SALES

Approximately 15.9%, 12.4% and 21.1% of the Company's 1995, 1996 and 1997
net sales, respectively, were derived from sales made to customers in foreign
countries. Because of these foreign sales, the Company's business is subject
to the risks of doing business abroad, including currency exchange rate
fluctuations, limits on repatriation of funds, compliance with foreign laws
and other economic and political uncertainties. See "Risk Factors--Foreign
Markets."

ACCOUNTING PRONOUNCEMENTS

For a discussion of pending accounting pronouncements that may affect the
Company, see Note 2 to the Consolidated Financial Statements included
elsewhere in this Prospectus.

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BUSINESS

GENERAL

The Company designs, manufactures, remanufactures and distributes
electrical, powertrain/drivetrain and related components for automobiles and
light trucks, medium and heavy duty trucks and other heavy duty vehicles. The
Company's products include starters, alternators, engines, transmissions,
traction control systems and fuel systems. The Company serves the aftermarket
and the OEM market, principally in North America as well as in Europe, Latin
America and Asia-Pacific. Net sales, EBITDA, Adjusted EBITDA and net loss for
fiscal year 1997 were $689.8 million, $50.4 million, $87.3 million and $14.3
million, respectively. Excluding the adjustment for the restructuring charges,
net income for fiscal year 1997 would have been $10.5 million. For the same
period, the aftermarket accounted for approximately 45.2% of the Company's net
sales and 62.8% of Adjusted EBITDA, with the OEM market accounting for the
balance.

The Company believes that it is the largest manufacturer and remanufacturer
in North America of (i) starters for automobiles and light trucks (including
sport-utility vehicles, minivans and pickup trucks) and (ii) starters and
alternators for medium and heavy duty vehicles. The Company's products are
principally sold or distributed to OEMs for both original equipment
manufacture and aftermarket operations, as well as to warehouse distributors
and retail automotive parts chains. Major customers include GM, GM SPO,
Navistar, Caterpillar, Freightliner, PACCAR, Auto Zone, Cummins, Western Auto,
Ford, Detroit Diesel, Volvo Trucks, Mack, Pep Boys, Advance Auto and O'Reilly
Automotive.

The Company sells its products principally under the "Delco Remy" brand name
and other major brand names worldwide. In connection with the GM Acquisition
(as defined), the Company obtained perpetual rights to the "Delco Remy" brand
name, which was first used in 1918. The Company also received the right to use
"Delco Remy" as a corporate name until 2004 and the "Remy" name in perpetuity.
In addition, GM entered into a long-term contract to purchase from the Company
substantially all of its North American requirements for automotive starters
until 2004 and its U.S. and Canadian requirements for heavy duty starters and
alternators until 2000. GM also entered into a distribution agreement to sell
the Company's aftermarket products through the GM SPO distribution system, the
term of which extends until 2009 for automotive products and until 1998 for
heavy duty products. See "Risk Factors--Dependence on General Motors" and
"Business--Customers."

CVC and Harold K. Sperlich, former president of Chrysler Corporation,
together with a subsidiary of MascoTech and certain senior management of the
Former GM Division, formed the Company for the purpose of acquiring the assets
of the automotive starter and the heavy duty starter and alternator businesses
of the Former GM Division. Upon consummation of the Offerings and the other
Transactions, CVC, management of the Company and other existing stockholders
of the Company will beneficially own approximately 82.1% of the Company's
outstanding Common Stock (73.8% of the voting power), and will be able to
control the Company and elect its Board of Directors. See "Dilution" and
"Certain Transactions."

The Original Investors (as defined) in the Company have received a
substantial realized and unrealized return on their investment in the Company.
For details regarding such investment and return, see "Certain Transactions."

Since the GM Acquisition, the Company has completed five strategic
acquisitions, substantially increasing the Company's aftermarket operations,
and entered into two international joint ventures. The Company is also in the
process of completing the strategic acquisition of Ballantrae, which will
expand the Company's drivetrain product position. Through Ballantrae's wholly
owned subsidiary, Tractech, the Company will offer high quality traction
control systems to heavy duty OEMs and the aftermarket. These acquisitions and
joint ventures have broadened the Company's product line, expanded its
remanufacturing capability, extended its participation in international
markets and increased its penetration of the retail automotive parts channel.
As a result of these acquisitions and joint ventures and the Company's focus
on increasing its participation in the aftermarket, the Company's reliance on
GM has declined since the Company's formation. Net sales to customers other
than GM increased from 41.0% in fiscal year 1995 to 56.3% in fiscal year 1997.

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The Company's expanding aftermarket business benefits from the non-
deferrable nature of the repairs for which many of the Company's products are
used. Additionally, the Company's aftermarket business benefits from the
design, manufacturing and technological expertise of the Company's OEM
operations. This OEM expertise provides the Company with advantages over many
of its aftermarket competitors. The Company believes that its participation in
both OEM and aftermarket businesses and its diversified customer base reduce
its exposure to the cyclicality of the automotive industry. The Company's
growth strategy is designed to capitalize on its position as a consolidator in
the large and highly fragmented remanufacturing aftermarket.

GROWTH STRATEGY

The Company plans to continue to increase revenues and profitability of its
aftermarket and OEM businesses through a strategy of internal growth and
growth through acquisitions. Key elements of the Company's growth strategy
include:

INCREASING AFTERMARKET PRESENCE

Strengthening Customer Relationships. The Company intends to increase its
sales to new and existing customers by capitalizing on its balanced coverage
of the key channels of aftermarket distribution and its competitive strengths
as an OEM supplier. The Company plans to strengthen its customer relationships
by (i) continuing to expand its product offerings, (ii) capitalizing on the
expansion of the national automotive retail parts chains and warehouse
distributors that are customers of the Company, (iii) meeting the increasing
demands of OEMs and their dealer networks for high quality remanufactured
units, which enable them to reduce warranty and extended service costs, and
(iv) growing sales of existing and new product lines to OEM dealer networks as
dealers continue to capture an increasing percentage of vehicle repairs, due
to longer warranty and service programs and growing vehicle complexity.
Additionally, with the recent acquisition of World Wide, the Company expanded
its product line and now offers a full line of starters and alternators for
domestic and import vehicles. The acquisition also has improved the Company's
distribution capabilities, which now include a nationwide overnight delivery
service.

Consolidating the Fragmented Aftermarket. The portion of the aftermarket in
which the Company participates is large and highly fragmented, with most
participants being small, regional companies offering relatively narrow
product lines. Although the Company believes that it is the largest
manufacturer and remanufacturer of aftermarket starters and alternators in
North America, its sales of these products account for less than 12% of this
market. Consolidation of the aftermarket is occurring as many competitors are
finding it difficult to meet the increasing quality, cost and service demands
of customers, who, in turn, are seeking to rationalize their supplier base.
With its OEM capabilities, remanufacturing expertise, full product line,
greater access to "cores" and ability to capitalize on economies of scale, the
Company is well positioned to benefit from the consolidation of the
aftermarket.

EXPANDING GLOBALLY

The Company is expanding its international operations in order to (i)
benefit from the trend toward international standardization of automotive and
heavy duty vehicle platforms and (ii) participate in rapidly growing foreign
markets. The Company has recently been awarded new business by GM, Volkswagen,
Mercedes Benz, Ford and Caterpillar in Brazil; Opel in Europe; Daewoo Motors
in India (in connection with the Company's pending strategic alliance in
India); and Mercedes Benz, Volvo Trucks, John Deere and Dina in Mexico. The
Company intends to supply its existing OEM customers on a global basis as they
expand their operations and require local supply of component parts that meet
their demands for quality, technology, delivery and service. The Company
believes that its global expansion will enable it to gain new international
OEM customers who will also require local production of high quality products.
In addition, the expansion of the Company's OEM business into international
markets has provided the Company with the infrastructure necessary to develop
an aftermarket presence in these countries. The Company has established
manufacturing operations and strategic ventures in Hungary, Korea and Mexico,
and plans to complete a strategic alliance in India and a joint venture in
Brazil in fiscal year 1998. The acquisition of Ballantrae will provide the
Company with a European manufacturing plant which has been in operation since
1983. Aided by this facility, Ballantrae has

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developed strong relationships with European customers for traction control
systems, especially in the market for construction equipment.

INTRODUCING TECHNOLOGICALLY ADVANCED NEW PRODUCTS

As a Tier 1 OEM supplier, the Company continues to provide technologically
advanced products by regularly updating and enhancing its product line. Since
the GM Acquisition, the Company has (i) completed the introduction of a new
family of gear reduction starters that will replace all straight drive
starters in GM vehicles by the end of the 1998 model year and (ii) introduced
several longer-life heavy duty alternators. The Company is also developing a
small gear reduction starter specifically designed for application on world
car platforms. These new products underscore the Company's commitment to
developing state-of-the-art products that address the higher output, lower
weight and increased durability requirements of OEM customers.

OPERATING STRATEGY

"FOCUS" FACTORIES TO DRIVE MANUFACTURING EXCELLENCE

The Company is shifting its OEM production from old, vertically-integrated
manufacturing plants to new, smaller and more efficient "focus" factories. The
Company's focus factories generally produce one product line in a plant
designed to facilitate lean manufacturing techniques. The Company has
successfully launched three new focus factories since 1996. When the currently
planned shift to focus factories is completed, the Company plans to occupy six
focus factories and expects to have reduced its floor space for OEM production
by more than 70%. The Company believes that the benefits of the focus
factories include reduced overhead costs, enhanced productivity, increased
product quality and lower inventories.

PRODUCTIVITY IMPROVEMENTS

In conjunction with its emphasis on focus factories, the Company continues
to work with its local union representatives to establish best-in-class work
practices, such as reducing the number of job classifications per focus
factory and implementing team-based manufacturing processes. Since the GM
Acquisition, employee productivity has increased by 33%. The Company's labor
contract with the UAW contains provisions that are expected to permit the
Company to continue to achieve productivity improvements in the existing and
new focus factories. The increased productivity achieved since the GM
Acquisition is due primarily to continuous improvement initiatives and the
significant number of employees who have exercised their flowback rights.

PRODUCT QUALITY AND CONTINUOUS IMPROVEMENT

In July 1997, the Company received one of the prestigious Supplier of the
Year awards from GM, an award given to fewer than 1% of all GM suppliers. The
Company's commitment to product quality and continuous improvement is further
evidenced by the QS9000 certification received by nine of its manufacturing
and remanufacturing facilities in 1997. The Company expects that the remainder
of its manufacturing and remanufacturing facilities will receive QS9000
certification by the end of fiscal year 1998. In addition, the Company's
powertrain/drivetrain operations that remanufacture products for Ford have
received the Q-1 rating, Ford's highest quality rating, and the Company is
Ford FAR in five of the seven Canadian provinces. Global purchasing has
further enhanced the Company's continuous improvement efforts. The Company is
utilizing its international ventures to develop new, lower cost sources of
materials and is consolidating its vendor base to fewer, more competitive
suppliers.

ACQUISITION OF BALLANTRAE

Pursuant to the Ballantrae Acquisition Agreement, the Company will acquire
all of the capital stock of Ballantrae in a merger of Ballantrae and a
subsidiary of the Company in which Ballantrae will be the surviving

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corporation. The aggregate cost will be $52.8 million (including assumed debt
and the estimated working capital adjustment and fees and expenses of
Ballantrae). Ballantrae operates through two subsidiaries: Tractech, a leading
producer of traction control systems for heavy duty OEMs and the aftermarket;
and Kraftube, Inc., a tubing assembly business which sells products to
compressor manufacturers for commercial air conditioners and refrigeration
equipment. In fiscal year 1997, Tractech accounted for 70% of Ballantrae's
$37.6 million of net sales. The Company will exchange shares of its Common
Stock with a value (at the initial public offering price in the Equity
Offering) of approximately $22.1 million for the equity of Ballantrae and will
repay approximately $29.7 million of Ballantrae's debt. The Common Stock of
the Company received by Ballantrae's existing stockholders in the merger will
be subject to resale restrictions under applicable securities laws but will
benefit from piggyback registration rights. The merger is expected to be
completed at or prior to the consummation of the Offerings. The Company is
obligated to pay the expenses incurred by Ballantrae in connection with the
pending acquisition, whether or not the acquisition is consummated.
Approximately $30 million of the net proceeds of the Offerings will be used to
repay certain indebtedness of Ballantrae. Any damages which the Company may
suffer which result from a breach of the Ballantrae Acquisition Agreement will
be subject to a $10 million cap and the Company will only be able to recover a
portion of its damages from CVC and James R. Gerrity (and with respect to each
of them, only on a pro rata basis). The Company's acquisition of Ballantrae
strengthens the Company's overall market position by (i) adding traction
control systems to the Company's range of drivetrain products, (ii) increasing
sales to existing heavy duty OEM customers and (iii) expanding the Company's
customer base. The acquisition is expected to be completed at or prior to the
consummation of the Offerings. See "Risk Factors--Acquisition of Ballantrae;
Conflicts of Interest," "Company History" and "Certain Transactions."

INDUSTRY OVERVIEW

In general, the Company's business is influenced by the underlying trends of
the automotive industry. The Company's focus on expanding its remanufacturing
capabilities, however, heightens the importance of the aftermarket.

Aftermarket. The aftermarket consists of the production and sale of both new
and remanufactured parts used in the maintenance and repair of automobiles,
trucks and other vehicles. Remanufacturing is a process through which used
components ("cores") are disassembled into their subcomponents, cleaned,
inspected, tested, combined with new subcomponents and reassembled into
finished products. A remanufactured product can be produced at lower cost than
a comparable individually repaired unit due to effective salvage technology
methods, high volume precision manufacturing techniques and rigorous
inspection and testing procedures. The ability to procure cores is critical to
the remanufacturing process. See "Business--Manufacturing and Facilities."

Aftermarket parts are supplied principally through three distribution
channels: (i) car and truck dealers that obtain parts either through an OEM
parts organization (e.g., GM SPO, Ford Parts & Service, Chrysler Mopar,
Navistar, etc.) or directly from an OEM-authorized remanufacturer; (ii) retail
automotive parts chains and mass merchandisers; and (iii) wholesale
distributors and jobbers who supply independent service stations, specialty
and general repair shops, farm equipment dealers, car dealers and small
retailers.

The Company believes that the aftermarket has been and will continue to be
impacted by the following trends: (i) the increasing number and average age of
vehicles in use and the number of miles driven annually; (ii) the increasing
demands of customers that their aftermarket suppliers meet high quality
standards; (iii) the increasing use of remanufactured parts for OEM warranty
and extended service programs; (iv) the growth and consolidation of large
retail automotive parts chains; and (v) particularly with respect to many of
the Company's products, the increasing engine output and durability demands
related to the high temperatures at which engines operate.

According to R. L. Polk, an independent provider of motor vehicle and
consumer marketing statistics, as of 1996 there were approximately 198 million
cars and light trucks registered in the United States, as compared with 162
million cars and light trucks in 1986. The average age for cars and light
trucks in 1996 was 8.5 years, as compared with an average car age of 7.9 years
in 1986.

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The use of remanufactured components for warranty and extended service
repairs has increased in recent years as OEMs have offered extended warranty
and extended service coverage and dealers have begun to provide extended
service plans and warranties on used vehicles. OEMs have sought to reduce
warranty and extended service costs by using remanufactured components, which
generally offer the same degree of quality and reliability as OEM products at
a lower cost. This trend has resulted in aftermarket customers requiring
higher quality standards for remanufactured products.

Recently, large retail automotive parts chains offering a broad range of new
and remanufactured products have experienced rapid growth at the expense of
small, independent retail stores. The Company has significantly grown its
sales to this channel and believes that further increasing its sales to retail
chains offers a significant opportunity for growth. Retail chains generally
prefer to deal with large, national suppliers capable of meeting their cost,
quality, volume and service requirements. See "Business--Growth Strategy."

OEM Market. The OEM market consists of the production and sale of new
component parts for use in the manufacture of new vehicles. The OEM market
includes two major classes of customers: (i) automobile and light truck
manufacturers; and (ii) medium and heavy duty truck and engine manufacturers
and other heavy duty vehicle manufacturers.

The OEM market has been impacted by recent fundamental changes in the OEMs'
sourcing strategies. OEMs are consolidating their supplier base, demanding
that their suppliers provide technologically advanced product lines, greater
systems engineering support and management capabilities, just-in-time
sequenced delivery and lower system costs. As a result, each OEM has selected
its own preferred suppliers. OEMs are increasingly requiring that their
preferred suppliers establish global production capabilities to meet their
needs as they expand internationally and increase platform standardization
across multiple markets.

OEMs continue to outsource component manufacturing of non-strategic parts.
Outsourcing has taken place in response to competitive pressures on OEMs to
improve quality and reduce capital outlays, production costs, overhead and
inventory levels. In addition, OEMs are increasingly purchasing integrated
systems from suppliers who provide the design, engineering, manufacturing and
project management support for a complete package of integrated products. By
purchasing complete systems, OEMs are able to shift design, engineering and
product management to fewer and more capable suppliers. Integrated systems
suppliers are generally able to design, manufacture and deliver components at
a lower cost than the OEMs due to (i) their lower labor costs and other
manufacturing efficiencies, (ii) their ability to spread research and
development and engineering costs over products provided to multiple OEMs and
(iii) other economies of scale inherent in high volume manufacturing such as
the ability to automate and leverage global purchasing capabilities.

PRODUCTS

Aftermarket. The Company's aftermarket product line includes a diverse array
of remanufactured and new products sold as replacement parts under the "Delco
Remy" brand name or under a private-label brand name specified by the OEM or
the automotive parts retailer. The Company remanufactures parts for both
domestic and imported vehicles.

Products remanufactured by the Company include starters, alternators,
engines, fuel injectors, injection pumps and turbo chargers (fuel systems),
transmissions, torque converters, water pumps, rack and pinions, power
steering pumps and gears and clutches. The Company also remanufactures
subcomponents, such as automotive armatures, rotors and solenoids, as well as
component parts shipped in bulk ("kits") for future assembly. These
subcomponents are either used internally in the remanufacturing process by the
Company or sold to outside customers.

OEM. The Company's starters are used in all cars and trucks manufactured by
GM in North America (except Saturn and Geo). The Company manufactures two
types of starters: straight drive starters and gear reduction starters. Since
the beginning of 1994, the Company has been transitioning its production line
from

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straight drive starters to more technologically advanced gear reduction
starters. For the 1997 model year, the Company's gear reduction starters were
used on 44% of GM's North American automotive platforms (other than Saturn and
Geo). The balance of GM North American automotive platforms (other than Saturn
and Geo) will be converted to the Company's gear reduction starters by the end
of the 1998 model year, at which time the Company expects to discontinue OEM
production of straight drive starters. The Company's gear reduction starters
are globally competitive and offer greater output at lower weight than
comparable straight drive designs. For example, the Company's principal PG-260
gear reduction starter offers the highest power to mass ratio in the industry,
producing the same power at 7.7 pounds as a comparable straight drive design
weighing 13.6 pounds. The Company has begun development of a small gear
reduction starter that will enable the Company to offer its OEM customers an
application on their world car platforms. Reduced component weight is
important to OEMs, as total vehicle weight is a critical factor in each OEM's
ability to achieve federal Corporate Average Fuel Economy standards (CAFEs).

The Company manufactures a full line of heavy duty starters and alternators
for use primarily with large diesel engines. The Company's starters and
alternators are specified as part of the standard electrical system by most
North American heavy duty truck and engine manufacturers. The Company's
starters cover a broad range of torque and speed requirements. The Company
manufactures a full line of alternators, some of which utilize premium design
features that yield increased durability and a longer service life. Certain of
the Company's automotive starters are also currently being produced under
technology licenses by manufacturers in China and India and by the Company's
joint ventures in Mexico and Korea.

The Company has recently developed several new products for heavy duty
applications, including a high output, premium heavy duty brushless alternator
for high vibration applications; a new large frame alternator designed to meet
the increasing demands in the upper power ranges of new heavy duty vehicles;
and a small heavy duty alternator for use in low output, high durability and
severe environmental applications, which the Company expects will be used
principally for agricultural and construction vehicles. The Company's OEM
customers and major truck fleet operators designate it as an electrical system
supplier that provides value-added systems such as the "Road Gang." The Road
Gang system includes a premium starter and brushless alternator produced by
the Company and premium batteries produced by GM and offered by the Company
under a long-term agreement with GM. Engineered as a package, these products
provide increased performance, reliability and durability.

Ballantrae's Tractech subsidiary produces traction control systems for use
in construction, industrial and agricultural equipment and in medium duty
trucks. The traction control systems business combines valuable product
engineering skills with strong machining and fabrication capabilities to
manufacture products with custom designed applications.

Quality Standards. The Company is required to meet numerous quality
standards in order to qualify as a supplier to major OEMs and their dealer
networks, as well as certain automotive parts retailers. The Company has
achieved significant recognition by its customers for its continuous
commitment to quality. In July 1997, the Company received one of the
prestigious Supplier of the Year awards from GM, an award given to fewer than
1% of all GM suppliers. The Company's aftermarket operations that produce
products for Ford have received the Q1 rating, which is Ford's highest quality
rating. Moreover, the Company is a Ford FAR in five of the seven Canadian
provinces. The Company also has been awarded Navistar's highest quality rating
for its engine remanufacturing operations. In addition, the Company has
received quality awards from certain of its other customers, including
Caterpillar, Cummins, OshKosh and Teledyne.

Ford, Chrysler and GM have initiated quality standards (QS9000) applicable
to suppliers such as the Company. International and domestic automobile and
truck manufacturers developed the QS9000 standards to ensure that their
suppliers meet consistent quality standards that can be independently audited.
These quality standards, which are required by customers to be in place by
December 1997, impose processes and procedures in addition to those in effect
prior to December 1997. Management also believes that these standards may have

51
<PAGE>

the effect of accelerating consolidation in the remanufacturing industry, as
smaller remanufacturers may be unable to meet or afford the cost of complying
with these new quality standards. The Company has received QS9000
certification at nine of its manufacturing and remanufacturing facilities, and
expects the balance to be certified by the end of fiscal 1998.

Ballantrae's traction control systems unit has received several quality
awards, has been designated a Caterpillar "Certified Supplier" in every year
since 1985 and its facility in Ireland holds an ISO9002 certification.

Engineering and Development. The Company's engineering staff works
independently and with OEMs to design new products, improve performance and
technical features of existing products and develop methods to lower
manufacturing costs. The Company's engineering staff includes application
engineers, manufacturing engineers and advanced engineers. Application
engineers are assigned to various platforms or geographic regions to work
directly with customers on product design changes and corrective actions.
Manufacturing engineers are responsible for the planning, layout, design,
equipment selection and global implementation of production capacity for the
Company's domestic and foreign manufacturing facilities. Advanced engineers
work in conjunction with the customer's forward planning or advanced
powertrain engineers on product design and development for products with a
five to ten year planning horizon.

In support of its engineering efforts, the Company has formed technical
alliances with a select number of engineering and technology firms to identify
long-term engineering advances and opportunities. In January 1996, the Company
entered into a joint development agreement with SatCon Technology Corporation
with the goal of developing an alternator with substantially higher power
output than the current generation of alternators. The Company has also formed
technical alliances with EcoAir Corp. and Arthur D. Little to support the
Company's advanced research and development of starters and alternators.

CUSTOMERS

Aftermarket. The Company's principal aftermarket customers include OEM
dealer networks of GM, Navistar, Ford, Freightliner, Caterpillar and PACCAR
and leading automotive parts retain chains such as Auto Zone, Western Auto,
Pep Boys, Advance Auto, O'Reilly Automotive and Discount Auto. Sales to GM SPO
and Navistar accounted for approximately 23.8% and 15.2%, respectively, of the
Company's 1997 pro forma aftermarket net sales. No other customer accounted
for more than 10% of aftermarket sales. The Company's products are also used
for warranty replacement under procedures established by certain of the
Company's OEM customers.

In connection with the GM Acquisition, the Company entered into a long-term
agreement pursuant to which it designated GM, through GM SPO, as its exclusive
distributor of "Delco Remy" brand remanufactured automotive and heavy duty
starters and alternators within North America to specified customers,
including certain GM dealers, direct GM accounts, certain warehouse
distributors and, with respect to automotive products, certain retail chains.
In consideration of its being granted the foregoing exclusive distribution
rights, GM agreed to purchase from the Company 100% of its requirements for
automotive starters and heavy duty starters and alternators for sale in the
aftermarket and has further agreed not to sell any competitive products in the
aftermarket channels specified above during the term of the distribution
agreement. Sales to GM SPO under the distribution agreement accounted for
approximately 23.8% of the Company's aftermarket 1997 pro forma net sales.
With respect to heavy duty starters and alternators, the term of the current
agreement will end on July 31, 1998. As to automotive starters, the agreement
terminates on July 31, 2009. The agreement, with respect to either heavy duty
or automotive products, may be terminated prior to the end of the applicable
term (i) by mutual agreement of the parties, (ii) by either party upon a
material breach by the other party, (iii) by the Company if GM fails to
achieve certain goals and objectives for reasons other than a general decline
in the economy and (iv) by GM to the extent the Company fails to meet certain
quality standards. See "Risk Factors--Dependence on General Motors."

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<PAGE>

Ballantrae's traction control systems are offered on an aftermarket basis
for sport utility vehicles ("SUV") through independent wholesale distributors
for installation by the end user after the original vehicle purchase.
Aftermarket sales represent approximately 20.6% of Tractech's total sales.

OEM. The Company's principal customers in its OEM automotive business are
GM's North American Operations and various GM International affiliates, who
collectively accounted for substantially all of the Company's OEM 1997 pro
forma automotive starter sales, approximately 50.7% of total OEM 1997 pro
forma net sales and approximately 28.3% of total 1997 pro forma net sales. No
other customer accounted for more than 10% of such OEM net sales. The GM
International affiliates to which the Company sells products include GM
Brazil, GM Holden (Australia), GM Mexico and Isuzu. Beginning with the 2001
model year, the Company will also sell products to GM Europe. Remy Korea, a
joint venture in which the Company has a 50% interest, sells automotive
starters using the Company's technology to Daewoo Motors, Kia Motors, Asia
Motors and Ssangyong Motors. The Company will also sell automotive starters to
Opel in Europe and, through its licensee, to Daewoo Motors in India.

Principal customers of the Company's heavy duty OEM business include
Navistar, Freightliner, Cummins, Caterpillar, PACCAR, Detroit Diesel, GM,
Ford, Mack and Volvo Trucks, with the top ten customers accounting for
approximately 52.4% of heavy duty pro forma net sales in 1997. The Company has
long-term agreements, with terms typically ranging from three to five years,
to supply starters and alternators to GM, Navistar, Freightliner, PACCAR,
Cummins, Volvo Trucks and Mack. In addition, the Company is the specified
supplier of heavy duty starters and alternators for trucks manufactured for
several major North American truck fleet operators, including Penske Truck
Leasing, Ryder System, Inc., Yellow Freight System and J.B. Hunt Transport.

Pursuant to long-term supply agreements, GM has agreed to purchase from the
Company 100% of its North American automotive starter requirements (other than
Saturn and Geo) and 100% of its U.S. and Canadian requirements for heavy duty
starters and alternators, in each case with respect to the Company's existing
product line as of August 1994. GM's commitments to purchase such products
from the Company in the future are subject, however, to the Company remaining
competitive as to technology, design and price. Nonetheless, GM may not
terminate the automotive starter supply agreement for failure of the Company
to be price, technology or design competitive prior to July 31, 2001. GM's
obligations to purchase automotive starters and heavy duty starters and
alternators from the Company terminate on July 31, 2004 and 2000,
respectively, except for automotive products released in 1996 and 1997, for
which GM's obligation will terminate on July 31, 2006 and 2007, respectively.
GM may cancel either agreement in the event that 35% of the Company's voting
shares become owned, directly or indirectly, by another manufacturer of
passenger cars or light trucks. During the term of the relevant supply
agreement, GM has granted the Company the right to bid on starter and
alternator supply contracts for GM's operations worldwide. See "Risk Factors--
Dependence on GM."

Ballantrae's principal customers for traction control systems include OEMs
of construction, industrial and agricultural equipment and medium duty trucks.
Ballantrae's principal traction control systems customers include Caterpillar,
John Deere, Eaton, Dana, Rockwell and Clark Hurth.

The Company employs its own direct sales force, which develops and maintains
sales relationships with major North American truck fleet operators as well as
its OEM customers worldwide. These sales efforts are supplemented by a network
of field service engineers and product service engineers.

MANUFACTURING AND FACILITIES

Aftermarket. The Company's aftermarket business has operations located
principally in 33 production facilities and seven warehouses in the United
States and Canada.

In its remanufacturing operations, the Company obtains used starters,
alternators, engines and related components, commonly known as cores, which
are sorted by make and model and either placed into immediate production or
stored until needed. During remanufacturing, the cores are completely
disassembled into their

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<PAGE>

component parts. Components which can be incorporated into the remanufactured
product are thoroughly cleaned, tested and refinished. All components subject
to major wear as well as those which cannot be remanufactured are replaced by
new components. The unit is then reassembled into a finished product.
Inspection and testing are conducted at various stages of the remanufacturing
process, and each finished product is inspected and tested on equipment
designed to simulate performance under operating conditions.

The majority of the cores remanufactured by the Company are obtained from
customers in exchange for remanufactured units and are credited against the
purchase prices of these units. When the Company has an insufficient number of
components from salvageable cores, the Company's remanufacturing operations
may purchase new parts from the Company's OEM operations. Core prices
fluctuate on the basis of several economic factors, including market
availability and demand and core prices then being paid by other
remanufacturers and brokers.

OEM. The Company's OEM business has seven principal manufacturing
operations, two in Meridian, Mississippi and five in Anderson, Indiana. The
Company has announced its intention to close its two facilities in Meridian,
Mississippi by the end of the 1998 fiscal year, including one facility leased
from GM at the time of the GM Acquisition. The balance of the Company's OEM
facilities are located in Anderson, Indiana. Two of the Anderson facilities
are leased from GM and the Company plans to vacate these facilities by the end
of 1999. The Company is operating three new focus factories and intends to
have a total of six in operation by the end of 1999. These relocations are
expected to provide a reduction of over 70% in square footage from the
Company's existing plants to the focus factories due to streamlining of
manufacturing processes, phasing out of certain manufacturing equipment and
elimination of excess unutilized floor space or floor space used by GM in each
of the existing facilities. The restructuring reserve does not include the
startup costs the Company expects, based on its three prior focus factory
startups, to incur in connection with the three new focus factories. The
transition to focus factories adversely affected the Company's gross margins
in the first quarter of fiscal 1998. See "Risk Factors--Relocation of
Facilities."

The manufacturing process of the focus plants varies significantly from the
traditional process flow of existing plants. The Company utilizes a flexible
cell-based manufacturing approach to the production of all new and/or re-
engineered product lines within the focus plants as contrasted with the
existing vertically integrated, primarily synchronous process used in
traditional factories. The cell-based manufacturing system provides
flexibility by allowing efficient changes to the number of operations each
operator performs and is capable of both low- and high-volume production runs.
When compared to the more traditional, less flexible assembly line process,
cell manufacturing allows the Company to match its production output better to
customers' requirements while reducing required inventory levels and improving
quality.

The Company's focus plants generally produce one product line in a plant
design based on cell-based, semi-automated manufacturing utilizing kaizen
techniques. The focus plant process creates a team-based environment of
involved workers who better understand and control the manufacturing process.
In addition, the Company has worked with the Company's unions to reduce the
number of job classifications so that workers can be shifted among various
work areas as production demands dictate. The Company is presently expanding
lean manufacturing techniques to its aftermarket facilities.

Ballantrae's traction control systems manufacturing facilities are located
in the Detroit suburb of Warren, Michigan, and in Sligo, Ireland.

The Company utilizes frequent communication meetings at all levels of
manufacturing to provide training and instruction as well as to assure a
cohesive, focused effort toward common goals. The Company encourages employee
involvement in all production activity and views such involvement as a key
element toward the success of the Company.

COMPETITION

Aftermarket. The aftermarket is highly fragmented and competitive.
Competition is based primarily on quality of products, service, delivery,
technical support and price. The Company's principal aftermarket

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<PAGE>

competitors include Arrow, Automotive Parts Exchange (APE), Champion, Genuine
Parts (Rayloc), Motorcar Parts & Accessories (MPA), Prestolite and Unit Parts.

OEM. The automotive parts market is highly competitive. Competition is based
primarily on quality of products, service, delivery, technical support and
price. Most OEMs source parts from one or two suppliers. The Company competes
with a number of companies who supply automobile manufacturers throughout the
world. In the North American automotive market, the Company's principal
competitors include Nippondenso, Valeo, Mitsubishi and Bosch. GM purchases
automotive starters from the Company pursuant to its long-term supply
agreement with the Company. See "Business--Customers." Chrysler has eliminated
production of its own starters and currently purchases starters from
independent suppliers. Ford continues to produce certain parts for the
majority of its domestic and international applications and purchases the
remainder from independent suppliers.

The heavy duty parts market is characterized by one or two dominant
suppliers in each major geographic region of the world. No competitor has a
substantial share in all regions. In the North American heavy duty market,
where the Company is the largest manufacturer, the Company's principal
competitors include Prestolite, Nippondenso and Bosch.

EMPLOYEES

As of October 31, 1997, the Company employed 5,137 people, 859 of whom were
in management, engineering, supervision and administration and 4,278 of whom
were hourly employees. Of the Company's hourly employees, 2,068 are
represented by unions. In the United States, 1,477 of the Company's hourly
workers are represented by the UAW under an agreement between the Company and
the UAW, the applicable provisions of which were assumed by the Company in
connection with the GM Acquisition. In March 1997, the Company signed a new
master agreement with the UAW that stipulated an approximately 3.2% annual
wage and benefit increase (12.8% over the four year term of the agreement) for
the Company's UAW hourly employees. If employment levels and productivity
remain unchanged, the agreement with the UAW would cause the Company to
experience increases in wage and benefit costs of approximately 2% per year
over the next four years (which represents approximately $3.3 million in the
first such year). In addition, grow-in provisions under the new agreement with
the UAW will require the Company to move certain lower wage and benefit
employees to higher wage and benefit levels. Under provisions of the national
agreement, the UAW and the Company have recently developed a special program
of incentives for hourly employees who agree to leave the Company, the cost of
which is included in the restructuring charges for fiscal year 1997 described
below. Based on responses to this special incentive plan received to date, the
Company would, if no other cost reductions were realized, experience as a
result of the grow-in provision additional wage and benefit costs that
increase each year of the UAW contract to approximately $10.2 million annually
in additional costs from current levels by the fourth year. The Company
expects the continued implementation of the special incentive plan and other
planned cost reduction initiatives to substantially offset the effects of the
grow-in provision. If the responses to date to the special incentive plan were
reversed (which the Company considers unlikely) and the other cost-saving
initiatives were not implemented, the additional costs referred to above to
the Company from the grow-in provision would approximately double. There can
be no assurance that the Company will be able to effect cost reduction
initiatives (including the continued implementation of the special incentive
plan) to offset the effects of the grow-in provision or that the Company's
labor costs will not otherwise increase significantly, in which case the
Company's competitive position and results of operations would be adversely
affected. The agreement between the UAW and the Company expires on September
14, 2000 which will require negotiation of new agreements. See "Risk Factors--
Labor Negotiations."

As of October 31, 1997, approximately 329 of Autovill's 499 employees were
affiliated with the Hungarian Steel Industry Workers Union. The agreement was
signed July 17, 1996 and is perpetual, subject to termination upon three
months' notice from either party.

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<PAGE>

The Company's other facilities are primarily non-union. The Company is
unaware of any current efforts to organize. There can be no assurance that
there will not be any labor union efforts to organize employees at facilities
that are not currently unionized.

PATENTS, TRADEMARKS AND LICENSES

Pursuant to a Trademark Agreement between the Company and GM, GM has granted
the Company an exclusive license to use the "Delco Remy" trademark on and in
connection with automotive starters and heavy duty starters and alternators
until July 31, 2004, extendible indefinitely at the Company's option upon
payment of a fixed $100,000 annual licensing fee to GM. The Company has also
been granted a perpetual, royalty-free license to use the "Remy" trademark.
The "Delco Remy" and "Remy" trademarks are registered in the United States,
Canada and Mexico and in most major markets worldwide. GM has agreed with the
Company that, upon the Company's request, GM will register the trademarks in
any jurisdiction where they are not currently registered.

The Company has also been granted an exclusive license to use the "Delco
Remy" name as a tradename and corporate name worldwide until July 31, 2004
pursuant to a Tradename License Agreement between the Company and GM. In
addition, GM has granted the Company a perpetual license to use the "Remy"
name as a tradename and corporate name worldwide.

The Company owns and has obtained licenses to various domestic and foreign
patents and patent applications related to its products and processes. The
patents expire at various times over the next 16 years. While these patents
and patent applications in the aggregate are important to the Company's
competitive position, no single patent or patent application is material to
the Company.

RAW MATERIALS

Principal raw materials for the Company's business include bare copper
strap, insulated copper, aluminum castings, forgings, outer frames, nomex
paper, steel coils, steel bars, copper tube, copper wire, flat steel, coil
steel, bar steel, gray iron castings, ductile iron castings, copper cross-
section coils, magnets, steel shafts, steel cores, steel wire and molding
material. All materials are readily available from a number of suppliers, and
management does not foresee any difficulty in obtaining adequate inventory
supplies. The Company and GM have entered into a long-term worldwide
purchasing support agreement that allows the Company to purchase copper wire
and steel, which are used in the manufacture of starters sold to GM, at prices
that the Company believes generally to be lower than those that would
otherwise be obtainable by the Company. This agreement expires on July 31,
2004, or earlier, upon termination of the automotive and heavy duty OEM supply
agreements between the Company and GM. The Company generally follows the North
American industry practice of passing on to its customers the costs or
benefits of fluctuation in copper and aluminum prices on an annual or semi-
annual basis. See "Business--Customers."

BACKLOG

The majority of the Company's products are not on a backlog status. They are
produced from readily available materials and have a relatively short
manufacturing cycle. For products supplied by outside suppliers, the Company
generally purchases products from more than one source. The Company expects to
be capable of handling the anticipated 1998 sales volumes.

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<PAGE>

PROPERTIES

The world headquarters of the Company are located at 2902 Enterprise Drive,
Anderson, Indiana 46013. The Company leases its headquarters.

The following table sets forth certain information regarding manufacturing
and certain other facilities operated by the Company as of October 31, 1997.
The designation "F" indicates a focus plant. See "Business--Manufacturing and
Facilities."

<TABLE>
<CAPTION>
OEM OR APPROX. OWNED/LEASE
LOCATION AFTERMARKET USE SQ. FT. EXPIRATION
- --------------- --------------- ------------------- ------- -----------
<S> <C> <C> <C> <C>
Anderson, IN Headquarters Office 70,000 2000
Anderson, IN OEM Manufacturing 597,000 2004
Anderson, IN OEM Manufacturing 430,000 2004
Anderson, IN(F) OEM Manufacturing 117,000 2001
Anderson, IN(F) OEM Manufacturing 51,000 2001
Anderson, IN(F) OEM Manufacturing 36,695 2006
Anderson, IN OEM Manufacturing 33,500 2007
Anderson, IN OEM/Aftermarket Testing 15,000 2001
Anderson, IN Aftermarket Warehouse 20,220 2000
Anderson, IN Aftermarket Warehouse 50,220 2000
Bay Springs, MS Aftermarket Manufacturing 73,000 2003
Budapest, Hungary Aftermarket Leased to 3rd Party 55,709 Owned
Chantilly, VA Aftermarket Manufacturing 120,000 2014
Edmonton, Canada Aftermarket Manufacturing 141,300 Owned
Etobicoke, Canada Aftermarket Manufacturing 114,120 2002
Findlay, OH Aftermarket Manufacturing 6,400 Owned
Franklin, IN Aftermarket Manufacturing 48,400 Owned
Franklin, IN Aftermarket Manufacturing 16,625 Owned
Franklin, IN Aftermarket Manufacturing 15,580 Owned
Gallatin, TN Aftermarket Manufacturing 20,000 Owned
Gallatin, TN Aftermarket Manufacturing 20,000 *
Heidelberg, MS Aftermarket Manufacturing 45,000 2003
Heidelberg, MS Aftermarket Manufacturing 5,000 2003
Indianapolis, IN Aftermarket Manufacturing 5,500 1999
Kaleva, MI Aftermarket Manufacturing 82,000 2000
Mansfield, TX Aftermarket Manufacturing 43,000 2000
Marion, MI Aftermarket Manufacturing 59,400 2000
Memphis, TN Aftermarket Warehouse 7,500 2002
Meridian, MS Aftermarket Office 2,400 2003
Meridian, MS Aftermarket Manufacturing 15,000 1998
Meridian, MS OEM Manufacturing 319,000 2004
Meridian, MS(F) OEM Manufacturing 68,000 2000
Meridian, MS Aftermarket Manufacturing 12,000 2003
Mezokovesd, Hungary Aftermarket Manufacturing 175,598 Owned
Mezokovesd, Hungary Aftermarket Warehouse 8,612 Owned
Peru, IN Aftermarket Manufacturing 30,000 2003
Peru, IN Aftermarket Manufacturing 14,111 2003
Raleigh, MS Aftermarket Manufacturing 43,000 2003
Raleigh, MS Aftermarket Manufacturing 75,000 2003
Raleigh, MS Aftermarket Manufacturing 8,000 Own
Reed City, MI Aftermarket Manufacturing 92,000 2000
Reed City, MI Aftermarket Manufacturing 34,000 2000
</TABLE>

57
<PAGE>

<TABLE>
<CAPTION>
OEM OR APPROX. OWNED/LEASE
LOCATION AFTERMARKET USE SQ. FT. EXPIRATION
- ------------------- --------------- ------------- ------- -----------
<S> <C> <C> <C> <C>
Reed City, MI Aftermarket Manufacturing 26,000 2000
Reed City, MI Aftermarket Warehouse 7,350 1999
Reed City, MI OEM/Aftermarket Manufacturing 90,000 Owned**
and Office
San Luis Potosi, OEM Manufacturing 37,000 2001
Mexico
Sligo, Ireland OEM/Aftermarket Manufacturing 53,400 2018**
St. Laurent, Canada Aftermarket Warehouse 17,000 1997
Sylvarena, MS Aftermarket Manufacturing 1,300 *
Taylorsville, MS Aftermarket Manufacturing 27,000 2003
Toledo, OH Aftermarket Manufacturing 4,500 2000
Toronto, Canada Aftermarket Manufacturing 36,778 1997
Warren, MI OEM/Aftermarket Manufacturing 100,049 Owned**
and Office
Winchester, VA Aftermarket Warehouse 55,000 2000
Winchester, VA Aftermarket Office/Whse 55,000 2000
Winnepeg, Canada Aftermarket Manufacturing 38,000 Owned
</TABLE>
- --------
* Leased on a month-to-month basis.
** Ballantrae facilities.

LEGAL PROCEEDINGS

From time to time, the Company is party to various legal actions in the
normal course of its business. The Company believes it is not currently party
to any litigation that, if adversely determined, would have a material adverse
effect on the Company's business, financial condition and results of
operations.

REGULATORY MATTERS

The Company's facilities and operations are subject to a wide variety of
federal, state, local and foreign environmental laws, regulations and
ordinances, including those related to air emissions, wastewater discharges
and chemical and hazardous waste management and disposal ("Environmental
Laws"). The Company's operations also are governed by laws relating to
workplace safety and worker health, primarily the Occupational Safety and
Health Act, and foreign counterparts to such laws ("Employee Safety Laws").
The Company believes that its operations are in compliance in all material
respects with current requirements under Environmental Laws and Employee
Safety Laws, with the exception of certain matters of which the Company is
aware, including: (i) failure to timely submit certain filings pursuant to the
New Jersey Industrial Site Recovery Act ("ISRA") in connection with the
closure of the Company's former Edison, New Jersey plant; (ii) air permits or
registration requirements at certain facilities; (iii) one isolated instance
of noncompliance with import requirements of the Hazardous Materials
Transportation Act (relating to shipment of lead-acid batteries) now under
review by the United States Department of Transportation; and (iv) reporting
requirements under the Emergency Planning and Community Right-to-Know Act at
the Tractech facility located in Warren, Michigan, which the Company will
acquire pursuant to the Ballantrae Acquisition Agreement. The Company believes
that any costs it may incur to resolve such matters will not be material and,
with respect to (iv) above, the Company believes that it would have an
indemnity claim for the portion of fines and penalties, if any, that may
result from any violations that occurred prior to October 23, 1996 from the
entities that owned or operated the Warren, Michigan Tractech facility prior
to the present owners' purchase of Ballantrae. The nature of the Company's
operations, however, exposes it to the risk of liabilities or claims with
respect to environmental and worker health and safety matters. There can be no
assurance that material costs will not be incurred in connection with such
liabilities or claims.

In fiscal year 1997, the aggregate cost incurred by the Company with respect
to environmental matters was not material. Based on the Company's experience
to date, the Company believes that the future cost of

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<PAGE>

compliance with existing environmental laws, regulations and ordinances (or
liability for known environmental claims) will not have a material adverse
effect on the Company's business, financial condition or results of
operations. However, future events, such as changes in existing laws and
regulations or their interpretation, may give rise to additional compliance
costs or liabilities that could have a material adverse effect on the
Company's business, financial condition or results of operations. Compliance
with more stringent laws or regulations, as well as more vigorous enforcement
policies of regulatory agencies or stricter or different interpretations of
existing laws, may require additional expenditures by the Company that may be
material.

Certain Environmental Laws hold current owners or operators of land or
businesses liable for their own and for previous owners' or operators'
releases of hazardous or toxic substances, materials or wastes, pollutants or
contaminants, including petroleum and petroleum products ("Hazardous
Substances"). Because of its operations, the long history of industrial uses
at some of its facilities, the operations of predecessor owners or operators
of certain of the businesses, and the use, production and release of Hazardous
Substances at these sites, the Company is affected by such liability
provisions of Environmental Laws. Various of the Company's facilities have
experienced some level of regulatory scrutiny in the past and are or may be
subject to further regulatory inspections, future requests for investigation
or liability for past disposal practices.

During the environmental due diligence performed in connection with the GM
Acquisition, GM and the Company identified certain on-site pre-closing
environmental conditions, including the presence of certain Hazardous
Substances in the soil at the Company's Meridian, Mississippi property and in
the soil and groundwater at the Company's Anderson, Indiana property. GM has
reported the presence of these substances in the groundwater to the United
States Environmental Protection Agency ("EPA") and the Indiana Department of
Environmental Management ("IDEM"), and has notified residents who live
downgradient of the affected GM properties. GM conducted further
investigation, which included the sampling of the residents' water wells and
the installation of an additional well offsite, and is working with EPA to
resolve this issue. Based on the Company's experience to date, the terms of
the indemnification in the GM Acquisition agreement and GM's continuing
performance in responding to these conditions, the Company does not believe
that it will expend material costs in responding to these on-site
environmental conditions.

In connection with its acquisition of facilities and businesses from GM,
Nabco, A&B Group, Autovill, Power Investments, World Wide and Ballantrae, the
Company obtained various indemnities for certain claims related to on-site and
off-site environmental conditions and violations of Environmental Laws which
arose prior to such acquisitions. The environmental indemnities are subject to
certain deductibles, caps, cost sharing and time limitations depending on the
nature and timing of the environmental claim. With respect to the Company's
acquisition of Ballantrae, see "Risk Factors--Acquisition of Ballantrae;
Conflicts of Interest" and "Risk Factors--Certain Transactions."

The Comprehensive Environmental Response, Compensation, and Liability Act,
as amended by the Superfund Amendments and Reauthorization Act of 1986
("CERCLA"), provides for responses to, and joint and several liability for
releases of, certain Hazardous Substances into the environment. The Company
has been identified as a potentially responsible party ("PRP") under CERCLA
for three off-site locations: the Vickers' Warehouse Site in Anderson,
Indiana; the Memorial Drive Dump Site in Muncie, Indiana; and the RSR
Corporation Site in Dallas, Texas. In addition, the EPA has sent a notice to
the Company demanding payment for certain costs relating to the RSR
Corporation Site. At each of these three sites, the alleged disposal took
place prior to the Company's acquisition of the assets of the Former GM
Division. The Company believes that it is not the appropriate PRP with respect
to these sites, which the Company also believes are subject to the Company's
indemnification agreement with GM. The Company has not incurred any
significant costs relating to these matters, and based on the existence of the
indemnification agreement with GM, GM's assumption of liabilities to date, and
other legal defenses, the Company does not believe that it will incur material
costs in the future in responding to conditions at these sites.

The Company's Meridian, Mississippi facility has been designated by EPA as
requiring no further action under CERCLA and has since been "delisted" from
the Comprehensive Environmental Response,

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<PAGE>

Compensation, and Liability Information System ("CERCLIS") (a list of sites
which may require investigation or remediation under CERCLA). Although this
does not assure that expenditures would not be required under other federal
and/or state programs, as a result of the indemnifications in the GM
Acquisition agreement, the Company does not believe that it will expend
material costs for this site under the CERCLA program or for any other
environmental conditions at this site.

The Resource Conservation and Recovery Act ("RCRA") and the regulations
thereunder and similar state counterparts to this law regulate hazardous
wastes. The Company's Anderson, Indiana facilities were once part of a larger
industrial complex owned and operated by GM (the "GM Complex"). Since 1990
(when owned by GM), the GM Complex has been undergoing corrective action under
RCRA. In connection with the RCRA corrective action requirements, GM is
required to investigate various solid waste management units ("SWMUs") and
areas of concern ("AOCs") identified in the federal and state RCRA permits.
Some of these SWMUs and AOCs are located on portions of the Anderson, Indiana
properties leased by the Company from GM and certain SWMUs are used by the
Company. The costs of responding to releases, if any, from those SWMUs used by
the Company would presumptively be borne by the Company. To date, no claims
for any such liability have been made, and GM continues to respond to EPA and
IDEM with respect to the investigation of these AOCs and SWMUs. Subject to the
terms and conditions of GM's environmental indemnity provided in connection
with the GM Acquisition, GM is indemnifying the Company with respect to
certain of these areas.

One of the Company's facilities in Franklin, Indiana is undergoing a RCRA
site investigation and clean-up of volatile organic compounds ("VOCs") in the
soil and groundwater pursuant to an EPA Administrative Order on Consent ("EPA
Order") issued to both Franklin Power Products, one of the subsidiaries of the
Company, and Amphenol Corporation, a prior owner of the property. Pursuant to
the EPA Order, Franklin Power Products and Amphenol Corporation have jointly
submitted corrective measures studies which have been approved by EPA, and the
parties expect to enter into a new EPA Administrator Order on Consent in the
near future setting forth the selected remedy (including further
investigation). Amphenol indemnified Franklin Power Products for certain
liabilities associated with the EPA Order and Amphenol has satisfied and
continues to satisfy the requirements of the EPA Order. Based on the Company's
experience to date and the indemnities from Amphenol and the sellers of
Franklin Power Products to the Company, the Company believes that future costs
associated with this site will not have a material adverse effect on the
Company's results of operations, business or financial condition.

The Company's Marion, Michigan facility was listed on Michigan's state list
of sites pursuant to the Michigan version of CERCLA (the "Michigan SCL") in
1993 because of suspected releases of Hazardous Substances, primarily volatile
organic compounds (mineral spirits), to the soils and groundwater at the
facility. An investigation conducted by Nabco prior to its acquisition by the
Company determined that the levels of volatile organic compounds in the soils
and groundwater are below the applicable state clean-up levels. Although the
Company proposed no further action at this facility, the Michigan
environmental authorities are requiring further investigation. Even if the
Michigan environmental authorities were to require remedial action with
respect to this site, the Company does not believe that it will expend
material costs in connection with the conditions giving rise to this Michigan
SCL listing.

60
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the name, age and position of each of the
directors and senior officers of the Company. Each director of the Company
will hold office until the next annual meeting of stockholders of the Company
or until his successor has been elected and qualified. Officers of the Company
and its subsidiaries serve at the discretion of their respective Boards of
Directors.

<TABLE>
<CAPTION>
NAME AGE POSITIONS
- -------------------------- --- ------------------------------------------------
<S> <C> <C>
Harold K. Sperlich........ 67 Chairman of the Board of Directors
Thomas J. Snyder (1)...... 53 President, Chief Operating Officer and Director
David L. Harbert.......... 55 Executive Vice President and Chief Financial
Officer
Susan E. Goldy............ 43 Vice President and General Counsel
Joseph P. Felicelli....... 51 Group Vice President, Aftermarket
Patrick Mobouck........... 43 Vice President-Managing Director, Europe
Mark W. Kenczyk........... 42 Vice President, Materials Management
M. Lawrence Parker........ 49 Senior Vice President, Quality & Heavy Duty
Systems, Delco Remy America
Richard L. Stanley........ 41 Senior Vice President, Automotive Systems
Division, Delco Remy America
Roderick English.......... 45 Senior Vice President, Human Resources and
Communications, Delco Remy America
Thomas R. Jennett......... 45 Senior Vice President and General Manager,
Aftermarket Division, Delco Remy America
David H. Livingston....... 47 Senior Vice President of Operations, Delco Remy
America
John M. Mayfield.......... 43 President of A&B Group
Nicholas J. Bozich........ 53 President of Nabco
J. Michael Jarvis......... 53 President of Power Investments
Richard L. Keister........ 51 President of World Wide
Ralph E. McGee............ 59 President of Tractech
E.H. Billig (2)........... 70 Vice Chairman of the Board of Directors
Richard M. Cashin, Jr. (1) 44 Director
(2)......................
James R. Gerrity (1)...... 56 Director
Michael A. Delaney (2).... 43 Director
Robert J. Schultz......... 67 Director
</TABLE>
- ------------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.

Harold K. Sperlich, Chairman of the Board of Directors. Mr. Sperlich has
been Chairman of the Board of Directors since the Company's inception in 1994.
Since retiring from Chrysler Corporation in 1988, having served as its
President, Mr. Sperlich has served as a consultant to the automotive industry.
Before joining Chrysler in 1977, Mr. Sperlich held several senior
administrative and operating posts with Ford Motor Company.

61
<PAGE>

Thomas J. Snyder, President, Chief Operating Officer and Director. Mr.
Snyder has been President and Chief Operating Officer since the Company's
inception in 1994. From 1962 to 1994, Mr. Snyder held several aftermarket and
OEM executive positions with the Delco Remy Division of GM, most recently as
Product Manager, Heavy Duty Systems. He is a member of the board of St. John's
Health Systems and a Director of CLARK Material Handling Company.

David L. Harbert, Executive Vice President and Chief Financial Officer. Mr.
Harbert has been the Executive Vice President and Chief Financial Officer of
the Company since October 1994. Before joining the Company, Mr. Harbert was
Senior Vice President and Chief Financial Officer of Applied Power Inc. since
1992 and, prior to that, served as Vice President and Chief Financial Officer
of System Software, Inc. since 1990.

Susan E. Goldy, Esquire, Vice President and General Counsel. Ms. Goldy has
been Vice President and General Counsel since February 1997. Before joining
the Company, she was an associate, and since 1993, was a partner in the law
firm of Dechert Price & Rhoads.

Joseph P. Felicelli, Group Vice President, Aftermarket. Mr. Felicelli has
been Group Vice President since September 1997. Prior to joining the Company,
Mr. Felicelli served in various management positions for Cooper Industries.

Patrick Mobouck, Vice President-Managing Director, Europe. Mr. Mobouck has
been Vice President- Managing Director, Europe since August 1997. He has also
been Chairman of Autovill since August 1997. Before joining the Company, Mr.
Mobouck was with Monroe Auto Equipment since 1988, most recently as Managing
Director-Europe, Middle East and Africa.

Mark W. Kenczyk, Vice President, Materials Management. Mr. Kenczyk has been
Vice President, Materials Management since August 1997. Prior to joining the
Company, Mr. Kenczyk was the Vice President of Purchasing and Logistics with
Philips Electronics in New York. Prior to that, Mr. Kenczyk spent 22 years in
various materials and purchasing capacities with General Motors, including
assignments at the GM/Toyota joint venture (New United Motor) and with Isuzu
Motors in Tokyo, Japan.

M. Lawrence Parker, Sr. Vice President, Quality and Heavy Duty Systems,
Delco Remy America. Mr. Parker has been the Senior Vice President, Quality and
Heavy Duty Systems since June 1995 and, prior to that, was Senior Vice
President, Quality and Customer Satisfaction beginning with the Company's
inception in 1994. Before joining the Company, Mr. Parker served in a number
of executive positions at Ford Motor Company since 1967 and at Chrysler
Corporation since 1984, most recently as Director, Corporate Quality Programs
since 1991.

Richard L. Stanley, Sr. Vice President, Automotive Systems Division, Delco
Remy America. Mr. Stanley has been Senior Vice President, Automotive Systems
since the Company's inception in 1994. Mr. Stanley joined the Delco Remy
Division of GM in 1978, serving most recently as Director of Customer Programs
since 1992 and as European Chief Engineer since 1988.

Roderick English, Sr. Vice President, Human Resources and Communications,
Delco Remy America. Mr. English has been Senior Vice President of Human
Resources and Communications since the Company's inception in 1994. Mr.
English joined the Delco Remy Division of GM in 1976 and became Plant Manager
of plant 17 in 1992. Prior to that, Mr. English served as Divisional Manager
of Labor Relations since 1989.

John M. Mayfield, President of A&B Group. Mr. Mayfield has been President of
A&B Group since its acquisition by the Company in March 1995. Mr. Mayfield
joined A&B Group in 1988 as Controller and became its Operations Director in
1991.

Nicholas J. Bozich, President, Nabco. Mr. Bozich has been President of Nabco
since March, 1997. Before joining the Company, Mr. Bozich was with General
Motors for 34 years in various managerial positions, most recently with the
Saturn Division.

62
<PAGE>

J. Michael Jarvis, President, Power Investments. Mr. Jarvis has been
President of Power Investments since its formation in 1983.

Richard L. Keister, President, World Wide. Mr. Keister has been President of
World Wide since its formation in 1976.

Ralph F. McGee, President, Tractech. Mr. McGee started as Sales and
Marketing Manager of Tractech in 1968. He was appointed President in 1980, a
position he has held since then except for two years when he served in
corporate level development positions for Titan Wheel International, Inc.

Thomas R. Jennett, Senior Vice President and General Manager, Aftermarket
Division, Delco Remy America. Mr. Jennett joined the Company in October 1996.
Prior to such time he held various management positions with Prestolite
Electric Inc. since 1974, including President of the Aftermarket Division and
the Leece-Neville Heavy Duty Division.

David H. Livingston. Senior Vice President of Operations, Delco Remy
America. Mr. Livingston has been Senior Vice President of Operations since
August 1996. Prior to joining the Company, Mr. Livingston was Vice President
of Operations for United Technologies Automotive-Motor Systems since 1990.

E.H. Billig, Vice Chairman of the Board of Directors. Mr. Billig has been
Vice Chairman of the Board of Directors since the Company's inception in 1994.
He was formerly President and Chief Operating Officer of MascoTech, Inc.,
where he continues to serve as Vice Chairman. He is also a director of Titan
Wheel International, Inc. and OEA, Inc.

Richard M. Cashin, Jr., Director. Mr. Cashin has been a director since the
Company's inception in 1994. Mr. Cashin has been President since 1994, and a
Managing Director for more than the past five years, of CVC. In addition, Mr.
Cashin serves as a director of Levitz Furniture Incorporated (which filed a
voluntary petition for bankruptcy on September 5, 1997), Lifestyle Furnishing,
Fairchild Semiconductor, Freedom Forge, Cable Systems International, Euromax,
Hoover Group, Thermal Engineering, Gerber Childrenswear, JAC Holdings, GVC
Holdings, Ballantrae Corporation, Delta Terminal Services and Titan Wheel
International Inc.

James R. Gerrity, Director. Mr. Gerrity has been a director since the
Company's inception in 1994. From 1986 to 1993, Mr. Gerrity was President and
a director of Dyneer Corporation. Mr. Gerrity currently is a director of
Palomar Technologies Corporation, Wescor Graphics, Inc. and Ballantrae
Corporation.

Michael A. Delaney, Director. Mr. Delaney has been a director since the
Company's inception in 1994. Mr. Delaney has been a Vice President of CVC
since 1989. From 1986 through 1989, he was Vice President of Citicorp Mergers
and Acquisitions. Mr. Delaney is also a director of GVC Holdings, JAC
Holdings, CORT Business Services, Inc., Palomar Technologies, Inc., Enterprise
Media Inc., SC Processing, Inc., Triumph Group, Inc., CLARK Material Handling
Inc., MSX International, Ballantrae Corporation, International Knife and Saw
Inc., Aetna Inc. and AmeriSource Health Corporation.

Robert J. Schultz, Director. Mr. Schultz became a director in 1997. Mr.
Schultz retired as Vice Chairman and a member of the Board of Directors of GM
in 1993. Mr. Schultz joined GM in 1955 and served as Group Executive of
Chevrolet-Pontiac-GM of Canada and General Manager of GM's Delco Electronics
Division. Mr. Schultz is also a member of the Board of Trustees of California
Institute of Technology and a director of OEA, Inc. and Texco Communications.

DIRECTOR COMPENSATION AND ARRANGEMENTS

Directors do not receive compensation for their services as directors,
except that Messrs. Gerrity and Billig received $340,608 and $200,000,
respectively, during fiscal year 1997 for services relating to special
projects (in connection with acquisitions and strategic alliances) undertaken
by them for the Company in their capacities as directors, and Mr. Schultz was
paid $2,083 in fiscal year 1997 for services rendered as a director of the
Company. Mr. Schultz is entitled to receive an annual fee of $25,000 plus
$1,000 for attendance in person for each quarterly meeting of the Board of
Directors. Outside directors of the Company are also entitled to receive stock
options for Class A Common Stock pursuant to the Directors' Plan (as defined).
See "Management--Stock Option Plans." CVC, certain members of management and
other Existing Stockholders have entered into a Stockholders' Agreement
whereby they have agreed to vote their shares in such a manner so as to elect
the entire Board of Directors of the Company. See "Principal Stockholders--
Stockholders' Agreement."

63
<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth, for the fiscal year ending July 31, 1997,
certain information regarding the cash compensation paid by the Company, as
well as certain other compensation paid or accrued for such year, to each of
the executive officers of the Company named below, in all capacities in which
they served:

<TABLE>
<CAPTION>
OTHER
ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) COMPENSATION
--------------------------- -------- -------- --------------- ------------
<S> <C> <C> <C> <C>
Harold K. Sperlich.............. $247,500 $292,342 $13,986 $--
Chairman of the Board
Thomas J. Snyder................ 247,500 292,342 3,197 --
President and Chief Operating
Officer
David L. Harbert................ 235,000 165,925 3,197 --
Executive Vice President and
Chief Financial Officer
J. Michael Jarvis............... 200,000 111,042 1,409 --
President of Power Investments
M. Lawrence Parker.............. 173,250 133,975 1,409 --
Senior Vice President, Quality
&
Heavy Duty Systems, Delco Remy
America
</TABLE>
- --------
(1) Represents life insurance premiums paid by the Company for the benefit of
the individuals.

Stock Option Plans. The Company has adopted the 1997 Non-Qualified Stock
Option Plan for Non-Employee Directors (the "Directors' Plan"), which provides
for the granting of stock options to non-employee members of the Board of
Directors of the Company. Options to purchase an aggregate of 100,000 shares
may be granted under the Directors' Plan. Pursuant to the Directors' Plan,
each non-employee director of the Company will be granted, on a non-
discretionary basis, options to purchase 2,000 shares of Common Stock
annually, commencing on the later of the effective date of the Registration
Statement of which this Prospectus is a part and the pricing of the Common
Stock to be sold in the Equity Offering, which options will generally vest
over a five-year period. The exercise price of each option will be 100% of the
fair market value of a share of Common Stock on the date of grant. The
Directors' Plan will be administered by the Board of Directors. Options
granted under the plan may, in certain circumstances, be transferred to
certain permitted transferees specified in the plan. Messrs. Billig, Cashin,
Delaney and Schultz are each expected to be granted options to acquire 2,000
shares of Common Stock in connection with the Equity Offering.

The Directors' Plan will permit, with the consent of the Board of Directors,
the exercise of options by delivery of shares of Common Stock owned by the
optionee or by withholding of such shares of Common Stock upon exercise of the
option in lieu of or in addition to cash. The Directors' Plan will permit the
Board of Directors to adjust the number and kind of shares subject to options
in the event of a reorganization, merger, consolidation, recapitalization,
reclassification, stock split, stock dividend or combination of shares. The
Board of Directors may amend the Directors' Plan or terminate the Directors'
Plan without the approval of the stockholders, provided, however, that
stockholder approval is required for an amendment to the Directors' Plan that
increases the number of shares for which options may be granted or changes in
any material respect the limitations or provisions of the options subject to
the Directors' Plan.

The Company also has adopted the 1997 Stock-Based Incentive Compensation
Plan (the "Incentive Plan" and, together with the Directors' Plan, the "Stock
Option Plans") that provides for discretionary grants or awards of options to
purchase stock, stock appreciation rights that reflect the appreciation in the
value of Common Stock ("SARs"), and restricted stock to employees and
independent contractors (other than certain directors) of the Company. Under
the Incentive Plan, 1,300,000 shares of Common Stock may be subject to awards,
and no more than 91,000 shares of Common Stock may be subject to awards to any
single individual in any one year. Such options, SARs and restricted stock
will be awarded based on performance and with vesting schedules to be
determined at the time of grant.

64
<PAGE>

The Company expects to grant up to approximately 500,000 options to acquire
shares of Common Stock under the Incentive Plan on the later of the effective
date of the Registration Statement of which this Prospectus is a part and the
pricing of the Common Stock to be sold in the Equity Offering, at an exercise
price equal to the initial public offering price for the Equity Offering.

The Incentive Plan will be administered by a committee of directors,
initially comprised of Messrs. Billig, Cashin and Delaney, which will have the
power and authority, subject to ratification by the Board of Directors, to
determine the persons to whom awards are granted, the number of shares of
Common Stock with respect to such awards, and the terms of such awards,
including the exercise price of stock options, and any vesting or forfeiture
provisions with respect to awards. Options may be transferred to the extent
permitted under the terms of the applicable option agreement. The Incentive
Plan will contain such other provisions, terms and conditions as the committee
shall decide.

Under the Incentive Plan, the exercise price of options will not be less
than the fair market value of the Common Stock on the date of grant. Options
will be subject to vesting provisions as specified in an applicable option
agreement. Options granted under the Incentive Plan may be designated, for
federal income tax purposes, either as non-qualified stock options or as
incentive stock options as defined in Sections 422 of the Internal Revenue
Code. The Incentive Plan will permit, with the consent of the committee, the
exercise of options by delivery of shares of Common Stock owned by the
optionee or by the withholding of such shares of Common Stock upon exercise of
the option in lieu of, or in addition to, cash. The Incentive Plan will permit
the committee to adjust the number and kind of shares subject to awards in the
event of a reorganization, merger, consolidation, reclassification, stock
split, stock dividend or combination of shares.

401(k) Plan. The Company established the Salaried 401(k) Savings Plan (the
"401(k) Plan") to allow eligible employees to help meet their long-term
savings needs. Except for eligible employees who transferred to DRA directly
from GM and began immediate participation, generally all employees who are
compensated on a salaried basis are eligible to participate in the 401(k) Plan
after completing six months of continuous employment. The 401(k) Plan is a
defined contribution, tax-qualified plan under section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), with employer and employee pre-
tax contributions deductible by the Company for income tax purposes for the
year contributed, and such contributions and earnings thereon are not taxable
to employees until paid to them.

An employee in the 401(k) Plan may elect to have from 1% to 15% of base
salary contributed from pay to the 401(k) Plan on a pre-tax, after-tax, or
combination of pre-tax and after-tax, basis, and receive a 25% matching
contribution on the sum of the employee's pre-tax and after-tax contributions
up to 6% of base salary. Except for certain GM employees who transferred
employment to DRA, employees also receive a 1% of base salary contribution for
their retiree medical care account under the 401(k) Plan. Under the Code, the
total contributions allocated to an employee's accounts for a plan year cannot
exceed the lesser of $30,000 or 25% of the employee's compensation, and the
employee's pre-tax contributions are limited in a calendar year to $9,500
(subject to cost of living increases under the Code).

Employees are immediately 100% vested in their 401(k) Plan benefits except
for the matching and retiree medical care contributions, which vest after the
earliest of five years of service, death, attaining age 65, or attaining an
early retirement date under the Retirement Plan. Any forfeitures which may
result under the 401(k) Plan are used to reduce future Company contributions.
Employees generally may withdraw their vested benefits from the 401(k) Plan on
termination of employment, retirement, or death, and may also under certain
circumstances withdraw benefits while still employed (including certain
financial hardship, plan loan and pre- and post-age 59 1/2, withdrawals).
Until fully withdrawn, employees may direct the investment of their 401(k)
Plan benefits among a broad range of investment funds.

Retirement Plan. The Company established the Retirement Plan primarily to
provide eligible employees with a monthly pension benefit after retirement for
life. Except for eligible employees who transferred to DRA

65
<PAGE>

directly from GM and began immediate participation, generally all employees of
the Company who are compensated on a salaried basis are eligible to
participate in the Retirement Plan after completing one year of service and
attaining age 21. The Retirement Plan is a defined benefit, tax-qualified plan
under section 401(a) of the Code, and contributions to the Plan generally are
deductible by the companies for income tax purposes for the year contributed,
and benefits are not taxable to employees until paid.

The standard retirement benefit under the Retirement Plan is a monthly,
single life annuity starting at age 65, equal to 1.25% of an employee's
average monthly pay multiplied by the employee's years of service with the
companies. Average monthly pay is generally based on the employee's 60-
consecutive month highest average base pay during the ten-year period before
retirement. The benefit for certain long-service GM employees who transferred
to DRA, however, is not less than $60 times their years of service with the
Company. Under the Code the annual benefit provided by the Retirement Plan
cannot exceed the lesser of $125,000 or 100% of compensation (subject to
certain further limitations under the Retirement Plan and Code). Eligible
employees generally may retire on or after age 55 with 10 years of service,
with their monthly Retirement Plan benefit actuarially reduced if payment
actually starts prior to age 62. Employees who terminate with less than five
years of service forfeit any benefits which they may have accrued, and such
forfeitures are used to offset future contributions otherwise required to fund
the Plan. Certain death and disability benefits also may be paid under the
Retirement Plan.

Executive Incentive Plan. The Company's executives participate in an
Executive Incentive Plan by which they are entitled to receive certain
percentages of their base compensation as a bonus if a designated target or
objective is met. Designated targets related to earnings, return on invested
capital and/or strategic objectives are set at the beginning of each year,
based on the prior year's results. The Executive Incentive Plan provides that
if a target is exceeded, then any bonus payable under the plan is
commensurately increased, subject to a cap. The Company expects to continue
the Executive Incentive Plan and has established a Compensation Committee made
up of non-management directors who will fix the target objectives for each
executive for each year.

INSURANCE AND INDEMNIFICATION

The Company has obtained customary directors' and officers' insurance
against certain liabilities such persons may incur on behalf of the Company.
For a discussion of the limitations on liability of the Company's directors
and the indemnification by the Company of such directors set forth in the
Company's Restated Certificate of Incorporation, see "Description of Capital
Stock--Limitation on Liability and Indemnification."

EMPLOYMENT AGREEMENTS

The Company has entered into an Employment Agreement with Thomas J. Snyder
which provides for his employment until 1999. Mr. Snyder receives an annual
base salary of $247,500, subject to merit increases as determined by the Board
of Directors, plus annual performance bonuses as determined by the Board of
Directors. The agreement provides that the executive may not engage in any
business competitive with the Company while employed by the Company and for a
period of one year thereafter.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Board of Directors during fiscal year 1997
was composed of Messrs. Delaney, Sperlich and Billig. Upon completion of the
Offerings, the Compensation Committee will be composed of Messrs. Billig,
Cashin and Delaney.

66
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth information as of October 1, 1997 after
giving effect to the Stock Split, with respect to shares of each class of
Common Stock beneficially owned by (i) each person or group that is known to
the Company to be the beneficial owner of more than 5% of each class of
outstanding Common Stock, (ii) each director and senior officer of the Company
and (iii) all directors and senior officers of the Company as a group. Unless
otherwise specified, all shares are directly held. Each share of Class A
Common Stock is convertible into one share of Class B Common Stock, and each
share of Class B Common Stock is convertible into one share of Class A Common
Stock. See "Description of Capital Stock."

<TABLE>
<CAPTION>
CLASS A COMMON STOCK(1) COMBINED(1)
----------------------------------- -----------------------------------
BEFORE OFFERING AFTER OFFERING CLASS B BEFORE OFFERING AFTER OFFERING
AND TRANSACTIONS AND TRANSACTIONS COMMON AND TRANSACTIONS AND TRANSACTIONS
----------------- ----------------- STOCK ----------------- -----------------
SHARES SHARES SHARES SHARES SHARES
OWNED PERCENT OWNED PERCENT OWNED OWNED PERCENT OWNED PERCENT
--------- ------- --------- ------- --------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Citicorp Venture
Capital Ltd............ 1,816,116 19.5% 3,049,569 19.9% 6,756,746(2) 7,222,362 46.3% 9,805,815 42.7%
399 Park Avenue
New York, NY 10043
MascoTech Automotive
Systems Group, Inc. ... 2,520,000 27.0% 2,924,313 19.1% -- 2,520,000 16.1% 2,924,313 12.7%
275 Rex Boulevard
Auburn Hills, MI 48326
World Equity Partners, 1,680,000 15.3% 1,680,000 9.9% -- 1,680,000 9.7% 1,680,000 6.8%
L.P.(3).................
399 Park Avenue
New York, NY 10043
Harold K. Sperlich(4)... 793,464 8.5% 793,464 5.2% -- 793,464 5.1% 793,464 3.7%
Delco Remy
International, Inc.
2902 Enterprise Drive
Anderson, IN 46013
Thomas J. Snyder(5)..... 420,000 4.5% 420,000 2.7% -- 420,000 2.7% 420,000 1.8%
Delco Remy
International, Inc.
2902 Enterprise Drive
Anderson, IN 46013
James R. Gerrity(6)..... 252,000 2.7% 469,226 3.1% -- 252,000 1.6% 469,226 2.0%
E.H. Billig(7).......... 252,000 2.7% 252,000 1.6% -- 252,000 1.6% 252,000 1.1%
Richard M. Cashin,
Jr.(8).................. 181,566 1.9% 195,350 1.3% 7,434 189,100 1.2% 202,784 *
Michael A. Delaney(8)... 36,795 * 50,579 * 10,018 46,813 * 60,597 *
Robert J. Schultz....... 77,280 * 77,280 * -- 77,280 * 77,280 *
All directors and senior
officers as a group (22
persons)................ 3,040,761 32.6% 3,265,877 21.4% 17,452 3,058,213 19.6% 3,319,674 14.5%
</TABLE>

67
<PAGE>

* Represents less than 1%.

(1) Does not include up to 1,400,000 shares of Class A Common Stock that are
subject to the Stock Option Plans or 1,680,000 shares issuable upon
exercise of the Warrants except, in the case of the Warrants, with respect
to World Equity Partners, L.P. such 1,680,000 shares are included.
(2) Includes 1,308,795 shares of Class B Common Stock to be received as merger
consideration in connection with the consummation of the acquisition of
Ballantrae by the Company and the conversion of the Junior Subordinated
Notes.
(3) Represents Warrants to acquire Class A Common Stock.
(4) Held as trustee under agreement dated February 4, 1985, as amended, with
Harold K. Sperlich, as Settlor.
(5) Includes 5,000 shares held by Daisy Farm Limited Partnership of which Mr.
Snyder is General Partner.

(6) Includes 42,670 and 174,556 shares to be received by The Susan Gerrity
Living Trust and James R. Gerrity Living Trust, respectively, in the
acquisition of Ballantrae.
(7) Held by The Billig Family Limited Partnership.
(8) Does not include shares beneficially held by CVC, World Equity Partners,
L.P. or CCT Partners I, L.P. which may be deemed to be beneficially owned
by Messrs. Delaney and Cashin. Messrs. Delaney and Cashin disclaim
beneficial ownership of shares held by CVC or World Equity Partners, L.P.

STOCKHOLDERS' AGREEMENT

In connection with the GM Acquisition, certain stockholders of the Company,
including CVC, World Equity Partners, L.P. ("WEP"), MascoTech Automotive
Systems Group, Inc. ("MascoTech"), Harold K. Sperlich, James R. Gerrity and
the individuals named therein as management investors (the "Management
Investors") (collectively the "Investors"), entered into a Securities Purchase
and Holders Agreement (as amended, the "Stockholders' Agreement") for a ten-
year term containing certain agreements among such stockholders with respect
to the capital stock and corporate governance of the Company. The following is
a summary description of the principal terms of the Stockholders' Agreement
and is subject to and qualified in its entirety by reference to the
Stockholders' Agreement, which has been filed as an exhibit to the
Registration Statement which includes this Prospectus.

Pursuant to the Stockholders' Agreement, the Investors agreed to vote their
shares in favor of the Board of Directors of the Company being composed of
seven directors as follows: Harold K. Sperlich (so long as he continues to
serve as chairman of the Board of Directors); one individual nominated by
MascoTech; two individuals nominated by CVC; James R. Gerrity (so long as he
continues to serve as an officer or a consultant to the Company); Thomas J.
Snyder (so long as he continues to serve as President of the Company); and one
independent director.

The Investors have agreed to vote their shares in favor of any proposal by
CVC or MascoTech (a) to remove directors nominated by CVC or MascoTech or (b)
to fill directorships vacated by directors nominated by CVC or MascoTech. Each
of CVC and MascoTech will retain the right to nominate the number of directors
designated above so long as they own at least 7% of the outstanding shares of
Common Stock; provided that if either CVC or MascoTech owns less than 7% of
the outstanding shares of Common Stock as a result of an event or events other
than the sale of such shares by the holder thereof, then the right to nominate
directors as specified above will continue.

Following the Equity Offering, the Investors will beneficially own over 50%
of the outstanding shares of Class A Common Stock and, pursuant to the
foregoing described provisions, will be able to elect the entire Board

of Directors of the Company.

The Stockholders' Agreement also provides for certain restrictions on
transfer by Management Investors, including, subject to certain exemptions,
the right of the Company to repurchase shares held by Management Investors
upon termination of employment (i) prior to July 31, 1999 with respect to
Management Investors who purchased shares, prior to February 1997, and (ii) to
December 2000 for Management Investors who purchased shares beginning in
February 1997, in each case at a formula price, and the grant of a right of
first refusal in favor of the Company in the event a Management Investor
elects to transfer such Management Investor's shares of Common Stock.

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<PAGE>

REGISTRATION RIGHTS AGREEMENT

In connection with the GM Acquisition, the Company entered into a
Registration Rights Agreement with the Investors covering all of the 11.0
million shares of Common Stock held by the Investors ("Registration Rights
Agreement"). The following description of the Registration Rights Agreement is
subject to and qualified in its entirety by reference to the Registration
Rights Agreement, which has been filed as an exhibit to the Registration
Statement which includes this Prospectus. CVC and, upon consummation of the
Equity Offering, WEP and WEP's permitted transferees have been granted the
right one or more times to require the Company to file one or more
registration statements with the Securities and Exchange Commission (the
"Commission") registering the shares held by them. The Investors have been
granted the right, subject to certain restrictions, to require the Company to
include shares held by the Investors in any registration statements filed by
the Company with the Commission subject to certain limited exceptions. The
Company has agreed to pay certain expenses relating to any registration of
shares effected pursuant to the Registration Rights Agreement and to indemnify
the Investors against certain liabilities in connection with any such
registration.

LOCK-UP AGREEMENTS

In connection with the Equity Offering, the Company and each of the
Company's principal stockholders, directors, senior officers and
warrantholders have agreed, subject to certain exceptions, not to offer, sell
or transfer any shares of Common Stock for a period of 180 days after the date
of the Equity Offering, without the prior written consent of Morgan Stanley &
Co. Incorporated. This agreement covers all of the outstanding shares of
Common Stock held by the principal stockholders, directors, senior officers
and warrantholders. The Company expects that certain of its other
stockholders, owning approximately 4.2 million shares of Class A Common Stock,
will be subject to similar restrictions. See "Underwriters."

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<PAGE>

CERTAIN TRANSACTIONS

CVC and James R. Gerrity, a director of the Company, each of whom is an
Existing Stockholder of the Company, beneficially own approximately 71.9% and
20.0% of Ballantrae's issued and outstanding common stock, on a fully-diluted
basis, respectively, and 74.7% and 15.6% of Ballantrae's issued and
outstanding preferred stock, respectively (including, for Mr. Gerrity, 5.0%
and 5.2% of Ballantrae's common and preferred stock, respectively,
beneficially owned by Susan Gerrity, Mr. Gerrity's wife). The Ballantrae
Acquisition Agreement provides that CVC and Mr. Gerrity and their affiliates
will receive in connection with the acquisition of Ballantrae 1,100,974 and
217,226 additional shares of the Company's Common Stock, respectively, based
on an assumed offering price in the Equity Offering of $15.00 per share of
Class A Common Stock and the estimated working capital adjustment (the "Merger
Consideration"); however such stock will be subject to certain restrictions
against transfer under applicable securities laws. The Ballantrae stockholders
(other than the Existing Stockholders) who receive shares of Common Stock
pursuant to the Ballantrae Acquisition Agreement will benefit from piggyback
registration rights with respect to such shares for a period of one year
following the consummation of the acquisition of Ballantrae. The Company
believes that the Ballantrae Acquisition Agreement and in particular the
Merger Consideration to be paid to CVC and Mr. Gerrity and their affiliates
are fair to the Company. Messrs. Delaney and Cashin are also each a
stockholder and director of Ballantrae, as well as each being a stockholder
and director of the Company. See "Company History," "Risk Factors--Acquisition
of Ballantrae; Conflicts of Interest" and "Business--Acquisition of
Ballantrae."

The following table summarizes the history of CVC's investment in Ballantrae
and the payment of merger consideration to CVC in connection with the proposed
acquisition of Ballantrae by the Company.

<TABLE>
<CAPTION>
AMOUNT PAID
DATE EVENT BY CVC
-------- ----- -----------
<C> <S> <C>
12/23/96 Acquisition of 32.9% of Ballantrae common stock........ $ 35,000
10/23/96 Acquisition of 74.7% of Ballantrae preferred stock..... 2,100,000
10/23/96 Acquisition of warrants for Ballantrae common stock.... --
Acquisition of 79.4% of preferred stock of Kraftube
10/23/97 Management, Inc.(a).................................... 6,400,000
02/07/97 Exercise of warrants for Ballantrae common stock(b).... 147,500
-----------
Total CVC investment in Ballantrae..................... $ 8,682,500
===========
Value of shares of Common Stock of the Company to be
received by CVC as merger consideration in connection
with the acquisition of Ballantrae(c)................. $16,514,600
===========
</TABLE>
- --------

(b) Includes $25,000 attributable to the exercise of a warrant to purchase
25,000 shares of Ballantrae common stock which CVC intends to exercise
prior to the consummation of the acquisition.

The Company currently leases eight properties in Mississippi from entities
controlled by family members of John M. Mayfield, President of A&B Group.
These leases were entered into in connection with the acquisition of A&B Group
by the Company in March 1995. All leases are triple net leases, five of which
expire on March 31, 2003 and three of which expire on March 31, 2000, each
subject to renewal. Aggregate annual rent payments for these leases for fiscal
year 1997, not including tax and maintenance expenses constituting additional
rent, equaled approximately $479,700. The Company believes that the terms
contained in these leases are at least as favorable as those which could have
been obtained from unaffiliated third parties.

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<PAGE>

Mr. Richard L. Keister, President of World Wide, borrowed $90,000 from the
Company to purchase 10,000 shares of Class A Common Stock from the Company in
May 1997. Interest on the loan accrues at a rate of 9.25% and the loan is due
May, 2002.

In 1997, Mr. Nicholas J. Bozich, President of Nabco, borrowed $15,000 and
$80,000 from the Company to purchase 1,500 shares of Class A Common Stock and
to purchase a home, respectively. Interest on the $15,000 loan accrues at a
rate of 9.25% and the $80,000 loan bears no interest. In 1997, The $15,000 and
$80,000 loans are due in September 2002 and on demand, respectively.

The Company will exchange the Junior Subordinated Notes for approximately
1.8 million shares of the Company's Class A Common Stock, assuming an initial
price to public of $15 per share for the Equity Offering and a closing date
for the Offerings of December 22, 1997. The Junior Subordinated Notes were
issued in an aggregate principal amount of $18.2 million to CVC, certain
employees and former employees of CVC and MascoTech in connection with the GM
Acquisition. The final exchange ratio will be based upon the initial price to
public of the Class A Common Stock of the Company for the Equity Offering less
underwriting discounts and commissions.

The following table summarizes the historical investments of the Original
Investors in the Company and Ballantrae since July 29, 1994 and the total
return, including unrealized return, on such investments as of, except where
otherwise indicated, an assumed closing date for the Offerings of December 22,
1997 and assuming an initial public offering price of $15.00 per share (in
thousands):

<TABLE>
<CAPTION>
MASCO
CVC TECH GERRITY SPERLICH SNYDER TOTAL
-------- ------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Investment in the
Company(1).............. $ 15,400 $ 4,200 $ 30 $ 100 $ 50 $ 19,780
Investment in
Ballantrae.............. 8,682(2) -- 1,240(3) -- -- 9,922
-------- ------- ------ ------- ------ --------
Total invested in the
Company and
Ballantrae............ $ 24,082 $ 4,200 $1,270 $ 100 $ 50 $ 29,702
======== ======= ====== ======= ====== ========
Interest on Junior
Subordinated Notes(4)... $ 1,911 $ 520 $ -- $ -- $ -- $ 2,431
Dividends paid on Common
Stock since issuance.... -- -- -- -- -- --
Consideration to be
received for interest in
Ballantrae.............. 16,514(5) -- 3,259(6) -- -- 19,773
Salaries and other
compensation paid(7).... -- -- 1,117 1,360 1,556 4,033
Value of original
investment in shares of
Common Stock(8)......... 152,900 41,700 3,780 12,600 6,300 217,280
-------- ------- ------ ------- ------ --------
Total cash received and
value of shares of
Common Stock held..... $171,325 $42,220 $8,156 $13,960 $7,856 $243,517
======== ======= ====== ======= ====== ========
</TABLE>
- --------

(1) Represents the cash paid by the Original Investors for the Junior
Subordinated Notes and Common Stock issued by the Company in July 1994.

(2) Includes the forgiveness of a note in the principal amount of $1,700 held
by an affiliate of Kraftube Management, Inc. in favor of CVC.

(3) Includes $157 paid for the purchase of common and preferred stock in
Ballantrae by Susan Gerrity, Mr. Gerrity's wife.

(4) Interest on the Junior Subordinated Notes has accrued at a rate of 11% per
annum since the date of issuance and was added to the principal amount of
the Junior Subordinated Notes in lieu of a cash interest payment. The
total principal amount of the Junior Subordinated Notes (including the
accrued interest) will be exchanged for Common Stock at the initial public
offering price of the Common Stock less underwriting discounts and
commissions.

(5) Represents the value of the 1,100,974 shares of Common Stock to be
received by CVC as merger consideration, valued at the initial offering
price of the Common Stock, and assuming that, in connection with the
merger of Kraftube, Inc. into Kraftube Management, Inc., all Kraftube
Management, Inc. preferred stockholders elect to receive Ballantrae
preferred stock and not cash and no dissenters' rights are exercised.

(6) Represents the value of the 217,226 shares of Common Stock to be received
by Mr. and Mrs. Gerrity as merger consideration, valued at an initial
offering price of the Common Stock, and assuming that, in

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<PAGE>

connection with the merger of Kraftube, Inc. into Kraftube Management, Inc.,
all Kraftube Management, Inc. preferred stockholders elect to receive
Ballantrae preferred stock and not cash and no dissenters' rights are
exercised.

(7) Represents amounts paid as of October 31, 1997.

(8) Represents the total number of shares purchased at the time of the initial
investment described in Note (1) above adjusted by the Stock Split and the
shares to be acquired upon the conversion of the original principal amount
of the Junior Subordinated Notes, in each case valued at the initial
offering price of the Common Stock. These figures do not include the value
of any shares to be received upon conversion of the portion of Junior
Subordinated Notes representing accrued and unpaid interest thereon or in
the acquisition of Ballantrae, all of which are separately stated in the
table.

The net proceeds of the Offerings will be used to, among other things, repay
in full (i) the $75 million 10 1/2% Senior Note due July 31, 2003 to World
Subordinated Debt Partners, L.P., an affiliate of WEP, the holder of the
Warrants, a portion of which will be repaid at a price equal to 103% of the
principal amount thereof, and (ii) the $8.3 million of 9.86% Subordinated
Notes due February 6, 2001 to certain prior owners of Power Investments,
including Mr. J. Michael Jarvis, who is now one of the senior officers of the
Company, in each case plus accrued and unpaid interest thereon.

DESCRIPTION OF CAPITAL STOCK

The following description of the capital stock of the Company is subject to
and qualified in its entirety by reference to the Company's Restated
Certificate of Incorporation, which has been filed as an exhibit to the
Registration Statement which includes this Prospectus.

The Company may issue 67,000,000 shares of Common Stock, divided into two
classes consisting of 49,400,000 shares of Class A Common Stock, par value
$.01 per share, and 17,600,000 shares of Class B Common Stock, par value $.01
per share.

As of October 31, 1997, giving effect to the Transactions other than the
Offerings, there would have been 13,362,276 shares of Class A Common Stock
outstanding, held of record by 75 holders, and 7,283,674 shares of Class B
Common Stock outstanding. In addition, Warrants to purchase 1,680,000 shares
of Class A Common Stock were issued and outstanding and 1,400,000 shares of
Class A Common Stock were available to be issued pursuant to the Stock Option
Plans.

CLASS A COMMON STOCK

Holders of Class A Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of the stockholders and have no
cumulative voting rights. Holders of Class A Common Stock do not have
preemptive rights pursuant to the Restated Certificate of Incorporation.
Holders of Class A Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Company's Board
of Directors out of legally available funds therefor; provided, however, that
if dividends are declared that are payable in shares of Class A Common Stock
or Class B Common Stock, dividends must be declared which are payable at the
same rate on each class of Common Stock and the dividends payable in shares of
Class A Common Stock must be paid to holders of Class A Common Stock and the
dividends payable in shares of Class B Common Stock must be paid to holders of
Class B Common Stock. All outstanding shares of Class A Common Stock are
fully-paid and nonassessable. Shares of Class A Common Stock are convertible
at any time at the election of the holder thereof into shares of Class B
Common Stock on a one-for-one basis (but only to the extent that such record
holder of Class A Common Stock shall be deemed to be required to convert such
Class A Common Stock into Class B Common Stock pursuant to applicable law).

Upon liquidation, dissolution or winding up of the Company, holders of Class
A Common Stock, together with holders of Class B Common Stock, are entitled to
a pro rata share of the distribution of assets remaining after the payment of
debts and expenses and after payment of the liquidation preference accorded to
the holders of any preferred stock of the Company which may be issued in the
future. Each share of Class A Common Stock has the same rights, privileges and
preferences as every other share of Class A Common Stock.

CLASS B COMMON STOCK

The rights of holders of Class B Common Stock and holders of Class A Common
Stock are identical and entitle the holders thereof to the same rights,
privileges, benefits and notices, except as otherwise described

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<PAGE>

herein. Holders of Class B Common Stock generally do not possess the right to
vote on any matters to be voted upon by the stockholders of the Company,
except as provided by law. Under Section 242(b)(2) of the Delaware General
Corporation Law ("DGCL"), the holders of the Class B Common Stock shall be
entitled to vote as a class upon any proposed amendment to the Company's
Restated Certificate of Incorporation, if such amendment would increase or
decrease the number of shares or the par value of the shares of such class, or
alter or change the powers, preferences or special rights of the shares of
such class so as to affect them adversely. Holders of Class B Common Stock may
elect at any time to convert any and all of such shares into Class A Common
Stock, on a share-for-share basis, to the extent the holder thereof is
permitted pursuant to applicable law to hold the total number of shares of
voting securities such holder would hold after giving effect to such
conversion.

WARRANTS

On July 31, 1994, the Company issued to WEP warrants to purchase from the
Company 1,680,000 shares of the Company's Class A Common Stock for an exercise
price of $.0012 per share (the "Warrants"). The Warrants can be exercised in
whole or in part at any time prior to July 31, 2004. The exercise price and
the number of shares of Common Stock issuable upon exercise are subject to
adjustment upon the occurrence of certain events.

DIVIDENDS

The holders of the Company's Class A Common Stock and Class B Common Stock
are entitled to share ratably in dividends declared by the Board of Directors
of the Company out of funds legally available therefor. The Company's ability
to pay dividends is dependent on the ability of the Company's subsidiaries,
including DRA, to pay dividends to the Company. The ability of the Company's
subsidiaries to pay dividends and make other payments are subject to certain
statutory, contractual and other restrictions. The terms of the Company's
indebtedness, including the Senior Credit Facility, will restrict the payment
of dividends by the Company. The Company does not expect to declare or pay
cash dividends to holders of its Class A Common Stock or Class B Common Stock
in the foreseeable future.

DELAWARE ANTI-TAKEOVER LAW

Section 203 of the DGCL provides, with certain exceptions, that a Delaware
corporation may not engage in certain business combinations with a person or
affiliate or associate of such person who is an "interested stockholder" for a
period of three years from the date such person became an interested
stockholder unless: (i) the transaction resulting in the acquiring person's
becoming an interested stockholder, or the business combination, is approved
by the board of directors of the corporation before the person becomes an
interested stockholder; (ii) the interested stockholder acquires at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and also
officers and (b) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or after the
date the person becomes an interested stockholder, the business combination is
approved by the corporation's board of directors and by the holders of at
least 66 2/3% of the corporation's outstanding voting stock at an annual or
special meeting, excluding shares owned by the interested stockholders. An
"interested stockholder" is defined as any person that is (x) the owner of 15%
or more of the outstanding voting stock of the corporation or (y) an affiliate
or associate of the corporation and was the owner of 15% or more of the
outstanding voting stock at any time within the three-year period immediately
prior to the date on which it is sought to be determined whether such person
is an interested stockholder. As permitted by the DGCL, the Company has
elected not to be governed by Section 203.

LIMITATION OF LIABILITY AND INDEMNIFICATION

As permitted by the DGCL, the Company's Restated Certificate of
Incorporation provides that directors of the Company shall not be personally
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

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<PAGE>

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)
under Section 174 of the DGCL, relating to prohibited dividends or
distributions or the repurchase or redemption of stock or (iv) for any
transaction from which the director derives an improper personal benefit. In
addition, the Company's bylaws provide for indemnification of the Company's
officers and directors to the fullest extent permitted under Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Agency.

DESCRIPTION OF INDEBTEDNESS

The following is a summary of the material debt instruments of the Company
and its subsidiaries which will remain outstanding following completion of the
Offerings and the application of the net proceeds thereof. See "Use of
Proceeds." To the extent such summary contains descriptions of credit
documents, such descriptions do not purport to be complete and are subject to
and qualified in their entirety by reference to such documents, which are
filed as exhibits to the Registration Statement which includes this
Prospectus.

SENIOR CREDIT FACILITY

General. The Company intends to enter into an amended and restated credit
agreement with a syndicate of lenders led by Bank One, Indianapolis, N.A.
("Bank One") concurrently with the consummation of the Offerings, providing
for up to $180 million of revolving credit availability (the "Senior Credit
Facility"). Each of the Company's domestic operating subsidiaries (the "Senior
Credit Obligors") will be parties to the Senior Credit Facility. The
obligations under the Senior Credit Facility of each Senior Credit Obligor
(the "Obligations") will be unconditionally guaranteed by each other Senior
Credit Obligor and each of the Company and its domestic subsidiaries which are
holding companies (the "Senior Credit Guaranties"). The Obligations will be
secured by a first lien on substantially all the assets of the Company and its
domestic subsidiaries, including a pledge of the stock of such subsidiaries.
The Obligations and the Senior Credit Guaranties will rank pari passu with the
Notes and will rank senior to all other indebtedness of the Company.

Initially, the amount available to the Company for borrowing under the
Senior Credit Facility (the "Commitment Amount") will be $180 million, which
will be available for general corporate purposes (including acquisitions).
Beginning March 31, 2001, the Commitment Amount will decrease by $11.25
million at the end of each quarter thereafter until December 31, 2004, at
which time the Senior Credit Facility terminates. There is a sub-limit for
letters of credit equal to the lesser of the Commitment Amount at the time of
the issuance of a letter of credit and $30 million.

Interest Rates. Interest on outstanding borrowings under the Senior Credit
Facility will be payable monthly and will accrue at an annual rate equal to
either (i) the Prime Rate (as defined in the Senior Credit Facility) or (ii)
the London Interbank Offered Rate plus the Applicable Spread (a "LIBOR-based
Rate"), at the option of the Company. The Applicable Spread will be based upon
the Company's trailing four quarter Ratio of Total Funded Debt to EBITDA (as
defined in the Senior Credit Facility) as follows:

<TABLE>
<CAPTION>
RATIO OF TOTAL FUNDED DEBT TO EBITDA OVER LIBOR
------------------------------------ ----------------
<S> <C>
4.00x or above.......................................... 200 basis points
3.50-3.99............................................... 175 basis points
3.00-3.49............................................... 150 basis points
2.50-2.99............................................... 125 basis points
</TABLE>

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<PAGE>

Maturity and Optional Prepayments. All borrowings under the Senior Credit
Facility will mature on December 31, 2004, except that the aggregate principal
amount outstanding may not exceed the Commitment Amount at any time.
Borrowings under the Senior Credit Facility will be prepayable at any time
without premium or penalty, except that any prepayment of a LIBOR-based Rate
loan that is made prior to the end of the applicable interest period will be
subject to reimbursement of breakage costs.

Covenants. The Senior Credit Facility will contain certain customary
covenants, including reporting and other affirmative covenants; financial
covenants, including ratio of senior funded debt to EBITDA, ratio of funded
debt to EBITDA, ratio of EBIT to cash interest, fixed charge coverage ratio,
minimum current ratio and minimum net income excluding extraordinary items
(each as defined in and calculated pursuant to the Senior Credit Facility);
and negative covenants, including restrictions on incurrence of other
indebtedness, amendments with respect to other indebtedness (including the
Notes), payment of cash dividends and other distributions to stockholders,
liens in favor of parties other than the lenders under the Senior Credit
Facility, certain guaranties of obligations of or advances to others, sales of
material assets not in the ordinary course of business, certain acquisitions
of assets, making of certain investments and capital expenditures.

Events of Default. The Senior Credit Facility will contain customary events
of default including non-payment of principal, interest or fees; violation of
covenants; inaccuracy of representations or warranties; cross-default to
certain other indebtedness including the Notes; bankruptcy; a change of
control of the Company or certain domestic subsidiaries; and any failure to
apply proceeds of an underwritten public offering of equity securities of the
Company as required by the Senior Credit Facility.

Fees. The Company will pay, on a quarterly basis, a per annum fee on the
unused Commitment Amount ranging from 1/10% to 1/2% based on certain financial
ratios of the Company.

SENIOR NOTES

The Notes to be offered in the Notes Offering will be in an aggregate
principal amount of $130 million, will accrue interest at the rate of % per
annum and are due , 2007. Interest on the Notes is payable in cash semi-
annually. The Notes are fully and unconditionally guaranteed on a senior basis
by each of the Company's Domestic Restricted Subsidiaries (as defined). The
indenture governing the Notes contains certain covenants by the Company in
favor of the holders of the Notes ("Senior Note Holders"), including but not
limited to certain restrictions on the ability of the Company and certain of
its subsidiaries to: (i) incur indebtedness, except for permitted
indebtedness; (ii) pay dividends or purchase or redeem their stock or repay
before maturity any obligation subordinate to the Notes; (iii) incur future
restrictions on their ability to pay dividends and transfer assets; (iv) sell
assets and capital stock of their subsidiaries; (v) engage in transactions
with their affiliates; (vi) incur or permit to exist liens on their assets,
except for permitted liens; and (vii) engage in mergers, consolidations or
transfers of all or substantially all their assets. The Notes are effectively
subordinate in right of payment to all senior secured indebtedness of the
Company, including the Senior Credit Facility. The Notes are redeemable in
whole or in part at the option of the Company at any time on or after ,
2002, at a price beginning at % of the aggregate principal amount to be
redeemed, declining ratably to 100% on and after , 2005, and up to 40%
of the original principal amount of the Notes may be redeemed by the Company
at any time prior to , 2000, with the proceeds of certain public equity
offerings, at a price equal to % of such principal amount provided that at
least 50% of the original principal amount of the Notes remains outstanding.
Upon the occurrence of certain changes in control of the Company, each Senior
Note Holder has the right to require the Company to purchase all or a portion
of such Senior Note Holder's notes at a price equal to 101% of the aggregate
principal amount thereof. The failure of the Company and certain of its
subsidiaries to pay certain indebtedness when due constitutes, among other
things, an event of default under the Notes and can lead to the acceleration
of the payment of the Notes.

GM CONTINGENT PURCHASE PRICE NOTE

In connection with the GM Acquisition, DRA issued to GM a Contingent
Purchase Price Note which will be paid beginning in 2004. The amount of the
payment will be based upon a percentage of the average earnings of the Company
in the three year period ending December 31, 2003 in excess of certain imputed
earnings. The

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<PAGE>

principal amount of the Contingent Purchase Price Note (the "Contingent
Payment") is calculated by (A) multiplying five by (i) the sum of EBIT (as
defined) for the three years ended December 31, 2001, 2002 and 2003, divided
by three minus (ii) the average three-year Imputed Return (as defined) on any
additional investment made by the Company (whether financed in the form of
debt or equity) to fund any acquisition made by the Company made after July
31, 1994 and on the Company's balance sheet at December 31, 2001, 2002 and
2003 (the "Additional Investments"), (B) subtracting therefrom the Senior
Obligations (as defined) outstanding on December 31, 2003 and (C) multiplying
the result by the percentage obtained by dividing 100,000 (as adjusted for
stock splits, reverse splits and stock dividends) by the total number of
shares of all classes of Common Stock outstanding on a fully diluted basis as
of the date of determination, excluding any shares issued subsequent to July
31, 1994 to the extent the proceeds therefrom have been accounted for as an
Additional Investment. The Contingent Payment, if any, shall be paid in five
equal consecutive annual installments commencing on July 31, 2004. No interest
accrues on the Contingent Payment. The GM Contingent Purchase Price Note is
subordinated in right of payment to the Senior Credit Facility pursuant to the
terms of a Subordination Agreement by and among DRA and the lenders under the
Senior Credit Facility (the "GM Subordination Agreement"). Pursuant to the
terms of the GM Subordination Agreement, DRA may make payments of interest and
principal on the GM Contingent Purchase Price Note when due unless a
representative of the lenders under the Senior Credit Facility gives notice to
GM that an event of default has occurred under the Senior Credit Facility (a
"Suspension Notice"). GM may not receive any payments or take any legal action
for the collection of the GM Contingent Purchase Note during the 179-day
period following the receipt of a Suspension Notice (or such shorter period if
such event of default under the Senior Credit Facility shall have been waived
or cured). For purposes of this paragraph (i) "EBIT" shall mean net income
plus the provision for income taxes and interest expense, plus or minus any
extraordinary charges or credits or nonrecurring charges or credits, as the
case may be, included in the determination of such net income, as reflected on
the Company's audited consolidated financial statements for the period in
question, (ii) "Imputed Return" for any year shall mean an amount determined
by multiplying (A) 0.175 times the Additional Investment times (B) the number
of days such investment(s) was outstanding during such year divided by 365
days, and (iii) "Senior Obligations" shall mean the sum of the outstanding
principal plus accrued but unpaid interest thereon of all senior, mezzanine,
subordinated and all other debt and redeemable preferred stock as reflected on
the audited consolidated balance sheet of the Company as of December 31, 2003,
provided, however, that Senior Obligations shall not include the outstanding
balance of any of the foregoing as of December 31, 2003 to the extent that the
original proceeds from such debt or redeemable preferred stock was accounted
for as an Additional Investment.

SENIOR SUBORDINATED NOTES

In 1996, the Company issued to Salomon Brothers Inc and Smith Barney Inc. as
initial purchasers $140 million aggregate principal amount of 10 5/8% Senior
Subordinated Notes due August 1, 2006 (the "Senior Subordinated Notes").
Interest on the Senior Subordinated Notes is payable in cash semi-annually.
The Senior Subordinated Notes are fully and unconditionally guaranteed on a
senior subordinated basis by each of the Company's Domestic Restricted
Subsidiaries. The indenture governing the Senior Subordinated Notes contains
certain covenants by the Company in favor of the holders of the Senior
Subordinated Notes ("Senior Subordinated Note Holders"), including but not
limited to certain restrictions on the ability of the Company and certain of
its subsidiaries to: (i) incur indebtedness, except for permitted
indebtedness; (ii) pay dividends or purchase or redeem their stock or repay
before maturity any obligation subordinate to the Senior Subordinated Notes;
(iii) incur future restrictions on their ability to pay dividends and transfer
assets; (iv) sell assets and capital stock of their subsidiaries; (v) engage
in transactions with their affiliates; (vi) incur or permit to exist liens on
their assets, except for permitted liens; and (vii) engage in mergers,
consolidations or transfers of all or substantially all their assets. The
Senior Subordinated Notes are subordinate in right of payment to all senior
indebtedness of the Company, including the Senior Credit Facility and the
Notes being sold as part of the Notes Offering. The Senior Subordinated Notes
are redeemable in whole or in part at the option of the Company at any time on
or after August 1, 2001, at a price beginning at 105.313% of the aggregate
principal amount to be redeemed, declining ratably to 100% on and after August
1, 2004, and up to 35% of the original principal amount

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<PAGE>

of the Senior Subordinated Notes may be redeemed by the Company at any time
prior to August 1, 1999, with the proceeds of certain public equity offerings,
at a price equal to 110% of such principal amount provided that at least 50%
of the original principal amount of the Senior Subordinated Notes remains
outstanding. Upon the occurrence of certain changes in control of the Company,
each Senior Subordinated Note Holder has the right to require the Company to
purchase all or a portion of such Senior Subordinated Note Holder's notes at a
price equal to 101% of the aggregate principal amount thereof. The failure of
the Company and certain of its subsidiaries to pay certain indebtedness when
due constitutes, among other things, an event of default under the Senior
Subordinated Notes and can lead to the acceleration of the payment of the
Senior Subordinated Notes. In connection with the initial placement of the
Senior Subordinated Notes, the Company agreed, for the benefit of the Senior
Subordinated Note Holders and at the Company's expense, to file and cause to
become effective an exchange offer or resale shelf registration statement with
the Commission. If neither such registration statement is filed by October 31,
1997 or declared effective by December 31, 1997, additional interest will
accrue on the Senior Subordinated Notes. The Company filed a registration
statement on October 31, 1997 and expects it to be declared effective by
December 31, 1997. See Note 7 to the Consolidated Financial Statements
included elsewhere in this Prospectus.

8% SUBORDINATED DEBENTURE OF DRA

In connection with the Offerings, DRA will issue to GM an 8% Subordinated
Debenture having a fair value of $18.4 million at October 31, 1997 (the "8%
Subordinated Debenture") in exchange for Series A 8% Preferred Stock of DRA
held by GM. The 8% Subordinated Debenture will be in the principal amount of
$19.0 million, will be due July 31, 2004 and will bear interest, payable in
cash, at the rate of 8% per year. DRA will be able to prepay the 8%
Subordinated Debenture at any time in whole or in part without premium or
penalty. The 8% Subordinated Debenture will be subordinate in right of payment
to the Senior Credit Facility. The 8% Subordinated Debenture will contain
default provisions in the event that DRA fails to pay principal or interest on
the 8% Subordinated Debenture when due or upon the occurrence of certain
bankruptcy events.

BALLANTRAE SUBORDINATED DEBT

In 1996, Tractech issued a note in the original principal amount of $10
million in favor of Dyneer Corporation ("Dyneer") that matures on October 31,
2006 (the "Ballantrae Subordinated Debt"). The Ballantrae Subordinated Debt
bears interest at a rate of 11% per annum. Tractech may prepay the Ballantrae
Subordinated Debt at any time in whole or in part without premium or penalty.
Tractech has the right to set-off $750,000 against the outstanding amount of
the Ballantrae Subordinated Debt within thirty days of the entry of a final
non-appealable order by a court of competent jurisdiction in certain patent
litigation, if such order fails to grant Tractech the unfettered and exclusive
right to make, manufacture, have made, market and sell a particular line of
differentials without geographic or other restrictions and without cash
payments. The Company expects that Tractech will prepay with proceeds of the
Offerings all of the outstanding principal amount of the Ballantrae
Subordinated Debt except for $750,000. Tractech's obligations under the
Ballantrae Subordinated Debt are guaranteed by Ballantrae, and the Ballantrae
Subordinated Debt is subject to the Subordination Agreement dated as of
October 24, 1996 among Tractech, Dyneer, Ballantrae and Bank One and the
Subordinated Pledge Agreement dated as of October 24, 1996 between Ballantrae
and Dyneer, by which Ballantrae has pledged all of the capital stock of
Tractech to Dyneer.

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<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this Offering, there has been no public market for the Class A
Common Stock. No predictions can be made with respect to the effect, if any,
that public sales of shares of the Class A Common Stock or the availability of
shares for sale will have on the market price of the Class A Common Stock
after this Offering. Sales of substantial amounts of the Class A Common Stock
in the public market following this Offering, or the perception that sales may
occur, could adversely affect the market price of the Class A Common Stock or
the ability of the Company to raise capital through a sale of its equity
securities.

Upon completion of the Offering and the Transactions, 15,682,276 shares of
the Company's Class A Common Stock will be outstanding (assuming no conversion
of the Class B Common Stock). The 4,000,000 shares of Class A Common Stock
sold in the Offering (4,600,000 shares if the Underwriters' over-allotment
option is exercised in full) will be freely tradable without restriction or
further registration under the Securities Act, unless acquired by an
"affiliate" of the Company (an "affiliate" is defined in Rule 144 promulgated
by the Commission under the Securities Act ("Rule 144"), generally as a person
who by equity ownership or otherwise controls, or is controlled by, or is
under common control with the Company). The remaining outstanding shares of
Class A Common Stock of the Company will be "restricted securities" as defined
in Rule 144 and may not be sold unless registered under the Securities Act or
sold in accordance with an applicable exemption therefrom, such as Rule 144.
In addition, up to 1,680,000 shares of Class A Common Stock are issuable upon
exercise of the Warrants and up to approximately 500,000 shares will be
issuable upon exercise of stock options to be granted in connection with the
Offerings under the Stock Option Plans. All such shares will also be
restricted securities. An additional 900,000 shares of Class A Common Stock
are reserved for future grants or awards under the Company's Stock Option
Plans.

In general, Rule 144 will permit an affiliate or a person who has held
restricted shares for more than one year to sell within any three-month period
a number of shares that does not exceed the greater of 1% of the then
outstanding shares of Class A Common Stock or the average weekly trading
volume of such stock during the four calendar weeks preceding such sale,
provided that the Company has either filed certain periodic reports with the
Commission or made publicly available certain information concerning itself
and provided that such sales are made in normal "brokers' transactions" or in
transactions directly with a "market maker" without the solicitation of buy
orders by the brokers or such affiliates. A person who is deemed not to be an
affiliate of the Company at any time during the three months preceding a sale
and who has held restricted shares for more than two years may sell such
shares under Rule 144 without regard to the volume or manner of sale
limitations or information requirements described above. Of the shares of
Class A Common Stock not being sold in this Offering, 9,026,485 shares have
been owned by holders thereof for more than two years.

The Class A Common Stock has been approved for listing on the New York Stock
Exchange, subject to official notice of issuance, under the symbol "RMY."
Sales of substantial amounts of Class A Common Stock in the public market
under Rule 144 could have a depressing effect on the price of the Class A
Common Stock. See "Principal Stockholders--Registration Rights Agreement" and
"Underwriters."

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<PAGE>

CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS

The following is a general discussion of certain United States federal tax
consequences of the acquisition, ownership, and disposition of the Class A
Common Stock by an initial purchaser that, for United States federal income
tax purposes, is not a "United States person" (a "Non-United States Holder").
This discussion is based upon currently existing provisions of the Code,
existing and proposed regulations promulgated thereunder and administrative
and judicial interpretations thereof, all of which are subject to change,
possibly retroactively. For purposes of this discussion, a "United States
person" means a citizen or resident of the United States, a corporation or
other entity taxable as a corporation created or organized in the United
States or under the laws of the United States or of any political subdivision
thereof, an estate or trust whose income is includible in gross income for
United States federal income tax purposes regardless of its source or a person
or entity otherwise subject to United States federal income tax on income from
sources outside the United States. This discussion does not consider any
specific facts or circumstances that may apply to a particular Non-United
States Holder. Prospective investors are urged to consult their tax advisors
regarding the United States federal tax consequences of acquiring, holding,
and disposing of Class A Common Stock, as well as any tax consequences that
may arise under the laws of any foreign, state, local, or other taxing
jurisdiction.

DIVIDENDS

Dividends on Class A Common Stock paid to a Non-United States Holder
generally will be subject to withholding of United States federal income tax
at the rate of 30%, unless the withholding rate is reduced under an applicable
income tax treaty between the United States and the country of tax residence
of the Non-United States Holder. The 30% withholding tax will not apply if the
dividend is effectively connected with a trade or business conducted with the
United States by the Non-United States Holder (or, alternatively, where an
income tax treaty applies, if the dividend is effectively connected with a
permanent establishment maintained within the United States by the Non-United
States Holder), but, instead, the dividend will be subject to the United
States federal income tax on net income that applies to United States persons
(and, with respect to corporate holders, also may be subject to the branch
profits tax). A Non-United States Holder may be required to satisfy certain
certification requirements in order to claim treaty benefits or to otherwise
claim a reduction of or exemption from withholding under the foregoing rules.
A Non-United States Holders that is eligible for a reduced rate of U.S.
withholding tax pursuant to a tax treaty may obtain a refund of any excess
amounts withheld by filing an appropriate claim for refund with the United
States Internal Revenue Service.

GAIN ON DISPOSITION

A Non-United States Holder will generally not be subject to United States
federal income tax on gain recognized on a sale, redemption, or other
disposition of Class A Common Stock unless (i) the gain is effectively
connected with the conduct of a trade or business within the United States by
the Non-United States Holder, or (ii) in the case of a Non-United States
Holder who is a nonresident alien individual and holds the Class A Common
Stock as a capital asset, such holder is present in the United States for 183
or more days in the taxable year and certain other requirements are met.

Also, special rules apply to Non-United States Holders if the Company is or
becomes a "United States real property holding corporation" for United States
federal income tax purposes. In general, gain on the disposition by a Non-
United States Holder of interests in a United States real property holding
corporation is subject to United States federal income tax. A corporation is
generally a United States real property holding corporation if the fair market
value of its United States real property interests equals or exceeds 50
percent of the sum of the fair market value of its worldwide real property
interests plus its other assets used or held for use in a trade of business.
The Company believes it is not currently, and is not likely to become, a
United States real property holding corporation for United States federal
income tax purposes.

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<PAGE>

FEDERAL ESTATE TAXES

Class A Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as specifically defined for United States federal estate
tax purposes) of the United States at the date of death, or Class A Common
Stock subject to certain lifetime transfers made by such an individual, will
be included in such individual's estate for United States federal estate tax
purposes and may be subject to United States federal estate tax, unless an
applicable estate tax treaty provides otherwise. Estates of nonresident aliens
are generally allowed a credit that is equivalent to an exclusion of $60,000
of assets from the estate for United States federal estate tax purposes.

INFORMATION REPORTING AND BACKUP WITHHOLDING

PAYMENTS MADE ON OR BEFORE DECEMBER 31, 1998

The Company must report to the holders of the Class A Common Stock and to
the Internal Revenue Service the amount of any dividends paid on Class A
Common Stock in each calendar year and the amounts of tax withheld, if any,
with respect to such payments. That information may also be made available to
the tax authorities of the country in which a Non-United States Holder
resides.

Under temporary United States Treasury regulations, United States
information reporting requirements and backup withholding tax will generally
not apply to dividends paid on the Class A Common Stock to a Non-United States
Holder. Payments by a United States office of a broker of the proceeds of a
sale of the Class A Common Stock is subject to both backup withholding at a
rate of 31% and information reporting unless the holder certifies its Non-
United States Holder status under penalties of perjury or otherwise
establishes an exemption. Information reporting requirements (but not backup
withholding) will also apply to payments of the proceeds of sales of the Class
A Common Stock by foreign offices of United States brokers, or foreign brokers
with certain types of relationships to the United States, unless the broker
has documentary evidence in its records that the holder is a Non-United States
Holder and certain other conditions are met, or the holder otherwise
establishes an exemption.

Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.

PAYMENTS MADE AFTER DECEMBER 31, 1998

On October 6, 1997, the IRS issued final regulations relating to
withholding, backup withholding and information reporting that unify current
certification procedures and forms and clarify reliance standards (the "Final
Regulations"). The Final Regulations eliminate the general current law
presumption that dividends paid to an address in a foreign country are paid to
a resident of that country and impose certain certification and documentation
requirements on Non-United States Holders claiming the benefit of a reduced
withholding rate with respect to dividends under a tax treaty. The Final
Regulations generally will be effective with respect to payments made after
December 31, 1998.

THE FOREGOING IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL INCOME TAX
ASPECTS OF HOLDING CLASS A COMMON STOCK AND IS NOT A SUBSTITUTE FOR CAREFUL
TAX PLANNING AND ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES OF THE HOLDER.

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UNDERWRITERS

Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the
Underwriters named below, for whom Morgan Stanley & Co. Incorporated, Credit
Suisse First Boston Corporation and Smith Barney Inc. are acting as
Representatives (the "Representatives"), have severally agreed to purchase,
and the Company has agreed to sell to them, severally, the respective number
of shares of Class A Common Stock set forth opposite the names of such
Underwriters below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated.....................................
Credit Suisse First Boston Corporation................................
Smith Barney Inc. ....................................................
---------
Total............................................................... 4,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Class A Common
Stock offered hereby are subject to the approval of certain legal matters by
their counsel and to certain other conditions. The Underwriters are obligated
to take and pay for all of the shares of Class A Common Stock offered hereby
(other than those covered by the over-allotment option described below) if any
such shares are taken.

Each Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any shares of the Class A Common Stock being sold
in this Offering, directly or indirectly, in any province or territory of
Canada or to, or for the benefit of, any resident of any province or territory
of Canada in contravention of the securities laws thereof and has represented
that any offer or sale of such shares in Canada will be made only pursuant to
an exemption from the requirement to file a prospectus in the province or
territory of Canada in which such offer or sale is made. Each Underwriter has
further agreed to send to any dealer who purchases from it any of such shares
a notice stating in substance that, by purchasing such shares, such dealer
represents and agrees that it has not offered or sold, and will not offer or
sell, directly or indirectly, any of such shares in any province or territory
of Canada or to, or for the benefit of, any resident of any province or
territory of Canada in contravention of the securities laws thereof and that
any offer or sale of such shares in Canada will be made only pursuant to an
exemption from the requirement to file a prospectus in the province or
territory of Canada in which such offer or sale is made, and that such dealer
will deliver to any other dealer to whom it sells any of such shares a notice
containing substantially the same statement as is contained in this sentence.

The Underwriters initially propose to offer part of the shares of Class A
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ per share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in
excess of $ per share to other Underwriters or to certain other dealers.
After the initial offering of the shares of Class A Common Stock, the offering
price and other selling terms may from time to time be varied by the
Representatives.

The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of
600,000 additional shares of Class A Common Stock at the public offering price
set forth on the cover page hereof, less underwriting discounts and
commissions. The Underwriters may exercise such option to purchase solely for
the purpose of covering over-allotments, if any. To the extent such option is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase

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<PAGE>

approximately the same percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table bears to the
total number of shares of Class A Common Stock set forth next to the names of
all Underwriters in the preceding table.

The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Class A Common Stock offered by them.

The Class A Common Stock has been approved for listing on the New York Stock
Exchange, subject to official notice of issuance, under the symbol "RMY."

In order to meet the requirements for listing of the Common Stock on the New
York Stock Exchange, Morgan Stanley & Co. Incorporated, as a representative of
the Underwriters, will undertake that (i) sales will be made in round lots of
100 or more shares to a minimum of 2,000 beneficial holders (except that sales
pursuant to the Company's reserved share program described below may be made
in lots of 25 or more shares), (ii) a total of at least 1,100,000 shares will
be publicly held and (iii) the aggregate market value of publicly held shares
in the United States will be at least $40,000,000.

The Company and each of the Company's principal stockholders, directors,
senior officers and warrantholders have agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters,
they will not, during the period ending 180 days after the date of this
Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, lend or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other agreement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Stock,
whether any such transaction described in clause (i) or (ii) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. The restrictions described in this paragraph do not apply to, among
other exceptions, (a) the shares of Class A Common Stock offered hereby, (b)
the issuance by the Company of shares of Common Stock upon the exercise of an
option or warrant or the conversion of a security outstanding on the date
hereof of which the Underwriters have been advised in writing, (c) any options
granted or shares of Common Stock issued pursuant to existing benefit plans of
the Company, (d) transactions by any person other than the Company in shares
of Common Stock or other securities acquired in open market transactions after
completion of the offering of the Class A Common Stock, (e) any issuances to
officers or employees of the Company or purchases from any person by the
Company of shares of Common Stock pursuant to the Securities Purchase and
Holders Agreement dated July 29, 1994, by and among the Company and the
Investors or (f) the conversion, in accordance with the terms of the Company's
Restated Certificate of Incorporation, of shares of Class A Common Stock into
shares of Class B Common Stock or shares of Class B Common Stock into shares
of Class A Common Stock. The Company expects that certain other stockholders,
owning approximately 4.2 million shares of Class A Common Stock, will be
subject to the provisions of this paragraph.

At the request of the Company, the Underwriters have reserved for sale, at
the initial offering price, up to 200,000 shares offered hereby for directors,
officers and employees of the Company and certain other persons designated by
the Board of Directors. The number of shares of Common Stock available for
sale to the general public will be reduced to the extent such persons purchase
such reserved shares. Any reserved shares which are not so purchased will be
offered by the Underwriters to the general public on the same basis as the
other shares offered hereby. Any such reserved shares sold to directors or
senior officer of the Company will be subject to the 180-day transfer
restrictions described in the preceding paragraph.

In order to facilitate the offering of the Class A Common Stock, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Class A Common Stock. Specifically, the Underwriters
may over-allot in connection with this Offering, creating a short position in
the Class A Common Stock for their own account. In addition, to cover over-
allotments or to stabilize the price of the Class A Common Stock, the
Underwriters may bid for, and purchase, shares of Class A Common Stock in the
open market. Finally, the

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underwriting syndicate may reclaim selling concessions allowed to an
underwriter or a dealer for distributing the Class A Common Stock in this
Offering, if the syndicate repurchases previously distributed Class A Common
Stock in transactions to cover syndicate short positions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain
the market price of the Class A Common Stock above independent market levels.
The Underwriters are not required to engage in these activities, and may end
any of these activities at any time.

The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.

The Representatives are also the underwriters in connection with the Notes
Offering. Salomon Brothers Inc and Smith Barney Inc. (prior to the merger of
the parent companies for such firms) were the initial purchasers in connection
with the Company's offering in 1996 of its Senior Subordinated Notes, and
Salomon Brothers Inc is providing certain financial advisory services to the
Company in connection with the acquisition of Ballantrae, in each case for
which such entities have received or will receive customary compensation.

PRICING OF THIS OFFERING

Prior to this Offering, there has been no public market for the Class A
Common Stock. The initial public offering price has been determined by
negotiations among the Company and the Representatives of the Underwriters.
Among the factors considered in determining the initial public offering price
were the future prospects of the Company and its industry in general, sales,
earnings and certain other financial and operating information of the Company
in recent periods, and the price-earnings ratios, price-sales ratios, market
prices of securities and certain financial and operating information of
companies engaged in activities similar to those of the Company. There can,
however, be no assurance that the prices at which the Class A Common Stock
will sell in the public market after this Offering will not be lower than the
price at which it is sold by the Underwriters.

LEGAL MATTERS

The validity of the issuance of the shares of Class A Common Stock offered
hereby will be passed upon for the Company by Dechert Price & Rhoads,
Philadelphia, Pennsylvania. Certain matters in connection with this Offering
will be passed upon for the Underwriters by Cravath, Swaine & Moore, New York,
New York.

EXPERTS

The consolidated financial statements of Delco Remy International, Inc. as
of July 31, 1997 and 1996, and for each of the three years in the period ended
July 31, 1997; the financial statements of the Tractech Division of Titan
Wheel International, Inc. for the nine months ended September 30, 1996 and the
year ended December 31, 1995; and the consolidated financial statements of
Ballantrae Corporation as of September 30, 1997 and December 31, 1996, and for
the nine months ended September 30, 1997 and the three months ended
December 31, 1996, appearing in this Prospectus and the Registration Statement
(as defined) have been audited by Ernst & Young LLP, independent auditors, as
set forth in their reports thereon appearing elsewhere herein, and are
included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.

The financial statements of World Wide Automotive, Inc. (i) as of March 31,
1997, and for the year then ended, appearing in this Prospectus and the
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein
which are based in part on the reports of Friedman & Fuller, P.C., independent
auditors, and (ii) as of March 31, 1996, and for each of the two years in the
period ended March 31, 1996, appearing in this Prospectus and the Registration
Statement have been audited by Friedman & Fuller, P.C., independent auditors,
as set forth in their respective reports thereon appearing elsewhere herein,
and in each case are included in reliance upon such reports given upon the
authority of such firms as experts in accounting and auditing.

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ADDITIONAL INFORMATION

The Company has filed with the Commission a registration statement (the
"Registration Statement") under the Securities Act with respect to the
securities offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain items of which are omitted as permitted by
the rules and regulations of the Commission. Statements made in this
Prospectus as to the contents of any agreement or other document referred to
herein are not necessarily complete, and reference is made to the copy of such
agreement or other document filed as an exhibit or schedule to the
Registration Statement and each such statement shall be deemed qualified in
its entirety by such reference. For further information, reference is made to
the Registration Statement and to the exhibits and schedules filed therewith,
which are available for inspection without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W,
Washington, D.C. 20549. Copies of the material containing this information may
be obtained from the Commission upon payment of the prescribed fees.

After consummation of this Offering, the Company will be subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and, in accordance therewith, will be
required to file proxy statements, reports and other information with the
Commission. The Registration Statement, as well as any such report, proxy
statement and other information filed by the Company with the Commission, may
be inspected and copied at the public reference facilities maintained by the
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the regional offices of the Commission located at 7 World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can 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
maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.

The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by an independent public accounting
firm accompanied by an opinion expressed by such independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing unaudited consolidated financial information in each case prepared
in accordance with generally accepted accounting principles.

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INDEX TO FINANCIAL STATEMENTS

DELCO REMY INTERNATIONAL, INC.

<TABLE>
<S> <C>
Audited Fiscal Year End Financial Statements
Report of Independent Auditors........................................... F-2
Consolidated Statements of Operations for the years ended July 31, 1995,
1996 and 1997............................................................ F-3
Consolidated Balance Sheets as of July 31, 1996 and 1997................. F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended July 31, 1995, 1996 and 1997...................................... F-6
Consolidated Statements of Cash Flows for the years ended July 31, 1995,
1996 and 1997............................................................ F-7
Notes to Consolidated Financial Statements............................... F-8
Unaudited Quarterly Financial Statements
Condensed Consolidated Statements of Operations for the three months
ended October 31, 1996 and 1997 ........................................ F-38
Condensed Consolidated Balance Sheets as of July 31, 1997 and October 31,
1997 .................................................................... F-39
Condensed Consolidated Statements of Cash Flows for the three months
ended October 31, 1996 and 1997 ........................................ F-40
Notes to Condensed Consolidated Financial Statements .................... F-41
</TABLE>

WORLD WIDE AUTOMOTIVE, INC.

<TABLE>
<S> <C>
Reports of Independent Auditors.......................................... F-48
Balance Sheets as of the years ended March 31, 1996 and 1997............. F-52
Statements of Income for the years ended March 31, 1995, 1996 and 1997... F-54
Statement of Stockholders' Equity........................................ F-55
Statements of Cash Flows for the years ended March 31, 1995, 1996 and
1997..................................................................... F-56
Notes to Financial Statements............................................ F-57
</TABLE>

TRACTECH DIVISION OF TITAN WHEEL INTERNATIONAL, INC.

<TABLE>
<S> <C>
Report of Independent Auditors........................................... F-65
Statements of Operations for the year ended December 31, 1995 and the
nine months ended
September 30, 1996...................................................... F-66
Statements of Stockholders' Equity for the year ended December 31, 1995
and the nine months ended September 30, 1996............................ F-67
Statements of Cash Flows for the year ended December 31, 1995 and the
nine months ended September 30, 1996.................................... F-68
Notes to Financial Statements............................................ F-69
</TABLE>

BALLANTRAE CORPORATION

<TABLE>
<S> <C>
Report of Independent Auditors............................................ F-73
Consolidated Balance Sheets as of December 31, 1996 and September 30,
1997...................................................................... F-74
Consolidated Statements of Operations for the three months ended December
31, 1996 and the nine months ended September 30, 1997.................... F-76
Consolidated Statements of Stockholders' Equity for the three months ended
December 31, 1996 and the nine months ended September 30, 1997........... F-77
Consolidated Statements of Cash Flows for the three months ended December
31, 1996 and the nine months ended September 30, 1997.................... F-78
Notes to Consolidated Financial Statements................................ F-79
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Delco Remy International, Inc.

We have audited the accompanying consolidated balance sheets of Delco Remy
International, Inc. as of July 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the three years in the period ended July 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Delco Remy International, Inc. at July 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended July 31, 1997, in conformity with generally
accepted accounting principles.

ERNST & YOUNG LLP

Indianapolis, Indiana
September 5, 1997, except for Note 16, as to
which the date is November 20, 1997

F-2
<PAGE>

DELCO REMY INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales........................................ $573,423 $636,852 $689,787
Cost of goods sold............................... 475,216 510,078 540,234
-------- -------- --------
Gross profit..................................... 98,207 126,774 149,553
Selling, engineering, and administrative
expenses........................................ 61,206 77,994 89,098
Restructuring charges............................ -- 8,101 34,500
-------- -------- --------
Operating income................................. 37,001 40,679 25,955
Other income (expense):
Gain on sale of building....................... -- -- 2,082
Interest expense............................... (18,432) (27,367) (38,774)
-------- -------- --------
Income (loss) from continuing operations before
income taxes (benefit), preferred dividend
requirement of subsidiary and minority
interest........................................ 18,569 13,312 (10,737)
Minority interest in income of subsidiaries...... -- 259 892
Income taxes (benefit)........................... 7,846 5,741 (3,014)
Preferred dividend requirement of subsidiary..... 1,397 1,516 1,648
-------- -------- --------
Income (loss) from continuing operations......... 9,326 5,796 (10,263)
Discontinued operations:
Loss from operations of discontinued businesses
(less applicable income tax benefit of $1,582,
$1,042 and $395, respectively)................ 2,363 1,573 808
Loss on disposal of businesses (less applicable
income tax benefit of $6,043 and $426)........ -- 9,064 874
Extraordinary item:
Write-off of debt issuance costs (less
applicable income tax benefit of $1,147)...... -- -- 2,351
-------- -------- --------
Net income (loss)................................ $ 6,963 $ (4,841) $(14,296)
======== ======== ========
Primary earnings (loss) per share:
From continuing operations .................... $ .56 $ .33 $ (.59)
Before extraordinary items .................... .42 (.28) (.69)
Net income (loss).............................. .42 (.28) (.82)
</TABLE>

See Accompanying Notes

F-3
<PAGE>

DELCO REMY INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
JULY 31
-----------------
1996 1997
-------- --------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents.................................. $ 3,406 $ 10,050
Trade accounts receivable (less allowance for doubtful
accounts of $1,209 and $2,935, respectively).............. 94,992 110,184
Other receivables.......................................... 10,585 10,487
Recoverable income taxes................................... 8,674 2,889
Inventories................................................ 123,583 164,417
Deferred income taxes...................................... 15,462 21,474
Other current assets....................................... 1,213 4,643
-------- --------
Total current assets..................................... 257,915 324,144
Property and equipment....................................... 170,391 147,222
Less accumulated depreciation................................ 29,235 26,858
-------- --------
141,156 120,364
Deferred financing costs..................................... 6,497 8,803
Goodwill (less accumulated amortization of $4,758 and $7,289,
respectively)............................................... 66,570 86,612
Net assets held for disposal................................. -- 25,279
Investment in affiliate...................................... -- 3,119
Other assets................................................. 2,944 2,248
-------- --------
Total assets............................................. $475,082 $570,569
======== ========
</TABLE>

See Accompanying Notes

F-4
<PAGE>

DELCO REMY INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
JULY 31
------------------
1996 1997
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Accounts payable......................................... $ 81,207 $ 88,578
Accrued interest payable................................. 4,026 3,107
Accrued restructuring charges............................ 5,541 37,377
Liabilities related to discontinued operations........... 11,005 3,324
Other liabilities and accrued expenses................... 32,683 37,210
Current portion of long-term debt........................ 9,652 507
-------- --------
Total current liabilities.............................. 144,114 170,103
Deferred income taxes...................................... 6,795 1,556
Long-term debt, less current portion....................... 289,144 363,261
Post-retirement benefits other than pensions............... 8,186 12,677
Accrued pension benefit.................................... 950 4,542
Other non-current liabilities.............................. 5,427 4,124
Minority interest in subsidiary............................ 4,457 8,032
Redeemable exchangeable preferred stock of subsidiary...... 14,420 16,071
Stockholders' equity (deficit):
Common stock:
Class A Shares (par value $.01; authorized 49,400,000;
issued 8,697,814 in 1996 and 8,828,014 in 1997)........ 87 88
Class B Shares (par value $.01; authorized 17,600,000;
issued 6,476,786 in 1996 and 1997)..................... 65 65
Paid-in capital.......................................... 1,655 6,677
Retained earnings (deficit).............................. 2,122 (12,174)
Cumulative translation adjustment........................ (2,161) (1,752)
Stock purchase plan...................................... (179) (2,701)
-------- --------
Total stockholders' equity (deficit)................... 1,589 (9,797)
-------- --------
Total liabilities and stockholders' equity (deficit)... $475,082 $570,569
======== ========
</TABLE>

See Accompanying Notes

F-5
<PAGE>

DELCO REMY INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)

<TABLE>
<CAPTION>
CLASS A CLASS B RETAINED CUMULATIVE STOCK
COMMON COMMON PAID-IN EARNINGS TRANSLATION PURCHASE
STOCK STOCK CAPITAL (DEFICIT) ADJUSTMENT PLAN TOTAL
------- ------- ------- --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization
at August 1, 1994...... $79 $ 54 $1,448 $ -- $ -- $ (50) $ 1,531
Issuance of common
stock.................. 20 -- 221 -- -- (124) 117
Net income.............. -- -- -- 6,963 -- -- 6,963
Foreign currency
translation
adjustment............. -- -- -- -- (181) -- (181)
--- ---- ------ -------- ------- ------- --------
Balance at July 31,
1995................... 99 54 1,669 6,963 (181) (174) 8,430
Repurchase of common
stock.................. (1) -- (14) -- -- (5) (20)
Conversion of Class A
common stock to Class B
common stock........... (11) 11 -- -- -- -- --
Net loss................ -- -- -- (4,841) -- -- (4,841)
Foreign currency
translation
adjustment............. -- -- -- -- (1,980) -- (1,980)
--- ---- ------ -------- ------- ------- --------
Balance at July 31,
1996................... 87 65 1,655 2,122 (2,161) (179) 1,589
Issuance of common
stock.................. 3 -- 5,044 -- -- (2,541) 2,506
Repurchase of common
stock.................. (2) -- (22) -- -- 19 (5)
Net loss................ -- -- -- (14,296) -- -- (14,296)
Foreign currency
translation
adjustment............. -- -- -- -- 409 -- 409
--- ---- ------ -------- ------- ------- --------
Balance at July 31,
1997................... $88 $ 65 $6,677 $(12,174) $(1,752) $(2,701) $ (9,797)
=== ==== ====== ======== ======= ======= ========
</TABLE>

See Accompanying Notes

F-6
<PAGE>

DELCO REMY INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31
-----------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............................... $ 6,963 $ (4,841) $ (14,296)
Extraordinary item.............................. -- -- 3,498
Adjustments to reconcile net income (loss) to
net cash
provided by (used in) operating activities:
Depreciation and amortization................. 14,533 19,555 22,323
Gain on sale of building...................... -- -- (2,082)
Deferred income taxes......................... (3,580) (2,947) (9,578)
Post-retirement benefits other than pensions.. 4,434 3,752 4,491
Accrued pension benefits...................... 4,459 (3,509) 3,592
Non-cash interest expense..................... 8,069 7,867 7,949
Preferred dividend requirement of subsidiary.. 1,397 1,516 1,648
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable......................... (49,320) (24,458) (3,341)
Inventories................................. (8,035) (25,720) (10,245)
Accounts payable............................ 49,613 8,634 (11,036)
Other current assets and liabilities........ (6,657) 18,229 (4,538)
Accrued restructuring....................... -- 5,541 31,836
Other non-current assets and liabilities,
net........................................ 45 (4,303) 2,316
-------- -------- ---------
Net cash provided by (used in) operating
activities..................................... 21,921 (684) 22,537
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired.............. (62,010) (46,320) (42,442)
Purchase of property and equipment.............. (11,241) (32,741) (31,888)
Investment in affiliates........................ -- -- (3,119)
Proceeds from sale of building.................. -- -- 3,362
-------- -------- ---------
Net cash used in investing activities........... (73,251) (79,061) (74,087)
FINANCING ACTIVITIES:
Proceeds from issuances of long-term debt....... 31,918 89,652 180,000
Payments on long-term debt...................... (4,917) (8,842) (126,200)
Other financing activities...................... 118 (20) 3,986
-------- -------- ---------
Net cash provided by financing activities....... 27,119 80,790 57,786
-------- -------- ---------
Effect of exchange rate changes on cash......... -- 883 408
-------- -------- ---------
Net (decrease) increase in cash and cash
equivalents.................................... (24,211) 1,928 6,644
Cash and cash equivalents at beginning of year.. 25,689 1,478 3,406
-------- -------- ---------
Cash and cash equivalents at end of year........ $ 1,478 $ 3,406 $ 10,050
======== ======== =========
</TABLE>

See Accompanying Notes

F-7
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
(DOLLARS IN THOUSANDS)

1. ORGANIZATION AND ACQUISITIONS

Delco Remy America Acquisition

On August 1, 1994, Delco Remy International, Inc. (the Company or DRI)
through a wholly-owned subsidiary, Delco Remy America, Inc. (DRA), purchased
substantially all of the assets, other than facilities, and assumed certain
liabilities of specific business activities of the Delco Remy Division of
General Motors Corporation (the GM Acquisition). The specific business
activities purchased are engaged in the design, manufacture, remanufacture and
sale of heavy duty starter motors and generators, automotive starter motors,
and related components.

The aggregate purchase price of the GM Acquisition of $155,665 (including
fees and expenses) was accounted for as a purchase. The Company issued (i)
common stock of $1,531, (ii) preferred stock of $11,507 and (iii) debt of
$158,200 to fund the purchase and provide capital for general corporate
purposes. The GM Acquisition resulted in the recording of approximately
$17,600 of goodwill which is being amortized over 15 years. While the GM
Acquisition was recorded based on the best estimates available, certain
purchase price adjustments as of the August 1, 1994 purchase date have not
been determined or agreed to by General Motors Corporation (GM) and DRI. When
finalized, the resolution of these items could result in a charge or credit to
operations, which the Company does not expect to be material. The accompanying
consolidated financial statements reflect the consolidated results of
operations and cash flows for the Company subsequent to the GM Acquisition.
The Company had no operations prior to August 1, 1994.

GM is entitled to receive an additional contingent purchase payment which
will be paid beginning in 2004 and will be based upon a percentage of average
earnings of the Company in the three year period ending December 31, 2003 in
excess of certain imputed earnings. Since the additional contingent purchase
price, if any, is based upon future operations of the Company which cannot be
determined at this time, no provision for such payment has been made in the
accompanying consolidated financial statements. The additional contingent
purchase price, if any, will increase the goodwill recorded for the GM
Acquisition and will be amortized over the remaining useful life of the GM
Acquisition goodwill.

Concurrent with the GM Acquisition, the Company entered into certain supply
agreements with GM whereby the Company will be the sole-source supplier to GM
for component parts manufactured by the Company at the date of the GM
Acquisition. The supply agreement for automotive starter motors has an initial
term of ten years, while the supply agreement for heavy duty starter motors
and generators has an initial term of six years.

1997 Acquisition

On May 8, 1997, the Company, through a wholly-owned subsidiary, acquired
82.5% of the outstanding common stock of World Wide Automotive, Inc. (World
Wide). World Wide is primarily an aftermarket supplier of light duty import
starters and alternators, although it also has a small amount of heavy duty
remanufacturing sales and domestic aftermarket sales. The remaining 17.5%
interest in World Wide is owned by current management of World Wide.

The aggregate purchase price was $40,842, including cash payments of $38,692
and the issuance of Class A Common Stock valued at $2,150. The World Wide
acquisition was treated as a purchase for accounting purposes and is included
in the consolidated financial statements of the Company beginning with the
acquisition date. The World Wide acquisition resulted in goodwill of $21,301
which is being amortized over 35 years.

1996 Acquisition

On February 6, 1996 the Company, through a wholly-owned subsidiary, acquired
82.5% of the outstanding common stock of Power Investments, Inc. and related
companies (Power), a remanufacturer of diesel and

F-8
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

gasoline engines, fuel systems, transmissions, alternators and starters for
medium, heavy duty, and automotive applications. Power also remanufactures and
distributes brakes, water pumps, power steering pumps and various other
remanufactured truck parts and assemblies. Power has fifteen facilities
located in the United States and Canada. The remaining 17.5% interest in Power
is owned by current management of Power.

The aggregate purchase price was $48,422 including cash payments of $23,385
and the issuance of $24,300 of 9.86% Power Investments Seller Notes. The Power
acquisition was treated as a purchase for accounting purposes and is included
in the consolidated financial statements of the Company beginning with the
acquisition date. The Power acquisition resulted in goodwill of $16,267 which
is being amortized over 35 years.

1995 Acquisitions

In 1995, the Company made the following three acquisitions which were
treated as purchases for accounting purposes and are included in the
consolidated financial statements beginning with the respective acquisition
date. Each respective purchase price was allocated to the assets acquired and
liabilities assumed at their estimated fair values. The three acquisitions
resulted in goodwill of $38,864 which is being amortized over 35 years.

On January 6, 1995, the Company purchased all the stock of two related
companies (collectively referred to as Nabco) for an aggregate cash
purchase price of $27,600 and the issuance of 483,000 shares of DRI Class A
Common Stock. Nabco remanufactures automotive starters and alternators.

On March 31, 1995, the Company, through a newly formed subsidiary,
purchased the shares of six related corporations (collectively referred to
as A&B). The aggregate purchase price of $33,400 included cash payments of
$29,900 and the issuance of $3,500 in 10% subordinated notes. The A&B
acquisition was financed through additional borrowings under the Company's
revolving loan and a new acquisition term loan of $15,000. A&B
remanufactures heavy duty starters and alternators and related sub-
components and parts.

On April 13, 1995, the Company acquired, through a series of stock
purchase transactions, approximately 97% interest in a Hungarian company
(Autovill), a manufacturer of heavy duty starter motors and generators. The
total purchase price was approximately $7,500 which included the assumption
of certain Autovill liabilities of $4,100.

Unaudited Pro Forma Results of Operations

The unaudited pro forma consolidated results of operations, assuming the
1995, 1996 and 1997 acquisitions had been consummated as of the beginning of
the preceding year, are as follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31
---------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues........................................ $655,716 $727,633 $738,801
Operating income................................ 49,334 47,931 27,658
Income (loss) from continuing operations........ 13,929 6,212 (10,284)
Net income (loss)............................... 11,566 (4,425) (14,317)
</TABLE>

The pro forma consolidated financial information does not purport to present
what the Company's consolidated results of operations would actually have been
if the operations were combined during the periods presented and is not
intended to project future results or trends of operations.

F-9
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation and Business Segment

The consolidated financial statements include the accounts of DRI and its
subsidiaries. All intercompany accounts and transactions have been eliminated
in consolidation. The Company designs, manufactures, remanufactures and
distributes electrical, powertrain/drivetrain and engine-related components
for automobiles, light and heavy duty trucks and other heavy duty vehicles.
The Company's products include starter motors, alternators, engines,
transmissions and fuel systems for the aftermarket and the original equipment
manufacturer market, principally in North America but also in Europe, Latin
America and Asia-Pacific.

Use of Estimates

Preparation of the consolidated financial statements requires management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents includes all cash balances and highly liquid
investments held primarily in repurchase agreements collateralized by U.S.
Government securities with a maturity of ninety days or less when purchased.
The carrying amount of cash equivalents approximates fair value.

Concentrations of Credit Risk and Other Risks

Substantially all of the Company's accounts receivable are due from
customers in the original equipment and aftermarket automotive industries,
both in the U.S. and internationally. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not
require collateral. Credit losses are provided for in the financial statements
and have been consistently within management's expectations. The Company
invests its temporary cash in high credit quality financial institutions and
investment grade short-term investments and limits the amount of credit
exposure to any one entity.

The percentage of the Company's labor force covered by a collective
bargaining agreement (CBA) and covered by a CBA that will expire within one
year is 48.0% and 2.4%, respectively.

Inventories

Inventories are carried at lower of cost or market determined on the first-
in, first-out (FIFO) method. Raw materials also include supplies and repair
parts which consist of material consumed in the manufacturing process but not
directly incorporated into the finished products. Inventories at July 31, 1996
and 1997 consisted of the following:

<TABLE>
<CAPTION>
JULY 31
-----------------
1996 1997
-------- --------
<S> <C> <C>
Raw material............................................... $ 57,481 $ 84,583
Work in-process............................................ 32,790 20,168
Finished goods............................................. 33,312 59,666
-------- --------
$123,583 $164,417
======== ========
</TABLE>

F-10
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

Property and Equipment

Property and equipment are stated at cost. Depreciation is calculated
primarily using the straight-line method over the estimated useful lives of
the related assets (15 years for buildings and 3 to 15 years for machinery and
equipment).

Foreign Currency Translation

Foreign Exchange Contracts

The Company enters into foreign exchange contracts to hedge certain foreign
transactions. These contracts reduce currency risk from exchange rate
movements. Gains and losses are deferred and accounted for as part of the
underlying transactions. The contractual amount and related deferred gains and
losses from these contracts are immaterial.

Goodwill

Goodwill represents the excess of purchase price over fair value of the net
assets acquired and is being amortized by the straight-line method over 15 to
35 years.

The carrying amount of goodwill is regularly reviewed for indicators of
impairment in value, which in the view of management are other than temporary,
including unexpected or adverse changes in the following: (i) the economic or
competitive environments in which the Company operates; (ii) profitability
analyses and (iii) cash flow analyses. If facts and circumstances suggest that
a subsidiary's net assets are impaired, the Company assesses the fair value of
the underlying business and reduces goodwill to an amount that results in the
book value of the subsidiary approximating fair value.

Investment in Affiliate

Investment in affiliate represents the Company's equity investment in its
Korean joint venture. This investment is accounted for using the equity
method.

Long-Term Assets

In accordance with FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the Company
records impairment losses on long-lived assets used in operations when events
and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less
than the carrying amounts of those assets.

Recognition of Revenue

Substantially all of the Company's revenue is recognized at the time the
product is shipped. The Company's remanufacturing operations obtain used
diesel and gasoline engines, fuel systems, transmissions, starter motors and
generators, commonly known as cores, from its customers as trade-ins. Net
sales and cost of goods sold are reduced by $58,800, $70,000 and $113,100 for
1995, 1996 and 1997, respectively, to reflect the cost of cores returned for
credit.

Fair Value of Financial Instruments

The Company's financial instruments generally consist of cash and cash
equivalents, trade and other receivables, accounts payable, long-term debt and
redeemable convertible preferred stock of subsidiary. The fair value of the
Company's fixed rate debt was estimated using discounted cash flow analyses
based upon the Company's current incremental borrowing rates. With the
exception of the Senior Subordinated Notes, the

F-11
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

carrying amounts of these financial instruments approximated their fair value
at July 31, 1996 and 1997. At July 31, 1997, the Senior Subordinated Notes
have a face value of $140.0 million and a fair value of $148.4 million.

Reclassification

Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform to the 1997 presentation.

Impact of Recently Issued Accounting Standards

In February 1997, the FASB issued Statement No. 128, Earnings per Share,
which is required to be adopted on December 31, 1997. At that time, the
Company will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect
of warrants to purchase common stock will be excluded. The impact is expected
to result in an increase in historical primary earnings (loss) per share for
the years ended July 31, 1995, 1996 and 1997, of $.04, $.03 and $.09 per
share, respectively. The impact of Statement No. 128 on the calculation of
fully diluted earnings per share for these years is not expected to be
material.

In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income, which is effective for years beginning after December 15, 1997, and
will be adopted by the Company in 1998. The Statement establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general purpose financial statements. The Statement will not have
any impact on the results of operations or the financial position of the
Company.

In June 1997, the FASB issued Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information. The Statement changes the way public
companies are required to report segment information in annual financial
statements and in interim financial reports to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. The Statement is effective for
financial statements for fiscal years beginning after December 15, 1997, and
the Company anticipates adopting the Statement in 1999. The Company is
evaluating the impact that this Statement will have on its financial
reporting.

3. DISCONTINUED OPERATIONS

Marine Corporation of America, Marine Drive Systems, and Powrbilt Products

In July 1997, the Company adopted plans for the sale of the marine products
business segment consisting of three non-core businesses. The Company plans to
sell the net assets of Marine Corporation of America, Marine Drive Systems and
Powrbilt Products (the 1997 Discontinued Businesses). These non-core
businesses were acquired in February 1996 in conjunction with the acquisition
of Power.

A charge of $874 net of a tax benefit of $426 for operating losses expected
during the disposal period was recorded. The Company does not anticipate a
loss on the disposal of the net assets of the discontinued businesses. It is
expected that the net assets of the businesses will be sold during fiscal
1998.

Summary operating results of the 1997 Discontinued Businesses since their
acquisition are as follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
JULY 31
-------------------
1996 1997
--------- ---------
<S> <C> <C>
Net sales............................................... $ 5,624 $ 10,935
Net loss................................................ (328) (808)
</TABLE>

F-12
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

The net assets of the 1997 Discontinued Businesses included in the
consolidated balance sheet are summarized as follows:

<TABLE>
<CAPTION>
JULY 31,
1997
--------
<S> <C>
Current assets..................................................... $ 6,525
Property and equipment, net........................................ 650
Current liabilities................................................ (1,848)
-------
Net assets......................................................... $ 5,327
=======
</TABLE>

Powder Metal Forge

In December 1995, the Company adopted plans for sale of its non-core powder
metal forge business segment (PMF) and recorded an initial loss on disposal. A
sale agreement was signed in December 1996 to transfer ownership of net assets
of PMF. Terms of the sale agreement require the Company to continue PMF
operations through a transition period in which the buyer will begin
production at its facility. The Company expects the transition period to be
completed by November 1997. The agreement requires the buyer to reimburse the
Company for all losses incurred from operating the business after December
1997 if the transition has not been completed. PMF produces various engine
components, primarily for GM, through a forging process.

The Company recorded a charge of $9,064, net of tax benefit of $6,043, for
losses on disposal of the business, operating losses expected during the
transition period, and allocated interest expense. During the fiscal year
ended July 31, 1997, the Company utilized $8,981 of the reserves for
discontinued operations including a loss from operations of $2,171. At July
31, 1997, $2,024 of discontinued operations reserves remained on the balance
sheet related to PMF.

Summary operating results of the discontinued operation, excluding the loss
on disposal are as follows for the years ended:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
JULY 31
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Net sales.............................................. $ 6,505 $ 4,228
Net loss............................................... (2,363) (1,245)
</TABLE>

Interest expense of $1,014 and $496 in 1995 and 1996, respectively, was
allocated to discontinued operations of PMF based on the ratio of net assets
discontinued to total net assets and debt of the Company. In addition,
interest expense of $986 was allocated for the disposal period and is included
in the 1996 loss on disposal of PMF. In 1997, $335 of interest expense was
charged against the reserve.

The net assets of PMF included in the consolidated balance sheet are
summarized as follows:

<TABLE>
<CAPTION>
JULY 31
1997
-------
<S> <C>
Current Assets...................................................... $3,917
Current Liabilities................................................. (610)
------
Net Assets.......................................................... $3,307
======
</TABLE>

F-13
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

4. RESTRUCTURING CHARGES

In May 1997, the Company decided to restructure the manufacturing operations
of DRA to utilize focus factory manufacturing concepts and to close the
Company's operations in the old vertically-integrated factories that were
leased from GM. These decisions resulted in the impairment of certain
production assets with a carrying amount of $30,321 ($25,279 of which is
property and equipment and $5,042 of which is related tooling and other
supplies) which the Company plans to sell or otherwise dispose. The Company
has estimated the loss on disposal including related costs at $26,260. In
addition, the Company has estimated a cost of $8,240 for reducing its
workforce through several transition programs. The results of operations for
the products which will be discontinued are not separately identifiable. The
restructuring reserve is expected to be utilized throughout 1998 and 1999.

In December 1995, the Company decided to eliminate the production of certain
parts and certain straight-drive starter motors for the original equipment
market. In addition, the Company purchased new, more efficient equipment for
use in the production of certain heavy duty alternators. These decisions
resulted in the impairment of certain production equipment with a carrying
amount of approximately $5,242, which the Company plans to sell or otherwise
dispose. The Company has estimated the loss on disposal, including related
costs, at $4,385. The results of operations for the parts and straight-drive
starter motors for which production will be discontinued are not separately
identifiable.

In October 1995, the Company offered to certain eligible salaried employees
a voluntary retirement transition program in conjunction with a similar plan
offered by GM to its employees which allowed such employees special additional
benefits not typically provided upon retirement. These additional benefits
include salaried payments for six months and future supplemental payments
under the salaried retirement plan. As a result, $3,716 was charged to
operations in 1996.

The following table summarizes the provisions and reserves for restructuring
and non-recurring charges:

<TABLE>
<CAPTION>
TERMINATION EXIT/IMPAIRMENT
BENEFITS COSTS TOTAL
----------- --------------- -------
<S> <C> <C> <C>
Provision in 1996.......................... $ 3,716 $ 4,385 $ 8,101
Payments and charges in 1996............... (1,665) (895) (2,560)
------- ------- -------
Reserve at July 31, 1996................... 2,051 3,490 5,541
Provision in 1997.......................... 8,240 26,260 34,500
Change in estimate......................... (1,230) -- (1,230)
Payments and charges in 1997............... (821) (613) (1,434)
------- ------- -------
Reserve at July 31, 1997................... $ 8,240 $29,137 $37,377
======= ======= =======
</TABLE>

5. ALLOWANCE FOR DOUBTFUL ACCOUNTS

The activity in the allowance for doubtful accounts is as follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31
----------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Balance at beginning of period.................. $ -- $ 162 $ 1,209
Additions charged to costs and expenses......... 119 1,091 3,774
Acquisition of certain businesses............... 102 308 324
Uncollectible accounts written off, net of
recoveries..................................... (59) (352) (2,372)
------- -------- ---------
$ 162 $ 1,209 $ 2,935
======= ======== =========
</TABLE>

F-14
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

6. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
JULY 31
-----------------
1996 1997
-------- --------
<S> <C> <C>
Land and buildings........................................ $ 12,213 $ 5,895
Buildings under capital leases............................ 13,931 21,434
Machinery and equipment................................... 144,247 119,893
-------- --------
$170,391 $147,222
======== ========
</TABLE>

7. LONG-TERM DEBT

Borrowings under long-term debt arrangements consists of the following:

<TABLE>
<CAPTION>
JULY 31
-----------------
1996 1997
-------- --------
<S> <C> <C>
Senior credit facility:
Revolving loans......................................... $ 48,530 $ --
Term loans.............................................. 54,235 --
Revolving acquisition loans............................. -- 34,963
Power seller notes........................................ 24,300 8,300
World note................................................ 75,000 75,000
Senior subordinated notes................................. -- 140,000
GM acquisition note....................................... 55,224 59,155
A & B seller notes........................................ 3,500 3,500
Junior subordinated notes................................. 22,619 25,211
Hungarian bank loans...................................... 1,141 --
Other, including capital lease obligations................ 14,247 17,639
-------- --------
298,796 363,768
Less current portion...................................... 9,652 507
-------- --------
$289,144 $363,261
======== ========
</TABLE>

Senior Credit Facility

Pursuant to the senior credit facility, revolving credit loans of $150,000
are available for general purposes, of which up to $85,000 is available for
acquisitions. The senior credit facility provides for quarterly payments of
$9,400 beginning in the year 1999. The Company has the option of paying an
interest rate of one bank's prime or a LIBOR-based rate. The weighted average
interest on amounts outstanding at July 31, 1997 was 8.02%.

The senior credit facility contains various covenants which include, among
other things: (i) limitations on additional borrowings and encumbrances; (ii)
the maintenance of certain financial ratios and compliance with certain
financial tests and limitations; (iii) limitations on cash dividends paid;
(iv) limitations on investments and capital expenditures; and (v) limitations
on leases and sales of assets.

The senior credit facility is collateralized by a lien on substantially all
assets of the Company and its domestic subsidiaries and by all the capital
stock of such subsidiaries held by the Company or any such other subsidiary.

F-15
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

Power Seller Notes

The Power Seller Notes are due February 6, 2001. Interest, at a rate of
9.86% per annum, is payable monthly for the current month. The notes may be
prepaid without premium or penalty after August 6, 1997. The Power Seller
Notes are secured by letters of credit issued under the senior credit
facility.

World Note

The World Note, due on July 31, 2003, is payable to an affiliate of a
stockholder and bears interest at a rate of 10.5% per annum, payable
semiannually.

On any three interest payment dates, the Company may elect to pay up to 50%
of the unpaid accrued interest by issuing additional notes to the holder of
the World Note. At the option of the Company, prepayment of the loan balance
may be made at repayment amounts ranging from 103% in 1997 to 100% of
principal after August 1, 2000. Upon a change in control, certain asset sales,
casualty events or a public offering (all as defined in the debt agreement),
the holders have the right, but not the obligation, to require mandatory
redemption of the debt, without premium or penalty.

The World Note agreement contains certain covenants which are similar to the
provisions of the senior credit facility. The World noteholder has agreed to
subordinate its right to receive payments to the senior credit facility
lenders. DRI and its domestic subsidiaries have guaranteed the payment of
principal and interest on the World Note.

Senior Subordinated Notes

On August 2, 1996, the Company issued $140 million of 10 5/8% Senior
Subordinated Notes due August 1, 2006 (the Senior Subordinated Notes). The
proceeds from the Senior Subordinated Notes were $135.8 million (net of
issuance costs). The proceeds were used as follows: (i) to repay all
outstanding indebtedness under the Senior Credit Facility, plus accrued and
unpaid interest thereon, (ii) $16,000 was used to prepay one of the Power
Seller Notes, plus accrued and unpaid interest thereon, and (iii) the
remaining net proceeds were invested temporarily in short-term interest
bearing obligations. The Company recorded an extraordinary loss in 1997 of
$2,351, net of tax benefit of $1,147, related to deferred financing costs
associated with the payoff of the Senior Credit Facility.

The Senior Subordinated Notes are unsecured senior subordinated obligations
of the Company and are subordinated in right of payment to the prior payment
in full of all existing and future senior indebtedness, pari passu with all
present and future senior subordinated indebtedness and senior to all present
and future subordinated indebtedness of the Company or the relevant subsidiary
guarantors, as defined in the indenture. The Senior Subordinated Notes will
also be effectively subordinated to any secured indebtedness to the extent of
the value of the assets securing such indebtedness.

The Senior Subordinated Notes are redeemable at the option of the Company,
in whole or in part, after August 1, 2001, at the redemption prices set forth
in the note agreement plus accrued and unpaid interest, if any, to the
redemption date. In addition, at any time prior to August 1, 1999, the Company
may redeem, at its option, up to an aggregate amount of 35% of the original
principal amount of the Senior Subordinated Notes with the proceeds of one or
more public equity offerings at a redemption price of 110% of the principal
amount thereof plus accrued and unpaid interest, if any, to the redemption
date, provided that at least 50% of the original aggregate principal amount of
the notes remains outstanding after each such redemption.

F-16
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

Upon the occurrence of a change of control (as defined), each holder of the
Senior Subordinated Notes will have the right to require the Company to
purchase all or a portion of such holder's notes at a price in cash equal to
101% of the aggregate principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase.

The indenture pursuant to which the Senior Subordinated Notes were issued
contains certain covenants that, among other things, limit the ability of the
Company and its restricted subsidiaries to (i) incur additional indebtedness,
(ii) pay dividends or make other distributions with respect to capital stock
(as defined) of the Company and its restricted subsidiaries, (iii) sell assets
of the Company or its restricted subsidiaries, (iv) issue or sell restricted
subsidiary stock, (v) enter into certain transactions with affiliates, (vi)
create certain liens, (vii) enter into certain mergers and consolidations and
(viii) incur indebtedness which is subordinate to senior indebtedness and
senior to the Senior Subordinated Notes.

Pursuant to a registration agreement among the Company and the initial
purchasers, the Company will commence an exchange offer pursuant to an
effective registration statement or cause the Notes to be registered under the
Securities Act pursuant to a resale shelf registration statement. If an
exchange offer registration statement is not (i) filed by October 31, 1997 or
(ii) declared effective by December 31, 1997, or (iii) if an exchange offer is
not consummated or a resale shelf registration statement is not declared
effective by January 31, 1998, special interest will accrue initially at the
rate of .25% per annum increasing to a maximum rate of 1% per annum, payable
semi-annually until such time as an exchange offer is consummated or a resale
shelf registration is declared effective.

GM Acquisition Note

In connection with the GM Acquisition, DRA issued to GM a subordinated note
in the principal amount of $45,000 due 2004. Interest accrues semiannually at
a rate of 11.5% per annum and is added to the unpaid principal balance in
amounts ranging from 60% of the accruing interest in 1997 to 20% in 1999.
Beginning in 2000, interest is payable semiannually in cash.

A&B Seller Notes

In connection with the A&B acquisition, a subsidiary of DRI issued
subordinated notes in the principal amount of $3,500 due 2002. Interest is
payable semiannually at 10% per annum. The notes are subordinated to the
senior credit facility, senior subordinated debt, and the World Note. The
notes may be prepaid at any time without penalty.

Junior Subordinated Notes

DRI issued $18,200 in an initial principal amount of Junior Subordinated
Notes to two investors, who are also holders of the Company's common stock.
Interest on the junior subordinated notes accrues semiannually at 11% and is
payable entirely in additional principal, through 2004, when the entire
balance is due and payable.

Capital Lease Obligations

In 1996 the Company entered into an aggregate of $13,931 of new capital
leases with respect to three manufacturing facilities and its world
headquarters building. The leases have 15 year terms with options to renew for
additional periods. These leases have been capitalized using interest rates
ranging from 12.5% to 14.2%. The carrying value of assets under capital leases
was $15,870 at July 31, 1997.

F-17
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

Other

Total cash interest paid for 1995, 1996 and 1997 was $7,738, $19,895 and
$31,744, respectively.

The following is the required principal payments of long-term debt and
capitalized leases:

<TABLE>
<S> <C>
1998.............................................................. $ 507
1999.............................................................. 721
2000.............................................................. 817
2001.............................................................. 9,366
2002.............................................................. 844
Thereafter........................................................ 351,513
--------
$363,768
========
</TABLE>

8. EMPLOYEE BENEFIT PLAN

Agreements with GM

In connection with the GM Acquisition, the Company and GM agreed to allocate
the responsibility for employee pension benefits and post-retirement health
care and life insurance on a pro-rata basis between DRA and GM. The allocation
is primarily determined upon years of service with DRA and aggregate years of
service with DRA and GM. In addition, GM has agreed to retain complete
responsibility for all pension and post-retirement benefit costs for salaried
and hourly employees who retired from DRA before August 1, 1996 and October 1,
1996, respectively. Effective August 1, 1994, DRA established hourly and
salaried pension and post-retirement health care and life insurance plans
which are similar to the respective GM plans.

Pension Plans

DRA has defined benefit pension plans covering substantially all employees.
The plan covering salaried employees provides benefits that are based upon
years of service and final estimated average compensation. Benefits for hourly
employees are based on stated amounts for each year of service. DRA's funding
policy is to contribute amounts to provide the plans with sufficient assets to
meet future benefit payment requirements consistent with actuarial
determinations of the funding requirements of federal laws. DRA made
contributions of $6,454 and $1,085 to the plans in 1996 and 1997,
respectively. No contributions were made in 1995. Plan assets are primarily
invested in mutual funds which invest in both debt and equity instruments.

The components of net periodic pension cost for the plans are as follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31
----------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Service cost--benefits earned during the
period..................................... $ 4,435 $ 2,935 $ 3,163
Interest costs on projected benefit
obligation................................. 2 293 544
Actual (gain) loss on assets................ -- 51 (2,180)
Net amortization and deferral............... 22 (316) 1,512
Special charge for early retirement......... -- -- 1,633
-------- -------- ---------
Net periodic pension cost................... $ 4,459 $ 2,963 $ 4,672
======== ======== =========
</TABLE>

In 1997, the Company offered retirement incentives to salaried employees.
The program liability of $1,633 was included with the restructuring charge.

F-18
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

The following table sets forth the funded status for DRA's defined benefit
pension plans.

<TABLE>
<CAPTION>
JULY 31
----------------
1996 1997
------- -------
<S> <C> <C>
Actuarial present value of accumulated pension benefit
obligation:
Vested................................................. $ 5,988 $11,375
Nonvested.............................................. 489 1,318
------- -------
Accumulated benefit obligation........................... $ 6,477 $12,693
======= =======
Projected benefit obligation............................. $ 7,021 $13,540
Plan assets at fair value................................ (6,406) (9,664)
------- -------
Projected benefit obligation in excess of fair value of
plan assets............................................. 615 3,876
Prior service cost not yet recognized.................... (37) (911)
Unrecognized net gain.................................... 372 1,577
------- -------
Pension liability recognized in the balance sheet........ $ 950 $ 4,542
======= =======
</TABLE>

The measurement of the July 31, 1996 and 1997 projected benefit obligation
was based upon a discount rate of 7.75%. The expected compensation growth rate
is 5% for salaried employees. The expected rate of return on plan assets is
10%.

Defined Contribution Plans

Various subsidiaries of the Company sponsor voluntary savings plans for
eligible salaried and hourly employees. These plans allow participants to make
contributions pursuant to section 401(k) of the Internal Revenue Code. Certain
of these plans have Company matching contribution provisions. Charges to
operations were $452, $686 and $532 for 1995, 1996 and 1997, respectively.

Profit Sharing Plans

DRA sponsors profit sharing plans covering substantially all of its
employees. Distributions are determined based upon formulas established by
management and are made annually. Profit sharing expense for 1995, 1996 and
1997 was $1,700, $1,300 and $1,400, respectively.

Post-Retirement Health Care and Life Insurance Plans

DRA maintains hourly and salaried benefit plans that provide post-retirement
health care and life insurance to retirees and eligible dependents. The
benefits are payable for life, although DRA retains the right to modify or
terminate the plans providing these benefits. The salaried plan is
contributory, with additional cost sharing features such as deductibles and
co-payments. Salaried employees who were not GM employees prior to 1992 are
not eligible for the above described post-retirement benefits. It is DRA's
policy to fund these benefits as claims are incurred.

F-19
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

The following table sets forth the status of DRA's post-retirement benefit
plans.

<TABLE>
<CAPTION>
JULY 31
--------------
1996 1997
------ -------
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Fully eligible active participants......................... $ 148 $ 160
Active participants not yet fully eligible................. 6,960 11,459
------ -------
7,108 11,619
Unrecognized net gain...................................... 1,078 1,058
------ -------
Post-retirement benefit liability.......................... $8,186 $12,677
====== =======
</TABLE>

The components of post-retirement benefit expense are as follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31
---------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Service Cost....................................... $ 4,114 $ 3,557 $ 3,959
Interest Cost...................................... 320 254 551
Amortization of gain............................... -- (59) (19)
-------- -------- --------
$ 4,434 $ 3,752 $ 4,491
======== ======== ========
</TABLE>

Measurement of the accumulated post-retirement benefit obligation was based
on an 8.3% annual rate of increase in the cost of covered health care
benefits. The rate was assumed to decrease ratably to 5.5% through 2002 and
remain level at that rate thereafter. The discount rate used in determining
the accumulated post-retirement benefit obligation was 7.75%. An increase of
1% in assumed health care cost trend rates would increase the accumulated
post-retirement benefit obligation as of July 31, 1997 by 25.8% and the net
periodic cost for 1997 would be increased by 28.6%.

9. STOCKHOLDERS' EQUITY AND REDEEMABLE EXCHANGEABLE PREFERRED STOCK OF DRA

All shares of Class A Common Stock and Class B Common Stock are identical
and will entitle the holders thereof to the same rights and privileges,
provided that except as otherwise required by law, the holders of Class B
common stock shall have no voting rights. Each share of Class A stock is
convertible into one share of Class B stock and each share of Class B stock is
convertible into one share of Class A stock. Pursuant to a Stockholders
Agreement dated July 29, 1994, the Company issued 7,905,912 shares of Class A
Common Stock and 5,366,088 shares of Class B Common Stock for an aggregate of
$1,581. In addition, 483,000 shares of Class A common stock were issued in
connection with the Nabco acquisition. On October 21, 1994, the Company
approved a private placement memorandum whereby the Company is authorized to
offer for sale to certain members of management of DRA up to 1,596,000 shares
of Class A Common Stock. As of July 31, 1997, 1,512,000 shares were
outstanding pursuant to the private placement at a price approximating book
value. Shares issued pursuant to this plan generally vest over three years.
During 1997, 361,200 shares were sold for $2,705 less than the deemed fair
market value. As a result, compensation expense of $354 was recorded during
the current year and the balance of the unearned compensation of $2,351 will
be amortized over the remaining vesting period

The stockholder notes receivable of $179 and $350 at July 31, 1996 and 1997,
respectively, were issued in connection with the sale of Class A Common Stock
and are payable in 1999 through 2002 together with interest at 9.25% accrued
interest per annum. The members of DRA management who are stockholders of the
Company

F-20
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

are subject to agreements that impose certain restrictions and grant rights on
their ownership and transfer of Company stock. During the first three years
after issuance, stockholders are generally prohibited from transferring shares
of common stock of the Company owned by them. The Company further has the
right to repurchase such stock at amounts described in the respective
agreements when the management investor is no longer employed by DRA.

Warrants

In connection with the issuance of the Junior Subordinated Notes, DRI issued
warrants to purchase 1,680,000 shares of DRI Class A Common Stock at a price
of $.0012 per share. The warrants can be exercised, in whole or in part, at
any time through June 31, 2004.

Redeemable Exchangeable Preferred Stock of DRA

In connection with the GM Acquisition, DRA issued 15,000 shares of Class A
Preferred Stock (par value $.01 per share and liquidation preference $1,000
per share) to GM (DRA Preferred Stock). The provisions of the preferred stock
call for a cumulative cash dividend equal to $80 per share (8%). For financial
statement purposes the preferred stock has been discounted to approximately
$11,500 to reflect fair value at the issuance date based upon an 11.5%
dividend rate. The excess of the preference amount over the carrying value of
the DRA Preferred Stock is being accreted through August 1, 2004, at which
time the DRA Preferred Stock must be redeemed by DRA at $1,000 per share plus
accrued and unpaid dividends. At the option of DRA, the DRA Preferred Stock
may be redeemed at a price per share equal to $1,000 plus accrued and unpaid
dividends. In addition, the DRA Preferred Stock may be exchanged, at the
option of DRA, in whole or in part, for 8% subordinated debentures to be
issued by DRA at $1,000 per share plus accrued and unpaid dividends. Dividends
which accrue but remain unpaid for one year accrue additional dividends at the
rate of 8%. The carrying value of the DRA Preferred Stock includes unpaid and
accrued dividends of $3,896 as of July 31, 1997.

10. INCOME TAXES

The following is a summary of the components of the provision for income
taxes (benefit) of continuing operations:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal...................................... $ 9,529 $ 5,969 $ 3,220
State and Local.............................. 1,927 916 2,019
Foreign...................................... 61 131 977
-------- -------- --------
11,517 7,016 6,216
Deferred:
Federal...................................... (3,021) (1,240) (8,615)
State and Local.............................. (650) (35) (960)
Foreign...................................... -- -- 345
-------- -------- --------
$ 7,846 $ 5,741 $ (3,014)
======== ======== ========
</TABLE>

F-21
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

Income (loss) from continuing operations before income taxes (benefit),
preferred dividend requirement of subsidiary and minority interest was taxed
in the following jurisdictions:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31
---------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Domestic........................................... $ 18,198 $ 10,104 $ (15,640)
Foreign............................................ 371 3,208 4,903
-------- -------- ---------
$ 18,569 $ 13,312 $ (10,737)
======== ======== =========
</TABLE>

A reconciliation of income taxes at the United States federal statutory rate
to the effective income tax rate follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
JULY 31
----------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Federal statutory income tax rate..................... 35.0% 35.0% 35.0%
State and local income taxes--net of federal tax
benefit.............................................. 4.5 4.3 (7.7)
Compensation expense.................................. -- -- (6.0)
Other items........................................... 2.7 3.8 6.8
------ ------ ------
Effective income tax rate............................. 42.2% 43.1% 28.1%
====== ====== ======
</TABLE>

State and local income taxes include provisions for Indiana and Michigan
which do not provide proportional benefit in loss years.

The following is a summary of the significant components of the Company's
deferred tax assets and liabilities:

<TABLE>
<CAPTION>
JULY 31
------------------
1996 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Restructuring.......................................... $ -- $ 4,424
Employee benefits...................................... 7,385 7,157
Inventories............................................ 2,165 7,196
Warranty............................................... 2,665 3,207
Asset impairment....................................... 1,380 8,480
Discontinued operations................................ 4,352 774
Non-compete agreements................................. -- 789
Alternative minimum tax credits........................ 1,244 1,488
Other.................................................. 3,054 2,835
-------- --------
22,245 36,350
Deferred tax liabilities:
Depreciation........................................... (11,275) (13,475)
Discount on exchangeable securities.................... (1,381) (1,336)
Other.................................................. (922) (1,621)
-------- --------
(13,578) (16,432)
-------- --------
Net deferred tax asset................................... $ 8,667 $ 19,918
======== ========
</TABLE>

F-22
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

The Company's alternative minimum tax credit may be carried forward
indefinitely. Income tax payments (refunds), including state taxes, for 1995,
1996 and 1997 were $8,900, $14,000 and ($1,100), respectively.

No provision has been made for United States federal and state or foreign
taxes that may result from future remittances of undistributed earnings of
foreign subsidiaries ($9,336 at July 31, 1997) because it is expected that
such earnings will be reinvested in these foreign operations indefinitely. It
is not practical to estimate the amount of taxes that might be payable on the
eventual remittances of such earnings.

11. TRANSACTIONS WITH GM

The Company and GM have entered into several transactions and agreements
related to their respective businesses. In addition to the transactions
disclosed elsewhere in the accompanying consolidated financial statements and
related notes, the Company entered into the following transactions with GM:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31
--------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Sales............................................ $338,356 $298,084 $301,328
Material purchases and costs for services........ 205,874 112,372 97,934
</TABLE>

In addition, the Company had the following balances with GM:

<TABLE>
<CAPTION>
JULY 31
---------------
1996 1997
------- -------
<S> <C> <C>
Trade accounts receivable.................................. $27,391 $30,286
Other receivables.......................................... 9,807 4,886
Accounts payable........................................... 10,752 7,644
</TABLE>

12. LEASE COMMITMENTS

The Company occupies space and uses certain equipment under lease
arrangements. Rent expense was $959, $3,208 and $4,004 for 1995, 1996 and
1997, respectively. Rental commitments at July 31, 1997 for long-term non-
cancelable operating leases were as follows for the year ending:

<TABLE>
<S> <C>
1998................................................................. $ 4,581
1999................................................................. 3,855
2000................................................................. 2,649
2001................................................................. 1,449
2002................................................................. 1,387
Thereafter........................................................... 1,784
-------
$15,705
=======
</TABLE>

13. COMMITMENTS AND CONTINGENCIES

The Company is party to various legal actions and administrative proceedings
and subject to various claims arising in the ordinary course of business. The
Company believes that the disposition of these matters will not have a
material adverse effect on the financial position, results of operations or
cash flows of the Company.

F-23
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

14. GEOGRAPHICAL INFORMATION

The Company operates predominantly in a single industry as a designer,
manufacturer, remanufacturer, and distributor of electrical and other engine
related components, including starter motors and alternators for automobiles,
trucks, and other heavy duty vehicles. The Company is a multi-national
corporation with operations in many countries including the United States,
Canada, Mexico, Hungary, Germany, Korea and the Netherlands. Sales, operating
profits and identifiable assets of Canadian, European and other foreign
locations are those sales, operating profits and assets related to the
operations in those locations. Geographical information is shown below:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31
------------------------------
1995 1996 1997
-------- --------- ---------
<S> <C> <C> <C>
NET SALES:
United States................................ $584,859 $ 657,782 $ 684,790
Canada....................................... -- 26,815 47,240
Europe....................................... 5,090 15,975 14,487
Other foreign................................ -- -- 7,052
Eliminate intercompany sales................. (16,526) (63,720) (63,782)
-------- --------- ---------
Total net sales............................ $573,423 $ 636,852 $ 689,787
======== ========= =========
OPERATING INCOME:
United States................................ $ 36,544 $ 36,751 $ 23,196
Canada....................................... -- 2,319 2,341
Europe....................................... 457 1,609 784
Other foreign................................ -- -- (366)
-------- --------- ---------
Total operating income..................... $ 37,001 $ 40,679 $ 25,955
======== ========= =========
IDENTIFIABLE ASSETS:
United States................................ $310,292 $ 427,847 $ 474,991
Canada....................................... -- 29,959 31,197
Europe....................................... 11,523 10,138 13,105
Other foreign................................ -- -- 16,303
-------- --------- ---------
Total identifiable assets.................... 321,815 467,944 535,596
Corporate assets............................. 65,096 119,339 192,458
Elimination.................................. (64,384) (112,201) (157,485)
-------- --------- ---------
Total assets............................... $322,527 $ 475,082 $ 570,569
======== ========= =========
</TABLE>

15. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES

The Company conducts a significant portion of its business through
subsidiaries. The Senior Notes and the Senior Subordinated Notes referred to
in Note 16 below are fully and unconditionally guaranteed, jointly and
severally, by certain direct and indirect subsidiaries (the Subsidiary
Guarantors). Certain of the Company's subsidiaries do not guarantee the Senior
Notes and the Senior Subordinated Notes (the Non-Guarantor Subsidiaries). The
claims of creditors of Non-Guarantor Subsidiaries have priority over the
rights of the Company to receive dividends or distributions from such
subsidiaries.

Presented below is condensed consolidating financial information for the
Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at July
31, 1997 and 1996 and for the years ended July 31, 1997, 1996 and 1995.

F-24
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

The equity method has been used by the Company with respect to investments
in subsidiaries. The equity method has been used by Subsidiary Guarantors with
respect to investments in Non-Guarantor Subsidiaries. Separate financial
statements for Subsidiary Guarantors are not presented based on management's
determination that they do not provide additional information that is material
to investors.

The following table sets forth the Guarantor and direct Non-Guarantor
Subsidiaries:

<TABLE>
<CAPTION>
GUARANTOR SUBSIDIARIES NON-GUARANTOR SUBSIDIARIES
- -------------------------------------------- --------------------------------------------
<S> <C>
Delco Remy America, Inc. Autovill RT Ltd.
Remy International, Inc. Power Investments Canada Ltd.
Reman Holdings, Inc. Remy UK Limited
Nabco, Inc. Delco Remy International (Europe) GmbH
The A&B Group, Inc. Remy India Holdings, Inc.
A&B Enterprises, Inc. Remy Mauritius Ltd.
Dalex, Inc. Remy Korea Holdings, Inc.
A&B Cores, Inc. 681287 Alberta Ltd.
R&L Tool Company, Inc. Publitech, Inc.
MCA, Inc. of Mississippi World Wide Automotive Distributors, Inc.
Power Investments, Inc. Autovill Holdings, Inc.
Franklin Power Products, Inc.
International Fuel Systems, Inc.
Marine Drive Systems, Inc.
Marine Corporation of America
Powrbilt Products, Inc.
World Wide Automotive, Inc.
</TABLE>

F-25
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

CONDENSED CONSOLIDATING BALANCE SHEET

<TABLE>
<CAPTION>
JULY 31, 1997
---------------------------------------------------------------------
DELCO REMY
INTERNATIONAL
INC. NON-
(PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash
equivalents.......... $ -- $ 1,504 $ 8,546 $ -- $ 10,050
Trade accounts
receivable........... -- 99,745 10,439 -- 110,184
Affiliate accounts
receivable, net...... -- 33,409 2 (33,411)(a) --
Other receivables..... -- 9,605 882 -- 10,487
Recoverable income
taxes................ -- 2,889 -- -- 2,889
Inventories........... -- 145,035 19,382 -- 164,417
Deferred income
taxes................ 4,315 17,159 -- -- 21,474
Other current assets.. -- 4,163 480 -- 4,643
-------- -------- ------- --------- --------
Total current
assets............. 4,315 313,509 39,731 (33,411) 324,144
Property and equipment.. 20 133,769 13,433 -- 147,222
Less accumulated
depreciation........... 13 22,353 4,492 -- 26,858
-------- -------- ------- --------- --------
7 111,416 8,941 -- 120,364
Deferred financing
costs.................. 5,148 3,655 -- -- 8,803
Goodwill, net........... -- 76,437 10,175 -- 86,612
Net assets held for
disposal............... -- 25,279 -- -- 25,279
Investment in
affiliates............. 171,614 -- -- (168,495)(b)(c) 3,119
Other assets............ 1,953 (1,463) 1,758 -- 2,248
-------- -------- ------- --------- --------
Total assets........ $183,037 $528,833 $60,605 $(201,906) $570,569
======== ======== ======= ========= ========
</TABLE>
- --------
(a) Eliminations of intercompany receivables and payables.
(b) Elimination of investments in subsidiaries.
(c) Elimination of investments in subsidiaries' earnings.

F-26
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997
CONDENSED CONSOLIDATING BALANCE SHEET

<TABLE>
<CAPTION>
JULY 31, 1997
------------------------------------------------------------------
DELCO REMY
INTERNATIONAL
INC. NON-
(PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT):
Current liabilities:
Accounts payable...... $ 195 $ 82,585 $ 5,798 $ -- $ 88,578
Affiliate accounts
payable.............. 15,684 6,152 11,575 (33,411)(a) --
Accrued interest
payable.............. -- 3,107 -- -- 3,107
Accrued restructuring
charges.............. -- 37,377 -- -- 37,377
Liabilities related to
discontinued
operations........... -- 3,324 -- -- 3,324
Other liabilities and
accrued expenses..... (9,815) 41,034 5,991 -- 37,210
Current portion of
long-term debt....... -- 506 1 -- 507
-------- -------- ------- --------- --------
Total current
liabilities........ 6,064 174,085 23,365 (33,411) 170,103
Deferred income taxes... 10,631 (9,114) 39 -- 1,556
Long-term debt, less
current portion........ 173,511 189,669 81 -- 363,261
Post-retirement benefits
other than pensions.... -- 12,677 -- -- 12,677
Accrued pension
benefit................ -- 4,542 -- -- 4,542
Other non-current
liabilities............ 876 3,231 17 -- 4,124
Minority interest in
subsidiary............. -- 6,504 1,528 -- 8,032
Redeemable exchangeable
preferred stock of
subsidiary............. -- 16,071 -- -- 16,071
Stockholders' equity
(deficit):
Common stock:
Class A Shares....... 5 -- -- -- 5
Class B Shares....... 4 -- -- -- 4
Paid-in capital....... 6,821 -- -- -- 6,821
Subsidiary
investment........... -- 127,665 31,970 (159,635)(b) --
Retained earnings
(deficit)............ (12,174) 3,503 5,357 (8,860)(c) (12,174)
Cumulative translation
adjustment........... -- -- (1,752) -- (1,752)
Stock purchase plan... (2,701) -- -- -- (2,701)
-------- -------- ------- --------- --------
Total stockholders'
equity (deficit)... (8,045) 131,168 35,575 (168,495) (9,797)
-------- -------- ------- --------- --------
Total liabilities
and stockholders'
equity (deficit)... $183,037 $528,833 $60,605 $(201,906) $570,569
======== ======== ======= ========= ========
</TABLE>
- --------
(a) Eliminations of intercompany receivables and payables.
(b) Elimination of investments in subsidiaries.
(c) Elimination of investments in subsidiaries' earnings.

F-27
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31, 1997
-----------------------------------------------------------------
DELCO REMY
INTERNATIONAL
INC. NON-
(PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ -- $684,790 $68,779 $(63,782)(a) $689,787
Cost of goods sold...... -- 548,875 55,141 (63,782)(a) 540,234
-------- -------- ------- -------- --------
Gross profit............ -- 135,915 13,638 -- 149,553
Selling, engineering,
and administrative
expenses............... 6,325 71,933 10,840 -- 89,098
Restructuring charges... -- 34,500 -- -- 34,500
-------- -------- ------- -------- --------
Operating (loss)
income................. (6,325) 29,482 2,798 -- 25,955
Other income (expense):
Gain on sale of
building............. -- -- 2,082 -- 2,082
Interest expense...... (18,815) (19,997) 38 -- (38,774)
-------- -------- ------- -------- --------
(Loss) income from
continuing operations
before income tax
(benefit), preferred
dividend requirement of
subsidiary, and
minority interest...... (25,140) 9,485 4,918 -- (10,737)
Minority interest in
income of
subsidiaries........... -- 921 (29) -- 892
Equity in earnings of
subsidiaries........... 1,821 -- -- (1,821)(b) --
Income taxes (benefit).. (9,023) 4,042 1,967 -- (3,014)
Preferred dividend
requirement of
subsidiary............. -- -- -- 1,648 (c) 1,648
-------- -------- ------- -------- --------
(Loss) income from
continuing operations.. (14,296) 4,522 2,980 (3,469) (10,263)
Discontinued operations:
Loss from operations
of discontinued
businesses (less
applicable income tax
benefit)............. -- 808 -- -- 808
Loss on disposal of
businesses (less
applicable income tax
benefit)............. -- 874 -- -- 874
Extraordinary item:
Write-off of debt
issuance costs (less
applicable income tax
benefit)............. -- 2,351 -- -- 2,351
-------- -------- ------- -------- --------
Net (loss) income....... $(14,296) $ 489 $ 2,980 $ (3,469) $(14,296)
======== ======== ======= ======== ========
</TABLE>
- --------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary.

F-28
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31, 1997
------------------------------------------------------------------
DELCO REMY
INTERNATIONAL
INC. NON-
(PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income....... $(14,296) $ 489 $ 2,980 $(3,469)(a) $ (14,296)
Extraordinary item...... 375 3,123 -- -- 3,498
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization.......... 1,629 19,942 752 -- 22,323
Gain on sale of
building.............. -- -- (2,082) -- (2,082)
Equity in earnings of
subsidiary............ (1,821) -- -- 1,821(a) --
Deferred income
taxes................. 7,864 (17,481) 39 -- (9,578)
Post-retirement
benefits other than
pensions.............. -- 4,491 -- -- 4,491
Accrued pension
benefits.............. -- 3,592 -- -- 3,592
Non-cash interest
expense............... 3,337 4,612 -- -- 7,949
Preferred dividend
requirement of
subsidiary............ -- -- -- 1,648(b) 1,648
Changes in operating
assets and
liabilities, net of
acquisitions:
Accounts receivable.. -- (1,715) (1,626) -- (3,341)
Inventories.......... -- (4,950) (5,295) -- (10,245)
Accounts payable..... (67) (10,970) 1 -- (11,036)
Intercompany
accounts............ (74,450) 65,730 8,720 -- --
Other current assets
and liabilities..... (8,727) 995 3,194 -- (4,538)
Accrued
restructuring....... -- 31,836 -- -- 31,836
Other non-current
assets and
liabilities, net.... (12,209) 16,180 (1,655) -- 2,316
-------- --------- ------- ------- ---------
Net cash (used in)
provided by operating
activities............. (98,365) 115,874 5,028 -- 22,537
INVESTING ACTIVITIES:
Acquisition, net of cash
acquired............... (45,284) 135 2,707 -- (42,442)
Purchase of property and
equipment.............. -- (27,025) (4,863) -- (31,888)
Investment in
affiliates............. (3,119) -- -- -- (3,119)
Proceeds from sale of
building............... -- -- 3,362 -- 3,362
-------- --------- ------- ------- ---------
Net cash (used in)
provided by investing
activities............. (48,403) (26,890) 1,206 -- (74,087)
FINANCING ACTIVITIES:
Proceeds from issuances
of long-term debt...... 162,700 17,300 -- -- 180,000
Payments on long-term
debt................... (16,000) (110,200) -- -- (126,200)
Other financing
activities............. -- 3,986 -- -- 3,986
-------- --------- ------- ------- ---------
Net cash provided by
(used in) financing
activities............. 146,700 (88,914) -- -- 57,786
Effect of exchange rate
changes on cash........ -- -- 408 -- 408
-------- --------- ------- ------- ---------
Net (decrease) increase
in cash and cash
equivalents............ (68) 70 6,642 -- 6,644
Cash and cash
equivalents at
beginning of year...... 68 1,434 1,904 -- 3,406
-------- --------- ------- ------- ---------
Cash and cash
equivalents at end of
year................... $ -- $ 1,504 $ 8,546 $ -- $ 10,050
======== ========= ======= ======= =========
</TABLE>
- --------
(a) Elimination of equity in earnings of subsidiary.
(b) Recording of preferred dividend requirement of subsidiary.

F-29
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

CONDENSED CONSOLIDATING BALANCE SHEET

<TABLE>
<CAPTION>
JULY 31, 1996
---------------------------------------------------------------------
DELCO REMY
INTERNATIONAL
INC. NON-
(PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash
equivalents.......... $ 68 $ 1,434 $ 1,904 $ -- $ 3,406
Trade accounts
receivable, net...... -- 87,161 7,831 -- 94,992
Affiliate accounts
receivable........... -- 80,650 -- (80,650)(a) --
Other receivables..... -- 10,265 320 -- 10,585
Recoverable income
taxes................ 825 7,013 836 -- 8,674
Inventories........... -- 111,631 11,952 -- 123,583
Deferred income
taxes................ 1,548 13,914 -- -- 15,462
Other current assets.. -- 790 423 -- 1,213
-------- -------- ------- --------- --------
Total current
assets............. 2,441 312,858 23,266 (80,650) 257,915
Property and equipment.. 20 162,963 7,408 -- 170,391
Less accumulated
depreciation........... -- 28,207 1,028 -- 29,235
-------- -------- ------- --------- --------
20 134,756 6,380 -- 141,156
Deferred financing
costs.................. 481 6,016 -- -- 6,497
Goodwill, net........... -- 58,174 8,396 -- 66,570
Investment in
affiliate.............. 119,240 -- -- (119,240)(b)(c) --
Other assets............ 544 345 2,055 -- 2,944
-------- -------- ------- --------- --------
Total assets........ $122,726 $512,149 $40,097 $(199,890) $475,082
======== ======== ======= ========= ========
</TABLE>

F-30
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

CONDENSED CONSOLIDATING BALANCE SHEET

<TABLE>
<CAPTION>
JULY 31, 1996
------------------------------------------------------------------
DELCO REMY
INTERNATIONAL
INC. NON-
(PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT):
Current liabilities:
Accounts payable...... $ 262 $ 75,509 $ 5,436 $ -- $ 81,207
Affiliate accounts
payable.............. 73,322 4,968 2,360 (80,650)(a) --
Accrued interest
payable.............. -- 4,026 -- -- 4,026
Accrued restructuring
charges.............. -- 5,541 -- -- 5,541
Liabilities related to
discontinued
operations........... -- 11,005 -- -- 11,005
Other liabilities and
accrued expenses..... (1,524) 31,151 3,056 -- 32,683
Current portion of
long-term debt....... -- 8,511 1,141 -- 9,652
-------- -------- ------- --------- --------
Total current
liabilities........ 72,060 140,711 11,993 (80,650) 144,114
Deferred income taxes... -- 6,795 -- -- 6,795
Long-term debt, less
current portion........ 46,919 242,225 -- -- 289,144
Post-retirement benefits
other than pensions.... -- 8,186 -- -- 8,186
Accrued pension
benefit................ -- 950 -- -- 950
Other non-current
liabilities............ (3) 2,582 2,848 -- 5,427
Minority interest in
subsidiary............. -- 4,457 -- -- 4,457
Redeemable exchangeable
preferred stock of
subsidiary............. -- 14,420 -- -- 14,420
Stockholders' equity
(deficit):
Common stock:
Class A Shares....... 5 -- -- -- 5
Class B Shares....... 4 -- -- -- 4
Paid-in capital....... 1,798 -- -- -- 1,798
Subsidiary
investment........... -- 87,161 25,040 (112,201)(b) --
Retained earnings
(deficit)............ 2,122 4,662 2,377 (7,039)(c) 2,122
Cumulative translation
adjustment........... -- -- (2,161) -- (2,161)
Notes receivable from
stockholders......... (179) -- -- -- (179)
-------- -------- ------- --------- --------
Total stockholders'
equity (deficit)... 3,750 91,823 25,256 (119,240) 1,589
-------- -------- ------- --------- --------
Total liabilities
and stockholders'
equity (deficit)... $122,726 $512,149 $40,097 $(199,890) $475,082
======== ======== ======= ========= ========
</TABLE>
- --------
(a) Elimination of intercompany receivables and payables.
(b) Elimination of investments in subsidiaries.
(c) Elimination of investments in subsidiaries' earnings.

F-31
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31, 1996
-----------------------------------------------------------------
DELCO REMY
INTERNATIONAL
INC. NON-
(PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.............. $ -- $657,782 $42,790 $(63,720)(a) $636,852
Cost of goods sold..... -- 541,363 32,435 (63,720)(a) 510,078
------- -------- ------- -------- --------
Gross profit........... -- 116,419 10,355 -- 126,774
Selling, engineering,
and administrative
expenses.............. 1,923 69,644 6,427 -- 77,994
Restructuring charges.. -- 8,101 -- -- 8,101
------- -------- ------- -------- --------
Operating (loss)
income................ (1,923) 38,674 3,928 -- 40,679
Interest expense....... (4,503) (22,477) (387) -- (27,367)
------- -------- ------- -------- --------
(Loss) income from
continuing operations
before income taxes
(benefit), preferred
dividend requirement
of subsidiary and
minority interest..... (6,426) 16,197 3,541 -- 13,312
Minority interest in
income of subsidiary.. -- -- 259 -- 259
Equity in earnings of
subsidiary............ (1,904) -- -- 1,904(b) --
Income taxes
(benefit)............. (3,489) 8,014 1,216 -- 5,741
Preferred dividend
requirement of
subsidiary............ -- -- -- 1,516(c) 1,516
------- -------- ------- -------- --------
(Loss) income from
continuing
operations............ (4,841) 8,183 2,066 388 5,796
Discontinued
operations:
Loss from operations
of discontinued
businesses (less
applicable income
tax benefit)........ -- 1,573 -- -- 1,573
Loss on disposal of
businesses (less
applicable income
tax benefit)........ -- 9,064 -- -- 9,064
------- -------- ------- -------- --------
Net (loss) income...... $(4,841) $ (2,454) $ 2,066 $ 388 $ (4,841)
======= ======== ======= ======== ========
</TABLE>
- --------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary.

F-32
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31, 1996
-----------------------------------------------------------------
DELCO REMY NON-
INTERNATIONAL SUBSIDIARY GUARANTOR
INC. GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income....... $ (4,841) $ (2,454) $ 2,066 $ 388 $ (4,841)
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization.......... -- 18,569 986 -- 19,555
Equity in earnings of
subsidiary............ 1,904 -- -- (1,904)(a) --
Deferred income
taxes................. (620) (3,328) 1,001 -- (2,947)
Post-retirement
benefits other than
pensions.............. -- 3,752 -- -- 3,752
Accrued pension
benefits.............. -- (3,509) -- -- (3,509)
Non-cash interest
expense............... 2,333 5,534 -- -- 7,867
Preferred dividend
requirement of
subsidiary............ -- -- -- 1,516 (b) 1,516
Changes in operating
assets and
liabilities, net of
acquisitions:
Accounts receivable.. -- (24,724) 266 -- (24,458)
Inventories.......... -- (27,048) 1,328 -- (25,720)
Accounts payable..... 262 7,339 1,033 -- 8,634
Intercompany
accounts............ 27,650 (29,070) 1,420 -- --
Other current assets
and liabilities..... (2,679) 21,702 (794) -- 18,229
Accrued
restructuring....... -- 5,541 -- -- 5,541
Other non-current
assets and
liabilities, net.... (1,148) 1,248 (4,403) -- (4,303)
-------- -------- ------- ------- --------
Net cash provided by
(used in) operating
activities............. 22,861 (26,448) 2,903 -- (684)
INVESTING ACTIVITIES:
Acquisition, net of cash
acquired............... (47,685) 1,365 -- -- (46,320)
Purchase of property and
equipment.............. (1) (32,740) -- -- (32,741)
-------- -------- ------- ------- --------
Net cash used in
investing activities... (47,686) (31,375) -- -- (79,061)
FINANCING ACTIVITIES:
Proceeds from issuances
of long-term debt...... 24,300 65,352 -- -- 89,652
Payments on long-term
debt................... -- (6,466) (2,376) -- (8,842)
Other financing
activities............. -- (20) -- -- (20)
-------- -------- ------- ------- --------
Net cash provided by
(used in) financing
activities............. 24,300 58,866 (2,376) -- 80,790
Effect of exchange rate
changes on cash........ -- -- 883 -- 883
-------- -------- ------- ------- --------
Net (decrease) increase
in cash and cash
equivalents............ (525) 1,043 1,410 -- 1,928
Cash and cash
equivalents at
beginning of year...... 593 391 494 -- 1,478
-------- -------- ------- ------- --------
Cash and cash
equivalents at end of
year................... $ 68 $ 1,434 $ 1,904 $ -- $ 3,406
======== ======== ======= ======= ========
</TABLE>
- --------
(a) Elimination of investment in affiliates earnings.
(b) Elimination of preferred dividend requirement of subsidiary.

F-33
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31, 1995
-----------------------------------------------------------------
DELCO REMY
INTERNATIONAL
INC. NON-
(PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.............. $ -- $584,859 $5,090 $(16,526)(a) $573,423
Cost of goods sold..... -- 488,406 3,336 (16,526)(a) 475,216
------- -------- ------ -------- --------
Gross profit........... -- 96,453 1,754 -- 98,207
Selling, engineering,
and administrative
expenses.............. 825 59,084 1,297 -- 61,206
------- -------- ------ -------- --------
Operating (loss)
income................ (825) 37,369 457 -- 37,001
Interest expense....... (2,083) (16,263) (86) -- (18,432)
------- -------- ------ -------- --------
(Loss) income from
continuing operations
before income taxes
(benefit), preferred
dividend requirement
of subsidiary, and
minority interest..... (2,908) 21,106 371 -- 18,569
Equity in earnings of
subsidiary............ 8,943 -- -- (8,943)(b) --
Income taxes
(benefit)............. (928) 8,713 61 -- 7,846
Preferred dividend
requirement of
subsidiary............ -- -- -- 1,397(c) 1,397
------- -------- ------ -------- --------
Income (loss) from
continuing
operations............ 6,963 12,393 310 (10,340) 9,326
Discontinued
operations:
Loss from operations
of discontinued
businesses (less
applicable income
tax benefit)........ -- 2,363 -- -- 2,363
------- -------- ------ -------- --------
Net income (loss)...... $ 6,963 $ 10,030 $ 310 $(10,340) $ 6,963
======= ======== ====== ======== ========
</TABLE>
- --------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary.

F-34
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31, 1995
--------------------------------------------------------------------
DELCO REMY NON-
INTERNATIONAL SUBSIDIARY GUARANTOR
INC. GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)....... $ 6,963 $ 10,030 $ 310 $(10,340)(a)(b) $ 6,963
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization.......... -- 14,491 42 -- 14,533
Equity in earnings of
subsidiary............ (8,943) -- -- 8,943 (a) --
Deferred income
taxes................. (927) (2,653) -- -- (3,580)
Post-retirement
benefits other than
pensions.............. -- 4,434 -- -- 4,434
Accrued pension
benefits.............. -- 4,459 -- -- 4,459
Non-cash interest
expense............... 2,086 5,983 -- -- 8,069
Preferred dividend
requirement of
subsidiary............ -- -- -- 1,397 (b) 1,397
Changes in operating
assets and
liabilities, net of
acquisitions:
Accounts receivable.. -- (49,270) (50) -- (49,320)
Inventories.......... -- (7,212) (823) -- (8,035)
Accounts payable..... -- 48,862 751 -- 49,613
Intercompany
accounts............ 62,733 (63,674) 941 -- --
Other current assets
and liabilities..... 330 (6,450) (537) -- (6,657)
Other non-current
assets and
liabilities, net.... 3,578 (3,797) 264 -- 45
-------- -------- ----- -------- --------
Net cash provided by
(used in) operating
activities............. 65,820 (44,797) 898 -- 21,921
INVESTING ACTIVITIES:
Acquisitions, net of
cash acquired.......... (64,429) 1,824 595 -- (62,010)
Purchase of property and
equipment.............. (19) (11,129) (93) -- (11,241)
-------- -------- ----- -------- --------
Net cash (used in)
provided by investing
activities............. (64,448) (9,305) 502 -- (73,251)
FINANCING ACTIVITIES:
Proceeds from issuances
of long-term debt...... -- 31,918 -- -- 31,918
Payments on long-term
debt................... (848) (3,163) (906) -- (4,917)
Other financing
activities............. -- 118 -- -- 118
-------- -------- ----- -------- --------
Net cash (used in)
provided by financing
activities............. (848) 28,873 (906) -- 27,119
-------- -------- ----- -------- --------
Net increase (decrease)
in cash and cash
equivalents............ 524 (25,229) 494 -- (24,211)
Cash and cash
equivalents at
beginning of year...... 69 25,620 -- -- 25,689
-------- -------- ----- -------- --------
Cash and cash
equivalents at end of
year................... $ 593 $ 391 $ 494 $ -- $ 1,478
======== ======== ===== ======== ========
</TABLE>
- --------
(a)Elimination of investment in affiliate earnings.
(b)Recording of preferred dividend requirement of subsidiary.

F-35
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

16. SUBSEQUENT EVENTS

Offerings

In October 1997, the Company filed Registration Statements to offer
approximately $60,000 of Class A Common Stock ($69,000 if the Underwriters'
over-allotment option is exercised in full) and $130,000 of Senior Notes Due
2007 (the Senior Notes). Net proceeds to the Company from such Offerings,
after deduction of associated expenses, are expected to be approximately
$181,000. The Company filed another Registration Statement in October 1997,
the purpose of which is to register an exchange offer for the Company's 10
5/8% Senior Subordinated Notes due 2006.

Planned Acquisition

On October 30, 1997, the Company entered into the Ballantrae Acquisition
Agreement to acquire all of the capital stock of Ballantrae (the Planned
Acquisition) for $52,800 (including assumed debt and the estimated working
capital adjustment and fees and expenses of Ballantrae). Ballantrae operates
through two subsidiaries: Tractech, a leading producer of traction control
systems for heavy duty original equipment manufacturers and the aftermarket;
and Kraftube, Inc., a tubing assembly business which sells products to
compressor manufacturers for commercial air conditioners and refrigeration
equipment. In fiscal year 1997, Tractech accounted for approximately 70% of
Ballantrae's $37,600 of net sales. The Company will exchange shares of its
Common Stock with a value (at the initial public offering price in the Equity
Offering) of approximately $22,100 for the equity of Ballantrae and will repay
approximately $29,700 of Ballantrae's debt. The acquisition is expected to be
completed at or prior to the consummation of the Offerings.

Recapitalization

In connection with the above-mentioned Offerings and Planned Acquisition,
the Company plans to complete several transactions pursuant to which the
Company's outstanding debt and preferred stock will be restructured (the
Recapitalization). Significant components of the Recapitalization, together
with the applicable accounting effects, will be as follows:

The payment in full of the World Note.

The early extinguishment of the World Note will result in a write-off of
the unamortized debt issue costs of $1,350, net of income taxes, which will
be accounted for as an extraordinary loss on this transaction.

The payment in full of the GM Acquisition Note.

The exchange of the Junior Subordinated Notes for 1,621,399 shares of
Class A Common Stock.

The exchange of the outstanding shares of 8% preferred stock of DRA to an
8% subordinated debenture of DRA.

The payment in full of $11,800 principal amount of subordinated notes
payable to certain former stockholders of A&B Group and Power.

The amendment of the senior credit facility in connection with the
consummation of the Offerings.

Payment of Ballantrae debt assumed in the Planned Acquisition.

Share and Per Share Information

On November 20, 1997, the Company authorized a 16.8-to-one stock split
subject to consummation of the Offerings. All share and per share amounts have
been adjusted to reflect this split. The primary earnings (loss)

F-36
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997

per share is based on the weighted average number of shares of common stock
and common stock equivalents outstanding during the year, adjusted to reflect
all common stock issued within one year prior to the initial public offering
of common stock as if those shares issued had been outstanding for all periods
presented.

F-37
<PAGE>

DELCO REMY INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED OCTOBER 31
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Net sales............................................. $ 169,766 $ 209,020
Cost of goods sold.................................... 131,372 170,877
---------- ----------
Gross profit.......................................... 38,394 38,143
Selling, engineering, and administrative expenses..... 23,335 20,936
---------- ----------
Operating income...................................... 15,059 17,207
Interest expense...................................... (9,391) (10,521)
---------- ----------
Income from continuing operations before income taxes,
preferred dividend requirement of subsidiary and
minority interest.................................... 5,668 6,686
Minority interest in income and subsidiary............ 137 538
Income taxes.......................................... 2,282 2,674
Preferred dividend requirement of subsidiary.......... 415 412
---------- ----------
Income from continuing operations..................... 2,834 3,062
Discontinued operations:
Loss from operations of discontinued businesses
(less applicable income tax benefit)............... 213 --
Extraordinary item:
Write-off of debt issuance costs (less applicable
income tax benefit)................................ 2,351 --
---------- ----------
Net income............................................ $ 270 $ 3,062
========== ==========
Primary earnings per share:
From continuing operations.......................... $ .16 $ .18
Before extraordinary item........................... .15 .18
Net income.......................................... .02 .18
</TABLE>

See Accompanying Notes

F-38
<PAGE>

DELCO REMY INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (IN THOUSANDS)

<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1997 1997
-------- -----------
(NOTE 1) (UNAUDITED)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents........................ $ 10,050 $ 8,626
Trade accounts receivable........................ 110,184 125,582
Other receivables................................ 13,376 6,590
Inventories...................................... 164,417 167,456
Deferred income taxes............................ 21,474 20,757
Other current assets............................. 4,643 5,210
-------- --------
Total current assets........................... 324,144 334,221
Property and equipment............................. 147,222 153,039
Less accumulated depreciation...................... 26,858 30,917
-------- --------
120,364 122,122
Deferred financing costs........................... 8,803 8,651
Goodwill (less accumulated amortization)........... 86,612 86,760
Net assets held for disposal....................... 25,279 23,909
Investment in affiliate............................ 3,119 4,727
Other assets....................................... 2,248 2,115
-------- --------
Total assets................................... $570,569 $582,505
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Accounts payable................................. $ 88,578 $ 96,818
Accrued interest payable......................... 3,107 7,262
Accrued restructuring charges.................... 37,377 37,922
Liabilities related to discontinued operations... 3,324 2,685
Other liabilities and accrued expenses........... 37,210 36,567
Current portion of long-term debt................ 507 535
-------- --------
Total current liabilities...................... 170,103 181,789
Deferred income taxes.............................. 1,556 1,556
Long-term debt, less current portion............... 363,261 358,170
Post-retirement benefits other then pension........ 12,677 13,742
Accrued pension benefits........................... 4,542 5,272
Other non-current liabilities...................... 4,124 3,899
Minority interest in subsidiary.................... 8,032 8,570
Redeemable exchangeable preferred stock of a
subsidiary........................................ 16,071 16,483
Stockholders' equity (deficit):
Common stock:
Class A Shares................................. 88 88
Class B Shares................................. 65 65
Paid-in capital.................................. 6,677 6,703
Retained earnings (deficit)...................... (12,174) (9,112)
Cumulative translation adjustment................ (1,752) (2,173)
Stock purchase plan.............................. (2,701) (2,547)
-------- --------
Total stockholders' equity (deficit)........... (9,797) (6,976)
-------- --------
Total liabilities and stockholders' equity
(deficit)..................................... $570,569 $582,505
======== ========
</TABLE>

See Accompanying Notes

F-39
<PAGE>

DELCO REMY INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
OCTOBER 31
-------------------
1996 1997
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income............................................... $ 270 $ 3,062
Extraordinary item....................................... 3,498 --
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization.......................... 5,300 4,698
Deferred income taxes.................................. (832) 717
Post-retirement benefits other than pensions........... 1,135 1,065
Accrued pension benefits............................... 1,018 730
Non-cash interest expense.............................. 1,883 1,693
Preferred dividend requirement of subsidiary........... 415 412
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable.................................. (14,241) (15,398)
Inventories.......................................... (9,342) (3,039)
Accounts payable..................................... (1,743) 8,240
Other current assets and liabilities................. 12,269 8,949
Accrued restructuring................................ (516) 545
Other non-current assets and liabilities, net........ (5,636) (259)
--------- --------
Net cash (used in) provided by operating activities...... (6,522) 11,415
INVESTING ACTIVITIES:
Purchase of property and equipment....................... (8,910) (5,747)
Investment in affiliates................................. (1,326) (1,608)
--------- --------
Net cash used in investing activities.................... (10,236) (7,355)
FINANCING ACTIVITIES:
Proceeds from issuances of long-term debt................ 140,000 --
Payments on long-term debt............................... (126,200) --
Other financing activities............................... 9,080 (5,063)
--------- --------
Net cash provided by (used in) financing activities...... 22,880 (5,063)
--------- --------
Effect of exchange rate changes on cash.................. 1,534 (421)
--------- --------
Net increase (decrease) in cash and cash equivalents..... 7,656 (1,424)
Cash and cash equivalents at beginning of year........... 3,406 10,050
--------- --------
Cash and cash equivalents at end of year................. $ 11,062 $ 8,626
========= ========
</TABLE>

See Accompanying Notes

F-40
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

1. BASIS OF PRESENTATION

The accompanying unaudited interim condensed consolidated financial
statements contain all adjustments, consisting of normal recurring
adjustments, which are, in the opinion of the management of Delco Remy
International, Inc. (the Company), necessary to present fairly the condensed
consolidated financial position of the Company as of July 31, 1997 and October
31, 1997, and the condensed consolidated results of operations and cash flows
of the Company for the three months ended October 31, 1997 and 1996,
respectively. Results of operations for the periods presented are not
necessarily indicative of the results for the full fiscal year. The balance
sheet at July 31, 1997 has been derived from the audited financial statements
at that date but does not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. These financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto for the year ended
July 31, 1997.

2. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1997 1997
-------- -----------
<S> <C> <C>
Raw material............................................ $ 84,583 $ 82,676
Work in-process......................................... 20,168 23,997
Finished goods.......................................... 59,666 60,783
-------- --------
$164,417 $167,456
======== ========
</TABLE>

3 EARNINGS PER SHARE

The primary earnings per share is based on the weighted average number of
shares of common stock and common stock equivalents outstanding during the
year, adjusted to reflect all common stock issued within one year prior to the
initial public offering of common stock as if those shares issued had been
outstanding for all periods presented.

F-41

<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997

4. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES

The Company conducts a significant portion of its business through
subsidiaries. Certain debt securities are unconditionally guaranteed, jointly
and severally, by certain direct and indirect subsidiaries (the Subsidiary
Guarantors). Certain of the Company's subsidiaries do not guarantee the debt
securities (the Non-Guarantor Subsidiaries). The claims of creditors of Non-
Guarantor Subsidiaries have priority over the rights of the Company to receive
dividends or distributions from such subsidiaries.

Presented below is condensed consolidating financial information for the
Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at
October 31, 1997 and for the three months ended October 31, 1996 and 1997.

CONDENSED CONSOLIDATING BALANCE SHEET

<TABLE>
<CAPTION>
OCTOBER 31, 1997
---------------------------------------------------------------------
DELCO REMY
INTERNATIONAL
INC. NON-
(PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash
equivalents.......... $ -- $ 2,461 $ 6,165 $ -- $ 8,626
Trade accounts
receivable........... -- 114,982 10,600 -- 125,582
Affiliate accounts
receivables, net..... -- 38,816 -- (38,816)(a) --
Other receivables..... -- 5,130 1,460 -- 6,590
Inventories........... -- 145,459 21,997 -- 167,456
Deferred income
taxes................ 4,315 16,442 -- -- 20,757
Other current assets.. -- 4,725 485 -- 5,210
-------- -------- ------- --------- --------
Total current
assets.............. 4,315 328,015 40,707 (38,816) 334,221
Property and equipment.. 20 138,319 14,700 -- 153,039
Less accumulated
depreciation........... 13 29,006 1,898 -- 30,917
-------- -------- ------- --------- --------
7 109,313 12,802 -- 122,122
Deferred financing
costs.................. 5,148 3,503 -- -- 8,651
Goodwill, net........... 2,122 76,516 8,122 -- 86,760
Net assets held for
disposal............... -- 23,909 -- -- 23,909
Investment in
affiliates............. 177,430 -- -- (172,703)(b)(c) 4,727
Other assets............ 1,847 (1,504) 1,772 -- 2,115
-------- -------- ------- --------- --------
Total assets......... $190,869 $539,752 $63,403 $(211,519) $582,505
======== ======== ======= ========= ========
</TABLE>
- --------
(a) Eliminations of intercompany receivables and payables.
(b) Elimination of investments in subsidiaries.
(c) Elimination of investments in subsidiaries' earnings.

F-42
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997

CONDENSED CONSOLIDATING BALANCE SHEET

<TABLE>
<CAPTION>
OCTOBER 31, 1997
------------------------------------------------------------------
DELCO REMY
INTERNATIONAL
INC. NON-
(PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCK-
HOLDERS' EQUITY (DEFI-
CIT):
Current liabilities:
Accounts payable...... $ 195 $ 89,859 $ 6,764 $ -- $ 96,818
Affiliate accounts
payable.............. 19,740 6,154 12,922 (38,816)(a) --
Accrued interest
payable.............. 4,428 2,834 -- -- 7,262
Accrued restructuring
charges.............. -- 37,922 -- -- 37,922
Liabilities related to
discontinued
operations........... -- 2,685 -- -- 2,685
Other liabilities and
accrued expenses..... (13,204) 44,718 5,053 -- 36,567
Current portion of
long term debt....... -- 535 -- -- 535
-------- -------- ------- --------- --------
Total current
liabilities........ 11,159 184,707 24,739 (38,816) 181,789
Deferred income taxes... 10,629 (9,746) 673 -- 1,556
Long-term debt, less
current portion........ 173,511 184,577 82 -- 358,170
Post-retirement benefits
other than pensions.... -- 13,742 -- -- 13,742
Accrued pension
benefit................ -- 5,272 -- -- 5,272
Other non-current
liabilities............ 373 1,225 2,301 -- 3,899
Minority interest in
subsidiary............. -- 7,011 1,559 -- 8,570
Redeemable exchangeable
preferred stock of
subsidiary............. -- 16,483 -- -- 16,483
Stockholders' equity
(deficit):
Common stock:
Class A Shares...... 5 -- -- -- 5
Class B Shares...... 4 -- -- -- 4
Paid-in capital....... 6,847 -- -- -- 6,847
Subsidiary
investment........... -- 127,666 29,917 (157,583)(b) --
Retained earnings
(deficit)............ (9,112) 8,815 6,305 (15,120)(c) (9,112)
Cumulative translation
adjustment........... -- -- (2,173) -- (2,173)
Stock purchase plan... (2,547) -- -- -- (2,547)
-------- -------- ------- --------- --------
Total stockholders'
equity (deficit)... (4,803) 136,481 34,049 (172,703) (6,976)
-------- -------- ------- --------- --------
Total liabilities
and stockholders'
equity (deficit)... $190,869 $539,752 $63,403 $(211,519) $582,505
======== ======== ======= ========= ========
</TABLE>
- --------
(a) Eliminations of intercompany receivables and payables.
(b) Elimination of investments in subsidiaries.
(c) Elimination of investments in subsidiaries' earnings.

F-43
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED OCTOBER 31, 1997
-----------------------------------------------------------------
DELCO REMY
INTERNATIONAL NON-
INC. (PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ -- $206,031 $25,812 $(22,823)(a) $209,020
Cost of goods sold...... -- 171,872 21,828 (22,823)(a) 170,877
------- -------- ------- -------- --------
Gross profit............ -- 34,159 3,984 -- 38,143
Selling, engineering,
and administrative
expenses............... 860 17,583 2,493 -- 20,936
------- -------- ------- -------- --------
Operating (loss)
income................. (860) 16,576 1,491 -- 17,207
Interest expense........ (4,808) (5,701) (12) -- (10,521)
------- -------- ------- -------- --------
(Loss) income from
continuing operations
before income taxes
(benefit), preferred
dividend requirement of
subsidiary and minority
interest............... (5,668) 10,875 1,479 -- 6,686
Minority interest in
income of
subsidiaries........... -- 507 31 -- 538
Equity in earnings of
subsidiaries........... 6,260 -- -- (6,260)(b) --
Income taxes (benefit).. (2,470) 4,644 500 -- 2,674
Preferred dividend
requirement of
subsidiary............. -- -- -- 412 (c) 412
------- -------- ------- -------- --------
Net income (loss)....... $ 3,062 $ 5,724 $ 948 $ (6,672) $ 3,062
======= ======== ======= ======== ========
</TABLE>
- --------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary.

F-44

<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED OCTOBER 31, 1997
----------------------------------------------------------------
DELCO REMY
INTERNATIONAL
INC. NON-
(PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)....... $ 3,062 $ 5,724 $ 948 $(6,672) $ 3,062
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in) operating
activities:
Depreciation and amor-
tization............. 36 4,305 357 -- 4,698
Equity in earnings of
subsidiary........... (6,260) -- -- 6,260 (a) --
Deferred income tax-
es................... 4,376 (3,291) (368) -- 717
Post-retirement
benefits other than
pensions............. -- 1,065 -- -- 1,065
Accrued pension bene-
fits................. -- 730 -- -- 730
Non-cash interest ex-
pense................ 853 840 -- -- 1,693
Preferred dividend re-
quirement of subsidi-
ary.................. -- -- -- 412 (b) 412
Changes in operating
assets and
liabilities, net of
acquisitions:
Accounts receivable.. -- (15,237) (161) -- (15,398)
Inventories.......... -- (424) (2,615) -- (3,039)
Accounts payable..... -- 7,274 966 -- 8,240
Intercompany ac-
counts.............. 4,056 (5,405) 1,349 -- --
Other current assets
and liabilities..... 1,591 8,879 (1,521) -- 8,949
Accrued restructur-
ing................. -- 545 -- -- 545
Other non-current
assets and
liabilities, net.... (6,106) 5,362 485 -- (259)
------- -------- ------- ------- --------
Net cash provided by
(used in) operating
activities............. 1,608 10,367 (560) -- 11,415
INVESTING ACTIVITIES:
Purchase of property and
equipment.............. -- (4,347) (1,400) -- (5,747)
Investment in affili-
ates................... (1,608) -- -- -- (1,608)
------- -------- ------- ------- --------
Net cash used in invest-
ing activities......... (1,608) (4,347) (1,400) -- (7,355)
FINANCING ACTIVITIES:
Other financing activi-
ties................... -- (5,063) -- -- (5,063)
------- -------- ------- ------- --------
Net cash used in financ-
ing activities......... -- (5,063) -- -- (5,063)
Effect of exchange rate
changes on cash........ -- -- (421) -- (421)
------- -------- ------- ------- --------
Net increase (decrease)
in cash and cash
equivalents............ -- 957 (2,381) -- (1,424)
Cash and cash
equivalents at
beginning of year...... -- 1,504 8,546 -- 10,050
------- -------- ------- ------- --------
Cash and cash
equivalents at end of
year................... $ -- $ 2,461 $ 6,165 $ -- $ 8,626
======= ======== ======= ======= ========
</TABLE>
- --------
(a) Elimination of equity in earnings of subsidiary.
(b) Recording of preferred dividend requirement of subsidiary.

F-45
<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED OCTOBER 31, 1996
-----------------------------------------------------------------
DELCO REMY
INTERNATIONAL
INC. NON-
(PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................ $ -- $169,128 $14,237 $(13,599)(a) $169,766
Cost of goods sold....... -- 134,117 10,854 (13,599)(a) 131,372
------- -------- ------- -------- --------
Gross profit............. -- 35,011 3,383 -- 38,394
Selling, engineering, and
administrative
expenses................ 674 20,414 2,247 -- 23,335
------- -------- ------- -------- --------
Operating (loss) income.. (674) 14,597 1,136 -- 15,059
Interest expense......... (4,690) (4,650) (51) -- (9,391)
------- -------- ------- -------- --------
(Loss) income from
continuing operations
before income taxes
(benefit), preferred
dividend requirement of
subsidiary and minority
interest................ (5,364) 9,947 1,085 -- 5,668
Minority interest in
income of subsidiaries.. -- 137 -- -- 137
Equity in earnings of
subsidiaries............ 3,745 -- -- (3,745)(b) --
Income taxes (benefit)... (2,141) 4,066 357 -- 2,282
Preferred dividend
requirement of
subsidiary.............. -- -- -- 415 (c) 415
------- -------- ------- -------- --------
Income (loss) from
continuing operations... 522 5,744 728 (4,160) 2,834
Discontinued operations:
Loss from operations of
discontinued business
(less applicable
income tax benefit)... -- 213 -- -- 213
Extraordinary item:
Write-off of debt
issuance costs (less
applicable income tax
benefit).............. 252 2,099 -- -- 2,351
------- -------- ------- -------- --------
Net income (loss)........ $ 270 $ 3,432 $ 728 $ (4,160) $ 270
======= ======== ======= ======== ========
</TABLE>
- --------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary.

F-46

<PAGE>

DELCO REMY INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED OCTOBER 31, 1996
-----------------------------------------------------------------
DELCO REMY
INTERNATIONAL NON-
INC. (PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)...... $ 270 $ 3,432 $ 728 $(4,160) $ 270
Extraordinary item..... 375 3,123 -- -- 3,498
Adjustments to
reconcile net income
(loss) to net cash
(used in) provided by
operating activities:
Depreciation and
amortization......... 43 5,093 164 -- 5,300
Equity in earnings of
subsidiary........... (3,745) -- -- 3,745(a) --
Deferred income
taxes................ (4,465) 4,430 (797) -- (832)
Post-retirement
benefits other than
pensions............. -- 1,135 -- -- 1,135
Accrued pension
benefits............. -- 1,018 -- -- 1,018
Non-cash interest
expense.............. 765 1,118 -- -- 1,883
Preferred dividend
requirement of
subsidiary........... -- -- -- 415(b) 415
Changes in operating
assets and
liabilities, net of
acquisitions:
Accounts receivable.. -- (14,083) (158) -- (14,241)
Inventories.......... -- (8,104) (1,238) -- (9,342)
Accounts payable..... (2) (2,437) 696 -- (1,743)
Intercompany
accounts............ (116,645) 118,941 (2,296) -- --
Other current asset
and liabilities..... 2,805 5,955 3,509 -- 12,269
Accrued
restructuring....... -- (516) -- -- (516)
Other non-current
assets and
liabilities, net.... 15,177 (19,568) (1,245) -- (5,636)
--------- --------- ------- ------- ---------
Net cash (used in)
provided by operating
activities............. (105,422) 99,537 (637) -- (6,522)
INVESTING ACTIVITIES:
Purchase of property and
equipment.............. -- (8,345) (565) -- (8,910)
Investment in
affiliates............. (1,326) -- -- -- (1,326)
--------- --------- ------- ------- ---------
Net cash used in
investing activities... (1,326) (8,345) (565) -- (10,236)
FINANCING ACTIVITIES:
Proceeds from issuances
of long-term debt...... 122,700 17,300 -- -- 140,000
Payments on long-term
debt................... (16,000) (110,200) -- -- (126,200)
Other financing
activities............. -- 9,080 -- -- 9,080
--------- --------- ------- ------- ---------
Net cash provided by
financing activities... 106,700 83,820 -- -- 22,880
Effect of exchange rate
changes on cash........ -- -- 1,534 -- 1,534
--------- --------- ------- ------- ---------
Net (decrease) increase
in cash net cash
equivalents............ (48) 7,372 332 -- 7,656
Cash and cash
equivalents at
beginning of year...... 68 1,434 1,904 -- 3,406
--------- --------- ------- ------- ---------
Cash and cash
equivalents at end of
year................... $ 20 $ 8,806 $ 2,236 $ -- $ 11,062
========= ========= ======= ======= =========
</TABLE>
- --------
(a) Elimination of equity in earnings of subsidiary.
(b) Recording of preferred dividend requirement of subsidiary.

F-47
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors
World Wide Automotive, Inc. (formerly Precision Alternator and Starter, Inc.)

We have audited the accompanying balance sheet of World Wide Automotive,
Inc. (formerly Precision Alternator and Starter, Inc.) as of March 31, 1997
and the related statements of income, stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. We did not audit the financial
statements of CertiPro, a division of the Company, which statements reflect
total assets of $7,907,945 as of March 31, 1997, and total revenues of
$18,744,026 for the year then ended. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data included for CertiPro, is based solely on the report of the
other auditors.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit and the report of other
auditors provide a reasonable basis for our opinion.

In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of World Wide Automotive, Inc. (formerly
Precision Alternator and Starter, Inc.) at March 31, 1997, and the results of
its operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.

Ernst & Young LLP

Vienna, Virginia
October 16, 1997

F-48
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Precision Alternator and Starter, Inc.

We have audited the accompanying balance sheet of Precision Alternator and
Starter, Inc. as of March 31, 1996, and the related statements of income,
stockholders' equity, and cash flows for each of the two years in the period
ended March 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Precision Alternator and
Starter, Inc. at March 31, 1996, and the results of its operations and its
cash flows for each of the two years ended March 31, 1996, in conformity with
generally accepted accounting principles.

FRIEDMAN & FULLER, P.C.

Rockville, Maryland
October 15, 1997

F-49
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Precision Alternator and Starter, Inc.

We have audited the balance sheet of Certipro Division of Precision
Alternator and Starter, Inc. as of March 31, 1997, and the related statements
of operations, changes in division equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Certipro Division of
Precision Alternator and Starter, Inc. at March 31, 1997, and the results of
its operations and its cash flows for each of the two years ended in
conformity with generally accepted accounting principles.

Friedman & Fuller, P.C.

Rockville, Maryland
August 19, 1997

F-50
<PAGE>

[THIS PAGE LEFT INTENTIONALLY BLANK]

F-51
<PAGE>

WORLD WIDE AUTOMOTIVE, INC.
(FORMERLY PRECISION ALTERNATOR AND STARTER, INC.)

BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31
------------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash............................................... $ 251,466 $ 52,089
Trade accounts receivable, less allowance for
doubtful accounts
of $101,682 and $211,065, respectively............ 10,523,827 12,326,336
Accounts receivable, other......................... 9,235 35,447
Inventory, less reserves of $295,881 and $780,760,
respectively...................................... 27,139,396 31,568,338
Prepaid expenses................................... 300,774 436,009
Current portion of deferred tax asset.............. 569,000 1,569,000
----------- -----------
Total current assets............................. 38,793,698 45,987,219
Property, plant and equipment........................ 3,608,217 3,864,719
Less accumulated depreciation........................ (2,215,971) (2,377,067)
----------- -----------
1,392,246 1,487,652
Other assets:
Deposits........................................... 132,700 78,638
Goodwill, net of accumulated amortization of
$274,126
and $309,881, respectively........................ 798,538 762,783
Other intangibles, net of accumulated amortization
of $103,360 and $231,027, respectively............ 133,211 215,133
Deferred tax asset, net of current portion......... 669,000 424,000
Investment in SKB, Inc............................. 350,000 --
----------- -----------
Total other assets............................... 2,083,449 1,480,554
----------- -----------
Total assets..................................... $42,269,393 $48,955,425
=========== ===========
</TABLE>

See Accompanying Notes

F-52
<PAGE>

WORLD WIDE AUTOMOTIVE, INC.
(FORMERLY PRECISION ALTERNATOR AND STARTER, INC.)

BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31
-----------------------
1996 1997
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Line of credit........................................ $17,664,012 $17,445,110
Accounts payable...................................... 13,335,509 17,775,992
Warranty reserve...................................... 305,233 478,371
Accrued compensation.................................. 1,380,165 1,511,875
Accrued commissions................................... 205,741 481,799
Accrued freight....................................... 209,311 236,267
Accrued interest...................................... 152,530 161,491
Other accrued expenses................................ 130,668 450,195
Current portion of long-term debt..................... 526,324 836,105
Current portion of capital lease obligations.......... 23,790 59,652
Income taxes payable.................................. 851,146 46,302
----------- -----------
Total current liabilities........................... 34,784,429 39,483,159
Long-term debt, less current portion.................... 157,784 638,986
Capital lease obligations, less current portion......... 20,856 127,442
Deferred rent........................................... 302,567 421,201
----------- -----------
Total liabilities................................... 35,265,636 40,670,788
Commitments
Stockholders' equity:
Common stock, $.01 par; 150,000 shares authorized,
120,000 shares issued and outstanding................ 1,200 1,200
Additional capital.................................... 2,784,450 2,784,450
Retained earnings..................................... 4,218,107 5,498,987
----------- -----------
Total stockholders' equity.......................... 7,003,757 8,284,637
----------- -----------
Total liabilities and stockholders' equity.......... $42,269,393 $48,955,425
=========== ===========
</TABLE>

See Accompanying Notes

F-53
<PAGE>

WORLD WIDE AUTOMOTIVE, INC.
(FORMERLY PRECISION ALTERNATOR AND STARTER, INC.)

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales............................... $53,929,452 $64,951,886 $78,099,809
Cost of sales........................... 37,385,345 43,933,876 53,399,411
----------- ----------- -----------
Gross profit............................ 16,544,107 21,018,010 24,700,398
Selling, general and administrative..... 13,502,315 16,630,082 19,541,106
----------- ----------- -----------
Income from operations.................. 3,041,792 4,387,928 5,159,292
Interest expense........................ 1,249,828 1,631,218 1,968,744
Other expense........................... 437,159 516,949 1,059,668
----------- ----------- -----------
Income before income taxes.............. 1,354,805 2,239,761 2,130,880
Income tax expense (benefit):
Current............................... 700,000 1,149,433 1,566,000
Deferred.............................. (114,000) (321,000) (716,000)
----------- ----------- -----------
586,000 828,433 850,000
----------- ----------- -----------
Net income.............................. $ 768,805 $ 1,411,328 $ 1,280,880
=========== =========== ===========
</TABLE>

See Accompanying Notes

F-54
<PAGE>

WORLD WIDE AUTOMOTIVE, INC.
(FORMERLY PRECISION ALTERNATOR AND STARTER, INC.)

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON ADDITIONAL RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at March 31, 1994.............. $1,200 $2,784,450 $2,037,974 $4,823,624
Net income............................. -- -- 768,805 768,805
------ ---------- ---------- ----------
Balance at March 31, 1995.............. 1,200 2,784,450 2,806,779 5,592,429
Net income............................. -- -- 1,411,328 1,411,328
------ ---------- ---------- ----------
Balance at March 31, 1996.............. 1,200 2,784,450 4,218,107 7,003,757
Net income............................. -- -- 1,280,880 1,280,880
------ ---------- ---------- ----------
Balance at March 31, 1997.............. $1,200 $2,784,450 $5,498,987 $8,284,637
====== ========== ========== ==========
</TABLE>

See Accompanying Notes

F-55
<PAGE>

WORLD WIDE AUTOMOTIVE, INC.
(FORMERLY PRECISION ALTERNATOR AND STARTER, INC.)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31
------------------------------------
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.............................. $ 768,805 $ 1,411,328 $ 1,280,880
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization......... 325,574 372,044 495,182
Equity in net income of investment.... (5,837) (32,082) --
Write-down of investment to fair
market value......................... -- 63,640 --
Gain on sale of assets................ (6,786) (60,250) (42,770)
Deferred rent......................... 60,513 242,054 118,634
Provision for deferred income tax
expense.............................. (114,000) (321,000) (716,000)
Changes in operating assets and
liabilities:
Trade accounts receivable & other
accounts receivable................ (2,145,316) 1,251,838 (1,812,721)
Inventory........................... (3,818,557) (8,197,203) (4,428,942)
Prepaid expenses and other assets... (31,809) (105,354) (339,691)
Accounts payable and accrued
expenses........................... 3,110,662 1,949,702 5,376,833
Income taxes payable................ (247,192) 269,421 (804,844)
---------- ----------- -----------
Net cash used in operating activities... (2,103,943) (3,155,862) (873,439)
INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment.............................. 21,241 60,250 250,595
Purchase of property and equipment...... (789,403) (424,064) (433,415)
Sale of Investment in SKB, Inc.......... -- -- 350,000
---------- ----------- -----------
Net cash (used in) provided by investing
activities............................. (768,162) (363,814) 167,180
FINANCING ACTIVITIES:
Net borrowings (repayments) on line of
credit................................. 3,000,574 3,946,313 (218,902)
Proceeds from issuance of long-term
debt................................... 303,126 -- 1,950,000
Payments on long-term debt.............. (389,395) (409,136) (1,159,007)
Payments on capital lease obligations... (25,796) (22,511) (65,209)
---------- ----------- -----------
Net cash provided by financing
activities............................. 2,888,509 3,514,666 506,882
---------- ----------- -----------
Increase (decrease) in cash............. 16,404 (5,010) (199,377)
Cash at beginning of year............... 240,072 256,476 251,466
---------- ----------- -----------
Cash at end of year..................... $ 256,476 $ 251,466 $ 52,089
========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid during the year........... $1,180,143 $ 1,594,311 $ 1,959,783
========== =========== ===========
Income taxes paid during the year....... $ 947,192 $ 880,012 $ 1,654,844
========== =========== ===========
NON-CASH INVESTING AND FINANCING
ACTIVITIES
Capitalized leases...................... $ -- $ -- $ 207,647
========== =========== ===========
</TABLE>

See Accompanying Notes

F-56
<PAGE>

WORLD WIDE AUTOMOTIVE, INC.
(FORMERLY PRECISION ALTERNATOR AND STARTER, INC.)

NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

World Wide Automotive, Inc. (formerly Precision Alternator and Starter,
Inc.) (the "Company") is a re-manufacturer and distributor of automotive
components. The Company sells its products to retail and wholesale
distributors, jobbers and dealers located throughout the continental U.S. and
Canada. The Company is primarily an aftermarket supplier of light duty import
starters and alternators.

Use of Estimates

Preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Foreign Currency Transactions

As a result of purchasing inventory from foreign vendors, the Company is
exposed to the effect of foreign exchange rate fluctuations. It is the
practice of the Company to hedge these transactions with foreign currency
futures contracts. The Company does not engage in speculation. At March 31,
1997 the Company has forward exchange contract commitments through September
1997 to purchase approximately 621,724,000 Japanese Yen for approximately $5.4
million. Exchange gains and losses are realized during the year upon
settlement and are included in operations.

If the financial counter party failed to perform according to the terms of
the foreign currency futures contracts, the Company would have to settle the
purchase commitments at the exchange rate at the dates of settlement and incur
related gain or loss. Management expects the financial counter party to fully
perform under the contracts.

Revenue Recognition

The Company's revenue is recognized at the time the product is shipped. The
Company's remanufacturing operations obtain used starters and alternators,
commonly known as cores, from its customers as trade-ins. Net sales and cost
of goods sold are reduced to reflect the cost of cores returned for credit.

Cash

The Company considers cash and liquid investments with original or remaining
maturity of three months or less to be cash equivalents.

Concentrations of Credit Risk and Other Risks

Substantially all of the Company's accounts receivable are due from
customers in the original equipment and after-market automotive industries,
both in the U.S. and internationally. Credit is granted to substantially all
of the Company's customers. The Company performs periodic credit evaluations
of its customers' financial condition and generally does not require
collateral. Credit losses are provided for in the financial statements and
have been consistently within management's expectations.

Net sales for the years ended March 31, 1995, 1996 and 1997, included sales
to three major customers totaling approximately $21,400,000, $21,500,000 and
$38,300,000, respectively. Approximately $4,000,000 and $7,000,000,
respectively, is included in account receivable from these same three
customers as of March 31, 1996 and 1997.

F-57
<PAGE>

WORLD WIDE AUTOMOTIVE, INC.
(FORMERLY PRECISION ALTERNATOR AND STARTER, INC.)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997

Purchases from significant vendors for the years ended March 31, 1995, 1996
and 1997, included purchases from one major vendor totaling approximately 27%,
19% and 17% of total purchases, respectively. Approximately $5.4 million is
included in accounts payable due to this major vendor as of both March 31,
1996 and 1997.

Fair Value of Financial Instruments

The Company's financial instruments generally consist of cash, trade and
other receivables, accounts payable and long-term debt. The carrying amounts
of these financial instruments approximated their fair values at March 31,
1996 and 1997.

Inventory

Inventory is stated at the lower of cost or market, cost being determined by
the weighted average method, which approximates the first-in, first-out (FIFO)
method. Raw materials also include supplies and repair parts which consist of
material consumed in the manufacturing process but not directly incorporated
into the finished products. Inventory consists of the following:

<TABLE>
<CAPTION>
MARCH 31
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Raw materials...................................... $ 2,389,258 $ 2,020,122
Cores.............................................. 7,490,594 10,458,116
Finished goods..................................... 17,555,425 19,870,860
Less reserves...................................... (295,881) (780,760)
----------- -----------
$27,139,396 $31,568,338
=========== ===========
</TABLE>

Property, Plant and Equipment

Property, plant and equipment are stated at historical cost and are
depreciated using the straight-line method over the shorter of the asset's
estimated useful life or the lease term (for equipment held under capital
leases). Useful lives are primarily 5 years, except for buildings which are 25
years. Property, plant and equipment consists of the following:

<TABLE>
<CAPTION>
MARCH 31
-----------------------
1996 1997
----------- -----------
<S> <C> <C>
Land and buildings.................................. $ 176,603 $ 176,603
Machinery and equipment............................. 1,611,074 1,439,472
Computer equipment.................................. 648,692 846,275
Leasehold improvements.............................. 546,302 549,987
Furniture and fixtures.............................. 512,661 531,850
Equipment under capital leases...................... 112,885 320,532
----------- -----------
$ 3,608,217 $ 3,864,719
=========== ===========
</TABLE>

Depreciation/amortization expense for the years ended March 31, 1995, 1996
and 1997, was approximately, $258,000, $293,000 and $332,000, respectively.

Goodwill and Other Intangibles

Goodwill represents the excess of purchase price over fair value of net
assets acquired and is being amortized on a straight-line basis over 30 years.

F-58
<PAGE>

WORLD WIDE AUTOMOTIVE, INC.
(FORMERLY PRECISION ALTERNATOR AND STARTER, INC.)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997

Other intangibles consist of acquisition and loan costs. Acquisition costs
are being amortized on a straight-line basis over 30 years. Loan costs are
being amortized over the loan periods which range from 15 to 60 months, or the
expected life of the asset which in all instances is equal to, or less than
the loan period. Other intangibles consists of the following:

<TABLE>
<CAPTION>
MARCH 31
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Acquisition costs...................................... $ 127,515 $ 127,515
Loan costs............................................. 109,056 318,645
Less accumulated amortization.......................... (103,360) (231,027)
--------- ---------
$ 133,211 $ 215,133
========= =========
</TABLE>

The carrying values of intangible assets are regularly reviewed for
indicators of impairment in value, which in the view of management are other
than temporary, including unexpected or adverse changes in the following: (i)
the economic or competitive environments in which the Company operates; (ii)
profitability analyses; and (iii) cash flow analyses. If facts and
circumstances suggest that the carrying value of an intangible asset is
impaired, the Company assesses the fair value and reduces the asset to an
amount that results in the book value approximating fair value.

Long-Term Assets

Warranty Reserve

The Company warrants to original purchasers of its products that all
products will be free from defects in materials and workmanship for as long as
the products are used on vehicles for which they were purchased. The Company
does not warrant installation, abused or disassembled products or products
that have been tampered with or used in a manner not in keeping with the
original intent of the product. Additionally, the warranty extends only to
products and the replacement thereof. The Company does not assume
responsibility for any incidental or consequential damages. The Company has
provided a warranty reserve in conjunction with this policy.

Deferred Rent

The Company has two facility lease agreements which contain rent abatement
periods and rent escalations which are straight-lined over the life of the
leases.

Income Taxes

Deferred income taxes are provided for timing differences in recognizing
certain income, expense and credit items for financial reporting purposes and
tax reporting purposes.

Impact of Recently Issued Accounting Standards

In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income, which is effective for years beginning after December 15, 1997, which
the Company anticipates adopting in 1998. The Statement establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general purpose financial statements. The Statement will not have
any impact on the results of operations or the financial position of the
Company.

Reclassification

Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform to the 1997 presentation.

F-59
<PAGE>

WORLD WIDE AUTOMOTIVE, INC.
(FORMERLY PRECISION ALTERNATOR AND STARTER, INC.)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997

2. INVESTMENT IN SKB, INC.

The Company accounted for its 50% investment in SKB, Inc. ("SKB") by the
equity method of accounting. During the year ended March 31, 1996, the Company
recorded a charge of $63,640 to reduce its investment in SKB to fair market
value. The Company sold its interest in SKB on October 1, 1996 at a price of
$350,000, resulting in no gain or loss on the transaction. For the years ended
March 31, 1995 and 1996 and for the period from April 1, 1996 through October
1, 1996, the Company had net sales to SKB of $836,838, $774,420 and $142,651,
respectively.

3. LINE OF CREDIT AGREEMENT

In October 1996, the Company amended its agreement to increase its line of
credit to $20,000,000. The line of credit expires on December 31, 1997, and
bears interest at the prime rate plus one and one half percent. Interest is
payable monthly. The amount available under the line of credit is limited to
specified percentages of inventory and eligible receivables less a standby
letter of credit provision of $630,000. The line of credit is collateralized
by substantially all of the Company's assets. Under the agreement terms, the
Company is obligated to meet certain loan covenants. As of March 31, 1997, the
Company was not in compliance with these covenants, however all of the
violations were cured when the debt was repaid on May 8, 1997 in connection
with the acquisition of the Company by Delco Remy International, Inc. (see
Note 10).

4. LONG-TERM DEBT

Borrowings under long-term debt arrangements consist of the following:

<TABLE>
<CAPTION>
MARCH 31
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Notes payable to bank in monthly installments through
December 1997 of principal and interest at the prime
rate plus 1 1/2%; collateralized by equipment....... $ 120,266 $ 45,091
$1,300,000 term note to bank expiring in December
1997 with monthly principal payments of $86,667 plus
interest at the prime rate plus 1 1/2%;
collateralized by substantially all of the Company's
assets.............................................. -- 780,000
Unsecured subordinated debenture payable to a
financial institution with interest only payments at
19% for the first 18 months and equal principal &
interest payments thereafter for the remaining 42
months through August 2001.......................... -- 650,000
Note payable to bank repaid in December 1996......... 272,000 --
Subordinated notes repaid to shareholders in November
1996................................................ 291,842 --
--------- ---------
684,108 1,475,091
Less current portion................................. (526,324) (836,105)
--------- ---------
$ 157,784 $ 638,986
========= =========
</TABLE>

F-60
<PAGE>

WORLD WIDE AUTOMOTIVE, INC.
(FORMERLY PRECISION ALTERNATOR AND STARTER, INC.)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997

Aggregate maturities of long-term debt at March 31, 1997 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING MARCH 31 AMOUNT
-------------------- ----------
<S> <C>
1998.............................................................. $ 836,105
1999.............................................................. 146,597
2000.............................................................. 177,009
2001.............................................................. 213,729
2002.............................................................. 101,651
----------
Total............................................................. $1,475,091
==========
</TABLE>

5. LEASES AND COMMITMENTS

The Company is currently obligated under certain non-cancelable operating
leases for the rental of facilities, vehicles and equipment which expire at
various dates through October 2014. The Company also leases trucks under
cancelable operating leases. Total rent expense under all operating leases for
the years ended March 31, 1995, 1996 and 1997, was approximately $941,000,
$1,455,000 and $1,945,000, respectively.

The Company leases certain equipment under capital leases. Amortization of
leased assets is included in depreciation expense.

Aggregate future minimum lease payments under capital and non-cancelable
operating leases having remaining terms in excess of one year as of March 31,
1997 are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED MARCH 31 LEASES LEASES
------------------- -------- -----------
<S> <C> <C>
1998.................................................. $ 75,147 $ 1,178,031
1999.................................................. 49,479 965,271
2000.................................................. 49,479 766,049
2001.................................................. 49,479 572,316
2002.................................................. 6,872 469,962
Thereafter............................................ -- 7,293,136
-------- -----------
Total minimum lease payments.......................... 230,456 $11,244,765
===========
Less amounts representing interest.................... (43,362)
--------
Present value of future minimum lease payments........ $187,094
========
</TABLE>

Under terms of a management consulting agreement, the Company was obligated
to pay an affiliate a fee for management and consulting services through March
31, 1998. This agreement was terminated at the time of the sale of the Company
in May 1997 (see Note 10). Management fee expense under this agreement was
$180,000, $195,000 and $250,000 for the years ended March 31, 1995, 1996 and
1997, respectively.

6. INCOME TAXES

Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"), requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for differences between the financial
statement and tax bases of assets and liabilities that will result in taxable
or deductible amount in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.

F-61
<PAGE>

WORLD WIDE AUTOMOTIVE, INC.
(FORMERLY PRECISION ALTERNATOR AND STARTER, INC.)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997

SFAS 109 provides that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion of the deferred tax
asset will not be realized. Management believes, based on the weight of
available evidence, that no allowance is necessary.

The following is a summary of the components of the provision for income
taxes (benefit) of continuing operations:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31
--------------------------------
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal.................................. $590,000 $ 974,433 $1,319,000
State and Local.......................... 110,000 175,000 247,000
-------- ---------- ----------
700,000 1,149,433 1,566,000
Deferred:
Federal.................................. (99,000) (271,000) (603,000)
State and Local.......................... (15,000) (50,000) (113,000)
-------- ---------- ----------
$586,000 $ 828,433 $ 850,000
======== ========== ==========
</TABLE>

A reconciliation of income taxes at the United States federal statutory rate
to the effective income tax rate follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31
------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory income tax (34% rate)..... $ 461,000 $ 762,000 $ 725,000
State and local income taxes, net of federal
tax benefit................................ 73,000 89,000 98,000
Other items................................. 52,000 (22,567) 27,000
--------- --------- ---------
Effective income tax rate................... $ 586,000 $ 828,433 $ 850,000
========= ========= =========
</TABLE>

The following is a summary of the significant components of the Company's
deferred tax assets and liabilities:
<TABLE>
<CAPTION>
MARCH 31
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Deferred tax assets:
Inventory capitalization........................... $ 436,000 $ 764,000
Compensated absences............................... 172,000 175,000
Inventory reserves................................. 112,000 316,000
Warranty liability................................. 116,000 182,000
Reserve for sales returns.......................... 57,000 53,000
Deferred compensation.............................. 61,000 189,000
Allowance for doubtful accounts.................... 39,000 80,000
Leases............................................. 115,000 160,000
Other.............................................. 150,000 157,000
---------- ----------
1,258,000 2,076,000
Deferred tax liabilities:
Fixed and intangible assets........................ (20,000) (83,000)
---------- ----------
(20,000) (83,000)
---------- ----------
Net deferred tax asset............................... $1,238,000 $1,993,000
========== ==========
</TABLE>

F-62
<PAGE>

WORLD WIDE AUTOMOTIVE, INC.
(FORMERLY PRECISION ALTERNATOR AND STARTER, INC.)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997

7. 401(K) PLAN

The Company maintains a 401(k) plan which covers all employees who meet the
Plan's eligibility requirements. Under the terms of the Plan, both the
Company's contributions to the Plan and the level of matching voluntary
employee contributions by the Company is discretionary on an annual basis.
Plan expense for the years ended March 31, 1995, 1996 and 1997, was
approximately $36,000, $64,000 and $44,000, respectively.

8. STOCK RIGHTS PLAN

During 1989 the Company established a non-qualified stock rights plan. Each
right represents the Company's obligation to pay either cash or a stock right
equal to a portion of the Company's book value at that date. Granting of stock
rights is at the discretion of the Stock Rights Committee, and the amount
granted cannot exceed ten percent of income before management fees, interest,
taxes, and any other non-operating expenses. One-half of stock rights granted
vest on the last day of the fiscal year during which the grant was made and
the remaining one half vests on the last day of the succeeding fiscal year.
Employees may elect to receive cash in lieu of stock rights.

For the years ended March 31, 1995, 1996 and 1997, the Company granted
$53,000, $140,000 and $127,000, of stock rights. Total stock rights
outstanding at March 31, 1995, 1996 and 1997, are valued at approximately
$260,000, $464,000 and $454,000, respectively. The total unvested portion as
of March 31, 1995, 1996 and 1997, was $33,000, $189,000 and $197,000,
respectively. Effective in October 1996, the stock rights plan was terminated,
however vested and unvested portions were uneffected. Upon the sale of the
Company, the vested/unvested amounts were paid to the holders of these stock
rights (see Note 10).

9. OTHER EXPENSE

Other expense consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
----------------------------
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Management consulting fees..................... $180,000 $195,000 $ 466,000
Vendor finance charges......................... 214,075 159,033 278,267
Other.......................................... 43,084 162,916 315,401
-------- -------- ----------
$437,159 $516,949 $1,059,668
======== ======== ==========
</TABLE>

10. SUBSEQUENT EVENTS

On May 8, 1997, a wholly owned subsidiary of Delco Remy International
("DRI") acquired 82.5% of the outstanding common stock of the Company for
approximately $42.0 million which includes assumed debt. The current
management of the Company retained the remaining 17.5% interest in the
Company. A portion of the proceeds was used to retire substantially all of the
Company's debt.

In conjunction with the acquisition, the Company divested itself of its
route sale division (CertiPro) via a distribution of assets, relinquished its
rights to certain intellectual property including the rights to the name
"Precision Alternator and Starter" and effected a Corporate Charter Amendment
to change its name to World Wide Automotive, Inc.

F-63
<PAGE>

WORLD WIDE AUTOMOTIVE, INC.
(FORMERLY PRECISION ALTERNATOR AND STARTER, INC.)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997

The acquisition was treated as a purchase for accounting purposes and is
included in the consolidated financial statements of DRI beginning with the
acquisition date. DRI filed Registration Statements with the Securities and
Exchange Commission in connection with DRI's planned sale of common stock and
$130,000,000 of senior notes due in 2007. It is anticipated that the Company
will be an unconditional joint and several guarantor of the senior notes of
DRI, along with all of DRI's other domestic subsidiaries.

F-64
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Ballantrae Corporation
(Successor to Tractech Division of Titan Wheel International, Inc.)

We have audited the accompanying statements of operations, stockholders'
equity and cash flows of Tractech Division of Titan Wheel International, Inc.
(predecessor to Ballantrae Corporation) for the nine months ended September
30, 1996 and the year ended December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Tractech
Division of Titan Wheel International, Inc. for the nine months ended
September 30, 1996 and the year ended December 31, 1995, in conformity with
generally accepted accounting principles.

ERNST & YOUNG LLP

Detroit, Michigan
October 17, 1997

F-65
<PAGE>

TRACTECH DIVISION OF TITAN WHEEL INTERNATIONAL, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
Net sales................................. $26,395,431 $18,432,740
Cost of sales............................. 16,731,310 11,920,057
----------- -----------
Gross profit.............................. 9,664,121 6,512,683
Selling expenses.......................... 688,681 424,817
General and administrative expenses....... 3,182,504 2,560,968
----------- -----------
3,871,185 2,985,785
----------- -----------
Income from operations.................... 5,792,936 3,526,898
Other income.............................. 351,975 252,134
----------- -----------
Income before income taxes................ 6,144,911 3,779,032
Income taxes (Note 2)..................... 1,627,261 871,760
----------- -----------
Net income................................ $ 4,517,650 $ 2,907,272
=========== ===========
</TABLE>

See Accompanying Notes

F-66
<PAGE>

TRACTECH DIVISION OF TITAN WHEEL INTERNATIONAL, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1996

<TABLE>
<CAPTION>
ACCUMULATED
RETAINED SUBSIDIARY TRANSLATION
EARNINGS INVESTMENT ADJUSTMENTS TOTAL
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Balance at December 31,
1994...................... $ 28,272,462 $ 18,418,510 $ 509,267 $ 47,200,239
Net income for 1995........ 4,517,650 -- -- 4,517,650
Translation adjustments.... -- -- 282,598 282,598
------------ ------------ --------- ------------
Balance at December 31,
1995...................... 32,790,112 18,418,510 791,865 52,000,487
Net income for 1996........ 2,907,272 -- -- 2,907,272
Translation adjustments.... -- -- 23,289 23,289
------------ ------------ --------- ------------
Balance at September 30,
1996...................... $ 35,697,384 $ 18,418,510 $ 815,154 $ 54,931,048
============ ============ ========= ============
</TABLE>

See Accompanying Notes

F-67
<PAGE>

TRACTECH DIVISION OF TITAN WHEEL INTERNATIONAL, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 4,517,650 $2,907,272
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization................... 1,145,510 914,148
Gain on sale of fixed assets.................... -- (8,937)
Changes in operating assets and liabilities:
Accounts receivable........................... (898,139) (274,136)
Inventories................................... (1,171,422) 1,737,878
Other assets.................................. 523,095 (76,788)
Accounts payable.............................. (361,431) (168,683)
Accrued interest and liabilities.............. (129,086) 111,023
Income taxes payable.......................... (542,632) (78,878)
Intercompany liabilities...................... (873,556) (5,306,167)
Equity adjustments from foreign currency...... 168,294 21,515
----------- ----------
Net cash provided by operating activities......... 2,378,283 (221,753)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment......... (2,279,759) (418,597)
Proceeds from sale of capital assets.............. 77,749 47,204
----------- ----------
Net cash used in investing activities............. (2,202,010) (371,393)
Net increase (decrease) in cash................... 176,273 (593,146)
Cash and cash equivalents at beginning of period.. 1,408,488 1,584,761
----------- ----------
Cash and cash equivalents at end of period........ $ 1,584,761 $ 991,615
=========== ==========
</TABLE>

See Accompanying Notes

F-68
<PAGE>

TRACTECH DIVISION OF TITAN WHEEL INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Tractech Division of Titan Wheel International, Inc. (the Company) is the
predecessor of Ballantrae Corporation (see Note 6). The Company consists of
domestic operations and the operations of a company in Ireland, and is engaged
in the engineering, manufacturing, and marketing of mechanical transmission
components and systems used in transportation vehicles and mobile equipment.

Principles of Reporting

The financial statements include the accounts of Tractech Division of Titan
Wheel International, Inc. (Titan). All significant intercompany and
interdivisional transactions and balances have been eliminated. The financial
statements do not reflect any of the purchase accounting adjustments made by
Titan resulting from the acquisition of the Company by Titan in 1993. These
financial statements have been prepared to include only the operating results,
changes in stockholders' equity and cash flows of the Company. Accordingly,
all disclosures related to the balance sheet have been omitted.

Titan has allocated certain general and administrative charges to the
Company totaling $675,000 and $674,000 for the nine months ended September 30,
1996 (1996) and the year ended December 31, 1995 (1995), respectively. These
charges were allocated by Titan based upon sales. Management believes that
this method of allocation is reasonable.

Use of Estimates

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The carrying amount of
cash equivalents approximates fair value.

Concentrations of Credit Risk and Other Risks

Substantially all of the Company's accounts receivable are due from
manufacturers of mobile equipment, trucks and specialized vehicles, both in
the U.S. and internationally. The Company performs periodic credit evaluations
of its customers' financial condition and generally does not require
collateral. Credit losses are provided for in the financial statements and
have been consistently within management's expectations. The Company invests
its temporary cash in high credit quality financial institutions and
investment grade short-term investments and limits the amount of credit
exposure to any one entity.

The percentage of the Company's labor force covered by a collective
bargaining agreement (CBA) is 57%. The CBA expires on August 31, 1999.

Inventories

Inventories are carried at the lower of cost or market, using the last-in,
first-out (LIFO) method.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is computed
on the straight-line method over the estimated useful lives of the assets (40
years for buildings and improvements and 12 years for machinery and
equipment). Costs of maintenance and repairs are charged to expense when
incurred.

F-69
<PAGE>

TRACTECH DIVISION OF TITAN WHEEL INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996

Other Assets

Patents are amortized using the straight-line method over their estimated
lives.

Foreign Currency Translation

Financial statements of foreign subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and at the average exchange rate for each period for revenue and
expenses. Translation adjustments are recorded as a separate component of
stockholders' equity. Losses resulting from foreign exchange transactions
totaling $15,867 and $23,445 for the year ended December 31, 1995 and the nine
months ended September 30, 1996, respectively, are included in net income.

2. FEDERAL INCOME TAXES

The Company is included in the consolidated tax returns of Titan. The tax
expense recorded by the Company is the amount allocated to it by Titan. This
amount approximates the tax expense that would result from using a separate
return basis. Titan did not allocate any deferred tax assets or liabilities to
the Company. The following is a summary of the components of the provision for
income taxes:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Federal........................................... $1,106,000 $457,000
State and Local................................... 165,357 110,000
Foreign........................................... 355,904 304,760
---------- --------
$1,627,261 $871,760
========== ========
</TABLE>

Income before income taxes was taxed in the following jurisdictions:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Domestic.......................................... $3,873,575 $1,417,153
Foreign........................................... 2,271,336 2,361,879
---------- ----------
$6,144,911 $3,779,032
========== ==========
</TABLE>

A reconciliation of income taxes at the United States federal statutory rate
to the effective income tax rate follows:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Federal statutory income tax rate................. 34.0% 34.0%
Favorable foreign tax rate........................ (6.8) (12.9)
Other items....................................... (0.7) 2.0
---- -----
Effective income tax rate......................... 26.5% 23.1%
==== =====
</TABLE>

The favorable foreign tax rate is the result of an inducement offered by the
Irish government to encourage the Company to establish their foreign
manufacturing facility in Ireland. The favorable rate expires in 2010.

F-70
<PAGE>

TRACTECH DIVISION OF TITAN WHEEL INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996

No provision has been made for United States federal and state or foreign
taxes that may result from future remittances of undistributed earnings of
foreign operations ($10,466,851 at September 30, 1996) because it is expected
that such earnings will be reinvested in these foreign operations
indefinitely. It is not practical to estimate the amount of taxes that might
be payable on the eventual remittances of such earnings.

3. COMMITMENTS AND CONTINGENCIES

The Company leases a building under a noncancelable operating lease which
provides for a renewal option every five years. The operating lease has rental
payments due of approximately $58,900 in the remaining months of 1996,
$235,600 in 1997 and 1998, and $78,533 in 1999.

Total rental expense under all operating leases aggregated $285,953 and
$214,220 for the year ended December 31, 1995 and the nine months ended
September 30, 1996, respectively. Included in rental expense is $1 per year
for the lease of equipment having an original cost of approximately $2,350,000
pursuant to an incentive lease arrangement sponsored by the Irish Development
Authority. The Company has the right to continue this lease indefinitely.

The Company is party to legal actions and claims arising in the ordinary
course of business. The Company believes that the disposition of these matters
will not have a material adverse effect on financial position, results of
operations or cash flows of the Company.

4. RETIREMENT PLANS AND BENEFITS

The Company is a participant in two defined contribution 401(k) savings
plans sponsored by Titan that cover substantially all domestic salary and
hourly employees. Company contributions to the plans are based on employee
contributions and compensation. The Company may also make discretionary
contributions annually. Company contributions for these two plans totaled
$43,281 and $32,213 for the year ended December 31, 1995 and the nine months
ended September 30, 1996, respectively.

The Company sponsors a defined contribution retirement savings plan that
covers substantially all of its employees at its foreign location. Company
contributions to the plan are based on employee contributions and
compensation. Company contributions totaled $52,082 and $30,932 for the year
ended December 31, 1995 and the nine months ended September 30, 1996,
respectively.

The Company contributes to the Central States Pension Fund, which covers all
eligible bargaining employees of one of its plants. The benefits are
principally based on years of service and a benefit formula as defined in the
plan. The Company currently contributes $37 per week per eligible employee,
which is specified in the Bargaining Agreement. Company contributions totaled
$65,305 and $46,472 for the year ended December 31, 1995 and the nine months
ended September 30, 1996, respectively.

F-71
<PAGE>

TRACTECH DIVISION OF TITAN WHEEL INTERNATIONAL, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996

5. SEGMENT AND GEOGRAPHIC DATA

The Company operates in one business segment--manufacturing engineered metal
products and systems for original equipment manufacturers and end users of
transportation mobile equipment. Geographical region information for the year
ended December 31, 1995 and the nine months ended September 30, 1996 is as
follows:

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
Net sales:
United States......................... $21,806,188 $14,117,885
International......................... 10,647,278 7,554,012
Eliminate intercompany sales.......... (6,058,035) (3,239,157)
----------- -----------
Total net sales..................... $26,395,431 $18,432,740
=========== ===========
Operating income:
United States......................... $ 3,873,575 $ 1,417,153
International......................... 2,271,336 2,361,879
----------- -----------
Total operating income.............. $ 6,144,911 $ 3,779,032
=========== ===========
</TABLE>

International sales are principally from operations located in Ireland and
do not include export sales of domestic operations. Export sales from domestic
operations were not significant for the year ended December 31, 1995 or the
nine months ended September 30, 1996.

During the year ended December 31, 1995 and the nine months ended September
30, 1996, there were sales to one customer that amounted to $3,656,599 and
$2,674,869, respectively.

6. SUBSEQUENT EVENT

Effective October 1, 1996, the Company was sold to Tractech, Inc., a
subsidiary of Ballantrae Corporation.

F-72
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors Ballantrae Corporation

We have audited the accompanying consolidated balance sheets of Ballantrae
Corporation as of September 30, 1997 and December 31, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the nine months ended September 30, 1997 and the three months ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Ballantrae Corporation at September 30, 1997 and December 31, 1996, and the
consolidated results of its operations and its cash flows for the nine months
ended September 30, 1997 and the three months ended December 31, 1996, in
conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Detroit, Michigan
October 17, 1997, except for Note 12,
as to which the date is
October 30, 1997

F-73
<PAGE>

BALLANTRAE CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents......................... $ 783,966 $ 460,605
Accounts receivable, less allowance of $65,000 in
1997 and 1996, respectively...................... 4,923,871 5,696,717
Inventories (Note 1).............................. 9,708,513 10,426,534
Recoverable income taxes.......................... 163,000 --
Deferred income tax............................... 46,000 452,000
Other............................................. 45,520 51,865
----------- -----------
Total current assets............................ 15,670,870 17,087,721
Property, plant and equipment:
Land.............................................. 272,490 272,490
Buildings and improvements........................ 4,022,144 4,034,313
Machinery and equipment........................... 12,010,783 13,049,576
----------- -----------
16,305,417 17,356,379
Less accumulated depreciation and amortization.... 2,569,028 3,628,851
----------- -----------
Net property, plant and equipment............... 13,736,389 13,727,528
Other assets:
Goodwill, net of amortization of $92,516 and
$261,542 in 1996 and 1997, respectively.......... 13,790,739 13,572,110
Deferred financing costs, net of amortization of
$17,550 and $52,650 in 1996 and 1997,
respectively..................................... 473,569 421,419
Patents, net of amortization of $4,623 and $21,239
in 1996 and 1997, respectively................... 210,438 216,475
----------- -----------
Total other assets.............................. 14,474,746 14,210,004
----------- -----------
Total assets.................................... $43,882,005 $45,025,253
=========== ===========
</TABLE>

See Accompanying Notes

F-74

<PAGE>

BALLANTRAE CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................. $ 2,614,925 $ 2,793,599
Accrued liabilities............................... 1,889,740 1,721,457
Accrued interest.................................. 539,575 609,872
Income taxes payable.............................. 193,032 629,232
----------- -----------
Total current liabilities....................... 5,237,272 5,754,160
Long-term debt (Note 4)............................. 32,239,100 29,934,100
Deferred income taxes (Note 6)...................... 277,000 566,000
Redeemable exchangeable preferred stock of
subsidiary (Note 5)................................ 8,242,048 8,981,800
Redeemable exchangeable preferred stock (Note 5).... 2,814,192 3,109,287
Stockholders' equity (deficit):
Class A common stock, $.01 par value, 1,000,000
shares authorized, 106,453 shares issued and
outstanding...................................... 1,065 1,065
Class B common stock, $.01 par value, 1,000,000
shares authorized, 122,500 shares issued and
outstanding...................................... -- 1,225
Paid-in capital................................... 105,388 226,663
Retained earnings................................. 305,960 1,790,973
Predecessor carryover basis....................... (5,340,020) (5,340,020)
----------- -----------
Total stockholders' equity (deficit)............ (4,927,607) (3,320,094)
----------- -----------
Total liabilities and stockholders equity
(deficit)...................................... $43,882,005 $45,025,253
=========== ===========
</TABLE>

See Accompanying Notes

F-75

<PAGE>

BALLANTRAE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Net sales................................ $7,924,259 $28,877,686
Cost of sales............................ 5,246,791 19,028,791
---------- -----------
Gross profit............................. 2,677,468 9,848,895
Selling expenses......................... 203,561 752,895
General and administrative expenses...... 1,074,181 3,365,179
---------- -----------
1,277,742 4,118,074
---------- -----------
Income from operations................... 1,399,726 5,730,821
Other income (expense):
Interest expense....................... (651,712) (2,296,290)
Interest income........................ 19,985 7,650
Deferred financing charges............. (17,550) (52,650)
Foreign exchange gain or loss and
other................................. (4,251) (184,302)
---------- -----------
(653,528) (2,525,592)
---------- -----------
Income before income taxes and preferred
dividend requirement of subsidiary...... 746,198 3,205,229
Income taxes (Note 6).................... 185,458 727,207
Preferred dividend requirement of
subsidiary.............................. 190,588 739,752
---------- -----------
Net income............................... $ 370,152 $ 1,738,270
========== ===========
</TABLE>

See Accompanying Notes

F-76

<PAGE>

BALLANTRAE CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1997

<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL PREDECESSOR
COMMON COMMON PAID-IN RETAINED CARRYOVER
STOCK STOCK CAPITAL EARNINGS BASIS TOTAL
------- ------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 1,
1996................... $1,065 $ -- $105,388 $ -- $(5,340,020) $(5,233,567)
Preferred stock
dividends.............. -- -- -- (64,192) -- (64,192)
Net income for 1996..... -- -- -- 370,152 -- 370,152
------ ------ -------- ---------- ----------- -----------
Balance at December 31,
1996................... 1,065 -- 105,388 305,960 (5,340,020) (4,927,607)
------ ------ -------- ---------- ----------- -----------
Warrants redeemed....... -- 1,225 121,275 -- -- 122,500
Preferred stock
dividends.............. -- -- -- (253,257) -- (253,257)
Net income for 1997..... -- -- -- 1,738,270 -- 1,738,270
------ ------ -------- ---------- ----------- -----------
Balance at September 30,
1997................... $1,065 $1,225 $226,663 $1,790,973 $(5,340,020) $(3,320,094)
====== ====== ======== ========== =========== ===========
</TABLE>

See Accompanying Notes

F-77

<PAGE>

BALLANTRAE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 370,152 $ 1,738,270
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization.......... 447,782 1,395,253
Deferred income taxes.................. 12,000 (117,000)
Preferred dividend requirement of
subsidiary............................ 190,588 739,752
Changes in operating assets and
liabilities:
Accounts receivable.................... (866,534) (617,228)
Recoverable income taxes............... (163,000) 163,000
Inventories............................ (363,341) (718,021)
Other current assets................... 80,303 (161,963)
Accounts payable....................... 676,324 178,674
Accrued interest and liabilities....... 838,103 (97,985)
Income taxes payable................... 67,972 436,200
---------- -----------
Net cash provided by operating
activities.............................. 1,290,349 2,938,952
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in acquisition costs............ (600,997) (43,413)
Purchase of property, plant and
equipment............................... (121,994) (1,050,962)
Increase in patents...................... (20,112) (27,276)
---------- -----------
Net cash used in investing activities.... (743,103) (1,121,651)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt..... (450,000) (2,305,000)
Issuance of preferred stock.............. -- 41,838
Issuance of common stock................. -- 122,500
---------- -----------
Net cash used in financing activity...... (450,000) (2,140,662)
Net increase (decrease) in cash and cash
equivalents ............................ 97,246 (323,361)
Cash and cash equivalents at beginning of
period.................................. 686,720 783,966
---------- -----------
Cash and cash equivalents at end of
period.................................. $ 783,966 $ 460,605
========== ===========
Supplemental disclosure of cash flow
information:
Interest paid.......................... $ 119,690 $ 1,366,000
Income taxes paid...................... $ 163,000 $ 350,000
</TABLE>

See Accompanying Notes

F-78

<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Ballantrae Corporation and its subsidiaries (collectively, the "Company")
are engaged in the engineering, manufacturing, and marketing of mechanical
power transmission components and systems used in transportation vehicles and
mobile equipment, and fabricated tubing assemblies used in air conditioning
and refrigeration compressors.

Principles of Consolidation

The consolidated financial statements include the accounts of Ballantrae
Corporation and its subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The carrying amount of
cash equivalents approximates fair value.

Concentrations of Credit Risk and Other Risks

Substantially all of the Company's accounts receivable are due from original
equipment manufacturers of mobile equipment, trucks and specialized vehicles,
and manufacturers of air conditioners and refrigeration compressors, both in
the U.S. and internationally. The Company performs periodic credit evaluations
of its customers' financial condition and generally does not require
collateral. Credit losses are provided for in the financial statements and
have been consistently within management's expectations. The Company invests
its temporary cash in high credit quality financial institutions and
investment grade short-term investments and limits the amount of credit
exposure to any one entity.

The percentage of the Company's labor force covered by a collective
bargaining agreement (CBA) is 29%. The CBA expires on August 31, 1999.

Inventories

Inventories are carried at the lower of cost or market, using the first-in,
first-out (FIFO) method. The components of inventories are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Raw Materials..................................... $4,993,363 $ 5,094,424
Work in process................................... 2,910,757 3,494,447
Finished goods.................................... 1,804,393 1,837,663
---------- -----------
$9,708,513 $10,426,534
========== ===========
</TABLE>

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is computed
on the straight-line method over the estimated useful lives of the assets (25
to 40 years for buildings and improvements and 5 to 12 years for machinery and
equipment). Costs of maintenance and repairs are charged to expense when
incurred.

F-79
<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997

Goodwill

Goodwill represents the excess of the purchase price over the fair value of
net assets acquired and is being amortized by the straight line method over 40
years.

Deferred Financing Costs and Patents

Deferred financing costs are primarily costs incurred in connection with the
Company's acquisition and are being amortized over the term of the related
debt using the straight-line method. Patents are amortized using the straight-
line method over their estimated lives.

Foreign Currency Translation

Financial statements of the Company's foreign subsidiary are translated into
U.S. dollars using a combination of historical and current exchange rates for
assets and liabilities. The related translation gain or (loss) of $22,669 and
$(342,436) for the three months ended December 31, 1996 and the nine months
ended September 30, 1997, respectively, are included in net income.

Long-Term Assets

In accordance with FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the Company
records impairment losses on long-lived assets used in operations when events
and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less
than the carrying amounts of these assets.

Fair Value of Financial Instruments

The Company's financial instruments generally consist of cash and cash
equivalents, accounts receivable, accounts payable, long-term debt and
redeemable convertible preferred stock. The fair value of the Company's fixed
rate debt was estimated using discounted cash flow analyses based upon the
Company's current incremental borrowing rates. The carrying amounts of
financial instruments approximated their fair value at December 31, 1996 and
September 30, 1997.

Impact of Recently Issued Accounting Standards

In June 1997, the FASB issued Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information. The Statement changes the way public
companies are required to report segment

F-80
<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997

information in annual financial statements and in interim financial reports to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Statement is
effective for financial statements for fiscal years beginning after December
15, 1997, and will be adopted by the Company in 1998. The Company is
evaluating the impact that this Statement will have on its financial
reporting.

2. ACQUISITION

On October 1, 1996, the Company, through a wholly-owned subsidiary, acquired
substantially all of the assets of the Tractech Division of Dyneer Corporation
and Tractech Limited (Tractech). The aggregate purchase price was $33.9
million including cash payments of $23.9 million and the issuance of $10
million in a 11% subordinated promissory note payable on October 31, 2006. The
Tractech acquisition resulted in goodwill of $11.7 million which is being
amortized over 40 years.

On October 24, 1996, the Company, through a wholly-owned subsidiary,
acquired Kraftube, Inc. (Kraftube) for an aggregate cash purchase price of
$6,992,000. Kraftube produces fabricated tubing assemblies used in air
conditioning and refrigeration compressors. The Kraftube acquisition resulted
in goodwill of $1,506,000 which is being amortized over 40 years.

The predecessor carryover basis included in the present equity structure
results from the purchase of Kraftube. Prior to the purchase, two current
stockholders of the Company were the majority shareholders of Kraftube (78%).
At the date of purchase, the assets and liabilities were recorded at their
fair market value, less the previous stockholders' carryover basis of the new
corporation's assets at the date of purchase. The cost of assets acquired in
excess of Kraftube's basis prior to the acquisition for continuing
stockholders interest was recorded as a charge to equity.

3. ALLOWANCE FOR DOUBTFUL ACCOUNTS

The activity in the allowance for doubtful accounts is as follows:

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Balance at beginning of period........ $25,000 $65,000
Additions charged to costs and ex-
penses............................... 39,753 103
Uncollectible accounts written off,
net of recoveries.................... 247 (103)
------- -------
$65,000 $65,000
======= =======
</TABLE>

F-81
<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997

4. DEBT

In October, 1996, the Company entered into a Group Credit Agreement (the
Agreement) with a bank that expires on December 31, 2003. Under the Agreement,
the financial institution agreed to extend the Company $26.5 million in
revolving loans ($22,239,100 and $19,934,100 outstanding at December 31, 1996
and September 30, 1997, respectively). The term loan calls for mandatory
quarterly principal reductions with the annual aggregate reductions of the
outstanding amount at September 30, 1997 as follows:

<TABLE>
<S> <C>
1999............................................................. $ 634,100
2000............................................................. 3,612,500
2001............................................................. 4,387,500
2002............................................................. 4,900,000
Thereafter....................................................... 6,400,000
-----------
$19,934,100
===========
</TABLE>

The bank also agreed to extend the Company $6,000,000 in pooled revolving
loans (no amounts were outstanding at September 30, 1997 or December 31,
1996). In addition, the Company may obtain letters of credit up to $500,000 in
aggregate which would be treated as an advance on the pooled revolving loan.

Borrowings under the Agreement bear interest at the prime base lending rate
or LIBOR base rate plus an applicable spread that ranges from zero to .75% for
the prime based rate or 2.0% to 3.25% for the LIBOR based rate. The average
interest rate at December 31, 1996 and September 30, 1997 was 8.75% and 8.93%,
respectively. The Company pays a commitment fee that ranges from .25% to .625%
annually on the unused revolving and pooled loans. The Company's inventory,
accounts receivable, personal property, certain real estate and intangibles
are pledged as collateral under the Agreement. The Company is also required to
maintain a minimum net worth and meet certain financial ratios on a
consolidated basis.

Tractech Inc., a subsidiary of the Company, issued to Dyneer Corporation a
subordinated note for $10 million with a fixed annual interest of 11% due
semi-annually in connection with the acquisition discussed above. The note
matures October 31, 2006. The Company has guaranteed Tractech Inc.'s
obligation to Dyneer Corporation. Titan Wheel International, Inc. (Titan
Wheel), the parent company of Dyneer Corporation, was a defendant in an
unresolved lawsuit at the time Tractech was sold to the Company. If Titan
Wheel prevails in this lawsuit, the Company is to pay Titan Wheel $750,000. If
Titan Wheel loses or no decision is reached by September 30, 2001, the
subordinated note to Dyneer Corporation will be reduced by $750,000.

5. REDEEMABLE EXCHANGEABLE PREFERRED STOCK OF PARENT AND SUBSIDIARY

Ballantrae Corporation and Kraftube have 2,791,838 preferred shares
outstanding, (3,250,000 shares authorized, par value $.01 per share and
liquidation preference of $1.00 per share) and 80,514 preferred shares
outstanding, (150,000 shares authorized, par value $.01 per share and
liquidation preference of $100 per share), respectively, designated as 12%
Exchangeable Preferred Stock (12% Preferred Stock). The provisions of the 12%
Preferred Stock call for a cumulative cash dividend equal to 12% per share.
The 12% Preferred Stock must be redeemed by September 30, 2006, at the
liquidation preference amount plus accrued and unpaid dividends. At the option
of the issuer, the 12% Preferred Stock may be redeemed at a price per share
equal to the liquidation preference plus accrued and unpaid dividends. In
addition, the 12% Preferred Stock may be exchanged, at the option of the
issuer, in whole or in part, for 12% junior subordinated debentures to be
issued by the respective company at the liquidation preference amount plus
accrued and unpaid dividends. Dividends which accrue but remain unpaid for one
year accrue additional dividends at the rate of 12%. If the Company or
Kraftube is

F-82
<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997

liquidated or merged and is not the surviving entity, the holders of the 12%
Preferred Stock will receive in cash the liquidation preference amount per
share plus an amount equal to full cumulative dividends. The holders of
the 12% Preferred Stock have no voting rights except on matters relating to
the preferred stock. The carrying value of the 12% Preferred Stock includes
cumulative unpaid and accrued dividends of $64,192 and $317,449 for Ballantrae
Corporation and $190,587 and $930,340 for Kraftube at December 31, 1996 and
September 30, 1997, respectively.

6. INCOME TAXES

The following is a summary of the components of the provision for income
taxes:

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Current:
Federal............................... $ 57,183 $ 645,900
Foreign............................... 116,275 198,307
-------- ---------
173,458 844,207
Deferred federal (credit):.............. 12,000 (117,000)
-------- ---------
$185,458 $ 727,207
======== =========
</TABLE>

Income before income taxes and preferred dividend requirement of subsidiary
was taxed in the following jurisdictions:

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Domestic................................ $181,562 $1,579,390
Foreign................................. 564,636 1,625,839
-------- ----------
$746,198 $3,205,229
======== ==========
</TABLE>

A reconciliation of income taxes at the United States federal statutory rate
to the effective income tax rate follows:

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Federal statutory income tax rate..... 34.0% 34.0%
Favorable foreign tax rate............ (11.4) (12.7)
Other items........................... 2.3 1.4
----- -----
Effective income tax rate............. 24.9% 22.7%
===== =====
</TABLE>

F-83
<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997

The following is a summary of the significant components of the Company's
deferred tax assets and liabilities:

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Deferred tax assets:
Employee benefits..................... $ 46,000 $ 202,000
Inventories........................... -- 207,000
Other................................. -- 43,000
--------- ---------
46,000 452,000
Deferred tax liabilities:
Depreciation.......................... 252,000 420,000
Goodwill.............................. 17,000 113,000
Other................................. 8,000 33,000
--------- ---------
277,000 566,000
--------- ---------
Net deferred tax liability.............. $(231,000) $(114,000)
========= =========
</TABLE>

No provision has been made for United States federal and state or foreign
taxes that may result from future remittances of undistributed earnings of
foreign subsidiaries ($2,485,116 at September 30, 1997) because it is expected
that such earnings will be reinvested in these foreign operations
indefinitely. It is not practical to estimate the amount of taxes that might
be payable on the eventual remittances of such earnings.

7. COMMITMENTS AND CONTINGENCIES

Total rental expense under all operating leases aggregated $98,263 and
$229,953 for the three months ended December 31, 1996 and the nine months
ended September 30, 1997, respectively. Included in rental expense is $1 per
year for the lease of equipment having an original cost of approximately
$2,350,000 pursuant to an incentive lease arrangement sponsored by the Irish
Development Authority. The Company has the right to continue this lease
indefinitely.

An officer of Kraftube has been granted an option to purchase up to 3.5% of
the outstanding common shares of Kraftube. The option vests in 2002. At that
time, the officer has the option to sell (the put option) and Kraftube has the
option to buy (the call option) the shares of stock issued upon the exercise
of the option, for a formula based price. The formula is based on the average
earnings before interest and taxes for the three years ended December 31, 2001
and the amount of debt outstanding. The call and put options expire on
December 31, 2002.

8. RETIREMENT PLANS AND BENEFITS

The Company sponsors two defined contribution 401(k) savings plans that
cover substantially all domestic salary and hourly employees. Company
contributions to the plans are based on employee contributions and

F-84
<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997

compensation. The Company may also make discretionary contributions annually.
Company contributions for these two plans totaled $33,137 and $119,573 for the
three months ended December 31, 1996 and the nine months ended September 30,
1997, respectively.

The Company also sponsors a defined contribution retirement savings plan
that covers substantially all of its employees at its foreign subsidiary.
Company contributions to the plan are based on employee contributions and
compensation. Company contributions totaled $13,018 and $33,810 for the three
months ended December 31, 1996 and the nine months ended September 30, 1997,
respectively.

The Company contributes to the Central States Pension Fund, which covers all
eligible bargaining employees of one of its subsidiaries. The benefits are
principally based on years of service and a benefit formula as defined in the
plan. The Company currently contributes $37 per week per eligible employee,
which is specified in the Bargaining Agreement. Company contributions totaled
$14,911 and $72,406 for the three months ended December 31, 1996 and the nine
months ended September 30, 1997, respectively.

9. SEGMENT AND GEOGRAPHIC DATA

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
NET SALES:
United States........................... $ 6,540,936 $23,998,968
International........................... 2,710,626 9,613,309
Eliminate intercompany sales............ (1,327,303) (4,734,591)
----------- -----------
Total net sales......................... $ 7,924,259 $28,877,686
=========== ===========
OPERATING INCOME:
United States........................... $ 671,274 $ 3,359,245
International........................... 728,452 2,371,576
----------- -----------
Total operating income.................. $ 1,399,726 $ 5,730,821
=========== ===========
IDENTIFIABLE ASSETS:
United States........................... $27,334,081 $29,748,081
International........................... 16,380,904 15,620,116
----------- -----------
Total identifiable assets............... 43,714,985 45,368,197
Corporate assets........................ 248,193 263,110
Elimination............................. (81,173) (606,054)
----------- -----------
Total assets............................ $43,882,005 $45,025,253
=========== ===========
</TABLE>
International sales are principally from operations located in Ireland and
do not include export sales of domestic operations. Export sales from domestic
operations were not significant for either period presented.

Sales to the two customers exceeded 10% of total sales which were $951,000
and $838,000 during the three months ended December 31, 1996 and $4,022,000
and $2,920,000 during the nine months ended September 30, 1997.

F-85
<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997

10. RELATED PARTY TRANSACTION

The Company has entered into a consulting agreement with the Chairman and
President of Ballantrae Corporation. The agreement amounts to $100,000
annually, with $25,000 accrued as of December 31, 1996 and September 30, 1997.

In February, 1997, the principal shareholder exercised stock warrants to
purchase 122,500 shares of common stock for $1.00 per share. Warrants
outstanding totaled 25,000 at December 31, 1996 and September 30, 1997.

11. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTOR AND NON-GUARANTOR
SUBSIDIARIES

The Company conducts a significant portion of its business through
subsidiaries. As discussed in Note 12 below, the Company has reached a
definitive agreement to be acquired. It is anticipated that the domestic legal
entities of the Company, with the exception of Kraftube Management, Inc. and
Kraftube, Inc., will be full and unconditional, joint and several guarantors
of the senior notes and the Senior Subordinated Notes of the acquiring company
discussed in Note 12 along with all other domestic subsidiaries of the
acquiring company.

Presented below is condensed consolidating financial information for the
Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries, both as
listed below, at December 31, 1996 and September 30, 1997 and for the three
months ended December 31, 1996 and the nine months ended September 30, 1997.

The following table sets forth the Guarantor and direct Non-Guarantor
Subsidiaries:

<TABLE>
<CAPTION>
NON-
GUARANTOR SUBSIDIARY GUARANTOR SUBSIDIARIES
-------------------- -------------------------
<S> <C>
Tractech Inc. Kraftube Management, Inc.
Kraftube, Inc.
Tractech Limited
Lissaphuca Limited
</TABLE>

F-86
<PAGE>

[THIS PAGE LEFT INTENTIONALLY BLANK]

F-87
<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997

CONDENSED CONSOLIDATING BALANCE SHEET

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------------------------------------------------
BALLANTRAE
CORPORATION NON-
(PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash
equivalents.......... $ 46,635 $ 224,989 $ 188,981 $ -- $ 460,605
Accounts receivable,
net.................. -- 3,387,162 2,309,555 -- 5,696,717
Inventories........... -- 7,315,572 3,717,016 (606,054)(a) 10,426,534
Deferred income tax... -- 301,000 151,000 -- 452,000
Other................. -- -- 51,865 -- 51,865
---------- ----------- ----------- ------------ -----------
Total current
assets............. 46,635 11,228,723 6,418,417 (606,054) 17,087,721
Investment in
affiliates............. 9,414,736 10,000 1,948,176 11,372,912(b) --
Property, plant and
equipment:
Land.................. -- 190,660 81,830 -- 272,490
Buildings and
improvements......... -- 2,139,340 1,894,973 -- 4,034,313
Machinery and
equipment............ -- 4,863,880 8,185,696 -- 13,049,576
Less accumulated
depreciation......... -- (594,722) (3,034,129) -- (3,628,851)
---------- ----------- ----------- ------------ -----------
Net property, plant and
equipment.............. -- 6,599,158 7,128,370 -- 13,727,528
Other assets:
Goodwill, net......... -- 6,125,110 7,447,000 -- 13,572,110
Deferred financing
costs, net........... -- 360,000 61,419 -- 421,419
Patents, net.......... 216,475 -- -- -- 216,475
---------- ----------- ----------- ------------ -----------
Total other assets.. 216,475 6,485,110 7,508,419 -- 14,210,004
---------- ----------- ----------- ------------ -----------
Total assets........ $9,677,846 $24,322,991 $23,003,382 $(11,978,966) $45,025,253
========== =========== =========== ============ ===========
</TABLE>
- --------
(a) Elimination of intercompany profit in inventory.
(b) Elimination of investments in subsidiaries.

F-88
<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997

CONDENSED CONSOLIDATING BALANCE SHEET

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------------------------------------------------
BALLANTRAE
CORPORATION NON-
(PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT):
Current liabilities:
Accounts payable...... $ 27,516 $ 1,541,463 $ 1,224,620 $ -- $ 2,793,599
Accrued liabilities... 28,000 996,647 696,810 -- 1,721,457
Accrued interest...... -- 507,072 102,800 -- 609,872
Income taxes payable.. -- 20,000 609,232 -- 629,232
---------- ----------- ----------- ------------ -----------
Total current
liabilities........ 55,516 3,065,182 2,633,462 -- 5,754,160
Intercompany
liabilities............ 4,493,117 1,497,884 (5,991,001) -- --
Long-term debt.......... -- 12,545,000 17,389,100 -- 29,934,100
Deferred income taxes... -- 343,000 223,000 -- 566,000
Redeemable exchangeable
preferred stock of
subsidiary............. -- -- 8,981,800 -- 8,981,800
Redeemable exchangeable
preferred stock........ 3,109,287 -- -- -- 3,109,287
Stockholders' equity
(deficit):
Class A common stock.. 1,065 1 36,000 (36,001)(b) 1,065
Class B common stock.. 1,225 -- -- -- 1,225
Paid-in capital....... 226,663 6,199,999 2,382,906 (8,582,905)(b) 226,663
Retained earnings..... 1,790,973 671,925 2,688,135 (3,360,060)(a,b) 1,790,973
Predecessor carryover
basis................ -- -- (5,340,020) -- (5,340,020)
---------- ----------- ----------- ------------ -----------
Total stockholders'
equity (deficit)... 2,019,926 6,871,925 (232,979) (11,978,966) (3,320,094)
---------- ----------- ----------- ------------ -----------
Total liabilities
and stockholders'
equity (deficit)... $9,677,846 $24,322,991 $23,003,382 $(11,978,966) $45,025,253
========== =========== =========== ============ ===========
</TABLE>
- --------
(a) Elimination of intercompany profit in inventory.
(b) Elimination of investments in subsidiaries.

F-89
<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
----------------------------------------------------------------------
BALLANTRAE
CORPORATION NON-
(PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ -- $15,974,980 $17,637,297 $(4,734,591)(a) $28,877,686
Cost of sales........... -- 11,731,273 11,507,228 (4,209,710)(a) 19,028,791
---------- ----------- ----------- ----------- -----------
Gross profit............ -- 4,243,707 6,130,069 (524,881)(a) 9,848,895
Selling expenses........ -- 570,701 182,194 -- 752,895
General and
administrative
expenses............... 141,620 1,766,188 1,457,371 -- 3,365,179
---------- ----------- ----------- ----------- -----------
141,620 2,336,889 1,639,565 -- 4,118,074
---------- ----------- ----------- ----------- -----------
Income from operations.. (141,620) 1,906,818 4,490,504 (524,881) 5,730,821
Equity in earnings of
subsidiaries........... 2,145,562 -- -- (2,145,562)(b) --
Other income (expense):
Interest expense ..... (265,780) (1,288,508) (742,002) -- (2,296,290)
Interest income....... -- -- 7,650 -- 7,650
Deferred financing
charges.............. -- (45,000) (7,650) -- (52,650)
Foreign exchange gain
or loss and other.... 108 17,089 (201,499) -- (184,302)
---------- ----------- ----------- ----------- -----------
(265,672) (1,316,419) (943,501) -- (2,525,592)
---------- ----------- ----------- ----------- -----------
Income before income
taxes and preferred
dividend requirement of
subsidiary............. 1,738,270 590,399 3,547,003 (2,670,443) 3,205,229
Income taxes............ -- 61,855 665,352 -- 727,207
Preferred dividend
requirement of
subsidiary............. -- -- -- (739,752)(c) (739,752)
---------- ----------- ----------- ----------- -----------
Net income.............. $1,738,270 $ 528,544 $ 2,881,651 $(3,410,195) $ 1,738,270
========== =========== =========== =========== ===========
</TABLE>
- --------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary.

F-90

<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
---------------------------------------------------------------------
BALLANTRAE
CORPORATION NON-
(PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income.............. $ 1,738,270 $ 528,544 $ 2,881,651 $(3,410,195) $ 1,738,270
Adjustments to reconcile
net income to net cash
from operating
activities:
Depreciation and
amortization......... 14,623 614,915 765,715 -- 1,395,253
Equity in earnings of
subsidiaries......... (2,145,562) -- -- 2,145,562(a) --
Deferred income
taxes................ -- 30,000 (147,000) -- (117,000)
Preferred dividend
requirement of
subsidiary........... -- -- -- 739,752(b) 739,752
Changes in operating
assets and
liabilities:
Accounts receivable... -- (742,715) 125,487 -- (617,228)
Recoverable income
taxes................ -- 163,000 -- -- 163,000
Inventories........... -- (1,042,344) (200,558) 524,881(c) (718,021)
Other current assets.. -- (180,613) 18,650 -- (161,963)
Accounts payable...... 27,516 491,496 (340,338) -- 178,674
Accrued interest and
liabilities.......... 2,300 3,015 (103,300) -- (97,985)
Income taxes payable.. -- 20,000 416,200 -- 436,200
Intercompany
liabilities.......... 228,055 1,667,037 (1,895,092) -- --
----------- ----------- ----------- ----------- -----------
Net cash (used in)
provided by operating
activities............. (134,798) 1,552,335 1,521,415 -- 2,938,952
CASH FLOWS FROM
INVESTING ACTIVITIES:
Increase in acquisition
costs.................. -- (9,869) (33,544) -- (43,413)
Purchase of property,
plant and equipment.... -- (814,885) (236,077) -- (1,050,962)
Increase in patents..... (27,276) -- -- -- (27,276)
----------- ----------- ----------- ----------- -----------
Net cash (used in)
provided by investing
activities............. (27,276) (824,754) (269,621) -- (1,121,651)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Principle payments on
long-term debt......... -- (755,000) (1,550,000) -- (2,305,000)
Issuance of preferred
stock.................. 41,838 -- -- -- 41,838
Issuance of common
stock.................. 122,500 -- -- -- 122,500
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activity............... 164,338 (755,000) (1,550,000) -- (2,140,662)
Net increase (decrease)
in cash and cash
equivalents............ 2,264 (27,419) (298,206) -- (323,361)
Cash and cash
equivalents at
beginning of period.... 44,371 252,408 487,187 -- 783,966
----------- ----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
period................. $ 46,635 $ 224,989 $ 188,981 $ -- $ 460,605
=========== =========== =========== =========== ===========
</TABLE>
- --------
(a) Elimination of equity in earnings of subsidiary.
(b) Recording of preferred dividend requirement of subsidiary.
(c) Elimination of intercompany profit in inventory.

F-91

<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997

CONDENSED CONSOLIDATING BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------------
BALLANTRAE
CORPORATION NON-
(PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 44,371 $ 252,408 $ 487,187 $ -- $ 783,966
Accounts receivable,
net.................. -- 2,536,234 2,387,637 -- 4,923,871
Inventories........... -- 6,192,055 3,597,631 (81,173)(a) 9,708,513
Recoverable income
taxes................ -- 90,000 73,000 -- 163,000
Deferred income tax... -- -- 46,000 -- 46,000
Other................. -- 600 44,920 -- 45,520
---------- ----------- ----------- ----------- -----------
Total current
assets............. 44,371 9,071,297 6,636,375 (81,173) 15,670,870
Investment in
affiliates............. 7,269,174 10,000 -- (7,279,174)(b) --
Property, plant and
equipment:
Land.................. -- 190,660 81,830 -- 272,490
Buildings and
improvements......... -- 2,139,340 1,882,804 -- 4,022,144
Machinery and
equipment............ -- 4,048,995 7,961,788 -- 12,010,783
Less accumulated
depreciation......... -- (142,659) (2,426,369) -- (2,569,028)
---------- ----------- ----------- ----------- -----------
Net property, plant and
equipment.............. -- 6,236,336 7,500,053 -- 13,736,389
Other assets:
Goodwill, net......... (6,616) 6,233,094 7,564,261 -- 13,790,739
Deferred financing
costs, net........... -- 405,000 68,569 -- 473,569
Patents, net.......... 210,438 -- -- -- 210,438
---------- ----------- ----------- ----------- -----------
Total other assets.. 203,822 6,638,094 7,632,830 -- 14,474,746
---------- ----------- ----------- ----------- -----------
$7,517,367 $21,955,727 $21,769,258 $(7,360,347) $43,882,005
========== =========== =========== =========== ===========
</TABLE>
- --------
(a) Elimination of intercompany profit in inventory.
(b) Elimination of investment in subsidiaries.

F-92

<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997

CONDENSED CONSOLIDATING BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------------------
BALLANTRAE
CORPORATION NON-
(PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable...... $ -- $ 1,049,967 $ 1,564,958 $ -- $ 2,614,925
Accrued liabilities... 25,700 1,175,927 688,113 -- 1,889,740
Accrued interest...... -- 324,777 214,798 -- 539,575
Income taxes payable.. -- -- 193,032 -- 193,032
---------- ----------- ----------- ----------- -----------
Total current
liabilities........ 25,700 2,550,671 2,660,901 -- 5,237,272
Intercompany liabili-
ties................... 4,265,062 (19,152) (4,245,910) -- --
Long-term debt.......... -- 13,150,000 19,089,100 -- 32,239,100
Deferred income taxes... -- 12,000 265,000 -- 277,000
Redeemable exchangeable
preferred stock of
subsidiary............. -- -- 8,242,048 -- 8,242,048
Redeemable exchangeable
preferred stock........ 2,814,192 -- -- -- 2,814,192
Stockholders' equity
(deficit):
Class A common stock.. 1,065 1 11,000 (11,001)(b) 1,065
Paid-in capital....... 105,388 6,199,999 661,723 (6,861,722)(b) 105,388
Retained earnings..... 305,960 62,208 425,416 (487,624)(a,b) 305,960
Predecessor carryover
basis................ -- -- (5,340,020) -- (5,340,020)
---------- ----------- ----------- ----------- -----------
Total stockholders'
equity (deficit)... 412,413 6,262,208 (4,241,881) (7,360,347) (4,927,607)
---------- ----------- ----------- ----------- -----------
Total liabilities
and stockholders'
equity (deficit)... $7,517,367 $21,955,727 $21,769,258 $(7,360,347) $43,882,005
========== =========== =========== =========== ===========
</TABLE>
- --------
(a) Elimination of intercompany profit in inventory.
(b) Elimination of investment in subsidiaries.

F-93

<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
--------------------------------------------------------------------
BALLANTRAE
CORPORATION NON-
(PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ -- $4,849,072 $4,402,488 $(1,327,301)(a) $7,924,259
Cost of sales........... -- 3,469,667 3,023,252 (1,246,128)(a) 5,246,791
-------- ---------- ---------- ----------- ----------
Gross profit ........... 1,379,405 1,379,236 (81,173) 2,677,468
Selling expenses........ -- 150,723 52,838 -- 203,561
General and
administrative
expenses............... 36,939 675,831 361,411 -- 1,074,181
-------- ---------- ---------- ----------- ----------
36,939 826,554 414,249 -- 1,277,742
-------- ---------- ---------- ----------- ----------
Income from operations.. (36,939) 552,851 964,987 (81,173) 1,399,726
Equity in earnings of
subsidiaries........... 406,451 -- -- (406,451)(b) --
Other income (expense):
Interest expense...... -- (394,321) (257,391) -- (651,712)
Interest income....... 640 -- 19,345 -- 19,985
Deferred financing
charges.............. -- (15,000) (2,550) -- (17,550)
Foreign exchange gain
or loss and other.... -- 13,165 (17,416) -- (4,251)
-------- ---------- ---------- ----------- ----------
640 (396,156) (258,012) -- (653,528)
-------- ---------- ---------- ----------- ----------
Income before income
taxes and preferred
dividend requirement of
subsidiary............. 370,152 156,695 706,975 (487,624) 746,198
Income taxes............ -- 13,314 172,144 -- 185,458
Preferred dividend
requirement of
subsidiary............. -- -- -- (190,588)(c) 190,588
-------- ---------- ---------- ----------- ----------
Net income.............. $370,152 $ 143,381 $ 534,831 $ (678,212) $ 370,152
======== ========== ========== =========== ==========
</TABLE>
- --------
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary.

F-94

<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
------------------------------------------------------------------
BALLANTRAE
CORPORATION NON-
(PARENT SUBSIDIARY GUARANTOR
COMPANY ONLY) GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income.............. $370,152 $ 143,381 $534,831 $(678,212) $ 370,152
Adjustments to reconcile
net income to net cash
from operating
activities:
Depreciation and
amortization......... 11,239 196,860 239,683 -- 447,782
Equity in earnings of
subsidiaries......... (406,451) -- -- 406,451(a) --
Deferred income
taxes................ -- 12,000 -- -- 12,000
Preferred dividend
requirement of
subsidiary........... -- -- -- 190,588(b) 190,588
Changes in operating
assets and
liabilities:
Accounts receivable... -- 60,116 (926,650) -- (866,534)
Recoverable income
taxes................ -- (163,000) -- -- (163,000)
Inventories........... -- (117,953) (326,561) 81,173(c) (363,341)
Other current assets.. -- 72,400 7,903 -- 80,303
Accounts payable...... -- 188,677 487,647 -- 676,324
Accrued interest and
liabilities.......... 25,700 902,554 (90,151) -- 838,103
Intercompany
liabilities.......... 215,062 (19,152) (195,910) -- --
Income tax payable.... -- -- 67,972 -- 67,972
-------- --------- -------- --------- ---------
Net cash provided by
(used in) operating
activities............. 215,702 1,275,883 (201,236) -- 1,290,349
CASH FLOWS FROM
INVESTING ACTIVITIES:
Increase in
acquisition costs.... -- (518,611) (82,386) -- (600,997)
Purchase of property
and equipment........ -- (47,992) (74,002) -- (121,994)
Increase in patents... (215,063) 194,951 -- -- (20,112)
-------- --------- -------- --------- ---------
Net cash used in
investing activities... (215,063) (371,652) (156,388) -- (743,103)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Principal payments on
long-term debt....... -- (850,000) 400,000 -- (450,000)
-------- --------- -------- --------- ---------
Net increase in cash and
cash equivalents....... 639 54,231 42,376 -- 97,246
Cash and cash
equivalents at
beginning of period.... 43,730 198,177 444,813 -- 686,720
-------- --------- -------- --------- ---------
Cash and cash
equivalents at end of
period................. $ 44,369 $ 252,408 $487,189 $ -- $ 783,966
======== ========= ======== ========= =========
</TABLE>
- --------
(a) Elimination of equity in earnings of subsidiary.
(b) Recording of preferred dividend requirement of subsidiary.
(c) Elimination of intercompany profit in inventory.

F-95

<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1997

12. SUBSEQUENT EVENT

On October 30, 1997, the Company entered into a definitive agreement with
Delco Remy International, Inc. (DRI) whereby DRI would acquire all of the
capital stock of the Company for approximately $52,800,000 (including assumed
debt and the estimated working capital adjustment and fees and expenses of the
Company). DRI will exchange shares of its common stock with a value of
approximately $22,100,000 for the equity of the Company and will repay
approximately $29,700,000 of the Company's debt. DRI filed Registration
Statements with the Securities and Exchange Commission in connection with
DRI's planned sale of common stock and $130,000,000 of Senior Notes Due 2007
(the Offerings) and the registration of an exchange offer for the Company's 10
5/8% Senior Subordinated Notes due 2006 that described the planned acquisition
of the Company. The acquisition of the Company is expected to be completed at
or prior to the consummation of the Offerings.

F-96
<PAGE>

[LOGO OF DELCO REMY INTERNATIONAL APPEARS HERE]

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

<TABLE>
<S> <C>
SEC Registration Fee................................................ $ 20,910
NASD Filing Fee..................................................... 7,400
NYSE Filing Fee..................................................... 137,100
Blue Sky Fees and Expenses.......................................... --
Legal Fees and Expenses............................................. 350,000
Accounting Fees and Expenses........................................ 350,000
Registrar and Transfer Agent Fees................................... 3,500
Printing and Engraving Expenses..................................... 412,500
Miscellaneous....................................................... 18,590
----------
Total............................................................. $1,300,000
==========
</TABLE>

Each amount set forth above, except the SEC registration fee, NASD filing
fee and NYSE filing fee, is estimated.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

As permitted by the Delaware Law, the Company's Certificate of Incorporation
provides that directors of the Company shall not be personally 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 of omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the Delaware General Corporation Law,
relating to prohibited dividends or distributions or the repurchase or
redemption of stock, or (iv) for any transaction from which the director
derives an improper personal benefit. In addition, the Company's By-laws
provide for indemnification of the Company's officers and directors to the
fullest extent permitted under Delaware law. Section 145 of the Delaware Law
provides that a corporation may indemnify any persons, including officers and
directors, who were or are, or are threatened to be made, parties to any
threatened, pending or completed legal action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or
in the right of such corporation), by reason of the fact that such person was
an officer, director, employee or agent of such corporation or is or was
serving at the request of such corporation as an officer, director, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests and, for
criminal proceedings, had no reasonable cause to believe that his conduct was
unlawful. A Delaware corporation may indemnify officers and directors in an
action by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the officer
or director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
that such officer or director actually and reasonably incurred. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable.

The Underwriting Agreement provides for indemnification by the Underwriters
of the registrant and its directors, officers and controlling persons for
certain liabilities, including liabilities arising under the Securities Act of
1933, as amended.

II-1
<PAGE>

The directors and officers of the registrant are insured against certain
liabilities under the registrant's directors' and officers' liability
insurance.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

1. SECURITIES SOLD. $140,000,000 10 5/8% Senior Subordinated Notes due 2006
(the "Senior Subordinated Notes")

(a) UNDERWRITERS AND OTHER PURCHASERS. No underwriters were involved in
the offering of the Senior Subordinated Notes. The Initial Purchasers were
Salomon Brothers Inc and Smith Barney Inc.

(b) CONSIDERATION. The Initial Purchasers purchased the Senior
Subordinated Notes on August 2, 1996 for the aggregate price of
$135,800,000.

(c) EXEMPTION FROM REGISTRATION CLAIMED. The Senior Subordinated Notes
were sold pursuant to Section 4(2) of the Securities Act of 1933, as
amended.

2. SECURITIES SOLD. Class A Common Stock, par value $.01 per share.

(a) UNDERWRITERS AND OTHER PURCHASERS. No underwriters were involved in
the offering of the Class A Common Stock. The Class A Common Stock was sold
to employees of the Company and its subsidiaries ("Management Investors")
on the dates indicated below and for the consideration indicated below.

<TABLE>
<CAPTION>
NUMBER OF TOTAL NUMBER OF TOTAL CASH AGGREGATE
EMPLOYEES SHARES ISSUED CONSIDERATION AMOUNT OF NOTES
DATE OF PURCHASING (PRE- RECEIVED BY THE ISSUED IN FAVOR
ISSUANCE SHARES STOCK SPLIT) COMPANY OF THE COMPANY(1)
-------- ---------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
11/18/94 20 69,500 $19,586.00 $119,414.00
03/31/95 4 10,000 $15,025.00 $ 4,975.00
12/31/96 2 6,000 $ 60.00 $ 59,940.00
02/07/97 3 3,000 $ 30.00 $ 29,970.00
05/08/97 1 10,000 $10,000.00 $ 90,000.00
08/28/97 1 3,000 $ 30.00 $ 29,970.00
09/19/97 7 14,750 $30,048.00 $117,452.00
</TABLE>
--------
1 Certain employees paid a portion of the purchase price with a 9.25% five
year note payable to the order of the Company.

(b) CONSIDERATION. See above Table.

(c) EXEMPTION FROM REGISTRATION CLAIMED. The Class A Common Stock was
sold pursuant to Section 4(2) of the Securities Act of 1933, as amended.

3. SECURITIES SOLD. 28,750 shares (Pre-Stock Split) of Class A Common Stock.

(a) UNDERWRITERS AND OTHER PURCHASERS. No underwriters were involved in
the issuance of the Class A Common Stock. The shares were issued on January
6, 1995 as consideration for the Company's acquisition of Power
Investments, Inc.

(b) CONSIDERATION. The Company received no consideration for the shares
other than the consummation of the acquisition of Power Investments, Inc.

(c) EXEMPTION FROM REGISTRATION CLAIMED. The Senior Subordinated Notes
were sold pursuant to Section 4(2) of the Securities Act of 1933, as
amended.

II-2

<PAGE>

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

The following exhibits are filed herewith unless otherwise indicated:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Form of Certificate of Incorporation of the Company, as amended
3.2** By-laws of the Company
4.1 Specimen Class A Common Stock Certificate
5.1 Opinion of Dechert Price & Rhoads, counsel to the Company
10.1+ Light Duty Starter Motor Supply Agreement, dated July 31, 1994, by and
between Delco Remy America, Inc. ("DRA") and General Motors
Corporation ("GM")
Heavy Duty Component Supply Agreement, dated July 31, 1994, by and
10.2+ between DRA and GM
Distribution and Supply Agreement, dated July 31, 1994, by and between
10.3+ DRA and GM
Trademark License, dated July 31, 1994, by and among DRA, DR
10.4** International, Inc. and GM
10.5** Tradename License Agreement, dated July 31, 1994, by and among DRA, DR
International, Inc. and GM
Partnership Agreement of Delco Remy Mexico S. de R.L. de C.V., dated
10.6** April 17, 1997
Joint Venture Agreement, dated , by and between Remy Korea
10.7** Holdings, Inc. and S.C. Kim
10.8** Securities Purchase and Holders Agreement, dated July 29, 1994, by and
among the Company, CVC, WEP, MascoTech, Harold K. Sperlich, James R.
Gerrity and the individuals named therein as Management Investors
10.9** Registration Rights Agreement, dated July 29, 1994, by and among the
Company, CVC, WEP, MascoTech, Harold K. Sperlich, James R. Gerrity and
the individuals named therein as Management Investors
10.10** Employment Agreement, dated July 31, 1994, by and between Delco Remy
International, Inc. and Thomas J. Snyder
10.11** Form of Fourth Amended and Restated Financing Agreement, dated as of
, 1997, among the Company, certain of the Company's subsidiaries
signatories thereto and Bank One, Indianapolis, National Association
10.12** Indenture, dated as of August 1, 1996, among the Company, certain of
the Company's subsidiaries signatories thereto and National City Bank
of Indiana, as trustee
10.13** 8% Subordinated Debenture of DRA, due July 31, 2004 in favor of GM
Contingent Purchase Price Note of DRA, in favor of GM, dated July 31,
10.14** 1994
10.15** Lease by and between ANDRA L.L.C. and DRA, dated February 9, 1995
Lease by and between Eagle I L.L.C. and DRA , Inc. dated August
10.16** 11, 1995
10.17 Subordination Agreement, dated July 31, 1994 by and among GM, the CIT
Group/Business Credit, Inc. and World Subordinated Debt Partners, L.P.
11.1 Statement re Computation of Earnings per Share
12.1** Statement re Computation of Ratios
21.1** Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP (see page II-5)
23.2 Consent of Friedman & Fuller P.C. (See page II-6)
23.3 Consent of Dechert Price & Rhoads included in Exhibit 5.1
24.1 Power of Attorney included on Signature Page
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.

+ Certain portions of the identified Exhibit have been omitted and separately
filed with the Commission based upon a request for confidential treatment.

(b) Financial Statement Schedules: None

II-3

<PAGE>

ITEM 17. UNDERTAKINGS.

(a) The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.

(1) For purposes of determining the liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Historical Financial Data" and to the use of our
reports on the consolidated financial statements of Delco Remy International,
Inc. dated September 5, 1997 (except for Note 16, as to which the date is
November 20, 1997); on the financial statements of World Wide Automotive, Inc.
dated October 16, 1997; on the consolidated financial statements of Ballantrae
Corporation dated October 17, 1997 (except for Note 12, as to which the date
is October 30, 1997); and on the financial statements of the Tractech Division
of Titan Wheel International, Inc. dated October 17, 1997, in Amendment 4 to
the Registration Statement on Form S-1 and related Prospectus of Delco Remy
International, Inc. for the registration of its Common Stock.

Ernst & Young LLP

December 9, 1997

II-5
<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report, dated October 15, 1997, on the financial statements of
Precision Alternator and Starter, Inc. as of and for the two years in the
period ended March 31, 1996, and our report, dated August 19, 1997, on the
financial statements of Certipro Division of Precision Alternator and Starter,
Inc. as of and for the year ended March 31, 1997, in the Amendment No. 4 to
the Registration Statement on Form S-1 and the related Prospectus of Delco
Remy International, Inc. for the registration of its Common Stock.

December 4, 1997

Friedman & Fuller, P.C.

II-6
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF ANDERSON AND STATE OF INDIANA ON DECEMBER 5, 1997.

DELCO REMY INTERNATIONAL, INC.

By: Harold K. Sperlich
---------------------------------
HAROLD K. SPERLICH CHAIRMAN

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 4 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>

<S> <C> <C>
Harold K. Sperlich Chairman (principal December 5,
- ------------------------------------- executive officer) 1997
HAROLD K. SPERLICH and Director

* Executive Vice
- ------------------------------------- President and Chief
DAVID L. HARBERT Financial Officer
(principal
financial and
principal
accounting officer)

E. H. Billig Director December 5,
- ------------------------------------- 1997
E. H. BILLIG

* Director
- -------------------------------------
RICHARD M. CASHIN, JR.

* Director
- -------------------------------------
MICHAEL A. DELANEY

* Director
- -------------------------------------
JAMES R. GERRITY

* Director
- -------------------------------------
ROBERT J. SCHULTZ

* Director
- -------------------------------------
THOMAS J. SNYDER

*By: Thomas J. Snyder December 5,
----------------- 1997
THOMAS J.
SNYDER,
ATTORNEY-IN-FACT

</TABLE>

II-7

<PAGE>

Exhibit 1.1

4,000,000 Shares

DELCO REMY INTERNATIONAL, INC.

CLASS A COMMON STOCK ($.01 PAR VALUE)

UNDERWRITING AGREEMENT

December [ ], 1997
<PAGE>

December [ ], 1997

Morgan Stanley & Co. Incorporated
Credit Suisse First Boston
Corporation
Smith Barney Inc.
c/o Morgan Stanley & Co.
Incorporated
1585 Broadway
New York, New York 10036

Dear Sirs and Mesdames:

Delco Remy International, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the several Underwriters named in
Schedule I hereto (the "Underwriters") 4,000,000 shares of its Class A Common
Stock ($.01 par value) (the "Firm Shares"). The Company also proposes to issue
and sell to the several Underwriters not more than an additional 600,000 shares
of its Class A Common Stock ($.01 par value) (the "Additional Shares") if and to
the extent that you shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such shares of common stock granted to the
Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares." The shares of Class A
Common Stock ($.01 par value) of the Company to be outstanding after giving
effect to the sales contemplated hereby are hereinafter referred to as the
"Common Stock."

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement"; the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "Prospectus."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "Rule 462 Registration Statement"), then any reference herein to the
term "Registration Statement" shall be deemed to include such Rule 462
Registration Statement.
<PAGE>

As part of the offering contemplated by this Agreement, Morgan Stanley
& Co. Incorporated ("Morgan Stanley") has agreed to reserve out of the Shares
set forth opposite its name on Schedule I to this Agreement, up to 200,000
shares, for sale to the Company's employees, officers and directors and certain
other parties designated by the Board of Directors of the Company (collectively,
the "Participants"), as set forth in the Prospectus under the heading
"Underwriters" (the "Directed Share Program"). The Shares to be sold by Morgan
Stanley pursuant to the Directed Share Program (the "Directed Shares") will be
sold by Morgan Stanley pursuant to this Agreement at the Public Offering Price
(as defined). Any Directed Shares not orally confirmed for purchase by any
Participants by the end of the first business day after the date on which this
Agreement is executed will be offered to the public by Morgan Stanley as set
forth in the Prospectus.

1. Representations and Warranties. The Company represents and
-------------------------------
warrants to and agrees with each of the Underwriters that:

(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.

(b) (i) The Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all material
respects with the Securities Act and the applicable rules and regulations
of the Commission thereunder and (iii) the Prospectus does not contain and,
as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and
warranties set forth in this paragraph do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
<PAGE>

(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.

(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole; all of the issued shares of capital stock of each subsidiary of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and are owned directly by the Company, free and clear of
all liens, encumbrances, equities or claims. As of the Closing Date (as
defined), references in this Agreement to "subsidiaries" of the Company
shall be deemed to include Ballantrae Corporation ("Ballantrae"), Tractech,
Inc. ("Tractech") and Kraftube, Inc. ("Kraftube"), notwithstanding that the
Company may not have consummated its acquisition of Ballantrae on or prior
to the Closing Date.

(e) This Agreement has been duly authorized, executed and delivered
by the Company.

(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus; and the
Shares have been approved for listing on the New York Stock Exchange,
subject to official notice of issuance.

(g) All shares of Common Stock and Class B Common Stock ($.01 par
value) of the Company (the "Class B
<PAGE>

Common Stock" and, together with the Common Stock, the "Capital Stock")
outstanding prior to the issuance of the Shares have been duly authorized
and are validly issued, fully paid and non-assessable.

(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights.

(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene
any provision of applicable law or the certificate of incorporation or by-
laws of the Company or any agreement or other instrument binding upon the
Company or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or
any subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares.

(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement).

(k) There are no legal or governmental proceedings pending or, to the
best of the Company's knowledge, threatened to which the Company or any of
its subsidiaries is a party or to which any of the properties of the
Company or any of its subsidiaries is subject that are required to be
described in the Registration Statement or the Prospectus and are not so
described or any statutes, regulations, contracts or other documents that
are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that
are not described or filed as required.
<PAGE>

(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.

(m) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.

(n) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.

(o) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole.

(p) There are no contracts, agreements or understandings between the
Company or any of its subsidiaries and any person granting such person the
right to require the Company or any such subsidiary to file a registration
statement under the Securities Act with respect to any securities of the
Company or such
<PAGE>

subsidiary (except as described in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement)) or to require the Company or any such subsidiary to include
such securities with the Shares registered pursuant to the Registration
Statement.

(q) Except as expressly described in the Prospectus, subsequent to
the respective dates as of which information is given in the Registration
Statement and the Prospectus, (1) the Company and its subsidiaries have not
incurred any material liability or obligation, direct or contingent, nor
entered into any material transaction not in the ordinary course of
business; (2) the Company has not purchased any of its outstanding capital
stock, nor declared, paid or otherwise made any dividend or distribution of
any kind on its capital stock other than ordinary and customary dividends;
and (3) there has not been any material change in the capital stock, short-
term debt or long-term debt of the Company and its consolidated
subsidiaries, except in each case as described in or contemplated by the
Prospectus.

(r) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and valid title to all personal property
owned by them which is material to the business of the Company and its
subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not interfere with the
use made and proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries, in each case except as
described in or contemplated by the Prospectus.

(s) The Company and its subsidiaries own or possess, or can acquire
on reasonable terms, all material patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names currently
employed by them in connection with the business now
<PAGE>

operated by them, and neither the Company nor any of its subsidiaries has
received any notice of infringement of or conflict with asserted rights of
others with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and
its subsidiaries, taken as a whole.

(t) No material labor dispute with the employees of the Company or
any of its subsidiaries exists, except as described in or contemplated by
the Prospectus, or, to the knowledge of the Company, is imminent; and the
Company is not aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal suppliers,
manufacturers or contractors that could result in any material adverse
change in the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries, taken as a
whole.

(u) The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they
are engaged; neither the Company nor any such subsidiary has been refused
any insurance coverage sought or applied for; and neither the Company nor
any such subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely
affect the condition, financial or otherwise, or the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, except as
described in or contemplated by the Prospectus.

(v) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate Federal, state or
foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received
any notice of proceedings relating to the revocation or modification of any
such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in a material
<PAGE>

adverse change in the condition, financial or otherwise, or in the
earnings, business or operations of the Company and its subsidiaries, taken
as a whole, except as described in or contemplated by the Prospectus.

(w) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (1) transactions are executed in accordance with management's general
or specific authorizations; (2) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (3)
access to assets is permitted only in accordance with management's general
or specific authorization; and (4) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.

(x) The fourth amended and restated financing agreement (together
with all other documents and agreements entered into in connection
therewith, the "Credit Agreement") relating to the Senior Credit Facility
(as defined in the Prospectus) has been executed and delivered by the
parties thereto and is in full force and effect, and the Underwriters have
received conformed counterparts of the Credit Agreement. There exists, and
at and as of the Closing Date (after giving effect to the actions
contemplated hereby and to the other Transactions (as defined in the
Prospectus)) shall exist, no condition that would constitute a default (or
an event that with notice or lapse of time, or both, would constitute a
default) under the Senior Credit Facility.

Furthermore, the Company represents and warrants that (i) the
Registration Statement, the Prospectus and any preliminary prospectus comply,
and any further amendments or supplements thereto will comply, with any
applicable laws or regulations of foreign jurisdictions in which the Prospectus
or any preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the Directed Share Program, and (ii) no
authorization, approval, consent, license, order, registration or qualification
of or with any government, governmental instrumentality or court, other than
such as have been obtained, is necessary under the securities laws and
regulations of foreign jurisdictions in which the Directed Shares are offered
outside the United States.
<PAGE>

2. Agreements To Sell and Purchase. The Company hereby agrees to
--------------------------------
sell to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares set forth in Schedule I hereto
opposite its name at $[ ] a share (the "Purchase Price").

On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to 600,000 Additional
Shares at the Purchase Price. If you, on behalf of the Underwriters, elect to
exercise such option, you shall so notify the Company in writing not later than
30 days after the date of this Agreement, which notice shall specify the number
of Additional Shares to be purchased by the Underwriters and the date on which
such shares are to be purchased. Such date may be the same as the Closing Date
(as defined below) but not earlier than the Closing Date nor later than ten
business days after the date of such notice. Additional Shares may be purchased
as provided in Section 4 hereof solely for the purpose of covering over-
allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule I hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.

The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 180 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of Capital Stock or any securities convertible into or exercisable or
exchangeable for Capital Stock or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Capital Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Capital Stock or such
other securities, in cash or otherwise. The foregoing sentence
<PAGE>

shall not apply to (A) the Shares to be sold hereunder, (B) the issuance by the
Company of shares of Capital Stock upon the exercise of an option or warrant or
the conversion of a security outstanding on the date hereof of which the
Underwriters have been advised in writing, (C) any options granted or shares of
Capital Stock issued pursuant to benefit plans of the Company as in effect on
the date of this Agreement, (D) any issuances to officers or employees of the
Company of shares of Capital Stock pursuant to the Securities Purchase and
Holders Agreement dated July 29, 1994, by and among the Company and the
shareholders set forth therein or (E) the conversion, in accordance with the
terms thereof, of shares of Common Stock into shares of Class B Common Stock, or
of shares of Class B Common Stock into Common Stock.

3. Terms of Public Offering. The Company is advised by you that the
-------------------------
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at $[ ]
a share (the "Public Offering Price") and to certain dealers selected by you at
a price that represents a concession not in excess of $[ ] a share under the
Public Offering Price, and that any Underwriter may allow, and such dealers may
reallow, a concession, not in excess of $[ ] a share, to any Underwriter or to
certain other dealers.

4. Payment and Delivery. Payment for the Firm Shares shall be made
---------------------
to the Company in Federal funds immediately available in New York City against
delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on December [ ], 1997/1/, or at
such other time on the same or such other date, not later than [ ]/2/, as
shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "Closing Date". The documents required to be
delivered by this Agreement shall be delivered on the Closing Date at the
offices of Dechert, Price & Rhoads, counsel for the Company, at 30 Rockefeller
Plaza, New York, New York.

- -------------------------
/1/ Insert date 3 business days or, in the event the offering is priced
after 4:30 p.m. Eastern Time, 4 business days after date of Underwriting
Agreement.

/2/ Insert date 5 business days after the date inserted in accordance with
note 3 above.
<PAGE>

Payment for any Additional Shares shall be made to the Company in
Federal funds immediately available in New York City against delivery of such
Additional Shares for the respective accounts of the several Underwriters at
10:00 a.m., New York City time, on the date specified in the notice described in
Section 2 or at such other time on the same or on such other date, in any event
not later than [ ]/3/as shall be designated in writing by you. The time
and date of such payment are hereinafter referred to as the "Option Closing
Date".

Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.

5. Conditions to the Underwriters' Obligations. The obligations of
--------------------------------------------
the Company to sell the Shares to the Underwriters and the several obligations
of the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than [ ] (New York City time) on the date hereof.

The several obligations of the Underwriters are subject to the
following further conditions:

(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:

(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction
of the possible change, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating
organization," as such term is

- --------------------
/3/ Insert date 10 business days after the expiration of the green shoe
option.
<PAGE>

defined for purposes of Rule 436(g)(2) under the Securities Act; and

(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company
and its subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement) that, in your judgment, is
material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.

(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in Section 5(a)(i) above and to the
effect that the representations and warranties of the Company contained in
this Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or before
the Closing Date.

The officer signing and delivering such certificate may rely upon
the best of his or her knowledge as to proceedings threatened.

(c) The Underwriters shall have received on the Closing Date the
opinion of Dechert Price & Rhoads, counsel for the Company, dated the
Closing Date, to the effect that:

(i) each of the Company and the domestic subsidiaries of the
Company (other than the Relevant Subsidiaries (as hereinafter
defined), the "Subject Subsidiaries") has been duly incorporated and
is validly existing as a corporation in good standing under the laws
of the jurisdiction in which it is chartered or organized, with full
corporate power and corporate authority to own its properties and
conduct its business as described in the Prospectus; and each of the
Company and the domestic subsidiaries of the Company (the "Domestic
Subsidiaries") is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each
jurisdiction set forth in a schedule to such
<PAGE>

opinion (which schedule shall identify, based solely on a certificate
of an officer of the Company, each jurisdiction in which the Company
or any such Domestic Subsidiary owns or leases material properties or
conducts material business);

(ii) the Company's authorized equity capitalization is as set
forth in the Prospectus; the Shares conform to the description thereof
contained in the Prospectus; and the Shares have been approved for
listing on the New York Stock Exchange, subject to official notice of
issuance;

(iii) to the best knowledge of such counsel, there is no pending
or threatened action or suit or judicial, arbitral or other
administrative proceeding to which the Company or any of its
subsidiaries is a party or of which any property or assets of the
Company or any of its subsidiaries is the subject that, singly or in
the aggregate, (A) questions the validity of this Agreement or the
Credit Agreement or any action taken or to be taken pursuant hereto or
pursuant to the other Transactions, or (B) if determined adversely to
the Company or any of its subsidiaries, is reasonably likely to have a
material adverse effect on the condition (financial or otherwise),
properties, business, results of operations or prospects of the
Company and its subsidiaries, taken as a whole, or materially and
adversely affect the ability of the Company or any of its subsidiaries
to perform its obligations under this Agreement or the Credit
Agreement or to consummate the other Transactions (a "Material Adverse
Effect"), except as described in the Prospectus; and the summaries in
the Registration Statement or the Prospectus of statutes, legal and
governmental proceedings and contracts and other documents accurately
describe in all material respects the provisions purported to be so
summarized; and the statements in the Prospectus under the caption
"Certain United States Federal Tax Consequences to Non-United States
Holders" accurately reflect in all material respects the United States
tax consequences generally applicable to Non-United States Holders (as
defined in the Prospectus) (subject to the qualifications and
assumptions set forth in such discussion and assuming the accuracy of
the
<PAGE>

discussion in the Prospectus relating to the Company's business and
activities);

(iv) the shares of Capital Stock outstanding prior to the
issuance of the Shares have been duly authorized and validly issued,
fully paid and non-assessable;

(v) the Shares have been duly authorized and, when delivered in
accordance with the terms of this Agreement, will be validly issued,
fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights;

(vi) the Registration Statement has become effective under the
Act; any required filing of the Prospectus, and any supplements
thereto, pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); to the best knowledge
of such counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or threatened; and the Registration
Statement and the Prospectus (other than the financial statements
and other financial information contained therein, as to which such
counsel need express no opinion) comply as to form in all material
respects with the applicable requirements of the Securities Act and
the rules thereunder;

(vii) all the outstanding shares of capital stock of each Subject
Subsidiary have been duly and validly authorized and issued and are
fully paid and nonassessable, and, except as otherwise set forth in
the Prospectus, all outstanding shares of capital stock of the
Domestic Subsidiaries are owned by the Company either directly or
through wholly owned subsidiaries free and clear of any perfected
security interest and, to the knowledge of such counsel, after due
inquiry, any other security interests, claims, liens or encumbrances
other than the pledges of capital stock of the Domestic Subsidiaries
pursuant to the Senior Credit Facility;

(viii) the Credit Agreement has been duly authorized, executed
and delivered by the Company and each of the Subject Subsidiaries that
is a party thereto; and constitutes a valid and legally
<PAGE>

binding agreement, enforceable in accordance with its terms subject to
applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws affecting creditors' rights and
remedies generally and to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity);

(ix) this Agreement has been duly authorized, executed and
delivered by the Company;

(x) neither the Company nor any of its subsidiaries is, before
or after the consummation of the actions contemplated by this
Agreement, the Credit Agreement or the other Transactions, an
"investment company" or a company "controlled" by an investment
company within the meaning of the Investment Company Act and the rules
and regulations of the Commission thereunder, without taking account
of any exemption under the Investment Company Act arising out of the
number of holders of the Company's securities;

(xi) no authorization, approval, consent or order of, or filing
or registration with, any court, regulatory body, administrative
agency or other governmental body is required for the execution,
delivery and performance of this Agreement or the Credit Agreement or
for the consummation of the actions contemplated hereby or thereby or
of the other Transactions, except as contemplated by Section 6(e);

(xii) the execution, delivery and performance of this Agreement
and the Credit Agreement by the Company and each of the Domestic
Subsidiaries that is a party thereto and the consummation of the
actions contemplated hereby or thereby and of the other Transactions
will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under (A) the articles of
incorporation, by-laws or other organizational documents of the
Company or any Subject Subsidiary, (B) any material statute, rule or
regulation applicable to the Company or any Domestic Subsidiary or any
order of any court, regulatory body, administrative agency or other
governmental body having jurisdiction over the Company or any of its
subsidiaries or any of their respective properties and which order is
known to
<PAGE>

such counsel or (C) any agreement or instrument known to such counsel
to which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries is bound or to which any of
their respective properties is subject; and the Company and each of
the Subject Subsidiaries that is a party thereto has full corporate
right, power and authority to execute and deliver this Agreement and
the Credit Agreement and to perform its respective obligations
hereunder and thereunder and to consummate the other Transactions; and
all corporate action required to be taken for the due and proper
authorization, execution and delivery of this Agreement and the Credit
Agreement and the consummation of the actions contemplated hereby and
thereby and of the other Transactions have been duly and validly
taken; and

(xiii) no holders of securities of the Company or any of its
subsidiaries have rights to the registration of such securities under
the Registration Statement.

Such opinion may be limited to the laws of the United States of America,
the States of New York and New Jersey and the Delaware General Corporation
Law. In rendering such opinion, such counsel may rely as to matters of
fact, to the extent they deem proper, on certificates of responsible
officers of the Company and public officials. References to the Prospectus
in this paragraph (c) include any supplements thereto at the Closing Date.

Such counsel shall also state, in a separate letter, that, in the
course of preparation by the Company of the Prospectus, such counsel has
participated in conferences with directors, officers and other
representatives of the Company, representatives of the independent public
accountants for the Company, representatives of the Underwriters and
representatives of counsel for the Underwriters, at which conferences the
contents of the Prospectus and related matters were discussed and, although
such counsel has not independently verified and is not passing upon and
assumes no responsibility for the accuracy, completeness or fairness of the
statements contained in the Prospectus (except as expressly provided
above), and noting that they have relied as to materiality to a large
extent upon the statements of directors, officers and other representatives
of the
<PAGE>

Company, no facts have come to such counsel's attention which have caused
such counsel to believe that at the date the Registration Statement became
effective it contained an untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading or that the Prospectus
includes an untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading (it
being understood that such counsel need express no view with respect to the
financial statements and the notes related thereto and other financial and
accounting data included in the Prospectus).

The opinion and letter of such counsel shall be rendered to the
Underwriters at the request of the Company and shall so state therein.

(d) The Underwriters shall have received on the Closing Date the
opinions of the following local counsels, or such other local counsels as
shall be reasonably acceptable to the Underwriters: (1) Leeuw Plopper &
Beeman, local counsel to Power Investments, Inc., Franklin Power Products,
Inc., International Fuel Systems, Inc. and Marine Corporation of America,
each an Indiana corporation; (2) Dossett, Goode, Martin and Broom, local
counsel to the A&B Group, Inc., A&B Enterprises, Inc., Dalex, Inc., A&B
Cores, Inc., R&L Tool Company, Inc. and MCA, Inc. of Mississippi, each a
Mississippi corporation; (3) Porteous & White, local counsel to Nabco,
Inc., a Michigan corporation; and (4) Hunton & Williams, local counsel to
World Wide Automotive, Inc., a Virginia corporation (each such Domestic
Subsidiary, with respect to the applicable local counsel, a "Relevant
Subsidiary"), each dated the Closing Date and to the effect that:

(i) each of the Relevant Subsidiaries has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of the jurisdiction in which it is chartered or organized, with
full corporate power and corporate authority to own its properties and
conduct its business as described in the Prospectus;

(ii) all the outstanding shares of capital stock of each Relevant
Subsidiary have been duly
<PAGE>

and validly authorized and issued and are fully paid and
nonassessable;

(iii) the Credit Agreement has been duly authorized, executed and
delivered by each of the Relevant Subsidiaries that is a party
thereto; and

(iv) the execution, delivery and performance of the Credit
Agreement by each Relevant Subsidiary that is a party thereto and the
consummation of the actions contemplated thereby and of the other
Transactions will not result in a breach or violation of any of the
terms and provisions of, or constitute a default under, the articles
of incorporation, by-laws or other organizational documents of the
Relevant Subsidiary; each of the Relevant Subsidiaries that is a party
thereto has full corporate power and corporate authority to execute
and deliver the Credit Agreement and to perform its respective
obligations thereunder and to consummate the other Transactions; and
all corporate action required to be taken by the Relevant Subsidiaries
party thereto for the due and proper authorization, execution and
delivery of the Credit Agreement and the consummation of the actions
contemplated thereby and of the other Transactions have been duly and
validly taken.

In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the
jurisdiction in which the Relevant Subsidiaries are chartered or organized
or the United States, to the extent they deem proper and specified in such
opinion, upon the opinion of other counsel who are satisfactory to counsel
for the Underwriters, and (B) as to matters of fact, to the extent they
deem proper, on certificates of responsible officers of the Relevant
Subsidiaries and public officials. References to the Prospectus in this
paragraph (d) include any supplements thereto at the Closing Date.

The opinion of such local counsel shall be rendered to the
Underwriters at the request of the Company and shall so state therein.

(e) The Underwriters shall have received on the Closing Date such
opinion or opinions of Cravath, Swaine & Moore, counsel for the
Underwriters, dated the Closing Date, with respect to the issuance and sale
of
<PAGE>

the Shares, the Registration Statement, the Prospectus (together with
any supplement thereto) and other related matters as the Underwriters may
reasonably require, and the Company shall have furnished to such counsel
such documents as they request for the purpose of enabling them to pass
upon such matters.

(f) At the Execution Time and at the Closing Date, Ernst & Young LLP
shall have furnished to the Underwriters a letter or letters, dated
respectively as of the date hereof and as of the Closing Date, in form and
substance satisfactory to the Underwriters, stating in effect that:

(i) they are independent certified public accountants with
respect to the Company, World Wide Automotive, Inc. ("World Wide"),
the Tractech Division of Titan Wheel International, Inc. and
Ballantrae, in each case within the meaning of Rule 101 of the
American Institute of Certified Public Accountants' Code of
Professional Conduct and its interpretations and rulings;

(ii) in their opinion the audited consolidated financial
statements included in the Prospectus and reported on by them comply
in form in all material respects with the accounting requirements of
the Securities Act and the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the related published rules and regulations
thereunder;

(iii) based upon a reading of the latest unaudited consolidated
financial statements made available by the Company, the procedures of
the American Institute of Certified Public Accountants for a review of
interim financial information as described in Statement of Auditing
Standards No. 71, reading of minutes and inquiries of certain
officials of the Company who have responsibility for financial and
accounting matters and certain other limited procedures requested by
the Underwriters and described in detail in such letter, nothing has
come to their attention that causes them to believe that:

(1) any unaudited financial statements included in the
Prospectus do not comply in form in all material respects with
applicable accounting requirements and with the published rules
and regulations of the
<PAGE>

Commission with respect to financial statements included or
incorporated by reference in quarterly reports on Form 10-Q under
the Exchange Act;

(2) said unaudited financial statements are not in
conformity with generally accepted accounting principles applied
on a basis substantially consistent with that of the audited
financial statements included in the Prospectus; or

(3) the consolidated financial and other information
included under the headings "Pro Forma Condensed Consolidated
Financial Data", "Selected Consolidated Historical Financial
Data", "Prospectus Summary--Summary Consolidated Historical and
Pro Forma Financial Data", "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and
"Management" is not in conformity with the disclosure
requirements of Regulation S-K under the Securities Act;

(iv) based upon the procedures detailed in such letter with
respect to the period subsequent to the date of the last available
balance sheet, including reading of the minutes and inquiries of
certain officials of the Company who have responsibility for financial
and accounting matters, nothing has come to their attention that
causes them to believe that:

(1) at a specified date not more than five days prior to the
date of the letter, there were any changes in the capital stock
of the Company, increases in the long-term debt of the Company or
decreases in the stockholders' equity or net current assets of
the Company, in each case on a consolidated basis, as compared
with the amounts shown in the October 31, 1997, unaudited
consolidated balance sheet included in the Prospectus; or

(2) for the period from October 31, 1997, to a specified
date not more than five days prior to the date of the letter,
there were any decreases, as compared with the corresponding
period in the immediately preceding quarter, in net sales, income
from continuing operations, net income or EBITDA
<PAGE>

(as defined under "Prospectus Summary" in the Prospectus), or
increases in costs of goods sold, of the Company and its
subsidiaries on a consolidated basis, except in all instances for
increases or decreases that the Prospectus discloses have
occurred or which are set forth in such letter, in which case the
letter shall be accompanied by an explanation by the Company as
to the significance thereof unless said explanation is not deemed
necessary by the Underwriters;

(v) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and its subsidiaries) set
forth in the Prospectus agrees with the accounting records of the
Company and its subsidiaries, excluding any questions of legal
interpretation; and

(vi) on the basis of a reading of the unaudited pro forma
financial statements included in the Prospectus (the "pro forma
financial statements"); carrying out certain specified procedures;
reading of minutes and inquiries of certain officials of the Company,
World Wide, Tractech, Ballantrae and Kraftube who have responsibility
for financial and accounting matters; and proving the arithmetic
accuracy of the application of the pro forma adjustments to the
historical amounts in the pro forma financial statements, nothing came
to their attention which caused them to believe that the pro forma
financial statements do not comply in form in all material respects
with the applicable accounting requirements of Rule 11-02 of
Regulation S-X or that such pro forma adjustments have not been
properly applied to the historical amounts in the compilation of such
statements.

References to the Prospectus in this paragraph (f) include any
amendment or supplement thereof or thereto at the date of the letter.

(g) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and each of the shareholders (including the
holders of shares
<PAGE>

received or to be received pursuant to the Company's acquisition of
Ballantrae), warrantholders, senior officers and directors of the Company
relating to sales and certain other dispositions of shares of Capital Stock
or certain other securities, delivered to you on or before the date hereof,
shall be in full force and effect on the Closing Date.

(h) The Notes Offering (as defined in the Prospectus), the Company's
acquisition of Ballantrae and each of the other Transactions shall have
been consummated on the terms described in the Prospectus.

(i) World Wide and Power Investments, Inc. shall have been
recapitalized so that all of their respective voting interests are owned by
the Company.

(j) All conditions precedent to the obligations of the lenders to
extend loans and issue letters of credit under the Credit Agreement shall
have been satisfied or waived.

(k) Prior to the Closing Date, the Company shall have furnished to
the Underwriters such further information, certificates and documents as
you, on behalf of the Underwriters, may reasonably request.

The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of the Additional
Shares and other matters related to the issuance of the Additional Shares.

6. Covenants of the Company. In further consideration of the
-------------------------
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:

(a) To furnish to you, without charge, four signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 a.m. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
Section 6(c) below, as many copies of the Prospectus and any supplements
and amendments
<PAGE>

thereto or to the Registration Statement as you may reasonably request.

(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object in writing within five business days after
receipt of a copy of such proposed amendment or supplement, and to file
with the Commission within the applicable period specified in Rule 424(b)
under the Securities Act any prospectus required to be filed pursuant to
such Rule.

(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.

(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.

(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-
month period ending [ ]/4/ that satisfies the provisions of

- ---------------------

/4/ Insert date one year after the end of the Company's fiscal quarter in
which the closing will occur.
<PAGE>

Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.

(f) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid
all expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
registration and delivery of the Shares under the Securities Act and all
other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies
thereof to the Underwriters and dealers, in the quantities hereinabove
specified, (ii) all costs and expenses related to the transfer and delivery
of the Shares to the Underwriters, including any transfer or other taxes
payable thereon, (iii) the cost of printing or producing any Blue Sky or
Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws
as provided in Section 6(d) hereof, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky or
Legal Investment memorandum, (iv) all filing fees and the reasonable fees
and disbursements of counsel to the Underwriters incurred in connection
with the review and qualification of the offering of the Shares by the
National Association of Securities Dealers, Inc. (the "NASD"), (v) all fees
and expenses in connection with the preparation and filing of the
registration statement on Form 8-A relating to the Common Stock and all
costs and expenses incident to listing the Shares on the New York Stock
Exchange, (vi) the cost of printing certificates representing the Shares,
(vii) the costs and charges of any transfer agent, registrar or depositary,
(viii) the costs and expenses of the Company relating to investor
presentations on any "road show" undertaken in connection with the
marketing of the offering of the Shares, including, without limitation,
expenses associated with the production of road show slides and graphics,
fees and expenses of any consultants engaged in connection with the road
show presentations with the prior approval of
<PAGE>

the Company, travel and lodging expenses of the representatives and
officers of the Company and any such consultants, and the cost of any
aircraft chartered in connection with the road show, and (ix) all other
costs and expenses incident to the performance of the obligations of the
Company hereunder for which provision is not otherwise made in this
Section. It is understood, however, that except as provided in this
Section, Section 7 entitled "Indemnity and Contribution", and the last
paragraph of Section 9 below, the Underwriters will pay all of their costs
and expenses, including fees and disbursements of their counsel, stock
transfer taxes payable on resale of any of the Shares by them and any
advertising expenses connected with any offers they may make.

(g) To apply the net proceeds from the sale of the Shares sold by it,
together with the net proceeds from the Notes Offering, substantially in
accordance with its statements under the caption "Use of Proceeds" in the
Prospectus.

(h) That, in connection with the Directed Share Program, the Company
will ensure that the Directed Shares will be restricted to the extent
required by the NASD or the NASD rules from sale, transfer, assignment,
pledge or hypothecation for a period of three months following the date of
the effectiveness of the Registration Statement. Morgan Stanley will
notify the Company as to which Directed Shares will need to be so
restricted. The Company will direct the transfer agent to place stop
transfer restrictions upon such Directed Shares for such period of time.

(i) To pay all fees and disbursements of counsel incurred by the
Underwriters in connection with the Directed Share Program and stamp
duties, similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program.

Furthermore, the Company covenants that it will comply with all
applicable securities and other applicable laws, rules and regulations in each
foreign jurisdiction in which the Directed Shares are offered in connection with
the Directed Share Program.

7. Indemnity and Contribution. (a) The Company agrees to indemnify
---------------------------
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
<PAGE>

Section 20 of the Exchange Act, from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) caused by any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except (i) insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein and (ii) that such indemnity with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
Shares, or any person controlling such Underwriter, if a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered, at or
prior to the written confirmation of the sale of the Shares to such person, and
if the Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such losses, claims, damages or liabilities, unless such failure
is the result of noncompliance by the Company with Section 6(a) hereof.

(b) The Company agrees to indemnify and hold harmless Morgan Stanley
and each person, if any, who controls Morgan Stanley within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Ace
("Morgan Stanley Entities"), from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) (i) caused by any untrue statement or alleged untrue
statement of a material fact contained in the prospectus wrapped material
prepared by or with the consent of the Company for distribution in foreign
jurisdictions in connection with the Directed Share Program attached to the
Prospectus or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement therein, when considered
<PAGE>

in conjunction with the Prospectus or any applicable preliminary prospectus, not
misleading; (ii) caused by the failure of any Participant to pay for and accept
delivery of the Shares which, immediately following the effectiveness of the
Registration Statement, were subject to a properly confirmed agreement to
purchase; or (iii) related to, arising out of, or in connection with the
Directed Shares Program, provided that the Company shall not be responsible
under this subparagraph (iii) for any losses, claim, damages or liabilities (or
expenses relating thereto) that are finally judicially determined to have
resulted from the bad faith or gross negligence of Morgan Stanley Entities.

(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
such Underwriter, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.

(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 7(a), 7(b) or 7(c), such person (the "indemnified
party") shall promptly notify the person against whom such indemnity may be
sought (the "indemnifying party") in writing and the indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably satisfactory
to the indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The indemnifying party shall not, in respect
of the legal expenses of any indemnified party in connection with any proceeding
or related proceedings in the same
<PAGE>

jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all such indemnified parties and that all
such fees and expenses shall be reimbursed as they are incurred. Such firm shall
be designated in writing by Morgan Stanley & Co. Incorporated, in the case of
parties indemnified pursuant to Section 7(a) or 7(b), and by the Company, in the
case of parties indemnified pursuant to Section 7(c). Notwithstanding anything
contained herein to the contrary, if indemnity may be sought pursuant to Section
7(b) hereof in respect of such proceeding, then in addition to such separate
firm for the indemnified parties, the indemnifying party shall be liable for the
reasonable fees and expenses of not more than one separate firm (in addition to
any local counsel) for Morgan Stanley for the defense of any losses, claims,
damages and liabilities arising out of the Directed Share Program, and all
persons, if any, who control Morgan Stanley within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by the second
and third sentences of this paragraph, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days after
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.

(e) To the extent the indemnification provided for in Section 7(a),
7(b) or 7(c) is unavailable to an indemnified party or insufficient in respect
of any losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of
<PAGE>

indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other hand from the offering of the Shares or (ii) if the allocation
provided by clause 7(e)(i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause 7(e)(i) above but also the relative fault of the Company on the one
hand and of the Underwriters on the other hand in connection with the statements
or omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other hand
in connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by the Company and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares. The relative fault of the Company on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective number of Shares they have purchased hereunder, and not joint.

(f) The Company and the Underwriters agree that it would not be just
or equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in Section 7(e). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, no
<PAGE>

Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages that
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in this
Section 7 are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.

(g) The indemnity and contribution provisions contained in this
Section 7 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Company, its officers or directors or
any person controlling the Company and (iii) acceptance of and payment for any
of the Shares.

8. Termination. This Agreement shall be subject to termination by
------------
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the NASD, the Chicago
Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board
of Trade, (ii) trading of any securities of the Company shall have been
suspended on any exchange or in any over-the-counter market, (iii) a general
moratorium on commercial banking activities in New York shall have been declared
by either Federal or New York State authorities or (iv) there shall have
occurred any outbreak or escalation of hostilities or any change in financial
markets or any calamity or crisis that, in your judgment, is material and
adverse and (b) in the case of any of the events specified in clauses 8(a)(i)
through 8(a)(iv), such event, singly or together with any other such event,
makes it, in your judgment, impracticable to market the Shares on the terms and
in the manner contemplated in the Prospectus.

9. Effectiveness; Defaulting Underwriters. This Agreement shall
---------------------------------------
become effective upon the execution and delivery hereof by the parties hereto.
<PAGE>

If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I bears to the
aggregate number of Firm Shares set forth opposite the names of all such non-
defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
--------
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 9 by an amount in excess of one-
ninth of such number of Shares without the written consent of such Underwriter.
If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased, and arrangements satisfactory to you and the Company for
the purchase of such Firm Shares are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter or the Company. In any such case either you or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter
or Underwriters shall fail or refuse to purchase Additional Shares and the
aggregate number of Additional Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
<PAGE>

If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.

10. Counterparts. This Agreement may be signed in two or more
-------------
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.

11. Notices. All communications hereunder will be in writing and
--------
effective only on receipt, and, if sent to the Underwriters, will be mailed,
delivered or sent by fax (312-706-4700) and confirmed to them in care of Morgan
Stanley & Co. Incorporated, 1585 Broadway, New York, New York 10036, Attention:
General Counsel; or, if sent to the Company, will be mailed, delivered or sent
by fax (765-778-6424) and confirmed to it at 2902 Enterprise Drive, Anderson,
Indiana 46013, Attention: Chief Financial Officer, with a copy mailed, delivered
or sent by fax (215-994-2222) and confirmed to Christopher G. Karras, Esq.,
Dechert Price & Rhoads, 4000 Bell Atlantic Tower, 1717 Arch Street,
Philadelphia, Pennsylvania 19103.

12. Business Day. The term "business day" shall mean any day other
-------------
than a Saturday, a Sunday or a federal legal holiday.

13. Applicable Law. This Agreement shall be governed by and
---------------
construed in accordance with the internal laws of the State of New York.

14. Headings. The headings of the sections of this Agreement have
---------
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
<PAGE>

Very truly yours,

DELCO REMY INTERNATIONAL, INC.

By:
----------------------------------
Name:
Title:

Accepted as of the date hereof,

Morgan Stanley & Co. Incorporated
Credit Suisse First Boston Corporation
Smith Barney Inc.

Acting severally on behalf
of themselves and the
several Underwriters named
in Schedule I hereto.

By: MORGAN STANLEY & CO. INCORPORATED

By:
---------------------------
Name:
Title:
<PAGE>

SCHEDULE I

<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter To Be Purchased
<S> <C>
Morgan Stanley & Co. Incorporated
Credit Suisse First Boston Corporation
Smith Barney Inc.

---------------
Total ...................... 4,000,000
===============
</TABLE>
<PAGE>

[FORM OF LOCK-UP LETTER]

[ ], 1997

Morgan Stanley & Co. Incorporated
Credit Suisse First Boston Corporation
Smith Barney Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036

Dear Sirs and Mesdames:

The undersigned understands that Morgan Stanley & Co. Incorporated
("Morgan Stanley") proposes to enter into an Underwriting Agreement (the
"Underwriting Agreement") with Delco Remy International, Inc., a Delaware
corporation (the "Company"), providing for the public offering (the "Public
Offering") by the several Underwriters, including Morgan Stanley (the
"Underwriters"), of 4,000,000 shares (the "Shares") of the Class A Common Stock
($.01 par value) of the Company (the "Class A Common Stock"). The Class A
Common Stock is, together with the Class B Common Stock ($.01 par value) of the
Company (the "Class B Common Stock"), referred to herein as the "Capital Stock".

To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending 180 days after the date of the final prospectus
relating to the Public Offering (the "Prospectus"), (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of Capital
Stock or any securities convertible into or exercisable or exchangeable for
Capital Stock or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Capital Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Capital Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to (a) the sale of
any Shares to the Underwriters pursuant to the Underwriting Agreement, (b) the
exercise of an option or warrant or the conversion of a security outstanding on
the
<PAGE>

date of the Underwriting Agreement of which the Underwriters have been advised
in writing, provided that only Capital Stock is received by the holder of such
option, warrant or security upon such exercise or conversion, (c) any options
granted or shares of Capital Stock issued pursuant to benefit plans of the
Company as in effect on the date of the Underwriting Agreement, (d) transactions
relating to shares of Capital Stock or other securities acquired in open market
transactions after the completion of the Public Offering, (e) any purchases from
any person by the Company of shares of Capital Stock pursuant to the Securities
Purchase and Holders Agreement dated July 29, 1994, by and among the Company and
the shareholders set forth therein or (f) the conversion, in accordance with the
terms thereof, of shares of Class A Common Stock into shares of Class B Common
Stock, or of shares of Class B Common Stock into shares of Class A Common Stock.
In addition, the undersigned agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, during the period
commencing on the date hereof and ending 180 days after the date of the
Prospectus, make any demand for, or exercise any right with respect to, the
registration of any shares of Capital Stock or any security convertible into or
exercisable or exchangeable for Capital Stock, that results in the filing of a
registration statement for such shares or securities with the Securities and
Exchange Commission prior to the end of such 180-day period.

It is understood that if the Underwriting Agreement shall terminate or
be terminated prior to the payment for and delivery of the Shares, the
undersigned will automatically, and without further action, be released from its
obligations under this letter agreement.

Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.

Very truly yours,

------------------------------
(Name)

------------------------------
(Address)

<PAGE>

Exhibit 3.1

RESTATED CERTIFICATE OF INCORPORATION

DELCO REMY INTERNATIONAL, INC.

Delco Remy International, Inc., a corporation incorporated on November
22, 1993 and existing under and by virtue of the General Corporation Law of the
State of Delaware (the "Corporation"), does hereby certify:

FIRST: That by written consent of the Board of Directors dated

December __, 1997, a resolution was duly adopted setting forth a
proposed Restatement of the Certificate of Incorporation of the
Corporation, declaring said Restatement to be advisable and calling
for consideration of said proposed Restatement by the stockholders of
the Corporation. The resolution setting forth the Restatement is as
follows:

RESOLVED, that the Certificate of Incorporation of the
Corporation be restated and integrated and also further amended
to read as set forth in Exhibit A attached hereto.
---------

SECOND: That thereafter, pursuant to the resolution of the Board of
Directors, the proposed Restatement of the Certificate of
Incorporation was approved by written consent of the stockholders
dated December __, 1997.

THIRD: That said Restatement was duly adopted in accordance with the
provisions of Sections 242 and 245 of the General Corporation Law of the
State of Delaware.

IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate of Incorporation to be executed by Thomas J. Snyder, its
President, as of December __, 1997.

DELCO REMY INTERNATIONAL, INC.

By:
Thomas J. Snyder
President
<PAGE>

Exhibit A
---------

RESTATED CERTIFICATE OF INCORPORATION

DELCO REMY INTERNATIONAL, INC.

. Name. The name of the Corporation in Delco Remy International, Inc.
----

. Registered Office and Agent. The address of the Corporation's registered
---------------------------
office in the State of Delaware is 1013 Centre Road in the City of Wilmington,
County of New Castle. The name of the Company's registered agent at such
address is Corporation Service Company.

. Purpose. The purposes for which the Corporation is formed are to engage in
-------
any lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware and to possess and exercise all of the
powers and privileges granted by such law and other law of Delaware.

. Authorized Capital. The aggregate number of shares of stock which the
------------------
Corporation shall have authority to issue is 67,000,000 shares, divided into two
(2) classes consisting of 49,400,000 shares of Class A Common Stock, par value
$.01 per share ("Class A Common Stock"), and 17,600,000 shares of Class B Common
Stock, par value $.01 per share ("Class B Common Stock") (Class A Common Stock
and Class B Common Stock together, "Common Stock").

. The following is a statement of the designations, preferences,
qualifications, limitations, restrictions and the special or relative rights
granted to or imposed upon the shares of each such class.

Except as otherwise provided herein, all shares of
Class A Common Stock and Class B Common Stock will be
identical and will entitle the holders thereof to the same
rights and privileges.

. Dividends. Holders of Common Stock will be entitled to receive such
---------
dividends as may be declared by the Board of Directors, provided that if
--------
dividends are declared that are payable in shares of Class A Common Stock or
Class B Common Stock, dividends will be declared that are payable at the same
rate on each class of Common Stock and the dividends payable in shares of Class
A Common Stock will be payable to holders of Class A Common Stock and the
dividends payable in shares of
<PAGE>

Class B Common Stock will be payable to holders of Class B Common Stock.

. Distribution of Assets. In the event of the voluntary or involuntary
----------------------
liquidation, dissolution or winding up of the Corporation, holders of Common
Stock will be entitled to receive all of the assets of the Corporation available
for distribution to its stockholders.

. Voting Rights. Except as otherwise required by law, the holders of Class A
-------------
Common Stock shall have the general right to vote for all purposes, including
the election of directors, and shall be entitled to one vote for each share
thereof held. Except as otherwise required by law, the holders of Class B Common
Stock shall have no voting rights.

. Merger, etc. In connection with any merger, consolidation, or
-----------
recapitalization in which holders of Class A Common Stock generally receive, or
are given the opportunity to receive, consideration for their shares (a) all
holders of Class B Common Stock shall be given the opportunity to receive the
same form of consideration for their shares as is received by holders of Class A
Common Stock and (ii) holders of Class B Common Stock shall be entitled to
receive the same amount of consideration per share as received by holders of
Class A Common Stock.

. Conversion. Each record holder of Class A Common Stock will be entitled to
----------
convert any or all of such holder's Class A Common Stock into the same number of
shares of Class B Common Stock (but only to the extent that such record holder
of Class A Common Stock shall be deemed to be required to convert such Class A
Common Stock into Class B Common Stock pursuant to applicable law), and each
record holder of Class B Common Stock will be entitled to convert any or all of
the shares of such holder's Class B Common Stock into the same number of shares
of Class A Common Stock; provided, however, that at the time of conversion of
-------- -------
shares of Class B Common Stock into shares of Class A Common Stock such holder
would be permitted, pursuant to applicable law, to hold the total number of
shares of Class A Common Stock that such holder would hold after giving effect
to such conversion.

<PAGE>

Each conversion of shares of one class of Common Stock into
shares of another class of Common Stock will be effected by the
surrender of the certificate or certificates representing the shares
to be converted at the principal office of the Corporation at any
time during normal business hours, together with a written notice by
the holder of such shares stating the number of shares that any such
holder desires to convert into the other class of Common Stock. Such
conversion will be deemed to have been effected as of the close of
business on the date on which such certificate or certificates have
been surrendered and such notice has been received by the
Corporation, and at such time the rights of any such holder with
respect to the converted class of Common Stock will cease and the
person or persons in whose name or names the certificate or
certificates for shares of the other class of Common Stock are to be
issued upon such conversion will be deemed to have become the holder
or holders of record of the shares of such other class of Common
Stock represented thereby.

Promptly after such surrender and the receipt by the
Corporation of the written notice from the holder hereinbefore
referred to, the Corporation will issue and deliver in accordance
with the surrendering holder's instructions the certificate or
certificates for the other class of Common Stock issuable upon such
conversion and a certificate representing any shares of Common Stock
that were represented by the certificate or certificates delivered
to the Corporation in connection with such conversion by which were
not converted. The issuance of certificates for the other class of
Common Stock upon conversion will be made without charge to the
holder or holders of such shares for any issuance tax (except stock
transfer taxes) in respect thereof or other cost incurred by the
Corporation in connection with such conversion.

Transfers. The Corporation will not close its books against the transfer
--------
of any share of Common Stock, or of any share of Common Stock issued or issuable
upon conversion of shares of the other class of Common Stock, in any manner that
would interfere with the timely conversions of such shares of Common Stock.

<PAGE>

Subdivision and Combinations of Shares. If the Corporation in any manner
- --------------------------------------
subdivides or combines the outstanding shares of any class of Common Stock, the
outstanding shares of the other class of Common Stock will be proportionately
subdivided or combined.

. Written Consent. Any action permitted to be taken at an annual or special
---------------
meeting of stockholders may be taken be written consent in lieu of a meeting if
and only if ever stockholder entitled to vote on such matter consents in writing
to the taking of such action.

. Bylaws. The board of directors of the Corporation is authorized to adopt,
------
amend or repeal the bylaws of the Corporation, except as otherwise specifically
provided therein.

. Elections of Directors. Elections of directors need not be by written
----------------------
ballot unless the bylaws of the Corporation shall so provide.

. Business Combinations with Interested Stockholders. The Corporation elects
--------------------------------------------------
not to be governed by section 203 of the Delaware General Corporation Law
("DGCL") immediately upon filing of this certificate pursuant to DGCL section
203(b)(3).

. Right to Amend. The Corporation reserves the right to amend any provision
--------------
contained in this Certificate as the same may from time to time be in effect in
the manner now or hereafter prescribed by law, and all rights conferred on
stockholders or others hereunder are subject to such reservation.

. Limitation on Liability. The directors of the Corporation shall be entitled
-----------------------
to the benefits of all limitations on the liability of directors generally that
are now or hereafter become available under the General Corporation Law of
Delaware. Without limiting the generality of the foregoing, no director of the
Corporation shall be liable to the Corporation 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 Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. Any repeal or
modification of this Section 9 shall be prospective only, and shall not affect,
to the detriment of any director, any limitation on the personal liability of a
director of the Corporation existing at the time of such repeal or modification.

<PAGE>

Exhibit 4.1

TEMPORARY CERTIFICATE -- EXCHANGEABLE FOR DEFINITIVE ENGRAVED CERTIFICATE WHEN
READY FOR DELIVERY

COMMON STOCK COMMON STOCK

PAR VALUE S -----------------
Delco -------------------
Remy SHARES
INTERNATIONAL
-----------------
-------------------

DELCO REMY INTERNATIONAL, INC. CUSIP 246626 10 5
SEE REVERSE FOR
CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE

- --------------------------------------------------------------------------------

THIS CERTIFIES THAT

IS THE OWNER OF

- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
DELCO REMY INTERNATIONAL, INC.

transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are issued and
shall be subject to all of the provisions of the Articles of Incorporation and
By-Laws of the Corporation, each as from time to time amended, to all of which
the holder by acceptance hereof assents.

This Certifcate is not valid until countersigned and registered by the Transfer
Agent and Registrar.

Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers:

Countersigned and Registered:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK)

Transfer Agent
and Registrar
By
Authorized Officer
/s/ Thomas J. Snyder
DATED:

PRESIDENT AND
CHIEF OPERATING OFFICER

/s/ David E. Stoll

VICE PRESIDENT AND
CONTROLLER

[DELCO REMY INTERNATIONAL INC. CORPORATE 1993 SEAL APPEARS HERE]
<PAGE>

DELCO REMY INTERNATIONAL, INC.

--------------

The Corporation will furnish to any shareholder without charge upon
request to the Transfer Agent named on the face of this certificate a full
statement of the designations, preferences, limitations and relative rights of
the shares of each class of stock authorized to be issued.

--------------

Keep this certificate in a safe place. If it is lost, stolen
or destroyed, the Corporation will require a bond of indemnity as a
condition to the issuance of a replacement certificate.

The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM -as tenants in common UNIF GIFT MIN ACT- ____ Custodian _______
TEN ENT -as tenant by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right under Uniform Gifts to
of survivorship and not as Minors Act
tenants in common ________________________
(State)

Additional abbreviations may also be used though not in the
above list.

For value received, ______________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
__________________________________________

________________________________________________________________________________

________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

________________________________________________________________________________

_________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.

Dated:______________________________

----------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.

By
-------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION.
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions) WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO
S.E.C. RULE 17Ad-15

<PAGE>

[LETTERHEAD OF DECHERT PRICE & RHOADS APPEARS HERE]

Exhibit 5.1

December 9, 1997

Delco Remy International, Inc.
2902 Enterprise Drive
Anderson, IN 46013

Re: Form S-1 Registration Statement
Registration No. 33-37675
-------------------------------

Gentlemen and Ladies:

We have acted as counsel to Delco Remy International, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing of
the Registration Statement on Form S-1 (Registration No. 33-37675), originally
filed on October 10, 1997 with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act"), and as subsequently
amended by amendments thereto, filed on October 22, 1997, November 21, 1997,
November 26, 1997 and an amendment to be filed today (the "Registration
Statement"), relating to the proposed issuance of up to 4,000,000 shares (the
"Shares") of Class A Common Stock, par value $.01 per share, of the Company
("Common Stock") which will be sold to the Underwriters named in the
Registration Statement pursuant to the Underwriting Agreement filed as Exhibit
1.1 to the Registration Statement (the "Underwriting Agreement").

We have participated in the preparation of the Registration Statement and
have made such legal and factual examination and inquiry as we have deemed
advisable for the rendering of this opinion. In making our examination we have
assumed the genuiness of all signatures, the authenticity of all documents
submitted to us as originals and the conformity to all authentic original
documents of all documents submitted to us as copies.

Based on the foregoing, it is our opinion that the Shares of Common Stock,
when sold to and purchased by the Underwriters in accordance with the terms of
the Underwriting Agreement, will be duly authorized, validly issued, fully paid
and non-assesable.

The opinion expressed herein is rendered solely for your benefit in
connection with the transactions contemplated hereby. The opinion expressed
herein may not be used or relied upon by any other person nor may this letter or
any copies hereof be furnished to a third party, filed

<PAGE>

Delco Remy International, Inc.
December 9, 1997
Page

with a governmental agency, quoted, cited or otherwise referred to without our
prior written consent, except as provided below.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Prospectus contained
therein, under the caption "Legal Matters." Such consent does not constitute a
consent under Section 7 of the Securities Act ("Section 7"), since in consenting
to the reference to our firm under such heading we have not certified any part
of such Registration Statement and do not otherwise come within the categories
of persons whose consent is required under Section 7 or under the rules and
regulations promulgated by the Securities and Exchange Commission.

Very truly yours,

DECHERT PRICE & RHOADS

<PAGE>

Exhibit 10.17

SUBORDINATION AGREEMENT
-----------------------

THIS SUBORDINATION AGREEMENT, made and entered into this 31st day of July,
1994 by and between GENERAL MOTORS CORPORATION, a Delaware corporation
("Subordinating Creditor") with an office at 767 Fifth Avenue, New York, New
York, THE CIT GROUP/BUSINESS CREDIT, INC., as lender and agent for certain
lenders under the Financing Agreement (as hereinafter defined) (the "Agent"),
with a principal place of business at 1211 Avenue of the Americas, New York, New
York 10036 and WORLD SUBORDINATED DEBT PARTNERS, L.P., a limited partnership
("World Debt"), with a principal place of business at 399 Park Avenue, New York,
New York (the Agent (which shall be deemed to include any successor agent acting
on behalf of the Lenders referred to below), in its capacity as lender and as
agent, the Lenders referred to below and World Debt being sometimes hereafter
collectively referred to as the "Senior Lenders").

W I T N E S S E T H:

WHEREAS, DRA, Inc. (the "Company") has executed and delivered to the
Subordinating Creditor its promissory note, dated the date hereof, in the
principal amount of $45,000,000.00 (the "Purchase Note"), and its Contingent
Purchase Price Note dated the date hereof (the "Contingent Note", collectively
with the Purchase Note, the "Subordinated Note") pursuant to the Asset Purchase
Agreement dated on or about the date hereof between the Company and the
Subordinating Creditor and the documents related thereto;

WHEREAS, the Company desires to borrow certain sums from certain lenders
(the "Original Lenders") pursuant to the Financing Agreement dated on or about
the date hereof by and among the Company, the Agent and the Original Lenders
("Original Financing Agreement"), certain Revolving Loan Promissory Notes in an
aggregate amount of up to $45,000,000 and certain Term Loan Promissory Notes in
the aggregate amount of $20,000,000 (collectively, the "Original Senior Notes")
executed in conjunction therewith to evidence the Revolving Loans and Term Loans
(as those terms are defined in the Original Financing Agreement) extended by the
Original Lenders to the Company thereunder; and may from time to time incur
additional indebtedness which is expressly senior to the Senior Subordinated
Note from certain lenders (collectively, with the Original Lenders, the
"Lenders") in connection with Permitted Acquisitions (subject to the terms and
conditions of and as such term is defined in the Senior Subordinated Credit
Agreement referred to below);

WHEREAS, the Company further desires to borrow certain sums from World Debt
pursuant to the Senior Subordinated Credit Agreement dated on or about the date
hereof between the Company and World Debt (the "Senior Subordinated Credit
Agreement"), which borrowing is evidenced by that certain Senior Subordinated
Note and the Interest Notes (as defined in the

<PAGE>

Senior Subordinated Credit Agreement), if any, in the principal amount of
$75,000,000 (collectively, the "Senior Subordinated Note"); and

WHEREAS, the extension of credit by the Senior Lenders to the Company will
benefit the Subordination Creditor, and in extending such credit, the Senior
Lenders have relied on the subordination of the Subordinating Creditor as
hereinafter set forth.

NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby mutually
acknowledged, the Subordinating Creditor hereby agrees with the Senior Lenders
as follows:

1. Subordination. Subject to the terms hereof, the Subordinating
-------------
Creditor hereby subordinates and defers the payment (including, without
limitation, in any Insolvency Proceeding, as herein defined) of any and all
amounts which may be now or hereafter owing by the Company to the Subordinating
Creditor pursuant to the Subordinated Note or any promissory notes now or
hereafter executed and delivered by the Company to the Subordinating Creditor in
payment of or as evidence of amounts now or hereafter owing to the Subordinating
Creditor arising pursuant to or in connection with said Subordinated Note and
all direct and indirect guarantees of any or all of the foregoing by any other
person or entity (all such amounts, notes, obligations and guarantees being
hereinafter referred to as the "Subordinated Debt") to the prior final and
indefeasible payment and satisfaction in full of any and all Senior Debt which
may be now or hereinafter owing to the Senior Lenders by the Company. "Senior
Debt", as used herein, shall mean all obligations, including, without
limitation, any and all now existing and future indebtedness, obligations, or
liabilities of the Company to any of the Senior Lenders, whether direct or
indirect, absolute or contingent, secured or unsecured, arising under the
Original Financing Agreement or any of the other loan instruments or any
guaranty now or hereinafter executed by the Company in favor of the Lenders
(collectively, with the Original Financing Agreement, the "Financing Agreement")
and any notes issued thereunder (collectively, with the Original Senior Notes,
the "Senior Notes"), as now written or as amended, supplemented, increased,
extended, renewed, refinanced, or deferred hereafter in accordance with the
terms and conditions hereof, or by operation of the law or otherwise, including
any and all expenses incurred in connection therewith and any interest thereon,
or arising under the Senior Subordinated Credit Agreement or any of the other
loan instruments or any guaranty executed by the Company in favor of World Debt,
as now written or as amended, supplemented, increased, extended, renewed,
refinanced or deferred hereafter in accordance with the terms and conditions
hereof, or by operation of law or otherwise, including any and all expenses
incurred in connection therewith and any interest thereon including, in the case
of both the Financing Agreement and the Senior Subordinated Credit Agreement,
without limitation, any post-petition interest accruing on such Senior Debt
after the Company becomes subject to an Insolvency Proceeding (whether or not
such interest is enforceable against the Company or recoverable against the
Company or its bankruptcy estate) and, further, any reasonable attorneys' fees
and disbursements incurred in connection with any of the foregoing. Senior Debt
shall also include all indebtedness, obligations and liabilities of the Company
to repay any amount previously paid by the Company pursuant to the Financing
Agreement or the Senior Subordinated Credit Agreement which amounts have

<PAGE>

been returned to the Company or to a trustee by any of the Senior Lenders
pursuant to sections 547 or 548 of the Bankruptcy Code of 1978, as amended.

"Insolvency Proceeding" shall mean (i) any insolvency or bankruptcy
case or proceeding, whether voluntary or involuntary, or any receivership,
liquidation, reorganization, readjustment, composition or other similar case or
proceeding relating to the Company or its assets, (ii) any liquidation,
dissolution, reorganization or winding up of the Company, whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy proceedings or
(iii) any assignment for the benefit of creditors or any other marshalling of
the Company's assets.

2. Representations, Warranties and Covenants. The Subordinating Creditor
-----------------------------------------
hereby warrants, represents and covenants that no holder of the Subordinated
Debt will assert any right which it may have to setoff against the Subordinated
Debt any amounts which are or may be owing by such holder to the Company, and
that until such time as this Subordination Agreement is terminated as herein
below provided, and except as provided herein, the Subordinating Creditor will
not (a) directly or indirectly, demand or receive payment of (except as provided
in paragraph 8 hereof); exchange, forgive, or modify; request or obtain
collateral or security or guarantees for; or assert, or participate in, or bring
any sort of action, suit or proceeding (including without limitation any
Insolvency Proceedings) either at law or in equity for the enforcement,
collection or realization on the whole, or any part of, the Subordinated Debt,
and (b) assign or transfer any portion of the Subordinated Debt or any interest
therein to any person without the consent of the Agent and World Debt, which
consent will not be unreasonably withheld, it being understood that each such
assignee and transferee shall be bound in all respects by the terms and
conditions of this Subordination Agreement and will execute any required
documents to so confirm. The Subordinating Creditor further warrants and
represents that (i) as of the date hereof the Subordinating Creditor is the
exclusive owner of the Subordinated Debt, (ii) there are, and will be, no
guarantees or collateral or security for the Subordinated Debt and (iii) this
Subordination Agreement has been duly authorized, executed and delivered by the
Subordinating Creditor and constitutes a valid and binding obligation of the
Subordinating Creditor in accordance with its terms.

3. Inducement. This Subordination Agreement is executed as an inducement
----------
to the Senior Lenders to make loans or advances to the Company or otherwise to
extend credit or financial accommodations to the Company and to enter into and
continue financing arrangements with the Company and is executed in
consideration of the Senior Lenders' doing or having done any of the foregoing.
The Subordinating Creditor agrees that any of the foregoing shall be done or
extended by the Senior Lenders in their sole discretion and shall be deemed to
have been done or extended by the Senior Lenders in consideration of and in
reliance upon the execution of this Subordination Agreement, but that nothing
herein shall obligate the Senior Lenders to do any of the foregoing.

4. Termination. This Subordination Agreement may be terminated only (i)
-----------
upon final and indefeasible payment and satisfaction in full of all Senior Debt
and termination of the Financing Agreement and the Senior Subordinated Credit
Agreement and the Senior

3
<PAGE>

Lenders' obligation to make loans, advances or extensions of credit thereunder,
or (ii) as of the seventh Anniversary Date (as defined in the Original Financing
Agreement), or any subsequent Anniversary Date, and then only upon actual
receipt by an officer of the Agent and a representative of World Debt of at
least one hundred and twenty (120) day's prior written notice of termination
sent by registered or certified mail; provided, however, that in the event of
-------- -------
termination of this Subordination Agreement, the Subordinating Creditor shall
remain bound hereunder and this Subordination Agreement shall continue in full
force and effect with respect to any and all Senior Debt created or arising
prior to the effective date of such termination and with respect to any and all
extensions, renewals or modifications of said pre-existing Senior Debt. This is
a continuing agreement and written notice as above provided shall be the only
means of termination, notwithstanding the fact that for certain periods of time
there may be no Senior Debt owing to the Lenders by the Company.

5. Rights in Insolvency Proceedings. The Subordinating Creditor
--------------------------------
irrevocably authorizes and empowers the Agent in any Insolvency Proceeding
involving or relating to the Subordinated Debt to file a proof of claim on
behalf of the Subordinating Creditor with respect to the Subordinated Debt if
the Subordinating Creditor fails to file proof of its claim prior to 30 days
before the expiration of the time period during which such claims must be
submitted, to accept and receive any payment or distribution which may be
payable or deliverable at any time upon or in respect of the Subordinated Debt
in an amount not in excess of the Lenders' portion of the Senior Debt then
outstanding and to take such other action as may be reasonably necessary to
effectuate the foregoing. The Subordinating Creditor shall provide to the Agent
all information and documents reasonably necessary to present claims or seek
enforcement as aforesaid. The Subordinating Creditor agrees that even though it
shall retain the right to vote its claims and otherwise act in any such
Insolvency Proceeding relative to the Company (including, without limitation,
the right to vote to accept or reject any plan of partial or complete
liquidation, reorganization, arrangement, composition, or extension), the
Subordinating Creditor shall not take any action or vote in any way so as to
contest (i) the validity or the enforceability of the Financing Agreement, the
Senior Notes, the loan instruments or the liens and security interests to the
extent granted to the Lenders by the Company with respect to the Lenders'
portion of the Senior Debt, (ii) the validity or enforceability of the Senior
Subordinated Credit Agreement or the Senior Subordinated Note or the other loan
documents executed in connection with the Senior Subordinated Credit Agreement,
(iii) the rights of the Lenders established in the Financing Agreement, the Loan
Instruments (as that term is defined in the Original Financing Agreement), any
other agreements or instruments relating to the Financing Agreement or any
security documents with respect to such liens and security interests, or (iv)
the validity or enforceability of this Subordination Agreement or any agreement
or instrument to the extent evidencing or relating to the Senior Debt. The
Senior Lenders agree that while the Agent shall retain the right to vote the
Senior Debt and otherwise act in any such reorganization proceeding relative to
the Company (including, without limitation, the right to vote or accept or
reject any plan of partial or complete liquidation, reorganization, arrangement,
composition or extension), neither the Agent and the Lenders not World Debt
shall take any action or vote in any way so as to contest the enforceability of
this Subordination Agreement, the Subordinated Note or any other agreement or
instrument to the extent evidencing or relating to the Subordinated Debt. Upon
the final and

4
<PAGE>

indefeasible payment by the Company of all of its obligations under the
Financing Agreement and the Senior Notes, all of the rights of the Agent set
forth in this paragraph shall automatically inure to the benefit of World Debt.
The Agent, however, makes absolutely no representations or warranties whatsoever
in connection with such rights.

6. No Liability; Overpayment. Neither the Agent nor the Senior
-------------------------
Lenders shall in any event be liable for any failure to prove the Subordinated
Debt; for failure to exercise any rights with respect thereto; or for failure to
collect any sums payable thereon; or for failure to take any affirmative action
in connection therewith. If any payments received by the Agent on the
Subordinated Debt, when added to the payments received directly by the Agent on
the debt arising out of or in connection with the Financing Agreement, shall
exceed the total debt arising out of or in connection with the Financing
Agreement, the Agent agrees, unless otherwise authorized by an unstayed, final
nonappealable order or decree of a court of competent jurisdiction in an
Insolvency Proceeding to promptly pay the excess to World Debt. If any payments
received by World Debt on the Subordinated Debt, when added to the payments
received directly by World Debt on the debt arising out of or in connection with
the Senior Subordinated Credit Agreement, shall exceed the total Senior Debt,
World Debt agrees, unless otherwise authorized by an unstayed, final
nonappealable order or decree of a court of competent jurisdiction in an
Insolvency Proceeding, to promptly pay the excess to the Subordinating Creditor.

7. Arrangements with the Company. It is agreed that the Senior
-----------------------------
Lenders may enter into any agreement or arrangements with respect to the
Financing Agreement, the Senior Notes, the Senior Subordinated Credit Agreement,
or the Senior Subordinated Note, and any amendments thereto, with the Company or
any guarantor of the Company as the Senior Lenders may deem proper; extend the
time for payment of or renew or refinance any or all Senior Debt; surrender any
security, collateral or guarantees underlying all or any of such Senior Debt,
and make any deferrals, settlements or compromises thereof; all without notice
to or consent from the Subordinating Creditor and without in any way impairing
or affecting this Subordination Agreement thereby; provided, that without the
--------
consent of the Subordinating Creditor (if the Subordinating Creditor is then a
holder of any of the Subordinated Debt), the Agent, with respect to the
Financing Agreement and the Senior Notes, and World Debt, with respect to the
Senior Subordinated Credit Agreement and the Senior Subordinated Note, will not
permit an amendment of their respective documents which would:

(a) shorten the earliest date on which the Line of Credit
under (and as defined in) the Original Financing Agreement may be terminated
pursuant to Section 12.01 of the Original Financing Agreement;

(b) shorten the stated maturity date of (i) the Term Loans (as
so defined) set forth in Section 4 of the Original Financing Agreement, (ii) the
Senior Subordinated Note as set forth in Section 2.1 of the Senior Subordinated
Credit Agreement or (iii) any term notes incurred in connection with any
Permitted Acquisition set forth in the applicable Financing Agreement as
in effect on the date of incurrence of such terms notes;

<PAGE>

(c) increase the rates of interest on (i) the Original
Senior Notes or any other notes issued pursuant to the Original Financing
Agreement from those set forth in or contemplated by the Original Financing
Agreement or (ii) any Senior Note or Financing Agreement incurred in connection
with a Permitted Acquisition pursuant to the applicable Financing Agreement in
excess of 2% per annum above those set forth in or contemplated by such
Financing Agreement as in effect on the date such indebtedness is incurred;

(d) increase the interest rates on the Senior
Subordinated Notes or any other notes, issued pursuant to the Senior
Subordinated Credit Agreement from those set forth in or contemplated by the
Senior Subordinated Credit Agreement:

(e) increase the principal amount of the obligations
evidenced by (i) the Original Senior Notes by more than $15,000,000 over the sum
of (1) the lesser of (x) $50,000,000 and (y) the then outstanding aggregate
commitments for the Revolving Loan (as defined in the Original Financing
Agreement), plus (2) the then outstanding aggregate principal amount of the Term
Loans, and (ii) any other Senior Notes in connection with a Permitted
Acquisition by more than the then outstanding aggregate principal amount of such
Senior Notes; or

(f) increase the principal amount of the obligations
evidenced by the Senior Subordinated Notes, over the then outstanding aggregate
principal amount of the Senior Subordinated Notes;

provided, that the limitations in clauses (a) and (b) shall not be applicable
- --------
after an Event of Default (as defined in the Financing Agreement or the Senior
Subordinated Credit Agreement, as the case may be) has occurred.

8. Payments to the Subordinating Creditor.
--------------------------------------

(a) Subject to the provisions of subparagraph (b)
hereof, should any payment with respect to the Subordinated Debt be received by
the Subordinating Creditor in any form and from any source whatsoever
(including, without limitation, any payment or distribution in respect of a
guaranty or of any other collateral security (if any) or the proceeds of any
such guaranty or other collateral security) prior to the final and indefeasible
satisfaction in full of all of the Senior Debt (other than (i) Reorganization
Securities or (ii) any such payment authorized by an unstayed, final,
nonappealable order or decree stating that effect is being given to the
subordination of the Subordinated Debt to the Senior Debt and made by a court of
competent jurisdiction in any Insolvency Proceeding), the Subordinating Creditor
shall immediately deliver to the Agent (or, if all obligations, under the
Financing Agreement (including all Obligations as defined in the Original
Financing Agreement), have been finally and indefeasibly paid in full, in cash,
World Debt) any monies, securities or other property received by it, or the
equivalent in cash, with proper endorsements or assignments, if necessary; and
pending such delivery the Subordinating Creditor shall hold such monies,
securities or other property as trustee solely for the account of the Senior
Lenders.

<PAGE>

(b) Notwithstanding anything to the contrary stated herein, the
Company may make payments of (i) interest when due in accordance with the terms
and provisions of the Purchase Note as in effect on the date hereof, (ii)
principal on or after July 31, 2004, to the Subordinated Creditor under and in
accordance with the terms and provisions of the Purchase Note as in effect on
the date hereof, and (iii) the Contingent Payment provided for in the Contingent
Note under and in accordance with the terms and provisions of the Contingent
Note as in effect on the date hereof, subject to the terms hereof, all without
prepayment or acceleration of the Subordinated Debt, and the Subordinating
Creditor may demand, receive and retain said payments unless the Agent or World
Debt shall have notified the Subordinating Creditor in writing that an Event of
Default has occurred under the Financing Agreement orthe Senior Subordinated
Credit Agreement, as the case may be (a "Suspension Notice"). Upon receipt of a
Suspension Notice, and at all times thereafter during the applicable Suspension
Period (as defined herein), subject to the terms hereof (i) the Subordinating
Creditor may not take, demand, receive or accelerate any payment of the
Subordinated Debt and the Company shall not give, make or permit any such
payment, including, without limitation, payment of any accrued interest on the
Subordinated Debt, and (ii) the Subordinating Creditor shall not asset,
participate in or bring any sort of action, suit or proceeding (including,
without limitation, any Insolvency Proceeding) either at law or in equity for
the enforcement, collection or realization of the Subordinated Debt (herein
"Commence Legal Action"). In the event the Senior Lenders determine that the
Event of Default has been cured to their reasonable satisfaction or waived by
the Senior Lenders, the Agent (or, if all obligations, under the Financing
Agreement (including all Obligations as defined in the Original Financing
Agreement), have been finally and indefeasibly paid in full, in cash, World
Debt) shall so notify the Subordinating Creditor and the Company in writing, the
Suspension Period shall terminate upon the Subordinating Creditor's and the
Company's receipt of such notice and the suspended payments shall resume and all
payments which would have been made but for this Subordination Agreement shall
be promptly made. Such resumed payments shall be subject to the terms and
provisions hereof. Upon the expiration of an applicable Suspension Period,
unless the Company has paid to the Subordinating Creditor all installments of
principal and interest that would have been due (without acceleration) during
such Suspension Period, the Subordinating Creditor may accelerate the
Subordinated Debt and Commence Legal Action. However, notwithstanding the
foregoing, should any Insolvency Proceeding occur at any time, the Subordinated
Debt shall be subordinated to the prior payment of all Senior Debt in accordance
with paragraph 1 hereof, and the provisions of subparagraph (a) of this
paragraph.

(c) "Reorganization Securities" shall mean securities of the Company,
as reorganized, arranged, adjusted, recapitalized or readjusted, provided for by
a plan of reorganization arrangement, adjustment, recapitalization or
readjustment of or involving the Company; provided that (i) such securities
shall constitute Subordinated Debt and be expressly subject to the provisions of
this Subordination Agreement, with the result that they are subordinated to the
Senior Debt at least to the extent to which the Subordinated Note is
subordinated hereby, (ii) no payment or mandatory prepayment of principal shall
be made prior to the maturity of the Senior Debt except as provided in the
Subordinated Note, (iii) such securities shall not require cash interest to be
paid at a higher rate or more frequently than the

7
<PAGE>

Subordinated Note, and (iv) the covenants in the documents governing such
securities shall be no more burdensome to the Company than the covenants
contained in the Subordinated Note.

(d) "Suspension Period" shall mean a period of up to 179
consecutive days commencing with the date on which the Agent or World Debt, as
the case may be, gives a Suspension Notice. With respect to Suspension
Notice(s), it is hereby understood and agreed that:

(i) there shall be no limit of the number of
Suspension Notices which the Agent or World Debt, as the case
may be, may give;

(ii) the Agent or World Debt, as the case may be,
shall not be entitled to give successive Suspension Notices
based on a continuing Event of Default under the Financing
Agreement or the Senior Subordinated Credit Agreement, as the
case may be, which Event of Default was the basis for a prior
Suspension Notice; and

(iii) nothing contained herein shall prohibit the
Agent or World Debt, as the case may be, from giving
successive Suspension Notices based upon an Event of Default
under the Financing Agreement or the Senior Subordinated
Credit Agreement, as the case may be, other than the Event of
Default which was the basis for any prior Suspension Notice
or any other Event of Default of which the Agent or World
Debt, as the case may be, had actual knowledge at the time it
gave such prior Suspension Notice; provided that no
--------
Subsequent Suspension Notice shall be effective prior to the
expiration of a number of days equal to the Suspension Period
last in effect.

9. Acceleration Rights. Notwithstanding anything contained in
-------------------
the Subordinated Note to the contrary, the Subordinating Creditor shall have no
right to accelerate the Subordinated Debt, except that the Subordinating
Creditor may accelerate and Commence Legal Action in the event that:

(a) (i) the Company has failed to make an installment
payment of interest or principal to the Subordinating
Creditor under the Subordinated Note; or (ii) there shall
have occurred an Event of Default in respect of a default
under Section 7 of the Purchase Note or Section 3 of the
Contingent Note; or (iii) the Subordinated Creditor has
become entitled to require the Company to repay the Purchase
Note pursuant to the provisions of Section 9 of the Purchase
Note; or (iv) an amendment is made to the Financing Agreement
or the Senior Subordinated Credit Agreement in violation of
the proviso to Section 7 hereof and, in any such case, the
Subordinating Creditor shall have notified the Senior Lenders
of the occurrence of such event and none of the Senior
Lenders shall have sent

<PAGE>

a Suspension Notice to the Subordinating Creditor within
twenty (20) days after the Senior Lenders' receipt of the
Subordinating Creditor's notification and thirty (30) days
shall have elapsed from the Senior Lenders' receipt of such
notice and the Company shall have not paid to the
Subordinating Creditor all installments of principal and
interest that would have been due (within acceleration) on
the Subordinated Note during such period, or cured, as the
case may be, such Event of Default (it being understood that
all such Events of Default may be cured prospectively);

(b) the Company commences or has commenced against it (other
than by the Subordinating Creditor) any Insolvency
Proceeding, provided that any such involuntary Insolvency
Proceeding which is commenced against the Company is not
dismissed or discharged within sixty (60) days after
commencement thereof;

(c) the Senior Lenders accelerate the Senior Debt in
accordance with the terms of the Financing Agreement and ten
(10) days have elapsed from such acceleration and the Senior
Lenders have not rescinded or revoked such acceleration; or

(d) a Suspension Period expires and the Company has not paid
to the Subordinating Creditor all installments of principal
and interest that would have been due (without acceleration)
during such Suspension Period and cured all other Events of
Default under the Subordinated Note (it being understood that
all such Events of Default may be cured prospectively);

provided, that any amount received by the Subordinating Creditor as a result of
- --------
any acceleration permitted above, prior to payment in full of the Senior Debt,
shall be held in trust and paid to the Senior Lenders in accordance with the
provisions of this Subordination Agreement.

10. Action Against. If the Subordinating Creditor in violation of
--------------
this Subordination Agreement shall assert or bring any action, suit or
proceeding against the Company or any guarantor of the Company, the Company or
any guarantor of the Company may interpose as a defense or dilatory plea the
making of this Subordination Agreement, and the Senior Lenders, acting through
the Agent (or, if all obligations under and in the Financing Agreement
(including all Obligations as defined in the Original Financing Agreement) have
been finally and indefeasibly paid in full, in cash, World Debt), are hereby
irrevocably authorized to intervene and to interpose such defense or plea in its
name or in the name of the Company or such guarantor. If the Subordinating
Creditor shall attempt to enforce, collect or realize upon any Subordinated
Debt or, any collateral, security or guarantees (if any) securing the
Subordinated Debt in violation of this Subordination Agreement, the Company or
any guarantor of the Company may, by virtue of this Subordination Agreement,
restrain any such enforcement, collection or realization, or upon failure to do
so, any of the Senior Lenders, acting through the Agent may restrain such
enforcement, collection or realization, either in its own name or in the name of
the Company or

<PAGE>

any guarantor of the Company, as the case may be.

11. Endorsement of Note; Other Documents. The Subordinating
------------------------------------
Creditor agrees to mark the Subordinated Note with a notation in substantially
the following form:

"This Note is subject to the terms and provisions of the
Subordination Agreement executed by the Payee in
favor of The CIT Group/Business Credit, Inc., as Agent,
and World Subordinated Debt Partners, L.P.",

and to deliver proof of such notation to the Senior Lenders. In the event the
Agent (or, if all obligations under the Financing Agreement (including all
Obligations as defined in the Original Financing Agreement) have been finally
and indefeasibly paid in full, in cash, World Debt), requires the possession of
the Subordinated Note in order to present claims or seek enforcement against the
Company for payment of the Subordinated Note in accordance with the provisions
of this Subordination Agreement, the Subordinating Creditor agrees, subject to
the terms hereof, to endorse and deliver the Subordinated Note and all other
evidences of the Subordinated Debt to the Agent (or, if all obligations under
the Financing Agreement (including all Obligations as defined in the Original
Financing Agreement) have been finally and indefeasibly paid in full, in cash,
World Debt).

12. Modifications to the Subordinated Note. The Subordinated Note
--------------------------------------
shall not be amended without obtaining the prior written consent of the Agent
and World Debt for (i) any increase in the rate of interest charged thereunder
(other than an increase pursuant to Section 3 or Section 6(b) of the Purchase
Note as in effect on the date hereof, (ii) any increase in the principal amount
of the Subordinated Note or any installment due thereunder, (iii) reduction of
the maturity date of any payment of principal or interest, (iv) amendment of the
form or method of payment (v) the granting or obtaining of any collateral
security or obtaining any lien on any collateral pledged to the Lenders, (vi)
providing for any additional financial covenants or events of default or making
more restrictive any existing covenants or events of default applicable to the
Company, or (vii) any other amendment which might have an adverse effect on the
operations of the Company, the Lenders' security interest in any collateral
pledged to the Lenders, the Agent's claims under the Financing Agreement or the
Senior Lender's position under this Subordination Agreement.

13. No Impairment of Company's Obligation. Subject to all of the
-------------------------------------
Senior Lenders' rights as expressly provided in this Subordination Agreement,
nothing contained in this Subordination Agreement shall (i) impair, as between
the Company and the Subordinating Creditor, the obligation of the Company, which
is unconditional and absolute, to pay the Subordinated Debt to the Subordinating
Creditor as and when all or any portion thereof shall become due and payable in
accordance with its terms, including, without limitation, the Company's
obligations under Section 3 of the Purchase Note as in effect on the date hereof
and the Company's obligation to make the payments set forth on Schedule A to the
Contingent Note

10
<PAGE>

as in effect on the date hereof, or (ii) prevent the Subordinating Creditor,
upon any default under the Subordinated Debt, from exercising all rights,
powers and remedies otherwise provided therein or by applicable law.

14. Subrogation. Until such time as all Senior Debt is finally and
-----------
indefeasibly paid in full and this Subordination Agreement is terminated as
herein provided, the Subordinating Creditor shall not assert or be entitled to
any subrogation rights. Subject to the prior sentence, if any payment or
distribution to which the Subordinating Creditor would otherwise have been
entitled (but for the provisions of this Subordination Agreement) shall have
been turned over to any Senior Lender or otherwise applied to the payment of the
Senior Debt pursuant to the provisions of this Subordination Agreement, then the
Subordinating Creditor shall be entitled to receive from such Senior Lender any
payments or distributions received by such Senior Lender in excess of the amount
sufficient to pay all Senior Debt in full, and upon such final and indefeasible
payment in full of the Senior Debt, the Subordinated Creditor shall be
subrogated (without any representation by, or any recourse whatsoever to the
Agent or World Debt) to all rights of such Senior Lender to receive all further
payments or distributions applicable to the Senior Debt until the Subordinated
Debt shall have been paid in full. For purposes of the Subordinating Creditor's
subrogation rights hereunder, payments to such Senior Lender with respect to the
Senior Debt which the Subordinating Creditor would have been entitled to receive
with respect to the Subordinated Debt but for the provisions of this
Subordination Agreement shall not, as between the Company, its creditors (other
than any Senior Lender) and the Subordinating Creditor, be deemed payments with
respect to the Senior Debt. The Senior Lenders make absolutely no
representations or warranties whatsoever in connection with such rights or
Senior Debt, including, without limitation, any representations or warranties as
to the enforceability of the Financing Agreement, the Senior Subordinated Credit
Agreement, the Senior Debt, or any lien upon any collateral therefor, or the
collectibility of said Senior Debt.

15. Entire Agreement. This Subordination Agreement embodies the whole
----------------
agreement of the parties and may not be modified except in writing. The Senior
Lenders' failure to exercise any right hereunder shall not be construed as a
waiver of the right to exercise the same or any other rights at any other time
and from time to time thereafter, and such rights shall be considered as
cumulative rather than alternative. No knowledge of any breach or other
non-observance by the Subordinating Creditor of the terms and provisions of this
Subordination Agreement shall constitute a waiver thereof by the Senior Lenders,
nor a waiver of any obligations to be performed by the Subordinating Creditor
hereunder.

16. Waiver of Notices. The Subordinated Creditor hereby waives any
-----------------
and all demands, presentments or notices (other than notices specifically
provided for in this Subordination Agreement) to which it might otherwise be
entitled, including, without limitation, any and all notice of the creation or
accrual of any claims; of any extension, modification, renewal, refinancing,
increase or deferral of any of said claims, and of the Senior Lenders' reliance
on this Subordination Agreement.

17. Notices. All notices and other communications hereunder shall be
-------
in

11
<PAGE>

writing or by telex, telegram or telecopy, and shall be deemed to have been duly
made when delivered in person or sent by telex, telegram, telecopy, same day or
overnight courier, or when deposited in the United States first class or
registered or certified mail, return receipt requested, postage prepaid. Notices
shall be sent:

If to the Subordinating Creditor:

General Motors Corporation
767 Fifth Avenue
New York, New York 10153
Attention: Treasurer
Fax No.: (212) 418-3695

and to:

General Counsel
General Motors Corporation
3031 West Grand Blvd.
Detroit, Michigan 48232

If to World Debt:

Citicorp Mezzanine Investment Fund
399 Park Avenue
14th Floor
New York, New York 10043
Attention: Byron Knief
Fax No.: (212) 888-2940

and to

Kirkland & Ellis
153 East 53rd Street
New York, New York 10022
Attention: Kirk A. Radke, Esquire
Fax No.: (212) 446-4900

<PAGE>

If to the Company:

DRA, Inc.
2405 Columbus Avenue
Anderson, Indiana 46018
Attention: Chief Financial Officer
Fax No.: (317) 646-3531

and to

Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, Pennsylvania 19103
Attention: G. Daniel O'Donnell, Esquire
Fax No.: (215) 994-2222

If to the Agent:

The CIT Group/Business Credit, Inc.
1211 Avenue of the Americas
22nd Floor
New York, New York 10036
Attention: Robert Smith
Fax No.: (212) 536-1295

or to such other address or to the attention of such other person as the
recipient party shall have specified by prior written notice to the sending
party.

18. General Provisions. When used in this Subordination Agreement all
------------------
pronouns shall, wherever applicable, be deemed to include the plural as well as
the masculine and feminine gender. This Subordination Agreement; shall inure
to the benefit of the Agent, the Lenders and World Debt and their respective
successors and assigns and any parent, subsidiary or affiliate of the Agent, the
Lenders, or World Debt as well as any concern for which the Agent, the Lenders
or World Debt may now or hereafter factor or finance; shall be binding upon and
inure to the benefit of the respective successors and assigns of the
Subordinating Creditor; and shall pertain to the Company and its successors and
assigns. This Subordination Agreement shall become effective upon the execution
of a counterpart hereof by each of the parties hereto, and written or telephonic
notification of such execution and authorization of delivery thereof has been
received by the parties hereto.

19. CHOICE OF LAW. THIS SUBORDINATION AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO ITS PROVISIONS RELATING TO

<PAGE>

CHOICE OR CONFLICTS OF LAWS. THE SUBORDINATING CREDITOR AND THE SENIOR LENDERS
EACH HEREBY ABSOLUTELY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO A
TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF THIS
SUBORDINATION AGREEMENT. THE PARTIES AGREE THAT THE COURTS OF THE STATE OF NEW
YORK LOCATED IN NEW YORK COUNTY AND THE FEDERAL COURTS LOCATED IN THE SOUTHERN
DISTRICT OF NEW YORK, COUNTY OF NEW YORK HAVE EXCLUSIVE JURISDICTION OVER ANY
AND ALL PROCEEDINGS INVOLVING THIS SUBORDINATION AGREEMENT AND THE PARTIES
HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREE TO SUBMIT TO THE JURISDICTION OF
SUCH COURTS FOR PURPOSES OF ANY SUCH ACTION OR PROCEEDING. THE PARTIES HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION AS TO THE VENUE OF ANY SUCH
ACTION OR PROCEEDING, INCLUDING ANY CLAIM THAT SUCH COURT IS AN INCONVENIENT
FORUM, WAIVE PERSONAL SERVICE OF PROCESS AND CONSENT TO SERVICE OF PROCESS
PROVIDED THE SAME IS IN ACCORDANCE WITH THE TERMS HEREOF. FINAL JUDGMENT IN ANY
SUCH ACTION OR PROCEEDING MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT.

14
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Subordination Agreement effective as of the date above set forth.

WORLD SUBORDINATED DEBT PARTNERS, L.P.

By: Citicorp Capital Investors, Ltd.,
its general partner

By: /s/ Byron Knief
-------------------------------------
Name: Byron Knief
Title: President

THE CIT GROUP/BUSINESS CREDIT, INC., as Agent

By: /s/ Robert C. Smith
----------------------------------------
Name: ROBERT C. SMITH
Title: VICE PRESIDENT

GENERAL MOTORS CORPORATION

By: /s/ Robert D. Feller
-----------------------------------------
Name: Robert D. Feller
Title: Attorney-in-Fact

<PAGE>

The undersigned, the Company referred to in the foregoing Subordination
Agreement, hereby agrees to comply with all of the terms and provisions of said
Subordination Agreement in all respects. In the event of a breach by either
the Company or the Subordinating Creditor in the performance of any of the
material terms of the Subordination Agreement, all of said Senior Debt shall,
without notice or demand, become immediately due and payable. The Company
hereby covenants that it will not (except as otherwise provided in the
Subordination Agreement) make any payment on account of, recognize any
forgiveness, assignment or transfer of, nor give any security for, the
Subordination Debt while said Subordination Agreement is in effect or until the
Senior Debt has been finally and indefeasibly satisfied in full and said
Subordination Agreement is terminated as herein provided.

DRA, INC.

By: /s/ James R. Gerrity
-----------------------------
Name: James R. Gerrity
Title: EVP

<PAGE>

EXHIBIT 11.1

COMPUTATION OF PER SHARE EARNINGS

<TABLE>
<CAPTION>
FOR THE QUARTER
FOR THE YEAR ENDED JULY ENDED
31 OCTOBER 31
------------------------- ---------------
1995 1996 1997 1996 1997
------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
Primary
Average shares outstanding........ 14,462 15,271 15,081 15,175 15,081
Net effect of dilutive stock
warrants--based on the treasury
stock method using the offering
price............................ 1,678 1,678 1,678 1,678 1,678
Net effect of stock compensation--
based on the treasury stock
method using the offering price.. 593 593 593 593 593
------- ------- -------- ------- -------
Total............................. 16,733 17,542 17,352 17,446 17,352
======= ======= ======== ======= =======
Net income........................ $ 6,963 $(4,841) $(14,296) $ 270 $ 3,062
======= ======= ======== ======= =======
Per share amount.................. $ .42 $ (.28) $ (.82) $ 0.02 $ .18
======= ======= ======== ======= =======
Pro Forma
Average shares outstanding........ 15,081 15,081
Net effect of dilutive stock
warrants--based on the treasury
stock method using the offering
price............................ 1,678 1,678
Net effect of stock compensation--
based on the treasury stock
method using the offering price.. 593 593
Assumed conversion of 11% junior
subordinated notes............... 1,621 1,621
Assumed issuance of Class A common
shares as a result of the
acquisition of Ballantrae
Corporation...................... 1,476 1,476
Assumed issuance of Class A common
shares as a result of the
Offering......................... 4,000 4,000
-------- -------
Total............................. 24,449 24,449
======== =======
Income (loss) from continuing
operations....................... $(429) $ 5,332
======== =======
Per share amount.................. $ (.02) $ .22
======== =======
</TABLE>

Note: Fully diluted earnings per share is not presented as there are no
differences from the primary earnings per share.