DELCO REMY INTERNATIONAL INC, S-1/A, 1997-10-22

DELCO REMY INTERNATIONAL INC
S-1/A, 1997-10-22
MOTOR VEHICLE PARTS & ACCESSORIES

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<PAGE>

As filed with the Securities and Exchange Commission on October 22, 1997.
Registration No. 333-37635
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

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

AMENDMENT NO. 1
to
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

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

DELCO REMY INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)

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

================================================================================
<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
- -------------------- ---------------------------------
<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 October 10, 1997

[LOGO OF DELCO REMY Shares
INTERNATIONAL APPEARS DELCO REMY INTERNATIONAL, INC.
HERE] 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 $
and $ . See "Underwriters" for a discussion of the factors considered in
determining the initial public offering price.

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"). See "Prospectus Summary--
The Offering--Concurrent Offerings." The Notes Offering and the Equity Offering
are each contingent on consummation of the other.

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

Application has been made to list the Class A Common Stock on the New York Stock
Exchange 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 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 , 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 BROTHERS INC
, 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 , 1997 (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

Prospectus Summary..................................4
Risk Factors.......................................11
Company History....................................16
Use of Proceeds....................................17
Dividend Policy....................................19
Dilution...........................................19
Capitalization.....................................20
Selected Consolidated Historical Financial Data....21
Pro Forma Condensed Consolidated Financial
Data (Unaudited)................................23
Management's Discussion and Analysis of
Financial Condition and Results of Operations...31
Business...........................................38
Management.........................................52
Principal Stockholders.............................58
Certain Transactions...............................61
Description of Capital Stock.......................61
Description of Indebtedness........................63
Shares Eligible for Future Sale....................67
Certain United States Federal Tax Consequences
to Non-United States Holders....................67
Underwriters.......................................69
Legal Matters......................................71
Experts............................................71
Additional Information.............................71
Index to Financial Statements.....................F-1

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

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, on August 1, 1996 and
(b) for purposes of balance sheet data, on July 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
, 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 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 -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 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
and EBITDA (as defined) for fiscal year 1997 were $689.8 million and $87.3
million, respectively. For the same period, the aftermarket accounted for
approximately 45.2% of the Company's net sales and 62.8% of 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.

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 and its U.S. and Canadian requirements for heavy duty starters and
alternators. GM also entered into a distribution agreement to sell the Company's
aftermarket products through the GM SPO distribution system. See
"Business--Customers."

4
<PAGE>

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 % of
the Company's outstanding Common Stock ( % of the voting power), and will be
able to control the Company and elect its Board of Directors.

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:

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

5
<PAGE>

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; 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.

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 will occupy five focus factories
and will 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

6
<PAGE>

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 , 1997, the Company entered into a definitive agreement to
acquire Ballantrae for $49.2 million (including assumed debt). 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. 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, minority
interest in income of subsidiaries, gain on sale of building and restructuring
charges, plus depreciation, amortization and non-cash post-retirement benefits
other than pensions, and (ii) 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).................. shares
Common Stock to be outstanding after the Equity shares of Class A Common Stock
Offering(2)(3).......................................... and 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 $181.1 million) will be used primarily
to repay outstanding indebtedness. See "Use of
Proceeds."
Proposed NYSE Symbol.................................... RMY
Risk Factors............................................ See "Risk Factors" beginning on page 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 shares of Class A Common Stock that
may be subject to a stock option plan which the Company expects to adopt
prior to the consummation of the Offerings and (ii)
7
<PAGE>

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 following table sets forth summary consolidated historical financial
data of the Company for the years ended July 31, 1995, 1996 and 1997 and as of
July 31, 1997 and summary consolidated pro forma financial data for the Company
as of and for the year ended July 31, 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, 1997 were derived from audited Consolidated Financial Statements of the
Company included elsewhere herein. The pro forma consolidated statement of
operations data for the year ended July 31, 1997 were prepared to illustrate the
estimated effect of the Transactions, including the Offerings and the
application of the estimated net proceeds therefrom, as if they had occurred on
August 1, 1996. The pro forma consolidated balance sheet data were prepared to
illustrate the estimated effect of the Transactions, including the Offerings and
the application of the estimated net proceeds therefrom, as if they had occurred
on July 31, 1997 (other than the acquisition of World Wide, which is reflected
in the consolidated historical balance sheet data). The pro forma data do not
purport to be indicative of the results of operations or the financial position
of the Company that would have been obtained if the Transactions had in fact
been completed as of such dates or to project the results of operations or the
financial position of the Company for any future date or period. 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, "Pro Forma Condensed Consolidated Financial Data,"
related notes and other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
For the Year Ended July 31
---------------------------------------------------------------
Pro Forma
1995 1996 1997 1997
------------- ------------- ------------- -------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of operations data:
Net sales................................ $ 573,423 $ 636,852 $ 689,787 $ 776,368
Gross profit............................. 98,207 126,774 149,553 170,522
Selling, engineering and administrative
expenses............................. 61,206 77,994 89,098 101,567
Restructuring charges.................... -- 8,101 34,500 34,500
Operating income......................... 37,001 40,679 25,955 34,455
Interest expense......................... 18,432 27,367 38,774 35,295
Income (loss) from continuing
operations........................... 9,326 5,796 (10,263) (1,377)
Loss from discontinued operations, net of
tax.................................. 2,363 10,637 1,682 --
Net income (loss)........................ 6,963 (4,841) (14,296) --
Income (loss) from continuing
operations per share................. $ $ $ $

Net income (loss) per share..............

Financial ratios and other data:
Depreciation and amortization............ $ 14,533 $ 19,555 $ 22,323 $ 24,961
Capital expenditures..................... 11,241 32,741 31,888 32,974
EBITDA(a)................................ 55,968 72,087 87,269 99,493
Gross margin............................. 17.1% 19.9% 21.7% 22.0%
Cash flow from operations................ 21,921 (684) 22,537 33,832
EBITDA margin............................ 9.8% 11.3% 12.7% 12.8%
Ratio of EBITDA to interest expense...... 3.0x 2.6x 2.3x 2.8x
Ratio of total debt to EBITDA............ 3.5x 4.1x 4.2x 3.4x
Ratio of earnings to fixed charges(b).... 1.8x 1.3x --(c) 1.0x
</TABLE>
<TABLE>
<CAPTION>
As of July 31, 1997
------------------------------
Historical Pro Forma
------------- -------------
<S> <C> <C>
Balance sheet data:
Working capital.......................................................... $ 155,302 $ 171,023
Total assets............................................................. 570,569 632,060
Total debt............................................................... 363,768 341,294
Total stockholders' (deficit) equity..................................... (8,536) 86,153
</TABLE>

9
<PAGE>

(a) EBITDA represents the sum of income from continuing operations before
interest expense, income taxes, preferred dividend requirement of subsidiary,
minority interest in income of subsidiaries, gain on sale of building and
restructuring charges, plus depreciation, amortization and non-cash
post-retirement benefits other than pensions. 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. This definition of EBITDA differs from the definition of EBITDA used in
the Indenture for the Notes and may not be comparable to EBITDA as defined by
other companies. See "Description of Notes--Certain Definitions."

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

(c) The deficiency of earnings to fixed charges was $13.5 million.
Excluding the restructuring charge, 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 July 31, 1997, the Company's total indebtedness would
have been $341.3 million (exclusive of unused commitments and outstanding
letters of credit), and the Company would have had common stockholders' equity
of $86.2 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 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 4.5% of the Company's 1997 pro forma
heavy duty OEM net sales. GM SPO accounted for approximately 24.2% 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 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.

11
<PAGE>

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 will
relocate additional production lines to those facilities and one additional
facility over the next year. At the conclusion of the relocation, the Company
will 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. In addition, there can be no
assurance that additional moves will not be required in the future. 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. See "Risk Factors--Restructuring Charges; Net
Losses" and "Business--Manufacturing and Facilities."

Concentration of Ownership

Upon completion of the Transactions, CVC will own beneficially
approximately % 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 % of the Company's outstanding Common Stock.
Certain other existing stockholders of the Company will own beneficially
approximately % 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; Net 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 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 will be able
to realize the benefits it anticipates from the restructurings or that the
Company will not incur additional charges in the future in connection with these
restructurings or other actions. See "Risk Factors--Relocation of Facilities"
and "Risk Factors--Labor Negotiations."

12
<PAGE>

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. The Company currently has
no commitments, understandings or arrangements with respect to any specific
acquisitions (other than for Ballantrae). However, the Company has entered into
strategic joint ventures in Mexico and Korea and expects to complete a strategic
alliance in India and a joint venture in Brazil in fiscal year 1998 and is
continually investigating opportunities for domestic and foreign acquisitions.
The Company's ability to make future acquisitions may also be constrained by its
ability to obtain 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 extent that consolidation
becomes more prevalent in the industry, the prices for attractive acquisition
candidates may increase to unacceptable levels.

Labor Negotiations

13
<PAGE>

new agreement will require the Company to move lower wage and benefit employees
to higher wage and benefit levels. There can be no assurance that the Company
will be able to effect cost reductions or productivity improvements to offset
such increased wage and benefit levels or that the Company's labor costs will
not 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 July 31, 1997, 141 of the Company's 459 Canadian employees were
represented by the Canadian Auto Workers and 97 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 July 31, 1997, approximately 246 of Autovill's 366 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 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."

Availability of Cores

In its remanufacturing operations, the Company obtains used components,
commonly known as "cores," from various sources, principally the Company's
existing customers. The Company also obtains cores from brokers who specialize
in buying and selling cores. 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 , 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 and completed
its due diligence, 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

14
<PAGE>

benefits it expects 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 47.5% 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 has
obtained a fairness opinion from Salomon Brothers Inc. 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 owned, on a
fully-diluted basis, 15.0% of Ballantrae's common stock and 10.4% of its
preferred stock and Messrs. Delaney and Cashin are directors 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 only be able to
recover approximately % and % of its damages from CVC and Mr.
Gerrity, respectively (in each case including their affiliates). See "Company
History," "Business--Acquisition of Ballantrae" and "Certain Transactions."

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 shares of Class A
Common Stock beneficially owned by the Existing Stockholders. In addition, CVC
and (after the consummation of the Equity Offering) World Equity Partners, L.P.
have demand rights to require registration of the shares of Class A Common
Stock held by them (including shares of Common Stock issuable upon exercise of
the Warrants). Of the shares of Common Stock to be outstanding after
the Offerings and the other Transactions, approximately million shares
will be shares of Class A Common Stock, and million shares will be
shares of Class B Common Stock. In addition, up to shares of Class A
Common Stock may be subject to a stock option plan of the Company and
shares of Class A Common Stock are issuable upon exercise of the Warrants. The
Company and each of the Company's current stockholders, directors, senior

15
<PAGE>

officers and warrant holders have agreed, subject to certain exceptions, not to
register for sale or 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 million shares of Class A Common Stock and
million shares of Class B Common Stock. The registration rights and related
restrictions described above apply to the shares of Class A Common Stock subject
to the stock option plan and the Warrants and any shares of Class B Common Stock
converted into Class A Common Stock. See "Shares Eligible for Future Sale" and
"Principal Stockholders--Registration Rights Agreement."

Dilution

Purchasers of Class A Common Stock in this Offering will experience
immediate and substantial dilution in net tangible book value per share 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 $ per share (the midpoint
of the range of prices set forth on the cover of this Prospectus), the dilution
in net tangible book value to purchasers of Class A Common Stock in this
Offering would be $ 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 net
tangible book value of $ per share as a result of this Offering. In
addition, the price per share of Common Stock paid by the Existing Stockholders
is significantly lower than the assumed price for the shares offered hereby. In
connection with the Offerings, the holders of the Company's Junior Subordinated
Notes will exchange such notes for shares of Class A Common Stock at a
per share price equal to the price of the shares of Class A Common Stock offered
by this Prospectus less underwriting discounts and commissions. The calculations
in this paragraph give effect to such exchange. 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 application has been made to list the Class A Common
Stock on the New York Stock Exchange, 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."

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

16
<PAGE>

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 will 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 , 1997, the Company entered into the Ballantrae Acquisition
Agreement to acquire Ballantrae for $49.2 million (including assumed debt).
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 will exchange shares of its Common Stock with
a value (at the initial public offering price in the Equity Offering) of
approximately $19 million for the equity of Ballantrae and will repay
approximately $30 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. 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."

USE OF PROCEEDS

The net proceeds to the Company from the Offerings are estimated to be
approximately $181.1 million (approximately $189.4 million if the over-allotment
option in the Equity Offering is exercised in full) assuming an initial public
offering price of $ per share in the Equity Offering and after
deduction of underwriting discounts and commissions and estimated offering
expenses. The use of the proceeds of the Offerings, together with $1.4 million
of available cash, will be to repay in full 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 one
of the Company's existing stockholders (the "World Note"), at a price equal to
103% of such 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

17
<PAGE>

"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 $20.8 million of borrowings outstanding under Ballantrae's
senior credit facility (the "Ballantrae Senior Bank Debt") and (vi) $9.3 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 15, 1997, the assumed date of the consummation of the Offerings (in
millions of dollars):

Sources of Funds (net of underwriting discounts and commissions)
<S> <C>
Equity Offering.................................. $ 55.8
Notes Offering................................... 126.8
Available Cash................................... 1.4
-------------

Total sources of funds...................... $ 184.0
=============

Uses of Funds
<S> <C>
Repayment of Power Investments Seller Notes...... $ 8.3
Repayment of World Note.......................... 78.9
Repayment of GM Acquisition Note................. 61.7
Repayment of A&B Seller Notes.................... 3.6
Repayment of Ballantrae Senior Bank Debt......... 20.8
Repayment of Ballantrae Subordinated Debt........ 9.2
Fees and expenses for the Offerings.............. 1.5
-------------

Total uses of funds......................... $ 184.0
=============

</TABLE>

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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 deficiency in net tangible book value (tangible assets minus total
liabilities) of the Company as of July 31, 1997 was $ million, or $
per share of Class A Common Stock assuming the Stock Split. After
giving effect to the sale of the shares, of Class A Common Stock offered by the
Company hereby at an assumed initial offering price of $ per share (and
deducting the estimated underwriting discount and offering expenses), the pro
forma net tangible book value of the Company as of July 31, 1997 would have been
approximately $ , or $ per share. This change represents an
immediate increase in net tangible book value of $ per share to the
Existing Stockholders and an immediate dilution of $ per share to
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.......................... $
Net tangible book value (deficit) per share before this Offering. ( )
Increase in net tangible book value per share attributable to new
investors........................................................
---------------
Net tangible book value per share after this Offering............
--------------
Dilution per share to new investors.............................. $
==============

</TABLE>

The foregoing table assumes no exercise of the Underwriters' over-allotment
option. After giving effect to the issuance of Common Stock in connection with
the acquisition of Ballantrae, the dilution per share to new investors would be
$ .

The following table summarizes as of , 1997, the differences
between Existing Stockholders and investors purchasing shares of Class A Common
Stock in this Offering with respect to the number of shares of Common Stock
purchased from the Company (assuming no exercise of the Underwriters' over-
allotment option), the total consideration paid and the average price per share
paid:

Shares Purchased Total Consideration
--------------------------------- ---------------------------------
Average Price
Number Percent Amount Percent Per Share
-------------- --------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders % $ % $
New Investors
-------------- --------------- -------------- ---------------
Total % $ %
============== =============== ============== ===============

</TABLE>

In connection with the Offerings, the holders of the Company's Junior
Subordinated Notes will exchange such notes for shares of Class A
Common Stock at a per share price equal to the price of the shares of Class A
Common Stock offered by this Prospectus less underwriting discounts and
commissions. The calculations set forth in this section give effect to such
exchange.

19
<PAGE>

CAPITALIZATION

The following table sets forth the current portion of the long-term debt
and the consolidated capitalization of the Company as of July 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."

As of July 31, 1997
-------------------------------------
Historical Pro Forma
----------------- ----------------
(in thousands)
<S> <C> <C>
Current portion of long-term debt.................................. $ 507 $ 507
================= ================

Long-term debt:

Senior Credit Facility........................................ $ 34,963 $ 34,963
Power Investments Seller Notes................................ 8,300 --
World Note.................................................... 75,000 --
% Senior Notes Due 2007................................... -- 130,000
Senior Subordinated Notes..................................... 140,000 140,000
GM Acquisition Note........................................... 59,155 --
8% Subordinated Debenture..................................... -- 17,942(a)
A&B Seller Notes.............................................. 3,500 --
Ballantrae Subordinated Debt.................................. -- 750
Other, including capital lease obligations.................... 17,132 17,132
Junior Subordinated Notes..................................... 25,211 --
----------------- ----------------
Total long-term debt...................................... 363,261 340,787

Minority interest.................................................. 8,032 8,032

Redeemable exchangeable preferred stock of subsidiary.............. 16,071(a) --

Stockholders' (deficit) equity:

Class A Common Stock (par value $.01; authorized 1,000,000;
issued and outstanding 525,477 historical, pro forma) 5 5
Class B Common Stock (par value $.01; authorized 1,000,000;
issued and outstanding 385,523 historical, pro forma). 4 4
Additional paid-in capital.................................... 10,194 109,455
Retained (deficit) earnings................................... (12,174) (16,746)
Cumulative translation adjustment............................. (1,752) (1,752)
Stock purchase plan........................................... (4,813) (4,813)
----------------- ----------------
Total stockholders' (deficit) equity...................... (8,536) 86,153
----------------- ----------------

Total capitalization...................................... $ 378,828 $ 434,972
================= ================

</TABLE>

- ---------------
(a) Reflects the exchange of the redeemable exchangeable preferred stock of
subsidiary to the 8% Subordinated Debenture as permitted by the terms of
such preferred stock. For details regarding this exchange, see footnote (d)
to the "Unaudited Pro Forma Condensed Consolidated Statement of
Operations."

20
<PAGE>

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA

The following table sets forth selected consolidated historical financial
data of the Company for and as of the years ended July 31, 1995, 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 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 Year Ended July 31
---------------------------------------------------------
1995 1996 1997
---------------- ---------------- -----------------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Statement of operations data:
Net sales................................ $ 573,423 $ 636,852 $ 689,787
Gross profit............................. 98,207 126,774 149,553
Selling, engineering and administrative
expense.............................. 61,206 77,994 89,098
Restructuring charges.................... -- 8,101 34,500
Operating income......................... 37,001 40,679 25,955
Interest expense......................... 18,432 27,367 38,774
Income (loss) from continuing operations. 9,326 5,796 (10,263)
Loss from discontinued operations, net of
tax benefit.......................... 2,363 10,637 1,682
Net income (loss)........................ 6,963 (4,841) (14,296)

Income (loss) from continuing operations
per share............................ $ $ $

Net income (loss) per share..............

Financial ratios and other data:
Depreciation and amortization............ $ 14,533 $ 19,555 $ 22,323
Capital expenditures..................... 11,241 32,741 31,888
EBITDA(a)................................ 55,968 72,087 87,269
Cash flow from operations................ 21,921 (684) 22,537
Gross margin............................. 17.1% 19.9% 21.7%
EBITDA margin............................ 9.8% 11.3% 12.7%
Ratio of EBITDA to interest expense...... 3.0x 2.6x 2.3x
Ratio of total debt to EBITDA............ 3.5x 4.1x 4.2x
Ratio of earnings to fixed charges(b).... 1.8x 1.3x --(c)

Balance sheet data (at end of period):
Working capital.......................... $ 61,268 $ 113,801 $ 155,302
Total assets............................. 322,527 475,082 570,569
Total debt............................... 196,988 298,796 363,768
Redeemable exchangeable preferred stock
of subsidiary........................ 12,903 14,420 16,071
Total stockholders' equity (deficit)..... 8,430 1,589 (8,536)
</TABLE>
See Accompanying Notes

21
<PAGE>

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

(c) Earnings were insufficient to cover fixed charges by $13.5 million.
Excluding the restructuring charge, the ratio of earnings to fixed charges would
have been 1.5x.

22
<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 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 July 31,
1997 has been adjusted to give effect to the Transactions, including the
Offerings, as if they had occurred on July 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.

23
<PAGE>

Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended July 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Adjustments Pro Forma
for the for the
Acquisitions Acquisitions
of of
World Wide World Wide Adjustments Pro Forma
and and for Other for
Historical Ballantrae(a) Ballantrae Transactions Transactions
------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales..................................... $689,787 $ 86,581 $ 776,368 $ -- $ 776,368
Cost of goods sold............................ 540,234 65,612 605,846 -- 605,846
------------ ------------- ------------ ------------ ------------
Gross profit.................................. 149,553 20,969 170,522 -- 170,522
Selling, engineering, and administrative
expenses................................. 89,098 12,469 101,567 -- 101,567
Restructuring charges......................... 34,500 -- 34,500 -- 34,500
------------ ------------- ------------ ------------ ------------
Operating income.............................. 25,955 8,500 34,455 -- 34,455
Other income (expense):
Gain on sale of building................. 2,082 -- 2,082 -- 2,082
Interest expense......................... (38,774) (4,905) (43,679) 8,384 (b) (35,295)
------------ ------------- ------------ ------------ ------------
(Loss) income from continuing operations
before income taxes, preferred dividend
requirement of subsidiary, and minority
interest................................. (10,737) 3,595 (7,142) 8,384 1,242
Minority interest in income of subsidiary..... 892 -- 892 -- 892
Income taxes (benefit)........................ (3,014) 1,387 (1,627) 3,354 (c) 1,727
Preferred dividend requirement of subsidiary.. 1,648 -- 1,648 (1,648)(d) --
------------ ------------- ------------ ------------ ------------
(Loss) income from continuing operations...... $(10,263) $ 2,208 $ (8,055) $ 6,678 $ (1,377)
============ ============= ============ ============ ============
Loss from continuing operations per share..... $
============
</TABLE>

See Accompanying Notes

24
<PAGE>

Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations
(in thousands)

(a) The adjustments for the acquisitions of World Wide and Ballantrae represent
the effects on the statement of operations of such acquisitions as if they
occurred on August 1, 1996. These adjustments are summarized in the
following table:

<TABLE>
<CAPTION>
World Wide Ballantrae Combined
-------------- --------------- ---------------
<S> <C> <C> <C>
Net sales.................................................. $ 49,014 $ 37,567 $ 86,581
Cost of goods sold......................................... 40,935 24,677 65,612
-------------- --------------- ---------------
Gross profit............................................... 8,079 12,890 20,969
Selling, engineering, and administrative expenses.......... 6,319 6,150 12,469
-------------- --------------- ---------------
Operating income........................................... 1,760 6,740 8,500
Interest expense........................................... (2,280) (2,625) (4,905)
Income taxes (benefit)..................................... (47) 1,434 1,387
-------------- --------------- ---------------
(Loss) income from continuing operations................... $ (473) $ 2,681 $ 2,208
============== =============== ===============
</TABLE>

(b) Reflects decreases (or increases) in 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 World Note................................................... 454
Interest expense for the % Senior Notes Due 2007......................... (11,050)
Amortization of deferred financing costs associated with % Senior
Notes Due 2007............................................................ (400)
Repayment of GM Acquisition Note............................................... 6,552
Repayment of A&B Seller Notes.................................................. 350
Repayment of Ballantrae Senior Bank Debt....................................... 1,552
Repayment of Ballantrae Subordinated Debt...................................... 1,073
Exchange of Junior Subordinated Notes.......................................... 2,593
Interest expense relating to the 8% Subordinated Debenture exchanged for the
redeemable exchangeable preferred stock of subsidiary..................... (1,593)
---------------
Net reduction in interest expense.............................................. $ 8,384
===============
</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.

(c) Represents the income tax expense related to the pro forma interest expense
reduction at an assumed marginal tax rate of 40%.

25
<PAGE>

(d) Represents the reversal of preferred dividend requirement 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>
<CAPTION>
For the
Year Ended
July 31, 1997
---------------
<S> <C>
Fair value of the 8% Subordinated Debenture.................................... $ 17,942
Carrying value of the redeemable exchangeable preferred stock of subsidiary.... 16,071
---------------
Deemed preferred dividend of subsidiary arising from exchange.................. $ 1,871
===============
</TABLE>

26
<PAGE>

Unaudited Pro Forma Condensed Consolidated Balance Sheet
July 31, 1997
(in thousands)

Adjustments Pro Forma
for for Adjustments Pro Forma
Ballantrae Ballantrae for Other for
Historical Acquisition(a) Acquisition Transactions Transactions
------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents........ $ 10,050 $ 347 $ 10,397 $ 2,635(b) $ 13,032
Trade accounts receivable........ 110,184 5,838 116,022 -- 116,022
Other receivables................ 10,487 -- 10,487 -- 10,487
Recoverable income tax........... 2,889 -- 2,889 1,801(g) 4,690
Inventories...................... 164,417 10,127 174,544 -- 174,544
Deferred income taxes............ 21,474 -- 21,474 -- 21,474
Other current assets............. 4,643 55 4,698 -- 4,698
------------- ------------- -------------- ------------- --------------
Total current assets............. 324,144 16,367 340,511 4,436 344,947

Property and equipment............... 147,222 16,834 164,056 -- 164,056
Less accumulated depreciation........ 26,858 -- 26,858 -- 26,858
------------- ------------- -------------- ------------- --------------
120,364 16,834 137,198 -- 137,198

Deferred financing costs............. 8,803 -- 8,803 1,958(c) 10,761
Goodwill (less accumulated
amortization).................... 86,612 21,168 107,780 -- 107,780
Net assets held for disposal......... 25,279 -- 25,279 -- 25,279
Investment in affiliate.............. 3,119 -- 3,119 -- 3,119
Other assets......................... 2,248 728 2,976 -- 2,976
------------- ------------- -------------- ------------- --------------
Total assets......................... $ 570,569 $ 55,097 $ 625,666 $ 6,394 $ 632,060
============= ============= ============== ============= ==============

Liabilities and stockholders'
(deficit) equity:
Current liabilities:
Accounts payable................. $ 88,578 $ 2,398 $ 90,976 -- $ 90,976
Accrued interest payable......... 3,107 2,078 5,185 -- 5,185
Accrued restructuring charges.... 37,377 -- 37,377 -- 37,377
Liabilities related to
discontinued operations 3,324 -- 3,324 -- 3,324
Other liabilities and accrued
expenses......................... 35,949 606 36,555 -- 36,555
Current portion of long-term debt 507 -- 507 -- 507
------------- ------------- -------------- ------------- --------------
Total current liabilities........ 168,842 5,082 173,924 -- 173,924

Deferred income taxes................ 1,556 265 1,821 -- 1,821
Long-term debt, less current
portion(d)....................... 363,261 30,750 394,011 (53,224) 340,787
Post-retirement benefits other than
pension.......................... 12,677 -- 12,677 -- 12,677
Accrued pension benefit.............. 4,542 -- 4,542 -- 4,542
Other non-current liabilities........ 4,124 -- 4,124 -- 4,124

Minority interest in subsidiary...... 8,032 -- 8,032 -- 8,032

Redeemable exchangeable preferred
stock of subsidiary.............. 16,071 -- 16,071 (16,071)(e) --

Stockholders' (deficit) equity:
Common Stock:....................
Class A Shares................ 5 -- 5 -- 5
Class B Shares................ 4 -- 4 -- 4
Paid-in capital(f)............... 10,194 19,000 29,194 80,261(f) 109,455
Retained earnings (deficit)...... (12,174) -- (12,174) (4,572)(g) (16,746)
Cumulative translation adjustment (1,752) -- (1,752) -- (1,752)
Stock purchase plan.............. (4,813) -- (4,813) -- (4,813)
------------- ------------- -------------- ------------- --------------
Stockholders' (deficit) equity....... (8,536) 19,000 10,464 75,689 86,153
------------- ------------- -------------- ------------- --------------
Total liabilities and stockholders'
(deficit) equity................. $ 570,569 $ 55,097 $ 625,666 $ 6,394 $ 632,060
============= ============= ============== ============= ==============

</TABLE>

See Accompanying Notes

27
<PAGE>

Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
(in thousands)

(a) Represents the adjustments for the Ballantrae acquisition as if it had
occurred as of July 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:

As of
July 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....................................... (77,250)
Repayment of GM Acquisition Note.............................. (59,155)
Repayment of A&B Seller Notes................................. (3,500)
Repayment of Ballantrae Senior Bank Debt...................... (20,750)
Repayment of Ballantrae Subordinated Debt..................... (9,250)
Other fees and expenses of the Offerings...................... (1,500)
---------------

Cash available for general corporate purposes................. $ 2,635
===============

</TABLE>

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

As of
July 31, 1997
---------------
<S> <C>
Deferred financing costs related to the Offerings............. $ 4,000
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.................................. (2,252)
---------------

$ 1,958
===============

</TABLE>

28
<PAGE>

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

<TABLE>
<S> <C>
Total long-term debt (historical)........................ $ 363,261

Ballantrae Senior Bank Debt.............................. 20,750
Ballantrae Subordinated Debt............................. 10,000
-----------------

Pro forma for Ballantrae Acquisition..................... 394,011
-----------------

Power Investments Seller Notes........................... (8,300)
World Note............................................... (75,000)
GM Acquisition........................................... (59,155)
A&B Seller Notes......................................... (3,500)
Ballantrae Senior Bank Debt.............................. (20,750)
Ballantrae Subordinated Debt............................. (9,250)
Junior Subordinated Notes................................ (25,211)
% Senior Notes Due 2007............................ 130,000
8% Subordinated Debenture................................ 17,942
-----------------

Adjusted for other Transactions.......................... (53,224)
-----------------

Pro forma for Transactions............................... $ 340,787
=================

</TABLE>

(e) 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>
<S> <C>
Paid in capital (historical)....................................... $ 10,194
Common Stock issued in Ballantrae acquisition...................... 19,000
---------------

Pro forma for Ballantrae acquisition............................... 29,194
---------------

Equity Offering.................................................... 55,800
Exchange of Junior Subordinated Notes.............................. 25,211
Fees for Equity Offering........................................... (750)
---------------

Adjusted from other transactions................................... 80,261
---------------

Pro forma for Transactions......................................... $ 109,455
===============

</TABLE>

29
<PAGE>

(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:

As of
July 31, 1997
---------------
<S> <C>
Early extinguishment penalty on World Note.................... $ (2,250)
Write-off of World Note deferred financing costs as a result
of early extinguishment.................................. (2,252)
Tax effect of early extinguishments........................... 1,801
Deemed dividend of preferred stock of subsidiary.............. (1,871)
---------------

Net charge to retained earnings (deficit)..................... $ (4,572)
===============

</TABLE>

30
<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 EBITDA (as
defined). Net sales and 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's domestic OEM labor force is
represented primarily by the UAW. In March 1997, the Company signed a new master
agreement with the UAW. Wage and benefit increases under the new agreement
generally follow the same pattern as the prior agreement and continue to track
the wages and benefits paid by GM and, as a result, the Company will experience
higher wage and benefit rates in future periods. In addition, grow-in provisions
under the new agreement will require the Company to move 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 this
program is included in the restructuring charges for fiscal year 1997 described
below. The Company is in the process of shifting OEM production to focus
factories which the Company believes can reduce costs.

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 56.1% 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
30.3% were to GM's OEM businesses and 13.4% were to GM SPO. Substantially all of
the Company's fiscal year 1997 automotive OEM sales were to GM.

31
<PAGE>

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 will be vacated by the end of
1999. The Company is operating three new focus factories in Anderson and intends
to begin operations in two additional focus factories by the end of 1999. This
restructuring will 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 two additional focus
factories.

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 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. See "Risk Factors--Restructuring
Charges; Net 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

32
<PAGE>

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.

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

<TABLE>
<CAPTION>
For the Year Ended July 31
----------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net sales........................................................ 100.0% 100.0% 100.0%
Cost of goods sold............................................... 82.9 80.1 78.3
------------- ------------- -------------
Gross profit..................................................... 17.1 19.9 21.7
Selling, engineering and administrative expenses................. 10.7 12.2 12.9
Restructuring charges............................................ -- 1.3 5.0
------------- ------------- -------------
Operating income................................................. 6.5 6.4 3.8
Other income (expense):
Gain on sale of building.................................... -- -- 0.3
Interest expense............................................ (3.2) (4.3) (5.6)
------------- ------------- -------------
Income (loss) from continuing operations before minority interest,
income taxes and preferred divided requirement of
subsidiary.................................................. 3.2 2.1 (1.6)
Minority interest................................................ -- 0.0 0.1
Income taxes..................................................... 1.4 0.9 (0.4)
Preferred dividend requirement of subsidiary..................... 0.2 0.2 0.2
------------- ------------- -------------
Income (loss) from continuing operations......................... 1.6 0.9 (1.5)
Discontinued operations:
Loss from operations of discontinued businesses
(less applicable income tax benefit).................... 0.4 0.2 0.1
Loss on disposal of businesses
(less applicable income tax benefit).................... -- 1.4 0.1
Extraordinary item:
Write-off of debt issuance costs (less applicable income tax
benefit).................................................... -- -- 0.3
------------- ------------- -------------
Net income (loss)................................................ 1.2% (0.8)% (2.0)%
============= ============= =============
</TABLE>

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 made significant acquisitions.

33
<PAGE>

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 increase was primarily attributable to the higher gross
profit margins of the Power Investments Acquisition and the World Wide
Acquisition as well as improved productivity and cost reductions in the
Company's OEM operations. 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 generate 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. Selling, engineering and
administrative ("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
increase in SE&A expense as a percent of net sales resulted primarily from
higher SE&A expense as a percent of net sales for the acquired companies,
start-up costs for the focus factories and costs for information systems.

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. The increase was due primarily
to the additional debt incurred to finance acquisitions and 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). As a result of the foregoing factors, 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 increase was attributable primarily to the higher gross
profit margins of the businesses acquired as well as improved productivity and
cost reductions in the OEM operations. These benefits were partially offset by
decreased sales to GM which negatively affected gross profit margins at certain
of the Company's OEM operations.

34
<PAGE>

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.

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
the additional debt incurred to finance acquisitions and 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

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

<TABLE>
<CAPTION>
Fiscal 1996 Quarter Ended Fiscal 1997 Quarter Ended
---------------------------------- ----------------------------------
Oct. 31 Jan. 31 April 30 July 31 Oct. 31 Jan. 31 April 30 July 31
------- ------- -------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $ 156.7 $ 147.8 $ 164.5 $ 167.9 $ 167.6 $ 164.9 $ 180.4 $ 176.9
Gross profit............... 31.1 28.3 34.1 33.4 38.8 32.0 38.4 40.2
SE&A....................... 17.8 17.5 21.4 21.3 24.1 20.4 23.3 21.3
Restructuring charges...... -- -- -- 8.1 -- -- -- 34.5
Operating income........... 13.3 10.8 12.6 4.0 14.7 11.6 15.1 (15.4)
EBITDA..................... 17.9 15.5 17.4 21.3 22.6 18.6 21.9 24.2
</TABLE>

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 1996 Quarter Ended Fiscal 1997 Quarter Ended
---------------------------------- ----------------------------------
Oct. 31 Jan. 31 April 30 July 31 Oct. 31 Jan. 31 April 30 July 31
------- ------- -------- ------- ------- ------- -------- -------
<S> <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%
Gross profit.............. 19.8% 19.1% 20.7% 19.9% 23.2% 19.4% 21.3% 22.7%
SE&A...................... 11.4% 11.8% 13.0% 12.7% 14.4% 12.3% 12.9% 12.0%
Restructuring charges..... -- -- -- 4.8% -- -- -- 19.5%
Operating income.......... 8.5% 7.3% 7.7% 2.4% 8.8% 7.0% 8.4% (8.7)%
EBITDA.................... 11.4% 10.5% 10.6% 12.7% 13.5% 11.3% 12.1% 13.7%
</TABLE>

35
<PAGE>

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
with the thirteenth quarter following the date of the Senior Credit Facility,
the Commitment Amount will decrease by $11.25 million at the end of each quarter
through the twenty-eighth such quarter, at which time the Senior Credit Facility
terminates. As of July 31, 1997, after giving pro forma effect to the
Transactions, approximately $35.0 million in borrowings would have been
outstanding under the Senior Credit Facility, together with approximately $11.6
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. 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. 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 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

36
<PAGE>

$22.0 million of depreciation and amortization and the $32.9 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 $42.2 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.

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.

Seasonality

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.

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.

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.

37
<PAGE>

BUSINESS

General

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 %
of the Company's outstanding Common Stock ( % of the voting power), and will be
able to control the Company and elect its Board of Directors.

38
<PAGE>

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

Increasing Aftermarket Presence

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; 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

39
<PAGE>

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

Productivity Improvements

Product Quality and Continuous Improvement

In July 1997, the Company received the prestigious Supplier of the Year
award 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.

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 corporation.
The aggregate cost will be $49.2 million, subject to a working capital
adjustment and including assumed debt. 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 $19 million for the equity of Ballantrae and will
repay approximately $30 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. The merger is
expected to be completed at or prior to the consummation of the Offerings. The
Company will pay up to an aggregate of $ in respect of any dissenters'
rights exercised by existing stockholders 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

40
<PAGE>

Company will only be able to recover approximately % and % of its damages
from CVC and James R. Gerrity, respectively (in each case including their
affiliates). 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, 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.

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

41
<PAGE>

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
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

42
<PAGE>

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 the prestigious Supplier of the
Year award 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 Q-1 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
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 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. The Company's
products are also used for warranty replacement under procedures established by
certain of the Company's OEM customers.

43
<PAGE>

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 24.2% 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."

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 25% 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 54.7% of total OEM 1997 pro forma net
sales and approximately 29.7% of total 1997 pro forma 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
59% 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.

44
<PAGE>

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 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 will be vacated by the end of 1999. The Company is operating
three new focus factories and intends to have a total of five in operation by
the end of 1999. This restructuring will 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 two new focus factories.

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. These
facilities have used cellular manufacturing for more than seven years.

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

45
<PAGE>

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 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 July 31, 1997, the Company employed 4,949 people, 848 of whom were in
management, engineering, supervision and administration and 4,101 of whom were
hourly employees. Of the Company's hourly employees, 1,969 are represented by
unions. In the United States, 1,485 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. The Company and the UAW agreed to a new master agreement in
March 1997 when the agreement that had been assumed by the Company expired. Wage
and benefit increases under the new contract generally follow the same pattern
of the prior agreement and continue to track the wages and benefits paid by GM
and, as a result, the Company will experience higher labor costs in the future.
In addition, grow-in provisions under the new agreement will require the Company
to move lower wage and benefit employees to higher wage and benefit levels.
There can be no assurance that the Company will be able to effect cost
reductions or productivity improvements to offset such increased wage and
benefit levels or that the Company's labor costs will not 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.

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.

46
<PAGE>

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 supply OEM 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.

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 August 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 OEM(F) Manufacturing 117,000 2001
Anderson, IN OEM(F) Manufacturing 51,000 2001

</TABLE>

47
<PAGE>

<TABLE>
<CAPTION>
OEM or Approx. Owned/Lease
Location Aftermarket Use Sq. Ft. Expiration
-------- ----------- --- --------- ------------
<S> <C> <C> <C> <C>
Anderson, IN OEM(F) 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 OEM(F) 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
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, Mexico OEM Manufacturing 37,000 2001
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
</TABLE>

48
<PAGE>

<TABLE>
<CAPTION>
OEM or Approx. Owned/Lease
Location Aftermarket Use Sq. Ft. Expiration
-------- ----------- --- --------- ------------
<S> <C> <C> <C> <C>

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 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; and (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. The Company believes that any costs it may incur to resolve such
matters will not be material. 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.

Based on 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 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

49
<PAGE>

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, and World Wide, 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.

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
received requests for information or notifications of potential liability from
EPA under CERCLA for certain off-site locations. The Company has not incurred
any significant costs relating to these matters, and based on the existence of
certain indemnification agreements from its predecessors and their assumption of
liabilities to date and other legal defenses, believes that it will not 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, 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

50
<PAGE>

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.

51
<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 (1)........... 67 Chairman of the Board of Directors

Thomas J. Snyder (2)............. 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

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

Patrick Mobouck.................. 43 Vice President-Managing Director, Europe

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 (1).................. 70 Vice Chairman of the Board of Directors

Richard M. Cashin, Jr. (2)....... 44 Director

James R. Gerrity (2)............. 56 Director

Michael A. Delaney (1)........... 43 Director

Robert J. Schultz................ 67 Director
</TABLE>

- ------------------------
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit 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.

52
<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.

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 1993. 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.

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, Inc.

Thomas R. Jennett, Senior Vice President and General Manager, Aftermarket
Division. 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.

Patrick Mobouck, Vice President-Managing Director-Europe and Vice
President. Mr. Mobouck has been Vice President and General Manager Europe since
August 1997. He has also been Chairman of Autovill since August

53
<PAGE>

1997. Before joining the Company, Mr. Mobouck was with Monroe Auto Equipment
since 1988, most recently as Managing Director-Europe, Middle East and Africa.

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 former President and Chief Operating Officer of MascoTech Automotive
Systems Group, Inc., where he continues to serve as Vice Chairman. He is also a
director of Emco Limited, 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 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 Sybron Chemicals, Inc., CVC
Holdings, JAC Holdings, CORT Business Services, Inc., Palomar Technologies,
Inc., Enterprise Media Inc., FF Holdings Corporation, SC Processing, Inc.,
Triumph Holdings, 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 Electronic's
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*

Any outside director of the Company is paid an annual fee of $ for
service as a director of the Company, plus an additional fee of $ for
attendance at each meeting of the Board of Directors in excess of annually
and $ per telephonic meeting of the board of directors. [There are no
fees paid for attendance at committee meetings.] Certain outside directors of
the Company may also be entitled to receive stock options for Class A Common
Stock pursuant to the stock option plan the Company intends to adopt prior to
the consummation of the Offerings. See "Management--Stock Option Plan." 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."

54
- ---------------
*To be completed by amendment
<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 Compensation
<S> <C> <C> <C> <C>
Harold K. Sperlich $ $ $
Chairman of the Board

Thomas J. Snyder $ $ $
President and
Chief Operating Officer
$ $ $

$ $ $

$ $ $
</TABLE>
- ---------------------
* Table to be completed by amendment.

Stock Option Plan. The Company expects to adopt a stock option plan
immediately prior to the consummation of the Offerings.

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 contributions of the
companies. 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 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

55
<PAGE>

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.

Supplemental Executive Retirement Plan. The Company established and
maintains the Supplemental Executive Retirement Plan ("SERP") to provide
additional retirement benefits to a select group of management who experience
reductions in their 401(k) Plan and Retirement Plan benefits due to limitations
imposed by the Code. The SERP is a non-qualified deferred compensation "top hat"
plan with a defined benefit formula, is generally exempt from most of the
federal pension laws applicable to tax-qualified deferred compensation plans,
and SERP benefits are unsecured and paid from the general assets of the
companies when due. The Delco Remy International, Inc. Executive Benefit
Committee selects the group of eligible management employees and the date as of
which each individual may participate.

The benefit under the SERP is 2% of the employee's final plan compensation
multiplied by the employee's years of service with the companies, with such
benefit not less than 25% nor more than 50% of such final plan compensation,
payable in quarterly installments over five years. The employee's final plan
compensation for this purpose generally is the employee's base compensation
(subject to certain adjustments and limitations) which is in excess of the
applicable compensation limit in effect under Code Section 401(a)(17) (currently
$160,000). The SERP benefit generally is payable when a participant terminates
employment after completing five years of service or dies. However, the SERP
benefit may be forfeited under certain circumstances, including termination for
cause or engaging in prohibited competition.

The following table sets forth the estimated annual benefits payable upon
retirement:*

Remuneration Years of Service
- ------------------------------- ---------------------------------------------

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 and/or cash flow are
set at the beginning of each year, based on the

- --------------------------------
* To be completed by amendment.

56
<PAGE>

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 $ * . 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 the same
individuals.

- ------------------
*To be completed by amendment
57
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth information as of October 1, 1997 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."

Class A Common Stock
<TABLE>
<CAPTION>
Percent of
Class Before Percent of Class
Amount of Offerings and After Offerings
Beneficial Owner Ownership(1)(2) Transactions(1) and Transactions(1)
---------------- --------------- --------------- -------------------
<S> <C> <C> <C>
Citicorp Venture Capital Ltd.(3).................. 19.8%
399 Park Avenue
New York, NY 10043

MascoTech Automotive Systems Group, Inc........... 30.7
275 Rex Boulevard
Auburn Hills, MI 48326

World Equity Partners, L.P........................ 17.0
399 Park Avenue
New York, NY 10043

Harold K. Sperlich(5)............................. 10.2
Delco Remy International, Inc.
2902 Enterprise Drive
Anderson, IN 46013

Thomas J. Snyder.................................. 5.1
Delco Remy International, Inc.
2902 Enterprise Drive
Anderson, IN 46013

James R. Gerrity(6)............................... 3.1

E.H. Billig(7).................................... 3.1

Richard M. Cashin, Jr.(8)......................... 2.2

Michael A. Delaney................................ *

Robert J. Schultz................................. *

All directors and senior officers as a group 36.2
(19 persons)......................................
</TABLE>
* Represents less than 1%.
(1) After giving effect to the Stock Split to be effected in connection with
the Transactions; does not include shares of Class B Common Stock
convertible into Class A Common Stock.
(2) Includes shares issuable upon exercise of the Warrants which are
exercisable within 60 days of the stated date.
(3) CVC owns beneficially approximately 47.5% of the shares of Common Stock
outstanding.
(4) Represents Warrants to acquire Class A Common Stock.

58
<PAGE>

(5) Held as trustee under agreement dated February 4, 1985, as amended, with
Harold K. Sperlich, as Settlor.
(6) Held as trustee under Living Trust dated March 16, 1990.
(7) Held by The Billig Family Limited Partnership.
(8) Does not include shares beneficially held by CVC or World Equity Partners,
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.

Class B Common Stock
<TABLE>
<CAPTION>
Amount of Percent of
Beneficial Owner Ownership(1) Class(1)
---------------- ------------ ----------
<S> <C> <C>
Citicorp Venture Capital Ltd.(2).......................................... 86.5%
399 Park Avenue
New York, NY 10043

CCT Partners I, L.P....................................................... 10.0
399 Park Avenue
New York, NY 10043

Michael A. Delaney(3)..................................................... *

Richard M. Cashin, Jr.(3)................................................. *

All directors and senior officers as a group *
(19 persons)(2)...........................................................
</TABLE>
- -----------------
* Represents less than 1%.

(1) After giving effect to the Stock Split to be effected in connection with
the Transactions; does not include shares of Class A Common Stock
convertible into Class B Common Stock.
(2) CVC owns beneficially approximately 47.5% of the shares of Common Stock
outstanding.
(3) Does not include shares held by CVC and 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 such shares.

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 (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 six
to nine directors as follows: Harold K. Sperlich (so long as he continues to
serve as chairman of the Board of Directors); one individual designated by
MascoTech; two individuals designated by CVC; James R. Gerrity (so long as he
continues to serve as an officer or a consultant to the Company); and Thomas J.
Snyder (so long as he continues to serve as President of the Company and, when
he ceases to serve in such office, his successor in such office). CVC also has
the right to nominate up to 3 independent directors.

If CVC elects not to nominate any such nominees, no other persons will be
nominated or elected to such independent director positions. So long as CVC or
its affiliates own at least 5% of the outstanding shares of the Company's Common
Stock, CVC also has the right pursuant to the Stockholders' Agreement to
designate two observers to attend meetings of the Company's Board of Directors
and committees thereof. The Investors have

59
<PAGE>

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.

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 contains similar provisions regarding the
control by the Investors of DRA and its Board of Directors.

Each Investor has agreed in the Stockholders' Agreement not to vote in
favor of any amendment or other modification to the Company's Restated
Certificate of Incorporation or By-laws unless CVC votes in favor of such
amendment or modification. CVC has agreed not to vote in favor of any such
amendment that adversely affects MascoTech's right to designate one individual
to the Company's Board of Directors.

The Stockholders' Agreement contains certain provisions which restrict,
with certain exceptions, the ability of the Investors from transferring any
shares of Common Stock or warrants to purchase Common Stock unless such transfer
is approved by Investors holding at least 40% of the outstanding Common Stock
and otherwise complies with the terms of the Stockholders' Agreement. If the
Board of Directors of the Company and holders of more than 50% of the shares of
Common Stock then outstanding approve the sale of the Company (an "Approved
Sale"), each Investor has agreed to consent to such sale and, if such sale
includes the sale of stock, each Investor has agreed to sell all of such
Investor's Common Stock on the terms and conditions approved by the Board of
Directors and holders of a majority of the shares of Common Stock then
outstanding. If the holders of at least 66% of the shares of Common Stock then
outstanding approve the sale of the Company (a "Required Sale"), each Investor
has agreed to consent to such sale and, if the sale is structured as a sale of
stock, each Investor has agreed to sell all of such Investor's Common Stock on
the terms and conditions approved by the holders of at least 66% of the shares
of Common Stock then outstanding. CVC holds a right of first refusal to purchase
MascoTech's shares in the event that MascoTech receives a bona fide offer to
sell its shares. If CVC elects to purchase less than all of MascoTech's shares
under CVC's right of first refusal, then the Company may be obligated to
purchase the remainder of MascoTech's shares.

The Stockholders' Agreement also provides for certain additional
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 prior to July 31, 1999, 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.

Registration Rights Agreement

In connection with the GM Acquisition, the Company entered into a
Registration Rights Agreement with the Investors covering all of the
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 Investors and certain other
stockholders have agreed, subject to certain exceptions, not to register for
sale or 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 shares
of Common Stock held by the Investors and approximately shares
of Common Stock held by other stockholders. See "Underwriters."

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CERTAIN TRANSACTIONS

CVC and James R. Gerrity, each of whom is an existing stockholder of the
Company, beneficially own approximately 71.9% and 15.0% of Ballantrae's issued
and outstanding common stock, on a fully-diluted basis, respectively, and 74.7%
and 10.4% of Ballantrae's issued and outstanding preferred stock, respectively.
The Ballantrae Acquisition Agreement provides that CVC and Mr. Gerrity and their
affiliates will receive in connection with the acquisition of Ballantrae and
additional shares of the Company's Common Stock, respectively, based on an
assumed offering price in the Equity Offering of $ per share of Class A Common
Stock (the "Merger Consideration"); however such stock will be subject to
certain restrictions against transfer under applicable securities laws. The
Company believes that the Ballantrae Acquisition Agreement and in particular the
Merger Consideration to be received by CVC and Mr. Gerrity and their affiliates
are commercially reasonable. The Company's Board of Directors has received a
fairness opinion from Salomon Brothers Inc. Messrs. Delaney, Gerrity and Cashin,
directors of the Company, have served as directors of Ballantrae since its
formation in 1996. See "Company History," "Risk Factors--Acquisition of
Ballantrae; Conflicts of Interest" and "Business--Acquisition of Ballantrae."

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 $646,200.

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 % and the loan is due
.

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 loans accrues at a rate of %
and %, respectively, and the loans are due in and ,
respectively.

The Company will exchange the Junior Subordinated Notes for shares
of the Company's Class A Common Stock. 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
exchange ratio will be based upon the initial public offering price of the Class
A Common Stock of the Company for the Equity Offering less underwriting
discounts and commissions.

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 ,000,000 shares of Common Stock, divided into two
classes consisting of ,000,000 shares of Class A Common Stock, par value $.01
per share, and ,000,000 shares of Class B Common Stock, par value $.01 per
share.

As of July 31, 1997, giving effect to the Transactions, there were
shares of Class A Common Stock outstanding, held of record by holders, and
shares of Class B Common Stock outstanding. In addition, Warrants
to purchase shares of Class A Common Stock were issued and outstanding
and shares of Class A Common Stock were available to be issued pursuant
to the stock option plan which the Company expects to adopt prior to the
consummation of the Offerings.

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

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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.

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 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 shares of the Company's Class A Common Stock for an exercise price
of $. 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 stockholders, 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

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<PAGE>

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 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 with the thirteenth quarter following the date of the Senior Credit
Facility, the Commitment Amount will decrease by $11.25 million at the end of
each quarter until July 2003, 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.

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<PAGE>

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>

Maturity and Optional Prepayments. All borrowings under the Senior Credit
Facility will mature on July 1, 2003, 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, 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 3/20% 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

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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. The principal amount of the Contingent Purchase Price Note
(the "Contingent Payment") is calculated by (A) multiplying five by (i) the
three-year average EBIT (as defined) of the Company for the years ending
December 31, 2001, 2002 and 2003 minus (ii) the average three-year Imputed
Return (as defined) on Additional Investments (as defined) made after July 31,
1994 and on the Company's balance sheet at December 31, 2001, 2002 and 2003, (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 Acquisition
Note when due unless a representative of the lenders under the Senior Credit
Facility gives a 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).

Senior Subordinated Notes

In 1996, the Company issued to Salomon Brothers Inc and Smith Barney Inc.
as initial purchasers an aggregate of $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 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

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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 or declared effective by certain dates or
certain other conditions are not satisfied, additional interest will accrue on
the Senior Subordinated Notes. 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 in the principal amount of $17.9 million (the "8% Subordinated
Debenture") in exchange for Series A 8% Preferred Stock of DRA held by GM. The
8% Subordinated Debenture 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 Notes and the Senior Subordinated Notes. 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 the E-Z Locker 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.

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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 Transactions, shares of the Company's Class A
Common Stock will be outstanding (assuming no conversion of the Class B Common
Stock). The shares of Class A Common Stock sold in the Offering ( 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 shares of Class A Common Stock are
issuable upon exercise of the Warrants and up to shares are expected to be
issuable upon exercise of employee stock options. All such shares will also be
restricted securities.

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' transaction" 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 limitations described above. Of the shares of Class A Common Stock
not being sold in this Offering, shares have been owned by holders thereof
for more than two years.

Application has been made to list the Class A Common Stock on the New York
Stock Exchange 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."

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.

67
<PAGE>

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.

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

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

68
<PAGE>

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.

These information reporting and backup withholding rules are under review
by the United States Treasury and their application to the Class A Common Stock
could be changed by future regulations. On April 22, 1996, the IRS issued
proposed Treasury Regulations concerning the withholding of tax and reporting
for certain amounts paid to non-resident individuals and foreign corporations.
The proposed Treasury Regulations, if adopted in their present form, would
generally be effective for payments made after December 31, 1997. Prospective
investors should consult their tax advisors concerning the potential adoption of
such proposed Treasury Regulations and the potential effect on their ownership
of the Class A Common Stock.

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.

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 Salomon Brothers 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...................
Salomon Brothers Inc.....................................

----------------
Total...........................................
================
</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

69
<PAGE>

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
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
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.

Application has been made to list the Class A Common Stock on the New York
Stock Exchange under the symbol "RMY."

The Company and each of the Company's current 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 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 (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, (c) any options granted or shares of Common Stock issued pursuant to
existing benefit plans of the Company or (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.

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 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 was the lead initial purchaser in connection with
the Company's offering in 1996 of its Senior Subordinated Notes

70
<PAGE>

and is providing certain financial advisory services to the Company in
connection with the acquisition of Ballantrae, in each case for which Salomon
Brothers Inc has 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, appearing in this Prospectus have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

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

71
<PAGE>

unaudited consolidated financial information in each case prepared in accordance
with generally accepted accounting principles.

72
<PAGE>

INDEX TO FINANCIAL STATEMENTS

Delco Remy International, Inc.

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

World Wide Automotive, Inc.

Report of Independent Auditors............................................ F-37

Balance Sheets as of the years ended March 31, 1996 and 1997.............. F-40

Statements of Income for the years ended
March 31, 1995, 1996 and 1997............................................. F-42

Statement of Stockholders' Equity for the years ended
March 31, 1995, 1996 and 1997 ............................................ F-43

Statements of Cash Flows for the years ended
March 31, 1995, 1996 and 1997............................................. F-44

Notes to Financial Statements............................................. F-45

Tractech Division of Titan Wheel International, Inc.

Report of Independent Auditors............................................ F-53

Statements of Operations for the year ended December 31, 1995 and
the nine months ended September 30, 1996.................................. F-54

Statements of Stockholders' Equity for the year ended
December 31, 1995 and the nine months ended September 30, 1996............ F-55

Statements of Cash Flows for the year ended December 31, 1995 and
the nine months ended September 30, 1996.................................. F-56

Notes to Financial Statements............................................. F-57

Ballantrae Corporation

Report of Independent Auditors............................................ F-61

Consolidated Balance Sheets as of December 31, 1996 and
September 30, 1997........................................................ F-62

Consolidated Statements of Operations for the three months
ended December 31, 1996 and the nine months ended September 30, 1997...... F-64

Consolidated Statements of Stockholders Equity for the
three months ended December 31, 1996 and the
nine months ended September 30, 1997...................................... F-65

Consolidated Statements of Cash Flows for the three months
ended December 31, 1996 and the nine months ended September 30, 1997...... F-66

Notes to Consolidated Financial Statements................................ F-67

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.

Indianapolis, Indiana
September 5, 1997, except for "Share and
Per Share Information" in Note 16, as to
which the date is October ___, 1997

The foregoing report is in the form that will be signed upon the determination
of the Stock Split as described in Note 16 to the consolidated financial
statements.

ERNST & YOUNG LLP

F-2
<PAGE>

DELCO REMY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)

<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)
============= ============= =============
<CAPTION>
1997 Pro Forma Loss Per Share
-----------------------------------------------
From Before
Continuing Extraordinary Net
Operations Item Loss
------------- ------------- -------------
<S> <C> <C> <C>
Primary......................................................... $ $ $
Supplemental....................................................
</TABLE>

See Accompanying Notes

F-3
<PAGE>

DELCO REMY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)

<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)
<TABLE>
<CAPTION>
July 31
--------------- -- ---------------
1996 1997
--------------- ---------------
Liabilities and stockholders' equity (deficit):
<S> <C> <C>
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 35,949
Current portion of long-term debt............................... 9,652 507
--------------- ---------------
Total current liabilities............................................ 144,114 168,842

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 1,000,000;
issued 517,727 in 1996 and 525,477 in 1997).......... 5 5
Class B Shares (par value $.01; authorized 1,000,000;
issued 385,523 in 1996 and 1997)..................... 4 4

Paid-in capital................................................. 1,798 10,194

Retained earnings (deficit)..................................... 2,122 (12,174)
Cumulative translation adjustment............................... (2,161) (1,752)
Stock purchase plan............................................. (179) (4,813)
--------------- ---------------

Total stockholders' equity (deficit)................................. 1,589 (8,536)
--------------- ---------------

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............... $ 5 $ 4 $ 1,572 $ -- $ -- $ (50) $ 1,531
Issuance of common stock..... -- -- 241 -- -- (124) 117
Net income................... -- -- -- 6,963 -- -- 6,963
Foreign currency translation
adjustment................... -- -- -- -- (181) -- (181)
------------ ---------- --------- ----------- ----------- ------------ -----------

Balance at July 31, 1995..... 5 4 1,813 6,963 (181) (174) 8,430
Repurchase of common stock... -- -- (15) -- -- (5) (20)
Net loss..................... -- -- -- (4,841) -- -- (4,841)
Foreign currency translation
adjustment................... -- -- -- -- (1,980) -- (1,980)
------------ ---------- --------- ----------- ----------- ------------ -----------

Balance at July 31, 1996..... 5 4 1,798 2,122 (2,161) (179) 1,589
Issuance of common stock..... -- -- 8,419 -- -- (4,653) 3,766
Repurchase of common stock... -- -- (23) -- -- 19 (4)
Net loss..................... -- -- -- (14,296) -- -- (14,296)
Foreign currency translation
adjustment................... -- -- -- -- 409 -- 409
------------------------------------------------------------------------------------------

Balance at July 31, 1997..... $ 5 $ 4 $ 10,194 $ (12,174) $ (1,752) $ (4,813) $ (8,536)
=========== ========= ========== =========== =========== ============ ===========
</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. The resolution of these
items could result in a charge or credit to operations when finalized. 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.

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 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.

F-8
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997

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 28,750 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......................... $ 666,604 $ 733,257 $ 738,802

Operating income................. 49,464 47,644 28,115

Income (loss) from continuing
operations....................... 13,929 5,445 (10,632)

Net income (loss)................ 11,566 (5,192) (14,665)
</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.

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.

F-9
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997

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:

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>

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.

F-10
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997

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.

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 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 Financial Accounting Standards Board (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 $ ,
$ and $ 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.

F-11
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997

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>

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.

F-12
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997

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>

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>

F-13
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997

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>

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.

F-14
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997

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.

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.

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

F-15
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997

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.

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 PLANS

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

F-16
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997

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.

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

[OBJECT OMITTED]
<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

F-17
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)

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.

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 470,590 shares of Class A Common Stock and 319,410
shares of Class B Common Stock for an aggregate of $1,581. In addition, 28,750
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 95,000 shares of Class A Common Stock. As of
July 31, 1997, 90,000 shares were outstanding

F-18
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997

pursuant to the private placement at a price approximating book value. Shares
issued pursuant to this plan generally vest over three years. During 1997,
26,750 shares were sold for $6,079 less than the deemed fair market value. As a
result, compensation expense of $1,616 was recorded during the current year and
the balance of the unearned compensation of $4,463 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 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 100,000 shares of DRI Class A Common Stock at a
price of $.02 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-19
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO 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>

The Company's alternative minimum tax credit may be carried forward
indefinitely. Income tax payments, including state taxes, for 1995, 1996 and
1997 were $8,900, $14,000 and $5,600, 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

F-20
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997

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-21
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO 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 referred to in Note 16 below 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 Senior 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.

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.

F-22
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997

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-23
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997

Condensed Consolidating Balance Sheet

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-24
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997

Condensed Consolidating Balance Sheet

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......................... (11,076) 41,034 5,991 -- 35,949
Current portion of long-term
debt............................. -- 506 1 -- 507
-------------- -------------- -------------- -------------- --------------
Total current liabilities............. 4,803 174,085 23,365 (33,411) 168,842

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.................. 10,194 -- -- -- 10,194
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.............. (4,813) -- -- -- (4,813)
------------ -------------- -------------- -------------- --------------

Total stockholders' equity
(deficit)........................ (6,784) 131,168 35,575 (168,495) (8,536)
------------ -------------- -------------- -------------- --------------

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-25
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997

Condensed Consolidating Statement of Operations
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-26
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO 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-27
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO 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-28
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO 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-29
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO 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-30
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO 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-31
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO 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-32
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
<TABLE>
<CAPTION>

Condensed Consolidating Statement of Cash Flows
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-33
<PAGE>

DELCO REMY INTERNATIONAL, INC.
NOTES TO 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.

Planned Acquisition

On October , 1997, the Company entered into the Ballantrae Acquisition
Agreement to acquire all of the capital stock of Ballantrae (the Planned
Acquisition) for $49,200 (including assumed debt). 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 % 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 $19,000 for the equity of Ballantrae and will repay approximately
$30,000 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 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 October , 1997, the Company authorized a -to-one stock split. All share
and per share amounts have been adjusted to reflect this split. The primary loss
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 the entire year.
The supplemental loss per share is based on the weighted average number of
shares of common stock and common stock equivalents used in the primary loss per
share calculation, retroactively adjusted to reflect the assumed exchange of the
Junior Subordinated Notes, the issuance of the Common Stock and Senior Notes in
the Offerings and the repayment of certain debt with the proceeds of the
Offerings. Historical earnings (loss) per share for 1995, 1996 and 1997 are
$ , $( ) and $( ), respectively.

F-34
<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-37
<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, 1997, 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-38
<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, 1996, 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-39
<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-40
<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-41
<PAGE>

WORLD WIDE AUTOMOTIVE, INC.

(FORMERLY PRECISION ALTERNATOR AND STARTER, INC.)

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
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-42
<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-43
<PAGE>

WORLD WIDE AUTOMOTIVE, INC.

(FORMERLY PRECISION ALTERNATOR AND STARTER, INC.)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
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-44
<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-45
<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-46
<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.

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-47
<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-48
<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-49
<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-50
<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-51
<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-52
<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.

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 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-53
<PAGE>

TRACTECH DIVISION OF TITAN WHEEL INTERNATIONAL, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
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-54
<PAGE>

TRACTECH DIVISION OF TITAN WHEEL INTERNATIONAL, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

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-55
<PAGE>

TRACTECH DIVISION OF TITAN WHEEL INTERNATIONAL, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
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-56
<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-57
<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-58
<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-59
<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-60
<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.

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 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

F-61
<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
----------- -----------
$43,882,005 $45,025,253
=========== ===========
</TABLE>

See Accompanying Notes

F-62
<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)
----------- -----------
$43,882,005 $45,025,253
=========== ===========
</TABLE>

See Accompanying Notes

F-63
<PAGE>

BALLANTRAE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
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-64
<PAGE>

BALLANTRAE CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

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-65
<PAGE>

BALLANTRAE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED 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-66
<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-67
<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.

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.

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.

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. 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
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%

F-68
<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SEPTEMBER 30, 1997

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>

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%,

F-69
<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SEPTEMBER 30, 1997

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 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>

F-70
<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SEPTEMBER 30, 1997

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>

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.

F-71
<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SEPTEMBER 30, 1997

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
compensation. The Company may also make discretionary contributions annually.
Company contributions for these two plans totaled $33,137 and $53,653 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.

F-72
<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SEPTEMBER 30, 1997

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.

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

F-73
<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SEPTEMBER 30, 1997

unconditional, joint and several guarantors of the senior 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-74
<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
---------- ----------- ----------- ------------ -----------
$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-75
<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)
---------- ----------- ----------- ------------ -----------
$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-76
<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SEPTEMBER 30, 1997

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
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.

F-77
<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SEPTEMBER 30, 1997

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
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 FLOW 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 FLOW 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 FLOW 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.

F-78
<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 6,636,575 (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-79
<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)
---------- ----------- ----------- ----------- -----------
$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-80
<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SEPTEMBER 30, 1997

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
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.

F-81
<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SEPTEMBER 30, 1997

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
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.

F-82
<PAGE>

BALLANTRAE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SEPTEMBER 30, 1997

12. SUBSEQUENT EVENT

In October 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 $49,740,000 (including assumed debt). DRI will
exchange shares of its common stock with a value of approximately $19,740,000
for the equity of the Company and will repay approximately $30,000,000 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) 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-83
<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............................................ *
Blue Sky Fees and Expenses................................. *
Legal Fees and Expenses.................................... *
Accounting Fees and Expenses............................... *
Registrar and Transfer Agent Fees.......................... *
Printing and Engraving Expenses............................ *
Miscellaneous.............................................. *
--------
Total...................................................... *
========
</TABLE>

* To be completed by amendment.

Each amount set forth above, except the SEC registration fee, the 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. 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 paid the Company $135,800,000 for
the Senior Subordinated Notes.

(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 45 employees of the Company and its subsidiaries ("Management
Investors") over the past three years.

(b) Consideration. The Management Investors paid an aggregate of $203,054
in cash and notes in an aggregate principal amount of $580,602.

(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.

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits

The following exhibits are filed herewith unless otherwise indicated:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
1.1* Underwriting Agreement
3.1* 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")
10.2** Heavy Duty Component Supply Agreement, dated July 31, 1994, by and
between DRA and GM
10.3** Distribution and Supply Agreement, dated July 31, 1994, by and between
DRA and GM
10.4** Trademark License, dated July 31, 1994, by and among DRA, DR
International, Inc. and GM
10.5** Tradename License Agreement, dated July 31, 1994, by and among DRA, DR
International, Inc. and GM
10.6** Partnership Agreement of Delco Remy Mexico S. de R.L. de C.V., dated
April 17, 1997
10.7 Joint Venture Agreement, dated , by and between Remy Korea 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* 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
</TABLE>
II-2
<PAGE>

<TABLE>
<S> <C>
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
10.14** Contingent Purchase Price Note of DRA, in favor of GM, dated July 31,
1994
10.15 Lease by and between ANDRA L.L.C. and DRA, dated February 9, 1995
10.16 Lease by and between Eagle I L.L.C. and DRA, Inc. dated August 11, 1995
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-4)
23.2 Consent of Freidman & Fuller P.C. (see page II-5)
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.

(b) Financial Statement Schedules: None

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-3
<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 "Share and Per Share Information" in Note 16, as
to which the date is October __, 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; and on the
financial statements of the Tractech Division of Titan Wheel International, Inc.
dated October 17, 1997, in Amendment 1 to the Registration Statement on Form S-1
and related Prospectus of Delco Remy International, Inc. for the registration of
its Common Stock.

October , 1997

The foregoing consent is in the form that will be signed upon the
determination of the stock split as described in Note 16 to the consolidated
financial statements of Delco Remy International, Inc.

ERNST & YOUNG LLP

II-4
<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent 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 to
the Registration Statement on Form S-1 and the related Prospectus of Delco Remy
International, Inc. for the registration of its Class A Common Stock.

FRIEDMAN & FULLER, P.C.

October 17, 1997

II-5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Anderson and State of Indiana on October 20, 1997.

DELCO REMY INTERNATIONAL, INC.

By: /s/ Harold K. Sperlich
-----------------------------
HAROLD K. SPERLICH
Chairman

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.

<TABLE>
<S> <C> <C>
/s/ Harold K. Sperlich Chairman (principal executive October 20, 1997
- ----------------------------- officer) and Director
Harold K. Sperlich

* Executive Vice President and
- ----------------------------- Chief Financial Officer (principal
David L. Harbert financial and principal
accounting officer)

Director
- -----------------------------
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: /s/ Thomas J. Snyder October 20, 1997
--------------------------
Thomas J. Snyder,
Attorney-in-Fact
</TABLE>

II-6

<PAGE>

Exhibit 10.7

JOINT VENTURE AGREEMENT
-----------------------

This Joint Venture Agreement (this "Agreement") is entered into as of
____________ __, 1996, by and between:

(a) Remy Korea Holdings, Inc., a corporation organized and existing
under the laws of the State of Delaware, U.S.A., with its address at 2902
Enterprise Drive, Anderson, Indiana, U.S.A. and an indirect subsidiary of
Delco Remy International, Inc. ("DR Investor") and

(b) Mr. S. C. Kim, an individual residing at 18-101, Hyosung Villa,
18-1, Banpo 4-dong, Seocho-gu, Seoul Korea ("Kim"), Seil Industrial Co.,
Ltd., a corporation organized and existing under the laws of the Republic
of Korea, with its address at 1 Lot, 52 Block, 440, Nonhyun-dong, Namdong-
gu, Incheon, Korea ("Seil"), and Mr. S. T. Lee, an individual residing at
676-35, Geoje 4-dong, Yunje-gu, Pusan, Korea ("Lee") (Kim, Seil and Lee
collectively, the "Korean Investors," and individually, a "Korean
Investor").

RECITALS
--------

DR Investor and each Korean Investor (collectively, the "Parties," and
individually, a "Party") have mutually agreed to establish a joint venture
company in Korea in accordance with the provisions of this Agreement.

AGREEMENT
---------

NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the Parties agree as follows:

1. Definitions
-----------

As used in this Agreement, the following terms shall have the following
meanings, unless the context clearly requires otherwise:

1.1 The terms defined hereinabove shall have the meaning set forth
therein.

1.2 "Affiliate" of any Person shall mean any Person, directly or
indirectly controlling, controlled by or under common control with such Person,
and includes any Person who is an officer, director or employee of such Person
and any Person that is a Person that directly or indirectly through one or more
intermediaries, controls, or is controlled by or is under common control with
such Person. As used in this definition, "controlling" (including, with its
correlative meanings, "controlled by" and "under common control with") means
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities, partnership or
other ownership interests,
<PAGE>

by contract or otherwise). With respect to any Person who is a natural person,
"Affiliates" shall also include, without limitation, such Person's spouse,
children, grandchildren, brothers, sisters or parents and any trust the
beneficiaries of which are such Person, his or her spouse, children,
grandchildren or parents.

1.3 "Agreement" shall have the meaning set forth in the Preamble.

1.4 "Articles" shall mean the Articles of Incorporation of the JVC.

1.5 "Authority" shall mean any Korean, Unites States or other national,
federal, territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, commission or tribunal or any regulatory,
administrative or other agency, or any political or other subdivision,
department or branch of any of the foregoing.

1.6 "Board" shall mean the board of directors of the JVC.

1.7 "Business Purpose" shall have the meaning set forth in Section 3.1.

1.8 "DAC" shall have the meaning set forth in Section 6.1(a)(i).

1.9 "DR Investor" shall have the meaning set forth in the Preamble.

1.10 "DR Shareholder" shall have the meaning set forth in Section 8.2(a).

1.11 "DRA" shall mean Delco Remy America, Inc., a Delaware corporation and
a wholly-owned subsidiary of DRI.

1.12 "DRI" shall have the meaning set forth in the Preamble.

1.13 "DRI President" shall have the meaning set forth in Section 15.2.

1.14 "First Refusal Shares" shall have the meaning set forth in Section
8.2(c).

1.15 "GM" shall mean General Motors Corporation.

1.16 "IAS" shall have the meaning set forth in Section 14.1.

1.17 "Initial Paid-In Capital" shall have the meaning set forth in Section
7.4.

- 2 -

<PAGE>

1.18 "Interested Party" shall have the meaning set forth in Section 19.9.

1.19 "Issuance" shall have the meaning set forth in Section 9.1.

1.20 "JVC" shall have the meaning set forth in Section 2.2.

1.21 "Joinder" shall have the meaning set forth in Section 8.3.

1.22 "Kim" shall have the meaning set forth in the Preamble.

1.23 "Korean Investor" or "Korean Investors" shall have the meaning set
forth in the Preamble.

1.24 "Korean representative" shall have the meaning set forth in Section
19.10.

1.25 "Lee" shall have the meaning set forth in the Preamble.

1.26 "Management Investors" shall have the meaning set forth in Section
12.4.

1.27 "Management Offering" shall have the meaning set forth in Section
12.4.

1.28 "Non-Selling Shareholder" shall have the meaning set forth in Section
8.2(c).

1.29 "Party" or "Parties" shall have the meaning set forth in the
Recitals.

1.30 "Person" shall mean any individual, corporation, partnership, joint
venture, association, trust, unincorporated organization, limited liability
company or other entity or organization, including any Authority.

1.31 "Public Offering" shall have the meaning set forth in Section 9.1.

1.32 "Related Agreements" shall have the meaning set forth in Section
6.1(a).

1.33 "Right" shall have the meaning set forth in Section 9.1.

1.34 "Right Holder" shall have the meaning set forth in Section 9.1.

1.35 "Sale Notice" shall have the meaning set forth in Section 8.2(d).

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1.36 "Sell" shall have the meaning set forth in the Preamble.

1.37 "Selling Shareholder" shall have the meaning set forth in Section
8.2(c).

1.38 "Transfer" shall mean any sale, exchange, assignment, hypothecation,
gift, security interest, pledge or other encumbrance, or any contract therefor,
any voting trust or other arrangement or agreement with respect to the transfer
of voting rights or any other beneficial interest in any of the shares of the
JVC, the creation of any other claim thereto or any other transfer or
disposition whatsoever, whether voluntary or involuntary, affecting the right,
title, interest or possession in or to such shares.

2. Formation of the JVC; Term of the JVC.
-------------------------------------

2.1 As soon as possible after the execution of this Agreement, the
Korean Investors shall prepare and submit a report of foreign investment under
the Foreign Capital Inducement Law and other related documents, and DR Investor
shall render assistance and support to the Korean Investors in said preparation
and submission.

2.2. Promptly upon the acceptance and approval of such report by the
applicable Korean authorities, the Parties shall establish a joint venture
company (the "JVC") as a joint stock company (chusik hoesa) under the laws of
Korea.

2.3 The name of the JVC shall be "Hankuk Dr Jeonjang Chusik Hosea" in
Korean, and, until DRI obtains the necessary consents from GM, "Remy
Korea, Ltd." in English. If at any time after establishment of the JVC DRI
obtains the necessary consents from GM for use of the "Delco Remy" name, the
Parties agree to change the English name of the JVC to "Delco Remy Korea, Ltd."

2.4 The principal executive officers of the JVC shall be located in
Kyungsangnam-do, Korea. Branches and other business offices may be established
in any place inside or outside of Korea as required.

2.5 The JVC as constituted in this Agreement shall continue for
ninety-nine (99) years from the date of its constitution, unless earlier
dissolved or terminated pursuant to applicable law or the provisions of this
Agreement.

3. Business Purpose
----------------

3.1 The business purpose of the JVC shall be as follows (the "Business
Purpose"):

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(a) to engage in the production, assembly and marketing of new and
remanufactured automotive and heavy duty starting motors and alternators
for original equipment and aftermarket customers; and

(b) to engage in any and all acts, things, businesses and
activities that are related, incidental or conductive, directly or
indirectly, to the achievement of the foregoing businesses.

4. Commercial Territory of the JVC
-------------------------------

4.1 The JVC shall have the right to produce, assemble and market its
products and otherwise engage in business within the Republic of Korea to the
extent permitted by applicable law.

4.2 The JVC shall have the right to market its products or otherwise
engage in business outside the Republic of Korea after obtaining the prior
approval of the Board pursuant to the provisions of Section 11.3 hereof for each
location in which the JVC proposes to market its products; provided, however, it
-------- -------
is the intent of the Parties that, to the extent not prohibited by applicable
law, the JVC shall not compete or otherwise be in conflict with any business of
any Party and/or their respective Affiliates. Any sale by the JVC of any of its
products to any Person who to the knowledge of responsible officers of the JVC
is acquiring such products with a view toward distribution or resale of such
products outside Korea (other than sales to Korean automobile or truck
manufacturers whose vehicles may be sold outside of Korea or sales to such
manufacturers of service parts for such vehicles for sale through the respective
manufacturers' authorized dealers) shall be deemed to be engaging in business
outside of Korea by the JVC and shall be subject to the prior approval of the
Board and this Section 4.2.

5. Articles of Incorporation of the JVC
------------------------------------

5.1 The Articles shall be in conformity with the terms and conditions of
this Agreement. If any discrepancy is found between this Agreement and the
Articles, the Parties shall promptly amend the Articles to make them consistent
with this Agreement.

6. Conditions Subsequent to Execution of Agreement
-----------------------------------------------

6.1 The following actions shall be taken and events shall occur on or
prior to the ninetieth (90th) day following execution of this Agreement by all
of the parties hereto:

(a) The following related agreements (the "Related Agreements")
shall be entered into by the following parties:

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<PAGE>

(i) An asset purchase agreement between Daewoo Automotive
Components, Ltd. ("DAC") as seller and the JVC as purchaser for the
sale and purchase of certain machinery, equipment and other assets
necessary for the JVC's business and the licensing by DAC to the JVC of
specified technology, in such form as shall be agreed among DR
Investor, the Korean Representative and the parties thereto; and

(ii) A trademark and trade name license agreement between DRA
and DRI as licensor and the JVC as licensee for the license of certain
trademark(s) and trade name(s) necessary for the JVC's business,
substantially in the form of Exhibit A hereto; provided DRA and DRI
--------- --------
have obtained the consent of GM to enter into such trademark and
tradename license agreement.

(b) The applicable Parties shall receive or shall have received the
government approvals referred to in Section 2 hereof; provided, however,
-------- -------
that if such approvals have been properly requested and have not been
received within the 90-day period referred to above, such 90-day period
shall automatically be extended for an additional 90 days; and

(c) The Parties shall complete or shall have completed the initial
capitalization of the JVC pursuant to Section 7 hereof.

7. Capital and Shares
------------------

7.1 Any shares issued by the JVC shall be common stock of one class,
in registered non-bearer form evidenced by share certificates, and shall be
fully paid and nonassessable.

7.2 No additional shares of the JVC, whether common or preferred, shall be
authorized or issued, including without limitation, the issuance of shares
pursuant to the Management Offering, except upon the prior approval of the Board
pursuant to the provisions of Section 11.3 hereof.

7.3 The authorized capital of the JVC shall be eight billion Korean won
(W8,000,000,000), divided into one million six hundred thousand (1,600,000)
shares of common stock with a par value of five thousand Korean won (W5,000) per
share.

7.4 The paid-in capital of the JVC at the time of incorporation shall be
two billion Korean won (W2,000,000,000), divided into four hundred thousand
(400,000) shares of common stock with a par value of five thousand Korean won
(W5,000) per share (the "Initial Paid-In Capital").

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<PAGE>

7.5 The Parties shall initially subscribe for the Initial Paid-in
Capital and shall initially hold the common shares in the JVC as follows:

(a) DR Investor: fifty percent (50%) of the total issued and
outstanding shares of stock; and

(b) Korean Investors: fifty percent (50%) of the total issued and
outstanding shares of stock, to be divided as follows:

(i) Kim: twenty-nine percent (29%) of the total issued and
outstanding shares of stock;

(ii) Seil: eleven percent (11%) of the total issued and
outstanding shares of stock; and

(iii) Lee: ten percent (10%) of the total issued and
outstanding shares of stock.

7.6 The Parties shall make their respective capital contributions for the
Initial Paid-in Capital in cash.

8. Transfer of Shares
------------------

8.1 Except as provided in Section 8.2, no Party may Transfer its shares
in the JVC; provided, however, that (i) DR Investor or any Affiliate of DR
-------- -------
Investor shall be permitted to Transfer its shares in the JVC to any Affiliate
of DR Investor and (ii) any Korean Investor shall be permitted to Transfer its
shares in the JVC to any other Korean Investor, in each case, without the prior
written consent of the other Parties hereto; and provided, further, that, with
-------- -------
respect to any Transfer permitted by this Section 8.1, (x) all required
governmental approvals shall have been obtained prior to such Transfer and (y)
the transferee shall agree in writing to comply with and be bound and governed
by the provisions of this Agreement and to assume all obligations of the
transferor hereunder.

8.2 (a) If DR Investor or any of its Affiliates (the "DR Shareholder")
receives a bona fide offer which it wishes to accept for the purchase by a third
party of all or any part of its shares in the JVC (other than to DR Investor or
one or more of its Affiliates), such DR Shareholder may not Transfer such shares
without first offering to sell such shares to the Korean Investors pursuant to
the provisions of Section 8.2(d) hereof.

(b) If any Korean Investor receives a bona fide offer which it
wishes to accept for the purchase by a third party of all or any part of its
shares in the JVC (other than to any other Korean Investor), such Korean
Investor may not Transfer such shares

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<PAGE>

without first offering to sell such shares to DR Investor pursuant to the
provisions of Section 8.2(d) hereof.

(c) Any DR Shareholder or any of the Korean Investors, as the
case may be, as the selling shareholder shall be referred to herein as the
"Selling Shareholder". DR Investor, when any Korean Investor is a Selling
Shareholder, or the Korean Investors (as represented by the Korean
Representative), when any DR Shareholder is a Selling Shareholder is a Selling
Shareholder, shall be referred to herein as the "Non-Selling Shareholder". Any
shares of the JVC subject to the provisions of this Section 8.2 shall
hereinafter be referred to as "First Refusal Shares".

(d) Not less than 30 days prior to the intended sale date of
the First Refusal Shares to the third party, the Selling Shareholder shall
deliver written notice (a "Sale Notice") to the Non-Selling Shareholder
describing in reasonable detail the number of First Refusal Shares being
offered, the name of the third party offeree, the purchase price proposed to be
paid by such third party for the First Refusal Shares, the type of consideration
to be paid and all other material terms of the proposed Transfer. Upon receipt
of the Sale Notice, the Non-Selling Shareholder shall have the right and option
to purchase all or any portion of the First Refusal Shares being offered at the
price and on the terms of the proposed Transfer set forth in the Sale Notice.
Within 25 days of the receipt of the Sale Notice, the Non-Selling Shareholder
shall notify the Selling Shareholder whether or not it wishes to purchase any or
all of the offered First Refusal Shares. If the Non-Selling Shareholder elects
to purchase any of the offered First Refusal Shares, the closing of the purchase
and sale of such First Refusal Shares shall be held at the place and on the date
established by the Non-Selling Shareholder in its notice to the Selling
Shareholder in response to the Sale Notice, which in no event shall be less than
30 nor more than 90 days from the date of the Sale Notice unless the Non-Selling
Shareholder or the Selling Shareholder, as the case may be, needs to obtain
approvals from any Authority, in which case such closing may be delayed until no
later than five (5) business days after the receipt by the applicable party of
the necessary approvals. In the event the terms proposed in the Sale Notice
shall include consideration other than cash, the Non-Selling Shareholder may, at
its option, substitute cash equal to the fair market value of such other
property. In such event, the fair market value of such other property shall be
determined by mutual agreement of the Selling and Non-Selling Shareholder.

In the event that the Non-Selling Shareholder does not elect to
purchase all of the offered First Refusal Shares, the Selling Shareholder may,
subject to the other provisions of this Agreement, Transfer the remaining
offered First Refusal Shares to the third party offeree specified in the Sale
Notice, at a price no less than the price specified in the Sale Notice and no
other terms

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<PAGE>

no more favorable to the transferee(s) thereof than specified in the Sale
Notice, during the 120-day period immediately following the last date on which
the Non-Selling Shareholder could have elected to purchase the offered First
Refusal Shares. Any such First Refusal Shares not Transferred within such
120-day period will be subject to the provisions of this Section 8.2 upon
subsequent Transfer.

8.3 Prior to any Transfer of First Refusal Shares, each third party
transferee must agree in writing (a "Joinder") to comply with and be bound and
governed by the provisions of this Agreement and to assume all obligations of
the Selling Shareholder hereunder and such transferee must file such Joinder
with the JVC and the Non-Selling Shareholder at least two (2) business days
prior to the effective date of such Transfer. Any attempt to Transfer any First
Refusal Shares not in compliance with this Section 8.3 will be null and void.

8.4 If any sale, assignment or Transfer of shares under this Section 8 is
subject to the validation or approval of the Korean or other applicable
Authorities, such sale, assignment or Transfer shall not become effective until
such validation or approval has been obtained in form and substance acceptable
to both DR Investor and the Korean Representative. When such validation or
approval is required, the periods of time prescribed above shall be extended to
take into account the time required to obtain such validation or approval.

8.5 No Party shall pledge, hypothecate or otherwise use as collateral, or
for any other purpose, the shares of the JVC.

8.6 In the event the shares owned by any Party shall be subject to sale
or Transfer by reason of bankruptcy or insolvency proceedings, whether voluntary
or involuntary, or distraint, levy or other involuntary Transfer, then the
provisions of Section 8.2 through 8.5 shall apply as though such Party were a
"Selling Shareholder" thereunder and as though DR Investor and its Affiliates
(in the case of a Transfer by a Korean Investor) and the Korean Investors (in
the case of a Transfer by DR Investor) were the "Non-Selling Shareholder"
thereunder, except as provided below. If the nature of the event giving rise to
the involuntary Transfer is such that no readily determinable consideration is
to be paid for the Transfer of the shares, the price to be paid by the
Non-Selling Shareholder shall be the initial price paid for such shares by the
Selling Shareholder. At the closing of a purchase by the Non-Selling
Shareholder of the shares to be Transferred, the Selling Shareholder shall
deliver the certificates evidencing the number of shares to be purchased by the
Non-Selling Shareholder, together with stock powers endorsed in blank or duly
executed instruments of transfer, and any other documents that are necessary to
Transfer to the Non-Selling Shareholder good title to such of

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<PAGE>

the shares to be Transferred, free and clear of all pledges,security interests,
liens and charges of whatever nature, and concurrently with such delivery, the
Non-Selling Shareholder shall deliver to the Selling Shareholder the full amount
of the purchase price for the shares in cash by certified or bank cashier's
check.

8.7 The certificates representing the shares of the JVC owned by DR
Investor, each Korean Investor and their respective transferees, including
certificates issued upon any voluntary or involuntary Transfer of such shares,
will bear the following legend, as well as any other legends required under any
applicable law:

THESE SECURITIES ARE SUBJECT TO THE TERMS AND CONDITIONS OF A JOINT
VENTURE AGREEMENT DATED AS OF _________,1996 BY AND AMONG THE
SHAREHOLDERS OF THE COMPANY NAMED THEREIN. A COPY OF SUCH AGREEMENT
IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. THE SALE,
TRANSFER OR OTHER DISPOSITION OF SUCH SECURITIES IS SUBJECT TO THE
TERMS (INCLUDING CERTAIN RESTRICTIONS ON TRANSFERABILITY) OF SUCH
AGREEMENT AND SUCH SECURITIES ARE TRANSFERRABLE ONLY UPON PROOF OF
COMPLIANCE THEREWITH. ANY ATTEMPT AT TRANSFER OF THESE SECURITIES
OTHER THAN IN COMPLIANCE WITH SUCH AGREEMENT WILL BE NULL AND VOID.

9. Preemptive Rights
-----------------

9.1 In addition to obtaining Board approval for an Issuance, the JVC shall
not permit an Issuance unless, prior to such Issuance, (1) the JVC notifies each
Korean Investor and DR Investor (each a "Right Holder") in writing of the
Issuance, (2) the JVC grants each Right Holder the right (the"Right") to
subscribe for and purchase at the same price, and on such other terms and
conditions as are proposed in the Issuance, a portion of such securities equal
to the product of (a) the number of securities proposed to be issued in the
Issuance multiplied by (b) a fraction, the numerator of which is the total
number of common shares of the JVC held by such Right Holder (in the case of DR
Investor, the total number of common shares held by DR Investor and its
Affiliates) prior to the Issuance and the denominator of which is the total
number of issued and outstanding common shares of the JVC held by all
shareholders of the JVC prior to the Issuance and (3) DR Investor or the JVC, as
the case may be, first obtains all approvals from any Authority necessary for DR
Investor and/or its Affiliates to participate in such Issuance. The Right may be
exercised by any Right Holder (or in the case of DR Investor, by DR Investor or
any its Affiliates) by written notice to the JVC,

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<PAGE>

received by the JVC at any time prior to the closing of the Issuance, and the
closing of the purchase and sale pursuant to the exercise of the Right shall
occur simultaneously with the closing of the Issuance. Notwithstanding the
foregoing, in the event DR Investor is unable, as a result of the operation of
any law, rule or regulation then in force, to exercise the Right on terms at
least as favorable as other participants in the Issuance, then DR Investor may
designate a Person who is not so prohibited to exercise its Right in place of DR
Investor. For purposes of this Agreement, an "Issuance" shall mean any issuance
by the JVC of additional shares of capital stock of the JVC or the issuance of
any other securities of the JVC convertible into, exercisable for or
exchangeable for shares of capital stock of the JVC except for the issuance of
common shares of the JVC pursuant to Section 7 of this Agreement or pursuant to
the terms of the Management Offering or pursuant to any registered public
offering of any shares of the JVC after which such shares are listed for trading
on the principal Korean stock exchange (a "Public Offering").

10. Shareholders
------------

10.1 The Board shall decide the time and place for convening all meetings
of the shareholders of the JVC. Written notice of all meetings of the
shareholders of the JVC shall be given to each shareholder of record of the JVC
entitled to vote at the meeting, at least thirty (30) days prior to the day
named for the meeting, unless a greater period of notice is required by law in a
particular case.

10.2 The presence of shareholders representing more than seventy percent
(70%) of the total number of shares issued and outstanding shall constitute a
quorum at all meetings of the shareholders, and no meeting of shareholders shall
be validly convened or constituted unless a quorum is present at such meeting.

10.3 Except as otherwise provided in Section 10.4, or unless otherwise
provided by applicable law, resolutions of the shareholders at any meeting of
shareholders shall be adopted by an affirmative vote of more than two-thirds of
the shares represented and entitled to vote at such meeting at which a quorum is
present.

10.4 Notwithstanding the foregoing, the following actions shall not be
taken by the JVC unless authorized by a resolution of the shareholders of the
JVC by the affirmative vote of at least seventy percent (70%) of the issued and
outstanding shares of the JVC:

(a) amendment to the Articles, including without limitation any
modification of the business purpose (as defined in the Articles), any
change in the number of persons

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<PAGE>

comprising the Board or any modification of the notice, quorum or voting
requirements;

(b) increase or reduction in the authorized or issued share capital
of the JVC;

(c) restructuring, termination, dissolution or liquidation of the
JVC or its merger into or consolidation or amalgamation with any other
company or the sale of all or substantially all of the assets of the JVC;

(d) transfer or pledge of all or a substantial part of the assets
or undertakings of the JVC or the acquisition by the JVC of all or a
substantial part of the assets or undertakings or capital stock of any
other person or entity;

(e) compensation of any of the directors of the JVC; and

(f) any other matters the adoption of which requires a special
resolution at a meeting of shareholders under the Korean Commercial Code.

10.5 Voting Arrangements
-------------------

(a) Each of the Parties agrees that it shall take, at any time and
from time to time, all action necessary (including voting the shares of the
JVC owned by him, her or it, calling special meetings of stockholders and
executing and delivering written consents) to ensure that the Board is
composed at all time of six (6) persons as follows: three (3) directors who
shall be nominated by DR Investor (including the vice president of the JVC
as provided in Section 12.2) and three (3) directors who shall be nominated
by the Korean Representative (including the president of the JVC as
provided in Section 12.1).

(b) Each of DR Investor and the Korean Representative, as the case
may be, may request that any director nominated by it be removed (with or
without cause) by written notice to the other party, and, in any such
event, DR Investor and each Korean Investor shall promptly consent in
writing or vote or cause to be voted all shares of the JVC now or hereafter
owned or controlled by him, her or it for the removal of such person as a
director. In the event any person ceases to be a director, such person
shall also cease to be a member of any committee of the Board.

(c) In the event that a vacancy is created on the Board at any time
by the death, disability, retirement, resignation or removal (with or
without cause) of a director nominated by DR Investor or the Korean
Representative, as the case may be, or if otherwise there shall exist or
occur any vacancy on the Board in a directorship subject to nomination by
DR Investor or the Korean

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<PAGE>

Representative, as the case may be, such vacancy shall not be filled by the
remaining members of the Board but DR Investor and each Korean Investor hereby
agrees promptly to consent in writing or vote or cause to be voted all shares of
the JVC now or hereafter owned or controlled by him, her or it to elect that
individual nominated to fill such vacancy and serve as a director, as shall be
nominated by DR Investor or the Korean Representative, as the case may be.

11. Board of Directors
------------------

11.1 Meetings of the Board may be called in the manner prescribed in the
Articles; provided, however, that notice of each meeting of the Board shall be
-------- -------
given to each director and statutory auditor of the JVC, at least thirty (30)
days prior to the day named for the meeting, unless a greater period of notice
is required by law in a particular case; and provided, further, that in
-------- -------
exceptional cases, subject to applicable law, the foregoing thirty (30) day
notice period may be shortened to seven (7) days if prior consent (and
confirmation of attendance at such meeting) is obtained from at least four (4)
directors of the JVC. The Board shall appoint a person who will serve as the
chairman of the meetings of the shareholders and of the meetings of the Board.
If the chairman is unable to attend such meetings, the directors present shall
elect a chairman among themselves to preside over such meeting.

11.2 The presence of four (4) directors shall constitute a quorum at all
meetings of the Board, and no meeting of the Board shall be validly convened or
constituted unless a quorum is present at such meeting. Except as otherwise
provided in Section 11.3, or unless otherwise provided by applicable law, all
actions taken and resolutions adopted at a meeting of the Board at which a
quorum is present shall be taken or adopted by the affirmative vote of a
majority of the directors present at such meeting.

11.3 Notwithstanding the foregoing, the following actions and resolutions
shall not be taken or adopted unless authorized by the affirmative vote of four
(4) of the six (6) incumbent directors:

(a) purchase, sale or lease of real property;

(b) the purchase, disposition or license of any material patents,
trademarks, technology, brand names or any other material intellectual
property;

(d) any variation of or addition to the Business Purpose beyond
that stated in Section 3.1 hereof;

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<PAGE>

(e) any issuance of capital stock of the JVC, notes, debentures or
any warrants, options, coupons or other instruments which enable or entitle
the holder thereof to obtain capital stock, notes, debentures or other
securities of the JVC or any increase or reduction in, or restructuring
(including changing any voting rights) of, the capital stock of the JVC, or
any calls on capital stock, notes, debentures or other securities of the
JVC;

(f) the formation of any direct or indirect subsidiary of the JVC;

(g) any transaction between the JVC and any of the Korean Investors
or DR Investor or any of their respective Affiliates;

(h) determination and submission of application for public
hearing;

(i) any Public Offering of any shares of the JVC;

(j) review of financial statements to be submitted to the
shareholders meeting for approval;

(k) any one or more capital investments in the aggregate in excess
of five hundred thousand U.S. dollars (US$500,000);

(l) declaration or payment of dividends or other distributions,
subject to approval by the shareholders;

(m) obtaining any line of credit or other facility for borrowing
money for long-term, medium-term or short-term borrowing by the JVC in
excess of two hundred million Korean wons (W200,000,000) individually or
ten billion Korean wons (W10,000,000,000) in the aggregate, including off
balance sheet financing, or the granting, placing of, or permitting to
sheet financing, or the granting, placing of, or permitting to exist, any
mortgage or other lien or encumbrance on any asset of the JVC or on the
capital stock of the JVC;

(n) any guaranty of the obligations of any third party, including
financial, performance or technical guarantees;

(o) any additional debt or equity contributions by the then
current shareholders of the JVC;

(p) entering into joint ventures or other agreements which are
material to the JVC;

(q) instituting a legal or arbitral action or similar action or
proceedings which is material to the JVC unless such

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<PAGE>

action relates to the provisions of this Agreement or any of the Related
Agreements;

(r) restructuring, termination, dissolution or liquidation of the
JVC or its merger into or consolidation or amalgamation with any other
company or the sale of all or substantially all of the assets of the JVC;

(s) any marketing, distribution or sale by the JVC of its products,
or any other business activity proposed to be conducted, outside of Korea,
and

(t) the Management Offering.

12. Officers
--------

12.1 The Korean Representative shall appoint the representative director of
the JVC. The representative director shall also serve as the president of the
JVC. Subject to supervision and control of the shareholders and the Board, the
president shall have general charge, control and supervision of the day-to-day
operations of the JVC and shall act for the benefit of the JVC and its
shareholders in accordance with the law, this Agreement, the Articles and sound
business policies.

12.2 DR Investor shall appoint the vice president of the JVC. The vice
president of the JVC shall also serve as a director of the JVC.

12.3 The president and the vice president will nominate an officer who will
be in charge of the general administration (which includes finance, general
affairs, personnel and operation) and an officer who will be in charge of
technology and production (these two officers together with the president and
the vice president and will comprise the JVC's executive management). The
president and the vice president will also nominate and direct the day-to-day
activities of all other officers of the JVC.

12.4 It is the non-binding intent of the Parties that the representative
director and other key officers and managers of the JVC (provided that any such
person is not also a Korean Investor) (the "Management Investors") shall be
granted options to purchase up to an aggregate of ten percent (10%) of the
issued and outstanding common shares of the JVC on a fully diluted basis (i.e.,
assuming that all outstanding securities convertible into common shares of the
JVC and all outstanding options or warrants exercisable for common shares of
the JVC have been converted into or exercised for, as the case may be, common
shares of the JVC) at the time such options are granted (the "Management
Offering"). Further, it is the non-binding intent of the Parties that the

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<PAGE>

Management Offering shall dilute the Parties hereto on a pro rata basis.

13. Statutory Auditors
------------------

13.1 The JVC shall have one (1) statutory auditor who shall be nominated by
the Korean Representative and consented to by DR Investor and the Board.

14. Financial Activity and Accounting
---------------------------------

14.1 The books and records of the JVC shall be maintained in accordance
with generally accepted Korean accounting standards and International Accounting
Standards ("IAS") consistently applied and shall accurately reflect the JVC's
financial position.

14.2 The Parties agree to cause the books and records of the JVC to be
audited at the end of each fiscal year during the term of this Agreement by an
independent certified public accountant designated by DR Investor. Such
accountant shall annually provide DR Investor and each Korean Investor with
financial reports in accordance with generally accepted Korean accounting
standards and IAS consistently applied. Copies of such financial reports shall
be provided in English to DR Investor and each Korean Investor at the JVC's
expense within ninety (90) days following the end of each fiscal year. Such
annual audits shall be final and binding upon the Parties as to the revenue,
costs, fees, expenses, losses and profits of the JVC, in the absence of manifest
error or fraud.

14.3 Notwithstanding the annual audits required by Section 14.2, either
DR Investor or the Korean Representative may, at its own expense, request an
audit of such books and records by an independent certified public accountant of
its selection, other than the independent certified public accountant used by
the JVC for its annual audit.

14.4 So long as DR Investor and/or any of its Affiliates and any of the
Korean Investors owns any common shares of the JVC, the JVC shall use its best
efforts to deliver in English to the directors nominated by DR Investor and the
Korean Representative, respectively, within 10 business days after the end of
each calendar month, a balance sheet of the JVC as at the month then ended and
statements of income and cash flows of the JVC for the month then ended, each
prepared in conformity with generally accepted Korean accounting standards and
IAS subject to the absence of footnotes and to year-end adjustments, together
with such other information and analyses as any of the directors nominated by DR
Investor or the Korean Representative may reasonably request.

14.5 The fiscal year of the JVC shall commence on January 1 and end on
December 31 of each year, provided that the first fiscal

- 16 -

<PAGE>

year of the JVC shall commence on the date of establishment of the JVC and end
on December 31 of the same year.

14.6 It is the non-binding intent of the Parties that (i) the JVC will not
declare or pay any dividends for a two (2) year period beginning on the Closing
Date and ending on the second anniversary of the Closing Date and (ii)
thereafter, but prior to the initial public offering of its shares by the JVC in
Korea, the JVC will declare and pay a minimal amount of dividends to the extent
permitted by applicable law.

14.7 It is the non-binding intent of the Parties that at some time during
the term of this Agreement, the JVC will effect an initial public offering of
its equity securities.

15. Dispute Resolution
------------------

15.1 If there is a dispute between DR Investor and the Korean Investors
relating to whether a material breach of this Agreement has occurred, either DR
Investor or the Korean Representative may give written notice to the other
requesting to discuss actions which might be taken to resolve such dispute. No
proposed actions are required to be set forth in such notice. DR Investor and
the Korean Investors shall, commencing promptly after such notice shall have
been given, discuss such actions in good faith. During such discussions, either
DR Investor or the Korean Representative may propose for discussion any action
which it believes might be so taken.

15.2 If DR Investor and the Korean Investors shall have discussed actions
which might be taken to resolve a dispute pursuant to Section 15.1 and shall
have failed to agree upon such actions within 30 days notice shall have been
given pursuant to Section 15.1, either DR Investor or the Korean Representative
may at any time within 15 days after the expiration of such 30-day period give
written notice to the other, requesting that the President of DRI, on behalf of
DR Investor (the "DRI President"); and Korean Representative, on behalf of the
Korean Investors discuss such actions. Within 30 days after receipt of such
notice, the receiving Party shall submit to the other Party a written response.
The notice and the response shall include a statement of each Party's position,
to the extent applicable, and a summary of arguments supporting that position.
DR Investor and the Korean Representative shall, commencing promptly after such
notice and response shall have been given, cause the DRI President and the
Korean Representative to meet at a mutually acceptable time within 15 days after
delivery of the disputing Party's notice and place, and thereafter as often as
they reasonably deem necessary, to discuss such actions and to attempt to
resolve the dispute. During such discussions, either the DRI President or the
Korean Representative may propose for discussions any action which such

- 17 -
<PAGE>

person believes might be so taken and such persons may consult with counsel,
accountants and other experts. The DRI President and the Korean Representative
shall utilize their best commercial efforts to resolve the dispute.

15.3 Any dispute relating to whether a material breach of this Agreement
has occurred which remains unresolved following completion of the process
provided in Sections 15.1 and 15.2 shall be settled and finally determined by
binding arbitration pursuant to Section 19.6 hereof.

16. Term and Termination
--------------------

16.1 Notwithstanding the provisions of Section 2.5 hereof, this Agreement
may be terminated as follows:

(a) DR Investor and each of its Affiliates and each of the Korean
Investors may terminate this Agreement pursuant to any written agreement, signed
by all such Parties which then own shares of the JVC.

(b) DR Investor shall have the right to terminate this Agreement at
any time by giving written notice to the Korean Representative if any Korean
Investor materially breaches any provision of this Agreement, and if curable,
fails to cure such breach within sixty (60) days after receiving a written
notice to cure such breach.

(c) Korean Representative shall have the right to terminate this
Agreement at any time by giving written notice to DR Investor if DR Investor
materially breaches any provision of this Agreement, and if curable, fails to
cure such breach within sixty (60) days after receiving a written notice to cure
such breach.

(d) DR Investor shall have the right to terminate this Agreement by
giving written notice to the Korean Representative if any Korean Investor then
owing shares of the JVC is (i) declared insolvent, (ii) has a trustee or
receiver appointed to take over his, her or its assets, or (iii) is being wound
up, either voluntarily or involuntarily.

(e) The Korean Representative shall have the right to terminate
this Agreement by giving written notice to DR Investor if DR Investor is (i)
declared insolvent, (ii) has a trustee or receiver appointed to take over its
assets, or (iii) is being wound up, either voluntarily or involuntarily.

(f) Notwithstanding clauses (b) or (c) above, either DR Investor or
the Korean Representative shall have the right to terminate this Agreement by
giving written notice to the other Party at any time after the ninety-first
(91st) day following

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<PAGE>

execution of this Agreement (or such later data as may be applicable pursuant to
Section 6.1(b) if the conditions specified in Section 6.1 hereof have not been
satisfied within the time period specified therein.

17. Consequences of Termination
---------------------------

17.1 Upon termination of this Agreement, the Parties will (i) for thirty
(30) days after such termination, negotiate with each other to determine if an
agreement can be reached pursuant to which any Party or group of Parties will
purchase all shares of the JVC owned by all of the other Parties then owning
shares in the JVC, or (ii) absent an agreement pursuant to (i) above,
cooperate with each other to wind up the affairs of the JVC by selling or
otherwise liquidating the assets and businesses of the JVC and then distributing
the proceeds of such sale or liquidation as well as any remaining assets of the
JVC to the then shareholders of the JVC in accordance with the provisions of the
Articles. Notwithstanding the foregoing, the Parties shall continue to be bound
by any confidentiality agreements and DR Investor or its Affiliates shall have
the right in their sole discretion to immediately terminate the Trademark and
Trade Name Sublicense Agreement and the technology and information license
between DRA and DAC which is to be assigned to the JVC pursuant to the asset
purchase agreement referred to in Section 6.1(a)(i).

18. Liability and Indemnification
-----------------------------

18.1 Liability. None of the Parties nor any director of the JVC shall be
---------
liable, responsible or otherwise accountable to the JVC or to any Party for any
acts or omissions in good faith performed or omitted by him/her/it or on
his/her/its behalf in futherance of the interests of the JVC and within the
scope of such Party's or director's authority hereunder, unless such acts or
omissions were fraudulent, in bad faith or a result of wanton or willful
misconduct or gross negligence by such Party or director.

18.2 Indemnification. The JVC shall indemnify, defend and hold harmless
---------------
each Party and director of the JVC against any loss, expense, damage, claim,
liability, obligations, judgement or injury suffered or sustained by him/her/it
by reason of any act, omission or alleged act or omission by him/her/it arising
out of his/her/its activities on behalf of the JVC or in furtherance of the
interests of the JVC, including, without limitation, any judgement, award,
settlement, reasonable attorneys' fees and other costs or expenses incurred in
connection with the defense of any actual or threatened actions, proceedings or
claims, all costs of which shall be charged to and paid by the JVC as incurred;
provided, however, that the acts, omissions or alleged acts or omissions upon
- -------- -------
which such actual or threatened actions, proceedings or claims are based were
performed or omitted in good faith and were not fraudulent, in bad

- 19 -
<PAGE>

faith or a result of wanton and willful misconduct or gross negligence by such
Party or director.

19. Miscellaneous
-------------

19.1 Entire Agreement. This Agreement and the agreements entered into at
----------------
Closing in connection herewith, constitute the entire understanding and
agreement between the Parties and supersede any and all prior or
contemporaneous, oral or written, representations, communications,
understandings and agreements between the Parties with respect to the subject
matter hereof to the extent inconsistent with or contradictory to this Agreement
or such other agreements, as applicable.

19.2 Modifications. This Agreement shall not be modified, amended,
-------------
canceled or altered in any way, and may not be modified by custom, usage of
trade or course of dealing, except by an instrument in writing signed by DR
Investor and the Korean Representative.

19.3 Waiver. The performance of any obligation required of any Party
------
hereunder may be waived only by a written waiver signed by all other Parties,
and such waiver shall be effective only with respect to the specific obligation
described. The waiver by any Party of a breach of any provision of this
Agreement by another Party shall not operate or be construed as a waiver of any
subsequent breach of the same provision or another provision of this Agreement.

19.4 Severability. If any provision hereof is found invalid, illegal or
------------
unenforceable pursuant to any executive, legislative, judicial or other decree
or decision, the remainder of this Agreement shall remain valid, legal and
enforceable according to its terms, and such invalid, illegal or unenforceable
provision shall be replaced with a provision that approximates the substance and
spirit of the invalid, illegal or unenforceable provision as closely as possible
without being invalid, illegal or unenforceable.

19.5 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with, the laws of the Republic of Korea; provided, however, any and
-------- -------
all differences or disputes of any nature whatsoever arising out of this
Agreement shall be subject to the arbitration provisions of Section 19.6.

19.6 Arbitration. Any and all differences and disputes of any nature
-----------
whatsoever arising out of this Agreement, which are not settled by agreement
between DR Investor and the applicable Korean Investors pursuant to Section 15
hereof, or otherwise, shall be finally settled by arbitration held according to
the Rules of Conciliation and Arbitration of the International Chamber of

- 20 -

<PAGE>

Commerce, as those rules are in effect from time to time. The arbitration shall
be held in the English language in London, England or such other neutral site
which is agreeable to the Parties. The arbitration shall take place before a
board of three persons, consisting of one arbitrator to be appointed by the
Korean Representative, one by DR Investor and one by the two so chosen;
provided, however, that in the event of any actual or threatened breach or
- -------- -------
default which could give rise to irreparable harm, the Party harmed or to be
harmed may apply to any court having jurisdiction for injunctive or other
equitable relief, pending the outcome of the arbitration. In the event that the
arbitrators appointed by DR Investor and the Korean Representative cannot select
the third arbitrator or if either DR Investor or the Korean Representative,
after notice from the other party, does not select an arbitrator within a
reasonable time, then the Court of Arbitration of the International Chamber of
Commerce shall appoint a second or third arbitrator, as the case may be. The
decision of any two of the three arbitrators on any point or points will be
final and binding upon the Parties. Awards made pursuant to this clause may
include costs, including a reasonable allowance for attorney's fees, and
judgment may be entered upon any award made hereunder in any court having
jurisdiction in the premises. Unless otherwise specified by an award made by
the applicable arbitrators, the cost of the arbitration shall be borne one-half
by DR Investor and one-half by the Korean Investors. The Parties agree to
exclude any right of application or appeal to the English courts in connection
with any question of law arising in the course of the arbitration or with
respect to any award made.

19.7 Assignment. Except as permitted under Section 8, no Party shall have
----------
the right, power or authority to assign this Agreement or any of its rights or
obligations hereunder to any third party, and this Agreement may not be
involuntarily assigned or assigned by operation of law, without the prior
written consent, in the case of DR Investor, of the Korean Representative and,
in the case of any Korean Investor, of DR Investor. Any such assignment without
such prior written consent shall be null and void.

19.8 Third Party Beneficiaries. This Agreement shall be binding upon, and
-------------------------
inure to the benefit of, each of the Parties and their respective successors and
permitted assigns. Nothing contained in this Agreement, express or implied,
shall be deemed to confer any right or remedy upon, or obligate any Party to,
any person or entity other than the Parties and their respective successors and
permitted assigns.

19.9 No Partnership or Agency. No Party shall have the right, power or
------------------------
authority to create any obligation or duty, express or implied, on behalf of any
other Party or on behalf of the JVC. Except as otherwise set forth in this
Agreement, any Party (the

- 21 -

<PAGE>

"Interested Party") may engage in or possess an interest in other business
ventures of any nature or description, independently or with others, whether
presently existing or hereafter created, and neither the JVC nor any Party other
than the Interested Party shall have any rights in or to such independent
ventures or the income or profits derived therefrom.

19.10 Appointment of Korean Representative. Each Korean Investor hereby
------------------------------------
appoints Kim (the "Korean Representative") as his, her or its representative,
attorney and agent, with full power and authority to execute, deliver and
receive, on his, her or its behalf, all certificates, statements, notices,
extensions, waivers and amendments to this Agreement required or permitted to be
made, given or delivered hereunder or in connection with the agreements
contemplated hereunder. A vacancy in the position of Korean Representative
occasioned by death, disability or liquidation, as the case may be shall be
filled by majority vote of the Korean Investors. Each Korean Investor shall
have one vote for each share of the JVC such Korean Investor beneficially owns
at the time of such vote. The Korean Investors will use their best efforts to
assure that such a successor is promptly appointed.

19.11 Notices. All notices, demands, requests, consents or other
-------
communications hereunder shall be in writing and shall be given by personal
delivery, by express courier, by registered or certified mail with return
receipt requested (or its equivalent under the laws of the country where
mailed), or by facsimile, to the Parties at the addresses shown below, or to
such other address as may be designated by written notice given by any Party to
the other Parties. Unless conclusively proved otherwise, all notices, demands,
requests, consents or other communications hereunder shall be deemed effective
upon delivery if personally delivered, five (5) days after dispatch if sent by
express courier, ten (10) days after dispatch if sent by registered or certified
mail with return receipt requested (or its equivalent under the laws of the
country where mailed), or confirmation of the receipt of the facsimile by the
recipient if sent by facsimile.

To DR Investor: Remy Korea Holdings, Inc.
c/o Delco Remy International, Inc.
2902 Enterprise Drive
Anderson, IN 46013
Attention: President
Facsimiles: (317) 778-6515

To Kim: Mr. S. C. Kim
18-101, Hyosung Villa
18-1, Banpo 4-dong, Seocho-gu
Seoul, Korea
Facsimile:
-------------------

- 22 -

<PAGE>

To Seil: Seil Industrial Co., Ltd.
1 Lot, 52 Block
440, Nonhyun-dong
Namdong-gu
Incheon, Korea
Attention:
--------------------
Facsimile:
--------------------

To Lee: Mr. S.T. Lee
676-35, Geoje 4-dong, Yunje-gu
Pusan, Korea
Facsimile:
--------------------

19.12 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

19.13 Captions. The section headings and captions contained herein are for
--------
purposes of reference and convenience only and shall not in any way affect the
meaning or interpretation of this Agreement.

19.14 Number and Gender. Whenever used in this Agreement, the singular
-----------------
terms shall include the plural and the plural the singular, and the use of any
gender shall be applicable to all genders.

19.15 Confidentiality. (a) Each Party agrees that it will not, and will
---------------
cause each of its Affiliates not to, at any time reveal to any person or use in
any way detrimental to the other Parties or the JVC or the business of the other
Parties or the JVC any of their non-public, confidential or proprietary
information received from them in connection with this Agreement or the
transactions contemplated hereby, other than such information that (i) is
generally available to the public (other than as a result of a disclosure by
such person in violation of this Agreement or any other agreement to which such
person is a party), (ii) is available to such person on a non-confidential basis
from a source (including any Party, as the case may be) that is not prohibited
from disclosing such information to such person, or (iii) after notice and an
opportunity to contest, such person is required to disclose under applicable law
or under subpoena or other process of laws.

(b) No Party shall disclose, disseminate or cause to be disclosed
the terms and conditions of this Agreement, except insofar as disclosure is
reasonably necessary to carry out and effectuate the terms of this Agreement,
insofar as any Party is required by law to respond to any demand for information
from any court, governmental entity or governmental agency or by DR Investor or
its Affiliates insofar as disclosure is reasonably necessary in

- 23 -

<PAGE>

connection with a financing by DR Investor or any of its Affiliates.

19.16 Language. The English language shall be the language used for the
--------
interpretation of this Agreement.

- 24 -
<PAGE>

IN WITNESS WHEREOF, the Parties executed this Agreement as of the date
first above written.

SEIL INDUSTRIAL CO., LTD

/s/ Thomas J. Snyder
- ------------------------------------- --------------------------------------

Name: Thomas J. Snyder Name: [SIGNATURE APPEARS HERE]
-------------------------------- ---------------------------------

Title: President Delco Remy Int. Inc. Title:
------------------------------- --------------------------------

/s/ Sung C. Kim /s/ S. Tae Lee
- ------------------------------------- --------------------------------------
S.C. KIM S.T. LEE
<PAGE>

EXHIBIT A
---------

TRADEMARK AND TRADE NAME SUBLICENSE AGREEMENT

This is a TRADEMARK AND TRADE NAME SUBLICENSE AGREEMENT (this
"Agreement") dated as of _______________, 199_, by and among DELCO REMY AMERICA,
INC., a Delaware corporation ("DRA") and DELCO REMY INTERNATIONAL, INC., a
Delaware corporation (collectively, "Sublicensor"), and REMY KOREA, LTD., a
company organized and existing under the laws of the Republic of Korea (the
"Company").

BACKGROUND
----------

A. Pursuant to a Joint Venture Agreement (the "Joint Venture
Agreement") dated the same date as this Agreement, Remy Korea Holdings, Inc., a
Delaware corporation and an affiliate of Sublicensor ("DR Investor") and the
other parties named therein formed the Company, as a joint venture with the
purpose, inter alia, of producing, assembling and marketing the products listed
on Schedule 1 (the "Licensed Products").
----------

B. Pursuant to a Trademark License Agreement dated July 31, 1994
(the "Trademark License") and a Trade Name License Agreement dated July 31, 1994
(the "Trade Name License"), Sublicensor has been granted a world-wide license to
use certain trademarks and trade names owned by General Motors Corporation
("GM") in connection with various products including the Licensed Products.

C. In order to effectuate the intentions of DR Investor and the
other parties thereto under the Joint Venture Agreement, and in consideration of
the benefits to the parties set forth in this Agreement, the parties desire that
Sublicensor grant to the Company a sublicense to use the marks shown in
Schedule 2 which may be amended from time to time (the "Remy Marks") and the
- ----------
marks shown in Schedule 3 which may be amended from time to time (the "Delco
----------
Remy Marks"), in the Territory in connection with the Licensed Products and to
grant the Company a sublicense to use and register "DELCO REMY KOREA, LTD." or
"REMY KOREA, LTD." (each, a "Name" and collectively, the "Names") as its
corporate name in the Territory. The Remy Marks and the Delco Remy Marks are
sometimes referred to hereinafter collectively as the "Marks".

TERMS
-----

In consideration of the mutual covenants and agreements herein, and
intending to be legally bound hereby, the parties agree as follows:

1. Definitions. The following terms used herein are defined as
-----------
follows:

(a) "Sublicensee" means the Company.
<PAGE>

(b) "Territory" means the Republic of Korea.

2. Grant of Sublicense.
-------------------

(a) Subject to the terms and conditions hereof, Sublicensor
hereby grants to the Company a non-exclusive royalty-free, non-transferable
sublicense to use and register the Name "Remy Korea, Ltd." as its corporate name
in the Territory.

(b) Effective upon Sublicensor's obtaining the consent of GM
and subject to the terms and conditions hereof, Sublicensor hereby grants to the
Company a non-exclusive, royalty-free, non-transferable sublicense to use and
register the Name "Delco Remy Korea, Ltd." as its corporate name in the
Territory.

(c) Effective upon the closing of the asset purchase agreement
between the Company and Daewoo Automotive Components, Ltd. ("DAC") referred to
in Section 6.1(a)(i) of the Joint Venture Agreement (the "Asset Purchase
Agreement") and subject to the terms and conditions hereof, Sublicensor
hereby grants to the Company a non-exclusive, royalty-free, non-transferable
sublicense to use the Remy Marks as trademarks for the Company's Licensed
Products in the Territory, but not for any other goods or services and not in
any other country.

(d) Effective upon (i) the closing of the Asset Purchase
Agreement and (ii) Sublicensor's obtaining the consent of GM and subject to the
terms and conditions hereof, Sublicensor hereby grants to the Company a
non-exclusive, royalty-free, non-transferable sublicense to use the Delco Remy
Marks as trademarks for the Company's Licensed Products in the Territory, but
not for any other goods or services and not in any other country.

3. Quality Control. Sublicensee agrees that the quality of Licensed
---------------
Products will meet or exceed the standards as established by Sublicensor. At
Sublicensor's request, Sublicensee shall deliver to Sublicensor information
relating to the design, specification, manufacture and reliability of the
Licensed Products. In addition, Sublicensee shall, on at least an annual basis,
permit Sublicensor or its duly authorized representatives or agents to visit
Sublicensee's premises to investigate, evaluate and otherwise monitor the
Licensed Products and meet with Sublicensee's personnel to ensure the quality
control standards set forth herein are being met.

Sublicensee acknowledges that the purpose of the inspections
conducted and quality control standards prescribed by Sublicensor in this
Agreement is to maintain the reputation and the goodwill of the Marks and to
maintain and improve the image of the Marks and the public's perception and
awareness of the Marks. Sublicensor shall not bear or assume any responsibility
or liability to third parties as a result of setting or enforcing such

- 2 -
<PAGE>

standards or for any failure of the Licensed Products to conform to such
standards. Sublicensee shall indemnify, defend and keep Sublicensor free and
harmless against any and all loss, liabilities, claims, damages, fees, costs and
expenses, including but not limited to attorneys' fees and other legal costs and
expenses (including enforcement of this Agreement), resulting from, incidental
to or in any way arising out of the manufacture, marketing, use, sale or other
disposition of the Licensed Products.

4. Use and Appearance of the Marks and the Names. Sublicensee shall
---------------------------------------------
use the Marks only in the manner prescribed from time to time by Sublicensor.
For review and approval, Sublicensee shall provide Sublicensor with
representative samples of Licensed Products bearing the Marks and all current or
proposed tags, labels, identification plates, packaging, advertising copy,
brochures, catalogs, marketing and promotional materials bearing the Marks.
Sublicensee agrees that it will not use or authorize the use of any Marks or
Names or other distinctive marks or signs owned by Sublicensor or any names,
marks, words or signs which so nearly resemble any of the foregoing names,
marks, words or signs as to be likely to cause confusion or mistake, or to
deceive the public.

5. Trademark and License Notices. Sublicensee agrees that, during
-----------------------------
the time that it is a Sublicensee under this Agreement, it will cause to appear,
where practical or appropriate (a) on all advertising, promotional and
point-of-sale materials (including without limitation, brochures and catalogs)
used by such Sublicensee in connection with the Company's Licensed Products; and
(b) within the bulk shipment of any large quantity of the Company's Licensed
Products shipped in bulk to an end user, a notice that the Marks are registered
trademarks of GM being used under a sublicense (the "Notice"), unless other
notice is authorized by Sublicensor. The Notice shall read essentially as
follows: "DELCO REMY (or "REMY", where applicable) is a registered trademark of
General Motors Corporation used under sublicense."

6. Term and Termination. This Agreement shall be co-terminus with
--------------------
the technology license agreement between DRA and DAC which will be assigned by
DAC to the Company pursuant to the Asset Purchase Agreement. Notwithstanding
the foregoing, this Agreement may be sooner terminated for any of the following
reasons:

(a) the written agreement of the parties;

(b) Sublicensor's rights to use the Marks or the Names are
terminated for any reason;

(c) Sublicensee (i) commits a breach of any of its obligations
under this Agreement; (ii) Sublicensee fails to remedy such breach within sixty
(60) days of receiving notice of such breach from Sublicensor; (iii) following
such failure to remedy,

- 3 -
<PAGE>

Sublicensor gives notice to Sublicensee that the Agreement is terminated; and
(iv) thirty (30) days pass from the date of Sublicensor's notice of termination;
or

(d) the Joint Venture Agreement is terminated for any reason or
the affiliates of Sublicensor cease to be shareholders of the Company for any
reason.

7. Effect of Termination. Upon the termination of this Agreement for
---------------------
whatever reason:

(a) the sublicense of the Marks to Sublicensee and the
sublicense of the Names to the Company and all of Sublicensee's rights under
this Agreement shall cease;

(b) Sublicensee shall immediately cease all use of the Marks and
all materials bearing the Marks, and the Company shall immediately cease all use
of the Names and all materials bearing the Names, such materials to be returned
to Sublicensor or certified as destroyed;

(c) Sublicensee shall not adopt or use any similar marks,
including but not limited to any marks containing any form or variation of the
term "DELCO REMY" OR "REMY";

(d) the Company shall immediately change its corporation name to
delete the term "DELCO REMY" and/or "REMY, " as the case may be; and

(e) all of the other rights, duties and obligations of the
parties under this Agreement shall terminate, except for liabilities arising out
of a breach of this Agreement by Sublicensee and Sublicensee's obligations of
indemnification and confidentiality.

8. Ownership/Maintenance of the Marks and the Names.
------------------------------------------------
Sublicensee acknowledges and agrees that nothing herein shall give it any right,
title or interest in and to the Marks or the Names (except the right to use the
Marks and the Names in accordance with the terms of this Agreement), and that
the Marks and the Names are and shall remain the sole property of GM.
Sublicensee agrees not to challenge or cause to be raised any challenge
concerning, or objections to, the validity of GM's ownership of the Marks and
the Names or this Agreement, or to take any action that would prejudice or
interfere with such validity or ownership. Sublicensee agrees that all of its
use of the Marks and the Names shall inure to the exclusive benefit of GM for
all purposes. Sublicensee will fully cooperate at its own expense with GM's
efforts to obtain and maintain registration of the Marks and of other forms of
the "DELCO REMY" or "REMY" mark. Sublicensee shall not itself seek registration
of any Mark or any other form of the "DELCO REMY", or "REMY" mark.

-4-
<PAGE>

9. Representations and Warranties. Sublicensor makes no representations
------------------------------
and warranties regarding the validity of the Marks or the Names, other than that
it believes GM to be the owner of such Marks. Sublicensee shall indemnify,
defend and keep Sublicensor harmless against any and all loss, liabilities,
claims, damages, fees, costs, and expenses (including but not limited to
attorneys fees and other legal costs and expenses), resulting from, incidental
to or in any way arising out of any assertion (other than from GM) that
Sublicensee's use of the Marks or the Names on or in connection with the
manufacture, marketing, use, sale or other disposition of any goods or services,
constitutes trademark, service mark, trade dress or trade name infringement,
unfair competition or any other tortious act.

10. Infringement Claims. Sublicensee shall promptly notify Sublicensor
-------------------
of any unauthorized use by any third party of any of the Marks (or any mark
confusingly similar to any of the Marks). Sublicensee shall not have any claim
to any monetary award issued by any court or arbitrator, or agreed to as part of
a settlement of any infringement claim. In the event that Sublicensor and/or GM
initiates or defends any legal action with regard to any of the Marks,
Sublicensee shall cooperate fully with Sublicensor and/or GM in the prosecution
or defend any action alleging infringement or unfair competition or any other
action involving any of the Marks.

11. Assignment/Sublicensing. Sublicensee may not assign, transfer or
-----------------------
further sublicense to any third party all or any part of its rights or duties
under this Agreement. Sublicensor may freely assign all or any part of its
rights or duties under this Agreement.

12. Relationship of the Parties. This Agreement is a sublicense and
---------------------------
shall not constitute a supply agreement and shall not create or imply any
relationship between the parties other than as sublicensor and sublicensee. No
party to this Agreement shall have any right or authority to assume, create or
incur any liability or any obligation of any kind, express or implied, against
or in the name of or on behalf of any other party to this Agreement. Except as
may be specifically provided in this Agreement, neither Sublicensor nor
Sublicensee shall assume or be responsible for any liability or obligation of
any nature of, or any liability or obligation that arises from any act or
omission to act of the other party however or whenever arising.

13. Notices. Any notice, demand, election or communication required,
-------
permitted or desired to be given between the parties hereunder shall be in
writing and shall be sent to the other parties by prepaid registered or
certified mail, return receipt requested, or by commercial courier service, or
electronic facsimile (but in the latter instance, also by mail or by

- 5 -

<PAGE>

commercial courier service). Notices, demands, elections or communications shall
be deemed received on the first to occur of the following: (i) when personally
delivered; (ii) when actually received; or (iii) when sent by commercial courier
service, two (2) days following the deposit thereof with such service. Notices,
demands, elections or communications shall be addressed as follows (or to any
other address which the relevant party may designate to the others by written
notice):

if to Sublicensor: Delco Remy America, Inc.
Delco Remy International, Inc.
2902 Enterprise Drive
Anderson, IN 46013
U.S.A.
Attention: President
Telecopy: 317-778-6515

if to Company: Remy Korea, Ltd.

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

--------------------------------
Attention: President
Telecopy:
-----------------------

14. Amendments; No Waivers. (a) Any provisions of this
----------------------
Agreement may be amended or waived if, and only if, such amendment or wavier is
in writing and, in the case of an amendment, signed by both the Sublicensor and
the Sublicensee, or in the case of a wavier, by the party against whom the
waiver is to be effective.

(b) No failure or delay by any party in exercising any
right, power or privilege under this Agreement shall operate as a waiver thereof
nor shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies provided in this Agreement shall be cumulative and not
exclusive of any rights or remedies provided by law.

15. Successors and Assigns. Subject to the other provisions
----------------------
hereof, the provisions of this Agreement shall be binding upon and inure to the
benefit of the parties and their respective permitted successors and assigns.

16. Governing Law; Consent to Jurisdiction.
--------------------------------------

(a) In accordance with Section 5-1401 of the General
Obligations Law of the State of New York, this Agreement shall be governed by
the laws of the State of New York, USA, without giving effect to the provisions,
policies or principles thereof relating to conflict of laws.

- 6 -
<PAGE>

(b) Each of the parties hereto (i) submits to the exclusive
jurisdiction of the Supreme Court of the State of New York for the County of New
York (in accordance with Section 5-1402 of the General Obligations Law of New
York) and any U.S. Federal court sitting in the County of New York (together,
the "Exclusive Courts") with respect to any actions or proceedings arising out
of or relating to this Agreement, (ii) agrees that all claims with respect to
such actions or proceedings may be heard and determined in the Exclusive Courts,
(iii) waives the defense of an inconvenient forum, (iv) agrees not to commence
any action or proceeding relating to this Agreement other than in the Exclusive
Courts and (v) agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Sublicensor hereby irrevocably
designates, appoints and empowers [__________], the Company hereby irrevocably
designates, appoints and empowers [__________], and ________ hereby irrevocably
designates, appoints and empowers [__________________], in each case as its
true and lawful agent and attorney-in-fact in its name, place and stead to
receive and accept on its behalf service of process in any action, suit or
proceeding in New York with respect to any matters as to which it has submitted
to jurisdiction as set forth in the immediately preceding sentence. In the
event, through no action or omission of Sublicensor, the agent and
attorney-in-fact designated above by Sublicensor ceases to accept service of
process on behalf of Sublicensor, Sublicensor hereby irrevocably designates,
appoints and empowers [ ] to serve as its agent and attorney-in-fact
hereunder. In the event, through no action or omission of the Company, the agent
and attorney-in-fact designated above by the Company ceases to accept service of
process on behalf of the Company, the Company hereby irrevocably designates,
appoints and empowers [ ] to serve as its agent and attorney-in-fact
hereunder.

17. Illegality and Severability. If application of any one or more of
---------------------------
the provisions of this Agreement shall be unlawful under Applicable Law, then
the parties shall attempt in good faith to make such alternative arrangements as
may be legally permissible and which carry out as nearly as practicable the
terms of this Agreement. Should any portion of this Agreement be deemed
unenforceable by a court of competent jurisdiction, the remaining portion hereof
shall remain unaffected and be interpreted as if such unenforceable portions
were initially deleted.

18. Specific Performance. The parties agree that immediate and
--------------------
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.

- 7 -

<PAGE>

19. Captions. The captions in this Agreement are included for
--------
convenience or reference only and shall be ignored in the construction or
interpretation hereof.

20. Counterparts; Effectiveness. This Agreement may be signed in any
---------------------------
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and to this Agreement were upon the same
instrument. This Agreement shall have received a counterpart hereof signed by
the other parties to this Agreement.

21. Entire Agreement. The Joint Venture Agreement dated as of the
----------------
date hereof among as affiliate of Sublicensor and the other parties named
therein and this Agreement (and any other agreements contemplated hereby or
thereby) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
subject matter hereof or thereof. No representation, inducement, promise,
understanding, condition or warranty not set forth in this Agreement has been
made or relied upon by any party to this Agreement. This Agreement is not
intended to confer upon any Person other than the parties any rights or remedies
hereunder.

22. Recording. The parties hereby authorize Messrs. [names of Korean
---------
intellectual property attorneys], severally to proceed with the recordation of
this Agreement with the [Korean authorities].

- 8 -

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.

DELCO REMY AMERICA, INC.

By:
-----------------------------------
Name:
Title:

DELCO REMY INTERNATIONAL, INC.

By:
-----------------------------------
Name:
Title:

REMY KOREA, LTD.

By:
-----------------------------------
Name:
Title:

- 9 -

<PAGE>
Exhibit 10.15

LEASE

By and Between
ANDRA L.L.C.,
as Landlord,
and
DELCO REMY AMERICA, INC.,
as Tenant

Dated: February 9, 1995
<PAGE>

TABLE OF CONTENTS

<TABLE>
Page
<S> <C>
ARTICLE I. DEMISED PREMISES AND TOWNSEND ESTATES ........................ 1

Section 1.01. Demised Premises. ............................................ 1

ARTICLE II. COMPLIANCE WITH PLANS AND SPECIFICATIONS ..................... 1

Section 2.01. Landlord to Construct Building per Plans and Specifications.... 1
Section 2.02. Commencement of Construction. ................................ 2
Section 2.03. Tenant's Right to Make Changes. .............................. 2
Section 2.04. Commencement on Specified Dates. ............................. 3
Section 2.05. Time of Access. .............................................. 3
Section 2.06. Tenant Entry. ................................................ 3
Section 2.07. Construction of the Demised Premises. ........................ 3

ARTICLE III. TERM OF LEASE ................................................ 4

Section 3.01. Demised Term. ................................................ 4
Section 3.02. Lease Year. .................................................. 5
Section 3.03. Holding Over. ................................................ 5
Section 3.04. Option to Extend the Term. ................................... 5

ARTICLE IV. RENTAL ....................................................... 5

Section 4.01. Minimum Base Rent. ........................................... 5
Section 4.02. Additional Rent. ............................................. 6
Section 4.03. Payments. .................................................... 6
Section 4.04. Past Due Payments. ........................................... 6

ARTICLE V. OCCUPANCY AND USE OF DEMISED PREMISES ........................ 6

Section 5.01. Occupancy and Type of Use. ................................... 6
Section 5.02. Lawful Use and No Waste, Annoyance or Nuisance. .............. 7

ARTICLE VI. ASSIGNMENT AND SUBLETTING .................................... 8

Section 6.01. Assignment and Subletting. ................................... 8
Section 6.02. Expense. ..................................................... 8
Section 6.03. Non-Release. ................................................. 9

ARTICLE VII. UTILITY SERVICES ............................................. 9

Section 7.01. Payment. ..................................................... 9
</TABLE>

<PAGE>

Section 7.02. Suspension of Services. ................................... 9

ARTICLE VII. REPAIRS AND MAINTENANCE ..................................... 10

Section 8.01. Landlord's Obligation. .................................... 10
Section 8.02. Tenant's Obligation. ...................................... 10
Section 8.03. Remodeling. ............................................... 10
Section 8.04. No Lien Clause. ........................................... 11

ARTICLE IX. INSURANCE AND INDEMNIFICATION AND WAIVER OF CLAIMS ........... 11

Section 9.01. Tenant's Insurance. ....................................... 11
Section 9.02. Insurance to be Furnished by Landlord. .................... 12
Section 9.03. Mutual Indemnifications. .................................. 12
Section 9.04. Waiver of Subrogation. .................................... 12

ARTICLE X. DAMAGE TO DEMISED PREMISES .................................... 13

Section 10.01. Damage to Demised Premises. ............................... 13

ARTICLE XI. EMINENT DOMAIN ............................................... 13

Section 11.01. Condemnation of Demised Premises. ......................... 13
Section 11.02. Condemnation Award. ....................................... 14

ARTICLE XII. SIGNS ....................................................... 14

Section 12.01. Consent to Signs. ......................................... 14

ARTICLE XIII. TAXES ...................................................... 14

Section 13.01. Real Estate Taxes and Assessments and Payment by Tenant. .. 14

ARTICLE XIV. INSOLVENCY .................................................. 15

Section 14.01. Insolvency. ............................................... 15

ARTICLE XV. DEFAULT ...................................................... 15

Section 15.01. Rights on Tenant's Default. ............................... 15
Section 15.02. Default of Landlord. ...................................... 16
Section 15.03. Status of Landlord - Tenant. .............................. 16
Section 15.04. Advances. ................................................. 17
Section 15.05. Emergency Repairs. ........................................ 17

<PAGE>

ARTICLE XVI. MISCELLANEOUS ............................................... 17

Section 16.01. Waivers. .................................................. 17
Section 16.02. Remedies Cumulative. ...................................... 17
Section 16.03. Subordination. ............................................ 17
Section 16.04. Notices and Certificates. ................................. 18
Section 16.05. Relationship of Parties. .................................. 18
Section 16.06. Construction. ............................................. 18
Section 16.07. Law of Indiana. ........................................... 18
Section 16.08. Costs. .................................................... 18
Section 16.09. Lease Memorandum. ......................................... 18
Section 16.10. Force Majeure. ............................................ 19
Section 16.11. Hazardous Materials and Environmental Requirements. ....... 19
Section 16.12. Complete Agreement. ....................................... 19
Section 16.13. Successors in Interest. ................................... 19
Section 16.14. Exclusions. ............................................... 20
Section 16.15. Americans with Disabilities Act. .......................... 20
Section 16.16. Termination Requirements. ................................. 21
Section 16.17. Address of Notices. ....................................... 21
Section 16.18. Warranties and Representations. ........................... 21

ARTICLE XVII. GENERAL PROVISIONS ......................................... 23

Section 17.1. Remedies Cumulative - Non-Waiver. .......................... 23
Section 17.2. Invalidity. ................................................ 23
Section 17.3. Consents and Approvals. .................................... 23
Section 17.4. Agreement Binding on Successors. ........................... 23
Section 17.5. Estoppel Certificate. ...................................... 23

<PAGE>

LEASE
-----

THIS LEASE, executed this _____________ day of _________________, 1995, by
and between ANDRA L.L.C. with its principal office at 3718 Timberview Court,
Anderson, Indiana 46011 ("Landlord"), and DELCO REMY AMERICA, INC. ("Tenant"),
whose mailing address is 2405 Columbus Avenue, Anderson, Indiana 46018,
WITNESSETH THAT, in consideration of the mutual covenants hereinafter contained,
and each act performed hereunder by either of the parties, Landlord and Tenant
agree as follows:

ARTICLE I.

DEMISED PREMISES AND TOWNSEND ESTATES
-------------------------------------

Section 1.01. Demised Premises. Landlord hereby lets and demises to Tenant,
------------ ----------------
and Tenant hereby leases from Landlord certain real estate in Madison County,
Indiana, more particularly described as Lot 3 of the real property described on
the attached Exhibit A, which exhibit is attached hereto and by reference is
---------
made a part hereof (which real estate is referred to herein as the "Land"),
together with a certain building (the "Building") and other improvements to be
constructed thereon as hereinafter provided. The Land, Building and other
improvements are referred to herein collectively as the "Demised Premises", and
are located at ________________________, Anderson, Indiana 46013. The Building
will consist of approximately fourteen thousand seven hundred square feet
(14,700). The Land consists of approximately two (2) acres located in the
development known as "Townsend Estates", which development is shown on
Exhibit B.
- ---------
ARTICLE II.

COMPLIANCE WITH PLANS AND SPECIFICATIONS
-----------------------------------------

Section 2.01. Landlord to Construct Building per Plans and Specifications.
------------ -----------------------------------------------------------
Landlord agrees to construct on the Demised Premises, at its sole cost and
expense, a first-class building in a good and workmanlike manner and in
compliance with all applicable building, zoning, and environmental regulations
and restrictive covenants of record. Landlord shall use its best efforts to
provide that any and all warranties that Landlord is entitled to under its
construction contract will also run in favor of Tenant. The Building shall be
constructed in accordance with final plans and specifications to be prepared by
K.R. Montgomery and Associates, Inc., a copy of such plans and specifications to
be approved by the parties hereto as identified by the initials of an officer of
Landlord and an officer of Tenant (the "Plans and Specifications"). The
respective parties have agreed that Landlord shall substantially complete and
have ready for occupancy the Building and other improvements on or before
September 1, 1995.

Attached hereto as Exhibit C are preliminary drawings of the Building.
---------
Landlord shall deliver to Tenant for review and approval, final plans and
specifications on or before fifteen (15) days after the execution hereof by the
latter of Landlord or Tenant, prepared by K.R.
<PAGE>

Montgomery and Associates, Inc., which plans and specifications shall include
all of the improvements to be constructed by Landlord (including, but not
limited to, the Building, parking lots and driveways, bringing utilities to the
Demised Premises). Tenant shall have fifteen (15) days after receipt of delivery
of the same to approve or request revisions to said plans and specifications.
Landlord shall have any revisions requested by Tenant made within five (5) days
after notice thereof from Tenant, and provide Tenant proposed final Plans and
Specifications for review and approval. The foregoing procedure shall then be
applicable with such revised Plans and Specifications. If final Plans and
Specifications are not agreed to by both parties within sixty (60) days from
execution of this Lease by the latter of Landlord or Tenant, either party may
terminate this Lease by written notice to the other within ten (10) days of the
expiration of such sixty (60) day period, and neither party shall then have any
further liability hereunder. After approving the same, said plans and
specifications shall be identified by the initials of each party and the
approved plans and specifications shall be attached hereto and made a part
hereof as Exhibit C, and shall replace the drawings currently attached as
---------
Exhibit C.
- ---------

No modification shall be made in the Plans and Specifications without
the prior written consent of Tenant. Landlord, in constructing the Building,
will use quality materials and comply with all federal, state, and municipal
laws, rules, and regulations of any governmental agencies having jurisdiction of
the Demised Premises. Any necessary substitution of materials because of lack or
shortage of specified materials will be immediately submitted to Tenant, and
Tenant shall thereupon approve these substitutions, provided they do not alter
the quality of the Building or cause delay in completing the Building.

Section 2.02. Commencement of Construction. Landlord shall begin
------------ ----------------------------
construction of the Building within thirty (30) days after the latter to occur
of (i) execution of this Lease by the latter of Landlord and Tenant, and (ii)
receipt by Landlord of all permits required for the construction of the Building
and related improvements. If Landlord has not received all required permits
within sixty (60) days from the date of execution hereof by Landlord, Tenant may
terminate this Lease and any time thereafter, provided at the time of such
termination all of such permits have not been received.

Section 2.03. Tenant's Right to Make Changes. Tenant may at any time,
------------ ------------------------------
by written order, make changes within the general scope of this Lease and the
plans and specifications in any one or more of the following:

(a) Specifications
(b) Work or services
(c) Amount of space
(d) Facilities or space layout

If any such change causes an increase or decrease in Landlord's cost of, or the
time required for, performance under this Lease, the parties shall modify the
Lease by making an equitable adjustment in the rental rate, making a lump sum
price adjustment, or revising the delivery schedule.

- 2 -
<PAGE>

No services or work for which an additional cost or fee will be
charged by Landlord will be furnished without the prior written authorization of
Tenant or a designated representative of Tenant.

Section 2.04. Commencement on Specified Dates. Anything to the
------------ -------------------------------
contrary notwithstanding, if Landlord shall fail to commence construction within
thirty (30) days after the date of execution of this Lease by the latter of
Landlord and Tenant, Tenant may terminate this Lease without any liability.

Section 2.05. Time of Access. Anything herein to the contrary
------------ --------------
notwithstanding, Tenant shall have a period of not less than sixty (60) days
before the date that the Demised Premises shall be deemed actually ready for
occupancy and before the commencement of the payment of Rent during which period
Tenant shall have the privilege of proceeding with any work it wants to perform
in the Demised Premises. The period of sixty (60) days is to be measured from
the date that the Demised Premises are suitable for the performance of said work
by Tenant, and Landlord has so notified Tenant thereof. If Tenant does not
regard the Demised Premises to be suitable for the performance of its work on
the receipt of such notice from Landlord, then it shall, within seven (7)
business days after receipt thereof, notify Landlord specifying the particulars
with respect to which the Demised Premises are not suitable for such work.

Such work performed by Tenant may be performed concurrently with the
work to be performed by Landlord, and each party agrees not to interrupt, delay,
or prevent the work to be performed by the other. Landlord shall provide
temporary light, heat, and power during regular working hours from Monday
through Friday for Tenant's use as required during the construction of the
Building and finishing of the Demised Premises in such amounts and at such times
as Landlord in its discretion may reasonably determine and shall also provide
protection of the Demised Premises from the elements during the period such work
is in process.

Section 2.06. Tenant Entry. Tenant shall have the right to enter upon
------------ ------------
the Demised Premises during the course of Landlord's construction for the
purpose of inspection, making measurements, and doing whatever may be
appropriate to prepare the Demised Premises for Tenant's occupation, provided
such entry shall not substantially interfere with Landlord's work. No such entry
shall be deemed an acceptance of possession or waiver of any rights of Tenant in
the event of a failure on the part of Landlord to deliver possession at the time
and in the condition herein required.

Section 2.07. Construction of the Demised Premises. Landlord shall
------------ ------------------------------------
apply for and obtain, at its sole cost and expense, all permits, licenses,
approvals and certificates necessary for the construction of the Building and
for the occupancy thereof by Tenant. Landlord represents that the Demised
Premises shall be constructed, and when completed shall be in compliance with
all local, state and federal laws, rules, orders, regulations and ordinances,
the Plans and Specifications and the Declaration of Development Standards set
forth as Exhibit E attached hereto.

- 3 -
<PAGE>

The Demised Premises shall be deemed to be substantially completed at
such time as (i) Landlord shall certify in writing to Tenant that said Demised
Premises have been completed in substantial accordance with the Plans and
Specifications (subject only to minor punch list items to be mutually agreed to
and identified by Tenant and Landlord during a joint inspection of the Demised
Premises prior to substantial completion, the completion of which will not
materially affect Tenant's use and occupancy of the Demised Premises), (ii)
Landlord shall have obtained all necessary governmental approvals and
inspections, that all systems are fully operational, and that sufficient
utilities are available to service the Demised Premises and are connected to
mains and all meters are set and activated, and (iii) a licensed architect or
engineer in good standing in the locality where the Demised Premises are located
shall certify in writing to Tenant pursuant to and in accordance with form
AIA-G704 as to those same matters in (i) and (ii) immediately preceding. At such
time as the last of the foregoing requirements shall have been satisfied,
Landlord shall deliver possession of the Demised Premises to Tenant. The date
upon which the Demised Premises are substantially complete is herein called the
"Completion Date". All punch list items shall be completed by Landlord within
thirty (30) days of the Completion Date, provided, however, if such punchlist
items cannot be completed within such thirty (30) day period, Landlord shall not
be in default hereunder if Landlord commences to complete such punchlist items
within such thirty (30) day period and diligently pursues it to completion.

In the event the Demised Premises shall not be substantially completed
and ready for Tenant's occupancy on or before September 15, 1995, Tenant shall
receive a per diem abatement of Rent equal to four (4) days for each one (1) day
of delay that the Demised Premises are not substantially completed.

Landlord hereby warrants for a period of one (1) year from the
Completion Date, the Demised Premises against defects in materials and
workmanship, routine maintenance and ordinary wear and tear excepted. Upon final
completion of the Demised Premises, Landlord shall deliver to Tenant copies of
all warranties and guarantees relating to the Demised Premises and any and all
systems contained therein. Such warranties and guarantees shall include those
relating to the roof, dock levelers and the heating, ventilating and air
conditioning compressor(s). To the extent permitted by such warranties and
guarantees, Landlord shall assign the same to Tenant. To the extent not so
permitted, Landlord shall afford to Tenant the benefit of and right to enforce
the same in Landlord's name.

ARTICLE III.

TERM OF LEASE
-------------

Section 3.01. Demised Term. The "Initial Term" of this Lease and
------------ ------------
Tenant's obligation to pay Rent (as hereinafter defined) shall commence on the
Completion Date and shall end fifteen (15) years following the first day of the
first Lease Year (as hereinafter defined).

Landlord and Tenant may enforce and Landlord and Tenant agree to be
bound by the terms and conditions of this Lease from the date of execution
hereof. Within thirty (30) days

- 4 -
<PAGE>

of the Completion Date the parties shall sign Exhibit D attached hereto setting
---------
forth the exact agreed Completion Date.

Section 3.02. Lease Year. Each "Lease Year" shall consist of twelve
------------ ----------
(12) months. The first "Lease Year" shall commence on the first day of the first
calendar month following the Completion Date, unless the Completion Date is on
the first day of a month in which case the first Lease Year shall commence on
such Completion Date. Each subsequent Lease Year shall commence on the
anniversary date of the first day of the first Lease Year.

Section 3.03. Holding Over. In the event Tenant remains in possession
------------ ------------
of the Demised Premises after the expiration of the Initial Term (unless an
option to extend has been exercised in accordance with Section 3.04) and without
the execution of a new lease, it shall be deemed to be occupying the Demised
Premises as a tenant from month to month, subject to all conditions, provisions
and obligations of this Lease insofar as the same are applicable to a month to
month tenancy, with the exception of the Minimum Base Rent (as hereinafter
defined) which shall be one and one-quarter (1 1/4) times the Minimum Base Rent
(on a monthly basis) of the last preceding year for the first month and one and
one-half (1 1/2) times the Minimum Base Rent (on a monthly basis) for each month
thereafter. However, this provision only establishes Landlord's liquidated
damages for any such holdover and this provision does not give the Tenant the
right to so continue and Landlord may file an action for possession (but not
damages) of the Demised Premises.

Section 3.04. Option to Extend the Term. Landlord grants to Tenant
------- ---- -------------------------
options to renew this Lease for six (6) separate but consecutive five (5) year
terms. In order to exercise any such option the Tenant must be in full
compliance with the terms of the Lease and must notify Landlord in writing at
least one hundred eighty (180) days prior to the expiration of the then current
term. The rates for the option periods are set forth on Schedule I attached
----------
hereto and made a part hereof. Tenant shall pay full Additional Rent (as
described in Section 4.02) during any extension period. The Initial Term and any
extended term may be referred to herein as the "Demised Term".

ARTICLE IV.

RENTAL
------

Section 4.01. Minimum Base Rent. Commencing on the Completion Date,
------------ -----------------
Tenant shall pay to Landlord throughout the Initial Term an annual rental (the
"Minimum Base Rent") at the rate set forth in Schedule I attached hereto and
----------
made a part hereof.

Minimum Base Rent shall be paid monthly in advance in an amount equal
to one-twelfth (1/12) of the annual Minimum Base Rent. In the event the Initial
Term shall commence on a date other than the first day of a calendar month,
Tenant shall within five (5) days of the Completion Date pay Minimum Base Rent
from the Completion Date to the end of the calendar

- 5 -
<PAGE>

month in which the Completion Date occurs on a prorated basis. Thereafter,
Minimum Base Rent shall be paid in advance on or before the first day of each
calendar month.

Section 4.02. Additional Rent. During the Lease, the Tenant shall pay
------------ ---------------
Landlord, as "Additional Rent", the cost paid by Landlord pursuant to a service
contract which provides upkeep and maintenance of the Building, parking area,
driveways, lawns and landscaping on the Demised Premises. Tenant shall have the
right and opportunity to review and approve such service contract and the party
providing such service, which approvals may be granted or withheld in Tenant's
sole and absolute discretion. To the extent such service contract covers
property and facilities in addition to the Building and Demised Premises, such
costs thereunder shall be equitably pro-rated. No markup or fee shall be charged
by Landlord in connection with such service contract. Landlord shall obtain at
least three (3) bids for such service contract. In the event the lowest bidder
is an entity or individual related or affiliated with Landlord, Tenant shall
have the right to consent to such service contract, which consent may be granted
or withheld in Tenant's sole and absolute discretion. In the event any such
service contract is terminated or expires, Landlord shall immediately replace
such service contract with a company and agreement approved by Tenant, and
during any lapse of the service contract, Landlord shall provide the required
services at a cost not to exceed that of the terminated, or expired contract.
Such amounts shall be paid on a monthly basis within fifteen (15) days of
receipt of an invoice therefor from Landlord. Minimum Base Rent and Additional
Rent under this Section 4.02 are sometimes referred to herein together as
"Rent". The service contract described in this Section 4.02 may be referred to
hereinafter as the "Service Contract".

Section 4.03. Payments. Minimum Base Rent and Additional Rent payments
------------ --------
are to be made payable to Landlord and mailed to Landlord, c/o William Hardacre,
3718 Timberview, Anderson, Indiana 46011, unless or otherwise as designated by
Landlord from time to time in a written instrument signed by Landlord delivered
to Tenant.

Section 4.04. Past Due Payments. If (i) any monthly installment of
------------ -----------------
Minimum Base Rent remains unpaid five (5) business days after the date due, or
(ii) if any other payment required under this Lease is overdue and thereafter
not paid within ten (10) days of written notice from Landlord, and in the event
of either (i) or (ii), a service charge equal to Fifty Dollars ($50.00) plus One
Percent (1%) of the amount overdue may be charged by Landlord for each calendar
month during which it is late for the purpose of defraying the additional
expenses incident to the handling of such overdue amount. Remedies of Landlord
herein are in addition to and not to limit other rights of Landlord for default
by Tenant set forth in Article XV below.

ARTICLE V.

OCCUPANCY AND USE OF DEMISED PREMISES
-------------------------------------

Section 5.01. Occupancy and Type of Use. The Demised Premises may be
------------ -------------------------
used and occupied by Tenant for offices, laboratories, manufacturing, testing,
warehousing and storage, related operations or services, and for no other use
except upon written consent of Landlord.

- 6 -
<PAGE>

Section 5.02. Lawful Use and No Waste. Annoyance or Nuisance. Tenant
------------ ----------------------------------------------
(i) shall not use the Demised Premises for an unlawful purpose or act; (ii)
shall not commit waste or damage to the Demised Premises except normal wear and
tear; (iii) shall comply with and obey all laws, regulations, or orders of any
governmental authority or agency having jurisdiction over the Demised Premises;
(iv) shall comply with the Declaration of Development Standards attached as
Exhibit E hereto (Landlord shall not consent to the modification or amendment of
- ---------
the Declaration of Development Standards without Tenant's prior written
consent), and (v) subject to the actions taken pursuant to the Service Contract,
shall comply with the following:

(a) No aerial, loudspeaker, antennae, sign, or other
projection, or sound amplifier shall be erected on the roof or
exterior walls of the Demised Premises, or on other areas of the
Building without the prior written consent of Landlord. Tenant shall
be permitted to place a satellite receiving dish in a location
designated by Landlord on the ground, and if the same is not
available, on the roof of the Building.

(b) No loudspeakers, television, phonographs, jukeboxes,
radios or other devices shall be used in a manner so as to be heard
other than by persons who are within the Demised Premises, without the
prior written consent of Landlord.

(c) Tenant shall keep the Demised Premises at a temperature
sufficiently high to prevent freezing of water in pipes and fixtures.

(d) Tenant shall not place or permit its employees to place
any obstructions or merchandise outside of the Demised Premises.

(e) The plumbing facilities in the Demised Premises shall not
be used for any purpose other than that for which they are
constructed, and no foreign substance of any kind shall be thrown
therein, and the expense of any breakage, stoppage, or damage
resulting from a violation of this provisions by Tenant or Tenant's
employees shall be borne by Tenant.

(f) Tenant shall comply with the terms of any state or
federal statute or local ordinance or regulation applicable to Tenant
or its use of the Demised Premises, promptly pay all taxes assessed
against it or its property, and save the Landlord harmless from
penalties, fines, costs, expenses or damage resulting from its failure
to do so.

(g) Tenant shall give to Landlord prompt written notice of
any accident, fire or any damage occurring on or to the Demised
Premises.

(h) Tenant shall not do anything within the Demised Premises
which would cause the fire insurance or any other insurance now in
force or hereafter placed on the Demised Premises or any part thereof,
or on the Building, to become void or suspended.

- 7 -
<PAGE>

ARTICLE VI.

ASSIGNMENT AND SUBLETTING
-------------------------

Section 6.01. Assignment and Subletting. Tenant shall not assign or
------------ -------------------------
mortgage or transfer this Lease without the prior written consent of Landlord,
which consent shall not be unreasonably withheld, conditioned or delayed,
provided, however, the following actions may be taken without the consent of
Landlord:

(a) Tenant may assign this Lease as part of the sale or other
conveyance of all or substantially all of Tenant's assets, provided
such assignee or successor at that time is no less credit worthy than
Tenant is as of the date of this Lease;

(b) Tenant may assign or sublet this Lease to an Affiliate or
corporate successor by merger or otherwise (as defined below);

(d) Tenant may mortgage its leasehold estate created by this
Lease.

As set forth above in (a) through (d), Tenant shall have the right to assign,
sublease or mortgage all or any portion of the Demised Premises without
Landlord's prior written consent, provided that Tenant is not in default under
this Lease (beyond any applicable cure period) and provided further that, in
cases of (a) and (b) above, the assignee or sublessee executes and delivers to
Landlord prior to the commencement of such assignment or sublease a document
under which the assignee or sublessee assumes all of the obligations of Tenant
under this Lease with respect to the portion of the Lease assigned or the
portion of the Demised Premises subleased and agrees to be bound by the terms
and conditions of this Lease with respect to the portion of this Lease assigned
or the portion of the Demised Premises subleased. Upon such assumption, Tenant
shall be released of all liability hereunder. For the purposes of this
subparagraph, "Affiliate" shall mean any person or entity controlling,
controlled by or under common control with, Tenant. "Control," as used herein,
shall mean the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of such controlled person or
entity; the ownership, directly or indirectly, of at least fifty-one percent
(51%) of the voting securities of, or possession of the right to vote in, the
ordinary direction of its affairs, at least fifty-one percent (51%) of the
voting interest in, any person or entity shall be presumed to constitute such
control.

Section 6.02. Expense. Tenant shall reimburse Landlord for the
------------ -------
reasonable time and expense incurred by Landlord, not to exceed the sum of Two
Hundred Fifty and No/100 Dollars ($250.00), in processing any request of Tenant
for approval by Landlord of an assignment or subletting pursuant to this Lease.

- 8 -
<PAGE>

Section 6.03. Non-Release. Except as provided in Section 6.01, no
------------ -----------
assignment or transfer or mortgage or subletting by Tenant shall relieve Tenant
of the obligations of Tenant under this Lease.

ARTICLE VII.

UTILITY SERVICES
----------------

Section 7.01. Payment. Landlord will provide and maintain (unless
------------ -------
maintained by the applicable utility company) the necessary mains, conduits and
meters to furnish water, gas, telephone, electricity and sewer service to the
Demised Premises, with each utility service separately metered. Landlord shall
be responsible for maintenance of all utility service lines from the Demised
Premises to the connection to mains, lines or conduits maintained by a public
utility company. Tenant shall pay all charges for utility products and services
used on the Demised Premises from the Completion Date until the expiration or
termination of the Demised Term. Landlord shall pay for any tap-in, connection
and/or related fees connected with providing the foregoing utility services.

Section 7.02. Suspension of Services. In the event of an interruption
------------ ----------------------
of heating, elevator service, plumbing, electrical, air-conditioning or other
mechanical systems serving the Demised Premises, or in the event unusually heavy
snows prevent access to the Demised Premises, or in the event access to or use
of the Demised Premises is prevented by governmental regulations, civil
commotion or riot or other civil emergency, or if Tenant is otherwise prevented
from using the Demised Premises for its intended purpose, Landlord shall use all
reasonable diligence to restore any such failure or defect as promptly as
possible, but Landlord shall not otherwise be liable to Tenant for any such
failure or defect unless caused by Landlord; and, except as set forth in this
Lease to the contrary, such event shall not be construed as an eviction of
Tenant. In addition, Landlord shall not in any way be liable or responsible to
Tenant for any loss or damage or expense which Tenant may sustain or incur if,
during such period of time, the furnishing of utilities is interrupted or
required to be terminated so that necessary repairs or improvements may be
completed. Notwithstanding the foregoing, in the event of any such interruption
which prevents Tenant from using substantially all of the Demised Premises for
more than three (3) days, Tenant shall have the right to abate all payments of
Rent due under this Lease until such time as the defect is cured and Tenant
again has the full use of the Demised Premises for its intended purpose. In
addition, if Landlord does not use reasonable diligence to restore such failure
or defect, and such failure or defect continues for more than ninety (90) days,
or if such failure or defect cannot be cured within ninety (90) days of its
inception, then Tenant shall have the further option to terminate this Lease by
written notice to Landlord.

January 26, 1995 (Live Engine/Cold Room)

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<PAGE>

ARTICLE VIII.

REPAIRS AND MAINTENANCE
-----------------------

Section 8.01. Landlord's Obligation. Pursuant to Section 4.02,
------------ ---------------------
Landlord shall provide normal and customary maintenance and upkeep of the
Demised Premises and Building pursuant to a Service Contract. In addition to
those items covered under the Service Contract (a listing of which is set forth
on Exhibit F attached hereto), Landlord shall (i) keep the foundation, exterior
---------
walls, roof, gutters and downspouts, heating and air conditioning and all other
equipment relating to the Demised Premises in good condition and repair and make
such modifications or replacements thereof as may be necessary or required by
law or ordinance, and (ii) keep the parking area surface in good condition and
repair. Landlord shall obtain at least (3) bids for such work. In the event the
lowest bidder is an entity or individual related or affiliated with Landlord,
Tenant shall have the right to consent to such party, which consent may be
granted or withheld in Tenant's sole and absolute discretion. Tenant shall
reimburse Landlord as "Additional Rent" any cost of the above work, except as
provided in Section 16.14. Any such costs shall be the cost charged to Landlord,
and shall not include any mark-up or fee by Landlord. Said amounts shall not be
due by Tenant until Tenant has received acceptable documentation from Landlord
supporting the costs (both amount and necessity) incurred by Landlord. Landlord
reserves and at all times shall have the right to re-enter the Demised Premises
in any emergency, and also during regular business hours to inspect the same,
and to repair the Demised Premises. If the situation is not an emergency,
Landlord will make a good faith effort to notify the Tenant before entering the
Demised Premises. During any repairs or entering of the Demised Premises by
Landlord, efforts will be made to not interfere with Tenant's business or to
keep such interference to a minimum. If such work will interfere with Tenant's
business, Landlord will make a good faith effort to have the work done after
regular business hours. If repairs are going to take more than three (3) days,
and if they will have a material adverse effect upon Tenant's use of the Demised
Premises for its intended purpose, and if the need for the repairs was not
caused by Tenant, then Minimum Base Rent shall abate pro rata consistent with
the portion of the Demised Premises which cannot be used by Tenant.

Section 8.02. Tenant's Obligation. Tenant shall have no obligation
------------ -------------------
with regard to maintenance and repair, except for the payment of the costs
thereof, as provided in Section 8.01.

Section 8.03. Remodeling. Tenant shall have the right at its expense
------------ ----------
to remodel, make additions and make alterations in the Demised Premises without
the prior written consent of Landlord, provided Tenant shall not alter the roof,
outside walls or structural matters without the prior written consent of
Landlord. Tenant shall have the right, at Tenant's cost, to install any trade
fixtures, partitions, equipment or other changes that it may find necessary to
the conduct of Tenant's business. All such work as described in this Section
8.03 shall be performed by or on behalf of Landlord, at Tenant's sole cost.
Landlord shall not charge any mark-up or fee for its services. Tenant shall have
the right to approve all costs to be charged by Landlord in connection with such
work. Tenant shall supply plans and specifications for such work to Landlord,
who shall have the right to approve such plans and specifications, which

January 26, 1995 (Live Engine/Cold Room)

- 10 -
<PAGE>

approval shall not be unreasonably withheld. In the event Landlord fails to
timely commence such work or timely approve the plans and specifications, or if
the costs proposed by Landlord are unacceptable to Tenant, Tenant may perform,
or have performed, such work. All such alterations, changes, partitions and
installations of trade fixtures and equipment shall be at the cost of Tenant,
and Tenant hereby agrees to indemnify and save harmless Landlord from any and
all costs or expenses, including reasonable attorneys' fees, that Landlord may
incur by reason of any claim for labor performed or material furnished that may
arise by reason of the installation of any fixtures or equipment or the
installation of partitions by Tenant as herein provided or alterations or
remodeling or any work of any kind. Any and all trade fixtures and equipment
installed by or on behalf of Tenant may be removed by it at the termination of
this Lease, provided that Tenant shall not be in default in the performance of
any of Tenant's obligations hereunder, and provided that Tenant shall repair any
and all damage caused to the Demised Premises by the removal of any such trade
fixtures and equipment, other than normal wear and tear. Trade fixtures or other
property of Tenant not removed within fifteen (15) days after termination of the
Lease shall become the property of the Landlord.

Section 8.04. No Lien Clause. No person shall ever be entitled to any
------------ --------------
lien, directly or indirectly, derived through or under Tenant, or through or
under any act or omission of Tenant, upon the Demised Premises, or any
improvements now or hereafter situated thereon, for or on account of any labor
or materials furnished to the Demised Premises, or for or on account of any
matter or thing whatsoever; and nothing in this Lease contained shall be
construed to constitute a consent by Landlord to creation of any lien. In the
event that any such lien shall be filed against the Demised Premises, Tenant
shall cause such lien to be released within ten (10) days after actual notice of
the filing thereof, or shall within such time certify to Landlord that Tenant
has a valid defense to such claim and such lien and furnish to Landlord a bond,
satisfactory to Landlord, indemnifying Landlord against the foreclosure of such
lien or take such other action as will stop the ability of the claimant to
foreclose such lien during the pending of such action. In addition to any other
remedy herein granted, upon failure of Tenant to discharge such lien or to post
a bond indemnifying Landlord against foreclosure of any such lien as above
provided or take such other action as described above, Landlord, after notice to
Tenant, may discharge such lien, and all expenditures and costs incurred
thereby, with interest thereon, shall be payable as further rental hereunder at
the next rental payment date. Notwithstanding the foregoing, Tenant may mortgage
its leasehold estate.

ARTICLE IX.

INSURANCE AND INDEMNIFICATION AND WAIVER OF CLAIMS
--------------------------------------------------

Section 9.01. Tenant's Insurance. Tenant shall purchase and maintain
------------ ------------------
in force at all times during the term of this Lease (i) all risk property damage
insurance in full replacement value, including fire, extended coverage,
vandalism and malicious mischief upon the Building, and (ii) comprehensive
general liability insurance, including personal injury and property damage, with
contractual liability endorsement, in the amount of One Million Dollars
($1,000,000.00) for each occurrence and One Million Dollars ($1,000,000.00)
aggregate per

January 26, 1995 (Live Engine/Cold Room)

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<PAGE>

occurrence for personal injuries or death of persons occurring in or about the
Demised Premises. Additionally, Tenant shall carry either under its master
policy or under an umbrella policy, additional liability coverage of at least
Five Million Dollars ($5,000,000.00). Said policies shall: (i) name Landlord as
an additional insured, (ii) be issued by an insurance company which is
authorized to do business in the State of Indiana, and (iii) provide that said
insurance shall not be canceled unless thirty (30) days' prior written notice
shall have been given to Landlord. Certificates of insurance shall be delivered
to Landlord by Tenant upon the commencement of the Initial Term and upon each
renewal of said insurance prior to the expiration of the previous policies.

Section 9.02. Insurance to be Furnished by Landlord. Landlord shall carry
------------ -------------------------------------
comprehensive public liability and property damage insurance with base limits of
liability of not less than One Million Dollars ($1,000,000.00) with additional
umbrella coverage of at least Five Million Dollars ($5,000,000.00), naming
Tenant as an additional insured. All required policies shall be underwritten by
insurers who have a general policyholders rating of not less than A- and a
financial rating of Class X as stated in most current available Best Insurance
Reports, who are authorized to do business in the State of Indiana under the
surplus lines law and who are authorized to issue policies. Landlord shall
deliver to Tenant certificates of insurance prior to the Completion Date and
renewal certificates prior to the expiration of the previous policies. All
policies carried by Landlord shall contain an undertaking by the insurers to
notify Tenant in writing not less than thirty (30) days prior to any
cancellation or termination. Landlord's liability policy shall contain a
provision stating that the policy shall apply to each insured in the same manner
and to the same extent as if separate policies had been issued to each, except
with respect to the limits of liability. Landlord shall not be required to
insure any property owned by Tenant and located within the Demised Premises.

Section 9.03. Mutual Indemnifications. Except as otherwise expressly
------------ -----------------------
provided in this Lease to the contrary, Landlord shall not be liable to Tenant,
its agents or employees, for any damage to persons or property caused by an act,
omission or neglect of Tenant, and Tenant agrees to indemnify and hold Landlord
harmless from all liability and claims for any such damage. Except as otherwise
expressly provided in this Lease to the contrary, Tenant shall not be liable to
Landlord, its agents and employees, for any damage to persons or property caused
by any act, omission or neglect of Landlord, and Landlord agrees to indemnify
and hold Tenant harmless from all claims for such damage.

Section 9.04. Waiver of Subrogation. Each of Landlord and Tenant hereby
------------ ---------------------
release the other from any and all liability or responsibility to the other or
to anyone claiming through or under them by way of subrogation or otherwise for
any loss or damage to property caused by fire or any other perils insured in
policies of insurance covering such property or required to be carried pursuant
to this Lease, even if such loss or damage shall have been caused by fault or
negligence of the other party, or anyone for whom such party may be responsible,
except to the extent of the deductible amount under such policy.

January 26, 1995 (Live Engine/Cold Room)

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<PAGE>

ARTICLE X.

DAMAGE TO DEMISED PREMISES
--------------------------

Section 10.01. Damage to Demised Premises. If the Building or the Demised
------------- --------------------------
Premises are rendered partially or wholly untenantable by fire or other
casualty, Landlord shall promptly, using the insurance proceeds as provided
below, cause such damage to be repaired and all Minimum Base Rent payable
hereunder shall abate proportionately as to the portion of the Demised Premises
rendered untenantable until the completion of such repairs. If the Building or
the Demised Premises are damaged such that they cannot be repaired or rebuilt
within one hundred eighty (180) days from the date of such damage, then either
Landlord or Tenant may terminate this Lease. In the event either Landlord or
Tenant exercises this election to terminate, they must do so within thirty (30)
days of the date of such damage. In the event this Lease is not terminated, then
Landlord shall commence such repairs within thirty (30) days of the expiration
of the above thirty (30) days and complete the same as soon as possible,
considering extent of repairs and weather. In the event any such repairs have
not been completed within one hundred eighty (180) days of such damage, Tenant
may terminate this Lease. Any insurance which may be carried by Landlord or
Tenant against loss or damage to the Building or the Demised Premises shall be
pro-rated based upon the respective values of (i) the Building and any other
improvements, alterations or additions paid for by Landlord, and (ii) any
improvements, alterations or additions paid for by Tenant; provided, however, if
Landlord rebuilds or repairs the Demised Premises, Landlord shall be entitled to
use all, or the amounts needed, of the insurance proceeds for the costs of such
rebuilding or repairing. If the insurance proceeds are not sufficient, any
additional amounts required shall be paid by Landlord. If the Lease is
terminated, all casualty insurance proceeds pertaining to the Building shall be
payable to Landlord.

ARTICLE XI.

EMINENT DOMAIN
--------------

Section 11.01. Condemnation of Demised Premises. If any substantial
------------- --------------------------------
part of the Building or Demised Premises should be taken or acquired by any
public or quasi-public authority under the power or threat of eminent domain, or
by private purchase in lieu thereof, this Lease shall terminate upon election of
either party on the earlier to occur of (i) the date title vests in the taking
authority, or (ii) the date Tenant vacates the Demised Premises as a result of
such taking, as if the date of such taking were the date originally fixed in
this Lease for the expiration of the term of this Lease. Such election to
terminate shall be made within thirty (30) days of the date of the taking.

In the event of a partial condemnation not resulting in a termination of
this Lease as above provided, than all Rent payable under this Lease for the
unexpired portion of the term of this Lease shall be reduced to the extent, if
any, as may be fair and reasonable under all the circumstances and Landlord
shall undertake, at its sole cost and expense, to restore the Building

January 26, 1995 (Live Engine/Cold Room)

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<PAGE>

and the Demised Premises to a condition suitable for Tenant's use, as near to
the condition thereof immediately prior to such taking as is reasonably feasible
under the circumstances.

Section 11.02. Condemnation Award. All compensation awarded or paid for any
------------- ------------------
taking of the building or land or improvements thereon or damage to the same
shall be the sole property of Landlord, and any compensation for Tenant's loss
of its trade fixtures, furniture, leasehold improvements, relocation costs, loss
of business and/or business interruption or the value of the leasehold estate
shall be the sole property of Tenant.

ARTICLE XII.

SIGNS
-----

Section 12.01. Consent as to Signs. All signs, lettering, advertising,
------------- -------------------
decoration, lighting or any other thing of any kind located on the exterior of
the Demised Premises and installed by Tenant shall be first approved in writing
by Landlord and the location and method of installation of same shall be as
designated or approved by Landlord in its sole discretion and shall comply with
the Declaration of Development Standards referred to in Exhibit E hereof. Plans
---------
showing the dimensions and type of sign, lettering, colors, mounting brackets,
advertising, decoration, lighting or any other thing of any kind together with
the proposed location thereof shall be submitted to Landlord within thirty (30)
days following the execution of this Lease, and after installation shall be
maintained in good condition and repair at all times by Tenant. Landlord shall
provide at its expense exterior directional signs to the Building. Tenant may
place signage within the Demised Premises without Landlord's approval.

ARTICLE XIII.

TAXES
-----

Section 13.01. Real Estate Taxes and Assessments and Payment by Tenant.
------------- -------------------------------------------------------
Tenant shall pay directly, prior to delinquency, all real estate taxes promptly
upon receipt of the original tax bills for same from Landlord and shall furnish
Landlord with evidence of such payment at least ten (10) days prior to the date
such payment become delinquent. Landlord shall provide such tax bills to Tenant
immediately upon receipt thereof and Tenant shall not be liable for late
payments or penalties resulting from Landlord's failure to provide such receipts
on a timely basis. Tenant shall have the right to contest in good faith the real
estate taxes to be paid hereunder; provided, however, such contest shall not
relieve the Tenant of the responsibility to pay such real estate taxes during
such contest action and Tenant shall be prohibited from allowing a tax lien or
tax foreclosure action to be imposed on the Demised Premises.

January 26, 1995 (Live Engine/Cold Room)

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<PAGE>

ARTICLE XIV.

INSOLVENCY
----------

Section 14.01. Insolvency. The appointment of a receiver to take
------------- ----------
possession of all or substantially all of the assets of Tenant, or an assignment
by Tenant or any of the persons constituting Tenant for the benefit of creditors
or any action taken or suffered by Tenant or any of the persons constituting
Tenant under any insolvency, or reorganization act, shall constitute a breach of
this Lease by Tenant. In no event shall this Lease be assigned or assignable by
operation of law or otherwise (except as provided in Article VI hereof) and in
no event shall this Lease or any rights or privileges hereunder be an asset of
Tenant or any of the persons constituting Tenant under any insolvency or
reorganization proceedings. This shall not apply in the event of bankruptcy of
Tenant.

ARTICLE XV.

DEFAULT
-------

Section 15.01. Rights on Tenant's Default. In the event of any default
------------- --------------------------
by Tenant:

(i) in the payment when due of any Rent provided in Article IV
of this Lease, following five (5) business days written notice to
Tenant specifying the amount that is past due and in default, or

(ii) any other default by Tenant in its obligations under this
Lease which shall continue after thirty (30) business days written
notice by Landlord to Tenant, unless Tenant has commenced within such
thirty (30) business day period and is proceeding with corrective
actions,

then, in addition to any other rights or remedies Landlord may have by law or
otherwise, Landlord shall have the immediate right of re-entry and may remove
all persons and property from the Demised Premises. Tenant's property may be
removed and stored at the cost of and for the account of Tenant. Should Landlord
elect to re-enter as herein provided, or should Landlord take possession
pursuant to legal proceedings or pursuant to any notice provided for by law,
Landlord may terminate Tenant's rights under this Lease, relet the Demised
Premises or any part thereof for such term or terms (which may be for a term
extending beyond the Demised Term) and at such rental or rentals and upon such
other terms and conditions as Landlord in the exercise of Landlord's discretion
may deem advisable, with the right to make alterations and repairs to the
Demised Premises. Upon each such reletting (a) Tenant immediately shall be
liable for payment to Landlord of any indebtedness of Tenant past due and owing
hereunder, the cost and expense of such reletting (including but not limited to
leasing commissions payable by Landlord, or its affiliates, or to independent
brokers for the unexpired portion of the term so this Lease) and the repairs
incurred by Landlord which were the responsibility of Tenant under the Lease and
occurred prior to Landlord re-entering the Demised

January 26, 1995 (Live Engine/Cold Room)

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<PAGE>

Premises, and the amount, if any, by which the Minimum Base Rent reserved in
this Lease for the period of such reletting (up through the Initial Term)
exceeds the amount actually received by Landlord as rental, including any costs
actually paid by the new tenant for the Demised Premises for such period of such
reletting; or (b) at the option of Landlord, rentals received by Landlord from
such reletting shall be applied first, to the payment of any indebtedness of
Tenant other than Rent due hereunder; second, to the payment of any cost and
expense of such reletting and of such repairs, third, to the payment of Rent due
and unpaid hereunder; and the residue, if any, shall be held by Landlord and
applied in payment of future Rent as the same may, become due and payable
hereunder. Should Landlord at any time terminate Tenant's right under this Lease
for any default, in addition to any other remedy Landlord may have, Landlord may
recover from Tenant all damages Landlord may incur by reason of such default,
including the cost of recovering the Demised Premises, any and all reasonable
attorneys' fees and court costs relating thereto, all of which amounts shall be
immediately due and payable from Tenant to Landlord and without relief from
valuation or appraisement laws. Landlord shall make a reasonable effort to relet
the Demised Premises to suitable tenant or tenants at prevailing market rates
and terms and the net amount realized by Landlord therefrom shall mitigate and
reduce the Tenant's damages hereunder. In addition to the above, Landlord shall
have all other rights and remedies available at law or equity for a default by
Tenant. Upon any default hereunder by Tenant, Landlord shall be entitled to
recover reasonable attorneys' fees incurred by Landlord in pursuing such default
against Tenant.

Section 15.02. Default of Landlord. Landlord shall in no event be charged
------------- -------------------
with default in the performance of its obligations under this Lease unless and
until Landlord shall have received written notice from Tenant specifying wherein
Landlord has failed to perform any obligation hereunder, and Landlord shall have
failed to perform such obligation, or remedy such default, within ten (10) days
(or such additional time as is reasonably required to correct any such default,
provided Landlord has commenced such cure within such ten (10) day period and
diligently pursues the same until completion) after written notice from Tenant.

Section 15.03. Status of Landlord - Tenant.
------------- ---------------------------

(a) Notwithstanding any other provision of this Lease, Tenant agrees
that no officer, director, agent, partner or employee of Landlord or of any
subsequent owners of Townsend Estates shall be responsible or liable for
the performance or non-performance of any agreement, covenant, or
obligation of Landlord in this Lease in his or her individual or personal
capacity, and Tenant agrees to look solely to Landlord and its interest in
the Demised Premises and Townsend Estates as the sole asset for the payment
and satisfaction of all obligations and liabilities of Landlord or any
subsequent owners of the Demised Premises.

(b) Notwithstanding any other provision of this Lease, Landlord agrees
that no officer, director, agent, partner or employee of Tenant or of any
subsequent assignee or subtenant shall be responsible or liable for the
performance or non-performance of any agreement, covenant, or obligation of
Tenant in this Lease in his or her individual or

January 26, 1995 (Live Engine/Cold Room)

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<PAGE>

personal capacity, and Landlord agrees to look solely to Tenant and its
interest in the Demised Premises as the sole asset for the payment and
satisfaction of all obligations and liabilities of Tenant.

Section 15.04. Advances. In the event of any default hereunder by either
------------- --------
party, the other party, after thirty (30) days' written notice to the defaulting
party, may cure such default for the account and at the expense of the
defaulting party. Any reasonable expense incurred by either party in curing such
a default for the account of the other party shall be reimbursed by the
defaulting party on the first day of the month following the payment of such
expense, with interest at the rate of fifteen percent (15%) per annum, or at a
rate that is five hundred (500) basis points over the Prime Interest Rate quoted
from time to time in the Money Rates column in The Wall Street Journal,
-----------------------
whichever is higher, commencing thirty (30) days after the date of such advance
until paid in full. In the event that Landlord fails to reimburse Tenant for any
such expenditure on the first day of the month as provided herein, Tenant may
deduct such amounts from the next Rent payment or payments thereafter due.

Section 15.05. Emergency Repairs. In the event of the necessity of repairs
------------- -----------------
to the Demised Premises which are the obligation of Landlord which must be made
immediately in order to preserve the tenantable condition of the Demised
Premises or to avoid a threat of imminent injury to persons or damage to
property and Tenant is unable to immediately contact Landlord, or Landlord,
having been contacted, fails to make immediate repairs, Tenant may cause such
repairs as may be necessary to preserve or restore tenantable condition or avoid
the potential injury or damage to be made for the account and at the expense of
Landlord. In such event, Tenant shall be entitled to reimbursement or Rent
credit in the same manner as provided in the preceding Section.

ARTICLE XVI.

MISCELLANEOUS

Section 16.01. Waivers. No waiver of any condition or covenant in this
------------- -------
Lease by either party shall be deemed to imply or constitute a further waiver of
the same or any other condition or covenant of this Lease.

Section 16.02. Remedies Cumulative. The remedies of Landlord and Tenant
------------- -------------------
shall be cumulative as to each, and no one of them shall be construed as
exclusive of any other or of any remedy provided by law.

Section 16.03. Subordination. At the option of Landlord, this Lease shall
------------- -------------
be subject, subordinate and inferior to any mortgage that may be placed on the
Demised Premises. Tenant shall, upon demand, execute any instrument reasonably
necessary to effect the foregoing provision. As a condition precedent to the
effectiveness of the foregoing provisions, however, Landlord shall procure from
the mortgagee under any such mortgage and deliver to Tenant an agreement
providing, in substance, that so long as Tenant shall discharge the obligations
on its

January 26, 1995 (Live Engine/Cold Room)

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<PAGE>

part to be kept and performed under the terms of this Lease, its tenancy will
not be disturbed, or its rights hereunder affected by any default under any such
mortgage, and in the event of the foreclosure or any other enforcement of any
such mortgage, the rights of Tenant hereunder shall expressly survive and this
Lease shall continue in full force and effect; provided, however, Tenant shall
agree to attorn to any mortgagee or purchaser at a foreclosure sale or deed in
lieu thereof.

Section 16.04. Notices and Certificates. All notices required under this
------------- ------------------------
Lease shall be deemed to be properly served if sent by registered or certified
mail with return receipt requested, to Landlord and Tenant at the address as
specified on the first page of this Lease, or to such other addresses which
Landlord or Tenant may designate in writing delivered to the other party for
such purpose. Date of service of a notice served by mail shall be the date on
which such notice is deposited in a post office of the United States Postal
Service. If Tenant is provided with the name and address of any mortgagee of the
Demised Premises, Tenant shall send to such mortgagee a copy of the notice of
default or demand for performance served on Landlord and shall permit such
mortgagee to cure such default or otherwise perform Landlord's obligations
within thirty (30) days after receipt of such written notice by such mortgagee.
Tenant and Landlord agree that, upon request of the other, it will execute a
certificate with respect to the status of this Lease setting forth that it is in
full force and effect and has not been altered, modified or amended (or
specifying the nature of same); that there are no defaults of the other party
known to the party so certifying (or specifying the nature of any known
details); and stating the date to which rental has been paid.

Section 16.05. Relationship of Parties. Nothing contained herein shall be
------------- -----------------------
deemed or construed by the parties hereto, nor by any third party, as creating
the relationship of principal and agent, or of partnership, or of joint venture,
between the parties hereto.

Section 16.06. Construction. Whenever a word appears herein in its singular
------------- ------------
form, such word shall include the plural; and the neuter gender shall include
the masculine and feminine genders. This Lease shall be construed without
reference of titles or Articles or Sections, which are inserted for reference
only.

Section 16.07. Law of Indiana. This Lease has been executed under and shall
------------- --------------
be governed by the laws of the State of Indiana.

Section 16.08. Costs. Each party agrees that in the event of litigation
------------- -----
between the parties concerning any aspect of this Lease, that the prevailing
party shall be entitled to recover judgment for its costs of litigation,
including, but not limited to, a reasonable fee for its attorneys.

Section 16.09. Lease Memorandum. This Lease shall not be recorded; however,
------------- ----------------
upon request of either party, Landlord and Tenant shall execute and acknowledge
a memorandum or short form lease setting forth the parties, description of the
Demised Premises, the Initial Term, options for extension of the Initial Term,
and any other provisions hereof, the inclusions of

January 26, 1995 (Live Engine/Cold Room)

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<PAGE>

which may be mutually agreed upon by Landlord and Tenant, which memorandum or
short form lease may be recorded by either party or its lenders at any time
after the execution of this Lease.

Section 16.10. Force Majeure. In the event that Landlord or Tenant shall be
------------- -------------
delayed or hindered in or prevented from doing or performing any act or thing
required in this Lease by reason of strikes, lock-outs, casualties, acts of God,
labor troubles, inability to procure materials, failure of power, governmental
laws or regulations, riots, insurrection, war or other causes beyond the
reasonable control of Landlord or Tenant as appropriate, then such party shall
not be liable or responsible for any such delays and the doing of performing of
such act or thing shall be excused for the period of the delay and the period
for the performance of any such act shall be extended for a period equivalent to
the period of such delay. This Section shall not apply to the payment of Rent,
and with respect to the dates of substantial completion of September 1, 1995 and
September 15, 1995 as set forth in Article II, said dates shall not be extended
by more than sixty (60) days.

Section 16.11. Hazardous Materials and Environmental Requirements. Tenant
------------- --------------------------------------------------
shall fully and continuously comply with all material governmental regulations
regarding environmental matters and hazardous, toxic, or otherwise dangerous
materials or chemicals. Tenant agrees that any oil, gasoline, cleaning material,
chemicals, or other material used on or about the Demised Premises will be
properly stored and disposed of in compliance with all material rules and
regulations; and not permitted to enter any drain, storm or sanitary sewer, or
otherwise flow from or escape the Demised Premises, or contaminate the Demised
Premises. Tenant shall be fully responsible for any injury, damage, or other
problem caused by it or by any of the above material used by Tenant and shall
indemnify and save harmless Landlord from the same. The agreement to be fully
responsible and indemnify shall not only continue during the full Demised Term,
but shall survive the termination of the Lease as to those matters which took
place during the Demised Term.

If at any time Landlord or its mortgagee shall request, Tenant shall
furnish evidence satisfactory to them that the Demised Premises and business
conducted thereon are in full compliance with the material requirements of all
governmental units and agencies regarding hazardous materials and environmental
matters.

Section 16.12. Complete Agreement. This Lease contains a complete
------------- ------------------
expression of the agreement between the parties and there are no promises,
representations or inducements except such as are herein provided.

Section 16.13. Successors in Interest. The covenants, agreements, terms,
------------- ----------------------
conditions and warranties of this Lease shall be binding upon and inure to the
benefit of Landlord and Tenant and their respective heirs, executors,
administrators, successors and assigns, and shall create no rights in any other
person except as may be specifically provided for herein.

January 26, 1995 (Live Engine/Cold Room)

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<PAGE>

Section 16.14. Exclusions. Additional Rent is only payable with regard to
------------- ----------
Sections 4.02 and 8.01 hereof. Notwithstanding anything contained in this Lease
to the contrary, the following shall not be included in any calculation of
Additional Rent:

(a) The cost of any improvements, repairs, alterations, additions,
changes, replacements, equipment, tools and other items which under
generally accepted accounting principles are required to be classified as
capital expenditures (whether incurred directly or through a lease or
Service Contract or otherwise).

(b) The depreciation of the Building or the parking areas or any of
the equipment, fixtures, improvements and facilities used in connection
therewith.

(c) The cost of repairs or other work occasioned by any casualty which
is covered by insurance, or should have been covered by insurance pursuant
to the provisions of this Lease.

(d) Costs (limited to penalties, fines and associated legal expenses)
incurred due to violation by Landlord of the terms and conditions of any
lease or rental arrangement.

(e) Any compensation paid to clerks, attendants or other persons and
commercial concessions operated by Landlord.

(f) The cost incurred in connection with correcting defects in
construction of the Building or the adjacent parking facility (except as
conditions resulting from ordinary wear and tear and use shall not be
deemed defects for purposes of this category).

(g) The cost of any repairs occasioned by eminent domain

(h) Costs (limited to penalties, fines and associated general
expenses) incurred to the violation by Landlord of any applicable Federal,
state and/or local governmental laws, codes and similar regulations that
would not have been incurred but for such violation by Landlord.

Section 16.15. Americans with Disabilities Act. Notwithstanding any other
------------- -------------------------------
provision in this Lease to the contrary, both Landlord and Tenant will fully
comply with the current provisions of the Americans with Disabilities Act
("ADA") as follows: Landlord covenants to be solely responsible for (and Tenant
shall have no responsibility for) removal or modification of any portion of the
Building or Demised Premises, the removal of non-structural barriers in the
Building, providing of auxiliary aids and services in the Building and the
modification of policies, practices and procedures applicable to the Building
and Demised Premises in order to avoid discriminating against individuals with
disabilities as required under the ADA, any other requirement of ADA pertaining
to the Building and Demised Premises in general and its use as an office,
laboratory, manufacturing and testing facility (excluding any ADA requirement
due

January 26, 1995 (Live Engine/Cold Room)

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<PAGE>

to Tenant's particular use of the Demised Premises) and the Demised Premises
when delivered to Tenant as of the Completion Date shall be in all things in
compliance with ADA. Tenant shall, at its sole expense, be responsible for
compliance with ADA to the extent an ADA requirement arises due to Tenant's
particular use of the Demised Premises which is different than for an office,
laboratory, manufacturing and testing facility. In the event compliance with ADA
by Tenant will result in costs to Tenant in excess of $10,000, Tenant may
terminate this Lease. Landlord further covenants that in the event a
non-appealable order or judgment by a governmental body or a court with
jurisdiction with respect to ADA regulations is entered that Landlord will
comply with such order or final judgment. Each party agrees to indemnify and
hold harmless the other from any claims and/or causes of action, including
reasonable attorneys fees, resulting from its failure to comply with its above
described obligations with regard to ADA.

Section 16.16. Termination Requirements. At the end of the term of this
------------- ------------------------
Lease or any renewal thereof or other similar termination of this Lease, the
Tenant will peaceably deliver up to Landlord possession of the Demised Premises,
together with all improvements or additions belonging unto Landlord, in the same
condition as received or first installed, ordinary wear and tear, damage by
fire, earthquake, casualty, acts of God, the elements, third parties, or beyond
Tenant's control excepted and repairs and other work which are the
responsibility of Landlord also excepted. Tenant may, upon the termination of
this Lease, remove all movable furniture and equipment belonging to Tenant
including without limitation any raised flooring installed in Tenant's computer
room, any Libert systems, CPU's, halon systems, battery backup systems and
similar equipment installed in connection with Tenant's computer facility,
together with all other items installed by and paid for by Tenant. Tenant shall
repair any damage caused by such removal to the extent such repair is required
to permit the replacement tenant to occupy the Demised Premises. Any property
not so removed by Tenant shall be deemed abandoned by Tenant and title to the
same shall thereupon pass to the Landlord.

Section 16.17. Address of Notices. A copy of any notice delivered to Tenant
------------- ------------------
under this Lease shall be delivered to 2405 Columbus Avenue, Box 7600, Anderson,
Indiana 46018, Attention: Chief Financial Officer.

Section 16.18. Warranties and Representations. Landlord covenants that it
------------- ------------------------------
holds good fee simple title to the Demised Premises and that the same are free
from all liens and encumbrances having any priority over the rights of Tenant
under this Lease other than building and zoning laws and ordinances and current
taxes and assessments that are not delinquent. Landlord represents and warrants
that there are no rules and regulations governing the Demised Premises, and the
Declaration of Development Standards set forth on Exhibit E are the only
---------
restrictions, covenants, encumbrances, or other matters recorded against the
Demised Premises. Landlord further covenants that the applicable building and
zoning laws and ordinances, and the Declaration of Development Standards set
forth on Exhibit E attached hereto, as of the date hereof and the Completion
---------
Date shall permit the Demised Premises to be used for the purposes set forth
herein. Landlord shall furnish Tenant with evidence of Landlord's title prior to
the time possession of the Demised Premises is tendered to Tenant. In the event
that Landlord's

January 26, 1995 (Live Engine/Cold Room)

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<PAGE>

title is subject to any mortgage which would have priority over this Lease, the
obligations of Tenant hereunder shall be conditioned upon such mortgagee
entering into a nondisturbance agreement with Tenant in form and substance
satisfactory to Tenant. Landlord represents and warrants that it has full right
and authority to enter into this Lease and the Tenant, while paying the Rent and
performing its other covenants and agreements herein set forth, shall peacefully
and quietly have, hold and enjoy the Demised Premises for the term set forth in
this Lease. Landlord further represents and warrants to Tenant that the Demised
Premises are free of any Hazardous Materials (as hereinafter defined) and that
there are no underground storage tanks on any part of the Land and Landlord will
indemnify, defend and hold Tenant harmless from and against any and all claims,
demands, liabilities, damages, suits, actions, judgments, fines, penalties,
losses, costs and expenses (including, without limitation, reasonable attorneys'
fees) arising or resulting from, or suffered, sustained or incurred by Tenant as
a direct or indirect result of, the untruth or inaccuracy of any of the
foregoing representations and warranties. The Landlord further agrees to defend,
indemnify and hold Tenant harmless from and against any and all claims, damages,
liabilities, costs, penalties and fines which Tenant may suffer as a result of
environmental pollution caused prior, during or subsequent to Tenant's occupancy
of the Demised Premises or as a result of damage or injury from Hazardous
Materials placed in or about the Demised Premises by any party other than
Tenant. Tenant agrees to defend and hold Landlord harmless from and against any
and all claims, damages, liabilities, costs, penalties, and fines Landlord may
suffer which are as a result from Hazardous Materials placed in or about the
Demised Premises by Tenant. Neither Landlord nor Tenant shall cause any
Hazardous Materials to be used, generated, treated, installed, stored or
disposed of in, on, under or about the Demised Premises except to the extent
consistent with the customary and reasonable business practices of Tenant
provided (a) such Hazardous Materials do not endanger the health of any person
on or about the Demised Premises or Townsend Estates and (b) Tenant and
Landlord, as the case may be, complies with all legal requirements applicable to
such Hazardous Materials in all quantities which do not violate applicable laws
relating to such Hazardous Materials. It is hereby agreed that the following
shall be considered "customary and reasonable business practices" within the
meaning of the previous sentence; (i) possession and use of copy machines and
machines used to electronically accept written data as well as cleaning fluids
and other materials which utilize small amounts of chemicals which may be
included in the definition of Hazardous Materials; (ii) use of reproduction,
blueprint and photographic facilities in the Demised Premises that utilize
chemicals that may be included within the definition of Hazardous Materials all
in quantities which do not violate applicable laws relating to such Hazardous
Materials, and (iii) the following uses: office, laboratory, manufacturing,
testing, warehousing and storage, and related operations and services.
"Hazardous Materials" means any flammable, explosive, radioactive materials,
asbestos containing materials, the group of organic compounds known as
polychlorinated biphenyls and any other hazardous, toxic or dangerous waste,
substance or materials defined as such (or for purposes of) the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended, the
Hazardous Materials Transportation Act, the Resources Conservation and Recovery
Act of 1976, the Toxic Substance Control Act or any other so-called "Superfund"
or Superlien" law or any other legal requirement from time to time in effect
regulating, relating to, or imposing liability or standards of conduct
concerning any hazardous, toxic or dangerous waste, substance or material.

January 26, 1995 (Live Engine/Cold Room)

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<PAGE>

ARTICLE XVII.

GENERAL PROVISIONS
------------------

Section 17.1. Remedies Cumulative - Non-Waiver. The various rights and
------------ --------------------------------
remedies herein contained and reserved to each of the parties shall not be
considered as exclusive of any other right or remedy of such party, but shall be
construed as cumulative and shall be in addition to every other remedy now or
hereafter existing at law, in equity, by statute, or by any other portion of
this Lease. Said rights and remedies may be exercised and enforced concurrently
and whenever and as often as occasion therefor arises. No delay or omission to
exercise any right or power by either party shall impair any such right or
power, or be construed as a waiver of any default or as acquiescence therein.
One or more waivers of any covenant, term or condition of this Lease by either
party shall not be construed by the other party as a waiver of a subsequent or
continuing breach of the same covenant, term or condition.

Section 17.2. Invalidity. The invalidity or unenforceability of any
------------ ----------
provision of this Lease shall not affect or impair any other provision.

Section 17.3. Consents and Approvals. Whenever provision is made in
------------ ----------------------
this Lease for either party to secure the consent or approval of the other
party, such consent or approval shall not be unreasonably withheld, conditioned
or delayed. The consent or approval by either party to or of any act by the
other party of a nature requiring consent or approval shall not be deemed to
waive or render unnecessary consent to or approval of any subsequent similar
act.

Section 17.4. Agreement Binding on Successors. The covenants,
------------ -------------------------------
agreements and obligations herein contained shall extend to, bind and inure to
the benefit not only of the parties hereto but their respective personal
representatives, heirs, successors and assigns.

Section 17.5. Estoppel Certificate. Each party, without charge, within
------------ --------------------
ten (10) days following receipt of a written request from the other party, at
reasonable intervals, shall execute, acknowledge and deliver to the other party
or to any other person or entity designated by the requesting party, a written
statement certifying (i) that this Lease is in full force and effect and
unmodified (or, if modified, stating the nature of such modification), (ii) the
Rent payable and the date to which Minimum Base Rent has been paid, (iii) that
there are no uncured defaults on the part of either Landlord or Tenant (or
specifying such defaults if any are claimed), (iv) the nature and extent of any
offsets, counterclaims or defenses claimed by either party, and (v) the exact
dates of the Initial Term of this Lease.

January 26, 1995 (Live Engine/Cold Room)

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<PAGE>

EXECUTED at 2405 Columbus Ave., Anderson IN, on the date first appearing
-------------------------------
herein.

ATTEST: "LANDLORD"

[ILLEGIBLE SIGNATURE APPEARS HERE] ANDRA L.L.C.
- ----------------------------------

By: [ILLEGIBLE SIGNATURE APPEARS HERE]
------------------------------------------
(signature)

[ILLEGIBLE SIGNATURE APPEARS HERE]
------------------------------------------
(printed name and title)

ATTEST: "TENANT"

[ILLEGIBLE SIGNATURE APPEARS HERE] DELCO REMY AMERICA, INC.
- ----------------------------------

By: /s/ Thomas J. Snyder
------------------------------------------
(signature)

Thomas J. Snyder, President
------------------------------------------
(printed name and title)

This Lease prepared by Richard F. Davisson, Davisson & Davisson, P.C., 1111
Meridian Plaza, P.O. Box 847, Anderson, Indiana, 46015. 317/643-6657

January 26, 1995 (Live Engine/Cold Room)

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<PAGE>

EXHIBIT LIST
------------

EXHIBIT A - Legal Description Demised Premises
EXHIBIT B - Townsend Estates Drawing
EXHIBIT C - Plans and Specifications
EXHIBIT D - Completion Date Certificate
EXHIBIT B - Declaration of Development Standards
EXHIBIT F - List of Items to be Covered under Service Contract
SCHEDULE I - Rates for Primary and Option Periods

January 26, 1995 (Live Engine/Cold Room)

- 25 -

<PAGE>

Exhibit 10.16

LEASE

By and Between
EAGLE I L.L.C.,
as Landlord,
and
DELCO REMY AMERICA, INC.,
as Tenant

Dated: August 11, 1995
---------

<PAGE>

TABLE OF CONTENTS

Page
<S> <C>
ARTICLE I. DEMISED PREMISES AND EAGLE PARK............................................. 1

Section 1.01. Demised Premises............................................................ 1

ARTICLE II. COMPLIANCE WITH PLANS AND SPECIFICATIONS.................................... 1

Section 2.01. Landlord to Construct Building per Plans and Specifications................. 1
Section 2.02. Commencement of Construction................................................ 2
Section 2.03. Tenant's Right to Make Changes.............................................. 2
Section 2.04. Commencement on Specified Dates............................................. 3
Section 2.05. Time of Access.............................................................. 3
Section 2.06. Tenant Entry................................................................ 3
Section 2.07. Construction of the Demised Premises........................................ 3

ARTICLE III. TERM OF LEASE............................................................... 4

Section 3.01. Demised Term................................................................ 4
Section 3.02. Lease Year.................................................................. 5
Section 3.03. Holding Over................................................................ 5
Section 3.04. Option to Extend the Term................................................... 5

ARTICLE IV. RENTAL...................................................................... 5

Section 4.01. Minimum Base Rent........................................................... 5
Section 4.02. Additional Rent............................................................. 6
Section 4.03. Payments.................................................................... 6
Section 4.04. Past Due Payments........................................................... 6

ARTICLE V. OCCUPANCY AND USE OF DEMISED PREMISES....................................... 6

Section 5.01. Occupancy and Type of Use................................................... 6
Section 5.02. Lawful Use and No Waste, Annoyance or Nuisance.............................. 7

ARTICLE VI. ASSIGNMENT AND SUBLETTING................................................... 8

Section 6.01. Assignment and Subletting................................................... 8
Section 6.02. Expense..................................................................... 8
Section 6.03. Non-Release................................................................. 9

</TABLE>
<PAGE>

<TABLE>
<S> <C>
ARTICLE VII. UTILITY SERVICES ............................................ 9

Section 7.01. Payment. .................................................. 9
Section 7.02. Suspension of Services. ................................... 9