<PAGE>
SUBJECT TO COMPLETION, DATED JULY 29, 1999
The information in this prospectus supplement is not complete and may be
changed. This prospectus supplement is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where such offer or sale is not permitted.
<PAGE>
PRELIMINARY PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 29, 1999)
3,000,000 ARVIN INCOME EQUITY UNITS ("UNITS")
CONSISTING OF 3,000,000 CORPORATE UNITS
[LOGO]
ARVIN INDUSTRIES, INC.
- ---------------------------------------------------------
Each Unit being offered will be a Corporate Unit, which is a unit consisting of
a share purchase contract issued by Arvin Industries, Inc. and a debenture also
issued by Arvin.
- The share purchase contract will obligate the holder to purchase from
Arvin, no later than , 2002 for a price of $50, the following
number of Arvin's common shares:
- if the average closing price of the common shares over a 20-day period
prior to , 2002 equals or exceeds $ , common
shares;
- if the average closing price is less than $ but greater than
$ , a number of common shares equal to $50 divided by the average
closing price; and
- if the average closing price is less than or equal to $ ,
common shares.
- The debenture will have a principal amount of $50. The holder will pledge
the debenture to secure the holder's obligation to purchase the common
shares under the related share purchase contract.
- Payments will accumulate under the share purchase contracts and the
debentures at the combined rate of % per year, payable on
, , and of each year, beginning
, 1999.
Arvin has applied for listing the Corporate Units on the New York Stock
Exchange.
INVESTING IN THE CORPORATE UNITS INVOLVES RISKS.
FOR A DESCRIPTION OF THESE RISKS, SEE "RISK FACTORS" BEGINNING ON PAGE S-10.
<TABLE>
<CAPTION>
PER CORPORATE UNIT TOTAL
--------------------- ---------------------
<S> <C> <C>
Public Offering Price................................................ $ 50.00 $ 150,000,000
Underwriting Discount................................................
Proceeds to Arvin (before expenses)..................................
</TABLE>
Any accumulated interest payments on the debentures and any contract adjustment
payments on the share purchase contracts that are a part of the Corporate Units
from , 1999 should be added to the Public Offering Price.
Arvin has granted the underwriters a 30-day option to purchase up to 450,000
additional Corporate Units on the same terms and conditions set forth above
solely to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the Corporate Units to purchasers on or about
, 1999.
- --------------------------------------------------------------------------------
JOINT BOOK-RUNNING MANAGERS
LEHMAN BROTHERS MERRILL LYNCH & CO.
---------
CO-MANAGERS
PAINEWEBBER INCORPORATED PRUDENTIAL SECURITIES
, 1999
<PAGE>
[Picture of automobile chassis, highlighting the exhaust, ride and motion
control and oil, air and fuel filter products manufactured by Arvin.]
<PAGE>
ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement and the accompanying prospectus contain
information about Arvin and about the Units. They also refer to information
contained in other documents filed by Arvin with the Securities and Exchange
Commission. References to this prospectus supplement or the prospectus also mean
the information contained in those other documents. If this prospectus
supplement is inconsistent with the prospectus, rely on this prospectus
supplement.
You should rely on the information in this prospectus supplement or the
accompanying prospectus or in documents that are incorporated by reference into
the prospectus. Arvin and the underwriters have not authorized anyone to provide
any different or additional information. We are not making an offer of the Units
in any jurisdiction where the offer is not permitted. You should not assume that
information in these documents is correct or complete after the date of this
prospectus supplement.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Forward-Looking Statements May Prove Inaccurate............................................................ S-2
Prospectus Supplement Summary.............................................................................. S-3
Risk Factors............................................................................................... S-10
Use of Proceeds............................................................................................ S-14
Price Range of Common Shares and Dividend Policy........................................................... S-15
Capitalization............................................................................................. S-16
Selected Consolidated Financial Data....................................................................... S-17
Accounting Treatment....................................................................................... S-18
Business................................................................................................... S-19
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... S-24
Description of the Units................................................................................... S-36
Description of the Purchase Contracts...................................................................... S-39
Certain Provisions of the Purchase Contracts, the Purchase Contract Agreement and the Pledge Agreement..... S-48
Description of the Debentures.............................................................................. S-51
United States Federal Income Tax Consequences.............................................................. S-54
ERISA Considerations....................................................................................... S-60
Underwriting............................................................................................... S-61
Legal Matters.............................................................................................. S-63
Experts.................................................................................................... S-63
PROSPECTUS
Summary.................................................................................................... 1
Ratios of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Share Dividends... 3
Where You Can Find More Information........................................................................ 3
Arvin...................................................................................................... 4
Use of Proceeds............................................................................................ 4
Description of the Debt Securities......................................................................... 4
Provisions Applicable Solely to Senior Debt Securities..................................................... 12
Provisions Applicable Solely to Subordinated Debt Securities............................................... 16
Description of Capital Shares.............................................................................. 19
Description of Share Purchase Contracts and Share Purchase Units........................................... 23
Description of Depositary Shares........................................................................... 24
Description of Warrants.................................................................................... 26
Plan of Distribution....................................................................................... 27
Legal Opinions............................................................................................. 29
Experts.................................................................................................... 29
</TABLE>
S-1
<PAGE>
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
Arvin has made statements in this prospectus supplement, in the accompanying
prospectus and in the documents that are incorporated by reference in the
accompanying prospectus that constitute forward-looking statements, as that term
is defined in the Private Securities Litigation Reform Act of 1995. These
statements are subject to risks and uncertainties. Forward-looking statements
include information concerning Arvin's anticipated financial performance,
business prospects, technological developments, Year 2000 plans and risks, new
products, research and development activities and similar matters, including the
effect of recent acquisitions, such as the acquisition of Purolator Products
Company. These forward-looking statements generally are accompanied by words
such as "believes," "anticipates," "expects," "estimates," "should," "planned,"
"outlook," "goal" and "on target" or similar expressions. You should understand
that forward-looking statements are not guarantees since there are inherent
difficulties in predicting future results. Actual results could differ
materially from those expressed or implied in the forward-looking statements.
Risk and uncertainties that may affect the operations, performance and
results of Arvin's business include the following: (1) general economic and
competitive conditions in the markets and countries in which Arvin operates; (2)
strikes or other work stoppages affecting Arvin or its major customers or
suppliers; (3) the level of consumer demand for new vehicles equipped with
Arvin's products; (4) Arvin's ability to continue to control and reduce its
costs of production; (5) the level of consumer demand for Arvin's replacement
products, which varies based on such factors as the severity of winter weather
and the age of automobiles in Arvin's markets, as well as general economic
conditions; (6) the impact on demand for Arvin's replacement products of prior
improvements in original equipment product quality; (7) Arvin's ability to
integrate recently acquired businesses in a timely and cost-effective manner;
(8) the effect of changes in the distribution channels for replacement products;
(9) the effect of technological change; (10) the risks inherent in international
operations and joint ventures; (11) the strength of the U.S. dollar against
currencies of other countries where Arvin operates; and (12) changes in
financial markets affecting Arvin's financial structure and its cost of capital
and borrowed money. We discuss other risks and uncertainties that may affect
Arvin's business under "Risk Factors--Risk Factors Relating to Arvin."
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described in the forward-looking statement. Arvin does not intend to
update forward-looking statements.
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED BY THE MORE DETAILED INFORMATION AND THE
CONSOLIDATED FINANCIAL STATEMENTS OF ARVIN APPEARING ELSEWHERE IN THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS OR INCORPORATED BY
REFERENCE IN THE ACCOMPANYING PROSPECTUS.
ARVIN INDUSTRIES, INC.
Arvin is a leading international manufacturer and supplier of automotive
exhaust systems, ride and motion control products and filters, with 1998 sales
of approximately $2.5 billion. We supply our products to the major automotive
original equipment manufacturers and replacement market parts suppliers. Our
principal exhaust system products include mufflers, exhaust and tail pipes,
catalytic converters and tubular manifolds, and our primary ride and motion
control products include shock absorbers, struts and gas-charged lift supports.
We also are a leading manufacturer and distributor of automotive oil, air and
fuel filters in North America. We have over 50 manufacturing facilities and 8
technical centers in 15 countries and estimate that we will derive approximately
61% of our fiscal 1999 sales from the original equipment market, 33% from the
automotive replacement market and the remaining 6% from other products.
Recently, Arvin has implemented a series of strategic initiatives to
increase its global competitive position within the automotive parts
marketplace. In November 1998, we entered into a joint venture with Kayaba
Industry Co., Ltd., providing ride control products to North American vehicle
manufacturers. In December 1998, we purchased a 49% interest in Zeuna Starker
GmbH & Co. KG, significantly expanding our German exhaust system capabilities.
Most recently, in February 1999, we expanded our aftermarket presence through
the acquisition of Purolator Products Company, adding automotive oil, air and
fuel filters to our product line.
THE OFFERING
CORPORATE UNITS
Arvin is offering 3,000,000 Units, consisting of 3,000,000 Corporate Units,
to the public for $50 each. Each Corporate Unit is a unit consisting of two
parts:
- a purchase contract for Arvin's common shares; and
- a debenture.
PURCHASE CONTRACT
Arvin has entered into a purchase contract agreement with The First National
Bank of Chicago, which will act as purchase contract agent for all of the
holders of the Corporate Units, and for all of the holders of the Treasury
Units, described below. Each Corporate Unit that you purchase will be issued
under the purchase contract agreement. It creates a contractual arrangement
between you and Arvin for the purchase of Arvin's common shares.
Under the purchase contract, you will be obligated to purchase, for each of
your Corporate Units, common shares at a purchase price of $50. You will not be
obligated to pay the purchase price, and you will not receive your common
shares, until , 2002, which has been set as the purchase contract
settlement date. The number of common shares that you will be entitled to
receive on that date will depend on the average closing price of the common
shares over a 20 trading-day period prior to that date. Until you actually
purchase the common shares, your obligation to pay the $50 purchase price will
be secured by the debenture that is a part of your Corporate Unit, which will be
pledged as collateral. More information about the purchase contracts is provided
under the heading "Description of the Purchase Contracts" starting on page S-39.
S-3
<PAGE>
DEBENTURE
Each Corporate Unit you purchase also will include a debenture. The
principal amount of each debenture is $50.
PAYMENTS TO CORPORATE UNIT HOLDERS
As a holder of Corporate Units, you will be entitled to receive cash
payments consisting of (1) payments under the purchase contract and (2) interest
payments on the debenture at a combined rate of % per year.
- PAYMENTS UNDER THE PURCHASE CONTRACT. Arvin will pay you quarterly
contract adjustment payments of $ (which is equal to % per annum of
the $50 stated amount) on your purchase contract. Arvin will pay the
contract adjustment payments on , , and of
each year, with the first payment being made on , 1999 and the
last payment being made on , 2002, unless your purchase contract
is settled or terminates before that date.
- INTEREST PAYMENTS ON THE DEBENTURE. In addition, Arvin will pay you
quarterly cash interest payments on your debenture on the same dates that
contract adjustment payments are made. You will receive an interest
payment of $ each quarter. This amount is equal to % per annum
of the $50 principal amount. Interest payments will accumulate from
, 1999 and will continue until , 2002. If you continue to own
your debenture after that date, then Arvin will pay you interest payments
on your debenture, which will accumulate from , 2002 until
, 2004, at a reset rate that is described in more detail starting
on page S-52.
LIMITED VOTING RIGHTS
As a holder of Corporate Units, you will have limited voting rights. You may
vote only with respect to the modification of the debentures. You will not have
any voting or other rights with respect to the common shares until you pay the
$50 purchase price and purchase the common shares.
PLEDGE ARRANGEMENT
When you purchase a Corporate Unit, you will pledge the debenture that is a
part of that Corporate Unit as collateral to secure your obligation to purchase
common shares on , 2002 under the related purchase contract. Arvin has
entered into a pledge agreement under which The Chase Manhattan Bank will act as
collateral agent and hold your debenture until the $50 purchase price has been
paid. Even though your debenture will be pledged as collateral, you will be the
beneficial owner of the debenture.
TREASURY UNITS
Once you own Corporate Units, you may create Treasury Units by substituting
U.S. treasury securities for the Arvin debentures that are a part of the
Corporate Units. A Treasury Unit will be a unit consisting of:
- a purchase contract for Arvin's common shares that is identical to the
purchase contract that is a part of the Corporate Unit; and
- a 1/20th undivided beneficial ownership interest in a zero-coupon U.S.
treasury security that has a principal amount at maturity of $1,000 and
matures on the business day prior to the purchase contract settlement date
(the "Treasury Security").
S-4
<PAGE>
TERMS OF SUBSTITUTION
You may substitute Treasury Securities for debentures at any time on or
prior to , 2002. This date is the seventh business day prior to the
purchase contract settlement date. Because the Treasury Security has a principal
amount at maturity of $1,000, you must substitute Treasury Units for Corporate
Units in multiples of 20. In order to make a substitution, you must:
- For each group of 20 Corporate Units you wish to substitute, transfer a
Treasury Security to The Chase Manhattan Bank, which is acting as the
securities intermediary under the pledge arrangement. The securities
intermediary then will deposit the Treasury Security in the collateral
account maintained under the pledge arrangement. The Treasury Security
will become the collateral supporting your obligation to purchase the
common shares, and the collateral agent will release $1,000 principal
amount of debentures from the pledge. Those debentures then will be freely
tradable and will not be a part of a Corporate Unit or a Treasury Unit.
- Submit your Corporate Units in multiples of 20. For each group of 20
Corporate Units you submit, you will receive 20 Treasury Units.
- Pay to the collateral agent any fees or expenses incurred in connection
with the substitution.
PAYMENTS TO TREASURY UNIT HOLDERS
If you substitute Treasury Units for Corporate Units, you will continue to
receive purchase contract adjustment payments under your purchase contract, but
you will not receive any other distributions on the Treasury Units. Instead, you
will accrue original issue discount on the Treasury Securities that you
deposited with the securities intermediary. As long as you continue to own the
debentures that had been a part of your Corporate Units, you will receive
interest payments on them, separately from the Treasury Units.
RECREATING CORPORATE UNITS
Once you have created Treasury Units, you may subsequently recreate
Corporate Units at any time on or prior to , 2002. Because the Treasury
Security has a principal amount at maturity of $1,000, you must recreate
Corporate Units from Treasury Units in multiples of 20. In order to recreate
Corporate Units, you must:
- For each group of 20 Corporate Units to be recreated, transfer $1,000
principal amount of debentures to the securities intermediary. The
securities intermediary then will deposit the debentures in the collateral
account maintained under the pledge arrangement. The $1,000 principal
amount of debentures will become the collateral supporting your obligation
to purchase the common shares, and the collateral agent will release the
Treasury Security from the pledge. That Treasury Security then will be
freely tradable and will not be a part of any Unit.
- Submit your Treasury Units in multiples of 20. For each group of 20
Treasury Units you submit, you will receive 20 Corporate Units.
- Pay to the collateral agent any fees or expenses incurred in connection
with the substitution.
SETTLEMENT OF PURCHASE CONTRACTS; REMARKETING
CORPORATE UNITS
For each purchase contract that is a part of your Corporate Unit, you will
be obligated to pay, on , 2002, $50 to purchase Arvin's common shares.
You may choose to deliver a cash payment of $50, or, if you do not, your
debenture held as collateral under the pledge arrangement will be sold to
S-5
<PAGE>
the public at a price of $50.125 per debenture ("remarketed"), and the proceeds
will be used to pay the amount due under your purchase contract and to pay a
remarketing fee to the remarketing agent.
REMARKETING OF DEBENTURES
On , 2002 (the third business day prior to the purchase contract
settlement date), Lehman Brothers and/or Merrill Lynch, as remarketing agent,
will remarket:
- Debentures that are part of Corporate Units, if the holders of those
Corporate Units either (1) elect to have those debentures remarketed or
(2) fail to deliver cash payments for the common shares when those
payments are due under the purchase contract; and
- Debentures that are not part of Corporate Units (including as a result of
the creation of Treasury Units), to the extent the holders of those
debentures elect to have those debentures remarketed.
After the debentures have been remarketed, the interest rate on all
outstanding debentures, including those debentures that were not remarketed,
will be the rate determined by the remarketing. If the remarketing agent cannot
remarket the debentures, the interest rate will be equal to a two-year benchmark
treasury rate plus a spread ranging from 300 to 700 basis points depending on
the credit ratings of the debentures at that time.
REMARKETING PROCEDURES
- Your debentures will be remarketed:
(1) if you do not notify the purchase contract agent that you will pay
cash for the common shares by 5:00 p.m., New York City time, on
, 2002, which is the seventh business day prior to the
purchase contract settlement date; or
(2) if you notify the purchase contract agent that you will pay cash but
you do not deliver the cash by 11:00 a.m., New York City time, on or
prior to , 2002, which is the fifth business day prior to the
purchase contract settlement date.
- On , 2002, the remarketing agent will use commercially reasonable
efforts to sell your debentures, together with all other debentures being
remarketed, at a price of $50.125 per debenture.
- If the remarketing is successful, then:
- Your debentures will be sold, and the interest rate on the debentures
will be reset to be the lowest rate that the remarketing agent
determines is necessary to allow it to remarket the debentures at a
price of $50.125 per debenture.
- $50 per debenture received from the sale will be delivered to Arvin as
payment for the common shares under the purchase contract.
- $0.125 per debenture received from the sale will be paid to the
remarketing agent.
- You will receive the common shares.
FAILED REMARKETING
If the remarketing agent cannot remarket the debentures, then Arvin will be
entitled to exercise its rights as a secured party and take possession of your
debentures. Your obligation to purchase the common shares then will be fully
satisfied, and you will receive the common shares.
S-6
<PAGE>
CASH PAYMENT IN LIEU OF REMARKETING
If you choose not to participate in the remarketing and instead pay cash for
your common shares, then:
- Arvin will receive $50 in cash from you for each of your purchase
contracts.
- You will receive the common shares.
- Your debentures will be released from the pledge arrangement and
distributed to you. Starting on the date of settlement and continuing
until , 2004, interest payments on the debentures will be payable
at the new rate determined in the remarketing.
SETTLEMENT OF TREASURY UNITS
Unless you notify the purchase contract agent that you will pay for the
common shares with cash, upon settlement of the Treasury Units, Arvin will
receive the proceeds of the Treasury Securities being held as collateral under
the pledge arrangement. This will satisfy your obligation to purchase the common
shares, and you will receive the common shares.
NUMBER OF COMMON SHARES PURCHASED
Unless you elect to settle your purchase contracts early (see "Description
of the Purchase Contracts--Early Settlement" starting on page S-42), the number
of common shares you will receive under each purchase contract will depend on
the average of the closing price per share (or the last reported sale price, if
no closing price is reported) of the common shares as reported on the New York
Stock Exchange for the period of 20 trading days ending on , 2002. This
date is the third trading day prior to the purchase contract settlement date.
If, for any trading day, the trading of the common shares is suspended, or if
the common shares do not trade at least once on the NYSE on that day, then that
day will not be considered to be part of the 20 trading-day period.
The number of common shares you will receive for each Corporate Unit will be
determined by one of the following settlement rates:
- If the average closing price equals or exceeds $ , you will receive
common shares.
- If the average closing price is less than $ but greater than $ ,
you will receive a number of common shares equal to $50 divided by the
average closing price, rounded upward or downward to the nearest
1/10,000th of a share.
- If the average closing price is less than or equal to $ , you will
receive common shares.
In certain circumstances, the applicable settlement rate will be subject to
adjustment. You can find more information about the settlement rate starting on
page S-39.
Arvin will not issue any fractional common shares. If, however, you are
settling more than one purchase contract, then any fractional common shares will
be aggregated. For any fractional share not issuable, Arvin will pay you the
value of that fractional share in cash.
EARLY SETTLEMENT
You may satisfy your obligation to purchase common shares under your
purchase contract before the purchase contract settlement date on ,
2002. If you choose early settlement, you will pay $50 in cash on or prior to:
(1) , 2002, if you are settling Corporate Units; this date is the
seventh business day prior to the purchase contract settlement date, or
S-7
<PAGE>
(2) , 2002, if you are settling Treasury Units; this date is the second
business day prior to the purchase contract settlement date.
To effect early settlement:
- You must deliver to the purchase contract agent a notice indicating your
election to "settle early."
- You must deliver a cash payment of $50 for each purchase contract being
settled.
- You will receive, for each Corporate Unit or Treasury Unit you surrender,
both:
- common shares, regardless of the market price of the common
shares on the date of early settlement and subject to adjustment in
certain circumstances; and
- Your debenture if you are settling a Corporate Unit or a 1/20th
undivided beneficial interest in a Treasury Security if you are
settling a Treasury Unit.
- You will not receive any further contract adjustment payments from Arvin.
- You may settle Treasury Units early only in multiples of 20.
TERMINATION OF PURCHASE CONTRACTS
The purchase contracts will terminate immediately and automatically if
certain bankruptcy, insolvency or reorganization events occur with respect to
Arvin. If the purchase contracts terminate upon one of these events, then your
rights and obligations under your purchase contracts also will terminate,
including your right to receive accrued contract adjustment payments and your
obligation to pay for, and your right to receive, common shares. Upon
termination, you will receive your pledged debenture or your Treasury Security.
If Arvin becomes the subject of a bankruptcy case, then there may be a delay
between the time the purchase contracts terminate and the time you receive your
pledged debenture or Treasury Security, as the case may be. You can find more
information about how the purchase contracts terminate on page S-46.
LISTING ON AN EXCHANGE
Arvin's common shares are traded on the New York Stock Exchange and the
Chicago Stock Exchange under the ticker symbol "ARV." Arvin has applied for
listing the Corporate Units on the NYSE. If either the Treasury Units or the
debentures are traded at a volume that satisfies applicable exchange listing
requirements, then Arvin will try to list those securities on the national
securities exchanges or associations on which the Corporate Units are then
listed or quoted.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Because a Corporate Unit will consist of a debenture and a purchase
contract, the purchase price of each Corporate Unit will be allocated between
the purchase contract and the related debenture in proportion to their relative
fair market values at the time of purchase.
Arvin intends to report the contract adjustment payments as income to you,
but you may want to consult your tax advisor concerning alternative
characterizations.
If you own Corporate Units, you will include in gross income the interest
income on the debentures when such interest income is paid or accrues in
accordance with your regular method of tax accounting.
If you own Treasury Units, you will be required to include in gross income
your allocable share of any original issue discount or acquisition discount on
the Treasury Securities that accrues in such year.
S-8
<PAGE>
Because there is no statutory, judicial or administrative authority directly
addressing the tax treatment of the Units or instruments similar to the Units,
you are urged to consult your own tax advisor concerning the tax consequences of
an investment in the Units. For additional information, see "United States
Federal Income Tax Consequences" starting on page S-54.
USE OF PROCEEDS
The net proceeds that Arvin receives from the sale of the Corporate Units,
after payment of expenses related to the offering and underwriting discounts,
are estimated to be approximately $ million, or $ million if the
underwriters' over-allotment option is exercised in full. See "Use of Proceeds"
on page S-14. We intend to use the net proceeds to repay the remaining $100
million of short-term bank debt that we incurred in connection with our recent
acquisition of Purolator and for general corporate purposes.
S-9
<PAGE>
RISK FACTORS
AN INVESTMENT IN UNITS INVOLVES A NUMBER OF RISKS. BEFORE DECIDING TO BUY
ANY UNITS, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING INFORMATION, TOGETHER
WITH THE OTHER INFORMATION IN THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING
PROSPECTUS AND THE DOCUMENTS THAT ARE INCORPORATED BY REFERENCE IN THE
ACCOMPANYING PROSPECTUS ABOUT RISKS CONCERNING AN INVESTMENT IN UNITS.
THE CORPORATE UNITS CONSIST OF DEBENTURES ISSUED BY ARVIN AND PURCHASE
CONTRACTS TO ACQUIRE ARVIN'S COMMON SHARES. WHEN CONSIDERING AN INVESTMENT IN
CORPORATE UNITS, YOU ARE MAKING AN INVESTMENT DECISION WITH REGARD TO THE COMMON
SHARES AND THE DEBENTURES AS WELL AS THE CORPORATE UNITS. YOU SHOULD CAREFULLY
REVIEW THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS ABOUT ALL OF THESE SECURITIES.
RISK FACTORS RELATING TO THE UNITS
THE NUMBER OF COMMON SHARES THAT YOU WILL RECEIVE UNDER A PURCHASE CONTRACT
WILL DEPEND ON ARVIN'S FUTURE COMMON SHARE PRICE; YOU WILL BEAR THE RISK OF
DECLINE IN EQUITY VALUE.
The terms of the Units differ from those of ordinary convertible securities.
The number of common shares that you will receive upon the settlement of a
purchase contract is not fixed, but instead will depend on the market value of
the common shares near the time of settlement. The aggregate market value of the
common shares that you will receive upon settlement of the purchase contract may
be more or less than the stated amount of $50 per Unit. If the market value of
the common shares near the time of settlement is less than $ , the
aggregate market value of the common shares issuable upon settlement generally
will be less than $50, and the investment in the Units will result in a loss.
Therefore, you will bear the full risk of a decline in the market value of the
common shares prior to settlement of the purchase contracts.
THE OPPORTUNITY FOR EQUITY APPRECIATION IS LESS THAN WITH COMMON SHARE
OWNERSHIP.
The market value of the common shares receivable upon settlement of a
purchase contract generally will exceed the stated amount of $50 only if the
average closing price of the common shares over a 20 trading-day period
preceding settlement equals or exceeds the "Threshold Appreciation Price" of
$ . The Threshold Appreciation Price represents an appreciation of %
over the current market price. Therefore, during the period prior to settlement,
an investment in the Units affords less opportunity for equity appreciation than
a direct investment in the common shares. If the applicable average closing
price exceeds the "Reference Price" of $ but falls below the Threshold
Appreciation Price of $ , you will realize no equity appreciation on the
common shares for the period during which you own the purchase contract.
Furthermore, if the applicable average closing price equals or exceeds the
Threshold Appreciation Price, you will realize only % of the equity
appreciation for that period above the Threshold Appreciation Price. See
"Description of the Purchase Contracts--General" starting on page S-39 for an
illustration of the number of common shares that you would receive at various
average market prices.
THE MARKET PRICE FOR THE COMMON SHARES IS UNCERTAIN.
It is impossible to know whether the market price of the common shares will
rise or fall. Numerous factors influence the trading prices of the common
shares. These factors include changes in Arvin's financial condition, results of
operations and prospects and complex and interrelated political, economic,
financial and other factors that can affect the capital markets generally, the
stock exchanges on which the common shares are traded and the market segments of
which Arvin is a part.
The market for the common shares likely will influence, and be influenced
by, any market that develops for the Units. For example, investors' anticipation
of the distribution into the market of
S-10
<PAGE>
substantial amounts of common shares, including the additional common shares
issuable upon settlement of the purchase contracts, could depress the price of
the common shares and increase their volatility. If the underwriters'
over-allotment option is exercised in full, the largest number of common shares
issuable upon settlement of the purchase contracts would constitute
approximately % of the common shares outstanding as of July 4, 1999. The
price of the common shares also could be affected by possible sales of the
common shares by investors who view the Units as a more attractive means of
equity participation in Arvin and by hedging or arbitrage trading activity that
may develop involving the Units and the common shares. See "--Arbitrage
Opportunities May Affect Market Prices of Units, Debentures and Common Shares"
below.
THE NUMBER OF COMMON SHARES ISSUABLE UPON SETTLEMENT OF PURCHASE CONTRACTS
WILL BE ADJUSTED ONLY FOR CERTAIN SPECIFIED TRANSACTIONS.
The number of common shares issuable upon settlement of each purchase
contract is subject to adjustment only for share splits and combinations, share
dividends and certain other specified transactions involving Arvin. See
"Description of the Purchase Contracts--Anti-Dilution Adjustments" starting on
page S-44. The number of common shares issuable upon settlement of each purchase
contract is not subject to adjustment for other events, such as employee share
option grants, offerings of common shares for cash or in connection with
acquisitions or certain other transactions involving Arvin, which may adversely
affect the price of the common shares. The terms of the Units do not restrict
Arvin's ability to offer common shares in the future or to engage in other
transactions that could dilute the common shares. Arvin has no obligation to
consider the interests of the holders of the Units for any reason.
YOU WILL HAVE NO RIGHTS AS A COMMON SHAREHOLDER.
Until you acquire common shares upon settlement of your purchase contract,
you will have no rights with respect to the common shares, including voting
rights, rights to respond to tender offers and rights to receive any dividends
or other distributions on the common shares. Upon settlement of your purchase
contract, you will be entitled to exercise the rights of a holder of common
shares only as to actions for which the applicable record date occurs after the
settlement date.
THE FIXED YIELD ON THE UNITS COULD BE LESS THAN THE DIVIDEND YIELD ON THE
COMMON SHARES.
There can be no assurance that the yield on the Units will remain higher
than the dividend yield on the common shares. You will be entitled to receive
aggregate quarterly cash distributions at the rate of % of the $50 purchase
price of the Corporate Units per annum, consisting of contract adjustment
payments of $ and cash interest payments on the related debentures of
$ . Arvin currently pays cash dividends at the rate of $0.84 per share per
year. That rate is equivalent to % of the $ Reference Price per year.
See "Price Range of Common Shares and Dividend Policy."
TRADING MARKETS FOR THE UNITS AND THE DEBENTURES ARE SUBJECT TO
UNCERTAINTIES.
It is impossible to predict how the Corporate Units, the Treasury Units and
the debentures will trade in the secondary market or whether the market for any
of these securities will be liquid or illiquid. The Corporate Units and the
Treasury Units are novel securities. There currently is no secondary market for
either of them or for the debentures, and there can be no assurance as to the
liquidity of any trading market that may develop, the ability of holders to sell
their securities in that market or whether any such market will continue.
Arvin has applied for listing the Corporate Units on the NYSE. Listing on
the NYSE does not guarantee the depth or liquidity of the market for the
Corporate Units. If holders of the Corporate Units convert their Corporate Units
into Treasury Units by substituting Treasury Securities for the
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<PAGE>
debentures, the liquidity of the Corporate Units could be adversely affected.
Moreover, if the number of Corporate Units falls below the NYSE's requirement
for continued listing, whether as a result of the conversion of Corporate Units
into Treasury Units or otherwise, the Corporate Units could be delisted from the
NYSE, or trading in the Corporate Units could be suspended.
ARBITRAGE OPPORTUNITIES MAY AFFECT MARKET PRICES OF UNITS, DEBENTURES AND
COMMON SHARES.
Fluctuations in interest rates may create opportunities for arbitrage based
upon changes in the relative value of the common shares underlying the purchase
contracts and of the components of the Units. Any arbitrage could affect, in
turn, the trading prices of the Units, the debentures and the common shares.
YOUR PLEDGED SECURITIES WILL BE ENCUMBERED.
Although holders of Units will be beneficial owners of the underlying
pledged debentures, in the case of Corporate Units, and pledged Treasury
Securities, in the case of Treasury Units, those pledged securities will be
pledged to secure the obligations of the holders under the purchase contracts.
Therefore, for so long as the purchase contracts remain in effect, holders will
not be allowed to withdraw their pledged securities from this pledge arrangement
except in the limited circumstances described in this prospectus supplement.
THE DELIVERY OF SECURITIES IS SUBJECT TO POTENTIAL DELAY IF ARVIN BECOMES
SUBJECT TO A BANKRUPTCY PROCEEDING.
Notwithstanding the automatic termination of the purchase contracts, if
Arvin becomes the subject of a case under the Bankruptcy Code, imposition of an
automatic stay under Section 362 of the Bankruptcy Code may delay the delivery
to you of your securities being held as collateral under the pledge arrangement.
THE PURCHASE CONTRACT AGENT HAS LIMITED OBLIGATIONS TO YOU.
The purchase contract agent will have only limited obligations to you as a
holder of the Units under the terms of the purchase contract agreement. The
purchase contract agreement is not an indenture under the Trust Indenture Act of
1939. Therefore, the purchase contract agent will not qualify as a trustee under
the Trust Indenture Act, and you will not benefit from the protections of that
law, such as disqualification of an indenture trustee for "conflicting
interests," provisions preventing an indenture trustee from improving its own
position at the expense of the security holders and the requirement that an
indenture trustee deliver reports at least annually with respect to the
indenture trustee and the securities. See "Certain Provisions of the Purchase
Contracts, the Purchase Contract Agreement and the Pledge Agreement--Information
Concerning the Purchase Contract Agent" on page S-50.
THE DEBENTURES DO NOT CONTAIN CERTAIN RESTRICTIVE COVENANTS.
The terms of the debentures do not contain several types of restrictive
covenants that would protect holders of debentures from transactions that may
adversely affect the holders. In particular, the indenture governing the
debentures does not contain covenants that limit Arvin's ability to pay
dividends or make distributions on, or redeem or repurchase, Arvin's capital
shares and does not contain provisions that would give holders of the debentures
the right to require Arvin to repurchase their debentures in the event of a
change of control of Arvin or a decline in the credit rating of Arvin or Arvin's
debt securities as a result of a takeover, recapitalization or similar
restructuring, or any other reason. In addition, the indenture does not limit
Arvin's ability to incur additional indebtedness and therefore does not contain
provisions that afford holders of the debentures protection in the event of a
S-12
<PAGE>
highly leveraged transaction or other similar transaction involving Arvin that
may adversely affect the holders.
RISK FACTORS RELATING TO ARVIN
THE CYCLICALITY OF AUTOMOTIVE PRODUCTION AND SALES COULD ADVERSELY AFFECT
ARVIN'S BUSINESS.
A substantial portion of our business is directly related to automotive
sales and production by our customers, which are cyclical and depend on general
economic conditions and other factors, including consumer spending and
preferences. Any economic decline which resulted in a significant reduction in
automotive production and sales by our customers would have a material adverse
effect on our business.
COMPETITION IN THE HIGHLY COMPETITIVE AUTOMOTIVE PARTS INDUSTRY MAY HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
The automotive parts industry is highly competitive. We compete with a
number of independent automotive parts suppliers and units of major vehicle
manufacturers in the United States and internationally that produce components,
systems and modules for sale to vehicle manufacturers and in the aftermarket as
replacement parts. Although the overall number of our competitors has decreased
due to ongoing industry consolidation, we face significant competition within
each of our major product areas.
In our original equipment business, we principally compete for business at
the beginning of the sourcing process for vehicle models that vehicle
manufacturers plan to introduce to the market in later years and upon the
redesign of existing vehicle models. Vehicle manufacturers rigorously evaluate
suppliers on the basis of product quality, price, reliability, timeliness of
delivery, technical expertise and customer service. We cannot assure you that
competition in our markets will not have a material adverse effect on our
business.
OUR BUSINESS MAY BE ADVERSELY IMPACTED BY WORK STOPPAGES AND OTHER LABOR
RELATIONS MATTERS.
Our U.S.-based original equipment manufacturing customers are highly
unionized and operate domestically pursuant to collective bargaining agreements
between the United Automobile Workers Union (UAW) and Ford, General Motors and
DaimlerChrysler. The collective bargaining agreements expire on September 14,
1999 and are currently being renegotiated. There can be no assurance that these
negotiations will be resolved favorably for the original equipment manufacturers
or without work stoppages in their North American operations. Work stoppages or
unfavorable resolution of these negotiations could adversely affect our results
of operations, financial condition or the conduct of our business.
Domestically, our original equipment exhaust facilities operate under
various collective bargaining agreements with unions with different contract
lengths and expiration dates. While we have not experienced any strikes since
1989 and we believe that our relations with our unions are positive, there can
be no assurance that future issues with our labor unions will be resolved
favorably for us or that we will not experience a work stoppage. Such a stoppage
or an unfavorable resolution could adversely affect our business.
WE MAY BE UNABLE TO REALIZE OUR BUSINESS STRATEGY OF COMPLETING STRATEGIC
ACQUISITIONS, JOINT VENTURES AND ALLIANCES.
There are risks associated with our business strategy to acquire, make
investments in, or enter into joint ventures or other strategic alliances with,
companies whose businesses complement our business. We may not be able to
identify suitable candidates to acquire or enter into joint ventures or other
S-13
<PAGE>
arrangements with, or we may not be able to reach agreement on satisfactory
terms for such activities. In addition, we could have difficulty assimilating
the personnel and operations of acquired companies, which would prevent us from
realizing expected benefits.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS.
Arvin has manufacturing and distribution facilities in many countries. We
are subject to risks associated with our international operations, including
exposure to local economic conditions, exposure to local political conditions
(including the risk of seizure of assets by foreign governments), currency
exchange rate fluctuations, currency controls and export and import
restrictions. The likelihood of such occurrences and their potential effect on
Arvin are unpredictable and vary from country to country.
Because Arvin's international operations conduct their day to day operations
in various foreign currencies and report their results of operations and
financial condition in U.S. dollars, the fluctuating value of the dollar against
these foreign currencies could adversely affect Arvin's reported results of
operations and financial condition.
WE ARE SUBJECT TO RISKS RELATING TO YEAR 2000 COMPLIANCE.
We may be adversely affected if our Year 2000 remediation efforts and those
of our suppliers are not successful. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Six Months Ended July 4, 1999
and June 28, 1998--Year 2000" on page S-28.
USE OF PROCEEDS
The net proceeds to be received by Arvin from the sale of the Corporate
Units, after payment of expenses related to the offering and underwriting
discounts, are estimated to be approximately $ million, or $ million if the
underwriters' over-allotment option is exercised in full. See "Underwriting"
starting on page S-61. We intend to use the net proceeds to repay the remaining
$100 million of short-term bank debt that we incurred in connection with our
recent acquisition of Purolator and for general corporate purposes. That bank
debt matures in March 2000 and bears interest at a variable rate, which was
5.80% per annum at July 4, 1999. In March 1999, we refinanced a portion of our
short-term bank debt associated with the Purolator acquisition through an
offering of $150 million aggregate principal amount of our 7 1/8% Notes due
2009. See "Business--Recent Acquisitions and Investments."
S-14
<PAGE>
PRICE RANGE OF COMMON SHARES AND DIVIDEND POLICY
The common shares are listed on the New York Stock Exchange and the Chicago
Stock Exchange under the symbol "ARV." The following table sets forth the range
of intra-day high and low sale prices, as reported on the NYSE Composite Tape,
and the cash dividends declared on the common shares for the periods indicated.
<TABLE>
<CAPTION>
PRICE RANGE
------------------
HIGH LOW DIVIDENDS
------- ------- -----------
<S> <C> <C> <C>
1997
First Quarter................................... $25 7/8 $21 $0.19
Second Quarter.................................. 28 3/4 21 7/8 $0.19
Third Quarter................................... 39 26 1/4 $0.19
Fourth Quarter.................................. 41 5/8 31 $0.20
1998
First Quarter................................... 40 31 $0.20
Second Quarter.................................. 42 3/4 33 7/16 $0.20
Third Quarter................................... 42 5/8 35 3/4 $0.20
Fourth Quarter.................................. 44 1/8 31 $0.21
1999
First Quarter................................... 42 7/8 30 7/8 $0.21
Second Quarter.................................. 41 7/8 26 3/8 $0.21
Third Quarter (through July 27, 1999)........... 40 1/2 38 5/16 $0.21
</TABLE>
On July 27, 1999, the last reported sale price of the common shares on the
NYSE was $39 5/16 share.
Subject to the prior dividend rights of any preferred shares that may be
outstanding, holders of the common shares are entitled to receive dividends and
other distributions, when and as declared by the board of directors of Arvin.
Certain of our long-term debt obligations contain covenants that may indirectly
restrict the payment of dividends on our capital shares, although none
materially limits our ability to pay dividends at the date of this prospectus
supplement.
S-15
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of Arvin at July 4,
1999, and as adjusted to reflect the application of the net proceeds from the
sale of the Corporate Units. The table should be read in conjunction with
Arvin's consolidated financial statements and notes thereto included in the
documents that are incorporated by reference in the accompanying prospectus. See
"Where You Can Find More Information" in the accompanying prospectus.
<TABLE>
<CAPTION>
AT JULY 4, 1999
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN MILLIONS)
<S> <C> <C>
Cash................................................................. $ 47.6 $ 92.6(1)
--------- -----------
--------- -----------
Short-term debt...................................................... $ 125.0 $ 25.0(1)
Long-term debt:
10% medium-term notes due 2000..................................... 36.0 36.0
6 7/8% notes due 2001.............................................. 75.0 75.0
7.94% notes due 2005............................................... 50.0 50.0
6 3/4% notes due 2008.............................................. 100.0 100.0
7 1/8% notes due 2009.............................................. 150.0 150.0
10 3/8% Euro-Sterling Notes due 2018............................... 28.2 28.2
Other.............................................................. 26.2 26.2
Debentures due 2004................................................ -- 150.0
Current maturities of long-term debt................................. (10.9) (10.9)
--------- -----------
Total long-term debt................................................. 454.5 604.5
--------- -----------
Minority interest.................................................... 55.6 55.6
Company-obligated mandatorily redeemable preferred capital securities
of subsidiary trust holding solely subordinated debentures of the
Company............................................................ 89.1 89.1
Shareholders' equity................................................. 562.6 553.8(2)
--------- -----------
Total capitalization................................................. $ 1,286.8 $ 1,328.0
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) The estimated net proceeds from the sale of the Corporate Units are first
applied to repay short-term debt with the remaining net proceeds reflected
in the cash balance.
(2) Shareholders' equity is reduced by $3.8 million for underwriting
compensation associated with the equity portion of the Corporate Units
issuance and by $5.0 million for the present value of future purchase
contract fee payments.
S-16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following summary financial information should be read in conjunction
with Arvin's consolidated financial statements and notes thereto included in
Arvin's Annual Report on Form 10-K for the fiscal year ended January 3, 1999.
The summary operating results, financial position and cash flow information for
and as of the end of each of the fiscal years in the three-year period ended
January 3, 1999 have been derived from the audited consolidated financial
statements of Arvin. Some of this information has been updated in Arvin's
Quarterly Reports on Form 10-Q for the quarters ended April 4, 1999 and July 4,
1999 and Current Reports on Form 8-K/A dated May 12, 1999 and June 22, 1999
relating to the Purolator acquisition. The operating results, financial position
and cash flow information for and as of the six months ended July 4, 1999 and
June 28, 1998 have been derived from Arvin's unaudited interim consolidated
financial statements, which, in the opinion of Arvin's management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of this information. The results for the six months ended July
4, 1999 are not necessarily indicative of the results to be expected for the
full year. See "Where You Can Find More Information" in the accompanying
prospectus.
<TABLE>
<CAPTION>
AT OR FOR THE SIX
MONTHS ENDED AT OR FOR THE FISCAL YEAR ENDED
-------------------- -------------------------------
JULY 4, JUNE 28, JAN. 3, DEC. 28, DEC. 29,
1999 1998 1999 1997 1996
--------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS(1)
Net sales......................................................... $ 1,577.7 $ 1,236.7 $ 2,498.7 $ 2,349.0 $ 2,212.7
Cost of goods sold................................................ 1,352.8 1,051.2 2,128.5 2,014.9 1,940.2
Selling, general and administrative expense....................... 112.4 91.2 191.5 165.6 151.1
Operating income(2)............................................... 116.6 84.5 170.7 171.3 135.9
Gross interest expense............................................ 24.2 17.9 35.8 39.5 38.8
Income from continuing operations................................. 50.8 41.2 78.4 65.0 47.1
FINANCIAL POSITION
Total assets...................................................... $ 2,009.2 $ 1,565.7 $ 1,646.5 $ 1,447.1 $ 1,307.8
Total debt........................................................ 579.5 328.6 317.8 277.9 346.6
Capital securities................................................ 89.1 98.9 89.1 98.9 --
Shareholders' equity.............................................. 562.6 520.1 563.7 485.2 437.4
OTHER DATA(1)
Depreciation and amortization..................................... $ 57.6 $ 45.3 $ 90.9 $ 85.6 $ 79.7
Capital expenditures, net......................................... 48.0 41.1 117.9 93.8 73.7
Income taxes...................................................... 23.6 19.8 38.3 34.2 19.7
EBITDA(3)......................................................... 156.5 124.2 243.3 224.4 185.3
Net cash (used for) provided by operating activities.............. (2.8) 15.0 164.4 194.9 158.9
SHARE DATA
Earnings per common share, diluted(1)............................. $ 2.07 $ 1.71 $ 3.23 $ 2.78 $ 2.03
Average common shares outstanding, diluted........................ 24.50 24.10 24.25 23.38 24.62
Dividends declared per common share............................... $ 0.42 $ 0.40 $ 0.81 $ 0.77 $ 0.76
</TABLE>
- ------------------------------
(1) From continuing operations.
(2) Operating income has been restated in accordance with the provisions of SFAS
131 and includes earnings from Arvin's equity subsidiaries and excludes
corporate expenses.
(3) EBITDA is not a measure of cash flow, operating results or liquidity, as
determined in accordance with generally accepted accounting principles, and
differs from net cash provided by operating activities as determined under
generally accepted accounting principles in that EBITDA excludes interest
expense and does not reflect the effects of changes in working capital or
deferred income tax items. EBITDA is included because management believes
that certain investors may find it to be a useful tool for analyzing
operating performance, leverage and liquidity. EBITDA should not be
considered in isolation or as an alternative to, or more meaningful than,
net income or cash flows provided by operations, as determined in accordance
with generally accepted accounting principles. Our EBITDA amounts may not be
comparable to EBITDA as reported by or for other companies because we may
not calculate EBITDA on the same basis as other companies.
S-17
<PAGE>
ACCOUNTING TREATMENT
The purchase contracts are forward transactions in Arvin's common shares.
Upon settlement of a purchase contract, Arvin will receive the stated amount of
$50 on the purchase contract and will issue the required number of common
shares. The stated amount received will be credited to shareholders' equity and
allocated between common shares and capital in excess of par value. The present
value of the contract adjustment payments will initially be charged to equity,
with an offsetting credit to liabilities. Subsequent contract adjustment
payments will be allocated between this liability account and interest expense
based on a constant rate calculation over the life of the share purchase
contracts.
Prior to the issuance of common shares upon settlement of the purchase
contracts, Arvin expects that the Units will be reflected in Arvin's diluted
earnings per share calculations using the treasury stock method. Under this
method, the number of common shares used in calculating diluted earnings per
share is deemed to be increased by the excess, if any, of the number of shares
issuable upon settlement of the purchase contracts over the number of shares
that could be purchased by Arvin in the market at the average market price
during the period using the proceeds receivable upon settlement. As a result,
Arvin expects there will be no dilutive effect on its earnings per share except
during periods when the average market price of the common shares is above the
Threshold Appreciation Price.
S-18
<PAGE>
BUSINESS
OVERVIEW
Arvin is a leading international manufacturer and supplier of automotive
exhaust systems, ride and motion control products and filters, with 1998 sales
of approximately $2.5 billion. We supply our products to the major automotive
original equipment manufacturers (OEMs) and replacement market parts suppliers.
Our principal exhaust system products include mufflers, exhaust and tail pipes,
catalytic converters and tubular manifolds, and our primary ride and motion
control products include shock absorbers, struts and gas-charged lift supports.
We also are a leading manufacturer and distributor of automotive oil, air and
fuel filters in North America. We have over 50 manufacturing facilities and 8
technical centers in 15 countries and estimate that we will derive approximately
61% of our fiscal 1999 sales from the original equipment (OE) market, 33% from
the automotive replacement market and the remaining 6% from other products.
Recently, Arvin has implemented a series of strategic initiatives to
increase its global competitive position within the automotive parts
marketplace. In November 1998, we entered into a joint venture with Kayaba
Industry Co., Ltd., providing ride control products to North American vehicle
manufacturers. In December 1998, we purchased a 49% interest in Zeuna Starker,
significantly expanding our German exhaust system capabilities. Most recently,
in February 1999, we expanded our aftermarket presence through the acquisition
of Purolator, adding automotive oil, air and fuel filters to our product line.
INDUSTRY TRENDS
We believe we are well positioned to take advantage of several trends
affecting our customers' markets.
EMISSIONS REGULATIONS. In the U.S., passenger car tailpipe emissions have
been reduced by more than 95% over the past 25 years. Despite these reductions,
current EPA Tier 2 proposals would require further reductions in emissions, by
77% in cars and 95% in light trucks from today's levels, to be phased in between
2004 and 2007. To meet these strict new standards, technological changes to the
exhaust system must be made and the emissions system will become more complex,
with additional components possibly being included in the system. Europe, Japan
and many of the developing nations are also tightening their emissions
standards. We have a significant share of the automotive exhaust market in the
U.S. and an expanding presence overseas, and we believe we will benefit through
greater sales as a result of stricter regulations.
OUTSOURCING. Automotive OEMs continue to outsource component manufacturing
as a result of competitive pressures to improve quality and reduce capital
expenditures, production costs and inventory levels. A significant portion of
ride and motion control components and exhaust systems is currently manufactured
by OEMs and their affiliated companies. Arvin sees the potential for increased
outsourcing as an attractive growth opportunity.
FULL SYSTEMS. In addition to outsourcing component manufacturing, OEMs are
placing greater reliance on large Tier I full-service suppliers that are capable
of supplying integrated systems. OEMs are also shifting research and
development, design, testing and validation to capable suppliers. As a leading
global supplier of integrated exhaust systems, Arvin is well-positioned to
benefit from this trend.
GLOBALIZATION. OEMs have significantly increased their overseas
manufacturing operations in order to more effectively serve a broader global
market for vehicle sales and to increase vehicle production in local markets. As
a result, they are concentrating their business with larger suppliers capable of
servicing them on a global basis at the expense of smaller, more regional
suppliers. With
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<PAGE>
45% of 1998 sales to international markets and manufacturing facilities in 15
countries worldwide, Arvin is one of the largest global suppliers of both
exhaust and ride and motion control products.
SUPPLIER CONSOLIDATION. In response to the trends mentioned above,
automotive suppliers have combined with other suppliers to gain the critical
mass to support the required research and development and realize economies of
scale. These combinations have also been pursued to add capabilities to
manufacture complementary components and more complete systems. Consolidation
also enables suppliers to build new customer relationships and to follow their
customers as they expand around the world. In addition to our recent investments
in Purolator, the Arvin-Kayaba joint venture and the 49% interest in Zeuna
Starker, we continue to evaluate complementary acquisitions that fit our
criteria.
AFTERMARKET DISTRIBUTOR CONSOLIDATION. The emergence and consolidation of
large automotive component retailers and distributors, such as AutoZone, Pep
Boys and CARQUEST, has resulted in fewer, larger customers for automotive
aftermarket manufacturers. These larger customers increasingly limit their
supply base to a smaller group of suppliers with broad product lines who are
capable of supplying higher service levels and providing private label products.
With its acquisition of Purolator, Arvin has added oil, air and fuel filters to
its existing line-up of exhaust and ride and motion control products. Arvin has
a leading share of the private label market in its principal product lines.
BUSINESS STRATEGY
Arvin's mission is to be the world-class standard for the automotive supply
industry. We believe that our competitive advantages include low-cost
manufacturing, integrated supply capability, broad product lines, strong
customer relationships, extensive aftermarket distribution and well-recognized
aftermarket brand names. Our strategy is designed to leverage our competitive
advantages and capitalize on trends in the industry by actively pursuing the
following initiatives.
EXPAND FULL SYSTEM/FULL SERVICE CAPABILITY. OEMs increasingly require their
suppliers to design, engineer, test, validate and manufacture complete systems
and modules. In recent years, Arvin has made significant investments in new
facilities and technologies that expand Arvin's capabilities to enable it to
meet these new requirements. As a result of our focus and capacity to provide
full service engineering and manufacturing, we believe we are well positioned to
win new business, which represents a significant opportunity. We estimate that
in 1998, over $1.0 billion of exhaust components and $500 million of ride
control components were manufactured pursuant to contracts awarded to in-house
suppliers. We believe many of these components will be sourced competitively in
the future and that we are well positioned to compete for this business.
FURTHER GLOBALIZATION AND DIVERSIFICATION OF CUSTOMER BASE. While Arvin has
operations in 15 countries, with the globalization and consolidation of the
vehicle assemblers, Arvin must continue to expand its international operations.
The recent investment in Zeuna Starker gives us a substantial presence in
Germany, with an expanded customer base which includes BMW and Mercedes. In
recent years, we have acquired operations in Thailand, Brazil and Argentina and
entered into a joint venture in China in order to supply our customers with
locally built components. We anticipate continued expansion in our current and
new markets in order to serve our existing and new customers.
EXPAND AFTERMARKET PRESENCE THROUGH WORLD-CLASS SERVICE. The consolidation
in the automotive aftermarket has resulted in larger customers that demand high
levels of customer service, a broad product line and private label products.
Arvin has set the standard for replacement product service with product
availability levels near 99% in U.S. markets. We believe other automotive parts
suppliers generally offer lower levels of service. Our order turnaround time,
the time from order placement to delivery, is typically no more than seven days
to any location in the continental U.S. Some competitors require much longer
order cycles. This excellence in customer service has helped us strengthen our
S-20
<PAGE>
relationships with our customers and create opportunities for us to sell more
products through these distribution channels. In response to these
opportunities, we recently added filters to our product offerings through the
acquisition of Purolator, and we will continue to explore additional
opportunities to add more product categories.
LEAN THINKING. Arvin's engine for continuous improvement in quality and
cost is the Arvin Total Quality Production System (ATQPS), which is based on the
Toyota Production System and other lean manufacturing techniques. This umbrella
program and its supplemental initiatives in purchasing, engineering and
administration drive Arvin's improvement process and have resulted in over 50%
of Arvin's manufacturing cells achieving World-Class certification. Significant
quality improvements and cost reductions are expected to be realized as all
Arvin manufacturing cells reach World-Class and Best in Class certification.
Since implementing ATQPS in 1992, Arvin has realized substantial improvements in
labor costs, cost of quality, selling, general and administrative costs and
inventory turnover.
We see opportunities to apply the principles of ATQPS beyond our existing
businesses. Acquired businesses, such as Purolator and WorldSource Coil Coating,
provide excellent opportunities for quality and cost improvements through ATQPS.
We have also started to apply these principles to our suppliers in improving
value chain management. Value chain management is an aggressive lean
manufacturing program that our suppliers are expected to implement. The
suppliers can reduce their costs and improve their quality through these efforts
and are expected to share the resulting benefits with us.
PURSUE STRATEGIC ACQUISITIONS, JOINT VENTURES AND ALLIANCES. Arvin is
pursuing a strategy which includes acquisitions, joint ventures and alliances
intended to accelerate the implementation of Arvin's strategic objectives.
Specifically, we will consider acquisitions that complement our ability to
supply complete systems, further globalize our operations and expand our
aftermarket product lines. We evaluate potential acquisitions to ensure they
meet our strategic objectives and financial criteria.
RECENT ACQUISITIONS AND INVESTMENTS
In conjunction with Arvin's announced growth strategy, Arvin has recently
made significant investments to enhance Arvin's position in the OE and
replacement markets.
ACQUISITION OF PUROLATOR. Arvin acquired Purolator from Mark IV Industries,
Inc. on February 26, 1999. Purolator is a leading independent manufacturer and
distributor of automotive oil, air and fuel filters in North America for both
the replacement and original equipment markets. Purolator is one of the most
widely known brand names in the automotive industry. The Purolator brand
includes more than 2,000 part numbers for automotive, light truck and heavy duty
applications. Purolator had annual sales of approximately $340 million for the
12-month period ended January 31, 1999. The transaction value of $272 million
includes the assumption of approximately $6 million in debt and certain closing
adjustments.
Adding the Purolator-Registered Trademark- brand name to Arvin's own
Maremont-Registered Trademark- exhaust, Gabriel-Registered Trademark- ride
control and StrongArm-Registered Trademark- gas-charged lift supports brand
names is creating additional synergies among our brand name replacement
products. We believe that Purolator's market presence in Europe and the rest of
the world can be enhanced without significant additional investment. The
similarity of Arvin's and Purolator's customers and distribution channels is
providing cost reduction opportunities while increasing the number of our retail
and wholesale customers.
Purolator is also a leading supplier of filters to vehicle makers and their
service parts organizations. Original equipment customers include Ford,
DaimlerChrysler, Toyota, Subaru, Mazda, Navistar and Nissan.
INVESTMENT IN ZEUNA STARKER. In December 1998, Arvin entered into a
cooperative agreement with Zeuna Starker under which Arvin purchased a 49%
interest in Zeuna Starker. Zeuna Starker,
S-21
<PAGE>
headquartered in Augsburg, Germany, is a premier supplier of automotive exhaust
systems. With annual revenues of approximately 725 million Deutsche Marks, or
approximately $380 million, Zeuna Starker is one of the largest independent
exhaust producers in Germany. Major customers include DaimlerChrysler, BMW,
Volkswagen, Fiat, Lancia, Alfa Romeo, Ferrari, Volvo, Rolls-Royce and Bentley.
Zeuna Starker offers a full range of exhaust products, including catalytic
converters, pipes, mufflers and complete exhaust systems to original equipment
automotive manufacturers. It has manufacturing facilities in Germany, South
Africa, Italy, Hungary and the United States.
ARVIN-KAYABA RIDE CONTROL JOINT VENTURE. In November 1998, Arvin formed a
joint venture with Kayaba Industry Co., Ltd. of Tokyo, Japan to provide ride
control products to North American passenger car and light truck manufacturers.
The joint venture, Arvin-Kayaba, LLC, includes Kayaba's operation in Franklin,
Indiana and the Arvin Ride Control operation in Pulaski, Tennessee. Arvin owns
50.1% of the joint venture.
JOINT VENTURES AND ALLIANCES
Arvin has a long history of entering joint ventures to gain access to new
technologies and expand our global presence while minimizing invested capital
and business risk. In addition to our recent acquisitions and investments, other
notable equity investments in affiliates include Arvin Sango Inc. (50%), Arvin
Exhaust GmbH (50%), Gabriel de Venezuela (42%) and Kayaba Arvin S.A. (40%).
Arvin believes these, and other equity investments in affiliates, will generate
over $600 million in unconsolidated sales in 1999. We intend to continue to
pursue joint venture opportunities that expand our global presence or offer
other strategic benefits.
PRODUCTS AND CUSTOMERS
Arvin designs, engineers, manufactures and distributes automotive exhaust
systems; ride and motion control products; automotive oil, air and fuel filters;
and coil coating products. In 1998, Arvin's products were found on 9 of the 10
top selling vehicles in the United States, and on the major European and
Japanese nameplates. Arvin's sales by product category on a segment reporting
basis are displayed in the table below:
<TABLE>
<CAPTION>
PRO FORMA
1998(1) 1998 1997 1996
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Automotive Original Equipment
Exhaust................................................. 45% 51% 51% 54%
Ride and Motion Control................................. 15% 17% 17% 14%
Automotive Replacement
Exhaust................................................. 13% 15% 15% 13%
Ride Control............................................ 11% 12% 12% 14%
Filters................................................. 12% -- -- --
Coil Coating.............................................. 4% 5% 5% 5%
</TABLE>
- ------------------------
(1) Includes the results of Purolator for the 12 months ended January 31, 1999.
THE AUTOMOTIVE OE SEGMENT. Arvin believes it is the leading supplier of
exhaust systems to OEMs in North America and Europe. Arvin believes it is the
third largest worldwide supplier of ride and motion control products to OEMs. In
1998, Arvin had sales to two customers that exceeded 10% of its
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<PAGE>
revenues (Ford, 19.2%, and General Motors, 11.6%). The principal products and
primary customers of the OE segment are listed below.
<TABLE>
<CAPTION>
PRINCIPAL PRODUCTS PRIMARY CUSTOMERS
- --------------------------------------- ----------------------------------------
<S> <C> <C>
EXHAUST SYSTEMS DaimlerChrysler Mitsubishi
--Mufflers Fiat Renault
--Exhaust and Tail Pipes Ford Toyota
--Catalytic Converters General Motors Volkswagen
--Tubular Manifolds Isuzu Volvo
RIDE AND MOTION CONTROL PRODUCTS
--Shock Absorbers
--Struts
--Gas-Charged Lift Supports
--Vacuum Actuators
FILTERS
</TABLE>
Arvin's OE sector has undergone a significant transformation in the last
decade, moving toward a fully integrated engineering, development and production
operation. This transformation has been driven by a shift in customer
requirements and a change in the capabilities required to be a successful,
long-term participant in this market. Arvin believes that its capital spending
program has resulted in world-class manufacturing operations which are capable
of delivering outstanding value and quality to its customers.
THE AUTOMOTIVE REPLACEMENT SEGMENT. Arvin believes that it is the second
leading supplier of automotive replacement exhaust systems and automotive
replacement ride control products worldwide. We are the leading supplier of
gas-charged lift supports in the U.S. and of automotive filters in North
America. Our customers in the aftermarket include the leading consolidators,
such as AutoZone, Pep Boys and CARQUEST, and the growth of such customers has
led to increased business for us. The principal products, brand names and
primary customers of the Replacement segment are listed below.
<TABLE>
<CAPTION>
PRINCIPAL PRODUCTS BRAND NAMES PRIMARY CUSTOMERS
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
EXHAUST SYSTEMS MUFFLERS RETAILERS
--Mufflers ANSA AutoZone
--Exhaust and Tail Pipes Cherry Bomb-Registered Trademark- Canadian Tire
--Catalytic Converters Maremont-Registered Trademark- Pep Boys
ROSI Sears
RIDE AND MOTION CONTROL TIMAX
PRODUCTS TESH WHOLESALE DISTRIBUTORS
--Shock Absorbers CARQUEST
--Struts SHOCK ABSORBERS General Parts, Inc.
--Gas-Charged Lift Supports Gabriel-Registered Trademark- Partco
UAP-NAPA
FILTERS GAS-CHARGED LIFT SUPPORTS
--Oil Filters StrongArm-Registered Trademark- INSTALLERS
--Air Filters Kwik-Fit
--Fuel Filters FILTERS Meineke
Purolator-Registered Trademark- Midas
</TABLE>
Arvin's replacement market operations compete with both OEMs and independent
suppliers in North America and Europe. Our competitive position has been
enhanced by rigorous attention to lead time reduction and lowest cost product
development. Continuous improvement in the manufacturing process has had a
positive impact on order fill rates, the cost and quality of products
manufactured and customer service and satisfaction.
S-23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JULY 4, 1999 AND JUNE 28, 1998
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
ARVIN'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JULY 4, 1999.
OVERVIEW
Sales for the six months ended July 4, 1999 of $1,577.7 million improved
$341.0 million over a strong comparable 1998 period. Top line growth was
achieved as a result of both recent acquisitions and strength in the original
equipment market. Year-to-date earnings before cumulative effect of accounting
change increased by 23 percent to $50.8 million, or $2.07 per diluted share,
compared to earnings of $41.2 million, or $1.71 per diluted share for the first
six months of 1998.
Two significant non-recurring items were recorded during the first six
months of 1999. First, an after-tax gain of $5.4 million on the sale of an
investment in a Latin American shock absorber affiliate increased diluted
earnings per share by $.22. An after-tax charge of $4.3 million for a voluntary
early retirement program for certain North American employees reduced diluted
earnings per share by $.18. Two significant non-recurring items were also
recorded during the first six months of 1998. First, an after-tax gain of $5.5
million on the early redemption of preferred stock increased diluted earnings
per share by $.23. An after-tax charge of $4.5 million for realignment of OE
exhaust operations reduced diluted earnings per share by $.19. Excluding the
impact of these non-recurring items, year-to-date 1999 earnings before
cumulative effect of accounting change increased by 24 percent to $49.7 million,
or $2.03 per diluted share, compared to year-to-date 1998 earnings of $40.2
million, or $1.67 per diluted share.
RESULTS OF OPERATIONS (IN MILLIONS)
<TABLE>
<CAPTION>
FIRST SIX MONTHS
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Net Sales:
Automotive Original Equipment.......................................... $ 1,011.0 $ 833.2
Automotive Replacement................................................. 476.0 348.8
Other.................................................................. 90.7 54.7
--------- ---------
Net sales............................................................ $ 1,577.7 $ 1,236.7
--------- ---------
--------- ---------
Operating Income: (1)
Automotive Original Equipment.......................................... $ 66.3 $ 48.2
Automotive Replacement................................................. 42.8 36.9
Other.................................................................. 7.5 (0.6)
--------- ---------
Operating income..................................................... $ 116.6 $ 84.5
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) Operating income reflects: (a) income from consolidated operations prior to
corporate expenses, interest and other non-operational items, and (b)
Arvin's share of net income from unconsolidated subsidiaries.
AUTOMOTIVE ORIGINAL EQUIPMENT:
Net sales in the OE segment for the six-month period increased by $177.8
million, or 21 percent over sales for the first six months of 1998. Sales
increased by $14.7 million due to the net effect of
S-24
<PAGE>
acquisitions offset by a divestiture. An increase in OE exhaust pass-through
sales contributed $90.2 million to revenues. Net sales were boosted by favorable
market conditions in North America and Western Europe. Vehicle production in the
U.S. and Canada increased by 13 percent, and new car registrations in Western
Europe improved by 8 percent as compared to the first six months of 1998.
Selective price concessions averaged nearly one percent of OE sales. Volume
gains (excluding pass-through sales) and a favorable product mix contributed
$72.1 and $13.9 million, respectively.
Comparison of the effect of changes in volume from period to period is
subject to a number of limitations, principally centered around what constitutes
a unit for volume measurement. The appropriate measure of a unit varies over
time as products develop, varies among the different countries in which Arvin
operates, and varies within each of our operating units. As a result, there is a
degree of imprecision and subjectivity in estimating the impact of volume
changes.
OE operating income for the first six months of 1999 included two
significant non-recurring items: (1) a $7.3 million gain on the sale of Arvin's
equity investment in a Latin American shock absorber affiliate, and (2) a $3.2
million charge for a voluntary early retirement program for certain North
American employees. Excluding the effect of these non-recurring items and a $6.6
million charge reported during the first six months of 1998, year-to-date OE
operating profit increased by 14 percent over the comparable period in 1998.
Volume gains and a favorable product mix outpaced the effect of selective price
concessions by $17.6 million. Negotiated raw material price decreases and
reduced warranty costs contributed $7.0 and $1.5 million, respectively, to
operating profit. The net impact of acquisitions and dispositions reduced
operating profit by $6.9 million, while equity in unconsolidated subsidiary
income increased operating profit by $3.0 million. OE operating income was
adversely affected by labor inflation of $7.7 million and productivity declines
of $6.8 million. Major reasons for the productivity declines include the delayed
launch of a key customer platform in Europe, and a downturn in European demand
for certain customer models.
OE operating margins, adjusted for previously discussed non-recurring items,
were 6.2 and 6.6 percent for the first six months of 1999 and 1998,
respectively. The operating margins were adversely affected by the increase of
OE exhaust pass-through sales, which typically have very low margins. Excluding
non-recurring items and the negative impact of increased pass-through sales, OE
operating margins for the first six months of 1999 and 1998 were 7.2 and 7.1
percent, respectively.
AUTOMOTIVE REPLACEMENT:
Replacement sales for the first six months of 1999 increased by $127.2
million, or 36 percent over sales for the first six months of 1998. The
acquisition of Purolator on February 26, 1999 accounted for 95 percent of this
increase. In addition, price increases, averaging one percent of sales, and a
favorable product mix of $18.0 million exceeded volume reductions of $12.9
million in the North American exhaust market and the negative effect of the
strong U.S. dollar on the translation of earnings, which equated to $4.0
million. The trend of lower volumes continues for the Replacement segment due to
improved original equipment exhaust systems and the evolution of light vehicle
designs. Despite overall softness in the replacement market, Arvin believes that
it continues to gain market share.
Operating units in the Replacement segment sell their product through a
variety of different customer channels including merchandisers, installers, and
wholesale distributors. As a result of period to period variations in this
channel mix, in addition to normal variations in product mix, the average price
of units sold may not correspond to price changes. As in the OE segment, there
is also a degree of imprecision and subjectivity in estimating the impact of
period to period volume changes, principally because of questions as to what
constitutes a unit for volume measurement. The appropriate measure of a unit
varies over time as products develop, varies among the different countries in
which Arvin operates, and varies within each of our operating units.
S-25
<PAGE>
Replacement operating income for the first six months of 1999 included a
$3.2 million non-recurring charge for a voluntary early retirement program for
certain North American employees. Excluding the effect of this program,
operating income for the Replacement segment increased by $9.1 million or 25
percent. The acquisition of Purolator accounted for almost 90 percent of the
increase
in operating profit. Price increases and a favorable product mix totaling $17.6
million offset volume reductions of $17.3 million. Productivity improvements and
negotiated raw material price decreases contributed a total of $8.6 million,
while labor inflation and costs to obtain new business reduced operating profit
by a total of $7.9 million.
OTHER
Other sales for the first six months of 1999 increased by 66 percent as
compared to the 1998 six-month period. The acquisition of WorldSource accounted
for approximately 55 percent of the increase, and other incremental volume made
up the rest of the gain.
Excluding non-recurring items recorded during the first six months of 1999
(a $.4 million charge for a voluntary early retirement program) and during the
first six months of 1998 (a $3.5 million increase in reserves for legal and
environmental issues), Other operating income increased by $5.0 million. Total
volume gains, including the acquisition of WorldSource, contributed $7.0
million. Minor variances for selective price concessions, unfavorable product
mix, and increased labor costs accounted for the remainder of the change.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES as a percent of sales were
relatively flat for the year-to-date comparison. Year-to-date expenses were $3.8
million higher due to increases in compensation, professional services and other
general expenses.
INTEREST EXPENSE increased by 35 percent in the first six months of 1999
when compared to the same period in 1998. The increase was a result of
additional interest-bearing obligations issued during 1999 in connection with
the acquisition of Purolator.
EQUITY INCOME OF AFFILIATES increased by $3.4 million during the first six
months of 1999 compared to the same period in 1998. The increase is primarily
attributable to gains from Arvin's Latin American shock absorber affiliate,
higher earnings reported for Arvin's U.S. OE exhaust affiliate and European OE
ride control affiliate, and equity income for two new affiliates acquired
through the purchase of Purolator.
OTHER EXPENSE, NET was essentially flat for the year-to-date comparison.
Other expense for the first six months of 1999 includes two offsetting
non-recurring items as follows: (1) a pre-tax gain of $7.3 million for the sale
of an investment in a Latin American shock absorber affiliate, and (2) a pre-tax
charge of $7.1 million for a voluntary early retirement program for certain
North American employees. For the first six months of 1998, other expense
includes the $6.6 million charge for realignment expenses discussed above in the
OE operating profit section, and a gain of $5.5 million relating to the early
redemption of preferred stock received in conjunction with Arvin's 1995 sale of
its Schrader Automotive unit. The year-to-date comparison is also affected by a
$3.5 million increase in legal and environmental reserves that was reported
during the first six months of 1998. In contrast, interest income was $2.2
million lower during the first six months of 1999 as compared to the same period
in 1998. Finally, foreign exchange transactions resulted in a loss of $1.0
million during the first six months of 1999 as compared to a gain of $1.0
million during the first six months of 1998.
INCOME TAX. The effective tax rate for the year-to-date 1999 period was
34.7 percent compared to 33.1 percent for the comparable period in 1998. The
lower rate for 1998 reflects the impact of the $5.5 million gain on the early
redemption of Arvin's investment in preferred stock on which no tax expense was
recorded. The year-to-date 1999 rate reflects the utilization of an available
capital loss carryforward.
S-26
<PAGE>
FINANCIAL CONDITION
LIQUIDITY. Working capital decreased by $7.6 million during the first six
months of 1999, which caused the current ratio to drop from 1.3 at the end of
fiscal year 1998 to 1.2 as of July 4, 1999. Current liabilities increased at a
higher rate than current assets due to the issuance of short-term debt to
acquire Purolator.
Key elements of the Consolidated Statement of Cash Flows for the first six
months of 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net Cash (Used for)/Provided by Operating Activities......................... (2.8) 15.0
Net Cash Used for Investing Activities....................................... (303.4) (42.8)
Net Cash Provided by Financing Activities.................................... 248.6 57.4
</TABLE>
Investing cash flows include $49.0 and $44.3 million for the purchase of
property, plant and equipment for the first six months of 1999 and 1998,
respectively. Arvin expects increased levels of capital expenditures in 1999 to
support new business requirements and process improvements. Investing cash flows
for the first six months of 1999 include proceeds of $12.4 million from the sale
of Arvin's investment in a Latin American shock absorber affiliate. Investing
cash flows also include $267.0 million paid for the purchase of Purolator, net
of cash acquired. Year-to-date 1998 investing cash flows include proceeds of
$9.6 million for the redemption of Arvin's investment in preferred stock
received in connection with the 1995 sale of Schrader. Arvin also purchased the
remaining shares of Autocomponents and Arvin Suspension Systems during the first
six months of 1998, resulting in a cash outflow of $8.7 million.
Financing cash flows for the first six months of 1999 include changes in
Arvin's debt structure. The proceeds from long-term financings reflect the
issuance of $150.0 million 7 1/8 percent notes due in 2009, which were used to
repay a portion of the short-term debt incurred with the acquisition of
Purolator. Furthermore, the change in short-term debt includes borrowing on a
bank facility arrangement established in February 1999 related to the
acquisition of Purolator. As of July 4, 1999, $100.0 million was being borrowed
from this facility. Financing cash flows for the first six months of 1998
include $99.0 million proceeds from 6.75 percent notes due in 2008, $46.0
million of which was used for debt retirement. Finally, financing cash flows
include Arvin's quarterly dividend to shareholders, which was increased five
percent during 1998 from 20 cents to 21 cents.
CAPITAL RESOURCES. Based on Arvin's projected cash flow from operations and
existing investments and financing credit facility arrangements, management
believes that sufficient liquidity is available to meet anticipated operating,
capital, and dividend requirements over the next 12 months.
INTEREST RATE RISK MANAGEMENT. Arvin relies significantly on long-term
fixed-rate debt in its capital structure. An increase in short-term bank
borrowings and the addition of $50 million of interest rate swaps during the
first six months of 1999, however, have lessened that reliance somewhat. Under
Arvin's current capital structure, if interest rates rise immediately by a 10
percent increment across the entire yield curve, Arvin's interest expense will
increase, and thus pre-tax earnings will decrease, by approximately $1.1 million
over a one-year period.
HEDGING. Arvin uses derivative financial instruments from time to time to
hedge certain financial and operating transactions denominated in currencies
other than functional currencies. Arvin believes that adequate controls are in
place to monitor these activities, which are not financially material. In June
1998, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and then in June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivatives Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133--an
Amendment of
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<PAGE>
FASB Statement No. 133." SFAS No. 137 defers the effective date of SFAS No. 133
by one year to fiscal years beginning after June 15, 2000. Accordingly, Arvin
plans to adopt SFAS No. 133 at the beginning of fiscal year 2001. This statement
is not expected to have a material impact on Arvin's results of operations.
YEAR 2000
During 1997, Arvin named a task force and began actively working with
customers, suppliers, and employees on Arvin's plan to address both information
technology (IT) and non-IT related Year 2000 issues. Non-IT systems include, but
are not limited to, those systems that are not commonly thought of as IT
systems, such as manufacturing equipment, building access, telephone systems and
other miscellaneous systems. Except for one location where new systems are being
implemented, Arvin had essentially completed the remediation, testing and
implementation phase of the Year 2000 project at the end of 1998 for both IT and
non-IT systems. (The implementation of the new systems noted above is planned
for the end of the third quarter.) These phases represent 90 percent of Arvin's
Year 2000 project and involved taking an inventory of all potentially affected
systems, identifying potential Year 2000 issues, fixing or replacing such
problems, and testing and implementing the changes made. The final 10 percent of
the Year 2000 project, auditing, is scheduled for completion before the end of
the third quarter of 1999. This phase consists of Arvin conducting internal
audit reviews, performing comprehensive tests of the IT systems in a Year 2000
simulated environment, reviewing the results of such testing, and putting in
place any necessary contingency plans.
Arvin has developed a Year 2000 process for dealing with its key suppliers.
The process generally involves the following steps: (1) an initial supplier
survey, (2) risk assessment, and (3) auditing critical suppliers. The first two
steps are essentially complete and the audits are expected to be completed
before the end of the third quarter of 1999. Contingency plans for non-compliant
suppliers will be developed as the audits are completed. These activities
provide a means of managing risk, but cannot eliminate the potential for
disruption due to third party failure. Arvin continues to work with key
suppliers and major customers on ensuring that its electronic exchanges of data
will continue to work.
Arvin believes it has an effective program in place to address possible Year
2000 problems in a timely manner. At this time, Arvin believes its "reasonably
likely worst case scenario" would be the failure of its third party business
partners to address Year 2000 issues. Current contingency plan focus is on
thorough testing, alternate supplier sources, manual backup for critical
processes, and build-up of safety stock in limited cases.
Expenses of the Year 2000 project are expensed as incurred. To date,
approximately three million dollars has been expensed for this project. Arvin
expects that an additional one million dollars will be expensed during the
remainder of 1999 to complete this project. Capital expenditures are generally
replacing fully depreciated assets and have not had a material effect on Arvin's
results of operations, cash flows, or financial condition and are not expected
to in the future.
LEGAL/ENVIRONMENTAL MATTERS
Arvin and its consolidated subsidiaries are defending various environmental
claims and legal actions that arise in the normal course of business or from
previously owned businesses. Where reasonable estimates of environmental
liabilities are possible, Arvin has provided for the undiscounted costs of
study, cleanup, remediation, and certain other costs, taking into account, as
applicable, available information regarding site conditions, potential cleanup
methods and the extent to which other parties can be expected to bear those
costs. Management regularly reviews pending environmental and legal proceedings
with its legal counsel and adjusts its accruals to reflect the current best
estimate of its exposure. Where no best estimate is determinable, Arvin has
accrued for the minimum amount of the most probable range of its liability.
Given the inherent uncertainties in
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<PAGE>
evaluating legal and environmental exposures, actual costs to be incurred in
future periods may vary from the currently recorded estimates. Arvin expects
that any sum it may be required to pay in connection with legal and
environmental matters in excess of the amounts recorded will not have a material
adverse effect on its results of operations, cash flows or financial condition.
FISCAL YEARS ENDED JANUARY 3, 1999, DECEMBER 28, 1997 AND DECEMBER 29, 1996
THE FOLLOWING DISCUSSION AND ANALYSIS HAS BEEN REPRINTED IN ITS ENTIRETY
FROM ARVIN'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 3,
1999. IT SHOULD BE READ IN CONJUNCTION WITH ARVIN'S CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED THEREIN. SOME OF THE FOLLOWING INFORMATION
HAS SUBSEQUENTLY BEEN UPDATED IN ARVIN'S QUARTERLY REPORTS ON FORM 10-Q FOR THE
QUARTERS ENDED APRIL 4, 1999 AND JULY 4, 1999 AND CURRENT REPORTS ON FORM 8-K/A
DATED MAY 12, 1999 AND JUNE 22, 1999 RELATING TO THE PUROLATOR ACQUISITION. SEE
"--SIX MONTHS ENDED JULY 4, 1999 AND JUNE 28, 1998."
OVERVIEW
1998 was another record year for Arvin. Net sales for 1998 increased by 6
percent to $2.5 billion compared to the prior year's sales of $2.3 billion. This
improvement was achieved despite the negative impact of a moderately stronger
United States (U.S.) dollar on the translation of foreign sales. On a constant
dollar basis, sales increased 7 percent. Top line growth was achieved as a
result of both recent acquisitions and strength in the original equipment
market.
Earnings from continuing operations increased by 21 percent to $78.4 million
compared to the prior year's earnings from continuing operations of $65.0
million. These results represented a record $3.23 per diluted share in 1998
compared to $2.78 per diluted share in 1997.
<TABLE>
<CAPTION>
PERCENTAGE
RESULTS OF OPERATIONS (IN MILLIONS) 1998 IN 1998 1997 1996
- --------------------------------------------------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales by Segment:
Automotive Original Equipment...................... $ 1,693.0 68% $ 1,590.4 $ 1,507.1
Automotive Replacement............................. 685.7 27% 643.4 594.1
Other.............................................. 120.0 5% 115.2 111.5
--------- ----- --------- ---------
Total............................................ $ 2,498.7 100% $ 2,349.0 $ 2,212.7
--------- ----- --------- ---------
--------- ----- --------- ---------
Operating Income by Segment:
Automotive Original Equipment...................... $ 93.8 55% $ 89.7 $ 83.0
Automotive Replacement............................. 72.3 42% 66.0 38.2
Other.............................................. 4.6 3% 15.6 14.7
--------- ----- --------- ---------
Total............................................ $ 170.7 100% $ 171.3 $ 135.9
--------- ----- --------- ---------
--------- ----- --------- ---------
</TABLE>
AUTOMOTIVE ORIGINAL EQUIPMENT
1998 VS. 1997. Net sales in the OE segment of $1,693.0 million increased by
$102.6 million or six percent over strong sales in 1997. The consolidation of
Arvin Exhaust do Brasil Ltda., Arvin-Kayaba, LLC and Arvin Exhaust Thailand
added $24.7 million in revenues. Conversely, the sale of Autocomponents
Suspension S.r.l. (Autocomponents) reduced revenues by $16.6 million. Market
influences were mixed. In the U.S. and Canada, vehicle production decreased one
percent, while new car registrations in Western Europe improved by seven percent
as compared to 1997. Selective price concessions, which averaged one percent of
OE sales, were more than offset by volume gains of $94.6 million. A strong U.S.
dollar had a negative effect on the translation of OE sales. On a constant
dollar basis, OE sales grew eight percent. A favorable product mix contributed
$37.0 million.
Operating income for the OE segment increased $4.1 million or five percent
in 1998 as compared to 1997. Volume gains and a favorable product mix exceeded
the impact of selective price concessions
S-29
<PAGE>
by $4.6 million. Manufacturing processes continued to improve through the
implementation of Arvin's Total Quality programs, increasing productivity by an
estimated $7.2 million. Competitive wage increases and separation costs reduced
OE operating profit by $13.0 million. Negotiated raw material price decreases
were $6.4 million and reduced warranty costs contributed $9.2 million. Research
and development expenses increased $4.6 million. The effect of foreign currency
translation reduced OE operating income by approximately two percent and the net
effect of acquisitions and dispositions reduced OE operating profit by $3.5
million.
Comparison of the effect of changes in volume from period to period is
subject to a number of limitations, principally centered around what constitutes
a unit for volume measurement. The appropriate measure of a unit varies over
time as products develop, varies among the different countries in which Arvin
operates, and varies within each of Arvin's operating units. As a result, there
is a degree of imprecision and subjectivity in estimating the impact of volume
changes.
1997 VS. 1996. Sales in the OE segment of $1,590.4 million for 1997 were
$83.3 million or six percent higher than OE sales for 1996. The inclusion of a
full year's results for Arvin Suspension Systems Italia (ASSI, formerly named
Way Assauto S.r.l.) contributed 50 percent of the increase. (ASSI was
consolidated in June 1996.) The January 1997 acquisition of a controlling
interest in Autocomponents contributed 29 percent of the increase. Sales
benefitted from higher vehicle build rates in both the United States and Western
Europe. Selective price concessions, which averaged less than one percent of OE
sales, were more than offset by volume gains of $54.8 million. A strong U.S.
dollar had a negative effect on the translation of OE sales. On a constant
dollar basis, OE sales grew nine percent. A favorable product mix contributed
$31.7 million.
Arvin's 1997 OE operating income increased $6.7 million, or eight percent.
On a constant dollar basis and excluding the effect of the non-recurring net
gain on capital transactions, OE operating income increased $23.6 million, or 28
percent. Negotiated raw material price decreases were a significant driver of
the increase, contributing $22.2 million. Improved product mix and volume gains
contributed $24.9 million of the increase, while the impact of acquisitions
contributed $4.0 million. Selective price concessions coupled with increased
tooling costs reduced operating profit by $17.4 million. Labor inflation
outpaced productivity gains by $3.9 million. A number of smaller variances
account for the remainder of the fluctuation.
AUTOMOTIVE REPLACEMENT
1998 VS. 1997. Replacement sales increased from $643.4 million to $685.7
million, a seven percent increase. The inclusion of a full year's results for
Timax Exhaust Systems Holding B.V. (TESH) contributed 60 percent of the
increase. (TESH was consolidated in May 1997.) Volume gains, excluding the
effect of acquisitions, plus a favorable product mix added $5.8 million to
Replacement sales. Arvin's ride control business was strong worldwide, while its
replacement exhaust sales in Europe had to offset a weak market in North America
that saw some price deterioration. Overall, price increases averaged nearly two
percent of Replacement sales.
Operating units in the Replacement segment sell their product through a
variety of different customer channels including merchandisers, installers and
wholesale distributors. As a result of period to period variations in this
channel mix, in addition to normal variations in product mix, the average price
of units sold may not correspond to price changes. As in the OE segment, there
is also a degree of imprecision and subjectivity in estimating the impact of
period to period volume changes, principally because of questions as to what
constitutes a unit for volume measurement. The appropriate measure of a unit
varies over time as products develop, varies among the different countries in
which Arvin operates, and varies within each of Arvin's operating units.
Operating income in the Replacement segment increased during 1998 by $6.3
million, or 10 percent. Favorable pricing actions contributed $12.8 million to
Replacement operating income, which was partially offset by labor inflation and
the costs of obtaining new business totaling $6.3 million.
S-30
<PAGE>
1997 VS. 1996. Replacement sales increased eight percent to $643.4 million.
Arvin's 1997 acquisition of a controlling interest in TESH added $49.2 million
to Replacement sales. Favorable pricing actions, plus a favorable product mix,
contributed a total of $23.7 million, which was offset by unfavorable currency
translation rates and a decline in the overall North American replacement
market.
Operating income in the Replacement segment increased $27.8 million during
1997. Favorable pricing actions and productivity improvements accounted for 83
percent of the increase. Volume reductions and labor inflation totaled $9.6
million, but were more than offset by a number of small expense decreases.
OTHER
1998 VS. 1997. Other sales increased from $115.2 million to $120.0 million,
a four-percent increase. A favorable product mix contributed $8.5 million to
Other sales, which was partially offset by reduced volume of $5.0 million. Price
increases averaged one percent.
Other operating profit decreased by $11.0 million during 1998. Excluding
non-recurring items of a $5.0 million increase in current year reserves for
legal and environmental issues and a $3.4 million gain recorded in 1997 related
to the sale of certain capital assets, operating profit decreased $2.6 million.
Favorable pricing and a strong product mix, which contributed $4.6 million, were
more than offset by productivity losses related to the start-up of a new plant
facility.
1997 VS. 1996. Other sales increased during 1997 by $3.7 million, or three
percent. Volume gains contributed $6.6 million to Other sales, which was
partially offset by price reductions of $2.8 million.
Other operating income increased by $.9 million during 1997, a six-percent
increase. Excluding the non-recurring gain of $3.4 million for the 1997 sale of
certain capital assets, operating profit decreased $2.5 million. Volume gains
and lower raw material costs contributed $5.1 million, which was partially
offset by price reductions. Start-up costs related to expanding Arvin's capacity
and geographic reach were the primary reason for the remainder of the variance.
Corporate general and administrative expenses increased $5.3 and $1.4
million in 1998 and 1997, respectively. The increase in both years was primarily
due to personnel and professional service expenditures.
Net gain on capital transactions for 1998 represents a $5.5 million gain for
the early redemption of Arvin's investment in preferred stock received in
conjunction with the 1995 sale of Arvin's Schrader Automotive unit. During 1997,
Arvin reported a $3.7 million gain on the sale of capital assets and a write
down of $1.5 million in the carrying value of a non-controlled venture in the
South American exhaust market. The $10.8 million gain reported in 1996 resulted
from Arvin's sale of its 31.4 percent equity interest in Fric Rot S.A.I.C.
INTEREST EXPENSE
During 1998, interest expense decreased by nine percent as a result of lower
average borrowing rates on slightly higher average interest-bearing liabilities.
During 1997, interest expense increased approximately two percent as a result of
higher average borrowing rates on Arvin's outstanding interest-bearing
liabilities.
Other expense, net decreased by $2.9 million in 1998. An increase in
interest income, plus net currency gains, contributed $2.9 million to the
decrease in net expense. Other expense was further reduced by a $1.9 million
decrease in fees related to discounted receivables and a non-recurring reserve
of $1.8 million that Arvin booked in 1997 for an estimated future obligation
under a contractual agreement deemed to be completed. Other expense increased
$3.6 million as a result of separation
S-31
<PAGE>
expenses, $3.0 million due to the write-off of certain assets and $1.1 million
due to the repurchase of high-coupon debt and capital securities. In addition to
these items, there were a number of small expense decreases and
reclassifications.
Other expense, net increased $2.6 million in 1997. Reduced royalty and rent
income of $1.4 and $1.3 million, respectively, were offset by increased interest
income in 1997. Other expense was higher in 1997, in part due to a $3.0 million
increase in legal and environmental reserves. Conversely, other expense was
lower in 1997 due to a non-recurring reserve of $2.6 million in 1996 for future
lease commitments at abandoned or under-utilized properties. As previously
discussed, other expense during 1997 includes a $1.8 million contract reserve.
TAX EXPENSE
Arvin's effective tax rate, prior to capital loss carryforward utilizations,
was 35.7, 36.2 and 37.0 percent in 1998, 1997 and 1996, respectively. The
effective tax rate after the effect of capital loss carryforward utilizations
was 34.0, 34.9 and 30.7 percent in 1998, 1997 and 1996, respectively.
Equity earnings of affiliates was essentially flat for 1998 as compared to
1997 and for 1997 as compared to 1996. The net impact on comparative results of
affiliates consolidated during 1998 and 1997 was negligible. Equity earnings
from affiliates for 1997 includes an intangible asset write-off, a reduction in
profits of a U.S. OE affiliate, and the elimination of a tax valuation allowance
in the amounts of $3.2, $1.2 and $4.7 million, respectively.
Minority interest in net income of consolidated subsidiaries decreased $2.7
million in 1998 and increased $1.3 million in 1997. The 1998 decrease was due to
the acquisitions of Autocomponents and TESH in March 1998 and in May 1997,
respectively. Minority interest was also lower as a result of the formation of
Arvin-Kayaba; however, this decrease was offset by increased earnings from
Arvin's 75 percent owned Spanish subsidiary, AP Amortiguadores, S.A. (APA). The
1997 increase was primarily a result of the consolidation of Autocomponents and
increased earnings from APA.
Income from disposal of discontinued operations in 1997 represents a
previously deferred gain on the sale of Space Industries.
LIQUIDITY AND CAPITAL RESOURCES
Arvin's operations provided strong cash flows in 1998, 1997 and 1996
primarily as a result of Arvin's higher net income and continued emphasis on
high asset utilization and working capital management. Key elements of the
Consolidated Statement of Cash Flows were:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net Cash Provided by Operating Activities...................... $ 164.4 $ 194.9 $ 158.9
Net Cash Used for Investing Activities......................... (216.7) (116.6) (69.9)
Net Cash Provided by (Used for) Financing Activities........... 51.8 (7.2) (65.5)
</TABLE>
Investing cash flows include purchases of property, plant and equipment in
1998, 1997 and 1996 of $123.2, $96.9 and $79.1 million, respectively. Arvin
expects increased levels of capital expenditures in 1999 to support new business
requirements and process improvements. Investing cash flows for 1998 also
includes proceeds of $9.6 million from the redemption of Arvin's investment in
preferred stock received in connection with the 1995 sale of Schrader. During
1998, investments totaling $85.6 million were made in several joint ventures,
including an additional investment in Arvin Exhaust Germany affiliate and a new
investment in Zeuna Starker. Arvin also acquired several business operations
during 1998, with cash payments totaling $29.3 million, net of cash acquired.
Finally, investing cash flows include cash proceeds of $6.9 million from the
sale of Autocomponents, net of cash sold.
S-32
<PAGE>
During the first quarter of 1999, Arvin acquired the Purolator automotive
filter business from Mark IV Industries, Inc. The transaction value of $276
million included the assumption of $6 million in debt. The transaction was
funded with a bridge facility provided by the co-lead agents on Arvin's
revolving credit facility. Arvin expects permanent financing during 1999 to
replace all or part of the bridge facility.
Financing cash flows include changes in Arvin's debt structure. The proceeds
from long-term borrowings reflect the issuance of $100 million 6 3/4 percent
Notes due March 15, 2008. During 1998, Arvin paid $54.2 million to retire
current maturities of long-term debt and $24.0 million to repurchase high coupon
debt and capital securities. Financing cash flows also include Arvin's quarterly
dividend to shareholders, which was increased five percent during 1998 from 20
cents to 21 cents per share. Based on Arvin's projected cash flow from
operations and existing investments and financing credit facility arrangements,
management believes that, once the bridge facility is replaced, sufficient
liquidity is available to meet anticipated capital and dividend requirements
over the foreseeable future.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Short-term debt and current maturities......................... $ 10.1 $ 55.6 $ 52.6
Long-term debt................................................. 307.7 222.3 294.0
Capital securities............................................. 89.1 98.9 --
Minority interest.............................................. 57.1 12.4 34.2
Shareholders' equity........................................... 563.7 485.2 437.4
Total capitalization........................................... $ 1,027.7 $ 874.4 $ 818.2
</TABLE>
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Arvin uses financial derivatives to manage its interest rate and global
foreign exchange exposure. Interest rate swaps and options are used principally
to manage Arvin's floating rate exposure and to hedge anticipated debt issuance
transactions. Forward exchange contracts and cross-currency options serve
primarily to protect the functional currency value of non-functional currency
positions and anticipated transactions of Arvin and its foreign subsidiaries.
Arvin does not hold or issue derivative financial instruments for trading
purposes or use leveraged derivatives in its financial risk management program.
INTEREST RATE RISK MANAGEMENT
Arvin relies significantly on long-term fixed-rate debt in its capital
structure. Arvin uses interest rate swaps to manage the fixed-rate to
floating-rate balance of its interest sensitive liabilities. Arvin had $90
million par value of 9.5 percent Company-Obligated Mandatorily Redeemable
Preferred Capital Securities of Subsidiary Trust Holding Solely Subordinated
Debentures of Arvin (Capital Securities) due 2027, callable in 2007, and one
interest rate swap agreement with a notional amount of $25 million outstanding
at year-end. Under the terms of the interest rate swap, Arvin receives a fixed
rate of 6.75 percent for three years and pays a LIBOR-based floating rate which
resets every six months. The swap agreement matures on April 25, 2000.
At January 3, 1999, the fair value of long-term debt, including that due
within one year, plus Capital Securities and swaps approximated $432.8 million.
The carrying value at that date was $406.9 million. The fair value was estimated
using quoted market prices and discounted cash flow analyses, based on Arvin's
incremental borrowing rates for similar types of lending arrangements. Changes
in interest rates that may occur within the next 12 months will have a minimal
effect on future interest expense based upon Arvin's year-end borrowing
structure. If interest rates rise immediately by a 10 percent increment across
the entire yield curve, Arvin's interest expense will increase, and thus pre-tax
earnings will decrease, by less than $.1 million in 1999.
S-33
<PAGE>
Arvin may borrow up to $100 million under its multi-currency credit facility
agreement, which matures on August 27, 2002. No borrowings were outstanding
under this facility at year-end. If the facility fee were priced at current
market levels, the incremental cost to Arvin would be approximately 5 basis
points annually on the total facility.
FOREIGN EXCHANGE RISK MANAGEMENT
At year-end 1998, Arvin had forward foreign exchange contracts totaling
$157.6 million outstanding to hedge certain financial and operating transactions
denominated in currencies other than various functional currencies. The full
amount of the forward contracts at year-end 1998 hedged existing non-functional
currency denominated assets and liabilities. The market value of the contracts
at year-end totaled $.3 million. Over 80 percent of the contracts outstanding at
year-end matured within one month thereafter. The furthest maturity date is July
6, 1999. Arvin manages its exposure to foreign currency fluctuations for
existing transactions by limiting each operating unit's booked exposure to a
specified level for each non-functional currency. The following table lists the
net positions of forward contracts outstanding by currency with the Euro legacy
currencies combined.
<TABLE>
<CAPTION>
NET POSITION IN
MILLIONS, LOCAL
CURRENCY CURRENCY
- ----------------------------------------------------------------------- ---------------------
<S> <C>
Euro................................................................... EUR (54.0)
Canadian Dollar........................................................ CAD 42.9
Great Britain Pound.................................................... GBP 21.1
U.S. Dollar............................................................ USD (0.2)
</TABLE>
Although Arvin used forward contracts during 1998 to hedge anticipated
non-functional currency denominated transactions, there were none outstanding at
year-end. Arvin manages the foreign currency risk of anticipated transactions by
forecasting such cash flows at the operating entity level, compiling Arvin's
total exposure and entering into forward foreign exchange contracts to lessen
foreign exchange exposures deemed excessive.
During 1998, Arvin also used foreign exchange options to reduce its exposure
to changes in exchange rates. These option contracts were principally in the
major European currencies, and were written for a term of less than one year.
There were no option contracts outstanding at year-end 1998.
LEGAL/ENVIRONMENTAL MATTERS
Arvin and its consolidated subsidiaries are defending various environmental
claims and legal actions that arise in the normal course of business or from
previously owned businesses. Such matters are more fully described in Note 8 to
the consolidated financial statements included in the Annual Report. Arvin
expects that any sum it may be required to pay in excess of its recorded
reserves will not have a material adverse effect on its results of operations,
cash flows or financial condition.
YEAR 2000
FOR MORE CURRENT INFORMATION, SEE "--SIX MONTHS ENDED JULY 4, 1999 AND JUNE
28, 1998--YEAR 2000."
During 1997, Arvin named a task force and began actively working with
customers, suppliers, and employees on Arvin's plan to address both information
technology (IT) and non-IT related Year 2000 issues. Non-IT systems include, but
are not limited to, those systems that are not commonly thought of as IT
systems, such as manufacturing equipment, building access, telephone systems and
other miscellaneous systems. Except for one location where new systems are being
implemented, Arvin has essentially completed the remediation, testing and
implementation phase of the Year 2000 project as of the end of 1998 for both IT
and non-IT systems. These phases represent 90 percent of Arvin's Year 2000
project and involved taking an inventory of all potentially affected systems,
identifying potential
S-34
<PAGE>
Year 2000 issues, fixing or replacing such problems, and testing the changes
made. The final 10 percent of the Year 2000 project, auditing, is scheduled for
completion during 1999. This phase will consist of Arvin conducting
self-assessment reviews, performing comprehensive tests of the IT systems in a
Year 2000 simulated environment, reviewing the results of such testing, and
putting in place any necessary contingency plans. Given the progress on this
project, Arvin plans to assess the need for a formal contingency plan in June
1999 and will analyze what the worst case scenario would be if Arvin's Year 2000
project were not completed as scheduled at that time.
Arvin has developed a Year 2000 process for dealing with its key suppliers.
The process generally involves the following steps: (1) initial supplier survey,
(2) risk assessment and (3) auditing critical suppliers. The first two steps are
essentially complete, and the audits are expected to be completed by the end of
the first half of 1999. Contingent plans for non-compliant suppliers will be
developed as the audits are completed. These activities provide a means of
managing risk, but cannot eliminate the potential for disruption due to third
party failure. Arvin continues to work with major customers on ensuring that its
electronic exchanges of data will continue to work.
Expenses of the Year 2000 project are expensed as incurred. To date,
approximately three million dollars has been expensed for this project. Arvin
expects that an additional one million dollars will be expensed during 1999 to
complete this project. Capital expenditures are generally replacing fully
depreciated assets and have not had a material effect on Arvin's results of
operations, cash flows, or financial condition and are not expected to in the
future.
EUROPEAN UNION CONVERSION TO THE EURO
The Euro was introduced in eleven participating EMU member countries in
January 1999, and a fixed conversion rate was established between the legacy
currencies and the Euro. The legacy currencies will continue to be used as legal
tender through January 1, 2002. During 1998, Arvin created a working group and
began actively working to address the Euro conversion by contacting customers
and suppliers and assessing internal systems to accomplish conversion
requirements. Effective January 1999, all Arvin European locations in the
participating countries are Euro capable. Full conversion to use the Euro as the
functional currency in the affected Arvin locations has been or will be
phased-in between January 1999 and January 2002.
Arvin is addressing the strategic, as well as the competitive and
operational implications of the Euro's introduction, such as increased
cross-border price transparency, marketing strategy, currency exchange risk and
material contracts as a part of its review. Arvin has developed a process for
dealing with its key customers and has, as required, updated IT to handle
accounting for the Euro. The costs associated with the conversion to the Euro
are expected to approximate $.5 million, of which approximately $.2 million has
already been spent. Arvin does not expect that the potential risks related to
conversion will have a material impact on earnings.
IMPACT OF NEW ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which establishes new
accounting and reporting standards for the costs of computer software developed
or obtained for internal use. This statement will be applied prospectively and
is effective for financial statements for fiscal years beginning after December
15, 1998. The impact of this new standard is not expected to have a significant
effect on Arvin's financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which requires costs of start-up activities to be expensed
as incurred. This statement is effective for financial statements for fiscal
years beginning after December 15, 1998. The statement requires capitalized
costs
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<PAGE>
related to start-up activities to be expensed as a cumulative effect of a change
in accounting principle when the statement is adopted. Arvin adopted the
provisions of SOP 98-5 at the beginning of fiscal 1999. In conjunction with the
adoption of SOP 98-5, Arvin wrote off $.8 million of previously capitalized
costs related to start-up activities.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The statement is effective for fiscal years beginning
after June 15, 1999. Arvin plans to adopt this statement at the beginning of
fiscal 2000. This statement is not expected to have a material impact on Arvin's
results of operations.
DESCRIPTION OF THE UNITS
The following description sets forth certain terms of the Units. It
supplements the description of the share purchase contracts and share purchase
units in the accompanying prospectus and, to the extent it is inconsistent with
the prospectus, replaces the description in the prospectus. The terms of the
Units will include those stated in the purchase contract agreement between Arvin
and the purchase contract agent. The following description of certain terms of
the Units and the descriptions of certain terms of the purchase contract
agreement, the purchase contracts and the pledge agreement under the captions
"Description of the Purchase Contracts" and "Certain Provisions of the Purchase
Contracts, the Purchase Contract Agreement and the Pledge Agreement" in this
prospectus supplement contain a description of all of their material terms but
do not purport to be complete. For additional information, you should refer to
the forms of the purchase contract agreement, including the forms of Unit and
the pledge agreement, including definitions of certain terms used therein, that
will be filed as exhibits to the registration statement that includes the
accompanying prospectus (the "Registration Statement").
CORPORATE UNITS
Each Corporate Unit offered hereby is a unit initially consisting of:
- a purchase contract under which (1) the holder will purchase from Arvin on
the purchase contract settlement date ( , 2002), or upon early
settlement, for $50, a number of newly issued common shares equal to the
Settlement Rate described below under "Description of the Purchase
Contracts--General" and (2) Arvin will pay contract adjustment payments to
the holder; and
- a debenture with a principal amount of $50.
The debenture will be pledged under the pledge agreement to secure the holder's
obligation to purchase common shares under the purchase contract.
The purchase price of each Corporate Unit will be allocated between the
purchase contract and the debenture comprising such Corporate Unit in proportion
to their respective fair market values at the time of purchase. Arvin expects
that, at the time of issuance, the fair market value of each purchase contract
will be $0 and the fair market value of each debenture will be $50. This
position generally will be binding on each beneficial owner of a Corporate Unit,
but not on the Internal Revenue Service. See "United States Federal Income Tax
Consequences--Corporate Units--Allocation of Purchase Price" on page S-56.
So long as the Units are in the form of Corporate Units, the related
debentures will be pledged to the collateral agent to secure the holders'
obligations to purchase common shares under the related purchase contracts.
S-36
<PAGE>
CREATING TREASURY UNITS BY SUBSTITUTING TREASURY SECURITIES
Each holder of Corporate Units may create Treasury Units by substituting for
the debentures that are a part of the Corporate Units certain Treasury
Securities having an aggregate principal amount at maturity equal to the
aggregate principal amount of those debentures.
Each Treasury Unit will be a unit consisting of:
- a purchase contract under which (1) the holder will purchase from Arvin on
the purchase contract settlement date, or upon early settlement, for $50,
a number of newly issued common shares equal to the Settlement Rate and
(2) Arvin will pay contract adjustment payments to the holder; and
- a 1/20th undivided beneficial ownership interest in a related Treasury
Security having a principal amount at maturity equal to $1,000 and
maturing on the business day preceding the purchase contract settlement
date.
The term "business day" means any day other than Saturday or Sunday or a day on
which banking institutions in New York City are authorized or required by law or
executive order to remain closed or a day on which Harris Trust and Savings
Bank, the indenture trustee for the debentures, is closed for business.
The Treasury Security will be pledged under the pledge agreement to secure
the holder's obligation to purchase common shares under the purchase contract.
Holders of Corporate Units may create Treasury Units at any time on or prior
to the seventh business day preceding the purchase contract settlement date.
Because Treasury Securities are issued in integral multiples of $1,000, holders
of Corporate Units may create Treasury Units only in integral multiples of 20.
To create 20 Treasury Units, a Corporate Unit holder is required to:
- deposit with the securities intermediary a Treasury Security having a
principal amount at maturity of $1,000; and
- transfer to the purchase contract agent 20 Corporate Units, accompanied by
a notice stating that the Corporate Unit holder has deposited a Treasury
Security with the securities intermediary and requesting that the purchase
contract agent instruct the collateral agent to release the related $1,000
principal amount of debentures.
Upon receiving instructions from the purchase contract agent and confirmation of
receipt of the Treasury Security by the securities intermediary, the collateral
agent will cause the securities intermediary to release the related 20
debentures from the pledge and deliver them to the purchase contract agent, on
behalf of the holder, free and clear of Arvin's security interest. The purchase
contract agent then will:
- cancel the 20 Corporate Units;
- transfer the related $1,000 principal amount of debentures to the holder;
and
- deliver 20 Treasury Units to the holder.
The Treasury Security will be substituted for the debentures and will be pledged
to the collateral agent to secure the holder's obligation to purchase common
shares under the related purchase contracts. The debentures thereafter will
trade separately from the Treasury Units.
Holders who create Treasury Units or recreate Corporate Units, as discussed
below, will be responsible for any fees or expenses payable to the collateral
agent in connection with substitutions of
S-37
<PAGE>
collateral. See "Certain Provisions of the Purchase Contracts, the Purchase
Contract Agreement and the Pledge Agreement--Miscellaneous" on page S-50.
RECREATING CORPORATE UNITS
Each holder of Treasury Units may recreate Corporate Units by:
- depositing with the securities intermediary $1,000 principal amount of
debentures; and
- transferring to the purchase contract agent 20 Treasury Units, accompanied
by a notice stating that such holder has deposited $1,000 principal amount
of debentures with the securities intermediary and requesting that the
purchase contract agent instruct the collateral agent to release the
related Treasury Security.
Upon receiving instructions from the purchase contract agent and confirmation of
receipt of the debentures by the securities intermediary, the collateral agent
will cause the securities intermediary to release the related Treasury Security
from the pledge and deliver it to the purchase contract agent, on behalf of the
holder, free and clear of Arvin's security interest therein. The purchase
contract agent then will:
- cancel the 20 Treasury Units;
- transfer the related Treasury Security to the holder; and
- deliver 20 Corporate Units to the holder.
Holders of Treasury Units may recreate Corporate Units at any time on or
prior to the seventh business day preceding the purchase contract settlement
date.
CURRENT PAYMENTS
Holders of Corporate Units will be entitled to receive aggregate cash
distributions at a rate of % of the $50 purchase price per annum from and
after , 1999, payable quarterly in arrears, subject to increase as
described under "Description of the Purchase Contracts--Contract Adjustment
Payments" starting on page S-42. The quarterly payments on the Corporate Units
will consist of (1) cumulative cash interest payments payable on the related
debentures payable at the rate of % of the principal amount per annum and (2)
contract adjustment payments payable by Arvin at the rate of % of the stated
amount per annum until , 2002.
If a holder of Corporate Units creates Treasury Units by substituting
Treasury Securities for the debentures, the only payments that such holder will
receive on the Treasury Units will be the quarterly contract adjustment
payments. Instead of payments with respect to any debentures, original issue
discount will accrue on the related Treasury Securities.
LISTING OF THE CORPORATE UNITS, THE TREASURY UNITS AND THE DEBENTURES
Arvin has applied for listing the Corporate Units on the NYSE. If the
Treasury Units and the debentures are separately traded to a sufficient extent
that applicable exchange listing requirements are met, Arvin will try to cause
them to be listed on the same national securities exchange as the Corporate
Units are listed.
MISCELLANEOUS
Arvin or its affiliates may purchase from time to time any of the Units that
are then outstanding by tender, in the open market or by private agreement.
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<PAGE>
DESCRIPTION OF THE PURCHASE CONTRACTS
GENERAL
Each purchase contract that is a part of a Unit will obligate its holder to
purchase, and Arvin to sell, on the purchase contract settlement date, a number
of newly issued common shares equal to the rate described below (the "Settlement
Rate"), for $50 in cash unless the purchase contract terminates prior to such
date or is settled early at the holder's option. The number of common shares
issuable upon settlement of each purchase contract on the purchase contract
settlement date will be determined as follows, subject to adjustment as
described under "--Anti-Dilution Adjustments" below:
- If the Applicable Market Value (as defined below) is equal to or greater
than the Threshold Appreciation Price of $ , then each purchase
contract will be settled for common shares. The Threshold
Appreciation Price represents an appreciation of % above the
Reference Price of $ .
- If the Applicable Market Value is less than the Threshold Appreciation
Price but greater than the Reference Price, then each purchase contract
will be settled for a number of common shares determined by dividing the
stated amount of $50 by the Applicable Market Value.
- If the Applicable Market Value is less than or equal to the Reference
Price, then each purchase contract will be settled for common
shares.
For illustrative purposes only, the following table shows the number of
common shares issuable upon settlement of each purchase contract at various
assumed Applicable Market Values. The table assumes that there will be no
adjustments to the Settlement Rate described under "--Anti-Dilution Adjustments"
below. There can be no assurance that the actual Applicable Market Value will be
within the range set forth below. Given the Reference Price of $ and the
Threshold Appreciation Price of $ , a holder of a Unit would receive on the
purchase contract settlement date the following number of common shares:
<TABLE>
<CAPTION>
NUMBER OF COMMON
APPLICABLE MARKET VALUE SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
</TABLE>
As the foregoing table illustrates, if, on the purchase contract settlement
date, the Applicable Market Value is greater than or equal to $ , Arvin
will be obligated to deliver common shares for each purchase contract. As
a result, the holder would receive % of the appreciation in the market value
of the common shares above $ . If, on the purchase contract settlement
date, the Applicable Market Value is less than $ but greater than $ ,
Arvin will be obligated to deliver a number of common shares equal to $50
divided by the Applicable Market Value, and Arvin would retain all appreciation
in the market value of the common shares for that period. If, on the purchase
contract settlement date, the Applicable Market Value is less than or equal to
$ , Arvin will be obligated to deliver common shares for each
purchase contract, regardless of the market price of the common shares. As a
result, the holder would realize the entire loss on the decline in market value
of the common shares for that period.
The "Applicable Market Value" means the average of the Closing Prices of the
common shares on each of the 20 consecutive Trading Days ending on the third
Trading Day preceding the purchase contract settlement date.
S-39
<PAGE>
The "Closing Price" of the common shares, on any date of determination,
means:
(1) the closing sale price (or, if no closing sale price is reported,
the last reported sale price) of the common shares on the NYSE on such date
or, if the common shares are not listed for trading on the NYSE on any such
date, as reported in the composite transactions for the principal United
States securities exchange on which the common shares are so listed, or if
the common shares are not so listed on a United States national or regional
securities exchange, as reported by The Nasdaq Stock Market; or
(2) if the common shares are not so reported, the last quoted bid price
for the common shares in the over-the-counter market as reported by the
National Quotation Bureau or a similar organization, or, if such bid price
is not available, the average of the mid-point of the last bid and ask
prices of the common shares on such date from at least three nationally
recognized independent investment banking firms retained for this purpose by
Arvin.
"Trading Day" means a day on which the common shares:
(1) are not suspended from trading on any national or regional
securities exchange or association or over-the-counter market at the close
of business; and
(2) have traded at least once on the national or regional securities
exchange or association or over-the-counter market that is the primary
market for the trading of the common shares.
No fractional common shares will be issued by Arvin upon settlement of a
purchase contract. In lieu of a fractional share, the holder will receive an
amount of cash equal to such fraction multiplied by the Applicable Market Value.
If, however, a holder surrenders for settlement at one time more than one
purchase contract, then the number of common shares issuable pursuant to such
purchase contracts will be computed based upon the aggregate number of purchase
contracts surrendered.
Prior to the settlement of a purchase contract, the common shares underlying
the purchase contract will not be outstanding for any purpose, and the holder of
the purchase contract will not have any voting rights, rights to dividends or
other distributions or other rights or privileges of a shareholder of Arvin by
virtue of holding such purchase contract.
By accepting a Corporate Unit or a Treasury Unit, a holder will be deemed to
have:
- irrevocably authorized the purchase contract agent as attorney-in-fact to
enter into and perform the related purchase contract on behalf of such
holder;
- agreed to be bound by, and to have consented to, the terms and provisions
of the related purchase contract;
- irrevocably authorized the purchase contract agent as attorney-in-fact to
enter into and perform the purchase contract and the pledge agreement on
behalf of such holder; and
- agreed to be bound by the pledge arrangement contained in the pledge
agreement.
In addition, each holder of Corporate Units or Treasury Units will be deemed
to have agreed to treat itself as the owner of the related debentures, or the
Treasury Securities, as the case may be, in each case for U.S. federal, state
and local income and franchise tax purposes.
SETTLEMENT THROUGH REMARKETING
Holders of Corporate Units who fail to notify the purchase contract agent,
on or prior to the seventh business day preceding the purchase contract
settlement date, of their intention to effect settlement of the related purchase
contracts with separate cash in the manner described under "--Notice to Settle
with Cash," or who so notify the purchase contract agent but fail to deliver
such separate cash on or prior to the fifth business day preceding the purchase
contract settlement date, will
S-40
<PAGE>
have their debentures remarketed on the third business day preceding the
purchase contract settlement date. Under the remarketing agreement with Lehman
Brothers and Merrill Lynch, which will permit Arvin to designate one or both of
Lehman Brothers or Merrill Lynch as the remarketing agent, the remarketing agent
will use commercially reasonable efforts to remarket those debentures, together
with any debentures not then a part of the Corporate Units as to which the
holders have requested remarketing, on such date at a price of 100.25% of the
total principal amount of such debentures. The proceeds from the remarketing of
the debentures that are a part of the Corporate Units will automatically be
applied (1) to satisfy in full such Corporate Unit holders' obligations to
purchase common shares under the related purchase contracts and (2) to pay the
remarketing fee to the remarketing agent for such remarketing. See "Description
of the Debentures--Market Rate Reset by Remarketing" starting on page S-52.
If the remarketing agent cannot remarket the debentures, a "Failed
Remarketing" will occur, and Arvin will be entitled to exercise its rights as a
secured party and, subject to applicable law, retain the debentures pledged as
collateral under the pledge agreement or sell them in one or more private sales.
In either case, the obligations of the holders under the related purchase
contracts would be satisfied in full. If Arvin exercises its rights as a secured
creditor, any accrued and unpaid interest payments on those debentures will be
paid in cash by Arvin to the purchase contract agent for payment to the holders
of the Corporate Units of which those debentures are a part. Arvin will cause a
notice of such Failed Remarketing to be published no later than the business day
preceding the purchase contract settlement date in a daily newspaper in the
English language of general circulation in New York City, which is expected to
be THE WALL STREET JOURNAL.
As long as the Units or the debentures are evidenced by one or more global
security certificates deposited with The Depository Trust Company, Arvin will
request, not later than 15 nor more than 30 calendar days prior to the
remarketing date, that DTC notify its participants holding debentures or
Corporate Units of the remarketing and of the procedures to be followed for
settlement with separate cash. See "--Book-Entry Issuance" below and
"Description of the Debt Securities--Book-Entry Debt Securities" in the
accompanying prospectus. Arvin will try to have in effect a registration
statement covering the debentures to be remarketed in a form that the
remarketing agent may use in connection with the remarketing process.
NOTICE TO SETTLE WITH CASH
A holder of a Corporate Unit or a Treasury Unit wishing to settle the
related purchase contract with separate cash must notify the purchase contract
agent by delivering a "Notice to Settle by Separate Cash" on or prior to 5:00
p.m., New York City time:
- on the seventh business day preceding the purchase contract settlement
date, in the case of a Corporate Unit; and
- on the second business day preceding the purchase contract settlement
date, in the case of a Treasury Unit.
A holder wishing to settle with separate cash must deliver to the securities
intermediary cash payment in the form of a certified or cashier's check or by
wire transfer, in each case in immediately available funds payable to or upon
the order of the securities intermediary. Payment must be delivered prior to
11:00 a.m., New York City time, on the fifth business day prior to the purchase
contract settlement date in the case of a Corporate Unit, or on the business day
prior to the purchase contract settlement date in the case of a Treasury Unit.
Upon receipt of the cash payment, the related debentures or Treasury Securities,
as the case may be, will be released from the pledge arrangement and transferred
to the purchase contract agent for distribution to the holder of the related
Units. If the payment is not delivered by that time and date, then the related
debentures will be remarketed or
S-41
<PAGE>
Arvin will receive at maturity the principal amount of the related Treasury
Securities in full satisfaction of such holder's obligations under the related
purchase contract.
Any cash received by the securities intermediary upon separate cash
settlement will be invested promptly in permitted investments and paid to Arvin
on the purchase contract settlement date. Any funds received by the securities
intermediary in respect of the investment earnings from such investments will be
distributed to the purchase contract agent for payment to the holders who
settled with cash.
EARLY SETTLEMENT
A holder of Corporate Units or Treasury Units may settle the related
purchase contracts prior to the purchase contract settlement date by delivering
to the purchase contract agent:
- a completed "Election to Settle Early" form; and
- payment, payable to Arvin in immediately available funds, in an amount
equal to $50 multiplied by the number of purchase contracts being settled.
A holder of Corporate Units may settle early the related purchase contracts at
any time on or prior to the seventh business day preceding the purchase contract
settlement date. A holder of Treasury Units also may settle early at any time
prior to the second business day preceding the purchase contract settlement
date, but only in integral multiples of 20 Treasury Units.
Upon early settlement, Arvin will issue, and the holder will be entitled to
receive, newly issued common shares for each Corporate Unit or Treasury
Unit, regardless of the market price of the common shares on the date of early
settlement but subject to adjustment under the circumstances described under
"--Anti-Dilution Adjustments" below. The holder's right to receive future
contract adjustment payments will terminate. Arvin will cause (1) the common
shares to be issued and (2) the related debentures or Treasury Securities, as
the case may be, securing such purchase contracts to be released from the pledge
under the pledge agreement, and, within three business days following the
settlement date, each will be transferred to the purchase contract agent for
delivery to the holder or the holder's designee.
If the purchase contract agent receives a completed "Election to Settle
Early" and payment of $50 for each Unit being settled early by 5:00 p.m., New
York City time, on any business day, then that day will be considered the
settlement date. If the purchase contract agent receives the foregoing after
5:00 p.m., New York City time, on any business day or at any time on a day that
is not a business day, then the next business day will be considered the
settlement date. As long as the Units are evidenced by one or more global
security certificates deposited with DTC, procedures for early settlement also
will be governed by standing arrangements between DTC and the purchase contract
agent.
CONTRACT ADJUSTMENT PAYMENTS
Contract adjustment payments will be fixed at a rate per annum of % of
the $50 stated amount per purchase contract, subject to increase as described
below. Contract adjustment payments payable for any period will be computed (1)
for any full quarterly period on the basis of a 360-day year of twelve 30-day
months and (2) for any period shorter than a full quarterly period, on the basis
of a 30-day month and, for periods of less than a month, on the basis of the
actual number of days elapsed per 30-day month. Contract adjustment payments
will accrue from , 1999 and will be payable quarterly in arrears on
, , and of each year, commencing , 1999.
S-42
<PAGE>
If a Reset Transaction (as defined below) occurs, the rate at which the
contract adjustment payments accrue will be adjusted to equal the Adjusted
Contract Adjustment Payment Rate from the effective date of the Reset
Transaction to, but not including, the earlier of:
- the effective date of any later Reset Transaction, or
- the purchase contract settlement date.
"Reset Transaction" means a merger, consolidation or statutory share exchange to
which the entity that is the issuer of the common shares for which the purchase
contracts are then to be settled is a party, a sale of all or substantially all
the assets of that entity, a recapitalization of that common shares or a
distribution described in clause (4) of the first paragraph under
"--Anti-Dilution Adjustments" below, after the effective date of which
transaction or distribution the purchase contracts are then to be settled for:
- shares of an entity the common shares of which had a Dividend Yield for
the four fiscal quarters of that entity preceding the public announcement
of that transaction or distribution that was more than 250 basis points
(2.50%) higher than the Dividend Yield on Arvin's common shares, or other
common shares then issuable upon settlement of the purchase contracts, for
the four fiscal quarters preceding the public announcement of such
transaction or distribution, or
- shares of an entity that announces a dividend policy prior to the
effective date of the transaction or distribution which policy, if
implemented, would result in a Dividend Yield on that entity's common
shares for the next four fiscal quarters that would result in such a 250
basis point increase.
The "Adjusted Contract Adjustment Payment Rate," with respect to any Reset
Transaction, will be the rate per annum that is the arithmetic average of the
rates quoted by two Reference Dealers selected by Arvin or its successor as the
rate at which contract adjustment payments should accrue so that the fair market
value, expressed in dollars, of a Corporate Unit immediately after the later of:
- the public announcement of the Reset Transaction, or
- the public announcement of a change in dividend policy in connection with
the Reset Transaction,
will equal the average Trading Price of a Corporate Unit for the 20 Trading Days
immediately preceding the date of public announcement of the Reset Transaction.
However, the Adjusted Contract Adjustment Payment Rate will not be less than
% per annum.
The "Dividend Yield" on any security for any period means the dividends paid
or proposed to be paid pursuant to an announced dividend policy on such security
for such period divided by, if with respect to dividends paid on such security,
the average Closing Price of such security during such period and, if with
respect to dividends proposed to be paid on such security, the Closing Price of
such security on the effective date of the related Reset Transaction.
"Reference Dealer" means a dealer engaged in the trading of convertible
securities.
"Trading Price" of a security on any date of determination means:
- the closing sale price or, if no closing sale price is reported, the last
reported sale price of a security, regular way, on the NYSE on such date;
- if that security is not listed for trading on the NYSE on any such date,
the closing sale price as reported in the composite transactions for the
principal United States securities exchange on which that security is so
listed;
S-43
<PAGE>
- if that security is not so listed on a United States national or regional
securities exchange, the closing sale price as reported by The Nasdaq
Stock Market;
- if that security is not so reported, the price quoted by Interactive Data
Corporation for that security or, if Interactive Data Corporation is not
quoting such price, a similar quotation service selected by Arvin;
- if that security is not so quoted, the average of the mid-point of the
last bid and ask prices for that security from at least two dealers
recognized as market-makers for such security; or
- if that security is not so quoted, the average of the last bid and ask
prices for that security from a Reference Dealer.
Contract adjustment payments will be payable to the holders of purchase
contracts as they are registered on the books and records of the purchase
contract agent on the relevant record dates. So long as the Units remain in
book-entry only form that record date will be the business day prior to the
relevant payment dates. Contract adjustment payments will be paid through the
purchase contract agent, which will hold amounts received in respect of the
contract adjustment payments for the benefit of the holders of the purchase
contracts that are a part of such Units. Subject to any applicable laws and
regulations, each payment will be made as described under "--Book-Entry
Issuance" below. If the Units do not remain in book-entry only form, the
relevant record dates will be the 15(th) business day prior to the relevant
payment dates. If any date on which contract adjustment payments are to be made
is not a business day, then payment of the contract adjustment payments payable
on that date will be made on the next day that is a business day and without any
interest in respect of any such delay. However, if such business day is in the
next calendar year, payment will be made on the prior business day.
ANTI-DILUTION ADJUSTMENTS
The formula for determining the Settlement Rate will be subject to
adjustment upon the occurrence of specified events, including:
(1) the payment of dividends and other distributions on Arvin's common
shares made in common shares;
(2) the issuance to all holders of common shares of rights, options or
warrants entitling them, for a period of up to 45 days, to subscribe for or
purchase common shares at less than their Current Market Price;
(3) subdivisions, splits or combinations of common shares;
(4) distributions to all holders of common shares of evidences of
indebtedness or assets, including securities but excluding any dividend or
distribution covered by clause (1) or (2) above and any dividend or
distribution paid exclusively in cash;
(5) distributions consisting exclusively of cash to all holders of
common shares in an aggregate amount that, together with (a) other all-cash
distributions made within the preceding 12 months and (b) the aggregate of
any cash plus the fair market value, as of the expiration of the tender or
exchange offer referred to below, of consideration payable in respect of any
tender or exchange offer by Arvin or any of its subsidiaries for all or any
portion of the common shares concluded within the preceding 12 months,
exceeds 15% of Arvin's total market capitalization on the date of the
distribution; total market capitalization is the product of the Current
Market Price of the common shares multiplied by the number of common shares
then outstanding; and
(6) the successful completion of a tender or exchange offer made by
Arvin or any of its subsidiaries for the common shares that involves an
aggregate consideration having a fair market
S-44
<PAGE>
value that, together with (a) the aggregate amount of any cash and the fair
market value of other consideration payable in respect of any tender or
exchange offer by Arvin or any of its subsidiaries for the common shares
concluded within the preceding 12 months and (b) the total amount of any
all-cash distributions to all holders of Arvin's common shares made within
the preceding 12 months, exceeds 15% of Arvin's total market capitalization
on the expiration of such tender or exchange offer.
"Current Market Price" per common share on any day means the average of the
daily Closing Prices for the five consecutive Trading Days selected by Arvin
commencing not more than 30 Trading Days before, and ending not later than, the
earlier of the day in question and the day before the "ex date" with respect to
the issuance or distribution requiring such computation. For purposes of this
paragraph, the term "ex date," when used with respect to any issuance or
distribution, will mean the first date on which the common shares trades regular
way on the applicable exchange or in the applicable market without the right to
receive such issuance or distribution.
In the case of certain reclassifications, consolidations, mergers, sales or
transfers of assets or other transactions pursuant to which the common shares
are converted into the right to receive other securities, cash or property, each
purchase contract then outstanding would become, without the consent of the
holder of the related Corporate Unit or Treasury Unit, as the case may be, a
contract to purchase only the kind and amount of securities, cash and other
property receivable upon consummation of the transaction by a holder of the
number of common shares that would have been received by the holder of the
related Corporate Unit or Treasury Unit immediately prior to the date of
consummation of the transaction if the holder had then settled such purchase
contract.
If at any time Arvin makes a distribution of property to its shareholders
that would be taxable to shareholders as a dividend for United States federal
income tax purposes (for example, distributions of evidences of indebtedness or
assets of Arvin, but generally not share dividends or rights to subscribe to
capital shares) and, pursuant to the Settlement Rate adjustment provisions of
the purchase contract agreement, the Settlement Rate is increased, such increase
may give rise to a taxable dividend to holders of the Units. See "United States
Federal Income Tax Consequences--Purchase Contracts-- Adjustment to Settlement
Rate" on page S-58.
In addition, Arvin may make such increases in the Settlement Rate as it
deems advisable in order to avoid or diminish any income tax to holders of its
capital shares resulting from any dividend or distribution of capital shares, or
rights to acquire capital shares, or from any event treated as such for income
tax purposes or for any other reason.
Adjustments to the Settlement Rate will be calculated to the nearest
1/10,000th of a share. No adjustment in the Settlement Rate will be required
unless the adjustment would require an increase or decrease of at least 1% in
the Settlement Rate. However, any adjustments not required to be made by reason
of the foregoing will be carried forward and taken into account in any
subsequent adjustment.
Whenever the Settlement Rate is adjusted, Arvin must deliver to the purchase
contract agent a certificate setting forth the Settlement Rate, detailing the
calculation of the Settlement Rate and describing the facts upon which the
adjustment is based. In addition, Arvin must notify the holders of the Units of
the adjustment within ten business days of any event requiring such adjustment
and describe in reasonable detail the method by which the Settlement Rate was
adjusted.
Each adjustment to the Settlement Rate will result in a corresponding
adjustment to the number of common shares issuable upon early settlement of a
purchase contract.
If an adjustment is made to the Settlement Rate as a result of an event
described in (1)-(6) above, an adjustment also will be made to the Applicable
Market Value solely to determine which of the three clauses in the definition of
Settlement Rate will be applicable on the purchase contract settlement date.
S-45
<PAGE>
TERMINATION
The purchase contracts and the obligations and rights of Arvin and of the
holders of the Units thereunder, including the holders' right to receive
contract adjustment payments and the obligation and right to purchase and
receive common shares, will terminate immediately and automatically upon the
occurrence of certain events of bankruptcy, insolvency or reorganization with
respect to Arvin. Upon termination, the collateral agent will release the
related debentures or Treasury Securities, as the case may be, from the pledge
arrangement and cause the securities intermediary to transfer such debentures or
Treasury Securities to the purchase contract agent for distribution to the Unit
holders. Upon termination, however, that release and distribution may be subject
to a delay. In the event that Arvin becomes the subject of a case under the
Bankruptcy Code, the delay may occur as a result of the automatic stay under the
Bankruptcy Code and continue until such automatic stay has been lifted.
PLEDGED SECURITIES AND PLEDGE AGREEMENT
The debentures that are a part of the Corporate Units or, if substituted,
the Treasury Securities that are a part of the Treasury Units (collectively, the
"Pledged Securities") will be pledged to the collateral agent for the benefit of
Arvin under the pledge agreement to secure the obligations of the holders of the
Units to purchase common shares under the related purchase contracts. The rights
of the holders of the Units with respect to the Pledged Securities will be
subject to Arvin's security interest therein. No holder of Corporate Units or
Treasury Units will be permitted to withdraw the Pledged Securities related to
such Corporate Units or Treasury Units from the pledge arrangement except:
(1) to substitute Treasury Securities for the related debentures;
(2) to substitute debentures for the related Treasury Securities (for
both (1) and (2), as provided for under "Description of the Units--Creating
Treasury Units by Substituting Treasury Securities" and "--Recreating
Corporate Units" on pages S-37 and S-38); and
(3) upon early settlement, settlement for separate cash or termination
of the related purchase contracts.
Subject to the security interest and the terms of the purchase contract
agreement and the pledge agreement, each holder of Corporate Units will be
entitled, through the purchase contract agent and the collateral agent, to all
of the proportional rights and preferences of the related debentures, including
interest payments, voting and repayment rights, and each holder of Treasury
Units will retain beneficial ownership of the related Treasury Securities
pledged in respect of the related purchase contracts. Arvin will have no
interest in the Pledged Securities other than its security interest.
The securities intermediary will distribute, upon receipt of interest on the
Pledged Securities, payments to the purchase contract agent, which in turn will
distribute those payments, together with contract adjustment payments received
from Arvin, to the holders in whose names the Units are registered at the close
of business on the record date prior to the date of such distribution.
BOOK-ENTRY ISSUANCE
DTC will act as securities depositary for the Units. The Units will be
issued only as fully-registered securities registered in the name of Cede & Co.
or another nominee of the depositary.
Fully-registered global security certificates, representing the total
aggregate number of Units, will be issued, will be deposited with the depositary
and will bear a legend regarding restrictions on their exchange and registration
of transfer as described below.
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<PAGE>
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in the Units so long as such Units
are represented by global security certificates.
The depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. The depositary holds securities that its participants
deposit with it. The depositary also facilitates the settlement among
participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and other organizations.
The depositary is owned by a number of its direct participants and by the NYSE,
the American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the depositary system is also available to others, such
as securities brokers and dealers, banks and trust companies that clear
transactions through or maintain a direct or indirect custodial relationship
with a direct participant either directly or indirectly. The rules applicable to
the depositary and its participants are on file with the SEC.
No transfer of global security certificates in whole or in part may be
registered in the name of any person other than the depositary or a nominee of
the depositary unless the depositary has notified Arvin that it is unwilling or
unable to continue as depositary for such global security certificates or has
ceased to be qualified to act as depositary under the purchase contract
agreement. All Units and portions of Units represented by global security
certificates will be registered in such names as the depositary may direct.
As long as the depositary or its nominee is the registered owner of the
global security certificates, such depositary or such nominee, as the case may
be, will be considered the sole owner and holder of the global security
certificates and all Units represented thereby for all purposes under the Units,
purchase contracts, purchase contract agreement and pledge agreement. Except in
the limited circumstances referred to in the paragraph above, owners of
beneficial interests in global security certificates will not be entitled to
have such global security certificates or the underlying Units registered in
their names, will not receive or be entitled to receive physical delivery of
certificates and will not be considered to be owners or holders of such global
security certificates or any underlying Units for any purpose under the Units,
purchase contracts and principal agreements. All payments on the Units
represented by the global security certificates and all deliveries of pledged
debentures, pledged Treasury Securities or common shares to the holders will be
made to the depositary or its nominee, as the case may be, as the holder.
Ownership of beneficial interests in the global security certificates will
be limited to participants or persons that may hold beneficial interests through
institutions that have accounts with the depositary. Ownership of beneficial
interests in global security certificates will be shown only on, and the
transfer of those ownership interests will be effected only through, records
maintained by the depositary or its nominee (with respect to participants'
interests) or any such participant (with respect to interests of persons held by
such participants on their behalf). Procedures for settlement of purchase
contracts on the purchase contact settlement date will be governed by
arrangements among the depositary, participants and persons that may hold
beneficial interests through participants designed to permit such settlement
without the physical movement of certificates. Payments, transfers, deliveries,
exchanges and other matters relating to beneficial interests in global security
certificates may be subject to various policies and procedures adopted by the
depositary from time to time. The depositary has advised Arvin that it will not
take any action permitted to be taken by a holder of Units unless directed to do
so by one or more participants to whose account the depositary interests in the
global security certificates are
S-47
<PAGE>
credited and only for the number of Units as to which such participant or
participants has or have given such direction. None of Arvin, the purchase
contract agent nor any of their agents will have any responsibility or liability
for any aspect of the depositary's or any participant's records relating to, or
for payment made on account of, beneficial interests in global security
certificates, or for maintaining, supervising or reviewing any of the
depositary's records or any participant's records relating to such beneficial
ownership interests.
This information concerning the depositary and its book-entry system has
been obtained from sources that Arvin believes to be reliable, but Arvin does
not take responsibility for its accuracy.
CERTAIN PROVISIONS OF THE PURCHASE CONTRACTS,
THE PURCHASE CONTRACT AGREEMENT AND THE PLEDGE AGREEMENT
GENERAL
Distributions on the Units will be payable, the purchase contracts and
documents related thereto will be settled and transfers of the Units will be
registrable at the office of the purchase contract agent in the Borough of
Manhattan, New York City. In addition, if the Units do not remain in book-entry
form, Arvin has the option to pay distributions on the Units by check mailed to
the address of the person entitled thereto as shown on Arvin's security
register.
No service charge will be made for any registration of transfer or exchange
of the Units, except for any tax or other governmental charge that may be
imposed in connection therewith.
MODIFICATION
Subject to limited exceptions, Arvin and the purchase contract agent may not
modify the terms of the purchase contracts or the purchase contract agreement
without the consent of the holders of not less than a majority of the
outstanding purchase contracts, except that no modification may, without the
unanimous consent of the holders of each outstanding purchase contract affected
thereby:
- change any payment date;
- change the amount or type of collateral required to be pledged to secure a
holder's obligations under the purchase contract (except for the right of
a holder of Corporate Units to substitute Treasury Securities for the
pledged debentures or the right of a holder of Treasury Units to
substitute debentures for the pledged Treasury Securities), impair the
right of the holder of any purchase contract to receive interest on the
collateral, or otherwise adversely affect the holder's rights in or to the
collateral;
- reduce any contract adjustment payments or change the place or currency of
payment;
- impair the right to institute suit for the enforcement of a purchase
contract;
- reduce the number of common shares purchasable under a purchase contract,
increase the purchase price of the common shares on settlement of any
purchase contract, change the purchase contract settlement date or
otherwise adversely affect the holder's rights under a purchase contract;
or
- reduce the above-stated percentage of outstanding purchase contracts whose
holders' consent is required for the modification or amendment of the
provisions of the purchase contracts or the purchase contract agreement.
However, if any amendment or proposal would adversely affect only the Corporate
Units or only the Treasury Units, then only the affected class of holders will
be entitled to vote on the amendment or proposal, and the amendment or proposal
will not be effective except with the consent of the holders
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of not less than a majority of the class or, if referred to in the listed items
above, all of the holders of the class.
Subject to limited exceptions, Arvin, the collateral agent, the securities
intermediary and the purchase contract agent may not modify the terms of the
pledge agreement without the consent of the holders of not less than a majority
of the outstanding purchase contracts, except that no modification may, without
the unanimous consent of the holders of each outstanding Unit adversely affected
thereby:
- change the amount or type of collateral underlying a Unit (except for the
right of a holder of Corporate Units to substitute Treasury Securities for
the pledged debentures or the right of a holder of Treasury Units to
substitute debentures for the pledged Treasury Securities), impair the
right of the holder of any Units to receive interest on the underlying
collateral or otherwise adversely affect the holder's rights in or to the
collateral;
- otherwise effect any action that, under the purchase contract agreement,
would require the consent of the holders of each outstanding Unit affected
thereby; or
- reduce the above-stated percentage of outstanding purchase contracts whose
holders' consent is required for the amendment.
However, if any amendment or proposal would adversely affect only the Corporate
Units or only the Treasury Units, then only the affected class of holders will
be entitled to vote on the amendment or proposal, and the amendment or proposal
will not be effective except with the consent of the holders of not less than a
majority of the class or, if referred to in the items listed above, all of the
holders of the class.
NO CONSENT TO ASSUMPTION
Each holder of Corporate Units or Treasury Units will be deemed under the
terms of the purchase contract agreement, by his or her acceptance of such
Units, to have expressly withheld any consent to the assumption (also known as
affirmance) of the related purchase contracts by Arvin, its receiver, liquidator
or trustee in the event that Arvin becomes the subject of a case under the
Bankruptcy Code or other similar state or federal law providing for
reorganization or liquidation.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
Arvin will agree in the purchase contract agreement that it will not merge
or consolidate with any other entity or sell, assign, transfer, lease or convey
all or substantially all of its properties and assets to any other entity or
group of affiliated entities unless:
- either Arvin is the continuing corporation or the successor corporation is
a corporation organized under the laws of the United States of America, a
state thereof or the District of Columbia and that this corporation
expressly assumes all the obligations of Arvin under the purchase
contracts, the purchase contract agreement and the pledge agreement by one
or more supplemental agreements in form reasonably satisfactory to the
purchase contract agent and the collateral agent; and
- Arvin or that successor corporation is not, immediately after such merger,
consolidation, sale, assignment, transfer, lease or conveyance, in default
in the performance of any covenant or condition underlying the purchase
contract, the Units or the pledge agreement.
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GOVERNING LAW
The purchase contracts, the purchase contract agreement and the pledge
agreement will be governed by and construed in accordance with the laws of the
State of New York.
INFORMATION CONCERNING THE PURCHASE CONTRACT AGENT
The First National Bank of Chicago will be the purchase contract agent. The
purchase contract agent will act as the agent for the holders of the Units from
time to time. The purchase contract agent will not be obligated to take any
discretionary action in connection with a default under the terms of the Units
or the purchase contract agreement.
The purchase contract agreement will contain provisions limiting the
liability of the purchase contract agent. The purchase contract agreement also
will contain provisions under which the purchase contract agent may resign or be
replaced. Resignation or replacement would be effective upon the acceptance of
appointment by a successor.
We also maintain banking relationships in the ordinary course of business
with The First National Bank of Chicago, and The First National Bank of Chicago
participates, along with several other banks, in credit facilities with Arvin
and its subsidiaries.
INFORMATION CONCERNING THE COLLATERAL AGENT
The Chase Manhattan Bank will be the collateral agent. The collateral agent
will act solely as the agent of Arvin and will not assume any obligation or
relationship of agency or trust for or with any of the holders of the Units
except for the obligations owed by a pledgee of property to the owner thereof
under the pledge agreement and applicable law.
The pledge agreement will contain provisions limiting the liability of the
collateral agent. The pledge agreement also will contain provisions under which
the collateral agent may resign or be replaced. Resignation or replacement would
be effective upon the acceptance of appointment by a successor.
INFORMATION CONCERNING THE SECURITIES INTERMEDIARY
The Chase Manhattan Bank will be the securities intermediary. All property
delivered to the securities intermediary pursuant to the purchase contract
agreement or the pledge agreement will be credited to a collateral account
established by the securities intermediary for the collateral agent. The
securities intermediary will treat the purchase contract agent as entitled to
exercise all rights relating to any financial asset credited to such collateral
account, subject to the provisions of the pledge agreement.
MISCELLANEOUS
The purchase contract agreement will provide that Arvin will pay all fees
and expenses related to (1) the retention of the collateral agent and the
securities intermediary and (2) the enforcement by the purchase contract agent
of the rights of the holders of the Units. However, holders who elect to
substitute the related Pledged Securities, thereby creating Treasury Units or
recreating Corporate Units, will be responsible for any fees or expenses payable
in connection with the substitution, as well as for any commissions, fees or
other expenses incurred in acquiring the Pledged Securities to be substituted.
Arvin will not be responsible for any of those fees or expenses.
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DESCRIPTION OF THE DEBENTURES
The following description sets forth the specific terms of the debentures.
It supplements the description of the debt securities in the accompanying
prospectus and, to the extent it is inconsistent with the prospectus, replaces
the description in the prospectus. The debentures form a part of the Corporate
Units and, under certain circumstances, will trade separately from the purchase
contracts also forming a part of the Corporate Units. The debentures will be
issued under an indenture dated as of July 3, 1990, among Arvin and Harris Trust
and Savings Bank, as indenture trustee, as amended by the First Supplemental
Indenture, dated as of March 31, 1994. The descriptions in this prospectus
supplement and the accompanying prospectus contain a description of the material
terms of the debentures and the indenture but do not purport to be complete. For
additional information, refer to the indenture that is incorporated by reference
into the Registration Statement and the form of the debentures that will be
filed as an exhibit to the Registration Statement and to the Trust Indenture Act
of 1939. Capitalized terms used in this section not otherwise defined in this
prospectus supplement have the meanings set forth in the indenture.
GENERAL
The debentures will be unsecured senior obligations of Arvin. The debentures
will not be subject to a sinking fund provision and will not be redeemable by
Arvin. The entire principal amount of the debentures will mature and become due
and payable, together with any accrued and unpaid interest thereon, on
, 2004.
The debentures will initially be issued in the form of one or more global
certificates deposited with DTC. Under limited circumstances, the debentures may
be issued in certificated form in exchange for the global certificates. See
"--Book-Entry Issuance" below. In the event that the debentures are issued in
certificated form, the debentures will be in denominations of $50 and integral
multiples thereof and may be transferred or exchanged at the offices described
below. Payments on debentures issued as global certificates will be made to DTC,
a successor depositary or, if no depositary is used, to a paying agent for the
debentures. If the debentures are issued in certificated form, principal and
interest will be payable, the transfer of the debentures will be registrable and
the debentures will be exchangeable for debentures of other denominations of a
like aggregate principal amount at the corporate trust office or agency of the
indenture trustee in New York City. However, at the option of Arvin, payment of
interest may be made by check.
The indenture does not contain provisions that afford holders of the
debentures protection in the event of a highly leveraged transaction or other
similar transactions involving Arvin that may adversely affect such holders.
INTEREST
Each debenture will bear interest at the rate of % per annum from
, 1999 until the purchase contract settlement date on ,
2002, and at the Reset Rate thereafter, payable quarterly in arrears on
, , and of each year (each an
"Interest Payment Date"), commencing , 1999, to the person in whose
name that debenture is registered, subject to certain exceptions, at the close
of business on the business day preceding such Interest Payment Date. If the
debentures do not remain in book-entry only form, the record dates will be 15
business days prior to each interest payment date.
The interest rate on the debentures outstanding on and after the purchase
contract settlement date will be reset to the Reset Rate on the third business
day preceding the purchase contract settlement date. The Reset Rate will be
equal to the rate per annum that results from the remarketing of the debentures
as described below under "--Market Rate Reset by Remarketing". However, if a
Failed Remarketing occurs, the Reset Rate will be equal to (1) the Two-Year
Benchmark Treasury Rate plus
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(2) a spread ranging from 300 to 700 basis points based on the credit ratings of
the debentures at that time.
The amount of interest payable on the debentures for any period will be
computed (1) for any full quarterly period on the basis of a 360-day year of
twelve 30-day months and (2) for any period shorter than a full quarterly
period, on the basis of a 30-day month and, for any period less than a month, on
the basis of the actual number of days elapsed per 30-day month. If any date on
which interest is payable on the debentures is not a business day, then payment
of the interest payable on that date will be made on the next day that is a
business day and without any interest or other payment in respect of any such
delay. However, if such business day is in the next calendar year, then such
payment will be made on the preceding business day.
MARKET RATE RESET BY REMARKETING
The interest rate on the debentures will be reset to the Reset Rate on the
third business day preceding the purchase contract settlement date. The Reset
Rate will be the rate per annum that results from the remarketing of the
debentures that are a part of the Corporate Units as to which the holders have
not given notice of their election to settle the related purchase contracts with
cash, or have given notice but failed to deliver cash, and the debentures that
are not a part of the Corporate Units as to which the holders have requested
remarketing. On the remarketing date, the remarketing agent will use
commercially reasonable efforts to remarket those debentures at a price equal to
100.25% of the aggregate stated principal amount of the debentures.
REMARKETING PROCEDURES. Set forth below is a summary of the procedures to
be followed in connection with a remarketing of the debentures:
As long as the Units or the debentures are evidenced by one or more global
security certificates deposited with DTC, Arvin will request, not later than 15
nor more than 30 calendar days prior to the remarketing date, that DTC notify
its participants holding debentures or Corporate Units of the remarketing.
Not later than 5:00 p.m., New York City time, on the seventh business day
preceding the purchase contract settlement date (also four business days prior
to the remarketing date), any holder of debentures that are a part of the
Corporate Units may elect to have those debentures remarketed. Holders of
Corporate Units that do not give notice prior to that time of their intention to
settle their related purchase contracts for separate cash, and holders who give
notice but fail to deliver cash prior to 11:00 a.m., New York City time, on the
fifth business day prior to the purchase contract settlement date, will be
deemed to have consented to the disposition of the debentures that are a part of
their Corporate Units in the remarketing. Holders of debentures that are not a
part of the Corporate Units who wish to have their debentures remarketed must
give notice of their election to the indenture trustee prior to 11:00 a.m., New
York City time, on such fifth business day. Any such notice will be irrevocable
and may not be conditioned upon the level at which the Reset Rate is established
in the remarketing.
If none of the holders elects to have debentures remarketed in the
remarketing, the Reset Rate will be the rate determined by the remarketing
agent, in its sole discretion, as the rate that would have been established had
a remarketing been held on the remarketing date.
If the remarketing agent determines that it will be able to remarket all the
debentures tendered or deemed tendered for purchase at a price of 100.25% of the
aggregate stated principal amount of such debentures prior to 4:00 p.m., New
York City time, on the remarketing date, the remarketing agent will determine
the Reset Rate, which will be the rate, rounded to the nearest one-thousandth
(0.001) of one percent, per annum that the remarketing agent determines, in its
sole judgment, to be the lowest rate
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per year that will enable it to remarket all the debentures tendered or deemed
tendered for remarketing at that price.
If, by 4:00 p.m., New York City time, on the remarketing date, the
remarketing agent is unable to remarket all the debentures tendered or deemed
tendered for purchase, a Failed Remarketing will be deemed to have occurred, and
the remarketing agent will so advise DTC, the indenture trustee and Arvin. If a
Failed Remarketing occurs, the Reset Rate will be equal to (1) the Two-Year
Benchmark Treasury Rate plus (2) a spread ranging from 300 to 700 basis points
based on the credit ratings of the debentures at that time.
"Two-Year Benchmark Treasury Rate" means the bid side rate displayed at
10:00 a.m., New York City time, on the third business day preceding the purchase
contract settlement date for direct obligations of the United States having a
maturity comparable to the remaining term to maturity of the debentures, as
agreed upon by Arvin and the remarketing agent. This rate will be as displayed
in the Telerate system or, if the Telerate system is no longer available or, in
the opinion of the remarketing agent, after consultation with Arvin, no longer
an appropriate system from which to obtain such rate, such other nationally
recognized quotation system as, in the opinion of the remarketing agent, after
consultation with Arvin, is appropriate. If this rate is not so displayed, the
Two-Year Benchmark Treasury Rate will be calculated by the remarketing agent as
the yield to maturity for direct obligations of the United States having a
maturity comparable to the remaining term to maturity of the debentures,
expressed as a bond equivalent on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis, and computed by taking the arithmetic
mean of the secondary market bid rates, as of 10:30 a.m., New York City time, on
the third business day preceding the purchase contract settlement date of three
leading United States government securities dealers selected by the remarketing
agent after consultation with Arvin. These dealers may include the remarketing
agent or an affiliate.
By approximately 4:30 p.m., New York City time, on the remarketing date, so
long as there has not been a Failed Remarketing, the remarketing agent will
advise:
- DTC, the indenture trustee and Arvin, of the Reset Rate determined in the
remarketing and the number of debentures sold in the remarketing;
- each person purchasing debentures in the remarketing or the appropriate
DTC participant of the Reset Rate and the number of debentures such person
is to purchase; and
- each such purchaser to give instructions to its DTC participant to pay the
purchase price on the purchase contract settlement date in same day funds
against delivery of the debentures purchased through the facilities of
DTC.
In accordance with DTC's normal procedures, on the purchase contract
settlement date, the transactions described above with respect to each debenture
tendered for purchase and sold in the remarketing will be executed through DTC,
and the accounts of the respective DTC participants will be debited and credited
and such debentures delivered by book entry as necessary to effect purchases and
sales of the debentures. DTC will make payment in accordance with its normal
procedures.
If any holder selling debentures in the remarketing fails to deliver those
debentures, the direct or indirect DTC participant of the selling holder and of
any other person that was to have purchased debentures in the remarketing may
deliver to that other person a number of debentures that is less than the number
of debentures that otherwise was to be purchased by that person. In that event,
the number of debentures to be so delivered will be determined by the direct or
indirect participant, and delivery of the lesser number of debentures will
constitute good delivery.
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The right of each holder to have debentures tendered for purchase will be
limited to the extent that:
- the remarketing agent conducts a remarketing pursuant to the terms of the
remarketing agreement;
- the remarketing agent is able to find a purchaser or purchasers for
tendered debentures; and
- the purchaser or purchasers deliver the purchase price therefor to the
remarketing agent.
The remarketing agent is not obligated to purchase any debentures that would
otherwise remain unsold in the remarketing. Neither Arvin nor the remarketing
agent will be obligated in any case to provide funds to make payment upon tender
of debentures for remarketing.
Arvin, will be liable for any and all costs and expenses incurred in
connection with the remarketing.
REMARKETING AGENT. The remarketing agent will be Lehman Brothers and/or
Merrill Lynch. Arvin will enter into the remarketing agreement with Lehman
Brothers and Merrill Lynch, which will permit Arvin to designate one or both of
Lehman Brothers and Merrill Lynch as the remarketing agent. This agreement
provides that the remarketing agent will act as the exclusive remarketing agent
and will use commercially reasonable efforts to remarket securities tendered or
deemed tendered for purchase in the remarketing at a price of 100.25% of their
principal amount. Under certain circumstances, some portion of the debentures
tendered in the remarketing may be purchased by the remarketing agent.
The remarketing agreement provides that the remarketing agent will incur no
liability to Arvin or to any holder of the Corporate Units or the debentures in
its individual capacity or as remarketing agent for any action or failure to act
in connection with a remarketing or otherwise, except as a result of the
negligence or willful misconduct on its part. The remarketing agent will
receive, as its remarketing fee, a portion of the proceeds from the remarketing
equal to 0.25% of the principal amount of the debentures remarketed.
Arvin has agreed to indemnify the remarketing agent against certain
liabilities, including liabilities under the Securities Act of 1933, arising out
of or in connection with its duties under the remarketing agreement.
The remarketing agreement also will provide that the remarketing agent may
resign and be discharged from its duties and obligations thereunder. However, no
resignation will become effective unless a nationally recognized broker-dealer
has been appointed by Arvin as successor remarketing agent and the successor
remarketing agent has entered into a remarketing agreement with Arvin. In that
case, Arvin will use reasonable efforts to appoint a successor remarketing agent
and enter into a remarketing agreement with that person as soon as reasonably
practicable.
BOOK-ENTRY ISSUANCE
The debentures will be issued as one or more global certificates registered
in the name of DTC or its nominee. The depositary for the debentures will be
DTC. The debentures will be issued only as fully-registered securities
registered in the name of Cede & Co., DTC's nominee. The debentures will be
issued in accordance with the procedures set forth under "Description of the
Purchase Contracts-- Book-Entry Issuance" and under "Description of the Debt
Securities--Book-Entry Debt Securities" in the accompanying prospectus.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the purchase, ownership and disposition of the Units, the
debentures and the common shares acquired under a purchase contract. Unless
otherwise stated, this summary applies only to "U.S. Holders" who
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purchase Corporate Units upon original issuance for an amount equal to the
initial offering price and who hold the Units, the debentures and the common
shares acquired under the purchase contract as capital assets.
A "U.S. Holder" is:
- a person who is a citizen or resident of the United States;
- a corporation or partnership created or organized in or under the laws of
the United States or any state thereof or the District of Columbia;
- an estate the income of which is subject to United States federal income
taxation, regardless of its source; or
- a trust (1) that is subject to the supervision of a court with the United
States and the control of one or more United States persons as described
in Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended or
(2) that has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a United States person.
The tax treatment of a holder may vary depending on the holder's particular
situation. This summary does not deal with special classes of holders. For
example, this summary does not address:
- tax consequences to holders who may be subject to special tax treatment,
such as banks, thrifts, real estate investment trusts, regulated
investment companies, insurance companies, dealers in securities or
currencies, or tax-exempt investors;
- tax consequences to persons who will hold the Units, the debentures or the
common shares acquired under the purchase contract as a position in a
"straddle," "synthetic security," "hedge," "integrated transaction,"
"constructive sale transaction" or "conversion transaction;"
- tax consequences to holders of Units, debentures or common shares acquired
under a purchase contract whose functional currency is not the U.S.
dollar;
- tax consequences to shareholders, partners or beneficiaries of a holder of
Units, debentures or common shares acquired under a purchase contract;
- alternative minimum tax consequences, if any; or
- any state, local or foreign tax consequences.
If you are not a United States person (within the meaning of Section 7701
(a)(30) of the Internal Revenue Code of 1986, as amended), you are urged to
consult your own tax advisors regarding the United States federal income tax
consequences of an investment in the Units, including the potential application
of United States withholding taxes.
This summary is based upon the Internal Revenue Code, Treasury regulations
(including proposed Treasury regulations) issued thereunder, IRS rulings and
pronouncements and judicial decisions now in effect, all of which are subject to
change, possibly on a retroactive basis. Any changes may be applied
retroactively in a manner that could cause the tax consequences to vary
substantially from the consequences described below, possibly adversely
affecting a U.S. Holder.
No statutory, administrative or judicial authority directly addresses the
treatment of the Units or instruments similar to the Units for United States
federal income tax purposes. As a result, no assurance can be given that the IRS
will agree with the tax consequences described herein. You are urged to consult
your own tax advisors with respect to the tax consequences to them of the
purchase, ownership and disposition of the Units in light of your own particular
circumstances, including the tax consequences under state, local, foreign and
other tax laws and the possible effects of changes in United States federal or
other tax laws.
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CORPORATE UNITS
ALLOCATION OF PURCHASE PRICE
A U.S. Holder's acquisition of a Corporate Unit will be treated as an
acquisition of a unit consisting of the debenture and the purchase contract that
comprise the Corporate Unit. The purchase price of each Corporate Unit will be
allocated between the debenture and the purchase contract in proportion to their
respective fair market values at the time of purchase. This allocation will
establish the U.S. Holder's initial tax bases in the debenture and the purchase
contract. Arvin will report the fair market value of each debenture as $50 and
the fair market value of each purchase contract as $0. This position will be
binding upon each U.S. Holder, but not on the IRS, unless the U.S. Holder
explicitly discloses a contrary position on a statement attached to the U.S.
Holder's timely filed United States federal income tax return for the taxable
year in which a Corporate Unit is acquired. Thus, absent such disclosure, a U.S.
Holder should allocate the purchase price for a Corporate Unit in accordance
with the foregoing. The remainder of this discussion assumes that this
allocation of the purchase price will be respected for United States federal
income tax purposes.
DEBENTURES
INTEREST INCOME
Generally, a U.S. Holder should include stated interest on the debentures in
income as ordinary income when paid or accrued, in accordance with such U.S.
Holder's regular method of tax accounting.
SALES, EXCHANGES OR OTHER DISPOSITIONS OF DEBENTURES
A U.S. Holder will recognize capital gain or loss on a sale, exchange, or
other disposition of a debenture, including the remarketing thereof, in an
amount equal to the difference between the amount realized by the U.S. Holder on
the disposition of the debenture (except to the extent that the amount realized
is characterized as a payment in respect of accrued but unpaid interest on the
debentures that the U.S. Holder has not included in gross income, which will be
taxable as interest) and the U.S. Holder's adjusted tax basis in the debenture.
Selling expenses incurred by a U.S. Holder will reduce the amount of gain or
increase the amount of loss recognized upon the sale, exchange or other
disposition of a debenture. Capital gains of individuals derived from capital
assets held for more than one year are subject to reduced maximum rates of 20%.
A U.S. Holder's ability to deduct capital losses is subject to limitations.
PURCHASE CONTRACTS
INCOME FROM CONTRACT ADJUSTMENT PAYMENTS
There is no direct authority addressing the treatment of the contract
adjustment payments under current law, and the treatment is unclear. Contract
adjustment payments may constitute taxable income to a U.S. Holder when received
or accrued, in accordance with the U.S. Holder's method of tax accounting. To
the extent Arvin is required to file information returns with respect to
contract adjustment payments, it intends to report the contract adjustment
payments as taxable income to each U.S. Holder. U.S. Holders should consult
their own tax advisors concerning the treatment of contract adjustment payments,
including the possibility that any payment may be treated as a loan, purchase
price adjustment, rebate or payment analogous to an option premium, rather than
being includible in income on a current basis. Arvin does not intend to deduct
the contract adjustment payments, because it views them as a cost of issuing the
common shares. The treatment of contract adjustment payments could affect a U.S.
Holder's tax basis in a purchase contract or in the common shares acquired under
a purchase contract or the amount realized by a U.S. Holder upon the sale or
disposition of a Unit or the termination of a purchase contract. See
"--Acquisition of Common Shares under a Purchase Contract," "--Termination of
Purchase Contract" and "--Sale or Disposition of Units."
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ACQUISITION OF COMMON SHARES UNDER A PURCHASE CONTRACT
A U.S. Holder generally will not recognize gain or loss on the purchase of
common shares under a purchase contract, except with respect to any cash paid in
lieu of a fractional common share. Subject to the following discussion, a U.S.
Holder's aggregate initial tax basis in the common shares acquired under a
purchase contract generally should equal the purchase price paid for the common
shares plus the U.S. Holder's tax basis in the purchase contract, if any, less
the portion of the purchase price and tax basis allocable to the fractional
share. Payments of contract adjustment payments that have been received in cash
by a U.S. Holder but not included in income should reduce the U.S. Holder's tax
basis in the purchase contract or in the common shares to be received
thereunder. See "--Income from Contract Adjustment Payments." The holding period
for common shares acquired under a purchase contract will commence on the day of
the acquisition of such common shares.
OWNERSHIP OF COMMON SHARES ACQUIRED UNDER THE PURCHASE CONTRACT
Any dividend on common shares paid by Arvin out of its current or
accumulated earnings and profits (as determined for United States federal income
tax purposes) will be includible in income by the U.S. holder when received. Any
such dividend will be eligible for the dividends received deduction if received
by an otherwise qualifying corporate U.S. Holder that meets the holding period
and other requirements for the dividends received deduction.
Upon a sale or exchange of common shares, a U.S. Holder generally will
recognize capital gain or loss equal to the difference between the amount
realized and the U.S. Holder's adjusted tax basis in the common shares. Capital
gains of individuals derived in respect of capital assets held for more than one
year are subject to a reduced maximum tax rate of 20%. The deductibility of
capital losses is subject to limitations.
EARLY SETTLEMENT OF PURCHASE CONTRACT
A U.S. Holder will not recognize gain or loss on the receipt of the U.S.
Holder's proportionate share of the debentures, or Treasury Securities upon
early settlement of a purchase contract and will have the same tax basis in such
debentures, or Treasury Securities as before such early settlement.
TERMINATION OF PURCHASE CONTRACT
If a purchase contract terminates, a U.S. Holder will recognize capital gain
or loss equal to the difference between the amount realized (if any) upon such
termination and the U.S. Holder's adjusted tax basis (if any) in the purchase
contract at the time of the termination. Payments of contract adjustment
payments received by a U.S. Holder but not included in income should either
reduce the U.S. Holder's tax basis in the purchase contract or result in an
amount realized on the termination of the purchase contract. Any contract
adjustment payments included in a U.S. Holder's income but not paid should
increase the U.S. Holder's tax basis in the purchase contract (see "--Income
from Contract Adjustment Payments" above). Capital gains of individuals derived
in respect of capital assets held for more than one year are taxed at a maximum
rate of 20%. The deductibility of capital losses is subject to limitations. A
U.S. Holder will not recognize gain or loss on the receipt of the U.S. Holder's
proportionate share of debentures, or Treasury Securities, upon termination of
the purchase contract and will have the same tax basis in such debentures or
Treasury Securities as before the distribution.
If a termination of the purchase contract occurs when it has negative value,
see "--Sale or Disposition of Units." U.S. Holders should consult their tax
advisors regarding a termination of the purchase contract at a time when the
purchase contract has negative value.
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ADJUSTMENT TO SETTLEMENT RATE
U.S. Holders of Units might be treated as receiving a constructive
distribution from Arvin if (1) the Settlement Rate is adjusted and as a result
of such adjustment the proportionate interest of U.S. Holders of Units in the
assets or earnings and profits of Arvin is increased and (2) the adjustment is
not made pursuant to a bona fide, reasonable anti-dilution formula. An
adjustment in the Settlement Rate would not be considered made pursuant to a
bona fide formula if the adjustment were made to compensate a U.S. Holder for
certain taxable distributions with respect to the common shares. Thus, under
certain circumstances, an increase in the Settlement Rate might give rise to a
taxable dividend to U.S. Holders of Units even though the U.S. Holders would not
receive any cash related thereto.
TREASURY UNITS
SUBSTITUTION OF TREASURY SECURITIES TO CREATE TREASURY UNITS
A U.S. Holder of Corporate Units that delivers Treasury Securities to the
securities intermediary in substitution for debentures generally will not
recognize gain or loss upon the delivery of the Treasury Securities or the
release of the debentures to the U.S. Holder. The U.S. Holder will continue to
include in income any interest on the debentures, and the U.S. Holder's basis in
the debentures and the purchase contract will not be affected by the delivery
and release.
OWNERSHIP OF TREASURY SECURITIES
A U.S. Holder's initial tax basis in the Treasury Securities that are part
of the Treasury Units will be equal to the amount paid for the Treasury
Securities. A U.S. Holder generally will include in income any original issue
discount or acquisition discount includible with respect to the Treasury
Securities. In general, you will be required to include in income each year that
you hold a Treasury Security the portion of the original issue discount or
acquisition discount that accrues on the Treasury Security in such year.
SUBSTITUTION OF DEBENTURES TO RECREATE CORPORATE UNITS
A U.S. Holder of Treasury Units that delivers debentures to the securities
intermediary to recreate Corporate Units generally will not recognize gain or
loss upon the delivery of such debentures or the release of the Treasury
Securities to the U.S. Holder. The U.S. Holder will continue to include in
income any interest, original issue discount or acquisition discount with
respect to such Treasury Securities and the debentures, and the U.S. Holder's
tax basis in the Treasury Securities, the debentures and the purchase contract
will not be affected by such delivery and release.
SALE OR DISPOSITION OF UNITS
Upon a disposition of Units, a U.S. Holder will be treated as having sold,
exchanged or disposed of the purchase contracts and the debentures, or, in the
case of Treasury Units, the Treasury Securities, that comprise such Units and
generally will have capital gain or loss equal to the difference between the
portion of the proceeds to the U.S. Holder allocable to the purchase contracts
and the debentures, or Treasury Securities, as the case may be, and the U.S.
Holder's respective adjusted tax bases in the purchase contract and the
debentures, or Treasury Securities. For purposes of determining gain or loss,
your proceeds will not include any amount equal to accrued and unpaid interest
on the debenture or Treasury Security not previously included in income, which
amount will be treated as ordinary interest income. Further, to the extent the
U.S. Holder is treated as having received an amount with respect to accrued
contract adjustment payments, which Arvin will treat as ordinary income, in each
case to the extent not previously included in income. Capital gains of
individuals derived in respect of capital assets held for more than one year are
taxed at a maximum rate of 20%. The deductibility of capital losses is subject
to limitations. If a disposition of the Units occurs when the purchase contract
has negative
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<PAGE>
value, the U.S. Holder should be considered to have received additional
consideration for the debentures or Treasury Securities in an amount equal to
the negative value and to have paid the amount to be released from the U.S.
Holder's obligation under the purchase contract. U.S. Holders should consult
their tax advisors regarding a disposition of the Units at a time when the
purchase contract has negative value.
Payments to a U.S. Holder of contract adjustment payments that have not
previously been included in the income of the U.S. Holder should either reduce
the U.S. Holder's tax basis in the purchase contract or result in an increase in
the amount realized on the disposition of the purchase contract. Any contract
adjustment payments included in a U.S. Holder's income but not paid should
increase the U.S. Holder's tax basis in the purchase contract. See "--Corporate
Units--Purchase Contracts--Income from Contract Adjustment Payments."
NON-UNITED STATES HOLDERS
The following summary discusses the tax consequences to Non-United States
Holders. You are a "Non-United States Holder" if you are not a U.S. Holder. As
discussed above, each Unit will be treated by the holders and by Arvin as a unit
consisting of a purchase contract and a debenture or Treasury Security, as the
case may be. The following discussion is subject to the discussion below
concerning backup withholding.
Under present United States federal income tax laws, a Non-United States
Holder generally will not be subject to United States federal income tax
withholding on payments of principal, premium (if any) or interest (including
original issue discount) on a debenture or Treasury Security owned by a
Non-United States Holder, provided that the Non-United States Holder provides
the certification contained on an IRS Form W-8 or a substantially similar form.
If a Non-United States Holder cannot satisfy the requirements of the "portfolio
interest" exception, payments of premium (if any) and interest made to the
Non-United States Holder generally will be subject to a 30% withholding tax.
Arvin will generally withhold a 30% withholding tax on contract adjustment
payments and dividends paid on the common shares acquired under a purchase
contract.
A Non-United States Holder may reduce or eliminate the 30% withholding tax
on interest, contract adjustment payments or dividends discussed above if such
holder provides Arvin, or their respective paying agents, as the case may be,
with a properly executed
- IRS Form 1001 (or successor form) properly claiming an exemption from, or
a reduction of, such withholding tax under the benefit of an applicable
tax treaty or
- IRS Form 4224 (or successor form) stating that payment with respect to the
Units, debentures, Treasury Securities or common shares is not subject to
withholding tax because it is effectively connected with the beneficial
owner's conduct of a trade or business in the United States.
Under future regulations generally applicable to payments made after December
21, 2000, Non-United States Holders will generally be required to provide an IRS
Form W-8 in lieu of IRS Form 1001 and IRS Form 4224, although alternative
documentation may be applicable in certain situations.
Generally, a Non-United States Holder will not be subject to United States
federal income taxes on any amount which constitutes gain upon sale, exchange,
retirement or other disposition of a Unit, debenture, Treasury Security or
common shares, provided the gain is not effectively connected with the conduct
of a trade or business in the United States by the Non-United States Holder.
Certain other exceptions may be applicable, and a Non-United States Holder
should consult its tax advisor in this regard.
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<PAGE>
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Payments under the Units, the debentures or the common shares acquired under
a purchase contract, the proceeds received with respect to a fractional common
share upon settlement of a purchase contract, and the sale of the Units, the
debentures or the common shares acquired under a purchase contract may be
subject to information reporting and United States federal backup withholding
tax at the rate of 31% if the U.S. Holder thereof fails to supply an accurate
taxpayer identification number or otherwise fails to comply with applicable
United States information reporting or certification requirements. No
information reporting or backup withholding will be required with respect to
payments made by Arvin or any paying agent to Non-United States Holders if a
statement described above under "Non-United States Holders" has been received
(and the payor does not have actual knowledge that the beneficial owner is a
U.S. Holder). Any amounts so withheld will be allowed as a credit against such
U.S. Holder's United States federal income tax liability.
ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to the Employee
Retirement Income Security Act of 1974, as amended, plans and individual
retirement accounts that are subject to Section 4975 of the Internal Revenue
Code of 1986, as amended, and entities whose assets are considered assets of
such plans ("Plans") may purchase the Corporate Units subject to the investing
fiduciary's determination that the investment in the Corporate Units satisfies
ERISA's fiduciary standards and other requirements applicable to investments by
Plans. Accordingly, among other factors, the investing fiduciary should consider
whether the investment would satisfy the prudence and diversification
requirements of ERISA and would be consistent with the documents and instruments
governing the Plans.
Under regulations issued by the U.S. Department of Labor, a Plan that owns
the Corporate Units may be deemed to own a portion of the debentures. In
addition, Arvin and its affiliates may be "parties in interest" (within the
meaning of ERISA) or "disqualified persons" (within the meaning of Section 4975
of the Code) with respect to certain Plans (generally, Plans maintained or
sponsored by, or contributed to by, any such persons or Plans with respect to
which any such persons are fiduciaries or service providers). The acquisition
and ownership of the Corporate Units and a deemed acquisition and ownership of
an interest in the debentures by a Plan with respect to which Arvin or any of
its affiliates is considered a party in interest or a disqualified person may
constitute or result in a prohibited transaction under ERISA or Section 4975 of
the Code, unless such Corporate Units are acquired and are held pursuant to and
in accordance with an applicable exemption. In this regard, the DOL has issued
prohibited transaction class exemptions ("PTCEs") that may apply to the
acquisition and holding of the Corporate Units. These class exemptions are PTCE
84-14 (respecting transactions determined by independent qualified professional
asset managers), PTCE 90-1 (respecting insurance company separate accounts),
PTCE 91-38 (respecting bank collective trust funds), PTCE 95-60 (respecting
insurance company general accounts) and PTCE 96-23 (respecting transactions
determined by in-house asset managers).
Any fiduciary proposing to acquire the Corporate Units on behalf of a Plan
should consult with ERISA counsel for the Plan and should not acquire the
Corporate Units unless it is determined that such acquisition and holding does
not and will not constitute a prohibited transaction and will satisfy the
applicable fiduciary requirements imposed under ERISA. Any such acquisition by a
Plan shall be deemed a representation by the Plan and the fiduciary effecting
the investment on behalf of the Plan that such acquisition and holding satisfies
the applicable fiduciary requirements of ERISA, and is either (i) not a
prohibited transaction under ERISA and the Code and is otherwise permissible
under applicable law or (ii) qualified to exemptive relief from the prohibited
transaction provisions of ERISA and the Code in accordance with one or more of
the foregoing PTCEs or another available prohibited transaction exemption.
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<PAGE>
UNDERWRITING
Arvin has entered into the underwriting agreement with the underwriters
named below, pursuant to which, and subject to its terms and conditions, Arvin
has agreed to sell to the underwriters and the underwriters have agreed to
purchase from Arvin all of the Corporate Units. Set forth below is the total
number of Corporate Units that each of the underwriters has agreed to purchase:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF CORPORATE UNITS
- ------------------------------------------------------------------- -------------------------
<S> <C>
Lehman Brothers Inc................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................
PaineWebber Incorporated...........................................
Prudential Securities Incorporated.................................
-----------
Total............................................................ 3,000,000
-----------
-----------
</TABLE>
The underwriting agreement provides that the obligation of the underwriters
to purchase the Corporate Units is subject to the satisfaction of certain
conditions, including the approval of certain legal matters by their counsel.
Subject to the terms and conditions of the underwriting agreement, the
underwriters must purchase all of the Corporate Units if they purchase any of
them.
The underwriters have advised Arvin that they will offer the Corporate Units
directly to the public initially at the offering price and to certain dealers at
the offering price less a selling concession not to exceed $ per Corporate
Unit. The underwriters may allow and these dealers may reallow a concession not
to exceed $ per Corporate Unit to other dealers. After the initial offering of
the Corporate Units, the underwriters may change the public offering price, the
concession to selected dealers and the reallowance to other dealers.
Arvin has granted to the underwriters an option to purchase an aggregate of
up to an additional 450,000 Corporate Units solely to cover over-allotments, at
the initial offering price to the public. Any or all of the option may be
exercised at any time on or before 30 days after the date of the underwriting
agreement. To the extent that the option is exercised, the underwriters will be
committed, subject to certain conditions, to purchase up to such number of
additional Corporate Units.
Arvin has agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
which the underwriters would be required to make regarding any liabilities that
they may have under the Securities Act.
Prior to this offering, there has been no public market for the Corporate
Units. Arvin has applied for listing the Corporate Units on the NYSE, and
trading is expected to commence within five business days after the date of this
prospectus supplement. In order to meet one of the requirements for listing on
the NYSE, the underwriters have undertaken to sell the Corporate Units to a
minimum of 400 beneficial owners. The underwriters have advised Arvin that they
presently intend to make a market in the Corporate Units as permitted by
applicable laws and regulations. The underwriters are not obligated to make a
market in the Corporate Units, however, and they may discontinue this market
making at any time in their sole discretion. Accordingly, Arvin cannot assure
investors that there will be adequate liquidity or adequate trading markets for
the Corporate Units.
In connection with the offering of the Corporate Units, the underwriters may
engage in certain transactions that stabilize the price of the Corporate Units
or common shares. These transactions may consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of the Corporate Units or
common shares. If the underwriters create a short position in the Corporate
Units in connection with this offering, by selling more Corporate Units than are
listed on the cover page of this prospectus supplement, then the underwriters
may reduce that short position by purchasing
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<PAGE>
Corporate Units in the open market. In general, the purchase of a security for
the purpose of stabilization or reducing a short position could cause the price
of that security to be higher than it might otherwise be in the absence of those
purchases.
Neither Arvin nor the underwriters make any representation or prediction as
to the direction or magnitude of any effect that the transactions described
above may have on the price of the Corporate Units or common shares. In
addition, neither Arvin nor the underwriters make any representation that anyone
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
We have agreed that, unless we receive the prior written consent of Lehman
Brothers, we may not, during the period ending 90 days after the date of this
prospectus supplement:
- directly or indirectly, 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 any Units, common shares, purchase contracts or debentures, as
the case may be, or any securities of Arvin similar to the Units, common
shares, purchase contracts or debentures, or any security convertible into
or exercisable or exchangeable for Units, common shares, purchase
contracts or debentures, or file any registration statement under the
Securities Act with respect to any of the foregoing, or
- enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Units, common shares, purchase contracts,
debentures, or any securities convertible into or exercisable or
exchangeable for Units, common shares, purchase contracts or debentures,
whether any such swap or transaction described above is to be settled by
delivery of Units, common shares, purchase contracts, debentures or such other
securities, in cash or otherwise.
The restrictions described in the prior paragraph do not apply to, among
other things:
- the sale of the Units to the underwriters,
- Treasury Units or Corporate Units to be created or recreated upon
substitution of pledged securities or common shares issuable upon early
settlement of the Corporate Units or Treasury Units,
- any common shares issued, or options to purchase such shares granted,
pursuant to exisiting employee benefit plans, or
- any common shares issued pursuant to any non-employee director stock plan
or dividend reinvestment plan.
Each of the underwriters has, directly and indirectly, provided investment
and commercial banking or financial advisory services to Arvin and its
affiliates, for which it has received customary fees and commissions, and/or
expects to provide these services to Arvin and its affiliates in the future, for
which it expects to receive customary fees and commissions.
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<PAGE>
LEGAL MATTERS
The legality of the purchase contracts, the common shares, the debentures
offered hereby will be passed upon for Arvin by Schiff Hardin & Waite, Chicago,
Illinois. Certain legal matters will be passed upon for the underwriters by
Simpson Thacher & Bartlett, New York, New York and by Skadden, Arps, Slate,
Meagher & Flom (Illinois), Chicago, Illinois. In rendering their respective
opinions, Simpson Thacher & Bartlett and Skadden, Arps, Slate, Meagher & Flom
(Illinois) may rely upon Schiff Hardin & Waite as to all matters of Indiana law.
EXPERTS
The financial statements incorporated in this prospectus supplement by
reference to the Annual Report on Form 10-K of Arvin Industries, Inc. for the
year ended January 3, 1999 and the audited historical financial statements of
Purolator Automotive Filter Business included on page 4 of Arvin Industries,
Inc.'s Form 8-K/A dated May 12, 1999 have been so incorporated in reliance on
the reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
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<PAGE>
PROSPECTUS
[LOGO]
$400,000,000
ARVIN INDUSTRIES, INC.
DEBT SECURITIES
PREFERRED SHARES
DEPOSITARY SHARES
COMMON SHARES
SHARE PURCHASE CONTRACTS
SHARE PURCHASE UNITS
WARRANTS
- ----------------------------------------------------------------------
We will provide specific terms of these securities in supplements to this
prospectus.
You should read this prospectus and any supplement carefully before you invest.
THESE SECURITIES HAVE NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAVE THESE ORGANIZATIONS
DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
The date of this prospectus is July 29, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY.................................................................................................... 1
The Securities We May Offer............................................................................ 1
Debt Securities........................................................................................ 1
Preferred Shares and Depositary Shares................................................................. 2
Common Shares.......................................................................................... 2
Share Purchase Contracts and Share Purchase Units...................................................... 2
Warrants............................................................................................... 2
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDENDS... 3
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 3
ARVIN...................................................................................................... 4
USE OF PROCEEDS............................................................................................ 4
DESCRIPTION OF THE DEBT SECURITIES......................................................................... 4
Provisions Applicable to Both Senior and Subordinated Debt Securities.................................... 5
General................................................................................................ 5
Registration, Transfer and Exchange.................................................................... 6
Consolidation, Merger and Sale of Assets............................................................... 6
Modification and Waiver................................................................................ 6
Satisfaction and Discharge of an Indenture............................................................. 7
Events of Default...................................................................................... 7
Book-Entry Debt Securities............................................................................. 9
Year 2000 Compliance................................................................................... 11
Information Concerning the Trustee..................................................................... 12
Governing Law.......................................................................................... 12
PROVISIONS APPLICABLE SOLELY TO SENIOR DEBT SECURITIES..................................................... 12
Covenants.............................................................................................. 12
Definitions............................................................................................ 14
PROVISIONS APPLICABLE SOLELY TO SUBORDINATED DEBT SECURITIES............................................... 16
Subordination.......................................................................................... 16
Conversion............................................................................................. 17
DESCRIPTION OF CAPITAL SHARES.............................................................................. 19
General................................................................................................ 19
Common Shares.......................................................................................... 19
Provisions with Possible Anti-takeover Effects......................................................... 19
Preferred Share Purchase Rights........................................................................ 21
Preferred Shares....................................................................................... 22
DESCRIPTION OF SHARE PURCHASE CONTRACTS AND SHARE PURCHASE UNITS........................................... 23
DESCRIPTION OF DEPOSITARY SHARES........................................................................... 24
General................................................................................................ 24
Dividends and Other Distributions...................................................................... 24
Redemption of Depositary Shares........................................................................ 24
Voting the Preferred Shares............................................................................ 25
Amendment and Termination of Depositary Agreement...................................................... 25
Changes of Depositary.................................................................................. 25
Miscellaneous.......................................................................................... 26
DESCRIPTION OF WARRANTS.................................................................................... 26
Debt Warrants.......................................................................................... 26
Equity Warrants........................................................................................ 27
PLAN OF DISTRIBUTION....................................................................................... 27
LEGAL OPINIONS............................................................................................. 29
EXPERTS.................................................................................................... 29
</TABLE>
<PAGE>
SUMMARY
This summary highlights selected information from this document and does not
contain all of the information that is important to you. To understand the terms
of our securities, you should carefully read this document with the attached
prospectus supplement. Together, these documents will give the specific terms of
the securities we are offering. You should also read the documents we have
incorporated by reference into this prospectus for information about us and our
financial statements.
THE SECURITIES WE MAY OFFER
This prospectus is part of a registration statement that we filed with the
SEC utilizing a "shelf" registration process. Under this shelf registration, we
may offer from time to time up to $400,000,000 of any of the following
securities, either separately or in units: debt securities, preferred shares,
depositary shares, common shares, share purchase contracts relating to the
common shares, share purchase units, and warrants. This prospectus provides you
with a general description of the securities we may offer. Each time we offer
securities, we will provide you with a prospectus supplement that will describe
the specific amounts, prices and terms of the securities being offered. The
prospectus supplement may also add, update or change information contained in
this prospectus.
DEBT SECURITIES
We may offer unsecured general obligations of Arvin, which may be senior or
subordinate. In this prospectus, we refer to the senior debt securities and the
subordinated debt securities together as the "debt securities." The senior debt
securities will have the same rank as all of our other unsecured and
unsubordinated debt. The subordinated debt securities will be entitled to
payment only after payment on our senior indebtedness. Senior indebtedness
includes all indebtedness for money borrowed by Arvin, except indebtedness that
by its terms is not superior to, or has the same rank as, the subordinated debt
securities.
The senior debt securities will be issued under an indenture between us and
Harris Trust and Savings Bank as the trustee. The subordinated debt securities
will be issued under an indenture between us and the trustee we name in a
prospectus supplement. We have summarized general features of the debt
securities from the indentures. We encourage you to read the indentures which
are exhibits to the registration statement and our recent periodic and current
reports filed with the SEC.
SENIOR AND SUBORDINATED DEBT SECURITIES. The indentures do not limit the
amount of debt that we may issue. The indentures do not provide holders any
protection in the event of a recapitalization or restructuring involving Arvin.
Also, neither indenture provides holders with any special protection in the
event of a highly leveraged transaction.
The indentures allow us to merge or consolidate with another company, or to
sell all or most of our assets to another company. If these events occur, the
other company will be required to assume all our responsibilities relating to
the debt securities.
The indentures provide that holders of a majority of the outstanding
principal amount of any series of debt securities may vote to change our
obligations or your rights concerning that series. However, to change the amount
or timing of principal, interest or other payments under the debt securities,
every holder in the series must consent.
We may discharge our obligations under the indentures by depositing with the
trustee sufficient funds or government obligations to pay the debt securities
when due.
EVENTS OF DEFAULT. Each indenture provides that the following are events of
default:
-- If we do not pay interest for 30 days after its due date.
1
<PAGE>
-- If we do not pay principal or any premium when due.
-- If we do not make any sinking fund payment when due.
-- If we continue to breach a covenant or warranty for 90 days after
notice.
-- If we fail to pay principal or interest on other significant
indebtedness of Arvin when due.
-- If we enter bankruptcy, become insolvent or reorganize.
Upon the bankruptcy, insolvency, or reorganization of Arvin, all unpaid
principal, accrued interest and any premium on any series of outstanding debt
securities will become immediately payable without any declaration or act of the
trustee or the holders. If any other event of default occurs with respect to any
series of debt securities, the trustee or holders of at least 25% of the
outstanding principal amount of that series may declare the principal amount of
the series immediately payable. However, holders of a majority of the principal
amount may rescind this action.
SENIOR DEBT SECURITIES. The indenture relating to the senior debt
securities contains covenants restricting our ability to incur secured
indebtedness, to enter into sale and leaseback transactions and to transfer
assets to some of our subsidiaries.
SUBORDINATED DEBT SECURITIES. All payments on the subordinated debt
securities are subordinated in right of payment to the prior payment in full of
all senior indebtedness.
PREFERRED SHARES AND DEPOSITARY SHARES
We may issue our preferred shares, no par value, in one or more series. Our
board of directors will determine the dividend, voting, conversion and other
rights of the series of preferred shares being offered. We may also issue
fractional shares of the preferred shares that will be represented by depositary
shares and depositary receipts.
COMMON SHARES
We may issue our common shares, par value $2.50 per share. Holders of common
shares are entitled to receive dividends when declared by the board of
directors, subject to the rights of holders of preferred shares. Each holder of
common shares is entitled to one vote per share. The holders of common shares
have no preemptive rights or cumulative voting rights.
SHARE PURCHASE CONTRACTS AND SHARE PURCHASE UNITS
We may issue share purchase contracts for the purchase of our common shares.
We also may issue share purchase units, each of which will consist of a share
purchase contract and a debt security or a debt obligation of a third party,
including a U.S. Treasury security. The debt security or debt obligation of a
third party may be pledged as collateral to secure the holder's obligation to
purchase common shares under the share purchase contract. Our board of directors
will determine the terms of the offering, including the terms of the share
purchase contracts and information about the security or obligation that will
secure the holder's obligation to purchase common shares.
WARRANTS
We may issue warrants for the purchase of debt securities, preferred shares,
depositary shares or common shares. We may issue warrants independently or
together with other securities.
2
<PAGE>
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDENDS
Our ratio of earnings to fixed charges and our ratio of earnings to combined
fixed charges and preferred share dividends for each of the periods indicated
are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
----------------- ---------------------------------------------------------
JULY 4, JAN. 3, DEC. 28, DEC. 29, DEC. 31, JAN. 1,
1999 1999 1997 1996 1995 1995
----------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges..................... 3.6 3.7 3.2 2.4 1.6 1.8
Ratio of Earnings to Combined
Fixed Charges and Preferred
Dividends................... 3.6 3.7 3.2 2.4 1.6 1.8
</TABLE>
For purposes of calculating the ratios, earnings consist of earnings from
continuing operations before income taxes, adjusted for the portion of fixed
charges deducted from these earnings. Fixed charges consist of interest on all
indebtedness, including capital lease obligations and capitalized interest,
amortization of debt expense and the percentage of rental expense on operating
leases deemed representative of the interest factor. The ratio of earnings to
fixed charges, before the restructuring and special charges, for 1995 was 1.9
and for 1994 was 2.4. No preferred shares were outstanding during the periods,
and no preferred dividends were paid.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at (800) SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
at the SEC's web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with it, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and later
information that we file with the SEC will automatically update and supersede
this information. We incorporate by reference the documents listed below and any
future filings made with the SEC under section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until our offering is completed:
(1) Arvin's Annual Report on Form 10-K for the fiscal year ended January 3,
1999;
(2) Arvin's Quarterly Reports on Form 10-Q for the quarters ended April 4,
1999 and July 4, 1999;
(3) Arvin's Current Reports on Form 8-K dated March 4, 1999 and March 12,
1999 and Form 8-K/A dated May 12, 1999 and June 22, 1999; and
(4) The description of the common shares contained in Arvin's registration
statement on Form 8-A, filed June 19, 1950, supplementing Arvin's
registration statement on Form 10, filed October 25, 1939, and the
description of the associated preferred share purchase rights contained
in Arvin's registration statement on Form 8-A, dated June 10, 1986, as
amended February 28, 1989, December 9, 1994 and May 10, 1996, in each
case as filed under section 12 of the Securities Exchange Act.
You may request a copy of these filings at no cost, by writing to or
telephoning us at the following address and telephone number: Arvin Industries,
Inc., Shareholder Relations, One Noblitt Plaza, Box 3000, Columbus, Indiana
47202-3000 and (812)379-3000.
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You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. We are not making an
offer of these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the front of the
document.
ARVIN
We are a focused international manufacturer and supplier of automotive parts
with more than 50 manufacturing facilities and eight technical centers located
in 15 countries and also has non-consolidated affiliates with operations in six
additional countries. We are a worldwide leader in automotive exhaust systems
and ride control products for the original equipment and replacement markets.
Through our acquisition of the Purolator Products automotive filter business, we
are also a North American leader in the automotive filter market. Since our
founding in 1919, we have grown through internal development, acquisitions and
international joint ventures. In recent years, our strategy has been to
strengthen our automotive parts businesses by achieving a mix of sales to both
original equipment manufacturers and replacement market parts suppliers on a
global basis.
We were incorporated in Indiana in 1921. Our principal executive offices are
located at One Noblitt Plaza, Box 3000, Columbus, Indiana 47202-3000, and our
telephone number is (812) 379-3000. Our common shares are listed on the New York
Stock Exchange and the Chicago Stock Exchange under the symbol "ARV."
USE OF PROCEEDS
Unless otherwise specified in the applicable prospectus supplement, the net
proceeds we receive from the sale of the securities offered by this prospectus
and the attached prospectus supplement will be used for general corporate
purposes. General corporate purposes may include the repayment of debt, working
capital expenditures and acquisitions or investments in businesses and assets.
The net proceeds may be invested temporarily or applied to repay short-term debt
until they are used for their stated purpose.
DESCRIPTION OF THE DEBT SECURITIES
The following description of the debt securities sets forth general terms
that may apply to the debt securities. The particular terms of any debt
securities will be described in a prospectus supplement relating to those debt
securities.
The debt securities will be either our senior debt securities or our
subordinated debt securities. The senior debt securities will be issued under an
indenture dated as of July 3, 1990, and supplemented on March 31, 1994, between
us and Harris Trust and Savings Bank as the trustee. This indenture is referred
to as the "senior indenture." The subordinated debt securities will be issued
under an indenture to be entered into between us and a trustee named in the
prospectus supplement. This indenture is referred to as the "subordinated
indenture." The senior indenture and the subordinated indenture are together
called the "indentures."
The following is a summary of important provisions of the indentures. Copies
of the entire indentures are exhibits to the registration statement of which
this prospectus is a part. Section references below are to the section in the
applicable indenture. The referenced sections of the indentures are incorporated
by reference.
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PROVISIONS APPLICABLE TO BOTH SENIOR AND SUBORDINATED DEBT SECURITIES
GENERAL
Neither indenture limits the total principal amount of debt securities that
we may issue. Each indenture provides that we may issue debt securities in one
or more series from time to time up to the total principal amount that we have
authorized. The senior debt securities will be unsecured and will have the same
rank as all of our other unsecured and unsubordinated debt. The subordinated
debt securities will be unsecured and will be subordinated and junior to all of
our senior indebtedness. Neither indenture limits the amount of other unsecured
indebtedness or securities that we may issue.
The debt securities may be issued in one or more separate series of senior
debt securities or subordinated debt securities. The prospectus supplement
relating to the particular series of debt securities being offered will specify
the particular amounts, prices and terms of those debt securities. These terms
may include:
-- the title of the debt securities;
-- the series of the debt securities;
-- their total principal amount and denominations;
-- the date or dates on which they will mature;
-- their interest rate or rates, or the method of determining those rates;
-- their interest payment dates and the record dates for interest payments;
-- any premium payments, including any conditions;
-- the manner of making principal, interest and any premium payments on the
debt securities;
-- the places where principal, interest and any premium payments may be
made;
-- the currency or currencies in which payments on the debt securities will
be payable, if other than U.S. dollars;
-- the ranking of the debt securities as senior or subordinated;
-- any mandatory or optional redemption provisions;
-- any sinking fund provisions;
-- any conversion provisions, in the case of subordinated debt securities;
-- any additional information about book-entry procedures;
-- the portion of the principal amount of any debt security payable upon
the acceleration of maturity, if other than the full principal amount;
-- the method of determining the amount of any payments on the debt
securities which are linked to an index;
-- whether the debt securities will be issued in fully registered form
without coupons or in bearer form, with or without coupons, or both, and
whether they will be issued in global form; and
-- any other specific terms of the debt securities.
Principal, interest and any premium will be payable in the manner, at the
places and subject to the restrictions provided in the applicable indenture.
Unless otherwise specified in the prospectus supplement, payment of any interest
may be made at our option by check mailed to the holders of the registered debt
securities at their registered addresses.
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The indentures permit us to issue debt securities with terms different from
those previously issued and to "reopen" a previous issue and issue additional
debt securities of that series.
REGISTRATION, TRANSFER AND EXCHANGE
The debt securities will be issued in fully registered form without coupons,
unless the prospectus supplement contains provisions relating to bearer
securities. The applicable indenture, debt securities and prospectus supplement
will describe the manner in which and the places where the debt securities may
be registered for transfer or exchanged. No service charge will be payable upon
the registration of transfer or exchange of debt securities, except for any
applicable tax or governmental charge.
CONSOLIDATION, MERGER AND SALE OF ASSETS
We may consolidate with, or sell, lease or convey all or most of our assets
to, or merge with or into, any other corporation, as long as:
-- if we are not the continuing corporation, the successor corporation is
organized and existing under U.S. or state law;
-- the successor corporation by supplemental indenture expressly assumes
the payments on the debt securities and duly and punctually performs and
observes all covenants and conditions of the applicable indenture to be
performed by us; and
-- we or the successor corporation are not in default in the performance of
any of those covenants or conditions immediately after the merger or
consolidation or the sale, lease or conveyance.
MODIFICATION AND WAIVER
Arvin and the applicable trustee may modify and amend either indenture with
the consent of the holders of at least a majority in total principal amount of
the outstanding debt securities of each affected series. However, no
modification or amendment may, without the consent of the holder of each
affected outstanding debt security:
-- change the stated maturity of the principal or any interest;
-- reduce the principal amount, the interest rate or any premium upon
redemption;
-- reduce the principal amount of an original issue discount debt security
that would be due and payable upon acceleration of its maturity;
-- change the currency in which any debt security or interest or any
premium on the debt security is payable;
-- impair the right to enforce any payment on or after its stated maturity
or the redemption or repayment date;
-- in the case of subordinated debt securities, adversely modify any
subordination provision;
-- reduce the percentage in principal amount of any series of outstanding
debt securities whose holders' consent is required for any amendment or
waiver; or
-- modify any of the provisions described in this paragraph, except to
increase any percentage or to provide that other provisions of the
indenture cannot be modified or waived without the consent of the holder
of each affected outstanding debt security. (Section 902)
Except for these matters, the holders of at least a majority in principal
amount of any series of outstanding debt securities may waive past defaults,
other than defaults in payment of principal, interest
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or any premium, under and waive compliance by us with provisions of the
applicable indenture. (Sections 513 and 1009)
SATISFACTION AND DISCHARGE OF AN INDENTURE
If we deposit or cause to be deposited with the trustee cash or direct
obligations of the United States or obligations guaranteed by the United States
that are sufficient, together with any income that accrues on those obligations,
to pay and discharge the entire indebtedness on all outstanding debt securities
of any series when due in compliance with the indenture, then we will be treated
as having paid and discharged the entire indebtedness, except for any surviving
obligations, including the rights of holders to be paid amounts when due under
the debt securities.
If we make these deposits with the trustee and either:
-- all debt securities authenticated and delivered under the applicable
indenture are delivered for cancellation, other than:
(1) debt securities that have been destroyed, lost or stolen and which
have been paid or replaced,
(2) coupons pertaining to bearer securities whose surrender is not
required or has been waived, and
(3) debt securities for which we deposited or segregated and held in
trust payment and which later was repaid to us or discharged from the
trust, or
-- all debt securities are or will become due and payable at their stated
maturity within one year or will be called for redemption within one
year if redeemable at our option,
and we comply with any other conditions, the indenture will be of no further
effect, except for transfer or exchange rights. (Section 401)
EVENTS OF DEFAULT
Each indenture provides that the following are events of default with
respect to any series of debt securities:
-- failure for 30 days to pay interest when due;
-- failure to pay principal or any premium when due;
-- failure to deposit any sinking fund payment when due;
-- if we continue to breach a covenant or warranty in the indenture for 90
days after appropriate notice;
-- failure to pay principal of or interest on any other obligation for
borrowed money of Arvin, including default under any other series of
debt securities and, in the case of the senior debt securities,
including default on any guaranty of an obligation for borrowed money of
a restricted subsidiary, beyond any grace period if:
(1) the total principal amount exceeds $10,000,000,
(2) we do not contest in appropriate proceedings default in payment, and
(3) the default in payment has not been cured or waived before written
notice was given to us;
-- events of bankruptcy, insolvency or reorganization; or
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-- any other event of default with respect to that series of debt
securities. (Section 501)
In the case of bankruptcy, insolvency or reorganization, all unpaid
principal of and any premium and accrued interest on any series of outstanding
debt securities will become and be immediately due and payable without any
declaration or other act of the trustee or any holder. If any other event of
default occurs and continues, the trustee or the holders of at least 25% in
total principal amount of that series of outstanding debt securities may declare
the principal to be due and payable immediately. However, after this declaration
of acceleration has been made, but before a judgment or decree based on the
acceleration has been obtained, the holders of a majority in total principal
amount of that series of outstanding debt securities may rescind the
acceleration if all events of default other than the non-payment of accelerated
principal have been cured or waived.
The prospectus supplement relating to any original issue discount debt
security will contain provisions about acceleration of the maturity of a portion
of the principal amount upon the occurrence and the continuation of an event of
default.
Each indenture requires us to file annually with the trustee an officer's
certificate as to the absence of defaults under the indenture. Each indenture
requires the trustee, within 90 days after the occurrence of a default with
respect to any series of outstanding debt securities which is continuing, to
give to the holders notice of all uncured defaults known to it. However, except
in the case of default in the payment of principal, interest or any premium or
in the payment of any sinking fund installment, the trustee will be protected in
withholding the notice if it in good faith determines that this withholding of
notice is in the interest of the holders of the debt securities. (Section 602)
Each indenture provides that the trustee will be under no obligation to
exercise any of its rights or powers at the request or direction of the holders
of the debt securities unless they have offered to the trustee reasonable
indemnity. (Section 603) Each indenture provides that the holders of a majority
in total principal amount of any series of outstanding debt securities will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the trustee or exercising any trust or power conferred
on the trustee with respect to that series of debt securities. (Section 601)
No holder of any series of debt security will have any right to institute
any legal proceeding with respect to or for any remedy under the indenture
unless:
-- the holder has previously given written notice to the trustee of a
continuing event of default with respect to that series of debt
securities;
-- the holders of at least 25% in total principal amount of that series of
outstanding debt securities have made a written request to the trustee
to institute the proceeding;
-- the holder or holders have offered the trustee reasonable indemnity;
-- the trustee has failed to institute the proceeding within 60 days; and
-- the trustee has not received a direction inconsistent with the written
request from the holders of a majority in total principal amount of the
outstanding debt securities. (Section 507)
However, the holder of any debt security will have an absolute right to
receive payment of principal, interest and any premium on or after the due dates
expressed in the debt security and to institute suit to enforce any payment.
(Section 508)
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BOOK-ENTRY DEBT SECURITIES
A series of debt securities may be issued in whole or in part in the form of
one or more global securities that will be deposited with, or on behalf of, a
depository identified in the prospectus supplement. Payments of principal,
interest and any premium on the series of debt securities represented by a
global security will be made to the depository.
We anticipate that any global securities will be deposited with, or on
behalf of, The Depository Trust Company, New York, New York, that the global
securities will be registered in the name of DTC's nominee, and that the
following provisions will apply to the depository arrangements with respect to
the global securities. The prospectus supplement will describe additional or
differing terms of the depository arrangement involving any series of debt
securities issued in the form of global securities.
So long as DTC or its nominee is the registered owner of a global security,
DTC or its nominee will be considered the sole holder of the debt securities
represented by the global security for all purposes under the applicable
indenture. Except as described below, owners of beneficial interests in a global
security:
-- will not be entitled to have debt securities represented by the global
security registered in their names;
-- will not receive or be entitled to receive physical delivery of debt
securities in the form of a certificate; and
-- will not be considered the record owners or holders of debt securities
under the applicable indenture.
The laws of some states require that purchasers of securities take physical
delivery of the securities in certificated form. These laws may limit the
transferability of beneficial interests in a global security.
If DTC is at any time unwilling or unable to continue as depository with
respect to any debt securities represented by a global security and we do not
appoint a successor depository within 60 days, we will issue individual debt
securities in certificated form in exchange for the global security. In
addition, we may at any time determine not to have any debt securities of one or
more series represented by global securities and instead will issue the
individual debt securities in certificated form in exchange for the global
securities. In this instance, an owner of a beneficial interest in a global
security will be entitled to physical delivery of individual debt securities in
the form of a certificate equal in principal amount to the beneficial interest
and to have the debt securities in the form of a certificate registered in its
name.
We obtained the following information concerning DTC and its book-entry
system from sources, including DTC, that we believe to be reliable, but we take
no responsibility for the accuracy of this information.
DTC will act as securities depository for the debt securities. The debt
securities will be issued as fully registered securities registered in the name
of Cede & Co., which is DTC's partnership nominee.
One fully registered debt security certificate will be issued with respect
to up to $400,000,000 of principal amount of the series of debt securities, and
an additional certificate will be issued with respect to any remaining principal
amount of that series.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Commercial Code, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Securities Exchange Act. DTC
holds securities that its participants deposit with DTC. DTC also facilitates
the settlement among
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participants of securities transactions, including transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct participants of DTC include securities brokers
and dealers, banks, trust companies, clearing corporations and other
organizations. A number of the direct participants and the New York Stock
Exchange, the American Stock Exchange, and the National Association of
Securities Dealers own DTC. Access to DTC's system also is available to others,
including securities brokers and dealers and banks and trust companies that
clear through or maintain a custodial relationship with a direct participant,
either directly or indirectly. The rules applicable to DTC and its participants
are on file with the SEC.
Purchases of debt securities under the DTC system must be made by or through
direct participants, which will receive a credit for the debt securities on
DTC's records. The ownership interest of each beneficial owner or each actual
purchaser of each debt security is to be recorded on the direct and indirect
participants' records. A beneficial owner of debt securities will not receive
written confirmation from DTC of its purchase, but is expected to receive a
written confirmation providing details of the transaction, as well as periodic
statements of its holdings, from the participant through which the beneficial
owner entered into the transaction. Transfers of ownership interests in debt
securities are to be accomplished by entries made on the books of participants
acting on behalf of beneficial owners. Beneficial owners will not receive
certificates representing their ownership interests in the debt securities,
unless the use of the book-entry system for the debt securities is discontinued.
To facilitate subsequent transfers, any certificate representing debt
securities which is deposited with, or on behalf of, DTC is registered in the
name of its nominee, Cede & Co. The deposit of the certificate with, or on
behalf of, DTC and its registration in the name of Cede & Co. effect no change
in beneficial ownership. DTC has no knowledge of the actual beneficial owners of
the certificate representing the debt securities; DTC's records reflect only the
identity of the direct participants to whose accounts the debt securities are
credited, which may or may not be the beneficial owners. The participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Delivery of notices and other communications by DTC to direct participants,
by direct participants to indirect participants, and by direct and indirect
participants to beneficial owners, will be governed by arrangements among them
and any statutory or regulatory requirements.
Neither DTC nor Cede & Co. will consent or vote with respect to the debt
securities. Under its usual procedures, DTC mails an omnibus proxy to Arvin as
soon as possible after the record date. The omnibus proxy assigns Cede & Co.'s
consenting or voting rights to those direct participants identified on a list
attached to the omnibus proxy to whose accounts the debt securities are credited
on the record date.
Principal, interest, and premium payments on the debt securities will be
made to DTC. DTC's practice is to credit direct participants' accounts on the
payable date with respect to their holdings as shown on DTC's records unless DTC
has reason to believe that it will not receive payment on the payment date.
Payments by participants to beneficial owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of the participant and not of DTC, the trustee, or
the paying agent, subject to any statutory or regulatory requirements. Payment
of principal and interest to DTC is the responsibility of Arvin or the trustee
or any paying agent. Disbursement of payments to direct participants will be the
responsibility of DTC. Disbursement of payments to the beneficial owners will be
the responsibility of the direct and indirect participants.
If applicable, redemption notices will be sent to Cede & Co. If less than
all of the debt securities within an issue are being redeemed, DTC's practice is
to determine by lot the amount of the interest of each direct participant in the
issue to be redeemed.
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A beneficial owner will give notice of any option to elect to have its debt
securities repaid by Arvin, through its participant, to the applicable trustee,
and will effect delivery of the debt securities by causing the direct
participant to transfer the participant's interest in the global security or
securities representing the debt securities, on DTC's records, to the trustee.
The requirement for physical delivery of debt securities in connection with a
demand for repayment will be deemed satisfied when the ownership rights in the
global security or securities representing the debt securities are transferred
by direct participants on DTC's records.
DTC may discontinue providing its services as securities depository with
respect to the debt securities at any time by giving reasonable notice to Arvin
or the paying agent. If a successor securities depository is not appointed, debt
security certificates are required to be printed and delivered.
Arvin may decide to discontinue use of the system of book-entry transfers
through DTC or a successor securities depository. In that event, debt security
certificates will be printed and delivered.
Unless stated otherwise in the applicable prospectus supplement, any
underwriters, dealers or agents with respect to any series of debt securities
issued as global securities will be direct participants in DTC.
None of Arvin, any underwriter, dealer or agent, the applicable trustee or
any paying agent will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial interests in a
global security, or for maintaining, supervising or reviewing any records
relating to these beneficial interests.
YEAR 2000 COMPLIANCE
DTC has advised us that its management is aware that some computer
applications, systems and the like for processing data that are dependent upon
calendar dates, including dates before, on, and after January 1, 2000, may
encounter "Year 2000 problems." DTC has informed the industry, including direct
and indirect participants and other members of the financial community, that it
has developed and is implementing a program so that its systems, as the same
relate to the depository services, namely the timely payment of distributions,
including principal and interest payments, to security holders, book-entry
deliveries, and settlement of trades within the depository, continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform its services properly also is dependent
upon other parties, including, without limitation, issuers and their agents, as
well as the direct and indirect participants, third party vendors from whom it
licenses software and hardware, and third party vendors on whom it relies for
information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
industry that it is contacting and will continue to contact third party vendors
from whom it acquires services to:
-- impress upon them the importance of these services being Year 2000
compliant; and
-- determine the extent of their efforts for Year 2000 remediation and, as
appropriate, testing of their services.
In addition, DTC is in the process of developing contingency plans as it deems
appropriate.
According to DTC, this information with respect to Year 2000 compliance has
been provided to the industry for informational purposes only and is not
intended to serve as a representation, warranty, or contract modification of any
kind.
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INFORMATION CONCERNING THE TRUSTEE
Harris Trust and Savings Bank is the trustee under the senior indenture. The
trustee under the subordinated indenture will be identified in a prospectus
supplement. Each trustee may also serve as warrant agent with respect to any
debt warrants to purchase underlying debt securities issued under the indenture
with respect to which it acts as trustee. We also maintain banking relationships
in the ordinary course of business with Harris Trust and Savings Bank, and
Harris Trust and Savings Bank participates, along with several other banks, in
credit facilities with Arvin and its subsidiaries. At the date of this
prospectus, Harris Trust and Savings Bank is the trustee with respect to our
6 7/8% Notes due February 15, 2001, 6 3/4% Notes due March 15, 2008, and 7 1/8%
Notes due March 15, 2009. As of July 4, 1999, Harris Trust and Savings Bank also
was trustee with respect to $36,000,000 aggregate principal amount of our Medium
Term Notes issued under the senior indenture. As of July 4, 1999, we had
outstanding $361,000,000 total principal amount of our debt securities issued
under the senior indenture.
GOVERNING LAW
The indentures are, and the debt securities will be, governed by the laws of
the State of New York.
PROVISIONS APPLICABLE SOLELY TO SENIOR DEBT SECURITIES
Senior debt securities will be issued under the senior indenture and will
rank pari passu with all our other unsecured and unsubordinated debt.
COVENANTS
The senior indenture contains covenants, including those described below
with respect to the incurrence of secured debt by Arvin and the restricted
subsidiaries, sale and leaseback transactions on the part of Arvin and the
restricted subsidiaries, and the transfer of principal facilities to
unrestricted subsidiaries. Terms used in these covenants are defined below under
"Definitions." These covenants do not focus on the amount of debt incurred in
any transaction and do not afford protection to holders of the debt securities
in the event of a highly leveraged transaction that is not in violation of the
covenants. At the date of this prospectus, we do not intend to include any
covenants or other provisions affording protection to holders of any series of
the debt securities. If we desire to include the covenants or other provisions
in the future, the applicable prospectus supplement will describe them.
SECURED DEBT. The senior indenture provides that so long as the senior debt
securities are outstanding, we will not and will not cause or permit a
restricted subsidiary to create, incur, assume or guarantee any secured debt or
create any security interest securing any indebtedness existing on the date of
the indenture constituting secured debt if it were secured by a security
interest in a principal facility, unless the senior debt securities will be
secured equally and ratably by that security interest. However, we and our
restricted subsidiaries may create, incur, assume or guarantee secured debt
without securing the senior debt securities in the case of indebtedness secured
by:
-- security interests to secure payment of the cost of acquisition,
construction, development or improvement of property;
-- security interests on property at the time of acquisition assumed by us
or a restricted subsidiary, or on the property or on the outstanding
shares or indebtedness of a corporation or firm when it becomes a
restricted subsidiary or is merged into or consolidated with or acquired
as an entirety or substantially as an entirety by us or a restricted
subsidiary;
-- security interests arising from conditional sales agreements or title
retention agreements with respect to property acquired by us or any
restricted subsidiary;
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-- security interests securing indebtedness of a restricted subsidiary
owing to us or to another restricted subsidiary;
-- mechanics' and other statutory liens arising in the ordinary course of
business for obligations that are not due or that are being contested in
good faith;
-- liens for taxes, assessments or governmental charges not yet due that
are being contested in good faith;
-- security interests, including judgment liens, arising in connection with
legal proceedings being contested in good faith and, in the case of
judgment liens, on which execution is stayed;
-- landlords' liens on fixtures;
-- security interests to secure partial, progress, advance or other
payments or indebtedness that were incurred to finance construction on
or improvement of property; and
-- security interests in favor, or made at the request of, governmental
bodies.
Permitted secured debt also includes, with limitations, any extension,
renewal or refunding of all or any part of any secured debt that was permitted
at the time it was originally incurred. In addition, we and our restricted
subsidiaries may incur secured debt, without equally and ratably securing the
senior debt securities, if the sum of:
-- the amount of secured debt entered into after the date of the senior
indenture and otherwise prohibited by the senior indenture, plus
-- the aggregate value of sale and leaseback transactions entered into
after the date of the senior indenture and otherwise prohibited by the
senior indenture does not exceed ten percent of Arvin's consolidated net
tangible assets. (Section 1005)
SALE AND LEASEBACK TRANSACTIONS. The senior indenture provides that so long
as debt securities are outstanding, we will not, and will not permit any
restricted subsidiary to, enter into any sale and leaseback transaction unless
we or a restricted subsidiary:
-- would be entitled to incur secured debt by reason of the provision
described in the last sentence of the preceding paragraph equal in
amount to the net proceeds of the property sold or transferred or to be
sold or transferred in the sale and leaseback transaction and secured by
a security interest on the property to be leased, without equally and
ratably securing the debt securities, or
-- will apply, within 180 days after the effective date of the sale and
leaseback transaction, an amount equal to the net proceeds to:
(1) the acquisition, construction, development or improvement of
properties, facilities or equipment which are, or will be, a
principal facility or facilities or a part of them;
(2) the redemption of senior debt securities; or
(3) the repayment of senior funded debt of Arvin or any restricted
subsidiary, except senior funded debt owed to any restricted
subsidiary, or in part to the acquisition, construction, development
or improvement and in part to that redemption and/or payment.
Instead of applying an amount equal to the net proceeds to that redemption,
we may, within 180 days after that sale or transfer, deliver to the trustee
senior debt securities for cancellation and reduce the amount to be applied to
the redemption of the senior debt securities by an amount equivalent to the
total principal amount of the senior debt securities delivered. (Section 1006)
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ASSET TRANSFERS. The senior indenture provides that so long as debt
securities are outstanding, we will not, and will not cause or permit any
restricted subsidiary to, transfer any principal facility to any unrestricted
subsidiary unless, within 180 days of the effective date of the transaction, it
applies an amount equal to the fair value of the principal facility at the time
of transfer to:
-- the acquisition, construction, development or improvement of properties,
facilities or equipment which are, or will be, a principal facility or
facilities or a part of them;
-- the redemption of senior debt securities; or
-- the repayment of senior funded debt of Arvin or any restricted
subsidiary, except senior funded debt owed to any restricted subsidiary,
or in part to the acquisition, construction, development or improvement
and in part to that redemption and/or repayment.
Instead of applying all or any part of the amount to that redemption, we
may, within 180 days of that transfer, deliver to the trustee senior debt
securities for cancellation and reduce the amount to be applied to the
redemption of the senior debt securities by an amount equivalent to the total
principal amount of the senior debt securities delivered. (Section 1007)
DEFINITIONS
Section 101 of the senior indenture defines the following terms, which are
used in the prospectus, substantially as follows:
"Consolidated net tangible assets" means with respect to us:
-- the total amount of assets, less applicable reserves and other properly
deductible items, after deducting:
(1) all liabilities and liability items, except for indebtedness payable,
or renewable or extendable at the option of the obligor, for more
than one year from the date of incurrence, capitalized rent, capital
shares, including redeemable preferred shares, and surplus, surplus
reserves and deferred income taxes and credits and other non-current
liabilities, and
(2) all goodwill, trade names, trademarks, patents, unamortized debt
discount, unamortized expenses incurred in the issuance of debt, and
other like intangibles which under generally accepted accounting
principles in effect on July 3, 1990 would be included on a
consolidated balance sheet of Arvin and the restricted subsidiaries,
less:
-- loans, advances, equity investments and guarantees, other than accounts
receivable arising from the sale of merchandise in the ordinary course
of business, at the time outstanding that we and our restricted
subsidiaries made or incurred to, in or for unrestricted subsidiaries or
to, in or for corporations while they were restricted subsidiaries and,
when computed, are unrestricted subsidiaries.
"Principal facility" means any manufacturing plant, warehouse, office
building or parcel of real property, including fixtures, but excluding leases
and other contract rights which might otherwise be deemed real property, owned
by us or any restricted subsidiary, whether owned on the date of the senior
indenture or afterwards. Each plant, warehouse, office building or parcel of
real property must have a gross book value, without deduction for any
depreciation reserves, at the date of the determination in excess of three
percent of our consolidated net tangible assets, other than any plant,
warehouse, office building or parcel of real property or portion which, in our
board of directors' opinion, is not materially important to our business and
that of our subsidiaries taken as a whole.
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"Restricted subsidiary" means
-- any subsidiary other than an unrestricted subsidiary, and
-- any subsidiary that was an unrestricted subsidiary but which, after the
date of the applicable indenture, we designate to be a restricted
subsidiary by board resolution.
However, we may not designate any subsidiary as a restricted subsidiary if we
would breach any covenant or agreement contained in the senior indenture as a
result.
"Sale and leaseback transaction" means any sale or transfer made by us or
any restricted subsidiary of any principal facility that:
-- in the case of any manufacturing plant, warehouse or office building,
has been in operation, use or commercial production, exclusive of test
and start-up periods, by us or any restricted subsidiary for more than
190 days before the sale or transfer, or
-- in the case of a principal facility that is another parcel of real
property, has been owned by us or any restricted subsidiary for more
than 180 days before that sale or transfer,
if that sale or transfer is made with the intention of leasing, or as part of an
arrangement involving the lease of the principal facility to us or a restricted
subsidiary, except for a lease for a period up to 36 months made with the
intention that the use of the leased principal facility by us or a restricted
subsidiary will be discontinued on or before that period expires. Any sale or
transfer made to Arvin or any restricted subsidiary is not a sale and leaseback
transaction. Any secured debt permitted under the senior indenture will not be
deemed to create or be a sale and leaseback transaction.
"Secured debt" means any indebtedness for money borrowed by, or evidenced by
a note or other instrument of, us or a restricted subsidiary, and any other
indebtedness of us or a restricted subsidiary on which interest is paid or
payable, including obligations evidenced or secured by leases, installment sales
agreements or other instruments in connection with private activity bonds
qualified under section 141 of the Internal Revenue Code, other than
indebtedness that a restricted subsidiary owes to us or another restricted
subsidiary or that we owe to a restricted subsidiary, secured by a security
interest in any principal facility, or a security interest in any shares that we
own directly or indirectly in a restricted subsidiary or in indebtedness for
money borrowed by a restricted subsidiary from us or another restricted
subsidiary. The securing in this manner of any previously unsecured debt will be
deemed to be the creation of secured debt when security is given. The amount of
secured debt at any time outstanding will be the total amount then owing by us
and our restricted subsidiaries.
"Senior funded debt" means any obligation of Arvin or any restricted
subsidiary which was funded debt as of the date of creation and that, in our
case, is not subordinate and junior in right of payment to the prior payment of
the senior debt securities. "Funded debt" means any obligation payable, or
renewable or extendable at the option of the obligor, for more than one year
from the date of incurrence, which under generally accepted accounting
principles should be shown on the balance sheet as a liability.
"Subsidiary" means any corporation of which we and/or one or more
subsidiaries own or control directly or indirectly more than 50 percent of the
shares of voting stock.
"Unrestricted subsidiary" means:
-- any subsidiary acquired or organized after the date of the senior
indenture, if that subsidiary is not a successor, directly or
indirectly, to and does not directly or indirectly own any equity
interest in, any restricted subsidiary;
-- any subsidiary whose principal business and assets are located outside
the United States and/or Canada or both;
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-- any subsidiary whose principal business consists of financing the
acquisition or disposition of machinery, equipment, inventory, accounts
receivable and other real, personal and intangible property by persons
including us or a subsidiary;
-- any subsidiary whose principal business is owning, leasing, dealing in
or developing real property for residential or office building purposes;
and
-- any subsidiary, most of whose assets consist of shares or other
securities of an unrestricted subsidiary or unrestricted subsidiaries of
the character described in the foregoing clauses of this definition,
unless and until this subsidiary has been designated a restricted
subsidiary by board resolution.
PROVISIONS APPLICABLE SOLELY TO SUBORDINATED DEBT SECURITIES
Subordinated debt securities will be issued under the subordinated indenture
and rank pari passu with our other outstanding subordinated debt and rank junior
to all of our outstanding senior indebtedness. As described in the prospectus
supplement, the particular terms of the subordinated debt securities being
offered, including the subordination terms and the definition of senior
indebtedness, may differ from those described below.
SUBORDINATION
The payment of the principal, interest and any premium on the subordinated
debt securities is expressly subordinated, to the extent and in the manner
provided in the subordinated indenture, in right of payment to the prior payment
in full of all of our senior indebtedness, as may be changed by the terms of the
subordinated debt securities in the prospectus supplement.
In the event of any dissolution or winding up, or total or partial
liquidation or reorganization of Arvin, whether in bankruptcy, reorganization,
insolvency, receivership or similar proceeding, the holders of senior
indebtedness will be entitled to receive payment in full of all amounts due or
to become due on all senior indebtedness before the holders of the subordinated
debt securities are entitled to receive any payment on the subordinated debt
securities, including principal, interest or any premium. Except as indicated in
the prospectus supplement, no payment in respect of the subordinated debt
securities will be made if, at the time of payment, there is a default in
payment on any senior indebtedness, and this default has not been cured or
waived in writing or the benefits of subordination in the subordinated indenture
have not been waived in writing by or on behalf of the holders of the senior
indebtedness.
Notwithstanding the foregoing, if the trustee or the holder of any of the
subordinated debt securities receives any payment or distribution of any kind
before all senior indebtedness is paid in full or payment is provided for, that
payment or distribution will be applied to the payment of all senior
indebtedness remaining unpaid, to the extent necessary to pay all senior
indebtedness in full, after giving effect to any concurrent payment or
distribution to or for holders of senior indebtedness.
The subordinated indenture defines "senior indebtedness" as indebtedness,
either outstanding as of the date of the subordinated indenture or subsequently
issued, that by its terms is neither subordinated in right of payment to any of
our unsecured indebtedness, nor is pari passu with our subordinated
indebtedness.
The subordinated indenture defines "indebtedness," as applied to any person,
as all indebtedness, whether represented by bonds, debentures, notes or other
securities, created or assumed by that person for repayment of money borrowed,
and obligations, computed according to generally accepted accounting principles,
as lessee under leases that should be treated as capital leases. All
indebtedness secured by a lien upon property owned by us or any subsidiary and
upon which indebtedness that person customarily pays interest, without assuming
or becoming liable for the payment of this
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indebtedness, will be deemed to be indebtedness of that person. All indebtedness
of others guaranteed as to payment of principal by that person or in effect
guaranteed by that person through a contingent agreement to purchase it also
will be deemed to be indebtedness of that person.
If subordinated debt securities are issued under the subordinated indenture,
the total principal amount of senior indebtedness outstanding as of a recent
date will be indicated in the prospectus supplement. The subordinated indenture
does not restrict the amount of senior indebtedness that we may incur.
CONVERSION
The prospectus supplement will describe terms of conversion of any series of
subordinated debt securities into common shares or other securities of Arvin.
Unless the prospectus supplement provides otherwise, any right to convert
subordinated debt securities called for redemption will terminate at the close
of business on the redemption date. In the case of subordinated debt securities
convertible into common shares, the initial conversion price will be adjusted
for particular events, including:
-- a dividend or distribution on the common shares in the form of common
shares;
-- a subdivision or combination of the common shares;
-- an issuance to all holders of common shares of rights other than the
preferred share purchase rights described below, or warrants entitling
them to subscribe for or purchase common shares at less than the current
market price; and
-- a distribution on the common shares of evidences of our indebtedness,
assets other than cash dividends or distributions from retained
earnings, rights other than the preferred share purchase rights, or
warrants to subscribe for or purchase any of its securities, other than
those referred to above.
In addition, unless the prospectus supplement indicates otherwise, in any of
the following events, the holders of subordinated debt securities that are
convertible into common shares will have the right to convert them into the kind
and amount of shares and other securities or assets that are receivable upon
this event by a holder of the number of common shares issuable upon their
conversion immediately before that event.
-- the reclassification or change of outstanding common shares, other than
changes in par value or as a result of a subdivision or combination;
-- any consolidation, merger or combination of Arvin as a result of which
holders of common shares will be entitled to receive shares, securities
or other assets with respect to or in exchange for the common shares; or
-- any sale or conveyance of our assets as, or substantially as, an
entirety to any other entity in which holders of common shares will be
entitled to receive shares, securities or other assets with respect to
or in exchange for the common shares.
No adjustment of the conversion price is necessary until cumulative
adjustments amount to at least one percent of the current conversion price. We
reserve the right to make reductions in the conversion price, in addition to
those required in the provisions above, as we determine to be advisable so that
share-related distributions made by us to our shareholders will not be taxable.
Each common share issued upon conversion will sometimes include preferred share
purchase rights. We will not issue fractional common shares upon conversion of
subordinated debt securities that are convertible into common shares, but
instead will pay a cash adjustment based upon the market price of the common
shares.
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Unless the prospectus supplement provides otherwise, subordinated debt
securities surrendered for conversion during the period from the close of
business on any regular record date next preceding any interest payment date to
the opening of business on the interest payment date must be accompanied by
payment of an amount equal to the interest which the registered holder is to
receive. In the case of any subordinated debt security converted after any
regular record date but on or before the next interest payment date, interest
whose stated maturity is on that interest payment date will be payable on the
interest payment date notwithstanding the conversion, and that interest will be
paid to the holder on the regular record date. Except as described above, no
interest on converted securities will be payable by us on any interest payment
date after the date of conversion. No other payment or adjustment for interest
or dividends will be made upon conversion.
The conversion price for any subordinated debt securities convertible into
our securities other than common shares will be subject to the adjustment as may
be indicated in the prospectus supplement.
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DESCRIPTION OF CAPITAL SHARES
GENERAL
Under our Restated Articles of Incorporation, we are authorized to issue
50,000,000 common shares, par value $2.50 per share, 25,827,617 of which were
issued and outstanding as of July 4, 1999 and 8,978,058 preferred shares,
without par value, none of which were outstanding as of July 4, 1999. The common
shares and the preferred shares may be issued at any time by our board of
directors in any series with terms as may be fixed by board resolution providing
for their issuance. The number of authorized preferred shares includes 500,000
authorized Series C junior participating preferred shares reserved for issuance
upon the exercise of rights, under the rights agreement described below, none of
which were outstanding as of July 4, 1999. The number of authorized Series C
preferred shares may be increased by board resolution. We may issue the
remainder of the preferred shares in one or more series.
COMMON SHARES
Subject to the prior dividend rights of the preferred shares, holders of the
common shares are entitled to receive dividends and other distributions upon
declaration by our board. Some of our long-term debt obligations contain
covenants that may indirectly restrict the payment of dividends on our capital
shares, although none materially limits our ability to pay dividends at the date
of this prospectus. A prospectus supplement relating to common shares will
describe any material limitations.
Holders of common shares are entitled to one vote for each share. Except as
the Indiana Business Corporation Law requires or as may be specifically provided
in an amendment to our articles of incorporation, holders of common shares vote
together with any preferred shares having general voting rights as a single
class.
After the satisfaction of creditors and the prior rights of any preferred
shares upon any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of Arvin, the holders of the common shares are entitled to share
ratably in our remaining assets.
The common shares have no conversion privileges or preemptive rights and,
except as described below, are not subject to redemption at our option. The
articles of incorporation, the Indiana Business Corporation Law, and various
loan agreements to which we are or may become a party may restrict our ability
to redeem or repurchase our shares in other situations.
The common shares are listed on the New York Stock Exchange and the Chicago
Stock Exchange. National City Bank is the transfer agent and registrar of the
common shares.
PROVISIONS WITH POSSIBLE ANTI-TAKEOVER EFFECTS
Our by-laws currently provide for the classification of the board of
directors into three classes. Our articles of incorporation:
-- limit the number of directors that may be elected to at least 12 but not
more than 17, excluding the number of directors as may be elected by any
class of our shares other than common shares on account of specific
dividend arrearages in accordance with our articles of incorporation,
-- permit removal of directors only for cause and only by the affirmative
vote of two-thirds of the outstanding voting shares,
-- establish the power to make, alter, amend or repeal the by-laws
exclusively in the board of directors, and
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-- require that any merger, dissolution or other significant restructuring
of Arvin be approved by 80% of the directors or by 80% of the shares
outstanding and entitled to vote on this.
Our by-laws also provide that amendments require an affirmative vote of
two-thirds of the directors then in office. Our articles of incorporation
provide that the by-laws may contain provisions requiring the disclosure to us
of the names of beneficial owners of common shares and imposing sanctions in the
event of nondisclosure, including prohibiting voting by, withholding dividends
to, and redeeming the common shares held by the non-disclosing record holders.
However, our by-laws currently do not contain these provisions.
In addition, our articles of incorporation provide that if any person who
beneficially owns more than 50% of our outstanding common shares acquires any
additional shares in a tender offer or becomes the beneficial owner of more than
50% of our outstanding common shares in a tender offer, not approved by a
majority of the board of directors who are unaffiliated with the person or
entity making the tender offer, then all holders of common shares and all
holders of rights, options, warrants, and securities then exercisable or
convertible into common shares are entitled for a limited period to have us
repurchase any or all of their shares at the "repurchase price." The "repurchase
price" is the greater of:
-- the highest per share price paid by the person or entity making the
tender offer within the prior eighteen months, plus the aggregate
earnings per common share for the preceding four quarters less cash
dividends paid on common shares during those four quarters, or
-- the shareholder equity per common share.
These provisions can be amended by only an 80% shareholder vote, subject to
other limitations. The Indiana Business Corporation Law limits our obligation to
repurchase shares. Also, the terms and provisions of outstanding preferred
shares or loans or other agreements to which we might be a party also could
limit our obligation.
Chapter 42 of the Indiana Business Corporation Law eliminates the voting
rights of "control shares" held by "acquiring persons" who acquire shares giving
them one-fifth, one-third or a majority of the voting power of particular
corporations, including us. Control shares acquired in a control share
acquisition retain the same voting rights as were accorded the shares before
this acquisition only to the extent granted by resolutions approved by the
disinterested shareholders. If shareholders approve the voting rights of control
shares and a shareholder has acquired control shares with a majority or more of
the voting power, all shareholders of the corporation are entitled to exercise
statutory dissenters' rights and to demand the value of their shares in cash
from the corporation. If the control shares have no voting rights, the
corporation has the right to redeem them. In addition, if authorized in a
corporation's articles of incorporation or by-laws, the corporation may for a
period of time redeem the shares that caused a person to become an acquiring
person at their fair value unless the acquiring person provides information
specified in the Indiana Business Corporation Law to the corporation. Our
by-laws authorize this redemption. These Indiana Business Corporation Law
provisions do not apply to acquisitions of voting power pursuant to a merger or
share exchange agreement to which the corporation is a party.
Chapter 43 of the Indiana Business Corporation Law imposes some restrictions
on the ability of an "interested shareholder," including a beneficial owner of
at least 10% of the outstanding voting shares, of a "resident domestic
corporation," like us, to engage in a "business combination," as defined in the
statute, with the resident domestic corporation, unless specific requirements
are met. These requirements include a five-year waiting period after the
shareholder becomes an interested shareholder, unless the corporation's board of
directors has approved the acquisition of 10% or more of the voting shares or
the business combination before the date of the acquisition of voting shares.
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Following this period, a business combination may be effected with an interested
shareholder only upon:
-- the approval of the business contribution by the corporation's
shareholders, excluding the interested shareholder and any of its
affiliates or associates, or
-- the consideration to be received by shareholders in the business
combination meets the fairness criteria described in chapter 43.
Chapter 43 broadly defines "business combination" to include mergers, sales or
leases of assets, transfers of shares of the corporation, proposals for
liquidation and the receipt by an interested shareholder of any financial
assistance or tax advantage from the corporation, except proportionately as a
shareholder of the corporation.
The overall effect of the above provisions may be to discourage, or render
more difficult, a merger, tender offer, proxy contest, the assumption of control
of Arvin by a holder of a large block of our shares or other person, or the
removal of incumbent management, even if these actions may be beneficial to our
shareholders generally.
PREFERRED SHARE PURCHASE RIGHTS
Each outstanding common share includes one right to purchase one
one-hundredth of a Series C preferred share. A rights agreement dated as of May
29, 1986, as amended by amendments dated as of February 23, 1989, November 10,
1994 and May 10, 1996, between Arvin and Harris Trust and Savings Bank governs
the terms and conditions of these rights. This description of the rights is
qualified by the rights agreement, filed as part of our current report on Form
8-K dated June 16, 1986 and the amendments filed with our current reports on
Form 8-K dated February 23, 1989 and May 10, 1996 and with our quarterly report
on Form 10-Q for the quarter ended October 2, 1994. Arvin has appointed National
City Bank to act as agent with respect to the rights.
Currently, the rights are not exercisable, certificates representing rights
have not been issued and the rights automatically trade with the common shares.
However, ten days after an acquiring person or group either acquires beneficial
ownership of 20% or more of the outstanding common shares or makes an offer to
acquire 20% or more of the outstanding common shares, the rights become
exercisable, certificates representing the rights will be issued as soon as
practicable afterwards and the rights will begin to trade independently from the
common shares. The rights will not have any voting power. When the rights become
exercisable, a holder becomes entitled to buy one one-hundredth of a
newly-issued Series C preferred share for each right at an exercise price of
$90, subject to anti-dilution adjustments. Each Series C preferred share will be
entitled to one vote per share, voting together with the common shares and to
other voting rights. Holders of Series C preferred shares also have special
rights to participate in the election of two additional directors in the event
of specified dividend arrearages. Each Series C preferred share, if and when
issued upon the exercise of a right, will be entitled to a minimum preferential
quarterly dividend at the rate of $25 per share, but subject to adjustments,
will be entitled to a total dividend of 100 times the dividend declared per
common share in the preceding quarter. The holders of the Series C preferred
shares will receive a preferred liquidation payment of $100 per share, but will
be entitled to receive an aggregate liquidation payment equal to 100 times the
payment made per common share.
If any person or group becomes an acquiring person or a transaction occurs
that increases the acquiring person's proportionate ownership of the common
shares, each right, other than those held by an acquiring person, will become
exercisable at the current exercise price of the right, for that number of
common shares then having a market value of two times the exercise price of the
right. If, following the acquisition by a person or group of 20% or more of the
outstanding common shares, Arvin is involved in a merger or other business
combination transaction or sells or transfers assets or earnings
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power totaling more than 50% of its assets or earning power, each right will
become exercisable, at the current exercise price, for that number of shares of
common stock of the acquiring company then having a market value of two times
the exercise price of each right.
The board of directors may redeem the rights for $.10 per right, subject to
adjustment, until a person or group becomes an acquiring person. Any redemption
is effective at the time, on the basis, and with the conditions that the board
of directors may establish. The rights expire on June 13, 2006, unless earlier
redeemed.
The purchase price payable, and the number of Series C preferred shares or
other securities or property issuable upon exercise of the rights are subject to
adjustment to prevent dilution in some circumstances.
So long as the rights are attached to the common shares, we will issue one
right with each new common share. All common shares issued will have attached
rights. We also will issue one right with each new common share:
-- issuable upon conversion of any convertible security issued, and
-- issued upon exercise of options to purchase the common shares granted by
Arvin,
before the time that the rights are no longer attached to the common shares.
The rights have anti-takeover effects. The rights will cause substantial
dilution to a person who attempts to acquire Arvin without conditioning its
offer on a substantial number of the rights being acquired. The rights also will
adversely affect a person who desires to obtain control of Arvin. The rights
will not affect a transaction approved by our board of directors before the
existence of an acquiring person, because the rights can be redeemed.
PREFERRED SHARES
The following description of preferred shares sets forth general terms and
provisions of any series of preferred shares to which any prospectus supplement
may relate. The applicable prospectus supplement will describe the specific
terms of a particular series of preferred shares, which may differ from the
following terms. The descriptions of preferred shares below and in the
prospectus supplement are qualified in their entirety by reference to the
articles of incorporation and any applicable amendments, which are filed or
incorporated by reference as an exhibit to the registration statement of which
this prospectus is a part.
Under the articles of incorporation, our board of directors is authorized to
issue preferred shares in one or more series and with rights, preferences,
privileges and restrictions, including dividend rights, voting rights,
conversion rights, terms of redemption and liquidation preferences that they may
fix or designate without any further vote or action by our shareholders.
The specific terms of a particular series of preferred shares offered will
be described in the applicable prospectus supplement, including:
-- the maximum number of shares of the series and their distinctive
designations;
-- any annual dividend rate on the shares of the series;
-- any dates that dividends begin to accrue or accumulate;
-- whether the dividends will be cumulative, and any dividend preference;
-- the price and the terms and conditions of any redemption;
-- any liquidation preference applicable to the shares of the series;
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-- whether the shares will be subject to, and the terms and provisions of,
a retirement or sinking fund;
-- any terms and conditions for conversion or exchange of the shares of the
series into or for shares of any other class of Arvin;
-- any voting rights of the shares or the series;
-- whether fractional interest in a series of the shares will be offered in
the form of depositary shares; and
-- any or all other preferences or other rights or restrictions of the
shares of the series.
Any prospectus supplement that specifies the terms of preferred shares also
will describe any restriction on the repurchase or redemption of shares by Arvin
while there is any arrearage in the payment of dividends or, if applicable,
sinking fund installments, or will state that there is no restriction.
In addition to the voting rights of any series of preferred shares
established by the board of directors, under the articles of incorporation, the
holders of at least two-thirds of the total number of outstanding preferred
shares, voting together as a single class, must approve any amendment to Arvin's
articles of incorporation that would authorize any class of shares, or of
securities convertible into shares, which would rank before the then outstanding
preferred shares as to payment of dividends, or as to distribution of assets
upon liquidation, dissolution or winding up of Arvin or any amendment to the
articles of incorporation that would change the designation, rights or
preferences of the outstanding preferred shares and adversely affect them. No
change may be made without the approval of the holders of at least two-thirds of
the then outstanding shares of the particular series that would be affected,
voting separately as a series. Arvin's articles of incorporation also provide
that additional preferred shares of a series may not be authorized and that a
class of shares that would rank on parity with outstanding preferred shares as
to assets or dividends may not be authorized without the consent of the holders
of at least a majority of the total number of outstanding preferred shares,
voting separately as a class, without regard to series.
The holders of preferred shares also may have the right, voting separately
as a class or series, to cast one vote per share upon matters for which the
Indiana Business Corporation Law requires a class vote of preferred shares.
In addition to any series of preferred shares that the applicable prospectus
supplement describes, the articles of incorporation, without regard to series,
authorize 500,000 Series C preferred shares to be issued upon exercise of the
rights under the rights agreement.
DESCRIPTION OF SHARE PURCHASE CONTRACTS AND SHARE PURCHASE UNITS
We may issue share purchase contracts, including contracts obligating
holders to purchase from Arvin, and Arvin to sell to the holders, a specified
number of common shares at a future date or dates. The consideration per common
share may be fixed at the time the share purchase contracts are issued or may be
determined by reference to a specific formula described in the share purchase
contracts. We may issue the share purchase contracts separately or as a part of
share purchase units consisting of a share purchase contract and either a debt
security or a debt obligation of a third party, including a U.S. Treasury
security. The debt security or debt obligation of a third party may serve as
collateral to secure the holders' obligations to purchase the common shares
under the share purchase contracts. The share purchase contracts may require us
to make periodic payments to the holders of share purchase contracts. These
payments may be unsecured or prefunded on some basis. The share purchase
contracts may require holders to secure their obligations in a specified manner.
The applicable prospectus supplement will describe the specific terms of any
share purchase contracts or share purchase units.
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DESCRIPTION OF DEPOSITARY SHARES
The descriptions below and in any prospectus supplement regarding provisions
of any deposit agreement, depositary shares and depositary receipts are
qualified by reference to the forms of deposit agreement and depositary receipts
relating to each series of preferred shares which are filed or incorporated by
reference as exhibits to the registration statement.
GENERAL
We may, at our option, elect to offer fractional interests in preferred
shares instead of whole preferred shares. In that event, we expect to provide
for the issuance by a depositary of receipts for depositary shares, each of
which will represent a fractional interest in preferred shares of a particular
series, as described in the prospectus supplement.
We will deposit any series of preferred shares underlying the depositary
shares under a separate deposit agreement between us, a depositary of our
selection that is a bank or trust company whose principal office is in the
United States and which has a combined capital and surplus of at least
$50,000,000, and the holders of the depositary shares. The prospectus supplement
will show the name and address of the depositary. Subject to the terms of the
deposit agreement, each holder of depositary shares will be entitled, in
proportion to the applicable fractional interest in the preferred shares
underlying the depositary shares, to the rights and preferences of the
underlying preferred shares, including any dividend, voting, redemption,
conversion, exchange and liquidation rights.
The depositary shares will be evidenced by depositary receipts issued under
the deposit agreement. Depositary receipts will be distributed to those persons
purchasing the fractional interests in the related series of preferred shares,
as described in the prospectus supplement.
DIVIDENDS AND OTHER DISTRIBUTIONS
Whenever the depositary receives any cash dividend or other cash
distribution on the preferred shares, except cash received upon their
redemption, the depositary will distribute those amounts to the record holders
of the depositary receipts in proportion to the number of depositary shares
evidenced by the depositary receipts. The depositary will not attribute to any
holder of depositary shares a fraction of one cent. The depositary will hold,
without liability for interest, any balance not distributed. This balance will
be treated as part of the next sum received by the depositary for distribution
to the record holders of the depositary receipts.
In a distribution on the preferred shares other than in cash, the depositary
will distribute amounts of the property received to the record holders of
depositary receipts, in proportion to the number of depositary shares evidenced
by the depositary receipts. If the depositary determines, after consulting us,
that this distribution cannot be made proportionately among the holders or
otherwise is not feasible, the depositary may, with our approval, sell the
property and distribute the net proceeds to these holders instead.
The deposit agreement also will contain provisions about the manner that any
subscription or similar rights offered by us to holders of the preferred shares
will be made available to the holders of depositary receipts.
REDEMPTION OF DEPOSITARY SHARES
If a series of preferred shares underlying the depositary shares is subject
to redemption, the depositary will use the proceeds received from the redemption
of preferred shares it holds to redeem the corresponding depositary shares. The
depositary will mail notice of redemption at least 30 but not more than 60 days
before the redemption date to the record holders of the depositary receipts at
their addresses appearing in its books. The redemption price per depositary
share being redeemed will be
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equal to the applicable fraction of the redemption price per share payable with
respect to the preferred shares being redeemed. When we redeem preferred shares
held by the depositary, the depositary will redeem as of the same redemption
date the number of depositary shares relating to the preferred shares redeemed.
If not all of the depositary shares are to be redeemed, the depositary shares to
be redeemed will be selected by lot or pro rata, as Arvin may determine.
After the redemption date, the depositary shares called for redemption will
no longer be deemed to be outstanding and all rights of the holders of the
depositary shares, except the right to receive the redemption price, will cease
and terminate.
VOTING THE PREFERRED SHARES
Upon receipt of notice of any meeting at which the holders of the preferred
shares are entitled to vote, the depositary will mail the information in this
notice of meeting to the record holders of the depositary receipts. Upon the
written request of a holder of a depositary receipt on that record date, the
depositary will, to the extent practicable, vote or cause to be voted the amount
of preferred shares represented by that holder's depositary shares according to
the instructions in this request. Without specific instructions from the holder
of a depositary receipt, the depositary will not vote the preferred shares
represented by the depositary shares evidenced by the depositary receipt.
AMENDMENT AND TERMINATION OF DEPOSITARY AGREEMENT
The form of depositary receipt and any provision of the deposit agreement
may be amended by agreement between Arvin and the depositary. However, any
amendment which:
-- materially and adversely alters the rights of the existing holders of
depositary shares, or
-- would be materially and adversely inconsistent with the rights granted
to the holders of preferred shares
requires approval by the holders of at least a majority of the depositary shares
then outstanding.
We may terminate a deposit agreement on at least 30 days' notice to the
depositary. In this case, upon surrender of depositary receipts, the depositary
will distribute to the holders the whole number of preferred shares represented
by the receipts surrendered. The deposit agreement will terminate automatically
upon:
-- the redemption or conversion of all outstanding depositary shares;
-- the conversion or exchange into common shares or other securities of
each underlying preferred share, if applicable; or
-- the final distribution in respect of the underlying preferred shares in
connection with any liquidation, dissolution or winding up of Arvin,
which has been distributed to the holders of the related depositary
shares.
CHANGES OF DEPOSITARY
At any time, the depositary may resign by notice to Arvin, or Arvin may
remove the depositary. The resignation or removal of the depository will take
effect upon the appointment of and the acceptance by a successor depositary. The
successor depositary must be appointed within 60 days after the notice of
resignation or removal and must be a bank or trust company whose principal
office is in the United States and which has a combined capital and surplus of
at least $50,000,000. If a successor depositary is not appointed within 60 days,
the resigning or removed depositary may petition a court to appoint a successor
depositary.
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MISCELLANEOUS
We will pay all transfer and other taxes and governmental charges arising
solely from the depositary arrangements. We will pay charges of the depositary
for the initial deposit of the preferred shares and any redemption of preferred
shares. Holders of depositary shares will pay transfer and other taxes and
governmental charges and other charges that the deposit agreement expressly
provides are for their accounts.
The depositary will forward to the holders of depositary receipts all
reports and notices received from Arvin and which Arvin must furnish to the
holders of the preferred shares.
Neither the depositary nor Arvin will be liable if it is prevented or
delayed by law or any circumstances beyond its control in performing its
obligations under the deposit agreement. The obligations of Arvin and the
depositary under the deposit agreement will be limited to performance in good
faith of their duties. Neither Arvin nor the depositary will be obligated to
prosecute or defend any legal proceeding in respect of any depositary shares or
preferred shares unless satisfactory indemnity is furnished. Arvin and the
depositary may rely upon written advice of counsel or accountants, or
information provided by persons believed to be competent and on documents
believed to be genuine.
DESCRIPTION OF WARRANTS
We may issue warrants, including debt warrants, which are warrants to
purchase debt securities, and equity warrants, which include warrants to
purchase common shares, preferred shares or depositary shares. We may issue
warrants independently of or together with any other securities, and warrants
may be attached to or separate from those securities. Each series of warrants
will be issued under a separate warrant agreement to be entered into between
Arvin and a warrant agent. The warrant agent will act solely as our agent in
connection with a series of warrants and will not assume any obligation or
relationship of agency for or with holders or beneficial owners of warrants. The
following describes the general terms and provisions of the warrants offered by
this prospectus. The applicable prospectus supplement will show any other terms
of the warrant and the applicable warrant agreement.
DEBT WARRANTS
The applicable prospectus supplement will describe the terms of any debt
warrants, including the following:
-- the title and aggregate number of the debt warrants;
-- any offering price of the debt warrants;
-- whether the debt warrants are to be issued with any debt securities and,
if so, the title, total principal amount and terms;
-- the number of debt warrants to be issued with each principal amount;
-- any date on and after the debt warrants and debt securities will be
separately transferable;
-- the title, total principal amount, ranking and terms, including
subordination and conversion provisions, of the underlying debt
securities that may be purchased upon exercise of the debt warrants;
-- the time or period of when the debt warrants are exercisable, the
minimum or maximum amount of debt warrants which may be exercised at any
one time, and the final date on which the debt warrants may be
exercised;
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-- the principal amount of underlying debt securities that may be purchased
upon exercise of each debt warrant and the price, or the manner of
determining the price, at which the principal amount may be purchased
upon exercise;
-- the terms of any right to redeem or call the debt warrants;
-- any book-entry procedure information;
-- any currency or currency units in which the offering price and the
exercise price are payable;
-- if applicable, a discussion of U.S. federal income tax considerations;
and
-- any other terms of the debt warrants not inconsistent with the
provisions of the debt warrant agreement.
EQUITY WARRANTS
The applicable prospectus supplement will describe the terms of any equity
warrants, including the following:
-- the title and aggregate number of the equity warrants;
-- any offering price of the equity warrants;
-- the designation and terms of any preferred shares that are purchasable
upon exercise of the equity warrants or that underlie depositary shares
purchasable upon this exercise;
-- if applicable, the designation and terms of the securities with which
the equity warrants are issued and the number of the equity warrants
issued with each security;
-- if applicable, the date from and after the equity warrants and any
securities issued with them will be separately transferrable;
-- the number of common shares, preferred shares or depositary shares
purchasable upon exercise of an equity warrant and the price;
-- the time or period when the equity warrants are exercisable and the
final date on which the equity warrants may be exercised and terms
regarding any right of Arvin to accelerate this final date;
-- if applicable, the minimum or maximum amount of the equity warrants
exercisable at any one time;
-- any currency or currency units in which the offering price and the
exercise price are payable;
-- any applicable anti-dilution provisions of the equity warrants;
-- if applicable, a discussion of U.S. federal income tax considerations;
-- any applicable redemption or call provisions; and
-- any additional terms of the equity warrants not inconsistent with the
provisions of the equity warrant agreement.
PLAN OF DISTRIBUTION
We may sell the securities:
-- through underwriting syndicates represented by one or more managing
underwriters,
-- through one or more firms acting as underwriters,
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-- through dealers or agents, or
-- directly to investors.
The prospectus supplement with respect to the securities will describe the
terms of the offering, the purchase price of the securities and the proceeds to
us from the sale, any underwriters, dealers or agents, any delayed delivery
arrangements, any fees, underwriting discounts and other underwriters'
compensation. Any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may change.
If the sale of securities involves underwriters, the underwriters will
acquire the securities for their own account and resell them in one or more
transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale. The cover of the
prospectus supplement will name the underwriter or underwriters or managing
underwriters or underwriters, with respect to an underwriting syndicate, for a
particular underwritten offering. Except as the prospectus supplement indicates,
the obligations of the underwriters to purchase the securities will be subject
to conditions precedent. The underwriters will be obligated to purchase all the
securities offered by the prospectus supplement if any are purchased.
If the sale of securities involves dealers, we will sell the securities to
the dealers as principals. The dealers then may resell the securities to the
public at varying prices to be determined by the dealers at the time of resale.
The prospectus supplement will name the dealers and describe the terms of the
transaction.
The prospectus supplement will name any agent involved in the offer or sale
of the securities and will indicate any commissions payable by Arvin to that
agent. Unless the prospectus supplement states otherwise, any agent will be
acting on a best efforts basis for the period of its appointment.
We will sell the securities directly to institutional investors or others,
who may be deemed to be underwriters within the meaning of the Securities Act of
1933 with respect to any resale. The prospectus supplement will describe the
terms of any of those sales.
We also may sell the securities in connection with a remarketing upon their
purchase, in connection with a redemption or repayment, by a remarketing firm
acting as principal for its own account or as our agent. Remarketing firms may
be deemed to be underwriters in connection with the securities that they
remarket.
If the prospectus supplement indicates, we will authorize agents,
underwriters or dealers to solicit offers from institutions to purchase
securities from us at the public offering price indicated in the prospectus
supplement through delayed delivery contracts providing for payment and delivery
on a specified date in the future. The prospectus supplement will specify the
conditions of these contracts and the commission payable for solicitation of the
contracts.
Agents, dealers and underwriters may be entitled under agreements with Arvin
to indemnification by Arvin against civil liabilities, including those under the
Securities Act, or to contribution with respect to those payments that agents,
dealers or underwriters may be required to make. Agents, dealers and
underwriters may be customers of, engage in transactions with, or perform
services for Arvin in the ordinary course of business.
Other than the common shares, which will be approved for listing upon notice
of issuance on the New York Stock Exchange and the Chicago Stock Exchange, the
securities may or may not be listed on a national securities exchange. There is
no assurance that a market for the securities will exist.
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LEGAL OPINIONS
Schiff Hardin & Waite, Chicago, Illinois, will pass upon the validity of the
securities offered by this prospectus for Arvin. The opinions with respect to
the securities may be subject to assumptions regarding future action to be taken
by Arvin and the applicable trustee, depositary or warrant agent in connection
with the issuance and sale of particular securities, the specific terms of the
securities and other matters that may affect the validity of securities but that
cannot be ascertained on the date of those opinions.
EXPERTS
The financial statements incorporated in this Prospectus by reference to the
Annual Report on Form 10-K of Arvin Industries, Inc. for the year ended January
3, 1999 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
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[Arvin Logo]
ARVIN INDUSTRIES, INC.
Arvin is a leading worldwide manufacturer of original equipment and
replacement exhaust systems, ride & motion control and filter products for
the automotive industry.
[Arvin's Product Logos]
PRODUCTS
Arvin products are sold worldwide under the Company's own brand names, which
are recognized and trusted in the industry. These highly respected brands
include Gabriel, Maremont, StrongArm, Timax, ANSA, ROSI and Purolator.
[Pictures of automobiles containing Arvin's products]
MARKETS
Arvin supplies products to the world's leading vehicle manufacturers,
including Ford, General Motors, DaimlerChrysler, BMW, Toyota, Renault, Fiat and
Volkswagen.
<PAGE>
3,000,000 ARVIN INCOME EQUITY UNITS
CONSISTING OF 3,000,000 CORPORATE UNITS
[LOGO]
ARVIN INDUSTRIES, INC.
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PROSPECTUS SUPPLEMENT
, 1999
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LEHMAN BROTHERS
MERRILL LYNCH & CO.
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PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES
