<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1998
REGISTRATION NO. 333-52375
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
NAVISTAR INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 36-3359573
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
455 NORTH CITYFRONT PLAZA DRIVE
CHICAGO, ILLINOIS 60611
TELEPHONE: (312) 836-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL OFFICES)
---------------
ROBERT A. BOARDMAN, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
455 NORTH CITYFRONT PLAZA DRIVE
CHICAGO, ILLINOIS 60611
TELEPHONE: (312) 836-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
MICHAEL H. KERR, ESQ.
JOHN S. D'ALIMONTE, ESQ.
MARC S. ROSENBERG, ESQ.
KIRKLAND & ELLIS
WILLKIE FARR & GALLAGHER
CRAVATH, SWAINE & MOORE
200 EAST RANDOLPH DRIVE
153 EAST 53RD STREET 825 EIGHTH AVENUE
CHICAGO, ILLINOIS 60601
NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10019
(312) 861-2000 (212) 821-8000 (212) 474-1000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
possible following the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
---------------
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT, THE PROSPECTUS INCLUDED IN
THIS REGISTRATION STATEMENT ALSO RELATES TO THE COMPANY'S REGISTRATION
STATEMENT ON FORM S-3 (REGISTRATION NO. 333-48125) FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION ON MARCH 17, 1998. THIS REGISTRATION STATEMENT, WHICH
IS A NEW REGISTRATION STATEMENT, ALSO CONSTITUTES POST-EFFECTIVE AMENDMENT NO.
1 TO REGISTRATION STATEMENT NO. 333-48125, AND SUCH POST-EFFECTIVE AMENDMENT
SHALL HEREAFTER BECOME EFFECTIVE CONCURRENTLY WITH THE EFFECTIVENESS OF THIS
REGISTRATION STATEMENT IN ACCORDANCE WITH SECTION 8(C) OF THE SECURITIES ACT.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with an underwritten offering in the United States and Canada
(the "U.S. Prospectus") and one to be used in a concurrent underwritten
offering outside the United States and Canada (the "International
Prospectus"). The U.S. Prospectus and the International Prospectus are
identical except for the front and back cover pages. The form of U.S.
Prospectus is included herein and is followed by the alternate pages to be
used in the International Prospectus. The alternate pages for the
International Prospectus included herein are each labeled "International
Prospectus Alternate Page." Final forms of each prospectus will be filed with
the Securities and Exchange Commission under Rule 424(b) under the Securities
Act.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 29, 1998
PROSPECTUS
19,894,103 SHARES
LOGO
NAVISTAR INTERNATIONAL CORPORATION
COMMON STOCK
--------
All of the shares of Common Stock, par value $.10 per share (the "Common
Stock"), of Navistar International Corporation, a Delaware corporation
("Navistar" or the "Company"), offered hereby are being sold by the Navistar
International Transportation Corp. Retiree Supplemental Benefit Trust (the
"Supplemental Trust" or "Selling Stockholder"). The Supplemental Trust was
established in 1993 for the purpose of funding certain retiree health care
benefits. See "Selling Stockholder." The Company will not receive any proceeds
from the sale of shares by the Selling Stockholder.
Of the 19,894,103 shares of Common Stock being offered hereby, a total of
15,894,103 shares are being offered hereby for sale in the United States and
Canada (the "U.S. Offering") by the U.S. Underwriters (as defined) and a total
of 4,000,000 shares are being offered by the Managers (as defined) in a
concurrent international offering outside the United States and Canada (the
"International Offering" and, together with the U.S. Offering, the
"Offerings"). The Company, through a wholly owned subsidiary, has agreed,
subject to certain conditions, to purchase 2,000,000 shares of Common Stock in
the Offerings.
The Common Stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "NAV." On May 28, 1998, the last reported sales price of the Common
Stock on the NYSE was $31.19 per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDER(2)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- -------------------------------------------------------------------------------------------
Total(3) $ $ $
- -------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Under certain circumstances, the Company will pay all or a portion of the
underwriting discounts and commissions. For information regarding
indemnification of the U.S. Underwriters, see "Underwriting."
(2) The Company will pay expenses related to the Offerings estimated at
$850,000.
(3) The Company has granted the U.S. Underwriters a 30-day option to purchase
up to 1,300,000 additional shares to cover over-allotments, if any. See
"Underwriting." If the option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to the
Company will be $ , $ and $ , respectively.
--------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1998, at the office of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001, or through the facilities of The Depository Trust
Company.
--------
SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
J.P. MORGAN & CO.
, 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE,
PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON MARKET MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY
BIDS. SUCH ACTIVITIES, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and financial statements
appearing elsewhere in this Prospectus, including the documents incorporated by
reference in this Prospectus. Unless the context otherwise requires or as
otherwise specified herein, all references herein to "Navistar" or the
"Company" refer to Navistar International Corporation ("NIC") and its
subsidiaries, including its principal operating subsidiary, Navistar
International Transportation Corp. ("Transportation"). The fiscal years of the
Company end on October 31. Fiscal years are identified herein according to the
calendar year in which they end. For example, the fiscal year ended October 31,
1997 is referred to as "fiscal 1997." Unless otherwise indicated, the
information contained in this Prospectus assumes the Underwriters' over-
allotment option is not exercised.
THE COMPANY
Navistar manufactures and markets medium and heavy trucks, including school
buses, mid-range diesel engines and service parts primarily in the United
States and Canada as well as in selected export markets. The Company offers a
full line of diesel-powered products under the "International" brand name in
the common carrier, private carrier, government/service, leasing, construction,
energy/petroleum and student transportation markets. In addition, Navistar
builds a family of mid-range diesel engines for use in its medium trucks,
school buses and selected heavy truck models and for sale to original equipment
manufacturers ("OEMs") in the United States and Canada. The Company offers a
full line of mid-range diesel engines and is the leading supplier of such
engines in the 160-300 horsepower range. In fiscal 1997, the Company had total
sales and revenues, income before income taxes and diluted earnings per share
of $6,371 million, $242 million and $1.65, respectively.
Navistar markets its truck products and service parts through the largest
retail organization in North America specializing in medium and heavy trucks,
which at October 31, 1997, included 992 dealers and retail outlets. Service and
customer support are also supplied at these locations. In the United States and
Canada, Navistar operates seven regional parts distribution centers which allow
24-hour availability and same day shipment of parts most frequently requested
by dealers and customers. To better serve the growing Mexican market, the
Company established a Mexican distribution network in 1996 and has completed
the construction of a new truck assembly facility located near Monterrey,
Mexico. Through Navistar Financial Corporation ("NFC"), the Company provides
wholesale, retail and, to a lesser extent, lease financing in the United States
and Mexico for sales of new and used trucks sold by the Company and Navistar's
dealers. NFC also finances wholesale accounts and selected retail accounts
receivable of the Company.
COMPETITIVE STRENGTHS
The Company believes its key competitive strengths include the following:
Leading Market Position. The Company has been the leader in the combined
market share for Class 5 through 8 trucks, including school buses, in the
United States and Canada in each of its last 17 fiscal years. In fiscal 1997,
the Company's combined market share of the Class 5 through 8 truck market was
28.6%, a 1.1 percentage point increase in market share from the previous year.
For each of the last five fiscal years, the Company has been the leader in the
medium truck and school bus markets. In addition, the Company believes that it
is the largest supplier of replacement parts to the heavy and medium truck and
school bus aftermarkets.
Commitment to Customer Satisfaction. In order to achieve high customer
satisfaction, the Company maintains the largest retail organization in North
America specializing in medium and heavy trucks. In addition, the Company
operates eight regional parts distribution centers in North America, enabling
it to offer 24-hour availability and same day shipment of the parts most
frequently requested by customers. In 1997, Navistar was ranked number one for
the third consecutive year by the annual American Truck Dealers ("ATD")
Attitude Survey, which evaluates OEMs on quality and performance issues related
to products, parts, policies and service.
3
<PAGE>
Leading Supplier of Mid-Range Diesel Engines. The Company is the leading
supplier of mid-range diesel engines in the 160-300 horsepower range and is
currently the exclusive supplier of diesel engines to The Ford Motor Company
("Ford") for use in its diesel-powered light trucks and vans. On October 29,
1997, the Company finalized an agreement with Ford to supply newly designed,
advanced technology engines through the year 2012 for use in Ford's F-series
pickup trucks and Econoline vans with over 8,500 lbs. gross vehicle weight
("GVW"). This 10-year agreement is scheduled to become effective beginning with
model year 2003 and will replace the Company's current agreement with Ford,
which will expire after model year 2002. In addition, the Company was recently
selected by Ford to negotiate an extended agreement to supply diesel engines
for select Ford under 8,500 lbs. GVW light trucks and sport utility vehicles,
such as the Ford Expedition, Lincoln Navigator, F-150 and F-250 pick-ups, and
Econoline 150 and 250 van models. Ford does not currently use a diesel engine
in its under 8,500 lbs. GVW light trucks and sport utility vehicles. The
Company has been supplying diesel engines to Ford since 1982.
TRUCK STRATEGY
In fiscal 1997, the Company continued to implement its five-point truck
strategy, which the Company adopted in fiscal 1996 in order to improve
operating performance and increase profitability. Specifically, this strategy
is designed to enable Transportation's truck division to achieve its part in
Navistar's goal of generating an average 17.5% after tax return on equity over
a business cycle. The principal components of this strategy as well as recent
achievements in its implementation include:
. Reduce Product Complexity. The Company believes that it can increase
manufacturing efficiency and improve product quality by reducing the
complexity of its product offerings. Historically, thousands of options
and a separate chassis design were offered for each truck model
manufactured by Transportation, which led to significant manufacturing
inefficiencies. In 1996, Transportation introduced a new ordering
program known as Diamond Spec(TM) for its premium conventional heavy
trucks. Under this program, Transportation rationalized the number of
possible option combinations by developing pre-packaged, application-
specific option groups which are arranged under 11 categories (i.e.,
engine, chassis, electrical system) based upon the most popular
preferences of its customers. Transportation also combined the chassis
for three models offered in this premium conventional product category
into one chassis. In 1997, Transportation expanded its Diamond Spec(TM)
ordering system and completed a successful pilot program in 11 key
markets for its medium trucks. This standardization of option and
chassis groups is expected to lead to significant operating cost savings
from increased manufacturing efficiency and to better pricing for
purchased components. In addition, Transportation believes that this
program will result in an overall improvement in product quality and
shorter and more reliable delivery times.
. Focus Manufacturing Facilities. The Company believes that it can achieve
significant improvements in manufacturing efficiency by focusing each of
its principal truck manufacturing facilities on producing a single type
of truck model. In order to sharpen the Company's focus on serving its
customers and markets, the Company recently announced a reorganization
of its truck group into six distinct businesses. The new organization
consists of four vehicle centers--heavy truck, severe service truck,
medium truck and school bus, and two business centers--parts and
international. In fiscal 1996, Transportation transferred the production
of its stripped chassis from its Springfield, Ohio facility to its
Conway, Arkansas facility, in order to achieve efficiencies in the
production of medium trucks. Similarly, in fiscal 1997 the Company
established a joint venture, SST Truck Company, which will focus on the
production of the highly-complex Paystar(R) severe service trucks,
thereby permitting Transportation's Chatham, Ontario facility to
concentrate on manufacturing premium conventional heavy trucks.
. Emphasize Product Development. The Company believes that each of its
current truck models equals or exceeds those of its competitors in terms
of satisfying its customers' needs. Nevertheless, the Company intends to
continue to enhance and expand its current product offerings in an
effort to provide trucks that better satisfy its customers' changing
demands. In fiscal 1997, Navistar's Board of Directors approved funding
for its next generation vehicle program (such program, formerly referred
to as the next generation truck program, is herein referred to as the
"NGV Program"). Pursuant to the NGV
4
<PAGE>
Program, the Company expects to make $350 million in capital
expenditures and spend $300 million in development costs over the next
six years to develop and manufacture a full line of world-class medium
trucks, school buses and regular conventional heavy trucks. These new
models will offer enhanced driver comfort, operating efficiency, overall
appearance, quality and performance. The design and development phases
of the NGV Program are currently underway and the Company expects the
first new vehicles to be available in mid-2001, with additional new
vehicles to follow approximately every six months through 2003. In 1997,
Transportation also introduced the International(R) 9100 conventional
heavy truck to replace the International(R) 8200 conventional heavy
truck and made significant improvements to its premium conventional
heavy truck models. Further model improvements are expected to be
introduced for Transportation's premium conventional heavy truck models
in fiscal 1998.
. Expand International Operations. The Company believes that there are
significant opportunities to increase sales of both trucks and engines
in Mexico and in other selected export markets. In 1997, the Company
captured approximately 11.5% of the Mexican truck market after
establishing a dealer network and a parts distribution center and
arranging for production at a contract manufacturer in 1996. The
Company's dealer network in Mexico was expanded from 23 to 38 locations
in 1997. The Company has completed the construction of an assembly
facility located near Monterrey, Mexico. This medium and heavy truck
assembly facility is anticipated to cost approximately $167 million and
is expected to begin production by late summer 1998. Its capacity will
be 65 units per shift. The Company believes that its Mexican operations
will enable it to expand into other Latin American countries,
particularly as a result of the favorable and cost effective trade
agreements between Mexico and other Latin American countries. The
Company has also recently established a presence in Brazil by forming a
Brazilian subsidiary and signing an agreement with a Brazilian equipment
manufacturer to assemble commercial trucks. The Company expects that
production of its trucks in Brazil will begin in mid-1998.
. Establish Competitive Wage, Benefit and Productivity Levels.
Transportation expects to achieve significant productivity gains as a
result of favorable changes in job classifications, work rules and
training. In August 1997, Transportation's collective bargaining
agreement with the United Automobile, Aerospace & Agricultural Implement
Workers of America (the "UAW") was extended through October 1, 2002.
This contract contains significant changes from the prior agreement,
enabling the Company to better focus its assembly plants, simplify
current product lines, invest in new product development and achieve
more competitive wage, benefit and productivity levels. This new
agreement enabled the Company to reinstate its NGV Program and continue
to implement its five-point truck strategy. In 1996, Transportation
signed a new three-year collective bargaining agreement with the
Canadian Auto Workers (the "CAW").
The Company's principal executive office is located at 455 North Cityfront
Plaza Drive, Chicago, Illinois 60611, and its telephone number is (312) 836-
2000.
BACKGROUND OF THE OFFERINGS
In July 1993, Navistar restructured its postretirement health care and life
insurance benefits pursuant to a settlement agreement (the "Settlement
Agreement") that resolved litigation between Navistar and a class of its
employees, retirees and collective bargaining organizations, including the
UAW, as lead class plaintiff. The Settlement Agreement required, among other
things, that Navistar establish the Supplemental Trust for the purpose of
funding certain retiree health care benefits under a Supplemental Benefit
Program. On July 1, 1993, the Company contributed 25,641,545 shares of Class B
Common Stock to the Supplemental Trust in satisfaction of certain of its
obligations under the Settlement Agreement. The Supplemental Trust currently
holds 19,894,103 shares of Class B Common Stock, representing all of the
outstanding shares of Class B Common Stock.
The Settlement Agreement added three seats to Navistar's Board of Directors,
one elected by the UAW and two elected by the committee that administers the
Supplemental Benefit Program (the "Supplemental Committee") on behalf of the
Supplemental Trust. Upon completion of the Offerings, the two directors
currently serving on Navistar's Board who were elected by the Supplemental
Committee on behalf of the Supplemental Trust will be deemed to have resigned.
See "Description of Capital Stock--Preferred Stock and Preference Stock" and
"Selling Stockholder."
5
<PAGE>
REQUIRED APPROVAL FOR CERTAIN PURCHASES OF COMMON STOCK
Article Eleventh of the Company's Certificate of Incorporation ("Article
Eleventh") requires approval by the Board of Directors of the Company for any
purchase of Common Stock in the Offerings if the purchaser will have a
Prohibited Ownership Percentage (defined generally as direct or indirect
ownership of 4.5% or more (based on value) of the Company's stock) upon
completion of the Offerings. Purchases of Common Stock from the U.S.
Underwriters or the Managers pursuant to the Offerings are subject to the
limitations imposed by Article Eleventh, and any unapproved purchase in excess
of the amounts permitted by Article Eleventh will be void. A prospective
purchaser of Common Stock in the Offerings who believes that a purchase by it
may be subject to the limitations imposed by Article Eleventh should consult
with such person's advisors or the Company to determine if approval must be
obtained from the Board of Directors of the Company. In accordance with the
terms of the Common Stock, purchasers of Common Stock in the Offerings (or
otherwise) consent by virtue of such purchase to the limitations imposed by
Article Eleventh. See "Description of Capital Stock--Prohibited Transfer
Provisions."
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered by Selling
Stockholder (1):
U.S. Offering................... 15,894,103
International Offering.......... 4,000,000
----------
Total......................... 19,894,103
==========
Common Stock to be outstanding
after the Offerings (2)(3)....... 67,010,286
Use of Proceeds................... All shares offered hereby are being sold by
the Selling Stockholder (other than shares
subject to the over-allotment option). The
Company will not receive any of the
proceeds from the sale of shares by the
Selling Stockholder. Any proceeds received
by the Company upon the exercise of the
U.S. Underwriters' over-allotment option
would be used to partially offset the
purchase price to be paid by the Company
for the 2,000,000 shares of Common Stock it
will acquire in the Offerings. See
"Capitalization" and "Use of Proceeds."
NYSE Symbol....................... NAV
</TABLE>
- --------
(1) Represents shares of Class B Common Stock which will automatically convert
into shares of Common Stock on a share-for-share basis upon the sale by the
Selling Stockholder in the Offerings. All outstanding shares of Class B
Common Stock are held by the Selling Stockholder. The Class B Common Stock
is identical to the Common Stock, except with respect to voting rights and
transferability. No shares of Class B Common Stock are expected to remain
outstanding after the completion of the Offerings. See "Selling
Stockholder" and "Description of Capital Stock--Class B Common Stock."
(2) Reflects the purchase by the Company of 2,000,000 shares of Common Stock in
the Offerings. Does not include the 1,300,000 shares of Common Stock
subject to the over-allotment option granted to the U.S. Underwriters by
the Company. See "Underwriting."
(3) As of April 30, 1998. Does not include: (i) 2,662,523 shares of Common
Stock issuable upon the exercise of outstanding stock options or (ii)
491,414 additional shares of Common Stock reserved for future grants or
awards under the Company's existing stock incentive plans.
6
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should carefully
consider the "Risk Factors" immediately following this Prospectus Summary.
----------------
Market data used throughout this Prospectus were obtained from internal
Company estimates and industry publications, including those generated by the
American Automobile Manufacturers Associations, the Canadian Vehicle
Manufacturers Association, the Motor Vehicle Manufacturers Association in the
United States and Canada, R. L. Polk & Company and Power Systems Research of
Minneapolis, Minnesota as well as other sources. These sources generally state
that the information contained therein has been obtained from sources believed
to be reliable, but that the accuracy and completeness of such information is
not guaranteed. The Company has not independently verified such market data or
obtained the consent of any of the industry publications referenced herein.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth summary consolidated financial and operating
data of the Company and its subsidiaries for the periods indicated. The
Company's summary consolidated financial data for the three year period ended
October 31, 1997 has been derived from Navistar's audited consolidated
financial statements and notes thereto. The Company's summary consolidated
financial data for the three months ended January 31, 1998 and 1997 has been
derived from unaudited consolidated financial statements which, in the opinion
of management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the unaudited
periods. Results for the three months ended January 31, 1998 are not
necessarily indicative of results that may be expected for the entire year. The
summary consolidated financial data set forth below is qualified in its
entirety by, and should be read in conjunction with, "Selected Consolidated
Financial and Operating Data," "Management's Discussion and Analysis of Results
of Operations and Financial Condition" and the Company's Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JANUARY FISCAL YEAR ENDED OCTOBER
31, 31,
---------------- ----------------------------
1998 1997 1997 1996 1995
------- ------- -------- -------- --------
(IN MILLIONS, EXCEPT SHARE AND UNIT DATA)
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Sales and revenues:
Sales of manufactured
products.................... $ 1,672 $ 1,240 $ 6,147 $ 5,508 $ 6,125
Finance and insurance
revenue(1).................. 45 45 174 197 167
Other income................. 10 11 50 49 50
------- ------- -------- -------- --------
Total sales and revenues... 1,727 1,296 6,371 5,754 6,342
------- ------- -------- -------- --------
Costs and expenses:
Cost of products and services
sold........................ 1,454 1,076 5,292 4,827 5,288
Other expenses............... 195 179 763 739 705
Interest expense............. 17 17 74 83 87
------- ------- -------- -------- --------
Total costs and expenses... 1,666 1,272 6,129 5,649 6,080
------- ------- -------- -------- --------
Income before income taxes..... 61 24 242 105 262
Income tax expense............. 23 9 92 40 98
------- ------- -------- -------- --------
Net income..................... 38 15 150 65 164
Less dividends on Series G
preferred stock(2)............ 7 7 29 29 29
------- ------- -------- -------- --------
Net income applicable to common
stock......................... $ 31 $ 8 $ 121 $ 36 $ 135
======= ======= ======== ======== ========
Diluted earnings per share(3).. $ .42 $ .10 $ 1.65 $ .49 $ 1.83
Diluted average number of
shares outstanding
(in millions)(4).............. 72.5 73.7 73.6 73.8 74.3
SELECTED BALANCE SHEET DATA (AT
END OF PERIOD)(2):
Total assets................... $ 4,929 $ 4,757 $ 5,516 $ 5,326 $ 5,566
Total debt..................... 1,145 1,060 1,316 1,420 1,457
Total sharehowners' equity..... 973 922 1,020 916 870
OTHER FINANCIAL AND OPERATING
DATA:
Capital expenditures........... $ 60 $ 25 $ 172 $ 117 $ 139
Depreciation and amortization.. 39 33 120 105 86
United States and Canadian
retail deliveries of trucks
and school buses.............. 24,900 19,000 99,500 94,000 101,700
United States and Canadian
market share(5)............... 28.6% 26.4% 28.6% 27.5% 26.7%
Worldwide unit shipments:
Trucks and school buses...... 29,400 20,400 104,400 95,200 112,200
OEM engines.................. 42,600 41,000 184,000 163,200 154,200
Parts sales.................... $ 185 $ 186 $ 806 $ 760 $ 730
</TABLE>
8
<PAGE>
(1) Includes revenues of NFC as well as the Company's other financial services
subsidiaries.
(2) On February 4, 1998, the Company issued an aggregate of $100 million
principal amount of 7% Senior Notes due 2003 (the "Senior Notes") and $250
million principal amount of 8% Senior Subordinated Notes due 2008 (the
"Senior Subordinated Notes" and, together with the Senior Notes, the
"Notes"). The net proceeds from the sale of the Notes were used or will be
used to: (i) redeem all of the Company's issued and outstanding Series G
Convertible Cumulative Preferred Stock (the "Series G Preferred Stock");
(ii) repay the Company's 9% Sinking Fund Debentures; (iii) redeem the
Company's 8% Secured Note; and (iv) provide working capital. See
"Capitalization."
(3) The earnings per common share information for the three year period ended
October 31, 1997 has been restated to reflect the new earnings per share
calculation required by Statement of Accounting Standards No. 128 "Earnings
Per Share."
(4) Unexercised employee stock options to purchase shares of Navistar Common
Stock were not included in the diluted shares outstanding when the options'
exercise prices were greater than the average market price of Navistar
Common Stock during the respective periods.
(5) Based on retail deliveries of medium trucks (Classes 5, 6 and 7), including
school buses, and heavy trucks (Class 8) in the United States and Canada by
Transportation and its dealers, compared to the industry total in the
United States and Canada of retail deliveries.
9
<PAGE>
RISK FACTORS
Potential investors in the Common Stock offered hereby should carefully
consider the following factors in addition to the other information contained
in this Prospectus. This Prospectus contains forward-looking statements that
involve risks and uncertainties. Actual results could differ materially from
those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those identified below as well as
those discussed elsewhere in this Prospectus.
MARKET CYCLICALITY AND GENERAL ECONOMIC CONDITIONS
Navistar's ability to be profitable depends in part on the varying
conditions in the medium and heavy truck, mid-range diesel engine and service
parts markets. See "Business." The truck markets in which the Company competes
are subject to considerable volatility. Such markets move in response to
cycles in the overall business environment and are particularly sensitive to
the industrial sector, which generates a significant portion of the freight
tonnage hauled. Truck and engine demand also depend on general economic
conditions, interest rate levels and fuel costs. The most recent industry
downturn was in the early 1990s, and before that the previous downturn was in
the early to mid 1980s. The financial information for the Company included in
this Prospectus reflects operating results for the Company only during a
period of strong industry demand. Downturns in industry volumes historically
have resulted in a sharp decline in the Company's sales and order backlog
caused by, among other things, a decline in incoming orders and a cancellation
of existing orders.
COMPETITION
The North American truck market, in which Navistar competes, is highly
competitive. Navistar's major domestic competitors include PACCAR, Ford and
General Motors, as well as foreign-controlled domestic manufacturers, such as
Freightliner, Mack and Volvo. In addition, well-capitalized manufacturers from
Japan (Hino, Isuzu, Nissan, Mitsubishi) are attempting to increase their North
American sales levels. The intensity of this competition, which is expected to
continue, results in price discounting and margin pressures throughout the
industry and adversely affects Navistar's ability to increase or maintain
vehicle prices. Many of Navistar's competitors have greater financial
resources, which may place Navistar at a competitive disadvantage in
responding to substantial industry changes, such as changes in governmental
regulations that require major additional capital expenditures. In addition,
certain of Navistar's competitors may have lower overall labor costs.
FUTURE CAPITAL REQUIREMENTS
Navistar has announced plans for approximately $350 million in capital
spending over the next six years for the NGV Program. Capital expenditures for
fiscal 1998 are expected to be approximately $400 million, of which $25
million is to be spent for the NGV Program. The fiscal 1998 budget also
includes expenditures for commencement of assembly operations at the Company's
Mexican facility, increased manufacturing capacity at the Indianapolis engine
plant, commencement of truck operations in Brazil and improvements to existing
facilities and products. Navistar's investment in the NGV Program will also
include $300 million in development expense over the next six years, of which
approximately $50 million is planned for 1998.
The Company will be required to make substantial cash expenditures over the
next several years to implement its NGV Program and to meet its other capital
expenditure and development objectives. The projected expenditures described
above do not include capital and development expenditures that the Company
would be required to make for introduction of its next generation diesel
engine to Ford, and, if the Company is successful in its negotiations, for
introduction of diesel engines for use in certain of Ford's under 8,500 lbs.
GVW light trucks and sport utility vehicles. Historically, Navistar has relied
on cash balances and cash provided by operations to meet its funding
requirements. The amount of cash generated by Navistar's business varies with
industry volumes in the medium and heavy truck markets. No assurance can be
given that Navistar will have the cash balances necessary to implement its NGV
Program and to meet its other capital requirements or that financing will be
available or, if available, that it will be available on satisfactory terms.
The future availability
10
<PAGE>
of financing will depend on many factors, including Navistar's earnings,
credit ratings, the outlook for truck industry demand and the capital
resources of financial institutions. In addition, restrictive covenants under
the indentures for Notes and under the Company's Mexican credit facility (the
"Mexican Facility") may limit how much debt financing the Company can raise,
and a need to preserve the Company's net operating losses may limit the
Company's ability to raise equity financing. If adequate funds are not
available, the Company may be required to cut back or discontinue the NGV
Program or other product development or capital improvement programs. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Liquidity and Capital Resources" and "--Business Environment."
RELIANCE ON MAJOR CUSTOMER
Ford accounted for approximately 14% of the Company's consolidated sales and
revenues during fiscal 1997 and fiscal 1996 and approximately 12% for fiscal
1995. Ford is the primary OEM customer for the Company's diesel engines.
Although the Company has contracts with Ford that continue through 2012, such
contracts provide for supplying Ford's requirements for particular models,
rather than for manufacturing a specific quantity of products. The loss of
Ford as a customer or a significant decrease in demand for the models or a
group of related models that utilize the Company's products could have a
material adverse effect on the Company.
IMPACT OF GOVERNMENT REGULATION
Truck and engine manufacturers continue to face increasing governmental
regulation of their products, especially in the areas of environment and
safety. As a diesel engine manufacturer, Navistar has incurred research and
tooling costs to redesign its engine product lines to meet the United States
Environmental Protection Agency ("U.S. EPA") and California Air Resources
Board ("CARB") emission standards effective for the 1998 model year. In
addition, Navistar expects to continue to incur research, design and tooling
costs to: (i) achieve further reductions in ozone-causing exhaust emissions by
2004 in accordance with the voluntary agreement entered into by Navistar,
along with other engine manufacturers, with the U.S. EPA and CARB and (ii)
satisfy the 1998 Clean Fuel Fleet Vehicle requirements and California's
emission standards in 2002 for engines used in medium-size vehicles. Navistar
expects that its diesel engines will be able to meet all of these standards
within the required time frames.
Truck manufacturers are also subject to various noise standards imposed by
federal, state and local regulations, and to the National Traffic and Motor
Vehicle Safety Act and Federal Motor Vehicle Safety Standards promulgated by
the National Highway Traffic Safety Administration. Navistar believes it is in
compliance with such standards.
Complying with such laws and regulations has added and will continue to add
to the cost of Navistar's products, and increases the capital-intensive nature
of Navistar's business. If the present level of price competition continues,
it may become increasingly difficult for manufacturers of engines and trucks
to recover these costs and, accordingly, lower margins may result. See
"Business--Impact of Government Regulation."
PENSION AND POSTRETIREMENT HEALTH CARE OBLIGATIONS
Navistar has significant underfunded pension obligations. At October 31,
1997, the unfunded portion of the accumulated benefit obligation of Navistar's
pension plans was approximately $445 million, compared to $607 million at
October 31, 1996. In November 1997, Navistar contributed $100 million to the
hourly pension plan. Navistar's long-term objective is to fund its entire
accumulated pension benefit obligation over the next 5 to 8 years with funds
that are principally generated by operations.
In the event Navistar's pension plans were terminated for any reason and
plan assets were insufficient to meet guaranteed liabilities, the Pension
Benefit Guaranty Corporation ("PBGC") may have a right to take over these
plans as their administrator and trustee. In this event, the actual present
value of guaranteed pension liabilities may be determined in a manner
different from that used by Navistar to determine its unfunded vested pension
liability. Subject to certain limitations, the PBGC would have a claim against
Navistar to the extent that plan assets were not sufficient to meet the
actuarial present value of guaranteed liabilities.
11
<PAGE>
In addition to providing pension benefits, Navistar provides health care and
life insurance benefits for a majority of its retired employees and their
spouses and certain dependents and will provide retiree health care and life
insurance benefits for most of its existing employees hired before July 1,
1993. In 1993, a trust (the "Base Trust") was established under the Navistar
Retiree Health Benefit and Life Insurance Program (the "Base Program") to
partially fund this post-retirement health care liability. In November 1997,
Navistar contributed $200 million to the Base Trust satisfying the balance of
its $500 million prefunding obligation, although Navistar will remain
obligated to make future contributions to the Base Trust on a pay-as-you-go
basis. These benefits are provided as part of the Settlement Agreement.
RISK OF LOSS OF TAX BENEFITS AND RESTRICTIONS ON STOCK TRANSFER
If, as a result of any transaction involving Navistar's equity securities,
an "ownership change" occurs for federal income tax purposes, the Company's
ability to use its substantial net operating losses (the "NOLs") to offset
taxable income, and thereby reduce Navistar's tax liability, would be severely
limited, requiring an adjustment to Navistar's deferred tax asset reflected in
its Statement of Financial Condition. Under Section 382 ("Section 382") of the
Internal Revenue Code of 1986, as amended (the "Code"), an "ownership change"
would be deemed to have occurred if on any testing date the ownership of stock
by one or more 5-percent shareholders had increased by more than 50 percentage
points during the preceding three years. The Settlement Agreement requires
that Navistar not sell or acquire Common Stock or other securities or take
other actions if to do so would put Navistar at risk of an "ownership change."
The need to preserve the Company's NOLs by complying with the limitations
imposed by Section 382 may limit the Company's ability to raise equity
financing in the future. See "Management's Discussion and Analysis of Results
of Operations and Financial Condition--Income Taxes" for a discussion of the
Company's NOLs.
The Common Stock sold to the public in the Offerings will be deemed, for
purposes of Section 382, to have been acquired by a separate "public group"
treated as a new 5-percent shareholder which had an increase in ownership. The
ownership increase by this new "public group," as well as any ownership
increase by other 5-percent shareholders, must be taken into account in
determining whether the Company has undergone an "ownership change" under
Section 382.
The Offerings will not result in an "ownership change." However, the Company
has taken and must continue to take into account the "public group" ownership
increase resulting from the Common Stock sold in the Offerings for three years
after the sale in computing the change in ownership for future transactions
(including the issuance of additional Common Stock or equity-related
instruments).
As part of the Settlement Agreement, a provision (the "Prohibited Transfer
Provision") was added to Navistar's Certificate of Incorporation to protect
against certain transfers of equity securities which could cause an "ownership
change." Although the Prohibited Transfer Provision is intended to prevent
transfers which could cause an "ownership change," Navistar may not be able to
prevent every transaction that could cause an "ownership change." By its
terms, the Prohibited Transfer Provision will expire on June 30, 2001.
Under the Prohibited Transfer Provision, if a shareowner transfers or agrees
to transfer stock, the transfer will be prohibited to the extent that it (i)
would cause the transferee to hold a "Prohibited Ownership Percentage" or (ii)
would result in the transferee's ownership increasing if the transferee
already holds (or has held within the three prior years) a Prohibited
Ownership Percentage. A "Prohibited Ownership Percentage" is defined under
Navistar's Certificate of Incorporation by reference to complex federal tax
laws and regulations, but generally means direct and indirect ownership of
4.5% or more (based on value) of Navistar's stock (the use of a 4.5%
limitation rather than the Code's 5% limitation is intended to provide a
measure of safety). The Prohibited Transfer Provision does not prevent
transfers of stock between persons who do not hold a Prohibited Ownership
Percentage. See "Description of Capital Stock--Prohibited Transfer Provision."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND STATUTORY PROVISIONS
As a result of the Settlement Agreement, the Company's Certificate of
Incorporation provides that the affirmative vote of holders of at least 85% of
the shares of Common Stock (together with any outstanding Class
12
<PAGE>
B Common Stock) present at a meeting is required to approve certain mergers
and consolidations or a sale of all or substantially all of the Company's
assets (a "Supermajority Transaction"). Accordingly, any holder of 15% or more
of the aggregate outstanding Common Stock and Class B Common Stock represented
at any meeting of shareowners will be able to block any Supermajority
Transaction. The Company's Certificate of Incorporation and By-laws also
contain provisions which (i) permit the Company to issue so-called "flexible"
preferred stock, (ii) provide for a classified Board of Directors (which has
the effect under Delaware law of precluding shareowners from removing
directors without cause), (iii) limit the filling of Board vacancies to the
remaining directors, and (iv) prohibit shareowners from taking action by
written consent or calling special meetings. The Company also is subject to
Section 203 of the Delaware General Corporation Law, which restricts the
Company from engaging in certain business combinations with "interested
stockholders." The fact that the Company's utilization of its NOLs could be
adversely affected by a change of control also could have an anti-takeover
effect.
Although not intended, the foregoing provisions, as well as the Prohibited
Transfer Provision, may adversely affect the marketability of the Common Stock
by discouraging potential investors from acquiring stock of the Company. In
addition, these provisions could delay or frustrate the removal of incumbent
directors and could make more difficult a merger, tender offer or proxy
contest involving the Company, or impede an attempt to acquire a significant
or controlling interest in the Company, even if such events might be
beneficial to the Company and its shareowners. See "Description of Capital
Stock--Prohibited Transfer Provision" and "--Certain Certificate of
Incorporation and By-laws Provisions; Certain Provisions of Delaware Law."
POSSIBLE VOLATILITY OF SHARE PRICE
The market price for the Common Stock may be significantly affected by
factors such as the announcement of new products or other strategic
initiatives by the Company or its competitors, technological innovations by
the Company or its competitors, the growth and expansion of the Company's
business, trends and uncertainties affecting the truck manufacturing industry
as a whole, issuances and repurchases of Common Stock, quarterly variations in
the Company's operating results or the operating results of the Company's
competitors, investors' expectations of the Company's prospects, changes in
earnings estimates by analysts or reported results that vary materially from
such estimates and general economic and other conditions, including the
cyclicality of the Company's business. In addition, in recent years the stock
market has experienced extreme price fluctuations. This volatility has had a
substantial effect on the market prices of securities issued by many companies
for reasons unrelated to the operating performance of the specific companies.
These broad market fluctuations may adversely affect the market price of the
Common Stock. See "Price Range of Common Stock."
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act").
Discussions containing such forward-looking statements may be found in the
material set forth under "Prospectus Summary," "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and "Business" as
well as within this Prospectus and the documents incorporated by reference
herein generally. In addition, when used in this Prospectus, the words
"believes," "anticipates," "expects," "estimates," "intends," "indicates,"
"plans," "predicts" and "will be" and similar expressions are intended to
identify forward-looking statements. Such statements are subject to a number
of risks and uncertainties. Actual results in the future could differ
materially from those described in the forward-looking statements as a result
of the risk factors set forth herein and the other matters set forth or
incorporated by reference in this Prospectus. The Company undertakes no
obligation to release the results of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.
13
<PAGE>
USE OF PROCEEDS
All shares of Common Stock offered hereby are being sold by the Selling
Stockholder (other than shares subject to the over-allotment option). The
Company will not receive any proceeds from the sale of shares by the Selling
Stockholder. See "Selling Stockholder." The Company will receive approximately
$35.1 million (before deducting expenses, including, under certain
circumstances, all or a portion of the underwriting discounts and commissions,
relating to the Offerings and payable by the Company) in the event that the
over-allotment granted to the U.S. Underwriters is exercised in full (at an
assumed public offering price of $27.00 per share). Any proceeds to the
Company from the exercise of such option would be used to partially offset the
purchase price to be paid by the Company for the 2,000,000 shares of Common
Stock it will acquire in the Offerings. See "Capitalization."
DIVIDEND POLICY
The Company has not paid dividends on the Common Stock since 1980. At
present, the Company does not expect to pay cash dividends on the Common Stock
in the foreseeable future. Any future determination to pay cash dividends will
be made by the Board of Directors in light of the Company's earnings,
financial position, capital requirements and such other factors as the Board
of Directors deems relevant at such time. The indentures under which the Notes
were issued contain restrictions on the Company's ability to pay cash
dividends on the Common Stock. In addition, the credit facility relating to
the Mexican Facility requires the Company to maintain certain debt to equity
ratios, which may indirectly limit the ability of the Company to pay cash
dividends on the Common Stock.
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company is listed on the New York, Chicago and
Pacific Stock Exchanges under the symbol "NAV." The table below sets forth the
high and low sales prices of the Common Stock on the NYSE Composite
Transactions Tape as reported in The Wall Street Journal during the indicated
time periods.
<TABLE>
<CAPTION>
PRICE RANGE
-----------------
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL YEAR 1995
First Quarter ended January 31........................ $17 1/2 $12 5/8
Second Quarter ended April 30......................... 16 5/8 12 1/8
Third Quarter ended July 31........................... 16 5/8 13 3/4
Fourth Quarter ended October 31....................... 15 3/8 9
FISCAL YEAR 1996
First Quarter ended January 31........................ 12 3/8 9 1/2
Second Quarter ended April 30......................... 12 1/8 9 1/2
Third Quarter ended July 31........................... 12 1/8 9
Fourth Quarter ended October 31....................... 10 1/2 8 3/8
FISCAL YEAR 1997
First Quarter ended January 31........................ 10 3/8 9
Second Quarter ended April 30......................... 11 3/8 9 1/8
Third Quarter ended July 31........................... 21 5/16 11 1/4
Fourth Quarter ended October 31....................... 29 1/2 17 1/4
FISCAL YEAR 1998
First Quarter ended January 31........................ 28 20 1/16
Second Quarter ended April 30......................... 35 7/8 27 1/4
</TABLE>
For a recent sales price of the Common Stock on the NYSE, see the cover page
of this Prospectus. At April 30, 1998, the Company's Common Stock was held by
approximately 56,574 holders of record.
14
<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
as of January 31, 1998 and pro forma to give effect to (i) the sale of the
Notes by the Company in February 1998 and the application of the net proceeds
therefrom, (ii) the conversion of all of the outstanding Class B Common Stock
to Common Stock in connection with the Offerings and (iii) the purchase of
2,000,000 shares of Common Stock by the Company in the Offerings (at an
assumed public offering price of $27.00 per share). The Company will not
receive any of the proceeds from the sale of shares of Common Stock by the
Selling Stockholder. The following table does not give effect to (x) the
issuance of 1,300,000 shares of Common Stock by the Company in the event that
the over-allotment option is exercised in full or (y) the payment by the
Company of expenses relating to the Offerings, including, under certain
circumstances, all or a portion of the underwriting discounts and commissions.
<TABLE>
<CAPTION>
AT JANUARY 31,
1998
----------------
PRO
ACTUAL FORMA
------- -------
(IN MILLIONS)
<S> <C> <C>
Cash, cash equivalents and marketable securities............. $ 549 $ 519
======= =======
TOTAL DEBT (INCLUDING CURRENT PORTION):
Manufacturing operations:
9% Sinking Fund Debentures due 2004........................ $ 45 $ --
8% Secured Note due 2002................................... 26 --
Capitalized leases and other obligations................... 19 19
Mexican Facility........................................... 35 35
7% Senior Notes due 2003 (1)............................... -- 100
8% Senior Subordinated Notes due 2008 (1).................. -- 250
------- -------
Total manufacturing operations debt...................... 125 404
Financial services operations:
Asset-backed commercial paper program...................... 143 143
Bank credit facility....................................... 430 430
8 7/8% Senior Subordinated Notes due 1998.................. 82 82
9% Senior Subordinated Notes due 2002...................... 100 100
Capitalized leases......................................... 149 149
Short-term debt............................................ 116 116
------- -------
Total financial services debt............................ 1,020 1,020
------- -------
Total debt............................................... 1,145 1,424
------- -------
SHAREOWNERS' EQUITY:
Series G convertible cumulative preferred stock (1)
(liquidation preference $240 million)..................... 240 --
Series D convertible junior preference stock (liquidation
preference $4 million).................................... 4 4
Common Stock (2)........................................... 1,748 2,136
Class B Common Stock (2)................................... 388 --
Retained earnings (deficit)................................ (1,271) (1,271)
Treasury stock, at cost.................................... (136) (190)
------- -------
Total shareowners' equity................................ 973 679
------- -------
Total capitalization..................................... $ 2,118 $ 2,103
======= =======
</TABLE>
- --------
(1) On February 4, 1998, the Company issued an aggregate of $100 million
principal amount of Senior Notes and $250 million principal amount of
Senior Subordinated Notes. The net proceeds from the sale of the Notes
were used or will be used to: (i) redeem all of the Company's issued and
outstanding Series G Preferred Stock; (ii) repay the Company's 9% Sinking
Fund Debentures; (iii) redeem the Company's 8% Secured Note; and (iv)
provide working capital.
(2) All outstanding shares of Class B Common Stock are held by the Selling
Stockholder. The Class B Common Stock will automatically convert into
shares of Common Stock on a share-for-share basis upon the sale by the
Selling Stockholder in the Offerings. No shares of Class B Common Stock
are expected to remain outstanding after the Offerings.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected consolidated financial data for Navistar for the five year
period ended October 31, 1997 has been derived from Navistar's audited
consolidated financial statements and notes thereto. The Company's selected
consolidated financial data for the three months ended January 31, 1998 and
1997 has been derived from unaudited consolidated financial statements which,
in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
for the unaudited periods. Results for the three months ended January 31, 1998
are not necessarily indicative of results that may be expected for the entire
year. The selected consolidated financial data set forth below should be read
in conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and the Company's Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
JANUARY 31, FISCAL YEAR ENDED OCTOBER 31,
------------- ------------------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------ -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT
DATA:
Sales and revenues:
Sales of manufactured
products................. $1,672 $1,240 $6,147 $5,508 $6,125 $5,153 $ 4,510
Finance and insurance
revenue(1)............... 45 45 174 197 167 152 181
Other income.............. 10 11 50 49 50 32 30
------ ------ ------ ------ ------ ------ -------
Total sales and
revenues............... 1,727 1,296 6,371 5,754 6,342 5,337 4,721
------ ------ ------ ------ ------ ------ -------
Costs and expenses:
Cost of products and
services sold............ 1,454 1,076 5,292 4,827 5,288 4,496 3,925
Other expenses(2)......... 195 179 763 739 705 608 1,146
Interest expense.......... 17 17 74 83 87 75 91
------ ------ ------ ------ ------ ------ -------
Total costs and
expenses............... 1,666 1,272 6,129 5,649 6,080 5,179 5,162
------ ------ ------ ------ ------ ------ -------
Income (loss) before income
taxes..................... 61 24 242 105 262 158 (441)
Income tax expense
(benefit)................. 23 9 92 40 98 56 (168)
------ ------ ------ ------ ------ ------ -------
Income (loss) of continuing
operations................ 38 15 150 65 164 102 (273)
Loss of discontinued
operations(3)............. -- -- -- -- -- (20) --
Cumulative effect of
changes in accounting
policy(4)................. -- -- -- -- -- -- (228)
------ ------ ------ ------ ------ ------ -------
Net income (loss).......... 38 15 150 65 164 82 (501)
Less dividends on Series G
preferred stock(5)........ 7 7 29 29 29 29 29
------ ------ ------ ------ ------ ------ -------
Net income (loss)
applicable to common
stock..................... $ 31 $ 8 $ 121 $ 36 $ 135 $ 53 $ (530)
====== ====== ====== ====== ====== ====== =======
Income (loss) of continuing
operations per share(6):
Basic..................... $ .43 $ .10 $ 1.66 $ .49 $ 1.83 $ .99 $ (8.63)
Diluted................... $ .42 $ .10 $ 1.65 $ .49 $ 1.83 $ .99 $ (8.63)
Earnings (loss) per
share(6):
Basic..................... $ .43 $ .10 $ 1.66 $ .49 $ 1.83 $ .72 $(15.19)
Diluted................... $ .42 $ .10 $ 1.65 $ .49 $ 1.83 $ .72 $(15.19)
Average number of shares
outstanding(7):
Basic..................... 71.6 73.6 73.1 73.7 74.2 74.5 34.9
Diluted................... 72.5 73.7 73.6 73.8 74.3 74.6 34.9
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
AT JANUARY 31, AT OCTOBER 31,
---------------- ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET
DATA(5):
Total assets............ $ 4,929 $ 4,757 $ 5,516 $ 5,326 $ 5,566 $ 5,047 $ 5,060
Total debt.............. 1,145 1,060 1,316 1,420 1,457 1,218 1,374
Total shareowners'
equity................. 973 922 1,020 916 870 817 775
<CAPTION>
THREE MONTHS
ENDED
JANUARY 31, FISCAL YEAR ENDED OCTOBER 31,
---------------- ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT MARKET SHARE AND UNIT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL AND
OPERATING DATA:
Capital expenditures.... $ 60 $ 25 $ 172 $ 117 $ 139 $ 87 $ 110
Depreciation and
amortization........... 39 33 120 105 86 72 75
United States and
Canadian retail
deliveries of trucks
and school buses....... 24,900 19,000 99,500 94,000 101,700 91,600 79,800
United States and
Canadian market
share(8)............... 28.6% 26.4% 28.6% 27.5% 26.7% 27.0% 27.6%
Unit shipments:
Trucks and school
buses................. 29,400 20,400 104,400 95,200 112,200 95,000 87,200
OEM engines............ 42,600 41,000 184,000 163,200 154,200 130,600 118,200
Parts sales............. $ 185 $ 186 $ 806 $ 760 $ 730 $ 714 $ 632
</TABLE>
- --------
(1) Includes revenues of NFC as well as Navistar's other financial service
subsidiaries.
(2) The Company contributed approximately 25.6 million shares of its Class B
Common Stock valued at $513 million to the Supplemental Trust in 1993.
(3) The 1994 loss of discontinued operations resulted from a $20 million after
tax charge for environmental liabilities at production facilities of two
formerly owned businesses, Wisconsin Steel and Solar Turbine, Inc.
(4) In the third quarter of 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employer's Accounting for
Postretirement Benefits Other than Pensions" and SFAS No. 109, "Accounting
for Income Taxes," retroactive to November 1, 1992.
(5) On February 4, 1998, the Company issued an aggregate of $100 million
principal amount of Senior Notes and $250 million principal amount of
Senior Subordinated Notes. The net proceeds from the sale of the Notes
were used or will be used to: (i) redeem all of the Company's issued and
outstanding Series G Preferred Stock; (ii) repay the Company's 9% Sinking
Fund Debentures; (iii) redeem the Company's 8% Secured Note; and (iv)
provide working capital. See "Capitalization."
(6) The net income (loss) per common share information for the five year
period ended October 31, 1997 has been restated to reflect the new
earnings per share calculation required by SFAS No. 128 "Earnings Per
Share," and was filed in the Company's Current Report on Form 8-K, dated
March 6, 1998. The computations of earnings per share for the first
quarter of fiscal 1998 are included in Note F to the Company's Unaudited
Interim Financial Statements included elsewhere in this Prospectus. The
quarterly net income (loss) per common share data listed in Note 18 to the
Consolidated Audited Financial Statements included elsewhere in this
Prospectus are identical for both basic and diluted earnings per share in
accordance with SFAS No. 128 for all quarters listed except for the fourth
quarter of 1997 where the number listed reflects only diluted earnings per
share. Basic earnings per share for the fourth quarter of 1997 was $0.87.
(7) Unexercised employee stock options to purchase shares of Navistar Common
Stock were not included in the diluted shares outstanding when the
options' exercise prices were greater than the average market price of
Navistar Common Stock during the respective periods. Additionally, the
diluted calculation excludes the effects of the conversion of the Series G
Preferred Stock as such conversion would produce anti-dilutive results.
The dilutive effect of options outstanding and the conversion of Series D
Preference Stock were not included in 1993 diluted shares as such
inclusion would produce anti-dilutive results.
(8) Based on retail deliveries of medium trucks (Classes 5, 6 and 7),
including school buses, and heavy trucks (Class 8) in the United States
and Canada by Transportation and its dealers, compared to the industry
total in the United States and Canada of retail deliveries.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction with
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" incorporated by reference, and the Company's Financial Statements
and notes thereto included elsewhere, in this Prospectus. Certain statements
under this caption constitute "forward-looking statements" under Section 27A
of the Securities Act and involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in such
forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed under the captions "Risk
Factors" and "--Business Environment."
GENERAL
NIC is a holding company and its principal operating subsidiary is
Transportation. The Company's manufacturing operations are engaged in the
manufacture and marketing of Class 5 through 8 trucks, including school buses,
mid-range diesel engines and service parts primarily in the United States and
Canada. These products are also sold to distributors in selected export
markets. The financial services operations of the Company provide wholesale,
retail and lease financing, and commercial physical damage and liability
insurance coverage to the Company's dealers and retail customers and to the
general public through an independent insurance agency system.
The discussion and analysis reviews the operating and financial results, and
liquidity and capital resources of manufacturing operations and financial
services operations. Manufacturing operations include the financial results of
the financial services operations included on a one-line basis under the
equity method of accounting. Financial services operations include NFC, its
domestic insurance subsidiary as well as the Company's foreign finance and
insurance companies. See Note 1 to the Consolidated Audited Financial
Statements included elsewhere in this Prospectus.
BUSINESS ENVIRONMENT
Sales of Class 5 through 8 trucks are cyclical, with demand affected by such
economic factors as industrial production, construction, demand for consumer
durable goods, interest rates and the earnings and cash flow of dealers and
customers. Reflecting the stability of the general economy, demand for new
trucks remained strong during the first quarter of 1998. An improvement in the
number of new truck orders has increased the Company's order backlog to 60,600
units at January 31, 1998 from 29,200 units at January 31, 1997. Retail
deliveries in 1998 continue to be highly dependent on the rate at which new
truck orders are received. The Company will evaluate order receipts and
backlog throughout the year and will balance production with demand as
appropriate. See "Risk Factors--Market Cyclicality and General Economic
Conditions."
A stronger than expected economy has led the Company to increase its
estimates of demand. The Company currently projects 1998 United States and
Canadian Class 8 heavy truck demand to be 230,000 units, a 17% increase from
1997. Class 5, 6 and 7 medium truck demand, excluding school buses, is
forecast at 127,000 units, a 8% increase from 1997. Demand for school buses is
expected to decline slightly in 1998 to 32,000 units. Mid-range diesel engine
shipments by the Company to OEMs in 1998 are expected to be 215,300 units, 17%
higher than in 1997. The Company's service parts sales are projected to grow
8% to $870 million.
At the currently forecasted 1998 demand of 389,000 units, the entire truck
industry is operating at or near capacity while the Company's manufacturing
facilities are near capacity. Accordingly, constraints have been placed on the
Company's ability to meet certain customers' demands because of component
parts availability.
On March 5, 1998, the Company announced that it has been selected to
negotiate an extended term agreement to supply diesel engines for select Ford
under 8,500 lbs. GVW light trucks and sport utility vehicles.
18
<PAGE>
The Company is currently considering an internal corporate reorganization,
whereby, among other things, Transportation's engine and service parts
operations and NFC would become direct subsidiaries of NIC.
RESULTS OF OPERATIONS
Three Months Ended January 31, 1998 and 1997
The Company reported net income of $38 million, or $0.42 per diluted common
share, for the first quarter ended January 31, 1998 reflecting higher sales of
manufactured product. Net income was $15 million, or $0.10 per diluted common
share, for the same period last year.
The Company's manufacturing operations reported income before income taxes
of $38 million compared with pretax income of $1 million in the first quarter
of 1997 reflecting an increase in demand for trucks. The financial services
operations' pretax income for the first three months of both 1998 and 1997 was
$23 million.
Sales and Revenues. First quarter 1998 industry retail sales of Class 5
through 8 trucks totaled 87,200 units, an increase of 21% from 1997. Class 8
heavy truck sales of 53,300 units during the first quarter of 1998 were 26%
higher than the 1997 level of 42,400 units. Industry sales of Class 5, 6 and 7
medium trucks, including school buses, increased 14% to 33,900 units. Industry
sales of school buses, which accounted for 16% of the medium truck market,
decreased 5%.
Sales and revenues for the first quarter of 1998 totaled $1,727 million, 33%
higher than the $1,296 million reported for the comparable quarter in 1997.
Sales of trucks, mid-range diesel engines and service parts for the first
quarter of 1998 totaled $1,672 million compared with $1,240 million reported
for the same period in 1997.
The Company maintained its position as sales leader in the combined United
States and Canadian Class 5 through 8 truck market with a 28.6% market share
for the first quarter of 1998, an increase from the 26.4% market share
reported in 1997. (Sources: American Automobile Manufacturers Association, the
United States Motor Vehicle Manufacturers Association and R.L. Polk &
Company.)
Shipments of mid-range diesel engines by the Company to other OEMs during
the first quarter of 1998 totaled 42,600 units, a 4% increase from the same
period of 1997. Service parts sales of $185 million in the first quarter of
1998 were consistent with the prior year's level.
Finance and insurance revenue was $45 million for the first quarters of both
1998 and 1997.
Costs and expenses. Manufacturing gross margin was 13.4% of sales for the
first quarter of 1998, consistent with 13.6% for the same period in 1997.
Marketing and administrative expense increased to $98 million in 1998 from
$83 million in the first quarter of 1997, reflecting investment in the
implementation of the Company's truck strategy to reduce costs and complexity
in its manufacturing processes.
Postretirement benefits expense decreased to $45 million in 1998 from $51
million in the first quarter of 1997 mainly as a result of higher expected
return on plan assets.
Engineering and research expense increased $5 million from first quarter
1997 to $35 million, reflecting the Company's investment in its NGV Program.
Fiscal Years Ended October 31, 1997, 1996 and 1995
The Company reported net income of $150 million for 1997, or $1.65 per
diluted common share, reflecting higher sales of manufactured products. Net
income was $65 million, or $0.49 per diluted common share, in 1996 and $164
million, or $1.83 per diluted common share, in 1995. Net income in 1996
included a one-time $35
19
<PAGE>
million pretax charge for costs related to the termination of the NGV Program.
In August 1997, the Company and the UAW reached agreement on a master contract
extension that enabled the Company to reinstate this program. The remaining
accrual for the 1996 charge at the time of the announcement was not material.
The Company's manufacturing operations reported income before income taxes
of $164 million in 1997 compared with pretax income of $22 million in 1996 and
$200 million in 1995. The increase in 1997 reflects higher unit sales of
trucks and diesel engines as well as the effects of improved pricing and
various cost improvement initiatives. The decrease in 1996 from 1995 reflects
a decline in demand for trucks as well as the charge for termination of the
Company's NGV Program.
The Company's financial services operations had income before income taxes
of $78 million, $83 million and $62 million in 1997, 1996 and 1995,
respectively.
NFC's pretax income in 1997 was $75 million, a 7% decrease from $81 million
in 1996. The change is primarily a result of lower income on sales of retail
receivables and a decline in wholesale financing activity. The reduced gains
on sales resulted from lower margins on retail notes reflecting higher market
interest rates prior to the date of sale. NFC's pretax income increased $22
million in 1996 from the $59 million reported in 1995 primarily due to higher
income on sales of retail notes and an increased volume of wholesale
financing.
Earnings from the foreign finance and insurance subsidiaries were $3
million, $2 million and $3 million in 1997, 1996 and 1995, respectively.
Sales and Revenues. Industry retail sales of Class 5 through 8 trucks
totaled 347,400 units in 1997, a 2% increase from the 341,200 units sold in
1996, but 9% lower than the 380,600 units sold in 1995. Class 8 heavy truck
sales totaled 196,800 units, comparable to the 195,400 units sold in 1996 but
a decrease of 14% from the 228,800 units sold in 1995. Industry sales of Class
5, 6 and 7 medium trucks, including school buses, totaled 150,600 units in
1997, a 3% increase from 1996 when 145,800 units were sold, and comparable to
the 151,800 units sold in 1995. Industry sales of school buses, which
accounted for 22% of the medium truck market, increased slightly from 1996 to
33,200 units in 1997.
Sales and revenues of $6,371 million in 1997 were 11% higher than the $5,754
million reported in 1996 and comparable to the $6,342 million reported in
1995. Sales of trucks, mid-range diesel engines and service parts totaled
$6,147 million in 1997, 12% above the $5,508 million reported for 1996 and
comparable to the $6,125 million reported in 1995.
The Company maintained its position as sales leader in the combined United
States and Canadian Class 5 through 8 truck market in 1997 with a 28.6% market
share, an increase from the 27.5% share in 1996 and the 26.7% share in 1995.
(Sources: American Automobile Manufacturers Associations, the United States
Motor Vehicle Manufacturers Association and R. L. Polk & Company.) In 1997,
the Company's share of the Class 8 heavy truck market increased to 18.6% from
17.1% in 1996 and 18.4% in 1995.
Shipments of mid-range diesel engines by the Company to other OEMs during
1997 were a record 184,000 units, a 13% increase from 1996 and a 19%
improvement over 1995. Higher shipments to Ford to meet consumer demand for
the light trucks and vans which use this engine was the primary reason for the
increase.
Service parts sales of $806 million in 1997 increased from the $760 million
reported in 1996 and were 10% higher than the $730 million reported in 1995 as
a result of dealer and national account volume growth.
Finance and insurance revenue for 1997 was $174 million, 12% lower than the
$197 million reported in 1996 primarily as a result of a decline in wholesale
financing activity. Revenues from financial services operations increased 18%
between 1996 and 1995 primarily as a result of higher income on sales of
retail notes.
20
<PAGE>
Costs and Expenses. Manufacturing gross margin was 14.2% of sales in 1997,
compared with 12.5% in 1996 and 13.8% in 1995. The increase in gross margin is
primarily due to lower production costs and improved pricing offset by a
provision for employee profit sharing. Factors which contributed to the change
in gross margin between 1996 and 1995 included lower sales volumes, more
competitive pricing and the costs of terminating the NGV Program.
Engineering and research expense was $124 million in 1997, $129 million in
1996 and $113 million in 1995, reflecting continuing investment in new truck
and engine products as well as improvements to existing products.
Marketing and administrative expense was $365 million in 1997 compared with
$319 million in 1996 and $307 million in 1995. The change between 1997 and
1996 is the result of higher sales and distribution costs, and an increase in
the provision for payment to employees as provided by the Company's
performance incentive programs. The $12 million increase in the expense
between 1996 and 1995 reflects investment in the implementation of the
Company's strategy to reduce costs and complexity in its manufacturing
processes.
Interest expense decreased to $74 million in 1997 from $83 million in 1996
and $87 million in 1995. The decreases in 1997 and 1996 were the result of
lower wholesale note funding requirements and declining interest rates.
Finance service charges on sold receivables were $23 million in 1997, 4%
lower than in 1996 and 21% lower than in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow is generated from the manufacture and sale of trucks, mid-range
diesel engines and service parts as well as product financing and insurance
coverage provided to Transportation's dealers and retail customers by the
financial services operations.
Historically, funds to finance Transportation's products are obtained from a
combination of commercial paper, short- and long-term bank borrowings, medium-
and long-term debt issues, sales of finance receivables and equity capital.
NFC's current debt ratings have made bank borrowings and sales of finance
receivables the most economic sources of cash. Insurance operations are funded
through internal operations.
Total cash, cash equivalents and marketable securities of the Company
amounted to $549 million at January 31, 1998, $965 million at October 31,
1997, $881 million at October 31, 1996 and $1,040 million at October 31, 1995.
Cash used in operations during the first quarter of 1998 totaled $332
million, primarily from excess postretirement benefits funding of $271 million
and from a net change in operating assets and liabilities of $127 million.
During the first quarter, the Company contributed $200 million to the Base
Trust and $100 million to the hourly pension plan, which net of expense,
resulted in funding of $193 million and $78 million, respectively. The net
change in operating assets and liabilities during the first quarter of 1998
includes a $61 million decrease in accounts payable resulting from lower
production when compared to the fourth quarter of 1997.
Cash provided by operations during 1997 totaled $380 million, primarily from
net income of $150 million, $82 million of noncash deferred income taxes, $59
million of other noncash items, principally depreciation, and a net change in
operating assets and liabilities of $89 million. Income tax expense for 1997
was $92 million, of which $10 million was cash payments to federal and certain
state and local governments, while the remaining $82 million of federal and
other taxes reduced the deferred tax asset.
The net change in operating assets and liabilities of $89 million in 1997
includes a $195 million increase in receivables, reflecting continued strong
demand for the Company's products, offset by a $288 million increase in
accounts payable as a result of increased production in the fourth quarter.
21
<PAGE>
Investment programs during the first quarter of 1998 provided $153 million
in cash reflecting a net decrease in retail notes and lease receivables of
$248 million. Other investment activities during the first quarter of 1998
used $41 million for property and equipment leased to others and $60 million
to fund capital expenditures for construction of a truck assembly facility in
Mexico, to increase mid-range diesel engine capacity and for truck product
improvements.
Investment programs during 1997 included a net decrease in marketable
securities, as sales of securities exceeded purchases by $45 million. During
1997, the purchase of $970 million of retail notes and lease receivables was
funded with $958 million in proceeds from the sale of receivables and
principal collections of $94 million. Other investment activities in 1997 used
$42 million for an increase in property and equipment leased to others and
$172 million to fund capital expenditures. Capital expenditures in 1997
included $82 million for construction of a truck assembly facility in Mexico,
$42 million to increase mid-range diesel engine capacity and additional funds
for truck product improvements.
Financing activities during the first quarter of 1998 used cash to pay $7
million in dividends on the Series G Preferred Stock and to reduce notes and
debt outstanding under the bank revolving credit facility and asset-backed and
other commercial paper program by $211 million offset by a $24 million net
increase in long-term debt at NFC primarily due to increased capital lease
funding and by $35 million of borrowings under the Company's Mexican Facility.
In addition, $83 million was used to repurchase 3.2 million shares of Class B
Common Stock during January 1998.
Financing activities during 1997 used cash to pay $29 million in dividends
on the Series G Preferred Stock, $46 million for principal payments on long-
term debt, and $285 million to reduce notes and debt outstanding under the
bank revolving credit facility and asset-backed and other commercial paper
programs offset by an increase of $209 million in long-term debt.
During 1997 and 1996, NFC supplied 94% of the wholesale financing of new
trucks sold to Transportation's dealers compared with 93% in 1995. NFC's share
of the retail financing of new trucks sold in the United States decreased to
13% in 1997 from 16% in 1996 and 14% in 1995 due to the highly competitive
commercial financing market.
The sale of finance receivables is a significant source of funding for the
financial services operations. During the first quarter of 1998 and of 1997,
NFC sold $500 million and $486 million, respectively, of retail notes through
Navistar Financial Retail Receivables Corporation ("NFRRC"), a wholly owned
subsidiary. During 1997, 1996 and 1995, NFC sold $987 million, $985 million
and $740 million, respectively, of retail notes through NFRRC. The net
proceeds from these sales were used for general working capital purposes.
At January 31, 1998, available funding under the bank revolving credit
facility and the asset-backed and other commercial paper programs was $767
million of which $115 million was used to back short-term debt at January 31,
1998. The remaining $652 million, when combined with unrestricted cash and
cash equivalents, made $658 million available to fund the general business
purposes of NFC at January 31, 1998.
The Company finances capital expenditures principally through internally
generated cash. Capital leasing is used to fund selected projects based on
economic and operating factors. The Company had outstanding capital
commitments of $107 million at January 31, 1998 primarily for increased
manufacturing capacity at the Indianapolis engine plant, improvements to
existing facilities and products, and construction of a truck assembly
facility in Mexico.
The Company has announced plans for approximately $350 million in capital
spending over the next six years for the NGV Program. Capital expenditures for
1998 are expected to be approximately double the amount in 1997. Approximately
$25 million is to be spent in 1998 for the NGV Program. The 1998 capital
budget also includes expenditures for the commencement of assembly operations
at the Company's Mexican facility,
22
<PAGE>
increased manufacturing capacity at the Indianapolis engine plant,
commencement of truck operations in Brazil and improvements to existing
facilities and products. The Company's investment in the NGV Program will also
include $300 million in development expense over the next six years, of which
approximately $50 million is planned for 1998. The projected expenditures
described above do not include capital and development expenditures that the
Company would be required to make for introduction of its next generation
diesel engine to Ford, and, if the Company is successful in its negotiations,
for introduction of diesel engines for use in certain of Ford's under 8,500
lbs. GVW light trucks and sport utility vehicles.
In January 1998, Moody's, Standard and Poors and Duff and Phelps raised
Transportation's senior debt ratings from Ba2, BB, and BB to Ba1, BB+ and BB+,
respectively. NFC's senior debt ratings increased from Ba2, BB and BB+ to Ba1,
BB+ and BBB-. NFC's subordinated debt ratings were also raised from B1, B+ and
BB to Ba3, BB- and BB+, respectively.
On February 4, 1998, the Company completed the private placement of $100
million principal amount of Senior Notes and $250 million Senior Subordinated
Notes. The net proceeds from the sale of the Senior Notes were approximately
$98 million (after deducting discounts to initial purchasers and expenses of
the offering). The Company used approximately $27 million to repay the 8%
Secured Note due 2002 including accrued interest and expects to use
approximately $47 million to repay the 9% Sinking Fund Debentures due 2004
including accrued interest. The net proceeds from the sale of the Senior
Subordinated Notes (after deducting discounts to the initial purchasers and
expenses in connection with the offering) were approximately $244 million and
were used to redeem the Company's Series G Preferred Stock and to pay
accumulated and unpaid dividends thereon. The remaining proceeds are being
used for general corporate purposes, including working capital. Although the
issuance of the new debt resulted in higher interest costs, the redemption of
the Series G Preferred Stock eliminates the payment of the $6.00 per share
annual preferred dividend.
Management continues to evaluate current and forecasted cash flow as a basis
for financing operating requirements and capital expenditures. Management
believes that collections on the outstanding receivables portfolios as well as
funds available from various funding sources will permit the financial
services operations to meet the financing requirements of the Company's
dealers and customers.
ENVIRONMENTAL MATTERS
The Company has been named a potentially responsible party ("PRP"), in
conjunction with other parties, in a number of cases arising under an
environmental protection law known as the Superfund law. These cases involve
sites which allegedly have received wastes from current or former Company
locations. Based on information available to the Company, which in most cases
consists of data related to quantities and characteristics of material
generated at or shipped to each site as well as cost estimates from PRPs
and/or federal or state regulatory agencies for the cleanup of these sites, a
reasonable estimate is calculated of the Company's share, if any, of the
probable costs and is provided for in the financial statements. These
obligations generally are recognized no later than completion of the remedial
feasibility study and are not discounted to their present value. The Company
reviews its accruals on a regular basis and believes that, based on these
calculations, its share of the potential additional costs for the cleanup of
each site, in the aggregate, will not have a material effect on the Company's
financial results.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to transfer or reduce the
risks of foreign exchange and interest rate volatility, and potentially
increase the return on invested funds.
The Company's manufacturing operations, as conditions warrant, hedge foreign
exchange exposure on the purchase of parts and materials from foreign
countries and its exposure from sales of manufactured products in other
countries. Contracted purchases of commodities for manufacturing may be hedged
up to one year. The manufacturing operations had no derivative foreign
exchange exposure at October 31, 1997.
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<PAGE>
As of January 31, 1998, the Company had open positions on future sales of
$103 million of 30-year Treasury bonds and future purchases of a duration-
weighted equivalent of 2-year Treasury bonds. These positions were closed in
February resulting in a gain which was not material.
NFC uses interest rate caps, interest rate swaps and forward interest rate
contracts when needed to convert floating rate funds to fixed and vice versa
to match its asset portfolio. NFC also uses forward interest rate contracts to
manage its exposure to fluctuations in funding costs from the anticipated
securitization and sale of retail notes. During 1997, NFC entered into $500
million of interest rate hedge agreements in anticipation of the November 1997
sale of retail receivables. These hedge agreements were closed in conjunction
with the pricing of the sale, and the loss at October 31, 1997, which was not
material, was deferred and reduced the gain recognized on the sale of
receivables in November 1997.
The Company purchases collateralized mortgage obligations ("CMOs") that have
predetermined fixed-principal payment patterns which are relatively certain.
These instruments totaled $84 million at January 31, 1998. At such date, the
unrecognized gain on the CMOs was not material.
YEAR 2000
The Company has identified all significant applications that will require
modification to ensure Year 2000 compliance. Internal and external resources
are being used to make the required modifications and test Year 2000
compliance. The Company plans to complete the modifications and testing
process of all significant applications by July 1999, which is prior to any
anticipated impact on its operating systems. The total cost of the Year 2000
project has not been and is not anticipated to be material to the Company's
financial position or results of operations and will be funded through
operating cash flows.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification
plans and other factors. However, there can be no guarantee that these
estimates will be achieved and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel
trained in this area, the ability to locate and correct all relevant computer
codes, and similar uncertainties.
In addition, the Company has communicated with others with whom it does
significant business to determine their Year 2000 compliance readiness and the
extent to which the Company is vulnerable to any third party Year 2000 issues.
However, there can be no guarantee that the systems or products of other
companies, including the Company's dealers, on which the Company relies will
be timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with the Company's systems, would not have a
material adverse effect on the Company.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS
130 establishes standards for reporting and display of comprehensive income
and its components. SFAS 131 establishes standards for reporting information
about operating segments, and related disclosures about products and services,
geographic areas and major customers. These statements are effective for
fiscal years beginning after December 15, 1997. These standards expand or
modify disclosures and, accordingly, will have no impact on the Company's
reported financial position, results of operations and cash flows. The Company
is assessing the impact of SFAS 131 on its reported segments.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." This statement revises standards for disclosures about pension and
other postretirement benefit plans and is effective for fiscal years beginning
after December 15, 1997. This standard expands or modifies disclosure and,
accordingly, will have no impact on the Company's reported financial position,
results of operations and cash flows.
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<PAGE>
INCOME TAXES
The Statement of Financial Condition at October 31, 1997 and 1996 includes a
deferred tax asset of $934 million and $1,030 million, respectively, net of
valuation allowances of $309 million related to future tax benefits. The
deferred tax assets are net of valuation allowances since it is more likely
than not that some portion of the deferred tax asset may not be realized in
the future.
The deferred tax asset includes the tax benefits associated with cumulative
tax losses of $1,808 million and temporary differences, which represent the
cumulative expense of $1,413 million recorded in the Statement of Income that
has not been deducted on the Company's tax returns. The valuation allowance at
October 31, 1997 assumes that it is more likely than not that approximately
$815 million of cumulative tax losses will not be realized before their
expiration date. Realization of the net deferred tax asset is dependent on the
generation of approximately $2,500 million of future taxable income, of which
an average of approximately $75 million would need to be generated annually
for the 14-year period 1998 through 2011. The remaining taxable income, which
represents the realization of tax benefits associated with temporary
differences, does not need to be generated until subsequent to 2011. Until the
Company has utilized its significant NOL carryforwards, the cash payment of
federal income taxes will be minimal.
The deferred tax assets are net of valuation allowances since it is more
likely than not that some portion of the deferred tax asset may not be
realized in the future through the generation of taxable income. Extensive
analysis has historically been performed on an annual basis to determine the
amount of the deferred tax asset. Such analysis is based on the premise that
the Company is and will continue to be a going concern and that it is more
likely than not that deferred tax benefits will be realized through the
generation of future taxable income. Management reviews all available
evidence, both positive and negative, to assess the long-term earnings
potential of the Company using a number of alternatives to evaluate financial
results in economic cycles at various industry volume conditions based upon
the Company's existing operating structure. As a result of the continued
successful implementation of its manufacturing strategy, including the
reinstatement of the NGV Program, the continued strength of industry volume
conditions, changes in the Company's operating structure and other positive
operating indicators management has initiated an extensive review of its
projected future taxable income. Other positive operating indicators include
an increase in the Company's combined market share of Class 5 through 8 trucks
and the opening of its Mexican assembly facility. This review which is
expected to be completed by the end of the fiscal year may result in a
reduction to the valuation allowance.
Reconciliation of the Company's income before income taxes for financial
statement purposes to United States taxable income for the years ended October
31 is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
OCTOBER 31,
-----------------
1997 1996 1995
---- ----- ----
(MILLIONS OF
DOLLARS)
<S> <C> <C> <C>
Income before income taxes............................. $242 $ 105 $262
Exclusion of (income) loss of foreign subsidiaries..... (3) 3 (11)
State income taxes..................................... (2) (2) (2)
Temporary differences.................................. 151 (284) 69
Other.................................................. 6 -- (4)
---- ----- ----
Taxable income (loss)................................ $394 $(178) $314
==== ===== ====
</TABLE>
The Company contributed approximately $215 million to its hourly and
salaried pension plans in fiscal 1997. The timing of these contributions
allowed for their deduction on the Company's 1996 tax return, which resulted
in a tax loss of $178 million as compared to the $37 million of taxable income
previously reported.
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<PAGE>
BUSINESS
Navistar, through its wholly owned subsidiary Transportation, operates in
two principal industry segments: manufacturing and financial services.
Manufacturing operations are responsible for the manufacture and marketing of
medium and heavy trucks, including school buses, mid-range diesel engines and
service parts primarily in the United States and Canada as well as in selected
export markets. Based on assets and revenues, manufacturing operations
represent the majority of the Company's business activities. The financial
services operations consist of NFC, its domestic insurance subsidiary and the
Company's foreign finance and insurance subsidiaries. NFC's primary business
is the retail and wholesale financing of products sold by the manufacturing
operations and its dealers within the United States and the providing of
commercial physical damage and liability insurance to the manufacturing
operations' dealers and retail customers and to the general public through an
independent insurance agency system. Industry segment data for 1997, 1996 and
1995 is summarized in Note 14 to the Consolidated Audited Financial Statements
included elsewhere in this Prospectus.
THE MEDIUM AND HEAVY TRUCK INDUSTRY
The market in which Navistar competes is subject to considerable volatility
as it moves in response to cycles in the overall business environment and is
particularly sensitive to the industrial sector which generates a significant
portion of the freight tonnage hauled. Government regulation has impacted and
will continue to impact trucking operations and efficiency and the
specifications of equipment.
The following table shows industry retail deliveries in the combined United
States and Canadian markets for the five years ended October 31 and for the
three month periods ended January 31, 1998 and 1997, in thousands of units:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
JANUARY 31, YEARS ENDED OCTOBER 31,
------------- -----------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Class 5, 6 and 7 medium trucks
and school buses............. 33.9 29.6 150.6 145.8 151.8 134.2 122.5
Class 8 heavy trucks.......... 53.3 42.4 196.8 195.4 228.8 205.4 166.4
------ ------ ----- ----- ----- ----- -----
Total........................ 87.2 72.0 347.4 341.2 380.6 339.6 288.9
====== ====== ===== ===== ===== ===== =====
</TABLE>
Source: Monthly data derived from materials produced by the American
Automobile Manufacturers Associations in the United States and Canada, and
other sources.
The Class 5 through 8 truck market in the United States and Canada is highly
competitive. Major domestic competitors include PACCAR, Ford and General
Motors, as well as foreign-controlled domestic manufacturers, such as
Freightliner, Mack and Volvo. In addition, manufacturers from Japan (Hino,
Isuzu, Nissan and Mitsubishi) are competing in the United States and Canadian
markets. The intensity of this competition results in price discounting and
margin pressures throughout the industry. In addition to the influence of
price, market position is driven by product quality, engineering, styling,
utility and distribution.
TRANSPORTATION MARKET SHARE
Transportation delivered 24,900 Class 5 through 8 trucks, including school
buses, in the United States and Canada in the first quarter of 1998, a 31%
increase from the 19,000 units delivered in the comparable period in 1997.
Navistar's combined share of the Class 5 through 8 truck market was 28.6% in
the first quarter of 1998 and 26.4% in the comparable period in 1997.
Transportation delivered 99,500 Class 5 through 8 trucks, including school
buses, in the United States and Canada in fiscal 1997, a 6% increase from the
94,000 units delivered in 1996. Navistar's combined share of the Class 5
through 8 truck market was 28.6% in 1997 and 27.5% in 1996. Transportation has
been the leader in combined market share for Class 5 through 8 trucks,
including school buses, in the United States and Canada in each of its last 17
fiscal years based on data obtained from the American Automobile Manufacturers
Associations, the United States Motor Vehicle Manufacturers Association and
R.L. Polk & Company.
26
<PAGE>
COMPETITIVE STRENGTHS
The Company believes that its key competitive strengths include the
following:
Leading Market Position. The Company has been the leader in the combined
market share for Class 5 through 8 trucks, including school buses, in the
United States and Canada in each of its last 17 fiscal years. In fiscal 1997,
the Company's combined market share of the Class 5 through 8 truck market was
28.6%, a 1.1 percentage point increase in market share from the previous year.
For each of the last five fiscal years, the Company has been the leader in the
medium truck and school bus markets. In addition, the Company believes that it
is the largest supplier of replacement parts to the heavy and medium truck and
school bus aftermarkets.
Commitment to Customer Satisfaction. In order to achieve high customer
satisfaction, the Company maintains the largest retail organization in North
America specializing in medium and heavy trucks. In addition, the Company
operates eight regional parts distribution centers in North Amercia, enabling
it to offer 24-hour availability and same day shipment of the parts most
frequently requested by customers. In 1997, Navistar was ranked number one for
the third consecutive year by the annual ATD Attitude Survey, which evaluates
OEMs on quality and performance issues related to products, parts, policies
and service.
Leading Supplier of Mid-Range Diesel Engines. The Company is a leading
supplier of mid-range diesel engines in the 160-300 horsepower range and is
currently the exclusive supplier of diesel engines to Ford for use in its
diesel-powered light trucks and vans. On October 29, 1997, the Company
finalized an agreement with Ford to supply newly designed, advanced technology
engines through the year 2012 for use in Ford's F-series pickup trucks and
Econoline vans with over 8,500 lbs. GVW. This 10-year agreement is scheduled
to become effective beginning with model year 2003 and will replace the
Company's current agreement with Ford, which will expire after model year
2002. In addition, the Company was recently selected by Ford to negotiate an
extended agreement to supply diesel engines for select Ford under 8,500 lbs.
GVW light trucks and sport utility vehicles, such as the Ford Expedition,
Lincoln Navigator, F-150 and F-250 pick-ups, and Econoline 150 and 250 van
models. Ford does not currently use a diesel engine in its under 8,500 lbs.
GVW light trucks and sport utility vehicles. The Company has been supplying
diesel engines to Ford since 1982.
TRUCK STRATEGY
In fiscal 1997, the Company continued to implement its five-point truck
strategy, which the Company adopted in fiscal 1996 in order to improve
operating performance and increase profitability. Specifically, this strategy
is designed to enable Transportation's truck division to achieve its part in
Navistar's goal of generating an average 17.5% after tax return on equity over
a business cycle. The principal components of this strategy as well as recent
achievements in its implementation include:
. Reduce Product Complexity. The Company believes that it can increase
manufacturing efficiency and improve product quality by reducing the
complexity of its product offerings. Historically, thousands of options
and a separate chassis design were offered for each truck model
manufactured by Transportation, which led to significant manufacturing
inefficiencies. In 1996, Transportation introduced a new ordering
program known as Diamond Spec(TM) for its premium conventional heavy
trucks. Under this program, Transportation rationalized the number of
possible option combinations by developing pre-packaged, application-
specific option groups which are arranged under 11 categories (i.e.,
engine, chassis, electrical system) based upon the most popular
preferences of its customers. Transportation also combined the chassis
for three models offered in this premium conventional product category
into one chassis. In 1997, Transportation expanded its Diamond Spec(TM)
ordering system and completed a successful pilot program in 11 key
markets for its medium trucks. This standardization of option and
chassis groups is expected to lead to significant operating cost savings
from increased manufacturing efficiency and to better pricing for
purchased components. In addition, Transportation believes that this
program will result in an overall improvement in product quality and
shorter and more reliable delivery times.
27
<PAGE>
. Focus Manufacturing Facilities. The Company believes that it can achieve
significant improvements in manufacturing efficiency by focusing each of
its principal truck manufacturing facilities on producing a single type
of truck model. In order to sharpen the Company's focus on serving its
customers and markets, the Company recently announced a reorganization
of its truck group into six distinct businesses. The new organization
consists of four vehicle centers--heavy truck, severe service truck,
medium truck and school bus, and two business centers--parts and
international. In fiscal 1996, Transportation transferred the production
of its stripped chassis from its Springfield, Ohio facility to its
Conway, Arkansas facility, in order to achieve efficiencies in the
production of medium trucks. Similarly, in fiscal 1997 the Company
established a joint venture, SST Truck Company, which will focus on the
production of the highly-complex Paystar(R) severe service trucks,
thereby permitting Transportation's Chatham, Ontario facility to
concentrate on manufacturing premium conventional heavy trucks.
. Emphasize Product Development. The Company believes that each of its
current truck models equals or exceeds those of its competitors in terms
of satisfying its customers' needs. Nevertheless, the Company intends to
continue to enhance and expand its current product offerings in an
effort to provide trucks that better satisfy its customers' changing
demands. In fiscal 1997, Navistar's Board of Directors approved funding
for the NGV Program. Pursuant to the NGV Program, the Company expects to
invest $350 million in capital expenditures and spend $300 million in
development costs over the next six years to develop and manufacture a
full line of world-class medium trucks, school buses and regular
conventional heavy trucks, which will offer enhanced driver comfort,
operating efficiency, overall appearance, quality and performance. The
design and development phases of the NGV Program are currently underway
and the Company expects the first new vehicles to be available in mid-
2001, with additional new vehicles to follow approximately every six
months through 2003. In 1997, Transportation also introduced the
International 9100 conventional heavy truck to replace its 8200
conventional heavy truck and made significant improvements to its
premium conventional heavy truck models. Further model improvements are
expected to be introduced for Transportation's premium conventional
heavy truck models in fiscal 1998.
. Expand International Operations. The Company believes that there are
significant opportunities to increase sales of both trucks and engines
in Mexico and in other selected export markets. In 1997, the Company
captured approximately 11.5% of the Mexican truck market after
establishing a dealer network and a parts distribution center and
arranging for production at a contract manufacturer in 1996. The
Company's dealer network in Mexico was expanded from 23 to 38 locations
in 1997. The Company has completed the construction of an assembly
facility located near Monterrey, Mexico. This medium and heavy truck
assembly facility is anticipated to cost approximately $167 million and
is expected to begin production by late summer 1998. Its capacity will
be 65 units per shift. The Company believes that its Mexican operations
will enable it to expand into other Latin American countries,
particularly as a result of the favorable and cost effective trade
agreements between Mexico and other Latin American countries. The
Company has also recently established a presence in Brazil by forming a
Brazilian subsidiary and signing an agreement with a Brazilian equipment
manufacturer to assemble commercial trucks. The Company expects that
production of its trucks in Brazil will begin in mid-1998.
. Establish Competitive Wage, Benefit and Productivity Levels.
Transportation expects to achieve significant productivity gains as a
result of favorable changes in job classifications, work rules and
training. In August 1997, Transportation's collective bargaining
agreement with the UAW was extended through October 1, 2002. This
contract contains significant changes from the prior agreement, enabling
the Company to better focus its assembly plants, simplify current
product lines, invest in new product development and achieve more
competitive wage, benefit and productivity levels. This new agreement
enabled the Company to reinstate its NGV Program and continue to
implement its five-point truck strategy. In 1996, Transportation signed
a new three-year collective bargaining agreement with the CAW.
28
<PAGE>
PRODUCTS
The following table illustrates the percentage of the Company's
manufacturing sales by class of product based on dollar amount:
<TABLE>
<CAPTION>
YEARS ENDED
OCTOBER 31,
----------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Class 5, 6 and 7 medium trucks and school buses......... 34% 35% 32%
Class 8 heavy trucks.................................... 37 35 42
Service parts........................................... 13 14 12
Engines................................................. 16 16 14
--- --- ---
Total................................................. 100% 100% 100%
=== === ===
</TABLE>
Transportation manufactures a full line of products in the common carrier,
private carrier, government/service, leasing, construction, energy/petroleum
and student transportation markets. Transportation offers diesel-powered
trucks and school buses because of their improved fuel economy, ease of
serviceability and greater durability over gasoline-powered vehicles.
Transportation's Class 8 heavy trucks generally use diesel engines purchased
from outside suppliers while Class 5, 6 and 7 medium trucks are powered by a
proprietary line of mid-range diesel engines manufactured by Transportation.
Based upon information published by R.L. Polk & Company, diesel-powered Class
5, 6 and 7 medium truck shipments represented 87% of all medium truck
shipments for fiscal 1997 in the United States and Canada.
Transportation's truck and bus manufacturing operations in the United States
and Canada consist principally of the assembly of components manufactured by
its suppliers, although Transportation produces its own mid-range diesel truck
engines, sheet metal components (including cabs) and miscellaneous other
parts. During 1997, the Company announced plans for approximately $350 million
in capital spending and $300 million in development expense over the next six
years for development of its next generation vehicles.
ENGINE AND FOUNDRY
Transportation builds diesel engines for use in its Class 5, 6 and 7 medium
trucks, school buses, selected Class 8 heavy truck models and for sale to OEMs
in the United States and Canada. Transportation also sells engines for
industrial, agricultural and marine applications. Transportation is the
leading supplier of mid-range diesel engines in the 160-300 horsepower range
according to data supplied by Power Systems Research of Minneapolis,
Minnesota.
Transportation has an agreement to supply its 7.3 liter (7.3L)
electronically controlled diesel engine to Ford through the year 2002 for use
in all of Ford's diesel-powered light trucks and vans. Sales of this engine to
Ford currently account for approximately 87% of Transportation's 7.3L sales.
Shipments of engines to all OEMs totaled a record 184,000 units in 1997, an
increase of 13% from the 163,200 units shipped in 1996. In the first quarter
of 1998, shipment of engines to all OEMs totaled 42,600, a 4% increase from
the 41,000 units shipped in the same quarter last year. During 1997,
Transportation entered into a ten-year agreement, effective with model year
2003, to supply Ford with a 7.3L replacement product for use in its diesel-
powered light trucks and vans (over 8,500 lbs. GVW). In March 1998, the
Company was selected by Ford to negotiate an extended agreement to supply
diesel engines for select Ford under 8,500 lbs. GVW light duty trucks and
sport utility vehicles, such as the Ford Expedition, Lincoln Navigator, F-150
and F-250 pick-ups, and Econoline 150 and 250 van models.
SERVICE PARTS
In the United States and Canada, Transportation operates seven regional
parts distribution centers, which allows it to offer 24-hour availability and
same day shipment of the parts most frequently requested by customers. The
Company also operates a parts distribution center in Mexico.
29
<PAGE>
Transportation's service parts program is vital to the maintenance of the
relationship with its customers and dealers. The sale of replacement parts
does not represent a separate and distinct business of Transportation.
Transportation's truck group makes decisions about the pricing of trucks and
replacement parts based upon a variety of factors which integrally link the
pricing and sale of replacement parts with the sale of medium and heavy
trucks, including school buses. The acceptable price for dealers and fleet
truck sales is determined by not only looking at the market price of the
individual trucks themselves, but also by analyzing the amount of future
replacement parts that will be purchased from Transportation over the truck's
life cycle and the total expected profit contribution, including future
replacement parts, expected to be realized on each sale. Accordingly, the
pricing of trucks and replacement parts is not independently determined.
MARKETING AND DISTRIBUTION
Transportation's truck products are distributed in virtually all key markets
in the United States and Canada. Transportation's truck distribution and
service network in these countries was composed of 954, 957 and 958 dealers
and retail outlets at October 31, 1997, 1996 and 1995, respectively. Included
in these totals were 514, 504 and 490 secondary and associate locations at
October 31, 1997, 1996 and 1995, respectively. The Company also has a dealer
network in Mexico composed of 38 and 23 dealer locations at October 31, 1997
and 1996, respectively.
Retail dealer activity is supported by five regional operations in the
United States and general offices in Canada and Mexico. Transportation has a
national account sales group, responsible for 99 major national account
customers. Transportation's network of 16 Used Truck Centers in the United
States provides trade-in support to the Company's dealers and national
accounts group, and markets all makes and models of reconditioned used trucks
to owner-operators and fleet buyers. Trucks, components and service parts are
exported for wholesale and retail sale to more than 70 countries around the
world.
FINANCIAL SERVICES
NFC is a financial services organization that provides wholesale, retail and
lease financing of new and used trucks sold by Transportation and its dealers
in the United States. NFC also finances wholesale accounts and selected retail
accounts receivable of Transportation. Sales of new products (including
trailers) of other manufacturers are also financed regardless of whether
designed or customarily sold for use with Transportation's truck products.
During 1997 and 1996, NFC provided wholesale financing for 94% of the new
truck units sold by Transportation to its dealers and distributors in the
United States and retail and lease financing for 13% and 16%, respectively, of
all new truck units sold or leased by Transportation to retail customers.
NFC's wholly owned domestic insurance subsidiary, Harco National Insurance
Company, provides commercial physical damage and liability insurance coverage
to Transportation's dealers and retail customers, and to the general public
through an independent insurance agency system.
Harbour Assurance Company of Bermuda Limited offers a variety of programs to
the Company, including general liability insurance, ocean cargo coverage for
shipments to and from foreign distributors, and reinsurance coverage for
various Transportation policies.
IMPORTANT SUPPORTING OPERATIONS
Navistar International Corporation Canada has an agreement with a subsidiary
of General Electric Capital Canada, Inc. to provide financing for Canadian
dealers and customers.
RESEARCH AND DEVELOPMENT
Research and development activities, which are directed toward the
introduction of new products and improvements of existing products and
processes used in their manufacture, totaled $92 million, $101 million, and
$91 million for 1997, 1996 and 1995, respectively.
30
<PAGE>
BACKLOG
The backlog of unfilled truck orders (subject to cancellation or return in
certain events) at October 31, 1997, 1996 and 1995 was $2,360 million, $1,254
million and $2,581 million, respectively.
Although the backlog of unfilled orders is one of many indicators of market
demand, other factors such as changes in production rates, available capacity,
new product introductions and competitive pricing actions may affect point-in-
time comparisons.
EMPLOYEES
The Company employed 16,168, 14,187 and 16,079 individuals at October 31,
1997, 1996 and 1995, respectively.
LABOR RELATIONS
At October 31, 1997, the UAW represented 8,079 of the Company's active
employees in the United States, and the CAW represented 2,142 of the Company's
active employees in Canada. Other unions represented 955 of the Company's
active employees in the United States and Canada. The Company entered into a
collective bargaining agreement with the UAW in 1995, which would have expired
on October 1, 1998. During August 1997, the Company's collective bargaining
agreement with the UAW was extended through October 1, 2002. This contract
allows the Company to focus its assembly plants, simplify current product
lines, invest in new product development, and achieve more competitive wage,
benefit and productivity levels. In addition, the Company entered into a
collective bargaining agreement with the CAW in 1996, which expires on October
24, 1999.
PATENTS AND TRADEMARKS
Transportation continuously obtains patents on its inventions and, thus,
owns a significant patent portfolio. Additionally, many of the components
which Transportation purchases for its products are protected by patents that
are owned or controlled by the component manufacturer. Transportation has
licenses under third-party patents relating to its products and their
manufacture, and Transportation grants licenses under its patents. The
royalties paid or received under these licenses are not significant. No
particular patent or group of patents is considered by Transportation to be
essential to its business as a whole.
Like all businesses which offer well-known products or services,
Transportation's primary trademarks are an important part of its worldwide
sales and marketing efforts, and provide instant identification of its
products and services in the marketplace. To support these efforts,
Transportation maintains, or has pending, registrations of its primary
trademarks in those countries in which it does business or expects to do
business.
RAW MATERIALS AND ENERGY SUPPLIES
Transportation purchases raw materials, parts and components from numerous
outside suppliers but relies upon some suppliers for a substantial number of
components for its truck and engine products. A majority of Transportation's
requirements for raw materials and supplies is filled by single-source
suppliers.
The impact of an interruption in supply will vary by commodity. Some parts
are generic to the industry while others are of a proprietary design requiring
unique tooling which would require time to recreate. However, the Company's
exposure to a disruption in production as a result of an interruption of raw
materials and supplies is no greater than the industry as a whole. In order to
remedy any losses resulting from an interruption in supply, the Company
maintains contingent business interruption insurance for storms, fire and
water damage.
While the Company believes that it has adequate assurances of continued
supply, the inability of a supplier to deliver could have an adverse effect on
production at certain of the Company's manufacturing locations.
31
<PAGE>
At the currently forecasted 1998 demand of 389,000 units, the entire truck
industry is operating at or near capacity while the Company's manufacturing
facilities are near capacity. Accordingly, constraints have been placed on the
Company's ability to meet certain customers' demands because of component
parts availability.
IMPACT OF GOVERNMENT REGULATION
Truck and engine manufacturers continue to face increasing governmental
regulation of their products, especially in the areas of environment and
safety. The Company believes its products comply with all applicable
environmental and safety regulations.
As a diesel engine manufacturer, the Company has incurred research and
tooling costs to redesign its engine product lines to meet the U.S. EPA and
CARB emission standards effective for the 1998 model year. In addition to the
1998 standards, the Company, along with other engine manufacturers, has signed
a voluntary agreement with U.S. EPA and CARB to achieve new reductions in
ozone-causing exhaust emissions by 2004 (the "Statement of Principles"). In
October 1997, as a result of the Statement of Principles, the U.S. EPA issued
a final rule defining heavy-duty emission requirements for the 2004 model
year. The Company will also provide engines that satisfy 1998 Clean Fuel Fleet
Vehicle requirements and must also satisfy California's emission standards in
2002 for engines used in medium-size vehicles (which includes vehicles up to
14,000 lbs. GVW). The Company expects that its diesel engines will be able to
meet all of these standards within the required time frame. For model year
1998, the U.S. EPA has issued conditional certification of conformance for
electronically-controlled diesel engines while it investigates whether these
engines fully comply with regulations concerning nitrogen oxide emissions. In
particular, the U.S. EPA is focusing on whether certain electronics strategies
used to attain fuel economy have an adverse impact on nitrogen oxide
emissions. Navistar believes the diesel engines manufactured by it are in
compliance with all applicable U.S. EPA standards and is cooperating with the
U.S. EPA's investigation. It is possible that the U.S. EPA investigation could
result in some buyers deferring their purchases of trucks pending the outcome
of the investigation, and that future U.S. EPA action could impact the fuel
economy of trucks.
Effective with the 1998 model year, Canada's emission standards mirror those
of the U.S. EPA and require the sale of low-sulfur diesel fuel effective
October 1, 1997. Mexico has adopted the U.S. heavy diesel engine emission
standards as of the 1994 model year but has conditioned compliance on the
availability of low-sulfur diesel fuel.
Truck manufacturers are also subject to various noise standards imposed by
federal, state and local regulations. The engine is one of a truck's primary
noise sources, and the Company, therefore, works closely with original
equipment manufacturers to develop strategies to reduce engine noise. The
Company is also subject to the National Traffic and Motor Vehicle Safety Act
("Safety Act") and Federal Motor Vehicle Safety Standards ("Safety Standards")
promulgated by the National Highway Traffic Safety Administration. The Company
believes it is in compliance with the Safety Act and the Safety Standards.
Expenditures to comply with various environmental regulations relating to
the control of air, water and land pollution at production facilities and to
control noise levels and emissions from Transportation's products have not
been material except for two sites formerly owned by the Company: Wisconsin
Steel in Chicago, Illinois, and Solar Turbine in San Diego, California. In
1994, Transportation recorded a $20 million after-tax charge as a loss of
discontinued operations for environmental liabilities and cleanup cost at
these two sites. It is not expected that the costs of compliance with
foreseeable environmental requirements will have a material effect on the
Company's financial position or operating results.
PROPERTIES
In North America, the Company owns and operates nine manufacturing and
assembly operations, which contain approximately ten million square feet of
floor space. Five facilities manufacture and assemble trucks, two plants
manufacture diesel engines and two locations produce gray iron castings. The
Company also
32
<PAGE>
manufactures trucks at a facility owned and operated through a joint venture
in the U.S. In addition, Transportation owns or leases other significant
properties in the United States and Canada including vehicle and parts
distribution centers, sales offices, an engineering center and its
headquarters in Chicago.
Transportation's principal research and engineering facilities are located
in Fort Wayne, Indiana, and Melrose Park, Illinois. In addition, certain
research is conducted at its manufacturing plants.
All of Transportation's plants are being utilized and have been maintained
adequately, are in good operating condition and are suitable for its current
needs through productive utilization of the facilities. These facilities,
together with planned capital expenditures, are expected to meet
Transportation's manufacturing needs in the foreseeable future.
A majority of the activity of the financial services operations is conducted
from its leased headquarters in Rolling Meadows, Illinois. The financial
services operations also lease six other office locations in the United
States.
LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to various claims arising in
the ordinary course of business, and are parties to various legal proceedings
which constitute ordinary routine litigation incidental to the business of the
Company and its subsidiaries. In the opinion of the Company's management, none
of these proceedings or claims are material to the business or the financial
condition of the Company.
33
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS
The following table lists the names, ages and all positions held by the
executive officers of the Company as of April 30, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John R. Horne........... 60 Chairman, President and Chief Executive Officer
Donald DeFosset, Jr..... 49 Executive Vice President and President, Truck Group
Robert C. Lannert....... 58 Executive Vice President and Chief Financial Officer
Robert A. Boardman...... 50 Senior Vice President and General Counsel
Thomas M. Hough......... 52 Vice President and Treasurer
J. Steven Keate......... 41 Vice President and Controller
Steven K. Covey......... 46 Corporate Secretary
</TABLE>
John R. Horne has served as Chairman, President and Chief Executive Officer
of the Company since 1996 and as a Director of the Company since 1990. Prior
to this, Mr. Horne served as President and Chief Executive Officer, 1995-1996,
President and Chief Operating Officer, 1990-1995, Group Vice President and
General Manager, Engine and Foundry, 1990, and Vice President and General
Manager, Engine and Foundry, 1983-1990.
Donald DeFosset, Jr. has served as Executive Vice President of the Company
and President, Truck Group, since 1996. Prior to this, Mr. DeFosset served as
President, Allied Signal Safety Restraints Systems of Allied Signal Inc.,
1993-1996, Group Executive and General Manager, Allied Signal Turbocharging
and Truck Brake Systems, 1992-1993, and Vice President, Planning and Business
Development, 1992, and served as Executive Vice President, Operations for Mack
Trucks, 1989-1992.
Robert C. Lannert has served as Executive Vice President and Chief Financial
Officer and as a Director of the Company since 1990. Prior to this, Mr.
Lannert served as Vice President and Treasurer, 1979-1990,
Robert A. Boardman has served as Senior Vice President and General Counsel
of the Company since 1990. Prior to this, Mr. Boardman served as Vice
President of Manville Corporation, 1988-1990, and Corporate Secretary, 1983-
1990.
Thomas M. Hough has served as Vice President and Treasurer of the Company
since 1992. Prior to this, Mr. Hough served as Assistant Treasurer of the
Company, 1987-1992. Mr. Hough also served as Assistant Controller, Accounting
and Financial Systems, 1987, and Controller of NFC, 1982-1987.
J. Steven Keate has served as Vice President and Controller of the Company
since 1995. Prior to this, Mr. Keate served as Vice President and Controller
of General Dynamics Corporation, 1991-1995, and Corporate Manager, Financial
Planning and Analysis, 1989-1991.
Steven K. Covey has served as Corporate Secretary of the Company since 1990.
Mr. Covey has also served as Associate General Counsel since 1992. Prior to
this, Mr. Covey served as General Attorney, Finance and Securities of
Transportation, 1989-1992, Senior Counsel, Finance and Securities, 1986-1989,
and Senior Attorney, Corporate Operations 1984-1986.
34
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth information concerning the Common Stock
ownership of each director, the Company's Chief Executive Officer, each of the
four most highly compensated other executive officers, and the directors and
executive officers as a group as of April 30, 1998. Each individual owns less
than 1% of the Company's Common Stock. As a group, the directors and officers
own or have the right to acquire approximately 3.1% of the outstanding shares
of Common Stock as of such date (assuming conversion of the Class B Common
Stock into Common Stock).
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------------------------------
OBTAINABLE THROUGH
STOCK
NAME/GROUP OWNED(1)(2) OPTION EXERCISE(3) TOTAL
---------- ----------- ------------------ ---------
<S> <C> <C> <C>
William F. Andrews.............. 2,580 8,250 10,830
Robert A. Boardman.............. 45,621 35,700 81,321
John D. Correnti................ 1,780 6,500 8,280
William C. Craig................ 1,950 2,000 3,950
Donald D. DeFosset, Jr.......... 91,447 127,762 219,209
Jerry E. Dempsey................ 2,480 8,250 10,730
John F. Fiedler................. 2,480 6,000 8,480
John T. Grigsby................. 3,000 2,000 5,000
Michael N. Hammes............... 1,260 4,000 5,260
John R. Horne................... 181,147 301,320 482,467
Allen J. Krowe.................. 1,588 2,000 3,588
Robert C. Lannert............... 116,744 228,900 345,644
Walter J. Laskowski............. 0 6,000 6,000
William F. Patient.............. 1,886 4,000 5,886
Daniel C. Ustian................ 37,455 71,990 109,445
Directors and Executive Officers
as a Group(4).................. 839,809 1,322,357 2,162,166
</TABLE>
- --------
(1) Includes shares over which there is shared investment power as follows:
Mr. Patient--1,680 shares; Mr. Andrews--2,400 shares; Directors and
Executive Officers as a Group--4,130 shares.
(2) Includes shares over which there is shared voting power as follows: Mr.
Patient--1,680 shares; Directors and Executive Officers as a Group--1,730
shares.
(3) Includes all options held by such person, including options which are not
currently exercisable.
(4) Of the 22,462 shares owned by an executive officer who is not also a
director, 30 shares are owned by his wife as custodian for a minor child,
as to which he may be deemed to share voting or investment power, but as
to which he disclaims beneficial ownership.
35
<PAGE>
SELLING STOCKHOLDER
In July 1993, Navistar restructured its postretirement health care and life
insurance benefits pursuant to the Settlement Agreement, which resolved
litigation between Navistar and a class of its employees, retirees and
collective bargaining organizations, including the UAW, as lead class
plaintiff. The Settlement Agreement required, among other things, that
Navistar establish the Supplemental Trust for the purpose of funding certain
retiree health care benefits under a Supplemental Benefit Program. On July 1,
1993, the Company contributed 25,641,545 shares of Class B Common Stock to the
Supplemental Trust in satisfaction of certain of its obligations under the
Settlement Agreement. The Supplemental Trust currently holds 19,894,103 shares
of Class B Common Stock, representing all of the issued and outstanding shares
of Class B Common Stock. In addition, as part of the Settlement Agreement, the
Company agreed to make certain annual profit sharing payments to the
Supplemental Trust (see Note 2 to the Consolidated Audited Financial
Statements included elsewhere in this Prospectus).
The 19,894,103 shares of Common Stock being offered hereby are being sold by
the Supplemental Trust. Pursuant to the terms of the Company's Certificate of
Incorporation and with the approval of the Company's Board of Directors (which
approval has been obtained), each share of Class B Common Stock will
automatically convert into one share of Common Stock upon the sale by the
Supplemental Trust in the Offerings. On July 1, 1998, any of the Class B
Common Stock still outstanding will automatically convert into Common Stock.
Upon completion of the Offerings, the Supplemental Trust is expected not to
hold any shares of Class B Common Stock or shares of Common Stock. See
"Underwriting."
The Company has granted the Underwriters an option to purchase up to
1,300,000 shares of Common Stock solely to cover over-allotments, if any. The
Company has agreed to pay all expenses of the Selling Stockholder associated
with the Offerings, including, under certain circumstances, all or a portion
of the underwriting discounts and commissions. See "Underwriting."
The Settlement Agreement added three seats to Navistar's Board of Directors,
one elected by the UAW and two elected by the Supplemental Committee on behalf
of the Supplemental Trust. Upon completion of the Offerings, the two directors
currently serving on Navistar's Board who were elected by the Supplemental
Committee on behalf of the Supplemental Trust will be deemed to have resigned.
See "Description of Capital Stock--Preferred Stock and Preference Stock."
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 176 million shares, of
which 110 million shares are designated as Common Stock, with a par value of
$.10 per share, 26 million shares are designated as Class B Common, with a par
value of $.10 per share (the "Class B Common Stock"), 30 million shares are
designated as Preferred Stock, with a par value of $1.00 per share, and 10
million shares are designated as Preference Stock, with a par value of $1.00
per share. The following summary of the Company's capital stock is qualified
in its entirety by reference to the Company's Certificate of Incorporation
(the "Certificate of Incorporation"), which is incorporated by reference in
the Registration Statement of which this Prospectus forms a part.
COMMON STOCK
The authorized Common Stock consists of 110 million shares, of which
49,116,183 shares were outstanding at April 30, 1998 and were held by
approximately 56,574 holders of record as of such date.
Dividend Rights and Restrictions. Holders of Common Stock are entitled to
receive dividends when and as declared by the Board of Directors out of funds
legally available therefor, provided that, so long as any shares of Preferred
Stock and Preference Stock are outstanding, no dividends (other than dividends
payable in Common Stock) or other distributions (including purchases) may be
made with respect to the Common Stock unless full cumulative dividends, if
any, on the shares of Preferred Stock and Preference Stock have been paid.
Under the General Corporation Law of the State of Delaware (the "DGCL"),
dividends may only be paid out of surplus or out of net profits for the fiscal
year in which the dividend is declared or the preceding fiscal year, and no
dividend may be paid on Common Stock at any time during which the capital of
outstanding Preferred Stock or Preference Stock exceeds the net assets of the
Company.
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<PAGE>
The Company does not expect to pay cash dividends on the Common Stock in the
foreseeable future, and is subject to restrictions under the indentures for
the Notes on the amount of cash dividends the Company may pay and is subject
to certain debt to equity ratios under the Mexican Facility which may
indirectly limit its ability to pay dividends. See "Dividend Policy."
Voting Rights. Holders of shares of Common Stock are entitled to one vote
for each share for the election of directors and on any question arising at
any shareowners meeting. The UAW, as holder of the Series B Preference Stock,
is entitled to elect one member to the Company's Board of Directors. See "--
Preferred Stock and Preference Stock."
Liquidation Rights. In the event of the voluntary or involuntary
dissolution, liquidation or winding up of the Company, holders of Common Stock
are entitled to receive after satisfaction in full of the prior rights of
creditors (including holders of the Company's indebtedness) and holders of
Preferred Stock and Preference Stock, all the remaining assets of the Company
available for distribution.
Miscellaneous. The Common Stock is subject to certain transfer restrictions
imposed by the Prohibited Transfer Provision. See "Risk Factors--Risk of Loss
of Tax Benefits and Restrictions on Stock Transfer" and "Prohibited Transfer
Provision." The holders of Common Stock are not entitled to preemptive,
redemption or subscription rights. Harris Trust and Savings Bank is the
Transfer Agent and the Registrar for the Common Stock.
CLASS B COMMON STOCK
Upon completion of the Offerings, no shares of Class B Common Stock are
expected to remain outstanding. As of April 30, 1998, 19,894,103 shares of the
Company's Class B Common Stock were outstanding and held by the Supplemental
Trust. The Class B Common Stock is identical to the Common Stock, except with
respect to voting rights and transferability. The Class B Common Stock is not
entitled to vote on any matters submitted to shareowners, except with respect
to certain mergers, consolidations and asset sales requiring a supermajority
vote and with respect to changes in the Company's Certificate of Incorporation
which could adversely affect the Class B Common Stock. The Certificate of
Incorporation provides that any Class B Common Stock transferred in conformity
with its provisions will convert automatically into Common Stock on a share-
for-share basis.
REGISTRATION RIGHTS
The Company has agreed to register the shares offered hereby by the Selling
Stockholder in accordance with the terms of a registration rights agreement
between the Company and the Selling Stockholder. In connection with such
registration, the Company will pay the expenses of the Supplemental Trust and
has agreed to indemnify the Supplemental Trust against certain liabilities,
including liabilities under the Securities Act.
PREFERRED STOCK AND PREFERENCE STOCK
The Company is authorized to issue Preferred Stock and Preference Stock,
which may be issued from time to time in one or more series upon authorization
by the Company's Board of Directors. The Board of Directors, without further
approval of the shareowners, is authorized to fix the dividend rights and
terms, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, and any other rights, preferences, privileges and
restrictions applicable to each series of Preferred Stock and Preference
Stock. The issuance of Preferred Stock and Preference Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes could, among other things, adversely affect the voting power of the
holders of Common Stock and, under certain circumstances, make it more
difficult for a third party to gain control of the Company, discourage bids
for the Common Stock at a premium or otherwise adversely affect the market
price of the Common Stock. The Company has no present plans to issue any
additional series of Preferred Stock or Preference Stock.
37
<PAGE>
Three series of Preference Stock are currently outstanding. Three million
shares of Convertible Junior Preference Stock, Series D (the "Series D
Preference Stock") are authorized, of which 172,365 shares were outstanding as
of April 30, 1998. One share of Nonconvertible Junior Preference Stock, Series
A (the "Series A Preference Stock") is authorized and held by the Supplemental
Trust, and one share of Nonconvertible Junior Preference Stock, Series B (the
"Series B Preference Stock") is authorized and held by the UAW.
Series D Preference Stock. Holders of shares of Series D Preference Stock
are entitled to receive accrued dividends, if any, if and when declared by the
Board of Directors, in the amount of 120 percent of the dividend (on an as-
converted basis) declared on Common Stock, other than a dividend payable
solely in shares of Common Stock. Holders of Series D Preference Stock have
the right at their option to convert shares of the Series D Preference Stock
into shares of Common Stock at any time at a conversion rate of 0.3125 of a
share of Common Stock for each share of Series D Preference Stock, subject to
adjustment in certain events. The Series D Preference Stock is redeemable at
any time, in whole or in part, at the option of the Company upon at least 30
days' advance written notice at the price of $25 per share plus accrued
dividends. Generally, holders of Series D Preference Stock do not have any
voting powers, except as provided by law and except that holders of at least
two-thirds of the number of shares outstanding must approve any adverse
amendment, alteration or repeal of the preferences, special rights or powers
of Series D Preference Stock. Before any distribution to holders of Common
Stock or of any other stock of the Company ranking junior upon liquidation to
the Series D Preference Stock upon any liquidation, dissolution or winding up
of the Company, holders of the Series D Preference Stock are entitled to
receive $25 per share plus accrued dividends.
Series A Preference Stock. As the holder of the Series A Preference Stock,
the Supplemental Trust is entitled to elect two members of the Company's Board
of Directors at any time when the Supplemental Trust holds at least 20% of the
outstanding Common Stock (including the Class B Common Stock) and one member
of the Company's Board of Directors at any time when the Supplemental Trust
holds at least 10% of the outstanding Common Stock (including the Class B
Common Stock). The Series A Preference Stock contains certain transitional
provisions concerning the timing of directors going on and off the Board when
the holdings of the Supplemental Trust are within a 1% range of the 20% and
10% thresholds described above. The Series A Preference Stock is not
transferable by the Supplemental Trust, does not have any voting rights other
than as described above or as required by the law, does not have the right to
receive dividends or distributions and is redeemable for a nominal price upon
the earlier of (i) the passage of 12 consecutive calendar months in which the
Supplemental Trust holds less than 5% of the outstanding Common Stock
(including the Class B Common Stock) and (ii) the date on which the Company is
entitled to cease its profit sharing contributions to the Supplemental Trust.
Upon completion of the Offerings, the holdings of the Supplemental Trust will
be reduced below 10% of the Company's outstanding Common Stock, and the two
currently serving directors elected by the Supplemental Committee on behalf of
the Supplemental Trust will be deemed to have automatically resigned as
directors.
Series B Preference Stock. As the holder of the Series B Preference Stock,
the UAW is entitled to elect one member of the Company's Board of Directors
(the "UAW Director") until such time as the Company has fully funded its
liability under the Base Program (subject to such right revesting if such
funding falls below 85% of the fully funded amount). The Series B Preference
Stock is not transferable by the UAW, does not have any voting rights other
than as described above or as required by the law, does not have the right to
receive dividends or distributions and is redeemable for a nominal price at
such time as the UAW has not been entitled to elect a director for five
consecutive years.
PROHIBITED TRANSFER PROVISION
The Prohibited Transfer Provision contained in Article Eleventh of
Navistar's Certificate of Incorporation applies to transfers of Common Stock
and Class B Common Stock (collectively, "Stock"). Under the Prohibited
Transfer Provision, if a shareowner transfers or agrees to transfer Stock, the
transfer will be prohibited and void to the extent that it would cause the
transferee to hold a "Prohibited Ownership Percentage" (as defined in the
38
<PAGE>
Certificate of Incorporation) or if the transfer would result in the
transferee's ownership increasing if the transferee had held a Prohibited
Ownership Percentage within the three prior years or if the transferee's
ownership percentage already exceeds the Prohibited Ownership Percentage under
applicable federal income tax rules.
A "Prohibited Ownership Percentage" is defined under the Certificate of
Incorporation by reference to complex federal tax laws and regulations, but
generally means direct and indirect ownership of 4.5% or more (based on value)
of the Stock or any other percentage that would cause a transferee to be
considered to be a 5-percent shareholder under applicable federal income tax
rules. This transfer restriction is intended to prevent any person or group of
persons from becoming a "5-percent shareholder" of Navistar and to prevent an
increase in the percentage stock ownership of any existing person or group of
persons that constitutes a 5-percent shareholder. The use of a 4.5% limitation
rather than a 5% limitation is intended to provide a margin of safety for
market value fluctuations in avoiding an "ownership change."
In accordance with the terms of the Common Stock, purchasers of the Common
Stock in the Offerings (or otherwise) consent by virtue of such purchase to
the limitations imposed by Article Eleventh. The Prohibited Transfer Provision
will expire on June 30, 2001, subject to such expiration date being extended
or accelerated in the event of a change in law upon a determination by the
Board of Directors that such action is reasonably necessary to preserve the
tax benefits, in the case of an extension, or that the restrictions are no
longer reasonably necessary for the preservation of the tax benefits, in the
case of an acceleration. The Prohibited Transfer Provision does not prevent
transfers of Stock between persons who do not hold a Prohibited Ownership
Percentage, and contains certain exceptions.
The acquisition of Stock from an individual or entity that owns directly 5%
of the Stock would be deemed to result in the identification of a separate,
segregated "public group" which is a new 5-percent shareholder. The ownership
increase by this new "public group," as well as any ownership increase by
other 5-percent shareholders, must be taken into account in determining
whether the Company has undergone an "ownership change" under Section 382.
Consequently, the Prohibited Transfer Provision will prohibit certain
transfers of equity interests by, and other actions involving, persons having
a Prohibited Ownership Percentage, unless the transfer or other action is
approved by Navistar's Board of Directors in advance or permitted by a
Navistar Board resolution. Although the Prohibited Transfer Provision is
intended to prevent transfers which could cause an "ownership change," the
Company may not be able to prevent every transaction that could cause an
"ownership change." Navistar's Board of Directors can waive the restriction on
certain transfers of stock by 5-percent shareholders even though such
transfers could count toward an "ownership change." See "Risk Factors--Risk of
Loss of Tax Benefits and Restrictions on Stock Transfer."
The Common Stock sold to the public in the Offerings will be deemed to have
been acquired by a separate "public group" treated as a new 5-percent
shareholder which had an increase in ownership. The ownership increase by this
new "public group," as well as any ownership increase by other 5-percent
shareholders, must be taken into account in determining whether the Company
has undergone an "ownership change" under Section 382. The Offerings will not
result in an "ownership change." However, the Company must take into account
the ownership increase resulting from the Common Stock sold to the public in
the Offerings for three years after the sale in computing the change in
ownership for future transactions (including the issuance of additional Common
Stock or equity-related instruments.)
The Prohibited Transfer Provision does not apply to any transfer that has
been approved in advance by Navistar's Board of Directors, which is made in
compliance with certain exceptions set forth in the Prohibited Transfer
Provision or exceptions established from time to time by resolution of
Navistar's Board of Directors. The Board may permit an otherwise prohibited
transfer if it reasonably and in good faith determines that a waiver would be
in the best interests of the Company.
Purchases of Common Stock from the U.S. Underwriters or the Managers
pursuant to the Offerings are subject to the limitations imposed by Article
Eleventh, and any unapproved purchase in excess of the amounts
39
<PAGE>
permitted by Article Eleventh will be void. A prospective purchaser of Common
Stock in the Offerings who believes that a purchase by it may be subject to
the limitations imposed by Article Eleventh should consult with such person's
advisors or the Company to determine if approval must be obtained from the
Board of Directors of the Company.
CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS; CERTAIN PROVISIONS
OF DELAWARE LAW
General. Certain provisions of the Company's Certificate of Incorporation
and By-laws could have an anti-takeover effect. These provisions are intended
to enhance the likelihood of continuity and stability in the composition of
the Company's Board of Directors and in the policies formulated by the Board
of Directors. The Company is also subject to Section 203 of the DGCL. As
described above under "--Preferred Stock and Preference Stock," the ability of
the Board of Directors to issue so-called "flexible" preferred stock may also
have an anti-takeover effect. The operation of Article Eleventh and the fact
that the Company's utilization of its NOLS could be adversely affected by a
change of control could have an anti-takeover effect. See "--Prohibited
Transfer Provision."
Classified Board; Board Vacancies. The Certificate of Incorporation provides
for the Board of Directors to be divided into three classes of directors
serving staggered three year terms, excluding the director elected by the UAW
as the holder of the Company's Series B Preference Stock. See "Preferred Stock
and Preference Stock." The overall effect of the provisions in the Certificate
of Incorporation with respect to the staggered Board may be to render more
difficult a change in control of the Company or the removal of incumbent
directors. Under the DGCL, since the Company has a classified Board, the
shareowners may only remove the directors for cause. A majority of the
remaining directors elected by the holders of Common Stock then in office (and
not shareowners), though less than a quorum, is empowered to fill any vacancy
on the Board of Directors. Notwithstanding the foregoing, whenever the holders
of any one or more classes or series of preferred or preference stock issued
by the Company have a preference over the Common Stock as to dividends or upon
liquidation have the right, voting separately by class or series, to elect
directors (such as the holder of the Series B Preference Stock), the number,
election, term of office, filling of vacancies, terms of removal and other
features of such directorships are governed by the terms relating to such
rights.
Special Meetings of Shareowners; Action by Written Consent. The Certificate
of Incorporation provides that no action may be taken by shareowners except at
an annual or special meeting of shareowners, and prohibits action by written
consent in lieu of a meeting. The Company's By-laws provide that special
meetings of shareowners of the Company may be called only by the Chairman of
the Board and Chief Executive Officer or by the Board of Directors. This
provision will make it more difficult for shareowners to take action opposed
by the Board of Directors.
Approval of Supermajority Transactions. As a result of the Settlement
Agreement, the Company's Certificate of Incorporation provides that the
affirmative vote of holders of at least 85% of the shares of Common Stock
(together with any outstanding Class B Common Stock) present at a meeting is
required to approve a Supermajority Transaction. Accordingly, any holder of
15% or more of the aggregate outstanding Common Stock and Class B Common Stock
represented at any meeting of shareowners will be able to block any
Supermajority Transaction.
Certain Provisions of Delaware Law. The Company is governed by the
provisions of Section 203 of the DGCL. In general, the law prohibits a public
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. "Business
combination" includes mergers, asset sales and other transactions resulting in
a financial benefit to the interested stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns (or within
three years, did own) 15% or more of the corporation's voting stock.
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<PAGE>
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
A general discussion of certain United States federal income and estate tax
consequences of the ownership and disposition of Common Stock applicable to
Non-U.S. Holders (as defined) of Common Stock is set forth below. In general,
a "Non-U.S. Holder" is a person other than: (i) a citizen or resident (as
defined for United States federal income or estate tax purposes, as the case
may be) of the United States; (ii) a corporation or other entity taxable as a
corporation organized in or under the laws of the United States or a political
subdivision thereof; or (iii) an estate the income of which is subject to
United States federal income taxation regardless of its sources; or (iv) a
trust if a United States court is able to exercise primary jurisdiction over
administration of the trust and one or more United States persons have
authority to control all substantial decisions of the trust. The discussion is
based on current law and is provided for general information only. The
discussion does not address aspects of United States federal taxation other
than income and estate taxation and does not address all aspects of federal
income and estate taxation. The discussion does not consider any specific
facts or circumstances that may apply to a particular Non-U.S. Holder and does
not address all aspects of United States federal income tax law that may be
relevant to Non-U.S. Holders that may be subject to special treatment under
such law (for example, insurance companies, tax-exempt organizations,
financial institutions, broker-dealers or certain United States expatriates).
ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-U.S. CURRENT AND
POSSIBLE FUTURE INCOME AND OTHER TAX CONSEQUENCES OF HOLDING AND DISPOSING OF
COMMON STOCK.
DIVIDENDS
In general, the gross amount of dividends paid to a Non-U.S. Holder will be
subject to United States withholding tax at a 30% rate (or any lower rate
prescribed by an applicable tax treaty) unless the dividends are (i)
effectively connected with a trade or business carried on by the Non-U.S.
Holder within the United States and a Form 4224 is filed with the withholding
agent or (ii) if a tax treaty applies, are attributable to a United States
permanent establishment of the Non-U.S. Holder. If either exception applies,
the dividend will be taxed at ordinary U.S. federal income tax rates. A Non-
U.S. Holder may be required to satisfy certain certification requirements in
order to claim the benefit of an applicable treaty rate or otherwise claim a
reduction of, or exemption from, the withholding obligation pursuant to the
above described rules. In the case of a Non-U.S. Holder that is a corporation,
effectively connected income may also be subject to an additional branch
profits tax (which is generally imposed on a foreign corporation at a rate of
30% of the deemed repatriation from the United States of "effectively
connected earnings and profits" or such lower rate as an applicable tax treaty
may provide). To the extent a distribution exceeds current or accumulated
earnings or profits ("E&P"), it will be treated first as a return of the
holder's basis to the extent thereof, and then as a gain from the sale of a
capital asset. Any withholding tax on a distribution in excess of the
Company's E&P is refundable to the Non-U.S. Holder.
The Company may pay dividends to Common Stock holders in the form of
additional Common Stock. In general, dividends of Common Stock paid pro rata
to holders of Common Stock are not taxable distributions. Holders who receive
such stock dividends must allocate the basis of the stock with respect to
which the distribution is made between such stock and the newly distributed
stock in proportion to the fair market values of each on the distribution
date. In certain circumstances stock dividends could be taxable distributions,
subject to the rules described in the previous paragraph. However, the Company
does not currently expect to pay any stock dividends that would be deemed
taxable distributions.
SALE OF COMMON STOCK
Generally, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the disposition of Common Stock unless:
(i) the Company has been, is, or becomes a "U.S. real property holding
corporation" for federal income tax purposes and certain other requirements
are met; (ii) the gain is effectively connected with a trade or business
carried on by the Non-U.S. Holder within the United States, or, alternatively,
if a tax treaty applies, attributable to a United States permanent
establishment maintained by the
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<PAGE>
Non-U.S. Holder (in which case such gain will be subject to tax at the rates
and in the manner applicable to U.S. persons, and, if the holder is a foreign
corporation, the branch profits tax may also apply); or (iii) the Common Stock
is disposed of by an individual Non-U.S. Holder, who holds the Common stock as
a capital asset and is present in the United States for 183 days or more in
the taxable year of the disposition and certain other conditions are met. The
Company believes that it has not been, is not currently and, based upon its
current business plans, is not likely to become a U.S. real property holding
corporation. Non-U.S. Holders should consult applicable treaties, which may
exempt from United States taxation gains realized upon the disposition of
Common Stock in certain cases.
ESTATE TAX
Common Stock owned or treated as owned by an individual Non-U.S. Holder at
the time of death will be includible in the individual's gross estate for
United States federal estate tax purposes, unless an applicable treaty
provides otherwise, and may be subject to United States federal estate tax.
BACKUP WITHHOLDING, INFORMATION REPORTING REQUIREMENTS AND QUALIFICATION FOR
TREATY BENEFITS
On October 6, 1997, the IRS issued final regulations relating to
withholding, information reporting and backup withholding that unify current
certification procedures and forms and clarify reliance standards (the "Final
Regulations"). The Final Regulations generally will be effective with respect
to payments made after December 31, 1999.
Except as provided below, this section describes rules applicable to
payments made on or before December 31, 1999. Backup withholding (which
generally is a withholding tax imposed at the rate of 31% on certain payments
to persons that fail to furnish the information required under the United
States information reporting and backup withholding rules) generally will not
apply to (i) dividends paid to Non-U.S. Holders that are subject to the 30%
withholding discussed above (or that are not so subject because a tax treaty
applies that reduces or eliminates such 30% withholding) or (ii) dividends
paid on the Common Stock to a Non-U.S. Holder at an address outside the United
States. The Company will be required to report annually to the IRS and to each
Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, such holder, regardless of whether any tax was actually withheld.
This information may also be made available to the tax authorities in the Non-
U.S. Holder's country of residence.
In the case of a Non-U.S. Holder that sells Common Stock to or through a
United States office of a broker, the broker must backup withhold at a rate of
31% and report the sale to the IRS, unless the holder certifies its Non-U.S.
status under penalties of perjury or otherwise establishes an exemption. In
the case of a Non-U.S. Holder that sells Common Stock to or through the
foreign office of a United States broker, or a foreign broker with certain
types of relationships to the United States, the broker must report the sale
to the IRS (but not backup withhold) unless the broker has documentary
evidence in its files that the seller is a Non-U.S. Holder or certain other
conditions are met, or the holder otherwise establishes an exemption. A Non-
U.S. Holder will generally not be subject to information reporting or backup
withholding if such Non-U.S. Holder sells the Common Stock to or through a
foreign office of a non-United States broker.
Any amount withheld under the backup withholding rules from a payment to a
holder is allowable as a credit against the holder's U.S. federal income tax,
which may entitle the holder to a refund, provided that the holder furnishes
the required information to the IRS. In addition, certain penalties may be
imposed by the IRS on a holder who is required to supply information but does
not do so in the proper manner.
The Final Regulations eliminate the general current law presumption that
dividends paid to an address in a foreign country are paid to a resident of
that country. In addition, the Final Regulations impose certain certification
and documentation requirements on Non-U.S. Holders claiming the benefit of a
reduced withholding rate with respect to dividends under a tax treaty.
Prospective purchasers of the Common Stock are urged to consult their own
tax advisors as to the effect, if any, of the Final Regulations on their
purchase, ownership and disposition of the Common Stock.
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UNDERWRITING
Under the terms and subject to the conditions in the U.S. Underwriting
Agreement dated the date hereof, each of the underwriters of the U.S. Offering
named below (the "U.S. Underwriters"), for whom Smith Barney Inc., Credit
Suisse First Boston Corporation and J.P. Morgan Securities Inc. are acting as
the representatives (the "Representatives"), has severally agreed to purchase,
and the Selling Stockholder has agreed to sell to each U.S. Underwriter,
shares of Common Stock which equal the number of shares set forth opposite the
name of such U.S. Underwriter below:
<TABLE>
<CAPTION>
U.S. UNDERWRITERS NUMBER OF SHARES
----------------- ----------------
<S> <C>
Smith Barney Inc.........................................
Credit Suisse First Boston Corporation...................
J.P. Morgan Securities Inc...............................
----------
Total................................................ 15,894,103
==========
</TABLE>
Under the terms and subject to the conditions contained in the International
Underwriting Agreement dated the date hereof, each of the managers of the
concurrent International Offering named below (the "Managers"), for whom Smith
Barney Inc., Credit Suisse First Boston (Europe) Limited and J.P. Morgan
Securities Ltd. are acting as the lead managers (the "Lead Managers"), has
severally agreed to purchase, and the Selling Stockholder has agreed to sell
to each Manager, shares of Common Stock which equal the number of shares set
forth opposite the name of such Manager below:
<TABLE>
<CAPTION>
MANAGERS NUMBER OF SHARES
-------- ----------------
<S> <C>
Smith Barney Inc.........................................
Credit Suisse First Boston (Europe) Limited..............
J.P. Morgan Securities Ltd...............................
---------
Total................................................ 4,000,000
=========
</TABLE>
Each of the U.S. Underwriting Agreement and the International Underwriting
Agreement provides that the obligations of the U.S. Underwriters and the
Managers to pay for and accept delivery of the shares of Common Stock offered
hereby are subject to the approval of certain legal matters by counsel and to
certain other conditions. The U.S. Underwriters and the Managers are obligated
to take and pay for all the shares of Common Stock included in the respective
Offerings (other than those covered by the over-allotment option described
below) if any such shares are taken.
The U.S. Underwriters and the Managers (collectively, the "Underwriters")
initially propose to offer part of the shares of Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus and part to certain dealers at a price that represents a concession
not in excess of $ per share below the public offering price. The U.S.
Underwriters and the Managers may allow, and such dealers may reallow, a
concession not in excess of $ per share to other U.S. Underwriters and
Managers or to certain other dealers. After the initial offering of the shares
of Common Stock offered hereby, the public offering price and other selling
terms may be changed by the U.S. Underwriters and the Managers. Subject to the
second following paragraph the Company and the Selling Stockholder have agreed
that if the public offering price per share is (i) equal to or greater than
$30.00, the Selling Stockholder will pay all the underwriting discounts and
commissions, (ii) equal to or less than $27.00, the Company will pay all the
underwriting discounts and commissions and (iii) between $27.00 and $30.00,
the Company and the Selling Stockholder will pay the underwriting discounts
and commissions on a pro rata basis calculated based on a straight line
interpolation between $27.00 and $30.00 with (a) the Company paying the larger
portion of the underwriting discounts and commissions as the price per share
is closer to $27.00 and the Selling Stockholder paying the balance, and (b)
the Selling Stockholder paying the larger portion of the underwriting
discounts and commissions as the price per share is closer to $30.00 and the
Company paying the balance.
43
<PAGE>
The Company has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to an aggregate of
1,300,000 additional shares of Common Stock at the price to public set forth
on the cover page of this Prospectus. The U.S. Underwriters may exercise such
option to purchase additional shares of Common Stock solely for the purpose of
covering over-allotments, if any, in connection with the sale of the shares of
Common Stock offered hereby. To the extent such option is exercised, the U.S.
Underwriters will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Common Stock as
the number of shares of Common Stock set forth opposite the U.S. Underwriters'
names in the preceding table bears to the total number of shares in such
table.
The Company, through its wholly owned subsidiary, Transportation, has agreed
with the Selling Stockholder to purchase 2,000,000 shares of the Common Stock
in the Offerings at the public offering price set forth on the cover page of
this Prospectus. Transportation's obligation to purchase such shares is
conditioned upon all of the other shares offered by the Selling Stockholder
being sold in the Offerings. The Underwriters will not receive any discount or
commission on the shares purchased by Transportation in the Offerings. Smith
Barney Inc. will, however, receive a fee from the Selling Stockholder equal to
1.0% of the purchase price for such shares.
The Company, the Selling Stockholder, the U.S. Underwriters and the Managers
have agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act.
The Company and the Selling Stockholder have agreed, subject to certain
limited exceptions, that, for a period of 90 days after the date of this
Prospectus, they will not, without the prior written consent of Smith Barney
Inc., offer, sell, contract to sell or otherwise dispose of any Common Stock
(or any securities convertible into or exercisable or exchangeable for Common
Stock) or, in the case of the Company, grant any options or warrants to
purchase Common Stock. In addition, all of the directors (other than those
resigning in connection with the Offerings) and executive officers of NIC and
Transportation have agreed to the same restriction for a period beginning on
the date of this Prospectus and ending on August 14, 1998, except with respect
to an aggregate of 200,000 shares of Common Stock, which may be sold by
directors and executive officers (other than Messrs. Horne and Lannert) during
such period and certain other limited exceptions.
The U.S. Underwriters and the Managers have entered into an Agreement
Between U.S. Underwriters and Managers pursuant to which each U.S. Underwriter
has agreed that, as part of the distribution of the 15,894,103 shares of
Common Stock offered in the U.S. Offering, (i) it is not purchasing any such
shares for the account of anyone other than a U.S. or Canadian Person (as
defined below) and (ii) it has not offered or sold, and will not offer, sell,
resell or deliver, directly or indirectly, any of such shares or distribute
any prospectus relating to the U.S. Offering outside the United States or
Canada or to anyone other than a U.S. or Canadian Person. In addition, each
Manager has agreed that as part of the distribution of the 4,000,000 shares of
Common Stock offered in the International Offering (i) it is not purchasing
any such shares for the account of any U.S. or Canadian Person and (ii) it has
not offered or sold, and will not offer, sell, resell or deliver, directly or
indirectly, any of such shares or distribute any prospectus relating to the
International Offering in the United States or Canada or to any U.S. or
Canadian Person. Each Manager has also agreed that it will offer to sell
shares only in compliance with all relevant requirements of any applicable
laws.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the U.S. Underwriting Agreement, the
International Underwriting Agreement and the Agreement Between U.S.
Underwriters and Managers, including: (i) certain purchases and sales between
the U.S. Underwriters and the Managers; (ii) certain offers, sales, resales,
deliveries or distributions to or through investment advisors or other persons
exercising investment discretion; (iii) purchases, offers or sales by a U.S.
Underwriter who is also acting as a Manager or by a Manager who is also acting
as a U.S. Underwriter; and (iv) other transactions specifically approved by
the Representatives and the Lead Manager. As used herein, "U.S. or Canadian
Person" means any resident or national of the United States or Canada, any
corporation, partnership or other entity created or organized in or under the
laws of the United States or Canada or any estate or trust the income of which
is subject to United States or Canadian income taxation regardless of the
source of its income (other than the
44
<PAGE>
foreign branch of any U.S. or Canadian Person), and includes any United States
or Canadian branch of a person other than a U.S. or Canadian Person.
Any offer of shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the relevant province of Canada
in which such offer is made.
Each Manager agrees that it (i) will not offer or sell any shares to persons
in the United Kingdom except to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments (whether as
principal or agent) for the purposes of their businesses or in other
circumstances which do not constitute an offer to the public in the United
Kingdom for the purposes of the Public Offers of Securities Regulation 1995
(the "Regulations"), (ii) will comply with all applicable provisions of the
Regulations and of the Financial Services Act 1986 with respect to anything
done by it in relation to the shares in, from or otherwise involving the
United Kingdom and (iii) will only issue or pass on in the United Kingdom any
document received by it in connection with the issue of these shares if that
person is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 (as amended) or is a
person to whom such documents may otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction by the Company, the
Selling Stockholder, the U.S. Underwriters or the Managers that would permit
any offering to the general public of the shares of Common Stock offered
hereby in any jurisdiction other than the United States.
Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price set forth on the
cover page hereof.
Pursuant to the Agreement Between U.S. Underwriters and Managers, sales may
be made between the U.S. Underwriters and the Managers of such number of
shares of Common Stock as may be mutually agreed. The price of any shares so
sold shall be the public offering price as then in effect for shares being
sold by the U.S. Underwriters and the Managers, less all or any part of the
selling concession, unless otherwise determined by mutual agreement. To the
extent that there are sales between the U.S. Underwriters and the Managers
pursuant to the Agreement Between U.S. Underwriters and Managers, the number
of shares initially available for sale by the U.S. Underwriters and by the
Managers may be more or less than the number of shares appearing on the front
cover of this Prospectus.
In connection with the Offerings and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more Common Stock than the total amount
shown on the list of Underwriters and participations which appear above) and
may effect transactions which stabilize, maintain or otherwise affect the
market price of the Common Stock at levels above those which might otherwise
prevail in the open market. Such transactions may include placing bids for the
Common Stock or effecting purchases of the Common stock for the purpose of
pegging, fixing or maintaining the price of the Common Stock or for the
purpose of reducing a syndicate short position created in connection with the
Offerings. A syndicate short position may be covered by exercise of the option
described above in lieu of or in addition to open market purchases. In
addition, the contractual arrangements among the Underwriters include a
provision whereby if the Representatives or Lead Managers purchase Common
Stock in the open market for the account of the underwriting syndicate and the
securities purchased can be traced to a particular Underwriter or member of
the selling group, the underwriting syndicate may require the underwriter or
selling group member in question to purchase the Common Stock in question at a
cost price to the syndicate or may recover from (or decline to pay to) the
Underwriter or selling group member in question the selling concession
applicable to the securities in question. The Underwriters are not required to
engage in any of these activities and any such activities, if commenced, may
be discontinued at any time.
In the ordinary course of their respective businesses, each of the
Representatives and their affiliates have performed, and may in the future
perform, investment banking or commercial banking services for the Company or
the Selling Stockholder. Morgan Guaranty Trust Company of New York, which is a
lender and the
45
<PAGE>
administrative agent under the Company's bank revolving credit facility and a
lender under the liquidity facility that supports the Company's asset-backed
and other commercial paper programs, is an affiliate of J.P. Morgan Securities
Inc. ("JPMSI") and J.P. Morgan Securities Ltd. JPMSI is a co-arranger under
the Company's bank revolving credit facility. Credit Suisse First Boston
Corporation and JPMSI served as initial purchasers of the Notes.
LEGAL MATTERS
Certain legal matters with regard to the validity of the Common Stock will
be passed upon for the Company by Kirkland & Ellis (a partnership including
professional corporations), Chicago, Illinois and certain legal matters will
be passed upon for the Selling Stockholder by Willkie Farr & Gallagher, New
York, New York. The Underwriters have been represented by Cravath, Swaine &
Moore, New York, New York.
EXPERTS
The consolidated financial statements of Navistar International Corporation
as of October 31, 1997 and 1996 and for each of the three years in the period
ended October 31, 1997, included in this Prospectus and the related financial
statement schedule incorporated by reference from the Company's Annual Report
on Form 10-K for the year ended October 31, 1997 have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their reports appearing and
incorporated by reference herein, and are included or incorporated by
reference in reliance upon the reports of such firm given their authority as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities of the Commission located at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at 7 World Trade Center, Suite 1300, New York, New York 10048,
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can also be obtained at prescribed rates from
the Public Reference Section of the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549. Such materials and other information concerning
the Company are also filed electronically with the Commission and are
accessible via the World Wide Web at http://www.sec.gov. The Common Stock is
traded on the New York, Chicago and Pacific Stock Exchanges. Reports and other
information concerning the Company can also be inspected at the offices of the
New York Stock Exchange at 20 Broad Street, New York, New York 10005; the
Chicago Stock Exchange at One Financial Plaza, 440 South LaSalle Street,
Chicago, Illinois 60605; and the Pacific Stock Exchange at 301 Pine Street,
San Francisco, California 94104.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit or incorporated by reference to the Registration Statement of which
this Prospectus forms a part, each such statement being qualified in all
respects by such reference. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules thereto. Copies of the
Registration Statement and the exhibits and schedules thereto may be
inspected, without charge, at the offices of the Commission, or obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549.
46
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission under the
Exchange Act are incorporated herein by reference: (i) the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1997, as amended by
Amendment No. 1 to Form 10-K (Commission File No. 1-9618); (ii) the Company's
Proxy Statement, dated February 2, 1998; (iii) the Company's Quarterly Report
on Form 10-Q for the quarterly period ended January 31, 1998, as amended by
Amendment No. 1 to Form 10-Q; (iv) the Company's Current Report on Form 8-K,
dated March 6, 1998; (v) the Company's Current Report on Form 8-K, dated May
15, 1998; and (vi) the Company's Current Report on Form 8-K, dated July 9,
1993.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination or completion of the Offerings shall
be deemed to be incorporated by reference in this Prospectus and to be part of
this Prospectus from the date of the filing of such document. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON TO
WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, UPON THE WRITTEN OR ORAL
REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL OF THE INFORMATION FILED BY IT
THAT HAS BEEN INCORPORATED BY REFERENCE IN THIS PROSPECTUS (NOT INCLUDING
EXHIBITS TO THE INFORMATION THAT IS INCORPORATED BY REFERENCE HEREIN UNLESS
SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH INFORMATION).
REQUESTS FOR SUCH INFORMATION SHOULD BE DIRECTED TO THE COMPANY, 455 NORTH
CITYFRONT PLAZA DRIVE, CHICAGO, ILLINOIS 60611, ATTENTION: INVESTOR RELATIONS
(TELEPHONE NUMBER: (312) 836-2000).
47
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED INTERIM FINANCIAL STATEMENTS:
Statement of Income for the three months ended January 31, 1998 and 1997.. F-2
Statement of Financial Condition as of January 31, 1998 and 1997.......... F-3
Statement of Cash Flow for the three months ended January 31, 1998 and
1997..................................................................... F-4
Notes to Financial Statements............................................. F-5
AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report.............................................. F-10
Statement of Income for the years ended October 31, 1997, 1996 and 1995... F-11
Statement of Financial Condition as of October 31, 1997 and 1996.......... F-12
Statement of Cash Flow for the years ended October 31, 1997, 1996 and
1995..................................................................... F-13
Notes to Financial Statements............................................. F-14
</TABLE>
F-1
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
-------------------
1998 1997
--------- ---------
(MILLIONS OF
DOLLARS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Sales and revenues
Sales of manufactured products............................. $ 1,672 $ 1,240
Finance and insurance revenue.............................. 45 45
Other income............................................... 10 11
--------- ---------
Total sales and revenues................................. 1,727 1,296
--------- ---------
Costs and expenses
Cost of products and services sold......................... 1,454 1,076
Postretirement benefits.................................... 45 51
Engineering and research expense........................... 35 30
Marketing and administrative expense....................... 98 83
Interest expense........................................... 17 17
Financing charges on sold receivables...................... 8 7
Insurance claims and underwriting expense.................. 9 8
--------- ---------
Total costs and expenses................................. 1,666 1,272
--------- ---------
Income before income taxes............................. 61 24
Income tax expense..................................... 23 9
--------- ---------
Net income................................................. 38 15
Less dividends on Series G preferred stock................. 7 7
--------- ---------
Net income applicable to common stock...................... $ 31 $ 8
========= =========
Earnings per share
Basic.................................................... $ .43 $ .10
Diluted.................................................. $ .42 $ .10
Average shares outstanding (millions)
Basic.................................................... 71.6 73.6
Diluted.................................................. 72.5 73.7
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF FINANCIAL CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
AS OF JANUARY
31,
----------------
1998 1997
------- -------
(MILLIONS OF
DOLLARS)
ASSETS
------
<S> <C> <C> <C>
Cash and cash equivalents.................................... $ 188 $ 197
Marketable securities........................................ 361 448
------- -------
549 645
Receivables, net............................................. 1,543 1,311
Inventories.................................................. 506 452
Property, net of accumulated depreciation and amortization of
$876 and $864............................................... 896 773
Investments and other assets................................. 312 238
Intangible pension assets.................................... 212 314
Deferred tax asset, net...................................... 911 1,024
------- -------
Total assets........................................... $ 4,929 $ 4,757
======= =======
<CAPTION>
LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
<S> <C> <C> <C>
Liabilities
Accounts payable, principally trade........................ $ 1,033 $ 714
Debt:
Manufacturing operations................................. 125 113
Financial services operations............................ 1,020 947
Postretirement benefits liability ......................... 893 1,278
Other liabilities.......................................... 885 783
------- -------
Total liabilities...................................... 3,956 3,835
------- -------
Commitments and contingencies
Shareowners' equity
Series G convertible preferred stock (liquidation
preference $240 million).................................. 240 240
Series D convertible junior preference stock (liquidation
preference $4 million).................................... 4 4
Common stock (55.4 and 51.0 million shares issued)......... 1,748 1,642
Class B Common stock (19.9 and 24.3 million shares issued). 388 491
Retained earnings (deficit)................................ (1,271) (1,425)
Common stock held in treasury, at cost..................... (136) (30)
------- -------
Total shareowners' equity ............................. 973 922
------- -------
Total liabilities and shareowners' equity.............. $ 4,929 $ 4,757
======= =======
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
JANUARY 31,
--------------
1998 1997
------ ------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Cash flow from operations
Net income................................................... $ 38 $ 15
Adjustments to reconcile net income to cash used in
operations:
Depreciation and amortization.............................. 39 33
Deferred income taxes...................................... 23 8
Postretirement benefits funding in excess of expense....... (271) (71)
Other, net................................................. (34) (24)
Change in operating assets and liabilities:
Receivables................................................ (6) 37
Inventories................................................ (25) 11
Prepaid and other current assets........................... (10) (19)
Accounts payable........................................... (61) (106)
Other liabilities.......................................... (25) (24)
------ ------
Cash used in operations.................................. (332) (140)
------ ------
Cash flow from investment programs
Purchase of retail notes and lease receivables............... (237) (196)
Collections/sales of retail notes and lease receivables...... 485 485
Purchase of marketable securities............................ (129) (165)
Sales or maturities of marketable securities................. 128 113
Capital expenditures......................................... (60) (25)
Property and equipment leased to others...................... (41) (16)
Other investment programs, net............................... 7 4
------ ------
Cash provided by investment programs..................... 153 200
------ ------
Cash flow from financing activities
Issuance of debt............................................. 48 79
Principal payments on debt................................... (24) (13)
Net decrease in notes and debt outstanding under bank
revolving credit facility and asset-backed and other
commercial paper programs................................... (211) (409)
Mexican credit facility...................................... 35 --
Repurchase of common stock................................... (83) --
Dividends paid............................................... (7) (7)
------ ------
Cash used in financing activities........................ (242) (350)
------ ------
Cash and cash equivalents
Decrease during the period................................... (421) (290)
At beginning of the year..................................... 609 487
------ ------
Cash and cash equivalents at end of the period........... $ 188 $ 197
====== ======
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED JANUARY 31, 1998
NOTE A. SUMMARY OF ACCOUNTING POLICIES
Navistar International Corporation is a holding company whose principal
operating subsidiary is Navistar International Transportation Corp.
("Transportation"). As used hereafter, "Company" or "Navistar" refers to
Navistar International Corporation and its consolidated subsidiaries. The
consolidated financial statements include the results of the Company's
manufacturing operations and its wholly owned financial services subsidiaries.
The effects of transactions between the manufacturing and financial services
operations have been eliminated to arrive at the consolidated totals.
The accompanying unaudited financial statements have been prepared in
accordance with accounting policies described in the 1997 Annual Report on
Form 10-K and should be read in conjunction with the disclosures therein.
In the opinion of management, these interim financial statements reflect all
adjustments, consisting of normal recurring accruals, necessary to present
fairly the financial position, results of operations and cash flow for the
periods presented. Interim results are not necessarily indicative of results
for the full year. Certain 1997 amounts have been reclassified to conform with
the presentation used in the 1998 financial statements.
NOTE B. SUPPLEMENTAL CASH FLOW INFORMATION
Consolidated interest payments during the first three months of 1998 and
1997 were $25 million and $22 million, respectively. There were no
consolidated tax payments made during the first three months of 1998 and 1997.
NOTE C. INCOME TAXES
The benefit of Net Operating Loss ("NOL") carryforwards is recognized as a
deferred tax asset in the Statement of Financial Condition, while the
Statement of Income includes income taxes calculated at the statutory rate.
The amount reported does not represent cash payment of income taxes except for
certain state income, foreign withholding and federal alternative minimum
taxes which are not material. In the Statement of Financial Condition, the
deferred tax asset is reduced by the amount of deferred tax expense or
increased by a deferred tax benefit recorded during the year. Until the
company has utilized its significant NOL carryforwards, the cash payment of
federal income taxes will be minimal.
NOTE D. INVENTORIES
Inventories are as follows:
<TABLE>
<CAPTION>
AS OF JANUARY 31,
---------------------
1998 1997
---------- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C>
Finished products.................................... $ 253 $ 246
Work in process...................................... 109 83
Raw materials and supplies........................... 144 123
---------- ----------
Total inventories.................................. $ 506 $ 452
========== ==========
</TABLE>
NOTE E. FINANCIAL INSTRUMENTS
In November 1997, Navistar Financial Corporation ("NFC") sold $500 million
of retail notes, realizing proceeds of $477 million, net of underwriting fees
and credit enhancements, which were used for general working capital purposes.
A gain of approximately $7 million was recognized on the sale.
F-5
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE E. FINANCIAL INSTRUMENTS (CONTINUED)
During the first quarter of 1998, NFC entered into a $50 million forward
treasury lock in anticipation of a May 1998 sale of retail receivables. NFC
intends to close this position on the pricing date of the sale. Any gain or
loss resulting from this transaction will be included in the gain or loss
recognized on the sale of receivables in May 1998.
In anticipation of the $250 million 10-year Senior Subordinated Note
offering, the Company entered into four $50 million forward treasury locks
during the first quarter of 1998. The Company closed these positions on the
pricing date of the debt resulting in a gain which was not material.
As of January 31, 1998, the Company had open positions on future sales of
$103 million of 30-year Treasury bonds and future purchases of a duration-
weighted equivalent of 2-year Treasury bonds. These positions were closed in
February resulting in a gain which was not material.
The Company purchases collateralized mortgage obligations ("CMOs") that have
predetermined fixed-principal payment patterns which are relatively certain.
These instruments totaled $84 million at January 31, 1998. At January 31, the
unrecognized gain on the CMO's was not material.
NOTE F. EARNINGS PER SHARE
Effective for Navistar's consolidated financial statements for the three
months ended January 31, 1998, Navistar adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share," which replaces the
presentation of primary earnings per share and fully diluted earnings per
share with a presentation of basic earnings per share and diluted earnings per
share. Basic earnings per share excludes dilution and is computed by dividing
income available to common shareowners by the weighted-average number of basic
common shares outstanding for the period. Diluted earnings per share assumes
the issuance of common stock for other potentially dilutive equivalent shares
outstanding. All prior-period earnings per share data has been restated. The
adoption of this new accounting standard did not have a material effect on the
Company's reported earnings per share amounts.
Earnings per share was computed as follows:
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
JANUARY 31,
-------------
1998 1997
------ ------
(MILLIONS,
EXCEPT PER
SHARE DATA)
<S> <C> <C>
Net income.................................................... $ 38 $ 15
Less dividends on Series G Preferred stock.................... 7 7
---- ----
Net income applicable to common stock (Basic and Diluted)..... $ 31 $ 8
==== ====
Average shares outstanding
Basic....................................................... 71.6 73.6
Dilutive effect of options outstanding.................... .8 --
Conversion of Series D Preference Stock................... .1 .1
---- ----
Diluted..................................................... 72.5 73.7
==== ====
Earnings per share
Basic....................................................... $.43 $.10
Diluted..................................................... .42 .10
</TABLE>
F-6
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE F. EARNINGS PER SHARE (CONTINUED)
Unexercised employee stock options to purchase 0.7 million and 2.7 million
shares of Navistar common stock during the three months ended January 31, 1998
and 1997, respectively, were not included in the computation of diluted shares
outstanding because the options' exercise prices were greater than the average
market price of Navistar common stock during the respective periods.
Additionally, the diluted calculation excludes the effects of the conversion
of the Series G preferred stock as such conversion would produce anti-dilutive
results. In January 1998, the company repurchased approximately 3.2 million
shares of its Class B Common Stock from the Supplemental Trust.
NOTE G. NEW ACCOUNTING PRONOUNCEMENTS
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement revises standards
for disclosures about pension and other postretirement benefit plans and is
effective for fiscal years beginning after December 15, 1997. This standard
expands or modifies disclosure and, accordingly will have no impact on the
Company's reported financial position, results of operations and cash flows.
NOTE H. SUBSEQUENT EVENTS
On February 4, 1998, the Company completed the private placement of $100
million 7% Senior Notes due 2003 and $250 million 8% Senior Subordinated Notes
due 2008 (the "Senior Notes," together with the Senior "Subordinated Notes,"
the "Old Notes"). The proceeds of the Senior Notes were used to prepay an 8%
Secured Note due 2002 and will be used to repay the 9% Sinking Fund Debentures
due 2004. The proceeds of the Senior Subordinated Notes were used to redeem
the Company's $240 million, $6.00 Series G Convertible Cumulative Preferred
Stock and to pay accumulated and unpaid dividends thereon. Excess proceeds
from both debt issues will be used for general working capital purposes. On
March 5, 1998, the Company initiated an offer to exchange the Old Notes with
new notes (the "Exchange Notes"), which have been registered under the
Securities Act of 1933, as amended. The Exchange Notes will evidence the same
debt as the Old Notes (which they replace) and will be issued under and be
entitled to the benefits of the Indentures governing the Old Notes.
On March 5, 1998, the Company announced that it has been selected to
negotiate an extended term agreement to supply diesel engines for select Ford
Motor Company under 8,500 lbs. GVW light duty trucks and sport utility
vehicles.
F-7
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE I. SUPPLEMENTAL FINANCIAL INFORMATION
NAVISTAR INTERNATIONAL CORPORATION (WITH FINANCIAL SERVICES OPERATIONS ON AN
EQUITY BASIS) IN MILLIONS OF DOLLARS:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
-------------------
1998 1997
--------- ---------
<S> <C> <C>
CONDENSED STATEMENT OF INCOME
Sales of manufactured products....................... $ 1,672 $ 1,240
Other income......................................... 10 10
--------- ---------
Total sales and revenues....................... 1,682 1,250
--------- ---------
Cost of products sold................................ 1,448 1,071
Postretirement benefits.............................. 45 51
Engineering and research expense..................... 35 30
Marketing and administrative expense................. 89 76
Other expenses....................................... 27 21
--------- ---------
Total costs and expenses....................... 1,644 1,249
--------- ---------
Income before income taxes
Manufacturing operations........................... 38 1
Financial services operations...................... 23 23
--------- ---------
Income before income taxes....................... 61 24
Income tax expense................................... 23 9
--------- ---------
Net income..................................... $ 38 $ 15
========= =========
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
---------------
1998 1997
------- -------
<S> <C> <C>
CONDENSED STATEMENT OF FINANCIAL CONDITION
Cash, cash equivalents and marketable securities......... $ 387 $ 476
Inventories.............................................. 506 452
Property and equipment, net.............................. 733 656
Equity in financial services subsidiaries................ 329 319
Other assets............................................. 876 689
Deferred tax asset, net.................................. 911 1,024
------- -------
Total assets....................................... $ 3,742 $ 3,616
======= =======
Accounts payable, principally trade...................... $ 994 $ 664
Postretirement benefits liabilities...................... 885 1,270
Other liabilities........................................ 890 760
Shareowners' equity...................................... 973 922
------- -------
Total liabilities and
shareowners' equity............................... $ 3,742 $ 3,616
======= =======
</TABLE>
F-8
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
NOTE I. SUPPLEMENTAL FINANCIAL INFORMATION--(CONTINUED)
NAVISTAR INTERNATIONAL CORPORATION (WITH FINANCIAL SERVICES OPERATIONS ON AN
EQUITY BASIS) IN MILLIONS OF DOLLARS:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
CONDENSED STATEMENT OF CASH FLOW
Cash flow from operations
Net income............................................. $ 38 $ 15
Adjustments to reconcile net income to cash used in
operations:
Depreciation and amortization........................ 32 29
Postretirement benefits funding in excess of expense. (271) (71)
Equity in earnings of nonconsolidated companies, net
of dividends received............................... (3) (14)
Deferred income taxes................................ 23 8
Other, net........................................... (3) (7)
Change in operating assets and liabilities............. (124) (87)
--------- ---------
Cash used in operations............................ (308) (127)
--------- ---------
Cash flow from investment programs
Purchase of marketable securities.................... (118) (150)
Sales or maturities of marketable securities......... 114 91
Capital expenditures................................. (60) (25)
Receivable from Navistar Financial Corporation....... 3 (74)
Other investment programs, net....................... 7 4
--------- ---------
Cash used in investment programs................... (54) (154)
--------- ---------
Cash flow from financing activities................ (56) (10)
--------- ---------
Cash and cash equivalents
Decrease during the period............................. (418) (291)
At beginning of the year............................... 573 452
--------- ---------
Cash and cash equivalents at end of the period..... $ 155 $ 161
========= =========
</TABLE>
F-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
Navistar International Corporation,
Its Directors and Shareowners:
We have audited the Statement of Financial Condition of Navistar
International Corporation and Consolidated Subsidiaries as of October 31, 1997
and 1996, and the related Statements of Income and of Cash Flow for each of
the three years in the period ended October 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of Navistar
International Corporation and Consolidated Subsidiaries at October 31, 1997
and 1996, and the results of their operations and their cash flow for each of
the three years in the period ended October 31, 1997, in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
December 15, 1997
Chicago, Illinois
F-10
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
OCTOBER 31,
--------------------
1997 1996 1995
------ ------ ------
(MILLIONS OF
DOLLARS,
EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Sales and revenues
Sales of manufactured products.......................... $6,147 $5,508 $6,125
Finance and insurance revenue........................... 174 197 167
Other income............................................ 50 49 50
------ ------ ------
Total sales and revenues.............................. 6,371 5,754 6,342
------ ------ ------
Costs and expenses
Cost of products and services sold...................... 5,292 4,827 5,288
Postretirement benefits................................. 215 220 206
Engineering and research expense........................ 124 129 113
Marketing and administrative expense.................... 365 319 307
Interest expense........................................ 74 83 87
Financing charges on sold receivables................... 23 24 29
Insurance claims and underwriting expense............... 36 47 50
------ ------ ------
Total costs and expenses.............................. 6,129 5,649 6,080
------ ------ ------
Income before income taxes................................ 242 105 262
Income tax expense........................................ 92 40 98
------ ------ ------
Net income................................................ 150 65 164
Less dividends on Series G preferred stock................ 29 29 29
------ ------ ------
Net income applicable to common stock..................... $ 121 $ 36 $ 135
====== ====== ======
Net income per common share............................... $ 1.65 $ .49 $ 1.83
====== ====== ======
Average number of common and dilutive common equivalent
shares outstanding (millions)............................ 73.6 73.8 74.3
</TABLE>
See Notes to Financial Statements.
F-11
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AS OF OCTOBER
31,
--------------
1997 1996
------ ------
(MILLIONS OF
DOLLARS)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents.......................................... $ 609 $ 487
Marketable securities.............................................. 356 394
------ ------
965 881
Receivables, net................................................... 1,755 1,655
Inventories........................................................ 483 463
Property and equipment, net........................................ 835 770
Investments and other assets....................................... 332 213
Intangible pension assets.......................................... 212 314
Deferred tax asset, net............................................ 934 1,030
------ ------
Total assets................................................. $5,516 $5,326
====== ======
<CAPTION>
LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
<S> <C> <C>
Liabilities
Accounts payable, principally trade.............................. $1,100 $ 820
Debt:
Manufacturing operations....................................... 92 115
Financial services operations.................................. 1,224 1,305
Postretirement benefits liability................................ 1,186 1,351
Other liabilities................................................ 894 819
------ ------
Total liabilities............................................ 4,496 4,410
------ ------
Commitments and contingencies (Note 11)
Shareowners' equity
Series G convertible preferred stock (liquidation preference $240
million)........................................................ 240 240
Series D convertible junior preference stock (liquidation
preference $4 million).......................................... 4 4
Common stock (52.2 million and 51.0 million shares issued)....... 1,659 1,642
Class B Common stock (23.1 million and 24.3 million shares
issued)......................................................... 471 491
Retained earnings (deficit)--balance accumulated after the
deficit reclassification as of October 31, 1987................. (1,301) (1,431)
Common stock held in treasury, at cost (2.9 million and 1.6
million shares held)............................................ (53) (30)
------ ------
Total shareowners' equity.................................... 1,020 916
------ ------
Total liabilities and shareowners' equity.................... $5,516 $5,326
====== ======
</TABLE>
See Notes to Financial Statements.
F-12
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
OCTOBER 31,
------------------------
1997 1996 1995
------ ------- -------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Cash flow from operations
Net income......................................... $ 150 $ 65 $ 164
Adjustments to reconcile net income to cash
provided by operations:
Depreciation and amortization.................... 120 105 86
Deferred income taxes............................ 82 37 89
Other, net....................................... (61) (13) (9)
Change in operating assets and liabilities:
Receivables...................................... (195) 186 (91)
Inventories...................................... (25) (47) 35
Prepaid and other current assets................. 4 1 10
Accounts payable................................. 288 (110) 63
Other liabilities................................ 17 (106) 70
------ ------- -------
Cash provided by operations.................... 380 118 417
------ ------- -------
Cash flow from investment programs
Purchase of retail notes and lease receivables..... (970) (1,108) (1,099)
Collections/sales of retail notes and lease
receivables....................................... 1,052 1,107 850
Purchase of marketable securities.................. (512) (585) (722)
Sales or maturities of marketable securities....... 557 752 480
Capital expenditures............................... (172) (117) (139)
Property and equipment leased to others............ (42) (73) (19)
Other investment programs, net..................... 3 (8) 8
------ ------- -------
Cash used in investment programs............... (84) (32) (641)
------ ------- -------
Cash flow from financing activities
Issuance of debt................................... 209 -- --
Principal payments on debt......................... (46) (136) (121)
Net increase (decrease) in notes and debt
outstanding under bank revolving credit facility
and asset-backed and other commercial paper
programs.......................................... (285) 81 312
Dividends paid..................................... (29) (29) (29)
Repurchase of common stock......................... (23) -- (10)
------ ------- -------
Cash (used in) provided by financing
activities.................................... (174) (84) 152
------ ------- -------
Cash and cash equivalents
Increase (decrease) during the year................ 122 2 (72)
At beginning of the year........................... 487 485 557
------ ------- -------
Cash and cash equivalents at end of the year... $ 609 $ 487 $ 485
====== ======= =======
</TABLE>
See Notes to Financial Statements.
F-13
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED OCTOBER 31, 1997
1. SUMMARY OF ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
Navistar International Corporation is a holding company, whose principal
operating subsidiary is Navistar International Transportation Corp.
("Transportation"). As used hereafter, "Company" refers to Navistar
International Corporation and its consolidated subsidiaries. The consolidated
financial statements include the results of the Company's manufacturing
operations and its wholly owned financial services subsidiaries. The effects
of transactions between the manufacturing and financial services operations
have been eliminated to arrive at the consolidated totals. The distinction
between current and long-term assets and liabilities in the Statement of
Financial Condition is not meaningful when finance, insurance and
manufacturing operations are combined; therefore, the Company has adopted an
unclassified presentation. Certain 1996 and 1995 amounts have been
reclassified to conform with the presentation used in the 1997 financial
statements.
The Company operates in two principal industry segments: manufacturing and
financial services. Manufacturing operations are responsible for the
manufacture and marketing of medium and heavy trucks, including school buses,
mid-range diesel engines and service parts primarily in the United States and
Canada as well as in selected export markets. Based on assets and revenues,
manufacturing operations represent the majority of the Company's business
activities. The financial services operations consist of Navistar Financial
Corporation ("NFC"), its domestic insurance subsidiary and the Company's
foreign finance and insurance subsidiaries. NFC's primary business is the
retail and wholesale financing of products sold by the manufacturing
operations and its dealers within the United States and the providing of
commercial physical damage and liability insurance to the manufacturing
operations' dealers and retail customers and to the general public through an
independent insurance agency system.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Manufacturing operations recognize shipments of new trucks and service parts
to independent dealers and retail customers as sales. Price allowances,
expected in the normal course of business, and the cost of special incentive
programs are recorded at the time of sale. Engine sales are recognized at the
time of shipment to original equipment manufacturers. An allowance for losses
on receivables is maintained at an amount that management considers
appropriate in relation to the outstanding receivables portfolio and it is
charged when receivables are determined to be uncollectible.
Financial services operations recognize finance charges on retail notes and
finance leases as income over the term of the receivables utilizing the
interest method. Interest due from interest-bearing notes and accounts is
recognized on the accrual basis. Operating lease revenues are recognized on a
straight-line basis over the life of the lease. Selected receivables are sold
and securitized to public and private investors with limited recourse. Gains
or losses on sales of receivables are credited or charged to revenue in the
period in which the sale occurs. Financial services operations continue to
service the sold receivables and receive a fee for such services from the
investor. An allowance for losses is maintained at a level deemed appropriate
based on such factors as overall portfolio quality, historical loss experience
and current economic conditions.
F-14
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Insurance premiums are earned on a pro rata basis over the terms of the
policies. Underwriting losses and outstanding loss reserve balances are based
on individual case estimates of the ultimate cost of settlement, including
actual losses, and determinations of amounts required for losses incurred but
not reported.
CASH AND CASH EQUIVALENTS
All highly liquid financial instruments with maturities of three months or
less from date of purchase, consisting primarily of bankers' acceptances,
commercial paper, United States government securities and floating rate notes,
are classified as cash equivalents in the Statement of Financial Condition and
Statement of Cash Flow.
MARKETABLE SECURITIES
Marketable securities are classified as available-for-sale securities and
are reported at fair value. The difference between amortized cost and fair
value is recorded as an adjustment to shareowners' equity, net of applicable
deferred taxes.
INVENTORIES
Inventories are valued at the lower of average cost or market.
PROPERTY AND OTHER LONG-LIVED ASSETS
Significant expenditures for replacement of equipment, tooling and pattern
equipment, and major rebuilding of machine tools are capitalized. Depreciation
and amortization are generally provided on the straight-line basis over the
estimated useful lives of the assets, which average 35 years for buildings and
improvements and eight years for machinery and equipment. Gains and losses on
property disposals are included in other income and expense. The carrying
amount of all long-lived assets is evaluated periodically to determine if
adjustment to the depreciation and amortization period or to the unamortized
balance is warranted. Such evaluation is based principally on the expected
utilization of the long-lived assets and the projected, undiscounted cash
flows of the operations in which the long-lived assets are deployed.
ENGINEERING AND RESEARCH EXPENSE
Engineering and research expense includes research and development expenses
and routine ongoing costs associated with improving existing products and
manufacturing processes. Research and development expenses, which include
activities for the introduction of new truck and diesel engine products and
major improvements to existing products and processes, totaled $92 million,
$101 million and $91 million in 1997, 1996 and 1995, respectively.
PRODUCT RELATED COSTS
The Company accrues warranty expense at the time of end product sale.
Product liability expense is accrued based on the estimate of total future
payments to settle product liability claims.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivatives to transfer or reduce risks of foreign exchange
and interest rate volatility and to potentially increase the return on
invested funds. NFC, a wholly owned subsidiary of Transportation, uses
derivatives such as forward contracts and interest rate swaps to reduce its
exposure to interest rate volatility. NFC's primary use of such financial
instruments is to hedge the fair value of its fixed rate receivables against
changes in market interest rates in anticipation of securitization and sale of
such receivables. The anticipated transactions are probable of occurrence and
their significant terms and characteristics have been identified.
F-15
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Derivative financial instruments are generally held for purposes other than
trading. Gains or losses related to hedges of anticipated sales of receivables
are deferred and are recognized in income when the receivables are sold. At
all times, the principal balance of receivables owned and expected to be sold
by NFC exceeds the notional amount of open derivative contracts.
STOCK-BASED COMPENSATION
Effective November 1, 1996, the Company adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). Accordingly, the Company elected
to continue to account for stock-based compensation plans consistent with
prior years.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share." This
statement specifies the computation, presentation and disclosure requirements
for earnings per share and is effective for financial statements issued for
periods ending after December 15, 1997. The standard is not expected to have a
material effect on the Company's net income per common share computation.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"), and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components. SFAS 131 establishes standards for
reporting information about operating segments and related disclosures about
products and services, geographic areas and major customers. These statements
are effective for fiscal years beginning after December 15, 1997. These
standards expand or modify current disclosures and, accordingly, will have no
impact on the Company's reported financial position, results of operations and
cash flows. The Company is assessing the impact of SFAS 131 on its reported
segments.
2. POSTRETIREMENT BENEFITS
The Company provides postretirement benefits to substantially all of its
employees. Costs associated with postretirement benefits include pension
expense for employees, retirees and surviving spouses, and postretirement
health care and life insurance expense for employees, retirees, surviving
spouses and dependents. In addition, as part of the 1993 restructured retiree
health care and life insurance plans, profit sharing payments to an
independent retiree trust are required. The cost of postretirement benefits is
segregated as a separate component in the Statement of Income and is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(MILLIONS OF
DOLLARS)
<S> <C> <C> <C>
Pension expense.............................................. $129 $160 $110
Health/life insurance........................................ 66 60 70
Profit sharing provision to Trust............................ 20 -- 26
---- ---- ----
Total postretirement benefits expense.................... $215 $220 $206
==== ==== ====
</TABLE>
In the Statement of Financial Condition, the postretirement benefits
liability of $1,186 million in 1997 and $1,351 million in 1996 includes $445
million and $607 million, respectively, for pension and $741 million and $744
million, respectively, for postretirement health care and life insurance
benefits. Included in investments and
F-16
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. POSTRETIREMENT BENEFITS (CONTINUED)
other assets in the Statement of Financial Condition is a prepaid pension
asset of $120 million in 1997 and $38 million in 1996.
PENSION BENEFITS
Generally, the pension plans are noncontributory with benefits related to an
employee's length of service and compensation rate. The Company's policy is to
fund its pension plans in accordance with applicable United States and
Canadian government regulations and to make additional payments as funds are
available to achieve full funding of the vested accumulated benefit
obligation. The pension plans vary in the extent to which they are funded,
but, for plan years which ended during the current year, all legal funding
requirements have been met. Plan assets are invested primarily in dedicated
portfolios of long-term fixed income securities with more recent contributions
invested in equity securities.
PENSION EXPENSE
Net pension expense included in the Statement of Income is composed of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(MILLIONS OF
DOLLARS)
<S> <C> <C> <C>
Service cost for benefits earned during the period...... $ 34 $ 34 $ 24
Interest on projected benefit obligation................ 238 231 232
Net amortization costs and other........................ 99 104 57
Less expected return on assets.......................... (242) (209) (203)
----- ----- -----
Net pension expense................................. $ 129 $ 160 $ 110
===== ===== =====
Actual return on assets............................. $ 505 $ 188 $ 398
===== ===== =====
</TABLE>
"Amortization costs" include amortization of cumulative gains and losses
over the expected remaining service life of employees, amortization of the
initial transition liability over 15 years, the expense related to yearly
lump-sum payments to retirees required by negotiated labor contracts and
amortization of plan amendments, recognized over the remaining service life of
employees, except for those plan amendments arising from negotiated labor
contracts, which are amortized over the length of the contract.
PENSION ASSETS AND LIABILITIES
Included in the Statement of Financial Condition is the minimum pension
liability for certain unfunded pension plans. The adjustment for the minimum
pension liability in the amounts of $504 million and $623 million are offset
by intangible pension assets of $212 million and $314 million and accumulated
reductions in shareowners' equity of $195 million and $206 million at October
31, 1997 and October 31, 1996, respectively. The changes in shareowners'
equity are net of deferred income taxes of $97 million at October 31, 1997 and
$103 million at October 31, 1996. The minimum pension liability will change
from year to year as a result of revisions to actuarial assumptions,
experience gains or losses and settlement rate changes.
F-17
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. POSTRETIREMENT BENEFITS (CONTINUED)
The funded status of the Company's plans as of October 31, 1997 and 1996 and
a reconciliation with amounts recognized in the Statement of Financial
Condition are provided below.
<TABLE>
<CAPTION>
PLANS IN WHICH PLANS IN WHICH
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS EXCEED
BENEFITS ASSETS
---------------- ----------------
1997 1996 1997 1996
------- ------- ------- -------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefits....................... $(1,122) $ (59) $(1,857) $(2,672)
Nonvested benefits.................... (80) (7) (207) (270)
------- ------- ------- -------
Accumulated benefit obligation...... (1,202) (66) (2,064) (2,942)
Effect of projected future compensation
levels................................. (30) (3) (3) (23)
------- ------- ------- -------
Projected benefit obligation............ (1,232) (69) (2,067) (2,965)
Plan assets at fair value............... 1,279 91 1,621 2,336
------- ------- ------- -------
Funded status at October 31............. 47 22 (446) (629)
Unamortized pension costs:
Net losses............................ 29 11 293 332
Prior service costs................... 12 6 77 113
(Asset) liability at date of
transition........................... 32 (1) 135 200
Adjustment for the minimum liability.... -- -- (504) (623)
------- ------- ------- -------
Net asset (liability)............... $ 120 $ 38 $ (445) $ (607)
======= ======= ======= =======
</TABLE>
The weighted average rate assumptions used in determining pension costs and
the projected benefit obligation were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate used to determine present value of projected
benefit obligation at end of year.......................... 7.3% 8.1% 7.8%
Expected long-term rate of return on plan assets for the
year....................................................... 9.8% 9.0% 9.9%
Expected rate of increase in future compensation levels..... 3.5% 3.5% 3.5%
</TABLE>
OTHER POSTRETIREMENT BENEFITS
In addition to providing pension benefits, the Company provides health care
and life insurance for a majority of its retired employees, spouses and
certain dependents in the United States and Canada.
In 1993, a trust was established to provide a vehicle for funding the health
care liability through Company contributions and retiree premiums. The funds
in this trust are invested primarily in equity securities. The Company was
required to make a prefunding contribution of $200 million to the trust on or
prior to June 30, 1998. This contribution was made during November 1997.
The components of expense for other postretirement benefits included in the
Statement of Income are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(MILLIONS OF
DOLLARS)
<S> <C> <C> <C>
Service cost for benefits earned during the year.......... $ 13 $ 14 $ 10
Interest cost on the accumulated benefit obligation and
other.................................................... 96 84 90
Less expected return on assets............................ (43) (38) (30)
---- ---- ----
Net other postretirement benefits expense............. $ 66 $ 60 $ 70
==== ==== ====
Actual return on assets............................... $102 $ 46 $ 65
==== ==== ====
</TABLE>
F-18
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. POSTRETIREMENT BENEFITS (CONTINUED)
The funded status of other postretirement benefits as of October 31 is as
follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Accumulated other postretirement benefit obligation
(APBO):
Retirees and their dependents............................. $ (952) $ (773)
Active employees eligible to retire....................... (221) (244)
Other active participants................................. (201) (208)
------ ------
Total APBO............................................ (1,374) (1,225)
Plan assets at fair value................................. 486 401
------ ------
APBO in excess of plan assets............................. (888) (824)
Unamortized prior service cost............................ (5) (6)
Unrecognized net loss..................................... 152 86
------ ------
Net liability......................................... $ (741) $ (744)
====== ======
</TABLE>
The weighted average expected return on plan assets was 11.1% for 1997,
10.5% for 1996 and 10% for 1995. The weighted average of discount rates used
to determine the accumulated other postretirement benefit obligation was 7.4%
and 8.2% at October 31, 1997 and 1996, respectively. For 1998, the weighted
average rate of increase in the per capita cost of covered health care
benefits is projected to be 8.2%. The rate is projected to decrease to 5.0% by
the year 2004 and remain at that level each year thereafter. If the cost trend
rate assumptions were increased by one percentage point for each year, the
accumulated postretirement benefit obligation would increase by approximately
$167 million and the associated expense recognized for the year ended October
31, 1997 would increase by an estimated $16 million.
3. INCOME TAXES
The domestic and foreign components of income (loss) before income taxes
consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(MILLIONS OF
DOLLARS)
<S> <C> <C> <C>
Domestic.................................................... $239 $108 $251
Foreign..................................................... 3 (3) 11
---- ---- ----
Total income before income taxes........................ $242 $105 $262
==== ==== ====
</TABLE>
The components of income tax expense consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(MILLIONS OF
DOLLARS)
<S> <C> <C> <C>
Current:
Federal..................................................... $ 8 $ 1 $ 7
State and local............................................. 2 2 2
--- --- ---
Total current expense..................................... 10 3 9
--- --- ---
Deferred:
Federal..................................................... 71 32 77
State and local............................................. 11 5 12
--- --- ---
Total deferred expense.................................... 82 37 89
--- --- ---
Total income tax expense.................................. $92 $40 $98
=== === ===
</TABLE>
The deferred tax expense does not represent cash payment of income taxes and
was primarily generated by the utilization of net operating loss ("NOL")
carryforwards and the increase of temporary differences, and will not require
future cash payments. Consolidated tax payments made during 1997, 1996 and
1995 were $10 million, $3 million and $9 million, respectively.
F-19
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. INCOME TAXES (CONTINUED)
The relationship of the tax expense to income before taxes for 1997, 1996
and 1995 differs from the U.S. statutory rate (35%) because of state income
taxes and the benefit of NOLs in foreign countries. The effective tax rates
for the years 1997, 1996 and 1995 were 38.0%, 38.1% and 37.4%, respectively.
Undistributed earnings of foreign subsidiaries were $35 million and $30
million at October 31, 1997 and 1996, respectively. Taxes have not been
provided on these earnings because no withholding taxes are applicable upon
repatriation and U.S. tax would be substantially offset by utilization of NOL
carryforwards.
Taxpaying entities of the Company offset all deferred tax assets and
liabilities within each tax jurisdiction and present them in a single amount
in the Statement of Financial Condition.
The components of the deferred tax asset (liability) at October 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C>
UNITED STATES
Deferred tax assets:
Net operating loss carryforwards................. $ 680 $ 753
Alternative minimum tax.......................... 19 11
Product liability and warranty................... 97 100
Other liabilities................................ 168 143
Postretirement benefits.......................... 353 363
---------- ----------
Total deferred tax assets...................... 1,317 1,370
---------- ----------
Deferred tax liabilities:
Prepaid pension assets........................... (58) (12)
Depreciation..................................... (37) (40)
---------- ----------
Total deferred tax liabilities................. (95) (52)
---------- ----------
Total deferred tax asset....................... 1,222 1,318
Less valuation allowance........................... (288) (288)
---------- ----------
Net deferred tax asset......................... $ 934 $ 1,030
========== ==========
FOREIGN
Deferred tax assets:
Net operating loss carryforwards................. $ 2 $ 2
Postretirement benefits.......................... 19 19
---------- ----------
Total deferred tax assets...................... 21 21
Less valuation allowance........................... (21) (21)
---------- ----------
Net deferred tax assets........................ -- --
---------- ----------
Deferred tax liabilities--prepaid pension assets... (16) (16)
---------- ----------
Net deferred tax liabilities................... $ (16) $ (16)
========== ==========
</TABLE>
A valuation allowance has been provided for those NOL carryforwards and
temporary differences which are estimated to expire before they are utilized.
Because the foreign tax carryforward period is relatively short, an allowance
has been provided against the total deferred tax assets.
F-20
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. INCOME TAXES (CONTINUED)
At October 31, 1997, the Company had $1,802 million of domestic and $6
million of foreign NOL carryforwards available to offset future taxable
income. Such carryforwards reflect income tax losses incurred which will
expire as follows, in millions of dollars:
<TABLE>
<S> <C>
2000.............................. $ 174
2001.............................. 143
2002.............................. 47
2004.............................. 238
2005.............................. 7
2006 through 2011................. 1,199
------
Total............................. $1,808
======
</TABLE>
Additionally, the reversal of net temporary differences of $1,413 million as
of October 31, 1997 will create net tax deductions which, if not utilized
previously, will expire subsequent to 2011.
4. MARKETABLE SECURITIES
The fair value of marketable securities is estimated based on quoted market
prices, when available. If a quoted price is not available, fair value is
estimated using quoted market prices for similar financial instruments.
Information related to the Company's marketable securities at October 31 is
as follows:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ----- --------- -----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Corporate securities......................... $150 $150 $127 $126
U.S. government securities................... 88 89 152 152
Mortgage and asset-based securities.......... 86 86 94 94
Foreign government securities................ 10 10 5 5
---- ---- ---- ----
Total debt securities........................ 334 335 378 377
Equity securities............................ 16 21 14 17
---- ---- ---- ----
Total marketable securities.................. $350 $356 $392 $394
==== ==== ==== ====
</TABLE>
Contractual maturities of marketable debt securities at October 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ----- --------- -----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Due in one year or less...................... $113 $114 $ 66 $ 66
Due after one year through five years........ 100 100 189 188
Due after five years through ten years....... 25 25 23 23
Due after ten years.......................... 10 10 6 6
---- ---- ---- ----
248 249 284 283
Mortgage and asset-backed securities......... 86 86 94 94
---- ---- ---- ----
Total debt securities........................ $334 $335 $378 $377
==== ==== ==== ====
</TABLE>
Gross gains and losses realized on sales or maturities of marketable
securities were not material for each of the two years. At October 31, 1997
and 1996, a domestic insurance subsidiary had $15 million and $17 million,
respectively, of marketable securities which were on deposit with various
state departments of insurance or otherwise not available. These securities
are included in total marketable securities balances at October 31, 1997 and
1996.
F-21
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. RECEIVABLES
Receivables at October 31 are summarized by major classification as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Accounts receivable.......................................... $ 671 $ 560
Retail notes and lease financing............................. 706 733
Wholesale notes.............................................. 46 101
Amounts due from sales of receivables........................ 233 264
Notes receivable............................................. 101 --
Other........................................................ 29 28
Allowance for losses......................................... (31) (31)
------ ------
Total receivables, net................................... $1,755 $1,655
====== ======
</TABLE>
NFC purchases the majority of the wholesale notes receivable and some retail
notes and accounts receivable arising from Transportation's operations in the
United States.
A portion of NFC's funding for retail and wholesale notes comes from sales
of receivables by NFC to third parties with limited recourse. Proceeds from
sales of retail notes receivable, net of underwriting costs, were $958 million
in 1997, $982 million in 1996 and $727 million in 1995. Uncollected sold
retail and wholesale receivable balances totaled $1,968 million and $1,866
million as of October 31, 1997 and 1996, respectively.
Contractual maturities of accounts receivable, retail notes and lease
financing and wholesale notes, including unearned finance income, at October
31, 1997 were: 1998--$950 million, 1999--$195 million, 2000--$161 million,
2001--$131 million, 2002--$91 million, and 2003 and thereafter--$18 million.
Unearned finance income totaled $123 million at October 31, 1997. Notes
receivable are due upon demand from a limited partnership that invests in S&P
500 stock index arbitrage.
6. INVENTORIES
Inventories at October 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Finished products............................................ $ 212 $ 242
Work in process.............................................. 106 97
Raw materials and supplies................................... 165 124
------ ------
Total inventories........................................ $ 483 $ 463
====== ======
7. PROPERTY AND EQUIPMENT
At October 31, property and equipment includes the following:
<CAPTION>
1997 1996
------ ------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Land......................................................... $ 18 $ 12
------ ------
Buildings, machinery and equipment at cost:
Plants..................................................... 1,200 1,241
Distribution............................................... 86 79
Construction in progress................................... 117 58
Other...................................................... 261 222
------ ------
Subtotal................................................. 1,664 1,600
------ ------
Total property........................................... 1,682 1,612
Less accumulated depreciation and amortization............... (847) (842)
------ ------
Total property and equipment, net........................ $ 835 $ 770
====== ======
</TABLE>
F-22
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. PROPERTY AND EQUIPMENT (CONTINUED)
Total property includes property under capitalized lease obligations of $25
million at October 31, 1997 and 1996. In addition, other property includes
vehicles under operating leases to third parties of $150 million at October
31, 1997 and $116 million at October 31, 1996.
8. DEBT
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C>
Manufacturing operations
Notes payable and current maturities of long-term
debt............................................... $ 13 $ 14
---------- ----------
9% Sinking Fund Debentures, due 2004................ 45 53
8% Secured Note, due 2002, secured by plant assets.. 21 26
Capitalized leases and other........................ 13 22
---------- ----------
Total long-term debt.............................. 79 101
---------- ----------
Manufacturing operations debt......................... 92 115
---------- ----------
Financial services operations
Commercial paper.................................... 141 99
Capitalized leases.................................. 13 --
---------- ----------
Total short-term debt............................. 154 99
---------- ----------
Asset-backed commercial paper program, variable
rate, due 2001..................................... 400 402
Bank revolver, variable rate, due 2001.............. 393 704
---------- ----------
Total senior debt................................. 793 1,106
---------- ----------
8 7/8% Subordinated Senior Notes due 1998........... 94 100
9% Subordinated Senior Notes due 2002............... 100 --
---------- ----------
Total subordinated term debt...................... 194 100
---------- ----------
Capitalized leases, 5.2% to 5.6%, due 2002.......... 83 --
---------- ----------
Total long-term debt.............................. 1,070 1,206
---------- ----------
Financial services operations debt.................... 1,224 1,305
---------- ----------
Total debt........................................ $ 1,316 $ 1,420
========== ==========
</TABLE>
The effective annual interest rate on Manufacturing notes payable was 8.3%
in 1997 and 8.9% in 1996. Consolidated interest payments were $66 million, $83
million and $82 million in 1997, 1996 and 1995, respectively.
NFC issues commercial paper with varying terms and has short-term borrowings
with various banks on a noncommitted basis. Compensating cash balances and
commitment fees are not required under these borrowings.
F-23
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. DEBT (CONTINUED)
The aggregate annual maturities and sinking fund requirements for debt for
the years ended October 31 are as follows:
<TABLE>
<CAPTION>
FINANCIAL
MANUFACTURING SERVICES
OPERATIONS OPERATIONS TOTAL
------------- ---------- -----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
1998........................................ $ 13 $154 $167
1999........................................ 15 111 126
2000........................................ 15 25 40
2001........................................ 15 820 835
2002........................................ 14 114 128
Thereafter.................................. 20 -- 20
Weighted average interest rate on total
debt, including short-term, and the effect
of discounts and related amortization for
the years ended:
October 31, 1997.......................... 10.3% 6.4% 6.8%
October 31, 1996.......................... 9.7% 6.5% 6.8%
</TABLE>
At October 31, 1997, NFC has a $925 million contractually committed bank
revolving credit facility and a $400 million asset-backed commercial paper
("ABCP") program supported by a bank liquidity facility. Available funding
under the ABCP program is comprised of a $400 million liquidity facility plus
$14 million of trust certificates issued in connection with the formation of
the ABCP trust.
Available funding under the amended and restated credit facility and the
ABCP program was $546 million, of which $141 million provided funding backup
for the outstanding short-term debt at October 31, 1997. The remaining $405
million when combined with unrestricted cash and cash equivalents made $416
million available to fund the general business purposes of NFC at October 31,
1997.
NFC's wholly owned subsidiaries, Navistar Financial Retail Receivables
Corporation ("NFRRC") and Navistar Financial Securities Corporation ("NFSC"),
have a limited purpose of purchasing retail and wholesale receivables,
respectively, and transferring an undivided ownership interest in such notes
to investors in exchange for pass-through notes and certificates. The
subsidiaries have limited recourse on the sold receivables and their assets
are available to satisfy the claims of their creditors prior to such assets
becoming available to NFC or affiliated companies.
NFSC has in place a $600 million revolving wholesale note trust that
provides for the continuous sale of eligible wholesale notes on a daily basis.
The trust is comprised of two $100 million tranches of investor certificates
maturing in 1998 and 1999 and two $200 million tranches maturing in 2003. At
October 31, 1997, the remaining shelf registration available to NFSC for
issuance of investor certificates was $200 million.
During 1997, NFC sold $987 million of retail notes, net of unearned finance
income, through NFRRC to two individual owner trusts. The owner trusts in turn
sold notes and certificates to investors. The net proceeds, after underwriting
costs and credit enhancements, were used by NFC for general working capital
purposes. At October 31, 1997, the remaining shelf registration available to
NFRRC for issuance of asset-backed securities was $1,473 million.
In November 1997, NFC sold $500 million of retail notes, net of unearned
finance income, through NFRRC. The net proceeds were used for general working
capital purposes.
F-24
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. DEBT (CONTINUED)
During 1997, NFC entered into sale/leaseback agreements involving vehicles
that were already subject to retail finance and operating leases with end
users. The remaining balance as of October 31, 1997 is classified under
Financial Services operations as capitalized leases. These agreements grant a
security interest in the underlying vehicles and lease receivables to the
purchasers.
During November 1997, the Company arranged financing for $125 million of
funds denominated in U.S. dollars and Mexican pesos to be used for development
of the Company's Mexican operations.
9. OTHER LIABILITIES
Major classifications of other liabilities at October 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C>
Product liability and warranty......................... $ 285 $ 293
Loss reserves and unearned premiums.................... 99 113
Employee incentive programs............................ 93 10
Payroll, commissions and employee related benefits..... 83 73
Long-term disability and workers' compensation......... 54 55
Taxes.................................................. 59 44
Environmental.......................................... 27 23
Interest............................................... 13 9
Other.................................................. 181 199
---------- ----------
Total other liabilities............................ $ 894 $ 819
========== ==========
</TABLE>
During the fourth quarter of 1996, the Company recorded a one-time $35
million pretax charge for costs related to the termination of its next
generation truck program. In August 1997, the Company and the United Auto
Workers reached agreement on a master contract extension that enabled the
Company to reinstate its next generation truck program. The remaining accrual
at the time of the announcement was not material.
10. FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments, as reported in the Statement
of Financial Condition and described in various Notes to the Financial
Statements, and their fair values at October 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Receivables, net............................ $1,755 $1,764 $1,655 $1,658
Investments and other assets................ 332 343 213 221
Debt........................................ 1,316 1,321 1,420 1,414
</TABLE>
Cash and cash equivalents approximate fair value. The cost and fair value of
marketable securities are disclosed in Note 4.
Customer receivables, wholesale notes, retail and wholesale accounts, notes
receivable, and other variable-rate retail notes approximate fair value as a
result of the short-term maturities of the financial instruments. The fair
value of truck retail notes is estimated based on quoted market prices of
similar sold receivables. The fair value of amounts due from sales of
receivables is estimated by discounting expected cash flows at estimated
current market rates.
F-25
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. FINANCIAL INSTRUMENTS (CONTINUED)
The fair value of investments and other assets is estimated based on quoted
market prices or by discounting future cash flows.
The short-term debt and variable-rate borrowings under NFC's bank revolving
credit agreement, which is repriced frequently, approximate fair value. The
fair value of long-term debt is estimated based on quoted market prices, when
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar financial instruments or discounting
future cash flows.
DERIVATIVES HELD OR ISSUED FOR PURPOSES OTHER THAN TRADING
The Company uses derivatives to transfer or reduce risks of foreign exchange
and interest rate volatility and to potentially increase the return on
invested funds.
NFC manages its exposure to fluctuations in interest rates by limiting the
amount of fixed rate assets funded with variable rate debt, by selling fixed
rate retail receivables on a fixed rate basis and, to a lesser extent, by
utilizing derivative financial instruments. These instruments may include
interest rate swaps, interest rate caps and forward interest rate contracts.
NFC manages exposure to counter-party credit risk by entering into derivative
financial instruments with major financial institutions that can be expected
to fully perform under the terms of such agreements. Notional amounts are used
to measure the volume of derivative financial instruments and do not represent
exposure to credit loss.
NFC enters into forward interest rate contracts to manage its exposure to
fluctuations in the fair value and resulting funding costs from the
anticipated securitization and sale of retail notes. NFC manages interest rate
risk by entering into either forward contracts to sell fixed debt securities
or interest rate swaps whose fair values are highly correlated with the fair
value of NFC's receivables. Gains or losses incurred with the closing of these
agreements are included as a component of the gain or loss on sale of
receivables.
During 1997, NFC entered into $500 million of interest rate hedge agreements
in anticipation of the November 1997 sale of retail receivables. These hedge
agreements were closed in conjunction with the pricing of the sale, and the
loss at October 31, 1997, which was not material, was deferred and reduced the
gain recognized on the sale of receivables in November 1997.
11. COMMITMENTS, CONTINGENCIES, RESTRICTED ASSETS, CONCENTRATIONS, AND LEASES
COMMITMENTS, CONTINGENCIES AND RESTRICTED ASSETS
At October 31, 1997, commitments for capital expenditures in progress were
approximately $137 million.
NFC's maximum exposure under all receivable sale recourse provisions at
October 31, 1997 was $246 million; however, management believes that the
allowance for credit losses on sold receivables is adequate.
At October 31, 1997, the Canadian operating subsidiary was contingently
liable for retail customers' contracts and leases financed by a third party.
The Company is subject to maximum recourse of $261 million on retail contracts
and $13 million on retail leases. In addition, as of October 31, 1997, the
Company is contingently liable for approximately $49 million for various
guarantees and buyback programs; however, based on historical loss trends, the
Company's exposure is not considered material.
The Canadian operating subsidiary, NFC and certain other subsidiaries
included in financial services operations are parties to agreements that may
result in the restriction of amounts which can be distributed to
Transportation in the form of dividends or loans and advances. At October 31,
1997, the maximum amount of dividends which were available for distribution
under the most restrictive covenants was $62 million.
F-26
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. COMMITMENTS, CONTINGENCIES, RESTRICTED ASSETS, CONCENTRATIONS, AND
LEASES (CONTINUED)
The Company and Transportation are obligated under certain agreements with
public and private lenders of NFC to maintain the subsidiary's income before
interest expense and income taxes at not less than 125% of its total interest
expense. No income maintenance payments were required for the three years
ended October 31, 1997.
CONCENTRATIONS
At October 31, 1997, the Company employed 10,593 hourly workers and 5,434
salaried workers in the United States and Canada. Approximately 93% of the
hourly employees and 23% of the salaried employees are represented by unions.
Of these represented employees, 91% of the hourly workers and 94% of the
salaried workers are represented by the United Automobile, Aerospace, and
Agricultural Implement Workers of America ("UAW") or the National Automobile,
Aerospace, and Agricultural Implement Workers of Canada ("CAW"). During August
1997, the Company's current master contract with the UAW was extended from
October 1, 1998 to October 1, 2002. The collective bargaining agreement with
the CAW expires on October 24, 1999.
Reflecting higher consumer demand for light trucks and vans, sales of mid-
range diesel engines to Ford Motor Company were 14% of consolidated sales and
revenues in 1997 and 1996 and 12% in 1995. During 1997, the Company entered
into a ten-year agreement, effective with model year 2003, to continue
supplying Ford Motor Company with diesel engines for use in its diesel-powered
light trucks and vans.
LEASES
The Company has long-term noncancellable leases for use of various equipment
and facilities. Lease terms are generally for five to 25 years and, in many
cases, provide for renewal options. The Company is generally obligated for the
cost of property taxes, insurance and maintenance. The Company leases office
buildings, distribution centers, furniture and equipment, machinery and
equipment, and computer equipment.
The majority of the Company's lease payments are for operating leases. At
October 31, 1997, future minimum lease payments under operating leases having
lease terms in excess of one year are: 1998--$36 million, 1999--$34 million,
2000--$33 million, 2001--$20 million, 2002--$15 million and thereafter--$42
million. Total operating lease expense was $40 million in 1997, $35 million in
1996 and $42 million in 1995. Income received from sublease rentals was $6
million in 1997, 1996 and 1995, respectively.
12. LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to various claims arising in
the ordinary course of business, and are parties to various legal proceedings
which constitute ordinary routine litigation incidental to the business of the
Company and its subsidiaries. In the opinion of the Company's management, none
of these proceedings or claims is material to the business or the financial
condition of the Company.
13. ENVIRONMENTAL MATTERS
In the fourth quarter of 1994, Transportation recorded a $20 million charge,
net of $13 million of income taxes, as a loss of discontinued operations
related to environmental liabilities at production facilities of two formerly
owned businesses, Wisconsin Steel and Solar Turbine, Inc. Included in the
charge was an anticipated $11 million payment to the Economic Development
Administration, a division of the U.S. Department of Commerce, in settlement
of commercial and environmental disputes related to the Wisconsin Steel
property. In 1997, the U.S. Department of Justice and Transportation approved
the final consent decree related to the Wisconsin Steel property and the
Company paid the $11 million to the Economic Development Administration.
F-27
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
13. ENVIRONMENTAL MATTERS (CONTINUED)
The Company has been named a potentially responsible party ("PRP"), in
conjunction with other parties, in a number of cases arising under an
environmental protection law known as the Superfund law. These cases involve
sites which allegedly have received wastes from current or former Company
locations. Based on information available to the Company, which in most cases
consists of data related to quantities and characteristics of material
generated at or shipped to each site as well as cost estimates from PRPs
and/or federal or state regulatory agencies for the cleanup of these sites, a
reasonable estimate is calculated of the Company's share, if any, of the
probable costs and is provided for in the financial statements. These
obligations generally are recognized no later than completion of the remedial
feasibility study and are not discounted to their present value. The Company
reviews its accruals on a regular basis and believes that, based on these
calculations, its share of the potential additional costs for the cleanup of
each site will not have a material effect on the Company's financial results.
14. INDUSTRY SEGMENT DATA
Information concerning operations by industry segment is as follows:
<TABLE>
<CAPTION>
FINANCIAL
MANUFACTURING SERVICES
OPERATIONS OPERATIONS CONSOLIDATED
------------- ---------- ------------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
OCTOBER 31, 1997
Total sales and revenues............. $6,191 $ 239 $6,371
Operating profit..................... 873 101 924
Depreciation and amortization........ 97 23 120
Capital expenditures................. 172 -- 172
Identifiable assets.................. 4,111 1,857 5,516
OCTOBER 31, 1996
Total sales and revenues............. $5,550 $ 258 $5,754
Operating profit..................... 690 109 755
Depreciation and amortization........ 90 15 105
Capital expenditures................. 117 -- 117
Identifiable assets.................. 3,815 1,843 5,326
OCTOBER 31, 1995
Total sales and revenues............. $6,168 $ 235 $6,342
Operating profit..................... 845 80 870
Depreciation and amortization........ 75 11 86
Capital expenditures................. 139 -- 139
Identifiable assets.................. 4,018 1,922 5,566
</TABLE>
Intersegment sales and revenues were not material in 1997, 1996 or 1995.
Transactions between manufacturing operations and financial services
operations have been eliminated from the consolidated column.
15. PREFERRED AND PREFERENCE STOCKS
The Company's Nonconvertible Junior Preference Stock Series A is held for
the Retiree Supplemental Benefit Program by the Supplemental Trust which is
currently entitled to elect two members to the Company's Board of Directors.
The UAW holds the Nonconvertible Junior Preference Stock Series B and is
currently entitled to elect one member of the Company's Board of Directors. At
October 31, 1997, there was one share each of Series A and Series B Preference
stock authorized and outstanding. The value of the preference shares is
minimal.
F-28
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
15. PREFERRED AND PREFERENCE STOCKS (CONTINUED)
Other information pertaining to preferred and preference stocks outstanding
is summarized as follows:
<TABLE>
<CAPTION>
SERIES G CONVERTIBLE SERIES D CONVERTIBLE
CUMULATIVE PREFERRED JUNIOR PREFERENCE
-------------------- -----------------------
<S> <C> <C>
Number authorized and issued.. 4,800,000 3,000,000
Number outstanding............ 4,800,000 175,000
Optional redemption price and
liquidation preference....... $50 per share plus $25 per share plus
accrued dividends accrued dividends
Conversion rate per share into
Common Stock (subject to 0.133 shares 0.3125 shares
adjustment in certain
circumstances)...............
Ranking as to dividends and Senior to all other Senior to Common;
upon liquidation............. equity securities junior to Series G
Dividend rate................. Annual rate of $6.00 120% of the cash
per share, payable dividends on Common
quarterly Stock as declared on a
common equivalent basis
</TABLE>
Dividends may be paid out of surplus as defined under Delaware corporation
law. At October 31, 1997, the Company had such defined surplus of $1,007
million.
16. COMMON SHAREOWNERS' EQUITY
Changes in the common shareowners' equity accounts are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
COMMON STOCK
Beginning of year.............................. $ 1,642 $ 1,641 $ 1,628
Conversion of Class B Common Stock and other... 17 1 13
------- ------- -------
End of year.................................. $ 1,659 $ 1,642 $ 1,641
======= ======= =======
CLASS B COMMON STOCK
Beginning of year.............................. $ 491 $ 491 $ 501
Repurchase of stock............................ (20) -- (10)
------- ------- -------
End of year.................................. $ 471 $ 491 $ 491
======= ======= =======
RETAINED EARNINGS (DEFICIT)
Beginning of year.............................. $(1,431) $(1,478) $(1,538)
Net income..................................... 150 65 164
Preferred dividends............................ (29) (29) (22)
Minimum pension liability adjustments and
other......................................... 9 11 (82)
------- ------- -------
End of year.................................. $(1,301) $(1,431) $(1,478)
======= ======= =======
COMMON STOCK HELD IN TREASURY
Beginning of year.............................. $ (30) $ (28) $ (18)
Repurchase of Common Stock and other........... (23) (2) (10)
------- ------- -------
End of year.................................. $ (53) $ (30) $ (28)
======= ======= =======
</TABLE>
F-29
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
16. COMMON SHAREOWNERS' EQUITY (CONTINUED)
COMMON STOCK
The Company has authorized 110 million shares of Common Stock with a par
value of $.10 per share and 26 million shares of Class B Common Stock with a
par value of $.10 per share and restricted voting rights and transfer
provisions. At October 31, 1997 and 1996, there were 49.3 million and 49.4
million shares of Common Stock outstanding, net of Common Stock held in
Treasury, respectively. The number of shares of Class B Common Stock
outstanding at October 31, 1997 and 1996 was 23.1 million and 24.3 million,
respectively. The remaining Class B Common Stock will convert into Common
Stock on July 1, 1998.
17. STOCK COMPENSATION PLANS
The Company has stock-based compensation plans, approved by the Committee on
Organization of the Board of Directors, which provide for granting of stock
options to employees for purchase of Common Stock at the fair market value of
the stock on the date of grant. The grants are generally exercisable after one
year and generally have a ten-year life.
The Company has elected to continue to account for stock option grants in
accordance with Accounting Principles Board Opinion No. 25 and related
Interpretations. Accordingly, no compensation cost has been recognized for
fixed stock options because the exercise prices of the stock options equal the
market value of the Company's Common Stock at the date of grant. Had
compensation cost for the plans been determined based upon the fair value at
the grant date consistent with SFAS 123, pro forma net income would have been
$147 million in 1997 and $63 million in 1996 and pro forma earnings per share
would have been $1.61 in 1997 and $0.46 in 1996. The pro forma effect on net
income for 1997 and 1996 may not be representative of the pro forma effect on
net income of future years because it does not take into consideration pro
forma compensation expense relating to grants made prior to November 1, 1995.
The weighted-average fair values at date of grant for options granted during
1997 and 1996 were $5.71 and $5.34, respectively, and were estimated using the
Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Risk-free interest rate.......................................... 6.6% 6.1%
Dividend yield................................................... 0.0% 0.0%
Expected volatility.............................................. 29.8% 30.9%
Expected life in years........................................... 10 10
</TABLE>
The following summarizes stock option activity for the years ended October
31:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of period.... 2,346 $20.34 1,762 $24.25 1,163 $30.08
Granted................. 876 10.13 718 10.45 642 13.58
Exercised............... (715) 12.45 -- -- -- --
Canceled................ (77) 28.52 (134) 18.75 (43) 22.46
----- ------ ----- ------ ----- ------
Options outstanding at
year end............... 2,430 $18.73 2,346 $20.34 1,762 $24.25
===== ====== ===== ====== ===== ======
Options exercisable at
year end............... 1,579 $23.35 1,682 $24.25 1,140 $30.07
===== ====== ===== ====== ===== ======
Options available for
grant at year end...... -- -- --
===== ===== =====
</TABLE>
F-30
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
17. STOCK COMPENSATION PLANS (CONTINUED)
The following table summarizes information about stock options outstanding
and exercisable at October 31, 1997.
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS OPTIONS EXERCISABLE
---------------------------------------------- -----------------------------
RANGE OF NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
EXERCISE OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
PRICES (IN THOUSANDS) CONTRACTUAL LIFE EXERCISE PRICE (IN THOUSANDS) EXERCISE PRICE
-------- -------------- ---------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$ 9.31-$13.75 1,448 8.5 $10.70 649 $12.11
17.40- 25.63 686 6.5 23.52 642 23.93
27.96- 37.50 113 5.5 36.78 105 37.43
43.75- 61.88 156 3.5 49.49 156 49.49
68.12- 91.25 27 1.1 73.09 27 73.09
</TABLE>
18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
---------------- ---------------- ----------------- ----------------
1997 1996 1997 1996 1997 1996 1997 1996
------- ------- ------- ------- -------- ------- ------- -------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and revenues...... $ 1,296 $ 1,432 $ 1,551 $ 1,480 $ 1,586 $ 1,391 $ 1,938 $ 1,451
======= ======= ======= ======= ======== ======= ======= =======
Manufacturing gross
margin................. 13.6% 12.2% 13.8% 13.7% 13.8% 12.6% 15.2% 11.6%
======= ======= ======= ======= ======== ======= ======= =======
Net income.............. $ 15 $ 22 $ 30 $ 26 $ 35 $ 17 $ 70 --
Net income (loss) per
common share........... $ 0.10 $ 0.20 $ 0.31 $ 0.26 $ 0.38 $ 0.13 $ 0.85 $ (0.10)
Market price range--
Common Stock
High.................. $10 3/8 $12 1/8 $11 3/8 $12 $21 5/16 $12 $29 1/2 $10 3/8
Low................... $ 9 $ 9 1/2 $ 9 1/8 $ 9 1/2 $11 1/4 $ 9 1/8 $17 1/4 $ 8 1/2
</TABLE>
Net income per common share is computed independently based on the weighted
average number of Common and Class B Common shares at the end of each quarter.
F-31
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
19. SUPPLEMENTAL FINANCIAL INFORMATION AS OF OCTOBER 31 AND FOR THE YEARS THEN
ENDED (UNAUDITED)
NAVISTAR INTERNATIONAL CORPORATION (WITH FINANCIAL SERVICES OPERATIONS ON AN
EQUITY BASIS) IN MILLIONS OF DOLLARS:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
CONDENSED STATEMENT OF INCOME
Sales of manufactured products............................ $6,147 $5,508 $6,125
Other income.............................................. 44 42 43
------ ------ ------
Total sales and revenues............................ 6,191 5,550 6,168
------ ------ ------
Cost of products sold..................................... 5,274 4,818 5,280
Postretirement benefits................................... 214 219 205
Engineering and research expense.......................... 124 129 113
Marketing and administrative expense...................... 332 282 277
Other expenses............................................ 83 80 93
------ ------ ------
Total costs and expenses............................ 6,027 5,528 5,968
------ ------ ------
Income before income taxes
Manufacturing operations................................ 164 22 200
Financial services operations........................... 78 83 62
------ ------ ------
Income before income taxes.......................... 242 105 262
Income tax expense........................................ 92 40 98
------ ------ ------
Net income................................................ $ 150 $ 65 $ 164
====== ====== ======
<CAPTION>
1997 1996
------ ------
<S> <C> <C> <C>
CONDENSED STATEMENT OF FINANCIAL CONDITION
Cash, cash equivalents and marketable securities.......... $ 802 $ 707
Inventories............................................... 483 463
Property and equipment, net............................... 706 666
Equity in nonconsolidated subsidiaries.................... 322 306
Other assets.............................................. 864 643
Deferred tax asset, net................................... 934 1,030
------ ------
Total assets........................................ $4,111 $3,815
------ ------
Accounts payable.......................................... $1,060 $ 771
Postretirement benefits liabilities....................... 1,178 1,344
Other liabilities......................................... 853 784
Shareowners' equity....................................... 1,020 916
------ ------
Total liabilities and shareowners' equity........... $4,111 $3,815
====== ======
</TABLE>
F-32
<PAGE>
NAVISTAR INTERNATIONAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
19. SUPPLEMENTAL FINANCIAL INFORMATION AS OF OCTOBER 31 AND FOR THE YEARS
THEN ENDED (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
CONDENSED STATEMENT OF CASH FLOW
Cash flow from operations
Net income.............................................. $ 150 $ 65 $ 164
Adjustments to reconcile net income to cash provided by
operations:
Depreciation and amortization......................... 97 90 75
Equity in earnings of nonconsolidated companies, net
of dividends received................................ (8) (24) (28)
Deferred income taxes................................. 82 37 89
Other, net............................................ (26) 4 (66)
Change in operating assets and liabilities.............. 143 (172) 166
----- ----- -----
Cash provided by operations......................... 438 -- 400
----- ----- -----
Cash flow from investment programs
Purchase of marketable securities..................... (428) (501) (646)
Sales or maturities of marketable securities.......... 454 665 399
Capital expenditures.................................. (172) (117) (139)
Loan to NFC........................................... (99) -- --
Other investment programs, net........................ 4 (8) 8
----- ----- -----
Cash (used in) provided by investment programs...... (241) 39 (378)
----- ----- -----
Cash flow from financing activities................. (76) (48) (60)
----- ----- -----
Cash and cash equivalents
Increase (decrease) during the year..................... 121 (9) (38)
At beginning of the year................................ 452 461 499
----- ----- -----
Cash and cash equivalents at end of the year........ $ 573 $ 452 $ 461
===== ===== =====
</TABLE>
F-33
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 10
Special Note on Forward-Looking Statements................................ 13
Use of Proceeds........................................................... 14
Dividend Policy........................................................... 14
Price Range of Common Stock............................................... 14
Capitalization............................................................ 15
Selected Consolidated Financial and Operating Data........................ 16
Management's Discussion and Analysis of Results of Operations and
Financial Condition...................................................... 18
Business.................................................................. 26
Management................................................................ 34
Selling Stockholder....................................................... 36
Description of Capital Stock.............................................. 36
Certain United States Tax Consequences to Non-United States Holders....... 41
Underwriting.............................................................. 43
Legal Matters............................................................. 46
Experts................................................................... 46
Available Information..................................................... 46
Information Incorporated by Reference..................................... 47
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
19,894,103 SHARES
NAVISTAR INTERNATIONAL CORPORATION
COMMON STOCK
LOGO
-------
PROSPECTUS
, 1998
-------
SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
J.P. MORGAN & CO.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[INTERNATIONAL PROSPECTUS ALTERNATE PAGE]
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 29, 1998
PROSPECTUS
19,894,103 SHARES
LOGO
NAVISTAR INTERNATIONAL CORPORATION
COMMON STOCK
--------
All of the shares of Common Stock, par value $.10 per share (the "Common
Stock") of Navistar International Corporation, a Delaware corporation
("Navistar" or the "Company"), offered hereby (the "Offering") are being sold
by the Navistar International Transportation Corp. Retiree Supplemental Benefit
Trust (the "Supplemental Trust" or "Selling Stockholder"). The Supplemental
Trust was established in 1993 for the purpose of funding certain retiree health
care benefits. See "Selling Stockholder." The Company will not receive any
proceeds from the sale of shares by the Selling Stockholder.
Of the 19,894,103 shares of Common Stock being offered hereby, a total of
4,000,000 shares are being offered hereby in an international offering outside
the United States and Canada (the "International Offering") by the Managers (as
defined) and a total of 15,894,103 shares are being offered by the U.S.
Underwriters (as defined) in a concurrent offering in the United States and
Canada (the "U.S. Offering" and, together with the International Offering, the
"Offerings"). The Company, through a wholly owned subsidiary, has agreed,
subject to certain conditions, to purchase 2,000,000 shares of Common Stock in
the Offerings.
The Common Stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "NAV." On May 28, 1998, the last reported sales price of the Common
Stock on the NYSE was $31.19 per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDER(2)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- -------------------------------------------------------------------------------------------
Total(3) $ $ $
- -------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Under certain circumstances, the Company will pay all or a portion of the
underwriting discounts and commissions. For information regarding
indemnification of the Managers, see "Underwriting."
(2) The Company will pay expenses related to the Offerings estimated at
$850,000.
(3) The Company has granted the U.S. Underwriters a 30-day option to purchase
up to 1,300,000 additional shares to cover over-allotments, if any. See
"Underwriting." If the option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to the Company
will be $ , $ and $ , respectively.
--------
The shares of Common Stock are being offered by the several Managers named
therein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. It is expected that certificates for the shares of Common
Stock offered hereby will be available for delivery on or about ,
1998, at the office of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001, or through the facilities of The Depository Trust Company.
--------
SALOMON SMITH BARNEY INTERNATIONAL
CREDIT SUISSE FIRST BOSTON
J.P. MORGAN SECURITIES LTD.
, 1998
<PAGE>
[INTERNATIONAL PROSPECTUS ALTERNATE PAGE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE
TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY,
THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL
TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME
DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................... 3
Risk Factors............................................................... 10
Special Note on Forward-Looking Statements................................. 13
Use of Proceeds............................................................ 14
Dividend Policy............................................................ 14
Price Range of Common Stock................................................ 14
Capitalization............................................................. 15
Selected Consolidated Financial and Operating Data......................... 16
Management's Discussion and Analysis
of Results of Operations and
Financial Condition....................................................... 18
Business................................................................... 26
Management................................................................. 34
Selling Stockholder........................................................ 36
Description of Capital Stock............................................... 36
Certain United States Tax Consequences to Non-United States Holders........ 41
Underwriting............................................................... 43
Legal Matters.............................................................. 46
Experts.................................................................... 46
Available Information...................................................... 46
Information Incorporated by Reference...................................... 47
Index to Financial Statements.............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
19,894,103 SHARES
NAVISTAR INTERNATIONAL CORPORATION
COMMON STOCK
LOGO
-------
PROSPECTUS
, 1998
-------
SALOMON SMITH BARNEY
INTERNATIONAL
CREDIT SUISSE FIRST BOSTON
J.P. MORGAN SECURITIES LTD.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses of the Registrant in connection
with the issuance and distribution of the securities being registered, other
than underwriting discounts and commissions. All such amounts are estimates,
other than the fees payable to the Commission and NASD.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $165,510
NASD filing fee................................................. 30,500
Legal fees and expenses......................................... 250,000
Accounting fees and expenses.................................... 70,000
Printing fees and expenses...................................... 275,000
Miscellaneous................................................... 58,990
--------
Total....................................................... $850,000
========
</TABLE>
- --------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware provides
that a Delaware corporation may indemnify any persons who are, or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of
the fact that such person is or was an officer, director, employee or agent of
such corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceedings, provided such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests and, with respect to any criminal
action or proceedings, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may also indemnify any persons who are, or are
threatened to be made, a party to any threatened, pending or completed action
or suit by or in the right of the corporation by reason of the fact that such
person was a director, officer, employee or agent of such corporation, or is
or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit, provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests except
that no indemnification is permitted without judicial approval if the officer
or director is adjudged to be liable to the corporation. To the extent that an
officer or director is successful on the merits or otherwise in the defense of
any action referred to above, the corporation must indemnify him against the
expenses which such officer or director has actually and reasonably incurred
in connection with such defense.
Under Article Ninth of the Registrant's Certificate of Incorporation and
Article XII of its By-Laws, as amended, the Registrant shall indemnify any
person who was or is made a party or is threatened to be made party to or is
otherwise involved in any action, suit or proceedings, whether civil,
criminal, administrative or investigative, by reason of the fact that he or
she is or was a director or officer of the Registrant (including any
predecessor corporation of the Registrant), or is or was serving at the
request of the Registrant as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, against all
expenses, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such person in connection therewith to the fullest
extent authorized by the General Corporation Law of the State of Delaware.
Such right of indemnification shall be a contract right and shall not be
exclusive of any other right which such directors, officers or representatives
may have or hereafter acquire under any statute, the Registrant's Certificate
of Incorporation, the Registrant's By-Laws, agreement, vote of stockholders or
disinterested directors or otherwise.
II-1
<PAGE>
In addition, Section 102 of the General Corporation Law of the State of
Delaware allows a corporation to eliminate the personal liability of a
director of a corporation to the corporation or to any of its stockholders for
monetary damages for a breach of fiduciary duty as a director, except in the
case where the director (i) breaches his duty of loyalty, (ii) fails to act in
good faith, engages in intentional misconduct or knowingly violates a law,
(iii) authorized the payment of a dividend or approves a stock repurchase in
violation of the General Corporation Law of the State of Delaware or (iv)
obtains an improper personal benefit. Article Eighth of the Registrant's
Certificate of Incorporation includes a provision which eliminates directors'
personal liability to the full extent permitted under the General Corporation
Law of the State of Delaware.
The Registrant maintains a policy of directors and officers liability
insurance covering certain liabilities incurred by its directors and officers
in connection with the performance of their duties.
ITEM 16. EXHIBITS.
The following exhibits are filed pursuant to Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement (U.S. and Canada), among the
Company, the Selling Stockholder, Smith Barney Inc., Credit
Suisse First Boston Corporation and J.P. Morgan Securities Inc.*
1.2 Form of Underwriting Agreement (International), among the
Company, the Selling Stockholder, Smith Barney Inc., Credit
Suisse First Boston (Europe) Limited and J.P. Morgan Securities
Ltd.*
4.1 Specimen certificate for shares of Common Stock, incorporated by
reference to Exhibit 4.1 of the Company's Registration Statement
on Form S-1 (Registration No. 33-50327).
4.2 Restated Certificate of Incorporation of the Company,
incorporated by reference to Exhibit 3.2 of the Company's Annual
Report on Form 10-K, dated October 31, 1993, which was filed on
January 27, 1994, Commission File No. 1-9618, and amended as of
May 4, 1998.
4.3 By-Laws of the Company, incorporated by reference to Exhibit 3.2
of the Company's Annual Report on Form 10-K, dated October 31,
1995, which was filed with the Commission on January 26, 1996,
Commission File No. 1-9618.
5.1 Opinion of Kirkland & Ellis regarding legality of securities
being registered.*
23.1 Consent of Deloitte & Touche LLP.*
23.2 Consent of Kirkland & Ellis--included in Exhibit 5.1.*
24.1 Powers of Attorney (included in Part II of the Registration
Statement).
</TABLE>
- --------
*Filed herewith.
ITEM 17. UNDERTAKINGS.
(A) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act that is
incorporated by reference in the registration statement) shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(B) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by
II-2
<PAGE>
a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(C) The undersigned registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE IT MEETS ALL
THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO.
2 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO, ILLINOIS, AS OF MAY 29,
1998.
Navistar International Corporation
/s/ Robert C. Lannert
By: _________________________________
Robert C. Lannert
Executive Vice President and
Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND AS OF THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman, President and May 29, 1998
____________________________________ Chief Executive Officer and
John R. Horne Director (Principal
Executive Officer)
/s/ Robert C. Lannert Executive Vice President and May 29, 1998
____________________________________ Chief Financial Officer and
Robert C. Lannert Director (Principal
Financial Officer)
* Vice President and May 29, 1998
____________________________________ Controller (Principal
J. Steven Keate Accounting Officer)
* Director May 29, 1998
____________________________________
William F. Andrews
* Director May 29, 1998
____________________________________
</TABLE> John D. Correnti
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director May 29, 1998
____________________________________
William C. Craig
* Director May 29, 1998
____________________________________
Jerry E. Dempsey
* Director May 29, 1998
____________________________________
John F. Fiedler
* Director May 29, 1998
____________________________________
John T. Grigsby, Jr.
* Director May 29, 1998
____________________________________
Michael N. Hammes
* Director May 29, 1998
____________________________________
Allen J. Krowe
* Director May 29, 1998
____________________________________
Walter J. Laskowski
* Director May 29, 1998
____________________________________
William F. Patient
</TABLE>
*The undersigned, by signing his name hereto, does hereby execute this
Amendment No. 2 to the Registration Statement on behalf of the above-named
officers and/or directors of the Registrant pursuant to Powers of Attorneys
previously filed with the Commission.
/s/ Robert C. Lannert
_____________________________________
Robert C. Lannert, Attorney-in-
Fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- --------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement (U.S. and Canada), among the Company,
the Selling Stockholder, Smith Barney Inc., Credit Suisse First
Boston Corporation and J.P. Morgan Securities Inc.*
1.2 Form of Underwriting Agreement (International), among the Company,
the Selling Stockholder, Smith Barney Inc., Credit Suisse First
Boston (Europe) Limited and J.P. Morgan Securities Ltd.*
4.1 Specimen certificate for shares of Common Stock incorporated by
reference to Exhibit 4.1 of the Company's Registration Statement on
Form S-1 (Registration No. 33-50327).
4.2 Restated Certificate of Incorporation of the Company, incorporated
by reference to Exhibit 3.2 of the Company's Annual Report on Form
10-K, dated October 31, 1993, which was filed on January 27, 1994,
Commission File No. 1-9618, and amended as of May 4, 1998.
4.3 By-Laws of the Company, incorporated by reference to Exhibit 3.2 of
the Company's Annual Report on Form 10-K, dated October 31, 1995,
which was filed with the Commission on January 26, 1996, Commission
File No. 1-9618.
Opinion of Kirkland & Ellis regarding legality of securities being
5.1 registered.*
23.1 Consent of Deloitte & Touche LLP.*
23.2 Consent of Kirkland & Ellis--included in Exhibit 5.1.*
Powers of Attorney (included in Part II of the Registration
24.1 Statement).
</TABLE>
- --------
*Filed herewith.
<PAGE>
[Draft--5/29/98]
EXHIBIT 1.1
Navistar International Corporation
15,894,103 Shares /a/
Common Stock
($0.10 par value)
U.S. Underwriting Agreement
New York, New York
[ ], 1998
Smith Barney Inc.
Credit Suisse First Boston Corporation
J.P. Morgan Securities Inc.
As U.S. Representatives of the several U.S. Underwriters,
c/o Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Navistar International Transportation Corp. Retiree Supplemental
Benefit Trust (the "Selling Stockholder") proposes to sell to the several
underwriters named in Schedule I hereto (the "U.S. Underwriters"), for whom you
(the "U.S. Representatives") are acting as representatives, 15,894,103 shares of
Class B Common Stock, $0.10 par value (the "Class B Stock"), of Navistar
International Corporation (the "Company"), a Delaware corporation, which as
described herein will convert into 15,894,103 shares of Common Stock, $0.10 par
value per share ("Common Stock"), of the Company (such shares of Common Stock
being hereinafter called the "U.S. Underwritten Securities"). The Company also
proposes to grant to the U.S. Underwriters an option to purchase up to 1,300,000
additional shares of Common Stock to cover over-allotments (the "U.S. Option
Securities"; the U.S. Option Securities, together with the U.S. Underwritten
Securities, being hereinafter called the "U.S. Securities"). To the extent there
are no additional U.S. Underwriters listed on Schedule I other than you, the
term U.S. Representatives as used herein shall mean you, as U.S. Underwriters,
and the terms U.S. Representatives and U.S. Underwriters shall mean either the
singular or plural as the context requires. The use of the neuter in this
Agreement shall include the feminine and masculine wherever appropriate. Any
reference herein to the Registration Statement, a Preliminary Prospectus or the
Prospectuses shall be deemed to refer to and include the documents incorporated
by reference therein pursuant to Item 12 of Form S-3 which were filed under the
Exchange Act on or before the Effective Date of the Registration Statement
- --------------------
/a/ Plus an option to purchase from the Company up to 1,3000 additional U.S.
Securities to cover over-allotments.
<PAGE>
2
or the issue date of such Preliminary Prospectus or the Prospectuses, as the
case may be; and any reference herein to the terms "amend", "amendment" or
"supplement" with respect to the Registration Statement, any Preliminary
Prospectus or the Prospectuses shall be deemed to refer to and include the
filing of any document under the Exchange Act after the Effective Date of the
Registration Statement, or the issue date of any Preliminary Prospectus or the
Prospectuses, as the case may be, deemed to be incorporated therein by
reference. Certain terms used herein are defined in Section 17 hereof.
It is understood that the Company and the Selling Stockholder are
concurrently entering into an International Underwriting Agreement dated the
date hereof (the "International Underwriting Agreement") providing for the sale
by the Selling Stockholder of an aggregate of 4,000,000 shares of Common Stock
(such shares to be sold pursuant to the International Underwriting Agreement
being hereinafter called the "International Securities", and together with the
U.S. Securities, the "Securities"), outside the United States and Canada through
arrangements with certain underwriters outside the United States and Canada (the
"Managers" and, together with the U.S. Underwriters, the "Underwriters"), for
whom Smith Barney Inc., Credit Suisse First Boston (Europe) Limited and J.P.
Morgan Securities Ltd. are acting as lead managers (the "Lead Managers" and,
together with the U.S. Representatives, the "Representatives").
It is further understood and agreed that the U.S. Underwriters and the
Managers have entered into an Agreement Between U.S. Underwriters and Managers
dated the date hereof (the "Agreement Between U.S. Underwriters and Managers"),
pursuant to which, among other things, the Managers may purchase from the U.S.
Underwriters a portion of the Securities to be sold pursuant to the U.S.
Underwriting Agreement and the U.S. Underwriters may purchase from the Managers
a portion of the Securities to be sold pursuant to the International
Underwriting Agreement. The Company and the Selling Stockholder understand that
any such purchases and sales between the Managers and the U.S. Underwriters
shall be governed by the Agreement Between U.S. Underwriters and Managers and
shall not be governed by the terms of this Agreement or the U.S. Underwriting
Agreement.
In this Agreement, unless otherwise specified, all references to
"dollars" or "$" are to the currency of the United States.
1. Representations and Warranties.
(i) The Company represents and warrants to, and agrees with, each
U.S. Underwriter as set forth below in this Section 1.
(a) The Company meets the requirements for use of Form S-3 under the
Act and has prepared and filed with the Commission a registration statement
(file number 333-52375) on Form S-3, including related preliminary
prospectuses, for registration under the Act of the offering and sale of
the Securities. The Company may have filed one or more amendments thereto,
including a related preliminary prospectus, each of which has previously
been furnished to you. The Company will next file with the Commission one
of the following: either (1) prior to the Effective Date of such
registration statement, a further amendment to such registration statement
(including the forms of final prospectus) or (2) after the Effective Date
of such registration statement, a final prospectus in accordance with Rules
430A and 424(b). In the case of clause (2), the Company has included in
<PAGE>
3
such registration statement, as amended at the Effective Date, all
information (other than Rule 430A Information) required by the Act and the
rules thereunder to be included in such registration statement and the
Prospectuses. As filed, such amendment and forms of final prospectus, or
such final prospectuses, shall contain all Rule 430A Information, together
with all other such required information, and, except to the extent the
U.S. Representatives shall agree in writing to a modification, shall be in
all substantive respects in the form furnished to you prior to the
Execution Time or, to the extent not completed at the Execution Time, shall
contain only such specific additional information and other changes (beyond
that contained in the latest Preliminary Prospectus) as the Company has
advised you, prior to the Execution Time, will be included or made therein.
It is understood that two forms of prospectus are to be used in
connection with the offering and sale of the Securities: one form of
prospectus relating to the U.S. Securities, which are to be offered and
sold to United States and Canadian Persons which for purposes of
distribution to Canadian Persons shall have a Canadian "wrap-around" (the
"Canadian Offering Memorandum"), and one form of prospectus relating to the
International Securities, which are to be offered and sold to persons other
than United States and Canadian Persons. The two forms of prospectus are
identical except for the outside front cover page and the outside back
cover page. Such form of prospectus relating to the U.S. Securities as
first filed with the Commission pursuant to Rule 424(b) after the Execution
Time or, if no filing pursuant to Rule 424(b) is required, such form of
final prospectus relating to the U.S. Securities included in the
Registration Statement at the Effective Date, is hereinafter called the
"U.S. Prospectus"; such form of prospectus relating to the International
Securities as first filed with the Commission pursuant to Rule 424(b) after
the Execution Time or, if no filing pursuant to Rule 424(b) is required,
such form of final prospectus relating to the International Securities
included in the Registration Statement at the Effective Date, is
hereinafter called the "International Prospectus"; and the U.S. Prospectus
and the International Prospectus are hereinafter collectively called the
"Prospectuses". Insofar as they relate to offers or sales of Securities in
Canada, all references herein to the U.S. Preliminary Prospectus and the
U.S. Prospectus shall include the Canadian Offering Memorandum.
(b) On the Effective Date, the Registration Statement did or will,
and when the Prospectuses are first filed (if required) in accordance with
Rule 424(b) and on the Closing Date (as defined herein) and on any date on
which U.S. Option Securities are purchased, if such date is not the Closing
Date (a "settlement date"), the Prospectuses (and any supplements thereto)
will, comply in all material respects with the applicable requirements of
the Act and the Exchange Act and the respective rules thereunder; on the
Effective Date and at the Execution Time, the Registration Statement did
not or will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading; and, on the Effective Date,
the Prospectuses, if not filed pursuant to Rule 424(b), will not, and on
the date of any filing pursuant to Rule 424(b) and on the Closing Date and
any settlement date, the Prospectuses (together with any supplement
thereto) will not, include any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representations or
warranties as to the information contained
<PAGE>
4
in or omitted from the Registration Statement or the Prospectuses (or any
supplement thereto) in reliance upon and in conformity with information
furnished herein or in writing to the Company by or on behalf of any U.S.
Underwriter through the U.S. Representatives specifically for inclusion in
the Registration Statement or the Prospectuses (or any supplement thereto)
or by or on behalf of the Selling Stockholder specifically for inclusion in
the Registration Statement or the Prospectuses (or any supplement thereto).
(c) None of the sale of the Securities, the consummation of any other
of the transactions contemplated herein or in the International
Underwriting Agreement (including the conversion of the Class B Stock to
Common Stock) or the fulfillment of the terms hereof of thereof will
conflict with, result in a breach or violation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any of
its subsidiaries pursuant to, (i) the charter or by-laws of the Company or
any of its subsidiaries, (ii) the obligations of the Company or any of its
subsidiaries pursuant to the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other agreement,
obligation, condition, covenant or instrument to which the Company or any
of its subsidiaries is a party or bound or to which its or their property
is subject, or (iii) the obligations of the Company or any of its
subsidiaries pursuant to any statute, law, rule, regulation, judgment,
order or decree applicable to the Company or any of its subsidiaries of any
court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Company or any
of its subsidiaries or any of its or their properties, which conflict,
breach, violation or imposition would, in the case of clauses (ii) and
(iii) above, either individually or in the aggregate with all other
conflicts, breaches and violations referred to in this paragraph (c) (if
any), have an adverse effect on the consummation of the transactions
contemplated herein or in the International Underwriting Agreement or have
a material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and its
subsidiaries, taken as a whole, whether or not arising from transactions in
the ordinary course of business, except as set forth in or contemplated in
the Prospectuses (exclusive of any supplement thereto).
(d) The restrictions relating to the transferability of the Class B
Stock imposed by Section III.E. of Article Fourth of the Restated
Certificate of Incorporation of the Company have been duly waived by the
Board of Directors of the Company.
(e) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries or its or their property is pending or,
to the best knowledge of the Company, threatened that (i) could reasonably
be expected to have a material adverse effect on the performance of this
Agreement or the International Underwriting Agreement or the consummation
of any of the transactions contemplated hereby or thereby or (ii) could
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), prospects, earnings, business or properties of
the Company and its subsidiaries, taken as a whole, whether or not arising
from transactions in the ordinary course of business, except as set forth
in or contemplated in the Prospectuses (exclusive of any supplement
thereto).
<PAGE>
5
(f) Except as disclosed in the Registration Statement and the
Prospectuses (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectuses (or any amendment or supplement thereto),
neither the Company nor any of its subsidiaries has incurred any liability
or obligation, direct or contingent, or entered into any transaction, not
in the ordinary course of business, that is material to the Company and its
subsidiaries taken as a whole, and there has not been any change in the
capital stock, or material increase in the short-term debt or long-term
debt, of the Company or any of its subsidiaries, or any material adverse
change, or any development having or which may reasonably be expected to
have a material adverse change, in the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and its
subsidiaries, taken as a whole, whether or not arising from transactions in
the ordinary course of business, except as set forth in or contemplated in
the Prospectuses (exclusive of any supplement thereto).
Any certificate signed by any officer of the Company and delivered to
the U.S. Representatives or counsel for the U.S. Underwriters in connection with
the offering of the Securities shall be deemed a representation and warranty by
the Company, as to matters covered thereby, to each U.S. Underwriter.
(ii) The Selling Stockholder represents and warrants to, and agrees
with, each U.S. Underwriter that:
(a) The Selling Stockholder is the lawful owner of the Class B Stock
and that, upon the conversion of the Class B Stock and the sale and
delivery of, and payment for, the Securities, as provided herein and in the
International Underwriting Agreement, the Selling Stockholder will convey
to the Underwriters good and marketable title to the Class B Stock and,
assuming the conversion of the Class B Stock into the Common Stock as
provided in this Agreement and the International Underwriting Agreement,
the Securities, free and clear of all liens, encumbrances, equities and
claims whatsoever.
(b) The Selling Stockholder has not taken, directly or indirectly,
any action designed to or which has constituted or which might reasonably
be expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Securities.
(c) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Selling
Stockholder of the transactions contemplated herein or in the International
Underwriting Agreement, except such as may have been obtained under the Act
and such as may be required under the blue sky laws of any jurisdiction in
connection with the purchase and distribution of the Securities by the
Underwriters and such other approvals as have been obtained.
(d) Assuming that the Board of Directors of the Company has approved
the transactions contemplated by this Agreement, none of the sale of the
Class B Stock and, assuming the conversion of the Class B Stock into the
Common Stock as provided in this Agreement and the International
Underwriting Agreement, the
<PAGE>
6
Securities being sold by the Selling Stockholder, the consummation of any
other of the transactions herein contemplated by the Selling Stockholder or
the fulfillment of the terms hereof or thereof by the Selling Stockholder
will conflict with, result in a breach or violation of, or constitute a
default under any law or the trust agreement of the Selling Stockholder
(the "Trust Agreement") or the terms of any indenture or other agreement or
instrument to which the Selling Stockholder is a party or by which it is
bound, or any judgment, order or decree applicable to the Selling
Stockholder of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over the Selling
Stockholder.
(e) In respect of any statements in or omissions from the
Registration Statement or the Prospectuses or any supplements thereto made
in reliance upon and in conformity with information furnished in writing to
the Company by the Selling Stockholder specifically for use in connection
with the preparation thereof, the Selling Stockholder hereby makes the same
representations and warranties to each U.S. Underwriter as the Company
makes to such U.S. Underwriter under paragraph (i)(b) of this Section.
Any certificate signed by the Selling Stockholder and delivered to the
U.S. Representatives or counsel for the U.S. Underwriters in connection with the
offering of the Securities shall be deemed a representation and warranty by the
Selling Stockholder, as to matters covered thereby, to each U.S. Underwriter.
2. Purchase and Sale. (a) Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Selling
Stockholder agrees to sell to each U.S. Underwriter, and each U.S. Underwriter
agrees severally and not jointly to purchase from the Selling Stockholder, at a
purchase price of $[___] per share, the Class B Stock which, when converted as
described herein, will equal the amount of the U.S. Underwritten Securities set
forth opposite such U.S. Underwriter's name in Schedule I hereto (other than the
Repurchased Securities (as defined), which are subject to paragraph (c) of this
Section 2) [and the Company agrees to pay to each U.S. Underwriter a[n
additional] discount of $[___] for each share purchased by such U.S.
Underwriter]. It is understood that the U.S. Underwriters are not obligated to
purchase any U.S. Underwritten Securities unless all the International
Securities are purchased by the Managers.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants
an option to the several U.S. Underwriters to purchase, severally and not
jointly, up to 1,300,000 U.S. Option Securities at a purchase price of
$[___] per share (such price being the price at which the U.S. Underwritten
Securities are offered to the public). Said option may be exercised only to
cover over-allotments in the sale of the U.S. Underwritten Securities by
the U.S. Underwriters. Said option may be exercised in whole or in part at
any time (but not more than once) on or before the 30th day after the date
of the Prospectuses upon written or telegraphic notice by the U.S.
Representatives to the Company setting forth the number of shares of the
U.S. Option Securities as to which the several U.S. Underwriters are
exercising the option and the settlement date. Delivery of certificates for
the shares of U.S. Option Securities by the Company, and payment therefor
to the Company, shall be made as provided in Section 3 hereof. The number
of U.S. Option Securities to be purchased by each U.S. Underwriter shall be
the same percentage of the total
<PAGE>
7
number of shares of the U.S. Option Securities to be purchased by the
several U.S. Underwriters as such U.S. Underwriter is purchasing of the
U.S. Underwritten Securities, subject to such adjustments as you in your
absolute discretion shall make to eliminate any fractional shares.
(c) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Selling Stockholder
agrees to sell to each U.S. Underwriter, and each U.S. Underwriter agrees
severally and not jointly to purchase from the Selling Stockholder, at a
purchase price equal to $[_____] per share (such price being the price at
which the U.S. Underwritten Securities are offered to the public),
2,000,000 U.S. Underwritten Securities (the "Repurchased Securities"). The
Company agrees that it shall cause Navistar International Transportation
Corp. ("NITC") to purchase from the U.S. Underwriters the Repurchased
Securities at a purchase price equal to $[_____] per share (such price
being the price at which the U.S. Underwritten Securities are offered to
the public) pursuant to the agreement dated [_______], 1998, among the
Company, NITC and the Selling Stockholder. The number of Repurchased
Securities to be purchased by each U.S. Underwriter shall be the same
percentage of the total number of shares of the Repurchased Securities to
be purchased by the several U.S. Underwriters as such U.S. Underwriter is
purchasing of the U.S. Underwritten Securities, subject to such adjustments
as you in your absolute discretion shall make to eliminate any fractional
shares. The Selling Stockholder agrees to pay to Smith Barney Inc., in its
individual capacity and not as a U.S. Representative, a fee equal to $[___]
(representing one percent of the aggregate purchase price of the
Repurchased Securities).
3. Delivery and Payment. Delivery of and payment for the U.S.
Underwritten Securities and the U.S. Option Securities (if the option provided
for in Section 2(b) hereof shall have been exercised on or before the third
Business Day prior to the Closing Date) shall be made at 10:00 AM, New York City
time, on [____________], 1998, or at such time on such later date not more than
three Business Days after the foregoing date as the U.S. Representatives and the
Lead Managers shall designate, which date and time may be postponed by agreement
among the U.S. Representatives, the Lead Managers, the Company and the Selling
Stockholder or as provided in Section 9 hereof (such date and time of delivery
and payment for the U.S. Securities being herein called the "Closing Date").
Delivery of the U.S. Underwritten Securities shall be made to the U.S.
Representatives for the respective accounts of the several U.S. Underwriters
against payment by the several U.S. Underwriters through the U.S.
Representatives of the purchase price of the U.S. Underwritten Securities to or
upon the order of the Selling Stockholder by wire transfer payable in same-day
funds to the account specified by the Selling Stockholder [and against payment
by the Company of the discount of $[___] for each share purchased by the U.S.
Underwriters, other than the Repurchased Securities, to or upon the order of the
several U.S. Underwriters through the U.S. Representatives by wire transfer
payable in same-day funds to the account specified by the U.S. Underwriters
through Salomon Smith Barney]. Delivery of the U.S. Underwritten Securities and
the U.S. Option Securities shall be made through the facilities of The
Depository Trust Company unless the U.S. Representatives shall otherwise
instruct. Delivery of the Repurchased Securities shall be made by the U.S.
Underwriters to NITC against payment by NITC of the purchase price of the
Repurchased Securities to or upon the order of the several U.S. Underwriters
through the U.S. Representatives by wire transfer payable in
<PAGE>
8
same-day funds to the account specified by the U.S. Underwriters through Salomon
Smith Barney.
The Company will pay all applicable state transfer taxes, if any,
involved in the transfer to the several U.S. Underwriters of the U.S.
Securities, and the respective U.S. Underwriters will pay any additional stock
transfer taxes involved in further transfers.
If the option provided for in Section 2(b) hereof is exercised after
the third Business Day prior to the Closing Date, the Company will deliver the
U.S. Option Securities (at the expense of the Company) to the U.S.
Representatives on the date specified by the U.S. Representatives (which shall
be within three Business Days after exercise of said option) for the respective
accounts of the several U.S. Underwriters, against payment by the several U.S.
Underwriters through the U.S. Representatives of the purchase price thereof to
or upon the order of the Company by wire transfer payable in same-day funds to
the account specified by the Company. If settlement for the U.S. Option
Securities occurs after the Closing Date, the Company will deliver to the U.S.
Representatives on the settlement date for the U.S. Option Securities, and the
obligation of the U.S. Underwriters to purchase the U.S. Option Securities shall
be conditioned upon receipt of, supplemental opinions, certificates and letters
confirming as of such date the opinions, certificates and letters delivered on
the Closing Date pursuant to Section 6 hereof.
On the Closing Date, the Selling Stockholder will surrender
certificates, duly endorsed to the Company or in blank, for shares of Class B
Stock to the Company or its transfer agent for conversion into the U.S.
Underwritten Securities. The Company shall or shall cause its transfer agent to,
on the Closing Date upon receipt of such certificates, effect such conversion
and issue the U.S. Underwritten Securities for the respective accounts of the
several U.S. Underwriters.
4. Offering by U.S. Underwriters. It is understood that the several
U.S. Underwriters propose to offer the U.S. Securities for sale to the public as
set forth in the U.S. Prospectus.
5. Agreements.
(i) The Company agrees with the several U.S. Underwriters that:
(a) The Company will use its reasonable best efforts to cause the
Registration Statement, if not effective at the Execution Time, and any
amendment thereof, to become effective. Prior to the termination of the
offering of the Securities, the Company will not file any amendment of the
Registration Statement or supplement to the Prospectuses or any Rule 462(b)
Registration Statement unless the Company has furnished you a copy for your
review prior to filing and will not file any such proposed amendment or
supplement to which you reasonably object. Subject to the foregoing
sentence, if the Registration Statement has become or becomes effective
pursuant to Rule 430A, or filing of the Prospectuses is otherwise required
under Rule 424(b), the Company will cause the Prospectuses, properly
completed, and any supplement thereto to be filed with the Commission
pursuant to the applicable paragraph of Rule 424(b) within the time period
prescribed and will provide evidence satisfactory to the U.S.
Representatives of such timely filing.
<PAGE>
9
Upon your request, the Company will cause the Rule 462(b) Registration
Statement, completed in compliance with the Act and the applicable rules
and regulations thereunder, to be filed with the Commission pursuant to
Rule 462(b) and will provide evidence satisfactory to the U.S.
Representatives of such filing. The Company will promptly advise the U.S.
Representatives (1) when the Registration Statement, if not effective at
the Execution Time, shall have become effective, (2) when the Prospectuses,
and any supplement thereto, shall have been filed (if required) with the
Commission pursuant to Rule 424(b) or when any Rule 462(b) Registration
Statement shall have been filed with the Commission, (3) when, prior to
termination of the offering of the Securities, any amendment to the
Registration Statement shall have been filed or become effective, (4) of
any request by the Commission or its staff for any amendment of the
Registration Statement, or any Rule 462(b) Registration Statement, or for
any supplement to the Prospectuses or for any additional information, (5)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the institution or
threatening of any proceeding for that purpose and (6) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of the U.S. Securities for sale in any jurisdiction or the
institution or threatening of any proceeding for such purpose. The Company
will use its reasonable best efforts to prevent the issuance of any such
stop order or the suspension of any such qualification and, if issued, to
obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of
which the Prospectuses as then supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein in the light of the circumstances under
which they were made not misleading, or if it shall be necessary to amend
the Registration Statement or supplement the Prospectuses to comply with
the Act or the Exchange Act or the respective rules thereunder, the Company
promptly will (1) notify the U.S. Representatives of such event, (2)
prepare and file with the Commission, subject to the second sentence of
paragraph (i)(a) of this Section 5, an amendment or supplement which will
correct such statement or omission or effect such compliance and (3) supply
any supplemented Prospectuses to you in such quantities as you may
reasonably request.
(c) As soon as practicable, the Company will make generally available
to its security holders and to the U.S. Representatives an earnings
statement or statements of the Company and its subsidiaries which will
satisfy the provisions of Section 11(a) of the Act and Rule 158 under the
Act.
(d) The Company will furnish to the U.S. Representatives and counsel
for the U.S. Underwriters, without charge, signed copies of the
Registration Statement (including exhibits thereto) and to each other U.S.
Underwriter a copy of the Registration Statement (without exhibits thereto)
and, so long as delivery of a prospectus by an U.S. Underwriter or dealer
may be required by the Act, as many copies of each Preliminary Prospectus
and the Prospectuses and any supplement thereto as the U.S. Representatives
may reasonably request. The Company will pay the expenses of printing or
other production of all documents relating to the offering.
<PAGE>
10
(e) The Company will arrange, if necessary, for the qualification of
the Securities for sale under the laws of such jurisdictions as the U.S.
Representatives may designate, will maintain such qualifications in effect
so long as required for the distribution of the Securities and will pay any
fee of the National Association of Securities Dealers, Inc., in connection
with its review of the offering; provided that in no event shall the
Company be obligated to qualify to do business in any jurisdiction where it
is not now so qualified or to take any action that would subject it to
service of process in suits, other than those arising out of the offering
or sale of the Securities, in any jurisdiction where it is not now so
subject.
(f) The Company will not, without the prior written consent of
Salomon Smith Barney, for a period of 90 days following the Execution Time,
offer, sell, contract to sell, pledge or otherwise dispose of (or enter
into any transaction which is designed to, or might reasonably be expected
to, result in the disposition (whether by actual disposition or effective
economic disposition due to cash settlement or otherwise) by the Company or
any affiliate of the Company or any person in privity with the Company or
any affiliate of the Company), directly or indirectly, or announce the
offering of, or file a registration statement with the Commission in
respect of, any other shares of Common Stock or any securities convertible
into, or exercisable or exchangeable for, shares of Common Stock, or grant
any options, warrants or similar securities to purchase Common Stock;
provided, however, that the Company may issue and sell Common Stock or make
any awards pursuant to any employee stock option plan, stock ownership plan
or dividend reinvestment plan of the Company in effect at the Execution
Time and the Company may issue Common Stock issuable upon the conversion of
securities (including Class B Stock) or the exercise of warrants
outstanding at the Execution Time.
(g) The Company will not take, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected
to cause or result, under the Exchange Act or otherwise, in stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities.
(h) The Company agrees to pay the costs and expenses relating to the
following matters: (i) the preparation, printing or reproduction and filing
with the Commission of the Registration Statement (including financial
statements and exhibits thereto), each Preliminary Prospectus, the
Prospectuses and each amendment or supplement to any of them; (ii) the
printing (or reproduction) and delivery (including postage, air freight
charges and charges for counting and packaging) of such copies of the
Registration Statement, each Preliminary Prospectus, the Prospectuses and
all amendments or supplements to any of them, as may, in each case, be
reasonably requested for use in connection with the offering and sale of
the Securities; (iii) the preparation, printing, authentication, issuance
and delivery of certificates for the Securities, including any stamp or
transfer taxes in connection with the original issuance and sale of the
Securities; (iv) the printing (or reproduction) and delivery of this
Agreement, the International Underwriting Agreement, any blue sky
memorandum and all other agreements or documents printed (or reproduced)
and delivered in connection with the offering of the Securities; (v) the
listing of the Option Securities on the New York Stock Exchange; (vi) any
registration or qualification of the Securities for offer and sale
<PAGE>
11
under the securities or blue sky laws of the several states or Canada or
any other foreign jurisdiction or locality therein (including filing fees
and the reasonable fees and expenses of counsel for the Underwriters
relating to such registration and qualification); (vii) any filings
required to be made with the National Association of Securities Dealers,
Inc. (including filing fees and the reasonable fees and expenses of counsel
for the Underwriters relating to such filings); (viii) the transportation
and other expenses incurred by or on behalf of Company representatives in
connection with presentations to prospective purchasers of the Securities;
(ix) the fees and expenses of the Company's accountants and the fees and
expenses of counsel (including local and special counsel) for the Company
and the Selling Stockholder subject as set forth in the last sentence of
this paragraph (h) of Section 5 to the Registration Rights Agreement (as
defined); (x) the conversion of the Class B Stock into the Securities; and
(xi) all other costs and expenses incident to the performance by the
Company and the Selling Stockholder of their obligations hereunder. This
paragraph (h) of Section 5 shall in no way be interpreted to amend, alter
or suspend the terms and provisions of the Registration Rights Agreement
dated March 30, 1993, between the Company and the Selling Stockholder (the
"Registration Rights Agreement") with respect to the rights and obligations
of the Company and the Selling Stockholder vis-a-vis each other, but not
with respect to the rights of the U.S. Underwriters pursuant to this
Agreement.
(ii) The Selling Stockholder agrees with the several U.S. Underwriters
that:
(a) The Selling Stockholder will not, without the prior written
consent of Salomon Smith Barney, offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file (or participate in
the filing of) a registration statement with the Commission in respect of,
or establish or increase a put equivalent position or liquidate or decrease
a call equivalent position within the meaning of Section 16 of the Exchange
Act with respect to, any shares of capital stock of the Company or any
securities convertible into or exercisable or exchangeable for such capital
stock, or publicly announce an intention to effect any such transaction,
for a period of 90 days following the Execution Time, other than the
conversion of Class B Stock into Common Stock.
(b) The Selling Stockholder will not take any action designed to or
which has constituted or which might reasonably be expected to cause or
result, under the Exchange Act or otherwise, in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities.
(c) The Selling Stockholder will advise you promptly, and if
requested by you, will confirm such advice in writing, so long as delivery
of a prospectus relating to the Securities by an underwriter or dealer may
be required under the Act, of any change in information in the Registration
Statement or the Prospectuses relating to the Selling Stockholder.
(iii) Each U.S. Underwriter agrees that (a) it is not purchasing any
of the U.S. Securities for the account of anyone other than a United States or
Canadian Person, (b) it has not offered or sold, and will not offer or sell,
directly or indirectly, any of the U.S. Securities or distribute any U.S.
Prospectus to any person outside of the United States or Canada, or to anyone
other than a United States or Canadian Person, (c) any dealer to whom it may
sell any of the U.S. Securities will represent that it is not
<PAGE>
12
purchasing for the account of anyone other than a United States or Canadian
Person and agree that it will not offer or resell, directly or indirectly, any
of the U.S. Securities outside of the United States or Canada, or to anyone
other than a United States or Canadian Person or to any other dealer who does
not so represent and agree; provided, however, that the foregoing shall not
restrict (i) purchases and sales between the U.S. Underwriters on the one hand
and the Managers on the other hand pursuant to the Agreement Between U.S.
Underwriters and Managers, (ii) stabilization transactions contemplated under
the Agreement Between U.S. Underwriters and Managers, conducted through Salomon
Smith Barney (or through the U.S. Representatives and the Lead Managers) as part
of the distribution of the Securities and (iii) sales to or through (or
distributions of U.S. Prospectuses or U.S. Preliminary Prospectuses to) United
States or Canadian Persons who are investment advisors, or who otherwise
exercise investment discretion, and who are purchasing for the account of anyone
other than a United States or Canadian Person and (d) the executive officers and
directors of the Company and NITC, other than John R. Horne and Robert C.
Lannert, may sell, pledge or otherwise dispose of up to an aggregate of 200,000
shares during the period beginning on the Execution Time and ending on August
14, 1998.
(iv) The agreements of the U.S. Underwriters set forth in paragraph
(iii) of this Section 5 shall terminate upon the earlier of the following
events:
(a) a mutual agreement of the U.S. Representatives and the Lead
Managers to terminate the selling restrictions set forth in paragraph (iii)
of this Section 5 and in Section 5(iii) of the International Underwriting
Agreement; or
(b) the expiration of a period of 30 days after the Closing Date,
unless (1) the Lead Managers shall have given notice to the Company, the
Selling Stockholder and the U.S. Representatives that the distribution of
the International Securities by the Managers has not yet been completed or
(2) the U.S. Representatives shall have given notice to the Company, the
Selling Stockholder and the Managers that the distribution of the U.S.
Securities by the U.S. Underwriters has not yet been completed. If such
notice by the U.S. Representatives or the Lead Managers is given, the
agreements set forth in such paragraph (iii) shall survive until the
earlier of (A) the event referred to in clause (a) of this subsection (iv)
or (B) the expiration of an additional period of 30 days from the date of
any such notice.
6. Conditions to the Obligations of the U.S. Underwriters. The
obligations of the U.S. Underwriters to purchase the U.S. Underwritten
Securities and the U.S. Option Securities, as the case may be, shall be subject
to the accuracy of the representations and warranties on the part of the Company
and the Selling Stockholder contained herein as of the Execution Time, the
Closing Date and any settlement date pursuant to Section 3 hereof, to the
accuracy of the statements of the Company and the Selling Stockholder made in
any certificates pursuant to the provisions hereof, to the performance by the
Company and the Selling Stockholder of their respective obligations hereunder
and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the U.S. Representatives agree in writing to a
later time, the Registration Statement will become effective not later than
(i) 6:00 PM New York City time on the date of determination of the public
offering price, if such
<PAGE>
13
determination occurred at or prior to 3:00 PM New York City time on such
date or (ii) 9:30 AM on the Business Day following the day on which the
public offering price was determined, if such determination occurred after
3:00 PM New York City time on such date; if filing of the Prospectuses, or
any supplement thereto, is required pursuant to Rule 424(b), the
Prospectuses, and any such supplement, will be filed in the manner and
within the time period required by Rule 424(b); and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or
threatened.
(b) The Company shall have caused Kirkland & Ellis, counsel for the
Company, to have furnished to the U.S. Representatives their opinion, dated
the Closing Date and addressed to the U.S. Representatives, to the effect
that:
(i) each of the Company, NITC and Navistar Financial
Corporation ("NFC") is validly existing as a corporation and in good
standing under the General Corporation Law of the State of Delaware.
Under their respective Certificates of Incorporation and By-Laws, each
of the Company, NITC and NFC has the corporate power and authority
necessary to own and lease its properties and to conduct its business
as described in the Prospectuses;
(ii) this Agreement and the International Underwriting Agreement
have been duly authorized, executed and delivered by the Company;
(iii) the U.S. Option Securities to be sold by the Company
pursuant to this Agreement are duly authorized, validly issued, fully
paid and nonassessable [; the sale of the U.S. Option Securities is
not subject to any preemptive rights under the terms of the statue
under which the Company is incorporated, under the Company's
Certificate of Incorporation or under any contractual provision of
which such counsel has knowledge]; the Securities to be purchased by
the Underwriters from the Selling Stockholder pursuant to this
Agreement and the International Underwriting Agreement are duly
authorized, validly issued, fully paid and nonassessable;
(iv) the Company's authorized capital stock (including its
authorized Common Stock) is as set forth under the heading
"Capitalization" in the Prospectuses and conforms in all material
respects to the description of the terms thereof contained under the
heading "Description of Capital Stock" in the Prospectuses;
(v) the Company's execution and delivery of this Agreement and
the International Underwriting Agreement and the sale of the
Securities to you in accordance with this Agreement and the
International Underwriting Agreement and the consummation by the
Company of the other transactions contemplated herein or therein
(including the conversion of the Class B Stock to Common Stock) do not
(A) violate the Company's Certificate of Incorporation or Bylaws or
(B) constitute a violation by the Company of
<PAGE>
14
any applicable provision of any law, statute or regulation (except
that such counsel expresses no opinion in this paragraph as to
compliance with any disclosure requirement or any prohibition against
fraud or misrepresentation or as to whether performance of the
indemnification or contribution provisions in this Agreement or the
International Underwriting Agreement would be permitted) or (C)
breach, or result in a default under, any existing obligation of the
Company or any of its subsidiaries under any of the agreements set
forth on Schedule A attached thereto (which representatives of the
Company have advised such counsel include all material debt agreements
and instruments of or binding on the Company or any of the Company's
subsidiaries). The agreements in Schedule A contain debt incurrence
tests and/or other financial covenants and tests; such counsel has not
attempted to independently apply any of those covenants or tests.
Representatives of the Company have however advised such counsel that
they have applied all of those tests and covenants and have determined
that none of those tests or covenants will breached by the sale of the
Securities to you or by any of the other actions cited at the
beginning of this paragraph, and such counsel has assumed without
investigation that such advice and determination are correct;
(vi) such counsel has no knowledge about any legal action or any
governmental action, investigation or proceeding that is pending or
threatened against the Company, any of the Company's subsidiaries or
any of their property that has caused such counsel to conclude that
such preceding is required by Item 103 of Regulation S-K to be
described in the Prospectuses but that is not so described; such
counsel has no knowledge about any contract or other document to which
the Company or any of its subsidiaries is a party or to which any of
their property is subject that has caused such counsel to conclude
that such contract or other document is required to be described in
the Prospectuses but is not so described or is required to be filed as
an exhibit to the Registration Statement but has not been so filed;
(vii) a member of the Commission's staff has advised such counsel
by telephone that the Commission has entered an order declaring the
Registration Statement effective under the Act on June [ ], 1998 (the
"effective date"); such counsel has no knowledge that any stop order
suspending its effectiveness has been issued or that any proceedings
for that purpose are pending before, or overtly threatened by, the
Commission; the Prospectuses, and any supplements thereto, have been
filed with the Commission within the time period required by Rule
424(b) under the Act; and such counsel shall state in a separate
paragraph that nothing has come to such counsel's attention that has
caused such counsel to conclude that (A) the Registration Statement at
the Effective Date contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or (B) the
Prospectuses at the date each bears or on the Closing Date contained
or contains an untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading or (C) as of the effective date, either the Registration
Statement
<PAGE>
15
or the Prospectuses appeared on its face not to be responsive in all
material respects to the requirements of Form S-3;
(viii) the Company was not required to file with, or obtain any
consent, approval, authorization or order of any governmental agency
or body for the sale of the Securities under this Agreement or the
International Underwriting Agreement and the consummation by the
Company of the other transactions contemplated hereby or thereby
(including the conversion of the Class B Stock to Common Stock),
except for the registration of the offer and sale of the Securities
under the Act and as may be required under [the Exchange Act] in
connection with the purchase and distribution of the Securities by
the Underwriters;
(ix) the Company is not and, immediately after the sale of the
U.S. Option Securities to the U.S. Underwriters and the application of
the net proceeds therefrom as described in the Prospectus under the
caption "Use of Proceeds" will not be, an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended, and
(x) the information in the Prospectuses under the heading
"Certain United States Tax Consequences to Non-United States Holders"
to the extent that it summarizes laws, governmental rules and
regulations or documents is correct in all material respects.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the State
of New York, the General Corporation Law of the State of Delaware or the
Federal laws of the United States, to the extent they deem proper and
specified in such opinion, upon the opinion of other counsel of good
standing whom they believe to be reliable and who are satisfactory to
counsel for the U.S. Underwriters and (B) as to matters of fact, to the
extent they deem proper, on certificates of responsible officers of the
Company and public officials. The opinion of such counsel shall be rendered
to the U.S. Underwriters at the request of the Company and shall so state.
References to the Prospectuses in this paragraph (b) include any
supplements thereto at the Closing Date.
(c) The Company shall have caused Robert A. Boardman, Esq., Senior
Vice President and General Counsel of the Company, to have furnished to the
U.S. Representatives his opinion, dated the Closing Date and addressed to
the U.S. Representatives, to the effect that:
(i) each of the Company, NITC and NFC (individually a
"Subsidiary" and collectively the "Subsidiaries") has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction in which it is chartered or
organized, with full corporate power and authority to own or lease, as
the case may be, and to operate its properties and conduct its
business as described in the Prospectuses, and has been duly qualified
to do business as a foreign corporation and is in good standing under
the laws of each jurisdiction wherein it owns or leases material
properties or conducts material business and where the failure to be
so qualified would, individually or in the aggregate, have a material
adverse effect on the condition (financial or otherwise), prospects,
earnings, business or properties of the Company and its subsidiaries,
taken
<PAGE>
16
as a whole, whether or not arising from transactions in the ordinary
course of business, except as set forth in or contemplated in the
Prospectuses; notwithstanding the foregoing limitation, the NITC is
duly qualified to do business as a foreign corporation and is in good
standing under the laws of the States of Arkansas, Indiana, Illinois,
Ohio, Texas and Wisconsin;
(ii) all the outstanding shares of capital stock of each
Subsidiary have been duly authorized and validly issued and are fully
paid and nonassessable, and, except as otherwise set forth in the
Prospectuses, all outstanding shares of capital stock of the
Subsidiaries are owned by the Company either directly or through
wholly owned subsidiaries free and clear of any perfected security
interest and, to the knowledge of such counsel, after due inquiry, any
other security interest, claim, lien or encumbrance;
(iii) the Company's authorized capital stock (including its
authorized Common Stock) is as set forth under the heading
"Capitalization" in the Prospectuses and conforms in all material
respects to the description of the terms thereof contained under the
heading "Description of Capital Stock" in the Prospectuses;
(iv) the outstanding shares of Common Stock (including the
Securities being sold hereunder and under the International
Underwriting Agreement) and Class B Stock have been duly and validly
authorized and issued and are fully paid and nonassessable; the
Securities have been duly and validly authorized, and, when issued and
delivered to and paid for by the U.S. Underwriters pursuant hereto and
by the International Underwriters pursuant to the International
Underwriting Agreement, will be fully paid and nonassessable; the
Securities are duly listed, and admitted and authorized for trading,
on the New York Stock Exchange subject to official notice of issuance
and evidence of satisfactory distribution, on the New York Stock
Exchange; the certificates for the Securities are in valid and
sufficient form; the holders of outstanding shares of capital stock of
the Company are not entitled to preemptive or other rights to
subscribe for the Securities and, except as set forth in the
Prospectuses, no options, warrants or other rights to purchase,
agreements or other obligations to issue, or rights to convert any
obligations into or exchange any securities for, shares of capital
stock of or ownership interests in the Company are outstanding;
(v) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of the Subsidiaries or its or their property of a
character required to be disclosed in the Registration Statement which
is not adequately disclosed in the Prospectuses, and there is no
franchise, contract or other document of a character required to be
described in the Registration Statement or Prospectuses, or to be
filed as an exhibit thereto, which is not described or filed as
required; and the information in the Prospectuses under the headings
"Risk Factors--Impact of Government Regulation", "Management's
Discussion and Analysis of Results and Operations and Financial
Condition--Environmental Matters" and
<PAGE>
17
"Description of Capital Stock" to the extent that it summarizes laws,
governmental rules and regulations or documents is correct in all
material respects;
(vi) none of the issuance and sale of the Securities, the
consummation of any other of the transactions contemplated herein or
in the International Underwriting Agreement or the fulfillment of the
terms hereof or thereof will conflict with, result in a breach or
violation of or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or the Subsidiaries pursuant to (A)
the Certificate of Incorporation or Bylaws of the Company or the
Subsidiaries, (B) the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument known to such
counsel to which the Company or any Subsidiary is a party or bound or
to which its or their property is subject, or (C) any statute, law,
rule, regulation, judgment, order or decree known to such counsel to
be applicable to the Company or any of the Subsidiaries of any court,
regulatory body, administrative agency, governmental body, arbitrator
or other authority having jurisdiction over the Company or the
Subsidiaries or any of its or their property, which violation or
default would, in the case of clauses (B) and (C) above, either
individually or in the aggregate with all other violations and
defaults referred to in this paragraph (vi) (if any), have a material
adverse effect on the condition (financial or otherwise), prospects,
earnings, business or properties of the Company and its subsidiaries,
taken as a whole, whether or not arising from transactions in the
ordinary course of business, except as set forth in or contemplated in
the Prospectuses;
(vii) such counsel has no reason to believe that the
Registration Statement on the Effective Date contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectuses as of their dates and
on the Closing Date included or includes an untrue statement of a
material fact or omitted or omits to state a material fact necessary
to make the statements therein, in the light of the circumstances
under which they were made, not misleading (in each case, other than
the financial statements and other financial information contained
therein, as to which such counsel need express no opinion); and
(viii) except as set forth in the Prospectuses, no holders of
securities of the Company have rights to the registration of such
securities under the Registration Statement.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the State
of Illinois, the General Corporation Law of the State of Delaware or the
Federal laws of the United States, to the extent such counsel deems proper
and specified in such opinion, upon the opinion of other counsel of good
standing whom they believe to be reliable and who are satisfactory to
counsel for the U.S. Representatives and (B) as to matters of fact, to the
extent such counsel deems proper, on certificates of responsible officers
of the Company and public officials. The opinion of such counsel shall be
<PAGE>
18
rendered to the U.S. Representatives at the request of the Company and
shall so state. References to the Prospectuses in this paragraph (c)
include any supplements thereto at the Closing Date.
(d) The Selling Stockholder shall have caused Willkie Farr &
Gallagher, counsel for the Selling Stockholder, to have furnished to the
U.S. Representatives their opinion, dated the Closing Date and addressed to
the U.S. Representatives, to the effect that:
(i) this Agreement and the International Underwriting Agreement
have been duly authorized, executed and delivered by the Selling
Stockholder and, assuming that the Board of Directors of the Company
has approved the transactions contemplated by this Agreement, the
Selling Stockholder has full legal right and authority to surrender
the Class B Stock for conversion into the Securities and to sell,
transfer and deliver the Class B Stock and, assuming the conversion of
the Class B Stock into the Common Stock as provided in this Agreement
and the International Underwriting Agreement, the Securities in the
manner provided in this Agreement and in the International
Underwriting Agreement;
(ii) the delivery to the several Underwriters of certificates
for the Securities against payment therefor as provided herein and in
the International Underwriting Agreement, assuming that the Board of
Directors of the Company has approved the transactions contemplated by
this Agreement, will pass good and marketable title to the Class B
Stock and, assuming the conversion of the Class B Stock into the
Common Stock as provided in this Agreement and the International
Underwriting Agreement, the Securities to the several Underwriters,
free and clear of all liens, encumbrances, equities and claims
whatsoever;
(iii) no consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation by the
Selling Stockholder of the transactions contemplated herein and in the
International Underwriting Agreement, except such as may have been
obtained under the Act and such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters and such other
approvals (specified in such opinion) as have been obtained; and
(iv) none of the sale of the Class B Stock or, assuming the
conversion of the Class B Stock into the Common Stock as provided in
this Agreement and the International Underwriting Agreement, the
Securities, the consummation of any other of the transactions
contemplated herein or in the International Underwriting Agreement by
the Selling Stockholder or the fulfillment of the terms hereof or
thereof by the Selling Stockholder, assuming that the Board of
Directors of the Company has approved the transactions contemplated by
this Agreement, will conflict with, result in a breach or violation
of, or constitute a default under any law or the Trust Agreement or
the terms of the settlement agreement dated March 30, 1993, as
amended, between the Company and the Selling Stockholder, or any
judgment, order or decree known to such counsel to be applicable to
the
<PAGE>
19
Selling Stockholder of any court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction over the
Selling Stockholder.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of the Employee Retirement Income Security Act of
1974, as amended, or the application of laws of any jurisdiction other than
the State of New York, the State of Delaware or the Federal laws of the
United States, to the extent they deem proper and specified in such
opinion, upon the opinion of other counsel of good standing whom they
believe to be reliable and who are satisfactory to counsel for the U.S.
Underwriters, and (B) as to matters of fact, to the extent they deem
proper, on certificates of the Selling Stockholder and public officials.
The opinion of such counsel shall be rendered to the U.S. Underwriters at
the request of the Selling Stockholder and shall so state.
(e) The U.S. Representatives shall have received from Cravath, Swaine
& Moore, counsel for the U.S. Underwriters, such opinion or opinions, dated
the Closing Date and addressed to the U.S. Representatives, with respect to
the issuance and sale of the Securities, the Registration Statement, the
Prospectuses (together with any supplement thereto) and other related
matters as the U.S. Representatives may reasonably require, and the Company
and the Selling Stockholder shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon
such matters.
(f) The Company shall have furnished to the U.S. Representatives a
certificate of the Company, signed by the Executive Vice President and
Chief Financial Officer of the Company and the Treasurer of the Company,
dated the Closing Date, to the effect that the signers of such certificate
have carefully examined the Registration Statement, the Prospectuses, any
supplements to the Prospectuses, this Agreement and the International
Underwriting Agreement and that:
(i) the representations and warranties of the Company in this
Agreement and in the International Underwriting Agreement are true and
correct in all material respects on and as of the Closing Date with
the same effect as if made on the Closing Date, and the Company has
complied with all the agreements and satisfied all the conditions on
its part to be performed or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge,
threatened; and
(iii) since the date of the most recent financial statements
included or incorporated by reference in the Prospectuses (exclusive
of any supplement thereto), there has been no material adverse change
in the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and its subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course
of business, except as set forth in or contemplated in the
Prospectuses (exclusive of any supplement thereto).
<PAGE>
20
(g) The Selling Stockholder shall have furnished to the U.S.
Representatives a certificate, signed by David Hirschland, the Secretary of
the Supplemental Committee of the Selling Stockholder, dated the Closing
Date, to the effect that (i) the signer of such certificate has carefully
examined the Registration Statement, the Prospectuses, any supplement to
the Prospectuses, this Agreement and the International Underwriting
Agreement, (ii) the representations and warranties of the Selling
Stockholder in this Agreement and in the International Underwriting
Agreement are true and correct in all material respects on and as of the
Closing Date to the same effect as if made on the Closing Date and (iii)
the Selling Stockholder has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or prior to
the Closing Date.
(h) The Company shall have caused Deloitte & Touche, LLP to have
furnished to the U.S. Representatives and the Selling Stockholder, at the
Execution Time and at the Closing Date, letters, dated respectively as of
the Execution Time and as of the Closing Date, in form and substance
satisfactory to the U.S. Representatives, confirming that they are
independent accountants within the meaning of the Act and the Exchange Act
and the respective applicable published rules and regulations thereunder
and that they have performed a review of the unaudited interim financial
information of the Company for the three-month periods ended January 31,
1998 and 1997 and April 30, 1998 and 1997 and as at January 31, 1998 and
1997 and April 30, 1998 and 1997, in accordance with Statement on Auditing
Standards No. 71, and stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules included or incorporated by reference in
the Registration Statement and the Prospectuses and reported on by
them comply as to form in all material respects with the applicable
accounting requirements of the Act and the Exchange Act and the
related published rules and regulations;
(ii) on the basis of a reading of the latest unaudited financial
statements made available by the Company and its subsidiaries; their
limited review, in accordance with standards established under
Statement on Auditing Standards No. 71, of the unaudited interim
financial information for the three-month periods ended January 31,
1998 and 1997, and as at January 31, 1998 and 1997; carrying out
certain specified procedures (but not an examination in accordance
with generally accepted auditing standards) which would not
necessarily reveal matters of significance with respect to the
comments set forth in such letter; a reading of the minutes of the
meetings of the stockholders, directors, audit, organizational and
finance committees of the Company and its subsidiaries; and inquiries
of certain officials of the Company who have responsibility for
financial and accounting matters of the Company and its subsidiaries
as to transactions and events subsequent to October 31, 1997, nothing
came to their attention which caused them to believe that:
(1) any unaudited financial statements included in the
Registration Statement and the Prospectuses do not comply as to
form in all material respects with applicable accounting
requirements of the Act and the Exchange Act and the related
rules
<PAGE>
21
and regulations adopted by the Commission; and said unaudited
financial statements are not in conformity with generally
accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included
or incorporated by reference in the Registration Statement and
the Prospectuses;
(2) with respect to the period subsequent to January 31,
1998, there were, at a specified date not more than five days
prior to the date of the letter, any changes in the capital
stock, increase in consolidated debt of the Company or decreases
in the total assets or shareowners' equity of the Company and its
subsidiaries as compared with the amounts shown on the January
31, 1998, consolidated statement of financial condition included
in the Registration Statement and the Prospectuses, or for the
period from February 1, 1998, to such specified date there were
any decreases, as compared with the corresponding period in the
preceding fiscal year, in consolidated sales of manufactured
product, total sales and revenue, income before income taxes or
net income of the Company and its subsidiaries, except in all
instances for changes, increases or decreases set forth in such
letter, in which case the letter shall be accompanied by an
explanation by the Company as to the significance thereof unless
said explanation is not deemed necessary by the U.S.
Representatives; or
(3) the information included or incorporated by reference
in the Registration Statement and the Prospectuses in response to
Regulation S-K, Item 301 (Selected Financial Data) and Item 402
(Executive Compensation), is not in conformity with the
applicable disclosure requirements of Regulation S-K; and
(iii) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and its subsidiaries) set
forth in the Registration Statement and the Prospectuses, including
the information set forth under the captions "Prospectus Summary",
"Risk Factors", "Capitalization", "Selected Consolidated Financial and
Operating Data", "Management's Discussion and Analysis of Results of
Operations and Financial Condition", "Business" and "Description of
Capital Stock" in the Prospectuses, the information included or
incorporated by reference in Items 1, 6, 7, 11 and 13 of the
Company's Annual Report on Form 10-K, as amended, incorporated by
reference in the Registration Statement and the Prospectuses, the
information included in the "Management's Discussion and Analysis of
Results of Operations and Financial Condition" included in the
Company's Quarterly Report on Form 10-Q incorporated by reference in
the Registration Statement and the Prospectuses, the information
included in the Company's Current Reports on Form 8-K incorporated by
reference in the Registration Statement and the Prospectuses and the
information included in the Company's Proxy Statement incorporated by
reference in the Registration Statement and the
<PAGE>
22
Prospectuses agrees with the accounting records of the Company and its
subsidiaries, excluding any questions of legal interpretation.
(i) Subsequent to the Execution Time, there shall not have been any
decrease in the rating of any of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Act) or any notice given of any intended
or potential decrease in any such rating or of a possible change in any
such rating that does not indicate the direction of the possible change.
(j) The Securities shall have been listed and admitted and authorized
for trading on the New York Stock Exchange, and satisfactory evidence of
such actions shall have been provided to the U.S. Representatives.
(k) At the Execution Time, the Company shall have furnished to the
U.S. Representatives a letter substantially in the form of Exhibit A hereto
from each executive officer and director of the Company or NITC addressed
to the U.S. Representatives.
(l) Prior to the Closing Date, the Company and the Selling
Stockholder shall have furnished to the U.S. Representatives such further
information, certificates and documents as the U.S. Representatives may
reasonably request.
(m) The closing of the purchase of the International Securities
pursuant to the International Underwriting Agreement shall have occurred.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the U.S. Representatives and counsel for the U.S. Underwriters,
this Agreement and all obligations of the U.S. Underwriters hereunder may be
canceled at, or at any time prior to, the Closing Date by the U.S.
Representatives. Notice of such cancelation shall be given to the Company and
the Selling Stockholder in writing or by telephone or facsimile confirmed in
writing.
The documents required to be delivered by this Section 6 shall be
delivered at the office of Cravath, Swaine & Moore, counsel for the U.S.
Underwriters, at Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019,
on the Closing Date.
7. Reimbursement of U.S. Underwriters' Expenses. If the sale of the
U.S. Securities provided for herein is not consummated because any condition to
the obligations of the U.S. Underwriters set forth in Section 6 hereof relating
to the Company is not satisfied, because of any termination pursuant to Section
10 hereof or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof
other than by reason of a default by any of the U.S. Underwriters, the Company
will reimburse the U.S. Underwriters severally through Salomon Smith Barney on
demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in connection
with the proposed purchase and sale of the U.S. Securities. If the sale of the
U.S. Securities provided for herein is not consummated because any condition to
the obligations
<PAGE>
23
of the U.S. Underwriters set forth in Section 6 hereof relating to the Selling
Stockholder is not satisfied or because of any refusal, inability or failure on
the part of the Selling Stockholder to perform any agreement herein or comply
with any provision hereof other than by reason of a default by any of the U.S.
Underwriters, the Selling Stockholder will reimburse the U.S. Underwriters
severally through Salomon Smith Barney on demand for all out-of-pocket expenses
(including reasonable fees and disbursements of counsel) that shall have been
incurred by them in connection with the proposed purchase and sale of the U.S.
Securities.
8. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each U.S. Underwriter, the directors, officers,
employees and agents of each U.S. Underwriter, each person who controls any U.S.
Underwriter within the meaning of either the Act or the Exchange Act against any
and all losses, claims, damages or liabilities, joint or several, to which they
or any of them may become subject under the Act, the Exchange Act or other
Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement for the
registration of the Securities as originally filed or in any amendment thereof,
or in any U.S. Preliminary Prospectus or International Preliminary Prospectus or
either of the Prospectuses, or in any amendment thereof or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and agrees to reimburse each such indemnified
party, as incurred, for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any U.S. Underwriter through the U.S. Representatives specifically for inclusion
therein; provided further, however, that the Company will not be liable in any
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Company by or on behalf of the Selling
Stockholder specifically for inclusion therein. This indemnity agreement will be
in addition to any liability which the Company may otherwise have.
(b) The Selling Stockholder agrees to indemnify and hold harmless
each U.S. Underwriter, the directors, officers, employees and agents of each
U.S. Underwriter and each person who controls any U.S. Underwriter within the
meaning of either the Act or the Exchange Act, to the same extent as the
foregoing indemnity from the Company to each U.S. Underwriter, but only with
reference to written information furnished to the Company by or on behalf of the
Selling Stockholder specifically for inclusion in the documents referred to in
the foregoing indemnity. This indemnity agreement will be in addition to any
liability which the Selling Stockholder may otherwise have. The Company and the
U.S. Underwriters acknowledge that the information under the heading "Selling
Stockholder" related to the number of shares of Common Stock held by the Selling
Stockholder constitutes the only information furnished in writing by or on
behalf of the Selling Stockholder for inclusion in any U.S. Preliminary
Prospectus or International Preliminary Prospectus or the Prospectuses.
<PAGE>
24
(c) Each U.S. Underwriter severally and not jointly agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who signs the Registration Statement, each person who controls the
Company within the meaning of either the Act or the Exchange Act and the Selling
Stockholder, to the same extent as the foregoing indemnity to each U.S.
Underwriter, but only with reference to written information relating to such
U.S. Underwriter furnished to the Company by or on behalf of such U.S.
Underwriter through the U.S. Representatives specifically for inclusion in the
documents referred to in the foregoing indemnity. This indemnity agreement will
be in addition to any liability which any U.S. Underwriter may otherwise have.
The Company and the Selling Stockholder acknowledge that the statements set
forth in the last paragraph of the cover page regarding delivery of the
Securities, the legend in block capital letters on page 2 related to
stabilization, syndicate covering transactions and penalty bids and, under the
heading "Underwriting", (i) the sentences related to concessions and
reallowances, (ii) the paragraphs related to the Agreements Between the U.S.
Underwriters and the Managers and (iii) the paragraph related to stabilization,
syndicate covering transactions and penalty bids in any U.S. Preliminary
Prospectus or International Prelimi nary Prospectus and the Prospectuses
constitute the only information furnished in writing by or on behalf of the
several U.S. Underwriters for inclusion in any U.S. Preliminary Prospectus or
International Preliminary Prospectus or the Prospectuses.
(d) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a), (b) or (c) above unless and to the extent it did
not otherwise learn of such action and such failure results in the forfeiture by
the indemnifying party of substantial rights and defenses and (ii) will not, in
any event, relieve the indemnifying party from any obligations to any
indemnified party other than the indemnification obligation provided in
paragraph (a), (b) or (c) above. The indemnifying party shall be entitled to
appoint counsel of the indemnifying party's choice at the indemnifying party's
expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the reasonable fees and expenses of any separate
counsel retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be satisfactory to the indemnified
party. Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An indemnifying party will not, without the prior
written consent of the indemnified parties (which consent shall not unreasonably
be withheld), settle or compromise or consent to the entry of any judgment with
respect to
<PAGE>
25
any pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding.
(e) In the event that the indemnity provided in paragraph (a), (b) or
(c) of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company, the Selling Stockholder and the
U.S. Underwriters agree to contribute to the aggregate losses, claims, damages
and liabilities (including legal or other expenses reasonably incurred in
connection with investigating or defending same) (collectively "Losses") to
which the Company, the Selling Stockholder and one or more of the U.S.
Underwriters may be subject in such proportion as is appropriate to reflect the
relative benefits received by the Company, by the Selling Stockholder and by the
U.S. Underwriters from the offering of the U.S. Securities; provided, however,
that in no case shall any U.S. Underwriter (except as may be provided in any
agreement among underwriters relating to the offering of the U.S. Securities) be
responsible for any amount in excess of the underwriting discount or commission
applicable to the U.S. Securities pur chased by such U.S. Underwriter hereunder.
If the allocation provided by the immediately preceding sentence is unavailable
for any reason, the Company, the Selling Stockholder and the U.S. Underwriters
shall contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company, of the Selling
Stockholder and of the U.S. Underwriters in connection with the statements or
omissions which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company and by the Selling Stockholder
shall be deemed to be equal to the total net proceeds from the offering (before
deducting expenses) received by the Selling Stockholder, and benefits received
by the U.S. Underwriters shall be deemed to be equal to the total underwriting
discounts and commissions, in each case as set forth on the cover page of the
U.S. Prospectus. Relative fault shall be determined by reference to, among other
things, whether any untrue or any alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to information
provided by the Company, the Selling Stockholder or the U.S. Underwriters, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The
Company, the Selling Stockholder and the U.S. Underwriters agree that it would
not be just and equitable if contribution were determined by pro rata allocation
or any other method of allocation which does not take account of the equitable
considerations referred to above. Notwith standing the provisions of this
paragraph (e), no person guilty of fraudulent misrepresen tation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 8, each person who controls a U.S. Underwriter within the meaning
of either the Act or the Exchange Act and each director, officer, employee and
agent of an U.S. Underwriter shall have the same rights to contribution as such
U.S. Underwriter, and each person who controls the Company within the meaning of
either the Act or the Exchange Act, each officer of the Company who shall have
signed the Registration Statement and each director of the Company shall have
the same rights to contribution as the Company, subject in each case to the
applicable terms and conditions of this para graph (e). Notwithstanding the
foregoing, this paragraph (e) shall not be interpreted to provide for any
obligation of the Selling Stockholder in excess of the obligations to which the
Selling Stockholder would be subject under paragraph (b) of this Section 8 if
indemnity under such paragraph (b) had been available.
<PAGE>
26
9. Default by a U.S. Underwriter. If any one or more U.S.
Underwriters shall fail to purchase and pay for any of the U.S. Securities
agreed to be purchased by such U.S. Underwriter or U.S. Underwriters hereunder
and such failure to purchase shall constitute a default in the performance of
its or their obligations under this Agreement, the remaining U.S. Underwriters
shall be obligated severally to take up and pay for (in the respective
proportions which the amount of U.S. Securities set forth opposite their names
in Schedule I hereto bears to the aggregate amount of U.S. Securities set forth
opposite the names of all the remaining U.S. Underwriters) the U.S. Securities
which the defaulting U.S. Underwriter or U.S. Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of U.S.
Securities which the defaulting U.S. Underwriter or U.S. Underwriters agreed but
failed to purchase shall exceed 10% of the aggregate amount of U.S. Securities
set forth in Schedule I hereto, the remaining U.S. Underwriters shall have the
right to purchase all, but shall not be under any obligation to purchase any, of
the U.S. Securities, and if such nondefaulting U.S. Underwriters do not purchase
all the U.S. Securities, this Agreement will terminate without liability to any
nondefaulting U.S. Underwriter, the Selling Stockholder or the Company. In the
event of a default by any U.S. Underwriter as set forth in this Section 9, the
Closing Date shall be postponed for such period, not exceeding five Business
Days, as the U.S. Representatives shall determine in order that the required
changes in the Registration Statement and the Prospectuses or in any other
documents or arrangements may be effected. Nothing contained in this Agreement
shall relieve any defaulting U.S. Underwriter of its liability, if any, to the
Company, the Selling Stockholder and any nondefaulting U.S. Underwriter for
damages occasioned by its default hereunder.
10. Termination. This Agreement shall be subject to termination in
the absolute discretion of the U.S. Representatives, by notice given to the
Company prior to delivery of and payment for the U.S. Securities, if at any time
prior to such time (i) trading in the Company's Common Stock shall have been
suspended by the Commission on the New York, Chicago or Pacific Stock Exchanges
or trading in securities generally on the New York Stock Exchange shall have
been suspended or limited or minimum prices shall have been established on the
New York Stock Exchange, (ii) a banking moratorium shall have been declared
either by Federal or New York State authorities or (iii) there shall have
occurred any outbreak or escalation of hostilities, declaration by the United
States of a national emergency or war, or other calamity or crisis the effect of
which on financial markets is such as to make it, in the sole judgment of the
U.S. Representatives, impractical or inadvisable to proceed with the offering or
delivery of the U.S. Securities as contemplated by the U.S. Prospectus
(exclusive of any supplement thereto).
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers, of the Selling Stockholder and of the U.S. Underwriters
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any U.S.
Underwriter, the Selling Stockholder or the Company or any of the officers,
directors or controlling persons referred to in Section 8 hereof, and will
survive delivery of and payment for the U.S. Securities. The provisions of
Sections 7 and 8 hereof shall survive the termination or cancelation of this
Agreement.
12. Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the U.S. Representatives, will be
mailed, delivered or telefaxed to the Salomon Smith Barney General Counsel (fax
no.: (212) 816-7912) and confirmed to the General Counsel at 388 Greenwich
Street, 35th Floor, New York, New
<PAGE>
27
York, 10013, Attention: General Counsel; or, if sent to the Company, will be
mailed, delivered or telefaxed to the Legal Department (fax no.: (312) 836-3982)
and confirmed to it at 455 N. Cityfront Plaza Drive, Suite 1300, Chicago,
Illinois 60611, Attention: Legal Department; or, if sent to the Selling
Stockholder, will be mailed, delivered or telefaxed to Wells Fargo Bank (Fax
no.: (415) 956-9362) and confirmed to it at 420 Montgomery Street, 2nd Floor,
San Francisco, California 94104, Attention: Jane McKeever, and to the Executive
Director (fax no.: (440) 646-0530) and confirmed to it at 6009 Landerhaven
Drive, Unit H, Mayfield Heights, Ohio 44124, Attention: Janis L. Bair, Executive
Director.
13. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and no
other person will have any right or obligation hereunder.
14. Applicable Law. This Agreement will be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be performed within the State of New York.
15. Counterparts. This Agreement may be signed in one or more
counter parts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
16. Headings. The section headings used herein are for convenience
only and shall not affect the construction hereof.
17. Definitions. The terms which follow, when used in this
Agreement, shall have the meanings indicated.
"Act" shall mean the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
legal holiday or a day on which banking institutions or trust companies are
authorized or obligated by law to close in New York City.
"Class B Stock" shall mean the Class B Common Stock, $0.10 par value
per share, of the Company.
"Commission" shall mean the Securities and Exchange Commission.
"Effective Date" shall mean each date and time that the Registration
Statement, any post-effective amendment or amendments thereto and any Rule
462(b) Registration Statement became or become effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Execution Time" shall mean the date and time that this Agreement is
executed and delivered by the parties hereto.
<PAGE>
28
"International Preliminary Prospectus" shall mean any preliminary
prospectus with respect to the offering of the International Securities
referred to in Section 1(i)(a) above and any preliminary prospectus with
respect to the offering of the International Securities included in the
Registration Statement at the Effective Date that omits Rule 430A
Information.
"Preliminary Prospectus" shall mean the U.S. Preliminary Prospectus or
the International Preliminary Prospectus, as the case may be.
"Registration Statement" shall mean the registration statement
referred to in Section 1(i)(a) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at the
Execution Time, in the form in which it shall become effective) and, in the
event any post-effective amendment thereto or any Rule 462(b) Registration
Statement becomes effective prior to the Closing Date, shall also mean such
registration statement as so amended or such Rule 462(b) Registration
Statement, as the case may be. Such term shall include any Rule 430A
Information deemed to be included therein at the Effective Date as provided
by Rule 430A.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules under the
Act.
"Rule 430A Information" shall mean information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b) relating
to the offering covered by the registration statement referred to in
Section 1(i)(a) hereof.
"Salomon Smith Barney" shall mean Smith Barney Inc. or Salomon
Brothers Inc, to the extent that either such party is a signatory to this
Agreement.
"U.S." or "United States" shall mean the United States of America
(including the states thereof and the District of Columbia), its
territories, its possessions and other areas subject to its jurisdiction.
"United States or Canadian Person" shall mean any person who is a
national or resident of the United States or Canada, any corporation,
partnership or other entity created or organized in or under the laws of
the United States or Canada or of any political subdivision thereof, or any
estate or trust the income of which is subject to United States or Canadian
Federal income taxation, regardless of its source (other than any non-
United States or Non-Canadian branch of any United States or Canadian
Person), and shall include any United States or Canadian branch of a person
other than a United States or Canadian Person.
"U.S. Preliminary Prospectus" shall mean any preliminary prospectus
with respect to the offering of the U.S. Securities referred to in Section
1(i)(a) above and any preliminary prospectus with respect to the offering
of the U.S. Securities included in the Registration Statement at the
Effective Date that omits Rule 430A Information.
<PAGE>
29
18. Scope of Agreement. This Agreement shall in no way be
interpreted to amend, alter or suspend the terms and provisions of the
Registration Rights Agreement with respect to the rights and obligations of the
Company and the Selling Stockholder vis-a-vis each other, but not with respect
to the rights of the U.S. Underwriters pursuant to this Agreement.
<PAGE>
30
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company, the Selling Stockholder and the several U.S. Underwriters.
Very truly yours,
Navistar International Corporation
By: .....................................
Name:
Title:
Navistar International Transportation Corp.
Retiree Supplemental Benefit Trust
By: Wells Fargo, N.A., as Trustee
By: .....................................
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Smith Barney Inc.
Credit Suisse First Boston Corporation
J.P. Morgan Securities Inc.
By: Smith Barney Inc.
By: ............................
Name:
Title:
For itself and the other
several U.S. Underwriters named in
Schedule I to the foregoing
Agreement.
<PAGE>
SCHEDULE I
----------
<TABLE>
<CAPTION>
U. S. Underwriters Number of U.S. Underwritten
------------------ ---------------------------
Securities to be Purchased/b/
-----------------------------
<S> <C>
Smith Barney Inc..........................
Credit Suisse First Boston Corporation....
J.P. Morgan Securities Inc. ..............
----------
Total................................ 13,894,103
==========
- ---------------------
</TABLE>
/b/ Not including the 2,000,000 Repurchased Securities, which are to be
allocated to the several U.S. Underwriters pursuant to paragraph (c) of Section
2 hereto.
<PAGE>
EXHIBIT A
[Letterhead of officer or director]
Navistar International Corporation
----------------------------------
Public Offering of Common Stock
-------------------------------
May [ ], 1998
Smith Barney Inc.
Credit Suisse First Boston Corporation and
Credit Suisse First Boston (Europe) Limited
J.P. Morgan Securities Inc. and J.P. Morgan Securities Ltd.
As U.S. Representatives and Lead Managers of the several Underwriters,
c/o Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed
U.S. Underwriting Agreement and International Underwriting Agreement (together,
the "Underwriting Agreements"), among Navistar International Corporation, a
Delaware corporation (the "Company"), the Navistar International Transportation
Corp. Retiree Supplemental Benefit Trust and each of you as representatives or
managers, as the case may be, of a group of U.S. Underwriters or International
Managers (together, the "Underwriters") named therein, relating to an
underwritten public offering of Common Stock, $0.10 par value per share (the
"Common Stock"), of the Company.
In order to induce you and the other Underwriters to enter into the
Underwriting Agreements, the undersigned will not, without the prior written
consent of Smith Barney Inc., offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, or file (or participate in the filing of) a
registration statement with the Securities and Exchange Commission in respect
of, or establish or increase a put equivalent position or liquidate or decrease
a call equivalent position within the meaning of Section 16 of the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder with respect to, any
shares of capital stock of the Company or any securities convertible into or
exercisable or exchangeable for such capital stock, or publicly announce an
intention to effect any such transaction, for the period beginning on the date
of the Underwriting Agreements and ending on August 14, 1998, other than shares
of Common Stock disposed of as bona fide gifts approved by Smith Barney Inc. It
is understood that (i) the undersigned may at any time exercise options
exercisable into shares of Common Stock without the prior written consent of
Smith Barney Inc., provided that the shares received upon such exercise are held
by the undersigned subject to the terms of this agreement and (ii) you and the
other Underwriters will agree with the Company in the Underwriting Agreements to
permit an aggregate of 200,000 shares of Common Stock to be sold, pledged or
otherwise disposed of by the officers or directors of the Company or Navistar
International Transportation Corp. during the period referred to above.
The undersigned hereby represents and warrants that he/she has sold,
pledged or otherwise disposed of [ ] shares of the capital stock of the Company
or any securities convertible into or exercisable or exchangeable for such
capital stock (including pursuant to option exercises) during the period between
May 1, 1998 and the date hereof, inclusive.
<PAGE>
3
If for any reason the Underwriting Agreements shall be terminated
prior to the Closing Date (as defined in the Underwriting Agreements), the
agreement set forth above shall likewise be terminated.
Yours very truly,
[Signature of officer or director]
[Name and address of officer or director]
<PAGE>
[Draft--5/29/98]
EXHIBIT 1.2
Navistar International Corporation
4,000,000 Shares
Common Stock
($0.10 par value)
International Underwriting Agreement
New York, New York
[ ] , 1998
Smith Barney Inc.
Credit Suisse First Boston
(Europe) Limited
J.P. Morgan Securities Ltd.
As Lead Managers of the several Managers,
c/o Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Navistar International Transportation Corp. Retiree Supplemental
Benefit Trust (the "Selling Stockholder") proposes to sell to the several
underwriters named in Schedule I hereto (the "Managers"), for whom you (the
"Lead Managers") are acting as representatives, 4,000,000 shares of Class B
Common Stock, $0.10 par value (the "Class B Stock") of Navistar International
Corporation (the "Company"), a Delaware corporation, which as described herein
will convert into 4,000,000 shares of Common Stock, $0.10 par value per share
("Common Stock"), of the Company (such shares of Common Stock being hereinafter
called the "International Securities"). To the extent there are no additional
Managers listed on Schedule I other than you, the term Lead Managers as used
herein shall mean you, as Managers, and the terms Lead Managers and Managers
shall mean either the singular or plural as the context requires. The use of
the neuter in this Agreement shall include the feminine and masculine wherever
appropriate. Any reference herein to the Registration Statement, a Preliminary
Prospectus or the Prospectuses shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
which were filed under the Exchange Act on or before the Effective Date of the
Registration Statement or the issue date of such Preliminary Prospectus or the
Prospectuses, as the case may be; and any reference herein to the terms "amend",
"amendment" or "supplement" with respect to the Registration Statement, any
Preliminary Prospectus or the Prospectuses shall be deemed to refer to and
include the filing of any document under the Exchange Act after the Effective
Date of the Registration Statement, or the issue date of any Preliminary
Prospectus or the Prospectuses, as the case may be, deemed to be incorporated
therein by reference. Certain terms used herein are defined in Section 17
hereof.
<PAGE>
2
It is understood that the Company and the Selling Stockholder are
concurrently entering into a U.S. Underwriting Agreement dated the date hereof
(the "U.S. Underwriting Agreement") providing for the sale by the Selling
Stockholder of an aggregate of 15,894,103 shares of Common Stock (such shares to
be sold pursuant to the U.S. Underwriting Agreement being hereinafter called the
"U.S. Underwritten Securities"), in the United States and Canada through
arrangements with certain underwriters in the United States and Canada (the
"U.S. Underwriters" and, together with the Managers, the "Underwriters"), for
whom Smith Barney Inc., Credit Suisse First Boston Corporation and J.P. Morgan
Securities Inc. are acting as representatives (the "U.S. Representatives" and,
together with the Lead Managers, the "Representatives"). The U.S. Underwriting
Agreement also provides for the grant to the U.S. Underwriters of an option to
purchase from the Company up to 1,300,000 additional shares of Common Stock (the
"U.S. Option Securities"; the U.S. Option Securities, together with the U.S.
Underwritten Securities, being hereinafter called the "U.S. Securities", and the
U.S. Securities, together with the International Securities, being hereinafter
called the "Securities").
It is further understood and agreed that the U.S. Underwriters and the
Managers have entered into an Agreement Between U.S. Underwriters and Managers
dated the date hereof (the "Agreement Between U.S. Underwriters and Managers"),
pursuant to which, among other things, the Managers may purchase from the U.S.
Underwriters a portion of the Securities to be sold pursuant to the U.S.
Underwriting Agreement and the U.S. Underwriters may purchase from the Managers
a portion of the Securities to be sold pursuant to the International
Underwriting Agreement. The Company and the Selling Stockholder understand that
any such purchases and sales between the Managers and the U.S. Underwriters
shall be governed by the Agreement Between U.S. Underwriters and Managers and
shall not be governed by the terms of this Agreement or the U.S. Underwriting
Agreement.
In this Agreement, unless otherwise specified, all references to
"dollars" or "$" are to the currency of the United States.
1. Representations and Warranties.
(i) The Company represents and warrants to, and agrees with, each
Manager as set forth below in this Section 1.
(a) The Company meets the requirements for use of Form S-3 under the
Act and has prepared and filed with the Commission a registration statement
(file number 333-52375) on Form S-3, including related preliminary
prospectuses, for registration under the Act of the offering and sale of
the Securities. The Company may have filed one or more amendments thereto,
including a related preliminary prospectus, each of which has previously
been furnished to you. The Company will next file with the Commission one
of the following: either (1) prior to the Effective Date of such
registration statement, a further amendment to such registration statement
(including the forms of final prospectus) or (2) after the Effective Date
of such registration statement, a final prospectus in accordance with Rules
430A and 424(b). In the case of clause (2), the Company has included in
such registration statement, as amended at the Effective Date, all
information (other than Rule 430A Information) required by the Act and the
rules thereunder to be included in such registration statement and the
Prospectuses. As filed, such
<PAGE>
3
amendment and forms of final prospectus, or such final prospectuses, shall
contain all Rule 430A Information, together with all other such required
information, and, except to the extent the Lead Managers shall agree in
writing to a modification, shall be in all substantive respects in the form
furnished to you prior to the Execution Time or, to the extent not
completed at the Execution Time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company has advised you, prior to the
Execution Time, will be included or made therein.
It is understood that two forms of prospectus are to be used in
connection with the offering and sale of the Securities: one form of
prospectus relating to the U.S. Securities, which are to be offered and
sold to United States and Canadian Persons which for purposes of
distribution to Canadian Persons shall have a Canadian "wrap-around" (the
"Canadian Offering Memorandum"), and one form of prospectus relating to the
International Securities, which are to be offered and sold to persons other
than United States and Canadian Persons. The two forms of prospectus are
identical except for the outside front cover page and the outside back
cover page. Such form of prospectus relating to the U.S. Securities as
first filed with the Commission pursuant to Rule 424(b) after the Execution
Time or, if no filing pursuant to Rule 424(b) is required, such form of
final prospectus relating to the U.S. Securities included in the
Registration Statement at the Effective Date, is hereinafter called the
"U.S. Prospectus"; such form of prospectus relating to the International
Securities as first filed with the Commission pursuant to Rule 424(b) after
the Execution Time or, if no filing pursuant to Rule 424(b) is required,
such form of final prospectus relating to the International Securities
included in the Registration Statement at the Effective Date, is
hereinafter called the "International Prospectus"; and the U.S. Prospectus
and the International Prospectus are hereinafter collectively called the
"Prospectuses". Insofar as they relate to offers or sales of Securities in
Canada, all references herein to the U.S. Preliminary Prospectus and the
U.S. Prospectus shall include the Canadian Offering Memorandum.
(b) On the Effective Date, the Registration Statement did or will,
and when the Prospectuses are first filed (if required) in accordance with
Rule 424(b) and on the Closing Date (as defined herein), the Prospectuses
(and any supplements thereto) will, comply in all material respects with
the applicable requirements of the Act and the Exchange Act and the
respective rules thereunder; on the Effective Date and at the Execution
Time, the Registration Statement did not or will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date, the Prospectuses, if not filed
pursuant to Rule 424(b), will not, and on the date of any filing pursuant
to Rule 424(b) and on the Closing Date and any settlement date, the
Prospectuses (together with any supplement thereto) will not, include any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the Company makes no representations or warranties as to the
information contained in or omitted from the Registration Statement or the
Prospectuses (or any supplement thereto) in reliance upon and in conformity
with information furnished herein or in writing to the Company by or on
behalf of any Manager through the Lead Managers specifically for inclusion
in the Registration Statement or the Prospectuses (or any supplement
thereto) or by or on behalf of the
<PAGE>
4
Selling Stockholder specifically for inclusion in the Registration
Statement or the Prospectuses (or any supplement thereto).
(c) None of the sale of the Securities, the consummation of any other
of the transactions contemplated herein or in the U.S. Underwriting
Agreement (including the conversion of the Class B Stock to Common Stock)
or the fulfillment of the terms hereof of thereof will conflict with,
result in a breach or violation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, (i) the charter or by-laws of the Company or any
of its subsidiaries, (ii) the obligations of the Company or any of its
subsidiaries pursuant to the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other agreement,
obligation, condition, covenant or instrument to which the Company or any
of its subsidiaries is a party or bound or to which its or their property
is subject, or (iii) the obligations of the Company or any of its
subsidiaries pursuant to any statute, law, rule, regulation, judgment,
order or decree applicable to the Company or any of its subsidiaries of any
court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Company or any
of its subsidiaries or any of its or their properties, which conflict,
breach, violation or imposition would, in the case of clauses (ii) and
(iii) above, either individually or in the aggregate with all other
conflicts, breaches and violations referred to in this paragraph (c) (if
any), have an adverse effect on the consummation of the transactions
contemplated herein or in the U.S. Underwriting Agreement or have a
material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and its
subsidiaries, taken as a whole, whether or not arising from transactions in
the ordinary course of business, except as set forth in or contemplated in
the Prospectuses (exclusive of any supplement thereto).
(d) The restrictions relating to the transferability of the Class B
Stock imposed by Section III.E. of Article Fourth of the Restated
Certificate of Incorporation of the Company have been duly waived by the
Board of Directors of the Company.
(e) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries or its or their property is pending or,
to the best knowledge of the Company, threatened that (i) could reasonably
be expected to have a material adverse effect on the performance of this
Agreement or the U.S. Underwriting Agreement or the consummation of any of
the transactions contemplated hereby or thereby or (ii) could reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company and
its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in or
contemplated in the Prospectuses (exclusive of any supplement thereto).
(f) Except as disclosed in the Registration Statement and the
Prospectuses (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectuses (or any amendment or supplement thereto),
neither the Company nor any of its subsidiaries has incurred any liability
or obligation, direct or contingent,
<PAGE>
5
or entered into any transaction, not in the ordinary course of business,
that is material to the Company and its subsidiaries taken as a whole, and
there has not been any change in the capital stock, or material increase in
the short-term debt or long-term debt, of the Company or any of its
subsidiaries, or any material adverse change, or any development having or
which may reasonably be expected to have a material adverse change, in the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of business, except
as set forth in or contemplated in the Prospectuses (exclusive of any
supplement thereto).
Any certificate signed by any officer of the Company and delivered to
the Lead Managers or counsel for the Managers in connection with the offering of
the Securities shall be deemed a representation and warranty by the Company, as
to matters covered thereby, to each Manager.
(ii) The Selling Stockholder represents and warrants to, and agrees
with, each Manager that:
(a) The Selling Stockholder is the lawful owner of the Class B Stock
and that, upon the conversion of the Class B Stock and the sale and
delivery of, and payment for, the Securities, as provided herein and in the
International Underwriting Agreement, the Selling Stockholder will convey
to the Underwriters good and marketable title to the Class B Stock and,
assuming the conversion of the Class B Stock into the Common Stock as
provided in this Agreement and the U.S. Underwriting Agreement, the
Securities, free and clear of all liens, encumbrances, equities and claims
whatsoever.
(b) The Selling Stockholder has not taken, directly or indirectly,
any action designed to or which has constituted or which might reasonably
be expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Securities.
(c) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Selling
Stockholder of the transactions contemplated herein or in the International
Underwriting Agreement, except such as may have been obtained under the Act
and such as may be required under the blue sky laws of any jurisdiction in
connection with the purchase and distribution of the Securities by the
Underwriters and such other approvals as have been obtained.
(d) Assuming that the Board of Directors of the Company has approved
the transactions contemplated by this Agreement, none of the sale of the
Class B Stock and, assuming the conversion of the Class B Stock into the
Common Stock as provided in this Agreement and the U.S. Underwriting
Agreement, the Securities being sold by the Selling Stockholder, the
consummation of any other of the transactions herein contemplated by the
Selling Stockholder or the fulfillment of the terms hereof or thereof by
the Selling Stockholder will conflict with, result in a breach or violation
of, or constitute a default under any law or the trust agreement of the
Selling Stockholder (the "Trust Agreement") or the terms
<PAGE>
6
of any indenture or other agreement or instrument to which the Selling
Stockholder is a party or by which it is bound, or any judgment, order or
decree applicable to the Selling Stockholder of any court, regulatory body,
administrative agency, governmental body or arbitrator having jurisdiction
over the Selling Stockholder.
(e) In respect of any statements in or omissions from the
Registration Statement or the Prospectuses or any supplements thereto made
in reliance upon and in conformity with information furnished in writing to
the Company by the Selling Stockholder specifically for use in connection
with the preparation thereof, the Selling Stockholder hereby makes the same
representations and warranties to each U.S. Underwriter as the Company
makes to such U.S. Underwriter under paragraph (i)(b) of this Section.
Any certificate signed by the Selling Stockholder and delivered to the
Lead Managers or counsel for the Managers in connection with the offering of the
Securities shall be deemed a representation and warranty by the Selling
Stockholder, as to matters covered thereby, to each Manager.
2. Purchase and Sale. Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Selling
Stockholder agrees to sell to each Manager, and each Manager agrees severally
and not jointly to purchase from the Selling Stockholder, at a purchase price of
$[ ] per share, the Class B Stock which, when converted as described herein,
will equal the amount of the International Securities set forth opposite such
Manager's name in Schedule I hereto [and the Company agrees to pay to each
Manager a[n additional] discount of $[ ] for each share purchased by such
Manager]. It is understood that the Managers are not obligated to purchase any
International Securities unless all the U.S. Underwritten Securities are
purchased by the U.S. Underwriters.
3. Delivery and Payment. Delivery of and payment for the
International Securities shall be made at 10:00 AM, New York City time, on [
], 1998, or at such time on such later date not more than three Business Days
after the foregoing date as the Lead Managers and the U.S. Representatives shall
designate, which date and time may be postponed by agreement among the Lead
Managers, the U.S. Representatives, the Company and the Selling Stockholder or
as provided in Section 9 hereof (such date and time of delivery and payment for
the U.S. Securities being herein called the "Closing Date"). Delivery of the
International Securities shall be made to the Lead Managers for the respective
accounts of the several Managers against payment by the several Managers through
the Lead Managers of the purchase price of the International Securities to or
upon the order of the Selling Stockholder by wire transfer payable in same-day
funds to the account specified by the Selling Stockholder [and against payment
by the Company of the discount of $[ ] for each share purchased by the
Managers to or upon the order of the several Managers through the Lead Managers
by wire transfer payable in same-day funds to the account specified by the U.S.
Underwriters through Salomon Smith Barney]. Delivery of the International
Securities shall be made through the facilities of The Depository Trust Company
unless the Lead Managers shall otherwise instruct.
The Company will pay all applicable state transfer taxes, if any,
involved in the transfer to the several Managers of the International
Securities, and the respective Managers will pay any additional stock transfer
taxes involved in further transfers.
<PAGE>
7
On the Closing Date, the Selling Stockholder will surrender
certificates, duly endorsed to the Company or in blank, for shares of Class B
Stock to the Company or its transfer agent for conversion into the International
Securities. The Company shall or shall cause its transfer agent to, on the
Closing Date upon receipt of such certificates, effect such conversion and issue
the International Securities for the respective accounts of the several
Managers.
4. Offering by Managers. It is understood that the several Managers
propose to offer the International Securities for sale to the public as set
forth in the International Prospectus.
5. Agreements.
(i) The Company agrees with the several Managers that:
(a) The Company will use its reasonable best efforts to cause the
Registration Statement, if not effective at the Execution Time, and any
amendment thereof, to become effective. Prior to the termination of the
offering of the Securities, the Company will not file any amendment of the
Registration Statement or supplement to the Prospectuses or any Rule 462(b)
Registration Statement unless the Company has furnished you a copy for your
review prior to filing and will not file any such proposed amendment or
supplement to which you reasonably object. Subject to the foregoing
sentence, if the Registration Statement has become or becomes effective
pursuant to Rule 430A, or filing of the Prospectuses is otherwise required
under Rule 424(b), the Company will cause the Prospectuses, properly
completed, and any supplement thereto to be filed with the Commission
pursuant to the applicable paragraph of Rule 424(b) within the time period
prescribed and will provide evidence satisfactory to the Lead Managers of
such timely filing. Upon your request, the Company will cause the Rule
462(b) Registration Statement, completed in compliance with the Act and the
applicable rules and regulations thereunder, to be filed with the
Commission pursuant to Rule 462(b) and will provide evidence satisfactory
to the Lead Managers of such filing. The Company will promptly advise the
Lead Managers (1) when the Registration Statement, if not effective at the
Execution Time, shall have become effective, (2) when the Prospectuses, and
any supplement thereto, shall have been filed (if required) with the
Commission pursuant to Rule 424(b) or when any Rule 462(b) Registration
Statement shall have been filed with the Commission, (3) when, prior to
termination of the offering of the Securities, any amendment to the
Registration Statement shall have been filed or become effective, (4) of
any request by the Commission or its staff for any amendment of the
Registration Statement, or any Rule 462(b) Registration Statement, or for
any supplement to the Prospectuses or for any additional information, (5)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the institution or
threatening of any proceeding for that purpose and (6) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of the International Securities for sale in any jurisdiction
or the institution or threatening of any proceeding for such purpose. The
Company will use its reasonable best efforts to prevent the issuance of any
such stop order or the suspension of any such qualification and, if issued,
to obtain as soon as possible the withdrawal thereof.
<PAGE>
8
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of
which the Prospectuses as then supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein in the light of the circumstances under
which they were made not misleading, or if it shall be necessary to amend
the Registration Statement or supplement the Prospectuses to comply with
the Act or the Exchange Act or the respective rules thereunder, the Company
promptly will (1) notify the Lead Managers of such event, (2) prepare and
file with the Commission, subject to the second sentence of paragraph
(i)(a) of this Section 5, an amendment or supplement which will correct
such statement or omission or effect such compliance and (3) supply any
supplemented Prospectuses to you in such quantities as you may reasonably
request.
(c) As soon as practicable, the Company will make generally available
to its security holders and to the Lead Managers an earnings statement or
statements of the Company and its subsidiaries which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 under the Act.
(d) The Company will furnish to the Lead Managers and counsel for the
Managers, without charge, signed copies of the Registration Statement
(including exhibits thereto) and to each other Manager a copy of the
Registration Statement (without exhibits thereto) and, so long as delivery
of a prospectus by an Manager or dealer may be required by the Act, as many
copies of each Preliminary Prospectus and the Prospectuses and any
supplement thereto as the Lead Managers may reasonably request. The
Company will pay the expenses of printing or other production of all
documents relating to the offering.
(e) The Company will arrange, if necessary, for the qualification of
the Securities for sale under the laws of such jurisdictions as the Lead
Managers may designate, will maintain such qualifications in effect so long
as required for the distribution of the Securities and will pay any fee of
the National Association of Securities Dealers, Inc., in connection with
its review of the offering; provided that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not now
so qualified or to take any action that would subject it to service of
process in suits, other than those arising out of the offering or sale of
the Securities, in any jurisdiction where it is not now so subject.
(f) The Company will not, without the prior written consent of
Salomon Smith Barney, for a period of 90 days following the Execution Time,
offer, sell, contract to sell, pledge or otherwise dispose of (or enter
into any transaction which is designed to, or might reasonably be expected
to, result in the disposition (whether by actual disposition or effective
economic disposition due to cash settlement or otherwise) by the Company or
any affiliate of the Company or any person in privity with the Company or
any affiliate of the Company), directly or indirectly, or announce the
offering of, or file a registration statement with the Commission in
respect of, any other shares of Common Stock or any securities
convertible into, or exercisable or exchangeable for, shares of Common
Stock, or grant any options, warrants or similar securities to purchase
Common Stock; provided, however, that the Company may issue and sell Common
Stock or make any awards pursuant to any employee stock option plan, stock
ownership plan or
<PAGE>
9
dividend reinvestment plan of the Company in effect at the Execution Time
and the Company may issue Common Stock issuable upon the conversion of
securities (including Class B Stock) or the exercise of warrants
outstanding at the Execution Time.
(g) The Company will not take, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected
to cause or result, under the Exchange Act or otherwise, in stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities.
(h) The Company agrees to pay the costs and expenses relating to the
following matters: (i) the preparation, printing or reproduction and
filing with the Commission of the Registration Statement (including
financial statements and exhibits thereto), each Preliminary Prospectus,
the Prospectuses and each amendment or supplement to any of them; (ii) the
printing (or reproduction) and delivery (including postage, air freight
charges and charges for counting and packaging) of such copies of the
Registration Statement, each Preliminary Prospectus, the Prospectuses and
all amendments or supplements to any of them, as may, in each case, be
reasonably requested for use in connection with the offering and sale of
the Securities; (iii) the preparation, printing, authentication, issuance
and delivery of certificates for the Securities, including any stamp or
transfer taxes in connection with the original issuance and sale of the
Securities; (iv) the printing (or reproduction) and delivery of this
Agreement, the U.S. Underwriting Agreement, any blue sky memorandum and all
other agreements or documents printed (or reproduced) and delivered in
connection with the offering of the Securities; (v) the listing of the
Option Securities on the New York Stock Exchange; (vi) any registration or
qualification of the Securities for offer and sale under the securities or
blue sky laws of the several states or Canada or any other foreign
jurisdiction or locality therein (including filing fees and the reasonable
fees and expenses of counsel for the Underwriters relating to such
registration and qualification); (vii) any filings required to be made with
the National Association of Securities Dealers, Inc. (including filing fees
and the reasonable fees and expenses of counsel for the Underwriters
relating to such filings); (viii) the transportation and other expenses
incurred by or on behalf of Company representatives in connection with
presentations to prospective purchasers of the Securities; (ix) the fees
and expenses of the Company's accountants and the fees and expenses of
counsel (including local and special counsel) for the Company and the
Selling Stockholder subject as set forth in the last sentence of this
paragraph (h) of Section 5 to the Registration Rights Agreement (as
defined); (x) the conversion of the Class B Stock into the Securities; and
(xi) all other costs and expenses incident to the performance by the
Company and the Selling Stockholder of their obligations hereunder. This
paragraph (h) of Section 5 shall in no way be interpreted to amend, alter
or suspend the terms and provisions of the Registration Rights Agreement
dated March 30, 1993, between the Company and the Selling Stockholder (the
"Registration Rights Agreement") with respect to the rights and
obligations of the Company and the Selling Stockholder vis-a-vis each
other, but not with respect to the rights of the Managers pursuant to this
Agreement.
<PAGE>
10
(ii) The Selling Stockholder agrees with the several Managers that:
(a) The Selling Stockholder will not, without the prior written
consent of Salomon Smith Barney, offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file (or participate in
the filing of) a registration statement with the Commission in respect of,
or establish or increase a put equivalent position or liquidate or decrease
a call equivalent position within the meaning of Section 16 of the Exchange
Act with respect to, any shares of capital stock of the Company or any
securities convertible into or exercisable or exchangeable for such capital
stock, or publicly announce an intention to effect any such transaction,
for a period of 90 days following the Execution Time, other than the
conversion of Class B Stock into Common Stock.
(b) The Selling Stockholder will not take any action designed to or
which has constituted or which might reasonably be expected to cause or
result, under the Exchange Act or otherwise, in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities.
(c) The Selling Stockholder will advise you promptly, and if
requested by you, will confirm such advice in writing, so long as delivery
of a prospectus relating to the Securities by an underwriter or dealer may
be required under the Act, of any change in information in the Registration
Statement or the Prospectuses relating to the Selling Stockholder.
(iii) Each Manager agrees that (a) it is not purchasing any of the
International Securities for the account of any United States or Canadian
Person, (b) it has not offered or sold, and will not offer or sell, directly or
indirectly, any of the International Securities or distribute any International
Prospectus to any person in the United States or Canada, or to any United States
or Canadian Person, (c) any dealer to whom it may sell any of the International
Securities will represent that it is not purchasing for the account of any
United States or Canadian Person and agree that it will not offer or resell,
directly or indirectly, any of the International Securities in the United States
or Canada, or to any United States or Canadian Person or to any other dealer who
does not so represent and agree; provided, however, that the foregoing shall not
restrict (i) purchases and sales between the U.S. Underwriters on the one hand
and the Managers on the other hand pursuant to the Agreement Between U.S.
Underwriters and Managers, (ii) stabilization transactions contemplated under
the Agreement Between U.S. Underwriters and Managers, conducted through Salomon
Smith Barney (or through the U.S. Representatives and the Lead Managers) as part
of the distribution of the Securities and (iii) sales to or through (or
distributions of International Prospectuses or International Preliminary
Prospectuses to) non-United States or Canadian Persons who are investment
advisors, or who otherwise exercise investment discretion, and who are
purchasing for the account of any United States or Canadian Person and (d) the
executive officers and directors of the Company and Navistar International
Transportation Corp. ("NITC"), other than John R. Horne and Robert C. Lannert,
may sell, pledge or otherwise dispose of up to an aggregate of 200,000 shares
during the period beginning on the Execution Time and ending on August 14, 1998.
(iv) The agreements of the Managers set forth in paragraph (iii) of
this Section 5 shall terminate upon the earlier of the following events:
<PAGE>
11
(a) a mutual agreement of the U.S. Representatives and the Lead
Managers to terminate the selling restrictions set forth in paragraph (iii)
of this Section 5 and in Section 5(iii) of the U.S. Underwriting Agreement;
or
(b) the expiration of a period of 30 days after the Closing Date,
unless (1) the Lead Managers shall have given notice to the Company, the
Selling Stockholder and the U.S. Representatives that the distribution of
the International Securities by the Managers has not yet been completed or
(2) the U.S. Representatives shall have given notice to the Company, the
Selling Stockholder and the Managers that the distribution of the U.S.
Securities by the U.S. Underwriters has not yet been completed. If such
notice by the U.S. Representatives or the Lead Managers is given, the
agreements set forth in such paragraph (iii) shall survive until the
earlier of (A) the event referred to in clause (a) of this subsection (iv)
or (B) the expiration of an additional period of 30 days from the date of
any such notice.
(v) Each Manager agrees that it (i) will not offer or sell any shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments
(whether as principal or agent) for the purpose of their businesses or in other
circumstances which do not constitute an offer to the public in the United
Kingdom for the purposes of the Public Offers of Securities Regulation 1995 (the
"Regulations"), (ii) will comply with all applicable provisions of the
Regulations and of the Financial Services Act 1986 with respect to anything done
by it in relation to the shares in, from or otherwise involving the United
Kingdom and (iii) will only issue or pass on in the United Kingdom any document
received by it in connection with the issue of these shares if that person is of
a kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 (as amended) or is a person to whom such
documents may otherwise lawfully be issued or passed on.
6. Conditions to the Obligations of the Managers. The obligations of
the Managers to purchase the International Securities shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Selling Stockholder contained herein as of the Execution Time, the Closing
Date, to the accuracy of the statements of the Company and the Selling
Stockholder made in any certificates pursuant to the provisions hereof, to the
performance by the Company and the Selling Stockholder of their respective
obligations hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the Lead Managers agree in writing to a later
time, the Registration Statement will become effective not later than (i)
6:00 PM New York City time on the date of determination of the public
offering price, if such determination occurred at or prior to 3:00 PM New
York City time on such date or (ii) 9:30 AM on the Business Day following
the day on which the public offering price was determined, if such
determination occurred after 3:00 PM New York City time on such date; if
filing of the Prospectuses, or any supplement thereto, is required pursuant
to Rule 424(b), the Prospectuses, and any such supplement, will be filed in
the manner and within the time period required by
Rule 424(b); and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or threatened.
<PAGE>
12
(b) The Company shall have caused Kirkland & Ellis, counsel for the
Company, to have furnished to the Lead Managers their opinion, dated the
Closing Date and addressed to the Lead Managers, to the effect that:
(i) each of the Company, NITC and Navistar Financial
Corporation ("NFC") is validly existing as a corporation and in good
standing under the General Corporation Law of the State of Delaware.
Under their respective Certificates of Incorporation and By-Laws, each
of the Company, NITC and NFC has the corporate power and authority
necessary to own and lease its properties and to conduct its business
as described in the Prospectuses;
(ii) this Agreement and the U.S. Underwriting Agreement have
been duly authorized, executed and delivered by the Company;
(iii) the U.S. Option Securities to be sold by the Company
pursuant to the U.S. Underwriting Agreement are duly authorized
validly issued, fully paid and nonassessable, [the sale of the U.S.
Option Securities is not subject to any preemptive rights under the
terms of the statue under which the Company is incorporated, under the
Company's Certificate of Incorporation or under any contractual
provision of which such counsel has knowledge]; the Securities to be
purchased by the Underwriters from the Selling Stockholder pursuant to
this Agreement and the U.S. Underwriting Agreement are duly authorized
validly issued, fully paid and nonassessable;
(iv) the Company's authorized capital stock (including its
authorized Common Stock) is as set forth under the heading
"Capitalization" in the Prospectuses and conforms in all material
respects to the description of the terms thereof contained under the
heading "Description of Capital Stock" in the Prospectuses;
(v) the Company's execution and delivery of this Agreement and
the U.S. Underwriting Agreement and the sale of the Securities to you
in accordance with this Agreement and the U.S. Underwriting Agreement
and the consummation by the Company of the other transactions
contemplated herein or therein (including the conversion of the Class
B Stock to Common Stock) do not (A) violate the Company's Certificate
of Incorporation or Bylaws or (B) constitute a violation by the
Company of any applicable provision of any law, statute or regulation
(except that such counsel expresses no opinion in this paragraph as to
compliance with any disclosure requirement or any prohibition against
fraud or misrepresentation or as to whether performance of the
indemnification or contribution provisions in this Agreement or the
U.S. Underwriting Agreement would be permitted)
or (C) breach, or result in a default under, any existing obligation
of the Company or any of its subsidiaries under any of the agreements
set forth on Schedule A attached thereto (which representatives of the
Company have advised such counsel include all material debt agreements
and
<PAGE>
13
instruments of or binding on the Company or any of the Company's
subsidiaries). The agreements in Schedule A contain debt incurrence
tests and/or other financial covenants and tests; such counsel has not
attempted to independently apply any of those covenants or tests.
Representatives of the Company have however advised such counsel that
they have applied all of those tests and covenants and have determined
that none of those tests or covenants will breached by the sale of the
Securities to you or by any of the other actions cited at the
beginning of this paragraph, and such counsel has assumed without
investigation that such advice and determination are correct;
(vi) such counsel has no knowledge about any legal action or
any governmental action, investigation or proceeding that is pending
or threatened against the Company, any of the Company's subsidiaries
or any of their property that has caused such counsel to conclude that
such preceding is required by Item 103 of Regulation S-K to be
described in the Prospectuses but that is not so described; such
counsel has no knowledge about any contract or other document to which
the Company or any of its subsidiaries is a party or to which any of
their property is subject that has caused such counsel to conclude
that such contract or other document is required to be described in
the Prospectuses but is not so described or is required to be filed as
an exhibit to the Registration Statement but has not been so filed;
(vii) a member of the Commission's staff has advised such
counsel by telephone that the Commission has entered an order
declaring the Registration Statement effective under the Act on June [
], 1998 (the "effective date"); such counsel has no knowledge that any
stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or overtly threatened
by, the Commission; the Prospectuses, and any supplements thereto,
have been filed with the Commission within the time period required by
Rule 424(b) under the Act; and such counsel shall state in a separate
paragraph that nothing has come to such counsel's attention that has
caused such counsel to conclude that (A) the Registration Statement at
the Effective Date contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or (B) the
Prospectuses at the date each bears or on the Closing Date contained
or contains an untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading or (C) as of the effective date, either the Registration
Statement or the Prospectuses appeared on its face not to be
responsive in all material respects to the requirements of Form S-3;
(viii) the Company was not required to file with, or obtain any
consent, approval, authorization or order of any governmental agency
or body for the sale of the Securities under this Agreement or the
U.S. Underwriting Agreement and the consummation by the Company of the
other transactions contemplated hereby or thereby (including the
conversion
<PAGE>
14
of the Class B Stock to Common Stock), except for the registration of
the offer and sale of the Securities under the Act and as may be
required under [the Exchange Act] in connection with the purchase and
distribution of the Securities by the Underwriters;
(ix) the Company is not and, immediately after the sale of the
U.S. Option Securities to the U.S. Underwriters and the application of
the net proceeds therefrom as described in the Prospectus under the
caption "Use of Proceeds" will not be, an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended, and
(x) the information in the Prospectuses under the heading
"Certain United States Tax Consequences to Non-United States Holders"
to the extent that it summarizes laws, governmental rules and
regulations or documents is correct in all material respects.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the State
of New York, the General Corporation Law of the State of Delaware or the
Federal laws of the United States, to the extent they deem proper and
specified in such opinion, upon the opinion of other counsel of good
standing whom they believe to be reliable and who are satisfactory to
counsel for the Managers and (B) as to matters of fact, to the extent they
deem proper, on certificates of responsible officers of the Company and
public officials. The opinion of such counsel shall be rendered to the
Managers at the request of the Company and shall so state. References to
the Prospectuses in this paragraph (b) include any supplements thereto at
the Closing Date.
(c) The Company shall have caused Robert A. Boardman, Esq., Senior
Vice President and General Counsel of the Company, to have furnished to the
Lead Managers his opinion, dated the Closing Date and addressed to the Lead
Managers, to the effect that:
(i) each of the Company, NITC and NFC (individually a
"Subsidiary" and collectively the "Subsidiaries") has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction in which it is chartered or
organized, with full corporate power and authority to own or lease, as
the case may be, and to operate its properties and conduct its
business as described in the Prospectuses, and has been duly qualified
to do business as a foreign corporation and is in good standing under
the laws of each jurisdiction wherein it owns or leases material
properties or conducts material business and where the failure to be
so qualified would, individually or in the aggregate, have a material
adverse effect on the condition (financial or otherwise), prospects,
earnings, business or properties of the Company and its subsidiaries,
taken as a whole, whether or not arising from transactions in the
ordinary course of business, except as set forth in or contemplated in
the Prospectuses; notwithstanding the foregoing limitation, NITC is
duly qualified to do business as a foreign corporation and is in good
standing under the laws of the States of Arkansas, Indiana, Illinois,
Ohio, Texas and Wisconsin;
<PAGE>
15
(ii) all the outstanding shares of capital stock of each
Subsidiary have been duly authorized and validly issued and are fully
paid and nonassessable, and, except as otherwise set forth in the
Prospectuses, all outstanding shares of capital stock of the
Subsidiaries are owned by the Company either directly or through
wholly owned subsidiaries free and clear of any perfected security
interest and, to the knowledge of such counsel, after due inquiry, any
other security interest, claim, lien or encumbrance;
(iii) the Company's authorized capital stock (including its
authorized Common Stock) is as set forth under the heading
"Capitalization" in the Prospectuses and conforms in all material
respects to the description of the terms thereof contained under the
heading "Description of Capital Stock" in the Prospectuses;
(iv) the outstanding shares of Common Stock (including the
Securities being sold hereunder and under the U.S. Underwriting
Agreement) and Class B Stock have been duly and validly authorized and
issued and are fully paid and nonassessable; the Securities have been
duly and validly authorized, and, when issued and delivered to and
paid for by the U.S. Underwriters pursuant to the U.S. Underwriting
Agreement and by the International Underwriters pursuant hereto, will
be fully paid and nonassessable; the Securities are duly listed, and
admitted and authorized for trading, on the New York Stock Exchange
subject to official notice of issuance and evidence of satisfactory
distribution, on the New York Stock Exchange; the certificates for the
Securities are in valid and sufficient form; the holders of
outstanding shares of capital stock of the Company are not entitled to
preemptive or other rights to subscribe for the Securities and, except
as set forth in the Prospectuses, no options, warrants or other rights
to purchase, agreements or other obligations to issue, or rights to
convert any obligations into or exchange any securities for, shares of
capital stock of or ownership interests in the Company are
outstanding;
(v) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of the Subsidiaries or its or their property of a
character required to be disclosed in the Registration Statement which
is not adequately disclosed in the Prospectuses, and there is no
franchise, contract or other document of a character required to be
described in the Registration Statement or Prospectuses, or to be
filed as an exhibit thereto, which is not described or filed as
required; and the information in the Prospectuses under the headings
"Risk Factors--Impact of Government Regulation", "Management's
Discussion and Analysis of Results and Operations and Financial
Condition--Environmental Matters" and "Description of Capital Stock"
to the extent that it summarizes laws, governmental rules and
regulations or documents is correct in all material respects;
(vi) none of the issuance and sale of the Securities, the
consummation of any other of the transactions contemplated herein or
in the
<PAGE>
16
U.S. Underwriting Agreement or the fulfillment of the terms hereof or
thereof will conflict with, result in a breach or violation of or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company or the Subsidiaries pursuant to (A) the
Certificate of Incorporation or Bylaws of the Company or the
Subsidiaries, (B) the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument known to such
counsel to which the Company or any Subsidiary is a party or bound or
to which its or their property is subject, or (C) any statute, law,
rule, regulation, judgment, order or decree known to such counsel to
be applicable to the Company or any of the Subsidiaries of any court,
regulatory body, administrative agency, governmental body, arbitrator
or other authority having jurisdiction over the Company or the
Subsidiaries or any of its or their property, which violation or
default would, in the case of clauses (B) and (C) above, either
individually or in the aggregate with all other violations and
defaults referred to in this paragraph (vi) (if any), have a material
adverse effect on the condition (financial or otherwise), prospects,
earnings, business or properties of the Company and its subsidiaries,
taken as a whole, whether or not arising from transactions in the
ordinary course of business, except as set forth in or contemplated in
the Prospectuses;
(vii) such counsel has no reason to believe that the
Registration Statement on the Effective Date contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectuses as of their dates and
on the Closing Date included or includes an untrue statement of a
material fact or omitted or omits to state a material fact necessary
to make the statements therein, in the light of the circumstances
under which they were made, not misleading (in each case, other than
the financial statements and other financial information contained
therein, as to which such counsel need express no opinion); and
(viii) except as set forth in the Prospectuses, no holders of
securities of the Company have rights to the registration of such
securities under the Registration Statement.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the State
of Illinois, the General Corporation Law of the State of Delaware or the
Federal laws of the United States, to the extent such counsel deems proper
and specified in such opinion, upon the opinion of other counsel of good
standing whom they believe to be reliable and who are satisfactory to
counsel for the Lead Managers and (B) as to matters of fact, to the extent
such counsel deems proper, on certificates of responsible officers of the
Company and public officials. The opinion of such counsel shall be
rendered to the Lead Managers at the request of the Company and shall so
state. References to the Prospectuses in this paragraph (c) include any
supplements thereto at the Closing Date.
(d) The Selling Stockholder shall have caused Willkie Farr &
Gallagher, counsel for the Selling Stockholder, to have furnished to the
Lead Managers their
<PAGE>
17
opinion, dated the Closing Date and addressed to the Lead Managers, to the
effect that:
(i) this Agreement and the U.S. Underwriting Agreement have
been duly authorized, executed and delivered by the Selling
Stockholder and, assuming that the Board of Directors of the Company
has approved the transactions contemplated by this Agreement, the
Selling Stockholder has full legal right and authority to surrender
the Class B Stock for conversion into the Securities and to sell,
transfer and deliver the Class B Stock and, assuming the conversion of
the Class B Stock into the Common Stock as provided in this Agreement
and the U.S. Underwriting Agreement, the Securities in the manner
provided in this Agreement and in the U.S. Underwriting Agreement;
(ii) the delivery to the several Underwriters of certificates
for the Securities against payment therefor as provided herein and in
the U.S. Underwriting Agreement, assuming that the Board of Directors
of the Company has approved the transactions contemplated by this
Agreement, will pass good and marketable title to the Class B Stock
and, assuming the conversion of the Class B Stock into the Common
Stock as provided in this Agreement and the U.S. Underwriting
Agreement, the Securities to the several Underwriters, free and clear
of all liens, encumbrances, equities and claims whatsoever;
(iii) no consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation by the
Selling Stockholder of the transactions contemplated herein and in the
U.S. Underwriting Agreement, except such as may have been obtained
under the Act and such as may be required under the blue sky laws of
any jurisdiction in connection with the purchase and distribution of
the Securities by the Underwriters and such other approvals (specified
in such opinion) as have been obtained; and
(iv) none of the sale of the Class B Stock or, assuming the
conversion of the Class B Stock into the Common Stock as provided in
this Agreement and the U.S. Underwriting Agreement, the Securities,
the consummation of any other of the transactions contemplated herein
or in the U.S. Underwriting Agreement by the Selling Stockholder or
the fulfillment of the terms hereof or thereof by the Selling
Stockholder, assuming that the Board of Directors of the Company has
approved the transactions contemplated by this Agreement, will
conflict with, result in a breach or violation of, or constitute a
default under any law or the Trust Agreement or the terms of the
settlement agreement dated March 30, 1993, as amended, between the
Company and the Selling Stockholder, or any judgment, order or decree
known to such counsel to be applicable to the Selling Stockholder of
any court, regulatory body, administrative agency, governmental body
or arbitrator having jurisdiction over the Selling Stockholder.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of the Employee Retirement Income Security Act of
1974, as amended,
<PAGE>
18
or the application of laws of any jurisdiction other than the State of New
York, the State of Delaware or the Federal laws of the United States, to
the extent they deem proper and specified in such opinion, upon the opinion
of other counsel of good standing whom they believe to be reliable and who
are satisfactory to counsel for the Managers, and (B) as to matters of
fact, to the extent they deem proper, on certificates of the Selling
Stockholder and public officials. The opinion of such counsel shall be
rendered to the Managers at the request of the Selling Stockholder and
shall so state.
(e) The Lead Managers shall have received from Cravath, Swaine &
Moore, counsel for the Managers, such opinion or opinions, dated the
Closing Date and addressed to the Lead Managers, with respect to the
issuance and sale of the Securities, the Registration Statement, the
Prospectuses (together with any supplement thereto) and other related
matters as the Lead Managers may reasonably require, and the Company and
the Selling Stockholder shall have furnished to such counsel such documents
as they request for the purpose of enabling them to pass upon such matters.
(f) The Company shall have furnished to the Lead Managers a
certificate of the Company, signed by the Executive Vice President and
Chief Financial Officer of the Company and the Treasurer of the Company,
dated the Closing Date, to the effect that the signers of such certificate
have carefully examined the Registration Statement, the Prospectuses, any
supplements to the Prospectuses, this Agreement and the U.S. Underwriting
Agreement and that:
(i) the representations and warranties of the Company in this
Agreement and in the U.S. Underwriting Agreement are true and correct
in all material respects on and as of the Closing Date with the same
effect as if made on the Closing Date, and the Company has complied
with all the agreements and satisfied all the conditions on its part
to be performed or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge,
threatened; and
(iii) since the date of the most recent financial statements
included or incorporated by reference in the Prospectuses (exclusive
of any supplement thereto), there has been no material adverse change
in the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and its subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course
of business, except as set forth in or contemplated in the
Prospectuses (exclusive of any supplement thereto).
(g) The Selling Stockholder shall have furnished to the Lead Managers
a certificate, signed by David Hirschland, the Secretary of the
Supplemental Committee of the Selling Stockholder, dated the Closing Date,
to the effect that (i) the signer of such certificate has carefully
examined the Registration Statement, the Prospectuses, any supplement to
the Prospectuses, this Agreement and the U.S.
Underwriting Agreement, (ii) the representations and warranties of the
Selling Stockholder in this Agreement and in the U.S. Underwriting
Agreement are true
<PAGE>
19
and correct in all material respects on and as of the Closing Date to the
same effect as if made on the Closing Date and (iii) the Selling
Stockholder has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the
Closing Date.
(h) The Company shall have caused Deloitte & Touche, LLP to have
furnished to the Lead Managers and the Selling Stockholder, at the
Execution Time and at the Closing Date, letters, dated respectively as of
the Execution Time and as of the Closing Date, in form and substance
satisfactory to the Lead Managers, confirming that they are independent
accountants within the meaning of the Act and the Exchange Act and the
respective applicable published rules and regulations thereunder and that
they have performed a review of the unaudited interim financial information
of the Company for the three-month periods ended January 31, 1998 and 1997
and April 30, 1998 and 1997 and as at January 31, 1998 and 1997 and April
30, 1998 and 1997, in accordance with Statement on Auditing Standards No.
71, and stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules included or incorporated by reference in
the Registration Statement and the Prospectuses and reported on by
them comply as to form in all material respects with the applicable
accounting requirements of the Act and the Exchange Act and the
related published rules and regulations;
(ii) on the basis of a reading of the latest unaudited financial
statements made available by the Company and its subsidiaries; their
limited review, in accordance with standards established under
Statement on Auditing Standards No. 71, of the unaudited interim
financial information for the three-month periods ended January 31,
1998 and 1997, and as at January 31, 1998 and 1997; carrying out
certain specified procedures (but not an examination in accordance
with generally accepted auditing standards) which would not
necessarily reveal matters of significance with respect to the
comments set forth in such letter; a reading of the minutes of the
meetings of the stockholders, directors, audit, organizational and
finance committees of the Company and its subsidiaries; and inquiries
of certain officials of the Company who have responsibility for
financial and accounting matters of the Company and its subsidiaries
as to transactions and events subsequent to October 31, 1997, nothing
came to their attention which caused them to believe that:
(1) any unaudited financial statements included in the
Registration Statement and the Prospectuses do not comply as to
form in all material respects with applicable accounting
requirements of the Act and the Exchange Act and the related
rules and regulations adopted by the Commission; and said
unaudited financial statements are not in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements included or incorporated by reference in the
Registration Statement and the Prospectuses;
<PAGE>
20
(2) with respect to the period subsequent to January 31,
1998, there were, at a specified date not more than five days
prior to the date of the letter, any changes in the capital
stock, increase in consolidated debt of the Company or decreases
in the total assets or shareowners' equity of the Company and its
subsidiaries as compared with the amounts shown on the January
31, 1998, consolidated statement of financial condition included
in the Registration Statement and the Prospectuses, or for the
period from February 1, 1998, to such specified date there were
any decreases, as compared with the corresponding period in the
preceding fiscal year, in consolidated sales of manufactured
product, total sales and revenue, income before income taxes or
net income of the Company and its subsidiaries, except in all
instances for changes, increases or decreases set forth in such
letter, in which case the letter shall be accompanied by an
explanation by the Company as to the significance thereof unless
said explanation is not deemed necessary by the U.S.
Representatives; or
(3) the information included or incorporated by reference
in the Registration Statement and the Prospectuses in response to
Regulation S-K, Item 301 (Selected Financial Data) and Item 402
(Executive Compensation), is not in conformity with the
applicable disclosure requirements of Regulation S-K; and
(iii) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and its subsidiaries) set
forth in the Registration Statement and the Prospectuses, including
the information set forth under the captions "Prospectus Summary",
"Risk Factors", "Capitalization", "Selected Consolidated Financial and
Operating Data", "Management's Discussion and Analysis of Results of
Operations and Financial Condition", "Business" and "Description of
Capital Stock" in the Prospectuses, the information included or
incorporated by reference in Items 1, 6, 7, 11 and 13 of the Company's
Annual Report on Form 10-K, as amended, incorporated by reference in
the Registration Statement and the Prospectuses, the information
included in the "Management's Discussion and Analysis of Results of
Operations and Financial Condition" included in the Company's
Quarterly Report on Form 10-Q incorporated by reference in the
Registration Statement and the Prospectuses, the information included
in the Company's Current Reports on Form 8-K incorporated by reference
in the Registration Statement and the Prospectuses and the information
included in the Company's Proxy Statement incorporated by reference in
the Registration Statement and the Prospectuses agrees with the
accounting records of the Company and its subsidiaries, excluding any
questions of legal interpretation.
(i) Subsequent to the Execution Time, there shall not have been any
decrease in the rating of any of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g)
<PAGE>
21
under the Act) or any notice given of any intended or potential decrease in
any such rating or of a possible change in any such rating that does not
indicate the direction of the possible change.
(j) The Securities shall have been listed and admitted and authorized
for trading on the New York Stock Exchange, and satisfactory evidence of
such actions shall have been provided to the Lead Managers.
(k) At the Execution Time, the Company shall have furnished to the
Lead Managers a letter substantially in the form of Exhibit A hereto from
each executive officer and director of the Company or NITC addressed to the
Lead Managers.
(l) Prior to the Closing Date, the Company and the Selling
Stockholder shall have furnished to the Lead Managers such further
information, certificates and documents as the Lead Managers may reasonably
request.
(m) The closing of the purchase of the U.S. Underwritten Securities
pursuant to the U.S. Underwriting Agreement shall have occurred.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Lead Managers and counsel for the Managers, this Agreement
and all obligations of the Managers hereunder may be canceled at, or at any time
prior to, the Closing Date by the Lead Managers. Notice of such cancelation
shall be given to the Company and the Selling Stockholder in writing or by
telephone or facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall be
delivered at the office of Cravath, Swaine & Moore, counsel for the Managers, at
Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019, on the Closing
Date.
7. Reimbursement of Managers' Expenses. If the sale of the
International Securities provided for herein is not consummated because any
condition to the obligations of the Managers set forth in Section 6 hereof
relating to the Company is not satisfied, because of any termination pursuant to
Section 10 hereof or because of any refusal, inability or failure on the part of
the Company to perform any agreement herein or comply with any provision hereof
other than by reason of a default by any of the Managers, the Company will
reimburse the Managers severally through Salomon Smith Barney on demand for all
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by them in connection with the proposed purchase
and sale of the International Securities. If the sale of the International
Securities provided for herein is not consummated because any condition to the
obligations of the Managers set forth in Section 6 hereof relating to the
Selling Stockholder is not satisfied or because of any refusal, inability or
failure on the part of the Selling Stockholder to perform any agreement herein
or comply with any provision hereof other than by reason of a default by any of
the Managers, the Selling Stockholder will reimburse the Managers severally
through Salomon Smith Barney on demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
them in connection with the proposed purchase and sale of the International
Securities.
<PAGE>
22
8. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Manager, the directors, officers, employees and
agents of each Manager, each person who controls any Manager within the meaning
of either the Act or the Exchange Act against any and all losses, claims,
damages or liabilities, joint or several, to which they or any of them may
become subject under the Act, the Exchange Act or other Federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in the registration statement for the registration of the
Securities as originally filed or in any amendment thereof, or in any
International Preliminary Prospectus or U.S. Preliminary Prospectus or either of
the Prospectuses, or in any amendment thereof or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any Manager through the Lead Managers specifically for inclusion therein;
provided further, however, that the Company will not be liable in any such case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Selling Stockholder
specifically for inclusion therein. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
(b) The Selling Stockholder agrees to indemnify and hold harmless
each Manager, the directors, officers, employees and agents of each Manager and
each person who controls any Manager within the meaning of either the Act or the
Exchange Act, to the same extent as the foregoing indemnity from the Company to
each Manager, but only with reference to written information furnished to the
Company by or on behalf of the Selling Stockholder specifically for inclusion in
the documents referred to in the foregoing indemnity. This indemnity agreement
will be in addition to any liability which the Selling Stockholder may otherwise
have. The Company and the Managers acknowledge that the information under the
heading "Selling Stockholder" related to the number of shares of Common Stock
held by the Selling Stockholder constitutes the only information furnished in
writing by or on behalf of the Selling Stockholder for inclusion in any U.S.
Preliminary Prospectus or International Preliminary Prospectus or the
Prospectuses.
(c) Each Manager severally and not jointly agrees to indemnify and
hold harmless the Company, each of its directors, each of its officers who signs
the Registration Statement, each person who controls the Company within the
meaning of either the Act or the Exchange Act and the Selling Stockholder, to
the same extent as the foregoing indemnity to each Manager, but only with
reference to written information relating to such Manager furnished to the
Company by or on behalf of such Manager through the Lead Managers specifically
for inclusion in the documents referred to in the foregoing indemnity. This
indemnity agreement will be in addition to any liability which any Manager may
otherwise have. The Company and the Selling Stockholder acknowledge that the
statements set forth in the last paragraph of the cover page regarding delivery
of
<PAGE>
23
the Securities, the legend in block capital letters on page 2 related to
stabilization, syndicate covering transactions and penalty bids and, under the
heading "Underwriting", (i) the sentences related to concessions and
reallowances, (ii) the paragraph related to the Agreements Between the U.S.
Underwriters and the Managers and (iii) the paragraphs related to stabilization,
syndicate covering transactions and penalty bids in any U.S. Preliminary
Prospectus or International Preliminary Prospectus and the Prospectuses
constitute the only information furnished in writing by or on behalf of the
several Managers for inclusion in any U.S. Preliminary Prospectus or
International Preliminary Prospectus or the Prospectuses.
(d) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a), (b) or (c) above unless and to the extent it did
not otherwise learn of such action and such failure results in the forfeiture by
the indemnifying party of substantial rights and defenses and (ii) will not, in
any event, relieve the indemnifying party from any obligations to any
indemnified party other than the indemnification obligation provided in
paragraph (a), (b) or (c) above. The indemnifying party shall be entitled to
appoint counsel of the indemnifying party's choice at the indemnifying party's
expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the reasonable fees and expenses of any separate
counsel retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be satisfactory to the indemnified
party. Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An indemnifying party will not, without the prior
written consent of the indemnified parties (which consent shall not unreasonably
be withheld), settle or compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding.
(e) In the event that the indemnity provided in paragraph (a), (b) or
(c) of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company, the Selling Stockholder and the
Managers agree to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses
<PAGE>
24
reasonably incurred in connection with investigating or defending same)
(collectively "Losses") to which the Company, the Selling Stockholder and one or
more of the Managers may be subject in such proportion as is appropriate to
reflect the relative benefits received by the Company, by the Selling
Stockholder and by the Managers from the offering of the International
Securities; provided, however, that in no case shall any Manager (except as may
be provided in any agreement among underwriters relating to the offering of the
International Securities) be responsible for any amount in excess of the
underwriting discount or commission applicable to the International Securities
purchased by such Manager hereunder. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, the Company, the
Selling Stockholder and the Managers shall contribute in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company, of the Selling Stockholder and of the Managers in
connection with the statements or omissions which resulted in such Losses as
well as any other relevant equitable considerations. Benefits received by the
Company and by the Selling Stockholder shall be deemed to be equal to the total
net proceeds from the offering (before deducting expenses) received by the
Selling Stockholder, and benefits received by the Managers shall be deemed to be
equal to the total underwriting discounts and commissions, in each case as set
forth on the cover page of the U.S. Prospectus. Relative fault shall be
determined by reference to, among other things, whether any untrue or any
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information provided by the Company, the
Selling Stockholder or the Managers, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The Company, the Selling Stockholder and the
Managers agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (e), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person who
controls a Manager within the meaning of either the Act or the Exchange Act and
each director, officer, employee and agent of an Manager shall have the same
rights to contribution as such Manager, and each person who controls the Company
within the meaning of either the Act or the Exchange Act, each officer of the
Company who shall have signed the Registration Statement and each director of
the Company shall have the same rights to contribution as the Company, subject
in each case to the applicable terms and conditions of this paragraph (e).
Notwithstanding the foregoing, this paragraph (e) shall not be interpreted to
provide for any obligation of the Selling Stockholder in excess of the
obligations to which the Selling Stockholder would be subject under paragraph
(b) of this Section 8 if indemnity under such paragraph (b) had been available.
9. Default by a Manager. If any one or more Managers shall fail to
purchase and pay for any of the International Securities agreed to be purchased
by such Manager or Managers hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Managers shall be obligated severally to take up and
pay for (in the respective proportions which the amount of International
Securities set forth opposite their names in Schedule I hereto bears to the
aggregate amount of International Securities set forth opposite the names of all
the remaining Managers) the International Securities which the defaulting
Manager or Managers agreed but failed to purchase; provided, however, that in
the event that the aggregate amount of International Securities which the
defaulting Manager or Managers
<PAGE>
25
agreed but failed to purchase shall exceed 10% of the aggregate amount of
International Securities set forth in Schedule I hereto, the remaining Managers
shall have the right to purchase all, but shall not be under any obligation to
purchase any, of the International Securities, and if such nondefaulting
Managers do not purchase all the International Securities, this Agreement will
terminate without liability to any nondefaulting Manager, the Selling
Stockholder or the Company. In the event of a default by any Manager as set
forth in this Section 9, the Closing Date shall be postponed for such period,
not exceeding five Business Days, as the Lead Managers shall determine in order
that the required changes in the Registration Statement and the Prospectuses or
in any other documents or arrangements may be effected. Nothing contained in
this Agreement shall relieve any defaulting Manager of its liability, if any, to
the Company, the Selling Stockholder and any nondefaulting Manager for damages
occasioned by its default hereunder.
10. Termination. This Agreement shall be subject to termination in
the absolute discretion of the Lead Managers, by notice given to the Company
prior to delivery of and payment for the International Securities, if at any
time prior to such time (i) trading in the Company's Common Stock shall have
been suspended by the Commission on the New York, Chicago or Pacific Stock
Exchanges or trading in securities generally on the New York Stock Exchange
shall have been suspended or limited or minimum prices shall have been
established on the New York Stock Exchange, (ii) a banking moratorium shall have
been declared either by Federal or New York State authorities or (iii) there
shall have occurred any outbreak or escalation of hostilities, declaration by
the United States of a national emergency or war, or other calamity or crisis
the effect of which on financial markets is such as to make it, in the sole
judgment of the Lead Managers, impractical or inadvisable to proceed with the
offering or delivery of the International Securities as contemplated by the
International Prospectus (exclusive of any supplement thereto).
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers, of the Selling Stockholder and of the Managers set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Manager, the
Selling Stockholder or the Company or any of the officers, directors or
controlling persons referred to in Section 8 hereof, and will survive delivery
of and payment for the International Securities. The provisions of Sections 7
and 8 hereof shall survive the termination or cancelation of this Agreement.
12. Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Lead Managers, will be mailed,
delivered or telefaxed to the Salomon Smith Barney General Counsel (fax no.:
(212) 816-7912) and confirmed to the General Counsel at 388 Greenwich Street,
35th Floor, New York, New York, 10013, Attention: General Counsel; or, if sent
to the Company, will be mailed, delivered or telefaxed to the Legal Department
(fax no.: (312) 836-3982) and confirmed to it at 455 N. Cityfront Plaza Drive,
Suite 1300, Chicago, Illinois 60611, Attention: Legal Department; or, if sent to
the Selling Stockholder, will be mailed, delivered or telefaxed to Wells Fargo
Bank (fax no.: (415) 956-9362) and confirmed to it at 420 Montgomery Street, 2nd
Floor, San Francisco, California 94104, Attention: Jane McKeever, and to the
Executive Director (fax no.: (440) 646-0530) and confirmed to it at 6009
Landerhaven Drive, Unit H, Mayfield Heights, Ohio 44124, Attention: Janis L.
Bair Executive Director.
13. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and
<PAGE>
26
controlling persons referred to in Section 8 hereof, and no other person will
have any right or obligation hereunder.
14. Applicable Law. This Agreement will be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be performed within the State of New York.
15. Counterparts. This Agreement may be signed in one or more counter
parts, each of which shall constitute an original and all of which together
shall constitute one and the same agreement.
16. Headings. The section headings used herein are for convenience
only and shall not affect the construction hereof.
17. Definitions. The terms which follow, when used in this Agreement,
shall have the meanings indicated.
"Act" shall mean the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
legal holiday or a day on which banking institutions or trust companies are
authorized or obligated by law to close in New York City.
"Class B Stock" shall mean the Class B Common Stock, $0.10 par value
per share, of the Company.
"Commission" shall mean the Securities and Exchange Commission.
"Effective Date" shall mean each date and time that the Registration
Statement, any post-effective amendment or amendments thereto and any Rule
462(b) Registration Statement became or become effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Execution Time" shall mean the date and time that this Agreement is
executed and delivered by the parties hereto.
"International Preliminary Prospectus" shall mean any preliminary
prospectus with respect to the offering of the International Securities
referred to in Section 1(i)(a) above and any preliminary prospectus with
respect to the offering of the International Securities included in the
Registration Statement at the Effective Date that omits Rule 430A
Information.
"Preliminary Prospectus" shall mean the U.S. Preliminary Prospectus or
the International Preliminary Prospectus, as the case may be.
"Registration Statement" shall mean the registration statement
referred to in Section 1(i)(a) above, including exhibits and financial
statements, as amended
<PAGE>
27
at the Execution Time (or, if not effective at the Execution Time, in the
form in which it shall become effective) and, in the event any post-
effective amendment thereto or any Rule 462(b) Registration Statement
becomes effective prior to the Closing Date, shall also mean such
registration statement as so amended or such Rule 462(b) Registration
Statement, as the case may be. Such term shall include any Rule 430A
Information deemed to be included therein at the Effective Date as provided
by Rule 430A.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules under the
Act.
"Rule 430A Information" shall mean information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b) relating
to the offering covered by the registration statement referred to in
Section 1(i)(a) hereof.
"Salomon Smith Barney" shall mean Smith Barney Inc. or Salomon
Brothers Inc, to the extent that either such party is a signatory to this
Agreement.
"U.S." or "United States" shall mean the United States of America
(including the states thereof and the District of Columbia), its
territories, its possessions and other areas subject to its jurisdiction.
"United States or Canadian Person" shall mean any person who is a
national or resident of the United States or Canada, any corporation,
partnership or other entity created or organized in or under the laws of
the United States or Canada or of any political subdivision thereof, or any
estate or trust the income of which is subject to United States or Canadian
Federal income taxation, regardless of its source (other than any non-
United States or Non-Canadian branch of any United States or Canadian
Person), and shall include any United States or Canadian branch of a person
other than a United States or Canadian Person.
"U.S. Preliminary Prospectus" shall mean any preliminary prospectus
with respect to the offering of the U.S. Securities referred to in Section
1(i)(a) above and any preliminary prospectus with respect to the offering
of the U.S. Securities included in the Registration Statement at the
Effective Date that omits Rule 430A Information.
<PAGE>
28
18. Scope of Agreement. This Agreement shall in no way be interpreted
to amend, alter or suspend the terms and provisions of the Registration Rights
Agreement with respect to the rights and obligations of the Company and the
Selling Stockholder vis-a-vis each other, but not with respect to the rights of
the Managers pursuant to this Agreement.
<PAGE>
29
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company, the Selling Stockholder and the several Managers.
Very truly yours,
Navistar International Corporation
By:
----------------------------------
Name:
Title:
Navistar International Transportation Corp.
Retiree Supplemental Benefit Trust
By: Wells Fargo, N.A., as Trustee
By:
----------------------------------
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Smith Barney Inc.
Credit Suisse First Boston
(Europe) Limited
J.P. Morgan Securities Ltd.
By: Smith Barney Inc.
By:
-----------------------
Name:
Title:
For itself and the other
several Managers named in
Schedule I to the foregoing
Agreement.
<PAGE>
SCHEDULE I
----------
<TABLE>
<CAPTION>
Managers Number of International
-------- --------------------------
Securities to be Purchased
--------------------------
<S> <C>
Smith Barney Inc.............................
Credit Suisse First Boston (Europe) Limited..
J.P. Morgan Securities Ltd...................
-------------
Total................................... 4,000,000,000
=============
</TABLE>
<PAGE>
EXHIBIT A
[Letterhead of officer or director]
Navistar International Corporation
----------------------------------
Public Offering of Common Stock
-------------------------------
May [ ], 1998
Smith Barney Inc.
Credit Suisse First Boston Corporation and
Credit Suisse First Boston (Europe) Limited
J.P. Morgan Securities Inc. and J.P. Morgan Securities Ltd.
As U.S. Representatives and Lead Managers of the several Underwriters,
c/o Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed
U.S. Underwriting Agreement and International Underwriting Agreement (together,
the "Underwriting Agreements"), among Navistar International Corporation, a
Delaware corporation (the "Company"), the Navistar International Transportation
Corp. Retiree Supplemental Benefit Trust and each of you as representatives or
managers, as the case may be, of a group of U.S. Underwriters or International
Managers (together, the "Underwriters") named therein, relating to an
underwritten public offering of Common Stock, $0.10 par value per share (the
"Common Stock"), of the Company.
In order to induce you and the other Underwriters to enter into the
Underwriting Agreements, the undersigned will not, without the prior written
consent of Smith Barney Inc., offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, or file (or participate in the filing of) a
registration statement with the Securities and Exchange Commission in respect
of, or establish or increase a put equivalent position or liquidate or decrease
a call equivalent position within the meaning of Section 16 of the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder with respect to, any
shares of capital stock of the Company or any securities convertible into or
exercisable or exchangeable for such capital stock, or publicly announce an
intention to effect any such transaction, for the period beginning on the date
of the Underwriting Agreements and ending on August 14, 1998, other than shares
of Common Stock disposed of as bona fide gifts approved by Smith Barney Inc. It
is understood that (i) the undersigned may at any time exercise options
exercisable into shares of Common Stock without the prior written consent of
Smith Barney Inc., provided that the shares received upon such exercise are held
by the undersigned subject to the terms of this agreement and (ii) you and the
other Underwriters will agree with the Company in the Underwriting Agreements to
permit an aggregate of 200,000 shares of Common Stock to be sold, pledged or
otherwise disposed of by the officers or directors of the Company or Navistar
International Transportation Corp. during the period referred to above.
<PAGE>
2
The undersigned hereby represents and warrants that he/she has sold,
pledged or otherwise disposed of [ ] shares of the capital stock of the Company
or any securities convertible into or exercisable or exchangeable for such
capital stock (including pursuant to option exercises) during the period between
May 1, 1998 and the date hereof, inclusive.
If for any reason the Underwriting Agreements shall be terminated
prior to the Closing Date (as defined in the Underwriting Agreements), the
agreement set forth above shall likewise be terminated.
Yours very truly,
[Signature of officer or director]
[Name and address of officer or director]
<PAGE>
EXHIBIT 5.1
[KIRKLAND & ELLIS LETTERHEAD]
May 29, 1998
Navistar International Corporation
455 North Cityfront Plaza Drive
Chicago, Illinois 60611
Re: Navistar International Corporation
Registration Statement on Form
S-3 (Registration No. 383-52375)
--------------------------------
Ladies and Gentlemen:
We are acting as special counsel to Navistar International Corporation, a
Delaware corporation (the "Company"), in connection with the proposed
registration by the Company of 21,194,103 shares of its Common Stock, par value
$0.10 per share (the "Common Stock"), pursuant to a Registration Statement on
Form S-3, filed with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act") (such Registration
Statement, as amended or supplemented, is hereinafter referred to as the
"Registration Statement"). The Registration Statement relates to a firm
commitment public offering (the "Offering") of 19,894,103 shares (the "Secondary
Shares" and, together with the Secondary Shares, the "Shares") held by a
stockholder of the Company (the "Selling Stockholder") and 1,300,000 shares (the
"Primary Shares") by the Company pursuant to an over-allotment option granted to
the underwriters. The Secondary Shares will be issued by the Company immediately
prior to the consummation of the Offering upon the conversion of an equal number
of shares of Class B Common Stock, par value $0.10 per share (the "Class B
Common Stock") held by the Selling Stockholder.
In that connection, we have examined such corporate proceedings, documents,
records and matters of law as we have deemed necessary to enable us to render
this opinion.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the legal capacity of
all natural persons, the genuineness of the signatures of persons signing all
documents in connection with which this opinion is rendered, the authority of
such persons signing on behalf of the parties thereto other than the Company and
the due authorization, execution and delivery of all documents by the parties
thereto other than the Company. As to any facts material to the opinions
expressed herein, we have relied upon the statements and representations of
officers and other representations of the Company and others. For purposes of
numbered paragraph 1, we have relied exclusively upon certificates issued by
governmental authorities in the relevant
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Navistar International Corporation
May 29, 1998
Page 2
jurisdictions and such opinion is not intended to provide any conclusion or
assurance beyond that conveyed by such certificates.
Our opinion expressed below is subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of any
laws except the internal laws of the State of Illinois, the General Corporation
Law of the State of Delaware (the "DGCL") and the federal law of the United
States of America.
Based upon and subject to the foregoing qualifications, assumptions and
limitations and the further limitations set forth below, we hereby advise you
that in our opinion:
(1) The Company is a corporation existing and in good standing under the
laws of the State of Delaware.
(2) The Secondary Shares are duly authorized and validly reserved for
issuance and, when (i) the Registration Statement becomes effective under the
Act, (ii) the Secondary Shares have been issued in accordance with the terms of
the Company's Certificate of Incorporation upon the conversion of the Class B
Common Stock and (iii) certificates representing the Secondary Shares have been
duly executed and delivered on behalf of the Company and countersigned by the
Company's transfer agent/registrar, the Secondary Shares will be validly issued,
fully paid and nonassessable.
(3) The Primary Shares are duly authorized, and, when (i) the Registration
Statement becomes effective under the Act and (ii) the Board of Directors of the
Company has taken all necessary action to approve the sale of the Primary
Shares, the Primary Shares will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
our firm under the heading "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission. This opinion and consent may be incorporated by
reference in a subsequent registration statement on Form S-3 filed pursuant to
Rule 462(b) under the Act with respect to the registration of additional
securities for sale in the Offering contemplated by the Registration Statement.
We do not find it necessary for the purposes of this opinion, and
accordingly we do not purport to cover herein, the application of the securities
or "Blue Sky" laws of the various states to the issuance and sale of the Shares.
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Navistar International Corporation
May 29, 1998
Page 3
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the State of Illinois, the DGCL or the federal law of the United States
be changed by legislative action, judicial decision or otherwise.
This opinion is furnished to you pursuant to the applicable rules and
regulations promulgated under the Act in connection with the filing of the
Registration Statement.
Very truly yours,
/s/ Kirkland & Ellis
KIRKLAND & ELLIS
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No. 333-
52375 of Navistar International Corporation on Form S-3 of our report dated
December 15, 1997, appearing and incorporated by reference in the Prospectus,
which is part of this Registration Statement, and of our report dated December
15, 1997 relating to the financial statement schedule incorporated by reference
elsewhere in this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Chicago, Illinois
May 29, 1998
