<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 22, 1996
REGISTRATION NO. 333-06041
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BORG-WARNER AUTOMOTIVE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 13-3404508
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
200 SOUTH MICHIGAN AVENUE
CHICAGO, ILLINOIS 60604
(312) 322-8500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
LAURENE H. HORISZNY, ESQ.
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
BORG-WARNER AUTOMOTIVE, INC.
200 SOUTH MICHIGAN AVENUE
CHICAGO, ILLINOIS 60604
(312) 322-8500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
ANDREW R. BROWNSTEIN, ESQ. DAVID J. BEVERIDGE, ESQ.
DAVID A. KATZ, ESQ. SHEARMAN & STERLING
WACHTELL, LIPTON, ROSEN & KATZ 599 LEXINGTON AVENUE
51 WEST 52ND STREET NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10019 (212) 848-4000
(212) 403-1000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
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. / /
------------------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value........ 5,175,000 shares $41.00 $212,175,000 $73,164.31(3)
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</TABLE>
(1) Includes 675,000 shares subject to the option of the Underwriters (as
defined herein) to purchase shares from the Selling Stockholders (as defined
herein) to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) on the basis of the average high and low prices for
the Common Stock reported on the New York Stock Exchange Composite Tape on
June 10, 1996.
(3) Fee previously paid with filing of Registration Statement on June 14, 1996.
------------------------
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 THE 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> 2
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectuses: one to be
used in connection with a United States and Canadian offering of the
registrant's Common Stock (the "U.S. Prospectus") and one to be used in
connection with a concurrent international offering of the Common Stock (the
"International Prospectus" and, together with the U.S. Prospectus, the
"Prospectuses"). The International Prospectus will be identical to the U.S.
Prospectus except that it will contain different front and back cover pages, a
different inside cover page and a different section entitled "Underwriting." The
U.S. Prospectus is included herein and is followed by those pages to be used in
the International Prospectus which differ from those in the U.S. Prospectus.
Each of the pages for the International Prospectus included herein has been
labeled "Alternate Page for International Prospectus."
If required pursuant to Rule 424(b) of the General Rules and Regulations
under the Securities Act of 1933, as amended, copies of each of the Prospectuses
in the forms in which they are used will be filed with the Securities and
Exchange Commission.
<PAGE> 3
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
PRELIMINARY PROSPECTUS DATED JULY 22, 1996
PROSPECTUS
- ---------------------
4,500,000 SHARES
LOGO
COMMON STOCK
------------------------
All of the shares of Common Stock offered hereby will be sold by certain
stockholders (the "Selling Stockholders") of Borg-Warner Automotive, Inc. (the
"Company"). See "Principal and Selling Stockholders." The Company will not
receive any proceeds from the sale of the shares offered hereby.
Of the 4,500,000 shares of Common Stock offered hereby, 3,600,000 shares
are being offered in the United States and Canada by the U.S. Underwriters (the
"U.S. Offering") and 900,000 shares are being offered in a concurrent offering
outside the United States and Canada by the International Underwriters (the
"International Offering" and, together with the U.S. Offering, the "Offerings").
The public offering price and the underwriting discount per share are identical
for the Offerings. See "Underwriting."
The Common Stock is listed on the New York Stock Exchange, Inc. ("NYSE"),
under the symbol "BWA." On July 22, 1996, the last reported sale price of the
Common Stock on the NYSE was $36.75 per share. See "Price Range of Common
Stock."
FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" COMMENCING ON PAGE 11.
------------------------
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.
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<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING SELLING
PUBLIC DISCOUNT(1) STOCKHOLDERS(2)
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Per Share................................... $ $ $
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Total(3).................................... $ $ $
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</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) The Company has agreed to pay certain expenses of the Offerings estimated at
$1,000,000.
(3) The Selling Stockholders have granted the U.S. Underwriters and the
International Underwriters options exercisable within 30 days after the date
hereof to purchase up to 540,000 and 135,000 additional shares of Common
Stock, respectively, solely to cover over-allotments, if any. If such
options are exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Selling Stockholders will be $ , $
, and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about July , 1996.
------------------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INCORPORATED
------------------------
The date of this Prospectus is July , 1996.
<PAGE> 4
BORG-WARNER AUTOMOTIVE, INC.
<TABLE>
<CAPTION>
1995
CONSOLIDATED
SALES
PRODUCTS % OF TOTAL TOP VEHICLE PROGRAMS
---------------------- ------------ ----------------------------------------
<S> <C> <C> <C>
Powertrain Systems....... -4WD Transfer Cases $544.8 Ford Explorer
-Manual Transmissions 40% Ford Expedition (August 1996)
Ford F-Series and Ranger trucks
Range Rover
Mercedes AAV (1997)
Isuzu Big Horn (Japan)
SsangYong Musso (Korea)
Automatic Transmission
Systems................ -Friction Plates $454.4 All GM mid/large-sized vehicles and
-One-Way Clutches 33% mini-vans
-Bands All Ford mid/large-sized vehicles and
-Precision Forged mini-vans
Sintered Products All Chrysler FWD 4-speed automatic
transmission vehicles
All Toyota automatic transmission
vehicles*
All Honda North American-manufactured
automatic transmission vehicles
All Ford, GM, BMW, Mercedes, Renault
and VW European-manufactured automatic
transmission vehicles
All Korean-manufactured automatic
transmission vehicles
Morse TEC................ -4WD Chain $257.6 Ford modular engine family: Contour/
-Transmission Chain 19% Mystique, Taurus/Sable, Town Car/Crown
-Engine Timing Chain Victoria/Continental, and F-Series
-Engine Timing Chain truck
Systems All GM and Ford FWD automatic
transmission vehicles
Chrysler LH vehicles
Ford, GM and Chrysler 4WD sport utility
vehicles
Air/Fluid Systems........ -Air Management $107.6 All Chrysler vehicles and mini-vans
Systems 8% Ford Explorer
-Fuel Systems Ford F-150 and Ranger trucks
-Transmission Systems Ford mid-sized vehicles (such as the
Taurus/Sable and Contour/Mystique)
Mercedes vehicles
* Through the Company's 50%-owned unconsolidated Japanese joint venture with NSK-Warner K.K.
</TABLE>
CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS UNDER THE CAPTIONS
"PROSPECTUS SUMMARY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS -- BUSINESS STRATEGY," IN
ADDITION TO CERTAIN STATEMENTS CONTAINED ELSEWHERE IN THIS PROSPECTUS, ARE
"FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 AND ARE THUS PROSPECTIVE. SUCH FORWARD LOOKING
STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM FUTURE RESULTS EXPRESSED OR
IMPLIED BY SUCH FORWARD LOOKING STATEMENTS. THE MOST SIGNIFICANT OF SUCH RISKS,
UNCERTAINTIES AND OTHER FACTORS ARE DISCUSSED UNDER THE HEADING "RISK FACTORS,"
BEGINNING ON PAGE 11 OF THIS PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO
CAREFULLY CONSIDER SUCH FACTORS.
------------------------
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
[Top half of gatefold page: Pictures of the Company's products from each of
its four operating groups: Powertrain Systems, Automatic Transmission Systems,
Morse TEC and Air/Fluid Systems along with textual descriptions.]
[Bottom half of gatefold page: Picture of the Borg-Warner Indianapolis 500
Trophy and a schematic of an automobile displaying locations of some of the
Company's products.]
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere or incorporated by reference in this Prospectus. Unless indicated
otherwise, the information contained in this Prospectus assumes that the
Underwriters' over-allotment options are not exercised. Unless the context
otherwise requires, references in this Prospectus to the "Company" refer to
Borg-Warner Automotive, Inc., a Delaware corporation and its subsidiaries,
references to the "Common Stock" refer to shares of Common Stock, $.01 par
value, of the Company, and references to the "Shares" refer to the 4,500,000
shares of Common Stock being offered in the Offerings.
THE COMPANY
The Company is a leading, global Tier I supplier of highly engineered
systems and components, primarily for automotive powertrain applications. These
products are manufactured and sold worldwide, primarily to original equipment
manufacturers ("OEMs") of passenger cars, sport utility vehicles and light
trucks. The Company, which operates 36 manufacturing facilities in 12 countries
serving the North American, European and Asian automotive markets, is an
original equipment supplier to every major OEM in the world. The Company has
achieved its current leadership position and is well positioned to benefit from
emerging trends in the global automotive markets as a result of several key
competitive strengths, including: (i) the ability to supply its customers
globally; (ii) demonstrated technological expertise in developing highly
engineered systems and components; (iii) strong relationships with all major
OEMs; (iv) significant market shares in a number of its key products; and (v) a
strong presence in and focus on high-growth vehicle categories and platforms.
The Company's products fall into four operating groups: Powertrain Systems,
Automatic Transmission Systems, Morse TEC and Air/Fluid Systems (formerly known
as Control Systems). The Powertrain Systems group accounted for $544.8 million
(40%) of 1995 consolidated sales before inter-business eliminations. Its primary
products include four-wheel and all-wheel drive transfer cases and manual
transmissions. The Company supplies substantially all of the four-wheel drive
("4WD") transfer cases for Ford Motor Company ("Ford"), including those
installed on the Ford Explorer, the best selling sport utility vehicle in the
United States in 1995, and the Ford F-150 pickup truck. The Company has designed
and developed an exclusive 4WD Torque-On-Demand(TM) ("TOD(TM)") transfer case,
available on the Ford Explorer and to be available on the new Ford Expedition,
which allows vehicles to automatically shift from two-wheel drive to 4WD when
electronic sensors indicate it is necessary.
The Automatic Transmission Systems group accounted for $454.4 million (33%)
of 1995 consolidated sales before inter-business eliminations. Its products
include friction plates, transmission bands, one-way clutches and torque
converters for automatic transmissions. The Company is a supplier to virtually
every major automatic transmission manufacturer in the world. The Company's
50%-owned joint venture in Japan, NSK-Warner Kabushiki Kaisha ("NSK-Warner"),
with 1995 sales of $337 million, is a leading producer of friction plates and
one-way clutches in Japan.
The Morse TEC group accounted for $257.6 million (19%) of 1995 consolidated
sales before inter-business eliminations. Morse TEC manufactures chain and chain
systems including HY-VO(R) front-wheel drive ("FWD") and 4WD chain, MORSE
GEMINI(TM) Transmission Chain Systems, timing chain and timing chain systems,
crankshaft and camshaft sprockets, chain tensioners and snubbers. The Company is
a supplier to every major manufacturer that uses chain for such applications.
The Air/Fluid Systems group accounted for $107.6 million (8%) of 1995
consolidated sales before inter-business eliminations. The Company's air and
fluid management products include mechanical, electromechanical and electronic
components and systems used for engine and emission control, fuel and vapor
management, electronically controlled automatic transmissions and steering and
suspension systems. The Air/Fluid Systems group is the Company's fastest growing
group and has grown from $52.1 million of consolidated sales in 1991 to $107.6
million in 1995 (a compound annual growth rate of 20%). As a result of the
recently completed Coltec Acquisition (as hereinafter defined), the Air/Fluid
Systems group will
3
<PAGE> 6
comprise a significantly greater portion of the Company's revenues. See "--
Recent Developments" and "-- Pro Forma Financial Data."
The Company believes that it is a leading supplier to major OEMs worldwide
in each of its four product groups. For Powertrain Systems, the Company believes
that it is the world's leading independent manufacturer of 4WD transfer cases,
manufacturing approximately 847,000 transfer cases in 1995, principally for
Ford. The Company also believes that, including its NSK-Warner joint venture,
the Automatic Transmission Systems group is a leading manufacturer and supplier
of friction elements and one-way clutches in North America, Europe and Asia.
Similarly, the Morse TEC group manufactures transmission chains for FWD
transmissions and 4WD transfer cases for every major OEM who uses chain for such
applications. Finally, the Coltec Acquisition will position the Air/Fluid
Systems group to become a leading supplier of air and fluid management systems
with over 80% of its 1995 pro forma sales to the three largest North American
OEMs -- Ford, General Motors Corporation ("GM") and Chrysler Corporation
("Chrysler"). As a result of the Coltec Acquisition, the Air/Fluid Systems group
will comprise a significantly greater portion of the Company's revenues and will
almost double the Company's sales to Chrysler.
The Company's business objective is to maintain its position as one of the
leading independent suppliers of highly engineered systems and components for
automotive powertrain applications. The Company pursues this objective in
several ways. First, the Company seeks to maintain its position and reputation
as a technological leader in its product groups. Second, the Company seeks to
maintain its price competitiveness by continuing to improve the efficiency of
its operations, including its production processes. Third, the Company believes
that it is well positioned to take advantage of certain trends within the global
automotive market. The Company believes that these trends include (i) a growing
demand for automatic transmissions with a greater number of speeds (the
Company's component content in an automatic transmission rises as the number of
speeds increases), (ii) a growing demand for 4WD vehicles, (iii) an increasing
demand for overhead cam engines, (iv) a growing demand for automatic
transmissions and air and fluid management systems in Europe and in Asia, (v)
the increasing tendency of OEMs to purchase integrated systems rather than
individual components, and (vi) demand in markets outside the United States for
air and fluid management products, particularly emission controls. Fourth, the
Company continues to pursue strategic joint ventures and selected acquisitions
within its existing or related lines of business. The Company continues to
maintain its strong presence in Europe and Asia as a result of its recent
acquisitions and joint ventures. The Company believes its global presence will
enable it to better withstand the effect of cyclical downturns in the United
States automotive market, while serving its OEM customers as a global supplier.
See "Business -- Business Strategy" and "Business -- Recent Developments."
Over the past several years, the Company has remained focused on and
committed to achieving its business objective. Sales have increased from $820
million in 1991 to $1.33 billion in 1995, reflecting a 12.8% compound annual
growth rate and outperforming the approximately 4% compound annual growth rate
of North American vehicle sales. The Company's sales outside the United States
are increasing and in 1995 represented 16% of consolidated sales. Including
unconsolidated joint ventures, 1995 sales outside the United States constituted
33% of total sales. The Company's sales have increased at a greater rate than
market growth as a result of higher content per vehicle and higher market share.
The Company's emphasis on providing systems and introduction of new technologies
has enabled it to substantially increase its content per vehicle. For example,
the timing system on the Ford modular engine consists of up to four chains as
well as sprockets, snubbers and tensioners as compared with a single timing
chain on the previous generation pushrod engine. The Company's market share
gains have been achieved during a period of OEM supplier consolidation which has
benefited the Company. Such growth in sales has been accompanied by growth in
profitability. Over the same period, earnings before interest and taxes ("EBIT")
increased from $22 million in 1991 to $125 million in 1995, with EBIT margins
rising from 2.6% in 1991 to 9.4% in 1995, and sales per employee rising from
$128,000 in 1991 to $163,000 in 1995.
The Company's executive offices are located at 200 South Michigan Avenue,
Chicago, Illinois 60604, telephone (312) 322-8500.
4
<PAGE> 7
RECENT DEVELOPMENTS
On June 17, 1996, the Company acquired the operations and substantially all
of the operating assets of the Holley Automotive, Coltec Automotive and
Performance Friction Products divisions (collectively, the "Coltec Divisions")
of Coltec Industries Inc. ("Coltec") for $283 million in cash (the "Coltec
Acquisition"). The Coltec Divisions have a broad base of air and fluid
management products, established OEM relationships, and three technologically
advanced manufacturing facilities. These operations produced combined sales of
$255 million in 1995. The Coltec Acquisition was financed with borrowings under
the Company's revolving credit facility. See "Business -- Recent Developments,"
"Business -- Air/Fluid Systems" and "-- Pro Forma Financial Data."
The Coltec Acquisition will provide the Company with a number of strategic
benefits. The air and fluid management systems market is one in which the
Company believes there are significant growth opportunities driven principally
by increasingly stringent air emissions regulations both in the U.S. and in
Europe. The Company also believes that since few suppliers control a large share
of the growing air and fluid management market, the Company has additional
opportunities to increase its market share because of its technological
expertise and broad range of products. By combining the Coltec Divisions'
component products with the Air/Fluid System's complementary system-based
products, the Coltec Acquisition positions the Company to capitalize on the
high-growth air and fluid management systems market and to become a global
supplier of complete, integrated air and fluid management systems. The Coltec
Acquisition will also serve to better balance the Company's business mix by
significantly expanding the Company's operations in the air and fluid management
systems business as Air/Fluid Systems pro forma sales will represent
approximately 22% of total consolidated sales, more than double the Air/Fluid
Systems sales in 1995 of 8%. Moreover, the Coltec Acquisition will allow the
Company to further strengthen its relationships with existing OEM customers,
especially Chrysler. Additionally, with the Company's 1995 acquisition of
France's Societe de l'Usine de la Marque ("SUM"), it is well positioned to begin
manufacturing air and fluid management systems in Europe.
On July 17, 1996, the Company reported that its second quarter 1996 net
income was $21.8 million, or $0.93 per share, an increase of 3% compared with
net income of $21.1 million, or $0.90 per share, reported in the second quarter
of 1995. The Company's sales for the second quarter of 1996 increased 7% to
$381.8 million compared with $356.0 million in the second quarter of 1995. The
Company also reported that net income for the first six months of 1996 was $34.1
million, or $1.45 per share, compared with net income of $38.6 million, or $1.65
per share, for the first six months of 1995. With respect to the Company's
quarterly sales increase, $8.9 million was contributed by the Coltec Divisions
and $4.8 million was contributed by SUM. For the second quarter of 1996, the
Company announced that Powertrain Systems' sales decreased 3% to $146.8 million
(an increase of 14% without manual transmissions); Automatic Transmission
Systems' sales increased 7% to $128.9 million; Morse TEC's sales increased 5% to
$70.7 million; and Air/Fluid Systems' sales increased 78% to $44.6 million (a
rise of 24% excluding the Coltec Acquisition and the SUM acquisition). In
addition, the Company reported that its North American manual transmission
business, which is in the process of being sold, continued to negatively impact
sales and earnings, costing the Company approximately $0.12 per share compared
with 1995, with year-over-year sales declining by $18.6 million. See "Risk
Factors -- Sale of Manual Transmission Business" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Other Financial
Condition Matters -- North American Manual Transmission Business."
5
<PAGE> 8
THE OFFERINGS
<TABLE>
<S> <C> <C>
Common Stock offered by the Selling Stockholders:
U.S. Offering................................. 3,600,000 shares
International Offering........................ 900,000 shares
Total.................................... 4,500,000 shares
Total Outstanding Common Stock..................... 23,572,768 shares(1)
Dividend policy.................................... $0.15 per share, per quarter. See "Dividend
Policy."
NYSE Symbol........................................ "BWA"
</TABLE>
- ---------------
(1) As of June 30, 1996. Includes 122,644 shares of the Company's Non-Voting
Common Stock, $.01 par value (the "Non-Voting Common Stock"), which are
convertible into Common Stock on a share-for-share basis. See "Description
of Capital Stock." Excludes 542,631 shares of Common Stock issuable upon
exercise of options held by employees of the Company and Borg-Warner
Security Corporation ("BW-Security").
6
<PAGE> 9
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following summary historical consolidated financial information for the
Company for the five years ended December 31, 1995 and for the three-month
periods ended March 31, 1996 and 1995 has been derived from the consolidated
financial statements of the Company for such periods. The information for the
years ended December 31, 1991, 1992, 1993, 1994 and 1995 is derived from the
audited financial statements of the Company. The information for the three-month
periods ended March 31, 1996 and 1995 is not audited, but in the opinion of
management is a fair presentation of such information. This information is
qualified by reference to the historical consolidated financial statements of
the Company incorporated by reference herein. See "Incorporation of Certain
Information by Reference."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales.............................. $ 820.3 $ 926.0 $ 985.4 $1,223.4 $1,329.1 $ 327.8 $ 348.9
Cost of sales.......................... 660.4 755.2(a) 769.3 948.4 1,044.9 253.0 277.5
Depreciation........................... 62.0(b) 64.3(a) 57.9 60.9 68.0 17.2 18.4
Selling, general and administrative
expenses............................. 77.7 69.6 83.5 92.1 97.8 26.4 30.8
Minority interest...................... (1.3) (1.3) 0.1 1.4 2.0 0.4 0.7
Goodwill amortization.................. 9.7 9.7 9.7 9.6 9.6 2.4 2.6
Equity in affiliate earnings and other
income............................... (9.9) (6.9) (10.6) (10.6) (18.6) (4.2) (4.1)
Interest expense and finance charges... 53.8(d) 44.8(d) 18.4 13.9 14.2 3.5 3.5
Provision for income taxes............. 3.7 2.7 24.3 43.3 37.0 11.5 7.2
------- ------- ------- ------- ------- ------- -------
Earnings (loss) before cumulative
effect of accounting change.......... (35.8) (12.1) 32.8 64.4 74.2 17.6 12.3
Cumulative effect of change in
accounting(b)........................ 4.8 -- (130.8) -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net earnings (loss).................... $ (31.0) $ (12.1) $ (98.0) $ 64.4 $ 74.2 $ 17.6 $ 12.3
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per share before
cumulative effect of accounting
change(b)............................ -- $ (0.53) $ 1.41 $ 2.75 $ 3.15 $ 0.75 $ 0.52
Net earnings (loss) per share(c)....... -- $ (0.53) $ (4.21) $ 2.75 $ 3.15 $ 0.75 $ 0.52
Average shares outstanding
(thousands)(c)....................... -- 23,005 23,284 23,424 23,562 23,385 23,495
Cash dividend declared per share....... -- -- 0.125 0.45 0.60 0.15 0.15
OTHER OPERATING DATA
Research and development............... $ 26.9 $ 26.8 $ 25.2 $ 33.8 $ 36.7 $ 8.4 $ 11.7
Capital expenditures................... 53.9 47.7 65.5 98.8 92.5 15.1 11.6
Number of full-time employees
(thousands).......................... 6.4 6.7 6.6 7.8 8.6 7.8 8.4
Sales per full-time employee
(thousands).......................... $ 128.0 $ 139.0 $ 149.0 $ 158.0 $ 163.0 $ 167.0 $ 166.0
BALANCE SHEET DATA (AT END OF PERIOD)
Net property, plant and equipment...... $ 463.5 $ 412.9 $ 418.3 $ 462.3 $ 523.0 $ 462.3 $ 513.0
Total assets........................... 1,080.0 1,074.2 1,159.4 $1,240.3 $1,335.2 $1,269.6 $1,361.4
Total debt............................. --(d) --(d) 159.6 107.3 134.7 135.1 134.6
BW-Security investment(e).............. 743.5 728.2 -- -- -- -- --
Stockholders' equity(e)................ -- -- 459.1 534.9 600.0 554.0 604.3
</TABLE>
- ---------------
(a) Cost of sales for 1992 included a $28.7 million charge for the write-off of
excess capacity and depreciation included $7.3 million related to such
capacity.
(b) Amounts reflect the adoption of Statement of Financial Accounting Standards
("SFAS") No. 109 in 1991 and SFAS No. 106 in 1993. In 1991, depreciation
increased by $11.2 million because of an adjustment to fixed assets related
to the adoption of SFAS No. 109.
(c) Earnings per share for 1992 and 1993 have been calculated assuming that the
initial public offering of the Company's Common Stock completed in August
1993 (the "IPO") had been completed on January 1, 1992.
(d) Prior to the spin-off of the Company by BW-Security on January 27, 1993
(the "Spin-Off"), interest was allocated to the Company on the basis of the
Company's relative operating investment compared to BW-Security's overall
capital investment (debt plus equity). Prior to the Spin-Off, all debt was
considered to be part of the BW-Security investment.
(e) Prior to the Spin-Off, the Company was wholly owned by BW-Security and its
stockholders' equity is reported as BW-Security investment. After the
Spin-Off, the Company's equity is reported as stockholders' equity.
7
<PAGE> 10
PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data for the year ended
December 31, 1995 and the three months ended March 31, 1996, and certain
financial ratios derived therefrom, give effect to the Coltec Acquisition. The
unaudited pro forma statement of earnings data give effect to the Coltec
Acquisition as if it had occurred on January 1, 1995 with respect to the year
ended December 31, 1995, and as if it had occurred on January 1, 1996 with
respect to the three-month period ended March 31, 1996 and the unaudited pro
forma balance sheet data give effect to the Coltec Acquisition as if it had
occurred on March 31, 1996. The unaudited pro forma combined financial
statements do not purport to be indicative of the results of operations or
financial position of the Company that would have actually been obtained had the
Coltec Acquisition been completed as of the assumed dates and for the periods
presented, or which may be obtained in the future. The unaudited pro forma
combined financial data should be read in conjunction with the separate
historical consolidated financial statements of the Company and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this Prospectus or incorporated by
reference herein.
For 1996, the Company expects that the sales contribution from the Coltec
Divisions will be less than their 1995 sales because of the timing of certain
new and expiring programs. The Company also expects that there will be a similar
impact with respect to the earnings contribution from these operations in 1996
because of lower volume, a change in the product mix of the businesses, and
price reductions partially offset by cost reductions and productivity gains.
This trend is expected to continue through 1997, after which new programs are
expected to positively impact sales and earnings trends. Reference is made to
the separate historical financial statements of the Coltec Divisions
incorporated by reference herein, which were filed with the Company's Report on
Form 8-K dated June 17, 1996. See "Incorporation of Certain Information By
Reference."
8
<PAGE> 11
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
HISTORICAL -----------------------------
------------------------------ DIVISION OF
COMPANY COLTEC DIVISIONS(1) EXPENSES(2) ACQUISITION(3) PRO FORMA
-------- -------------------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
Net sales.................. $1,329.1 $255.1 -- -- $1,584.2
Cost of sales.............. 1,044.9 183.6 -- -- 1,228.5
Depreciation............... 68.0 5.0 -- -- 73.0
Selling, general and
administrative
expenses................. 97.8 28.3 (5.3)(a) -- 120.8
Minority interest.......... 2.0 0.0 2.0
Goodwill amortization...... 9.6 0.2 (0.2)(b) 8.0(a) 17.6
Equity in affiliate
earnings and other
income................... (18.6 ) (0.3) -- -- (18.9)
------- ------- ------- ------- -------
Earnings before
interest and finance
charges and income
taxes............... 125.4 38.3 5.5 (8.0) 161.2
Interest expense and
finance charges.......... 14.2 0.0 0.0 25.8(b) 40.0
Earnings before income
taxes............... 111.2 38.3 5.5 (33.8) 121.2
Provision for income
taxes.................... 37.0 13.5 (13.5)(c) 3.8(c) 40.8
------- ------- ------- ------- -------
Net earnings.......... $ 74.2 $ 24.8 $ 19.0 ($37.6) $ 80.4
======= ======= ======= ======= =======
Earnings per share......... $ 3.15 -- -- -- $ 3.41
======= =======
Average shares outstanding
(thousands).............. 23,562 -- -- -- 23,562
======= =======
</TABLE>
- ---------------
(1) Coltec Divisions' combined historical income statement includes certain
revenues and expenses not acquired in the Coltec Acquisition. Coltec
Divisions reflects certain reclassifications to conform to the Company
presentation. Depreciation and goodwill amortization are presented as
separate captions.
(2) Adjustments to reflect the retention of certain revenues and expenses of
the Coltec Divisions by Coltec.
(a) Adjustment to eliminate the 1995 overfunded pension plan benefit of
($0.6) million, and $5.9 million corporate office service charge from
Coltec.
(b) Adjustment to eliminate the 1995 goodwill amortization of $0.2
million.
(c) Adjustment to eliminate the Coltec Divisions' income tax expense.
(3) Adjustments to record the purchase of the Coltec Divisions.
(a) Reflects the goodwill amortization relating to the Company's excess
of the purchase price over the historical book value, assuming no
allocation to tangible assets and liabilities. For pro forma
purposes, a composite life of 30 years is assumed. Actual
amortization may differ depending on the final allocation of the
purchase price.
(b) Reflects the interest expense that would have been incurred had the
Coltec Acquisition and the anticipated borrowings to finance the
Coltec Acquisition occurred at the beginning of fiscal year 1995. The
interest rate was assumed to equal the Company's cost of borrowing
five-year fixed rate funds under its revolving credit facility, at
9.0%.
(c) Reflects the income tax impact of the Coltec Divisions' results of
operations and the related pro forma adjustments. The tax rate
reflects the United States statutory rate plus applicable state
income tax rates.
9
<PAGE> 12
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
HISTORICAL ----------------------------
----------------------------- DIVISION OF
COMPANY COLTEC DIVISIONS(1) EXPENSES(2) ACQUISITION(3) PRO FORMA
------- ------------------- ----------- -------------- ---------
(DOLLARS IN MILLIONS)
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $348.9 $66.4 -- -- $ 415.3
Cost of sales...................... 277.5 49.8 -- -- 327.3
Depreciation....................... 18.4 1.4 -- -- 19.8
Selling, general and administrative
expenses......................... 30.8 6.8 (1.3)(a) -- 36.3
Minority interest.................. 0.7 0.0 -- -- 0.7
Goodwill amortization.............. 2.6 0.0 -- 2.0(a) 4.6
Equity in affiliate earnings and
other income..................... (4.1 ) (0.2) -- -- (4.3)
------- ------ ----- ------ ---------
Earnings before interest and
finance charges and income
taxes......................... 23.0 8.6 1.3 (2.0) 30.9
Interest expense and finance
charges.......................... 3.5 0.0 -- 4.6(b) 8.1
------- ------ ----- ------ ---------
Earnings before income taxes..... 19.5 8.6 1.3 (6.6) 22.8
Provision for income taxes......... 7.2 3.0 (3.0)(b) 1.3(c) 8.5
------- ------ ----- ------ ---------
Net earnings..................... $ 12.3 $ 5.6 $ 4.3 ($ 7.9) $ 14.3
======= ============== ========= ========== ========
Earnings per share................. $ 0.52 -- -- -- $ 0.61
======= ========
Average shares outstanding
(thousands)...................... 23,495 -- -- -- 23,495
======= ========
</TABLE>
- ---------------
(1) Coltec Divisions' combined historical income statement includes certain
revenues and expenses not acquired in the Coltec Acquisition. Coltec
Divisions reflects certain reclassifications to conform to the Company
presentation. Depreciation and goodwill amortization are presented as
separate captions.
(2) Adjustments to reflect the retention of certain revenues and expenses of
the Coltec Divisions by Coltec.
(a) Adjustment to eliminate the 1996 overfunded pension plan benefit of
($0.2) million and $1.5 million corporate office service charge from
Coltec.
(b) Adjustment to eliminate the Coltec Divisions' income tax expense.
(3) Adjustments to record the purchase of the Coltec Divisions.
(a) Reflects the goodwill amortization relating to the Company's excess
of the purchase price over the historical book value, assuming no
allocation to tangible assets and liabilities. For pro forma
purposes, a composite life of 30 years is assumed. Actual
amortization may differ depending on the final allocation of the
purchase price.
(b) Reflects the interest expense that would have been incurred had the
Coltec Acquisition and the anticipated borrowings to finance the
Coltec Acquisition occurred at the beginning of fiscal year 1996. The
interest rate was assumed to equal the Company's cost of borrowing
five-year fixed rate funds under its revolving credit facility, at
6.4%.
(c) Reflects the income tax impact of the Coltec Divisions' results of
operations and the related pro forma adjustments, assuming a 38% tax
rate. The tax rate reflects the United States statutory rate plus
applicable state income tax rates.
10
<PAGE> 13
UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
------------------------ --------------------------------
COLTEC DIVISION OF
COMPANY DIVISIONS(1) ASSETS(2) ACQUISITION(3) PRO FORMA
-------- ------------ ------------ --------------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash................................................ $ 10.5 $ 1.1 $ (1.1)(2a) $ -- $ 10.5
Short-term securities............................... 5.9 -- -- -- 5.9
Receivables......................................... 112.0 23.9 (2.0) -- 133.9
Inventories......................................... 104.8 14.6 0.7(2a)-- -- 120.1
Prepayments......................................... 9.0 0.8 (0.8)(2a) -- 9.0
------- ----- ------ ------ -------
Total current assets............................ 242.2 40.4 (3.2) -- 279.4
Property, plant and equipment at cost............... 930.1 80.9 -- (54.7)(3a) 956.3
Less accumulated depreciation....................... 417.1 54.7 -- (54.7)(3a) 417.1
------- ----- ------ ------ -------
Net property, plant and equipment............... 513.0 26.2 -- -- 539.2
Investments and advances............................ 139.3 -- -- -- 139.3
Goodwill............................................ 312.0 3.8 (3.8)(2c) 238.4(3b) 550.4
Deferred income tax asset........................... 40.7 -- -- -- 40.7
Other noncurrent assets............................. 114.2 2.3 (2.3)(2d) -- 114.2
------- ----- ------ ------ -------
Total other assets.............................. 606.2 6.1 (6.1) 238.4 844.6
------- ----- ------ ------ -------
$1,361.4 $ 72.7 $ (9.3) $ 238.4 $1,663.2
======= ===== ====== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable....................................... $ 44.8 $-- $-- $-- $ 44.8
Accounts payable and accrued expenses............... 208.1 36.5 (23.7)(2b) 1.2(3b) 222.1
Income taxes payable................................ 27.2 -- -- -- 27.2
------- ----- ------ ------ -------
280.1 36.5 (23.7) 1.2 294.1
Long-term debt...................................... 89.8 -- -- 287.8(3c) 377.6
Long-term liabilities:
Retirement-related liabilities.................... 336.7 -- -- -- 336.7
Other............................................. 50.5 2.8 (2.8) -- 50.5
------- ----- ------ ------ -------
Total long-term liabilities..................... 387.2 2.8 (2.8) -- 387.2
Capital stock....................................... 0.2 -- -- -- 0.2
Other stockholders' equity.......................... 604.1 33.4 17.2 (50.6)(3d) 604.1
------- ----- ------ ------ -------
Total stockholders' equity...................... 604.3 33.4 17.2 (50.6) 604.3
------- ----- ------ ------ -------
$1,361.4 $ 72.7 $ (9.3) $ 238.4 $1,663.2
======= ===== ====== ====== =======
</TABLE>
- ---------------
(1) Consists of historical balance sheet of the Coltec Divisions, including
certain assets and liabilities not acquired by the Company in the Coltec
Acquisition.
(2) Adjustments to reflect the retention of certain assets and liabilities of
the Coltec Divisions by Coltec.
(a) Reflects the elimination of a cash balance, the LIFO reserve and certain
prepaid assets retained by Coltec.
(b) Reflects the elimination of certain liabilities retained by Coltec,
including $5.1 million of accrued expenses, $7.2 million of trade and
other accounts payable and $11.4 million of liabilities to other Coltec
units.
(c) Reflects the elimination of Coltec historical goodwill.
(d) Reflects the elimination of pension asset retained by Coltec.
(3) Adjustment to record the purchase of the Coltec Divisions.
(a) Reflects the elimination of accumulated depreciation of the Coltec
Divisions as required by the purchase method of accounting.
(b) The Coltec Acquisition is accounted for under the purchase method of
accounting and, accordingly, an allocation of purchase cost to the
Company's assets and liabilities is made to reflect fair values.
<TABLE>
<S> <C>
Amount paid to Coltec............................................................. $283.0
Adjustments to purchase price to reflect expenses incurred and adjustments
required pursuant to the purchase agreement..................................... 4.8
-----
Total purchase cost............................................................... $287.8
Net book value of assets acquired................................................. 50.6
-----
Pro forma unallocated excess of purchase cost over net assets acquired............ $237.2
Allocation for assumption of certain liabilities.................................. 1.2
-----
Pro forma goodwill................................................................ $238.4
=====
</TABLE>
(c) Reflects the bank financing required as if the Coltec Acquisition had
occurred on March 31, 1996. The total purchase price was $287.8 million
which included $283 million paid to Coltec and $4.8 million in other
acquisition costs.
(d) Reflects the elimination of the equity accounts of the Coltec Divisions.
11
<PAGE> 14
RISK FACTORS
The following factors, as well as the information contained elsewhere in
this Prospectus, should be carefully considered by prospective investors before
any decision is made to invest in the Shares.
AUTOMOTIVE INDUSTRY CYCLICALITY AND CONDITIONS
The Company's principal operations are directly related to domestic and
foreign automotive production. Automotive sales and production are cyclical and
dependent upon general economic conditions and other factors. As compared to
1995, the Company expects automotive production in 1996 to be flat or to decline
slightly in North America and Europe, and to improve slightly in Asia. Any
significant reduction in automotive production would have an adverse effect on
the level of the Company's sales to OEMs and the Company's financial position
and operating results.
Each of the Company's primary North American customers, Ford, GM and
Chrysler, have major contracts with the United Automobile, Aerospace and
Agricultural Implement Workers of America (the "UAW") which will expire and are
subject to renegotiation during 1996. Because of the OEMs' dependence on a
single union, labor difficulties and work stoppages at OEMs' facilities have an
impact on the Company. For example, a 17-day March 1996 work stoppage in two
Dayton, Ohio, GM plants resulted in the concomitant shutdown of the Company's
production lines dedicated to the manufacture of products for GM vehicles.
Although the Company took steps to minimize the consequences of the work
stoppage, the Company lost $8.5 million in revenue as a result of the 17-day
strike.
Many of the Company's products are currently used exclusively in sport
utility vehicles and light trucks, the most rapidly growing segment in the
overall automotive market. Any significant reduction in production in this
market segment would have an adverse effect on the level of the Company's sales
to OEMs and the Company's financial position and operating results.
COMPETITION
The Company competes worldwide with a number of other manufacturers and
distributors which produce and sell similar products. Price, quality and
technological innovation are the primary elements of competition. The Company's
competitors include vertically integrated units of the Company's major OEM
customers, as well as a large number of independent domestic and international
suppliers. A number of these companies are larger and have greater resources
than the Company. There can be no assurance that the Company's business will not
be adversely affected by increased competition in the markets in which it
operates.
The competitive environment has also changed dramatically over the past few
years as the Company's traditional United States OEM customers, faced with
intense international competition, have expanded their worldwide sourcing of
components. As a result, the Company has experienced competition from suppliers
in other parts of the world which enjoy economic advantages such as lower labor
costs, lower health care costs, and, in some cases, export subsidies and/or raw
materials subsidies.
There is also substantial and continuing pressure from the OEMs to reduce
costs, including costs associated with outside suppliers such as the Company.
Although OEMs have indicated that they will continue to rely on outside
suppliers, a number of the Company's major OEM customers manufacture products
for their own use that compete with the Company's products and that these OEMs
could elect to manufacture for their own use in place of the products now
supplied by the Company. The Company believes that its ability to develop
proprietary new products and to control its own costs will allow it to remain
competitive. However, there can be no assurance that the Company will be able to
improve or maintain its gross margins on product sales to OEMs or that the
recent trend by OEMs towards increased outsourcing will continue.
Annual price reductions to OEM customers appear to have become a permanent
feature of the Company's business environment. Price reductions granted in 1995
totalled approximately $8 million. To maintain its profit margins, the Company,
among other things, seeks price reductions from its own suppliers, adopts
improved production processes to increase manufacturing efficiency, updates
product designs to reduce
12
<PAGE> 15
costs and develops new products whose benefits support increased pricing. The
Company's ability to pass through increased raw material costs to its OEM
customers is also limited, with cost recovery less than 100% and often on a
delayed basis. There can be no assurance that the Company will be able to reduce
costs in an amount equal to the annual price reductions and the increase in raw
material costs.
RELIANCE ON MAJOR CUSTOMERS
The Company's worldwide sales in 1995 to Ford and GM constituted
approximately 41% and 25%, respectively, of its 1995 consolidated sales. The
corresponding percentages for 1994 were 39% and 27%. No other customer accounted
for more than 10% of the Company's consolidated sales in either 1995 or 1994.
After giving effect to the Coltec Acquisition, sales to Ford and GM would have
been approximately 40% and 26%, respectively, of 1995 consolidated sales. Sales
to Chrysler constituted approximately 9% of total consolidated sales in 1995,
and pro forma for the Coltec Acquisition, sales to Chrysler would have
constituted approximately 13% of 1995 consolidated sales. The Company's 1995
consolidated sales do not include the approximately $394 million of sales made
by the Company's unconsolidated joint ventures. If sales from unconsolidated
joint ventures were included in 1995 consolidated sales, worldwide sales to
Toyota Motor Corporation and its affiliates ("Toyota") would be approximately
10% of such sales. See "Business -- Customers."
Although the Company has had long-standing relationships with each of Ford,
GM, Chrysler and Toyota and sells a wide variety of products to various
divisions of each company globally, if the Company lost any significant portion
of its sales to any of these customers, it would have a material adverse effect
on the financial condition and results of operations of the Company.
LABOR RELATIONS
Approximately 50% of the Company's domestic hourly employees are unionized.
The Company's two most significant domestic collective bargaining agreements
expire in March 1998 for its Muncie, Indiana plant (transfer case and manual
transmissions businesses), and in October 1998 for its Ithaca, New York plant
(Morse TEC group). While the Company believes that its relations with its
employees are good, a prolonged dispute could have a material adverse effect on
the Company. See "-- Automotive Industry Cyclicality and Conditions" and
"Business -- Employees."
UNFUNDED PENSION OBLIGATIONS
The Company has a substantial unfunded pension obligation. On December 31,
1995, the present values of the Company's projected benefit obligations and
accumulated benefit obligations with respect to underfunded plans were $221.5
million and $217.7 million, respectively. The fair value of the Company's
pension plan assets with respect to such plans as of December 31, 1995 was
$135.7 million. The resulting unfunded portion of $85.8 million at December 31,
1995 compared with an unfunded portion of $77.5 million at December 31, 1994
(based on the Company's projected benefit obligations on the respective dates).
This increase was due in part to a change in the discount rate from 8.5% in 1994
to 7.25% in 1995. Had the discount rate remained 8.5%, the unfunded portion as
of December 31, 1995 would have been $20.8 million lower, or $65.0 million. Of
the 1995 unfunded portion, approximately $29.4 million relates to pension
obligations for the Company's German subsidiary, which does not require funding.
The Company's long-term objective is to fund its entire pension obligation with
funds that are generated from operations, although there can be no assurance
that this will occur.
In connection with the Spin-Off, the Company and BW-Security entered into
an agreement with the Pension Benefit Guaranty Corporation (the "PBGC")
resolving certain issues with respect to the Company's pension obligations.
Pursuant to such agreement, the Company paid $17.5 million in 1993 to a
specified underfunded plan of the Company and agreed to pay to such plan, in
each year from 1993 through 2002, $1 million in excess of amounts that the
Company would otherwise be required to contribute under statutory or contractual
obligations. BW-Security also agreed to become the sponsor of two plans covering
certain employees of certain discontinued automotive operations, and the Company
will have no further liability for
13
<PAGE> 16
such plans. In addition, the Company agreed to file certain reports and
financial statements with the PBGC and to give the PBGC advance notice of
certain significant asset sales.
SALE OF MANUAL TRANSMISSION BUSINESS
The Company has announced its intention to sell its North American manual
transmission business, which is based in the Company's Muncie, Indiana plant.
See "-- Labor Relations." Although profitable in 1994, this business lost money
on an operating basis in 1995 and during the first quarter of 1996 due to a
decline in volume. While the sale process is continuing, the Company expects to
continue to report operating losses for such business until it is sold. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Other Financial Condition Matters -- North American Manual
Transmission Business."
ENVIRONMENTAL REGULATION AND PROCEEDINGS
The Company's operations are subject to federal, state, local and foreign
laws and regulations governing, among other things, emissions to air, discharge
to waters and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials. The Company believes that its business,
operations and facilities have been and are being operated in compliance in all
material respects with applicable environmental and health and safety laws and
regulations, many of which provide for substantial fines and criminal sanctions
for violations. However, the operation of automotive parts manufacturing plants
entails risks in these areas, and there can be no assurance that the Company
will not incur material costs or liabilities. In addition, potentially
significant expenditures could be required in order to comply with evolving
environmental and health and safety laws, regulations or requirements that may
be adopted or imposed in the future.
The Company believes that the overall impact of compliance with regulations
and legislation protecting the environment will not have a material effect on
its future financial position or results of operations, although no assurance
can be given. Capital expenditures and expenses in 1995 attributable to
compliance with such regulations and legislation were not material.
The Company and certain of its current and former direct and indirect
corporate predecessors, subsidiaries and divisions have been identified by the
United States Environmental Protection Agency and certain state environmental
agencies and private parties as potentially responsible parties ("PRPs") at 28
hazardous waste disposal sites under the Comprehensive Environmental Response,
Compensation and Liability Act ("Superfund") and equivalent state laws, and, as
such, may be liable for the cost of clean-up and other remedial activities at
these sites. Responsibility for clean-up and other remedial activities at a
Superfund site is typically shared among PRPs based on an allocation formula.
See "Business -- Environmental Regulations and Proceedings."
Based on information available to the Company which, in most cases,
includes an estimate of allocation of liability among PRPs; the probability that
other PRPs, many of whom are large, solvent public companies, will fully pay the
costs apportioned to them; currently available information from PRPs and/or
federal or state environmental agencies concerning the scope of contamination
and estimated remediation costs; estimated legal fees; and other factors, the
Company has established a reserve in its financial statements for indicated
environmental liabilities with a balance of approximately $11 million at March
31, 1996. The Company expects this amount to be expended over the next three to
five years.
In connection with the Spin-Off, the Company and BW-Security entered into a
Distribution and Indemnity Agreement which provided for, among other matters,
certain cross-indemnities designed principally to place financial responsibility
for the liabilities of businesses conducted by BW-Security and its subsidiaries
with BW-Security and financial responsibility for liabilities of the Company or
related to its automotive businesses with the Company. The Company has been
advised that BW-Security believes that the Company is responsible for certain
liabilities relating to environmental matters retained by BW-Security at the
time of the Spin-Off. BW-Security has requested indemnification from the Company
for past costs of approximately $1.6 million and for future costs related to
these environmental matters. At the time of the Spin-Off, BW-Security maintained
a letter of credit for approximately $9 million with respect to the principal
portion of
14
<PAGE> 17
such environmental matters. Although there can be no assurance, based upon
information currently available to the Company, the Company does not believe
that it is required to indemnify BW-Security under the Distribution and
Indemnity Agreement with respect to such liabilities. In addition, the Company
does not currently have information sufficient to determine what its liability
would be if it is ultimately determined that it is required to indemnify
BW-Security with respect to such liabilities.
The Company believes that none of these matters, individually or in the
aggregate, will have a material adverse effect on its financial position or
future operating results, generally either because estimates of the maximum
potential liability at a site are not large or because liability will be shared
with other PRPs, although no assurance can be given with respect to the ultimate
outcome of any such matter. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Other Financial Condition
Matters -- Environmental."
PRINCIPAL STOCKHOLDER
Upon completion of the Offerings, certain affiliates of Merrill Lynch
Capital Partners, Inc. ("MLCP") will control approximately 19.50% of the voting
power of the Company and it is estimated that the executive officers and
directors of the Company (without regard to shares held by affiliates of MLCP)
will control in the aggregate approximately 1.08% of the voting power of the
Company. See "Principal and Selling Stockholders." As a result of such stock
ownership, if the MLCP affiliates and the executive officers and directors of
the Company were to vote together, they may be able to influence significantly
the election of the Board of Directors of the Company and votes on all other
matters submitted to the Company's stockholders for approval. In addition, three
of the members of the Company's Board of Directors are associated with MLCP.
In the event that the ownership of the Common Stock becomes more widely
dispersed in the future as a result of additional sales by existing stockholders
or further issuances by the Company, certain provisions of the Company's Amended
and Restated Certificate of Incorporation (the "Certificate of Incorporation")
and Bylaws (the "Bylaws") and Delaware law may make the acquisition of control
of the Company in a transaction not approved by the Company's Board of Directors
more difficult or expensive. For example, the Delaware takeover statute limiting
transactions with "interested stockholders" applies to the Company and the
Company's Certificate of Incorporation and Bylaws provide for a classified Board
of Directors, limitations on the removal of directors, limitations on
stockholder action and advance notification procedures. See "Description of
Capital Stock -- The Delaware General Corporation Law" and "-- Certificate of
Incorporation; Bylaws." These provisions could discourage an acquisition attempt
or other transactions in which stockholders might receive a premium over the
then current market price for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
The Merrill Lynch entities, which include the entities named in Note 1 of
the table in "Principal and Selling Stockholders" (the "ML Entities"), certain
institutional investors and certain management investors have rights entitling
them, under specified circumstances, to cause the Company to register for sale
all or part of their shares of Common Stock and to include such shares in any
registered public offerings of Common Stock by the Company. The Company is
effecting the Offerings pursuant to the exercise by the ML Entities of their
demand registration rights under the Registration Rights Agreement (as defined
herein). See "Description of Capital Stock -- Registration Rights Agreement." No
prediction can be made as to the effect, if any, that future sales of shares of
Common Stock, or the availability of shares of Common Stock for future sales,
will have on the market price of the shares of Common Stock prevailing from time
to time. Sales of substantial amounts of Common Stock, or the perception that
such sales could occur, could adversely affect prevailing market prices for the
Common Stock.
In addition, certain of the ML Entities that are limited partnerships are
expected to distribute an aggregate of between 230,338 and 249,414 shares of
Common Stock owned by them to their partners that have elected not to receive
their pro rata share of the proceeds of the sale of Common Stock by such
partnerships (the "Merrill Lynch Distribution"). The exact number of shares
distributed will depend upon the Price to Public in the Offerings. As a
condition to receiving shares of Common Stock in the Merrill Lynch
15
<PAGE> 18
Distribution, such partners have agreed to be bound by the same lock-up
provision as each of the holders of at least 1% of the outstanding shares of the
Common Stock who is a party to the Registration Rights Agreement for a period of
180 days after the effective date of the Registration Statement. The Merrill
Lynch Distribution is expected to occur as soon as practicable after 180 days
from the effective date of the Registration Statement, or on such earlier date
consented to by the Representatives (as defined herein). In addition, each of
the Company and the executive officers and directors of the Company will agree,
for a period of 180 days after the effective date of the Registration Statement,
not to sell or otherwise dispose of any shares of Common Stock or securities
convertible into or exchangeable or exercisable for Common Stock, or any rights
or warrants to acquire Common Stock, without the prior written consent of the
Representatives.
USE OF PROCEEDS
The Selling Stockholders will receive all of the proceeds from the
Offerings and the Company will receive no proceeds. See "Principal and Selling
Stockholders."
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the NYSE under the symbol "BWA." The
following table sets forth on a per share basis, for the period indicated, the
high and low sales prices of the Common Stock as reported on the NYSE Composite
Tape and dividends paid.
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
------- ------- --------
<S> <C> <C> <C>
1994
First Quarter.............................. $34.000 $26.375 $ 0.125
Second Quarter............................. $31.625 $22.625 $ 0.15
Third Quarter.............................. $29.125 $22.625 $ 0.15
Fourth Quarter............................. $25.500 $21.625 $ 0.15
1995
First Quarter.............................. $26.125 $22.375 $ 0.15
Second Quarter............................. $29.375 $23.500 $ 0.15
Third Quarter.............................. $33.875 $28.500 $ 0.15
Fourth Quarter............................. $32.250 $27.625 $ 0.15
1996
First Quarter.............................. $33.625 $28.625 $ 0.15
Second Quarter............................. $43.000 $33.625 $ 0.15
Third Quarter (through July 22)............ $40.375 $36.125 --
</TABLE>
On July 2, 1996, the closing price of the Common Stock on the NYSE
Composite Tape was $39.875 per share. Prospective investors should obtain a
current quote on the shares of Common Stock. As of June 30, 1996, there were
approximately 152 holders of record of Common Stock.
DIVIDEND POLICY
A dividend of $0.15 per share was paid on May 15, 1996 to stockholders of
record as of May 1, 1996. While the Company currently expects that comparable
cash dividends will continue to be paid in the future, the dividend policy is
subject to review and change at the discretion of the Board of Directors of the
Company.
16
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996, and as adjusted to give effect to the Coltec Acquisition. This table
should be read in conjunction with "Selected Historical Financial Data" and
"Summary -- Pro Forma Financial Data" and the historical Consolidated Financial
Statements of the Company appearing in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 (the "Annual Report") and Form 10-Q for the
quarter ended March 31, 1996, which are incorporated by reference herein.
<TABLE>
<CAPTION>
HISTORICAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Short-term debt:
Bank borrowings...................................................... 31.1 31.1
Bank term loans...................................................... 13.6 13.6
Capital lease liability.............................................. 0.1 0.1
---------- -----------
Total short-term debt........................................ $ 44.8 $ 44.8
======= =========
Long-term debt:
Bank borrowings...................................................... $ 12.9 $ 12.9
Bank term loans...................................................... 70.3 70.3
Revolving credit facility............................................ -- 287.8
Other long-term debt................................................. 6.6 6.6
---------- -----------
Total long-term debt......................................... $ 89.8 $ 377.6
======= =========
Stockholders' equity:
Common stock......................................................... $ 0.2 $ 0.2
Other stockholders' equity........................................... 604.1 604.1
---------- -----------
Total stockholders' equity................................... $604.3 $ 604.3
======= =========
</TABLE>
17
<PAGE> 20
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial information
for the Company for 1991 through March 31, 1996. The information for the years
ended December 31, 1991, 1992, 1993, 1994 and 1995 is derived from the audited
financial statements of the Company. The information for the three-month periods
ended March 31, 1996 and 1995 is not audited, but in the opinion of the Company
is a fair presentation of such information. This information is qualified by
reference to the historical consolidated financial statements of the Company
incorporated by reference herein. See "Incorporation of Certain Information by
Reference." The following table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales.......................... $ 820.3 $ 926.0 $ 985.4 $1,223.4 $1,329.1 $ 327.8 $ 348.9
Cost of sales...................... 660.4 755.2(a) 769.3 948.4 1,044.9 253.0 277.5
Depreciation....................... 62.0(b) 64.3(a) 57.9 60.9 68.0 17.2 18.4
Selling, general and administrative
expenses......................... 77.7 69.6 83.5 92.1 97.8 26.4 30.8
Minority interest.................. (1.3) (1.3) 0.1 1.4 2.0 0.4 0.7
Goodwill amortization.............. 9.7 9.7 9.7 9.6 9.6 2.4 2.6
Equity in affiliate earnings and
other income..................... (9.9) (6.9) (10.6) (10.6) (18.6) (4.2) (4.1)
Interest expense and finance
charges.......................... 53.8(d) 44.8(d) 18.4 13.9 14.2 3.5 3.5
Provision for income taxes......... 3.7 2.7 24.3 43.3 37.0 11.5 7.2
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) before cumulative
effect of accounting change...... (35.8) (12.1) 32.8 64.4 74.2 17.6 12.3
Cumulative effect of change in
accounting(b).................... 4.8 -- (130.8) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss)................ $ (31.0) $ (12.1) $ (98.0) $ 64.4 $ 74.2 $ 17.6 $ 12.3
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share before
cumulative effect of accounting
change(c)........................ -- $ (0.53) $ 1.41 $ 2.75 $ 3.15 $ 0.75 $ 0.52
Net earnings (loss)
per share(c)..................... -- $ (0.53) $ (4.21) $ 2.75 $ 3.15 $ 0.75 $ 0.52
Average shares outstanding
(thousands)(c)................... -- 23,005 23,284 23,424 23,562 23,385.. 23,495
Cash dividend declared
per share........................ -- -- 0.125 0.45 0.60 0.15 0.15
OTHER OPERATING DATA
Research and development........... $ 26.9 $ 26.8 $ 25.2 $ 33.8 $ 36.7 $ 8.4 $ 11.7
Capital expenditures............... 53.9 47.7 65.5 98.8 92.5 15.1 11.6
Number of full-time employees
(thousands).................... 6.4 6.7 6.6 7.8 8.6 7.8 8.4
Sales per full-time employee
(thousands)...................... $ 128.0 $ 139.0 $ 149.0 $ 158.0 $ 163.0 $ 167.0 $ 166.0
BALANCE SHEET DATA (at end of
period)
Net property, plant and
equipment........................ $ 463.5 $ 412.9 $ 418.3 $ 462.3 $ 523.0 $ 462.3 513.0
Total assets....................... 1,080.0 1,074.2 1,159.4 $1,240.3 $1,335.2 $1,269.6 $1,361.4
Total debt......................... --(d) --(d) 159.6 107.3 134.7 135.1 134.6
BW-Security investment(e).......... 743.5 728.2 -- -- -- -- --
Stockholders' equity(e)............ -- -- 459.1 534.9 600.0 554.0 604.3
</TABLE>
- ---------------
(a) Cost of sales for 1992 included a $28.7 million charge for the write-off of
excess capacity and depreciation included $7.3 million related to such
capacity.
(b) Amounts reflect the adoption of SFAS No. 109 in 1991 and SFAS No. 106 in
1993. In 1991, depreciation increased by $11.2 million because of an
adjustment to fixed assets related to the adoption of SFAS No. 109.
(c) Earnings per share for 1992 and 1993 have been calculated assuming that the
IPO had been completed on January 1, 1992.
(d) Prior to the Spin-Off, interest was allocated to the Company on the basis of
the Company's relative operating investment compared to BW-Security's
overall capital investment (debt plus equity). Prior to the Spin-Off, all
debt was considered to be part of the BW-Security investment.
(e) Prior to the Spin-Off, the Company was wholly owned by BW-Security and its
stockholders' equity is reported as BW-Security investment. After the
Spin-Off, the Company's equity is reported as stockholders' equity.
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company became independent on January 27, 1993, when its Common Stock
was distributed to the stockholders of its then parent, BW-Security, as a
dividend in the Spin-Off. The initial capital structure was established with
$480 million of equity and $251 million of debt. In August 1993, the Company
completed the IPO of 3.66 million shares of Common Stock, yielding net proceeds
of $83.2 million.
The Company is a technology-driven supplier of highly engineered components
and systems, primarily for automotive powertrain applications. The Company,
which operates 36 manufacturing facilities in 12 countries serving the North
American, European and Asian automotive markets, is an original equipment
supplier to every major automaker in the world. Its products fall into four
operating groups: Powertrain Systems, Automatic Transmission Systems, Morse TEC
and Air/Fluid Systems.
Except for the information under "-- Pro Forma Capital Resources and
Liquidity of the Company," this discussion does not give effect to the Coltec
Acquisition. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" should be read in conjunction with the historical
Consolidated Financial Statements of the Company included in the Annual Report
and the Company's Form 10-Q for the quarter ended March 31, 1996. See
"Incorporation of Certain Information by Reference." Also see "Selected
Historical Financial Data" for additional information.
RESULTS OF OPERATIONS
The following table details the Company's results of operations as a
percentage of sales:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- -----------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................. 78.1 77.5 78.6 77.2 79.5
Depreciation................................... 5.8 5.0 5.1 5.2 5.3
Selling, general and administrative expenses... 8.5 7.5 7.4 8.1 8.8
Goodwill amortization.......................... 1.0 0.8 0.7 0.7 0.7
Minority interest, affiliate earnings and other
income, net.................................. (1.1) (0.8) (1.2) (1.1) (0.9)
</TABLE>
Historically, the Company's sales have been seasonal in nature, with the
fourth quarter of each year generally having higher sales. This trend has been
less prevalent in recent years. The fourth quarter has traditionally been the
quarter for new model introduction by the automotive industry, but this trend is
diminishing as the auto industry becomes more global and competitive pressure
for continual model updates intensifies.
First Quarter 1996 Compared with First Quarter 1995
Sales for the quarter ended March 31, 1996 were up 6% from the same period
in the prior year. The increase in sales is attributable to the purchase of the
Precision Forged Products Division ("PFPD") of Federal-Mogul Corporation at the
end of April 1995 and the SUM business at the end of 1995. PFPD contributed $17
million in sales while SUM contributed $4 million. Excluding PFPD and SUM, sales
were relatively unchanged from the prior year. The Company has realized revenue
growth because of the presence of its products on vehicles, such as light
trucks, sales of which are growing at a rate in excess of the overall market.
Revenue growth in most areas has been offset by $8.5 million in revenues lost
due to the GM strike in March and a $16.3 million decrease in sales versus 1995
in the manual transmission business due to the loss of the GM S-Truck business
in the summer of 1995. The Company's manual transmission business had sales of
$28.4 million for the quarter ended March 31, 1996 and $44.7 million for the
quarter ended March 31, 1995.
In the first quarter of 1996 the Automatic Transmission Systems and
Air/Fluid Systems groups both reported increases in sales while the Powertrain
Systems and Morse TEC groups reported slightly lower sales
19
<PAGE> 22
results. Powertrain Systems reported a decrease of 1% or $1.4 million due to the
loss of the GM S-Truck manual transmission business as well as a decline in
sales of sporty cars which utilize manual transmissions. This decline was offset
by volume increases in its domestic transfer case applications, particularly in
the light truck area. A decrease in sales of 6% or $4.4 million at Morse TEC was
primarily due to the GM strike in March. Increased sales of 21% at the Automatic
Transmission Systems group (4% excluding the PFPD acquisition) were related to
volume increases by the Company's OEM customers as well as increased content in
certain automatic transmissions tempered by the GM strike. Sales at Air/Fluid
Systems have also shown improvement, 21% over the comparable 1995 period, due to
volume increases of various solenoids and valves particularly in Chrysler
applications as well as $4 million related to the acquired SUM business.
The lost GM manual transmission business and the GM strike contributed to
the relatively flat sales volume, net of acquisitions. Adjusted for the GM
strike, the effect of the manual transmission business decline and the impact of
acquisitions, sales increased 7.8% against a North American market which was off
by 13%, a European market which was stagnant and a Japanese market which
declined slightly. However, the timing of the GM strike and the fixed cost
structure of the manual transmission business translated into a gross profit
decrease of $3.4 million to $71.4 million in 1996.
The Company's income taxes are based upon estimated annual tax rates for
the year. In the first quarter of 1996, the Company realized certain tax credits
related to its foreign operations. These realized credits resulted in the
effective income tax rate for the first quarter of 1996 being lower than the
standard federal and state rates. The effective income tax rate for the first
quarter of 1995 exceeded the United States statutory rate due to state income
taxes as well as higher foreign rates which exceeded those in the United States.
The Company has increased its spending on research and development ("R&D")
by $3.3 million to $11.7 million for the three months ended March 31, 1996 in
order to maintain and expand its technological expertise in both product and
process. Although R&D spending increased in the first quarter of 1996, the
Company expects 1996 R&D spending to be approximately 3% of sales, which is
consistent with prior years.
Although down from the prior year, the NSK-Warner joint venture continued
to report strong earnings in the current period. For the Company's three months
ended March 31, 1996 and 1995, the Company's portion of NSK-Warner's earnings
were $3.7 million and $4.0 million, respectively. The earnings decline resulted
from a small decrease in sales volume and a weakening of the yen.
The effects on net income of the GM strike and the loss of the manual
transmission business were partially offset by tax credits resulting in the
Company's reported earnings in the first quarter of 1996 of $12.3 million, $5.3
million lower than the first quarter of 1995.
1995 Compared with 1994
Overall, North American automotive production was down 3% in 1995 versus
1994, while Japanese automotive production was down about 3%, Korean automotive
production was up 12% and European automotive production was flat. Against this
backdrop, the Company was able to register gains in sales of 9% and earnings of
15%. The gains were the result of the Company's participation in one of the most
rapidly growing segments in the overall automotive marketplace -- sport utility
vehicles and light trucks -- and the Company's ability to increase the value of
components supplied per vehicle through ongoing aggressive marketing and
engineering programs. The Company's acquisition of PFPD in 1995 accounted for
approximately 40% of the sales gain, or $52 million. After adjusting for the
acquisition and the 1994 disposition of a marine and industrial business, sales
increased 7%.
20
<PAGE> 23
The following table shows net sales by product grouping:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- -----------------
1993 1994 1995 1995 1996
-------- -------- -------- ------ ------
(MILLIONS OF
(MILLIONS OF DOLLARS) DOLLARS)
<S> <C> <C> <C> <C> <C>
Powertrain Systems........................ $ 418.4 $ 529.9 $ 544.8 $140.4 $139.0
Automatic Transmission Systems............ 307.6 378.5 454.4 98.6 119.3
Morse TEC................................. 202.3 239.9 257.6 70.4 66.0
Air/Fluid Systems......................... 83.7 97.3 107.6 28.0 33.8
------ ------ ------ ------ ------
1,012.0 1,245.6 1,364.4 337.4 358.1
Interbusiness eliminations................ (26.6) (22.2) (35.3) (9.6) (9.2)
------ ------ ------ ------ ------
Total..................................... $ 985.4 $1,223.4 $1,329.1 $327.8 $348.9
====== ====== ====== ====== ======
</TABLE>
Powertrain Systems' sales grew by 3% in 1995 (8% excluding a 1994
disposition). In the 4WD transfer case business, the TODTM transfer case for the
Ford Explorer yielded higher volume due to Ford's increased capacity for this
sport utility vehicle. Increased features over the transfer case model it
replaced also improved the Company's revenue per unit. Volume increases in large
transfer cases for full-size pickup truck applications were, in part, offset by
the discontinuance of the automatic locking hub business, due to technological
changes. In 1995, the Company sold 452,000 small transfer cases and 395,000
large transfer cases compared with 398,000 and 343,000, respectively, in 1994.
Revenue from manual transmissions declined by $29 million to $148 million in
1995 because of the loss of the GM S-Truck business combined with declines in
volume for the principal remaining North American applications
- -- high-performance five-speed and six-speed sporty cars such as the Ford
Mustang, Chevrolet Camaro, Pontiac Firebird and Dodge Viper. See "-- Other
Financial Condition Matters -- North American Manual Transmission Business" for
a discussion of the Company's decision to seek a buyer for the North American
manual transmission business.
The Automatic Transmission Systems group realized a $75.9 million increase
in sales over 1994, up 20%. Of the increase, $52 million resulted from the
acquisition of the PFPD business in April 1995. The remainder of the increase
(6% over 1994) resulted from volume gains in North America, Germany and Korea,
which were offset by approximately $2.3 million in price reductions to
customers. In Korea, the volume increase was market driven. In North America and
Europe, the volume gains were the result of the Company's increased content per
vehicle. This group sells to the widest array of OEMs and is most susceptible to
trends in the marketplace. In 1995, it benefited from the move to four- and
five-speed automatic transmissions from three-speed models, which increases the
Company's componentry even if market volumes are flat. During 1995, the Company
saw the first of what it believes will be an increasing number of five-speed
transmission models, again affording the opportunity to improve volume without
being dependent upon overall market growth. The acquisition of the PFPD business
should also lead to opportunities to bundle components into a system, thereby
increasing the Company's content per vehicle. PFPD also offers a promising
product line in engine connecting rods, a new area for the Company.
The Morse TEC group continued its sales growth in 1995 with a 7% gain. Two
percentage points of the gain resulted from favorable exchange rates for the
yen. The remainder is the result of increased volume and improved product mix.
The group realized a full year of sales of the MORSE GEMINITM Transmission Chain
System, which it began providing for the Chrysler LH series in mid-1994.
However, monthly volumes for the Chrysler LH fell in 1995 versus 1994. In 1995,
the group was selected to provide the MORSE GEMINITM system for all of GM's FWD
automatic transmission applications beginning in 1997. The transmission chain
business benefited from increased sales of sport utility vehicles, which use the
Morse HY-VO(R) chain. Engine timing systems sales also grew as Ford expanded its
modular engine program to the Taurus/Sable as well as the new F-Series pickup
truck, which was introduced in the beginning of 1996. The modular engine series
uses a Morse engine timing system, consisting of chains, sprockets, tensioners
and snubbers. Previously the Company provided only a single chain. The modular
engine series at Ford now consists of 2.5 liter and 3.0 liter V-6s and 4.6 liter
and 5.2 liter V-8s.
21
<PAGE> 24
Air/Fluid Systems realized an 11% sales increase in 1995. The group
received a full year of benefit of providing 100% of certain Chrysler
transmission solenoid requirements for its front-wheel drive vehicles. The group
also increased its volume of Ford EGR valves (required for emission regulations)
and began providing the clutch coil incorporated in the Company's TODTM transfer
case. With the recent acquisitions of SUM and the Coltec Divisions, the
Air/Fluid Systems business is expected to contribute a greater portion of
consolidated revenues in 1996 and beyond.
Because of the nature of the OEM marketplace, the Company's sales tend to
be concentrated among a small number of large customers. In 1995, the Company's
top ten customers constituted about 86% of total consolidated sales compared
with 83% in 1994. Ford, the Company's largest customer, accounted for 41% of
sales in 1995 and 39% of sales in 1994. GM accounted for 25% of 1995 sales and
27% of 1994 sales. Chrysler accounted for 9% of total consolidated sales in
1995. These sales represent a variety of different products to a number of OEM
divisions worldwide.
Gross margin in 1995 slipped to 21.4% versus 22.5% in 1994. Four factors
were responsible for the decline. First, the decline in volume in the manual
transmission business had a material impact on margins. Excluding the manual
transmission business, gross margin would have been 23.5% in 1995 versus 24.5%
in 1994. Next, raw material prices increased at a faster rate than the Company's
ability to pass through such increases. For example, aluminum went from $0.63
per pound at the beginning of 1994 to $0.97 at the beginning of 1995 to $0.77 at
the end of 1995. Aluminum is a key component of the Company's transfer cases and
cases for solenoids. The Company's contracts with OEMs have economic
pass-through clauses, but these do not provide for 100% recovery, and in many
cases, recovery takes place on a delayed basis. The Company has sought to
minimize its exposure to material cost fluctuations through pass-through
clauses, and through the use of alternative materials where feasible. The third
factor affecting the margin comparison is price reductions to customers where
the Company has not been able to achieve offsetting cost reductions. The timing
required to implement and get approval for cost reduction proposals is partially
responsible for this factor. The final significant factor in the margin
comparison is that the acquired PFPD business has a relatively lower margin than
the Company as a whole.
Annual price reductions to customers appear to have become a permanent
feature of the Company's business environment. Price reductions granted in 1995
totaled approximately $8.0 million. Contractual price reductions can in some
cases be offset by economic pass-through of material costs and credit for other
product features or savings realized by the customer. To maintain margins, the
Company has a three-part strategy. The first is to reduce costs by continual
improvement in the Company's production processes and by price reductions from
suppliers. The next is to update product designs to reduce cost and/or improve
productivity by the OEM customer in the final application. Finally, the Company
makes an ongoing effort to develop new products whose benefits support the
pricing.
The increase in sales, offset by the margin decline, translated into EBIT
of $125.4 million, a $3.8 million, or 3%, increase over 1994. Other trends
affecting EBIT include higher depreciation from increased capital spending in
recent years. Depreciation increased $7.1 million, or 12%, in 1995. Selling,
general and administrative expenses increased by $5.7 million, or 6%, in 1995.
As a percentage of sales, such expenses declined to 7.4% in 1995 from 7.5% in
1994. Included in the 1995 expenses was $36.7 million in R&D spending, a 9%
increase over 1994. The Company continued to invest in R&D at a rate in excess
of 2.7% of sales, recognizing that a key corporate strategy is to position the
Company on the leading technological edge. Examples of new products resulting
from the R&D investments in recent years include the TODTM transfer case, the
MORSE GEMINITM Transmission Chain System and the new Ford one-way clutch/drum
system, which the Company will begin to produce in mid-1996. In 1994, the
Company provided approximately $5.2 million of additional accruals for
environmental and other liabilities. No similar accruals were provided for in
1995.
Equity in affiliate earnings and other income jumped to $18.6 million in
1995 compared with $10.6 million in 1994. The Company's 50%-owned joint venture
in Japan, NSK-Warner, continued to outperform the Japanese automotive
marketplace. The Company's share of earnings for this venture increased to $19.0
million in 1995 versus $13.9 million in 1994. The venture experienced 16% sales
growth in 1995 to $352
22
<PAGE> 25
million. Earnings were up approximately 25% in local currency, with the rest of
the increase attributable to the strong yen in 1995. The remainder of the
increase resulted from the net loss in 1994 of $3.5 million from the disposition
of certain non-core investments and assets. No similar losses were realized in
1995.
Interest expense was essentially flat between the two years at around $14
million. Higher debt levels resulting from acquisitions during 1995 were offset
by lower interest rates on foreign debt outstanding. The Company benefited from
the general decline in foreign interest rates throughout 1995 and improved
spreads versus nominal borrowing rates in 1995. As a result of the above items,
pre-tax earnings were $111.2 million in 1995, a 3% increase over $107.7 million
in 1994.
Income taxes totaled $37.0 million in 1995, an effective rate of 33.3%,
versus an effective rate of 40.2% in 1994. A significant reason for the improved
tax rate was substantially higher credits against taxes otherwise payable,
particularly for R&D spending and foreign credits. The Company has available
approximately $22 million of foreign tax credits, which can be offset only
against foreign source income. Other factors affecting the nominal tax rate were
the level of affiliate earnings, which are recognized on an after-tax basis, and
goodwill amortization, which is nondeductible.
1994 Compared with 1993
The overall growth in the North American automotive market was 11% in 1994.
Europe was up slightly and Japan was essentially flat. Compared with these
market trends, Company sales of $1.2 billion increased 24% from 1993. Each of
the Company's four business groups contributed to the overall increase.
The Powertrain Systems group increased sales by $111.5 million, or 27%,
over the prior year. This increase was driven by substantial volume growth in
both transfer cases and manual transmissions. Transfer case sales volume growth
resulted from increased installations in pickup trucks, as Ford Explorer sport
utility sales were essentially flat at full capacity. The increase in manual
transmission sales resulted from gains in GM pickup truck installations, sporty
car installations and the introduction of the new Ford Mustang.
The Automatic Transmission Systems group reported sizable growth in United
States sales in 1994, while European sales increased only marginally as the
region was emerging from a recession. The group's products are on a large
variety of models from all major OEMs, so the group benefited from industry
growth. A higher rate of four-speed automatic transmission applications, which
require more of the Company's components, also caused sales to increase.
The Company's Morse TEC group continued its sales growth in 1994 with
increased volume of transmission chain and engine timing chain components and
systems. The group introduced the MORSE GEMINITM Transmission Chain System in
mid-1994 on the Chrysler LH series, yielding substantial incremental 1994 sales.
The timing system for the Ford modular engine program was expanded to the 2.5
liter V-6 Duratec model for the Contour/Mystique vehicles in mid-1994. The group
also benefited from the increased popularity of 4WD vehicles, most of which use
the Company's chain in their transfer cases.
Air/Fluid Systems group sales have increased with the improving demand for
various solenoids and valves. The group provided 100% of Chrysler's requirements
for certain transmission solenoids.
Gross margin in 1994 of 22.5% improved over the prior year's 21.9%. This
translated to a greater gain in EBIT. EBIT of $121.6 million in 1994 increased
61.1% over the 1993 level of $75.5 million, and the EBIT margin increased to
10.0% from 7.7%. The EBIT gains were the result of ongoing cost reduction
programs, as well as operating leverage due to the somewhat fixed nature of
certain elements of the cost structure. The Company continues to focus on its
manufacturing processes for opportunities to reduce cost.
As in 1993, the Company has adapted to the industry-wide practice of
continuous price reduction pressures from its customers, causing the Company to
give actual price reductions, as well as forego some recovery of inflationary
costs.
Selling, general and administrative expenses increased from $83.5 million
in 1993 to $92.1 million in 1994, but decreased as a percentage of sales from
8.5% in 1993 to 7.5% in 1994. The Company provided approximately $5.2 million of
additional accruals for environmental and other liabilities in 1994 and $3.3
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<PAGE> 26
million in 1993. Overall selling, general and administrative spending increased
at a much lower rate than the rate at which the level of business increased.
Depreciation increased from $57.9 million in 1993 to $60.9 million in 1994.
The increase can be attributed to higher capital expenditures over the past two
years.
Equity in affiliate earnings and other income for both 1994 and 1993 was
$10.6 million. Even though the Japanese economy was essentially flat, the
Company's portion of its Japanese joint venture's earnings increased $4.5
million to $13.9 million in 1994. The increase in earnings from affiliates was
partially offset by a net loss of $3.5 million attributed to the sales of
certain non-core investments and assets in 1994.
Interest expense and finance charges decreased $4.5 million from $18.4
million in 1993 to $13.9 million in 1994. The decrease was due to lower debt
levels, resulting from higher operating cash flows in 1994 and proceeds from the
IPO.
Pre-tax income improved $50.6 million, or 88.6% from the prior year income
of $57.1 million. The improvement can be attributed to the large increase in
sales volume, the improved margins and the decrease in interest expense and
finance charges offset by an increase in selling, general and administrative
expenses.
Income taxes increased from $24.3 million in 1993 to $43.3 million in 1994.
However, the effective tax rate for 1994 decreased to 40.2% compared to 42.6% in
1993. The income tax rate for both 1994 and 1993 exceeded the U.S. statutory
rate due to state taxes, foreign taxes that exceed U.S. rates and the
nondeductibility of goodwill amortization.
In 1993, the Company recorded a $130.8 million charge, net of tax benefit
of $76.8 million, for the cumulative effect of the adoption of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
FINANCIAL CONDITION AND LIQUIDITY
The following discussion compares the Company's financial condition at
March 31, 1996 to its financial condition at December 31, 1994, the period
covered in this Prospectus. The Company was able to maintain its strong
financial position in 1995 and the first quarter of 1996 despite spending over
$46 million for acquisitions in 1995. At March 31, 1996 total debt was $134.6
million, compared with $107.3 million at December 31, 1994. Cash from operations
was sufficient to fund $104.1 million of capital spending as well as the
acquisitions referred to above. Total cash from operations over the period was
$129.3 million. At March 31, 1996, debt represented 18% of the Company's
capitalization as compared with 17% at December 31, 1994.
In April 1995, the Company acquired PFPD, a maker of forged sintered
transmission and engine components, including races and connecting rods. The
price was $28 million plus certain working capital. In early 1995, the Company
acquired the remaining 47% of its Italian chain joint venture for $5 million. In
December, the Company acquired SUM, a French maker of control components such as
solenoids and sensors, for $13 million. The results of PFPD were included in
consolidated results beginning in May 1995. No results of operation were
included for SUM in 1995, but its accounts were included in the December 31,
1995 balance sheet.
Capital expenditures totaled $93 million in 1995, compared with $99 million
for 1994. Capital expenditures for the first quarter of 1996 were $11 million
compared to $15 million for the first quarter of 1995. Major spending programs
included the Ford large transfer case, expansion of the MORSE GEMINITM
Transmission Chain Systems program, continued spending on the Ford modular
engine timing system, the Chrysler solenoid program, the Ford one-way
clutch/drum program in Germany and the purchase of the Seneca, South Carolina,
plant for future Mercedes-Benz transfer case business. Spending in the first
three months of 1996 was at a ratio of 0.6 times depreciation versus a ratio of
1.4 times depreciation in full year 1995 and 1.6 times depreciation in full year
1994. The Company remains committed to be a net investor in its continuing
businesses. The Company believes that the decline during the first three months
of 1996 is a function of timing and expects 1996 capital spending to be similar
to 1995 levels. The Company believes that the combination of cash flow from its
operations and available credit facilities will be adequate to satisfy cash
needs for 1996.
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<PAGE> 27
At March 31, 1996, working capital, excluding notes payable, increased by
$25.1 million, reflecting the working capital of acquisitions. Receivables sold
under the receivables transfer agreement increased by $10 million to $85 million
over this period. Net fixed assets increased by $51 million over the 15-month
period, reflecting the $104 million of capital spending and fixed assets of
acquisitions offset by $86 million of depreciation. Investments and advances
increased by $13 million reflecting the NSK-Warner earnings net of dividends.
Other ventures entered into in this period have not yet required a significant
amount of investment. These ventures include:
- Divgi-Warner Private, Ltd. ("Divgi-Warner"), a 60%-owned venture making
transfer cases and manual transmissions for the Indian market.
- Huazhong Warner Transmission Company Ltd. ("Huazhong Warner"), a
60%-owned manufacturer of manual transmissions for light-truck
applications for the central Chinese market.
- Warner Ishi Europe, a 50%-owned venture that makes turbochargers in
Europe.
- Borg-Warner Automotive - Taiwan Co., Ltd., a 100%-owned subsidiary that
makes chains in Taiwan.
Other balance sheet changes included an increase in other assets of $14
million due principally to recognition of $10 million in intangible pension
assets. Goodwill was relatively unchanged despite $18 million in amortization
due to goodwill related to acquisitions. Retirement-related liabilities
increased by only $11 million despite a decline in the discount rate related to
such liabilities. This was due to the earnings on pension assets offset by the
excess of annual expense associated with such liabilities over the related cash
disbursement.
Equity increased by $69 million over the 15-month period. Earnings totaled
$86 million offset by $18 million in dividends. The currency translation
adjustment declined by $8 million due to less favorable rates for the U.S.
dollar, while the minimum pension liability adjustment improved by $3 million
due to earnings on pension assets.
OTHER FINANCIAL CONDITION MATTERS
North American Manual Transmission Business
In January 1996, the Company announced that its North American manual
transmission business would be offered for sale and that it had retained Lehman
Brothers Inc. to assist in the sale process. This decision resulted from the
recognition that all major North American OEMs have allied suppliers for their
significant rear-wheel drive manual transmission applications, leaving only one
niche open to the Company in North America. The niche served by the
Company -- sporty and performance cars -- suffered declines of 20-30% in 1995, a
trend the Company feels is long-term in nature. This business had sales of $148
million in 1995, $177 million in 1994 and $102 million in 1993. Although
profitable in 1994, the business lost money on an operating basis in 1995 and
the first quarter of 1996 due to declining volume. The business has a nominal
investment of approximately $60 million, including $21 million in working
capital. This amount does not reflect any retirement-related liabilities. Any
gain or loss on the sale is dependent on not only the purchase price agreed upon
by the parties but also an agreement as to which assets/liabilities will be
included in the transaction. The sale process is still ongoing. Despite the
announcement, the Company plans to continue to implement its strategy to
capitalize on manual transmission opportunities in developing markets such as
China and India.
Environmental
The Company and certain of its current and former direct and indirect
corporate predecessors, subsidiaries and divisions have been identified by the
United States. Environmental Protection Agency and certain state environmental
agencies and private parties as PRPs at 28 hazardous waste disposal sites under
the Superfund and equivalent state laws and, as such, may be liable for the cost
of clean-up and other remedial activities at these sites. Responsibility for
clean-up and other remedial activities at a Superfund site is typically shared
among PRPs based on an allocation formula. The means of determining allocation
among PRPs is generally set forth in a written agreement entered into by the
PRPs at a particular site. An allocated share assigned to a PRP is often based
on the PRP's volumetric contribution of waste to the site and the
characteristics of the waste material.
25
<PAGE> 28
Based on information available to the Company, which, in most cases,
includes an estimate of allocation of liability among PRPs; the probability that
other PRPs, many of whom are large, solvent public companies, will fully pay the
cost apportioned to them; currently available information from PRPs and/or
federal or state environmental agencies concerning the scope of contamination
and estimated remediation costs; estimated legal fees; and other factors, the
Company has established a reserve in its financial statements for indicated
environmental liabilities of approximately $11 million at March 31, 1996. The
Company expects this amount to be expended over the next three to five years.
In connection with the Spin-Off, the Company and BW-Security entered into a
Distribution and Indemnity Agreement which provided for, among other matters,
certain cross-indemnities designed principally to place financial responsibility
for the liabilities of businesses conducted by BW-Security and its subsidiaries
with BW-Security and financial responsibility for liabilities of the Company or
related to its automotive businesses with the Company. The Company has been
advised that BW-Security believes that the Company is responsible for certain
liabilities relating to environmental matters retained by BW-Security at the
time of the Spin-Off. BW-Security has requested indemnification from the Company
for past costs of approximately $1.6 million and for future costs related to
these environmental matters. At the time of the Spin-Off, BW-Security maintained
a letter of credit for approximately $9 million with respect to the principal
portion of such environmental matters. Although there can be no assurance, based
upon information currently available to the Company, the Company does not
believe that it is required to indemnify BW-Security under the Distribution and
Indemnity Agreement with respect to such liabilities. In addition, the Company
does not currently have information sufficient to determine what its liability
would be if it is ultimately determined that it is required to indemnify
BW-Security with respect to such liabilities.
The Company believes that none of these matters, individually or in the
aggregate, will have a material adverse effect on its financial position or
future operating results, generally either because estimates of the maximum
potential liability at a site are not large or because liability will be shared
with other PRPs, although no assurance can be given with respect to the ultimate
outcome of any such matter.
Coltec Acquisition
On June 17, 1996, the Company acquired the operations and substantially all
of the operating assets of the Coltec Divisions for $283 million in cash. The
Coltec Acquisition was financed with borrowings under the Company's revolving
credit facility.
PRO FORMA CAPITAL RESOURCES AND LIQUIDITY OF THE COMPANY
The Unaudited Pro Forma Consolidated Balance Sheet reflects significant
changes from the Company's historical financial condition as of March 31, 1996.
Net working capital and net fixed assets would have increased $23 million and
$26 million, respectively, as a result of the Coltec Acquisition. Net working
capital acquired in the Coltec Acquisition excludes substantially all
operations-related accrued expenses incurred in the normal monthly operating
cycle. The Company believes that an increase in these types of liabilities will
occur with the operation of the Coltec Divisions and could result in a reduction
of net working capital position in the remainder of 1996. For purposes of the
pro forma financial statements, the excess of the purchase price over the value
of the assets was allocated to goodwill. Goodwill would have increased $238
million as a result of the Coltec Acquisition, from $312 million to $550
million. Goodwill is expected to be amortized over its estimated useful life.
For pro forma purposes, a 30-year amortization period has been used.
The $283 million purchase price plus approximately $5 million in other
acquisition costs was financed with borrowings under the Company's $300 million
revolving credit facility; this would result in a $288 million increase in
long-term debt, from $90 million to $378 million. There would be no change in
the Company's stockholders' equity as a result of the Coltec Acquisition. The
resulting capital structure of $422 million in total debt and $604 million in
equity increases the Company's leverage ratio of debt to debt plus equity from
18% to 41%. The Company believes that it will be able to satisfy cash needs for
the remainder of 1996 and meet its long-term business growth objectives with
adequate sources of capital available through a combination of cash from
operations, borrowing capacity and access to capital markets.
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<PAGE> 29
BUSINESS
The Company is a leading, global Tier I supplier of highly engineered
systems and components, primarily for automotive powertrain applications. These
products are manufactured and sold worldwide, primarily to OEMs of passenger
cars, sport utility vehicles and light trucks. The Company, which operates 36
manufacturing facilities in 12 countries serving the North American, European
and Asian automotive markets, is an original equipment supplier to every major
OEM in the world. The Company has achieved its current leadership position and
is well positioned to benefit from emerging trends in the global automotive
markets as a result of several key competitive strengths, including: (i) the
ability to supply its customers globally; (ii) demonstrated technological
expertise in developing highly engineered systems and components; (iii) strong
relationships with all major OEMs; (iv) significant market shares in a number of
its key products; and (v) a strong presence in and focus on high-growth vehicle
categories and platforms.
The Company maintains a global network of contacts within the automotive
industry and works with its customers in all stages of production, including
design, development, component sourcing, quality assurance, manufacture and
delivery. The Company believes that its industry contacts and early involvement
in the design and engineering of new products as a Tier I supplier affords the
Company a competitive advantage in securing new business and provides customers
significant cost reduction opportunities through the coordination of design,
development and manufacturing processes. Suppliers to OEMs that design,
engineer, manufacture and conduct quality control testing are generally referred
to as "Tier I" suppliers. The Company maintains an excellent reputation with the
OEMs for timely delivery and customer service and for providing world-class
quality at a competitive price. The Company has received more than 40 awards for
outstanding quality from its customers worldwide.
PRIOR HISTORY OF THE COMPANY
The Company was incorporated in Delaware in 1987 in connection with the
acquisition of Borg-Warner Corporation ("Old Borg-Warner") by an indirect wholly
owned subsidiary of BW-Security.
The Company was a wholly owned subsidiary of BW-Security until January 27,
1993, at which time it
was distributed to the stockholders of BW-Security in the tax-free Spin-Off. The
capital structure of the Company was established with $480 million of equity and
debt of $251 million.
For additional information concerning the history of the Company and
BW-Security and a description of the benefits derived from the acquisition of
Old Borg-Warner by affiliates of MLCP and other investors, including the
Company's management, as well as certain obligations of the Company and
BW-Security to each other under agreements entered into in connection with the
Spin-Off, see "Certain Relationships and Related Transactions" in the Company's
Proxy Statement for the 1996 Annual Meeting of Stockholders, which is
incorporated by reference herein. See "Incorporation of Certain Information by
Reference."
BUSINESS STRATEGY
The Company's business objective is to maintain its position as one of the
leading independent suppliers of highly engineered systems and components for
automotive powertrain applications. The Company pursues this objective in
several ways. First, the Company seeks to maintain its position and reputation
as a technological leader in its product groups. Second, the Company seeks to
maintain its price competitiveness by continuing to improve the efficiency of
its operations, including its production processes. Third, the Company believes
that it is well positioned to take advantage of certain trends within the global
automotive market. The Company believes that these trends include (i) a growing
demand for automatic transmissions with a greater number of speeds (the
Company's component content in an automatic transmission rises as the number of
speeds increases), (ii) a growing demand for 4WD vehicles, (iii) an increasing
demand for overhead cam engines, (iv) a growing demand for automatic
transmissions and air and fluid management systems in Europe and in Asia, (v)
the increasing tendency of OEMs to purchase integrated systems rather than
individual components, and (vi) demand in markets outside the United States for
air and fluid management products, particularly emission controls. Fourth, the
Company continues to pursue strategic joint ventures and selected acquisitions
within its existing or related lines of business. The Company continues to
maintain its strong presence in Europe and Asia as a result of its recent
acquisitions and joint ventures. The
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<PAGE> 30
Company believes its global presence will enable it to better withstand the
effect of cyclical downturns in the United States automotive market, while
serving its OEM customers as a global supplier. See " -- Recent Developments."
Over the past several years, the Company has remained focused on and
committed to achieving its business objective. Sales have increased from $820
million in 1991 to $1.33 billion in 1995, reflecting a 12.8% compound annual
growth rate and outperforming the approximately 4% compound annual growth rate
of North American vehicle sales. The Company's sales outside the United States
are increasing and in 1995 represented 16% of consolidated sales. Including
unconsolidated joint ventures, 1995 sales outside the United States constituted
33% of total sales. The Company's sales have increased at a greater rate than
market growth as a result of higher content per vehicle and higher market share.
The Company's emphasis on providing systems and introduction of new technologies
has enabled it to substantially increase its content per vehicle. For example,
the timing system on the Ford modular engine consists of up to four chains as
well as sprockets, snubbers and tensioners as compared with a single timing
chain on the previous generation pushrod engine. The Company's market share
gains have been achieved during a period of OEM supplier consolidation which has
benefited the Company. Such growth in sales has been accompanied by growth in
profitability. Over the same period, EBIT increased from $22 million in 1991 to
$125 million in 1995, with EBIT margins rising from 2.6% in 1991 to 9.4% in
1995, and sales per employee rising from $128,000 in 1991 to $163,000 in 1995.
Demonstrated Technological Expertise and Leadership. The Company believes
that it is recognized throughout the global automotive industry as a leader in
technological innovation, expertise and excellence. A significant component of
the Company's business strategy is to maintain and enhance this reputation. In
order to achieve this, the Company is committed to being the technological
leader in its markets by developing and producing state-of-the-art products
using state-of-the-art processes. The Company is also able to parlay its
technological expertise into designing and developing complete systems for its
customers.
The Company has 310 engineers dedicated to R&D and a significant long-term
commitment to R&D. The Company has obtained over 3,000 patents in its history
and currently has approximately 1,900 active domestic and foreign patents and
patent applications, pending or under preparation.
Throughout its history, the Company has been an innovative technology
partner to the global automotive industry. The Company's engineering
achievements include the single-plate manual clutch, a "silent" chain engine
timing system, and high-volume HY-VO(R) chain for FWD and 4WD applications. In
transmissions alone, the Company's engineering achievements include the first
automatic transmission model sold worldwide and the world's first fully
electronic continuously variable transmission.
Products developed and produced by the Company include the TOD(TM) transfer
case which allows vehicles to automatically shift from two-wheel drive to 4WD
when electronic sensors indicate it is necessary. Other products include the
MORSE GEMINI(TM) Transmission Chain System. Products expected to be introduced
in future model years include a complete air and fluid system. In addition, the
Company continues to develop integrated systems incorporating individual
components, such as the one-way clutch and drum assembly developed for Ford.
Continuous Process Improvements and Production Efficiencies. In recent
years, automotive OEMs have reduced the number of their suppliers and
transferred additional responsibility for design, engineering and quality
control to their remaining suppliers. In addition, there has been substantial
and continuing pressure from the major automotive OEMs to reduce costs,
including costs associated with outside suppliers such as the Company. As a
result, the OEMs have demanded annual selling price reductions from such
suppliers. Annual price reductions granted in 1995 totaled approximately $8.0
million. Although the Company believes that it produces a technologically
sophisticated product at a competitive cost, the Company must continually seek
to control and reduce costs in order to maintain its gross margins in light of
such price pressure. Continuing improvement in the efficiency of operations,
including production processes, is therefore another significant component of
the Company's strategy. Accordingly, the Company has adopted a "lean"
manufacturing philosophy that seeks to eliminate waste and inefficiency in its
operations. The Company's R&D staff works together throughout its worldwide
operations sharing ideas and accumulated knowledge regarding powertrain
applications and customer requirements. The Company also fosters an environment
of continuous
28
<PAGE> 31
improvement by critically comparing its products and processes against those of
its competitors and customers in terms of quality, cost, safety, efficiency and
delivery.
Global Industry Trends. In the near term, the Company believes that it is
well positioned to take advantage of certain trends in the global automotive
industry that could permit the Company to increase sales and profits without
long-term growth in the global automotive industry. These trends include:
- The air and fluid management systems market is one in which the Company
believes there are significant growth opportunities driven by
increasingly stringent air emissions regulations both in the United
States and overseas.
- Light trucks and sport utility vehicles with four-wheel drive options are
increasingly popular with vehicle purchasers. Since the Company is a
major manufacturer of transfer cases and transmission chain for 4WD
vehicles, the Company believes that it is well positioned to take
advantage of this trend.
- Fuel efficiency and customer demands are causing a shift from three-speed
to four-speed and five-speed automatic transmissions as well as
increasing demand for double overhead cam engines. Transmissions with a
greater number of speeds require a higher content per transmission of the
Company's automatic transmission components. Double overhead cam engines
also require higher content per vehicle because they utilize complex
timing systems as compared to pushrod engines.
- The Company will seek to capitalize on the increasing tendency of the
OEMs to purchase integrated systems rather than individual components.
- Installations of automatic transmissions are projected to increase for
automobiles sold in Europe and Asia. For example, in Europe, automatic
transmissions are installed on only approximately 12% of the cars and
light trucks sold as compared to approximately 80% installation on cars
sold in North America. Because of the Company's experience in developing
technologically advanced automatic transmission components, the Company
believes it is well positioned to benefit from any such increase.
Growth Through Joint Ventures and Acquisitions. In addition to internal
growth, the Company expects to continue to grow through strategic joint ventures
and selected acquisitions. In the last 18 months, the Company has acquired its
partner's shares in its Regina-Warner joint venture to improve its engine timing
business in Europe, has acquired the Precision Forged Products Division of
Federal Mogul Corporation to enhance its systems capability in one-way clutches,
has acquired SUM in France to provide a local manufacturing and engineering base
for its air/fluid systems products in Europe and has acquired the Coltec
Divisions to significantly expand its global air and fluid systems management
business. The Company has also established joint ventures for transfer case and
manual transmission manufacturing in India with Divgi Metalwares Private, Ltd.
("Divgi") and for manual transmissions in China with Shiyan Automotive
Transmission Factory ("Shiyan").
RECENT DEVELOPMENTS
On June 17, 1996, the Company acquired the operations and substantially all
of the operating assets of the Coltec Divisions for $283 million in cash. The
Coltec Divisions have a broad base of air and fluid management products,
established OEM relationships, and three technologically advanced manufacturing
facilities. These operations produced combined sales of $255 million in 1995.
The Coltec Acquisition was financed with borrowings under the Company's
revolving credit facility. See " -- Air/Fluid Systems" and "Prospectus
Summary -- Pro Forma Financial Data."
The Coltec Acquisition will provide the Company with a number of strategic
benefits. The air and fluid management systems market is one in which the
Company believes there are significant growth opportunities driven principally
by increasingly stringent air emissions regulations both in the U.S. and in
Europe. The Company also believes that since few suppliers control a large share
of the growing air and fluid management market, the Company has additional
opportunities to increase its market share because of its technological
expertise and broad range of products. By combining the Coltec Divisions'
component products with the Air/Fluid System's complementary system-based
products, the Coltec Acquisition positions the Company to
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<PAGE> 32
capitalize on the high-growth air and fluid management systems market and to
become a global supplier of complete, integrated air and fluid management
systems. The Coltec Acquisition will also serve to better balance the Company's
business mix by significantly expanding the Company's operations in the air and
fluid management systems business as Air/Fluid Systems pro forma sales will
represent approximately 22% of total consolidated sales, more than double the
Air/Fluid Systems sales in 1995 of 8%. Moreover, the Coltec Acquisition will
allow the Company to further strengthen its relationships with existing OEM
customers, especially Chrysler. Additionally, with the Company's 1995
acquisition of SUM, it is well positioned to begin manufacturing air and fluid
management systems in Europe.
For 1996, the Company expects that the sales contribution from the Coltec
Divisions will be less than their 1995 sales because of the timing of certain
new and expiring programs. The Company also expects that there will be a similar
impact with respect to the earnings contribution from these operations in 1996
because of lower volume, a change in the product mix of the businesses, and
price reductions partially offset by cost reductions and productivity gains.
This trend is expected to continue through 1997, after which new programs are
expected to positively impact sales and earnings trends.
One of the Company's strategic objectives has been to pursue strategic
joint ventures and selected acquisitions in its existing or related lines of
business. The Coltec Acquisition is evidence of the Company's commitment to the
realization of this objective. The Company continues to monitor additional
growth opportunities.
The Coltec Divisions will add design and manufacturing capability in engine
air intake management products and systems, emission air pumps, and oil pumps to
the Company's Air/Fluid Systems existing product line. Complementary product
lines in transmission, steering and suspension solenoids and proprietary wet
friction materials and synchronizers have also been added to existing Company
capabilities. Facilities acquired in the Coltec Acquisition are located in
Warren, Michigan; Water Valley, Mississippi; Sallisaw, Oklahoma; Longview,
Texas; and Kettering, United Kingdom. The Company plans to expand Coltec's
historical focus on components for the North American market to systems
throughout the world, especially in Europe.
PRODUCTS
The Company's products fall into four categories: Powertrain Systems,
Automatic Transmission Systems, Morse TEC and Air/Fluid Systems. Net revenues by
product grouping for the three years ended December 31, 1995 and the three month
periods ended March 31, 1996 and 1995 are as follows (in millions of dollars):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- -----------------
1993 1994 1995 1995 1996
-------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
Powertrain Systems........................ $ 418.4 $ 529.9 $ 544.8 $140.4 $139.0
Automatic Transmission Systems............ 307.6 378.5 454.4 98.6 119.3
Morse TEC................................. 202.3 239.9 257.6 70.4 66.0
Air/Fluid Systems......................... 83.7 97.3 107.6 28.0 33.8
------ -------- -------- ------ ------
1,012.0 1,245.6 1,364.4 337.4 358.1
Interbusiness eliminations................ (26.6) (22.2) (35.3) (9.6) (9.2)
------ -------- -------- ------ ------
Net sales................................. $ 985.4 $1,223.4 $1,329.1 $327.8 $348.9
====== ======== ======== ====== ======
</TABLE>
The sales information presented above excludes the sales by the Company's
unconsolidated joint ventures. See "-- Joint Ventures" below. Such sales
totalled approximately $394 million in 1995, approximately $316 million in 1994,
approximately $312 million in 1993, approximately $101 million for the three
months ended March 31, 1995, and approximately $94 million for the three months
ended March 31, 1996.
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POWERTRAIN SYSTEMS
The Company manufactures fully assembled transmission systems and
components for automotive applications. Major products include 4WD and all-wheel
drive transfer cases and manual transmissions.
Transfer cases are installed on light trucks and sport utility vehicles. A
transfer case attaches to the transmission and distributes torque to the front
and rear axles for 4WD, improving vehicle control during off-road use and in a
variety of road conditions. Shifting from two-wheel drive to 4WD can be
accomplished mechanically through a lever or electronically through a
push-button activated motor.
The Company has designed and developed an exclusive 4WD TOD(TM) transfer
case system, which allows vehicles to automatically shift from two-wheel drive
to 4WD when electronic sensors indicate it is necessary. The TOD(TM) transfer
case is a feature on the Ford Explorer, the best selling sport utility vehicle
in the United States in 1995 and will be available on the Ford Expedition, a new
sport utility vehicle.
Sales of 4WD transfer cases represented 30%, 26% and 28% of the Company's
total revenues for 1995, 1994 and 1993, respectively. The Company believes that
it is the world's leading independent manufacturer of 4WD transfer cases,
producing approximately 847,000 transfer cases in 1995. The Company's largest
customer of 4WD transfer cases is Ford. The Company supplies substantially all
of the 4WD transfer cases for Ford, including those installed in the Ford
Explorer and the Ford F-150 pickup truck.
The Company has entered into an agreement with Mercedes-Benz Project, Inc.,
a subsidiary of Mercedes-Benz AG, for the Company to supply transfer cases for a
new 4WD vehicle, which will be produced beginning in 1997 at Mercedes-Benz's new
United States passenger vehicle manufacturing facility. Under the five-year
agreement, which has a three-year extension provision, the Company will develop
the technology and supply Mercedes-Benz with new two-speed, electronically
controlled, all-wheel drive transfer cases that are compatible with its
anti-skid braking system. In 1995, the Company purchased a 211,000 sq. ft.
facility in Seneca, South Carolina, to serve as the production facility for
manufacture of the Mercedes-Benz transfer case.
The Company also designs and manufactures five- and six-speed rear-wheel
drive manual transmissions for passenger cars and light trucks. Sales of manual
transmissions accounted for 11%, 14% and 10% of the Company's total sales in
1995, 1994 and 1993, respectively. The Company believes that it was the leading
independent manufacturer of manual transmissions for cars and light trucks in
North America in 1995. The Company's five-speed manual transmission is used in
high performance cars such as the Ford Mustang, the Chevrolet Camaro and the
Pontiac Firebird, and light trucks such as the Isuzu Rodeo and the SsangYong
Musso. The Company's six-speed manual transmission is used in the Dodge Viper,
the Camaro Z-28 and the Firebird Formula and Trans Am. The Company is the sole
supplier of manual transmissions for these cars.
In January 1996, the Company announced its intention to seek a buyer for
its North American manual transmission business due to the decline in demand for
such products in North America and rising in-house supply of manual
transmissions by OEMs. See "Risk Factors -- Sale of Manual Transmission
Business."
The Company signed agreements to establish joint ventures in India and
China in 1995 for the manufacture of 4WD transfer cases and manual
transmissions. See " -- Joint Ventures."
AUTOMATIC TRANSMISSION SYSTEMS
The Company engineers and manufactures components for automatic
transmissions, as well as the systems which combine such components, around the
world. Principal product lines include friction plates, one-way clutches,
transmission bands and torque converters for automatic transmissions.
The Company manufactures over 100 different varieties of friction plates
incorporating asbestos-free, organic friction paper linings. The Company offers
over 20 proprietary friction material formulas, each developed to satisfy
specific customer requirements. The quality of the friction surface results in
high durability, smooth shifting quality, low noise and vibration and minimal
drag. The Company also manufactures over 16 varieties of transmission bands used
in automatic transmissions and over 100 types of one-way clutches for automotive
and aircraft applications. The Company believes that, with the inclusion of its
NSK-Warner joint venture, the Automatic Transmission Systems group is a leading
manufacturer and supplier of
31
<PAGE> 34
friction elements and one-way clutches in North America, Europe and Asia. The
Company is a supplier to virtually every major automatic transmission
manufacturer in the world.
In 1995, the Company completed the purchase of PFPD. PFPD is a manufacturer
of precision forged sintered metallurgy products, including races for one-way
clutches and engine connecting rods which utilize powdered metal technology.
This acquisition will allow the Company to incorporate products of PFPD with
existing products to become a supplier of one-way clutch systems.
MORSE TEC
Morse TEC manufactures chain and chain systems, including HY-VO(R) FWD and
4WD chain, MORSE GEMINITM Transmission Chain Systems, timing chain and timing
chain systems, crankshaft and camshaft sprockets, chain tensioners and snubbers.
HY-VO(R) chain is used in FWD transmissions and for 4WD transfer case
applications. The transmission chain is used to transfer power from the engine
to the transmission. The Company's MORSE GEMINITM Transmission Chain System,
which is used on Chrysler's LH models, emits significantly less chain pitch
frequency noise than conventional transmission chain systems. In 1997, GM will
be incorporating this system in its FWD vehicles. The chain in a transfer case
distributes power between the front and rear output shafts which, in turn,
drives the front and rear wheels. The Company believes it is the world's leading
manufacturer of chain for FWD transmissions and 4WD transfer cases. The Company
is an original equipment supplier to every major manufacturer who uses chain for
such applications.
The Company manufactures complete engine timing chain systems and accessory
drives, including chain, sprockets, tensioners, snubbers, balance shaft gears
and precision gearing. Timing chain is installed around the crankshaft and
camshaft sprockets. The crankshaft turns and transfers power via the timing
chain to the camshaft. The camshaft, in turn, operates the intake and exhaust
valves in the engine cylinder head. The Company's timing chain system is used on
Ford's new modular family of overhead cam engines, including the Duratech
engine. The Company recently announced that it will be designing and producing a
similar timing chain system for Chrysler's new overhead cam engines beginning in
late 1997. The Company believes that it is the world's leading manufacturer of
timing chain.
AIR/FLUID SYSTEMS
The Air/Fluid Systems business designs and manufactures sophisticated
mechanical, electro-mechanical and electronic components and systems for engine
air intake and exhaust management and fuel and vapor management, as well as for
electronically-controlled automatic transmissions and steering and suspension
systems. Key products for engine air intake management produced by the Company
include throttle bodies, intake manifolds, throttle position sensors and
complete engine induction systems. The Company's products for emissions control
and improved mileage include mechanical and electrical air pumps, air control
valves and pressure feedback exhaust gas re-circulation valves. The fuel
management and vapor recovery products include roll valves, canister purge
solenoids, and complete vapor recovery systems. The Company also produces oil
pumps and proprietary wet friction materials for synchronizers, transfer cases
and manual transmissions.
In 1995, the Company completed the purchase of SUM, a designer and
manufacturer of electro-mechanical and electronic automotive components located
in Tulle, Cedex, France. This acquisition provides a manufacturing and
engineering base for the expansion of the Company's air and fluid management
products in Europe.
The Coltec Divisions add design and manufacturing capability in engine air
intake management products and systems, emission air pumps, and oil pumps to the
Company's Air/Fluid Systems product line. Complementary product lines in
transmission, steering and suspension solenoids and proprietary wet friction
materials and synchronizers have also been added to existing Company
capabilities. Facilities acquired in the Coltec Acquisition are located in
Warren, Michigan; Water Valley, Mississippi; Sallisaw, Oklahoma; Longview,
Texas; and Kettering, U.K. The Company plans to expand Coltec's historical focus
on components for the North American market to systems throughout the world,
especially in Europe. See " -- Recent Developments."
32
<PAGE> 35
JOINT VENTURES
The Company has eight ventures in which it has a less-than-100% ownership
interest. Results from three of these ventures, in which the Company is the
majority owner, are consolidated as part of the Company's results. The Company's
ownership interest in the remaining five joint ventures ranges from 20% to 50%.
The results of NSK-Warner, Warner-Ishi Corporation, Beijing Warner Gear Co.,
Ltd. and Korea Powertrain Ltd. are reported using the equity method.
In 1995, the Company entered into a joint venture with Divgi to produce
transfer cases, manual transmissions and automatic locking hubs in India. The
venture, Divgi-Warner, is expected to begin operations in the second half of
1996 and is 60%-owned by the Company and 40%-owned by Divgi.
In 1995, the Company entered into a joint venture with Shiyan to produce
manual transmissions in China. The venture, Huazhong Warner, is 60%-owned by the
Company and 40%-owned by Shiyan.
Management of the unconsolidated joint ventures is shared with the
Company's respective joint venture partners. Certain information concerning the
Company's joint ventures is set forth below:
<TABLE>
<CAPTION>
PERCENTAGE FISCAL 1995
OWNED LOCATION SALES
YEAR BY THE OF JOINT ---------------
JOINT VENTURE PRODUCTS ORGANIZED COMPANY OPERATION VENTURE PARTNER
- -------------------------- ------------------ --------- ---------- --------- ----------------- ($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Unconsolidated
NSK-Warner K.K.......... Friction products 1964 50% Japan Nippon Seiko K.K. $ 337
Warner-Ishi
Corporation........... Turbochargers 1980 50% U.S. Ishikawajima- $ 15
Harima Heavy
Industries Co.,
Ltd.
Beijing Warner
Gear Co., Ltd......... Manual 1992 39% China Beijing Gear $ 34
transmissions Works
Korea Powertrain,
Ltd................... Torque converters 1993 20% Korea Pyeong HWA $ 8
Clutch Industries
Co. Ltd.
Warner-Ishi
Europe, S.P.A......... Turbochargers 1995 50% Italy Ishikawajima- N/A
Harima Heavy
Industries Co.,
Ltd.
Consolidated
Borg-Warner
Automotive Korea,
Inc..................... Friction products 1987 60% Korea Hyundai Motor $ 25
Company,
NSK-Warner K.K.
Divgi-Warner
Private, Ltd.......... Transfer cases, 1995 60% India Divgi Metalworks N/A
manual Private, Ltd.
transmissions, and
automatic locking
hubs
Huazhong Warner
Transmission
Company Ltd........... Manual 1995 60% China Shiyan Automotive N/A
transmissions Transmission
Factory
</TABLE>
See Note 9 of the Notes to Consolidated Financial Statements on page 28 of
the Company's Annual Report (incorporated herein by reference) for geographic
information. See "Incorporation of Certain Information by Reference."
33
<PAGE> 36
CUSTOMERS
Approximately 86% of the Company's total sales in 1995 were to automotive
OEMs, with the remaining 14% of the Company's sales to a diversified group of
industrial, construction and agricultural vehicle manufacturers, auto parts
manufacturers and to distributors of automotive aftermarket and replacement
parts.
The Company's worldwide sales in 1995 to Ford and GM constituted
approximately 41% and 25%, respectively, of its 1995 consolidated sales. Sales
to Chrysler constituted approximately 9% of total consolidated sales in 1995.
The Coltec Acquisition would have increased Chrysler sales to approximately 13%
of sales. Approximately 27% of consolidated sales for 1995 were outside the
United States, including exports. However, a substantial portion of such sales
were to foreign OEMs of vehicles that are, in turn, exported to the United
States. See Note 9 of the Notes to Consolidated Financial Statements in the
Company's Annual Report. If sales from unconsolidated joint ventures were
included in 1995 consolidated sales, worldwide sales to Toyota would be
approximately 10% of such sales.
The Company's automotive products are sold directly to OEMs pursuant to the
terms and conditions of the OEM's purchase orders, and deliveries are subject to
periodic authorizations based upon the production schedules of the OEMs. The
Company ships its products directly from its plants to the OEMs.
SALES AND MARKETING
Each of the Company's four business groups has its own sales function
headed by a Vice-President of Sales. Account executives for each group are
assigned to service specific OEM customers for one or more of a business group's
products. Such account executives spend the majority of their time in direct
contact with OEM purchasing employees and engineers and are responsible for
servicing existing business and for identifying and obtaining new business.
Because of their close relationship with the OEMs, account executives are able
to identify and meet customers' needs based upon their knowledge of the
Company's products and design and manufacturing capabilities. Upon securing a
new order, account executives are responsible for negotiating the terms of the
purchase contract.
RESEARCH AND DEVELOPMENT
Each of the Company's business groups has its own R&D organization.
Approximately 310 employees, including engineers, mechanics and technicians, are
engaged in R&D activities at Company facilities worldwide. The Company also
operates testing facilities such as prototype, measurement and calibration, life
testing and dynamometer laboratories.
By working closely with the OEMs and anticipating their future product
needs, the Company's R&D personnel conceive, design, develop and manufacture new
proprietary automotive systems and components. R&D personnel also work to
improve current products and production processes. The Company believes its
commitment to R&D will allow it to obtain new orders from its OEM customers.
Consistent with its strategy of developing technologically innovative
products, the Company spent approximately $36.7 million, $33.8 million and $25.2
million in 1995, 1994 and 1993, respectively, on R&D activities. Not included in
the reported R&D activities were customer-sponsored R&D activities that were
approximately $11.3 million, $11.2 million and $16.1 million in 1995, 1994 and
1993, respectively.
The Company makes a significant annual investment in R&D activities to
develop new and improved products and manufacturing processes. There can be no
assurance that R&D activities will yield new or improved products or products
which will be purchased by the OEMs, or new and improved manufacturing
processes.
PATENTS AND LICENSES
The Company has approximately 1,900 active domestic and foreign patents and
patent applications, pending or under preparation, and receives royalties from
licensing patent rights to others. While it considers its patents on the whole
to be important, the Company does not consider any single patent, group of
related patents or any single license essential to its operations in the
aggregate. The expiration of the patents individually and in the aggregate is
not expected to have a material effect on the Company's financial position
34
<PAGE> 37
or future operating results. The Company owns numerous trademarks, some of which
are valuable but none of which are essential to its business in the aggregate.
The "Borg-Warner Automotive" trade name, and the housemark adopted in 1984
are material to the Company's business. During 1994, the Company and BW-Security
entered into an Assignment of Trademarks and License Agreement (the "Trademark
Agreement") whereby BW-Security assigned certain trademarks and trade names
(including the "Borg-Warner Automotive" trade name) to the Company (which
trademarks and trade names had been previously licensed to the Company) for use
in the automotive field. Pursuant to the Trademark Agreement, the Company agreed
to pay an additional $7.5 million to BW-Security upon the occurrence of certain
events, including a change of control of the Company.
COMPETITION
The Company competes worldwide with a number of other manufacturers and
distributors which produce and sell similar products. Price, quality and
technological innovation are the primary elements of competition. The Company's
competitors include vertically integrated units of the Company's major OEM
customers, as well as a large number of independent domestic and international
suppliers. Many of these companies are larger and have greater resources than
the Company.
A number of the Company's major OEM customers manufacture for their own use
products which compete with the Company's products. Although these OEM customers
have indicated that they will continue to rely on outside suppliers, the OEMs
could elect to manufacture products to meet their own requirements or to compete
with the Company. There can be no assurance that the Company's business will not
be adversely affected by increased competition in the markets in which it
operates.
The competitive environment has changed dramatically over the past few
years as the Company's traditional United States OEM customers, faced with
intense international competition, have expanded their worldwide sourcing of
components with the stated objective of better competing with lower-cost
imports. As a result, the Company has experienced competition from suppliers in
other parts of the world enjoying economic advantages such as lower labor costs,
lower health care costs, and, in some cases, export subsidies and/or raw
materials subsidies.
EMPLOYEES
As of December 31, 1995, the Company and its consolidated subsidiaries had
approximately 8,600 salaried and hourly employees (as compared with 7,800
employees at December 31, 1994), of which approximately 7,100 were United States
employees. The Coltec Acquisition, with 681 non-union employees in the Holley
Automotive division, 221 non-union employees in the Coltec Automotive division,
and 90 non-union employees in the Performance Friction Products division,
increased the total number of the Company's employees worldwide to approximately
9,600. Approximately 50% of the Company's current domestic hourly workers are
unionized. The Company's Muncie, Indiana plant has approximately 1,665 employees
represented by the UAW. Approximately 810 hourly employees at the Company's
Ithaca, New York, plant are represented by the International Association of
Machinists. The collective bargaining agreement covering the Muncie, Indiana
plant expires in March 1998 and the collective bargaining agreement covering the
Ithaca, New York plant expires in October 1998. Pursuant to the requirements of
the National Labor Relations Act, a union representation election involving
approximately 630 hourly workers at the Company's Bellwood, Illinois facility
was held on June 14, 1996. A majority of the hourly workers voting in the
election voted against union representation. The labor organization appearing on
the ballot was the UAW. The hourly workers at the Company's European facilities
are also unionized. The Company believes its present relations with employees to
be satisfactory. See "Risk Factors -- Labor Relations."
RAW MATERIALS
The Company believes that its supplies of raw materials for manufacturing
requirements in 1996 are adequate and are available from multiple sources. It is
common, however, for customers to require their prior approval before certain
raw materials or components can be used, thereby reducing sources of supply that
would otherwise be available. Manufacturing operations are dependent upon
natural gas, fuel oil, propane and electricity.
35
<PAGE> 38
ENVIRONMENTAL REGULATIONS AND PROCEEDINGS
The Company's operations are subject to federal, state, local and foreign
laws and regulations governing, among other things, emissions to air, discharge
to waters and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials. The Company believes that its business,
operations and facilities have been and are being operated in compliance in all
material respects with applicable environmental and health and safety laws and
regulations, many of which provide for substantial fines and criminal sanctions
for violations. However, the operation of automotive parts manufacturing plants
entails risks in these areas, and there can be no assurance that the Company
will not incur material costs or liabilities. In addition, potentially
significant expenditures could be required in order to comply with evolving
environmental and health and safety laws, regulations or requirements that may
be adopted or imposed in the future.
The Company believes that the overall impact of compliance with regulations
and legislation protecting the environment will not have a material effect on
its financial position or future operating results, although no assurance can be
given in this regard. Capital expenditures and expenses in 1995 attributable to
compliance with such legislation were not material.
The Company and certain of its current and former direct and indirect
corporate predecessors, subsidiaries and divisions have been identified by the
United States Environmental Protection Agency and certain state environmental
agencies and private parties as PRPs at 28 hazardous waste disposal sites under
the Superfund and equivalent state laws and, as such, may be liable for the cost
of clean-up and other remedial activities at these sites. Responsibility for
clean-up and other remedial activities at a Superfund site is typically shared
among PRPs based on an allocation formula. The means of determining allocation
among PRPs is generally set forth in a written agreement entered into by the
PRPs at a particular site. An allocated share assigned to a PRP is often based
on the PRP's volumetric contribution of waste to a site and the characteristics
of the waste material.
Based on information available to the Company which, in most cases,
includes: an estimate of allocation of liability among PRPs; the probability
that other PRPs, many of whom are large, solvent public companies, will fully
pay the costs apportioned to them; currently available information from PRPs
and/or federal or state environmental agencies concerning the scope of
contamination and estimated remediation costs; estimated legal fees; and other
factors, the Company has established a reserve for indicated environmental
liabilities with a balance of approximately $11 million at March 31, 1996. The
Company expects this amount to be expended over the next three to five years.
In connection with the Spin-Off, the Company and BW-Security entered into a
Distribution and Indemnity Agreement which provided for, among other matters,
certain cross-indemnities designed principally to place financial responsibility
for the liabilities of businesses conducted by BW-Security and its subsidiaries
with BW-Security and financial responsibility for liabilities of the Company or
related to its automotive businesses with the Company. The Company has been
advised that BW-Security believes that the Company is responsible for certain
liabilities relating to environmental matters retained by BW-Security at the
time of the Spin-Off. BW-Security has requested indemnification from the Company
for past costs of approximately $1.6 million and for future costs related to
these environmental matters. At the time of the Spin-Off, BW-Security maintained
a letter of credit for approximately $9 million with respect to the principal
portion of such environmental matters. Although there can be no assurance, based
upon information currently available to the Company, the Company does not
believe that it is required to indemnify BW-Security under the Distribution and
Indemnity Agreement with respect to such liabilities. In addition, the Company
does not currently have information sufficient to determine what its liability
would be if it is ultimately determined that it is required to indemnify
BW-Security with respect to such liabilities.
The Company believes that none of these matters, individually or in the
aggregate, will have a material adverse effect on its financial position or
future operating results, generally either because estimates of the maximum
potential liability at a site are not large or because liability will be shared
with other PRPs, although no assurance can be given with respect to the ultimate
outcome of any such matter.
PROPERTIES
The Company's 36 manufacturing facilities are strategically located in the
United States, with two facilities in Germany and one facility in each of
Canada, France, Italy, Japan, Korea and Wales. The
36
<PAGE> 39
Company also has numerous sales offices, warehouses and technical centers. The
Company's executive offices, which are leased, are located in Chicago, Illinois.
In general, the Company believes that its properties are in good condition and
are adequate to meet its current and reasonably anticipated needs. In 1995, the
Company purchased a 211,000 sq. ft. facility in Seneca, South Carolina, to
establish the production facility for manufacture of the Mercedes-Benz transfer
case.
The Coltec Acquisition increased by three the number of manufacturing
facilities the Company operates by adding new facilities in Mississippi,
Oklahoma and Texas. See " -- Air/Fluid Systems."
The following is additional information concerning the major manufacturing
plants operated by the Company and its consolidated subsidiaries. Unless
otherwise noted, these plants are owned by the Company.
<TABLE>
<CAPTION>
1995
PERCENT OF
CAPACITY
LOCATIONS UTILIZATION(1)(2)(3)
---------------------------------------------------------------- --------------------
<S> <C> <C>
U.S.: Blytheville, Arkansas (leased); Bellwood, Dixon and Frankfort,
Illinois; Muncie, Indiana; Sterling Heights, Coldwater, Livonia
and Romulus, Michigan; Ithaca, New York (2 plants); Gallipolis,
Ohio; and Cary, North Carolina.................................. 114%
Non-U.S.: Canada, France, Germany (2 plants), Italy (leased), Japan, Korea
and Wales....................................................... 83%
</TABLE>
- ---------------
(1) The figure shown in each case is a weighted average of the percentage
utilization of each major plant within the category, with an individual
plant weighted in proportion to the number of employees employed when such
plant runs at 100% capacity. Capacity utilization at the 100% level is
defined as operating five days per week, with two eight-hour shifts per day
and normal vacation schedules.
(2) During 1995, the Company acquired facilities in South Carolina, France,
India, China and Taiwan and, in connection with the Coltec Acquisition,
acquired facilities in Mississippi, Oklahoma and Texas from the Coltec
Divisions, none of which are included in the capacity utilization.
(3) Table excludes 50% or less owned joint ventures in China, Japan, Italy,
Korea and Illinois.
LEGAL PROCEEDINGS
The Company is presently, and from time to time, subject to claims and
suits arising in the ordinary course of its business. In certain such actions,
plaintiffs request punitive or other damages that may not be covered by
insurance. The Company believes that it has established adequate provisions for
litigation liabilities in its financial statements in accordance with generally
accepted accounting principles. These provisions include both legal fees and
possible outcomes of legal proceedings.
Centaur Insurance Company ("Centaur"), Old Borg-Warner's discontinued
property and casualty insurance subsidiary and currently a wholly owned
subsidiary of BW-Security, ceased writing insurance in 1984 and has been
operating under rehabilitation since September 1987. Rehabilitation is a process
supervised by the Illinois Director of Insurance to attempt to compromise
liabilities at an aggregate level that is not in excess of Centaur's assets. In
rehabilitation, Centaur's assets are currently being used to satisfy claim
liabilities under direct insurance policies written by Centaur. Any remaining
assets will be applied to Centaur's obligations to other insurance companies
under reinsurance contracts. The foregoing has resulted in several lawsuits
seeking substantial dollar amounts being filed against BW-Security, and in some
cases the Company, for recovery of alleged damages from the failure of Centaur
to satisfy its reinsurance obligations. All of these lawsuits, except one to
which the Company is not currently a party, have been settled. The defense of
this litigation is being managed by BW-Security and the Company is indemnified
by BW-Security for any losses or expenses arising out of the litigation.
It is the opinion of the Company that the various asserted claims and
litigation in which the Company is currently involved will not materially affect
its financial position or future operating results, although no assurance can be
given with respect to the ultimate outcome for any such claim or litigation.
37
<PAGE> 40
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages, positions and certain other
information concerning the executive officers of the Company as of June 30,
1996.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
--------------------------------------- --- ---------------------------------------
<S> <C> <C>
John F. Fiedler........................ 58 Chairman and Chief Executive Officer
Robin J. Adams......................... 43 Vice President and Treasurer
William C. Cline....................... 46 Vice President and Controller
Gary P. Fukayama....................... 49 Executive Vice President
Christopher A. Gebelein................ 50 Vice President -- Business Development
Laurene H. Horiszny.................... 40 Vice President, Secretary and General
Counsel
Geraldine Kinsella..................... 48 Vice President -- Human Resources
Fred M. Kovalik........................ 59 Executive Vice President
Ronald M. Ruzic........................ 57 Executive Vice President
Terry A. Schroeder..................... 48 Vice President
Robert Welding......................... 47 Vice President
Matthias B. Bowman..................... 47 Director
Albert J. Fitzgibbons, III............. 50 Director
Paul E. Glaske......................... 62 Director
James J. Kerley........................ 73 Director
Alexis P. Michas....................... 38 Director
Donald C. Trauscht..................... 62 Director
Ivan W. Gorr........................... 66 Director
</TABLE>
Mr. Fiedler has been Chairman of the Board of Directors since March 1996
and has been Chief Executive Officer of the Company since January 1995. He was
President of the Company from June 1994 to March 1996 and was Chief Operating
Officer of the Company from June 1994 to December 1994. Mr. Fiedler was
Executive Vice President of Goodyear Tire & Rubber Company in charge of the
North American Tire division, from 1991 to 1994. He is a director of Navistar,
Inc.
Mr. Adams has been Vice President and Treasurer of the Company since May
1993. He was Assistant Treasurer of the Company from 1991 to 1993 and Assistant
Treasurer of BW-Security from 1991 to 1993.
Mr. Cline has been Vice President and Controller of the Company since May
1993. He was Assistant Controller of BW-Security from 1987 to 1993.
Mr. Fukayama has been Executive Vice President of the Company since
November 1992. He has been Group President of the Company and President of
Borg-Warner Automotive Air/Fluid Systems Corporation since May 1996. He was
President and General Manager of Borg-Warner Automotive Automatic Transmission
Systems Corporation from January 1995 to May 1996. He was President and General
Manager of Borg-Warner Automotive Transmission & Engine Components Corporation,
Automatic Transmission Systems from November 1992 to December 1994. He was
President and General Manager of the Friction Products Business Group of
Borg-Warner Automotive Transmission & Engine Components Corporation from
February 1991 to October 1992.
Mr. Gebelein has been Vice President -- Business Development of the Company
since January 1995. He was General Manager of Corporate Development of Inland
Steel Industries from 1987 to 1994.
Ms. Horiszny has been Vice President, Secretary and General Counsel of the
Company since May 1993. She was Assistant General Counsel of the Company from
December 1991 to 1993, and Senior Attorney of the Company from 1988 to December
1991.
38
<PAGE> 41
Ms. Kinsella has been Vice President -- Human Resources of the Company
since May 1993. She was Vice President -- Human Resources of Borg-Warner
Automotive Transmission & Engine Components Corporation, Automatic Transmission
Systems from November 1990 to May 1993.
Mr. Kovalik has been Executive Vice President of the Company and President
and General Manager of Borg-Warner Automotive Powertrain Systems Corporation
since March 1994. He was General Manager of Heavy and Medium Duty Transmissions
of Eaton Corporation from April 1992 to February 1994; Marketing
Manager-Transmissions of Eaton Corporation from February 1991 to April 1992 and
Manager-Manufacturing and Quality of Eaton Corporation from February 1989 to
1991.
Mr. Ruzic has been Executive Vice President of the Company and President
and General Manager of Borg-Warner Automotive Morse TEC Corporation since
October 1992. He was President and General Manager of Borg-Warner Automotive
Transmission & Engine Components Corporation, Morse Chain Systems from December
1989 to 1992.
Mr. Schroeder has been Vice President of the Company since April 1995 and
Vice President of Sales and Marketing of Borg-Warner Automotive Air/Fluid
Systems Corporation since May 1996. He was President and General Manager of the
Company's Control Systems Group from December 1993 to May 1996. Mr. Schroeder
was Vice President and Director of Business Development for ITT Cannon
("Cannon") from February 1993 to November 1993, and General Manager of Cannon's
Components Group in North America and Asia from 1991 to February 1993.
Mr. Welding has been Vice President of the Company and President of
Borg-Warner Automotive Automatic Transmission Systems Corporation since May
1996. He was Vice President -- Operations of Borg-Warner Automotive Automatic
Transmissions System Corporation, Bellwood Plant, from November 1993 to May
1996. He was Vice President -- Operations of Borg-Warner Automotive Automatic
Transmission Systems Corporation, Frankfort Plant, from November 1990 to October
1993.
Mr. Bowman has been Vice Chairman of Investment Banking for Merrill Lynch
Pierce, Fenner and Smith Incorporated ("MLPF&S") since 1993, and has been
President and a Director of MLCP since 1994. He has been a Managing Director of
the Investment Banking Division of MLPF&S since 1978.
Mr. Fitzgibbons has been a Partner and a Director of Stonington Partners,
Inc., an investment management firm, since 1993, and has been a Director of MLCP
since 1988. He was a Partner of MLCP from 1993 to 1994 and Executive Vice
President of MLCP from 1988 to 1993. He was also a Managing Director of the
Investment Banking Division of MLPF&S from 1978 to July 1994. He is a Director
of BW-Security, Dictaphone Corporation, Eckerd Corporation and United Artists
Theatre Circuit, Inc.
Mr. Glaske has been Chairman and Chief Executive Officer since April 1992
and President since July 1986 of Blue Bird Corporation, a leading manufacturer
of school buses, motor homes and a variety of other vehicles. Mr. Glaske is also
a Director of Trust Company Bank of Middle Georgia.
Mr. Kerley was Chairman of the Board of Rohr, Inc. ("Rohr"), a manufacturer
of aircraft engine components from January 1993 until his retirement from the
Board in December 1994. Mr. Kerley was interim President and Chief Executive
Officer of Rohr from January 1993 until May 1993. From September 1981 until his
retirement in December 1985, he was Vice Chairman and Chief Financial Officer of
Emerson Electric Company, a manufacturer of electronic, electrical and other
products. Mr. Kerley is also a director of Sterling Chemicals, Inc., ESCO
Electronics, Inc. and DT Industries, Inc.
Mr. Michas has been a Partner and a Director of Stonington Partners, Inc.,
an investment management firm, since 1993, and has been a Director of MLCP since
1989. He was a Partner of MLCP from 1993 to 1994 and Senior Vice President of
MLCP from 1989 to 1993. He was also a Managing Director of the Investment
Banking Division of MLPF&S from 1991 to 1994 and a Director in the Investment
Banking Division of MLPF&S from 1990 to 1991. He is also a Director of Blue Bird
Corporation, BW-Security, Dictaphone Corporation, Eckerd Corporation, Pathmark
Stores, Inc. and Supermarkets General Holding Corporation.
Mr. Trauscht was Chairman of the Board from December 1992 until December
1995; Chief Executive Officer from January 1992 to October 1995; and President
from January 1992 to April 1995 of BW-Security.
39
<PAGE> 42
Mr. Trauscht was Chief Operating Officer and President from September 1991 to
January 1992; Chief Operating Officer and Vice President from 1990 to 1991; and
Vice President -- Finance and Strategy of BW-Security from 1987 to 1990. Mr.
Trauscht was President of the Company from December 1990 and Chief Operating
Officer from September 1991 to September 1992. Mr. Trauscht is also a Director
of BW-Security, Baker Hughes Incorporated, ESCO Electronics Corporation, Thiokol
Corporation, Blue Bird Corporation, and IMO Industries, Inc.
Mr. Gorr was Chairman and CEO of Cooper Tire & Rubber Company from 1989
until his retirement in 1994 and President of the Company from 1982 until 1989.
Mr. Gorr is a director of Amcast Industrial Corporation, Arvin Industries, Inc.,
Cooper Tire & Rubber Company, Fifth Third Bancorp and OHM Corporation.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of June 30, 1996 by (i) directors of the
Company, (ii) each of the named executive officers of the Company, (iii) each
person known by the Company to be the beneficial owner of 5% or more of the
outstanding Common Stock (based on publicly available information), (iv) all of
the Company's directors and executive officers as a group, and (v) each Selling
Stockholder. Unless otherwise indicated, the Company believes that the
beneficial owner has sole voting and investment power over such shares. The
table does not reflect the potential sale of additional shares if the
Underwriters' over-allotment options are exercised. The percentage ownership has
been calculated based on 23,570,068 shares of Common Stock outstanding as of
June 30, 1996. The Selling Stockholders will participate proportionately in any
sales pursuant to the over-allotment options based on their participation in the
Offerings.
<TABLE>
<CAPTION>
OWNERSHIP PRIOR TO OWNERSHIP AFTER THE
THE OFFERINGS OFFERINGS
------------------------- -------------------------
SHARES OF SHARES TO SHARES OF
NAME COMMON STOCK PERCENTAGE BE SOLD COMMON STOCK PERCENTAGE
- ---------------------------------- ------------ ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
ML Entities(1).................... 9,071,154 38.5% 4,500,000 4,571,154 19.4%
FMR Corp.(2)...................... 1,637,400 6.9% -- 1,637,400 6.9%
AIM Management Group Inc.(3)...... 1,198,000 5.1% -- 1,198,000 5.1%
John F. Fiedler................... 25,000 * -- 25,000 *
Fred M. Kovalik(4)................ 12,500 * -- 12,500 *
Matthias B. Bowman(5)............. 0 * -- 0 *
Donald C. Trauscht(6)............. 5,500 * -- 5,500 *
James J. Kerley(7)................ 2,000 * -- 2,000 *
Gary P. Fukayama(8)............... 56,000 * -- 56,000 *
Ronald M. Ruzic(9)................ 73,668 * -- 73,668 *
Albert J. Fitzgibbons, III(10).... 0 * -- 0 *
Alexis P. Michas(11).............. 0 * -- 0 *
Paul E. Glaske.................... 0 * -- 0 *
Ivan W. Gorr...................... 0 * -- 0 *
Terry Schroeder(12)............... 5,000 * -- 5,000 *
All directors and executive
officers of the Company as a
group (18 persons)(13).......... 253,395 * -- 253,395 *
All Management Investors as a
group (10 persons).............. 66,835 * -- 66,835 *
</TABLE>
- ---------------
* Less than 1%.
(1) Shares of Common Stock beneficially owned by ML Entities are owned of
record as follows: 35,573 shares by Merrill Lynch KECALP L.P. 1986; 177,866
shares by Merrill Lynch KECALP L.P. 1987; 444,664 shares by Merchant
Banking L.P. No. I; 444,664 shares by ML Venture Partners II, L.P.;
5,895,020 shares by Merrill Lynch Capital Appreciation Partnership No.
VIII,
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<PAGE> 43
L.P.; 149,872 shares by ML Offshore LBO Partnership No. VIII; 146,543
shares by ML Employees LBO Partnership No. I, L.P.; and 1,776,952 shares by
ML IBK Positions, Inc. MLCP is the general partner of Merrill Lynch LBO
Partners No. II, L.P., which is the general partner of Merrill Lynch
Capital Appreciation Partnership No. VIII, L.P., and the investment general
partner of ML Offshore LBO Partnership No. VIII. Merrill Lynch Capital
Appreciation Partnership No. VIII, L.P. and ML Offshore LBO Partnership No.
VIII are record holders of shares of Common Stock. MLCP has a 0.4% economic
interest in each of such record holders. Except for such economic interest,
MLCP expressly disclaims beneficial ownership of such shares.
(2) Information based upon a Schedule 13G dated February 14, 1996; in the
Schedule 13G, FMR Corp. indicated that it had sole voting power with
respect to 109,600 shares and sole dispositive power with respect to
1,637,400 shares.
(3) Information based upon a Schedule 13G dated February 12, 1996; in the
Schedule 13G, AIM Management Group indicated that it had shared voting
power and shared dispositive power with respect to 1,198,000 shares.
(4) Total includes 12,500 shares issuable upon the exercise of options within
the next 60 days.
(5) Mr. Bowman is a limited partner of the following ML Entities which, in the
aggregate, are the holders of record of 6,699,686 shares: Merrill Lynch
Capital Appreciation Partnership No. VIII, L.P., ML Employees LBO
Partnership No. I, L.P., Merrill Lynch KECALP L.P. 1986, Merrill Lynch
KECALP L.P. 1987 and Merchant Banking L.P. No. 1). In addition, Mr. Bowman
is an advisor to or a director and/or an officer of the ultimate general
partner of such ML Entities. Mr. Bowman expressly disclaims beneficial
ownership of all shares held by such ML Entities.
(6) Total includes 2,500 shares issuable upon the exercise of options within
the next 60 days.
(7) Total includes 1,000 shares issuable upon the exercise of options within
the next 60 days.
(8) Total includes 47,000 shares issuable upon the exercise of options within
the next 60 days.
(9) Total includes 58,000 shares issuable upon the exercise of options within
the next 60 days.
(10) Mr. Fitzgibbons is a director of the Company as well as MLCP, which
manages Merrill Lynch Capital Appreciation Partnership No. VIII, L.P. and
ML Offshore LBO Partnership No. VIII. Mr. Fitzgibbons disclaims beneficial
ownership of shares beneficially owned by the partnerships identified in
footnote 1, above, and Merrill Lynch & Co. ("ML&Co.")
(11) Mr. Michas is a director of the Company as well as MLCP, which manages
Merrill Lynch Capital Appreciation Partnership No. VIII, L.P. and ML
Offshore LBO Partnership No. VIII. Mr. Michas disclaims beneficial
ownership of shares beneficially owned by the partnership identified in
footnote 1, above, and ML&Co.
(12) Total includes 5,000 shares issuable upon the exercise of options within
the next 60 days.
(13) Total includes 220,006 shares issuable upon the exercise of options within
the next 60 days.
41
<PAGE> 44
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company has three authorized classes of capital stock: Preferred Stock,
par value $.01 per share (the "Preferred Stock"); Common Stock; and Non-Voting
Common Stock. The shares of such stock which are authorized and outstanding as
of June 30, 1996 are as follows:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES SHARES
AUTHORIZED OUTSTANDING*
---------- ------------
<S> <C> <C>
Common Stock.................................................... 50,000,000 23,450,124
Non-Voting Common Stock......................................... 25,000,000 122,644
Preferred Stock................................................. 5,000,000 0
</TABLE>
- ---------------
* Shares subject to exercisable but unexercised options are not treated as
outstanding.
COMMON STOCK
The Common Stock and the Non-Voting Common Stock have the same terms except
as to voting rights and certain conversion features.
Each share of Common Stock entitles the holder thereof to one vote in the
election of directors and all other matters submitted to a vote of the Company's
stockholders. Holders of Common Stock do not have cumulative voting rights. The
Non-Voting Common Stock has no voting rights, other than those required by law.
As to conversion rights, certain institutional investors who are subject to
regulatory requirements that forbid or limit their right to own general voting
stock may convert their Common Stock into Non-Voting Common Stock on a
share-for-share basis as needed to satisfy the applicable regulatory
requirements, or directly purchase Non-Voting Common Stock because of such
regulatory requirements. Thereafter, the Non-Voting Common Stock may be
converted into Common Stock on a share-for-share basis in certain circumstances
as permitted by the applicable regulatory requirements.
Subject to any preferential rights of any outstanding shares of Preferred
Stock, holders of shares of Common Stock and Non-Voting Common Stock, treated as
a single class, are entitled to receive, pro rata based on the number of shares
held, cash dividends when, as and if declared by the Board of Directors of the
Company from funds legally available for such purpose. See "Dividend Policy."
In the event of a liquidation of the Company, holders of shares of Common
Stock and Non-Voting Common Stock, treated as a single class, are entitled to
receive, pro rata based on the number of shares held, all of the assets
available for distribution to stockholders after payment of all prior claims,
including any preferential liquidation rights of any Preferred Stock then
outstanding.
Holders of shares of Common Stock and Non-Voting Common Stock have no
preemptive rights to subscribe to additional shares of any such class or other
securities of the Company. All outstanding shares of Common Stock and Non-Voting
Common Stock are fully paid and non-assessable.
The Shares being offered in the Offerings are fully paid and non-assessable
and are not subject to any future call or assessment.
The transfer agent and registrar for the Common Stock is Chase Mellon
Shareholder Services.
REGISTRATION RIGHTS AGREEMENT
The Company is a party to a registration rights agreement (the
"Registration Rights Agreement") with holders of approximately 10,919,777 shares
and substantially all of the currently outstanding Non-Voting Common Stock.
Stockholders who are parties to the Registration Rights Agreement and who also
hold at least 15% of the "registrable securities," but in no event less than
1,000,000 shares of Common Stock, will have the right to demand, on up to four
occasions, that the Company effect the registration of such securities under the
Securities Act of 1933, as amended (the "Securities Act"). One such demand has
previously been exercised and this Offering will constitute the second of these
four demands. The Registration Rights Agreement also provides for incidental
registration rights in circumstances in which the Company is registering
securities
42
<PAGE> 45
under the Securities Act and the concurrent registration of registrable
securities can be accomplished, in the good faith judgment of the Company,
without an adverse effect on the Company. For purposes of the Registration
Rights Agreement, "registrable securities" means Common Stock received in the
Spin-Off, or obtained upon conversion of securities received in the Spin-Off,
that has not been previously transferred pursuant to a registration under the
Securities Act or pursuant to Rule 144. The Registration Rights Agreement
contains customary provisions with respect to the timing of registrations
required thereunder, the allocation of registration expenses and
indemnification. The Registration Rights Agreement terminates pursuant to its
terms on July 27, 2002.
Pursuant to the Registration Rights Agreement, each holder of at least 1%
of the outstanding shares of Common Stock who is a party thereto is required to
agree for a period beginning seven days before, and ending 180 days after, the
effective date of the Registration Statement of which this Prospectus is a part,
not to effect any public sale or distribution, including any sale pursuant to
Rule 144 under the Securities Act, of Common Stock or any securities convertible
into or exchangeable for Common Stock, or any rights or warrants to acquire
Common Stock. In addition, the Company and each of the executive officers and
directors of the Company, as well as certain other stockholders, will agree, for
a period beginning seven days before, and ending 180 days after the effective
date of the Registration Statement of which this Prospectus is a part, not to
sell or otherwise dispose of any shares of Common Stock or securities
convertible into or exchangeable or exercisable for Common Stock, or any rights
or warrants to acquire Common Stock without the prior written consent of the
Representatives. Upon consummation of the Offering, it is expected that the
lock-up agreements will cover an aggregate of approximately 6,369,495 shares of
Common Stock.
PREFERRED STOCK
The Certificate of Incorporation authorizes the Board of Directors to
establish one or more series of Preferred Stock and to determine, with respect
to any series of Preferred Stock, the terms and rights of such series, including
(i) the designation of the series, (ii) the number of shares of the series,
which number the Board may thereafter (except where otherwise provided in the
Preferred Stock designation) increase or decrease (but not below the number of
shares thereof then outstanding), (iii) whether dividends, if any, will be
cumulative or non-cumulative and the dividend rate of the series, (iv) the dates
at which dividends, if any, will be payable, (v) the redemption rights and price
or prices, if any, for shares of the series, (vi) the terms and amounts of any
sinking fund provided for the purchase or redemption of shares of the series,
(vii) the amounts payable on shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding-up of the affairs of the
Company, (viii) whether the shares of the series will be convertible into shares
of any other class or series, or any other security, of the Company or any other
corporation, and, if so, the specification of such other class or series or such
other security, the conversion price or prices or rate or rates, any adjustments
thereof, the date or dates as of which such shares shall be convertible and all
other terms and conditions upon which such conversion may be made, (ix)
restrictions on the issuance of shares of the same series or of any other class
or series, and (x) the voting rights, if any, of the holders of such series. The
authorized shares of Preferred Stock, as well as shares of Common Stock, will be
available for issuance without further action by the Company's stockholders,
unless such action is required by applicable law or the rules of any stock
exchange or automated quotation system on which the Company's securities may be
listed or traded.
Although the Board has no intention at the present time of doing so, it
could issue a series of Preferred Stock that could, depending on the terms of
such series, impede the completion of a merger, tender offer or other takeover
attempt. The Board will make any determination to issue such shares based on its
judgment as to the best interests of the Company and its stockholders. The
Board, in so acting, could issue Preferred Stock having terms that could
discourage an acquisition attempt or other transaction that some, or a majority,
of the Company's stockholders might believe to be in their best interests or in
which stockholders might receive a premium for their stock over the then current
market price of such stock.
THE DELAWARE GENERAL CORPORATION LAW
The Company is a Delaware corporation subject to Section 203 of the
Delaware General Corporation Law (the "DGCL"). Section 203 provides that,
subject to certain exceptions specified therein, a corporation
43
<PAGE> 46
shall not engage in any business combination with any "interested stockholder"
for a three-year period following the time that such stockholder became an
interested stockholder unless (i) prior to such time, the board of directors of
the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares), or (iii) at or subsequent to such time,
the business combination is approved by the board of directors of the
corporation and by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the interested stockholder. Except as
specified in Section 203 of the DGCL, an interested stockholder is defined to
include (x) any person that is the owner of 15% or more of the outstanding
voting stock of the corporation, or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock of
the corporation, at any time within three years immediately prior to the
relevant date and (y) the affiliates and associates of any such person. Under
certain circumstances, Section 203 of the DGCL makes it more difficult for an
"interested stockholder" to effect various business combinations with a
corporation for a three-year period, although the stockholders may elect to
exclude a corporation from the restrictions imposed thereunder. The Certificate
of Incorporation does not exclude the Company from the restrictions imposed
under Section 203 of the DGCL.
CERTIFICATE OF INCORPORATION; BYLAWS
The Certificate of Incorporation and the Bylaws contain certain provisions
that could make more difficult the acquisition of the Company by means of a
tender offer, a proxy contest or otherwise.
Classified Board. The Certificate of Incorporation and Bylaws provide that
the Company's Board of Directors will be divided into three classes of
directors, with the classes to be as nearly equal in number as possible. As a
result, approximately one-third of the Board of Directors will be elected each
year. The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the Company's Board. The
Certificate of Incorporation provides that, subject to any rights of holders of
Preferred Stock to elect additional directors under specified circumstances, the
number of directors will be fixed in the manner provided in the Bylaws. The
Bylaws provide that, subject to any rights of holders of Preferred Stock to
elect directors under specified circumstances, the number of directors will be
fixed from time to time exclusively pursuant to a resolution adopted by
directors constituting a majority of the total number of directors that the
Company would have if there were no vacancies on the Board, but must consist of
not more than seventeen nor less than three directors. In addition, the
Certificate of Incorporation provides that, subject to any rights of holders of
Preferred Stock, and unless the Board otherwise determines, any vacancies will
be filled only by the affirmative vote of a majority of the remaining directors,
though less than a quorum.
Removal of Directors. Under the DGCL, unless otherwise provided in the
Certificate of Incorporation, directors serving on a classified board may be
removed by the stockholders only for cause. In addition, the Certificate of
Incorporation and the Bylaws provide that directors may be removed only for
cause and only upon the affirmative vote of holders of at least 80% of the
voting power of all the then outstanding shares of stock entitled to vote
generally in the election of directors ("Voting Stock"), voting together as a
single class.
Stockholders Action. The Certificate of Incorporation and the Bylaws
provide that, subject to the rights of any holders of Preferred Stock to elect
additional directors under specified circumstances, stockholder action can be
taken only at an annual or special meeting of stockholders and may not be taken
by written consent in lieu of a meeting. The Bylaws provide that, subject to the
rights of holders of any series of Preferred Stock to elect additional directors
under specified circumstances, special meetings of stockholders can be called
only by the Board pursuant to a resolution adopted by a majority of the total
number of directors. Stockholders are not permitted to call a special meeting or
to require that the Board call a special meeting of stockholders. Moreover, the
business permitted to be conducted at any special meeting of stockholders is
limited to the business brought before the meeting pursuant to the notice of
meeting given by the Company.
Advance Notice Procedures. The Bylaws establish an advance notice
procedure for stockholders to make nominations of candidates for election as
directors, or bring other business before an annual meeting of
44
<PAGE> 47
stockholders of the Company (the "Stockholders Notice Procedure"). The
Stockholders Notice Procedure provides that only persons who are nominated by,
or at the direction of, the Board, or by a stockholder who has given timely
written notice to the Secretary of the Company prior to the meeting at which
directors are to be elected, will be eligible for election as directors of the
Company. The Stockholders Notice Procedure also provides that at an annual
meeting only such business may be conducted as has been brought before the
meeting by, or at the direction of, the Chairman of the Board or by a
stockholder who has given timely written notice to the Secretary of the Company
of such stockholder's intention to bring such business before such meeting.
Under the Stockholders Notice Procedure, for notice of stockholder nominations
to be made at an annual meeting to be timely, such notice must be received by
the Company not less than 60 days nor more than 90 days prior to the first
anniversary of the previous year's annual meeting (or, if the date of the annual
meeting is advanced by more than 30 days or delayed by more than 60 days from
such anniversary date, not earlier than the 90th day prior to such meeting and
not later than the later of (x) the 60th day prior to such meeting and (y) the
10th day after public announcement of the date of such meeting is first made).
Notwithstanding the foregoing, in the event that the number of directors to be
elected is increased and there is no public announcement naming all of the
nominees for director or specifying the size of the increased Board of Directors
made by the Company at least 70 days prior to the first anniversary of the
preceding year's annual meeting, a stockholder's notice will be timely, but only
with respect to nominees for any new positions created by such increase, if it
is received by the Company not later than the 10th day after such public
announcement is first made by the Company. Under the Stockholders Notice
Procedure, for notice of a stockholder nomination to be made at a special
meeting at which directors are to be elected to be timely, such notice must be
received by the Company not earlier than the 90th day before such meeting and
not later than the later of (x) the 60th day prior to such meeting and (y) the
10th day after the public announcement of the date of such meeting is first
made. In addition, under the Stockholders Notice Procedure, a stockholder's
notice to the Company proposing to nominate a person for election as a director
or relating to the conduct of business other than the nomination of directors
must contain certain specified information. If the Chairman of the Board or
other officer presiding at a meeting determines that a person was not nominated,
or other business was not brought before the meeting, in accordance with the
Stockholders Notice Procedure, such person will not be eligible for election as
a director, or such business will not be conducted at such meeting, as the case
may be.
Liability of Directors; Indemnification. The Certificate of Incorporation
provides that a director will not be personally liable for monetary damages to
the Company or its stockholders for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
paying a dividend or approving a stock repurchase or redemption in violation of
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit. The Certificate of Incorporation also
provides that each current or former director, officer, employee or agent of the
Company, or each such person who is or was serving or who had agreed to serve at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise (including
the heirs, executors, administrators or estate of such person), will be
indemnified by the Company to the full extent permitted by the DGCL, as the same
exists or may in the future be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Company to provide broader
indemnification rights than said law permitted the Company to provide prior to
such amendment). The Certificate of Incorporation also specifically authorizes
the Company to enter into agreements with any person providing for
indemnification greater or different than that provided by the Certificate of
Incorporation.
Amendment. The Certificate of Incorporation provides that the affirmative
vote of the holders of at least 80% of the voting power of the outstanding
shares of Voting Stock, voting together as a single class, is required to amend
provisions of the Certificate of Incorporation relating to the prohibition of
stockholder action without a meeting; the number, election and term of the
Company's directors; and the removal of directors. The Certificate of
Incorporation further provides that the Bylaws may be amended by the Board or by
the affirmative vote of the holders of at least 80% of the outstanding shares of
Voting Stock, voting together as a single class.
45
<PAGE> 48
The description set forth above is intended as a summary only and is
qualified in its entirety by reference to the forms of the Certificate of
Incorporation and the Bylaws, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part. See "Available
Information."
CERTAIN UNITED STATES TAX CONSEQUENCES FOR NON-U.S. SHAREHOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of shares of
Common Stock by a person that is a "Non-U.S. Shareholder." For purposes of this
discussion, a "Non-U.S. Shareholder" means any person other than (i) an
individual who is a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or of any political subdivision thereof, or (iii) an
estate or trust the income of which is subject to United States federal income
taxation regardless of its source.
This discussion is for general information only and does not consider all
aspects of United States federal tax consequences that may be relevant to a
particular Non-U.S. Shareholder in light of such shareholder's particular tax
position, and does not deal with state, local or foreign tax consequences. This
discussion is based on the Internal Revenue Code of 1986, as amended, existing
(and where noted, proposed) Treasury regulations, and judicial and
administrative interpretations as of the date hereof, all of which are subject
to change. Prospective investors are urged to consult their own tax advisors
with respect to the United States federal, state and local tax consequences of
owning and disposing of the Common Stock, as well as any tax consequences
arising under the laws of any other taxing jurisdiction. Proposed Treasury
Regulations that are proposed to be effective after December 31, 1997 would
change in certain respects some of the certification and reporting requirements
discussed below. It is not certain whether, or in what form, such proposed
regulations will be finalized.
DIVIDENDS
In the event that dividends are paid on the Common Stock, any such
dividends paid to a Non-U.S. Shareholder will be subject to withholding of
United States federal income tax at a rate of 30% of the amount of the dividend
(or a lower rate prescribed by an applicable income tax treaty). However, if the
dividend is effectively connected with the conduct of a United States trade or
business by the Non-U.S. Shareholder and the Non-U.S. Shareholder properly files
Internal Revenue Service Form 4224 (or such other applicable form required by
the Internal Revenue Service) with the Company or its dividend-paying agent,
then the dividend (i) will not be subject to income tax withholding, and (ii)
except to the extent that an applicable income tax treaty provides otherwise,
will be subject to United States federal income tax at progressive rates of tax.
In the case of a Non-U.S. Shareholder that is a corporation, such effectively
connected dividend income may also be subject to the branch profits tax (which
is generally imposed on a foreign corporation on the repatriation from the
United States of effectively connected earnings and profits) at a 30% rate (or a
lower rate prescribed by an applicable income tax treaty).
A Non-U.S. Shareholder that is eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund with
the Internal Revenue Service.
The Company is required to report annually to the Internal Revenue Service
and each Non-U.S. Shareholder the amount of dividends paid to, and the income
tax withheld with respect to, such shareholder. Such information may also be
made available by the Internal Revenue Service to the tax authorities of the
country in which the Non-U.S. Shareholder resides.
DISPOSITION OF COMMON STOCK
Generally, a Non-U.S. Shareholder will not be subject to United States
federal income tax on the gain realized upon the disposition of such
shareholder's shares of Common Stock unless (i) the Company is or has been a
"U.S. real property holding corporation" for federal income tax purposes (which
the Company does not believe that it is or is likely to become) and the Non-U.S.
Shareholder held, directly or indirectly, at any time during the five-year
period ending on the date of disposition, more than 5% of any class of stock of
the Company that is regularly traded on an established securities market within
the meaning of the applicable
46
<PAGE> 49
Treasury regulations, (ii) the gain is effectively connected with a United
States trade or business carried on by the Non-U.S. Shareholder and, if an
income tax treaty applies, attributable to a United States permanent
establishment maintained by the Non-U.S. Shareholder, (iii) the Non-U.S.
Shareholder is an individual who holds the Common Stock as a capital asset, such
shareholder is present in the United States for 183 days or more in the taxable
year of the disposition and either the Non-U.S. Shareholder has a "tax home" in
the United States for United States federal income tax purposes or the sale is
attributable to an office or other fixed place of business maintained by the
Non-U.S. Shareholder in the United States; or (iv) the Non-U.S. Shareholder is
subject to tax pursuant to the provisions of United States tax law applicable to
certain United States expatriates.
ESTATE TAX
Shares of Common Stock owned or treated as owned by an individual who is
not a citizen or resident (as specifically defined for United States federal
estate tax purposes) of the United States at the time of his or her death will
be includable in the individual's gross estate for United States federal estate
tax purposes and thus subject to United States federal estate tax, unless an
applicable estate tax treaty provides otherwise.
UNITED STATES INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
United States information reporting requirements (other than the reporting
of dividend payments for purposes of the 30% income tax withholding discussed
under "-- Dividends") and backup withholding tax generally will not apply to a
dividend payment made outside the United States to a Non-U.S. Shareholder, if
the dividend either is subject to the 30% withholding discussed above or is
subject to a reduced rate of such withholding tax under an applicable income tax
treaty. Otherwise, information reporting and backup withholding tax at a 31%
rate may apply to dividends paid on the Common Stock to a Non-U.S. Shareholder
who fails to certify its non-U.S. status under penalties of perjury in the
manner required by United States law or otherwise fails to establish an
exemption.
In addition, the payment of the proceeds of the sale of shares of Common
Stock to or through the United States office of a broker will be subject to
information reporting and possible 31% backup withholding unless the owner
certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. The payment of the proceeds of the sale of shares of
Common Stock to or through the foreign office of a broker generally will not be
subject to this backup withholding tax. In the case of the payment of proceeds
from the disposition of shares of Common Stock through a foreign office of a
broker that is a United States person or a "U.S. related person," existing
regulations require information reporting but not backup withholding on the
payment unless the broker has documentary evidence in its files that the owner
is a Non-U.S. Shareholder and the broker has no actual knowledge to the
contrary. For this purpose, a "U.S. related person" is (i) a "controlled foreign
corporation" for United States federal income tax purposes, or (ii) a foreign
person, 50% or more of whose gross income from all sources for the three-year
period ending with the close of its taxable year preceding the payment (or for
such part of the period that the broker has been in existence) is derived from
activities that are effectively connected with the conduct of a United States
trade or business. Proposed Treasury regulations which have not been finally
adopted contain a similar rule with respect to information reporting by a broker
that is a United States person or a "U.S. related person." However, under the
proposed regulations, such a person may only rely on documentary evidence to
avoid information reporting if the foreign office "effects" the sale at such
foreign office. Any amounts withheld under the backup withholding rules from a
payment to a Non-U.S. Shareholder will be allowed as a refund or a credit
against such Non-U.S. Shareholder's United States federal income tax, provided
that the required information is furnished to the Internal Revenue Service.
These information reporting and backup withholding rules are under review
by the Internal Revenue Service, and their application to the Common Stock could
be changed by future regulations.
47
<PAGE> 50
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"U.S. Purchase Agreement") among the Company, the Selling Stockholders, and each
of the underwriters named below (the "U.S. Underwriters") and concurrently with
the sale of 900,000 Shares to the International Underwriters (as defined below),
the Selling Stockholders have agreed to sell to each of the U.S. Underwriters,
and each of the U.S. Underwriters has severally agreed to purchase, the
aggregate number of Shares set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................................................
Lehman Brothers Inc...............................................................
Morgan Stanley & Co. Incorporated.................................................
---------
Total................................................................... 3,600,000
=========
</TABLE>
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), Lehman
Brothers Inc. and Morgan Stanley & Co. Incorporated are acting as
representatives (the "U.S. Representatives") of the several U.S. Underwriters.
The Company and the Selling Stockholders have also entered into a purchase
agreement (the "International Purchase Agreement") with certain underwriters
outside the United States and Canada (the "International Underwriters" and,
together with the U.S. Underwriters, the "Underwriters") for whom Merrill Lynch
International, Lehman Brothers International (Europe) and Morgan Stanley & Co.
International Limited are acting as representatives (the "International
Representatives" and, together with the U.S. Representatives, the
"Representatives"). Subject to the terms and conditions set forth in the
International Purchase Agreement, and concurrently with the sale of 3,600,000
Shares to the U.S. Underwriters, the Selling Stockholders have agreed to sell to
the International Underwriters, and the International Underwriters severally
have agreed to purchase, an aggregate of 900,000 Shares. The public offering
price per Share and the underwriting discount per Share are identical under the
U.S. Purchase Agreement and the International Purchase Agreement.
In the U.S. Purchase Agreement, the several U.S. Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
Shares being sold pursuant to each such Agreement if any of the Shares being
sold pursuant to such Agreement are purchased and in the International Purchase
Agreement the several International Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all the Shares being sold
pursuant to such agreement if any of the Shares being sold pursuant to such
agreement are purchased. Under certain circumstances, the commitments of
non-defaulting Underwriters may be increased. The closings with respect to the
sale of the Shares to be purchased by the U.S. Underwriters and the
International Underwriters are conditioned upon one another.
The U.S. Underwriters propose initially to offer the Shares to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain dealers (who may include U.S. Underwriters) at such price less a
concession not in excess of $ per Share. The U.S. Underwriters may
allow, and such dealers may re-allow, a discount not in excess of $ per
Share to certain other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.
The Selling Stockholders have granted to the U.S. Underwriters options to
purchase up to an aggregate of 540,000 additional Shares, and the International
Underwriters options to purchase up to an aggregate of 135,000 Shares, in each
case exercisable for 30 days after the date hereof, to cover over-allotments, if
any, at the public offering price, less the underwriting discount. To the extent
that the U.S. Underwriters exercise these options, each of the U.S. Underwriters
will have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage of such Shares that the number of Shares to be
purchased by it
48
<PAGE> 51
shown in the foregoing table bears to the total number of Shares initially
offered to the U.S. Underwriters hereby.
The U.S. Underwriters and the International Underwriters have entered into
an Intersyndicate Agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate Agreement,
sales may be made between the U.S. Underwriters and the International
Underwriters of such number of Shares as may be mutually agreed. The price of
any Shares so sold shall be the public offering price, less an amount not
greater than the selling concession.
Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and
any dealer to whom they sell Shares will not offer to sell or sell Shares to
persons who are non-United States or non-Canadian persons or to persons they
believe intend to resell to persons who are non-United States or non-Canadian
persons, and the International Underwriters and any dealer to whom they sell
Shares will not offer to sell or sell Shares to United States or Canadian
persons or to persons they believe intend to resell to United States or Canadian
persons, except, in each case, for transactions pursuant to the Intersyndicate
Agreement.
The Common Stock is listed on the NYSE under the symbol "BWA." Because the
Company is an affiliate of MLPF&S, one of the Underwriters, the U.S. Offering is
being conducted in accordance with the applicable provisions of Schedule E
("Schedule E") of the By-Laws of the National Association of Securities Dealers,
Inc. (the "NASD"). In accordance with Schedule E, no NASD member participating
in the distribution is permitted to confirm sales to accounts over which it
exercises discretionary authority without prior specific written consent. In
addition, under the rules of the NYSE, MLPF&S is precluded from issuing research
reports that make recommendations with respect to the Common Stock for so long
as the Company is an affiliate of MLPF&S.
Pursuant to the Registration Rights Agreement, each holder of at least 1%
of the outstanding shares of Common Stock who is a party thereto is required to
agree, for a period beginning seven days before, and ending 180 days after, the
effective date of the Registration Statement of which this Prospectus is a part,
not to effect any public sale or distribution, including any sale pursuant to
Rule 144 under the Securities Act, of Common Stock or any securities convertible
into or exchangeable for Common Stock, or any rights or warrants to acquire
Common Stock. See "Risk Factors -- Shares Eligible for Future Sale." In
addition, each of the Company and the executive officers and directors of the
Company, as well as certain other stockholders, will agree, for a period
beginning seven days before, and ending 180 days after the effective date of the
Registration Statement of which this Prospectus is a part, not to sell or
otherwise dispose of any Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock, or any rights or warrants to
acquire Common Stock without the prior written consent of the U.S.
Representatives. Upon consummation of the Offering, it is expected that the
lock-up agreements will cover an aggregate of approximately 6,369,495 shares of
Common Stock.
The Company and the Selling Stockholders have agreed to indemnify the U.S.
Underwriters and the International Underwriters against certain civil
liabilities, including liabilities under the Securities Act.
Each of the U.S. Representatives or their affiliates from time-to-time
performs investment banking and other financial services for the Company. Lehman
Brothers Inc. is currently acting as financial advisor to the Company in
connection with the disposition of the North American manual transmission
business. For information regarding the ownership by the ML Entities of Common
Stock and the representation of affiliates of ML&Co. on the Board of Directors
of the Company, see "Management" and "Principal and Selling Stockholders."
LEGAL MATTERS
The validity of the Shares offered hereby and certain other legal matters
relating to the Offerings will be passed upon for the Company by Wachtell,
Lipton, Rosen & Katz, New York, New York. Certain legal matters will be passed
upon for the Underwriters by Shearman & Sterling, New York, New York. Wachtell,
Lipton, Rosen & Katz and Shearman & Sterling occasionally act as counsel to MLCP
and other affiliates of ML&Co.
49
<PAGE> 52
EXPERTS
The consolidated financial statements of the Company and its subsidiaries
incorporated in this Prospectus by reference from the Company's Annual Report
for each of the three years in the period ended December 31, 1995 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The financial statements of NSK-Warner as of March 31, 1996 and 1995, and
for each of the years in the three-year period ended March 31, 1996, have been
incorporated by reference herein in reliance upon the report of KPMG Peat
Marwick, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The combined financial statements of the Coltec Automotive OEM Business
Group as of December 31, 1995 and 1994 and for each of the two years in the
period ended December 31, 1995, incorporated by reference in this Prospectus
from the Company's Form 8-K dated June 17, 1996, have been audited by Arthur
Andersen LLP, as indicated by their report, which is incorporated herein by
reference. The audited financial statements incorporated by reference have been
so incorporated in reliance upon the report of Arthur Andersen LLP given upon
the authority of said firm 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"). The Registration
Statement, such reports, proxy statements and other information, may be
inspected and copied at the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549; and at the regional offices of the
Commission at 7 World Trade Center (13th Floor), New York, New York 10048; and
Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission also maintains an internet web site at http://www.sec.gov
that contains reports, proxy statements and other information. Additionally,
reports, proxy statements and other information concerning the Company filed
pursuant to the Exchange Act are available for inspection at the NYSE, on which
the Common Stock is listed, located at 20 Broad Street, New York, New York,
10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act, with respect to the shares of Common Stock being
offered in the Offerings. The Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits thereto. For further
information with respect to the Company and the Common Stock, reference is
hereby made to such Registration Statement and the exhibits thereto.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
Incorporated herein by reference are (i) the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995 (including the portions of
the Company's annual report to stockholders incorporated by reference therein),
as amended by the Form 10-K/A (Amendment No. 1) filed on June 28, 1996, as
further amended by the Form 10-K/A (Amendment No. 2) filed on July 1, 1996; (ii)
the Company's proxy statement dated March 22, 1996 for its Annual Meeting of
Stockholders held on April 23, 1996 (other than the sections entitled
"Compensation Committee Report on Executive Compensation" and "Performance
Graph" which shall not be so incorporated); (iii) the Company's Form 10-Q for
the quarter ended March 31, 1996; and (iv) the Company's Current Reports on Form
8-K dated January 19, 1996 and June 17, 1996.
All reports and other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the Offerings shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing such documents. 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.
50
<PAGE> 53
The Company will furnish, without charge, to each person to whom a
Prospectus is delivered, upon written or oral request, a copy of any or all of
the foregoing documents incorporated herein by reference other than exhibits to
such documents (unless such exhibits are specifically incorporated by reference
therein). Requests for such documents should be submitted in writing to
Borg-Warner Automotive, Inc., 200 South Michigan Avenue, Chicago, Illinois
60604, Attention: Leslie Cleveland Hague, Director of Communications/Investor
Relations, or by telephone at (312) 322-8607 or (312) 322-8547.
51
<PAGE> 54
[Top half of page: Chart listing the Company's headquarters and advanced
engineering centers in North America, Europe and Asia for each of the Company's
four operating groups (Powertrain Systems, Automatic Transmission Systems,
Morse TEC and Air/Fluid Systems).]
[Bottom half of page: Pictures of the vehicles comprising the Company's Top
Vehicle Programs including the Ford Explorer, Mercedes S-Class, Ford Taurus,
Ford F-150, SsangYong Musso, Chrysler FWD Cars and Mini-Vans, Chrysler FWD LH
Vehicles and Range Rover.]
<PAGE> 55
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, NOT CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFERING MADE HEREBY, AND INFORMATION OR REPRESENTATIONS NOT
HEREIN CONTAINED, IF GIVEN OR MADE, MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE SHARES OR AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, SHARES IN ANY JURISDICTION WHERE, OR TO
ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 11
Use of Proceeds....................... 15
Price Range of Common Stock........... 15
Dividend Policy....................... 15
Capitalization........................ 16
Selected Historical Financial Data.... 17
Management's Discussion and Analysis
of Financial Condition and Results
of
Operations.......................... 18
Business.............................. 26
Management............................ 37
Principal and Selling Stockholders.... 39
Description of Capital Stock.......... 41
Certain United States Tax Consequences
for Non-U.S. Shareholders........... 45
Underwriting.......................... 47
Legal Matters......................... 48
Experts............................... 49
Available Information................. 49
Incorporation of Certain Information
by Reference........................ 49
</TABLE>
============================================
============================================
4,500,000 SHARES
[BORG WARNER AUTOMOTIVE LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INCORPORATED
JULY , 1996
============================================
<PAGE> 56
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.
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 22, 1996
PROSPECTUS
4,500,000 SHARES
LOGO
COMMON STOCK
------------------------
All of the shares of Common Stock offered hereby will be sold by certain
stockholders (the "Selling Stockholders") of Borg-Warner Automotive, Inc. (the
"Company"). See "Principal and Selling Stockholders." The Company will not
receive any proceeds from the sale of the shares offered hereby.
Of the 4,500,000 shares of Common Stock offered hereby, 900,000 shares are
being offered outside the United States and Canada by the International
Underwriters (the "International Offering") and 3,600,000 shares are being
offered in a concurrent offering in the United States and Canada by the U.S.
Underwriters (the "U.S. Offering" and, together with the International Offering,
the "Offerings"). The public offering price and the underwriting discount per
share are identical for the Offerings. See "Underwriting."
The Common Stock is listed on the New York Stock Exchange, Inc. (the
"NYSE") under the symbol "BWA." On July 22, 1996, the last reported sale price
of the Common Stock on the New York Stock Exchange was $36.75 per share. See
"Price Range of Common Stock."
FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" COMMENCING ON PAGE 11.
------------------------
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>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING SELLING
PUBLIC DISCOUNT(1) STOCKHOLDERS(2)
- -----------------------------------------------------------------------------------------------------------
Per Share................................... $ $ $
- -----------------------------------------------------------------------------------------------------------
Total(3).................................... $ $ $
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) The Company has agreed to pay certain expenses of the Offerings estimated at
$1,000,000.
(3) The Selling Stockholders have granted the International Underwriters and the
U.S. Underwriters options exercisable within 30 days after the date hereof
to purchase up to 135,000 and 540,000 additional shares of Common Stock,
respectively, solely to cover over-allotments, if any. If such options are
exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Selling Stockholders will be $ , $ , and
$ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about July , 1996.
------------------------
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INTERNATIONAL
------------------------
The date of this Prospectus is July , 1996.
<PAGE> 57
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"International Purchase Agreement") among the Company, the Selling Stockholders,
MLCP and each of the underwriters named below (the "International Underwriters")
and concurrently with the sale of 3,600,000 Shares to the U.S. Underwriters (as
defined below), the Selling Stockholders have agreed to sell to each of the
International Underwriters, and each of the International Underwriters has
severally agreed to purchase, the aggregate number of Shares set forth opposite
its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- ---------
<S> <C>
Merrill Lynch International......................................................
Lehman Brothers International (Europe)...........................................
Morgan Stanley & Co. International Limited.......................................
---------
Total.................................................................. 900,000
========
</TABLE>
Merrill Lynch International, Lehman Brothers International (Europe) and
Morgan Stanley & Co. International Limited are acting as representatives (the
"International Representatives") of the several International Underwriters.
The Company, the Selling Stockholders and MLCP have also entered into a
purchase agreement (the "U.S. Purchase Agreement") with certain underwriters
inside the United States and Canada (the "U.S. Underwriters" and, together with
the International Underwriters, the "Underwriters") for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), Lehman Brothers Inc. and Morgan
Stanley & Co. Incorporated are acting as representatives (the "U.S.
Representatives" and, together with the International Representatives, the
"Representatives"). Subject to the terms and conditions set forth in the U.S.
Purchase Agreement, and concurrently with the sale of 900,000 Shares to the
International Underwriters, the Selling Stockholders have agreed to sell to the
U.S. Underwriters and the U.S. Underwriters severally have agreed to purchase,
an aggregate of 3,600,000 Shares. The public offering price per Share and the
underwriting discount per Share are identical under the U.S. Purchase Agreement
and the International Purchase Agreement.
In the International Purchase Agreement, the several International
Underwriters have agreed, subject to the terms and conditions set forth therein,
to purchase all of the Shares being sold pursuant to each such Agreement if any
of the Shares being sold pursuant to such Agreement are purchased and in the
U.S. Purchase Agreement the several U.S. Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all the Shares being
sold pursuant to such agreement if any of the Shares being sold pursuant to such
agreement are purchased. Under certain circumstances, the commitments of
non-defaulting Underwriters may be increased. The closings with respect to the
sale of the Shares to be purchased by the U.S. Underwriters and the
International Underwriters are conditioned upon one another.
The International Underwriters propose initially to offer the Shares to the
public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers (who may include U.S. Underwriters) at such
price less a concession not in excess of $ per Share. The International
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per Share to certain other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.
48
<PAGE> 58
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
The Selling Stockholders have granted to the U.S. Underwriters options to
purchase up to an aggregate of 540,000 additional Shares, and the International
Underwriters options to purchase up to an aggregate of 135,000 Shares, in each
case exercisable for 30 days after the date hereof, to cover over-allotments, if
any, at the public offering price, less the underwriting discount. To the extent
that the International Underwriters exercise these options, each of the
International Underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage of such Shares that
the number of Shares to be purchased by it shown in the foregoing table bears to
the total number of Shares initially offered to the International Underwriters
hereby.
The U.S. Underwriters and the International Underwriters have entered into
an Intersyndicate Agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate Agreement,
sales may be made between the U.S. Underwriters and the International
Underwriters of such number of Shares as may be mutually agreed. The price of
any Shares so sold shall be the public offering price, less an amount not
greater than the selling concession.
Under the terms of the Intersyndicate Agreement the U.S. Underwriters and
any dealer to whom they sell Shares will not offer to sell or sell Shares to
persons who are non-United States or non-Canadian persons or to persons they
believe intend to resell to persons who are non-United States or non-Canadian
persons, and the International Underwriters and any dealer to whom they sell
Shares will not offer to sell or sell Shares to United States or Canadian
persons or to persons they believe intend to resell to United States or Canadian
persons, except, in each case, for transactions pursuant to the Intersyndicate
Agreement.
Each International Underwriter has agreed that (i) it has not offered or
sold and, prior to the date six months after the date of issue of the Common
Stock, will not offer to sell any Common Stock to persons in the United Kingdom
except to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995 (the "Regulations"), (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act of 1986 and the Regulations with respect to anything done by it in
relation to the Common Stock, in form or otherwise involving the United Kingdom,
and (iii) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issue of the
Common Stock to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995
or is a person to whom such document may otherwise lawfully be issued or passed
on.
The Common Stock is listed on the NYSE under the symbol "BWA." Because the
Company is an affiliate of MLPF&S, one of the underwriters, the U.S. Offering is
being conducted in accordance with the applicable provisions of Schedule E
("Schedule E") of the By-Laws of the National Association of Securities Dealers,
Inc. (the "NASD"). In accordance with Schedule E, no NASD member participating
in the distribution is permitted to confirm sales to accounts over which it
exercises discretionary authority without prior specific written consent. In
addition, under the rules of the NYSE, MLPF&S is precluded from issuing research
reports that make recommendations with respect to the Common Stock for so long
as the Company is an affiliate of MLPF&S.
Pursuant to the Registration Rights Agreement, each holder of at least 1%
of the outstanding shares of Common Stock who is a party thereto is required to
agree, for a period beginning seven days before, and ending 180 days after, the
effective date of the Registration Statement of which this Prospectus is a part,
not to effect any public sale or distribution, including any sale pursuant to
Rule 144 under the Securities Act, of Common Stock or any securities convertible
into or exchangeable for Common Stock or any rights or warrants to acquire
Common Stock. See "Risk Factors -- Shares Eligible for Future Sale." In
addition, each of the Company and the executive officers and directors of the
Company, as well as certain other stockholders, will agree, for a period
beginning seven days before, and ending 180 days after the effective date of the
Registration Statement of which this Prospectus is a part, not to sell or
otherwise dispose of any Common Stock or
49
<PAGE> 59
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
securities convertible into or exchangeable or exercisable for Common Stock, or
any rights or warrants to acquire Common Stock without the prior written consent
of the U.S. Representatives. Upon consummation of the Offering, it is expected
that the lock-up agreements will cover an aggregate of approximately 6,369,495
shares of Common Stock.
The Company and the Selling Stockholders have agreed to indemnify the U.S.
Underwriters and the International Underwriters against certain civil
liabilities, including liabilities under the Securities Act.
Each of the U.S. Representatives or their affiliates from time-to-time
performs investment banking and other financial services for the Company. Lehman
Brothers Inc. is currently acting as financial advisor to the Company in
connection with the disposition of the North American manual transmission
business. For information regarding the ownership by the ML Entities of Common
Stock and the representation of affiliates of ML&Co. on the Board of Directors
of the Company, see "Management" and "Principal and Selling Stockholders."
LEGAL MATTERS
The validity of the Shares offered hereby and certain other legal matters
relating to the Offerings will be passed upon for the Company by Wachtell,
Lipton, Rosen & Katz, New York, New York. Certain legal matters will be passed
upon for the Underwriters by Shearman & Sterling, New York, New York. Wachtell,
Lipton, Rosen & Katz and Shearman & Sterling occasionally act as counsel to MLCP
and other affiliates of ML&Co.
EXPERTS
The consolidated financial statements of the Company and its subsidiaries
incorporated in this Prospectus by reference from the Company's Annual Report
for each of the three years in the period ended December 31, 1995 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The financial statements of NSK-Warner as of March 31, 1996 and 1995, and
for each of the years in the three-year period ended March 31, 1996, have been
incorporated by reference herein in reliance upon the report of KPMG Peat
Marwick, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The combined financial statements of the Coltec Automotive OEM Business
Group as of December 31, 1995 and 1994 and for each of the two years in the
period ended December 31, 1995, incorporated by reference in this Prospectus
from the Company's Form 8-K dated June 17, 1996, have been audited by Arthur
Andersen LLP, as indicated by their report, which is incorporated herein by
reference. The audited financial statements incorporated by reference have been
so incorporated in reliance upon the report of Arthur Andersen LLP given upon
the authority of said firm 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"). The Registration
Statement, such reports, proxy statements and other information, may be
inspected and copied at the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549; and at the regional offices of the
Commission at 7 World Trade Center (13th Floor), New York, New York 10048; and
Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission also maintains an internet web site at http://www.sec.gov
that contains reports, proxy statements and other information. Additionally,
reports, proxy statements and other information concerning the Company filed
pursuant to the Exchange Act are available for inspection at the NYSE, on which
the Common Stock is listed, located at 20 Broad Street, New York, New York,
10005.
50
<PAGE> 60
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act, with respect to the shares of Common Stock being
offered in the Offerings. The Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits thereto. For further
information with respect to the Company and the Common Stock, reference is
hereby made to such Registration Statement and the exhibits thereto.
No action has been taken or will be taken in any jurisdiction by the
Company or any Underwriter that would permit a public offering of the Shares or
possession or distribution of this Prospectus in any jurisdiction where action
for that purpose is required, other than the United States. Persons into whose
possession this Prospectus comes are required by the Company and the
Underwriters to inform themselves about and to observe any restrictions as to
the offering of the Shares and the distribution of this Prospectus.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
Incorporated herein by reference are (i) the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995 (including the portions of
the Company's annual report to stockholders incorporated by reference therein),
as amended by the Form 10-K/A (Amendment No. 1) filed on June 28, 1996, as
further amended by the Form 10-K/A (Amendment No. 2) filed on July 1, 1996; (ii)
the Company's proxy statement dated March 22, 1996 for its Annual Meeting of
Stockholders held on April 23, 1996 (other than the sections entitled
"Compensation Committee Report on Executive Compensation" and "Performance
Graph" which shall not be so incorporated); (iii) the Company's Form 10-Q for
the quarter ended March 31, 1996; and (iv) the Company's Current Reports on Form
8-K dated January 19, 1996 and June 17, 1996.
All reports and other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the Offerings shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing such documents. 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 will furnish, without charge, to each person to whom a
Prospectus is delivered, upon written or oral request, a copy of any or all of
the foregoing documents incorporated herein by reference other than exhibits to
such documents (unless such exhibits are specifically incorporated by reference
therein). Requests for such documents should be submitted writing to Borg-Warner
Automotive, Inc., 200 South Michigan Avenue, Chicago, Illinois 60604, Attention:
Leslie Cleveland Hague, Director of Communications/Investor Relations, or by
telephone at (312) 322-8607 or (312) 322-8547.
51
<PAGE> 61
[Top half of page: Chart listing the Company's headquarters and advanced
engineering centers in North America, Europe and Asia for each of the Company's
four operating groups (Powertrain Systems, Automatic Transmission Systems,
Morse TEC and Air/Fluid Systems).]
[Bottom half of page: Pictures of the vehicles comprising the Company's Top
Vehicle Programs including the Ford Explorer, Mercedes S-Class, Ford Taurus,
Ford F-150, SsangYong Musso, Chrysler FWD Cars and Mini-Vans, Chrysler FWD LH
Vehicles and Range Rover.]
<PAGE> 62
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, NOT CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFERING MADE HEREBY, AND INFORMATION OR REPRESENTATIONS NOT
HEREIN CONTAINED, IF GIVEN OR MADE, MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE SHARES OR AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, SHARES IN ANY JURISDICTION WHERE, OR TO
ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
IN THIS PROSPECTUS, REFERENCE TO "DOLLARS" AND "$" ARE TO UNITED STATES
DOLLARS UNLESS STATED OTHERWISE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 11
Use of Proceeds....................... 15
Price Range of Common Stock........... 15
Dividend Policy....................... 15
Capitalization........................ 16
Selected Historical Financial Data.... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 26
Management............................ 37
Principal and Selling Stockholders.... 39
Description of Capital Stock.......... 41
Certain United States Tax Consequences
for Non-U.S. Shareholders........... 45
Underwriting.......................... 47
Legal Matters......................... 49
Experts............................... 49
Available Information................. 49
Incorporation of Certain Information
by Reference........................ 50
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
4,500,000 SHARES
LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INTERNATIONAL
JULY , 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 63
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses of the issuance and distribution
of the securities being registered, all of which will be paid by the Registrant.
<TABLE>
<S> <C>
Registration fee............................................ $ 73,164.31
NASD filing fee............................................. 21,717.50
Blue Sky fees and expenses.................................. 20,000.00
Printing and related expenses............................... 400,000.00
Legal fees and expenses..................................... 250,000.00
Accounting fees and expenses................................ 125,000.00
Miscellaneous............................................... 110,618.19
-------------
Total.................................................. $1,000,000.00
============
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") provides that
a corporation has the power to indemnify its officers and directors against the
expenses, including attorney's fees, judgments, fines or settlement amounts
actually and reasonably incurred by them in connection with the defense of any
action by reason of being or having been directors or officers, if such person
shall have acted in good faith and in a manner reasonably believed to be in or
not opposed to the best interests of the corporation, except that if such action
shall be in the right of the corporation, no such indemnification shall be
provided as to any claim, issue or matter as to which such person shall have
been judged to have been liable to the corporation unless and to the extent that
the Court of Chancery of the State of Delaware, or another court in which the
suit was brought, shall determine upon application that, in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity.
As permitted by Section 102 of the DGCL, the Registrant's Amended and
Restated Certificate of Incorporation (the "Certificate of Incorporation")
provides that no director shall be liable to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director other than (i)
for breaches of the director's duty of loyalty to the Registrant and its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for the unlawful
payment of dividends or unlawful stock purchases or redemptions under Section
174 of the DGCL, and (iv) for any transaction from which the director derived an
improper personal benefit.
The Certificate of Incorporation provides for indemnification of its
directors and officers to the fullest extent permitted by the DGCL, and allows
the Registrant to advance or reimburse litigation expenses upon submission by
the director, officer or employee of an undertaking to repay such advances or
reimbursements if it is ultimately determined that indemnification is not
available to such director or officer.
ITEM 16. EXHIBITS.
The following documents are filed as a part of this Registration Statement.
Those exhibits previously filed and incorporated herein by reference are
identified below. For each such exhibit there is shown below the registration
statement number or periodic report and exhibit number of the document in the
previous filing. The registration statements were filed by Registrant unless
otherwise indicated.
II-1
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
- ------- ---------------------------------------------------------------------------------
<C> <S> <C>
1.1 -- Form of U.S. Purchase Agreement among the Company, the Selling Stockholders, and
the U.S. Underwriters.
1.2 -- Form of International Purchase Agreement among the Company, the Selling
Stockholders, and the International Underwriters.
3.1 -- Restated Certificate of Incorporation of the Company (incorporated by reference
to Exhibit No. 3.1 of the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993).
3.2 -- By-laws of the Company (incorporated by reference to Exhibit No. 3.2 of the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1993).
5 -- Opinion of Wachtell, Lipton, Rosen & Katz.+
23.1 -- Consent of Deloitte & Touche LLP.
23.2 -- Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5).+
23.3 -- Consent of KPMG Peat Marwick.
23.4 -- Consent of Arthur Andersen LLP.
24 -- Powers of Attorney.+
</TABLE>
- ---------------
+ Previously filed.
ITEM 17. UNDERTAKINGS.
(a), (c)-(e), (g), (j) Not applicable
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended (the
"Securities Act"), each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (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.
(f) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(h) 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
(the "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 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.
(i) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and
II-2
<PAGE> 65
contained in the form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, 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> 66
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO
DULY AUTHORIZED IN THE CITY OF CHICAGO, STATE OF ILLINOIS, ON JULY 22, 1996.
BORG-WARNER AUTOMOTIVE, INC.
By: /s/ JOHN F. FIEDLER
JOHN F. FIEDLER
Chairman and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THEIR
CAPACITIES ON JULY 22, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------------------------- --------------------------------------------
<C> <S>
/s/ JOHN F. Chairman, Chief Executive Officer, and
FIEDLER Director (Principal Executive Officer)
JOHN F. FIEDLER
* Vice President and Treasurer (Principal
ROBIN J. ADAMS Financial Officer)
* Vice President and Controller (Principal
WILLIAM C. CLINE Accounting Officer)
* Director
DONALD C. TRAUSCHT
* Director
ALEXIS P. MICHAS
* Director
ALBERT J. FITZGIBBONS III
* Director
MATTHIAS B. BOWMAN
* Director
PAUL E. GLASKE
* Director
JAMES J. KERLEY
* Director
IVAN W. GORR
/s/ JOHN F. As attorney-in-fact for the officers and/or
FIEDLER directors marked by an asterisk.
JOHN F. FIEDLER
</TABLE>
II-4
<PAGE> 67
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
------- -----------------------------------------------------------------------------
<C> <S> <C>
1.1 -- Form of U.S. Purchase Agreement among the Company, the Selling Stockholders,
and the U.S. Underwriters.
1.2 -- Form of International Purchase Agreement among the Company, the Selling
Stockholders, and the International Underwriters.
23.1 -- Consent of Deloitte & Touche LLP
23.3 -- Consent of KPMG Peat Marwick
23.4 -- Consent of Arthur Andersen LLP
</TABLE>
<PAGE> 1
================================================================================
BORG-WARNER AUTOMOTIVE, INC.
(a Delaware corporation)
3,600,000 Shares of Common Stock
U.S. PURCHASE AGREEMENT
Dated: July __, 1996
================================================================================
<PAGE> 2
S&S DRAFT
07/22/9
BORG-WARNER AUTOMOTIVE, INC.
(a Delaware corporation)
3,600,000 Shares of Common Stock
(Par Value $.01 Per Share)
U.S. PURCHASE AGREEMENT
July __, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
LEHMAN BROTHERS INC.
MORGAN STANLEY & CO. INCORPORATED
As Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1201
Ladies and Gentlemen:
The stockholders of Borg-Warner Automotive, Inc., a Delaware
corporation (the "Company"), named in Schedule A (collectively, the "Selling
Stockholders") propose to sell severally and not jointly to the underwriters
named in Schedule B (collectively, the "U.S. Underwriters", which shall also
include any person substituted for a U.S. Underwriter under Section 11 hereof),
for whom you are acting as representatives (the "U.S. Representatives"), an
aggregate of 3,600,000 outstanding shares of Common Stock of the Company, par
value $.01 per share (shares of which class of stock of the Company are
hereinafter referred to as "Common Stock"). Such shares of Common Stock are to
be sold to each U.S. Underwriter, acting severally and not jointly, in such
amounts as are set forth in Schedule B hereto opposite the name of such U.S.
Underwriter. The Selling Stockholders also grant to the
<PAGE> 3
2
U.S. Underwriters, severally and not jointly, the option described in Section 2
to purchase all or any part of 540,000 additional shares of Common Stock to
cover over-allotments. The aforesaid 3,600,000 shares of Common Stock (the
"Initial U.S. Shares"), together with all or any part of the 540,000 additional
shares of Common Stock subject to the option described in Section 2 (the "U.S.
Option Shares"), are collectively herein called the "U.S. Shares". The U.S.
Shares are more fully described in the U.S. Prospectus referred to below.
It is understood that the Company is concurrently entering
into an agreement, dated the date hereof (the "International Purchase
Agreement"), providing for the sale by the Selling Stockholders of 900,000
shares of Common Stock (the "Initial International Shares") through
arrangements with certain underwriters outside the United States and Canada
(the "International Underwriters"), for whom Merrill Lynch International,
Morgan Stanley & Co. International Limited and Lehman Brothers International
(Europe) are acting as representatives (the "International Representatives").
It is further understood that the Selling Stockholders are concurrently
granting the International Underwriters an option to purchase all or any part
of 135,000 additional shares of Common Stock (the "International Option
Shares") from the Selling Stockholders to cover over-allotments. The
International Shares and the International Option Shares are hereinafter
collectively referred to as the "International Shares". The U.S. Shares and
the International Shares are hereinafter collectively referred to as the
"Shares".
The Company understands that the U.S. Underwriters will
simultaneously enter into an agreement with the International Underwriters
dated the date hereof (the "Intersyndicate Agreement") providing for the
coordination of certain transactions among the U.S. Underwriters and the
International Underwriters, under the direction of Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
You have advised us that you and the other U.S. Underwriters,
acting severally and not jointly, desire to purchase the U.S. Shares and that
you have been authorized by the other U.S. Underwriters to execute this
Agreement and the U.S. Price Determination Agreement referred to below on their
behalf.
The price to the public per share for the U.S. Shares and the
purchase price per share for the U.S. Shares shall be agreed upon by the
Selling Stockholders and the U.S. Representatives, acting on behalf of the
several U.S. Underwriters, and such agreement shall be set forth in a separate
written instrument substantially in the form of Exhibit A hereto (the "U.S.
Price Determination Agreement"). The U.S. Price Determination Agreement may
take the form of an exchange of any standard form of written telecommunication
between the Selling Stockholders and the U.S. Representatives and shall specify
such applicable information as is indicated in Exhibit A hereto. The offering
of the U.S. Shares will be governed by this Agreement, as supplemented by the
U.S. Price Determination Agreement. From and after the date of the execution
and delivery of the U.S. Price Determination
<PAGE> 4
3
Agreement, this Agreement shall be deemed to incorporate, and all reference
herein to "this Agreement" shall be deemed to include, the U.S. Price
Determination Agreement.
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-3
(Registration No. 333-06041) covering the registration of the Shares under the
Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectuses, and either (A) has prepared and proposes to file,
prior to the effective date of such registration statement, an amendment to
such registration statement, including final prospectuses, or (B) if the
Company has elected to rely upon Rule 430A ("Rule 430A") of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act Regulations"),
will prepare and file prospectuses, in accordance with the provisions of Rule
430A and Rule 424(b) ("Rule 424(b)") of the 1933 Act Regulations, promptly
after execution and delivery of the U.S. Price Determination Agreement. Two
forms of prospectus are to be used in connection with the offering and sale of
the Shares: one relating to the U.S. Shares (the "Form of U.S. Prospectus")
and one relating to the International Shares (the "Form of International
Prospectus"). The Form of International Prospectus is identical to the Form of
U.S. Prospectus, except for the front cover page, inside front cover page, the
sections captioned "Underwriting" and "Available Information" and the back
cover page. Additionally, if the Company has elected to rely upon Rule 434
("Rule 434") of the 1933 Act Regulations, the Company will prepare and file a
term sheet (a "Term Sheet") in accordance with the provisions of Rule 434 and
Rule 424(b), promptly after execution and delivery of the U.S. Price
Determination Agreement. The information, if any, included in such
prospectuses that was omitted from any prospectuses included in such
registration statement at the time it becomes effective but that is deemed, (i)
pursuant to paragraph (b) of Rule 430A, to be part of such registration
statement at the time it becomes effective is referred to herein as the "Rule
430A Information", and (ii) pursuant to paragraph (d) of Rule 434, to be part
of such registration statement at the time it becomes effective is referred to
herein as "Rule 434 Information". Each Form of U.S. Prospectus and Form of
International Prospectus used before the time such registration statement
becomes effective, and any Form of U.S. Prospectus and Form of International
Prospectus that omits the Rule 430A Information or the Rule 434 Information, if
applicable, that is used after such effectiveness and prior to the execution
and delivery of the U.S. Price Determination Agreement or the International
Price Determination Agreement, is herein called a "preliminary prospectus".
Such registration statement, including the exhibits thereto and the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the
1933 Act ("Item 12"), as amended, and Rule 412 of the 1933 Act Regulations
("Rule 412") at the time it becomes effective and including, if applicable, the
Rule 430A Information or the Rule 434 Information, is herein called the
"Original Registration Statement". Any registration statement filed pursuant
to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule
462(b) Registration Statement", and the Original Registration Statement and any
Rule 462(b) Registration Statement are herein referred to collectively as the
"Registration Statement". The Form of
<PAGE> 5
4
U.S. Prospectus and Form of International Prospectus, including the documents
incorporated by reference therein pursuant to Item 12 and Rule 412, included in
the Original Registration Statement at the time it becomes effective, are
herein called the "U.S. Prospectus" and the "International Prospectus",
respectively, and, collectively, the "Prospectuses", and, individually, a
"Prospectus", except that, (i) if the final U.S. Prospectus or International
Prospectus, as the case may be, first furnished to the U.S. Underwriters or the
International Underwriters after the execution of the U.S. Price Determination
Agreement or the International Price Determination Agreement for use in
connection with the offering of the Shares differs from the prospectuses
included in the Original Registration Statement at the time it becomes
effective (whether or not such prospectus is required to be filed pursuant to
Rule 424(b)), the terms "U.S. Prospectus", "International Prospectus",
"Prospectuses" and "Prospectus" shall refer to the final U.S. Prospectus or
International Prospectus first furnished to the U.S. Underwriters or the
International Underwriters, as the case may be, for such use, and (ii) if Rule
434 is relied upon, the terms "U.S. Prospectus", "International Prospectus",
"Prospectuses" and "Prospectus" shall refer to the preliminary U.S. Prospectus
or International Prospectus last furnished to the U.S. Underwriters or the
International Underwriters, as the case may be, in connection with the offering
of the Shares, in each case together with the Term Sheet.
The Company and the Selling Stockholders understand that the
U.S. Underwriters propose to make a public offering of the U.S. Shares as soon
as you deem advisable after the Registration Statement becomes effective and
the U.S. Price Determination Agreement has been executed and delivered.
Section 1. Representations and Warranties. (a) The Company
represents and warrants to and agrees with each of the U.S. Underwriters and
each of the Selling Stockholders that:
(i) The Company meets the requirements for use of Form S-3
under the 1933 Act and when the Registration Statement or any
post-effective amendment thereto shall become effective and at all
times subsequent thereto up to the Closing Time referred to below
(and, if any U.S. Option Shares are purchased, up to the Date of
Delivery referred to below), (A) the Registration Statement and the
Prospectuses, including any amendments and supplements thereto, will
comply in all material respects with the requirements of the 1933 Act
and the 1933 Act Regulations; (B) neither the Registration Statement
nor any amendment or supplement thereto will contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; (C) neither of the Prospectuses nor any amendment or
supplement thereto will include an 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; and (D) if Rule 434 is relied upon, the
Prospectuses
<PAGE> 6
5
shall not be "materially different", as such term is used in Rule 434,
from the prospectuses included in the Registration Statement at the
time it becomes effective; except that this representation and
warranty does not apply to statements or omissions made in reliance
upon and in conformity with information furnished in writing to the
Company by or on behalf of any U.S. Underwriter or International
Underwriter through you or the International Representatives expressly
for use in the Registration Statement or the Prospectuses or any
amendment or supplement thereof.
(ii) The documents incorporated by reference in the
Prospectuses pursuant to Item 12 of Form S-3 under the 1933 Act, at
the time they were filed with the Commission, complied in all material
respects with the requirements of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations"), and, when read
together and with the other information in the Prospectus, at the time
the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Time (as hereinafter defined)
(and, if any Option Shares are purchased, up to the Date of Delivery
(as hereinafter defined)), will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading.
(iii) (A) Deloitte & Touche LLP, who have certified the
financial statements of the Company and the schedules included or
incorporated by reference in the Registration Statement and
Prospectuses, (B) KPMG Peat Marwick, who have certified the financial
statements of NSK-Warner K.K. ("NSK-Warner") included or incorporated
by reference in the Registration Statement and the Prospectuses and
(C) Arthur Andersen LLP, who have certified the financial statements
of Holley Automotive Inc, Holley Automotive Group, Ltd., Holley
Automotive Systems GmbH, Coltec Automotive Inc, and Performance
Friction Products, a division of Stemco Inc, an indirect, wholly-owned
subsidiary of Coltec Industries Inc. (collectively, the "Coltec
Subsidiaries"), included or incorporated by reference in the
Registration Statement and the Prospectuses, are independent public
accountants as required by the 1933 Act and the 1933 Act Regulations.
(iv) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this
Agreement; and this Agreement has been duly authorized, executed and
delivered by the Company.
(v) The consolidated financial statements and the related
notes of the Company and its Subsidiaries (as defined below) (other
than the Coltec Subsidiaries) included or incorporated by reference in
the Registration Statement present fairly the consolidated financial
position of the Company and its Subsidiaries as of the dates indicated
and the consolidated results of operations and cash flows of the
Company
<PAGE> 7
6
and its Subsidiaries for the periods specified. Such financial
statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the
periods involved (except as set forth in the notes thereto) and
subject, in the case of any interim statements, to normal year-end
audit adjustments. The financial statement schedules, if any,
included in the Registration Statement present fairly the information
required to be stated therein. The selected financial data included
or incorporated by reference in the Prospectuses present fairly the
information shown therein and have been compiled on a basis consistent
with that of the audited consolidated financial statements included or
incorporated by reference in the Registration Statement. The pro
forma financial information included in the Prospectuses present
fairly the information shown therein, has been prepared in accordance
with the applicable requirements of Rule 11-02 of Regulation S-X, has
been properly compiled on the pro forma bases described therein, and,
in the opinion of the Company, the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances
referred to therein.
(vi) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
with corporate power and authority under such laws to own, lease and
operate its properties and conduct its business as described in the
Prospectuses. The Company is duly qualified to transact business as a
foreign corporation and is in good standing in each other jurisdiction
in which it owns or leases property of a nature, or transacts business
of a type, that would make such qualification necessary, except to the
extent that the failure to so qualify or be in good standing would not
have a material adverse effect on the Company and the Subsidiaries,
considered as one enterprise.
(vii) The Company's only subsidiaries are set forth in
Exhibit B hereto (each such corporation is referred to herein as a
"Subsidiary" and, collectively, the "Subsidiaries"). Each Subsidiary
is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation with corporate
power and authority under such laws to own, lease and operate its
properties and conduct its business; and each Subsidiary is duly
qualified to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or leases
property of a nature, or transacts business of a type, that would make
such qualification necessary, except to the extent that the failure to
so qualify or be in good standing would not have a material adverse
effect on the Company and the Subsidiaries, considered as one
enterprise. All of the outstanding shares of capital stock of each
Subsidiary have been duly authorized and validly issued and are fully
paid and non-assessable and are owned by the Company, directly or
through one or more of the Subsidiaries, in the percentages set forth
in Exhibit B hereto, free and
<PAGE> 8
7
clear of any pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind.
(viii) The Company had at the date indicated a duly
authorized and outstanding capitalization as set forth in the
Prospectuses under the caption "Capitalization".
(ix) The Shares have been duly authorized and validly
issued and are fully paid and non-assessable; no holder thereof will
be subject to personal liability by reason of being such a holder; and
such Shares are not subject to the preemptive rights of any
stockholder of the Company.
(x) All of the other outstanding shares of capital stock of
the Company have been duly authorized and validly issued and are fully
paid and non-assessable; no holder thereof is or will be subject to
personal liability by reason of being such a holder; and none of the
outstanding shares of capital stock of the Company was issued in
violation of the preemptive rights of any stockholder of the Company.
(xi) Since the respective dates as of which information is
given in the Registration Statement and the Prospectuses, except as
described in the Registration Statement or any amendment or supplement
thereto, there has not been (A) any material adverse change in the
condition (financial or otherwise), results of operations, business
affairs or business prospects of the Company and the Subsidiaries,
considered as one enterprise, whether or not arising in the ordinary
course of business, (B) any transaction entered into by the Company or
any Subsidiary, other than in the ordinary course of business, that is
material to the Company and the Subsidiaries, considered as one
enterprise, or (C) any dividend or distribution of any kind declared,
paid or made by the Company on its capital stock, other than regular
quarterly cash dividends declared or paid on its Common Stock.
(xii) Neither the Company nor any of its Subsidiaries is in
violation of its certificate of incorporation or in default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any indenture, mortgage, loan agreement, note,
lease or other agreement or instrument to which it is a party or by
which it may be bound or to which any of its properties may be
subject, except for such defaults that would not have a material
adverse effect on the condition (financial or otherwise), results of
operations, business affairs or business prospects of the Company and
the Subsidiaries, considered as one enterprise. The execution and
delivery of this Agreement and the International Purchase Agreement by
the Company, the consummation by the Company of the transactions
contemplated in this Agreement, the International Purchase Agreement,
and the Registration Statement and compliance by the Company with the
terms of this Agreement and the International
<PAGE> 9
8
Purchase Agreement have been duly authorized by all necessary
corporate action on the part of the Company and do not violate and
will not result in any violation of the certificate of incorporation
or by-laws of the Company or any Subsidiary, and do not and will not
conflict with, or result in a breach of any of the terms or provisions
of, or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any Subsidiary under (A) any indenture,
mortgage, loan agreement, note, lease or other agreement or instrument
to which the Company or any Subsidiary is a party or by which any of
them may be bound or to which any of their properties may be subject,
except for such conflicts, breaches or defaults or liens, charges or
encumbrances that in the aggregate would not have a material adverse
effect on the condition (financial or otherwise), results of
operations, business affairs or business prospects of the Company and
the Subsidiaries, considered as one enterprise or (B) any existing
applicable law, rule, regulation, judgment, order or decree of any
government, governmental instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any Subsidiary or any
of their respective properties, except for such conflicts, breaches or
defaults or liens, charges or encumbrances that in the aggregate would
not have a material adverse effect on the condition (financial or
otherwise), results of operations, business affairs or business
prospects of the Company and the Subsidiaries, considered as one
enterprise.
(xiii) No authorization, approval, consent or license of, or
any material filing with, any government, governmental instrumentality
or court, domestic or foreign (other than under the 1933 Act and the
1933 Act Regulations and the securities or Blue Sky laws of the
various states, the securities laws of Canada and its provinces and
the securities laws of any jurisdiction outside the United States in
which International Shares are offered or sold by the International
Underwriters pursuant to the International Purchase Agreement), is
legally required for the valid authorization, issuance, sale and
delivery of the Shares.
(xiv) Except as disclosed or incorporated by reference in
the Prospectuses, there is no action, suit or proceeding before or by
any government, governmental instrumentality or court, domestic or
foreign, now pending or, to the knowledge of the Company, threatened
against the Company or any Subsidiary that is required to be disclosed
in the Prospectuses or that could result in any material adverse
change in the condition (financial or otherwise), results of
operations, business affairs or business prospects of the Company and
its Subsidiaries, considered as one enterprise, or that could
reasonably be expected to adversely affect the consummation of the
transactions contemplated by this Agreement and the International
Purchase Agreement.
<PAGE> 10
9
(xv) There are no contracts or documents of a character
required pursuant to the 1933 Act to be described in the Registration
Statement or the Prospectuses or to be filed as exhibits to the
Registration Statement that are not described and filed as required.
(xvi) Each of the Company and the Subsidiaries has good and
marketable title to all properties and assets described in the
Prospectuses as owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except such as (A) are described in the
Prospectuses or (B) are neither material in amount nor materially
significant in relation to the business of the Company and the
Subsidiaries, considered as one enterprise; all of the leases and
subleases material to the business of the Company and the
Subsidiaries, considered as one enterprise, and under which the
Company or any Subsidiary holds properties described in the
Prospectuses, are in full force and effect, and neither the Company
nor any Subsidiary has any notice of any material claim of any sort
that has been asserted by anyone adverse to the rights of the Company
or any Subsidiary under any of the leases or subleases mentioned
above, or affecting or questioning the rights of such corporation to
the continued possession of the leased or subleased premises under any
such lease or sublease.
(xvii) The Company and the Subsidiaries each owns, possesses
or has obtained all material governmental licenses, permits,
certificates, consents, orders, approvals and other authorizations,
and has made all filings with all governmental authorities, necessary
to own or lease, as the case may be, and to operate its properties and
to carry on its business as presently conducted, and neither the
Company nor any Subsidiary has received any notice of proceedings
relating to revocation or modification of any such licenses, permits,
certificates, consents, orders, approvals or authorizations, which,
singly or in the aggregate, if not so owned, possessed or obtained or
the subject of an unfavorable ruling, decision or finding, could
materially adversely affect the condition (financial or otherwise),
results of operations, business affairs or business prospects of the
Company and the Subsidiaries, considered as one enterprise.
(xviii) The Company and the Subsidiaries each owns or
possesses, or can acquire on reasonable terms, adequate patents,
patent licenses, trademarks, service marks and trade names necessary
to carry on its business as presently conducted, and neither the
Company nor any Subsidiary has received any notice of infringement of
or conflict with asserted rights of others with respect to any
patents, patent licenses, trademarks, service marks or trade names
that in the aggregate, if the subject of an unfavorable decision,
ruling or finding, could reasonably be expected to materially
adversely affect the condition (financial or otherwise), results of
operations, business affairs or business prospects of the Company and
the Subsidiaries, considered as one enterprise.
<PAGE> 11
10
(xix) Except as disclosed in the Prospectuses, to the best
knowledge of the Company, no labor problem exists with its employees
or with employees of the Subsidiaries or is imminent that could
reasonably be expected to materially adversely affect the Company and
the Subsidiaries, considered as one enterprise and, to the knowledge
of the Company, except as disclosed in the Prospectuses, the Company
is not aware of any material existing or imminent labor dispute by the
employees of any of its or the Subsidiaries' principal customers that
could be expected to materially adversely affect the Company and the
Subsidiaries, considered as one enterprise.
(xx) The Company has not taken and will not take, directly
or indirectly, any action designed to, or that might be reasonably
expected to, cause or result in stabilization or manipulation of the
price of the Common Stock.
(xxi) Except as disclosed in the Registration Statement and
except as would not individually or in the aggregate have a material
adverse effect on the condition (financial or otherwise), results of
operations, business affairs or business prospects of the Company and
the Subsidiaries, considered as one enterprise, (A) the Company and
the Subsidiaries are each in compliance with all applicable
Environmental Laws, (B) the Company and the Subsidiaries have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements,
(C) there are no pending or threatened Environmental Claims against
the Company or any Subsidiary, and (D) there are no circumstances with
respect to any property or operations of the Company or the
Subsidiaries that could reasonably be anticipated to form the basis of
an Environmental Claim against the Company or the Subsidiaries.
For purposes of this Agreement, the following terms shall have
the following meanings: "Environmental Law" means any United States
(or other applicable jurisdiction's) federal, state, local or
municipal statute, law, rule, regulation, ordinance, code, policy or
rule of common law and any judicial or administrative interpretation
thereof including any judicial or administrative order, consent decree
or judgment, relating to the environment, health, safety or any
chemical, material or substance, exposure to which is prohibited,
limited or regulated by any governmental authority. "Environmental
Claims" means any and all administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or proceedings relating in
any way to any Environmental Law.
(xxii) All United States federal income tax returns of the
Company (and any of the Subsidiaries, if not included in the Company's
U.S. consolidated federal income tax return) required by law to be
filed have been properly prepared and filed, and all taxes shown on
such returns or otherwise assessed which are due and payable
<PAGE> 12
11
have been paid. All of the Company's United States federal tax
returns (and any of the Subsidiaries' tax returns, if applicable) for
taxable periods through and including the 1992 federal taxable year
have been audited by the Internal Revenue Service or the statute of
limitations for such taxable years has run and thus, all taxes for
such periods have been finally determined (excluding the effect of any
net operating loss or credit carryovers to such periods). All other
tax returns of the Company and the Subsidiaries required to be filed
pursuant to applicable foreign, state, local or other law have been
filed, except insofar as the failure to file such returns would not
have a material adverse effect on the condition (financial or
otherwise), earnings, business affairs or business prospects of the
Company and the Subsidiaries, considered as one enterprise. The
Company and the Subsidiaries have paid (or there has been paid on
their behalf) all taxes which are due and for which no tax return is
required. There are no liens on any of the Company's or the
Subsidiaries' assets for taxes, other than for taxes which have
accrued but which are not yet due and payable. Neither the Company
nor any Subsidiary is liable for any taxes that are imposed on any
other person or corporation (other than for taxes imposed on the
Company or the Subsidiaries), except as set forth in Treasury
Regulation 1.1502-6 with respect to prior consolidated groups of which
the Company or its subsidiaries were members.
(xxiii) With respect to each employee benefit plan, program
and arrangement (including, without limitation, any "employee benefit
plan" as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) maintained or contributed
to by the Company or any Subsidiary, or with respect to which the
Company or any Subsidiary could incur any liability under ERISA
(collectively, the "Benefit Plans"), no event has occurred and, to the
best knowledge of the Company, there exists no condition or set of
circumstances, in connection with which the Company or any Subsidiary
could be subject to any liability under the terms of such Benefit
Plans, applicable law (including, without limitation, ERISA and the
Internal Revenue Code of 1986, as amended (the "Code")) or any
applicable agreement (including, without limitation, the agreement
dated as of January 14, 1993 (the "PBGC Agreement"), among the Pension
Benefit Guaranty Corporation (the "PBGC"), the Company and Borg-Warner
Security Corporation ("BWSC")), that could materially adversely affect
the condition (financial or otherwise), results of operations,
business affairs or business prospects of the Company and the
Subsidiaries, considered as one enterprise. The Company is in
compliance in all respects with its obligations under the PBGC
Agreement.
(xxiv) The Company has obtained the written agreement, in
the form previously furnished to you, of (A) each holder of at least
1% of the outstanding shares of Common Stock who is a party to the
Registration Rights Agreement dated as of January 27, 1993 among the
Company and the Stockholders who are parties thereto (the
"Registration Rights Agreement") that for a period beginning seven
days
<PAGE> 13
12
before, and ending 180 days after, the effective date of the
Registration Statement, not to effect any public sale or distribution,
including any sale pursuant to Rule 144 under the 1933 Act, of Common
Stock or any securities convertible into or exchangeable for Common
Stock, or any rights or warrants to acquire Common Stock and (B)
executive officers and directors of the Company that for a period
beginning seven days before, and ending 180 days after, the effective
date of the Registration Statement, such holders will not, without
your prior written consent, directly or indirectly, sell, offer to
sell, grant any option for the sale of, or otherwise dispose of, any
Common Stock or securities convertible into or exchangeable or
exercisable for Common Stock.
(xxv) There are no persons, corporations, partnerships or
other entities with registration or other similar rights to have any
securities registered pursuant to the Registration Statement, except
as disclosed or incorporated by reference in the Prospectuses.
(xxvi) The Shares have been approved for listing on the New
York Stock Exchange, Inc.
(b) Each of the Selling Stockholders severally
represents and warrants to and agrees with each of the U.S. Underwriters as
follows:
(i) When the Registration Statement or any
post-effective amendment thereto shall become effective, and at all
times subsequent thereto up to the Closing Time (and, if any U.S.
Option Shares are purchased, at the Date of Delivery), (A) neither the
Registration Statement nor any amendment or supplement thereto will
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (B) neither of the Prospectuses
nor any amendment or supplement thereto will include an 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, as to each Selling Stockholder, the representations and
warranties in this subsection (b)(i) apply only to statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of such Selling
Stockholder, in its capacity as such, expressly for use in the
Registration Statement or the Prospectuses.
(ii) No authorization, approval, consent or license of,
or any material filing with, any government, governmental
instrumentality or court, domestic or foreign (other than under the
1933 Act and the 1933 Act Regulations and the securities or Blue Sky
laws of the various states, the securities laws of Canada and its
<PAGE> 14
13
provinces and the securities laws of any jurisdiction outside the
United States in which the International Shares are offered and sold
by the International Underwriters pursuant to the International
Purchase Agreement), is required for the consummation by such Selling
Stockholder of the transactions contemplated in this Agreement or the
International Purchase Agreement, including, without limitation, the
sale and delivery of the Shares.
(iv) The execution and delivery of this Agreement and the
International Purchase Agreement and the consummation of the
transactions contemplated in this Agreement and the International
Purchase Agreement will not result in (a) a breach by such Selling
Stockholder of, or constitute a default by such Selling Stockholder
under, any agreement or instrument or any decree, judgment or order to
which such Selling Stockholder is a party or by which such Selling
Stockholder is bound or the properties of such Selling Stockholder are
subject or (b) violate (1) any provision of the certificate of
incorporation, by-law, partnership agreement or comparable governing
documents of such Selling Stockholder or any law, rule or regulation
applicable to such Selling Stockholder or (2) to which its properties
are subject (other than for the securities or Blue Sky laws of the
various states, the securities laws of Canada and its provinces and
the securities laws of any jurisdiction outside the United States in
which the International Shares are offered or sold by the
International Underwriters pursuant to the International Purchase
Agreement).
(v) Such Selling Stockholder has good and marketable
title to the Shares to be sold by such Selling Stockholder pursuant to
this Agreement and the International Purchase Agreement, free and
clear of any pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind, other than pursuant to this Agreement, the
International Purchase Agreement, the Registration Rights Agreement,
[the Management Stockholders Agreement, dated January 27, 1993, the
Investors Stockholders Agreement, dated January 27, 1993, the
Management Stock Subscription Agreement, dated as of July 27, 1987, as
amended as of January 1, 1989 and as of January 27, 1993, and the
Replacement Stock Pledge Agreement, dated as of February 1, 1993]; and
such Selling Stockholder will at the Closing Time and, if any Option
Shares are to be purchased on the Date of Delivery, have good and
marketable title to the Shares to be sold by such Selling Stockholder
pursuant to this Agreement and the International Purchase Agreement,
free and clear of any pledge, lien, security interest, charge, claim,
equity or encumbrance of any kind; such Selling Stockholder has full
right, power and authority to sell, transfer and deliver such Shares
pursuant to this Agreement or the International Purchase Agreement;
and, upon delivery of such Shares and payment of the purchase price
therefor as contemplated in this Agreement and the International
Purchase Agreement, each of the U.S. Underwriters and the
International Underwriters, as the case may be, will receive good and
marketable title to the Shares purchased by it from such Selling
Stockholder, free and
<PAGE> 15
14
clear of any pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind.
(vi) Certificates for all of the shares of Common Stock,
or with respect to Selling Stockholders that own shares of the
Company's Non-Voting Common Stock, par value $.01 per share, (the
"Non-Voting Stock"), certificates for all of the Shares of Non-Voting
Stock (accompanied by a written notice requesting conversion of such
shares, which notice shall comply with Section 2(4)(iii) of the
Company's Restated Certificate of Incorporation), to be sold by such
Selling Stockholder pursuant to this Agreement and the International
Purchase Agreement, in suitable form for transfer by delivery or
accompanied by duly executed instruments of transfer or assignment
executed in blank, are available for delivery pursuant to this
Agreement and the International Purchase Agreement.
(vii) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to, or that might be
reasonably expected to, cause or result in stabilization or
manipulation of the price of the Common Stock; and such Selling
Stockholder has not distributed and will not distribute any prospectus
or other offering material in connection with the offering and sale of
the Shares other than any preliminary prospectus filed with the
Commission or the Prospectuses or other material permitted by the 1933
Act or the 1933 Act Regulations.
(viii) Such Selling Stockholder, if such Selling
Stockholder is not a natural person, is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization, as the case may be, with all necessary
power and authority to enter into and perform each of this Agreement
and the International Purchase Agreement and to sell and deliver the
Shares to the U.S. Underwriters and the International Underwriters, as
the case may be, in accordance with each of this Agreement and the
International Purchase Agreement.
(c) Any certificate signed by any officer of the Company
or any Subsidiary and delivered to you or to counsel for the U.S. Underwriters
shall be deemed a representation and warranty by the Company to each U.S.
Underwriter as to the matters covered thereby; and any certificate signed by or
on behalf of the Selling Stockholders as such and delivered to you or to
counsel for the U.S. Underwriters shall be deemed a representation and warranty
by the Selling Stockholders to each U.S. Underwriter as to the matters covered
thereby.
Section 2. Sale and Delivery to the U.S. Underwriters;
Closing. (a) On the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set forth, each
Selling Stockholder agrees, severally and not jointly, to sell to each U.S.
Underwriter the number of Initial U.S. Shares set forth opposite the name of
<PAGE> 16
15
such Selling Stockholder on Schedule A, and each U.S. Underwriter agrees,
severally and not jointly, to purchase from each Selling Stockholder, at the
purchase price per share for the Initial U.S. Shares to be agreed upon by the
U.S. Representatives and the Selling Stockholders, in accordance with Section
2(b) or 2(c) hereof, and set forth in the U.S. Price Determination Agreement,
the number of Initial U.S. Shares that bears the same relation to 3,600,000 as
the number of Initial U.S. Shares set forth opposite the name of such U.S.
Underwriter in Schedule B bears to the total number of Initial U.S. Shares
(such proportion is hereinafter referred to as such U.S. Underwriter's
"underwriting obligation proportion"), subject to such adjustments as you in
your discretion, shall make to eliminate any sales or purchases of fractional
shares. If the Company elects to rely on Rule 430A, Schedules A and B may be
attached to the U.S. Price Determination Agreement.
(b) If the Company has elected not to rely upon Rule
430A, the price to the public per share for the Initial U.S. Shares and the
purchase price per share for the Initial U.S. Shares to be paid by the several
U.S. Underwriters shall be agreed upon and set forth in the U.S. Price
Determination Agreement, dated the date hereof, and an amendment to the
Original Registration Statement containing such per share price information
will be filed before the Original Registration Statement becomes effective.
(c) If the Company has elected to rely upon Rule 430A,
the price to the public per share for the Initial U.S. Shares and the purchase
price per share for the Initial U.S. Shares to be paid by the several U.S.
Underwriters shall be agreed upon and set forth in the U.S. Price Determination
Agreement. In the event that the U.S. Price Determination Agreement has not
been executed by the close of business on the fourteenth business day following
the later of the date on which the Original Registration Statement and any Rule
462(b) Registration Statement becomes effective, this Agreement shall terminate
forthwith, without liability of any party to any other party except that
Sections 7, 8 and 9 shall remain in effect.
(d) In addition, on the basis of the representations and
warranties herein contained, and subject to the terms and conditions herein set
forth, the Selling Stockholders hereby grant an option to the U.S.
Underwriters, severally and not jointly, to purchase up to an aggregate of
540,000 additional U.S. Option Shares, as set forth opposite such Selling
Stockholder's name on Schedule A, at the same purchase price per share as shall
be applicable to the Initial U.S. Shares. The option hereby granted will
expire 30 days after the later of the date upon which the Original Registration
Statement and any Rule 462(b) Registration Statement becomes effective or, if
the Company has elected to rely upon Rule 430A, the date of the U.S. Price
Determination Agreement, and may be exercised, in whole or in part (but not
more than once), only for the purpose of covering over-allotments that may be
made in connection with the offering and distribution of the Initial U.S.
Shares upon notice by the U.S. Representatives to the Selling Stockholders
setting forth the aggregate number of U.S. Option Shares as to which the
several U.S. Underwriters are exercising the
<PAGE> 17
16
option, and the time and date of payment and delivery thereof. Such time and
date of delivery (the "Date of Delivery") shall be determined by the U.S.
Representatives but shall not be later than seven full business days after the
exercise of such option, nor in any event prior to the Closing Time. If the
option is exercised as to only a portion of the U.S. Option Shares, the Selling
Stockholders will sell their pro rata portion of the U.S. Option Shares to be
purchased by the U.S. Underwriters. If the option is exercised as to all or
any portion of the U.S. Option Shares, the U.S. Option Shares as to which the
option is exercised shall be purchased by the U.S. Underwriters, severally and
not jointly, in their respective underwriting obligation proportions except as
otherwise provided in the U.S. Price Determination Agreement, subject to such
adjustments as the U.S. Underwriters, in their discretion, shall make to
eliminate any sales or purchases of fractional shares.
(e) Payment of the purchase price for, and delivery of
certificates for, the Initial U.S. Shares shall be made at the offices of
Shearman & Sterling, 599 Lexington Avenue or 153 East 53rd Street, New York,
New York 10022, or at such other place as shall be agreed upon by the Company,
the Selling Stockholders and you, at 10:00 A.M. either (i) on the third full
business day after the later of the effective date of the Original Registration
Statement and any Rule 462(b) Registration Statement (or, if pricing of the
Shares occurs after 4:30 P.M. Eastern time, on the fourth full business day
thereafter), or (ii) if the Company has elected to rely upon Rule 430A, on the
third full business day after execution of the U.S. Price Determination
Agreement (or, if pricing of the Shares occurs after 4:30 P.M. Eastern time, on
the fourth full business day thereafter) (unless, in either case, postponed
pursuant to Section 11 or 12), or at such other time not more than ten full
business days thereafter as you, the Selling Stockholders and the Company shall
determine (such date and time of payment and delivery being herein called the
"Closing Time"). In addition, in the event that any or all of the U.S. Option
Shares are purchased by the U.S. Underwriters, payment of the purchase price
for, and delivery of certificates for, such U.S. Option Shares shall be made at
the offices of Shearman & Sterling, 599 Lexington Avenue or 153 East 53rd
Street, New York, New York 10022, or at such other place as the Company, the
Selling Stockholders and you shall determine, on the Date of Delivery as
specified in the notice from you to the Company. Payment shall be made to the
Selling Stockholders by wire transfer in immediately available funds against
delivery to you for the respective accounts of the several U.S. Underwriters of
certificates for the U.S. Shares to be purchased by them.
(f) Certificates for the Initial U.S. Shares and U.S.
Option Shares to be purchased by the U.S. Underwriters shall be in such
denominations and registered in such names as you may request in writing at
least two full business days before the Closing Time or the Date of Delivery,
as the case may be. The certificates for the Initial U.S. Shares and U.S.
Option Shares will be made available in New York City for examination and
packaging by you not later than 10:00 A.M. on the business day prior to the
Closing Time or the Date of Delivery, as the case may be.
<PAGE> 18
17
(g) It is understood that each U.S. Underwriter has
authorized you, for its account, to accept delivery of, receipt for, and make
payment of the purchase price for, the U.S. Shares that it has agreed to
purchase. You, individually and not as U.S. Representatives, may (but shall
not be obligated to) make payment of the purchase price for the Initial U.S.
Shares, or U.S. Option Shares, to be purchased by any U.S. Underwriter whose
check or checks shall not have been received by the Closing Time or the Date of
Delivery, as the case may be.
Section 3. Certain Covenants of the Company. The Company
covenants with each U.S. Underwriter as follows:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective and, if the Company elects
to rely upon Rule 430A and subject to Section 3(b) hereof, will comply
with the requirements of Rule 430A and will notify the U.S.
Representatives immediately (i) when the Registration Statement, or
any post-effective amendment to the Registration Statement, shall have
become effective, or any supplement to the Prospectuses or any amended
Prospectuses shall have been filed, (ii) of the receipt of any
comments from the Commission, (iii) of any request by the Commission
to amend the Registration Statement or amend or supplement any
Prospectus or for additional information and (iv) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the
use of any preliminary prospectus, or of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction,
or of the institution or threatening of any proceedings for any of
such purposes. The Company will use every reasonable effort to
prevent the issuance of any such stop order or of any order preventing
or suspending such use and, if any such order is issued, to obtain the
lifting thereof at the earliest possible moment.
(b) The Company will not at any time file or make any
amendment to the Registration Statement, (including any filing under
Rule 462(b)), file a Term Sheet or file or make any amendment or
supplement (i) if the Company has not elected to rely upon Rule
430(A), to the Prospectuses (including amendments of the documents
incorporated by reference into the Prospectuses) or (ii) if the
Company has elected to rely upon Rule 430A, to either the prospectuses
included in the Original Registration Statement at the time it becomes
effective or to the Prospectuses (including amendments of the
documents incorporated by reference into the Prospectuses or to the
Prospectuses pursuant to Item 12 and Rule 412), of which you shall not
have previously been advised and furnished a copy, or to which you or
counsel for the U.S. Underwriters shall reasonably object in writing.
(c) The Company has furnished or will furnish to you and
counsel for the U.S. Underwriters, without charge, as many copies of
the Registration Statement as
<PAGE> 19
18
originally filed and of all amendments thereto, whether filed before
or after the Registration Statement becomes effective, copies of all
exhibits and documents filed therewith (including documents
incorporated by reference into the Prospectuses pursuant to Item 12
and Rule 412) and signed copies of all consents and certificates of
experts, as you may reasonably request and has furnished or will
furnish to you, for each other U.S. Underwriter, one conformed copy of
the Registration Statement as originally filed and of each amendment
thereto (including documents incorporated by reference into the
Prospectus but without exhibits).
(d) The Company will deliver to each U.S. Underwriter,
without charge, from time to time until the later of the effective
date of the Original Registration Statement and any Rule 462(b)
Registration Statement (or, if the Company has elected to rely upon
Rule 430A, until the time the U.S. Price Determination Agreement is
executed and delivered), as many copies of each preliminary prospectus
as such U.S. Underwriter may reasonably request, and the Company
hereby consents to the use of such copies for purposes permitted by
the 1933 Act. The Company will deliver to each U.S. Underwriter,
without charge, as soon as the Registration Statement shall have
become effective (or, if the Company has elected to rely upon Rule
430A, as soon as practicable after the U.S. Price Determination
Agreement has been executed and delivered) and thereafter from time to
time as requested during the period when the Prospectus is required to
be delivered under the 1933 Act, such number of copies of the
Prospectuses (as supplemented or amended) as such U.S. Underwriter may
reasonably request.
(e) The Company will comply in all material respects
with the 1933 Act and the 1933 Act Regulations and the 1934 Act and
the 1934 Act Regulations so as to permit the completion of the
distribution of the Shares as contemplated in this Agreement and in
the Prospectuses. If at any time when a prospectus is required by the
1933 Act or the 1933 Act Regulations to be delivered in connection
with sales of the Shares any event shall occur or condition exist as a
result of which it is necessary, in the opinion of counsel for the
U.S. Underwriters or counsel for the Company, to amend the
Registration Statement or amend or supplement any Prospectus in order
that the Prospectuses will not include an untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or
if it shall be necessary, in the opinion of either such counsel, at
any such time to amend the Registration Statement or amend or
supplement any Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly
upon becoming aware of such event or condition prepare and file with
the Commission, subject to Section 3(b) hereof, such amendment or
supplement as may be necessary to correct such untrue statement or
omission or to make the Registration Statement or the Prospectuses
comply with such requirements.
<PAGE> 20
19
(f) The Company will use its best efforts, in
cooperation with the U.S. Underwriters, to qualify the Shares for
offering and sale under the applicable securities laws of such states
and other jurisdictions as you may designate and to maintain such
qualifications in effect for a period of not less than one year from
the later of the effective date of the Original Registration Statement
and any Rule 462(b) Registration Statement; provided, however, that
the Company shall not be obligated to file any general consent to
service of process or to qualify as a foreign corporation or as a
dealer in securities in any jurisdiction in which it is not so
qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject.
The Company will file such statements and reports as may be required
by the laws of each jurisdiction in which the Shares have been
qualified as above provided.
(g) The Company will make generally available to its
security holders as soon as practicable, but not later than 90 days
after the close of the period covered thereby, an earnings statement
of the Company (in form complying with the provisions of Rule 158 of
the 1933 Act Regulations), covering a period of 12 months beginning
after the later of the effective date of the Original Registration
Statement and any Rule 462(b) Registration Statement and covering a
period of 12 months beginning after the effective date of any
post-effective amendment to the Registration Statement but not later
than the first day of the Company's fiscal quarter next following such
respective effective dates.
(h) The Company, during the period when the Prospectuses
are required to be delivered under the 1933 Act, will file promptly
all documents required to be filed with the Commission pursuant to
Section 13 or 14 of the 1934 Act subsequent to the time the
Registration Statement becomes effective.
(i) For a period of two years after the Closing Time,
the Company will furnish to you and, upon request, to each U.S.
Underwriter, copies of all annual reports, quarterly reports and
current reports filed with the Commission on Forms 10-K, 10-Q and 8-K,
or such other similar forms as may be designated by the Commission,
and such other documents, reports and information as shall be
furnished by the Company to its stockholders generally.
(j) For a period of 180 days from the date hereof, the
Company will not, without your prior written consent, directly or
indirectly, sell, offer to sell, grant any option for the sale of, or
otherwise dispose of, any Common Stock or securities convertible into
Common Stock, other than to the U.S. Underwriters pursuant to this
Agreement and the International Underwriters pursuant to the
International Purchase Agreement (except for options to purchase
shares of Common Stock granted to the Company's officers, directors or
employees in the ordinary course of business,
<PAGE> 21
20
consistent with past practice, or the exercise of such options and
similar options currently outstanding).
(k) If the Company has elected to rely upon Rule 430A,
it will take such steps as it deems necessary to ascertain promptly
whether the form of prospectus transmitted for filing under Rule
424(b) was received for filing by the Commission and, in the event
that it was not, it will promptly file such prospectus.
(l) If the Company has elected to rely on Rule 434, it
will comply with the requirements of Rule 434, and the Prospectuses
will not be "materially different," as such term is used in Rule 434,
from the prospectus included in the Registration Statement at the time
it becomes effective.
(m) If the Company elects to rely upon Rule 462(b), the
Company shall both file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) and pay the applicable fees
in accordance with Rule 111 of the 1933 Act Regulations by the earlier
of (i) 10:00 P.M. Eastern time on the date of the U.S. Price
Determination Agreement and (ii) the time confirmations are sent or
given, as specified by Rule 462(b).
(n) If applicable, the Company will comply with all the
provisions of Florida H.B. 1771, codified as Section 517.075 of the
Florida statutes, and all regulations promulgated thereunder relating
to issuers doing business in Cuba.
Section 4. Payment of Expenses. The Company will pay and
bear all costs and expenses incident to the performance of the obligations of
the Company and of the Selling Stockholders under this Agreement, including (a)
the preparation, printing and filing of the Registration Statement (including
financial statements and exhibits), as originally filed and as amended, the
preliminary prospectuses and the Prospectuses and any amendments or supplements
thereto, and the cost of furnishing copies thereof to the U.S. Underwriters,
(b) the preparation, printing and distribution of this Agreement (except for
the U.S. Price Determination Agreement), the Intersyndicate Agreement among the
U.S. Underwriters and International Underwriters, the Agreement Among
International Underwriters and the Blue Sky Survey (which shall not be
typeset), (c) the delivery of the certificates for the U.S. Shares to the U.S.
Underwriters (except for any stock transfer taxes payable upon the sale of the
U.S. Shares to the U.S. Underwriters, which shall be paid by the Selling
Stockholders), (d) the fees and disbursements of the Company's counsel and
accountants and the Selling Stockholders' counsel, (e) the qualification of the
U.S. Shares under the applicable securities laws in accordance with Section
3(f) and any filing for review of the offering with the NASD, including filing
fees and reasonable fees and disbursements of Shearman & Sterling as counsel
for the U.S. Underwriters solely in connection therewith, and in connection
with
<PAGE> 22
21
the Blue Sky Survey and (f) the listing fees and expenses incurred in
connection with listing the Shares on the New York Stock Exchange.
If this Agreement is terminated by you in accordance with the
provisions of Section 5, 10(a)(i) or 12, the Company shall reimburse the U.S.
Underwriters for all their out-of-pocket expenses, including the reasonable
fees and disbursements of Shearman & Sterling as counsel for the U.S.
Underwriters.
Section 5. Conditions of U.S. Underwriters' Obligations. In
addition to the execution and delivery of the U.S. Price Determination
Agreement, the obligations of the several U.S. Underwriters to purchase and pay
for the U.S. Shares that they have respectively agreed to purchase pursuant to
this Agreement (including any U.S. Option Shares as to which the option granted
in Section 2 has been exercised and the Date of Delivery determined by you is
the same as the Closing Time) are subject to the accuracy of the
representations and warranties of the Company and the Selling Stockholders
contained herein (including those contained in the U.S. Price Determination
Agreement) or in certificates of any officer of the Company or any Subsidiary
or certificates by or on behalf of the Selling Stockholders delivered pursuant
to the provisions hereof, to the performance by the Company and the Selling
Stockholders of their obligations hereunder, and to the following further
conditions:
(a) The Original Registration Statement shall have
become effective not later than 5:30 P.M. on the date of this
Agreement or, with your consent, at a later time and date not later,
however, than 5:30 P.M. on the first business day following the date
hereof and if the Company has elected to rely upon Rule 462(b), the
Rule 462(b) Registration Statement shall have become effective not
later than the earlier of (i) 9:00 A.M. Eastern time on the day
following the date of the U.S. Price Determination Agreement, and (ii)
the time confirmations are sent or given, as specified by Rule 462(b),
or, with respect to the Original Registration Statement, at such later
time or on such later date as you may agree to in writing with the
approval of a majority in interest of the several U.S. Underwriters;
and at the Closing Time no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the 1933 Act
and no proceedings for that purpose shall have been instituted or
shall be pending or, to your knowledge or the knowledge of the
Company, shall be contemplated by the Commission, and any request made
to the Company on the part of the Commission for additional
information with respect to the Registration Statement shall have been
complied with to the satisfaction of Shearman & Sterling as counsel
for the U.S. Underwriters. If the Company has elected to rely upon
Rule 430A, prospectuses containing the Rule 430A Information shall
have been filed with the Commission in accordance with Rule 424(b) (or
a post-effective amendment providing such information shall have been
filed and declared effective in accordance with the requirements of
Rule 430A). If the
<PAGE> 23
22
Company has elected to rely upon Rule 434, a Term Sheet, which
together with the preliminary prospectus last furnished to the U.S.
Underwriters in connection with the offering of the Shares shall not
be "materially different," as such term is used in Rule 434, from the
prospectus included in the Original Registration Statement at the time
it becomes effective, shall have been filed with the Commission in
accordance with Rule 424(b).
(b) At the Closing Time, you shall have received a
signed opinion of Wachtell, Lipton, Rosen & Katz, special counsel for
the Company, dated as of the Closing Time, together with signed or
reproduced copies of such opinion for each of the other U.S.
Underwriters, in form and substance reasonably satisfactory to counsel
for the U.S. Underwriters, in the form set forth in Exhibit C hereto.
(c) At the Closing Time, you shall have received a
signed opinion of Laurene H. Horiszny, Esq., Vice President, Secretary
and General Counsel for the Company, dated as of the Closing Time,
together with signed or reproduced copies of such opinion for each of
the other U.S. Underwriters, in form and substance reasonably
satisfactory to counsel for the U.S. Underwriters, in the form set
forth in Exhibit D hereto.
(d) At the Closing Time, you shall have received a
signed opinion of NSK-Warner's Japanese counsel, dated as of the
Closing Time, together with signed or reproduced copies of such
opinion for each of the other U.S. Underwriters, in form and substance
reasonably satisfactory to counsel for the U.S. Underwriters, in the
form set forth in Exhibit E hereto.
(e) At the Closing Time you shall have received a signed
opinion of the attorneys listed on Schedule C attached hereto for the
Selling Stockholders specified opposite such attorney's name, each
dated as of the Closing Time, together with signed or reproduced
copies of such opinion for each of the other U.S. Underwriters, in
form and substance reasonably satisfactory to counsel for the U.S.
Underwriters, each, with respect to the Selling Stockholders that such
counsel represents, in the form set forth in Exhibit F hereto.
(f) At the Closing Time, you shall have received the
favorable opinion of Shearman & Sterling, counsel for the U.S.
Underwriters, dated as of the Closing Time, together with signed or
reproduced copies of such opinion for each of the other U.S.
Underwriters, to the effect that the opinions delivered pursuant to
Sections 5(b), 5(c), 5(d) and 5(e) hereof appear on their face to be
appropriately responsive to the requirements of this Agreement except,
specifying the same, to the extent waived by you, and with respect to
the incorporation and legal existence of the Company, this Agreement,
the Registration Statement, the Prospectuses and such other related
<PAGE> 24
23
matters as you may require. In giving such opinion such counsel may
rely, as to all matters governed by the laws of jurisdictions other
than the law of the State of New York, the federal law of the United
States and the General Corporation Law of the State of Delaware, upon
the opinions of counsel satisfactory to you. Such counsel may also
state that, insofar as such opinion involves factual matters, they
have relied, to the extent they deem proper, upon certificates of
officers of the Company and the Subsidiaries and the Selling
Stockholders and certificates of public officials.
(g) At the Closing Time, (i) the Registration Statement
and the Prospectuses, as they may then be amended or supplemented,
shall comply in all material respects with the requirements of the
1933 Act and the 1933 Act Regulations, the Company shall have complied
in all material respects with Rule 430A (if it shall have elected to
rely thereon) and Rule 434 (if it shall have elected to rely thereon)
and neither the Registration Statement nor the Prospectuses, as they
may then be amended or supplemented, shall contain an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, (ii) there shall not have been, since the respective dates
as of which information is given in the Registration Statement, any
material adverse change in the condition (financial or otherwise),
results of operations, business affairs or business prospects of the
Company and the Subsidiaries, considered as one enterprise, whether or
not arising in the ordinary course of business, (iii) no action, suit
or proceeding at law or in equity shall be pending or, to the
knowledge of the Company, threatened against the Company or any
Subsidiary that would be required to be set forth in the Prospectuses
other than as set forth therein and no proceedings shall be pending
or, to the knowledge of the Company, threatened against the Company or
any Subsidiary before or by any federal, state or other commission,
board or administrative agency wherein an unfavorable decision, ruling
or finding could materially adversely affect the condition (financial
or otherwise), results of operations, business affairs or business
prospects of the Company and the Subsidiaries, considered as one
enterprise, other than as set forth in the Prospectuses, (iv) the
Company shall have complied with all agreements and satisfied all
conditions set forth in this Agreement on its part to be performed or
satisfied at or prior to the Closing Time and (v) the other
representations and warranties of the Company set forth in Section
1(a) shall be accurate as though expressly made at and as of the
Closing Time. At the Closing Time, you shall have received a
certificate of the President or a Vice President, and the Treasurer or
an Assistant Treasurer, of the Company, dated as of the Closing Time,
to such effect.
(h) At the Closing Time, the representations and
warranties of each Selling Stockholder set forth in Section 1(b) shall
be accurate as though expressly made at and as of the Closing Time.
At the Closing Time, you shall have received a
<PAGE> 25
24
certificate of or on behalf of each Selling Stockholder, dated as of
the Closing Time, to such effect with respect to such Selling
Stockholder.
(i) At the time that this Agreement is executed by the
Company, you shall have received from Deloitte & Touche LLP a letter,
dated such date, in form and substance satisfactory to you, together
with signed or reproduced copies of such letter for each of the other
U.S. Underwriters, confirming that they are independent public
accountants with respect to the Company within the meaning of the 1933
Act and the applicable published 1933 Act Regulations, and stating in
effect that:
(i) in their opinion, the audited financial
statements and the related financial statement schedules
included or incorporated by reference in the Registration
Statement and the Prospectuses comply as to form in all
material respects with the applicable accounting requirements
of the 1933 Act and the 1933 Act Regulations;
(ii) on the basis of procedures (but not an
examination in accordance with generally accepted auditing
standards) consisting of a reading of the unaudited interim
consolidated financial statements of the Company included or
incorporated by reference in the Registration Statement and
the Prospectuses (collectively, the "10-Q Financials"), a
reading of the latest available unaudited interim consolidated
financial statements of the Company, a reading of the minutes
of all meetings of the stockholders and directors of the
Company and the Subsidiaries and each Committee of the
Company's Board of Directors and of each Committee of the
Board of Directors of any Subsidiary since January 1, 1996,
inquiries of certain officials of the Company and the
Subsidiaries responsible for financial and accounting matters,
and such other inquiries and procedures as may be specified in
such letter, nothing came to their attention that caused them
to believe that:
(A) the 10-Q Financials incorporated by
reference in the Registration Statement and the
Prospectuses do not comply as to form in all
material respects with the accounting requirements
of the 1934 Act and the 1934 Act Regulations
applicable to unaudited financial statements
included in Form 10-Q or any material modifications
should be made to the 10-Q Financials included or
incorporated by reference in the Registration
Statement and the Prospectuses for them to be in
conformity with generally accepted accounting
principles;
(B) at May 31, 1996 and at a specified
date not more than five days prior to the date of
this Agreement, there was any change in the capital
stock of the Company and the Subsidiaries or any
decrease
<PAGE> 26
25
in the consolidated net current assets or
stockholders' equity of the Company and the
Subsidiaries or any increase in long-term debt of
the Company and the Subsidiaries, in each case as
compared with amounts shown in the latest
consolidated balance sheet included in the
Registration Statement, except in each case for
changes, decreases or increases that the
Registration Statement discloses have occurred or
may occur; or
(C) for the period from April 1, 1996 to
May 31, 1996 and for the period from April 1, 1996
to a specified date not more than five days prior to
the date of this Agreement, there was any decrease
in net sales, equity in affiliate earnings and other
income, earnings before interest and finance charges
and income taxes or net earnings, in each case as
compared with the comparable period in the preceding
year;
(iii) based upon the procedures set forth in clause
(ii) above and a reading of the Selected Historical Financial
Data included in the Registration Statement and a reading of
the financial statements from which certain of such data were
derived, nothing has come to their attention that gives them
reason to believe that the Selected Historical Financial Data
included in the Registration Statement do not comply as to
form in all material respects with the applicable accounting
requirements of the 1933 Act and the 1933 Act Regulations,
that the information set forth therein is not fairly stated in
relation to the financial statements from which it was derived
or that the financial statements not included in the
Registration Statement from which certain of such data were
derived are not in conformity with generally accepted
accounting principles applied on a basis substantially
consistent with that of the audited financial statements
included in the Registration Statement; and
(iv) they are unable to and do not express any
opinion on the Pro Forma Financial Data (the "Pro Forma
Statement") included in the Registration Statement or on the
pro forma adjustments applied to the historical amounts
included in the Pro Forma Statement; however, for purposes of
such letter they have:
(A) read the Pro Forma Statement;
(B) made inquiries of certain officials
of the Company and of the Coltec Subsidiaries who
have responsibility for financial and accounting
matters about the basis for their determination of
the pro forma adjustments and whether the Pro Forma
Statement complies as
<PAGE> 27
26
to form in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation
S-X; and
(C) proved the arithmetic accuracy of
the application of the pro forma adjustments to the
historical amounts in the Pro Forma Statement; and
on the basis of such procedures, and such other inquiries and
procedures as may be specified in such letter, nothing came to
their attention that caused them to believe that the Pro Forma
Statement included in the Registration Statement does not
comply as to form in all material respects with the applicable
requirements of Rule 11-02 of Regulation S-X or that the pro
forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
(v) in addition to the procedures referred to in
clause (ii) above, they have performed other specified
procedures, not constituting an audit, with respect to certain
amounts, percentages, numerical data and financial information
appearing in the Registration Statement, which have previously
been specified by you and which shall be specified in such
letter, and have compared certain of such items with, and have
found such items to be in agreement with, the accounting and
financial records of the Company.
(j) At the time that this Agreement is executed by the
Company, you shall have received from KPMG Peat Marwick a letter,
dated such date, in form and substance satisfactory to you, together
with signed or reproduced copies of such letter for each of the other
International Underwriters, confirming that they are independent
public accountants with respect to the NSK-Warner within the meaning
of the 1933 Act and applicable published 1933 Act Regulations, and
stating in effect that:
(i) in their opinion, the audited financial
statements and the related financial statement schedules for
NSK-Warner included or incorporated by reference in the
Registration Statement and the Prospectuses comply as to form
in all material respects with the applicable accounting
requirements of the 1933 Act and the 1933 Act Regulations;
(ii) they have read the latest available unaudited
interim consolidated financial statements of NSK-Warner, the
minutes of all meetings of the stockholders and directors of
NSK-Warner and each Committee of the Board of Directors since
April 1, 1996, inquired of certain officials of NSK-Warner
responsible for financial and accounting matters, and made
such other inquiries
<PAGE> 28
27
and performed such other procedures as may be specified in such
letter, and officials of NSK-Warner stated that:
(A) at June 30, 1996 and at a specified
date not more than five days prior to the date of
this Agreement, there was no change in the common
stock of NSK-Warner or decrease in the net current
assets or stockholders' equity of NSK-Warner or
increase in the notes payable or long-term debt of
NSK-Warner, in each case as compared with amounts
shown in the latest balance sheet included or
incorporated by reference in the Registration
Statement; or
(B) for the period from April 1, 1996 to
June 30, 1996 and for the period from June 30, 1996
to a specified date not more than five days prior to
the date of this Agreement, there was no decrease in
sales, earnings before income taxes or net earnings,
in each case as compared with the corresponding
period in the preceding year.
(k) At the time that this Agreement is executed, you
shall have received from Arthur Andersen LLP a letter, dated such
date, in form and substance satisfactory to you, together with signed
or reproduced copies of such letter for each of the other U.S.
Underwriters, confirming that they are independent public accountants
with respect to the Coltec Subsidiaries and the Company within the
meaning of the 1933 Act and applicable published 1933 Act Regulations,
and stating in effect that:
(i) in their opinion, the audited financial
statements and the related financial statement schedules for
the Coltec Subsidiaries included or incorporated by reference
in the Registration Statement and the Prospectuses comply as
to form in all material respects with the applicable
accounting requirements of the 1933 Act, the 1934 Act, the
1933 Act Regulations and the 1934 Act Regulations;
[(ii) they have read the latest available unaudited
interim consolidated financial statements of the Coltec
Subsidiaries, the minutes of all meetings of the stockholders
and directors of the Coltec Subsidiaries and each Committee of
the Board of Directors since April 1, 1996, inquired of
certain officials of the Coltec Subsidiaries responsible for
financial and accounting matters, and made such other
inquiries and performed such other procedures as may be
specified in such letter, and officials of the Coltec
Subsidiaries stated that]:
(A) at June 17, 1996, there was no
change in the capital stock of the Coltec
Subsidiaries or any decrease in the consolidated net
<PAGE> 29
28
current assets or stockholders' equity of the Coltec
Subsidiaries or any increase in long-term debt of
the Coltec Subsidiaries, in each case as compared
with amounts shown in the latest consolidated
balance sheet included or incorporated by reference
in the Registration Statement, except in each case
for changes, decreases or increases that the
Registration Statement discloses have occurred or
may occur; or
(B) for the period from April 1, 1996 to
May 31, 1996, there was no decrease in net sales,
earnings before income taxes or net earnings, in
each case as compared with the comparable period in
the preceding year, except in each case for any
decreases that the Registration Statement discloses
have occurred or may occur; and
(iii) based upon the procedures set forth in clause
(ii) above, nothing has come to their attention that gives
them reason to believe that the information set forth in the
latest available unaudited interim consolidated financial
statements of the Coltec Subsidiaries is not fairly stated in
relation to the financial statements from which it was derived
or that the financial statements not included in the
Registration Statement from which certain of such data were
derived are not in conformity with generally accepted
accounting principles applied on a basis substantially
consistent with that of the audited financial statements
included in the Registration Statement.
(l) At the Closing Time, you shall have received from
each of Deloitte & Touche LLP, KPMG Peat Marwick and Arthur Andersen
LLP a letter, in form and substance satisfactory to you and dated as
of the Closing Time, to the effect that they reaffirm the statements
made in the letters furnished pursuant to Sections 5(i), 5(j) and
5(k), respectively, except that the specified date referred to shall
be a date not more than five days prior to the Closing Time.
(m) At the Closing Time, counsel for the U.S.
Underwriters shall have been furnished with all such documents,
certificates and opinions as they may reasonably request for the
purpose of enabling them to pass upon the sale of the Shares as
contemplated in this Agreement and the matters referred to in Section
5(f) and in order to evidence the accuracy and completeness of any of
the representations, warranties or statements of the Company and the
Selling Stockholders, the performance of any of the covenants of the
Company, or the fulfillment of any of the conditions herein contained;
and all proceedings taken by the Company and the Selling Stockholders
at or prior to the Closing Time in connection with the sale of the
Shares as contemplated in this Agreement shall be reasonably
satisfactory in form and substance to you and to counsel for the U.S.
Underwriters.
<PAGE> 30
29
(n) The "lock-up" letters which are substantially in the
form of Exhibit G attached hereto from (a) each executive officer or
director of the Company and (b) each stockholder of the Company who
(i) owns at least 1% of the outstanding shares of Common Stock and
(ii) who is a party to the Registration Rights Agreement have been
delivered to you on or before the date hereof.
If any of the conditions specified in this Section 5 shall not
have been fulfilled when and as required by this Agreement, this Agreement may
be terminated by you on notice to the Company and the Selling Stockholders at
any time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other party, except as provided in Section 4
hereof. Notwithstanding any such termination, the provisions of Sections 7, 8
and 9 herein shall remain in effect.
Section 6. Conditions to Purchase of U.S. Option Shares. In
the event that the U.S. Underwriters exercise their option granted in Section 2
hereof to purchase all or any of the U.S. Option Shares and the Date of
Delivery determined by you pursuant to Section 2 hereof is later than the
Closing Time, the obligations of the several U.S. Underwriters to purchase and
pay for the U.S. Option Shares that they shall have respectively agreed to
purchase pursuant to this Agreement are subject to the accuracy of the
representations and warranties of the Company and the Selling Stockholders
herein contained, to the performance by the Company and the Selling
Stockholders of their obligations hereunder and to the following further
conditions:
(a) The Registration Statement shall remain effective at
the Date of Delivery, and, at the Date of Delivery, no stop order
suspending the effectiveness of the Registration Statement shall have
been issued under the 1933 Act and no proceedings for that purpose
shall have been instituted or shall be pending or, to your knowledge
or the knowledge of the Company, shall have been threatened by the
Commission, and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of counsel for the U.S. Underwriters.
(b) At the Date of Delivery, the provisions of Sections
5(g)(i) through 5(g)(v) shall have been complied with at and as of the
Date of Delivery and, at the Date of Delivery, you shall have received
a certificate of the President or a Vice President, and the Treasurer
or an Assistant Treasurer, of the Company, dated as of the Date of
Delivery, to such effect.
(c) At the Date of Delivery, you shall have received the
favorable opinions of Wachtell, Lipton, Rosen & Katz, special counsel
for the Company, Laurene H. Horiszny, General Counsel of the Company,
NSK-Warner's Japanese counsel and counsel for the Selling
Stockholders, together with signed or reproduced
<PAGE> 31
30
copies of such opinions for each of the other U.S. Underwriters, in
each case in form and substance reasonably satisfactory to counsel for
the U.S. Underwriters, dated as of the Date of Delivery, relating to
the U.S. Option Shares and otherwise to the same effect as the
opinions required by Section 5(b), 5(c), 5(d) and 5(e), respectively.
(d) At the Date of Delivery, you shall have received the
favorable opinion of Shearman & Sterling, counsel for the U.S.
Underwriters, dated as of the Date of Delivery, relating to the U.S.
Option Shares and otherwise to the same effect as the opinion required
by Section 5(f).
(e) At the Date of Delivery, you shall have received a
letter from each of Deloitte & Touche LLP, KPMG Peat Marwick and
Arthur Andersen LLP, in form and substance satisfactory to you and
dated as of the Date of Delivery, to the effect that they reaffirm the
statements made in the letters furnished pursuant to Section 5(i),
5(j) and 5(k), respectively, except that the specified date referred
to shall be a date not more than five days prior to the Date of
Delivery.
(f) At the Date of Delivery, you shall have received
from each of the Selling Stockholders (or on their behalf)
certificates substantially in the form of the certificates furnished
to you pursuant to Section 5(h), except that such certificates shall
be as of the Date of Delivery.
(g) At the Date of Delivery, the representations and
warranties of each Selling Stockholder set forth in Section 1(b)
hereof shall be accurate as though expressly made at and as of the
Date of Delivery.
(h) At the Date of Delivery, counsel for the U.S.
Underwriters shall have been furnished with all such documents,
certificates and opinions as they may reasonably request for the
purpose of enabling them to pass upon the sale of the U.S. Option
Shares as contemplated in this Agreement and the matters referred to
in Section 6(d) and in order to evidence the accuracy and completeness
of any of the representations, warranties or statements of the Company
or the Selling Stockholders, the performance of any of the covenants
of the Company, or the fulfillment of any of the conditions herein
contained; and all proceedings taken by the Company and the Selling
Stockholders at or prior to the Date of Delivery in connection with
the sale of the U.S. Option Shares as contemplated in this Agreement
shall be reasonably satisfactory in form and substance to you and to
counsel for the U.S. Underwriters.
Section 7. Indemnification. (a) The Company agrees to
indemnify and hold harmless each U.S. Underwriter and each person, if any, who
controls any U.S. Underwriter within the meaning of Section 15 of the 1933 Act
to the extent and in the manner set forth in clauses (i), (ii) and (iii) below.
In addition, each Selling Stockholder, severally and not
<PAGE> 32
31
jointly (but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto) in reliance upon and in conformity with written information
furnished by such Selling Stockholder, expressly for use in the Registration
Statement (or any amendment thereto) or any preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto), a copy of which written
information shall have been previously delivered to you), agrees to indemnify
and hold harmless each U.S. Underwriter and each person, if any, who controls
any U.S. Underwriter within the meaning of Section 15 of the 1933 Act as
follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of an untrue
statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), including the
Rule 430A Information and the Rule 434 Information, if applicable, and
all documents incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or
arising out of an untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto) or the omission
or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if Rule 434 is used, if the
Prospectus is "materially different", as such term is used in Rule
434, from the prospectus included in the Original Registration
Statement at the time it becomes effective;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or investigation or
proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of
the Company and the Selling Stockholders; and
(iii) against any and all expense whatsoever, as incurred
(including, subject to Section 7(c) hereof, fees and disbursements of
counsel chosen by you), reasonably incurred in investigating,
preparing or defending against any litigation, or investigation or
proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under
subparagraph (i) or (ii) above;
provided, however, that this indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent arising out of an untrue
statement or omission or alleged
<PAGE> 33
32
untrue statement or omission made in reliance upon and in conformity with
written information furnished to the Company by any U.S. Underwriter through
you expressly for use in the Registration Statement (or any amendment thereto)
including the Rule 430A Information and the Rule 434 Information, if
applicable, or any preliminary prospectus or the Prospectuses (or any amendment
or supplement thereto); provided further that the liability of a Selling
Stockholder pursuant to this Section 7 is limited to the amount of the net
proceeds of the offering of the U.S. Shares (after deducting the underwriting
discount, but before deducting expenses) received by such Selling Stockholder.
Insofar as this indemnity agreement may permit indemnification
for liabilities under the 1933 Act of any person who is a partner of a U.S.
Underwriter or who controls a U.S. Underwriter within the meaning of Section 15
of the 1933 Act and who, at the date of this Agreement, is a director, officer
or controlling person of the Company, such indemnity agreement is subject to
the undertaking of the Company in the Registration Statement under Item 17
thereof.
(b) Each U.S. Underwriter severally agrees to indemnify
and hold harmless the Company, its directors, each of its officers who signed
the Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act and each Selling Stockholder
and each person, if any, who controls any Selling Stockholder within the
meaning of Section 15 of the 1933 Act, against any and all loss, liability,
claim, damage and expense described in the indemnity contained in Section 7(a),
as incurred, but only with respect to untrue statements or omissions, or
alleged untrue statements or omissions, made in the Registration Statement (or
any amendment thereto) including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the Prospectuses
(or any amendment or supplement thereto) in reliance upon and in conformity
with written information furnished to the Company by such U.S. Underwriter
through you expressly for use in the Registration Statement (or any amendment
thereto), including the Rule 430A Information and the Rule 434 Information, if
applicable, or such preliminary prospectus or the Prospectuses (or any
amendment or supplement thereto).
(c) The Company agrees to indemnify and hold harmless,
to the extent permitted by law, each Selling Stockholder, its directors and
officers or general and limited partners (and the directors and officers
thereof), and each other person, if any, who controls such Selling Stockholder
within the meaning of the 1933 Act, against any and all losses, claims, damages
or liabilities, joint or several, and expenses (including any amounts paid in
any settlement effected with the Company's consent) to which such Selling
Stockholder, any such director or officer or general or limited partner or
controlling person may become subject under the 1933 Act, common law or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of a material fact contained in
the
<PAGE> 34
33
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, and all documents
incorporated therein by reference, or 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, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus, together
with the documents incorporated by reference therein (as amended or
supplemented if the Company shall have filed with Commission any amendment
thereof or supplemented thereto), if used prior to the effective date of the
Registration Statement, or contained in the Prospectus (as amended or
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplemented if the Company shall have filed with the Commission any
amendment thereof or supplement thereto), or the omission or alleged omission
to state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading or (iii) any violation by the Company of
any federal, state or common law rule or regulation applicable to the Company
and relating to action required of or inaction by the Company in connection
with the offering, and the Company will reimburse each such Selling Stockholder
and each such director, officer, general or limited partner, and controlling
person for any legal or any other expenses reasonably incurred by any of them
in connection with investigating or defending any such loss, claim, liability,
action or proceeding; provided, that the Company shall not be liable to such
Selling Stockholder or any such director, officer, general or limited partner
or controlling person in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in such Registration Statement (or any
amendment or supplement thereto), including the Rule 430A Information and the
Rule 434 Information, if applicable, or in any such preliminary prospectus or
the Prospectuses (or any amendment or supplement thereto) in reliance upon and
in conformity with written information furnished to the Company by or on behalf
of such Selling Stockholder or any such director, officer, general or limited
partner or controlling person, specifically stating that it is for use in the
preparation thereof.
(d) Each Selling Stockholder agrees to indemnify and
hold harmless (in the same manner and to the same extent as set forth in
Section 7(c)) the Company and its directors and officers and each person
controlling the Company within the meaning of the 1933 Act and all other
Selling Stockholders and their directors, officers, general and limited
partners and respective controlling persons with respect to any statement or
alleged statement in or omission or alleged omission from the Registration
Statement (or any amendment or supplement thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, any preliminary
prospectus or the Prospectuses (or any amendment or supplement thereto), if
such statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company or its representatives by or on behalf of the undersigned specifically
stating that it is for use in the
<PAGE> 35
34
preparation of the Registration Statement (or any amendment or supplement
thereto), including the Rule 430A Information and the Rule 434 Information, if
applicable, preliminary prospectus or the Prospectuses (or any amendment or
supplement thereto), or a document incorporated by reference into any of the
foregoing; provided, however, that the liability of each Selling Stockholder
pursuant to this Section 7(d) is limited to the proceeds received by such
Selling Stockholder from the sale of the Shares pursuant to this Agreement.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any of the other Selling
Stockholders or any of its respective directors, officers, general or limited
partners or controlling persons and shall survive the transfer of the Shares by
each Selling Stockholder.
(e) Each indemnified party shall give prompt notice to
each indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have otherwise than
on account of this indemnity agreement. An indemnifying party may participate
at its own expense in the defense of such action. In no event shall the
indemnifying party or parties be liable for the fees and expenses of more than
one counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. If it so elects within a
reasonable time after receipt of such notice, an indemnifying party, jointly
with any other indemnifying parties receiving such notice, may assume the
defense of such action with counsel chosen by it and approved by the
indemnified parties defendant in such action, unless such indemnified parties
reasonably object to such assumption on the ground that there may be legal
defenses available to them which are different from or are in addition to those
available to such indemnifying party. If an indemnifying party assumes the
defense of such action, the indemnifying parties shall not be liable for any
fees and expenses of counsel for the indemnified parties incurred thereafter in
connection with such action.
Section 8. Contribution. In order to provide for just and
equitable contribution in circumstances under which the indemnity provided for
in Section 7 is for any reason held to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Company, the
Selling Stockholders and the U.S. Underwriters shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement incurred by the Company, the Selling
Stockholders and one or more of the U.S. Underwriters, as incurred, in such
proportions that (a) the U.S. Underwriters are responsible for that portion
represented by the percentage that the underwriting discount appearing on the
cover page of the Prospectuses or, if Rule 434 is used, the corresponding
location on the Term Sheet, bears to the offering price appearing thereon and
(b) the Company and the Selling Stockholders are severally responsible for the
balance on the same basis as each of them would have been obligated to provide
indemnification pursuant to Section 7; provided, however, that no person guilty
of fraudulent
<PAGE> 36
35
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section, each person, if
any, who controls a U.S. Underwriter within the meaning of Section 15 of the
1933 Act shall have the same rights to contribution as such U.S. Underwriter,
and each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company or a
Selling Stockholder within the meaning of Section 15 of the 1933 Act shall have
the same rights to contribution as the Company or a Selling Stockholder, as the
case may be.
Section 9. Representations, Warranties and Agreements to
Survive Delivery. The representations, warranties, indemnities, agreements and
other statements of the Company or its officers or the Selling Stockholders set
forth in or made pursuant to this Agreement will remain operative and in full
force and effect regardless of any investigation made by or on behalf of the
Selling Stockholders, the Company, any U.S. Underwriter or any person who
controls a Selling Stockholder or any U.S. Underwriter within the meaning of
Section 15 of the 1933 Act, and will survive delivery of and payment for the
U.S. Shares.
Section 10. Termination of Agreement. (a) You may terminate
this Agreement, by notice to the Company and the Selling Stockholders, at any
time at or prior to the Closing Time (i) if there has been, since the
respective dates as of which information is given in the Registration
Statement, any material adverse change in the condition (financial or
otherwise), results of operations, business affairs or business prospects of
the Company and the Subsidiaries, considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States, or any
outbreak of hostilities or escalation thereof or other calamity or crisis the
effect of which on the financial markets of the United States is such as to
make it, in your judgment, impracticable to market the Shares or enforce
contracts for the sale of the Shares or (iii) if trading in any securities of
the Company has been suspended by the Commission, or if trading generally on
the New York Stock Exchange or in the over-the-counter market has been
suspended, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices for securities have been required, by such exchange or by
order of the Commission, the New York Stock Exchange or any other governmental
authority or (iv) if a banking moratorium has been declared by either federal,
New York or Illinois authorities.
(b) If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party, except to the extent provided in Section 4. Notwithstanding any such
termination, the provisions of Sections 7 and 8 shall remain in effect.
(c) This Agreement may also terminate pursuant to the
provisions of Section 2(c), with the effect stated in such Section.
<PAGE> 37
36
Section 11. Default by One or More of the U.S. Underwriters.
If one or more of the U.S. Underwriters shall fail at the Closing Time to
purchase the Initial U.S. Shares that it or they are obligated to purchase
pursuant to this Agreement (the "Defaulted U.S. Shares"), you shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting U.S. Underwriters, or any other U.S. Underwriters, to purchase
all, but not less than all, of the Defaulted U.S. Shares in such amounts as
may be agreed upon and upon the terms set forth in this Agreement; if, however,
you have not completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted U.S. Shares does not
exceed 10% of the total number of Initial U.S. Shares, the
non-defaulting U.S. Underwriters shall be obligated to purchase the
full amount thereof in the proportions that their respective Initial
U.S. Share underwriting obligation proportions bear to the
underwriting obligations of all non-defaulting U.S. Underwriters; or
(b) if the number of Defaulted U.S. Shares exceeds 10%
of the total number of Initial U.S. Shares, this Agreement shall
terminate without liability on the part of any non-defaulting U.S.
Underwriter.
No action taken pursuant to this Section shall relieve any
defaulting U.S. Underwriter from liability in respect of its default.
In the event of any such default that does not result in a
termination of this Agreement, either you or the Company shall have the right
to postpone the Closing Time for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectuses or in
any other documents or arrangements. As used herein, the term "U.S.
Underwriter" includes any person substituted for a U.S. Underwriter under this
Section 11.
Section 12. Default by a Selling Stockholder. If any Selling
Stockholder shall fail at the Closing Time to sell and deliver the number of
Initial U.S. Shares that such Selling Stockholder is obligated to sell, then
the U.S. Underwriters may, at your option, by notice from you to the Company
and the Selling Stockholders, either (a) terminate this Agreement without any
liability on the part of any non-defaulting party, except to the extent
provided in Section 4 and except that the provisions of Sections 7 and 8 shall
remain in effect or (b) elect to purchase the Initial U.S. Shares that the
remaining Selling Stockholders have agreed to sell pursuant to this Agreement.
In the event of any such default under this Section that does
not result in a termination of this Agreement, either you or the Company shall
have the right to postpone the Closing Time for a period not exceeding seven
days in order to effect any required
<PAGE> 38
37
changes in the Registration Statement or Prospectuses or in any other documents
or arrangements.
No action taken pursuant to this Section 12 shall relieve any
Selling Stockholder so defaulting from liability, if any, in respect of such
default.
Section 13. Notices. All notices and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given if delivered, mailed or transmitted by any standard form of
telecommunication. Notices to you or the U.S. Underwriters shall be directed
to you, c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated, at Merrill
Lynch World Headquarters, North Tower, World Financial Center, New York, New
York 10281, attention of Samuel R. Chapin; notices to the Company shall be
directed to it at 200 South Michigan Avenue, Chicago, Illinois 60604,
Attention: General Counsel and notices to the Selling Stockholders shall be
directed to James V. Caruso, Merrill Lynch & Co., Inc., South Tower, World
Financial Center, New York, New York 10080-6123.
Section 14. Parties. This Agreement is made solely for the
benefit of the several U.S. Underwriters, the Company and the Selling
Stockholders and, to the extent expressed, any person controlling the Company,
any Selling Stockholder or any of the U.S. Underwriters, and the directors of
the Company, its officers who have signed the Registration Statement, and their
respective executors, administrators, successors and assigns and, subject to
the provisions of Section 11, no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include any purchaser, as such purchaser, from any of the several U.S.
Underwriters of the U.S. Shares. All of the obligations of the U.S.
Underwriters hereunder are several and not joint.
Section 15. Representation of U.S. Underwriters. You will
act for the several U.S. Underwriters in connection with this financing, and
any action under or in respect of this Agreement taken by you as U.S.
Representatives will be binding upon all U.S. Underwriters.
Section 16. Governing Law and Time. This Agreement shall be
governed by the laws of the State of New York. Specified times of the day
refer to New York City time.
Section 17. Counterparts. This Agreement may be executed in
one or more counterparts, and when a counterpart has been executed by each
party, all such counterparts taken together shall constitute one and the same
agreement.
<PAGE> 39
38
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us a counterpart hereof, whereupon
this instrument will become a binding agreement between the Company, the
Selling Stockholders and the several U.S. Underwriters in accordance with its
terms.
Very truly yours,
BORG-WARNER AUTOMOTIVE, INC.
By:
-----------------------------
Name:
Title:
SELLING STOCKHOLDERS NAMED IN
SCHEDULE A
By:
-----------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
LEHMAN BROTHERS INC.
MORGAN STANLEY & CO. INCORPORATED
By: Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By
-----------------------------------------------
Name:
Title:
Investment Banking Group
For themselves and as U.S. Representatives of the
other U.S. Underwriters named in Schedule B.
<PAGE> 40
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
INITIAL U.S. U.S. OPTION
SELLING STOCKHOLDER SHARES TO BE SOLD SHARES TO BE SOLD
- ------------------- ------------------ -----------------
<S> <C> <C>
Merrill Lynch KECALP L.P. 1986
Merrill Lynch KECALP L.P. 1987
Merchant Banking L.P. No. I
ML Venture Partners II, L.P.
Merrill Lynch Capital Appreciation
Partnership No. VIII, L.P.
ML Offshore LBO Partnership No. VIII
ML Employees LBO Partnership No. I, L.P.
ML IBK Positions, Inc.
________ _______
Total [ ] [ ]
================= =============
</TABLE>
<PAGE> 41
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF
INITIAL U.S. SHARES
U.S. UNDERWRITER TO BE PURCHASED
---------------- -------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Lehman Brothers Inc.
Morgan Stanley & Co. Incorporated
-----------
Total [ ]
=============
</TABLE>
<PAGE> 42
SCHEDULE C
<TABLE>
<CAPTION>
ATTORNEY SELLING STOCKHOLDER
- -------- -------------------
<S> <C>
Marcia L. Tu, Esq. o ML IBK Positions, Inc.
o Merrill Lynch Capital Appreciation Partnership
No. VIII, L.P.
o ML Employees LBO Partnership No. I, L.P.
o ML Venture Partners II, L.P.
Margaret E. Nelson, Esq. o Merrill Lynch KECALP L.P. 1986
o Merrill Lynch KECALP L.P. 1987
o Merchant Banking L.P. No. I
Carl Ruggiero, Esq. o ML Offshore LBO Partnership No. VIII
</TABLE>
<PAGE> 43
Exhibit A
BORG-WARNER AUTOMOTIVE, INC.
(a Delaware corporation)
3,600,000 Shares of Common Stock
U.S. PRICE DETERMINATION AGREEMENT
July __, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
LEHMAN BROTHERS INC.
MORGAN STANLEY & CO. INCORPORATED
As Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1201
Ladies and Gentlemen:
Reference is made to the U.S. Purchase Agreement dated July
__, 1996 (the "U.S. Purchase Agreement") among Borg-Warner Automotive, Inc.
(the "Company"), the Selling Stockholders named in Schedule A thereto (the
"Selling Stockholders") and the several U.S. Underwriters named in Schedule B
thereto or hereto (the "U.S. Underwriters"), for whom Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers Inc. and
Morgan Stanley & Co. Incorporated are acting as representatives (the "U.S.
Representatives"). The U.S. Purchase Agreement provides for the purchase by
the U.S. Underwriters from the Selling Stockholders, subject to the terms and
conditions set forth therein, of an aggregate of 3,600,000 shares (the "Initial
U.S. Shares") of the Company's common stock, par value $.01 per share. This
Agreement is the U.S. Price Determination Agreement referred to in the U.S.
Purchase Agreement. Terms not defined herein are used herein as defined in the
U.S. Purchase Agreement.
<PAGE> 44
A-2
Pursuant to Section 2 of the U.S. Purchase Agreement, the
Company and the Selling Stockholders agree with the U.S. Representatives as
follows:
1. The price to the public per share for the Initial U.S.
Shares shall be $[____].
2. The purchase price per share for the Initial U.S. Shares
to be paid by the several U.S. Underwriters shall be $[_____],
representing an amount equal to the public offering price set forth
above, less $[____] per share.
The Company represents and warrants to each of the U.S.
Underwriters that the representations and warranties of the Company set forth
in Section 1(a) of the U.S. Purchase Agreement are accurate as though expressly
made at and as of the date hereof.
Additionally, if the Company elects to rely on Rule 462(b),
the Company convenants to each of the U.S. Underwriters that:
(a) the Company will file a Rule 462(b) Registration Statement in
compliance with, and that is effective upon filing pursuant
to, Rule 462(b) prior to the time confirmations are sent or
given, as specified in Rule 462(b) of the 1933 Act; and
(b) the Company will give irrevocable instructions for
transmission of the applicable filing fee in connection with
the filing of the Rule 462(b) Registration Statement, in
compliance with Rule 111 of the 1933 Act Regulations or the
Commission will have received payment of such filing fee upon
filing of the Rule 462(b) Registration Statement.
Each Selling Stockholder represents and warrants to each of
the U.S. Underwriters that the representations and warranties of such Selling
Stockholder set forth in Section 1(b) of the U.S. Purchase Agreement are
accurate as though expressly made at and as of the date hereof.
As contemplated by Section 2 of the U.S. Purchase Agreement,
attached as Schedule A is a completed list of the Selling Stockholders and
attached as Schedule B is a complete list of the several U.S. Underwriters,
which shall be a part of this Agreement and the U.S. Purchase Agreement.
This Agreement shall be governed by the laws of the State of
New York.
If the foregoing is in accordance with the understanding of the U.S.
Representatives of the agreement between the U.S. Underwriters, the Company
and the Selling Stockholders, please sign and return to the Company a
counterpart hereof, whereupon this instrument, along with all counterparts and
together with the U.S. Purchase Agreement, shall be a
<PAGE> 45
A-3
binding agreement between the U.S. Underwriters, the Company and the Selling
Stockholders in accordance with its terms and the terms of the U.S. Purchase
Agreement.
Very truly yours,
BORG-WARNER AUTOMOTIVE, INC.
By:
-------------------------------
Name:
Title:
SELLING STOCKHOLDERS NAMED IN
SCHEDULE A
By:
-------------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
LEHMAN BROTHERS INC.
MORGAN STANLEY & CO. INCORPORATED
By: Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By
----------------------------------------
Name:
Title:
Investment Banking Group
For themselves and as U.S. Representatives of the
other U.S. Underwriters named in Schedule B.
<PAGE> 46
Exhibit B
SUBSIDIARIES
<TABLE>
<CAPTION>
Percent of
Capital Stock
Beneficially Owned by
Borg-Warner Automotive,
Name of Subsidiary Inc. or the Subsidiaries
- ------------------ ------------------------------
<S> <C>
Borg-Warner Automotive Powertrain Systems Corporation 100
Borg-Warner Automotive South Asia Corporation 100
Divgi-Warner Pvt., Ltd. 60
Huazhong Warner Transmission Company 60
Borg-Warner Automotive Powertrain
Service Center Corporation 100
Borg-Warner Automotive Powdered Metals Corporation 100
Borg-Warner Automotive Diversified Transmission
Products Corporation 100
Borg-Warner Automotive Air/Fluid Systems Corporation 100
Borg-Warner Automotive Air/Fluid Systems
Corporation of Michigan 100
Borg-Warner Automotive Control Systems Holding Corporation 100
Borg-Warner Automotive Control Systems Europe S.A.S. 90
Societe de l'Usine de la Marque 100
BW Syntelligence Corporation 100
Borg-Warner Automotive Morse TEC Corporation 100
Borg-Warner Automotive (Canada) Ltd. 100
Borg-Warner Automotive Japan Corporation 100
Borg-Warner Automotive K.K. 100
Borg-Warner Automotive Taiwan Co., Ltd. 100
B.W. Componentes Mexicanos de Transmissiones S.A. de C.V. 86
Morse TEC Europe, Sp.A 100
Borg-Warner Automotive Foreign Sales Corporation 100
</TABLE>
<PAGE> 47
B-2
<TABLE>
<S> <C>
Borg-Warner Automotive Automatic Transmission Systems Corporation 100
Borg-Warner Automotive Europe Corporation 100
Borg-Warner Automotive GmbH 100
Borg & Beck Torque Systems, Inc. 100
Borg-Warner Automotive-NW Corporation 100
Borg-Warner Automotive Korea, Inc. 60
Creon Insurance Agency, Ltd. 100
Creon Trustees, Ltd. 100
</TABLE>
<PAGE> 48
Exhibit C
Pursuant to Section 5(b) of the U.S. Purchase Agreement,
Wachtell, Lipton, Rosen & Katz, special counsel for the Company, shall furnish
to the U.S. Underwriters an opinion to the effect that:
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
with corporate power and authority under such laws to own, lease and
operate its properties and conduct its business as described in the
Prospectuses.
(ii) The Shares have been duly authorized and validly
issued and are fully paid and non-assessable, and no holder thereof is
or will be subject to personal liability by reason of being such a
holder; such Shares are not subject to the preemptive rights of any
stockholder of the Company.
(iii) The Shares conform in all material respects as to
legal matters to the description thereof contained in the
Prospectuses.
(iv) This Agreement and the International Purchase
Agreement have been duly authorized, executed and delivered by the
Company.
(v) The execution and delivery of this Agreement, the
International Purchase Agreement, the consummation by the Company of
the transactions contemplated in this Agreement, in the International
Purchase Agreement, and in the Registration Statement and compliance
by the Company with the terms of this Agreement and the International
Purchase Agreement have been duly authorized by all necessary
corporate action on the part of the Company and do not violate and
will not result in any violation of the certificate of incorporation
or by-laws of the Company.
(vi) The Registration Statement is effective under the
1933 Act; any required filing of the Prospectuses or any supplement
thereto pursuant to Rule 424(b) has been made in the manner and within
the time period required by Rule 424(b); and, to the best of the
knowledge of such counsel, no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending or are contemplated
under the 1933 Act.
(vii) The Registration Statement (including the Rule 430A
Information and the Rule 434 Information, if applicable) and the
Prospectuses, excluding the documents incorporated by reference
therein, and each amendment or supplement thereto (except for the
financial statements and other financial or statistical data included
therein or omitted therefrom, as to which such counsel need express no
opinion), as of their respective effective or issue dates, complied as
to form in all material respects to the requirements of the 1933 Act
and the 1933 Act Regulations.
<PAGE> 49
C-2
(viii) The documents incorporated by reference in the
Prospectus (except for the financial statements and other financial or
statistical data included therein or omitted therefrom, as to which
such counsel need express no opinion, and except to the extent that
any statement therein is modified or superseded in the Prospectuses),
as of the dates they were filed with the Commission, complied as to
form in all material respects to the requirements of the 1934 Act and
the 1934 Act Regulations.
(ix) Assuming that each of the U.S. Underwriters and
International Underwriters acquires the certificates representing the
U.S. Shares and the International Shares, respectively, in good faith
and without notice of any adverse claims, as defined in Section 8-302
of the Uniform Commercial Code as in effect in the State of New York
(the "UCC"), upon delivery of the certificates to the person
designated by the U.S. Underwriters and the International
Underwriters, respectively, in the State of New York, either
registered in the name of the U.S. Underwriters or the International
Underwriters, as the case may be, endorsed to the U.S. Underwriters or
the International Underwriters, as the case may be, or endorsed in
blank, the U.S. Underwriters or the International Underwriters, as the
case may be, will acquire all of the Selling Stockholders' rights in
the certificates, free of any adverse claims (within the meaning of
Section 8-302 of the UCC).
(x) Such counsel have participated in the preparation of
the Registration Statement and Prospectuses except for the documents
incorporated by reference in the Registration Statement and the
Prospectuses and in conferences with officers and other
representatives of the Company, representatives of the independent
public accountants for the Company, and with your representatives and
your counsel at which the contents of the Registration Statement, the
Prospectuses, and related matters were discussed and have reviewed the
documents incorporated by reference in the Registration Statement and
Prospectuses and, although such counsel need not pass upon or assume
any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectuses
and the documents incorporated by reference in the Prospectuses
(except for the opinions set forth in clause (iii), and based on the
foregoing, no facts have come to the attention of such counsel to lead
such counsel to believe (A) that the Registration Statement or any
amendment thereto (except for the financial statements and other
financial or statistical data included therein or omitted therefrom,
as to which such counsel need express no opinion), at the time the
Registration Statement or any such amendment became effective,
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) that the Prospectuses or any
amendment or supplement thereto (except for the financial statements
and other financial or statistical data included therein or omitted
therefrom, as to which such counsel need express no opinion), at the
time any Prospectus was issued, at the time any such amended or
supplemented prospectus was issued or at the Closing Time, included or
includes 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 the light of the circumstances
<PAGE> 50
C-3
under which they were made, not misleading. Such opinion shall be to
such further effect with respect to other legal matters relating to
this Agreement, the U.S. Price Determination Agreement and the sale of
the U.S. Shares pursuant to this Agreement as counsel for the U.S.
Underwriters may reasonably request. In giving such opinion, such
counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York, the federal
law of the United States and the corporate law of the State of
Delaware, either upon opinions of other counsel, who shall be counsel
reasonably satisfactory to counsel for the U.S. Underwriters, in which
case the opinion shall state that they believe the U.S. Underwriters
and they are entitled to so rely, or upon unofficial compilations of
the laws of such jurisdictions. Such counsel may also state that,
insofar as such opinion involves factual matters, they have relied, to
the extent they deem proper, upon certificates of officers of the
Company and its Subsidiaries and certificates of public officials.
<PAGE> 51
Exhibit D
Pursuant to Section 5(c) of the U.S. Purchase Agreement,
Laurene H. Horiszny, Esq., Vice President, Secretary and General Counsel for
the Company, shall furnish to the U.S. Underwriters an opinion to the effect
that:
(i) Each Subsidiary listed on Schedule 1 hereto (the
"Material Subsidiaries") is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of
its incorporation with corporate power and authority under such laws
to own, lease and operate its properties and conduct its business.
(ii) Each of the Company and the Material Subsidiaries is
duly qualified to transact business as a foreign corporation and is in
good standing in each other jurisdiction in which it owns or leases
property of a nature, or transacts business of a type, that would make
such qualification necessary, except to the extent that the failure to
so qualify or be in good standing would not have a material adverse
effect on the Company and the Subsidiaries, considered as one
enterprise.
(iii) All of the outstanding shares of capital stock of
each Material Subsidiary have been duly authorized and validly issued
and are fully paid and non-assessable; all of the shares of capital
stock of such Material Subsidiary are owned by the Company, directly
or through one or more of the Subsidiaries, in the percentages set
forth in Schedule 1 hereto and the shares of capital stock of
NSK-Warner owned by the Company are owned by the Company directly or
through one or more of the Subsidiaries, free and clear of any
consensual pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind except as provided in or pursuant to the
Credit Agreement; no holder thereof is subject to personal liability
by reason of being such a holder and none of such shares was issued in
violation of the preemptive rights of any stockholder of the Material
Subsidiaries.
(iv) The Shares have been duly authorized and validly
issued and are fully paid and non-assessable, and no holder thereof is
or will be subject to personal liability by reason of being such a
holder; such Shares are not subject to the preemptive rights of any
stockholder of the Company.
(v) The authorized, issued and outstanding capital stock
of the Company is as set forth in the Prospectuses under the heading
"Capitalization".
(vi) Such counsel does not know of any statutes or
regulations, or any pending or threatened legal or governmental
proceedings, required under the 1933 Act to be described in the
Prospectuses that are not described as so required, nor of any
contracts or documents of a character required under the 1933 Act or
1933 Act Regulations to be described or referred to in the
Registration Statement or
<PAGE> 52
D-2
Prospectuses or to be filed as exhibits to the Registration Statement
that are not described, referred to or filed as required.
(vii) Except with respect to financial covenants, (as to
which such counsel need express no opinion) no default exists in the
performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, loan agreement, note,
lease or other agreement or instrument that is described or referred
to in the Registration Statement or the Prospectuses or filed as an
exhibit to the Registration Statement (except for such defaults that
would not have a material adverse effect on the condition (financial
or otherwise), results of operations, business affairs or business
prospects of the Company and its Subsidiaries, considered as one
enterprise).
(viii) The execution and delivery of this Agreement and the
International Purchase Agreement and the consummation by the Company
of the other transactions contemplated in this Agreement, the
International Purchase Agreement and in the Registration Statement and
compliance by the Company with the terms of this Agreement and the
International Purchase Agreement do not violate and will not result in
any violation of the certificate of incorporation or by-laws of any
Material Subsidiary and do not and will not conflict with, or result
in a breach of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or
any Material Subsidiary under (i) any existing applicable law, rule or
regulation (other than the securities or Blue Sky laws of the various
states, as to which such counsel is not requested to express an
opinion), (ii) any judgment, order or decree of any government,
governmental instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any Subsidiary or any of its
properties, or (iii) any indenture, mortgage or loan agreement, or any
other agreement or instrument known to such counsel, to which the
Company or any Material Subsidiary is a party or by which it may be
bound or to which any of its properties may be subject, including the
Formation Agreement between Borg-Warner Corporation and Nippon Seiko,
K.K., dated as of April 18, 1964, and any agreements related thereto,
including but not limited to the Shareholders Agreement Concerning the
Management of NSK-Warner, dated September 25, 1964, between
Borg-Warner Corporation and Nippon Seiko, K.K. (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that
would not have a material adverse effect on the condition (financial
or otherwise), results of operations, business affairs or business
prospects of the Company and its Subsidiaries, considered as one
enterprise).
(ix) The descriptions in the Prospectuses of the statutes,
regulations, legal or governmental proceedings, contracts and other
documents therein described are accurate and fairly summarize the
information required to be shown.
<PAGE> 53
D-3
(x) No authorization, approval, consent or license of any
U.S. government, governmental instrumentality or U.S. court (other
than under the 1933 Act or 1933 Act Regulations and the securities or
Blue Sky laws of the various states and the securities laws of any
jurisdiction outside the United States in which International Shares
are offered or sold by the International Underwriters pursuant to the
International Purchase Agreement) is required for the valid
authorization, issuance, sale and delivery of the Shares.
(xi) To the best knowledge of such counsel, each Selling
Stockholder is the registered holder of title to the Shares to be sold
by such Selling Stockholder pursuant to the U.S. Purchase Agreement
and the International Purchase Agreement.
Such counsel has participated in the preparation of
the Registration Statement and Prospectuses, in the preparation of the
documents incorporated by reference in the Registration Statement and
the Prospectuses and in conferences with officers and other
representatives of the Company, representatives of the independent
public accountants for the Company, and with your representatives and
your counsel at which the contents of the Registration Statement, the
Prospectuses and the documents incorporated by reference in the
Prospectuses and related matters were discussed and, although such
counsel need not pass upon or assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectuses and the documents
incorporated by reference in the Prospectuses (except for the opinion
set forth in clause (ix)), and based upon the foregoing, no facts have
come to the attention of such counsel to lead her to believe (A) that
the Registration Statement (including the Rule 430A Information and
the Rule 434 Information, if applicable) or any amendment thereto
(except for the financial statements and other financial or
statistical data included therein or omitted therefrom, as to which
such counsel need express no opinion), at the time the Registration
Statement or any such amendment became effective, 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, (B) that the Prospectuses or any amendment or
supplement thereto (except for the financial statements and other
financial or statistical data included therein or omitted therefrom,
as to which such counsel need express no opinion), at the time any
Prospectus was issued, at the time any such amended or supplemented
prospectus was issued or at the Closing Time, included or includes 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
the light of the circumstances under which they were made, not
misleading, or (C) that the documents incorporated by reference in the
Prospectuses (except for the financial statements and other financial
or statistical data included therein or omitted therefrom, as to which
such counsel need express no opinion, and except to the extent that
any statement therein is modified or superseded in the Prospectuses),
as of the dates they were filed with the Commission, contained an
untrue statement of a material fact or omitted to state a material
fact.
<PAGE> 54
D-4
In giving such opinion, such counsel may rely, as to all
matters governed by the laws of jurisdictions other than the law of the State
of Illinois, the Federal law of the United States and the corporate law of the
State of Delaware, upon opinions of other counsel, who shall be counsel
reasonably satisfactory to counsel for the U.S. Underwriters, in which case the
opinion shall state that they believe the U.S. Underwriters and they are
entitled to so rely. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem proper,
upon certificates of officers of the Company and the Subsidiaries and
certificates of public officials.
<PAGE> 55
Schedule 1
to Exhibit D
Material Subsidiaries
<TABLE>
<CAPTION>
Percent of
Capital Stock
Beneficially
Owned by
Borg-Warner
Automotive,
Inc. or the
Subsidiaries
------------
Material Subsidiary
- -------------------
<S> <C>
Borg-Warner Automotive Diversified
Transmission Products Corporation 100
Borg-Warner Automotive Electronic
& Mechanical Systems Corporation 100
Borg-Warner Automotive Europe
Corporation 100
Borg-Warner Automotive GmbH 100
Borg-Warner Automotive Japan
Corporation 100
Borg-Warner Automotive K.K. 100
Borg-Warner Automotive NW Corporation 100
Borg-Warner Automotive Transmission
& Engine Components Corporation 100
</TABLE>
<PAGE> 56
Exhibit E
Pursuant to Section 5(d) of the U.S. Purchase Agreement,
NSK-Warner's Japanese counsel shall furnish to the U.S. Underwriters an
opinion substantially to the effect that:
(i) NSK-Warner is a corporation duly organized, validly
existing and in good standing under the laws of Japan with corporate power and
authority under such laws to own, lease and operate its properties and conduct
its business.
(ii) All of the outstanding shares of capital stock of
NSK-Warner have been duly authorized and validly issued and are fully paid and
non-assessable.
<PAGE> 57
Exhibit F
Pursuant to Section 5(e) of the U.S. Purchase Agreement, each
of the attorneys listed on Schedule C attached thereto for the Selling
Stockholders specified opposite such attorney's name, shall furnish to the U.S.
Underwriters an opinion to the effect that:
(i) This Agreement and the International Purchase
Agreement have been authorized, duly executed and delivered by each of the
Selling Stockholders.
(ii) No authorization, approval, consent or license of any
government, governmental instrumentality or court is required under the laws of
the United States or the State of New York (other than under the 1933 Act,
under Blue Sky or state securities law or the securities laws of foreign
jurisdictions) for the consummation by the Selling Stockholders of the
transactions contemplated by this Agreement and the International Purchase
Agreement.
(iii) The execution and delivery of this Agreement and the
International Purchase Agreement by the Selling Stockholders and the compliance
by the Selling Stockholders with the terms thereof do not conflict with or
result in a violation of (a) the certificate of incorporation, the by-laws, the
partnership agreement or similar governing document of any of the Selling
Stockholders or (b) any existing applicable law, rule or regulation (other than
under the 1933 Act, under Blue Sky or state securities law or the securities
laws of foreign jurisdictions or the rules and regulations of the NASD) or any
judgment, order or decree known to such counsel of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over the
Selling Stockholders.
(iv) The Selling Stockholders, as the case may be, have
been duly organized and are validly existing and in good standing as
corporations or partnerships under the laws of the jurisdiction of their
incorporation or organization with all necessary power and authority under such
laws to execute, deliver and perform this Agreement and the International
Purchase Agreement.
(v) Assuming that each of the U.S. Underwriters acquires
the certificates representing the Shares to be sold by the Selling Stockholders
in good faith and without notice of any adverse claims, as defined in Section
8-302 of the Uniform Commercial Code as in effect in the State of New York (the
"UCC"), upon delivery of the certificates representing such Shares to the
person designated by the U.S. Underwriters in the State of New York, registered
in the name of the U.S. Underwriters, endorsed to the U.S. Underwriters, or
endorsed in blank, the U.S. Underwriters will acquire all of the Selling
Stockholders' rights in the certificates representing such Shares free of any
adverse claims (within the meaning of Section 8-302 of the UCC).
<PAGE> 58
F-2
Such opinion shall be to such further effect with respect to
other legal matters relating to this Agreement and the sale of the Shares
pursuant to this Agreement as counsel for the U.S. Underwriters may reasonably
request. In giving such opinion, such counsel may rely, as to all matters
governed by the laws of jurisdictions other than the law of the State of New
York, the federal law of the United States and the corporate and partnership
law of the State of Delaware, solely upon opinions of other counsel, who shall
be counsel reasonably satisfactory to counsel for the U.S. Underwriters (it
being understood that in-house counsel of any Selling Stockholder shall be so
satisfactory), in which case the opinion shall also be addressed to the U.S.
Underwriters and state that such other counsel believes you and they are
entitled to so rely. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem proper,
upon certificates of officers of the Company and the Subsidiaries, certificates
of officers or partners, as the case may be, of such Selling Stockholders and
on certificates of public officials.
<PAGE> 59
Exhibit G
FORM OF LOCK-UP LETTER AGREEMENT
July __, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
LEHMAN BROTHERS INC.
MORGAN STANLEY & CO. INCORPORATED
As Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1201
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
As Representatives of the several International Underwriters
c/o Merrill Lynch International
25 Ropemaker Street
London EC2Y 9LY
England
Ladies and Gentlemen:
The undersigned stockholder of Borg-Warner Automotive, Inc., a
Delaware corporation (the "Company"), understands that (i) a U.S. Purchase
Agreement (the "U.S. Purchase Agreement") will be executed by the Company, the
Selling Stockholders named therein (the "Selling Stockholders") and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers Inc. and Morgan
Stanley & Co. Incorporated, as representatives (the "U.S. Representatives") of
the several underwriters named therein (the "U.S. Underwriters"), pursuant to
which the Selling Stockholders will sell to the U.S. Underwriters 3,600,000
shares of the Common Stock, par value $.01 per
<PAGE> 60
G-2
share (the "Common Stock"), of the Company and up to 540,000 additional shares
of Common Stock pursuant to an option granted by the Selling Stockholders,
solely to cover over-allotments as set forth in the U.S. Purchase Agreement and
(ii) an International Purchase Agreement (the "International Purchase
Agreement", and together with the U.S. Purchase Agreement, the "Purchase
Agreements") will be executed by the Company, the Selling Stockholders named
therein (the "Selling Stockholders") and Merrill Lynch International, Lehman
Brothers International (Europe) and Morgan Stanley & Co. International Limited,
as representatives (the "International Representatives", and together with the
U.S. Representatives, the "Representatives") of the several underwriters named
therein (the "International Underwriters", and together with the U.S.
Underwriters, the "Underwriters"), pursuant to which the Selling Stockholders
will sell to the International Underwriters 900,000 shares of the Common Stock
of the Company and up to 135,000 additional shares of Common Stock pursuant to
an option granted by the Selling Stockholders, solely to cover over-allotments
as set forth in the International Purchase Agreement.
The undersigned is a party to that certain Registrations
Rights Agreement (the "Registration Rights Agreement"), dated as of January 27,
1993, by and among the Company and the stockholders named therein. This
Lock-Up Letter Agreement is being entered into in accordance with Section 7(a)
of the Registration Rights Agreement at the request of the Underwriters.
The undersigned also understands that the Company has filed
with the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-3 (File No. 333-06041, the "Registration Statement") in
connection with the public offering (the "Offering") of shares of its Common
Stock.
In consideration of the Underwriters' agreement to purchase
the Common Stock and undertake the Offering, and for other good and valuable
consideration, receipt of which is hereby acknowledged, the undersigned agrees
[that, without the prior written consent of the Representatives, which consent
shall not be unreasonably withheld, the undersigned will] not[,] [to] directly
or indirectly[,] effect any public sale or distribution, including any sale
pursuant to Rule 144 under the Securities Act of 1933, as amended, of any
shares of Common Stock (including, without limitation, shares of Common Stock
which may be deemed to be beneficially owned by such stockholder in accordance
with the rules and regulations of the Commission and shares of Common Stock
which may be issued upon exercise of any option or warrant) or any securities
convertible or exchangeable for shares of Common Stock for a period commencing
7 days prior to the date the Registration Statement is declared effective by
the Commission (the "Effective Date") and ending 180 days after the Effective
Date, other than the Shares sold to the Underwriters pursuant to the Purchase
Agreements. The undersigned understands that the Company expects the Effective
Date to occur as early as ______, 1996. The
<PAGE> 61
G-3
undersigned understands that the Effective Date may, however, be earlier or
later than _____, 1996.
In addition, the undersigned agrees that the undersigned will,
promptly following the execution of this Lock-Up Letter Agreement and in any
event prior to the execution of the Purchase Agreements, (i) with respect to
any shares of Common Stock for which the undersigned is the record holder,
cause the transfer agent for the Company to note stop transfer instructions
with respect to such shares of Common Stock on the transfer books and records
of the Company and (ii) with respect to any shares of Common Stock for which
the undersigned is the beneficial holder but not the record holder (other than
the shares of Common Stock owned of record by persons or entities that are not
affiliates of the undersigned and shares of Common Stock which may be issued
upon exercise of any option or warrant), cause the record holder of such shares
to cause the transfer agent for the Company to note stop transfer instructions
with respect to such shares of Common Stock on the transfer books and records
of the Company.
The undersigned understands that the Company, the Selling
Stockholders and the Underwriters will proceed with the Offering in reliance on
this Lock-Up Letter Agreement.
The undersigned hereby represents and warrants that the
undersigned has full power and authority to enter into this Lock-Up Letter
Agreement and that, upon request, the undersigned will execute any additional
documents necessary or desirable in connection with the enforcement hereof.
Any obligations of the undersigned shall be binding upon the successors and
assigns of the undersigned.
<PAGE> 62
G-4
This Lock-Up Letter Agreement has been entered into on the
date first written above.
Very truly yours,
----------------------------------------
Name of Stockholder/Officer/Director
By:
-------------------------------------
Name:
Title:
<PAGE> 1
================================================================================
BORG-WARNER AUTOMOTIVE, INC.
(a Delaware corporation)
900,000 Shares of Common Stock
INTERNATIONAL PURCHASE AGREEMENT
Dated: July __, 1996
================================================================================
<PAGE> 2
BORG-WARNER AUTOMOTIVE, INC.
(a Delaware corporation)
900,000 Shares of Common Stock
(Par Value $.01 Per Share)
INTERNATIONAL PURCHASE AGREEMENT
July __, 1996
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
As Representatives of the several International Underwriters
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC2 Y9LY
Ladies and Gentlemen:
The stockholders of Borg-Warner Automotive, Inc., a Delaware
corporation (the "Company"), named in Schedule A (collectively, the "Selling
Stockholders") propose to sell severally and not jointly to the underwriters
named in Schedule B (collectively, the "International Underwriters", which
shall also include any person substituted for an International Underwriter
under Section 11 hereof), for whom you are acting as representatives (the
"International Representatives"), an aggregate of 900,000 outstanding shares of
Common Stock of the Company, par value $.01 per share (shares of which class of
stock of the Company are hereinafter referred to as "Common Stock"). Such
shares of Common Stock are to be sold to each International Underwriter, acting
severally and not jointly, in such amounts as are set forth in Schedule B
hereto opposite the name of such International Underwriter. The Selling
Stockholders also grant to the International Underwriters, severally and not
jointly, the option described in Section 2 to purchase all or any part of
135,000 additional shares of Common Stock to cover over-allotments. The
aforesaid 900,000 shares of Common Stock (the "Initial International Shares"),
together with
<PAGE> 3
2
all or any part of the 135,000 additional shares of Common Stock subject to the
option described in Section 2 (the "International Option Shares"), are
collectively herein called the "International Shares". The International
Shares are more fully described in the International Prospectus referred to
below.
It is understood that the Company is concurrently entering
into an agreement, dated the date hereof (the "U.S. Purchase Agreement"),
providing for the sale by the Selling Stockholders of 3,600,000 shares of
Common Stock (the "Initial U.S. Shares") through arrangements with certain
underwriters within the United States and Canada (the "U.S. Underwriters"), for
whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers Inc.
and Morgan Stanley & Co. Incorporated are acting as representatives (the "U.S.
Representatives"). It is further understood that the Selling Stockholders are
concurrently granting the U.S. Underwriters an option to purchase all or any
part of 540,000 additional shares of Common Stock (the "U.S. Option Shares")
from the Selling Stockholders to cover over-allotments. The U.S. Shares and
the U.S. Option Shares are hereinafter collectively referred to as the "U.S.
Shares". The International Shares and the U.S. Shares are hereinafter
collectively referred to as the "Shares".
The Company understands that the International Underwriters
will simultaneously enter into an agreement with the U.S. Underwriters dated
the date hereof (the "Intersyndicate Agreement") providing for the coordination
of certain transactions among the International Underwriters and the U.S.
Underwriters, under the direction of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
You have advised us that you and the other International
Underwriters, acting severally and not jointly, desire to purchase the
International Shares and that you have been authorized by the other
International Underwriters to execute this Agreement and the International
Price Determination Agreement referred to below on their behalf.
The price to the public per share for the International Shares
and the purchase price per share for the International Shares shall be agreed
upon by the Selling Stockholders and the International Representatives, acting
on behalf of the several International Underwriters, and such agreement shall
be set forth in a separate written instrument substantially in the form of
Exhibit A hereto (the "International Price Determination Agreement"). The
International Price Determination Agreement may take the form of an exchange of
any standard form of written telecommunication between the Selling Stockholders
and the International Representatives and shall specify such applicable
information as is indicated in Exhibit A hereto. The offering of the
International Shares will be governed by this Agreement, as supplemented by the
International Price Determination Agreement. From and after the date of the
execution and delivery of the International Price Determination Agreement, this
Agreement shall be deemed to incorporate, and all reference
<PAGE> 4
3
herein to "this Agreement" shall be deemed to include, the International Price
Determination Agreement.
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-3
(Registration No. 333-06041) covering the registration of the Shares under the
Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectuses, and either (A) has prepared and proposes to file,
prior to the effective date of such registration statement, an amendment to
such registration statement, including final prospectuses, or (B) if the
Company has elected to rely upon Rule 430A ("Rule 430A") of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act Regulations"),
will prepare and file prospectuses, in accordance with the provisions of Rule
430A and Rule 424(b) ("Rule 424(b)") of the 1933 Act Regulations, promptly
after execution and delivery of the U.S. Price Determination Agreement. Two
forms of prospectus are to be used in connection with the offering and sale of
the Shares: one relating to the International Shares (the "Form of
International Prospectus") and one relating to the U.S. Shares (the "Form of
U.S. Prospectus"). The Form of U.S. Prospectus is identical to the Form of
International. Prospectus, except for the front cover page, inside front cover
page, the section captioned "Underwriting" and the back cover page.
Additionally, if the Company has elected to rely upon Rule 434 ("Rule 434") of
the 1933 Act Regulations, the Company will prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b),
promptly after execution and delivery of the International Price Determination
Agreement. The information, if any, included in such prospectuses that was
omitted from any prospectuses included in such registration statement at the
time it becomes effective but that is deemed, (i) pursuant to paragraph (b) of
Rule 430A, to be part of such registration statement at the time it becomes
effective is referred to herein as the "Rule 430A Information", and (ii)
pursuant to paragraph (d) of Rule 434, to be part of such registration
statement at the time it becomes effective is referred to herein as "Rule 434
Information". Each Form of International Prospectus and Form of U.S.
Prospectus used before the time such registration statement becomes effective,
and any Form of International Prospectus and Form of U.S. Prospectus that omits
the Rule 430A Information or the Rule 434 Information, if applicable, that is
used after such effectiveness and prior to the execution and delivery of the
International Price Determination Agreement or the U.S. Price Determination
Agreement, is herein called a "preliminary prospectus". Such registration
statement, including the exhibits thereto and the documents incorporated by
reference therein pursuant to Item 12 of Form S-3 under the 1933 Act ("Item
12"), as amended, and Rule 412 of the 1933 Act Regulations ("Rule 412") at the
time it becomes effective and including, if applicable, the Rule 430A
Information or the Rule 434 Information, is herein called the "Original
Registration Statement". Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement", and the Original Registration Statement and any Rule
462(b) Registration Statement are herein referred to collectively as the
"Registration Statement". The Form of International
<PAGE> 5
4
Prospectus and Form of U.S. Prospectus, including the documents incorporated by
reference therein pursuant to Item 12 and Rule 412, included in the Original
Registration Statement at the time it becomes effective, are herein called the
"International Prospectus" and the "U.S. Prospectus", respectively, and,
collectively, the "Prospectuses", and, individually, a "Prospectus", except
that, (i) if the final International Prospectus or U.S. Prospectus, as the case
may be, first furnished to the International Underwriters or the U.S.
Underwriters after the execution of the International Price Determination
Agreement or the U.S. Price Determination Agreement for use in connection with
the offering of the Shares differs from the prospectuses included in the
Original Registration Statement at the time it becomes effective (whether or
not such prospectus is required to be filed pursuant to Rule 424(b)), the terms
"International Prospectus", "U.S. Prospectus", "Prospectuses" and "Prospectus"
shall refer to the final International Prospectus or U.S. Prospectus first
furnished to the International Underwriters or the U.S. Underwriters, as the
case may be, for such use, and (ii) if Rule 434 is relied upon, the terms
"International Prospectus", "U.S. Prospectus", "Prospectuses" and "Prospectus"
shall refer to the preliminary International Prospectus or U.S. Prospectus last
furnished to the International Underwriters or the U.S. Underwriters, as the
case may be, in connection with the offering of the Shares, in each case
together with the Term Sheet.
The Company and the Selling Stockholders understand that the
International Underwriters propose to make a public offering of the
International Shares as soon as you deem advisable after the Registration
Statement becomes effective and the International Price Determination Agreement
has been executed and delivered.
Section 1. Representations and Warranties. (a) The Company
represents and warrants to and agrees with each of the International
Underwriters and each of the Selling Stockholders that:
(i) The Company meets the requirements for use of Form S-3
under the 1933 Act and when the Registration Statement or any
post-effective amendment thereto shall become effective and at all
times subsequent thereto up to the Closing Time referred to below
(and, if any International Option Shares are purchased, up to the Date
of Delivery referred to below), (A) the Registration Statement and the
Prospectuses, including any amendments and supplements thereto, will
comply in all material respects with the requirements of the 1933 Act
and the 1933 Act Regulations; (B) neither the Registration Statement
nor any amendment or supplement thereto will contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; (C) neither of the Prospectuses nor any amendment or
supplement thereto will include an 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; and (D) if Rule 434 is relied upon, the
Prospectuses
<PAGE> 6
5
shall not be "materially different", as such term is used in Rule 434,
from the prospectuses included in the Registration Statement at the
time it becomes effective; except that this representation and
warranty does not apply to statements or omissions made in reliance
upon and in conformity with information furnished in writing to the
Company by or on behalf of any International Underwriter or U.S.
Underwriter through you or the U.S. Representatives expressly for use
in the Registration Statement or the Prospectuses or any amendment or
supplement thereof.
(ii) The documents incorporated by reference in the
Prospectuses pursuant to Item 12 of Form S-3 under the 1933 Act, at
the time they were filed with the Commission, complied in all material
respects with the requirements of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations"), and, when read
together and with the other information in the Prospectus, at the time
the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Time (as hereinafter defined)
(and, if any Option Shares are purchased, up to the Date of Delivery
(as hereinafter defined)), will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading.
(iii) (A) Deloitte & Touche LLP, who have certified the
financial statements of the Company and the schedules included or
incorporated by reference in the Registration Statement and
Prospectuses, (B) KPMG Peat Marwick, who have certified the financial
statements of NSK-Warner K.K. ("NSK-Warner") included or incorporated
by reference in the Registration Statement and the Prospectuses and
(C) Arthur Andersen LLP, who have certified the financial statements
of Holley Automotive Inc, Holley Automotive Group, Ltd., Holley
Automotive Systems GmbH, Coltec Automotive Inc, and Performance
Friction Products, a division of Stemco Inc, an indirect, wholly-owned
subsidiary of Coltec Industries Inc. (collectively, the "Coltec
Subsidiaries"), included or incorporated by reference in the
Registration Statement and the Prospectuses, are independent public
accountants as required by the 1933 Act and the 1933 Act Regulations.
(iv) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this
Agreement; and this Agreement has been duly authorized, executed and
delivered by the Company.
(v) The consolidated financial statements and the related
notes of the Company, its Subsidiaries (as defined below) and the
Coltec Subsidiaries included or incorporated by reference in the
Registration Statement present fairly the consolidated financial
position of the Company, its Subsidiaries and the Coltec Subsidiaries
as of the dates indicated and the consolidated results of operations
and cash flows of the
<PAGE> 7
6
Company, its Subsidiaries and the Coltec Subsidiaries for the periods
specified. Such financial statements have been prepared in conformity
with generally accepted accounting principles applied on a consistent
basis throughout the periods involved (except as set forth in the
notes thereto) and subject, in the case of any interim statements, to
normal year-end audit adjustments. The financial statement schedules,
if any, included in the Registration Statement present fairly the
information required to be stated therein. The selected financial
data included or incorporated by reference in the Prospectuses present
fairly the information shown therein and have been compiled on a basis
consistent with that of the audited consolidated financial statements
included or incorporated by reference in the Registration Statement.
The pro forma financial information included in the Prospectuses
present fairly the information shown therein, has been prepared in
accordance with the applicable requirements of Rule 11-02 of
Regulation S-X, has been properly compiled on the pro forma bases
described therein, and, in the opinion of the Company, the assumptions
used in the preparation thereof are reasonable and the adjustments
used therein are appropriate to give effect to the transactions or
circumstances referred to therein.
(vi) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
with corporate power and authority under such laws to own, lease and
operate its properties and conduct its business as described in the
Prospectuses. The Company is duly qualified to transact business as a
foreign corporation and is in good standing in each other jurisdiction
in which it owns or leases property of a nature, or transacts business
of a type, that would make such qualification necessary, except to the
extent that the failure to so qualify or be in good standing would not
have a material adverse effect on the Company and the Subsidiaries,
considered as one enterprise.
(vii) The Company's only subsidiaries are set forth in
Exhibit B hereto (each such corporation is referred to herein as a
"Subsidiary" and, collectively, the "Subsidiaries"). Each Subsidiary
is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation with corporate
power and authority under such laws to own, lease and operate its
properties and conduct its business; and each Subsidiary is duly
qualified to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or leases
property of a nature, or transacts business of a type, that would make
such qualification necessary, except to the extent that the failure to
so qualify or be in good standing would not have a material adverse
effect on the Company and the Subsidiaries, considered as one
enterprise. All of the outstanding shares of capital stock of each
Subsidiary have been duly authorized and validly issued and are fully
paid and non-assessable and are owned by the Company, directly or
through one or more of the Subsidiaries, in the percentages set forth
in Exhibit B hereto, free and
<PAGE> 8
7
clear of any pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind.
(viii) The Company had at the date indicated a duly
authorized and outstanding capitalization as set forth in the
Prospectuses under the caption "Capitalization".
(ix) The Shares have been duly authorized and validly
issued and are fully paid and non-assessable; no holder thereof will
be subject to personal liability by reason of being such a holder; and
such Shares are not subject to the preemptive rights of any
stockholder of the Company.
(x) All of the other outstanding shares of capital stock of
the Company have been duly authorized and validly issued and are fully
paid and non-assessable; no holder thereof is or will be subject to
personal liability by reason of being such a holder; and none of the
outstanding shares of capital stock of the Company was issued in
violation of the preemptive rights of any stockholder of the Company.
(xi) Since the respective dates as of which information is
given in the Registration Statement and the Prospectuses, except as
described in the Registration Statement or any amendment or supplement
thereto, there has not been (A) any material adverse change in the
condition (financial or otherwise), results of operations, business
affairs or business prospects of the Company and the Subsidiaries,
considered as one enterprise, whether or not arising in the ordinary
course of business, (B) any transaction entered into by the Company or
any Subsidiary, other than in the ordinary course of business, that is
material to the Company and the Subsidiaries, considered as one
enterprise, or (C) any dividend or distribution of any kind declared,
paid or made by the Company on its capital stock, other than regular
quarterly cash dividends declared or paid on its Common Stock.
(xii) Neither the Company nor any of its Subsidiaries is in
violation of its certificate of incorporation or in default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any indenture, mortgage, loan agreement, note,
lease or other agreement or instrument to which it is a party or by
which it may be bound or to which any of its properties may be
subject, except for such defaults that would not have a material
adverse effect on the condition (financial or otherwise), results of
operations, business affairs or business prospects of the Company and
the Subsidiaries, considered as one enterprise. The execution and
delivery of this Agreement and the U.S. Purchase Agreement by the
Company, the consummation by the Company of the transactions
contemplated in this Agreement, the U.S. Purchase Agreement, and the
Registration Statement and compliance by the Company with the terms of
this Agreement and the U.S. Purchase Agreement have
<PAGE> 9
8
been duly authorized by all necessary corporate action on the part of
the Company and do not violate and will not result in any violation of
the certificate of incorporation or by-laws of the Company or any
Subsidiary, and do not and will not conflict with, or result in a
breach of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any
Subsidiary under (A) any indenture, mortgage, loan agreement, note,
lease or other agreement or instrument to which the Company or any
Subsidiary is a party or by which any of them may be bound or to which
any of their properties may be subject, except for such conflicts,
breaches or defaults or liens, charges or encumbrances that in the
aggregate would not have a material adverse effect on the condition
(financial or otherwise), results of operations, business affairs or
business prospects of the Company and the Subsidiaries, considered as
one enterprise or (B) any existing applicable law, rule, regulation,
judgment, order or decree of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction
over the Company or any Subsidiary or any of their respective
properties, except for such conflicts, breaches or defaults or liens,
charges or encumbrances that in the aggregate would not have a
material adverse effect on the condition (financial or otherwise),
results of operations, business affairs or business prospects of the
Company and the Subsidiaries, considered as one enterprise.
(xiii) No authorization, approval, consent or license of, or
any material filing with, any government, governmental instrumentality
or court, domestic or foreign (other than under the 1933 Act and the
1933 Act Regulations and the securities or Blue Sky laws of the
various states, the securities laws of Canada and its provinces and
the securities laws of any jurisdiction outside the United States in
which International Shares are offered or sold by the International
Underwriters pursuant to this Agreement), is legally required for the
valid authorization, issuance, sale and delivery of the Shares.
(xiv) Except as disclosed or incorporated by reference in
the Prospectuses, there is no action, suit or proceeding before or by
any government, governmental instrumentality or court, domestic or
foreign, now pending or, to the knowledge of the Company, threatened
against the Company or any Subsidiary that is required to be disclosed
in the Prospectuses or that could result in any material adverse
change in the condition (financial or otherwise), results of
operations, business affairs or business prospects of the Company and
its Subsidiaries, considered as one enterprise, or that could
reasonably be expected to adversely affect the consummation of the
transactions contemplated by this Agreement and the U.S. Purchase
Agreement.
(xv) There are no contracts or documents of a character
required pursuant to the 1933 Act to be described in the Registration
Statement or the Prospectuses or to
<PAGE> 10
9
be filed as exhibits to the Registration Statement that are not
described and filed as required.
(xvi) Each of the Company and the Subsidiaries has good and
marketable title to all properties and assets described in the
Prospectuses as owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except such as (A) are described in the
Prospectuses or (B) are neither material in amount nor materially
significant in relation to the business of the Company and the
Subsidiaries, considered as one enterprise; all of the leases and
subleases material to the business of the Company and the
Subsidiaries, considered as one enterprise, and under which the
Company or any Subsidiary holds properties described in the
Prospectuses, are in full force and effect, and neither the Company
nor any Subsidiary has any notice of any material claim of any sort
that has been asserted by anyone adverse to the rights of the Company
or any Subsidiary under any of the leases or subleases mentioned
above, or affecting or questioning the rights of such corporation to
the continued possession of the leased or subleased premises under any
such lease or sublease.
(xvii) The Company and the Subsidiaries each owns, possesses
or has obtained all material governmental licenses, permits,
certificates, consents, orders, approvals and other authorizations,
and has made all filings with all governmental authorities, necessary
to own or lease, as the case may be, and to operate its properties and
to carry on its business as presently conducted, and neither the
Company nor any Subsidiary has received any notice of proceedings
relating to revocation or modification of any such licenses, permits,
certificates, consents, orders, approvals or authorizations, which,
singly or in the aggregate, if not so owned, possessed or obtained or
the subject of an unfavorable ruling, decision or finding, could
materially adversely affect the condition (financial or otherwise),
results of operations, business affairs or business prospects of the
Company and the Subsidiaries, considered as one enterprise.
(xviii) The Company and the Subsidiaries each owns or
possesses, or can acquire on reasonable terms, adequate patents,
patent licenses, trademarks, service marks and trade names necessary
to carry on its business as presently conducted, and neither the
Company nor any Subsidiary has received any notice of infringement of
or conflict with asserted rights of others with respect to any
patents, patent licenses, trademarks, service marks or trade names
that in the aggregate, if the subject of an unfavorable decision,
ruling or finding, could reasonably be expected to materially
adversely affect the condition (financial or otherwise), results of
operations, business affairs or business prospects of the Company and
the Subsidiaries, considered as one enterprise.
<PAGE> 11
10
(xix) Except as disclosed in the Prospectuses, to the best
knowledge of the Company, no labor problem exists with its employees
or with employees of the Subsidiaries or is imminent that could
reasonably be expected to materially adversely affect the Company and
the Subsidiaries, considered as one enterprise and, to the knowledge
of the Company, except as disclosed in the Prospectuses, the Company
is not aware of any material existing or imminent labor dispute by the
employees of any of its or the Subsidiaries' principal customers that
could be expected to materially adversely affect the Company and the
Subsidiaries, considered as one enterprise.
(xx) The Company has not taken and will not take, directly
or indirectly, any action designed to, or that might be reasonably
expected to, cause or result in stabilization or manipulation of the
price of the Common Stock.
(xxi) Except as disclosed in the Registration Statement and
except as would not individually or in the aggregate have a material
adverse effect on the condition (financial or otherwise), results of
operations, business affairs or business prospects of the Company and
the Subsidiaries, considered as one enterprise, (A) the Company and
the Subsidiaries are each in compliance with all applicable
Environmental Laws, (B) the Company and the Subsidiaries have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements,
(C) there are no pending or threatened Environmental Claims against
the Company or any Subsidiary, and (D) there are no circumstances with
respect to any property or operations of the Company or the
Subsidiaries that could reasonably be anticipated to form the basis of
an Environmental Claim against the Company or the Subsidiaries.
For purposes of this Agreement, the following terms shall have
the following meanings: "Environmental Law" means any United States
(or other applicable jurisdiction's) federal, state, local or
municipal statute, law, rule, regulation, ordinance, code, policy or
rule of common law and any judicial or administrative interpretation
thereof including any judicial or administrative order, consent decree
or judgment, relating to the environment, health, safety or any
chemical, material or substance, exposure to which is prohibited,
limited or regulated by any governmental authority. "Environmental
Claims" means any and all administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or proceedings relating in
any way to any Environmental Law.
(xxii) All United States federal income tax returns of the
Company (and any of the Subsidiaries, if not included in the Company's
U.S. consolidated federal income tax return) required by law to be
filed have been properly prepared and filed, and all taxes shown on
such returns or otherwise assessed which are due and payable
<PAGE> 12
11
have been paid. All of the Company's United States federal tax
returns (and any of the Subsidiaries' tax returns, if applicable) for
taxable periods through and including the 1990 federal taxable year
have been audited by the Internal Revenue Service or the statute of
limitations for such taxable years has run and thus, all taxes for
such periods have been finally determined (excluding the effect of any
net operating loss or credit carryovers to such periods). All other
tax returns of the Company and the Subsidiaries required to be filed
pursuant to applicable foreign, state, local or other law have been
filed, except insofar as the failure to file such returns would not
have a material adverse effect on the condition (financial or
otherwise), earnings, business affairs or business prospects of the
Company and the Subsidiaries, considered as one enterprise. The
Company and the Subsidiaries have paid (or there has been paid on
their behalf) all taxes which are due and for which no tax return is
required. There are no liens on any of the Company's or the
Subsidiaries' assets for taxes, other than for taxes which have
accrued but which are not yet due and payable. Neither the Company
nor any Subsidiary is liable for any taxes that are imposed on any
other person or corporation (other than for taxes imposed on the
Company or the Subsidiaries), except as set forth in Treasury
Regulation 1.1502-6 with respect to prior consolidated groups of which
the Company or its subsidiaries were members.
(xxiii) With respect to each employee benefit plan, program
and arrangement (including, without limitation, any "employee benefit
plan" as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) maintained or contributed
to by the Company or any Subsidiary, or with respect to which the
Company or any Subsidiary could incur any liability under ERISA
(collectively, the "Benefit Plans"), no event has occurred and, to the
best knowledge of the Company, there exists no condition or set of
circumstances, in connection with which the Company or any Subsidiary
could be subject to any liability under the terms of such Benefit
Plans, applicable law (including, without limitation, ERISA and the
Internal Revenue Code of 1986, as amended (the "Code")) or any
applicable agreement (including, without limitation, the agreement
dated as of January 14, 1993 (the "PBGC Agreement"), among the Pension
Benefit Guaranty Corporation (the "PBGC"), the Company and Borg-Warner
Security Corporation ("BWSC")), that could materially adversely affect
the condition (financial or otherwise), results of operations,
business affairs or business prospects of the Company and the
Subsidiaries, considered as one enterprise. The Company is in
compliance in all respects with its obligations under the PBGC
Agreement.
(xxiv) The Company has obtained the written agreement, in
the form previously furnished to you, of (A) each holder of at least
1% of the outstanding shares of Common Stock who is a party to the
Registration Rights Agreement dated as of January 27, 1993 among the
Company and the Stockholders who are parties thereto (the
"Registration Rights Agreement") that for a period beginning seven
days
<PAGE> 13
12
before, and ending 180 days after, the effective date of the
Registration Statement, not to effect any public sale or distribution,
including any sale pursuant to Rule 144 under the 1933 Act, of Common
Stock or any securities convertible into or exchangeable for Common
Stock, or any rights or warrants to acquire Common Stock and (B)
executive officers and directors of the Company that for a period
beginning seven days before, and ending 180 days after, the effective
date of the Registration Statement, such holders will not, without
your prior written consent, directly or indirectly, sell, offer to
sell, grant any option for the sale of, or otherwise dispose of, any
Common Stock or securities convertible into or exchangeable or
exercisable for Common Stock.
(xxv) There are no persons, corporations, partnerships or
other entities with registration or other similar rights to have any
securities registered pursuant to the Registration Statement, except
as disclosed in the Prospectuses.
(xxvi) The Shares have been approved for listing on the New
York Stock Exchange, Inc.
(b) Each of the Selling Stockholders severally
represents and warrants to and agrees with each of the International
Underwriters as follows:
(i) When the Registration Statement or any
post-effective amendment thereto shall become effective, and at all
times subsequent thereto up to the Closing Time (and, if any
International Option Shares are purchased, at the Date of Delivery),
(A) neither the Registration Statement nor any amendment or supplement
thereto will contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and (B) neither of the
Prospectuses nor any amendment or supplement thereto will include an
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, as to each Selling Stockholder, the representations and
warranties in this subsection (b)(i) apply only to statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of such Selling
Stockholder, in its capacity as such, expressly for use in the
Registration Statement or the Prospectuses.
(ii) No authorization, approval, consent or license of,
or any material filing with, any government, governmental
instrumentality or court, domestic or foreign (other than under the
1933 Act and the 1933 Act Regulations and the securities or Blue Sky
laws of the various states, the securities laws of Canada and its
provinces and the securities laws of any jurisdiction outside the
United States in which
<PAGE> 14
13
the International Shares are offered and sold by the International
Underwriters pursuant to this Agreement), is required for the
consummation by such Selling Stockholder of the transactions
contemplated in this Agreement or the U.S. Purchase Agreement,
including, without limitation, the sale and delivery of the Shares.
(iv) The execution and delivery of this Agreement and the
U.S. Purchase Agreement and the consummation of the transactions
contemplated in this Agreement and the U.S. Purchase Agreement will
not result in (a) a breach by such Selling Stockholder of, or
constitute a default by such Selling Stockholder under, any agreement
or instrument or any decree, judgment or order to which such Selling
Stockholder is a party or by which such Selling Stockholder is bound
or the properties of such Selling Stockholder are subject or (b)
violate (1) any provision of the certificate of incorporation, by-law,
partnership agreement or comparable governing documents of such
Selling Stockholder or any law, rule or regulation applicable to such
Selling Stockholder or (2) to which its properties are subject (other
than for the securities or Blue Sky laws of the various states, the
securities laws of Canada and its provinces and the securities laws of
any jurisdiction outside the United States in which the International
Shares are offered or sold by the International Underwriters pursuant
to this Agreement).
(v) Such Selling Stockholder has good and marketable
title to the Shares to be sold by such Selling Stockholder pursuant to
this Agreement and the U.S. Purchase Agreement, free and clear of any
pledge, lien, security interest, charge, claim, equity or encumbrance
of any kind, other than pursuant to this Agreement, the U.S. Purchase
Agreement, the Registration Rights Agreement, the Management
Stockholders Agreement, dated January 27, 1993, the Investors
Stockholders Agreement, dated January 27, 1993, the Management Stock
Subscription Agreement, dated as of July 27, 1987, as amended as of
January 1, 1989 and as of January 27, 1993, and the Replacement Stock
Pledge Agreement, dated as of February 1, 1993; and such Selling
Stockholder will at the Closing Time and, if any Option Shares are to
be purchased on the Date of Delivery, have good and marketable title
to the Shares to be sold by such Selling Stockholder pursuant to this
Agreement and the U.S. Purchase Agreement, free and clear of any
pledge, lien, security interest, charge, claim, equity or encumbrance
of any kind; such Selling Stockholder has full right, power and
authority to sell, transfer and deliver such Shares pursuant to this
Agreement or the U.S. Purchase Agreement; and, upon delivery of such
Shares and payment of the purchase price therefor as contemplated in
this Agreement and the U.S. Purchase Agreement, each of the
International Underwriters and the U.S. Underwriters, as the case may
be, will receive good and marketable title to the Shares purchased by
it from such Selling Stockholder, free and clear of any pledge, lien,
security interest, charge, claim, equity or encumbrance of any kind.
<PAGE> 15
14
(vi) Certificates for all of the shares of Common Stock,
or with respect to Selling Stockholders that own shares of the
Company's Non-Voting Common Stock, par value $.01 per share, (the
"Non-Voting Stock"), certificates for all of the Shares of Non-Voting
Stock (accompanied by a written notice requesting conversion of such
shares, which notice shall comply with Section 2(4)(iii) of the
Company's Restated Certificate of Incorporation), to be sold by such
Selling Stockholder pursuant to this Agreement and the U.S. Purchase
Agreement, in suitable form for transfer by delivery or accompanied by
duly executed instruments of transfer or assignment executed in blank,
are available for delivery pursuant to this Agreement and the U.S.
Purchase Agreement.
(vii) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to, or that might be
reasonably expected to, cause or result in stabilization or
manipulation of the price of the Common Stock; and such Selling
Stockholder has not distributed and will not distribute any prospectus
or other offering material in connection with the offering and sale of
the Shares other than any preliminary prospectus filed with the
Commission or the Prospectuses or other material permitted by the 1933
Act or the 1933 Act Regulations.
(viii) Such Selling Stockholder, if such Selling
Stockholder is not a natural person, is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization, as the case may be, with all necessary
power and authority to enter into and perform each of this Agreement
and the U.S. Purchase Agreement and to sell and deliver the Shares to
the International Underwriters and the U.S. Underwriters, as the case
may be, in accordance with each of this Agreement and the U.S.
Purchase Agreement.
(c) Any certificate signed by any officer of the Company
or any Subsidiary and delivered to you or to counsel for the International
Underwriters shall be deemed a representation and warranty by the Company to
each International Underwriter as to the matters covered thereby; and any
certificate signed by or on behalf of the Selling Stockholders as such and
delivered to you or to counsel for the International Underwriters shall be
deemed a representation and warranty by the Selling Stockholders to each
International Underwriter as to the matters covered thereby.
Section 2. Sale and Delivery to the U.S. Underwriters;
Closing. (a) On the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set forth, each
Selling Stockholder agrees, severally and not jointly, to sell to each
International Underwriter the number of Initial International Shares set forth
opposite the name of such Selling Stockholder on Schedule A, and each
International Underwriter agrees, severally and not jointly, to purchase from
each Selling Stockholder, at the purchase price per share for the Initial
International Shares to be agreed upon by the U.S.
<PAGE> 16
15
Representatives and the Selling Stockholders, in accordance with Section 2(b)
or 2(c) hereof, and set forth in the International Price Determination
Agreement, the number of Initial International Shares that bears the same
relation to 900,000 as the number of Initial International Shares set forth
opposite the name of such International Underwriter in Schedule B bears to the
total number of Initial International Shares (such proportion is hereinafter
referred to as such International Underwriter's "underwriting obligation
proportion"), subject to such adjustments as you in your discretion, shall make
to eliminate any sales or purchases of fractional shares. If the Company
elects to rely on Rule 430A, Schedules A and B may be attached to the
International Price Determination Agreement.
(b) If the Company has elected not to rely upon Rule
430A, the price to the public per share for the Initial International Shares
and the purchase price per share for the Initial International Shares to be
paid by the several International Underwriters shall be agreed upon and set
forth in the International Price Determination Agreement, dated the date
hereof, and an amendment to the Original Registration Statement containing such
per share price information will be filed before the Original Registration
Statement becomes effective.
(c) If the Company has elected to rely upon Rule 430A,
the price to the public per share for the Initial International Shares and the
purchase price per share for the Initial International Shares to be paid by the
several International Underwriters shall be agreed upon and set forth in the
International Price Determination Agreement. In the event that the
International Price Determination Agreement has not been executed by the close
of business on the fourteenth business day following the later of the date on
which the Original Registration Statement and any Rule 462(b) Registration
Statement becomes effective, this Agreement shall terminate forthwith, without
liability of any party to any other party except that Sections 7, 8 and 9 shall
remain in effect.
(d) In addition, on the basis of the representations and
warranties herein contained, and subject to the terms and conditions herein set
forth, the Selling Stockholders hereby grant an option to the International
Underwriters, severally and not jointly, to purchase up to an aggregate of
135,000 additional International Option Shares, as set forth opposite such
Selling Stockholder's name on Schedule A, at the same purchase price per share
as shall be applicable to the Initial International Shares. The option hereby
granted will expire 30 days after the later of the date upon which the Original
Registration Statement and any Rule 462(b) Registration Statement becomes
effective or, if the Company has elected to rely upon Rule 430A, the date of
the International Price Determination Agreement, and may be exercised, in whole
or in part (but not more than once), only for the purpose of covering
over-allotments that may be made in connection with the offering and
distribution of the Initial International Shares upon notice by the
International Representatives to the Selling Stockholders setting forth the
aggregate number of International Option Shares as to which the several
International Underwriters are exercising the option, and the time and date of
payment and delivery thereof. Such time and date of delivery (the "Date of
Delivery") shall
<PAGE> 17
16
be determined by the International Representatives but shall not be later than
seven full business days after the exercise of such option, nor in any event
prior to the Closing Time. If the option is exercised as to only a portion of
the International Option Shares, the Selling Stockholders will sell their pro
rata portion of the International Option Shares to be purchased by the
International Underwriters. If the option is exercised as to all or any
portion of the International Option Shares, the International Option Shares as
to which the option is exercised shall be purchased by the International
Underwriters, severally and not jointly, in their respective underwriting
obligation proportions except as otherwise provided in the International Price
Determination Agreement, subject to such adjustments as the International
Underwriters, in their discretion, shall make to eliminate any sales or
purchases of fractional shares.
(e) Payment of the purchase price for, and delivery of
certificates for, the Initial International Shares shall be made at the offices
of Shearman & Sterling, 599 Lexington Avenue or 153 East 53rd Street, New York,
New York 10022, or at such other place as shall be agreed upon by the Company,
the Selling Stockholders and you, at 10:00 A.M. either (i) on the third full
business day after the later of the effective date of the Original Registration
Statement and any Rule 462(b) Registration Statement (or, if pricing of the
Shares occurs after 4:30 P.M. Eastern time, on the fourth full business day
thereafter), or (ii) if the Company has elected to rely upon Rule 430A, on the
third full business day after execution of the International Price
Determination Agreement (or, if pricing of the Shares occurs after 4:30 P.M.
Eastern time, on the fourth full business day thereafter) (unless, in either
case, postponed pursuant to Section 11 or 12), or at such other time not more
than ten full business days thereafter as you, the Selling Stockholders and the
Company shall determine (such date and time of payment and delivery being
herein called the "Closing Time"). In addition, in the event that any or all
of the International Option Shares are purchased by the International
Underwriters, payment of the purchase price for, and delivery of certificates
for, such International Option Shares shall be made at the offices of Shearman
& Sterling, 599 Lexington Avenue or 153 East 53rd Street, New York, New York
10022, or at such other place as the Company, the Selling Stockholders and you
shall determine, on the Date of Delivery as specified in the notice from you to
the Company. Payment shall be made to the Selling Stockholders by wire
transfer in immediately available funds against delivery to you for the
respective accounts of the several International Underwriters of certificates
for the International Shares to be purchased by them.
(f) Certificates for the Initial International Shares
and International Option Shares to be purchased by the International
Underwriters shall be in such denominations and registered in such names as you
may request in writing at least two full business days before the Closing Time
or the Date of Delivery, as the case may be. The certificates for the Initial
International Shares and International Option Shares will be made available in
New York City for examination and packaging by you not later than 10:00 A.M. on
the business day prior to the Closing Time or the Date of Delivery, as the case
may be.
<PAGE> 18
17
(g) It is understood that each International Underwriter
has authorized you, for its account, to accept delivery of, receipt for, and
make payment of the purchase price for, the International Shares that it has
agreed to purchase. You, individually and not as International
Representatives, may (but shall not be obligated to) make payment of the
purchase price for the Initial International Shares, or International Option
Shares, to be purchased by any International Underwriter whose check or checks
shall not have been received by the Closing Time or the Date of Delivery, as
the case may be.
Section 3. Certain Covenants of the Company. The Company
covenants with each International Underwriter as follows:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective and, if the Company elects
to rely upon Rule 430A and subject to Section 3(b) hereof, will comply
with the requirements of Rule 430A and will notify the International
Representatives immediately (i) when the Registration Statement, or
any post-effective amendment to the Registration Statement, shall have
become effective, or any supplement to the Prospectuses or any amended
Prospectuses shall have been filed, (ii) of the receipt of any
comments from the Commission, (iii) of any request by the Commission
to amend the Registration Statement or amend or supplement any
Prospectus or for additional information and (iv) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the
use of any preliminary prospectus, or of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction,
or of the institution or threatening of any proceedings for any of
such purposes. The Company will use every reasonable effort to
prevent the issuance of any such stop order or of any order preventing
or suspending such use and, if any such order is issued, to obtain the
lifting thereof at the earliest possible moment.
(b) The Company will not at any time file or make any
amendment to the Registration Statement, (including any filing under
Rule 462(b)), file a Term Sheet or file or make any amendment or
supplement (i) if the Company has not elected to rely upon Rule
430(A), to the Prospectuses (including amendments of the documents
incorporated by reference into the Prospectuses) or (ii) if the
Company has elected to rely upon Rule 430A, to either the prospectuses
included in the Original Registration Statement at the time it becomes
effective or to the Prospectuses (including amendments of the
documents incorporated by reference into the Prospectuses or to the
Prospectuses pursuant to Item 12 and Rule 412), of which you shall not
have previously been advised and furnished a copy, or to which you or
counsel for the International Underwriters shall reasonably object in
writing.
(c) The Company has furnished or will furnish to you and
counsel for the International Underwriters, without charge, as many
signed copies of the Registration
<PAGE> 19
18
Statement as originally filed and of all amendments thereto, whether
filed before or after the Registration Statement becomes effective,
copies of all exhibits and documents filed therewith (including
documents incorporated by reference into the Prospectuses pursuant to
Item 12 and Rule 412) and signed copies of all consents and
certificates of experts, as you may reasonably request and has
furnished or will furnish to you, for each other International
Underwriter, one conformed copy of the Registration Statement as
originally filed and of each amendment thereto (including documents
incorporated by reference into the Prospectus but without exhibits).
(d) The Company will deliver to each International
Underwriter, without charge, from time to time until the later of the
effective date of the Original Registration Statement and any Rule
462(b) Registration Statement (or, if the Company has elected to rely
upon Rule 430A, until the time the International Price Determination
Agreement is executed and delivered), as many copies of each
preliminary prospectus as such International Underwriter may
reasonably request, and the Company hereby consents to the use of such
copies for purposes permitted by the 1933 Act. The Company will
deliver to each International Underwriter, without charge, as soon as
the Registration Statement shall have become effective (or, if the
Company has elected to rely upon Rule 430A, as soon as practicable
after the International Price Determination Agreement has been
executed and delivered) and thereafter from time to time as requested
during the period when the Prospectus is required to be delivered
under the 1933 Act, such number of copies of the Prospectuses (as
supplemented or amended) as such International Underwriter may
reasonably request.
(e) The Company will comply in all material respects
with the 1933 Act and the 1933 Act Regulations and the 1934 Act and
the 1934 Act Regulations so as to permit the completion of the
distribution of the Shares as contemplated in this Agreement and in
the Prospectuses. If at any time when a prospectus is required by the
1933 Act or the 1933 Act Regulations to be delivered in connection
with sales of the Shares any event shall occur or condition exist as a
result of which it is necessary, in the opinion of counsel for the
International Underwriters or counsel for the Company, to amend the
Registration Statement or amend or supplement any Prospectus in order
that the Prospectuses will not include an untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or
if it shall be necessary, in the opinion of either such counsel, at
any such time to amend the Registration Statement or amend or
supplement any Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly
upon becoming aware of such event or condition prepare and file with
the Commission, subject to Section 3(b) hereof, such amendment or
supplement as may be necessary to correct such untrue
<PAGE> 20
19
statement or omission or to make the Registration Statement or the
Prospectuses comply with such requirements.
(f) The Company will use its best efforts, in
cooperation with the International Underwriters, to qualify the Shares
for offering and sale under the applicable securities laws of such
states and other jurisdictions as you may designate and to maintain
such qualifications in effect for a period of not less than one year
from the later of the effective date of the Original Registration
Statement and any Rule 462(b) Registration Statement; provided,
however, that the Company shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation
or as a dealer in securities in any jurisdiction in which it is not so
qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject.
The Company will file such statements and reports as may be required
by the laws of each jurisdiction in which the Shares have been
qualified as above provided.
(g) The Company will make generally available to its
security holders as soon as practicable, but not later than 90 days
after the close of the period covered thereby, an earnings statement
of the Company (in form complying with the provisions of Rule 158 of
the 1933 Act Regulations), covering a period of 12 months beginning
after the later of the effective date of the Original Registration
Statement and any Rule 462(b) Registration Statement and covering a
period of 12 months beginning after the effective date of any
post-effective amendment to the Registration Statement but not later
than the first day of the Company's fiscal quarter next following such
respective effective dates.
(h) The Company, during the period when the Prospectuses
are required to be delivered under the 1933 Act, will file promptly
all documents required to be filed with the Commission pursuant to
Section 13 or 14 of the 1934 Act subsequent to the time the
Registration Statement becomes effective.
(i) For a period of two years after the Closing Time,
the Company will furnish to you and, upon request, to each
International Underwriter, copies of all annual reports, quarterly
reports and current reports filed with the Commission on Forms 10-K,
10-Q and 8-K, or such other similar forms as may be designated by the
Commission, and such other documents, reports and information as shall
be furnished by the Company to its stockholders generally.
(j) For a period of 180 days from the date hereof, the
Company will not, without your prior written consent, directly or
indirectly, sell, offer to sell, grant any option for the sale of, or
otherwise dispose of, any Common Stock or securities convertible into
Common Stock, other than to the International Underwriters pursuant
<PAGE> 21
20
to this Agreement and the U.S. Underwriters pursuant to the U.S.
Purchase Agreement (except for options to purchase shares of Common
Stock granted to the Company's officers, directors or employees in the
ordinary course of business, consistent with past practice, or the
exercise of such options and similar options currently outstanding).
(k) If the Company has elected to rely upon Rule 430A,
it will take such steps as it deems necessary to ascertain promptly
whether the form of prospectus transmitted for filing under Rule
424(b) was received for filing by the Commission and, in the event
that it was not, it will promptly file such prospectus.
(l) If the Company has elected to rely on Rule 434, it
will comply with the requirements of Rule 434, and the Prospectuses
will not be "materially different," as such term is used in Rule 434,
from the prospectus included in the Registration Statement at the time
it becomes effective.
(m) If the Company elects to rely upon Rule 462(b), the
Company shall both file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) and pay the applicable fees
in accordance with Rule 111 of the 1933 Act Regulations by the earlier
of (i) 10:00 P.M. Eastern time on the date of theInternational Price
Determination Agreement and (ii) the time confirmations are sent or
given, as specified by Rule 462(b).
(n) If applicable, the Company has complied and will
comply with all the provisions of Florida H.B. 1771, codified as
Section 517.075 of the Florida statutes, and all regulations
promulgated thereunder relating to issuers doing business in Cuba.
Section 4. Payment of Expenses. The Company will pay and
bear all costs and expenses incident to the performance of the obligations of
the Company and of the Selling Stockholders under this Agreement, including (a)
the preparation, printing and filing of the Registration Statement (including
financial statements and exhibits), as originally filed and as amended, the
preliminary prospectuses and the Prospectuses and any amendments or supplements
thereto, and the cost of furnishing copies thereof to the International
Underwriters, (b) the preparation, printing and distribution of this Agreement
(except for the International Price Determination Agreement), the
Intersyndicate Agreement among the International Underwriters and U.S.
Underwriters, the Agreement Among International Underwriters and the Blue Sky
Survey (which shall not be typeset), (c) the delivery of the certificates for
the International Shares to the International Underwriters (except for any
stock transfer taxes payable upon the sale of the International Shares to the
International Underwriters, which shall be paid by the Selling Stockholders),
(d) the fees and disbursements of the Company's counsel and accountants and the
Selling Stockholders' counsel, (e) the qualification of the International
Shares under the applicable securities laws
<PAGE> 22
21
in accordance with Section 3(f) and any filing for review of the offering with
the NASD, including filing fees and reasonable fees and disbursements of
Shearman & Sterling as counsel for the International Underwriters in connection
therewith, and in connection with the Blue Sky Survey and (f) the listing fees
and expenses incurred in connection with listing the Shares on the New York
Stock Exchange.
If this Agreement is terminated by you in accordance with the
provisions of Section 5, 10(a)(i) or 12, the Company shall reimburse the
International Underwriters for all their out-of-pocket expenses, including the
reasonable fees and disbursements of Shearman & Sterling as counsel for the
International Underwriters.
Section 5. Conditions of International Underwriters'
Obligations. In addition to the execution and delivery of the International
Price Determination Agreement, the obligations of the several International
Underwriters to purchase and pay for the International Shares that they have
respectively agreed to purchase pursuant to this Agreement (including any
International Option Shares as to which the option granted in Section 2 has
been exercised and the Date of Delivery determined by you is the same as the
Closing Time) are subject to the accuracy of the representations and warranties
of the Company and the Selling Stockholders contained herein (including those
contained in the International Price Determination Agreement) or in
certificates of any officer of the Company or any Subsidiary or certificates by
or on behalf of the Selling Stockholders delivered pursuant to the provisions
hereof, to the performance by the Company and the Selling Stockholders of their
obligations hereunder, and to the following further conditions:
(a) The Original Registration Statement shall have
become effective not later than 5:30 P.M. on the date of this
Agreement or, with your consent, at a later time and date not later,
however, than 5:30 P.M. on the first business day following the date
hereof and if the Company has elected to rely upon Rule 462(b), the
Rule 462(b) Registration Statement shall have become effective not
later than the earlier of (i) 9:00 A.M. Eastern time on the day
following the date of the International Price Determination Agreement,
and (ii) the time confirmations are sent or given, as specified by
Rule 462(b), or, with respect to the Original Registration Statement,
at such later time or on such later date as you may agree to in
writing with the approval of a majority in interest of the several
International Underwriters; and at the Closing Time no stop order
suspending the effectiveness of the Registration Statement shall have
been issued under the 1933 Act and no proceedings for that purpose
shall have been instituted or shall be pending or, to your knowledge
or the knowledge of the Company, shall be contemplated by the
Commission, and any request made to the Company on the part of the
Commission for additional information with respect to the Registration
Statement shall have been complied with to the satisfaction of
Shearman & Sterling as counsel for the International Underwriters. If
the Company has elected to rely upon Rule 430A, prospectuses
containing the Rule 430A
<PAGE> 23
22
Information shall have been filed with the Commission in accordance
with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance
with the requirements of Rule 430A). If the Company has elected to
rely upon Rule 434, a Term Sheet, which together with the preliminary
prospectus last furnished to the International Underwriters in
connection with the offering of the Shares shall not be "materially
different," as such term is used in Rule 434, from the prospectus
included in the Original Registration Statement at the time it becomes
effective, shall have been filed with the Commission in accordance
with Rule 424(b).
(b) At the Closing Time, you shall have received a
signed opinion of Wachtell, Lipton, Rosen & Katz, special counsel for
the Company, dated as of the Closing Time, together with signed or
reproduced copies of such opinion for each of the other International
Underwriters, in form and substance reasonably satisfactory to counsel
for the International Underwriters, in the form set forth in Exhibit C
hereto.
(c) At the Closing Time, you shall have received a
signed opinion of Laurene H. Horiszny, Esq., Vice President, Secretary
and General Counsel for the Company, dated as of the Closing Time,
together with signed or reproduced copies of such opinion for each of
the other International Underwriters, in form and substance reasonably
satisfactory to counsel for the International Underwriters, in the
form set forth in Exhibit D hereto.
(d) At the Closing Time, you shall have received a
signed opinion of NSK-Warner's Japanese counsel, dated as of the
Closing Time, together with signed or reproduced copies of such
opinion for each of the other International Underwriters, in form and
substance reasonably satisfactory to counsel for the International
Underwriters, in the form set forth in Exhibit E hereto.
(e) At the Closing Time you shall have received a signed
opinion of the attorneys listed on Schedule C attached hereto for the
Selling Stockholders specified opposite such attorney's name, each
dated as of the Closing Time, together with signed or reproduced
copies of such opinion for each of the other International
Underwriters, in form and substance reasonably satisfactory to counsel
for the International Underwriters, each, with respect to the Selling
Stockholders that such counsel represents, in the form set forth in
Exhibit F hereto.
(f) At the Closing Time, you shall have received the
favorable opinion of Shearman & Sterling, counsel for the
International Underwriters, dated as of the Closing Time, together
with signed or reproduced copies of such opinion for each of the other
International Underwriters, to the effect that the opinions delivered
pursuant to Sections 5(b), 5(c), 5(d) and 5(e) hereof appear on their
face to be appropriately
<PAGE> 24
23
responsive to the requirements of this Agreement except, specifying
the same, to the extent waived by you, and with respect to the
incorporation and legal existence of the Company, this Agreement, the
Registration Statement, the Prospectuses and such other related
matters as you may require. In giving such opinion such counsel may
rely, as to all matters governed by the laws of jurisdictions other
than the law of the State of New York, the federal law of the United
States and the General Corporation Law of the State of Delaware, upon
the opinions of counsel satisfactory to you. Such counsel may also
state that, insofar as such opinion involves factual matters, they
have relied, to the extent they deem proper, upon certificates of
officers of the Company and the Subsidiaries and the Selling
Stockholders and certificates of public officials.
(g) At the Closing Time, (i) the Registration Statement
and the Prospectuses, as they may then be amended or supplemented,
shall comply in all material respects with the requirements of the
1933 Act and the 1933 Act Regulations, the Company shall have complied
in all material respects with Rule 430A (if it shall have elected to
rely thereon) and Rule 434 (if it shall have elected to rely thereon)
and neither the Registration Statement nor the Prospectuses, as they
may then be amended or supplemented, shall contain an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, (ii) there shall not have been, since the respective dates
as of which information is given in the Registration Statement, any
material adverse change in the condition (financial or otherwise),
results of operations, business affairs or business prospects of the
Company and the Subsidiaries, considered as one enterprise, whether or
not arising in the ordinary course of business, (iii) no action, suit
or proceeding at law or in equity shall be pending or, to the
knowledge of the Company, threatened against the Company or any
Subsidiary that would be required to be set forth in the Prospectuses
other than as set forth therein and no proceedings shall be pending
or, to the knowledge of the Company, threatened against the Company or
any Subsidiary before or by any federal, state or other commission,
board or administrative agency wherein an unfavorable decision, ruling
or finding could materially adversely affect the condition (financial
or otherwise), results of operations, business affairs or business
prospects of the Company and the Subsidiaries, considered as one
enterprise, other than as set forth in the Prospectuses, (iv) the
Company shall have complied with all agreements and satisfied all
conditions set forth in this Agreement on its part to be performed or
satisfied at or prior to the Closing Time and (v) the other
representations and warranties of the Company set forth in Section
1(a) shall be accurate as though expressly made at and as of the
Closing Time. At the Closing Time, you shall have received a
certificate of the President or a Vice President, and the Treasurer or
an Assistant Treasurer, of the Company, dated as of the Closing Time,
to such effect.
<PAGE> 25
24
(h) At the Closing Time, the representations and
warranties of each Selling Stockholder set forth in Section 1(b) shall
be accurate as though expressly made at and as of the Closing Time.
At the Closing Time, you shall have received a certificate of or on
behalf of each Selling Stockholder, dated as of the Closing Time, to
such effect with respect to such Selling Stockholder.
(i) At the time that this Agreement is executed by the
Company, you shall have received from Deloitte & Touche LLP a letter,
dated such date, in form and substance satisfactory to you, together
with signed or reproduced copies of such letter for each of the other
International Underwriters, confirming that they are independent
public accountants with respect to the Company within the meaning of
the 1933 Act and the applicable published 1933 Act Regulations, and
stating in effect that:
(i) in their opinion, the audited financial
statements and the related financial statement schedules
included or incorporated by reference in the Registration
Statement and the Prospectuses comply as to form in all
material respects with the applicable accounting requirements
of the 1933 Act and the 1933 Act Regulations;
(ii) on the basis of procedures (but not an
examination in accordance with generally accepted auditing
standards) consisting of a reading of the unaudited interim
consolidated financial statements of the Company included or
incorporated by reference in the Registration Statement and
the Prospectuses (collectively, the "10-Q Financials"), a
reading of the latest available unaudited interim consolidated
financial statements of the Company, a reading of the minutes
of all meetings of the stockholders and directors of the
Company and the Subsidiaries and each Committee of the
Company's Board of Directors and of each Committee of the
Board of Directors of any Subsidiary since January 1, 1996,
inquiries of certain officials of the Company and the
Subsidiaries responsible for financial and accounting matters,
and such other inquiries and procedures as may be specified in
such letter, nothing came to their attention that caused them
to believe that:
(A) the 10-Q Financials incorporated by
reference in the Registration Statement and the
Prospectuses do not comply as to form in all
material respects with the accounting requirements
of the 1934 Act and the 1934 Act Regulations
applicable to unaudited financial statements
included in Form 10-Q or any material modifications
should be made to the 10-Q Financials included or
incorporated by reference in the Registration
Statement and the Prospectuses for them to be in
conformity with generally accepted accounting
principles;
<PAGE> 26
25
(B) at May 31, 1996 and at a specified
date not more than five days prior to the date of
this Agreement, there was any change in the common
stock of the Company and the Subsidiaries or any
decrease in the consolidated net current assets or
stockholders' equity of the Company and the
Subsidiaries or any increase in long-term debt of
the Company and the Subsidiaries, in each case as
compared with amounts shown in the latest
consolidated balance sheet included in the
Registration Statement, except in each case for
changes, decreases or increases that the
Registration Statement discloses have occurred or
may occur; or
(C) for the period from April 1, 1996 to
May 31, 1996 and for the period from April 1, 1996
to a specified date not more than five days prior to
the date of this Agreement, there was any decrease
in net sales, equity in affiliate earnings and other
income, earnings before interest and finance charges
and income taxes or net earnings, in each case as
compared with the comparable period in the preceding
year;
(iii) based upon the procedures set forth in clause
(ii) above and a reading of the Selected Historical Financial
Data included in the Registration Statement and a reading of
the financial statements from which certain of such data were
derived, nothing has come to their attention that gives them
reason to believe that the Selected Historical Financial Data
included in the Registration Statement do not comply as to
form in all material respects with the applicable accounting
requirements of the 1933 Act and the 1933 Act Regulations,
that the information set forth therein is not fairly stated in
relation to the financial statements from which it was derived
or that the financial statements not included in the
Registration Statement from which certain of such data were
derived are not in conformity with generally accepted
accounting principles applied on a basis substantially
consistent with that of the audited financial statements
included in the Registration Statement; and
(iv) they are unable to and do not express any
opinion on the Pro Forma Financial Data (the "Pro Forma
Statement") included in the Registration Statement or on the
pro forma adjustments applied to the historical amounts
included in the Pro Forma Statement; however, for purposes of
such letter they have:
(A) read the Pro Forma Statement;
<PAGE> 27
26
(B) made inquiries of certain officials
of the Company and of the Coltec Subsidiaries who
have responsibility for financial and accounting
matters about the basis for their determination of
the pro forma adjustments and whether the Pro Forma
Statement complies as to form in all material
respects with the applicable accounting requirements
of Rule 11-02 of Regulation S-X; and
(C) proved the arithmetic accuracy of
the application of the pro forma adjustments to the
historical amounts in the Pro Forma Statement; and
on the basis of such procedures, and such other inquiries and
procedures as may be specified in such letter, nothing came to
their attention that caused them to believe that the Pro Forma
Statement included in the Registration Statement does not
comply as to form in all material respects with the applicable
requirements of Rule 11-02 of Regulation S-X or that the pro
forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
(v) in addition to the procedures referred to in
clause (ii) above, they have performed other specified
procedures, not constituting an audit, with respect to certain
amounts, percentages, numerical data and financial information
appearing in the Registration Statement, which have previously
been specified by you and which shall be specified in such
letter, and have compared certain of such items with, and have
found such items to be in agreement with, the accounting and
financial records of the Company.
(j) At the time that this Agreement is executed by the
Company, you shall have received from KPMG Peat Marwick a letter,
dated such date, in form and substance satisfactory to you, together
with signed or reproduced copies of such letter for each of the other
International Underwriters, confirming that they are independent
public accountants with respect to the NSK-Warner within the meaning
of the 1933 Act and applicable published 1933 Act Regulations, and
stating in effect that:
(i) in their opinion, the audited financial
statements and the related financial statement schedules for
NSK-Warner included or incorporated by reference in the
Registration Statement and the Prospectuses comply as to form
in all material respects with the applicable accounting
requirements of the 1933 Act and the 1933 Act Regulations;
(ii) they have read the latest available unaudited
interim consolidated financial statements of NSK-Warner, the
minutes of all meetings of the
<PAGE> 28
27
stockholders and directors of NSK-Warner and each Committee of
the Board of Directors since April 1, 1996, inquired of
certain officials of NSK-Warner responsible for financial and
accounting matters, and made such other inquiries and
performed such other procedures as may be specified in such
letter, and officials of NSK-Warner stated that:
(A) at June 30, 1996 and at a specified
date not more than five days prior to the date of
this Agreement, there was no change in the common
stock of NSK-Warner or decrease in the net current
assets or stockholders' equity of NSK-Warner or
increase in the notes payable or long-term debt of
NSK-Warner, in each case as compared with amounts
shown in the latest balance sheet included or
incorporated by reference in the Registration
Statement; or
(B) for the period from April 1, 1996 to
June 30, 1996 and for the period from June 30, 1996
to a specified date not more than five days prior to
the date of this Agreement, there was no decrease in
sales, earnings before income taxes or net earnings,
in each case as compared with the corresponding
period in the preceding year.
(k) At the time that this Agreement is executed, you
shall have received from Arthur Andersen LLP a letter, dated such
date, in form and substance satisfactory to you, together with signed
or reproduced copies of such letter for each of the other U.S.
Underwriters, confirming that they are independent public accountants
with respect to the Coltec Subsidiaries and the Company within the
meaning of the 1933 Act and applicable published 1933 Act Regulations,
and stating in effect that:
(i) in their opinion, the audited financial
statements and the related financial statement schedules for
the Coltec Subsidiaries included or incorporated by reference
in the Registration Statement and the Prospectuses comply as
to form in all material respects with the applicable
accounting requirements of the 1933 Act, the 1934 Act, the
1933 Act Regulations and the 1934 Act Regulations;
[(ii) they have read the latest available unaudited
interim consolidated financial statements of the Coltec
Subsidiaries, the minutes of all meetings of the stockholders
and directors of the Coltec Subsidiaries and each Committee of
the Board of Directors since April 1, 1996, inquired of
certain officials of the Coltec Subsidiaries responsible for
financial and accounting matters, and made such other
inquiries and performed such other procedures as may be
specified in such letter, and officials of the Coltec
Subsidiaries stated that]:
<PAGE> 29
28
(A) at June 17, 1996, there was no
change in the capital stock of the Coltec
Subsidiaries or any decrease in the consolidated net
current assets or stockholders' equity of the Coltec
Subsidiaries or any increase in long-term debt of
the Coltec Subsidiaries, in each case as compared
with amounts shown in the latest consolidated
balance sheet included or incorporated by reference
in the Registration Statement, except in each case
for changes, decreases or increases that the
Registration Statement discloses have occurred or
may occur; or
(B) for the period from April 1, 1996 to
May 31, 1996, there was no decrease in net sales,
earnings before income taxes or net earnings, in
each case as compared with the comparable period in
the preceding year, except in each case for any
decreases that the Registration Statement discloses
have occurred or may occur; and
(iii) based upon the procedures set forth in clause
(ii) above, nothing has come to their attention that gives
them reason to believe that the information set forth in the
latest available unaudited interim consolidated financial
statements of the Coltec Subsidiaries is not fairly stated in
relation to the financial statements from which it was derived
or that the financial statements not included in the
Registration Statement from which certain of such data were
derived are not in conformity with generally accepted
accounting principles applied on a basis substantially
consistent with that of the audited financial statements
included in the Registration Statement.
(l) At the Closing Time, you shall have received from
each of Deloitte & Touche LLP, KPMG Peat Marwick and Arthur Andersen
LLP a letter, in form and substance satisfactory to you and dated as
of the Closing Time, to the effect that they reaffirm the statements
made in the letters furnished pursuant to Sections 5(i), 5(j) and
5(k), respectively, except that the specified date referred to shall
be a date not more than five days prior to the Closing Time.
(m) At the Closing Time, counsel for the International
Underwriters shall have been furnished with all such documents,
certificates and opinions as they may reasonably request for the
purpose of enabling them to pass upon the sale of the Shares as
contemplated in this Agreement and the matters referred to in Section
5(f) and in order to evidence the accuracy and completeness of any of
the representations, warranties or statements of the Company and the
Selling Stockholders, the performance of any of the covenants of the
Company, or the fulfillment of any of the conditions herein contained;
and all proceedings taken by the Company and the Selling Stockholders
at or prior to the Closing Time in connection with the sale of the
<PAGE> 30
29
Shares as contemplated in this Agreement shall be reasonably
satisfactory in form and substance to you and to counsel for the
International Underwriters.
(n) The "lock-up" letters which are substantially in the
form of Exhibit G attached hereto from (a) each executive officer or
director of the Company and (b) each stockholder of the Company who
(i) owns at least 1% of the outstanding shares of Common Stock and
(ii) who is a party to the Registration Rights Agreement have been
delivered to you on or before the date hereof.
If any of the conditions specified in this Section 5 shall not
have been fulfilled when and as required by this Agreement, this Agreement may
be terminated by you on notice to the Company and the Selling Stockholders at
any time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other party, except as provided in Section 4
hereof. Notwithstanding any such termination, the provisions of Sections 7, 8
and 9 herein shall remain in effect.
Section 6. Conditions to Purchase of International Option
Shares. In the event that the International Underwriters exercise their option
granted in Section 2 hereof to purchase all or any of the International Option
Shares and the Date of Delivery determined by you pursuant to Section 2 hereof
is later than the Closing Time, the obligations of the several International
Underwriters to purchase and pay for the U.S. Option Shares that they shall
have respectively agreed to purchase pursuant to this Agreement are subject to
the accuracy of the representations and warranties of the Company and the
Selling Stockholders herein contained, to the performance by the Company and
the Selling Stockholders of their obligations hereunder and to the following
further conditions:
(a) The Registration Statement shall remain effective at
the Date of Delivery, and, at the Date of Delivery, no stop order
suspending the effectiveness of the Registration Statement shall have
been issued under the 1933 Act and no proceedings for that purpose
shall have been instituted or shall be pending or, to your knowledge
or the knowledge of the Company, shall have been threatened by the
Commission, and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of counsel for the International Underwriters.
(b) At the Date of Delivery, the provisions of Sections
5(g)(i) through 5(g)(v) shall have been complied with at and as of the
Date of Delivery and, at the Date of Delivery, you shall have received
a certificate of the President or a Vice President, and the Treasurer
or an Assistant Treasurer, of the Company, dated as of the Date of
Delivery, to such effect.
<PAGE> 31
30
(c) At the Date of Delivery, you shall have received the
favorable opinions of Wachtell, Lipton, Rosen & Katz, special counsel
for the Company, Laurene H. Horiszny, General Counsel of the Company,
NSK-Warner's Japanese counsel and counsel for the Selling
Stockholders, together with signed or reproduced copies of such
opinions for each of the other International Underwriters, in each
case in form and substance reasonably satisfactory to counsel for the
International Underwriters, dated as of the Date of Delivery, relating
to the International Option Shares and otherwise to the same effect as
the opinions required by Section 5(b), 5(c), 5(d) and 5(e),
respectively.
(d) At the Date of Delivery, you shall have received the
favorable opinion of Shearman & Sterling, counsel for the
International Underwriters, dated as of the Date of Delivery, relating
to the International Option Shares and otherwise to the same effect as
the opinion required by Section 5(f).
(e) At the Date of Delivery, you shall have received a
letter from each of Deloitte & Touche LLP, KPMG Peat Marwick and
Arthur Andersen LLP, in form and substance satisfactory to you and
dated as of the Date of Delivery, to the effect that they reaffirm the
statements made in the letters furnished pursuant to Section 5(i),
5(j) and 5(k), respectively, except that the specified date referred
to shall be a date not more than five days prior to the Date of
Delivery.
(f) At the Date of Delivery, you shall have received
from each of the Selling Stockholders (or on their behalf)
certificates substantially in the form of the certificates furnished
to you pursuant to Section 5(h), except that such certificates shall
be as of the Date of Delivery.
(g) At the Date of Delivery, the representations and
warranties of each Selling Stockholder set forth in Section 1(b)
hereof shall be accurate as though expressly made at and as of the
Date of Delivery.
(h) At the Date of Delivery, counsel for the
International Underwriters shall have been furnished with all such
documents, certificates and opinions as they may reasonably request
for the purpose of enabling them to pass upon the sale of the
International Option Shares as contemplated in this Agreement and the
matters referred to in Section 6(d) and in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements of the Company or the Selling Stockholders, the performance
of any of the covenants of the Company, or the fulfillment of any of
the conditions herein contained; and all proceedings taken by the
Company and the Selling Stockholders at or prior to the Date of
Delivery in connection with the sale of the International Option
Shares as contemplated in this
<PAGE> 32
31
Agreement shall be reasonably satisfactory in form and substance to
you and to counsel for the International Underwriters.
Section 7. Indemnification. (a) The Company agrees to
indemnify and hold harmless each International Underwriter and each person, if
any, who controls any International Underwriter within the meaning of Section
15 of the 1933 Act to the extent and in the manner set forth in clauses (i),
(ii) and (iii) below. In addition, each Selling Stockholder, severally and not
jointly (but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto) in reliance upon and in conformity with written information
furnished by such Selling Stockholder, expressly for use in the Registration
Statement (or any amendment thereto) or any preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto), a copy of which written
information shall have been previously delivered to you), agrees to indemnify
and hold harmless each International Underwriter and each person, if any, who
controls any International Underwriter within the meaning of Section 15 of the
1933 Act as follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of an untrue
statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), including the
Rule 430A Information and the Rule 434 Information, if applicable, and
all documents incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or
arising out of an untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto) or the omission
or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if Rule 434 is used, if the
Prospectus is "materially different", as such term is used in Rule
434, from the prospectus included in the Original Registration
Statement at the time it becomes effective;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or investigation or
proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of
the Company and the Selling Stockholders; and
(iii) against any and all expense whatsoever, as incurred
(including, subject to Section 7(c) hereof, fees and disbursements of
counsel chosen by you), reasonably
<PAGE> 33
32
incurred in investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not paid
under subparagraph (i) or (ii) above;
provided, however, that this indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent arising out of an untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
International Underwriter through you expressly for use in the Registration
Statement (or any amendment thereto) including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto); provided further that
the liability of a Selling Stockholder pursuant to this Section 7 is limited to
the amount of the net proceeds of the offering of the International Shares
(after deducting the underwriting discount, but before deducting expenses)
received by such Selling Stockholder.
Insofar as this indemnity agreement may permit indemnification
for liabilities under the 1933 Act of any person who is a partner of a
International Underwriter or who controls a International Underwriter within
the meaning of Section 15 of the 1933 Act and who, at the date of this
Agreement, is a director, officer or controlling person of the Company, such
indemnity agreement is subject to the undertaking of the Company in the
Registration Statement under Item 17 thereof.
(b) Each International Underwriter severally agrees to
indemnify and hold harmless the Company, its directors, each of its officers
who signed the Registration Statement, and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act and each Selling
Stockholder and each person, if any, who controls any Selling Stockholder
within the meaning of Section 15 of the 1933 Act, against any and all loss,
liability, claim, damage and expense described in the indemnity contained in
Section 7(a), as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto) including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such
International Underwriter through you expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or such preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto).
(c) The Company agrees to indemnify and hold harmless,
to the extent permitted by law, each Selling Stockholder, its directors and
officers or general and limited
<PAGE> 34
33
partners (and the directors and officers thereof), and each other person, if
any, who controls such Selling Stockholder within the meaning of the 1933 Act,
against any and all losses, claims, damages or liabilities, joint or several,
and expenses (including any amounts paid in any settlement effected with the
Company's consent) to which such Selling Stockholder, any such director or
officer or general or limited partner or controlling person may become subject
under the 1933 Act, common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), including the Rule 430A Information and the Rule 434 Information, if
applicable, and all documents incorporated therein by reference, or 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, (ii)
any untrue statement or alleged untrue statement of a material fact contained
in any preliminary prospectus, together with the documents incorporated by
reference therein (as amended or supplemented if the Company shall have filed
with Commission any amendment thereof or supplemented thereto), if used prior
to the effective date of the Registration Statement, or contained in the
Prospectus (as amended or supplemented if the Company shall have filed with the
Commission any amendment thereof or supplemented if the Company shall have
filed with the Commission any amendment thereof or supplement thereto), or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading or (iii)
any violation by the Company of any federal, state or common law rule or
regulation applicable to the Company and relating to action required of or
inaction by the Company in connection with the offering, and the Company will
reimburse each such Selling Stockholder and each such director, officer,
general or limited partner, and controlling person for any legal or any other
expenses reasonably incurred by any of them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided, that
the Company shall not be liable to such Selling Stockholder or any such
director, officer, general or limited partner or controlling person in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in such Registration Statement (or any amendment or supplement thereto),
including the Rule 430A Information and the Rule 434 Information, if
applicable, or in any such preliminary prospectus or the Prospectuses (or any
amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such Selling
Stockholder or any such director, officer, general or limited partner or
controlling person, specifically stating that it is for use in the preparation
thereof.
(d) Each Selling Stockholder agrees to indemnify and
hold harmless (in the same manner and to the same extent as set forth in
Section 7(c)) the Company and its directors and officers and each person
controlling the Company within the meaning of the
<PAGE> 35
34
1933 Act and all other Selling Stockholders and their directors, officers,
general and limited partners and respective controlling persons with respect to
any statement or alleged statement in or omission or alleged omission from the
Registration Statement (or any amendment or supplement thereto), including the
Rule 430A Information and the Rule 434 Information, if applicable, any
preliminary prospectus or the Prospectuses (or any amendment or supplement
thereto), if such statement or alleged statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company or its representatives by or on behalf of the
undersigned specifically stating that it is for use in the preparation of the
Registration Statement (or any amendment or supplement thereto), including the
Rule 430A Information and the Rule 434 Information, if applicable, preliminary
prospectus or the Prospectuses (or any amendment or supplement thereto), or a
document incorporated by reference into any of the foregoing; provided,
however, that the liability of each Selling Stockholder pursuant to this
Section 7(d) is limited to the proceeds received by such Selling Stockholder
from the sale of the Shares pursuant to this Agreement. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Company or any of the other Selling Stockholders or any of its
respective directors, officers, general or limited partners or controlling
persons and shall survive the transfer of the Shares by each Selling
Stockholder.
(e) Each indemnified party shall give prompt notice to
each indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have otherwise than
on account of this indemnity agreement. An indemnifying party may participate
at its own expense in the defense of such action. In no event shall the
indemnifying party or parties be liable for the fees and expenses of more than
one counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. If it so elects within a
reasonable time after receipt of such notice, an indemnifying party, jointly
with any other indemnifying parties receiving such notice, may assume the
defense of such action with counsel chosen by it and approved by the
indemnified parties defendant in such action, unless such indemnified parties
reasonably object to such assumption on the ground that there may be legal
defenses available to them which are different from or are in addition to those
available to such indemnifying party. If an indemnifying party assumes the
defense of such action, the indemnifying parties shall not be liable for any
fees and expenses of counsel for the indemnified parties incurred thereafter in
connection with such action.
Section 8. Contribution. In order to provide for just and
equitable contribution in circumstances under which the indemnity provided for
in Section 7 is for any reason held to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Company, the
Selling Stockholders and the International Underwriters shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the
<PAGE> 36
35
nature contemplated by such indemnity agreement incurred by the Company, the
Selling Stockholders and one or more of the International Underwriters, as
incurred, in such proportions that (a) the International Underwriters are
responsible for that portion represented by the percentage that the
underwriting discount appearing on the cover page of the Prospectuses or, if
Rule 434 is used, the corresponding location on the Term Sheet, bears to the
offering price appearing thereon and (b) the Company and the Selling
Stockholders are severally responsible for the balance on the same basis as
each of them would have been obligated to provide indemnification pursuant to
Section 7; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section, each person, if
any, who controls a International Underwriter within the meaning of Section 15
of the 1933 Act shall have the same rights to contribution as such
International Underwriter, and each director of the Company, each officer of
the Company who signed the Registration Statement, and each person, if any, who
controls the Company or a Selling Stockholder within the meaning of Section 15
of the 1933 Act shall have the same rights to contribution as the Company or a
Selling Stockholder, as the case may be.
Section 9. Representations, Warranties and Agreements to
Survive Delivery. The representations, warranties, indemnities, agreements and
other statements of the Company or its officers or the Selling Stockholders set
forth in or made pursuant to this Agreement will remain operative and in full
force and effect regardless of any investigation made by or on behalf of the
Selling Stockholders, the Company, any International Underwriter or any person
who controls a Selling Stockholder or any International Underwriter within the
meaning of Section 15 of the 1933 Act, and will survive delivery of and payment
for the International Shares.
Section 10. Termination of Agreement. (a) You may terminate
this Agreement, by notice to the Company and the Selling Stockholders, at any
time at or prior to the Closing Time (i) if there has been, since the
respective dates as of which information is given in the Registration
Statement, any material adverse change in the condition (financial or
otherwise), results of operations, business affairs or business prospects of
the Company and the Subsidiaries, considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States, or any
outbreak of hostilities or escalation thereof or other calamity or crisis the
effect of which on the financial markets of the United States is such as to
make it, in your judgment, impracticable to market the Shares or enforce
contracts for the sale of the Shares or (iii) if trading in any securities of
the Company has been suspended by the Commission, or if trading generally on
the New York Stock Exchange or in the over-the-counter market has been
suspended, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices for securities have been required, by such exchange or by
order of the Commission, the New York Stock Exchange or any other
<PAGE> 37
36
governmental authority or (iv) if a banking moratorium has been declared by
either federal, New York or Illinois authorities.
(b) If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party, except to the extent provided in Section 4. Notwithstanding any such
termination, the provisions of Sections 7 and 8 shall remain in effect.
(c) This Agreement may also terminate pursuant to the
provisions of Section 2(c), with the effect stated in such Section.
Section 11. Default by One or More of the International
Underwriters. If one or more of the International Underwriters shall fail at
the Closing Time to purchase the Initial International Shares that it or they
are obligated to purchase pursuant to this Agreement (the "Defaulted
International Shares"), you shall have the right, within 24 hours thereafter,
to make arrangements for one or more of the non-defaulting International
Underwriters, or any other International Underwriters, to purchase all, but not
less than all, of the Defaulted International Shares in such amounts as may be
agreed upon and upon the terms set forth in this Agreement; if, however, you
have not completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted International Shares does
not exceed 10% of the total number of Initial International Shares,
the non-defaulting International Underwriters shall be obligated to
purchase the full amount thereof in the proportions that their
respective Initial International Share underwriting obligation
proportions bear to the underwriting obligations of all non-defaulting
International Underwriters; or
(b) if the number of Defaulted International Shares
exceeds 10% of the total number of Initial International Shares, this
Agreement shall terminate without liability on the part of any
non-defaulting International Underwriter.
No action taken pursuant to this Section shall relieve any
defaulting International Underwriter from liability in respect of its default.
In the event of any such default that does not result in a
termination of this Agreement, either you or the Company shall have the right
to postpone the Closing Time for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectuses or in
any other documents or arrangements. As used herein, the term "International
Underwriter" includes any person substituted for a International Underwriter
under this Section 11.
<PAGE> 38
37
Section 12. Default by a Selling Stockholder. If any Selling
Stockholder shall fail at the Closing Time to sell and deliver the number of
Initial International Shares that such Selling Stockholder is obligated to
sell, then the International Underwriters may, at your option, by notice from
you to the Company and the Selling Stockholders, either (a) terminate this
Agreement without any liability on the part of any non-defaulting party, except
to the extent provided in Section 4 and except that the provisions of Sections
7 and 8 shall remain in effect or (b) elect to purchase the Initial
International Shares that the remaining Selling Stockholders have agreed to
sell pursuant to this Agreement.
In the event of any such default under this Section that does
not result in a termination of this Agreement, either you or the Company shall
have the right to postpone the Closing Time for a period not exceeding seven
days in order to effect any required changes in the Registration Statement or
Prospectuses or in any other documents or arrangements.
No action taken pursuant to this Section 12 shall relieve any
Selling Stockholder so defaulting from liability, if any, in respect of such
default.
Section 13. Notices. All notices and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given if delivered, mailed or transmitted by any standard form of
telecommunication. Notices to you or the International Underwriters shall be
directed to you, c/o Merrill Lynch International, Ropemaker Place, 25 Ropemaker
Street, London EC2 Y9LY, attention of _______________; notices to the Company
shall be directed to it at 200 South Michigan Avenue, Chicago, Illinois 60604,
Attention: General Counsel and notices to the Selling Stockholders shall be
directed to James V. Caruso, Merrill Lynch & Co., Inc., South Tower, World
Financial Center, New York, New York 10080-6123.
Section 14. Parties. This Agreement is made solely for the
benefit of the several International Underwriters, the Company and the Selling
Stockholders and, to the extent expressed, any person controlling the Company,
any Selling Stockholder or any of the International Underwriters, and the
directors of the Company, its officers who have signed the Registration
Statement, and their respective executors, administrators, successors and
assigns and, subject to the provisions of Section 11, no other person shall
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser, as such purchaser,
from any of the several International Underwriters of the International Shares.
All of the obligations of the International Underwriters hereunder are several
and not joint.
Section 15. Representation of International Underwriters.
You will act for the several International Underwriters in connection with this
financing, and any action under
<PAGE> 39
38
or in respect of this Agreement taken by you as International Representatives
will be binding upon all International Underwriters.
Section 16. Governing Law and Time. This Agreement shall be
governed by the laws of the State of New York. Specified times of the day
refer to New York City time.
Section 17. Counterparts. This Agreement may be executed in
one or more counterparts, and when a counterpart has been executed by each
party, all such counterparts taken together shall constitute one and the same
agreement.
<PAGE> 40
39
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us a counterpart hereof, whereupon
this instrument will become a binding agreement between the Company, the
Selling Stockholders and the several International Underwriters in accordance
with its terms.
Very truly yours,
BORG-WARNER AUTOMOTIVE, INC.
By:
--------------------------------
Name:
Title:
SELLING STOCKHOLDERS NAMED IN
SCHEDULE A
By:
--------------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
By: Merrill Lynch International
By:
------------------------------------------
Name:
Title:
For themselves and as International Representatives of the
other International Underwriters named in Schedule B.
<PAGE> 41
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
INITIAL INTERNATIONAL INTERNATIONAL OPTION
SELLING STOCKHOLDER SHARES TO BE SOLD SHARES TO BE SOLD
- ------------------- ------------------ -----------------
<S> <C> <C>
Merrill Lynch KECALP L.P. 1986
Merrill Lynch KECALP L.P. 1987
Merchant Banking L.P. No. I
ML Venture Partners II, L.P.
Merrill Lynch Capital Appreciation
Partnership No. VIII, L.P.
ML Offshore LBO Partnership No. VIII
ML Employees LBO Partnership No. I, L.P.
ML IBK Positions, Inc.
________ _______
Total [ ] [ ]
================= =============
</TABLE>
<PAGE> 42
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF
INITIAL INTERNATIONAL SHARES
INTERNATIONAL UNDERWRITER TO BE PURCHASED
------------------------- ------------------------
<S> <C>
Merrill Lynch International . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lehman Brothers International (Europe). . . . . . . . . . . . . . . . . . . . . . .
Morgan Stanley & Co. International Limited . . . . . . . . . . . . . . . . . . . .
-----------
Total [ ]
=============
</TABLE>
<PAGE> 43
SCHEDULE C
<TABLE>
<CAPTION>
ATTORNEY SELLING STOCKHOLDER
- -------- -------------------
<S> <C> <C>
Marcia L. Tu, Esq. - ML IBK Positions, Inc.
- Merrill Lynch Capital Appreciation Partnership
No. VIII, L.P.
- ML Employees LBO Partnership No. I, L.P.
- ML Venture Partners II, L.P.
Margaret E. Nelson, Esq. - Merrill Lynch KECALP L.P. 1986
- Merrill Lynch KECALP L.P. 1987
- Merchant Banking L.P. No. I
Carl Ruggiero, Esq. - ML Offshore LBO Partnership No. VIII
</TABLE>
<PAGE> 44
Exhibit A
BORG-WARNER AUTOMOTIVE, INC.
(a Delaware corporation)
900,000 Shares of Common Stock
INTERNATIONAL PRICE DETERMINATION AGREEMENT
July __, 1996
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
As Representatives of the several International Underwriters
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC2 Y9LY
Ladies and Gentlemen:
Reference is made to the International Purchase Agreement
dated July __, 1996 (the "International Purchase Agreement") among Borg-Warner
Automotive, Inc. (the "Company"), the Selling Stockholders named in Schedule A
thereto (the "Selling Stockholders") and the several International Underwriters
named in Schedule B thereto or hereto (the "International Underwriters"), for
whom Merrill Lynch International Limited, Lehman Brothers International
(Europe) and Morgan Stanley & Co. International Limited are acting as
representatives (the "International Representatives"). The International
Purchase Agreement provides for the purchase by the International Underwriters
from the Selling Stockholders, subject to the terms and conditions set forth
therein, of an aggregate of 900,000 shares (the "Initial International Shares")
of the Company's common stock, par value $.01 per share. This Agreement is the
International Price Determination Agreement referred to in the International
Purchase Agreement. Terms not defined herein are used herein as defined in the
International Purchase Agreement.
<PAGE> 45
A-2
Pursuant to Section 2 of the International Purchase Agreement,
the Company and the Selling Stockholders agree with the International
Representatives as follows:
1. The price to the public per share for the Initial
International Shares shall be $[____].
2. The purchase price per share for the Initial
International Shares to be paid by the several International
Underwriters shall be $[_____], representing an amount equal to the
public offering price set forth above, less $[____] per share.
The Company represents and warrants to each of the
International Underwriters that the representations and warranties of the
Company set forth in Section 1(a) of the International Purchase Agreement are
accurate as though expressly made at and as of the date hereof.
Additionally, if the Company elects to rely on Rule 462(b),
the Company convenants to each of the International Underwriters that:
(a) the Company will file a Rule 462(b) Registration Statement in
compliance with, and that is effective upon filing pursuant
to, Rule 462(b) prior to the time confirmations are sent or
given, as specified in Rule 462(b) of the 1933 Act; and
(b) the Company will give irrevocable instructions for
transmission of the applicable filing fee in connection with
the filing of the Rule 462(b) Registration Statement, in
compliance with Rule 111 of the 1933 Act Regulations or the
Commission will have received payment of such filing fee upon
filing of the Rule 462(b) Registration Statement.
Each Selling Stockholder represents and warrants to each of
the International Underwriters that the representations and warranties of such
Selling Stockholder set forth in Section 1(b) of the International Purchase
Agreement are accurate as though expressly made at and as of the date hereof.
As contemplated by Section 2 of the International Purchase
Agreement, attached as Schedule A is a completed list of the Selling
Stockholders and attached as Schedule B is a complete list of the several
International Underwriters, which shall be a part of this Agreement and the
International Purchase Agreement.
This Agreement shall be governed by the laws of the State of
New York.
If the foregoing is in accordance with the understanding of
the International Representatives of the agreement between the International
Underwriters, the Company and the Selling Stockholders, please sign and return
to the Company a counterpart hereof, whereupon this instrument, along with all
counterparts and together with the International
<PAGE> 46
A-3
Purchase Agreement, shall be a binding agreement between the International
Underwriters, the Company and the Selling Stockholders in accordance with its
terms and the terms of the International Purchase Agreement.
Very truly yours,
BORG-WARNER AUTOMOTIVE, INC.
By:
----------------------------------
Name:
Title:
SELLING STOCKHOLDERS NAMED IN
SCHEDULE A
By:
----------------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
By: Merrill Lynch International
By:
----------------------------------------------------------------
Name:
Title:
For themselves and as International Representatives of the
other International Underwriters named in Schedule B.
<PAGE> 47
Exhibit B
SUBSIDIARIES
<TABLE>
<CAPTION>
Percent of
Capital Stock
Beneficially Owned by
Borg-Warner Automotive,
Name of Subsidiary Inc. or the Subsidiaries
- ------------------ ------------------------------
<S> <C>
Borg-Warner Automotive Powertrain Systems Corporation 100
Borg-Warner Automotive South Asia Corporation 100
Divgi-Warner Pvt., Ltd. 60
Huazhong Warner Transmission Company 60
Borg-Warner Automotive Powertrain
Service Center Corporation 100
Borg-Warner Automotive Powdered Metals Corporation 100
Borg-Warner Automotive Diversified Transmission
Products Corporation 100
Borg-Warner Automotive Air/Fluid Systems Corporation 100
Borg-Warner Automotive Air/Fluid Systems
Corporation of Michigan 100
Borg-Warner Automotive Control Systems Holding Corporation 100
Borg-Warner Automotive Control Systems Europe S.A.S. 90
Societe de l'Usine de la Marque 100
BW Syntelligence Corporation 100
Borg-Warner Automotive Morse TEC Corporation 100
Borg-Warner Automotive (Canada) Ltd. 100
Borg-Warner Automotive Japan Corporation 100
Borg-Warner Automotive K.K. 100
Borg-Warner Automotive Taiwan Co., Ltd. 100
B.W. Componentes Mexicanos de Transmissiones S.A. de C.V. 86
Morse TEC Europe, Sp.A 100
Borg-Warner Automotive Foreign Sales Corporation 100
</TABLE>
<PAGE> 48
B-2
<TABLE>
<S> <C>
Borg-Warner Automotive Automatic Transmission Systems Corporation 100
Borg-Warner Automotive Europe Corporation 100
Borg-Warner Automotive GmbH 100
Borg & Beck Torque Systems, Inc. 100
Borg-Warner Automotive-NW Corporation 100
Borg-Warner Automotive Korea, Inc. 60
Creon Insurance Agency, Ltd. 100
Creon Trustees, Ltd. 100
</TABLE>
<PAGE> 49
Exhibit C
Pursuant to Section 5(b) of the International Purchase
Agreement, Wachtell, Lipton, Rosen & Katz, special counsel for the Company,
shall furnish to the International Underwriters an opinion to the effect that:
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
with corporate power and authority under such laws to own, lease and
operate its properties and conduct its business as described in the
Prospectuses.
(ii) The Shares have been duly authorized and validly
issued and are fully paid and non-assessable, and no holder thereof is
or will be subject to personal liability by reason of being such a
holder; such Shares are not subject to the preemptive rights of any
stockholder of the Company.
(iii) The Shares conform in all material respects as to
legal matters to the description thereof contained in the
Prospectuses.
(iv) This Agreement and the U.S. Purchase Agreement have
been duly authorized, executed and delivered by the Company.
(v) The execution and delivery of this Agreement and the
U.S. Purchase Agreement, the consummation by the Company of the
transactions contemplated in this Agreement, the U.S. Purchase
Agreement and in the Registration Statement and compliance by the
Company with the terms of this Agreement and the U.S. Purchase
Agreement have been duly authorized by all necessary corporate action
on the part of the Company and do not violate and will not result in
any violation of the certificate of incorporation or by-laws of the
Company.
(vi) The Registration Statement is effective under the
1933 Act; any required filing of the Prospectuses or any supplement
thereto pursuant to Rule 424(b) has been made in the manner and within
the time period required by Rule 424(b); and, to the best of the
knowledge of such counsel, no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending or are contemplated
under the 1933 Act.
(vii) The Registration Statement (including the Rule 430A
Information and the Rule 434 Information, if applicable) and the
Prospectuses, excluding the documents incorporated by reference
therein, and each amendment or supplement thereto (except for the
financial statements and other financial or statistical data included
therein or omitted therefrom, as to which such counsel need express no
<PAGE> 50
C-2
opinion), as of their respective effective or issue dates, complied as
to form in all material respects to the requirements of the 1933 Act
and the 1933 Act Regulations.
(viii) The documents incorporated by reference in the
Prospectus (except for the financial statements and other financial or
statistical data included therein or omitted therefrom, as to which
such counsel need express no opinion, and except to the extent that
any statement therein is modified or superseded in the Prospectuses),
as of the dates they were filed with the Commission, complied as to
form in all material respects to the requirements of the 1934 Act and
the 1934 Act Regulations.
(ix) Assuming that each of the International Underwriters
and U.S. Underwriters acquires the certificates representing the
International Shares and the U.S. Shares, respectively, in good faith
and without notice of any adverse claims, as defined in Section 8-302
of the Uniform Commercial Code as in effect in the State of New York
(the "UCC"), upon delivery of the certificates to the person
designated by the International Underwriters and the U.S.
Underwriters, respectively, in the State of New York, either
registered in the name of the International Underwriters or the U.S.
Underwriters, as the case may be, endorsed to the International
Underwriters or the U.S. Underwriters, as the case may be, or endorsed
in blank, the International Underwriters or the U.S. Underwriters, as
the case may be, will acquire all of the Selling Stockholders' rights
in the certificates, free of any adverse claims (within the meaning of
Section 8-302 of the UCC).
(x) Such counsel have participated in the preparation of
the Registration Statement and Prospectuses except for the documents
incorporated by reference in the Registration Statement and the
Prospectuses and in conferences with officers and other
representatives of the Company, representatives of the independent
public accountants for the Company, and with your representatives and
your counsel at which the contents of the Registration Statement, the
Prospectuses, and related matters were discussed and have reviewed the
documents incorporated by reference in the Registration Statement and
Prospectuses and, although such counsel need not pass upon or assume
any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectuses
and the documents incorporated by reference in the Prospectuses
(except for the opinions set forth in clause (iii), and based on the
foregoing, no facts have come to the attention of such counsel to lead
such counsel to believe (A) that the Registration Statement or any
amendment thereto (except for the financial statements and other
financial or statistical data included therein or omitted therefrom,
as to which such counsel need express no opinion), at the time the
Registration Statement or any such amendment became effective,
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) that the Prospectuses or any
amendment or supplement
<PAGE> 51
C-3
thereto (except for the financial statements and other financial or
statistical data included therein or omitted therefrom, as to which
such counsel need express no opinion), at the time any Prospectus was
issued, at the time any such amended or supplemented prospectus was
issued or at the Closing Time, included or includes 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 the light
of the circumstances under which they were made, not misleading. Such
opinion shall be to such further effect with respect to other legal
matters relating to this Agreement, the International Price
Determination Agreement and the sale of the International Shares
pursuant to this Agreement as counsel for the International
Underwriters may reasonably request. In giving such opinion, such
counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York, the federal
law of the United States and the corporate law of the State of
Delaware, either upon opinions of other counsel, who shall be counsel
reasonably satisfactory to counsel for the International Underwriters,
in which case the opinion shall state that they believe the
International Underwriters and they are entitled to so rely, or upon
unofficial compilations of the laws of such jurisdictions. Such
counsel may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and its Subsidiaries and
certificates of public officials.
<PAGE> 52
Exhibit D
Pursuant to Section 5(c) of the International Purchase
Agreement, Laurene H. Horiszny, Esq., Vice President, Secretary and General
Counsel for the Company, shall furnish to the International Underwriters an
opinion to the effect that:
(i) Each Subsidiary listed on Schedule 1 hereto (the
"Material Subsidiaries") is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of
its incorporation with corporate power and authority under such laws
to own, lease and operate its properties and conduct its business.
(ii) Each of the Company and the Material Subsidiaries is
duly qualified to transact business as a foreign corporation and is in
good standing in each other jurisdiction in which it owns or leases
property of a nature, or transacts business of a type, that would make
such qualification necessary, except to the extent that the failure to
so qualify or be in good standing would not have a material adverse
effect on the Company and the Subsidiaries, considered as one
enterprise.
(iii) All of the outstanding shares of capital stock of
each Material Subsidiary have been duly authorized and validly issued
and are fully paid and non-assessable; all of the shares of capital
stock of such Material Subsidiary are owned by the Company, directly
or through one or more of the Subsidiaries, in the percentages set
forth in Schedule 1 hereto and the shares of capital stock of
NSK-Warner owned by the Company are owned by the Company directly or
through one or more of the Subsidiaries, free and clear of any
consensual pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind except as provided in or pursuant to the
Credit Agreement; no holder thereof is subject to personal liability
by reason of being such a holder and none of such shares was issued in
violation of the preemptive rights of any stockholder of the Material
Subsidiaries.
(iv) The Shares have been duly authorized and validly
issued and are fully paid and non-assessable, and no holder thereof is
or will be subject to personal liability by reason of being such a
holder; such Shares are not subject to the preemptive rights of any
stockholder of the Company.
(v) The authorized, issued and outstanding capital stock
of the Company is as set forth in the Prospectuses under the heading
"Capitalization".
(vi) Such counsel does not know of any statutes or
regulations, or any pending or threatened legal or governmental
proceedings, required under the 1933 Act to be described in the
Prospectuses that are not described as so required, nor of
<PAGE> 53
D-2
any contracts or documents of a character required under the 1933 Act
or 1933 Act Regulations to be described or referred to in the
Registration Statement or Prospectuses or to be filed as exhibits to
the Registration Statement that are not described, referred to or
filed as required.
(vii) Except with respect to financial covenants, (as to
which such counsel need express no opinion) no default exists in the
performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, loan agreement, note,
lease or other agreement or instrument that is described or referred
to in the Registration Statement or the Prospectuses or filed as an
exhibit to the Registration Statement (except for such defaults that
would not have a material adverse effect on the condition (financial
or otherwise), results of operations, business affairs or business
prospects of the Company and its Subsidiaries, considered as one
enterprise).
(viii) The execution and delivery of this Agreement and the
U.S. Purchase Agreement and the consummation by the Company of the
other transactions contemplated in this Agreement, the U.S. Purchase
Agreement and in the Registration Statement and compliance by the
Company with the terms of this Agreement and the U.S. Purchase
Agreement do not violate and will not result in any violation of the
certificate of incorporation or by-laws of any Material Subsidiary and
do not and will not conflict with, or result in a breach of any of the
terms or provisions of, or constitute a default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any Material Subsidiary under (i)
any existing applicable law, rule or regulation (other than the
securities or Blue Sky laws of the various states, as to which such
counsel is not requested to express an opinion), (ii) any judgment,
order or decree of any government, governmental instrumentality or
court, domestic or foreign, having jurisdiction over the Company or
any Subsidiary or any of its properties, or (iii) any indenture,
mortgage or loan agreement, or any other agreement or instrument known
to such counsel, to which the Company or any Material Subsidiary is a
party or by which it may be bound or to which any of its properties
may be subject, including the Formation Agreement between Borg-Warner
Corporation and Nippon Seiko, K.K., dated as of April 18, 1964, and
any agreements related thereto, including but not limited to the
Shareholders Agreement Concerning the Management of NSK-Warner, dated
September 25, 1964, between Borg-Warner Corporation and Nippon Seiko,
K.K. (except for such conflicts, breaches or defaults or liens,
charges or encumbrances that would not have a material adverse effect
on the condition (financial or otherwise), results of operations,
business affairs or business prospects of the Company and its
Subsidiaries, considered as one enterprise).
<PAGE> 54
D-3
(ix) The descriptions in the Prospectuses of the statutes,
regulations, legal or governmental proceedings, contracts and other
documents therein described are accurate and fairly summarize the
information required to be shown.
(x) No authorization, approval, consent or license of any
U.S. government, governmental instrumentality or U.S. court (other
than under the 1933 Act or 1933 Act Regulations and the securities or
Blue Sky laws of the various states and the securities laws of any
jurisdiction outside the United States in which International Shares
are offered or sold by the International Underwriters pursuant to this
Agreement) is required for the valid authorization, issuance, sale and
delivery of the Shares.
(xi) To the best knowledge of such counsel, each Selling
Stockholder is the registered holder of title to the Shares to be sold
by such Selling Stockholder pursuant to the International Purchase
Agreement and the U.S. Purchase Agreement.
Such counsel has participated in the preparation of
the Registration Statement and Prospectuses, in the preparation of the
documents incorporated by reference in the Registration Statement and
the Prospectuses and in conferences with officers and other
representatives of the Company, representatives of the independent
public accountants for the Company, and with your representatives and
your counsel at which the contents of the Registration Statement, the
Prospectuses and the documents incorporated by reference in the
Prospectuses and related matters were discussed and, although such
counsel need not pass upon or assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectuses and the documents
incorporated by reference in the Prospectuses (except for the opinion
set forth in clause (ix)), and based upon the foregoing, no facts have
come to the attention of such counsel to lead her to believe (A) that
the Registration Statement (including the Rule 430A Information and
the Rule 434 Information, if applicable) or any amendment thereto
(except for the financial statements and other financial or
statistical data included therein or omitted therefrom, as to which
such counsel need express no opinion), at the time the Registration
Statement or any such amendment became effective, 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, (B) that the Prospectuses or any amendment or
supplement thereto (except for the financial statements and other
financial or statistical data included therein or omitted therefrom,
as to which such counsel need express no opinion), at the time any
Prospectus was issued, at the time any such amended or supplemented
prospectus was issued or at the Closing Time, included or includes 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
the light of the circumstances under which
<PAGE> 55
D-4
they were made, not misleading, or (C) that the documents incorporated
by reference in the Prospectuses (except for the financial statements
and other financial or statistical data included therein or omitted
therefrom, as to which such counsel need express no opinion, and
except to the extent that any statement therein is modified or
superseded in the Prospectuses), as of the dates they were filed with
the Commission, contained an untrue statement of a material fact or
omitted to state a material fact.
In giving such opinion, such counsel may rely, as to all
matters governed by the laws of jurisdictions other than the law of the State
of Illinois, the Federal law of the United States and the corporate law of the
State of Delaware, upon opinions of other counsel, who shall be counsel
reasonably satisfactory to counsel for the U.S. Underwriters, in which case the
opinion shall state that they believe the U.S. Underwriters and they are
entitled to so rely. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem proper,
upon certificates of officers of the Company and the Subsidiaries and
certificates of public officials.
<PAGE> 56
Schedule 1
to Exhibit D
Material Subsidiaries
<TABLE>
<CAPTION>
Percent of
Capital Stock
Beneficially
Owned by
Borg-Warner
Automotive,
Inc. or the
Subsidiaries
------------
Material Subsidiary
- -------------------
<S> <C>
Borg-Warner Automotive Diversified
Transmission Products Corporation 100
Borg-Warner Automotive Electronic
& Mechanical Systems Corporation 100
Borg-Warner Automotive Europe
Corporation 100
Borg-Warner Automotive GmbH 100
Borg-Warner Automotive Japan
Corporation 100
Borg-Warner Automotive K.K. 100
Borg-Warner Automotive NW Corporation 100
Borg-Warner Automotive Transmission
& Engine Components Corporation 100
</TABLE>
<PAGE> 57
Exhibit E
Pursuant to Section 5(d) of the International Purchase
Agreement, NSK-Warner's Japanese counsel shall furnish to the International
Underwriters an opinion substantially to the effect that:
(i) NSK-Warner is a corporation duly organized, validly
existing and in good standing under the laws of Japan with corporate power and
authority under such laws to own, lease and operate its properties and conduct
its business.
(ii) All of the outstanding shares of capital stock of
NSK-Warner have been duly authorized and validly issued and are fully paid and
non-assessable.
<PAGE> 58
Exhibit F
Pursuant to Section 5(e) of the International Purchase
Agreement, each of the attorneys listed on Schedule C attached thereto for the
Selling Stockholders specified opposite such attorney's name, shall furnish to
the International Underwriters an opinion to the effect that:
(i) This Agreement and the U.S. Purchase Agreement have
been authorized, duly executed and delivered by each of the Selling
Stockholders.
(ii) No authorization, approval, consent or license of any
government, governmental instrumentality or court is required under the laws of
the United States or the State of New York (other than under the 1933 Act,
under Blue Sky or state securities law or the securities laws of foreign
jurisdictions) for the consummation by the Selling Stockholders of the
transactions contemplated by this Agreement and the U.S. Purchase Agreement.
(iii) The execution and delivery of this Agreement and the
U.S. Purchase Agreement by the Selling Stockholders and the compliance by the
Selling Stockholders with the terms thereof does not conflict with or result in
a violation of (a) the certificate of incorporation, the by-laws, the
partnership agreement or similar governing document of any of the Selling
Stockholders or (b) any existing applicable law, rule or regulation (other than
under the 1933 Act, under Blue Sky or state securities law or the securities
laws of foreign jurisdictions or the rules and regulations of the NASD) or any
judgment, order or decree known to such counsel of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over the
Selling Stockholders.
(iv) The Selling Stockholders, as the case may be, have
been duly organized and are validly existing and in good standing as
corporations or partnerships under the laws of the jurisdiction of their
incorporation or organization with all necessary power and authority under such
laws to execute, deliver and perform this Agreement and the U.S. Purchase
Agreement.
(v) Assuming that each of the International Underwriters
acquires the certificates representing the Shares to be sold by the Selling
Stockholders in good faith and without notice of any adverse claims, as defined
in Section 8-302 of the Uniform Commercial Code as in effect in the State of
New York (the "UCC"), upon delivery of the certificates representing such
Shares to the person designated by the International Underwriters in the State
of New York, registered in the name of the International Underwriters, endorsed
to the International Underwriters, or endorsed in blank, the International
Underwriters will acquire all of the Selling Stockholders' rights in the
certificates representing such Shares free of any adverse claims (within the
meaning of Section 8-302 of the UCC).
<PAGE> 59
F-2
Such opinion shall be to such further effect with respect to
other legal matters relating to this Agreement and the sale of the Shares
pursuant to this Agreement as counsel for the International Underwriters may
reasonably request. In giving such opinion, such counsel may rely, as to all
matters governed by the laws of jurisdictions other than the law of the State
of New York, the federal law of the United States and the corporate and
partnership law of the State of Delaware, solely upon opinions of other
counsel, who shall be counsel reasonably satisfactory to counsel for the
International Underwriters (it being understood that in-house counsel of any
Selling Stockholder shall be so satisfactory), in which case the opinion shall
also be addressed to the International Underwriters and state that such other
counsel believes you and they are entitled to so rely. Such counsel may also
state that, insofar as such opinion involves factual matters, they have relied,
to the extent they deem proper, upon certificates of officers of the Company
and the Subsidiaries, certificates of officers or partners, as the case may be,
of such Selling Stockholders and on certificates of public officials.
<PAGE> 60
Exhibit G
FORM OF LOCK-UP LETTER AGREEMENT
July __, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
LEHMAN BROTHERS INC.
MORGAN STANLEY & CO. INCORPORATED
As Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1201
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
As Representatives of the several International Underwriters
c/o Merrill Lynch International
25 Ropemaker Street
London EC2Y 9LY
England
Ladies and Gentlemen:
The undersigned stockholder of Borg-Warner Automotive, Inc., a
Delaware corporation (the "Company"), understands that (i) a U.S. Purchase
Agreement (the "U.S. Purchase Agreement") will be executed by the Company, the
Selling Stockholders named therein (the "Selling Stockholders") and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers Inc. and Morgan
Stanley & Co. Incorporated, as representatives (the "U.S. Representatives") of
the several underwriters named therein (the "U.S. Underwriters"), pursuant to
which the Selling Stockholders will sell to the U.S. Underwriters 3,600,000
shares of the Common Stock, par value $.01 per
<PAGE> 61
G-2
share (the "Common Stock"), of the Company and up to 540,000 additional shares
of Common Stock pursuant to an option granted by the Selling Stockholders,
solely to cover over-allotments as set forth in the U.S. Purchase Agreement and
(ii) an International Purchase Agreement (the "International Purchase
Agreement", and together with the U.S. Purchase Agreement, the "Purchase
Agreements") will be executed by the Company, the Selling Stockholders named
therein (the "Selling Stockholders") and Merrill Lynch International, Lehman
Brothers International (Europe) and Morgan Stanley & Co. International
Incorporated, as representatives (the "International Representatives", and
together with the U.S. Representatives, the "Representatives") of the several
underwriters named therein (the "International Underwriters", and together with
the U.S. Underwriters, the "Underwriters"), pursuant to which the Selling
Stockholders will sell to the International Underwriters 900,000 shares of the
Common Stock of the Company and up to 135,000 additional shares of Common Stock
pursuant to an option granted by the Selling Stockholders, solely to cover
over-allotments as set forth in the International Purchase Agreement.
The undersigned is a party to that certain Registrations
Rights Agreement (the "Registration Rights Agreement"), dated as of January 27,
1993, by and among the Company and the stockholders named therein. This
Lock-Up Letter Agreement is being entered into in accordance with Section 7(a)
of the Registration Rights Agreement at the request of the Underwriters.
The undersigned also understands that the Company has filed
with the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-3 (File No. 333-06041, the "Registration Statement") in
connection with the public offering (the "Offering") of shares of its Common
Stock.
In consideration of the Underwriters' agreement to purchase
the Common Stock and undertake the Offering, and for other good and valuable
consideration, receipt of which is hereby acknowledged, the undersigned agrees
[that, without the prior written consent of the Representatives, which consent
shall not be unreasonably withheld, the undersigned will] not[,] [to] directly
or indirectly[,] effect any public sale or distribution, including any sale
pursuant to Rule 144 under the Securities Act of 1933, as amended, of any
shares of Common Stock (including, without limitation, shares of Common Stock
which may be deemed to be beneficially owned by such stockholder in accordance
with the rules and regulations of the Commission and shares of Common Stock
which may be issued upon exercise of any option or warrant) or any securities
convertible or exchangeable for shares of Common Stock for a period commencing
7 days prior to the date the Registration Statement is declared effective by
the Commission (the "Effective Date") and ending 180 days after the Effective
Date, other than the Shares sold to the Underwriters pursuant to the Purchase
Agreements. The undersigned understands that the Company expects the Effective
Date to occur as early as ______, 1996. The
<PAGE> 62
G-3
undersigned understands that the Effective Date may, however, be earlier or
later than _____, 1996.
In addition, the undersigned agrees that the undersigned will,
promptly following the execution of this Lock-Up Letter Agreement and in any
event prior to the execution of the Purchase Agreements, (i) with respect to
any shares of Common Stock for which the undersigned is the record holder,
cause the transfer agent for the Company to note stop transfer instructions
with respect to such shares of Common Stock on the transfer books and records
of the Company and (ii) with respect to any shares of Common Stock for which
the undersigned is the beneficial holder but not the record holder (other than
the shares of Common Stock owned of record by persons or entities that are not
affiliates of the undersigned and shares of Common Stock which may be issued
upon exercise of any option or warrant), cause the record holder of such shares
to cause the transfer agent for the Company to note stop transfer instructions
with respect to such shares of Common Stock on the transfer books and records
of the Company.
The undersigned understands that the Company, the Selling
Stockholders and the Underwriters will proceed with the Offering in reliance on
this Lock-Up Letter Agreement.
The undersigned hereby represents and warrants that the
undersigned has full power and authority to enter into this Lock-Up Letter
Agreement and that, upon request, the undersigned will execute any additional
documents necessary or desirable in connection with the enforcement hereof.
Any obligations of the undersigned shall be binding upon the successors and
assigns of the undersigned.
<PAGE> 63
G-4
This Lock-Up Letter Agreement has been entered into on the
date first written above.
Very truly yours,
-----------------------------------------
Name of Stockholder/Officer/Director
By:
--------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement No. 333-06041 of Borg-Warner Automotive, Inc. on Form S-3
of our report dated January 31, 1996 incorporated by reference in the Annual
Report on Form 10-K of Borg-Warner Automotive, Inc. for the year ended December
31, 1995 and to the reference to us under the heading "Experts" in the
Prospectus, which is part of such Registration Statement.
DELOITTE & TOUCHE LLP
Chicago, Illinois
July 22, 1996
<PAGE> 1
[LETTERHEAD OF KPMG PEAT MARWICK]
EXHIBIT 23.3
The Board of Directors
NSK-WARNER KABUSHIKI KAISHA
INDEPENDENT AUDITORS' CONSENT
We consent to incorporation by reference in this Amendment No. 2 to Registration
Statement No. 333-06041 on Form S-3 of Borg-Warner Automotive, Inc. of our
report dated April 26, 1996 relating to the balance sheets of NSK-Warner
Kabushiki Kaisha as of March 31, 1996 and 1995, and the related statements of
earnings, stockholders' equity, and cash flows for each of the years in the
three-year period ended March 31, 1996 incorporated by reference in the Annual
Report on Form 10-K for the year ended December 31, 1995, and to the reference
to us under the heading "Experts" in the Prospectus, which is part of such
Registration Statement.
KPMG PEAT MARWICK
Tokyo, Japan
July 22, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Amendment No. 2 to Registration Statement No. 333-06041 of
Borg-Warner Automotive, Inc. on Form S-3 of our report dated June 14, 1996 on
the combined financial statements of the Coltec Automotive OEM Business Group as
of December 31, 1995 and 1994 and for the two years in the period ended December
31, 1995 included in Borg-Warner Automotive Inc.'s current report on Form 8-K
dated June 17, 1996 and to the reference to us under the heading "Experts" in
the Prospectus, which is part of this Registration Statement.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
July 22, 1996.
