<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
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>
David A. Katz, Esq. David J. Beveridge, Esq.
Wachtell, Lipton, Rosen & Katz Shearman & Sterling
51 West 52nd Street 599 Lexington Avenue
New York, New York 10019 New York, New York 10022
(212) 403-1000 (212) 848-4000
</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
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
TITLE OF EACH AMOUNT MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE
- ------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value... 5,134,534 shares $39.8125 $204,418,635 $61,946
</TABLE>
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(1) Includes 634,534 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
January 20, 1997.
------------------------------------
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
All of the securities to be offered pursuant to this Registration Statement
are being sold by the Selling Stockholders and no proceeds will be received by
the Company.
This Registration Statement contains two forms of prospectus: 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 section entitled "Available Information" 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 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 ANY 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 JANUARY 27, 1997
PROSPECTUS
4,500,000 SHARES
[BORG-WARNER AUTOMOTIVE 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 (the "U.S. Offering") by the U.S.
Underwriters (as defined herein) and 900,000 shares are being offered in a
concurrent offering outside the United States and Canada (the "International
Offering" and, together with the U.S. Offering, the "Offerings") by the
International Underwriters (as defined herein). 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 January 24, 1997, the last reported sale price of the
Common Stock on the NYSE was $41.625 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 8.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) SELLING
STOCKHOLDERS(2)
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<S> <C> <C> <C>
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) Before deducting expenses of the Offerings payable by the Company estimated
at $ .
(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 507,627 and 126,907 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 February , 1997.
------------------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INCORPORATED
------------------------
The date of this Prospectus is February , 1997.
<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
40% Ford Expedition
Ford F-Series and Ranger trucks
Range Rover
Mercedes AAV (1997)
Isuzu Big Horn (Japan)
SsangYong Musso (Korea)
Oldsmobile Bravada
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 Sintered mini-vans
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:
- Transmission Chain 19% Contour/Mystique, Taurus/Sable, Town
- Engine Timing Chain Car/Crown Victoria/Continental, and
- Engine Timing Chain F-Series 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 Systems $107.6 All Chrysler vehicles and mini-vans
- Fuel Systems 8% Ford Explorer
- Transmission Systems Ford F-150 and Ranger trucks
Ford mid-sized vehicles (such as the
Taurus/Sable and Contour/Mystique)
Mercedes vehicles
</TABLE>
- ---------------
*Includes $148 million of sales from the Company's manual transmission business
sold in December 1996.
**Through the Company's 50%-owned unconsolidated Japanese joint venture
NSK-Warner K.K.
FORWARD-LOOKING STATEMENTS
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,
PROJECTED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS ARE
DISCUSSED UNDER THE HEADING "RISK FACTORS," BEGINNING ON PAGE 8 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 NYSE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 5
[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> 6
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. 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, the Ford Expedition 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 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%). 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. for
$283 million in cash (the "Coltec Acquisition"). The Coltec
3
<PAGE> 7
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. As a result of
the Coltec Acquisition, the Air/Fluid Systems group will comprise a
significantly greater portion of the Company's revenues. The Coltec Acquisition
was initially financed with borrowings under the Company's revolving credit
facility, which was refinanced in part by the Company's $150 million 7% Senior
Note offering (the "Senior Note Offering") completed in November 1996.
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 positions 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 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 a strong presence in Europe and Asia, which has been further
strengthened by 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.
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 increased market
share achieved during a period of OEM supplier consolidation that has benefited
the Company. 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. Such sales increases
have been accompanied by increases 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> 8
RECENT DEVELOPMENTS
On December 31, 1996, the Company completed the sale of its North American
manual transmission manufacturing business to Transmisiones y Equipos Mecanicos
S.A. de C.V. Under the terms of the agreement the Company received $20.3 million
in cash at closing for certain assets of the business and will receive
approximately $20 million during the transition period (which is expected to
last 18 months during which the business will be transferred to its new
location) for the value of inventory and certain services to be provided by the
Company to the purchaser. The Company took a one-time after tax charge of $35
million or approximately $1.50 per share, in the fourth quarter as a result of
the sale.
On January 17, 1997, the Company announced that it had been selected to
design and produce a complete engine timing chain system for Chrysler's new
overhead cam 4.7 liter, V8 engine. The Company expects to begin producing the
timing systems in late 1998 with volumes expected to eventually reach 425,000
timing systems annually.
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............................. 23,590,840 shares(1)
Dividend policy............................................ $0.15 per share, per quarter.
See "Dividend Policy."
NYSE Symbol................................................ "BWA"
</TABLE>
- ---------------
(1) As of January 23, 1997. Includes 59,000 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; none of which are
expected to be converted into Common Stock in connection with the
Offerings. See "Description of Capital Stock." Excludes 464,609 shares of
Common Stock issuable upon exercise of options held by employees of the
Company and Borg-Warner Security Corporation ("BW-Security").
RISK FACTORS
For information concerning certain factors that should be considered by
prospective investors, see "Risk Factors" beginning on page 8.
5
<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 nine-month
periods ended September 30, 1996 and 1995 has been derived from the consolidated
financial statements of the Company for such periods. The information as of
December 31, 1991, 1992, 1993, 1994 and 1995 is derived from the audited
financial statements of the Company. The information for the nine-month periods
ended September 30, 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>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996(F)
------- ------- ------- ------- ------- ------- -------
(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 $ 982.3 $1,118.4
Cost of sales......................... 660.4 755.2(a) 769.3 948.4 1,044.9 771.0 883.1
Depreciation.......................... 62.0(b) 64.3(a) 57.9 60.9 68.0 51.1 53.7
Selling, general and administrative
expense............................. 77.7 69.6 83.5 92.1 97.8 74.8 89.8
Minority interest..................... (1.3) (1.3) 0.1 1.4 2.0 1.5 1.9
Goodwill amortization................. 9.7 9.7 9.7 9.6 9.6 7.2 9.4
Equity in affiliate earnings and other
income.............................. (9.9) (6.9) (10.6) (10.6) (18.6) (14.8) (13.2)
Interest expense and finance
charges............................. 53.8(d) 44.8(d) 18.4 13.9 14.2 10.7 14.0
Provision for income taxes............ 3.7 2.7 24.3 43.3 37.0 29.0 26.8
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) before cumulative
effect of accounting change......... (35.8) (12.1) 32.8 64.4 74.2 51.8 52.9
Cumulative effect of change in
accounting(b)....................... 4.8 -- (130.8) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss)................... $ (31.0) $ (12.1) $ (98.0) $ 64.4 $ 74.2 $ 51.8 $ 52.9
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share before
cumulative effect of accounting
change(b)........................... -- $ (0.53) $ 1.41 $ 2.75 $ 3.15 $ 2.20 $ 2.25
Net earnings (loss) per share(c)...... -- $ (0.53) $ (4.21) $ 2.75 $ 3.15 $ 2.20 $ 2.25
Average shares outstanding
(thousands)(c)...................... -- 23,005 23,284 23,424 23,562 23,522 23,543
Cash dividend declared per share...... -- -- 0.125 0.45 0.60 0.45 0.45
OTHER OPERATING DATA
Research and development.............. $ 26.9 $ 26.8 $ 25.2 $ 33.8 $ 36.7 $ 27.5 $ 37.7
Capital expenditures.................. 53.9 47.7 65.5 98.8 92.5 57.1 56.5
Number of full-time employees
(thousands)......................... 6.4 6.7 6.6 7.8 8.6 8.2 9.8
Sales per full-time employee
(thousands)......................... $ 128.0 $ 139.0 $ 149.0 $ 158.0 $ 163.0 $ 164.0 $ 167.0
BALANCE SHEET DATA (AT END OF PERIOD)
Net property, plant and equipment..... $ 463.5 $ 412.9 $ 418.3 $ 462.3 $ 523.0 $ 499.3 $ 547.9
Total assets.......................... 1,080.0 1,074.2 1,159.4 1,240.3 1,335.2 1,308.7 1,666.1
Total debt............................ --(d) --(d) 159.6 107.3 134.7 159.0 395.0
BW-Security investment(e)............. 743.5 728.2 -- -- -- -- --
Stockholders' equity(e)............... -- -- 459.1 534.9 600.0 582.9 636.3
</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) See Note 1 to the Company's Consolidated Financial Statements in the
Company's Annual Report (as defined herein) for additional information with
respect to per share calculations.
6
<PAGE> 10
(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 date of 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.
(f) Assuming the acquisition of the Coltec Divisions had occurred on January 1,
1996, pro forma net sales for the nine months ended September 30, 1996 would
have been $1,247.3 million, pro forma net earnings would have been $57.7
million and pro forma net earnings per share would have been $2.45. The pro
forma financial information is not necessarily indicative of the results of
operations which would have occurred had the transaction been consummated on
January 1, 1996, nor is it indicative of results of operations which may
occur in the future.
7
<PAGE> 11
RISK FACTORS
The following factors, as well as the information contained elsewhere or
incorporated by reference 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
1996, the Company expects automotive production in 1997 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.
All three of the Company's primary North American customers, GM, Ford and
Chrysler, have major contracts with the United Automobile, Aerospace and
Agricultural Implement Workers of America (the "UAW") which were renewed in
1996. Because of the United States 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 that 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 that 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 on 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 these OEMs could
elect to manufacture such products 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 net of economic
cost increase adjustments granted in 1995 totalled $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
8
<PAGE> 12
product designs to reduce 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.
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, and in October 1998 for its
Ithaca, New York plant. While the Company believes that its relations with its
employees are good, a prolonged dispute could have a material adverse effect on
the Company.
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 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.
9
<PAGE> 13
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 27
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.
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 $9.5 million
at September 30, 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. The parties have agreed to
submit this matter to binding arbitration which is expected to be completed
during 1997. 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."
10
<PAGE> 14
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 $28.375 $ 0.15
Second Quarter................................................ $43.000 $33.625 $ 0.15
Third Quarter................................................. $40.375 $34.000 $ 0.15
Fourth Quarter................................................ $40.875 $33.250 $ 0.15
1997
First Quarter (through January 24)............................ $42.500 $38.375 --
</TABLE>
On January 24, 1997, the closing price of the Common Stock on the NYSE
Composite Tape was $41.625 per share. Prospective investors should obtain a
current quote on the shares of Common Stock. As of January 23, 1997, there were
approximately 129 holders of record of Common Stock.
DIVIDEND POLICY
A dividend of $0.15 per share was paid on November 15, 1996 to stockholders
of record as of November 1, 1996. On January 21, 1997, the Board of Directors of
the Company (the "Board") declared a dividend of $0.15 per share payable on
February 17, 1997 to stockholders of record as of the close of business on
February 3, 1997. 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.
11
<PAGE> 15
CAPITALIZATION
The following table sets forth the actual capitalization of the Company at
September 30, 1996 and as adjusted for the Senior Note Offering in November
1996. The proceeds from the Senior Note Offering were used to refinance debt
incurred under the Company's revolving credit facility to finance the Coltec
Acquisition. As of January 23, 1997, the Company had total availability of $325
million under its $350 million credit facility. This table should be read in
conjunction with "Selected Historical Financial Data" and the historical
consolidated financial statements of the Company appearing in the Company's
Annual Report and the Company's Form 10-Q for the quarter ended September 30,
1996, which are incorporated by reference herein. See "Incorporation of Certain
Information by Reference." The Company will not receive any of the proceeds from
the Offerings.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------
ACTUAL AS ADJUSTED
------ -----------
(MILLIONS OF DOLLARS)
<S> <C> <C>
Short-term debt:
Bank borrowings...................................................... $ 22.9 $ 22.9
Bank term loans...................................................... 20.0 20.0
Capital lease liability.............................................. 0.1 0.1
------ ------
Total short-term debt............................................. $ 43.0 $ 43.0
====== ======
Long-term debt:
Bank borrowings...................................................... $278.1 $ 128.1
Bank term loans...................................................... 68.2 68.2
Capital lease liability.............................................. 5.7 5.7
Senior notes......................................................... -- 150.0
------ ------
Total long-term debt.............................................. $352.0 $ 352.0
====== ======
Stockholders' equity:
Common stock......................................................... $ 0.2 $ 0.2
Other stockholders' equity........................................... 636.1 636.1
------ ------
Total stockholders' equity........................................ $636.3 $ 636.3
====== ======
</TABLE>
12
<PAGE> 16
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial information
for the Company for the year ended December 31, 1991 through September 30, 1996.
The information as of December 31, 1991, 1992, 1993, 1994 and 1995 is derived
from the audited financial statements of the Company. The information for the
nine-month periods ended September 30, 1996 and 1995 is not audited but, in the
opinion of the Company, is a fair presentation of such information. The
following table should be read in conjunction with the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" elsewhere herein
and in the Company's Annual Report. The information is qualified by reference to
the historical consolidated financial statements of the Company incorporated by
reference herein. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Incorporation of Certain Information
by Reference."
<TABLE>
<CAPTION>
YEAR
ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996(F)
------- ------- ------- ------- ------- ------- -------
(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 $ 982.3 $1,118.4
Cost of sales......................... 660.4 755.2(a) 769.3 948.4 1,044.9 771.0 883.1
Depreciation.......................... 62.0(b) 64.3(a) 57.9 60.9 68.0 51.1 53.7
Selling, general and administrative
expenses............................ 77.7 69.6 83.5 92.1 97.8 74.8 89.8
Minority interest..................... (1.3) (1.3) 0.1 1.4 2.0 1.5 1.9
Goodwill amortization................. 9.7 9.7 9.7 9.6 9.6 7.2 9.4
Equity in affiliate earnings and other
income.............................. (9.9) (6.9) (10.6) (10.6) (18.6) (14.8) (13.2)
Interest expense and finance
charges............................. 53.8(d) 44.8(d) 18.4 13.9 14.2 10.7 14.0
Provision for income taxes............ 3.7 2.7 24.3 43.3 37.0 29.0 26.8
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) before cumulative
effect of accounting change......... (35.8) (12.1) 32.8 64.4 74.2 51.8 52.9
Cumulative effect of change in
accounting(b)....................... 4.8.... -- (130.8) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss)................... $ (31.0) $ (12.1) $ (98.0) $ 64.4 $ 74.2 $ 51.8 $ 52.9
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share before
cumulative effect of accounting
change(c)........................... -- $ (0.53) $ 1.41 $ 2.75 $ 3.15 $ 2.20 $ 2.25
Net earnings (loss) per share(c)...... -- $ (0.53) $ (4.21) $ 2.75 $ 3.15 $ 2.20 $ 2.25
Average shares outstanding
(thousands)(c)...................... -- 23,005 23,284 23,424 23,562 23,522 23,543
Cash dividend declared per share...... -- -- 0.125 0.45 0.60 0.45 0.45
OTHER OPERATING DATA
Research and development.............. $ 26.9 $ 26.8 $ 25.2 $ 33.8 $ 36.7 $ 27.5 $ 37.7
Capital expenditures.................. 53.9... 47.7 65.5 98.8 92.5 57.1 56.5
Number of full-time employees
(thousands)......................... 6.4 6.7 6.6 7.8 8.6 8.2 9.8
Sales per full-time employee
(thousands)......................... $ 128.0 $ 139.0 $ 149.0 $ 158.0 $ 163.0 $ 164 $ 167.0
BALANCE SHEET DATA (AT END OF PERIOD)
Net property, plant and equipment..... $ 463.5 $ 412.9 $ 418.3 $ 462.3 $ 523.0 $ 499.3 $ 547.9
Total assets.......................... 1,080.0 1,074.2 1,159.4 1,240.3 1,335.2 1,308.7 1,666.1
Total debt............................ --(d) --(d) 159.6 107.3 134.7 159.0 395.0
BW-Security investment(e)............. 743.5 728.2 -- -- -- -- --
Stockholders' equity(e)............... -- -- 459.1 534.9 600.0 582.9 636.3
</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) See Note 1 to the Company's Consolidated Financial Statements in the
Company's Annual Report for additional information with respect to per share
calculations.
13
<PAGE> 17
(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 date of 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.
(f) Assuming the acquisition of the Coltec Divisions had occurred on January 1,
1996, pro forma net sales for the nine months ended September 30, 1996 would
have been $1,247.3 million, pro forma net earnings would have been $57.7
million and pro forma net earnings per share would have been $2.45. The pro
forma financial information is not necessarily indicative of the results of
operations which would have occurred had the transaction been consummated on
January 1, 1996, nor is it indicative of results of operations which may
occur in the future.
14
<PAGE> 18
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 an initial public offering ("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.
"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 in the Company's Annual Report and the
Company's Form 10-Q for the quarter ended September 30, 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>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales......................................... 100.0% 100.0% 100.0% 100% 100%
Cost of sales..................................... 78.1 77.5 78.6 78.5 79.0
Depreciation...................................... 5.8 5.0 5.1 5.2 4.8
Selling, general and administrative expenses...... 8.5 7.5 7.4 7.6 8.0
Goodwill amortization............................. 1.0 0.8 0.7 0.7 0.8
Minority interest, affiliate earnings and other
income, net..................................... (1.1) (0.8) (1.2) (1.4) (1.0)
</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.
15
<PAGE> 19
The following table shows net sales by product grouping:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------------
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 $ 410.4 $ 411.0
Automatic Transmission Systems........ 307.6 378.5 454.4 326.2 365.1
Morse TEC............................. 202.3 239.9 257.6 193.8 204.8
Air/Fluid Systems..................... 83.7 97.3 107.6 78.6 165.4
-------- -------- -------- -------- --------
1,012.0 1,245.6 1,364.4 1,009.0 1,146.3
Interbusiness eliminations............ (26.6) (22.2) (35.3) (26.7) (27.9)
-------- -------- -------- -------- --------
Total................................. $ 985.4 $1,223.4 $1,329.1 $ 982.3 $1,118.4
======== ======== ======== ======== ========
</TABLE>
Nine Months Ended September 30, 1996 Compared with Nine Months Ended September
30, 1995
Sales increased 14% in the first nine months of 1996 to $1,118.4 million
from $982.3 million in the first nine months of 1995. Adjusted for the effect of
the manual transmission business decline and the impact of acquisitions, sales
for the Company's core businesses increased 9%, compared with North American
automotive production which was flat, Japanese automotive production which
declined by approximately 2% and European automotive production which increased
by approximately 7%. The overall sales gain, primarily driven by increased
volume, resulted in a $24 million increase in gross profit for the nine months
ended September 30, 1996.
Powertrain Systems sales were flat compared to the prior year due to a
decrease of 34% or $41.6 million in the manual transmission business resulting
from the loss of the GM S-Truck manual transmission business in the summer of
1995 as well as a decline in sales of sports cars which feature the Company's
five and six-speed manual transmissions. The sale of the Company's manual
transmission business was completed in December 1996. See "Prospectus
Summary -- Recent Developments." This decline was offset by a 14% volume
increase in transfer case applications primarily as a result of continued market
penetration, particularly in the light truck area. Automatic Transmission
Systems sales increased 12% due to the acquisition of the Precision Forged
Products Division of Federal-Mogul Corporation ("PFPD") at the end of April
1995, which accounted for 7% of the increase, increased content in certain
automatic transmissions and volume increases by the Company's OEM customers.
Morse TEC sales increased 6% due to increased volume from new timing chain
system applications on overhead cam engines for passenger cars and light trucks
and the initial sales of MORSE GEMINI(TM) Transmission Chain Systems to GM. The
Morse TEC sales increase was offset by a sluggish Japanese market. Air/Fluid
Systems sales increased 110.6% or $86.9 million which includes a contribution of
$63.9 million and $12.3 million related to the Coltec Acquisition and an
acquisition in Tulle, France at December 31, 1995 ("Tulle"), respectively.
Excluding these acquisitions, Air/Fluid Systems sales increased 13.5% primarily
due to volume increases of various solenoids and valves, particularly in
Chrysler applications.
The Company increased its spending on research and development ("R&D") by
$10.2 million for the nine months ended September 30, 1996, due to additional
spending related to the Coltec Divisions and to maintain and expand its
technological expertise in both product and process in all of the Company's core
businesses.
In the third quarter of 1996, the Company realized certain tax credits
related to its R&D programs. Additionally, in the first nine months of 1996, the
Company realized certain tax credits related to its foreign operations. These
realized credits resulted in a lower effective income tax rate for the first
nine months of 1996 than the standard federal and state tax rates. The Company's
effective tax rate was also lower than the standard federal and state tax rates
in 1995 as the Company benefited from R&D tax credits in 1995 as well.
For the nine months ended September 30, 1996 and 1995, the Company's
portion of NSK-Warner's earnings were $10 million and $14.7 million,
respectively. The decline was due to decreasing sales volume and weakening of
the yen by approximately 16% against the dollar between the comparable periods.
16
<PAGE> 20
For the first nine months of 1996, the Company reported $52.9 million in
net earnings, an increase of $1.1 million over the same period of 1995. The
increase can be primarily attributed to increased sales volume in core
operations offset by larger operating losses from the manual transmission
business, lower earnings from the NSK-Warner joint venture and the start-up
problems in Europe with respect to new OEM engine and transmission programs.
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 was responsible
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%.
Powertrain Systems' sales grew by 3% in 1995 (8% excluding a 1994
disposition). In the 4WD transfer case business, the TOD(TM) 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 changes in
technology. 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 or six-speed sporty cars such as the
Ford Mustang, Chevrolet Camaro, Pontiac Firebird and Dodge Viper. See
"Prospectus Summary -- Recent Developments" for a discussion of the Company's
sale of 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 overall automotive sales 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 also should 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 GEMINI(TM) 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 GEMINI(TM) 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
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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.
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 FWD 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 TOD(TM) transfer
case. With the recent acquisitions of Tulle 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 TOD(TM) transfer case, the
MORSE GEMINI(TM) Chain System and the new Ford one-way clutch/drum system, which
the Company began 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
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to $19.0 million in 1995 versus $13.9 million in 1994. The venture experienced
16% sales growth in 1995 to $352 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 GEMINI(TM) 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 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 1993 levels 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
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<PAGE> 23
approximately $5.2 million of additional accruals for environmental and other
liabilities in 1994 and $3.3 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 during 1994 and
1993.
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's
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
September 30, 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 nine months of 1996 despite spending
over $334.3 million for acquisitions over the period. At September 30, 1996
total debt was $395 million, compared with $107.3 million at December 31, 1994.
Cash from operations provided $185.8 million to fund the acquisitions over the
period as well as $150 million of capital spending. At September 30, 1996, debt
represented 38% 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 1995, the Company acquired Tulle, 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 were included
in 1995 for Tulle, but its accounts were included in the December 31, 1995
balance sheet.
The Coltec Acquisition in June 1996 accounted for a cash outflow of $287.8
million. The Company paid $283 million in cash for the businesses and assumed
certain liabilities of the Coltec Divisions. The acquisition was initially
financed with $260 million of borrowings drawn under the Company's $300 million
revolving credit facility and $23 million of borrowings under various money
market facilities, which were refinanced in part by the Company's Senior Note
Offering completed in November 1996. In October 1996, the Company amended its
revolving credit facility, increasing the amount available thereunder from $300
million to $350 million. As of January 23, 1997, the Company had total
availability of $325 million under its $350 million credit facility.
Capital expenditures totaled $93 million in 1995, compared with $99 million
for 1994. Capital expenditures for the first nine months of 1996 were $56.5
million compared to $57.1 million for the first nine months of 1995. Major
spending programs included the Ford large transfer case, expansion of the MORSE
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GEMINI(TM) 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
nine months of 1996 was at a ratio of 1.1 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 combination of cash flow from its
operations and available credit facilities will be adequate to satisfy cash
needs for 1997.
At September 30, 1996, working capital, excluding notes payable, increased
by $56 million, reflecting the working capital of acquisitions. Receivables sold
under the receivables transfer agreement increased by $25 million to $100
million over this period. Net fixed assets increased by $86 million over the
21-month period reflecting the $150 million of capital spending and fixed assets
of acquisitions offset by $122 million of depreciation. Investments and advances
decreased by $4 million despite the NSK-Warner earnings net of dividends. The
dollar appreciation versus the yen is responsible for the decline.
The Company entered into three foreign ventures during this period which
have not required a significant capital investment to date. These ventures are:
- Divgi-Warner Limited ("Divgi-Warner"), a 60%-owned venture that makes
transfer cases, manual transmissions and automatic locking hubs for the
Indian market.
- Warner Ishi Europe S.p.A., a 50%-owned venture that makes turbochargers
in Europe.
- Borg-Warner Automotive-Taiwan Co., Ltd., a 100%-owned subsidiary that
makes chains in Taiwan.
Total assets increased by $264 million due principally to an increase in
goodwill of $242 million from the Coltec Acquisition. Retirement-related
liabilities increased by only $8 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 $101 million over the 21-month period. Earnings totaled
$127 million offset by $25 million in dividends. The currency translation
adjustment declined by $11 million due to a stronger U.S. dollar, while the
minimum pension liability adjustment improved by $3 million due to earnings on
pension assets.
OTHER FINANCIAL CONDITION MATTERS
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 27 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.
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 $9.5 million at September 30, 1996.
The Company expects this amount to be expended over the next three to five
years.
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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. The parties have agreed to
submit this matter to binding arbitration which is expected to be completed
during 1997. 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 matters.
BUSINESS
The Company is a leading, global Tier I supplier of highly engineered
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.
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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 Merrill Lynch Capital Partners, Inc. ("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 a strong presence in Europe and Asia, which has been further
strengthened by 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 "--Coltec Acquisition."
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 increased market
share achieved during a period of OEM supplier consolidation that has benefited
the Company. 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. Such sales increases
have been accompanied by increases 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 over 300 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.
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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 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 include 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.
24
<PAGE> 28
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 24 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 PFPD to enhance its systems capability in
one-way clutches, and it has acquired Tulle in France to provide a local
manufacturing and engineering base for its air/fluid systems products in Europe.
In addition the Company has acquired the Coltec Divisions, which significantly
expands its global air and fluid systems management business. The Company has
also established a majority-owned joint venture for transfer case and manual
transmission manufacturing in India with Divgi Metalwares Private, Ltd.
("Divgi").
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 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 initially financed with borrowings under the
Company's revolving credit facility, which was refinanced in part by the
Company's Senior Note Offering completed in November, 1996. See "--Air/Fluid
Systems."
The Coltec Acquisition provided 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 had 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 better balances 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 permits the Company to further
strengthen its relationships with existing OEM customers, especially Chrysler.
Additionally, with the Company's 1995 acquisition of Tulle, it is well
positioned to begin manufacturing air and fluid management systems in Europe.
One of the Company's strategic objectives is to pursue strategic joint
ventures and selected acquisitions in its existing or related lines of business.
The Coltec Acquisition is evidence of management's commitment to the realization
of this strategy. Management continues to monitor additional growth
opportunities.
The Coltec Divisions added 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; and Longview,
Texas. The Company plans to expand Coltec's historical focus on components for
the North American market to systems throughout the world, especially in Europe.
25
<PAGE> 29
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 nine month
periods ended September 30, 1996 and 1995 are as follows (in millions of
dollars):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Powertrain Systems........................ $ 418.4 $ 529.9 $ 544.8 $ 410.4 $ 411.0
Automatic Transmission Systems............ 307.6 378.5 454.4 326.2 365.1
Morse TEC................................. 202.3 239.9 257.6 193.8 204.8
Air/Fluid Systems......................... 83.7 97.3 107.6 78.6 165.4
-------- -------- -------- -------- --------
1,012.0 1,245.6 1,364.4 1,009.0 1,146.3
Interbusiness eliminations................ (26.6) (22.2) (35.3) (26.7) (27.9)
-------- -------- -------- -------- --------
Net sales................................. $ 985.4 $1,223.4 $1,329.1 $ 982.3 $1,118.4
======== ======== ======== ======== ========
</TABLE>
The sales information presented above excludes the sales by the Company's
unconsolidated joint ventures. See "-- Joint Ventures." Such sales totalled
approximately $394 million in 1995, approximately $316 million in 1994,
approximately $312 million in 1993, approximately $285 million for the nine
months ended September 30, 1996 and approximately $253 million for the nine
months ended September 30, 1995.
POWERTRAIN SYSTEMS
The Company manufactures fully assembled transmission systems and
components for automotive applications. Major products include 4WD and all-wheel
drive transfer cases.
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 and is 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, the Ford Expedition and the Ford F-150 pickup truck.
The Company has entered into an agreement with Mercedes-Benz Project, Inc.,
a subsidiary of MercedesBenz 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 square foot
facility in Seneca, South Carolina, to serve as the production facility for
manufacture of the Mercedes-Benz transfer case.
26
<PAGE> 30
The Company signed an agreement to establish a joint venture in India 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 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 allows 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 GEMINI(TM) 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 GEMINI(TM) 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, drive
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
27
<PAGE> 31
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 Tulle, 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; and Longview,
Texas. The Company plans to expand the Coltec Divisions' historical focus on
components for the North American market to systems throughout the world,
especially in Europe.
JOINT VENTURES
The Company has seven 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 four joint ventures ranges from 39% to 50%.
The results of NSK-Warner, Warner-Ishi Corporation, Beijing Warner Gear Co.,
Ltd. and Warner-Ishi Europe S.p.A. 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, named Divgi-Warner Limited, began operations in the second half of 1996
and is 60%-owned by the Company and 40%-owned by Divgi.
28
<PAGE> 32
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
YEAR OWNED BY LOCATION OF JOINT VENTURE FISCAL
JOINT VENTURE PRODUCTS ORGANIZED THE COMPANY OPERATION PARTNER 1995 SALES
- ---------------------------------- ----------------- --------- ----------- ------------ ----------------- ----------
($ 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
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 Limited............ Transfer cases, 1995 60% India Divgi Metalworks N/A
manual Private, Ltd.
transmissions,
and automatic
locking hubs
Huazhong [Automotive]
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."
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 part
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 9% of total consolidated sales in 1995. The Coltec
Acquisition would have increased Chrysler sales to approximately 13% of sales.
Approximately 26% 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.
29
<PAGE> 33
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. Over
300 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 components and systems. 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 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 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
30
<PAGE> 34
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 September 30, 1996, the Company and its consolidated subsidiaries had
approximately 9,800 salaried and hourly employees (as compared with 8,600
employees at December 31, 1995), of which approximately 8,155 were United States
employees. 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 794 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 1997 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.
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.
31
<PAGE> 35
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 27 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 $9.5 million at September 30, 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. The parties have agreed to
submit this matter to binding arbitration which is expected to be completed
during 1997. 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, two facilities in Germany, Japan, India, China and Italy and one
facility in each of Canada, France, Mexico, Korea, Taiwan and Wales. The 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."
32
<PAGE> 36
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 is 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.
33
<PAGE> 37
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 January 15,
1997.
<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............................. 47 Vice President and Controller
Gary P. Fukayama............................. 49 Executive Vice President
Christopher A. Gebelein...................... 50 Vice President--Business Development
Vice President, Secretary and General
Laurene H. Horiszny.......................... 41 Counsel
Geraldine Kinsella........................... 49 Vice President--Human Resources
Fred M. Kovalik.............................. 59 Executive Vice President
Ronald M. Ruzic.............................. 58 Executive Vice President
Robert D. Welding............................ 48 Vice President
Matthias B. Bowman........................... 48 Director
Albert J. Fitzgibbons, III................... 51 Director
Paul E. Glaske............................... 63 Director
James J. Kerley.............................. 74 Director
Alexis P. Michas............................. 39 Director
Donald C. Trauscht........................... 63 Director
Ivan W. Gorr................................. 67 Director
Jere A. Drummond............................. 57 Director
</TABLE>
Mr. Fiedler has been Chairman of the Board 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 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 from 1988 to December 1991.
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<PAGE> 38
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 BorgWarner Automotive Powertrain Systems Corporation
since March 1994. He was General Manager of Heavy and Medium Duty Transmissions
for 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 BorgWarner 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. 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. He is also a Director of
Rykoff-Sexton, Inc., Pathmark Stores, Inc. and Supermarkets General Holdings
Corporation.
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 Rykoff-Sexton, Inc., BW-Security, Dictaphone 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., a manufacturer of
aircraft engine components from January 1993 until his retirement in December
1994. Mr. Kerley was interim President and Chief Executive Officer of Rohr, Inc.
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
Corporation, DT Industries, Inc. and Goss Graphic Systems, 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 and Goss Graphic Systems, Inc.
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. 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,
35
<PAGE> 39
Baker Hughes Incorporated, ESCO Electronics Corporation, Thiokol Corporation,
Blue Bird Corporation, and IMO Industries, Inc.
Mr. Gorr was Chairman and Chief Executive Officer 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., Fifth Third Bancorp and OHM Corporation.
Mr. Drummond has been President and Chief Executive Officer of BellSouth
Telecommunications, Inc. since January 1, 1995 and was elected a director of
that company in July, 1993. He was Group President-Customer Operations from
March 1991 until December 1994, and from April 1989 until February 1991, Mr.
Drummond was the Executive Vice President-Marketing, Network and Planning for
BellSouth Services Incorporated.
36
<PAGE> 40
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of January 23, 1997 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 shares of Common Stock outstanding as of January 23,
1997. 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 OFFERINGS THE 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)(3)............................. 5,134,534 21.8% 4,500,000 634,534(2) *
FMR Corp.(4).................................. 1,637,400 6.9% -- 1,637,400 6.9%
AIM Management Group Inc.(5).................. 1,198,000 5.1% -- 1,198,000 5.1%
John F. Fiedler............................... 25,000 * -- 25,000 *
Fred M. Kovalik(6)............................ 25,000 * -- 25,000 *
Matthias B. Bowman(7)......................... 0 * -- 0 *
Donald C. Trauscht(8)......................... 6,500 * -- 6,500 *
James J. Kerley(9)............................ 2,500 * -- 2,500 *
Gary P. Fukayama(10).......................... 56,000 * -- 56,000 *
Ronald M. Ruzic(11)........................... 56,168 * -- 56,168 *
Albert J. Fitzgibbons, III(12)................ 0 * -- 0 *
Alexis P. Michas(13).......................... 12,188 * -- 12,188 *
Paul E. Glaske(14)............................ 1,500 * -- 1,500 *
Ivan W. Gorr.................................. 0 * -- 0 *
Jere A. Drummond.............................. 0 * -- 0 *
All directors and executive officers of the
Company as a group (18 persons) (15)........ 282,635 * -- 282,635 *
All Management Investors as a group (10
persons)(16)................................ 204,845 * -- 204,845
</TABLE>
- ---------------
* Less than 1%.
(1) Certain of the entities that are named in footnote 3 below (the "ML
Entities") that are limited partnerships are expected to distribute an
aggregate of between and 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 Distribution, such
partners have agreed to be bound by the same lock-up provision as each
holder 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).
(2) If the Underwriters exercise in full their option to cover over-allotments,
the ML Entities' ownership after the Offerings and the Merrill Lynch
Distribution will be zero.
(3) Shares of Common Stock beneficially owned by ML Entities are owned of
record as follows: 20,135 shares by Merrill Lynch KECALP L.P. 1986; 100,678
shares by Merrill Lynch KECALP L.P. 1987; 251,694 shares by Merchant
Banking L.P. No. I; 251,694 shares by ML Venture Partners II, L.P.;
3,336,743 shares by Merrill Lynch Capital Appreciation Partnership No.
VIII, L.P.; 84,831 shares by ML Offshore LBO Partnership No. VIII; 82,948
shares by ML Employees LBO Partnership No. I, L.P.; and 1,005,811 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.
(4) 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.
(5) 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.
(6) Total includes 25,000 shares issuable upon the exercise of options within
the next 60 days.
37
<PAGE> 41
(7) Mr. Bowman is a limited partner of the following ML Entities which, in the
aggregate, are the holders of record of 3,792,198 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.
(8) Total includes 3,500 shares issuable upon the exercise of options within
the next 60 days.
(9) Total includes 1,500 shares issuable upon the exercise of options within
the next 60 days.
(10) Total includes 47,000 shares issuable upon the exercise of options within
the next 60 days.
(11) Total includes 40,500 shares issuable upon the exercise of options within
the next 60 days.
(12) 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 3, above.
(13) 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 partnerships identified in
footnote 3, above.
(14) Total includes 1,500 shares issuable upon the exercise of options within
the next 60 days.
(15) Total includes 214,200 shares issuable upon the exercise of options within
the next 60 days.
(16) Total includes 142,750 shares issuable upon exercise of options within the
next 60 days.
38
<PAGE> 42
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 January 23, 1997 are as follows:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES SHARES
AUTHORIZED OUTSTANDING*
---------- -----------
<S> <C> <C>
Common Stock...................................................... 50,000,000 23,590,840
Non-Voting Common Stock........................................... 25,000,000 59,000
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 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 stockholders who currently own
approximately 1.6 million shares of Common Stock (in addition to stockholders
who are selling Shares in the Offerings) 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
39
<PAGE> 43
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"). Two such demands have previously been exercised and this
Offering will constitute the third of these four demands. The Registration
Rights Agreement also provides for incidental registration rights in
circumstances in which the Company is registering securities 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 (other than options or shares of Common Stock issuable upon
exercise of options which expire during such 188 day period). Upon consummation
of the Offering, it is expected that the lock-up agreements will cover an
aggregate of approximately 1.4 million shares of Common Stock.
PREFERRED STOCK
The Certificate of Incorporation of the Company (the "Certificate of
Incorporation") authorizes the Board 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
40
<PAGE> 44
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 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 of the
Company (the "Bylaws") provide that the Company's Board 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 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
41
<PAGE> 45
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 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
42
<PAGE> 46
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.
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."
43
<PAGE> 47
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 (the "Proposed Regulations") that are proposed to be effective with
respect to dividends paid 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 to 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 has been, 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 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
44
<PAGE> 48
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 shareholder
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 to or 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. The Proposed Regulations would, if adopted, alter the
foregoing rules in certain respects. Among other things, the Proposed
Regulations would provide certain presumptions under which a Non-U.S.
Shareholder would be subject to backup withholding in the absence of required
certifications. Backup withholding is not an additional tax. 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.
45
<PAGE> 49
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, 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>
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 507,627 additional Shares, and the International
Underwriters options to purchase up to an aggregate of 126,907 Shares, in each
case exercisable for 30 days after the date hereof, to cover over-allotments, if
any, at
46
<PAGE> 50
the public offering price set forth on the cover page of this Prospectus, less
the underwriting discount. To the extent that the U.S. Underwriters exercise
this option, 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 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 bylaws 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. In addition, certain of the ML Entities that are limited
partnerships are expected to distribute an aggregate of between
and shares of Common Stock pursuant to 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 Distribution, such partners have agreed to be bound by the
same lock-up provision as each holder 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 other
date consented to by the Representatives. Furthermore, 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 (other than options or shares of Common Stock
issuable upon exercise of options which expire during such 188 day period). Upon
consummation of the Offering, it is expected that the lock-up agreements will
cover an aggregate of approximately 1.4 million 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. acted as financial advisor to the Company in
47
<PAGE> 51
connection with the disposition of the North American manual transmission
business and received a fee of approximately $500,000. For information regarding
the ownership by the ML Entities of Common Stock and the representation of
affiliates of Merrill Lynch & Co., Inc. ("ML&Co.") on the Board, 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
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, independent
public accountants, 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.
48
<PAGE> 52
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 (the
"Company's Annual Report"); (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
Quarterly Reports on Form 10-Q for the periods ended March 31, 1996, June 30,
1996 and September 30, 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 in writing to
Borg-Warner Automotive, Inc., 200 South Michigan Avenue, Chicago, Illinois
60604, Attention: Investor Relations Department, or by telephone at (312)
322-8500.
49
<PAGE> 53
[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> 54
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE 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.......................... 8
Use of Proceeds....................... 11
Price Range of Common Stock........... 11
Dividend Policy....................... 12
Capitalization........................ 12
Selected Historical Financial Data.... 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 22
Management............................ 34
Principal and Selling Stockholders.... 37
Description of Capital Stock.......... 39
Certain United States Tax Consequences
for Non-U.S. Shareholders........... 44
Underwriting.......................... 46
Legal Matters......................... 48
Experts............................... 48
Available Information................. 48
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
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 55
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 ANY 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 JANUARY 27, 1997
PROSPECTUS
4,500,000 SHARES
[BORG-WARNER AUTOMOTIVE 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 (the "International
Offering") by the International Underwriters (as defined herein) and 3,600,000
shares are being offered in a concurrent offering in the United States and
Canada (the "U.S. Offering" and, together with the International Offering, the
"Offerings") by the U.S. Underwriters (as defined herein). 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. under the
symbol "BWA." On January 24, 1997, the last reported sale price of the Common
Stock on the New York Stock Exchange was $41.625 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 8.
------------------------
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
<TABLE>
<S> <C> <C> <C>
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) SELLING
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) Before deducting expenses of the Offerings payable by the Company estimated
at $ .
(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 126,907 and 507,627 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 , 1997.
------------------------
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INTERNATIONAL
------------------------
The date of this Prospectus is February , 1997.
<PAGE> 56
[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,
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, 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 and the Selling Stockholders 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 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.
46
<PAGE> 57
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
The Selling Stockholders have granted to the International Underwriters
options to purchase up to an aggregate of 126,907 additional Shares, and the
U.S. Underwriters options to purchase up to an aggregate of 507,627 Shares, in
each case exercisable for 30 days after the date hereof, to cover
over-allotments, if any, at the public offering price set forth on the cover
page of this Prospectus, less the underwriting discount. To the extent that the
International Underwriters exercise this option, 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, from 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. In addition, certain of the ML Entities that are limited
partnerships are expected to distribute an aggregate of between and
shares of Common stock pursuant to the Merrill Lynch Distribution. The
exact number of shares distributed will depend upon the Price to Public in the
47
<PAGE> 58
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
Offerings. As a condition to receiving shares of Common Stock in the Merrill
Lynch Distribution, such partners have agreed to be bound by the same lock-up
provision as each holder 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 other date consented to
by the Representatives. Furthermore, 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 (other than options or shares of Common Stock issuable upon
exercise of options which expire during such 188 day period). Upon consummation
of the Offering, it is expected that the lock-up agreements will cover an
aggregate of approximately 1.4 million 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 and certain of the other U.S. Underwriters
or their affiliates from time-to-time provide commercial and investment banking
and other financial services for the Company. Lehman Brothers Inc. acted as
financial advisor to the Company in connection with the disposition of the North
American manual transmission business and received a fee of approximately
$500,000. For information regarding the ownership by the ML Entities of Common
Stock and the representation of affiliates of Merrill Lynch & Co., Inc.
("ML&Co.") on the Board, 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
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, independent
public accountants, given upon the authority of said firm as experts in
accounting and auditing.
48
<PAGE> 59
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
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.
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.
49
<PAGE> 60
[ALTERNATE PAGE FOR INTERNATIONAL 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 (the
"Company's Annual Report"); (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
Quarterly Reports on Form 10-Q for the periods ended March 31, 1996, June 30,
1996 and September 30, 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 in writing to
Borg-Warner Automotive, Inc., 200 South Michigan Avenue, Chicago, Illinois
60604, Attention: Investor Relations Department, or by telephone at (312)
322-8500.
50
<PAGE> 61
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE 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.......................... 8
Use of Proceeds....................... 11
Price Range of Common Stock........... 11
Dividend Policy....................... 12
Capitalization........................ 12
Selected Historical Financial Data.... 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 22
Management............................ 34
Principal and Selling Stockholders.... 37
Description of Capital Stock.......... 39
Certain United States Tax Consequences
for Non-U.S. Shareholders........... 44
Underwriting.......................... 46
Legal Matters......................... 48
Experts............................... 48
Available Information................. 49
Incorporation of Certain Information
by Reference........................ 50
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
4,500,000 SHARES
[BORG-WARNER AUTOMOTIVE LOGO]
COMMON STOCK
--------------------
PROSPECTUS
--------------------
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INTERNATIONAL
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 62
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............................................. $ 61,946
NASD filing fee.............................................. 20,942
Blue Sky fees and expenses................................... 10,000
Printing and related expenses................................ 350,000
Legal fees and expenses...................................... 450,000
Accounting fees and expenses................................. 100,000
Miscellaneous................................................ 107,112
----------
Total.............................................. $1,100,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
("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") of
the Company provides that no director shall be liable to the Company 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.
II-1
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- -------------
<C> <S>
1.1 -- Form of U.S. Purchase Agreement among the Company, the Selling Stockholders,
MLCP and the U.S. Underwriters.
1.2 -- Form of International Purchase Agreement among the Company, the Selling
Stockholders, MLCP 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>
ITEM 17. UNDERTAKINGS.
(a), (c)-(g), (j) Not applicable
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) 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.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(i) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and 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 of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 64
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 Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized in the City of Chicago, State of Illinois, on January 27, 1997.
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
Registration Statement has been signed by the following persons in the
capacities indicated on January 27, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ -----------------------------------------------
<C> <S>
/s/ JOHN F. FIEDLER
- ------------------------------------------ Chairman, Chief Executive Officer, and Director
John F. Fiedler (Principal Executive Officer)
/s/ ROBIN J. ADAMS
- ------------------------------------------ Vice President and Treasurer (Principal
Robin J. Adams Financial Officer)
/s/ WILLIAM C. CLINE
- ------------------------------------------ Vice President and Controller (Principal
William C. Cline Accounting Officer)
*
- ------------------------------------------
Donald C. Trauscht Director
*
- ------------------------------------------
Alexis P. Michas Director
*
- ------------------------------------------
Jere A. Drummond Director
*
- ------------------------------------------
Albert J. Fitzgibbons III Director
*
- ------------------------------------------
Matthias B. Bowman Director
*
- ------------------------------------------
Paul E. Glaske Director
*
- ------------------------------------------
James J. Kerley Director
*
- ------------------------------------------
Ivan W. Gorr Director
/s/ JOHN F. FIEDLER
- ------------------------------------------ As attorney-in-fact for the officers and/or
John F. Fiedler directors marked by an asterisk.
</TABLE>
II-3
<PAGE> 65
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION OF DOCUMENT PAGE NO.
------- ------------------------------------------------------------------- ----------
<C> <S> <C> <C> <C>
1.1 -- Form of U.S. Purchase Agreement among the Company, the Selling
Stockholders, MLCP and the U.S. Underwriters.......................
1.2 -- Form of International Purchase Agreement among the Company, the
Selling Stockholders, MLCP and the International Underwriters......
5 -- Opinion of Wachtell, Lipton, Rosen & Katz..........................
23.1 -- Consent of Deloitte & Touche LLP...................................
23.3 -- Consent of KPMG Peat Marwick.......................................
23.4 -- Consent of Arthur Andersen LLP.....................................
24 -- Power of Attorney..................................................
</TABLE>
<PAGE> 1
Exhibit 1.1
BORG-WARNER AUTOMOTIVE, INC.
(a Delaware corporation)
3,600,000 Shares of Common Stock
U.S. PURCHASE AGREEMENT
Dated: February ____, 1997
<PAGE> 2
Exhibit 1.1 S&S DRAFT
1/23/97
BORG-WARNER AUTOMOTIVE, INC.
(a Delaware corporation)
3,600,000 Shares of Common Stock
(Par Value $.01 Per Share)
U.S. PURCHASE AGREEMENT
February __, 1997
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 507,627 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 507,627
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 126,907
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 ("MLPF&S").
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.
<PAGE> 4
3
From and after the date of the execution and delivery of the U.S. Price
Determination 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-_____) 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
<PAGE> 5
4
Statement are herein referred to collectively as the "Registration Statement".
The Form of 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
<PAGE> 6
5
they were made, not misleading; and (D) if Rule 434 is relied upon, the
Prospectuses 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, 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
<PAGE> 7
6
the dates indicated and the consolidated earnings and cash flows of the
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 or incorporated by reference 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
<PAGE> 8
7
more of the Subsidiaries, in the percentages set forth in Exhibit B
hereto, free and 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
<PAGE> 9
8
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 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
such registration or other similar rights have been disclosed in the
Prospectuses. All such registration or other similar rights have been
complied with or waived.
(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
<PAGE> 14
13
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
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,
and the Investors Stockholders Agreement dated January 27, 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 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 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
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
<PAGE> 16
15
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 507,627
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 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
<PAGE> 17
16
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.
(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.
<PAGE> 18
17
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
(including at least 1 signed copy) of the Registration 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
<PAGE> 19
18
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.
The company will also supply you with such information as is necessary
for the determination of the legality of the Shares for investment
under the laws of such jurisdictions as you may request.
(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
<PAGE> 21
20
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 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.
(o) The Company will use its best efforts to effect the
listing of the Shares on the New York Stock Exchange on or prior to the
date of the U.S. Price Determination Agreement.
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),
<PAGE> 22
21
(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 National Association of Securities Dealers,
Inc. (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 the Blue Sky Survey and (f) the listing fees
and expenses incurred in connection with listing the Shares on the New York
Stock Exchange, Inc.
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
<PAGE> 23
22
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
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
<PAGE> 24
23
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 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
<PAGE> 25
24
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 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
<PAGE> 26
25
in the Registration Statement and the Prospectuses
for them to be in conformity with generally accepted
accounting principles;
(B) at [December 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 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 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
(C) for the period from [January 1], 1997 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 or incorporated by reference 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 or incorporated by reference 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 U.S.
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;
<PAGE> 28
27
(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
[October 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 [December 31], 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 [October 1], 1996 to
[December 31], 1996 and for the period from
[December 31], 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 Boards of Directors since [January 1], 1996, inquired of
certain officials
<PAGE> 29
28
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 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
<PAGE> 30
29
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.
(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
<PAGE> 31
30
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 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
<PAGE> 32
31
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
or Section 20 of the 1934 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 U.S. Underwriter and each person, if
any, who controls any U.S. Underwriter within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 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
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 or Section 20 of the 1934 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 or Section 20 of the 1934 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 or Section 20 of
the 1934 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 MLPF&S 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 Section 15 of
the 1933 Act or Section 20 of the 1934 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
<PAGE> 35
34
Section 15 of the 1933 Act or Section 20 of the 1934 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 notice as promptly as
reasonably practicable 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. In the case of
parties indemnified pursuant to Section 7(a) above, counsel to the indemnified
parties shall be selected by MLPF&S, in the case of parties indemnified pursuant
to Sections 7(b) and (d) above, counsel to the indemnified parties shall be
selected by the Company, and, in the case of parties indemnified pursuant to
Section 7(c) above, counsel to the indemnified parties shall be selected by the
respective Selling Stockholder. An indemnifying party may participate at its own
expense in the defense of any such action; provided, however, that counsel to
the indemnifying party shall not (except with the consent of the indemnified
party) also be counsel to the indemnified party. In no event shall the
indemnifying party or parties be liable for the fees and expenses of more than
one counsel (in addition to any local counsel) separate from their own 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.
(f) No indemnifying party shall, without the prior written
consent of the indemnified parties, which consent shall not be unreasonably
withheld, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
<PAGE> 36
35
Section 7 or Section 8 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(g) If at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 7(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 60 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 45 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request for fees and expenses of counsel prior to the date
of such settlement.
Section 8. Contribution. If the indemnification provided for
in Section 7 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
[Company or the Selling Stockholders] on the one hand and the U.S. Underwriters
on the other hand from the offering of the Shares pursuant to this Agreement or
(ii) if the allocation provided by clause (i) is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
[Company or the Selling Stockholders] on the one hand and of the U.S.
Underwriters on the other hand in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations.
The relative benefits received the [Company or the Selling
Stockholders] on the one hand and the U.S. Underwriters on the other hand in
connection with the offering of the Shares pursuant to this Agreement shall be
deemed to be in the same respective proportions as the total net proceeds from
the offering of the Shares pursuant to this Agreement (before deducting
expenses) received by the Selling Stockholders and the total underwriting
discount received by the U.S. Underwriters, in each case as set forth on the
cover of the Prospectus, or, if Rule 434 is used, the corresponding location on
the Term Sheet, bear to the aggregate initial public offering price of the
Shares as set forth on such cover.
The relative fault of the [Company or the Selling
Stockholders] on the one hand and the U.S. Underwriters on the other hand shall
be determined by reference to,
<PAGE> 37
36
among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact related
to information supplied by the Company or the Selling Stockholders or by the
U.S. Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Stockholders and the U.S.
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 8 were determined by pro rata allocation (even if the
U.S. Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this Section 8. The aggregate amount of losses,
liabilities, claims, damages and expenses incurred by an indemnified party and
referred to above in this Section 8 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in investigating,
preparing or defending against any litigation or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue or alleged untrue statement or omission or
alleged omission.
Notwithstanding the provisions of this Section 8, no U.S.
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages which
such U.S. Underwriter has otherwise been required to pay by reason of any such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who
controls a U.S. Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 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 or Section 20 of the 1934 Act shall have the same rights to contribution as
the Company or a Selling Stockholder, as the case may be. The U.S. Underwriters'
respective obligations to contribute pursuant to this Section 8 are several in
proportion to the principal amount of Shares set forth opposite their respective
names in Schedule A hereto and not joint.
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
<PAGE> 38
37
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 or Section 20 of
the 1934 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 time of
the execution of this Agreement or since the respective dates as of which
information is given in the Registration Statement, any material adverse change
in the condition (financial or otherwise), earnings, 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 or any change or development involving a prospective change
in national or international political, financial or economic conditions, in
each case 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 the New York
Stock Exchange, or if trading generally on the American Stock Exchange or the
New York Stock Exchange or in the Nasdaq National Market has been suspended or
materially limited, 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 such system or by order of the Commission, the New York Stock Exchange, the
NASD or any other governmental authority or (iv) if a banking moratorium has
been declared by either federal, New York or Illinois authorities. For purposes
of this Section 10(a), the deployment of circuit breakers by the American Stock
Exchange, the New York Stock Exchange or the Nasdaq National Market shall not
constitute a material limitation on trading on such exchanges or by such system.
(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 1, 7, 8 and 9 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 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
<PAGE> 39
38
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 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.
<PAGE> 40
39
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: 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 Merrill
Lynch & Co., Inc., World Financial Center, South Tower, New York, New York
10080-6123, Attention: James V. Caruso.
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> 41
40
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:
ML EMPLOYEES LBO PARTNERSHIP MERRILL LYNCH CAPITAL
NO. I, L.P. APPRECIATION PARTNERSHIP
NO. VIII, L.P.
By: ML Employees LBO By: Merrill Lynch LBO
Managers, Inc., Partners No. II, L.P.,
as General Partner as General Partner
By:_______________________________ By:__________________________________
Name: Name:
Title: Title:
MERRILL LYNCH KECALP L.P. 1986 MERRILL LYNCH KECALP L.P. 1987
By: KECALP Inc., By: KECALP Inc.,
as General Partner as General Partner
By:_______________________________ By:__________________________________
Name: Name:
Title: Title:
<PAGE> 42
41
ML OFFSHORE LBO PARTNERSHIP MERCHANT BANKING L.P. NO. 1
NO. VIII
By: Merrill Lynch MBP Inc.,
By: Merrill Lynch LBO as General Partner
Partners No. II, L.P.,
as Investment General Partner By:__________________________________
Name:
By: Merrill Lynch Capital Title:
Partners, Inc.,
as General Partner
ML VENTURE PARTNERS II, L.P.
By:_______________________________
Name: By: MLVP II CO., L.P.,
Title: as General Partner
By: Merrill Lynch Venture Capital
Inc., as General Partner
ML IBK POSITIONS, INC.
By:__________________________________
By:_______________________________ Name:
Name: Title:
Title:
<PAGE> 43
42
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> 44
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> 45
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> 46
SCHEDULE C
<TABLE>
<CAPTION>
ATTORNEY SELLING STOCKHOLDER
- -------- -------------------
<S> <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> 47
Exhibit A
BORG-WARNER AUTOMOTIVE, INC.
(a Delaware corporation)
[3,574,000] Shares of Common Stock
U.S. PRICE DETERMINATION AGREEMENT
February __, 1997
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
February __, 1997 (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> 48
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.
<PAGE> 49
A-3
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 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:
ML EMPLOYEES LBO PARTNERSHIP MERRILL LYNCH CAPITAL
NO. I, L.P. APPRECIATION PARTNERSHIP
NO. VIII, L.P.
By: ML Employees LBO By: Merrill Lynch LBO
Managers, Inc., Partners No. II, L.P.,
as General Partner as General Partner
By:_______________________________ By:___________________________________
Name: Name:
Title: Title:
MERRILL LYNCH KECALP L.P. 1986 MERRILL LYNCH KECALP L.P. 1987
By: KECALP Inc., By: KECALP Inc.,
as General Partner as General Partner
By:_______________________________ By:___________________________________
Name: Name: James V. Caruso
Title: Title: Vice-President
<PAGE> 50
A-4
ML OFFSHORE LBO PARTNERSHIP MERCHANT BANKING L.P. NO. 1
NO. VIII
By: Merrill Lynch MBP Inc.,
By: Merrill Lynch LBO as General Partner
Partners No. II, L.P.,
as Investment General Partner By:___________________________________
Name:
By: Merrill Lynch Capital Title:
Partners, Inc.,
as General Partner
ML VENTURE PARTNERS II, L.P.
By:_______________________________
Name: By: MLVP II CO., L.P.,
Title: as General Partner
By: Merrill Lynch Venture Capital
Inc., as General Partner
ML IBK POSITIONS, INC.
By:___________________________________
By:_______________________________ Name:
Name: Title:
Title:
<PAGE> 51
A-5
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> 52
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
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> 53
B-2
<TABLE>
<CAPTION>
<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> 1
Exhibit 1.2
BORG-WARNER AUTOMOTIVE, INC.
(a Delaware corporation)
900,000 Shares of Common Stock
INTERNATIONAL PURCHASE AGREEMENT
Dated: February __, 1997
<PAGE> 2
Exhibit 1.2 S&S DRAFT
1/23/97
BORG-WARNER AUTOMOTIVE, INC.
(a Delaware corporation)
900,000 Shares of Common Stock
(Par Value $.01 Per Share)
INTERNATIONAL PURCHASE AGREEMENT
February __, 1997
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 126,907
additional shares of Common Stock to cover over-allotments. The aforesaid
900,000 shares of Common Stock (the "Initial International Shares"), together
<PAGE> 3
2
with all or any part of the 126,907 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 507,627
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-_____) 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 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 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
<PAGE> 5
4
Statement". The Form of International 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 earnings and cash flows of the Company, its
<PAGE> 7
6
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
or incorporated by reference 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 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 such
registration or other similar rights have been disclosed in the
Prospectuses. All such registration or other similar rights have been
complied with or waived.
(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
<PAGE> 14
13
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
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, and the Investors Stockholders Agreement
dated January 27, 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
[ ] 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 [ ] 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 copies (including
at least 1
<PAGE> 19
18
signed copy) of the Registration 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)
<PAGE> 20
19
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.
(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. The company will also supply you with such
information as is necessary for the determination of the legality of the
Shares for investment under the laws of such jurisdictions as you may
request.
(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.
<PAGE> 21
20
(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 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 the International 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.
(o) The Company will use its best efforts to effect the listing of
the Shares on the New York Stock Exchange on or prior to the date of the
International Price Determination Agreement.
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
<PAGE> 22
21
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
in accordance with Section 3(f) and any filing for review of the offering with
the National Association of Securities Dealers, Inc. (the "NASD"), including
filing fees and reasonable fees and disbursements of Shearman & Sterling as
counsel for the International Underwriters solely 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
<PAGE> 23
22
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 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
<PAGE> 24
23
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 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
<PAGE> 25
24
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 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:
<PAGE> 26
25
(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 [December 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 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 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
(C) for the period from [January 1], 1997 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
<PAGE> 27
26
(iv) they are unable to and do not express any opinion on the
Pro Forma Financial Data (the "Pro Forma Statement") included or
incorporated by reference 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 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 or incorporated by reference 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:
<PAGE> 28
27
(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 [October 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 [December 31], 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 [October 1], 1996 to [December
31], 1996 and for the period from [December 31], 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
<PAGE> 29
28
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 Boards of Directors
since [January 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 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.
<PAGE> 30
29
(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 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
<PAGE> 31
30
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.
(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
<PAGE> 32
31
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
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 or Section of the 1934 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 or Section of the 1934 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
<PAGE> 33
32
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 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 or Section of the 1934 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 or Section of the 1934 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 or Section of the
1934 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
<PAGE> 34
33
(or any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by Merrill Lynch International
("MLI") 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 Section 15 of the 1933 Act or Section 20 of the 1934 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
<PAGE> 35
34
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 Section 15 of the 1933 Act or Section 20 of the 1934 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 notice as promptly as
reasonably practicable 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. In the case of
parties indemnified pursuant to Section 7(a) above, counsel to the indemnified
parties shall be selected by MLI, in the case of parties indemnified pursuant to
Sections 7(b) and (d) above, counsel to the indemnified parties shall be
selected by the Company, and, in the case of parties indemnified pursuant to
Section 7(c) above, counsel to the indemnified parties shall be selected by the
respective Selling Stockholder. An indemnifying party may participate at its own
expense in the defense of any such action; provided, however, that counsel to
the indemnifying party shall not (except with the consent of the indemnified
party) also be counsel to the indemnified party. In no event shall the
indemnifying party or parties be liable for the fees and expenses of more than
one counsel (in addition to any local counsel) separate from their own counsel
for all
<PAGE> 36
35
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.
(f) No indemnifying party shall, without the prior written consent
of the indemnified parties, which consent shall not be unreasonably withheld,
settle or compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 7 or Section
8 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(g) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 7(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 60 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 45 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request for fees and expenses of counsel prior to the date
of such settlement.
Section 8. Contribution. If the indemnification provided for in
Section 7 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
[Company or the Selling Stockholders] on the one hand and the International
Underwriters on the other hand from the offering of the Shares pursuant to this
Agreement or (ii) if the allocation provided by clause (i) is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the [Company or the Selling Stockholders] on the one hand and of the
International Underwriters on the other hand in connection with the statements
or omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received the [Company or the Selling
Stockholders] on the one hand and the International Underwriters on the other
hand in connection with the offering of the Shares pursuant to this Agreement
shall be deemed to be in the same
<PAGE> 37
36
respective proportions as the total net proceeds from the offering of the Shares
pursuant to this Agreement (before deducting expenses) received by the Selling
Stockholders and the total underwriting discount received by the International
Underwriters, in each case as set forth on the cover of the Prospectus, or, if
Rule 434 is used, the corresponding location on the Term Sheet, bear to the
aggregate initial public offering price of the Shares as set forth on such
cover.
The relative fault of the [Company or the Selling Stockholders] on
the one hand and the International Underwriters on the other hand shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact related to information supplied by the Company or the
Selling Stockholders or by the International Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company, the Selling Stockholders and the International
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 8 were determined by pro rata allocation (even if the
International Underwriters were treated as one entity for such purpose) or by
any other method of allocation which does not take account of the equitable
considerations referred to above in this Section 8. The aggregate amount of
losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section 8 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
investigating, preparing or defending against any litigation or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8, no International
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages which
such International Underwriter has otherwise been required to pay by reason of
any such untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who controls an
International Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 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
<PAGE> 38
37
Statement, and each person, if any, who controls the Company or a Selling
Stockholder within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as the Company or a
Selling Stockholder, as the case may be. The International Underwriters'
respective obligations to contribute pursuant to this Section 8 are several in
proportion to the principal amount of Shares set forth opposite their respective
names in Schedule A hereto and not joint.
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 or Section 20 of the 1934 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 time of the
execution of this Agreement or since the respective dates as of which
information is given in the Registration Statement, any material adverse change
in the condition (financial or otherwise), earnings, 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 or any change or development involving a prospective change
in national or international political, financial or economic conditions, in
each case 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 the New York
Stock Exchange, or if trading generally on the American Stock Exchange or the
New York Stock Exchange or in the Nasdaq National Market has been suspended or
materially limited, 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 such system or by order of the Commission, the New York Stock Exchange, the
NASD or any other governmental authority or (iv) if a banking moratorium has
been declared by either federal, New York or Illinois authorities. For purposes
of this Section 10(a), the deployment of circuit breakers by the American Stock
Exchange, the New York Stock Exchange or the Nasdaq National Market shall not
constitute a material limitation on trading on such exchanges or by such system.
(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
<PAGE> 39
38
provided in Section 4. Notwithstanding any such termination, the provisions of
Sections 1, 7, 8 and 9 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.
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
<PAGE> 40
39
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: Equity Capital Markets; 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
Merrill Lynch & Co., Inc., South Tower, World Financial Center, New York, New
York 10080-6123, Attention: James V. Caruso.
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 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> 41
40
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:
ML EMPLOYEES LBO PARTNERSHIP MERRILL LYNCH CAPITAL
NO. I, L.P. APPRECIATION PARTNERSHIP
NO. VIII, L.P.
By: ML Employees LBO By: Merrill Lynch LBO
Managers, Inc., Partners No. II, L.P.,
as General Partner as General Partner
By:_______________________________ By:_______________________________
Name: Name:
Title: Title:
MERRILL LYNCH KECALP L.P. 1986 MERRILL LYNCH KECALP L.P. 1987
By: KECALP Inc., By: KECALP Inc.,
as General Partner as General Partner
By: _______________________________ By:_______________________________
Name: Name:
Title: Title:
<PAGE> 42
41
ML OFFSHORE LBO PARTNERSHIP MERCHANT BANKING L.P. NO. 1
NO. VIII
By: Merrill Lynch MBP Inc.,
By: Merrill Lynch LBO as General Partner
Partners No. II, L.P.,
as Investment General Partner By:_______________________________
Name:
By: Merrill Lynch Capital Title:
Partners, Inc.,
as General Partner
ML VENTURE PARTNERS II, L.P.
By:_______________________________
Name: By: MLVP II CO., L.P.,
Title: as General Partner
By: Merrill Lynch Venture Capital
Inc., as General Partner
ML IBK POSITIONS, INC.
By:_______________________________
By:_______________________________ Name:
Name: Title:
Title:
<PAGE> 43
42
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> 44
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> 45
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> 46
SCHEDULE C
<TABLE>
<CAPTION>
ATTORNEY SELLING STOCKHOLDER
- -------- -------------------
<S> <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> 47
Exhibit A
BORG-WARNER AUTOMOTIVE, INC.
(a Delaware corporation)
[893,000] Shares of Common Stock
INTERNATIONAL PRICE DETERMINATION AGREEMENT
February __, 1997
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
February __, 1997 (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> 48
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.
<PAGE> 49
A-3
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 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:
ML EMPLOYEES LBO PARTNERSHIP MERRILL LYNCH CAPITAL
NO. I, L.P. APPRECIATION PARTNERSHIP
NO. VIII, L.P.
By: ML Employees LBO By: Merrill Lynch LBO
Managers, Inc., Partners No. II, L.P.,
as General Partner as General Partner
By:______________________________ By:______________________________
Name: Name:
Title: Title:
MERRILL LYNCH KECALP L.P. 1986 MERRILL LYNCH KECALP L.P. 1987
By: KECALP Inc., By: KECALP Inc.,
as General Partner as General Partner
By:______________________________ By:______________________________
Name: Name:
Title: Title:
<PAGE> 50
A-4
ML OFFSHORE LBO PARTNERSHIP MERCHANT BANKING L.P. NO. 1
NO. VIII
By: Merrill Lynch MBP Inc.,
By: Merrill Lynch LBO as General Partner
Partners No. II, L.P.,
as Investment General Partner By:______________________________
Name:
By: Merrill Lynch Capital Title:
Partners, Inc.,
as General Partner
ML VENTURE PARTNERS II, L.P.
By:______________________________
Name: By: MLVP II CO., L.P.,
Title: as General Partner
By: Merrill Lynch Venture Capital
Inc., as General Partner
ML IBK POSITIONS, INC.
By:______________________________
By:______________________________ Name:
Name: Title:
Title:
<PAGE> 51
A-5
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> 52
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
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> 53
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> 1
EXHIBIT 5
[Letterhead of Wachtell, Lipton, Rosen & Katz,
51 West 52nd Street, New York, New York 10019]
January 27, 1997
Borg-Warner Automotive, Inc.
200 South Michigan Avenue
Chicago, Illinois 60604
Ladies and Gentlemen:
We have acted as special counsel to Borg-Warner Automotive, Inc., a
Delaware corporation (the "Company"), in connection with the preparation of the
Registration Statement on Form S-3 of the Company, filed with the Securities and
Exchange Commission (the "Commission") on January 27, 1997 (the "Registration
Statement"), relating to the registration under the Securities Act of 1933, as
amended (the "Securities Act"), of 5,134,534 shares of the Company's Common
Stock, par value $.01 per share (the "Shares"), to be sold pursuant to such
Registration Statement by certain of the Company's stockholders.
In this connection, we have reviewed: (i) the Restated Certificate of
Incorporation and By-Laws of the Company as currently in effect; (ii) the
Registration Statement; (iii) certain resolutions adopted by the Board of
Directors of the Company; and (iv) such other documents, records and papers as
we have deemed necessary or appropriate in order to give the opinions set forth
herein. We are familiar with the proceedings heretofore taken by the Company in
connection with the authorization, registration, issuance and sale of the
Shares. We have, with your consent, relied as to factual matters on certificates
or other documents furnished by the Company or its officers and by governmental
authorities and upon such other documents and data that we have deemed
appropriate. We have assumed the authenticity of all documents submitted to us
as originals and the conformity to original documents of all documents submitted
to us as copies.
<PAGE> 2
Borg-Warner Automotive, Inc.
January 27, 1997
Page Two
We are not members of the Bar of any jurisdiction other than the State of
New York and, with your consent, we express no opinion as to the law of any
jurisdiction other than the laws of the State of New York and the General
Corporation Law of the State of Delaware.
Based on such examination and review and subject to the foregoing, we are
of the opinion that the Shares, when sold in accordance with the terms of the
U.S. Purchase Agreement and the International Purchase Agreement (as such terms
are defined in the Registration Statement), will be legally issued, fully paid
and non-assessable.
We consent to the use of this opinion as an Exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Matters" in
the Prospectus that is a part of the Registration Statement. In giving such
consent, we do not hereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act.
Very truly yours,
/s/ Wachtell, Lipton, Rosen & Katz
DAK
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
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.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Chicago, Illinois
January 24, 1997
<PAGE> 1
EXHIBIT 23.3
[LETTERHEAD OF KPMG PEAT MARWICK]
INDEPENDENT AUDITORS' CONSENT
We consent to incorporation by reference in this Registration Statement 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.
/s/ KPMG PEAT MARWICK
Tokyo, Japan
January 24, 1997
<PAGE> 1
EXHIBIT 23.4
[LETTERHEAD OF ARTHUR ANDERSEN]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement 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.
/s/ ARTHUR ANDERSEN LLP
Detroit, Michigan
January 24, 1997
<PAGE> 1
POWER OF ATTORNEY
The undersigned directors of Borg-Warner Automotive, Inc. (the
'Corporation'), hereby appoint John F. Fiedler, Laurene H. Horiszny and Gaspare
G. Ruggirello as their true and lawful attorneys-in-fact, with full power for
and on their behalf to execute, in their names and capacities as directors of
the Corporation, and to file with the Securities and Exchange Commission on
behalf of the Corporation under the Securities Act of 1933, as amended, any and
all Registration Statements (including any and all amendments or post-effective
amendments thereto) relating to the request from certain shareholders for
registration under the Securities Act of 1933 pursuant to that certain
Registration Rights Agreement dated as of January 27, 1993.
This Power of Attorney automatically ends upon the termination of Mr.
Fiedler's, Ms. Horiszny's and Mr. Ruggirello's service with the Corporation.
In witness whereof, the undersigned have executed this Power of Attorney on
this 27th day of January, 1997.
<TABLE>
<S> <C>
/s/ JOHN F. FIEDLER /s/ DONALD C. TRAUSCHT
- --------------------------------------------- ---------------------------------------------
John F. Fiedler Donald C. Trauscht
/s/ ALEXIS P. MICHAS /s/ ALBERT J. FITZGIBBONS, III
- --------------------------------------------- ---------------------------------------------
Alexis P. Michas Albert J. Fitzgibbons, III
/s/ MATTHIAS B. BOWMAN /s/ JAMES J. KERLEY
- --------------------------------------------- ---------------------------------------------
Matthias B. Bowman James J. Kerley
/s/ IVAN W. GORR /s/ PAUL E. GLASKE
- --------------------------------------------- ---------------------------------------------
Ivan W. Gorr Paul E. Glaske
/s/ JERE A. DRUMMOND
- ---------------------------------------------
Jere A. Drummond
</TABLE>
<PAGE> 2
POWER OF ATTORNEY
The undersigned officer of Borg-Warner Automotive, Inc. (the
"Corporation"), hereby appoints John F. Fiedler, Laurene H. Horiszny and Gaspare
G. Ruggirello as his true and lawful attorneys-in-fact, with full power for and
on his behalf to execute, in his name and capacity as an officer of the
Corporation, and to file with the Securities and Exchange Commission on behalf
of the Corporation under the Securities Act of 1933, as amended, any and all
Registration Statements (including any and all amendments or post-effective
amendments thereto) relating to the request from certain shareholders for
registration under the Securities Act of 1933 pursuant to that certain
Registration Rights Agreement dated as of January 27, 1993.
This Power of Attorney automatically ends upon the termination of Mr.
Fiedler's, Ms. Horiszny's and Mr. Ruggirello's service with the Corporation.
In witness whereof, the undersigned has executed this Power of Attorney on
this 27th day of January, 1997.
/s/ ROBIN J. ADAMS
- --------------------------------------
Robin J. Adams
Vice President and Treasurer
<PAGE> 3
POWER OF ATTORNEY
The undersigned officer of Borg-Warner Automotive, Inc. (the
"Corporation"), hereby appoints John F. Fiedler, Laurene H. Horiszny and Gaspare
G. Ruggirello as his true and lawful attorneys-in-fact, with full power for and
on his behalf to execute, in his name and capacity as an officer of the
Corporation, and to file with the Securities and Exchange Commission on behalf
of the Corporation under the Securities Act of 1933, as amended, any and all
Registration Statements (including any and all amendments or post-effective
amendments thereto) relating to the request from certain shareholders for
registration under the Securities Act of 1933 pursuant to that certain
Registration Rights Agreement dated as of January 27, 1993.
This Power of Attorney automatically ends upon the termination of Mr.
Fiedler's, Ms. Horiszny's and Mr. Ruggirello's service with the Corporation.
In witness whereof, the undersigned has executed this Power of Attorney on
this 27th day of January, 1997.
/s/ WILLIAM C. CLINE
- --------------------------------------
William C. Cline
Vice President and Controller
