SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter ended June 30, 1999
Commission file number: 1-12162
BORG-WARNER AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3404508
State or other jurisdiction of (I.R.S. Employer
Incorporation or organization Identification No.)
200 South Michigan Avenue, Chicago, Illinois 60604
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 322-8500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
On July 31, 1999 the registrant had 26,701,692 shares of Common Stock
outstanding.
<PAGE>
BORG-WARNER AUTOMOTIVE, INC.
FORM 10-Q
SIX MONTHS ENDED JUNE 30, 1999
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements
Introduction 2
Condensed Consolidated Balance Sheets at
June 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations for the three
months ended June 30, 1999 and 1998 4
Consolidated Statements of Operations for the six
months ended June 30, 1999 and 1998 5
Consolidated Statements of Cash Flows for the six
months ended June 30, 1999 and 1998 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures
About Market Risks 20
PART II. Other Information
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of
Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 23
BORG-WARNER AUTOMOTIVE, INC.
FORM 10-Q
SIX MONTHS ENDED JUNE 30, 1999
PART I.
ITEM 1.
A. Borg-Warner Automotive, Inc. and Consolidated Subsidiaries'
Financial Statements
The financial statements of Borg-Warner Automotive, Inc. and consolidated
subsidiaries (collectively, the "Company") have been prepared in accordance with
the instructions to Form 10-Q under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The statements are unaudited but include all
adjustments, consisting only of recurring items, except as noted, which the
Company considers necessary for a fair presentation of the information set forth
herein. The results of operations for the three months ended June 30, 1999 are
not necessarily indicative of the results to be expected for the entire year.
The following financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction with
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
BORG-WARNER AUTOMOTIVE, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions of dollars except share data)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1999 1998
<S> <C> <C>
A S S E T S
Cash and cash equivalents $ 37.2 $ 44.0
Receivables 224.6 185.4
Inventories 169.9 115.7
Deferred income tax asset 11.0 4.7
Investments in businesses held for sale 227.0 16.8
Prepayments and other current assets 11.9 9.5
---------- --------
Total current assets 681.6 376.1
Property, plant, and equipment at cost 1,145.1 1,004.9
Less accumulated depreciation 436.1 370.4
Net property, plant and equipment 709.0 634.5
Investments and advances 145.1 141.9
Goodwill 1,039.7 560.4
Deferred income tax asset 21.3 7.7
Other noncurrent assets 137.4 125.5
-------------- ----------
Total other assets 1,343.5 835.5
-------------- ----------
$2,734.1 $1,846.1
============== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Notes payable $ 110.1 $145.0
Accounts payable and accrued expenses 395.2 276.9
Income taxes payable 51.5 32.2
----------- ----------
Total current liabilities 556.8 454.1
Long-term debt 809.0 248.5
Long-term retirement-related liabilities 335.6 318.6
Other long-term liabilities 49.6 47.6
------------ ----------
Total long-term liabilities 385.2 366.2
Capital stock:
Preferred stock, $.01 par value; authorized
5,000,000 shares; none issued -- --
Common stock, $.01 par value; authorized
50,000,000 shares; issued shares of
27,040,492 in 1999 and outstanding
shares of 26,701,692 in 1999 0.3 0.2
Non-voting common stock, $.01 par value;
authorized 25,000,000 shares; none issued
and outstanding in 1999 -- --
Capital in excess of par value 715.7 566.0
Retained earnings 291.0 230.2
Management shareholder note (2.0) (2.0)
Accumulated other comprehensive income (5.7) 0.5
Common stock held in treasury, at cost:
338,800 shares in 1999 (16.2) (17.6)
-------- -----------
Total stockholders' equity 983.1 777.3
--------- ----------
$2,734.1 $1,846.1
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
BORG-WARNER AUTOMOTIVE, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(millions of dollars except share data)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1999 1998
<S> <C> <C>
Net sales $ 640.8 $ 451.3
Cost of sales 491.7 359.4
Depreciation 22.8 19.3
Selling, general and administrative
expenses 53.5 34.5
Minority interest 0.4 0.8
Goodwill amortization 7.7 4.2
Equity in affiliate earnings and
other income (4.6) (2.9)
------- -------
Earnings before interest expense, finance
charges and income taxes 69.3 36.0
Interest expense and finance charges 12.6 7.0
------ --------
Earnings before income taxes 56.7 29.0
Provision for income taxes 20.4 9.4
------- -------
Net earnings $ 36.3 $ 19.6
======= =======
Net earnings per share
Basic $ 1.36 $ 0.84
Diluted $ 1.35 $ 0.83
Average shares outstanding (thousands)
Basic 26,701 23,568
===== =======
Diluted 26,886 23,773
Dividends declared per share $ 0.15 $ 0.15
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>
BORG-WARNER AUTOMOTIVE, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(millions of dollars except share data)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
------- --------
<S> <C> <C>
Net sales $1,192.1 $ 916.0
Cost of sales 916.1 725.1
Depreciation 43.3 38.6
Selling, general and administrative
expenses 95.9 71.7
Minority interest 0.8 1.5
Goodwill amortization 13.4 8.4
Equity in affiliate earnings and
other income (7.1) (8.4)
------- ------
Earnings before interest expense, finance
charges and income taxes 129.7 79.1
Interest expense and finance charges 21.2 13.0
------- -------
Earnings before income taxes 108.5 66.1
Provision for income taxes 40.1 20.5
Net earnings $ 68.4 $ 45.6
========== ==========
Net earnings per share
Basic $ 2.71 $ 1.94
============ =============
Diluted $ 2.69 $ 1.92
============ ============
Average shares outstanding (thousands)
Basic 25,285 23,568
======= ==========
Diluted 25,453 23,773
======= ==========
Dividends declared per share $ 0.30 $ 0.30
</TABLE> ========= ========
See accompanying Notes to Consolidated Financial Statements
BORG-WARNER AUTOMOTIVE, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(millions of dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
------- ---------
<S> <C> <C>
Operating
Net earnings $ 68.4 $ 45.6
Adjustments to reconcile net earnings
to net cash flows from operating activities:
Non-cash charges to operations:
Depreciation 43.3 38.6
Goodwill amortization 13.4 8.4
Deferred income tax provision 1.6 0.9
Other, principally equity in affiliate
earnings (2.3) (5.7)
Changes in assets and liabilities, net of
effects of acquisitions and divestitures:
Decrease in receivables 19.8 2.5
Increase in inventories (23.4) (16.2)
Decrease in prepayments and other
current assets (5.7) (5.4)
Increase (decrease) in accounts payable
and accrued expenses 51.2 (13.9)
Increase (decrease) in income taxes
payable 20.6 (18.2)
Net change in other long-term assets
and liabilities (3.9) (9.4)
------ ------
Net cash provided by operating
activities 183.0 27.2
Investing
Capital expenditures (57.9) (55.7)
Investment in affiliates 5.3 7.6
Payments for businesses acquired (543.0) -
Proceeds from sale of businesses 11.5 -
Proceeds from other assets 2.8 0.8
------ ------
Net cash used in investing activities (581.3) (47.3)
Financing
Net decrease in notes payable (30.5) (21.9)
Additions to long-term debt 433.9 61.4
Reductions in long-term debt (1.6) (1.4)
Payments for purchases of treasury common stock - (10.9)
Proceeds from options exercised 0.1 0.4
Dividends paid (7.5) (7.1)
------ -------
Net cash provided by financing
activities 394.4 20.5
Effect of exchange rate changes on cash and
cash equivalents (2.9) 0.1
-------- ---------
Net increase (decrease) in cash and
cash equivalents (6.8) 0.5
Cash and cash equivalents at beginning of
year 44.0 13.4
--------- -------
Cash and cash equivalents at end of period $ 37.2 $ 13.9
======== =========
Supplemental Cash Flow Information
Net cash paid during the period for:
Interest $ 18.6 $ 15.5
Income taxes 21.9 24.3
</TABLE>
See accompanying Notes to Consolidated Financial Statements
Borg-Warner Automotive, Inc. and Consolidated Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
(1) Research and development costs charged to expense for the three and six
months ended June 30, 1999 were $22.2 million and $41.2 million, respectively.
Research and development costs charged to expense for the three and six months
ended June 30, 1998 were $17.0 million and $33.2 million, respectively.
(2) Inventories consisted of the following (millions of dollars):
June 30, December 31,
1999 1998
------------ ---------------
Raw materials $ 71.8 $ 57.3
Work in progress 65.8 32.7
Finished goods 32.3 25.7
-------- ------
Total inventories $169.9 $115.7
======== =======
(3) The Company has a 50% interest in NSK-Warner K.K. ("NSK-Warner"), a joint
venture based in Japan that manufactures automatic transmission components and
systems. The Company's share of the earnings or losses reported by NSK-Warner
is accounted for using the equity method of accounting. NSK-Warner has a fiscal
year-end of March 31.
The Company's investment in NSK-Warner was $134.7 million at June 30, 1999
and $133.6 million at December 31, 1998.
Following are summarized financial data for NSK-Warner. Balance sheet data
is presented as of June 30, 1999 and March 31, 1999 and statement of income data
is presented for the three months ended June 30, 1999 and 1998. The Company's
results include its share of NSK-Warner's results for the three and six months
ended May 31, 1999 and 1998.
June 30, March 31,
1999 1999
-------- ----------
Balance Sheet (in millions)
Current assets $ 135.3 $ 143.8
Noncurrent assets 133.8 137.4
Current liabilities (excluding debt) 64.0 69.9
Noncurrent liabilities (excluding debt) 6.9 6.9
Three Months Ended
June 30,
----------
1999 1998
------ --------
Statement of Income (in millions)
Net sales $ 61.7 $ 51.6
Gross profit 13.1 10.1
Net income 5.0 3.0
(4) The Company's provisions for income taxes for the three and six months
ended June 30, 1999 and 1998 are based upon estimated annual tax rates for the
year applied to federal, state and foreign income. The effective rate differed
from the U.S. statutory rate primarily due to a) state income taxes, b) foreign
rates which differ from those in the U.S., c) realization of certain business
tax credits, including foreign tax credits and research and development credits
and d)other non-deductible expenses, such as goodwill.
(5) Following is a summary of notes payable and long-term debt:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
Current Long-Term Current Long-Term
<S> <C> <C> <C> <C>
DEBT (millions of dollars)
Bank borrowings $108.7 $236.4 $144.4 $ 69.5
Bank term loans due through 2003
(at an average rate of 5.1% at June,
1999 and 4.6% at
December 1998) 1.0 23.8 0.2 25.5
7% Senior Notes due 2006,
net of unamortized discount - 149.7 - 149.7
6.5% Senior Notes due 2009,
net of unamortized discount - 198.2 - -
7.125% Senior Notes due 2029,
net of unamortized discount - 197.2 - -
Capital lease liability 0.4 3.7 0.4 3.8
Total notes payable and
long-term debt $110.1 $809.0 $145.0 $248.5
======== ========= ======== =========
</TABLE>
The Company maintains a $350 million revolving credit facility. At June
30, 1999, $200 million of borrowings under the facility were outstanding; at
December 31, 1998, the facility was unused. The facility is available through
September 30, 2001. The credit agreement contains numerous financial and
operating covenants including, among others, covenants requiring the Company to
maintain certain financial ratios and restricting its ability to incur
additional foreign indebtedness.
On February 22, 1999, the Company issued $200 million of 6.5% senior
unsecured notes maturing in February 2009 and $200 million of 7.125% unsecured
notes maturing in February 2029 to partially fund the acquisition of Kuhlman
Corporation ("Kuhlman ").
(6) 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
various 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 42 such sites. This number includes sites associated with
subsidiaries of Kuhlman which the Company currently expects to enter into
agreements to sell by the end of the third quarter. 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; remediation alternatives;
estimated legal fees; and other factors, the Company has established a reserve
in its financial statements for indicated environmental liabilities with a
balance at June 30, 1999 of approximately $12.4 million. The Company expects
this amount to be expended over the next three to five years.
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.
As of June 30, 1999, the Company had sold $150 million of receivables under
a $153 million Receivables Transfer Agreement for face value without recourse.
The Company had sold receivables aggregating $125 million under a $127.5 million
facility at December 31, 1998.
(7) Comprehensive income is a measurement of all changes in shareholders'
equity that result from transactions and other economic events other than
transactions with shareholders. For the Company, this includes foreign currency
translation adjustments in addition to net earnings. The amounts presented as
other comprehensive income, net of related taxes, are added to net income which
results in comprehensive income.
The following summarizes the components of other comprehensive income on a
pretax and after-tax basis for the periods ended June 30,
($ in millions)
Three Months
<TABLE>
<CAPTION>
1999 1998
Income Income
tax After- tax After-
Pretax effect tax Pretax effect tax
--------- -------- ---------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Foreign
currency
translation
adjustments $(4.7) $ 1.7 $(3.0) $(11.5) $ 3.7 $(7.8)
Net income as reported 36.3 19.6
------- -------
Total comprehensive income $33.3 $11.8
======= =======
($ in millions)
Six Months
1999 1998
Income Income
tax After- tax After-
Pretax effect tax Pretax effect tax
------- ------- ------- ------- -------- -----
Foreign currency
translation adjust-
ments $(9.8) $ 3.6 $(6.2) $(11.6) $ 3.7 $(7.9)
Net income as reported 68.4 45.6
------- -------
Total comprehensive income $62.2 $37.7
======= =======
</TABLE>
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information", requires the presentation of
descriptive information about reportable segments which is consistent with the
information made available to the management of the Company to assess
performance. Following is the required information:
Sales
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998
Customers Inter-segment Net Customers Inter-segment Net
<S> <C> <C> <C> <C> <C> <C>
Powertrain Systems $141.4 $ 0.7 $142.1 $127.0 $ 0.6 $127.6
Automatic Transmission
Systems 115.2 2.9 118.1 95.3 2.7 98.0
Morse TEC 250.2 7.4 257.6 119.6 12.4 132.0
Air/Fluid Systems 134.0 1.6 135.6 87.6 1.4 89.0
Divested operations N/A N/A N/A 21.8 0.0 21.8
Intersegment eliminations - (12.6) (12.6) - (17.1) (17.1)
Consolidated $640.8 $ 0.0 $640.8 $451.3 $ 0.0 $451.3
Sales
Six Months Ended June 30, 1999 1998
Customers Inter-segment Net Customers Inter-segment Net
Powertrain Systems $290.8 $ 1.5 $292.3 $260.2 $ 1.3 $261.5
Automatic Transmission
Systems 227.6 6.0 233.6 196.0 5.5 201.5
Morse TEC 434.9 14.6 449.5 241.5 19.0 260.5
Air/Fluid Systems 238.8 3.5 242.3 175.3 4.8 180.1
Divested operations N/A N/A N/A 43.0 0.0 43.0
Intersegment
eliminations - (25.6) (25.6) - (30.6) (30.6)
Consolidated $1,192.1 $ 0.0 $1,192.1 $916.0 $ 0.0 $916.0
</TABLE>
<TABLE>
<CAPTION> Earnings Before Earnings Before
Interest & Taxes Interest & Taxes
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
-------- -------- --------- ----------
<S> <C> <C> <C> <C>
Powertrain Systems $ 10.4 $ 4.8 $ 21.3 $ 11.8
Automatic Transmission
Systems 14.0 7.9 28.2 18.0
Morse TEC 27.6 11.5 56.7 30.2
Air/Fluid Systems 13.9 6.3 23.7 13.0
Divested operations N/A 0.6 N/A 0.1
Intersegment eliminations - - - -
---------- --------- -------- ----
Total 65.9 31.1 129.9 73.1
Corporate, including 3.4 4.9 (0.2) 6.0
equity in affiliates
Consolidated $ 69.3 $ 36.0 $ 129.7 $79.1
======== ======== ======== ======
</TABLE>
Total Assets
June 30, December 31,
1999 1998
Powertrain Systems $ 262.3 $ 288.1
Automatic Transmission
Systems 440.3 434.8
Morse TEC 1,337.2 649.0
Air/Fluid Systems 433.7 380.0
Divested operations N/A 13.9
Intersegment eliminations (3.8) (4.9)
Total 2,469.7 $1,760.9
Corporate, including 264.4 85.2
equity in affiliates
Consolidated $2,734.1 $1,846.1
========== =========
The Company's torque converter and connecting rod businesses sold in 1998
had previously been included in the results of the Automatic Transmission
Systems segment.
(9) On March 1, 1999, the Company acquired all the outstanding shares of common
stock of Kuhlman for a purchase price of approximately $693 million in a merger
transaction (the "Merger"). The Company funded the transaction by issuing
3,286,596 shares of the Company's common stock valued at approximately $150
million and borrowing approximately $543 million in cash. Subject to the
provisions of the Agreement and Plan of Merger among the Company, BWA Merger
Corp., and Kuhlman, dated as of December 17, 1998, each outstanding share of
Kuhlman common stock was converted into the right to receive (1) $39.00 in cash,
without interest, or (2) $39.00 worth of shares of Borg-Warner Automotive common
stock. In addition, the Company assumed additional indebtedness for the
settlement of certain long-term incentive programs and severance programs, which
amounted to approximately $14 million, net of tax benefits. Substantially all
of such payments were made prior to closing, excluding the tax benefit, and are
included in Kuhlman's debt balance at the date of the merger. Subsequent to the
merger, the Company refinanced Kuhlman's existing indebtedness of $132 million.
The Company intends to enter into agreements to sell Kuhlman's electrical
products businesses by the end of the third quarter. In the June 30, 1999
Consolidated Balance Sheet, the Company's net investment in the electrical
products businesses is reflected as an asset held for sale in current assets.
The investment includes a portion of the goodwill related to the merger. The
amount of goodwill was allocated based on the relative historical performance of
the electrical products businesses compared with the total Kuhlman business.
The Company believes that the net investment in the electrical products
businesses is not greater than the amounts that the Company will receive upon
sale of the businesses. Proceeds from the sales will be used to repay
indebtedness.
The Company has accounted for the merger as a purchase for financial
reporting purposes. Accordingly, the Consolidated Statements of Operations
include Kuhlman's results since the date of acquisition. The purchase price of
Kuhlman is calculated as the sum of the value of the equity issued, the net cash
paid, and the Company's transaction costs. A preliminary allocation of the
purchase price has been performed with the excess of the purchase price over the
book value of the identifiable tangible and intangible assets acquired, less the
liabilities assumed and incurred, and the amount allocated to the businesses
held for sale, recorded as goodwill to be amortized over a period of 40 years.
The actual amount of goodwill will vary from the estimate currently recorded
based upon the final purchase price allocation and the difference between the
expected and actual proceeds received from the sales of the electrical products
businesses. The Company is currently performing a revaluation of the basis of
Kuhlman's acquired assets and assumed liabilities to fair value. Changes in
goodwill and the related amortization expense resulting from these revaluations
may be material. The preliminary allocation of the purchase price is as follows
(in millions):
Purchase price $ 686.2
Transaction costs 6.8
----------
Total purchase price $ 693.0
The purchase price has been allocated as follows (in millions):
Fair value of assets acquired $ 187.8
Businesses held for sale 212.0
Goodwill 424.8
Liabilities assumed (131.6)
----------
$ 693.0
===========
The pro forma consolidated statements of operations information was
prepared assuming that the merger had occurred on January 1, 1998. The pro
forma information includes the following adjustments: i) the effects of
amortization of the goodwill related to the merger (which is being amortized
over a 40-year life), ii) interest expense on borrowings incurred to finance the
merger, iii) the elimination of expenses related to Kuhlman's corporate
headquarters which has been closed, iv) exclusion of revenues, costs and
expenses for the electrical products businesses, including an allocation of
goodwill amortization and interest expense, and v) tax effects of all the
preceding adjustments.
Pro forma (in millions):
Six Months Ended
June 30, Year Ended
1999 1998 December 31, 1998
Revenue $1,270.8 $1,146.6 $2,293.3
Net earnings 69.1 51.7 107.8
Net earnings per share
Basic $ 2.59 $ 1.94 $ 4.03
Diluted $ 2.57 $ 1.92 $ 4.00
The pro forma results are presented for informational purposes only and do
not purport to be indicative of what the actual results would have been had the
merger occurred as described above for the periods presented. The pro forma
consolidated statements of operations information should not be considered
indicative of the results of future operations of the merged companies.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Borg-Warner Automotive, Inc. (the "Company") operates as a leading global
supplier of highly engineered systems and components for vehicle powertrain
applications. Its products are manufactured and sold worldwide, primarily to
original equipment manufacturers ("OEMs") of passenger cars, sport utility
vehicles, trucks, commercial transportation products and industrial equipment.
The Company operates manufacturing facilities serving customers in North
America, South America, Europe and Asia, and is an original equipment supplier
to every major OEM in the world.
The following discussion covers the results of operations for the three and six
months ended June 30, 1999 and 1998 and financial condition as of June 30, 1999
and December 31, 1998.
RESULTS OF OPERATIONS
The Company's products fall into four reportable operating segments: Powertrain
Systems, Automatic Transmission Systems, Morse TEC and Air/Fluid Systems. The
following tables present net sales and earnings before interest and taxes ("EBIT
") by segment for the three and six months ended June 30, 1999 and 1998 in
millions of dollars.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
<S> <C> <C> <C>
Net Sales 1999 1998 1999 1998
Powertrain Systems $142.1 $127.6 $ 292.3 $261.5
Automatic Transmission Systems 118.1 98.0 233.6 201.5
Morse TEC 257.6 132.0 449.5 260.5
Air/Fluid Systems 135.6 89.0 242.3 180.1
Divested operations - 21.8 - 43.0
-------- -------- --------- --------
653.4 468.4 1,217.7 946.6
Intersegment eliminations (12.6) (17.1) (25.6) (30.6)
-------- -------- --------- -------
Net sales $640.8 $451.3 $1,192.1 $916.0
========= ======== ========== ==========
Three Months Six Months
Ended June 30, Ended June 30,
EBIT 1999 1998 1999 1998
Powertrain Systems $10.4 $ 4.8 $ 21.3 $11.8
Automatic Transmission Systems 14.0 7.9 28.2 18.0
Morse TEC 27.6 11.5 56.7 30.2
Air/Fluid Systems 13.9 6.3 23.7 13.0
Divested operations - 0.6 - 0.1
------- -------- -------- ------
Earnings before interest and
taxes $65.9 $31.1 $129.9 $73.1
======== ======= ====== =======
</TABLE>
Consolidated sales of $640.8 million for the quarter ended June 30, 1999 were
42% higher than the second quarter sales in the prior year. Adjusted for the
effects of the Kuhlman acquisition and the product lines divested in 1998, sales
increased by 14%. As shown in the above table, the improvement was spread
across each of the operating segments. Overall, the increase is attributable to
strong worldwide vehicle production, the continued popularity of trucks and
sport utility vehicles, the trend toward turbocharged direct injected diesel
engines in Europe, and increased Borg-Warner Automotive content in new engine
and automatic transmission programs. Year over year comparisons also benefit
from the negative impacts on 1998 sales of the strike at General Motors and the
low installation rate of 4WD drive products on a major truck model.
Powertrain Systems' second quarter 1999 sales and EBIT exceeded 1998 results by
$14.5 million and $5.6 million, or 11% and 117%, respectively. The segment
benefited from an increase in four-wheel drive installation rates, particularly
on Ford light trucks and volume increases for the Mercedes-Benz M-Class All
Activity Vehicle. Also, with the stabilization of the Asian economy, shipments
to Ssangyong, a division of Daewoo, in Korea showed improvement over the prior
year. Given these improvements, year over year Powertrain Systems comparisons
are expected to remain strong over the next few quarters. Net of product lines
divested in 1998, Automatic Transmission Systems sales and EBIT increased by
$20.1 million and $6.1 million, or 21% and 77%, respectively. Strong European
demand, stabilized economic conditions in Asia, and improved sales of General
Motors mid-sized passenger cars contributed to the improvement. This segment
was also heavily impacted by the GM strike in the second quarter of 1998.
Automatic Transmission Systems results are expected to remain strong throughout
1999. The Morse TEC segment experienced continued growth as sales and EBIT rose
by $125.6 million and $16.1 million, respectively. Net of the effect of the
Kuhlman acquisition, sales increased by $39.6 million, or 30%, and EBIT improved
by $5.6 million, or 49%. Morse TEC's strong growth is mainly attributable to
the increased proportion of direct-injection diesel engines with turbochargers
in European passenger cars and the continued strong demand for its chain
products at Ford and DaimlerChrysler due to the popularity of overhead cam
engines. The positive trend at Morse TEC is expected to continue throughout
1999, particularly as the Company expands its worldwide turbocharger capacity.
Air/Fluid Systems sales and EBIT also improved from the second quarter of 1998,
with sales increasing by 52% and EBIT by 121%. Net of the business attributed
to Air/Fluid Systems as part of the Kuhlman acquisition, sales and EBIT
increased by $10.0 million, or 11%, and $2.3 million, or 37%, respectively. The
growth was mainly driven by the ramp-up of new engine and transmission programs
at Chrysler. Continued growth is expected due to increased worldwide emphasis
on reduced emissions and direct injection engines.
Sales for the first six months of 1999 increased 30% to $1,192.1 million from
$916.0 million for the first six months of 1998. Adjusted for the effects of
the Kuhlman acquisition and the product lines divested in 1998, sales increased
by 12%. The Company's year-to-date sales growth has outpaced worldwide
automobile and light truck production which increased by 10% and 4% in North
America and Europe, respectively, while remaining essentially flat in Japan.
The Company expects industry trends to continue to favor the Company throughout
the year.
Consolidated gross margin through the first six months of 1999 was 23.2%, up
from 20.8% in the first half of 1998. Higher sales volume with a favorable mix,
successful cost reduction programs and productivity improvements, inclusion of
higher margin business from the Kuhlman acquisition, and divestiture of lower
margin operations in 1998 drove the improvement.
The Company has continued its increase in spending on research and development
("R&D") in 1999 in order to maintain and expand its technological expertise in
both product and process. Through June 1999, R&D spending has totaled $41.2
million, or 3.5% of sales, a 24% increase over R&D spending in the first half of
1998. Net of the Kuhlman acquisition, R&D spending totaled $36.6 million
through the first half of 1999.
Equity in affiliate earnings for the three months ended June 30, 1999 and 1998,
amounted to $4.1 million and $2.8 million, respectively. June 1999 year to date
versus 1998 totaled $6.1 million and $5.0 million, respectively. Substantially
all of the income is related to the Company's stake in its Japanese joint
venture, NSK-Warner. Even though the Japanese economy has shown signs of
improvement, the Company remains cautious about a substantial recovery and does
not expect equity in affiliate earnings to make a significant contribution to
overall corporate performance in 1999.
Interest expense and finance charges increased by $8.2 million to $21.2 million
through June 1998 due mainly to the additional debt required to fund the Kuhlman
acquisition. As a percent of sales, interest expense and finance charges
increased to 1.8% from 1.4% in the prior year.
The Company's income taxes are based upon estimated annual tax rates for the
year. The effective tax rate used for 1999 reflects certain tax credits related
to research and development programs and foreign operations that the Company
expects to realize. As such, the anticipated effective income tax rate for 1999
is slightly lower than the standard federal and state tax rates. The effective
rate is higher than in 1998 due mainly to the non-deductibility of goodwill
related to the Kuhlman acquisition and an increase in income from foreign
operations with higher tax rates.
For the quarter ended June 30, 1999, the Company reported net earnings of $36.3
million, or $1.35 per diluted share, an increase of $16.7 million and $0.52,
respectively, compared to 1998. Year to date earnings of $68.4 million, or
$2.69 per diluted share, far exceeded 1998 earnings for the same period of $45.6
million, or $1.92 per diluted share. The factors discussed above are
responsible for the change. Because of the additional shares issued, the
Kuhlman acquisition had only a minor impact on earnings per share in the first
half of 1999. Net of the Kuhlman acquisition, net income would have been $63.3
million , or $2.69 per diluted share.
FINANCIAL CONDITION AND LIQUIDITY
The Company's cash and cash equivalents decreased by $6.8 million at June 30,
1999 compared with December 31, 1998. The $543.0 million cash paid for the
acquisition of Kuhlman was partly funded by proceeds from long-term debt
issuances and the excess of cash generated from operating activities over
capital expenditures. In addition to the cash paid, the Kuhlman acquisition was
funded by non-cash consideration, including the exchange of $150.0 million of
the Company=s common stock and the assumption, and subsequent refinancing, of
$131.6 million of debt.
Cash generated from operations for the six months ended June 30, 1999 totaled
$183.0 million. Operating cash flow consisted of net earnings of $68.4 million,
$56.0 million of non-cash charges, including $43.3 million of depreciation, and
a $58.6 million decrease in net operating assets and liabilities. The increase
in depreciation is related to four months of activity at the new Kuhlman
business and increased capital expenditures in recent years. The decrease in
net operating investment primarily resulted from decreased receivables and
increased payables and accruals. Operating cash flow benefited from collection
of a $33 million payment a major customer had deferred at year-end 1998, offset
partly by increased receivable balances consistent with the increase in sales.
The increase in the effective income tax rate as explained above accounts for
the impact from income taxes payable.
For the six months ended June 30, 1999, capital spending increased $2.2
million to $57.9 million compared to the same period of 1998. The Company
anticipates that capital spending for full-year 1999 will be significantly
higher than 1998 due to the Kuhlman acquisition, additional spending to increase
worldwide turbocharger capacity and continued funding of other existing and new
programs.
In the second quarter of 1999, the Company received $11.5 million for the
sale of a facility, thereby completing the 1998 divestiture of its torque
converter business.
On February 22, 1999, the Company issued $200 million of 6.5% senior
unsecured notes maturing in February 2009 and $200 million of 7.125% unsecured
notes maturing in February 2029 to partially fund the Kuhlman acquisition. Free
cash flow from operations since this issuance has been used to repay $30.5
million of notes payable. Borrowings under the Company=s revolving credit
facilities accounted for the remainder of the additions to long-term debt for
the year.
An agreement with a financial institution to sell, without recourse,
eligible receivables was amended from $127.5 million to $153 million in the
first quarter of 1999. At June 30, 1999, the Company had sold $150 million of
receivables under the agreement and $125 million was sold at December 31, 1998.
The Company maintains a $350 million revolving credit facility. At June
30, 1999, $200 million of borrowings under the facility were outstanding; at
December 31, 1998, the facility was unused. The facility is available through
September 30, 2001. The Company believes that the combination of cash from its
operations and available credit facilities will be sufficient to satisfy cash
needs for its current level of operations and planned operations for the
remainder of 1999 and for the foreseeable future.
OTHER MATTERS
Acquisition of Kuhlman Corporation
On March 1, 1999, the Company acquired all the outstanding shares of common
stock of Kuhlman, at a purchase price of $693 million. The Company funded the
transaction by borrowing approximately $543 million and issuing 3,286,596 shares
of Borg-Warner Automotive common stock with a value of $150 million.
Kuhlman was a diversified industrial manufacturing company that operated in
two product segments: industrial products and electrical products. Kuhlman's
Schwitzer Group, which included the industrial products business, was a leading
worldwide manufacturer of proprietary engine components, including
turbochargers, fans and fan drives, fuel tanks, instrumentation,
heating/ventilation/air conditioning systems, and other products used primarily
in commercial transportation products and industrial equipment. The Company is
in the process of integrating the former Schwitzer units and has included their
results since the date of the acquisition, including $165.4 million in sales in
the consolidated financial statements. The electrical products businesses
acquired from Kuhlman include the manufacture of transformers and other products
for electrical utilities and industrial users, as well as electrical and
electronic wire and cable products for use to enter into agreements in consumer,
commercial and industrial applications. The Company does not feel these
products fit the strategic direction of the Company and intends to enter into
agreements to sell the electrical products businesses by the end of the year.
These businesses are accounted for as a business held for sale in the
consolidated balance sheets, and as such, no sales or income since the date of
acquisition are included in the consolidated results of the Company.
Pending Acquisition of Eaton Corp.'s Fluid Power Division
On August 3, 1999, the Company announced an agreement to acquire Eaton
Corp.'s Fluid Power Division, one of the world's leading manufacturers of
powertrain cooling solutions for the global automotive industry, for
approximately $310 million. The transaction is expected to close in the second
half of 1999 and is subject to customary regulatory review. The Fluid Power
Division, with sales of approximately $190 million, designs and produces a
variety of viscous fan drive cooling systems primarily for passenger vehicles
such as light trucks, sport-utility vehicles and vans. Along with the
commercial cooling systems business acquired from Kuhlman in March, 1999, this
acquisition will position the Company to globalize modular cooling systems
integration opportunities across a full range of vehicle types. The Company is
investigating a variety of alternatives for the financing of this acquisition.
Litigation
As discussed more fully in Note 6 of the Notes to the Consolidated
Financial Statements, various claims and suits seeking money damages arising in
the ordinary course of business and involving environmental liabilities have
been filed against the Company. In each of these cases, the Company believes
that it has a defendable position and has made adequate provisions to protect
the Company from material losses. The Company believes that it has established
adequate provisions for litigation liabilities in its financial statements in
accordance with generally accepted accounting principles.
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, although no assurance can be given with respect to the
ultimate outcome of any such matter.
Dividends
On July 20, 1999, the Company declared a $0.15 per share dividend to be
paid on August 16, 1999 to shareholders of record on August 2, 1999.
Year 2000 Issues
The Company is in the process of upgrading certain aspects of its
operations to ensure that business systems do not fail to function when the Year
2000 arrives or at other date intervals. The Company has completed an inventory
of key systems and equipment with potential Year 2000 issues in the areas of
business operating systems, manufacturing operations, operating infrastructure,
customers and suppliers. This included an identification of mission critical
systems, an assessment of the readiness of applications for Year 2000 and the
corrective action needed, if any.
The Company is also participating in the process coordinated by the
Automotive Industries Action Group ("AIAG"), a group sponsored by the major U.S.
automakers. The process consists of ongoing surveys to measure a company's
state of readiness and its progress on the assessment and remediation stages of
its program. The survey results are used to monitor progress against
remediation action plans.
The Company's program to become Year 2000 compliant is being operated on an
enterprise-wide basis. A coordinator has been assigned overall administrative
responsibility; however, each operating unit is responsible for compliance at
its location. As of June 30, 1999, substantially all of the Company's
operations had completed remedial actions to become Year 2000 compliant or are
expected to be compliant by September 1999. The Company's exposure to an
enterprise-wide failure is less likely because of the relative autonomy of the
operating units. Key suppliers and other third parties have confirmed their
systems and applications that affect the Company will be Year 2000 compliant.
Concurrent with the Year 2000 effort, the process of upgrading certain
business operating systems at a number of operating units to improve both
business operations and control is underway. Any new system acquired is
required to be certified as Year 2000 compliant. The Company will spend
approximately $13 million for new systems, to upgrade systems and equipment and
for other efforts to ensure compliance with Year 2000 between 1997 and 1999.
These costs will be paid for with cash from operations. The bulk of such
spending will provide for system improvements and enhancements including
compliance with Year 2000. Through June 30, 1999, spending has totaled
approximately $11 million. Spending solely related to Year 2000 compliance is
not expected to be material to either the financial position or results of
operations for any given period.
As with any program to upgrade business systems, there are risks that
programs will not be completed on schedule and that programs will not accomplish
all that they were supposed to accomplish. The chance of this happening
throughout the Company is remote. Moreover, the impact of individual failures
to upgrade timely and effectively would most likely be a reduced level of
quality control for the affected operations and a substantial increase in manual
intervention in areas such as material planning and inventory control,
statistical process control, and financial and operational recordkeeping.
Substantial contingency plans are not in place because the Company believes
that its efforts will be successful. However, specific procedures required to
keep our operations functioning in the event of delays or machine failures have
been identified. As mentioned above, the Company has identified key suppliers
and requested confirmation as to their Year 2000 compliance. Supplier responses
are currently being verified, including supplier audits and other actions as
appropriate. The Company is also considering the availability of alternative
supply sources in the event that they are needed.
The Company cannot provide any assurance that the correction actions being
implemented will prevent dating systems problems or that the cost of doing so
will not be material. In addition, disruptions with respect to the computer
systems of vendors or customers, including both information technology ("IT")
and non-IT systems could impair the Company's ability to obtain necessary
materials or products to sell to or serve its customers. Disruptions of computer
systems or the computer systems of vendors or customers, as well as the cost of
avoiding such disruption, could have a material adverse effect upon the
financial position or operating results of the Company.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which is required to be adopted in fiscal
years beginning after June 15, 2000. SFAS 133 requires that all derivatives be
recognized as either assets or liabilities in the balance sheet and that
derivative instruments be measured at fair value. The Company is in the process
of determining the effect SFAS 133 will have on the Company's financial position
and results of operations.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Statements contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") may contain forward-
looking statements as contemplated by the 1995 Private Securities Litigation
Reform Act that are based on management's current expectations, estimates and
projections. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "estimates," variations of such words and similar expression are
intended to identify such forward-looking statements. Forward-looking
statements are subject to risks and uncertainties, which could cause actual
results to differ materially from those projected or implied in the forward-
looking statements. Such risks and uncertainties include: fluctuations in
domestic or foreign automotive production, the continued use of outside
suppliers, fluctuations in demand for vehicles containing the Company's
products, general economic conditions, as well as other risks detailed in the
Company's filings with the Securities and Exchange Commission, including the
Cautionary Statements filed as Exhibit 99.1 to the Form 10-K for the fiscal year
ended December 31, 1998.
Item 3. Quantitative and Qualitative Disclosure about Market Risks
The Company's market risk exposure at June 30, 1999 is consistent with the types
of market risk and amount of exposure presented in its 1998 Annual Report on
Form 10-K.
PART II
Item 1. Legal Proceedings
Inapplicable.
Item 2. Changes in Securities
Inapplicable.
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
On April 27, 1999, the Company held its annual meeting of stockholders. At
such meeting, William E. Butler, Paul E. Glaske and John Rau were elected as
directors to serve for a term expiring in 2002. Each of Andrew F. Brimmer, Jere
A. Drummond, John F. Fiedler, Ivan W. Gorr, John J. Kerley and Alexis P. Michas
continued to serve as directors following the meeting. At such meeting, the
following votes were cast in the election of directors:
William E. Butler 20,169,728 176,223 89,259
Paul E. Glaske 20,149,527 196,424 109,460
John Rau 20,175,217 170,734 83,770
At such meeting, the selection of Deloitte & Touche LLP as independent
auditors was approved by the following votes:
For Against Abstain Not-Voted
20,311,663 16,466 17,822 5,516,017
Item 5. Other Information
Inapplicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
1. Terms Agreement dated February 17, 1999 among the Company,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan
Stanley & Co. Incorporated, for themselves and as Representatives
of the other Underwriters named therein.
4.1 The Company's 6 1/2 % Global Note due 2009.
4.2 The Company's 7 1/8 % Global Note due 2029.
27 - Financial data schedule
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
BORG-WARNER AUTOMOTIVE, INC.
(Registrant)
By /s/ William C. Cline
(Signature)
William C. Cline
Vice President and Controller
(Principal Accounting Officer)
Date: August 10, 1999
Exhibit 1
BORG-WARNER AUTOMOTIVE, INC.
(a Delaware corporation)
$ 200,000,000
6 1/2% Senior Notes due 2009
$ 200, 000,000
7 1/8% Senior Notes due 2029
TERMS AGREEMENT
Dated: February 17, 1999
Borg-Warner Automotive, Inc.
200 South Michigan Avenue
Chicago, Illinois 60604
Dear Sirs:
We (the "Representatives") understand that Borg-Warner Automotive, Inc., a
Delaware corporation (the "Company"), proposes to issue and sell $200,000,000
aggregate principal amount of its 6 1/2% Senior Notes due 2009 (the Senior Notes
due 2009) and $200,000,000 aggregate principal amount of its 7 1/8% Senior
Notes due 2029 (the Senior Notes due 2029) (collectively, the "Underwritten
Securities"). Subject to the terms and conditions set forth herein or
incorporated by reference herein, the Company has agreed to sell to the
underwriters named below (the "Underwriters"), and the Underwriters have agreed,
severally and not jointly, to purchase from the Company, the respective amounts
of Notes due 2009 and Notes due 2029 set forth below opposite their respective
names at the purchase prices set forth below.
Underwriter Principal Amount Principal Amount
of Notes of Notes
due 2009 due 2029
Merrill Lynch, Pierce,
Fenner & Smith Incorporated
70,000,000 70,000,000
Morgan Stanley & Co. Incorporated
70,000,000 70,000,000
Chase Securities Inc.
20,000,000 20,000,000
First Chicago Capital Markets, Inc
20,000,000 20,000,000
NationsBanc Montgomery Securities LLC
20,000,000 20,000,000
Total..............$200,000,000 $200,000,000
============ ============
The Underwritten Securities shall have the following terms:
Title of Debt Securities: 6 1/2% Senior Notes due 2009
7 1/8% Senior Notes due 2029
Currency: U.S. dollars
Principal amount to be issued:
$200,000,000 Notes due 2009
$200,000,000 Notes due 2029
Current ratings: Moody's Investors Service, Inc. Baa2;
Standard & Poor's Corporation BBB+
Interest rate: 6 1/2% Notes due 2009
7 1/8% Notes due 2029
Gross Spread: Notes due 2009: .65%
Notes due 2029: .875%
Interest Payment Dates: February 15 and August 15,
beginning August 15, 1999
Regular Record Dates: February 1 or August 1
Stated Maturity Dates: Notes due 2009: February 15, 2009
Notes due 2029: February 15, 2029
Optional Redemption: Redemption at option of Company, in whole at any time,
or in part from time to time, at a redemption price
equal to the greater of : (1) 100% of such Notes
principal amount and (2) the sum of the present values
of the remaining scheduled payments of principal and
interest discounted to the date of redemption on a
semi-annual basis (assuming a 360-day year consisting
of twelve 30-day months) at the Treasury Rate plus 15
basis points in the case of the Notes due 2009, and 25
basis points in the case of the Notes due 2029, plus,
in either case, accrued and unpaid interest on the
principal amount being redeemed to such redemption
date.
Sinking fund requirements: None
Initial public offering price 99.064%, plus accrued interest, if any, or
amortized original issue for Notes due 2009: discount, if any, from February
22, 1999, if settlement occurs after that date.
Purchase price for Notes 98.414%, plus accrued interest, if any, or amortized
original issue due 2009: discount, if any, from February 22, 1999 (payable in
immediately available funds).
Initial public offering price 98.602%, plus accrued interest, if any, or
amortized original issue for Notes due 2029: discount, if any, from February
22, 1999, if settlement occurs after that date.
Purchase price for Notes 97.727%, plus accrued interest, if any, or amortized
original issue due 2029: discount, if any, from February 22, 1999 (payable in
immediately available funds).
Form: Book-entry represented by global securities deposited with The Depository
Trust Company.
Ranking: Senior, unsecured obligations of the Company.
Closing Date and Location: February 22, 1999, at the offices of Shearman &
Sterling, New York, New York.
All the provisions contained in the agreement attached as Annex A hereto
entitled "Borg-Warner Automotive, Inc. Debt Securities Underwriting Agreement
Basic Provisions" are hereby incorporated by reference in their entirety herein
and shall be deemed to be a part of this Terms Agreement to the same extent as
if such provisions had been set forth in full herein. Terms defined in such
document are used herein as therein defined.
<PAGE>
If the foregoing is in accordance with your understanding of our agree-
ment,please sign a copy of this Terms Agreement in the space set forth below and
return the signed copy to us.
Very truly yours,
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/ Samuel R. Chapin
Name: Samuel R. Chapin
Title: Managing Director
By: MORGAN STANLEY & CO. INCORPORATED
By /s/
Name:
Title:
For themselves and as Representatives
of the other Underwriters named herein.
Accepted:
BORG-WARNER AUTOMOTIVE, INC.
By /s/ Robin J. Adams
Name: Robin J. Adams
Title: Vice President and Treasurer
<PAGE>
Annex A
to Terms
Agreement
BORG-WARNER AUTOMOTIVE, INC.
(a Delaware corporation)
Debt Securities
UNDERWRITING AGREEMENT BASIC PROVISIONS
Borg-Warner Automotive, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell up to $400,000,000 aggregate principal amount of its
senior debt securities (the "Senior Securities") or its subordinated debt
securities (the "Subordinated Securities"), or both, from time to time on terms
to be determined at the time of sale. The Senior Securities will be issued
under an indenture dated as of February 15, 1999 (the "Senior Indenture")
between the Company and The First National Bank of Chicago, trustee. The
Subordinated Securities, if any, would be issued under an indenture to be
entered into (the "Subordinated Indenture") between the Company and The First
National Bank of Chicago, trustee. Each issue of Senior Securities, and
Subordinated Securities may vary, as applicable, as to aggregate principal
amount, maturity date, interest rate or formula and timing of payments thereof,
redemption provisions and sinking fund requirements, if any, and any other
variable terms which the Senior Indenture or the Subordinated Indenture, as the
case may be, contemplates may be set forth in the Senior Securities and
Subordinated Securities as issued from time to time. The Senior Securities and
the Subordinated Securities may be offered either together or separately.
This is to confirm the arrangements with respect to the purchase of
Underwritten Securities from the Company by the Representatives and the several
Underwriters listed in the applicable terms agreement entered into between the
Representatives and the Company of which this Underwriting Agreement is Annex A
thereto (the "Terms Agreement"). With respect to any particular Terms
Agreement, the Terms Agreement, together with the provisions hereof incorporated
therein by reference, is herein referred to as the "Agreement." Terms defined
in the Terms Agreement are used herein as therein defined.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (Registration No. 333-66879),
including a prospectus, relating to certain of the Senior and/or Subordinated
Securities (including the Underwritten Securities) and the offering thereof from
time to time in accordance with Rule 415 under the Securities Act of 1933, as
amended (the "1933 Act"), and has filed such amendments thereto as may have been
required to the date of the Terms Agreement. Such registration statement as
amended has been declared effective by the Commission, and the Senior Indenture
has been qualified under the Trust Indenture Act of 1939, as amended (the "1939
Act"). As provided in Section 3(a), a prospectus supplement reflecting the
terms of the Underwritten Securities, the terms of the offering thereof and the
other matters set forth therein has been prepared and will be filed pursuant to
Rule 424 under the 1933 Act. Such prospectus supplement, in the form first
filed after the date hereof pursuant to Rule 424, is herein referred to as the
"Prospectus Supplement." Such registration statement, as amended at the date
hereof, including the exhibits thereto and the documents incorporated by
reference therein, is herein called the "Registration Statement," and the basic
prospectus included therein relating to all offerings of securities under the
Registration Statement, as supplemented by the Prospectus Supplement, is herein
called the "Prospectus," except that, if such basic prospectus is amended or
supplemented on or prior to the date on which the Prospectus Supplement is first
filed pursuant to Rule 424, the term "Prospectus" shall refer to the basic
prospectus as so amended or supplemented and as supplemented by the Prospectus
Supplement, in either case including the documents filed by the Company with the
Commission pursuant to the Securities Exchange Act of 1934, as amended (the
"1934 Act"), that are incorporated by reference therein. The term "preliminary
prospectus supplement" means each preliminary prospectus supplement specifically
relating to the Underwritten Securities and previously filed pursuant to Rule
424(b), including all documents incorporated by reference therein filed under
the 1934 Act. If the Company files a registration statement with the Commission
pursuant to Rule 462(b) (the "Rule 462(b) Registration Statement") of the rules
and regulations of the 1933 Act (the "1933 Act Regulations"), then, after such
filing, all references to the "Registration Statement" shall also be deemed to
include the Rule 462(b) Registration Statement.
Section 1. Representations and Warranties. The Company represents and
warrants to the Representatives and to each Underwriter named in a Terms
Agreement as of the date thereof and as of the related Closing Time (each a
"Representation Date"), as follows:
(a) The Company meets the requirements for use of Form S-3 under the
1933 Act and the Registration Statement and the Prospectus, at the time the
Registration Statement became effective and as of the applicable Representation
Date, complied and will comply in all material respects with the requirements of
the 1933 Act, the 1933 Act Regulations and the 1939 Act and the rules and
regulations of the Commission under the 1939 Act (the "1939 Act Regulations").
The Registration Statement, at the time the Registration Statement became
effective and as of the applicable Representation Date, did not, and will not,
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. The Prospectus, at the time the Registration Statement became
effective and as of the applicable Representation Date, did not, and will not,
contain an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; except that the representations and
warranties in this subsection shall not apply to statements in or omissions from
the Registration Statement or Prospectus made in reliance upon and in conformity
with information furnished in writing to the Company by or on behalf of any
Underwriter through the Representatives expressly for use in the Registration
Statement or Prospectus or to that part of the Registration Statement which
shall constitute the Statement of Eligibility and Qualification under the 1939
Act (Form T-1) of the Trustees under the Senior Indenture.
(b) The documents incorporated by reference in the Prospectus
pursuant to Item 12 of Form S-3 under the 1933 Act, at the time they were or
hereafter are filed with the Commission, complied and will comply, as the case
may be, in all material respects with the requirements of the 1934 Act and the
rules and regulations thereunder (the "1934 Act Regulations") and, when read
together and with the other information in the Prospectus, at the time the
Registration Statement became effective and at the time any amendments thereto
become effective or hereafter during the period specified in Section 3(b), did
not and will not 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, in the light of the circumstances under which they are made,
not misleading.
(c) (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 Prospectus, and (B) KPMG Peat
Marwick, who have certified the financial statements of NSK-Warner Kabushiki
Kaisha ("NSK-Warner") included or incorporated by reference in the Registration
Statement and the Prospectus, are independent public accountants as required by
the 1933 Act and the 1933 Act Regulations.
(d) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and any Terms
Agreement; and each of this Agreement and any Terms Agreement has been duly
authorized, executed and delivered by the Company.
(e) The consolidated financial statements and the related notes of
the Company and its Subsidiaries (as defined below) included or incorporated by
reference in the Registration Statement present fairly the consolidated
financial position of the Company and its Subsidiaries as of the dates indicated
and the consolidated results of operations and cash flows of the Company and its
Subsidiaries for the periods specified. Such financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis throughout the periods involved (except as set forth in the
notes thereto) and subject, in the case of any interim statements, to normal
year-end audit adjustments. The financial statement schedules, if any, included
in the Registration Statement present fairly the information required to be
stated therein. The selected financial data included or incorporated by
reference in the Prospectus 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 Prospectus 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.
(f) 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 Prospectus. 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.
(g) The Company's only subsidiaries are set forth in Annex 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 clear of any pledge, lien, security interest, charge, claim,
equity or encumbrance of any kind.
(h) The Company had at the date indicated a duly authorized and
outstanding capitalization as set forth in the Prospectus under the caption
"Capitalization."
(i) The Indenture has been duly authorized by the Company, will be
substantially in the form heretofore delivered to you and, when duly executed
and delivered by the Company and the Trustee, will constitute a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws affecting enforcement of
creditors' rights generally and except as enforcement thereof is subject to
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law); and the Indenture conforms to the
descriptions thereof in the Prospectus.
(j) The Underwritten Securities have been duly authorized for
issuance and sale pursuant to this Agreement (or will have been so authorized
prior to each issuance of Underwritten Securities) and, when executed,
authenticated, issued and delivered in the manner provided for in the Indenture
and sold and paid for as provided in this Agreement, the Underwritten Securities
will constitute valid and binding obligations of the Company entitled to the
benefits of the Indenture and enforceable against the Company in accordance with
their terms, except as enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws affecting enforcement of
creditors' rights generally and except as enforcement thereof is subject to
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or law); and the Underwritten Securities, the Senior
Indenture and the Subordinated Indenture conform to the descriptions thereof in
the Prospectus.
(k) All of the 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.
(l) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as described in the
Registration Statement and Prospectus, there has not been (i) 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, (ii) 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 (iii) 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.
(m) 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 Indenture by the Company, the issuance and delivery of the Underwritten
Securities, the consummation by the Company of the transactions contemplated in
this Agreement and in the Registration Statement and compliance by the Company
with the terms of this Agreement and the Indenture, 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
(i) 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
(ii) any existing applicble 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.
(n) 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, the 1933 Act Regulations, the
1939 Act and the securities or Blue Sky laws of the various states), is legally
required for the valid authorization, issuance, sale and delivery of the
Underwritten Securities or for the execution, delivery or performance of the
Indenture by the Company.
(o) Except as disclosed or incorporated by reference in the
Prospectus, 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 Prospectus 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.
(p) There are no contracts or documents of a character required
pursuant to the 1933 Act to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that are not
described and filed as required.
(q) The Company and the Subsidiaries each has good and marketable
title to all properties and assets described in the Prospectus as owned by it,
free and clear of all liens, charges, encumbrances or restrictions, except such
as (i) are described in the Prospectus or (ii) 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 Prospectus, 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.
(r) 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.
(s) 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.
(t) Except as disclosed in the Prospectus, 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 Prospectus, 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.
(u) 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
Underwritten Securities.
(v) Except as disclosed in or incorporated by reference in the
Prospectus 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, (i) the Company and the Subsidiaries
are each in compliance with all applicable Environmental Laws, (ii) 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, (iii) there are no pending or threatened Environmental Claims
against the Company or any Subsidiary, and (iv) 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.
(w) 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 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.
(x) 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.
Any certificate signed by any officer of the Company or any Subsidiary and
delivered to the Representatives or counsel for the Underwriters in connection
with an offering of Underwritten Securities shall be deemed a representation and
warranty by the Company to each Underwriter participating in such offering as to
the matters covered thereby.
Section 2. Purchase and Sale. The obligations of the Underwriters to
purchase, and the Company to sell, the Underwritten Securities shall be
evidenced by the Terms Agreement. The Terms Agreement specifies the principal
amount of the Senior Securities or Subordinated Securities, or both, the names
of the Underwriters participating in the offering (subject to substitution as
provided in Section 10 hereof) and the principal amount of Underwritten
Securities which each Underwriter severally has agreed to purchase, the purchase
price to be paid by the Underwriters for the Underwritten Securities, the
initial public offering price, if any, of the Underwritten Securities, any
delayed delivery arrangements and any terms of the Underwritten Securities not
already specified in the Indenture pursuant to which they are being issued
(including, but not limited to, designations, denominations, current ratings,
interest rates or formulas and payment dates, maturity dates, redemption
provisions and sinking fund requirements).
The several commitments of the Underwriters to purchase Underwritten
Securities pursuant to the Terms Agreement shall be deemed to have been made on
the basis of the representations and warranties herein contained and shall be
subject to the terms and conditions herein set forth.
Payment of the purchase price for, and delivery of, the Underwritten
Securities to be purchased by the Underwriters shall be made at the offices of
Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022, or at such
other place as shall be agreed upon by the Representatives and the Company, at
10:00 A.M., New York City time, on the third business day (unless postponed in
accordance with the provisions of Section 10) following the date of the Terms
Agreement or such other time as shall be agreed upon by the Representatives and
the Company (each such time and date being referred to as a "Closing Time").
Unless otherwise specified in the Terms Agreement, payment shall be made to the
Company by wire transfer in immediately available funds against delivery to the
Representatives for the respective accounts of the Underwriters of the
Underwritten Securities to be purchased by them. The Underwritten Securities
shall be in such denominations ($1,000 or an integral multiple thereof) and
registered in such names as the Representatives may request in writing at least
two business days before the applicable Closing Time. The Underwritten
Securities, which may be in temporary form, will be made available in New York
City for examination and packaging by the Representatives on or before the first
business day prior to Closing Time.
If authorized by the Terms Agreement, the Underwriters named therein may
solicit offers to purchase Underwritten Securities from the Company pursuant to
delayed delivery contracts ("Delayed Delivery Contracts") substantially in the
form of Annex C hereto with such changes therein as the Company may approve. As
compensation for arranging Delayed Delivery Contracts, the Company will pay to
the Representatives at Closing Time, for the accounts of the Underwriters, a fee
equal to that percentage of the principal amount of Senior Securities for which
Delayed Delivery Contracts are made at Closing Time as is specified in the Terms
Agreement. Any Delayed Delivery Contracts are to be with institutional
investors of the types set forth in the Prospectus. At Closing Time the Company
will enter into Delayed Delivery Contracts (for not less than the minimum
principal amount of Senior Securities per Delayed Delivery Contract specified in
the applicable Terms Agreement) with all purchasers proposed by the Underwriters
and previously approved by the Company as provided below, but not for an
aggregate principal amount of Senior Securities in excess of that specified in
the Terms Agreement. The Underwriters will not have any responsibility for the
validity or performance of Delayed Delivery Contracts.
The Representatives shall submit to the Company, at least three business
days prior to Closing Time, the names of any institutional investors with which
it is proposed that the Company will enter into Delayed Delivery Contracts and
the principal amount of Senior Securities to be purchased by each of them, and
the Company will advise the Representatives, at least two business days prior to
Closing Time, of the names of the institutions with which the making of Delayed
Delivery Contracts is approved by the Company and the principal amount of Senior
Securities to be covered by each such Delayed Delivery Contract.
The principal amount of Senior Securities agreed to be purchased by the
respective Underwriters pursuant to the Terms Agreement shall be reduced by the
principal amount of Senior Securities covered by Delayed Delivery Contracts, as
to each Underwriter as set forth in a written notice delivered by the
Representatives to the Company; provided, however, that the total principal
amount of Senior Securities to be purchased by all Underwriters shall be in the
total amount of Senior Securities covered by the applicable Terms Agreement,
less the principal amount of Senior Securities covered by Delayed Delivery
Contracts.
Section 3. Covenants of the Company. The Company covenants with the
Representatives, and with each Underwriter participating in the offering of
Underwritten Securities, as follows:
(a) Immediately following the execution of the Terms Agreement, the
Company will prepare a Prospectus Supplement setting forth the principal amount
of Senior Securities covered thereby and their terms not otherwise specified in
the Senior Indenture, pursuant to which the Senior Securities are being issued,
the names of the Underwriters participating in the offering and the principal
amount of Senior Securities which each severally has agreed to purchase, the
names of the Underwriters acting as co-managers in connection with the offering,
the price at which the Underwritten Securities are to be purchased by the
Underwriters from the Company, the initial public offering price, the selling
concession and reallowance, if any, any delayed delivery arrangements, and such
other information as the Representatives and the Company deem appropriate in
connection with the offering of the Underwritten Securities. The Company will
promptly transmit copies of the Prospectus to the Commission for filing
pursuant to Rule 424 of the Regulations and will furnish to the Underwriters
named therein as many copies of any preliminary prospectus supplement and such
Prospectus as the Representatives shall reasonably request.
(b) At any time when the Prospectus is required by the 1933 Act to be
delivered in connection with sales of the Underwritten Securities, the Company
will notify the Representatives immediately, and confirm such notice in writing,
of (i) the effectiveness of any amendment to the Registration Statement, (ii)
the mailing or the delivery to the Commission for filing of any supplement to
the Prospectus or any document to be filed pursuant to the 1934 Act, (iii) the
receipt of any comments from the Commission with respect to the Registration
Statement, the Prospectus or any supplement to the Prospectus, (iv) any request
by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information, and (v)
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order presenting or suspending the use of
any preliminary prospectus supplement, or of the qualification of the
Underwritten Securities for offering or sale in any jurisdiction, or of the
institution or threatening of any proceeding for any 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 stop order is
issued, to obtain the lifting thereof at the earliest possible moment.
(c) The Company has furnished or will furnish to the Representatives and
counsel for the Representatives, without charge, as many copies (including at
least one 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 Prospectus
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 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 comply in all material respects with the 1933
Act and the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations and
the 1939 Act and the 1939 Act Regulations so as to permit the completion of the
distribution of the Underwritten Securities as contemplated in this Agreement
and in the Prospectus. If, at any time when a prospectus is required by the
1933 Act or the 1933 Regulations to be delivered in connection with sales of the
Underwritten Securities, any event shall occur or condition exist as a result of
which it is necessary, in the opinion of counsel for the Underwriters or counsel
for the Company, to amend the Registration Statement or amend or supplement the
Prospectus in order that the Prospectus 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 the 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 such amendment or supplement, whether by filing documents
pursuant to the 1934 Act or otherwise, as may be necessary to correct such
untrue statement or omission or to make the Registration Statement and
Prospectus comply with such requirements.
(e) The Company will use its best efforts in cooperation with the
Underwriter to qualify the Underwritten Securities for offering and sale under
the applicable securities laws of such states and other jurisdictions as the
Representatives may designate; 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 use its best efforts in cooperation with the Underwriters to
maintain such qualifications in effect for as long as may be required for the
distribution of the Underwritten Securities. The Company will file such
statements and reports as may be required by the laws of each jurisdiction in
which the Underwritten Securities have been qualified as above provided. The
Company will also supply the Representatives with such information as is
necessary for the determination of the legality of the Underwritten Securities
for investment under the laws of such jurisdictions as the Representatives may
request.
(f) With respect to each sale of Underwritten Securities, 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,
earning statements of the Company (in form complying with the provisions of Rule
158 of the 1933 Act Regulations) covering a period of 12 months beginning, in
each case, not later than the first day of the Company's fiscal quarter next
following the "effective date" (as defined in Rule 158) of the Registration
Statement relating to Underwritten Securities.
(g) The Company will use the net proceeds received by it from the
sale of the Underwritten Securities in the manner specified in the Prospectus
under the caption "Use of Proceeds."
(h) The Company, during the period when the Prospectus is required to
be delivered under the 1933 Act in connection with the sale of the Underwritten
Securities, will file promptly all documents required to be filed with the
Commission pursuant to Section 13 or 14 of the 1934 Act.
(i) Between the date of the Terms Agreement or the Closing Time with
respect to the Underwritten Securities covered thereby, the Company will not,
without the Representatives' prior consent, offer or sell, or enter into any
agreement to sell, any debt securities issued or guaranteed by the Company with
a maturity of more than one year in any public offering (other than the
Underwritten Securities), including additional Senior Securities. This
limitation is not applicable to the public offering of tax-exempt securities
guaranteed by the Company.
(j) At any time when the Prospectus is required by the 1933 Act to be
delivered in connection with sales of the Underwritten Securities, the Company
will give the Representatives notice of its intention to file any amendment to
the Registration Statement or any amendment or supplement to the Prospectus,
whether pursuant to the 1934 Act, the 1933 Act or otherwise, will furnish the
Representatives with copies of any such amendment or supplement or other
documents proposed to be filed a reasonable time in advance of filing, and will
not file any such amendment or supplement or other documents in a form to which
the Representatives or counsel for the Underwriters shall reasonably object in
writing.
(k) 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
Terms Agreement and (ii) the time confirmations are sent or given, as specified
by Rule 462(b).
Section 4. Payment of Expenses. The Company will pay and bear all costs
and expenses incident to the performance of its obligations under this
Agreement, including (i) the preparation, printing and filing of the
Registration Statement (including, financial statements and exhibits), as
originally filed and as amended, any preliminary prospectus and the Prospectus
and any amendments or supplements thereto, and the cost of furnishing copies
thereof to the Underwriters, (ii) the preparation, printing and distribution of
this Agreement, the Terms Agreement, the Indenture and the Underwritten
Securities and the Blue Sky Survey (which shall not be typeset), (iii) the
delivery of the Underwritten Securities to the Underwriters, (iv) the fees and
disbursements of the Company's counsel and accountants, (v) the qualification of
the Underwritten Securities under applicable securities laws in accordance with
Section 3(e) and any filing for review of the offering with the National
Association of Securities Dealers, Inc., including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters solely in
connection therewith and in connection with the preparation of any Blue Sky
Survey and Legal Investment Survey, (vi) the listing fees and expenses incurred
in connection with listing the Underwritten Securities on the New York Stock
Exchange, (vii) any fees charged by rating agencies for rating the Underwritten
Securities and (viii) the fees and expenses of the Trustee, including the fees
and disbursements of counsel for the Trustee, in connection with the Indenture
and the Underwritten Securities.
If this Agreement is terminated by the Representatives in accordance with
the provisions of Section 5 or Section 9(a)(i), the Company shall reimburse the
Underwriters named in the Terms Agreement for all of their out-of-pocket
expenses, including the reasonable fees and disbursements of Shearman & Sterling
as counsel for the Underwriters.
Section 5. Conditions of Underwriters' Obligations. In addition to the
execution and delivery of the Terms Agreement, the obligations of the several
Underwriters to purchase and pay for the Underwriters Securities that they have
respectively agreed to purchase hereunder are subject to the accuracy of the
representations and warranties of the Company as of each Representation Date
contained herein or in certificates of any officer of the Company or any
Subsidiary delivered pursuant to the provisions hereof, to the performance by
the Company of its obligations hereunder and to the following further
conditions:
(a) At the applicable 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 the knowledge of the Company, shall be contemplated by the
Commission.
(b) At the applicable Closing Time, the Representatives shall have
received:
(1) A signed opinion of Wachtell, Lipton, Rosen & Katz, special counsel
for the Company, dated as of Closing Time, together with signed or reproduced
copies of such opinion for each of the other Underwriters, in form and substance
reasonably satisfactory to counsel for the Underwriters, in the form set forth
in Exhibit A hereto.
(2) 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
Underwriters, in form and substance reasonably satisfactory to counsel for the
Underwriters, in the form set forth in Exhibit B hereto.
(3) 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 Underwriters, in form and substance reasonably satisfactory to
counsel for the Underwriters, in the form set forth in Exhibit C hereto.
(4) The favorable opinion of Shearman & Sterling, counsel for the
Underwriters, dated as of the Closing Time, together with signed or reproduced
copies of such opinion for each of the other Underwriters, to the effect that
the opinions delivered pursuant to Section 5(b)(i), 5(b)(2) and 5(b)(3) 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 Indenture, the Registration Statement, the Prospectus 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 certificates of
public officials.
(c) At the Closing Time, (i) the Registration Statement and the
Prospectus, 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 and the 1939 Act and the 1939 Act Regulations, and neither the
Registration Statement nor the Prospectus, 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
Prospectus 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
Prospectus, (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 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.
(d) 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 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 Prospectus 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 Prospectus
(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,
1998, 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 Prospectus 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 Prospectus for
them to be in conformity with generally accepted accounting principles;
(B) at December 31, 1998 and at a specified date not more than three 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 October 1, 1998 to December 31, 1998 and for the
period from January 1, 1999 to a specified date not more than three 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;
(B) made inquiries of certain officials of the Company 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.
(e) 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 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 Prospectus comply as to form in
all material respects with the applicable accounting requirements of the 1933
Act and the 1933 Act Regulations;
(ii) they have read the latest available unaudited interim consolidated
financial statements of NSK-Warner, the minutes of all meetings of the
stockholders and directors of NSK-Warner and each Committee of the Board of
Directors since April 1, 1998, 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, 1998 and at a specified date not more than three days
prior to the date of this Agreement, there was no change in the common stock of
NSK-Warner or decrease in the net current assets or stockholders' equity of
NSK-Warner or increase in the notes payable or long-term debt of NSK-Warner, in
each case as compared with amounts shown in the latest balance sheet included or
incorporated by reference in the Registration Statement; or
(B) for the period from April 1, 1998 to December 31, 1998 and from
January 1, 1999 to a specified date not more than three 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.
(f) At the Closing Time, you shall have received from each of Deloitte &
Touche LLP and KPMG Peat Marwick 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(d) and 5(e),
respectively, except that the specified date referred to shall be a date not
more than five days prior to the Closing Time.
(g) Subsequent to the execution and delivery of any Terms Agreement and
prior to the Closing Time, there shall not have been any downgrading, nor any
notice given of any intended or potential downgrading or of a possible change
that does not indicate the direction of the possible change, in the rating
accorded any of the Company's securities, including the Underwritten Securities,
by any "nationally recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the 1933 Act.
(h) At the applicable Closing Time, counsel for the 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
issuance and sale of the Underwritten Securities as herein contemplated and
related proceedings or in order to evidence the accuracy and completeness of any
of the representations and warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company in
connection with the issuance and sale of the Underwritten Securities as herein
contemplated shall be reasonably satisfactory in form and substance to the
Representatives and counsel for the Underwriters.
If any of the conditions specified in this Section shall not have been
fulfilled when and as required by this Agreement to be fulfilled, this Agreement
may be terminated by the Representatives by notice to the Company at any time at
or prior to the applicable 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 6, 7
and 8 shall remain in effect.
Section 6. Indemnification of Underwriters. (a) (1) The Company agrees
to indemnify and hold harmless each Underwriter and each person, if any, who
controls any 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 any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
amendment thereto), 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 Prospectus (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;
(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, except as otherwise provided by Section 6(d); and
(iii) against any and all expense whatsoever, as incurred (including
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 (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
Underwriter through you expressly for use in the Registration Statement (or any
amendment thereto) or any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto).
(2) Insofar as this indemnity agreement may permit indemnification for
liabilities under the 1933 Act of any person who is a partner of an Underwriter
or who controls an 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) Indemnification of Company, Directors and its Officers. Each
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, against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, 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), or any preliminary prospectus or the
Prospectus (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 Underwriter through the Representatives expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary prospectus
or the Prospectus (or any amendment or supplement thereto).
(c) Actions against Parties; Notification. 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 6(a) above, counsel to the indemnified parties shall be selected by the
Representatives in the case of parties indemnified pursuant to Sections 6(b)
above, counsel to the indemnified parties shall be selected by the Company. 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.
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 6 or Section
7 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.
(d) Settlement Without Consent if Failure to Reimburse. 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 6(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 7. Contribution. If the indemnification provided for in Section 6
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 on the one
hand and the Underwriters on the other hand from the offering of the
Underwritten Securities 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 on the one hand and of the
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 by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the
Underwritten Securities pursuant to this Agreement shall be deemed to be in the
same respective proportions as the total net proceeds from the offering of the
Underwritten Securities pursuant to this Agreement (before deducting expenses)
received by the Company and the total underwriting discount received by the
Underwriters, in each case as set forth on the cover of the Prospectus.
The relative fault of the Company on the one hand and the 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 by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the 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 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 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 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Underwritten Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such 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 7, each person, if any, who controls an
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 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 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. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the principal amount of Underwritten Securities set forth opposite
their respective names in Schedule A hereto and not joint.
Section 8. Representations, Warranties and Agreements to Survive Delivery.
The representations, warranties, indemnities, agreements and other statements of
the Company or its officers 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 Company, any Underwriter or any person who controls
any 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 Underwritten
Shares.
Section 9. Termination. (a) The Representatives may terminate this
Agreement, by notice to the Company, at any time prior to the applicable Closing
Time (i) if there has been, since the date of the Terms 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 adverse 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 the judgment of
the Representatives, impracticable to market the Underwritten Securities or
enforce contracts for the sale of the Underwritten Securities, 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 on the Nasdaq 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 9(a), the deployment of a Level 1 trading halt by the New York
Stock Exchange in and of itself 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, 6, 7 and 8 shall remain in effect.
Section 10. Default. If one or more of the Underwriters participating in
an offering of Senior Securities shall fail at the applicable Closing Time to
purchase the Underwritten Securities that it or they are obligated to purchase
under the applicable Terms Agreement (the "Defaulted Securities"), then the
Representatives shall have the right, within 24 hours thereafter, to make
arrangements for one or more of the non-defaulting Underwriters, or any other
underwriters, satisfactory to the Company to purchase all, but not less than
all, of the Defaulted Securities in such amounts as may be agreed upon and upon
the terms set forth in this Agreement and the applicable Terms Agreement. If,
however, during such 24 hours the shall not have completed such arrangements
for the purchase of all of the Defaulted Securities, then:
(a) if the aggregate principal amount of Defaulted Securities does not
exceed 10% of the aggregate principal amount of the Underwritten Securities to
be purchased pursuant to the Terms Agreement, the non-defaulting Underwriters
named in such Terms Agreement shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
thereunder bear to the underwriting obligations of all such non-defaulting
Underwriters, or
(b) if the aggregate principal amount of Defaulted Securities exceeds 10%
of the aggregate principal amount of the Underwritten Securities to be purchased
pursuant to such Terms Agreement, the Terms Agreement shall terminate without
any liability on the part of any non-defaulting Underwriters.
As used in this Section only, the aggregate amount or aggregate principal
amount of Underwritten Securities shall mean the aggregate principal amount of
any Senior Securities or Subordinated Securities included in the relevant
Underwritten Securities.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default under this Agreement and
the Terms Agreement.
In the event of a default by any Underwriter or Underwriters as set forth
in this Section, either the Representatives or the Company shall have the right
to postpone the applicable Closing Time for a period not exceeding seven days in
order to effect any required changes in the Registration Statement or Prospectus
or in any other documents or arrangements. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section.
Section 11. 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 the Underwriters shall be directed to the Representatives at Merrill
Lynch & Co., World Financial Center North Tower, 250 Vesey Street, New York,
New York 10281-1328, Attention: Samuel R. Chapin, and Morgan Stanley & Co.
Incorporated, 1585 Broadway, New York, New York 10036, Attention: Steven B.
Fitzpatrick; notices to the Company shall be directed to it at 200 South
Michigan Avenue, Chicago, Illinois 60604, Attention: General Counsel.
Section 12. Parties. This Agreement shall inure to the benefit of and be
binding upon the Company and any Underwriter who becomes a party hereto, and
their respective successors. Nothing expressed or mentioned in this Agreement
is intended or shall be construed to give any person, firm or corporation, other
than the parties hereto or thereto and their respective successors and the
controlling persons and officers and directors referred to in Sections 6 and 7
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the parties and their respective
successors and said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Underwritten Securities from any Underwriter shall
be deemed to be a successor by reason merely of such purchase.
Section 13. 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 14. Counterparts. The Terms 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.
NYDOCS01/552960 4
ANNEX A
BORG-WARNER AUTOMOTIVE, INC.
(a Delaware corporation)
$ ___,000,000
__ % Senior Notes due 20__
$ ___, 000,000
__ % Senior Notes due 20__
TERMS AGREEMENT
Dated: February __ , 1999
Borg-Warner Automotive, Inc.
200 South Michigan Avenue
Chicago, Illinois 60604
Dear Sirs:
We (the "Representatives") understand that Borg-Warner Automotive, Inc., a
Delaware corporation (the "Company"), proposes to issue and sell $ _______
aggregate principal amount of its __% Senior Notes due 20__ (the "Notes due
20__") and $_______ aggregate principal amount of its __% Senior Notes due 20__
(the "Notes due 20__") (collectively, the "Underwritten Securities"). Subject
to the terms and conditions set forth herein or incorporated by reference
herein, the Company has agreed to sell to the underwriters named below (the
"Underwriters"), and the Underwriters have agreed, severally and not jointly, to
purchase from the Company, the respective amounts of Notes due 20__ and Notes
due 20__ set forth below opposite their respective names at the purchase prices
set forth below.
Underwriter Principal Principal
Amount Amount
of Notes of Notes
due 20__ due 20__
Merrill Lynch, Pierce,
Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
Chase Securities Inc.
First Chicago Capital Markets, Inc
Nations Bank Montgomery Securities LLC
Total $ $
The Underwritten Securities shall have the following terms:
Title of Debt Securities: __% Senior Notes due 20__
__% Senior Notes due 20__
Currency: U.S. dollars
Principal amount to be issued:
$ __________ Notes due 20__
$ __________ Notes due 20__
Current ratings: Moody's Investors Service, Inc. ;
Standard & Poor's Corporation .
Interest rate: __% Senior Notes due 20__.
__% Senior Notes due 20__.
Spread:
Interest Payment Dates: February __ and August __, beginning August __,
1999
Regular Record Dates: January 15 or July 15
Stated Maturity Dates: Senior Notes due 20__: February __, 20__
Senior Notes due 20__: February __, 20__
Optional Redemption: Redemption at option of Company, in whole at any
time, or in part from time to time, at a
redemption price equal to the greater of : (1)
100% of such Notes principal amount and (2) the
sum of the present values of the remaining
scheduled payments of principal and interest
discounted to the date of redemption on a semi-
annual basis (assuming a 360-day year consisting
of twelve 30-day months) at the Treasury Rate plus
__ basis points in the case of the Notes due 20__,
and __ basis points in the case of the Notes due
20__, plus, in either case, accrued and unpaid
interest on the principal amount being redeemed to
such redemption date.
Sinking fund requirements: None
Delayed Delivery Contracts: authorized
Date of delivery:
Minimum contract:
Maximum aggregate principal amount:
Fee: %
Initial public offering price for Notes due 20__: __%, plus accrued interest,
if any, or amortized original issue discount, if any, from February __, 1999.
Purchase price for Notes due 20__: __%, plus accrued interest, if any, or
amortized original issue discount, if any, from February __, 1999 (payable in
immediately available funds).
Initial public offering price for Notes due 20__: __%, plus accrued interest,
if any, or amortized original issue discount, if any, from February __, 1999.
Purchase price for Notes due 20__: __%, plus accrued interest, if any, or
amortized original issue discount, if any, from February __, 1999 (payable in
immediately available funds).
Form: Book-entry represented by global securities deposited with The Depository
Trust Company.
Ranking: Senior, unsecured obligations of the Company.
Closing Date and Location: February __, 1999, New York, New York.
All the provisions contained in the document attached as Annex A hereto
entitled "Borg-Warner Automotive, Inc. Debt Securities Underwriting Agreement
Basic Provisions" are hereby incorporated by reference in their entirety herein
and shall be deemed to be a part of this Terms Agreement to the same extent as
if such provisions had been set forth in full herein. Terms defined in such
document are used herein as therein defined.
If the foregoing is in accordance with your understanding of our agreement,
please sign a copy of this Terms Agreement in the space set forth below and
return the signed copy to us.
Very truly yours,
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
Name:
Title:
By: MORGAN STANLEY & CO. INCORPORATED
By
Name:
Title:
For themselves and as Representatives
of the other Underwriters named herein.
Accepted:
BORG-WARNER AUTOMOTIVE, INC.
By
Name:
Title:
<PAGE>
ANNEX B
SUBSIDIARIES
Percent of
Capital Stock
Beneficially Owned by
Borg-Warner Automotive,
Name of Subsidiary Inc. or the Subsidiaries
Borg-Warner Automotive Powertrain Systems Corporation 100
Borg-Warner Automotive South Asia Corporation 100
Divgi-Warner Pvt. Limited. 60
Huazhong Warner Transmission Company, Ltd. 60
Borg-Warner Automotive PTS Korea
Service 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 Air/Fluid Systems Holding Corporation100
Borg-Warner Automotive Air/Fluid Systems Europe S.A.S. 90
Borg-Warner Automotive Air/Fluid Systems, Tulie SA100
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
BWA Merger Corp. 100
Borg-Warner Automotive Automatic Transmission Systems Corporation 100
Borg-Warner Automotive Europe Corporation 100
AG Kuhnle, Kopp & Kausche 63
Borg-Warner Automotive GmbH 51
BWA Europa V&V GmbH 100
Borg-Warner Automotive Europe GmbH 100
3K Warner Turbosystems 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
<PAGE>
ANNEX C
BORG-WARNER AUTOMOTIVE, INC.
(a Delaware corporation)
[Title of Securities]
DELAYED DELIVERY CONTRACT
, 19
BORG-WARNER AUTOMOTIVE, INC.
200 South Michigan Avenue
Chicago, Illinois 60604
Attention:
Dear Sirs:
The undersigned hereby agrees to purchase from Borg-Warner Automotive, Inc.
(the "Company"), and the Company agrees to sell to the undersigned on
19 ("Delivery Date"), principal amount of the
Company's [insert title of security] (the "Securities"), offered by the
Company's Prospectus dated , 19 , as supplemented by its Prospectus
Supplement dated , 19 , receipt of which is hereby acknowledged
at a purchase price of [ ]% of the principal amount thereof, plus accrued
interest from , 19 , to the Delivery Date, and on the further terms
and conditions set forth in this contract.
Payment for the Securities which the undersigned has agreed to purchase on
the Delivery Date shall be made to the Company or its order by certified or
official bank check in New York Clearing House funds at the office of, on the
Delivery Date, upon delivery to the undersigned of the Securities to be
purchased by the undersigned in definitive form and in such denominations and
registered in such names as the undersigned may designate by written or
telegraphic communication addressed to the Company not less than three full
business days prior to the Delivery Date.
The obligation of the undersigned to take delivery of and make payment for
Securities on the Delivery Date shall be subject only to the conditions that (1)
the purchase of Securities to be made by the undersigned shall not on the
Delivery Date be prohibited under the laws of the jurisdiction to which the
undersigned is subject and (2) the Company, on or before , 19 ,
shall have sold to the Underwriters of the Securities (the "Underwriters") such
principal amount of the Securities as is to be sold to them pursuant to the
Terms Agreement dated , 19 between the Company and the
Underwriters. The obligation of the undersigned to take delivery of and make
payment for Securities shall not be affected by the failure of any purchaser to
take delivery of and make payments for Securities pursuant to other contracts
similar to this contract. The undersigned represents and warrants to you that
its investment in the Securities is not, as of the date hereof, prohibited under
the laws of any jurisdiction to which the undersigned is subject and which
govern such investment.
Promptly after completion of the sale to the Underwriters, the Company will
mail or deliver to the undersigned at its address set forth below notice to such
effect, accompanied by a copy of the opinion of counsel for the Company
delivered to the Underwriters in connection therewith.
By the execution hereof, the undersigned represents and warrants to the
Company that all necessary corporate action for the due execution and delivery
of this contract and the payment for and purchase of the Securities has been
taken by it and no further authorization or approval of any governmental or
other regulatory authority is required for such execution, delivery, payment or
purchase, and that, upon acceptance by the Company and mailing or delivery of a
copy as provided below, this contract will constitute a valid and binding
agreement of the undersigned in accordance with its terms.
This contract will inure to the benefit of and binding upon the parties
hereto and their respective successors, but will not be assignable by either
party hereto without the written consent of the other.
It is understood that the Company will not accept Delayed Delivery
Contracts for an aggregate principal amount of Securities in excess of
$ and that the acceptance of any Delayed Delivery Contract is in the
Company's sole discretion and, without limiting the foregoing, need not be on a
first-come, first-served basis. If this contract is acceptable to the Company,
it is requested that the Company sign the form of acceptance on a copy hereof
and mail or deliver a signed copy hereof to the undersigned at its address set
forth below. This will become a binding contract between the Company and the
undersigned when such copy is so mailed or delivered.
This Agreement shall be governed by the laws of the State of New York.
Yours very truly,
(Name of Purchaser)
By
(Title)
(Address)
<PAGE>
Accepted as of the date first above written.
Borg-Warner Automotive, Inc.
By
(Title)
PURCHASER PLEASE COMPLETE AT TIME OF SIGNING
The name and telephone number of the Representatives of the Purchaser with
whom details of delivery on the Delivery Date may be discussed are as follows:
(Please print.)
Name
Telephone No.
(including
Area Code)
<PAGE>
Exhibit A
Pursuant to Section 5(b)(1) of the Underwriting Agreement Basic Provisions,
Wachtell, Lipton, Rosen & Katz, special counsel for the Company, shall furnish
to the Representative an opinion to the effect that:
(i) The Company is a corporation duly incorporated, 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 Prospectus.
(ii) The Indenture pursuant to which Underwritten Securities are being
issued has been duly authorized, executed and delivered by the Company and,
assuming due authorization, execution and delivery by the Trustee, constitutes a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or similar laws affecting
enforcement of creditors' rights generally and except as enforcement thereof is
subject to general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(iii) The Underwritten Securities have been duly authorized by the
Company and, assuming that the Underwritten Securities have been duly
authenticated by the Trustee in the manner described in its certificate
delivered to you today (which fact such counsel need not determine by an
inspection of the Underwritten Securities), the Underwritten Securities have
been duly executed, issued and delivered by the Company and constitute valid and
binding obligations of the Company entitled to the benefits of the Indenture and
enforceable against the Company in accordance with their terms, except as
enforcement thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar laws affecting enforcement of creditors' rights generally
and except as enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).
(iv) The Indenture has been duly qualified under the 1939 Act.
(v) The Underwritten Securities and the Indenture conform in all material
respects as to legal matters to the descriptions thereof in the Prospectus.
(vi) This Agreement and the Delayed Delivery Contracts, if any, have been
duly authorized, executed and delivered by the Company.
(vii) The statements made in the Prospectus under "Description of the
Notes," to the extent that they constitute matters of law or legal conclusions,
have been reviewed by such counsel and fairly present the information disclosed
therein in all material respects.
(viii) The execution and delivery of this Agreement and the Indenture by
the Company, the issuance and delivery of the Underwritten Securities, the
consummation by the Company of the transactions contemplated in this Agreement
and in the Registration Statement and compliance by the Company with the terms
of this Agreement and the Indenture do not and will not result in any violation
of the certificate of incorporation or by-laws of the Company.
(ix) The Registration Statement is effective under the 1933 Act; any
required filing of the Prospectus or any supplement thereto pursuant to
Rule 424(b) has been made in the manner and within the time period required by
Rule 424(b); and, to the best knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or are pending or are
contemplated under the 1933 Act.
(x) The Registration Statement and the Prospectus, excluding the documents
incorporated by reference therein, and each amendment or supplement thereto
(except for the financial statements and other financial or statistical data
included therein or omitted therefrom, as to which such counsel need express no
opinion), as of their respective effective or issue dates, complied as to form
in all material respects to the requirements of the 1933 Act and the 1933 Act
Regulations and the Indenture and the Statement of Eligibility of the Trustee on
Form T-1 filed with the Commission as part of the Registration Statement appear
on their face to have been appropriately responsive in all material respects to
the requirements of the 1939 Act and the 1939 Act Regulations.
(xi) The documents incorporated by reference in the Prospectus (except for
the financial statements and other financial or statistical data included
therein or omitted therefrom, as to which such counsel need express no opinion,
and except to the extent that any statement therein is modified or superseded in
the Prospectus), as of the dates they were filed with the Commission, complied
as to form in all material respects to the requirements of the 1934 Act and the
1934 Act Regulations.
(xii) Such counsel have participated in the preparation of the
Registration Statement and Prospectus except for the documents incorporated by
reference in the Registration Statement and the Prospectus, and in conferences
with officers and other representatives of the Company, representatives of the
independent public accountants for the Company, and with your representatives
and your counsel at which the contents of the Registration Statement, the
Prospectus, and related matters were discussed and have reviewed the documents
incorporated by reference in the Registration Statement and Prospectus and,
although such counsel need not pass upon or assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus and the documents incorporated by
reference in the Prospectus (except for the opinions set forth in clause (v)),
and based on the foregoing, no facts have come to the attention of such counsel
to lead such counsel to believe (A) that the Registration Statement or any
amendment thereto (except for the financial statements and other financial or
statistical data included therein or omitted therefrom and the Statement of
Eligibility of the Trustee on Form T-1, as to which such counsel need express no
opinion), at the time the Registration Statement or any such amendment became
effective or at the date of the Terms Agreement, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or (B) that
the Prospectus or any amendment or supplement thereto (except for the financial
statements and other financial or statistical data included therein or omitted
therefrom, as to which such counsel need express no opinion), at the time the
Prospectus was issued, at the time any such amended or supplemented prospectus
was issued or at the Closing Time, included or includes an untrue statement of a
material fact or omitted or omits to state a aterial fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
Such opinion shall be to such further effect with respect to other legal matters
relating to this Agreement, the Delayed Delivery Contracts, if any, and the sale
of the Underwritten Securities pursuant to this Agreement as counsel for the
Underwriters may reasonably request. In giving such opinion, such counsel may
rely, as to all matters governed by the laws of jurisdictions other than the law
of the State of New York, the federal law of the United States and the corporate
law of the State of Delaware, either upon opinions of other counsel, who shall
be counsel reasonably satisfactory to counsel for the Underwriters, in which
case the opinion shall state that they believe the Underwriters and they are
entitled to so rely, or upon unofficial compilations of the laws of such
jurisdictions. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and its Subsidiaries and certificates of
public officials.
<PAGE>
Exhibit B
Pursuant to Section 5(b)(2) of the Underwriting Agreement Basic Provisions,
Laurene H. Horiszny, Esq., Vice President, Secretary and General Counsel for the
Company, shall furnish to the Representatives an opinion to the effect that:
(i) Each Subsidiary listed on Schedule 1 hereto (the "Material Domestic
Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation with corporate
power and authority under such laws to own, lease and operate its properties and
conduct its business.
(ii) Each of the Company and the Material Domestic Subsidiaries is duly
qualified to transact business as a foreign corporation and is in good standing
in each other jurisdiction in which it owns or leases property of a nature, or
transacts business of a type, that would make such qualification necessary,
except to the extent that the failure to so qualify or be in good standing would
not have a material adverse effect on the Company and the Subsidiaries,
considered as one enterprise.
(iii) All of the outstanding shares of capital stock of each Material
Domestic Subsidiary have been duly authorized and validly issued and are fully
paid and non-assessable; all of the shares of capital stock of such Material
Domestic Subsidiary are owned by the Company, directly or through one or more of
the Subsidiaries, in the percentages set forth in Schedule 1 hereto and the
shares of capital stock of NSK-Warner owned by the Company are owned by the
Company, directly or through one or more of the Subsidiaries, free and clear of
any consensual pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind; no holder thereof is subject to personal liability by
reason of being such a holder and none of such shares was issued in violation of
the preemptive rights of any stockholder of the Material Domestic Subsidiaries.
(iv) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectus Supplement under the heading "Capitalization."
(v) Such counsel does not know of any statutes or regulations, or any
pending or threatened legal or governmental proceedings, required under the 1933
Act to be described in the Prospectus that are not described as required, nor of
any contracts or documents of a character required under the 1933 Act or 1933
Act Regulations to be described or referred to in the Registration Statement or
the Prospectus or to be filed as exhibits to the Registration Statement that are
not described, referred to or filed as required.
(vi) Except with respect to financial covenants (as to which such counsel
need express no opinion), no default exists in the performance or observance of
any obligation, agreement, covenant or condition contained in any contract,
indenture, loan agreement, note, lease or other agreement or instrument that is
described or referred to in the Registration Statement or the Prospectus or
filed as an exhibit to the Registration Statement (except for such defaults that
would not have a material adverse effect on the condition (financial or
otherwise), results of operations, business affairs or business prospects of the
Company and its Subsidiaries, considered as one enterprise).
(vii) The execution and delivery of this Agreement and the Indenture
by the Company, the issuance and delivery of the Underwritten Securities, the
consummation by the Company of the transactions contemplated in this Agreement
and in the Registration Statement and compliance by the Company with the terms
of this Agreement and the Indenture do not and will not result in any violation
of the certificate of incorporation or by-laws of the Company or any Material
Subsidiary, and do not and will not conflict with, or result in a breach of any
of the terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any Material Subsidiary under (A) any existing
applicable law, rule or regulation (other than the securities or Blue Sky laws
of the various states, as to which such counsel is not requested to express an
opinion), (B) any judgment, order or decree of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any Subsidiary or any of their properties, or (C) any indenture,
mortgage or loan agreement, or any other agreement or instrument known to such
counsel, to which the Company or any Material Subsidiary is a party or by which
it may be bound or to which any of its properties may be subject, including the
Formation Agreement between Borg-Warner Corporation and Nippon Seiko, K.K.,
dated as of April 18, 1964, and any agreements related thereto, including but
not limited to the Shareholders Agreement Concerning the Management of
NSK-Warner, dated September 25, 1964, between Borg-Warner Corporation and Nippon
Seiko, K.K. (except for such conflicts, breaches or defaults or liens, charges
or encumbrances that would not have a material adverse effect on the condition
(financial or otherwise), results of operations, business affairs or business
prospects of the Company and its Subsidiaries, considered as one enterprise).
(viii) The descriptions in the Prospectus of the statutes, regulations,
legal or governmental proceedings, contracts and other documents therein
described are accurate and fairly summarize the information required to be
shown.
(ix) No authorization, approval, consent or license of any government,
governmental instrumentality or court, domestic or foreign (other than under the
1933 Act or 1933 Act Regulations, the 1939 Act and the securities or Blue Sky
laws of the various states), is required for the valid authorization, issuance,
sale and delivery of the Underwritten Securities.
(x) Such counsel has participated in the preparation of the Registration
Statement and Prospectus, in the preparation of the documents incorporated by
reference in the Registration Statement and the Prospectus and in conferences
with officers and other representatives of the Company, representatives of the
independent public accountants for the Company, and with your representatives
and your counsel at which the contents of the Registration Statement, the
Prospectus and the documents incorporated by reference in the Prospectus and
related matters were discussed and, although such counsel need not pass upon or
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus and the
documents incorporated by reference in the Prospectus (except for the opinion
set forth in clause (viii)), and based upon the foregoing, no facts have come to
the attention of such counsel to lead her to believe (A) that the Registration
Statement or any amendment thereto (except for the financial statements and
other financial or statistical data included therein or omitted therefrom and
the Statement of Eligibility of the Trustee on Form T-1, as to which such
counsel need express no opinion), at the time the Registration Statement or any
such amendment became effective or at the time an Annual Report on Form 10-K was
filed (whichever is later), or at the date of the Terms Agreement, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
(B) that the Prospectus or any amendment or supplement thereto (except for the
financial statements and other financial or statistical data included therein or
omitted therefrom, as to which such counsel need express no opinion), at the
time the Prospectus was issued, at the time any such amended or supplemented
prospectus was issued or at the Closing Time, included or includes an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or (C) that the
documents incorporated by reference in the Prospectus (except for the financial
statements and other financial or statistical data included therein or omitted
therefrom, as to which such counsel need express no opinion, and except to the
extent that any statement therein is modified or superseded in the Prospectus),
as of the dates they were filed with the Commission, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
Such opinion shall be to such further effect with respect to other legal
matters relating to this Agreement and the sale of the Underwritten Securities
pursuant to this Agreement as counsel for the Underwriters may reasonably
request.
In giving such opinion, such counsel may rely, as to all matters governed
by the laws of jurisdictions other than the law of the State of Illinois, the
Federal law of the United States and the corporate law of the State of Delaware,
upon opinions of other counsel, who shall be counsel reasonably satisfactory to
counsel for the Underwriters, in which case the opinion shall state that they
believe the Underwriters and they are entitled to so rely. Such counsel may
also state that, insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of officers of the
Company and the Subsidiaries and certificates of public officials.
<PAGE>
Schedule 1 to
Exhibit B
Material Subsidiaries
Percent of Capital Stock Beneficially Owned by Borg-Warner Automotive, Inc. or
the Subsidiaries
Material Domestic Subsidiary
Borg-Warner Automotive Diversified
Transmission Products Corporation 100
Borg-Warner Automotive Morse TEC
Corporation 100
Borg-Warner Automotive Europe
Corporation 100
Borg-Warner Automotive Japan
Corporation 100
Borg-Warner Automotive Automatic
Transmission Systems Corporation 100
Borg-Warner Automotive Powertrain
Systems Corporation 100
Borg-Warner Automotive Air/Fluid Systems
Corporation 100
Material Foreign Subsidiary
Borg-Warner Automotive GmbH 100
Borg-Warner Automotive K.K. 100
<PAGE>
Exhibit C
Pursuant to Section 5(b)(3) of the Underwriting Agreement Basic Provisions
Agreement, NSK-Warner's Japanese counsel shall furnish to the Representatives an
opinion substantially to the effect that:
(i) NSK-Warner is a corporation duly organized, validly existing and in
good standing under the laws of Japan with corporate power and authority under
such laws to own, lease and operate its properties and conduct its business.
(ii) All of the outstanding shares of capital stock of NSK-Warner have been
duly authorized and validly issued and are fully paid and non-assessable.
Exhibit 4.1
CUSIP NO. 099724ACO
No. 1
GLOBAL NOTE
BORG-WARNER AUTOMOTIVE, INC.
$200,000,000
6 1/2% Senior Note due February 15, 2009
Unless this certificate is presented by an authorized representative of The
Depository Trust Company (55 Water Street, New York, New York) to the issuer or
its agent for registration of transfer, exchange or payment, and such
certificate issued is registered in the name of Cede & Co., or such other name
as requested by an authorized representative of the Depository, ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL, since the registered owner hereof, Cede & Co., has an interest herein.
Unless and until this certificate is exchanged in whole or in part for Notes in
certificated form, this certificate may not be transferred except as a whole by
the Depository to a nominee thereof or by a nominee thereof to the Depository or
another nominee of the Depository or by the Depository or any such nominee to a
successor of the Depository or a nominee of such successor.
<PAGE>
BORG-WARNER AUTOMOTIVE, INC., a Delaware corporation (herein referred to
as the "Company", which term includes any successor corporation under the Inden-
ture hereinafter referred to), for value received, hereby promises to pay to
Cede &
Co., or registered assigns, the principal sum of $200,000,000 on February 15,
2009 (the "Maturity Date") and to pay interest thereon from February 22, 1999 or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, semi-annually on February 15 and August 15 in each year
(each, an "Interest Payment Date"), commencing August 15, 1999, at 6 1/2% per
annum until the principal hereof is paid or duly provided for.
Any payment of principal or interest required to be made on a day that is
not a Business Day need not be made on such day, but may be made on the next
succeeding Business Day with the same force and effect as if made on such day
and no interest shall accrue as a result of such delayed payment. Interest
payable on each Interest Payment Date will include interest accrued from and
including February 22, 1999 or from and including the most recent Interest
Payment Date to which interest has been paid or duly provided for, as the case
may be, to but excluding such Interest Payment Date.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in the Indenture, be paid to the person
(the "Holder") in whose name this Note (or one or more Predecessor Securities)
is registered at the close of business on the February 1 and August 1 (whether
or not a Business Day) next preceding such Interest Payment Date (a "Regular
Record Date"). Any such interest not so punctually paid or duly provided for
("Defaulted Interest") will forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the person in whose name this Note
(or one or more Predecessor Securities) is registered at the close of business
on a special record date (the "Special Record Date") for the payment of such
Defaulted Interest to be fixed by the Trustee (referred to herein), notice
whereof shall be given to the Holder of this Note not less than ten days prior
to such Special Record Date, or may be paid at any time in any other lawful
manner, all as more fully provided in the Indenture.
For purposes of this Note, "Business Day" means any day that is not a
Saturday or Sunday or legal holiday in New York, New York, and on which
commercial banks are open for business in New York, New York.
Payment of the principal of this Note on the Maturity Date will be made
against presentation of this Note at the office or agency of the Company
maintained for that purpose in the Borough of Manhattan, The City of New York,
in such coin or currency of the United States of America as at the time of
payment is legal tender for the payment of public and private debts. So long as
this Note remains in book-entry form, all payments of principal and interest
will be made by the Company in immediately available funds.
General. This Note is one of a duly authorized issue of securities (herein
called the "Securities") of the Company, issued and to be issued in one or more
series under an indenture, dated as of February 15, 1999, as it may be
supplemented from time to time (herein called the "Indenture"), between the
Company and The First National Bank of Chicago, Trustee (herein called the
"Trustee", which term includes any successor trustee under the Indenture with
respect to a series of which this Note is a part), to which indenture and all
indentures supplemental thereto, reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the Holders of the Securities, and of the terms
upon which the Securities are, and are to be, authenticated and delivered. This
Note is one of a duly authorized series of Securities designated as "6 1/2%
Senior Notes due February 15, 2009" (collectively, the "Notes").
Optional Redemption. This Note may be redeemed in whole at any time or in
part from time to time, at the option of the Company, at a redemption price
equal to the greater of (1) 100% of the principal amount of this Note, and
(2) the sum of the present values of the remaining scheduled payments of
principal and interest on this Note discounted to the date of redemption on a
semi-annual basis (assuming a 360-day year consisting of twelve 30-day months)
at the applicable Treasury Rate plus 15 basis points, plus accrued and unpaid
interest on the principal amount being redeemed to the redemption date.
Capitalized terms used in this optional redemption provision shall have the
respective meanings specified below.
"Treasury Rate" means, with respect to any redemption date, (1) the yield,
under the heading which represents the average for the immediately preceding
week, appearing in the most recently published statistical release designated
"H.15(519)" or any successor publication which is published weekly by the Board
of Governors of the Federal Reserve System and which establishes yields on
actively traded United States Treasury securities adjusted to constant maturity
under the caption "Treasury Constant Maturities," for the maturity corresponding
to the Comparable Treasury Issue (if no maturity is within three months before
or after the Remaining Life, yields for the two published maturities most
closely corresponding to the Comparable Treasury Issue will be determined and
the Treasury Rate will be interpolated or extrapolated from such yields on a
straight line basis, rounding to the nearest month) or (2) if such release (or
any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semi-annual equivalent yield-to-maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date. The Treasury Rate will be calculated on the third
Business Day preceding the redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term ("Remaining Life") of the notes to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of such notes.
"Independent Investment Banker" means either Merrill Lynch, Pierce, Fenner
& Smith Incorporated or Morgan Stanley & Co. Incorporated, or, if both firms are
unwilling or unable to select the Comparable Treasury Issue, an independent
investment banking institution of national standing appointed by the Trustee
after consultation with the Company.
"Comparable Treasury Price" means (1) the average of five Reference
Treasury Dealer Quotations for such redemption date, after excluding the highest
and lowest Reference Treasury Dealer Quotations, or (2) if the Independent
Investment Banker obtains fewer than five such Reference Treasury Dealer
Quotations, the average of all such quotations.
"Reference Treasury Dealer" means (1) Merrill Lynch, Pierce Fenner & Smith
Incorporated and Morgan Stanley & Co. Incorporated and their respective
successors, provided, however, that if any of the foregoing shall cease to be a
primary U.S. Government securities dealer in New York City (a "Primary Treasury
Dealer"), we will substitute for such underwriter another Primary Treasury
Dealer and (2) any other Primary Treasury Dealer selected by the Independent
Investment Banker after consultation with the Company.
Events of Default. If an Event of Default with respect to the Notes shall
have occurred and be continuing, the principal of the Notes may be declared due
and payable in the manner and with the effect provided in the Indenture.
Modification and Waivers; Obligations of the Company Absolute. The
Indenture permits, with certain exceptions as therein provided, the amendment
thereof and the modification of the rights and obligations of the Company and
the rights of the Holders of the Securities of each series. Such amendment may
be effected under the Indenture at any time by the Company and the Trustee with
the consent of the Holders of not less than a majority in aggregate principal
amount of all Securities issued under the Indenture at the time Outstanding and
affected thereby. The Indenture also contains provisions permitting the Holders
of not less than a majority in aggregate principal amount of all outstanding
Securities affected by certain provisions of the Indenture, on behalf of the
Holders of all Outstanding Securities, to waive compliance by the Company with
such provisions. Furthermore, provisions in the Indenture permit the Holders of
not less than a majority in aggregate principal amount of the Outstanding
Securities of individual series to waive on behalf of all of the Holders of
Securities of such individual series certain past defaults under the Indenture
and their consequences. Any such consent or waiver shall be conclusive and
binding upon the Holder of this Note and upon all future Holders of this Note
and of any Note issued upon the registration of transfer hereof or in exchange
hereof or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Note.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency herein prescribed.
Defeasance and Covenant Defeasance. The Indenture contains provisions for
defeasance at any time of (a) the entire indebtedness of the Company on this
Note and (b) certain restrictive covenants and the related defaults and Events
of Default, upon compliance by the Company with certain conditions set forth
therein, which provisions apply to this Note.
Authorized Denominations. The Notes are issuable only in registered form
without coupons in denominations of $1,000 or any amount in excess thereof which
is an integral multiple of $1,000.
Registration of Transfer or Exchange. As provided in the Indenture and
subject to certain limitations herein and therein set forth, the transfer of
this Note is registrable in the Security Register upon surrender of this Note
for registration of transfer at the office or agency of the Company in any place
where the principal of and interest on this Note are payable, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Notes, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
As provided in the Indenture and subject to certain limitations herein and
therein set forth, the Notes are exchangeable for a like aggregate principal
amount of Notes of different authorized denominations, as requested by the
Holders surrendering the same.
This Note is a Global Security. If the Depository is at any time
unwilling, unable or ineligible to continue as depository and a successor
depository is not appointed by the Company within 90 days or an Event of Default
under the Indenture has occurred and is continuing, the Company will issue
Securities in certificated form in exchange for each Global Security. In
addition, the Company may at any time determine not to have Securities
represented by a Global Security and, in such event, will issue Securities in
certificated form in exchange in whole for the Global Security representing such
Security. In any such instance, an owner of a beneficial interest in a Global
Security will be entitled to physical delivery in certificated form of
Securities equal in principal amount to such beneficial interest and to have
such Securities registered in its name. Securities so issued in certificated
form will be issued in denominations of $1,000 or any amount in excess thereof
which is an integral multiple of $1,000 and will be issued in registered form
only, without coupons.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Holder as the owner hereof for all purposes, whether or not this Note be
overdue, and neither the Company, the Trustee nor any such agent shall be
affected by notice to the contrary.
Defined Terms. All terms used in this Note (except as herein otherwise
expressly provided or unless the context otherwise requires) which are defined
in the Indenture and are not otherwise defined herein shall have the meanings
assigned to them in the Indenture.
Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of New York.
Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Note shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its facsimile corporate seal.
Dated: February 22, 1999
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This is one of the Securities of the series
designated therein referred to in the
within-mentioned Indenture BORG-WARNER AUTOMOTIVE, INC.
THE FIRST NATIONAL BANK OF
CHICAGO,
as Trustee
By: /s/ William C. Cline
By: /s/ Janice Ott Rotunno Attest: /s/ Laurene H. Horiszny
Authorized Officer Secretary
<PAGE>
OPTION TO ELECT REPAYMENT
The undersigned hereby irrevocably requests and instructs the Company
to repay this Security (or the portion thereof specified below), pursuant to its
terms, on the Optional Repayment Date first occurring after the date of receipt
of this Security as specified below (the "Repayment Date"), at a Repayment Price
equal to 100% of the principal amount thereof, together with interest thereon
accrued to the Repayment Date, to the undersigned at:
(Please Print or Type Name and Address of the Undersigned.)
For this Option to Elect Repayment to be effective, this Security
with the
Option to Elect Repayment duly completed must be received at least 30 but not
more than 45 days prior to the Repayment Date (or, if such Repayment Date is not
a Business Day, the next succeeding Business Day) by the Company at its office
or agency in The City of New York, which will be located initially at the office
of the Trustee at 14 Wall Street, Eighth Floor, New York, New York 10005.
If less than the entire principal amount of this Security is to be
repaid,specify the portion thereof (which shall be $1,000 or an integral
multiple thereof) which is to be repaid: $ .
If less than the entire principal amount of the within Security is to
be repaid, specify the denomination(s) of the Security(ies) to be issued forthe
unpaid amount ($1,000 or any integral multiple of $1,000; provided that any
remaining principal amount of this Security shall not be less than the Minimum
Denomination): $ .
Dated:
Note: The signature to this Option to Elect Repayment must correspond with the
name as written upon the face of this Security in every particular without
alterations or enlargement or any change whatsoever.
Exhibit 4.2
CUSIP NO. 099724AB2
No. 1
GLOBAL NOTE
BORG-WARNER AUTOMOTIVE, INC.
$200,000,000
7 1/8% Senior Note due February 15, 2029
Unless this certificate is presented by an authorized representative of The
Depository Trust Company (55 Water Street, New York, New York) to the issuer or
its agent for registration of transfer, exchange or payment, and such
certificate issued is registered in the name of Cede & Co., or such other name
as requested by an authorized representative of the Depository, ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL, since the registered owner hereof, Cede & Co., has an interest herein.
Unless and until this certificate is exchanged in whole or in part for Notes in
certificated form, this certificate may not be transferred except as a whole by
the Depository to a nominee thereof or by a nominee thereof to the Depository or
another nominee of the Depository or by the Depository or any such nominee to a
successor of the Depository or a nominee of such successor.
<PAGE>
BORG-WARNER AUTOMOTIVE, INC., a Delaware corporation (herein referred to
asthe "Company", which term includes any successor corporation under the Inden-
ture hereinafter referred to), for value received, hereby promises to pay to
Cede & Co., or registered assigns, the principal sum of $200,000,000 on February
15, 2029 (the "Maturity Date") and to pay interest thereon from February 22,
1999 or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, semi-annually on February 15 and August 15 in each
year (each, an "Interest Payment Date"), commencing August 15, 1999, at 7 1/8%
per annum until the principal hereof is paid or duly provided for.
Any payment of principal or interest required to be made on a day that is
not a Business Day need not be made on such day, but may be made on the next
succeeding Business Day with the same force and effect as if made on such day
and no interest shall accrue as a result of such delayed payment. Interest
payable on each Interest Payment Date will include interest accrued from and
including February 22, 1999 or from and including the most recent Interest
Payment Date to which interest has been paid or duly provided for, as the case
may be, to but excluding such Interest Payment Date.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in the Indenture, be paid to the person
(the "Holder") in whose name this Note (or one or more Predecessor Securities)
is registered at the close of business on the February 1 and August 1 (whether
or not a Business Day) next preceding such Interest Payment Date (a "Regular
Record Date"). Any such interest not so punctually paid or duly provided for
("Defaulted Interest") will forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the person in whose name this Note
(or one or more Predecessor Securities) is registered at the close of business
on a special record date (the "Special Record Date") for the payment of such
Defaulted Interest to be fixed by the Trustee (referred to herein), notice
whereof shall be given to the Holder of this Note not less than ten days prior
to such Special Record Date, or may be paid at any time in any other lawful
manner, all as more fully provided in the Indenture.
For purposes of this Note, "Business Day" means any day that is not a
Saturday or Sunday or legal holiday in New York, New York, and on which
commercial banks are open for business in New York, New York.
Payment of the principal of this Note on the Maturity Date will be made
against presentation of this Note at the office or agency of the Company
maintained for that purpose in the Borough of Manhattan, The City of New York,
in such coin or currency of the United States of America as at the time of
payment is legal tender for the payment of public and private debts. So long as
this Note remains in book-entry form, all payments of principal and interest
will be made by the Company in immediately available funds.
General. This Note is one of a duly authorized issue of securities (herein
called the "Securities") of the Company, issued and to be issued in one or more
series under an indenture, dated as of February 15, 1999, as it may be
supplemented from time to time (herein called the "Indenture"), between the
Company and The First National Bank of Chicago, Trustee (herein called the
"Trustee", which term includes any successor trustee under the Indenture with
respect to a series of which this Note is a part), to which indenture and all
indentures supplemental thereto, reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the Holders of the Securities, and of the terms
upon which the Securities are, and are to be, authenticated and delivered. This
Note is one of a duly authorized series of Securities designated as "7 1/8%
Senior Notes due February 15, 2029" (collectively, the "Notes").
Optional Redemption. This Note may be redeemed in whole at any time or in
part from time to time, at the option of the Company, at a redemption price
equal to the greater of (1) 100% of the principal amount of this Note, and
(2) the sum of the present values of the remaining scheduled payments of
principal and interest on this Note discounted to the date of redemption on a
semi-annual basis (assuming a 360-day year consisting of twelve 30-day months)
at the applicable Treasury Rate plus 25 basis points, plus accrued and unpaid
interest on the principal amount being redeemed to the redemption date.
Capitalized terms used in this optional redemption provision shall have the
respective meanings specified below.
"Treasury Rate" means, with respect to any redemption date, (1) the yield,
under the heading which represents the average for the immediately preceding
week, appearing in the most recently published statistical release designated
"H.15(519)" or any successor publication which is published weekly by the Board
of Governors of the Federal Reserve System and which establishes yields on
actively traded United States Treasury securities adjusted to constant maturity
under the caption "Treasury Constant Maturities," for the maturity corresponding
to the Comparable Treasury Issue (if no maturity is within three months before
or after the Remaining Life, yields for the two published maturities most
closely corresponding to the Comparable Treasury Issue will be determined and
the Treasury Rate will be interpolated or extrapolated from such yields on a
straight line basis, rounding to the nearest month) or (2) if such release (or
any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semi-annual equivalent yield-to-maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date. The Treasury Rate will be calculated on the third
Business Day preceding the redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term ("Remaining Life") of the notes to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of such notes.
"Independent Investment Banker" means either Merrill Lynch, Pierce, Fenner
& Smith Incorporated or Morgan Stanley & Co. Incorporated, or, if both firms are
unwilling or unable to select the Comparable Treasury Issue, an independent
investment banking institution of national standing appointed by the Trustee
after consultation with the Company.
"Comparable Treasury Price" means (1) the average of five Reference
Treasury Dealer Quotations for such redemption date, after excluding the highest
and lowest Reference Treasury Dealer Quotations, or (2) if the Independent
Investment Banker obtains fewer than five such Reference Treasury Dealer
Quotations, the average of all such quotations.
"Reference Treasury Dealer" means (1) Merrill Lynch, Pierce Fenner & Smith
Incorporated and Morgan Stanley & Co. Incorporated and their respective
successors, provided, however, that if any of the foregoing shall cease to be a
primary U.S. Government securities dealer in New York City (a "Primary Treasury
Dealer"), we will substitute for such underwriter another Primary Treasury
Dealer and (2) any other Primary Treasury Dealer selected by the Independent
Investment Banker after consultation with the Company.
Events of Default. If an Event of Default with respect to the Notes shall
have occurred and be continuing, the principal of the Notes may be declared due
and payable in the manner and with the effect provided in the Indenture.
Modification and Waivers; Obligations of the Company Absolute. The
Indenture permits, with certain exceptions as therein provided, the amendment
thereof and the modification of the rights and obligations of the Company and
the rights of the Holders of the Securities of each series. Such amendment may
be effected under the Indenture at any time by the Company and the Trustee with
the consent of the Holders of not less than a majority in aggregate principal
amount of all Securities issued under the Indenture at the time Outstanding and
affected thereby. The Indenture also contains provisions permitting the Holders
of not less than a majority in aggregate principal amount of all outstanding
Securities affected by certain provisions of the Indenture, on behalf of the
Holders of all Outstanding Securities, to waive compliance by the Company with
such provisions. Furthermore, provisions in the Indenture permit the Holders of
not less than a majority in aggregate principal amount of the Outstanding
Securities of individual series to waive on behalf of all of the Holders of
Securities of such individual series certain past defaults under the Indenture
and their consequences. Any such consent or waiver shall be conclusive and
binding upon the Holder of this Note and upon all future Holders of this Note
and of any Note issued upon the registration of transfer hereof or in exchange
hereof or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Note.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency herein prescribed.
Defeasance and Covenant Defeasance. The Indenture contains provisions for
defeasance at any time of (a) the entire indebtedness of the Company on this
Note and (b) certain restrictive covenants and the related defaults and Events
of Default, upon compliance by the Company with certain conditions set forth
therein, which provisions apply to this Note.
Authorized Denominations. The Notes are issuable only in registered form
without coupons in denominations of $1,000 or any amount in excess thereof which
is an integral multiple of $1,000.
Registration of Transfer or Exchange. As provided in the Indenture and
subject to certain limitations herein and therein set forth, the transfer of
this Note is registrable in the Security Register upon surrender of this Note
for registration of transfer at the office or agency of the Company in any place
where the principal of and interest on this Note are payable, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Notes, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
As provided in the Indenture and subject to certain limitations herein and
therein set forth, the Notes are exchangeable for a like aggregate principal
amount of Notes of different authorized denominations, as requested by the
Holders surrendering the same.
This Note is a Global Security. If the Depository is at any time
unwilling, unable or ineligible to continue as depository and a successor
depository is not appointed by the Company within 90 days or an Event of Default
under the Indenture has occurred and is continuing, the Company will issue
Securities in certificated form in exchange for each Global Security. In
addition, the Company may at any time determine not to have Securities
represented by a Global Security and, in such event, will issue Securities in
certificated form in exchange in whole for the Global Security representing such
Security. In any such instance, an owner of a beneficial interest in a Global
Security will be entitled to physical delivery in certificated form of
Securities equal in principal amount to such beneficial interest and to have
such Securities registered in its name. Securities so issued in certificated
form will be issued in denominations of $1,000 or any amount in excess thereof
which is an integral multiple of $1,000 and will be issued in registered form
only, without coupons.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Holder as the owner hereof for all purposes, whether or not this Note be
overdue, and neither the Company, the Trustee nor any such agent shall be
affected by notice to the contrary.
Defined Terms. All terms used in this Note (except as herein otherwise
expressly provided or unless the context otherwise requires) which are defined
in the Indenture and are not otherwise defined herein shall have the meanings
assigned to them in the Indenture.
Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of New York.
Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Note shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its facsimile corporate seal.
Dated: February 22, 1999
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This is one of the Securities of the series
designated therein referred to in the
within-mentioned Indenture
BORG-WARNER AUTOMOTIVE, INC.
THE FIRST NATIONAL BANK OF
CHICAGO,
as Trustee
By: /s/ William C. Cline
By: /s/ Janice Ott Rotunno Attest: /s/ Laurene H. Horiszny
Authorized Officer Secretary
<PAGE>
OPTION TO ELECT REPAYMENT
The undersigned hereby irrevocably requests and instructs the Company
to repay this Security (or the portion thereof specified below),pursuant to its
terms, on the Optional Repayment Date first occurring after the date of receipt
of this Security as specified below (the "Repayment Date"), at a Repayment Price
equal to 100% of the principal amount thereof, together with interest thereon
accrued to the Repayment Date, to the undersigned at:
(Please Print or Type Name and Address of the Undersigned.)
For this Option to Elect Repayment to be effective, this Security
with the Option to Elect Repayment duly completed must be received at least 30
but not more than 45 days prior to the Repayment Date (or, if such Repayment
Date is not a Business Day, the next succeeding Business Day) by the Company at
its office or agency in The City of New York, which will be located initially
at the office of the Trustee at 14 Wall Street, Eighth Floor, New York, New
York 10005.
If less than the entire principal amount of this Security is to be repaid,
specify the portion thereof (which shall be $1,000 or an integral multiple
thereof) which is to be repaid: $ .
If less than the entire principal amount of the within Security is to be
repaid, specify the denomination(s) of the Security(ies) to be issued for the
unpaid amount ($1,000 or any integral multiple of $1,000; provided that any
remaining principal amount of this Security shall not be less than the Minimum
Denomination): $ .
Dated:
Note: The signature to this Option to Elect Repayment must correspond with the
name as written upon the face of this Security in every particular without
alterations or enlargement or any change whatsoever.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet as of June 30, 1999 (unaudited) and the
Consolidated Statement of Operations for the Three Months Ended June 30, 1999
(unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 20,700
<SECURITIES> 16,500
<RECEIVABLES> 224,600
<ALLOWANCES> 0
<INVENTORY> 169,900
<CURRENT-ASSETS> 681,600
<PP&E> 1,145,100
<DEPRECIATION> (436,100)
<TOTAL-ASSETS> 2,734,100
<CURRENT-LIABILITIES> 556,800
<BONDS> 809,000
0
0
<COMMON> 300
<OTHER-SE> 982,800
<TOTAL-LIABILITY-AND-EQUITY> 2,734,100
<SALES> 640,800
<TOTAL-REVENUES> 640,800
<CGS> 491,700
<TOTAL-COSTS> 491,700
<OTHER-EXPENSES> 79,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,600
<INCOME-PRETAX> 56,700
<INCOME-TAX> 20,400
<INCOME-CONTINUING> 36,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,300
<EPS-BASIC> $1.36
<EPS-DILUTED> $1.35
</TABLE>
