<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BORG-WARNER AUTOMOTIVE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3714 13-3404508
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
200 SOUTH MICHIGAN AVENUE
CHICAGO, IL 60604
(312) 322-8500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
LAURENE H. HORISZNY
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
BORG-WARNER AUTOMOTIVE, INC.
200 SOUTH MICHIGAN AVENUE
CHICAGO, IL 60604
(312) 322-8500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
ELLIOTT V. STEIN STEPHEN A. LANDSMAN
WACHTELL, LIPTON, ROSEN & KATZ RUDNICK & WOLFE
51 WEST 52ND STREET 203 NORTH LASALLE STREET, SUITE 1800
NEW YORK, NY 10019-6150 CHICAGO, IL 60601
(212) 403-1000 (312) 368-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the merger (the "Merger") of BWA Merger Corp. with and into
Kuhlman Corporation ("Kuhlman"), pursuant to the Agreement and Plan of Merger,
dated as of December 17, 1998, among those two parties and the Registrant,
described in the enclosed Proxy Statement/Prospectus, have been satisfied or
waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(1) OFFERING PRICE(2) FEE(3)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value
(including the associated preferred
stock purchase rights)............... N/A N/A $120,879,574.14 $33,604.52
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pursuant to Securities Act Rule 457(o), this information is not included.
(2) Pursuant to Securities Act Rule 457(c), (f)(1) and (f)(3), and estimated
solely for purposes of calculating the registration fee, the proposed
maximum aggregate offering price is $120,879,574.14, which equals (i) the
product of (a) the average of the high and low prices of the common stock,
par value $1.00 per share ("Kuhlman Common Stock"), of Kuhlman, of $37.47,
as reported on the New York Stock Exchange on January 15, 1999, multiplied
by (b) the total number of shares of Kuhlman Common Stock to be canceled,
less (ii) the amount of cash paid by the Registrant in exchange for shares
of Kuhlman Common Stock (which equals $39.00 times the difference between
(a) the total number of shares of Kuhlman Common Stock to be canceled, and
(b) 3,846,154).
(3) On January 5, 1999, Kuhlman filed a Preliminary Proxy Statement/Prospectus
in connection with the Merger and, pursuant to Exchange Act Rules
14a-6(i)(1) and 0-11, paid a fee of $135,552.44. Pursuant to Securities Act
Rule 457(b), no additional fee need be paid upon filing of this Registration
Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
[KUHLMAN CORPORATION LOGO]
KUHLMAN CORPORATION
3 SKIDAWAY VILLAGE SQUARE
SAVANNAH, GEORGIA 31411
January 22, 1999
Dear Kuhlman Stockholder:
The Board of Directors of Kuhlman Corporation has approved a merger in
which Kuhlman will become a wholly owned subsidiary of Borg-Warner Automotive,
Inc. This merger will integrate Kuhlman into a larger and more globally
diversified organization. We believe that recent and continuing changes in the
transportation and automotive industries favor larger and more internationally
focused organizations. Our Schwitzer Group and its employees will now be part of
a much larger organization which will be well-positioned to thrive and to be
more responsive to the global needs of its customers. It also will have the
financial strength and scope to capitalize on the opportunities presented by a
changing global economy.
In the merger, Kuhlman stockholders will receive, for each of their Kuhlman
shares, at their election, either (1) $39.00 in cash, without interest, or (2)
approximately $39.00 worth of Borg-Warner Automotive common shares, subject to a
valuation process described in this proxy statement/prospectus. This election
will be subject to an adjustment to ensure that a total of approximately $150
million worth of Borg-Warner Automotive common shares, plus cash, is exchanged
for outstanding shares. To the extent that Kuhlman stockholders receive
Borg-Warner Automotive common shares, they will also receive cash in lieu of
fractional shares. Other than the number of shares outstanding, Borg-Warner
Automotive common shares will remain unchanged in the proposed merger. The
Borg-Warner Automotive common shares, including shares issued to the
stockholders of Kuhlman as a result of the proposed merger, will continue to be
listed on the New York Stock Exchange under the trading symbol "BWA."
We cannot complete the merger unless we obtain the necessary governmental
approvals and unless the Kuhlman stockholders approve it. The approval of
Borg-Warner Automotive's stockholders is not required. We will hold a special
meeting of our stockholders to vote on this merger proposal. YOUR VOTE IS VERY
IMPORTANT. Whether or not you plan to attend the special meeting, please take
the time to vote by completing and mailing the enclosed proxy card to us. If you
sign, date and mail your proxy card without indicating how you want to vote,
your proxy will be counted as a vote in favor of the merger. Not returning your
card or not instructing your broker how to vote any shares held for you in
"street name" will have the same effect as voting against the merger.
<PAGE> 3
The date, time and place of the special meeting is as follows:
Monday, March 1, 1999, 9:30 a.m., local time
Offices of Rudnick & Wolfe
203 North LaSalle Street, Suite 1800
Chicago, Illinois 60601
This proxy statement/prospectus serves as a prospectus of Borg-Warner
Automotive relating to the issuance of approximately $150 million worth of
Borg-Warner Automotive common shares in connection with the proposed merger and
as a proxy statement for Kuhlman in connection with the solicitation of proxies
by its Board of Directors for use at its special meeting of stockholders
regarding the merger agreement and the proposed merger. This document provides
you with detailed information about the meeting and the proposed merger. You
also can get information about Kuhlman and Borg-Warner Automotive from publicly
available documents that our companies have filed with the Securities and
Exchange Commission. We encourage you to read this entire document carefully.
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF THE MATERIAL RISK
FACTORS THAT YOU SHOULD CONSIDER BEFORE VOTING ON THE MERGER PROPOSAL.
Your Board of Directors unanimously supports this combination of Kuhlman
and Borg-Warner Automotive and recommends that you vote in favor of the merger.
/s/ Robert S. Jepson, Jr.
Robert S. Jepson, Jr.
Chairman and Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OF THE MERGER OR THE SECURITIES TO BE ISSUED OR
DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROXY STATEMENT/PROSPECTUS IS DATED JANUARY 22, 1999
AND IS FIRST BEING MAILED TO STOCKHOLDERS ON JANUARY 23, 1999.
<PAGE> 4
KUHLMAN CORPORATION
3 SKIDAWAY VILLAGE SQUARE
SAVANNAH, GEORGIA 31411
-----------------------------------------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 1, 1999
-----------------------------------------------------------------
TO THE STOCKHOLDERS OF
KUHLMAN CORPORATION:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Kuhlman
Corporation will be held at the offices of Rudnick & Wolfe, 203 North LaSalle
Street, Suite 1800, Chicago, Illinois, on March 1, 1999 at 9:30 a.m., local
time, for the purpose of considering and voting upon adoption of an Agreement
and Plan of Merger, dated as of December 17, 1998, by and among Kuhlman
Corporation, a Delaware corporation, Borg-Warner Automotive, Inc., a Delaware
corporation, and BWA Merger Corp., a Delaware corporation and wholly owned
subsidiary of Borg-Warner Automotive ("Merger Sub"), and the consummation of the
transactions contemplated by that agreement, pursuant to which, among other
things, Merger Sub will merge with and into Kuhlman, upon the terms and subject
to the conditions set forth in the Agreement and Plan of Merger, as more fully
described in the enclosed proxy statement/prospectus.
Only stockholders of record at the close of business on January 19, 1999
are entitled to notice of and to vote at the special meeting and at any and all
adjournments and postponements thereof.
Under Delaware law, appraisal rights will be available to record holders of
common stock of Kuhlman, except that such rights may not be available to holders
who elect to receive cash in the merger or who elect to receive stock in the
merger and in fact receive stock (other than cash received in lieu of fractional
shares), even if some other holders who elect to receive stock are required to
accept some cash. In order for stockholders to exercise such appraisal rights,
they must follow the procedures prescribed by Delaware law, which are summarized
under "Appraisal Rights of Kuhlman Stockholders" in the accompanying proxy
statement/prospectus.
By Order of the Board of Directors,
Richard A. Walker
Secretary
Savannah, Georgia
January 22, 1999
- --------------------------------------------------------------------------------
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING, EITHER
IN PERSON OR BY PROXY. PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE. IF YOU ATTEND THE SPECIAL
MEETING, YOU MAY PERSONALLY VOTE, WHICH WILL REVOKE YOUR SIGNED PROXY. YOU MAY
ALSO REVOKE YOUR PROXY IN WRITING AT ANY TIME BEFORE THE SPECIAL MEETING.
- --------------------------------------------------------------------------------
<PAGE> 5
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. WHAT IS THE PROPOSED TRANSACTION?
A. Borg-Warner Automotive will acquire Kuhlman by merging a subsidiary of
Borg-Warner Automotive into Kuhlman.
Q. WHY DID KUHLMAN AGREE TO BE ACQUIRED BY BORG-WARNER AUTOMOTIVE?
A. Kuhlman agreed to be acquired for several reasons, including, among others:
- the opportunity to receive what the Kuhlman Board of Directors believes is
a substantial premium over the per share value that a stand-alone strategy
could be expected to produce in a reasonable time period,
- Kuhlman will be integrated into a larger and more globally diversified
organization,
- the Kuhlman Board of Directors believes that recent and continuing changes
in the commercial transportation and automotive industries favor larger and
more internationally focused organizations,
- Kuhlman's Schwitzer Group will now be part of a much larger organization
which will be well-positioned to thrive and to be more responsive to the
global needs of its customers, and
- the Schwitzer Group will also have the financial strength and scope to
capitalize on the opportunities presented by a changing global economy.
For more detail, see page 26 of this proxy statement/prospectus.
Q. WHAT HAPPENS TO MY SHARES OF KUHLMAN COMMON STOCK IN THE MERGER?
A. Each Kuhlman share that you own will be converted into the right to receive
(1) $39.00 in cash, without interest, or (2) $39.00 worth of Borg-Warner
Automotive common shares. In determining the number of Borg-Warner Automotive
common shares you could receive, the shares will be valued at the average
price for Borg-Warner Automotive common shares for the 20 consecutive trading
days immediately preceding the third trading date prior to the date the
merger is completed. You will be able to elect between receiving Borg-Warner
Automotive common shares and receiving cash for your Kuhlman shares. Mixed
elections will not be permitted. As a result of a proration process, you may
not receive only the form of consideration that you elect to receive, but you
may, instead, receive a portion of the form of consideration you did not
elect. The proration process will ensure that approximately 78% of the
Kuhlman shares are converted to cash, with the remaining 22% being converted
into Borg-Warner Automotive common shares. You will receive cash in place of
any fractional shares of Borg-Warner Automotive stock you would otherwise be
entitled to receive.
Q. WHAT WILL HAPPEN TO KUHLMAN'S DIVIDEND INVESTMENT PLAN?
A. The Kuhlman Dividend Investment Plan will terminate upon the completion of
the merger. Shares that you hold under this plan will be treated the same as
other Kuhlman shares that you exchange in the merger. We expect that Kuhlman
stockholders who become Borg-Warner stockholders will have the right to
participate in the Borg-Warner Dividend Reinvestment and Stock Purchase Plan,
which is similar to the Kuhlman Dividend Investment Plan.
<PAGE> 6
Q. WILL THE VALUE OF THE TRANSACTION CHANGE BETWEEN NOW AND THE TIME THE MERGER
IS COMPLETED?
A. Although the value of the transaction itself will not change between now and
the time the merger is completed, the number of Borg-Warner Automotive common
shares issued in the transaction may change. By electing to receive
Borg-Warner Automotive common shares in exchange for your Kuhlman shares,
each Kuhlman share you own will be converted into $39.00 worth of Borg-Warner
Automotive common shares. The table below shows the closing price on the New
York Stock Exchange of Kuhlman and Borg-Warner Automotive common shares on
December 17, 1998, the day before the public announcement of the merger, and
January 20, 1999, the latest practicable day for which closing prices were
available when we printed this proxy statement/prospectus.
<TABLE>
<CAPTION>
BORG-WARNER
AUTOMOTIVE
PRICE KUHLMAN PRICE
----------- -------------
<S> <C> <C>
December 17, 1998.... $51 1/2 $31 1/2
January 20, 1999..... $51 1/2 $37 13/16
</TABLE>
Based upon the average of the high and low sales prices of Borg-Warner
Automotive's common shares during the 20 consecutive trading days ended
January 13, 1999, each Kuhlman share to be exchanged for Borg-Warner
Automotive common shares would have been exchanged for 0.7484 of a Borg-Warner
Automotive share if the merger had been completed on January 20, 1999. Of
course, the market price of Borg-Warner Automotive common shares will
fluctuate prior to the merger. You should obtain current stock price
quotations for Borg-Warner Automotive common shares. These quotations are
available from your stockbroker, in major newspapers, such as The Wall Street
Journal, and on the Internet.
Q. DO I HAVE APPRAISAL RIGHTS?
A. Under Delaware law, appraisal rights will be available to record holders of
common stock of Kuhlman, except that such rights may not be available to
holders who elect to receive cash in the merger or who elect to receive stock
in the merger and in fact receive stock (other than cash received in lieu of
fractional shares), even if some other holders who elect to receive stock are
required to accept some cash. However, you must strictly follow certain
procedures in order to preserve the appraisal right. For a description of
these procedures, see page 41 of this proxy statement/prospectus.
Q. WHAT DO I NEED TO DO NOW?
A. After you carefully read this proxy statement/prospectus, indicate on your
proxy card how you want to vote, and sign and mail the proxy card in the
enclosed prepaid return envelope as soon as possible. That way, your shares
will be represented at the special meeting.
Holders of a majority of the outstanding Kuhlman shares must approve the
merger agreement and the merger. Therefore, it is important that you return
your signed proxy card. Your letter of transmittal and election form are
included in this mailing. As noted below, you should send in your letter of
transmittal, election form and certificates representing your Kuhlman shares
so that they are received before 5:00 p.m. on February 26, 1999.
Q. SHOULD I SEND IN MY CERTIFICATES REPRESENTING OUTSTANDING KUHLMAN SHARES?
A. Yes. Together with this proxy statement/prospectus, we have sent to you a
green letter of transmittal and election form, with instructions for making
ii
<PAGE> 7
an election between Borg-Warner Automotive common shares and cash (mixed
elections are not permitted) and for transmitting certificates representing
outstanding Kuhlman shares, together with a return envelope. You must
complete and return these documents, along with your certificates
representing outstanding Kuhlman shares, to Harris Trust & Savings Bank
before the election deadline on February 26, 1999, for your election to be
effective. If Kuhlman and Borg-Warner Automotive do not expect to complete
the merger within one week after the special meeting, they will extend the
election deadline and publicly announce the extension.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A. Your broker will vote your shares only if you provide your broker with
instructions on how to vote. You should follow the directions provided by
your broker regarding how to instruct your broker to vote your shares.
Without instructions, your shares will not be voted, which will have the same
effect as voting against the merger.
Q. CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED PROXY?
A. Yes. You can change your vote at any time before we vote your proxy at the
special meeting. There are three ways to change your vote. First, you can
send a written notice to the Secretary of Kuhlman at the address below
stating that you would like to revoke your proxy. Second, you can complete a
new proxy card and send it to the Secretary of Kuhlman; the new proxy card
will automatically replace any earlier proxy card you returned. Third, you
can attend the special meeting and vote in person. You should send any
written notice or new proxy card to the Secretary of Kuhlman, at the
following address:
Richard A. Walker,
Kuhlman Corporation,
3 Skidaway Village Square
Savannah, Georgia 31411
(912) 598-7809.
Q. WHAT HAPPENS IF I DON'T MAKE AN ELECTION FOR CASH OR SHARES?
A. If you fail to return a green letter of transmittal and election form and the
other required materials prior to the election deadline, you will not be
entitled to elect from among the alternative forms of merger consideration.
Whether you receive cash or Borg-Warner Automotive common shares will be
determined by the procedures described on page 43 of this proxy
statement/prospectus.
Q. WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A. In addition to stockholder approval, we must also obtain certain regulatory
approvals or clearances before completion (most notably Federal Trade
Commission and Department of Justice approval). We nonetheless hope to
complete the merger in the first quarter of 1999. However, delays in
obtaining regulatory approvals could delay the merger.
Q. WHAT ARE THE TAX CONSEQUENCES TO STOCKHOLDERS OF THE MERGER?
A. The merger will be a taxable exchange. Kuhlman stockholders will recognize
gain or loss equal to the difference between the fair market value of the
consideration they receive in the merger, whether Borg-Warner Automotive
common shares or cash or both, and their basis in the Kuhlman shares
exchanged in the merger. For more detail, see page 35 of this proxy
statement/prospectus.
iii
<PAGE> 8
Q. WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETING?
A. No other matters will be voted on at the special meeting, except possibly
procedural items relating to the conduct of the special meeting.
Q. ASSUMING I RECEIVE BORG-WARNER AUTOMOTIVE COMMON SHARES IN THE MERGER, WILL
MY RIGHTS AS A STOCKHOLDER CHANGE AS A RESULT OF THE MERGER?
A. Yes. Although Kuhlman stockholder rights and Borg-Warner Automotive
stockholder rights are both governed by Delaware law, Kuhlman stockholder
rights are also governed by Kuhlman's charter and by-laws, whereas
Borg-Warner Automotive stockholder rights are governed by Borg-Warner
Automotive's charter and by-laws. If you receive Borg-Warner Automotive
common shares in the merger, your rights will be governed by Borg-Warner
Automotive's charter and by-laws, as well as by Delaware law. For a summary
of material differences between the rights of Kuhlman stockholders and the
rights of Borg-Warner Automotive stockholders, see page 69 of this proxy
statement/prospectus.
Q. WHOM SHOULD I CALL WITH QUESTIONS OR TO OBTAIN ADDITIONAL COPIES OF THE PROXY
STATEMENT/PROSPECTUS?
A. Call Georgeson & Company Inc. at (800) 223-2064.
Q. WHERE CAN I FIND MORE INFORMATION ABOUT BORG-WARNER AUTOMOTIVE AND KUHLMAN?
A. Various sources described under "Where You Can Find More Information" on page
74 of this proxy statement/prospectus provide further information.
iv
<PAGE> 9
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains certain forward-looking
statements, as defined in the Private Securities Litigation Reform Act of 1995,
that involve risk and uncertainty. Such statements are made with respect to the
financial condition, results of operations and business of Borg-Warner
Automotive and Kuhlman. These statements may be made directly in this document
referring to Borg-Warner Automotive or Kuhlman, or may be "incorporated by
reference" to other documents filed with the Securities and Exchange Commission.
This document may also include statements relating to the period following the
completion of the merger. You can find many of these statements by looking for
words such as "believes," "expects," "anticipates," "estimates" or similar
expressions in this proxy statement/prospectus or in documents incorporated
herein.
These forward-looking statements are subject to numerous assumptions, risks
and uncertainties. Factors that may cause actual results to differ from those
contemplated by such forward-looking statements include, among others, the
following:
- competitive pressures in the automotive and commercial transportation
industry may increase significantly;
- changes in technology may increase the number of competitors Borg-Warner
Automotive or Kuhlman face, or may require significant capital
expenditures to provide competitive products;
- general economic or business conditions may be less favorable than
expected, resulting in, among other things, lower than expected
revenues;
- costs or difficulties related to the integration of Kuhlman's business
with that of Borg-Warner Automotive may be greater than expected;
- retention of key customers or suppliers may be more difficult than
anticipated, resulting in higher than expected expenses or lower than
expected revenues;
- costs or difficulties related to Borg-Warner Automotive's ability to
sell Kuhlman's electrical transformer business or wire-and-cable
business on favorable terms may be greater than expected;
- legislative or regulatory changes may adversely affect the businesses in
which Borg-Warner Automotive and Kuhlman are engaged;
- necessary technological changes (including changes to address "Year
2000" data-systems issues) may be more difficult or expensive to make
than anticipated;
- increases in interest rates may make the financing of the merger more
expensive than anticipated;
- foreign currency fluctuations may adversely affect the combined
company's foreign businesses; and
- Borg-Warner Automotive's analyses of these contingencies and forces may
be incorrect, and the strategies developed to address them may be
unsuccessful.
Because forward-looking statements are subject to risks and uncertainties,
actual results may differ materially from those expressed or implied by such
forward-looking statements. You should not place undue reliance on such
statements, which speak only as
v
<PAGE> 10
of the date of this proxy statement/prospectus, or, in the case of a document
incorporated by reference, the date of such document.
All subsequent written and oral forward-looking statements attributable to
Borg-Warner Automotive, Kuhlman or any person acting on their behalf are
expressly qualified in their entirety by the cautionary statements contained or
referred to in this section. Neither Borg-Warner Automotive nor Kuhlman
undertakes any obligation to release publicly any revisions to such
forward-looking statements to reflect events or circumstances after the date of
this proxy statement/prospectus.
vi
<PAGE> 11
To find any one of the principal sections of this proxy
statement/prospectus identified below, simply bend the document slightly to
expose the black tabs and open the document to the tab that corresponds to the
title of the section you wish to read. For your convenience, we have included an
index of frequently used capitalized terms in this proxy statement/prospectus
under the heading "Index of Defined Terms," which is printed at the end of this
document.
<TABLE>
<S> <C>
Table of Contents........................................... [ ]
Summary..................................................... [ ]
Risk Factors................................................ [ ]
The Companies............................................... [ ]
The Special Meeting......................................... [ ]
The Merger.................................................. [ ]
Appraisal Rights of Kuhlman Stockholders.................... [ ]
The Merger Agreement........................................ [ ]
Unaudited Pro Forma Consolidated Financial Statements....... [ ]
Comparative Rights of Stockholders.......................... [ ]
Additional Matters.......................................... [ ]
Appendices.................................................. [ ]
</TABLE>
vii
<PAGE> 12
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY..................................................... 1
The Companies............................................. 1
The Special Meeting....................................... 1
The Merger................................................ 2
Appraisal Rights of Stockholders.......................... 4
The Merger Agreement...................................... 4
Effects of the Merger on the Rights of Kuhlman
Stockholders........................................... 6
Comparative Per Share Market Price and Dividend
Information............................................ 7
Selected Historical Financial Information................. 9
Unaudited Pro Forma Condensed Consolidated Financial
Information............................................ 12
Unaudited Comparative Per Share Data...................... 13
RISK FACTORS................................................ 14
Changes in the Merger Consideration Because of Changes in
Borg-Warner Automotive Stock Prices.................... 14
Failure or Delay in Selling Kuhlman's Electrical Products
Businesses............................................. 15
Failure or Delay in Achieving the Expected Benefits of the
Merger................................................. 15
Interests of Certain Persons in the Merger................ 15
Automotive Industry Cyclicality........................... 16
Effect of Asian Economic Conditions....................... 16
Dependence on Sport Utility and Light Truck Market
Segments............................................... 16
Competitiveness of Other Automotive Component
Manufacturers.......................................... 16
Increase in Competition from International Suppliers...... 16
Pricing Conditions........................................ 17
Reliance on Major Customers............................... 17
Dependence of Borg-Warner Automotive's Large Customers on
the United Automobile, Aerospace and Agricultural
Implement Workers of America........................... 17
Labor Relations........................................... 18
Unfunded Pension Obligations.............................. 18
Compliance with Environmental Regulations................. 18
Potential Liability under Environmental Regulations....... 18
Year 2000................................................. 19
Euro Conversion........................................... 20
THE COMPANIES............................................... 21
Borg-Warner Automotive.................................... 21
BWA Merger Corp........................................... 21
Kuhlman................................................... 21
</TABLE>
viii
<PAGE> 13
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE SPECIAL MEETING......................................... 22
General................................................... 22
Record Date and Voting.................................... 22
Voting and Revocation of Proxies.......................... 23
THE MERGER.................................................. 24
Background................................................ 24
Kuhlman's Reasons for the Merger; Recommendation of the
Kuhlman Board.......................................... 26
Opinion of the Financial Advisor to the Kuhlman Board..... 29
Effective Time of the Merger.............................. 35
Certificate of Incorporation and By-laws.................. 35
Directors and Officers.................................... 35
Material Federal Income Tax Consequences.................. 35
Accounting Treatment...................................... 36
Regulatory Approvals...................................... 36
Listing of the Shares of Borg-Warner Automotive Common
Stock on the NYSE...................................... 37
Merger Financing.......................................... 37
Resale of the Shares of Borg-Warner Automotive Common
Stock Issued in the Merger; Kuhlman Affiliates......... 37
Interests of Certain Persons in the Merger................ 38
Dividend Investment Plan.................................. 40
APPRAISAL RIGHTS OF KUHLMAN STOCKHOLDERS.................... 41
THE MERGER AGREEMENT........................................ 43
General................................................... 43
Conversion of Shares of Kuhlman Common Stock.............. 43
Representations and Warranties............................ 48
Covenants................................................. 49
Conditions................................................ 53
Termination............................................... 55
Effect of Termination..................................... 56
Expenses.................................................. 58
Amendment................................................. 58
Extension; Waiver......................................... 58
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS............. 59
SECURITY OWNERSHIP OF MANAGEMENT............................ 60
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS....... 61
COMPARATIVE RIGHTS OF KUHLMAN STOCKHOLDERS AND BORG-WARNER
AUTOMOTIVE STOCKHOLDERS................................... 69
Election of Board of Directors............................ 69
Number of Directors....................................... 69
</TABLE>
ix
<PAGE> 14
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Vacancies................................................. 69
Removal of Directors...................................... 69
Amendments to Charters and By-laws........................ 70
Special Meetings of Stockholders; Notice.................. 70
Action by Written Consent................................. 70
Indemnification........................................... 70
Rights Agreements......................................... 71
Evaluation of Certain Acquisition Proposals............... 72
LEGAL OPINIONS.............................................. 72
EXPERTS..................................................... 72
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 72
OTHER MATTERS............................................... 73
STOCKHOLDER PROPOSALS....................................... 73
WHERE YOU CAN FIND MORE INFORMATION......................... 74
INDEX OF DEFINED TERMS...................................... 76
</TABLE>
APPENDICES
<TABLE>
<S> <C>
APPENDIX A -- Agreement and Plan of Merger, dated as of
December 17, 1998......................................... A-1
APPENDIX B -- Opinion of The Robinson-Humphrey Company,
LLC....................................................... B-1
APPENDIX C -- Section 262 of the Delaware General
Corporation Law........................................... C-1
</TABLE>
x
<PAGE> 15
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
merger fully, and for a more complete description of the legal terms of the
merger, you should read carefully this entire document and the documents to
which we have referred you. See "Where You Can Find More Information" on page 74
of this proxy statement/prospectus. Each item in this summary includes a page
reference directing you to a more complete description of that item.
THE COMPANIES
BORG-WARNER AUTOMOTIVE (SEE PAGE 21)
200 South Michigan Avenue
Chicago, Illinois 60604
(312) 322-8500
Borg-Warner Automotive is a leading global supplier of highly engineered
systems and components, primarily for automotive powertrain applications. Borg-
Warner Automotive's products are manufactured and sold worldwide, primarily to
original equipment manufacturers of passenger cars, sport utility vehicles and
light trucks. Borg-Warner Automotive operates 35 manufacturing facilities in 12
countries in North America, Europe and Asia, and is an original equipment
supplier to every major original equipment manufacturer in the world.
Borg-Warner Automotive, a Delaware corporation, was incorporated in 1987.
KUHLMAN (SEE PAGE 21)
3 Skidaway Village Square
Savannah, Georgia 31411
(912) 598-7809
Kuhlman is a diversified, industrial manufacturing company that currently
operates in two product segments: industrial products and electrical products.
Through its Schwitzer Group, which comprises Kuhlman's industrial products
business, Kuhlman is 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. Kuhlman's electrical products businesses 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 in
consumer, commercial and industrial applications. Borg-Warner Automotive intends
to sell Kuhlman's electrical products businesses following the completion of the
merger. Kuhlman's products are sold to over 5,000 domestic and international
customers operating in more than 60 countries worldwide. Kuhlman, a Delaware
corporation, was incorporated in 1993, and its predecessor company was founded
in 1894.
BWA MERGER CORP. (SEE PAGE 21)
200 South Michigan Avenue
Chicago, Illinois 60604
(312) 322-8500
BWA Merger Corp. is a wholly owned subsidiary of Borg-Warner Automotive
formed solely for the purpose of effecting the merger with Kuhlman.
THE SPECIAL MEETING (SEE PAGE 22)
The special meeting of Kuhlman stockholders will be held at the offices of
Rudnick & Wolfe, 203 North LaSalle Street, Suite 1800, Chicago, Illinois on
March 1, 1999, at 9:30 a.m., local time.
At the special meeting, you will be asked to vote upon a proposal to
approve the merger agreement and the merger. Approval of the merger agreement
and the merger requires the affirmative vote of a majority of the outstanding
Kuhlman shares.
<PAGE> 16
Only the holders of Kuhlman shares who are holders at the close of business
on the record date, January 19, 1999, will be entitled to notice of and to vote
at the special meeting. As of January 1, 1999, directors and executive officers
of Kuhlman and their affiliates beneficially owned approximately 10.6% of the
outstanding Kuhlman shares.
Each Kuhlman share carries one vote. As of January 19, 1999, 17,507,846
votes were eligible to be cast at the special meeting.
THE MERGER
REASONS FOR THE MERGER (SEE PAGE 26)
The Kuhlman Board of Directors considered a number of factors in evaluating
the merger agreement and the merger, including, among others:
- the opportunity to receive what the Kuhlman Board of Directors believes is
a substantial premium over the per share value that a stand-alone strategy
could be expected to produce in a reasonable time,
- Kuhlman will be integrated into a larger and more globally diversified
organization,
- the belief that recent and continuing changes in the commercial
transportation and automotive industries favor larger and more
internationally focused organizations,
- the Schwitzer Group will now be part of a much larger organization which
will be well-positioned to thrive and to be more responsive to the global
needs of its customers, and
- the Schwitzer Group will also have the financial strength and scope to
capitalize on the opportunities presented by a changing global economy.
After consideration of all the factors taken as a whole, the Kuhlman Board
of Directors determined that the merger agreement and the merger are advisable
and fair to, and in the best interests of, Kuhlman and its stockholders.
RECOMMENDATION TO STOCKHOLDERS (SEE PAGE 26)
The Kuhlman Board of Directors has unanimously adopted and approved the
merger agreement and the merger. The Board unanimously recommends that, at the
special meeting, you vote FOR approval and adoption of the merger agreement and
the merger.
FAIRNESS OPINION (SEE PAGE 29)
The Robinson-Humphrey Company, LLC, has served as Kuhlman's financial
advisor in connection with the merger agreement and the merger. Robinson-
Humphrey has delivered its written opinion, dated December 17, 1998, to the
Kuhlman Board of Directors that, as of that date and based upon certain
assumptions and limitations set forth in the opinion, the merger consideration
to be received by Kuhlman stockholders pursuant to the merger agreement is fair
to Kuhlman stockholders from a financial point of view. A copy of this opinion
is attached as Appendix B to this proxy statement/prospectus. You should read
this opinion in its entirety to understand the assumptions made, matters
considered and limitations on Robinson-Humphrey's review.
ACCOUNTING TREATMENT (SEE PAGE 36)
The merger will be treated as a "purchase." Therefore, the purchase price
will be allocated to the assets and liabilities of Kuhlman based on their
estimated fair market values at the date of acquisition, and any excess of the
purchase price over such fair market values will be accounted for as goodwill.
2
<PAGE> 17
REGULATORY APPROVALS (SEE PAGE 36)
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the regulations promulgated thereunder, we cannot complete the merger unless
we make certain filings with the Department of Justice and the Federal Trade
Commission and certain waiting periods expire. On December 23, 1998, Kuhlman and
Borg-Warner Automotive submitted the required filings. The waiting period under
the Hart-Scott-Rodino Act will expire on January 22, 1999 unless the Department
of Justice or the Federal Trade Commission issues a request for additional
information or other documentary materials.
In addition, under the laws of certain foreign nations, we may not complete
the merger unless we make certain filings with these nations' antitrust
regulatory authorities, and these authorities approve or clear the merger. In
particular, under the laws of the Federal Republic of Germany, we are required
to make a pre-merger notification filing with the German Federal Cartel Office.
Moreover, we will contact the Belgian Competition Service, the Competition
Council in France and the Office of Fair Trading in the United Kingdom to
establish whether a pre-merger notification will be required or is advisable in
those countries.
We expect that the merger will not violate any antitrust laws and that all
the antitrust regulatory authorities whose approval or clearance we must seek
will approve or clear the merger.
MERGER FINANCING (SEE PAGE 37)
The total amount of cash, borrowings and equity required to complete the
transactions contemplated by the merger agreement, including payment of cash and
Borg-Warner Automotive common shares to Kuhlman stockholders in the merger,
refinancing of existing indebtedness, payments in connection with the settlement
of stock options and certain long-term incentive agreements and severance
agreements, and transaction fees and expenses, is estimated to be approximately
$800 million. Borg-Warner Automotive will pay for the transactions by issuing
approximately $150 million worth of Borg-Warner Automotive common shares and
borrowing approximately $650 million through a combination of public debt and
bank debt under an existing credit facility, which credit facility will be
amended prior to the closing of the merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGE 38)
Some of Kuhlman's directors and officers have interests in the merger that
are different from, or in addition to, their interests as stockholders in
Kuhlman. These interests exist because of agreements that these officers have
with Kuhlman, including change in control agreements, and rights that these
officers have under retention, incentive, or benefit and compensation plans
maintained by Kuhlman. Some of these agreements and plans will provide the
officers with severance benefits upon a change in control of Kuhlman, in
particular upon completion of the merger. Certain key executives also were
required to exercise options in 1998 as an inducement for Borg-Warner Automotive
to enter into the transaction. These key executives have received short-term
loans from Kuhlman to accomplish these option exercises. These executives also
will receive payments to cover the interest incurred in connection with these
loans. In addition, in connection with the merger, we will pay directors and
officers, as well as other Kuhlman employees, the cash value of stock options,
stock appreciation rights and awards achieved under Kuhlman's Long-Term
Incentive Plan. As an inducement for Borg-Warner Automotive to enter into the
merger, a company owned by an executive officer of Kuhlman has entered into an
agreement under which it will negotiate a contract to purchase for approximately
$2 million
3
<PAGE> 18
Kuhlman's corporate headquarters, aircraft hangar and related personal property
located in Savannah, Georgia.
Also, following the merger, Borg-Warner Automotive will purchase, or cause
Kuhlman to purchase, directors' and officers' liability insurance for the
officers and directors of Kuhlman, and will indemnify these directors and
officers, for events occurring before the merger, including events that are
related to the merger agreement. Additional interests of some of our directors
and executive officers are described under "The Merger--Interests of Certain
Persons in the Merger" at page 38 of this proxy statement/prospectus.
The members of your Board of Directors knew about these additional
interests and considered them when they approved the merger agreement and the
merger.
APPRAISAL RIGHTS OF STOCKHOLDERS (SEE PAGE 41)
Delaware law permits you to dissent from the merger and have the fair value
of your Kuhlman shares appraised by a court and paid to you in cash, except that
such right to an appraisal may not be available to holders who elect to receive
cash in the merger or who elect to receive stock in the merger and in fact
receive stock (other than cash received in lieu of fractional shares), even if
some other holders who elect to receive stock are required to accept some cash.
In order to seek appraisal, you must follow certain procedures, including filing
certain notices and not voting your shares in favor of the merger. To review
your rights of appraisal in greater detail, see pages 41 to 42. The relevant
provisions of Delaware law governing this process are attached to this document
as Appendix C.
THE MERGER AGREEMENT
The merger agreement is the legal document that governs the merger. The
merger agreement is attached as Appendix A to this proxy statement/prospectus,
and we encourage you to read it carefully.
CONVERSION OF SHARES OF KUHLMAN COMMON STOCK (SEE PAGE 43)
Each share of Kuhlman common stock will be converted into the right to
receive (1) $39.00 in cash, without interest, or (2) $39.00 worth of Borg-Warner
Automotive common shares. In determining the number of Borg-Warner Automotive
common shares you could receive, the shares will be valued at the average price
for Borg-Warner Automotive common shares for the 20 consecutive trading days
immediately preceding the third trading date prior to the date the merger is
completed. You will be able to elect between receiving cash and receiving
Borg-Warner Automotive common shares. Mixed elections will not be permitted.
However, your election will be subject to a proration process that will ensure
that approximately 78% of the outstanding Kuhlman shares are converted into
cash, with the remaining 22% being converted into Borg-Warner Automotive common
shares. As a result of the proration process, you may not receive only the form
of consideration that you elect to receive, but you may, instead, receive a
portion of the form of consideration you did not elect.
If you fail to return a green letter of transmittal and election form and
the other required materials prior to the election deadline, you will not be
entitled to elect from among the alternative forms of merger consideration.
CERTAIN COVENANTS (SEE PAGE 49)
Kuhlman has agreed not to solicit or encourage any proposal from any person
to acquire Kuhlman or its assets, but it may respond, in certain circumstances,
to unsolicited proposals that it receives. In addition, the Kuhlman Board of
Directors has unanimously agreed to recommend approval of the merger agreement
and the
4
<PAGE> 19
merger to Kuhlman stockholders, subject to certain limited exceptions.
CONDITIONS TO THE MERGER (SEE PAGE 53)
Completion of the merger depends upon satisfaction of a number of
conditions. In addition to customary conditions relating to our compliance with
the merger agreement, these conditions include the following:
- approval of the merger agreement and the merger by Kuhlman stockholders;
- expiration or termination of the waiting period applicable to the merger
under federal antitrust laws or similar foreign laws and obtaining other
regulatory approvals;
- absence of any injunction or legal restraint blocking the merger, or of any
proceedings by a governmental authority to block the merger;
- the Securities and Exchange Commission declaring effective, and the absence
of a suspension by the Securities and Exchange Commission of the
effectiveness of, the registration statement with respect to Borg-Warner
Automotive common shares to be issued in the merger;
- the New York Stock Exchange approving for listing the Borg-Warner
Automotive common shares to be issued in the merger; and
- Kuhlman's environmental liabilities not exceeding a predetermined
threshold.
The merger will occur, and your Kuhlman shares will be converted into the
right to receive Borg-Warner Automotive common shares or cash (or a combination
of the two as a result of the proration process), as soon as practicable after
Kuhlman and Borg-Warner Automotive satisfy all of the conditions in the merger
agreement.
TERMINATION; TERMINATION FEES (SEE PAGES 55; 56)
The merger agreement may be terminated, and the merger abandoned, only in
the following circumstances:
- if Borg-Warner Automotive and Kuhlman mutually agree to terminate the
merger agreement;
- by either Borg-Warner Automotive or Kuhlman, if there is any law or
regulation that makes the merger illegal or if any governmental authority
issues a final, non-appealable order blocking the merger;
- by either Borg-Warner Automotive or Kuhlman, if the merger is not completed
by the later of May 31, 1999, or 30 days after the receipt of all required
governmental approvals (as long as the party seeking to terminate has not
itself materially breached the agreement in a way that prevented completion
of the merger);
- by Borg-Warner Automotive, if the Kuhlman Board of Directors withdraws or
adversely modifies its recommendation of the merger to Kuhlman stockholders
or approves or recommends a competing transaction, or Kuhlman continues
discussions with a third party for more than 10 business days after
receiving a proposal for a competing transaction under certain
circumstances;
- by either Borg-Warner Automotive or Kuhlman, if the merger is not approved
by Kuhlman stockholders;
- by either Borg-Warner Automotive or Kuhlman, if the other party breaches
the agreement in a way that would entitle the party seeking to terminate
the agreement not to consummate the merger, and the breaching party does
not correct the breach within 30 days after notice;
- by Borg-Warner Automotive, if, on the date the merger would otherwise
5
<PAGE> 20
occur, the average of the daily high and low sales prices of a Borg-Warner
Automotive common share during the 20 consecutive trading days immediately
preceding the third trading day prior to such date is less than $40.00; or
- by Kuhlman, if it determines to enter into an agreement providing for a
competing transaction that it determines, after consultation with its
financial advisors, is more favorable to its stockholders from a financial
point of view than the merger with Borg-Warner Automotive.
Kuhlman is required to pay Borg-Warner Automotive its fees and expenses up
to $4 million plus a termination fee of $15 million if the merger agreement is
terminated for any of the following reasons:
- the merger is not completed by the later of May 31, 1999, or 30 days after
the receipt of all required governmental approvals, and the Kuhlman special
meeting has not been held prior to May 31, 1999, and at any time prior to
such termination there was made to Kuhlman or publicly disclosed a proposal
for a competing transaction;
- the Kuhlman Board of Directors withdraws or adversely modifies its
recommendation of the merger to Kuhlman stockholders;
- the Kuhlman Board of Directors approves or recommends a competing
transaction; or
- Kuhlman determines to enter into an agreement providing for a competing
transaction that it determines, after consultation with its financial
advisors, is more favorable to Kuhlman stockholders from a financial point
of view than the merger with Borg-Warner Automotive.
In addition to the $15 million termination fee described above, Kuhlman is
required to pay Borg-Warner Automotive an additional termination fee of $10
million if the merger agreement is terminated because of any of the reasons that
would result in the payment of the $15 million termination fee, and within 18
months of the termination Kuhlman completes a competing transaction with a party
that made to Kuhlman or publicly disclosed a proposal with respect to a
competing transaction prior to termination.
If the merger agreement is terminated because the merger agreement and the
merger are not approved by the Kuhlman stockholders, and the Kuhlman Board of
Directors did not withdraw or adversely modify its recommendation of the merger,
approve or recommend a competing transaction or terminate the merger agreement
to enter into a superior proposal, Kuhlman is required to pay Borg-Warner
Automotive only its fees and expenses up to $4 million.
Borg-Warner Automotive is also required to pay Kuhlman its fees and
expenses up to $4 million if the merger agreement is terminated by Borg-Warner
Automotive because, on the date the merger would otherwise occur, the average of
the daily high and low sale prices of Borg-Warner Automotive common shares
during the 20 consecutive trading days ending on the third trading day prior to
such date is less than $40.00.
EFFECTS OF THE MERGER ON THE RIGHTS OF KUHLMAN STOCKHOLDERS (SEE PAGE 69)
If you receive Borg-Warner Automotive common shares in the merger, your
rights as a stockholder of Borg-Warner Automotive will be governed by Delaware
law and by Borg-Warner Automotive's charter and by-laws. Your rights under
Borg-Warner Automotive's charter and by-laws differ in certain respects from
your rights under Kuhlman's charter and by-laws.
6
<PAGE> 21
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Borg-Warner Automotive common shares are listed and traded on the New York
Stock Exchange under the symbol "BWA." Kuhlman shares are listed and traded on
the New York Stock Exchange under the symbol "KUH."
The following table provides trading information for a Borg-Warner
Automotive share and for a Kuhlman share, and the dividends declared, for the
periods indicated. All of the prices set forth in this section are as reported
on the New York Stock Exchange Composite Transaction Tape, based on published
financial sources.
<TABLE>
<CAPTION>
BORG-WARNER
AUTOMOTIVE COMMON STOCK KUHLMAN COMMON STOCK
---------------------------- -------------------------------------
CASH CASH
DIVIDENDS DIVIDENDS
PER PER
HIGH LOW SHARE HIGH LOW SHARE
---- ---- --------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
1996
First Quarter............. $33 5/8 $28 3/8 $0.15 $15 5/8 $11 7/8 $0.15
Second Quarter............ 43 33 5/8 0.15 18 1/2 15 1/8 0.15
Third Quarter............. 40 3/8 34 0.15 17 1/2 13 5/8 0.15
Fourth Quarter............ 40 7/8 33 1/2 0.15 19 3/8 14 1/8 0.15
1997
First Quarter............. 43 1/4 38 3/8 0.15 24 1/8 17 1/8 0.15
Second Quarter............ 54 3/4 41 3/4 0.15 32 3/8 23 1/8 0.15
Third Quarter............. 58 50 5/16 0.15 36 1/8 27 0.15
Fourth Quarter............ 61 1/2 46 0.15 40 32 15/16 0.15
1998
First Quarter............. 65 1/4 48 15/16 0.15 51 3/8 35 1/4 0.15
Second Quarter............ 68 3/8 43 1/4 0.15 50 1/4 36 0.15
Third Quarter............. 52 1/8 36 7/16 0.15 44 3/16 23 3/8 0.15
Fourth Quarter............ 57 1/4 33 1/16 0.15 37 7/8 22 1/4 0.15
1999
First Quarter (through
January 20, 1999)...... 56 49 7/8 -- 37 7/8 37 1/4 0.15
</TABLE>
The table below shows the closing price for Kuhlman and Borg-Warner
Automotive common shares, and the Kuhlman equivalent per share closing price on
December 17, 1998, the last full trading day before the public announcement of
the proposed transactions, and on January 20, 1999, the most recent available
date prior to the printing of this proxy statement/prospectus. The Kuhlman
equivalent per share price as of a particular date is the market value as of
that date of the Borg-Warner Automotive common shares that would be issued in
the merger in exchange for one Kuhlman share, assuming the merger were completed
on that date. The Kuhlman equivalent per share price is obtained by
(1) averaging the high and low sales prices for Borg-Warner Automotive
common shares over the 20 consecutive trading days immediately
preceding the third trading day prior to the given date;
(2) dividing that average price into $39.00 to obtain the number of
Borg-Warner Automotive common shares that would be issued in exchange
for one Kuhlman share if the merger were completed on the given date;
and
7
<PAGE> 22
(3) multiplying that number of shares by the closing price of Borg-Warner
Automotive common shares on the given date.
<TABLE>
<CAPTION>
BORG-WARNER KUHLMAN
AUTOMOTIVE EQUIVALENT PER
PRICE KUHLMAN PRICE SHARE PRICE
----------- ------------- --------------
<S> <C> <C> <C>
December 17, 1998................... $ 51 1/2 $ 31 1/2 $40.89
January 20, 1999.................... $ 51 1/2 $ 37 13/16 $38.54
</TABLE>
On October 16, 1998, the Borg-Warner Automotive Board of Directors declared
a dividend on Borg-Warner Automotive common shares of $0.15 per share payable on
November 16, 1998 to holders of record on November 2, 1998. Borg-Warner
Automotive anticipates that it will continue to pay quarterly cash dividends.
The Borg-Warner Automotive Board of Directors, however, has discretion to decide
upon the timing and amount of any future dividends; whether or not Borg-Warner
Automotive will pay such dividends (and, if so, how much such dividends will be)
will depend on Borg-Warner Automotive's future earnings, financial condition,
capital requirements and other factors.
On November 20, 1998, the Kuhlman Board of Directors declared a dividend on
Kuhlman shares of $0.15 per share payable on January 12, 1999 to holders of
record on December 11, 1998. As part of the merger agreement, Kuhlman has agreed
that, until the merger is completed or the merger agreement is otherwise
terminated, it will not make, declare or pay any dividend or distribution on
Kuhlman shares, other than regular quarterly dividends on Kuhlman shares of
$0.15 per share with record and payment dates consistent with past practice.
8
<PAGE> 23
SELECTED HISTORICAL FINANCIAL INFORMATION
BORG-WARNER AUTOMOTIVE
In the table below, we provide you with selected historical consolidated
financial data of Borg-Warner Automotive. Borg-Warner Automotive prepared this
information using its audited consolidated financial statements for each of the
fiscal years in the five-year period ended December 31, 1997, and its unaudited
consolidated financial statements for the nine-month periods ended September 30,
1998 and 1997.
When you read this selected historical consolidated financial information,
you should consider reading along with it the historical financial statements
and accompanying notes that Borg-Warner Automotive has included as Exhibit 13.1
to its Annual Report on Form 10-K for the year ended December 31, 1997 and in
its Quarterly Report on Form 10-Q for the quarterly period ended September 30,
1998. You can obtain these reports by following the instructions we provide
under "Where You Can Find More Information" on page 74 of this proxy
statement/prospectus.
9
<PAGE> 24
BORG-WARNER AUTOMOTIVE -- SELECTED HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales......................... $1,347.6 $1,300.0 $1,767.0 $1,540.1 $1,329.1 $1,223.4 $ 985.4
Earnings before cumulative effect
of accounting change............ $ 62.9 $ 76.0 $ 103.2 $ 41.8 $ 74.2 $ 64.4 $ 32.8
Cumulative effect of change in
accounting...................... -- -- -- -- -- -- $ (130.8)(a)
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss)............... $ 62.9 $ 76.0 $ 103.2 $ 41.8 $ 74.2 $ 64.4 $ (98.0)
======== ======== ======== ======== ======== ======== ========
Earnings per share before
cumulative effect of accounting
change -- basic................. $ 2.68 $ 3.21 $ 4.35 $ 1.77(b) $ 3.18 $ 2.79 $ 1.46(c)
Earnings per share before
cumulative effect of accounting
change -- diluted............... $ 2.65 $ 3.17 $ 4.31 $ 1.75(b) $ 3.15 $ 2.75 $ 1.42(c)
Cumulative effect of initial
application of new accounting
standard for postretirement
benefits, net of taxes, per
share -- basic.................. -- -- -- -- -- -- $ (5.81)(a)
Cumulative effect of initial
application of new accounting
standard for postretirement
benefits, net of taxes, per
share -- diluted................ -- -- -- -- -- -- $ (5.65)(a)
Net earnings (loss) per share --
basic........................... $ 2.68 $ 3.21 $ 4.35 $ 1.77(b) $ 3.18 $ 2.79 $ (4.35)(c)
Net earnings (loss) per share --
diluted......................... $ 2.65 $ 3.17 $ 4.31 $ 1.75(b) $ 3.15 $ 2.75 $ (4.23)(c)
Average shares outstanding
(thousands) -- basic............ 23,509 23,692 23,683 23,564 23,303 23,048 22,522(c)
Average shares outstanding
(thousands) -- diluted.......... 23,690 23,907 23,934 23,830 23,570 23,424 23,148(c)
Cash dividend declared per
share........................... $ 0.45 $ 0.45 $ 0.60 $ 0.60 $ 0.60 $ 0.45 $ 0.125
BALANCE SHEET DATA
Total assets...................... $1,759.5 $1,696.4 $1,736.3 $1,623.6 $1,335.2 $1,240.3 $1,159.4
Total debt........................ $ 351.7 $ 293.6 $ 338.1 $ 317.3 $ 134.7 $ 107.3 $ 159.6
Stockholders' equity.............. $ 729.3 $ 687.6 $ 693.7 $ 628.8 $ 600.0 $ 534.9 $ 459.1
</TABLE>
- -------------------------
(a) Amount reflects the adoption of Statement of Financial Accounting Standards
No. 106 in 1993.
(b) Borg-Warner Automotive recorded a pre-tax loss on the sale of its North
American manual transmission business in the amount of $61.5 million, which,
net of a tax benefit of $26.5 million, resulted in an after-tax charge of
$35 million, or $1.49 per share.
(c) Earnings per share for 1993 have been calculated assuming that the initial
public offering of common stock completed in August 1993 had been completed
on January 1, 1993.
10
<PAGE> 25
KUHLMAN
In the table below, we provide you with selected historical consolidated
financial data of Kuhlman. Kuhlman prepared this information using its audited
consolidated financial statements for each of the fiscal years in the five-year
period ended December 31, 1997, and its unaudited consolidated financial
statements for the nine-month periods ended September 30, 1998 and 1997.
When you read this selected historical consolidated financial information,
you should read along with it the historical financial statements and
accompanying notes that Kuhlman has included in its Annual Report on Form 10-K
for the year ended December 31, 1997 and its Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1998. You can obtain these reports by
following the instructions we provide under "Where You Can Find More
Information" on page 74 of this proxy statement/prospectus.
KUHLMAN -- SELECTED HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1998 1997(a) 1997(a) 1996(b) 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales...................... $571,100 $468,733 $643,440 $456,465 $425,384 $396,117 $242,221
Income before extraordinary
item......................... $ 28,576 $ 19,364 $ 27,929 $ 17,336 $ 10,044 $ 9,970 $ 310
Extraordinary item, net of
tax.......................... -- -- -- -- $ (1,861) -- --
Net income..................... $ 28,576 $ 19,364 $ 27,929 $ 17,336 $ 8,183 $ 9,970 $ 310
Earnings per share before
extraordinary item --
basic........................ $ 1.71 $ 1.32 $ 1.84 $ 1.29 $ 0.76 $ 0.77 $ 0.02
Earnings per share before
extraordinary item --
diluted...................... $ 1.64 $ 1.25 $ 1.75 $ 1.25 $ 0.75 $ 0.73 $ 0.02
Effect of extraordinary item,
net of taxes, per share --
basic........................ -- -- -- -- $ (0.14) -- --
Effect of extraordinary item,
net of taxes, per share --
diluted...................... -- -- -- -- $ (0.14) -- --
Net earnings per share --
basic........................ $ 1.71 $ 1.32 $ 1.84 $ 1.29 $ 0.62 $ 0.77 $ 0.02
Net earnings per share --
diluted...................... $ 1.64 $ 1.25 $ 1.75 $ 1.25 $ 0.61 $ 0.73 $ 0.02
Average shares outstanding
(thousands) -- basic......... 16,704 14,698 15,160 13,389 13,178 13,009 12,812
Average shares outstanding
(thousands) -- diluted....... 17,430 15,464 15,929 13,858 13,475 13,647 13,464
Cash dividend declared per
share........................ $ 0.45 $ 0.45 $ 0.60 $ 0.60 $ 0.60 $ 0.60 $ 0.60
BALANCE SHEET DATA
Total assets................... $475,308 $420,217 $461,318 $277,416 $214,902 $229,185 $242,921
Total debt..................... $ 98,510 $102,786 $117,732 $ 94,597 $ 74,175 $ 84,773 $106,130
Stockholders' equity........... $203,710 $167,138 $174,453 $ 91,574 $ 74,232 $ 73,216 $ 64,187
</TABLE>
- -------------------------
(a) Includes the results of the Transportation Products Group of Kysor
Industrial Corporation from March 10, 1997.
(b) Includes the results of Communication Cable, Inc. from February 21, 1996 and
Web Wire Products, Inc. from October 8, 1996, and excludes the results of
Nehring Electrical Works Company, which Kuhlman sold in December 1995.
11
<PAGE> 26
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
information for Borg-Warner Automotive and Kuhlman gives effect to the merger
and anticipated sale of Kuhlman's electrical products businesses though it
occurred at January 1, 1998 or January 1, 1997 for statement of operations
purposes and as of September 30, 1998, for balance sheet purposes. Revenues,
costs and expenses of the electrical products businesses have been deducted from
the Borg-Warner Automotive pro forma consolidated financial statements,
including interest expense and amortization of goodwill allocated to the
electrical products businesses as a result of the merger. See "Unaudited Pro
Forma Consolidated Financial Statements." The unaudited pro forma condensed
consolidated financial information is not necessarily indicative of the results
that actually would have occurred if the merger had been completed on the dates
indicated or that may be expected in the future. Such unaudited pro forma
condensed consolidated financial information should be read in conjunction with
the audited historical consolidated financial statements and notes thereto of
Borg-Warner Automotive and Kuhlman incorporated by reference herein and in
conjunction with "Unaudited Pro Forma Consolidated Financial Statements."
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
-----------------------------
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
Net sales....................................... $1,690.6 $2,106.9
Net earnings.................................... $ 71.0 $ 105.0
Weighted average shares -- basic (thousands).... 26,388 26,562
Weighted average shares -- diluted
(thousands).................................. 26,569 26,813
Net earnings per Borg-Warner Automotive share --
basic........................................ $ 2.69 $ 3.95
Net earnings per Borg-Warner Automotive share --
diluted...................................... $ 2.67 $ 3.91
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C> <C>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE
SHEET DATA:
Total assets.................................... $2,684.8
Long-term debt, including capital leases........ $ 908.2
Stockholders' equity -- Borg-Warner
Automotive................................... $ 879.3
</TABLE>
12
<PAGE> 27
UNAUDITED COMPARATIVE PER SHARE DATA
We have set forth below information concerning book value, earnings and
cash dividends per share for each of Kuhlman and Borg-Warner Automotive on both
historical and pro forma consolidated bases and for Kuhlman on a per share
equivalent pro forma basis. We have derived the pro forma consolidated earnings
per share from the unaudited pro forma consolidated financial statements
presented elsewhere in this document. Book value per share for the pro forma
consolidated presentation is based upon outstanding Borg-Warner Automotive
common shares, adjusted to include the estimated number of Borg-Warner
Automotive common shares to be issued in the merger for certain outstanding
Kuhlman shares at the time the merger is completed. The per share equivalent pro
forma consolidated data for Kuhlman shares and the book value per share data for
the pro forma consolidated presentation are based on the assumed conversion of
each Kuhlman share into 0.7484 of a share of Borg-Warner Automotive common
stock, which exchange ratio was calculated by dividing $39.00 by $52.11, the
average of the daily high and low sales prices of shares of Borg-Warner
Automotive common stock on the New York Stock Exchange during the 20 consecutive
trading days immediately preceding the third trading date prior to January 20.
See "The Merger Agreement -- Conversion of shares of Kuhlman Common Stock."
Revenues, costs and expenses of the electrical products businesses have been
deducted from the Borg-Warner Automotive pro forma consolidated financial
statements, including interest expense and amortization of goodwill allocated to
the electrical products businesses as a result of the merger. See "Unaudited Pro
Forma Consolidated Financial Statements." You should read the information set
forth below in conjunction with the respective audited and unaudited financial
statements of Borg-Warner Automotive and Kuhlman incorporated by reference in
this document and the unaudited pro forma consolidated financial statements and
the notes thereto presented elsewhere in this document. See "Where You Can Find
More Information."
<TABLE>
<CAPTION>
BORG-WARNER
BORG-WARNER AUTOMOTIVE KUHLMAN
KUHLMAN AUTOMOTIVE PRO FORMA PRO FORMA
HISTORICAL HISTORICAL CONSOLIDATED EQUIVALENT
---------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Book value per common share --
outstanding September 30,
1998......................... $12.11 $31.20 $33.50 $25.07
Net earnings per common
share -- basic
For the nine months ended
September 30, 1998........ $ 1.71 $ 2.68 $ 2.69 $ 2.01
For the year ended December
31, 1997.................. 1.84 4.35 3.95 2.96
Net earnings per common
share -- diluted
For the nine months ended
September 30, 1998........ $ 1.64 $ 2.66 $ 2.67 $ 2.00
For the year ended December
31, 1997.................. 1.75 4.31 3.91 2.93
Cash dividends per share:
For the nine months ended
September 30, 1998........ $ 0.45 $ 0.45 $ 0.45 $ 0.34
For the year ended December
31, 1997.................. 0.60 0.60 0.60 0.45
</TABLE>
13
<PAGE> 28
RISK FACTORS
In considering whether to vote in favor of the merger between our companies
and whether to elect to receive shares of Borg-Warner Automotive common stock or
cash for your Kuhlman shares, you should consider all the information we have
included in this document and its appendices and all the information included in
the documents we have incorporated by reference in this document. In addition,
you should pay particular attention to the following risk factors related to the
merger and Borg-Warner Automotive. These factors are important, and we have not
been able to quantify their potential effects on the combined company that will
result from the merger.
CHANGES IN THE MERGER CONSIDERATION BECAUSE OF CHANGES IN BORG-WARNER AUTOMOTIVE
STOCK PRICES
Upon completion of the merger, each outstanding share of Kuhlman common
stock will be converted into (a) $39.00 in cash or (b) $39.00 worth of shares of
Borg-Warner Automotive common stock.
The cash portion of the consideration to be paid to Kuhlman stockholders in
the merger is a fixed dollar amount and will not be adjusted in the event of any
increase or decrease in the price of either shares of Kuhlman common stock or
shares of Borg-Warner Automotive common stock.
The $39.00 value of the stock portion of the consideration reflects a
particular share price of the Borg-Warner Automotive common stock; this price is
equal to the average of the daily high and low sales prices of shares of
Borg-Warner Automotive common stock on the New York Stock Exchange (the "NYSE")
during the 20 consecutive trading days immediately preceding the third trading
date prior to the closing date. The number of Borg-Warner Automotive shares
exchanged for a Kuhlman share depends upon this average price. For example, if
such average value is $52.11 per share, then a Kuhlman share will be converted
into 0.7484 of a Borg-Warner Automotive share, which is the result obtained by
dividing $39.00 by $52.11.
The price per Borg-Warner Automotive common share on the NYSE when the
merger takes place may vary from the price per Borg-Warner Automotive common
share at (1) the date of this proxy statement/prospectus, (2) the date by which
elections between stock and cash are due, and (3) the date of the special
meeting. The price per Borg-Warner Automotive share on the NYSE when the merger
takes place also may vary from the average value calculated as described above.
Because of this, at the time of the special meeting and at the time by which
elections between stock and cash are due, Kuhlman stockholders who will receive
Borg-Warner Automotive common shares will not know the exact number of
Borg-Warner Automotive common shares that they will receive when the merger is
completed, nor will they know the exact market value of such shares.
If the market value on the date of the merger is less than the average
value calculated as described above, the market value of the Borg-Warner
Automotive common stock received in exchange for one share of Kuhlman common
stock will be less than $39.00.
Variation in the price per share of Borg-Warner Automotive common stock is
illustrated by the fact that during the 30-day period ending on January 20, 1999
(the most recent practicable date prior to the printing of this proxy
statement/prospectus), the closing price per share of Borg-Warner Automotive
common stock varied from a low of $47 3/4 to a high of $55 13/16 and ended that
period at $51 1/2. Such variations may be the result of changes in the business,
operations and prospects of Kuhlman or Borg-Warner
14
<PAGE> 29
Automotive, market assessments of the likelihood that the merger will be
completed and the timing of completion, regulatory considerations, general
market and economic conditions and other factors. You should obtain current
market quotations for Borg-Warner Automotive common stock.
FAILURE OR DELAY IN SELLING KUHLMAN'S ELECTRICAL PRODUCTS BUSINESSES
After completion of the merger, Borg-Warner Automotive expects to sell
Kuhlman's electrical products businesses. However, Borg-Warner Automotive has
not yet located a buyer, and there can be no assurance that it will be able to
sell the electrical products businesses on favorable terms. If Borg-Warner
Automotive is unable to sell the businesses on favorable terms, its capital
structure, cost of borrowing, and financial position could be adversely
affected.
FAILURE OR DELAY IN ACHIEVING THE EXPECTED BENEFITS OF THE MERGER
Borg-Warner Automotive expects the merger to be accretive in 1999, and
believes that significant business opportunities and cost savings are achievable
as a result of the merger. Estimates of cost savings are based upon many
assumptions, including future sales levels and other operating results, ability
to eliminate excess costs, ability to achieve cost reductions on future
purchases of raw materials, availability of funds for capital expenditures, as
well as general industry and business conditions and other matters, many of
which are beyond the control of the combined company. Estimates of potential
cost savings are forward-looking statements that are inherently uncertain. The
combined company's actual cost savings, if any, could differ from those
projected and such differences could be material. Therefore, you should not
unduly rely on our estimates as predictors of actual cost savings. Unforeseen
costs and expenses or other factors (whether arising in connection with the
integration of the two companies' operations or otherwise) may offset the
estimated cost savings or other components of the combined company's projected
performance and may result in delays in the realization of certain projected
cost savings.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Kuhlman Board of Directors in
favor of the merger, you should be aware that certain directors and executive
officers of Kuhlman may have interests that are different from, or in addition
to, the interests of the Kuhlman stockholders generally. In addition, certain
officers have agreements with Kuhlman, including change in control agreements,
and certain other rights under retention, incentive, or benefit and compensation
plans maintained by Kuhlman. Some of these agreements and plans will provide the
officers with severance benefits upon a change in control of Kuhlman, in
particular upon completion of the merger. Also, certain key executives also were
required to exercise options in 1998 as an inducement for Borg-Warner Automotive
to enter into the merger. These key executives have received short-term recourse
loans from Kuhlman to accomplish these option exercises. The executives also
will receive payments to cover the interest incurred in connection with these
loans. In addition, in connection with the merger, we will pay directors and
officers, as well as other Kuhlman employees, the cash value of stock options,
stock appreciation rights and awards achieved under Kuhlman's Long-Term
Incentive Plan. The Kuhlman Board of Directors considered these interests,
together with other relevant factors, in deciding to recommend that you approve
the merger. See "The Merger -- Interests of Certain Persons in the Merger."
15
<PAGE> 30
AUTOMOTIVE INDUSTRY CYCLICALITY
Borg-Warner Automotive's principal operations are directly related to
domestic and foreign automotive production. Automotive production and sales are
cyclical and depend upon general economic conditions and other factors. As
compared to 1997, we believe automotive production in 1998 declined slightly in
North America, increased moderately in Europe, and declined in Asia. Any
significant reduction in automotive production would have a material adverse
effect on Borg-Warner Automotive's sales to original equipment manufacturers
("OEMs") and its financial position and operating results.
EFFECT OF ASIAN ECONOMIC CONDITIONS
During 1997, approximately 21% of Borg-Warner Automotive's sales, including
sales from unconsolidated joint ventures, were in Asia. Borg-Warner Automotive
continues to be adversely affected by the weakness in Asia's economies. Sales of
vehicles with Borg-Warner Automotive's higher-end content in automatic
transmissions and four-wheel drives are particularly susceptible to weak
economic conditions. Although Borg-Warner Automotive believes that its presence
in Asian markets is critical to its long-term success, it cannot assure you that
economic conditions in Asia will improve in the future and that it will not
continue to be adversely affected by these economic conditions.
DEPENDENCE ON SPORT UTILITY AND LIGHT TRUCK MARKET SEGMENTS
Some of Borg-Warner Automotive's products are currently used exclusively in
sport utility vehicles and light trucks. Any significant reduction in production
in this market segment or loss of business in this market segment would have a
material adverse effect on Borg-Warner Automotive's sales to OEMs and its
financial position and operating results. For example, Borg-Warner Automotive's
1998 first and second quarter results were adversely affected by the loss to a
competitor of a four-wheel drive application for the Ford F-250 truck and the
Ford F-350 truck, a 37% reduction in four-wheel drive transfer case shipments
for the Ford F-150 truck and a decline in four-wheel drive transfer case
shipments to SsangYong in Korea, which became a unit of Daewoo Motor Company in
1998.
COMPETITIVENESS OF OTHER AUTOMOTIVE COMPONENT MANUFACTURERS
Borg-Warner Automotive competes worldwide with a number of other
manufacturers and distributors that produce and sell products similar to those
of Borg-Warner Automotive. Price, quality and technological innovation are the
primary elements of competition. Borg-Warner Automotive's competitors include
vertically integrated units of its major OEM customers, as well as a large
number of independent domestic and international suppliers. Borg-Warner
Automotive is not as large as a number of these companies and does not have as
many financial or other resources. Increased competition could adversely affect
Borg-Warner Automotive's businesses.
INCREASE IN COMPETITION FROM INTERNATIONAL SUPPLIERS
The competitive environment has changed dramatically over the past few
years as Borg-Warner Automotive's traditional United States OEM customers, faced
with intense international competition, have expanded their worldwide sourcing
of components. As a result, Borg-Warner Automotive has experienced competition
from suppliers in other parts of the world that enjoy economic advantages, such
as lower labor costs, lower health care costs and, in some cases, export or raw
materials subsidies.
16
<PAGE> 31
PRICING CONDITIONS
There is substantial and continuing pressure on the OEMs to reduce costs,
including costs of products Borg-Warner Automotive supplies. Although OEMs have
indicated that they will continue to rely on outside suppliers, a number of
Borg-Warner Automotive's major OEM customers manufacture products for their own
uses that directly compete with Borg-Warner Automotive products. These OEMs
could elect to manufacture such products for their own uses in place of the
products Borg-Warner Automotive currently supplies. Borg-Warner Automotive
believes that its ability to develop proprietary new products and to control its
costs will allow it to remain competitive. However, Borg-Warner Automotive
cannot assure you that it will be able to improve or maintain its gross margins
on product sales to OEMs or that the recent trend by OEMs towards increased
outsourcing will continue.
Annual price reductions to OEM customers appear to have become a permanent
feature of Borg-Warner Automotive's business environment. In 1997, Borg-Warner
Automotive granted $18 million worth of price reductions. To maintain its profit
margins, Borg-Warner Automotive seeks price reductions from its suppliers,
improves production processes to increase manufacturing efficiency, updates
product designs to reduce costs and develops new products whose benefits support
increased pricing. Borg-Warner Automotive's ability to pass through increased
raw material costs to its OEM customers is also limited, with cost recovery less
than 100% and often on a delayed basis. Borg-Warner Automotive cannot assure you
that it will be able to reduce costs in an amount equal to annual price
reductions and the increase in raw material costs.
RELIANCE ON MAJOR CUSTOMERS
Borg-Warner Automotive's worldwide sales in 1997 to Ford, GM and Chrysler
(now a part of DaimlerChrysler) constituted approximately 43%, 20% and 10%,
respectively, of Borg-Warner Automotive's 1997 consolidated sales. The
corresponding percentages for 1996 were 42%, 21% and 9%. No other customer
accounted for more than 10% of Borg-Warner Automotive's consolidated sales in
either 1997 or 1996. Borg-Warner Automotive's 1997 consolidated sales do not
include the approximately $354 million of sales made by its unconsolidated joint
ventures. If sales from these unconsolidated joint ventures were included in
1997 consolidated sales, its worldwide sales to Toyota Motor Corporation and its
affiliates would be approximately 7% of consolidated sales.
Although Borg-Warner Automotive has had long-standing relationships with
each of Ford, GM, Chrysler and Toyota and has sold a wide variety of products to
various divisions of each company globally, the loss of any significant portion
of its sales to any of these customers would have a material adverse effect on
Borg-Warner Automotive's financial position and operating results.
DEPENDENCE OF BORG-WARNER AUTOMOTIVE'S LARGE CUSTOMERS ON THE UNITED AUTOMOBILE,
AEROSPACE AND AGRICULTURAL IMPLEMENT WORKERS OF AMERICA
All three of Borg-Warner Automotive's primary North American customers, GM,
Ford and Chrysler, have major union contracts with the United Automobile,
Aerospace and Agricultural Implement Workers of America. Because of the United
States OEMs' dependence on a single union, Borg-Warner Automotive is affected by
labor difficulties and work stoppages at OEMs' facilities. For example,
Borg-Warner Automotive lost approximately $25 million in revenue as a result of
the 1998 54-day strike by the United Automobile, Aerospace and Agricultural
Implement Workers of America at GM.
17
<PAGE> 32
LABOR RELATIONS
Approximately 37% of Borg-Warner Automotive's domestic hourly employees are
unionized. Borg-Warner Automotive's two most significant domestic collective
bargaining agreements are for its Muncie, Indiana plant and its Ithaca, New York
plant. The Muncie agreement was renewed in March 1998 and the Ithaca agreement
was renewed in October 1998. While Borg-Warner Automotive believes that its
relations with its employees are good, a prolonged dispute with its employees
could have a material adverse effect on its financial position or operating
results.
UNFUNDED PENSION OBLIGATIONS
Borg-Warner Automotive has substantial unfunded pension obligations. On
December 31, 1997, the present values of its projected benefit obligations and
accumulated benefit obligations of underfunded plans were $234.4 million and
$231.1 million, respectively. The fair value of its pension plan assets with
respect to such plans as of December 31, 1997 was $177.5 million. The resulting
unfunded portion of $56.9 million at December 31, 1997 compared favorably with
an unfunded portion of $69.8 million at December 31, 1996 (based on Borg-Warner
Automotive's projected benefit obligations on the respective dates). This
decrease was due in part to an increase in the value of investments related to
these obligations. Of the 1997 unfunded portion, approximately $25.3 million
related to pension obligations for its German subsidiaries, which do not require
funding. Borg-Warner Automotive's long-term objective is to fund its entire
pension obligation with funds that are generated from operations, but it cannot
assure you that this will actually occur.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
Borg-Warner Automotive's operations are subject to laws governing, among
other things, emissions to air, discharges to waters and the generation,
handling, storage, transportation, treatment and disposal of waste and other
materials. Borg-Warner Automotive believes that its business, operations and
facilities have been and are being operated in compliance in all material
respects with applicable environmental and health and safety laws. However, the
operation of automotive parts manufacturing plants entails risks in these areas
and Borg-Warner Automotive cannot assure you that it will not incur material
costs or liabilities. In addition, potentially significant expenditures could be
required in order to comply with evolving environmental and health and safety
laws that may be adopted in the future.
Borg-Warner Automotive believes that the overall impact of compliance with
regulations and legislation protecting the environment will not have a material
adverse effect on its future financial position or operating results, but it
cannot assure you that this will be the case. Capital expenditures and expenses
in 1998 attributable to compliance with environmental laws were not material.
POTENTIAL LIABILITY UNDER ENVIRONMENTAL REGULATIONS
Borg-Warner Automotive and certain of its current and former direct and
indirect corporate predecessors, subsidiaries and divisions have been identified
by the United States Environmental Protection Agency and certain state
environmental agencies and private parties as potentially responsible parties
("PRPs") at 28 hazardous waste disposal sites under the Comprehensive
Environmental Response, Compensation and Liability Act and equivalent state
laws. As a result, Borg-Warner Automotive may be liable for the cost of clean-up
and other remedial activities at these sites.
18
<PAGE> 33
Based on information available to Borg-Warner Automotive, which, in most
cases, includes:
- an estimate of allocation of liability among PRPs;
- the probability that other PRPs, many of whom are large, solvent public
companies, will fully pay the costs apportioned to them;
- currently available information from PRPs and/or federal or state
environmental agencies concerning the scope of contamination and
estimated remediation costs;
- estimated legal fees; and
- other factors,
it has established a reserve in its financial statements for indicated
environmental liabilities with a balance of approximately $5.9 million at
September 30, 1998.
Borg-Warner Automotive currently expects this amount to be expended over
the next three to five years.
Borg-Warner Automotive believes that none of these matters, individually or
in the aggregate, will have a material adverse effect on its future financial
position or operating results, either because estimates of the maximum potential
liability at a site are not large or because liability will be shared with other
PRPs. However, Borg-Warner Automotive cannot assure you of the ultimate outcome.
YEAR 2000
Borg-Warner Automotive is in the process of upgrading certain aspects of
its operations to ensure that business systems do not fail to function either
when the Year 2000 arrives or at other date intervals. Borg-Warner Automotive
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
its applications for Year 2000 and the corrective action needed, if any.
Borg-Warner Automotive also is participating in the process coordinated by
the Automotive Industries Action Group, 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.
Borg-Warner Automotive'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 the end of June 1998, inventories and
assessments had been completed at substantially all of its locations. Corrective
action is underway. Borg-Warner Automotive believes that the majority of items
identified as non-compliant would not significantly interfere with its
operations if not updated. In addition, Borg-Warner Automotive's exposure to an
enterprise-wide failure is less likely because of the relative autonomy of its
operating units. Borg-Warner Automotive is operating on a schedule to have
substantially all non-compliant items remedied by mid-1999. Borg-Warner
Automotive is also seeking confirmation from key suppliers and other third
parties that their systems and applications that affect Borg-Warner Automotive
will be Year 2000 compliant by mid-1999.
Concurrent with the Year 2000 effort, Borg-Warner Automotive is in the
process of upgrading certain of its business operating systems at a number of
its units to improve
19
<PAGE> 34
both business operations and control. Borg-Warner Automotive now requires any
system acquired to be certified as Year 2000 compliant.
Borg-Warner Automotive believes that it will spend approximately $11.5
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 its operations. The bulk of such spending will provide
for system improvements and enhancements, including compliance with Year 2000.
Through September 30, 1998, Borg-Warner Automotive has spent approximately $6
million. Spending solely related to Year 2000 compliance is not expected to be
material to either its financial position or results of operations for any given
year.
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 Borg-Warner Automotive is remote. Moreover, for individual failures
to upgrade timely and effectively, the impact would most likely be a reduced
level of quality control for operations and a substantial increase in the amount
of manual intervention in areas such as material planning and inventory control,
statistical process control, and financial and operational recordkeeping.
Borg-Warner Automotive does not have in place substantial contingency plans
because it believes that its efforts will be successful. Borg-Warner Automotive
has, however, identified specific procedures required to keep its operations
functioning in the event of delays or machine failures. As mentioned above,
Borg-Warner Automotive has identified key suppliers and requested confirmation
as to such suppliers' Year 2000 compliance. Borg-Warner Automotive is currently
in the process of verifying supplier responses, including supplier audits and
other action as appropriate. Borg-Warner Automotive is also considering the
availability of alternative supply sources in the event that they are needed.
Borg-Warner Automotive cannot assure you that the corrective actions it is
implementing 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 and
non-IT systems could impair its ability to obtain necessary materials or
products to sell to or serve its customers. Disruptions of its computer systems
or the computer systems of its vendors or customers, as well as the cost of
avoiding such disruption, could have a material adverse effect upon Borg-Warner
Automotive's financial position or operating results.
EURO CONVERSION
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing currencies and the
euro. The participating countries adopted the euro as their common legal
currency on that date. Borg-Warner Automotive has begun consideration of the
effects of the euro conversion on its operations, but it is currently unsure of
the potential impact that the euro conversion will have on its financial
position or operating results. Because of the nature of Borg-Warner Automotive's
business and customers, the effect is not expected to be material.
You should refer to the discussion above under the heading "Cautionary
Statements Regarding Forward-Looking Statements."
20
<PAGE> 35
THE COMPANIES
BORG-WARNER AUTOMOTIVE
Borg-Warner Automotive is a leading global supplier of highly engineered
systems and components, primarily for automotive powertrain applications.
Borg-Warner Automotive's products are manufactured and sold worldwide, primarily
to OEMs of passenger cars, sport utility vehicles and light trucks. Borg-Warner
Automotive operates 35 manufacturing facilities in 12 countries in North
America, Europe and Asia, and is an original equipment supplier to every major
OEM in the world. Borg-Warner Automotive, a Delaware corporation, was
incorporated in 1987. Borg-Warner Automotive's executive offices are located at
200 South Michigan Avenue, Chicago, Illinois 60604, telephone (312) 322-8500.
BWA MERGER CORP.
BWA Merger Corp. ("Merger Sub") is a Delaware corporation formed by
Borg-Warner Automotive in December 1998 solely for the purpose of merging into
Kuhlman. Merger Sub is wholly owned by Borg-Warner Automotive. The mailing
address of Merger Sub's principal executive offices is c/o Borg-Warner
Automotive, Inc., 200 South Michigan Avenue, Chicago, Illinois 60604, telephone
(312) 322-8500.
KUHLMAN
Kuhlman is a diversified, industrial manufacturing company that currently
operates in two product segments: industrial products and electrical products.
Through its Schwitzer Group, which comprises Kuhlman's industrial products
business, Kuhlman is 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. Kuhlman's electrical products businesses 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 in
consumer, commercial and industrial applications. Borg-Warner Automotive intends
to sell the electrical products businesses following the completion of the
merger. Kuhlman's products are sold to over 5,000 domestic and international
customers operating in more than 60 countries worldwide. Kuhlman is a Delaware
corporation that was incorporated in 1993 and whose predecessor company was
founded in 1894. Kuhlman's executive offices are located at 3 Skidaway Village
Square, Savannah, Georgia 31411, telephone (912) 598-7809.
21
<PAGE> 36
THE SPECIAL MEETING
GENERAL
This proxy statement/prospectus is being furnished to Kuhlman stockholders
as part of the solicitation of proxies by the Kuhlman Board of Directors for use
at a special meeting of stockholders of Kuhlman, to be held on March 1, 1999 at
9:30 a.m., local time, at the offices of Rudnick & Wolfe, 203 North LaSalle
Street, Suite 1800, Chicago, Illinois. This proxy statement/prospectus and the
enclosed form of proxy are first being mailed to stockholders of Kuhlman on
January 23, 1999.
At the special meeting, the stockholders of Kuhlman will be asked to
consider and vote upon a proposal to approve the Agreement and Plan of Merger,
dated as of December 17, 1998, as amended, by and among Kuhlman, Borg-Warner
Automotive and Merger Sub, and to approve the merger of Merger Sub with and into
Kuhlman.
Each copy of this proxy statement/prospectus mailed to holders of shares of
common stock of Kuhlman, is accompanied by a form of proxy for use at the
special meeting, as well as a letter of transmittal and form of election to be
used in connection with the exchange of shares of Kuhlman common stock for
shares of Borg-Warner Automotive common stock or cash.
The Kuhlman Board unanimously recommends that stockholders vote FOR the
merger proposal. Approval of the merger proposal by Kuhlman stockholders is a
condition to consummation of the merger.
RECORD DATE AND VOTING
Kuhlman has fixed the close of business on January 19, 1999, as the record
date for the determination of the Kuhlman stockholders entitled to notice of and
to vote at the special meeting (the "Record Date"). Accordingly, only holders of
record of shares of Kuhlman common stock on the Record Date will be entitled to
notice of and to vote at the special meeting. As of the Record Date, 17,507,846
shares were outstanding and entitled to vote, which shares were held by
approximately 5,664 holders of record. Each holder of record of shares of
Kuhlman common stock on the Record Date is entitled to one vote per share. Such
votes may be cast at the special meeting either in person or by properly
executed proxy. The presence, in person or by properly executed proxy, of the
holders of a majority of the outstanding shares entitled to vote at the special
meeting is necessary to constitute a quorum at the special meeting.
Approval of the merger proposal will require the affirmative vote of the
holders of a majority of the shares of Kuhlman common stock outstanding on the
Record Date. As of the Record Date, the directors and executive officers of
Kuhlman may be deemed to be the beneficial owners of approximately 10.6% of the
outstanding shares of Kuhlman common stock, and each such individual has advised
Kuhlman that such individual intends to vote in favor of the merger proposal.
Under the rules of the NYSE, brokers who hold shares in street name for
customers have the authority to vote on certain "routine" proposals when they
have not received instructions from beneficial owners. Under NYSE rules, such
brokers are precluded from exercising their voting discretion with respect to
the approval and adoption of non-routine matters such as the merger proposal and
thus, absent specific instructions from the beneficial owner of such shares,
brokers are not empowered to vote such shares with respect to the approval and
adoption of such proposals (i.e., "broker non-votes").
22
<PAGE> 37
Abstentions and broker non-votes will be treated as shares that are present and
entitled to vote at the special meeting for purposes of determining whether a
quorum exists and will have the same effect as votes against approval of the
merger proposal.
VOTING AND REVOCATION OF PROXIES
All shares of Kuhlman common stock that are entitled to vote and are
represented at the special meeting by properly executed non-revoked proxies will
be voted at the special meeting in accordance with the instructions indicated on
such proxies. If no instructions are indicated (other than in the case of broker
non-votes), such proxies will be voted FOR the merger proposal.
Pursuant to the Kuhlman by-laws, the business that may be conducted at the
special meeting is confined to that referenced in the notice of special meeting
of stockholders that accompanies this proxy statement/prospectus. If any other
matters are properly presented at the special meeting for consideration,
including, among other things, consideration of a motion to adjourn the special
meeting to another time or place (including, without limitation, for the
purposes of soliciting additional proxies or allowing additional time for the
satisfaction of conditions to the merger), the persons named in the enclosed
form of proxy and acting thereunder generally will have discretion to vote on
these matters in accordance with their judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (1) filing
with the Secretary of Kuhlman, at or before the taking of the vote at the
special meeting, a written notice of revocation bearing a later date than the
proxy, (2) duly executing a later-dated proxy relating to the same shares of
Kuhlman common stock and delivering it to the Secretary of Kuhlman before the
vote at the special meeting, or (3) attending the special meeting and voting in
person (although attendance at the special meeting will not in and of itself
constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent to Richard A. Walker, Secretary, Kuhlman
Corporation, 3 Skidaway Village Square, Savannah, Georgia 31411, or be hand
delivered to the Secretary of Kuhlman at or before the vote at the special
meeting.
All expenses of Kuhlman's solicitation of proxies for the special meeting
will be borne by Kuhlman. In addition to solicitation by use of the mails,
proxies may be solicited from Kuhlman stockholders by directors, officers and
employees of Kuhlman in person or by telephone, telegram or other means of
communication. These directors, officers and employees will not be additionally
compensated, but may be reimbursed for reasonable out-of-pocket expenses in
connection with the solicitation. Kuhlman has retained Georgeson & Company Inc.,
a proxy solicitation firm, to assist it in the solicitation of proxies for the
special meeting at a cost of approximately $9,000 plus reimbursement of
reasonable out-of-pocket expenses. In addition, Kuhlman will make arrangements
with brokerage houses, custodians, nominees and fiduciaries for the forwarding
of proxy solicitation materials to beneficial owners of shares of Kuhlman common
stock held of record by such parties, and Kuhlman will reimburse these parties
for their reasonable expenses.
23
<PAGE> 38
THE MERGER
We are furnishing this proxy statement/prospectus to you in connection with
the proposed merger between Merger Sub and Kuhlman because you are a holder of
shares of Kuhlman common stock. If completed, the merger will be carried out as
provided in the merger agreement, a copy of which is attached as Appendix A to
this proxy statement/prospectus.
The merger agreement provides that Merger Sub will be merged into Kuhlman,
with Kuhlman surviving the merger as a wholly owned subsidiary of Borg-Warner
Automotive. In the merger, each outstanding share of Kuhlman common stock (other
than shares held by stockholders who have not voted in favor of the merger and
have properly demanded appraisal with respect to such shares, and shares held by
Kuhlman or any wholly owned subsidiary of Kuhlman) will be 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 determining the number of
shares of Borg-Warner Automotive common stock to be received by Kuhlman
stockholders for each of their shares of Kuhlman common stock, the shares will
be valued at the average of the daily high and low sales prices of shares of
Borg-Warner Automotive common stock on the NYSE during the 20 consecutive
trading days immediately preceding the third trading date prior to the closing
date. A proration process will ensure that approximately 78% of the Kuhlman
shares are converted to cash, with the remaining 22% being converted into shares
of Borg-Warner Automotive common stock. The consideration to be received in the
merger for one share of Kuhlman common stock is referred to in this proxy
statement/prospectus as the "Merger Consideration." The total value of
consideration to be received by Kuhlman's stockholders in the merger, based on
the number of shares of Kuhlman common stock outstanding on December 31, 1998,
is approximately $677.8 million. Approximately $527.8 million (representing 78%)
of this amount will be in cash, with the remaining $150 million (representing
22%) in Borg-Warner Automotive common stock.
BACKGROUND
A primary objective of Kuhlman has been to become a larger, more
diversified manufacturing organization focused on the creation of long-term
stockholder value. Over the last several years, in an effort to become both
larger and more international in scope, Kuhlman has expanded its operations both
through internal growth and by acquiring businesses that participate in key
strategic global markets. In addition, as part of its ongoing efforts to enhance
stockholder value, Kuhlman's management has, from time to time, entered into
informal discussions with select strategic and financial parties to explore the
possibility and feasibility of entering into possible business combination
transactions, in which Kuhlman would either remain the surviving corporation or
be part of a larger, more globally diversified organization. These informal
discussions were initiated by either Kuhlman or others, including Chase
Securities Inc. (whose affiliate The Chase Manhattan Bank, is Kuhlman's lead
commercial bank) and Robinson-Humphrey, both of whom are, from time to time,
financial advisors to Kuhlman and who are co-advising Kuhlman on the present
transaction. During most of 1998, however, no such informal discussions advanced
past preliminary stages.
On August 13, 1998, Robert S. Jepson, Jr., Chairman and Chief Executive
Officer of Kuhlman, and Vernon J. Nagel, Executive Vice President of Finance,
Chief Financial Officer and Treasurer of Kuhlman, met with John F. Fiedler,
Chairman and Chief Executive Officer of Borg-Warner Automotive, Christopher A.
Gebelein, Vice President,
24
<PAGE> 39
Business Development of Borg-Warner Automotive, and Robin J. Adams, Vice
President and Treasurer of Borg-Warner Automotive, to discuss a possible
business combination between Kuhlman and Borg-Warner Automotive. Messrs. Jepson
and Fiedler discussed their respective businesses and the possible benefits to
stockholder value that could be produced by combining the two companies.
Following this initial meeting, Messrs. Jepson and Fiedler had two
telephone conversations to explore mutual interest in proceeding further with a
possible business combination. On August 28, 1998, during the second of these
telephone conversations, Messrs. Jepson and Fiedler agreed to continue their
discussions in more detail. Kuhlman and Borg-Warner Automotive executed a
customary non-disclosure agreement, dated August 28, 1998, protecting Kuhlman's
confidential information. Kuhlman also provided Borg-Warner Automotive with
financial information regarding a possible business combination between Kuhlman
and Borg-Warner Automotive.
On September 4, 1998, Mr. Nagel and Curtis G. Anderson, President and Chief
Operating Officer of Kuhlman, met with members of Borg-Warner Automotive's
senior management and with representatives of Morgan Stanley Dean Witter,
Borg-Warner Automotive's financial advisor, to discuss further a possible
business combination.
On September 8, 1998, Messrs. Jepson and Anderson, as well as Gary G.
Dillon, Chairman of Kuhlman's Schwitzer, Inc., subsidiary, Timothy J. Campbell,
President and Chief Executive Officer of Schwitzer, and Richard H. Prange, Vice
President, Chief Financial Officer of Schwitzer, met with members of Borg-Warner
Automotive's senior management at a Schwitzer manufacturing plant in Asheville,
North Carolina.
Following several telephone conversations between Messrs. Nagel and
Gebelein in the middle to latter part of September 1998 and the exchange of
additional financial information by the two companies, it appeared as though a
possible business combination would not be feasible, and the parties ceased
further discussions.
In late October 1998 and early November 1998, following further analysis by
Borg-Warner Automotive of certain financial aspects of a potential transaction
between Kuhlman and Borg-Warner Automotive, Mr. Gebelein contacted Mr. Nagel
regarding such financial aspects and additional telephone conversations occurred
regarding a possible business combination of Kuhlman and Borg-Warner Automotive.
Messrs. Jepson and Fiedler also had a telephone conversation during this same
period of time.
On November 19, 1998, Kuhlman's Board met for their annual business plan
review meeting, and on November 20, 1998, Kuhlman's Board held a regular
meeting. At both meetings, the Board discussed in detail the possible business
combination.
On November 23, 1998, Messrs. Jepson and Fiedler had a telephone
conversation during which it was decided that the two companies should enter
into more formal discussions and begin more formal due diligence activities.
Such discussions and due diligence activities were then commenced. Kuhlman's
Board was kept advised of the status of the possible transaction with
Borg-Warner Automotive. Kuhlman and Borg-Warner Automotive executed a customary
non-disclosure agreement, dated December 1, 1998, protecting Borg-Warner
Automotive's confidential information.
On December 2, 1998, members of Kuhlman's senior management met with
members of Borg-Warner Automotive's senior management, as well as with
representatives of Morgan Stanley Dean Witter and Deloitte & Touche LLP,
Borg-Warner Automotive's independent public accountants, to exchange operational
and financial information and to
25
<PAGE> 40
continue their respective due diligence investigations of one another. The
respective due diligence investigations continued through December 17, 1998.
On December 8, 1998, the Kuhlman Board held a special meeting during which
Mr. Jepson updated the directors on the status of the discussions and meetings
with Borg-Warner Automotive. Following discussion of the strategic rationale of
a business combination with Borg-Warner Automotive and Kuhlman's strategic
alternatives, the Kuhlman Board authorized management to continue its
negotiations and due diligence activities with Borg-Warner Automotive.
On December 14, 1998, John Zvolensky, Jr., President and Chief Executive
Officer of Kuhlman's Kuhlman Electric Corporation subsidiary, Thomas M. Minnich,
Vice President -- Finance of Kuhlman Electric, D. Max Henderson, President and
Chief Executive Officer of Kuhlman's Coleman Cable Systems, Inc. subsidiary, and
Richard N. Burger, Vice President of Finance, Chief Financial Officer of Coleman
Cable, as well as Mr. Nagel, met with senior management of Borg-Warner
Automotive to review operational and financial matters related to Kuhlman
Electric and Coleman Cable.
On December 15, 1998, Messrs. Nagel, Dillon, Campbell, and Prange met with
senior management of Borg-Warner Automotive to review operational and financial
matters related to Schwitzer.
On December 17, 1998, the Kuhlman Board held a special meeting to review
the proposed transaction with Borg-Warner Automotive. Representatives of
Robinson-Humphrey and senior management of Kuhlman made presentations and held
discussions regarding the business and strategic rationales for the proposed
transaction, the proposed terms of the transaction, certain legal
considerations, and an update on the status of negotiations with Borg-Warner
Automotive. Robinson-Humphrey and Kuhlman senior management reviewed, among
other things, the matters set forth under "-- Kuhlman's Reasons for the Merger;
Recommendation of the Kuhlman Board," including the terms of the proposed merger
and the provisions contained in the draft merger agreement that had been
negotiated by Kuhlman and Borg-Warner Automotive through their respective
counsel. In addition, at this meeting, Robinson-Humphrey rendered its oral
opinion, confirmed in writing, that, as of December 17, 1998, the consideration
to be received by the Kuhlman stockholders in the merger is fair to the Kuhlman
stockholders from a financial point of view. Following further discussion and
consideration, the Kuhlman Board unanimously approved and authorized the
execution of the merger agreement with certain proposed changes reviewed by
Kuhlman senior management. The Borg-Warner Automotive Board also held a special
meeting to review the proposed merger, and after discussion and consideration
approved and authorized the execution of the merger agreement. Following further
negotiation, each of Kuhlman and Borg-Warner Automotive executed and delivered
the merger agreement. On December 18, 1998, prior to the opening of trading on
the NYSE, the parties issued separate press releases announcing the execution of
the definitive merger agreement.
KUHLMAN'S REASONS FOR THE MERGER; RECOMMENDATION OF THE KUHLMAN BOARD
The Kuhlman Board unanimously determined that the merger is advisable and
fair to, and in the best interests of, Kuhlman and its stockholders and has
approved the merger agreement. In particular, the Kuhlman Board believes that
the merger provides the Kuhlman stockholders with an opportunity to receive for
their shares of Kuhlman common stock a substantial premium over the values that
a stand-alone strategy could be expected to produce in a reasonable time period.
In addition, the form of the Merger Consideration
26
<PAGE> 41
provides the Kuhlman stockholders with immediate cash value for all or a portion
of their shares, while also providing them the opportunity to participate, as
holders of shares of Borg-Warner Automotive common stock, in a larger, more
globally diversified company with strong prospects for stockholder value
enhancement in the future. In this regard, the Kuhlman Board considered that
each Kuhlman stockholder will have the opportunity to select a form of Merger
Consideration most closely aligned with such stockholder's investment objectives
from among two alternatives: all cash or all shares of Borg-Warner Automotive
common stock, subject to the proration procedures described elsewhere in this
proxy statement/prospectus.
In addition to the foregoing, in reaching its decision to approve the
merger agreement and to recommend that the Kuhlman stockholders vote to approve
and adopt the merger agreement, the Kuhlman Board considered the following
material factors:
- the Kuhlman Board's expectation of Borg-Warner Automotive's financial
performance following the merger, taking into account, among other
things:
- the business, operations, financial condition, operating results and
prospects of Kuhlman, Borg-Warner Automotive and the combined company;
- the potential for cost savings that could be created by combining the
respective businesses of Borg-Warner Automotive and Schwitzer, and the
potential initial costs that could be incurred by Borg-Warner
Automotive to achieve such cost savings;
- the potential benefit to Borg-Warner Automotive of its intended sales
of Kuhlman's Kuhlman Electric and Coleman Cable subsidiaries; and
- Borg-Warner Automotive's expected post-merger capital structure and
the accounting treatment of the merger;
- the historical trading prices of Kuhlman common stock, on the one hand,
and Borg-Warner Automotive common stock, on the other;
- the fact that the Merger Consideration represents a substantial premium
over the market prices of Kuhlman common stock generally prevailing
prior to the announcement of the signing of the merger agreement;
- the potential stockholder value that could be expected to be generated
from the various strategic alternatives available to Kuhlman, including
the alternative of remaining independent (with or without selling,
spinning-off or otherwise disposing of one or more of its business
units), as well as the results of the contacts and preliminary
discussions held by Kuhlman senior management from time to time with
third parties regarding possible business combinations;
- the presentation by Robinson-Humphrey with respect to the merger and the
opinion of Robinson-Humphrey as to the fairness, from a financial point
of view, of the Merger Consideration to be received by the Kuhlman
stockholders in the merger (see "The Merger -- Opinion of the Financial
Advisor to the Kuhlman Board");
27
<PAGE> 42
- the terms of the merger agreement, all of which were the products of
extensive arm's-length negotiations, including, without limitation, the
following:
- the form and amount of the Merger Consideration;
- the representations and warranties made by Borg-Warner Automotive with
respect to its business, operations and financial condition;
- the expense-reimbursement and termination-fee provisions requiring
Kuhlman or Borg-Warner Automotive, as the case may be, to compensate
the other party in certain circumstances in the event the merger
agreement is terminated;
- the nature and relatively limited number of conditions to the
obligations of Borg-Warner Automotive to consummate the merger
(including, in particular, the absence of a financing condition),
which the Kuhlman Board believes increases the likelihood that the
merger will be consummated if approved by stockholders; and
- the absence of any significant regulatory impediments and the
corresponding likelihood that the merger will be consummated.
The Kuhlman Board also considered potentially negative factors in its
deliberations concerning the merger, including, among others:
- that, while the merger agreement gives Kuhlman the right to terminate
such agreement if a superior proposal is made with respect to Kuhlman,
the termination fee provisions of the merger agreement could have the
effect of discouraging any such proposal;
- the possibility that the merger may not be consummated and the possible
effects of the public announcement of the merger on (a) Kuhlman's sales
and operating results and (b) Kuhlman's ability to attract and maintain
key personnel;
- the risk that the anticipated benefits of the merger might not fully be
realized;
- the significant costs involved in connection with consummating the
merger, including the substantial management time and effort required to
effectuate the merger; and
- other risks described under "Risk Factors."
The foregoing discussion addresses all the material information and factors
considered by the Kuhlman Board in its consideration of the merger. In view of
the variety of factors and the amount of information considered, the Kuhlman
Board did not find it practicable to and did not make specific assessments of,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. The determination was made after consideration of
all of the factors as a whole. In addition, individual members of the Kuhlman
Board may have given different weights to different factors. Moreover, after due
consideration of its fiduciary obligations, in the unanimous view of the Kuhlman
Board, the potentially negative factors considered by it were not sufficient,
either individually or collectively, to outweigh the positive factors considered
by it in its deliberations relating to the merger. For a discussion of the
interests of certain members of Kuhlman's management and the Kuhlman Board in
the merger, see " -- Interests of Certain Persons in the Merger."
THE KUHLMAN BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS ADVISABLE
AND FAIR TO, AND IN THE BEST INTERESTS OF, KUHLMAN AND ITS STOCKHOLDERS AND HAS
APPROVED THE
28
<PAGE> 43
MERGER AGREEMENT. ACCORDINGLY, THE KUHLMAN BOARD UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS OF KUHLMAN VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND THE MERGER AT THE SPECIAL MEETING.
OPINION OF THE FINANCIAL ADVISOR TO THE KUHLMAN BOARD
At the December 17, 1998 meeting of the Kuhlman Board, Robinson-Humphrey
delivered an opinion in person that, as of such date, the Merger Consideration
is fair to the Kuhlman stockholders from a financial point of view. At this
meeting, Robinson-Humphrey presented to the Kuhlman Board an analysis and
materials included in that analysis that supported Robinson-Humphrey's opinion
as to the fairness of the proposed transaction.
The full text of the opinion of Robinson-Humphrey, which sets forth
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached hereto as Appendix B. Kuhlman
stockholders are urged to read the opinion in its entirety. Robinson-Humphrey's
opinion is directed only to the consideration to be received by the Kuhlman
stockholders in the merger and does not constitute a recommendation to any
stockholder as to how such stockholder should vote. Robinson-Humphrey's opinion
does not address the likely tax consequences of the merger to any Kuhlman
stockholder. Robinson-Humphrey's opinion does not constitute a recommendation to
any stockholder with respect to the election to receive stock or cash. No
limitations were imposed by Kuhlman or Borg-Warner Automotive with respect to
the investigations made or procedures followed by Robinson-Humphrey in rendering
its opinion, except that Robinson-Humphrey was not authorized to, and did not,
solicit other proposals for the acquisition of Kuhlman. Robinson-Humphrey
conducted a valuation analysis of the Kuhlman shares, but was not asked to and
did not recommend a specific per share price to be paid by Borg-Warner
Automotive for the purchase of Kuhlman. The summary of the opinion of
Robinson-Humphrey set forth in this proxy statement/prospectus is qualified in
its entirety by reference to the full text of such opinion.
In connection with its opinion, Robinson-Humphrey conducted, among other
analyses:
- a review of the merger agreement;
- a review of certain publicly available information concerning Kuhlman
and Borg-Warner Automotive which Robinson-Humphrey believes to be
relevant to its analysis;
- a review of certain internal financial statements and other financial
and operating data concerning Kuhlman furnished to Robinson-Humphrey by
Kuhlman;
- a trading history of Kuhlman common stock and Borg-Warner common stock
and a comparison of those trading histories with those of other
companies which Robinson-Humphrey deemed relevant; and
- a comparison of the financial terms of the merger with such terms, to
the extent publicly available, of certain comparable recent transactions
that Robinson-Humphrey deemed relevant.
In addition, Robinson-Humphrey held discussions with management of Kuhlman
and Borg-Warner Automotive concerning other financial statistics and analyses
and performed such other investigations and took into account such other matters
as Robinson-Humphrey deemed appropriate.
29
<PAGE> 44
Robinson-Humphrey relied without independent verification upon the accuracy
and completeness of all of the financial and other information reviewed by it
for purposes of its opinion. In that regard, with respect to Kuhlman's internal
financial forecasts, which Kuhlman instructed Robinson-Humphrey to use for
purposes of its analyses, Robinson-Humphrey assumed that such forecasts were
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of Kuhlman's senior management as to the future financial
performance of Kuhlman. Finally, Robinson-Humphrey has been informed by
Borg-Warner Automotive, and has relied with Kuhlman's permission on such
information, that Borg-Warner Automotive intends to pursue a sale of certain
lines of business of Kuhlman after consummating the merger.
The following is a summary of the presentation by Robinson-Humphrey to the
Kuhlman Board on December 17, 1998:
Historical Stock Price Analysis. Robinson-Humphrey analyzed the prices at
which shares of Kuhlman traded over the last two years. In the past 24 months,
dating back to January 1, 1997, the high daily closing price was $50.81 and the
low daily closing price was $17.63. Robinson-Humphrey observed the average
closing price for the common stock over this 24-month period to be $32.78. The
closing prices on December 16, December 10 and November 17, 1998 were $30.56,
$24.00 and $28.43, respectively. In addition, Robinson-Humphrey observed that,
since January 1, 1997, only 21.5% of shares traded had been traded at or above
the Merger Consideration of $39.00.
Valuation Summary of Selected Comparable Publicly Traded Companies.
Robinson-Humphrey reviewed and compared certain financial, operating and stock
market information of Kuhlman and publicly traded companies in industries
related to Kuhlman's lines of business. This selected group consisted of the
following companies: Cooper Industries, Emerson Electric Co., Hubbell, Inc.,
Magna International, SPX Corporation, AFC Cable Systems, Inc., Belden Inc.,
Cable Design Technology, Encore Wire, Allied Signal Inc., Borg-Warner
Automotive, Caterpillar Inc., Cummins Engine, Dana Corporation, Danaher
Corporation, Detroit Diesel, Donaldson Company, Inc., Dura Automotive Systems,
Federal-Mogul Corp., Mark IV Industries, Inc., Meritor Automotive, Modine
Manufacturing and Regal Beloit Corp. These comparable companies were selected
because they are publicly traded companies with operations similar to one or
more of the lines of business of Kuhlman, either as an electrical product and
transformer manufacturer, an electric cable manufacturer, or an industrial
products manufacturer. Robinson-Humphrey calculated, among other things, current
market price as a multiple of book value, multiples of firm value (defined as
market equity value plus debt minus cash) based on last 12 months ("LTM")
performance and multiples of estimated earnings per share ("EPS") for the LTM
period, calendar year 1998 and calendar year 1999. The EPS estimates were based
on the average of publicly available earnings estimates made by research
analysts as provided by First Call Investor Service. Robinson-Humphrey averaged
the multiples of the comparable companies in order to apply these multiples to
Kuhlman's values. To accurately reflect average values for the statistical
purposes, Robinson-Humphrey excluded certain outlying values that differed from
the relative groupings of the other values. Robinson-Humphrey believes that
these outlying values for certain companies reflect temporary market aberrations
that can skew mean values. This analysis assumes that Kuhlman is a stand-alone
entity, and assumes no synergies or cost savings from the merger.
With respect to the comparable companies, Robinson-Humphrey took into
account multiples based on the price/earnings ("P/E") ratios as compared to
estimated earnings
30
<PAGE> 45
per share for LTM, estimated calendar year 1998 and estimated calendar year
1999. These multiples averaged 12.6x, 12.6x and 11.3x, respectively. Based on
the closing price on December 16, 1998 of $30.56, Robinson-Humphrey calculated a
multiple for Kuhlman of 14.3x for the LTM, 13.9x for calendar year 1998 and
11.5x for calendar year 1999. Based on the Merger Consideration of $39.00 per
share, Robinson-Humphrey calculated a multiple for Kuhlman of 18.2x for the LTM,
17.7x for calendar year 1998 and 14.7x for calendar year 1999. Robinson-Humphrey
noted that all of these multiples were above the comparable multiples.
Robinson-Humphrey also considered the current market value to book value
multiples of the comparable companies. These multiples averaged 2.1x.
Robinson-Humphrey noted that the closing price on December 16, 1998 of $30.56
implied a multiple of 2.5x, while the Merger Consideration of $39.00 implied a
multiple of 3.2x. Robinson-Humphrey observed that this multiple was higher than
the average of the comparable multiples.
Robinson-Humphrey also considered the implied firm values for Kuhlman based
on LTM performance including: LTM revenues, LTM earnings before interest and
taxes ("EBIT"), and LTM earnings before interest, taxes, depreciation and
amortization ("EBITDA"). In the analysis of comparable companies, multiples of
firm value averaged 0.96x, 9.7x and 7.0x, respectively. Based on the closing
price on December 16, 1998 of $30.56, Robinson-Humphrey calculated a firm value
for Kuhlman of 0.82x LTM revenues, 8.7x EBIT and 6.5x EBITDA. Based on the
Merger Consideration of $39.00 per share, Robinson-Humphrey calculated a
multiple for Kuhlman of 1.07x LTM revenues, 11.4x EBIT and 8.4x EBITDA.
Robinson-Humphrey noted that all of these multiples were above the comparable
multiples of firm value.
Comparable Merger and Acquisition Transaction Analysis. Robinson-Humphrey
reviewed and compared selected mergers and acquisitions in two different
categories, automotive transactions of various sizes and automotive-and-
industrial transactions of between $250 million and $1 billion. The majority of
these transactions occurred within the last four years. Robinson-Humphrey
selected 15 transactions in the first category and 15 in the second, with six
transactions that were utilized in both categories. The
automotive-and-industrial transactions reviewed included:
- ElectroCom Automation Inc./AEG AG(Daimler-Benz AG)
- Automotive Industries Holding/Lear Seating Corp.
- Masland Corp./Lear Corp.
- CasTech Aluminum Group Inc./Commonwealth Aluminum Corp.
- Measurex Corp./Honeywell Inc.
- Kysor Industrial Corp./Scotsman Industries Inc.
- Greenwich Air Services Inc./General Electric Co.
- Stant Corp./Tomkins PLC
- Goulds Pumps Inc./ITT Industries Inc.
- Giddings & Lewis Inc./Thyssen AG
- Core Industries Inc./United Dominion Industries Ltd.
- Fusion Systems Corp./Eaton Corp.
- Exide Electronics Group Inc./BTR PLC
31
<PAGE> 46
- Lukens Inc./Bethlehem Steel Corp.
- Pacific Scientific Co./Danaher Corp.
The automotive transactions reviewed included:
- TRW Inc-Automotive Parts Business/Federal-Mogul Corp.
- Sealed Power Replacement/Federal-Mogul Corp.
- ElectroCom Automation Inc./AEG AG(Daimler-Benz AG)
- Federal-Mogul-Precision Forged/Borg-Warner Automotive
- Masland Corp./Lear Corp.
- Automotive Industries Holding/Lear Seating Corp.
- Centropiezas Group/Federal-Mogul Corp.
- Kysor Industrial Corp./Scotsman Industries Inc.
- Stant Corp./Tomkins PLC
- Goulds Pumps Inc./ITT Industries Inc.
- Coltec Inds-Holley Automotive/Borg-Warner Automotive
- Fel-Pro Inc. (Felt Products)/Federal-Mogul Corp.
- Kuehnle Kopp-Turbocharger Division/Borg-Warner Automotive
- General Signal Corp./SPX Corp.
- Cooper Automotive/Federal-Mogul Corp.
Robinson-Humphrey also calculated, among other factors, equity purchase
price as a multiple of (1) book value and (2) historical net income, and firm
value as a multiple of (1) revenues, (2) EBITDA, and (3) EBIT. Robinson-Humphrey
averaged the multiples of the comparable merger and acquisition transactions in
order to apply these multiples to Kuhlman's values. To accurately reflect
average values for statistical purposes, Robinson-Humphrey excluded certain
outlying values that differed from the relative groupings of the other values.
Robinson-Humphrey believes that these outlying values for certain companies
reflect temporary market aberrations that can skew mean values.
The equity purchase price to book value multiples for
automotive-and-industrial transactions and automotive transactions averaged 2.7x
and 3.1x, respectively. The equity purchase price to book value multiple for
Kuhlman based on the Merger Consideration of $39.00 per share was calculated to
be 3.2x. The equity purchase price to historical net income multiples for
automotive-and-industrial transactions and automotive transactions averaged
18.6x and 17.0x, respectively. The equity purchase price to historical net
income multiple for Kuhlman based on the Merger Consideration of $39.00 per
share was calculated to be 17.8x. Robinson-Humphrey observed that, when
analyzing the equity purchase price multiples, Kuhlman's multiples were in line
with other comparable multiples.
The firm value to revenues multiples for automotive-and-industrial
transactions and automotive transactions averaged 1.08x and 1.01x, respectively.
The firm value to revenues multiple for Kuhlman based on the Merger
Consideration of $39.00 per share was calculated to be 1.07x. The firm value to
EBIT multiples for automotive-and-industrial transactions and automotive
transactions averaged 12.6x and 11.8x, respectively. The firm
32
<PAGE> 47
value to EBIT multiple for Kuhlman based on the Merger Consideration of $39.00
per share was calculated to be 11.4x. The firm value to EBITDA multiples for
automotive-and-industrial transactions and automotive transactions averaged
10.0x and 8.0x, respectively. The firm value to EBITDA multiple for Kuhlman
based on the Merger Consideration of $39.00 per share was calculated to be 8.4x.
Robinson-Humphrey observed that when, analyzing the firm value multiples,
Kuhlman's multiples were in line with other comparable multiples.
Robinson-Humphrey also considered, among other factors, the premiums paid
based on the closing price of the target's shares at one day, one week and one
month prior to the announcement date. Robinson-Humphrey calculated average
premiums for selected transactions from the automotive-and-industrial category
of 27.2%, 33.2%, and 42.4% at one day, one week and one month prior to
announcement, respectively. Robinson-Humphrey observed that these premiums are
in line with premiums associated with the merger. Robinson-Humphrey calculated
premiums for Kuhlman to be 27.6%, 43.1% and 40.5% at one day, one week and one
month prior to announcement, respectively.
Discounted Cash Flow Analysis. Robinson-Humphrey performed a discounted
cash flow analysis using financial forecasts provided by Kuhlman's management.
Using the discounted cash flow analysis, Robinson-Humphrey estimated the present
value of the future cash flows set forth in these forecasts. Robinson-Humphrey
calculated a net present value of free cash flows (defined as operating income
after taxes plus depreciation and amortization less capital expenditures and any
increase in net working capital) for the years 1999 through 2003 using discount
rates ranging from 11% to 15%. Robinson-Humphrey calculated Kuhlman's terminal
values in the year 2003 based on a multiple of EBITDA and a terminal growth rate
of 3.5%. Robinson-Humphrey observed that the valuation based on these methods
produced a range of value from $24.70 to $44.00, with a mean of $32.63. In
addition, Kuhlman provided financial information forecasting $15 million of cost
savings from operational synergies from the merger, and that information was
utilized in an additional discounted cash flow analysis that included such
synergies. Assuming the $15 million of annual savings and utilizing the methods
and parameters outlined, Robinson-Humphrey observed that this valuation produced
a per share range of $28.79 to $50.63, with a mean of $37.61. Robinson-Humphrey
observed that the Merger Consideration was in line with, and above the mean of,
these calculated ranges of values.
Breakup Analysis. Robinson-Humphrey performed an analysis to estimate the
value of each of Kuhlman's three lines of business as if each division were
divested separately with net proceeds returned to stockholders.
Robinson-Humphrey utilized the financial information supplied by Kuhlman for
each of the individual operating segments, comparing this information to the
firm value multiples calculated from comparable companies. Utilizing the
multiples from certain segments of the comparable companies, Robinson-Humphrey
was able to calculate a range for the gross value before the applicable debt or
estimated taxes to each of Kuhlman's three lines of business. The range of
values for Kuhlman Electric, Coleman Cable, and Schwitzer were $113 to $151
million, $118 to $174 million and $423 to $584 million, respectively. After
combining each segment's independently calculated gross value and subtracting
the consolidated debt and estimated taxes associated with the breakup of the
operating segments, an implied equity value was derived and divided by the
shares outstanding. On a per share basis, Robinson-Humphrey observed value in
the range of $25.37 to $34.63. Robinson-Humphrey observed that the Merger
Consideration of $39.00 per share was above this range of value.
33
<PAGE> 48
Summary. The preparation of a fairness opinion is a complex process and is
not necessarily susceptible to partial analysis or summary description.
Selecting portions of the analysis or of the summary set forth above, without
considering the analysis as a whole, could create an incomplete view of the
processes underlying Robinson-Humphrey's opinion. In arriving at its fairness
determination, Robinson-Humphrey considered the results of all such analyses.
Robinson-Humphrey did not separately consider the extent to which any one of the
analyses supported or did not support the Robinson-Humphrey fairness opinion. No
company or transaction used in the above analyses as a comparison is identical
to Kuhlman or Borg-Warner Automotive or the contemplated merger. The analyses
were prepared solely for purposes of Robinson-Humphrey in providing its opinion
to the Kuhlman Board as to the fairness of the Merger Consideration to be
received by the Kuhlman stockholders in the merger and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
may actually be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than those suggested by such analyses. Because such analyses
are inherently subject to uncertainty, being based upon numerous factors or
events beyond the control of the parties or their respective advisors, none of
Kuhlman, Borg-Warner Automotive, Robinson-Humphrey or any other person assumes
responsibility if future results are materially different from those forecast.
As described above, Robinson-Humphrey's opinion to the Kuhlman Board was
one of many factors taken into consideration by the Kuhlman Board in making its
determination to approve the merger agreement. The foregoing summary does not
purport to be a complete description of the analysis performed by
Robinson-Humphrey and is qualified by reference to the written opinion of
Robinson-Humphrey set forth in Appendix B hereto.
Robinson-Humphrey, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements, and other valuation services. The Kuhlman Board selected
Robinson-Humphrey to act as financial advisor and deliver a fairness opinion
because it is a nationally recognized investment banking firm that has
substantial experience in transactions similar to the merger. Following the
proposal by Borg-Warner Automotive, Robinson-Humphrey was not authorized and did
not solicit any indications of interest from any third party with respect to the
purchase of all or part of Kuhlman's business.
Robinson-Humphrey was selected to act as financial advisor to the Kuhlman
Board in connection with the merger. Pursuant to a letter dated December 17,
1998, between the Kuhlman Board and Robinson-Humphrey, Kuhlman has agreed to pay
Robinson-Humphrey (1) a retainer of $100,000 payable upon signing of the letter
agreement, (2) a fee of $300,000 payable upon the delivery of the opinion and
(3) an additional fee of $600,000 payable upon the closing of the transaction
for its services in connection with the merger. The letter agreement with
Robinson-Humphrey and the Kuhlman Board provides that Kuhlman will reimburse
Robinson-Humphrey for its out-of-pocket expenses and indemnify Robinson-Humphrey
and certain related persons and entities against certain liabilities incurred in
connection with its services thereunder.
In the past, Robinson-Humphrey has been engaged by Kuhlman to perform
various investment banking services and has received customary fees for such
services. In the ordinary course of business, Robinson-Humphrey actively trades
in Kuhlman common
34
<PAGE> 49
stock for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
EFFECTIVE TIME OF THE MERGER
The merger will become effective when a certificate of merger is filed with
the Secretary of State of Delaware in accordance with Section 251 of the
Delaware General Corporation Law (the "DGCL") or such other time as Borg-Warner
Automotive and Kuhlman will agree in writing should be specified in the
certificate of merger (the date and time the merger becomes effective being the
"Effective Time").
The Effective Time will occur no earlier than the date of the special
meeting. If the merger proposal is approved at the special meeting, the
Effective Time will occur as promptly as possible after satisfaction or waiver
of the remaining conditions to the merger contained in the merger agreement.
CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate of Incorporation of the surviving corporation in the
merger, which is Kuhlman, as in effect immediately prior to the Effective Time
will be amended as of the Effective Time so as to contain the provisions, and
only the provisions, contained immediately prior to the Effective Time in the
Certificate of Incorporation of Merger Sub, except for Article I of such
Certificate of Incorporation, which will continue to read "The name of the
corporation is 'Kuhlman Corporation.' " The by-laws of Merger Sub in effect
immediately prior to the Effective Time will be the by-laws of the surviving
corporation, until thereafter amended or as provided therein by applicable law.
DIRECTORS AND OFFICERS
The directors of Merger Sub will be the directors of the surviving
corporation, and the officers of Kuhlman will be the officers of the surviving
corporation, until they resign, are removed from office or they otherwise cease
to be a director or officer, or until their respective successors are duly
elected and qualified. The officers of Kuhlman have indicated that they will
resign as officers as of the closing of the merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations relevant to the exchange of shares of Kuhlman common stock for
shares of Borg-Warner Automotive common stock and cash pursuant to the merger.
Kuhlman stockholders should be aware that this discussion does not deal
with all federal income tax considerations that may be relevant to particular
stockholders of Kuhlman in light of their particular circumstances, such as
stockholders who are banks, insurance companies, tax-exempt organizations,
dealers in securities, who are foreign persons, who do not hold their shares of
Kuhlman common stock as capital assets, or who acquired their shares in
connection with stock option or stock purchase plans or in other compensatory
transactions. In addition, the following discussion does not address the tax
consequences of the merger under foreign, state or local tax laws or the tax
consequences of transactions effectuated prior or subsequent to or concurrently
with the merger (whether or not such transactions are in connection with the
merger), including, without limitation, transactions in which shares of Kuhlman
common stock are acquired or shares of Borg-Warner Automotive common stock are
disposed of. ACCORDINGLY, KUHLMAN STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
35
<PAGE> 50
MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF THE MERGER IN THEIR PARTICULAR CIRCUMSTANCES.
The merger will be a taxable exchange. Kuhlman stockholders will recognize
gain equal to the excess, if any, of (1) the sum of the fair market value of the
shares of Borg-Warner Automotive common stock and any cash received in the
merger over (2) the stockholder's basis in the shares of Kuhlman common stock
exchanged therefor. However, if a Kuhlman stockholder's basis in such
stockholder's Kuhlman common shares exchanged in the merger exceeds the sum of
the fair market value of the shares of Borg-Warner Automotive common stock and
any cash received in the merger, then the Kuhlman stockholder will recognize a
loss equal to such excess. Such gain or loss will be capital if the shares were
held as capital assets and long-term if the shares have been held for more than
12 months.
The tax basis of the shares of Borg-Warner Automotive common stock received
by a Kuhlman stockholder in the merger will be the fair market value of such
shares on the closing date of the merger.
No ruling has been or will be obtained from the Internal Revenue Service in
connection with the merger.
ACCOUNTING TREATMENT
The merger will be treated as a "purchase," and, as such, the purchase
price will be allocated to Kuhlman's assets and liabilities based on their
estimated fair market values at the date of acquisition, and any excess of the
purchase price over such fair market values will be accounted for as goodwill.
REGULATORY APPROVALS
HSR Act and Antitrust. As a condition to the merger and under federal law,
Borg-Warner Automotive and Kuhlman must observe the notification and waiting
period requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder (the "HSR
Act"). The HSR Act provides for an initial 30-calendar-day waiting period
following the filing with the U.S. Federal Trade Commission and the U.S.
Department of Justice of certain Notification and Report Forms by the parties to
the merger.
On December 23, 1998, Borg-Warner Automotive and Kuhlman filed the
Notification and Report Forms with the Department of Justice and the Federal
Trade Commission for review in connection with the merger. The applicable
waiting period is scheduled to expire at 11:59 p.m. on January 22, 1999 unless
extended by the issuance of a request for additional information or other
documentary materials. At any time before or after the Effective Time, the
Federal Trade Commission, the Department of Justice or others could take action
under the antitrust laws with respect to the merger, including seeking to enjoin
the consummation of the merger or seeking the divestiture by Borg-Warner
Automotive of all or part of the shares or assets of Kuhlman or of other
business conducted by Borg-Warner Automotive or seeking to subject Borg-Warner
Automotive or Kuhlman to certain operating conditions, before or after the
merger is completed. There can be no assurance that a challenge to the merger
will not be made or that, if such a challenge is made, Borg-Warner Automotive
will prevail.
In addition, under the laws of certain foreign nations, the merger may not
be consummated unless certain filings are made with such nations' antitrust
regulatory
36
<PAGE> 51
authorities and such authorities approve or clear the merger. The foreign
approvals or clearances that will be required include a pre-merger notification
filing with the German Federal Cartel Office under the laws of the Federal
Republic of Germany. In addition, we will contact the Belgian Competition
Service, the Competition Council in France and the Office of Fair Trading in the
United Kingdom to establish whether a pre-merger notification will be required
or is advisable in those countries.
Kuhlman and Borg-Warner Automotive expect that the merger will not violate
any antitrust laws and that all the antitrust regulatory authorities whose
approval or clearance is required will approve or clear the merger, but there
can be no assurance that such approvals or clearances will be received.
Injunctions. The obligations of Borg-Warner Automotive and Kuhlman to
complete the merger are subject to the condition that there be no temporary
restraining order, preliminary or permanent injunction or other order issued by
any court or governmental or regulatory authority of competent jurisdiction
prohibiting completion of the merger.
LISTING OF THE SHARES OF BORG-WARNER AUTOMOTIVE COMMON STOCK ON THE NYSE
In the merger agreement, Borg-Warner Automotive has agreed to use
reasonable best efforts to cause the shares of Borg-Warner Automotive common
stock that are to be issued pursuant to the merger agreement to be listed for
trading on the NYSE. Such authorization for listing is a condition to the
obligations of Borg-Warner Automotive, Merger Sub and Kuhlman to complete the
merger.
MERGER FINANCING
The total amount of cash, borrowings and equity required to complete the
transactions contemplated by the merger agreement, including payment of cash and
shares of Borg-Warner Automotive common stock to Kuhlman stockholders in the
merger, refinancing of existing indebtedness, payments in connection with the
settlement of stock options and certain long-term incentive agreements and
severance agreements, and transaction fees and expenses, is estimated to be
approximately $800 million. Borg-Warner Automotive will pay for the transactions
by issuing approximately $150 million worth of shares of Borg-Warner Automotive
common stock and borrowing approximately $650 million through a combination of
public debt and bank debt under an existing credit facility, which will be
amended prior to the closing of the merger.
The public debt will be issued under a debt registration statement that was
filed with the Securities and Exchange Commission (the "SEC") on November 6,
1998, but has not yet been declared effective. The debt registration statement
currently covers up to $300 million of securities; however, the Borg-Warner
Automotive Board authorized an increase in the amount of securities covered by
the debt registration statement to $400 million on December 17, 1998. Interest
on, and the maturity date of, the public debt will be determined by market
conditions on the date of issuance. Interest on the borrowings under the
existing credit facility will be determined by using a formula set forth in the
related credit agreement. The existing credit facility will mature on September
30, 2001.
RESALE OF THE SHARES OF BORG-WARNER AUTOMOTIVE COMMON STOCK ISSUED IN THE
MERGER; KUHLMAN AFFILIATES
Shares of Borg-Warner Automotive common stock to be issued to Kuhlman
stockholders in connection with the merger will be freely transferable under the
Securities
37
<PAGE> 52
Act of 1933, as amended, and the rules and regulations promulgated thereunder
(the "Securities Act"), except for shares of Borg-Warner Automotive common stock
issued to any person deemed to be an affiliate of Kuhlman for purposes of Rule
145 promulgated under the Securities Act at the time of the special meeting
("Kuhlman Affiliates"). Kuhlman Affiliates may not sell their shares of
Borg-Warner Automotive common stock acquired in connection with the merger
except pursuant to an effective registration statement under the Securities Act
covering such shares, or in compliance with Rule 145 or another applicable
exemption from the registration requirements of the Securities Act. Pursuant to
the merger agreement, Kuhlman has agreed that, no later than 10 days prior to
the closing date, it will deliver to Borg-Warner Automotive a letter identifying
all persons who, at the time of the special meeting, may be deemed to be Kuhlman
Affiliates.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Kuhlman Board with respect to the
merger, Kuhlman stockholders should be aware that certain members of Kuhlman's
management and of the Kuhlman Board have interests in the merger that may be
considered different from, or in addition to, the interests of the stockholders
of Kuhlman generally. The Kuhlman Board was aware of such interests and
considered them, among other matters, in approving the merger agreement and the
merger.
Change in Control Agreements. In February 1996, Kuhlman entered into
change in control agreements with its executives, Messrs. Jepson, Anderson,
Nagel and Walker, which agreements were amended in certain respects at the time
the Kuhlman Board approved the merger agreement. Under the change in control
agreements, each of the executives will be entitled to receive certain payments
and benefits following the merger, provided that the executive does not
voluntarily terminate employment with Kuhlman prior to the end of the first day
immediately following the Effective Time (for these purposes, a termination of
employment due to death or disability shall not constitute a voluntary
termination of employment). The payments and benefits are as follows:
- a cash payment equal to the sum of: (a) three times the executive's
current annual base salary (which base salary is $500,000 for Mr.
Jepson, $450,500 for Mr. Anderson, and $254,500 for each of Messrs.
Nagel and Walker), (b) three times the executive's highest annual cash
bonus of the past three years (which cash bonus amount is $700,000 for
Mr. Jepson, $550,000 for Mr. Anderson, and $250,000 for each of Messrs.
Nagel and Walker), and (c) an amount equal to any interest charged
pursuant to the terms of any loan to the executive from Kuhlman that is
made to cover the exercise price and tax obligations incurred by the
executive by exercising any option the executive is required to so
exercise in connection with the merger;
- an additional payment to cover any liability on the part of the
executive for income, employment and excise taxes (including taxes on
any "excess parachute payments") with respect to the cash payments
(which payment is expected to be approximately $9.5 million in total for
Messrs. Jepson, Anderson, Nagel and Walker); and
- continuation for three years of life, health, accidental death and
disability benefits under plans in which the executive was participating
at the time of the change in control. In addition, under the change in
control agreements: (1) it is a condition to receiving these benefits
that the executive exercise certain stock options after the date the
merger agreement was executed and on or before December 31, 1998;
38
<PAGE> 53
(2) Kuhlman has agreed to make a short-term recourse loan to the
executive in an amount equal to the exercise price and withholding
obligations for such options; (3) provided there is no attempt to amend
or terminate the change in control agreements after the Effective Time,
no cash payments shall be made to the executives pursuant to the change
in control agreements until the 91st day following the Effective Time
(other than any required gross-up payments with respect to any taxes that
are due or required to be withheld before such 91st day); and (4) funds
to cover the payments under the change in control agreements will be set
aside by Kuhlman in a "rabbi trust" to be created before the closing of
the merger and will be guaranteed by Borg-Warner Automotive. The
executives who are entitled to benefits under the change in control
agreements will not be entitled to any severance pay or severance
benefits under any plan, program, policy, arrangement or agreement other
than the change in control agreements, Kuhlman's automobile policy and
benefits under Kuhlman's Directors and Officers Health Incentive Plan.
Stock Options, Stock Appreciation Rights and Other Awards. All stock
options granted under Kuhlman's stock option plans that have not vested as of
the date the Kuhlman stockholders vote to approve the merger (none of which are
held by directors or executive officers of Kuhlman) will become vested upon such
approval. Pursuant to the merger agreement, all options that remain outstanding
as of the Effective Time will be canceled in exchange for a cash payment equal
to the excess (if any) of $39.00 per share over the exercise price of the
canceled option. In addition, pursuant to the merger agreement, all performance
unit awards under the 1996 Long-Term Incentive Plan that have met the relevant
performance goals (but have not met the relevant lapse of time, continued
service or other vesting requirements) before the Effective Time will be paid in
cash at the Effective Time. At the Effective Time, Messrs. Jepson and Anderson
will each receive $625,000, Mr. Dillon will receive $500,000 and Messrs. Nagel
and Walker will each receive $250,000, in each case in satisfaction of awards
previously achieved pursuant to the 1996 Long-Term Incentive Plan. All directors
and executive officers as a group will receive cash payments in the aggregate
amount of $2.5 million under such plan. Any outstanding stock appreciation
rights granted under the 1994 Stock Appreciation Rights Plan will be
automatically exercised for cash upon stockholder approval of the merger.
Messrs. Jepson and Anderson each hold stock appreciation rights with respect to
35,000 shares of Kuhlman common stock, Messrs. Nagel and Walker each hold stock
appreciation rights with respect to 20,000 shares of Kuhlman common stock, and
all directors and executive officers as a group hold stock appreciation rights
with respect to a total of 110,000 shares of Kuhlman common stock. Each of such
stock appreciation rights has a grant price of $13.88 per share.
Real Estate Letter Agreement. As an inducement for Borg-Warner Automotive
to enter into the merger agreement, Borg-Warner Automotive, Merger Sub, Kuhlman
and Jepson Associates, Inc., a company controlled by Mr. Jepson, entered into a
Real Estate Agreement under which the parties agreed to negotiate and enter into
an agreement for purchase and sale of Kuhlman's corporate headquarters, aircraft
hangar and related personal property located in Savannah, Georgia, for an
aggregate net cash purchase price of $1,957,000.
Directors' and Officers' Indemnification and Insurance. Pursuant to the
merger agreement, from and after the Effective Time, Borg-Warner Automotive will
cause the surviving corporation to indemnify and hold harmless the present and
former officers and directors of Kuhlman in respect of acts or omissions
occurring prior to the Effective Time
39
<PAGE> 54
to the extent provided under the Kuhlman Certificate of Incorporation (the
"Kuhlman Charter") or the Kuhlman by-laws. In addition, Borg-Warner Automotive
will, to the extent not obtained by Kuhlman prior to the Effective Time, use its
best efforts to cause the surviving corporation or Borg-Warner Automotive to
obtain and maintain for a period of six years after the Effective Time policies
of directors' and officers' liability insurance with respect to acts or
omissions occurring prior to the Effective Time, comparable to those currently
maintained by Kuhlman. See also "The Merger Agreement -- Covenants."
Employee Benefits. Borg-Warner Automotive has agreed, for a period of six
months after the Effective Time, to provide, or to cause the surviving
corporation to provide, generally to the officers and employees of the surviving
corporation and its subsidiaries health and welfare benefits on terms and
conditions in the aggregate that are no less favorable as those provided under
Kuhlman's health and welfare plans as of the date of the merger agreement. See
also "The Merger Agreement -- Covenants."
DIVIDEND INVESTMENT PLAN
The Kuhlman Dividend Investment Plan will terminate upon the completion of
the merger. Shares that you hold under this plan will be treated the same as
other Kuhlman shares exchanged in the merger. We expect that Kuhlman
stockholders who become Borg-Warner Automotive stockholders will have the right
to participate in the Borg-Warner Automotive Dividend Reinvestment and Stock
Purchase Plan, which is similar to the Kuhlman Dividend Investment Plan.
40
<PAGE> 55
APPRAISAL RIGHTS OF KUHLMAN STOCKHOLDERS
Delaware law entitles the holders of record of shares of Kuhlman common
stock who follow the procedures specified in Section 262 of the DGCL to have
their shares appraised by the Delaware Court of Chancery and to receive the
"fair value" of such shares as of the Effective Time as determined by the court
in place of the Merger Consideration, except that such right to an appraisal may
not be available to holders who elect to receive cash in the merger or who elect
to receive stock in the merger and in fact receive stock (other than cash
received in lieu of fractional shares), even if some other holders who elect to
receive stock are required to accept some cash. Regardless of the ultimate
availability of appraisal rights, in order to exercise such rights, a
stockholder must demand and perfect the rights in accordance with Section 262 of
the DGCL. The following is a summary of Section 262 of the DGCL and is qualified
in its entirety by reference to Section 262 of the DGCL, a copy of which is
attached hereto as Appendix C. Stockholders should carefully review Section 262
of the DGCL as well as information discussed below to determine their rights to
appraisal.
If a stockholder of Kuhlman elects to exercise the right to an appraisal
under Section 262 of the DGCL, such stockholder must do ALL of the following:
(1) file with Kuhlman at its main office in Savannah, Georgia, a written
demand for appraisal of the shares of Kuhlman common stock held (which
demand must identify the stockholder and expressly request an
appraisal) before the vote is taken on the merger agreement at the
special meeting (this written demand for appraisal must be in addition
to and separate from any proxy or vote against the merger agreement;
neither voting against, abstaining from voting nor failing to vote on
the merger agreement will constitute a demand for appraisal within the
meaning of Section 262 of the DGCL);
(2) not vote in favor of the merger agreement (a failure to vote or
abstaining from voting will satisfy this requirement, but a vote in
favor of the merger agreement, by proxy or in person, or the return of
a signed proxy which does not specify a vote against approval and
adoption of the merger agreement, will constitute a waiver of such
stockholder's right of appraisal and will nullify any previously filed
written demand for appraisal); and
(3) continuously hold such shares through the Effective Time.
All written demands for appraisal should be addressed to: Richard A.
Walker, Secretary, Kuhlman Corporation, 3 Skidaway Village Square, Savannah,
Georgia 31411, before the vote is taken on the merger agreement at the special
meeting, and should be executed by, or on behalf of, the holder of record. Such
demand must reasonably inform Kuhlman of the identity of the stockholder and
that such stockholder is thereby demanding appraisal of such stockholder's
shares.
Within 10 days after the Effective Time, Borg-Warner Automotive will give
written notice of the Effective Time to each stockholder of Kuhlman who has
satisfied the requirements of Section 262 of the DGCL and has not voted for the
proposal to approve and adopt the merger agreement and the transactions
contemplated thereby (a "Dissenting Stockholder"). Within 120 days after the
Effective Time, Borg-Warner Automotive or any Dissenting Stockholder may file a
petition in the court demanding a determination of the fair value of the shares
of Kuhlman common stock of all Dissenting Stockholders. Any Dissenting
Stockholder desiring the filing of such petition is advised to file such
petition on
41
<PAGE> 56
a timely basis unless such Dissenting Stockholder receives notice that such a
petition has been filed by Borg-Warner Automotive or another Dissenting
Stockholder.
If a petition for appraisal is timely filed, the court will determine which
stockholders are entitled to appraisal rights and thereafter will determine the
fair value of the shares of Kuhlman common stock held by Dissenting
Stockholders, exclusive of any element of value arising from the accomplishment
or expectation of the merger, but together with a fair rate of interest, if any,
to be paid on the amount determined to be fair value. In determining such fair
value, the court shall take into account all relevant factors. The court may
determine such fair value to be more than, less than or equal to the
consideration that such Dissenting Stockholder would otherwise be entitled to
receive pursuant to the merger agreement. If a petition for appraisal is not
timely filed, then the right to an appraisal shall cease. The costs of the
appraisal proceeding shall be determined by the court and taxed against the
parties as the court determines to be equitable under the circumstances. Upon
the application of any stockholder, the court may determine the amount of
interest, if any, to be paid upon the value of the stock of stockholders
entitled thereto. Upon application of a stockholder, the court may order all or
a portion of the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorneys' fees
and the fees and expenses of experts, to be charged pro rata against the value
of all shares entitled to appraisal.
From and after the Effective Time, no Dissenting Stockholder shall have any
rights of a Kuhlman stockholder with respect to such holder's shares for any
purpose, except to receive payment of its fair value and to receive payment of
dividends or other distributions on such holder's shares, if any, payable to
Kuhlman stockholders of record as of a date prior to the Effective Time. If a
Dissenting Stockholder delivers to Borg-Warner Automotive a written withdrawal
of the demand for an appraisal within 60 days after the Effective Time or
thereafter with the written approval of Borg-Warner Automotive, or if no
petition for appraisal is filed within 120 days after the Effective Time, then
the right of such Dissenting Stockholder to an appraisal will cease and such
Dissenting Stockholder will be entitled to receive only the Merger
Consideration.
Because Section 262 of the DGCL entitles stockholders to appraisal rights
only if they are required by the terms of the merger agreement to accept for
their shares of Kuhlman common stock consideration other than shares of
Borg-Warner Automotive common stock (or cash in lieu of fractional shares,
Borg-Warner Automotive reserves the right to take the position in connection
with any demand for appraisal or in any appraisal proceeding that appraisal
rights are not available to any stockholder who elects to receive stock in the
merger and receives such stock (other than cash received in lieu of fractional
shares) or who elects to receive cash and receives either cash or stock.
42
<PAGE> 57
THE MERGER AGREEMENT
The description of the merger agreement set forth below does not purport to
be complete and is qualified in its entirety by reference to the merger
agreement, a copy of which is attached as Appendix A to this proxy
statement/prospectus and incorporated herein by reference.
GENERAL
The merger agreement provides that Merger Sub will merge with and into
Kuhlman, with Kuhlman surviving the merger as a wholly owned subsidiary of
Borg-Warner Automotive. The merger will become effective in accordance with the
certificate of merger to be filed with the Secretary of State of the State of
Delaware. We expect that such filing will be made on the date on which the
closing of the merger takes place, which closing, in turn, should occur as soon
as practicable (but in any event within 10 business days) following the date
upon which all conditions precedent to the merger set forth in the merger
agreement have been satisfied or waived.
CONVERSION OF SHARES OF KUHLMAN COMMON STOCK
The merger agreement provides that, at the Effective Time, each issued and
outstanding share of Kuhlman common stock, including the preferred stock
purchase rights associated with such common stock (other than shares held in the
treasury of Kuhlman and shares held by stockholders who have not voted in favor
of the merger and have properly demanded dissenters' rights), will be converted
into the right to receive either (1) $39.00 in cash, without interest, or (2)
$39.00 worth of shares of Borg-Warner Automotive common stock. In determining
the number of shares of Borg-Warner Automotive common stock to be received by
Kuhlman stockholders for each of their shares of Kuhlman common stock, the
shares will be valued at the average of the daily high and low sales prices of
shares of Borg-Warner Automotive common stock on the NYSE during the 20
consecutive trading days immediately preceding the third trading date prior to
the closing date. A proration process will ensure that approximately 78% of the
Kuhlman shares are converted to cash, with the remaining 22% being converted
into shares of Borg-Warner Automotive common stock.
As of the Effective Time, no shares of Kuhlman common stock will be
outstanding; they will all be automatically canceled and retired. Each holder of
a certificate representing shares of Kuhlman common stock (a "Certificate") will
cease to have any rights with respect thereto, except the right to receive
either (1) upon surrender of such Certificate, in accordance with the procedures
set forth herein, $39.00 worth of shares of Borg-Warner Automotive common stock,
$39.00 in cash, without interest, or, as a result of the proration process, a
combination of cash and shares of Borg-Warner Automotive common stock, or (2)
with respect to shares of Kuhlman common stock held by stockholders who have not
voted in favor of the merger and have properly demanded dissenters' rights
("Dissenters' Shares"), such rights as are granted by applicable law.
Election Generally. Each record holder (or beneficial owner through
appropriate and customary documentation and instructions) immediately prior to
the Effective Time of shares of Kuhlman common stock will be entitled (1) to
elect to receive the $39.00 in cash, without interest, for each such share of
Kuhlman common stock (a "Cash Election"), (2) to elect to receive the $39.00
worth of shares of Borg-Warner Automotive common stock for each such share of
Kuhlman common stock (a "Stock Election"), or (3) to indicate that such record
holder has no preference as to the receipt of cash or
43
<PAGE> 58
shares of Borg-Warner Automotive common stock (a "Non-Election," and any Cash
Election, Stock Election or Non-Election, an "Election"). Mixed elections will
not be permitted. All Elections must be made on the form of election furnished
with this proxy statement/prospectus (or a facsimile of such form). If more than
one Certificate is surrendered for the account of the same holder, the number of
shares of Borg-Warner Automotive common stock, if any, to be issued to such
holder in exchange for the Certificates which have been surrendered will be
computed on the basis of the aggregate number of shares of Kuhlman common stock
represented by all of the Certificates surrendered for the account of such
holder. Holders of record of shares of Kuhlman common stock who hold such shares
as nominees, trustees or in other representative capacities (each, a
"Representative") may submit multiple forms of election, provided that such
Representative certifies that each such form of election covers all shares held
by such Representative for a particular beneficial owner.
Limitations. The aggregate number of shares of Kuhlman common stock that
will be converted into the right to receive the $39.00 worth of shares of
Borg-Warner Automotive common stock in the merger is 3,846,154. This represents
approximately 22% of the shares of Kuhlman common stock outstanding. All
remaining shares of Kuhlman common stock (other than shares as to which
dissenters' rights are perfected) will be converted into cash.
Cash Oversubscription. If the aggregate number of shares of Kuhlman common
stock with respect to which Cash Elections have been made exceeds the aggregate
number of shares which may be converted into the right to receive $39.00 in
cash, then:
- each share with respect to which a Stock Election was made will be
converted into the right to receive $39.00 worth of shares of
Borg-Warner Automotive common stock;
- the Exchange Agent first will select by a random selection process from
among the shares with respect to which a Non-Election was made (or
deemed to have been made), then (if necessary) will select pro rata from
among the shares that are held by stockholders who made a Cash Election
and beneficially owns at least 1,000 shares, and then (if necessary)
will select pro rata from among the shares that are held by stockholders
who made a Cash Election and beneficially own fewer than 1,000 shares;
the Exchange Agent will select a sufficient number of such shares
("Stock Designated Shares") such that, when the number of Stock
Designated Shares is added to the number of shares with respect to which
a Stock Election was made, the total will equal as closely as
practicable 3,846,154; each Stock Designated Share will be converted
into the right to receive $39.00 worth of shares of Borg-Warner
Automotive common stock; and
- each share with respect to which a Cash Election was made (subject to
the provisions of the merger agreement with respect to any Dissenters'
Shares) and each share with respect to which a Non-Election was made
that are not Stock Designated Shares will be converted into the right to
receive $39.00 in cash, without interest.
Stock Oversubscription. If the aggregate number of shares of Kuhlman
common stock with respect to which Stock Elections have been made exceeds
3,846,154 (the aggregate number of shares that may be converted into the right
to receive $39.00 worth of shares of Borg-Warner Automotive common stock), then:
- the Exchange Agent first will select pro rata from among the shares of
Kuhlman common stock that are held by stockholders who made a Stock
Election and
44
<PAGE> 59
beneficially own fewer than 1,000 shares and then (if necessary) will
select pro rata from among the shares of Kuhlman common stock that are
held by stockholders who made a Stock Election and beneficially own at
least 1,000 shares; the Exchange Agent will select a sufficient number of
such shares ("Cash Designated Shares") such that, when the number of Cash
Designated Shares is subtracted from the number of shares with respect to
which a Stock Election was made, the difference will equal as closely as
practicable 3,846,154; each remaining share of Kuhlman common stock with
respect to which a Stock Election was made will be converted into the
right to receive $39.00 worth of shares of Borg-Warner Automotive common
stock; and
- each share of Kuhlman common stock with respect to which a Cash Election
was made, each share with respect to which a Non-Election was made, and
the Cash Designated Shares will be converted into the right to receive
$39.00 in cash, without interest.
No Fractional Shares. No certificates for fractional shares of Borg-Warner
Automotive common stock will be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any other rights of a stockholder of Borg-Warner
Automotive. Each holder of shares of Kuhlman common stock exchanged pursuant to
the merger who would otherwise have been entitled to receive a fraction of a
share of Borg-Warner Automotive common stock (after taking into account all
Certificates delivered by such holder) will receive, instead, cash (without
interest) in an amount equal to the value of such fractional interest.
Adjustment to Per Share Borg-Warner Automotive Stock Amount. In the event
that prior to the Effective Time Borg-Warner Automotive declares a stock
dividend or other distribution payable in Borg-Warner Automotive common stock,
or effects a stock split, reclassification, combination or other change with
respect to shares of Borg-Warner Automotive common stock, the calculation of the
number of shares of Borg-Warner common stock to be received in the merger will
be adjusted to reflect such dividend, distribution, stock split,
reclassification, combination or other change.
Election Procedure; Exchange of Certificates. A green form of election is
included in this mailing. Elections may be made by holders of Kuhlman common
stock by delivering the form of election to Harris Trust and Savings Bank (the
"Exchange Agent"). To be effective, a form of election must be properly
completed and received in the return envelope mailed with the form of election
by the Exchange Agent by no later than 5:00 p.m., Eastern Time, on February 26,
1999 (the "Election Deadline"), and accompanied by (1)(a) the Certificates as to
which the Election is being made or (b) an appropriate guarantee of delivery of
such Certificates as set forth in such form of election from a firm that is a
member of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., or a commercial bank or trust company
having an office or correspondent in the United States, provided that such
Certificates are in fact delivered to the Exchange Agent within three trading
days after the date of execution of such guarantee of delivery, and (2) a
properly completed and signed letter of transmittal. Failure to deliver
Certificates covered by any guarantee of delivery within three trading days
after the date of execution of such guarantee of delivery will be deemed to
invalidate any otherwise properly made Cash Election or Stock Election.
Borg-Warner Automotive has the discretion, which it may delegate in whole or in
part to the Exchange Agent, to determine whether the form of election has been
properly completed, signed and submitted or revoked and to disregard immaterial
defects in the form of election. The good
45
<PAGE> 60
faith decision of Borg-Warner Automotive (or, if so delegated, the Exchange
Agent) in such matters will be conclusive and binding. Neither Borg-Warner
Automotive nor the Exchange Agent is under any obligation to notify any person
of any defect in a form of election submitted to the Exchange Agent. The
Exchange Agent will also make all computations contemplated by the merger
agreement, and all such computations will be conclusive and binding on the
holders of Kuhlman common stock in the absence of manifest error. Any form of
election may be changed or revoked prior to the Election Deadline. In the event
a form of election is revoked prior to the Election Deadline, Borg-Warner
Automotive will cause, or will cause the Exchange Agent to cause, the
Certificates covered by such form of election to be returned promptly without
charge to the person submitting the form of election upon written request to
that effect from such person.
A Kuhlman stockholder who does not submit a form of election to the
Exchange Agent prior to the Election Deadline (including a holder who submits
and then revokes such stockholder's form of election and does not re-submit a
form of election which is timely received by the Exchange Agent), or who submits
a form of election without the corresponding Certificates or a guarantee of
delivery, will be deemed to have made a Non-Election. If any form of election is
defective in any manner such that the Exchange Agent cannot reasonably determine
the election preference of the Kuhlman stockholder submitting such form of
election, the purported Cash Election or Stock Election set forth therein will
be deemed to be of no force and effect and the Kuhlman stockholder making such
purported Cash Election or Stock Election will be deemed to have made a
Non-Election.
If Kuhlman and Borg-Warner Automotive do not expect to consummate the
merger within a week after the Kuhlman special meeting of stockholders, they
will extend the Election Deadline and publicly announce the extension. In any
event, Kuhlman and Borg-Warner Automotive intend to mail, approximately 10 days
prior to the ultimate deadline for making Elections, forms of election to
persons who have become Kuhlman stockholders following the Record Date. Forms of
election are also available from Georgeson & Company Inc. upon request.
Rights Pertaining to Shares of Kuhlman Common Stock. All cash and shares
of Borg-Warner Automotive common stock issued upon the surrender for exchange of
Certificates in accordance with the terms of the merger agreement will be deemed
to have been issued in full satisfaction of all rights pertaining to such
shares, and from and after the Effective Time there will be no further
registration of transfers of shares that were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are presented to
the surviving corporation for any reason, they will be canceled and exchanged.
Dissenters' Shares. Holders of Dissenters' Shares will not be entitled to
receive the Merger Consideration otherwise applicable thereto. Such stockholders
will be entitled to receive the amounts determined in accordance with the
provisions of Section 262 of the DGCL. If, after the Effective Time, any such
holder fails to perfect or effectively withdraws or loses such rights, such
Dissenters' Shares will then be deemed to have been converted into and to have
become exchangeable for, as of the Effective Time, the right to receive, without
any interest thereon, $39.00 in cash. Kuhlman will give Borg-Warner Automotive
prompt notice of any demands for payment in accordance with Section 262 of the
DGCL for shares of Kuhlman common stock, and Borg-Warner Automotive will have
46
<PAGE> 61
the right to direct all proceedings, negotiations and actions taken by Kuhlman
in connection with the exercise of appraisal rights.
Stock Options. Prior to the Effective Time, the Kuhlman Board will adopt
appropriate resolutions and take all other actions necessary (including
obtaining the consent of holders) to provide for the cancellation, effective at
the Effective Time, of all stock options outstanding immediately prior to the
Effective Time. Each such option will be converted into the right to receive a
payment, if any, in cash from the surviving corporation (less any applicable
withholding taxes), promptly following the Effective Time, equal to the product
of (1) the total number of shares of Kuhlman common stock subject to such option
(whether vested or unvested) and (2) the excess, if any, of $39.00 over the
exercise price per share of shares subject to such option.
Stock Appreciation Rights. Prior to the Effective Time, the Kuhlman Board
will adopt appropriate resolutions and take all other actions necessary
(including obtaining the consent of holders) to provide for the cancellation,
effective at the Effective Time, of all the stock appreciation rights (the
"SARs") outstanding immediately prior to the Effective Time. Each such SAR will
be converted into the right to receive a payment, if any, in cash from Kuhlman
(less any applicable withholding taxes), immediately prior to the Effective
Time, equal to the excess, if any, of $39.00 over the price of shares Kuhlman
common stock on the date of grant of such SAR.
Awards under Long-Term Incentive Plan. Prior to the Effective Time, the
Kuhlman Board will adopt appropriate resolutions and take all other actions
necessary (including obtaining the consent of holders) to provide, with respect
to all currently outstanding Awards (as defined in the Kuhlman Long-Term
Incentive Plan dated August 8, 1996, as amended January 1, 1998 and November 20,
1998) (other than options) granted prior to the Effective Time, that (1) each
such Award provided for in the merger agreement will be canceled, immediately
prior to the Effective Time, and will entitle the holder thereof to the
immediate payment of the amount of cash provided for in the merger agreement,
and (2) all other such Awards will be canceled immediately prior to the
Effective Time without any further payment.
Other. No dividends or other distributions declared or made after the
Effective Time with respect to shares of Borg-Warner Automotive common stock
with a record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Borg-Warner Automotive
common stock to which such holder is entitled in the merger and no cash payment
will be paid to any such holder until the holder of record of such Certificate
surrenders such Certificate. Subject to the effect of applicable laws, following
surrender of any such Certificate, the record holder will receive (1) at the
time of such surrender, a certificate representing the number of whole shares
and the amount of any cash to which such holder is entitled and the amount of
dividends or other distributions with respect to such whole shares with a record
date after the Effective Time and a payment date prior to their date of
issuance, less the amount of any withholding taxes that may be required thereon,
and (2) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to surrender
and a payment date subsequent to surrender payable with respect to such whole
shares less the amount of any withholding taxes that may be required thereon.
If any Certificate is lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed and, if required by Borg-Warner Automotive, the posting by
such person of a bond in such reasonable amount as Borg-Warner Automotive may
direct as indemnity against any claim that may
47
<PAGE> 62
be made against it with respect to such Certificate, the Exchange Agent will
deliver in exchange for such lost, stolen or destroyed Certificate, a
certificate representing the proper number of shares of Borg-Warner Automotive
common stock, or any cash to which such person is entitled.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various representations and warranties of the
parties thereto customary for agreements of such type, including representations
and warranties as follows:
by Kuhlman as to:
- organization and standing and power;
- the absence of undisclosed material litigation;
- taxes;
- employee benefit plans, labor matters and options;
- opinion of financial advisor;
- intellectual property;
- the information provided by Kuhlman for inclusion in this proxy
statement/prospectus and the registration statement pertaining to the
shares of Borg-Warner Automotive common stock to be issued in connection
with the merger;
- authority and no conflicts as to the merger agreement;
- capital structure;
- reports and financial statements;
- absence of certain changes or events;
- material contracts and agreements;
- compliance with applicable laws and regulatory matters;
- properties;
- assets;
- environmental matters;
- Section 203 of the DGCL, relating to the stockholder vote required in
certain mergers;
and by Borg-Warner Automotive and Merger Sub as to:
- organization, standing and power;
- absence of certain changes or events;
- reports and financial statements;
- the information provided by Borg-Warner Automotive for inclusion in this
proxy statement/prospectus and the registration statement pertaining to
shares of Borg-Warner Automotive common stock to be issued in connection
with the merger;
- authorization and execution of the merger agreement;
- shares of Borg-Warner Automotive common stock;
- no conflicts as to the merger agreement;
- the absence of undisclosed material litigation;
- environmental matters.
The representations and warranties made by the parties to the merger
agreement will not survive the Effective Time, but they form the basis of a
condition of the obligations of Borg-Warner Automotive and Merger Sub, on the
one hand, and Kuhlman, on the other hand, to complete the merger.
48
<PAGE> 63
COVENANTS
Mutual Covenants. Pursuant to the merger agreement, each of Borg-Warner
Automotive, Kuhlman and Merger Sub has agreed, among other things, that:
- Each of Borg-Warner Automotive and Kuhlman will make or cause to be made
the filings required of such party or any of its subsidiaries or
affiliates under the HSR Act with respect to the transactions
contemplated by the merger agreement as promptly as practicable and
otherwise cooperate with respect to other HSR Act matters.
- Each of Borg-Warner Automotive and Kuhlman will use its reasonable best
efforts to resolve any objections asserted by any governmental authority
with respect to the merger under any antitrust law. Neither party will
independently participate in any meeting with any governmental authority
which involves any filings made in connection with the merger without
giving the other party prior notice. Notwithstanding the foregoing or
any other provision of the merger agreement, nothing described in the
merger agreement will limit a party's right to terminate the merger
agreement pursuant to its terms, so long as such party has complied in
all material respects with its obligations described in this paragraph.
- Each of the parties agrees to use its reasonable best efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the
most expeditious manner practicable, the merger and the other
transactions contemplated by the merger agreement.
- Notwithstanding anything to the contrary in the merger agreement, (1)
neither Borg-Warner Automotive nor any of its subsidiaries shall be
required to hold separate (including by trust or otherwise), or to
divest, any of their respective businesses or assets, or to take or agree
to take any action or agree to any limitation that would reasonably be
expected to have a Material Adverse Effect on either Borg-Warner
Automotive or Kuhlman or a material adverse effect on the assets,
liabilities, results of operations or financial condition of either
Borg-Warner Automotive or Kuhlman, (2) prior to the Effective Time,
neither Kuhlman nor its subsidiaries shall be required to hold separate
(including by trust or otherwise), or to divest, any of their respective
businesses or assets, or to take or agree to take any other action or
agree to any limitation that would reasonably be expected to have a
Material Adverse Effect on Kuhlman and its subsidiaries taken as a whole,
(3) Borg-Warner Automotive shall not be required to take any action that
would reasonably be expected to impair substantially the overall benefits
expected, as of the date of the merger agreement, to be realized from
consummation of the merger and (4) neither party shall be required to
waive any of the conditions to the merger set forth in the merger
agreement as they apply to such party.
- Unless otherwise required (as advised by counsel) by applicable laws or
requirements of the NYSE (and, in that event, only if time does not
permit), at all times prior to the earlier of the Effective Time or
termination of the merger agreement, Borg-Warner Automotive and Kuhlman
shall consult with each other before issuing any press release or similar
communication or making any public filing with the Securities and
Exchange Commission or other governmental authority with respect to the
merger and shall not issue any such press release or communication or
make such filing prior to such consultation.
49
<PAGE> 64
Borg-Warner Automotive and Kuhlman also acknowledged the need for a smooth
transition of ownership of the businesses of Kuhlman and its subsidiaries and
that contact with the customers or suppliers of Kuhlman or its subsidiaries
during the period from the date of the merger agreement to the Effective Time
may be desirable to ensure such a transition. From the date of the merger
agreement to the earlier of the Effective Time or the termination of the merger
agreement, Borg-Warner Automotive will not, without the prior written consent of
Kuhlman (which may be withheld or delayed in the sole discretion of Kuhlman),
contact customers or suppliers of Kuhlman or any of its subsidiaries. On a case
by case basis, Kuhlman will consider requests by Borg-Warner Automotive for
joint Borg-Warner Automotive and Kuhlman contacts with customers or suppliers of
Kuhlman or its subsidiaries, but Kuhlman will have no obligation to consent to
any such request. Notwithstanding the foregoing, Borg-Warner Automotive will be
entitled to contact its current and prospective customers to conduct its
business in the ordinary course.
Covenants of Borg-Warner Automotive. Borg-Warner Automotive has agreed in
the merger agreement:
- to use its reasonable best efforts to maintain and preserve its business
organization and to retain the services of its officers and key employees
and maintain relationships with customers, suppliers and other third
parties to the end that their goodwill and ongoing business shall not be
impaired in any material respect. Prior to the Effective Time,
Borg-Warner Automotive shall not (1) make any amendment to its
organizational documents that changes the fundamental attributes of the
Borg-Warner Automotive common stock, (2) make, declare or pay any
extraordinary cash dividend, other than extraordinary dividends between
Borg-Warner Automotive and a subsidiary of Borg-Warner Automotive, (3)
take any action that is material and adverse to the Kuhlman stockholders
as prospective stockholders of Borg-Warner Automotive and that affects
Kuhlman stockholders disproportionately as compared to the current
stockholders of Borg-Warner Automotive, or (4) take certain other
actions; and
- as promptly as practicable after the execution of the merger agreement,
to prepare and file with the NYSE a listing application covering the
shares of Borg-Warner Automotive common stock to be issued in connection
with the merger. Borg-Warner Automotive will use its reasonable best
efforts to cause such shares issuable pursuant to the merger to be
approved for listing on the NYSE, subject to official notice of issuance,
prior to the Effective Time.
From and after the Effective Time, Borg-Warner Automotive has agreed to
cause Kuhlman to indemnify and hold harmless the present and former officers and
directors of Kuhlman in respect of acts or omissions occurring prior to the
Effective Time to the extent provided under the Kuhlman Charter or the Kuhlman
by-laws, and, in any event, to the fullest extent permitted by law, and to the
extent not obtained by Kuhlman prior to the Effective Time, to use its best
efforts to cause Kuhlman or Borg-Warner Automotive to obtain and maintain in
effect for a period of six years after the Effective Time policies of directors'
and officers' liability (including fiduciary and crime) insurance at no cost to
the beneficiaries thereof with respect to acts or omissions occurring prior to
the Effective Time with substantially the same coverage and containing
substantially similar terms and conditions as existing policies, subject to
certain limitations set forth in the merger agreement.
Borg-Warner Automotive has agreed, for a period of six months after the
Effective Time, to provide, or to cause the surviving corporation to provide,
generally to the officers
50
<PAGE> 65
and employees of the surviving corporation and its subsidiaries health and
welfare benefits on terms and conditions in the aggregate that are no less
favorable as those provided under Kuhlman's health and welfare plans as of the
date of the merger agreement.
Covenants of Kuhlman. Kuhlman has agreed in the merger agreement:
- to recommend approval of the merger, the merger agreement and the
transactions contemplated thereby by the Kuhlman stockholders; and
- during the period from the date of the merger agreement and continuing
until the Effective Time or the termination of the merger agreement,
Kuhlman and its subsidiaries will carry on their respective businesses
in the ordinary course consistent with past practice, and will use
reasonable best efforts to maintain and preserve their relationships
with employees, customers and suppliers. In addition, Kuhlman has agreed
to certain customary restrictions for the conduct of its business with
regard to: (1) dividends and changes in share capital, (2) securities,
(3) organizational documents and funding, (4) investments and loans, (5)
compensation, (6) extraordinary transactions, (7) acquisitions and other
uses of funds, (8) asset sales, (9) line of business, (10) expenditures,
(11) affiliates, (12) claims, (13) mergers or consolidations, (14) tax
and accounting matters and (15) certain other actions.
No Solicitation. Pursuant to the merger agreement, Kuhlman has agreed
that, during the term of the merger agreement, it will not, and will not
authorize or permit any of its subsidiaries or any of its own or its
subsidiaries' directors, officers, employees, agents or representatives,
directly or indirectly, to solicit, initiate, encourage or knowingly facilitate,
or furnish or disclose non-public information in furtherance of, any inquiries
or the making of any proposal with respect to any recapitalization, merger,
consolidation or other business combination involving Kuhlman, or acquisition of
any capital stock (other than upon exercise of Kuhlman stock options that are
outstanding as of the date hereof) or all or any material portion of the assets
of Kuhlman and its subsidiaries, taken as a whole, in a single transaction or a
series of related transactions, or any combination of the foregoing (a
"Competing Transaction"), or negotiate, explore or otherwise engage in
discussions with any person (other than Borg-Warner Automotive, Merger Sub or
their respective directors, officers, employees, agents and representatives)
with respect to any Competing Transaction or enter into any agreement,
arrangement or understanding requiring it to abandon, terminate or fail to
consummate the merger or any other transactions contemplated by the merger
agreement; provided that, at any time prior to the approval of the merger by the
Kuhlman stockholders, notwithstanding any restriction contained in Kuhlman's
covenants, Kuhlman may furnish information to, and negotiate or otherwise engage
in discussions with, any party who delivers a written proposal for a Competing
Transaction that was not solicited, initiated, knowingly facilitated or
encouraged after the date of the merger agreement if and so long as the Kuhlman
Board determines in good faith, after consultation with and receipt of advice
from its outside counsel (who may be its regularly engaged outside counsel) that
the failure to take such action would likely constitute a breach of its
fiduciary duties under applicable law. Kuhlman agreed to immediately cease all
activities, discussions and negotiations that may have been taking place at the
time of the merger agreement with any parties conducted heretofore with respect
to any proposal for a Competing Transaction and request the return of all
confidential information regarding Kuhlman provided to any such parties prior to
the date of the merger agreement pursuant to the terms of any confidentiality
agreements or otherwise.
51
<PAGE> 66
In the event that prior to the approval of the merger by the Kuhlman
stockholders the Kuhlman Board receives a Superior Proposal that was not
solicited, initiated, knowingly facilitated or encouraged after the date of the
merger agreement, and the Kuhlman Board determines in good faith after
consultation with its outside counsel (who may be its regularly engaged outside
counsel) that the failure to take such action would likely constitute a breach
of its fiduciary duties under applicable law, the Kuhlman Board may (subject to
this and the following sentences) withdraw, modify or change, in a manner
adverse to Borg-Warner Automotive, its recommendation that the Kuhlman
stockholders approve the merger agreement and the transactions contemplated by
the merger agreement or recommend a Superior Proposal to the Kuhlman
stockholders or comply with Rule 14e-2 promulgated under the Securities Exchange
Act of 1934, as amended, with respect to a Competing Transaction. However, the
Kuhlman Board must give Borg-Warner Automotive five business days' prior written
notice of its intention to do so. Any such withdrawal, modification or change of
the Kuhlman Board's recommendation will not change the approval of the Kuhlman
Board for purposes of causing any state takeover statute or other state law to
be inapplicable to the merger.
From and after the execution of the merger agreement, Kuhlman will promptly
(but in any event within two calendar days) advise Borg-Warner Automotive in
writing of the receipt, directly or indirectly, of any inquiries, discussions,
negotiations, or proposals relating to a Competing Transaction (including the
specific terms thereof and the identity of the other party or parties involved)
and promptly furnish to Borg-Warner Automotive a copy of any such written
proposal in addition to any information provided to or by any third party
relating thereto. In addition, Kuhlman will promptly (but in any event within
two calendar days) advise Borg-Warner Automotive, in writing, if the Kuhlman
Board makes any determination as to any Competing Transaction as contemplated
above.
The term "Superior Proposal" means a Competing Transaction that the Kuhlman
Board determines, after consulting with and receipt of advice from
Robinson-Humphrey (or any other nationally recognized investment banking firm),
is more favorable to Kuhlman stockholders from a financial point of view than
the merger with Borg-Warner Automotive (including any adjustment to the terms
and conditions proposed by Borg-Warner Automotive in response to such Competing
Transaction), and that sufficient financing commitments have been obtained with
respect to such Competing Transaction that it reasonably expects a transaction
pursuant to such proposal could be consummated.
Access. Kuhlman has also agreed to permit representatives of Borg-Warner
Automotive to have appropriate access at all reasonable times to Kuhlman's
premises, properties, books, records, contracts and documents. Moreover, with
respect to environmental investigations, Borg-Warner Automotive will at all
reasonable times and in all reasonable respects (1) have access to Kuhlman's
facilities, (2) be entitled to interview Kuhlman's personnel, (3) be entitled to
interview any of Kuhlman's consultants hired in connection with any
environmental matters, (4) be entitled to review environmental documents
(including the results of any phase-one or phase-two environmental assessments),
and (5) be entitled to conduct phase-one environmental assessments at sites
where existing phase-one environmental assessments are not, in the reasonable
judgment of Borg-Warner Automotive, complete or timely. Borg-Warner Automotive
and Kuhlman agreed to use their reasonable best efforts to share information
that might otherwise be subject to attorney/client privilege in a manner that
would not waive any such privilege.
For the purposes of the merger agreement, "Material Adverse Effect" means,
when used with respect to Kuhlman or Borg-Warner Automotive, any change or
effect that is, or
52
<PAGE> 67
would reasonably be expected to be, materially adverse to the business, assets,
condition (financial or otherwise) or results of operations of Kuhlman and its
subsidiaries, taken as a whole, or Borg-Warner Automotive and its subsidiaries,
taken as a whole, as the case may be. In determining whether a Material Adverse
Effect has occurred such determination shall be made on an after-tax basis and
in addition, an item of loss, expense or liability shall be disregarded to the
extent:
- of the aggregate reserve for the category of such item established in
the financial statements of Kuhlman most recently filed with the SEC
prior to the date of the merger agreement,
- such item is covered by insurance or any other third-party
indemnification, contribution or reimbursement obligation and the
insurance carrier or third party, as the case may be, has acknowledged
the coverage or indemnification, contribution or reimbursement
obligation, as the case may be,
- disclosure of such item has been made in Kuhlman's SEC filings filed
prior to the date of the merger agreement,
- disclosure of such item has been made in Kuhlman's disclosure schedule
to the merger agreement, or
- such item represents professional and advisory fees and similar expenses
incurred in connection with the merger provided such amounts are less
than $2 million in the aggregate.
CONDITIONS
Mutual Conditions. The obligations of Kuhlman, Borg-Warner Automotive and
Merger Sub to consummate the merger are subject to the satisfaction of the
following conditions:
- The merger agreement and the transactions contemplated by the merger
agreement shall have been approved and adopted by the Kuhlman
stockholders in the manner required by any applicable law.
- Any applicable waiting periods under the HSR Act or similar foreign laws
relating to the merger agreement shall have expired or been terminated
and any other required approvals of any governmental authority shall
have been obtained.
- No provision of any applicable law or regulation and no judgment,
injunction, order or decree prohibits or enjoins the consummation of the
merger or the transactions contemplated by the merger agreement or
limits the ownership or operation by Borg-Warner Automotive, Kuhlman or
any of their respective subsidiaries of any material portion of the
business or assets of Borg-Warner Automotive or Kuhlman.
- No action instituted by any governmental authority is pending
challenging or seeking to restrain or prohibit the consummation of the
merger or any of the other transactions contemplated by the merger
agreement.
- The SEC shall have declared the registration statement pertaining to
shares of Borg-Warner Automotive common stock to be issued in connection
with the merger effective under the Securities Act, and no stop order or
similar restraining order suspending the effectiveness of such
registration statement shall be in effect
53
<PAGE> 68
and no proceedings for such purpose shall be pending before or threatened
by the SEC or any state securities administrator.
- The shares of Borg-Warner Automotive common stock to be issued in the
merger shall have been approved for listing on the NYSE, subject to
official notice of issuance.
Conditions to Obligations of Kuhlman. The obligations of Kuhlman to
consummate the merger and the transactions contemplated by the merger agreement
are subject to the satisfaction of, or waiver by Kuhlman of, the following
conditions:
- Each of the representations and warranties of each of Borg-Warner
Automotive and Merger Sub set forth in the merger agreement shall be
true and correct in all respects (but without regard to any materiality
qualifications or references to "Material Adverse Effect" contained in
any specific representation or warranty) on the date of the merger
agreement, and on and as of the closing date of the merger as though
made on and as of the closing date (except for representations and
warranties made as of a specified date, the accuracy of which will be
determined as of the specified date), except where any such failure of
the representations and warranties in the aggregate to be true and
correct in all respects would not reasonably be expected to have a
Material Adverse Effect on Borg-Warner Automotive.
- Each of Borg-Warner Automotive and Merger Sub shall have performed in
all material respects all obligations and agreements and shall have
complied in all material respects with all covenants to be performed and
complied with by it hereunder at or prior to the Effective Time.
- Each of Borg-Warner Automotive and Merger Sub shall have furnished
Kuhlman with a certificate dated the closing date signed on behalf of it
by the Chief Executive Officer or Treasurer to the effect that certain
conditions set forth in the merger agreement have been satisfied.
Conditions to Obligations of Borg-Warner Automotive and Merger Sub. The
obligations of Borg-Warner Automotive and Merger Sub to consummate the merger
and the transactions contemplated by the merger agreement are subject to the
satisfaction of, or waiver by Borg-Warner Automotive of, the following
conditions:
- Each of the representations and warranties of Kuhlman set forth in the
merger agreement (other than the representations and warranties of
Kuhlman regarding its capitalization) shall be true and correct in all
respects (but without regard to any materiality qualifications or
references to "Material Adverse Effect" contained in any specific
representation or warranty) on the date of the merger agreement and on
and as of the closing date of the merger as though made on and as of the
closing date (except for representations and warranties made as of a
specified date, the accuracy of which will be determined as of the
specified date), except when any such failure of the representations and
warranties in the aggregate to be true and correct in all respects would
not reasonably be expected to have a Material Adverse Effect on Kuhlman.
- The representations and warranties of Kuhlman regarding its
capitalization shall be true and correct in all respects on the date of
the merger agreement and on and as of the closing date of the merger as
though made on and as of the closing date
54
<PAGE> 69
(except for representations and warranties made as of a specified date,
the accuracy of which will be determined as of the specified date).
- The representations and warranties of Kuhlman regarding environmental
compliance shall be true and correct in all respects (but without regard
to any materiality qualifications or references to "Material Adverse
Effect" contained in any specific representation or warranty) on the date
of the merger agreement and on and as of the closing date of the merger
as though made on and as of the closing date, except when such failure of
the representations and warranties in the aggregate to be true and
correct in all respects would not, in the reasonable judgment of Borg-
Warner Automotive, result in cost, expense or liability exceeding
Kuhlman's and its subsidiaries' aggregate amount of reserves for
environmental matters by more than $10 million on an after-tax basis. In
determining Kuhlman's environmental liability, an item of cost, expense
or liability shall be disregarded to the extent that such item is covered
by (1) existing insurance when the insurance carrier has acknowledged the
coverage or (2) environmental insurance purchased by Kuhlman from an
insurance carrier reasonably acceptable to Borg-Warner Automotive after
the date of the merger agreement and prior to the Effective Time. If
Kuhlman purchases such coverage prior to the Effective Time, it will not
spend more than $2 million in premiums, and such premiums will be
included in any determination of Kuhlman's environmental liabilities
pursuant to this condition. Borg-Warner Automotive's determination of
Kuhlman's environmental liability will be substantially consistent with
the written assessment of an independent consulting firm to be mutually
selected from the following: Dames and Moore, Karemida Environmental or
Montgomery Watson.
- Kuhlman shall have performed in all material respects all obligations
and agreements and shall have complied in all material respects with all
covenants to be performed and complied with by it hereunder at or prior
to the Effective Time.
- The agreement for purchase and sale of Kuhlman's corporate headquarters,
aircraft hangar and related personal property located in Savannah,
Georgia (the "Real Estate Agreement"), which is described in "The
Merger -- Interests of Certain Persons in the Merger" shall have been
entered into, the closing under the Real Estate Agreement shall have
occurred, and Kuhlman shall have received final payment of the $1,957,000
cash purchase price pursuant to the terms of the Real Estate Agreement.
- Kuhlman shall have furnished Borg-Warner Automotive with a certificate
dated the closing date signed on its behalf by its Chairman and Chief
Executive Officer, President or Chief Financial Officer to the effect
that certain conditions set forth in the merger agreement have been
satisfied.
TERMINATION
The merger agreement may be terminated and the merger may be abandoned at
any time prior to the Effective Time (notwithstanding any approval of the merger
agreement by Kuhlman's stockholders):
- by mutual written consent of Borg-Warner Automotive and Kuhlman;
- by either Borg-Warner Automotive or Kuhlman if there shall be any law or
regulation that makes consummation of the merger illegal or otherwise
prohibited, or if a court or other competent governmental authority has
entered a judgment,
55
<PAGE> 70
injunction, order or decree (which has become final and non-appealable,
and which the parties shall have used all reasonable efforts to resist,
resolve or lift in accordance with the merger agreement) enjoining
Borg-Warner Automotive or Kuhlman from consummating the merger;
- by either Borg-Warner Automotive or Kuhlman if they shall not have
consummated the merger before the later of May 31, 1999, and 30 days
after the receipt of all required governmental approvals; however, such
termination right shall not be available to any party whose failure or
whose affiliate's failure to perform any material covenant or obligation
under the merger agreement has been the cause of or resulted in the
failure of the merger to occur on or before such date;
- by Borg-Warner Automotive if (1) the Kuhlman Board shall withdraw,
modify or change its recommendation to stockholders in a manner adverse
to Borg-Warner Automotive, (2) the Kuhlman Board approves or recommends
any Competing Transaction, or (3) Kuhlman shall have exercised its right
to furnish information to, and negotiate or conduct negotiations with, a
party in connection with a Superior Proposal pursuant to the merger
agreement and shall, directly or through its representatives, continue
discussions with any third party concerning a Superior Proposal for more
than 10 business days after the date of receipt of such Superior
Proposal;
- by Borg-Warner Automotive or Kuhlman if at the special meeting the
requisite vote of the Kuhlman stockholders to approve the merger and the
transactions contemplated by the merger agreement shall not have been
obtained;
- by Borg-Warner Automotive or Kuhlman if there shall have been a breach
by the other of any of its representations, and warranties, covenants or
agreements contained in the merger agreement, which excuses Borg-Warner
Automotive or Kuhlman, respectively, from its obligation to complete the
merger, and such breach shall not have been cured within 30 days after
the allegedly breaching party has received notice thereof;
- by Borg-Warner Automotive if on the date on which the closing would
otherwise occur, the average of the daily high and low sales prices of a
share of Borg-Warner Automotive common stock as reported on the NYSE
Composite Transaction Tape during the 20 consecutive trading days
immediately preceding the third trading date prior to the closing date of
the merger shall be less than $40.00; provided that Kuhlman shall receive
at least two business days' prior written notice of its intent to effect
such termination; or
- by Kuhlman in order to permit Kuhlman to enter into an agreement
providing for a Competing Transaction that the Kuhlman Board has
determined to be a Superior Proposal.
EFFECT OF TERMINATION
In the merger agreement, Borg-Warner Automotive and Kuhlman have agreed
that, in the event of the termination of the merger agreement for any reason
outlined above, the merger agreement -- except for the provisions in Section
5.3(d) of the merger agreement regarding the confidentiality of information
subject to the terms of a confidentiality agreement, Section 7.2 of the merger
agreement regarding the effect of termination and Section 8.11 of the merger
agreement regarding expenses -- shall become void and have no effect, without
any liability on the part of any party or its directors, officers or
56
<PAGE> 71
stockholders. Notwithstanding the foregoing, nothing in the merger agreement
will relieve any party to the merger agreement of liability for a material
breach of any provision of the merger agreement; moreover, if it is judicially
determined that termination of the merger agreement was caused by an intentional
breach of the merger agreement, then, in addition to other remedies at law or
equity for breach of the merger agreement, the party so found to have
intentionally breached the merger agreement shall indemnify and hold harmless
the other parties for their respective out-of-pocket costs, fees and expenses of
their counsel, accountants, financial advisors and other experts and advisors as
well as fees and expenses incident to negotiation, preparation and execution of
the merger agreement and related documentation and stockholders' meetings and
consents ("Costs").
If the merger agreement is terminated because the requisite vote of the
Kuhlman stockholders was not obtained at the special meeting and the Kuhlman
Board did not withdraw or adversely modify its recommendation of the merger or
approve or recommend a Competing Transaction or terminate the merger agreement
to enter into a Superior Proposal, then Kuhlman will pay to Borg-Warner
Automotive the aggregate amount of Borg-Warner Automotive's Costs incurred in
connection with pursuing the transactions contemplated by the merger agreement
up to but not in excess of $4 million in the aggregate.
If the merger agreement is terminated for any of the following reasons:
- the merger has not been consummated by the later of May 31, 1999, and 30
days after the receipt of all required governmental approvals; the
special meeting has not been held prior to May 31, 1999; and there shall
have been made to Kuhlman or publicly disclosed a Competing Transaction
with respect to Kuhlman;
- the Kuhlman Board withdraws, modifies or changes its recommendation to
stockholders in a manner adverse to Borg-Warner Automotive;
- the Kuhlman Board approves or recommends a Competing Transaction; or
- Kuhlman terminates the merger agreement in order to be permitted to
enter into an agreement providing for a Competing Transaction that the
Kuhlman Board has determined to be a Superior Proposal;
then Kuhlman will (in the case of a termination by Borg-Warner Automotive,
within three business days following any such termination, or, in the case of a
termination by Kuhlman, concurrently with such termination) pay to Borg-Warner
Automotive (1) the aggregate amount of Borg-Warner Automotive's Costs incurred
in connection with pursuing the transactions contemplated by the merger
agreement, up to but not in excess of $4 million in the aggregate, and (2) a
termination fee in an amount equal to $15 million.
If the merger agreement is terminated for any of the reasons that would
result in the payment of the $15 million fee described above, and prior to 18
months after the date of such termination Kuhlman consummates a Competing
Transaction with a party who made to Kuhlman or publicly disclosed a proposal
with respect to a Competing Transaction prior to the termination of the merger
agreement, then, in addition to any other amounts payable pursuant to the merger
agreement, Kuhlman will, concurrently with the consummation of such transaction,
pay to Borg-Warner Automotive an additional termination fee of $10 million.
If the merger agreement is terminated because the average of the daily high
and low sales prices of Borg-Warner Automotive common stock as reported on the
NYSE Composite Transaction Tape during the 20 consecutive trading days
immediately preceding
57
<PAGE> 72
the third trading date prior to the date that would otherwise be the closing
date was less than $40.00, then Borg-Warner Automotive will pay to Kuhlman the
aggregate amount of Kuhlman's Costs incurred in connection with pursuing the
transactions contemplated by the merger agreement, as well as taxes incurred by
Kuhlman's executive employees in connection with the exercise of stock options
in December 1998, up to but not in excess of $4 million in the aggregate.
If the merger agreement is terminated pursuant to one or more provisions of
the merger agreement and a termination fee is payable pursuant to one or more
provisions of the merger agreement, any such termination fee shall not exceed
$25 million in the aggregate, not including reimbursement of Costs.
EXPENSES
Whether or not the merger is completed and except as described above,
Borg-Warner Automotive and Kuhlman will each pay their own expenses in
connection with the merger, except that those expenses incurred in connection
with filing, printing and mailing the registration statement and this proxy
statement/prospectus (including filing fees related thereto) will be shared
equally by Borg-Warner Automotive and Kuhlman.
AMENDMENT
The merger agreement may be amended by the parties thereto, by action taken
or authorized by their respective Boards of Directors, at any time before or
after approval by Kuhlman stockholders; however, after any such approval, no
amendment will be made that by law requires further approval or authorization by
Kuhlman stockholders. The merger agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties to the agreement.
EXTENSION; WAIVER
At any time prior to the Effective Time, Borg-Warner Automotive and Kuhlman
by action taken or authorized by their respective Boards of Directors, may, to
the extent legally allowed, (1) extend the time for the performance of any of
the obligations or other acts of the other parties, (2) waive any inaccuracies
in the representation and warranties contained in the merger agreement or in any
document delivered pursuant thereto, or (3) waive compliance with any of the
agreements or conditions contained in the merger agreement. Any agreement on the
part of Borg-Warner Automotive and Kuhlman to any such extension or waiver will
be valid only if set forth in a written instrument signed on behalf of such
party.
58
<PAGE> 73
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the only person known by Kuhlman to own of
record or beneficially, as of January 1, 1999, five percent or more of the
outstanding shares of Kuhlman common stock.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF PERSON SHARES CLASS
- -------------- ---------------- ----------------
<S> <C> <C>
The Prudential Insurance Company of America.... 1,279,800(1) 7.3%
751 Broad Street
Newark, New Jersey 07102-3777
</TABLE>
- -------------------------
(1) Based solely on information set forth in a Schedule 13G dated February 10,
1998, filed with the SEC.
59
<PAGE> 74
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of Kuhlman common stock, as of January 1, 1999, by (1) each director
and the executive officers of Kuhlman named in the Summary Compensation Table
included in Kuhlman's Proxy Statement dated March 25, 1998 and (2) all directors
and executive officers of Kuhlman as a group. Unless otherwise indicated, all
shares of Kuhlman common stock are beneficially owned by the individuals named
and the beneficial ownership consists of sole voting power and sole investment
power.
<TABLE>
<CAPTION>
NUMBER OF SHARES(1)(2) PERCENT OF CLASS(3)
---------------------- -------------------
<S> <C> <C>
Curtis G. Anderson................... 454,561 2.6%
William E. Burch..................... 18,552(4) *
Steve Cenko.......................... 28,416 *
Gary G. Dillon....................... 235,220 1.3%
Alexander W. Dreyfoos, Jr. .......... 33,270 *
Robert S. Jepson, Jr. ............... 715,262(4) 4.0%
William M. Kearns, Jr. .............. 34,000 *
George J. Michel, Jr. ............... 37,971(4) *
Vernon J. Nagel...................... 125,810 *
Gen. H. Norman Schwarzkopf........... 17,587 *
Richard A. Walker.................... 226,889 1.3%
All Directors and Executive Officers
as a Group (12 Persons)............ 1,954,209 10.6%
</TABLE>
- -------------------------
* Less than one percent
(1) Includes shares in Kuhlman's Dividend Investment Plan, the Kuhlman Electric
Corporation Savings Maximizer Plan, and the Schwitzer Group Tax Reduction
Investment Plan for Salaried Employees.
(2) Includes shares that the following persons have the right to acquire upon
the exercise of stock options as of January 1, 1999, or at any time within
60 days thereafter: Curtis G. Anderson - 126,882 shares; William E. Burch -
6,000 shares; Steve Cenko - 14,973 shares; Gary G. Dillon - 183,357 shares;
Alexander W. Dreyfoos, Jr. - 6,000 shares; Robert S. Jepson, Jr. - 307,763
shares; William M. Kearns, Jr. - 6,000 shares; George J. Michel, Jr. -
14,973 shares; Vernon J. Nagel - 80,000 shares; General H. Norman
Schwarzkopf - 6,000 shares; and Richard A. Walker - 95,435 shares; and a
total of 862,383 shares for all directors and executive officers as a group.
(3) Each respective individual's shares included in note (2) were deemed to be
outstanding as of January 1, 1999, for the purpose of computing the
percentage applicable to the person owning such shares but were not deemed
to be outstanding for the purpose of computing the percent of class owned by
any other individual. The total number of shares included in note (2) were
deemed to be outstanding for the purpose of computing the percent of class
for all directors and executive officers as a group.
(4) Excludes an aggregate of 5,647 shares that are owned by spouses and of which
beneficial ownership is disclaimed.
60
<PAGE> 75
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements consist
of an unaudited pro forma consolidated balance sheet as of September 30, 1998,
and unaudited pro forma consolidated statements of operations for the year ended
December 31, 1997 and for the nine-month periods ended September 30, 1998 and
1997. The pro forma statements combine the historical financial statements of
Borg-Warner Automotive and Kuhlman as of and for the periods indicated. The pro
forma financial statements also reflect the following:
- The merger will be accounted for as a purchase. Borg-Warner Automotive
will fund the transaction by issuing approximately $150 million in
Borg-Warner Automotive common stock and borrowing the remainder. See "The
Merger."
- Borg-Warner Automotive will assume or refinance Kuhlman's existing
indebtedness which was $98.4 million as of September 30, 1998 and is
estimated to be between $80 million and $90 million at the closing of the
merger. In addition Borg-Warner Automotive will incur additional
indebtedness for the settlement of stock options and certain long-term
incentive programs and severance programs, which are estimated to be
approximately $45 million, net of tax benefits. To the extent that
additional stock options are exercised prior to the completion of the
merger, the number of shares of Kuhlman common stock outstanding will
increase and the related settlement cost relating to stock options will
decrease.
- Borg-Warner Automotive and Kuhlman will pay anticipated investment
banking, legal, accounting and regulatory fees and costs related to the
merger estimated to be $12 million.
Borg-Warner Automotive has not completed the analyses necessary to
determine the allocation of purchase price based on the fair values of assets
and liabilities acquired and, therefore, the excess of purchase price over net
assets acquired, except for the amount allocated to the electrical products
businesses as discussed below, is reflected as goodwill in these pro forma
financial statements.
Borg-Warner Automotive intends to sell Kuhlman's electrical products
businesses. In the pro forma balance sheet, Borg-Warner Automotive'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. We cannot be certain, but we believe that the
net investment in the electrical products businesses is not greater than the
amounts that Borg-Warner Automotive will receive upon sale of the businesses.
Proceeds from the sale will be used to repay merger indebtedness.
The pro forma consolidated financial statements should be read in
conjunction with the Borg-Warner Automotive and Kuhlman historical consolidated
financial statements and notes thereto. The pro forma consolidated statements
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 should not be considered indicative of the results of future
operations of the merged companies.
The pro forma consolidated balance sheet was prepared assuming the merger
occurred on September 30, 1998, and the pro forma consolidated statements of
operations were
61
<PAGE> 76
prepared assuming that the merger took place on January 1, 1998 and 1997,
respectively. In addition to an accrual for merger-related costs noted above,
the pro forma consolidated statements include the following:
- the effects of amortization of the goodwill related to the merger (which
is being amortized over a 40-year life),
- interest expense on borrowings to be incurred to finance the merger, but
excluding the portion of the interest expense allocated to the electrical
products businesses,
- the elimination of expenses related to Kuhlman's corporate headquarters
which will be closed,
- exclusion of revenues, costs and expenses for the electrical products
businesses, and
- tax effects of all the preceding adjustments.
62
<PAGE> 77
BORG-WARNER AUTOMOTIVE
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
LESS:
BORG- ELECTRICAL PRO FORMA
WARNER PRO FORMA PRODUCTS BORG-WARNER
AUTOMOTIVE KUHLMAN ADJUSTMENTS BUSINESSES(1) AUTOMOTIVE
---------- ------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash.................... $ 4.5 $ 4.9 $ 0.2 $ 9.2
Short-term securities... 7.2 7.2
Receivables............. 192.0 120.3 48.2 264.1
Inventories............. 130.8 76.7 35.8 171.7
Deferred income tax
asset................. 8.5 13.0 5.6 15.9
Prepayments and other
current assets........ 25.5 5.4 2.7 28.2
Investment in electrical
products businesses... $250.0(1) 250.0
-------- ------ ------ ------ --------
Total current
assets............. 368.5 220.3 250.0 92.5 746.3
Property, plant and
equipment at cost..... 1,004.8 240.1 72.8 1,172.1
Less accumulated
depreciation.......... (400.9) (118.5) (34.2) (485.2)
-------- ------ ------ ------ --------
Net property, plant
and equipment...... 603.9 121.6 38.6 686.9
Investments and
advances.............. 122.6 122.6
Goodwill................ 527.7 120.9 511.9(2) 176.3 984.2
Deferred income tax
asset................. 18.7 18.7
Other noncurrent
assets................ 118.1 12.5 4.5 126.1
-------- ------ ------ ------ --------
$1,759.5 $475.3 $761.9 $311.9 $2,684.8
======== ====== ====== ====== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Notes payable........... $ 46.2 $ 1.0 $ 0.5 $ 46.7
Accounts payable and
accrued expenses...... 266.6 133.6 $ 57.0(2) 50.5 406.7
Income taxes payable.... 33.4 9.3 1.9 40.8
-------- ------ ------ ------ --------
Total current
liabilities........ 346.2 143.9 57.0 52.9 494.2
Long-term debt.......... 305.5 97.4 508.6(2) 3.3 908.2
Long-term liabilities:
Retirement-related
liabilities........ 313.2 20.0 2.2 331.0
Other long-term
liabilities........ 65.3 10.3 3.5 72.1
Common stock............ 0.2 16.9 (16.9)(2) 0.2
Other stockholders'
equity................ 729.1 186.8 213.2(2) 250.0 879.1
-------- ------ ------ ------ --------
Total stockholders'
equity............. 729.3 203.7 196.3 250.0 879.3
-------- ------ ------ ------ --------
$1,759.5 $475.3 $761.9 $311.9 $2,684.8
======== ====== ====== ====== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
63
<PAGE> 78
BORG-WARNER AUTOMOTIVE
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
LESS:
BORG- ELECTRICAL PRO FORMA
WARNER PRO FORMA PRODUCTS BORG-WARNER
AUTOMOTIVE KUHLMAN ADJUSTMENTS BUSINESSES(1) AUTOMOTIVE
---------- ------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Net sales............... $1,767.0 $643.4 $303.5 $2,106.9
Cost of sales........... 1,375.4 481.4 235.4 1,621.4
Depreciation............ 70.4 16.9 5.9 81.4
Selling, general and
administrative
expenses.............. 132.0 85.3 $(12.4)(3) 38.4 166.5
Minority interest in
earnings.............. 3.2 3.2
Goodwill amortization... 16.7 3.0 12.8(2) 4.8 27.7
Equity in affiliate
earnings and other
income................ (13.2) 1.0 0.3 (12.5)
-------- ------- ------ ------ --------
Earnings before
interest, finance
charges, and income
taxes.............. 182.5 55.8 (0.4) 18.7 219.2
Interest expense and
finance charges....... 24.6 9.3 33.6(2) 14.9 52.6
-------- ------- ------ ------ --------
Earnings before income
taxes.............. 157.9 46.5 (34.0) 3.8 166.6
Provision for income
taxes................. 54.7 18.6 (7.9)(4) 3.8 61.6
-------- ------- ------ ------ --------
Net earnings.......... $ 103.2 $ 27.9 $(26.1) $ 0.0 $ 105.0
======== ======= ====== ====== ========
Net earnings per share
Basic................. $ 4.35 $ 1.84 $ 3.95
======== ======= ========
Diluted............... $ 4.31 $ 1.75 $ 3.91
======== ======= ========
Average shares
outstanding
(thousands)
Basic................. 23,683 15,160 2,879 26,562
======== ======= ====== ========
Diluted............... 23,934 15,929 2,879 26,813
======== ======= ====== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
64
<PAGE> 79
BORG-WARNER AUTOMOTIVE
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN MILLIONS, EXPECT PER SHARE DATA)
<TABLE>
<CAPTION>
LESS:
ELECTRICAL PRO FORMA
BORG-WARNER PRO FORMA PRODUCTS BORG-WARNER
AUTOMOTIVE KUHLMAN ADJUSTMENTS BUSINESSES(1) AUTOMOTIVE
----------- ------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Net sales................. $1,347.6 $571.1 $228.1 $1,690.6
Cost of sales............. 1,058.6 426.1 169.7 1,315.0
Depreciation.............. 57.5 16.5 4.8 69.2
Selling, general and
administrative
expenses................ 112.7 72.9 $(13.0)(3) 30.5 142.1
Minority interest in
earnings................ 2.4 2.4
Goodwill amortization..... 12.7 2.7 9.6(2) 3.6 21.4
Equity in affiliate
earnings and other
income.................. (8.9) 0.4 (8.5)
-------- ------- ------ ------ --------
Earnings before
interest, finance
charges, and income
taxes................. 112.6 52.5 3.4 19.5 149.0
Interest expense and
finance charges......... 20.6 5.8 24.6(2) 11.1 39.9
-------- ------- ------ ------ --------
Earnings before income
taxes................. 92.0 46.7 (21.2) 8.4 109.1
Provision for income
taxes................... 29.1 18.1 (3.7)(4) 5.4 38.1
-------- ------- ------ ------ --------
Net earnings............ $ 62.9 $ 28.6 $(17.5) $ 3.0 $ 71.0
======== ======= ====== ====== ========
Net earnings per share
Basic................... $ 2.68 $ 1.71 $ 2.69
======== ======= ========
Diluted................. $ 2.65 $ 1.64 $ 2.67
======== ======= ========
Average shares outstanding
(thousands)
Basic................... 23,509 16,704 2,879 26,388
======== ======= ====== ========
Diluted................. 23,690 17,430 2,879 26,569
======== ======= ====== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
65
<PAGE> 80
BORG-WARNER AUTOMOTIVE
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
LESS:
BORG- ELECTRICAL PRO FORMA
WARNER PRO FORMA PRODUCTS BORG-WARNER
AUTOMOTIVE KUHLMAN ADJUSTMENTS BUSINESS(1) AUTOMOTIVE
---------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales............... $1,300.0 $468.7 $225.9 $1,542.8
Cost of sales........... 1,016.3 350.9 176.6 1,190.6
Depreciation............ 51.5 12.7 4.5 59.7
Selling, general and
administrative
expenses.............. 95.5 62.5 $ (8.6)(3) 28.7 120.7
Minority interest in
earnings.............. 1.8 1.8
Goodwill amortization... 12.4 2.1 9.6(2) 3.7 20.4
Equity in affiliate
earnings and other
income................ (11.7) 0.7 0.2 (11.2)
-------- ------- ------ ------ --------
Earnings before
interest, finance
charges, and income
taxes.............. 134.2 39.8 (1.0) 12.2 160.8
Interest expense and
finance charges....... 19.0 7.3 24.9(2) 11.2 40.0
-------- ------- ------ ------ --------
Earnings before income
taxes.............. 115.2 32.5 (25.9) 1.0 120.8
Provision for income
taxes................. 39.2 13.1 (6.1)(4) 2.1 44.1
-------- ------- ------ ------ --------
Net earnings.......... $ 76.0 $ 19.4 $(19.8) $ (1.1) $ 76.7
======== ======= ====== ====== ========
Net earnings per share
Basic................. $ 3.21 $ 1.32 $ 2.89
======== ======= ========
Diluted............... $ 3.17 $ 1.25 $ 2.86
======== ======= ========
Average shares
outstanding
(thousands)
Basic................. 23,692 14,698 2,879 26,571
======== ======= ====== ========
Diluted............... 23,907 15,464 2,879 26,786
======== ======= ====== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
66
<PAGE> 81
BORG-WARNER AUTOMOTIVE
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997 AND NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997
(1) The electrical products businesses include two businesses of Kuhlman, one of
which manufactures transformers and the other of which manufactures wire and
cable. Borg-Warner Automotive plans to sell the electrical products
businesses after the merger. The pro forma consolidated balance sheet
reflects the electrical products businesses at net carrying value. This
carrying value of $250 million includes $121 million of the excess purchase
price of the merger. Revenues, costs and expenses of the electrical products
businesses have been deducted from the pro forma Borg-Warner Automotive
column of the pro forma consolidated financial statements. For purposes of
the unaudited pro forma consolidated statements of operations, a portion of
interest expense and amortization of goodwill relating to the merger has
been allocated to the electrical products businesses, and accordingly has
been deducted in arriving at the pro forma consolidated statement of
operations data. The goodwill amortization was based upon the goodwill
allocated to such businesses. Interest expense was allocated assuming the
businesses were responsible for the interest on $250 million in acquisition
indebtedness. The following chart shows the amounts of goodwill amortization
and interest expense allocated to the electrical products businesses for
each of the periods presented.
<TABLE>
<CAPTION>
GOODWILL INTEREST
AMORTIZATION EXPENSE
------------ --------
<S> <C> <C>
Year ended December 31, 1997........................ $3.0 $14.9
Nine months ended
September 30, 1998................................ 2.3 11.1
September 30, 1997................................ 2.3 11.1
</TABLE>
(2) The estimated purchase price for purposes of the calculation of goodwill is
as follows:
<TABLE>
<S> <C>
Purchase of Kuhlman common stock............................ $658.6
Payment for options, long-term incentives et al. ........... 45.0
Fees and expenses related to the merger..................... 12.0
------
Subtotal.................................................... 57.0
------
Total purchase price...................................... 715.6
Net book value of Kuhlman................................. 203.7
------
Excess purchase price....................................... 511.9
Excess purchase price allocated to electrical products
businesses................................................ 120.9
------
Goodwill.................................................... $391.0
</TABLE>
67
<PAGE> 82
The pro forma consolidated financial statements assume that 2,878,526
shares of Borg-Warner Automotive common stock will be issued in the merger,
corresponding to an average Borg-Warner Automotive common stock price of
$52.11. The number of shares of Borg-Warner Automotive common stock
actually issued in the merger will be based on the daily average of the
high and low sales prices of Borg-Warner Automotive common stock price
during the 20 consecutive trading days immediately preceding the third
trading date prior to the closing date. The effects on earnings per share
and number of shares to be issued in the merger if the average Borg-Warner
Automotive stock price were to equal $40.00 per share, $50.00 per share or
$60.00 per share are shown in the table below.
<TABLE>
<CAPTION>
EARNINGS PER SHARE
---------------------------------------------------------------
FOR THE YEAR ENDED FOR THE NINE MONTHS FOR THE NINE MONTHS
BORG-WARNER NUMBER OF 12/31/97 ENDED 9/30/98 ENDED 9/30/97
AUTOMOTIVE SHARES ------------------- ------------------- -------------------
PRICE (THOUSANDS) BASIC DILUTED BASIC DILUTED BASIC DILUTED
----------- ----------- ------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$40.00 3,750 $3.83 $3.79 $2.60 $2.59 $2.79 $2.77
$50.00 3,000 $3.93 $3.90 $2.68 $2.66 $2.87 $2.85
$60.00 2,500 $4.01 $3.97 $2.73 $2.71 $2.93 $2.90
</TABLE>
Interest expense on acquisition borrowings has been calculated at rates in
effect for the periods presented in the pro forma consolidated statements
of operations. These rates were 6.8% for the year ended December 31, 1997,
6.4% for the nine months ended September 30, 1998 and 6.8% for the nine
months ended September 30, 1997.
(3) The adjustment to eliminate the Kuhlman corporate headquarters expense
reflects the cost of operating Kuhlman's executive and administrative
offices in Savannah, Georgia, which will be closed upon completion of the
merger. A one-time charge to close the headquarters office is included in
the aggregate purchase price.
(4) The tax effect adjustment accounts for the tax effects of the various other
adjustments, using a domestic marginal rate, where applicable. Amortization
of goodwill arising from the merger is not deductible for U.S. income tax
purposes.
68
<PAGE> 83
COMPARATIVE RIGHTS OF KUHLMAN
STOCKHOLDERS AND BORG-WARNER AUTOMOTIVE STOCKHOLDERS
Both Kuhlman and Borg-Warner Automotive are Delaware corporations and are
governed by the DGCL. In addition, the rights of Kuhlman stockholders are
currently governed by the Kuhlman Charter and the Kuhlman by-laws, and the
rights of Borg-Warner Automotive stockholders are governed by the Borg-Warner
Automotive Restated Certificate of Incorporation (the "Borg-Warner Automotive
Charter") and the Borg-Warner Automotive by-laws. After the Effective Time, the
rights of holders of Kuhlman common stock who become holders of Borg-Warner
Automotive common stock will be governed by the Borg-Warner Automotive Charter,
the Borg-Warner Automotive by-laws and the DGCL. In most respects, the rights of
holders of Kuhlman common stock are similar to the rights of holders of
Borg-Warner Automotive common stock. The following is a summary of the material
differences between such rights. This summary does not purport to be a complete
discussion of, and is qualified in its entirety by reference to, the DGCL as
well as to the Kuhlman Charter, the Kuhlman by-laws, the Borg-Warner Automotive
Charter and the Borg-Warner Automotive by-laws, copies of which are on file with
the SEC.
ELECTION OF BOARD OF DIRECTORS
The Kuhlman and Borg-Warner Automotive by-laws both provide that directors
will be elected for three-year terms and divided into three classes. None of the
Kuhlman Charter, the Kuhlman by-laws, the Borg-Warner Automotive Charter or the
Borg-Warner Automotive by-laws provide for cumulative voting of shares for
election of directors.
NUMBER OF DIRECTORS
The Kuhlman by-laws specify that the number of directors will be not less
than six and not more than 11. The exact number of directors, within these
limits, will be determined from time to time by resolution of the Kuhlman Board.
The Borg-Warner Automotive by-laws specify that the number of directors
will be not less than three and not more than 17. The exact number of directors,
within these limits, will be determined from time to time by resolution of a
majority of the total number of directors that Borg-Warner Automotive would have
if there were no vacancies.
VACANCIES
Both the Kuhlman by-laws and the Borg-Warner Automotive by-laws provide
that any vacancy on the Kuhlman Board or the Borg-Warner Automotive Board,
respectively, or any newly created directorship, may be filled by a majority of
the directors then in office, although less than a quorum.
REMOVAL OF DIRECTORS
The Kuhlman Charter and by-laws are silent as to the removal of directors.
Under the DGCL, when a board is classified, any director or the entire board of
directors may be removed by a majority of the outstanding voting stock only for
cause.
The Borg-Warner Automotive by-laws provide that a director or the entire
board of directors may be removed at any time for cause by the vote of 80% of
the outstanding voting stock.
69
<PAGE> 84
AMENDMENTS TO CHARTERS AND BY-LAWS
The Kuhlman Charter and by-laws provide that the Kuhlman by-laws may be
altered or repealed by either a majority of the total number of directors that
Kuhlman would have if there were no vacancies on the Kuhlman Board or by 70% of
the outstanding shares entitled to vote. The Borg-Warner Automotive Charter and
by-laws provide that the Borg-Warner Automotive by-laws may be altered or
repealed by either a majority of the total number of directors or 80% of the
outstanding shares entitled to vote.
The Kuhlman Charter may be amended in the manner prescribed by the DGCL,
which generally requires the approval of a majority of the outstanding shares.
The Borg-Warner Automotive Charter also states that it may be amended in the
manner prescribed by the DGCL; however, the affirmative vote of not less than
80% of the outstanding voting stock is needed to amend the provisions of the
Borg-Warner Automotive Charter addressing the number, classification, term of
office or removal of directors; the filling of vacant directorships; the
prohibition on stockholder actions by written consent; and the restrictions on
the calling of special meetings.
SPECIAL MEETINGS OF STOCKHOLDERS; NOTICE
The Kuhlman by-laws provide that special meetings of Kuhlman stockholders
may be called by the Kuhlman Board or the chief executive officer. The Kuhlman
by-laws require delivery of written or printed notice to all record stockholders
entitled to vote not less than 10 nor more than 60 days before the date of the
meeting. Notices must specify the time, place and purpose of the meeting. No
business other than that stated in the notice can be transacted at a special
meeting.
The Borg-Warner Automotive by-laws provide that special meetings of
Borg-Warner Automotive stockholders may be called by the Borg-Warner Automotive
Board or any person or committee expressly so authorized by the Borg-Warner
Automotive Board. The Borg-Warner Automotive by-laws require delivery of written
notice to all record stockholders entitled to vote not less than 10 nor more
than 60 days before the date of the meeting. Notices must specify the time,
place and purpose of the meeting. No business other than that stated in the
notice can be transacted at a special meeting.
ACTION BY WRITTEN CONSENT
Both the Borg-Warner Automotive and Kuhlman Charters prohibit stockholder
action by written consent.
INDEMNIFICATION
The Kuhlman by-laws provide that expenses incurred in defending a civil,
criminal, administrative or investigative action, suit or proceeding will be
paid by Kuhlman in advance of the final disposition, upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount if it is ultimately determined that he is not entitled to
indemnification. The Borg-Warner Automotive Charter provides that expenses
incurred in defending a civil, criminal, administrative or investigative action,
suit or proceeding may be paid in advance by Borg-Warner Automotive upon receipt
of such an undertaking.
Both the Kuhlman by-laws and the Borg-Warner Automotive by-laws provide for
indemnification of amounts paid in settlement, but the Kuhlman by-laws require
that any settlement be approved in advance by the Kuhlman Board, which approval
shall not be
70
<PAGE> 85
unreasonably withheld. Neither the Borg-Warner Automotive Charter nor the
Borg-Warner Automotive by-laws have such requirement.
The Borg-Warner Automotive Charter provides for indemnification of an
indemnitee's spouse who was or is a party or is threatened to be made a party
solely by reason of being the indemnitee's spouse. The Kuhlman Charter and
by-laws do not contain such a provision.
RIGHTS AGREEMENTS
Both Kuhlman and Borg-Warner Automotive have entered into rights
agreements. The Kuhlman rights agreement expires on April 30, 2007. The
Borg-Warner Automotive rights agreement expires on July 22, 2008.
The Kuhlman rights (as defined in the Kuhlman rights agreement) become
exercisable and transferable apart from shares of Kuhlman common stock after the
earlier of (1) 10 business days following the date of a public announcement that
a person or group of affiliated or associated persons has acquired beneficial
ownership of 15% or more of the outstanding Kuhlman common stock, and (2) 10
business days following the commencement or announcement of an intention to make
a tender offer or exchange offer that, if successful, would cause the bidder to
own 15% of the outstanding Kuhlman common stock. The Borg-Warner Automotive
rights (as defined in the Borg-Warner Automotive rights agreement) become
exercisable and transferable apart from shares of Borg-Warner Automotive common
stock under substantially identical circumstances except that the ownership
threshold is 20% and relates to shares of Borg-Warner Automotive common stock.
When exercisable, each Kuhlman right entitles the holder to purchase from
Kuhlman one one-hundredth of a share of a designated series of preferred stock
at a price of $80, subject to adjustment. When exercisable, each Borg-Warner
Automotive right entitles the holder to purchase from Borg-Warner Automotive one
one-hundredth of a share of a designated series of preferred stock at $300,
subject to adjustment.
In the event of an acquisition by a person or group of 15% or more of
Kuhlman's common stock, each holder of a Kuhlman right, other than such person
or group, is entitled to purchase $160 worth of shares of Kuhlman common stock
for $80. In the event of an acquisition by a person or group of 20% or more of
Borg-Warner Automotive's common stock, each holder of a Borg-Warner Automotive
right, other than such person or group, is entitled to purchase $600 worth of
shares of Borg-Warner Automotive common stock for $300.
The Borg-Warner Automotive rights agreement includes an exchange feature,
pursuant to which: at any time after a person or group acquires at least 20% but
less than 50% of the outstanding Borg-Warner Automotive common stock, the
Borg-Warner Automotive Board may exchange the rights (other than rights owned by
such person or group, which shall become void) at an exchange ratio of one share
of Borg-Warner Automotive common stock, or one one-hundredth of a preferred
share from a designated series, per right.
The Kuhlman rights can be redeemed by the Kuhlman Board for $0.0001 per
right at any time prior to the earlier of (1) an acquisition of 15% or more of
Kuhlman's common stock and (2) the date on which the rights become exercisable
and transferable apart from shares of Kuhlman common stock. The Borg-Warner
Automotive rights can be redeemed
71
<PAGE> 86
by the Borg-Warner Automotive Board for $0.01 per right at any time prior to an
acquisition of 20% or more of Borg-Warner Automotive's common stock.
EVALUATION OF CERTAIN ACQUISITION PROPOSALS
The Borg-Warner Automotive Charter provides that, when evaluating another
party's proposal to purchase shares of Borg-Warner Automotive common stock in a
tender offer, to merge, to consolidate or to acquire substantially all of
Borg-Warner Automotive's assets, the Borg-Warner Automotive Board shall give due
consideration to all relevant factors, including, without limitation, the social
and economic effects on the employees, customers, suppliers and other
constituents of Borg-Warner Automotive and its subsidiaries and on the
communities in which they operate or are located. The Kuhlman Charter and
by-laws do not contain such a provision.
LEGAL OPINIONS
The legality of the shares of Borg-Warner Automotive common stock to be
issued in connection with the merger is being passed upon for Borg-Warner
Automotive by Laurene H. Horiszny, Vice President and General Counsel of
Borg-Warner Automotive. As of January 20, 1999, Ms. Horiszny owned 3,407 shares
of Borg-Warner Automotive common stock and held stock options to purchase an
additional 18,700 shares.
EXPERTS
Borg-Warner Automotive's consolidated financial statements as of December
31, 1997 and December 31, 1996, and for each of the three years in the period
ended December 31, 1997, have been incorporated in this proxy
statement/prospectus by reference from Borg-Warner Automotive's Annual Report on
Form 10-K for the year ended December 31, 1997, as amended by the Form 10K/A
filed with the SEC on June 26, 1998, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The financial statements of NSK-Warner Kabushiki Kaisha as of March 31,
1998 and 1997, and for each of the three years in the period ended March 31,
1998, have been incorporated by reference in this proxy statement/prospectus in
reliance upon the report of KPMG Peat Marwick, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements and schedules of Kuhlman as of
December 31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997, incorporated in this proxy statement/prospectus by reference
to Kuhlman's Annual Report on Form 10-K, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are incorporated by reference in this proxy statement/prospectus in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Arthur Andersen LLP are expected to be present at the
special meeting and will be available to respond to appropriate questions and
may make a statement if they so desire.
72
<PAGE> 87
OTHER MATTERS
Pursuant to Kuhlman's by-laws, the business that may be conducted at the
special meeting is confined to that referenced in the notice of special meeting
of stockholders that accompanies this proxy statement/prospectus.
STOCKHOLDER PROPOSALS
Kuhlman will hold an annual meeting of stockholders in 1999 only if the
merger is not consummated before the time of such meeting. Any proposal that a
stockholder intends to present at the annual meeting of stockholders in 1999, if
any, was required to have been received by Kuhlman at its principal executive
offices by November 25, 1998 in order to be eligible for inclusion in Kuhlman's
proxy statement and proxy form relating to such meeting. In addition, if any
business should properly come before such annual meeting other than that which
is stated in such proxy statement, then, if Kuhlman does not receive timely
notice of the matter, the persons designated in such proxy form will vote or
refrain from voting in respect thereof in accordance with the judgment of the
persons voting such proxies. To be timely, a stockholder's notice must be
delivered to the Secretary of Kuhlman at Kuhlman's principal executive offices
no later than February 22, 1999 and no earlier than January 23, 1999. Such
notice also must otherwise comply with the provisions of Kuhlman's by-laws.
73
<PAGE> 88
WHERE YOU CAN FIND MORE INFORMATION
Borg-Warner Automotive has filed the registration statement on Form S-4 to
register with the SEC the shares of Borg-Warner Automotive common stock to be
issued to Kuhlman stockholders in the merger. The registration statement,
including the attached exhibits and schedules, contains additional relevant
information about Borg-Warner Automotive and Kuhlman. As allowed by SEC rules,
this proxy statement/prospectus does not contain all the information you can
find in the registration statement or the exhibits to the registration
statement.
In addition, Borg-Warner Automotive and Kuhlman file annual, quarterly and
special reports, proxy statements and other information with the SEC. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. You may read and copy any reports, statements or other information we
file at the following locations of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, DC 20539 New York, NY 10048 Suite 1400
Chicago, IL 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington, DC
20549, at prescribed rates. Our SEC filings are also available to the public
from commercial document retrieval services and at the Internet world wide web
site maintained by the SEC at http://www.sec.gov.
The SEC allows us to "incorporate by reference" information into this proxy
statement/ prospectus, which means that we can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this proxy
statement/prospectus. This proxy statement/prospectus incorporates by reference
the documents set forth below that we have previously filed with the SEC. These
documents contain important information about our companies and their financial
condition.
<TABLE>
<CAPTION>
BORG-WARNER AUTOMOTIVE SEC FILINGS DESCRIPTION OR
(FILE NO. 001-12162) PERIOD/AS OF DATE
- ---------------------------------- -----------------
<S> <C>
Annual Report on Form 10-K/A Year ended December 31, 1997
Quarterly Reports on Form 10-Q Quarters ended March 31, 1998, June
30, 1998 and September 30, 1998
Current Reports on Form 8-K Filed on July 24, 1998, December 11,
1998 and December 21, 1998
Proxy Statement Dated March 20, 1998
Registration Statement on Form 8-A12B, Description of Rights under
dated July 24, 1998 Borg-Warner Automotive Rights
Agreement
Registration Statement on Form S-3, Description of Borg-Warner Automotive
dated January 27, 1997 common stock
</TABLE>
74
<PAGE> 89
<TABLE>
<CAPTION>
KUHLMAN SEC FILINGS DESCRIPTION OR
(FILE NO. 001-07695) PERIOD/AS OF DATE
- -------------------- -----------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1997
Quarterly Reports on Form 10-Q Quarters ended March 31, 1998, June
30, 1998 and September 30, 1998
Current Reports on Form 8-K Filed December 22, 1998
Proxy Statement Dated March 25, 1998
</TABLE>
Borg-Warner Automotive and Kuhlman also incorporate by reference into this
proxy statement/prospectus additional documents that may be filed with the SEC
under the Securities Exchange Act of 1934, as amended from the date of this
proxy statement/prospectus to the date of the special meeting. These include
periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q, and Current Reports on Form 8-K, as well as proxy statements.
Borg-Warner Automotive has supplied all information contained or
incorporated by reference in this proxy statement/prospectus relating to
Borg-Warner Automotive and Merger Sub, and Kuhlman has supplied all such
information relating to Kuhlman.
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us, the SEC or
the SEC's Internet world wide web site as described above. Documents
incorporated by reference are available from us without charge, excluding all
exhibits unless we have specifically incorporated by reference an exhibit in
this proxy statement/prospectus. Stockholders may obtain documents incorporated
by reference in this proxy statement/prospectus by requesting them in writing or
by telephone from the appropriate company at the following addresses:
<TABLE>
<S> <C>
Borg-Warner Automotive Inc. Kuhlman Corporation
200 South Michigan Avenue 3 Skidaway Village Square
Chicago, Illinois 60604 Savannah, Georgia 31411
Tel: (312) 322-8500 Tel: (912) 598-7809
Attn: Secretary Attn: Secretary
</TABLE>
If you would like to request documents from us, please do so by February
19, 1999 to receive them before the special meeting. If you request any
incorporated documents from us, we will mail them to you by first class mail, or
another equally prompt means, within one business day after we receive your
request.
WE HAVE AUTHORIZED NO ONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ABOUT THE PROPOSED MERGER OR OUR COMPANIES THAT DIFFERS FROM OR
ADDS TO THE INFORMATION CONTAINED IN THIS DOCUMENT OR IN THE DOCUMENTS OUR
COMPANIES HAVE PUBLICLY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THEREFORE, IF ANYONE SHOULD GIVE YOU ANY DIFFERENT OR ADDITIONAL INFORMATION,
YOU SHOULD NOT RELY ON IT.
IF YOU LIVE IN A JURISDICTION WHERE IT IS UNLAWFUL TO OFFER TO EXCHANGE OR
SELL, OR TO ASK FOR OFFERS TO EXCHANGE OR BUY, THE SECURITIES OFFERED BY THIS
DOCUMENT, OR TO ASK FOR PROXIES, OR, IF YOU ARE A PERSON TO WHOM IT IS UNLAWFUL
TO DIRECT SUCH ACTIVITIES, THEN THE OFFER PRESENTED BY THIS DOCUMENT DOES NOT
EXTEND TO YOU.
THE INFORMATION CONTAINED IN THIS DOCUMENT SPEAKS ONLY AS OF THE DATE
INDICATED ON THE COVER OF THIS DOCUMENT UNLESS THE INFORMATION SPECIFICALLY
INDICATES THAT ANOTHER DATE APPLIES.
75
<PAGE> 90
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
- ---- -------
<S> <C>
Borg-Warner Automotive Charter... 69
Cash Designated Shares........... 45
Cash Election.................... 43
Certificate...................... 43
Competing Transaction............ 51
Costs............................ 57
DGCL............................. 35
Dissenters' Shares............... 43
Dissenting Stockholder........... 41
EBIT............................. 31
EBITDA........................... 31
Effective Time................... 35
Election......................... 44
Election Deadline................ 45
EPS.............................. 30
Exchange Agent................... 45
HSR Act.......................... 36
Kuhlman Affiliates............... 38
Kuhlman Charter.................. 40
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- -------
<S> <C>
LTM.............................. 30
Material Adverse Effect.......... 52
Merger Consideration............. 24
Merger Sub....................... 21
Non-Election..................... 44
NYSE............................. 14
OEMs............................. 16
P/E.............................. 30
PRPs............................. 18
Real Estate Agreement............ 55
Record Date...................... 22
Representative................... 44
SARs............................. 47
SEC.............................. 37
Securities Act................... 38
Stock Designated Shares.......... 44
Stock Election................... 43
Superior Proposal................ 52
</TABLE>
76
<PAGE> 91
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AMONG
BORG-WARNER AUTOMOTIVE, INC.
("Purchaser"),
BWA MERGER CORP.
a wholly owned direct subsidiary of Purchaser
("Subcorp"),
and
KUHLMAN CORPORATION
("Target")
December 17, 1998
A-1
<PAGE> 92
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRELIMINARY STATEMENTS...................................... A-5
AGREEMENT................................................... A-5
ARTICLE I. THE MERGER...................................... A-5
1.1 The Merger......................................... A-5
1.2 Effective Time..................................... A-5
1.3 Effects of the Merger.............................. A-6
1.4 Certificate of Incorporation and By-Laws........... A-6
1.5 Directors and Officers of the Surviving
Corporation........................................ A-6
ARTICLE II. CONVERSION OF SECURITIES....................... A-6
2.1 Conversion of Capital Stock........................ A-6
2.2 Election Procedures................................ A-7
2.3 Exchange Ratio; Fractional Shares; Adjustments..... A-9
2.4 Exchange of Certificates........................... A-10
(a) Exchange Agent................................ A-10
(b) Exchange Procedures........................... A-10
(c) Distributions with Respect to Unexchanged
Shares........................................ A-11
(d) No Further Ownership Rights in Target Common
Stock......................................... A-11
(e) Termination of Exchange Fund.................. A-12
(f) No Liability.................................. A-12
(g) Investment of Exchange Fund................... A-12
(h) Withholding Rights............................ A-12
2.5 Treatment of Stock Options......................... A-13
2.6 Treatment of Stock Appreciation Rights............. A-13
2.7 Treatment of Awards Under Long-Term Incentive
Plan............................................... A-13
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND SUBCORP................................... A-14
3.1 Organization and Standing.......................... A-14
3.2 Corporate Power and Authority...................... A-14
3.3 Capitalization of Purchaser and Subcorp............ A-14
3.4 Conflicts; Consents and Approvals.................. A-15
3.5 Purchaser SEC Documents............................ A-16
3.6 Compliance with Law................................ A-16
3.7 Registration Statement; Proxy Statement............ A-17
3.8 Litigation; Products Liability..................... A-17
3.9 No Material Adverse Change......................... A-17
3.10 Environmental Compliance........................... A-17
3.11 Board Recommendation............................... A-18
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF TARGET....... A-18
4.1 Organization and Standing.......................... A-18
4.2 Subsidiaries....................................... A-19
4.3 Corporate Power and Authority...................... A-19
4.4 Capitalization of Target........................... A-19
4.5 Conflicts; Consents and Approvals.................. A-20
4.6 No Material Adverse Change......................... A-21
4.7 Target SEC Documents............................... A-21
4.8 Taxes.............................................. A-21
4.9 Compliance with Law................................ A-22
</TABLE>
A-2
<PAGE> 93
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
4.10 Intellectual Property.............................. A-23
4.11 Registration Statement; Proxy Statement............ A-23
4.12 Litigation; Products Liability..................... A-23
4.13 Employee Benefit Plans............................. A-24
4.14 Contracts.......................................... A-27
4.15 Labor Matters...................................... A-28
4.16 Permits............................................ A-28
4.17 Reserved........................................... A-28
4.18 Title to Properties and Assets..................... A-28
4.19 Environmental Compliance........................... A-29
4.20 Opinion of Financial Advisor....................... A-29
4.21 Board Recommendation; Required Vote................ A-29
4.22 Section 203 of DGCL; Rights Agreement.............. A-29
4.23 Brokerage and Finder's Fees........................ A-30
ARTICLE V. COVENANTS OF THE PARTIES........................ A-30
5.1 Mutual Covenants................................... A-30
(a) HSR Act Filings; Reasonable Best Efforts;
Notification.................................. A-30
(b) Public Announcements.......................... A-32
(c) Registration Statement/Proxy Statement........ A-32
(d) Change of Control............................. A-33
5.2 Covenants of Purchaser............................. A-33
(a) Conduct of Purchaser's Operations............. A-33
(b) Indemnification; Directors' and Officers'
Insurance..................................... A-33
(c) Merger Sub.................................... A-34
(d) NYSE Listing.................................. A-34
(e) Employees and Employee Benefits............... A-34
(f) Contacts with Target's Customers and
Suppliers..................................... A-34
5.3 Covenants of Target................................ A-34
(a) Target Stockholders Meeting................... A-34
(b) Conduct of Target's Operations................ A-35
(c) No Solicitation............................... A-37
(d) Access........................................ A-38
(e) Subsequent Financial Statements............... A-39
(f) Affiliates of Target.......................... A-39
ARTICLE VI. CONDITIONS..................................... A-39
6.1 Conditions to the Obligations of Each Party........ A-39
6.2 Conditions to Obligations of Target................ A-40
6.3 Conditions to Obligations of Purchaser and
Subcorp............................................ A-40
ARTICLE VII. TERMINATION AND AMENDMENT..................... A-41
7.1 Termination........................................ A-41
7.2 Effect of Termination.............................. A-42
7.3 Amendment.......................................... A-44
7.4 Extension; Waiver.................................. A-44
ARTICLE VIII. MISCELLANEOUS................................ A-44
8.1 Survival of Representations and Warranties......... A-44
8.2 Notices............................................ A-44
8.3 Interpretation..................................... A-45
8.4 Counterparts....................................... A-46
8.5 Entire Agreement................................... A-46
</TABLE>
A-3
<PAGE> 94
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
8.6 Third-Party Beneficiaries.......................... A-46
8.7 Governing Law...................................... A-46
8.8 Consent to Jurisdiction; Venue..................... A-46
8.9 Specific Performance............................... A-46
8.10 Assignment......................................... A-47
8.11 Expenses........................................... A-47
Exhibit A -- Form of Affiliate Letter
Exhibit B -- Form of Subcorp Bylaws
</TABLE>
A-4
<PAGE> 95
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and entered
into as of the 17th day of December, 1998, by and among Borg-Warner Corporation,
a Delaware corporation ("Purchaser"), BWA Merger Corp., a Delaware corporation
and a wholly owned subsidiary of Purchaser ("Subcorp"), and Kuhlman Corporation,
a Delaware corporation ("Target").
PRELIMINARY STATEMENTS
A. Purchaser desires to combine its businesses with the businesses
operated by Target through the merger of Subcorp with and into Target, with
Target as the surviving corporation (the "Merger"), pursuant to which each share
of Target Common Stock (as defined in Section 4.4(a)) outstanding at the
Effective Time (as defined in Section 1.2) will be converted into the right to
receive the Merger Consideration (as defined in Section 2.4(b)) as more fully
provided herein.
B. Target desires to combine its businesses with the businesses operated
by Purchaser and for the holders of shares of Target Common Stock ("Target
Stockholders") to receive the Merger Consideration and to have a continuing
equity interest in the combined Purchaser/Target businesses through the
ownership of Purchaser Common Shares (as defined in Section 3.3(a)).
C. The respective Boards of Directors of Purchaser, Subcorp and Target
have determined the Merger to be desirable and in the best interests of their
respective shareholders and, by resolutions duly adopted, have approved and
adopted this Agreement.
AGREEMENT
Now, therefore, in consideration of these premises and the mutual and
dependent promises hereinafter set forth, the parties hereto agree as follows:
ARTICLE I.
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions hereof, and
in accordance with the provisions of the Delaware General Corporation Law (the
"DGCL"), Subcorp shall be merged with and into Target at the Effective Time. As
a result of the Merger, the separate corporate existence of Subcorp shall cease
and Target shall continue its existence under the laws of the State of Delaware.
Target, in its capacity as the corporation surviving the Merger, is hereinafter
sometimes referred to as the "Surviving Corporation."
1.2 Effective Time. As promptly as possible on the Closing Date (as
defined below), the parties shall cause the Merger to be consummated by filing
with the Secretary of State of the State of Delaware (the "Delaware Secretary of
State") a certificate of merger (the "Certificate of Merger") in such form as is
required by and executed in accordance with Section 251 of the DGCL. The Merger
shall become effective (the "Effective Time") when the Certificate of Merger has
been filed with the Delaware Secretary of State or at such later time as shall
be agreed upon by Purchaser and Target and specified in the Certificate of
Merger. The date on which the Effective Time occurs is herein referred to as the
"Effective Date." Prior to the filing referred to in this Section 1.2,
A-5
<PAGE> 96
a closing (the "Closing") shall be held at the offices of Wachtell, Lipton,
Rosen & Katz, 51 West 52nd Street, New York, New York 10019, or such other place
as the parties may agree as soon as practicable (but in any event within ten
business days) following the date upon which all conditions set forth in Article
VI have been satisfied or waived, or at such other date as Purchaser and Target
may agree; provided, that the conditions set forth in Article VI have been
satisfied or waived at or prior to such date. The date on which the Closing
takes place is referred to herein as the "Closing Date."
1.3 Effects of the Merger. From and after the Effective Time, the Merger
shall have the effects set forth in Section 259 of the DGCL.
1.4 Certificate of Incorporation and By-Laws. The Certificate of Merger
shall provide that at the Effective Time (i) the Certificate of Incorporation of
the Surviving Corporation as in effect immediately prior to the Effective Time
shall be amended as of the Effective Time so as to contain the provisions, and
only the provisions, contained immediately prior thereto in the Certificate of
Incorporation of Subcorp, except for Article I thereof, which shall continue to
read "The name of the corporation is 'Kuhlman Corporation'", and (ii) the
By-Laws of Subcorp in effect immediately prior to the Effective Time, which
shall be in the form attached as Exhibit A hereto, shall be the By-Laws of the
Surviving Corporation; in each case, until amended in accordance with the DGCL.
1.5 Directors and Officers of the Surviving Corporation. From and after
the Effective Time, the officers of Target shall be the officers of the
Surviving Corporation and the directors of Subcorp shall be the directors of the
Surviving Corporation, in each case, until their respective successors are duly
elected and qualified. On or prior to the Closing Date, Target shall deliver to
Purchaser evidence satisfactory to Purchaser of the resignations of the
directors of Target, such resignations to be effective as of the Effective Time.
ARTICLE II.
CONVERSION OF SECURITIES
2.1 Conversion of Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Purchaser, Subcorp or Target or
their respective shareholders:
(a) Each share of common stock, $0.01 par value, of Subcorp ("Subcorp
Common Stock") issued and outstanding immediately prior to the Effective Time
shall be converted into one share of common stock, $0.01 par value, of the
Surviving Corporation.
Such newly issued shares shall thereafter constitute all of the issued and
outstanding capital stock of the Surviving Corporation.
(b) Each share of capital stock of Target held in the treasury of Target
shall be cancelled and retired and no payment shall be made in respect thereof.
(c) Each outstanding share of Target Common Stock which under the terms of
Section 2.2 is to be converted into the right to receive Purchaser Common Shares
shall, subject to Section 2.3, be converted into and become the right to receive
a number of Purchaser Common Shares equal to the Exchange Ratio (as defined in
Section 2.3) (the "Stock Consideration").
A-6
<PAGE> 97
(d) Each outstanding share of Target Common Stock which under the terms of
Section 2.2 is to be converted into the right to receive cash shall be converted
into the right to receive $39.00 in cash (the "Cash Consideration").
(e) Each outstanding share of Target Common Stock the holder of which has
perfected his right to dissent under applicable law and has not effectively
withdrawn or lost such right as of the Effective Date (the "Dissenting Shares")
shall not be converted into or represent a right to receive Purchaser Common
Shares and/or cash hereunder, and the holder thereof shall be entitled only to
such rights as are granted by applicable law. Target shall give Purchaser prompt
notice upon receipt by Target of any such written demands for payment of the
fair value of such shares of Target Common Stock and of withdrawals of such
notice and any other instruments provided pursuant to applicable law (any
shareholder duly making such demand being hereinafter called a "Dissenting
Shareholder"). Any payments made in respect of Dissenting Shares shall be made
by the Surviving Corporation.
(f) If any Dissenting Shareholder shall effectively withdraw or lose
(through failure to perfect or otherwise) his right to such payment at or prior
to the Effective Date, such holder's shares of Target Common Stock shall be
converted into a right to receive cash and/or Purchaser Common Shares in
accordance with the applicable provisions of this Agreement. If such holder
shall effectively withdraw or lose (through failure to perfect or otherwise) his
right to such payment after the Effective Date, each share of Target Common
Stock of such holder shall be converted on a share by share basis into the right
to receive the Cash Consideration.
2.2 Election Procedures.
(a) Subject to the allocation and election procedures set forth in this
Section 2.2, each record holder (or beneficial owner through appropriate and
customary documentation and instructions) immediately prior to the Effective
Time of shares of Target Common Stock shall be entitled either (i) to elect to
receive the Cash Consideration for each such share of Target Common Stock ("Cash
Election Shares"), or (ii) to elect to receive the Stock Consideration for each
such share of Target Common Stock ("Stock Election Shares"), or (iii) to
indicate that such record holder has no preference as to the receipt of cash or
Purchaser Common Shares for each such share of Target Common Stock ("Non-
Election Shares"). All such elections shall be made on a form furnished by
Purchaser for that purpose (a "Form of Election") and reasonably satisfactory to
Target. If more than one Certificate shall be surrendered for the account of the
same holder, the number of Purchaser Common Shares, if any, to be issued to such
holder in exchange for the certificates representing the shares of Target Common
Stock (the "Certificates") which have been surrendered shall be computed on the
basis of the aggregate number of shares of Target Common Stock represented by
all of the Certificates surrendered for the account of such holder. Holders of
record of shares of Target Common Stock who hold such shares as nominees,
trustees or in other representative capacities (each, a "Representative") may
submit multiple Forms of Election, provided that such Representative certifies
that each such Form of Election covers all shares of Target Common Stock held by
such Representative for a particular beneficial owner.
(b) Not later than the 25th business day prior to the anticipated
Effective Date or such date as the parties agree in writing, Purchaser shall
mail a Form of Election and a letter of transmittal to record holders of Target
Common Stock as of the record date for the Target Stockholders Meeting (as
defined below). Elections shall be made by holders
A-7
<PAGE> 98
of shares of Target Common Stock by delivering the Form of Election to Harris
Trust and Savings Bank, or such other bank or trust company designated by
Purchaser and who is reasonably satisfactory to Target (the "Exchange Agent").
To be effective, a Form of Election must be properly completed, signed and
submitted to the Exchange Agent by 5:00 p.m. (New York City time) on the last
business day prior to the date of the Target Stockholders Meeting (as defined
below) or such other time and date as Purchaser and Target may mutually agree
(the "Election Deadline"), and accompanied by (1)(x) the Certificates as to
which the election is being made or (y) an appropriate guarantee of delivery of
such Certificates as set forth in such Form of Election from a firm which is a
member of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States, provided such Stock
Certificates are in fact delivered to the Exchange Agent within three New York
Stock Exchange ("NYSE") trading days after the date of execution of such
guarantee of delivery (a "Guarantee of Delivery") and (2) a properly completed
and signed letter of transmittal. Failure to deliver Certificates covered by any
Guarantee of Delivery within three NYSE trading days after the date of execution
of such Guarantee of Delivery shall be deemed to invalidate any otherwise
properly made election. Purchaser will have the discretion, which it may
delegate in whole or in part to the Exchange Agent, to determine whether Forms
of Election have been properly completed, signed and submitted or revoked and to
disregard immaterial defects in Forms of Election. The good faith decision of
Purchaser (or the Exchange Agent) in such matters shall be conclusive and
binding. Neither Purchaser nor the Exchange Agent will be under any obligation
to notify any person of any defect in a Form of Election submitted to the
Exchange Agent. The Exchange Agent shall also make all computations contemplated
by Section 2.2(c) and all such computations shall be conclusive and binding on
the Target Stockholders in the absence of manifest error. Any Form of Election
may be changed or revoked prior to the Election Deadline. In the event a Form of
Election is revoked prior to the Election Deadline, Purchaser shall, or shall
cause the Exchange Agent to, cause the Certificates representing the shares of
Target Common Stock covered by such Form of Election to be promptly returned
without charge to the person submitting the Form of Election upon written
request to that effect from such person. For purposes hereof, if a Target
Stockholder does not submit a Form of Election which is received by the Exchange
Agent prior to the Election Deadline (including a holder who submits and then
revokes his or her Form of Election and does not resubmit a Form of Election
which is timely received by the Exchange Agent), or if a Target Stockholder
submits a Form of Election without the corresponding Certificates or a Guarantee
of Delivery, then such Target Stockholder's shares of Target Common Stock shall
be deemed to be Non-Election Shares. If any Form of Election is defective in any
manner that the Exchange Agent cannot reasonably determine the election
preference of the stockholder submitting such Form of Election, the purported
election set forth therein shall be deemed to be of no force and effect and then
such Target Stockholder's shares of Target Common Stock shall, for purposes
hereof, be deemed to be Non-Election Shares.
A-8
<PAGE> 99
(c) Within five business days after the Election Deadline (the
"Measurement Date"), the Exchange Agent shall effectuate the allocation among
holders of Target Common Stock of rights to receive Purchaser Common Shares or
cash in the Merger in accordance with the Forms of Election as follows:
(i) If the number of Stock Election Shares is less than or equal to
3,846,154 (the "Stock Conversion Number"), then:
(1) all Stock Election Shares will be converted into the right to
receive Purchaser Common Shares,
(2) the Exchange Agent will select first from among the
Non-Election Shares by a random selection process as shall be mutually
determined by Purchaser and Target as shall be further described in the
Election Form, then (if necessary) will allocate pro rata from among the
Cash Election Shares (provided that each holder of such Cash Election
Shares holds 1,000 or more shares of Target Common Stock), and then (if
necessary) will allocate pro rata from among the remaining Cash Election
Shares, a sufficient number of such shares ("Stock Designated Shares")
such that the number of Stock Designated Shares will, when added to the
number of Stock Election Shares, equal as closely as practicable the
Stock Conversion Number, and all Stock Designated Shares will be
converted into the right to receive Purchaser Common Shares, and
(3) the Cash Election Shares (subject to the provisions of
Sections 2.1(e) and (f) with respect to any Dissenting Shares) and the
Non-Election Shares which are not Stock Designated Shares will be
converted into the right to receive cash; or
(ii) If the number of Stock Election Shares is greater than the Stock
Conversion Number, then:
(1) the Exchange Agent will allocate pro rata first from among the
Stock Election Shares (provided that each holder of such Stock Election
Shares holds less than 1,000 shares of Target Common Stock) and then (if
necessary) will allocate pro rata from among the remaining Stock
Election Shares, a sufficient number of such shares ("Cash Designated
Shares") such that when the number of Cash Designated Shares is
subtracted from the number of Stock Election Shares, the remaining Stock
Election Shares will equal as closely as practicable the Stock
Conversion Number and all such remaining Stock Election Shares will be
converted into the right to receive Purchaser Common Shares, and
(2) the Cash Election Shares, Non-Election Shares, and Cash
Designated Shares will be converted into the right to receive cash.
2.3 Exchange Ratio; Fractional Shares; Adjustments.
(a) The "Exchange Ratio" shall mean the quotient (rounded to the nearest
1/100,000) obtained by dividing (i) $39.00 by (ii) the average of the high and
low sales prices of Purchaser Common Stock as reported on the New York Stock
Exchange ("NYSE") Composite Tape (the "NYSE Composite Tape") on each of the
twenty consecutive trading days immediately preceding the third trading date
prior to the Closing Date (the "Purchaser Share Price").
(b) No certificates for fractional Purchaser Common Shares shall be issued
as a result of the conversion provided for in Section 2.1(c) and such fractional
share interests
A-9
<PAGE> 100
will not entitle the owner thereof to vote or have any rights of a holder of
Purchaser Common Shares. In lieu of any such fractional Purchaser Common Shares,
the holder of a certificate previously evidencing Target Common Stock, upon
presentation of such fractional interest represented by an appropriate
certificate for Target Common Stock to the Exchange Agent pursuant to Section
2.3, shall be entitled to receive a cash payment therefor in an amount equal to
the value (determined with reference to the Purchaser Share Price) of such
fractional interest. Such payment with respect to fractional shares is merely
intended to provide a mechanical rounding off of, and is not a separately
bargained for, consideration. If more than one certificate representing shares
of Target Common Stock shall be surrendered for the account of the same holder,
the number of Purchaser Common Shares for which certificates have been
surrendered shall be computed on the basis of the aggregate number of shares
represented by the certificates so surrendered.
(c) In the event that prior to the Effective Time Purchaser shall declare
a stock dividend or other distribution payable in Purchaser Common Shares or
securities convertible into Purchaser Common Shares, or effect a stock split,
reclassification, combination or other change with respect to Purchaser Common
Shares, the Exchange Ratio and Cash Consideration set forth in this Article II
shall be adjusted to reflect such dividend, distribution, stock split,
reclassification, combination or other change.
2.4 Exchange of Certificates.
(a) Exchange Agent. Immediately prior to the Effective Time, Purchaser
shall deposit with the Exchange Agent for the benefit of Target Stockholders,
for exchange in accordance with this Section 2.4, (i) certificates representing
the aggregate Stock Consideration issuable pursuant to Sections 2.1 and 2.2,
(ii) cash representing the aggregate Cash Consideration to which Target
Stockholders who have properly completed, signed and submitted Forms of Election
shall be entitled pursuant to Sections 2.1 and 2.2 and (iii) from time to time,
(X) cash representing the aggregate Cash Consideration to which Target
Stockholders who submit letters of transmittal after the Effective Time shall be
entitled pursuant to Sections 2.1 and 2.2 and (Y) cash in an amount reasonably
expected to be paid pursuant to Section 2.3(b) (such Purchaser Common Shares and
cash, together with any dividends or distributions with respect thereto, the
"Exchange Fund").
(b) Exchange Procedures. As soon as practicable after the Effective Time,
the Exchange Agent shall mail to each holder of record of a Certificate or
Certificates which prior thereto represented Target Common Stock who did not
submit such Certificate or Certificates to the Exchange Agent with such holder's
properly submitted Form of Election: (i) a letter of transmittal (which shall
specify, as shall the Form of Election, that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent, and shall be in such form and have such
other customary provisions as Purchaser may reasonably specify) and (ii)
instructions for effecting the surrender of the Certificates in exchange for the
Merger Consideration. Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with a duly executed letter of transmittal, the holder
of such Certificate shall be entitled to receive in exchange therefor (i) a
certificate or certificates representing that whole number of Purchaser Common
Shares which such holder has the right to receive pursuant to Sections 2.1 or
2.2 in such denominations and registered in such names as such holder may
request and/or a check representing the Cash Consideration which such holder has
the right to receive pursuant to Sections 2.1 or 2.2 plus (ii) the amount of
cash in lieu of fractional shares, if any, and unpaid dividends and
distributions, if any, which such holder
A-10
<PAGE> 101
has the right to receive pursuant to the provisions of this Article II, after
giving effect to any required withholding tax (the Purchaser Common Shares and
cash referred to in clause (i) being collectively referred to as the "Merger
Consideration"). The shares represented by the Certificate so surrendered shall
forthwith be cancelled. No interest will be paid or accrued on the Cash
Consideration or the cash in lieu of fractional shares, if any, and unpaid
dividends and distributions, if any, payable to holders of shares of Target
Common Stock. In the event of a transfer of ownership of shares of Target Common
Stock that is not registered on the transfer records of Target, a certificate
representing the proper number of Purchaser Common Shares, and/or a check for
the Cash Consideration which such holder has the right to receive pursuant to
Sections 2.1 or 2.2 plus the cash to be paid in lieu of fractional shares, if
any, and unpaid dividends and distributions, if any, may be issued to such
transferee if the Certificate representing such shares of Target Common Stock
held by such transferee is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.4, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon surrender
the Merger Consideration plus the cash in lieu of fractional shares, if any, and
unpaid dividends and distributions, if any, as provided in this Article II. If
any Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed and, if required by Purchaser, the posting by such person of
a bond in such reasonable amount as Purchaser may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will deliver in exchange for such lost, stolen or destroyed
Certificate, a certificate representing the proper number of Purchaser Common
Shares, and/or check for the Cash Consideration which such holder has the right
to receive pursuant to Sections 2.1 or 2.2 plus the cash to be paid in lieu of
fractional shares, if any, with respect to the shares of Target Common Stock
formerly represented thereby, and unpaid dividends and distributions on
Purchaser Common Shares, if any, as provided in this Article II.
(c) Distributions with Respect to Unexchanged Shares. Notwithstanding any
other provisions of this Agreement, no dividends or other distributions declared
or made after the Effective Time with respect to Purchaser Common Shares having
a record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate, and no cash payment in lieu of fractional shares
shall be paid to any such holder, until the holder shall surrender such
Certificate as provided in this Section 2.4. Subject to the effect of Applicable
Laws (as defined in Section 4.9), following surrender of any such Certificate,
there shall be paid to the holder of the certificates representing whole
Purchaser Common Shares issued in exchange therefor, without interest, (i) at
the time of such surrender, the amount of dividends or other distributions with
a record date after the Effective Time theretofore payable with respect to such
whole Purchaser Common Shares and not paid, less the amount of any withholding
taxes that may be required thereon, and (ii) at the appropriate payment date
subsequent to surrender, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole Purchaser Common
Shares, less the amount of any withholding taxes which may be required thereon.
(d) No Further Ownership Rights in Target Common Stock. All Purchaser
Common Shares issued and/or Cash Consideration paid upon surrender of
Certificates in accordance with the terms hereof (including any cash paid in
lieu of fractional shares) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such
A-11
<PAGE> 102
shares of Target Common Stock represented thereby, and, as of the Effective
Time, the stock transfer books of Target shall be closed and there shall be no
further registration of transfers on the stock transfer books of Target of
shares of Target Common Stock outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be cancelled and exchanged as provided in
this Section 2.4. Certificates surrendered for exchange by any person identified
as an "affiliate" in the letter provided to Purchaser pursuant to Section 5.3(f)
shall not be exchanged until Purchaser has received written undertakings from
such person in the form attached as Exhibit B to this Agreement.
(e) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to Target Stockholders six months after the date of the
mailing required by Section 2.4(b) shall be delivered to Purchaser, upon demand
thereby, and holders of Certificates previously representing shares of Target
Common Stock who have not theretofore complied with this Section 2.4 shall
thereafter look only to Purchaser for payment of any claim to the Merger
Consideration and cash in lieu of fractional shares thereof, or dividends or
distributions, if any, in respect thereof.
(f) No Liability. None of Purchaser, the Surviving Corporation or the
Exchange Agent shall be liable to any person in respect of any shares of Target
Common Stock (or dividends or distributions with respect thereto) or cash from
the Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Certificates shall not have
been surrendered prior to seven years after the Effective Time (or immediately
prior to such earlier date on which any cash, any cash in lieu of fractional
shares or any dividends or distributions with respect to whole shares of Target
Common Stock in respect of such Certificate would otherwise escheat to or become
the property of any Governmental Authority (as defined in Section 3.4(d)), any
such cash, dividends or distributions in respect of such Certificate shall, to
the extent permitted by Applicable Laws, become the property of Purchaser, free
and clear of all claims or interest of any person previously entitled thereto.
(g) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by Purchaser, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
Purchaser upon termination of the Exchange Fund pursuant to Section 2.4(e). In
the event the cash in the Exchange Fund shall be insufficient to fully satisfy
all of the payment obligations to be made by the Exchange Agent hereunder, then
Purchaser shall promptly deposit cash into the Exchange Fund in an amount which
is equal to the deficiency in the amount of cash required to fully satisfy such
payment obligations.
(h) Withholding Rights. Each of the Surviving Corporation, Subcorp and
Purchaser shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of shares of Target
Common Stock such amounts as it is required to deduct and withhold with respect
to the making of such payment under the Internal Revenue Code of 1986, as
amended (the "Code") and the rules and regulations promulgated thereunder, or
any provision of state, local or foreign tax law. To the extent that amounts are
so withheld by the Surviving Corporation, Subcorp or Purchaser, as the case may
be, such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Target Common Stock in respect
of which such deduction and withholding was made by the Surviving Corporation,
Subcorp or Purchaser, as the case may be.
A-12
<PAGE> 103
2.5 Treatment of Stock Options. (a) Prior to the Effective Time, the
Board of Directors of Target (or, if appropriate, any committee thereof) shall
adopt appropriate resolutions and take all other actions necessary (including
obtaining the consent of holders) to provide for the cancellation, effective at
the Effective Time, of all the outstanding stock options (the "Options")
outstanding immediately prior to the Effective Time heretofore granted under any
stock option or similar plan of Target or under any agreement, without any
payment therefor except as otherwise provided in this Section 2.5. Immediately
prior to the Effective Time, all Options (whether vested or unvested) which are
listed in Section 2.5 of the disclosure schedule delivered by Target to
Purchaser and dated the date hereof (the "Target Disclosure Schedule") shall be
cancelled (and to the extent formerly so exercisable shall no longer be
exercisable) and shall entitle each holder thereof, in cancellation and
settlement therefor, to a payment, if any, in cash by Target (less any
applicable withholding taxes), promptly following the Effective Time, equal to
the product of (i) the total number of shares of Target Common Stock subject to
such Option (whether vested or unvested) and (ii) the excess, if any, of $39.00
over the exercise price per share of Target Common Stock subject to such Option.
2.6 Treatment of Stock Appreciation Rights. Prior to the Effective Time,
the Board of Directors of Target (or, if appropriate, any committee thereof)
shall adopt appropriate resolutions and take all other actions necessary
(including obtaining the consent of holders) to provide for the cancellation,
effective at the Effective Time, of all the outstanding stock appreciation
rights (the "SARs") outstanding immediately prior to the Effective Time
heretofore granted under any compensation, incentive, employee or similar plan
of Target or under any agreement, without any payment therefor except as
otherwise provided in this Section 2.6. Immediately prior to the Effective Time,
all SARs (whether vested or unvested) which are listed in Section 2.6 of the
Target Disclosure Schedule shall be cancelled (and to the extent formerly so
exercisable shall no longer be exercisable) and shall entitle each holder
thereof, in cancellation and settlement therefor, to a payment, if any, in cash
by Target (less any applicable withholding taxes), immediately prior to the
Effective Time, equal to the excess, if any, of $39.00 over the price of Target
Common Stock on the date of grant of such SAR.
2.7 Treatment of Awards Under Long-Term Incentive Plan. Prior to the
Effective Time, the Board of Directors of Target (or, if appropriate, any
committee thereof) shall adopt appropriate resolutions and take all other
actions necessary (including obtaining the consent of holders) to provide, with
respect to all currently outstanding Awards (as defined in the Target Long-Term
Incentive Plan dated August 8, 1996, as amended January 1, 1998 and November 20,
1998) (other than Options) granted prior to the Effective Time, that (i) each
such Award that is listed on Section 2.7 of the Target Disclosure Schedule shall
be canceled, immediately prior to the Effective Time, and shall entitle the
holder thereof to the immediate payment of the amount of cash set forth in
Section 2.7 of the Target Disclosure Schedule, which amount constitutes the full
payment of any consideration due under such Awards, and (ii) all other such
Awards (including any Awards granted pursuant to the New Two-Year Management
Incentive Arrangement $56 Target) shall be canceled immediately prior to the
Effective Time with no further consideration.
A-13
<PAGE> 104
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND SUBCORP
In order to induce Target to enter into this Agreement, Purchaser and
Subcorp hereby represent and warrant to Target that the statements contained in
this Article III are true, correct and complete.
3.1 Organization and Standing. Each of Purchaser and Subcorp is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation with full corporate power and authority to own,
lease, use and operate its properties and to conduct its business as and where
now owned, leased, used, operated and conducted. Each of Purchaser and Subcorp
is duly qualified to do business and is in good standing in each jurisdiction in
which the nature of the business conducted by it or the property it owns, leases
or operates, requires it to so qualify, except where the failure to be so
qualified or in good standing in such jurisdiction would not have a Material
Adverse Effect (as defined in Section 8.3) on Purchaser or Subcorp, as the case
may be. Purchaser is not in default in the performance, observance or
fulfillment of any provision of the Purchaser Restated Certificate of
Incorporation, as amended (the "Purchaser Articles"), or the Purchaser By-Laws
(the "Purchaser By-Laws"), and Subcorp is not in default in the performance,
observance or fulfillment of any provisions of its Certificate of Incorporation
or By-Laws. Purchaser has heretofore made available or furnished to Target a
complete and correct copy of (i) the Purchaser Articles and the Purchaser
By-Laws, each as in effect as of the date of this Agreement and (ii) the
Certificate of Incorporation of Subcorp.
3.2 Corporate Power and Authority. Each of Purchaser and Subcorp has all
requisite corporate power and authority to enter into and deliver this Agreement
to perform its obligations hereunder and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby by Purchaser and
Subcorp have been duly authorized by all necessary corporate action on the part
of each of Purchaser and Subcorp. This Agreement has been duly executed and
delivered by each of Purchaser and Subcorp, and constitutes the legal, valid and
binding obligation of each of Subcorp and Purchaser enforceable against each of
them in accordance with its terms.
3.3 Capitalization of Purchaser and Subcorp.
(a) As of December 1, 1998, Purchaser's authorized capital stock consisted
solely of (A) 50,000,000 shares of common stock, $0.01 par value ("Purchaser
Common Shares"), of which (i) 23,381,373 shares were issued and outstanding,
(ii) 371,992 shares were issued and held in treasury (which does not include
Purchaser Common Shares reserved for issuance as set forth in clause (a)(iii)
below) and (iii) 1,400,050 shares were reserved for issuance upon the exercise
or conversion of options, warrants or convertible securities granted or issuable
by Purchaser, (B) 25,000,000 shares of non-voting common stock, $0.01 par value
("Purchaser Non-Voting Common Shares"), of which (i) 1,500 shares were issued
and outstanding and (ii) none were reserved for issuance, and (C) 5,000,000
shares of Preferred Stock, $0.01 par value, of which (i) none was issued and
outstanding and (ii) 500,000 shares were designated as Series A Junior
Participating Preferred Stock reserved for issuance under the Rights Agreement,
dated as of July 22, 1998, between Purchaser and ChaseMellon Shareholder
Services, LLC, as rights agent (the "Purchaser Rights Agreement"). Each
outstanding share of Purchaser capital stock is, and all Purchaser Common Shares
to be issued in connection with the Merger will be, duly
A-14
<PAGE> 105
authorized and validly issued, fully paid and nonassessable, and each
outstanding share of Purchaser capital stock has not been, and all Purchaser
Common Shares to be issued in connection with the Merger will not be, issued in
violation of any preemptive or similar rights. Section 3.3 to the disclosure
schedule delivered by Purchaser to Target and dated the date hereof (the
"Purchaser Disclosure Schedule") sets forth the aggregate amount of outstanding
options relating to the issuance by Purchaser of any equity securities of
Purchaser, together with the average weighted exercise price thereof. The
issuance and sale of all of the shares of capital stock described in this
Section 3.3 have been in material compliance with federal and state securities
laws. The Purchaser Common Shares to be issued in the Merger in accordance with
this Agreement will be, when so issued, duly authorized, validly issued, fully
paid and nonassessable with preferred share purchase rights issuable pursuant to
the Purchaser Rights Agreement attached thereto. As of the date hereof,
Purchaser has not agreed to register any securities under the Securities Act of
1933, as amended (together with the rules and regulations thereunder, the
"Securities Act") or under any state securities law or granted registration
rights to any person or entity (which rights are currently exercisable or will
become exercisable between the date hereof and December 31, 2000).
(b) Subcorp's authorized capital stock consists solely of 1,000 shares of
Subcorp Common Stock, of which, as of the date hereof, 100 were issued and
outstanding and none were reserved for issuance. As of the date hereof, all of
the outstanding shares of Subcorp Common Stock are owned free and clear of any
liens, claims or encumbrances by Purchaser.
3.4 Conflicts; Consents and Approvals. Except as set forth in Section 3.4
to the Purchaser Disclosure Schedule, neither the execution and delivery of this
Agreement by Purchaser or Subcorp nor the consummation of the transactions
contemplated hereby will:
(a) conflict with, or result in a breach of any provision of the Purchaser
Articles or the Purchaser By-Laws or the Certificate of Incorporation or By-Laws
of Subcorp;
(b) violate, or conflict with, or result in a breach of any provision of,
or constitute a default (or an event that, with the giving of notice, the
passage of time or otherwise, would constitute a default) under, or entitle any
party (with the giving of notice, the passage of time or otherwise) to
terminate, accelerate, modify or call a default under, or result in the creation
of any lien, security interest, charge or encumbrance upon any of the properties
or assets of Purchaser or any of its subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, contract, undertaking, agreement, lease or other instrument or
obligation to which Purchaser or any of its subsidiaries is a party;
(c) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Purchaser or any of its subsidiaries or any of their
respective properties or assets; or
(d) require any action or consent or approval of, or review by, or
registration or filing by Purchaser or any of its affiliates with, any third
party or any local, domestic, foreign or multi-national court, arbitral
tribunal, administrative agency or commission or other governmental or
regulatory body, agency, instrumentality or authority (a "Governmental
Authority"), other than (i) authorization for inclusion of the Purchaser Common
Shares to be issued in the Merger and the transactions contemplated hereby on
the NYSE, subject to official notice of issuance, (ii) actions required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (together with
the rules and regulations thereunder, the "HSR Act"), (iii) registrations or
other actions required under
A-15
<PAGE> 106
federal and state securities laws as are contemplated by this Agreement, or (iv)
consents or approvals of any Governmental Authority set forth in Section 3.4 to
the Purchaser Disclosure Schedule;
except in the case of clauses (b), (c) and (d) for any of the foregoing that
would not, individually or in the aggregate, have a Material Adverse Effect on
Purchaser or a material adverse effect on the ability of the parties to
consummate the transactions contemplated hereby.
3.5 Purchaser SEC Documents. Purchaser has timely filed with the
Securities and Exchange Commission (the "Commission") all forms, reports,
schedules, statements and other documents required to be filed by it since
January 1, 1996 under the Exchange Act or the Securities Act (such documents, as
supplemented and amended since the time of filing, collectively, the "Purchaser
SEC Documents"). The Purchaser SEC Documents, including, without limitation, any
financial statements or schedules included therein, at the time filed (and, in
the case of registration statements and proxy statements, on the dates of
effectiveness and the dates of mailing, respectively and, in the case of any
Purchaser SEC Document amended or superseded by a filing prior to the date of
this Agreement, then on the date of such amending or superseding filing) (a) did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (b) complied in all material respects with the applicable
requirements of the Securities Exchange Act of 1934 (together with the rules and
regulations thereunder, the "Exchange Act") and the Securities Act, as the case
may be. The financial statements of Purchaser included in the Purchaser SEC
Documents at the time filed (and, in the case of registration statements and
proxy statements, on the dates of effectiveness and the dates of mailing,
respectively, and, in the case of any Purchaser SEC Document amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such amending or superseding filing) complied as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the Commission with respect thereto, were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as permitted by Form 10-Q of
the Commission), and fairly present (subject, in the case of unaudited
statements, to normal, recurring audit adjustments) the consolidated financial
position of Purchaser and its consolidated subsidiaries as at the dates thereof
and the consolidated results of their operations and cash flows for the periods
then ended. No subsidiary of Purchaser is subject to the periodic reporting
requirements of the Exchange Act or required to file any form, report or other
document with the Commission, the NYSE, any other stock exchange or any other
comparable Governmental Authority.
3.6 Compliance with Law. Purchaser and each of its subsidiaries is in
compliance, and at all times since January 1, 1996 has been in compliance, with
all applicable laws, statutes, orders, rules, regulations, policies or
guidelines promulgated, or judgments, decisions or orders entered by any
Governmental Authority (collectively, "Applicable Laws") relating to Purchaser
and each of its subsidiaries or their respective business or properties, except
where the failure to be in compliance with such Applicable Laws (individually or
in the aggregate) would not have a Material Adverse Effect on Purchaser. No
investigation or review by any Governmental Authority with respect to Purchaser
or any of its subsidiaries is pending, or, to the knowledge of Purchaser,
threatened, nor has any Governmental Authority indicated in writing an intention
to conduct the same, other than those the outcome of which would not have a
Material Adverse Effect on Purchaser.
A-16
<PAGE> 107
3.7 Registration Statement; Proxy Statement. None of the information
provided in writing by Purchaser for inclusion in the registration statement on
Form S-4 (such registration statement as amended, supplemented or modified, the
"Registration Statement") to be filed with the Commission by Purchaser under the
Securities Act, including the prospectus relating to Purchaser Common Shares to
be issued in the Merger (as amended, supplemented or modified, the "Prospectus")
and the proxy statement and form of proxies relating to the vote of Target
Stockholders with respect to the Merger (as amended, supplemented or modified,
the "Proxy Statement"), at the time the Registration Statement becomes effective
or, in the case of the Proxy Statement, at the date of mailing and at the date
of the Target Stockholders Meeting (as defined in Section 5.3(a)) to consider
the Merger and the transactions contemplated thereby, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Registration
Statement and Proxy Statement, except for such portions thereof that relate only
to Target, will each comply as to form in all material respects with the
provisions of the Securities Act and the Exchange Act.
3.8 Litigation; Products Liability. There is no suit, claim, action,
proceeding, hearing, notice of violation, demand letter or investigation (an
"Action") pending or, to the knowledge of Purchaser (or its executive officers
or directors), threatened against Purchaser, any of its subsidiaries or any of
their respective executive officers or directors that, individually or in the
aggregate, would have a Material Adverse Effect on Purchaser or a material
adverse effect on the ability of Purchaser to consummate the transactions
contemplated hereby. Neither Purchaser nor any of its subsidiaries is subject to
any outstanding order, writ, injunction or decree that, individually or in the
aggregate, that would have a Material Adverse Effect on Purchaser or a material
adverse effect on the ability of Purchaser to consummate the transactions
contemplated hereby. There is no Action presently pending or, to the knowledge
of Purchaser (or its executive officers or directors), threatened against
Purchaser or any of its subsidiaries relating to any alleged hazard or alleged
defect in design, manufacture, materials or workmanship, including, without
limitation, any failure to warn or alleged breach of express or implied warranty
or representation, relating to any product manufactured, distributed or sold by
or on behalf of Purchaser or any of its subsidiaries, which if adversely
determined, would have a Material Adverse Effect on Purchaser.
3.9 No Material Adverse Change. Since January 1, 1998, there has been no
material adverse change in the business, results of operations or financial
condition of Purchaser other than any events, occurrences or developments that
would not, individually or in the aggregate, have or reasonably be expected to
have a Material Adverse Effect on Purchaser or a material adverse effect on the
ability of Purchaser to consummate the transactions contemplated hereby.
3.10 Environmental Compliance.
(a) To the knowledge of Purchaser, each of Purchaser and its subsidiaries
is, and has been, and each of Purchaser's former subsidiaries, while
subsidiaries of Purchaser, was in compliance with all applicable Environmental
Laws, except for possible noncompliance which individually or in the aggregate
would not have a Material Adverse Effect on Purchaser. The term "Environmental
Laws" means any federal, state, local or foreign statute, code, ordinance, rule,
regulation, policy, guideline, permit, consent, approval, license, judgment,
order, writ, decree, injunction or other authorization, including the
A-17
<PAGE> 108
requirement to register underground storage tanks, relating to: (A) emissions,
discharges, releases or threatened releases of Hazardous Material (as defined
below) into the environment, including, without limitation, into ambient air,
soil, sediments, land surface or subsurface, buildings or facilities, surface
water, groundwater, publicly-owned treatment works, septic systems or land; or
(B) the generation, treatment, storage, disposal, use, handling, manufacturing,
transportation or shipment of Hazardous Material.
(b) During the period of ownership or operation by Purchaser and its
subsidiaries of any of their respective current or previously-owned properties,
there have been no releases of Hazardous Material in, on, under or affecting
such properties or, to the knowledge of Purchaser, any surrounding site, except
in each case for those which individually or in the aggregate would not have a
Material Adverse Effect on Purchaser. Prior to the period of ownership or
operation by Purchaser and its subsidiaries of any of their respective current
or previously-owned properties, to the knowledge of Purchaser, there were no
releases of Hazardous Material in, on, under or affecting any such property or
any surrounding site, except in each case for those which individually or in the
aggregate would not have a Material Adverse Effect on Purchaser. The term
"Hazardous Material" means (1) hazardous materials, contaminants, constituents,
medical wastes, hazardous or infectious wastes and hazardous substances as those
terms are defined in the Hazardous Materials Transportation Act, 49 U.S.C. sec.
1801 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. sec. 6901 et
seq., the Comprehensive Environmental Response, Compensation and Liability Act,
as amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C. sec.
9601 et seq., the Clean Water Act, 33 U.S.C. sec. 1251 et seq., the Clean Air
Act, 42 U.S.C. sec. 7401 et seq., or any other statute relating to the
protection of the environment or human health or safety, or in any regulation
promulgated thereunder, (2) petroleum, including crude oil and any fractions
thereof, (3) natural gas, synthetic gas and any mixtures thereof, (4) asbestos
and/or asbestos-containing material and (5) PCBs, or materials or fluids
containing PCBs in excess of 50 ppm.
3.11 Board Recommendation. The Board of Directors of Purchaser, at a
meeting duly called and held, has by unanimous vote determined that this
Agreement and the transactions contemplated hereby, including the Merger, taken
together, are fair to and in the best interests of Purchaser and its
stockholders.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF TARGET
In order to induce Subcorp and Purchaser to enter into this Agreement,
Target hereby represents and warrants to Purchaser and Subcorp that the
statements contained in this Article IV are true, correct and complete.
4.1 Organization and Standing. Target is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to own, lease, use and operate its
properties and to conduct its business as and where now owned, leased, used,
operated and conducted. Each of Target and each subsidiary of Target is duly
qualified to do business and in good standing in each jurisdiction in which the
nature of the business conducted by it or the property it owns, leases or
operates requires it to so qualify, except where the failure to be so qualified
or in good standing in such jurisdiction would not have a Material Adverse
Effect on Target. Target is not in default in the performance, observance or
fulfillment of any provision of its Certificate of Incorporation (the "Target
Certificate"), or its By-Laws, as in effect on the
A-18
<PAGE> 109
date hereof (the "Target By-Laws"). Target has heretofore furnished or made
available to Purchaser a complete and correct copy of the Target Certificate and
the Target By-Laws. Listed in Section 4.1 to the Target Disclosure Schedule is
each jurisdiction in which Target or a subsidiary of Target is qualified to do
business and, whether Target (or the subsidiaries of Target) is in good standing
as of the date of the Agreement.
4.2 Subsidiaries. Target does not own, directly or indirectly, any equity
or other ownership interest in any corporation, partnership, joint venture or
other entity or enterprise, except for the subsidiaries set forth in Section 4.2
to the Target Disclosure Schedule. Target is not subject to any obligation or
requirement to provide funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in any such entity or any other person.
Except as set forth in Section 4.2 to the Target Disclosure Schedule, Target
owns, directly or indirectly, each of the outstanding shares of capital stock
(or other ownership interests having by their terms ordinary voting power to
elect a majority of directors or others performing similar functions with
respect to such subsidiary) of each of Target's subsidiaries. Except as set
forth in Section 4.2 to the Target Disclosure Schedule, each of the outstanding
shares of capital stock of each of Target's subsidiaries is duly authorized,
validly issued, fully paid and nonassessable, and is owned, directly or
indirectly, by Target free and clear of all liens, pledges, security interests,
claims or other encumbrances. The following information for each subsidiary of
Target is set forth in Section 4.2 to the Target Disclosure Schedule, as
applicable: (i) its name and jurisdiction of incorporation or organization; (ii)
its authorized capital stock or share capital; and (iii) the number of issued
and outstanding shares of capital stock or share capital and the record owner(s)
thereof. Other than as set forth in Section 4.2 to the Target Disclosure
Schedule, there are no outstanding subscriptions, options, warrants, puts,
calls, agreements, understandings, claims or other commitments or rights of any
type relating to the issuance, sale or transfer of any securities of any
subsidiary of Target nor are there outstanding any securities that are
convertible into or exchangeable for any shares of capital stock of any
subsidiary of Target, and neither Target nor any subsidiary of Target has any
obligation of any kind to issue any additional securities or to pay for or
repurchase any securities of any subsidiary of Target or any predecessor
thereof.
4.3 Corporate Power and Authority. Target has all requisite corporate
power and authority to enter into and deliver this Agreement, to perform its
obligations hereunder and, subject to authorization of the Merger and the
transactions contemplated hereby by Target Stockholders, to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by Target have been duly authorized by all necessary corporate action
on the part of Target, subject to authorization of the Merger and the
transactions contemplated hereby by Target Stockholders. This Agreement has been
duly executed and delivered by Target and constitutes the legal, valid and
binding obligation of Target enforceable against it in accordance with its
terms.
4.4 Capitalization of Target. As of November 30, 1998, Target's
authorized capital stock consisted solely of (a) 40,000,000 shares of common
stock, par value $1.00 per share ("Target Common Stock"), of which (i)
16,851,870 shares were issued and outstanding, (ii) 72,388 shares were issued
and held in treasury (which does not include shares of Target Common Stock
reserved for issuance set forth in clause (iii) below), (iii) 2,085,215 shares
were reserved for issuance upon the exercise of outstanding Target Options, and
(iv) 95,877 shares were reserved for issuance pursuant to outstanding grants
under Target's Long-Term Incentive Plan, and (b) 2,000,000 shares of preferred
stock, par value $1.00 per share ("Target Preferred Stock"), of which (i) none
was issued and outstanding, and (ii) 200,000 shares were designated as Series A
Junior Participating
A-19
<PAGE> 110
Preferred Stock (the "Series A Preferred Stock") reserved for issuance pursuant
to the rights issued under the Target Rights Agreement (as defined in Section
4.22). Since November 30, 1998, Target has not issued any additional shares of
capital stock except for the issuance of Target Common Stock in connection with
the exercise of Target Options. Each outstanding share of Target capital stock
is duly authorized and validly issued, fully paid and nonassessable, and has not
been issued in violation of any preemptive or similar rights. Other than as set
forth in the first sentence hereof or in Section 4.4 to the Target Disclosure
Schedule, there are no outstanding subscriptions, options, warrants, puts,
calls, agreements, understandings, claims or other commitments or rights of any
type relating to the issuance, sale, repurchase or transfer of any securities of
Target, nor are there outstanding any securities which are convertible into or
exchangeable for any shares of capital stock of Target, and neither Target nor
any subsidiary of Target has any obligation of any kind to issue any additional
securities or to pay for or repurchase any securities of Target or any
predecessor. The issuance and sale of all of the shares of capital stock
described in this Section 4.4 have been in material compliance with federal and
state securities laws. Target has previously provided Purchaser with schedules
setting forth the names of, and the number of shares of each class (including
the number of shares issuable upon exercise of Target Options and the exercise
price and vesting schedule with respect thereto) and the number of options held
by, all holders of options to purchase Target capital stock. Section 4.4 to the
Target Disclosure Schedule sets forth the average exercise price for outstanding
Target Options. Except as set forth in Section 4.4 to the Target Disclosure
Schedule, Target has not agreed to register any securities under the Securities
Act or under any state securities law or granted registration rights to any
person or entity; copies of all such agreements have previously been provided to
Purchaser. No Purchase Rights have been granted pursuant to the Kuhlman
Corporation Employee Stock Purchase Plan (as that term is defined in such plan),
and there exists no obligation to grant any such Purchase Rights.
4.5 Conflicts; Consents and Approvals. Except as set forth in Section 4.5
to the Target Disclosure Schedule, neither the execution and delivery of this
Agreement by Target, nor the consummation of the transactions contemplated
hereby will:
(a) conflict with, or result in a breach of any provision of, the Target
Certificate or the Target By-Laws;
(b) violate, or conflict with, or result in a breach of any provision of,
or constitute a default (or an event that, with the giving of notice, the
passage of time or otherwise, would constitute a default) under, or entitle any
party (with the giving of notice, the passage of time or otherwise) to
terminate, accelerate, modify or call a default under, or result in the creation
of any lien, security interest, charge or encumbrance upon any of the properties
or assets of Target or any of its subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, contract, undertaking, agreement, lease or other instrument or
obligation to which Target or any of its subsidiaries is a party involving more
than $500,000;
(c) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Target or any of its subsidiaries or any of their
respective properties or assets; or
(d) require any action or consent or approval of, or review by, or
registration or filing by Target or any of its affiliates with, any third party
or any Governmental Authority, other than (i) authorization of the Merger and
the transactions contemplated hereby by Target Stockholders, (ii) actions
required by the HSR Act, (iii) registrations or other actions required under
federal and state securities laws as are contemplated by this
A-20
<PAGE> 111
Agreement and (iv) consents or approvals of any Governmental Authority set forth
in Section 4.5 to the Target Disclosure Schedule;
except in the case of clauses (c) and (d) for any of the foregoing that would
not, individually or in the aggregate, have a Material Adverse Effect on Target
or a material adverse effect on the ability of the parties to consummate the
transaction contemplated hereby.
4.6 No Material Adverse Change. Since January 1, 1998, there has been no
material adverse change in the business, results of operations or financial
condition of Target other than any events, occurrences or developments that
would not, individually or in the aggregate, have or reasonably be expected to
have a Material Adverse Effect on Target or a material adverse effect on the
ability of Target to consummate the transactions contemplated hereby.
4.7 Target SEC Documents. Target has timely filed with the Commission all
forms, reports, schedules, statements and other documents required to be filed
by it since June 1, 1996 under the Exchange Act or the Securities Act (such
documents, as supplemented and amended since the time of filing, collectively,
the "Target SEC Documents"). The Target SEC Documents, including, without
limitation, any financial statements or schedules included therein, at the time
filed (and, in the case of registration statements and proxy statements, on the
dates of effectiveness and the dates of mailing, respectively and, in the case
of any Target SEC Document amended or superseded by a filing prior to the date
of this Agreement, then on the date of such amending or superseding filing) (a)
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and (b) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be. The
financial statements of Target included in the Target SEC Documents at the time
filed (and, in the case of registration statements and proxy statements, on the
dates of effectiveness and the dates of mailing, respectively, and, in the case
of any Target SEC Document amended or superseded by a filing prior to the date
of this Agreement, then on the date of such amending or superseding filing)
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the Commission with
respect thereto, were prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto or, in the case of unaudited statements,
as permitted by Form 10-Q of the Commission), and present fairly (subject, in
the case of unaudited statements, to normal, year-end adjustments), in all
material respects, the financial position of Target and its consolidated
subsidiaries as at the dates thereof and the results of their operations and
their cash flows for the periods then ended. No subsidiary of Target is subject
to the periodic reporting requirements of the Exchange Act or required to file
any form, report or other document with the Commission, the NYSE, any other
stock exchange or any other comparable Governmental Authority.
4.8 Taxes.
(a) Each of Target and its subsidiaries has duly and timely filed or
caused to be duly and timely filed all federal, state, local and foreign Tax
Returns required to be filed by them, and has paid or withheld or caused to be
paid or withheld all Taxes of any nature whatsoever, with any related penalties,
interest and liabilities that are either shown on
A-21
<PAGE> 112
those Tax Returns as due and payable or are or were otherwise required to be
paid, other than Taxes being contested in good faith and for which adequate
reserves have been established and reflected in the Target SEC Documents, except
where the failure to file, pay or withhold would not, individually or in the
aggregate, have a Material Adverse Effect. All such Tax Returns are complete and
accurate, except for failures that would not, individually or in the aggregate,
have a Material Adverse Effect. There are no claims, assessments or audits
pending or threatened against Target or any of its subsidiaries for any alleged
deficiency in any Tax that, if upheld, would, individually or in the aggregate,
have a Material Adverse Effect, and there are no threatened Tax claims or
assessments against Target or any of its subsidiaries that, if upheld, would,
individually or in the aggregate, have a Material Adverse Effect. Except as set
forth in Section 4.8(a) to the Target Disclosure Schedule, there are no waivers
or extensions of any applicable statute of limitations to assess any Taxes.
Except as set forth in Section 4.8(a) to the Target Disclosure Schedule, there
are no outstanding requests for any extension of time within which to file any
Tax Return or within which to pay any Taxes shown to be due on any Tax Return.
There are no liens for any Taxes upon the assets of Target or any of its
subsidiaries (other than statutory liens for Taxes not yet due and payable)
which would, individually or in the aggregate, have a Material Adverse Effect on
Target. Except as set forth in Section 4.8(a) to the Target Disclosure Schedule,
the federal income Tax Returns of Target and each of its subsidiaries
consolidated in such Tax Returns have been examined by and settled with the IRS
for all years through and including the year ended December 31, 1995. Neither
Target nor any of its subsidiaries has ever filed an election under Section
341(f) of the Code to be treated as a consenting corporation.
(b) Neither Target nor any of its subsidiaries has any liability for Taxes
of any person (other than Target and its subsidiaries) under Treasury Regulation
Section 1.1502-6 (or any comparable provision of state, local or foreign law).
Except as set forth in Section 4.8(b) to the Target Disclosure Schedule, neither
Target nor any of its subsidiaries is or, since December 31, 1988, has ever been
a party to, or bound by, any Tax sharing, Tax indemnity, cost sharing, or
similar agreement or policy relating to Taxes.
(c) Target and its subsidiaries have withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, shareholder or other third party,
except where the failure to withhold or pay would not, individually or in the
aggregate, have a Material Adverse Effect on Target.
(d) For purposes of this Agreement, the term "Taxes" means all taxes,
charges, fees, levies or other assessments, including, without limitation,
income, gross receipts, excise, property, sales, use, transfer, license,
payroll, withholding, export, import, customs, capital stock and franchise taxes
or duties, imposed by the United States or any state, local or foreign
government or subdivision or agency thereof, including any interest, penalties
or additions thereto. For purposes of this Agreement, the term "Tax Return"
means any report, return or other information or document required to be
supplied to a Tax authority in connection with Taxes.
4.9 Compliance with Law. Target and each of its subsidiaries is in
compliance, and at all times since January 1, 1996 has been in compliance, with
all Applicable Laws relating to Target and each of its subsidiaries or their
respective business or properties, except where the failure to be in compliance
with such Applicable Laws (individually or in the aggregate) would not have a
Material Adverse Effect on Target. No investigation or review by any
Governmental Authority with respect to Target or any of its subsidiaries is
A-22
<PAGE> 113
pending, or, to the knowledge of Target, threatened, nor has any Governmental
Authority indicated in writing an intention to conduct the same, other than
those the outcome of which would not have a Material Adverse Effect on Target.
4.10 Intellectual Property. To Target's knowledge, there is no
infringement or unlawful use by any person or entity of any of the Intellectual
Property, other than any infringement or use that would not have a Material
Adverse Effect on Target. Except as would not have a Material Adverse Effect on
Target, Target has the defensible right to use, whether through ownership,
licensing or otherwise, all Intellectual Property necessary for the operation of
the business of Target and its subsidiaries in substantially the same manner as
such business is presently conducted. Except as would not have a Material
Adverse Effect on Target, the making, using, selling, manufacturing, marketing,
licensing, reproduction, distribution, or publishing of any process, machine,
manufacture, composition of matter, or material that was, within the last six
(6) years, that is currently or that is planned to be manufactured, used or sold
by Target or its subsidiaries, did not, does not and will not infringe any
domestic or foreign patent, trademark, service mark, trade name, copyright or
other intellectual property right of any third party, and does not and will not
involve the misappropriation or improper use or disclosure of any trade secrets,
confidential information or know-how of any third party. For purposes of this
Section 4.10, "Intellectual Property" shall mean all intellectual property or
other proprietary rights of Target or any of its subsidiaries of every kind,
including, all domestic or foreign patents, domestic or foreign patent
applications, inventions (whether or not patentable), processes, products,
technologies, discoveries, copyrightable and copyrighted works, apparatus, trade
secrets, trademarks, trademark registrations and applications, service marks,
service mark registrations and applications, trade names, trade dress, copyright
registrations, customer lists, marketing and customer information, licenses,
technical information (whether confidential or otherwise), software, and all
documentation thereof.
4.11 Registration Statement; Proxy Statement. None of the information
provided in writing by Target for inclusion in the Registration Statement at the
time it becomes effective or, in the case of the Proxy Statement, at the date of
mailing and at the date of the Target Stockholders Meeting, will contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The
Registration Statement and Proxy Statement, except for such portions thereof
that relate only to Purchaser and its subsidiaries, will each comply as to form
in all material respects with the provisions of the Securities Act and the
Exchange Act.
4.12 Litigation; Products Liability. There is no Action pending or, to
the knowledge of Target, threatened against Target, any of its subsidiaries or
any of their respective executive officers or directors that, individually or in
the aggregate, would have a Material Adverse Effect on Target or a material
adverse effect on the ability of Target to consummate the transactions
contemplated hereby. Neither Target nor any of its subsidiaries is subject to
any outstanding order, writ, injunction or decree that, individually or in the
aggregate, that would have a Material Adverse Effect on Target or a material
adverse effect on the ability of Target to consummate the transactions
contemplated hereby. There is no Action presently pending or, to the knowledge
of Target, threatened against Target or any of its subsidiaries relating to any
alleged hazard or alleged defect in design, manufacture, materials or
workmanship, including, without limitation, any failure to warn or alleged
breach of express or implied warranty or representation, relating to any product
manufactured, distributed or sold by or on behalf of Target or any of its
A-23
<PAGE> 114
subsidiaries, which if adversely determined, would have a Material Adverse
Effect on Target.
4.13 Employee Benefit Plans.
(a) Each "employee benefit plan" (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and all
other employee benefit, bonus, incentive, stock option (or other equity-based),
severance, change in control, welfare (including post-retirement medical and
life insurance), deferred compensation, and fringe benefit plans, programs,
policies and arrangements (whether or not subject to ERISA) maintained,
sponsored, contributed to, or required to be contributed to, by Target or any of
its subsidiaries or any trade or business, whether or not incorporated, that
would be deemed a "single employer" within the meaning of Section 4001 of ERISA
with, or part of the same group described in Section 414(b), (c), (m) or (o) as,
Target or any of its subsidiaries (an "ERISA Affiliate") for the benefit of any
employee or former employee of Target or any of its subsidiaries or any of their
respective ERISA Affiliates (collectively, the "Plans") has been operated in
accordance with its terms and is in compliance (including the making of
governmental filings) with all applicable laws, including ERISA and the
applicable provisions of the Code, except for failures that would not have a
Material Adverse Effect. Each of the Plans intended to be "qualified" within the
meaning of Section 401(a) of the Code (the "Qualified Plans") has been
determined by the Internal Revenue Service to be so qualified or has been or
will be submitted to the Internal Revenue Service for a determination within the
remedial amendment period, and since the date of such determination, no event
has occurred except for changes for which the remedial amendment period under
Section 401(b) of the Code has not expired that would adversely affect a
Qualified Plan's qualified status. No "reportable event," as that term is
defined in Section 4043(c) of ERISA (for which the 30-day notice requirement to
the Pension Benefit Guaranty Corporation ("PBGC") has not been waived), has
occurred with respect to any plan that is subject to Title IV of ERISA that
presents a risk of liability to any governmental entity or other person that
would have a Material Adverse Effect. There are no pending or, to Target's
knowledge, threatened claims (other than routine claims for benefits), audits,
investigations or litigation by, on behalf of, against or relating to, any of
the Plans or any trusts related thereto or fiduciaries thereof that would have a
Material Adverse Effect. Except as disclosed in Section 4.13(a)(i) to the Target
Disclosure Schedule, no Plan is a "multiemployer plan" (within the meaning of
Section 3(37) or 4001(a)(3) of ERISA) (a "Multiemployer Plan") or a plan that
has two or more contributing sponsors at least two of whom are not under common
control, within the meaning of Section 4063 of ERISA (a "Multiple Employer
Plan") and none of Target, its subsidiaries nor any of their respective ERISA
Affiliates has, at any time since January 1, 1993, contributed to or been
obligated to contribute to any Multiemployer Plan or Multiple Employer Plan.
With respect to each Plan that is a Multiemployer Plan, except as set forth in
Section 4.13(a)(ii) of the Target Disclosure Schedule or as would not have a
Material Adverse Effect: (i) if Target or any of its subsidiaries or any of
their respective ERISA Affiliates were to experience a withdrawal or partial
withdrawal from such plan, no withdrawal liability under Title IV of ERISA would
be incurred; and (ii) none of Target and its subsidiaries, nor any of their
respective ERISA Affiliates has received any notification, nor has any reason to
believe, that any such Plan is in reorganization, has been terminated, is
insolvent, or could reasonably be expected to be in reorganization, to be
insolvent, or to be terminated.
A-24
<PAGE> 115
(b) No Plan has incurred an "accumulated funding deficiency" (as defined
in Section 302 of ERISA or Section 412 of the Code), whether or not waived that
(either alone or together with any other such claims) presents a risk of
liability that would have a Material Adverse Effect on Target. Neither Target
nor any ERISA Affiliate has incurred any liability under Title IV of ERISA
except for required premium payments to the PBGC, which payments have been made
when due, and no events have occurred (i) that could reasonably be expected to
give rise to any liability of Target or any of its subsidiaries or any of their
respective ERISA Affiliates under Title IV of ERISA, under section 302 of ERISA,
under sections 412 and 4971 of the Code, or for a violation of the continuation
coverage requirements of section 601 et seq. of ERISA and section 4980B of the
Code that (either alone or together with any other such claims) presents a risk
of liability that would have a Material Adverse Effect on Target or (ii) that
could reasonably be expected to result in any claim being made against the
Purchaser, Target or any of its subsidiaries, or any of their respective ERISA
Affiliates by the PBGC that (either alone or together with any other such
claims) presents a risk of liability that would have a Material Adverse Effect
on Target.
(c) With respect to each Plan that is subject to Title IV of ERISA, (i)
Target has made available to Purchaser copies of the most recent actuarial
valuation report prepared for the Plan before the date of this Agreement, (ii)
the assets and liabilities in respect of the accrued benefits as set forth in
the most recent actuarial valuation report prepared by the Plan's actuary fairly
presented the funded status of the Plan in all material respects as at the
valuation date stated in said report, (iii) since the date of the valuation
report there has been no adverse change in the funded status of any of those
Plans that would have a Material Adverse Effect and (iv) the PBGC has not
instituted proceedings to terminate any such Plan and no condition exists that
presents a material risk that such proceedings will be instituted or which would
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any such Plan.
(d) Neither Target nor any of its subsidiaries nor any of their respective
ERISA Affiliates has failed to make any contribution or payment to any Plan, or
committed any other action or failure to act, that has resulted or could result
in the imposition of a lien or the posting of a bond or other security under
ERISA or the Code that would have a Material Adverse Effect on Target.
(e) Section 4.13(e) to the Target Disclosure Schedule lists all material
Plans covering individuals who are or were employed in the United States. With
respect to each material Plan maintained or sponsored by Target or any of its
subsidiaries, Target has made available to Purchaser a true, correct and
complete copy of the following (where applicable), except to the extent filed
with the Commission: (i) each writing constituting a part of such Plan,
including without limitation all plan documents, benefit schedules, trust
agreements, and insurance contracts and other funding vehicles; (ii) the most
recent Annual Report (Form 5500 Series) and accompanying schedule, if any; (iii)
the current summary plan description, if any; (iv) the most recent annual
financial report, if any; and (v) the most recent determination letter from the
Internal Revenue Service, if any.
(f) Except for contributions or premiums that would not, in the aggregate,
have a Material Adverse Effect on Target all contributions required to be made
to any Plan and all premiums due or payable with respect to insurance policies
funding any Plan, for any period through the date hereof have been timely made
or paid in full and through the Closing Date will be timely made or paid in
full.
A-25
<PAGE> 116
(g) Except for health continuation coverage as required by Section 4980B
of the Code or Part 6 of Title 1 of ERISA and except as set forth in Section
4.13(g)(i) to the Target Disclosure Schedule, neither Target nor any of its
subsidiaries has any material liability for life, health, medical or other
welfare benefits to retirees, former employees or beneficiaries or dependents
thereof which are not reflected in the financial statement included in the
Target SEC Documents. Except as set forth in Section 4.13(g)(ii) to the Target
Disclosure Schedule, to the knowledge of Target there has been no communication
to employees of Target or its subsidiaries that could reasonably be expected to
promise or guarantee such employees retiree health or life insurance benefits or
other retiree death benefits on a permanent basis.
(h) Section 4.13(h) to the Target Disclosure Schedule sets forth, for each
executive officer of Target and for all other employees of and consultants to
Target and its subsidiaries as a group, (i) the amount of severance pay and a
reasonable good faith estimate of other benefits that would be due to each such
executive officer and the terms and conditions of such severance pay and other
benefits that would be due to such other employees, in each case upon an
involuntary termination of employment as of the Closing, and (ii) with respect
to all other payments and benefits that will or could become payable, the
vesting, payment or delivery of which will or could be accelerated, or the
amount or value of which will or could be increased, as a result of the
execution and delivery of this Agreement, or shareholder approval or
consummation of the transactions contemplated hereby, either alone or as a
result of one or more such events together with any other events, the amount of
such payments, a reasonable good faith estimate of the amount of such benefits
and the timing of such payments and benefits. A copy of all agreements and
documents providing for any payments or benefits disclosed pursuant to this
Section 4.13(h) has been provided or made available to Purchaser. Section
4.13(h) to the Target Disclosure Schedule incorporates a report setting forth
Target's reasonable good faith estimate, based upon the information available to
Target as of the date hereof and the assumptions set forth in such report, of
all amounts, paid or payable by Target or any of its subsidiaries in connection
with the transactions contemplated hereby either solely as a result thereof or
as a result of such transactions in conjunction with any other events that will
be "excess parachute payments" within the meaning of Section 280G of the Code.
(i) Except as set forth in Section 4.13(i) to the Target Disclosure
Schedule, to the knowledge of Target no officer, director, or employee of Target
or any of its subsidiaries or affiliates, or any immediate family member of any
of the foregoing or any party in interest under ERISA, has engaged in a
nonexempt prohibited transaction under ERISA with respect to Target Plans.
(j) All Plans subject to the laws of any jurisdiction outside of the
United States (i) have been maintained in accordance with all material
applicable requirements of local law, (ii) if they are intended to qualify for
special tax treatment under local law, meet all requirements for such treatment,
and (iii) if they are intended to be funded and/or book-reserved, are funded in
accordance with all material requirements of local law and/or book reserved, as
appropriate, based upon reasonable actuarial assumptions.
(k) The Change in Control Agreements dated as of February 20, 1996,
between Target and the individuals listed on Schedule 4.13(k) to the Target
Disclosure Schedule, respectively (each such agreement, a "Change in Control
Agreement" and collectively, the "Change in Control Agreements," and each such
individual, an "Executive") each provide, or have been amended effective no
later than the date hereof to provide, the following: (i) it shall be a
condition to the right of the Executive who is a party to the Change in
A-26
<PAGE> 117
Control Agreement to receive payments and benefits thereunder that (A) such
Executive exercise stock options after the date hereof and on or before December
31, 1998, as contemplated by the Change in Control Analysis incorporated in
Section 4.13(h) of the Target Disclosure Schedule (such stock options, the
"Exercised Options"), and (B) the Executive not voluntarily terminate employment
with Target prior to the end of the first day immediately following the
Effective Date (for these purposes, a termination of employment due to death or
disability shall not constitute a voluntary termination of employment); (ii) the
Company shall make a loan to the Executive in an amount equal to the exercise
price for the Exercised Options, payable at the Effective Time and otherwise as
contemplated by the Change in Control Analysis; (iii) provided there is no
attempt to amend or terminate the Change in Control Agreements after the
Effective Time, no cash payments shall be made to the Executive pursuant to the
Change in Control Agreement until the 91st day following the Effective Date
(other than any required gross-up payments with respect to any taxes that are
due or required to be withheld before such 91st day); (iv) the Executive shall
not be entitled to any severance pay or severance benefits under any plan,
program, policy, arrangement or agreement other than his Change in Control
Agreement, the Company's automobile policy and benefits under the Directors and
Officers Health Incentive Plan; and (v) the benefits to which the Executive is
entitled under the Change in Control Agreement shall include only life, health,
accidental death and disability benefits under plans in which the Executive was
participating at the time of the change in control.
4.14 Contracts. Section 4.14 to the Target Disclosure Schedule lists as
of the date hereof all written or oral contracts, agreements, guarantees, leases
and executory commitments other than Plans (each a "Contract") to which Target
or any of its subsidiaries is a party and that fall within any of the following
categories: (a) joint venture, partnership and like agreements, (b) Contracts
containing covenants purporting to limit the freedom of Target or any of its
subsidiaries to compete in any line of business in any geographic area or to
hire any individual or group of individuals, (c) Contracts that after the
Effective Time would have the effect of limiting the freedom of Purchaser or its
subsidiaries (other than Target and its subsidiaries) to compete in any line of
business in any geographic area or to hire any individual or group of
individuals, (d) Contracts providing for "earn-outs", (e) any Contract providing
for "savings guarantees", "performance guarantees", or other contingent payments
by Target or any of its subsidiaries, other than normal product warranties,
involving more than $1 million, (f) Contracts with or for the benefit of any
affiliate of Target or immediate family member thereof (other than subsidiaries
of Target) involving more than $50,000 in the aggregate per affiliate, (g) any
Contract for the purchase of inventory, spare parts, other materials or personal
property with any supplier or for the furnishing of services to Target and each
of its subsidiaries or otherwise related to the businesses of Target and each of
its subsidiaries, which is not cancellable by Target or such subsidiary without
penalty in excess of 2% of the aggregate of all amounts payable under such
Contract, and under the terms of which Target or any of its subsidiaries: (i) is
likely to pay or otherwise give consideration of more than $1,000,000 during the
calendar year ended December 31, 1998, (ii) is likely to pay or otherwise give
consideration of more than $2,000,000 over the remaining term of such Contract,
or (iii) is a party for a term of five (5) years or more and which involves more
than $1,000,000 over such term, (h) any Contract for the sale of inventory or
other personal property or for the furnishing of services by Target or any of
its subsidiaries which is not cancellable by Target or such subsidiary without
penalty in excess of 2% of the aggregate of all amounts payable under such
Contract and which: (i) is likely to involve consideration of more than
$3,000,000 during the calendar year ended December 31, 1998,
A-27
<PAGE> 118
(ii) is likely to involve consideration of more than $6,000,000 over the
remaining term of the Contract, or (iii) has a term of five (5) years or more
and involves more than $1,000,000 over such term, (i) any Contract or agreement
relating to indebtedness for borrowed money of Target or any of its subsidiaries
or to any direct or indirect guaranty by Target or any of its subsidiaries of
indebtedness for borrowed money of any other person in excess of $1 million, and
(j) any other Contract or agreement, whether or not made in the ordinary course
of business, which is material to Target or the conduct of the business of
Target or the absence of which would have a Material Adverse Effect on Target.
All such Contracts are valid and binding obligations of Target and, to the
knowledge of Target, the valid and binding obligation of each other party
thereto and is in full force and effect and shall continue in full force and
effect without penalty, acceleration, termination or other adverse consequence
except to the extent that any consents set forth in Section 4.14 to the Target
Disclosure Schedule are not obtained. Neither Target nor, to the knowledge of
Target, any other party thereto is in violation of or in default in respect of,
nor has there occurred an event or condition that with the passage of time or
giving of notice (or both) would constitute a default under or permit the
termination of, any such Contract except such violations or defaults under or
terminations that, individually or in the aggregate, would not have a Material
Adverse Effect on Target. Set forth in Section 4.14 to the Target Disclosure
Schedule is the amount of the annual premium currently paid by Target for its
directors' and officers' liability insurance.
4.15 Labor Matters. Except as set forth in Section 4.15 of the Target
Disclosure Schedule, (i) neither Target nor any of its subsidiaries have any
labor contracts or collective bargaining agreements with any persons employed by
Target or any of its subsidiaries or any persons otherwise performing services
primarily for Target or any of its subsidiaries, (ii) there is no labor strike,
dispute or stoppage pending or, to the knowledge of Target, threatened against
Target or any of its subsidiaries, and neither Target nor any of its
subsidiaries has experienced any labor strike, dispute or stoppage or other
material labor difficulty involving its employees since January 1, 1996 which
would have a Material Adverse Effect on Target, and (iii) since January 1, 1996,
no campaign or other attempt for recognition has been made by any labor
organization or employees with respect to employees of Target or any of its
subsidiaries.
4.16 Permits. Target and its subsidiaries are in possession of all
material franchises, grants, authorizations, licenses, permits, easements,
variances, exemptions, consents, certificates, approvals and orders necessary to
own, lease and operate its properties and to carry on their respective
businesses as they are now being conducted (collectively, the "Target Permits"),
and there is no Action pending or, to the knowledge of Target, threatened
regarding any of the Target Permits. Neither Target nor any of its subsidiaries
is in conflict with, or in default or violation of any of the Target Permits,
except for any such conflicts, defaults or violations which, individually or in
the aggregate, would not have a Material Adverse Effect on Target.
4.17 Reserved.
4.18 Title to Properties and Assets.
(a) Target and its subsidiaries have good and marketable title to, or
valid leasehold interests in, all their material properties and material assets
except for such as are no longer used or useful in the conduct of their
businesses or as have been disposed of in the ordinary course of business and
except for defects in title, easements, restrictive covenants and similar
encumbrances or impediments that, in the aggregate, would not have a Material
Adverse Effect on Target. All such material properties and assets, other than
A-28
<PAGE> 119
properties and assets in which Target or any of its subsidiaries has leasehold
interests, are free and clear of all liens, encumbrances, leases, options,
charges, covenants, easements and restrictions of any kind ("Liens"), except for
Liens that, in the aggregate, would not have a Material Adverse Effect on
Target.
(b) Each of Target and each of its subsidiaries has complied in all
material respects with the terms of all material leases to which it is a party
and under which it is in occupancy, and all such leases are in full force and
effect. Each of Target and each of its subsidiaries enjoys peaceful and
undisturbed possession under all such material leases.
(c) All real and personal property and fixtures of Target and its
subsidiaries (exclusive of inventories) that are significant to the operations
of Target and its subsidiaries are in good condition and repair, ordinary wear
and tear excepted, or are currently being repaired or replaced in a manner that
will ensure the continuing and normal operations of Target and its subsidiaries.
4.19 Environmental Compliance.
(a) To the knowledge of Target, each of Target and its subsidiaries is,
and has been, and each of Target's former subsidiaries, while subsidiaries of
Target, was in compliance with all applicable Environmental Laws, except for
possible noncompliance which individually or in the aggregate would not have a
Material Adverse Effect on Target.
(b) During the period of ownership or operation by Target and its
subsidiaries of any of their respective current or previously-owned properties,
there have been no releases of Hazardous Material in, on, under or affecting
such properties or, to the knowledge of Target, any surrounding site, except in
each case for those which individually or in the aggregate would not have a
Material Adverse Effect on Target. Prior to the period of ownership or operation
by Target and its subsidiaries of any of their respective current or
previously-owned properties, to the knowledge of Target, there were no releases
of Hazardous Material in, on, under or affecting any such property or any
surrounding site, except in each case for those which individually or in the
aggregate would not have a Material Adverse Effect on Target.
4.20 Opinion of Financial Advisor. Target has received the written
opinion of The Robinson-Humphrey Company, LLC (the "Financial Advisor"), to the
effect that, as of the date of this Agreement, the Merger Consideration is fair
to the Target Stockholders from a financial point of view, and such opinion has
not been withdrawn or revoked or modified in any material respect.
4.21 Board Recommendation; Required Vote. The Board of Directors of
Target, at a meeting duly called and held, has by unanimous vote of those
directors present (who constituted 100% of the directors then in office) (i)
determined that this Agreement and the transactions contemplated hereby,
including the Merger, taken together are fair to and in the best interests of
the Target Stockholders, and (ii) resolved to recommend that the holders of the
shares of Target Common Stock approve this Agreement and the transactions
contemplated herein, including the Merger (the "Target Board Recommendation").
The affirmative vote of holders of a majority of the outstanding shares of
Target Common Stock to approve the Merger is the only vote of the holders of any
class or series of Target Common Stock necessary to adopt the Agreement and
approve the transactions contemplated hereby.
4.22 Section 203 of DGCL; Rights Agreement. Prior to the date hereof, the
Board of Directors of Target has taken all action necessary to exempt under or
make not subject
A-29
<PAGE> 120
to (x) the provisions of Section 203 of the DGCL and (y) any other state
takeover law or state law that purports to limit or restrict business
combinations or the ability to acquire or vote shares: (i) the execution of this
Agreement, (ii) the Merger and (iii) the transactions contemplated hereby. The
Rights Agreement, dated as of April 30, 1997 (the "Target Rights Agreement"),
between Target and Harris Trust Savings Bank as rights agent, has been amended
so that Purchaser and Subcorp are each exempt from the definition of "Acquiring
Person" contained in the Target Rights Agreement, no "Stock Acquisition Date" or
"Distribution Date" or "Triggering Event" (as such terms are defined in the
Target Rights Agreement) will occur as a result of the execution of this
Agreement or the consummation of the Merger pursuant to this Agreement and the
Target Rights Agreement will expire immediately prior to the Effective Time, and
the Target Rights Agreement, as so amended, has not been further amended or
modified. Copies of all such amendments to the Target Rights Agreement have been
previously provided to Purchaser.
4.23 Brokerage and Finder's Fees. Except for Target's obligations to the
Financial Advisor (copies of all agreements relating to such obligations having
previously been provided to Purchaser), neither Target nor any of its
subsidiaries nor any stockholder, director, officer or employee thereof, has
incurred or will incur on behalf of Target or any of its subsidiaries, any
brokerage, finder's or similar fee in connection with the transactions
contemplated by this Agreement.
ARTICLE V.
COVENANTS OF THE PARTIES
The parties hereto agree that:
5.1 Mutual Covenants.
(a) HSR Act Filings; Reasonable Best Efforts; Notification.
(i) Each of Purchaser and Target shall (A) make or cause to be made
the filings required of such party or any of its subsidiaries or affiliates
under the HSR Act with respect to the transactions contemplated hereby as
promptly as practicable, (B) comply at the earliest practicable date with
any request for further information or documents received by such party or
any of its subsidiaries from Federal Trade Commission, the Department of
Justice or any other Governmental Authority in respect of such filings or
such transactions, including without limitation a request for additional
information and documents under the HSR Act, and (C) cooperate with the
other party in connection with any such filing (including, with respect to
the party making a filing, providing copies of all such documents to the
non-filing party and its advisors prior to filing (other than documents
containing confidential business information that shall be shared only with
outside counsel to the non-filing party) and, if requested, to accept all
reasonable additions, deletions or changes suggested in connection
therewith) and in connection with resolving any investigation or other
inquiry of any such agency or other Governmental Authority under any
Antitrust Laws (as defined in Section 5.1(a)(ii)) with respect to any such
filing or any such transaction. Each party shall use its reasonable best
efforts to furnish to each other all information required for any
application or other filing to be made pursuant to any Applicable Law in
connection with the Merger and the other transactions contemplated by this
Agreement. Each party shall promptly inform the other party of any
communication with, and any proposed understanding, undertaking, or
agreement with, any Governmental Authority regarding any such filings or
any such transaction.
A-30
<PAGE> 121
Neither party shall independently participate in any meeting with any
Governmental Authority in respect of any such filings, investigation, or
other inquiry without giving the other party prior notice of the meeting
and, to the extent permitted by such Governmental Authority, the
opportunity to attend and/or participate. The parties hereto will consult
and cooperate with one another, in connection with any analyses,
appearances, presentations, memoranda, briefs, arguments, opinions and
proposals made or submitted by or on behalf of any party hereto in
connection with proceedings under or relating to the HSR Act or other
Antitrust Laws.
(ii) Each of Purchaser and Target shall use its reasonable best
efforts to resolve such objections, if any, as may be asserted by any
Governmental Authority with respect to the transaction contemplated by this
Agreement under the HSR Act, the Sherman Act, as amended, the Clayton Act,
as amended, the Federal Trade Commission Act, as amended, and any other
federal, state or foreign statutes, rules, regulations, orders, decrees,
administrative or judicial doctrines or other laws that are designed to
prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade (collectively, "Antitrust Laws"). In
connection therewith, if any administrative or judicial action or
proceeding is instituted (or threatened to be instituted) challenging any
transaction contemplated by this Agreement as violative of any Antitrust
Law, each of Purchaser and Target shall cooperate and use its reasonable
best efforts vigorously to contest and resist any such action or
proceeding, including any legislative, administrative or judicial action,
and to have vacated, lifted, reversed, or overturned any decree, judgment,
injunction or other order whether temporary, preliminary or permanent (each
an "Order"), that is in effect and that prohibits, prevents, or restricts
consummation of the Merger or any other transactions contemplated by this
Agreement, including, without limitation, by vigorously pursuing all
available avenues of administrative and judicial appeal and all available
legislative action, unless by mutual agreement Purchaser and Target decide
that litigation is not in their respective best interests. Notwithstanding
the foregoing or any other provision of this Agreement, nothing in this
Section 5.1(a) shall limit a party's right to terminate this Agreement
pursuant to Section 7.1, so long as such party has up to then complied in
all material respects with its obligations under this Section 5.1(a). Each
of Purchaser and Target shall use all reasonable best efforts to take such
action as may be required to cause the expiration of the notice periods
under the HSR Act or other Antitrust Laws with respect to such transactions
as promptly as possible after the execution of this Agreement.
(iii) Each of the parties agrees to use its reasonable best efforts
to take, or cause to be taken, all actions, and to do, or cause to be done,
and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the
most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including (A) the obtaining of all other
necessary actions or nonactions, waivers, consents, licenses, permits,
authorizations, orders and approvals from Governmental Authorities and the
making of all other necessary registrations and filings (including other
filings with Governmental Authorities, if any), (B) the obtaining of all
consents, approvals or waivers from third parties related to or required in
connection with the Merger that are necessary to consummate the Merger and
the transactions contemplated by this Agreement or required to prevent a
Material Adverse Effect on Purchaser or Target from occurring prior to or
after the Effective Time, (C) the preparation of the Proxy Statement, the
Prospectus and the Registration Statement, and (D) the execution and
A-31
<PAGE> 122
delivery of any additional instruments necessary to consummate the
transaction contemplated by, and to fully carry out the purposes of, this
Agreement.
(iv) Notwithstanding anything to the contrary in this Agreement, (A)
neither Purchaser nor any of its subsidiaries shall be required to hold
separate (including by trust or otherwise) or to divest any of their
respective businesses or assets, or to take or agree to take any action or
agree to any limitation that would reasonably be expected to have a
Material Adverse Effect on either Purchaser or Target or a material adverse
effect on the assets, liabilities, results of operations or financial
condition of either Purchaser or Target, (B) prior to the Effective Time,
neither Target nor its subsidiaries shall be required to hold separate
(including by trust or otherwise) or to divest any of their respective
businesses or assets, or to take or agree to take any other action or agree
to any limitation that would reasonably be expected to have a Material
Adverse Effect on Target and its subsidiaries taken as a whole, (C)
Purchaser shall not be required to take any action that would reasonably be
expected to substantially impair the overall benefits expected, as of the
date hereof, to be realized from consummation of the Merger and (D) neither
party shall be required to waive any of the conditions to the Merger set
forth in Article VI as they apply to such party.
(b) Public Announcements. Unless otherwise required (as advised by
counsel) by Applicable Laws or requirements of the NYSE (and, in that event,
only if time does not permit), at all times prior to the earlier of the
Effective Time or termination of this Agreement pursuant to Section 7.1,
Purchaser and Target shall consult with each other before issuing any press
release or similar communication or making any public filing with the Commission
or other Governmental Authority with respect to the Merger and shall not issue
any such press release or communication or make such filing prior to such
consultation.
(c) Registration Statement/Proxy Statement. (i) As promptly as
practicable after the execution of this Merger Agreement, Target and Purchaser
shall prepare and Target shall file with the Commission preliminary proxy
materials which shall constitute the preliminary Proxy Statement and a
preliminary prospectus with respect to the Purchaser Common Shares to be issued
in connection with the Merger. Each party will notify the other promptly of the
receipt of any comments from the Commission and of any request by the Commission
for amendments or supplements to the Registration Statement or the Proxy
Statement or for additional information, and will supply the other with copies
of all correspondence between such party or any of its representatives and the
Commission, with respect to the Registration Statement or the Proxy Statement.
The Registration Statement and the Proxy Statement shall comply in all material
respects with all applicable requirements of law. Whenever any event occurs
which is required to be set forth in an amendment or supplement to the
Registration Statement or the Proxy Statement, Purchaser or Target, as the case
may be, shall promptly inform the other of such occurrences and cooperate in
filing with the Commission and/or mailing to the shareholders of Target such
amendment or supplement to the Proxy Statement. As promptly as practicable after
comments are received from the Commission with respect to the preliminary proxy
materials and after the furnishing by Target and Purchaser of all information
required to be contained therein, Target shall file with the Commission the
definitive Proxy Statement and Purchaser shall file with the Commission the
Registration Statement and Purchaser and Target shall use all reasonable efforts
to cause the Registration Statement to become effective as soon thereafter as
practicable.
A-32
<PAGE> 123
(ii) Target and Purchaser shall make all necessary filings with respect to
the Merger, under the Securities Act and the Exchange Act and the rules and
regulations thereunder, under applicable blue sky or similar securities laws and
shall use all reasonable efforts to obtain required approvals and clearances
with respect thereto.
(d) Change of Control. Target and Purchaser mutually acknowledge and
agree that the consummation of the Merger will constitute a change of control
for purposes of all plans and agreements of Target and its subsidiaries which
provide for payments or benefits to employees of Target and its subsidiaries
upon a change of control of Target and which have been disclosed to Purchaser.
Target and Purchaser further acknowledge and agree that upon consummation of the
Merger, Target or Purchaser will be obligated to honor all severance or Change
in Control Agreement payment obligations of Target that are listed on Section
5.1(d) to the Target Disclosure Schedule, and that neither Target or Purchaser
shall seek to amend or terminate these obligations following the Effective Time.
Target shall use, and shall cause its subsidiaries to use, reasonable best
efforts in consultation with Purchaser to minimize the amounts paid or payable
by Target and its subsidiaries that will be "excess parachute payments" within
the meaning of Section 280G of the Code; provided, that: (i) any actions to
implement the foregoing covenant shall be taken only with the consent of
Purchaser; (ii) such actions shall include paying bonuses with respect to 1998
on or before December 31, 1998, if and to the extent requested by Purchaser; and
(iii) such reasonable best efforts shall not include reducing or eliminating any
severance or bonus payments that would otherwise be paid to any executive
officer or other employee of Target or any of its subsidiaries.
5.2 Covenants of Purchaser.
(a) Conduct of Purchaser's Operations. During the period from the date of
this Agreement to the Effective Time, Purchaser shall use its reasonable best
efforts to maintain and preserve its business organization and to retain the
services of its officers and key employees and maintain relationships with
customers, suppliers and other third parties to the end that their goodwill and
ongoing business shall not be impaired in any material respect. During the
period from the date of this Agreement to the Effective Time, Purchaser shall
not (i) make any amendment to the Purchaser Articles that changes the
fundamental attributes of the Purchaser Common Shares, (ii) make any material
changes to the Certificate of Incorporation of Subcorp, (iii) make, declare or
pay any extraordinary cash dividend, other than extraordinary dividends between
Purchaser and a subsidiary of Purchaser, (iv) take any action that is material
and adverse to the Target Stockholders as prospective stockholders of Purchaser
and that affects Target Stockholders disproportionately as compared to the
current stockholders of Purchaser, (v) permit or cause any subsidiaries to do
any of the foregoing or agree or commit to any of the foregoing, or (vi) agree
in writing or otherwise to take any of the foregoing actions.
(b) Indemnification; Directors' and Officers' Insurance.
(i) From and after the Effective Time, Purchaser shall cause, the
Surviving Corporation to indemnify and hold harmless the present and former
officers and directors of Target in respect of acts or omissions occurring
prior to the Effective Time to the extent provided under the Target
Certificate or the Target By-Laws, and, in any event, to the fullest extent
permitted by law, and
(ii) To the extent not obtained by Target prior to the Effective
Time, Purchaser shall use its best efforts to cause the Surviving
Corporation or Purchaser to obtain and maintain in effect for a period of
six years after the Effective Time policies of
A-33
<PAGE> 124
directors' and officers' liability (including fiduciary and crime)
insurance at no cost to the beneficiaries thereof with respect to acts or
omissions occurring prior to the Effective Time with substantially the same
coverage and containing substantially similar terms and conditions as
existing policies; provided, however, that neither the Surviving
Corporation nor Purchaser shall be required to pay an aggregate premium for
such insurance coverage in excess of 125% of the amount set forth in
Section 4.14 to the Target Disclosure Schedule. In the event that Target
determines to obtain such coverage prior to the Effective Time, it will not
spend more than 125% of the amount set forth in Section 4.14 to the Target
Disclosure Schedule.
(c) Merger Sub. Prior to the Effective Time, Subcorp shall not conduct
any business or make any investments other than as specifically contemplated by
this Agreement and will not have any assets (other than a de minimis amount of
cash paid to Subcorp for the issuance of its stock to Purchaser) or any material
liabilities. Purchaser will take all action necessary to cause Subcorp to
perform its obligations under this Agreement and to consummate the Merger on the
terms and conditions set forth in this Agreement.
(d) NYSE Listing. As promptly as practicable after the execution of this
Agreement, Purchaser shall prepare and file with the NYSE a listing application
covering the Purchaser Common Shares to be issued in connection with the Merger.
Purchaser shall use its reasonable best efforts to cause the Purchaser Common
Shares issuable pursuant to the Merger to be approved for listing on the NYSE,
subject to official notice of issuance, prior to the Effective Time.
(e) Employees and Employee Benefits. For a period of six months after the
Effective Date, Purchaser shall provide, or shall cause the Surviving
Corporation to provide, generally to the officers and employees of the Surviving
Corporation and its subsidiaries health and welfare benefits on terms and
conditions in the aggregate that are no less favorable as those provided under
Target's health and welfare plans as of the date hereof.
(f) Contacts with Target's Customers and Suppliers. Purchaser and Target
acknowledge the need for a smooth transition of ownership of the businesses of
Target and its subsidiaries and that contact with the customers or suppliers of
Target or its subsidiaries during the period from the date of this Agreement to
the Effective Time may be desirable to ensure such a transition. From the date
of this Agreement to the earlier of the Effective Time or the termination of
this Agreement, Purchaser shall not, without the prior written consent of Target
(which may be withheld or delayed in the sole discretion of Target), contact
customers or suppliers of Target or any of its subsidiaries. On a case by case
basis, Target shall consider requests by Purchaser for joint Purchaser and
Target contacts with customers or suppliers of Target or its subsidiaries but
Target shall have no obligation to consent to any such request. Notwithstanding
the foregoing, Purchaser shall be entitled to contact its current and
prospective customers to conduct its business in the ordinary course.
5.3 Covenants of Target.
(a) Target Stockholders Meeting. Target shall take all action in
accordance with the federal securities laws, the DGCL and the Target Certificate
and the Target By-Laws necessary to duly call, give notice of, convene and hold
a special meeting of Target Stockholders (the "Target Stockholders Meeting") to
be held on the earliest practicable date determined in consultation with
Purchaser to consider and vote upon approval of the
A-34
<PAGE> 125
Merger, this Agreement and the transactions contemplated hereby. Target shall
solicit the approval of the Merger, this Agreement and the transactions
contemplated hereby, by the Target Stockholders, and the Board of Directors of
Target shall recommend approval of the Merger, this Agreement and the
transactions contemplated hereby by the Target Stockholders (to the extent such
recommendation has not been previously withdrawn pursuant to Section 5.3(c)).
(b) Conduct of Target's Operations. During the period from the date of
this Agreement to the earlier of the Effective Time or the termination of this
Agreement, Target shall conduct its operations in the ordinary course of
business consistent with past practice and shall use its reasonable best efforts
to maintain and preserve its business organization and its material rights and
franchises and to retain the services of its officers and key employees and
maintain relationships with customers, suppliers, lessees, licensees and other
third parties, and to maintain all of its material operating assets in their
current condition (normal wear and tear excepted), to the end that its goodwill
and ongoing business shall not be impaired in any material respect. Without
limiting the generality of the foregoing, during the period from the date of
this Agreement to the Effective Time, Target shall not, except as otherwise
expressly contemplated by this Agreement and the transactions contemplated
hereby or as set forth in Section 5.3(b) to the Target Disclosure Schedule,
without the prior written consent of Purchaser:
(i) do or effect any of the following actions with respect to its or
its subsidiaries' securities: (A) adjust, split, combine or reclassify its
capital stock, (B) make, declare or pay any dividend or distribution on,
or, directly or indirectly, redeem, purchase or otherwise acquire, any
shares of its capital stock or any securities or obligations convertible
into or exchangeable for any shares of its capital stock, other than
regular quarterly dividends on Target Common Stock and dividends declared
and paid by any of Target's directly or indirectly wholly owned
subsidiaries, (C) grant any person any right or option to acquire any
shares of its capital stock, (D) issue, deliver or sell or agree to issue,
deliver or sell any additional shares of its capital stock or any
securities or obligations convertible into or exchangeable or exercisable
for any shares of its capital stock or such securities, including pursuant
to any employee stock purchase plans (except pursuant to the exercise of
Target Options that are outstanding as of the date hereof and disclosed in
Section 4.4 hereof), (E) reprice any Target Options, or (F) enter into any
agreement, understanding or arrangement with respect to the sale, voting,
registration or repurchase of its capital stock;
(ii) except for the asset sales on the terms and subject to the
conditions as set forth in Section 5.3(b)(ii) to the Target Disclosure
Schedule, directly or indirectly sell, transfer, lease, pledge, mortgage,
encumber or otherwise dispose of any of its property or assets other than
in the ordinary course of business or as part of an asset replacement or
retirement program which is out of the ordinary course of business but
consistent with past practice;
(iii) make or propose any changes in the Target Certificate or the
Target By-Laws;
(iv) merge or consolidate with any other person;
(v) acquire a material amount of assets or capital stock of any other
person;
(vi) amend or modify, or propose to amend or modify, the Target
Rights Agreement, as amended as of the date hereof;
A-35
<PAGE> 126
(vii) incur, create, assume or otherwise become liable for any
indebtedness for borrowed money or assume, guarantee, endorse or otherwise
as an accommodation become responsible or liable for the obligations of any
other individual, corporation or other entity, other than in the ordinary
course of business, consistent with past practice;
(viii) create any subsidiaries, except in connection with the
restructuring of Target's fuel tank division as previously disclosed to
Purchaser;
(ix) increase the compensation or benefits payable or to become
payable to its directors, officers or, except in the ordinary course of
business consistent with past practice, other employees (whether from
Target or any of its subsidiaries), or pay or award any benefit not
required by any existing plan or arrangement to any officer, director or
employee (including, without limitation, the granting of stock options,
stock appreciation rights, shares of restricted stock or performance units
pursuant to the Plans or otherwise), or grant any severance or termination
pay to any officer, director or other employee of Target or any of its
subsidiaries (other than as required by existing agreements or policies
described in Section 5.3(b)(ix) to the Target Disclosure Schedule), or
enter into any employment or severance agreement with, any director,
officer or other employee of Target or any of its subsidiaries or
establish, adopt, enter into, amend, or waive any performance or vesting
criteria under any Plan for the benefit or welfare of any current or former
directors, officers or employees of Target or its subsidiaries or their
beneficiaries or dependents, except, in each case to the extent required by
applicable law or regulation;
(x) change any method or principle of tax or financial accounting in
a manner that is inconsistent with past practice except to the extent
required by United States generally accepted accounting principles as
advised by Target's regular independent accountants; make any Tax election
(unless required by law), settle or compromise any Tax liability of Target
or any of its subsidiaries or any pending or threatened suit, action or
claim relating to any potential or actual Tax liability of Target or any of
its subsidiaries, change any method of accounting for Tax purposes or file
(other than in a manner consistent with past practice) any Tax Return;
(xi) settle any Actions, whether now pending or hereafter made or
brought involving, individually or in the aggregate, an amount in excess of
$100,000;
(xii) modify, amend or terminate, or waive, release or assign any
material rights or claims with respect to any confidentiality agreement to
which Target is a party;
(xiii) enter into any confidentiality agreements or arrangements
other than in the ordinary course of business consistent with past practice
(other than as permitted, in each case, by Section 5.3(c));
(xiv) write up, write down or write off the book value of any assets,
individually or in the aggregate, in excess of $100,000 except for
depreciation and amortization in accordance with generally accepted
accounting principles consistently applied;
(xv) incur or commit to any capital expenditures individually in
excess of (x) $1,000,000, provided that such capital expenditure is
reflected in the budget previously provided to Purchaser (the "Budget") or
(y) $100,000 if such capital expenditure is not reflected in the Budget, or
in the aggregate in excess of $5,000,000;
(xvi) except as permitted in Section 5.2(b)(ii), make any payments in
respect of policies of directors' and officers' liability insurance
(premiums or otherwise) other
A-36
<PAGE> 127
than premiums paid in respect of its current policies not in excess of the
amount paid prior to the date of this Agreement;
(xvii) materially accelerate or delay collection of notes or accounts
receivable in advance of or beyond their regular due dates or dates when
the same would have been collected in the ordinary course of business
consistent with past practice or otherwise change the terms thereof
including by offering discounts other than in the ordinary course of
business and consistent with past practice;
(xviii) materially delay or accelerate payment of accounts payable
beyond or in advance of its due date or the date such liability would have
been paid in the ordinary course consistent with past practice;
(xix) take any action to exempt or make not subject to (x) the
provisions of Section 203 of the DGCL or (y) any other state takeover law
or state law that purports to limit or restrict business combinations or
the ability to acquire or vote shares, any person or entity (other than
Purchaser or its subsidiaries) or any action taken thereby, which person,
entity or action would have otherwise been subject to the restrictive
provisions thereof and not exempt therefrom;
(xx) enter into any transaction or agreement, or amend any existing
agreement between Target or any of its subsidiaries and any director or
executive officer of Target;
(xxi) take any action that would reasonably be likely to result in
the representations and warranties set forth in Article IV becoming false
or inaccurate in any material respect;
(xxii) enter into or carry out any other material transaction other
than in the ordinary and usual course of business;
(xxiii) permit or cause any subsidiary to do any of the foregoing or
agree or commit to do any of the foregoing; or
(xxiv) agree in writing or otherwise to take any of the foregoing
actions.
(c) No Solicitation. Target agrees that, during the term of this
Agreement, it shall not, and shall not authorize or permit any of its
subsidiaries or any of its or its subsidiaries' directors, officers, employees,
agents or representatives, directly or indirectly, to solicit, initiate,
encourage or knowingly facilitate, or furnish or disclose non-public information
in furtherance of, any inquiries or the making of any proposal with respect to
any recapitalization, merger, consolidation or other business combination
involving Target, or acquisition of any capital stock (other than upon exercise
of Target Options that are outstanding as of the date hereof) or all or any
material portion of the assets of Target and its subsidiaries, taken as a whole,
in a single transaction or a series of related transactions, or any combination
of the foregoing (a "Competing Transaction"), or negotiate, explore or otherwise
engage in discussions with any person (other than Purchaser, Subcorp or their
respective directors, officers, employees, agents and representatives) with
respect to any Competing Transaction or enter into any agreement, arrangement or
understanding requiring it to abandon, terminate or fail to consummate the
Merger or any other transactions contemplated by this Agreement; provided that,
at any time prior to the approval of the Merger by the Target Stockholders,
notwithstanding any restriction contained in Section 5.3(b), Target may furnish
information to, and negotiate or otherwise engage in discussions with, any party
who delivers a written proposal for a Competing Transaction which was not
solicited, initiated, knowingly facilitated or encouraged after the
A-37
<PAGE> 128
date of this Agreement if and so long as the Board of Directors of Target
determines in good faith, after consultation with and receipt of advice from its
outside counsel (who may be its regularly engaged outside counsel) that the
failure to take such action would likely constitute a breach of its fiduciary
duties under Applicable Law. Target will immediately cease all existing
activities, discussions and negotiations with any parties conducted heretofore
with respect to any proposal for a Competing Transaction and request the return
of all confidential information regarding Target provided to any such parties
prior to the date hereof pursuant to the terms of any confidentiality agreements
or otherwise. In the event that prior to the approval of the Merger by the
Target Stockholders the Board of Directors of Target receives a Superior
Proposal (as defined below) that was not solicited, initiated, knowingly
facilitated or encouraged after the date of this Agreement, and the Board of
Directors of Target determines in good faith after consultation with its outside
counsel (who may be its regularly engaged outside counsel) that the failure to
take such action would likely constitute a breach of its fiduciary duties under
Applicable Law, the Board of Directors of Target may (subject to this and the
following sentences) withdraw, modify or change, in a manner adverse to
Purchaser, the Target Board Recommendation and/or recommend a Superior Proposal
to the Target Stockholders and/or comply with Rule 14e-2 promulgated under the
Exchange Act with respect to a Competing Transaction, provided that it gives
Purchaser five business days' prior written notice of its intention to do so
(provided that the foregoing shall in no way limit or otherwise affect
Purchaser's right to terminate this Agreement pursuant to Section 7.1(d) at such
time as the requirements of such subsection have been met). Any such withdrawal,
modification or change of the Target Board Recommendation shall not change the
approval of the Board of Directors of Target for purposes of causing any state
takeover statute or other state law to be inapplicable to the transactions
contemplated hereby, including the Merger. From and after the execution of this
Agreement, Target shall promptly (but in any event within two calendar days)
advise Purchaser in writing of the receipt, directly or indirectly, of any
inquiries, discussions, negotiations, or proposals relating to a Competing
Transaction (including the specific terms thereof and the identity of the other
party or parties involved) and promptly furnish to Purchaser a copy of any such
written proposal in addition to any information provided to or by any third
party relating thereto. In addition, Target shall promptly (but in any event
within two calendar days) advise Purchaser, in writing, if the Board of
Directors of Target shall make any determination as to any Competing Transaction
as contemplated by the proviso to the first sentence of this Section 5.3(c). As
used herein, the term "Superior Proposal" means a Competing Transaction that the
Board of Directors of Target determines is, after consulting with and receipt of
advice from the Financial Advisor (or any other nationally recognized investment
banking firm), more favorable to Target Stockholders from a financial point of
view than the transactions contemplated by this Agreement (including any
adjustment to the terms and conditions proposed by Purchaser in response to such
Competing Transaction), and that sufficient financing commitments have been
obtained with respect to such Competing Transaction that it reasonably expects a
transaction pursuant to such proposal could be consummated.
(d) Access. Target shall permit representatives of Purchaser to have
appropriate access at all reasonable times to Target's premises, properties,
books, records, contracts and documents. In addition to the foregoing, with
respect to environmental investigations, Purchaser shall at all reasonable times
and in all reasonable respects (i) have access to Target's facilities, (ii) be
entitled to interview Target's personnel located at such facilities or located
at any of Target's other premises, (iii) be entitled to interview any of
Target's consultants hired in connection with any environmental matters, (iv) be
entitled to review
A-38
<PAGE> 129
environmental documents (including the results of any phase one or phase two
environmental assessments), and (v) be entitled to conduct phase one
environmental assessments where existing phase one environmental assessments are
not, in the reasonable judgment of Purchaser, complete or timely. Purchaser and
Target agree to use their reasonable best efforts to share information that
might otherwise be subject to attorney/client privilege in a manner which would
not waive any such attorney/client privilege. Information obtained by Purchaser
pursuant to this Section 5.3(d) shall be subject to the provisions of the
confidentiality agreement between Purchaser and Target dated August 28, 1998
(the "Confidentiality Agreement"), which agreement remains in full force and
effect. No investigation conducted pursuant to this Section 5.3(d) shall affect
or be deemed to modify any representation or warranty made in this Agreement.
(e) Subsequent Financial Statements. Target shall provide to Purchaser a
copy of Target's financial statements for any period ending after the date of
this Agreement prior to making publicly available its financial results for any
such period and prior to filing any Target SEC Documents after the date of this
Agreement.
(f) Affiliates of Target. Target shall use its reasonable best efforts to
cause each such person who may be at the date of the Target Stockholders Meeting
an "affiliate" of Target for purposes of Rule 145 under the Securities Act to
execute and deliver to Purchaser at or prior to the Closing the written
undertakings in the form attached hereto as Exhibit A (the "Target Affiliate
Letter"). No later than 10 days prior to such date, Target, after consultation
with its outside counsel, shall provide Purchaser with a letter (reasonably
satisfactory to outside counsel to Purchaser) specifying all of the persons or
entities who, in Target's opinion, may be deemed to be "affiliates" of Target
under the preceding sentence. The foregoing notwithstanding, the Purchaser shall
be entitled to place legends as specified in the Target Affiliate Letter on the
certificates evidencing any of the Purchaser Common Shares to be received by any
such "affiliate" of Target specified in such letter pursuant to the terms of
this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for the Purchaser Common Shares, consistent with the terms of the
Target Affiliate Letter, regardless of whether such person has executed the
Target Affiliate Letter.
ARTICLE VI.
CONDITIONS
6.1 Conditions to the Obligations of Each Party. The obligations of
Target, Purchaser and Subcorp to consummate the Merger shall be subject to the
satisfaction of the following conditions:
(a) This Agreement, the Merger and the transactions contemplated hereby
shall have been approved and adopted by the Target Stockholders in the manner
required by any Applicable Law.
(b) Any applicable waiting periods under the HSR Act or similar foreign
laws relating to the Merger and the transactions contemplated by this Agreement
shall have expired or been terminated and any other approvals of any
Governmental Authority shall have been obtained.
(c) No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit or enjoin the consummation of the
Merger or the transactions contemplated by this Agreement or limit the ownership
or operation by
A-39
<PAGE> 130
Purchaser, Target or any of their respective subsidiaries of any material
portion of the business or assets of Purchaser or Target.
(d) There shall not be pending any Action instituted by any Governmental
Authority challenging or seeking to restrain or prohibit the consummation of the
Merger or any of the other transactions contemplated by this Agreement.
(e) The Commission shall have declared the Registration Statement
effective under the Securities Act, and no stop order or similar restraining
order suspending the effectiveness of the Registration Statement shall be in
effect and no proceedings for such purpose shall be pending before or threatened
by the Commission or any state securities administrator.
(f) The Purchaser Common Shares to be issued in the Merger shall have been
approved for listing on the NYSE, subject to official notice of issuance.
6.2 Conditions to Obligations of Target. The obligations of Target to
consummate the Merger and the transactions contemplated hereby shall be subject
to the fulfillment of the following conditions unless waived by Target:
(a) Each of the representations and warranties of each of Purchaser and
Subcorp set forth in Article III shall be true and correct in all respects (but
without regard to any materiality qualifications or references to Material
Adverse Effect contained in any specific representation or warranty) on the date
of this Agreement and on and as of the Closing Date as though made on and as of
the Closing Date (except for representations and warranties made as of a
specified date, the accuracy of which will be determined as of the specified
date), except where any such failure of the representations and warranties in
the aggregate to be true and correct in all respects would not reasonably be
expected to have a Material Adverse Effect on Purchaser.
(b) Each of Purchaser and Subcorp shall have performed in all material
respects all obligations and agreements and shall have complied in all material
respects with all covenants to be performed and complied with by it hereunder at
or prior to the Effective Time.
(c) Each of Purchaser and Subcorp shall have furnished Target with a
certificate dated the Closing Date signed on behalf of it by the Chief Executive
Officer or Treasurer to the effect that the conditions set forth in Sections
6.2(a) and (b) have been satisfied.
6.3 Conditions to Obligations of Purchaser and Subcorp. The obligations
of Purchaser and Subcorp to consummate the Merger and the other transactions
contemplated hereby shall be subject to the fulfillment of the following
conditions unless waived by Purchaser:
(a) Each of the representations and warranties of Target set forth in
Article IV (other than the representations and warranties of Target set forth in
Section 4.4) shall be true and correct in all respects (but without regard to
any materiality qualifications or references to Material Adverse Effect
contained in any specific representation or warranty) on the date of this
Agreement and on and as of the Closing Date as though made on and as of the
Closing Date (except for representations and warranties made as of a specified
date, the accuracy of which will be determined as of the specified date), except
where any such failure of the representations and warranties in the aggregate to
be true and correct in all respects would not reasonably be expected to have a
Material Adverse Effect on Target. The representations and warranties of Target
set forth in Sections 4.4 of this Agreement shall be true and correct in all
respects on the date of this Agreement and on and as of the
A-40
<PAGE> 131
Closing Date as though made on and as of the Closing Date (except for
representations and warranties made as of a specified date, the accuracy of
which will be determined as of the specified date).
(b) The representations and warranties of Target set forth in Section 4.19
shall be true and correct in all respects (but without regard to any materiality
qualifications or references to Material Adverse Effect contained in any
specific representation or warranty) on the date of this Agreement and on and as
of the Closing Date as though made on and as of the Closing Date, except where
such failure of the representations and warranties in the aggregate to be true
and correct in all respects would not in the reasonable judgment of Purchaser
result in cost, expense or liability ("Environmental Liability") exceeding
Target's and its subsidiaries' aggregate amount of reserves for environmental
matters by more than $10 million on an after-tax basis. In determining Target's
Environmental Liability, an item of cost, expense or liability shall be
disregarded to the extent that such item is covered by (i) existing insurance
where the insurance carrier has acknowledged the coverage or (ii) environmental
insurance purchased by Target from an insurance carrier reasonably acceptable to
Purchaser after the date hereof and prior to the Effective Time. In the event
that Target purchases such coverage prior to the Effective Time, it will not
spend more than $2 million in premiums and such premiums shall be included in
any determination of Target's Environmental Liabilities pursuant to this Section
6.3(b). Purchaser's determination of Target's Environmental Liability shall be
substantially consistent with the written assessment of an independent
consulting firm to be mutually selected from the following: Dames and Moore,
Karemida Environmental, or Montgomery Watson.
(c) Target shall have performed in all material respects all obligations
and agreements and shall have complied in all material respects with all
covenants to be performed and complied with by it hereunder at or prior to the
Effective Time.
(d) The agreement for purchase and sale of real property (the "Real Estate
Agreement") which is contemplated to be entered into pursuant to the letter
agreement of even date herewith among Target, Purchaser, and Subcorp shall have
been entered into, the closing under the Real Estate Agreement shall have
occurred, and Target shall have received final payment of the $1,957,000 cash
purchase price (net of any closing costs or other expenses) pursuant to the
terms of the Real Estate Agreement.
(e) Target shall have furnished Purchaser with a certificate dated the
Closing Date signed on its behalf by its Chairman and Chief Executive Officer,
President or Chief Financial Officer to the effect that the conditions set forth
in Sections 6.3(a), (b) and (d) have been satisfied.
ARTICLE VII.
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time (notwithstanding any approval
of this Agreement by Target Stockholders):
(a) by mutual written consent of Purchaser and Target;
(b) by either Purchaser or Target if there shall be any law or regulation
that makes consummation of the Merger illegal or otherwise prohibited, or if any
judgment, injunction, order or decree of a court or other competent Governmental
Authority (which the parties
A-41
<PAGE> 132
shall have used all reasonable efforts to resist, resolve or lift, as
applicable, in accordance with Section 5.1(a)) enjoining Purchaser or Target
from consummating the Merger shall have been entered and such judgment,
injunction, order or decree shall have become final and nonappealable;
(c) by either Purchaser or Target if the Merger shall not have been
consummated before the later of May 31, 1999 or thirty (30) days after the
receipt of all required approvals of any Governmental Authority, provided,
however, that the right to terminate this Agreement under this Section 7.1(c)
shall not be available to any party whose failure or whose affiliate's failure
to perform any material covenant or obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before such
date;
(d) by Purchaser if (i) the Board of Directors of Target shall withdraw,
modify or change the Target Board Recommendation in a manner adverse to
Purchaser, (ii) if the Board of Directors of Target approves or recommends any
Competing Transaction, or (iii) Target shall have exercised a right with respect
to a Superior Proposal referenced in Section 5.3(c) and shall, directly or
through its representatives, continue discussions with any third party
concerning a Superior Proposal for more than 10 business days after the date of
receipt of such Superior Proposal;
(e) by Purchaser or Target if at the Target Stockholders Meeting
(including any adjournment or postponement thereof) the requisite vote of the
Target Stockholders to approve the Merger and the transactions contemplated
hereby shall not have been obtained;
(f) by Purchaser or Target if there shall have been a breach by the other
of any of its representations and warranties, covenants or agreements contained
in this Agreement, which under Section 6.3(a) or 6.2(a) excuses Purchaser or
Target, respectively, from its obligation to complete the Merger, and such
breach shall not have been cured within 30 days after notice thereof shall have
been received by the party alleged to be in breach;
(g) by Purchaser if on the date on which the Closing would otherwise
occur, the Purchaser Share Price shall be less than $40; provided that Target
shall receive at least two business days' prior written notice of its intent to
effect such termination pursuant to this Section 7.1(g); or
(h) by Target in order to permit Target to enter into an agreement
providing for a Competing Transaction that the Board of Directors of Target has
determined to be a Superior Proposal; provided, however that the obligation of
Target to pay to Purchaser the fees and expenses provided for in Sections 7.2(b)
and (e) shall survive any such termination.
7.2 Effect of Termination.
(a) In the event of the termination of this Agreement pursuant to Section
7.1, this Agreement, except for the provisions of the second sentence of Section
5.3(d) and the provisions of Sections 7.2 and 8.11, shall become void and have
no effect, without any liability on the part of any party or its directors,
officers or stockholders. Notwithstanding the foregoing, nothing in this Section
7.2 shall relieve any party to this Agreement of liability for a material breach
of any provision of this Agreement and provided, further, however, that if it
shall be judicially determined that termination of this Agreement was caused by
an intentional breach of this Agreement, then, in addition to other remedies at
law or equity for breach of this Agreement, the party so found to have
intentionally
A-42
<PAGE> 133
breached this Agreement shall indemnify and hold harmless the other parties for
their respective out-of-pocket costs, fees and expenses of their counsel,
accountants, financial advisors and other experts and advisors as well as fees
and expenses incident to negotiation, preparation and execution of this
Agreement and related documentation and shareholders' meetings and consents
("Costs").
(b) In the event that (i) this Agreement is terminated pursuant to Section
7.1(c) and the Target Stockholders Meeting has not been held prior to May 31,
1999 and at any time prior to such termination there shall have been made to
Target or publicly disclosed a Competing Transaction with respect to Target, or
(ii) this Agreement is terminated pursuant to Section 7.1(d)(i), 7.1(d)(ii) or
7.1(h), then Target will, in the case of a termination by Purchaser, within
three business days following any such termination or, in the case of a
termination by Target concurrently with such termination, pay to Purchaser in
cash by wire transfer in immediately available funds to an account designated by
Purchaser (i) in reimbursement for Purchaser's expenses an amount equal to the
aggregate amount of Purchaser's Costs incurred in connection with pursuing the
transactions contemplated by this Agreement, including, without limitation,
legal, accounting and investment banking fees, up to but not in excess of $4
million in the aggregate and (ii) a termination fee in an amount equal to $15
million.
(c) In the event that this Agreement is terminated pursuant to Section
7.1(e) and no event has occurred that would permit Purchaser to terminate this
Agreement under Sections 7.1(d)(i), 7.1(d)(ii) or 7.1(h), then Target shall pay
to Purchaser in cash by wire transfer in immediately available funds to an
account designated by Purchaser in reimbursement for Purchaser's expenses an
amount equal to the aggregate amount of Purchaser's Costs incurred in connection
with pursuing the transactions contemplated by this Agreement, including,
without limitation, legal, accounting and investment banking fees, up to but not
in excess of $4 million in the aggregate.
(d) In the event that this Agreement is terminated pursuant to Section
7.1(c) (and the Target Stockholders Meeting has not been held prior to May 31,
1999), 7.1(d) or 7.1(h) and prior to 18 months after the date of such
termination Target consummates a Competing Transaction with a party who made to
Target or publicly disclosed a proposal with respect to a Competing Transaction
prior to the termination of this Agreement, then in addition to any amounts
payable pursuant to Section 7.2(b) or 7.2(c), Target will concurrently with the
consummation of such transaction, pay to Purchaser in cash by wire transfer in
immediately available funds to an account designated by Purchaser an additional
termination fee in an amount equal to $10 million.
(e) In the event that this Agreement is terminated pursuant to Section
7.1(g), then Purchaser shall pay to Target in cash by wire transfer in
immediately available funds to an account designated by Target in reimbursement
for Target's expenses an amount equal to the aggregate amount of Target's Costs
incurred in connection with pursuing the transactions contemplated by this
Agreement, including, without limitation, legal, accounting and investment
banking fees, up to but not in excess of $4 million in the aggregate and, for
purposes hereof, shall also be deemed to include reimbursement by Target to its
executive employees for taxes paid in connection with the exercise of stock
options in December 1998.
(f) In the event that this Agreement is terminated pursuant to one or more
provisions of Section 7.1 and a termination fee is payable pursuant to one or
more provisions of Section 7.2, any such termination fee shall not exceed $25
million in the aggregate, not including reimbursement of Costs.
A-43
<PAGE> 134
7.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after adoption of this Agreement by Target Stockholders, but after any
such approval, no amendment shall be made which by law requires further approval
or authorization by the Target Stockholders without such further approval or
authorization. Notwithstanding the foregoing, this Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
7.4 Extension; Waiver. At any time prior to the Effective Time, Purchaser
(with respect to Target) and Target (with respect to Purchaser and Subcorp) by
action taken or authorized by their respective Boards of Directors, may, to the
extent legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of such party, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party.
ARTICLE VIII.
MISCELLANEOUS
8.1 Survival of Representations and Warranties. The representations and
warranties made herein by the parties hereto shall not survive the Effective
Time. This Section 8.1 shall not limit any covenant or agreement of the parties
hereto, which by its terms contemplates performance after the Effective Time or
after the termination of this Agreement.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which is
confirmed) or dispatched by a nationally recognized overnight courier service to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Purchaser or Subcorp:
Borg-Warner Automotive, Inc.
200 South Michigan Avenue
Chicago, Illinois 60604
Attention: Laurene H. Horiszny
Telecopy No.: (312) 322-8621
with a copy to
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Elliott V. Stein, Esq.
Telecopy No.: (212) 403-2000
A-44
<PAGE> 135
(b) if to Target:
Kuhlman Corporation
3 Skidaway Village Square
Savannah, Georgia 31411
Attention: Richard A. Walker
Telecopy No.: (912) 598-0737
with a copy to
Rudnick & Wolfe
203 N. LaSalle Street
Suite 1800
Chicago, Illinois 60601
Attention: Stephen A. Landsman, Esq.
Telecopy No.: (312) 236-7516
8.3 Interpretation.
(a) When a reference is made in this Agreement to an Article or Section,
such reference shall be to an Article or Section of this Agreement unless
otherwise indicated. The headings and the table of contents contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
(b) For the purposes of any provision of this Agreement, "Material Adverse
Change" or "Material Adverse Effect" means, when used with respect to Target or
Purchaser, any change or effect that is, or would reasonably be expected to be,
materially adverse to the business, assets, condition (financial or otherwise)
or results of operations of Target and its subsidiaries, taken as a whole, or
Purchaser and its subsidiaries, taken as a whole, as the case may be. In
determining whether a Material Adverse Change or Material Adverse Effect has
occurred such determination shall be made on an after-tax basis and in addition,
an item of loss, expenses or liability shall be disregarded to the extent (i) of
the aggregate reserve for the category of such item established in the financial
statements of Target most recently filed with the Commission prior to the date
of this Agreement, (ii) such item is covered by insurance or any other third
party indemnification, contribution or reimbursement obligation and the
insurance carrier or third party, as the case may be, has acknowledged the
coverage or indemnification, contribution or reimbursement obligation, as the
case may be, (iii) disclosure of such item has been made in the Target SEC
Documents filed prior to the date of this Agreement, (iv) disclosure of such
item has been made in the Target Disclosure Schedule or (v) such item represents
professional and advisory fees and similar expenses incurred in connection with
the Merger provided such amounts are less than $2 million in the aggregate.
(c) For purposes of this Agreement, a "subsidiary" when used with respect
to any party means any corporation or other organization, incorporated or
unincorporated, (i) of which such party or another subsidiary of such party is a
general partner (excluding partnerships, the general partnership interests of
which held by such party or any subsidiary of such party do not have 50% or more
of the voting interests in such partnership) or (ii) 50% or more of the
securities or other interests of which having by their terms ordinary voting
power to elect at least 50% of the Board of Directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party or one or more of its
subsidiaries
A-45
<PAGE> 136
(or if there are no such voting securities or interests, 50% or more of the
equity interests of which is directly or indirectly owned or controlled by such
party or one or more of its subsidiaries).
(d) For purposes of this Agreement, "knowledge" or any similar phrase when
used (i) in relation to Target means the actual knowledge (excluding thereby any
implied imputed, constructive or other type of knowledge) of any executive
officer of Target and the presidents of each of Kuhlman Electric Corporation,
Coleman Cable Systems, Inc., Transpro Group, Inc., and Schwitzer, Inc. and (ii)
in relation to Purchaser means the knowledge of any executive officer of
Purchaser.
8.4 Counterparts. This Agreement may be executed in counterparts, which
together shall constitute one and the same Agreement. The parties may execute
more than one copy of the Agreement, each of which shall constitute an original.
8.5 Entire Agreement. This Agreement (including the documents and the
instruments referred to herein), the Confidentiality Agreement and the
confidentiality agreement between Purchaser and Target dated December 1, 1998
constitute the entire agreement among the parties and supersede all prior
agreements and understandings, agreements or representations by or among the
parties, written and oral, with respect to the subject matter hereof and
thereof.
8.6 Third-Party Beneficiaries. Except for the agreement set forth in
Section 5.1(d) or 5.2(b), nothing in this Agreement, express or implied, is
intended or shall be construed to create any third-party beneficiaries.
8.7 Governing Law. Except to the extent that the laws of the jurisdiction
of organization of any party hereto, or any other jurisdiction, are mandatorily
applicable to the Merger or to matters arising under or in connection with this
Agreement, this Agreement shall be governed by the laws of the State of
Delaware. All actions and proceedings arising out of or relating to this
Agreement shall be heard and determined in any state or federal court sitting in
the City of Wilmington, Delaware.
8.8 Consent to Jurisdiction; Venue.
(a) Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of the state courts of Delaware and to the jurisdiction of the
United States District Court for the District of Delaware, for the purpose of
any action or proceeding arising out of or relating to this Agreement and each
of the parties hereto irrevocably agrees that all claims in respect to such
action or proceeding may be heard and determined exclusively in any Delaware
state or federal court sitting in the City of Wilmington, Delaware. Each of the
parties hereto agrees that a final judgment in any action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.
(b) Each of the parties hereto irrevocably consents to the service of any
summons and complaint and any other process in any other action or proceeding
relating to the Merger, on behalf of itself or its property, by the personal
delivery of copies of such process to such party. Nothing in this Section 8.8
shall affect the right of any party hereto to serve legal process in any other
manner permitted by law.
8.9 Specific Performance. The transactions contemplated by this Agreement
are unique. Accordingly, each of the parties acknowledges and agrees that, in
addition to all other remedies to which it may be entitled, each of the parties
hereto is entitled to a decree of specific performance, provided such party is
not in material default hereunder.
A-46
<PAGE> 137
8.10 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
parties, except that Purchaser may assign its rights, interests or obligations
hereunder to any of its subsidiaries or affiliates. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
8.11 Expenses. Subject to the provisions of Section 7.2, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
expenses, except that those expenses incurred in connection with filing,
printing and mailing the Registration Statement and the Proxy Statement
(including filing fees related thereto) will be shared equally by Purchaser and
Target.
IN WITNESS WHEREOF, Purchaser, Subcorp and Target have signed this
Agreement as of the date first written above.
BORG-WARNER AUTOMOTIVE, INC.
By:/s/ JOHN F. FIEDLER
Name: John F. Fiedler
Title: Chairman and Chief Executive
Officer
BWA MERGER CORP.
By:/s/ JOHN F. FIEDLER
Name: John F. Fiedler
Title: Chairman and Chief Executive
Officer
KUHLMAN CORPORATION
By:/s/ ROBERT S. JEPSON, JR.
Name: Robert S. Jepson, Jr.
Title: Chairman and Chief Executive
Officer
A-47
<PAGE> 138
APPENDIX B
THE ROBINSON-HUMPHREY COMPANY, LLC
<TABLE>
<S> <C>
CORPORATE FINANCE INVESTMENT BANKERS
DEPARTMENT SINCE 1894
</TABLE>
December 17, 1998
The Board of Directors
Kuhlman Corporation
3 Skidaway Village Square
Savannah, GA 31411
Gentlemen:
We understand that Borg-Warner Automotive, Inc. is proposing to purchase
all of the outstanding shares of common stock of Kuhlman Corporation (the
"Company") for $39.00 per share in a combination of cash and common stock of
Borg-Warner Automotive, Inc. (the "Proposed Transaction"). The terms and
conditions of the Proposed Transaction are set forth in more detail in the
Agreement and Plan of Merger among a wholly owned direct subsidiary of
Borg-Warner Automotive, Inc. and the Company (the "Agreement").
We have been requested by the Company to render our opinion with respect to
the fairness, from a financial point of view, to the Company's stockholders of
the consideration to be received in the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement,
(2) public documents and such other publicly available information concerning
the Company and Borg-Warner Automotive, Inc. (the "Purchaser") which we believe
to be relevant to our inquiry, (3) financial and operating information with
respect to the business, operations and prospects of the Company furnished to us
by the Company, (4) a trading history of the Company's and the Purchaser's
common stocks and a comparison of those trading histories with those of other
companies which we deemed relevant, (5) a comparison of the historical financial
results and present financial condition of the Company and the Purchaser with
those of other companies which we deemed relevant, and (6) a comparison of the
financial terms of the Proposed Transaction with the terms of certain other
recent transactions which we deemed relevant. In addition, we have had
discussions with the management of the Company and of the Purchaser concerning
their respective businesses, operations, assets, present condition and future
prospects and undertook such other studies, analyses and investigations as we
deemed appropriate.
We have assumed and relied upon the accuracy and completeness of the
financial and other information used by us in arriving at our opinion without
independent verification. With respect to the financial forecasts and
projections of the Company, we have assumed that such forecasts and projections
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of the Company as to the future
financial performance of the Company. In arriving at our opinion, we have not
conducted a physical inspection of the properties and facilities of the Company
or the Purchaser and have not made nor obtained any evaluations or appraisals of
the assets or
ATLANTA FINANCIAL CENTER
3333 PEACHTREE ROAD, NE - ATLANTA, GEORGIA 30326
(404) 266-6000
B-1
<PAGE> 139
The Board of Directors
Kuhlman Corporation
December 17, 1998
Page 2
liabilities of the Company or of the Purchaser. In addition since the proposal
by Borg-Warner Automotive Inc., you have not authorized us to solicit, and we
have not solicited, any indications of interest from any third party with
respect to the purchase of all or a part of the Company's business. Our opinion
is necessarily based upon market, economic and other conditions as they exist
on, and can be evaluated as of, the date of this letter.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services of which a portion
is contingent upon the consummation of the Proposed Transaction. In addition,
the Company has agreed to indemnify us for certain liabilities arising out of
the rendering of this opinion. We have also performed various investment banking
services for the Company in the past (including lead managing a public offering
of equity in June 1997) and have received customary fees for such services. In
the ordinary course of our business, we actively trade in the equity securities
of the Company for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be
offered in the Proposed Transaction is fair to the stockholders of the Company.
THE ROBINSON-HUMPHREY COMPANY, LLC
By: /s/ RICHARD F. WAID
--------------------------------------------
Richard F. Waid
Managing Director
B-2
<PAGE> 140
APPENDIX C
SECTION 262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of
this State who holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection (d) of this section
and who has neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to sec. 228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of the stockholder's shares
of stock under the circumstances described in subsections (b) and (c) of this
section. As used in this section, the word "stockholder" means a holder of
record of stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of a
nonstock corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to sec.
251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or sec.
264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to secs. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
C-1
<PAGE> 141
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under sec. 253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective data of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or
C-2
<PAGE> 142
resulting corporation the appraisal of such holder's shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail
C-3
<PAGE> 143
to the surviving or resulting corporation and to the stockholders shown on the
list at the addresses therein stated. Such notice shall also be given by 1 or
more publications at least 1 week before the day of the hearing, in a newspaper
of general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair market value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertified stock forthwith, and the case
of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation);
C-4
<PAGE> 144
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
such stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-5
<PAGE> 145
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL provides that a corporation has the power to
indemnify its officers and directors against the expenses, including attorney's
fees, judgments, fines or settlement amounts actually and reasonably incurred by
them in connection with the defense of any action by reason of being or having
been directors or officers, if such person shall have acted in good faith and in
a manner reasonably believed to be in or not opposed to the best interests of
the corporation, except that if such action shall be in the right of the
corporation, no such indemnification shall be provided as to any claim, issue or
matter as to which such person shall have been judged to have been liable to the
corporation unless and to the extent that the Court of Chancery of the State of
Delaware, or another court in which the suit was brought, shall determine upon
application that, in view of all of the circumstances of the case, such person
is fairly and reasonably entitled to indemnity.
As permitted by Section 102 of the DGCL, the Registrant's Charter provides
that no director shall be liable to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director other than (i) for
breaches of the director's duty of loyalty to the Registrant and its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for the unlawful
payment of dividends or unlawful stock purchases or redemptions under Section
174 of the DGCL, or (iv) for any transaction from which the director derived an
improper personal benefit.
The Registrant's Charter provides for indemnification of its directors and
officers to the fullest extent permitted by the DGCL, and allows the Registrant
to advance or reimburse litigation expense upon submission by the director,
officer or employee of an undertaking to repay such advances or reimbursements
if it is ultimately determined that indemnification is not available to such
director or officer.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS:
<TABLE>
<S> <C>
2.1 Agreement and Plan of Merger, dated as of December 17, 1998,
by and among the Registrant, BWA Merger Corp. and Kuhlman
Corporation (included as Appendix A to the Prospectus
incorporated as part of this Registration Statement). The
Registrant agrees to furnish supplementally a copy of both
disclosure schedules to the Commission upon request.
3.1 Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit No. 3.1 of the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993, Commission File No. 1-12162).
3.2 By-Laws of the Registrant (incorporated by reference to
Exhibit No. 3.2 of the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993).
4.1 The principal amount of debt outstanding under each
instrument defining the rights of holders of the
Registrant's long-term debt does not exceed 10 percent of
the Registrant's total assets. Registrant agrees to furnish
to the Securities and Exchange Commission, upon request, a
copy of each instrument defining the rights of holders of
the Registrant's long-term debt.
4.2 Rights Agreement, dated as of July 22, 1998, between the
Registrant and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent (incorporated by reference to Exhibit 4.1 to
the Registrant's Form 8-A12B, dated July 24, 1998).
</TABLE>
II-1
<PAGE> 146
<TABLE>
<S> <C>
5 Opinion of Laurene H. Horiszny, Vice President, Secretary
and General Counsel of the Registrant, as to the legality of
the shares being issued.
23.1 Consent of Deloitte & Touche LLP (Registrant).
23.2 Consent of Arthur Andersen LLP (Kuhlman).
23.3 Consent of KPMG Peat Marwick (Registrant).
23.4 Consent of Laurene H. Horiszny (included in Exhibit 5).
23.5 Consent of The Robinson-Humphrey Company, LLC.
24 Powers of Attorney.
99.1 Form of Proxy Card of Kuhlman.
99.2 Form of Letter of Transmittal/Form of Election.
</TABLE>
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(d) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section l0(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offering
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-2
<PAGE> 147
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in the documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE> 148
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Chicago, state of
Illinois, on January 21, 1999.
BORG-WARNER AUTOMOTIVE, INC.
By: /s/ JOHN F. FIEDLER
-----------------------------------
John F. Fiedler
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on January 21, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/ JOHN F. FIEDLER Chairman and Chief Executive Officer
- --------------------------------------- and Director
John F. Fiedler
/s/ ROBIN J. ADAMS Vice President and Treasurer
- ---------------------------------------
Robin J. Adams
/s/ WILLIAM C. CLINE Vice President and Controller
- ---------------------------------------
William C. Cline
* Director
- ---------------------------------------
Jere A. Drummond
* Director
- ---------------------------------------
Paul E. Glaske
* Director
- ---------------------------------------
Ivan W. Gorr
* Director
- ---------------------------------------
James J. Kerley
* Director
- ---------------------------------------
Alexis P. Michas
* Director
- ---------------------------------------
John Rau
/s/ VINCENT M. LICHTENBERGER As attorney-in-fact for the officers
- --------------------------------------- and/or directors marked by an asterisk
Vincent M. Lichtenberger
</TABLE>
II-4
<PAGE> 149
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of December 17, 1998,
by and among the Registrant, BWA Merger Corp. and Kuhlman
Corporation (included as Appendix A to the Prospectus
incorporated as part of this Registration Statement). The
Registrant agrees to furnish supplementally a copy of both
disclosure schedules to the Commission upon request.
3.1 Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit No. 3.1 of the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993, Commission File No. 1-12162).
3.2 By-Laws of the Registrant (incorporated by reference to
Exhibit No. 3.2 of the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993).
4.1 The principal amount of debt outstanding under each
instrument defining the rights of holders of the
Registrant's long-term debt does not exceed 10 percent of
the Registrant's total assets. Registrant agrees to furnish
to the Securities and Exchange Commission, upon request, a
copy of each instrument defining the rights of holders of
the Registrant's long-term debt.
4.2 Rights Agreement, dated as of July 22, 1998, between the
Registrant and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent (incorporated by reference to Exhibit 4.1 to
the Registrant's Form 8-A12B, dated July 24, 1998).
5 Opinion of Laurene H. Horiszny, Vice President, Secretary
and General Counsel of the Registrant, as to the legality of
the shares being issued.
23.1 Consent of Deloitte & Touche LLP (Registrant).
23.2 Consent of Arthur Andersen LLP (Kuhlman).
23.3 Consent of KPMG Peat Marwick (Registrant).
23.4 Consent of Laurene H. Horiszny (included in Exhibit 5).
23.5 Consent of The Robinson-Humphrey Company, LLC.
24 Powers of Attorney.
99.1 Form of Proxy Card of Kuhlman.
99.2 Form of Letter of Transmittal/Form of Election.
</TABLE>
<PAGE> 1
EXHIBIT 5
[BORG-WARNER AUTOMOTIVE LETTERHEAD]
January 21, 1999
Borg-Warner Automotive, Inc.
200 South Michigan Avenue
Chicago, IL 60604
Re: Borg-Warner Automotive, Inc.
Shares of Common Stock Issued in Connection
with the Registration Statement on Form S-4
dated January 21, 1999 (the "Registration Statement")
Ladies and Gentlemen:
I am Vice President and General Counsel of Borg-Warner Automotive, Inc., a
Delaware corporation (the "Company"), and have advised the Company in connection
with the Registration Statement under the Securities Act of 1933, as amended
(the "1933 Act"), relating to the issuance of shares of Common Stock, par value
$.01 per share, of the Company (the "Common Stock") in accordance with the
Agreement and Plan of Merger dated December 17, 1998 (the "Agreement"), by and
among the Company, BWA Merger Corp. and Kuhlman Corporation. All terms not
otherwise defined herein shall have the meanings ascribed to them in the
Agreement.
I have reviewed the Registration Statement. I, or attorneys acting under my
supervision and control, have made such legal and factual examinations and
inquiries, including an examination of originals or copies certified or
otherwise identified to my satisfaction, of such documents, corporate records
and other instruments as I have deemed necessary or appropriate for the purposes
of this opinion.
I am a member of the Bar of the State of Illinois. I call your attention to
the fact that, in rendering this opinion, I am expressing my view only as to the
laws of the State of Illinois, the General Corporation Law of the State of
Delaware, and the federal laws of the United States of America.
On the basis of the foregoing and in reliance thereon, I am of the opinion
that, when the Registration Statement has become effective under the 1933 Act,
and the shares have been duly issued and delivered as contemplated by the
Agreement, such shares of Common Stock will be validly issued, fully paid and
nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me under the heading of "Legal
Opinions" in the Proxy Statement/Prospectus. In giving such consent, I do not
hereby admit that I am in the category of persons whose consent is required
under Section 7 of the 1933 Act.
Very truly yours,
/s/ LAURENE H. HORISZNY
----------------------------------
Laurene H. Horiszny
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Borg-Warner Automotive, Inc. on Form S-4 of our report dated January 30, 1998
(February 13, 1998 as to the third paragraph of Note 4), incorporated by
reference in the Annual Report on Form 10-K of Borg-Warner Automotive, Inc. for
the year ended December 31, 1997 and to the reference to us under the heading
"Experts" in the Proxy Statement/Prospectus, which is part of such Registration
Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Chicago, Illinois
January 21, 1999
<PAGE> 1
Exhibit 23.2
Consent Of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated February 2, 1998,
included in and incorporated by reference in Kuhlman Corporation's Form 10-K
for the year ended December 31, 1997 and to all references to our Firm included
in this registration statement.
/s/ Arthur Andersen LLP
Louisville, Kentucky
January 20, 1999
<PAGE> 1
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Borg-Warner Automotive, Inc. on Form S-4 of our report dated April 24, 1998
incorporated by reference in the Annual Report on Form 10-K of Borg-Warner
Automotive, Inc. for the year ended December 31, 1997 and to the reference to
us under the heading "Experts" in the Prospectus, which is part of such
Registration Statement.
/s/ KPMG
Tokyo, Japan
January 21, 1999
<PAGE> 1
EXHIBIT 23.5
January 21, 1999
The Robinson-Humphrey Company, LLC ("R-H") hereby consents to the
inclusion in the Proxy Statement/Prospectus of Kuhlman Corporation and
Borg-Warner Automotive, Inc., filed as a part of this Registration Statement on
Form S-4 of Borg-Warner Automotive, Inc., of its opinion, and to the references
made to R-H in the "Summary," "The Merger" and "The Merger Agreement" sections
of such Proxy Statement/Prospectus. In giving such consent, we do not hereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
Very truly yours,
THE ROBINSON-HUMPHREY COMPANY, LLC
BY: /s/ Roderick A. Dowling
Managing Director
<PAGE> 1
EXHIBIT 24
----------
POWER OF ATTORNEY
The undersigned directors of Borg-Warner Automotive, Inc. (the
"Corporation"), hereby appoint John F. Fiedler, Laurene H. Horiszny and Vincent
M. Lichtenberger as their true and lawful attorneys-in-fact, with full power for
and on their behalf to execute, in their names and capacities as directors of
the Corporation, and to file with the Securities and Exchange Commission on
behalf of the Corporation under the Securities Act of 1933, as amended, any and
all Registration Statements (including any and all amendments or post-effective
amendments thereto) relating to the offering of the Corporation's common stock,
$0.01 par value (and associated preferred stock purchase rights), by the
Corporation in connection with the merger of a subsidiary of the Corporation
with and into Kuhlman Corporation.
This Power of Attorney automatically ends upon the termination of Mr. Fiedler's,
Ms. Horiszny's and Mr. Lichtenberger's service with the Corporation.
In witness whereof, the undersigned have executed this Power of Attorney on
this 20th day of January, 1999.
/s/ John F. Fiedler /s/ Ivan W. Gorr
- ----------------------------------- -----------------------------------
John F. Fiedler Ivan W. Gorr
/s/ Alexis P. Michas /s/ John Rau
- ----------------------------------- -----------------------------------
Alexis P. Michas John Rau
/s/ Jere A. Drummond /s/ James J. Kerley
- ----------------------------------- -----------------------------------
Jere A. Drummond James J. Kerley
/s/ Paul E. Glaske
-----------------------------------
Paul E. Glaske
<PAGE> 2
EXHIBIT 24
POWER OF ATTORNEY
The undersigned officer of Borg-Warner Automotive, Inc. (the
"Corporation"), hereby appoints John F. Fiedler, Laurene H. Horiszny and
Vincent M. Lichtenberger as his true and lawful attorneys-in-fact, with full
power for and on his behalf to execute in his name and capacity as an officer
of the Corporation, and to file with the Securities and Exchange Commission on
behalf of the Corporation under the Securities Act of 1933, as amended, any and
all Registration Statements (including any and all amendments or post-effective
amendments thereto) relating to the offering of the Corporation's common stock,
$0.01 par value (and associated preferred stock purchase rights), by the
Corporation in connection with the merger of a subsidiary of the Corporation
with and into Kuhlman Corporation.
This Power of Attorney automatically ends upon the termination of Mr.
Fiedler's, Ms. Horiszny's and Mr. Lichtenberger's service with the Corporation.
In witness whereof, the undersigned has executed this Power of Attorney on this
20th day of January, 1999.
/s/ Robin J. Adams
- -----------------------------------
Robin J. Adams
Vice President and Treasurer
<PAGE> 3
EXHIBIT 24
POWER OF ATTORNEY
The undersigned officer of Borg-Warner Automotive, Inc. (the
"Corporation"), hereby appoints John F. Fiedler, Laurence H. Horiszny and
Vincent M. Lichtenberger as his true and lawful attorneys-in-fact, with full
power for and on his behalf to execute in his name and capacity as an officer of
the Corporation, and to file with the Securities and Exchange Commission on
behalf of the Corporation under the Securities Act of 1933, as amended, any and
all Registration Statements (including any and all amendments or post-effective
amendments thereto) relating to the offering of the Corporation's common stock,
$0.01 par value (and associated preferred stock purchase rights), by the
Corporation in connection with the merger of a subsidiary of the Corporation
with and into Kuhlman Corporation.
This Power of Attorney automatically ends upon the termination of Mr. Fiedler's,
Ms. Horiszny's and Mr. Lichtenberger's service with the Corporation.
In witness whereof, the undersigned has executed this Power of Attorney on this
19th day of January, 1999.
/s/ William C. Cline
- ---------------------------------
William C. Cline
Vice President and Controller
<PAGE> 4
EXHIBIT 24
POWER OF ATTORNEY
The undersigned officer of Borg-Warner Automotive, Inc. (the
"Corporation"), hereby appoints Robin J. Adams, Laurene H. Horiszny and Vincent
M. Lichtenberger as his true and lawful attorneys-in-fact, with full power for
and on his behalf to execute in his name and capacity as an officer of the
Corporation, and to file with the Securities and Exchange Commission on behalf
of the Corporation under the Securities Act of 1933, as amended, any and all
Registration Statements (including any and all amendments or post-effective
amendments thereto) relating to the offering of the Corporation's common stock,
$0.01 par value (and associated preferred stock purchase rights), by the
Corporation in connection with the merger of a subsidiary of the Corporation
with and into Kuhlman Corporation.
This Power of Attorney automatically ends upon the termination of Mr. Adams's,
Ms. Horiszny's and Mr. Lichtenberger's service with the Corporation.
In witness whereof, the undersigned has executed this Power of Attorney on this
19th day of January, 1999.
/s/ John F. Fiedler
- ----------------------------
John F. Fiedler
Chairman and Chief Executive
Officer
<PAGE> 1
Exhibit 99.1
PROXY KUHLMAN CORPORATION PROXY
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 1, 1999
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert S. Jepson, Jr., Curtis G. Anderson,
Vernon J. Nagel and Richard A. Walker, or any of them, proxies with full power
of substitution to vote, as designated on the reverse side hereof, all shares of
common stock of Kuhlman Corporation which the undersigned is entitled to vote,
at the special meeting of Kuhlman stockholders to be held at the offices of
Rudnick & Wolfe, 203 North LaSalle Street, Suite 1800, Chicago, Illinois on
March 1, 1999, at 9:30 a.m., local time, and any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSAL 1.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE> 2
- --------------------------------------------------------------------------------
KUHLMAN CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" PROPOSAL 1.
1. Proposal to approve the Agreement and Plan of Merger
dated as of December 17, 1998 by and among Kuhlman For Against Abstain
Corporation, Borg-Warner Automotive, Inc., and / / / / / /
BWA Merger Corp., a wholly owned subsidiary of
Borg-Warner Automotive, Inc. and the merger of
BWA Merger Corp. with and into Kuhlman Corporation
contemplated thereby.
2. In their discretion, the proxies are authorized to
vote upon such other business as may properly come
before the meeting.
Dated:_______________________, 1999
Signature:________________________
Signature:_________________________
Please sign exactly as name appears
hereon. When shares are held by
joint tenants, both should sign.
When signing as attorney, as
executor, administrator, trustee or
guardian, please give full title as
such. If a corporation, please sign
in full corporate name by President
or other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
- --------------------------------------------------------------------------------
<PAGE> 1
FORM OF ELECTION AND LETTER OF TRANSMITTAL
To accompany certificates representing shares of common stock ("Kuhlman Common
Stock"),
par value $1.00 per share, of
KUHLMAN CORPORATION, A DELAWARE CORPORATION ("KUHLMAN")
when submitted pursuant to an election to receive (i) cash or (ii) shares of
common stock, par value $0.01 per share ("Borg-Warner Automotive Common Stock"),
of Borg-Warner Automotive, Inc., a Delaware corporation ("Borg-Warner
Automotive"), in connection with the Agreement and Plan of Merger dated as of
December 17, 1998 (the "Merger Agreement") among Borg-Warner Automotive, BWA
Merger Corp., a Delaware corporation and a wholly owned subsidiary of
Borg-Warner Automotive ("Merger Sub"), and Kuhlman, pursuant to which Merger Sub
will be merged with and into Kuhlman (the "Merger"). All references herein to
Borg-Warner Automotive Common Stock and Kuhlman Common Stock shall include the
preferred stock purchase rights associated with such common stock.
The Exchange Agent for the Merger is:
HARRIS TRUST AND SAVINGS BANK
<TABLE>
<S> <C> <C>
By Mail: Facsimile Transmission: By Hand or Overnight Courier:
(for Eligible Institutions only)
Harris Trust and Savings Bank Harris Trust and Savings Bank
c/o Harris Trust Company (212) 701-7636 c/o Harris Trust Company
of New York of New York
Wall Street Station Receive Window
P.O. Box 1023 Wall Street Plaza
New York, NY 10268-1023 88 Pine Street, 19th Floor
New York, NY 10005
</TABLE>
For Confirmation Telephone:
(212) 701-7624
The Information Agent for the Merger is:
[GEORGESON & COMPANY INC. LOGO]
Wall Street Plaza
New York, NY 10005
Banks and Brokers Call: (212) 440-9800
All Others Call: (800) 223-2064
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
BOX A: ELECTION AND DESCRIPTION OF SHARES OF KUHLMAN COMMON STOCK ENCLOSED
(Attach additional sheets if necessary; check one Election only)
See "Special Election Instructions" and Instruction 3.
Any Election you make will also apply to shares held under the Kuhlman Dividend Investment Plan (the "DIP").
See Instruction 13.
CHOOSE ONE:
[ ] STOCK ELECTION [ ] CASH ELECTION [ ] NON-ELECTION
- --------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF REGISTERED HOLDER(S) NUMBER OF SHARES
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEARS CERTIFICATE REPRESENTED BY
ON CERTIFICATE(S)) NUMBER EACH CERTIFICATE
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
TOTAL NUMBER
OF SHARES
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
DELIVERY OF THIS FORM OF ELECTION AND LETTER OF TRANSMITTAL TO AN ADDRESS
OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TO
A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY TO
THE EXCHANGE AGENT.
TO BE EFFECTIVE, THIS FORM OF ELECTION AND LETTER OF TRANSMITTAL, TOGETHER
WITH YOUR STOCK CERTIFICATES (OR A GUARANTEE OF DELIVERY OF SUCH STOCK
CERTIFICATES AS SET FORTH IN INSTRUCTION 7), MUST BE RECEIVED BY THE EXCHANGE
AGENT BEFORE THE ELECTION DEADLINE SPECIFIED BELOW.
PLEASE READ THE INSTRUCTIONS IN THIS FORM OF ELECTION
AND LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING
THIS FORM OF ELECTION AND LETTER OF TRANSMITTAL
THE ELECTION DEADLINE IS 5:00 P.M. (EASTERN TIME) ON FEBRUARY 26, 1999,
WHICH DATE MAY BE EXTENDED BY KUHLMAN AND BORG-WARNER AUTOMOTIVE IF THEY DO NOT
EXPECT TO COMPLETE THE MERGER WITHIN ONE WEEK AFTER THE KUHLMAN SPECIAL MEETING.
A COMPLETED FORM OF ELECTION AND LETTER OF TRANSMITTAL, TOGETHER WITH YOUR
KUHLMAN STOCK CERTIFICATES (OR A GUARANTEE OF DELIVERY) (EACH AS DEFINED BELOW),
MUST BE RECEIVED BY THE EXCHANGE AGENT AT OR PRIOR TO THE ELECTION DEADLINE IN
ORDER FOR ANY CASH ELECTION OR STOCK ELECTION (AS SUCH TERMS ARE DEFINED BELOW)
MADE HEREBY TO BE VALID. THIS FORM OF ELECTION AND LETTER OF TRANSMITTAL SHOULD
BE RETURNED IN THE ENCLOSED BROWN KRAFT ENVELOPE. IF A PROPERLY COMPLETED FORM
OF ELECTION AND LETTER OF TRANSMITTAL, TOGETHER WITH YOUR KUHLMAN STOCK
CERTIFICATES (OR A GUARANTEE OF DELIVERY), IS NOT RECEIVED BY THE EXCHANGE AGENT
PRIOR TO THE ELECTION DEADLINE, YOU WILL BE DEEMED TO HAVE MADE A NON-ELECTION
WITH RESPECT TO YOUR SHARES, AND THE FORM OF MERGER CONSIDERATION THAT YOU WILL
BE ENTITLED TO RECEIVE WILL BE DETERMINED BY THE PROVISIONS OF THE MERGER
AGREEMENT. IF YOU FAIL TO INDICATE A CASH ELECTION OR STOCK ELECTION IN BOX A
ABOVE YOU WILL BE DEEMED TO HAVE INDICATED A NON-ELECTION. IF YOUR KUHLMAN STOCK
CERTIFICATES ARE NOT AVAILABLE AT THE TIME YOU SEND A FORM OF ELECTION TO THE
EXCHANGE AGENT, YOU MAY INSTEAD PROVIDE A GUARANTEE OF DELIVERY OF YOUR KUHLMAN
STOCK CERTIFICATES AS SET FORTH IN INSTRUCTION 7, IN WHICH CASE YOU MUST, WITHIN
THREE TRADING DAYS THEREAFTER, DELIVER TO THE EXCHANGE AGENT THE KUHLMAN STOCK
CERTIFICATES REPRESENTING THE SHARES IN RESPECT OF WHICH AN ELECTION IS BEING
MADE.
Copies of the Proxy Statement/Prospectus relating to the Merger (the "Proxy
Statement/Prospectus"), as well as extra copies of this Form of Election and
Letter of Transmittal, may be requested from Georgeson & Company Inc., the
Information Agent, at the toll-free phone number shown above, or from the
Exchange Agent at the addresses shown above. The return of this Form of Election
and Letter of Transmittal to the Exchange Agent is acknowledgment of your
receipt of the Proxy Statement/Prospectus.
IF YOUR STOCK CERTIFICATE(S) HAVE BEEN LOST, STOLEN OR DESTROYED AND YOU
REQUIRE ASSISTANCE IN REPLACING THEM, SEE INSTRUCTION 12 BELOW. YOU CANNOT
SUBMIT AN EFFECTIVE FORM OF ELECTION AND LETTER OF TRANSMITTAL WITHOUT ATTACHING
YOUR STOCK CERTIFICATE(S) (OR A GUARANTEE OF DELIVERY) TO THIS FORM OF ELECTION
AND LETTER OF TRANSMITTAL. THEREFORE, IF YOU WISH TO MAKE AN EFFECTIVE ELECTION,
IT IS CRITICAL THAT YOU ACT IMMEDIATELY TO OBTAIN REPLACEMENT STOCK
CERTIFICATES. IF YOU SUBMIT A GUARANTEE OF DELIVERY, THE KUHLMAN STOCK
CERTIFICATES REPRESENTING THE SHARES IN RESPECT OF WHICH AN ELECTION IS BEING
MADE MUST BE DELIVERED WITHIN THREE TRADING DAYS THEREAFTER.
2
<PAGE> 3
Ladies and Gentlemen:
Pursuant to the Merger Agreement and subject to the proration procedures
included therein and described in the Proxy Statement/Prospectus, the
undersigned hereby surrenders to you, as exchange agent (the "Exchange Agent"),
certificate(s) representing (or, if such certificates are received after the
effective time of the Merger (the "Effective Time"), formerly representing) all
of the shares of Kuhlman Common Stock (each such certificate, a "Kuhlman Stock
Certificate") listed in Box A above and hereby elects to have each of such
shares of Kuhlman Common Stock represented by such Kuhlman Stock Certificates
converted into the right: (i) to receive $39.00 in cash, without interest (a
"Cash Election"), (ii) to receive $39.00 worth of Borg-Warner Automotive Common
Stock (a "Stock Election") or (iii) to indicate no preference as between the
Cash Election or Stock Election (a "Non-Election," and any Cash Election, Stock
Election or Non-Election, an "Election"). In determining the number of shares of
Borg-Warner Automotive Common Stock to be received by Kuhlman stockholders for
each of their shares of Kuhlman Common Stock, the shares will be valued at the
average of the daily high and low sales prices of shares of Borg-Warner
Automotive Common Stock on the New York Stock Exchange during the 20 consecutive
trading days immediately preceding the third trading date prior to the closing
date of the Merger. In addition, it is understood that the Exchange Agent will
pay cash in lieu of any fractional shares of Borg-Warner Automotive Common Stock
otherwise issuable in connection with the Merger. Any cash (excluding cash
received in lieu of fractional shares) and Borg-Warner Automotive Common Stock
received by holders of Kuhlman Common Stock in connection with the Merger is
hereinafter referred to as "Cash Consideration" and "Stock Consideration,"
respectively. The Cash Consideration, Stock Consideration and cash paid in lieu
of fractional shares are collectively referred to as the "Merger Consideration."
The undersigned understands that an Election is subject to certain terms,
conditions and limitations that have been set forth in the Merger Agreement
including, but not limited to, the fact that only 3,846,154 shares of Kuhlman
Common Stock (approximately 22% of the outstanding shares of Kuhlman Common
Stock as of January 19, 1999) will be converted into the right to receive
Borg-Warner Automotive Common Stock in the Merger and the remaining outstanding
shares of Kuhlman Common Stock will be converted into the right to receive cash
in the Merger. THE UNDERSIGNED ACKNOWLEDGES THAT THE MERGER AGREEMENT PROVIDES
FOR PRORATION IF EITHER OF THE FOREGOING LIMITATIONS WOULD OTHERWISE BE
EXCEEDED, WITH THE RESULT THAT THE UNDERSIGNED MAY RECEIVE A MIX OF CASH AND
BORG-WARNER AUTOMOTIVE COMMON STOCK THAT DIFFERS FROM THE ELECTION MADE HEREBY.
If the undersigned is acting in a representative or fiduciary capacity for
a particular beneficial owner, the undersigned hereby certifies that this Form
of Election covers all of the shares of Kuhlman Common Stock owned by the
undersigned in a representative or fiduciary capacity for such particular
beneficial owner.
The undersigned hereby represents and warrants that the undersigned is as
of the date hereof, and will be as of the Effective Time, the registered holder
of the shares of Kuhlman Common Stock represented by the Kuhlman Stock
Certificate(s) surrendered herewith, with good title to such shares of Kuhlman
Common Stock and full power and authority (i) to sell, assign and transfer such
shares, free and clear of all liens, claims and encumbrances, and not subject to
any adverse claims and (ii) to make the Election indicated herein. The
undersigned will, upon request, execute any additional documents necessary or
desirable to complete the surrender and exchange of such shares of Kuhlman
Common Stock. The undersigned hereby irrevocably appoints the Exchange Agent, as
agent of the undersigned, to effect the exchange pursuant to the Merger
Agreement and the Instructions hereto. All authority conferred or agreed to be
conferred in this Form of Election and Letter of Transmittal shall be binding
upon the successors, assigns, heirs, executors, administrators and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned.
3
<PAGE> 4
SPECIAL ELECTION INSTRUCTIONS
The appropriate box must be checked in Box A above in order to make a Cash
Election or Stock Election. The box indicating a Non-Election may be checked by
those wishing to make a Non-Election, but any Form of Election and Letter of
Transmittal received by the Exchange Agent without any checked election box or
with more than one checked election box will be treated as indicating a
Non-Election.
Your choice of Election is as follows:
<TABLE>
<CAPTION>
WHAT YOU WILL RECEIVE, SUBJECT TO
PRORATION, FOR EACH SHARE OF
ELECTION KUHLMAN COMMON STOCK
-------- ---------------------------------
<S> <C>
Cash Election.......................... $39.00 in cash, without interest
Stock Election......................... $39.00 worth of Borg-Warner
Automotive Common Stock, valued
as described above
</TABLE>
ALL ELECTIONS ARE SUBJECT TO THE PRORATION PROCEDURES SET FORTH IN SECTION
2.2 OF THE MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED TO THE PROXY
STATEMENT/PROSPECTUS AS APPENDIX A. THE PRORATION PROCEDURES ARE DESCRIBED IN
INSTRUCTION 3 AND UNDER THE CAPTION "THE MERGER AGREEMENT -- CONVERSION OF
SHARES OF KUHLMAN COMMON STOCK" IN THE PROXY STATEMENT/PROSPECTUS. YOU ARE
ENCOURAGED TO READ THE PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY BEFORE
COMPLETING THIS FORM OF ELECTION AND LETTER OF TRANSMITTAL.
ALL HOLDERS OF KUHLMAN COMMON STOCK WISHING TO MAKE A CASH ELECTION OR
STOCK ELECTION MUST DELIVER TO THE EXCHANGE AGENT A PROPERLY COMPLETED FORM OF
ELECTION AND LETTER OF TRANSMITTAL PRIOR TO THE ELECTION DEADLINE (WHICH WILL BE
5:00 P.M. (EASTERN TIME) ON FEBRUARY 26, 1999, UNLESS KUHLMAN AND BORG-WARNER
AUTOMOTIVE PUBLICLY ANNOUNCE AN EXTENSION OF THE ELECTION DEADLINE, WHICH THEY
WILL DO IF THEY DO NOT EXPECT TO COMPLETE THE MERGER WITHIN ONE WEEK OF THE
KUHLMAN SPECIAL MEETING). ALL HOLDERS SUBMITTING A FORM OF ELECTION AND LETTER
OF TRANSMITTAL THAT IS RECEIVED BY THE EXCHANGE AGENT AFTER THE ELECTION
DEADLINE WILL BE DEEMED TO HAVE MADE A NON-ELECTION REGARDLESS OF THE ELECTION
SPECIFIED ON SUCH FORM.
The Exchange Agent reserves the right to deem that you have checked the
"Non-Election" box if:
A. No Election choice is indicated in Box A above;
B. More than one Election choice is indicated in Box A above;
C. You fail to follow the instructions on this Form of Election and
Letter of Transmittal (including failure to submit your Kuhlman Stock
Certificate(s) or a Guarantee of Delivery) or otherwise fail properly to
make an Election;
D. A completed Form of Election and Letter of Transmittal (including
submission of your Kuhlman Stock Certificate(s) or a Guarantee of Delivery)
is not actually received by the Exchange Agent prior to the Election
Deadline; or
E. You return this Form of Election and Letter of Transmittal with a
Guarantee of Delivery but do not deliver the Kuhlman Stock Certificates
representing the shares in respect of which an Election is being made
within three trading days thereafter.
Notwithstanding anything to the contrary in this Form of Election and
Letter of Transmittal, Borg-Warner Automotive reserves the right, which it may
delegate in whole or in part to the Exchange Agent, to waive any flaws in a
completed Form of Election and Letter of Transmittal but shall be under no
obligation to do so.
In order to receive the Merger Consideration, this Form of Election and
Letter of Transmittal must be (i) completed and signed in the space provided
below and on the Substitute Form W-9 and (ii) mailed or delivered with your
Kuhlman Stock Certificate(s) or a Guarantee of Delivery to the Exchange Agent at
either of the addresses set forth above. In order to make an Election properly,
these actions must be taken in a timely fashion such that the Form of Election
and Letter of Transmittal and other required documents are received by the
Exchange Agent prior to the Election Deadline.
4
<PAGE> 5
The method of delivery of the Kuhlman Stock Certificates and all other
required documents is at the election and risk of the holder of shares of
Kuhlman Common Stock. If you choose to send the Kuhlman Stock Certificates by
mail, it is recommended that they be sent by registered mail, appropriately
insured, with return receipt requested. Delivery of Kuhlman Stock Certificates
will be deemed effective and risk of loss with respect to such Kuhlman Stock
Certificates will pass only when such Kuhlman Stock Certificates are actually
received by the Exchange Agent.
Unless otherwise indicated below under "Special Issuance and Payment
Instructions," in exchange for the enclosed certificates, the Merger
Consideration will be delivered in the name of the undersigned. Similarly,
unless otherwise indicated below under "Special Delivery Instructions," the
Merger Consideration will be mailed to the undersigned at the address shown in
Box A above. In the event that both the "Special Delivery Instructions" and the
"Special Issuance and Payment Instructions" are completed, the Merger
Consideration will be issued in the name of, and will be mailed to, the person
or entity so indicated at the address so indicated, but only after the Exchange
Agent has been provided with satisfactory evidence of the payment of, or
exemption from payment of, any applicable stock transfer taxes payable on
account of the transfer to such person or entity prior to the delivery of the
Merger Consideration. In addition, appropriate signature guarantees must be
included with respect to shares of Kuhlman Common Stock for which Special
Issuance and Payment Instructions are given.
CONSUMMATION OF THE MERGER IS SUBJECT TO THE REQUIRED APPROVAL OF THE
STOCKHOLDERS OF KUHLMAN AND TO THE SATISFACTION OF CERTAIN OTHER CONDITIONS. NO
PAYMENTS RELATED TO ANY SURRENDER OF KUHLMAN STOCK CERTIFICATES WILL BE MADE
PRIOR TO THE EFFECTIVE TIME.
In the event that the Merger Agreement is terminated, the Exchange Agent
will promptly return Kuhlman Stock Certificates previously submitted with any
Form of Election and Letter of Transmittal. In such event, shares of Kuhlman
Common Stock held through The Depository Trust Company are expected to be
available for sale or transfer promptly following such termination; however,
certificates representing shares of Kuhlman Common Stock held of record directly
by the beneficial owners of such shares of Kuhlman Common Stock will be returned
as promptly as practicable by first class, insured mail.
The allocation of shares of Borg-Warner Automotive Common Stock, cash or a
combination thereof to be received by holders of Kuhlman Common Stock will be
effectuated within five business days after the Election Deadline. As a result,
it is expected that the final determination of the Merger Consideration to which
a holder of Kuhlman Common Stock is entitled will take place on or around March
5, 1999. The Merger Consideration is expected to be mailed promptly after the
later of (1) such determination or (2) the Effective Time.
5
<PAGE> 6
------------------------------------------------------------
SPECIAL ISSUANCE AND PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6, 10 AND 11)
To be completed ONLY if the certificate representing the Stock
Consideration and/or the check representing the Cash Consideration or cash
in lieu of fractional shares, as the case may be, is to be issued in the
name of, and mailed to, someone other than the undersigned.
Issue the certificate representing the Stock Consideration and/or the
check representing the Cash Consideration or cash in lieu of fractional
shares to:
Name
----------------------------------------------------
(PLEASE PRINT)
Address
--------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
(INCLUDE ZIP CODE)
If you complete this box, you will need a signature guarantee by an
eligible institution. See Instruction 6.
------------------------------------------------------------
------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 11)
To be completed ONLY if the certificate representing the Stock
Consideration and/or the check representing the Cash Consideration or cash
in lieu of fractional shares, as the case may be, issued in the name of
the undersigned is to be mailed to someone other than the undersigned or
to the undersigned at an address other than that shown in Box A above.
Mail the certificate representing the Stock Consideration and/or the check
representing the Cash Consideration or cash in lieu of fractional shares
to:
Name
----------------------------------------------------
(PLEASE PRINT)
Address
--------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
(INCLUDE ZIP CODE)
Check this box if this is a permanent change of address. [ ]
------------------------------------------------------------
6
<PAGE> 7
The undersigned represents and warrants that the undersigned has full power
and authority to transfer the shares of Kuhlman Common Stock surrendered hereby
and that the transferee will acquire good and unencumbered title thereto, free
and clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claim when the shares are accepted for exchange by the Exchange
Agent. The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or Borg-Warner Automotive to be necessary
and desirable to complete the transfer of the shares of Kuhlman Common Stock
surrendered hereby.
Dated:
- ---------------------------------------------
PLEASE SIGN HERE
Signature:
- --------------------------------------------------------------------------------
Signature:
- --------------------------------------------------------------------------------
Dated:
- --------------------------------------------------------------------------------
Name(s):
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity:
- --------------------------------------------------------------------------------
Daytime Area Code and
Telephone Number:
- --------------------------------------------------------------------------------
Signature(s) of registered holder(s) must be EXACTLY as name(s) appear(s)
in Box A headed "Election and Description of Shares of Kuhlman Common Stock
Enclosed" or on the assignment authorizing transfer.
If signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, the capacity of the person signing should be
indicated. (See Instruction 10 hereto.)
If a participant in the DIP, the person(s) signing above hereby direct(s)
the Exchange Agent to place a stop against the aforementioned number of shares
of Kuhlman Common Stock held through the DIP pending the passing of the Election
Deadline. Following the Election Deadline, the Exchange Agent is further
directed to effect the exchange.
SIGNATURE GUARANTEE
(REQUIRED ONLY IN CASES SPECIFIED IN INSTRUCTION 6)
The undersigned hereby guarantees the signature(s) which appear(s) on this
Form of Election and Letter of Transmittal.
Dated:
- ---------------------------------------------
- --------------------------------------------------------------------------------
(NAME OF ELIGIBLE INSTITUTION ISSUING GUARANTEE)
(PLEASE PRINT)
- --------------------------------------------------------------------------------
(FIX MEDALLION STAMP ABOVE)
7
<PAGE> 8
INSTRUCTIONS
This Form of Election and Letter of Transmittal is to be completed and
submitted to the Exchange Agent prior to the Election Deadline by those holders
of shares of Kuhlman Common Stock desiring to make a Cash Election or Stock
Election. It may also be used as a letter of transmittal for holders of Kuhlman
Common Stock who do not complete and submit the Form of Election prior to the
Election Deadline or at any time by any holders of Kuhlman Common Stock who wish
to make a Non-Election. Until a record holder's Kuhlman Stock Certificates (or a
Guarantee of Delivery) are received by the Exchange Agent at one of the
addresses set forth above, together with such documents as the Exchange Agent
may require, and until the same are processed for exchange by the Exchange
Agent, such holders will not receive any certificates representing shares of the
Stock Consideration or the check representing the Cash Consideration or cash in
lieu of fractional shares (if any) in exchange for their Kuhlman Stock
Certificates. No interest will accrue on the Cash Consideration or any cash in
lieu of fractional shares. Subject to the effect of applicable laws, following
surrender of any Kuhlman Stock Certificate, the record holder will receive (1)
at the time of such surrender, a certificate representing the number of whole
shares of Borg-Warner Automotive Common Stock and the amount of any cash to
which such holder is entitled and the amount of dividends or other distributions
with respect to such whole shares with a record date after the Effective Time
and a payment date prior to their date of issuance, less the amount of any
withholding taxes that may be required thereon, and (2) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares less the amount of any
withholding taxes that may be required thereon. If your stock certificate(s) are
lost, stolen or destroyed, please refer to Instruction 12 below.
A HOLDER OF KUHLMAN COMMON STOCK MUST CHECK THE APPROPRIATE ELECTION BOX IN
BOX A ABOVE TO MAKE AN EFFECTIVE CASH ELECTION OR STOCK ELECTION. ONLY ONE
ELECTION BOX MAY BE CHECKED ON EACH FORM OF ELECTION AND LETTER OF TRANSMITTAL.
Your election is subject to certain terms, conditions and limitations that
have been set out in the Merger Agreement and the Proxy Statement/Prospectus.
The Merger Agreement is included as Appendix A to the Proxy Statement/
Prospectus. Copies of the Proxy Statement/Prospectus may be requested from
Georgeson & Company Inc., at 88 Pine Street, 30th Floor, New York, NY 10005 or
from the Exchange Agent at the addresses shown above. The return of this Form of
Election and Letter of Transmittal to the Exchange Agent is acknowledgment of
your receipt of the Proxy Statement/Prospectus.
1. Election Deadline. THE ELECTION DEADLINE IS 5:00 P.M. (EASTERN TIME)
ON FEBRUARY 26, 1999; PROVIDED, THAT IF KUHLMAN AND BORG-WARNER AUTOMOTIVE DO
NOT EXPECT TO COMPLETE THE MERGER WITHIN ONE WEEK AFTER THE SPECIAL MEETING OF
STOCKHOLDERS OF KUHLMAN THAT IS CALLED TO APPROVE THE MERGER (THE "KUHLMAN
SPECIAL MEETING"), KUHLMAN AND BORG-WARNER AUTOMOTIVE WILL EXTEND THE ELECTION
DEADLINE AND PUBLICLY ANNOUNCE THE EXTENSION. For any Cash Election or Stock
Election contained herein to be considered, this Form of Election and Letter of
Transmittal, properly completed, and the related Kuhlman Stock Certificate(s)
(or a Guarantee of Delivery) must be received by the Exchange Agent at one of
the addresses shown above on this Form of Election and Letter of Transmittal at
or prior to the Election Deadline. ANY KUHLMAN STOCK CERTIFICATES FOR WHICH A
GUARANTEE OF DELIVERY IS PROVIDED MUST IN FACT BE DELIVERED WITHIN THREE TRADING
DAYS AFTER THE DATE OF SUCH GUARANTEE OF DELIVERY OR YOU WILL BE DEEMED TO HAVE
MADE A NON-ELECTION. The Exchange Agent will determine whether any Form of
Election and Letter of Transmittal or any Kuhlman Stock Certificates in respect
of a Guarantee of Delivery are received on a timely basis. Any such
determinations made in good faith shall be conclusive and binding.
2. Revocation or Change of Form of Election and Letter of Transmittal. A
Form of Election and Letter of Transmittal may be (i) revoked if the Exchange
Agent receives written notice prior to the Election Deadline from the record
holder of the shares covered by such Election or (ii) changed if the Exchange
Agent receives a completed replacement Form of Election and Letter of
Transmittal prior to the Election Deadline from the record holder of the shares
covered by such Election. Any person who has effectively revoked a Form of
Election may, by signed and written notice to the Exchange Agent, request the
return of the Kuhlman Stock Certificates submitted to the Exchange Agent and
such Kuhlman Stock Certificates will be returned without charge to such person
promptly after receipt of such request.
3. Election Procedures/Proration. To properly complete Box A, (i) the
undersigned must check either the Cash Election, Stock Election or Non-Election
boxes (if no box is checked the Non-Election box will be deemed to have been
8
<PAGE> 9
indicated); (ii) the name and address of the registered holder(s) must be set
forth under the column "Name and Address of Registered Holder(s)" and (iii) the
number of each Kuhlman Stock Certificate surrendered herewith must be written in
the column under the heading "Certificate Number." As set forth in the Proxy
Statement/Prospectus, only 3,846,154 of the outstanding shares of Kuhlman Common
Stock (approximately 22% of the outstanding shares of Kuhlman Common Stock as of
January 19, 1999) will be converted into the right to receive Borg-Warner
Automotive Common Stock in the Merger and the remaining outstanding shares of
Kuhlman Common Stock will be converted into the right to receive cash in the
Merger. If the Elections result in an oversubscription of either the Cash
Consideration or the Stock Consideration, the procedures for allocating the
Merger Consideration set forth in Section 2.2 of the Merger Agreement (attached
as Appendix A to the Proxy Statement/Prospectus) and described in the Proxy
Statement/Prospectus will be followed by the Exchange Agent. Accordingly, there
can be no assurance that a Cash Election or Stock Election made by you will
result in your receipt of the desired type and amount of Merger Consideration.
See the Proxy Statement/ Prospectus under the caption "The Merger
Agreement -- Conversion of Shares of Kuhlman Common Stock." The allocation of
shares of Borg-Warner Automotive Common Stock, cash or a combination thereof to
be received by holders of Kuhlman Common Stock will be effectuated within five
business days after the Election Deadline. As a result, it is expected that the
final determination of the Merger Consideration to which a holder of Kuhlman
Common Stock is entitled will take place on or around March 5, 1999. The Merger
Consideration is expected to be mailed promptly after the later of (1) such
determination or (2) the Effective Time.
4. Termination of Merger Agreement. All Forms of Election will be void
and of no effect if the Merger Agreement is terminated. In such event, shares of
Kuhlman Common Stock held through The Depository Trust Company are expected to
be available for sale or transfer promptly following such termination; however,
certificates representing shares of Kuhlman Common Stock held of record directly
by the beneficial owners of such shares of Kuhlman Common Stock will be returned
by the Exchange Agent without charge to the holder as promptly as practicable by
first class, insured mail.
5. No Fractional Interests. No certificate representing a fraction of a
share of Borg-Warner Automotive Common Stock will be issued. In lieu thereof,
the Exchange Agent will remit on Borg-Warner Automotive's behalf cash without
interest in an amount equal to the product of (i) the average of the daily high
and low sales prices of shares of Borg-Warner Automotive Common Stock on the New
York Stock Exchange during the 20 consecutive trading days immediately preceding
the third trading date prior to the closing date of the Merger and (ii) the
fractional interest to which a holder of Kuhlman Common Stock would otherwise be
entitled (after taking into account all shares of Kuhlman Common Stock then held
of record by such holder). No such holder of Kuhlman Common Stock shall be
entitled to dividends, voting rights or any other rights in respect of any
fractional share.
6. Guarantee of Signatures. If the Merger Consideration is to be issued
in the name of the registered holder(s) as inscribed on the surrendered Kuhlman
Stock Certificate(s), the signatures on this Form of Election and Letter of
Transmittal need not be guaranteed. If the "Special Issuance and Payment
Instructions" section has been completed and payment is to be made to someone
other than the registered holder(s) of Kuhlman Common Stock with respect to the
surrendered Kuhlman Stock Certificate(s), signatures on this Form of Election
and Letter of Transmittal must be guaranteed by a financial institution
(including most commercial banks, savings and loan associations and brokerage
houses) that is a participant in a Medallion Signature Guarantee Program. Public
notaries cannot execute acceptable guarantees of signatures.
7. Delivery of Form of Election and Letter of Transmittal and Kuhlman
Stock Certificates; Guarantee of Delivery. This Form of Election and Letter of
Transmittal, properly completed and duly executed, together with the Kuhlman
Stock Certificate(s) representing the shares of Kuhlman Common Stock or a
Guarantee of Delivery should be delivered to the Exchange Agent at one of the
addresses set forth above. A Guarantee of Delivery of such Kuhlman Stock
Certificates must be made by a firm that is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
United States, AND ANY KUHLMAN STOCK CERTIFICATES COVERED BY A GUARANTEE OF
DELIVERY MUST IN FACT BE DELIVERED TO THE EXCHANGE AGENT WITHIN THREE TRADING
DAYS AFTER THE DATE OF EXECUTION OF SUCH GUARANTEE OF DELIVERY. Failure to
deliver such Kuhlman Stock Certificates shall invalidate any Cash Election or
Stock Election, and a Non-Election shall be deemed to have been made. The method
of delivery of the Kuhlman Stock Certificates and all other required documents
is at the election and risk of the record holder of such shares of Kuhlman
Common Stock. If such certificates are sent by mail, it is recommended that they
be sent by registered mail, appropriately insured, with return receipt
requested.
9
<PAGE> 10
8. Shares Held by Nominees, Trustees or Other Representatives. Holders of
record of shares of Kuhlman Common Stock who hold such shares as nominees,
trustees or in other representative or fiduciary capacities (a "Representative")
may submit one or more Forms of Election and Letter of Transmittal covering the
aggregate number of shares of Kuhlman Common Stock held by such Representative
for the beneficial owners for whom the Representative is making an Election,
provided that such Representative certifies that each Form of Election and
Letter of Transmittal covers all of the shares of Kuhlman Common Stock held by
such Representative for any single beneficial owner. Any Representative that
makes an Election may be required to provide the Exchange Agent with such
documents or other certifications, if requested, in order to satisfy the
Exchange Agent that such Representative holds such shares of Kuhlman Common
Stock for a particular beneficial owner. If any shares of Kuhlman Common Stock
are not covered by an effective Form of Election and Letter of Transmittal, they
will be deemed to be covered by a Non-Election.
9. Inadequate Space. If the space provided herein is inadequate, the
share certificate numbers and the numbers of shares of Kuhlman Common Stock
represented thereby should be listed on additional sheets and attached hereto.
10. Signatures on Form of Election and Letter of Transmittal, Share Powers
and Endorsements.
(a) All signatures must correspond exactly with the name written on the
face of the Kuhlman Stock Certificate(s) without alteration, variation or any
change whatsoever.
(b) If the Kuhlman Stock Certificates surrendered are held of record by two
or more joint owners, all such owners must sign this Form of Election and Letter
of Transmittal.
(c) If any surrendered shares of Kuhlman Common Stock are registered in
different names on several Kuhlman Stock Certificate(s), it will be necessary to
complete, sign and submit as many separate Forms of Election and Letter of
Transmittal as there are different registrations of Kuhlman Stock Certificates.
(d) If this Form of Election and Letter of Transmittal is signed by a
person(s) other than the record holder(s) of the Kuhlman Stock Certificate(s)
listed (other than as set forth in paragraph (e) below), such certificates must
be endorsed or accompanied by appropriate share powers, in either case signed
exactly as the name(s) of the record holder(s) appears on such certificate(s).
(e) If this Form of Election and Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity and
such person is not the record holder of the accompanying Kuhlman Stock
Certificates, he or she must indicate the capacity when signing and must submit
proper evidence of his or her authority to act.
11. Special Issuance and Delivery Instructions. Indicate the name and
address of the person(s) to whom the Merger Consideration is to be issued and
mailed, if different from the name and address of the person(s) signing this
Form of Election and Letter of Transmittal. If Special Issuance and Delivery
Instructions are completed, the Exchange Agent will be required to deliver the
Merger Consideration only after the Exchange Agent has been provided with
satisfactory evidence of the payment of, or exemption from payment of, any
applicable stock transfer taxes payable on account of the transfer to such
person or entity prior to the delivery of the Merger Consideration.
12. Lost, Stolen or Destroyed Certificates. You cannot submit an
effective Form of Election and Letter of Transmittal without attaching your
Kuhlman Stock Certificates to this Form of Election and Letter of Transmittal or
providing a Guarantee of Delivery. If your Kuhlman Stock Certificate(s) have
been lost, stolen or destroyed, you are urged to call the Exchange Agent at
(212) 701-7624. In such event, the Exchange Agent will forward additional
documentation that the stockholder must complete in order to surrender such
lost, stolen or destroyed certificate(s) effectively. You may be required to
post an indemnity bond if so required by Borg-Warner Automotive.
13. Dividend Investment Plan Participants. Participants in the DIP do not
need to send their Kuhlman Stock Certificates held through the DIP (or a
Guarantee of Delivery) with this Form of Election and Letter of Transmittal. By
sending in this Form of Election and Letter of Transmittal and indicating you
are a participant in the DIP, you authorize the Exchange Agent (i) to place a
stop against the aforementioned number of shares of Kuhlman Common Stock held in
the DIP pending the passing of the Election Deadline and (ii) to effect the
exchange following the Election Deadline. An Election made in Box A above will
also apply to shares held through the DIP. See Instruction 3.
10
<PAGE> 11
14. Miscellaneous. Borg-Warner Automotive has the discretion, which it
may delegate in whole or in part to the Exchange Agent, to determine whether a
Form of Election and Letter of Transmittal has been properly completed, signed
and submitted or revoked and to disregard immaterial defects in any Form of
Election and Letter of Transmittal. The good faith decision of Borg-Warner
Automotive (or the Exchange Agent) in such matters shall be conclusive and
binding. Neither Borg-Warner Automotive nor the Exchange Agent is under any duty
to give notification of defects in any Form of Election and Letter of
Transmittal.
15. Information and Additional Copies. Information and additional copies
of this Form of Election and Letter of Transmittal may be obtained by
telephoning Georgeson & Company, Inc. toll-free at 800-223-2064.
11
<PAGE> 12
IMPORTANT TAX INFORMATION
Under federal income tax law, the Exchange Agent is required to file a
report with the Internal Revenue Service ("IRS") disclosing any payments made to
a holder of Kuhlman Common Stock pursuant to the Merger Agreement and to impose
31% backup withholding if required. If the correct certifications on Substitute
Form W-9 are not provided, a $50 penalty may be imposed on the holder by the IRS
and payments made for shares of Kuhlman Common Stock may be subject to backup
withholding of 31%. Backup withholding is also required if the IRS notifies the
recipient that the recipient is subject to backup withholding as a result of a
failure to report all interest and dividends.
In order to avoid backup withholding resulting from a failure to provide a
correct certification, a holder of Kuhlman Common Stock must, unless an
exemption applies, provide the Exchange Agent with the holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 as set forth on this Form
of Election and Letter of Transmittal. Such person must certify under penalties
of perjury that such number is correct and that such holder is not otherwise
subject to backup withholding. The TIN that must be provided is that of the
registered holder of the Kuhlman Common Stock. If the Kuhlman Common Stock is
held in more than one name or is not registered in the name of the actual holder
or if the Merger Consideration is to be delivered to another person as provided
in the box entitled "Special Issuance and Payment Instructions," consult the
enclosed guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 and your tax advisor for additional guidance on which number
to report. The box in Part 3 of the Substitute Form W-9 should be checked if the
surrendering holder of Kuhlman Common Stock has not been issued a TIN and has
applied for a TIN or intends to apply for a TIN in the near future. If the box
in Part 3 is checked and the Exchange Agent is not provided with a TIN,
Borg-Warner Automotive will withhold 31% of all such payments and dividends. A
foreign person may qualify as an exempt recipient by submitting to the Exchange
Agent a properly completed IRS Form W-8, signed under penalties of perjury,
attesting to that person's exempt status. Foreign investors should consult their
tax advisors regarding the need to complete IRS Form W-8 and any other forms
that may be required.
Backup withholding is not an additional federal income tax. Rather, the
federal income tax liability of a person subject to backup withholding will be
reduced by the amount of tax withheld. If backup withholding results in an
overpayment of taxes, a refund may be obtained from the IRS.
Please read the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional important
information on how to complete the Substitute Form W-9.
For a summary of the federal income tax consequences of the receipt of the
Merger Consideration, see "The Merger -- Material Federal Income Tax" in the
Proxy Statement/Prospectus.
12
<PAGE> 13
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
PAYER'S NAME: HARRIS TRUST AND SAVINGS BANK
- ---------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TAXPAYER
FORM W-9 IDENTIFICATION NUMBER IN THE BOX AT RIGHT AND ---------------------------------
Please Fill in Your CERTIFY BY SIGNING AND DATING BELOW. Social Security Number(s) or
Name and Address Below Employer Identification
Number(s)
---------------------------------------------------------------------------------------
PART 2 -- Exempt Payees [ ]
---------------------------------------------------------------------------------------
-------------------------------------- PART 3 -- Awaiting TIN [ ]
Name (if joint ownership, list first
and circle the name of the person or
entity whose number is entered in Part
I)
---------------------------------------------------------------------------------------
CERTIFICATION -- UNDER PENALTY OF PERJURY, I CERTIFY THAT:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am
waiting for a number to be issued to me), and
(2) I am not subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service ("IRS")
Address (number and street) that I am subject to backup withholding as a result of a failure to report all
-------------------------------------- interest or dividends, or (c) the IRS has notified me that I am no longer subject to
City, State and Zip Code backup withholding.
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been
PAYER'S REQUEST FOR TAXPAYER notified by the IRS that you are subject to backup withholding because of under-reported
IDENTIFICATION NUMBER (TIN) interest or dividends on your tax return. However, if after being notified by the IRS
that you were subject to backup withholding you received another notification from the
IRS stating that you are no longer subject to backup withholding, do not cross out item
(2). If you are exempt from backup withholding, check the box in Part 2 above.
--------------------------------------------------------------------------------------------------------------------------------
Signature -------------------------------------------------------------------------- Date---------------------------
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM OF ELECTION AND LETTER OF
TRANSMITTAL, INCLUDING THE SUBSTITUTE FORM W-9, MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE MERGER
AGREEMENT. PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number, 31% of all reportable
payments made to me thereafter will be withheld until I provide such number.
<TABLE>
<S> <C> <C>
- -------------------------------------------------------- --------------------------------------------------------
Signature Date
</TABLE>
13
<PAGE> 14
GUARANTEE OF DELIVERY
(TO BE USED IF KUHLMAN STOCK CERTIFICATES ARE NOT
SURRENDERED HEREWITH)
(Not to be used for signature guarantee)
(See Instruction 7)
THE UNDERSIGNED (CHECK APPROPRIATE BOX BELOW) GUARANTEES TO DELIVER TO THE
EXCHANGE AGENT AT THE APPROPRIATE ADDRESS SET FORTH ABOVE THE CERTIFICATES FOR
SHARES OF KUHLMAN COMMON STOCK SUBMITTED WITH THIS FORM OF ELECTION AND LETTER
OF TRANSMITTAL NO LATER THAN 5:00 P.M., (EASTERN TIME), ON THE THIRD TRADING DAY
AFTER THE DATE OF EXECUTION OF THIS GUARANTEE OF DELIVERY.
<TABLE>
<S> <C>
[ ] A member of a registered
national securities
exchange ----------------------------------------------------------------------------
Firm (Please Print or Type)
[ ] A member of the National
Association of Securities
Dealers, Inc. ----------------------------------------------------------------------------
Authorized Signature
[ ] A commercial bank or
trust company in the
United States
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Address
Dated:
---------------------
----------------------------------------------------------------------------
Area Code and Telephone Number
</TABLE>
<PAGE> 15
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER FOR THE PAYEE (YOU)
TO GIVE THE PAYER. -- Social security numbers have nine digits separated by two
hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits
separated by only one hyphen: i.e., 00-0000000. The table below will help
determine the number to give the payer. All "Section" references are to the
Internal Revenue Code of 1986, as amended. "IRS" is the Internal Revenue
Service.
------------------------------------------------------------------
<TABLE>
<S> <C> <C>
GIVE THE SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- ---------------------------------------------------------------------
1. Individual The individual
2. Two or more individuals (joint The actual owner of the ac-
account) count or, if combined funds,
the first individual on the
account(1)
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
4. a. The usual revocable savings The grantor-trustee(1)
trust account (grantor is also
trustee)
b. So-called trust account that The actual owner(1)
is not a legal or valid trust
under state law
5. Sole proprietorship The owner(3)
- ---------------------------------------------------------------------
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF --
- ---------------------------------------------------------------------
6. Sole proprietorship The owner(3)
7. A valid trust, estate, or The legal entity(4)
pension trust
8. Corporate The corporation
9. Association, club, religious, The organization
charitable, educational, or
other tax-exempt organization
10. Partnership The partnership
11. A broker or registered nominee The broker or nominee
12. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State
or local government, school
district, or prison) that
receives agricultural program
payments
</TABLE>
------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a social security number, that
person's number must be furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your social security number or
your employer identification number (if you have one).
(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the taxpayer identification number of the personal
representative or trustee unless the legal entity itself is not designated
in the account title.)
NOTE: If no name is circled when there is more than one name listed, the number
will be considered to be that of the first name listed.
OBTAINING NUMBER
If you don't have a taxpayer identification number, obtain Form SS-5,
Application for a Social Security Card, at the local Social Security
Administration office, or Form SS-4, Application for Employer Identification
Number, by calling 1 (800) TAX-FORM, and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from withholding include:
- - An organization exempt from tax under Section 501(a), an individual retirement
account (IRA), or a custodial account under Section 403(b)(7), if the account
satisfies the requirements of Section 401(f)(2).
- - The United States or a state thereof, the District of Columbia, a possession
of the United States, or a political subdivision or wholly-owned agency or
instrumentality of any one or more of the foregoing.
- - An international organization or any agency or instrumentality thereof.
- - A foreign government and any political subdivision, agency or instrumentality
thereof.
Payees that may be exempt from backup withholding include:
- - A corporation.
- - A financial institution.
- - A dealer in securities or commodities required to register in the United
States, the District of Columbia, or a possession of the United States.
- - A real estate investment trust.
- - A common trust fund operated by a bank under Section 584(a).
- - An entity registered at all times during the tax year under the Investment
Company Act of 1940.
- - A middleman known in the investment community as a nominee or who is listed in
the most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List.
- - A futures commission merchant registered with the Commodity Futures Trading
Commission.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends generally exempt from backup
withholding include:
- - Payments to nonresident aliens subject to withholding under Section 1441.
- - Payments to partnerships not engaged in a trade or business in the United
States and that have at least one nonresident alien partner.
- - Payments of patronage dividends not paid in money.
- - Payments made by certain foreign organizations.
- - Section 404(k) payments made by an ESOP.
Payments of interest generally exempt from backup withholding include:
- - Payments of tax-exempt interest (including exempt-interest dividends under
Section 852).
- - Payments described in Section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under Section 1451.
- - Payments made by certain foreign organizations.
Certain payments, other than payments of interest, dividends, and patronage
dividends, that are exempt from information reporting are also exempt from
backup withholding. For details, see Sections 6041, 6041A, 6042, 6044, 6045,
6049, 6050A and 6050N and the regulations thereunder.
EXEMPT PAYEES SHOULD COMPLETE A SUBSTITUTE FORM W-9 TO AVOID POSSIBLE ERRONEOUS
BACKUP WITHHOLDING. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, CHECK THE BOX
IN PART 2 OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER.
PRIVACY ACT NOTICE. -- Section 6109 requires you to provide your correct
taxpayer identification number to payers who must report the payments to the
IRS. The IRS uses the numbers for identification purposes and to help verify the
accuracy of your return and may also provide this information to various
government agencies for tax enforcement or litigation purposes. Payers must be
given the numbers whether or not recipients are required to file tax returns.
Payers must generally withhold 31% of taxable interest, dividend, and certain
other payments to a payee who does not furnish a taxpayer identification number
to a payer. Certain penalties may also apply.
PENALTIES
(1) FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you fail to furnish
your taxpayer identification number to a payer, you are subject to a penalty of
$50 for each such failure unless your failure is due to reasonable cause and not
to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE.
