Filed Pursuant to Rule 424B1
Registration No. 333-18521
333-18521-01
PROSPECTUS
$100,000,000
LOGO ARVIN CAPITAL I
9.50% CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
ARVIN INDUSTRIES, INC.
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The 9.50% Capital Securities (the "Capital Securities") offered hereby
represent preferred undivided beneficial interests in the assets of Arvin
Capital I, a statutory business trust created under the laws of the State of
Delaware (the "Trust"). Arvin Industries, Inc., an Indiana corporation
("Arvin" or the "Company"), will directly or indirectly own all the common
securities (the "Common Securities" and, together with the Capital Securities,
the "Trust Securities") representing undivided beneficial interests in the
assets of the Trust. The Trust exists for the sole purpose of issuing the
Trust Securities and investing the proceeds thereof in an equivalent amount of
9.50% Junior Subordinated Deferrable Interest Debentures due 2027 (the
"Subordinated Debentures") of Arvin. Upon an event of default under the
Declaration (as defined herein), the holders of Capital Securities will have a
preference over the holders of the Common Securities with respect to payments
of distributions and payments upon liquidation, redemption and otherwise.
Holders of the Capital Securities are entitled to receive cumulative cash
distributions at an annual rate of 9.50% of the liquidation amount of $1,000
per Capital Security, accruing from the date of original issuance and payable
semi-annually in
(continued on next page)
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SEE "RISK FACTORS" COMMENCING ON PAGE 9 OF THIS PROSPECTUS FOR CERTAIN
INFORMATION RELEVANT TO AN INVESTMENT IN THE CAPITAL SECURITIES, INCLUDING THE
PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF DISTRIBUTIONS OF
THE CAPITAL SECURITIES MAY BE DEFERRED AND THE RELATED UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF SUCH DEFERRAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE (1) COMMISSION (2) TRUST (3)(4)
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Per Capital Security............. $988.83 (3) $988.83
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Total............................ $98,883,000 (3) $98,883,000
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(1) Plus accrued distributions, if any, from January 28, 1997.
(2) The Trust and the Company have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3) In view of the fact that the proceeds of the sale of the Capital
Securities will be invested in the Subordinated Debentures, Arvin has
agreed to pay to the Underwriters, as compensation (the "Underwriters'
Compensation") for their arranging the investment therein of such
proceeds, $10.00 per Capital Security (or $1,000,000 in the aggregate).
See "Underwriting."
(4) Expenses of the offering which are payable by Arvin are estimated to be
$400,000.
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The Capital Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that delivery of the Capital Securities will be made only in book-
entry form through the facilities of The Depository Trust Company, on or about
January 28, 1997.
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MERRILL LYNCH & CO. LEHMAN BROTHERS
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
SALOMON BROTHERS INC
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The date of this Prospectus is January 23, 1997.
(continued from previous page)
arrears on February 1 and August 1 of each year, commencing August 1, 1997
("distributions"). The distribution rate and the distribution and other
payment dates for the Capital Securities will correspond to the interest rate
and interest and other payment dates on the Subordinated Debentures, which
will be the only assets of the Trust. As a result, if principal or interest is
not paid on the Subordinated Debentures, no amounts will be paid on the
Capital Securities. The payment of distributions out of moneys held by the
Trust and payments on liquidation of the Trust or the redemption of Capital
Securities, as set forth below, are guaranteed by the Company (the
"Guarantee") if and to the extent the Trust has funds available therefor. The
Company's obligations under the Guarantee, taken together with its back-up
undertakings, consisting of obligations of the Company (including the
obligation to pay expenses of the Trust) as set forth in the Declaration, the
Indenture (as defined herein) and the Subordinated Debentures issued to the
Trust, provide a full and unconditional guarantee by the Company of payments
due on the Capital Securities. See "Effect of Obligations Under the
Subordinated Debentures and the Guarantee" and "Description of the Guarantee."
If the Company does not make principal or interest payments on the
Subordinated Debentures as a result of the Company's election to extend the
interest payment period on the Subordinated Debentures as described below, or
otherwise, the Trust will not have sufficient funds to make distributions on
the Capital Securities, in which event the Guarantee will not apply to such
distributions until the Company has made such principal or interest payments.
The obligations of the Company under the Subordinated Debentures are unsecured
and will be subordinate and junior in right of payment, to the extent set
forth herein, to all existing and future Senior Indebtedness (as defined
herein) of the Company. At September 29, 1996, the aggregate amount of Senior
Indebtedness of the Company was approximately $472 million. The Company's
obligations under the Subordinated Debentures will also be effectively
subordinated to all existing and future obligations of Arvin's subsidiaries.
The Company has the right to defer payments of interest on the Subordinated
Debentures by extending the interest payment period on the Subordinated
Debentures, at any time and from time to time, for up to 10 consecutive semi-
annual interest payment periods (each, an "Extension Period") provided that no
Extension Period may extend beyond the Maturity Date (as defined herein). If
interest payments are so deferred, distributions on the Capital Securities
will also be deferred. During any Extension Period, distributions will
continue to accrue with interest thereon (to the extent permitted by
applicable law) at an annual rate of 9.50% per annum compounded semi-annually,
and during any Extension Period, holders of Capital Securities will be
required to include deferred interest income in their gross income for United
States federal income tax purposes in advance of receipt of the cash
distributions with respect to such deferred interest payments. There could be
multiple Extension Periods of varying lengths throughout the term of the
Subordinated Debentures. See "Risk Factors--Option to Extend Interest Payment
Period" and "--Tax Consequences of Extension of Interest Payment Period,"
"Description of the Subordinated Debentures--Option to Extend Interest Payment
Period," and "United States Federal Income Taxation--Original Issue Discount."
The Subordinated Debentures are redeemable prior to maturity at the option
of the Company (i) on or after February 1, 2007, in whole or in part, from
time to time, or (ii) prior to February 1, 2007, in whole (but not in part)
within 90 days following the occurrence of a Tax Event (as defined herein). If
the Company redeems Subordinated Debentures, the Trust must redeem Trust
Securities having an aggregate liquidation amount equal to the aggregate
principal amount of the Subordinated Debentures so redeemed at the Redemption
Price (as defined herein). See "Description of the Capital Securities--
Redemption" and "--Tax Event Redemption." The outstanding Capital Securities
will be redeemed upon maturity of the Subordinated Debentures. The
Subordinated Debentures will mature on February 1, 2027.
At any time, the Company will have the right to dissolve the Trust and,
after satisfaction of liabilities to creditors of the Trust as required by
applicable law, cause the Subordinated Debentures to be distributed to the
holders of the Trust Securities, on a pro rata basis, in liquidation of the
Trust. See "Description of the Capital Securities--Distribution of the
Subordinated Debentures."
In the event of any other voluntary or involuntary liquidation, dissolution,
winding up or termination of the Trust, the holders of the Capital Securities
will be entitled to receive for each Capital Security, solely out of the
assets of the Trust available for distribution to such holders, after payment
(or provision for payment) of all liabilities to creditors, a liquidation
amount of $1,000 plus accrued and unpaid distributions thereon (including
interest thereon) to the date of payment, unless, in connection with such
liquidation, dissolution, winding up or termination, the Subordinated
Debentures are distributed to the holders of the Capital Securities. See
"Description of the Capital Securities--Liquidation Distribution upon
Dissolution."
The Capital Securities will be represented by global Capital Securities
registered in the name of The Depository Trust Company ("DTC") or its nominee.
Beneficial interests in the global Capital Securities will be shown on, and
transfers thereof will be effected only through, records maintained by
participants in DTC. Except as provided herein, Capital Securities in
definitive form will not be issued. See "Description of the Capital
Securities--Book-Entry Issuance--The Depository Trust Company."
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
2
AVAILABLE INFORMATION
This Prospectus constitutes a part of a combined Registration Statement on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") filed by Arvin and the Trust with the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Trust Securities, the Subordinated
Debentures and the Guarantee (the "Offered Securities"). This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the SEC. Reference is made to the Registration Statement and to
the exhibits relating thereto for further information with respect to the
Company, the Trust and the Offered Securities. Any statements contained herein
concerning the provisions of any document filed as an exhibit to the
Registration Statement or otherwise filed with the SEC or incorporated by
reference herein are not necessarily complete, and, in each instance,
reference is made to the copy of such document so filed for a more complete
description of the matter involved. Each such statement is qualified in its
entirety by such reference.
Arvin is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the SEC.
Reports, proxy statements and other information filed by Arvin with the SEC
may be inspected and copied at the public reference facilities maintained by
the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the SEC's Regional Offices located at Suite 1400, Citicorp Center, 500 West
Madison Street, Chicago, Illinois 60661 and at the 13th Floor, Seven World
Trade Center, New York, New York 10048. Copies of such material may be
obtained from the public reference section of the SEC, 450 Fifth Street, N.W.
Washington, D.C. 20549, at prescribed rates. Such reports, proxy statements
and other information concerning Arvin may also be inspected at the offices of
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005
and the Chicago Stock Exchange, 440 South LaSalle Street, Chicago, Illinois
60605, on which exchanges the Company's Common Shares are listed. Such
information may also be accessed electronically by means of the SEC's home
page on the World Wide Web located at http://www.sec.gov.
No separate financial statements of the Trust have been included or
incorporated by reference herein. Arvin does not believe that such financial
statements would be material to holders of the Capital Securities because (i)
all of the voting securities of the Trust will be owned, directly or
indirectly, by Arvin, a reporting company under the Exchange Act, (ii) the
Trust has no independent operations but exists for the sole purpose of issuing
securities representing undivided beneficial interests in the assets of the
Trust and investing the proceeds thereof in Subordinated Debentures issued by
Arvin, and (iii) the obligations of the Trust under the Capital Securities
are, if and to the extent that the Trust has funds available to meet such
obligations, fully and unconditionally guaranteed by Arvin. See "Description
of the Subordinated Debentures" and "Description of the Guarantee."
The Trust became subject to the informational reporting requirements of the
Exchange Act upon the effectiveness of the Registration Statement, although it
intends to seek and expects to receive exemptions therefrom.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by Arvin with the SEC pursuant to
the Exchange Act are incorporated herein by reference:
1. Arvin's Annual Report on Form 10-K for the year ended December 31,
1995;
2. Arvin's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1996, June 30, 1996 and September 29, 1996; and
3. Arvin's Current Reports on Form 8-K, dated May 10, 1996 (two reports),
January 3, 1997 and January 20, 1997.
All documents subsequently filed by Arvin pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the termination of the offering of the Capital Securities offered
3
hereby, shall be deemed to be incorporated by reference in this Prospectus and
to be a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
Arvin will provide without charge to each person to whom a copy of this
Prospectus has been delivered, on the written or oral request of such person,
a copy of any or all of the documents referred to above which have been or may
be incorporated in this Prospectus by reference (other than exhibits to such
documents which are not specifically incorporated by reference into the
information that this Prospectus incorporates). Requests for such copies
should be directed to John W. Brown, Vice President--Public Relations, Arvin
Industries, Inc., P.O. Box 3000, Columbus, Indiana 47202-3000, telephone 812-
379-3000.
4
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed information
and financial statements appearing elsewhere, or incorporated by reference, in
this Prospectus.
THE COMPANY
Arvin Industries, Inc. is a leading worldwide manufacturer of vehicle exhaust
systems and ride control products for both original equipment and replacement
customers. Since its founding in 1919, Arvin has grown through internal
development, acquisitions and a number of international joint ventures. At
September 29, 1996, the Company had total assets of approximately $1.4 billion
and shareholders' equity of approximately $415 million.
THE TRUST
The Trust is a statutory business trust created under Delaware law pursuant
to (i) a declaration of trust executed by the Company as sponsor (the
"Sponsor") of the Trust and the trustees of the Trust (the "Trustees") and (ii)
the filing of a certificate of trust with the Secretary of State of the State
of Delaware on December 18, 1996. The Trust exists for the exclusive purposes
of (i) issuing and selling the Capital Securities and Common Securities, (ii)
using the gross proceeds from the sale of the Trust Securities to acquire the
Subordinated Debentures and (iii) engaging in only those other activities
necessary or incidental thereto. All of the Common Securities will be directly
or indirectly owned by the Company. The Common Securities will rank pari passu,
and payments will be made thereon pro rata, with the Capital Securities, except
that, if a Declaration Event of Default (as defined herein) has occurred and is
continuing, the rights of the holders of the Common Securities to payment in
respect of distributions and payments upon liquidation, redemption and
otherwise will be subordinated to the rights of the holders of the Capital
Securities. The Company will acquire Common Securities in an aggregate
liquidation amount equal to at least 3% of the total capital of the Trust.
The Trust's affairs will be conducted by the Trustees appointed by the
Company as the holder of all of the Common Securities. The Company, as the
holder of the Common Securities, will be entitled to appoint, remove or replace
any of, or increase or reduce the number of, the Trustees. The duties and
obligations of the Trustees shall be governed by the Declaration (as defined
herein). The Trust will initially have three Trustees. Two of the initial
Trustees (the "Administrative Trustees") will be employees or officers of or
otherwise affiliated with the Company. The third initial Trustee (the
"Institutional Trustee") will be Wilmington Trust Company, which shall act as
institutional trustee and as indenture trustee for the purposes of compliance
with the provisions of Trust Indenture Act of 1939, as amended. The Company
will pay all fees and expenses related to the Trust and the offering of the
Trust Securities.
The principal corporate trust office of the Institutional Trustee, Wilmington
Trust Company, is at Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890, Attention: Corporate Trust Administration. The address for the
Trust is c/o Arvin Industries, Inc., the Sponsor of the Trust, at the Company's
corporate headquarters located at One Noblitt Plaza, Box 3000, Columbus,
Indiana 47202-3000; telephone 812-379-3000.
5
THE OFFERING
Capital Securities Offered. 100,000 9.50% Capital Securities evidencing
preferred undivided beneficial interests in the assets of the Trust. Holders of
the Capital Securities will be entitled to receive cumulative cash
distributions at an annual rate of 9.50% of the liquidation amount of $1,000
per Capital Security, accruing from the date of original issuance and payable
semi-annually in arrears on February 1 and August 1 of each year commencing on
August 1, 1997. The distribution rate and the distribution and other payment
dates for the Capital Securities will correspond to the interest rate and
interest and other payment dates on the Subordinated Debentures, which will be
the only assets of the Trust. As a result, if principal or interest is not paid
on the Subordinated Debentures, no amounts will be paid on the Capital
Securities. See "Risk Factors--Ranking of Subordinate Obligations under the
Guarantee and Subordinated Debentures" and "Description of the Capital
Securities."
Subordinated Debentures. The Trust will invest the proceeds from the issuance
of the Capital Securities and Common Securities in an equivalent amount of
9.50% Subordinated Debentures of the Company. The Subordinated Debentures will
rank subordinate and junior in right of payment to all Senior Indebtedness of
Arvin. The Company's obligations under the Subordinated Debentures will also be
effectively subordinated to all existing and future obligations of Arvin's
subsidiaries. There are no terms in the Indenture (as defined herein) that
limit Arvin's ability to incur additional Senior Indebtedness. See "Description
of the Subordinated Debentures--Subordination."
Guarantee. Payment of distributions out of moneys held by the Trust, and
payments on liquidation of the Trust or the redemption of Capital Securities,
are guaranteed by Arvin if and to the extent the Trust has funds available
therefor. If the Company does not make principal or interest payments on the
Subordinated Debentures, the Trust will not have sufficient funds to make
distributions on the Capital Securities, in which event the Guarantee shall not
apply to such distribution until the Trust has sufficient funds available
therefor. See "Description of the Guarantee" and "Effect of Obligations under
the Subordinated Debentures and the Guarantee." The obligations of Arvin under
the Guarantee are subordinate and junior in right of payment to all other
liabilities of Arvin and rank pari passu with the most senior preferred stock,
if any, issued from time to time by the Company. See "Risk Factors--Ranking of
Subordinate Obligations under the Guarantee and Subordinated Debentures" and
"Description of the Guarantee."
Right to Defer Interest. The Company has the right to defer payments of
interest on the Subordinated Debentures by extending the interest payment
period on the Subordinated Debentures, at any time and from time to time, for
up to 10 consecutive semi-annual interest payment periods. If interest payments
on the Subordinated Debentures are so deferred, distributions on the Capital
Securities will also be deferred. During any Extension Period, distributions
will continue to accrue with interest thereon (to the extent permitted by
applicable law) as described herein. There could be multiple Extension Periods
of varying lengths during the term of the Subordinated Debentures. During an
Extension Period, holders of Capital Securities will be required to include
deferred interest income allocated to their Capital Securities in their gross
income (as original issue discount ("OID")) even though the cash payments
attributable thereto have not been made. See "Description of the Subordinated
Debentures--Option to Extend Interest Payment Period" and "United States
Federal Income Taxation--Original Issue Discount."
Redemption. The Subordinated Debentures are redeemable by the Company (i) on
or after February 1, 2007, in whole or, from time to time, in part, or (ii)
prior to February 1, 2007, in whole but not in part, within 90 days following
the occurrence of a Tax Event. If the Subordinated Debentures are redeemed, the
Trust must redeem Trust Securities having an aggregate liquidation amount equal
to the aggregate principal amount of the Subordinated Debentures so redeemed.
The Trust Securities will be redeemed upon maturity of the Subordinated
Debentures. The applicable Redemption Prices will be determined as provided
under "Description of the Capital Securities--Redemption" and "--Tax Event
Redemption" and "Description of the Subordinated Debentures--Redemption."
6
Right to Dissolve the Trust. At any time, the Company will have the right to
dissolve the Trust and, after satisfaction of liabilities to creditors of the
Trust as required by applicable law, cause the Subordinated Debentures to be
distributed to the holders of the Trust Securities in liquidation of the Trust.
See "Description of the Capital Securities--Distribution of the Subordinated
Debentures."
Use Of Proceeds. The proceeds from the sale of Capital Securities by the
Trust will be invested in the Subordinated Debentures of the Company. The
Company expects to use a portion of the net proceeds from the sale of such
Subordinated Debentures to the Trust to repay approximately $44.1 million of
short-term borrowings incurred in connection with the Company's December 27,
1996 payment of approximately $64.5 million to redeem its outstanding 7 1/2%
Convertible Subordinated Debentures due 2014 and for general corporate
purposes. Such general corporate purposes are expected to include the Company's
exercise of options to purchase the remaining ownership interests in several
entities partially owned by the Company conducting business in the European
automotive components markets. The aggregate amount of payments expected to be
required for the exercise of the options will not be known for several months,
but is currently expected to be approximately $30 million. Until such net
proceeds are used for this purpose, they are expected to be applied to reduce
the Company's outstanding short-term borrowings. The Company's short-term
borrowings at January 14, 1997 are on an overnight basis and bear interest at a
weighted average interest rate of 5.36 percent.
7
SUMMARY FINANCIAL INFORMATION
The following summary financial information should be read in conjunction
with the consolidated financial statements of the Company and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995. See "Incorporation of Certain Documents by Reference." The
summary operating results, financial position and cash flow information for and
as of the end of each of the fiscal years in the five-year period ended
December 31, 1995, are derived from the audited consolidated financial
statements of the Company. Amounts for 1994 and prior periods have been
restated for discontinued operations. The summary operating results, financial
position and cash flow information for and as of the end of each of the nine-
month periods ended September 29, 1996 and October 1, 1995 have been derived
from the unaudited consolidated financial statements of the Company and in the
opinion of management include all adjustments which are necessary to present
fairly the operating results, financial position and cash flow information of
the Company for the periods and at the dates presented. Except for the
restructuring and special charges and credits described in the Company's
Quarterly Report on Form 10-Q for the quarter ended September 29, 1996 and in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995,
all such adjustments are of a normal recurring nature. The summary financial
information for the nine-month period ended September 29, 1996 is not
necessarily indicative of the results to be expected for the full year ending
December 29, 1996.
AT OR FOR THE
NINE-MONTH
PERIOD ENDED AT OR FOR THE FISCAL YEAR ENDED
------------------- --------------------------------------------------
SEPT. 29, OCT. 1, DEC. 31, JAN. 1, JAN. 2, JAN. 3, DEC. 29,
1996 1995 1995 1995 1994 1993 1991
--------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
(UNAUDITED)
OPERATING RESULTS (1)
Net sales.............. $1,652.0 $1,465.9 $1,966.4 $1,849.5 $1,640.8 $1,587.2 $1,373.4
Operating income (2)... 93.4 69.8 99.5 104.1 113.1 107.9 77.5
Net interest expense... 29.3 31.5 41.2 40.1 33.0 34.1 36.5
Earnings from
continuing operations. 28.3 10.5 17.9 24.6 38.4 36.4 17.9
FINANCIAL POSITION
Cash and equivalents... $ 25.7 $ 56.2 $ 15.2 $ 11.1 $ 35.1 $ 6.4 $ 5.5
Total assets........... 1,429.8 1,341.0 1,291.0 1,231.5 1,175.5 1,110.6 1,086.2
Total debt............. 416.0 460.8 402.3 441.4 440.1 409.1 369.9
Shareholders' equity... 414.8 395.3 395.1 396.3 420.6 398.4(3) 374.1
CASH FLOW INFORMATION
Depreciation and
amortization.......... $ 58.9 $ 56.9 $ 74.9 $ 78.2 $ 70.0 $ 68.9 $ 63.8
Capital expenditures
(net)................. 48.1 61.6 98.6 103.7 82.7 98.6 72.6
RATIOS
Operating income margin
(2)................... 5.7% 4.8% 5.1% 5.6% 6.9% 6.8% 5.6%
Operating income(2)/Net
interest expense...... 3.2 to 1 2.2 to 1 2.4 to 1 2.6 to 1 3.4 to 1 3.2 to 1 2.1 to 1
Total debt/Total
capitalization........ 48.1% 51.8% 48.5% 50.7% 49.3% 50.3% 49.1%
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(1) From continuing operations.
(2) Reflects income from continuing operations prior to expenses unrelated to
the Company's operating segments.
(3) The Company adopted FAS 106 and FAS 112 in 1992 and recorded a $33.5
million charge net of tax, which is not reflected in operating income but
is reflected in shareholders' equity.
8
RISK FACTORS
Prospective purchasers of Capital Securities should consider carefully all
of the information contained in this Prospectus including the information in
the documents incorporated by reference and, in particular, should evaluate
the specific factors set forth below for risks involved with an investment in
the Capital Securities.
RANKING OF SUBORDINATE OBLIGATIONS UNDER THE GUARANTEE AND SUBORDINATED
DEBENTURES
The Company's obligations under the Guarantee are unsecured and will be
subordinate and junior in right of payment to all other liabilities of Arvin
and pari passu with the most senior preferred stock, if any, issued from time
to time by Arvin. The obligations of the Company under the Subordinated
Debentures are subordinate and junior in right of payment to all present and
future Senior Indebtedness of Arvin and pari passu with obligations to or
rights of Arvin's general unsecured creditors other than holders of Senior
Indebtedness. As of September 29, 1996, Senior Indebtedness aggregated
approximately $472 million. The Company's obligations under the Subordinated
Debentures will also be effectively subordinated to all existing and future
obligations of Arvin's subsidiaries. There are no terms in the Capital
Securities, the Subordinated Debentures or the Guarantee that limit Arvin's
ability to incur additional indebtedness, including indebtedness that ranks
senior to the Subordinated Debentures and the Guarantee. See "Description of
the Guarantee--Status of the Guarantee" and "Description of the Subordinated
Debentures--Subordination."
RIGHTS UNDER THE GUARANTEE
If the Company were to default on its obligation to pay amounts payable on
the Subordinated Debentures or its other payment obligations to the Trust, the
Trust would lack available funds for the payment of distributions or amounts
payable on redemption of the Capital Securities or otherwise, and, in such
event, holders of the Capital Securities would not be able to rely on the
Guarantee for payment of such amounts. Instead, holders of the Capital
Securities would rely on the enforcement (i) by the Institutional Trustee of
its rights as registered holder of the Subordinated Debentures against the
Company pursuant to the terms of the Subordinated Debentures or (ii) by such
holder of its right against the Company to enforce payments on the
Subordinated Debentures. See "Description of the Guarantee" and "Description
of the Subordinated Debentures."
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If a Declaration Event of Default occurs and is continuing, then the holders
of Capital Securities would rely on the enforcement by the Institutional
Trustee of its rights as a holder of the Subordinated Debentures against
Arvin. In addition, the holders of a majority in liquidation amount of the
Capital Securities will have the right to direct the time, method, and place
of conducting any proceeding for any remedy available to the Institutional
Trustee or to direct the exercise of any trust or power conferred upon the
Institutional Trustee under the Declaration, including the right to direct the
Institutional Trustee to exercise the remedies available to it as a holder of
the Subordinated Debentures. If the Institutional Trustee fails to enforce its
rights with respect to the Subordinated Debentures held by the Trust, any
record holder of Capital Securities may, to the fullest extent permitted by
law, institute legal proceedings directly against the Company to enforce the
Institutional Trustee's rights under such Subordinated Debentures without
first instituting any legal proceedings against such Institutional Trustee or
any other person or entity. In addition, if a Declaration Event of Default has
occurred and is continuing and such event is attributable to the failure of
the Company to pay interest or principal on the Subordinated Debentures on the
date such interest or principal is otherwise payable (or in the case of
redemption, on the redemption date), then a record holder of Capital
Securities may directly institute a proceeding against the Company for
enforcement of payment to such holder of the principal of or interest on the
Subordinated Debentures having a principal amount equal to the aggregate
liquidation amount of the Capital Securities held by such holder (a "Direct
Action") on or after the respective due dates specified in the Subordinated
Debentures. In connection with such Direct Action, Arvin will be subrogated to
the rights of such record holder of Capital Securities to the extent of any
payment made by Arvin to such holder of Capital Securities in such Direct
Action. The record holders of Capital Securities will not be able to exercise
directly any other remedy available to the holders of the Subordinated
Debentures. The record holder in the case of the issuance of one or more
global
9
Capital Securities certificates will be The Depository Trust Company acting at
the direction of the beneficial owners of the Capital Securities. See
"Description of the Capital Securities--Declaration Events of Default."
TRUST DISTRIBUTIONS DEPENDENT ON THE COMPANY'S PAYMENTS ON SUBORDINATED
DEBENTURES
The Trust's ability to make distributions and other payments on the Capital
Securities is entirely dependent upon the Company making interest and other
payments on the Subordinated Debentures. If the Company does not make payments
on the Subordinated Debentures for any reason, including as a result of the
Company's election to defer the payment of interest on the Subordinated
Debentures by extending the interest payment period on the Subordinated
Debentures, the Trust will not make payments on the Trust Securities. In such
an event, holders of the Capital Securities would not be able to rely on the
Guarantee because distributions and other payments on the Capital Securities
are subject to the Guarantee only if and to the extent that the Trust has
funds available therefor. See "Description of the Guarantee--General" and
"Effect of Obligations under the Subordinated Debentures and the Guarantee."
FACTORS AFFECTING PRODUCTION VOLUMES; CYCLICALITY
Historically, the North American and European automotive industries have
experienced periodic, cyclical downturns, most recently in the 1991-92
calendar years in North America and in the 1993-94 calendar years in Europe.
No assurance can be given as to when the next cyclical downturn will occur or
as to the duration or severity thereof. North American production and European
production, which accounted for approximately 58% and 32%, respectively, of
the Company's consolidated sales in fiscal 1995, could face a significant
decline in production volumes as a result of rising interest rates, a general
economic downturn, rising fuel prices or general fuel unavailability,
legislative changes, environmental concerns, emissions and safety issues,
labor and/or trade disruptions or other factors. In addition, a prolonged
strike at a major original equipment customer of the Company would likely
result in a significant decline in original equipment production volumes. A
significant decline in such production volumes as a result of a strike, the
loss of a principal customer or any of the other factors described above could
have a material adverse effect on the Company and consequently on its ability
to make payments on the Subordinated Debentures.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company has the right under the Indenture to defer payments of interest
on the Subordinated Debentures by extending the interest payment period at any
time, and from time to time, on the Subordinated Debentures. As a consequence
of such an extension, semi-annual distributions on the Capital Securities
would be deferred (but despite such deferral, to the extent permitted by law,
would continue to accrue with interest thereon compounded semi-annually) by
the Trust during any such Extension Period. The Company has the right to defer
payments of interest on the Subordinated Debentures, from time to time, but no
Extension Period may be more than 10 consecutive semi-annual periods or extend
beyond the Maturity Date (as defined herein) of the Subordinated Debentures.
There could be multiple Extension Periods of varying lengths during the term
of the Subordinated Debentures. In the event that the Company exercises its
right to defer interest payments, then during any Extension Period (a) the
Company shall not declare or pay any dividend on, or make any distribution
with respect to, or redeem, purchase or acquire, or make a liquidation payment
with respect to, any of its capital stock, (b) the Company shall not, directly
or indirectly, and shall not allow any of its subsidiaries to, make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by the Company that rank pari passu with or
junior to the Subordinated Debentures, and (c) the Company shall not make
guarantee payments with respect to the foregoing (other than pursuant to the
Guarantee); provided, however, that the restriction in clause (a) above does
not apply (i) to repurchases or acquisitions of common shares of the Company
as contemplated by any employment arrangement, benefit plan or other similar
contract with or for the benefit of employees, officers or directors entered
into in the ordinary course of business, (ii) as a result of an exchange or
conversion of any class or series of the Company's capital stock for the
Company's common shares, provided that such class or series of the Company's
capital stock was outstanding prior to the date upon which the Company gives
notice of its election of such Extension Period, (iii) to the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions
10
of such capital stock or the security being converted or exchanged, provided
that such capital stock or security was outstanding prior to the date upon
which the Company gives notice of its election of such Extension Period, or
(iv) to the payment of any stock dividend by the Company where the dividend is
paid in the form of the same stock as that on which the dividend is paid.
Prior to the termination of any such Extension Period, the Company may further
extend the interest payment period; provided that each Extension Period, if
any, may not exceed 10 consecutive semi-annual interest payment periods or
extend beyond the Maturity Date of the Subordinated Debentures. Upon the
termination of any Extension Period and the payment of all amounts then due,
the Company may commence a new Extension Period, subject to the above
requirements. At the end of the Extension Period, Arvin will pay all interest
accrued and unpaid on the Subordinated Debentures to the holders in whose
names the Subordinated Debentures are registered on the first record date
after the end of the Extension Period. The Company has no current intention of
exercising its right to defer payments of interest by extending the interest
payment period on the Subordinated Debentures. However, should the Company
determine to exercise such right in the future, the market price of the
Capital Securities is likely to be adversely affected. See "Description of the
Capital Securities--Distributions" and "Description of the Subordinated
Debentures--Option to Extend Interest Payment Period."
TAX CONSEQUENCES OF EXTENSION OF INTEREST PAYMENT PERIOD
Should the Company exercise its right to defer payments of interest by
extending the interest payment period, each holder of Capital Securities will
accrue income (as original issue discount ("OID")) in respect of the deferred
interest allocable to its Capital Securities for United States federal income
tax purposes. Such income will be allocated but not distributed to record
holders of the Capital Securities. As a result, each such holder of Capital
Securities will recognize income for United States federal income tax purposes
in advance of the receipt of cash and will not receive the cash from the Trust
related to such income if such holder disposes of its Capital Securities prior
to the record date for the date on which distributions of such amounts are
made. A holder that disposes of its Capital Securities during an Extension
Period, therefore, might not receive the same return on its investment as a
holder that continues to hold its Capital Securities. In addition, as a result
of the existence of the Company's right to defer interest payments, the market
price of the Capital Securities (which represent an undivided beneficial
interest in the Subordinated Debentures) may be more volatile than other
securities on which OID accrues that do not have such rights. See "United
States Federal Income Taxation--Original Issue Discount."
TAX EVENT REDEMPTION
Prior to February 1, 2007, the Company will have the right, within 90 days
following the occurrence of a Tax Event, to redeem the Subordinated
Debentures, in whole (but not in part), in which event the Trust will redeem
all outstanding Trust Securities. Any such redemption shall be at a price
equal to the Make-Whole Amount (as defined in "Description of the Capital
Securities--Redemption") together with accrued interest to but excluding the
date fixed for redemption. See "Description of the Capital Securities--Tax
Event Redemption."
DISTRIBUTION OF THE SUBORDINATED DEBENTURES
At any time, the Company will have the right to dissolve the Trust and,
after satisfaction of the liabilities to creditors of the Trust as required by
applicable law, cause the Subordinated Debentures to be distributed to the
holders of the Capital Securities in liquidation of the Trust. Under current
United States federal income tax law and interpretation and assuming, as
expected, that the Trust is treated as a grantor trust, a distribution of the
Subordinated Debentures should not be a taxable event to holders of the
Capital Securities. Should there be a change in law, a change in legal
interpretation, a Tax Event or other circumstances, however, the distribution
could be a taxable event to the holders of the Capital Securities. In
addition, a dissolution of the Trust in which holders of the Capital
Securities receive cash would be a taxable event to such holders. See "United
States Federal Income Taxation--Receipt of Subordinated Debentures or Cash
upon Dissolution of the Trust."
There can be no assurance as to the market prices for the Capital Securities
or the Subordinated Debentures that may be distributed in exchange for Capital
Securities if a dissolution or liquidation of the Trust were to
11
occur. Accordingly, the Capital Securities that an investor may purchase,
whether pursuant to the offer made hereby or in the secondary market, or the
Subordinated Debentures that a holder of Capital Securities may receive on
dissolution and liquidation of the Trust, may trade at a discount to the price
that the investor paid to purchase the Capital Securities offered hereby.
Because holders of Capital Securities may receive Subordinated Debentures upon
any election by the Company to dissolve the Trust and cause the Subordinated
Debentures to be distributed to the holders of the Capital Securities,
prospective purchasers of Capital Securities are also making an investment
decision with regard to the Subordinated Debentures and should review
carefully all the information regarding the Subordinated Debentures and the
Company contained in this Prospectus. See "Description of the Capital
Securities--Distribution of the Subordinated Debentures" and "Description of
the Subordinated Debentures."
PROPOSED TAX LAW CHANGES
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Bill"), the
revenue portion of President Clinton's fiscal 1997 budget proposal, was
released. The Bill would, among other things, treat as equity, instruments
issued by a corporation that have a maximum term of more than 20 years and
that are not shown as indebtedness on the consolidated balance sheet of the
issuer. The above-described provisions of the Bill were proposed to be
effective generally for instruments issued on or after December 7, 1995.
However, on March 29, 1996, the Chairmen of the Senate Finance and House Ways
and Means Committees issued a joint statement (the "Joint Statement") to the
effect that it was their intention that the effective date of the President's
legislative proposals, if adopted, would be no earlier than the date of
appropriate Congressional action. In addition, subsequent to the publication
of the Joint Statement, Senator Daniel Patrick Moynihan and Representatives
Sam M. Gibbons and Charles B. Rangel wrote letters to Treasury Department
officials concurring with the views expressed in the Joint Statement. Under
current law, the Subordinated Debentures will be treated as indebtedness of
the Company and the Company will be able to deduct interest on the
Subordinated Debentures beneficially held by the holders of the Capital
Securities. However, if the provision of the Bill regarding a 20-year term is
enacted with retroactive effect with regard to the Subordinated Debentures,
the Company will not be entitled to an interest deduction with respect to the
Subordinated Debentures. There can be no assurance that current or future
legislative proposals, adverse judicial decisions, final legislation or
official administrative pronouncements will not affect the ability of the
Company to deduct interest on the Subordinated Debentures, giving rise to a
Tax Event which would permit the Company to cause the redemption of the
Capital Securities prior to February 1, 2007 (the first date on which the
Company would otherwise be able to cause a redemption of the Capital
Securities). See "Description of the Capital Securities--Tax Event Redemption"
and "United States Federal Income Taxation."
OPTIONAL REDEMPTION OF SUBORDINATED DEBENTURES
At the option of the Company, the Subordinated Debentures may be redeemed,
in whole or in part, at any time on or after February 1, 2007, at a redemption
price determined as provided under "Description of the Subordinated
Debentures--Redemption." Investors in the Capital Securities should assume
that the Company will exercise its redemption option if it is in the interest
of the Company to redeem the Subordinated Debentures. If Subordinated
Debentures are redeemed, the Trust must redeem Trust Securities having an
aggregate liquidation amount equal to the aggregate principal amount of
Subordinated Debentures so redeemed. See "Description of the Capital
Securities-- Redemption." See also "Description of the Capital Securities--Tax
Event Redemption."
LIMITED VOTING RIGHTS
Holders of Capital Securities will have only limited voting rights,
primarily in connection with directing the activities of the Institutional
Trustee as the holder of the Subordinated Debentures. Such holders will not be
entitled to vote to appoint, remove or replace, or to increase or decrease the
number of, the Trustees. Voting rights with respect to Trustee matters are
vested exclusively in the holder of the Common Securities. See "Description of
the Capital Securities--Voting Rights."
12
TRADING PRICE
The Capital Securities may trade at a price that does not fully reflect the
value of accrued but unpaid interest with respect to the underlying
Subordinated Debentures. A holder who disposes of his Capital Securities
between record dates for payments of distributions thereon will be required to
include accrued but unpaid interest on the Subordinated Debentures through the
date of disposition in income as ordinary income (i.e., OID), and to add such
amount to his adjusted tax basis in his pro rata share of the underlying
Subordinated Debentures deemed disposed of. To the extent the selling price is
less than the holder's adjusted tax basis (which will include, in the form of
OID, all accrued but unpaid interest), a holder will recognize a capital loss.
Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes. See
"United States Federal Income Taxation--Original Issue Discount" and "--Sales
of Capital Securities."
ABSENCE OF PUBLIC MARKET FOR SECURITIES
Since the Capital Securities will be newly issued, there is no current
market for them. There can be no assurance that an active trading market for
the Capital Securities will develop or that, if such market develops, the
market price will equal or exceed the public offering price set forth on the
cover page of this Prospectus.
THE TRUST
Arvin Capital I is a statutory business trust created under Delaware law
pursuant to a declaration of trust, dated as of December 18, 1996, and the
filing of a certificate of trust with the Secretary of State of the State of
Delaware on December 18, 1996. Such declaration will be amended and restated
in its entirety (as so amended and restated, the "Declaration") by execution
of an Amended and Restated Declaration of Trust substantially in the form
filed as an exhibit to the Registration Statement of which this Prospectus is
a part. The Declaration will be qualified as an indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). Upon issuance
of the Capital Securities, the purchasers thereof will own all of the Capital
Securities. See "Description of the Capital Securities." Simultaneously with
the issuance of the Capital Securities, Arvin will acquire Common Securities
in an aggregate liquidation amount equal to at least 3% of the total capital
of the Trust. The Trust exists for the exclusive purposes of (i) issuing the
Trust Securities representing undivided beneficial interests in the assets of
the Trust, (ii) investing the gross proceeds of the Trust Securities in the
Subordinated Debentures and (iii) engaging in only those other activities
necessary or incidental thereto. The Trust has a term of approximately 55
years, but may dissolve earlier as provided in the Declaration.
Pursuant to the Declaration, the number of Trustees will initially be three.
Under the Declaration, Arvin, as holder of a majority in liquidation amount of
the Common Securities, will have the right to increase or decrease, from time
to time, the number of Trustees. The Declaration further provides, however,
that there must always be (i) one Trustee which is either a resident of the
State of Delaware or an entity which has its principal place of business in
Delaware (the "Delaware Trustee"), (ii) at least one Trustee who is an
employee or officer of, or is affiliated with, Arvin (an "Administrative
Trustee"), and (iii) one Trustee which is a financial institution with
combined capital and surplus of at least $50,000,000 and which acts as
institutional trustee and as indenture trustee for purposes of compliance with
the Trust Indenture Act. The same entity may serve as Delaware Trustee and
Institutional Trustee. Initially, Wilmington Trust Company, a Delaware banking
corporation, will be the Institutional Trustee until removed or replaced by
the holder of the Common Securities. For purposes of compliance with the
provisions of the Trust Indenture Act, Wilmington Trust Company will also act
as trustee (the "Guarantee Trustee") under the Guarantee and as the Debt
Trustee (as defined herein) under the Indenture. See "Description of the
Guarantee" and "Description of the Capital Securities--Voting Rights."
The Institutional Trustee will hold title to the Subordinated Debentures for
the benefit of the holders of the Trust Securities, and the Institutional
Trustee will have the power to exercise all rights, powers and privileges of a
holder of Subordinated Debentures under the Indenture. In addition, the
Institutional Trustee will maintain exclusive control of a segregated non-
interest bearing bank account (the "Property Account") to hold all payments
made in respect of the Subordinated Debentures for the benefit of the holders
of the Trust Securities. The Institutional Trustee will make payments of
distributions and payments on liquidation, redemption and
13
otherwise to the holders of the Trust Securities out of funds from the
Property Account. The Guarantee Trustee will hold the Guarantee for the
benefit of the holders of the Capital Securities. The Company, as the direct
or indirect holder of all the Common Securities, will have the right (subject
to the terms of the Declaration) to appoint, remove or replace any Trustee and
to increase or decrease the number of Trustees; provided, that (i) if the
Institutional Trustee does not have its principal place of business in
Delaware, the number of Trustees shall be at least three, and (ii) there will
always be at least one Administrative Trustee, one Institutional Trustee which
satisfies the requirements of the Trust Indenture Act, and one Trustee who, if
a natural person, is a resident of Delaware or, if not a natural person, is an
entity which has its principal place of business in Delaware, as required
under the Delaware Business Trust Act (the "Trust Act"). Arvin will pay all
fees and expenses related to the Trust and the offering of the Trust
Securities. See "Description of the Subordinated Debentures--Miscellaneous."
The rights of the holders of the Capital Securities, including economic
rights, rights to information and voting rights, are set forth in the
Declaration, the Trust Act and the Trust Indenture Act. See "Description of
the Capital Securities."
THE COMPANY
OVERVIEW
Arvin is a diversified international manufacturer and supplier of automotive
parts and a variety of other products through operating entities in the U.S.
and numerous other countries. The Company is a worldwide leader in automotive
exhaust systems and ride control products for the original equipment ("OE")
and replacement markets. The Company's consolidated revenues were
approximately $2 billion in fiscal 1995.
Since its founding in 1919, Arvin has grown through internal development,
acquisitions and a number of international joint ventures. In recent years,
the Company's strategy has been to strengthen its automotive parts businesses
by achieving a mix of sales to both original equipment manufacturers ("OEMs")
and replacement market parts suppliers on a global basis. Recently, management
has implemented a series of strategic initiatives to increase the Company's
global competitive position within the automotive parts marketplace.
The Company classifies its business based on the two primary markets it
serves: Automotive Original Equipment and Automotive Replacement. In fiscal
1995, Arvin derived approximately 68% of its total revenues from the OE
market, with the remaining 32% coming from replacement market sales.
THE AUTOMOTIVE ORIGINAL EQUIPMENT SEGMENT
The principal products and primary customers of the Automotive Original
Equipment segment are set forth below. The Company believes that it is the
leading exhaust system supplier to OE customers in North America and Europe,
and among the top three OE ride control suppliers in these markets.
PRINCIPAL PRODUCTS PRIMARY CUSTOMERS
------------------ -----------------
Exhaust Systems Chrysler Nissan
--Mufflers Fiat Renault
--Exhaust and Tail Pipes Ford Saturn
--Catalytic Converters General Motors TRW (airbag sensors)
--Tubular Manifolds Honda Toyota/Nummi
Ride Control Products Mazda Volkswagen/SEAT
--Shock Absorbers Mercedes Benz Volvo
--Struts Mitsubishi
Gas Springs
Vacuum Actuators
Metal Tubular Parts
Coated Coil Steel and Aluminum
Press-Molded Thermoplastics
Vinyl-Metal Stampings
14
Arvin's OE segment has undergone a significant transformation in the last
decade, moving to a fully integrated engineering, development and production
operation. This transformation has been driven by the shift in customer
requirements and a change in the capabilities required to be a successful,
long term participant in this market.
Arvin competes with other independent parts suppliers and with
manufacturers' captive parts operations. The Company has significantly
enhanced its delivery capabilities geographically since the late 1980s through
both acquisitions and the formation of a number of international joint
ventures. Arvin believes that its aggressive capital spending program has
resulted in world-class manufacturing operations, capable of delivering
outstanding value and quality to its customers.
THE AUTOMOTIVE REPLACEMENT SEGMENT
The principal products, brand names and primary customers of the Automotive
Replacement segment are set forth below. The Company believes that it is among
the top two replacement exhaust and ride control manufacturers in both North
America and Europe.
PRINCIPAL PRODUCTS BRAND NAMES PRIMARY CUSTOMERS
------------------ ----------- -----------------
Mufflers Mufflers Retailers
Maremont Sears
Exhaust and Tail Pipes Cherry Bomb Canadian Tire
TIMAX Pep Boys
Catalytic Converters ANSA AutoZone
ROSI
Shock Absorbers TESH Wholesale Distributors
Parts, Inc.
MacPherson Struts Shock Absorbers United Auto Parts
Gabriel General Parts
Gas Springs
Gas Springs Installers
Strong Arm Meineke
Kwik-Fit
The Company's replacement market operations compete with both OEMs and
independent suppliers in North America and Europe, and serve the market
through its own sales force as well as a network of manufacturers'
representatives. The Company's competitive position has been enhanced by
rigorous attention to lead time reduction, with some product offerings
dropping from seven days to about one day. The foregoing has enabled the
Company to increase its order fill rate and to provide quick order turnaround
through more responsive manufacturing operations. These enhanced manufacturing
processes have also had a positive impact on the cost and quality of the
product.
15
CAPITALIZATION
The following table sets forth the actual capitalization of the Company at
September 29, 1996, and as adjusted to reflect the application of the
estimated net proceeds from the sale of the Capital Securities. See "Use of
Proceeds." The table should be read in conjunction with the Company's
consolidated financial statements and notes thereto included in the documents
incorporated by reference herein. See "Incorporation of Certain Documents by
Reference."
AT SEPTEMBER 29,
1996
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN
THOUSANDS)
Short-term debt (including current maturities of long-
term debt).............................................. $ 59,650 $ 24,853
Long-term debt:
Capitalized lease obligations.......................... 3,899 3,899
7.94% notes due 2005................................... 50,000 50,000
6 7/8% notes due 2001.................................. 74,904 74,904
9.8%-9.9% medium term notes due 1998................... 45,000 45,000
10% medium term notes due 2000......................... 49,768 49,768
7 1/2% convertible subordinated debentures due 2014.... 63,803 --
9 1/8% sinking fund debentures due 2017................ 28,424 28,424
10 3/8% euro-sterling notes due 2018................... 36,541 36,541
Other.................................................. 3,962 3,962
-------- --------
Total long-term debt..................................... 356,301 292,498
Company-obligated mandatorily redeemable capital
securities of trust
subsidiary (1).......................................... -- 100,000
Shareholders' equity:
Capital stock:
Common shares ($2.50 par value)........................ 60,681 60,681
Capital in excess of par value......................... 207,784 207,784
Retained earnings...................................... 211,717 210,794
Cumulative translation adjustment...................... (24,991) (24,991)
Common shares in treasury (at cost).................... (40,359) (40,359)
-------- --------
Total shareholders' equity............................... 414,832 413,909
-------- --------
Total capitalization..................................... $830,783 $831,260
======== ========
- --------
(1) As described herein, the sole asset of the Trust will be the 9.50% Junior
Subordinated Deferrable Interest Debentures due 2027 of Arvin with a
principal amount of approximately $103,100,000, and upon redemption of
such debt, the Capital Securities will be mandatorily redeemable.
16
RATIOS OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
The following table sets forth the Company's ratio of earnings to fixed
charges and ratio of earnings to combined fixed charges and preferred stock
dividends for the periods indicated:
NINE-MONTH PERIOD
ENDED FISCAL YEAR ENDED
----------------- -----------------------------------------
SEPT. 29, OCT. 1, DEC. 31, JAN. 1, JAN. 2, JAN. 3, DEC. 29,
1996 1995 1995 1995 1994 1993 1991
--------- ------- -------- ------- ------- ------- --------
Ratio of Earnings to
Fixed Charges.......... 2.3 1.6 1.6 1.8 2.5 2.3 1.7
Ratio of Earnings to
Combined Fixed Charges
and Preferred
Dividends.............. 2.3 1.6 1.6 1.8 2.5 1.9 1.3
For purposes of calculating the ratios, "earnings" consist of earnings from
continuing operations before income taxes, adjusted for the portion of fixed
charges deducted from such earnings. "Fixed charges" consist of interest on
all indebtedness (including capital lease obligations and capitalized
interest), amortization of debt expense and the percentage of rental expense
on operating leases deemed representative of the interest factor. The ratios
of earnings to fixed charges, before special charges, for the nine months
ended September 29, 1996 and October 1, 1995 were 2.5 and 1.9 to 1,
respectively. The ratios of earnings to fixed charges, before the
restructuring and special charges, for the 1995 and 1994 fiscal years were 1.9
and 2.4 to 1, respectively. The above computations do not include any fixed
charges related to the Company's guarantee of debt for Calspan SRL
Corporation. The debt guarantee was $18.0 million at September 29, 1996 and
$21.7 million at December 31, 1995.
A statement setting forth the computation of the unaudited ratios of
earnings to fixed charges and earnings to combined fixed charges and preferred
dividends is filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated with the
Company's financial statements with the Capital Securities accounted for and
captioned in the consolidated balance sheet directly above shareholders'
equity.
USE OF PROCEEDS
The Trust will use all proceeds from the sale of the Capital Securities to
purchase the Subordinated Debentures from the Company. Arvin intends to use
the net proceeds from the sale of the Subordinated Debentures to repay
approximately $44.1 million of short-term borrowings incurred in connection
with the Company's December 27, 1996 payment of approximately $64.5 million to
redeem its outstanding 7 1/2% Convertible Subordinated Debentures due 2014,
and for general corporate purposes. Such general corporate purposes are
expected to include the Company's exercise of options to purchase the
remaining ownership interests in several entities partially owned by the
Company conducting business in the European automotive components markets. The
aggregate amount of payments expected to be required for the exercise of the
options will not be known for several months, but is currently expected to be
approximately $30 million. Until such net proceeds are used for this purpose,
they are expected to be applied to reduce the Company's outstanding short-term
borrowings. The Company's short-term borrowings at January 14, 1997 are on an
overnight basis and bear interest at a weighted average interest rate of 5.36
percent.
17
DESCRIPTION OF THE CAPITAL SECURITIES
The Capital Securities will be issued pursuant to the terms of the
Declaration. The Declaration will be qualified as an indenture under the Trust
Indenture Act. The Institutional Trustee, Wilmington Trust Company, will act
as indenture trustee under the Declaration for purposes of compliance with the
provisions of the Trust Indenture Act. The terms of the Capital Securities
will include those stated in the Declaration (including the annex and exhibits
thereto), and those required to be made part of the Declaration by the Trust
Indenture Act. The following summary of the principal terms and provisions of
the Capital Securities does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the Declaration (a copy of which is
filed as an exhibit to the Registration Statement of which this Prospectus is
a part), the Trust Act and the Trust Indenture Act.
GENERAL
The Declaration authorizes the Administrative Trustees to issue, on behalf
of the Trust, the Trust Securities, which represent undivided beneficial
interests in the assets of the Trust. The Common Securities will have
equivalent terms to and will rank pari passu, and payments will be made
thereon on a pro rata basis, with the Capital Securities, except that upon the
occurrence and during the continuance of a Declaration Event of Default (as
defined herein), the rights of the holders of the Common Securities to receive
payment of periodic distributions and payments upon liquidation, redemption
and otherwise will be subordinated to the rights of the holders of the Capital
Securities. In addition, holders of the Common Securities have the exclusive
right (subject to the terms of the Declaration) to appoint, remove or replace
any of the Trustees. All of the Common Securities will be directly or
indirectly owned by the Company.
The Declaration does not permit the issuance by the Trust of any securities
other than the Trust Securities or the incurrence of any indebtedness by the
Trust. Pursuant to the Declaration, the Institutional Trustee will hold the
Subordinated Debentures purchased by the Trust for the benefit of the holders
of the Trust Securities. The payment of distributions out of money held by the
Trust, and payments upon redemption of the Capital Securities or liquidation
of the Trust, are guaranteed by Arvin to the extent described under
"Description of the Guarantee." The Guarantee, when taken together with the
back-up undertakings, consisting of obligations of the Company (including the
obligation to pay expenses of the Trust) set forth in the Declaration, the
Indenture and the Subordinated Debentures issued to the Trust, provide a full
and unconditional guarantee by the Company of the Capital Securities. The
Guarantee will be held by Wilmington Trust Company, the Guarantee Trustee, for
the benefit of the holders of the Capital Securities. The Guarantee only
covers payment of distributions when the Company has made the corresponding
payment of interest or principal on the Subordinated Debentures held by the
Trust. In the absence of such payment of interest or principal, the remedy of
a holder of Capital Securities is to vote to direct the Institutional Trustee
to enforce the Institutional Trustee's rights as the holder of the
Subordinated Debentures or, under certain circumstances, to take direct action
against the Company. See "--Declaration Events of Default," "--Voting Rights,"
"Description of the Guarantee" and "Effect of Obligations under the
Subordinated Debentures and the Guarantee."
DISTRIBUTIONS
Distributions on the Capital Securities will be fixed at a rate per annum of
9.50% of the stated liquidation amount of $1,000 per Capital Security.
Distributions in arrears for more than one semi-annual period will (to the
extent permitted by applicable law) bear interest thereon from and including
the last day of such period at the rate per annum of 9.50% thereof compounded
semi-annually. The term "distributions" as used herein includes any such
interest payable unless otherwise stated. The amount of distributions payable
for any period will be computed on the basis of a 360-day year of twelve 30-
day months.
Distributions on the Capital Securities will be cumulative, will accrue from
January 28, 1997, and will be payable semi-annually in arrears on February 1
and August 1 of each year, commencing August 1, 1997, when, as and if
available for payment, and will be made by the Institutional Trustee, except
as otherwise described below.
18
Arvin has the right under the Indenture to defer payments of interest on the
Subordinated Debentures by extending the interest payment period from time to
time on the Subordinated Debentures, which right, if exercised, would defer
semi-annual distributions on the Capital Securities (although to the extent
permitted by law, such distributions would continue to accrue with interest
since interest would continue to accrue on the Subordinated Debentures) during
any such Extension Period. The Company has the right to defer payments of
interest on the Subordinated Debentures, from time to time, for up to 10
consecutive semi-annual periods, provided that no Extension Period may extend
beyond the Maturity Date of the Subordinated Debentures. There could be
multiple Extension Periods of varying lengths during the term of the
Subordinated Debentures. In the event that the Company exercises this right,
then during any Extension Period (a) the Company shall not declare or pay
dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital
stock, (b) the Company shall not, directly or indirectly, and shall not allow
any of its subsidiaries to, make any payment of interest, principal or premium,
if any, on or repay, repurchase or redeem any debt securities issued by the
Company that rank pari passu with or junior to the Subordinated Debentures, and
(c) the Company shall not make any guarantee payments with respect to the
foregoing; provided, however, that the restriction in clause (a) above does not
apply (i) to repurchases or acquisitions of common shares of the Company as
contemplated by any employment arrangement, benefit plan or similar contract
with or for the benefit of employees, officers or directors entered into in the
ordinary course of business, (ii) as a result of an exchange or conversion of
any class or series of the Company's capital stock for the Company's common
shares, provided that such class or series of the Company's capital stock was
outstanding prior to the date upon which the Company gives notice of its
election of such Extension Period, (iii) to the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion
or exchange provisions of such capital stock or the security being converted or
exchanged, provided that such capital stock or security was outstanding prior
to the date upon which the Company gives notice of its election of such
Extension Period, or (iv) to the payment of any stock dividend by the Company
where the dividend is paid in the form of the same stock as that on which the
dividend is being paid. Prior to the termination of any such Extension Period,
the Company may further extend the interest payment period; provided that each
Extension Period, if any, may not exceed 10 consecutive semi-annual periods and
may not extend beyond the Maturity Date of the Subordinated Debentures. Upon
the termination of any Extension Period and the payment of all amounts then
due, Arvin may commence a new Extension Period, subject to the above
requirements. See "Description of the Subordinated Debentures--Interest" and
"--Option to Extend Interest Payment Period." If distributions are deferred,
the deferred distributions and accrued interest thereon shall be paid to
holders of record of the Capital Securities as they appear on the books and
records of the Trust on the record date next following the termination of such
deferral period.
Distributions on the Capital Securities must be paid on the dates payable to
the extent that the Trust has funds available for the payment of such
distributions in the Property Account. The Trust's funds available for
distribution to the holders of the Capital Securities will be limited to
payments received from Arvin on the Subordinated Debentures. See "Description
of the Subordinated Debentures." The payment of distributions out of moneys
held by the Trust is guaranteed by Arvin to the extent set forth under
"Description of the Guarantee." The Guarantee, when taken together with the
back-up undertakings, consisting of obligations of the Company (including the
obligation to pay expenses of the Trust) as set forth in the Declaration, the
Indenture and the Subordinated Debentures issued to the Trust, provides a full
and unconditional guarantee by the Company of the Capital Securities.
Distributions on the Capital Securities will be payable to the holders
thereof as they appear on the books and records of the Trust on the relevant
record dates, which, as long as the Capital Securities remain in global form,
will be one Business Day (as defined below) prior to the relevant payment
dates. Such distributions will be paid through the Institutional Trustee who
will hold amounts received in respect of the Subordinated Debentures in the
Property Account for the benefit of the holders of the Trust Securities.
Subject to any applicable laws and regulations and the provisions of the
Declaration, each such payment will be made as described under "--Book-Entry
Issuance--The Depository Trust Company." In the event that the Capital
Securities do not continue to remain in global form, the relevant record dates
for the Capital Securities shall
19
conform to the rules of any securities exchange on which the securities are
listed and, if none, shall be selected by the Administrative Trustees, which
dates shall be at least one Business Day but less than 60 Business Days prior
to the relevant payment dates. Distributions payable on any Capital Securities
that are not punctually paid on any distribution payment date, as a result of
the Company's having failed to make a payment under the Subordinated
Debentures, will cease to be payable to the person in whose name such Capital
Securities are registered on the relevant record date, and such defaulted
distribution will instead be payable to the person in whose name such Capital
Securities are registered on the special record date or other specified date
determined in accordance with the Indenture. In the event that any date on
which distributions are to be made on the Capital Securities is not a Business
Day, then payment of the distributions payable on such date will be made on the
next succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date. A "Business Day" shall mean any day other than a day
on which state or federal banking institutions in New York, New York or
Wilmington, Delaware, are authorized or required by law to close.
REDEMPTION
Upon the repayment of the Subordinated Debentures, whether at maturity or
upon redemption, the proceeds from such repayment or redemption shall
simultaneously be applied to redeem Trust Securities having an aggregate
liquidation amount equal to the aggregate principal amount of the Subordinated
Debentures so repaid or redeemed; provided, that holders of Trust Securities
shall be given not less than 30 nor more than 60 days notice prior to the date
fixed for such redemption. The redemption price for each Capital Security (the
"Redemption Price") shall equal the liquidation amount of $1,000 plus
accumulated and unpaid distributions thereon to but excluding the date of
redemption (the "Redemption Date") and the related amount of the premium, if
any, paid by the Company upon the concurrent redemption of Subordinated
Debentures. See "Description of the Subordinated Debentures--Redemption." In
the event that fewer than all of the outstanding Trust Securities are to be
redeemed, the Trust Securities will be redeemed pro rata to each holder
according to the aggregate liquidation amount of Trust Securities held by the
relevant holder in relation to the aggregate liquidation amount of all Trust
Securities outstanding. See "--Book-Entry Issuance--The Depository Trust
Company" for a description of procedures of The Depository Trust Company in the
event of redemption. The amount of premium, if any, paid by the Company upon
the redemption of all or any part of the Subordinated Debentures to be redeemed
shall be allocated pro rata to the redemption of the Capital Securities and the
Common Securities.
The Company has the right to redeem the Subordinated Debentures (i) on or
after February 1, 2007, in whole or in part from time to time, or (ii) prior to
February 1, 2007, in whole (but not in part) within 90 days following the
occurrence of a Tax Event. A redemption of the Subordinated Debentures would
cause a mandatory redemption of the Capital Securities and the Common
Securities.
20
The Redemption Price in the case of a redemption under (i) above shall equal
the following prices, expressed in percentages of the liquidation amount of
$1,000 per Capital Security, together with accrued distributions to but
excluding the Redemption Date, if the Capital Securities are redeemed during
the 12-month period beginning February 1 of the years indicated below:
REDEMPTION
YEAR PRICE
---- ----------
2007........................................................... 104.192%
2008........................................................... 103.772%
2009........................................................... 103.353%
2010........................................................... 102.934%
2011........................................................... 102.515%
2012........................................................... 102.096%
2013........................................................... 101.677%
2014........................................................... 101.257%
2015........................................................... 100.838%
2016........................................................... 100.419%
and at 100% on or after February 1, 2017.
The Redemption Price, in the case of a redemption prior to February 1, 2007
following a Tax Event as described under (ii) above shall equal for each
Capital Security the Make-Whole Amount for a corresponding $1,000 in principal
amount of Subordinated Debentures, together with accrued distributions to but
excluding the Redemption Date. The "Make-Whole Amount" shall be equal to the
greater of (i) 100% of the principal amount of such Subordinated Debentures or
(ii) as determined by a Quotation Agent (as defined below), the sum of the
present values of (A) the principal amount and premium payable as part of the
Redemption Price with respect to an optional redemption of such Subordinated
Debentures on February 1, 2007, and (B) the scheduled payments of interest
from the Redemption Date to February 1, 2007 (the "Remaining Life"), in each
case discounted to the Redemption Date on a semi-annual basis (assuming a 360-
day year consisting of 30-day months) at the Adjusted Treasury Rate (as
defined below).
"Adjusted Treasury Rate" means, with respect to any Redemption Date, the
Treasury Rate (as defined below) plus (i) 1.50% if such Redemption Date occurs
on or before February 1, 1998 or (ii) 0.50% if such Redemption Date occurs
after February 1, 1998.
"Treasury Rate" means (i) the yield, under the heading which represents the
average for the immediately prior week, appearing in the most recently
published statistical release designated "H.15(519)" or any successor
publication which is published weekly by the Federal Reserve and which
establishes yields on actively traded United States Treasury securities
adjusted to constant maturity under the caption "Treasury Constant
Maturities," for the maturity corresponding to the Remaining Life (if no
maturity is within three months before or after the Remaining Life, yields for
the two published maturities most closely corresponding to the Remaining Life
shall be determined and the Treasury Rate shall be interpolated or
extrapolated from such yields on a straight-line basis, rounding to the
nearest month) or (ii) if such release (or any successor release) is not
published during the week preceding the calculation date or does not contain
such yields, the rate per annum equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue, calculated using a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price for such Redemption Date. The Treasury
Rate shall be calculated on the third Business Day preceding the Redemption
Date.
"Comparable Treasury Issue" means, with respect to any Redemption Date, the
United States Treasury security selected by the Quotation Agent as having a
maturity comparable to the Remaining Life that would be utilized, at the time
of selection and in accordance with customary financial practice, in pricing
new issues of corporate debt securities of comparable maturity to the
Remaining Life. If no United States Treasury security
21
has a maturity which is within a period from three months before to three
months after February 1, 2007, the two most closely corresponding United
States Treasury securities shall be used as the Comparable Treasury Issue, and
the Treasury Rate shall be interpolated or extrapolated on a straight-line
basis, rounding to the nearest month using such securities.
"Quotation Agent" means Merrill Lynch Government Securities, Inc. and its
successors; provided, however, that if the foregoing shall cease to be a
primary U.S. Government securities dealer in New York City (a "Primary
Treasury Dealer"), the Company shall substitute therefor another Primary
Treasury Dealer.
"Reference Treasury Dealer" means (i) the Quotation Agent and (ii) any other
Primary Treasury Dealer selected by the Debt Trustee after consultation with
the Company.
"Comparable Treasury Price" means, with respect to any Redemption Date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such Redemption Date, as set forth in the most recent
weekly statistical release (or any successor release) published by the Federal
Reserve and designated "H.15(519)" or (ii) if such release (or any successor
release) is not published or does not contain such prices during the week
preceding such Business Day, (A) the average of five Reference Treasury Dealer
Quotations for such Redemption Date, after excluding the highest and lowest
such Reference Treasury Dealer Quotations, or (B) if the Debt Trustee obtains
fewer than three such Reference Treasury Dealer Quotations, the average of all
such Reference Treasury Dealer Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any Redemption Date, the average, as determined by the
Debt Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Debt Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such Redemption Date.
TAX EVENT REDEMPTION
"Tax Event" means that the Administrative Trustees shall have received an
opinion of an independent tax counsel experienced in such matters to the
effect that, as a result of (a) any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision or taxing authority thereof or
therein or (b) any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change
is effective or such pronouncement or decision is announced on or after the
date of original issuance of the Capital Securities, there is more than an
insubstantial risk that (i) the Trust is, or will be within 90 days after the
date thereof, subject to United States federal income tax with respect to
income accrued or received on the Subordinated Debentures, (ii) the Trust is,
or will be within 90 days after the date thereof, subject to more than a de
minimis amount of taxes, duties or other governmental charges, or (iii)
interest payable on the Subordinated Debentures is not, or within 90 days of
the date thereof will not be, deductible, in whole or in part, by the Company
for United States federal income tax purposes.
If a Tax Event shall occur and be continuing, the Company shall have the
right prior to February 1, 2007, upon not less than 30 nor more than 60 days
notice, to redeem the Subordinated Debentures, in whole (but not in part), for
the applicable Redemption Price within 90 days following the occurrence of
such Tax Event, and, following such redemption, all Trust Securities shall be
redeemed by the Trust at the applicable Redemption Price. See "--Redemption"
and "Description of the Subordinated Debentures--Redemption."
On March 19, 1996, the Bill, the revenue portion of President Clinton's
fiscal 1997 budget proposal, was released. The Bill would, among other things,
treat as equity, instruments issued by a corporation that have a maximum term
of more than 20 years and that are not shown as indebtedness on the
consolidated balance sheet of the issuer. The above-described provisions of
the Bill were proposed to be effective generally for instruments
22
issued on or after December 7, 1995. However, on March 29, 1996, the Chairmen
of the Senate Finance and House Ways and Means Committees issued the Joint
Statement to the effect that it was their intention that the effective date of
the President's legislative proposals, if adopted, would be no earlier than
the date of appropriate Congressional action. In addition, subsequent to the
publication of the Joint Statement, Senator Daniel Patrick Moynihan and
Representatives Sam M. Gibbons and Charles B. Rangel wrote letters to Treasury
Department officials concurring with the views expressed in the Joint
Statement. Under current law, it is likely that the Subordinated Debentures
will be treated as indebtedness of the Company and the Company will be able to
deduct interest on the Subordinated Debentures beneficially held by the
holders of the Capital Securities. However, if the provision of the Bill
regarding a 20-year term is enacted with retroactive effect with regard to the
Subordinated Debentures, the Company will not be entitled to an interest
deduction with respect to the Subordinated Debentures. There can be no
assurance that current or future legislative proposals, adverse judicial
decisions, final legislation or official administrative pronouncements will
not affect the ability of the Company to deduct interest on the Subordinated
Debentures, giving rise to a Tax Event which would permit the Company to cause
the redemption of the Capital Securities prior to February 1, 2007 (the first
date on which the Company would otherwise be able to cause a redemption of the
Capital Securities). See "--Tax Event Redemption" and "United States Federal
Income Taxation."
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Capital
Securities unless all accrued and unpaid distributions have been paid on all
Capital Securities for all semi-annual distribution periods terminating on or
prior to the date of redemption.
If the Trust gives a notice of redemption in respect of Capital Securities
(which notice will be irrevocable), then, by 12:00 noon, New York City time,
on the redemption date, provided that Arvin has paid to the Institutional
Trustee a sufficient amount of cash in connection with the related redemption
or maturity of the Subordinated Debentures, the Trust will irrevocably deposit
with the Depositary (as defined herein) funds sufficient to pay the applicable
Redemption Price and will give the Depositary irrevocable instructions and
authority to pay the Redemption Price to the holders of the Capital
Securities. See "--Book-Entry Issuance-- The Depository Trust Company." If
notice of redemption shall have been given and funds deposited as required,
then, immediately prior to the close of business on the date of such deposit,
distributions will cease to accrue and all rights of holders of the Capital
Securities so called for redemption will cease, except the right of the
holders of such Capital Securities to receive the Redemption Price but without
interest on such Redemption Price. In the event that any date fixed for
redemption of Capital Securities is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding day
that is a Business Day (without any interest or other payment in respect of
any such delay), except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day. In
the event that the Company fails to repay the Subordinated Debentures on
maturity or payment of the Redemption Price in respect of Capital Securities
is improperly withheld or refused and not paid either by the Trust, or by
Arvin pursuant to the Guarantee, distributions on such Capital Securities will
continue to accrue at the then applicable rate from the original redemption
date to the date of payment, in which case the actual payment date will be
considered the date fixed for redemption for purposes of calculating the
Redemption Price.
In the event that fewer than all of the outstanding Capital Securities are
to be redeemed, the Capital Securities will be redeemed as described under "--
Book-Entry Issuance--The Depository Trust Company."
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), Arvin or its subsidiaries may at any
time, and from time to time, purchase outstanding Capital Securities by
tender, in the open market or by private agreement.
DISTRIBUTION OF THE SUBORDINATED DEBENTURES
At any time, the Company will have the right to dissolve the Trust and,
after satisfaction of the liabilities to creditors of the Trust as required by
applicable law, cause the Subordinated Debentures to be distributed to the
23
holders of the Trust Securities in liquidation of the Trust. Under current
United States federal income tax law and interpretation and assuming, as
expected, that the Trust is treated as a grantor trust, a distribution of the
Subordinated Debentures should not be a taxable event to holders of the
Capital Securities. Should there be a change in law, a change in legal
interpretation, a Tax Event or other circumstances, however, the distribution
could be a taxable event to the holders of the Capital Securities. In
addition, a dissolution of the Trust in which holders of the Capital
Securities receive cash would be a taxable event to such holders. See "United
States Federal Income Taxation--Receipt of Subordinated Debentures or Cash
upon Dissolution of the Trust."
After the date for any distribution of Subordinated Debentures upon
dissolution of the Trust, (i) the Capital Securities will no longer be deemed
to be outstanding, and (ii) the record holders of the Capital Securities will
receive a registered global certificate or certificates representing the
Subordinated Debentures to be delivered upon such distribution in exchange for
the Capital Securities held by such holders.
There can be no assurance as to the market prices for either the Capital
Securities or the Subordinated Debentures that may be distributed in exchange
for the Capital Securities if a dissolution and liquidation of the Trust were
to occur. Accordingly, the Capital Securities that an investor may purchase,
whether pursuant to the offer made hereby or in the secondary market, or the
Subordinated Debentures that an investor may receive if a dissolution and
liquidation of the Trust were to occur, may trade at a discount to the price
that the investor paid to purchase the Capital Securities offered hereby.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any other voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each, a "Liquidation"), holders of the
Capital Securities will be entitled to receive out of the assets of the Trust,
after satisfaction of liabilities to creditors of the Trust as required by
applicable law, distributions in an amount equal to the aggregate of the
stated liquidation amount of $1,000 per Capital Security plus accrued and
unpaid distributions thereon to the date of payment (the "Liquidation
Distribution"), unless, in connection with such Liquidation, Subordinated
Debentures in an aggregate stated principal amount equal to the aggregate
stated liquidation amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distributions on, the Capital Securities have been distributed on a pro
rata basis to the holders of the Capital Securities in exchange for such
Capital Securities. The Company will covenant not to cause or permit the
dissolution, winding-up or termination of the Trust, except in connection with
such a distribution of the Subordinated Debentures or certain mergers,
consolidations or amalgamations. See "Description of the Subordinated
Debentures--Certain Covenants of the Company."
If, upon any such Liquidation, the Liquidation Distribution can be paid only
in part because the Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Capital Securities shall be paid on a pro rata basis. The holder
of the Common Securities will be entitled to receive distributions upon any
such liquidation pro rata with the holders of the Capital Securities, except
that if a Declaration Event of Default has occurred and is continuing, the
Capital Securities shall have a preference over the Common Securities with
regard to such distributions.
The Guarantee, when taken together with the back-up undertakings, consisting
of obligations of the Company (including the obligation to pay expenses of the
Trust) as set forth in the Declaration, the Indenture and the Subordinated
Debentures issued to the Trust, provide a full and unconditional guarantee by
the Company of the Capital Securities.
DISSOLUTION
Pursuant to the Declaration, the Trust shall dissolve upon the earliest of
(i) February 1, 2052, (ii) the bankruptcy of the Sponsor, (iii) the filing of
a certificate of dissolution or its equivalent with respect to the Sponsor,
the filing of a certificate of cancellation with respect to the Trust after
obtaining the consent of the holders of at least a majority in liquidation
amount of the Trust Securities or the revocation of the charter of the Sponsor
and the expiration of 90 days after the date of revocation without a
reinstatement thereof, (iv) at the election of the Sponsor (which election is
optional and wholly within the discretion of the Sponsor), upon
24
satisfaction of the liabilities of creditors of the Trust as required by
applicable law, provided that all of the Subordinated Debentures are
distributed to holders of the Capital Securities in liquidation of the Trust,
(v) the entry of a decree of a judicial dissolution of the Sponsor or the
Trust, or (vi) the redemption of all the Trust Securities.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the Trust
Securities (a "Declaration Event of Default"); provided, that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities until
all Declaration Events of Default with respect to the Capital Securities have
been cured, waived or otherwise eliminated. Until such Declaration Event of
Default with respect to the Capital Securities has been so cured, waived, or
otherwise eliminated, the Institutional Trustee will be deemed to be acting
solely on behalf of the holders of the Capital Securities and only the holders
of the Capital Securities will have the right to direct the Institutional
Trustee with respect to certain matters under the Declaration, and therefore
the Indenture.
Upon the occurrence of an Indenture Event of Default, the Institutional
Trustee, as the sole holder of the Subordinated Debentures, will have the right
under the Indenture to declare the principal of and interest on the
Subordinated Debentures to be immediately due and payable. The principal amount
of the Subordinated Debentures will become immediately due and payable, without
any declaration or other action by the Institutional Trustee or any other
person, upon the occurrence of certain Indenture Events of Default relating to
the voluntary or involuntary bankruptcy of the Company. Each of the Company and
the Administrative Trustees, on behalf of the Trust, are required to file
annually with the Institutional Trustee an officer's certificate as to the
compliance of the Company and the Trust with all conditions and covenants under
the Declaration.
If the Institutional Trustee fails to enforce its rights with respect to the
Subordinated Debentures held by the Trust, any record holder of Capital
Securities may, to the fullest extent permitted by law, institute legal
proceedings directly against the Company to enforce the Institutional Trustee's
rights under such Subordinated Debentures without first instituting any legal
proceedings against such Institutional Trustee or any other person or entity.
In addition, if a Declaration Event of Default has occurred and is continuing
and such event is attributable to the failure of the Company to pay interest,
principal or other required payments on the Subordinated Debentures issued to
the Trust on the date such interest, principal or other payment is otherwise
payable, then a record holder of Capital Securities may institute a proceeding
directly against the Company for enforcement of payment on Subordinated
Debentures, on or after the respective due dates specified in the Subordinated
Debentures, having a principal amount equal to the aggregate liquidation amount
of the Capital Securities held by such holder. In connection with such Direct
Action, the Company will be subrogated to the rights of such record holder of
Capital Securities to the extent of any payment made by the Company to such
record holder of Capital Securities. The record holder in the case of the
issuance of one or more global Capital Securities certificates will be The
Depository Trust Company acting at the direction of the beneficial owners of
the Capital Securities.
VOTING RIGHTS
Except as described herein, under the Trust Act, the Trust Indenture Act and
under "Description of the Guarantee--Modification of the Guarantee; Assignment"
and as otherwise required by law and the Declaration, the holders of the
Capital Securities will have no voting rights.
Subject to the requirement of the Institutional Trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of this
paragraph, the holders of a majority in aggregate liquidation amount of the
Capital Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Institutional
Trustee, or direct the exercise of any trust or power conferred upon the
Institutional Trustee under the Declaration, including the right to direct the
Institutional Trustee, as holder of the Subordinated Debentures, to (i)
exercise the remedies available under the Indenture with respect to the
Subordinated Debentures, (ii) waive any past Indenture Event of Default that is
waivable under the Indenture, or
25
(iii) exercise any right to rescind or annul a declaration that the principal
of all the Subordinated Debentures shall be due and payable or consent to any
amendment, modification or termination of the Indenture or the Subordinated
Debentures, where such consent would be required; provided, however, that,
where a consent or action under the Indenture would require the consent or act
of the holders of greater than a majority in principal amount of Subordinated
Debentures affected thereby (a "Super-Majority"), the Institutional Trustee
may only give such consent or take such action at the written direction of the
holders of at least the proportion in liquidation amount of the Capital
Securities which the relevant Super-Majority represents of the aggregate
principal amount of the Subordinated Debentures outstanding. The Institutional
Trustee shall notify all holders of the Capital Securities of any notice of
default received from the Indenture Trustee with respect to the Subordinated
Debentures. Except with respect to directing the time, method and place of
conducting a proceeding for a remedy, the Institutional Trustee shall not take
any of the actions described in clauses (i), (ii) or (iii) above unless the
Institutional Trustee has obtained an opinion of tax counsel to the effect
that, as a result of such action, the Trust will not fail to be classified as
a grantor trust for United States federal income tax purposes.
In the event the consent of the Institutional Trustee, as the holder of the
Subordinated Debentures, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture, the Institutional
Trustee shall request the direction of the holders of the Trust Securities
with respect to such amendment, modification or termination and shall vote
with respect to such amendment, modification or termination as directed by a
majority in liquidation amount of the Trust Securities voting together as a
single class; provided, however, that where a consent under the Indenture
would require the consent of a Super-Majority, the Institutional Trustee may
only give such consent at the direction of the holders of at least the
proportion in liquidation amount of the Trust Securities which the relevant
Super-Majority represents of the aggregate principal amount of the
Subordinated Debentures outstanding. The Institutional Trustee shall not take
any such action in accordance with the directions of the holders of the Trust
Securities unless the Institutional Trustee has obtained an opinion of tax
counsel to the effect that, as a result of such action, the Trust will not
fail to be classified as a grantor trust for the purposes of United States
federal income tax.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Capital Securities may be
given at a separate meeting of holders of Capital Securities convened for such
purpose, at a meeting of all of the holders of Trust Securities or pursuant to
written consent. The Administrative Trustees will cause a notice of any
meeting at which holders of Capital Securities are entitled to vote, or of any
matter upon which action by written consent of such holders is to be taken, to
be mailed to each holder of record of Capital Securities. Each such notice
will include a statement setting forth the following information: (i) the date
of such meeting or the date by which such action is to be taken; (ii) a
description of any resolution proposed for adoption at such meeting on which
such holders are entitled to vote or of such matter upon which written consent
is sought; and (iii) instructions for the delivery of proxies or consents. No
vote or consent of the holders of Capital Securities will be required for the
Trust to redeem and cancel Capital Securities or distribute Subordinated
Debentures in accordance with the Declaration.
Notwithstanding that holders of Capital Securities are entitled to vote or
consent under any of the circumstances described above, any of the Capital
Securities that are owned at such time by Arvin or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, Arvin, shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if such Capital Securities
were not outstanding.
The procedures by which holders of Capital Securities may exercise their
voting rights are described below. See "--Book-Entry Issuance--The Depository
Trust Company."
Holders of the Capital Securities will have no rights to appoint or remove
the Trustees, who may be appointed, removed or replaced solely by Arvin as the
direct or indirect holder of all of the Common Securities.
26
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the
Administrative Trustees (and in certain circumstances the Institutional
Trustee), provided that, if any proposed amendment provides for, or the
Administrative Trustees otherwise propose to effect, (i) any action that would
materially adversely affect the powers, preferences or special rights of the
holders of Trust Securities, whether by way of amendment to the Declaration or
otherwise or (ii) the dissolution, winding-up or termination of the Trust
other than pursuant to the terms of the Declaration, then the holders of the
Trust Securities voting together as a single class will be entitled to vote on
such amendment or proposal, and such amendment or proposal shall not be
effective except with the approval of at least a majority in liquidation
amount of the Trust Securities affected thereby; provided, that, if any
amendment or proposal referred to in clause (i) above would materially
adversely affect only the Capital Securities or the Common Securities, then
only the affected class will be entitled to vote on such amendment or proposal
and such amendment or proposal shall not be effective except with the approval
of a majority in liquidation amount of such class of Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified for purposes of United States federal income taxation as other
than a grantor trust, (ii) reduce or otherwise materially adversely affect the
powers of the Institutional Trustee in contravention of the Trust Indenture
Act or (iii) cause the Trust to be deemed an "investment company" which is
required to be registered under the Investment Company Act of 1940, as amended
(the "1940 Act").
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other body, except as
described below or as otherwise described in the Declaration. The Trust may,
with the consent of the Administrative Trustees and without the consent of the
holders of the Trust Securities or the Institutional Trustee, consolidate,
amalgamate, merge with or into, or be replaced by a trust organized as such
under the laws of any State of the United States; provided, that (i) if the
Trust is not the survivor, such successor entity either (x) expressly assumes
all of the obligations of the Trust under the Trust Securities or (y)
substitutes for the Capital Securities other securities having substantially
the same terms as the Trust Securities (the "Successor Securities"), so long
as the Successor Securities rank the same as the Trust Securities rank with
respect to distributions and payments upon liquidation, redemption and
otherwise, (ii) the Company expressly acknowledges a trustee of such successor
entity possessing the same powers and duties as the Institutional Trustee as
the holder of the Subordinated Debentures, (iii) the Capital Securities or any
Successor Securities are listed, or any Successor Securities will be listed
upon notification of issuance, on any national securities exchange or with
another organization on which the Capital Securities are then listed or
quoted, (iv) such merger, consolidation, amalgamation or replacement does not
cause the Capital Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization, (v)
such merger, consolidation, amalgamation or replacement does not adversely
affect the rights, preferences and privileges of the holders of the Trust
Securities (including any Successor Securities) in any material respect (other
than with respect to any dilution of the holders' interests in the new
entity), (vi) such successor entity has a purpose substantially identical to
that of the Trust, (vii) prior to such merger, consolidation, amalgamation or
replacement, Arvin has received an opinion of an independent counsel to the
Trust experienced in such matters to the effect that, (A) such merger,
consolidation, amalgamation or replacement does not adversely affect the
rights, preferences and privileges of the holders of the Trust Securities
(including any Successor Securities) in any material respect (other than with
respect to any dilution of the holders' interests in the new entity), (B)
following such merger, consolidation, amalgamation or replacement, neither the
Trust nor such successor entity will be required to register as an investment
company under the 1940 Act and (C) the Trust will continue to be classified as
a grantor trust for federal income tax purposes, and (viii) Arvin guarantees
the obligations of such successor entity under the Successor Securities at
least to the extent provided by the Guarantee. Notwithstanding the foregoing,
the Trust shall not, except with the consent of holders of 100 percent in
liquidation amount of the Trust Securities,
27
consolidate, amalgamate, merge with or into, or be replaced by any other
entity or permit any other entity to consolidate, amalgamate, merge with or
into, or replace it, if such consolidation, amalgamation, merger or
replacement would cause the Trust or the Successor Entity to be classified as
other than a grantor trust for United States federal income tax purposes.
EXPENSES AND TAXES
In the Indenture, the Company has agreed to pay all costs and expenses of
the Trust (including costs and expenses relating to the organization of the
Trust and the offering, sale and issuance of the Trust Securities, the fees
and expenses of the Trustees and the costs and expenses relating to the
operation of the Trust) and to pay any and all taxes and all costs and
expenses with respect thereto (other than United States withholding taxes) to
which the Trust might become subject. The foregoing obligations of the Company
under the Indenture are for the benefit of, and shall be enforceable by, any
person to whom any such debts, obligations, costs, expenses and taxes are owed
(a "Creditor") whether or not such Creditor has received notice thereof. Any
such Creditor may enforce such obligations of the Company directly against the
Company, and the Company has irrevocably waived any right or remedy to require
that any such Creditor take any action against the Trust or any other person
before proceeding against the Company. The Company has also agreed in the
Indenture to execute such additional agreements as may be necessary or
desirable to give full effect to the foregoing.
BOOK-ENTRY ISSUANCE--THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depositary (the
"Depositary") for the Capital Securities. The Capital Securities will
initially be issued as fully registered securities registered in the name of
Cede & Co. (DTC's nominee). One or more fully registered global Capital
Securities certificates, representing the total aggregate number of Capital
Securities, will be issued and will be delivered to DTC.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in the global Capital Securities
as represented by a global certificate.
DTC has advised the Company and the Trust that it is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC holds securities that its
participants ("Participants") deposit with DTC. DTC also facilitates the
settlement among Participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic computerized book-
entry changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants in DTC
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others, such as securities brokers and dealers, banks and trust
companies that clear transactions through or maintain a direct or indirect
custodial relationship with a Direct Participant ("Indirect Participants").
The rules applicable to DTC and its Participants are on file with the SEC.
Purchases of Capital Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Capital
Securities on DTC's records. The ownership interest of each actual purchaser
of each Capital Security ("Beneficial Owner") is in turn to be recorded on the
Direct Participants' and Indirect Participants' records. Beneficial Owners
will not receive written confirmation from DTC of their purchases, but
Beneficial Owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the Direct or Indirect Participants through which the Beneficial Owners
purchased Capital Securities. Transfers of ownership interests in the Capital
Securities are to be accomplished by entries made on the books of Participants
acting on behalf of Beneficial
28
Owners. Beneficial Owners will not receive certificates representing their
ownership interests in the Capital Securities, except in the event that use of
the book-entry system for the Capital Securities is discontinued.
To facilitate subsequent transfers, all the Capital Securities deposited by
Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Capital Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge
of the actual Beneficial Owners of the Capital Securities. DTC's records
reflect only the identity of the Direct Participants to whose accounts such
Capital Securities are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of Beneficial Owners that are their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements that may be in effect from time to time.
Redemption notices will be sent to Cede & Co. If less than all of the
Capital Securities are being redeemed, DTC will determine the amount of the
interest of each Participant to be redeemed in accordance with its procedures.
Although voting with respect to the Capital Securities is limited, in those
cases where a vote is required, neither DTC nor Cede & Co. will itself consent
or vote with respect to Capital Securities. Under its usual procedures, DTC
would mail an omnibus proxy to the Trust as soon as possible after the record
date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to
those Direct Participants to whose accounts the Capital Securities are
credited on the record date (identified in a listing attached to the Omnibus
Proxy). The Company and the Trust believe that the arrangements among DTC,
Direct and Indirect Participants, and Beneficial Owners will enable the
Beneficial Owners to exercise rights equivalent in substance to the rights
that can be directly exercised by a holder of a beneficial interest in the
Trust.
Distribution payments on the Capital Securities will be made to DTC in
immediately available funds. DTC's practice is to credit Direct Participants'
accounts on the relevant payment date in accordance with their respective
holdings shown on DTC's records unless DTC has reason to believe that it will
not receive payments on such payment date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the account of customers in
bearer form or registered in "street name," and will be the responsibility of
such Participants and not of DTC, the Trust or Arvin, subject to any statutory
or regulatory requirements to the contrary that may be in effect from time to
time. Payment of distributions to DTC is the responsibility of the Trust,
disbursement of such payments to Direct Participants is the responsibility of
DTC, and disbursement of such payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Capital Security
certificate will not be entitled to receive physical delivery of Capital
Securities. Accordingly, each Beneficial Owner must rely on the procedures of
DTC to exercise any rights under the Capital Securities.
DTC may discontinue providing its services as securities depositary with
respect to the Capital Securities at any time by giving reasonable notice to
the Trust. Under such circumstances, in the event that a successor securities
depositary is not obtained, Capital Securities certificates are required to be
printed and delivered. Additionally, the Administrative Trustees (with the
consent of the Company) may decide to discontinue use of
29
the system of book-entry transfers through DTC (or any successor depositary)
with respect to the Capital Securities. In that event, certificates for the
Capital Securities will be printed and delivered. In each of the above
circumstances, the Company will appoint a paying agent with respect to the
Capital Securities.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that Arvin and the Trust believe to be
reliable, but neither the Company nor the Trust takes responsibility for the
accuracy thereof.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The Institutional Trustee, prior to the occurrence of a default with respect
to the Trust Securities and after the curing of any defaults that may have
occurred, undertakes to perform only such duties as are specifically set forth
in the Declaration and the Indenture, in the terms of the Trust Securities or
in the Trust Indenture Act and, after default, shall exercise the same degree
of care and skill as a prudent individual would exercise in the conduct of his
or her own affairs. Subject to such provisions, the Institutional Trustee is
under no obligation to exercise any of the powers vested in it by the
Declaration at the request of any holder of Capital Securities, unless offered
reasonable indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The holders of Capital Securities
will not be required to offer such indemnity in the event such holders, by
exercising their voting rights, direct the Institutional Trustee to take any
action it is empowered to take under the Declaration following a Declaration
Event of Default. The Institutional Trustee also serves as trustee under the
Guarantee and the Indenture. The Company and its affiliates may have banking
relationships with the Institutional Trustee in the ordinary course of
business.
PAYMENT AND PAYING AGENCY
Payments in respect of the Capital Securities represented by a Global
Security (as defined herein) shall be made to DTC, which shall credit the
relevant accounts at DTC on the applicable distribution dates. In the event
that the certificates for the Capital Securities are not in book-entry form,
the Trust will maintain an office or agency in the Borough of Manhattan, New
York, New York, where the Capital Securities may be presented for payment
("Paying Agent"). If Arvin fails to appoint or maintain another entity as
Paying Agent, the Institutional Trustee will act as such.
In the event that the Capital Securities do not remain in book-entry form,
registration of transfers of Capital Securities will be effected without
charge by or on behalf of the Trust, but upon payment (with the giving of such
indemnity as the Administrative Trustees may require) in respect of any tax or
other government charges that may be imposed in relation to it. The Trust will
not be required to register or cause to be registered the transfer of Capital
Securities after such Capital Securities have been called for redemption.
GOVERNING LAW
The Declaration and the Capital Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to operate the Trust
in such a way so that the Trust will not be required to register as an
"investment company" under the 1940 Act or characterized as other than a
grantor trust for United States federal income tax purposes. The Company is
authorized and directed to conduct its affairs so that the Subordinated
Debentures will be treated as indebtedness of Arvin for United States federal
income tax purposes. In this connection, Arvin and the Administrative Trustees
are authorized to take any action, not inconsistent with applicable law, the
certificate of trust of the Trust or the amended and restated articles of
incorporation of Arvin, that each of the Company and the Administrative
Trustees determine in their discretion to be necessary or desirable to achieve
such end, as long as such action does not adversely affect the interests of
the holders of the Capital Securities or vary the terms thereof.
Holders of the Capital Securities have no preemptive or similar rights.
30
DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee that
will be executed and delivered by Arvin for the benefit of the holders from
time to time of the Capital Securities. The Guarantee will be qualified as an
indenture under the Trust Indenture Act. The Guarantee Trustee, Wilmington
Trust Company, will act as independent indenture trustee for Trust Indenture
Act purposes under the Guarantee. The terms of the Guarantee will be those set
forth in the Guarantee and those made part of the Guarantee by the Trust
Indenture Act. The following summary of certain provisions of the Guarantee
does not purport to be complete and is subject to and qualified in its
entirety by reference to the provisions of the form of Guarantee, a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part, and the Trust Indenture Act. The Guarantee will be
held by the Guarantee Trustee for the benefit of the holders of the Capital
Securities.
GENERAL
Pursuant to the Guarantee, the Company will irrevocably and unconditionally
agree, to the extent set forth therein, to pay in full to the holders of the
Capital Securities the Guarantee Payments (as defined herein) (except to the
extent paid by the Trust), as and when due, regardless of any defense, right
of set-off or counterclaim that the Trust may have or assert. The following
payments or distributions with respect to the Capital Securities to the extent
not paid by the Trust (the "Guarantee Payments") will be subject to the
Guarantee (without duplication): (i) any accrued and unpaid distributions that
are required to be paid on the Capital Securities, to the extent the Trust
shall have funds available therefor, (ii) the Redemption Price, including all
accrued and unpaid distributions to the date of the redemption, to the extent
the Trust has funds available therefor, with respect to any Capital Securities
called for redemption by the Trust and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of the Trust (other than in connection
with the distribution of Subordinated Debentures to the holders of Capital
Securities or the redemption of all of the Capital Securities upon maturity or
redemption of the Subordinated Debentures), the lesser of (a) the aggregate of
the liquidation amount and all accrued and unpaid distributions on such
Capital Securities to the date of payment, to the extent the Trust has funds
available therefor, and (b) the amount of assets of the Trust remaining for
distribution to holders of Capital Securities in liquidation of the Trust. The
Company's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by Arvin to the holders of Capital Securities
or by causing the Trust to pay such amounts to such holders.
The Guarantee will not apply to any payment of distributions on the Capital
Securities except to the extent the Trust shall have funds available therefor.
If Arvin does not make interest or principal payments on the Subordinated
Debentures purchased by the Trust, the Trust will not pay distributions on the
Capital Securities issued by the Trust and will not have funds available
therefor.
Arvin will also irrevocably and unconditionally agree to guarantee the
obligations of the Trust with respect to the Common Securities (the "Common
Securities Guarantee") to the same extent as the Guarantee, except that upon
the occurrence and during the continuation of an Event of Default under the
Indenture, holders of Capital Securities under the Guarantee shall have
priority over holders of Common Securities under the Common Securities
Guarantee with respect to distributions and payments on liquidation,
redemption or otherwise.
CERTAIN COVENANTS OF THE COMPANY
In the Guarantee, Arvin will covenant that, so long as any Capital
Securities remain outstanding, if there shall have occurred any event of
default under the Guarantee or a Declaration Event of Default, then (a) Arvin
shall not declare or pay any dividend on, make any distribution with respect
to, or redeem, purchase or acquire, or make a liquidation payment with respect
to, any of its capital stock, (b) Arvin shall not, directly or indirectly, and
shall not allow any of its subsidiaries to, make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities issued by the Company that rank pari passu with or junior to the
Subordinated Debentures and (c) the Company shall not make any guarantee
payments with respect to the foregoing (other than pursuant to the Guarantee);
provided, however, that the restriction in clause (a) above does
31
not apply (i) to repurchases or acquisitions of common shares of the Company
as contemplated by any employment arrangement, benefit plan or other similar
contract with or for the benefit of employees, officers or directors entered
into in the ordinary course of business, (ii) as a result of an exchange or
conversion of any class or series of Arvin capital stock for Arvin common
shares, provided that such class or series of Arvin capital stock was
outstanding prior to the occurrence of such event of default under the
Guarantee or such Declaration Event of Default, (iii) to the purchase of
fractional interests in shares of the Company's capital stock pursuant to
conversion or exchange provisions of such Company capital stock or the
security being converted or exchanged, provided that such Arvin capital stock
or security was outstanding prior to the occurrence of such event of default
under the Guarantee or such Declaration Event of Default, or (iv) to the
payment of any stock dividend where the dividend is paid in the form of the
same stock as that on which the dividend is paid.
MODIFICATION OF THE GUARANTEE; ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of Capital Securities (in which case no consent of such holders
will be required), the Guarantee may be amended only with the prior approval
of the holders of not less than a majority in liquidation amount of the
outstanding Capital Securities. The manner of obtaining any such approval of
holders of the Capital Securities is set forth under "Description of the
Capital Securities--Voting Rights." All guarantees and agreements contained in
the Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders
of the Capital Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of a majority in liquidation amount of the Capital Securities have the
right to direct the time, method and place of conducting any proceeding for
any remedy available to the Guarantee Trustee in respect of the Guarantee or
to direct the exercise of any trust or power conferred upon the Guarantee
Trustee under the Guarantee.
If the Guarantee Trustee fails to enforce the Guarantee, any record holder
of Capital Securities may institute a legal proceeding directly against the
Company to enforce the Guarantee Trustee's rights under the Guarantee without
first instituting a legal proceeding against the Trust, the Guarantee Trustee
or any other person or entity. In addition, if the Company has failed to make
a Guarantee Payment, a record holder of Capital Securities may directly
institute a proceeding against the Company for enforcement of the Guarantee
for such payment to the record holder of the Capital Securities of the
principal of or interest on the Subordinated Debentures on or after the
respective due dates specified in the Subordinated Debentures, and the amount
of the payment will be based on the holder's pro rata share of the amount due
and owing on all of the Capital Securities. The Company has waived any right
or remedy to require that any action be brought first against the Trust or any
other person or entity before proceeding directly against the Company. The
record holder in the case of the issuance of one or more global Capital
Securities certificates will be DTC acting at the direction of its Direct
Participants, who in turn will be acting at the direction of the beneficial
owners of the Capital Securities.
The Company will be required to provide annually to the Guarantee Trustee a
statement as to the performance by the Company of certain of its obligations
under the Guarantee and as to any default in such performance.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default, undertakes to
perform only such duties as are specifically set forth in the Guarantee and,
after default, shall exercise the same degree of care and skill as a prudent
individual would exercise in the conduct of his or her own affairs. Subject to
such provisions, the Guarantee Trustee is under no obligation to exercise any
of the powers vested in it by the Guarantee at the request of any holder of
Capital Securities, unless offered reasonable indemnity against the costs,
expenses and
32
liabilities which might be incurred thereby. The Guarantee Trustee also serves
as Institutional Trustee and Debt Trustee. The Company and its affiliates may
have a banking relationship with the Guarantee Trustee in the ordinary course
of business.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate as to the Capital Securities (a) upon full
payment of the Redemption Price of all Capital Securities, (b) upon
distribution of the Subordinated Debentures held by the Trust to the holders of
all the Capital Securities, or (c) upon full payment of the amounts payable in
accordance with the Declaration upon dissolution of the Trust. The Guarantee
will continue to be effective or will be reinstated, as the case may be, if at
any time any holder of Capital Securities must restore payment of any sums paid
under such Capital Securities or the Guarantee.
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of Arvin and will rank
(i) subordinate and junior in right of payment to all other liabilities of
Arvin, including the Subordinated Debentures, except those liabilities of Arvin
made pari passu or subordinate by their terms, (ii) pari passu with the most
senior preferred stock, if any, now or hereafter issued by Arvin and with any
guarantee now or hereafter entered into by Arvin in respect of any preferred
stock of any affiliate of Arvin, and (iii) senior to Arvin's common shares. The
terms of the Capital Securities provide that each holder of Capital Securities
by acceptance thereof agrees to the subordination provisions and other terms of
the Guarantee.
The Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may institute a legal proceeding directly
against the Company to enforce its rights under the guarantee without
instituting a legal proceeding against any other person or entity).
GOVERNING LAW
The Guarantee will be governed by, and construed in accordance with, the
internal laws of the State of New York.
DESCRIPTION OF THE SUBORDINATED DEBENTURES
Set forth below is a description of the terms of the Subordinated Debentures
in which the Trust will invest the proceeds from the issuance and sale of the
Trust Securities. The following summary of the principal terms does not purport
to be complete and is subject to, and is qualified in its entirety by reference
to, the Indenture, dated as of January 28, 1997, between Arvin and Wilmington
Trust Company, as Trustee (the "Debt Trustee"), as supplemented by a First
Supplemental Indenture, dated as of January 28, 1997 (as so supplemented, the
"Indenture"), the forms of which are filed as Exhibits to the Registration
Statement of which this Prospectus forms a part. The terms of the Subordinated
Debentures will include those stated in the Indenture and those made a part of
the Indenture by reference to the Trust Indenture Act. Certain capitalized
terms used herein are defined in the Indenture.
The Company will have the right, at any time, to dissolve the Trust and,
after satisfaction of the liabilities to creditors of the Trust as required by
applicable law, cause the Subordinated Debentures to be distributed to the
holders of the Trust Securities in liquidation of the Trust. See "Description
of the Capital Securities--Distribution of the Subordinated Debentures."
GENERAL
The Subordinated Debentures will be issued as unsecured subordinated debt
under the Indenture. The Indenture does not limit the aggregate principal
amount of debt securities which may be issued thereunder and
33
provides that the debt securities may be issued thereunder from time to time in
one or more series. However, the Subordinated Debentures, as a separate series
of debt securities, will be limited in aggregate principal amount to
$103,100,000, such amount being the sum of the aggregate stated liquidation
amount of the Capital Securities and the Common Securities.
The Subordinated Debentures are not entitled to the benefit of any sinking
fund. The entire principal amount of the Subordinated Debentures will mature
and become due and payable, together with any accrued and unpaid interest
thereon including Additional Interest (as defined herein), if any, on February
1, 2027.
If Subordinated Debentures are distributed to holders of Capital Securities
in liquidation of such holders' interests in the Trust, the Company presently
anticipates that such Subordinated Debentures will initially be issued in the
form of one or more Global Securities. As described herein, under certain
limited circumstances, Subordinated Debentures may be issued in certificated
form in exchange for a Global Security. See "--Book-Entry and Settlement." In
the event that Subordinated Debentures are issued in certificated form, such
Subordinated Debentures will be in denominations of $1,000 and integral
multiples thereof and may be transferred or exchanged at the offices described
below. Payments on Subordinated Debentures issued as a Global Security will be
made to DTC, a successor depositary or, in the event that no depositary is
used, to a Paying Agent for the Subordinated Debentures. In the event
Subordinated Debentures are issued in certificated form, principal and interest
will be payable, the transfer of the Subordinated Debentures will be
registrable and Subordinated Debentures will be exchangeable for Subordinated
Debentures of other denominations of a like aggregate principal amount at the
corporate trust office of the Debt Trustee in Wilmington, Delaware; provided,
that payment of interest may be made at the option of Arvin by check mailed to
the address of the persons entitled thereto or by wire transfer to an account
appropriately designated by the persons entitled thereto. Notwithstanding the
foregoing, so long as the holder of any Subordinated Debentures is the
Institutional Trustee, the payment of principal and interest on the
Subordinated Debentures held by the Institutional Trustee will be made at such
place and to such account as may be designated by the Institutional Trustee.
The Indenture does not contain provisions that afford holders of the
Subordinated Debentures protection in the event of a highly leveraged
transaction or similar transaction involving Arvin that may adversely affect
such holders.
SUBORDINATION
The Indenture provides that the Subordinated Debentures are subordinated and
junior in right of payment to all Senior Indebtedness of Arvin, whether now
existing or hereafter incurred. No payment of principal (including redemption
payments, if any), premium, if any, or interest on, the Subordinated Debentures
may be made if (i) any Senior Indebtedness of Arvin is not paid when due, and
any applicable grace period with respect to such default has ended and such
default has not been cured or waived or ceased to exist, or (ii) the maturity
of any Senior Indebtedness of Arvin has been accelerated because of a default.
Upon any payment by or distribution of assets of Arvin to creditors upon any
dissolution, winding-up, liquidation or reorganization, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other proceedings,
all amounts due on all Senior Indebtedness of Arvin must be paid in full, or
payment provided for in money in accordance with its terms, before the holders
of Subordinated Debentures are entitled to receive or retain any payment. Upon
payment in full of all amounts due on Senior Indebtedness then outstanding, the
rights of the holders of the Subordinated Debentures will be subrogated to the
rights of the holders of Senior Indebtedness of Arvin to receive payments or
distributions applicable to Senior Indebtedness until all amounts owing on the
Subordinated Debentures are paid in full.
The term "Senior Indebtedness" means, with respect to Arvin, (i) the
principal, premium, if any, and interest in respect of (A) indebtedness of
Arvin for money borrowed and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by Arvin, (ii) all
capital lease obligations of Arvin, (iii) all obligations of Arvin issued or
assumed as the deferred purchase price of property, all conditional sale
obligations of Arvin and all obligations of Arvin under any title retention
agreement (but excluding trade
34
accounts payable arising in the ordinary course of business), (iv) all
obligations of Arvin for the reimbursement on any letter of credit, banker's
acceptance, security purchase facility or similar credit transaction, (v) all
obligations of the type referred to in clauses (i) through (iv) above of other
persons for the payment of which Arvin is responsible or liable as obligor,
guarantor or otherwise, (vi) all obligations of the type referred to in
clauses (i) through (v) above of other persons secured by any lien on any
property or asset of Arvin (whether or not such obligation is assumed by
Arvin) and (vii) all obligations of the Company under guarantees in respect of
operating lease payments of its subsidiaries or under guarantees in respect of
the obligations of any trust, partnership or other entity that has been or is
established as a lease financing entity of the Company ("a Lease Financing
Entity") which guarantees were, in either case, incurred in connection with
the issuance by such Lease Financing Entity of indebtedness or other
securities, except in each case for (1) any such indebtedness that is by its
terms subordinated to or pari passu with the debt securities issued under the
Indenture, and (2) any indebtedness between or among the Company and its
affiliates, including all other debt securities and guarantees in respect of
those debt securities (other than guarantees referred to in clause (vii)
above) issued to any trust, or a trustee of such trust, partnership or other
entity affiliated with Arvin that is a financing entity of Arvin (a "financing
entity") in connection with the issuance by such financing entity of
securities that are similar to the Capital Securities. Such Senior
Indebtedness shall continue to be Senior Indebtedness and be entitled to the
benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any term of such Senior Indebtedness.
The Indenture does not limit the aggregate amount of Senior Indebtedness
that may be issued by Arvin. As of September 29, 1996, Senior Indebtedness of
Arvin aggregated approximately $472 million. The Company's obligations under
the Subordinated Debentures will also be effectively subordinated to all
existing and future obligations of Arvin's subsidiaries.
CERTAIN COVENANTS OF THE COMPANY
If (i) there shall have occurred any event that would constitute an
Indenture Event of Default or (ii) Arvin shall be in default with respect to
its payment of any obligations under the Guarantee or the Common Securities
Guarantee, or (iii) Arvin shall have given notice of its election to defer
payments of interest on the Subordinated Debentures by extending the interest
payment period, and such period, or any extension thereof, shall be
continuing, then (a) the Company shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock, (b) the Company
shall not, directly or indirectly, and shall not allow any of its subsidiaries
to, make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities issued by the Company that rank pari
passu with or junior to the Subordinated Debentures, and (c) Arvin shall not
make any guarantee payments with respect to the foregoing (other than pursuant
to the Guarantee); provided, however, that the restriction in clause (a) above
does not apply (i) to repurchases or acquisitions of common shares of the
Company as contemplated by any employment arrangement, benefit plan or other
similar contract with or for the benefit of employees, officers or directors
entered into in the ordinary course of business, (ii) as a result of an
exchange or conversion of any class or series of the Company's capital stock
for the Company's common shares, provided that such class or series of the
Company's capital stock was outstanding prior to the occurrence of such
Indenture Event of Default or the date upon which the Company gives notice of
its election of such Extension Period, as applicable, (iii) to the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged, provided that such capital stock or security was
outstanding prior to the occurrence of such Indenture Event of Default or the
date upon which the Company gives notice of its election of such Extension
Period, as applicable, or (iv) to the payment of any stock dividend by the
Company where the dividend is paid in the form of the same stock as that on
which the dividend is paid.
For so long as the Trust Securities remain outstanding, Arvin will covenant
(i) to directly or indirectly maintain 100% ownership of the Common Securities
of the Trust; provided, however, that any permitted successor of Arvin under
the Indenture may succeed to the Company's ownership of such Common
Securities,
35
(ii) not to cause, as sponsor of the Trust, or to permit, as holder of the
Common Securities, the dissolution, winding-up or termination of the Trust,
except in connection with a distribution of the Subordinated Debentures as
provided in the Declaration and in connection with certain mergers,
consolidations or amalgamations, each as permitted by the Declaration, and
(iii) to use its reasonable efforts to cause the Trust (a) to remain a
statutory business trust, except in connection with the distribution of
Subordinated Debentures to the holders of Trust Securities upon dissolution of
the Trust, the redemption of all of the Trust Securities of the Trust, or
certain mergers, consolidations or amalgamations, each as permitted by the
Declaration, and (b) to otherwise continue to be classified for United States
federal income tax purposes as a grantor trust.
REDEMPTION
Arvin shall have the right to redeem the Subordinated Debentures, (i) in
whole or in part, from time to time, on or after February 1, 2007, or (ii)
prior to February 1, 2007, in whole (but not in part) within 90 days following
the occurrence of a Tax Event, upon not less than 30 nor more than 60 days'
notice, in each case at the Redemption Price described below. See "Description
of the Capital Securities--Tax Event Redemption." Arvin is prohibited from
redeeming the Subordinated Debentures in part unless all accrued but unpaid
interest has been paid on all outstanding Subordinated Debentures for all
semi-annual interest payment periods terminating on or prior to the Redemption
Date. The proceeds of any such redemption will be used by the Trust to redeem
the Capital Securities.
The Redemption Price in the case of a redemption under (i) above shall equal
the following prices, expressed in percentages of the principal amount of the
Subordinated Debentures, together with accrued interest to but excluding the
Redemption Date, if the Subordinated Debentures are redeemed during the 12-
month period beginning February 1 of the years indicated below:
REDEMPTION
YEAR PRICE
---- ----------
2007........................................................... 104.192%
2008........................................................... 103.772%
2009........................................................... 103.353%
2010........................................................... 102.934%
2011........................................................... 102.515%
2012........................................................... 102.096%
2013........................................................... 101.677%
2014........................................................... 101.257%
2015........................................................... 100.838%
2016........................................................... 100.419%
and at 100% on or after February 1, 2017.
The Redemption Price, in the case of a redemption prior to February 1, 2007
following a Tax Event as described under (ii) above, shall equal the Make-
Whole Amount (as defined under "Description of the Capital Securities--
Redemption"), together with accrued interest to but excluding the Redemption
Date.
PROPOSED TAX LEGISLATION
Certain tax law changes have been proposed that may, if enacted, deny
corporate issuers a deduction for interest in respect of certain debt
obligations, such as the Subordinated Debentures. See "United States Federal
Income Taxation--Proposed Tax Law Changes."
INTEREST
Each Subordinated Debenture shall bear interest at the rate of 9.50% per
annum from the original date of issuance, payable semi-annually in arrears on
February 1 and August 1 of each year (each an "Interest Payment
36
Date"), commencing August 1, 1997, to the person in whose name such
Subordinated Debenture is registered, subject to certain exceptions, at the
close of business on the Business Day next preceding such Interest Payment
Date. In the event the Subordinated Debentures shall not continue to remain in
book-entry form, Arvin shall have the right to select record dates, which shall
be at least one Business Day before an Interest Payment Date.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. In the event that any date on which
interest is payable on the Subordinated Debentures is not a Business Day, then
payment of the interest payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, then such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
Arvin shall have the right at any time, and from time to time, to defer
payments of interest on the Subordinated Debentures by extending the interest
payment period for a period not exceeding 10 consecutive semi-annual interest
payment periods (but not beyond the maturity date of the Subordinated
Debentures), at the end of which Extension Period, Arvin shall pay all interest
then accrued and unpaid (including any Additional Interest) together with
interest thereon compounded semi-annually at the rate specified for the
Subordinated Debentures to the extent permitted by applicable law ("Compound
Interest"). In the event the Company exercises this right, then during any
Extension Period, (a) the Company shall not declare or pay any dividend on,
make any distribution with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to any of its capital stock, (b) the Company
shall not, directly or indirectly, and shall not allow any of its subsidiaries
to, make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities issued by the Company that rank pari
passu with or junior to the Subordinated Debentures and (c) the Company shall
not make any guarantee payments with respect to the foregoing (other than
pursuant to the Guarantee); provided, however, that, the restriction in clause
(a) above does not apply (i) to repurchases or acquisitions of common shares of
the Company as contemplated by any employment arrangement, benefit plan or
other similar contract with or for the benefit of employees, officers or
directors entered into in the ordinary course of business, (ii) as a result of
an exchange or conversion of any class or series of the Company's capital stock
for the Company's common shares, provided that such class or series of the
Company's capital stock was outstanding prior to the date upon which the
Company gives notice of its election of such Extension Period, (iii) to the
purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of such Company capital stock
or the security being converted or exchanged, provided that such capital stock
or security was outstanding prior to the date upon which the Company gives
notice of its election of such Extension Period, or (iv) to the payment of any
stock dividend by the Company where the dividend is paid in the form of the
same stock as that on which the dividend is paid. Prior to the termination of
any such Extension Period, Arvin may further defer payments of interest by
extending the interest payment period; provided, however, that, such Extension
Period, including all such previous and further extensions, may not exceed 10
consecutive semi-annual interest payment periods or extend beyond the maturity
date of the Subordinated Debentures. Upon the termination of any Extension
Period and the payment of all amounts then due, Arvin may commence a new
Extension Period, subject to the requirements set forth in this section. No
interest during an Extension Period, except at the end thereof, shall be due
and payable. At the end of the Extension Period, Arvin will pay all interest
accrued and unpaid on the Subordinated Debentures, including any Additional
Interest and Compound Interest, to the holders in whose names the Subordinated
Debentures are registered on the first record date after the end of the
Extension Period. Arvin has no present intention of exercising its right to
defer payments of interest by extending the interest payment period on the
Subordinated Debentures. See "--Certain Covenants to the Company."
If the Institutional Trustee shall be the sole holder of the Subordinated
Debentures, Arvin shall give the Administrative Trustees and the Institutional
Trustee notice of its election of such Extension Period at least one
37
Business Day before the earlier of (i) the next succeeding date on which
distributions on the Capital Securities are payable or (ii) the date the
Administrative Trustees are required to give notice to any applicable stock
exchange or self-regulatory organization or to holders of the Capital
Securities of the record date or the date such distribution is payable. The
Administrative Trustees shall give notice of Arvin's selection of such
Extension Period to the holders of the Capital Securities. If the
Institutional Trustee is not the sole holder of the Subordinated Debentures,
Arvin shall give the holders of the Subordinated Debentures notice of its
election of such Extension Period at least ten Business Days prior to the
earlier of (i) the next succeeding Interest Payment Date or (ii) the date upon
which Arvin is required to give notice to any applicable stock exchange or
self-regulatory organization or to holders of the Subordinated Debentures of
the record or payment date of such related interest payment.
ADDITIONAL INTEREST
If, at any time while the Institutional Trustee is the holder of any
Subordinated Debentures, the Trust or the Institutional Trustee shall be
required to pay any taxes, duties, assessments or governmental charges of
whatever nature (other than withholding taxes) imposed by the United States,
or any other taxing authority, then, in any such case, Arvin will pay as
additional interest ("Additional Interest") on the Subordinated Debentures
held by the Institutional Trustee such additional amounts as shall be required
so that the net amounts received and retained by the Trust and the
Institutional Trustee after paying any such taxes, duties, assessments or
other governmental charges will equal the amounts the Trust and the
Institutional Trustee would have received had no such taxes, duties,
assessments or other governmental charges been imposed.
INDENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Event of
Default" with respect to the Subordinated Debentures:
(a) default in payment of interest on the Subordinated Debentures,
including any Additional Interest in respect thereof, when due and
continuance of such default for a period of 30 days; provided, however,
that a valid extension of the interest payment period by Arvin shall not
constitute a default in the payment of interest for this purpose; or
(b) default in payment of principal or premium, if any, on the
Subordinated Debentures when due whether at maturity, upon redemption, by
declaration or otherwise; or
(c) failure to observe or perform any other covenant or agreement with
respect to the Subordinated Debentures contained in the Indenture or
established pursuant thereto for 90 days after written notice of such
failure shall have given to Arvin by the Debt Trustee or to Arvin and the
Debt Trustee by the holders of at least 25% in principal amount of the
outstanding Subordinated Debentures; or
(d) certain events of bankruptcy or reorganization of the Company; or
(e) the voluntary or involuntary dissolution, winding-up or termination
of the Trust, except in connection with the distribution of Subordinated
Debentures to the holders of Capital Securities upon dissolution of the
Trust, the redemption of all outstanding Trust Securities of the Trust and
certain mergers, consolidations or amalgamations permitted by the
Declaration.
The Indenture provides that if an Event of Default described in clauses (a),
(b), (c) and (e) of the preceding paragraph occurs and is continuing with
respect to the Subordinated Debentures, either the Debt Trustee or the holders
of not less than 25% in aggregate principal amount of the outstanding
Subordinated Debentures may declare, by written notice to the Company, the
principal of all of the Subordinated Debentures immediately due and payable.
If an Event of Default described in clause (d) of the preceding paragraph
occurs and is continuing, then the principal amount of the Subordinated
Debentures, together with the principal amount of all other series of debt
securities issued under the Indenture, will become immediately due and
payable, without any declaration or action on the part of the Debt Trustee or
any holder of the Subordinated Debentures.
38
Under the Indenture, the holders of a majority in aggregate principal amount
of the Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Debt
Trustee with respect to the Subordinated Debentures. The holders of a majority
in aggregate principal amount of the Subordinated Debentures may also waive,
on behalf of the holders of all of the Subordinated Debentures, any past
default, except (i) a default in the payment of principal, premium, if any, or
interest due otherwise than by acceleration (unless such default has been
cured and a sum sufficient to pay all matured installments of interest and
principal, and any applicable premium has been deposited with the Debt
Trustee) or (ii) a default in the covenants described in the first paragraph
under "--Certain Covenants of the Company." The holders of a majority in
aggregate principal amount of the Subordinated Debentures may annul any
declaration accelerating the maturity of the Subordinated Debentures made in
accordance with the preceding paragraph if all defaults (other than the non-
payment of accelerated principal) have been cured or waived and a sum
sufficient to pay all matured installments of interest, principal due (other
than by acceleration) and premium, if any, on the Subordinated Debentures has
been paid or deposited with the Debt Trustee.
Upon the occurrence of an Event of Default under the Indenture, holders of a
majority in principal amount of the Capital Securities will have the right to
direct the Institutional Trustee to exercise its rights and remedies under the
Indenture as sole holder of the Subordinated Debentures. In addition, if the
Event of Default is due to the failure of the Company to pay interest or
principal on the Subordinated Debentures, when due, holders of the Capital
Securities may institute a Direct Action against the Company. See "Description
of the Capital Securities--Declaration Event of Default," "--Voting Rights,"
and "Effect of Obligations under the Subordinated Debentures and the
Guarantee."
BOOK-ENTRY AND SETTLEMENT
If Subordinated Debentures are distributed to holders of Capital Securities
in liquidation of such holders' interests in the Trust, the Company
anticipates that the Subordinated Debentures will be issued in the form of one
or more global certificates (each a "Global Security") registered in the name
of the Depositary or its nominee. Except under the limited circumstances
described below, Subordinated Debentures represented by the Global Security
will not be exchangeable for, and will not otherwise be issuable as,
Subordinated Debentures in definitive form. The Global Securities described
above may not be transferred except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or to a successor depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such laws may
impair the ability to transfer beneficial interests in such a Global Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Subordinated
Debentures in definitive form and will not be considered the holders (as
defined in the Indenture) thereof for any purpose under the Indenture, and no
Global Security representing Subordinated Debentures shall be exchangeable,
except for another Global Security of like denomination and tenor to be
registered in the name of the Depositary or its nominee or to a successor
Depositary or its nominee. Accordingly, each Beneficial Owner must rely on the
procedures of the Depositary or if such person is not a Participant, on the
procedures of the Participant through which such person owns its interest to
exercise any rights of a holder under the Indenture.
THE DEPOSITARY
If Subordinated Debentures are distributed to holders of Capital Securities
in liquidation of such holders' interests in the Trust, it is expected that
DTC will act as securities depositary for the Subordinated Debentures. For a
description of DTC and the specific terms of the depositary arrangements, see
"Description of the Capital Securities--Book-Entry Issuance--The Depository
Trust Company." As of the date of this Prospectus, the description therein of
DTC's book-entry system and DTC's practices as they relate to purchases,
transfers,
39
notices and payments with respect to the Capital Securities apply in all
material respects to any debt obligations represented by one or more Global
Securities held by DTC. Arvin may appoint a successor to DTC or any successor
depositary in the event DTC or such successor depositary is unable or
unwilling to continue as a depositary for the Global Securities.
None of Arvin, the Trust, the Institutional Trustee, the Debt Trustee, any
paying agent and any other agent of Arvin, the Institutional Trustee or the
Debt Trustee will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in a Global Security for such Subordinated Debentures or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
DISCONTINUANCE OF THE DEPOSITARY'S SERVICES
A Global Security shall be exchangeable for Subordinated Debentures
registered in the names of persons other than the Depositary or its nominee
only if (i) the Depositary notifies Arvin that it is unwilling or unable to
continue as a depositary for such Global Security and no successor depositary
shall have been appointed, (ii) the Depositary, at any time, ceases to be a
clearing agency registered under the Exchange Act at which time the Depositary
is required to be so registered to act as such depositary and no successor
depositary shall have been appointed or (iii) Arvin, in its sole discretion,
determines that such Global Security shall be so exchangeable. Any Global
Security that is exchangeable pursuant to the preceding sentence shall be
exchangeable for Subordinated Debentures registered in such names as the
Depositary shall direct. It is expected that such directions will be based
upon instructions received by the Depositary from its Participants with
respect to ownership of beneficial interests in such Global Security.
In the event the Subordinated Debentures are not represented by one or more
Global Securities, certificates evidencing Subordinated Debentures may be
presented for registration of transfer (with the form of transfer endorsed
thereon duly executed) or exchange, at the corporate trust office of the Debt
Trustee or such other location designated by Arvin for such purpose with
respect to the Subordinated Debentures without service charge and upon payment
of any taxes and other governmental charges as described in the Indenture.
Arvin has initially appointed the Debt Trustee as security registrar with
respect to the Subordinated Debentures. Arvin may at any time rescind the
designation of any such security registrar or approve a change in the location
through which any such security registrar acts, except that Arvin will be
required to maintain a transfer agent at the place of payment. Arvin may at
any time designate additional transfer agents with respect to the Subordinated
Debentures.
Arvin shall not be required to (i) issue, exchange or register the transfer
of Subordinated Debentures during a period beginning at the opening of
business 15 days before the date of the mailing of a notice of redemption of
less than all of the Subordinated Debentures and ending at the close of
business on the date of such mailing or (ii) register the transfer of or
exchange any Subordinated Debentures called for redemption.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting Arvin and the Debt Trustee,
with the consent of the holders of at least a majority in principal amount of
the Subordinated Debentures (and any other series of subordinated debt
securities under the Indenture affected thereby), to modify the Indenture or
any supplemental indenture affecting the rights of the holders of the
Subordinated Debentures; provided that no such modification may, without the
consent of the holder of each outstanding Subordinated Debenture (or, if
applicable, other series of subordinated debt securities) affected thereby,
(i) extend the fixed maturity of the Subordinated Debentures, or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest thereon, or reduce any premium payable upon the redemption thereof or
(ii) reduce the aforesaid percentage of Subordinated Debentures the consent of
the holders of which is required for any such modification. In the event that
the consent of the Institutional Trustee, as holder of the Subordinated
Debentures, is required with respect to any
40
modification or amendment, the Institutional Trustee is required, under the
Declaration, to request the direction of the holders of the Trust Securities
with respect to such modification or amendment and to vote on such matter as
directed by the holders of a majority in liquidation amount of the Trust
Securities. See "Description of the Capital Securities--Voting Rights."
In addition, Arvin and the Debt Trustee may execute, without the consent of
holders of the Subordinated Debentures, any supplemental indenture for certain
other customary purposes, including the creation of any new series of debt
securities.
CONSOLIDATION, MERGER AND SALE
The Company shall not consolidate with, or merge into, any corporation or
convey or transfer its properties and assets substantially as an entirety to
any entity unless (a) the successor entity is a corporation organized under
the laws of any state in the United States or the District of Columbia and
expressly assumes the obligations of the Company under the Indenture, and (b)
immediately thereafter no Event of Default and no event which, after notice or
lapse of time, or both, would become an Event of Default under the Indenture
shall have occurred and be continuing. Upon any such consolidation, merger,
conveyance or transfer, the successor corporation shall succeed to, and be
substituted for, the Company under the Indenture and thereafter the
predecessor corporation shall be relieved of all obligations and covenants
under the Indenture and the Subordinated Debentures.
DEFEASANCE AND DISCHARGE
The Indenture provides that the Company, at the Company's option, will be
discharged from any and all obligations in respect of the Subordinated
Debentures (except for certain obligations to register the transfer or
exchange of Subordinated Debentures, replace stolen, lost or mutilated
Subordinated Debentures, maintain paying agencies and hold moneys for payment
in trust) if the Company deposits, in trust with the Debt Trustee, money or
U.S. government obligations which through the payment of interest thereon and
principal thereof in accordance with their terms will provide money, in an
amount sufficient to pay all the principal of, and interest and premium, if
any, on, the Subordinated Debentures on the dates such payments are due in
accordance with the terms of such Subordinated Debentures. To exercise any
such option, the Company is required to deliver to the Debt Trustee an opinion
of counsel, based upon then applicable U.S. federal income tax law, to the
effect that the deposit and related defeasance would not cause the holders of
the Subordinated Debentures to recognize income, gain or loss for federal
income tax purposes and will be subject to United States federal income tax on
the same amount and in the same manner and at the same times as would have
been the case if such deposit, defeasance or discharge had not occurred.
GOVERNING LAW
The Indenture and the Subordinated Debentures will be governed by, and
construed in accordance with, the internal laws of the State of New York.
INFORMATION CONCERNING THE DEBT TRUSTEE
The Debt Trustee, prior to default, undertakes to perform only such duties
as are specifically set forth in the Indenture and, after default, shall
exercise the same degree of care and skill as a prudent individual would
exercise in the conduct of his or her own affairs. Subject to such provision,
the Debt Trustee is under no obligation to exercise any of the powers vested
in it by the Indenture at the request of any holder of Subordinated
Debentures, unless offered reasonable indemnity by such holder against the
costs, expenses and liabilities which might be incurred thereby; but the
foregoing shall not relieve the Debt Trustee, upon the occurrence of an
Indenture Event of Default, from the obligation to exercise the rights and
powers vested in it by the Indenture and to use, in such exercise, the same
degree of care and skill as a prudent individual would use in the conduct of
his or her own affairs. The Debt Trustee is not required to expend or risk its
own funds or otherwise incur
41
personal financial liability in the performance of its duties if the Debt
Trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it.
The Company and its affiliates may have normal banking relationships with
the Debt Trustee in the ordinary course of business.
MISCELLANEOUS
The Indenture provides that Arvin will pay (i) all fees and expenses related
to the offering of the Trust Securities and the Subordinated Debentures and
the organization, operation and termination of the Trust, including the fees
and expenses of the Trustees, and (ii) any and all taxes of the Trust (other
than United States withholding taxes attributable to the Trust or its assets).
The Company will have the right at all times to assign any of its rights or
obligations under the Indenture to a direct or indirect wholly-owned
subsidiary of Arvin; provided that, in the event of any such assignment, Arvin
will remain liable for all such obligations. Subject to the foregoing, the
Indenture will be binding upon and inure to the benefit of the parties thereto
and their respective successors and assigns. The Indenture provides that it
may not otherwise be assigned by the parties thereto.
EFFECT OF OBLIGATIONS UNDER THE
SUBORDINATED DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to (i)
issue the Trust Securities evidencing undivided beneficial interests in the
assets of the Trust, (ii) invest the proceeds from such issuance and sale in
the Subordinated Debentures and (iii) engage in only those other activities
necessary or incidental thereto.
As long as payments of interest and other payments are made when due on the
Subordinated Debentures, such payments will be sufficient to cover
distributions and payments due on the Trust Securities because: (i) the
aggregate principal amount of Subordinated Debentures will be equal to the sum
of the aggregate liquidation amount of the Trust Securities; (ii) the interest
rate and the interest and other payment dates on the Subordinated Debentures
will match the distribution rate and distribution and other payment dates for
the Capital Securities; (iii) Arvin shall pay any costs, expenses, debts and
obligations (other than with respect to the Trust Securities) related to the
Trust and (iv) the Declaration provides that the Trustees shall not cause or
permit the Trust to, among other things, engage in any activity that is not
consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Capital Securities (to the extent funds therefor are
available) are guaranteed by Arvin as and to the extent set forth under
"Description of the Guarantee." If Arvin does not make interest and/or
principal payments on the Subordinated Debentures purchased by the Trust, the
Trust will not have sufficient funds to pay distributions on the Capital
Securities. The Guarantee will not apply to the payment of distributions and
other payments on the Capital Securities unless and until the Trust has
sufficient funds to make such distributions or other payments. The Guarantee
will constitute an unsecured obligation of the Company and will rank (i)
subordinate and junior in right of payment to all other liabilities of the
Company except those made pari passu or subordinate by their terms, (ii) pari
passu with the most senior preferred stock now or hereafter issued by the
Company and with any guarantee now or hereafter entered into by the Company in
respect of any preferred stock of any affiliate of the Company and (iii)
senior to the Company's common shares.
The Guarantee, when taken together with the back-up undertakings, consisting
of obligations of the Company as set forth in the Declaration (including the
obligation to pay expenses of the Trust), the Indenture and the Subordinated
Debentures issued to the Trust, provide a full and unconditional guarantee by
the Company of the Capital Securities. If the Guarantee Trustee fails to
enforce the Guarantee, any record holder of Capital Securities may institute a
legal proceeding directly against the Company to enforce the Guarantee
Trustee's rights
42
under the Guarantee without first instituting a legal proceeding against the
Trust, the Guarantee Trustee or any other person or entity. In addition, if
the Company has failed to make a Guarantee Payment, a record holder of Capital
Securities may directly institute a proceeding against the Company for
enforcement of the Guarantee for such payment to the record holder of the
Capital Securities of the principal of or interest on the Subordinated
Debentures on or after the respective due dates specified in the Subordinated
Debentures, and the amount of the payment will be based on the holder's pro
rata share of the amount due and owing on all of the Capital Securities. The
Company has waived any right or remedy to require that any action be brought
first against the Trust or any other person or entity before proceeding
directly against the Company. The record holder in the case of the issuance of
one or more global Capital Securities certificates will be DTC acting at the
direction of its Direct Participants, who in turn will be acting at the
direction of the beneficial owners of the Capital Securities.
If the Institutional Trustee fails to enforce its rights with respect to the
Subordinated Debentures held by the Trust, any record holder of Capital
Securities may, to the fullest extent permitted by law, institute legal
proceedings directly against the Company to enforce the Institutional
Trustee's rights under the Subordinated Debentures without first instituting
any legal proceedings against the Institutional Trustee or any other person or
entity. In addition, if a Declaration Event of Default has occurred and is
continuing and such event is attributable to the failure of the Company to pay
interest, principal or other required payment on the Subordinated Debentures
on the date such interest, principal or other payment is otherwise payable,
then a record holder of Capital Securities may institute Direct Action against
the Company for enforcement of payment on the Subordinated Debentures on or
after the respective due dates specified in the Subordinated Debentures. To
the extent the Company makes a payment to a record holder of Capital
Securities in connection with proceedings by such record holder directly
against the Company, the Company will be subrogated to the rights of the
record holder of Capital Securities to the extent of payments made by the
Company to the record holder. The record holder in the case of the issuance of
one or more global Capital Securities certificates will be DTC acting at the
direction of its Direct Participants, who in turn will be acting at the
direction of the beneficial owners of the Capital Securities.
43
UNITED STATES FEDERAL INCOME TAXATION
GENERAL
In the opinion of Schiff Hardin & Waite, special tax counsel to the Company
and the Trust, the following is a summary of certain of the material United
States federal income tax consequences of the purchase, ownership and
disposition of Capital Securities. Unless otherwise stated, this summary deals
only with Capital Securities held as capital assets by holders who purchase
the Capital Securities upon original issuance ("Initial Holders"). It does not
deal with special classes of holders such as banks, thrifts, real estate
investment trusts, regulated investment companies, insurance companies,
dealers in securities or currencies, tax-exempt investors, or persons that
will hold the Capital Securities as a position in a "straddle," as part of a
"synthetic security" or "hedge," as part of a "conversion transaction" or
other integrated investment, or as other than a capital asset. This summary
also does not address the tax consequences to persons that have a functional
currency other than the U.S. Dollar or the tax consequences to shareholders,
partners or beneficiaries of a holder of Capital Securities. Further, it does
not include any description of any alternative minimum tax consequences or the
tax laws of any state or local government or of any foreign government that
may be applicable to the Capital Securities. This summary is based on the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations
thereunder and administrative and judicial interpretations thereof, as of the
date hereof, all of which are subject to change, possibly on a retroactive
basis.
CLASSIFICATION OF THE SUBORDINATED DEBENTURES
In connection with the issuance of the Subordinated Debentures, Schiff
Hardin & Waite, special tax counsel to the Company and the Trust, will render
its opinion generally to the effect that under then current law and assuming
full compliance with the terms of the Indenture (and certain other documents),
and based on certain facts and assumptions contained in such opinion, the
Subordinated Debentures will be classified for United States federal income
tax purposes as indebtedness of Arvin.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Capital Securities, Schiff Hardin &
Waite, special tax counsel to the Company and the Trust, will render its
opinion generally to the effect that, under then current law and assuming full
compliance with the terms of the Declaration and the Indenture (and certain
other documents), and based on certain facts and assumptions contained in such
opinion, the Trust will be classified for United States federal income tax
purposes as a grantor trust and not as an association taxable as a
corporation.
Accordingly, for United States federal income tax purposes, each holder of
Capital Securities generally will be considered the owner of an undivided
interest in the Subordinated Debentures, and each holder will be required to
include in its gross income any OID accrued with respect to its allocable
share of those Subordinated Debentures.
ORIGINAL ISSUE DISCOUNT
Because the Company has the option, under the terms of the Subordinated
Debentures, to defer payments of interest by extending interest payment
periods for up to 10 semi-annual interest payment periods, all of the stated
interest payments on the Subordinated Debentures will be treated as "original
issue discount." Holders of debt instruments issued with OID must include that
discount in income on an economic accrual basis before the receipt of cash
attributable to the interest, regardless of their method of tax accounting.
Generally, all of a holder's taxable interest income with respect to the
Subordinated Debentures will be accounted for as OID, and actual distributions
of stated interest will not be separately reported as taxable income. The
amount of OID that accrues in any month will approximately equal the amount of
the interest that accrues on the Subordinated Debentures in that month at the
stated interest rate. In the event that the interest payment period is
extended, holders will continue to accrue OID approximately equal to the
amount of the interest payment due at the end of
44
the extended interest payment period on an economic accrual basis over the
length of the extended interest period.
Because income on the Capital Securities will constitute OID, corporate
holders of Capital Securities will not be entitled to a dividends-received
deduction with respect to any income recognized with respect to the Capital
Securities.
MARKET DISCOUNT AND BOND PREMIUM
Holders of Capital Securities other than Initial Holders may be considered to
have acquired their undivided interests in the Subordinated Debentures with
market discount or acquisition premium as such phrases are defined for United
States federal income tax purposes. Such holders are advised to consult their
tax advisors as to the income tax consequences of the acquisition, ownership
and disposition of the Capital Securities.
RECEIPT OF SUBORDINATED DEBENTURES OR CASH UPON DISSOLUTION OF THE TRUST
At any time, the Company will have the right to dissolve the Trust and, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, cause the Subordinated Debentures to be distributed to holders in exchange
for the Trust Securities and in liquidation of the Trust. See "Description of
the Capital Securities--Distribution of the Subordinated Debentures." Under
current law, such a distribution, for United States federal income tax
purposes, would be treated as a non-taxable event to each holder, and each
holder would receive an aggregate tax basis in the Subordinated Debentures
equal to such holder's aggregate tax basis in its Capital Securities. A
holder's holding period in the Subordinated Debentures so received upon
dissolution of the Trust would include the period during which the Capital
Securities were held by such holder. If, however, the related special event is
a Tax Event which results in the Trust being treated as an association taxable
as a corporation, the distribution would likely constitute a taxable event to
holders of the Capital Securities.
Under certain circumstances described herein (see "Description of the Capital
Securities"), the Subordinated Debentures may be redeemed for cash and the
proceeds of such redemption distributed to holders in redemption of their
Capital Securities. Under current law, such a redemption would, for United
States federal income tax purposes, constitute a taxable disposition of the
redeemed Capital Securities, and a holder could recognize gain or loss as if it
sold such redeemed Capital Securities for cash. See "--Sales of Capital
Securities."
SALES OF CAPITAL SECURITIES
A holder that sells Capital Securities will recognize gain or loss equal to
the difference between its adjusted tax basis in the Capital Securities and the
amount realized on the sale of such Capital Securities. A holder's adjusted tax
basis in the Capital Securities generally will be its initial purchase price
increased by OID previously includable in such holder's gross income to the
date of disposition and decreased by payments received on the Capital
Securities. Such gain or loss generally will be a capital gain or loss and
generally will be a long-term capital gain or loss if the Capital Securities
have been held for more than one year.
The Capital Securities may trade at a price that does not accurately reflect
the value of accrued but unpaid interest with respect to the underlying
Subordinated Debentures. A holder who disposes of his Capital Securities
between record dates for payments of distributions thereon will be required to
include accrued but unpaid interest on the Subordinated Debentures through the
date of disposition in income as ordinary income, and to add such amount to his
adjusted tax basis in his pro rata share of the underlying Subordinated
Debentures deemed disposed of. To the extent the selling price is less than the
holder's adjusted tax basis (which will include, in the form of OID, all
accrued but unpaid interest) a holder will recognize a capital loss. Subject to
certain limited exceptions, capital losses cannot be applied to offset ordinary
income for United States federal income tax purposes.
45
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
beneficial owner of Capital Securities that is not a U.S. person. For purposes
of this discussion, a "U.S. person" means a citizen or resident of the United
States, a corporation or partnership created or organized in the United States
or under the law of the United States or of any State or political subdivision
of the foregoing, any estate whose income is includible in gross income for
U.S. federal income tax purposes regardless of its source or a "United States
Trust." A "United States Trust" is (a) for taxable years beginning after
December 31, 1996, or if the trustee elects to apply the following definition
to an earlier taxable year, any trust if, and only if, (i) a court within the
United States is able to exercise primary supervision over the administration
of the trust and (ii) one or more U.S. trustees have the authority to control
all substantial decisions of the trust, and (b) for all other taxable years,
any trust whose income is includible in gross income for United States federal
income tax purposes regardless of its source.
Under present United States federal income tax law: (i) payments by the
Trust or any of its paying agents to any holder of a Capital Security who or
which is a United States Alien Holder will not be subject to United States
federal withholding tax; provided that, (a) the beneficial owner of the
Capital Security does not actually or constructively own 10 percent or more of
the total combined voting power of all classes of stock of Arvin entitled to
vote, (b) the beneficial owner of the Capital Security is not a controlled
foreign corporation that is related to the Company through stock ownership,
and (c) either (A) the beneficial owner of the Capital Security certifies to
the Trust or its agent, under penalties of perjury, that it is not a United
States holder and provides its name and address or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "Financial
Institution"), and holds the Capital Security in such capacity, that certifies
to the Trust or its agent, under penalties of perjury, that such statement has
been received from the beneficial owner by it or by a Financial Institution
between it and the beneficial owner and furnishes the Trust or its agent with
a copy thereof; and (ii) a United States Alien Holder of a Capital Security
will not be subject to United States federal withholding tax on any gain
realized upon the sale or other disposition of a Capital Security.
Gain recognized on the disposition of Capital Securities will be subject to
United States federal income tax if (i) such gain is effectively connected
with a trade or business conducted by such United States Alien Holder within
the United States (in which case the branch profits tax may also apply if the
United States Alien Holder is a foreign corporation), or (ii) in the case of a
United States Alien Holder that is an individual, such United States Alien
Holder is present in the United States for a period or periods aggregating 183
days or more in the taxable year of the sale or exchange and certain other
conditions are met.
If a United States Alien Holder is engaged in a trade or business within the
United States and interest (including original issue discount) and premium, if
any, on Capital Securities is effectively connected with the conduct of such
trade or business, such United States Alien Holder may be subject to United
States federal income tax on such interest (including original issue discount)
and premium at ordinary federal income tax rates on a net basis (in which case
the branch profits tax may also apply if the United States Alien Holder is a
foreign corporation).
On April 15, 1996, proposed Treasury Regulations (the "Proposed
Regulations") were issued which, if adopted in final form, could affect the
United States taxation of United States Alien Holders, including changing the
certification requirements. The Proposed Regulations are generally proposed to
be effective for payments after 1997, regardless of the issue date of the note
with respect to which such payments were made. It cannot be predicted at this
time whether the Proposed Regulations will become effective as proposed or
what, if any, modifications may be made to them.
PROPOSED TAX LAW CHANGES
On March 19, 1996, the Revenue Reconciliation Bill of 1996, the revenue
portion of President Clinton's fiscal 1997 budget proposal, was released. The
Bill would, among other things, treat as equity, instruments issued
46
by a corporation that have a maximum term of more than 20 years and that are
not shown as indebtedness on the consolidated balance sheet of the issuer. The
above-described provisions of the Bill were proposed to be effective generally
for instruments issued on or after December 7, 1995. However, on March 29,
1996, the Chairmen of the Senate Finance and House Ways and Means Committees
issued the Joint Statement to the effect that it was their intention that the
effective date of the President's legislative proposals, if adopted, would be
no earlier than the date of appropriate Congressional action. In addition,
subsequent to the publication of the Joint Statement, Senator Daniel Patrick
Moynihan and Representatives Sam M. Gibbons and Charles B. Rangel wrote letters
to Treasury Department officials concurring with the views expressed in the
Joint Statement. Under current law, the Subordinated Debentures will be treated
as indebtedness of the Company and the Company will be able to deduct interest
on the Subordinated Debentures beneficially held by the holders of the Capital
Securities. However, if the provision of the Bill regarding a 20-year term is
enacted with retroactive effect with regard to the Subordinated Debentures, the
Company will not be entitled to an interest deduction with respect to the
Subordinated Debentures. There can be no assurance that current or future
legislative proposals, adverse judicial decisions, final legislation or
official administrative pronouncements will not affect the ability of the
Company to deduct interest on the Subordinated Debentures, giving rise to a Tax
Event which would permit the Company to cause the redemption of the Capital
Securities prior to February 1, 2007 (the first date on which the Company would
otherwise be able to cause a redemption of Capital Securities) as described
more fully under "Description of Capital Securities--Redemption" and "--Tax
Event Redemption."
INFORMATION REPORTING TO HOLDERS
Generally, income on the Capital Securities will be reported to holders on
Forms 1099, which forms should be mailed to holders of Capital Securities by
January 31 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Capital Securities may
be subject to a "backup" withholding tax of 31 percent unless the holder
complies with certain identification requirements. Any withheld amounts will be
allowed as a credit against the holder's United States federal income tax,
provided the required information is provided to the Service.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A
HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE CAPITAL SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN
UNITED STATES FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Each fiduciary of a pension, profit sharing or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (a "Plan"), should consider the fiduciary standards of ERISA in the
context of the Plan's particular circumstances before authorizing an investment
in the Capital Securities. Accordingly, among other factors, the fiduciary
should consider whether the investment would satisfy the prudence and
diversification requirements of ERISA and would be consistent with the
documents and instruments governing the Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well as
individual retirement accounts and Keogh plans subject to Section 4975 of the
Code (also "Plans"), from engaging in certain transactions involving "plan
assets" with persons who are "parties in interest" under ERISA or "disqualified
persons" under the Code ("Parties in Interest") with respect to such Plans. A
violation of these "prohibited
47
transaction" rules may result in an excise tax or other liabilities under
ERISA and/or Section 4975 of the Code for such persons, unless exemptive
relief is available under an applicable statutory or administrative exemption.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA), certain church plans (as defined in Section 3(33) of ERISA)
and foreign plans (as described in Section 4(b)(4) of ERISA) are not subject
to the requirements of ERISA or Section 4975 of the Code but are subject to
certain other legal restrictions.
Under a regulation (the "Plan Assets Regulation") issued by U.S. Department
of Labor (the "DOL"), the assets of the Trust would be deemed to be "plan
assets" of a Plan for purposes of ERISA and Section 4975 of the Code if "plan
assets" of the Plan were used to acquire an equity interest in the Trust and
no exception were applicable under the Plan Assets Regulation. An "equity
interest" is defined under the Plan Assets Regulation as any interest in an
entity other than an instrument that is treated as indebtedness under
applicable local law and that has no substantial equity features and
specifically includes a beneficial interest in a trust.
Pursuant to an exception contained in the Plan Assets Regulation, the assets
of the Trust would not be deemed to be "plan assets" of investing Plans if,
immediately after the most recent acquisition of any equity interest in the
Trust, less than 25% of the value of each class of equity interests in the
Trust were held by Plans, including plans not subject to ERISA or Section 4975
of the Code (such as governmental, church and foreign plans), and entities
whose underlying assets include "plan assets" of any Plan (collectively,
"Benefit Plan Investors"), or if the Capital Securities were "publicly-offered
securities" for purposes of the Plan Assets Regulation. No assurance can be
given that the value of the Capital Securities held by Benefit Plan Investors
will be less than 25% of the total value of such Capital Securities at the
completion of the initial offering or thereafter, and no monitoring or other
measures will be taken with respect to the satisfaction of the conditions to
this exception. In addition, no assurance can be given that the Capital
Securities would be considered to be "publicly-offered securities" under the
Plan Assets Regulation. All of the Common Securities will be purchased and
initially held by the Company.
Certain transactions involving the Trust could be deemed to constitute
direct or indirect prohibited transactions under Section 406 of ERISA and
Section 4975 of the Code with respect to a Plan if the Capital Securities were
acquired with "plan assets" of such Plan and assets of the Trust were deemed
to be "plan assets" of Plans investing in the Trust. In addition,
notwithstanding the plan asset status of the Trust, a Plan's acquisition of
Capital Securities could give rise to a prohibited transaction under Section
406 of ERISA and Section 4975 of the Code if the Company, the Institutional
Trustee or any Administrative Trustee is a Party in Interest to such Plan and
no exemption is available.
The DOL has issued prohibited transaction class exemptions ("PTCEs") that
may provide exemptive relief with respect to the acquisition and holding of
the Capital Securities by Plans. These class exemptions include PTCE 84-14
(respecting transactions determined by independent qualified professional
asset managers), PTCE 96-23 (respecting transactions determined by in-house
asset managers), PTCE 90-1 (for certain transactions involving insurance
company separate accounts), PTCE 91-38 (for certain transactions involving
bank collective funds), and PTCE 95-60 (for certain transactions involving
insurance company general accounts). There can be no assurance that these (or
any other exemption) will provide an exemption from all of the potential
prohibited transactions involving the Trust. By purchasing Capital Securities,
each purchaser shall be deemed to represent that its purchase will not
constitute a non-exempt prohibited transaction under Section 406 of ERISA or
Section 4975 of the Code.
Due to the complexity of these rules, and the penalties that may be imposed
upon persons involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries or other persons considering
purchasing the Capital Securities on behalf of, or with "plan assets" of, any
Plan consult with their counsel regarding the potential consequences if the
assets of the Trust were deemed to be "plan assets," and the availability of
exemptive relief under the exemptions described above or any other applicable
exemption with respect to any of the potential prohibited transactions
described above.
48
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Trust has agreed to sell to each of the
underwriters named below (the "Underwriters"), and each of the Underwriters
has severally agreed to purchase, the number of Capital Securities set forth
opposite its name below. In the Underwriting Agreement, the several
Underwriters have agreed, subject to the terms and conditions set forth
therein, to purchase all of the Capital Securities offered hereby if any of
the Capital Securities are purchased. In the event of default by an
Underwriter, the Underwriting Agreement provides that, in certain
circumstances, the purchase commitments of the nondefaulting Underwriters may
be increased or the Underwriting Agreement may be terminated.
NUMBER OF
UNDERWRITER CAPITAL SECURITIES
----------- ------------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................... 45,000
Lehman Brothers Inc................................... 30,000
Dean Witter Reynolds Inc.............................. 5,000
A.G. Edwards & Sons, Inc.............................. 5,000
PaineWebber Incorporated.............................. 5,000
Salomon Brothers Inc.................................. 10,000
-------
Total............................................ 100,000
=======
The Underwriters propose to offer the Capital Securities in part directly to
the public at the initial public offering price, as set forth on the cover
page of this Prospectus, and in part to certain securities dealers at such
price less a concession of $6.00 per Capital Security. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $3.00 per
Capital Security to certain brokers and dealers. After the Capital Securities
are released for sale to the public, the offering price and other selling
terms may from time to time be varied by the Underwriters.
In view of the fact that the proceeds of the sale of the Capital Securities
will be used to purchase the Subordinated Debentures of Arvin, the
Underwriting Agreement provides that Arvin will pay as compensation
("Underwriters' Compensation") to the Underwriters for the Underwriters'
arranging the investment therein of such proceeds, an amount in immediately
available funds of $10.00 per Capital Security (or $1,000,000 in the
aggregate) for the accounts of the several Underwriters.
During a period of 30 days from the date of the pricing of the Capital
Securities, neither the Trust nor Arvin will, without the prior written
consent of the Underwriters, directly or indirectly, sell, offer to sell,
contract to sell, grant any option for the sale of, or otherwise dispose of,
any Capital Securities, any security convertible into or exchangeable into or
exercisable for Capital Securities or the Subordinated Debentures or any
debentures substantially similar to the Subordinated Debentures or any equity
securities substantially similar to the Capital Securities (except for the
Subordinated Debentures and the Capital Securities offered hereby).
Because the National Association of Securities Dealers, Inc. (the "NASD") is
expected to view the Capital Securities offered hereby as interests in a
direct participation program, the offering is being made in compliance with
Rule 2810 of the NASD's Conduct Rules. The Underwriters will not confirm sales
to any accounts over which they exercise discretionary authority without the
prior written approval of the transaction by the customer.
Prior to this offering, there has been no public market for the Capital
Securities. The Underwriters have advised Arvin that the Underwriters intend
to make a market in the Capital Securities, but they are not obligated to do
so and may discontinue such market making activities, if commenced, at any
time without notice. No assurance can be given as to the liquidity of the
trading market for the Capital Securities.
49
Arvin and the Trust have agreed to indemnify the Underwriters against, or to
contribute to payments that the Underwriters may be required to make in
respect of, certain liabilities, including liabilities under the Securities
Act.
Certain of the Underwriters engage in transactions with, and, from time to
time, have performed services for, Arvin in the ordinary course of business.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company and the Trust by
Schiff Hardin & Waite, Chicago, Illinois, and for the Underwriters by Mayer,
Brown & Platt, Chicago, Illinois. Certain matters of Delaware law relating to
the validity of the Capital Securities will be passed upon by Richards, Layton
& Finger, P.A., Wilmington, Delaware, special Delaware counsel to the Company
and the Trust.
EXPERTS
The financial statements of the Company incorporated in this Prospectus by
reference to the Annual Report on Form 10-K of Arvin Industries, Inc. for the
year ended December 31, 1995 include the financial statements of Space
Industries International, Inc. (an approximately 70% owned subsidiary) through
September 29, 1995, the date of its sale. The financial statements of the
Company have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, and, with respect to the financial
statements of Space Industries International, Inc. as of January 1, 1995 and
for the years ended January 1, 1995 and January 2, 1994, in reliance on the
report of KPMG Peat Marwick LLP, independent accountants, given on the
authority of such firms as experts in auditing and accounting.
50
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPO-
RATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE TRUST OR THE UN-
DERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR THE TRUST SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
----------------
TABLE OF CONTENTS
PAGE
----
Available Information..................................................... 3
Incorporation of Certain Documents by Reference........................... 3
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 9
The Trust................................................................. 13
The Company............................................................... 14
Capitalization............................................................ 16
Ratios of Earnings to Fixed Charges And Earnings to Combined Fixed Charges
and Preferred Dividends.................................................. 17
Accounting Treatment...................................................... 17
Use of Proceeds........................................................... 17
Description of the Capital Securities..................................... 18
Description of the Guarantee.............................................. 31
Description of the Subordinated Debentures................................ 33
Effect of Obligations Under the Subordinated Debentures and the Guarantee. 42
United States Federal Income Taxation..................................... 44
ERISA Considerations...................................................... 47
Underwriting.............................................................. 49
Legal Matters............................................................. 50
Experts................................................................... 50
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$100,000,000
LOGO
ARVIN CAPITAL I
9.50% CAPITAL SECURITIES
GUARANTEED TO THE EXTENT SET
FORTH HEREIN BY
ARVIN INDUSTRIES, INC.
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PROSPECTUS
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MERRILL LYNCH & CO.
LEHMAN BROTHERS
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
SALOMON BROTHERS INC
JANUARY 23, 1997
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