-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PDTfJLzXK7LvkN8TlQqr/5QQBm3Q8wMUF52qWTkzEDRlSX84tgYxg2ZgQMWcLhPx PvDqO5HM59WBwGBOwhP5ow== 0000950131-98-001525.txt : 19980306 0000950131-98-001525.hdr.sgml : 19980306 ACCESSION NUMBER: 0000950131-98-001525 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19980305 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NAVISTAR INTERNATIONAL CORP /DE/NEW CENTRAL INDEX KEY: 0000808450 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 363359573 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-47063 FILM NUMBER: 98558429 BUSINESS ADDRESS: STREET 1: 455 N CITYFRONT PLAZA DR CITY: CHICAGO STATE: IL ZIP: 60611 BUSINESS PHONE: 3128362032 MAIL ADDRESS: STREET 2: 455 N CITYFRONT PLAZA DRIVE CITY: CHICAGO STATE: IL ZIP: 60611 FORMER COMPANY: FORMER CONFORMED NAME: NAVISTAR HOLDING INC DATE OF NAME CHANGE: 19870528 S-4/A 1 PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 5, 1998 REGISTRATION NO. 333-47063 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- NAVISTAR INTERNATIONAL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) --------------- DELAWARE 3711 36-3359573 (STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 455 NORTH CITYFRONT PLAZA CHICAGO, ILLINOIS 60611 TELEPHONE: (312) 836-2000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL OFFICES) ROBERT A. BOARDMAN SENIOR VICE PRESIDENT AND GENERAL COUNSEL 455 NORTH CITYFRONT PLAZA CHICAGO, ILLINOIS 60611 TELEPHONE: (312) 836-2000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPY TO: DENNIS M. MYERS, ESQ. KIRKLAND & ELLIS 200 EAST RANDOLPH DRIVE CHICAGO, ILLINOIS 60601 (312) 861-2000 --------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, please check the following box: [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS NAVISTAR INTERNATIONAL CORPORATION OFFER TO EXCHANGE ITS SERIES B 7% SENIOR NOTES DUE 2003 FOR ANY AND ALL OF ITS OUTSTANDING 7% SENIOR NOTES DUE 2003 AND TO EXCHANGE ITS SERIES B 8% SENIOR SUBORDINATED NOTES DUE 2008 FOR ANY AND ALL OF ITS OUTSTANDING 8% SENIOR SUBORDINATED NOTES DUE 2008. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON APRIL 6, 1998, UNLESS EXTENDED. Navistar International Corporation, a Delaware corporation ( the "NIC"), hereby offers (the "Exchange Offer"), upon the terms and conditions set forth in this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange: (i) $1,000 principal amount of its Series B 7% Senior Notes due 2003 (the "Senior Exchange Notes"), which will have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which this Prospectus is a part, for each $1,000 principal amount of its outstanding 7% Senior Notes due 2003 (the "Old Senior Notes"), of which $100,000,000 principal amount is outstanding; and (ii) $1,000 principal amount of its Series B 8% Senior Subordinated Notes due 2008 (the "Senior Subordinated Exchange Notes" and, together with the Senior Exchange Notes, the "Exchange Notes"), which will have been registered under the Securities Act pursuant to a Registration Statement of which this Prospectus is a part, for each $1,000 principal amount of its outstanding 8% Senior Subordinated Notes due 2008 (the "Old Senior Subordinated Notes" and, together with the Old Senior Notes, the "Old Notes"), of which $250,000,000 principal amount is outstanding. The form and terms of the Exchange Notes are the same as the form and term of the Old Notes (which they replace) except that (i) the Exchange Notes will bear a Series B designation and a different CUSIP Number from the Old Notes, (ii) will have been registered under the Securities Act and, therefore, will not bear legends restricting its transfer thereof, and (iii) will not contain certain provisions relating to an increase in the interest rate which were included in the terms of the Old Notes in certain circumstances relating to the timing of the Exchange Offer. The Senior Exchange Notes will evidence the same debt as the Old Senior Notes (which they replace) and will be issued under and be entitled to the benefits of the Indenture governing the Old Senior Notes dated February 4, 1998 (the "Senior Notes Indenture") among NIC and Harris Trust and Savings Bank, as trustee (the "Senior Notes Trustee"). The Senior Subordinated Exchange Notes will evidence the same debt as the Old Senior Subordinated Notes (which they replace) and will be issued under and entitled to the benefits of the Indenture governing the Old Senior Subordinated Notes dated February 4, 1998 (the "Senior Subordinated Notes Indenture" and, together with the Senior Notes Indenture, the "Indentures") among NIC and the Harris Trust and Savings Bank, as trustee (the "Senior Subordinated Notes Trustee" and together with the Senior Notes Trustee, the "Trustees" and individually each a "Trustee"). See "The Exchange Offer" and "Description of the Notes." The Old Senior Notes and Senior Exchange Notes are sometimes collectively referred to herein as the "Senior Notes," the Old Senior Subordinated Notes and the Senior Subordinated Exchange Notes are sometimes collectively referred to herein as the "Senior Subordinated Notes" and the Senior Notes and Senior Subordinated Notes are sometimes collectively referred to herein as the "Notes." NIC will accept for exchange any and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time on April 6, 1998, unless extended by NIC in its sole discretion (the "Expiration Date"). In order to extend the Exchange Offer, NIC will notify the Exchange Agent of any extension by oral or writte n notice and will mail to the registered holders, including the holders who previously tendered their Old (Cover page continued on following page) ---------- SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR A DESCRIPTION OF CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. (Continued from cover page) Notes, an announcement thereof, each prior to 9:00 a.m. New York City time, on the next business day after the previously scheduled Expiration Date. Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the Expiration Date. The Exchange Offer is subject to certain customary conditions. See "The Exchange Offer." The Old Notes were sold by NIC on February 4, 1998 to the respective Initial Purchasers (as defined) in transactions not registered under the Securities Act in reliance upon an exemption under the Securities Act (the "Initial Offerings"). The Initial Purchasers subsequently placed the Old Notes with (i) qualified institutional buyers in reliance upon Rule 144A under the Securities Act and (ii) qualified buyers outside the United States in reliance upon Regulation S under the Securities Act. Accordingly, the Old Notes may not be reoffered, resold or otherwise transferred in the United States unless registered under the Securities Act or unless an applicable exemption from the registration requirements of the Securities Act is available. The Exchange Notes are being offered hereunder in order to satisfy the obligations of NIC under the Registration Rights Agreements entered into by NIC and the respective Initial Purchasers in connection with the Initial Offerings (the "Registration Rights Agreements"). See "The Exchange Offer." The Senior Notes are not redeemable at the option of NIC prior to maturity. The Senior Subordinated Notes are redeemable, in whole or in part, at the option of NIC at any time on or after February 1, 2003 at the redemption prices set forth herein, together with accrued and unpaid interest, if any, to the date of redemption. In addition, prior to February 1, 2001, NIC may, at its option, redeem up to 35% of the original principal amount of the Senior Subordinated Notes at 108.0% of the principal amount thereof, plus accrued and unpaid interest, if any, to the applicable redemption date, with the net cash proceeds of one or more Public Equity Offerings (as defined). Upon the occurrence of a Change of Control (as defined), each holder of Notes may require NIC to purchase all or a portion of such holder's Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. The Senior Notes are unsecured senior obligations of NIC, ranking pari passu in right of payment with all existing and future unsubordinated Indebtedness of NIC, and rank senior in right of payment to all existing and future subordinated Indebtedness (as defined) of NIC, including the Senior Subordinated Notes. The Senior Subordinated Notes are unsecured senior subordinated obligations of NIC, ranking subordinate in right of payment to all existing and future Senior Indebtedness (as defined) of NIC, including the Senior Notes, and ranking pari passu in right of payment with all existing and future senior subordinated Indebtedness of NIC and senior in right of payment in all existing and future subordinated Indebtedness of NIC. As of October 31, 1997, after giving pro forma effect to the Initial Offerings and the application of the net proceeds therefrom, NIC would have had $350 million of total Indebtedness outstanding, of which $250 million would have been subordinated Indebtedness and $100 million would have ranked senior in right of payment of the Senior Subordinated Notes. In addition, the Senior Notes and Senior Subordinated Notes are effectively subordinated to all existing and future liabilities of the subsidiaries of NIC. As of October 31, 1997, after giving pro forma effect to the Initial Offerings and the application of the net proceeds therefrom, the amount of liabilities of such subsidiaries (including trade payables) would have been approximately $4,431 million. See "Description of the Notes." Based upon an interpretation by the staff of the Securities and Exchange Commission (the "Commission") set forth in certain no-action letters issued to third parties, NIC believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder that is an "affiliate" of NIC within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and such holder has no arrangement or understanding with any person to participate in the distribution of such Exchange Notes. See "The Exchange Offer--Resale of the Exchange Notes." Holders of Old Notes wishing to accept the Exchange Offer must represent to NIC, as required by the Registration Rights Agreements, that such conditions have been met. Each broker-dealer (a "Participating Broker- Dealer") that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in 2 (Continued from cover page) connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of Exchange Notes received in exchange for Old Notes where such Old Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities. NIC has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus available to any Participating Broker-Dealer for use in connection with any such resale (provided that the Company receive notice from such Participating Broker-Dealer within 30 days after the consummation of the Exchange Offer of his status as a Participating Broker-Dealer). See "Plan of Distribution." NIC will not receive any proceeds from the Exchange Offer. NIC has agreed to bear the expenses of the Exchange Offer which are estimated to be approximately $300,000. No underwriter is being used in connection with the Exchange Offer. There has not previously been any public market for the Old Notes or the Exchange Notes. NIC does not intend to list the Exchange Notes on any securities exchange or to seek approval for quotation through any automated quotation system. There can be no assurance that an active market for the Exchange Notes will develop. See "Risk Factors--Absence of a Public Market Could Adversely Affect the Value of Exchange Notes." Moreover, to the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Old Notes could be adversely affected. The Exchange Notes will be available initially only in book-entry form. Except as described under "Description of the Notes--Book-Entry; Delivery and Form," NIC expects that the Exchange Notes issued pursuant to the Exchange Offer will be represented by a Global Note (as defined), which will be deposited with, or on behalf of, The Depository Trust Company (the "Depository") and registered in its name or in the name of Cede & Co., its nominee. Beneficial interests in the Global Note representing the Exchange Notes will be shown on, and transfers thereof will be effected through, records maintained by the Depository and its participants. After the initial issuance of the Global Note, Notes in certificated form will be issued in exchange for the Global Note only under limited circumstances as set forth in the Indenture. See "Description of the Notes--Book-Entry; Delivery and Form." The date of this Prospectus is March 5, 1998. (End of cover page) 3 FORWARD-LOOKING STATEMENTS THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT. DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE MATERIAL SET FORTH UNDER "PROSPECTUS SUMMARY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION" AND "BUSINESS" AS WELL AS WITHIN THIS PROSPECTUS GENERALLY. IN ADDITION, WHEN USED IN THIS PROSPECTUS, THE WORDS "ANTICIPATES," "EXPECTS," "ESTIMATES," "INTENDS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES. ACTUAL RESULTS IN THE FUTURE COULD DIFFER MATERIALLY FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS SET FORTH HEREIN AND THE OTHER MATTERS SET FORTH IN THIS PROSPECTUS. NIC UNDERTAKES NO OBLIGATION TO RELEASE THE RESULTS OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT ANY FUTURE EVENTS OR CIRCUMSTANCES. STATISTICAL AND MARKET DATA MARKET DATA USED THROUGHOUT THIS PROSPECTUS WERE OBTAINED FROM INTERNAL ESTIMATES AND INDUSTRY PUBLICATIONS, INCLUDING THOSE GENERATED BY THE AMERICAN AUTOMOBILE MANUFACTURERS ASSOCIATIONS IN THE UNITED STATES AND CANADA, THE UNITED STATES MOTOR VEHICLE MANUFACTURERS ASSOCIATION, R. L. POLK & COMPANY AND POWER SYSTEMS RESEARCH OF MINNEAPOLIS, MINNESOTA AS WELL AS OTHER SOURCES. THESE SOURCES GENERALLY STATE THAT THE INFORMATION CONTAINED THEREIN HAS BEEN OBTAINED FROM SOURCES BELIEVED TO BE RELIABLE, BUT THAT THE ACCURACY AND COMPLETENESS OF SUCH INFORMATION IS NOT GUARANTEED. NIC HAS NOT INDEPENDENTLY VERIFIED SUCH MARKET DATA OR OBTAINED THE CONSENT OF ANY OF THE INDUSTRY PUBLICATIONS REFERENCED HEREIN. AVAILABLE INFORMATION NIC has filed with the Commission a Registration Statement on Form S-4 (the "Exchange Offer Registration Statement," which term shall encompass all amendments, exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the rules and regulations promulgated thereunder, covering the Exchange Offer contemplated hereby. This Prospectus does not contain all the information set forth in the Exchange Offer Registration Statement. For further information with respect to NIC and the Exchange Offer, reference is made to the Exchange Offer Registration Statement. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Exchange Offer Registration Statement, reference is made to the exhibit for a more complete description of the document or matter involved, and each such statement shall be deemed qualified in its entirety by such reference. NIC files periodic reports and other information pursuant to the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Exchange Offer Registration Statement, including the exhibits thereto, and periodic reports and other information filed by NIC with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and inspected at the Commission's regional offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60601. Copies of such materials can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address 4 of such site is http://www.sec.gov. NIC's Common Stock is listed on the New York, Chicago and Pacific Stock Exchanges. Reports and other information can be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005; the Chicago Stock Exchange at One Financial Plaza, 440 South LaSalle Street, Chicago, Illinois 60605; and the Pacific Stock Exchange at 301 Pine Street, San Francisco, California 94104. In addition, NIC has agreed that, whether or not it is required to do so by the rules and regulations of the Commission, for so long as any Old Notes or Exchange Notes remain outstanding, it will furnish to the registered holders of the Old Notes or the Exchange Notes and, to the extent permitted by applicable law or regulation, file with the Commission (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if NIC was required to file such Forms, including for each a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereof by NIC's independent certified public accountants and (ii) all reports that would be required to be filed on Form 8- K if it were required to file such reports. In addition, for so long as any of the Old Notes remain outstanding, NIC has agreed to make available to any prospective purchaser of the Old Notes or beneficial owner of the Old Notes, in connection with any sale thereof, the information required by Rule 144A(d)(4) under the Securities Act. THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS INCORPORATED BY REFERENCE. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM CORPORATE TREASURER, NAVISTAR INTERNATIONAL CORPORATION, 455 NORTH CITYFRONT PLAZA, CHICAGO, ILLINOIS 60611, TELEPHONE: (312) 836-2000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MARCH 30, 1998 (FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE). INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The following documents filed by NIC with the Commission pursuant to the Exchange Act (File No. 1-9618) are incorporated herein by reference: 1. Annual Report on Form 10-K for the fiscal year ended October 31, 1997. 2. Proxy Statement, dated February 2, 1998. All reports and other documents filed by NIC pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, after the date of this Prospectus and prior to the Expiration Date, shall be deemed to be incorporated by reference herein and to be a part hereof from the date of the filing of such reports and 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 incorporated or deemed to be incorporated by reference herein) modifies or supersedes such previous statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Exchange Offer Registration Statement. 5 - ------------------------------------------------------------------------------- PROSPECTUS SUMMARY The following summary should be read in conjunction with, and is qualified in its entirety by, the more detailed information and financial statements appearing elsewhere in this Prospectus, including the documents incorporated by reference in this Prospectus. Unless the context otherwise requires or as otherwise specified herein, all references herein to "Navistar" or the "Company" refer to Navistar International Corporation and its subsidiaries, including its principal operating subsidiary, Navistar International Transportation Corp. ("Transportation"). The fiscal years of the Company end on October 31. Fiscal years are identified herein according to the calendar year in which they end. For example, the fiscal year ended October 31, 1997 is referred to as "fiscal 1997." THE COMPANY Navistar manufactures and markets medium and heavy duty trucks, including school buses, mid-range diesel engines and service parts primarily in the United States and Canada as well as in selected export markets. The Company offers a full line of diesel-powered products under the "International" brand name in the common carrier, private carrier, government/service, leasing, construction, energy/petroleum and student transportation markets. In addition, Navistar builds a family of mid-range diesel engines for use in its medium trucks, school buses and selected heavy truck models and for sale to original equipment manufacturers ("OEMs") in the United States and Canada. The Company offers a full line of mid-range diesel engines and is the leading supplier of such engines in the 160-300 horsepower range. In fiscal 1997, the Company's manufacturing operations had revenues of $6,147 million and EBITDA (as defined) of $268 million. Navistar markets its truck products and service parts through the largest retail organization in North America specializing in medium and heavy trucks, which at October 31, 1997, included 992 dealers and retail outlets. Service and customer support are also supplied at these locations. In the United States and Canada, Navistar operates seven regional parts distribution centers which allow 24-hour availability and same day shipment of parts most frequently requested by dealers and customers. To better serve the growing Mexican market, the Company established a Mexican distribution network in 1996 and began construction of a new truck assembly facility located near Monterrey, Mexico in 1997. Through Navistar Financial Corporation ("NFC"), the Company provides wholesale, retail and, to a lesser extent, lease financing in the United States for sales of new and used trucks sold by the Company and Navistar's dealers. NFC also finances wholesale accounts and selected retail accounts receivable of the Company. COMPETITIVE STRENGTHS The Company believes its key competitive strengths include the following: Leading Market Position. The Company has been the leader in the combined market share for Class 5 through 8 trucks, including school buses, in the United States and Canada in each of its last 17 fiscal years. In fiscal 1997, the Company's combined market share of the Class 5 through 8 truck market was 28.6%, a 1.1 percentage point increase in market share from the previous year. For each of the last five fiscal years, the Company has been the leader in the medium truck and school bus markets. In addition, the Company believes that it is the largest supplier of replacement parts to the heavy and medium truck and bus aftermarkets. Commitment to Customer Satisfaction. In order to achieve high customer satisfaction, the Company maintains the largest retail organization in North America specializing in medium and heavy trucks. In addition, the Company operates seven regional parts distribution centers in the United States and Canada, enabling it to offer 24-hour availability and same day shipment of the parts most frequently requested by customers. In 1997, - ------------------------------------------------------------------------------- 6 - ------------------------------------------------------------------------------- Navistar was ranked number one for the third consecutive year by the annual American Truck Dealers ("ATD") Attitude Survey, which evaluates OEMs on quality and performance issues related to products, parts, policies and service. Largest Supplier of Mid-Range Diesel Engines. The Company is the leading supplier of mid-range diesel engines in the 160-300 horsepower range and is currently the exclusive supplier of diesel engines to The Ford Motor Company ("Ford") for use in its diesel-powered light trucks and vans. On October 29, 1997, the Company finalized its agreement with Ford to supply newly-designed, advanced technology engines through the year 2012 for use in Ford's F-series pickup trucks and Econoline vans. This 10-year agreement is scheduled to become effective beginning with model year 2003 and will replace the Company's current agreement with Ford, which will expire after model year 2002. The Company has been supplying diesel engines to Ford since 1982. TRUCK STRATEGY In fiscal 1997, the Company continued to implement its five-point truck strategy, which the Company adopted in fiscal 1996 in order to improve operating performance and increase profitability. Specifically, this strategy is designed to enable Transportation's truck division to achieve its part in Navistar's goal of generating an average 17.5% after tax return on equity over a business cycle. The principal components of this strategy as well as recent achievements in its implementation include: . Reduce Product Complexity. The Company believes that it can increase manufacturing efficiency and improve product quality by reducing the complexity of its product offerings. Historically, thousands of options and a separate chassis design were offered for each truck model manufactured by Transportation, which led to significant manufacturing inefficiencies. In 1996, Transportation introduced a new ordering program known as Diamond Spec(TM) for its premium conventional heavy duty trucks. Under this program, Transportation rationalized the number of possible option combinations by developing pre-packaged option groups which are arranged under 11 categories (i.e., engine, chassis, electrical system) based upon the most popular preferences of its customers. Transportation also combined the chassis for three models offered in this premium conventional product category into one chassis. In 1997, Transportation expanded its Diamond Spec(TM) ordering system and completed a successful pilot program in 11 key markets for its medium trucks. This standardization of option and chassis groups is expected to lead to significant operating cost savings from increased manufacturing efficiency and to better pricing for purchased components. In addition, Transportation believes that this program will result in an overall improvement in product quality and shorter and more reliable delivery times. . Focus Manufacturing Facilities. The Company believes that it can achieve significant improvements in manufacturing efficiency by focusing each of its principal truck manufacturing facilities on producing a single type of truck model. In order to sharpen the Company's focus on serving its customers and markets, the Company recently announced a reorganization of its truck group into six distinct businesses. The new organization will consist of four vehicle centers--heavy truck, severe service truck, medium truck and school bus, and two business centers--parts and international. In fiscal 1996, Transportation transferred the production of its stripped chassis from its Springfield, Ohio facility to its Conway, Arkansas facility, in order to achieve efficiencies in the production of medium duty trucks. Similarly, the Company established a joint venture, SST Truck Company, which will focus on the production of the highly-complex Paystar(R) severe service trucks, thereby permitting Transportation's Chatham, Ontario facility to concentrate on manufacturing premium conventional heavy duty trucks. . Emphasize Product Development. The Company believes that each of its current truck models equals or exceeds those of its competitors in terms of satisfying its customers' needs. Nevertheless, the Company intends to continue to enhance and expand its current product offerings in an effort to provide trucks that better satisfy its customers' changing demands. In fiscal 1997, Navistar's Board of Directors approved funding for its next generation truck program (the "NGT Program"). Pursuant to the NGT Program, the - ------------------------------------------------------------------------------- 7 - ------------------------------------------------------------------------------- Company expects to make $350 million in capital expenditures and spend $300 million in development costs over the next six years to develop and manufacture a full line of world-class medium trucks, school buses and regular conventional heavy trucks. These new models will offer enhanced driver comfort, operating efficiency, overall appearance, quality and performance. The design and development phases of the NGT Program are currently underway and the Company expects the first new vehicles to be available in mid-2001, with additional new vehicles to follow approximately every six months through 2003. In 1997, Transportation also introduced the International(R) 9100 conventional truck to replace the International(R) 8200 conventional truck and made significant improvements to its premium conventional models. Further model improvements are expected to be introduced for Transportation's premium conventional heavy duty truck models in fiscal 1998. . Expand International Operations. The Company believes that there are significant opportunities to increase sales of both trucks and engines in Mexico and in other selected export markets. In 1997, the Company captured approximately 11.5% of the Mexican truck market after establishing a dealer network and a parts distribution center and arranging for production at a contract manufacturer in 1996. The Company's dealer network in Mexico was expanded from 23 to 38 locations in 1997. The Company is currently constructing an assembly facility located near Monterrey, Mexico. This medium duty and heavy duty truck facility is anticipated to cost approximately $167 million and to begin production by late 1998. Its capacity will be 65 units per shift. The Company believes that its Mexican operations will enable it to expand into other Latin American countries, particularly as a result of the favorable and cost effective trade agreements between Mexico and other Latin American countries. The Company has also recently established a presence in Brazil by forming a Brazilian subsidiary and signing an agreement with a Brazilian equipment manufacturer to assemble commercial trucks. The Company expects that production of its trucks in Brazil will begin in late 1998. . Establish Competitive Wage, Benefit and Productivity Levels. Transportation expects to achieve significant productivity gains as a result of favorable changes in job classifications, work rules and training. In August 1997, Transportation's collective bargaining agreement with the United Automobile, Aerospace & Agricultural Implement Workers of America (the "UAW") was extended through October 1, 2002. This contract contains significant changes from the prior agreement, enabling the Company to better focus its assembly plants, simplify current product lines, invest in new product development and achieve more competitive wage, benefit and productivity levels. This new agreement enabled the Company to reinstate its NGT Program and continue to implement its five-point truck strategy. In 1996, Transportation signed a new three-year collective bargaining agreement with the Canadian Auto Workers (the "CAW"). The Company's principal executive office is located at 455 North Cityfront Plaza Drive, Chicago, Illinois 60611, and its telephone number is (312) 836- 2000. - ------------------------------------------------------------------------------- 8 - ------------------------------------------------------------------------------- THE INITIAL OFFERINGS Senior Notes.................... The Old Senior Notes were sold by the Company on February 4, 1998 to J.P. Morgan Securities Inc., Credit Suisse First Boston Corporation and Chase Securities Inc. (the "Senior Notes Initial Purchasers"), pursuant to a Purchase Agreement dated January 30, 1998 (the "Senior Notes Purchase Agreement"). The Senior Notes Initial Purchasers subsequently resold the Old Senior Notes to qualified institutional buyers pursuant to Rule 144A under the Securities Act. Senior Subordinated Notes....... The Old Senior Subordinated Notes were sold by the Company on February 4, 1998 to J.P. Morgan Securities Inc., Credit Suisse First Boston Corporation, Chase Securities Inc., BancAmerica Robertson Stephens and NationsBanc Montgomery Securities L.L.C. (the "Senior Subordinated Notes Initial Purchasers" and together with the Senior Notes Initial Purchasers, the "Initial Purchasers") pursuant to a Purchase Agreement dated January 30, 1998 (the "Senior Subordinated Notes Purchase Agreement" and together with the Senior Notes Purchase Agreement, the "Purchase Agreements"). The Senior Subordinated Notes Initial Purchasers subsequently resold the Old Senior Subordinated Notes to (i) qualified institutional buyers pursuant to Rule 144A under the Securities Act and (ii) qualified buyers outside the United States in reliance upon Regulation S under the Securities Act. Registration Rights Agreements.. Pursuant to the Purchase Agreements, the Company and each of the respective Initial Purchasers entered into the Registration Rights Agreements, each dated as of February 4, 1998, each of which grants the holder of the Old Notes certain exchange and registration rights. The Exchange Offer is intended to satisfy such exchange rights which terminate upon the consummation of the Exchange Offer. THE EXCHANGE OFFER Securities Offered: Senior Notes.................. $100,000,000 aggregate principal amount of Series B 7% Senior Notes due 2003. Senior Subordinated Notes..... $250,000,000 aggregate principal amount of Series B 8% Senior Subordinated Notes due 2008. The Exchange Offer.............. $1,000 principal amount of the Senior Exchange Notes in exchange for each $1,000 principal amount of Old Senior Notes. As of the date hereof, $100,000,000 aggregate principal amount of Old Senior Notes are outstanding. $1,000 principal amount of the Senior Subordinated Exchange Notes in - ------------------------------------------------------------------------------- 9 - -------------------------------------------------------------------------------- exchange for each $1,000 principal amount of Old Senior Subordinated Notes. As of the date hereof, $250,000,000 aggregate principal amount of Old Senior Subordinated Notes are outstanding. The Company will issue the Exchange Notes to holders on or promptly after the Expiration Date. Based on an interpretation by the staff of the Commission set forth in no action letters issued to third parties, the Company believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and that such holder does not intend to participate and has no arrangement or understanding with any person to participate in the distribution of such Exchange Notes. Any Participating Broker-Dealer that acquired Old Notes for its own account as a result of market-making activities or other trading activities may be a statutory underwriter. Each Participating Broker-Dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of Exchange Notes received in exchange for Old Notes where such Old Notes were acquired by such Participating Broker- Dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus available to any Participating Broker-Dealer for use in connection with any such resale (provided that the Company receive notice from such Participating Broker-Dealer within 30 days after the consummation of the Exchange Offer of his status as a Participating Broker-Dealer). See "Plan of Distribution." Any holder who tenders in the Exchange Offer with the intention to participate, or for the purpose of participating, in a distribution of the Exchange Notes could not rely on the position of the staff of the Commission enunciated in no-action letters and, in the absence of an exemption therefrom, must - -------------------------------------------------------------------------------- 10 comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Failure to comply with such requirements in such instance may result in such holder incurring liability under the Securities Act for which the holder is not indemnified by the Company. Expiration Date................. 5:00 p.m., New York City time, on April 6, 1998 unless the Exchange Offer is extended, in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer is extended. In order to extend the Exchange Offer, the Company will notify the Exchange Agent of any extension by oral or written notice and will mail to the registered holders, including the holders who previously tendered their Old Notes, an announcement thereof, each prior to 9:00 a.m. New York City time, on the next business day after the previously scheduled expiration date. Accrued Interest on the Exchange Notes and the Old Notes.......................... Each Exchange Note will bear interest from its issuance date. Holders of Old Notes that are accepted for exchange will receive, in cash, accrued interest thereon to, but not including, the issuance date of the Exchange Notes. Such interest will be paid with the first interest payment on the Exchange Notes. Interest on the Old Notes accepted for exchange will cease to accrue upon issuance of the Exchange Notes. Conditions to the Exchange The Exchange Offer is subject to certain Offer.......................... customary conditions, which may be waived by the Company in its reasonable discretion. See "The Exchange Offer-- Conditions." Procedures for Tendering Old Each holder of Old Notes wishing to Notes.......................... accept the Exchange Offer must complete, sign and date the accompanying Letter of Transmittal, or a facsimile thereof or transmit an Agent's Message (as defined herein) in connection with a book-entry transfer, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, or such Agent's Message, together with the Old Notes and any other required documentation to the Exchange Agent (as defined) at the address set forth herein. By executing the Letter of Transmittal or Agent's Message, each holder will represent to the Company that, among other things, the Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the holder, that neither the holder nor any such other person has any arrangement or understanding with any person to participate in the distribution of such Exchange Notes and that neither the holder nor any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of the Company. See 11 "The Exchange Offer--Purpose and Effect of the Exchange Offer" and "--Procedures for Tendering." Untendered Old Notes............ Following the consummation of the Exchange Offer, holders of Old Notes eligible to participate but who do not tender their Old Notes will not have any further exchange rights and such Old Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for such Old Notes could be adversely affected. Consequences of Failure to The Old Notes that are not exchanged Exchange....................... pursuant to the Exchange Offer will remain restricted securities. Accordingly, such Old Notes may be resold only (i) to the Company, (ii) pursuant to Rule 144A or Rule 144 under the Securities Act or pursuant to some other exemption under the Securities Act, (iii) outside the United States to a foreign person pursuant to the requirements of Rule 904 under the Securities Act or (iv) pursuant to an effective registration statement under the Securities Act. See "The Exchange Offer--Consequences of Failure to Exchange." Shelf Registration Statement.... If any holder of the Old Notes (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) is not eligible under applicable securities laws to participate in the Exchange Offer, and such holder has satisfied certain conditions relating to the provision of information to the Company for use therein, the Company has agreed to register the Old Notes on a shelf registration statement (the "Shelf Registration Statement") and use its best efforts to cause it to be declared effective by the Commission as promptly as practical on or after the consummation of the Exchange Offer. The Company has agreed to maintain the effectiveness of the Shelf Registration Statement for, under certain circumstances, a maximum of two years, to cover resales of the Old Notes held by any such holders. Special Procedures for Any beneficial owner whose Old Notes are Beneficial Owners.............. registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering its Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. The Company will keep the Exchange Offer open for not less than 20 business days in order to provide for the transfer of registered ownership. 12 Guaranteed Delivery Procedures.. Holders of Old Notes who wish to tender their Old Notes and whose Old Notes are not immediately available or who cannot deliver their Old Notes, the Letter of Transmittal or any other documents required by the Letter of Transmittal to the Exchange Agent (or comply with the procedures for book-entry transfer) prior to the Expiration Date must tender their Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures." Withdrawal Rights............... Tenders may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. Acceptance of Old Notes and Delivery of Exchange Notes..... The Company will accept for exchange any and all Old Notes which are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Notes issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. See "The Exchange Offer--Terms of the Exchange Offer." Use of Proceeds................. There will be no cash proceeds to the Company from the exchange pursuant to the Exchange Offer. Exchange Agent.................. Harris Trust and Savings Bank. THE EXCHANGE NOTES General......................... The form and terms of the Exchange Notes are the same as the form and terms of the Old Notes (which they replace) except that (i) the Exchange Notes bear a Series B designation and a different CUSIP Number from the Old Notes, (ii) the Exchange Notes have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof, and (iii) the holders of Exchange Notes will not be entitled to certain rights under the Registration Rights Agreements, including the provisions providing for an increase in the interest rate on the Old Notes in certain circumstances relating to the timing of the Exchange Offer, which rights will terminate when the Exchange Offer is consummated. See "The Exchange Offer--Purpose and Effect of the Exchange Offer." The Exchange Notes will evidence the same debt as the Old Notes and will be entitled to the benefits of the respective Indentures. See "Description of the Notes." Maturity Dates: Senior Notes.................. February 1, 2003. Senior Subordinated Notes..... February 1, 2008. Interest Payment Dates.......... February 1 and August 1 of each year, commencing August 1, 1998. 13 - -------------------------------------------------------------------------------- Optional Redemption: Senior Notes.................. The Senior Notes are not redeemable at the option of NIC prior to maturity. Senior Subordinated Notes..... The Senior Subordinated Notes are redeemable, in whole or in part, at the option of NIC at any time on or after February 1, 2003 at the redemption prices set forth herein, together with accrued and unpaid interest, if any, to the date of redemption. In addition, prior to February 1, 2001, NIC may, at its option, redeem up to 35% of the original principal amount the Senior Subordinated Notes at 108.0% of the principal amount thereof, plus accrued and unpaid interest, if any, to the applicable redemption date, with the net cash proceeds of one or more Public Equity Offerings. See "Description of the Notes--Optional Redemption." Ranking: Senior Notes.................. The Senior Notes are unsecured senior obligations of NIC, ranking pari passu in right of payment with all existing and future unsubordinated Indebtedness of NIC, and rank senior in right of payment to all existing and future subordinated Indebtedness of NIC, including the Senior Subordinated Notes. As of October 31, 1997, after giving pro forma effect to the Initial Offerings and the application of the net proceeds therefrom, NIC would have had $350 million of total Indebtedness outstanding, of which $250 million would have been subordinated Indebtedness. Senior Subordinated Notes..... The Senior Subordinated Notes are unsecured senior subordinated obligations of NIC, ranking subordinate in right of payment to all existing and future Senior Indebtedness of NIC, including the Senior Notes, and ranking pari passu in right of payment to all existing and future senior subordinated Indebtedness of NIC and senior in right of payment to all existing and future subordinated Indebtedness of NIC. As of October 31, 1997, on a pro forma basis after giving effect to the Initial Offerings and the application of the net proceeds therefrom, NIC would have had $350 million of total Indebtedness outstanding, of which $100 million would have ranked senior in right of payment to the Senior Subordinated Notes. In addition, the Senior Notes and Senior Subordinated Notes are effectively subordinated to all existing and future liabilities of the subsidiaries of NIC. As of October 31, 1997, after giving pro forma effect to the Initial Offerings and the application of the net proceeds therefrom, the amount of liabilities of such subsidiaries (including trade payables) would have been approximately $4,431 million. See "Description of the Notes--Subordination of the Senior Subordinated Notes; Ranking." - -------------------------------------------------------------------------------- 14 - -------------------------------------------------------------------------------- Change of Control............... Upon the occurrence of a Change of Control, each holder of Senior Notes and the Senior Subordinated Notes may require NIC to purchase all or a portion of such holder's Senior Notes or Senior Subordinated Notes, as the case may be, at a purchase price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. See "Description of the Notes--Change of Control." Certain Covenants............... The Indentures contain certain covenants that, among other things, limit the ability of NIC and its Restricted Subsidiaries (as defined) to incur additional indebtedness, pay dividends or make certain other restricted payments, engage in transactions with affiliates, incur liens and engage in asset sales. The Indentures also restrict the ability of NIC and its Restricted Subsidiaries to consolidate or merge with, or transfer all or substantially all of their assets to, another person. However, these limitations are subject to a number of important qualifications and exceptions. See "Description of the Notes--Certain Covenants." After the Senior Notes have been assigned an Investment Grade (as defined) rating, NIC and its Restricted Subsidiaries will no longer be subject to the provisions of certain of the covenants listed above. See "Description of the Notes--Certain Covenants--Relating Only to the Senior Notes--Application of Fall Away Covenants." Use of Proceeds: Senior Notes.................. The net proceeds from the sale of the Senior Notes were used to repay certain outstanding indebtedness of Transportation and for general corporate purposes. Senior Subordinated Notes..... The net proceeds from the sale of the Senior Subordinated Notes were used to redeem all of NIC's Series G Convertible Cumulative Preferred Stock. See "Use of Proceeds." RISK FACTORS Holders of the Old Notes should carefully consider the specific matters set forth under "Risk Factors" as well as the other information and data included in this Prospectus before participating in the Exchange Offer. - -------------------------------------------------------------------------------- 15 - -------------------------------------------------------------------------------- SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA The following table sets forth summary consolidated financial and operating data of the Company and its consolidated subsidiaries for the periods indicated. The Company's summary consolidated financial data was derived from Navistar's consolidated financial statements and notes thereto. The summary consolidated financial data set forth below is qualified in its entirety by and should be read in conjunction with "Selected Consolidated Financial and Operating Data," "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the Company's Consolidated Financial Statements and notes thereto included elsewhere in this Prospectus.
FISCAL YEAR ENDED OCTOBER 31, --------------------------------------- 1997 1996 1995 1994 1993 ------ ------ ------ ------ ------- (IN MILLIONS, EXCEPT PER SHARE DATA) SELECTED INCOME STATEMENT DATA: Sales and revenues: Sales of manufactured products. $6,147 $5,508 $6,125 $5,153 $ 4,510 Finance and insurance revenue (1)........................... 174 197 167 152 181 Other income................... 50 49 50 32 30 ------ ------ ------ ------ ------- Total sales and revenues..... 6,371 5,754 6,342 5,337 4,721 ------ ------ ------ ------ ------- Costs and expenses: Costs of products and services sold.......................... 5,292 4,827 5,288 4,496 3,925 Other expenses (2)............. 763 739 705 608 1,146 Interest expense............... 74 83 87 75 91 ------ ------ ------ ------ ------- Total costs and expenses..... 6,129 5,649 6,080 5,179 5,162 ------ ------ ------ ------ ------- Income (loss) before income taxes......................... 242 105 262 158 (441) Income tax expense (benefit)... 92 40 98 56 (168) ------ ------ ------ ------ ------- Income (loss) of continuing operations.................... 150 65 164 102 (273) Loss of discontinued operations (3)........................... -- -- -- (20) -- Cumulative effect of changes in accounting policy (4)......... -- -- -- -- (228) ------ ------ ------ ------ ------- Net income (loss).............. $ 150 $ 65 $ 164 $ 82 $ (501) ====== ====== ====== ====== ======= Income (loss) of continuing operations per common share (6) Basic.......................... $ 1.66 $ .49 $ 1.83 $ .99 $ (8.63) Diluted........................ $ 1.65 $ .49 $ 1.83 $ .99 $ (8.63) Net income (loss) per common share (6) Basic.......................... $ 1.66 $ .49 $ 1.83 $ .72 $(15.19) Diluted........................ $ 1.65 $ .49 $ 1.83 $ .72 $(15.19) AT OCTOBER 31, --------------------------------------- 1997 1996 1995 1994 1993 ------ ------ ------ ------ ------- (IN MILLIONS) SELECTED BALANCE SHEET DATA: Assets: Manufacturing operations....... $4,111 $3,815 $4,018 $3,724 $ 3,645 Financial services operations.. 1,857 1,843 1,922 1,582 1,672 Eliminations................... (452) (332) (374) (259) (257) ------ ------ ------ ------ ------- Total assets................. $5,516 $5,326 $5,566 $5,047 $ 5,060 ====== ====== ====== ====== ======= Debt: Manufacturing operations....... $ 92 $ 115 $ 127 $ 127 $ 175 Financial services operations.. 1,224 1,305 1,330 1,091 1,199 ------ ------ ------ ------ ------- Total debt................... $1,316 $1,420 $1,457 $1,218 $ 1,374 ====== ====== ====== ====== ======= Preferred stock.................. $ 244 $ 244 $ 244 $ 244 $ 245 ====== ====== ====== ====== ======= Total shareowners' equity........ $1,020 $ 916 $ 870 $ 817 $ 775 ====== ====== ====== ====== =======
- -------------------------------------------------------------------------------- 16 - --------------------------------------------------------------------------------
FISCAL YEAR ENDED OCTOBER 31, ------------------------------------------------ 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- (IN MILLIONS, EXCEPT MARKET SHARE AND UNIT DATA) OTHER FINANCIAL AND OPERATING DATA: Capital expenditures.......... $ 172 $ 117 $ 139 $ 87 $ 110 Depreciation and amortization. 120 105 86 72 75 United States and Canadian retail deliveries of trucks and school buses............. 99,500 94,000 101,700 91,600 79,800 United States and Canadian market share (5)............. 28.6% 27.5% 26.7% 27.0% 27.6% Unit shipments: Trucks and school buses..... 104,400 95,200 112,200 95,000 87,200 OEM engines................. 184,000 163,200 154,200 130,600 118,200
- -------- (1) Includes revenues of NFC as well as the Company's other financial services subsidiaries. (2) The Company contributed approximately 25.6 million shares of its Class B Common Stock valued at $513 million to the Supplemental Trust (as defined) in 1993. (3) The 1994 loss of discontinued operations resulted from a $20 million after tax charge for environmental liabilities at production facilities of two formerly owned businesses, Wisconsin Steel and Solar Turbine, Inc. (4) In the third quarter of 1993, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 106, "Employer's Accounting for Postretirement Benefits Other than Pensions" ("SFAS 106") and SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"), retroactive to November 1, 1992. (5) Based on retail deliveries of medium trucks (Classes 5, 6 and 7), including school buses, and heavy trucks (Class 8) in the United States and Canada by Transportation and its dealers, compared to the industry total in the United States and Canada of retail deliveries. (6) The net income (loss) per common share information for all periods presented have been restated to reflect the new earnings per share calculation required by Statement of Financial Accounting Standard No. 128 "Earnings Per Share." Income (loss) of continuing operations per common share was computed as follows:
FISCAL YEAR ENDED OCTOBER 31, ---------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ----- (IN MILLIONS) Income (loss) of continuing operations........ $150 $ 65 $164 $102 $(273) Less dividends on Series G Preferred Stock.... 29 29 29 29 29 ---- ---- ---- ---- ----- Income (loss) of continuing operations applicable to common stock (Basic and Diluted)..................................... $121 $ 36 $135 $ 73 $(302) ==== ==== ==== ==== ===== Average shares outstanding (millions) Basic........................................ 73.1 73.7 74.2 74.5 34.9 Dilutive effect of options outstanding..... .4 -- -- -- -- Conversion of Series D Preferred Stock..... .1 .1 .1 .1 -- ---- ---- ---- ---- ----- Diluted...................................... 73.6 73.8 74.3 74.6 34.9 ==== ==== ==== ==== =====
Unexercised employee stock options to purchase shares of Navistar Common Stock were not included in the diluted shares outstanding when the options' exercise prices were greater than the average market price of Navistar Common Stock during the respective periods. Additionally, the diluted calculation excludes the effects of the conversion of the Series G Preferred Stock as such conversion would produce anti-dilutive results. The dilutive effect of options outstanding and the conversion of Series D Preferred Stock were not included in 1993 diluted shares as such inclusion would produce anti-dilutive results. Basic and diluted loss of discontinued operations per common share in 1994 was $0.27. Basic and diluted loss from the cumulative effect of changes in accounting policy per common share in 1993 was $6.56. In January of 1998, the Company repurchased approximately 3.2 million shares of its Class B Common Stock from the Supplemental Trust. For the fiscal year ended October 31, 1997, after giving pro forma effect to the Initial Offerings and the application of the net proceeds therefrom, as if each had occurred as of the beginning of fiscal 1997 basic and diluted income of continuing operations per common share and basic and diluted net income per common share would have each been $1.93 and $1.92, respectively. - -------------------------------------------------------------------------------- 17 - -------------------------------------------------------------------------------- SUPPLEMENTAL UNAUDITED FINANCIAL INFORMATION The following table sets forth certain unaudited supplemental financial information of the Company (with the Company's financial services operations set forth on an equity basis of accounting). The Company has included this supplemental information to assist prospective investors in evaluating an investment in the Notes. This information should not be considered in isolation or as a substitute for the Company's financial data that has been prepared in accordance with generally accepted accounting principles. The information set forth herein should be read in conjunction with "Selected Consolidated Financial and Operating Data," "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the Company's Consolidated Financial Statements and the notes thereto included elsewhere in this Prospectus.
FISCAL YEAR ENDED OCTOBER 31, ------------------------------------------------ 1997 1996 1995 1994 1993 ------------------- ------ ------ ------ ------ PRO FORMA(1) ACTUAL ------------ ------ (IN MILLIONS, EXCEPT PER SHARE DATA) SELECTED CONDENSED STATEMENT OF INCOME: Sales of manufactured products.................... $6,147 $6,147 $5,508 $6,125 $5,153 $4,510 Other income................. 44 44 42 43 25 16 ------ ------ ------ ------ ------ ------ Total sales and revenues.............. 6,191 6,191 5,550 6,168 5,178 4,526 ------ ------ ------ ------ ------ ------ Cost of products sold........ 5,270 5,274 4,818 5,280 4,494 3,919 Other expenses (2)........... 744 746 704 679 576 1,097 Interest expense............. 27 7 6 9 10 12 ------ ------ ------ ------ ------ ------ Total costs and expenses.............. 6,041 6,027 5,528 5,968 5,080 5,028 ------ ------ ------ ------ ------ ------ Income (loss) before income taxes Manufacturing operations... 150 164 22 200 98 (502) Financial services operations................ 78 78 83 62 60 61 ------ ------ ------ ------ ------ ------ Income (loss) before income taxes.......... 228 242 105 262 158 (441) Income tax expense (benefit). 87 92 40 98 56 (168) ------ ------ ------ ------ ------ ------ Income (loss) of continuing operations.................. 141 150 65 164 102 (273) Loss of discontinued operations (3).............. -- -- -- -- (20) -- Cumulative effect of changes in accounting policy (4)....... -- -- -- -- -- (228) ------ ------ ------ ------ ------ ------ Net income (loss)............ 141 150 65 164 82 (501) Less dividends on Series G preferred stock............. -- 29 29 29 29 29 ------ ------ ------ ------ ------ ------ Net income (loss) applicable to common stock............. $ 141 $ 121 $ 36 $ 135 $ 53 $ (530) ====== ====== ====== ====== ====== ====== AT OCTOBER 31, ------------------------------------------------ 1997 1996 1995 1994 1993 ------------------- ------ ------ ------ ------ AS ADJUSTED(5) ACTUAL ------------ ------ (IN MILLIONS) SELECTED CONDENSED BALANCE SHEET DATA: Cash, cash equivalents and marketable securities....... $ 829 $ 802 $ 707 $ 876 $ 665 $ 462 Property and equipment, net.. 706 706 666 642 549 608 Total assets................. 4,145 4,111 3,815 4,018 3,724 3,645 Postretirement benefits liabilities................. 1,178 1,178 1,344 1,334 1,292 1,345 Total debt................... 371 92 115 127 127 175 Total shareowners' equity.... 780 1,020 916 870 817 775
- -------------------------------------------------------------------------------- 18 - --------------------------------------------------------------------------------
FISCAL YEAR ENDED OCTOBER 31, --------------------------------------- 1997 1996 1995 1994 1993 --------------- ---- ---- ---- ----- PRO FORMA(1) ACTUAL -------- ------ (IN MILLIONS, EXCEPT RATIOS) OTHER FINANCIAL DATA: EBITDA (6)............................. $274 $268 $118 $284 $176 $(421) Dividends received from NFC............ 40 40 26 9 26 23 Cash provided by (used in): Operations........................... NA 438 -- 400 280 192 Investment programs.................. NA (241) 39 (378) (46) (509) Financing activities................. NA (76) (48) (60) (112) 472 Ratio of EBITDA to interest expense.... 10.1x 38.3x 19.7x 31.6x 17.6x Ratio of total debt to EBITDA (7)...... 1.4x 0.3x 1.0x 0.4x 0.7x
- -------- (1) Gives pro forma effect to the Initial Offerings and the application of the net proceeds therefrom as if each had occurred as of the beginning of fiscal 1997. Pro forma adjustments include: (i) a net increase in interest expense of $20 million; (ii) a corresponding reduction in cost of products sold and other expense of an aggregate $6 million due to lower profit- sharing expense; (iii) a corresponding decrease in income tax expense of $5 million; and (iv) the elimination of dividends paid on the Series G Convertible Cumulative Preferred Stock of $29 million. The pro forma information does not purport to represent what the Company's results of operations actually would have been if the Initial Offerings had actually occurred as of such dates or what such results will be for any future periods. (2) The Company contributed approximately 25.6 million of shares of its Class B Common Stock valued at $509 million to the Supplemental Trust in 1993. (3) The 1994 loss of discontinued operations resulted from a $20 million after tax charge for environmental liabilities at production facilities of two formerly owned businesses, Wisconsin Steel and Solar Turbine, Inc. (4) In the third quarter of 1993, the Company adopted SFAS 106 and SFAS 109, retroactive to November 1, 1992. (5) Gives effect to the sale of the Old Notes in the Initial Offerings and the application of the net proceeds therefrom as if each had occurred on October 31, 1997. See "Capitalization." (6) EBITDA represents income from manufacturing operations before the cumulative effect of changes in accounting policy, interest expense, taxes on income and depreciation and amortization expense. The Company believes EBITDA provides additional information for measuring its ability to generate funds for liquidity and capital requirements. This information is presented as a supplement to the other data provided because it provides information which the Company believes is useful for additional analysis. EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other consolidated operations or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of the Company's profitability or liquidity. (7) For the purpose of this ratio, total debt was calculated in the pro forma column by giving effect to the sale of the Old Notes in the Initial Offerings and the application of the net proceeds therefrom as if each had occurred on October 31, 1997. - -------------------------------------------------------------------------------- 19 RISK FACTORS Holders of the Old Notes should carefully consider the following factors in addition to the other information contained in this Prospectus. This Prospectus contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those identified below as well as those discussed elsewhere in this Prospectus. MARKET AND GENERAL ECONOMIC CONDITIONS Navistar's ability to be profitable depends in part on the varying conditions in the medium and heavy truck, mid-range diesel engine and service parts markets. See "Business." The truck markets in which the Company competes are subject to considerable volatility. Such markets move in response to cycles in the overall business environment and are particularly sensitive to the industrial sector, which generates a significant portion of the freight tonnage hauled. Truck and engine demand also depend on general economic conditions, interest rate levels and fuel costs. COMPETITION The North American truck market, in which Navistar competes, is highly competitive. Navistar's major domestic competitors include PACCAR, Ford and General Motors, as well as foreign-controlled domestic manufacturers, such as Freightliner, Mack and Volvo GM. In addition, well-capitalized manufacturers from Japan (Hino, Isuzu, Nissan, Mitsubishi) are attempting to increase their North American sales levels. The intensity of this competition, which is expected to continue, results in price discounting and margin pressures throughout the industry and adversely affects Navistar's ability to increase or maintain vehicle prices. Many of Navistar's competitors have greater financial resources, which may place Navistar at a competitive disadvantage in responding to substantial industry changes, such as changes in governmental regulations that require major additional capital expenditures. In addition, certain of Navistar's competitors may have lower overall labor costs. FUTURE CAPITAL REQUIREMENTS Navistar has announced plans for approximately $350 million in capital spending over the next six years for the NGT Program. Capital expenditures for fiscal 1998 are expected to be approximately $370 million, of which $25 million is to be spent for the NGT Program. Additional capital expenditures are planned for the completion of the truck assembly facility in Mexico, increased manufacturing capacity at the Indianapolis engine plant, commencement of truck operations in Brazil and improvements to existing facilities and products. Navistar's investment in the NGT Program will also include $300 million in development expense over the next six years, of which approximately $50 million is planned for 1998. The Company will be required to make substantial cash expenditures over the next several years to implement its NGT Program and to meet its other capital expenditure and development objectives. Historically, Navistar has relied on cash balances and cash provided by operations to meet its funding requirements. The amount of cash generated by Navistar's business varies with industry volumes in the medium and heavy truck markets. No assurance can be given that Navistar will have the cash balances necessary to implement its NGT Program and to meet its other capital requirements or that financing will be available or, if available, that it will be available on satisfactory terms. The future availability of financing will depend on many factors, including Navistar's earnings, credit ratings, the outlook for truck industry demand and the capital resources of financial institutions. If adequate funds are not available, the Company may be required to cut back or discontinue the NGT Program or other product development or capital improvement programs. See "Management's Discussion and Analysis of Results of Operations and Financial Condition--Liquidity and Capital Resources" and "--Business Environment." From and after July 1, 1998, the Settlement Agreement in respect of Navistar's postretirement healthcare and life insurance benefits (the "Settlement Agreement") gives the Supplemental Trust established thereunder 20 the exclusive right, subject to certain limited exceptions, to conduct public offerings of Common Stock for a period of 5 years (the "Window Period"), subject to earlier termination at such time as the Supplemental Trust has received net proceeds of $500 million from qualifying sales of Common Stock. During this period, Navistar will be prohibited from conducting public offerings of equity securities for working capital or other purposes unless the Supplemental Committee (as defined) under the Supplemental Trust otherwise consents. To date, the Company believes that the Supplemental Trust has received approximately $78 million in net proceeds from qualifying sales of Common Stock. See "--Potential Influence of Supplemental Trust." RELIANCE ON MAJOR CUSTOMER Ford accounted for approximately 14% of the Company's revenues during fiscal 1997 and fiscal 1996 and approximately 12% for fiscal 1995. Although the Company has contracts with Ford that continue through 2012, such contracts provide for supplying Ford's requirements for particular models, rather than for manufacturing a specific quantity of products. The loss of Ford as a customer or a significant decrease in demand for the models or a group of related models that utilize the Company's products could have a material adverse effect on the Company. HOLDING COMPANY STRUCTURE NIC, the issuer of the Notes, is a holding company with no significant business operations other than (i) holding the capital stock of Transportation and Navistar International Corporation Mexico S.A. de C.V. ("Navimex"), other subsidiaries and joint venture interests and (ii) advancing funds to, and receiving funds from, its direct and indirect subsidiaries. In repaying its indebtedness, including the Notes, NIC must rely on dividends and other payments made to it by Transportation and its other direct and indirect subsidiaries. In addition, the Indentures governing the Notes will allow the Company the ability to make substantial investments (including, without limitation, contributions of assets) in joint ventures. The holders of the Notes have no direct claims against the assets of NIC's subsidiaries. The ability of NIC's subsidiaries to make payments to NIC will be affected by the obligations of such subsidiaries to their creditors. Claims of holders of indebtedness of NIC, including the Notes, against the cash flow and assets of NIC's subsidiaries will be effectively subordinated to claims of such creditors. In addition, the rights of the holders of the Notes to participate in the assets of any subsidiary of NIC upon such subsidiary's liquidation or recapitalization will be subject to the prior claims of such subsidiary's creditors. As of October 31, 1997, after giving pro forma effect to the Initial Offerings and the application of the net proceeds therefrom, the direct and indirect subsidiaries of NIC would have had approximately $4,431 million of liabilities (including trade payables). The ability of NIC's subsidiaries to make payments to NIC will also be subject to, among other things, applicable state corporate laws and contractual restrictions. State corporate laws applicable to NIC's subsidiaries generally prohibit the payment of dividends by any given subsidiary unless such subsidiary has capital surplus or net profits in the current or immediately preceding year. In addition, the payment of dividends by NFC is limited by the terms of several of its financings. See "Description of Other Financing Arrangements." SUBORDINATION OF THE SENIOR SUBORDINATED NOTES The payment on the principal of, premium, if any, and interest on the Senior Subordinated Notes will be subordinate in right of payment to the prior payment in full of all Senior Indebtedness of NIC, including the Senior Notes, whether outstanding at the date of the indenture in respect of the Senior Subordinated Notes or thereafter incurred. As of October 31, 1997, after giving pro forma effect to the Initial Offerings and the application of the net proceeds therefrom, NIC would have had $100 million in Senior Indebtedness outstanding, all of which would rank senior to the Senior Subordinated Notes, and no indebtedness which would be subordinated to the Senior Subordinated Notes. Additional Senior Indebtedness can be incurred by NIC from time to time, subject to certain restrictions. In the event of a default in the payment or prepayment of the principal of, premium, if any, or interest on any Senior Indebtedness of NIC, NIC is prohibited from making any payment with respect to the principal of, premium, if any, or interest on the Senior Subordinated Notes unless and until 21 such default has been cured or waived or all Senior Indebtedness of NIC has been discharged or paid in full. In addition, the Senior Subordinated Notes will be effectively subordinated to all existing and future liabilities of the subsidiaries of NIC. As of October 31, 1997, after giving pro forma effect to the Initial Offerings and the application of the net proceeds therefrom, the amount of such liabilities (including trade payables) would have been approximately $4,431 million. See "--Holding Company Structure." In addition, upon any payment or distribution of NIC's assets to its creditors upon any dissolution, winding-up, liquidation, reorganization, bankruptcy, insolvency, receivership or other proceedings relating to NIC, whether voluntary or involuntary, the holders of Senior Indebtedness of NIC will be entitled to receive payment in full of all amounts due thereon before the holders of the Senior Subordinated Notes will be entitled to receive any payment with respect to the principal of, premium, if any, or interest on the Senior Subordinated Notes. By reason of such subordination, in the event of the insolvency of NIC, holders of the Senior Subordinated Notes may receive less, ratably, than holders of Senior Indebtedness of NIC and other creditors of NIC, or may recover nothing. See "Description of the Notes--Subordination of Senior Subordinated Notes; Ranking." IMPACT OF GOVERNMENT REGULATION Truck and engine manufacturers continue to face increasing governmental regulation of their products, especially in the areas of environment and safety. As a diesel engine manufacturer, Navistar has incurred research and tooling costs to redesign its engine product lines to meet the United States Environmental Protection Agency ("U.S. EPA") and California Air Resources Board ("CARB") emission standards effective for the 1998 model year. In addition, Navistar expects to continue to incur research, design and tooling costs to: (i) achieve further reductions in ozone-causing exhaust emissions by 2004 in accordance with the voluntary agreement entered into by Navistar, along with other engine manufacturers, with the U.S. EPA and CARB and (ii) satisfy the 1998 Clean Fuel Fleet Vehicle requirements and California's emission standards in 2002 for engines used in medium-size vehicles. Navistar expects that its diesel engines will be able to meet all of these standards within the required time frames. Truck manufacturers are also subject to various noise standards imposed by federal, state and local regulations, and to the National Traffic and Motor Vehicle Safety Act and Federal Motor Vehicle Safety Standards promulgated by the National Highway Traffic Safety Administration. Navistar believes it is in compliance with such standards. Complying with such laws and regulations has added and will continue to add to the cost of Navistar's products, and increases the capital-intensive nature of Navistar's business. If the present level of price competition continues, it may become increasingly difficult for manufacturers of engines and trucks to recover these costs and, accordingly, lower margins may result. See "Business--Impact of Government Regulation." PENSION AND POSTRETIREMENT HEALTH CARE OBLIGATIONS Navistar has significant underfunded pension obligations. At October 31, 1997, the accumulated benefit obligation of Navistar's underfunded pension plans was approximately $445 million, compared to $607 million at October 31, 1996. In November 1997, Navistar contributed $100 million to the hourly pension plan. Navistar's long-term objective is to fund its entire accumulated pension benefit obligation over the next 5 to 8 years with funds that are principally generated by operations. In the event Navistar's pension plans were terminated for any reason and plan assets were insufficient to meet guaranteed liabilities, the Pension Benefit Guaranty Corporation ("PBGC") may have a right to take over these plans as their administrator and trustee. In this event, the actual present value of guaranteed pension liabilities may be determined in a manner different from that used by Navistar to determine its unfunded vested pension liability. Subject to certain limitations, the PBGC would have a claim against Navistar to the extent that plan assets were not sufficient to meet the actuarial present value of guaranteed liabilities. In addition to providing pension benefits, Navistar provides health care and life insurance for a majority of its retired employees and their spouses and certain dependents and will provide retiree health care and life 22 insurance benefits for most of its existing employees hired before July 1, 1993. In 1993, a trust was established to partially fund this post-retirement health care liability (the "Base Trust"). In November 1997, Navistar contributed $200 million to the Base Trust satisfying the balance of its $500 million prefunding obligation, although Navistar will remain obligated to make future contributions to the Base Trust on a pay-as-you-go basis. These benefits are provided as part of the Settlement Agreement. POTENTIAL INFLUENCE OF SUPPLEMENTAL TRUST In July 1993, Navistar restructured its postretirement health care and life insurance benefits pursuant to the Settlement Agreement that resolved litigation between Navistar and a class of its employees, retirees and collective bargaining organizations, including the UAW, as lead class plaintiff. The Settlement Agreement provides, among other things, that Navistar establish a Supplemental Benefit Trust (the "Supplemental Trust") for the purpose of funding certain retiree and health benefits under a Supplemental Benefit Program. The Supplemental Trust currently holds approximately 19.9 million shares of Navistar's non-voting Class B Common Stock. On July 1, 1998, the non-voting Class B Common Stock held by the Supplemental Trust will convert into voting Common Stock, which is the same class of stock held by Navistar's other shareowners. Based upon the 49.2 million shares of Common Stock currently outstanding, the Supplemental Trust would hold approximately 29% of Navistar's voting stock upon conversion. As a result of such stock ownership, it is likely that the Supplemental Trust will be able to have a significant influence over those matters submitted to a vote of Navistar's shareowners, including the election of directors and approval of certain significant corporate transactions, following such conversion. A committee of five members acts as administrator of the Supplemental Benefit Program (the "Supplemental Committee") and as such has the power to direct the voting of the Common Stock held by the Supplemental Trust. Two of the members of the Supplemental Committee are designees of the UAW, one is a retired management employee and two are independent from either Navistar or the UAW. In addition, the Settlement Agreement provides for the addition of three seats to Navistar's Board of Directors, one of which is elected by the UAW and two of which are elected by the Supplemental Committee on behalf of the Supplemental Trust. Navistar's Board of Directors is currently comprised of 14 persons. RISK OF LOSS OF TAX BENEFITS If, as a result of any transaction involving Navistar's equity securities, an "ownership change" occurs for federal income tax purposes, the Company's ability to use its substantial net operating losses (the "NOLs") to offset taxable income, and thereby reduce Navistar's tax liability, would be severely limited, requiring an adjustment to Navistar's deferred tax asset reflected in its Statement of Financial Condition. The Settlement Agreement requires that Navistar not sell or acquire Common Stock or other securities or take other actions if to do so would put Navistar at risk of an "ownership change" or would limit the ability of the Supplemental Trust to sell on or after July 1, 1998 Common Stock up to an amount equal to $500 million less proceeds from prior sales of Common Stock (which amount is currently approximately $372 million) without putting Navistar's NOLs at risk. The Company believes, based on the information currently available to it, that the redemption of the Series G Convertible Cumulative Preferred Stock should not, by itself, put the Company at risk of an "ownership change" or restrict the ability of the Supplemental Trust to sell up to an additional $372 million of stock. See "Management's Discussion and Analysis of Results of Operations and Financial Condition--Income Taxes" for a discussion of the Company's NOLs. As part of the Settlement Agreement, a provision (the "Prohibited Transfer Provision") was added to NIC's Certificate of Incorporation to protect against certain transfers of equity securities which could cause an "ownership change." Although the Prohibited Transfer Provision is intended to prevent transfers which could cause an "ownership change," Navistar may not be able to prevent every transaction that could cause an "ownership change." By its terms, the Prohibited Transfer Provision will expire on June 30, 2001. ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE NOTES The Old Notes were issued to, and the Company believes are currently owned by, a relatively small number of beneficial owners. Prior to the Exchange Offer, there has not been any public market for the Old Notes. The 23 Old Notes have not been registered under the Securities Act and will be subject to restrictions on transferability to the extent that they are not exchanged for Exchange Notes by holders who are entitled to participate in this Exchange Offer. The holders of Old Notes (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who are not eligible to participate in the Exchange Offer are entitled to certain registration rights, and the Company is required to file a Shelf Registration Statement with respect to such Old Notes. The Exchange Notes will constitute a new issue of securities with no established trading market. The Company does not intend to list the Exchange Notes on any national securities exchange or seek the admission thereof to trading in the National Association of Securities Dealers Automated Quotation System. The Initial Purchasers have advised the Company that they currently intend to make a market in the Exchange Notes, but they are not obligated to do so and may discontinue such market making at any time. In addition, such market making activity will be subject to the limits imposed by the Securities Act and the Exchange Act and may be limited during the Exchange Offer and the pendency of the Shelf Registration Statement. Accordingly, no assurance can be given that an active public or other market will develop for the Exchange Notes or as to the liquidity of the trading market for the Exchange Notes. If a trading market does not develop or is not maintained, holders of the Exchange Notes may experience difficulty in reselling the Exchange Notes or may be unable to sell them at all. If a market for the Exchange Notes develops, any such market may be discontinued at any time. If a public trading market develops for the Exchange Notes, future trading prices of such securities will depend on many factors including, among other things, prevailing interest rates, the Company's results of operations and market for similar securities. Depending on prevailing interest rates, the market for similar securities and other factors, including the financial condition of the Company, the Exchange Notes may trade at a discount from their principal amount. FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS Issuance of the Exchange Notes in exchange for the Old Notes pursuant to the Exchange Offer will be made only after a timely receipt by the Company of such Old Notes, a properly completed and duly executed Letter of Transmittal or Agent's Message and all other required documents. Therefore, holders of the Old Notes desiring to tender such Old Notes in exchange for Exchange Notes should allow sufficient time to ensure timely delivery. The Company is under no duty to give notification of defects or irregularities with respect to the tenders of Old Notes for exchange. Old Notes that are not tendered or are tendered but not accepted will, following the consummation of the Exchange Offer, continue to be subject to the existing restrictions upon transfer thereof, and, upon consummation of the Exchange Offer certain registration rights under the Registration Rights Agreement will terminate. In addition, any holder of Old Notes who tenders in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes may be deemed to have received restricted securities, and if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives Exchange Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." To the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Old Notes could be adversely affected. See "The Exchange Offer." 24 USE OF PROCEEDS This Exchange Offer is intended to satisfy certain of the Company's obligations under the Purchase Agreements and the Registration Rights Agreements. The Company will not receive any cash proceeds from the issuance of the Exchange Notes offered hereby. In consideration for issuing the Exchange Notes contemplated in this Prospectus, the Company will receive Old Notes in like principal amount, the form and terms of which are the same as the form and terms of the Exchange Notes (which replace the Old Notes), except as otherwise described herein. The net proceeds from the sale of the Old Senior Notes (after deducting the discounts to the Initial Purchasers and the expenses in connection with such offering) were approximately $98 million. The Company has used or expects to use such net proceeds as follows: (i) approximately $47 million will be used to repay the 9% Sinking Fund Debentures due June 15, 2004 of Transportation (the "9% Debentures"), including all accrued and unpaid interest thereon; and (ii) approximately $27 million has been used to repay the 8% Secured Note due August 15, 2002 of Transportation (the "8% Note"), including all accrued and unpaid interest thereon. Any remaining proceeds will be for general corporate purposes, including working capital. The net proceeds from the sale of the Old Senior Subordinated Notes (after deducting discounts to the Initial Purchasers and the expenses in connection with such offering) were approximately $244 million, which will be used to redeem NIC's Series G Convertible Cumulative Preferred Stock (the "Series G Preferred") and to pay accumulated and unpaid dividends thereon. The Company intends to repay the 9% Debentures and redeem the Series G Preferred as soon as practical after completion of the Initial Offerings. Pending such uses outlined above, the Company will invest such net proceeds from the Initial Offerings in short-term, investment grade, interest-bearing securities. 25 CAPITALIZATION The following table sets forth the historical capitalization of the Company as of October 31, 1997 and as adjusted to give effect to the sale of the Old Notes in the Initial Offerings and the application of the net proceeds therefrom. The Old Notes surrendered in exchange for Exchange Notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes will not result in any increase or decrease in the indebtedness of the Company. As such, no effect has been given to the Exchange Offer in the following capitalization table. See "Use of Proceeds."
AT OCTOBER 31, 1997 -------------------- ACTUAL AS ADJUSTED ------- ----------- (IN MILLIONS) Cash, cash equivalents and marketable securities (1)(2)... $ 965 $ 992 ======= ======= TOTAL DEBT (INCLUDING CURRENT PORTION): Manufacturing operations: 6 1/4% Sinking Fund Debentures, due 1998................ $ 3 $ 3 9% Sinking Fund Debentures, due 2004.................... 45 -- 8% Secured Note, due 2002............................... 26 -- Capitalized leases and other obligations................ 18 18 Mexican credit facility (3)............................. -- -- 7% Senior Notes, due 2003............................... -- 100 8% Senior Subordinated Notes, due 2008.................. -- 250 ------- ------- Total manufacturing operations debt................... 92 371 Financial services operations: Asset-backed commercial paper program................... 541 541 Bank credit facility.................................... 393 393 8 7/8% Senior Subordinated Notes due 1998............... 94 94 9% Senior Subordinated Notes due 2002................... 100 100 Capitalized leases...................................... 96 96 ------- ------- Total financial services debt......................... 1,224 1,224 ------- ------- Total debt............................................ 1,316 1,595 SHAREOWNERS' EQUITY: Series G convertible cumulative preferred stock (liquidation preference $240 million)............................... 240 -- Series D convertible junior preference stock (liquidation preference $4 million)................................. 4 4 Common Stock............................................ 1,659 1,659 Class B Common Stock (2)................................ 471 471 Retained earnings (deficit)............................. (1,301) (1,301) Treasury stock, at cost................................. (53) (53) ------- ------- Total shareowners' equity............................. 1,020 780 ------- ------- Total capitalization.................................. $ 2,336 $ 2,375 ======= =======
- -------- (1) In November 1997, Navistar contributed $100 million to the hourly pension plan and $200 million to the Base Trust. These contributions were funded from existing cash balances. (2) In January 1998, the Company repurchased approximately 3.2 million shares of its Class B Common Stock from the Supplemental Trust. The purchase price of approximately $83 million was funded from existing cash balances. (3) In November 1997, the Company's Mexican subsidiary established a $125 million credit facility to be used to fund the development of the Company's Mexican operations. As of December 31, 1997, an aggregate of $35 million of borrowings was outstanding under such facility. All of such subsidiary's indebtedness under such facility is guaranteed on a senior basis by NIC. 26 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA The selected consolidated financial data for Navistar for the five year period ended October 31, 1997 was derived from Navistar's audited consolidated financial statements and notes thereto. The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the Company's Consolidated Financial Statements and notes thereto included elsewhere in this Prospectus.
FISCAL YEAR ENDED OCTOBER 31, --------------------------------------- 1997 1996 1995 1994 1993 ------ ------ ------ ------ ------- (IN MILLIONS, EXCEPT PER SHARE DATA) SELECTED INCOME STATEMENT DATA: Sales and revenues: Sales of manufactured products. $6,147 $5,508 $6,125 $5,153 $ 4,510 Finance and insurance revenue (1)........................... 174 197 167 152 181 Other income................... 50 49 50 32 30 ------ ------ ------ ------ ------- Total sales and revenues..... 6,371 5,754 6,342 5,337 4,721 ------ ------ ------ ------ ------- Costs and expenses: Costs of products and services sold.......................... 5,292 4,827 5,288 4,496 3,925 Other expenses (2)............. 763 739 705 608 1,146 Interest expense............... 74 83 87 75 91 ------ ------ ------ ------ ------- Total costs and expenses..... 6,129 5,649 6,080 5,179 5,162 ------ ------ ------ ------ ------- Income (loss) before income taxes........................... 242 105 262 158 (441) Income tax expense (benefit)..... 92 40 98 56 (168) ------ ------ ------ ------ ------- Income (loss) of continuing operations...................... 150 65 164 102 (273) Loss of discontinued operations (3)............................. -- -- -- (20) -- Cumulative effect of changes in accounting policy (4)........... -- -- -- -- (228) ------ ------ ------ ------ ------- Net income (loss)................ $ 150 $ 65 $ 164 $ 82 $ (501) ====== ====== ====== ====== ======= Income (loss) of continuing operations per common share (7) Basic.......................... $ 1.66 $ .49 $ 1.83 $ .99 $ (8.63) Diluted........................ $ 1.65 $ .49 $ 1.83 $ .99 $ (8.63) Net income (loss) per common share (7) Basic.......................... $ 1.66 $ .49 $ 1.83 $ .72 $(15.19) Diluted........................ $ 1.65 $ .49 $ 1.83 $ .72 $(15.19) AT OCTOBER 31, --------------------------------------- 1997 1996 1995 1994 1993 ------ ------ ------ ------ ------- (IN MILLIONS) SELECTED BALANCE SHEET DATA: Assets: Manufacturing operations....... $4,111 $3,815 $4,018 $3,724 $ 3,645 Financial services operations.. 1,857 1,843 1,922 1,582 1,672 Eliminations................... (452) (332) (374) (259) (257) ------ ------ ------ ------ ------- Total assets................. $5,516 $5,326 $5,566 $5,047 $ 5,060 ====== ====== ====== ====== ======= Debt: Manufacturing operations....... $ 92 $ 115 $ 127 $ 127 $ 175 Financial services operations.. 1,224 1,305 1,330 1,091 1,199 ------ ------ ------ ------ ------- Total debt................... $1,316 $1,420 $1,457 $1,218 $ 1,374 ====== ====== ====== ====== ======= Preferred stock.................. $ 244 $ 244 $ 244 $ 244 $ 245 ====== ====== ====== ====== ======= Total shareowners' equity........ $1,020 $ 916 $ 870 $ 817 $ 775 ====== ====== ====== ====== =======
27
FISCAL YEAR ENDED OCTOBER 31, ------------------------------------------------ 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- (IN MILLIONS, EXCEPT RATIO, EMPLOYEES, MARKET SHARE AND UNIT DATA) OTHER FINANCIAL DATA: Dividends paid, Series G Preferred Stock......... $ 29 $ 29 $ 29 $ 58 $ -- Capital expenditures..... 172 117 139 87 110 Engineering and research expense................. 124 129 113 97 94 Depreciation and amortization............ 120 105 86 72 75 Average number of Common, Class B Common and dilutive common equivalent shares outstanding............. 73.6 73.8 74.3 74.6 34.9 Ratio of earnings to fixed charges (5)....... 3.7x 2.1x 3.5x 2.7x -- OPERATING DATA: Number of employees: Worldwide.............. 16,168 14,187 16,079 14,910 13,612 United States.......... 13,493 12,445 13,852 12,792 11,934 United States and Canadian retail deliveries of trucks and school buses............ 99,500 94,000 101,700 91,600 79,800 United States and Canadian market share (6)..................... 28.6% 27.5% 26.7% 27.0% 27.6% Unit shipments: Trucks and school buses................. 104,400 95,200 112,200 95,000 87,200 OEM engines............ 184,000 163,200 154,200 130,600 118,200
- -------- (1) Includes revenues of NFC as well as Navistar's other financial service subsidiaries. (2) The Company contributed approximately 25.6 million shares of its Class B Common Stock valued at $513 million to the Supplemental Trust in 1993. (3) The 1994 loss of discontinued operations resulted from a $20 million after tax charge for environmental liabilities at production facilities of two formerly owned businesses, Wisconsin Steel and Solar Turbine, Inc. (4) In the third quarter of 1993, the Company adopted SFAS 106 and SFAS 109, retroactive to November 1, 1992. (5) The ratio of earnings to fixed charges is determined by dividing pretax income from continuing operations, adjusted for interest expense, debt expense amortization and the portion of rental expense deemed representative of an interest factor by the sum of interest expense, debt expense amortization and the portion of rental expense deemed representative of the interest factor. Earnings were insufficient to cover fixed charges by approximately $441 million in fiscal 1993. For the fiscal year ended October 31, 1997, after giving pro forma effect to the Initial Offerings and the application of the net proceeds therefrom, as if each had occurred as of the beginning of fiscal 1997, the Company's ratio of earnings to fixed charges would have been 3.0x. (6) Based on retail deliveries of medium trucks (Classes 5, 6 and 7), including school buses, and heavy trucks (Class 8) in the United States and Canada by Transportation and its dealers, compared to the industry total in the United States and Canada of retail deliveries. (7) The net income (loss) per common share information for all periods presented have been restated to reflect the new earnings per share calculation required by Statement of Financial Accounting Standard No. 128 "Earnings Per Share." Income (loss) of continuing operations per common share was computed as follows:
FISCAL YEAR ENDED OCTOBER 31, ---------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ----- (IN MILLIONS) Income (loss) of continuing operations........ $150 $ 65 $164 $102 $(273) Less dividends on Series G Preferred Stock.... 29 29 29 29 29 ---- ---- ---- ---- ----- Income (loss) of continuing operations applicable to common stock (Basic and Diluted)..................................... $121 $ 36 $135 $ 73 $(302) ==== ==== ==== ==== ===== Average shares outstanding (millions) Basic........................................ 73.1 73.7 74.2 74.5 34.9 Dilutive effect of options outstanding..... .4 -- -- -- -- Conversion of Series D Preferred Stock..... .1 .1 .1 .1 -- ---- ---- ---- ---- ----- Diluted...................................... 73.6 73.8 74.3 74.6 34.9 ==== ==== ==== ==== =====
Unexercised employee stock options to purchase shares of Navistar Common Stock were not included in the diluted shares outstanding when the options' exercise prices were greater than the average market price of Navistar Common Stock during the respective periods. Additionally, the diluted calculation excludes the effects of the conversion of the Series G Preferred Stock as such conversion would produce anti-dilutive results. The dilutive effect of options outstanding and the conversion of Series D Preferred Stock were not included in 1993 diluted shares as such inclusion would produce anti-dilutive results. Basic and diluted loss of discontinued operations per common share in 1994 was $0.27. Basic and diluted loss from the cumulative effect of changes in accounting policy per common share in 1993 was $6.56. In January of 1998, the Company repurchased approximately 3.2 million shares of its Class B Common Stock from the Supplemental Trust. 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion and analysis should be read in conjunction with the Company's Financial Statements and notes thereto included elsewhere in this Prospectus. Certain statements under this caption constitute "forward-looking statements" under Section 27A of the Securities Act and involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in such forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed under the captions "Risk Factors" and "Business Environment." GENERAL NIC is a holding company and its principal operating subsidiary is Transportation. The Company's manufacturing operations are engaged in the manufacture and marketing of Class 5 through 8 trucks, including school buses, mid-range diesel engines and service parts primarily in the United States and Canada. These products are also sold to distributors in selected export markets. The financial services operations of the Company provide wholesale, retail and lease financing, and commercial physical damage and liability insurance coverage to the Company's dealers and retail customers and to the general public through an independent insurance agency system. The discussion and analysis reviews the operating and financial results, and liquidity and capital resources of manufacturing operations and financial services operations. Manufacturing operations include the financial results of the financial services operations included on a one-line basis under the equity method of accounting. Financial services operations include NFC, its domestic insurance subsidiary as well as the Company's foreign finance and insurance companies. See Note 1 to the Financial Statements. BUSINESS ENVIRONMENT Sales of Class 5 through 8 trucks are cyclical, with demand affected by such economic factors as industrial production, construction, demand for consumer durable goods, interest rates and the earnings and cash flow of dealers and customers. Reflecting the stability of the general economy, demand for new trucks remained strong during 1997. An improvement in the number of new truck orders has increased the Company's order backlog to 45,300 units at October 31, 1997 from 20,900 units at October 31, 1996. Retail deliveries in 1998 continue to be highly dependent on the rate at which new truck orders are received. The Company will evaluate order receipts and backlog throughout the year and will balance production with demand as appropriate. The Company currently projects 1998 United States and Canadian Class 8 heavy truck demand to be 195,000 units, a slight decrease from 1997. Class 5, 6 and 7 medium truck demand, excluding school buses, is forecast at 116,000 units, slightly lower than in 1997. Demand for school buses is expected to decrease 8% in 1998 to 30,500 units. Mid-range diesel engine shipments by the Company to original equipment manufacturers in 1998 are expected to be 215,700 units, 17% higher than in 1997. The Company's service parts sales are projected to grow 9% to approximately $875 million. The Supplemental Trust, which was created in 1993 for the benefit of the Company's current and future retirees and administered by a five person trust committee, owned all of the outstanding Class B Common Stock at October 31, 1997, which represented approximately one-third of the Company's outstanding Common Stock. The Class B Common Stock has restricted voting rights and transfer provisions but, on July 1, 1998, will convert into Common Stock with full voting rights and no transfer restrictions. During August 1997, the Company's current master contract with the UAW was extended through October 1, 2002. This contract allows the Company to focus its assembly plants, simplify current product lines, invest in new product development, and achieve more competitive wage, benefit and productivity levels. 29 During 1997, the Company entered into a ten-year agreement, effective with model year 2003, to supply newly designed, advanced technology engines through the year 2012 to Ford for use in its diesel-powered light trucks and vans. The Company's current engine agreement with Ford was extended through model year 2002. The Company is currently considering an internal corporate reorganization, whereby, among other things, Transportation's engine and service parts operations and NFC would become direct subsidiaries of NIC. RESULTS OF OPERATIONS The Company reported net income of $150 million for 1997, or $1.65 per common share, reflecting higher sales of manufactured products. Net income was $65 million, or $0.49 per common share, in 1996 and $164 million, or $1.83 per common share, in 1995. Net income in 1996 included a one-time $35 million pretax charge for costs related to the termination of the NGT Program. In August 1997, the Company and the UAW reached agreement on a master contract extension that enabled the Company to reinstate this program. The remaining accrual for the 1996 charge at the time of the announcement was not material. The Company's manufacturing operations reported income before income taxes of $164 million in 1997 compared with pretax income of $22 million in 1996 and $200 million in 1995. The increase in 1997 reflects higher sales of trucks and diesel engines as well as the effects of improved pricing and various cost improvement initiatives. The decrease in 1996 from 1995 reflects a decline in demand for trucks as well as the charge for termination of the Company's NGT Program. The Company's financial services operations had income before income taxes of $78 million, $83 million and $62 million in 1997, 1996 and 1995, respectively. NFC's pretax income in 1997 was $75 million, a 7% decrease from $81 million in 1996. The change is primarily a result of lower income on sales of retail receivables and a decline in wholesale financing activity. The reduced gains on sales resulted from lower margins on retail notes reflecting higher market interest rates prior to the date of sale. NFC's pretax income increased $22 million in 1996 from the $59 million reported in 1995 primarily due to higher income on sales of retail notes and an increased volume of wholesale financing. Earnings from the foreign finance and insurance subsidiaries were $3 million, $2 million and $3 million in 1997, 1996 and 1995, respectively. SALES AND REVENUES. Industry retail sales of Class 5 through 8 trucks totaled 347,400 units in 1997, a 2% increase from the 341,200 units sold in 1996, but 9% lower than the 380,600 units sold in 1995. Class 8 heavy truck sales totaled 196,800 units, comparable to the 195,400 units sold in 1996 but a decrease of 14% from the 228,800 units sold in 1995. Industry sales of Class 5, 6 and 7 medium trucks, including school buses, totaled 150,600 units in 1997, a 3% increase from 1996 when 145,800 units were sold, and comparable to the 151,800 units sold in 1995. Industry sales of school buses, which accounted for 22% of the medium truck market, increased slightly from 1996 to 33,200 units. Sales and revenues of $6,371 million in 1997 were 11% higher than the $5,754 million reported in 1996 and comparable to the $6,342 million reported in 1995. Sales of trucks, mid-range diesel engines and service parts totaled $6,147 million in 1997, 12% above the $5,508 million reported for 1996 and comparable to the $6,125 million reported in 1995. The Company maintained its position as sales leader in the combined United States and Canadian Class 5 through 8 truck market in 1997 with a 28.6% market share, an increase from the 27.5% share in 1996 and the 26.7% share in 1995. (Sources: American Automobile Manufacturer's Association, the United States Motor Vehicle Manufacturer's Association and R. L. Polk & Company.) In 1997, the Company's share of the Class 8 heavy truck market increased to 18.6% from 17.1% in 1996 and 18.4% in 1995. Shipments of mid-range diesel engines by the Company to other OEMs during 1997 were a record 184,000 units, a 13% increase from 1996 and a 19% improvement over 1995. Higher shipments to Ford to meet consumer demand for the light trucks and vans which use this engine was the primary reason for the increase. 30 Service parts sales of $806 million in 1997 increased from the $760 million reported in 1996 and were 10% higher than the $730 million reported in 1995 as a result of dealer and national account volume growth. Finance and insurance revenue for 1997 was $174 million, 12% lower than the $197 million reported in 1996 primarily as a result of a decline in wholesale financing activity. Revenues from financial services operations increased 18% between 1996 and 1995 primarily as a result of higher income on sales of retail notes. COSTS AND EXPENSES. Manufacturing gross margin was 14.2% of sales in 1997, compared with 12.5% in 1996 and 13.8% in 1995. The increase in gross margin is primarily due to lower production costs and improved pricing offset by a provision for employee profit sharing. Factors which contributed to the change in gross margin between 1996 and 1995 included lower sales volumes, more competitive pricing and the costs of terminating the NGT Program. Engineering and research expense was $124 million in 1997, $129 million in 1996 and $113 million in 1995, reflecting continuing investment in new truck and engine products as well as improvements to existing products. Marketing and administrative expense was $365 million in 1997 compared with $319 million in 1996 and $307 million in 1995. The change between 1997 and 1996 is the result of higher sales and distribution costs, and an increase in the provision for payment to employees as provided by the Company's performance incentive programs. The $12 million increase in the expense between 1996 and 1995 reflects investment in the implementation of the Company's strategy to reduce costs and complexity in its manufacturing processes. Interest expense decreased to $74 million in 1997 from $83 million in 1996 and $87 million in 1995. The decreases in 1997 and 1996 were the result of lower wholesale note funding requirements and declining interest rates. Finance service charges on sold receivables were $23 million in 1997, 4% lower than in 1996 and 21% lower than in 1995. LIQUIDITY AND CAPITAL RESOURCES Cash flow is generated from the manufacture and sale of trucks, mid-range diesel engines and service parts as well as product financing and insurance coverage provided to Transportation's dealers and retail customers by the financial services operations. Historically, funds to finance Transportation's products are obtained from a combination of commercial paper, short- and long-term bank borrowings, medium- and long-term debt issues, sales of finance receivables and equity capital. NFC's current debt ratings have made bank borrowings and sales of finance receivables the most economic sources of cash. Insurance operations are funded through internal operations. Total cash, cash equivalents and marketable securities of the Company amounted to $965 million at October 31, 1997, $881 million at October 31, 1996 and $1,040 million at October 31, 1995. Cash provided by operations during 1997 totaled $380 million, primarily from net income of $150 million, $82 million of noncash deferred income taxes, $59 million of other noncash items, principally depreciation, and a net change in operating assets and liabilities of $89 million. Income tax expense for 1997 was $92 million, of which $10 million was cash payments to federal and certain state and local governments, while the remaining $82 million of federal and other taxes reduced the deferred tax asset. The net change in operating assets and liabilities of $89 million includes a $195 million increase in receivables, reflecting continued strong demand for the Company's products, offset by a $288 million increase in accounts payable as a result of increased production in the fourth quarter. 31 Investment programs included a net decrease in marketable securities, as sales of securities exceeded purchases by $45 million. During 1997, the purchase of $970 million of retail notes and lease receivables was funded with $958 million in proceeds from the sale of receivables and principal collections of $94 million. Other investment activities used $42 million for an increase in property and equipment leased to others and $172 million to fund capital expenditures. Capital expenditures included $82 million for construction of a truck assembly facility in Mexico, $42 million to increase mid-range diesel engine capacity and additional funds for truck product improvements. Financing activities used cash to pay $29 million in dividends on the Series G Preferred shares, $46 million for principal payments on long-term debt, and $285 million to reduce notes and debt outstanding under the bank revolving credit facility and asset-backed and other commercial paper programs offset by an increase of $209 million in long-term debt. During 1997 and 1996, NFC supplied 94% of the wholesale financing of new trucks sold to Transportation's dealers compared with 93% in 1995. NFC's share of the retail financing of new trucks sold in the United States decreased to 13% in 1997 from 16% in 1996 and 14% in 1995 due to the highly competitive commercial financing market. The sale of finance receivables is a significant source of funding for the financial services operations. During 1997, 1996 and 1995, NFC sold $987 million, $985 million and $740 million, respectively, of retail notes through Navistar Financial Retail Receivables Corporation ("NFRRC"), a wholly owned subsidiary. The net proceeds from these sales were used for general working capital purposes. In November 1997, NFC sold an additional $500 million of retail notes through NFRRC. NFRRC has filed registration statements with the SEC which provide for the issuance of up to $5,000 million of asset-backed securities. At October 31, 1997, the remaining shelf registration available to NFRRC for issuance of asset-backed securities was $1,473 million. See Note 8 to the Financial Statements. NFC has a $925 million contractually committed bank revolving credit facility and a $400 million asset-backed commercial paper program supported by a bank liquidity facility which mature in March 2001. NFC also utilizes a $600 million revolving wholesale note trust that provides for the continuous sale of eligible wholesale notes on a daily basis. The trust is comprised of two $100 million tranches of investor certificates maturing serially from 1998 to 1999, and two $200 million tranches maturing in 2003 and 2004. At October 31, 1997, the remaining shelf registration available for issuance of investor certificates was $200 million. At October 31, 1997, available funding under NFC's amended and restated credit facility (the "Credit Agreement") and the asset-backed commercial paper facility (the "ABCP Program") was $532 million and $14 million, respectively, of which $141 million was used to back short-term debt at October 31, 1997. The Company finances capital expenditures principally through internally generated cash. Capital leasing is used to fund selected projects based on economic and operating factors. The Company had outstanding capital commitments of $137 million at October 31, 1997 primarily for increased manufacturing capacity at the Indianapolis engine plant and construction of a truck assembly facility in Mexico. The Company has announced plans for approximately $350 million in capital spending over the next six years for the NGT Program. Capital expenditures for 1998 are expected to be approximately double the current year's level. Approximately $25 million is to be spent in 1998 for the NGT Program. Additional capital expenditures are planned for the completion of the truck assembly facility in Mexico, increased manufacturing capacity at the Indianapolis engine plant, commencement of truck operations in Brazil and improvements to existing facilities and products. The Company's investment in the NGT Program will also include $300 million in development expense over the next six years, of which approximately $50 million is planned for 1998. In November 1997, the Company contributed $200 million to the Retiree Health Care Base Plan Trust and contributed $100 million to the hourly pension plan. 32 NFC's maximum exposure under all receivable sale recourse provisions at October 31, 1997 was $246 million; however, management believes that the allowance for credit losses on sold receivables is adequate. At October 31, 1997, the Canadian operating subsidiary was contingently liable for retail customers' contracts and leases financed by a third party. The Company is subject to maximum recourse of $261 million on retail contracts and $13 million on retail leases. In addition, as of October 31, 1997, the Company is contingently liable for approximately $49 million for various guarantees and buyback programs; however, based on historical loss trends, the Company's exposure is not considered material. The Canadian operating subsidiary, NFC and certain other subsidiaries included in financial services operations are parties to agreements which result in the restriction of amounts which can be distributed to Transportation in the form of dividends, loans or advances. At October 31, 1997, the maximum amount of dividends which were available for distribution under the most restrictive covenants was $62 million. The Company and Transportation are obligated under certain agreements with public and private lenders of NFC to maintain the subsidiary's income before interest expense and income taxes at not less than 125% of its total interest expense. No income maintenance payments were required for the three years ended October 31, 1997. See "Business--Certain Arrangements with NFC." During November 1997, the Company arranged financing for $125 million of funds denominated in U.S. dollars and Mexican pesos to be used for development of the Company's Mexican operations. Management continues to evaluate current and forecasted cash flow as a basis for financing operating requirements, capital expenditures and anticipated payments of preferred dividends. Management believes that collections on the outstanding receivables portfolios as well as funds available from various funding sources will permit the financial services operations to meet the financing requirements of the Company's dealers and customers. ENVIRONMENTAL MATTERS In the fourth quarter of 1994, Transportation recorded a $20 million charge, net of $13 million of income taxes, as a loss of discontinued operations related to environmental liabilities at production facilities of two formerly owned businesses, Wisconsin Steel and Solar Turbine, Inc. Included in the charge was an anticipated $11 million payment to the Economic Development Administration, a division of the U.S. Department of Commerce, in settlement of commercial and environmental disputes related to the Wisconsin Steel property. In 1997, the U.S. Department of Justice and Transportation approved the final consent decree related to the Wisconsin Steel property and the Company paid $11 million to the Economic Development Administration. The Company has been named a potentially responsible party ("PRP"), in conjunction with other parties, in a number of cases arising under an environmental protection law known as the Superfund law. These cases involve sites which allegedly have received wastes from current or former Company locations. Based on information available to the Company, which in most cases consists of data related to quantities and characteristics of material generated at or shipped to each site as well as cost estimates from PRPs and/or federal or state regulatory agencies for the cleanup of these sites, a reasonable estimate is calculated of the Company's share, if any, of the probable costs and is provided for in the financial statements. These obligations generally are recognized no later than completion of the remedial feasibility study and are not discounted to their present value. The Company reviews its accruals on a regular basis and believes that, based on these calculations, its share of the potential additional costs for the cleanup of each site will not have a material effect on the Company's financial results. DERIVATIVE FINANCIAL INSTRUMENTS As disclosed in Notes 1 and 10 to the Financial Statements, the Company uses derivative financial instruments to transfer or reduce the risks of foreign exchange and interest rate volatility, and potentially increase the return on invested funds. Company policy does not allow the use of derivatives for speculative purposes. 33 The Company's manufacturing operations, as conditions warrant, hedge foreign exchange exposure on the purchase of parts and materials from foreign countries and its exposure from sales of manufactured products in other countries. Contracted purchases of commodities for manufacturing may be hedged up to one year. The manufacturing operations had no foreign exchange exposure at October 31, 1997. NFC uses interest rate caps, interest rate swaps and forward interest rate contracts when needed to convert floating rate funds to fixed and vice versa to match its asset portfolio. NFC also uses forward interest rate contracts to manage its exposure to fluctuations in funding costs from the anticipated securitization and sale of retail notes. During 1997, NFC entered into $500 million of interest rate hedge agreements in anticipation of the November 1997 sale of retail receivables. These hedge agreements were closed in conjunction with the pricing of the sale, and the loss at October 31, 1997, which was not material, was deferred and reduced the gain recognized on the sale of receivables in November 1997. Both manufacturing operations and NFC purchase collateralized mortgage obligations that have relatively stable cash flow patterns in relation to interest rate changes. YEAR 2000 The Company has made and will make certain investments in its software systems and applications to ensure that the Company is Year 2000 compliant. The financial impact to the Company has not been and is not anticipated to be material to its financial position or results of operations. NEW ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share." This statement specifies the computation, presentation and disclosure requirements for earnings per share and is effective for financial statements issued for periods ending after December 15, 1997. The standard is not expected to have a material effect on the Company's net income per common share computation. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), and Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 130 establishes standards for reporting and display of comprehensive income and its components. SFAS 131 establishes standards for reporting information about operating segments, and related disclosures about products and services, geographic areas and major customers. These statements are effective for fiscal years beginning after December 15, 1997. These standards expand or modify disclosures and, accordingly, will have no impact on the Company's reported financial position, results of operations and cash flows. The Company is assessing the impact of SFAS 131 on its reported segments. In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement revises standards for disclosures about pension and other postretirement benefit plans and is effective for fiscal years beginning after December 15, 1997. This standard expands or modifies disclosure and, accordingly will have no impact on the Company's reported financial position, results of operations and cash flows. INCOME TAXES The Statement of Financial Condition at October 31, 1997 and 1996 includes a deferred tax asset of $934 million and $1,030 million, respectively, net of valuation allowances of $309 million related to future tax benefits. The deferred tax assets are net of valuation allowances since it is more likely than not that some portion of the deferred tax asset may not be realized in the future. The deferred tax asset includes the tax benefits associated with cumulative tax losses of $1,808 million and temporary differences, which represent the cumulative expense of $1,413 million recorded in the Statement of Income that has not been deducted on the Company's tax returns. The valuation allowance at October 31, 1997 assumes that it is more likely than not that approximately $815 million of cumulative tax losses will not be realized before their expiration date. Realization of the net deferred tax asset is dependent on the generation of approximately $2,500 million of future taxable income, of which an average of approximately $75 million would 34 need to be generated annually for the 14-year period 1998 through 2011. The remaining taxable income, which represents the realization of tax benefits associated with temporary differences, does not need to be generated until subsequent to 2011. Until the Company has utilized its significant NOL carryforwards, the cash payment of federal income taxes will be minimal. See Note 3 to the Financial Statements. Extensive analysis is performed to determine the amount of the deferred tax asset. Such analysis is based on the premise that the Company is and will continue to be a going concern and that it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Management reviews all available evidence, both positive and negative, to assess the long-term earnings potential of the Company using a number of alternatives to evaluate financial results in economic cycles at various industry volume conditions based upon the Company's current operating structure. Other factors considered are the Company's 17-consecutive-year leadership in the combined market share of Class 5 through 8 trucks and recognition as a worldwide leading producer of mid-range diesel engines. The projected availability of taxable income to realize the tax benefit from net operating loss carryforwards and the reversal of temporary differences before expiration of these benefits are also considered. The valuation allowance may be adjusted in the future as a result of changes in business and industry conditions, operating structure, Company strategies or other significant transactions. Management believes that, with the combination of available tax planning strategies and the maintenance of significant market share, earnings are achievable in order to realize the net deferred tax asset of $934 million. Reconciliation of the Company's income before income taxes for financial statement purposes to United States taxable income for the years ended October 31 is as follows:
YEARS ENDED OCTOBER 31, ------------------------- 1997 1996 1995 ------- ------- ------- (MILLIONS OF DOLLARS) Income before income taxes........................... $ 242 $ 105 $ 262 Exclusion of (income) loss of foreign subsidiaries... (3) 3 (11) State income taxes................................... (2) (2) (2) Temporary differences................................ 151 (284) 69 Other................................................ 6 -- (4) ------- ------- ------- Taxable income (loss)............................ $ 394 $ (178) $ 314 ======= ======= =======
The Company contributed approximately $215 million to its hourly and salaried pension plans in fiscal 1997. The timing of these contributions allowed for their deduction on the Company's 1996 tax return, which resulted in a tax loss of $178 million as compared to the $37 million of taxable income previously reported. 35 BUSINESS Navistar, through its wholly owned subsidiary Transportation, operates in two principal industry segments: manufacturing and financial services. Manufacturing operations are responsible for the manufacture and marketing of medium and heavy trucks, including school buses, mid-range diesel engines and service parts primarily in the United States and Canada as well as in selected export markets. Based on assets and revenues, manufacturing operations represent the majority of the Company's business activities. The financial services operations consist of NFC, its domestic insurance subsidiary and the Company's foreign finance and insurance subsidiaries. NFC's primary business is the retail and wholesale financing of products sold by the manufacturing operations and its dealers within the United States and the providing of commercial physical damage and liability insurance to the manufacturing operations' dealers and retail customers and to the general public through an independent insurance agency system. Industry segment data for 1997, 1996 and 1995 is summarized in Note 14 to the Financial Statements, which is included elsewhere in this Prospectus. THE MEDIUM AND HEAVY TRUCK INDUSTRY The market in which Navistar competes is subject to considerable volatility as it moves in response to cycles in the overall business environment and is particularly sensitive to the industrial sector which generates a significant portion of the freight tonnage hauled. Government regulation has impacted and will continue to impact trucking operations and efficiency and the specifications of equipment. The following table shows industry retail deliveries in the combined United States and Canadian markets for the five years ended October 31, in thousands of units:
YEARS ENDED OCTOBER 31, ----------------------------- 1997 1996 1995 1994 1993 ----- ----- ----- ----- ----- Class 5, 6 and 7 medium trucks and school buses... 150.6 145.8 151.8 134.2 122.5 Class 8 heavy trucks.............................. 196.8 195.4 228.8 205.4 166.4 ----- ----- ----- ----- ----- Total............................................. 347.4 341.2 380.6 339.6 288.9 ===== ===== ===== ===== =====
Source: Monthly data derived from materials produced by the American Automobile Manufacturers Associations ("AAMA") in the United States and Canada, and other sources. The Class 5 through 8 truck market in the United States and Canada is highly competitive. Major domestic competitors include PACCAR, Ford and General Motors, as well as foreign-controlled domestic manufacturers, such as Freightliner, Mack and Volvo GM. In addition, manufacturers from Japan (Hino, Isuzu, Nissan and Mitsubishi) are competing in the United States and Canadian markets. The intensity of this competition results in price discounting and margin pressures throughout the industry. In addition to the influence of price, market position is driven by product quality, engineering, styling, utility and distribution. TRANSPORTATION MARKET SHARE Transportation delivered 99,500 Class 5 through 8 trucks, including school buses, in the United States and Canada in fiscal 1997, a 6% increase from the 94,000 units delivered in 1996. Navistar's combined share of the Class 5 through 8 truck market was 28.6% in 1997 and 27.5% in 1996. Transportation has been the leader in combined market share for Class 5 through 8 trucks, including school buses, in the United States and Canada in each of its last 17 fiscal years based on data obtained from the AAMA, the United States Motor Vehicle Manufacturers Association and R.L. Polk & Company. 36 COMPETITIVE STRENGTHS The Company believes that its key competitive strengths include the following: Leading Market Position. The Company has been the leader in the combined market share for Class 5 through 8 trucks, including school buses, in the United States and Canada in each of its last 17 fiscal years. In fiscal 1997, the Company's combined market share of the Class 5 through 8 truck market was 28.6%, a 1.1 percentage point increase in market share from the previous year. For each of the last five fiscal years, the Company has been the leader in the medium truck and school bus markets. In addition, the Company believes that it is the largest supplier of replacement parts to the heavy and medium truck and bus aftermarkets. Commitment to Customer Satisfaction. In order to achieve high customer satisfaction, the Company maintains the largest retail organization in North America specializing in medium and heavy trucks. In addition, the Company operates seven regional parts distribution centers in the United States and Canada, enabling it to offer 24-hour availability and same day shipment of the parts most frequently requested by customers. In 1997, Navistar was ranked number one for the third consecutive year by the annual ATD Attitude Survey, which evaluates OEMs on quality and performance issues related to products, parts, policies and service. Largest Supplier of Mid-Range Diesel Engines. The Company is the leading supplier of mid-range diesel engines in the 160-300 horsepower range and is currently the exclusive supplier of diesel engines to Ford for use in its diesel-powered light trucks and vans. On October 29, 1997, the Company finalized its agreement with Ford to supply newly-designed, advanced technology engines through the year 2012 for use in Ford's F-series pickup trucks and Econoline vans. This 10-year agreement is scheduled to become effective beginning with model year 2003 and will replace the Company's current agreement with Ford, which will expire after model year 2002. The Company has been supplying diesel engines to Ford since 1982. TRUCK STRATEGY In fiscal 1997, the Company continued to implement its five-point truck strategy, which the Company adopted in fiscal 1996 in order to improve operating performance and increase profitability. Specifically, this strategy is designed to enable Transportation's truck division to achieve its part in Navistar's goal of generating an average 17.5% after tax return on equity over a business cycle. The principal components of this strategy as well as recent achievements in its implementation include: . Reduce Product Complexity. The Company believes that it can increase manufacturing efficiency and improve product quality by reducing the complexity of its product offerings. Historically, thousands of options and a separate chassis design were offered for each truck model manufactured by Transportation, which led to significant manufacturing inefficiencies. In 1996, Transportation introduced a new ordering program known as Diamond Spec(TM) for its premium conventional heavy duty trucks. Under this program, Transportation rationalized the number of possible option combinations by developing pre-packaged option groups which are arranged under 11 categories (i.e., engine, chassis, electrical system) based upon the most popular preferences of its customers. Transportation also combined the chassis for three models offered in this premium conventional product category into one chassis. In 1997, Transportation expanded its Diamond Spec(TM) ordering system and completed a successful pilot program in 11 key markets for its medium trucks. This standardization of option and chassis groups is expected to lead to significant operating cost savings from increased manufacturing efficiency and to better pricing for purchased components. In addition, Transportation believes that this program will result in an overall improvement in product quality and shorter and more reliable delivery times. . Focus Manufacturing Facilities. The Company believes that it can achieve significant improvements in manufacturing efficiency by focusing each of its principal truck manufacturing facilities on producing a single type of truck model. In order to sharpen the Company's focus on serving its customers and markets, the Company recently announced a reorganization of its truck group into six distinct businesses. The new organization will consist of four vehicle centers--heavy truck, severe service truck, medium truck and school bus, and two business centers--parts and international. In fiscal 1996, Transportation transferred the production of its stripped chassis from its Springfield, Ohio facility to its Conway, Arkansas facility, in order to achieve efficiencies in the production of medium duty trucks. Similarly, the Company established a joint venture, SST Truck Company, which will focus on the production of the 37 highly-complex Paystar(R) severe service trucks, thereby permitting Transportation's Chatham, Ontario facility to concentrate on manufacturing premium conventional heavy duty trucks. . Emphasize Product Development. The Company believes that each of its current truck models equals or exceeds those of its competitors in terms of satisfying its customers' needs. Nevertheless, the Company intends to continue to enhance and expand its current product offerings in an effort to provide trucks that better satisfy its customers' changing demands. In fiscal 1997, Navistar's Board of Directors approved funding for the NGT Program. Pursuant to the NGT Program, the Company expects to invest $350 million in capital and spend $300 million in development costs over the next six years to develop and manufacture a full line of world-class medium trucks, school buses and regular conventional heavy trucks, which will offer enhanced driver comfort, operating efficiency, overall appearance, quality and performance. The design and development phases of the NGT Program are currently underway and the Company expects the first new vehicles to be available in mid-2001, with additional new vehicles to follow approximately every six months through 2003. In 1997, Transportation also introduced the International 9100 conventional truck to replace its 8200 heavy duty regular conventional truck and made significant improvements to its premium conventional models. Further model improvements are expected to be introduced for Transportation's premium conventional heavy duty truck models in fiscal 1998. . Expand International Operations. The Company believes that there are significant opportunities to increase sales of both trucks and engines in Mexico and in other selected export markets. In 1997, the Company captured approximately 11.5% of the Mexican truck market after establishing a dealer network and a parts distribution center and arranging for production at a contract manufacturer in 1996. The Company's dealer network in Mexico was expanded from 23 to 38 locations in 1997. The Company is currently constructing an assembly facility located near Monterrey, Mexico. This medium duty and heavy duty truck facility is anticipated to cost approximately $167 million and to begin production by late-1998. Its capacity will be 65 units per shift. The Company believes that its Mexican operations will enable it to expand into other Latin American countries, particularly as a result of the favorable and cost effective trade agreements between Mexico and other Latin American countries. The Company has also recently established a presence in Brazil by forming a Brazilian subsidiary and signing an agreement with a Brazilian equipment manufacturer to assemble commercial trucks. The Company expects that production of its trucks in Brazil will begin in late 1998. . Establish Competitive Wage, Benefit and Productivity Levels. Transportation expects to achieve significant productivity gains as a result of favorable changes in job classifications, work rules and training. In August 1997, Transportation's collective bargaining agreement with the UAW was extended through October 1, 2002. This contract contains significant changes from the prior agreement, enabling the Company to better focus its assembly plants, simplify current product lines, invest in new product development and achieve more competitive wage, benefit and productivity levels. This new agreement enabled the Company to reinstate its NGT Program and continue to implement its five- point truck strategy. In 1996, Transportation signed a new three-year collective bargaining agreement with the CAW. PRODUCTS The following table illustrates the percentage of the Company's manufacturing sales by class of product based on dollar amount:
YEARS ENDED OCTOBER 31, ---------------- PRODUCT CLASS 1997 1996 1995 ------------- ---- ---- ---- Class 5, 6 and 7 medium trucks and school buses............ 34% 35% 32% Class 8 heavy trucks....................................... 37 35 42 Service parts.............................................. 13 14 12 Engines.................................................... 16 16 14 --- --- --- Total.................................................. 100% 100% 100% === === ===
38 Transportation manufactures a full line of products in the common carrier, private carrier, government/service, leasing, construction, energy/petroleum and student transportation markets. Transportation offers diesel-powered trucks and buses because of their improved fuel economy, ease of serviceability and greater durability over gasoline-powered vehicles. Transportation's Class 8 heavy trucks generally use diesel engines purchased from outside suppliers while Class 5, 6 and 7 medium trucks are powered by a proprietary line of mid-range diesel engines manufactured by Transportation. Based upon information published by R.L. Polk & Company, diesel-powered Class 5, 6 and 7 medium truck shipments represented 87% of all medium truck shipments for fiscal year 1997 in the United States and Canada. Transportation's truck and bus manufacturing operations in the United States and Canada consist principally of the assembly of components manufactured by its suppliers, although Transportation produces its own mid-range diesel truck engines, sheet metal components (including cabs) and miscellaneous other parts. During 1997, the Company announced plans for approximately $350 million in capital spending and $300 million in development expense over the next six years for development of its next generation truck. ENGINE AND FOUNDRY Transportation builds diesel engines for use in its Class 5, 6 and 7 medium trucks, school buses, selected Class 8 heavy truck models and for sale to original equipment manufacturers in the United States and Canada. Transportation also sells engines for industrial, agricultural and marine applications. Transportation is the leading supplier of mid-range diesel engines in the 160-300 horsepower range according to data supplied by Power Systems Research of Minneapolis, Minnesota. Transportation has an agreement to supply its 7.3 liter (7.3L) electronically controlled diesel engine to Ford through the year 2002 for use in all of Ford's diesel-powered light trucks and vans. Sales of this engine to Ford currently account for approximately 87% of Transportation's 7.3L sales. Shipments of engines to all original equipment manufacturers totaled a record 184,000 units in 1997, an increase of 13% from the 163,200 units shipped in 1996. During 1997, Transportation entered into a ten-year agreement, effective with model year 2003, to supply Ford with a 7.3L replacement product for use in its diesel-powered light trucks and vans. SERVICE PARTS In the United States and Canada, Transportation operates seven regional parts distribution centers, which allows it to offer 24-hour availability and same day shipment of the parts most frequently requested by customers. The Company also operates a parts distribution center in Mexico. Transportation's service parts program is vital to the maintenance of the relationship with its customers and dealers. The sale of replacement parts does not represent a separate and distinct business of Transportation. Transportation's truck group makes decisions about the pricing of trucks and replacement parts based upon a variety of factors which integrally link the pricing and sale of replacement parts with the sale of medium and heavy trucks, including school buses. The acceptable price for dealers and fleet truck sales is determined by not only looking at the market price of the individual trucks themselves, but also by analyzing the amount of future replacement parts that will be purchased from Transportation over the truck's life cycle and the total expected profit contribution, including future replacement parts, expected to be realized on each sale. Accordingly, the pricing of trucks and replacement parts is not independently determined. MARKETING AND DISTRIBUTION Transportation's truck products are distributed in virtually all key markets in the United States and Canada. Transportation's truck distribution and service network in these countries was composed of 954, 957 and 958 dealers and retail outlets at October 31, 1997, 1996 and 1995, respectively. Included in these totals were 514, 504 and 490 secondary and associate locations at October 31, 1997, 1996 and 1995, respectively. The Company also has a dealer network in Mexico composed of 38 and 23 dealer locations at October 31, 1997 and 1996, respectively. 39 Retail dealer activity is supported by five regional operations in the United States and general offices in Canada and Mexico. Transportation has a national account sales group, responsible for 99 major national account customers. Transportation's network of 16 Used Truck Centers in the United States provides trade-in support to the Company's dealers and national accounts group, and markets all makes and models of reconditioned used trucks to owner-operators and fleet buyers. Trucks, components and service parts are exported for wholesale and retail sale to more than 70 countries around the world. FINANCIAL SERVICES NFC is a financial services organization that provides wholesale, retail and lease financing of new and used trucks sold by Transportation and its dealers in the United States. NFC also finances wholesale accounts and selected retail accounts receivable of Transportation. Sales of new products (including trailers) of other manufacturers are also financed regardless of whether designed or customarily sold for use with Transportation's truck products. During 1997 and 1996, NFC provided wholesale financing for 94% of the new truck units sold by Transportation to its dealers and distributors in the United States and retail and lease financing for 13% and 16%, respectively, of all new truck units sold or leased by Transportation to retail customers. NFC's wholly owned domestic insurance subsidiary, Harco National Insurance Company, provides commercial physical damage and liability insurance coverage to Transportation's dealers and retail customers, and to the general public through an independent insurance agency system. Harbour Assurance Company of Bermuda Limited offers a variety of programs to the Company, including general liability insurance, ocean cargo coverage for shipments to and from foreign distributors, and reinsurance coverage for various Transportation policies. IMPORTANT SUPPORTING OPERATIONS Navistar International Corporation Canada has an agreement with a subsidiary of General Electric Capital Canada, Inc. to provide financing for Canadian dealers and customers. RESEARCH AND DEVELOPMENT Research and development activities, which are directed toward the introduction of new products and improvements of existing products and processes used in their manufacture, totaled $92 million, $101 million, and $91 million for 1997, 1996 and 1995, respectively. BACKLOG The backlog of unfilled truck orders (subject to cancellation or return in certain events) at October 31, 1997, 1996 and 1995 was $2,360 million, $1,254 million and $2,581 million, respectively. Although the backlog of unfilled orders is one of many indicators of market demand, other factors such as changes in production rates, available capacity, new product introductions and competitive pricing actions may affect point-in- time comparisons. EMPLOYEES The Company employed 16,168, 14,187 and 16,079 individuals at October 31, 1997, 1996 and 1995, respectively. LABOR RELATIONS At October 31, 1997, the UAW represented 8,079 of the Company's active employees in the United States, and the CAW represented 2,142 of the Company's active employees in Canada. Other unions represented 955 of 40 the Company's active employees in the United States and Canada. The Company entered into a collective bargaining agreement with the UAW in 1995, which would have expired on October 1, 1998. During August 1997, the Company's collective bargaining agreement with the UAW was extended through October 1, 2002. This contract allows the Company to focus its assembly plants, simplify current product lines, invest in new product development, and achieve more competitive wage, benefit and productivity levels. In addition, the Company entered into a collective bargaining agreement with the CAW in 1996, which expires on October 24, 1999. PATENTS AND TRADEMARKS Transportation continuously obtains patents on its inventions and, thus, owns a significant patent portfolio. Additionally, many of the components which Transportation purchases for its products are protected by patents that are owned or controlled by the component manufacturer. Transportation has licenses under third-party patents relating to its products and their manufacture, and Transportation grants licenses under its patents. The royalties paid or received under these licenses are not significant. No particular patent or group of patents is considered by Transportation to be essential to its business as a whole. Like all businesses which offer well-known products or services, Transportation's primary trademarks are an important part of its worldwide sales and marketing efforts, and provide instant identification of its products and services in the marketplace. To support these efforts, Transportation maintains, or has pending, registrations of its primary trademarks in those countries in which it does business or expects to do business. RAW MATERIALS AND ENERGY SUPPLIES Transportation purchases raw materials, parts and components from numerous outside suppliers but relies upon some suppliers for a substantial number of components for its truck and engine products. A majority of Transportation's requirements for raw materials and supplies is filled by single-source suppliers. The impact of an interruption in supply will vary by commodity. Some parts are generic to the industry while others are of a proprietary design requiring unique tooling which would require time to recreate. However, the Company's exposure to a disruption in production as a result of an interruption of raw materials and supplies is no greater than the industry as a whole. In order to remedy any losses resulting from an interruption in supply, the Company maintains contingent business interruption insurance for storms, fire and water damage. While the Company believes that it has adequate assurances of continued supply, the inability of a supplier to deliver could have an adverse effect on production at certain of the Company's manufacturing locations. IMPACT OF GOVERNMENT REGULATION Truck and engine manufacturers continue to face increasing governmental regulation of their products, especially in the areas of environment and safety. The Company believes its products comply with all applicable environmental and safety regulations. As a diesel engine manufacturer, the Company has incurred research and tooling costs to redesign its engine product lines to meet the U.S. EPA and CARB emission standards effective for the 1998 model year. In addition to the 1998 standards, the Company, along with other engine manufacturers, has signed a voluntary agreement with U.S. EPA and CARB to achieve new reductions in ozone-causing exhaust emissions by 2004 (the "Statement of Principles"). In October 1997, as a result of the Statement of Principles, the U.S. EPA issued a final rule defining heavy-duty emission requirements for the 2004 model year. The Company will also provide engines that satisfy 1998 Clean Fuel Fleet Vehicle requirements and must also satisfy California's emission standards in 2002 for engines used in medium-size vehicles (which includes vehicles up to 14,000 lbs. Gross Vehicle Weight Rating). The Company expects that its diesel engines will be able to meet all of these standards within the required time frame. For model year 1998, the U.S. EPA has issued conditional certification of conformance for all electronically-controlled diesel engines while it investigates whether these engines fully 41 comply with regulations concerning nitrogen oxide emissions. In particular, the U.S. EPA is focusing on whether certain electronics strategies used to maintain fuel economy have an adverse impact on nitrogen oxide emissions. Navistar believes the diesel engines manufactured by it are in compliance with all applicable U.S. EPA standards and is cooperating with the U.S. EPA's investigation. It is possible that the U.S. EPA investigation could result in some buyers deferring their purchases of trucks pending the outcome of the investigation, and that future U.S. EPA action could impact the fuel economy of trucks. Effective with the 1998 model year, Canada's emission standards mirror those of the U.S. EPA and require the sale of low-sulfur diesel fuel effective October 1, 1997. Mexico has adopted the U.S. heavy diesel engine emission standards as of the 1994 model year but has conditioned compliance on the availability of low-sulfur diesel fuel. Truck manufacturers are also subject to various noise standards imposed by federal, state and local regulations. The engine is one of a truck's primary noise sources, and the Company, therefore, works closely with original equipment manufacturers to develop strategies to reduce engine noise. The Company is also subject to the National Traffic and Motor Vehicle Safety Act ("Safety Act") and Federal Motor Vehicle Safety Standards ("Safety Standards") promulgated by the National Highway Traffic Safety Administration. The Company believes it is in compliance with the Safety Act and the Safety Standards. Expenditures to comply with various environmental regulations relating to the control of air, water and land pollution at production facilities and to control noise levels and emissions from Transportation's products have not been material except for two sites formerly owned by the Company, Wisconsin Steel in Chicago, Illinois, and Solar Turbine in San Diego, California. In 1994, Transportation recorded a $20 million after-tax charge as a loss of discontinued operations for environmental liabilities and cleanup cost at these two sites. It is not expected that the costs of compliance with foreseeable environmental requirements will have a material effect on the Company's financial position or operating results. PROPERTIES In the United States and Canada, Transportation owns and operates eight manufacturing and assembly operations, which contain approximately nine million square feet of floor space. Four facilities manufacture and assemble trucks, two plants manufacture diesel engines and two locations produce gray iron castings. The Company also manufactures trucks at a facility owned and operated through a joint venture in the U.S. and is constructing a truck assembly facility in Mexico. In addition, Transportation owns or leases other significant properties in the United States and Canada including vehicle and parts distribution centers, sales offices, an engineering center and its headquarters in Chicago. Transportation's principal research and engineering facilities are located in Fort Wayne, Indiana, and Melrose Park, Illinois. In addition, certain research is conducted at its manufacturing plants. All of Transportation's plants are being utilized and have been maintained adequately, are in good operating condition and are suitable for its current needs through productive utilization of the facilities. These facilities, together with planned capital expenditures, are expected to meet Transportation's manufacturing needs in the foreseeable future. A majority of the activity of the financial services operations is conducted from its leased headquarters in Rolling Meadows, Illinois. The financial services operations also lease six other office locations in the United States. LEGAL PROCEEDINGS The Company and its subsidiaries are subject to various claims arising in the ordinary course of business, and are parties to various legal proceedings which constitute ordinary routine litigation incidental to the business of the Company and its subsidiaries. In the opinion of the Company's management, none of these proceedings or claims are material to the business or the financial condition of the Company. 42 CERTAIN ARRANGEMENTS WITH NFC Master Intercompany Agreement The operating relationship between Transportation and NFC is governed by the terms of a master intercompany agreement dated as of April 26, 1993 and as amended on September 30, 1996 (the "Master Intercompany Agreement"). The Master Intercompany Agreement requires, among other things, that Transportation, with limited exceptions, offer NFC all wholesale and retail notes and installment sales contracts which Transportation acquires in the regular course of its business from sales of trucks and related equipment to Transportation's dealers and customers. Such offers must be on terms which will (together with charges made to others for financing services) afford reasonable compensation for the financing services rendered by NFC to Transportation and Transportation's dealers with respect to the sale of Transportation's products and used goods. NFC in turn has agreed, to the extent that it is able to finance such purchases, that it will purchase all such receivables without recourse. Pursuant to the Master Intercompany Agreement, NFC also purchases Transportation's wholesale accounts receivable from Transportation's dealers arising out of Transportation's sales of goods (primarily parts) and services to such dealers. NFC receives compensation from Transportation in the form of a floating rate service charge for financing these accounts. The Master Intercompany Agreement also provides that NFC will purchase retail accounts receivable from Transportation that arise out of Transportation's sales to retail customers. NFC receives a floating rate service charge from Transportation for financing these accounts. Tax Allocation Agreement Pursuant to the tax allocation agreement effective October 1, 1981, as subsequently amended and supplemented (the "Tax Allocation Agreement"), NFC is required to pay to Transportation an amount equal to the amount NFC and its subsidiaries would pay with respect to federal corporate income taxes if NFC and its subsidiaries filed federal tax returns on a consolidated basis as an affiliated group of corporations, notwithstanding the fact that the affiliated group of corporations including Navistar and its subsidiaries may not have any federal tax liability. The Tax Allocation Agreement contains similar provisions regarding state income taxes for states that permit the filing of consolidated returns. Side Agreement The Amended and Restated Parent's Side Agreement dated as of November 8, 1994, between NIC and Transportation (the "Side Agreement") requires either Transportation or NIC to hold and own 100% of the outstanding voting stock of NFC (other than shares held by directors of NFC as qualifying shares). The Side Agreement also requires Transportation not to permit NFC's consolidated income before income taxes, interest expense and dividends on preferred stock to be less than 125% of NFC's consolidated interest expense and dividends on preferred stock for any period of four fiscal quarters immediately preceding the date of measurement. 43 MANAGEMENT The following table lists the names, ages and all positions held by the executive officers of the Company as of December 31, 1997:
NAME AGE POSITION ---- --- -------- John R. Horne........ 59 Chairman, President and Chief Executive Officer Donald DeFosset, Jr.. 49 Executive Vice President and President, Truck Group Robert C. Lannert.... 57 Executive Vice President and Chief Financial Officer Robert A. Boardman... 50 Senior Vice President and General Counsel Thomas M. Hough...... 52 Vice President and Treasurer J. Steven Keate...... 41 Vice President and Controller Steven K. Covey...... 46 Corporate Secretary
John R. Horne has served as Chairman, President and Chief Executive Officer of NIC since 1996 and a Director of NIC since 1990. Mr. Horne has also served as Chairman, President and Chief Executive Officer of Transportation since 1995 and a Director of Transportation since 1987. Prior to this, Mr. Horne served as President and Chief Executive Officer, 1995-1996, President and Chief Operating Officer, 1990-1995, Group Vice President and General Manager, Engine and Foundry, 1990, and Vice President and General Manager, Engine and Foundry, 1983-1990. Donald DeFosset, Jr. has served as Executive Vice President of NIC and President, Truck Group, since 1996. Mr. DeFosset has also served as Executive Vice President and President, Truck Group of Transportation since 1996. Prior to this, Mr. DeFosset served as President, Allied Signal Safety Restraints Systems of Allied Signal Inc., 1993-1996, Group Executive and General Manager, Allied Signal Turbocharging and Truck Brake Systems, 1992-1993, and Vice President, Planning and Business Development in 1992 and served as Executive Vice President, Operations for Mack Trucks, 1989-1992. Robert C. Lannert has served as Executive Vice President and Chief Financial Officer of NIC and a Director of NIC since 1990. Mr. Lannert has also served as Executive Vice President and Chief Financial Officer of Transportation since 1990 and a Director of Transportation since 1987. Prior to this, Mr. Lannert served as Vice President and Treasurer, 1987-1990, and Vice President and Treasurer of Transportation, 1979-1990. Robert A. Boardman has served as Senior Vice President and General Counsel of NIC since 1990. Mr. Boardman has also served as Senior Vice President and General Counsel of Transportation since 1990. Prior to this, Mr. Boardman served as Vice President of Manville Corporation, 1988-1990, and Corporate Secretary, 1983-1990. Thomas M. Hough has served as Vice President and Treasurer of NIC since 1992. Mr. Hough has also served as Vice President and Treasurer of Transportation since 1992. Prior to this, Mr. Hough served as Assistant Treasurer of NIC, 1987-1992, and Assistant Treasurer of Transportation, 1987- 1992. Mr. Hough also served as Assistant Controller, Accounting and Financial Systems, 1987, and Controller of NFC, 1982-1987. J. Steven Keate has served as Vice President and Controller of NIC since 1995. Mr. Keate has also served as Vice President and Controller of Transportation since 1995. Prior to this, Mr. Keate served as Vice President and Controller of General Dynamics Corporation, 1991-1995, and Corporate Manager, Financial Planning and Analysis, 1989-1991. Steven K. Covey has served as Corporate Secretary of NIC since 1990. Mr. Covey has also served as Associate General Counsel of Transportation since 1992. Prior to this, Mr. Covey served as General Attorney, Finance and Securities of Transportation, 1989-1992, Senior Counsel, Finance and Securities, 1986-1989, and Senior Attorney, Corporate Operations 1984-1986. 44 DESCRIPTION OF OTHER FINANCING ARRANGEMENTS MEXICO CREDIT AGREEMENT In November 1997, NIC and Navimex entered into a credit agreement (the "Mexico Credit Agreement") with a group of banks. The commitment of the Mexico Credit Agreement is $125 million, including $65 million in a U.S. dollar tranche and the equivalent of $60 million in Mexican pesos for a peso tranche. The facility is a multiple drawdown term credit facility, the proceeds of which are to be used for the construction of the Company's new assembly facility near Monterrey, Mexico. The maturity date of the Mexico Credit Agreement is December 2002. Borrowings under the Mexico Credit Agreement are secured by all of the assets of Navimex and are guaranteed by NIC. All amounts borrowed under the commitment are to be drawn pro-rata between the U.S. dollar tranche and the peso tranche. With respect to all U.S. dollar loans, Navimex has elected a fixed interest rate of 6 1/8% plus a margin based on NIC's long-term credit rating. The interest rate on peso loans is based on the Interbank Interest Equilibrium Rate calculated by the Banco de Mexico, plus a margin based on NIC's long-term credit rating. The Mexico Credit Agreement includes a number of restrictive covenants, which require NIC to maintain (i) a consolidated net worth (which includes certain amounts of subordinated indebtedness) of at least $850 million plus 50% of positive net earnings for each fiscal year commencing with fiscal year 1997 plus 50% of the net cash proceeds to NIC of any primary sales of capital stock, (ii) a cash flow coverage ratio of at least 1.25 to 1, and (iii) a minimum cash reserve equal to 75% at fiscal year end and 50% at any other time of the aggregate outstanding amount of all loans under the Mexico Credit Agreement. In addition, NIC's total consolidated debt to the sum of its total consolidated debt plus its consolidated net worth may not exceed certain prescribed ratios. The Mexico Credit Agreement also limits the amount of investments that NIC and Navimex can make and the amount of debt each can incur, subject to certain limited exceptions, and contains a negative pledge which prevents NIC and Navimex from incurring or suffering to exist liens on its assets, except in certain limited circumstances. The Mexico Credit Agreement also contains covenants regarding reporting, insurance, conduct of business, maintenance of existence and compliance with laws and customary events of default. NFC BANK CREDIT AGREEMENT NFC has a $925 million Credit Agreement which matures in March 2001. Under the terms of the Credit Agreement, NFC may (i) lend up to $100 million to Transportation, secured by Transportation's service parts and new and used truck inventories; and (ii) receive up to $50 million of credit in its asset base calculation for Mexican retail and wholesale receivables funded by NFC. Amounts outstanding under the Credit Agreement are secured by all the assets of NFC, including a pledge of all of the stock of each of NFC's subsidiaries. Three interest rate options are available for borrowings under the Credit Agreement: (i) Base Rate Loans, tied to the higher of the prime rate or the sum of 1/2 of 1% plus the Federal Funds rate; (ii) CD Loans, based on the prevailing Certificate of Deposit rate; and (iii) Euro-Dollar Loans, based on the London interbank offered rate ("LIBOR"), in each case plus a margin based on NFC's long-term credit rating. The Credit Agreement includes a number of restrictive covenants. For example, NFC is required to maintain (i) a consolidated tangible net worth of at least $175 million and (ii) consolidated interest expense, preferred stock dividends and consolidated income before income taxes that is at least 125% of its fixed charges (consisting of consolidated interest expense and preferred stock dividends). In addition, NFC's total consolidated debt to consolidated tangible net worth may not exceed 7 to 1. NFC may not transfer its accounts receivable or prepay subordinated debt below $100 million, except in accordance with the terms contained in the Credit Agreement. In addition, the Credit Agreement requires NFC to hold all of the outstanding stock of each of its subsidiaries. The Credit Agreement requires that NFC perform all of its obligations under the Master Intercompany Agreement, not consent to amendments or modifications thereof which would be materially 45 adverse to NFC (except in certain limited circumstances) and enforce the Master Intercompany Agreement against Transportation in accordance with its terms. NFC is prohibited from engaging in transactions with affiliates (except in certain limited circumstances) that are not in the ordinary course of business and on an arm's-length basis. The Credit Agreement also requires that NFC maintain adequate loan loss reserves and its current dealer guideline program. The Credit Agreement also contains additional covenants and events of default that are customary to this type of financing. SECURITIZATION PROGRAMS NFC presently utilizes securitizations to fund a substantial portion of its acquisitions of wholesale notes and retail notes (together with lease receivables, the "receivables"). NFC relies upon the securitization market, which provides it with funding at rates offered to companies with investment grade ratings. NFC anticipates continuing to utilize securitizations to fund its acquisitions of wholesale notes and retail notes. Wholesale Notes Securitizations Since 1990, NFC has securitized its wholesale notes. On a daily basis, NFC sells all newly arising wholesale notes, except those which are ineligible and those which exceed a dealer concentration level which is set by NFC (subject to a contractual maximum), to Navistar Financial Securities Corporation ("NFSC"), a wholly owned special purpose subsidiary of NFC. NFSC in turn sells the wholesale notes to a trust, which effectively reinvests collections on outstanding trust receivables in such newly originated wholesale notes. NFSC retains an interest in the trust, a portion of which is subordinated to the investor certificates. At October 31, 1997, NFSC's retained interest in the trust constituted $120 million, of which $100 million was subordinated to claims of investor certificateholders. Retail Notes Securitizations Since 1993, NFC has securitized a significant portion of its retail loans. Approximately twice a year, NFC sells a pool of retail loans, certain monies due or received thereunder, security interests in the vehicles and equipment financed thereby and certain other property (collectively, the "Property") to NFRRC, a wholly owned special purpose subsidiary of NFC. Immediately thereafter, NFRRC transfers such Property to a trust formed specifically for such transactions in exchange for either asset-backed notes or certificates issued by such trust. NFC retains the option under certain circumstances to repurchase the remaining pool of retail loans of any trust once monies due and payable thereunder constitute 10% or less of aggregate amount due and payable under such retail loans when initially purchased by the trust. NFRRC retains a residual interest in each trust. As of October 31, 1997, trusts formed by NFRRC have issued an aggregate principal amount of approximately $3,776 million of asset-backed securities. Each class of asset-backed securities may have a different interest rate. At October 31, 1997, asset-backed securities from seven securitized transactions originated by NFRRC remained outstanding and had a remaining aggregate principal balance of approximately $1,367 million. Asset-Backed Commercial Paper Program NFC and Truck Retail Instalment Paper Corp. ("TRIP"), a wholly owned subsidiary of NFC, established NFC Asset Trust (the "ABCP Trust") in late 1994 for the purpose of issuing asset-backed commercial paper. As a condition to issuance, all commercial paper must be rated at least "A-1" by Standard & Poor's Ratings Group and "P-1" by Moody's. NFC currently may issue up to $400 million in face amount of commercial paper under the ABCP Program. The ABCP Trust has also issued approximately $14 million of subordinated certificates. At October 31, 1997, the ABCP Trust had outstanding commercial paper of $388 million. NFC currently uses the ABCP Program to warehouse its retail loans pending a permanent securitization of such loans as described above. To support the commercial paper program, NFC has arranged a liquidity facility 46 with a syndicate of banks. Loans under the liquidity facility are available either to repay maturing commercial paper if sufficient funds are not otherwise available or to fund loans to TRIP. The lenders provide liquidity, not credit support, for the ABCP Trust. The lenders' commitments under the liquidity facility terminate in March 2001. SALE-LEASEBACKS During 1997, NFC entered into sale-leaseback agreements involving vehicles subject to retail finance and operating leases with end users. The agreements grant to the purchasers a security interest in the underlying end user leases. The aggregate value of the leased vehicles was approximately $105 million. NFC may effect additional sale-leasebacks in the future. 1998 AND 2002 NOTES NFC's 8 7/8% Senior Subordinated Notes due 1998 (the "1998 Notes") were issued pursuant to an indenture, dated as of November 15, 1993, between NFC and First Trust, N.A. (as successor to Continental Bank, National Association), as Trustee (the "1998 Notes Indenture"). NFC's 9.0% Senior Subordinated Notes due 2002 (the "2002 Notes" and together with the 1998 Notes, the "NFC Notes") were issued pursuant to an indenture, dated as of May 30, 1997, between NFC and The Fuji Bank & Trust Company, as Trustee (the "2002 Notes Indenture"). The 1998 Notes and the 2002 Notes are each limited to $100 million aggregate principal amount and mature on November 15, 1998 and June 1, 2002, respectively. The NFC Notes are not redeemable by NFC prior to maturity and are not subject to any mandatory sinking fund payments. The 1998 Notes Indenture and the 2002 Notes Indenture contain certain covenants that, among other things, limit the ability of NFC or any of its subsidiaries to maintain or incur indebtedness, create liens, enter into certain transactions with affiliates, or consummate certain merger, consolidation or asset sale transactions. In addition, NFC is required to maintain a Consolidated Fixed Charge Coverage Ratio of at least 1.25 to 1.0 (as of the end of any fiscal quarter) under the 1998 Notes Indenture, provided that such ratio will be reduced to 1.10 to 1.0 for any fiscal quarter in which the 1998 Notes are rated investment grade. These covenants are subject to certain exceptions and qualifications. The NFC Notes are general obligations of NFC and are subordinated to all senior indebtedness of NFC (as defined in the 1998 Notes Indenture or the 2002 Notes Indenture, as applicable). The NFC Notes rank pari passu with all senior subordinated indebtedness of NFC and rank senior to subordinated indebtedness of NFC. As a result of the restrictive covenants contained in the 1998 Notes Indenture and the 2002 Notes Indenture and pursuant to the Credit Agreement, holders of the NFC Notes are secured, subject to the subordination provisions contained in such Indenture, equally and ratably with the holders of the Senior Indebtedness of NFC, by a lien on substantially all of the assets of NFC. Such lien and security interest is subject to release without prior notice to, or the consent of, the holders of the 1998 Notes or the 2002 Notes Indenture, as the case may be. Upon a Change of Control Triggering Event (as defined in the 1998 Notes Indenture and the 2002 Notes Indenture), NFC will, subject to certain conditions, make an offer to purchase all outstanding NFC Notes at a purchase price of 101% of the principal amount thereof plus accrued and unpaid interest to the redemption date. The Credit Agreement imposes certain limitations on the purchase of the NFC Notes upon a Change of Control Triggering Event. 47 THE EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER The Old Notes were originally sold by the Company on February 4, 1998 to the Initial Purchasers pursuant to the Purchase Agreements. The Initial Purchasers subsequently placed the Old Notes with (i) qualified institutional buyers in reliance on Rule 144A under the Securities Act and (ii) qualified buyers outside the United States in reliance upon Registration S under the Securities Act. As a condition of the Purchase Agreements, the Company entered into the Registration Rights Agreements with the Initial Purchasers pursuant to which the Company has agreed, for the benefit of the holders of the Old Notes, at the Company's cost, to use its best efforts to (i) file the Exchange Offer Registration Statement within 60 days after the date of the original issue of the Old Notes (the "Issue Date") with the Commission with respect to the Exchange Offer for the Exchange Notes, (ii) use its best efforts to cause the Exchange Offer Registration Statement to be declared effective under the Securities Act within 150 days after the Issue Date and (iii) unless the Exchange Offer would not be permitted by applicable law or Commission policy, commence the Exchange Offer and use its best efforts to issue the Exchange Notes on or prior to 180 days after the Issue Date. Upon the Exchange Offer Registration Statement being declared effective, the Company will offer the Exchange Notes in exchange for surrender of the Old Notes. The Company will keep the Exchange Offer open for not less than 20 business days (or longer if required by applicable law) after the date on which notice of the Exchange Offer is mailed to the holders of the Old Notes. For each Old Note surrendered to the Company pursuant to the Exchange Offer, the holder of such Old Note will receive an Exchange Note having a principal amount equal to that of the surrendered Old Note. Interest on each Old Note will accrue from the last interest payment date on which interest was paid on the Old Note surrendered in exchange therefor or, if no interest has been paid on such Old Note, from the date of its original issue. Interest on each Exchange Note will accrue from the date of its original issue. Under existing interpretations of the staff of the Commission contained in several no-action letters to third parties, the Exchange Notes will in general be freely tradeable after the Exchange Offer without further registration under the Securities Act. However, any purchaser of Old Notes who is an "affiliate" of the Company or who intends to participate in the Exchange Offer for the purpose of distributing the Exchange Notes (i) will not be able to rely on the interpretation of the staff of the Commission, (ii) will not be able to tender its Old Notes in the Exchange Offer and (iii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the Exchange Notes, unless such sale or transfer is made pursuant to an exemption from such requirements. As contemplated by these no-action letters and the Registration Rights Agreements, each holder accepting the Exchange Offer is required to represent to the Company in the Letter of Transmittal or Agent's Message that (i) the Exchange Notes are to be acquired by the holder or the person receiving such Exchange Notes, whether or not such person is the holder, in the ordinary course of business, (ii) the holder or any such other person (other than a broker-dealer referred to in the next sentence) is not engaging and does not intend to engage, in distribution of the Exchange Notes, (iii) the holder or any such other person has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes, (iv) neither the holder nor any such other person is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act and (v) the holder or any such other person acknowledges that if such holder or any other person participates in the Exchange Offer for the purpose of distributing the Exchange Notes it must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the Exchange Notes and cannot rely on those no-action letters. As indicated above, each Participating Broker-Dealer that receives an Exchange Note for its own account in exchange for Old Notes must acknowledge that it (i) acquired the Old Notes for its own account as a result of market-making activities or other trading activities, (ii) has not entered into any arrangement or understanding with the Company or any "affiliate" of the Company (within the meaning of Rule 405 under the Securities Act) to distribute the Exchange Notes to be received in the Exchange Offer and (iii) will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes. For a description of the procedures for resales by Participant Broker-Dealers, see "Plan of Distribution." 48 In the event that changes in the law or the applicable interpretations of the staff of the Commission do not permit the Company to effect such an Exchange Offer, or if for any other reason the Exchange Offer is not consummated within 180 days of the Issue Date, the Company will (i) file the Shelf Registration Statement covering resales of the Old Notes; (ii) use its reasonable best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act and (iii) use its reasonable best efforts to keep effective the Shelf Registration Statement until two years after the Issue Date. The Company will, in the event of the filing of the Shelf Registration Statement, provide to each applicable holder of the Old Notes copies of the prospectus which is a part of the Shelf Registration Statement, notify each such holder when the Shelf Registration Statement has become effective and take certain other actions as are required to permit unrestricted resale of the Old Notes. A holder of the Old Notes that sells such Old Notes pursuant to the Shelf Registration Statements generally will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreements which are applicable to such a holder (including certain indemnification obligations). In addition, each holder of the Old Notes will be required to deliver information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement within the time periods set forth in the Registration Rights Agreement in order to have its Old Notes included in the Shelf Registration Statement and to benefit from the provisions set forth in the following paragraph. The Registration Rights Agreements provide that (i) the Company will file an Exchange Offer Registration Statement with the Commission on or prior to 60 days after the Issue Date, (ii) the Company will use its best efforts to have the Exchange Offer Registration Statement declared effective by the Commission on or prior to 150 days after the Issue Date, (iii) unless the Exchange Offer would not be permitted by applicable law or Commission policy, the Company will commence the Exchange Offer and use its best efforts to issue the Exchange Note on or prior to 180 days after the Issue Date and (iv) if obligated to file the Shelf Registration Statement, the Company will use its best efforts to file the Shelf Registration Statement with the Commission in a timely fashion. If (a) the Company fails to file any of the Registration Statements required by the Registration Rights Agreements or before the date specified for such filing, (b) any of such Registration Statements is not declared effective by the Commission on or prior to the date specified for such effectiveness, or (c) the Company fails to consummate the Exchange Offer on or prior to the date specified for such consummation, or (d) the Shelf Registration Statement or the Exchange Offer Registration Statement is declared effective but thereafter ceases to be effective or usable in connection with resales of Transfer Restricted Securities during the period specified in the Registration Rights Agreements (each such event referred to in clauses (a) through (d) above a "Registration Default"), the sole remedy available to holders of the Old Notes will be the immediate assessment of Additional Interest as follows: the per annum interest rate on the Old Notes will increase by 0.25% and the per annum interest rate will increase by an additional 0.25% for each subsequent 90-day period during which the Registration Default remains uncured, up to a maximum additional interest rate of 1.0% per annum. All Additional Interest will be payable to holders of the Old Notes in cash on each February 1 and August 1, commencing with the first such date occurring after any such Additional Interest commences to accrue, until such Registration Default is cured. After the date on which such Registration Default is cured, the interest rate on the Old Notes will revert to the original rate per annum. Holders of Old Notes will be required to make certain representations to the Company (as described in the Registration Rights Agreements) in order to participate in the Exchange Offer and will be required to deliver information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement within the time periods set forth in the Registration Rights Agreements in order to have its Old Notes included in the Shelf Registration Statement and benefit from the provisions regarding Additional Interest set forth above. The summary herein of certain provisions of the Registration Rights Agreements does not purport to be complete and is subject to, and is qualified in its entirety by, all the provisions of the Registration Rights Agreements, a copy of which is filed as an exhibit to the Exchange Offer Registration Statement of which this Prospectus is a part. 49 Following the consummation of the Exchange Offer, holders of the Old Notes who were eligible to participate in the Exchange Offer but who did not tender its Old Notes will not have any further registration rights and such Old Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for such Old Notes could be adversely affected. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept any and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The Company will issue $1,000 principal amount of Exchange Notes in exchange for each $1,000 principal amount of outstanding Old Notes accepted in the Exchange Offer. Holders may tender some or all of its Old Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only in integral multiples of $1,000. The form and terms of the Exchange Notes are the same as the form and terms of the Old Notes except that (i) the Exchange Notes bear a Series B designation and a different CUSIP Number from the Old Notes, (ii) the Exchange Notes have been registered under the Securities Act and hence will not bear legends restricting the transfer thereof and (iii) the holders of the Exchange Notes will not be entitled to certain rights under the Registration Rights Agreements, including the provisions providing for an increase in the interest rate on the Old Notes in certain circumstances relating to the timing of the Exchange Offer, all of which rights will terminate when the Exchange Offer is terminated. The Exchange Notes will evidence the same debt as the Old Notes and will be entitled to the benefits of the Indentures. As of the date of this Prospectus, $100,000,000 aggregate principal amount of Old Senior Notes and $250,000,000 aggregate principal amount of Old Senior Subordinated Notes were outstanding. The Company has fixed the close of business on March 4, 1998 as the record date for the Exchange Offer for purposes of determining the persons to whom this Prospectus and the Letter of Transmittal will be mailed initially. Holders of Old Notes do not have any appraisal or dissenters' rights under the General Corporation Law of Delaware, or the Indentures in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the Commission thereunder. The Company shall be deemed to have accepted validly tendered Old Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders for the purpose of receiving the Exchange Notes from the Company. If any tendered Old Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, the certificates for any such unaccepted Old Notes will be returned, without expense, to the tendering holder thereof as promptly as practicable after the Expiration Date. Holders who tender Old Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than transfer taxes in certain circumstances, in connection with the Exchange Offer. See "--Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time, on April 6 1998, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. In order to extend the Exchange Offer, the Company will notify the Exchange Agent of any extension by oral or written notice and will mail to the registered holders an announcement thereof, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. 50 The Company reserves the right, in its sole discretion, (i) to delay accepting any Old Notes, to extend the Exchange Offer or to terminate the Exchange Offer if any of the conditions set forth below under "--Conditions" shall not have been satisfied, by giving oral or written notice of such delay, extension or termination to the Exchange Agent or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders. INTEREST ON THE EXCHANGE NOTES The Exchange Notes will bear interest from their date of issuance. Holders of Old Notes that are accepted for exchange will receive, in cash, accrued interest thereon to, but not including, the date of issuance of the Exchange Notes. Such interest will be paid with the first interest payment on the Exchange Notes on August 1, 1998. Interest on the Old Notes accepted for exchange will cease to accrue upon issuance of the Exchange Notes. Interest on the Exchange Notes is payable semi-annually on each February 1 and August 1, commencing on August 1, 1998. PROCEDURES FOR TENDERING Only a holder of Old Notes may tender such Old Notes in the Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal or transmit an Agent's Message in connection with a book-entry transfer, and mail or otherwise deliver such Letter of Transmittal or such facsimile, together with the Old Notes and any other required documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. To be tendered effectively, the Old Notes, Letter of Transmittal or an Agent's Message and other required documents must be completed and received by the Exchange Agent at the address set forth below under "Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. Delivery of the Old Notes may be made by book-entry transfer in accordance with the procedures described below. Confirmation of such book-entry transfer must be received by the Exchange Agent prior to the Expiration Date. The term "Agent's Message" means a message transmitted by a book-entry transfer facility to, and received by, the Exchange Agent forming a part of a confirmation of a book-entry, which states that such book-entry transfer facility has received an express acknowledgment from the participant in such book-entry transfer facility tendering the Old Notes that such participant has received and agrees: (i) to participate in the Automated Tender Option Program ("ATOP"); (ii) to be bound by the terms of the Letter of Transmittal; and (iii) that the Company may enforce such agreement against such participant. By executing the Letter of Transmittal, each holder will make to the Company the representations set forth above in the third paragraph under the heading "--Purpose and Effect of the Exchange Offer." The tender by a holder and the acceptance thereof by the Company will constitute agreement between such holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal or Agent's Message. THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL OR AGENT'S MESSAGE AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. 51 Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. See "Instructions to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner" included with the Letter of Transmittal. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution (as defined below) unless the Old Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by a member firm of the Medallion System (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered holder of any Old Notes listed therein, such Old Notes must be endorsed or accompanied by a properly completed bond power, signed by such registered holder as such registered holder's name appears on such Old Notes with the signature thereon guaranteed by an Eligible Institution. If the Letter of Transmittal or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, offices of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and evidence satisfactory to the Company of its authority to so act must be submitted with the Letter of Transmittal. The Company understands that the Exchange Agent will make a request promptly after the date of this Prospectus to establish accounts with respect to the Old Notes at the book-entry transfer facility, The Depository Trust Company (the "Book-Entry Transfer Facility"), for the purpose of facilitating the Exchange Offer, and subject to the establishment thereof, any financial institution that is a participant in the Book-Entry Transfer Facility's system may make book-entry delivery of Old Notes by causing such Book-Entry Transfer Facility to transfer such Old Notes into the Exchange Agent's account with respect to the Old Notes in accordance with the Book-Entry Transfer Facility's procedures for such transfer. Although delivery of the Old Notes may be effected through book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility, unless an Agent's Message is received by the Exchange Agent in compliance with ATOP, an appropriate Letter of Transmittal properly completed and duly executed with any required signature guarantee and all other required documents must in each case be transmitted to and received or confirmed by the Exchange Agent at its address set forth below on or prior to the Expiration Date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under such procedures. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. All questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Old Notes not properly tendered or any Old Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right in its sole discretion to waive any defects, irregularities or conditions of tender as to particular Old Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Company shall determine. Although the Company intends to notify holders of defects or irregularities with respect to tenders of Old Notes, neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. 52 GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Old Notes and (i) whose Old Notes are not immediately available, (ii) who cannot deliver their Old Notes, the Letter of Transmittal or any other required documents to the Exchange Agent or (iii) who cannot complete the procedures for book-entry transfer, prior to the Expiration Date, may effect a tender if: (a) the tender is made through an Eligible Institution; (b) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the holder, the certificate number(s) of such Old Notes and the principal amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that, within five New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof) together with the certificate(s) representing the Old Notes (or a confirmation of book-entry transfer of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility), and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (c) such properly completed and executed Letter of Transmittal (of facsimile thereof), as well as the certificate(s) representing all tendered Old Notes in proper form for transfer (or a confirmation of book-entry transfer of such Old Notes into the Exchange Agent's account at the Book- Entry Transfer Facility), and all other documents required by the Letter of Transmittal are received by the Exchange Agent upon five New York Stock Exchange trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their Old Notes according to the guaranteed delivery procedures set forth above. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex, letter or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the certificate number(s) and principal amount of such Old Notes, or, in the case of Old Notes transferred by book-entry transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited), (iii) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Old Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the Trustee with respect to the Old Notes register the transfer of such Old Notes into the name of the person withdrawing the tender and (iv) specify the name in which any such Old Notes are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Old Notes so withdrawn are validly retendered. Any Old Notes which have been tendered but which are not accepted for exchange will be returned to the holder thereof without cost to such holder as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described above under "--Procedures for Tendering" at any time prior to the Expiration Date. 53 CONDITIONS Notwithstanding any other term of the Exchange Offer, the Company shall not be required to accept for exchange, or exchange the Exchange Notes for, any Old Notes, and may terminate or amend the Exchange Offer as provided herein before the acceptance of such Old Notes, if: (a) any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer which, in the sole judgment of the Company, might materially impair the ability of the Company to proceed with the Exchange Offer or any material adverse development has occurred in any existing action or proceeding with respect to the Company or any of its subsidiaries; or (b) any law, statute, rule, regulation or interpretation by the staff of the Commission is proposed, adopted or enacted, which, in the sole judgment of the Company, might materially impair the ability of the Company to proceed with the Exchange Offer or materially impair the contemplated benefits of the Exchange Offer to the Company; or (c) any governmental approval has not been obtained, which approval the Company shall, in its sole discretion, deem necessary for the consummation of the Exchange Offer as contemplated hereby. If the Company determines in its reasonable discretion that any of the conditions are not satisfied, the Company may (i) refuse to accept any Old Notes and return all tendered Old Notes to the tendering holders, (ii) extend the Exchange Offer and retain all Old Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of holders to withdraw such Old Notes (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Old Notes which have not been withdrawn. EXCHANGE AGENT Harris Trust and Savings Bank has been appointed as Exchange Agent for the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: By Registered or Certified Mail: By Hand/Overnight Courier: Harris Trust and Savings Bank Harris Trust and Savings Bank c/o Harris Trust Company of New York c/o Harris Trust Company of New York P.O. Box 1010 88 Pine Street, 19th Floor Wall Street Station New York, NY 10005 New York, NY 10268-1010 Facsimile Transmission Number: (For Eligible Institutions Only) (212) 701-7636 Confirm Receipt of Facsimile by Telephone: (212) 701-7624 DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. FEES AND EXPENSES The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telecopy, telephone or in person by officers and regular employees of the Company and its affiliates. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers, or others soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of pocket expenses in connection therewith. 54 The cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company. Such expenses include fees and expenses of the Exchange Agent and Trustee, accounting and legal fees and printing costs, among others. ACCOUNTING TREATMENT The Exchange Notes will be recorded at the same carrying value as the Old Notes, which is face value, as reflected in the Company's accounting records on the date of exchange. Accordingly, no gain or loss for accounting purposes will be recognized by the Company. The expenses of the Exchange Offer will be expensed over the term of the Exchange Notes. CONSEQUENCES OF FAILURE TO EXCHANGE The Old Notes that are not exchanged for Exchange Notes pursuant to the Exchange Offer will remain restricted securities. Accordingly, such Old Notes may be resold only (i) to the Company (upon redemption thereof or otherwise), (ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A, to a person inside the United States whom the seller reasonably believes is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act in a transaction meeting the requirements of Rule 144A, in accordance with Rule 144 under the Securities Act, or pursuant to another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel reasonably acceptable to the Company), (iii) outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act, or (iv) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States. RESALE OF THE EXCHANGE NOTES With respect to resales of Exchange Notes, based on interpretations by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that a holder or other person who receives Exchange Notes, whether or not such person is the holder (other than a person that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who receives Exchange Notes in exchange for Old Notes in the ordinary course of business and who is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes, will be allowed to resell the Exchange Notes to the public without further registration under the Securities Act and without delivering to the purchasers of the Exchange Notes a prospectus that satisfies the requirements of Section 10 of the Securities Act. However, if any holder acquires Exchange Notes in the Exchange Offer for the purpose of distributing or participating in a distribution of the Exchange Notes, such holder cannot rely on the position of the staff of the Commission enunciated in such no-action letters or any similar interpretive letters, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, unless an exemption from registration is otherwise available. Further, each Participating Broker- Dealer that receives Exchange Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. As contemplated by these no-action letters and the Registration Rights Agreements, each holder accepting the Exchange Offer is required to represent to the Company in the Letter of Transmittal that (i) the Exchange Notes are to be acquired by the holder or the person receiving such Exchange Notes, whether or not such person is the holder, in the ordinary course of business, (ii) the holder or any such other person (other than a broker-dealer referred to in the next sentence) is not engaging and does not intend to engage, in the distribution of the Exchange Notes, (iii) the holder or any such other person has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes, (iv) neither the holder nor any such other person is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act, and (v) the holder or any such other person acknowledges that if such holder or other person participates in the Exchange Offer for the 55 purpose of distributing the Exchange Notes it must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the Exchange Notes and cannot rely on those no- action letters. As indicated above, each Participating Broker-Dealer that receives Exchange Notes for its own account in exchange for Old Notes must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. For a description of the procedures for such resales by Participating Broker-Dealers, see "Plan of Distribution." 56 DESCRIPTION OF THE NOTES GENERAL The Senior Exchange Notes will be issued under the Senior Notes Indenture. The Senior Subordinated Exchange Notes will be issued under the Senior Subordinated Notes Indenture. The Exchange Notes are subject to all such terms, and Holders of Exchange Notes are referred to the Indentures and the Trust Indenture Act for a statement thereof. The form and terms of the Exchange Notes are the same as the form and terms of the Old Notes (which they replace) except that (i) the Exchange Notes bear a Series B designation and a different CUSIP Number from the Old Notes, (ii) the Exchange Notes have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof, and (iii) the holders of Exchange Notes will not be entitled to certain rights under the Registration Rights Agreement, including the provisions providing for an increase in the interest rate on the Old Notes in certain circumstances relating to the timing of the Exchange Offer, which rights will terminate when the Exchange Offer is consummated. A copy of the Indentures and the Registration Rights Agreements described below have been filed as exhibits to the Exchange Offer Registration Statement of which this Prospectus forms a part. The following summary of certain provisions of the Indentures and the Registration Rights Agreements does not purport to be complete and is qualified in its entirety by reference to the Indentures and the Registration Rights Agreements, including the definitions therein of certain terms used below. The definitions of certain terms used in the following summary are set forth below under "--Certain Definitions" or are otherwise defined in the Indentures. Any reference to a "Trustee" means the Senior Note Trustee or the Senior Subordinated Note Trustee, as the context may require. Unless otherwise specifically indicated, all references in this section to the "Company" are to NIC and not to any of its subsidiaries. The Old Senior Notes and Senior Exchange Notes are sometimes collectively referred to herein as the "Senior Notes," the Old Senior Subordinated Notes and the Senior Subordinated Exchange Notes are sometimes collectively referred to herein as the "Senior Subordinated Notes" and the Senior Notes and Senior Subordinated Notes are sometimes collectively referred to herein as the "Notes." The Senior Notes are general unsecured obligations of the Company, limited to $100 million aggregate principal amount, and rank pari passu in right of payment with all existing and future unsubordinated Indebtedness of the Company and senior in right of payment to all existing and future subordinated Indebtedness of the Company. The Senior Notes are effectively subordinated to all secured Indebtedness of the Company, if any. The Senior Notes mature on February 1, 2003 and bear interest at the rate per annum of 7%. Interest will be payable semiannually (to holders of record of Senior Notes at the close of business on the January 15 or July 15 immediately preceding the interest payment date) on February 1 and August 1 of each year, respectively, commencing August 1, 1998. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The Senior Subordinated Notes are general unsecured obligations of the Company, limited to $250 million aggregate principal amount, and are subordinated in right of payment to all existing and future Senior Indebtedness of the Company. The Senior Subordinated Notes mature on February 1, 2008 and bear interest at the rate per annum of 8%. Interest will be payable semiannually (to holders of record of Senior Subordinated Notes at the close of business on the January 15 or July 15 immediately preceding the interest payment date) on February 1 and August 1 of each year, respectively, commencing August 1, 1998. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The Notes will not have the benefit of any sinking fund. OPTIONAL REDEMPTION On or after February 1, 2003, the Senior Subordinated Notes may be redeemed at any time, in whole or in part, at the option of the Company, on not less than 20 days' nor more than 60 days' notice, at the redemption 57 prices (expressed as percentages of the principal amount) set forth below, if redeemed during the 12 month period beginning February 1 of the year indicated below, in each case together with interest accrued to the redemption date:
YEAR PERCENTAGE ---- ---------- 2003........................................................... 104.00% 2004........................................................... 102.67% 2005........................................................... 101.33% 2006 and thereafter............................................ 100.00%
In addition, prior to February 1, 2001, the Company may, at its option redeem up to 35% of the principal amount of the Senior Subordinated Notes originally issued with the net cash proceeds received by the Company from one or more public offerings of Common Stock of the Company made after the Issue Date, at a redemption price (expressed as a percentage of the principal amount) of 108.0% of the principal amount thereof, plus accrued and unpaid interest to the date fixed for redemption; provided that at least $162.5 million in aggregate principal amount of the Senior Subordinated Notes remains outstanding immediately after any such redemption (excluding any Notes owned by the Company or any of its Affiliates). Notice of redemption pursuant to this paragraph must be mailed to Holders of Senior Subordinated Notes not later than 60 days following the consummation of such public offering. Selection of Senior Subordinated Notes for any redemption shall be made by the Trustee under the Senior Subordinated Note Indenture in accordance with the rules of any national securities exchange on which the Senior Subordinated Notes may be listed or if the Senior Subordinated Notes are not so listed, pro rata or by lot or in such other manner as the Senior Subordinated Note Trustee shall deem appropriate and fair. Senior Subordinated Notes in denominations larger than $1,000 may be redeemed in part but only in integral multiples of $1,000. Notice of redemption will be mailed at least 20 days but not more than 60 days before the redemption date to each Holder of Senior Subordinated Notes to be redeemed at his or her registered address. On and after the redemption date, interest will cease to accrue on Senior Subordinated Notes or portions thereof called for redemption. SUBORDINATION OF SENIOR SUBORDINATED NOTES; RANKING The Company's obligations with respect to the payment of the principal of, premium, if any, and interest on, and all other obligations in respect of, each and all of the Senior Subordinated Notes shall be subordinated in right of payment, to the extent and in the manner provided in the Senior Subordinated Note Indenture, to the prior payment in full in cash of all Senior Indebtedness of the Company. In the event of (i) any insolvency or bankruptcy case or proceeding, (ii) any receivership, liquidation, dissolution or other winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy or (iii) any assignment for the benefit of the creditors or any other marshaling of assets and liabilities of the Company, then and in any such event specified in (i), (ii) or (iii) above, the holders of Senior Indebtedness shall be entitled to receive payment in full in cash of all amounts due or to become due on or in respect of all Senior Indebtedness before the Holders of the Senior Subordinated Notes are entitled to receive any Note Payment (as defined below), and in any such event any Note Payment to which the Holders of the Senior Subordinated Notes or the Senior Subordinated Note Trustee on their behalf would be entitled, but for the subordination provisions of the Senior Subordinated Note Indenture, shall be made by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, directly to the holders of the Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders) or their respective trustee, agent or other representative under any agreement or indenture pursuant to which any such Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay all such Senior Indebtedness in full, in cash, after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Senior Indebtedness. 58 In the event that, notwithstanding the foregoing provision prohibiting such Note Payment, any Note Payment shall be received by the Senior Subordinated Note Trustee or any Holder of Senior Subordinated Notes at a time when such Note Payment is prohibited as described in the preceding paragraph and before all obligations in respect of Senior Indebtedness are paid in full in cash, such Note Payment shall be received and held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders) or their respective trustee, agent or other representative under any agreement or indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of Senior Indebtedness remaining unpaid until all such Senior Indebtedness has been paid in full in cash after giving effect to any concurrent payment, distribution or provision therefor to or for the account of the holders of such Senior Indebtedness. No direct or indirect payment, deposit or distribution of any kind or character, whether in cash, property or securities (including any payment made to Holders of the Senior Subordinated Notes under the terms of Indebtedness subordinated to the Senior Subordinated Notes, but excluding any payment or distribution of Permitted Junior Securities) by or on behalf of the Company of principal of, premium, if any, or interest on, or any other obligation in respect of, the Senior Subordinated Notes whether pursuant to the terms of the Senior Subordinated Notes, upon acceleration, by way of repurchase, redemption, defeasance or otherwise (all such payments, deposits or distributions being referred to herein, individually and collectively, as a "Note Payment"), shall be made if, at the time of such Note Payment, there exists a default (a "Payment Default") in the payment when due of all or any portion of the obligations under or in respect of any Designated Senior Indebtedness, whether at maturity, on account of mandatory redemption or prepayment, acceleration or otherwise, and such Payment Default shall not have been cured or waived. In addition, during the continuance of any default or event of default (other than a Payment Default) with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated immediately without the giving of any notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, no Note Payment may be made by or on behalf of the Company for a period (a "Payment Blockage Period") commencing upon the receipt by the Company and the Senior Subordinated Note Trustee of written notice of such default or event of default from the holder or holders of such Designated Senior Indebtedness or any trustee, agent or other representative acting on behalf of the holder or holders of such Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period (a "Payment Blockage Notice") and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (i) by written notice to the Senior Subordinated Note Trustee and the Company from the holder or holders of such Designated Senior Indebtedness or any trustee, agent or other representative acting on behalf of the holder or holders of such Designated Senior Indebtedness, (ii) by discharge or repayment in full in cash of such Designated Senior Indebtedness or (iii) because the default or event of default giving rise to such Payment Blockage Notice has been cured, waived or ceased to exist). Subject to the provisions of the first sentence of this paragraph, the Company may resume payments on the Senior Subordinated Notes after such Payment Blockage Period. Not more than one Payment Blockage Period may be commenced with respect to the Senior Subordinated Notes during any period of 360 consecutive days, unless at least 180 consecutive days shall have elapsed during which time no payment blockage was in effect. No default or event of default that existed or was continuing on the date of commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period may be, or be made, the basis for the commencement of any other Payment Blockage Period by the holder or holders of such Designated Senior Indebtedness or any trustee, agent or other representative acting on behalf of the holder or holders of such Designated Senior Indebtedness, whether or not within a period of 360 consecutive days, unless such default or event of default has been cured or waived for a period of not less than 90 consecutive days. In the event that, notwithstanding the foregoing, any Note Payment shall be received by the Senior Subordinated Note Trustee or any Holder when such Note Payment is prohibited by the second preceding paragraph, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Designated Senior Indebtedness or any trustee, agent or other representative under any agreement or 59 indenture pursuant to which any such Designated Senior Indebtedness may have been issued, as their respective interests may appear, but only to the extent that, upon notice from the Senior Subordinated Note Trustee to the holders of Designated Senior Indebtedness that such prohibited Note Payment has been made, the holders of the Designated Senior Indebtedness (or their trustee, agent or other representative) notify the Senior Subordinated Note Trustee in writing of the amounts then due and owing on the Designated Senior Indebtedness, if any, and only the amount specified in such notice to the Senior Subordinated Note Trustee shall be paid to or for the account of the holders of Designated Senior Indebtedness. The failure to make any payment or distribution for or on account of the Senior Subordinated Notes by reason of the provisions of the Senior Subordinated Note Indenture described under this section will not be construed as preventing the occurrence of an Event of Default described in clause (a), (b) or (c) of the first paragraph under "--Events of Default." If the Company fails to make any payment on the Senior Subordinated Notes when due or within any applicable grace period, whether or not such failure is on account of the subordination provisions referred to above, such failure would constitute an Event of Default under the Senior Subordinated Note Indenture and would enable the Holders to accelerate the maturity of the Senior Subordinated Notes. See "--Events of Default." By reason of such subordination, in the event of liquidation or insolvency, creditors of the Company who are not holders of Senior Indebtedness of the Company (other than the Holders of the Senior Subordinated Notes or other equally subordinated obligations) may recover less, ratably, than the holders of Senior Indebtedness of the Company and may recover more, ratably, than the Holders of the Senior Subordinated Notes. At October 31, 1997, on a pro forma basis after giving effect to the Initial Offerings, the Company would have had approximately $100.0 million of Indebtedness outstanding which would constitute Senior Indebtedness of the Company. In addition, the Senior Notes will constitute Senior Indebtedness for purposes of the Senior Subordinated Note Indenture. Although the Senior Subordinated Note Indenture will restrict, but not prohibit, the incurrence of Senior Indebtedness of the Company and other Indebtedness by the Company and its Subsidiaries, the incurrence of significant amounts of additional Indebtedness could have an adverse impact on the Company's ability to service its Indebtedness, including the Senior Subordinated Notes. Moreover, the Senior Subordinated Note Indenture does not impose any limitation on the incurrence by the Company or by any Subsidiary of the Company of liabilities that are not Indebtedness under the Senior Subordinated Note Indenture. At October 31, 1997, on a pro forma basis after giving effect to the Initial Offerings, there would have been no Indebtedness of the Company outstanding which would rank pari passu with the Senior Subordinated Notes and no Indebtedness outstanding that would rank subordinated to the Senior Subordinated Notes. The Notes are effectively subordinated to all existing and future liabilities (including liabilities owed to trade creditors) of the Subsidiaries of the Company to the extent of the assets of each Subsidiary of the Company. Any right of the Company to participate in any distribution of the assets of its Subsidiaries upon the liquidation, reorganization or insolvency thereof (and the consequent right of the Holders to benefit from those assets) will be subject to the claims of creditors (including trade creditors) of such Subsidiary, except to the extent that claims of the Company itself as a creditor of such Subsidiary may be recognized, in which case the claims of the Company would still be subordinate to any security interest in the assets of such Subsidiary and any Indebtedness of such Subsidiary senior to that held by the Company. At the date of this Prospectus, the Notes would be solely the obligation of the Company, and no Subsidiary of the Company would be obligated to the Holders or obligated or required to pay any amounts due pursuant to the Notes or make funds available therefor in the form of dividends or advances to the Company. At October 31, 1997, on a pro forma basis after giving effect to the Initial Offerings, the Subsidiaries of the Company had other liabilities under generally accepted accounting principles (including trade payables) to third parties of approximately $4,431 million. Such Indebtedness includes various obligations not reported in the capitalization of the Company, primarily current liabilities (other than short-term debt). 60 CERTAIN COVENANTS Relating Only to the Senior Notes APPLICATION OF FALL AWAY COVENANTS. After the Senior Notes have been assigned an Investment Grade rating by both Rating Agencies, the Company will no longer be subject to the agreements and covenants contained in "Limitation on Incurrence of Indebtedness," "Limitation on Certain Asset Dispositions," "Limitation on Restricted Payments," "Limitation on Preferred Stock of Restricted Subsidiaries," "Limitation on Transactions with Affiliates," "Limitation on Payment Restrictions Affecting Restricted Subsidiaries," clauses (i)(A) and (iii) of the first paragraph of "Limitation on Sale/Leaseback Transactions" and clause (ii) of the first paragraph of "Merger, Consolidation, Etc." as therein; provided, such provisions shall no longer have application for any purpose of the Senior Note Indenture. LIMITATION ON LIENS. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any Liens upon any of their respective properties or assets (including, without limitation, any asset in the form of the right to receive payments, fees or other consideration or benefits) whether owned on the Issue Date or acquired after the Issue Date, other than (i) Liens granted by the Company on property or assets of the Company securing Indebtedness of the Company that is permitted by the Senior Note Indenture and that is pari passu with the Senior Notes; provided, that the Senior Notes are secured on an equal and ratable basis with such Liens; (ii) Liens granted by the Company on property or assets of the Company securing Indebtedness of the Company that is permitted by the Senior Note Indenture and that is subordinated to the Senior Notes, provided that the Senior Notes are secured by Liens ranking prior to such Liens; (iii) Permitted Liens; (iv) Liens in respect of Acquired Indebtedness permitted by the Senior Note Indenture; provided, that the Liens in respect of such Acquired Indebtedness secured such Acquired Indebtedness at the time of the incurrence of such Acquired Indebtedness and such Liens and the Acquired Indebtedness were not incurred by the Company or by the Person being acquired or from whom the assets were acquired in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by the Company, and provided, further that such Liens in respect of such Acquired Indebtedness do not extend to or cover any property or assets of the Company or of any Restricted Subsidiary of the Company other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company; (v) Liens granted in connection with any Qualified Securitization Transaction; (vi) Liens arising from claims of holders of Indebtedness against funds held in a defeasance trust for the benefit of such holders; and (vii) Liens on property or assets of the Company or any Restricted Subsidiary securing Indebtedness permitted by the Senior Note Indenture not to exceed the greater of (A) $100.0 million and (B) the sum of (1) 85.0% of the total book value of accounts receivable and (2) 50.0% of the total book value of inventory, in each case as reflected on the Company's most recent consolidated financial statements prepared in accordance with GAAP. Relating Only to the Senior Subordinated Notes LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS. The Company will not directly or indirectly, in any event incur any (a) Indebtedness that purports to be by its terms (or by the terms of any agreement governing such Indebtedness) both subordinate to any other Indebtedness of the Company and senior or superior in any right of payment or interest to the Senior Subordinated Notes or (b) Indebtedness which by its terms (or by the terms of any agreement governing such Indebtedness) is subordinated to any other Indebtedness of the Company (other than indebtedness of the Company that is subordinated solely to Senior Indebtedness of the Company) unless such Indebtedness is also by its terms (or by the terms of any agreement governing such Indebtedness) made expressly subordinate to the Senior Subordinated Notes to the same extent and in the same manner as such Indebtedness is subordinated pursuant to subordination provisions that are most favorable to the holders of any other Indebtedness of the Company. LIMITATION ON LIENS. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any Liens upon any of their respective properties or assets (including, without limitation, any asset in the form of the right to receive payments, fees or other consideration or benefits) whether owned on the Issue Date or acquired after the Issue Date, other than (i) Liens granted by the Company 61 on property or assets of the Company securing Senior Indebtedness of the Company that is permitted by the Senior Subordinated Note Indenture; (ii) Liens granted by the Company on property or assets of the Company securing Indebtedness of the Company that is permitted by the Senior Subordinated Note Indenture and that is pari passu with the Senior Subordinated Notes, provided, that the Senior Subordinated Notes are secured on an equal and ratable basis with such Liens; (iii) Liens granted by the Company on property or assets of the Company securing Indebtedness of the Company that is permitted by the Senior Subordinated Note Indenture and that is subordinated to the Senior Subordinated Notes, provided that the Senior Subordinated Notes are secured by Liens ranking prior to such Liens; (iv) Permitted Liens; (v) Liens in respect of Acquired Indebtedness permitted by the Senior Subordinated Note Indenture, provided, that the Liens in respect of such Acquired Indebtedness secured such Acquired Indebtedness at the time of the incurrence of such Acquired Indebtedness by the Company and such Liens and the Acquired Indebtedness were not incurred by the Company or by the Person being acquired or from whom the assets were acquired in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by the Company, and provided, further that such Liens in respect of such Acquired Indebtedness do not extend to or cover any property or assets of the Company or of any Subsidiary of the Company other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company; (vi) Liens granted in connection with any Qualified Securitization Transaction; and (vii) Liens arising from claims of holders of Indebtedness against funds held in a defeasance trust for the benefit of such holders. Relating to all Notes LIMITATION ON INCURRENCE OF INDEBTEDNESS. The Indentures provide that the Company will not, and will not cause or permit any of its Restricted Subsidiaries to incur, directly or indirectly, any Indebtedness, except: (i) Indebtedness of the Company, if immediately after giving effect to the incurrence of such Indebtedness and the receipt and application of the net proceeds thereof, the Consolidated Cash Flow Ratio of the Company for the four full fiscal quarters for which quarterly or annual financial statements are available next preceding the incurrence of such Indebtedness would be greater than 2.25 to 1.00; (ii) Indebtedness outstanding on the Issue Date; (iii) Indebtedness incurred pursuant to the $125.0 million Credit Agreement dated as of November 26, 1997 among Navistar International Corporation Mexico, S.A. de C.V., the Company and the lenders listed therein, as such agreement, in whole or in part, may be amended, renewed, extended, increased (but only so long as such increase as is permitted under the terms of the Indenture), substituted, refinanced, restructured, replaced (including, without limitation, any successive renewals, extensions, increases, substitutions, refinancings, restructurings, replacements, supplements, or other modifications of the foregoing); (iv) Indebtedness owed by the Company to any Wholly-Owned Subsidiary of the Company or Indebtedness owed by a Subsidiary of the Company to the Company or a Wholly-Owned Subsidiary of the Company; provided, that, upon either (I) the transfer or other disposition by such Wholly-Owned Subsidiary or the Company of any Indebtedness so permitted under this clause (iv) to a Person other than the Company or another Wholly-Owned Subsidiary of the Company or (II) the issuance (other than directors' qualifying shares), sale, transfer or other disposition of shares of Capital Stock or other ownership interests (including by consolidation or merger) of such Wholly-Owned Subsidiary to a Person other than the Company or another such Wholly-Owned Subsidiary of the Company, the provisions of this clause (iv) shall no longer be applicable to such Indebtedness and such Indebtedness shall be deemed to have been incurred at the time of any such issuance, sale. transfer or other disposition, as the case may be; (v) Indebtedness of the Company or its Restricted Subsidiaries under any Interest Rate Protection Agreement or Currency Agreement to the extent entered into to hedge any other Indebtedness permitted under the Indentures; (vi) Acquired Indebtedness to the extent the Company could have incurred such Indebtedness in accordance with clause (i) above on the date such Indebtedness became Acquired Indebtedness; (vii) Indebtedness incurred by the Company or any of its Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business, including, without limitation, letters of credit in response to worker's compensation claims or self-insurance; 62 (viii) Indebtedness arising from agreements of the Company or a Restricted Subsidiary of the Company providing for indemnification, adjustment of purchase price, earn-out or other similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Subsidiary of the Company; (ix) Obligations in respect of performance and surety bonds and completion guarantees provided by the Company or any Restricted Subsidiary of the Company in the ordinary course of business; (x) Indebtedness consisting of notes issued to employees, officers or directors in connection with the redemption or repurchase of Capital Stock held by such Persons in an aggregate amount not in excess of $10.0 million at any time outstanding; (xi) Indebtedness consisting of take-or-pay obligations contained in supply agreements entered into by the Company or its Restricted Subsidiaries in the ordinary course; (xii) Guarantees by the Company or any of its Restricted Subsidiaries of Indebtedness of the Company or any Restricted Subsidiary permitted to be incurred under another provision of the covenant; provided, that such Guarantee is incurred at the same time as such other Indebtedness; (xiii) Indebtedness incurred to renew, extend, refinance or refund (collectively for purposes of this clause (xiii) to "refund") any Indebtedness incurred pursuant to clauses (i) or (ii) above; provided, that (I) such Indebtedness does not exceed the principal amount (or accreted amount, if less) of Indebtedness so refunded plus the amount of any premium required to be paid in connection with such refunding pursuant to the terms of the Indebtedness refunded or the amount of any premium reasonably determined by the Company as necessary to accomplish such refunding by means of a tender offer, exchange offer, or privately negotiated repurchase, plus the expenses of the Company or such Restricted Subsidiary incurred in connection therewith and (II)(A) in the case of any refunding of Indebtedness that is pari passu with the Senior Notes or the Senior Subordinated Notes, as the case may be, such refunding Indebtedness is made pari passu with or subordinate in right of payment to such Senior Notes or Senior Subordinated Notes, as the case may be, and, in the case of any refunding of Indebtedness that is subordinate in right of payment to the Senior Notes or the Senior Subordinated Notes, as the case may be, such refunding Indebtedness is subordinate in right of payment to such Senior Notes or Senior Subordinated Notes, as the case may be, on terms no less favorable to the Holders than those contained in the Indebtedness being refunded, (B) in either case, the refunding Indebtedness by its terms, or by the terms of any agreement or instrument pursuant to which such Indebtedness is issued does not have an Average Life that is less than the remaining Average Life of the Indebtedness being refunded and does not permit redemption or other retirement (including pursuant to any required offer to purchase to be made by the Company or any of its Restricted Subsidiaries) of such Indebtedness at the option of the holder thereof prior to the final stated maturity of the Indebtedness being refunded, other than a redemption or other retirement at the option of the holder of such Indebtedness (including pursuant to a required offer to purchase made by the Company or any of its Restricted Subsidiaries) which is conditioned upon a change of control of the Company pursuant to provisions substantially similar to those contained in the Indentures described under "--Change of Control" below and (C) Indebtedness of a Restricted Subsidiary may not be incurred to refund any Indebtedness of the Company; (xiv) Indebtedness of the Company under the Notes and the Exchange Notes; (xv) the consummation of any Qualified Securitization Transaction; (xvi) Attributable Indebtedness relating to any Sale/Leaseback Transaction with respect to the purchase of tooling and related manufacturing equipment in the ordinary course of business consistent with past practices; and (xvii) Indebtedness of the Company or its Restricted Subsidiaries, not otherwise permitted to be incurred pursuant to clauses (i) through (xvi) above, which, together with any other outstanding Indebtedness incurred pursuant to this clause (xvii), has an aggregate principal amount not in excess of $100.0 million at any time outstanding. 63 After the Senior Notes have been assigned an Investment Grade rating by both Rating Agencies, and notwithstanding that the Senior Notes may later cease to have an Investment Grade rating, the Company will not be subject to the provisions of this covenant with respect to the Senior Note Indenture; provided, that no Default has occurred and is continuing at the time the Senior Notes have been assigned such rating. LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. The Indentures provide that the Company will not cause or permit any of its Restricted Subsidiaries to issue any Preferred Stock other than to the Company or to another Restricted Subsidiary. After the Senior Notes have been assigned an Investment Grade rating by both Rating Agencies, and notwithstanding that the Senior Notes may later cease to have an Investment Grade rating, the Company will not be subject to the provisions of this covenant with respect to the Senior Note Indenture; provided, that no Default has occurred and is continuing at the time the Senior Notes have been assigned such rating. LIMITATION ON RESTRICTED PAYMENTS. The Indentures provide that the Company will not, and will not cause or permit any of its Restricted Subsidiaries to directly or indirectly, (i) declare or pay any dividend, or make any distribution of any kind or character (whether in cash, property or securities), in respect of any class of its Capital Stock or to the holders thereof in their capacity as stockholders, excluding any (x) dividend or distributions payable solely in shares of its Qualified Capital Stock or in options, warrants or other rights to acquire its Qualified Capital Stock or (y) in the case of any Restricted Subsidiary of the Company, dividends or distributions payable to the Company or a Restricted Subsidiary of the Company; (ii) purchase, redeem, or otherwise acquire or retire for value shares of Capital Stock of the Company or a Restricted Subsidiary of the Company, any securities convertible or exchangeable into shares of Capital Stock of the Company or a Restricted Subsidiary of the Company or any options, warrants or rights to purchase or acquire shares of Capital Stock of the Company or a Restricted Subsidiary of the Company, excluding any such shares of Capital Stock, options, warrants, rights or securities which are owned by the Company or a Restricted Subsidiary of the Company; (iii) make any Investment (other than a Permitted Investment) in, or payment on a guarantee of any obligation of, any Person; or (iv) redeem, defease, repurchase, retire or otherwise acquire or retire for value, prior to any scheduled maturity, repayment or sinking fund payment, Indebtedness which is subordinate in right of payment to the Senior Notes in the case of the Senior Note Indenture and the Senior Subordinated Notes in the case of the Senior Subordinated Note Indenture (each of the transactions described in clauses (i) through (iv) (other than any exception to any such clause) being a "Restricted Payment") if at the time thereof: (1) an Event of Default, or an event that with the passing of time or giving of notice, or both, would constitute an Event of Default, shall have occurred and be continuing, or (2) upon giving effect to such Restricted Payment, the Company could not incur at least $1.00 of additional Indebtedness pursuant to the terms of the Indentures described in clause (i) of "--Limitation on Incurrence of Indebtedness" above, or (3) upon giving effect to such Restricted Payment, the aggregate of all Restricted Payments made on or after the Issue Date exceeds the sum (without duplication) of: (a) 50% of cumulative Consolidated Net Income of the Company (or, in the case cumulative Consolidated Net Income of the Company shall be negative, less 100% of such deficit) for the period (treated as an accounting period) from the Issue Date through the last day of the Company's most recently ended fiscal quarter for which financial statements are available, plus (b) 100% of the aggregate net cash proceeds received after the Issue Date, including the fair market value of readily marketable securities from the issuance of Qualified Capital Stock of the Company and warrants, rights or options on Qualified Capital Stock of the Company (other than in respect of any such issuance to a Subsidiary of the Company) and the principal amount of Indebtedness of the Company or a Subsidiary of the Company that has been converted into or exchanged for Qualified Capital Stock of the Company which Indebtedness was incurred after the Issue Date; plus (c) in the case of the disposition or repayment of any Investment constituting a Restricted Payment made after the Issue Date, an amount equal to the lesser of the return of capital with respect to such Investment and the cost of such Investment, in either case, less the cost of the disposition of such Investment; provided, that at the time any such 64 Investment is made the Company delivers to the Trustee a resolution of the Board of Directors of the Company to the effect that, for purposes of this "--Limitation on Restricted Payments" covenant, such Investment constitutes a Restricted Payment made after the Issue Date; plus (d) an amount equal to the sum of (i) the net reduction in Investments in Unrestricted Subsidiaries resulting from the receipt of dividends, repayments of loans or advances or other transfers of assets or proceeds from the disposition of Capital Stock or other distributions or payments, in each case to the Company or any Restricted Subsidiary from, or with respect to, interests in Unrestricted Subsidiaries, and (ii) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, that the foregoing sum shall not exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary subsequent to the Issue Date; plus (e) $25.0 million. For purposes of determining the amount expended for Restricted Payments under this clause (3), property other than cash shall be valued at its fair market value. Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph will not prohibit (i) any dividend on any class of Capital Stock of the Company or any of its Restricted Subsidiaries paid within 60 days after the declaration thereof if, on the date when the dividend was declared, the Company or any of its Restricted Subsidiaries, as the case may be, could have paid such dividend in accordance with the provisions of the Indentures, (ii) the renewal, extension, refunding or refinancing of any Indebtedness otherwise permitted pursuant to the terms of the Indentures described in clause (xiii) of "--Limitation on Incurrence of Indebtedness" above, (iii) the exchange or conversion of any Indebtedness of the Company or any of its Restricted Subsidiaries for or into Qualified Capital Stock of the Company, (iv) any Restricted Payments, including loans or other advances made pursuant to any employee benefit plans (including plans for the benefit of directors) or employment agreements or other compensation arrangements, in each case as approved by the Board of Directors of the Company in its good faith judgment, (v) so long as no Default or Event of Default has occurred and is continuing, any Investment made with the proceeds of a substantially concurrent sale of Qualified Capital Stock of the Company; provided, that the proceeds of such sale of Qualified Capital Stock shall not be (and have not been) included in clause (3) of the preceding paragraph, (vi) the redemption, repurchase, retirement or other acquisition of any Capital Stock of the Company in exchange for or out of the net cash proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of Qualified Capital Stock of the Company; provided, that the proceeds of such sale of Capital Stock shall not be (and have not been) included in clause (3) of the preceding paragraph, (vii) so long as no Event of Default has occurred and is continuing, the redemption, repurchase, retirement or other acquisition of any Subordinated Indebtedness of the Company in exchange for or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of Qualified Capital Stock of the Company; provided, that the proceeds of such sale of Qualified Capital Stock shall not be (and have not been) included in clause (3) of the preceding paragraph, (viii) in the case of the Senior Note Indenture only, the purchase of Senior Subordinated Notes pursuant to an Offer to Purchase required by the covenant described under "-- Limitation on Certain Asset Dispositions" or the covenant described under "-- Change of Control"; provided, that no such purchase shall be permitted until all Senior Notes validly tendered pursuant to the applicable Offer to Purchase in respect of the Senior Notes shall have been purchased by the Company, (ix) the redemption, retirement or repurchase of the Company's outstanding Series G Convertible Preferred Stock out of the net proceeds of the Offerings, (x) Investments in Navistar Financial Corporation made pursuant to the Support Agreement to the extent required by the Support Agreement, (xi) the declaration and payment of dividends to holders of any class of Preferred Stock issued after the Issue Date; provided, that at the time of the issuance of such Preferred Stock, the Company, after giving pro forma effect to such issuance, would have been able to incur at least $1.00 of additional Indebtedness pursuant to the terms of the Indentures described in clause (i) of "--Limitation on Incurrence of Indebtedness" above; (xii) so long as no Event of Default has occurred and is continuing, any purchase or redemption or other retirement for value of Capital Stock of the Company required pursuant to any shareholders agreement, management agreement or employee stock option agreement in accordance with the provisions of any such arrangement in an amount not to exceed $10.0 million in the aggregate; (xiii) repurchases of Capital Stock 65 deemed to occur upon the exercise of stock options if such Capital Stock represents a portion of the exercise price thereof; (xiv) payments not to exceed $500,000 per annum in the aggregate to enable the Company to make payments to holders of its Capital Stock in lieu of issuance of fractional shares of its Capital Stock; (xv) so long as no Event of Default has occurred and is continuing, the repurchase of any shares of Class B Common Stock or Common Stock held by the Supplemental Trust; (xvi) so long as no Event of Default has occurred and is continuing, the redemption of any stock purchase rights under a rights plan in an aggregate amount not to exceed $1.0 million; and (xvii) so long as no Event of Default has occurred and is continuing, Investments in Permitted Joint Ventures and designations of Restricted Subsidiaries as Unrestricted Subsidiaries; provided, that after giving pro forma effect to such Investment, the Company could incur at least $1.00 of additional Indebtedness pursuant to the terms of the Indentures described in clause (i) of "--Limitation on Incurrence of Indebtedness" above. Each Restricted Payment described in clauses (i), (iv), (x), (xii) and (xv) of the previous sentence shall be taken into account (and the Restricted Payments described in the remaining clauses shall not be taken into account) for purposes of computing the aggregate amount of all Restricted Payments made pursuant to clause (3) of the preceding paragraph. After the Senior Notes have been assigned an Investment Grade rating by both Rating Agencies, and notwithstanding that the Senior Notes may later cease to have an Investment Grade rating, the Company will not be subject to the provisions of this covenant with respect to the Senior Note Indenture; provided, that no Default has occurred and is continuing at the time the Senior Notes have been assigned such rating. LIMITATION ON CERTAIN ASSET DISPOSITIONS. The Indentures provide that the Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, make one or more Asset Dispositions unless: (i) the Company or the Restricted Subsidiary, as the case may be, receives consideration for such Asset Disposition at least equal to the fair market value of the assets sold or disposed of (as determined in good faith by the Company); (ii) not less than 75% of the consideration for the disposition consists of cash or readily marketable cash equivalents or the assumption of Indebtedness (other than non-recourse Indebtedness or any Indebtedness subordinated to the Senior Notes, in the case of the Senior Note Indenture, or the Senior Subordinated Notes, in the case of the Senior Subordinated Note Indenture) of the Company or such Restricted Subsidiary or other obligations relating to such assets (and release of the Company or such Restricted Subsidiary from all liability on the Indebtedness or other obligations assumed); and (iii) all Net Available Proceeds, less any amounts invested or committed to be invested within 360 days of such Asset Disposition in assets related to the business of the Company (including capital expenditures or the Capital Stock of another Person (other than the Company or any Person that is a Restricted Subsidiary of the Company immediately prior to such investment); provided, that immediately after giving effect to any such investment (and not prior thereto) such Person shall be a Restricted Subsidiary of the Company), are applied, on or prior to the 360th day after such Asset Disposition (unless and to the extent that the Company shall determine to make an Offer to Purchase), either to (A) the permanent reduction and prepayment of any Indebtedness of the Company (other than Indebtedness which is expressly subordinate to the applicable issue of Notes) then outstanding (including a permanent reduction of commitments in respect thereof) or (B) the permanent reduction and repayment of any Indebtedness of any Restricted Subsidiary of the Company then outstanding (including a permanent reduction of commitments in respect thereof). The 361st day after such Asset Disposition shall be deemed to be the "Asset Sale Offer Trigger Date," and the amount of Net Available Proceeds from Asset Dispositions otherwise subject to the preceding provisions not so applied or as to which the Company has determined not to so apply shall be referred to as the "Unutilized Net Available Proceeds." Within fifteen days after the Asset Sale Offer Trigger Date, the Company shall make an Offer to Purchase the outstanding applicable issue of Notes at a purchase price in cash equal to 100% of their principal amount plus any accrued and unpaid interest thereon to the Purchase Date. Notwithstanding the foregoing, the Company may defer making any Offer to Purchase outstanding Notes until there are aggregate Unutilized Net Available Proceeds equal to or in excess of $25.0 million (at which time, the entire Unutilized Net Available Proceeds, and not just the amount in excess of $25.0 million, shall be applied as required pursuant to this paragraph). Pending application of the Unutilized Net Available Proceeds pursuant to this covenant, such Unutilized Net Available Proceeds shall be invested in Permitted Investments of the types described in clauses (i), (ii) and (iii) of the definition of "Permitted Investments." 66 If any Indebtedness of the Company or any of its Restricted Subsidiaries ranking pari passu with the Senior Notes or the Senior Subordinated Notes , as the case may be, requires that prepayment of, or an offer to prepay, such Indebtedness be made with any Net Available Proceeds, the Company may apply such Net Available Proceeds pro rata (based on the aggregate principal amount of the Senior Notes or the Senior Subordinated Notes, as the case may be, then outstanding and the aggregate principal amount (or accreted value, if less) of all such other Indebtedness then outstanding) to the making of an Offer to Purchase the Senior Notes and the Senior Subordinated Notes in accordance with the foregoing provisions and the prepayment or the offer to prepay such pari passu Indebtedness. Any remaining Net Available Proceeds following the completion of the required Offer to Purchase may be used by the Company for any other purpose (subject to the other provisions of the Indentures) and the amount of Net Available Proceeds then required to be otherwise applied in accordance with this covenant shall be reset to zero, subject to any subsequent Asset Disposition. These provisions will not apply to a transaction consummated in compliance with the provisions of the Indentures described under "--Merger, Consolidation, Etc." below. Notwithstanding the foregoing, the provisions of this covenant shall not apply to any Sale/Leaseback Transaction with respect to the purchase of tooling and related manufacturing equipment in the ordinary course of business consistent with past practices. In the event that the Company makes an Offer to Purchase the Notes, the Company shall comply with any applicable securities laws and regulations, including any applicable requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange Act and any violation of the provisions of the Indentures relating to such Offer to Purchase occurring as a result of such compliance shall not be deemed an Event of Default or an event that with the passing of time or giving of notice, or both, would constitute an Event of Default. The subordination provisions relating to the Senior Subordinated Notes and the "Limitation on Restricted Payments" covenant in the Senior Note Indenture will prohibit the Company from repurchasing any tendered Senior Subordinated Notes upon an Asset Disposition unless and until all of the tendered Senior Notes are first repurchased. In addition, the Company's ability to repurchase Senior Notes and Senior Subordinated Notes may be limited by other then- existing borrowing agreements of the Company and its Restricted Subsidiaries. There can be no assurance that the Company will be able to obtain such a consent or a waiver of such limitations. See "--Subordination of Senior Subordination Notes; Ranking" and "--Certain Covenants--Relating to all Notes--Limitation on Restricted Payments". After the Senior Notes have been assigned an Investment Grade rating by both Rating Agencies, and notwithstanding that the Senior Notes may later cease to have an Investment Grade rating, the Company will not be subject to the provisions of this covenant with respect to the Senior Note Indenture; provided, that no Default has occurred and is continuing at the time the Senior Notes have been assigned such rating. LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Company shall not, and shall not cause or permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction with respect to any property unless (i) the Company or such Restricted Subsidiary would be entitled to (A) incur Indebtedness in an amount equal to the Attributable Indebtedness with respect to such Sale/Leaseback Transaction pursuant to clause (i) of "--Limitation on Incurrence of Indebtedness" and (B) create a Lien on such property securing such Attributable Indebtedness without securing the Senior Notes pursuant to "--Relating Only to the Senior Notes--Limitation on Liens" and the Senior Subordinated Notes pursuant to "--Relating Only to the Senior Subordinated Notes --Limitation on Liens," (ii) the net proceeds received by the Company or any Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at least equal to the fair value (as determined by the Board of Directors) of such property and (iii) the Company applies the proceeds of such transaction in compliance with "--Limitation on Certain Asset Dispositions." Notwithstanding the foregoing, the provisions of this covenant shall not prohibit the Company or any Restricted Subsidiary from entering into any Sale/Leaseback Transaction with respect to the purchase of tooling and related manufacturing equipment in the ordinary course of business consistent with past practices. 67 After the Senior Notes have been assigned an Investment Grade rating by both Rating Agencies, and notwithstanding that the Senior Notes may later cease to have an Investment Grade rating, the Company will not be subject to the provisions of this covenant with respect to the Senior Note Indenture; provided, that no Default has occurred and is continuing at the time the Senior Notes have been assigned such rating. LIMITATION ON PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or suffer to exist or allow to become effective any consensual encumbrance or restriction of any kind on the ability of any such Restricted Subsidiary to (i) pay dividends, in cash or otherwise, or make other payments or distributions on its Capital Stock or any other equity interest or participation in, or measured by, its profits, owned by the Company or by any Restricted Subsidiary of the Company, or make payments on any Indebtedness owed to the Company or to any Restricted Subsidiary of the Company; (ii) make loans or advances to the Company or to any Restricted Subsidiary of the Company; or (iii) transfer any of their respective property or assets to the Company or to any Restricted Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of (A) applicable law or regulations; (B) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of any Restricted Subsidiary of the Company; (C) Indebtedness or any other contractual requirements (including pursuant to any corporate governance documents in the nature of a charter or by-laws) of a Securitization Subsidiary arising in connection with a Qualified Securitization Transaction, provided, that any such encumbrances and restrictions apply only to such Securitization Subsidiary; (D) any agreement in effect on the Issue Date as any such agreement is in effect on such date; (E) any agreement relating to any Indebtedness incurred by such Restricted Subsidiary prior to the date on which such Restricted Subsidiary became a Subsidiary of the Company and outstanding on such date and not incurred in anticipation or contemplation of becoming a Subsidiary of the Company, provided, such encumbrance or restriction shall not apply to any assets of the Company or its Restricted Subsidiaries other than such Restricted Subsidiary; and (F) the Indentures. After the Senior Notes have been assigned an Investment Grade rating by both Rating Agencies, and notwithstanding that the Senior Notes may later cease to have an Investment Grade rating, the Company will not be subject to the provisions of this covenant with respect to the Senior Note Indenture; provided, that no Default has occurred and is continuing at the time the Senior Notes have been assigned such rating. LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to (a) sell, lease, transfer or otherwise dispose of any of its property or assets to, (b) purchase any property or assets from, (c) make any Investment in, or (d) enter into or amend or extend any contract, agreement or understanding with or for the benefit of, any Affiliate of the Company or of any Subsidiary (an "Affiliate Transaction"), other than Affiliate Transactions that are on terms that are fair and reasonable to the Company or such Restricted Subsidiary of the Company and that are no less favorable to the Company or such Restricted Subsidiary of the Company than those that could be obtained in a comparable arm's length transaction by the Company or such Restricted Subsidiary of the Company from an unaffiliated party; provided, that if the Company or any Restricted Subsidiary of the Company enters into an Affiliate Transaction or series of Affiliate Transactions involving or having an aggregate value of more than $20.0 million, a majority of the disinterested members of the Board of Directors of the Company or a committee thereof shall, prior to the consummation of such Affiliate Transaction, have determined (as evidenced by a resolution thereof) that such Affiliate Transaction meets the foregoing standard. The foregoing restrictions shall not apply to (a) any transaction between Restricted Subsidiaries of the Company, or between the Company and any Restricted Subsidiary of the Company if such transaction is not otherwise prohibited by the terms of the Indentures, (b) transactions entered into pursuant to the terms of the Master Intercompany Agreement and the Tax Allocation Agreement, (c) transactions entered into in the ordinary course of business, (d) Qualified Securitization Transactions, (e) reasonable fees and compensation paid to and advances of expenses to and indemnity provided on behalf of officers, directors, employees or consultants of the Company or any Subsidiary as determined in good faith by the Company's Board of Directors or senior management; (f) any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any 68 amendment thereto) or in any replacement agreement thereto so long as any such management or replacement agreement is not more disadvantageous to the Holders in any material respect than the original agreement as in effect on the Issue Date; (g) Restricted Payments permitted by the Indenture; (h) loans or advances to employees or consultants in the ordinary course of business and consistent with past practices in an aggregate amount outstanding at any time not to exceed $10.0 million; (i) joint venture partners or purchasers or sellers of goods or services, in each case in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of the Indenture which are fair to the Company or its Restricted Subsidiaries, in the reasonable determination of the senior management of the Company, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party; and (j) any employment or compensation arrangement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business that is not otherwise prohibited by the Indenture. After the Senior Notes have been assigned an Investment Grade rating by both Rating Agencies, and notwithstanding that the Senior Notes may later cease to have an Investment Grade rating, the Company will not be subject to the provisions of this covenant with respect to the Senior Note Indenture; provided, that no Default has occurred and is continuing at the time the Senior Notes have been assigned such rating. LIMITATION ON GUARANTEES BY RESTRICTED SUBSIDIARIES. The Company shall not cause or permit any of its Restricted Subsidiaries, directly or indirectly, to guarantee the payment of any Indebtedness of the Company unless such Restricted Subsidiary of the Company simultaneously executes and delivers a supplemental indenture to each of the Indentures providing for the guarantee of payment of the Senior Notes and the Senior Subordinated Notes (each a "Subsidiary Guarantee") by such Restricted Subsidiary of the Company (a "Subsidiary Guarantor"); provided, any guarantee by a Subsidiary Guarantor of such other Indebtedness (A) (1) (X) is unsecured or (Y) is secured and (I) in the case of any such guarantee of Senior Indebtedness of the Company, the Subsidiary Guarantee with respect to the Senior Subordinated Note Indenture is secured equally and ratably with any Liens securing such guarantee, subject to the provisions set forth under "--Subordination of the Senior Subordinated Notes; Ranking" above, (II) in the case of any such guarantee of Indebtedness of the Company ranking pari passu with the Senior Notes or the Senior Subordinated Notes, as the case may be, the relevant Subsidiary Guarantees are secured equally and ratably with any Liens securing such guarantee and (III) in the case of any such guarantee of Indebtedness of the Company subordinated to the Senior Notes or the Senior Subordinated Notes, as the case may be, the relevant Subsidiary Guarantees are secured on a basis ranking prior to the Liens securing such guarantee and (2) (X) in the case of any such guarantee of Indebtedness of the Company subordinated or junior to the Senior Notes or the Senior Subordinated Notes, as the case may be (whether pursuant to its terms or by operation of law), such guarantee is subordinated pursuant to a written agreement to the relevant Subsidiary Guarantees at least to the same extent and in the same manner as such other Indebtedness is subordinated to the Senior Notes or the Senior Subordinated Notes, as the case may be, or (Y) (I) in the case of any such guarantee of Senior Indebtedness of the Company incurred in accordance with the Senior Subordinated Note Indenture, the relevant Subsidiary Guarantee with respect to the Senior Subordinated Note Indenture is subordinated to Guarantor Senior Indebtedness of such Subsidiary Guarantor to the same extent and in the same manner as the Senior Subordinated Notes are subordinated to Senior Indebtedness of the Company or (II) the relevant Subsidiary Guarantees are not subordinated or junior to any Indebtedness of such Subsidiary Guarantor; and (B) such Subsidiary Guarantor waives, and agrees it will not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against the Company or any other Subsidiary of the Company as a result of any payment by it under such Subsidiary Guarantees. Notwithstanding the foregoing, any Subsidiary Guarantee shall provide by its terms that it shall be automatically and unconditionally released and discharged upon either (A) the unconditional release or discharge of such Subsidiary Guarantor's guarantees of all other Indebtedness of the Company (other than a release resulting from payment under such Subsidiary Guarantor's guarantees) or (B) any sale, exchange or transfer, to any Person not an Affiliate of the Company, of all (but not less than all) of the Capital Stock of such Subsidiary Guarantor, or all or substantially all of the assets of such Subsidiary Guarantor, pursuant to a transaction which is in compliance with all of the terms of the relevant Indenture. 69 CHANGE OF CONTROL. Upon the occurrence of a Change of Control (the date of each such occurrence being the "Change of Control Date"), the Company will notify the Holders in writing of such occurrence and will commence an Offer to Purchase (the "Change of Control Offer") all Senior Notes and Senior Subordinated Notes then outstanding, in each case, at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the Purchase Date. Notice of a Change of Control will be mailed by the Company to the Holders not more than 30 days after any Change of Control Date. None of the provisions relating to a purchase upon a Change of Control are waivable by the Board of Directors of the Company. The Company could, in the future, enter into certain transactions, including certain recapitalizations of the Company, that would not constitute a Change of Control with respect to the Change of Control purchase feature of the Senior Notes and Senior Subordinated Notes, but would increase the amount of Indebtedness outstanding at such time. If a Change of Control were to occur, there can be no assurance that the Company would have sufficient funds to pay the redemption price for all Notes that the Company is required to redeem. In the event that the Company were required to purchase outstanding Notes pursuant to a Change of Control Offer, the Company expects that it would need to seek third-party financing to the extent it does not have available funds to meet its purchase obligations. However, there can be no assurance that the Company would be able to obtain such financing. With respect to the disposition of property or assets, the phrase "all or substantially all" as used in the Indentures (including as set forth under "-- Merger, Consolidation, Etc." below) varies according to the facts and circumstances of the subject transaction, has no clearly established meaning under New York law (which governs the Indentures) and is subject to judicial interpretation. Accordingly, in certain circumstances there may be a degree of uncertainty in ascertaining whether a particular transaction would involve a disposition of "all or substantially all" of the property or assets of a Person and therefore it may be unclear as to whether a Change of Control has occurred and whether the Holders are subject to a Change of Control Offer. The subordination provisions relating to the Senior Subordinated Notes and the "Limitation on Restricted Payments" covenant in the Senior Note Indenture will prohibit the Company from repurchasing any tendered Senior Subordinated Notes upon a Change of Control unless and until all of the tendered Senior Notes are first repurchased. In addition, the Company's ability to repurchase Senior Notes and Senior Subordinated Notes may be limited by other then- existing borrowing agreements of the Company and its Subsidiaries. There can be no assurance that the Company will be able to obtain such a consent or a waiver of such limitations. See "--Subordination of Senior Subordination Notes; Ranking" and "--Certain Covenants--Relating to all Notes--Limitation on Restricted Payments". If an offer is made to redeem Senior Notes and Senior Subordinated Notes as a result of a Change of Control, the Company will comply with all tender offer rules under state and Federal securities laws, including, but not limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer. The Change of Control redemption feature of the Senior Notes and the Senior Subordinated Notes may in certain circumstances make more difficult or discourage a takeover of the Company and, thus, the removal of incumbent management. REPORTS. So long as any Note is outstanding, the Company will file with the Commission and, within 15 days after it files them with the Commission, file with the Trustees and mail or cause the Trustees to mail to the Holders at their addresses as set forth in the registers of the Notes, copies of the annual reports and of the information, documents and other reports which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act or which the Company would be required to file with the Commission if the Company then had a class of securities registered under the Exchange Act. In addition, the Company shall cause its annual report to stockholders and any quarterly or other financial reports furnished to its stockholders generally to be filed with the Trustees and mailed, no later than the date such materials are mailed or made available to the Company's stockholders, to the Holders at their addresses as set forth in the registers of Notes. 70 MERGER, CONSOLIDATION, ETC. The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of (and the Company will not cause or permit any of its Restricted Subsidiaries to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's and its Restricted Subsidiaries' assets (determined on a consolidated basis for the Company and its Restricted Subsidiaries) to any Person or adopt a Plan of Liquidation unless: (i) either (1) the Company shall be the surviving or continuing corporation or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance, transfer or lease the properties and assets of the Company and its Restricted Subsidiaries substantially as an entirety or in the case of a Plan of Liquidation, or Person to which assets of the Company and its Restricted Subsidiaries have been transferred (x) shall be a corporation, limited liability company or partnership organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (y) shall expressly assume, by supplemental indenture (in form and substance satisfactory to each Trustee), executed and delivered to each Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Notes and the performance of every covenant of the Notes and the Indentures on the part of the Company to be performed or observed; (ii) immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company (in the case of clause (1) of the foregoing clause (i)) or such Person (in the case of clause (2) thereof) could incur at least $1.00 of additional Indebtedness pursuant to clause (i) of "--Limitation on Incurrence of Indebtedness"; (iii) immediately before and after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of the transaction) no Default and no Event of Default shall have occurred or be continuing (subject, in the case of the Senior Notes, to the applicability of the covenant described under "Certain Covenants--Relating Only to the Senior Notes--Application of Fall Away Covenants"); and (iv) the Company or such Person shall have delivered to the Trustees (A) an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease or Plan of Liquidation and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this provision of the applicable Indenture and that all conditions precedent in the applicable Indenture relating to such transaction have been satisfied and (B) a certificate from the Company's independent certified public accountants stating that the Company has made the calculations required by clause (ii) above in accordance with the terms of the applicable Indenture. Notwithstanding the foregoing, (x) a Restricted Subsidiary of the Company may consolidate with, or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, the Company or another Restricted Subsidiary of the Company without complying with clause (ii) of the above, (y) a series of transactions involving the sale of Receivables or interests therein by a Securitization Subsidiary in connection with a Qualified Securitization Transaction shall not be deemed to be the sale of all or substantially all of the Company's assets to the extent such transactions are consummated in the ordinary course of business and (z) the provisions of clause (i) above shall not prohibit the Company or any Restricted Subsidiary from selling, assigning, transferring, leasing, conveying or otherwise disposing of all or substantially all of its assets to a Permitted Joint Venture in a transaction entered into in compliance with "Certain Covenants-- Relating to All the Notes--Limitation on Restricted Payments." For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. Upon any such consolidation, merger, conveyance, lease or transfer in accordance with the foregoing, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made will succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indentures with the same effect as if such successor had been named as the 71 Company therein, and thereafter (except in the case of a sale, assignment, transfer, lease, conveyance or other disposition) the predecessor corporation will be relieved of all further obligations and covenants under the Indentures and the Notes. EVENTS OF DEFAULT The following are Events of Default under the Indentures: (a) default in the payment of principal of, or premium, if any, on any Senior Note or Senior Subordinated Note, as the case may be, when due at maturity, upon repurchase, upon acceleration or otherwise, including, without limitation, failure of the Company to repurchase any Senior Note or Senior Subordinated Note, as the case may be, on the date required following a Change of Control (whether or not, in the case of the Senior Subordinated Notes, any such payment is prohibited by the provisions described under "--Subordination of Senior Subordinated Notes; Ranking" above); or (b) default in the payment of any installment of interest on any Senior Note or Senior Subordinated Note, as the case may be, when due and continuance of such Default for 30 days or more (whether or not, in the case of the Senior Subordinated Notes, such payment is prohibited by the provisions described under "--Subordination of Senior Subordinated Notes; Ranking" above); or (c) failure to observe, perform or comply with any of the provisions described under "Certain Covenants--Relating to all Notes--Merger, Consolidation, Etc." above; or (d) default (other than a default set forth in clauses (a), (b) and (c) above) in the performance of, or breach of, any other covenant or warranty of the Company or of any Restricted Subsidiary in the Senior Note Indenture or the Senior Subordinated Note Indenture, as the case may be, or in the Notes and failure to remedy such default or breach within a period of 30 days after written notice from the relevant Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Senior Notes or Senior Subordinated Notes, as the case may be; or (e) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any Subsidiary of the Company (or the payment of which is guaranteed by the Company or any Restricted Subsidiary of the Company), which default results in the acceleration of such Indebtedness prior to its express maturity and the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness the maturity of which has been so accelerated, aggregates $20.0 million or more and such acceleration has not been rescinded or annulled or such Indebtedness discharged in full within 30 days; or (f) the entry by a court of competent jurisdiction of one or more judgments, orders or decrees against the Company or any Subsidiary of the Company or any of their respective property or assets in an aggregate amount in excess of $20.0 million, which judgments, orders or decrees have not been vacated, discharged, satisfied or stayed pending appeal within 30 days from the entry thereof and with respect to which legal enforcement proceedings have been commenced; or (g) certain events of bankruptcy, insolvency or reorganization involving the Company or any Material Subsidiary of the Company. If an Event of Default (other than an Event of Default specified in clause (g) above involving the Company) occurs and is continuing, then and in every such case the Senior Note Trustee or the Senior Subordinated Note Trustee or the Holders of not less than 25% in aggregate principal amount of the then outstanding Senior Notes or Senior Subordinated Notes may, and the relevant Trustee shall upon the request of Holders of not less than 25% in aggregate principal amount of the Senior Notes or Senior Subordinated Notes then outstanding, declare the unpaid principal of, premium, if any, and accrued and unpaid interest on all the Senior Notes or Senior Subordinated Notes, as the case may be, then outstanding to be due and payable, by a notice in writing to the Company (and to the relevant Trustee, if given by Holders) and upon such declaration such principal amount, premium, if any, and accrued and unpaid interest will become immediately due and payable, notwithstanding 72 anything contained in the relevant Indenture or the Notes to the contrary, but subject to the provisions limiting payment described in "--Subordination of Senior Subordinated Notes; Ranking" above. If an Event of Default specified in clause (g) above involving the Company occurs, all unpaid principal of, and premium, if any, and accrued and unpaid interest on the Senior Notes and the Senior Subordinated Notes then outstanding will ipso facto become due and payable, subject to the prior payment in full of all Senior Indebtedness of the Company, without any declaration or other act on the part of any Trustee or any Holder. No Holder of any Note may enforce either Indenture or the Notes except as provided in the relevant Indenture. Subject to the provisions of the relevant Indenture relating to the duties of the Trustee, with respect to each such Indenture the Trustee is under no obligation to exercise any of its rights or powers under such Indenture at the request, order or direction of any of the Holders, unless such Holders have offered to such Trustee reasonable indemnity. Subject to all provisions of the Indentures and applicable law, the Holders of a majority in aggregate principal amount of the then outstanding Senior Notes and Senior Subordinated Notes, as the case may be, have the right to direct the time, method and place of conducting any proceeding for any remedy available to the relevant Trustee or exercising any trust or power conferred on the relevant Trustee. The Trustee may withhold from the relevant Holders notice of any continuing Default or Event of Default (except a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Senior Notes or Senior Subordinated Notes, as the case may be, or that resulted from the failure of the Company to comply with the provisions of "--Certain Covenants--Relating to all Notes--Change of Control" or "-- Merger, Consolidation, Etc." above) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Senior Notes then outstanding by notice to the Senior Note Trustee may rescind an acceleration of such Senior Notes and its consequences if all existing Events of Default (other than the nonpayment of principal of and premium, if any, and interest on the Senior Notes which has become due solely by virtue of such acceleration) have been cured or waived and if the rescission would not conflict with any judgment or decree. The Holders of a majority in aggregate principal amount of the Senior Subordinated Notes then outstanding by notice to the Senior Subordinated Note Indenture Trustee may rescind an acceleration of such Senior Subordinated Notes and its consequences if all existing Events of Default (other than the non-payment of principal of and premium, if any, and interest on the Senior Subordinated Notes which has become due solely by virtue of such acceleration) have been cured or waived and if the rescission would not conflict with any judgment or decree. No such rescission shall affect any subsequent Default or impair any right consequent thereto. The Holders of a majority in aggregate principal amount of the Senior Notes then outstanding may, on behalf of the Holders of all the Senior Notes, waive any past Default or Event of Default under the Senior Note Indenture and its consequences, except a Default in the payment of principal of or premium, if any, or interest on the Senior Notes or in respect of a covenant or provision of the Senior Note Indenture which cannot be modified or amended without the consent of all Holders. The Holders of a majority in aggregate principal amount of the Senior Subordinated Notes then outstanding may on behalf of the Holders of all the Senior Subordinated Notes, waive any past Default or Event of Default under the Senior Subordinated Note Indenture and its consequences, except a Default in the payment of principal of or premium, if any, or interest on, the Senior Subordinated Notes or in respect of a covenant or provision of the Senior Subordinated Note Indenture which cannot be modified or amended without the consent of all Holders. Under each Indenture, two executive officers of the Company are required to provide a certificate to the relevant Trustee promptly upon any such officer obtaining knowledge of any Default or Event of Default (provided that such officers shall provide such certification at least annually whether or not they know of any Default or Event of Default) that has occurred and, if applicable, describe such Default or Event of Default and the status thereof. AMENDMENT, SUPPLEMENT AND WAIVER From time to time, the Company, when authorized by a resolution of its Board of Directors, and the relevant Trustee, may, without the consent of the Holders, amend, waive or supplement either Indenture and the Notes 73 issued thereunder for certain specified purposes, including, among other things, curing ambiguities, defects or inconsistencies, qualifying, or maintaining the qualification of, the relevant Indenture under the TIA, or making any change that does not adversely affect the rights of any Holder; provided that the Company has delivered to the relevant Trustee an opinion of counsel stating that such change does not adversely affect the rights of any Holder. Other amendments and modifications of an Indenture and the Notes issued thereunder may be made by the Company, and the relevant Trustee with the consent of the Holders of not less than a majority of the aggregate principal amount of the Notes issued under such Indenture then outstanding; provided that no such amendment or modification may, without the consent of the Holder of each outstanding Senior Note or Senior Subordinated Note, as the case may be, affected thereby: (a) change the maturity of the principal of or any installment of interest on any such Senior Note or Senior Subordinated Note or alter the optional redemption or repurchase provisions of any such Senior Note or Senior Subordinated Note or such Indenture in a manner adverse to the Holders of such Senior Notes or Senior Subordinated Notes, as the case may be, (b) reduce the principal amount of (or the premium) of any such Senior Note or Senior Subordinated Note, as the case may be, (c) reduce the rate of or extend the time for payment of interest on any such Senior Note or Senior Subordinated Note, as the case may be, (d) change the place or currency of payment of principal of (or premium) or interest on any such Senior Note or Senior Subordinated Note, as the case may be, (e) modify any provisions of such Indenture relating to the waiver of past defaults (other than to add sections of such Indenture or such Senior Notes or Senior Subordinated Notes subject thereto or the right of the Holders of Senior Notes and the Senior Subordinated Notes, as the case may be, outstanding thereunder to institute suit for the enforcement of any payment on or with respect to any such Senior Note or Senior Subordinated Note or the modification and amendment of such Indenture and such Senior Notes or Senior Subordinated Notes (other than to add sections of such Indenture or such Notes which may not be amended, supplemented or waived without the consent of each Holder herein affected), (f) reduce the percentage of the principal amount of outstanding Senior Notes and Senior Subordinated Notes, as the case may be, necessary for amendment to or waiver of compliance with any provision of the applicable Indenture or the Senior Notes and Senior Subordinated Notes, as the case may be, outstanding thereunder or for waiver of any Default in respect thereof, (g) waive a default in the payment of principal of, interest on, or redemption payment with respect to, such Senior Note or Senior Subordinated Note (except a rescission of acceleration of the relevant Notes by the Holders thereof as provided in such Indenture and a waiver of the payment default that resulted from such acceleration), (h) in the case of the Senior Subordinated Note Indenture, modify the ranking or priority of the Senior Subordinated Notes or modify the definition of Senior Indebtedness or amend or modify the subordination provisions of the Senior Subordinated Note Indenture in any manner adverse to the Holders of Senior Subordinated Notes, (i) in the case of the Senior Note Indenture, modify the ranking or priority of the Senior Notes, or (j) modify the provisions relating to any Offer to Purchase required under the covenants described under "--Certain Covenants--Relating to all the Notes--Limitation on Certain Asset Dispositions" or "--Certain Covenants-- Relating to all the Notes--Change of Control" in a manner materially adverse to the Holders of Senior Notes and Senior Subordinated Notes affected thereby. No amendment or modification of the Senior Subordinated Indenture or the Senior Subordinated Notes may adversely affect the rights of the holders of Senior Indebtedness of the Company unless the holders of such Senior Indebtedness consent to such amendment or modification. DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURES The Company may, at its option and at any time, terminate the obligations of the Company with respect to either the Senior Notes or the Senior Subordinated Notes ("defeasance"). Such defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes so defeased, except for (i) the rights of holders of outstanding Notes to receive payment in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (ii) the Company's obligations to issue temporary Notes, register the transfer or exchange of any Notes, replace mutilated, destroyed, lost or stolen Notes and maintain an office or agency for payments in respect of the Notes, (iii) the rights, powers, trusts, duties and immunities of the relevant Trustee, and (iv) the defeasance provisions of the relevant Indenture. In addition, the Company may, at its option and at any time, elect to terminate its obligations with respect to 74 certain covenants that are set forth in the Indentures, some of which are described under "--Certain Covenants" above, and any omission to comply with such obligations shall not constitute a Default or an Event of Default with respect to the Notes so defeased ("covenant defeasance"). In order to exercise either defeasance or covenant defeasance, (i) the Company must irrevocably deposit with the relevant Trustee, in trust, for the benefit of the holders of the Notes to be defeased, cash in United States dollars, U.S. Government Obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes to be defeased to redemption or maturity; (ii) the Company shall have delivered to the Trustee an opinion of counsel to the effect that the holders of the outstanding Notes to be defeased will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance or covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if the act of such defeasance or covenant defeasance had not occurred (in the case of defeasance, such opinion must refer to and be based upon a ruling of the Internal Revenue Service or a change in applicable Federal income tax laws); (iii) no Default or Event of Default under the relevant Indenture shall have occurred and be continuing immediately after giving effect to such deposit; (iv) such defeasance or covenant defeasance shall not cause the relevant Trustee to have a conflicting interest with respect to any securities of the Company; (v) such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument to which the Company is a party or by which it is bound; (vi) the Company shall have delivered to the relevant Trustee an opinion of counsel to the effect that (A) in the case of the Senior Subordinated Notes, the trust funds will not be subject to any rights of holders of Senior Indebtedness of the Company, including, without limitation, those arising under the Senior Subordinated Indenture and (B) after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (vii) the Company shall have delivered to the relevant Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent under the relevant Indenture to either defeasance or covenant defeasance, as the case may be, have been complied with. Notwithstanding the foregoing, the Opinion of Counsel required by clause (ii) above need not be delivered if at such time all outstanding Senior Notes or Senior Subordinated Notes, as the case may be, have been irrevocably called for redemption. SATISFACTION AND DISCHARGE An Indenture will be discharged and will cease to be of further effect (except as to surviving rights or registration of transfer or exchange of the Notes issued thereunder, as expressly provided for in such Indenture) as to all outstanding Notes issued thereunder when (i) either (a) all the Notes issued thereunder theretofore authenticated and delivered (except lost, stolen or destroyed Notes issued thereunder which have been replaced or paid and Notes issued thereunder for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the relevant Trustee for cancellation or (b) all Notes issued thereunder not theretofore delivered to the relevant Trustee for cancellation have become due and payable and the Company has irrevocably deposited or caused to be deposited with the relevant Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Notes issued thereunder not theretofore delivered to the relevant Trustee for cancellation, for principal of, premium, if any, and interest on the Notes issued thereunder to the date of deposit together with irrevocable instructions from the Company directing the relevant Trustee to apply such funds to the payment thereof at maturity; (ii) the Company has paid all other sums payable under such Indenture by the Company; and (iii) the Company has delivered to the relevant Trustee an officers' certificate and an opinion of counsel stating that all conditions precedent under such Indenture relating to the satisfaction and discharge of such Indenture have been complied with. GOVERNING LAW The Indentures and the Notes will be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. 75 THE TRUSTEES The Indentures will provide that, except during the continuance of an Event of Default, the Trustees will perform only such duties as are specifically set forth in the Indentures. During the existence of an Event of Default, the relevant Trustee will exercise such rights and powers vested in it by such Indenture, and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. The Indentures and the provisions of the TIA contain certain limitations on the rights of the Trustees, should it become a creditor of the Company, to obtain payments of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. Subject to the TIA, the Trustees will be permitted to engage in other transactions, provided that if any Trustee acquires any conflicting interest as described in the TIA, it must eliminate such conflict or resign. BOOK-ENTRY; DELIVERY AND FORM The certificates representing the Exchange Notes will be issued in fully registered form without interest coupons. The Global Notes Each of the Senior Exchange Notes and the Senior Subordinated Exchange Notes issued in the Exchange Offer will initially be represented by a single, permanent global Note in definitive, fully registered form without interest coupons (the "Global Notes"). Upon the issuance of the Global Notes, the Depositary or its custodian will credit, on its internal system, the respective principal amount of the individual beneficial interests represented by such Global Note to the accounts of persons who have accounts with such Depositary. Ownership of beneficial interests in a Global Note will be limited to persons who have accounts with the Depositary ("participants") or persons who hold interests through participants. Ownership of beneficial interests in a Global Note will be shown on, and the transfer of that ownership will be effected only through, records maintained by the Depositary or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants). So long as the Depositary, or its nominee, is the registered holder of a Global Note, the Depositary or such nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Global Note for all purposes under the Indenture and the Notes. No beneficial owner of an interest in a Global Note will be able to transfer that interest except in accordance with the procedures provided for under the Depositary's applicable procedures. Payments of the principal of, and interest on, the Global Notes will be made to the Depositary or its nominee, as the case may be, as the registered owner thereof. None of the Company, the Trustee or any Paying Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Notes or for maintaining, supervising or reviewing any records relating to such, beneficial ownership interests. The Company expects that the Depositary or its nominee, upon receipt of any payment of principal or interest in respect of a Global Note will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Note as shown on the records of the Depositary or its nominee. The Company also expects that payments by participants to owners of beneficial interests in such Global Note held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the name of nominees for such customers. Such payments will he the responsibility of such participants. Transfers between participants in the Depositary will be effected in the ordinary way in accordance with the Depositary rules and will be settled in same-day funds. 76 The Depositary has advised the Company that it will take any action permitted to be taken by a holder of Notes (including the presentation of Notes for exchange as described below) only at the direction of one or more participants to whose accounts an interest in the Global Notes is credited and only in respect of such portion of the aggregate principal amount of Notes as to which such participant or participants has or have given such direction. The Depositary has advised the Company as follows: The Depositary is a limited purpose trust company organized under the laws of the State of New York, a "banking organization" within the meaning of New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "Clearing Agency" registered pursuant to the provisions of Section 17A of the Exchange Act. The Depositary was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and certain other organizations. Indirect access to the Depositary system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants"). Although the Depositary has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Notes among participants of the Depositary it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Company nor the Trustee will have any responsibility for the performance by the Depositary or its respective participants or indirect participants of its respective obligations under the rules and procedures governing its operations. Certificated Notes Global Notes may not be transferred as or exchanged for physical certificates in registered form without coupons (the "Certificated Notes") except (i) if the Depositary notifies the Company that it is unwilling or unable to continue to act as depositary with respect to the Global Notes or ceases to be a clearing agency registered under the Exchange Act and, in either case, a successor depositary registered as a clearing agency under the Exchange Act is not appointed by the Company within 120 days, (ii) at any time if the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Certificated Notes or (iii) if the owner of an interest in the Global Notes requests such Certificated Notes, following an Event of Default under the Indenture, in a writing delivered through the Depositary to the Trustee. CERTAIN DEFINITIONS "Acquired Indebtedness" of any specified Person means Indebtedness of any other Person and its Restricted Subsidiaries existing at the time such other Person merged with or into or became a Restricted Subsidiary of such specified Person or assumed by the specified Person in connection with the acquisition of assets from such other Person and not incurred by the specified Person in connection with or in anticipation of (a) such other Person and its Restricted Subsidiaries being merged with or into or becoming a Restricted Subsidiary of such specified Person or (b) such acquisition by the specified Person. "Affiliate" means, when used with reference to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the referent Person, as the case may be. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct or cause the direction of management or policies of the referent Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. "Asset Disposition" means any sale, transfer or other disposition (including, without limitation, by merger, consolidation or sale-and-leaseback transaction) of (i) shares of Capital Stock of a Restricted Subsidiary of the 77 Company (other than directors' qualifying shares) or (ii) property or assets of the Company or any of its Restricted Subsidiaries; provided, that an Asset Disposition shall not include (a) any sale, transfer or other disposition of shares of Capital Stock, property or assets by a Restricted Subsidiary of the Company to the Company or to any Restricted Subsidiary of the Company, (b) any sale, transfer or other disposition of defaulted receivables for collection or any sale, transfer or other disposition of property or assets in the ordinary course of business, (c) any isolated sale, transfer or other disposition that does not (together with all related sales, transfers or dispositions) involve aggregate consideration in excess of $5.0 million, (d) the grant in the ordinary course of business of any license of patents, trademarks, registrations therefor and other similar intellectual property, (e) the granting of any Lien (or foreclosure thereon) securing Indebtedness to the extent that such Lien is granted in compliance with "--Certain Covenants-- Relating Only to the Senior Subordinated Notes--Limitation on Liens" above, in the case of the Senior Subordinated Note Indenture, or "--Certain Covenants-- Relating to the Senior Notes--Limitation on Liens" above, in the case of the Senior Note Indenture, (f) any sale, transfer or other disposition constituting a Permitted Investment or Restricted Payment permitted by "-- Certain Covenants--Relating to all the Notes--Limitation on Restricted Payments" above, (g) any disposition of assets or property in the ordinary course of business to the extent such property or assets are obsolete, worn- out or no longer useful in the Company's or any of its Subsidiaries' business, (h) the sale, lease, conveyance or disposition or other transfer of all or substantially all of the assets of the Company as permitted under "--Certain Covenants--Relating to all the Notes--Merger, Consolidation, etc.", (i) sales of accounts receivable, equipment and related assets (including contract rights) of the type specified in the definition of "Qualified Securitization Transaction" to a Securitization Subsidiary for the fair market value thereof, including cash in an amount at least equal to 90% of the fair market value thereof as determined in accordance with GAAP, and (j) transfers of accounts receivable, equipment and related assets (including contract rights) of the type specified in the definition of "Qualified Securitization Transaction" (or a fractional undivided interest therein) by a Securitization Subsidiary in a Qualified Securitization Transaction. "Asset Sale Offer Trigger Date" has the meaning set forth in "--Certain Covenants--Relating to all the Notes--Limitation on Certain Asset Dispositions." An "Associate" of, or a Person "associated" with, any Person, means (i) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity and (ii) any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person. "Attributable Indebtedness" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate borne by the Senior Notes with respect to the Senior Note Indenture and at the interest rate borne by the Senior Subordinated Notes with respect to the Senior Subordinated Note Indenture, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Indebtedness for borrowed money or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of the number of years from the date of determination to the dates of each successive scheduled principal or liquidation value payments of such Indebtedness or Preferred Stock, respectively, and the amount of such principal or liquidation value payments, by (ii) the sum of all such principal or liquidation value payments. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations, rights in, or other equivalents (however designated and whether voting or non-voting) of, such Person's capital stock, including each class of Common or Preferred Stock of such Person, whether outstanding on the Issue Date or issued after the Issue Date, and any and all rights, warrants or options exchangeable for or convertible into such capital stock. 78 "Capitalized Lease Obligation" means obligations under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of the Indenture, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. The Stated Maturity of such obligation shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without penalty. "Change of Control" means the occurrence of one or more of the following events: (i) any "person" or "group" (as such terms are used in Section 13(d) and 14(d) of the Exchange Act), other than employee or retiree benefit plans or trusts sponsored or established by the Company or Transportation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Company's then outstanding Voting Stock; (ii) the following individuals cease for any reason to constitute more than two-thirds of the number of directors then serving on the Board of Directors of the Company: individuals who, on the Issue Date, constitute the Board of Directors and any new director (other than a director whose initial assumption of the office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board of Directors or nomination for election by the Company's stockholders was approved (A) by the vote of at least a majority of the directors then still in office or whose appointment, election or nomination was previously so approved or recommended or (B) with respect to directors whose appointment of election to the Board of Directors was made by the holders of the Company's nonconvertible junior preference stock, series A and nonconvertible junior preference stock, series B, by the holders of such preference stock; (iii) the shareholders of the Company shall approve any Plan of Liquidation (whether or not otherwise in compliance with the provisions of the Indentures); or (iv) the Company consolidates with or merges with or into another Person, other than a merger or consolidation of the Company in which the holders of the Common Stock of the Company outstanding immediately prior to the consolidation or merger hold, directly or indirectly, at least a majority of the Common Stock of the surviving corporation immediately after such consolidation or merger; (v) the Company or any Restricted Subsidiary of the Company, directly or indirectly, sells, assigns, conveys, transfers, leases or otherwise disposes of, in one transaction or a series of related transactions, all or substantially all of the property or assets of the Company and the Restricted Subsidiaries of the Company (determined on a consolidated basis) to any Person (other than a Permitted Joint Venture in a transaction entered into in compliance with "Certain Covenants--Relating to all the Notes--Limitation on Restricted Payments") ; provided, that neither (x) the merger of a Restricted Subsidiary of the Company into the Company or into any Restricted Subsidiary of the Company nor (y) a series of transactions involving the sale of Receivables or interests therein in the ordinary course of business by a Securitization Subsidiary in connection with a Qualified Securitization Transaction, shall be deemed to be a Change of Control. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. "Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Consolidated Cash Flow Available For Fixed Charges" of any Person means for any period the Consolidated Net Income of such Person for such period increased (to the extent Consolidated Net Income for such period has been reduced thereby) by the sum of (without duplication) (i) Consolidated Interest Expense of such Person for such period, plus (ii) Consolidated Tax Expense of such Person for such period, plus (iii) the consolidated depreciation and amortization expense included in the income statement of such Person prepared in accordance with GAAP for such period, plus (iv) any other non-cash charges to the extent deducted from or 79 reflected in Consolidated Net Income except for any non-cash charges that represent accruals of, or reserves for, cash disbursements to be made in any future accounting period, minus (1) any non-cash items increasing Consolidated Net Income for such period and (2) all cash payments during such period relating to non-cash charges that were added back in determining Consolidated Cash Flow Available For Fixed Charges in any prior period. "Consolidated Cash Flow Ratio" of any Person means for any period the ratio of (i) Consolidated Cash Flow Available for Fixed Charges of such Person for such period to (ii) Consolidated Fixed Charges for such period; provided, however, that all incurrences and repayments of Indebtedness (including the incurrence giving rise to such calculation and any repayments in connection therewith) and all dispositions (including discontinued operations) or acquisition of assets (other than in the ordinary course of business) made during or after such period and on or prior to the date of determination shall be given pro forma effect as if they occurred on the first day of such four- quarter period. Calculations of pro forma amounts in accordance with this definition shall be done in accordance with Article 11 of Regulation S-X under the Securities Act or any successor provision. "Consolidated Fixed Charges" means, with respect to any Person for any period, the sum of, without duplication, the amounts for such period, taken as a single accounting period, of (i) Consolidated Interest Expense; and (ii) the product of (x) the amount of all dividend requirements (whether or not declared) on Preferred Stock of such Person, whether in cash or otherwise (except dividends payable in shares of Qualified Capital Stock) paid, accrued or scheduled to be paid or accrued during such period times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated Federal, state, local and foreign tax rate (expressed as a decimal number between 1 and 0) of such Person (as reflected in the audited consolidated financial statements of such Person for the most recently completed fiscal year). In calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on Indebtedness determined on a fluctuating basis as of the date of determination and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the date of determination; (2) if interest on any Indebtedness actually incurred on the date of determination may be optionally determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate or other rates, then the interest rate in effect on the date of determination will be deemed to have been in effect during the relevant four-quarter period reference; and (3) notwithstanding the foregoing, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to interest swap agreements, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Interest Expense" means, with respect to any Person for any period, the aggregate of the interest expense (without deduction of interest income) of such Person and its Consolidated Subsidiaries for such period, on a consolidated basis, as determined in accordance with GAAP, including (a) all amortization of original issue discount; (b) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person during such period; (c) net cash costs under all Interest Rate Protection Agreements (including amortization of fees); (d) all capitalized interest; and (e) the interest portion of any deferred payment obligations for such period. "Consolidated Net Income" means, with respect to any Person for any period, the consolidated net income (or deficit) of such Person and its Consolidated Subsidiaries for such period, on a consolidated basis, as determined in accordance with GAAP; provided, that the net income of any other Person (other than a Restricted Subsidiary) shall be included only to the extent of the amount that has been actually received by the referent Person or a Restricted Subsidiary of the referent Person in the form of cash dividends or other cash distributions (other than payments in respect of debt obligations), and provided, further, that there shall be excluded (i) the net income of any Person acquired in a "pooling of interests" transaction accrued prior to the date it became a Restricted Subsidiary of the referent Person or is merged into or consolidated with the referent Person or any Restricted Subsidiary of the referent Person; (ii) any restoration to income of any contingency reserve, except to 80 the extent that provision for such reserve was made out of Consolidated Net Income accrued at any time following the Issue Date; (iii) any gain or loss, together with any related provisions for taxes, realized upon the sale or other disposition (including, without limitation, dispositions pursuant to sale-leaseback transactions) of any property or assets which are not sold or otherwise disposed of in the ordinary course of business (provided that sales of Receivables or interests therein pursuant to Qualified Securitization Transactions shall be deemed to be in the ordinary course of business) and upon the sale or other disposition of any Capital Stock of any Subsidiary of the referent Person, (iv) any extraordinary gain or extraordinary loss together with any related provision for taxes and any one time gains or losses (including, without limitation, those related to the adoption of new accounting standards) realized by the referent Person or any of its Restricted Subsidiaries during the period for which such determination is made; (v) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued); (vi) in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets; and (vii) the net income of any Restricted Subsidiary of such Person which is subject to restrictions which prevent or limit the payment of dividends or the making of distributions to such Person to the extent of such restrictions (regardless of any waiver thereof). "Consolidated Stockholders' Equity" as of any date means with respect to any Person the amount, determined in accordance with GAAP, by which the assets of such Person and of its Restricted Subsidiaries on a consolidated basis exceed the sum of (a) the total liabilities of such Person and of its Restricted Subsidiaries on a consolidated basis, plus (b) any redeemable Preferred Stock of such Person. "Consolidated Subsidiary" of any Person means a Restricted Subsidiary which for financial reporting purposes is or, in accordance with GAAP, should be, accounted for by such Person as a consolidated Subsidiary. "Consolidated Tax Expense" means, with respect to any Person for any period, the aggregate of the U.S. Federal, state and local tax expense attributable to taxes based on income and foreign income tax expenses of such Person and its Consolidated Subsidiaries for such period (net of any income tax benefit), determined in accordance with GAAP other than taxes (either positive or negative) attributable to extraordinary or unusual gains or losses or taxes attributable to sales or dispositions of assets. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any of its Restricted Subsidiaries against fluctuations in currency values to or under which the Company or any of its Restricted Subsidiaries is a party or a beneficiary on the date of the Indenture or becomes a party or a beneficiary thereafter. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default (as defined in the Indenture). "Designated Senior Indebtedness" means (i) so long as any Indebtedness under the Senior Notes is outstanding, the Senior Notes, (ii) so long as any Indebtedness under the Mexico Credit Agreement is outstanding, the guarantee by the Company under the Mexico Credit Agreement and (iii) so long as outstanding, any other Senior Indebtedness which has at the time of initial issuance an aggregate outstanding principal amount in excess of $25.0 million which has been so designated as Designated Senior Indebtedness by the Board of Directors of the Company at the time of initial issuance in a resolution delivered to the Trustee. "Disqualified Capital Stock" means any Capital Stock that, other than solely at the option of the issuer thereof, by its terms (or by the terms of any security into which it is convertible or exchangeable) is, or upon the happening of an event or the passage of time would be, required to be redeemed or repurchased, in whole or in part, prior to the first anniversary of the Maturity Date or has, or upon the happening of an event or the passage of time would have, a redemption or similar payment due on or prior to the first anniversary of the Maturity Date, or is convertible into or exchangeable for debt securities at the option of the holder thereof at any time prior to the first anniversary of the Maturity Date. 81 "Event of Default" has the meaning set forth under "--Events of Default" herein. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Issue Date. "guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keepwell, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term "guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "guarantee" used as a verb has a corresponding meaning. "Guarantor Senior Indebtedness" means any guarantee incurred by a Subsidiary Guarantor of Senior Indebtedness (including, without limitation, the Senior Notes) of the Company incurred in accordance with the Indentures, whether such Indebtedness is outstanding on the Issue Date or thereafter; provided that Guarantor Senior Indebtedness expressly shall not include: (i) any Indebtedness of such Subsidiary Guarantor whether outstanding on the Issue Date or thereafter incurred that is, pursuant to its terms or the terms of any agreement relating thereto, subordinated or junior to any other Indebtedness of such Subsidiary Guarantor, (ii) any Indebtedness of such Subsidiary Guarantor whether outstanding on the Issue Date or thereafter incurred that is, by its terms or the terms of any agreement relating thereto, pari passu with or subordinated or junior to such Subsidiary Guarantor's Subsidiary Guarantee; (iii) the Subsidiary Guarantee of such Subsidiary Guarantor; (iv) any Indebtedness or any other obligation of such Subsidiary Guarantor to any of such Subsidiary Guarantor's Subsidiaries or to any of such Subsidiary Guarantor's Affiliates, or to any joint venture in which such Subsidiary Guarantor has an interest; (v) to the extent such may be deemed Indebtedness of such Subsidiary Guarantor, any liability for Federal, state, local, foreign or other taxes owed or owing by such Subsidiary Guarantor or by any of its Restricted Subsidiaries (including pursuant to the Tax Allocation Agreement); (vi) to the extent such may be deemed Indebtedness of such Subsidiary Guarantor, obligations of such Subsidiary Guarantor incurred in connection with the purchase of goods, assets, materials or services in the ordinary course of business or representing amounts recorded as accounts payable, trade payables or other current liabilities of such Subsidiary Guarantor on the books of such Subsidiary Guarantor (other than the current portion of any long-term Indebtedness of such Subsidiary Guarantor that but for this clause (vi) would constitute Guarantor Senior Indebtedness of such Subsidiary Guarantor); (vii) to the extent such may be deemed Indebtedness of such Subsidiary Guarantor, any amount owed by such Subsidiary Guarantor to employees for services rendered to such Subsidiary Guarantor or to any of its Restricted Subsidiaries; and (viii) that portion of any Indebtedness which at the time of incurrence was incurred in violation of the Senior Subordinated Note Indenture. "incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, guarantee or otherwise become liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Person (and "incurrence," "incurred," "incurable" and "incurring" shall have meanings correlative to the foregoing), provided that the accrual of interest (whether such interest is payable in cash or in kind) and the accretion of original issue discount shall not be deemed an incurrence of Indebtedness, provided, further, that (A) any Indebtedness or Capital Stock of a Person existing at the time such Person becomes (after the Issue Date) a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) of the Company shall be deemed to be incurred or issued, as the 82 case may be, by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary of the Company and (B) any amendment, modification or waiver of any document pursuant to which Indebtedness was previously incurred shall not be deemed to be an incurrence of Indebtedness unless and then only to the extent such amendment, modification or waiver increases the principal or premium thereof or interest rate thereon (including by way of original issue discount). "Indebtedness" means, with respect to any Person, at any date, any of the following, without duplication, (i) any liability, contingent or otherwise, of such Person (A) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (B) evidenced by a note, bond, debenture or similar instrument or letters of credit (including a purchase money obligation) or (C) for the payment of money relating to a Capitalized Lease Obligation or other obligation (whether issued or assumed) relating to the deferred purchase price of property, but excluding trade accounts payable of such Person arising in the ordinary course of business; (ii) all conditional sale obligations and all obligations under any title retention agreement (even if the rights and remedies of the seller under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable of such Person arising in the ordinary course of business; (iii) all obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction entered into in the ordinary course of business; (iv) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien (other than in connection with property subject to a Qualified Securitization Transaction) on any asset or property (including, without limitation, leasehold interests and any other tangible or intangible property) of such Person, whether or not such Indebtedness is assumed by such Person or is not otherwise such Person's legal liability; provided, that if the obligations so secured have not been assumed by such Person or are otherwise not such Person's legal liability, the amount of such Indebtedness for the purposes of this definition shall be limited to the lesser of the amount of such Indebtedness secured by such Lien or the fair market value of the assets or property securing such Lien; (v) all Indebtedness of others (including all dividends of other Persons the payment of which is) guaranteed, directly or indirectly, by such Person or that is otherwise its legal liability or which such Person has agreed to purchase or repurchase or in respect of which such Person has agreed continently to supply or advance funds; (vi) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends if any; (vii) all obligations under Currency Agreements and Interest Rate Protection Agreements and (viii) all Attributable Indebtedness in respect of Sale/Leaseback Transactions entered into by such person. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value shall he determined reasonably and in good faith by the Board of Directors of the issuer of such Disqualified Capital Stock. The amount of Indebtedness of any Person at any date shall be the outstanding balance without duplication at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date, provided that the amount outstanding at any time of any Indebtedness issued with original issue discount is the full amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in accordance with GAAP. "Interest Rate Protection Agreement" means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement designed to protect a Person or any Restricted Subsidiary against fluctuations in interest rates to or under which such Person or any Restricted Subsidiary of such Person is a party or a beneficiary on the Issue Date or becomes a party or a beneficiary thereafter. 83 "Investment" by any Person means any direct or indirect (i) loan, advance or other extension of credit (other than a guarantee) or capital contribution (by means of transfers of cash or other property (valued at the fair market value thereof as of the date of transfer) to others or payments for property or services for the account or use of others, or otherwise other than in the ordinary course of business); (ii) purchase or acquisition of Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by any other Person (whether by merger, consolidation, amalgamation or otherwise and whether or not purchased directly from the issuer of such securities or evidences of Indebtedness); (iii) assumption of the Indebtedness of any other Person; and (iv) all other items that would be classified as investments (including, without limitation, purchases of assets outside the ordinary course of business) on a balance sheet of such Person prepared in accordance with GAAP. Investments shall exclude (a) transactions between the Navistar Financial Corporation and Navistar International Transportation Corp. pursuant to the Master Intercompany Agreement and (b) extensions of loans, trade credit and advances to customers and suppliers to the extent made in the ordinary course of business. For purposes of the definition of "Unrestricted Subsidiary" and the covenant described under "--Certain Covenants--Relating to all Notes--Limitation on Restricted Payments," (i) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, that if such designation is made in connection with the acquisition of such Subsidiary or the assets owned by such Subsidiary, the "Investment" in such Subsidiary shall be deemed to be the consideration paid in connection with such acquisition; provided, further, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "Investment Grade" means (i) with respect to S&P any of the rating categories from and including AAA to and including BBB- and (ii) with respect to Moody's any of the rating categories from and including Aaa to and including Baa3. "Issue Date" means the date on which the Old Notes are originally issued under the Indentures. "Lien" means, with respect to any Person, any mortgage, pledge, lien, encumbrance, easement, restriction, covenant, right-of-way, charge or adverse claim affecting tide or resulting in an encumbrance against real or personal property of such Person, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option, right of first refusal or other similar agreement to sell, in each case securing obligations of such Person and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statute or statutes) of any jurisdiction but excluding any such filing or agreement which reflects ownership by a third party of (i) property leased to the referent Person or any of its Restricted Subsidiaries under a lease that is not in the nature of a conditional sale or title retention agreement or (ii) accounts, general intangibles or chattel paper sold to the referent Person). "Master Intercompany Agreement" means the Master Intercompany Agreement dated as of April 26, 1993 and as amended on September 30, 1996, between Navistar Financial Corporation and Navistar International Transportation Corp. as it may be amended, modified, supplemented or restated from time to time in accordance with the terms of the Indenture. "Material Subsidiary" means, at any date of determination, any Subsidiary of the Company that, together with its Subsidiaries, (i) for the most recent fiscal year of the Company accounted for more than 5% of the consolidated revenues of the Company or (ii) as of the end of such fiscal year, was the owner of more than 5% of the consolidated assets of the Company, all as set forth on the most recently available consolidated financial statements of the Company and its Consolidated Subsidiaries for such fiscal year prepared in conformity with GAAP. 84 "Maturity Date" means (i) with respect to the Senior Notes, February 1, 2003 and (ii) with respect to the Senior Subordinated Notes, February 1, 2008. "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Available Proceeds" from any Asset Disposition by any Person means cash or readily marketable cash equivalents received (including by way of sale or discounting of a note, installment receivable or other receivable, but excluding any other consideration received in the form of assumption by the acquirer of Indebtedness or other obligations relating to such properties or assets or received in any other non-cash form) therefrom by such Person, including any cash received by way of deferred payment or upon the monetization or other disposition of any non-cash consideration (including notes or other securities) received in connection with such Asset Disposition, net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses incurred (including, without limitation, fees and expenses of accountants, brokers, printers and other similar entities) and all federal, state, foreign and local taxes required to be accrued as a liability as a consequence of such Asset Disposition, (ii) all payments made by such Person or its Restricted Subsidiaries on any Indebtedness which is secured by such assets in accordance with the terms of any Lien upon or with respect to such assets or which must by the terms of such Lien, or in order to obtain a necessary consent to such Asset Disposition or by applicable law, be repaid out of the proceeds from such Asset Disposition, (iii) all payments made with respect to liabilities associated with the assets which are the subject of the Asset Disposition, including, without limitation, trade payables and other accrued liabilities, (iv) appropriate amounts to be provided by such Person or any Restricted Subsidiary thereof, as the case may be, as a reserve in accordance with GAAP against any liabilities associated with such assets and retained by such Person or any Restricted Subsidiary thereof, as the case may be, after such Asset Disposition, including, without limitation, liabilities under any indemnification obligations and severance and other employee termination costs associated with such Asset Disposition, until such time as such amounts are no longer reserved or such reserve is no longer necessary (at which time any remaining amounts will become Net Available Proceeds to be allocated in accordance with the provisions of clause (iii) of the covenant of the Indentures described under "--Certain Covenants--Relating to all the Notes--Limitation on Certain Asset Dispositions") and (v) all distributions and other payments, made to minority interest holders, if any, in Restricted Subsidiaries of such Person or joint ventures as a result of such Asset Disposition. "Offer to Purchase" means a written offer (the "Offer") sent by the Company by first class mail, postage prepaid, to each Holder at its address appearing in the register for the Senior Note, or the Senior Subordinated Notes, as the case may be, on the date of the Offer, offering to purchase up to the principal amount Senior Notes or the Senior Subordinated Notes, as the case may be, in such Offer at the purchase price specified in such Offer (as determined pursuant to the relevant Indenture). Unless otherwise required by applicable law, the Offer shall specify an expiration date (the "Expiration Date") of the Offer to Purchase which shall be not less than 30 days nor more than 60 days after the date of such Offer and a settlement date (the "Purchase Date") for purchase of such Notes within five Business Days after the Expiration Date. The Company shall notify the relevant Trustee at least 15 Business Days (or such shorter period as is acceptable to such Trustee) prior to the mailing of the Offer of the Company's obligation to make an Offer to Purchase, and the Offer shall be mailed by the Company or, at the Company's request, by such Trustee in the name and at the expense of the Company. The Offer shall contain all the information required by applicable law to be included therein. The Offer shall contain all instructions and materials necessary to enable such Holders to tender such Notes pursuant to the Offer to Purchase. The Offer shall also state: (1) the Section of the Indenture pursuant to which the Offer to Purchase is being made; (2) the Expiration Date and the Purchase Date; (3) the aggregate principal amount of the outstanding Notes offered to be purchased by the Company pursuant to the Offer to Purchase (including, if less than 100%, the manner by which such amount has been determined pursuant to the Section of the Indenture requiring the Offer to Purchase) (the "Purchase Amount"); (4) the purchase price to be paid by the Company for each $1,000 aggregate principal amount of Notes accepted for payment (as specified pursuant to the Indenture) (the "Purchase Price"); 85 (5) that the Holder may tender all or any portion of the Notes registered in the name of such Holder and that any portion of a Note tendered must be tendered in an integral multiple of $1,000 principal amount; (6) the place or places where Notes are to be surrendered for tender pursuant to the Offer to Purchase; (7) that interest on any Note not tendered or tendered but not purchased by the Company pursuant to the Offer to Purchase will continue to accrue; (8) that on the Purchase Date the Purchase Price will become due and payable upon each Note being accepted for payment pursuant to the Offer to Purchase and that interest thereon shall cease to accrue on and after the Purchase Date; (9) that each Holder electing to tender all or any portion of a Note pursuant to the Offer to Purchase will be required to surrender such Note at the place or places specified in the Offer prior to the close of business on the Expiration Date (such Note being, if the Company or the Trustee so requires, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by the Holder thereof or his attorney duly authorized in writing); (10) that Holders will be entitled to withdraw all or any portion of Notes tendered if the Company (or its Paving Agent) receives, not later than the close of business on the fifth Business Day next preceding the Expiration Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder tendered, the certificate number of the Note the Holder tendered and a statement that such Holder is withdrawing all or a portion of his tender; (11) that (a) if Notes in an aggregate principal amount less than or equal to the Purchase Amount are duly tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase all such Notes and (b) if Notes in an aggregate principal amount in excess of the Purchase Amount are tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase Notes having an aggregate principal amount equal to the Purchase Amount on a pro rata basis (with such adjustments as may be deemed appropriate so that only Notes in denominations of $1,000 or integral multiples thereof shall be purchased); and (12) that in the case of any Holder whose Note is purchased only in part, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Note without service charge, a new Note or Notes, of any authorized denomination as requested by such Holder, in all aggregate principal amount equal to and in exchange for the unpurchased portion of the Note or Notes so tendered. An Offer to Purchase shall be governed by and effected in accordance with the provisions above pertaining to any Offer. "Permitted Investments" means (i) Investments in marketable, direct obligations issued or guaranteed by the United States of America, or any governmental entity or agency or political subdivision thereof (provided, that the good faith and credit of the United States of America is pledged in support thereof), maturing within one year of the date of purchase; (ii) Investments in commercial paper issued by corporations or financial institutions maturing within 180 days from the date of the original issue thereof, and rated "P-1" or better by Moody's or "A-1" or better by S&P or an equivalent rating or better by any other nationally recognized securities rating agency; (iii) Investments in certificates of deposit issued or acceptances accepted by or guaranteed by any bank or trust company organized under the laws of the United States of America or any state thereof or the District of Columbia, in each case having capital, surplus and undivided profits totaling more than $500,000,000, maturing within one year of the date of purchase; (iv) deposits, including interest-bearing deposits, maintained in the ordinary course of business in banks; (v) any acquisition of the Capital Stock of any Person; provided, that after giving effect to any such acquisition such Person shall become a Restricted Subsidiary of the Company; (vi) trade receivables and prepaid expenses. in each case arising in the ordinary course of business; provided, that such receivables and prepaid expenses would be recorded as assets of such Person in accordance with GAAP; (vii) endorsements for collection or deposit in the ordinary course of business by such Person of bank drafts and similar negotiable instruments of such other Person received as payment for ordinary course of business trade receivables; (viii) any interest swap or hedging obligation with an unaffiliated Person otherwise permitted by the 86 Indentures (including, without limitation, any Currency Agreement and any Interest Rate Protection Agreement otherwise permitted by the Indentures); (ix) Investments received as consideration for an Asset Disposition in compliance with the provisions of the Indentures described under "--Certain Covenants--Relating to all the Notes--Limitation on Certain Asset Dispositions" above; (x) Investments for which the sole consideration provided is Qualified Capital Stock of the Company; provided, that the issuance of such Qualified Capital Stock is not included in the calculation set forth in clause (3) of the first paragraph of "--Certain Covenants--Relating to all the Notes--Limitation on Restricted Payments"; (xi) loans and advances to employees made in the ordinary course of business in an aggregate amount not to exceed $10.0 million at any one time outstanding; (xii) Investments outstanding on the Issue Date; (xiii) Investments in the Company or a Wholly Owned Subsidiary; (xiv) Investments in securities of trade creditors, suppliers or customers received pursuant to any plan of reorganization or similar arrangement upon bankruptcy or insolvency of such trade creditor, supplier or customer; (xv) Investments in any Person after the Issue Date in an aggregate amount not in excess of $20.0 million at any one time outstanding; and (xvi) Investments in publicly traded equity or publicly traded Investment Grade debt obligations issued by a corporation (other than the Company or an affiliate of the Company) organized under the laws of any State of the United States of America and subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act in an aggregate amount not in excess of $50.0 million at any one time outstanding. "Permitted Joint Venture" means any Person which is, directly or indirectly, through its subsidiaries or otherwise, engaged principally in any business in which the Company is engaged, or a reasonably related business, and the Capital Stock of which is owned by the Company and one or more Persons other than the Company or any affiliate of the Company. "Permitted Junior Securities" means (i) Qualified Stock, (ii) securities of the Company or any other corporation authorized by an order or decree giving effect, and stating in such order or decree that effect is given, to the subordination of such securities to the Senior Indebtedness, and made by a court of competent jurisdiction in a reorganization proceeding under any applicable bankruptcy, insolvency or other similar law, or (iii) any securities of the Company provided for a plan of reorganization or readjustment that are subordinated in right of payment to all Senior Indebtedness that may at the time be outstanding to substantially the same extent as, or to a greater extent than, the Senior Subordinated Notes are subordinated as provided in the Senior Subordinated Note Indenture. "Permitted Liens" means (a) Liens for taxes, assessments and governmental charges (other than any Lien imposed by the Employee Retirement Income Security Act of 1974, as amended) that are not yet delinquent or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and for which adequate reserves have been established or other provisions have been made in accordance with generally accepted accounting principles; (b) statutory mechanics', workmen's, materialmen's, operators' or similar Liens imposed by law and arising in the ordinary course of business for sums which are not yet due or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and for which adequate reserves have been established or other provisions have been made in accordance with generally accepted accounting principles; (c) minor imperfections of, or encumbrances on, title that do not impair the value of property for its intended use; (d) Liens (other than any Lien under the Employee Retirement Income Security Act of 1974, as amended) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (e) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory or regulatory obligations, bankers' acceptances, surety and appeal bonds, government contracts, performance and return of money bonds and other obligations of a similar nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (f) easements, rights-of-way, municipal and zoning ordinances and similar charges, encumbrances, title defects or other irregularities that do not materially interfere with the ordinary course of business of the Company or of any of its Restricted Subsidiaries; (g) Liens (including extensions and renewals thereof) upon real or tangible personal property acquired after the Issue Date; provided, that (I) such Lien is created solely for the purpose of securing Indebtedness that is incurred in accordance with the Indenture to finance the cost (including the cost of improvement or construction) of the item of property or assets subject 87 thereto and such Lien is created prior to, at the time of or within 180 days after the later of the acquisition, the completion of construction or the commencement of full operation of such property, (II) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such cost and (III) any such Lien shall not extend to or cover any property or assets of the Company or of any Restricted Subsidiary of the Company other than such item of property or assets and any improvements on such item; (h) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company or of any Restricted Subsidiary of the Company; (i) any interest or title of a lessor in the property subject to any Capitalized Lease Obligation, provided that any transaction related thereto otherwise complies with the Indenture; (j) Liens arising from filing Uniform Commercial Code financing statements regarding leases; (k) Liens arising from the rendering of a final judgment or order against the Company or any Restricted Subsidiary of the Company that does not give rise to an Event of Default; (l) Liens securing reimbursement obligations with respect to letters of credit incurred in accordance with the Indenture that encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (m) Liens in favor of the Trustees arising under the Indentures; (n) any lien existing on property, shares of stock or Indebtedness of a Person at the time such Person becomes a Restricted Subsidiary of the Company or is merged with or consolidated into the Company or a Restricted Subsidiary of the Company or at the time of sale, lease or other disposition of the properties of any Person as an entirety or substantially as an entirety to the Company or any Restricted Subsidiary of the Company; (o) Liens on property of any Subsidiary of the Company to secure Indebtedness for borrowed money owed to the Company or to another Restricted Subsidiary of the Company; (p) Liens in favor of the Company; (q) Liens existing on the Issue Date; (r) Liens in favor of custom and revenue authorities arising as a matter of law to secure payment of nondelinquent customs duties in connection with the importation of goods; (s) Liens encumbering customary initial deposits and margin deposits, and other Liens incurred in the ordinary course of business that are within the general parameters customary in the industry, in each case securing Indebtedness under Interest Rate Protection Agreement; (t) Liens encumbering deposits made in the ordinary course of business to secure nondelinquent obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or its Restricted Subsidiaries for which a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made; and (u) Liens arising out of consignment or similar arrangements for the sale of goods entered into by the Company or any Restricted Subsidiary in the ordinary course of business in accordance with industry practice. "Person" means any individual, corporation, partnership, joint venture, trust, estate, unincorporated organization or government or any agency or political subdivision thereof. "Plan of Liquidation" means, with respect to any Person, a plan (including by operation of law) that provides for, contemplates or the effectuation of which is preceded or accompanied by (whether or not substantially contemporaneously) (i) the sale, lease, conveyance or other disposition of all or substantially all of the assets of the referent Person and (ii) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and all or substantially all of the remaining assets of the referent Person to holders of Capital Stock of the referent Person. "Preferred Stock" means, as applied to the Capital Stock of any Person, the Capital Stock of such Person (other than the Common Stock of such Person) of any class or classes (however designated) that ranks prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding-up of such Person, to shares of Capital Stock of any other class of such Person. "Qualified Capital Stock" means, with respect to any Person, any Capital Stock of such Person that is not Disqualified Capital Stock or convertible into or exchangeable or exercisable for Disqualified Capital Stock. "Qualified Securitization Transaction" means any transaction or series of transactions that have been or may be entered into by any of the Restricted Subsidiaries of the Company in connection with or reasonably related to a transaction or series of transactions in which any of the Restricted Subsidiaries of the Company may sell, convey or otherwise transfer to (i) a Securitization Subsidiary or (ii) any other Person, or may grant a security interest in, any Receivables or interests therein secured by the merchandise or services financed thereby 88 (whether such Receivables are then existing or arising in the future) of any of the Restricted Subsidiaries of the Company, and any assets related thereto including, without limitation, all security or ownership interests in merchandise or services financed thereby, the proceeds of such Receivables, and other assets which are customarily sold or in respect of which security interests are customarily granted in connection with securitization transactions involving such assets. "Rating Agency" means each of (i) S&P and (ii) Moody's. "Receivables" means any right of payment from or on behalf of any obligor, whether constituting an account, chattel paper, instrument, general intangible or otherwise, arising from the financing by any Restricted Subsidiary of the Company of merchandise or services, and monies due thereunder, security or ownership interests in the merchandise and services financed thereby, records related thereto, and the right to payment of any interest or finance charges and other obligations with respect thereto, proceeds from claims on insurance policies related thereto, any other proceeds related thereto, and any other related rights. "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such property to a person and the Company or a Restricted Subsidiary leases it from such Person. "Securitization Subsidiary" means a Subsidiary of the Company which engages in no activities other than those reasonably related to or in connection with the entering into of securitization transactions and which is designated by the Board of Directors of the Company (as provided below) as a Securitization Subsidiary (a) no portion of the Indebtedness or any other obligations (contingent or otherwise) of which (i) is guaranteed by the Company or any Restricted Subsidiary of the Company, (ii) is recourse to or obligates the Company or any Restricted Subsidiary of the Company in any way other than pursuant to representations, warranties and covenants (including those related to servicing) entered into in the ordinary course of business in connection with a Qualified Securitization Transaction or (iii) subjects any property or asset of the Company or any Restricted Subsidiary of the Company, directly or indirectly, continently or otherwise, to any Lien or to the satisfaction thereof, other than pursuant to representations, warranties and covenants (including those related to servicing) entered into in the ordinary course of business in connection with a Qualified Securitization Transaction, (b) with which neither the Company nor any Restricted Subsidiary of the Company (i) provides any credit support or (ii) has any contract, agreement, arrangement or understanding other than on terms that are fair and reasonable and that are no less favorable to the Company or such Restricted Subsidiary than could be obtained from an unrelated Person (other than, in the case of subclauses (i) and (ii) of this clause (b), representations, warranties and covenants (including those relating to servicing) entered into in the ordinary course of business in connection with a Qualified Securitization Transaction and intercompany notes relating to the sale of Receivables to such Securitization Subsidiary) and (c) with which neither the Company nor any Restricted Subsidiary of the Company has any obligation to maintain or preserve such Subsidiary's financial condition or to cause such Subsidiary to achieve certain levels of operating results. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a certified copy of the resolutions of the Board of Directors of the Company giving effect to such designation. "Senior Indebtedness" means (a) the Senior Notes, including principal, premium, if any, and interest on the Senior Notes and all other amounts due on or in connection with the Senior Notes, and (b) any other Indebtedness (including principal, premium, if any, and interest on such Indebtedness) incurred by the Company in accordance with the Senior Subordinated Note Indenture, whether such Indebtedness is outstanding on the Issue Date or thereafter, provided that Senior Indebtedness of the Company expressly shall not include: (i) any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter incurred) that is, pursuant to its terms or the terms of any agreement relating thereto, subordinated or junior to any other Indebtedness of the Company; (ii) any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter incurred) that is, by its terms or the terms of any agreement relating thereto, pari passu with or 89 subordinated or junior to the Senior Subordinated Notes; (iii) the Senior Subordinated Notes; (iv) any Indebtedness or any other obligation of the Company to any of the Company's Restricted Subsidiaries or to any of the Company's Affiliates, or to any joint venture in which the Company has an interest; (v) to the extent such may be deemed Indebtedness of the Company, any liability for Federal, state, local, foreign or other taxes owed or owing by the Company or by any of its Restricted Subsidiaries (including pursuant to the Tax Allocation Agreement); (vi) to the extent such may be deemed Indebtedness of the Company, obligations of the Company incurred in connection with the purchase of goods, assets, materials or services in the ordinary course of business or representing amounts recorded as accounts payable, trade payables, or other current liabilities of the Company on the books of the Company (other than the current portion of any long-term Indebtedness of the Company that but for this clause (vi) would constitute Senior Indebtedness of the Company); (vii) to the extent such may be deemed Indebtedness of the Company, any amount owed by the Company to employees for services rendered to the Company or to any of its Restricted Subsidiaries; and (viii) that portion of any Indebtedness which at the time of incurrence is incurred in violation of the Senior Subordinated Note Indenture. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw- Hill Companies, Inc., and its successors. "Stated Maturity" means, with respect to any security or Indebtedness of a Person, the date specified therein as the fixed date on which any principal of such security or Indebtedness is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase thereof at the option of the holder thereof). "Subsidiary" of any Person means (a) a corporation a majority of whose Voting Stock is at the time, directly or indirectly, owned by such Person, by one or more Restricted Subsidiaries of such Person or by such Person and one or more Restricted Subsidiaries of such Person or (b) any other Person (other than a trust formed in connection with a Qualified Securitization Transaction) in which such Person, a Restricted Subsidiary of such Person or such Person and one or more Restricted Subsidiaries of such Person, directly or indirectly, at the date of determination thereof, have at least a majority ownership interest. "Subsidiary Guarantee" means each Subsidiary Guarantee of the Notes issued pursuant to "--Certain Covenants--Relating to all Notes--Limitation on Guarantees by Restricted Subsidiaries" above. "Subsidiary Guarantor" means each Restricted Subsidiary of the Company that becomes a guarantor of the Notes pursuant to "--Certain Covenants--Relating to all Notes--Limitation on Guarantees by Restricted Subsidiaries" above. "Support Agreement" means the Amended and Restated Parent's Side Agreement dated as of November 8, 1994 between the Company and Navistar International Transportation Corp. "Tax Allocation Agreement" means the Tax Allocation Agreement among the Company and its subsidiaries, effective as of October 1, 1981, as it has been and may be amended and/or supplemented from time to time. "Unrestricted Subsidiary" means (i) each of Navistar Financial Corporation, Arrendadora Financiera Navistar S.A. de C.V., Servicios Financieros Navistar S.A. de C.V., Servicios Financieros NFC, S.A. de C.V., Harbour Assurance Company of Bermuda Limited, Navistar Acceptance Corporation Limited, the DealCor Subsidiaries of Transportation that are treated on an equity basis by the Company on the Issue Date, and their respective Subsidiaries until such time as it is designated a Restricted Subsidiary pursuant to the second succeeding sentence, (ii) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (iii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock of, or holds any Lien on any property of, the Company or any other 90 Restricted Subsidiary of the Company; provided, that either (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, such designation would be permitted under the covenant described under "--Certain Covenants--Relating to all Notes--Limitation on Restricted Payments." The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, that immediately after giving effect to such designation (x) if such Unrestricted Subsidiary at such time has Indebtedness, the Company could incur $1.00 of additional Indebtedness under clause (i) of the covenant described under "--Certain Covenants--Relating to all Notes--Limitation on Incurrence of Indebtedness" and (y) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced by the Company to the Trustee by promptly filing with the Trustee a copy of the board resolution giving effect to such designation and an officers' certificate certifying that such designation complied with the foregoing provisions. "Voting Stock" means, with respect to any Person, securities of any class or classes of Capital Stock in such Person entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of any contingency) to vote in the election of members of the Board of Directors or other governing body of such Person. "Wholly Owned Subsidiary" means, with respect to any Person, any Restricted Subsidiary of such Person all the outstanding shares of Capital Stock (other than directors' qualifying shares, if applicable) of which are owned directly by such Person or another Wholly Owned Subsidiary of such Person. 91 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following is a discussion of certain material United States federal income tax consequences of the acquisition, ownership and disposition of the Notes. Unless otherwise stated, this discussion is limited to the tax consequences to those persons who are original beneficial owners of the Notes and who hold such Notes as capital assets ("Holders"). This discussion does not address specific tax consequences that may be relevant to particular persons (including, for example, financial institutions, broker-dealers, insurance companies, tax-exempt organizations, estates, trusts, and persons in special situations, such as those who hold Notes as part of a straddle, hedge, conversion transaction, or other integrated investment). This discussion also does not address the tax consequences to Non-U.S. Holders (as defined below) that are subject to U.S. federal income tax on a net basis on income realized with respect to a Note because such income is effectively connected with the conduct of a U.S. trade or business. This discussion does not address the tax consequences to persons that have a functional currency other than the U.S. dollar. In addition, this discussion does not address U.S. federal alternative minimum tax consequences or any aspect of state, local or foreign taxation. This discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Department regulations promulgated thereunder, and administrative and judicial interpretations thereof, all as of the date hereof and all of which are subject to change, possibly on a retroactive basis. HOLDERS OF THE NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING AND DISPOSING OF THE NOTES, AS WELL AS THE APPLICATION OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS. U.S. FEDERAL INCOME TAXATION OF U.S. HOLDERS Payments of Interest In general, interest on a Note will be taxable to a beneficial owner who or which is, (i) a citizen or resident of the United States; (ii) a corporation created or organized under the laws of the United States or any State thereof (including the District of Columbia); or (iii) a person otherwise subject to U.S. federal income taxation on its worldwide income (a "U.S. Holder") as ordinary income at the time it is (actually or constructively) received or accrued, depending on such holder's method of accounting for U.S. federal income tax purposes. Disposition of Notes Upon the sale, exchange, redemption, retirement at maturity or other disposition of a Note, a U.S. Holder generally will recognize taxable gain or loss equal to the difference between (i) the sum of cash plus the fair market value of all other property received on such disposition (except to the extent such cash or property is attributable to accrued but unpaid interest, which will be taxable as ordinary income); and (ii) such holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax basis in a Note generally will equal the cost of the Note to such holder, less any principal payments received by such holder. Gain or loss recognized on the disposition of a Note generally will be capital gain or loss. The net amount of such capital gain recognized by an individual U.S. Holder will be subject to tax at a maximum rate of (i) 28%, if the Note is held for more than 12 months but not more than 18 months, and (ii) 20%, if the Note is held for more than 18 months. Exchange Offer The exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer will not be treated as an "exchange" for U.S. federal income tax purposes because the Exchange Notes will not be considered to differ materially in kind or extent from the Old Notes. As a result, there will be no U.S. federal income tax consequences to beneficial owners exchanging the Old Notes for the Exchange Notes pursuant to the Exchange 92 Offer. The Company is obligated to pay additional interest to the beneficial owners of Old Notes under certain circumstances. The Company believes that any such payments of interest should be treated as subject to an "incidental contingency" for purposes of the original issue discount rules because the potential amount of any such interest payments, if required to be made, is expected to be insignificant relative to the total expected amount of remaining payments on the Old Notes, and accordingly, if such interest payments are required to be made, such interest should be taxable to beneficial owners in the manner described under "Certain Federal Income Tax Considerations--U.S. Federal Income Taxation of U.S. Holders--Payments of Interest." It is possible, however, that the Internal Revenue Service ("IRS") may take a different position, in which case the timing and amount of such income may be different. U.S. FEDERAL INCOME TAXATION OF NON-U.S. HOLDERS Under present U.S. federal income tax law and subject to the discussion of backup withholding below: (i) payments of principal and interest on the Notes by the Company or any agent of the Company to any beneficial owner of a Note that is not a U.S. Holder (a "Non-U.S. Holder") generally will not be subject to U.S. federal withholding tax, provided that in the case of interest (a) (1) the Non-U.S. Holder does not actually or constructively own 10 percent or more of the total combined voting power of all classes of stock of the Company entitled to vote, (2) the Non-U.S. Holder is not a controlled foreign corporation that is related to the Company through stock ownership, (3) the Non-U.S. Holder is not a bank described in Section 881(c)(3)(A) of the Code, and (4) either (A) the beneficial owner of the Notes certifies to the Company or its agent on IRS Form W-8 (or a suitable substitute form), under penalties of perjury, that it is not a "U.S. person" (as defined in the Code) 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 Notes on behalf of the beneficial owner who certifies to the Company 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 payor with a copy thereof (the "Portfolio Interest Exemption") or (b) the Non-U.S. Holder is entitled to the benefits of an income tax treaty under which interest on the Notes is exempt from U.S. federal withholding tax and provides a properly executed IRS Form 1001 claiming the exemption (a "Treaty Exemption"); (ii) a Non-U.S. Holder generally will not be subject to U.S. federal withholding tax on gain realized on the sale, exchange or other disposition of a Note unless (a) the Non-U.S. Holder is an individual who is present in the United States for a period or periods aggregating 183 or more days in the taxable year of the disposition and certain other conditions are met or (b) the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S. tax law applicable to certain U.S. expatriates; and (iii) the exchange of Notes for Exchange Notes pursuant to the Exchange Offer will not be treated as an "exchange" for U.S. federal income tax purposes because the Exchange Notes will not be considered to differ materially in kind or extent from the Notes. As a result, there will be no U.S. federal income tax consequences to beneficial owners exchanging the Notes for the Exchange Notes pursuant to the Exchange Offer. The United States Treasury Department recently adopted final regulations governing federal withholding taxes, information reporting and backup withholding rules ("Final Regulations") which are generally effective for payments after December 31, 1998, subject to certain transition rules. In general, the Final Regulations continue to require that Form W-8 be furnished to establish eligibility for the Portfolio Interest Exemption; however, Form W-8 may in some circumstances require additional information not required on current Form W-8. The Final Regulations generally require Non-U.S. Holders to execute Form W- 8, rather than Form 1001, to establish eligibility for a Treaty Exemption. For any periods during which the Notes are not "actively traded," a 93 Non-U.S. Holder may be required, in order to claim a Treaty Exemption, to (a) furnish a valid United States federal taxpayer identification number and (b) furnish proof of the holder's foreign residency (by furnishing an Internal Revenue Service certification based on (i) a certification from the appropriate tax official in the foreign country, or (ii) appropriate documentary evidence). Under the Final Regulations, certification on Form W-8 for purposes of the Portfolio Interest Exemption or a Treaty Exemption will generally remain valid for 3 years, at which time a new Form W-8 may be required to be executed. In certain cases, the Final Regulations provide alternative forms of documentation for purposes of the Portfolio Interest Exemption or a Treaty Exemption, for example, where the Notes are held by certain foreign partnerships or certain foreign intermediaries. EACH NON-U.S. HOLDER SHOULD CONSULT THE HOLDER'S TAX ADVISOR AS TO THE APPLICATION OF THE FINAL REGULATIONS AND THE PROCEDURES THEREUNDER FOR ESTABLISHING FOREIGN STATUS FOR PURPOSES OF THE PORTFOLIO INTEREST EXEMPTION OR A TREATY EXEMPTION. INFORMATION REPORTING AND BACKUP WITHHOLDING For each calendar year in which the Notes are outstanding, the Company is required to provide the IRS with certain information, including the beneficial owner's name, address and taxpayer identification number, the aggregate amount of interest paid to that beneficial owner during the calendar year and the amount of tax withheld, if any. This obligation, however, does not apply with respect to certain payments to U.S. Holders, including corporations, tax- exempt organizations, qualified pension and profit sharing, trusts and individual retirement accounts, provided that such holders establish entitlement to an exemption. In the event that a U.S. Holder subject to the reporting requirements described above fails to supply its correct taxpayer identification number in the manner required by applicable law or underreports its tax liability, the Company, its agents or paying agents or a broker may be required to "backup" withhold at a rate of 31% with respect to payments in respect of interest, principal (and premium, if any) and gross proceeds from dispositions of Notes. This backup withholding is not an additional tax and may be credited against the U.S. Holder's U.S. federal income tax liability, provided that the required information is furnished to the IRS. Under current Treasury regulations, backup withholding and information reporting will not apply to payments made by the Company or any agent thereof (in its capacity as such) to a Non-U.S. Holder of a Note if such holder has provided the required certification that it is not a U.S. person as set forth in clause (a)(4) in paragraph (i) under "Certain Federal Income Tax Considerations--U.S. Federal Income Taxation of Non-U.S. Holders," or has otherwise established an exemption (provided that neither the Company nor its agent has actual knowledge that the holder is a U.S. person or that the conditions of any exemption are not in fact satisfied). Payment of the proceeds from the sale of a Note to or through a foreign office of a broker will not be subject to information reporting or backup withholding. However, if such broker is a U.S. person, a controlled foreign corporation for U.S. federal income tax purposes or a foreign person 50 percent or more of whose gross income from all sources for the three-year period ending with the close of its taxable year preceding the payment was effectively connected with a U.S. trade or business, information reporting may apply to such payments. Payment of the proceeds from a sale of a Note to or through the U.S. office of a broker will be subject to information reporting and backup withholding unless the holder or beneficial owner certifies as to its taxpayer identification number or otherwise establishes an exemption from information reporting and backup withholding. Under the Final Regulations (described above under "Certain Federal Income Tax Consequences--U.S. Federal Income Taxation of Non-U.S. Holders"), generally effective for payments after December 31, 1998, information reporting and backup withholding will not be required if the Non-U.S. Holder has (i) furnished documentation establishing eligibility for the Portfolio Interest Exemption or a Treaty Exemption (provided that, in the case of a sale of a Note by an individual, Form W-8 (or any substitute) includes a certification that the individual has not been, and does not intend to be, present in the United States for 183 days or more days for the 94 relevant period) or (ii) otherwise establishes an exemption. Certain additional rules may apply where the Notes are held through a custodian, nominee, broker, foreign partnership or foreign intermediary. EACH NON-U.S. HOLDER SHOULD CONSULT THE HOLDER'S TAX ADVISOR AS TO THE APPLICATION OF THE FINAL REGULATIONS AND THE PROCEDURES THEREUNDER FOR ESTABLISHING FOREIGN STATUS FOR PURPOSES OF INFORMATION REPORTING AND BACKUP WITHHOLDING. 95 PLAN OF DISTRIBUTION Each Participating Broker-Dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of Exchange Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that for a period of 180 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any Participating Broker-Dealer for use in connection with any such resale (provided that the Company receive notice from such Participating Broker- Dealer within 30 days after the consummation of the Exchange Offer of his status as a Participating Broker-Dealer). The Company will not receive any proceeds from any sales of the Exchange Notes by Participating Broker Dealers. Exchange Notes received by Participating Broker-Dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over- the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such Participating Broker- Dealer and/or the purchasers of any such Exchange Notes. Any Participating Broker-Dealer that resells the Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date (subject to receiving notice as set forth above), the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any Participating Broker-Dealer that requests such documents in the Letter of Transmittal. Prior to the Exchange Offer, there has not been any public market for the Old Notes. The Old Notes have not been registered under the Securities Act and will be subject to restrictions on transferability to the extent that they are not exchanged for Exchange Notes by holders who are entitled to participate in this Exchange Offer. The holders of Old Notes (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who are not eligible to participate in the Exchange Offer are entitled to certain registration rights, and the Company is required to file a Shelf Registration Statement with respect to such Old Notes. The Exchange Notes will constitute a new issue of securities with no established trading market. The Company does not intend to list the Exchange Notes on any national securities exchange or to seek the admission thereof to trading in the National Association of Securities Dealers Automated Quotation System. In addition, such market making activity will be subject to the limits imposed by the Securities Act and the Exchange Act and may be limited during the Exchange Offer and the pendency of the Shelf Registration Statements. Accordingly, no assurance can be given that an active public or other market will develop for the Exchange Notes or as to the liquidity of the trading market for the Exchange Notes. If a trading market does not develop or is not maintained, holders of the Exchange Notes may experience difficulty in reselling the Exchange Notes or may be unable to sell them at all. If a market for the Exchange Notes develops, any such market may be discontinued at any time. LEGAL MATTERS Certain legal matters with regard to the validity of the Exchange Notes will be passed upon for the Company by Kirkland & Ellis (a partnership including professional corporations), Chicago, Illinois. 96 EXPERTS The consolidated financial statements of Navistar International Corporation as of October 31, 1997 and 1996 and for each of the three years in the period ended October 31, 1997, included in this Prospectus and the related financial statement schedule incorporated by reference from the Company's Annual Report on Form 10-K for the year ended October 31, 1997 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein and incorporated by reference in the registration statement, and are included in reliance upon the reports of such firm given their authority as experts in accounting and auditing. 97 - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO EXCHANGE ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UN- LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL NOR ANY EXCHANGE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE IN- FORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE. ------------ TABLE OF CONTENTS
PAGE ---- Forward-Looking Statements................................................ 4 Statistical and Market Data............................................... 4 Available Information..................................................... 4 Information Incorporated by Reference..................................... 5 Prospectus Summary........................................................ 6 Risk Factors.............................................................. 20 Use of Proceeds........................................................... 25 Capitalization............................................................ 26 Selected Consolidated Financial and Operating Data........................ 27 Management's Discussion and Analysis of Results of Operations and Financial Condition...................................................... 29 Business.................................................................. 36 Management................................................................ 44 Description of Other Financing Arrangements............................... 45 The Exchange Offer........................................................ 48 Description of the Notes.................................................. 57 Certain Federal Income Tax Considerations................................. 92 Plan of Distribution...................................................... 96 Legal Matters............................................................. 96 Experts................................................................... 97 Index to Financial Statements............................................. F-1
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NAVISTAR INTERNATIONAL CORPORATION OFFER TO EXCHANGE ITS SERIES B 7% SENIOR NOTES DUE 2003 FOR ANY AND ALL OF ITS OUTSTANDING 7% SENIOR NOTES DUE 2003 AND TO EXCHANGE ITS SERIES B 8% SENIOR SUBORDINATED NOTES DUE 2008 FOR ANY AND ALL OF ITS OUTSTANDING 8% SENIOR SUBORDINATED NOTES DUE 2008 ----------------- PROSPECTUS ----------------- MARCH 5, 1998 - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Registrant is incorporated under the laws of the State of Delaware. Section 145 of the General Corporation Law of the State of Delaware provides that a Delaware corporation may indemnify any persons who are, or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceedings, provided such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests and, with respect to any criminal action or proceedings, had no reasonable cause to believe that his conduct was illegal. A Delaware corporation may also indemnify any persons who are, or are threatened to be made, a party to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, provided such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. To the extent that an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses which such officer or director has actually and reasonably incurred in connection with such defense. Under Article Ninth of the Registrant's Restated Certificate of Incorporation and Article XII of its By-Laws, as amended, the Registrant shall indemnify any person who was or is made a party or is threatened to be made party to or is otherwise involved in any action, suit or proceedings, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director or officer of the Registrant (including any predecessor corporation of the Registrant), or is or was serving at the request of the Registrant as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against all expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such person in connection therewith to the fullest extent authorized by the General Corporation Law of the State of Delaware. Such right of indemnification shall be a contract right and shall not be exclusive of any other right which such directors, officers or representatives may have or hereafter acquire under any statute, the Registrant's Restated Certificate of Incorporation, the Registrant's By-Laws, agreement, vote of stockholders or disinterested directors or otherwise. In addition, Section 102 of the General Corporation Law of the State of Delaware allows a corporation to eliminate the personal liability of a director of a corporation to the corporation or to any of its stockholders for monetary damages for a breach of fiduciary duty as a director, except in the case where the director (i) breaches his duty of loyalty, (ii) fails to act in good faith, engages in intentional misconduct or knowingly violates a law, (iii) authorized the payment of a dividend or approves a stock repurchase in violation of the General Corporation Law of the State of Delaware or (iv) obtains an improper personal benefit. Article Eighth of the Registrant's Restated Certificate of Incorporation includes a provision which eliminates directors' personal liability to the full extent permitted under the General Corporation Law of the State of Delaware. The Registrant maintains a policy of directors and officers liability insurance covering certain liabilities incurred by its directors and officers in connection with the performance of their duties. II-1 ITEM 21. EXHIBITS. The following exhibits are filed pursuant to Item 601 of Regulation S-K:
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.1 Indenture, dated as of February 4, 1998, by and between the Company and Harris Trust and Savings Bank, as Trustee, pursuant to which the Series B 7% Senior Notes due 2003 will be issued. 4.2 Form of Series B 7% Senior Notes due 2003 (included in Ex- hibit 4.1). 4.3 Indenture, dated as of February 4, 1998, by and between the Company and Harris Trust and Savings Bank, as Trustee, pursuant to which the Series B 8% Senior Subordinated Notes due 2008 will be issued. 4.4 Form of Series B 8% Senior Subordinated Notes due 2008 (included in Exhibit 4.3). 4.5 Purchase Agreement, dated as of January 30, 1998, by and among the Company and J.P. Morgan Securities Inc., Credit Suisse First Boston Corporation and Chase Securities Inc., as Initial Purchasers of the Senior Notes. 4.6 Registration Rights Agreement, dated as of February 4, 1998, by and among the Company and J.P. Morgan Securities Inc., Credit Suisse First Boston Corporation and Chase Se- curities Inc., as Initial Purchasers of the Senior Notes. 4.7 Purchase Agreement, dated as of January 30, 1998, by and among the Company and J.P. Morgan Securities Inc., Credit Suisse First Boston Corporation, Chase Securities Inc., BancAmerica Robertson Stephens and NationsBanc Montgomery Securities L.L.C., as Initial Purchasers of the Senior Subordinated Notes. 4.8 Registration Rights Agreement, dated as of May 30, 1997, by and among the Company and J.P. Morgan Securities Inc., Credit Suisse First Boston Corporation, Chase Securities Inc., BankAmerica Robertson Stephens and NationsBanc Mont- gomery Securities L.L.C., as Initial Purchasers of the Se- nior Subordinated Notes. 5.1 Opinion of Kirkland & Ellis regarding legality of securi- ties being registered. 12.1 Statement regarding computation of ratios. 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of Kirkland & Ellis--included in Exhibit 5.1. 24.1 Powers of Attorney. 25.1 Statement of Eligibility of Trustee. 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Tender Instructions.
ITEM 22. UNDERTAKINGS. (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; II-2 (iii) To include any material information with respect ot the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (d) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (e) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-3 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS PRE-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO, ILLINOIS, AS OF MARCH 5, 1998. Navistar International Corporation /s/ Robert C. Lannert By: _________________________________ Robert C. Lannert Executive Vice President and Chief Financial Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS PRE- EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND AS OF THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- * Chairman, President and March 5, 1998 ____________________________________ Chief Executive Officer and John R. Horne Director (Principal Executive Officer) /s/ Robert C. Lannert Executive Vice President and March 5, 1998 ____________________________________ Chief Financial Officer and Robert C. Lannert Director(Principal Financial Officer) * Vice President and March 5, 1998 ____________________________________ Controller (Principal J. Steven Keate Accounting Officer) * Director March 5, 1998 ____________________________________ William F. Andrews Director March 5, 1998 ____________________________________ Andrew F. Brimmer * Director March 5, 1998 ____________________________________ John D. Correnti * Director March 5, 1998 ____________________________________ William C. Craig * Director March 5, 1998 ____________________________________ Jerry E. Dempsey
II-4
SIGNATURE TITLE DATE --------- ----- ---- * Director March 5, 1998 ____________________________________ John F. Fielder * Director March 5, 1998 ____________________________________ John T. Grigsby, Jr. * Director March 5, 1998 ____________________________________ Mary Garst * Director March 5, 1998 ____________________________________ Michael N. Hammes * Director March 5, 1998 ____________________________________ Allen J. Krowe * Director March 5, 1998 ____________________________________ Walter J. Laskowski * Director March 5, 1998 ____________________________________ William F. Patient
*The undersigned, by signing his name hereto, does hereby execute this Registration Statement on behalf of the above-named officers and/or directors of the Registrant pursuant to Powers of Attorneys being concurrently filed with the Commission. /s/ Robert C. Lannert __________________________________________ Robert C. Lannert, Attorney-in-Fact II-5 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.1 Indenture, dated as of February 4, 1998, by and between the Company and Harris Trust and Savings Bank, as Trustee, pursu- ant to which the Series B 7% Senior Notes due 2003 will be is- sued. 4.2 Form of Series B 7% Senior Notes due 2003 (included in Exhibit 4.1). 4.3 Indenture, dated as of February 4, 1998, by and between the Company and Harris Trust and Savings Bank, as Trustee, pursu- ant to which the Series B 8% Senior Subordinated Notes due 2008 will be issued. 4.4 Form of Series B 8% Senior Subordinated Notes due 2008 (in- cluded in Exhibit 4.3). 4.5 Purchase Agreement, dated as of January 30, 1998, by and among the Company and J.P. Morgan Securities Inc., Credit Suisse First Boston Corporation and Chase Securities Inc., as Initial Purchasers of the Senior Notes. 4.6 Registration Rights Agreement, dated as of February 4, 1998, by and among the Company and J.P. Morgan Securities Inc., Credit Suisse First Boston Corporation and Chase Securities Inc., as Initial Purchasers of the Senior Notes. 4.7 Purchase Agreement, dated as of January 30, 1998, by and among the Company and J.P. Morgan Securities Inc., Credit Suisse First Boston Corporation, Chase Securities Inc., BancAmerica Robertson Stephens and NationsBanc Montgomery Securities L.L.C., as Initial Purchasers of the Senior Subordinated Notes. 4.8 Registration Rights Agreement, dated as of May 30, 1997, by and among the Company and J.P. Morgan Securities Inc., Credit Suisse First Boston Corporation, Chase Securities Inc., BankAmerica Robertson Stephens and NationsBanc Montgomery Se- curities L.L.C., as Initial Purchasers of the Senior Subordi- nated Notes. 5.1 Opinion of Kirkland & Ellis regarding legality of securities being registered. 12.1 Statement regarding computation of ratios. 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of Kirkland & Ellis--included in Exhibit 5.1. 24.1 Powers of Attorney. 25.1 Statement of Eligibility of Trustee. 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Tender Instructions.
II-6 EX-4.1 2 INDENTURE DATED 2/4/1998 EXHIBIT 4.1 ================================================================================ NAVISTAR INTERNATIONAL CORPORATION, as Issuer and HARRIS TRUST AND SAVINGS BANK, as Trustee ____________________ INDENTURE Dated as of February 4, 1998 ____________________ $100,000,000 7% Senior Notes due 2003 ================================================================================ CROSS-REFERENCE TABLE ---------------------
TIA Indenture Section Section - ------- ------- (S)310(a)(1)......................................... 7.10 (a)(2)......................................... 7.10 (a)(3)......................................... N.A. (a)(4)......................................... N.A. (a)(5)......................................... N.A. (b)............................................ 7.8; 7.10; 10.2 (c)............................................ N.A. (S)311(a)............................................ 7.11 (b)............................................ 7.11 (c)............................................ N.A. (S)312(a)............................................ 2.5 (b)............................................ 10.3 (c)............................................ 10.3 (S)313(a)............................................ 7.6 (b)(1)......................................... 7.6 (b)(2)......................................... 7.6 (c)............................................ 7.6; 10.2 (d)............................................ 7.6 (S)314(a)............................................ 4.6; 4.7; 10.2 (b)............................................ N.A. (c)(1)......................................... 10.4 (d)............................................ N.A. (e)............................................ 10.5 (f)............................................ N.A. (S)315(a)............................................ 7.1(b) (b)............................................ 7.5; 10.2 (c)............................................ 7.1(a) (d)............................................ 7.1(c) (e)............................................ 6.11 (S)316(a)............................................ 9.3 (a)(1)(A)...................................... 6.5 (a)(1)(B)...................................... 6.4 (a)(2)......................................... N.A. (b)............................................ 6.6; 6.7, 9.4 (c)............................................ 9.4 (S)317(a)(1)......................................... 6.8 (a)(2)......................................... 6.9 (b)............................................ 2.4 (S)318(a)............................................ 10.1 (c)............................................ 10.1
N.A. means Not Applicable. NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of this Indenture. TABLE OF CONTENTS -----------------
Page ---- ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1 Definitions................................................. 1 SECTION 1.2 Incorporation by Reference of Trust Indenture Act........... 26 SECTION 1.3 Rules of Construction....................................... 27 ARTICLE II THE SECURITIES SECTION 2.1 Form and Dating............................................. 28 SECTION 2.2 Execution and Authentication................................ 29 SECTION 2.3 Registrar and Paying Agent.................................. 30 SECTION 2.4 Paying Agent To Hold Money in Trust......................... 31 SECTION 2.5 Securityholder Lists........................................ 31 SECTION 2.6 Transfer and Exchange....................................... 31 SECTION 2.7 Replacement Securities...................................... 41 SECTION 2.8 Temporary Securities........................................ 42 SECTION 2.9 Cancellation................................................ 42 SECTION 2.10 Defaulted Interest.......................................... 43 SECTION 2.11 CUSIP or CINS Number........................................ 44 SECTION 2.12 Payments of Interest........................................ 44 ARTICLE III [RESERVED] ARTICLE IV COVENANTS SECTION 4.1 Payment of Securities....................................... 45 SECTION 4.2 Maintenance of Office or Agency............................. 45 SECTION 4.3 Corporate Existence......................................... 46 SECTION 4.4 Payment of Taxes and Other Claims........................... 46
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Page ---- SECTION 4.5 Maintenance of Properties; Insurance; Books and Records; Compliance with Law...................................... 47 SECTION 4.6 Compliance Certificates.................................... 47 SECTION 4.7 Reports.................................................... 48 SECTION 4.8 Application of Fall Away Covenants......................... 49 SECTION 4.9 Limitation on Incurrence of Indebtedness................... 49 SECTION 4.10 Waiver of Stay, Extension or Usury Laws.................... 52 SECTION 4.11 Change of Control.......................................... 52 SECTION 4.12 Limitation on Transactions with Affiliates................. 54 SECTION 4.13 Limitation on Liens........................................ 55 SECTION 4.14 Limitation on Payment Restrictions Affecting Restricted Subsidiaries............................................. 56 SECTION 4.15 Limitation on Guarantees by Restricted Subsidiaries........ 57 SECTION 4.16 [Reserved]................................................. 58 SECTION 4.17 Limitation on Preferred Stock of Restricted Subsidiaries... 58 SECTION 4.18 Limitation on Restricted Payments.......................... 58 SECTION 4.19 Limitation on Certain Asset Dispositions................... 61 SECTION 4.20 Limitation on Sale/Leaseback Transactions.................. 63 ARTICLE V SUCCESSOR CORPORATION SECTION 5.1 Merger, Consolidation, Etc................................. 64 SECTION 5.2 Successor Entity Substituted............................... 65 ARTICLE VI DEFAULT AND REMEDIES SECTION 6.1 Events of Default.......................................... 66 SECTION 6.2 Acceleration............................................... 68 SECTION 6.3 Other Remedies............................................. 68 SECTION 6.4 Waiver of Past Default..................................... 69 SECTION 6.5 Control by Majority........................................ 69 SECTION 6.6 Limitation on Suits........................................ 69 SECTION 6.7 Rights of Holders To Receive Payment....................... 70 SECTION 6.8 Collection Suit by Trustee................................. 70 SECTION 6.9 Trustee May File Proofs of Claim........................... 70 SECTION 6.10 Priorities................................................. 71 SECTION 6.11 Undertaking for Costs...................................... 71
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Page ---- SECTION 6.12 Rights and Remedies Cumulative............................. 72 SECTION 6.13 Delay or Omission Not Waiver............................... 72 SECTION 6.14 Restoration of Rights and Remedies......................... 72 ARTICLE VII TRUSTEE SECTION 7.1 Duties of Trustee.......................................... 72 SECTION 7.2 Rights of Trustee.......................................... 74 SECTION 7.3 Individual Rights of Trustee............................... 75 SECTION 7.4 Trustee's Disclaimer....................................... 75 SECTION 7.5 Notice of Defaults......................................... 75 SECTION 7.6 Reports by Trustee to Holders.............................. 76 SECTION 7.7 Compensation and Indemnity................................. 76 SECTION 7.8 Replacement of Trustee..................................... 77 SECTION 7.9 Successor Trustee by Merger, Etc........................... 78 SECTION 7.10 Eligibility; Disqualification.............................. 78 SECTION 7.11 Preferential Collection of Claims Against Company.......... 79 ARTICLE VIII SATISFACTION AND DISCHARGE OF INDENTURE SECTION 8.1 Termination of the Company's Obligations................... 79 SECTION 8.2 Legal Defeasance and Covenant Defeasance................... 80 SECTION 8.3 Application of Trust Money................................. 84 SECTION 8.4 Repayment to Company or Subsidiary Guarantors.............. 85 SECTION 8.5 Reinstatement.............................................. 85 ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.1 Without Consent of Holders................................. 86 SECTION 9.2 With Consent of Holders.................................... 86 SECTION 9.3 Compliance with Trust Indenture Act........................ 88 SECTION 9.4 Revocation and Effect of Consents.......................... 88 SECTION 9.5 Notation on or Exchange of Securities...................... 89 SECTION 9.6 Trustee To Sign Amendments, Etc............................ 89
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Page ---- ARTICLE X MISCELLANEOUS SECTION 10.1 Trust Indenture Act Controls.............................. 89 SECTION 10.2 Notices................................................... 90 SECTION 10.3 Communications by Holders with Other Holders.............. 91 SECTION 10.4 Certificate and Opinion of Counsel as to Conditions Precedent............................................... 91 SECTION 10.5 Statements Required in Certificate and Opinion of Counsel. 91 SECTION 10.6 Rules by Trustee, Paying Agent, Registrar................. 92 SECTION 10.7 Legal Holidays............................................ 92 SECTION 10.8 Governing Law............................................. 92 SECTION 10.9 No Recourse Against Others................................ 92 SECTION 10.10 Successors................................................ 93 SECTION 10.11 Counterparts.............................................. 93 SECTION 10.12 Severability.............................................. 93 SECTION 10.13 Table of Contents, Headings, Etc.......................... 93 SECTION 10.14 No Adverse Interpretation of Other Agreements............. 93 SECTION 10.15 Benefits of Indenture..................................... 93 SECTION 10.16 Independence of Covenants................................. 94 ARTICLE XI GUARANTEE OF SECURITIES SECTION 11.1 Subsidiary Guarantee...................................... 1 SECTION 11.2 Execution and Delivery of Subsidiary Guarantee............ 3 SECTION 11.3 Additional Subsidiary Guarantors.......................... 3 SECTION 11.4 Release of a Subsidiary Guarantor......................... 4 SECTION 11.5 Waiver of Subrogation..................................... 4 SECTION 11.6 Agreement to Subordinate.................................. 5 SECTION 11.7 Subrogation............................................... 8 SECTION 11.8 Relative Rights........................................... 8 SECTION 11.9 Trustee to Effectuate Subordination....................... 9 SECTION 11.10 Trustee Not Fiduciary for Holders of Guarantor Senior Indebtedness............................................ 9 SECTION 11.11 Notice By Subsidiary Guarantor............................ 9 SECTION 11.12 Rights of Trustee......................................... 10 SECTION 11.13 Subsidiary Guarantor May Not Impair Subordination......... 10
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Page ---- SECTION 11.14 Rights of Paying Agent................................... 10 SIGNATURES.............................................................. S-1
EXHIBIT A - Form of Security EXHIBIT B - Terms of Subsidiary Guarantee EXHIBIT C - Form of Subsidiary Guarantee EXHIBIT D - Form of Certificate of Transfer EXHIBIT E - Form of Certificate of Exchange -v- INDENTURE dated as of February 4, 1998, between NAVISTAR INTERNATIONAL CORPORATION, a Delaware corporation, as Issuer (the "Company"), and HARRIS TRUST AND SAVINGS BANK, an Illinois banking corporation, as Trustee (the "Trustee"). The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of the 7% Senior Notes due February 1, 2003 of the Company (the "Securities") to be issued as provided for in this Indenture. All things necessary to make the Securities, when duly issued and executed by the Company and authenticated and delivered hereunder, the valid obligations of the Company, and to make this Indenture a valid, binding agreement of the Company, in accordance with their respective terms, have been done. The parties hereto agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders: ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1 Definitions. "Acquired Indebtedness" of any specified Person means Indebtedness of any other Person and its Restricted Subsidiaries existing at the time such other Person merged with or into or became a Restricted Subsidiary of such specified Person or assumed by the specified Person in connection with the acquisition of assets from such other Person and not incurred by the specified Person in connection with or in anticipation of (a) such other Person and its Restricted Subsidiaries being merged with or into or becoming a Restricted Subsidiary of such specified Person or (b) such acquisition by the specified Person. "Additional Interest" shall have the meaning set forth in the Registration Rights Agreement. "Affiliate" means, when used with reference to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the referent Person, as the case may be. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct or cause the direction of management or policies of the referent Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. -2- "Agent" means any Registrar, Paying Agent or co-registrar. See Section 2.3. "Applicable Procedures" means with respect to any transfer or exchange of interests in a Global Security, the rules and procedures of DTC, Euroclear or Cedel that apply to such transfer or exchange. "Asset Disposition" means any sale, transfer or other disposition (including, without limitation, by merger, consolidation or sale-and-leaseback transaction) of (i) shares of Capital Stock of a Restricted Subsidiary of the Company (other than directors' qualifying shares) or (ii) property or assets of the Company or any of its Restricted Subsidiaries; provided, that an Asset Disposition shall not include (a) any sale, transfer or other disposition of shares of Capital Stock, property or assets by a Restricted Subsidiary of the Company to the Company or to any Restricted Subsidiary of the Company, (b) any sale, transfer or other disposition of defaulted receivables for collection or any sale, transfer or other disposition of property or assets in the ordinary course of business, (c) any isolated sale, transfer or other disposition that does not (together with all related sales, transfers or dispositions) involve aggregate consideration in excess of $5.0 million, (d) the grant in the ordinary course of business of any license of patents, trademarks, registrations therefor and other similar intellectual property, (e) the granting of any Lien (or foreclosure thereon) securing Indebtedness to the extent that such Lien is granted in compliance with Section 4.13, (f) any sale, transfer or other disposition constituting a Permitted Investment or Restricted Payment permitted by Section 4.18, (g) any disposition of assets or property in the ordinary course of business to the extent such property or assets are obsolete, worn-out or no longer useful in the Company's or any of its Subsidiaries' business, (h) the sale, lease, conveyance or disposition or other transfer of all or substantially all of the assets of the Company as permitted under Article V, (i) sales of accounts receivable, equipment and related assets (including contract rights) of the type specified in the definition of "Qualified Securitization Transaction" to a Securitization Subsidiary for the fair market value thereof, including cash in an amount at least equal to 90% of the fair market value thereof as determined in accordance with GAAP, and (j) transfers of accounts receivable, equipment and related assets (including contract rights) of the type specified in the definition of "Qualified Securitization Transaction" (or a fractional undivided interest therein) by a Securitization Subsidiary in a Qualified Securitization Transaction. "Asset Sale Offer Trigger Date" has the meaning set forth in Section 4.19. An "Associate" of, or a Person "associated" with, any Person means (i) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity and (ii) any relative or -3- spouse of such Person, or any relative of such spouse, who has the same home as such Person. "Attributable Indebtedness" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate borne by the Senior Notes with respect to the Senior Note Indenture and at the interest rate borne by the Senior Subordinated Notes with respect to the Senior Subordinated Note Indenture, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Indebtedness for borrowed money or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of the number of years from the date of determination to the dates of each successive scheduled principal or liquidation value payments of such Indebtedness or Preferred Stock, respectively, and the amount of such principal or liquidation value payments, by (ii) the sum of all such principal or liquidation value payments. "Bankruptcy Law" means Title 11 of the U.S. Code or any similar Federal or state law for the relief, reorganization, adjustment or recomposition of debtors. "Board of Directors" means with respect to any Person, the Board of Directors of such Person or any committee of such Board of Directors authorized to act for it hereunder. "Business Day" means any day except a Saturday, a Sunday or any day on which banking institutions in either New York City, New York or Chicago, Illinois are required or authorized by law or other governmental action to be closed. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations, rights in, or other equivalents (however designated and whether voting or non-voting) of, such Person's capital stock, including each class of Common or Preferred Stock of such Person, whether outstanding on the Issue Date or issued after the Issue Date, and any and all rights, warrants or options exchangeable for or convertible into such capital stock. "Capitalized Lease Obligation" means obligations under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this Indenture, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. The Stated Maturity of such obligation shall be the date of the last payment of rent or any other -4- amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without penalty. "Cedel" means Cedel Bank, societe anonyme. "Change of Control" means the occurrence of one or more of the following events: (i) any "person" or "group" (as such terms are used in Section 13(d) and 14(d) of the Exchange Act), other than employee or retiree benefit plans or trusts sponsored or established by the Company or Transportation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Company's then outstanding Voting Stock; (ii) the following individuals cease for any reason to constitute more than two-thirds of the number of directors then serving on the Board of Directors of the Company: individuals who, on the Issue Date, constitute the Board of Directors and any new director (other than a director whose initial assumption of the office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board of Directors or nomination for election by the Company's stockholders was approved (A) by the vote of at least a majority of the directors then still in office or whose appointment, election or nomination was previously so approved or recommended or (B) with respect to directors whose appointment of election to the Board of Directors was made by the holders of the Company's nonconvertible junior preference stock, series A and nonconvertible junior preference stock, series B, by the holders of such preference stock; (iii) the shareholders of the Company shall approve any Plan of Liquidation (whether or not otherwise in compliance with the provisions of this Indenture); or (iv) the Company consolidates with or merges with or into another Person, other than a merger or consolidation of the Company in which the holders of the Common Stock of the Company outstanding immediately prior to the consolidation or merger hold, directly or indirectly, at least a majority of the Common Stock of the surviving corporation immediately after such consolidation or merger; (v) the Company or any Restricted Subsidiary of the Company, directly or indirectly, sells, assigns, conveys, transfers, leases or otherwise disposes of, in one transaction or a series of related transactions, all or substantially all of the property or assets of the Company and the Restricted Subsidiaries of the Company (determined on a consolidated basis) to any Person (other than a Permitted Joint Venture in a transaction entered into in compliance with Section 4.18); provided, that neither (x) the merger of a Restricted Subsidiary of the Company into the Company or into any Restricted Subsidiary of the Company nor (y) a series of transactions involving the sale of Receivables or interests therein in the ordinary course of business by a Securitization Subsidiary in connection with a Qualified Securitization Transaction, shall be deemed to be a Change of Control. -5- For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. "Change of Control Date" has the meaning provided in Section 4.11. "Change of Control Offer" has the meaning provided in Section 4.11. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Company" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and, thereafter, means the successor. "Consolidated Cash Flow Available For Fixed Charges" of any Person means for any period the Consolidated Net Income of such Person for such period increased (to the extent Consolidated Net Income for such period has been reduced thereby) by the sum of (without duplication) (i) Consolidated Interest Expense of such Person for such period, plus (ii) Consolidated Tax Expense of such Person for such period, plus (iii) the consolidated depreciation and amortization expense included in the income statement of such Person prepared in accordance with GAAP for such period, plus (iv) any other non-cash charges to the extent deducted from or reflected in Consolidated Net Income except for any non-cash charges that represent accruals of, or reserves for, cash disbursements to be made in any future accounting period, minus (1) any non-cash items increasing Consolidated Net Income for such period and (2) all cash payments during such period relating to non-cash charges that were added back in determining Consolidated Cash Flow Available For Fixed Charges in any prior period. -6- "Consolidated Cash Flow Ratio" of any Person means for any period the ratio of (i) Consolidated Cash Flow Available for Fixed Charges of such Person for such period to (ii) Consolidated Fixed Charges for such period; provided, however, that all incurrences and repayments of Indebtedness (including the incurrence giving rise to such calculation and any repayments in connection therewith) and all dispositions (including discontinued operations) or acquisition of assets (other than in the ordinary course of business) made during or after such period and on or prior to the date of determination shall be given pro forma effect as if they occurred on the first day of such four- quarter period. Calculations of pro forma amounts in accordance with this definition shall be done in accordance with Article 11 of Regulation S-X under the Securities Act or any successor provision. "Consolidated Fixed Charges" means, with respect to any Person for any period, the sum of, without duplication, the amounts for such period, taken as a single accounting period, of (i) Consolidated Interest Expense; and (ii) the product of (x) the amount of all dividend requirements (whether or not declared) on Preferred Stock of such Person, whether in cash or otherwise (except dividends payable in shares of Qualified Capital Stock) paid, accrued or scheduled to be paid or accrued during such period times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated Federal, state, local and foreign tax rate (expressed as a decimal number between 1 and 0) of such Person (as reflected in the audited consolidated financial statements of such Person for the most recently completed fiscal year). In calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on Indebtedness determined on a fluctuating basis as of the date of determination and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the date of determination; (2) if interest on any Indebtedness actually incurred on the date of determination may be optionally determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate or other rates, then the interest rate in effect on the date of determination will be deemed to have been in effect during the relevant four-quarter period reference; and (3) notwithstanding the foregoing, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to interest swap agreements, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Interest Expense" means, with respect to any Person for any period, the aggregate of the interest expense (without deduction of interest income) of such Person and its Consolidated Subsidiaries for such period, on a consolidated basis, as determined in accordance with GAAP, including (a) all amortization of original issue discount; (b) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled -7- to be paid or accrued by such Person during such period; (c) net cash costs under all Interest Rate Protection Agreements (including amortization of fees); (d) all capitalized interest; and (e) the interest portion of any deferred payment obligations for such period. "Consolidated Net Income" means, with respect to any Person for any period, the consolidated net income (or deficit) of such Person and its Consolidated Subsidiaries for such period, on a consolidated basis, as determined in accordance with GAAP, provided that the net income of any other Person (other than Restricted Subsidiaries) shall be included only to the extent of the amount that has been actually received by the referent Person or a Restricted Subsidiary of the referent Person in the form of cash dividends or other cash distributions (other than payments in respect of debt obligations), and provided, further, that there shall be excluded (i) the net income of any Person acquired in a "pooling of interests" transaction accrued prior to the date it became a Restricted Subsidiary of the referent Person or is merged into or consolidated with the referent Person or any Restricted Subsidiary of the referent Person; (ii) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of Consolidated Net Income accrued at any time following the Issue Date; (iii) any gain or loss, together with any related provisions for taxes, realized upon the sale or other disposition (including, without limitation, dispositions pursuant to sale-leaseback transactions) of any property or assets which are not sold or otherwise disposed of in the ordinary course of business (provided that sales of Receivables or interests therein pursuant to Qualified Securitization Transactions shall be deemed to be in the ordinary course of business) and upon the sale or other disposition of any Capital Stock of any Subsidiary of the referent Person; (iv) any extraordinary gain or extraordinary loss together with any related provision for taxes and any one time gains or losses (including, without limitation, those related to the adoption of new accounting standards) realized by the referent Person or any of its Restricted Subsidiaries during the period for which such determination is made; (v) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued); (vi) in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets; and (vii) the net income of any Restricted Subsidiary of such Person which is subject to restrictions which prevent or limit the payment of dividends or the making of distributions to such Person to the extent of such restrictions (regardless of any waiver thereof). "Consolidated Stockholders' Equity" as of any date means with respect to any Person the amount, determined in accordance with GAAP, by which the assets of such Person and of its Restricted Subsidiaries on a consolidated basis exceed the sum of (a) the -8- total liabilities of such Person and of its Restricted Subsidiaries on a consolidated basis, plus (b) any redeemable Preferred Stock of such Person. "Consolidated Subsidiary" of any Person means a Restricted Subsidiary which for financial reporting purposes is or, in accordance with GAAP, should be, accounted for by such Person as a consolidated Subsidiary. "Consolidated Tax Expense" means, with respect to any Person for any period, the aggregate of the U.S. Federal, state and local tax expense attributable to taxes based on income and foreign income tax expenses of such Person and its Consolidated Subsidiaries for such period (net of any income tax benefit) determined in accordance with GAAP other than taxes (either positive or negative) attributable to extraordinary or unusual gains or losses or taxes attributable to sales or dispositions of assets. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any of its Restricted Subsidiaries against fluctuations in currency values to or under which the Company or any of its Restricted Subsidiaries is a party or a beneficiary on the date of this Indenture or becomes a party or a beneficiary thereafter. "Custodian" has the meaning provided in Section 6.1(b). "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "Defaulted Interest" has the meaning specified in Section 2.10. "Disqualified Capital Stock" means any Capital Stock that, other than solely at the option of the issuer thereof, by its terms (or by the terms of any security into which it is convertible or exchangeable) is, or upon the happening of an event or the passage of time would be, required to be redeemed or repurchased, in whole or in part, prior to the first anniversary of the Maturity Date or has, or upon the happening of an event or the passage of time would have, a redemption or similar payment due on or prior to the first anniversary of the Maturity Date, or is convertible into or exchangeable for debt securities at the option of the holder thereof at any time prior to the first anniversary of the Maturity Date. "DTC" means The Depository Trust Company or its successors. "Euroclear" means Morgan Guaranty Trust Company of New York (Brussels Office) as operator of the Euroclear system. "Event of Default" has the meaning provided in Section 6.1(a). -9- "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Registration Statement" shall have the meaning set forth in the Registration Rights Agreement. "Exchange Securities" has the meaning given such term in the Registration Rights Agreement. "Exchange Senior Subordinated Notes" means the securities issuable by the Company in exchange for the Senior Subordinated Notes pursuant to the Senior Subordinated Note Registration Rights Agreement. "Fiscal Quarter" means any quarter in any Fiscal Year, the duration of such quarter being defined in accordance with GAAP. "Fiscal Year" means a fiscal year of the Company and its Subsidiaries. On the date of this Indenture the fiscal year of the Company and its Subsidiaries ends October 31 of each year. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Issue Date. "Global Security" means the global security, without coupons, representing all or a portion of the Securities deposited with DTC substantially in the form of Exhibit A attached hereto. "guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keepwell, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term "guarantee" shall not include endorsements for collection or -10- deposit in the ordinary course of business. The term "guarantee" used as a verb has a corresponding meaning. "Guarantor Senior Indebtedness" means any guarantee incurred by a Subsidiary Guarantor of Senior Indebtedness (including, without limitation, the Senior Notes) of the Company incurred in accordance with this Indenture, whether such Indebtedness is outstanding on the Issue Date or thereafter; provided that Guarantor Senior Indebtedness expressly shall not include: (i) any Indebtedness of such Subsidiary Guarantor whether outstanding on the Issue Date or thereafter incurred that is, pursuant to its terms or the terms of any agreement relating thereto, subordinated or junior to any other Indebtedness of such Subsidiary Guarantor, (ii) any Indebtedness of such Subsidiary Guarantor whether outstanding on the Issue Date or thereafter incurred that is, by its terms or the terms of any agreement relating thereto, pari passu with or subordinated or junior to such Subsidiary Guarantor's Subsidiary Guarantee; (iii) the Subsidiary Guarantee of such Subsidiary Guarantor; (iv) any Indebtedness or any other obligation of such Subsidiary Guarantor to any of such Subsidiary Guarantor's Subsidiaries or to any of such Subsidiary Guarantor's Affiliates, or to any joint venture in which such Subsidiary Guarantor has an interest; (v) to the extent such may be deemed Indebtedness of such Subsidiary Guarantor, any liability for Federal, state, local, foreign or other taxes owed or owing by such Subsidiary Guarantor or by any of its Restricted Subsidiaries (including pursuant to the Tax Allocation Agreement); (vi) to the extent such may be deemed Indebtedness of such Subsidiary Guarantor, obligations of such Subsidiary Guarantor incurred in connection with the purchase of goods, assets, materials or services in the ordinary course of business or representing amounts recorded as accounts payable, trade payables or other current liabilities of such Subsidiary Guarantor on the books of such Subsidiary Guarantor (other than the current portion of any long-term Indebtedness of such Subsidiary Guarantor that but for this clause (vi) would constitute Guarantor Senior Indebtedness of such Subsidiary Guarantor); (vii) to the extent such may be deemed Indebtedness of such Subsidiary Guarantor, any amount owed by such Subsidiary Guarantor to employees for services rendered to such Subsidiary Guarantor or to any of its Restricted Subsidiaries; and (viii) that portion of any Indebtedness which at the time of incurrence was incurred in violation of the Senior Subordinated Note Indenture. "Holder" or "Securityholder" means the Person in whose name a Security is registered on the Registrar's books. "incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, guarantee or otherwise become liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Person (and "incurrence," "incurred," "incurrable" and "incurring" shall have meanings correlative to the foregoing), provided that the accrual -11- of interest (whether such interest is payable in cash or in kind) and the accretion of original issue discount shall not be deemed an incurrence of Indebtedness, provided, further, that (A) any Indebtedness or Capital Stock of a Person existing at the time such Person becomes (after the Issue Date) a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) of the Company shall be deemed to be incurred or issued, as the case may be, by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary of the Company and (B) any amendment, modification or waiver of any document pursuant to which Indebtedness was previously incurred shall not be deemed to be an incurrence of Indebtedness unless and then only to the extent such amendment, modification or waiver increases the principal or premium thereof or interest rate thereon (including by way of original issue discount). "Indebtedness" means, with respect to any Person, at any date, any of the following, without duplication, (i) any liability, contingent or otherwise, of such Person (A) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (B) evidenced by a note, bond, debenture or similar instrument or letters of credit (including a purchase money obligation) or (C) for the payment of money relating to a Capitalized Lease Obligation or other obligation (whether issued or assumed) relating to the deferred purchase price of property, but excluding trade accounts payable of such Person arising in the ordinary course of business; (ii) all conditional sale obligations and all obligations under any title retention agreement (even if the rights and remedies of the seller under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable of such Person arising in the ordinary course of business; (iii) all obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction entered into in the ordinary course of business; (iv) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien (other than in connection with property subject to a Qualified Securitization Transaction) on any asset or property (including, without limitation, leasehold interests and any other tangible or intangible property) of such Person, whether or not such Indebtedness is assumed by such Person or is not otherwise such Person's legal liability; provided, that if the obligations so secured have not been assumed by such Person or are otherwise not such Person's legal liability, the amount of such Indebtedness for the purposes of this definition shall be limited to the lesser of the amount of such Indebtedness secured by such Lien or the fair market value of the assets or property securing such Lien; (v) all Indebtedness of others (including all dividends of other Persons the payment of which is) guaranteed, directly or indirectly, by such Person or that is otherwise its legal liability or which such Person has agreed to purchase or repurchase or in respect of which such Person has agreed continently to supply or advance funds; (vi) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock be- -12- ing equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends if any; (vii) all obligations under Currency Agreements and Interest Rate Protection Agreements and (viii) all Attributable Indebtedness in respect of Sale/Leaseback Transactions entered into by such person. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value shall he determined reasonably and in good faith by the Board of Directors of the issuer of such Disqualified Capital Stock. The amount of Indebtedness of any Person at any date shall be the outstanding balance without duplication at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date, provided that the amount outstanding at any time of any Indebtedness issued with original issue discount is the full amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in accordance with GAAP. "Indenture" means this Indenture as amended or supplemented from time to time pursuant to the terms hereof. "Initial Global Securities" means the Regulation S Global Security and the 144A Global Security, each of which contains a Securities Act Legend. "Initial Securities" means the Securities containing a Securities Act Legend. "interest," when used with respect to any Security, means the amount of all interest accruing on such Security, including all interest accruing subsequent to the occurrence of any events specified in Sections 6.1(a)(vii) and (viii) or which would have accrued but for any such event. "Interest Payment Date," when used with respect to any Security, means the stated maturity of an installment of interest specified in such Security. "Interest Rate," when used with respect to any Security, means the rate per annum specified in such Security as the rate of interest accruing on the principal amount of such Security. "Interest Rate Protection Agreement" means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap -13- agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement designed to protect a Person or any Restricted Subsidiary against fluctuations in interest rates to or under which such Person or any Restricted Subsidiary of such Person is a party or a beneficiary on the Issue Date or becomes a party or a beneficiary thereafter. "Investment" by any Person means any direct or indirect (i) loan, advance or other extension of credit (other than a guarantee) or capital contribution (by means of transfers of cash or other property (valued at the fair market value thereof as of the date of transfer) to others or payments for property or services for the account or use of others, or otherwise other than in the ordinary course of business); (ii) purchase or acquisition of Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by any other Person (whether by merger, consolidation, amalgamation or otherwise and whether or not purchased directly from the issuer of such securities or evidences of Indebtedness); (iii) assumption of the Indebtedness of any other Person; and (iv) all other items that would be classified as investments (including, without limitation, purchases of assets outside the ordinary course of business) on a balance sheet of such Person prepared in accordance with GAAP. Investments shall exclude (a) transactions between the Navistar Financial Corporation and Navistar International Transportation Corp. pursuant to the Master Intercompany Agreement and (b) extensions of loans, trade credit and advances to customers and suppliers to the extent made in the ordinary course of business. For purposes of the definition of "Unrestricted Subsidiary" and Section 4.18," (i) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, that if such designation is made in connection with the acquisition of such Subsidiary or the assets owned by such Subsidiary, the "Investment" in such Subsidiary shall be deemed to be the consideration paid in connection with such acquisition; provided, further, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "Investment Grade" means (i) with respect to S&P any of the rating categories from and including AAA to and including BBB-and (ii) with respect to Moody's any of the rating categories from and including Aaa to and including Baa3. -14- "Issue Date" means the date on which the Securities are originally issued under this Indenture. "Legal Holiday" means any day other than a Business Day. "Lien" means, with respect to any Person, any mortgage, pledge, lien, encumbrance, easement, restriction, covenant, right-of-way, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property of such Person, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option, right of first refusal or other similar agreement to sell, in each case securing obligations of such Person and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statute or statutes) of any jurisdiction but excluding any such filing or agreement which reflects ownership by a third party of (i) property leased to the referent Person or any of its Restricted Subsidiaries under a lease that is not in the nature of a conditional sale or title retention agreement or (ii) accounts, general intangibles or chattel paper sold to the referent Person). "Master Intercompany Agreement" means the Master Intercompany Agreement dated as of April 26, 1993 and as amended on September 30, 1996, between Navistar Financial Corporation and Transportation as it may be amended, modified, supplemented or restated from time to time in accordance with the terms of this Indenture. "Material Subsidiary" means, at any date of determination, any Subsidiary of the Company that, together with its Subsidiaries, (i) for the most recent Fiscal Year of the Company accounted for more than 5% of the consolidated revenues of the Company or (ii) as of the end of such Fiscal Year, was the owner of more than 5% of the consolidated assets of the Company, all as set forth on the most recently available consolidated financial statements of the Company and its Consolidated Subsidiaries for such Fiscal Year prepared in conformity with GAAP. "Maturity Date" means February 1, 2003. "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Available Proceeds" from any Asset Disposition by any Person means cash or readily marketable cash equivalents received (including by way of sale or discounting of a note, installment receivable or other receivable, but excluding any other consideration received in the form of assumption by the acquirer of Indebtedness or other obligations relating to such properties or assets or received in any other non-cash form) therefrom by such Person, including any cash received by way of deferred payment or upon the moneti- -15- zation or other disposition of any non-cash consideration (including notes or other securities) received in connection with such Asset Disposition, net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses incurred (including, without limitation, fees and expenses of accountants, brokers, printers and other similar entities) and all federal, state, foreign and local taxes required to be accrued as a liability as a consequence of such Asset Disposition, (ii) all payments made by such Person or its Restricted Subsidiaries on any Indebtedness which is secured by such assets in accordance with the terms of any Lien upon or with respect to such assets or which must by the terms of such Lien, or in order to obtain a necessary consent to such Asset Disposition or by applicable law, be repaid out of the proceeds from such Asset Disposition, (iii) all payments made with respect to liabilities associated with the assets which are the subject of the Asset Disposition, including, without limitation, trade payables and other accrued liabilities, (iv) appropriate amounts to be provided by such Person or any Restricted Subsidiary thereof, as the case may be, as a reserve in accordance with GAAP against any liabilities associated with such assets and retained by such Person or any Restricted Subsidiary thereof, as the case may be, after such Asset Disposition, including, without limitation, liabilities under any indemnification obligations and severance and other employee termination costs associated with such Asset Disposition, until such time as such amounts are no longer reserved or such reserve is no longer necessary (at which time any remaining amounts will become Net Available Proceeds to be allocated in accordance with the provisions of clause (iii) of Section 4.19) and (v) all distributions and other payments, made to minority interest holders, if any, in Restricted Subsidiaries of such Person or joint ventures as a result of such Asset Disposition. "Offer to Purchase" means a written offer (the "Offer") sent by the Company by first class mail, postage prepaid, to each Holder at its address appearing in the register for the Securities on the date of the Offer, offering to purchase up to the principal amount Securities in such Offer at the purchase price specified in such Offer (as determined pursuant to this Indenture). Unless otherwise required by applicable law, the Offer shall specify an expiration date (the "Expiration Date") of the Offer to Purchase which shall be not less than 30 days nor more than 60 days after the date of such Offer and a settlement date (the "Purchase Date") for purchase of such Securities within five Business Days after the Expiration Date. The Company shall notify the Trustee at least 15 Business Days (or such shorter period as is acceptable to the Trustee) prior to the mailing of the Offer of the Company's obligation to make an Offer to Purchase, and the Offer shall be mailed by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. The Offer shall contain all the information required by applicable law to be included therein. The Offer shall contain all instructions and materials necessary to enable such Holders to tender such Notes pursuant to the Offer to Purchase. The Offer shall also state: -16- (i) the Section of the Indenture pursuant to which the Offer to Purchase is being made; (ii) the Expiration Date and the Purchase Date; (iii) the aggregate principal amount of the outstanding Securities offered to be purchased by the Company pursuant to the Offer to Purchase (including, if less than 100%, the manner by which such amount has been determined pursuant to the Section of the Indenture requiring the Offer to Purchase) (the "Purchase Amount"); (iv) the purchase price to be paid by the Company for each $1,000 aggregate principal amount of Securities accepted for payment (as specified pursuant to this Indenture) (the "Purchase Price"); (v) that the Holder may tender all or any portion of the Notes registered in the name of such Holder and that any portion of a Securities tendered must be tendered in an integral multiple of $1,000 principal amount; (vi) the place or places where Securities are to be surrendered for tender pursuant to the Offer to Purchase; (vii) that interest on any Securities not tendered or tendered but not purchased by the Company pursuant to the Offer to Purchase will continue to accrue; (viii) that on the Purchase Date the Purchase Price will become due and payable upon each Security being accepted for payment pursuant to the Offer to Purchase and that interest thereon shall cease to accrue on and after the Purchase Date; (ix) that each Holder electing to tender all or any portion of a Security pursuant to the Offer to Purchase will be required to surrender such Note at the place or places specified in the Offer prior to the close of business on the Expiration Date (such Security being, if the Company or the Trustee so requires, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by the Holder thereof or his attorney duly authorized in writing); (x) that Holders will be entitled to withdraw all or any portion of Securities tendered if the Company (or its Paying Agent) receives, not later than the close of business on the fifth Business Day next preceding the Expiration Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security the Holder tendered, the certificate number of the -17- Security the Holder tendered and a statement that such Holder is withdrawing all or a portion of his tender; (xi) that (a) if Securities in an aggregate principal amount less than or equal to the Purchase Amount are duly tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase all such Securities and (b) if Securities in an aggregate principal amount in excess of the Purchase Amount are tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase Securities having an aggregate principal amount equal to the Purchase Amount on a pro rata basis (with such adjustments as may be deemed appropriate so that only Securities in denominations of $1,000 or integral multiples thereof shall be purchased); and (xii) that in the case of any Holder whose Security is purchased only in part, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in all aggregate principal amount equal to and in exchange for the unpurchased portion of the Security or Securities so tendered. An Offer to Purchase shall be governed by and effected in accordance with the provisions above pertaining to any Offer. "Officer" means the Chairman, the President, any Vice President, the Chief Financial Officer, the Treasurer, the Secretary or the Controller of the Company. "Officers' Certificate" means a certificate signed by two Officers or by an Officer and an Assistant Treasurer or Assistant Secretary of the Company and otherwise complying with the requirements of Section 10.4 and Section 10.5 as they relate to the making of an Officers' Certificate. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee, which may include counsel to the Company complying with the requirements of Section 10.4 and Section 10.5 as they relate to the giving of an Opinion of Counsel. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. "Permitted Investments" means (i) Investments in marketable, direct obligations issued or guaranteed by the United States of America, or any governmental entity or -18- agency or political subdivision thereof (provided, that the good faith and credit of the United States of America is pledged in support thereof), maturing within one year of the date of purchase; (ii) Investments in commercial paper issued by corporations or financial institutions maturing within 180 days from the date of the original issue thereof, and rated "P-1" or better by Moody's or "A-1" or better by S&P or an equivalent rating or better by any other nationally recognized securities rating agency; (iii) Investments in certificates of deposit issued or acceptances accepted by or guaranteed by any bank or trust company organized under the laws of the United States of America or any state thereof or the District of Columbia, in each case having capital, surplus and undivided profits totaling more than $500,000,000, maturing within one year of the date of purchase; (iv) deposits, including interest-bearing deposits, maintained in the ordinary course of business in banks; (v) any acquisition of the Capital Stock of any Person; provided, that after giving effect to any such acquisition such Person shall become a Restricted Subsidiary of the Company; (vi) trade receivables and prepaid expenses. in each case arising in the ordinary course of business; provided, that such receivables and prepaid expenses would be recorded as assets of such Person in accordance with GAAP; (vii) endorsements for collection or deposit in the ordinary course of business by such Person of bank drafts and similar negotiable instruments of such other Person received as payment for ordinary course of business trade receivables; (viii) any interest swap or hedging obligation with an unaffiliated Person otherwise permitted by the Indentures (including, without limitation, any Currency Agreement and any Interest Rate Protection Agreement otherwise permitted by this Indenture); (ix) Investments received as consideration for an Asset Disposition in compliance with the provisions of Section 4.19; (x) Investments for which the sole consideration provided is Qualified Capital Stock of the Company; provided, that the issuance of such Qualified Capital Stock is not included in the calculation set forth in clause (3) of the first paragraph of Section 4.18; (xi) loans and advances to employees made in the ordinary course of business in an aggregate amount not to exceed $10.0 million at any one time outstanding; (xii) Investments outstanding on the Issue Date; (xiii) Investments in the Company or a Wholly Owned Subsidiary; (xiv) Investments in securities of trade creditors, suppliers or customers received pursuant to any plan of reorganization or similar arrangement upon bankruptcy or insolvency of such trade creditor, supplier or customer; (xv) Investments in any Person after the Issue Date in an aggregate amount not in excess of $20.0 million at any one time outstanding; and (xvi) Investments in publicly traded equity or publicly traded Investment Grade debt obligations issued by a corporation (other than the Company or an affiliate of the Company) organized under the laws of any State of the United States of America and subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act in an aggregate amount not in excess of $50.0 million at any one time outstanding. "Permitted Joint Venture" means any Person which is, directly or indirectly, through its subsidiaries or otherwise, engaged principally in any business in which the -19- Company is engaged, or a reasonably related business, and the Capital Stock of which is owned by the Company and one or more Persons other than the Company or any affiliate of the Company. "Permitted Liens" means (a) Liens for taxes, assessments and governmental charges (other than any Lien imposed by the Employee Retirement Income Security Act of 1974, as amended) that are not yet delinquent or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and for which adequate reserves have been established or other provisions have been made in accordance with generally accepted accounting principles; (b) statutory mechanics', workmen's, materialmen's, operators' or similar Liens imposed by law and arising in the ordinary course of business for sums which are not yet due or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and for which adequate reserves have been established or other provisions have been made in accordance with generally accepted accounting principles; (c) minor imperfections of, or encumbrances on, title that do not impair the value of property for its intended use; (d) Liens (other than any Lien under the Employee Retirement Income Security Act of 1974, as amended) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (e) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory or regulatory obligations, bankers' acceptances, surety and appeal bonds, government contracts, performance and return of money bonds and other obligations of a similar nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (f) easements, rights-of-way, municipal and zoning ordinances and similar charges, encumbrances, title defects or other irregularities that do not materially interfere with the ordinary course of business of the Company or of any of its Restricted Subsidiaries; (g) Liens (including extensions and renewals thereof) upon real or tangible personal property acquired after the Issue Date; provided, that (I) such Lien is created solely for the purpose of securing Indebtedness that is incurred in accordance with this Indenture to finance the cost (including the cost of improvement or construction) of the item of property or assets subject thereto and such Lien is created prior to, at the time of or within 180 days after the later of the acquisition, the completion of construction or the commencement of full operation of such property, (II) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such cost and (III) any such Lien shall not extend to or cover any property or assets of the Company or of any Restricted Subsidiary of the Company other than such item of property or assets and any improvements on such item; (h) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company or of any Restricted Subsidiary of the Company; (i) any interest or title of a lessor in the property subject to any Capitalized Lease Obligation, provided that any transaction related thereto otherwise complies with the Indenture; (j) Liens arising from filing Uniform Com- -20- mercial Code financing statements regarding leases; (k) Liens arising from the rendering of a final judgment or order against the Company or any Restricted Subsidiary of the Company that does not give rise to an Event of Default; (l) Liens securing reimbursement obligations with respect to letters of credit incurred in accordance with this Indenture that encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (m) Liens in favor of the Trustee arising under this Indenture; (n) any lien existing on property, shares of stock or Indebtedness of a Person at the time such Person becomes a Restricted Subsidiary of the Company or is merged with or consolidated into the Company or a Restricted Subsidiary of the Company or at the time of sale, lease or other disposition of the properties of any Person as an entirety or substantially as an entirety to the Company or any Restricted Subsidiary of the Company; (o) Liens on property of any Subsidiary of the Company to secure Indebtedness for borrowed money owed to the Company or to another Restricted Subsidiary of the Company; (p) Liens in favor of the Company; (q) Liens existing on the Issue Date; (r) Liens in favor of custom and revenue authorities arising as a matter of law to secure payment of nondelinquent customs duties in connection with the importation of goods; (s) Liens encumbering customary initial deposits and margin deposits, and other Liens incurred in the ordinary course of business that are within the general parameters customary in the industry, in each case securing Indebtedness under Interest Rate Protection Agreement; (t) Liens encumbering deposits made in the ordinary course of business to secure nondelinquent obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or its Restricted Subsidiaries for which a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made; and (u) Liens arising out of consignment or similar arrangements for the sale of goods entered into by the Company or any Restricted Subsidiary in the ordinary course of business in accordance with industry practice. "Person" means any individual, corporation, partnership, joint venture, trust, estate, unincorporated organization or government or any agency or political subdivision thereof. "Plan of Liquidation" means, with respect to any Person, a plan (including by operation of law) that provides for, contemplates or the effectuation of which is preceded or accompanied by (whether or not substantially contemporaneously) (i) the sale, lease, conveyance or other disposition of all or substantially all of the assets of the referent Person and (ii) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and all or substantially all of the remaining assets of the referent Person to holders of Capital Stock of the referent Person. "principal" of a debt security means the principal amount of the security plus, when appropriate, the premium, if any, on the security. -21- "Preferred Stock" means, as applied to the Capital Stock of any Person, the Capital Stock of such Person (other than the Common Stock of such Person) of any class or classes (however designated) that ranks prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding-up of such Person, to shares of Capital Stock of any other class of such Person. "Private Exchange Securities" shall have the meaning set forth in the Registration Rights Agreement. "Qualified Capital Stock" means, with respect to any Person, any Capital Stock of such Person that is not Disqualified Capital Stock or convertible into or exchangeable or exercisable for Disqualified Capital Stock. "Qualified Securitization Transaction" means any transaction or series of transactions that have been or may be entered into by any of the Restricted Subsidiaries of the Company in connection with or reasonably related to a transaction or series of transactions in which any of the Restricted Subsidiaries may sell, convey or otherwise transfer to (i) a Securitization Subsidiary or (ii) any other Person, or may grant a security interest in, any Receivables or interests therein secured by the merchandise or services financed thereby (whether such Receivables are then existing or arising in the future) of any of the Restricted Subsidiaries of the Company, and any assets related thereto including, without limitation, all security or ownership interests in merchandise or services financed thereby, the proceeds of such Receivables, and other assets which are customarily sold or in respect of which security interests are customarily granted in connection with securitization transactions involving such assets. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Rating Agency" means each of (i) S&P and (ii) Moody's. "Receivables" means any right of payment from or on behalf of any obligor, whether constituting an account, chattel paper, instrument, general intangible or otherwise, arising from the financing by any Restricted Subsidiary of the Company of merchandise or services, and monies due thereunder, security or ownership interests in the merchandise and services financed thereby, records related thereto, and the right to payment of any interest or finance charges and other obligations with respect thereto, proceeds from claims on insurance policies related thereto, any other proceeds related thereto, and any other related rights. "Registrar" has the meaning provided in Section 2.3. -22- "Registration Rights Agreement" means the Registration Rights Agreement dated the date hereof among the Company, the J.P. Morgan Securities Inc., Credit Suisse First Boston Corporation and Chase Securities Inc. "Regular Record Date" for the interest payable on any Interest Payment Date means the May 15 or November 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Regulation S" means Regulation S promulgated under the Securities Act (including any successor registration thereto) as it may be amended from time to time. "Restricted Physical Security" means a Physical Security containing a Securities Act Legend. "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "Rule 144" shall have the meaning set forth in the Registration Rights Agreement. "Rule 144A" shall have the meaning set forth in the Registration Rights Agreement. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such property to a person and the Company or a Restricted Subsidiary leases it from such Person. "SEC" means the Securities and Exchange Commission. "Securities" means any series of the 7% Senior Notes due 2003 issued, authenticated and delivered under this Indenture, as amended or supplemented from time to time pursuant to the terms of this Indenture, including the Exchange Securities and Private Exchange Securities. "Securities Act" means the Securities Act of 1933, as amended. "Securitization Subsidiary" means a Subsidiary of the Company which engages in no activities other than those reasonably related to or in connection with the entering into of securitization transactions and which is designated by the Board of Directors of the Company (as provided below) as a Securitization Subsidiary (a) no portion of the Indebtedness or any other obligations (contingent or otherwise) of which (i) is guaranteed by -23- the Company or any Restricted Subsidiary of the Company, (ii) is recourse to or obligates the Company or any Restricted Subsidiary of the Company in any way other than pursuant to representations, warranties and covenants (including those related to servicing) entered into in the ordinary course of business in connection with a Qualified Securitization Transaction or (iii) subjects any property or asset of the Company or any Restricted Subsidiary of the Company, directly or indirectly, continently or otherwise, to any Lien or to the satisfaction thereof, other than pursuant to representations, warranties and covenants (including those related to servicing) entered into in the ordinary course of business in connection with a Qualified Securitization Transaction, (b) with which neither the Company nor any Restricted Subsidiary of the Company (i) provides any credit support or (ii) has any contract, agreement, arrangement or understanding other than on terms that are fair and reasonable and that are no less favorable to the Company or such Restricted Subsidiary than could be obtained from an unrelated Person (other than, in the case of subclauses (i) and (ii) of this clause (b), representations, warranties and covenants (including those relating to servicing) entered into in the ordinary course of business in connection with a Qualified Securitization Transaction and intercompany notes relating to the sale of Receivables to such Securitization Subsidiary) and (c) with which neither the Company nor any Restricted Subsidiary of the Company has any obligation to maintain or preserve such Subsidiary's financial condition or to cause such Subsidiary to achieve certain levels of operating results. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a certified copy of the resolutions of the Board of Directors of the Company giving effect to such designation. "Senior Indebtedness" means (a) the Securities, including principal, premium, if any, and interest on the Securities and all other amounts due on or in connection with the Securities, and (b) any other Indebtedness (including principal, premium, if any, and interest on such Indebtedness) incurred by the Company in accordance with the Senior Subordinated Note Indenture, whether such Indebtedness is outstanding on the Issue Date or thereafter, provided that Senior Indebtedness of the Company expressly shall not include: (i) any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter incurred) that is, pursuant to its terms or the terms of any agreement relating thereto, subordinated or junior to any other Indebtedness of the Company; (ii) any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter incurred) that is, by its terms or the terms of any agreement relating thereto, pari passu with or subordinated or junior to the Senior Subordinated Notes; (iii) the Senior Subordinated Notes; (iv) any Indebtedness or any other obligation of the Company to any of the Company's Restricted Subsidiaries or to any of the Company's Affiliates, or to any joint venture in which the Company has an interest; (v) to the extent such may be deemed Indebtedness of the Company, any liability for Federal, state, local, foreign or other taxes owed or owing by the Company or by any of its Restricted Subsidiaries (including pursuant to the Tax Allocation Agreement); (vi) to the -24- extent such may be deemed Indebtedness of the Company, obligations of the Company incurred in connection with the purchase of goods, assets, materials or services in the ordinary course of business or representing amounts recorded as accounts payable, trade payables, or other current liabilities of the Company on the books of the Company (other than the current portion of any long-term Indebtedness of the Company that but for this clause (vi) would constitute Senior Indebtedness of the Company); (vii) to the extent such may be deemed Indebtedness of the Company, any amount owed by the Company to employees for services rendered to the Company or to any of its Restricted Subsidiaries; and (viii) that portion of any Indebtedness which at the time of incurrence is incurred in violation of the Senior Subordinated Note Indenture. "Senior Subordinated Notes" means the 8% Senior Subordinated Notes due 2008, issued, authenticated and delivered under the Senior Subordinated Note Indenture, as amended or supplemented from time to time pursuant to its terms. "Senior Subordinated Note Indenture" means the Senior Subordinated Note Indenture, dated February 4, 1998, relating to the Senior Subordinated Notes. "Senior Subordinated Note Registration Rights Agreement" means the Registration Rights Agreement dated February 4, 1998 with respect to the Senior Subordinated Notes among the Company and the parties named therein. "Shelf Registration Statement" shall have the meaning set forth in the Registration Rights Agreement. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 2.10. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., and its successors. "Stated Maturity" means, with respect to any security or Indebtedness of a Person, the date specified therein as the fixed date on which any principal of such security or Indebtedness is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase thereof at the option of the holder thereof). "Subsidiary" of any Person means (a) a corporation a majority of whose Voting Stock is at the time, directly or indirectly, owned by such Person, by one or more Restricted Subsidiaries of such Person or by such Person and one or more Restricted Subsidiaries of such Person or (b) any other Person (other than a trust formed in connection -25- with a Qualified Securitization Transaction) in which such Person, a Restricted Subsidiary of such Person or such Person and one or more Restricted Subsidiaries of such Person, directly or indirectly, at the date of determination thereof, have at least a majority ownership interest. "Subsidiary Guarantee" means each Subsidiary Guarantee of the Securities issued pursuant to Section 4.15. "Subsidiary Guarantor" means each Restricted Subsidiary of the Company that becomes a guarantor of the Securities pursuant to Section 4.15. "Supply Agreement" means the Amended and Restated Parent's Side Agreement dated as of November 8, 1994 between the Company and Transportation. "Tax Allocation Agreement" means the Tax Allocation Agreement among the Company and its subsidiaries, effective as of October 1, 1981, as it has been and may be amended and/or supplemented from time to time. "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)77aaa-77bbbb) as in effect on the date of this Indenture. "Transportation" means Navistar International Transportation Corp., a Delaware corporation and a Subsidiary of the Company. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. "Trust Officer" means an officer or administrator of the Trustee assigned to the Corporate Trust Administration Department or similar department performing corporate trust work, or any successor to such department or, in the case of a successor trustee, an officer assigned to the department, division or group performing the corporate trust work of such successor. "Unrestricted Global Securities" means one or more Global Securities that do not and are not required to bear the Securities Act Legend. "Unrestricted Physical Securities" means one or more Physical Securities that do not and are not required to bear the Securities Act Legend. "Unrestricted Securities" means the Securities that do not and are not required to bear the Securities Act Legend. -26- "Unrestricted Subsidiary" means (i) each of Navistar Financial Corporation, Arrendadora Financiera Navistar S.A. de C.V., Servicios Financieros Navistar S.A. de C.V., Servicios Financieros NFC, S.A. de C.V., Harbour Assurance Company of Bermuda Limited, Navistar Acceptance Corporation Limited, the DealCor Subsidiaries of Transportation that are treated on an equity basis by the Company on the Issue Date, and their respective Subsidiaries until such time as it is designated a Restricted Subsidiary pursuant to the second succeeding sentence, (ii) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (iii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock of, or holds any Lien on any property of, the Company or any other Restricted Subsidiary of the Company; provided, that either (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, such designation would be permitted under Section 4.18. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, that immediately after giving effect to such designation (x) if such Unrestricted Subsidiary at such time has Indebtedness, the Company could incur $1.00 of additional Indebtedness under clause (i) of Section 4.9 and (y) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced by the Company to the Trustee by promptly filing with the Trustee a copy of the board resolution giving effect to such designation and an officers' certificate certifying that such designation complied with the foregoing provisions. "Voting Stock" means, with respect to any Person, securities of any class or classes of Capital Stock in such Person entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of any contingency) to vote in the election of members of the Board of Directors or other governing body of such Person. "Wholly Owned Subsidiary" means, with respect to any Person, any Restricted Subsidiary of such Person all of the outstanding shares of Capital Stock (other than directors' qualifying shares, if applicable) of which are owned directly by such Person or another Wholly Owned Subsidiary of such Person. SECTION 1.2 Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision shall be deemed incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: -27- (a) "Commission" means the SEC; (b) "indenture securities" means the Securities; (c) "indenture security holder" means a Securityholder; (d) "indenture to be qualified" means this Indenture; (e) "indenture trustee" or "institutional trustee" means the Trustee; and (f) "obligor" on the indenture securities means the Company or any other obligor on the Securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by the Securities Act or the Exchange Act and not otherwise defined herein have the meanings so assigned to them therein. SECTION 1.3 Rules of Construction. Unless the context otherwise requires: (a) a term has the meaning assigned to it; (b) "or" is not exclusive; (c) words in the singular include the plural, and words in the plural include the singular; (d) provisions apply to successive events and transactions; (e) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other Subdivision; and (f) unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent with the most recent audited consolidated financial statements of the Company. -28- ARTICLE II THE SECURITIES SECTION 2.1 Form and Dating. (a) Global Securities. Securities offered and sold to QIBs in reliance on Rule 144A shall be issued initially substantially in the form of Exhibit A hereto in the name of Cede & Co. as nominee of DTC, duly executed by the Company and authenticated by the Trustee as hereinafter provided. Any such Security shall be referred to herein as the "144A Global Security." Securities offered and sold in reliance on Regulation S shall be issued initially substantially in the form of Exhibit A hereto in the name of Cede & Co. as nominee of DTC, duly executed by the Company and authenticated by the Trustee as hereinafter provided. Any such Security shall be referred to herein as the "Regulation S Global Security." Unrestricted Global Securities shall be issued initially in accordance with Sections 2.6(b)(iv), 2.6(c)(ii) and 2.6(e) in the name of Cede & Co. as nominee of DTC, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of each of the Global Security may from time to time be increased or decreased by adjustments made on the records of the Trustee as hereinafter provided. Each Global Security shall represent such of the outstanding Securities as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Securities from time to time endorsed thereon and that the aggregate principal amount of outstanding Securities represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges, redemptions and transfers of interests therein in accordance with the terms of this Indenture. Any change in the aggregate principal amount of a Global Security to reflect the amount of any increase or decrease in the principal amount of outstanding Securities represented thereby shall be made by the Trustee in accordance with reasonable instructions given by the Holder thereof as required by Section 2.6 hereof and shall be conclusively reflected on the books and records of the Trustee. Upon the issuance of the Global Security to DTC, DTC shall credit, on its internal book-entry registration and transfer system, its Participant's accounts with the respective interests owned by such Participants. Interests in the Global Securities shall be limited to Participants, including Euroclear and Cedel, and indirect Participants. The Participants shall not have any rights either under this Indenture or under any Global Security with respect to such Global Security held on their behalf by DTC, -29- and DTC may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Securities for the purpose of receiving payment of or on account of the principal of and, subject to the provisions of this Indenture, interest and Additional Interest, if any, on the Global Securities and for all other purposes. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by DTC or impair, as between DTC and its Participants, the operation of customary practices of DTC governing the exercise of the rights of an owner of a beneficial interest in any Global Security. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel, as in effect from time to time, shall be applicable to interests in the Regulation S Global Security that are held by the Participants through Euroclear or Cedel. (b) Physical Securities. Securities issued substantially in the form of Exhibit A hereto, in certificated form and in the names of the purchasers thereof (or their nominees), duly executed by the Company and authenticated by the Trustee as hereinafter provided shall be referred to herein as the "Physical Securities." Except as provided in Section 2.6(a) owners of beneficial interests in the Global Securities will not be entitled to receive Physical Securities. (c) Securities. The provisions of the form of Securities contained in Exhibit A hereto are incorporated herein by reference. The Securities and the Trustee's Certificates of Authentication shall be substantially in the form of Exhibit A hereto. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage and provided to the Trustee in writing by the Company. The Company shall approve the form of the Securities and any notation, legend or endorsement on them. If required, the Securities may bear the appropriate legend regarding original issue discount for federal income tax purposes. Each Security shall be dated the date of its authentication. The terms and provisions contained in the Securities shall constitute, and are hereby expressly made, a part of this Indenture. SECTION 2.2 Execution and Authentication. Two Officers of the Company shall sign the Securities for the Company by manual or facsimile signature. If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. -30- A Security shall not be valid until an authorized officer of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate (i) Initial Notes for issue on the Issue Date in the aggregate principal amount of $100,000,000, (ii) Private Exchange Securities from time to time only in exchange for a like principal amount of Initial Securities and (iii) Unrestricted Securities from time to time only in exchange for a like principal amount of Initial Securities, in each case upon a written order signed by an Officer of the Company. The order shall be based upon a Board Resolution of the Company and shall specify the amount of Securities to be authenticated and the date on which the original issue of Securities is to be authenticated. The order shall also provide instructions concerning registration, legends, if any, pursuant to Section 2.6(f), amounts for each Holder and delivery. The aggregate principal amount of Securities outstanding at any time may not exceed $100,000,000 except as provided in Section 2.7. The Securities shall be issued only in registered form, without coupons and only in denominations of $1,000 and any integral multiple thereof. SECTION 2.3 Registrar and Paying Agent. The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Securities may be presented for payment ("Paying Agent"). The Company may have one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent and shall, if required, incorporate the provisions of the TIA. The Company shall notify the Trustee in writing of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation in accordance with the provisions of Section 7.7. The Company initially appoints the Trustee as Registrar and Paying Agent. The Company shall give written notice to the Trustee in the event that the Company decides to act as Registrar. -31- SECTION 2.4 Paying Agent To Hold Money in Trust. The Company shall require each Paying Agent to agree in writing to hold in trust for the benefit of Securityholders or the Trustee all money held by the Paying Agent for the payment of principal of or interest on the Securities (whether such money has been paid to it by the Company or any other obligor on the Securities), and the Company and the Paying Agent shall each notify the Trustee of any default by the Company (or any other obligor on the Securities) in making any such payment. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and account for any funds disbursed and the Trustee may at any time during the continuance of any payment default, upon written request to a Paying Agent, require such Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed. Upon making such payment the Paying Agent shall have no further liability for the money delivered to the Trustee. SECTION 2.5 Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least five Business Days before each Interest Payment Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. SECTION 2.6 Transfer and Exchange. (a) Transfer and Exchange of Global Securities. Transfer of the Global Securities shall be by delivery. Global Securities may not be transferred as or exchanged for Physical Securities except (i) if DTC notifies the Company that it is unwilling or unable to continue to act as depositary with respect to the Global Securities or ceases to be a clearing agency registered under the Exchange Act and, in either case, a successor depositary registered as a clearing agency under the Exchange Act is not appointed by the Company within 120 days, (ii) at any time if the Company in its sole discretion determines that the Global Securities (in whole but not in part) should be exchanged for Physical Securities or (iii) if the owner of an interest in the Global Securities requests such Physical Securities, following an Event of Default under this Indenture, in a writing delivered through DTC to the Trustee. Upon the occurrence of any of the events specified in the previous paragraph, Physical Securities shall be issued in such names as DTC shall instruct the Trustee and the Trustee shall cause the aggregate principal amount of the applicable Global Security to be reduced accordingly and direct DTC to make a corresponding reduction in its book- -32- entry system. The Company shall execute and the Trustee shall authenticate and deliver to the Person designated in such instructions a Physical Security in the appropriate principal amount. The Trustee shall deliver such Physical Securities to the Persons in whose names such Securities are so registered. Physical Securities issued in exchange for an Initial Global Security pursuant to this Section 2.6 (a) shall bear the Securities Act Legend and shall be subject to all restrictions on transfer contained therein. Global Securities may also be exchanged or replaced, in whole or in part, as provided in Sections 2.7 and 2.8. Every Security authenticated and delivered in exchange for, or in lieu of, a Global Security or any portion thereof, pursuant to Section 2.7 or 2.8, shall be authenticated and delivered in the form of, and shall be, a Global Security. A Global Security may not be exchanged for another Security other than as provided in this Section 2.6(a). (b) Transfer and Exchange of Interests in Global Securities. The transfer and exchange of interests in Global Securities shall be effected through DTC, in accordance with this Indenture and the procedures of DTC therefor. Interests in Initial Global Securities shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. The Trustee shall have no obligation to ascertain DTC's compliance with any such restrictions on transfer. Transfers of interests in Global Securities shall also require compliance with subparagraph (i) below, as well as one or more of the other following subparagraphs as applicable: (i) All Transfers and Exchanges of Interests in Global Securities. In connection with all transfers and exchanges of interests in Global Securities (other than transfers of interests in a Global Security to Persons who take delivery thereof in the form of an interest in the same Global Security), the transferor of such interest must deliver to the Registrar (1) instructions given in accordance with the Applicable Procedures from a Participant or an indirect Participant directing DTC to credit or cause to be credited an interest in the specified Global Security in an amount equal to the interest to be transferred or exchanged, (2) a written order given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase and (3) instructions given by the Holder of the Global Security to effect the transfer referred to in (1) and (2) above. (ii) Transfer of Interests in the Same Initial Global Security. Interests in any Initial Global Security may be transferred to Persons who take delivery thereof in the form of an interest in the same Initial Global Security in accordance with the transfer restrictions set forth in Section 2.6(f) hereof. It shall be the sole responsibility of the selling beneficial owner to deliver these transfer documents, if any are required, to the Company and the Trustee shall have no responsibility or duty to collect the transfer documentation set forth in Section 2.6(f). -33- (iii) Transfer of Interests to Another Initial Global Security. Interests in any Initial Global Security may be transferred to Persons who take delivery thereof in the form of an interest in another Initial Global Security if the Registrar receives the following: (A) if the transferee will take delivery in the form of an interest in the 144A Global Security, then the transferor must deliver a certificate in the form of Exhibit D hereto, including the certifications in item 1 thereof; or (B) if the transferee will take delivery in the form of an interest in the Regulation S Global Security, then the transferor must deliver a certificate in the form of Exhibit D hereto, including the certifications in item 2 thereof. (iv) Transfer and Exchange of Interests in Initial Global Security for Interests in an Unrestricted Global Security. Interests in any Initial Global Security may be exchanged by the holder thereof for an interest in the Unrestricted Global Security or transferred to a Person who takes delivery thereof in the form of an interest in the Unrestricted Global Security if: (A) such exchange or transfer is effected pursuant to the Exchange Registration Statement in accordance with the Registration Rights Agreement and the Company delivers an Officers' Certificate to the Trustee stating that such Exchange Registration Statement has become effective and directing the Trustee to effect the exchange or transfer on the terms set forth therein; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement and the Company delivers an Officers' Certificate to the Trustee stating that such Shelf Registration Statement has become effective and directing the Trustee to effect the exchange or transfer on the terms set forth therein; or (C) the Registrar receives the following: (1) if the holder of such an interest in an Initial Global Security proposes to exchange it for an interest in the Unrestricted Global Security, a certificate from such Holder in the form of Exhibit E hereto, including the certifications in item 1(a) thereof; (2) if the holder of such an interest in an Initial Global Security proposes to transfer it to a Person who shall take delivery -34- thereof in the form of an interest in an Unrestricted Global Security, a certificate in the form of Exhibit D hereto, including the certification in item 4 thereof; and (3) in each such case set forth in this paragraph (C), an Opinion of Counsel in form reasonably acceptable to the Company and the Trustee, to the effect that such exchange or transfer is in compliance with the Securities Act and, that the restrictions on transfer contained herein and in Section 2.6(f) hereof are not required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to paragraph (B) above at a time when an Unrestricted Global Security has not yet been issued, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.2, the Trustee shall authenticate one or more Unrestricted Global Securities in an aggregate principal amount equal to the principal amount of interests in the Initial Global Securities transferred pursuant to paragraph (B) above, provided the Company has made appropriate arrangements with DTC prior to delivery of such an authentication order to the Trustee. (v) Notation by the Trustee of Transfer of Interests Among Global Securities. Upon satisfaction of the requirements for transfer of interests in Global Securities pursuant to clauses (iii) or (iv) above, the Trustee shall reduce or cause to be reduced the aggregate principal amount of the relevant Global Security from which the interests are being transferred, and increase or cause to be increased the aggregate principal amount of the Global Security to which the interests are being transferred, in each case, by the principal amount so transferred and shall direct DTC to make corresponding adjustments in its book-entry system. No transfer of interests of a Global Security shall be effected until, and any transferee pursuant thereto shall succeed to the rights of a holder of such interests only when, the Registrar has made appropriate adjustments to the applicable Global Security in accordance with this paragraph. (c) Transfer or Exchange of Physical Securities for Interests in a Global Security. (i) If any Holder of Physical Securities required to contain the Securities Act Legend proposes to exchange such Securities for an interest in a Global Security or to transfer such Physical Securities to a Person who takes delivery thereof in the form of an interest in a Global Security, then, upon receipt by the Registrar of the following documentation (all of which may initially be submitted by facsimile, pro- -35- vided arrangements satisfactory to the Trustee are made for delivery of the originals): (A) if the Holder of such Physical Registered Securities proposes to exchange such Securities for an interest in an Initial Global Security, a certificate from such Holder in the form of Exhibit E hereto, including the certifications in item 2 thereof; (B) if such Physical Securities are being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit D hereto, including the certifications in item 1 thereof; or (C) if such Physical Securities are being transferred to a Non-U.S. Person (as defined in Regulation S) in an offshore transaction in accordance with Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit D hereto, including the certifications in item 2 thereof; the Trustee shall cancel the Physical Securities, increase or cause to be increased the aggregate principal amount of, in the case of clause (B) above, the 144A Global Security, in the case of clause (C) above, the Regulation S Global Security, and direct DTC to make a corresponding increase in its book-entry system. (ii) A Holder of Physical Securities required to contain the Securities Act Legend may exchange such Securities for an interest in the Unrestricted Global Security or transfer such Restricted Physical Securities to a Person who takes delivery thereof in the form of an interest in the Unrestricted Global Security only: (A) if such exchange or transfer is effected pursuant to the Exchange Registration Statement in accordance with the Registration Rights Agreement and the Company delivers an Officers' Certificate to the Trustee stating that such Exchange Registration Statement has become effective and directing the Trustee to effect the exchange or transfer on the terms set forth therein; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement and the Company delivers an Officers' Certificate to the Trustee stating that such Shelf Registration Statement has become effective and directing the Trustee to effect the exchange or transfer on the terms set forth therein; -36- (C) upon receipt by the Registrar of the following documentation (all of which may be submitted by facsimile): (1) if the Holder of such Physical Securities proposes to exchange such Securities for an interest in the Unrestricted Global Security, a certificate from such Holder in the form of Exhibit E hereto, including the certifications in item 1(b) thereof; (2) the Holder of such Registered Securities proposes to transfer such Securities to a Person who shall take delivery thereof in the form of an interest in the Unrestricted Global Security, a certificate in the form of Exhibit D hereto, including the certifications in item 4 thereof; and (3) in each such case set forth in this paragraph (C), an Opinion of Counsel in form reasonably acceptable to the Company, to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in Section 2.6(f) hereof are not required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to paragraph (B) above at a time when an Unrestricted Global Security has not yet been issued, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.2, the Trustee shall authenticate (i) one or more Unrestricted Global Securities in an aggregate principal amount equal to the principal amount of Physical Securities transferred pursuant to paragraph (B) above. (d) Transfer and Exchange of Physical Securities. (i) Transfer of a Physical Security to Another Physical Security. Following the occurrence of one or more of the events specified in Section 2.6(a), a Physical Security may be transferred to Persons who take delivery thereof in the form of another Physical Security if the Registrar receives the following: (A) if the transfer is being effected pursuant to and in accordance with Rule 144A, then the transferor must deliver a certificate in the form of Exhibit D hereto, including the certifications in item 3(a) thereof; or -37- (B) if the transfer is being effected pursuant to and in accordance with Regulation S, then the transferor must deliver a certificate in the form of Exhibit D hereto, including the certifications in item 3(b) thereof. (ii) Transfer and Exchange of Restricted Physical Security for Physical Security Which Does Not Bear the Securities Act Legend. Following the occurrence of one or more of the events specified in Section 2.6(a) and the receipt by the Trustee of an Officers' Certificate stating that such events have occurred, a Restricted Physical Security may be exchanged by the Holder thereof for a Physical Security or transferred to a Person who takes delivery thereof in the form of a Physical Security which does not bear the Securities Act Legend if: (A) such exchange or transfer is effected pursuant to the Exchange Registration Statement in accordance with the Registration Rights Agreement and the receipt by the Trustee of an Officers' Certificate stating that such events have occurred; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement and the receipt by the Trustee of an Officers' Certificate stating that such events have occurred; or (C) the Registrar receives a certificate from such Holder in the form of Exhibit E hereto, including the certifications in item 1(c) thereof and an Opinion of Counsel in form reasonably acceptable to the Company, to the effect that such exchange or transfer is in compliance with the Securities Act and, that the restrictions on transfer contained herein and in Section 2.6(f) hereof are not required in order to maintain compliance with the Securities Act. (iii) Exchange of Physical Securities. When Physical Securities are presented by a Holder to the Registrar with a request to register the exchange of such Physical Securities for an equal principal amount of Physical Securities of other authorized denominations, the Registrar shall make the exchange as requested only if the Physical Securities are endorsed or accompanied by a written instrument of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney duly authorized in writing and shall be issued only in the name of such Holder or its nominee and the transfer documentation required in Section 2.6(d)(ii). The Physical Securities issued in exchange for Physical Securities shall bear the Securities Act Legend and shall be subject to all restrictions on transfer contained herein in each case to the same extent as the Physical Securities so exchanged. -38- (iv) Return of Physical Securities. In the event of a transfer pursuant to clauses (i) or (ii) above and the Holder thereof as delivered certificates representing an aggregate principal amount of Securities in excess of that to be transferred, the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Physical Security or Securities of any authorized denomination requested by the Holder, in an aggregate principal amount equal to the portion of the Security not so transferred. (e) Exchange Offer. Upon the occurrence of the Exchange Offer (as defined in the Registration Rights Agreement) in accordance with the Registration Rights Agreement, the Company shall issue and, upon receipt of an Officers' Certificate stating that the Exchange Registration Statement has become effective and that the Exchange Offer has occurred and an authentication order in accordance with Section 2.2, the Trustee shall authenticate one or more Unrestricted Global Securities in an aggregate principal amount equal to the principal amount of the interests in the Initial Global Securities and Restricted Physical Securities tendered for acceptance by persons participating therein. Concurrently with the issuance of such Securities, the Trustee shall cause the aggregate principal amount of the applicable Initial Global Securities to be reduced accordingly and direct DTC to make a corresponding reduction in its book-entry system. The Trustee shall cancel any Restricted Physical Certificates in accordance with Section 2.9 hereof. In the case that one or more of the events specified in Section 2.6(a) have occurred, upon the occurrence of such Exchange Offer, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.2, the Trustee shall authenticate Unrestricted Physical Securities in an aggregate principal amount equal to the principal amount of the Restricted Physical Securities tendered for acceptance by persons participating therein. (f) Legends. Each Initial Global Security and each Restricted Physical Security shall bear the legend (the "Securities Act Legend") in substantially the following form: "THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION -39- FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER." "THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (I) INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE." (g) Global Security Legend. Each Global Security shall bear a legend in substantially the following form: "UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO A NOMINEE OF DTC, OR BY ANY SUCH NOMINEE OF DTC, OR BY DTC TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC). ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY -40- OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.6 OF THE INDENTURE." (h) Cancellation and/or Adjustment of Global Securities. At such time as all interests in the Global Securities have been exchanged for Physical Securities, all Global Securities shall be returned to or retained and canceled by the Trustee in accordance with Section 2.9 hereof. At any time prior to such cancellation, if any interest in a Global Security is exchanged for an interest in another Global Security or for Physical Securities, the principal amount of Securities represented by such Global Security shall be reduced accordingly and all such changes to such Global Security shall be reflected on the books and records of the Trustee, by the Trustee to reflect such reduction. (i) General Provisions Relating to All Transfers and Exchanges. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Securities and Physical Securities upon a written order signed by an Officer of the Company or at the Registrar's request. (ii) No service charge shall be made to a Holder for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any stamp or transfer tax or similar governmental charge payable in connection therewith (other than any such stamp or transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.8 and 4.11 hereof). (iii) All Global Securities and Physical Securities issued upon any registration of transfer or exchange of Global Securities or Physical Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Securities or Physical Securities surrendered upon such registration of transfer or exchange. -41- (iv) The Company shall not be required (A) to issue, to register the transfer of or to exchange Securities during a period beginning at the opening of business 15 days before the day of any selection of Securities for redemption and ending at the close of business on the day of selection, (B) to register the transfer of or to exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part or (C) to register the transfer of or to exchange a Security between a record date and the next succeeding Interest Payment Date. (v) Prior to due presentment for the registration of a transfer of any Security, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Securities and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. Notwithstanding anything herein to the contrary, as to any certification or certificate delivered to the Registrar pursuant to this Section 2.6, the Registrar's duties shall be limited to confirming that any such certification or certificate delivered to it is in the form of Exhibit D or E attached hereto. The Registrar shall not be responsible for confirming the truth or accuracy of any representations made in any such certification or certificate. SECTION 2.7 Replacement Securities. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be reasonably required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount, having endorsed thereon and bearing a number not contemporaneously outstanding. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that -42- may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 2.8 Temporary Securities. Pending the preparation of definitive Securities, the Company may execute and, upon Company Order, the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued, and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at any office or agency of the Company designated pursuant to Section 10.2, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations and like tenor. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. SECTION 2.9 Cancellation. All Securities surrendered for payment, redemption or registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in -43- lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be destroyed by the Trustee and upon the Company's written request, the Trustee shall deliver a certificate of destruction to the Company. SECTION 2.10 Defaulted Interest. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a date for the payment of such Defaulted Interest (herein called a "Special Record Date"), which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Company shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days prior to the date of the proposed payment. The Company shall promptly notify the Trustee of such Special Record Date and, in the name and at the expense of the Company, the Trustee shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Security Register, not less than five Business Days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid not later than the fifteenth day after such Special Record Date to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date. (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be re- -44- quired by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payments shall be deemed practicable by the Trustee. SECTION 2.11 CUSIP or CINS Number. The Company in issuing the Securities may use a "CUSIP" or "CINS" number, and if so, such CUSIP or CINS number shall be included in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP or CINS number printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. The Company will promptly notify the Trustee of any change in the CUSIP or CINS number. SECTION 2.12 Payments of Interest. (a) The Holder of a Physical Security at the close of business on the Regular Record Date with respect to any Interest Payment Date shall be entitled to receive the interest and Additional Interest, if any, payable on such Interest Payment Date notwithstanding any transfer or exchange of such Physical Security subsequent to the regular record date and prior to such Interest Payment Date, except if and to the extent the Company shall default in the payment of the interest or Additional Interest due on such Interest Payment Date, in which case such Defaulted Interest and Additional Interest, if any, shall be paid in accordance with Section 2.10; provided that, in the event of an exchange of a Physical Security for a beneficial interest in any Global Security subsequent to a regular record date or any special record date and prior to or on the related Interest Payment Date or other payment date under Section 2.10, any payment of the interest and Additional Interest payable on such payment date with respect to any such Physical Security shall be made to the Person in whose name such Physical Security was registered on such record date. Payments of interest on the Global Securities will be made to the Holder of the Global Security on each Interest Payment Date; provided that, in the event of an exchange of all or a portion of a Global Security for Physical Security subsequent to the regular record date or any special record date and prior to or on the related Interest Payment Date or other payment date under Section 2.10 any payment of interest or Additional Interest payable on such Interest Payment Date or other payment date with respect to the Physical Security shall be made to the Holder of the Global Security. (b) The Trustee shall pay interest and Additional Interest, if any, to DTC, with respect to any Global Security held by DTC, on the applicable Interest Payment Date in accordance with instructions received from the Company at least five Business Days before the applicable Interest Payment Date. The Company shall deliver such instructions in -45- the form of an Officers' Certificate setting forth Additional Interest in the aggregate and per $1,000 principal amount of Securities to be paid on such Interest Payment Date. ARTICLE III [RESERVED] ARTICLE IV COVENANTS SECTION 4.1 Payment of Securities. The Company shall pay the principal of and interest on the Securities on the dates and in the manner provided in the Securities and this Indenture. An installment of principal or interest shall be considered paid on the date due if the Trustee or Paying Agent (other than the Company or any Subsidiary of the Company or any Affiliate of any thereof) holds on such date by 12:00 noon, New York City time, immediately available funds designated for and sufficient to pay such installment. The Company shall pay interest on overdue principal and on overdue installments of interest, in each case at the rate per annum specified in the Securities, to the extent lawful. SECTION 4.2 Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency, where Securities may be surrendered for registration of transfer or exchange or for presentation for payment and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 10.2. -46- The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations, provided that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York, for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby initially designates the offices of the Trustee as set forth in Section 10.2 as an agency of the Company in accordance with Section 2.3. SECTION 4.3 Corporate Existence. Subject to Article V hereof, the Company shall do or cause to be done, at its own cost and expense, all things necessary to and will cause each of its Subsidiaries to, preserve and keep in full force and effect the corporate existence and rights (charter and statutory), licenses and/or franchises of the Company and each of its Subsidiaries, provided that the Company shall not be required to preserve any such right, license or franchise, or the corporate existence of any of its Subsidiaries, if in the reasonable and good faith judgment of the Board of Directors of the Company (i) such preservation or existence is not desirable in the conduct of business of the Company or such Subsidiary and (ii) the loss of such right, license or franchise or the dissolution of such Subsidiary is not adverse in any material respect to the Holders or to the Company or the ability of the Company to satisfy its obligations hereunder. SECTION 4.4 Payment of Taxes and Other Claims. The Company shall and shall cause each of its Subsidiaries to pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all material taxes, assessments and governmental charges levied or imposed upon its or its Subsidiaries' income, profits or property and (b) all material lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon its property or the property of any of its Subsidiaries, provided that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate negotiations or proceedings promptly instituted and diligently conducted and for which disputed amounts adequate reserves (in the reasonable and good faith judgment of the Board of Directors of the Company) have been made. -47- SECTION 4.5 Maintenance of Properties; Insurance; Books and Records; Compliance with Law. (a) The Company shall, and shall cause each of its Subsidiaries to, at all times cause all properties used or useful in the conduct of its business to be maintained and kept in good condition, repair and working order (reasonable wear and tear excepted) and supplied with all necessary equipment, and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereto, provided that nothing in this Section 4.5 shall prevent the Company or any Subsidiary from discontinuing the operation or maintenance of any of such properties, or disposing of any of them, if such discontinuance or disposal is (i) in the ordinary course of business, (ii) in the reasonable and good faith judgment of the Board of Directors of the Company or the Subsidiary concerned, as the case may be, desirable in the conduct of the business of the Company or such Subsidiary, as the case may be, or (iii) otherwise permitted by this Indenture. (b) The Company shall, and shall cause each of its Subsidiaries to maintain with financially sound and reputable insurers such insurance (including appropriate self insurance) as may be required by law and such other insurance, to such extent and against such hazards and liabilities consistent with practice on the Issue Date, as the Company in its reasonable and good faith judgment determines is required, taking into account its business and financial condition. (c) The Company shall, and shall cause each of its Subsidiaries to, keep proper books of record and account, in which full and correct entries shall be made of all business and financial transactions of the Company and each Subsidiary of the Company and reflect on its financial statements adequate accruals and appropriations to reserves, all in accordance with generally accepted accounting principles consistently applied to the Company and its Subsidiaries taken as a whole. (d) The Company shall and shall cause each of its Subsidiaries to comply with all statutes, laws, ordinances, or government rules and regulations to which it is subject, non-compliance with which would materially adversely affect the business, earnings, properties, assets or financial condition of the Company and its Subsidiaries taken as a whole. SECTION 4.6 Compliance Certificates. (a) The Company shall deliver to the Trustee, within 120 days after the end of its Fiscal Year, Officers' Certificates of the Company signed by the Officers specified under TIA (S)314(a)(4) stating (i) that a review of the activities of the Company during the preceding Fiscal Year has been made under the supervision of the signing Officers with a -48- view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture and the Securities, and (ii) that, to the knowledge of such Officer, no Default or Event of Default has occurred (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which such Officer may have knowledge, their status and what action the Company is taking or proposes to take with respect thereto). The first certificate to be delivered pursuant to this Section 4.6(a) shall be for the first Fiscal Year of the Company ending after the Issue Date. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the Company shall cause its independent public accountants to deliver to the Trustee within 120 days after the end of each Fiscal Year a written statement by such accountants stating (A) that their audit examination has included a review of the relevant provisions of this Indenture and the Securities as they relate to accounting matters, and (B) whether, in connection with their audit examination, any Default or Event of Default has come to their attention and if such a Default or Event of Default has come to their attention, specifying the nature and period of existence thereof, provided that, without any restriction as to the scope of the audit examination, such independent certified public accountants shall not be liable by reason of any failure to obtain knowledge of any such Default or Event of Default that would not be disclosed in the course of an audit examination conducted in accordance with generally accepted auditing standards. (c) The Company will, so long as any of the Securities are outstanding, deliver to the Trustee, promptly after any Officer becoming aware of (i) any Default, Event of Default or default in the performance of any covenant, agreement or condition contained in the Securities or this Indenture or (ii) any event of default under any other Indebtedness referred to in Section 6.1(a)(v), an Officers' Certificate specifying such Default, Event of Default, default or event of default and what action the Company is taking or proposes to take with respect thereto. SECTION 4.7 Reports. So long as any security is outstanding, the Company will file with the Commission and, within 15 days after it files them with the Commission, file with the Trustees and mail or cause the Trustees to mail to the Holders at their addresses as set forth in the register of the Securities copies of the annual reports and of the information, documents and other reports which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act or which the Company would be required to file with the Commission if the Company then had a class of securities registered under the Exchange Act. In addition, the Company shall cause its annual report to stockholders and any quarterly or other financial reports furnished to its stockholders generally to be filed with -49- the Trustee and mailed, no later than the date such materials are mailed or made available to the Company's stockholders, to the Holders at their addresses as set forth in the register of Securities. SECTION 4.8 Application of Fall Away Covenants After the Securities have been assigned an Investment Grade rating by both Rating Agencies, the Company will no longer be subject to Sections 4.9, 4.12, 4.14, 4.17, 4.18, 4.19, clauses (i)(A) and (iii) of the first paragraph of Section 4.20 and clause (ii) of Section 5.1; provided, such provisions shall no longer have application for any purpose of this Indenture. SECTION 4.9 Limitation on Incurrence of Indebtedness. The Company will not, and the Company will not cause or permit any of its Restricted Subsidiaries to incur, directly or indirectly, any Indebtedness, except: (i) Indebtedness of the Company, if immediately after giving effect to the incurrence of such Indebtedness and the receipt and application of the net proceeds thereof, the Consolidated Cash Flow Ratio of the Company for the four full fiscal quarters for which quarterly or annual financial statements are available next preceding the incurrence of such Indebtedness would be greater than 2.25 to 1.00; (ii) Indebtedness outstanding on the Issue Date; (iii) Indebtedness incurred pursuant to the $125.0 million Credit Agreement dated as of November 26, 1997 among Navistar International Corporation Mexico, S.A. de C.V., the Company and the lenders listed therein, as such agreement, in whole or in part, may be amended, renewed, extended, increased (but only so long as such increase as is permitted under the terms of the Indenture), substituted, refinanced, restructured, replaced (including, without limitation, any successive renewals, extensions, increases, substitutions, refinancings, restructurings, replacements, supplements, or other modifications of the foregoing); (iv) Indebtedness owed by the Company to any Wholly-Owned Subsidiary of the Company or Indebtedness owed by a Subsidiary of the Company to the Company or a Wholly-Owned Subsidiary of the Company; provided, that, upon either (I) the transfer or other disposition by such Wholly-Owned Subsidiary or the Company of any Indebtedness so permitted under this clause (iv) to a Person other than the Company or another Wholly-Owned Subsidiary of the Company or (II) the issuance (other than directors' qualifying shares), sale, transfer or other disposition of shares -50- of Capital Stock or other ownership interests (including by consolidation or merger) of such Wholly-Owned Subsidiary to a Person other than the Company or another such Wholly-Owned Subsidiary of the Company, the provisions of this clause (iv) shall no longer be applicable to such Indebtedness and such Indebtedness shall be deemed to have been incurred at the time of any such issuance, sale, transfer or other disposition, as the case may be; (v) Indebtedness of the Company or its Restricted Subsidiaries under any Interest Rate Protection Agreement or Currency Agreement to the extent entered into to hedge any other Indebtedness permitted under this Indenture; (vi) Acquired Indebtedness to the extent the Company could have incurred such Indebtedness in accordance with clause (i) above on the date such Indebtedness became Acquired Indebtedness; (vii) Indebtedness incurred by the Company or any of its Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business, including, without limitation, letters of credit in response to worker's compensation claims or self-insurance; (viii) Indebtedness arising from agreements of the Company or a Restricted Subsidiary of the Company providing for indemnification, adjustment of purchase price, earn-out or other similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Subsidiary of the Company; (ix) Obligations in respect of performance and surety bonds and completion guarantees provided by the Company or any Restricted Subsidiary of the Company in the ordinary course of business; (x) Indebtedness consisting of notes issued to employees, officers or directors in connection with the redemption or repurchase of Capital Stock held by such Persons in an aggregate amount not in excess of $10.0 million at any time outstanding; (xi) Indebtedness consisting of take-or-pay obligations contained in supply agreements entered into by the Company or its Restricted Subsidiaries in the ordinary course; (xii) Guarantees by the Company or any of its Restricted Subsidiaries of Indebtedness of the Company or any Restricted Subsidiary permitted to be incurred under -51- another provision of the covenant; provided, that such Guarantee is incurred at the same time as such other Indebtedness; (xiii) Indebtedness incurred to renew, extend, refinance or refund (collectively for purposes of this clause (xiii) to "refund") any Indebtedness incurred pursuant to clauses (i) or (ii) above; provided, that (I) such Indebtedness does not exceed the principal amount (or accreted amount, if less) of Indebtedness so refunded plus the amount of any premium required to be paid in connection with such refunding pursuant to the terms of the Indebtedness refunded or the amount of any premium reasonably determined by the Company as necessary to accomplish such refunding by means of a tender offer, exchange offer, or privately negotiated repurchase, plus the expenses of the Company or such Restricted Subsidiary incurred in connection therewith and (II)(A) in the case of any refunding of Indebtedness that is pari passu with the Securities, such refunding Indebtedness is made pari passu with or subordinate in right of payment to the Securities and, in the case of any refunding of Indebtedness that is subordinate in right of payment to the Securities, such refunding Indebtedness is subordinate in right of payment to the Securities on terms no less favorable to the Holders than those contained in the Indebtedness being refunded, (B) in either case, the refunding Indebtedness by its terms, or by the terms of any agreement or instrument pursuant to which such Indebtedness is issued does not have an Average Life that is less than the remaining Average Life of the Indebtedness being refunded and does not permit redemption or other retirement (including pursuant to any required offer to purchase to be made by the Company or any of its Restricted Subsidiaries) of such Indebtedness at the option of the holder thereof prior to the final stated maturity of the Indebtedness being refunded, other than a redemption or other retirement at the option of the holder of such Indebtedness (including pursuant to a required offer to purchase made by the Company or any of its Restricted Subsidiaries) which is conditioned upon a change of control of the Company pursuant to provisions substantially similar to those contained in Section 4.11 and (C) Indebtedness of a Restricted Subsidiary may not be incurred to refund any Indebtedness of the Company; (xiv) Indebtedness of the Company under the Securities and the Senior Subordinated Notes and the Exchange Senior Subordinated Notes; (xv) the consummation of any Qualified Securitization Transaction; (xvi) Attributable Indebtedness relating to any Sale/Leaseback Transaction with respect to the purchase of tooling and related manufacturing equipment in the ordinary course of business consistent with past practices; and -52- (xvii) Indebtedness of the Company or its Restricted Subsidiaries, not otherwise permitted to be incurred pursuant to clauses (i) through (xvi) above, which, together with any other outstanding Indebtedness incurred pursuant to this clause (xvii), has an aggregate principal amount not in excess of $100.0 million at any time outstanding. After the Securities have been assigned an Investment Grade rating by both Rating Agencies, and notwithstanding that the Securities may later cease to have an Investment Grade rating, the Company will not be subject to the provisions of this Section 4.9; provided, that no Default has occurred and is continuing at the time the Securities have been assigned such rating. SECTION 4.10 Waiver of Stay, Extension or Usury Laws. The Company and each Subsidiary Guarantor covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company or such Subsidiary Guarantor from paying all or any portion of the principal of or interest on the Securities as contemplated herein or in the Securities, wherever enacted, now or at any time hereafter in force, or that may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company and each Subsidiary Guarantor hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.11 Change of Control. Upon the occurrence of a Change of Control (the date of each such occurrence being the "Change of Control Date"), the Company will notify the Holders in writing of such occurrence and will commence an Offer to Purchase (the "Change of Control Offer") all Securities then outstanding, in each case, at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the Purchase Date. Notice of a Change of Control shall be mailed by the Company to the Holders not more than 30 days after any Change of Control Date at their last registered addresses with a copy to the Trustee and the Paying Agent. The Change of Control Offer shall remain open from the time of mailing for at least 20 Business Days and until 4:00 p.m., New York City time, on the Purchase Date. The notice, which shall govern the terms of the Change of Control Offer, shall include such disclosures as are required by law and shall state: -53- (a) that the Change of Control Offer is being made pursuant to this Section 4.11 and that all Securities will be accepted for payment; (b) the purchase price (including the amount of accrued interest, if any) for each Security and the Purchase Date; (c) that any Security not tendered for payment will continue to accrue interest in accordance with the terms thereof; (d) that any Security accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Purchase Date unless the Company shall default in the payment thereof; (e) that Holders electing to have Securities purchased pursuant to a Change of Control Offer will be required to surrender their Securities to the Paying Agent at the address specified in the notice prior to 4:00 p.m., New York City time, on the Purchase Date and must complete any form letter of transmittal proposed by the Company and acceptable to the Trustee and the Paying Agent; (f) that Holders of Securities will be entitled to withdraw their election if the Paying Agent receives, not later than 4:00 p.m., New York City time, on the Purchase Date, a facsimile transmission (confirmed by overnight delivery of the original thereof) or letter setting forth the name of the Holder, the principal amount of Securities the Holder delivered for purchase, the Security certificate number (if any) and a statement that such Holder is withdrawing his election to have such Securities purchased; (g) that Holders whose Securities are purchased only in part will be issued Securities equal in principal amount to the unpurchased portion of the Securities surrendered; (h) the instructions that Holders must follow in order to tender their Securities; and (i) the circumstances and relevant facts known to the Company regarding such Change of Control. On the Purchase Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Securities or portions thereof so tendered and accepted and (iii) deliver to the Trustee the Securities so accepted together with an Officers' Certificate setting forth the Securities or portions thereof tendered to and -54- accepted for payment by the Company. The Paying Agent shall promptly mail or deliver to the Holders of Securities so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail or deliver to such Holders a new Security equal in principal amount to any unpurchased portion of the Security surrendered. Any Securities not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company will publicly announce the results of the Change of Control Offer not later than the third Business Day following the Purchase Date. The Company shall comply, to the extent applicable, with the requirements of Section 14(e) under the Exchange Act, and any other securities laws or regulations in connection with the purchase of Securities pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section 4.11, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.11 by virtue thereof. SECTION 4.12 Limitation on Transactions with Affiliates. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to (a) sell, lease, transfer or otherwise dispose of any of its property or assets to, (b) purchase any property or assets from, (c) make any Investment in, or (d) enter into or amend or extend any contract, agreement or understanding with or for the benefit of, any Affiliate of the Company or of any Subsidiary (an "Affiliate Transaction"), other than Affiliate Transactions that are on terms that are fair and reasonable to the Company or such Restricted Subsidiary of the Company and that are no less favorable to the Company or such Restricted Subsidiary of the Company than those that could be obtained in a comparable arm's-length transaction by the Company or such Restricted Subsidiary of the Company from an unaffiliated party; provided, that if the Company or any Restricted Subsidiary of the Company enters into an Affiliate Transaction or series of Affiliate Transactions involving or having an aggregate value of more than $20.0 million, a majority of the disinterested members of the Board of Directors of the Company or a committee thereof shall, prior to the consummation of such Affiliate Transaction, have determined (as evidenced by a resolution thereof) that such Affiliate Transaction meets the foregoing standard. The foregoing restrictions shall not apply to (a) any transaction between Restricted Subsidiaries of the Company, or between the Company and any Restricted Subsidiary of the Company if such transaction is not otherwise prohibited by the terms of the Indentures, (b) transactions entered into pursuant to the terms of the Master Intercompany Agreement and the Tax Allocation Agreement, (c) transactions entered into in the ordinary course of business, (d) Qualified Securitization Transactions, (e) reasonable fees and compensation paid to and advances of expenses to and indemnity provided on behalf of officers, directors, employees or consultants of the Company or any Subsidiary as determined in good faith by the Com- -55- pany's Board of Directors or senior management; (f) any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) or in any replacement agreement thereto so long as any such management or replacement agreement is not more disadvantageous to the Holders in any material respect than the original agreement as in effect on the Issue Date; (g) Restricted Payments permitted by this Indenture; (h) loans or advances to employees or consultants in the ordinary course of business and consistent with past practices in an aggregate amount outstanding at any time not to exceed $10.0 million; (i) joint venture partners or purchasers or sellers of goods or services, in each case in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of this Indenture which are fair to the Company or its Restricted Subsidiaries, in the reasonable determination of the senior management of the Company, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party; and (j) any employment or compensation arrangement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business that is not otherwise prohibited by the Indenture. After the Securities have been assigned an Investment Grade rating by both Rating Agencies, and notwithstanding that the Securities may later cease to have an Investment Grade rating, the Company will not be subject to the provisions of this Section 4.12; provided, that no Default has occurred and is continuing at the time the Securities have been assigned such rating. SECTION 4.13 Limitation on Liens. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any Liens upon any of their respective properties or assets (including, without limitation, any asset in the form of the right to receive payments, fees or other consideration or benefits) whether owned on the Issue Date or acquired after the Issue Date, other than (i) Liens granted by the Company on property or assets of the Company securing Indebtedness of the Company that is permitted by this Indenture and that is pari passu with the Securities; provided, that the Securities are secured on an equal and ratable basis with such Liens; (ii) Liens granted by the Company on property or assets of the Company securing Indebtedness of the Company that is permitted by this Indenture and that is subordinated to the Securities, provided that the Securities are secured by Liens ranking prior to such Liens; (iii) Permitted Liens; (iv) Liens in respect of Acquired Indebtedness permitted by this Indenture, provided, that the Liens in respect of such Acquired Indebtedness secured such Acquired Indebtedness at the time of the incurrence of such Acquired Indebtedness and such Liens and the Acquired Indebtedness were not incurred by the Company or by the Person being acquired or from whom the assets were acquired in connection with, or in anticipation of, the incurrence of such Acquired -56- Indebtedness by the Company, and provided, further that such Liens in respect of such Acquired Indebtedness do not extend to or cover any property or assets of the Company or of any Restricted Subsidiary of the Company other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company; (v) Liens granted in connection with any Qualified Securitization Transaction; (vi) Liens arising from claims of holders of Indebtedness against funds held in a defeasance trust for the benefit of such holders; and (vii) Liens on property or assets of the Company or any Restricted Subsidiary securing Indebtedness permitted by this Indenture not to exceed the greater of (A) $100.0 million and (B) the sum of (1) 85.0% of the total book value of accounts receivable and (2) 50.0% of the total book value of inventory, in each case as reflected on the Company's most recent consolidated financial statements prepared in accordance with GAAP. SECTION 4.14 Limitation on Payment Restrictions Affecting Restricted Subsidiaries. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or suffer to exist or allow to become effective any consensual encumbrance or restriction of any kind on the ability of any such Restricted Subsidiary to (i) pay dividends, in cash or otherwise, or make other payments or distributions on its Capital Stock or any other equity interest or participation in, or measured by, its profits, owned by the Company or by any Restricted Subsidiary of the Company, or make payments on any Indebtedness owed to the Company or to any Restricted Subsidiary of the Company; (ii) make loans or advances to the Company or to any Restricted Subsidiary of the Company; or (iii) transfer any of their respective property or assets to the Company or to any Restricted Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of (A) applicable law or regulations; (B) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of any Restricted Subsidiary of the Company; (C) Indebtedness or any other contractual requirements (including pursuant to any corporate governance documents in the nature of a charter or by-laws) of a Securitization Subsidiary arising in connection with a Qualified Securitization Transaction, provided, that any such encumbrances and restrictions apply only to such Securitization Subsidiary; (D) any agreement in effect on the Issue Date as any such agreement is in effect on such date; (E) any agreement relating to any Indebtedness incurred by such Restricted Subsidiary prior to the date on which such Restricted Subsidiary became a Subsidiary of the Company and outstanding on such date and not incurred in anticipation or contemplation of becoming a Subsidiary of the Company, provided, such encumbrance or restriction shall not apply to any assets of the Company or its Restricted Subsidiaries other than such Restricted Subsidiary; and (F) the Indentures. -57- After the Securities have been assigned an Investment Grade rating by both Rating Agencies, and notwithstanding that the Securities may later cease to have an Investment Grade rating, the Company will not be subject to the provisions of this Section 4.14; provided, that no Default has occurred and is continuing at the time the Securities have been assigned such rating. SECTION 4.15 Limitation on Guarantees by Restricted Subsidiaries. The Company shall not cause or permit any of its Restricted Subsidiaries, directly or indirectly, to guarantee the payment of any Indebtedness of the Company unless such Restricted Subsidiary of the Company simultaneously executes and delivers a supplemental indenture (the substantive provisions of which are in Exhibit B hereto) to this Indenture providing for the guarantee of payment of the Securities (a "Subsidiary Guarantee") by such Restricted Subsidiary of the Company (a "Subsidiary Guarantor"); provided, any guarantee by a Subsidiary Guarantor of such other Indebtedness (A) (1) (X) is unsecured or (Y) is secured and (I) in the case of any such guarantee of Indebtedness of the Company ranking pari passu with the Securities, the Subsidiary Guarantee is secured equally and ratably with any Liens securing such guarantee and (II) in the case of any such guarantee of Indebtedness of the Company subordinated to the Securities, the Subsidiary Guarantee is secured on a basis ranking prior to the Liens securing such guarantee and (2) (X) in the case of any such guarantee of Indebtedness of the Company subordinated or junior to the Securities (whether pursuant to its terms or by operation of law), such guarantee is subordinated pursuant to a written agreement to the Subsidiary Guarantee at least to the same extent and in the same manner as such other Indebtedness is subordinated to the Securities, or (Y) the Subsidiary Guarantee is not subordinated or junior to any Indebtedness of such Subsidiary Guarantor; and (B) such Subsidiary Guarantor waives, and agrees it will not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against the Company or any other Subsidiary of the Company as a result of any payment by it under such Subsidiary Guarantees. Notwithstanding the foregoing, any Subsidiary Guarantee shall provide by its terms that it shall be automatically and unconditionally released and discharged upon either (A) the unconditional release or discharge of such Subsidiary Guarantor's guarantees of all other Indebtedness of the Company (other than a release resulting from payment under such Subsidiary Guarantor's guarantees) or (B) any sale, exchange or transfer, to any Person not an Affiliate of the Company, of all (but not less than all) of the Capital Stock of such Subsidiary Guarantor, or all or substantially all of the assets of such Subsidiary Guarantor, pursuant to a transaction which is in compliance with all of the terms of this Indenture. The supplemental indenture shall supplement this Indenture by, among other things, creating an additional Article XI applicable to such Subsidiary Guarantor and any other Subsidiary Guarantors in the form set forth in Exhibit B hereto and, in connection -58- with the execution and delivery of the supplemental indenture, such Subsidiary Guarantor shall execute and deliver a Guarantee substantially in the form of Exhibit C hereto. Such Article XI shall not become effective until the provisions of Section 12.2 have been complied with. Notwithstanding the foregoing, any Subsidiary Guarantee will be subject to release under the conditions described in Section 11.4 of Exhibit B hereto. SECTION 4.16 [Reserved] SECTION 4.17 Limitation on Preferred Stock of Restricted Subsidiaries. The Indentures will provide that the Company will not cause or permit any of its Restricted Subsidiaries to issue any Preferred Stock other than to the Company or to another Restricted Subsidiary. After the Securities have been assigned an Investment Grade rating by both Rating Agencies, and notwithstanding that the Securities may later cease to have an Investment Grade rating, the Company will not be subject to the provisions of this Section 4.17; provided, that no Default has occurred and is continuing at the time the Securities have been assigned such rating. SECTION 4.18 Limitation on Restricted Payments. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to directly or indirectly, (i) declare or pay any dividend, or make any distribution of any kind or character (whether in cash, property or securities), in respect of any class of its Capital Stock or to the holders thereof in their capacity as stockholders, excluding any (x) dividend or distributions payable solely in shares of its Qualified Capital Stock or in options, warrants or other rights to acquire its Qualified Capital Stock or (y) in the case of any Restricted Subsidiary of the Company, dividends or distributions payable to the Company or a Restricted Subsidiary of the Company; (ii) purchase, redeem, or otherwise acquire or retire for value shares of Capital Stock of the Company or a Restricted Subsidiary of the Company, any securities convertible or exchangeable into shares of Capital Stock of the Company or a Restricted Subsidiary of the Company or any options, warrants or rights to purchase or acquire shares of Capital Stock of the Company or a Restricted Subsidiary of the Company, excluding any such shares of Capital Stock, options, warrants, rights or securities which are owned by the Company or a Restricted Subsidiary of the Company; (iii) make any Investment (other than a Permitted Investment) in, or payment on a guarantee of any obligation of, any Person; or (iv) redeem, defease, repurchase, retire or -59- otherwise acquire or retire for value, prior to any scheduled maturity, repayment or sinking fund payment, Indebtedness which is subordinate in right of payment to the Securities (each of the transactions described in clauses (i) through (iv) (other than any exception to any such clause) being a "Restricted Payment") if at the time thereof: (1) an Event of Default, or an event that with the passing of time or giving of notice, or both, would constitute an Event of Default, shall have occurred and be continuing, or (2) upon giving effect to such Restricted Payment, the Company could not incur at least $1.00 of additional Indebtedness pursuant to the terms of this Indenture described in clause (i) of Section 4.9, or (3) upon giving effect to such Restricted Payment, the aggregate of all Restricted Payments made on or after the Issue Date exceeds the sum (without duplication) of: (a) 50% of cumulative Consolidated Net Income of the Company (or, in the case cumulative Consolidated Net Income of the Company shall be negative, less 100% of such deficit) for the period (treated as an accounting period) from the Issue Date through the last day of the Company's most recently ended fiscal quarter for which financial statements are available, plus (b) 100% of the aggregate net cash proceeds received after the Issue Date, including the fair market value of readily marketable securities from the issuance of Qualified Capital Stock of the Company and warrants, rights or options on Qualified Capital Stock of the Company (other than in respect of any such issuance to a Subsidiary of the Company) and the principal amount of Indebtedness of the Company or a Subsidiary of the Company that has been converted into or exchanged for Qualified Capital Stock of the Company which Indebtedness was incurred after the Issue Date; plus (c) in the case of the disposition or repayment of any Investment constituting a Restricted Payment made after the Issue Date, an amount equal to the lesser of the return of capital with respect to such Investment and the cost of such Investment, in either case, less the cost of the disposition of such Investment; provided, that at the time any such Investment is made the Company delivers to the Trustee a resolution of the Board of Directors of the Company to the effect that, for purposes of this Section 4.18, such Investment constitutes a Restricted Payment made after the Issue Date; plus (d) an amount equal to the sum of (i) the net reduction in Investments in Unrestricted Subsidiaries resulting from the receipt of dividends, repayments of loans or advances or other transfers of assets or proceeds from the disposition of Capital Stock or other distributions or payments, in each case to the Company or any Restricted Subsidiary from, or with respect to, interests in Unrestricted Subsidiaries, and (ii) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a -60- Restricted Subsidiary; provided, that the foregoing sum shall not exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary subsequent to the Issue Date; plus (e) $25.0 million. For purposes of determining the amount expended for Restricted Payments under this clause (3), property other than cash shall be valued at its fair market value. Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph will not prohibit (i) any dividend on any class of Capital Stock of the Company or any of its Restricted Subsidiaries paid within 60 days after the declaration thereof if, on the date when the dividend was declared, the Company or any of its Restricted Subsidiaries, as the case may be, could have paid such dividend in accordance with the provisions of this Indenture, (ii) the renewal, extension, refunding or refinancing of any Indebtedness otherwise permitted pursuant to the terms of this Indenture described in clause (xiii) of Section 4.9, (iii) the exchange or conversion of any Indebtedness of the Company or any of its Restricted Subsidiaries for or into Qualified Capital Stock of the Company, (iv) any Restricted Payments, including loans or other advances made pursuant to any employee benefit plans (including plans for the benefit of directors) or employment agreements or other compensation arrangements, in each case as approved by the Board of Directors of the Company in its good faith judgment, (v) so long as no Default or Event of Default has occurred and is continuing, any Investment made with the proceeds of a substantially concurrent sale of Qualified Capital Stock of the Company; provided, that the proceeds of such sale of Qualified Capital Stock shall not be (and have not been) included in clause (3) of the preceding paragraph, (vi) the redemption, repurchase, retirement or other acquisition of any Capital Stock of the Company in exchange for or out of the net cash proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of Qualified Capital Stock of the Company; provided, that the proceeds of such sale of Capital Stock shall not be (and have not been) included in clause (3) of the preceding paragraph, (vii) so long as no Event of Default has occurred and is continuing, the redemption, repurchase, retirement or other acquisition of any Subordinated Indebtedness of the Company in exchange for or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of Qualified Capital Stock of the Company; provided, that the proceeds of such sale of Qualified Capital Stock shall not be (and have not been) included in clause (3) of the preceding paragraph, (viii) the purchase of Senior Subordinated Notes pursuant to an Offer to Purchase required by Section 4.19 or Section 4.11 of the Senior Subordinated Note Indenture; provided, that no such purchase shall be permitted until all Securities validly tendered pursuant to the applicable Offer to Purchase in respect of the Securities shall have been purchased by the Company, (ix) the redemption, retirement or repurchase of the Company's outstanding Series G Convertible Preferred Stock out of the net proceeds of the Offerings, (x) Investments in Navistar Financial Corporation made -61- pursuant to the Support Agreement to the extent required by the Support Agreement, (xi) the declaration and payment of dividends to holders of any class of Preferred Stock issued after the Issue Date; provided, that at the time of the issuance of such Preferred Stock, the Company, after giving pro forma effect to such issuance, would have been able to incur at least $1.00 of additional Indebtedness pursuant to the terms of the Indentures described in clause (i) of Section 4.9; (xii) so long as no Event of Default has occurred and is continuing, any purchase or redemption or other retirement for value of Capital Stock of the Company required pursuant to any shareholders agreement, management agreement or employee stock option agreement in accordance with the provisions of any such arrangement in an amount not to exceed $10.0 million in the aggregate; (xiii) repurchases of Capital Stock deemed to occur upon the exercise of stock options if such Capital Stock represents a portion of the exercise price thereof; (xiv) payments not to exceed $500,000 per annum in the aggregate to enable the Company to make payments to holders of its Capital Stock in lieu of issuance of fractional shares of its Capital Stock; (xv) so long as no Event of Default has occurred and is continuing, the repurchase of any shares of Class B Common Stock or Common Stock held by the Supplemental Trust; (xvi) so long as no Event of Default has occurred and is continuing, the redemption of any stock purchase rights under a rights plan in an aggregate amount not to exceed $1.0 million; and (xvii) so long as no Event of Default has occurred and is continuing, Investments in Permitted Joint Ventures and designations of Restricted Subsidiaries as Unrestricted Subsidiaries; provided, that after giving pro forma effect to such Investment, the Company could incur at least $1.00 of additional Indebtedness pursuant to the terms of this Indenture described in clause (i) of Section 4.9. Each Restricted Payment described in clauses (i), (iv), (x), (xii) and (xv) of the previous sentence shall be taken into account (and the Restricted Payments described in the remaining clauses shall not be taken into account) for purposes of computing the aggregate amount of all Restricted Payments made pursuant to clause (3) of the preceding paragraph. After the Securities have been assigned an Investment Grade rating by both Rating Agencies, and notwithstanding that the Securities may later cease to have an Investment Grade rating, the Company will not be subject to the provisions of this Section 4.18; provided, that no Default has occurred and is continuing at the time the Securities have been assigned such rating. SECTION 4.19 Limitation on Certain Asset Dispositions. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, make one or more Asset Dispositions unless: (i) the Company or the Restricted Subsidiary, as the case may be, receives consideration for such Asset Disposition at least equal to the fair market value of the assets sold or disposed of (as determined in good faith by the Company); (ii) not less than 75% of the consideration for the disposition consists of cash or readily marketable cash equivalents or the assumption of -62- Indebtedness (other than non-recourse Indebtedness or any Indebtedness subordinated to the Securities) of the Company or such Restricted Subsidiary or other obligations relating to such assets (and release of the Company or such Restricted Subsidiary from all liability on the Indebtedness or other obligations assumed); and (iii) all Net Available Proceeds, less any amounts invested or committed to be invested within 360 days of such Asset Disposition in assets related to the business of the Company (including capital expenditures or the Capital Stock of another Person (other than the Company or any Person that is a Restricted Subsidiary of the Company immediately prior to such investment); provided, that immediately after giving effect to any such investment (and not prior thereto) such Person shall be a Restricted Subsidiary of the Company), are applied, on or prior to the 360th day after such Asset Disposition (unless and to the extent that the Company shall determine to make an Offer to Purchase), either to (A) the permanent reduction and prepayment of any Indebtedness of the Company (other than Indebtedness which is expressly subordinate to the applicable issue of Notes) then outstanding (including a permanent reduction of commitments in respect thereof) or (B) the permanent reduction and repayment of any Indebtedness of any Restricted Subsidiary of the Company then outstanding (including a permanent reduction of commitments in respect thereof). The 361st day after such Asset Disposition shall be deemed to be the "Asset Sale Offer Trigger Date," and the amount of Net Available Proceeds from Asset Dispositions otherwise subject to the preceding provisions not so applied or as to which the Company has determined not to so apply shall be referred to as the "Unutilized Net Available Proceeds." Within fifteen days after the Asset Sale Offer Trigger Date, the Company shall make an Offer to Purchase the outstanding applicable issue of Securities at a purchase price in cash equal to 100% of their principal amount plus any accrued and unpaid interest thereon to the Purchase Date. Notwithstanding the foregoing, the Company may defer making any Offer to Purchase outstanding Securities until there are aggregate Unutilized Net Available Proceeds equal to or in excess of $25.0 million (at which time, the entire Unutilized Net Available Proceeds, and not just the amount in excess of $25.0 million, shall be applied as required pursuant to this paragraph). Pending application of the Unutilized Net Available Proceeds pursuant to this covenant, such Unutilized Net Available Proceeds shall be invested in Permitted Investments of the types described in clauses (i), (ii) and (iii) of the definition of "Permitted Investments." If any Indebtedness of the Company or any of its Restricted Subsidiaries ranking pari passu with the Securities requires that prepayment of, or an offer to prepay, such Indebtedness be made with any Net Available Proceeds, the Company may apply such Net Available Proceeds pro rata (based on the aggregate principal amount of the Securities then outstanding and the aggregate principal amount (or accreted value, if less) of all such other Indebtedness then outstanding) to the making of an Offer to Purchase the Securities in accordance with the foregoing provisions and the prepayment or the offer to prepay such pari passu Indebtedness. Any remaining Net Available Proceeds following the completion -63- of the required Offer to Purchase may be used by the Company for any other purpose (subject to the other provisions of the Indentures) and the amount of Net Available Proceeds then required to be otherwise applied in accordance with this covenant shall be reset to zero, subject to any subsequent Asset Disposition. These provisions will not apply to a transaction consummated in compliance with Article V. Notwithstanding the foregoing, the provisions of this covenant shall not apply to any Sale/Leaseback Transaction with respect to the purchase of tooling and related manufacturing equipment in the ordinary course of business consistent with past practices. In the event that the Company makes an Offer to Purchase the Securities, the Company shall comply with any applicable securities laws and regulations, including any applicable requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange Act and any violation of the provisions of this Indenture relating to such Offer to Purchase occurring as a result of such compliance shall not be deemed an Event of Default or an event that with the passing of time or giving of notice, or both, would constitute an Event of Default. After the Securities have been assigned an Investment Grade rating by both Rating Agencies, and notwithstanding that the Securities may later cease to have an Investment Grade rating, the Company will not be subject to the provisions of this Section 4.19; provided, that no Default has occurred and is continuing at the time the Securities have been assigned such rating. SECTION 4.20 Limitation on Sale/Leaseback Transactions. The Company shall not, and shall not cause or permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction with respect to any property unless (i) the Company or such Restricted Subsidiary would be entitled to (A) incur Indebtedness in an amount equal to the Attributable Indebtedness with respect to such Sale/Leaseback Transaction pursuant to clause (i) of Section 4.9 and (B) create a Lien on such property securing such Attributable Indebtedness without securing the Securities pursuant to Section 4.13 and (ii) the net proceeds received by the Company or any Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at least equal to the fair value (as determined by the Board of Directors) of such property and (iii) the Company applies the proceeds of such transaction in compliance with Section 4.19. Notwithstanding the foregoing, the provisions of this covenant shall not prohibit the Company or any Restricted Subsidiary from entering into any Sale/Leaseback Transaction with respect to the purchase of tooling and related manufacturing equipment in the ordinary course of business consistent with past practices. -64- After the Securities have been assigned an Investment Grade rating by both Rating Agencies, and notwithstanding that the Securities may later cease to have an Investment Grade rating, the Company will not be subject to the provisions of this Section 4.20; provided, that no Default has occurred and is continuing at the time the Securities have been assigned such rating. ARTICLE V SUCCESSOR CORPORATION SECTION 5.1 Merger, Consolidation, Etc. The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of (and the Company will not cause or permit any of its Restricted Subsidiaries to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's and its Restricted Subsidiaries' assets (determined on a consolidated basis for the Company and its Restricted Subsidiaries) to any Person or adopt a Plan of Liquidation unless: (i) either (1) the Company shall be the surviving or continuing corporation or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance, transfer or lease the properties and assets of the Company and its Restricted Subsidiaries substantially as an entirety or in the case of a Plan of Liquidation, or Person to which assets of the Company and its Restricted Subsidiaries have been transferred (x) shall be a corporation, limited liability company or partnership organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (y) shall expressly assume, by supplemental indenture (in form and substance satisfactory to the Trustee), executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Securities and the performance of every covenant of the Securities and this Indenture on the part of the Company to be performed or observed; (ii) immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company (in the case of clause (1) of the foregoing clause (i)) or such Person (in the case of clause (2) thereof) could incur at least $1.00 of additional Indebtedness pursuant to clause (i) of Section 4.9; (iii) immediately before and after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of the transaction) no Default and no Event of Default shall have occurred or be -65- continuing (subject, in the case of the Securities, to the applicability of Section 4.8 herein); and (iv) the Company or such Person shall have delivered to the Trustee (A) an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease or Plan of Liquidation and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this provision and that all conditions precedent under this Indenture relating to such transaction have been satisfied and (B) a certificate from the Company's independent certified public accountants stating that the Company has made the calculations required by clause (ii) above in accordance with the terms of this Indenture. Notwithstanding the foregoing, (x) a Restricted Subsidiary of the Company may consolidate with, or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, the Company or another Restricted Subsidiary of the Company without complying with clause (ii) of the above, (y) a series of transactions involving the sale of Receivables or interests therein by a Securitization Subsidiary in connection with a Qualified Securitization Transaction shall not be deemed to be the sale of all or substantially all of the Company's assets to the extent such transactions are consummated in the ordinary course of business and (z) the provisions of clause (i) above shall not prohibit the Company or any Restricted Subsidiary from selling, assigning, transferring, leasing, conveying or otherwise disposing of all or substantially all of its assets to a Permitted Joint Venture in a transaction entered into in compliance with Section 4.18. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. Upon any such consolidation, merger, conveyance, lease or transfer in accordance with the foregoing, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made will succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor had been named as the Company therein, and thereafter (except in the case of a sale, assignment, transfer, lease, conveyance or other disposition) the predecessor corporation will be relieved of all further obligations and covenants under this Indenture and the Securities. SECTION 5.2 Successor Entity Substituted. Upon any consolidation or merger, or any conveyance, lease or transfer of all or substantially all of the assets of the Company in accordance with Section 5.1, the suc- -66- cessor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; and thereafter (except in the case of a sale, assignment, transfer, conveyance, lease or other disposition) the Company shall be discharged from all obligations and covenants under this Indenture and the Securities. ARTICLE VI DEFAULT AND REMEDIES SECTION 6.1 Events of Default. (a) The following are "Events of Default" under this Indenture: (i) default in the payment of principal of, or premium, if any, on the Securities when due at maturity, upon repurchase, upon acceleration or otherwise, including, without limitation, failure of the Company to repurchase the Securities on the date required following a Change of Control Triggering Event; or (ii) default in the payment of any installment of interest on the Securities when due and continuance of such Default for 30 days or more; or (iii) failure to observe, perform or comply with any of the provisions described in Section 5.1; or (iv) default (other than a default set forth in clauses (i), (ii) and (iii) above) in the performance of, or breach of, any other covenant or warranty of the Company or of any Restricted Subsidiary in this Indenture or in the Securities and failure to remedy such default or breach within a period of 30 days after written notice from the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Securities; or (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any Subsidiary of the Company (or the payment of which is guaranteed by the Company or any Restricted Subsidiary of the Company), which default results in the acceleration of such Indebtedness prior to its express maturity and the principal amount of any such Indebtedness, together with -67- the principal amount of any other such Indebtedness the maturity of which has been so accelerated, aggregates $20.0 million or more and such acceleration has not been rescinded or annulled or such Indebtedness discharged in full within 30 days; or (vi) the entry by a court of competent jurisdiction of one or more judgments, orders or decrees against the Company or any Subsidiary of the Company or any of their respective property or assets in an aggregate amount in excess of $20.0 million, which judgments, orders or decrees have not been vacated, discharged, satisfied or stayed pending appeal within 30 days from the entry thereof and with respect to which legal enforcement proceedings have been commenced; or (vii) the Company or any Material Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case or proceeding, or (B) consents to the entry of an order for relief against it in an involuntary case or proceeding, or (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, or (D) makes a general assignment for the benefit of its creditors, or (E) files an answer or consent seeking reorganization or relief, or (F) shall admit in writing its inability to pay its debts generally; or (viii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any of its Material Subsidiaries in an involuntary case or proceeding, or (B) appoints a Custodian of the Company or any of its Material Subsidiaries for all or substantially all of its properties, or (C) orders the liquidation of the Company or any of its Material Subsidiaries, and in each case the order or decree remains unstayed and in effect for 60 days. -68- (b) For purposes of this Section 6.1, the term "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official charged with maintaining possession or control over property for one or more creditors. SECTION 6.2 Acceleration. If an Event of Default (other than an Event of Default relating to the Company and specified in clauses (vii) or (viii) of Section 6.1(a)) occurs and is continuing, the Trustee or Holders of at least 25% in aggregate principal amount of the then outstanding Securities may, by written notice to the Company (and to the Trustee, if given by the Holders), and the Trustee shall upon the request of Holders of not less than 25% in aggregate principal amount of the outstanding Securities, by written notice to the Company, declare the unpaid principal of, premium, if any, and accrued and unpaid interest on all the Securities then outstanding to be due and payable immediately, and the same shall become immediately due and payable. If an Event of Default relating to the Company and specified in clauses (vii) or (viii) of Section 6.1(a) occurs and is continuing, the unpaid principal of, premium and accrued and unpaid interest on all the Securities shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Holders of, in the aggregate, at least a majority in principal amount of the then outstanding Securities by notice to the Trustee may rescind an acceleration and its consequences if all existing Events of Default (except the nonpayment of principal and interest on the Securities that has become due solely as a result of the acceleration of the Securities) have been cured or waived and if the rescission would not conflict with any judgment or decree. No such rescission shall affect any subsequent default or impair any right consequent thereto. SECTION 6.3 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. -69- SECTION 6.4 Waiver of Past Default. Subject to Sections 6.7 and 9.2, the Holders of, in the aggregate, at least a majority in principal amount of the then outstanding Securities by notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a Default or Event of Default specified in Section 6.1(a)(i) or (ii) or a Default or Event of Default in respect of any provision hereof which cannot be modified or amended without the consent of the Holder so affected pursuant to Section 9.2. When a Default or Event of Default is so waived, it shall be deemed cured and cease to exist; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto. SECTION 6.5 Control by Majority. The Holders of a majority in principal amount of the then outstanding Securities may (i) direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it, including, without limitation, any remedies provided for in Section 6.3, and (ii) direct the Trustee to notify each trustee under any instrument governing the rights of holders of Indebtedness subordinated in right of payment to the Securities for the purpose of effecting the payment blockage provisions thereunder. The Trustee may refuse, however, to follow any direction that conflicts with law, the Securities or this Indenture, or that the Trustee determines may be unduly prejudicial to the rights of another Securityholder (provided, however, that subject to Section 7.1, the Trustee shall have no duty or obligation to ascertain whether or not such direction is unduly prejudicial to such Securityholder), that may involve the Trustee in personal liability or if the Trustee determines that it does not have adequate indemnification against any loss or expense, provided that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 6.6 Limitation on Suits. A Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless: (a) the Holder gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Securities make a written request to the Trustee to pursue a remedy; -70- (c) such Holder or Holders offer and, if requested, provide to the Trustee indemnity reasonably satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 30 days after receipt of the request; and (e) during such 30-day period the Holders of at least a majority in principal amount of the then outstanding Securities do not give the Trustee a direction which is inconsistent with the request. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over such other Securityholder. SECTION 6.7 Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in the Security, or to bring suit for the enforcement of any such payment on or after such respective dates, is absolute and unconditional and shall not be impaired or affected without the consent of such Holder. SECTION 6.8 Collection Suit by Trustee. If an Event of Default specified in Section 6.1(a)(i) or (ii) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor on the Securities for the whole amount of principal and accrued interest remaining unpaid, together with interest overdue on principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the Interest Rate and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.9 Trustee May File Proofs of Claim. The Trustee shall be entitled and empowered to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Securityholders allowed in any judicial proceedings relative to the Company or any of its Subsidiaries (or any other obligor upon the Securities), its creditors or its property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims -71- and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Securityholder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee under Section 7.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding. SECTION 6.10 Priorities. If the Trustee collects any money pursuant to this Article VI, it shall pay out such money in the following order: First: to the Trustee for all costs and expenses of collection and for all other amounts due under Section 7.7; Second: to Holders for interest accrued on the Securities, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for interest; and Third: to Holders for principal amounts owing under the Securities, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal. The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment to Securityholders pursuant to this Section 6.10. SECTION 6.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7, or a suit by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the outstanding Securities. -72- SECTION 6.12 Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 6.13 Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article 6 or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 6.14 Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. ARTICLE VII TRUSTEE SECTION 7.1 Duties of Trustee. (a) If an Event of Default known to the Trustee has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: -73- (i) The Trustee need perform only those duties as are specifically set forth in this Indenture or the TIA and no others and no implied covenants or obligations shall be read into this Indenture against the Trustee. (ii) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificate or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine such certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) Notwithstanding anything to the contrary herein contained, the Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) This paragraph does not limit the effect of paragraph (b) of this Section 7.1. (ii) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (iii) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Sections 6.2, 6.4 and 6.5. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.1. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. -74- SECTION 7.2 Rights of Trustee. Subject to Section 7.1: (a) The Trustee may rely and shall be protected in acting or refraining from acting upon any document reasonably believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled during normal business hours and upon reasonable advance notice to the Company to examine the books, records and premises of the Company, personally or by agent or attorney. (b) Before the Trustee acts or refrains from acting with respect to any matter contemplated by this Indenture, it may require an Officers' Certificate or an Opinion of Counsel, which shall conform to the provisions of Section 10.5. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent (other than the negligence or willful misconduct of an agent who is an employee of the Trustee) appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith and without negligence which it reasonably believes to be authorized or within its rights or powers conferred upon it by this Indenture or the TIA. (e) Before the Trustee acts or refrains from acting, it may consult with counsel and the advice or opinion of such counsel as to matters of law shall be full and complete authorization and protection from liability in respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (f) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder. -75- (g) The permissive rights of the Trustee to do things enumerated in this Indenture shall not be construed as a duty. (h) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Securityholders unless such Securityholders shall have offered to the Trustee security or indemnity reasonable to it against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (i) Except for (i) a default under Sections 6.1(a)(i) or (ii) hereof, or (ii) any other event of which the Trustee has "actual knowledge" and which event, with the giving of notice or the passage of time or both, would constitute an Event of Default under this Indenture, the Trustee shall not be deemed to have notice of any default or Event of Default unless specifically notified in writing of such event by the Company or the Holders of not less than 25% in aggregate principal amount of the Securities then outstanding; as used herein, the term "actual knowledge" means the actual fact or statement of knowing, without any duty to make any investigation with regard thereto. SECTION 7.3 Individual Rights of Trustee. The Trustee in its individual capacity or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company, or its Subsidiaries and Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 7.10 and 7.11. SECTION 7.4 Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities or for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement of the Company in this Indenture or any other document in connection with the sale of the Securities, or any statement in the Securities other than the Trustee's certificate of authentication. SECTION 7.5 Notice of Defaults. If a Default or an Event of Default with respect to the Securities occurs and is continuing and the Trustee receives written notice of such Default or Event of Default, the Trustee shall mail to each Securityholder notice of the Default or Event of Default -76- within 60 days after the occurrence thereof in accordance with TIA (S)313(c). Except in the case of a Default or an Event of Default in payment of principal of or interest on any Security, including on acceleration, and the failure to make payment when required by Section 4.11, and except in the case of a failure to comply with Article V hereof, the Trustee may withhold the notice to the Securityholders for a period not to exceed 60 days if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interest of Securityholders. SECTION 7.6 Reports by Trustee to Holders. To the extent required by TIA (S)313(a), within 45 days after June 1 of each year commencing with 1998 and for as long as there are Securities outstanding hereunder, the Trustee shall mail to each Securityholder the Company's brief report dated as of such date that complies with TIA (S)313(a). The Trustee also shall comply with TIA (S)313(b) and TIA (S)313(c) and (d). A copy of such report at the time of its mailing to Securityholders shall be filed with the SEC, if required, and each stock exchange, if any, on which the Securities are listed. The Company shall promptly notify the Trustee if the Securities become listed on any stock exchange and the Trustee shall comply with TIA (S)313(d). SECTION 7.7 Compensation and Indemnity. The Company shall pay to the Trustee, the Paying Agent and the Registrar from time to time reasonable compensation for their respective services rendered hereunder. The Trustee's, the Paying Agent's and the Registrar's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee, the Paying Agent and the Registrar upon request for all reasonable out-of-pocket disbursements, expenses and advances (including reasonable fees and expenses of counsel) incurred or made by each of them in connection with entering into this Indenture the performance of its duties under this Indenture in addition to the compensation for their respective services under this Indenture. Such expenses shall include the reasonable compensation, out-of-pocket disbursements and expenses of the Trustee's, the Paying Agent's and the Registrar's agents and counsel. The Company shall indemnify the Trustee, the Paying Agent and the Registrar for, and hold each of them harmless against, any claim, demand, expense (including but not limited to attorneys' fees and expenses), loss or liability incurred by each of them arising out of or in connection with the administration of this Indenture and their respective duties hereunder. Each of the Trustee, the Paying Agent and the Registrar shall notify the Company promptly of any claim asserted against it for which it may seek indemnity. How- -77- ever, failure by the Trustee, the Paying Agent or the Registrar to so notify the Company shall not relieve the Company of its obligations hereunder. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee, the Paying Agent or the Registrar through the Trustee's, the Paying Agent's or the Registrar's, as the case may be, own willful misconduct or negligence. To secure the Company's payment obligations in this Section 7.7, each of the Trustee, the Paying Agent and the Registrar shall have a lien prior to the Securities on all money or property held or collected by it, in its capacity as Trustee, Paying Agent or Registrar, as the case may be, except money or property held in trust to pay principal of or interest on particular Securities. Such lien shall survive the satisfaction and discharge of this Indenture. When any of the Trustee, the Paying Agent and the Registrar incurs expenses or renders services after an Event of Default specified in Section 6.1(a)(vii) or (viii) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.8 Replacement of Trustee. The Trustee may resign at any time by so notifying the Company in writing, such resignation to be effective upon the appointment of a successor Trustee. The Holders of a majority in principal amount of the outstanding Securities may remove the Trustee by so notifying the Trustee in writing and may appoint a successor Trustee with the Company's consent which consent shall not be unreasonably withheld. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10; (b) the Trustee is adjudged a bankrupt or an insolvent; (c) a receiver or other public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. -78- A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee (subject to the lien provided in Section 7.7), the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Securityholder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 25% in principal amount of then outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 shall continue for the benefit of the retiring Trustee. SECTION 7.9 Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or national banking association, the resulting, surviving or transferee corporation or national banking association without any further act shall be the successor Trustee, provided such corporation or national banking association shall be otherwise qualified and eligible under this Article VII. SECTION 7.10 Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirements of TIA (S)310(a)(1) and (2). The Trustee shall have a combined capital and surplus of at least $200,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA (S)310(b), provided that there shall be excluded from the operation of TIA (S)310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding if the requirements for such exclusion set forth in TIA (S)310(b)(1) are met. The provisions of TIA (S)310 shall apply to the Company, as obligor of the Securities. -79- SECTION 7.11 Preferential Collection of Claims Against Company. The Trustee shall comply with TIA (S)311(a), excluding any creditor relationship listed in TIA (S)311(b). A Trustee who has resigned or been removed shall be subject to TIA (S)311(a) to the extent indicated therein. The provisions of TIA (S)311 shall apply to the Company as obligor on the Securities. ARTICLE VIII SATISFACTION AND DISCHARGE OF INDENTURE SECTION 8.1 Termination of the Company's Obligations. The Company's obligations under the Securities and this Indenture shall terminate, and the obligations of any Subsidiary Guarantor shall terminate, except those obligations referred to in the penultimate paragraph of this Section 8.1, if all Securities previously authenticated and delivered (other than destroyed, lost or stolen Securities which have been replaced or paid or Securities for whose payment money has theretofore been deposited with the Trustee or the Paying Agent in trust or segregated and held in trust by the Company and thereafter repaid to the Company, as provided in Section 8.4) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder, or if: (a) all Securities have otherwise become due and payable hereunder; (b) the Company shall have irrevocably deposited or caused to be deposited with the Trustee or a trustee satisfactory to the Trustee, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds in trust solely for the benefit of the Holders for that purpose, cash or cash equivalents in such amount as is sufficient without consideration of reinvestment of such interest, to pay principal of, premium, if any, and interest on the outstanding Securities to maturity or redemption, provided that the Trustee shall have been irrevocably instructed to apply such cash or cash equivalents to the payment of said principal, premium, if any, and interest with respect to the Securities, and, provided, further, that from and after the time of deposit, the money deposited shall not be subject to the rights of holders of Senior Indebtedness of the Company or Guarantor Senior Indebtedness pursuant to the provisions of Article XI or Article XII; (c) no Default or Event of Default with respect to this Indenture or the Securities shall have occurred and be continuing on the date of such deposit or shall oc- -80- cur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company is a party or by which it is bound; (d) the Company shall have paid all other sums payable by it hereunder; (e) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent providing for the termination of the Company's and each Subsidiary Guarantor's obligation under the Securities and this Indenture have been complied with. Such Opinion of Counsel shall also state that such satisfaction and discharge does not result in a default under any Senior Indebtedness of the Company (if then in effect) or any other agreement or instrument then known to such counsel that binds or affects the Company. Notwithstanding the foregoing paragraph, the Company's obligations in Sections 2.5, 2.6, 2.7, 2.8, 4.1, 4.2 and 7.7 and any Subsidiary Guarantor's obligations in respect thereof shall survive until the Securities are no longer outstanding. After the Securities are no longer outstanding, the Company's obligations in Sections 7.7, 8.4 and 8.5 and any Subsidiary Guarantor's obligations in respect thereof shall survive. After such delivery or irrevocable deposit the Trustee upon request shall acknowledge in writing the discharge of the Company's and any Subsidiary Guarantor's obligations under the Securities and this Indenture except for those surviving obligations specified above. SECTION 8.2 Legal Defeasance and Covenant Defeasance. (a) The Company may, at its option and at any time, with respect to the Securities, elect to have either paragraph (b) or paragraph (c) below be applied to the outstanding Securities upon compliance with the conditions set forth in paragraph (d). (b) Upon the Company's exercise under paragraph (a) of the option applicable to this paragraph (b), the Company and any Subsidiary Guarantor shall be deemed to have been released and discharged from its obligations with respect to the outstanding Securities on the date the conditions set forth below are satisfied (hereinafter, "legal defeasance"). For this purpose, such legal defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Securities, which shall thereafter be deemed to be "outstanding" only for the purposes of paragraph (c) below and the other Sections of and matters under this Indenture referred to in (i) and (ii) below, and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the -81- Company, shall execute proper instruments acknowledging the same), and Holders of the Securities and the Subsidiary Guarantees and any amounts deposited under paragraph (d) below shall cease to be subject to any obligations to, or the rights of, any holder of Senior Indebtedness of the Company or Guarantor Senior Indebtedness under Article XI or otherwise, except for the following which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of outstanding Securities to receive solely from the trust fund described in paragraph (d) below and as more fully set forth in such paragraph, payments in respect of the principal of, premium, if any, and interest on such Securities when such payments are due, (ii) the Company's obligations with respect to such Securities under Sections 2.6, 2.7 and 4.2, and, with respect to the Trustee, under Section 7.7 and any Subsidiary Guarantor's obligations in respect thereof, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (iv) this Section 8.2 and Section 8.5. Subject to compliance with this Section 8.2, the Company may exercise its option under this paragraph (b) notwithstanding the prior exercise of its option under paragraph (c) below with respect to the Securities. (c) Upon the Company's exercise under paragraph (a) of the option applicable to this paragraph (c), the Company shall be released and discharged from its obligations under any covenant contained in Article V and in Sections 4.5 through 4.9, 4.11 through 4.20 and Section 5.1 with respect to the outstanding Securities on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"), and the Securities shall thereafter be deemed to be not "outstanding" for the purpose of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder and Holders of the Securities and the Subsidiary Guarantees and any amounts deposited under paragraph (d) below shall cease to be subject to any obligations to, or the rights of, any holder of Senior Indebtedness of the Company or Guarantor Senior Indebtedness under Article XI or otherwise. For this purpose, such covenant defeasance means that, with respect to the outstanding Securities, the Company and any Subsidiary Guarantor may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.1(a) (iv), but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. (d) The following shall be the conditions to application of either paragraph (b) or paragraph (c) above to the outstanding Securities: -82- (i) the Company shall irrevocably have deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (x) money in an amount or (y) direct non-callable obligations of, or non- callable obligations guaranteed by, the United States of America for the payment of which guarantee or obligation the full faith and credit of the United States is pledged ("U.S. Government Obligations") maturing as to principal, premium, if any, and interest in such amounts of money and at such times as are sufficient without consideration of any reinvestment of such interest, to pay principal of and interest on the outstanding Securities not later than one day before the due date of any payment, or (z) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge principal of, premium, if any, and interest on the outstanding Securities on the Maturity Date or otherwise in accordance with the terms of this Indenture and of such Securities, provided that the Trustee (or other qualifying trustee) shall have received an irrevocable written order from the Company instructing the Trustee (or other qualifying trustee) to apply such money or the proceeds of such U.S. Government Obligations to said payments with respect to the Securities; (ii) no Default or Event of Default with respect to the Securities or this Indenture shall have occurred and be continuing immediately after giving effect to such deposit (or, insofar as Section 6.1(a)(vii) or (viii) is concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period); provided, however, that actions taken by the Company in connection with the creation of the trust fund into which funds for the purpose of defeasance of the Securities are deposited that are not in compliance with Sections 4.9, 4.13 and 4.14 as a result of the incurrence of indebtedness to create such trust fund deposit, in each case, shall not be deemed a Default or Event of Default under this Indenture); (iii) such legal defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest with respect to any Securities of the Company or any Subsidiary Guarantor; (iv) such legal defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a Default or Event of Default under any agreement or instrument to which the Company or any Subsidiary Guarantor is a party or by which it is bound; -83- (v) in the case of an election under paragraph (b) above, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (y) since the date of this Indenture, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the outstanding Securities will not recognize income, gain or loss for Federal income tax purposes as a result of such legal defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance had not occurred; (vi) in the case of an election under paragraph (c) above, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the outstanding Securities will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; (vii) in the case of an election under either paragraph (b) or (c) above, an Opinion of Counsel to the effect that, (x) the trust funds will not be subject to any rights of any holders of other Indebtedness, including, without limitation, Senior Indebtedness of the Company, and (y) after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable Bankruptcy Law, provided that if a court were to rule under any such law in any case or proceeding that the trust funds remained property of the Company, no opinion needs to be given as to the effect of such laws on the trust funds except the following: (A) assuming such trust funds remained in the Trustee's possession prior to such court ruling to the extent not paid to Holders of Securities, the Trustee will hold, for the benefit of the Holders of Securities, a valid and enforceable security interest in such trust funds that is not avoidable in bankruptcy or otherwise, subject only to principles of equitable subordination, (B) the Holders of Securities will be entitled to receive adequate protection of their interests in such trust funds if such trust funds are used, and (C) no property, rights in property or other interests granted to the Trustee or the Holders of Securities in exchange for or with respect to any of such funds will be subject to any prior rights of any other person, subject only to prior Liens granted under Section 364 of Title 11 of the U.S. Bankruptcy Code (or any section of any other Bankruptcy Law having the same effect), but still subject to the foregoing clause (B); and -84- (viii) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that (x) all conditions precedent provided for relating to either the legal defeasance under paragraph (b) above or the covenant defeasance under paragraph (c) above, as the case may be, have been complied with and (y) if any other Indebtedness of the Company shall then be outstanding or committed, such legal defeasance or covenant defeasance will not violate the provisions of the agreements or instruments evidencing such Indebtedness. (e) All money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee pursuant to paragraph (d) above in respect of the outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (other than the Company or any Affiliate of the Company) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to paragraph (d) above or the principal, premium, if any, and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Securities. Anything in this Section 8.2 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request, in writing, by the Company any money or U.S. Government Obligations held by it as provided in paragraph (d) above which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent legal defeasance or covenant defeasance. SECTION 8.3 Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Sections 8.1 and 8.2, and shall apply the deposited money and the money from U.S. Government Obligations in accordance with this Indenture to the payment of principal of, premium, if any, and interest on the Securities. -85- SECTION 8.4 Repayment to Company or Subsidiary Guarantors. Subject to Sections 7.7, 8.1 and 8.2, the Trustee shall promptly pay to the Company, or if deposited with the Trustee by any Subsidiary Guarantor, to such Subsidiary Guarantor, upon receipt by the Trustee of an Officers' Certificate, any excess money, determined in accordance with Section 8.2, held by it at any time. The Trustee and the Paying Agent shall pay to the Company or any Subsidiary Guarantor, as the case may be, upon receipt by the Trustee or the Paying Agent, as the case may be, of an Officers' Certificate, any money held by it for the payment of principal, premium, if any, or interest that remains unclaimed for two years after payment to the Holders is required (unless otherwise provided under operation of law), provided that the Trustee and the Paying Agent before being required to make any payment may, but need not, at the expense of the Company cause to be published once in a newspaper of general circulation in The City of New York or mail to each Holder entitled to such money notice that such money remains unclaimed and that after a date specified therein, which shall be at least 30 days from the date of such publication or mailing, any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company or any Subsidiary Guarantor, as the case may be, Securityholders entitled to money must look solely to the Company for payment as general creditors unless an applicable abandoned property law designates another person, and all liability of the Trustee or Paying Agent with respect to such money shall thereupon cease. SECTION 8.5 Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Indenture by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then and only then the Company's and each Subsidiary Guarantor's, if any, obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had been made pursuant to this Indenture until such time as the Trustee is permitted to apply all such money or U.S. Government Obligations in accordance with this Indenture, provided that if the Company or the Subsidiary Guarantors, as the case may be, has made any payment of principal of, premium, if any, or interest on any Securities because of the reinstatement of its obligations, the Company or the Subsidiary Guarantors, as the case may be, shall be, subrogated to the rights of the holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. -86- ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.1 Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by resolutions of its Board of Directors (copies of which shall be delivered to the Trustee) and the Trustee may amend, waive or supplement this Indenture or the Securities without notice to or consent of any Holder for any of the following purposes: (a) to cure any ambiguity, defect or inconsistency, provided that such amendment or supplement does not adversely affect the rights of any Holder; (b) to provide for uncertificated Securities in addition to or in place of certificated Securities; (c) to comply with any requirements of the SEC under the TIA; (d) to evidence the succession in accordance with Article V hereof of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; (e) to add any Subsidiary of the Company as a Subsidiary Guarantor pursuant to the terms of Section 4.15 and Article XI; (f) to evidence and provide for the acceptance of appointment hereunder by a separate or successor Trustee with respect to the Securities; or (g) to make any other change that does not adversely affect the rights of any Holder; provided, however, that in making such change, the Trustee may rely upon an Opinion of Counsel stating that such change does not adversely affect the rights of any Holder. SECTION 9.2 With Consent of Holders. Subject to Section 6.7 and the provisions of this Section 9.2, the Company, when authorized by resolution of its Board of Directors (copies of which shall be delivered to the Trustee) and the Trustee may amend or supplement this Indenture, the Securities or any Subsidiary Guarantee with the written consent of the Holders of at least a majority in -87- principal amount of the Securities then outstanding. Subject to Section 6.7 and the provisions of this Section 9.2, the Holders of, in the aggregate, at least a majority in principal amount of the then outstanding Securities affected may waive compliance by the Company and any Subsidiary Guarantor with any provision of this Indenture, the Securities or any Subsidiary Guarantee without notice to any other Securityholder. However, without the consent of each Securityholder affected, an amendment, supplement or waiver, including a waiver pursuant to Section 6.4, may not: (a) reduce the aggregate principal amount of Securities the Holders of which must consent to an amendment, supplement or waiver of any provision of or with respect to this Indenture, the Securities or any Subsidiary Guarantee; or (b) reduce the rate of, change the method of calculation of, or extend the time for, payment of interest, including default interest, on any Security; or (c) reduce the principal of or premium on or change the Stated Maturity of any Security or alter the repurchase provisions with respect thereto; or (d) make the principal of, or interest on, any Security payable in money other than as provided herein, or (e) make any change in provisions relating to waivers of defaults, the ability of Holders to enforce their rights under this Indenture or in the matters discussed in clauses (a) through (h); or (f) waive a default in the payment of the principal of, interest on, or repurchase payment required hereunder with respect to, any Security, including, without limitation, a default to make a payment when required upon a Change of Control; or (g) adversely affect the ranking of the Securities or any Subsidiary Guarantee or release any Subsidiary Guarantor from any of its obligations under its Subsidiary Guarantee in this Indenture other than in compliance with Section 11.4 of Exhibit B hereto; (h) after the Company's obligation to purchase Securities arises thereunder, amend, modify or change the obligation of the Company to make and consummate a Change of Control Offer in the event of a Change of Control or waive any default in the performance thereof or modify any of the provisions or definitions with respect to such offers. -88- It shall not be necessary for the consent of the Holders under this Section 9.2 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.2 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. Notwithstanding the foregoing, no amendment shall modify any provision of this Indenture so as to affect adversely the rights of any holder of Senior Indebtedness of the Company or Guarantor Senior Indebtedness to the benefits of the subordination provisions under this Indenture without the consent of such holder. SECTION 9.3 Compliance with Trust Indenture Act. Every amendment to or supplement of this Indenture or the Securities shall be set forth in a supplemental indenture that complies with the TIA as then in effect. SECTION 9.4 Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of that Security or portion of that Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of a Security. Such revocation shall be effective only if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective. Notwithstanding the above, nothing in this paragraph shall impair the right of any Securityholder under (S) 316(b) of the TIA. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver which record date shall be at least 10 days prior to the first solicitation of such consent. If a record date is fixed, then notwithstanding the second and third sentences of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. Such consent shall be effective only for actions taken within 90 days after such record date. -89- After an amendment, supplement or waiver becomes effective, it shall bind every Securityholder unless it makes a change described in any of clauses (a) through (h) of Section 9.2. In that case the amendment, supplement or waiver shall bind each Holder of a Security who has consented to it. SECTION 9.5 Notation on or Exchange of Securities. If an amendment, supplement or waiver changes the terms of a Security, the Trustee shall (in accordance with the specific written direction of the Company) request the Holder of the Security to deliver it to the Trustee. The Trustee shall (in accordance with the specific direction of the Company) place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or issue a new Security shall not affect the validity and effect of such amendment, supplement or waiver. SECTION 9.6 Trustee To Sign Amendments, Etc. The Trustee shall sign any amendment, supplement or waiver authorized pursuant to this Article IX if the amendment, supplement or waiver does not adversely affect the rights, duties or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing any amendment, supplement or waiver, the Trustee shall be entitled to receive, if requested, an indemnity reasonably satisfactory to it and to receive, and shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article IX is authorized or permitted by this Indenture and that it constitutes the legal, valid and binding obligation of the Company and, if applicable, the Subsidiary Guarantors, subject to the customary exceptions. ARTICLE X MISCELLANEOUS SECTION 10.1 Trust Indenture Act Controls. The provisions of TIA (S)(S)310 through 317 that impose duties on any person (including the provisions automatically deemed included unless expressly excluded by this Indenture) are a part of and govern this Indenture, whether or not physically contained herein. -90- If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by the above paragraph, the imposed duties shall control. SECTION 10.2 Notices. Any notice or communication shall be sufficiently given if in writing and delivered in person or mailed by first-class mail or by telecopier, followed by first-class mail, or by overnight service guaranteeing next-day delivery, addressed as follows: (a) if to the Company: Navistar International Corporation 455 North Cityfront Plaza Drive Chicago, Illinois 60611 Attention: General Counsel Telecopier Number: (312) 836-2000 with a copy to: Kirkland & Ellis 200 E. Randolph Drive Chicago, Illinois 60601 Attention: Kenneth P. Morrison, Esq. Telecopier Number: (312) 861-2200 (b) if to the Trustee: Harris Trust and Savings Bank 311 West Monroe, 12th Floor Chicago, Illinois 60606 Attention: Indenture Trust Division/D.G. Donovan Telecopier Number: (312) 461-3525 The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. -91- Any notice or communication mailed to a Securityholder, including any notice delivered in connection with TIA (S)310(b), TIA (S)313(c), TIA (S)314(a) and TIA (S)315(b), shall be mailed to such Holder, first-class postage prepaid, at his address as it appears on the registration books of the Registrar and shall be sufficiently given to such Holder if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. Except for a notice to the Trustee, which is deemed given only when received by an officer in the corporate trust administration department of the Trustee, if a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 10.3 Communications by Holders with Other Holders. Securityholders may communicate pursuant to TIA (S)312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and any other Person shall have the protection of TIA (S)312(c). SECTION 10.4 Certificate and Opinion of Counsel as to Conditions Precedent. Upon any request or application by the Company or any Subsidiary Guarantor to the Trustee to take any action under this Indenture, the Company or any Subsidiary Guarantor shall furnish to the Trustee at the request of the Trustee (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with (which officer signing such certificate may rely, as to matters of law, on an Opinion of Counsel), (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of counsel, all such conditions have been complied with (which counsel, as to factual matters, may rely on an Officers' Certificate) and (c) where applicable, a certificate or opinion by an independent certified public accountant satisfactory to the Trustee that complies with TIA (S)314(c). SECTION 10.5 Statements Required in Certificate and Opinion of Counsel. Each certificate and Opinion of Counsel with respect to compliance with a condition or covenant provided for in this Indenture shall include: -92- (a) a statement that the Person making such certificate or rendering such Opinion of Counsel has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or Opinion of Counsel are based; (c) a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. SECTION 10.6 Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules in accordance with the Trustee's customary practices for action by or at a meeting of Securityholders. The Paying Agent or Registrar may make reasonable rules for its functions. SECTION 10.7 Legal Holidays. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 10.8 Governing Law. THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS INDENTURE, THE SECURITIES AND THE SUBSIDIARY GUARANTEES WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY AND EACH SUBSIDIARY GUARANTOR AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE SECURITIES AND THE SUBSIDIARY GUARANTEES. SECTION 10.9 No Recourse Against Others. A trustee, director, officer, employee, stockholder or beneficiary, as such, of the Company or any Subsidiary Guarantor shall not have any liability for any obligations of the Company or any Subsidiary Guarantor under the Securities or this Indenture or for any -93- claim based on, in respect of or by reason of such obligations or their creation. Each Security holder by accepting a Security waives and releases all such liability. SECTION 10.10 Successors. All agreements of the Company or any Subsidiary Guarantor in this Indenture and the Securities shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor. SECTION 10.11 Counterparts. The parties may sign any number of counterparts of this Indenture. Each such counterpart shall be an original, but all of them together represent the same agreement. SECTION 10.12 Severability. In case any provision in this Indenture, the Securities or in any Subsidiary Guarantee shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, and a Holder shall have no claim therefor against any party hereto. SECTION 10.13 Table of Contents, Headings, Etc. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, and are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. SECTION 10.14 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or of any Subsidiary Guarantor or any of their respective Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 10.15 Benefits of Indenture. Nothing in this Indenture, in the Securities or in any Subsidiary Guarantee, express or implied, shall give to any person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture, the Securities or in any Subsidiary Guarantee. -94- SECTION 10.16 Independence of Covenants. All covenants and agreements in this Indenture, the Securities and the Subsidiary Guarantees shall be given independent effect so that if any particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the date first written above. NAVISTAR INTERNATIONAL CORPORATION, as Issuer By:/s/ Thomas M. Hough ---------------------------- Name: Thomas M. Hough Title: VICE PRESIDENT & TREASURER HARRIS TRUST AND SAVINGS BANK, as Trustee By:/s/ J. BARTOLINI ---------------------------- Name: J. BARTOLINI Title: VICE PRESIDENT Exhibit A (FORM OF FACE OF SECURITY) No. [ ] $ [ ] CUSIP No. 7% SENIOR NOTE DUE 2003 NAVISTAR INTERNATIONAL CORPORATION promises to pay to [ ] or registered assigns the principal sum of[ ] Dollars on February 1, 2003. Interest Payment Dates: February 1, August 1 and at maturity Record Dates: January 15, July 15 and 15 days prior to maturity By:____________________________ Authorized Signature By:____________________________ Authorized Signature Dated: February 4, 1998 Certificate of Authentication This is one of the 7% Senior Notes due 2003 referred to in the within- mentioned indenture. HARRIS TRUST AND SAVINGS BANK, as Trustee By:____________________________ Authorized Signature A-1 (FORM OF REVERSE OF SECURITY) ----------------------------- 7% SENIOR NOTE DUE 2003 1. Interest. NAVISTAR INTERNATIONAL CORPORATION, a Delaware corporation (the "Company," which definition shall include any successor thereto in accordance with the Indenture (as defined below)), promises to pay, until the principal hereof is paid or made available for payment, interest on the principal amount set forth on the reverse side hereof at a rate of 7% per annum. --- ----- Interest on the Securities will accrue from and including the most recent date to which interest has been paid or, if no interest has been paid, from and including February 4, 1998 through but excluding the date on which interest is paid. Interest shall be payable in arrears on February 1, August 1 and at the stated maturity (each an "Interest Payment Date"), commencing August 1, 1998. Interest will be computed on the basis of a 360-day year of twelve full 30-day months and, for periods of less than one month, the actual number of days elapsed. Interest on overdue principal and (to the extent permitted by law) on overdue installments of interest will accrue at a rate equal to 7% per annum. --- ----- 2. Method of Payment. The Company will pay interest on the Securities (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the January 15 or July 15 next preceding the relevant Interest Payment Date. Holders must surrender Securities to the Paying Agent to collect principal payments. The Company will pay principal, premium, if any, and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. At the Company's option, interest may be paid by check mailed to the registered address of the Holder of this Security. 3. Paying Agent and Registrar. Initially, HARRIS TRUST AND SAVINGS BANK (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-Registrar without notice. Neither the Company nor any of its Subsidiaries may act as Paying Agent, Registrar or co- Registrar. 4. Indenture. The Company issued the Securities under an Indenture dated as of February 4, 1998 (the "Indenture") between the Company and the Trustee. This Security is one of an issue of Securities of the Company issued under the Indenture. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)77aaa-77bbbb) as amended from time to time. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and such Act for a statement of them. Capitalized terms used herein and not otherwise defined have the meanings set forth in the Indenture. The A-2 Securities are general unsecured obligations of the Company limited in aggregate principal amount to $100,000,000. The Indenture limits, among other things, the incurrence of certain Indebtedness by the Company and its Restricted Subsidiaries; transactions by the Company and its Restricted Subsidiaries with certain Affiliates; the granting of Liens by the Company or any of its Restricted Subsidiaries; certain guarantees issued by Restricted Subsidiaries of the Company and the ability of the Company and the Subsidiary Guarantors to merge with or into another entity. The limitations are subject to a number of important qualifications and exceptions. The Company must report to the Trustee annually whether it is in compliance with the limitations contained in the Indenture. 5. Offers to Purchase. Sections 4.11 and 4.19 of the Indenture provide upon the occurrence of a Change of Control and after certain Asset Disposition, and subject to further limitations contained therein, the Company shall make an offer to purchase certain amount of the Securities in accordance with the procedures set forth in the Indenture. 6. Denominations, Transfer, Exchange. The Securities are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay to it any taxes and fees required by law or permitted by the Indenture. The Registrar need not transfer or exchange any Security or portion of a Security selected for redemption, or transfer or exchange any Securities for a period of 15 days before a selection of Securities to be redeemed. 7. Persons Deemed Owners. The registered holder of a Security may be treated as the owner of it for all purposes. 8. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent will pay the money back to the Company at its request. After that, Holders entitled to the money must look to the Company for payment as general creditors unless an "abandoned property" law designates another Person. 9. Amendment, Supplement, Waiver. The Company and the Trustee may, without the consent of the holders of any outstanding Securities, amend, waive or supplement the Indenture, the Securities or Subsidiary Guarantee for certain specified purposes, including, among other things, curing ambiguities, defects or inconsistencies, maintaining the qualification of the Indenture under the Trust Indenture Act of 1939 or making any other change that does not adversely affect the rights of any Holder. Other amendments and modifications of the Indenture, the Securities or any Subsidiary Guarantee may be made by the Company and the Trustee with the consent of the Holders of not less than a majority of the aggregate principal amount of the outstanding Securities, subject to certain exceptions requiring the consent of the Holders of the particular Securities to be affected. A-3 10. Successor Corporation. When a successor corporation assumes all the obligations of its predecessor under the Securities and the Indenture and the transaction complies with the terms of Article V of the Indenture, the predecessor corporation, subject to certain exceptions, will be released from those obligations. 11. Defaults and Remedies. Events of Default are set forth in the Indenture. Subject to certain limitations in the Indenture, if an Event of Default (other than an Event of Default specified in Section 6.1(a)(vii) or (viii) of the Indenture with respect to the Company) occurs and is continuing, then the holders of not less than 25% in aggregate principal amount of the outstanding Securities may, or the Trustee may, declare the principal of, premium, if any, plus accrued interest, if any, to be due and payable immediately. If an Event of Default specified in Section 6.1(a)(vii) or (viii) of the Indenture with respect to the Company occurs and is continuing, the principal of, premium, if any, and accrued interest on all of the Securities shall ipso facto become and be immediately due and payable without any ---- ----- declaration or other act on the part of the Trustee or any Holder. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity reasonably satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing default (except a default in payment of principal or interest or a failure to comply with Article V of the Indenture) if it determines that withholding notice is in their interests. The Company must furnish an annual compliance certificate to the Trustee. 12. Guarantees. This Security may after the date hereof be entitled to certain Subsidiary Guarantees made for the benefit of the Holders. Reference is hereby made to Section 4.15 of the Indenture and to Exhibit B to the Indenture for the terms of any Subsidiary Guarantee (including any terms of subordination of such Subsidiary Guarantee that may apply). 13. Trustee Dealings with Company. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee. 14. No Recourse Against Others. A Trustee, director, officer, employee, stockholder or beneficiary, as such, of the Company or any Subsidiary Guarantor shall not have any liability for any obligations of the Company or any Subsidiary Guarantor under the Securities, the Indenture or any Subsidiary Guarantee or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. A-4 15. Defeasance. The Indenture contains provisions (which provisions apply to this Security) for defeasance at any time of (a) the entire indebtedness of the Company and any Subsidiary Guarantor or this Security and (b) certain restrictive covenants and related Defaults and Events of Default, in each case upon compliance by the Company with certain conditions set forth therein. 16. Authentication. This Security shall not be valid until the Trustee signs the certificate of authentication on the other side of this Security. 17. Abbreviations. Customary abbreviations may be used in the name of a Securityholder or an assignee, such as: TEN COM (= tenants in common), TENANT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 18. GOVERNING LAW. THE INDENTURE, THIS SECURITY AND EACH SUBSIDIARY GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. The Company will furnish to any Securityholder upon written request and without charge a copy of the Indenture. Requests may be made to: Navistar International Corporation 455 North Cityfront Plaza Drive Chicago, Illinois 60611 Telephone: (312) 836-2000 Telecopy: (312) 836-3982 Attention: General Counsel A-5 ASSIGNMENT FORM If you the holder want to assign this Security, fill in the form below and have your signature guaranteed: I or we assign and transfer this Security to ____________________________________________________________ (Insert assignee's social security or tax ID number)________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ____________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. ________________________________________________________________________________ Date:______ Your signature:____________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee:___________________________________________ OPTION OF HOLDER TO ELECT PURCHASE If you wish to have all or any part of this Security purchased by the Company pursuant to Section 4.11 or 4.19 of the Indenture, check the appropriate Box: [ ] Section 4.11 [ ] Section 4.19 If you wish to have a portion of this Security purchased by the Company pursuant to Section 4.11 or 4.19 of the Indenture, state the amount: $ Date:__________ Your Signature:__________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee:_______________________ EXHIBIT B ARTICLE XI GUARANTEE OF SECURITIES SECTION 11.1 Subsidiary Guarantee. Subject to the provisions of this Article XI, each Subsidiary Guarantor hereby jointly and severally unconditionally guarantees to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Securities or the obligations of the Company or any other Subsidiary Guarantors to the Holders or the Trustee hereunder or thereunder, that: (a) the principal of, premium, if any, and interest on the Securities will be duly and punctually paid in full when due, whether at maturity, by acceleration or otherwise, and interest on the overdue principal and (to the extent permitted by law) interest, if any, on the Securities and all other obligations of the Company or the Subsidiary Guarantors to the Holders or the Trustee hereunder or thereunder (including fees or expenses) and all other obligations with respect to the Securities and this Indenture will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Securities, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at Stated Maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed, or failing performance of any other obligation of the Company to the Holders, for whatever reason, each Subsidiary Guarantor will be obligated to pay, or to perform or cause the performance of, the same immediately. An Event of Default under this Indenture or the Securities shall constitute an event of default under this Subsidiary Guarantee, and shall entitle the Holders of Securities to accelerate the obligations of the Subsidiary Guarantors hereunder in the same manner and to the same extent as the obligations of the Company. Each of the Subsidiary Guarantors hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Securities or this Indenture, the absence of any action to enforce the same, any waiver or consent by any holder of the Securities with respect to any provisions hereof or thereof, any release of any other Subsidiary Guarantor, the recovery of any judgment against the Company, any action to enforce the same, whether or not a Subsidiary Guarantee is affixed to any particular Security, or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each of the Subsidiary Guarantors hereby waives the benefit of diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a pro- B-1 ceeding first against the Company, protest, notice and all demands whatsoever and covenants that its Subsidiary Guarantee will not be discharged except by complete performance of the obligations contained in the Securities, this Indenture and this Subsidiary Guarantee. If any Holder or the Trustee is required by any court or otherwise to return to the Company or to any Subsidiary Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or such Subsidiary Guarantor, any amount paid by the Company or such Subsidiary Guarantor to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Subsidiary Guarantor further agrees that, as between it, on the one hand, and the Holders of Securities and the Trustee, on the other hand, (a) subject to this Article XI, the maturity of the obligations guaranteed hereby may be accelerated as provided in Article VI hereof for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (b) in the event of any acceleration of such obligations as provided in Article VI hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by the Subsidiary Guarantors for the purpose of this Subsidiary Guarantee. This Subsidiary Guarantee shall remain in full force and effect and continue to be effective should any petition be filed by or against the Company for liquidation or reorganization, should the Company become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of the Company's assets, and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Securities are, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee on the Securities, whether as a "voidable preference," "fraudulent transfer" or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Securities shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. No stockholder, officer, director, employer or incorporator, past, present or future, or any Subsidiary Guarantor, as such, shall have any personal liability under this Subsidiary Guarantee by reason of his, her or its status as such stockholder, officer, director, employer or incorporator. The Subsidiary Guarantors shall have the right to seek contribution from any non-paying Subsidiary Guarantor so long as the exercise of such right does not impair the rights of the Holders under this Subsidiary Guarantee. Each Subsidiary Guarantor, and by its acceptance hereof each Holder, hereby confirms that it is the intention of all such parties that the guarantee by each Subsidiary Guarantor pursuant to its Subsidiary Guarantee not constitute a fraudulent transfer B-2 or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To effectuate the foregoing intention, the Holders and each Subsidiary Guarantor hereby irrevocably agrees that the obligations of each Subsidiary Guarantor under the Subsidiary Guarantees shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of each Subsidiary Guarantor (including, but not limited to, the Guarantor Senior Indebtedness of each Subsidiary Guarantor) result in the obligations of each Subsidiary Guarantor under the Subsidiary Guarantees not constituting such fraudulent transfer or conveyance. SECTION 11.2 Execution and Delivery of Subsidiary Guarantee. To further evidence the Subsidiary Guarantee set forth in Section 11.1, each Subsidiary Guarantor hereby agrees that a notation of such Subsidiary Guarantee, substantially in the form included in Exhibit C hereto, shall be endorsed on each Security authenticated and delivered by the Trustee after such Subsidiary Guarantee is executed and executed by either manual or facsimile signature of an Officer of each Subsidiary Guarantor. The validity and enforceability of any Subsidiary Guarantee shall not be affected by the fact that it is not affixed to any particular Security. Each of the Subsidiary Guarantors hereby agrees that its Subsidiary Guarantee set forth in Section 11.1 shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation of such Subsidiary Guarantee. If an Officer of a Subsidiary Guarantor whose signature is on this Indenture or a Security no longer holds that office at the time the Trustee authenticates such Security or at any time thereafter, such Subsidiary Guarantor's Subsidiary Guarantee of such Security shall be valid nevertheless. The delivery of any Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of any Subsidiary Guarantee set forth in this Indenture on behalf of the Subsidiary Guarantor. SECTION 11.3 Additional Subsidiary Guarantors. Any person may become a Subsidiary Guarantor by executing and delivering to the Trustee (a) a supplemental indenture in form and substance satisfactory to the Trustee, which subjects such person to the provisions of this Indenture as a Subsidiary Guarantor, and (b) an Opinion of Counsel to the effect that such supplemental indenture has been duly authorized and executed by such person and constitutes the legal, valid, binding and enforceable obligation of such person (subject to such customary exceptions concerning fraudulent conveyance laws, creditors' rights and equitable principles as may be acceptable to the Trustee in its discretion). B-3 SECTION 11.4 Release of a Subsidiary Guarantor. (a) In the event that each other holder of Indebtedness of the Company or of any of the Company's Subsidiaries of which a Subsidiary Guarantor has guaranteed the payment thereof unconditionally releases a Subsidiary Guarantor of all of its obligations under such guarantee pursuant to a written agreement in form and substance satisfactory to the Trustee (other than a release resulting from payment under such guarantee) such Subsidiary Guarantor shall be automatically and unconditionally released from all obligations under its Subsidiary Guarantee, provided that a release of a Subsidiary Guarantor may only be obtained under the circumstances described in this sentence if an Officers' Certificate to that effect has been delivered to the Trustee. (b) In addition, except in the case where the prohibition on transfer in Section 5.1 is applicable, upon the sale or disposition of all (but not less than all) of the Capital Stock of a Subsidiary Guarantor by the Company or a Subsidiary of the Company, or upon the consolidation or merger of a Subsidiary Guarantor with or into any Person (in each case, other than to the Company or an Affiliate of the Company), such Subsidiary Guarantor shall be deemed automatically and unconditionally released and discharged from all obligations under this Article XI without any further action required on the part of the Trustee or any Holder, provided that each such Subsidiary Guarantor is sold or disposed of in accordance with Article V. (c) The Trustee shall deliver an appropriate instrument evidencing the release of a Subsidiary Guarantor upon receipt of a request of the Company accompanied by an Officers' Certificate certifying as to the compliance with this Section 11.4. Any Subsidiary Guarantor not so released or the entity surviving such Subsidiary Guarantor, as applicable, will remain or be liable under its Subsidiary Guarantee as provided in this Article XI. The Trustee shall execute any documents reasonably requested by the Company or a Subsidiary Guarantor in order to evidence the release of such Subsidiary Guarantor from its obligations under its Subsidiary Guarantee endorsed on the Securities and under this Article XI. Except as set forth in Articles IV and V and this Section 11.4, nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of a Subsidiary Guarantor with or into the Company or another Subsidiary Guarantor or shall prevent any sale or conveyance of the property of a Subsidiary Guarantor as an entirety or substantially as an entirety to the Company or another Subsidiary Guarantor. SECTION 11.5 Waiver of Subrogation. Each Guarantor hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Company or any of its Subsidiaries that arise from B-4 the existence, payment, performance or enforcement of such Subsidiary Guarantor's obligations under this Subsidiary Guarantee and this Indenture, including, without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any Holder of Securities against the Company or any of its Subsidiaries, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company or any of its Subsidiaries, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Subsidiary Guarantor in violation of the preceding sentence and the Securities shall not have been paid in full, such amount shall have been deemed to have been paid to such Subsidiary Guarantor for the benefit of, and held in trust for the benefit of, the Holders of the Securities, and shall forthwith be paid to the Trustee for the benefit of such Holders to be credited and applied upon the Securities, whether matured or unmatured, in accordance with the terms of this Indenture. Each Subsidiary Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 11.5 is knowingly made in contemplation of such benefits. SECTION 11.6 Agreement to Subordinate. Each Subsidiary Guarantor covenants and agrees, and each Holder of Securities, by his acceptance thereof, likewise covenants and agrees, that the indebtedness represented by such Subsidiary Guarantor's Subsidiary Guarantee and the payment of the principal of and interest on each and all of the Securities pursuant to such Subsidiary Guarantor's Subsidiary Guarantee is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full of Guarantor Senior Indebtedness. Anything in the Subsidiary Guarantee, the Securities or in this Indenture to the contrary notwithstanding, the indebtedness evidenced by such Subsidiary Guarantor's Subsidiary Guarantee shall be subordinate and junior in right of payment, in all respects, to all Guarantor Senior Indebtedness of such Subsidiary Guarantor, whether outstanding at the Issue Date or incurred after the Issue Date. Without limiting the effect of the foregoing, "subordinate" and "junior" as used herein shall include within their meanings the following: (i) in the event of any insolvency or bankruptcy proceedings, and any receivership, liquidation, reorganization or other similar proceedings in connection therewith, relative to the Subsidiary Guarantor or its creditors or its property, and in the event of any proceedings for voluntary liquidation, dissolution or other winding up of the Subsidiary Guarantor, whether or not involving insolvency or bankruptcy proceedings, then (A) all Guarantor Senior Indebtedness of such Subsidiary Guarantor shall first be paid in full, or such payment be provided for, before any payment on account of principal or interest is made upon the Indebtedness evidenced by B-5 the Subsidiary Guarantee of such Subsidiary Guarantor, and (B) in any such proceedings any payment or distribution of any kind or character (including without limitation any distribution realized from or attributable to any security interest of the Holders of the Securities in property or assets of such Subsidiary Guarantor), whether in cash or property or securities which may be payable or deliverable in respect of the Subsidiary Guarantee of such Subsidiary Guarantor, shall be paid or delivered directly to the holders of such Guarantor Senior Indebtedness of such Subsidiary Guarantor (or the representative or representatives of such holders or the trustee or trustees under any indenture under which any instruments evidencing any of such Guarantor Senior Indebtedness of such Subsidiary Guarantor shall have been issued) for application in payment thereof, unless and until such Guarantor Senior Indebtedness of such Subsidiary Guarantor shall have been paid in full or such payment shall have been provided for; provided that (1) in the event that payment or delivery of such cash, property or securities to the Holders of the Securities is authorized by an order or decree giving effect, and stating in such order or decree that effect is given, to the subordination of the Subsidiary Guarantee of such Subsidiary Guarantor to Guarantor Senior Indebtedness of such Subsidiary Guarantor, and made by a court of competent jurisdiction in a reorganization proceeding under any applicable law, no payment or delivery of such cash, property or securities payable or deliverable with respect to the Securities need be made to the holders of Guarantor Senior Indebtedness of such Subsidiary Guarantor, (2) no such delivery need be made of securities which are issued pursuant to voluntary reorganization, dissolution, or liquidation proceedings by such Subsidiary Guarantor or by such Subsidiary Guarantor as reorganized, if such securities are subordinate and junior to the payment of all Guarantor Senior Indebtedness of such Subsidiary Guarantor then outstanding to the same extent as the Subsidiary Guarantee of such Subsidiary Guarantor and (3) if, pursuant to the foregoing, a payment or delivery of cash, property or securities is to be made to the holders of Guarantor Senior Indebtedness of such Subsidiary Guarantor (or their representative or representatives or the trustee or trustees under any indenture under which any instruments evidencing any such Guarantor Senior Indebtedness of such Subsidiary Guarantor shall have been issued) from a distribution realized from or attributable to any security interest of the Holders of the Securities in property or assets of such Subsidiary Guarantor, such payment or delivery shall be made (x) first, to the holders of any Guarantor Senior Indebtedness of such Subsidiary Guarantor (or their representative or representatives) secured equally and ratably with the Holders of the Securities with respect to such property or assets or to the trustee or trustees under any indenture under which any instruments evidencing any of such Guarantor Senior Indebtedness of such Subsidiary Guarantor shall have been issued, ratably according to the aggregate amounts remaining unpaid on account of such Guarantor Senior Indebtedness of such Subsidiary Guarantor held or represented by each, until such Guarantor Senior Indebtedness of such Subsidiary Guarantor shall have been paid in full or such payment B-6 shall have been provided for and (y) then, to the extent such payment or delivery shall not be required to pay the Guarantor Senior Indebtedness of such Subsidiary Guarantor referred to in the foregoing clause (x), to the other holders of Guarantor Senior Indebtedness of such Subsidiary Guarantor (or their representative or representatives or the trustee or trustees under any indenture under which any instruments evidencing any of such Guarantor Senior Indebtedness of such Subsidiary Guarantor shall have been issued), ratably according to the aggregate amounts remaining unpaid on account of such Guarantor Senior Indebtedness of such Subsidiary Guarantor held or represented by each, until such Guarantor Senior Indebtedness of such Subsidiary Guarantor shall have been paid in full or such payment shall have been provided for; (ii) no payment or prepayment of any principal, premium (if any) or interest on account of and no repurchase, redemption or other retirement (whether at the option of the Holder or otherwise) of the Securities shall be made, if at the time of such payment, prepayment, repurchase, redemption or retirement, or immediately after giving effect thereto, there shall exist a default in the payment or prepayment of any Guarantor Senior Indebtedness of such Subsidiary Guarantor; (iii) in the event that any Security is declared due and payable because of the occurrence of an Event of Default (under circumstances when the provisions of the foregoing clause (i) shall not be applicable), the Holders of the Securities shall be entitled to payment only after there shall first have been paid in full the Guarantor Senior Indebtedness of such Subsidiary Guarantor outstanding at the time such Security so becomes due and payable because of such Event of Default, or provision for such payment shall have been made; and (iv) in the event that (A) any of the events described in clauses (i), (ii) and (iii) occurs and (B) notwithstanding the provisions therein, any payment or distribution of assets of such Subsidiary Guarantor of any kind or character (including any distribution realized from or attributable to any security interest of the Holders of the Securities in property or assets of such Subsidiary Guarantor), whether in cash, property or securities, shall be received by the Holders of the Securities (or their representative or representatives or the Trustee under this Indenture) before all Guarantor Senior Indebtedness of such Subsidiary Guarantor shall have been paid in full, or provision made for such payment in accordance with the terms of the Guarantor Senior Indebtedness of such Subsidiary Guarantor, except as provided in subclauses (1) and (2) of the proviso to clause (i) above, such payment or distribution shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of such Guarantor Senior Indebtedness of such Subsidiary Guarantor (or their representative or representatives or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any of such Guarantor Senior Indebtedness of such Subsidiary Guarantor shall have been issued), as their respective B-7 interests may appear under said clauses (i), (ii) and (iii), for application to the payment of all such Guarantor Senior Indebtedness of such Subsidiary Guarantor remaining unpaid to the extent necessary to pay such Guarantor Senior Indebtedness of such Subsidiary Guarantor in full in accordance with its terms, after giving effect to any concurrent payment or distribution to the holders of such Guarantor Senior Indebtedness of such Subsidiary Guarantor. SECTION 11.7 Subrogation. Subject to the payment in full of all Guarantor Senior Indebtedness, holders of a Subsidiary Guarantee shall be subrogated to the rights of the holders of Guarantor Senior Indebtedness of such Subsidiary Guarantor to receive payments or distributions of cash, property or securities of such Subsidiary Guarantor applicable to Guarantor Senior Indebtedness of such Subsidiary Guarantor until all amounts owing on the Securities pursuant to such Subsidiary Guarantor's Subsidiary Guarantee shall be paid in full, and as between such Subsidiary Guarantor, its creditors other than holders of such Guarantor Senior Indebtedness, and holders of such Subsidiary Guarantee, no such payment or distribution made to the holders of such Guarantor Senior Indebtedness by virtue of this Article XI which otherwise would have been made to such holders shall be deemed to be a payment by such Subsidiary Guarantor on account of such Guarantor Senior Indebtedness, it being understood that the provisions of this Article XI are and are intended solely for the purpose of defining the relative rights of the holders of such Subsidiary Guarantee, on the one hand, and the holders of Guarantor Senior Indebtedness, on the other hand. SECTION 11.8 Relative Rights. Nothing contained in this Article XI or elsewhere in this Indenture or in the Securities or this Subsidiary Guarantee is intended to or shall impair, as between the Subsidiary Guarantor, its creditors other than the holders of its Guarantor Senior Indebtedness, and the holders of its Subsidiary Guarantee, the obligation of such Subsidiary Guarantor, which is absolute and unconditional, to pay to the holders of the Securities pursuant to its Subsidiary Guarantee the principal of and interest on the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of its Subsidiary Guarantee and creditors of such Subsidiary Guarantor other than the holders of its Guarantor Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any holder of its Subsidiary Guarantee from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article XI of the holders of Guarantor Senior Indebtedness to receive cash, property or securities otherwise payable or deliverable to the Securityholders. Upon payment or distribution of assets of such Subsidiary Guarantor referred to in this Article XI, the Trustee and the holders of the Securities shall be entitled to rely B-8 upon any order or decree made by any court of competent jurisdiction in which any such dissolution, winding up, liquidation or reorganization proceeding affecting the affairs of such Subsidiary Guarantor is pending or upon a certificate of the trustee in bankruptcy, receiver, assignee for the benefit of creditors, liquidating trustee, or agent or other person making any payment or distribution, to the Trustee or to the holders of its Subsidiary Guarantee for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of its Guarantor Senior Indebtedness and other indebtedness of such Subsidiary Guarantor, the amount thereof or payable thereon, the amount paid or distributed thereon and all other facts pertinent thereto or to this Article XI. Nothing contained in this Article or elsewhere in this Indenture, or in any of the Securities or this Subsidiary Guarantee, shall affect the obligations of such Subsidiary Guarantor to make, or prevent such Subsidiary Guarantor from making, payment of the principal of or interest on the Securities pursuant to its Subsidiary Guarantee in accordance with the provisions hereof and thereof, except as otherwise provided in this Article XI. SECTION 11.9 Trustee to Effectuate Subordination. Each holder of a Subsidiary Guarantee, by his acceptance thereof, authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article XI and appoints the Trustee his attorney-in-fact for any and all such purposes. SECTION 11.10 Trustee Not Fiduciary for Holders of Guarantor Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior Indebtedness and shall not be liable to any such holders if it shall mistakenly pay over or distribute to holders of a Subsidiary Guarantee or any Subsidiary Guarantor or any other person moneys or assets to which any holders of Guarantor Senior Indebtedness shall be entitled by virtue of this Article XI or otherwise. SECTION 11.11 Notice By Subsidiary Guarantor. The Subsidiary Guarantor shall give prompt written notice to the Trustee of any fact known to such Subsidiary Guarantor that would prohibit the making of any payment of moneys to or by the Trustee pursuant to this Article. Subject to the provisions of Sections 7.1 and 7.5 but notwithstanding any other provisions of this Indenture, the Trustee and any Paying Agent shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of moneys to or by the Trustee or such Paying Agent, or the taking of any other action by the Trustee or such Paying Agent, unless and until the Trustee or such Paying Agent shall have received written notice thereof from such Subsidiary Guarantor at least three Business Days prior to the making of any such payment, B-9 the Securityholders, the holders of any Guarantor Senior Indebtedness or the representative of any such holders. SECTION 11.12 Rights of Trustee. The Trustee shall be entitled to all the rights set forth in this Article XI with respect to any Guarantor Senior Indebtedness of such Subsidiary Guarantor by the time held by the Trustee, to the same extent as any other holder of Guarantor Senior Indebtedness. SECTION 11.13 Subsidiary Guarantor May Not Impair Subordination. No right of any present or future holder of any Guarantor Senior Indebtedness of such Subsidiary Guarantor to enforce the subordination herein shall at any time or in any way be prejudiced or impaired by any act or failure to act on the part of such Subsidiary Guarantor or by any noncompliance by such Subsidiary Guarantor with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. SECTION 11.14 Rights of Paying Agent. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context shall require otherwise) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article XI in addition to or in place of the Trustee, provided that Sections 11.11 and 11.12 shall not apply to such Subsidiary Guarantor if it acts as Paying Agent. B-10 EXHIBIT C GUARANTEE --------- For value received, the undersigned hereby unconditionally guarantees to the Holder of this Security the payments of principal of, premium, if any, and interest on this Security in the amounts and at the time when due and interest on the overdue principal, premium, if any, and interest, if any, of this Security, if lawful, and the payment or performance of all other obligations of the Company under the Indenture or the Securities, to the Holder of this Security and the Trustee, all in accordance with and subject to the terms and limitations of this Security, Article XI of the Indenture and this Subsidiary Guarantee. This Subsidiary Guarantee will become effective in accordance with Article XI of the Indenture and its terms shall be evidenced therein. The validity and enforceability of any Subsidiary Guarantee shall not be affected by the fact that it is not affixed to any particular Security. The obligations of the undersigned to the Holders of Securities and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly set forth in Article XI of the Indenture and reference is hereby made to the Indenture for the precise terms of the Subsidiary Guarantee and all of the other provisions of the Indenture to which this Subsidiary Guarantee relates. The Indebtedness evidenced by this Subsidiary Guarantee is, to the extent and in the manner provided in the Indenture, subordinate and subject in right of payment to the prior payment in full in cash or cash equivalents of all Guarantor Senior Indebtedness as defined in the Indenture, and this Subsidiary Guarantee is issued subject to such provisions. Each Holder of a Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee, on behalf of such Holder, to take such action as may be necessary to appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose, provided that such subordination provisions shall cease to affect amounts deposited in accordance with the defeasance provisions of the Indenture upon the terms and conditions set forth therein. This Subsidiary Guarantee is subject to release upon the terms set forth in the Indenture. [NAME OF GUARANTOR] By:______________________ Name: Title: EXHIBIT D FORM OF CERTIFICATE OF TRANSFER Navistar International Corporation 455 North Cityfront Plaza Drive Chicago, Illinois 60611 Attention: [Name and Address of Registrar] Re: 7% Senior Notes due 2003 Reference is hereby made to the Indenture, dated as of February 4, 1998 (the "Indenture"), between Navistar International Corporation (the "Issuer") and Harris Trust and Savings Bank, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ________________, (the "Transferor") owns and proposes to transfer the Security[s] specified in Annex A hereto in the principal amount of $___ in such Security[s] (the "Transfer"), to ________ (the "Transferee"), as further specified in Annex A hereto. In the event that Transferor holds Physical Securities, this Certificate is accompanied by one or more certificates aggregating at least the principal amount of Securities proposed to be Transferred. In connection with the Transfer, the Transferor hereby certifies that: 1. [ ] CHECK IF TRANSFEREE WILL TAKE AN INTEREST IN THE 144A GLOBAL ------------------------------------------------------------ SECURITY. The Transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the Securities are being transferred to a Person that the Transferor reasonably believes is purchasing the Securities for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred Security will be subject to the restrictions on transfer enumerated in the Securities Act Legend and in the Indenture and the Securities Act. 2. [ ] CHECK IF TRANSFEREE WILL TAKE AN INTEREST IN THE REGULATION S GLOBAL -------------------------------------------------------------------- SECURITY PURSUANT TO REGULATION S. The Transfer is being effected pursuant to - --------------------------------- and in accordance with Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a person in the United States and D-1 (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 904(b) of Regulation S under the Securities Act and (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the Security will be subject to the restrictions on Transfer enumerated in the Securities Act Legend printed on the Regulation S Global Security and in the Indenture and the Securities Act. 3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A RESTRICTED ------------------------------------------------------------------- PHYSICAL SECURITY PURSUANT TO RULE 144A OR REGULATION S. One or more of the - ------------------------------------------------------- events specified in Section 2.6(a) of the Indenture have occurred and the Transfer is being effected in compliance with the transfer restrictions applicable to Securities bearing the Securities Act Legend and pursuant to and in accordance with the Securities Act, and accordingly the Transferor hereby further certifies that (check one): (a) [ ] such Transfer is being effected pursuant to and in accordance with Rule 144A under the Securities Act and the Transferor certifies to the effect set forth in paragraph 1 above; or (b) [ ] such Transfer is being effected pursuant to and in accordance with Rule 904 under the Securities Act and the Transferor certifies to the effect set forth in paragraph 2 above. 4. [ ] CHECK IF TRANSFEREE WILL TAKE AN INTEREST IN THE UNRESTRICTED GLOBAL -------------------------------------------------------------------- SECURITY. The Transfer is being effected pursuant to and in accordance with - -------- Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture, and the restrictions on transfer contained in the Indenture and the Securities Act Legend are not D-2 required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transfer Securities will no longer be subject to the restrictions on transfer enumerated in the Securities Act Legend and in the Indenture and the Securities Act. 5. [ ] CHECK IF TRANSFEREE WILL TAKE AN INTEREST IN THE PHYSICAL SECURITY ------------------------------------------------------------------ THAT DOES NOT BEAR THE SECURITIES ACT LEGEND. One or more of the events - -------------------------------------------- specified in Section 2.6(a) of the Indenture have occurred and the Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture, and the restrictions on transfer contained in the Indenture and the Securities Act Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred Securities will no longer be subject to the restrictions on transfer enumerated in the Securities Act Legend and in the Indenture and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Guarantors. __________________________________________________ [Insert Name of Transferor] By:_______________________________________________ Name: Title: Dated: _________________ D-3 FORM OF ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) [ ] Interests in the (i) [ ] 144A Global Security (CUSIP _____), or (ii) [ ] Regulation S Global Security (CINS _____). (b) [ ] Physical Security. 2. That the Transferee will hold: [CHECK ONE] (a) [ ] Interests in the: (i) [ ] 144A Global Security (CUSIP _____), or (ii) [ ] Regulation S Global Security (CINS _____), or (iii) [ ] Unrestricted Global Security (CUSIP _____); or (b) [ ] Physical Securities that bear the Securities Act Legend; (c) [ ] Physical Securities that do not bear the Securities Act Legend; in accordance with the terms of the Indenture. D-4 EXHIBIT E FORM OF CERTIFICATE OF EXCHANGE Navistar International Corporation 455 North Cityfront Plaza Drive Chicago, Illinois 60611 Attention: [Name and Address of Registrar] Re: 7% Senior Notes due 2003 (CUSIP _______________) Reference is hereby made to the Indenture, dated as of February 4, 1998 (the "Indenture"), between Navistar International Corporation (the "Issuer") and Harris Trust and Savings Bank, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. __________, (the "Holder") owns and proposes to exchange the Security[s] specified herein, in the principal amount of $___ in such Security[s] (the "Exchange"). In the event Holder holds Physical Securities, this Certificate is accompanied by one or more certificates aggregating at least the principal amount of Securities proposed to be Exchanged. In connection with the Exchange, the Holder hereby certifies that: 1. EXCHANGE OF RESTRICTED PHYSICAL SECURITIES OR INTERESTS IN THE INITIAL GLOBAL SECURITY FOR PHYSICAL SECURITIES THAT DO NOT BEAR THE SECURITIES ACT LEGEND OR UNRESTRICTED GLOBAL SECURITIES. (a) [ ] CHECK IF EXCHANGE IS FROM INITIAL GLOBAL SECURITIES TO THE ---------------------------------------------------------- UNRESTRICTED GLOBAL SECURITY. In connection with the Exchange of the Holder's - ---------------------------- Initial Global Security to the Unrestricted Global Security in an equal principal amount, the Holder hereby certifies (i) the Unrestricted Global Securities are being acquired for the Holder's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Initial Global Securities and pursuant to and in accordance with the Securities Act of 1933, as amended (the "Securities Act") and (iii) the restrictions on transfer contained in the Indenture and the Securities Act Legend are not required in order to maintain compliance with the Securities Act. E-1 (B) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED PHYSICAL SECURITIES TO AN -------------------------------------------------------------- INTEREST IN THE UNRESTRICTED GLOBAL SECURITY. In connection with the Holder's - -------------------------------------------- Exchange of Restricted Physical Securities for Interest in the Unrestricted Global Security, (i) the Interest in the Unrestricted Global Security are being acquired for the Holder's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Physical Securities and pursuant to and in accordance with the Securities Act and (iii) the restrictions on transfer contained in the Indenture and the Securities Act Legend are not required in order to maintain compliance with the Securities Act. (C) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED PHYSICAL SECURITIES TO ----------------------------------------------------------- PHYSICAL SECURITIES THAT DO NOT BEAR THE SECURITIES ACT LEGEND. In connection - -------------------------------------------------------------- with the Holder's Exchange of a Restricted Physical Security for Physical Securities that do not bear the Securities Act Legend, the Holder hereby certifies (i) the Physical Securities that do not bear the Securities Act Legend are being acquired for the Holder's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Physical Securities and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Securities Act Legend are not required in order to maintain compliance with the Securities Act and (iv) one or more of the events specified in Section 2.6(a) of the Indenture have occurred. 2. [ ] CHECK IF EXCHANGE IS FROM RESTRICTED PHYSICAL SECURITIES TO INTERESTS --------------------------------------------------------------------- IN AN INITIAL GLOBAL SECURITY . In connection with the Exchange of the Holder's - ----------------------------- Restricted Physical Security for interests in the Initial Global Security in the [CHECK ONE] o 144A Global Security, o Regulation S Global Security, with an equal principal amount, (i) the interests in the Initial Global Security are being acquired for the Holder's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Physical Security and pursuant to and in accordance with the Securities Act. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Initial Global Security issued will be subject to the restrictions on transfer enumerated in the Securities Act Legend printed on the Initial Global Securities and in the Indenture and the Securities Act. E-2 This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Guarantors. _________________________________________ [Insert Name of Holder] By:______________________________________ Name: Title: Dated: _________________ E-3 EX-4.3 3 INDENTURE DATED 2/4/1998 EXHIBIT 4.3 ================================================================================ NAVISTAR INTERNATIONAL CORPORATION, as Issuer and HARRIS TRUST AND SAVINGS BANK, as Trustee _____________________ INDENTURE Dated as of February 4, 1998 ____________________ $250,000,000 8% Senior Subordinated Notes due 2008 ================================================================================ CROSS-REFERENCE TABLE ---------------------
TIA Indenture Section Section - ------- --------- (S)310(a)(1).......................................... 7.10 (a)(2)............................................. 7.10 (a)(3)............................................. N.A. (a)(4)............................................. N.A. (a)(5)............................................. N.A. (b)................................................ 7.8; 7.10; 10.2 (c)................................................ N.A. (S)311(a)............................................. 7.11 (b)................................................ 7.11 (c)................................................ N.A. (S)312(a)............................................. 2.5 (b)................................................ 10.3 (c)................................................ 10.3 (S)313(a)............................................. 7.6 (b)(1)............................................. 7.6 (b)(2)............................................. 7.6 (c)................................................ 7.6; 10.2 (d)................................................ 7.6 (S)314(a)............................................. 4.6; 4.7; 10.2 (b)................................................ N.A. (c)................................................ 10.4 (d)................................................ N.A. (e)................................................ 10.5 (f)................................................ N.A. (S)315(a)............................................. 7.1(b) (b)................................................ 7.5; 10.2 (c)................................................ 7.1(a) (d)................................................ 7.1(c) (e)................................................ 6.11 (S)316(a)............................................. 9.3 (a)(1)(A).......................................... 6.5 (a)(1)(B).......................................... 6.4 (a)(2)............................................. N.A. (b)................................................ 6.6, 6.7, 9.4 (c)................................................ 9.4 (S)317(a)(1).......................................... 6.8 (a)(2)............................................. 6.9 (b)................................................ 2.4 (S)318(a)............................................. 10.1 (c)................................................ 10.1
_______________ N.A. means Not Applicable. NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of this Indenture. TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1 Definitions.................................................. 1 SECTION 1.2 Incorporation by Reference of Trust Indenture Act............ 27 SECTION 1.3 Rules of Construction........................................ 27 ARTICLE II THE SECURITIES SECTION 2.1 Form and Dating.............................................. 28 SECTION 2.2 Execution and Authentication................................. 30 SECTION 2.3 Registrar and Paying Agent................................... 30 SECTION 2.4 Paying Agent To Hold Money in Trust.......................... 31 SECTION 2.5 Securityholder Lists......................................... 31 SECTION 2.6 Transfer and Exchange........................................ 32 SECTION 2.7 Replacement Securities....................................... 42 SECTION 2.8 Temporary Securities......................................... 42 SECTION 2.9 Cancellation................................................. 43 SECTION 2.10 Defaulted Interest........................................... 43 SECTION 2.11 CUSIP or CINS Number......................................... 44 SECTION 2.12 Payments of Interest......................................... 44 ARTICLE III REDEMPTION SECTION 3.1 Notices to Trustee........................................... 45 SECTION 3.2 Selection of Securities To Be Redeemed....................... 46 SECTION 3.3 Notice of Redemption......................................... 46 SECTION 3.4 Effect of Notice of Redemption............................... 47 SECTION 3.5 Deposit of Redemption Price.................................. 47 SECTION 3.6 Securities Redeemed In Part.................................. 47
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Page ---- ARTICLE IV COVENANTS SECTION 4.1 Payment of Securities........................................ 48 SECTION 4.2 Maintenance of Office or Agency.............................. 48 SECTION 4.3 Corporate Existence.......................................... 49 SECTION 4.4 Payment of Taxes and Other Claims............................ 49 SECTION 4.5 Maintenance of Properties; Insurance; Books and Records; Compliance with Law........................................ 49 SECTION 4.6 Compliance Certificates...................................... 50 SECTION 4.7 Reports...................................................... 51 SECTION 4.8 [Reserved]................................................... 51 SECTION 4.9 Limitation on Incurrence of Indebtedness..................... 51 SECTION 4.10 Waiver of Stay, Extension or Usury Laws...................... 54 SECTION 4.11 Change of Control............................................ 55 SECTION 4.12 Limitation on Transactions with Affiliates................... 56 SECTION 4.13 Limitation on Liens.......................................... 58 SECTION 4.14 Limitation on Payment Restrictions Affecting Restricted Subsidiaries............................................... 58 SECTION 4.15 Limitation on Guarantees by Restricted Subsidiaries.......... 59 SECTION 4.16 Limitation on Senior Subordinated Indebtedness............... 60 SECTION 4.17 Limitation on Preferred Stock of Restricted Subsidiaries..... 61 SECTION 4.18 Limitation on Restricted Payments............................ 61 SECTION 4.19 Limitation on Certain Asset Dispositions..................... 64 SECTION 4.20 Limitation on Sale/Leaseback Transactions.................... 65 ARTICLE V SUCCESSOR CORPORATION SECTION 5.1 Merger, Consolidation, Etc................................... 66 SECTION 5.2 Successor Entity Substituted................................. 68 ARTICLE VI DEFAULT AND REMEDIES SECTION 6.1 Events of Default............................................ 68 SECTION 6.2 Acceleration................................................. 70 SECTION 6.3 Other Remedies............................................... 70
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Page ---- SECTION 6.4 Waiver of Past Default....................................... 71 SECTION 6.5 Control by Majority.......................................... 71 SECTION 6.6 Limitation on Suits.......................................... 71 SECTION 6.7 Rights of Holders To Receive Payment......................... 72 SECTION 6.8 Collection Suit by Trustee................................... 72 SECTION 6.9 Trustee May File Proofs of Claim............................. 72 SECTION 6.10 Priorities................................................... 73 SECTION 6.11 Undertaking for Costs........................................ 73 SECTION 6.12 Rights and Remedies Cumulative............................... 74 SECTION 6.13 Delay or Omission Not Waiver................................. 74 SECTION 6.14 Restoration of Rights and Remedies........................... 74 ARTICLE VII TRUSTEE SECTION 7.1 Duties of Trustee............................................ 74 SECTION 7.2 Rights of Trustee............................................ 76 SECTION 7.3 Individual Rights of Trustee................................. 77 SECTION 7.4 Trustee's Disclaimer......................................... 77 SECTION 7.5 Notice of Defaults........................................... 77 SECTION 7.6 Reports by Trustee to Holders................................ 78 SECTION 7.7 Compensation and Indemnity................................... 78 SECTION 7.8 Replacement of Trustee....................................... 79 SECTION 7.9 Successor Trustee by Merger, Etc............................. 80 SECTION 7.10 Eligibility; Disqualification................................ 80 SECTION 7.11 Preferential Collection of Claims Against Company............ 81 ARTICLE VIII SATISFACTION AND DISCHARGE OF INDENTURE SECTION 8.1 Termination of the Company's Obligations..................... 81 SECTION 8.2 Legal Defeasance and Covenant Defeasance..................... 82 SECTION 8.3 Application of Trust Money................................... 86 SECTION 8.4 Repayment to Company or Subsidiary Guarantors................ 87 SECTION 8.5 Reinstatement................................................ 87 ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.1 Without Consent of Holders................................... 88
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Page ---- SECTION 9.2 With Consent of Holders...................................... 88 SECTION 9.3 Compliance with Trust Indenture Act.......................... 90 SECTION 9.4 Revocation and Effect of Consents............................ 90 SECTION 9.5 Notation on or Exchange of Securities........................ 91 SECTION 9.6 Trustee To Sign Amendments, Etc.............................. 91 ARTICLE X MISCELLANEOUS SECTION 10.1 Trust Indenture Act Controls................................. 91 SECTION 10.2 Notices...................................................... 92 SECTION 10.3 Communications by Holders with Other Holders................. 93 SECTION 10.4 Certificate and Opinion of Counsel as to Conditions Precedent. 93 SECTION 10.5 Statements Required in Certificate and Opinion of Counsel.... 93 SECTION 10.6 Rules by Trustee, Paying Agent, Registrar.................... 94 SECTION 10.7 Legal Holidays............................................... 94 SECTION 10.8 GOVERNING LAW................................................ 94 SECTION 10.9 No Recourse Against Others................................... 94 SECTION 10.10 Successors................................................... 95 SECTION 10.11 Counterparts................................................. 95 SECTION 10.12 Severability................................................. 95 SECTION 10.13 Table of Contents, Headings, Etc............................. 95 SECTION 10.14 No Adverse Interpretation of Other Agreements................ 95 SECTION 10.15 Benefits of Indenture........................................ 95 SECTION 10.16 Independence of Covenants.................................... 96 ARTICLE XI SUBORDINATION OF SECURITIES SECTION 11.1 Agreement to Subordinate..................................... 96 SECTION 11.2 Subrogation.................................................. 99 SECTION 11.3 Relative Rights.............................................. 100 SECTION 11.4 Trustee To Effectuate Subordination.......................... 100 SECTION 11.5 Trustee Not Fiduciary for Holders of Senior Indebtedness of the Company................................................ 101 SECTION 11.6 Notice by Company............................................ 101 SECTION 11.7 Rights of Trustee............................................ 101 SECTION 11.8 Company May Not Impair Subordination......................... 101
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Page ---- SECTION 11.9 Rights of Paying Agent....................................... 101 SIGNATURES................................................................. S-1 EXHIBIT A - Form of Security EXHIBIT B - Terms of Subsidiary Guarantee EXHIBIT C - Form of Subsidiary Guarantee EXHIBIT D - Form of Certificate of Transfer EXHIBIT E - Form of Certificate of Exchange
-v- INDENTURE dated as of February 4, 1998, between NAVISTAR INTERNATIONAL CORPORATION, a Delaware corporation, as Issuer (the "Company"), and HARRIS TRUST AND SAVINGS BANK, an Illinois banking corporation, as Trustee (the "Trustee"). The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of the 8% Senior Subordinated Notes due February 1, 2008 of the Company (the "Securities") to be issued as provided for in this Indenture. All things necessary to make the Securities, when duly issued and executed by the Company and authenticated and delivered hereunder, the valid obligations of the Company, and to make this Indenture a valid, binding agreement of the Company, in accordance with their respective terms, have been done. The parties hereto agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders: ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1 Definitions. "Acquired Indebtedness" of any specified Person means Indebtedness of any other Person and its Restricted Subsidiaries existing at the time such other Person merged with or into or became a Restricted Subsidiary of such specified Person or assumed by the specified Person in connection with the acquisition of assets from such other Person and not incurred by the specified Person in connection with or in anticipation of (a) such other Person and its Restricted Subsidiaries being merged with or into or becoming a Restricted Subsidiary of such specified Person or (b) such acquisition by the specified Person. "Additional Interest" shall have the meaning set forth in the Registration Rights Agreement. "Affiliate" means, when used with reference to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the referent Person, as the case may be. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct or cause the direction of management or policies of the referent Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. -2- "Agent" means any Registrar, Paying Agent or co-registrar. See Section 2.3. "Applicable Procedures" means with respect to any transfer or exchange of interests in a Global Security, the rules and procedures of DTC, Euroclear or Cedel that apply to such transfer or exchange. "Asset Disposition" means any sale, transfer or other disposition (including, without limitation, by merger, consolidation or sale-and-leaseback transaction) of (i) shares of Capital Stock of a Restricted Subsidiary of the Company (other than directors' qualifying shares) or (ii) property or assets of the Company or any of its Restricted Subsidiaries; provided that an Asset Disposition shall not include (a) any sale, transfer or other disposition of shares of Capital Stock, property or assets by a Restricted Subsidiary of the Company to the Company or to any Restricted Subsidiary of the Company, (b) any sale, transfer or other disposition of defaulted receivables for collection or any sale, transfer or other disposition of property or assets in the ordinary course of business, (c) any isolated sale, transfer or other disposition that does not (together with all related sales, transfers or dispositions) involve aggregate consideration in excess of $5.0 million, (d) the grant in the ordinary course of business of any license of patents, trademarks, registrations therefor and other similar intellectual property, (e) the granting of any Lien (or foreclosure thereon) securing Indebtedness to the extent that such Lien is granted in compliance with Section 4.13, (f) any sale, transfer or other disposition constituting a Permitted Investment or Restricted Payment permitted by Section 4.18, (g) any disposition of assets or property in the ordinary course of business to the extent such property or assets are obsolete, worn-out or no longer useful in the Company's or any of its Subsidiaries' business, (h) the sale, lease, conveyance or disposition or other transfer of all or substantially all of the assets of the Company as permitted under Article V, (i) sales of accounts receivable, equipment and related assets (including contract rights) of the type specified in the definition of "Qualified Securitization Transaction" to a Securitization Subsidiary for the fair market value thereof, including cash in an amount at least equal to 90% of the fair market value thereof as determined in accordance with GAAP, and (j) transfers of accounts receivable, equipment and related assets (including contract rights) of the type specified in the definition of "Qualified Securitization Transaction" (or a fractional undivided interest therein) by a Securitization Subsidiary in a Qualified Securitization Transaction. "Asset Sale Offer Trigger Date" has the meaning set forth in Section 4.19. An "Associate" of, or a Person "associated" with, any Person means (i) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity and (ii) any relative or -3- spouse of such Person, or any relative of such spouse, who has the same home as such Person. "Attributable Indebtedness" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate borne by the Senior Notes with respect to the Senior Note Indenture and at the interest rate borne by the Senior Subordinated Notes with respect to the Senior Subordinated Note Indenture, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Indebtedness for borrowed money or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of the number of years from the date of determination to the dates of each successive scheduled principal or liquidation value payments of such Indebtedness or Preferred Stock, respectively, and the amount of such principal or liquidation value payments, by (ii) the sum of all such principal or liquidation value payments. "Bankruptcy Law" means Title 11 of the U.S. Code or any similar Federal or state law for the relief, reorganization, adjustment or recomposition of debtors. "Board of Directors" means with respect to any Person, the Board of Directors of such Person or any committee of such Board of Directors authorized to act for it hereunder. "Business Day" means any day except a Saturday, a Sunday or any day on which banking institutions in either New York City, New York or Chicago, Illinois are required or authorized by law or other governmental action to be closed. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations, rights in, or other equivalents (however designated and whether voting or non-voting) of, such Person's capital stock, including each class of Common or Preferred Stock of such Person, whether outstanding on the Issue Date or issued after the Issue Date, and any and all rights, warrants or options exchangeable for or convertible into such capital stock. "Capitalized Lease Obligation" means obligations under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this Indenture, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. The Stated Maturity of such obligation shall be the date of the last payment of rent or any other -4- amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without penalty. "Cedel" means Cedel Bank, societe anonyme. "Change of Control" means the occurrence of one or more of the following events: (i) any "person" or "group" (as such terms are used in Section 13(d) and 14(d) of the Exchange Act), other than employee or retiree benefit plans or trusts sponsored or established by the Company or Transportation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Company's then outstanding Voting Stock; (ii) the following individuals cease for any reason to constitute more than two-thirds of the number of directors then serving on the Board of Directors of the Company: individuals who, on the Issue Date, constitute the Board of Directors and any new director (other than a director whose initial assumption of the office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board of Directors or nomination for election by the Company's stockholders was approved (A) by the vote of at least a majority of the directors then still in office or whose appointment, election or nomination was previously so approved or recommended or (B) with respect to directors whose appointment of election to the Board of Directors was made by the holders of the Company's nonconvertible junior preference stock, series A and nonconvertible junior preference stock, series B, by the holders of such preference stock; (iii) the shareholders of the Company shall approve any Plan of Liquidation (whether or not otherwise in compliance with the provisions of this Indenture); or (iv) the Company consolidates with or merges with or into another Person, other than a merger or consolidation of the Company in which the holders of the Common Stock of the Company outstanding immediately prior to the consolidation or merger hold, directly or indirectly, at least a majority of the Common Stock of the surviving corporation immediately after such consolidation or merger; (v) the Company or any Restricted Subsidiary of the Company, directly or indirectly, sells, assigns, conveys, transfers, leases or otherwise disposes of, in one transaction or a series of related transactions, all or substantially all of the property or assets of the Company and the Restricted Subsidiaries of the Company (determined on a consolidated basis) to any Person (other than a Permitted Joint Venture in a transaction entered into in compliance with Section 4.18); provided that neither (x) the merger of a Restricted Subsidiary of the Company into the Company or into any Restricted Subsidiary of the Company nor (y) a series of transactions involving the sale of Receivables or interests therein in the ordinary course of business by a Securitization Subsidiary in connection with a Qualified Securitization Transaction, shall be deemed to be a Change of Control. -5- For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. "Change of Control Date" has the meaning provided in Section 4.11. "Change of Control Offer" has the meaning provided in Section 4.11. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Company" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and, thereafter, means the successor. "Consolidated Cash Flow Available For Fixed Charges" of any Person means for any period the Consolidated Net Income of such Person for such period increased (to the extent Consolidated Net Income for such period has been reduced thereby) by the sum of (without duplication) (i) Consolidated Interest Expense of such Person for such period, plus (ii) Consolidated Tax Expense of such Person for such period, plus (iii) the consolidated depreciation and amortization expense included in the income statement of such Person prepared in accordance with GAAP for such period, plus (iv) any other non-cash charges to the extent deducted from or reflected in Consolidated Net Income except for any non-cash charges that represent accruals of, or reserves for, cash disbursements to be made in any future accounting period, minus (1) any non-cash items increasing Consolidated Net Income for such period and (2) all cash payments during such period relating to non-cash charges that were added back in determining Consolidated Cash Flow Available For Fixed Charges in any prior period. -6- "Consolidated Cash Flow Ratio" of any Person means for any period the ratio of (i) Consolidated Cash Flow Available for Fixed Charges of such Person for such period to (ii) Consolidated Fixed Charges for such period; provided, however, that all incurrences and repayments of Indebtedness (including the incurrence giving rise to such calculation and any repayments in connection therewith) and all dispositions (including discontinued operations) or acquisition of assets (other than in the ordinary course of business) made during or after such period and on or prior to the date of determination shall be given pro forma effect as if they occurred on the first day of such four- quarter period. Calculations of pro forma amounts in accordance with this definition shall be done in accordance with Article 11 of Regulation S-X under the Securities Act or any successor provision. "Consolidated Fixed Charges" means, with respect to any Person for any period, the sum of, without duplication, the amounts for such period, taken as a single accounting period, of (i) Consolidated Interest Expense; and (ii) the product of (x) the amount of all dividend requirements (whether or not declared) on Preferred Stock of such Person, whether in cash or otherwise (except dividends payable in shares of Qualified Capital Stock) paid, accrued or scheduled to be paid or accrued during such period times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated Federal, state, local and foreign tax rate (expressed as a decimal number between 1 and 0) of such Person (as reflected in the audited consolidated financial statements of such Person for the most recently completed fiscal year). In calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on Indebtedness determined on a fluctuating basis as of the date of determination and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the date of determination; (2) if interest on any Indebtedness actually incurred on the date of determination may be optionally determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate or other rates, then the interest rate in effect on the date of determination will be deemed to have been in effect during the relevant four-quarter period reference; and (3) notwithstanding the foregoing, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to interest swap agreements, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Interest Expense" means, with respect to any Person for any period, the aggregate of the interest expense (without deduction of interest income) of such Person and its Consolidated Subsidiaries for such period, on a consolidated basis, as determined in accordance with GAAP, including (a) all amortization of original issue discount; (b) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled -7- to be paid or accrued by such Person during such period; (c) net cash costs under all Interest Rate Protection Agreements (including amortization of fees); (d) all capitalized interest; and (e) the interest portion of any deferred payment obligations for such period. "Consolidated Net Income" means, with respect to any Person for any period, the consolidated net income (or deficit) of such Person and its Consolidated Subsidiaries for such period, on a consolidated basis, as determined in accordance with GAAP; provided that the net income of any other Person (other than a Restricted Subsidiary) shall be included only to the extent of the amount that has been actually received by the referent Person or a Subsidiary of the referent Person in the form of cash dividends or other cash distributions (other than payments in respect of debt obligations); and provided, further, that there shall be excluded (i) the net income of any Person acquired in a "pooling of interests" transaction accrued prior to the date it became a Restricted Subsidiary of the referent Person or is merged into or consolidated with the referent Person or any Restricted Subsidiary of the referent Person; (ii) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of Consolidated Net Income accrued at any time following the Issue Date; (iii) any gain or loss, together with any related provisions for taxes, realized upon the sale or other disposition (including, without limitation, dispositions pursuant to sale-leaseback transactions) of any property or assets which are not sold or otherwise disposed of in the ordinary course of business (provided that sales of Receivables or interests therein pursuant to Qualified Securitization Transactions shall be deemed to be in the ordinary course of business) and upon the sale or other disposition of any Capital Stock of any Subsidiary of the referent Person; (iv) any extraordinary gain or extraordinary loss together with any related provision for taxes and any one time gains or losses (including, without limitation, those related to the adoption of new accounting standards) realized by the referent Person or any of its Restricted Subsidiaries during the period for which such determination is made; (v) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued); (vi) in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets; and (vii) the net income of any Restricted Subsidiary of such Person which is subject to restrictions which prevent or limit the payment of dividends or the making of distributions to such Person to the extent of such restrictions (regardless of any waiver thereof). "Consolidated Stockholders' Equity" as of any date means with respect to any Person the amount, determined in accordance with GAAP, by which the assets of such Person and of its Restricted Subsidiaries on a consolidated basis exceed the sum of (a) the total liabilities of such Person and of its Restricted Subsidiaries on a consolidated basis, plus (b) any redeemable Preferred Stock of such Person. -8- "Consolidated Subsidiary" of any Person means a Restricted Subsidiary which for financial reporting purposes is or, in accordance with GAAP, should be, accounted for by such Person as a consolidated Subsidiary. "Consolidated Tax Expense" means, with respect to any Person for any period, the aggregate of the U.S. Federal, state and local tax expense attributable to taxes based on income and foreign income tax expenses of such Person and its Consolidated Subsidiaries for such period (net of any income tax benefit) determined in accordance with GAAP other than taxes (either positive or negative) attributable to extraordinary or unusual gains or losses or taxes attributable to sales or dispositions of assets. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any of its Restricted Subsidiaries against fluctuations in currency values to or under which the Company or any of its Restricted Subsidiaries is a party or a beneficiary on the date of this Indenture or becomes a party or a beneficiary thereafter. "Custodian" has the meaning provided in Section 6.1(b). "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "Defaulted Interest" has the meaning specified in Section 2.10. "Designated Senior Indebtedness" means (i) so long as any Indebtedness under the Senior Notes is outstanding, the Senior Notes, (ii) so long as any Indebtedness under the Mexico Credit Agreement is outstanding, the guarantee of the Company under the Mexico Credit Agreement and (iii) so long as outstanding, any other Senior Indebtedness which has at the time of initial issuance an aggregate outstanding principal amount in excess of $25.0 million which has been so designated as Designated Senior Indebtedness by the Board of Directors of the Company at the time of initial issuance in a resolution delivered to the Trustee. "Disqualified Capital Stock" means any Capital Stock that, other than solely at the option of the issuer thereof, by its terms (or by the terms of any security into which it is convertible or exchangeable) is, or upon the happening of an event or the passage of time would be, required to be redeemed or repurchased, in whole or in part, prior to the first anniversary of the Maturity Date or has, or upon the happening of an event or the passage of time would have, a redemption or similar payment due on or prior to the first anniversary of the Maturity Date, or is convertible into or exchangeable for debt securities at the option of the holder thereof at any time prior to the first anniversary of the Maturity Date. -9- "DTC" means The Depository Trust Company or its successors. "Euroclear" means Morgan Guaranty Trust Company of New York (Brussels Office) as operator of the Euroclear system. "Event of Default" has the meaning provided in Section 6.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Registration Statement" shall have the meaning set forth in the Registration Rights Agreement. "Exchange Securities" has the meaning given such term in the Registration Rights Agreement. "Exchange Senior Notes" means the securities issuable by the Company in exchange for the Senior Notes pursuant to the Senior Notes Registration Rights Agreement. "Fiscal Quarter" means any quarter in any Fiscal Year, the duration of such quarter being defined in accordance with GAAP. "Fiscal Year" means a fiscal year of the Company and its Subsidiaries. On the date of this Indenture the fiscal year of the Company and its Subsidiaries ends October 31 of each year. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Issue Date. "Global Security" means the global security, without coupons, representing all or a portion of the Securities deposited with DTC substantially in the form of Exhibit A attached hereto. "guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keepwell, to purchase assets, goods, securities or serv- -10- ices, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term "guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "guarantee" used as a verb has a corresponding meaning. "Guarantor Senior Indebtedness" means any guarantee incurred by a Subsidiary Guarantor of Senior Indebtedness (including, without limitation, the Senior Notes) of the Company incurred in accordance with this Indenture, whether such Indebtedness is outstanding on the Issue Date or thereafter; provided that Guarantor Senior Indebtedness expressly shall not include: (i) any Indebtedness of such Subsidiary Guarantor whether outstanding on the Issue Date or thereafter incurred that is, pursuant to its terms or the terms of any agreement relating thereto, subordinated or junior to any other Indebtedness of such Subsidiary Guarantor, (ii) any Indebtedness of such Subsidiary Guarantor whether outstanding on the Issue Date or thereafter incurred that is, by its terms or the terms of any agreement relating thereto, pari passu with or subordinated or junior to such Subsidiary Guarantor's Subsidiary Guarantee; (iii) the Subsidiary Guarantee of such Subsidiary Guarantor; (iv) any Indebtedness or any other obligation of such Subsidiary Guarantor to any of such Subsidiary Guarantor's Subsidiaries or to any of such Subsidiary Guarantor's Affiliates, or to any joint venture in which such Subsidiary Guarantor has an interest; (v) to the extent such may be deemed Indebtedness of such Subsidiary Guarantor, any liability for Federal, state, local, foreign or other taxes owed or owing by such Subsidiary Guarantor or by any of its Restricted Subsidiaries (including pursuant to the Tax Allocation Agreement); (vi) to the extent such may be deemed Indebtedness of such Subsidiary Guarantor, obligations of such Subsidiary Guarantor incurred in connection with the purchase of goods, assets, materials or services in the ordinary course of business or representing amounts recorded as accounts payable, trade payables or other current liabilities of such Subsidiary Guarantor on the books of such Subsidiary Guarantor (other than the current portion of any long-term Indebtedness of such Subsidiary Guarantor that but for this clause (vi) would constitute Guarantor Senior Indebtedness of such Subsidiary Guarantor); (vii) to the extent such may be deemed Indebtedness of such Subsidiary Guarantor, any amount owed by such Subsidiary Guarantor to employees for services rendered to such Subsidiary Guarantor or to any of its Restricted Subsidiaries; and (viii) that portion of any Indebtedness which at the time of incurrence was incurred in violation of this Indenture. "Holder" or "Securityholder" means the Person in whose name a Security is registered on the Registrar's books. "incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, guarantee -11- or otherwise become liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Person (and "incurrence," "incurred," "incurrable" and "incurring" shall have meanings correlative to the foregoing); provided that the accrual of interest (whether such interest is payable in cash or in kind) and the accretion of original issue discount shall not be deemed an incurrence of Indebtedness; provided, further, that (A) any Indebtedness or Capital Stock of a Person existing at the time such Person becomes (after the Issue Date) a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) of the Company shall be deemed to be incurred or issued, as the case may be, by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary of the Company and (B) any amendment, modification or waiver of any document pursuant to which Indebtedness was previously incurred shall not be deemed to be an incurrence of Indebtedness unless and then only to the extent such amendment, modification or waiver increases the principal or premium thereof or interest rate thereon (including by way of original issue discount). "Indebtedness" means, with respect to any Person, at any date, any of the following, without duplication, (i) any liability, contingent or otherwise, of such Person (A) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (B) evidenced by a note, bond, debenture or similar instrument or letters of credit (including a purchase money obligation) or (C) for the payment of money relating to a Capitalized Lease Obligation or other obligation (whether issued or assumed) relating to the deferred purchase price of property, but excluding trade accounts payable of such Person arising in the ordinary course of business; (ii) all conditional sale obligations and all obligations under any title retention agreement (even if the rights and remedies of the seller under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable of such Person arising in the ordinary course of business; (iii) all obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction entered into in the ordinary course of business; (iv) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien (other than in connection with property subject to a Qualified Securitization Transaction) on any asset or property (including, without limitation, leasehold interests and any other tangible or intangible property) of such Person, whether or not such Indebtedness is assumed by such Person or is not otherwise such Person's legal liability; provided that if the obligations so secured have not been assumed by such Person or are otherwise not such Person's legal liability, the amount of such Indebtedness for the purposes of this definition shall be limited to the lesser of the amount of such Indebtedness secured by such Lien or the fair market value of the assets or property securing such Lien; (v) all Indebtedness of others (including all dividends of other Persons the payment of which is) guaranteed, di- -12- rectly or indirectly, by such Person or that is otherwise its legal liability or which such Person has agreed to purchase or repurchase or in respect of which such Person has agreed continently to supply or advance funds; (vi) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends if any; (vii) all obligations under Currency Agreements and Interest Rate Protection Agreements and (viii) all Attributable Indebtedness in respect of Sale/Leaseback Transactions entered into by such person. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value shall be determined reasonably and in good faith by the Board of Directors of the issuer of such Disqualified Capital Stock. The amount of Indebtedness of any Person at any date shall be the outstanding balance without duplication at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date, provided that the amount outstanding at any time of any Indebtedness issued with original issue discount is the full amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in accordance with GAAP. "Indenture" means this Indenture as amended or supplemented from time to time pursuant to the terms hereof. "Initial Global Securities" means the Regulation S Global Security and the 144A Global Security, each of which contains a Securities Act Legend. "Initial Notes" means the Securities containing a Securities Act Legend. "interest," when used with respect to any Security, means the amount of all interest accruing on such Security, including all interest accruing subsequent to the occurrence of any events specified in Sections 6.1(a)(vii) and (viii) or which would have accrued but for any such event. "Interest Payment Date," when used with respect to any Security, means the stated maturity of an installment of interest specified in such Security. -13- "Interest Rate," when used with respect to any Security, means the rate per annum specified in such Security as the rate of interest accruing on the principal amount of such Security. "Interest Rate Protection Agreement" means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement designed to protect a Person or any Restricted Subsidiary against fluctuations in interest rates to or under which such Person or any Restricted Subsidiary of such Person is a party or a beneficiary on the Issue Date or becomes a party or a beneficiary thereafter. "Investment" by any Person means any direct or indirect (i) loan, advance or other extension of credit (other than a guarantee) or capital contribution (by means of transfers of cash or other property (valued at the fair market value thereof as of the date of transfer) to others or payments for property or services for the account or use of others, or otherwise other than in the ordinary course of business); (ii) purchase or acquisition of Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by any other Person (whether by merger, consolidation, amalgamation or otherwise and whether or not purchased directly from the issuer of such securities or evidences of Indebtedness); (iii) assumption of the Indebtedness of any other Person; and (iv) all other items that would be classified as investments (including, without limitation, purchases of assets outside the ordinary course of business) on a balance sheet of such Person prepared in accordance with GAAP. Investments shall exclude (a) transactions between the Navistar Financial Corporation and Navistar International Transportation Corp. pursuant to the Master Intercompany Agreement and (b) extensions of loans, trade credit and advances to customers and suppliers to the extent made in the ordinary course of business. For purposes of the definition of "Unrestricted Subsidiary" and Section 4.18, (i) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided that if such designation is made in connection with the acquisition of such Subsidiary or the assets owned by such Subsidiary, the "Investment" in such Subsidiary shall be deemed to be the consideration paid in connection with such acquisition; provided, further, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation and (ii) any property transferred to or from an Unrestricted Subsidiary shall -14- be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "Investment Grade" means (i) with respect to S&P any of the rating categories from and including AAA to and including BBB-and (ii) with respect to Moody's any of the rating categories from and including Aaa to and including Baa3. "Issue Date" means the date on which the Securities are originally issued under this Indenture. "Legal Holiday" means any day other than a Business Day. "Lien" means, with respect to any Person, any mortgage, pledge, lien, encumbrance, easement, restriction, covenant, right-of-way, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property of such Person, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option, right of first refusal or other similar agreement to sell, in each case securing obligations of such Person and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statute or statutes) of any jurisdiction but excluding any such filing or agreement which reflects ownership by a third party of (i) property leased to the referent Person or any of its Restricted Subsidiaries under a lease that is not in the nature of a conditional sale or title retention agreement or (ii) accounts, general intangibles or chattel paper sold to the referent Person). "Master Intercompany Agreement" means the Master Intercompany Agreement dated as of April 26, 1993 and as amended on September 30, 1996, between Navistar Financial Corporation and Transportation as it may be amended, modified, supplemented or restated from time to time in accordance with the terms of this Indenture. "Material Subsidiary" means, at any date of determination, any Subsidiary of the Company that, together with its Subsidiaries, (i) for the most recent Fiscal Year of the Company accounted for more than 5% of the consolidated revenues of the Company or (ii) as of the end of such Fiscal Year, was the owner of more than 5% of the consolidated assets of the Company, all as set forth on the most recently available consolidated financial statements of the Company and its Consolidated Subsidiaries for such Fiscal Year prepared in conformity with GAAP. "Maturity Date" means February 1, 2008. -15- "Mexico Credit Agreement" means the credit agreement dated November 26, 1997 among Navistar International Corporation Mexico, S.A. de C.V., the Company and the agents and lenders named therein as amended or supplemented. "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Available Proceeds" from any Asset Disposition by any Person means cash or readily marketable cash equivalents received (including by way of sale or discounting of a note, installment receivable or other receivable, but excluding any other consideration received in the form of assumption by the acquirer of Indebtedness or other obligations relating to such properties or assets or received in any other non-cash form) therefrom by such Person, including any cash received by way of deferred payment or upon the monetization or other disposition of any non-cash consideration (including notes or other securities) received in connection with such Asset Disposition, net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses incurred (including, without limitation, fees and expenses of accountants, brokers, printers and other similar entities) and all federal, state, foreign and local taxes required to be accrued as a liability as a consequence of such Asset Disposition, (ii) all payments made by such Person or its Restricted Subsidiaries on any Indebtedness which is secured by such assets in accordance with the terms of any Lien upon or with respect to such assets or which must by the terms of such Lien, or in order to obtain a necessary consent to such Asset Disposition or by applicable law, be repaid out of the proceeds from such Asset Disposition, (iii) all payments made with respect to liabilities associated with the assets which are the subject of the Asset Disposition, including, without limitation, trade payables and other accrued liabilities, (iv) appropriate amounts to be provided by such Person or any Restricted Subsidiary thereof, as the case may be, as a reserve in accordance with GAAP against any liabilities associated with such assets and retained by such Person or any Restricted Subsidiary thereof, as the case may be, after such Asset Disposition, including, without limitation, liabilities under any indemnification obligations and severance and other employee termination costs associated with such Asset Disposition, until such time as such amounts are no longer reserved or such reserve is no longer necessary (at which time any remaining amounts will become Net Available Proceeds to be allocated in accordance with the provisions of clause (iii) of Section 4.19) and (v) all distributions and other payments, made to minority interest holders, if any, in Restricted Subsidiaries of such Person or joint ventures as a result of such Asset Disposition. "Offer to Purchase" means a written offer (the "Offer") sent by the Company by first class mail, postage prepaid, to each Holder at its address appearing in the register for the Securities on the date of the Offer, offering to purchase up to the principal amount of Securities in such Offer at the purchase price specified in such Offer (as determined pursuant to the relevant Indenture). Unless otherwise required by applicable law, the Offer -16- shall specify an expiration date (the "Expiration Date") of the Offer to Purchase which shall be not less than 30 days nor more than 60 days after the date of such Offer and a settlement date (the "Purchase Date") for purchase of such Securities within five Business Days after the Expiration Date. The Company shall notify the Trustee at least 15 Business Days (or such shorter period as is acceptable to the Trustee) prior to the mailing of the Offer of the Company's obligation to make an Offer to Purchase, and the Offer shall be mailed by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. The Offer shall contain all the information required by applicable law to be included therein. The Offer shall contain all instructions and materials necessary to enable such Holders to tender such Securities pursuant to the Offer to Purchase. The Offer shall also state: (i) the Section of the Indenture pursuant to which the Offer to Purchase is being made; (ii) the Expiration Date and the Purchase Date; (iii) the aggregate principal amount of the outstanding Securities offered to be purchased by the Company pursuant to the Offer to Purchase (including, if less than 100%, the manner by which such amount has been determined pursuant to the Section of this Indenture requiring the Offer to Purchase) (the "Purchase Amount"); (iv) the purchase price to be paid by the Company for each $1,000 aggregate principal amount of Securities accepted for payment (as specified pursuant to this Indenture) (the "Purchase Price"); (v) that the Holder may tender all or any portion of the Notes registered in the name of such Holder and that any portion of a Security tendered must be tendered in an integral multiple of $1,000 principal amount; (vi) the place or places where Securities are to be surrendered for tender pursuant to the Offer to Purchase; (vii) that interest on any Security not tendered or tendered but not purchased by the Company pursuant to the Offer to Purchase will continue to accrue; (viii) that on the Purchase Date the Purchase Price will become due and payable upon each Security being accepted for payment pursuant to the Offer to Purchase and that interest thereon shall cease to accrue on and after the Purchase Date; -17- (ix) that each Holder electing to tender all or any portion of a Security pursuant to the Offer to Purchase will be required to surrender such Security at the place or places specified in the Offer prior to the close of business on the Expiration Date (such Security being, if the Company or the Trustee so requires, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by the Holder thereof or his attorney duly authorized in writing); (x) that Holders will be entitled to withdraw all or any portion of Securities tendered if the Company (or its Paying Agent) receives, not later than the close of business on the fifth Business Day next preceding the Expiration Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder tendered, the certificate number of the Security the Holder tendered and a statement that such Holder is withdrawing all or a portion of his tender; (xi) that (a) if Notes in an aggregate principal amount less than or equal to the Purchase Amount are duly tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase all such Notes and (b) if Notes in an aggregate principal amount in excess of the Purchase Amount are tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase Notes having an aggregate principal amount equal to the Purchase Amount on a pro rata basis (with such adjustments as may be deemed appropriate so that only Notes in denominations of $1,000 or integral multiples thereof shall be purchased); and (xii) that in the case of any Holder whose Note is purchased only in part, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Note without service charge, a new Note or Notes, of any authorized denomination as requested by such Holder, in an aggregate principal amount equal to and in exchange for the unpurchased portion of the Note or Notes so tendered. An Offer to Purchase shall be governed by and effected in accordance with the provisions above pertaining to any Offer. "Officer" means the Chairman, the President, any Vice President, the Chief Financial Officer, the Treasurer, the Secretary or the Controller of the Company. "Officers' Certificate" means a certificate signed by two Officers or by an Officer and an Assistant Treasurer or Assistant Secretary of the Company and otherwise complying with the requirements of Section 10.4 and Section 10.5 as they relate to the making of an Officers' Certificate. -18- "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee, which may include counsel to the Company complying with the requirements of Section 10.4 and Section 10.5 as they relate to the giving of an Opinion of Counsel. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. "Permitted Investments" means (i) Investments in marketable, direct obligations issued or guaranteed by the United States of America, or any governmental entity or agency or political subdivision thereof (provided that the good faith and credit of the United States of America is pledged in support thereof), maturing within one year of the date of purchase; (ii) Investments in commercial paper issued by corporations or financial institutions maturing within 180 days from the date of the original issue thereof, and rated "P-1" or better by Moody's or "A-1" or better by S&P or an equivalent rating or better by any other nationally recognized securities rating agency; (iii) Investments in certificates of deposit issued or acceptances accepted by or guaranteed by any bank or trust company organized under the laws of the United States of America or any state thereof or the District of Columbia, in each case having capital, surplus and undivided profits totaling more than $500,000,000, maturing within one year of the date of purchase; (iv) deposits, including interest-bearing deposits, maintained in the ordinary course of business in banks; (v) any acquisition of the Capital Stock of any Person; provided that after giving effect to any such acquisition such Person shall become a Restricted Subsidiary of the Company; (vi) trade receivables and prepaid expenses, in each case arising in the ordinary course of business; provided that such receivables and prepaid expenses would be recorded as assets of such Person in accordance with GAAP; (vii) endorsements for collection or deposit in the ordinary course of business by such Person of bank drafts and similar negotiable instruments of such other Person received as payment for ordinary course of business trade receivables; (viii) any interest swap or hedging obligation with an unaffiliated Person otherwise permitted by this Indenture (including, without limitation, any Currency Agreement and any Interest Rate Protection Agreement otherwise permitted by this Indenture); (ix) Investments received as consideration for an Asset Disposition in compliance with the provisions of Section 4.19; (x) Investments for which the sole consideration provided is Qualified Capital Stock of the Company; provided that the issuance of such Qualified Capital Stock is not included in the calculation set forth in clause (3) of the first paragraph of Section 4.18; (xi) loans and advances to employees made in the ordinary course of business in an aggregate amount not to exceed $10.0 million at any one time outstanding; (xii) Investments outstanding on the Issue Date; (xiii) Investments in the Company or a Wholly Owned Subsidiary; (xiv) Investments in securities of trade creditors, suppliers or customers received pursuant to any plan of reorganization or similar arrangement upon bankruptcy or insolvency -19- of such trade creditor, supplier or customer; (xv) Investments in any Person after the Issue Date in an aggregate amount not in excess of $20.0 million at any one time outstanding; and (xvi) Investments in publicly traded equity or publicly traded Investment Grade debt obligations issued by a corporation (other than the Company or an affiliate of the Company) organized under the laws of any State of the United States of America and subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act in an aggregate amount not in excess of $50.0 million at any one time outstanding. "Permitted Joint Venture" means any Person which is, directly or indirectly, through its subsidiaries or otherwise, engaged principally in any business in which the Company is engaged, or a reasonably related business, and the Capital Stock of which is owned by the Company and one or more Persons other than the Company or any affiliate of the Company. "Permitted Junior Securities" means (i) Qualified Stock, (ii) securities of the Company or any other corporation authorized by an order or decree giving effect, and stating in such order or decree that effect is given, to the subordination of such securities to the Senior Indebtedness, and made by a court of competent jurisdiction in a reorganization proceeding under any applicable bankruptcy, insolvency or other similar law, or (iii) any securities of the Company provided for a plan of reorganization or readjustment that are subordinated in right of payment to all Senior Indebtedness that may at the time be outstanding to substantially the same extent as, or to a greater extent than, the Securities are subordinated as provided in this Indenture. "Permitted Liens" means (a) Liens for taxes, assessments and governmental charges (other than any Lien imposed by the Employee Retirement Income Security Act of 1974, as amended) that are not yet delinquent or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and for which adequate reserves have been established or other provisions have been made in accordance with generally accepted accounting principles; (b) statutory mechanics', workmen's, materialmen's, operators' or similar Liens imposed by law and arising in the ordinary course of business for sums which are not yet due or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and for which adequate reserves have been established or other provisions have been made in accordance with generally accepted accounting principles; (c) minor imperfections of, or encumbrances on, title that do not impair the value of property for its intended use; (d) Liens (other than any Lien under the Employee Retirement Income Security Act of 1974, as amended) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (e) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory or regulatory obligations, bankers' acceptances, surety and appeal bonds, government contracts, performance and return of -20- money bonds and other obligations of a similar nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (f) easements, rights-of-way, municipal and zoning ordinances and similar charges, encumbrances, title defects or other irregularities that do not materially interfere with the ordinary course of business of the Company or of any of its Restricted Subsidiaries; (g) Liens (including extensions and renewals thereof) upon real or tangible personal property acquired after the Issue Date; provided that (I) such Lien is created solely for the purpose of securing Indebtedness that is incurred in accordance with this Indenture to finance the cost (including the cost of improvement or construction) of the item of property or assets subject thereto and such Lien is created prior to, at the time of or within 180 days after the later of the acquisition, the completion of construction or the commencement of full operation of such property, (II) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such cost and (III) any such Lien shall not extend to or cover any property or assets of the Company or of any Restricted Subsidiary of the Company other than such item of property or assets and any improvements on such item; (h) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company or of any Restricted Subsidiary of the Company; (i) any interest or title of a lessor in the property subject to any Capitalized Lease Obligation, provided that any transaction related thereto otherwise complies with this Indenture; (j) Liens arising from filing Uniform Commercial Code financing statements regarding leases; (k) Liens arising from the rendering of a final judgment or order against the Company or any Restricted Subsidiary of the Company that does not give rise to an Event of Default; (l) Liens securing reimbursement obligations with respect to letters of credit incurred in accordance with this Indenture that encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (m) Liens in favor of the Trustee arising under this Indenture; (n) any lien existing on property, shares of stock or Indebtedness of a Person at the time such Person becomes a Restricted Subsidiary of the Company or is merged with or consolidated into the Company or a Restricted Subsidiary of the Company or at the time of sale, lease or other disposition of the properties of any Person as an entirety or substantially as an entirety to the Company or any Restricted Subsidiary of the Company; (o) Liens on property of any Subsidiary of the Company to secure Indebtedness for borrowed money owed to the Company or to another Restricted Subsidiary of the Company; (p) Liens in favor of the Company; (q) Liens existing on the Issue Date; (r) Liens in favor of custom and revenue authorities arising as a matter of law to secure payment of nondelinquent customs duties in connection with the importation of goods; (s) Liens encumbering customary initial deposits and margin deposits, and other Liens incurred in the ordinary course of business that are within the general parameters customary in the industry, in each case securing Indebtedness under Interest Rate Protection Agreement; (t) Liens encumbering deposits made in the ordinary course of business to secure nondelinquent obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or its Restricted Subsidiaries for -21- which a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made; and (u) Liens arising out of consignment or similar arrangements for the sale of goods entered into by the Company or any Restricted Subsidiary in the ordinary course of business in accordance with industry practice. "Person" means any individual, corporation, partnership, joint venture, trust, estate, unincorporated organization or government or any agency or political subdivision thereof. "Plan of Liquidation" means, with respect to any Person, a plan (including by operation of law) that provides for, contemplates or the effectuation of which is preceded or accompanied by (whether or not substantially contemporaneously) (i) the sale, lease, conveyance or other disposition of all or substantially all of the assets of the referent Person and (ii) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and all or substantially all of the remaining assets of the referent Person to holders of Capital Stock of the referent Person. "principal" of a debt security means the principal amount of the security plus, when appropriate, the premium, if any, on the security. "Preferred Stock" means, as applied to the Capital Stock of any Person, the Capital Stock of such Person (other than the Common Stock of such Person) of any class or classes (however designated) that ranks prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding-up of such Person, to shares of Capital Stock of any other class of such Person. "Private Exchange Securities" shall have the meaning set forth in the Registration Rights Agreement. "Qualified Capital Stock" means, with respect to any Person, any Capital Stock of such Person that is not Disqualified Capital Stock or convertible into or exchangeable or exercisable for Disqualified Capital Stock. "Qualified Securitization Transaction" means any transaction or series of transactions that have been or may be entered into by any of the Restricted Subsidiaries of the Company in connection with or reasonably related to a transaction or series of transactions in which any of the Restricted Subsidiaries of the Company may sell, convey or otherwise transfer to (i) a Securitization Subsidiary or (ii) any other Person, or may grant a security interest in, any Receivables or interests therein secured by the merchandise or services financed thereby (whether such Receivables are then existing or arising in the future) of any of the Restricted Subsidiaries of the Company, and any assets related thereto -22- including, without limitation, all security or ownership interests in merchandise or services financed thereby, the proceeds of such Receivables, and other assets which are customarily sold or in respect of which security interests are customarily granted in connection with securitization transactions involving such assets. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Rating Agency" means each of (i) S&P and (ii) Moody's. "Receivables" means any right of payment from or on behalf of any obligor, whether constituting an account, chattel paper, instrument, general intangible or otherwise, arising from the financing by any Restricted Subsidiary of the Company of merchandise or services, and monies due thereunder, security or ownership interests in the merchandise and services financed thereby, records related thereto, and the right to payment of any interest or finance charges and other obligations with respect thereto, proceeds from claims on insurance policies related thereto, any other proceeds related thereto, and any other related rights. "Registrar" has the meaning provided in Section 2.3. "Registration Rights Agreement" means the Registration Rights Agreement dated the date hereof among the Company, J.P. Morgan Securities Inc., Credit Suisse First Boston Corporation, Chase Securities Inc., BancAmerica Robertson Stephens and NationsBanc Montgomery Securities LLC. "Regular Record Date" for the interest payable on any Interest Payment Date means the May 15 or November 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Regulation S" means Regulation S promulgated under the Securities Act (including any successor registration thereto) as it may be amended from time to time. "Restricted Physical Security" means a Physical Security containing a Securities Act Legend. "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "Rule 144" shall have the meaning set forth in the Registration Rights Agreement. -23- "Rule 144A" shall have the meaning set forth in the Registration Rights Agreement. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such property to a person and the Company or a Restricted Subsidiary leases it from such Person. "SEC" means the Securities and Exchange Commission. "Securities" means any series of the 8% Senior Subordinated Notes due 2008 issued, authenticated and delivered under this Indenture, as amended or supplemented from time to time pursuant to the terms of this Indenture, including the Exchange Securities and Private Exchange Securities. "Securities Act" means the Securities Act of 1933, as amended. "Securitization Subsidiary" means a Subsidiary of the Company which engages in no activities other than those reasonably related to or in connection with the entering into of securitization transactions and which is designated by the Board of Directors of the Company (as provided below) as a Securitization Subsidiary (a) no portion of the Indebtedness or any other obligations (contingent or otherwise) of which (i) is guaranteed by the Company or any Restricted Subsidiary of the Company, (ii) is recourse to or obligates the Company or any Restricted Subsidiary of the Company in any way other than pursuant to representations, warranties and covenants (including those related to servicing) entered into in the ordinary course of business in connection with a Qualified Securitization Transaction or (iii) subjects any property or asset of the Company or any Restricted Subsidiary of the Company, directly or indirectly, continently or otherwise, to any Lien or to the satisfaction thereof, other than pursuant to representations, warranties and covenants (including those related to servicing) entered into in the ordinary course of business in connection with a Qualified Securitization Transaction, (b) with which neither the Company nor any Restricted Subsidiary of the Company (i) provides any credit support or (ii) has any contract, agreement, arrangement or understanding other than on terms that are fair and reasonable and that are no less favorable to the Company or such Restricted Subsidiary than could be obtained from an unrelated Person (other than, in the case of subclauses (i) and (ii) of this clause (b), representations, warranties and covenants (including those relating to servicing) entered into in the ordinary course of business in connection with a Qualified Securitization Transaction and intercompany notes relating to the sale of Receivables to such Securitization Subsidiary) and (c) with which neither the Company nor any Restricted Subsidiary of the Company has any obligation to maintain or preserve such Subsidiary's financial condition or to cause such Subsidiary to achieve certain levels of operating results. Any such -24- designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a certified copy of the resolutions of the Board of Directors of the Company giving effect to such designation. "Senior Indebtedness of the Company" means (a) the Senior Notes, including principal, premium, if any, and interest on the Senior Notes and all other amounts due on or in connection with the Senior Notes, and (b) any other Indebtedness (including principal, premium, if any, and interest on such Indebtedness) incurred by the Company in accordance with this Indenture, whether such Indebtedness is outstanding on the Issue Date or thereafter, provided that Senior Indebtedness of the Company expressly shall not include: (i) any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter incurred) that is, pursuant to its terms or the terms of any agreement relating thereto, subordinated or junior to any other Indebtedness of the Company; (ii) any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter incurred) that is, by its terms or the terms of any agreement relating thereto, pari passu with or subordinated or junior to the Securities; (iii) the Securities; (iv) any Indebtedness or any other obligation of the Company to any of the Company's Restricted Subsidiaries or to any of the Company's Affiliates, or to any joint venture in which the Company has an interest; (v) to the extent such may be deemed Indebtedness of the Company, any liability for Federal, state, local, foreign or other taxes owed or owing by the Company or by any of its Restricted Subsidiaries (including pursuant to the Tax Allocation Agreement); (vi) to the extent such may be deemed Indebtedness of the Company, obligations of the Company incurred in connection with the purchase of goods, assets, materials or services in the ordinary course of business or representing amounts recorded as accounts payable, trade payables, or other current liabilities of the Company on the books of the Company (other than the current portion of any long-term Indebtedness of the Company that but for this clause (vi) would constitute Senior Indebtedness of the Company); (vii) to the extent such may be deemed Indebtedness of the Company, any amount owed by the Company to employees for services rendered to the Company or to any of its Restricted Subsidiaries; and (viii) that portion of any Indebtedness which at the time of incurrence is incurred in violation of this Indenture. "Senior Note Indenture" means the Senior Note Indenture, dated February 4, 1998, relating to the Senior Notes. "Senior Notes" means the 7% Senior Notes due 2003 issued, authenticated and delivered under the Senior Note Indenture, as amended or supplemented from time to time pursuant to its terms. "Senior Notes Registration Rights Agreement" means the Registration Rights Agreement dated February 4, 1998 with respect to the Senior Notes among the Company and the parties named therein. -25- "Shelf Registration Statement" shall have the meaning set forth in the Registration Rights Agreement. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 2.10. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., and its successors. "Stated Maturity" means, with respect to any security or Indebtedness of a Person, the date specified therein as the fixed date on which any principal of such security or Indebtedness is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase thereof at the option of the holder thereof). "Subsidiary" of any Person means (a) a corporation a majority of whose Voting Stock is at the time, directly or indirectly, owned by such Person, by one or more Restricted Subsidiaries of such Person or by such Person and one or more Restricted Subsidiaries of such Person or (b) any other Person (other than a trust formed in connection with a Qualified Securitization Transaction) in which such Person, a Restricted Subsidiary of such Person or such Person and one or more Restricted Subsidiaries of such Person, directly or indirectly, at the date of determination thereof, have at least a majority ownership interest. "Subsidiary Guarantee" means each Subsidiary Guarantee of the Securities issued pursuant to Section 4.15. "Subsidiary Guarantor" means each Restricted Subsidiary of the Company that becomes a guarantor of the Securities pursuant to Section 4.15. "Supply Agreement" means the Amended and Restated Parent's Side Agreement dated as of November 8, 1994 between the Company and Transportation. "Tax Allocation Agreement" means the Tax Allocation Agreement among the Company and its subsidiaries, effective as of October 1, 1981, as it has been and may be amended and/or supplemented from time to time. "Transportation" means Navistar International Transportation Corp., a Delaware corporation and a subsidiary of the Company. "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) as in effect on the date of this Indenture. -26- "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. "Trust Officer" means an officer or administrator of the Trustee assigned to the Corporate Trust Administration Department or similar department performing corporate trust work, or any successor to such department or, in the case of a successor trustee, an officer assigned to the department, division or group performing the corporate trust work of such successor. "Unrestricted Global Securities" means one or more Global Securities that do not and are not required to bear the Securities Act Legend. "Unrestricted Physical Securities" means one or more Physical Securities that do not and are not required to bear the Securities Act Legend. "Unrestricted Securities" means the Securities that do not and are not required to bear the Securities Act Legend. "Unrestricted Subsidiary" means (i) each of Navistar Financial Corporation, Arrendadora Financiera Navistar S.A. de C.V., Servicios Financieros Navistar S.A. de C.V., Servicios Financieros NFC, S.A. de C.V., Harbour Assurance Company of Bermuda Limited, Navistar Acceptance Corporation Limited, the DealCor Subsidiaries of Transportation that are treated on an equity basis by the Company on the Issue Date, and their respective Subsidiaries until such time as it is designated a Restricted Subsidiary pursuant to the second succeeding sentence, (ii) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (iii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock of, or holds any Lien on any property of, the Company or any other Restricted Subsidiary of the Company; provided that either (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, such designation would be permitted under Section 4.18. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that immediately after giving effect to such designation (x) if such Unrestricted Subsidiary at such time has Indebtedness, the Company could incur $1.00 of additional Indebtedness under clause (i) of Section 4.9 and (y) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced by the Company to the Trustee by promptly filing with the Trustee a copy of the board resolu- -27- tion giving effect to such designation and an officers' certificate certifying that such designation complied with the foregoing provisions. "Voting Stock" means, with respect to any Person, securities of any class or classes of Capital Stock in such Person entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of any contingency) to vote in the election of members of the Board of Directors or other governing body of such Person. "Wholly Owned Subsidiary" means, with respect to any Person, any Restricted Subsidiary of such Person all of the outstanding shares of Capital Stock (other than directors' qualifying shares, if applicable) of which are owned directly by such Person or another Wholly Owned Subsidiary of such Person. SECTION 1.2 Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision shall be deemed incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: (a) "Commission" means the SEC; (b) "indenture securities" means the Securities; (c) "indenture security holder" means a Securityholder; (d) "indenture to be qualified" means this Indenture; (e) "indenture trustee" or "institutional trustee" means the Trustee; and (f) "obligor" on the indenture securities means the Company or any other obligor on the Securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by the Securities Act or the Exchange Act and not otherwise defined herein have the meanings so assigned to them therein. SECTION 1.3 Rules of Construction. Unless the context otherwise requires: (a) a term has the meaning assigned to it; -28- (b) "or" is not exclusive; (c) words in the singular include the plural, and words in the plural include the singular; (d) provisions apply to successive events and transactions; (e) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other Subdivision; and (f) unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent with the most recent audited consolidated financial statements of the Company. ARTICLE II THE SECURITIES SECTION 2.1 Form and Dating. (a) Global Securities. Securities offered and sold to QIBs in reliance on Rule 144A shall be issued initially substantially in the form of Exhibit A hereto in the name of Cede & Co. as nominee of DTC, duly executed by the Company and authenticated by the Trustee as hereinafter provided. Any such Security shall be referred to herein as the "144A Global Security." Securities offered and sold in reliance on Regulation S shall be issued initially substantially in the form of Exhibit A hereto in the name of Cede & Co. as nominee of DTC, duly executed by the Company and authenticated by the Trustee as hereinafter provided. Any such Security shall be referred to herein as the "Regulation S Global Security." Unrestricted Global Securities shall be issued initially in accordance with Sections 2.6(b)(iv), 2.6(c)(ii) and 2.6(e) in the name of Cede & Co. as nominee of DTC, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of each of the Global Security may from time to time be increased or decreased by adjustments made on the records of the Trustee as hereinafter provided. -29- Each Global Security shall represent such of the outstanding Securities as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Securities from time to time endorsed thereon and that the aggregate principal amount of outstanding Securities represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges, redemptions and transfers of interests therein in accordance with the terms of this Indenture. Any change in the aggregate principal amount of a Global Security to reflect the amount of any increase or decrease in the principal amount of outstanding Notes represented thereby shall be made by the Trustee in accordance with reasonable instructions given by the Holder thereof as required by Section 2.6 hereof and shall be conclusively reflected on the books and records of the Trustee. Upon the issuance of the Global Security to DTC, DTC shall credit, on its internal book-entry registration and transfer system, its Participant's accounts with the respective interests owned by such Participants. Interests in the Global Securities shall be limited to Participants, including Euroclear and Cedel, and indirect Participants. The Participants shall not have any rights either under this Indenture or under any Global Security with respect to such Global Security held on their behalf by DTC, and DTC may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for the purpose of receiving payment of or on account of the principal of and, subject to the provisions of this Indenture, interest and Additional Interest, if any, on the Global Securities and for all other purposes. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by DTC or impair, as between DTC and its Participants, the operation of customary practices of DTC governing the exercise of the rights of an owner of a beneficial interest in any Global Security. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel, as in effect from time to time, shall be applicable to interests in the Regulation S Global Security that are held by the Participants through Euroclear or Cedel. (b) Physical Securities. Securities issued substantially in the form of Exhibit A hereto, in certificated form and in the names of the purchasers thereof (or their nominees), duly executed by the Company and authenticated by the Trustee as hereinafter provided shall be referred to herein as the "Physical Securities." Except as provided in Section 2.6(a) owners of beneficial interests in the Global Securities will not be entitled to receive Physical Securities. -30- (c) Securities. The provisions of the form of Securities contained in Exhibit A hereto are incorporated herein by reference. The Securities and the Trustee's Certificates of Authentication shall be substantially in the form of Exhibit A hereto. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage and provided to the Trustee in writing by the Company. The Company shall approve the form of the Securities and any notation, legend or endorsement on them. If required, the Securities may bear the appropriate legend regarding original issue discount for federal income tax purposes. Each Security shall be dated the date of its authentication. The terms and provisions contained in the Securities shall constitute, and are hereby expressly made, a part of this Indenture. SECTION 2.2 Execution and Authentication. Two Officers of the Company shall sign the Securities for the Company by manual or facsimile signature. If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized officer of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate (i) Initial Securities for issue on the Issue Date in the aggregate principal amount of $250,000,000, (ii) Private Exchange Securities from time to time only in exchange for a like principal amount of Initial Securities and (iii) Unrestricted Securities from time to time only in exchange for a like principal amount of Initial Securities, in each case upon a written order signed by an Officer of the Company. The order shall be based upon a Board Resolution of the Company and shall specify the amount of Securities to be authenticated and the date on which the original issue of Securities is to be authenticated. The order shall also provide instructions concerning registration, legends, if any, pursuant to Section 2.6(f), amounts for each Holder and delivery. The aggregate principal amount of Securities outstanding at any time may not exceed $250,000,000 except as provided in Section 2.7. The Securities shall be issued only in registered form, without coupons and only in denominations of $1,000 and any integral multiple thereof. SECTION 2.3 Registrar and Paying Agent. The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange ("Registrar") and an office or agency -31- where Securities may be presented for payment ("Paying Agent"). The Company may have one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent and shall, if required, incorporate the provisions of the TIA. The Company shall notify the Trustee in writing of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation in accordance with the provisions of Section 7.7. The Company initially appoints the Trustee as Registrar and Paying Agent. The Company shall give written notice to the Trustee in the event that the Company decides to act as Registrar. SECTION 2.4 Paying Agent To Hold Money in Trust. The Company shall require each Paying Agent to agree in writing to hold in trust for the benefit of Securityholders or the Trustee all money held by the Paying Agent for the payment of principal of or interest on the Securities (whether such money has been paid to it by the Company or any other obligor on the Securities), and the Company and the Paying Agent shall each notify the Trustee of any default by the Company (or any other obligor on the Securities) in making any such payment. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and account for any funds disbursed and the Trustee may at any time during the continuance of any payment default, upon written request to a Paying Agent, require such Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed. Upon making such payment the Paying Agent shall have no further liability for the money delivered to the Trustee. SECTION 2.5 Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least five Business Days before each Interest Payment Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. -32- SECTION 2.6 Transfer and Exchange. (a) Transfer and Exchange of Global Securities. Transfer of the Global Securities shall be by delivery. Global Securities may not be transferred as or exchanged for Physical Securities except (i) if DTC notifies the Company that it is unwilling or unable to continue to act as depositary with respect to the Global Securities or ceases to be a clearing agency registered under the Exchange Act and, in either case, a successor depositary registered as a clearing agency under the Exchange Act is not appointed by the Company within 120 days, (ii) at any time if the Company in its sole discretion determines that the Global Securities (in whole but not in part) should be exchanged for Physical Securities or (iii) if the owner of an interest in the Global Securities requests such Physical Securities, following an Event of Default under this Indenture, in a writing delivered through DTC to the Trustee. Upon the occurrence of any of the events specified in the previous paragraph, Physical Securities shall be issued in such names as DTC shall instruct the Trustee and the Trustee shall cause the aggregate principal amount of the applicable Global Security to be reduced accordingly and direct DTC to make a corresponding reduction in its book-entry system. The Company shall execute and the Trustee shall authenticate and deliver to the Person designated in such instructions a Physical Security in the appropriate principal amount. The Trustee shall deliver such Physical Securities to the Persons in whose names such Securities are so registered. Physical Securities issued in exchange for an Initial Global Security pursuant to this Section 2.6 (a) shall bear the Securities Act Legend and shall be subject to all restrictions on transfer contained therein. Global Securities may also be exchanged or replaced, in whole or in part, as provided in Sections 2.7 and 2.8. Every Security authenticated and delivered in exchange for, or in lieu of, a Global Security or any portion thereof, pursuant to Section 2.7 or 2.8, shall be authenticated and delivered in the form of, and shall be, a Global Security. A Global Security may not be exchanged for another Security other than as provided in this Section 2.6(a). (b) Transfer and Exchange of Interests in Global Securities. The transfer and exchange of interests in Global Securities shall be effected through DTC, in accordance with this Indenture and the procedures of DTC therefor. Interests in Initial Global Securities shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. The Trustee shall have no obligation to ascertain DTC's compliance with any such restrictions on transfer. Transfers of interests in Global Securities shall also require compliance with subparagraph (i) below, as well as one or more of the other following subparagraphs as applicable: (i) All Transfers and Exchanges of Interests in Global Securities. In connection with all transfers and exchanges of interests in Global Securities (other -33- than transfers of interests in a Global Security to Persons who take delivery thereof in the form of an interest in the same Global Security), the transferor of such interest must deliver to the Registrar (1) instructions given in accordance with the Applicable Procedures from a Participant or an indirect Participant directing DTC to credit or cause to be credited an interest in the specified Global Security in an amount equal to the interest to be transferred or exchanged, (2) a written order given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase and (3) instructions given by the Holder of the Global Security to effect the transfer referred to in (1) and (2) above. (ii) Transfer of Interests in the Same Initial Global Security. Interests in any Initial Global Security may be transferred to Persons who take delivery thereof in the form of an interest in the same Initial Global Security in accordance with the transfer restrictions set forth in Section 2.6(f) hereof. It shall be the sole responsibility of the selling beneficial owner to deliver these transfer documents, if any are required, to the Company and the Trustee shall have no responsibility or duty to collect the transfer documentation set forth in Section 2.6(f). (iii) Transfer of Interests to Another Initial Global Security. Interests in any Initial Global Security may be transferred to Persons who take delivery thereof in the form of an interest in another Initial Global Security if the Registrar receives the following: (A) if the transferee will take delivery in the form of an interest in the 144A Global Security, then the transferor must deliver a certificate in the form of Exhibit D hereto, including the certifications in item 1 thereof; or (B) if the transferee will take delivery in the form of an interest in the Regulation S Global Security, then the transferor must deliver a certificate in the form of Exhibit D hereto, including the certifications in item 2 thereof. (iv) Transfer and Exchange of Interests in Initial Global Security for Interests in an Unrestricted Global Security. Interests in any Initial Global Security may be exchanged by the holder thereof for an interest in the Unrestricted Global Security or transferred to a Person who takes delivery thereof in the form of an interest in the Unrestricted Global Security if: (A) such exchange or transfer is effected pursuant to the Exchange Registration Statement in accordance with the Registration Rights Agreement -34- and the Company delivers an Officers' Certificate to the Trustee stating that such Exchange Registration Statement has become effective and directing the Trustee to effect the exchange or transfer on the terms set forth therein; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement and the Company delivers an Officers' Certificate to the Trustee stating that such Shelf Registration Statement has become effective and directing the Trustee to effect the exchange or transfer on the terms set forth therein; or (C) the Registrar receives the following: (1) if the holder of such an interest in an Initial Global Security proposes to exchange it for an interest in the Unrestricted Global Security, a certificate from such Holder in the form of Exhibit E hereto, including the certifications in item 1(a) thereof; (2) if the holder of such an interest in an Initial Global Security proposes to transfer it to a Person who shall take delivery thereof in the form of an interest in an Unrestricted Global Security, a certificate in the form of Exhibit D hereto, including the certification in item 4 thereof; and (3) in each such case set forth in this paragraph (C), an Opinion of Counsel in form reasonably acceptable to the Company and the Trustee, to the effect that such exchange or transfer is in compliance with the Securities Act and, that the restrictions on transfer contained herein and in Section 2.6(f) hereof are not required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to paragraph (B) above at a time when an Unrestricted Global Security has not yet been issued, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.2, the Trustee shall authenticate one or more Unrestricted Global Securities in an aggregate principal amount equal to the principal amount of interests in the Initial Global Security transferred pursuant to paragraph (B) above, provided the Company has made appropriate arrangements with DTC prior to delivery of such an authentication order to the Trustee. (v) Notation by the Trustee of Transfer of Interests Among Global Securities. Upon satisfaction of the requirements for transfer of interests in Global Secu -35- rities pursuant to clauses (iii) or (iv) above, the Trustee shall reduce or cause to be reduced the aggregate principal amount of the relevant Global Security from which the interests are being transferred, and increase or cause to be increased the aggregate principal amount of the Global Security to which the interests are being transferred, in each case, by the principal amount so transferred and shall direct DTC to make corresponding adjustments in its book-entry system. No transfer of interests of a Global Security shall be effected until, and any transferee pursuant thereto shall succeed to the rights of a holder of such interests only when, the Registrar has made appropriate adjustments to the applicable Global Security in accordance with this paragraph. (c) Transfer or Exchange of Physical Securities for Interests in a Global Security. (i) If any Holder of Physical Securities required to contain the Securities Act Legend proposes to exchange such Securities for an interest in a Global Security or to transfer such Physical Securities to a Person who takes delivery thereof in the form of an interest in a Global Security, then, upon receipt by the Registrar of the following documentation (all of which may initially be submitted by facsimile, provided arrangements satisfactory to the Trustee are made for delivery of the originals): (A) if the Holder of such Physical Registered Securities proposes to exchange such Securities for an interest in an Initial Global Security, a certificate from such Holder in the form of Exhibit E hereto, including the certifications in item 2 thereof; (B) if such Physical Securities are being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit D hereto, including the certifications in item 1 thereof; or (C) if such Physical Securities are being transferred to a Non-U.S. Person (as defined in Regulation S) in an offshore transaction in accordance with Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit D hereto, including the certifications in item 2 thereof; the Trustee shall cancel the Physical Securities, increase or cause to be increased the aggregate principal amount of, in the case of clause (B) above, the 144A Global Security, in the case of clause (C) above, the Regulation S Global Security, and direct DTC to make a corresponding increase in its book-entry system. -36- (ii) A Holder of Physical Securities required to contain the Securities Act Legend may exchange such Securities for an interest in the Unrestricted Global Security or transfer such Restricted Physical Securities to a Person who takes delivery thereof in the form of an interest in the Unrestricted Global Security only: (A) if such exchange or transfer is effected pursuant to the Exchange Registration Statement in accordance with the Registration Rights Agreement and the Company delivers an Officers' Certificate to the Trustee stating that such Exchange Registration Statement has become effective and directing the Trustee to effect the exchange or transfer on the terms set forth therein; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement and the Company delivers an Officers' Certificate to the Trustee stating that such Shelf Registration Statement has become effective and directing the Trustee to effect the exchange or transfer on the terms set forth therein; (C) upon receipt by the Registrar of the following documentation (all of which may be submitted by facsimile): (1) if the Holder of such Physical Securities proposes to exchange such Securities for an interest in the Unrestricted Global Security, a certificate from such Holder in the form of Exhibit E hereto, including the certifications in item 1(b) thereof; (2) the Holder of such Registered Securities proposes to transfer such Securities to a Person who shall take delivery thereof in the form of an interest in the Unrestricted Global Security, a certificate in the form of Exhibit D hereto, including the certifications in item 4 thereof; and (3) in each such case set forth in this paragraph (C), an Opinion of Counsel in form reasonably acceptable to the Company, to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in Section 2.6(f) hereof are not required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to paragraph (B) above at a time when an Unrestricted Global Security has not yet been issued, the Company shall issue and, -37- upon receipt of an authentication order in accordance with Section 2.2, the Trustee shall authenticate (i) one or more Unrestricted Global Securities in an aggregate principal amount equal to the principal amount of Physical Securities transferred pursuant to paragraph (B) above. (d) Transfer and Exchange of Physical Securities. (i) Transfer of a Physical Security to Another Physical Security. Following the occurrence of one or more of the events specified in Section 2.6(a), a Physical Security may be transferred to Persons who take delivery thereof in the form of another Physical Security if the Registrar receives the following: (A) if the transfer is being effected pursuant to and in accordance with Rule 144A, then the transferor must deliver a certificate in the form of Exhibit D hereto, including the certifications in item 3(a) thereof; or (B) if the transfer is being effected pursuant to and in accordance with Regulation S, then the transferor must deliver a certificate in the form of Exhibit D hereto, including the certifications in item 3(b) thereof. (ii) Transfer and Exchange of Restricted Physical Security for Physical Security Which Does Not Bear the Securities Act Legend. Following the occurrence of one or more of the events specified in Section 2.6(a) and the receipt by the Trustee of an Officers' Certificate stating that such events have occurred, a Restricted Physical Security may be exchanged by the Holder thereof for a Physical Security or transferred to a Person who takes delivery thereof in the form of a Physical Security which does not bear the Securities Act Legend if: (A) such exchange or transfer is effected pursuant to the Exchange Registration Statement in accordance with the Registration Rights Agreement and the receipt by the Trustee of an Officers' Certificate stating that such events have occurred; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement and the receipt by the Trustee of an Officers' Certificate stating that such events have occurred; or (C) the Registrar receives a certificate from such Holder in the form of Exhibit E hereto, including the certifications in item 1(c) thereof and an Opinion of Counsel in form reasonably acceptable to the Company, to the -38- effect that such exchange or transfer is in compliance with the Securities Act and, that the restrictions on transfer contained herein and in Section 2.6(f) hereof are not required in order to maintain compliance with the Securities Act. (iii) Exchange of Physical Securities. When Physical Securities are presented by a Holder to the Registrar with a request to register the exchange of such Physical Securities for an equal principal amount of Physical Securities of other authorized denominations, the Registrar shall make the exchange as requested only if the Physical Securities are endorsed or accompanied by a written instrument of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney duly authorized in writing and shall be issued only in the name of such Holder or its nominee and the transfer documentation required in Section 2.6(d)(ii). The Physical Securities issued in exchange for Physical Securities shall bear the Securities Act Legend and shall be subject to all restrictions on transfer contained herein in each case to the same extent as the Physical Securities so exchanged. (iv) Return of Physical Securities. In the event of a transfer pursuant to clauses (i) or (ii) above and the Holder thereof as delivered certificates representing an aggregate principal amount of Securities in excess of that to be transferred, the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Physical Security or Securities of any authorized denomination requested by the Holder, in an aggregate principal amount equal to the portion of the Security not so transferred. (e) Exchange Offer. Upon the occurrence of the Exchange Offer (as defined in the Registration Rights Agreement) in accordance with the Registration Rights Agreement, the Company shall issue and, upon receipt of an Officers' Certificate stating that the Exchange Registration Statement has become effective and that the Exchange Offer has occurred and an authentication order in accordance with Section 2.2, the Trustee shall authenticate one or more Unrestricted Global Securities in an aggregate principal amount equal to the principal amount of the interests in the Initial Global Securities and Restricted Physical Securities tendered for acceptance by persons participating therein. Concurrently with the issuance of such Securities, the Trustee shall cause the aggregate principal amount of the applicable Initial Global Securities to be reduced accordingly and direct DTC to make a corresponding reduction in its book-entry system. The Trustee shall cancel any Restricted Physical Certificates in accordance with Section 2.9 hereof. In the case that one or more of the events specified in Section 2.6(a) have occurred, upon the occurrence of such Exchange Offer, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.2, the Trustee shall authent- -39- icate Unrestricted Physical Securities in an aggregate principal amount equal to the principal amount of the Restricted Physical Securities tendered for acceptance by persons participating therein. (f) Legends. Each Initial Global Security and each Restricted Physical Security shall bear the legend (the "Securities Act Legend") in substantially the --------------------- following form: THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. -40- (g) Global Security Legend. Each Global Security shall bear a legend in substantially the following form: "UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO A NOMINEE OF DTC, OR BY ANY SUCH NOMINEE OF DTC, OR BY DTC TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC). ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.6 OF THE INDENTURE." (h) Cancellation and/or Adjustment of Global Securities. At such time as all interests in the Global Securities have been exchanged for Physical Securities, all Global Securities shall be returned to or retained and canceled by the Trustee in accordance with Section 2.9 hereof. At any time prior to such cancellation, if any interest in a Global Security is exchanged for an interest in another Global Security or for Physical Securities, the principal amount of Securities represented by such Global Security shall be reduced accordingly and all such changes to such Global Security shall be reflected on the books and records of the Trustee, by the Trustee to reflect such reduction. -41- (i) General Provisions Relating to All Transfers and Exchanges. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Securities and Physical Securities upon a written order signed by an Officer of the Company or at the Registrar's request. (ii) No service charge shall be made to a Holder for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any stamp or transfer tax or similar governmental charge payable in connection therewith (other than any such stamp or transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.8 and 4.11 hereof). (iii) All Global Securities and Physical Securities issued upon any registration of transfer or exchange of Global Securities or Physical Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Securities or Physical Securities surrendered upon such registration of transfer or exchange. (iv) The Company shall not be required (A) to issue, to register the transfer of or to exchange Securities during a period beginning at the opening of business 15 days before the day of any selection of Securities for redemption and ending at the close of business on the day of selection, (B) to register the transfer of or to exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part or (C) to register the transfer of or to exchange a Security between a record date and the next succeeding Interest Payment Date. (v) Prior to due presentment for the registration of a transfer of any Security, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Securities and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. Notwithstanding anything herein to the contrary, as to any certification or certificate delivered to the Registrar pursuant to this Section 2.6, the Registrar's duties shall be limited to confirming that any such certification or certificate delivered to it is in the form of Exhibit D or E attached hereto. The Registrar shall not be responsible for confirming the truth or accuracy of any representations made in any such certification or certificate. -42- SECTION 2.7 Replacement Securities. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be reasonably required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount, having endorsed thereon and bearing a number not contemporaneously outstanding. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 2.8 Temporary Securities. Pending the preparation of definitive Securities, the Company may execute and, upon Company Order, the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued, and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. -43- If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at any office or agency of the Company designated pursuant to Section 10.2, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations and like tenor. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. SECTION 2.9 Cancellation. All Securities surrendered for payment, redemption or registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be destroyed by the Trustee and upon the Company's written request, the Trustee shall deliver a certificate of destruction to the Company. SECTION 2.10 Defaulted Interest. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a date for the payment of such Defaulted Interest (herein called a "Special Record Date"), which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited -44- to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Company shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days prior to the date of the proposed payment. The Company shall promptly notify the Trustee of such Special Record Date and, in the name and at the expense of the Company, the Trustee shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Security Register, not less than five Business Days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid not later than the fifteenth day after such Special Record Date to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date. (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payments shall be deemed practicable by the Trustee. SECTION 2.11 CUSIP or CINS Number. The Company in issuing the Securities may use a "CUSIP" or "CINS" number, and if so, such CUSIP or CINS number shall be included in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP or CINS number printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. The Company will promptly notify the Trustee of any change in the CUSIP or CINS number. SECTION 2.12 Payments of Interest. (a) The Holder of a Physical Security at the close of business on the Regular Record Date with respect to any Interest Payment Date shall be entitled to receive the interest and Additional Interest, if any, payable on such Interest Payment Date notwithstanding any transfer or exchange of such Physical Security subsequent to the regular record date and prior to such Interest Payment Date, except if and to the extent the Company shall default in the payment of the interest or Additional Interest due on such Interest Payment Date, in which case such Defaulted Interest and Additional Interest, if any, shall be -45- paid in accordance with Section 2.10; provided that, in the event of an exchange of a Physical Security for a beneficial interest in any Global Security subsequent to a regular record date or any special record date and prior to or on the related Interest Payment Date or other payment date under Section 2.10, any payment of the interest and Additional Interest payable on such payment date with respect to any such Physical Security shall be made to the Person in whose name such Physical Security was registered on such record date. Payments of interest on the Global Securities will be made to the Holder of the Global Security on each Interest Payment Date; provided that, in the event of an exchange of all or a portion of a Global Security for Physical Security subsequent to the regular record date or any special record date and prior to or on the related Interest Payment Date or other payment date under Section 2.10 any payment of interest or Additional Interest payable on such Interest Payment Date or other payment date with respect to the Physical Security shall be made to the Holder of the Global Security. (b) The Trustee shall pay interest and Additional Interest, if any, to DTC, with respect to any Global Security held by DTC, on the applicable Interest Payment Date in accordance with instructions received from the Company at least five Business Days before the applicable Interest Payment Date. The Company shall deliver such instructions in the form of an Officers' Certificate setting forth Additional Interest in the aggregate and per $1,000 principal amount of Securities to be paid on such Interest Payment Date. ARTICLE III REDEMPTION SECTION 3.1 Notices to Trustee. If the Company elects to redeem Securities pursuant to paragraph 5 of the Securities, they shall notify the Trustee in writing of the redemption date, the principal amount of Securities to be redeemed and the paragraph of the Securities pursuant to which the redemption will occur. The Company shall give each notice to the Trustee provided for in this Section not less than 20 not more than 60 days before the redemption date unless the Trustee consents to a shorter period. Such notice shall be accompanied by an Officers' Certificate from the Company to the effect that such redemption will comply with the provisions herein. -46- SECTION 3.2 Selection of Securities To Be Redeemed. If fewer than all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata or by lot or by a method that complies with applicable legal and securities exchange requirements, if any, and that the Trustee considers fair and appropriate and in accordance with methods generally used at the time of selection by fiduciaries in similar circumstances. The Trustee shall make the selection from outstanding Securities not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than $1,000. Securities and portions of them the Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company promptly of the Securities or portions of Securities to be redeemed. In the event the Company is required to make an offer to repurchase Securities pursuant to Sections or and the amount available for such offer is not evenly divisible by $1,000, the Trustee shall promptly refund to the Company any remaining funds, which in no event will exceed $1,000. SECTION 3.3 Notice of Redemption. At least 20 days but not more than 60 days before a date for redemption of Securities, the Company shall mail a notice of redemption by first-class mail to the registered address appearing in the Security Register of each Holder of Securities to be redeemed. The notice shall identify the Securities (including CUSIP numbers, if any) to be redeemed and shall state: (1) the redemption date; (2) the redemption price; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (5) if fewer than all the outstanding Securities are to be redeemed, the identification and principal amounts of the particular Securities to be redeemed; (6) that, unless the Company defaults in making such redemption payment, interest on Securities (or portion thereof) called for redemption ceases to accrue on and after the redemption date; -47- (7) the paragraph of the Securities pursuant to which the Securities called for redemption are being redeemed; (8) the CUSIP number, if any, printed on the Securities being redeemed; and (9) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Securities. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. In such event, the Company shall provide the Trustee with the information required by this Section. SECTION 3.4 Effect of Notice of Redemption. Once notice of redemption is mailed, Securities called for redemption become due and payable on the redemption date and at the redemption price stated in the notice. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price stated in the notice, plus accrued interest to the redemption date. Such notice if mailed in the manner herein provided shall be conclusively presumed to have been given, whether or not the Holder receives such notice. Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder. On and after the redemption date, interest will cease to accrue on Securities or portions thereof called for redemption. SECTION 3.5 Deposit of Redemption Price. Prior to 11:00 a.m. (New York City time) on the redemption date, the Company shall deposit with the Trustee or Paying Agent (or, if the Company or a Subsidiary is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued interest (if any) on all Securities or portions thereof to be redeemed on that date other than Securities or portions of Securities called for redemption which have been delivered by the Company to the Trustee for cancellation. SECTION 3.6 Securities Redeemed In Part. Upon surrender of a Security that is redeemed in part (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of any authorized denomination as requested by such Holder, in aggregate -48- principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. ARTICLE IV COVENANTS SECTION 4.1 Payment of Securities. The Company shall pay the principal of and interest on the Securities on the dates and in the manner provided in the Securities and this Indenture. An installment of principal or interest shall be considered paid on the date due if the Trustee or Paying Agent (other than the Company or any Subsidiary of the Company or any Affiliate of any thereof) holds on such date by 12:00 noon, New York City time, immediately available funds designated for and sufficient to pay such installment. The Company shall pay interest on overdue principal and on overdue installments of interest, in each case at the rate per annum specified in the --- ----- Securities, to the extent lawful. SECTION 4.2 Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency, where Securities may be surrendered for registration of transfer or exchange or for presentation for payment and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 10.2. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York, for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. -49- The Company hereby initially designates the offices of the Trustee as set forth in Section 10.2 as an agency of the Company in accordance with Section 2.3. SECTION 4.3 Corporate Existence. Subject to Article V hereof, the Company shall do or cause to be done, at its own cost and expense, all things necessary to and will cause each of its Subsidiaries to, preserve and keep in full force and effect the corporate existence and rights (charter and statutory), licenses and/or franchises of the Company and each of its Subsidiaries; provided that the Company shall not be required to preserve any such right, license or franchise, or the corporate existence of any of its Subsidiaries, if in the reasonable and good faith judgment of the Board of Directors of the Company (i) such preservation or existence is not desirable in the conduct of business of the Company or such Subsidiary and (ii) the loss of such right, license or franchise or the dissolution of such Subsidiary is not adverse in any material respect to the Holders or to the Company or the ability of the Company to satisfy its obligations hereunder. SECTION 4.4 Payment of Taxes and Other Claims. The Company shall and shall cause each of its Subsidiaries to pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all material taxes, assessments and governmental charges levied or imposed upon its or its Subsidiaries' income, profits or property and (b) all material lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon its property or the property of any of its Subsidiaries; provided that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate negotiations or proceedings promptly instituted and diligently conducted and for which disputed amounts adequate reserves (in the reasonable and good faith judgment of the Board of Directors of the Company) have been made. SECTION 4.5 Maintenance of Properties; Insurance; Books and Records; Compliance with Law. (a) The Company shall, and shall cause each of its Subsidiaries to, at all times cause all properties used or useful in the conduct of its business to be maintained and kept in good condition, repair and working order (reasonable wear and tear excepted) and supplied with all necessary equipment, and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereto; provided that nothing in this Section 4.5 shall prevent the Company or any Subsidiary from discontinuing the operation or maintenance of any of such properties, or disposing of any of them, if such discontinu- -50- ance or disposal is (i) in the ordinary course of business, (ii) in the reasonable and good faith judgment of the Board of Directors of the Company or the Subsidiary concerned, as the case may be, desirable in the conduct of the business of the Company or such Subsidiary, as the case may be, or (iii) otherwise permitted by this Indenture. (b) The Company shall, and shall cause each of its Subsidiaries to maintain with financially sound and reputable insurers such insurance (including appropriate self insurance) as may be required by law and such other insurance, to such extent and against such hazards and liabilities consistent with practice on the Issue Date, as the Company in its reasonable and good faith judgment determines is required, taking into account its business and financial condition. (c) The Company shall, and shall cause each of its Subsidiaries to, keep proper books of record and account, in which full and correct entries shall be made of all business and financial transactions of the Company and each Subsidiary of the Company and reflect on its financial statements adequate accruals and appropriations to reserves, all in accordance with generally accepted accounting principles consistently applied to the Company and its Subsidiaries taken as a whole. (d) The Company shall and shall cause each of its Subsidiaries to comply with all statutes, laws, ordinances, or government rules and regulations to which it is subject, non-compliance with which would materially adversely affect the business, earnings, properties, assets or financial condition of the Company and its Subsidiaries taken as a whole. SECTION 4.6 Compliance Certificates. (a) The Company shall deliver to the Trustee, within 120 days after the end of its Fiscal Year, Officers' Certificates of the Company signed by the Officers specified under TIA (S)314(a)(4) stating (i) that a review of the activities of the Company during the preceding Fiscal Year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture and the Securities, and (ii) that, to the knowledge of such Officer, no Default or Event of Default has occurred (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which such Officer may have knowledge, their status and what action the Company is taking or proposes to take with respect thereto). The first certificate to be delivered pursuant to this Section 4.6(a) shall be for the first Fiscal Year of the Company ending after the Issue Date. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the Company shall cause its independ- -51- ent public accountants to deliver to the Trustee within 120 days after the end of each Fiscal Year a written statement by such accountants stating (A) that their audit examination has included a review of the relevant provisions of this Indenture and the Securities as they relate to accounting matters, and (B) whether, in connection with their audit examination, any Default or Event of Default has come to their attention and if such a Default or Event of Default has come to their attention, specifying the nature and period of existence thereof; provided that, without any restriction as to the scope of the audit examination, such independent certified public accountants shall not be liable by reason of any failure to obtain knowledge of any such Default or Event of Default that would not be disclosed in the course of an audit examination conducted in accordance with generally accepted auditing standards. (c) The Company will, so long as any of the Securities are outstanding, deliver to the Trustee, promptly after any Officer becoming aware of (i) any Default, Event of Default or default in the performance of any covenant, agreement or condition contained in the Securities or this Indenture or (ii) any event of default under any other Indebtedness referred to in Section 6.1(a)(v), an Officers' Certificate specifying such Default, Event of Default, default or event of default and what action the Company is taking or proposes to take with respect thereto. SECTION 4.7 Reports. So long as any Security is outstanding, the Company will file with the Commission and, within 15 days after it files them with the Commission, file with the Trustees and mail or cause the Trustees to mail to the Holders at their addresses as set forth in the register of the Securities, copies of the annual reports and of the information, documents and other reports which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act or which the Company would be required to file with the Commission if the Company then had a class of securities registered under the Exchange Act. In addition, the Company shall cause its annual report to stockholders and any quarterly or other financial reports furnished to its stockholders generally to be filed with the Trustee and mailed, no later than the date such materials are mailed or made available to the Company's stockholders, to the Holders at their addresses as set forth in the register of Securities. SECTION 4.8 [RESERVED]. SECTION 4.9 Limitation on Incurrence of Indebtedness. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to incur, directly or indirectly, any Indebtedness, except: -52- (i) Indebtedness of the Company, if immediately after giving effect to the incurrence of such Indebtedness and the receipt and application of the net proceeds thereof, the Consolidated Cash Flow Ratio of the Company for the four full fiscal quarters for which quarterly or annual financial statements are available next preceding the incurrence of such Indebtedness would be greater than 2.25 to 1.00; (ii) Indebtedness outstanding on the Issue Date; (iii) Indebtedness incurred pursuant to the $125.0 million Credit Agreement dated as of November 26, 1997 among Navistar International Corporation Mexico, S.A. de C.V., the Company and the lenders listed therein, as such agreement, in whole or in part, may be amended, renewed, extended, increased (but only so long as such increase as is permitted under the terms of this Indenture), substituted, refinanced, restructured, replaced (including, without limitation, any successive renewals, extensions, increases, substitutions, refinancings, restructurings, replacements, supplements, or other modifications of the foregoing); (iv) Indebtedness owed by the Company to any Wholly-Owned Subsidiary of the Company or Indebtedness owed by a Subsidiary of the Company to the Company or a Wholly-Owned Subsidiary of the Company; provided, that, upon either (I) the transfer or other disposition by such Wholly-Owned Subsidiary or the Company of any Indebtedness so permitted under this clause (iv) to a Person other than the Company or another Wholly-Owned Subsidiary of the Company or (II) the issuance (other than directors' qualifying shares), sale, transfer or other disposition of shares of Capital Stock or other ownership interests (including by consolidation or merger) of such Wholly-Owned Subsidiary to a Person other than the Company or another such Wholly-Owned Subsidiary of the Company, the provisions of this clause (iv) shall no longer be applicable to such Indebtedness and such Indebtedness shall be deemed to have been incurred at the time of any such issuance, sale, transfer or other disposition, as the case may be; (v) Indebtedness of the Company or its Restricted Subsidiaries under any Interest Rate Protection Agreement or Currency Agreement to the extent entered into to hedge any other Indebtedness permitted under this Indenture; (vi) Acquired Indebtedness to the extent the Company could have incurred such Indebtedness in accordance with clause (i) above on the date such Indebtedness became Acquired Indebtedness; (vii) Indebtedness incurred by the Company or any of its Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit is- -53- sued in the ordinary course of business, including, without limitation, letters of credit in response to worker's compensation claims or self- insurance; (viii) Indebtedness arising from agreements of the Company or a Restricted Subsidiary of the Company providing for indemnification, adjustment of purchase price, earn-out or other similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Subsidiary of the Company; (ix) Obligations in respect of performance and surety bonds and completion guarantees provided by the Company or any Restricted Subsidiary of the Company in the ordinary course of business; (x) Indebtedness consisting of notes issued to employees, officers or directors in connection with the redemption or repurchase of Capital Stock held by such Persons in an aggregate amount not in excess of $10.0 million at any time outstanding; (xi) Indebtedness consisting of take-or-pay obligations contained in supply agreements entered into by the Company or its Restricted Subsidiaries in the ordinary course; (xii) Guarantees by the Company or any of its Restricted Subsidiaries of Indebtedness of the Company or any Restricted Subsidiary permitted to be incurred under another provision of the covenant; provided, that such Guarantee is incurred at the same time as such other Indebtedness; (xiii) Indebtedness incurred to renew, extend, refinance or refund (collectively for purposes of this clause (xiii) to "refund") any Indebtedness incurred pursuant to clauses (i) or (ii) above; provided that (I) such Indebtedness does not exceed the principal amount (or accreted amount, if less) of Indebtedness so refunded plus the amount of any premium required to be paid in connection with such refunding pursuant to the terms of the Indebtedness refunded or the amount of any premium reasonably determined by the Company as necessary to accomplish such refunding by means of a tender offer, exchange offer, or privately negotiated repurchase, plus the expenses of the Company or such Restricted Subsidiary incurred in connection therewith and (II)(A) in the case of any refunding of Indebtedness that is pari passuwith the Securities, such refunding Indebtedness is made pari passu with or subordinate in right of payment to such Securities and, in the case of any refunding of Indebtedness that is subordinate in right of payment to the Securities, such refunding Indebtedness is subordinate in right of payment to such Securities, on terms -54- no less favorable to the Holders than those contained in the Indebtedness being refunded, (B) in either case, the refunding Indebtedness by its terms, or by the terms of any agreement or instrument pursuant to which such Indebtedness is issued does not have an Average Life that is less than the remaining Average Life of the Indebtedness being refunded and does not permit redemption or other retirement (including pursuant to any required offer to purchase to be made by the Company or any of its Restricted Subsidiaries) of such Indebtedness at the option of the holder thereof prior to the final stated maturity of the Indebtedness being refunded, other than a redemption or other retirement at the option of the holder of such Indebtedness (including pursuant to a required offer to purchase made by the Company or any of its Restricted Subsidiaries) which is conditioned upon a change of control of the Company pursuant to provisions substantially similar to those contained in Section 4.11 and (C) Indebtedness of a Restricted Subsidiary may not be incurred to refund any Indebtedness of the Company; (xiv) Indebtedness of the Company under the Securities and the Senior Notes and the Exchange Notes; (xv) the consummation of any Qualified Securitization Transaction; (xvi) Attributable Indebtedness relating to any Sale/Leaseback Transaction with respect to the purchase of tooling and related manufacturing equipment in the ordinary course of business consistent with past practices; and (xvii) Indebtedness of the Company or its Restricted Subsidiaries, not otherwise permitted to be incurred pursuant to clauses (i) through (xvi) above, which, together with any other outstanding Indebtedness incurred pursuant to this clause (xvii), has an aggregate principal amount not in excess of $100.0 million at any time outstanding. SECTION 4.10 Waiver of Stay, Extension or Usury Laws. The Company and each Subsidiary Guarantor covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company or such Subsidiary Guarantor from paying all or any portion of the principal of or interest on the Securities as contemplated herein or in the Securities, wherever enacted, now or at any time hereafter in force, or that may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company and each Subsidiary Guarantor hereby expressly waives all -55- benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.11 Change of Control. Upon the occurrence of a Change of Control (the date of each such occurrence being the "Change of Control Date"), the Company will notify the Holders in writing of such occurrence and will commence an Offer to Purchase (the "Change of Control Offer") all Securities at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the Purchase Date. Notice of a Change of Control shall be mailed by the Company to the Holders not more than 30 days after any Change of Control Date at their last registered addresses with a copy to the Trustee and the Paying Agent. The Change of Control Offer shall remain open from the time of mailing for at least 20 Business Days and until 4:00 p.m., New York City time, on the Purchase Date. The notice, which shall govern the terms of the Change of Control Offer, shall include such disclosures as are required by law and shall state: (a) that the Change of Control Offer is being made pursuant to this Section 4.11 and that all Securities will be accepted for payment; (b) the purchase price (including the amount of accrued interest, if any) for each Security and the Purchase Date; (c) that any Security not tendered for payment will continue to accrue interest in accordance with the terms thereof; (d) that any Security accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Purchase Date unless the Company shall default in the payment thereof; (e) that Holders electing to have Securities purchased pursuant to a Change of Control Offer will be required to surrender their Securities to the Paying Agent at the address specified in the notice prior to 4:00 p.m., New York City time, on the Purchase Date and must complete any form letter of transmittal proposed by the Company and acceptable to the Trustee and the Paying Agent; (f) that Holders of Securities will be entitled to withdraw their election if the Paying Agent receives, not later than 4:00 p.m., New York City time, on the Purchase Date, a facsimile transmission (confirmed by overnight delivery of the -56- original thereof) or letter setting forth the name of the Holder, the principal amount of Securities the Holder delivered for purchase, the Security certificate number (if any) and a statement that such Holder is withdrawing his election to have such Securities purchased; (g) that Holders whose Securities are purchased only in part will be issued Securities equal in principal amount to the unpurchased portion of the Securities surrendered; (h) the instructions that Holders must follow in order to tender their Securities; and (i) the circumstances and relevant facts known to the Company regarding such Change of Control. On the Purchase Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Securities or portions thereof so tendered and accepted and (iii) deliver to the Trustee the Securities so accepted together with an Officers' Certificate setting forth the Securities or portions thereof tendered to and accepted for payment by the Company. The Paying Agent shall promptly mail or deliver to the Holders of Securities so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail or deliver to such Holders a new Security equal in principal amount to any unpurchased portion of the Security surrendered. Any Securities not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company will publicly announce the results of the Change of Control Offer not later than the third Business Day following the Purchase Date. The Company shall comply, to the extent applicable, with the requirements of Section 14(e) under the Exchange Act, and any other securities laws or regulations in connection with the purchase of Securities pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section 4.11, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.11 by virtue thereof. SECTION 4.12 Limitation on Transactions with Affiliates. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to (a) sell, lease, transfer or otherwise dispose of any of its property or assets to, (b) purchase any property or assets from, (c) make any Investment in, or (d) enter into -57- or amend or extend any contract, agreement or understanding with or for the benefit of, any Affiliate of the Company or of any Subsidiary (an "Affiliate Transaction"), other than Affiliate Transactions that are on terms that are fair and reasonable to the Company or such Restricted Subsidiary of the Company and that are no less favorable to the Company or such Restricted Subsidiary of the Company than those that could be obtained in a comparable arm's length transaction by the Company or such Restricted Subsidiary of the Company from an unaffiliated party; provided that if the Company or any Restricted Subsidiary of the Company enters into an Affiliate Transaction or series of Affiliate Transactions involving or having an aggregate value of more than $20.0 million, a majority of the disinterested members of the Board of Directors of the Company or a committee thereof shall, prior to the consummation of such Affiliate Transaction, have determined (as evidenced by a resolution thereof) that such Affiliate Transaction meets the foregoing standard. The foregoing restrictions shall not apply to (a) any transaction between Restricted Subsidiaries of the Company, or between the Company and any Restricted Subsidiary of the Company if such transaction is not otherwise prohibited by the terms of this Indenture, (b) transactions entered into pursuant to the terms of the Master Intercompany Agreement and the Tax Allocation Agreement, (c) transactions entered into in the ordinary course of business, (d) Qualified Securitization Transactions, (e) reasonable fees and compensation paid to and advances of expenses to and indemnity provided on behalf of officers, directors, employees or consultants of the Company or any Subsidiary as determined in good faith by the Company's Board of Directors or senior management; (f) any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) or in any replacement agreement thereto so long as any such management or replacement agreement is not more disadvantageous to the Holders in any material respect than the original agreement as in effect on the Issue Date; (g) Restricted Payments permitted by this Indenture; (h) loans or advances to employees or consultants in the ordinary course of business and consistent with past practices in an aggregate amount outstanding at any time not to exceed $10.0 million; (i) joint venture partners or purchasers or sellers of goods or services, in each case in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of this Indenture which are fair to the Company or its Restricted Subsidiaries, in the reasonable determination of the senior management of the Company, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party; and (j) any employment or compensation arrangement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business that is not otherwise prohibited by this Indenture. -58- SECTION 4.13 Limitation on Liens. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any Liens upon any of their respective properties or assets (including, without limitation, any asset in the form of the right to receive payments, fees or other consideration or benefits) whether owned on the Issue Date or acquired after the Issue Date, other than (i) Liens granted by the Company on property or assets of the Company securing Senior Indebtedness of the Company that is permitted by this Indenture; (ii) Liens granted by the Company on property or assets of the Company securing Indebtedness of the Company that is permitted by this Indenture and that is pari passu with the Securities; provided that the Securities are secured on an equal and ratable basis with such Liens; (iii) Liens granted by the Company on property or assets of the Company securing Indebtedness of the Company that is permitted by this Indenture and that is subordinated to the Securities; provided that the Securities are secured by Liens ranking prior to such Liens; (iv) Permitted Liens; (v) Liens in respect of Acquired Indebtedness permitted by this Indenture, provided, that the Liens in respect of such Acquired Indebtedness secured such Acquired Indebtedness at the time of the incurrence of such Acquired Indebtedness by the Company and such Liens and the Acquired Indebtedness were not incurred by the Company or by the Person being acquired or from whom the assets were acquired in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by the Company and provided, further that such Liens in respect of such Acquired Indebtedness do not extend to or cover any property or assets of the Company or of any Subsidiary of the Company other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company; (vi) Liens granted in connection with any Qualified Securitization Transaction; and (vii) Liens arising from claims of holders of Indebtedness against funds held in a defeasance trust for the benefit of such holders. SECTION 4.14 Limitation on Payment Restrictions Affecting Restricted Subsidiaries. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or suffer to exist or allow to become effective any consensual encumbrance or restriction of any kind on the ability of any such Restricted Subsidiary to (i) pay dividends, in cash or otherwise, or make other payments or distributions on its Capital Stock or any other equity interest or participation in, or measured by, its profits, owned by the Company or by any Restricted Subsidiary of the Company, or make payments on any Indebtedness owed to the Company or to any Restricted Subsidiary of the Company; (ii) make loans or advances to the Company or to any Restricted Subsidiary of the Company; or (iii) transfer any of their respective property or assets to the Company or to any Restricted Subsidiary of the Company, except for such encumbrances or restrictions -59- existing under or by reason of (A) applicable law or regulations; (B) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of any Restricted Subsidiary of the Company; (C) Indebtedness or any other contractual requirements (including pursuant to any corporate governance documents in the nature of a charter or by-laws) of a Securitization Subsidiary arising in connection with a Qualified Securitization Transaction; provided that any such encumbrances and restrictions apply only to such Securitization Subsidiary; (D) any agreement in effect on the Issue Date as any such agreement is in effect on such date; (E) any agreement relating to any Indebtedness incurred by such Restricted Subsidiary prior to the date on which such Restricted Subsidiary became a Subsidiary of the Company and outstanding on such date and not incurred in anticipation or contemplation of becoming a Subsidiary of the Company; provided such encumbrance or restriction shall not apply to any assets of the Company or its Restricted Subsidiaries other than such Restricted Subsidiary; and (F) this Indenture. SECTION 4.15 Limitation on Guarantees by Restricted Subsidiaries. The Company shall not cause or permit any of its Restricted Subsidiaries, directly or indirectly, to guarantee the payment of any Indebtedness of the Company unless such Restricted Subsidiary of the Company simultaneously executes and delivers a supplemental indenture (the substantive provisions of which are in Exhibit B hereto) to this Indenture providing for the guarantee of payment of the Securities (a "Subsidiary Guarantee") by such Restricted Subsidiary of the Company (a "Subsidiary Guarantor"); provided any guarantee by a Subsidiary Guarantor of such other Indebtedness (A) (1) (X) is unsecured or (Y) is secured and (I) in the case of any such guarantee of Senior Indebtedness of the Company, the Subsidiary Guarantee is secured equally and ratably with any Liens securing such guarantee, subject to the provisions of Article XI, (II) in the case of any such guarantee of Indebtedness of the Company ranking pari passu with the Securities, the Subsidiary Guarantee is secured equally and ratably with any Liens securing such guarantee, and (III) in the case of any such guarantee of Indebtedness of the Company subordinated to the Securities, the Subsidiary Guarantee is secured on a basis ranking prior to the Liens securing such guarantee and (2) (X) in the case of any such guarantee of Indebtedness of the Company subordinated or junior to the Securities (whether pursuant to its terms or by operation of law), such guarantee is subordinated pursuant to a written agreement to the Subsidiary Guarantee at least to the same extent and in the same manner as such other Indebtedness is subordinated to the Securities, or (Y) (I) in the case of any such guarantee of Senior Indebtedness of the Company incurred in accordance with this Indenture, the Subsidiary Guarantee is subordinated to Guarantor Senior Indebtedness of such Subsidiary Guarantor to the same extent and in the same manner as the Securities are subordinated to Senior Indebtedness of the Company or (II) the Subsidiary Guarantee is not subordinated or junior to any -60- Indebtedness of such Subsidiary Guarantor; and (B) such Subsidiary Guarantor waives, and agrees it will not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against the Company or any other Subsidiary of the Company as a result of any payment by it under such Subsidiary Guarantees. Notwithstanding the foregoing, any Subsidiary Guarantee shall provide by its terms that it shall be automatically and unconditionally released and discharged upon either (A) the unconditional release or discharge of such Subsidiary Guarantor's guarantees of all other Indebtedness of the Company (other than a release resulting from payment under such Subsidiary Guarantor's guarantees) or (B) any sale, exchange or transfer, to any Person not an Affiliate of the Company, of all (but not less than all) of the Capital Stock of such Subsidiary Guarantor, or all or substantially all of the assets of such Subsidiary Guarantor, pursuant to a transaction which is in compliance with all of the terms of the relevant Indenture. The supplemental indenture shall supplement this Indenture by, among other things, creating an additional Article XII applicable to such Subsidiary Guarantor and any other Subsidiary Guarantors in the form set forth in Exhibit B hereto and, in connection with the execution and delivery of the supplemental indenture, such Subsidiary Guarantor shall execute and deliver a Guarantee substantially in the form of Exhibit C hereto. Such Article XII shall not become effective until the provisions of Section 12.2 have been complied with. Notwithstanding the foregoing, any Subsidiary Guarantee will be subject to release under the conditions described in Section 12.4 of Exhibit B hereto. SECTION 4.16 Limitation on Senior Subordinated Indebtedness. The Company will not directly or indirectly, in any event incur any (a) Indebtedness that purports to be by its terms (or by the terms of any agreement governing such Indebtedness) both subordinate to any other Indebtedness of the Company and senior or superior in any right of payment or interest to the Securities or (b) Indebtedness which by its terms (or by the terms of any agreement governing such Indebtedness) is subordinated to any other Indebtedness of the Company (other than Indebtedness of the Company that is subordinated solely to Senior Indebtedness of the Company) unless such Indebtedness is also by its terms (or by the terms of any agreement governing such Indebtedness) made expressly subordinate to the Securities to the same extent and in the same manner as such Indebtedness is subordinated pursuant to subordination provisions that are most favorable to the holders of any other Indebtedness of the Company. -61- SECTION 4.17 Limitation on Preferred Stock of Restricted Subsidiaries. The Company will not cause or permit any of its Restricted Subsidiaries to issue any Preferred Stock other than to the Company or to another Restricted Subsidiary. SECTION 4.18 Limitation on Restricted Payments. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, (i) declare or pay any dividend, or make any distribution of any kind or character (whether in cash, property or securities), in respect of any class of its Capital Stock or to the holders thereof in their capacity as stockholders, excluding any (x) dividend or distributions payable solely in shares of its Qualified Capital Stock or in options, warrants or other rights to acquire its Qualified Capital Stock or (y) in the case of any Restricted Subsidiary of the Company, dividends or distributions payable to the Company or a Restricted Subsidiary of the Company; (ii) purchase, redeem, or otherwise acquire or retire for value shares of Capital Stock of the Company or a Restricted Subsidiary of the Company, any securities convertible or exchangeable into shares of Capital Stock of the Company or a Restricted Subsidiary of the Company or any options, warrants or rights to purchase or acquire shares of Capital Stock of the Company or a Restricted Subsidiary of the Company, excluding any such shares of Capital Stock, options, warrants, rights or securities which are owned by the Company or a Restricted Subsidiary of the Company; (iii) make any Investment (other than a Permitted Investment) in, or payment on a guarantee of any obligation of, any Person; or (iv) redeem, defease, repurchase, retire or otherwise acquire or retire for value, prior to any scheduled maturity, repayment or sinking fund payment, Indebtedness which is subordinate in right of payment to the Securities (each of the transactions described in clauses (i) through (iv) (other than any exception to any such clause) being a "Restricted Payment") if at the time thereof: (1) an Event of Default, or an event that with the passing of time or giving of notice, or both, would constitute an Event of Default, shall have occurred and be continuing, or (2) upon giving effect to such Restricted Payment, the Company could not incur at least $1.00 of additional Indebtedness pursuant to the terms of this Indenture described in clause (i) of Section 4.9, or (3) upon giving effect to such Restricted Payment, the aggregate of all Restricted Payments made on or after the Issue Date exceeds the sum (without duplication) of: (a) 50% of cumulative Consolidated Net Income of the Company (or, in the case cumulative Consolidated Net Income of the Company shall be negative, -62- less 100% of such deficit) for the period (treated as an accounting period) from the Issue Date through the last day of the Company's most recently ended fiscal quarter for which financial statements are available, plus (b) 100% of the aggregate net cash proceeds received after the Issue Date, including the fair market value of readily marketable securities from the issuance of Qualified Capital Stock of the Company and warrants, rights or options on Qualified Capital Stock of the Company (other than in respect of any such issuance to a Subsidiary of the Company) and the principal amount of Indebtedness of the Company or a Subsidiary of the Company that has been converted into or exchanged for Qualified Capital Stock of the Company which Indebtedness was incurred after the Issue Date; plus (c) in the case of the disposition or repayment of any Investment constituting a Restricted Payment made after the Issue Date, an amount equal to the lesser of the return of capital with respect to such Investment and the cost of such Investment, in either case, less the cost of the disposition of such Investment; provided that at the time any such Investment is made the Company delivers to the Trustee a resolution of the Board of Directors of the Company to the effect that, for purposes of this Section 4.18 covenant, such Investment constitutes a Restricted Payment made after the Issue Date; plus (d) an amount equal to the sum of (i) the net reduction in Investments in Unrestricted Subsidiaries resulting from the receipt of dividends, repayments of loans or advances or other transfers of assets or proceeds from the disposition of Capital Stock or other distributions or payments, in each case to the Company or any Restricted Subsidiary from, or with respect to, interests in Unrestricted Subsidiaries, and (ii) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided that the foregoing sum shall not exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary subsequent to the Issue Date; plus (e) $25.0 million. For purposes of determining the amount expended for Restricted Payments under this clause (3), property other than cash shall be valued at its fair market value. Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph will not prohibit (i) any dividend on any class of Capital Stock of the Company or any of its Restricted Subsidiaries paid within 60 days after the declaration thereof if, on the date when the dividend was declared, the Company or any of its Restricted Subsidiaries, as the case may be, could have paid such dividend in accordance with the provisions of this Indenture, (ii) the renewal, extension, refunding or refinancing of any Indebtedness otherwise permitted pursuant to the terms of this Indenture described in clause (xiii) of Section 4.9, (iii) the exchange or conversion of any Indebtedness of the Company -63- or any of its Restricted Subsidiaries for or into Qualified Capital Stock of the Company, (iv) any Restricted Payments, including loans or other advances made pursuant to any employee benefit plans (including plans for the benefit of directors) or employment agreements or other compensation arrangements, in each case as approved by the Board of Directors of the Company in its good faith judgment, (v) so long as no Default or Event of Default has occurred and is continuing, any Investment made with the proceeds of a substantially concurrent sale of Qualified Capital Stock of the Company; provided that the proceeds of such sale of Qualified Capital Stock shall not be (and have not been) included in clause (3) of the preceding paragraph, (vi) the redemption, repurchase, retirement or other acquisition of any Capital Stock of the Company in exchange for or out of the net cash proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of Qualified Capital Stock of the Company; provided that the proceeds of such sale of Capital Stock shall not be (and have not been) included in clause (3) of the preceding paragraph, (vii) so long as no Event of Default has occurred and is continuing, the redemption, repurchase, retirement or other acquisition of any Subordinated Indebtedness of the Company in exchange for or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of Qualified Capital Stock of the Company; provided that the proceeds of such sale of Qualified Capital Stock shall not be (and have not been) included in clause (3) of the preceding paragraph, (viii) the redemption, retirement or repurchase of the Company's outstanding Series G Convertible Preferred Stock out of the net proceeds of the Offerings, (ix) Investments in Navistar Financial Corporation made pursuant to the Support Agreement to the extent required by the Support Agreement, (x) the declaration and payment of dividends to holders of any class of Preferred Stock issued after the Issue Date; provided that at the time of the issuance of such Preferred Stock, the Company, after giving pro forma effect to such issuance, would have been able to incur at least $1.00 of additional Indebtedness pursuant to the terms of this Indenture described in clause (i) of Section 4.9; (xi) so long as no Event of Default has occurred and is continuing, any purchase or redemption or other retirement for value of Capital Stock of the Company required pursuant to any shareholders agreement, management agreement or employee stock option agreement in accordance with the provisions of any such arrangement in an amount not to exceed $10.0 million in the aggregate; (xii) repurchases of Capital Stock deemed to occur upon the exercise of stock options if such Capital Stock represents a portion of the exercise price thereof; (xiii) payments not to exceed $500,000 per annum in the aggregate to enable the Company to make payments to holders of its Capital Stock in lieu of issuance of fractional shares of its Capital Stock; (xiv) so long as no Event of Default has occurred and is continuing, the repurchase of any shares of Class B Common Stock or Common Stock held by the Supplemental Trust; (xv) so long as no Event of Default has occurred and is continuing, the redemption of any stock purchase rights under a rights plan in an aggregate amount not to exceed $1.0 million; and (xvi) so long as no Event of Default has occurred and is continuing, Investments in Permitted Joint Ventures and designations of Restricted -64- Subsidiaries as Unrestricted Subsidiaries; provided that, after giving pro forma effect to such Investment, the Company could incur at least $1.00 of additional Indebtedness pursuant to the terms of this Indenture described in clause (i) of Section 4.9. Each Restricted Payment described in clauses (i), (iv), (ix), (xiii) and (xiv) of the previous sentence shall be taken into account (and the Restricted Payments described in the remaining clauses shall not be taken into account) for purposes of computing the aggregate amount of all Restricted Payments made pursuant to clause (3) of the preceding paragraph. SECTION 4.19 Limitation on Certain Asset Dispositions. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, make one or more Asset Dispositions unless: (i) the Company or the Restricted Subsidiary, as the case may be, receives consideration for such Asset Disposition at least equal to the fair market value of the assets sold or disposed of (as determined in good faith by the Company); (ii) not less than 75% of the consideration for the disposition consists of cash or readily marketable cash equivalents or the assumption of Indebtedness (other than non-recourse Indebtedness or any Indebtedness subordinated to the Securities) of the Company or such Restricted Subsidiary or other obligations relating to such assets (and release of the Company or such Restricted Subsidiary from all liability on the Indebtedness or other obligations assumed); and (iii) all Net Available Proceeds, less any amounts invested or committed to be invested within 360 days of such Asset Disposition in assets related to the business of the Company (including capital expenditures or the Capital Stock of another Person (other than the Company or any Person that is a Restricted Subsidiary of the Company immediately prior to such investment); provided that immediately after giving effect to any such investment (and not prior thereto) such Person shall be a Restricted Subsidiary of the Company), are applied, on or prior to the 360th day after such Asset Disposition (unless and to the extent that the Company shall determine to make an Offer to Purchase), either to (A) the permanent reduction and prepayment of any Indebtedness of the Company (other than Indebtedness which is expressly subordinate to the applicable issue of Notes) then outstanding (including a permanent reduction of commitments in respect thereof) or (B) the permanent reduction and repayment of any Indebtedness of any Restricted Subsidiary of the Company then outstanding (including a permanent reduction of commitments in respect thereof). The 361st day after such Asset Disposition shall be deemed to be the "Asset Sale Offer Trigger Date," and the amount of Net Available Proceeds from Asset Dispositions otherwise subject to the preceding provisions not so applied or as to which the Company has determined not to so apply shall be referred to as the "Unutilized Net Available Proceeds." Within fifteen days after the Asset Sale Offer Trigger Date, the Company shall make an Offer to Purchase the outstanding applicable issue of Securities at a purchase price in cash equal to 100% of their principal amount plus any accrued and unpaid interest thereon to the Purchase Date. Notwithstanding the foregoing, the -65- Company may defer making any Offer to Purchase outstanding Securities until there are aggregate Unutilized Net Available Proceeds equal to or in excess of $25.0 million (at which time, the entire Unutilized Net Available Proceeds, and not just the amount in excess of $25.0 million, shall be applied as required pursuant to this paragraph). Pending application of the Unutilized Net Available Proceeds pursuant to this covenant, such Unutilized Net Available Proceeds shall be invested in Permitted Investments of the types described in clauses (i), (ii) and (iii) of the definition of "Permitted Investments." If any Indebtedness of the Company or any of its Restricted Subsidiaries ranking pari passu with the Securities requires that prepayment of, or an offer to prepay, such Indebtedness be made with any Net Available Proceeds, the Company may apply such Net Available Proceeds pro rata (based on the aggregate principal amount of the Securities then outstanding and the aggregate principal amount (or accreted value, if less) of all such other Indebtedness then outstanding) to the making of an Offer to Purchase the Securities in accordance with the foregoing provisions and the prepayment or the offer to prepay such pari passu Indebtedness. Any remaining Net Available Proceeds following the completion of the required Offer to Purchase may be used by the Company for any other purpose (subject to the other provisions of this Indenture) and the amount of Net Available Proceeds then required to be otherwise applied in accordance with this covenant shall be reset to zero, subject to any subsequent Asset Disposition. These provisions will not apply to a transaction consummated in compliance with Article V. Notwithstanding the foregoing, the provisions of this covenant shall not apply to any Sale/Leaseback Transaction with respect to the purchase of tooling and related manufacturing equipment in the ordinary course of business consistent with past practices. In the event that the Company makes an Offer to Purchase the Securities, the Company shall comply with any applicable securities laws and regulations, including any applicable requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange Act and any violation of the provisions of this Indenture relating to such Offer to Purchase occurring as a result of such compliance shall not be deemed an Event of Default or an event that with the passing of time or giving of notice, or both, would constitute an Event of Default. SECTION 4.20 Limitation on Sale/Leaseback Transactions. The Company shall not, and shall not cause or permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction with respect to any property unless (i) the Company or such Restricted Subsidiary would be entitled to (A) incur Indebtedness in an amount equal to the Attributable Indebtedness with respect to such Sale/Leaseback Transaction pursuant to clause (i) of Section 4.9 and (B) create a Lien on such property securing such Attributable Indebtedness without securing the Securities pursuant to Section -66- 4.13, (ii) the net proceeds received by the Company or any Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at least equal to the fair value (as determined by the Board of Directors) of such property and (iii) the Company applies the proceeds of such transaction in compliance with Section 4.19. Notwithstanding the foregoing, the provisions of this covenant shall not prohibit the Company or any Restricted Subsidiary from entering into any Sale/Leaseback Transaction with respect to the purchase of tooling and related manufacturing equipment in the ordinary course of business consistent with past practices. ARTICLE V SUCCESSOR CORPORATION SECTION 5.1 Merger, Consolidation, Etc. The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of (and the Company will not cause or permit any of its Restricted Subsidiaries to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's and its Restricted Subsidiaries' assets (determined on a consolidated basis for the Company and its Restricted Subsidiaries) to any Person or adopt a Plan of Liquidation unless: (i) either (1) the Company shall be the surviving or continuing corporation or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance, transfer or lease the properties and assets of the Company and its Restricted Subsidiaries substantially as an entirety or in the case of a Plan of Liquidation, or Person to which assets of the Company and its Restricted Subsidiaries have been transferred (x) shall be a corporation, limited liability company or partnership organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (y) shall expressly assume, by supplemental indenture (in form and substance satisfactory to the Trustee), executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Securities and the performance of every covenant of the Securities and this Indenture on the part of the Company to be performed or observed; (ii) immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company (in the case of clause (1) of the foregoing clause (i)) or such Person (in the case of clause (2) thereof) could incur at least $1.00 of additional Indebtedness pursuant to clause (i) of Section 4.9; (iii) immediately before and after giving effect to such transaction and the -67- assumption contemplated by clause (i)(2)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of the transaction) no Default and no Event of Default shall have occurred or be continuing; and (iv) the Company or such Person shall have delivered to the Trustee (A) an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease or Plan of Liquidation and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this provision and that all conditions precedent under this Indenture relating to such transaction have been satisfied and (B) a certificate from the Company's independent certified public accountants stating that the Company has made the calculations required by clause (ii) above in accordance with the terms of this Indenture. Notwithstanding the foregoing, (x) a Restricted Subsidiary of the Company may consolidate with, or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, the Company or another Restricted Subsidiary of the Company without complying with clause (ii) of the above, (y) a series of transactions involving the sale of Receivables or interests therein by a Securitization Subsidiary in connection with a Qualified Securitization Transaction shall not be deemed to be the sale of all or substantially all of the Company's assets to the extent such transactions are consummated in the ordinary course of business and (z) the provisions of clause (i) above shall not prohibit the Company or any Restricted Subsidiary from selling, assigning, transferring, leasing, conveying or otherwise disposing of all or substantially all of its assets to a Permitted Joint Venture in a transaction entered into in compliance with Section 4.18. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. Upon any such consolidation, merger, conveyance, lease or transfer in accordance with the foregoing, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made will succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor had been named as the Company therein, and thereafter (except in the case of a sale, assignment, transfer, lease, conveyance or other disposition) the predecessor corporation will be relieved of all further obligations and covenants under this Indenture and the Securities. -68- SECTION 5.2 Successor Entity Substituted. Upon any consolidation or merger, or any conveyance, lease or transfer of all or substantially all of the assets of the Company in accordance with Section 5.1, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; and thereafter (except in the case of a sale, assignment, transfer, conveyance, lease or other disposition) the Company shall be discharged from all obligations and covenants under this Indenture and the Securities. ARTICLE VI DEFAULT AND REMEDIES SECTION 6.1 Events of Default. (a) The following are "Events of Default" under this Indenture: (i) default in the payment of principal of, or premium, if any, on the Securities when due at maturity, upon repurchase, upon acceleration or otherwise, including, without limitation, failure of the Company to repurchase the Securities on the date required following a Change of Control, whether or not any such payment is prohibited by the provisions of Article XI; or (ii) default in the payment of any installment of interest on the Securities when due and continuance of such Default for 30 days or more, whether or not such payment is prohibited by the provisions of Article XI; or (iii) failure to observe, perform or comply with any of the provisions described in Section 5.1; or (iv) default (other than a default set forth in clauses (i), (ii) and (iii) above) in the performance of, or breach of, any other covenant or warranty of the Company or of any Restricted Subsidiary in this Indenture or in the Securities and failure to remedy such default or breach within a period of 30 days after written notice from the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Securities; or -69- (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any Subsidiary of the Company (or the payment of which is guaranteed by the Company or any Restricted Subsidiary of the Company), which default results in the acceleration of such Indebtedness prior to its express maturity and the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness the maturity of which has been so accelerated, aggregates $20.0 million or more and such acceleration has not been rescinded or annulled or such Indebtedness discharged in full within 30 days; or (vi) the entry by a court of competent jurisdiction of one or more judgments, orders or decrees against the Company or any Subsidiary of the Company or any of their respective property or assets in an aggregate amount in excess of $20.0 million, which judgments, orders or decrees have not been vacated, discharged, satisfied or stayed pending appeal within 30 days from the entry thereof and with respect to which legal enforcement proceedings have been commenced; or (vii) the Company or any Material Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case or proceeding, or (B) consents to the entry of an order for relief against it in an involuntary case or proceeding, or (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, or (D) makes a general assignment for the benefit of its creditors, or (E) files an answer or consent seeking reorganization or relief, or (F) shall admit in writing its inability to pay its debts generally; or (viii)a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any of its Material Subsidiaries in an involuntary case or proceeding, or (B) appoints a Custodian of the Company or any of its Material Subsidiaries for all or substantially all of its properties, or -70- (C) orders the liquidation of the Company or any of its Material Subsidiaries, and in each case the order or decree remains unstayed and in effect for 60 days. (b) For purposes of this Section 6.1, the term "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official charged with maintaining possession or control over property for one or more creditors. SECTION 6.2 Acceleration. If an Event of Default (other than an Event of Default specified in clauses (vii) and (viii) of Section 6.1(a) involving the Company) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in aggregate principal amount of the Securities then outstanding may, and the Trustee shall upon the request of Holders of not less than 25% in aggregate principal amount of the Securities then outstanding, declare the unpaid principal of, premium, if any, and accrued and unpaid interest on all the Securities then outstanding to be due and payable, by a notice in writing to the Company (and to the Trustee, if given by Holders) and upon such declaration such principal amount, premium, if any, and accrued and unpaid interest will become immediately due and payable, notwithstanding anything contained in this Indenture or the Securities to the contrary, but subject to the provisions limiting payment described in Article XI. If an Event of Default specified in clauses (vii) and (viii) of Section 6.1(a) involving the Company occurs, all unpaid principal of, and premium, if any, and accrued and unpaid interest on the Senior Notes and the Securities then outstanding will ipso facto become due and payable, subject to the prior payment in full of all Senior Indebtedness of the Company, without any declaration or other act on the part of the Trustee or any Holder. SECTION 6.3 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. -71- SECTION 6.4 Waiver of Past Default. Subject to Sections 6.7 and 9.2, the Holders of, in the aggregate, at least a majority in principal amount of the then outstanding Securities by notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a Default or Event of Default specified in Section 6.1(a)(i) or (ii) or a Default or Event of Default in respect of any provision hereof which cannot be modified or amended without the consent of the Holder so affected pursuant to Section 9.2. When a Default or Event of Default is so waived, it shall be deemed cured and cease to exist; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto. SECTION 6.5 Control by Majority. The Holders of a majority in principal amount of the then outstanding Securities may (i) direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it, including, without limitation, any remedies provided for in Section 6.3, and (ii) direct the Trustee to notify each trustee under any instrument governing the rights of holders of Indebtedness subordinated in right of payment to the Securities for the purpose of effecting the payment blockage provisions thereunder. The Trustee may refuse, however, to follow any direction that conflicts with law, the Securities or this Indenture, or that the Trustee determines may be unduly prejudicial to the rights of another Securityholder (provided, however, that subject to Section 7.1, the Trustee shall have no duty or obligation to ascertain whether or not such direction is unduly prejudicial to such Securityholder), that may involve the Trustee in personal liability or if the Trustee determines that it does not have adequate indemnification against any loss or expense; provided that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 6.6 Limitation on Suits. A Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless: (a) the Holder gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Securities make a written request to the Trustee to pursue a remedy; -72- (c) such Holder or Holders offer and, if requested, provide to the Trustee indemnity reasonably satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 30 days after receipt of the request; and (e) during such 30-day period the Holders of at least a majority in principal amount of the then outstanding Securities do not give the Trustee a direction which is inconsistent with the request. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over such other Securityholder. SECTION 6.7 Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in the Security, or to bring suit for the enforcement of any such payment on or after such respective dates, is absolute and unconditional and shall not be impaired or affected without the consent of such Holder. SECTION 6.8 Collection Suit by Trustee. If an Event of Default specified in Section 6.1(a)(i) or (ii) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor on the Securities for the whole amount of principal and accrued interest remaining unpaid, together with interest overdue on principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the Interest Rate and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.9 Trustee May File Proofs of Claim. The Trustee shall be entitled and empowered to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Securityholders allowed in any judicial proceedings relative to the Company or any of its Subsidiaries (or any other obligor upon the Securities), its creditors or its property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims -73- and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Securityholder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee under Section 7.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding. SECTION 6.10 Priorities. If the Trustee collects any money pursuant to this Article VI, it shall, subject to the provisions of Article XI hereof, pay out such money in the following order: First: to the Trustee for all costs and expenses of collection and for all other amounts due under Section 7.7; Second: subject to Article XI, to Holders for interest accrued on the Securities, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for interest; and Third: subject to Article XI, to Holders for principal amounts owing under the Securities, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal. The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment to Securityholders pursuant to this Section 6.10. SECTION 6.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7, or a suit by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the outstanding Securities. -74- SECTION 6.12 Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 6.13 Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article 6 or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 6.14 Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. ARTICLE VII TRUSTEE SECTION 7.1 Duties of Trustee. (a) If an Event of Default known to the Trustee has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: -75- (i) The Trustee need perform only those duties as are specifically set forth in this Indenture or the TIA and no others and no implied covenants or obligations shall be read into this Indenture against the Trustee. (ii) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificate or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine such certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) Notwithstanding anything to the contrary herein contained, the Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) This paragraph does not limit the effect of paragraph (b) of this Section 7.1. (ii) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (iii) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Sections 6.2, 6.4 and 6.5. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.1. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. -76- SECTION 7.2 Rights of Trustee. Subject to Section 7.1: (a) The Trustee may rely and shall be protected in acting or refraining from acting upon any document reasonably believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled during normal business hours and upon reasonable advance notice to the Company to examine the books, records and premises of the Company, personally or by agent or attorney. (b) Before the Trustee acts or refrains from acting with respect to any matter contemplated by this Indenture, it may require an Officers' Certificate or an Opinion of Counsel, which shall conform to the provisions of Section 10.5. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent (other than the negligence or willful misconduct of an agent who is an employee of the Trustee) appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith and without negligence which it reasonably believes to be authorized or within its rights or powers conferred upon it by this Indenture or the TIA. (e) Before the Trustee acts or refrains from acting, it may consult with counsel and the advice or opinion of such counsel as to matters of law shall be full and complete authorization and protection from liability in respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (f) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder. -77- (g) The permissive rights of the Trustee to do things enumerated in this Indenture shall not be construed as a duty. (h) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Securityholders unless such Securityholders shall have offered to the Trustee security or indemnity reasonable to it against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (i) Except for (i) default under Section 6.1(a)(i) or (ii) hereof, or (ii) any other event of which the Trustee has "actual knowledge" and which event, with the giving of notice or the passage of time or both, would constitute an Event of Default under this Indenture, the Trustee shall not be deemed to have notice of any default or Event of Default unless specifically notified in writing of such event by the Company or the Holders of not less than 25% in aggregate principal amount of the Securities then outstanding; as used herein, the term "actual knowledge" means the actual fact or statement of knowing, without any duty to make any investigation with regard thereto. SECTION 7.3 Individual Rights of Trustee. The Trustee in its individual capacity or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company, or its Subsidiaries and Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 7.10 and 7.11. SECTION 7.4 Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities, and it shall not be accountable for the Company's use of the proceeds from the Securities or for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement of the Company in this Indenture or any other document in connection with the sale of the Securities, or any statement in the Securities other than the Trustee's certificate of authentication. SECTION 7.5 Notice of Defaults. If a Default or an Event of Default with respect to the Securities occurs and is continuing and the Trustee receives written notice of such Default or Event of Default, the Trustee shall mail to each Securityholder notice of the Default or Event of Default -78- within 60 days after the occurrence thereof in accordance with TIA (S)313(c). Except in the case of a Default or an Event of Default in payment of principal of or interest on any Security, including on acceleration, and the failure to make payment when required by Section 4.11, and except in the case of a failure to comply with Article V hereof, the Trustee may withhold the notice to the Securityholders for a period not to exceed 60 days if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interest of Securityholders. SECTION 7.6 Reports by Trustee to Holders. To the extent required by TIA (S)313(a), within 45 days after June 1 of each year commencing with 1998 and for as long as there are Securities outstanding hereunder, the Trustee shall mail to each Securityholder the Company's brief report dated as of such date that complies with TIA (S)313(a). The Trustee also shall comply with TIA (S)313(b) and TIA (S)313(c) and (d). A copy of such report at the time of its mailing to Securityholders shall be filed with the SEC, if required, and each stock exchange, if any, on which the Securities are listed. The Company shall promptly notify the Trustee if the Securities become listed on any stock exchange and the Trustee shall comply with TIA (S)313(d). SECTION 7.7 Compensation and Indemnity. The Company shall pay to the Trustee, the Paying Agent and the Registrar from time to time reasonable compensation for their respective services rendered hereunder. The Trustee's, the Paying Agent's and the Registrar's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee, the Paying Agent and the Registrar upon request for all reasonable out-of-pocket disbursements, expenses and advances (including reasonable fees and expenses of counsel) incurred or made by each of them in connection with entering into this Indenture the performance of its duties under this Indenture in addition to the compensation for their respective services under this Indenture. Such expenses shall include the reasonable compensation, out-of-pocket disbursements and expenses of the Trustee's, the Paying Agent's and the Registrar's agents and counsel. The Company shall indemnify the Trustee, the Paying Agent and the Registrar for, and hold each of them harmless against, any claim, demand, expense (including but not limited to attorneys' fees and expenses), loss or liability incurred by each of them arising out of or in connection with the administration of this Indenture and their respective duties hereunder. Each of the Trustee, the Paying Agent and the Registrar shall notify the Company promptly of any claim asserted against it for which it may seek indemnity. How- -79- ever, failure by the Trustee, the Paying Agent or the Registrar to so notify the Company shall not relieve the Company of its obligations hereunder. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee, the Paying Agent or the Registrar through the Trustee's, the Paying Agent's or the Registrar's, as the case may be, own willful misconduct or negligence. To secure the Company's payment obligations in this Section 7.7, each of the Trustee, the Paying Agent and the Registrar shall have a lien prior to the Securities on all money or property held or collected by it, in its capacity as Trustee, Paying Agent or Registrar, as the case may be, except money or property held in trust to pay principal of or interest on particular Securities. Such lien shall survive the satisfaction and discharge of this Indenture. When any of the Trustee, the Paying Agent and the Registrar incurs expenses or renders services after an Event of Default specified in Section 6.1(a)(vii) or (viii) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.8 Replacement of Trustee. The Trustee may resign at any time by so notifying the Company in writing, such resignation to be effective upon the appointment of a successor Trustee. The Holders of a majority in principal amount of the outstanding Securities may remove the Trustee by so notifying the Trustee in writing and may appoint a successor Trustee with the Company's consent which consent shall not be unreasonably withheld. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10; (b) the Trustee is adjudged a bankrupt or an insolvent; (c) a receiver or other public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. -80- A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee (subject to the lien provided in Section 7.7), the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Securityholder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 25% in principal amount of then outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 shall continue for the benefit of the retiring Trustee. SECTION 7.9 Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or national banking association, the resulting, surviving or transferee corporation or national banking association without any further act shall be the successor Trustee; provided such corporation or national banking association shall be otherwise qualified and eligible under this Article VII. SECTION 7.10 Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirements of TIA (S)310(a)(1) and (2). The Trustee shall have a combined capital and surplus of at least $200,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA (S)310(b); provided that there shall be excluded from the operation of TIA (S)310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding if the requirements for such exclusion set forth in TIA (S)310(b)(1) are met. The provisions of TIA (S)310 shall apply to the Company, as obligor of the Securities. -81- SECTION 7.11 Preferential Collection of Claims Against Company. The Trustee shall comply with TIA (S)311(a), excluding any creditor relationship listed in TIA (S)311(b). A Trustee who has resigned or been removed shall be subject to TIA (S)311(a) to the extent indicated therein. The provisions of TIA (S)311 shall apply to the Company as obligor on the Securities. ARTICLE VIII SATISFACTION AND DISCHARGE OF INDENTURE SECTION 8.1 Termination of the Company's Obligations. The Company's obligations under the Securities and this Indenture shall terminate, and the obligations of any Subsidiary Guarantor shall terminate, except those obligations referred to in the penultimate paragraph of this Section 8.1, if all Securities previously authenticated and delivered (other than destroyed, lost or stolen Securities which have been replaced or paid or Securities for whose payment money has theretofore been deposited with the Trustee or the Paying Agent in trust or segregated and held in trust by the Company and thereafter repaid to the Company, as provided in Section 8.4) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder, or if: (a) all Securities have otherwise become due and payable hereunder; (b) the Company shall have irrevocably deposited or caused to be deposited with the Trustee or a trustee satisfactory to the Trustee, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds in trust solely for the benefit of the Holders for that purpose, cash or cash equivalents in such amount as is sufficient without consideration of reinvestment of such interest, to pay principal of, premium, if any, and interest on the outstanding Securities to maturity or redemption; provided that the Trustee shall have been irrevocably instructed to apply such cash or cash equivalents to the payment of said principal, premium, if any, and interest with respect to the Securities, and; provided, further, that from and after the time of deposit, the money deposited shall not be subject to the rights of holders of Senior Indebtedness of the Company or Guarantor Senior Indebtedness pursuant to the provisions of Article XI or Article XII; (c) no Default or Event of Default with respect to this Indenture or the Securities shall have occurred and be continuing on the date of such deposit or shall -82- occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company is a party or by which it is bound; (d) the Company shall have paid all other sums payable by it hereunder; (e) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent providing for the termination of the Company's and each Subsidiary Guarantor's obligation under the Securities and this Indenture have been complied with. Such Opinion of Counsel shall also state that such satisfaction and discharge does not result in a default under any Senior Indebtedness of the Company (if then in effect) or any other agreement or instrument then known to such counsel that binds or affects the Company. Notwithstanding the foregoing paragraph, the Company's obligations in Sections 2.5, 2.6, 2.7, 2.8, 4.1, 4.2 and 7.7 and any Subsidiary Guarantor's obligations in respect thereof shall survive until the Securities are no longer outstanding. After the Securities are no longer outstanding, the Company's obligations in Sections 7.7, 8.4 and 8.5 and any Subsidiary Guarantor's obligations in respect thereof shall survive. After such delivery or irrevocable deposit the Trustee upon request shall acknowledge in writing the discharge of the Company's and any Subsidiary Guarantor's obligations under the Securities and this Indenture except for those surviving obligations specified above. SECTION 8.2 Legal Defeasance and Covenant Defeasance. (a) The Company may, at its option and at any time, with respect to the Securities, elect to have either paragraph (b) or paragraph (c) below be applied to the outstanding Securities upon compliance with the conditions set forth in paragraph (d). (b) Upon the Company's exercise under paragraph (a) of the option applicable to this paragraph (b), the Company and any Subsidiary Guarantor shall be deemed to have been released and discharged from its obligations with respect to the outstanding Securities on the date the conditions set forth below are satisfied (hereinafter, "legal defeasance"). For this purpose, such legal defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Securities, which shall thereafter be deemed to be "outstanding" only for the purposes of paragraph (c) below and the other Sections of and matters under this Indenture referred to in (i) and (ii) below, and to have satisfied all its other obligations under such Securities and this -83- Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), and Holders of the Securities and the Subsidiary Guarantees and any amounts deposited under paragraph (d) below shall cease to be subject to any obligations to, or the rights of, any holder of Senior Indebtedness of the Company or Guarantor Senior Indebtedness under Article XI, Article XII or otherwise, except for the following which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of outstanding Securities to receive solely from the trust fund described in paragraph (d) below and as more fully set forth in such paragraph, payments in respect of the principal of, premium, if any, and interest on such Securities when such payments are due, (ii) the Company's obligations with respect to such Securities under Sections 2.6, 2.7 and 4.2, and, with respect to the Trustee, under Section 7.7 and any Subsidiary Guarantor's obligations in respect thereof, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (iv) this Section 8.2 and Section 8.5. Subject to compliance with this Section 8.2, the Company may exercise its option under this paragraph (b) notwithstanding the prior exercise of its option under paragraph (c) below with respect to the Securities. (c) Upon the Company's exercise under paragraph (a) of the option applicable to this paragraph (c), the Company shall be released and discharged from its obligations under any covenant contained in Article V and Article XI and in Sections 4.5 through 4.9, 4.11 through 4.20 and Section 5.1 with respect to the outstanding Securities on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"), and the Securities shall thereafter be deemed to be not "outstanding" for the purpose of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder and Holders of the Securities and the Subsidiary Guarantees and any amounts deposited under paragraph (d) below shall cease to be subject to any obligations to, or the rights of, any holder of Senior Indebtedness of the Company or Guarantor Senior Indebtedness under Article XI, Article XII or otherwise. For this purpose, such covenant defeasance means that, with respect to the outstanding Securities, the Company and any Subsidiary Guarantor may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.1(a)(iv), but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. (d) The following shall be the conditions to application of either paragraph (b) or paragraph (c) above to the outstanding Securities: -84- (i) the Company shall irrevocably have deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (x) money in an amount or (y) direct non-callable obligations of, or non- callable obligations guaranteed by, the United States of America for the payment of which guarantee or obligation the full faith and credit of the United States is pledged ("U.S. Government Obligations") maturing as to principal, premium, if any, and interest in such amounts of money and at such times as are sufficient without consideration of any reinvestment of such interest, to pay principal of and interest on the outstanding Securities not later than one day before the due date of any payment, or (z) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge principal of, premium, if any, and interest on the outstanding Securities on the Maturity Date or otherwise in accordance with the terms of this Indenture and of such Securities; provided that the Trustee (or other qualifying trustee) shall have received an irrevocable written order from the Company instructing the Trustee (or other qualifying trustee) to apply such money or the proceeds of such U.S. Government Obligations to said payments with respect to the Securities; (ii) no Default or Event of Default with respect to the Securities or this Indenture shall have occurred and be continuing immediately after giving effect to such deposit (or, insofar as Section 6.1(a)(vii) or (viii) is concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period); provided, however, that actions taken by the Company in connection with the creation of the trust fund into which funds for the purpose of defeasance of the Securities are deposited that are not in compliance with Sections 4.9, 4.13 and 4.14, in each case, shall not be deemed a Default or Event of Default under this Indenture); (iii) such legal defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest with respect to any Securities of the Company or any Subsidiary Guarantor; (iv) such legal defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a Default or Event of Default under any agreement or instrument to which the Company or any Subsidiary Guarantor is a party or by which it is bound; -85- (v) in the case of an election under paragraph (b) above, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (y) since the date of this Indenture, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the outstanding Securities will not recognize income, gain or loss for Federal income tax purposes as a result of such legal defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance had not occurred; (vi) in the case of an election under paragraph (c) above, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the outstanding Securities will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; (vii) in the case of an election under either paragraph (b) or (c) above, an Opinion of Counsel to the effect that, (x) the trust funds will not be subject to any rights of any holders of other Indebtedness, including, without limitation, Senior Indebtedness of the Company, and (y) after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable Bankruptcy Law; provided that if a court were to rule under any such law in any case or proceeding that the trust funds remained property of the Company, no opinion needs to be given as to the effect of such laws on the trust funds except the following: (A) assuming such trust funds remained in the Trustee's possession prior to such court ruling to the extent not paid to Holders of Securities, the Trustee will hold, for the benefit of the Holders of Securities, a valid and enforceable security interest in such trust funds that is not avoidable in bankruptcy or otherwise, subject only to principles of equitable subordination, (B) the Holders of Securities will be entitled to receive adequate protection of their interests in such trust funds if such trust funds are used, and (C) no property, rights in property or other interests granted to the Trustee or the Holders of Securities in exchange for or with respect to any of such funds will be subject to any prior rights of any other person, subject only to prior Liens granted under Section 364 of Title 11 of the U.S. Bankruptcy Code (or any section of any other Bankruptcy Law having the same effect), but still subject to the foregoing clause (B); and -86- (viii) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that (x) all conditions precedent provided for relating to either the legal defeasance under paragraph (b) above or the covenant defeasance under paragraph (c) above, as the case may be, have been complied with and (y) if any other Indebtedness of the Company shall then be outstanding or committed, such legal defeasance or covenant defeasance will not violate the provisions of the agreements or instruments evidencing such Indebtedness. (e) All money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee pursuant to paragraph (d) above in respect of the outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (other than the Company or any Affiliate of the Company) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to paragraph (d) above or the principal, premium, if any, and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Securities. Anything in this Section 8.2 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request, in writing, by the Company any money or U.S. Government Obligations held by it as provided in paragraph (d) above which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent legal defeasance or covenant defeasance. SECTION 8.3 Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Sections 8.1 and 8.2, and shall apply the deposited money and the money from U.S. Government Obligations in accordance with this Indenture to the payment of principal of, premium, if any, and interest on the Securities. -87- SECTION 8.4 Repayment to Company or Subsidiary Guarantors. Subject to Sections 7.7, 8.1 and 8.2, the Trustee shall promptly pay to the Company, or if deposited with the Trustee by any Subsidiary Guarantor, to such Subsidiary Guarantor, upon receipt by the Trustee of an Officers' Certificate, any excess money, determined in accordance with Section 8.2, held by it at any time. The Trustee and the Paying Agent shall pay to the Company or any Subsidiary Guarantor, as the case may be, upon receipt by the Trustee or the Paying Agent, as the case may be, of an Officers' Certificate, any money held by it for the payment of principal, premium, if any, or interest that remains unclaimed for two years after payment to the Holders is required (unless otherwise provided under operation of law); provided that the Trustee and the Paying Agent before being required to make any payment may, but need not, at the expense of the Company cause to be published once in a newspaper of general circulation in The City of New York or mail to each Holder entitled to such money notice that such money remains unclaimed and that after a date specified therein, which shall be at least 30 days from the date of such publication or mailing, any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company or any Subsidiary Guarantor, as the case may be, Securityholders entitled to money must look solely to the Company for payment as general creditors unless an applicable abandoned property law designates another person, and all liability of the Trustee or Paying Agent with respect to such money shall thereupon cease. SECTION 8.5 Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Indenture by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then and only then the Company's and each Subsidiary Guarantor's, if any, obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had been made pursuant to this Indenture until such time as the Trustee is permitted to apply all such money or U.S. Government Obligations in accordance with this Indenture; provided that if the Company or the Subsidiary Guarantors, as the case may be, has made any payment of principal of, premium, if any, or interest on any Securities because of the reinstatement of its obligations, the Company or the Subsidiary Guarantors, as the case may be, shall be, subrogated to the rights of the holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. -88- ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.1 Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by resolutions of its Board of Directors (copies of which shall be delivered to the Trustee) and the Trustee may amend, waive or supplement this Indenture or the Securities without notice to or consent of any Holder for any of the following purposes: (a) to cure any ambiguity, defect or inconsistency; provided that such amendment or supplement does not adversely affect the rights of any Holder; (b) to provide for uncertificated Securities in addition to or in place of certificated Securities; (c) to comply with any requirements of the SEC under the TIA; (d) to evidence the succession in accordance with Article V hereof of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; (e) to add any Subsidiary of the Company as a Subsidiary Guarantor pursuant to the terms of Section 4.15 and Article XII; (f) to evidence and provide for the acceptance of appointment hereunder by a separate or successor Trustee with respect to the Securities; or (g) to make any other change that does not adversely affect the rights of any Holder; provided, however, that in making such change, the Trustee may rely upon an Opinion of Counsel stating that such change does not adversely affect the rights of any Holder. SECTION 9.2 With Consent of Holders. Subject to Section 6.7 and the provisions of this Section 9.2, the Company, when authorized by resolution of its Board of Directors (copies of which shall be delivered to the Trustee) and the Trustee may amend or supplement this Indenture, the Securities or any Subsidiary Guarantee with the written consent of the Holders of at least a majority in -89- principal amount of the Securities then outstanding. Subject to Section 6.7 and the provisions of this Section 9.2, the Holders of, in the aggregate, at least a majority in principal amount of the then outstanding Securities affected may waive compliance by the Company and any Subsidiary Guarantor with any provision of this Indenture, the Securities or any Subsidiary Guarantee without notice to any other Securityholder. However, without the consent of each Securityholder affected, an amendment, supplement or waiver, including a waiver pursuant to Section 6.4, may not: (a) reduce the aggregate principal amount of Securities the Holders of which must consent to an amendment, supplement or waiver of any provision of or with respect to this Indenture, the Securities or any Subsidiary Guarantee; or (b) reduce the rate of, change the method of calculation of, or extend the time for, payment of interest, including default interest, on any Security; or (c) reduce the principal of or premium on or change the Stated Maturity of any Security or alter the repurchase provisions with respect thereto; or (d) make the principal of, or interest on, any Security payable in money other than as provided herein, or (e) make any change in provisions relating to waivers of defaults, the ability of Holders to enforce their rights under this Indenture or in the matters discussed in clauses (a) through (h); or (f) waive a default in the payment of the principal of, interest on, or repurchase payment required hereunder with respect to, any Security, including, without limitation, a default to make a payment when required upon a Change of Control; or (g) adversely affect the ranking of the Securities or any Subsidiary Guarantee or release any Subsidiary Guarantor from any of its obligations under its Subsidiary Guarantee in this Indenture other than in compliance with Section 12.4 of Exhibit B hereto; (h) after the Company's obligation to purchase Securities arises thereunder, amend, modify or change the obligation of the Company to make and consummate a Change of Control Offer in the event of a Change of Control or waive any default in the performance thereof or modify any of the provisions or definitions with respect to such offers. -90- It shall not be necessary for the consent of the Holders under this Section 9.2 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.2 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. Notwithstanding the foregoing, no amendment shall modify any provision of this Indenture so as to affect adversely the rights of any holder of Senior Indebtedness of the Company or Guarantor Senior Indebtedness to the benefits of the subordination provisions under this Indenture without the consent of such holder. SECTION 9.3 Compliance with Trust Indenture Act. Every amendment to or supplement of this Indenture or the Securities shall be set forth in a supplemental indenture that complies with the TIA as then in effect. SECTION 9.4 Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of that Security or portion of that Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of a Security. Such revocation shall be effective only if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective. Notwithstanding the above, nothing in this paragraph shall impair the right of any Securityholder under (S)316(b) of the TIA. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver which record date shall be at least 10 days prior to the first solicitation of such consent. If a record date is fixed, then notwithstanding the second and third sentences of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. Such consent shall be effective only for actions taken within 90 days after such record date. -91- After an amendment, supplement or waiver becomes effective, it shall bind every Securityholder unless it makes a change described in any of clauses (a) through (h) of Section 9.2. In that case the amendment, supplement or waiver shall bind each Holder of a Security who has consented to it. SECTION 9.5 Notation on or Exchange of Securities. If an amendment, supplement or waiver changes the terms of a Security, the Trustee shall (in accordance with the specific written direction of the Company) request the Holder of the Security to deliver it to the Trustee. The Trustee shall (in accordance with the specific direction of the Company) place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or issue a new Security shall not affect the validity and effect of such amendment, supplement or waiver. SECTION 9.6 Trustee To Sign Amendments, Etc. The Trustee shall sign any amendment, supplement or waiver authorized pursuant to this Article IX if the amendment, supplement or waiver does not adversely affect the rights, duties or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing any amendment, supplement or waiver, the Trustee shall be entitled to receive, if requested, an indemnity reasonably satisfactory to it and to receive, and shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article IX is authorized or permitted by this Indenture and that it constitutes the legal, valid and binding obligation of the Company and, if applicable, the Subsidiary Guarantors, subject to the customary exceptions. ARTICLE X MISCELLANEOUS SECTION 10.1 Trust Indenture Act Controls. The provisions of TIA (S)(S)310 through 317 that impose duties on any person (including the provisions automatically deemed included unless expressly excluded by this Indenture) are a part of and govern this Indenture, whether or not physically contained herein. -92- If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by the above paragraph, the imposed duties shall control. SECTION 10.2 Notices. Any notice or communication shall be sufficiently given if in writing and delivered in person or mailed by first-class mail or by telecopier, followed by first-class mail, or by overnight service guaranteeing next-day delivery, addressed as follows: (a) if to the Company: Navistar International Corporation 455 North Cityfront Plaza Drive Chicago, Illinois 60611 Attention: General Counsel Telecopier Number: (312) 836-2000 with a copy to: Kirkland & Ellis 200 E. Randolph Drive Chicago, Illinois 60601 Attention: Kenneth P. Morrison, Esq. Telecopier Number: (312) 861-2200 (b) if to the Trustee: Harris Trust and Savings Bank 311 West Monroe, 12th Fl. Chicago, Illinois 60606 Attention: Indenture Trust Division/D.G. Donovan Telecopier Number: (312) 461-3525 The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. -93- Any notice or communication mailed to a Securityholder, including any notice delivered in connection with TIA (S)310(b), TIA (S)313(c), TIA (S)314(a) and TIA (S)315(b), shall be mailed to such Holder, first-class postage prepaid, at his address as it appears on the registration books of the Registrar and shall be sufficiently given to such Holder if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. Except for a notice to the Trustee, which is deemed given only when received by an officer in the corporate trust administration department of the Trustee, if a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 10.3 Communications by Holders with Other Holders. Securityholders may communicate pursuant to TIA (S)312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and any other Person shall have the protection of TIA (S)312(c). SECTION 10.4 Certificate and Opinion of Counsel as to Conditions Precedent. Upon any request or application by the Company or any Subsidiary Guarantor to the Trustee to take any action under this Indenture, the Company or any Subsidiary Guarantor shall furnish to the Trustee at the request of the Trustee (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with (which officer signing such certificate may rely, as to matters of law, on an Opinion of Counsel), (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of counsel, all such conditions have been complied with (which counsel, as to factual matters, may rely on an Officers' Certificate) and (c) where applicable, a certificate or opinion by an independent certified public accountant satisfactory to the Trustee that complies with TIA (S)314(c). SECTION 10.5 Statements Required in Certificate and Opinion of Counsel. Each certificate and Opinion of Counsel with respect to compliance with a condition or covenant provided for in this Indenture shall include: -94- (a) a statement that the Person making such certificate or rendering such Opinion of Counsel has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or Opinion of Counsel are based; (c) a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. SECTION 10.6 Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules in accordance with the Trustee's customary practices for action by or at a meeting of Securityholders. The Paying Agent or Registrar may make reasonable rules for its functions. SECTION 10.7 Legal Holidays. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 10.8 GOVERNING LAW. THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS INDENTURE, THE SECURITIES AND THE SUBSIDIARY GUARANTEES WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY AND EACH SUBSIDIARY GUARANTOR AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE SECURITIES AND THE SUBSIDIARY GUARANTEES. SECTION 10.9 No Recourse Against Others. A trustee, director, officer, employee, stockholder or beneficiary, as such, of the Company or any Subsidiary Guarantor shall not have any liability for any obligations of the Company or any Subsidiary Guarantor under the Securities or this Indenture or for any -95- claim based on, in respect of or by reason of such obligations or their creation. Each Security holder by accepting a Security waives and releases all such liability. SECTION 10.10 Successors. All agreements of the Company or any Subsidiary Guarantor in this Indenture and the Securities shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor. SECTION 10.11 Counterparts. The parties may sign any number of counterparts of this Indenture. Each such counterpart shall be an original, but all of them together represent the same agreement. SECTION 10.12 Severability. In case any provision in this Indenture, the Securities or in any Subsidiary Guarantee shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, and a Holder shall have no claim therefor against any party hereto. SECTION 10.13 Table of Contents, Headings, Etc. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, and are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. SECTION 10.14 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or of any Subsidiary Guarantor or any of their respective Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 10.15 Benefits of Indenture. Nothing in this Indenture, in the Securities or in any Subsidiary Guarantee, express or implied, shall give to any person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture, the Securities or in any Subsidiary Guarantee. -96- SECTION 10.16 Independence of Covenants. All covenants and agreements in this Indenture, the Securities and the Subsidiary Guarantees shall be given independent effect so that if any particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists. ARTICLE XI SUBORDINATION OF SECURITIES SECTION 11.1 Agreement to Subordinate. The Company covenants and agrees, and each Holder of Securities, by his acceptance thereof, likewise covenants and agrees, that the indebtedness represented by the Securities and the payment of the principal of and interest on each and all of the Securities is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full of Senior Indebtedness of the Company. Anything in the Securities or in this Indenture to the contrary notwithstanding, the indebtedness evidenced by the Securities shall be subordinate and junior in right of payment, in all respects, to all Senior Indebtedness of the Company, whether outstanding at the Issue Date or incurred after the Issue Date. In the event of (i) any insolvency or bankruptcy case or proceeding, (ii) any receivership, liquidation, dissolution or other winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy or (iii) any assignment for the benefit of the creditors or any other marshaling of assets and liabilities of the Company, then and in any such event specified in (i), (ii) or (iii) above, the holders of Senior Indebtedness shall be entitled to receive payment in full in cash of all amounts due or to become due on or in respect of all Senior Indebtedness before the Holders of the Securities are entitled to receive any Note Payment (as defined below), and in any such event any Note Payment to which the Holders of the Securities or the Trustee on their behalf would be entitled, but for the subordination provisions of this Indenture, shall be made by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, directly to the holders of the Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders) or their respective trustee, agent or other representative under any -97- agreement or indenture pursuant to which any such Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay all such Senior Indebtedness in full, in cash, after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Senior Indebtedness. In the event that, notwithstanding the foregoing provision prohibiting such Note Payment, any Note Payment shall be received by the Trustee or any Holder of Securities at a time when such Note Payment is prohibited as described in the preceding paragraph and before all obligations in respect of Senior Indebtedness are paid in full in cash, such Note Payment shall be received and held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders) or their respective trustee, agent or other representative under any agreement or indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of Senior Indebtedness remaining unpaid until all such Senior Indebtedness has been paid in full in cash after giving effect to any concurrent payment, distribution or provision therefor to or for the account of the holders of such Senior Indebtedness. No direct or indirect payment, deposit or distribution of any kind or character, whether in cash, property or securities (including any payment made to Holders of the Securities under the terms of Indebtedness subordinated to the Securities, but excluding any payment or distribution of Permitted Junior Securities) by or on behalf of the Company of principal of, premium, if any, or interest on, or any other obligation in respect of, the Securities whether pursuant to the terms of the Securities, upon acceleration, by way of repurchase, redemption, defeasance or otherwise (all such payments, deposits or distributions being referred to herein, individually and collectively, as a "Note Payment"), shall be made if, at the time of such Note Payment, there exists a default (a "Payment Default") in the payment when due of all or any portion of the obligations under or in respect of any Designated Senior Indebtedness, whether at maturity, on account of mandatory redemption or prepayment, acceleration or otherwise, and such Payment Default shall not have been cured or waived. In addition, during the continuance of any default or event of default (other than a Payment Default) with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated immediately without the giving of any notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, no Note Payment may be made by or on behalf of the Company for a period (a "Payment Blockage Period") commencing upon the receipt by the Company and the Trustee of written notice of such default or event of default from the holder or holders of such Designated Senior Indebtedness or any trustee, agent or other representative acting on behalf of the holder or holders of such Designated Senior Indebtedness specifying -98- an election to effect a Payment Blockage Period (a "Payment Blockage Notice") and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (i) by written notice to the Trustee and the Company from the holder or holders of such Designated Senior Indebtedness or any trustee, agent or other representative acting on behalf of the holder or holders of such Designated Senior Indebtedness, (ii) by discharge or repayment in full in cash of such Designated Senior Indebtedness or (iii) because the default or event of default giving rise to such Payment Blockage Notice has been cured, waived or ceased to exist). Subject to the provisions of the first sentence of this paragraph, the Company may resume payments on the Securities after such Payment Blockage Period. Not more than one Payment Blockage Period may be commenced with respect to the Securities during any period of 360 consecutive days, unless at least 180 consecutive days shall have elapsed during which time no payment blockage was in effect. No default or event of default that existed or was continuing on the date of commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period may be, or be made, the basis for the commencement of any other Payment Blockage Period by the holder or holders of such Designated Senior Indebtedness or any trustee, agent or other representative acting on behalf of the holder or holders of such Designated Senior Indebtedness, whether or not within a period of 360 consecutive days, unless such default or event of default has been cured or waived for a period of not less than 90 consecutive days. In the event that, notwithstanding the foregoing, any Note Payment shall be received by the Trustee or any Holder when such Note Payment is prohibited by the second preceding paragraph, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Designated Senior Indebtedness or any trustee, agent or other representative under any agreement or indenture pursuant to which any such Designated Senior Indebtedness may have been issued, as their respective interests may appear, but only to the extent that, upon notice from the Trustee to the holders of Designated Senior Indebtedness that such prohibited Note Payment has been made, the holders of the Designated Senior Indebtedness (or their trustee, agent or other representative) notify the Trustee in writing of the amounts then due and owing on the Designated Senior Indebtedness, if any, and only the amount specified in such notice to the Trustee shall be paid to or for the account of the holders of Designated Senior Indebtedness. The failure to make any payment or distribution for or on account of the Securities by reason of the provisions of this Indenture described under this section will not be construed as preventing the occurrence of an Event of Default described in clause (i), (ii) or (iii) of Section 6.1(a). -99- If the Company fails to make any payment on the Securities when due or within any applicable grace period, whether or not such failure is on account of the subordination provisions referred to above, such failure would constitute an Event of Default under this Indenture and would enable the Holders to accelerate the maturity of the Securities. See Section 6.1. By reason of such subordination, in the event of liquidation or insolvency, creditors of the Company who are not holders of Senior Indebtedness of the Company (other than the Holders of the Securities or other equally subordinated obligations) may recover less, ratably, than the holders of Senior Indebtedness of the Company and may recover more, ratably, than the Holders of the Securities. The Notes are effectively subordinated to all existing and future liabilities (including liabilities owed to trade creditors) of the Subsidiaries of the Company to the extent of the assets of each Subsidiary of the Company. Any right of the Company to participate in any distribution of the assets of its Subsidiaries upon the liquidation, reorganization or insolvency thereof (and the consequent right of the Holders to benefit from those assets) will be subject to the claims of creditors (including trade creditors) of such Subsidiary, except to the extent that claims of the Company itself as a creditor of such Subsidiary may be recognized, in which case the claims of the Company would still be subordinate to any security interest in the assets of such Subsidiary and any Indebtedness of such Subsidiary senior to that held by the Company. SECTION 11.2 Subrogation. Subject to the payment in full of all Senior Indebtedness of the Company, Holders of the Securities shall be subrogated to the rights of the holders of Senior Indebtedness of the Company to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Indebtedness of the Company until all amounts owing on the Securities shall be paid in full, and as between the Company, its creditors other than holders of such Senior Indebtedness, and Holders of the Securities, no such payment or distribution made to the holders of such Senior Indebtedness by virtue of this Article XI which otherwise would have been made to the Securityholders shall be deemed to be a payment by the Company on account of such Senior Indebtedness, it being understood that the provisions of this Article XI are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities, on the one hand, and the holders of Senior Indebtedness of the Company, on the other hand. -100- SECTION 11.3 Relative Rights. Nothing contained in this Article XI or elsewhere in this Indenture or in the Securities is intended to or shall impair, as between the Company, its creditors other than the holders of its Senior Indebtedness, and the Holders of Securities, the obligation of the Company, which is absolute and unconditional, to pay to the holders of the Securities the principal of and interest on the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders of the Securities and creditors of the Company other than the holders of its Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article XI of the holders of Senior Indebtedness of the Company to receive cash, property or securities otherwise payable or deliverable to the Securityholders. Upon payment or distribution of assets of the Company referred to in this Article XI, the Trustee and the Holders of the Securities shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any such dissolution, winding up, liquidation or reorganization proceeding affecting the affairs of the Company is pending or upon a certificate of the trustee in bankruptcy, receiver, assignee for the benefit of creditors, liquidating trustee, or agent or other person making any payment or distribution, to the Trustee or to the Holders of the Securities for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness of the Company and other indebtedness of the Company, the amount thereof or payable thereon, the amount paid or distributed thereon and all other facts pertinent thereto or to this Article XI. Nothing contained in this Article or elsewhere in this Indenture, or in any of the Securities, shall affect the obligations of the Company to make, or prevent the Company from making, payment of the principal of or interest on the Securities in accordance with the provisions hereof and thereof, except as otherwise provided in this Article XI. SECTION 11.4 Trustee To Effectuate Subordination. Each holder of Securities, by his acceptance thereof, authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article XI and appoints the Trustee his attorney-in-fact for any and all such purposes. -101- SECTION 11.5 Trustee Not Fiduciary for Holders of Senior Indebtedness of the Company. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness of the Company and shall not be liable to any such holders if it shall mistakenly pay over or distribute to Securityholders or the Company or any other person moneys or assets to which any holders of Senior Indebtedness of the Company shall be entitled by virtue of this Article XI or otherwise. SECTION 11.6 Notice by Company. The Company shall give prompt written notice to the Trustee of any fact known to the Company that would prohibit the making of any payment of moneys to or by the Trustee pursuant to this Article. Subject to the provisions of Sections 7.1 and 7.5 but notwithstanding any other provisions of this Indenture, the Trustee and any Paying Agent shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of moneys to or by the Trustee or such Paying Agent, or the taking of any other action by the Trustee or such Paying Agent, unless and until the Trustee or such Paying Agent shall have received written notice thereof from the Company at least three Business Days prior to the making of any such payment, the Securityholders, the holders of any Senior Indebtedness of the Company or the representative of any such holders. SECTION 11.7 Rights of Trustee. The Trustee shall be entitled to all the rights set forth in this Article XI with respect to any Senior Indebtedness of the Company by the time held by the Trustee, to the same extent as any other holder of Senior Indebtedness. SECTION 11.8 Company May Not Impair Subordination. No right of any present or future holder of any Senior Indebtedness of the Company to enforce the subordination herein shall at any time or in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. SECTION 11.9 Rights of Paying Agent. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context shall require otherwise) be construed as ex- -102- tending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article XI in addition to or in place of the Trustee; provided that Sections 11.6 and 11.7 shall not apply to the Company if it acts as Paying Agent. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. S-1 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. NAVISTAR INTERNATIONAL CORPORATION By: /s/ Thomas M. Hough ----------------------------------------------- Name: Thomas M. Hough Title: Vice President & Treasurer HARRIS TRUST AND SAVINGS BANKS, as Trustee By: /s/ J. Bartolini ----------------------------------------------- Name: J. Bartolini Title: Vice President Exhibit A (FORM OF FACE OF SECURITY) No. [_] $ [_] CUSIP No. 8% SENIOR SUBORDINATED NOTE DUE 2008 NAVISTAR INTERNATIONAL CORPORATION promises to pay to [ ] or registered assigns the principal sum of[ ] Dollars on February 1, 2008. Interest Payment Dates: February 1, August 1 and at maturity Record Dates: January 15, July 15 and 15 days prior to maturity By:____________________________ Authorized Signature By:____________________________ Authorized Signature Dated: February 4, 1998 Certificate of Authentication This is one of the 8% Senior Subordinated Notes due 2008 referred to in the within-mentioned indenture. HARRIS TRUST AND SAVINGS BANK, as Trustee By:____________________________ Authorized Signatory A-1 (FORM OF REVERSE OF SECURITY) 8% SENIOR SUBORDINATED NOTE DUE 2008 1. Interest. NAVISTAR INTERNATIONAL CORPORATION, a Delaware -------- corporation (the "Company," which definition shall include any successor thereto in accordance with the Indenture (as defined below)), promises to pay, until the principal hereof is paid or made available for payment, interest on the principal amount set forth on the reverse side hereof at a rate of 8% per annum. Interest on the Securities will accrue from and including the most recent date to which interest has been paid or, if no interest has been paid, from and including February 4, 1998 through but excluding the date on which interest is paid. Interest shall be payable in arrears on February 1, August 1 and at the stated maturity (each an "Interest Payment Date"), commencing August 1, 1998. Interest will be computed on the basis of a 360-day year of twelve full 30-day months and, for periods of less than one month, the actual number of days elapsed. Interest on overdue principal and (to the extent permitted by law) on overdue installments of interest will accrue at a rate equal to 8% per annum. 2. Method of Payment. The Company will pay interest on the ----------------- Securities (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the January 15 or July 15 next preceding the relevant Interest Payment Date. Holders must surrender Securities to the Paying Agent to collect principal payments. The Company will pay principal, premium, if any, and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. At the Company's option, interest may be paid by check mailed to the registered address of the Holder of this Security. 3. Paying Agent and Registrar. Initially, HARRIS TRUST AND SAVINGS -------------------------- BANK (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-Registrar without notice. Neither the Company nor any of its Subsidiaries may act as Paying Agent, Registrar or co- Registrar. 4. Indenture. The Company issued the Securities under an Indenture --------- dated as of February 4, 1998 (the "Indenture") between the Company and the Trustee. This Security is one of an issue of Securities of the Company issued under the Indenture. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) as amended from time to time. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and such Act for a statement of them. Capitalized terms used herein and not otherwise defined have the meanings set forth in the Indenture. The Securities are general unsecured obligations of the Company limited in aggregate principal A-2 amount to $250,000,000. The Indenture limits, among other things, the incurrence of certain Indebtedness by the Company and its Restricted Subsidiaries; transactions by the Company and its Restricted Subsidiaries with certain Affiliates; the granting of Liens by the Company or any of its Restricted Subsidiaries; certain guarantees issued by Restricted Subsidiaries of the Company and the ability of the Company and the Subsidiary Guarantors to merge with or into another entity. The limitations are subject to a number of important qualifications and exceptions. The Company must report to the Trustee annually whether it is in compliance with the limitations contained in the Indenture. 5. Optional Redemption. Except as set forth in the next paragraph, ------------------- the Securities may not be redeemed prior to February 1, 2003. On or after February 1, 2003, the Securities may be redeemed at any time, in whole or in part, at the option of the Company, on not less than 20 days' nor more than 60 days' notice, at the redemption prices (expressed as percentages of the principal amount) set forth below, if redeemed during the 12 month period beginning February 1 of the year indicated below, in each case together with interest accrued to the redemption date:
YEAR PERCENTAGE 2003...................................... 104.000% 2004...................................... 102.670% 2005...................................... 101.333% 2006 and thereafter....................... 100.000%
In addition, prior to February 1, 2001, the Company may, at its option redeem up to 35% of the principal amount of the Securities originally issued with the net cash proceeds received by the Company from one or more public offerings of Common Stock of the Company made after the Issue Date, at a redemption price (expressed as a percentage of the principal amount) of 108% of the principal amount thereof, plus accrued and unpaid interest to the date fixed for redemption; provided that at least $162.5 million in aggregate principal amount of the Securities remains outstanding immediately after any such redemption (excluding any Notes owned by the Company or any of its Affiliates). Notice of redemption pursuant to this paragraph must be mailed to Holders of Senior Subordinated Notes not later than 60 days following the consummation of such public offering. Selection of Securities for any redemption shall be made by the Trustee under the Indenture in accordance with the rules of any national securities exchange on which the Securities may be listed or if the Securities are not so listed, pro rata or by lot or in such other manner as the Trustee shall deem appropriate and fair. On and after the redemption date, interest will cease to accrue on Securities or portions thereof called for redemption. A-3 6. Notice of Redemption. Notice of redemption will be mailed by -------------------- first-class mail at least 20 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his registered address. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. If a notice or communication is sent in the manner provided in the Indenture, it is duly given, whether or not the addressee receives it. Failure to send a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. 7. Offers to Purchase. Sections 4.11 and 4.19 of the Indenture ------------------ provide upon the occurrence of a Change of Control and after certain Asset Dispositions, and subject to further limitations contained therein, the Company shall make an offer to purchase certain amounts of the Securities in accordance with the procedures set forth in the Indenture. 8. Denominations, Transfer, Exchange. The Securities are in --------------------------------- registered form without coupons in denominations of $1,000 and integral multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay to it any taxes and fees required by law or permitted by the Indenture. The Registrar need not transfer or exchange any Security or portion of a Security selected for redemption, or transfer or exchange any Securities for a period of 15 days before a selection of Securities to be redeemed. 9. Persons Deemed Owners. The registered holder of a Security may be --------------------- treated as the owner of it for all purposes. 10. Unclaimed Money. If money for the payment of principal or --------------- interest remains unclaimed for two years, the Trustee or Paying Agent will pay the money back to the Company at its request. After that, Holders entitled to the money must look to the Company for payment as general creditors unless an "abandoned property" law designates another Person. 11. Amendment, Supplement, Waiver. The Company and the Trustee may, ----------------------------- without the consent of the holders of any outstanding Securities, amend, waive or supplement the Indenture, the Securities or Subsidiary Guarantee for certain specified purposes, including, among other things, curing ambiguities, defects or inconsistencies, maintaining the qualification of the Indenture under the Trust Indenture Act of 1939 or making any A-4 other change that does not adversely affect the rights of any Holder. Other amendments and modifications of the Indenture, the Securities or any Subsidiary Guarantee may be made by the Company and the Trustee with the consent of the Holders of not less than a majority of the aggregate principal amount of the outstanding Securities, subject to certain exceptions requiring the consent of the Holders of the particular Securities to be affected. 12. Guarantees. This Security may after the date hereof be entitled ---------- to certain Subsidiary Guarantees made for the benefit of the Holders. Reference is hereby made to Section 4.15 of the Indenture and to Exhibit B to the Indenture for the terms of any Subsidiary Guarantee (including any terms of subordination of such Subsidiary Guarantee that may apply). 13. Successor Corporation. When a successor corporation assumes all --------------------- the obligations of its predecessor under the Securities and the Indenture and the transaction complies with the terms of Article V of the Indenture, the predecessor corporation, subject to certain exceptions, will be released from those obligations. 14. Defaults and Remedies. Events of Default are set forth in the --------------------- Indenture. Subject to certain limitations in the Indenture, if an Event of Default (other than an Event of Default specified in Section 6.1(a)(vii) or (viii) of the Indenture with respect to the Company) occurs and is continuing, then the holders of not less than 25% in aggregate principal amount of the outstanding Securities may, or the Trustee may, declare the principal of, premium, if any, plus accrued interest, if any, to be due and payable immediately. If an Event of Default specified in Section 6.1(a)(vii) or (viii) of the Indenture with respect to the Company occurs and is continuing, the principal of, premium, if any, and accrued interest on all of the Securities shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity reasonably satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing default (except a default in payment of principal or interest or a failure to comply with Article V of the Indenture) if it determines that withholding notice is in their interests. The Company must furnish an annual compliance certificate to the Trustee. 15. Trustee Dealings with Company. The Trustee, in its individual or ----------------------------- any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee. A-5 16. No Recourse Against Others. A Trustee, director, officer, -------------------------- employee, stockholder or beneficiary, as such, of the Company or any Subsidiary Guarantor shall not have any liability for any obligations of the Company or any Subsidiary Guarantor under the Securities, the Indenture or any Subsidiary Guarantee or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 17. Defeasance. The Indenture contains provisions (which provisions ---------- apply to this Security) for defeasance at any time of (a) the entire indebtedness of the Company and any Subsidiary Guarantor or this Security and (b) certain restrictive covenants and related Defaults and Events of Default, in each case upon compliance by the Company with certain conditions set forth therein. 18. Authentication. This Security shall not be valid until the -------------- Trustee signs the certificate of authentication on the other side of this Security. 19. Abbreviations. Customary abbreviations may be used in the name ------------- of a Securityholder or an assignee, such as: TEN COM (= tenants in common), TENANT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 20. Subordination. The Company's payment of principal of, premium, ------------- if any, and interest on the Securities is subordinated in right of payment, to the extent and in the manner provided in Article XI of the Indenture, to the prior payment in full of the Senior Indebtedness of the Company. Each Holder of the Securities, by his acceptance hereof, covenants and agrees that all payments of the principal of, premium, if any, and interest on the Securities by the Company shall be subordinated in accordance with the provisions of Article XI of the Indenture, and each Holder accepts and agrees to be bound by such provisions. 21. GOVERNING LAW. THE INDENTURE, THIS SECURITY AND EACH SUBSIDIARY ------------- GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. The Company will furnish to any Securityholder upon written request and without charge a copy of the Indenture. Requests may be made to: A-6 Navistar International Corporation 455 North Cityfront Plaza Drive Chicago, Illinois 60611 Telephone: (312) 836-2000 Telecopy: (312) 836-3982 Attention: General Counsel A-7 ASSIGNMENT FORM If you the holder want to assign this Security, fill in the form below and have your signature guaranteed: I or we assign and transfer this Security to ____________________________________________________________________ (Insert assignee's social security or tax ID number)________ ____________________________________________________________________ ____________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ______________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. ________________________________________________________________________________ Date:__________ Your signature:_____________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee:___________________________________________ OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Security purchased by the Company pursuant to Section 4.11 or 4.19 of the Indenture, check the appropriate Box: [_] Section 4.11 [_] Section 4.19 If you wish to have a portion of this Security purchased by the Company pursuant to Section 4.11 or 4.19 of the Indenture, state the amount: $________ Date:__________ Your Signature:__________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee:_______________________ EXHIBIT B ARTICLE XII GUARANTEE OF SECURITIES SECTION 12.1 Subsidiary Guarantee. -------------------- Subject to the provisions of this Article XII, each Subsidiary Guarantor hereby jointly and severally unconditionally guarantees to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Securities or the obligations of the Company or any other Subsidiary Guarantors to the Holders or the Trustee hereunder or thereunder, that: (a) the principal of, premium, if any, and interest on the Securities will be duly and punctually paid in full when due, whether at maturity, by acceleration or otherwise, and interest on the overdue principal and (to the extent permitted by law) interest, if any, on the Securities and all other obligations of the Company or the Subsidiary Guarantors to the Holders or the Trustee hereunder or thereunder (including fees or expenses) and all other obligations with respect to the Securities and this Indenture will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Securities, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at Stated Maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed, or failing performance of any other obligation of the Company to the Holders, for whatever reason, each Subsidiary Guarantor will be obligated to pay, or to perform or cause the performance of, the same immediately. An Event of Default under this Indenture or the Securities shall constitute an event of default under this Subsidiary Guarantee, and shall entitle the Holders of Securities to accelerate the obligations of the Subsidiary Guarantors hereunder in the same manner and to the same extent as the obligations of the Company. Each of the Subsidiary Guarantors hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Securities or this Indenture, the absence of any action to enforce the same, any waiver or consent by any holder of the Securities with respect to any provisions hereof or thereof, any release of any other Subsidiary Guarantor, the recovery of any judgment against the Company, any action to enforce the same, whether or not a Subsidiary Guarantee is affixed to any particular Security, or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each of the Subsidiary Guarantors hereby waives the benefit of diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and cove- B-1 nants that its Subsidiary Guarantee will not be discharged except by complete performance of the obligations contained in the Securities, this Indenture and this Subsidiary Guarantee. If any Holder or the Trustee is required by any court or otherwise to return to the Company or to any Subsidiary Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or such Subsidiary Guarantor, any amount paid by the Company or such Subsidiary Guarantor to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Subsidiary Guarantor further agrees that, as between it, on the one hand, and the Holders of Securities and the Trustee, on the other hand, (a) subject to this Article XII, the maturity of the obligations guaranteed hereby may be accelerated as provided in Article VI hereof for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (b) in the event of any acceleration of such obligations as provided in Article VI hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by the Subsidiary Guarantors for the purpose of this Subsidiary Guarantee. This Subsidiary Guarantee shall remain in full force and effect and continue to be effective should any petition be filed by or against the Company for liquidation or reorganization, should the Company become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of the Company's assets, and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Securities are, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee on the Securities, whether as a "voidable preference," "fraudulent transfer" or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Securities shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. No stockholder, officer, director, employer or incorporator, past, present or future, or any Subsidiary Guarantor, as such, shall have any personal liability under this Subsidiary Guarantee by reason of his, her or its status as such stockholder, officer, director, employer or incorporator. The Subsidiary Guarantors shall have the right to seek contribution from any non-paying Subsidiary Guarantor so long as the exercise of such right does not impair the rights of the Holders under this Subsidiary Guarantee. Each Subsidiary Guarantor, and by its acceptance hereof each Holder, hereby confirms that it is the intention of all such parties that the guarantee by each Subsidiary Guarantor pursuant to its Subsidiary Guarantee not constitute a fraudulent transfer B-2 or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To effectuate the foregoing intention, the Holders and each Subsidiary Guarantor hereby irrevocably agrees that the obligations of each Subsidiary Guarantor under the Subsidiary Guarantees shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of each Subsidiary Guarantor (including, but not limited to, the Guarantor Senior Indebtedness of each Subsidiary Guarantor) result in the obligations of each Subsidiary Guarantor under the Subsidiary Guarantees not constituting such fraudulent transfer or conveyance. SECTION 12.2 Execution and Delivery of Subsidiary Guarantee. ---------- To further evidence the Subsidiary Guarantee set forth in Section 12.1, each Subsidiary Guarantor hereby agrees that a notation of such Subsidiary Guarantee, substantially in the form included in Exhibit C hereto, shall be endorsed on each Security authenticated and delivered by the Trustee after such Subsidiary Guarantee is executed and executed by either manual or facsimile signature of an Officer of each Subsidiary Guarantor. The validity and enforceability of any Subsidiary Guarantee shall not be affected by the fact that it is not affixed to any particular Security. Each of the Subsidiary Guarantors hereby agrees that its Subsidiary Guarantee set forth in Section 12.1 shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation of such Subsidiary Guarantee. If an Officer of a Subsidiary Guarantor whose signature is on this Indenture or a Security no longer holds that office at the time the Trustee authenticates such Security or at any time thereafter, such Subsidiary Guarantor's Subsidiary Guarantee of such Security shall be valid nevertheless. The delivery of any Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of any Subsidiary Guarantee set forth in this Indenture on behalf of the Subsidiary Guarantor. SECTION 12.3 Additional Subsidiary Guarantors. -------------------------------- Any person may become a Subsidiary Guarantor by executing and delivering to the Trustee (a) a supplemental indenture in form and substance satisfactory to the Trustee, which subjects such person to the provisions of this Indenture as a Subsidiary Guarantor, and (b) an Opinion of Counsel to the effect that such supplemental indenture has been duly authorized and executed by such person and constitutes the legal, valid, binding and enforceable obligation of such person (subject to such customary exceptions concerning fraudulent conveyance laws, creditors' rights and equitable principles as may be acceptable to the Trustee in its discretion). B-3 SECTION 12.4 Release of a Subsidiary Guarantor. --------------------------------- (a) In the event that each other holder of Indebtedness of the Company or of any of the Company's Subsidiaries of which a Subsidiary Guarantor has guaranteed the payment thereof unconditionally releases a Subsidiary Guarantor of all of its obligations under such guarantee pursuant to a written agreement in form and substance satisfactory to the Trustee (other than a release resulting from payment under such guarantee) such Subsidiary Guarantor shall be automatically and unconditionally released from all obligations under its Subsidiary Guarantee; provided that a release of a Subsidiary Guarantor may only be obtained under the circumstances described in this sentence if an Officers' Certificate to that effect has been delivered to the Trustee. (b) In addition, except in the case where the prohibition on transfer in Section 5.1 is applicable, upon the sale or disposition of all (but not less than all) of the Capital Stock of a Subsidiary Guarantor by the Company or a Subsidiary of the Company, or upon the consolidation or merger of a Subsidiary Guarantor with or into any Person (in each case, other than to the Company or an Affiliate of the Company), such Subsidiary Guarantor shall be deemed automatically and unconditionally released and discharged from all obligations under this Article XII without any further action required on the part of the Trustee or any Holder; provided that each such Subsidiary Guarantor is sold or disposed of in accordance with Article V. (c) The Trustee shall deliver an appropriate instrument evidencing the release of a Subsidiary Guarantor upon receipt of a request of the Company accompanied by an Officers' Certificate certifying as to the compliance with this Section 12.4. Any Subsidiary Guarantor not so released or the entity surviving such Subsidiary Guarantor, as applicable, will remain or be liable under its Subsidiary Guarantee as provided in this Article XII. The Trustee shall execute any documents reasonably requested by the Company or a Subsidiary Guarantor in order to evidence the release of such Subsidiary Guarantor from its obligations under its Subsidiary Guarantee endorsed on the Securities and under this Article XII. Except as set forth in Articles IV and V and this Section 12.4, nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of a Subsidiary Guarantor with or into the Company or another Subsidiary Guarantor or shall prevent any sale or conveyance of the property of a Subsidiary Guarantor as an entirety or substantially as an entirety to the Company or another Subsidiary Guarantor. B-4 SECTION 12.5 Waiver of Subrogation. --------------------- Each Guarantor hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Company or any of its Subsidiaries that arise from the existence, payment, performance or enforcement of such Subsidiary Guarantor's obligations under this Subsidiary Guarantee and this Indenture, including, without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any Holder of Securities against the Company or any of its Subsidiaries, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company or any of its Subsidiaries, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Subsidiary Guarantor in violation of the preceding sentence and the Securities shall not have been paid in full, such amount shall have been deemed to have been paid to such Subsidiary Guarantor for the benefit of, and held in trust for the benefit of, the Holders of the Securities, and shall, subject to the subordination provisions of this Article and to Article XI, forthwith be paid to the Trustee for the benefit of such Holders to be credited and applied upon the Securities, whether matured or unmatured, in accordance with the terms of this Indenture. Each Subsidiary Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 12.5 is knowingly made in contemplation of such benefits. SECTION 12.6 Agreement to Subordinate. ------------------------ Each Subsidiary Guarantor covenants and agrees, and each Holder of Securities, by his acceptance thereof, likewise covenants and agrees, that the indebtedness represented by such Subsidiary Guarantor's Subsidiary Guarantee and the payment of the principal of and interest on each and all of the Securities pursuant to such Subsidiary Guarantor's Subsidiary Guarantee is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full of Guarantor Senior Indebtedness. Anything in the Subsidiary Guarantee, the Securities or in this Indenture to the contrary notwithstanding, the indebtedness evidenced by such Subsidiary Guarantor's Subsidiary Guarantee shall be subordinate and junior in right of payment, in all respects, to all Guarantor Senior Indebtedness of such Subsidiary Guarantor, whether outstanding at the Issue Date or incurred after the Issue Date. Without limiting the effect of the foregoing, "subordinate" and "junior" as used herein shall include within their meanings the following: (i) in the event of any insolvency or bankruptcy proceedings, and any receivership, liquidation, reorganization or other similar proceedings in connection therewith, relative to the Subsidiary Guarantor or its creditors or its property, and in B-5 the event of any proceedings for voluntary liquidation, dissolution or other winding up of the Subsidiary Guarantor, whether or not involving insolvency or bankruptcy proceedings, then (A) all Guarantor Senior Indebtedness of such Subsidiary Guarantor shall first be paid in full, or such payment be provided for, before any payment on account of principal or interest is made upon the Indebtedness evidenced by the Subsidiary Guarantee of such Subsidiary Guarantor, and (B) in any such proceedings any payment or distribution of any kind or character (including without limitation any distribution realized from or attributable to any security interest of the Holders of the Securities in property or assets of such Subsidiary Guarantor), whether in cash or property or securities which may be payable or deliverable in respect of the Subsidiary Guarantee of such Subsidiary Guarantor, shall be paid or delivered directly to the holders of such Guarantor Senior Indebtedness of such Subsidiary Guarantor (or the representative or representatives of such holders or the trustee or trustees under any indenture under which any instruments evidencing any of such Guarantor Senior Indebtedness of such Subsidiary Guarantor shall have been issued) for application in payment thereof, unless and until such Guarantor Senior Indebtedness of such Subsidiary Guarantor shall have been paid in full or such payment shall have been provided for; provided that (1) in the event that payment or delivery of such cash, property or securities to the Holders of the Securities is authorized by an order or decree giving effect, and stating in such order or decree that effect is given, to the subordination of the Subsidiary Guarantee of such Subsidiary Guarantor to Guarantor Senior Indebtedness of such Subsidiary Guarantor, and made by a court of competent jurisdiction in a reorganization proceeding under any applicable law, no payment or delivery of such cash, property or securities payable or deliverable with respect to the Securities need be made to the holders of Guarantor Senior Indebtedness of such Subsidiary Guarantor, (2) no such delivery need be made of securities which are issued pursuant to voluntary reorganization, dissolution, or liquidation proceedings by such Subsidiary Guarantor or by such Subsidiary Guarantor as reorganized, if such securities are subordinate and junior to the payment of all Guarantor Senior Indebtedness of such Subsidiary Guarantor then outstanding to the same extent as the Subsidiary Guarantee of such Subsidiary Guarantor and (3) if, pursuant to the foregoing, a payment or delivery of cash, property or securities is to be made to the holders of Guarantor Senior Indebtedness of such Subsidiary Guarantor (or their representative or representatives or the trustee or trustees under any indenture under which any instruments evidencing any such Guarantor Senior Indebtedness of such Subsidiary Guarantor shall have been issued) from a distribution realized from or attributable to any security interest of the Holders of the Securities in property or assets of such Subsidiary Guarantor, such payment or delivery shall be made (x) first, to the holders of any Guarantor Senior Indebtedness of such Subsidiary Guarantor (or their representative or representatives) secured equally and ratably with the Holders of the Securities with respect to such property or assets or to the trustee or trustees under any indenture under which any B-6 instruments evidencing any of such Guarantor Senior Indebtedness of such Subsidiary Guarantor shall have been issued, ratably according to the aggregate amounts remaining unpaid on account of such Guarantor Senior Indebtedness of such Subsidiary Guarantor held or represented by each, until such Guarantor Senior Indebtedness of such Subsidiary Guarantor shall have been paid in full or such payment shall have been provided for and (y) then, to the extent such payment or delivery shall not be required to pay the Guarantor Senior Indebtedness of such Subsidiary Guarantor referred to in the foregoing clause (x), to the other holders of Guarantor Senior Indebtedness of such Subsidiary Guarantor (or their representative or representatives or the trustee or trustees under any indenture under which any instruments evidencing any of such Guarantor Senior Indebtedness of such Subsidiary Guarantor shall have been issued), ratably according to the aggregate amounts remaining unpaid on account of such Guarantor Senior Indebtedness of such Subsidiary Guarantor held or represented by each, until such Guarantor Senior Indebtedness of such Subsidiary Guarantor shall have been paid in full or such payment shall have been provided for; (ii) no payment or prepayment of any principal, premium (if any) or interest on account of and no repurchase, redemption or other retirement (whether at the option of the Holder or otherwise) of the Securities shall be made, if at the time of such payment, prepayment, repurchase, redemption or retirement, or immediately after giving effect thereto, there shall exist a default in the payment or prepayment of any Guarantor Senior Indebtedness of such Subsidiary Guarantor; (iii) in the event that any Security is declared due and payable because of the occurrence of an Event of Default (under circumstances when the provisions of the foregoing clause (i) shall not be applicable), the Holders of the Securities shall be entitled to payment only after there shall first have been paid in full the Guarantor Senior Indebtedness of such Subsidiary Guarantor outstanding at the time such Security so becomes due and payable because of such Event of Default, or provision for such payment shall have been made; and (iv) in the event that (A) any of the events described in clauses (i), (ii) and (iii) occurs and (B) notwithstanding the provisions therein, any payment or distribution of assets of such Subsidiary Guarantor of any kind or character (including any distribution realized from or attributable to any security interest of the Holders of the Securities in property or assets of such Subsidiary Guarantor), whether in cash, property or securities, shall be received by the Holders of the Securities (or their representative or representatives or the Trustee under this Indenture) before all Guarantor Senior Indebtedness of such Subsidiary Guarantor shall have been paid in full, or provision made for such payment in accordance with the terms of the Guarantor Senior Indebtedness of such Subsidiary Guarantor, except as provided in sub- B-7 clauses (1) and (2) of the proviso to clause (i) above, such payment or distribution shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of such Guarantor Senior Indebtedness of such Subsidiary Guarantor (or their representative or representatives or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any of such Guarantor Senior Indebtedness of such Subsidiary Guarantor shall have been issued), as their respective interests may appear under said clauses (i), (ii) and (iii), for application to the payment of all such Guarantor Senior Indebtedness of such Subsidiary Guarantor remaining unpaid to the extent necessary to pay such Guarantor Senior Indebtedness of such Subsidiary Guarantor in full in accordance with its terms, after giving effect to any concurrent payment or distribution to the holders of such Guarantor Senior Indebtedness of such Subsidiary Guarantor. SECTION 12.7 Subrogation. ----------- Subject to the payment in full of all Guarantor Senior Indebtedness, holders of a Subsidiary Guarantee shall be subrogated to the rights of the holders of Guarantor Senior Indebtedness of such Subsidiary Guarantor to receive payments or distributions of cash, property or securities of such Subsidiary Guarantor applicable to Guarantor Senior Indebtedness of such Subsidiary Guarantor until all amounts owing on the Securities pursuant to such Subsidiary Guarantor's Subsidiary Guarantee shall be paid in full, and as between such Subsidiary Guarantor, its creditors other than holders of such Guarantor Senior Indebtedness, and holders of such Subsidiary Guarantee, no such payment or distribution made to the holders of such Guarantor Senior Indebtedness by virtue of this Article XII which otherwise would have been made to such holders shall be deemed to be a payment by such Subsidiary Guarantor on account of such Guarantor Senior Indebtedness, it being understood that the provisions of this Article XII are and are intended solely for the purpose of defining the relative rights of the holders of such Subsidiary Guarantee, on the one hand, and the holders of Guarantor Senior Indebtedness, on the other hand. SECTION 12.8 Relative Rights. --------------- Nothing contained in this Article XII or elsewhere in this Indenture or in the Securities or this Subsidiary Guarantee is intended to or shall impair, as between the Subsidiary Guarantor, its creditors other than the holders of its Guarantor Senior Indebtedness, and the holders of its Subsidiary Guarantee, the obligation of such Subsidiary Guarantor, which is absolute and unconditional, to pay to the holders of the Securities pursuant to its Subsidiary Guarantee the principal of and interest on the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of its Subsidiary Guarantee and creditors of such Subsidiary Guarantor other than the holders of its Guarantor Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any holder of its Subsidiary Guarantee B-8 from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article XII of the holders of Guarantor Senior Indebtedness to receive cash, property or securities otherwise payable or deliverable to the Securityholders. Upon payment or distribution of assets of such Subsidiary Guarantor referred to in this Article XII, the Trustee and the holders of the Securities shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any such dissolution, winding up, liquidation or reorganization proceeding affecting the affairs of such Subsidiary Guarantor is pending or upon a certificate of the trustee in bankruptcy, receiver, assignee for the benefit of creditors, liquidating trustee, or agent or other person making any payment or distribution, to the Trustee or to the holders of its Subsidiary Guarantee for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of its Guarantor Senior Indebtedness and other indebtedness of such Subsidiary Guarantor, the amount thereof or payable thereon, the amount paid or distributed thereon and all other facts pertinent thereto or to this Article XII. Nothing contained in this Article or elsewhere in this Indenture, or in any of the Securities or this Subsidiary Guarantee, shall affect the obligations of such Subsidiary Guarantor to make, or prevent such Subsidiary Guarantor from making, payment of the principal of or interest on the Securities pursuant to its Subsidiary Guarantee in accordance with the provisions hereof and thereof, except as otherwise provided in this Article XII. SECTION 12.9 Trustee to Effectuate Subordination. ----------------------------------- Each holder of a Subsidiary Guarantee, by his acceptance thereof, authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article XII and appoints the Trustee his attorney-in-fact for any and all such purposes. SECTION 12.10 Trustee Not Fiduciary for Holders of Guarantor Senior Indebtedness. --------------------------------- The Trustee shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior Indebtedness and shall not be liable to any such holders if it shall mistakenly pay over or distribute to holders of a Subsidiary Guarantee or any Subsidiary Guarantor or any other person moneys or assets to which any holders of Guarantor Senior Indebtedness shall be entitled by virtue of this Article XII or otherwise. SECTION 12.11 Notice By Subsidiary Guarantor. ------------------------------ The Subsidiary Guarantor shall give prompt written notice to the Trustee of any fact known to such Subsidiary Guarantor that would prohibit the making of any pay- B-9 ment of moneys to or by the Trustee pursuant to this Article. Subject to the provisions of Sections 7.1 and 7.5 but notwithstanding any other provisions of this Indenture, the Trustee and any Paying Agent shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of moneys to or by the Trustee or such Paying Agent, or the taking of any other action by the Trustee or such Paying Agent, unless and until the Trustee or such Paying Agent shall have received written notice thereof from such Subsidiary Guarantor at least three Business Days prior to the making of any such payment, the Securityholders, the holders of any Guarantor Senior Indebtedness or the representative of any such holders. SECTION 12.12 Rights of Trustee. ----------------- The Trustee shall be entitled to all the rights set forth in this Article XII with respect to any Guarantor Senior Indebtedness of such Subsidiary Guarantor by the time held by the Trustee, to the same extent as any other holder of Guarantor Senior Indebtedness. SECTION 12.13 Subsidiary Guarantor May Not Impair Subordination. --------------------- No right of any present or future holder of any Guarantor Senior Indebtedness of such Subsidiary Guarantor to enforce the subordination herein shall at any time or in any way be prejudiced or impaired by any act or failure to act on the part of such Subsidiary Guarantor or by any noncompliance by such Subsidiary Guarantor with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. SECTION 12.14 Rights of Paying Agent. ---------------------- In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context shall require otherwise) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article XII in addition to or in place of the Trustee; provided that Sections 12.11 and 12.12 shall not apply to such Subsidiary Guarantor if it acts as Paying Agent. B-10 EXHIBIT C GUARANTEE --------- For value received, the undersigned hereby unconditionally guarantees to the Holder of this Security the payments of principal of, premium, if any, and interest on this Security in the amounts and at the time when due and interest on the overdue principal, premium, if any, and interest, if any, of this Security, if lawful, and the payment or performance of all other obligations of the Company under the Indenture or the Securities, to the Holder of this Security and the Trustee, all in accordance with and subject to the terms and limitations of this Security, Article XI of the Indenture and this Subsidiary Guarantee. This Subsidiary Guarantee will become effective in accordance with Article XI of the Indenture and its terms shall be evidenced therein. The validity and enforceability of any Subsidiary Guarantee shall not be affected by the fact that it is not affixed to any particular Security. The obligations of the undersigned to the Holders of Securities and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly set forth in Article XI of the Indenture and reference is hereby made to the Indenture for the precise terms of the Subsidiary Guarantee and all of the other provisions of the Indenture to which this Subsidiary Guarantee relates. The Indebtedness evidenced by this Subsidiary Guarantee is, to the extent and in the manner provided in the Indenture, subordinate and subject in right of payment to the prior payment in full in cash or cash equivalents of all Guarantor Senior Indebtedness as defined in the Indenture, and this Subsidiary Guarantee is issued subject to such provisions. Each Holder of a Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee, on behalf of such Holder, to take such action as may be necessary to appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose, provided that such subordination provisions shall cease to affect amounts deposited in accordance with the defeasance provisions of the Indenture upon the terms and conditions set forth therein. This Subsidiary Guarantee is subject to release upon the terms set forth in the Indenture. [NAME OF GUARANTOR] By:______________________ Name: Title: EXHIBIT D FORM OF CERTIFICATE OF TRANSFER Navistar International Corporation 455 North Cityfront Plaza Drive Chicago, Illinois 60611 Attention: [Name and Address of Registrar] Re: 8% Senior Subordinated Notes due 2008 Reference is hereby made to the Indenture, dated as of February 4, 1998 (the "Indenture"), between Navistar International Corporation (the "Issuer") and Harris Trust and Savings Bank, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ________________, (the "Transferor") owns and proposes to transfer the Security[s] specified in Annex A hereto in the principal amount of $___ in such Security[s] (the "Transfer"), to ________ (the "Transferee"), as further specified in Annex A hereto. In the event that Transferor holds Physical Securities, this Certificate is accompanied by one or more certificates aggregating at least the principal amount of Securities proposed to be Transferred. In connection with the Transfer, the Transferor hereby certifies that: 1. [_] CHECK IF TRANSFEREE WILL TAKE AN INTEREST IN THE 144A GLOBAL SECURITY. --------------------------------------------------------------------- The Transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the Securities are being transferred to a Person that the Transferor reasonably believes is purchasing the Securities for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred Security will be subject to the restrictions on transfer enumerated in the Securities Act Legend and in the Indenture and the Securities Act. 2. [_] CHECK IF TRANSFEREE WILL TAKE AN INTEREST IN THE REGULATION S GLOBAL -------------------------------------------------------------------- SECURITY PURSUANT TO REGULATION S. The Transfer is being effected pursuant to - --------------------------------- and in accordance with Rule 904 under the Securities Act and, accordingly, the Transferor hereby fur- D-1 ther certifies that (i) the Transfer is not being made to a person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 904(b) of Regulation S under the Securities Act and (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the Security will be subject to the restrictions on Transfer enumerated in the Securities Act Legend printed on the Regulation S Global Security and in the Indenture and the Securities Act. 3. [_] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A RESTRICTED ------------------------------------------------------------------- PHYSICAL SECURITY PURSUANT TO RULE 144A OR REGULATION S. One or more of the - ------------------------------------------------------- events specified in Section 2.6(a) of the Indenture have occurred and the Transfer is being effected in compliance with the transfer restrictions applicable to Securities bearing the Securities Act Legend and pursuant to and in accordance with the Securities Act, and accordingly the Transferor hereby further certifies that (check one): (a) [_] such Transfer is being effected pursuant to and in accordance with Rule 144A under the Securities Act and the Transferor certifies to the effect set forth in paragraph 1 above; or (b) [_] such Transfer is being effected pursuant to and in accordance with Rule 904 under the Securities Act and the Transferor certifies to the effect set forth in paragraph 2 above. 4. [_] CHECK IF TRANSFEREE WILL TAKE AN INTEREST IN THE UNRESTRICTED GLOBAL -------------------------------------------------------------------- SECURITY. The Transfer is being effected pursuant to and in accordance with - -------- Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture, and the restrictions on transfer contained in the Indenture and the Securities Act Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transfer Securities will no longer be subject to the restrictions on transfer enumerated in the Securities Act Legend and in the Indenture and the Securities Act. 5. [_] CHECK IF TRANSFEREE WILL TAKE AN INTEREST IN THE PHYSICAL SECURITY ------------------------------------------------------------------ THAT DOES NOT BEAR THE SECURITIES ACT LEGEND One or more of the events - -------------------------------------------- specified in Section 2.6(a) of the Indenture have occurred and the Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer re- D-2 strictions contained in the Indenture, and the restrictions on transfer contained in the Indenture and the Securities Act Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred Securities will no longer be subject to the restrictions on transfer enumerated in the Securities Act Legend and in the Indenture and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Guarantors. _________________________________________ [Insert Name of Transferor] By:______________________________________ Name:_________________________________ Title:________________________________ Dated:____________ D-3 FORM OF ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) [_] Interest in the (i) [_] 144A Global Security (CUSIP _____), or (ii) [_] Regulation S Global Security (CINS _____). (b) [_] Physical Security. 2. That the Transferee will hold: [CHECK ONE] (a) [_] Interests in the: (i) [_] 144A Global Security (CUSIP _____), or (ii) [_] Regulation S Global Security (CINS _____), or (iii) [_] Unrestricted Global Security (CUSIP _____); or (b) [_] Physical Securities that bear the Securities Act Legend; (c) [_] Physical Securities that do not bear the Securities Act Legend; in accordance with the terms of the Indenture. D-4 EXHIBIT E FORM OF CERTIFICATE OF EXCHANGE Navistar International Corporation 455 North Cityfront Plaza Drive Chicago, Illinois 60611 Attention: [Name and Address of Registrar] Re: 8% Senior Subordinated Notes due 2008 (CUSIP _______________) Reference is hereby made to the Indenture, dated as of February 4, 1998 (the "Indenture"), between Navistar International Corporation (the "Issuer") and Harris Trust and Savings Bank, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. __________, (the "Holder") owns and proposes to exchange the Security[s] specified herein, in the principal amount of $___ in such Security[s] (the "Exchange"). In the event Holder holds Physical Securities, this Certificate is accompanied by one or more certificates aggregating at least the principal amount of Securities proposed to be Exchanged. In connection with the Exchange, the Holder hereby certifies that: 1. EXCHANGE OF RESTRICTED PHYSICAL SECURITIES OR INTERESTS IN THE INITIAL GLOBAL SECURITY FOR PHYSICAL SECURITIES THAT DO NOT BEAR THE SECURITIES ACT LEGEND OR UNRESTRICTED GLOBAL SECURITIES (a) [ ] CHECK IF EXCHANGE IS FROM INITIAL GLOBAL SECURITIES TO THE ---------------------------------------------------------- UNRESTRICTED GLOBAL SECURITY. In connection with the Exchange of the Holder's - ---------------------------- Initial Global Security to the Unrestricted Global Security in an equal principal amount, the Holder hereby certifies (i) the Unrestricted Global Securities are being acquired for the Holder's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Initial Global Securities and pursuant to and in accordance with the Securities Act of 1933, as amended (the "Securities Act") and (iii) the restrictions on transfer contained in the Indenture and the Securities Act Legend are not required in order to maintain compliance with the Securities Act. (B) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED PHYSICAL SECURITIES TO AN -------------------------------------------------------------- INTEREST IN THE UNRESTRICTED GLOBAL SECURITY. In connection with the Holder's - -------------------------------------------- Exchange of E-1 Restricted Physical Securities for Interest in the Unrestricted Global Security, (i) the Interest in the Unrestricted Global Security are being acquired for the Holder's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Physical Securities and pursuant to and in accordance with the Securities Act and (iii) the restrictions on transfer contained in the Indenture and the Securities Act Legend are not required in order to maintain compliance with the Securities Act. (C) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED PHYSICAL SECURITIES TO ----------------------------------------------------------- PHYSICAL SECURITIES THAT DO NOT BEAR THE SECURITIES ACT LEGEND. In connection - -------------------------------------------------------------- with the Holder's Exchange of a Restricted Physical Security for Physical Securities that do not bear the Securities Act Legend, the Holder hereby certifies (i) the Physical Securities that do not bear the Securities Act Legend are being acquired for the Holder's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Physical Securities and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Securities Act Legend are not required in order to maintain compliance with the Securities Act and (iv) one or more of the events specified in Section 2.6(a) of the Indenture have occurred. 2. [ ] CHECK IF EXCHANGE IS FROM RESTRICTED PHYSICAL SECURITIES TO INTERESTS --------------------------------------------------------------------- IN AN INITIAL GLOBAL SECURITY. In connection with the Exchange of the Holder's - ----------------------------- Restricted Physical Security for interests in the Initial Global Security in the [CHECK ONE] o 144A Global Security, o Regulation S Global Security, with an equal principal amount, (i) the interests in the Initial Global Security are being acquired for the Holder's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Physical Security and pursuant to and in accordance with the Securities Act. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Initial Global Security issued will be subject to the restrictions on transfer enumerated in the Securities Act Legend printed on the Initial Global Securities and in the Indenture and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Guarantors. __________________________________________ [Insert Name of Holder] By: ______________________________________ Name: Title: Dated:___________________ E-2 EX-4.5 4 PURCHASE AGREEMENT DATED 1/30/1998 EXHIBIT 4.5 NAVISTAR INTERNATIONAL CORPORATION $100,000,000 7% Senior Notes due 2003 Purchase Agreement January 30, 1998 J.P. MORGAN SECURITIES INC. CREDIT SUISSE FIRST BOSTON CORPORATION CHASE SECURITIES INC. c/o J.P. Morgan Securities Inc. 60 Wall Street New York, New York 10260-0060 Ladies and Gentlemen: Navistar International Corporation, a Delaware corporation (the "Company"), proposes to issue and sell to J.P. Morgan Securities Inc., Credit Suisse First Boston Corporation and Chase Securities Inc. (the "Initial Purchasers") $100,000,000 aggregate principal amount of its 7% Senior Notes due 2003 (the "Securities"). The Securities will be issued pursuant to the provisions of an Indenture to be dated as of February 4, 1998 (the "Indenture") by and between the Company and Harris Trust and Savings Bank as Trustee (the "Trustee"). The sale of the Securities to the Initial Purchasers will be made without registration of the Securities under the Securities Act of 1933, as amended, and the rules and regulations thereunder (collectively, the "Securities Act"), in reliance upon the exemption therefrom provided by Section 4(2) of the Securities Act. Holders of the Securities will have the benefits of a Registration Rights Agreement to be dated as of February 4, 1998 among the Company and the Initial Purchasers (the "Registration Rights Agreement"). The Company hereby agrees with the Initial Purchasers as follows: 1. The Company hereby agrees, upon the basis of your representations and warranties contained in Section 2 hereof, to issue and sell the Securities to the several Initial -2- Purchasers as hereinafter provided, and each Initial Purchaser, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees to purchase, severally and not jointly, from the Company the respective principal amount of Securities set forth opposite such Initial Purchaser's name in Schedule I hereto at a price equal to 98.5429% of their principal amount (the "Purchase Price") plus accrued interest, if any, from February 4, 1998. 2. The Company understands that the Initial Purchasers intend (x) to offer privately the Securities as soon after this Agreement has become effective as in the judgment of the Initial Purchasers is advisable and (y) initially to offer the Securities upon the terms set forth in the Offering Memorandum (as defined below). The Company confirms that it has authorized the Initial Purchasers, subject to the restrictions set forth below, to distribute copies of the Offering Memorandum in connection with the offering of the Securities. Each Initial Purchaser hereby makes to the Company the following representations, warranties and covenants: (i) it is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act; and (ii) (A) it will not solicit offers for, or offer to sell, the Securities by any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) and (B) it will solicit offers for the Securities only from, and will offer the Securities only to, (1) persons whom it reasonably believes to be "qualified institutional buyers" within the meaning of Rule 144A under the Securities Act or (2) upon the terms and conditions set forth in Annex I to this Agreement. 3. Payment for the Securities shall be made to the Company by wire transfer in immediately available funds, to the account specified by the Company to the Initial Purchasers at a bank reasonably acceptable to the Initial Purchasers no later than noon the Business Day (as defined below) prior to the Closing Date (as defined below), on February 4, 1998 or at such other time on the same or such other date, not later than the fifth Business Day thereafter, as the Initial Purchasers and the Company may agree upon in writing. The time and date of such payment for the Securities are referred to herein as the "Closing Date." As used herein, the term "Business Day" means any day other than a day on which banks are permitted or required to be closed in New York City. Payment for the Securities shall be made against delivery to the nominee of The Depository Trust Company for the account of the Initial Purchasers of one or more global notes representing such Securities (collectively, the "Global Notes"), with any transfer taxes -3- payable in connection with the transfer to the Initial Purchasers of the Securities duly paid by the Company. The Global Notes will be made available for inspection by the Initial Purchasers at the office of J.P. Morgan Securities Inc. at the address set forth above not later than 1:00 P.M., New York City time, on the Business Day prior to the Closing Date. 4. The Company represents and warrants to each of the Initial Purchasers that: (a) A preliminary offering memorandum, dated January 22, 1998 (the "Preliminary Offering Memorandum") and an offering memorandum, dated January 30, 1998 (the "Offering Memorandum") have been prepared in connection with the offering of the Securities. The Preliminary Offering Memorandum or the Offering Memorandum and any amendments or supplements thereto did not and will not, as of their respective dates, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, provided that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information relating to any Initial Purchaser furnished to the Company in writing by such Initial Purchaser expressly for use therein; (b) the audited financial statements, and the related notes thereto, included in the Offering Memorandum present fairly the consolidated financial position of the Company and its subsidiaries and the results of their respective operations and the changes in their respective consolidated cash flows, as of the dates and for the periods indicated, and said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved; the summary and selected financial and statistical data included in the Offering Memorandum present fairly the information shown therein and have been prepared and compiled on a basis consistent with the audited and unaudited financial statements of the Company, except as otherwise stated therein; and Deloitte & Touche LLP, who are reporting upon the audited consolidated financial statements of the Company and its consolidated subsidiaries (each a "Subsidiary," and collectively, the "Subsidiaries"), and the related schedules included in the Offering Memorandum, are independent public accountants as defined in the Securities Act; (c) the Company owns, directly or indirectly, free and clear of any mortgage, pledge, security interest, lien, claim or other encumbrance or restriction on transferability or voting (other than as may be imposed by the Securities Act and the various state securities laws), all of the outstanding capital stock of each Subsidiary of the Company; all of the outstanding capital stock of each Subsidiary of the Com- -4- pany has been duly authorized and validly issued and is fully paid and non- assessable; (d) since the respective dates as of which information is given in the Offering Memorandum there has not been (A) any change in the Company's issued capital stock, warrants or options except pursuant to the terms of the instruments governing the same or pursuant to the exercise of such options or warrants, or the issuance of certain options or (B) any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, the management, business, prospects, financial position, stockholder's equity or results of operations, of the Company and the Subsidiaries, taken as a whole (a "Material Adverse Change"); (e) since the respective dates as of which information is given in the Offering Memorandum, except as disclosed therein, (i) there have been no transactions entered into by the Company or by any of the Subsidiaries, including those entered into in the ordinary course of business, which are material to the Company and the Subsidiaries taken as a whole; and (ii) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock, except for quarterly dividends in accordance with the Company's past practice; (f) the Company and each Subsidiary has been duly incorporated under the laws of its jurisdiction of incorporation; the Company and each Subsidiary is a validly existing corporation in good standing under the laws of its jurisdiction of incorporation, with full power and corporate authority to own, lease and operate its properties and conduct its business as described in the Offering Memorandum, and is duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, except where the failure to be so qualified or in good standing would not reasonably be expected to have a material adverse effect on the general affairs, business, prospects, management, financial position, stockholder's equity or results of operations of the Company and the Subsidiaries, taken as a whole (a "Material Adverse Effect"); (g) this Agreement has been duly authorized, executed and delivered by the Company; (h) the Registration Rights Agreement has been duly authorized by the Company, and when executed and delivered by the Company (assuming due authorization, execution and delivery thereof by the Initial Purchasers), the Registration Rights Agreement will constitute a legal, valid and binding agreement of the -5- Company enforceable against the Company in accordance with its terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought; (i) the execution and delivery of the Indenture has been duly and validly authorized by the Company and, when executed and delivered by the Company (assuming due authorization, execution and delivery thereof by the Trustee), the Indenture will constitute a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought; and the Securities and the Indenture conform in all material respects to the descriptions thereof in the Offering Memorandum; (j) the Securities have been duly and validly authorized by the Company for issuance and when executed by the Company and authenticated by the Trustee in accordance with the provisions of the Indenture, and delivered to and paid for by the Initial Purchasers in accordance with the terms hereof, will have been duly executed, authenticated, issued and delivered and will constitute legal, valid and binding obligations of the Company entitled to the benefits provided by the Indenture and enforceable against the Company in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought; (k) the execution and delivery by the Company of, and the performance by the Company of all of the provisions of its obligations under, this Agreement, the Indenture, the Registration Rights Agreement, the Securities and the consummation by the Company of the transactions herein and therein contemplated and as set forth in the Offering Memorandum, (i) have been duly authorized by all necessary corporate action on the part of the Company, (ii) do not and will not result in any violation of the Certificate of Incorporation or the By-laws of the Company and (iii) do not and will not conflict with, or result in a breach or violation of any of the terms or provisions of, or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, or give rise to any right to accelerate the maturity or require the prepayment of any indebtedness or the purchase of -6- any capital stock under, or result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of the Company or of any Subsidiary under, (A) any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, partnership agreement or other agreement or instrument to which the Company or any such Subsidiary is a party or by which any of them may be bound or to which any of their respective properties or assets may be subject, (B) (assuming compliance with the Securities Act with respect to the exchange of the Securities for the Exchange Securities (as defined in the Registration Rights Agreement) and the other obligations of the Company under the Registration Rights Agreement) any applicable law or statute, rule or regulation (other than the securities or Blue Sky laws of the various states of the United States of America) or (C) any judgment, order or decree of any government, governmental instrumentality, agency, body or court, domestic or foreign, having jurisdiction over the Company or any such Subsidiary or any of their respective properties or assets, except, with respect to clause (iii), any violation, conflict, or breach which would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; (l) neither the Company nor any agent acting on its behalf has taken or will take any action that will cause this Agreement or the sale, issuance, execution or delivery of the Securities to violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System, in each case as in effect, or as the same may hereafter be in effect, on the Closing Date; (m) the Company and each Subsidiary has good and marketable title to all real and personal property described in the Offering Memorandum as being owned by it and good and marketable title to a leasehold estate in the real and personal property described therein as being leased by it, free and clear of all liens, charges, encumbrances or restrictions, except, in each case, as described in the Offering Memorandum or to the extent the failure to have such title or the existence of such liens, charges, encumbrances or restrictions would not reasonably be expected to have a Material Adverse Effect; (n) no authorization, approval, consent, order, registration, qualification or license of, or filing with, any government, governmental instrumentality, agency, body or court, domestic or foreign or third party (other than as have been or will be prior to the Closing Date obtained under the securities or Blue Sky laws of the various states of the United States of America and assuming compliance with the Securities Act with respect to the exchange of the Securities for the Exchange Securities and the other obligations of the Company under the Registration Rights Agreement), is required for the valid authorization, issuance, sale and delivery of the Securities, or the performance by the Company of all of its obligations under this Agreement, -7- the Indenture, the Registration Rights Agreement or the Securities, or the consummation by the Company of the transactions contemplated by this Agreement, the Indenture, the Registration Rights Agreement or the Offering Memorandum, except where the failure to obtain such authorization, approval, consent, order, registration, qualification or license or to make any such filing would not reasonably be expected, individually or in the aggregate, to have a material adverse effect on the consummation of the transactions contemplated in, or the fulfillment of the terms of, this Agreement, the Offering Memorandum, the Indenture or the Registration Rights Agreement; (o) neither the Company nor any of the Subsidiaries (i) is in violation of its Certificate of Incorporation or By-Laws or (ii) is in breach or violation of any of the terms or provisions of, or with the giving of notice or lapse of time, or both, would be in default under, any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, partnership agreement, or other agreement or instrument to which the Company or any Subsidiary is a party or by which any of them may be bound or to which any of their properties or assets may be subject, except for such violations or defaults that would not reasonably be expected to have a Material Adverse Effect; (p) except as described in the Offering Memorandum, there is no action, suit or proceeding before or by any government, governmental instrumentality, agency, body or court, domestic or foreign, now pending or, to the best knowledge of the Company after due inquiry, threatened against or affecting the Company or any of the Subsidiaries that could reasonably be expected to have a Material Adverse Effect or that could reasonably be expected to have a material adverse effect on the consummation of the transactions contemplated in, or the fulfillment of the terms of, this Agreement, the Offering Memorandum, the Indenture or the Registration Rights Agreement; there is no action, suit or proceeding before or by any government, governmental instrumentality, agency, body or court, now pending, or to the best knowledge of the Company, threatened against or affecting the Company or any of the Subsidiaries that would be required to be described in a registration statement pursuant to Item 103 of Regulation S-K filed pursuant to the Securities Act that is not described in the Offering Memorandum; (q) each of the Company and the Subsidiaries owns, possesses or has obtained all material licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made all material declarations and filings with, all federal, state, local and other governmental authorities (including foreign regulatory agencies) and all courts and other tribunals, domestic or foreign, necessary to own or lease, as the case may be, and to operate its properties and to carry on its -8- business as conducted as of the date hereof, except in each case where the failure to obtain licenses, permits, certificates, consents, orders, approvals and other authorizations, or to make all declarations and filings, would not reasonably be expected to have a Material Adverse Effect, and none of the Company or any of the Subsidiaries has received any notice of any proceeding relating to revocation or modification of any such license, permit, certificate, consent, order, approval or other authorization, except as described in the Offering Memorandum and except, in each case, where such revocation or modification would not reasonably be expected to have a Material Adverse Effect; and the Company and each of the Subsidiaries are in material compliance with all laws and regulations relating to the conduct of their respective businesses as conducted as of the date hereof, except where noncompliance with such laws or regulations would not reasonably be expected to have a Material Adverse Effect; (r) neither the Company nor any affiliate (as defined in Rule 501(b) of Regulation D under the Securities Act ("Regulation D")) of the Company has directly, or through any agent, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the sale of the Securities in a manner that would require the registration under the Securities Act of the offering contemplated by the Offering Memorandum; (s) neither the Company nor, to the best of the Company's knowledge, any person acting on its behalf has offered or sold the Securities by means of any general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act or, with respect to Securities sold outside the United States to non-U.S. persons (as defined in Rule 902 under the Securities Act), by means of any directed selling efforts within the meaning of Rule 902 under the Securities Act and the Company and any of its affiliates and any person acting on their behalf has complied with and will implement the "offering restriction" within the meaning of such Rule 902; (t) it is not necessary in connection with the offer, sale and delivery of the Securities in the manner contemplated by this Agreement to register the Securities under the Securities Act or to qualify an indenture under the TIA; and (u) the Securities satisfy the requirements set forth in Rule 144A(d)(3) under the Securities Act. 5. The Company covenants and agrees with each Initial Purchaser as follows: -9- (a) before distributing any amendment or supplement to the Offering Memorandum, to furnish to the Initial Purchasers a copy of the proposed amendment or supplement for review and not to distribute any such proposed amendment or supplement to which the Initial Purchasers reasonably object; (b) if, at any time prior to the completion of the initial placement of the Securities, any event shall occur as a result of which it is necessary to amend or supplement the Offering Memorandum in order that the Offering Memorandum does not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances at the time the Offering Memorandum is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the Offering Memorandum to comply with law, forthwith to prepare and furnish, at the sole expense of the Company, to the Initial Purchasers and to the dealers (whose names and addresses the Initial Purchasers will furnish to the Company) to which Securities may have been sold by the Initial Purchasers on behalf of the Initial Purchasers and to any other dealers upon request, such amendments or supplements to the Offering Memorandum as may be necessary so that the Offering Memorandum as so amended or supplemented will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances at the time the Offering Memorandum is delivered to a purchaser, not misleading or so that the Offering Memorandum will comply with law; (c) to use its best efforts (i) to register or qualify the Securities for offering and sale by the Initial Purchasers and by dealers under the securities or Blue Sky laws of such jurisdictions as the Initial Purchasers shall reasonably request and to continue such qualifications in effect so long as reasonably required for distribution of the Securities and (ii) to pay all fees and expenses (including reasonable fees and disbursements of counsel for the Initial Purchasers) incurred in connection with the determination of the eligibility of the Securities for investment under the laws of such jurisdictions as the Initial Purchasers may designate; provided that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action that would subject it to taxation or service of process in suits, other than those arising out of the offering or sale of the Securities, in any jurisdiction where it is not now so subject; (d) so long as the Securities are outstanding, to furnish to the Initial Purchasers copies of all reports or other communications (financial or other) required to be furnished to holders of the Securities, and copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange; -10- (e) during the period beginning on the date hereof and continuing to and including the Business Day following the Closing Date, not to offer, sell, contract to sell, or otherwise dispose of any debt securities of or guaranteed by the Company which are substantially similar to the Securities except as otherwise contemplated by the Offering Memorandum; (f) to use the net proceeds of the offering of Securities as set forth in the Offering Memorandum under the caption "Use of Proceeds"; (g) if requested by you, to use its best efforts to cause such Securities to be eligible for trading in the PORTALSM Market ("PORTAL") of the Nasdaq Stock Market, Inc.; (h) to furnish to the registered holders of the Securities within a reasonable period of time after such information is filed with the Commission an annual report (including a balance sheet and statements of income, stockholder's equity and cash flows of the Company and its consolidated subsidiaries certified by independent public accountants) and, as soon as reasonably practicable after such information is filed with the Commission with respect to the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the date of the Offering Memorandum), consolidated summary financial information of the Company and its subsidiaries of such quarter in reasonable detail; (i) during the period of two years after the Closing Date, not to, and not to permit any of its "affiliates" (as defined in Rule 144 under the Securities Act) to, resell any of the Securities which constitute "restricted securities" under Rule 144 that have been reacquired by any of them; (j) to pay all costs and expenses incident to the performance of its obligations hereunder, including without limiting the generality of the foregoing, all costs and expenses (i) incident to the preparation, issuance, execution, authentication and delivery of the Securities, (including any reasonable expenses of the Trustee and the Trustee's counsel), (ii) incident to the preparation and printing of the Offering Memorandum and any preliminary offering memorandum (including in each case all exhibits, amendments and supplements thereto), (iii) incurred in connection with the registration or qualification of the Securities under the laws of such jurisdictions as the Initial Purchasers may designate (including fees and disbursements of Cahill Gordon & Reindel, counsel for the Initial Purchasers, in connection with such registration or qualification (not to exceed $10,000)), (iv) in connection with the printing (including word processing and duplication costs) and delivery of this Agreement, the Indenture and the Registration Rights Agreement, including mailing and -11- shipping, as herein provided, (v) payable to rating agencies in connection with the rating of the Securities and (vi) qualifying the Securities for trading in PORTAL; (k) to take all reasonable action that is appropriate or necessary to assure that its offerings of other securities will not be integrated for purposes of the Securities Act with the offerings contemplated hereby; (l) not to solicit any offer to buy or offer to sell Securities by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) of Regulation D under the Securities Act; (m) while the Securities remain outstanding and are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, during any period in which it is not subject to Section 13 or 15(d) under the Exchange Act, to make available to the Initial Purchasers and any holder of Securities in connection with any sale thereof and any prospective purchaser of Securities, in each case upon request and within a reasonable time period, the information specified in, and meeting the requirements of, Rule 144A(d)(4) ("Rule 144A(d)(4) Information") under the Securities Act (or any successor thereto); (n) not to take any action prohibited by Regulation M under the Exchange Act (or any successor provision), in connection with the distribution of the Securities contemplated hereby; (o) during the period of two years after the Closing Date, the Company will, upon request, furnish to each of the Initial Purchasers and any holder of Securities a copy of the restrictions on transfer applicable to the Securities; and (p) during the period of two years after the Closing Date, the Company will not be or become an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act. 6. The several obligations of the Initial Purchasers hereunder to purchase the Securities on the Closing Date are subject to the performance by the Company of its obligations hereunder and to the following additional conditions: (a) each of the representations and warranties of the Company contained herein shall be true and correct on and as of the Closing Date as if made on and as of the Closing Date and the Company shall have complied, in all material respects, -12- with all agreements and all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date; (b) subsequent to the execution and delivery of this Agreement and prior to the Closing Date, there shall not have occurred any downgrading, nor shall any notice have been given of (i) any intended or potential downgrading or (ii) any review or possible change that does not indicate an improvement, in the rating accorded any securities of or guaranteed by the Company by any "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Securities Act; (c) since the respective dates as of which information is given in the Offering Memorandum there shall not have been any Material Adverse Change, otherwise than as set forth in the Offering Memorandum, the effect of which in the sole judgment of the Initial Purchasers makes it impracticable or inadvisable to proceed with the offering or the delivery of the Securities on the terms and in the manner contemplated in the Offering Memorandum; (d) the Initial Purchasers shall have received on and as of the Closing Date a certificate, addressed to the Initial Purchasers and dated the Closing Date, of an executive officer of the Company satisfactory to the Initial Purchasers to the effect set forth in subsections (a) through (c) of this Section and to the further effect that since the respective dates as of which information is given in the Offering Memorandum there has not occurred any Material Adverse Change, otherwise than as set forth in the Offering Memorandum, provided that the officer making such certificate may rely upon his knowledge as to pending or threatened proceedings; (e) the Initial Purchasers shall have received on the Closing Date a signed opinion of Kirkland & Ellis, special counsel for the Company, in form and substance satisfactory to Cahill Gordon & Reindel, counsel to the Initial Purchasers, dated the Closing Date and addressed to the Initial Purchasers, to the effect as set forth in Annex III hereto. (f) the Initial Purchasers shall have received on the Closing Date a signed opinion of Robert Boardman, General Counsel of the Company, in form and substance satisfactory to Cahill Gordon & Reindel, counsel to the Initial Purchasers, dated the Closing Date and addressed to the Initial Purchasers to the effect that: (i) the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware with full power and authority (corporate and other) to own, lease and operate -13- its properties and to conduct its business as described in the Offering Memorandum; (ii) the Company has been duly qualified as a foreign corporation for the transaction of business and is in good standing in each jurisdiction in which it owns or leases properties, or conducts business, so as to require such qualification, except where the failure to be in good standing would not reasonably be expected to have a Material Adverse Effect; (iii) each Subsidiary has been duly incorporated and is validly existing as a corporation under the laws of its jurisdiction of incorporation with power and authority (corporate and other) to own, lease and operate its properties and to conduct its business, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing in each jurisdiction in which it owns or leases properties, or conducts business, so as to require such qualification, except where the failure to be in good standing would not reasonably be expected to have a Material Adverse Effect; (iv) the authorized capital stock of the Company is as set forth in the Offering Memorandum; (v) all the outstanding shares of capital stock of each Subsidiary have been duly authorized and validly issued and are fully paid and non-assessable, and, except as otherwise set forth in the Offering Memorandum, are directly or indirectly owned by the Company free and clear of any mortgage, pledge, security interest, lien, claim or other encumbrance or restriction on transferability or voting (other than as may be imposed by the Securities Act and the various state securities laws); (vi) all of the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; (vii) except as described in the Offering Memorandum, there is no action, suit or proceeding before or by any government, governmental instrumentality, agency, body or court, domestic or foreign, now pending or, to the best knowledge of such counsel after reasonable investigation, threatened against or affecting the Company or any of the Subsidiaries that could reasonably be expected to have a Material Adverse Effect or that could reasonably be expected to have a material adverse effect on the consummation of the transactions contemplated in, or the fulfillment of the terms of, this -14- Agreement, the Offering Memorandum, the Indenture or the Registration Rights Agreement; there is no action, suit or proceeding before or by any government, governmental instrumentality, agency, body or court, now pending, or to the best knowledge of such counsel after reasonable investigation, threatened against or affecting the Company or any Subsidiary that would be required to be described in a registration statement filed pursuant to the Securities Act that is not described in the Offering Memorandum; and (viii) the execution and delivery by the Company of, and the performance by the Company of all of the provisions of its obligations under, this Agreement, the Indenture, the Registration Rights Agreement, the Securities, and the consummation by the Company of the transactions contemplated therein and in the Offering Memorandum, do not and will not conflict with, or result in a breach or violation of any of the terms or provisions of, or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, or give rise to any right to accelerate the maturity or require the prepayment of any indebtedness or the purchase of any capital stock under, or result in the creation or imposition of any lien, charge or encumbrance upon any material properties or assets of the Company or of any Subsidiary under, (A) any material contract, indenture, mortgage, deed of trust, loan agreement note, lease, partnership agreement or other agreement or instrument known to such counsel after reasonable investigation to which the Company or any Subsidiary is a party or by which any of them may be bound or to which any of their respective properties or assets may be subject or (B) any judgment, order or decree of any government, governmental instrumentality, agency, body or court, domestic or foreign, having jurisdiction over the Company or any Subsidiary or any of their respective properties or assets known to such counsel after reasonable investigation except, with respect to clauses (A) and (B), any breach or violation that would not reasonably be expected to have a Material Adverse Effect. Such counsel shall also advise, based on its participation in the preparation of the Offering Memorandum and conferences with officers and representatives of the Company, representatives of the independent public accountants for the Company, representatives of the Initial Purchasers and counsel to the Initial Purchasers, that nothing has come to its attention that leads it to believe that the Offering Memorandum (as supplemented, if applicable) (other than the financial statements, supporting schedules and other financial and statistical data set forth therein, as to which no advice need be given), as of its date or as of the Closing Date, contained or contains an untrue statement of a material fact or omitted or -15- omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (g) on the date of the issuance of the Offering Memorandum and also on the Closing Date, Deloitte & Touche shall have furnished to the Initial Purchasers letters, dated the respective dates of delivery thereof, in form and substance satisfactory to the Initial Purchasers, containing statements and information of the type customarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information relating to the Company contained in the Offering Memorandum; (h) the Company shall have executed and delivered the Registration Rights Agreement substantially in the form attached hereto as Annex II; (i) the Initial Purchasers shall have received on and as of the Closing Date an opinion of Cahill Gordon & Reindel, counsel to the Initial Purchasers, with respect to the validity of the Indenture and the Securities, and such other related matters as the Initial Purchasers may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (j) the Initial Purchasers shall have received on and as of the Closing Date a certificate dated the Closing Date and addressed to the Initial Purchasers signed by the Executive Vice President - Chief Financial Officer, Vice President and Treasurer of the Company or the Vice President and Controller to the effect that neither the Company nor any of its Subsidiaries is in breach or violation of any of the terms or provisions of, or with the giving of notice or lapse of time, or both, would be in default under any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, partnership agreement, or other agreement or instrument to which the Company or any Subsidiary is a party or by which any of them may be bound or to which any of their respective properties or assets may be subject, except for any such breach or violation which would not have a Material Adverse Effect; (k) on or prior to the Closing Date the Company shall have furnished to the Initial Purchasers such further certificates and documents as the Initial Purchasers or their counsel, Cahill Gordon & Reindel, shall reasonably request; and (l) on or prior to the Closing Date the Company shall have furnished to the Initial Purchasers a duly executed waiver and amendment to the Mexico Credit Agreement (as defined in the Offering Memorandum) in form and substance satisfactory to them. -16- 7. The Company agrees to indemnify and hold harmless each Initial Purchaser, its officers and directors, and each person, if any, who controls any Initial Purchaser within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, the reasonable legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted) caused by any untrue statement or alleged untrue statement of a material fact contained in the Offering Memorandum (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary offering memorandum or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission (i) made in reliance upon and in conformity with information relating to the Initial Purchasers furnished to the Company in writing by the Initial Purchasers expressly for use therein or (ii) contained in the Preliminary Offering Memorandum if any Initial Purchaser failed to send or deliver a copy of the Offering Memorandum to a U.S. person (as defined in Regulation S) and who asserts such losses, claims, damages or liabilities on or prior to the delivery of written confirmation of sale of the Securities to such person and such Offering Memorandum would have corrected such untrue statement or omission and it shall have been determined that such losses, claims, damages or liabilities would not have arisen had the Offering Memorandum been delivered or sent. Each Initial Purchaser agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors and officers and each person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to each Initial Purchaser, but only with reference to information relating to such Initial Purchaser furnished to the Company in writing by such Initial Purchaser expressly for use in the Offering Memorandum, any amendment or supplement thereto, or any preliminary offering memorandum. For purposes of this Section 7 and paragraphs (a) and (b) of Section 4 hereof, the only written information furnished by the Initial Purchasers to the Company expressly for use in the Offering Memorandum is the information in the last paragraph of the cover page of the Offering Memorandum, the fourth paragraph on page 2 of the Offering Memorandum and the first, third, fifth, eighth and ninth paragraphs under the caption in the "Plan of Distribution" section of the Offering Memorandum. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such person -17- (the "Indemnified Person") shall promptly notify the person against whom such indemnity may be sought (the "Indemnifying Person") in writing, and the Indemnifying Person, upon request of the Indemnified Person, shall retain counsel satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Person has failed within a reasonable time to retain counsel satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such reasonable fees and expenses shall be reimbursed as they are incurred. Any such separate firm for the Initial Purchasers and such control persons of Initial Purchasers shall be designated in writing by J.P. Morgan Securities Inc. and any such separate firm for the Company, its directors and officers and such control persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested an Indemnifying Person to reimburse the Indemnified Person for fees and expenses of counsel as contemplated by the third sentence of this paragraph, the Indemnifying Person agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 60 days after receipt by such Indemnifying Person of the aforesaid request and (ii) such Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement (or delivered a notice to such Indemnified Person setting forth its good faith objection to such request's conformity to the provisions of this Section 7). No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional written release, in form and substance reasonably satisfactory to the Indemnified Person, of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. -18- If the indemnification provided for in the first and second paragraphs of this Section 7 is for any reason unavailable to, or insufficient to hold harmless, an Indemnified Person in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchasers on the other hand from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Initial Purchasers on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Initial Purchasers on the other shall be deemed to be in the same respective proportions as the net proceeds from the offering (before deducting expenses) received by the Company and the total discounts and the commissions actually received by the Initial Purchasers, in each case as set forth in the table on the cover of the Offering Memorandum, bear to the aggregate offering price of the Securities. The relative fault of the Company on the one hand and the Initial Purchasers on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Initial Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall an Initial Purchaser be required to contribute any amount in excess of the amount by which the total price at which the Securities purchased by it were offered exceeds the amount of any damages that such Initial Purchaser has otherwise been required to pay or has paid by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not -19- guilty of such fraudulent misrepresentation. The Initial Purchasers' obligations to contribute pursuant to this Section 7 are several in proportion to the respective principal amounts of Securities set forth opposite their names in Schedule I hereto, and not joint. The indemnity and contribution agreements contained in this Section 7 are in addition to any liability which the Indemnifying Persons may otherwise have to the Indemnified Persons referred to above. The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Company as set forth in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Initial Purchaser or any person controlling any Initial Purchaser or by or on behalf of the Company, its officers or directors or any other person controlling the Company and (iii) acceptance of and payment for any of the Securities. 8. Notwithstanding anything herein contained, this Agreement may be terminated in the absolute discretion of the Initial Purchasers, by notice given to the Company, if after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange or the National Association of Securities Dealers, Inc., (ii) trading of any securities of or guaranteed by the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in the judgment of the Initial Purchasers, is material and adverse and which, in the judgment of the Initial Purchasers, makes it impracticable or inadvisable to market the Securities on the terms and in the manner contemplated in the Offering Memorandum. 9. This Agreement shall become effective upon the execution and delivery hereof by the parties hereto. 10. If this Agreement shall be terminated by the Initial Purchasers because of any failure or refusal on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company shall be unable to perform its obligations under this Agreement, the Company agrees to reimburse the Initial Purchasers for all out-of-pocket expenses (including the reasonable fees and expenses of their counsel) reasonably incurred by the Initial Purchasers in connection with this Agreement or the offering contemplated hereunder. The Company shall not be obligated to reimburse the Initial Purchasers for any out-of-pocket expenses reasonably incurred by the Ini- -20- tial Purchasers if this Agreement is terminated by the Initial Purchasers pursuant to Section 8(i), (iii) and (iv) hereof. 11. This Agreement shall inure to the benefit of and be binding upon the Initial Purchasers and the Company, any controlling person referred to herein and their respective successors, heirs and legal representatives. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Initial Purchasers and the Company and their respective successors, heirs and legal representatives and the controlling persons and officers and directors referred to in Section 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. No purchaser of Securities from any Initial Purchaser shall be deemed to be a successor merely by reason of such purchase. 12. Any action by the Initial Purchasers hereunder may be taken by the Initial Purchasers jointly or by J.P. Morgan Securities Inc. alone or on behalf of the Initial Purchasers, and any such action taken by J.P. Morgan Securities Inc. alone shall be binding upon the Initial Purchasers. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Initial Purchasers shall be given to them at the following address: J.P. Morgan Securities Inc., 60 Wall Street, New York, New York 10260; Attention: Syndicate Department. Notices to the Company shall be given to it at 455 North Cityfront Plaza Drive, Chicago, Illinois 60611; Attention: Vice President and Treasurer (facsimile (312) 836-2573) with a copy to the Company's General Counsel at the same address. 13. This Agreement may be signed in counterparts, each of which shall be an original (or a facsimile copy thereof) and all of which together shall constitute one and the same instrument. 14. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PROVISIONS THEREOF. S-1 If the foregoing is in accordance with your understanding, please sign and return four counterparts hereof. Very truly yours, NAVISTAR INTERNATIONAL CORPORATION By: /s/ Thomas M. Hough ------------------------ Name: Thomas M. Hough Title: Vice President & Treasurer Accepted: January 30, 1998 J.P. MORGAN SECURITIES INC. CREDIT SUISSE FIRST BOSTON CORPORATION CHASE SECURITIES INC. By: J.P. Morgan Securities Inc. By: /s/ Douglas A. Cruikshank -------------------------------- Name: Douglas A. Cruikshank Title: Vice President ANNEX I (A) In addition to offers pursuant to clause (B)(1) of paragraph 2(ii) of the Agreement, the Initial Purchasers intend to offer and sell the Securities in accordance with Regulation S under the Securities Act. Accordingly, each Initial Purchaser agrees that neither it, its affiliates nor any persons acting on its or their behalf has engaged or will engage in any directed selling efforts with respect to the Securities and it and they have complied and will comply with the offering restrictions requirement of Regulation S. Each Initial Purchaser agrees that, at or prior to confirmation of sale of Securities (other than a sale pursuant to and in accordance with paragraph 2(ii) of the Agreement to purchasers described in clause (B)(1) thereof), it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Securities from it during the restricted period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933 (the "Act") and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the closing date, except in either case in accordance with Regulation S (or Rule 144A if available) under the Act. Terms used above have the meaning given to them by Regulation S." Terms used in this paragraph have the meanings given to them by Regulation S. Each of the Initial Purchasers further agrees that it has not entered and will not enter into any contractual arrangement with respect to the distribution or delivery of the Securities in accordance with this paragraph (A), except with its affiliates or with the prior written consent of the Company. (B) Each of the Initial Purchasers severally represents and agrees that (i) it has not offered or sold and prior to the date six months after the date of issue of the Securities will not offer or sell any Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their business or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995, (ii) it has complied, and will comply with all applicable provisions of the Financial Services Act 1986 and any regulation promulgated thereto of Great Britain with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom, and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any AI-2 document received by it in connection with the issue of the Securities to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on. (C) Each of the Initial Purchasers agrees that it will not offer, sell or deliver any of the Securities in any jurisdiction outside the United States except under circumstances that will result in compliance with the applicable laws thereof, and that it will take at its own expense whatever action is required to permit its purchase and resale of the Securities in such jurisdictions. Each of the Initial Purchasers understands that no action has been taken to permit a public offering in any jurisdiction outside the United States where action would be required for such purposes. Each of the Initial Purchasers agrees not to cause any advertisement (other than an announcement of the consummation of the offer and sale of the Securities) of the Securities to be published in any newspaper or periodical or posted in any public place and not to issue any circular relating to the Securities (other than the Offering Memorandum). ANNEX II [Form of Registration Rights Agreement] ANNEX III [Form of Kirkland & Ellis Opinion] SCHEDULE I
Principal Amount of Securities Initial Purchaser to be Purchased - ----------------- --------------- J.P. Morgan Securities Inc.......................... $ 40,000,000 Credit Suisse First Boston Corporation 40,000,000 Chase Securities Inc................................ 20,000,000 ------------ Total.......................................... $100,000,000
EX-4.6 5 REGISTRATION RIGHTS AGREEMENT DATED 2/4/1998 EXHIBIT 4.6 ----------- REGISTRATION RIGHTS AGREEMENT Dated as of February 4, 1998 among NAVISTAR INTERNATIONAL CORPORATION and J.P. MORGAN SECURITIES INC., CREDIT SUISSE FIRST BOSTON CORPORATION and CHASE SECURITIES INC. REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is dated as of February 4, 1998, by and among NAVISTAR INTERNATIONAL CORPORATION, a Delaware corporation (the "Company"), and J.P. MORGAN SECURITIES INC., CREDIT SUISSE FIRST BOSTON CORPORATION and CHASE SECURITIES INC. (collectively, the "Initial Purchasers"). This Agreement is entered into in connection with the Purchase Agreement, dated as of January 30, 1998, among the Company and the Initial Purchasers (the "Purchase Agreement") relating to the sale by the Company to the Initial Purchasers, severally, of $100,000,000 aggregate principal amount of its 7% Senior Notes due 2003 (the "Notes"). In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agreement for the equal benefit of the Initial Purchasers and their direct and indirect transferees. The execution and delivery of this Agreement is a condition to the Initial Purchasers' obligation to purchase the Notes under the Purchase Agreement. The parties hereby agree as follows: 1. Definitions ----------- As used in this Agreement, the following terms shall have the following meanings: Additional Interest: See Section 4. ------------------- Advice: See Section 5. ------ Applicable Period: See Section 2(b). ----------------- Closing Date: The Closing Date as defined in the Purchase Agreement. ------------ Company: See the introductory paragraph to this Agreement. ------- Consummation Date: The 180th day after the Closing Date. ----------------- Effectiveness Date: The 150th day after the Closing Date. ------------------ Effectiveness Period: See Section 3(a). -------------------- Event Date: See Section 4(b). ---------- -2- Exchange Act: The Securities Exchange Act of 1934, as amended, and ------------ the rules and regulations of the SEC promulgated thereunder. Exchange Offer: See Section 2(a). -------------- Exchange Registration Statement: See Section 2(a). ------------------------------- Exchange Securities: See Section 2(a). ------------------- Filing Date: The 60th day after the Closing Date. ----------- Holder: Any record holder of Registrable Securities. ------ Indemnified Person: See Section 7. ------------------ Indemnifying Person: See Section 7. ------------------- Indenture: The Indenture, dated as of February 4, 1998, between the --------- Company and Harris Trust and Savings Bank, as trustee, pursuant to which the Notes are being issued, as amended or supplemented from time to time in accordance with the terms thereof. Initial Purchasers: See the introductory paragraph to this Agreement. ------------------ Initial Shelf Registration: See Section 3(a). -------------------------- Inspectors: See Section 5(p). ---------- Issue Date: The original issue date of the Notes. ---------- NASD: See Section 5(t). ---- Notes: See the preamble to this Agreement. ----- Participant: See Section 7. ----------- Participating Broker-Dealer: See Section 2(b). --------------------------- Person: An individual, corporation, partnership, joint venture, ------ trust, estate, unincorporated organization or government or any agency or political subdivision thereof. Private Exchange: See Section 2(b). ---------------- -3- Private Exchange Securities: See Section 2(b). --------------------------- Prospectus: The prospectus included in any Registration Statement ---------- (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Records: See Section 5(p). ------- Registrable Securities: The Notes upon original issuance of the Notes ---------------------- and at all times subsequent thereto, each Exchange Security as to which Section 2(c)(1)(i) hereof is applicable upon original issuance and at all times subsequent thereto and, if issued, the Private Exchange Securities, until in the case of any such Notes, Exchange Securities or Private Exchange Securities, as the case may be, (i) a Registration Statement (other than, with respect to any Exchange Security as to which Section 2(c)(1)(i) hereof is applicable, the Exchange Registration Statement) covering such Notes, Exchange Securities or Private Exchange Securities has been declared effective by the SEC and such Notes, Exchange Securities or Private Exchange Securities, as the case may be, have been disposed of in accordance with such effective Registration Statement, (ii) such Notes, Exchange Securities or Private Exchange Securities, as the case may be, are sold in compliance with Rule 144, or (iii) such Notes, Exchange Securities or Private Exchange Securities, as the case may be, cease to be outstanding. Registration Statement: Any registration statement of the Company, ---------------------- including, but not limited to, the Exchange Registration Statement, that covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Rule 144: Rule 144 promulgated under the Securities Act, as such rule -------- may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. -4- Rule 144A: Rule 144A promulgated under the Securities Act, as such --------- rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC. Rule 415: Rule 415 promulgated under the Securities Act, as such rule -------- may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. --- Securities Act: The Securities Act of 1933, as amended, and the rules -------------- and regulations of the SEC promulgated thereunder. Shelf Notice: See Section 2(c). ------------ Shelf Registration: See Section 3(b). ------------------ Subsequent Shelf Registration: See Section 3(b). ----------------------------- TIA: The Trust Indenture Act of 1939, as amended. --- Trustee: The trustee as defined in the Indenture and, if existent, ------- the trustee under any indenture governing the Exchange Securities and Private Exchange Securities (if any). Underwritten registration or underwritten offering: A registration in -------------------------------------------------- which securities of the Company are sold to an underwriter for reoffering to the public. 2. Exchange Offer -------------- (a) The Company agrees to file with the SEC as soon as practicable after the Closing Date, but in no event later than the Filing Date, an offer to exchange (the "Exchange Offer") any and all of the Registrable Securities for a like aggregate principal amount of debt securities of the Company which are identical in all material respects to the Notes (the "Exchange Securities") (and which are entitled to the benefits of a trust indenture which is identical in all material respects to the Indenture (other than such changes as are necessary to comply with any requirements of the SEC to effect or maintain the qualification of such trust indenture under the TIA) and which has been qualified under the TIA), except that the Exchange Securities shall have been registered pursuant to an effective Registration Statement under the Securities Act and shall contain no restrictive legend thereon. The Company agrees to use its reasonable best efforts to keep the Exchange Offer open for at least 20 -5- business days (or longer if required by applicable law) after the date notice of the Exchange Offer is mailed to Holders and to consummate the Exchange Offer on or prior to the Effectiveness Date. The Exchange Offer will be registered under the Securities Act on the appropriate form (the "Exchange Registration Statement") and will comply with all applicable tender offer rules and regulations under the Exchange Act. If after such Exchange Registration Statement is initially declared effective by the SEC, the Exchange Offer or the issuance of the Exchange Securities thereunder is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court such Exchange Registration Statement shall be deemed not to have become effective for purposes of this Agreement. Each Holder who participates in the Exchange Offer will be deemed to represent that any Exchange Securities received by it will be acquired in the ordinary course of its business, that at the time of the consummation of the Exchange Offer such Holder will have no arrangement with any person to participate in the distribution of the Exchange Securities in violation of the provisions of the Securities Act, and that such Holder is not an affiliate of the Company within the meaning of the Securities Act. Upon consummation of the Exchange Offer in accordance with this Section 2, the provisions of this Agreement shall continue to apply, mutatis mutandis, solely with respect to Registrable ------- -------- Securities that are Private Exchange Securities and Exchange Securities held by Participating Broker-Dealers, and the Company shall have no further obligation to register Registrable Securities (other than Private Exchange Securities and other than Exchange Securities as to which clause (c)(1)(i) hereof applies) pursuant to Section 3 of this Agreement. No securities other than the Exchange Securities (and the Company's 8% Senior Subordinated Notes due 2008) shall be included in the Exchange Registration Statement. (b) The Company shall include within the Prospectus contained in the Exchange Registration Statement one or more section(s) reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the Staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Securities received by such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"), whether such positions or policies have been publicly disseminated by the Staff of the SEC or such positions or policies, in the reasonable judgment of the Initial Purchasers, represent the prevailing views of the Staff of the SEC. Such section(s) shall also allow the use of the prospectus by all persons subject to the prospectus delivery requirements of the Securities Act, including all Participating Broker-Dealers, and include a statement describing the means by which Participating Broker-Dealers may resell the Exchange Securities. -6- The Company shall use its reasonable best efforts to keep the Exchange Registration Statement effective and to amend and supplement the Prospectus contained therein in order to permit such Prospectus to be lawfully delivered by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities, provided that -------- such period shall not exceed 180 days (or such longer period if extended pursuant to the last paragraph of Section 5) (the "Applicable Period"). Notwithstanding the foregoing, the Company shall have no obligation to keep the Exchange Registration Statement effective or to amend and supplement the Prospectus contained therein in the event that the Company has not received written notice within 30 days following the completion of the Exchange Offer that a participating Broker-Dealer received Exchange Securities in the Exchange Offer. If, prior to consummation of the Exchange Offer, an Initial Purchaser holds any Notes acquired by it and having the status of an unsold allotment in the initial distribution, the Company upon the request of such Initial Purchaser shall, simultaneously with the delivery of the Exchange Securities in the Exchange Offer, issue and deliver to each such Initial Purchaser, in exchange (the "Private Exchange") for the Notes held by such Initial Purchaser, a like principal amount of debt securities of the Company that are identical in all material respects to the Exchange Securities (the "Private Exchange Securities") (and which are issued pursuant to the same indenture as the Exchange Securities) except for the placement of a restrictive legend on such Private Exchange Securities. The Private Exchange Securities shall bear the same CUSIP number as the Exchange Securities. Interest on the Exchange Securities and Private Exchange Securities will accrue from the last interest payment date on which interest was paid on the Notes surrendered in exchange therefor or, if no interest has been paid on the Notes, from the Issue Date. Any indenture under which the Exchange Securities or the Private Exchange Securities will be issued shall provide that the holders of any of the Exchange Securities and the Private Exchange Securities will vote and consent together on all matters (to which such holders are entitled to vote or consent) as one class and that none of the holders of the Exchange Securities and the Private Exchange Securities will have the right to vote or consent as a separate class on any matter (to which such holders are entitled to vote or consent). (c) If (1) prior to the consummation of the Exchange Offer, the Company reasonably determines in good faith or Holders of at least a majority in aggregate principal amount of the Registrable Securities notify the Company that they have reasonably determined in good faith that (i) in the opinion of counsel, the Exchange -7- Securities would not, upon receipt, be tradeable by such Holders who are not affiliates of the Company without restriction under the Securities Act and without restrictions under applicable blue sky or state securities laws or (ii) in the opinion of counsel, the SEC is unlikely to permit the consummation of the Exchange Offer and/or (2) subsequent to the consummation of the Private Exchange, holders of at least a majority in aggregate principal amount of the Private Exchange Securities so request with respect to the Private Exchange Securities and/or (3) the Exchange Offer is commenced and not consummated prior to the 45th day following the Consummation Date for any reason, then the Company shall promptly deliver to the Holders and the Trustee notice thereof (the "Shelf Notice") and shall thereafter file an Initial Shelf Registration as set forth in Section 3 (which only in the circumstances contemplated by clause (2) of this sentence will relate solely to the Private Exchange Securities) pursuant to Section 3. The parties hereto agree that, following the delivery of a Shelf Notice to the Holders of Registrable Securities (only in the circumstances contemplated by clauses (1) and/or (3) of the preceding sentence), the Company shall not have any further obligation to conduct the Exchange Offer or the Private Exchange under this Section 2. 3. Shelf Registration ------------------ If a Shelf Notice is delivered as contemplated by Section 2(c), then: (a) Initial Shelf Registration. The Company shall as promptly as -------------------------- reasonably practicable prepare and file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Securities (the "Initial Shelf Registration"). If the Company shall have not yet filed an Exchange Registration Statement, the Company shall use its reasonable best efforts to file with the SEC the Initial Shelf Registration on or prior to the Filing Date. Otherwise, the Company shall use its reasonable best efforts to file with the SEC the Initial Shelf Registration within 60 days of the delivery of the Shelf Notice. The Initial Shelf Registration shall be on Form S-2 or S-3 or another appropriate form permitting registration of such Registrable Securities for resale by such holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Company shall not permit any securities other than the Registrable Securities to be included in the Initial Shelf Registration or any Subsequent Shelf Registration. The Company shall use its reasonable best efforts to cause the Initial Shelf Registration to be declared effective under the Securities Act on or prior to the 120th day after the filing thereof with the SEC and to keep the Initial Shelf Registration continuously effective under the Securities Act until the date which is 24 months from the Issue Date (subject to extension pursuant to the last paragraph of Section 5 hereof) (the "Effectiveness Period"), or such -8- shorter period ending when (i) all Registrable Securities covered by the Initial Shelf Registration have been sold in the manner set forth and as contemplated in the Initial Shelf Registration or (ii) a Subsequent Shelf Registration covering all of the Registrable Securities has been declared effective under the Securities Act. (b) Subsequent Shelf Registrations. If the Initial Shelf Registration ------------------------------ or any Subsequent Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the securities registered thereunder), the Company shall use its reasonable best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 45 days of such cessation of effectiveness amend the Shelf Registration in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional "shelf" Registration Statement pursuant to Rule 415 covering all of the Registrable Securities (a "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed, the Company shall use its reasonable best efforts to cause the Subsequent Shelf Registration to be declared effective as soon as practicable after such filing and to keep such Registration Statement continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration or any Subsequent Shelf Registration was previously continuously effective. As used herein the term "Shelf Registration" means the Initial Shelf Registration and any Subsequent Shelf Registration. (c) Supplements and Amendments. The Company shall promptly supplement -------------------------- and amend the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Holders of a majority in aggregate principal amount of the Registrable Securities covered by such Registration Statement or by any underwriter of such Registrable Securities. 4. Additional Interest ------------------- (a) The Company and the Initial Purchasers agree that the Holders of Registrable Securities will suffer damages if the Company fails to fulfill its obligations under Section 2 or Section 3 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Company agrees to pay, as liquidated damages, additional interest on the Registrable Securities ("Additional Interest") under the circumstances and to the extent set forth below (each of which shall be given independent effect and shall not be duplicative): -9- (i) if neither the Exchange Registration Statement nor the Initial Shelf Registration has been filed on or prior to the Filing Date, Additional Interest shall accrue on the Registrable Securities over and above the stated interest at a rate of .25% per annum for the first 90 days immediately following the Filing Date, such Additional Interest rate increasing by an additional .25% per annum at the beginning of each subsequent 90-day period; (ii) if neither the Exchange Registration Statement nor the Initial Shelf Registration is declared effective by the SEC on or prior to the Effectiveness Date, Additional Interest shall accrue on the Registrable Securities included or which should have been included in such Registration Statement over and above the stated interest at a rate of .25% per annum for the first 90 days immediately following the day after the Effectiveness Date, such Additional Interest rate increasing by an additional .25% per annum at the beginning of each subsequent 90-day period; and (iii) if (A) the Company has not exchanged Exchange Securities for all Notes validly tendered in accordance with the terms of the Exchange Offer on or prior to the Consummation Date or (B) the Exchange Registration Statement ceases to be effective at any time prior to the time that the Exchange Offer is consummated or (C) if applicable, the Shelf Registration has been declared effective and such Shelf Registration ceases to be effective at any time during the Effectiveness Period, then Additional Interest shall accrue on the Registrable Securities (over and above any interest otherwise payable on the Registrable Securities) at a rate of .25% per annum for the first 90 days commencing on the (x) 181st day after the Issue Date, in the case of (A) above, or (y) the day the Exchange Registration Statement ceases to be effective in the case of (B) above, or (z) the day such Shelf Registration ceases to be effective in the case of (C) above, such Additional Interest rate increasing by an additional .25% per annum at the beginning of each such subsequent 90-day period; provided, however, that the Additional Interest rate on the Registrable - -------- ------- Securities may not exceed at any one time in the aggregate 1.0% per annum; and provided, further, that (1) upon the filing of the Exchange Registration - -------- ------- Statement or a Shelf Registration as required hereunder (in the case of clause (i) of this Section 4), (2) upon the effectiveness of the Exchange Registration Statement or the Shelf Registration as required hereunder (in the case of clause (ii) of this Section 4), or (3) upon the exchange of Exchange Securities for all Notes tendered (in the case of clause (iii)(A) of this Section 4), or upon the effectiveness of the Exchange Registration Statement which had ceased to remain effective (in the case of (iii)(B) of this Section 4), or upon the effectiveness of the Shelf Registration which had ceased to remain effective (in the case of (iii)(C) of this Section 4), Additional Interest on the Registrable Securities as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. It being understood and agreed that, -10- notwithstanding any provision to the contrary, so long as any Registrable Security is then covered by an effective Shelf Registration Statement, no Additional Interest shall accrue on such Registrable Security. (b) The Company shall notify the Trustee within one business day after each and every date on which an event occurs in respect of which Additional Interest is required to be paid (an "Event Date"). The Company shall pay the Additional Interest due on the Registrable Securities by depositing with the Trustee, in trust, for the benefit of the Holders thereof, on or before the applicable semi-annual interest payment date, immediately available funds in sums sufficient to pay the Additional Interest then due to Holders of Registrable Securities. The Additional Interest due shall be payable on each interest payment date to the record Holder of Registrable Securities entitled to receive the interest payment to be made on such date as set forth in the Indenture. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest rate by the principal amount of the affected Registrable Securities of such Holders, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed), and the denominator of which is 360. Each obligation to pay Additional Interest shall be deemed to accrue immediately following the occurrence of the applicable Event Date. The parties hereto agree that the Additional Interest provided for in this Section 4 constitutes a reasonable estimate of the damages that may be incurred by Holders of Registrable Securities by reason of the failure of a Shelf Registration or Exchange Offer to be filed or declared effective, or a Shelf Registration to remain effective, as the case may be, in accordance with this Section 4. 5. Registration Procedures ----------------------- In connection with the registration of any Registrable Securities pursuant to Sections 2 or 3 hereof, the Company shall effect such registrations to permit the sale of such Registrable Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company shall: (a) Use its reasonable best efforts to prepare and file with the SEC, as soon as practicable after the date hereof but in any event prior to the Filing Date in the case of the Exchange Registration Statement and the 45th day following the Consummation Date in the case of the Shelf Registration Statement, a Registration Statement or Registration Statements as prescribed by Section 2 or 3, and to use its reasonable best efforts to cause each such Registration Statement to become effective and remain effective as provided herein, provided that, if (1) such filing is pursuant -------- -11- to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Company shall upon written request furnish to and afford the Holders of the Registrable Securities and each such Participating Broker- Dealer, as the case may be, covered by such Registration Statement, their counsel and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed. (b) Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration or Exchange Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period or the Applicable Period, as the case may be; cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and comply with the provisions of the Securities Act, the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to it with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented and with respect to the subsequent resale of any securities being sold by a Participating Broker-Dealer covered by any such Prospectus; the Company shall not be deemed to have used its reasonable best efforts to keep a Registration Statement effective during the Applicable Period if the Company voluntarily takes any action that would result in selling Holders of the Registrable Securities covered thereby or Participating Broker-Dealers seeking to sell Exchange Securities not being able to sell such Registrable Securities or such Exchange Securities during that period unless such action is in the best interest of the Company (as determined by its board of directors), required by applicable law or unless the Company complies with this Agreement, including without limitation, the provisions of paragraph 5(k) hereof and the last paragraph of this Section 5. (c) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, notify the selling Holders of Registrable Securities, or each such Participating Broker-Dealer, as the case may be, their counsel and the managing underwriters, if any, who have provided the Company with their names and addresses promptly (but in any event within two business days), and confirm such notice in writing, (i) when a -12- Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post- effective amendment, when the same has become effective under the Securities Act (including in such notice a written statement that any Holder may, upon request, obtain, without charge, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Securities or the Exchange Securities to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (iv) of the happening of any event or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (v) of the Company's reasonable determination that a post- effective amendment to a Registration Statement would be appropriate. (d) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, use its reasonable best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Securities or the Exchange Securities to be sold by any Participating Broker-Dealer, for sale in any jurisdiction, and, if any such order is issued, to use its reasonable best efforts to obtain the withdrawal of any such order at the earliest possible moment. -13- (e) If a Shelf Registration is filed pursuant to Section 3 and if requested by the managing underwriters, if any, or the Holders of a majority in aggregate principal amount of the Registrable Securities being sold in connection with an underwritten offering, (i) promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriters, if any, or such Holders or counsel reasonably request to be included therein, or (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment. (f) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, furnish to each selling Holder of Registrable Securities and to each such Participating Broker-Dealer who so requests and to counsel and each managing underwriter, if any, without charge, one conformed copy of the Registration Statement or Statements and each post- effective amendment thereto, including financial statements and schedules, and if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits. (g) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, deliver to each selling Holder of Registrable Securities, or each such Participating Broker-Dealer, as the case may be, their counsel, and the underwriters, if any, without charge, as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the last paragraph of this Section 5, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling holders of Registrable Securities or each such Participating Broker-Dealer, as the case may be, and the underwriters or agents, if any, and dealers (if any), in connection with the offering and sale of the Registrable Securities covered by or the sale by Participating Broker-Dealers of the Exchange Securities pursuant to such Prospectus and any amendment or supplement thereto. (h) Prior to any public offering of Registrable Securities or any delivery of a Prospectus contained in the Exchange Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Pe- -14- riod, to use its reasonable best efforts to register or qualify, and to cooperate with the selling Holders of Registrable Securities or each such Participating Broker-Dealer, as the case may be, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer, or the managing underwriters reasonably request in writing, provided that where Exchange Securities held -------- by Participating Broker-Dealers or Registrable Securities are offered other than through an underwritten offering, the Company agrees to cause its counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 5(h); keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other reasonable acts or things necessary or advisable to enable the disposition in such jurisdictions of the Exchange Securities held by Participating Broker-Dealers or the Registrable Securities covered by the applicable Registration Statement, provided that -------- the Company shall not be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) subject itself to taxation in any such jurisdiction. (i) If a Shelf Registration is filed pursuant to Section 3, reasonably cooperate with the selling Holders of Registrable Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company ("DTC"); and enable such Registrable Securities to be registered in such names as the managing underwriter or underwriters, if any, or Holders may request. (j) Use its reasonable best efforts to cause the Registrable Securities covered by the Registration Statement to be registered with or approved by such other United States governmental agencies or authorities of the United States as may be necessary to enable the seller or sellers thereof or the underwriters, if any, to consummate the disposition of such Registrable Securities, except as may be required solely as a consequence of the nature of such selling Holder's business, in which case the Company will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals. (k) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 -15- is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, upon the occurrence of any event contemplated by paragraph 5(c)(iv) or 5(c)(v) above, as promptly as practicable prepare and (subject to Section 5(a) above) file with the SEC, solely at the expense of the Company, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder or to the purchasers of the Exchange Securities to whom such Prospectus will be delivered by a Participating Broker-Dealer, any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (l) Use its reasonable best efforts to cause the Registrable Securities covered by a Registration Statement or the Exchange Securities, as the case may be, to be rated with the appropriate rating agencies, if so requested by the Holders of a majority in aggregate principal amount of Registrable Securities covered by such Registration Statement or the Exchange Securities, as the case may be, or the managing underwriters, if any. (m) Prior to the effective date of the first Registration Statement relating to the Registrable Securities, (i) provide the Trustee with printed certificates for the Registrable Securities in a form eligible for deposit with DTC and (ii) provide a CUSIP number for the Registrable Securities. (n) Use its best efforts to cause all Registrable Securities covered by such Registration Statement or the Exchange Securities, as the case may be, to be (i) listed on each securities exchange, if any, on which similar securities issued by the Company are then listed, or (ii) authorized to be quoted on The Nasdaq Stock Market's National Market if similar securities of the Company are so authorized. (o) In connection with an underwritten offering of Registrable Securities pursuant to a Shelf Registration, enter into an underwriting agreement as is customary in underwritten offerings and take all such other actions as are reasonably requested by the managing underwriters in order to expedite or facilitate the registration or the disposition of such Registrable Securities, and in such connection, (i) make such representations and warranties to the underwriters, with respect to the business of the Company and its subsidiaries, if any, and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incor- -16- porated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when requested; (ii) obtain an opinion of counsel to the Company and updates thereof in form and substance reasonably satisfactory to the managing underwriters, addressed to the underwriters covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by underwriters; (iii) obtain "cold comfort" letters and updates thereof in form and substance reasonably satisfactory to the managing underwriters from the independent certified public accountant(s) of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings and such other matters as may be reasonably requested by underwriters; and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable than those set forth in Section 7 hereof (or such other provisions and procedures acceptable to Holders of a majority in aggregate principal amount of Registrable Securities covered by such Registration Statement and the managing underwriters or agents) with respect to all parties to be indemnified pursuant to said Section. The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder. (p) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, make available for inspection by any selling Holder of such Registrable Securities being sold, or each such Participating Broker-Dealer, as the case may be, any underwriter participating in any such disposition of Registrable Securities, if any, and any attorney, accountant or other agent retained by any such selling holder or each such Participating Broker-Dealer, as the case may be, or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries (collectively, the "Records"), as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Company to supply all information in each case reasonably requested by any such Inspector in connection with such Registration Statement. Records determined in good faith by the -17- Company to be confidential shall not be disclosed by any Inspector notified of such determination unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or (iii) the information in such Records has been made generally available to the public. Each selling Holder of such Registrable Securities and each such Participating Broker-Dealer will be required to agree that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Company unless and until such is made generally available to the public. Each selling Holder of such Registrable Securities and each such Participating Broker-Dealer will be required to further agree that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company at its expense to undertake appropriate action to prevent disclosure of the Records deemed confidential. (q) Provide an indenture trustee for the Registrable Securities or the Exchange Securities, as the case may be, and cause the Indenture or the trust indenture provided for in Section 2(a), as the case may be, to be qualified under the TIA not later than the effective date of the Exchange Offer or the first Registration Statement relating to the Registrable Securities; and in connection therewith, cooperate with the trustee under any such indenture and the holders of the Registrable Securities, to effect such changes to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its reasonable best efforts to cause such trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner. (r) Comply in all material respects with all applicable rules and regulations of the SEC and make generally available to its securityholders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 90 days after the end of any 12- month period (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Shelf Registration Statement, which statements shall cover said 12-month periods. (s) If an Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Registrable Securities by Holders to the Company (or to such -18- other Person as directed by the Company) in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be, the Company shall mark, or caused to be marked, on such Registrable Securities that such Registrable Securities are being cancelled in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be; in no event shall such Registrable Securities be marked as paid or otherwise satisfied. (t) Reasonably cooperate with each seller of Registrable Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"). (u) The Company will use its best efforts to (i) if the Registrable Securities have been rated prior to the initial sale of such Registrable Securities, confirm such ratings will apply to the Registrable Securities covered by a Registration Statement or (ii) if the Registrable Securities were not previously rated, cause the Registrable Securities covered by a Registration Statement to be rated with the appropriate rating agencies, if so requested by Holders of a majority in aggregate principal amount of the Registrable Securities covered by such Registration Statement, or by the managing underwriters, if any. (v) Use its reasonable best efforts to take all other steps necessary to effect the registration of the Registrable Securities covered by a Registration Statement contemplated hereby. The Company may require each seller of Registrable Securities or Participating Broker-Dealer as to which any registration is being effected to furnish to the Company such information regarding such seller or Participating Broker-Dealer and the distribution of such Registrable Securities or Exchange Securities to be sold by such Participating Broker-Dealer, as the case may be, as the Company may, from time to time, reasonably request. The Company may exclude from such registration the Registrable Securities of any seller or Participating Broker-Dealer who unreasonably fails to furnish such information within a reasonable time after receiving such request. Each seller as to which any Shelf Registration is being effected is deemed to agree to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such seller not materially misleading. Each Holder of Registrable Securities and each Participating Broker- Dealer agrees by acquisition of such Registrable Securities or Exchange Securities to be sold by such Participating Broker-Dealer, as the case may be, that, upon receipt of any notice from -19- the Company of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iii), 5(c)(iv), or 5(c)(v), such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus or Exchange Securities to be sold by such Participating Broker-Dealer, as the case may be, until such holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(k), or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. In the event the Company shall give any such notice, each of the Effectiveness Period and the Applicable Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement or Exchange Securities to be sold by such Participating Broker-Dealer, as the case may be, shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(k) or (y) the Advice. 6. Registration Expenses --------------------- (a) All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not the Exchange Offer or a Shelf Registration is filed or becomes effective, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Securities or Exchange Securities and determination of the eligibility of the Registrable Securities or Exchange Securities for investment under the laws of such jurisdictions in the United States (x) where the holders of Registrable Securities are located, in the case of the Exchange Securities, or (y) as provided in Section 5(h), in the case of Registrable Securities or Exchange Securities to be sold by a Participating Broker-Dealer during the Applicable Period)), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities or Exchange Securities in a form eligible for deposit with DTC and of printing prospectuses if the printing of prospectuses is requested by the managing underwriters, if any, or, in respect of Registrable Securities or Exchange Securities to be sold by any Participating Broker-Dealer during the Applicable Period, by the Holders of a majority in aggregate principal amount of the Registrable Securities included in any Registration Statement or of such Exchange Securities, as the case may be), (iii) messenger, telephone and delivery expenses, (iv) reasonable fees and disbursements of counsel for the Company and fees and disbursements of special counsel for the sellers of Registrable Securities (subject to the provisions of Section 6(b)), -20- (v) fees and disbursements of all independent certified public accountants referred to in Section 5(o)(iii) (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (vi) rating agency fees, (vii) Securities Act liability insurance, if the Company desires such insurance, (viii) fees and expenses of all other Persons retained by the Company, (ix) internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees of the Company performing legal or accounting duties), (x) the expense of any annual audit, (xi) the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, if applicable, and (xii) the expenses relating to printing, word processing and distributing all Registration Statements, underwriting agreements, securities sales agreements, indentures and any other documents necessary in order to comply with this Agreement. In the event of an underwritten offering of Registrable Securities the Company shall not be responsible for any "roadshow expenses" in connection therewith except for those of its officers and directors in attending roadshow presentations.. (b) In connection with any Shelf Registration hereunder, the Company shall reimburse the Holders of the Registrable Securities being registered in such registration for the reasonable fees and disbursements of not more than one counsel (in addition to appropriate local counsel) chosen by the Holders of a majority in aggregate principal amount of the Registrable Securities to be included in such Registration Statement. Such Holders shall be responsible for any and all other out-of-pocket expenses of the Holders of Registrable Securities incurred in connection with the registration of the Registrable Securities. 7. Indemnification --------------- The Company agrees to indemnify and hold harmless each Holder of Registrable Securities if a Shelf Registration is filed pursuant to Section 3 and each Participating Broker-Dealer selling Exchange Securities during the Applicable Period, the officers and directors of each such person, and each person, if any, who controls any such person within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a "Participant"), from and against any and all losses, claims, damages and liabilities (including, without limitation, the legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted) caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances -21- under which they were made, not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Participant furnished to the Company in writing by such Participant expressly for use therein; provided that the foregoing -------- indemnity with respect to any preliminary prospectus shall not inure to the benefit of any Participant (or to the benefit of any person controlling such Participant) from whom the person asserting any such losses, claims, damages or liabilities purchased Registrable Securities or Exchange Securities if such untrue statement or omission or alleged untrue statement or omission made in such preliminary prospectus is completely remedied in the related Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) and a copy of the related Prospectus (as so amended or supplemented) shall not have been furnished to such person at or prior to the sale of such Registrable Securities or Exchange Securities, as the case may be, to such person, if required by law. Each Participant will be required to agree, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers and each person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to each Participant, but only with reference to information relating to such Participant furnished to the Company in writing by such Participant expressly for use in any Registration Statement or Prospectus, any amendment or supplement thereto, or any preliminary prospectus. The liability of any Participant under this paragraph shall in no event exceed the proceeds received by such Participant from sales of Registrable Securities giving rise to such obligations. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such person (the "Indemnified Person") shall promptly notify the person against whom such indemnity may be sought (the "Indemnifying Person") in writing, and the Indemnifying Person, upon request of the Indemnified Person, shall retain counsel satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Person has failed within a reasonable time to retain counsel satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the -22- same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred. Any such separate firm for the Participants and such control persons of Participants shall be designated in writing by Participants who sold a majority in interest of Registrable Securities sold by all such Participants and any such separate firm for the Company, its directors, officers and such control persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested an Indemnifying Person to reimburse the Indemnified Person for fees and expenses actually incurred by counsel as contemplated by the third sentence of this paragraph, the Indemnifying Person agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 60 days after receipt by such Indemnifying Person of the aforesaid request and (ii) such Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement (or delivered a notice to such Indemnified Person setting forth its good faith objection to such request's conformity to the provisions of this Section 7). No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional written release in form and substance satisfactory to the Indemnified Person, of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. If the Indemnification provided for in the first and second paragraphs of this Section 7 is unavailable to, or insufficient to hold harmless, an Indemnified Person in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Participants on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and the Participants on the other shall be determined by refer- -23- ence to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Participants and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties shall agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation --- ---- (even if the Participants were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall a Participant be required to contribute any amount in excess of the amount by which proceeds received by such Participant from sales of Registrable Securities exceeds the amount of any damages that such Participant has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The indemnity and contribution agreements contained in this Section 7 will be in addition to any liability which the Indemnifying Persons may otherwise have to the Indemnified Persons referred to above. 8. Rule 144 and Rule 144A ---------------------- The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Registrable Securities, within a reasonable time period make publicly available other information so long as necessary to permit sales pursuant to Rule 144 and Rule 144A under the Securities Act. The Company further covenants that it will take such further action as any Holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 and Rule 144A under the Securities Act, as such Rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. -24- 9. Underwritten Registrations -------------------------- Nothing in this Agreement shall be interpreted so as to obligate the Company to participate in an underwritten offering of Registrable Securities covered by any Shelf Registration. The Company's decision as to whether to cooperate with a proposed underwritten offering shall be at its sole discretion. If any of the Registrable Securities covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount of such Registrable Securities included in such offering and be reasonably acceptable to the Company. No Holder of Registrable Securities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 10. Miscellaneous ------------- (a) Remedies. In the event of a breach by the Company of any of its -------- obligations under this Agreement, each Holder of Registrable Securities, in addition to being entitled to exercise all rights provided herein, in the Indenture or, in the case of the Initial Purchasers, in the Purchase Agreement or granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agree that, in the event of any action for specific performance in respect of such breach, the Company shall waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company has not, as of the date -------------------------- hereof, entered and shall not, after the date of this Agreement, enter into any agreement with respect to any of its securities that is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The Company has not entered and will not enter into any agreement with respect to any of its securities which will grant to any Person piggy-back rights with respect to a Registration Statement. -25- (c) Adjustments Affecting Registrable Securities. The Company shall -------------------------------------------- not, directly or indirectly, take any action with respect to the Registrable Securities as a class that would adversely affect the ability of the Holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Agreement. (d) Amendments and Waivers. The provisions of this Agreement, ---------------------- including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of at least a majority of the then outstanding aggregate principal amount of Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Securities may be given by Holders of at least a majority in aggregate principal amount of the Registrable Securities being sold by such Holders pursuant to such Registration Statement, provided that the provisions of this sentence may -------- not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. (e) Notices. All notices and other communications (including ------- without limitation any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand- delivery, registered first-class mail, next-day air courier or telecopier: (i) if to a Holder of Registrable Securities, at the most current address given by the Trustee to the Company; and (ii) if to the Company, at 455 North Cityfront Plaza Drive, Chicago, Illinois, 60611, Attention: Vice President and Treasurer and General Counsel; with a copy to Kirkland & Ellis, 200 East Randolph Drive, Chicago, Illinois, 60601, Attention: Michael H. Kerr. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; one business day after being timely delivered to a next-day air courier; and when receipt is acknowledged by the addressee, if telecopied. -26- Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the trustee under the Indenture at the address specified in such Indenture. (f) Successors and Assigns. This Agreement shall inure to the benefit ---------------------- of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Registrable Securities; provided, that, with respect to the indemnity and contribution agreements in Section 7, each Holder of Registrable Securities subsequent to the Initial Purchasers shall be bound by the terms thereof if such Holder elects to include Registrable Securities in a Shelf Registration; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign holds Registrable Securities. (g) Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED ------------- IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. (j) Severability. If any term, provision, covenant or restriction of ------------ this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have exe- -27- cuted the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (k) Entire Agreement. This Agreement, together with the Purchase ---------------- Agreement, is intended by the parties as a final expression of their agreement, and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. (l) Securities Held by the Company or Its Affiliates. Whenever the ------------------------------------------------ consent or approval of holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or any of its affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. S-1 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. NAVISTAR INTERNATIONAL CORPORATION By: /s/ Thomas M. Hough --------------------------------------- Name: Thomas M. Hough Title: Vice President & Treasurer J.P. MORGAN SECURITIES INC. CREDIT SUISSE FIRST BOSTON CORPORATION CHASE SECURITIES INC. By: J.P. Morgan Securities Inc. By: /s/ Douglas A. Cruikshank --------------------------------------- Name: Douglas A. Cruikshank Title: Vice President By: Credit Suisse First Boston Corporation By: /s/ Thomas W. S. Groves --------------------------------------- Name: Thomas W. S. Groves Title: Vice President EX-4.7 6 PURCHASE AGREEMENT DATED 1/30/1998 EXHIBIT 4.7 NAVISTAR INTERNATIONAL CORPORATION $250,000,000 8% Senior Subordinated Notes due 2008 Purchase Agreement January 30, 1998 J.P. MORGAN SECURITIES INC. CREDIT SUISSE FIRST BOSTON CORPORATION CHASE SECURITIES INC. BANCAMERICA ROBERTSON STEPHENS NATIONSBANC MONTGOMERY SECURITIES LLC c/o J.P. Morgan Securities Inc. 60 Wall Street New York, New York 10260-0060 Ladies and Gentlemen: Navistar International Corporation, a Delaware corporation (the "Company"), proposes to issue and sell to J.P. Morgan Securities Inc., Credit Suisse First Boston Corporation, Chase Securities Inc., BancAmerica Robertson Stephens and NationsBanc Montgomery Securities LLC (the "Initial Purchasers") $250,000,000 aggregate principal amount of its 8% Senior Subordinated Notes due 2008 (the "Securities"). The Securities will be issued pursuant to the provisions of an Indenture to be dated as of February 4, 1998 (the "Indenture") by and between the Company and Harris Trust and Savings Bank, as Trustee (the "Trustee"). The sale of the Securities to the Initial Purchasers will be made without registration of the Securities under the Securities Act of 1933, as amended, and the rules and regulations thereunder (collectively, the "Securities Act"), in reliance upon the exemption therefrom provided by Section 4(2) of the Securities Act. Holders of the Securities will have the benefits of a Registration Rights Agreement to be dated as of February 4, 1998 among the Company and the Initial Purchasers (the "Registration Rights Agreement"). -2- The Company hereby agrees with the Initial Purchasers as follows: 1. The Company hereby agrees, upon the basis of your representations and warranties contained in Section 2 hereof, to issue and sell the Securities to the several Initial Purchasers as hereinafter provided, and each Initial Purchaser, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees to purchase, severally and not jointly, from the Company the respective principal amount of Securities set forth opposite such Initial Purchaser's name in Schedule I hereto at a price equal to 97.4200% of their principal amount (the "Purchase Price") plus accrued interest, if any, from February 4, 1998. 2. The Company understands that the Initial Purchasers intend (x) to offer privately the Securities as soon after this Agreement has become effective as in the judgment of the Initial Purchasers is advisable and (y) initially to offer the Securities upon the terms set forth in the Offering Memorandum (as defined below). The Company confirms that it has authorized the Initial Purchasers, subject to the restrictions set forth below, to distribute copies of the Offering Memorandum in connection with the offering of the Securities. Each Initial Purchaser hereby makes to the Company the following representations, warranties and covenants: (i) it is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act; and (ii) (A) it will not solicit offers for, or offer to sell, the Securities by any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) and (B) it will solicit offers for the Securities only from, and will offer the Securities only to, (1) persons whom it reasonably believes to be "qualified institutional buyers" within the meaning of Rule 144A under the Securities Act, or (2) upon the terms and conditions set forth in Annex I to this Agreement. 3. Payment for the Securities shall be made to the Company by wire transfer in immediately available funds, to the account specified by the Company to the Initial Purchasers at a bank reasonably acceptable to the Initial Purchasers no later than noon the Business Day (as defined below) prior to the Closing Date (as defined below), on February 4, 1998, or at such other time on the same or such other date, not later than the fifth Business Day thereafter, as the Initial Purchasers and the Company may agree upon in writing. The time and date of such payment for the Securities are referred to herein as the "Closing Date." As used herein, the term "Business Day" means any day other than a day on which banks are permitted or required to be closed in New York City. -3- Payment for the Securities shall be made against delivery to the nominee of The Depository Trust Company for the account of the Initial Purchasers of one or more global notes representing such Securities (collectively, the "Global Notes"), with any transfer taxes payable in connection with the transfer to the Initial Purchasers of the Securities duly paid by the Company. The Global Notes will be made available for inspection by the Initial Purchasers at the office of J.P. Morgan Securities Inc. at the address set forth above not later than 1:00 P.M., New York City time, on the Business Day prior to the Closing Date. 4. The Company represents and warrants to each of the Initial Purchasers that: (a) A preliminary offering memorandum, dated January 22, 1998 (the "Preliminary Offering Memorandum") and an offering memorandum, dated January 30, 1998 (the "Offering Memorandum") have been prepared in connection with the offering of the Securities. The Preliminary Offering Memorandum or the Offering Memorandum and any amendments or supplements thereto did not and will not, as of their respective dates, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, provided that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information relating to any Initial Purchaser furnished to the Company in writing by such Initial Purchaser expressly for use therein; (b) the audited financial statements, and the related notes thereto, included in the Offering Memorandum present fairly the consolidated financial position of the Company and its subsidiaries and the results of their respective operations and the changes in their respective consolidated cash flows, as of the dates and for the periods indicated, and said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved; the summary and selected financial and statistical data included in the Offering Memorandum present fairly the information shown therein and have been prepared and compiled on a basis consistent with the audited and unaudited financial statements of the Company, except as otherwise stated therein; and Deloitte & Touche LLP, who are reporting upon the audited consolidated financial statements of the Company and its consolidated subsidiaries (each a "Subsidiary," and collectively, the "Subsidiaries"), and the related schedules included in the Offering Memorandum, are independent public accountants as defined in the Securities Act; (c) the Company owns, directly or indirectly, free and clear of any mortgage, pledge, security interest, lien, claim or other encumbrance or restriction on -4- transferability or voting (other than as may be imposed by the Securities Act and the various state securities laws), all of the outstanding capital stock of each Subsidiary of the Company; all of the outstanding capital stock of each Subsidiary of the Company has been duly authorized and validly issued and is fully paid and non-assessable; (d) since the respective dates as of which information is given in the Offering Memorandum there has not been (A) any change in the Company's issued capital stock, warrants or options except pursuant to the terms of the instruments governing the same or pursuant to the exercise of such options or warrants, or the issuance of certain options or (B) any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, the management, business, prospects, financial position, stockholder's equity or results of operations, of the Company and the Subsidiaries, taken as a whole (a "Material Adverse Change"); (e) since the respective dates as of which information is given in the Offering Memorandum, except as disclosed therein, (i) there have been no transactions entered into by the Company or by any of the Subsidiaries, including those entered into in the ordinary course of business, which are material to the Company and the Subsidiaries taken as a whole; and (ii) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock, except for quarterly dividends in accordance with the Company's past practice; (f) the Company and each Subsidiary has been duly incorporated under the laws of its jurisdiction of incorporation; the Company and each Subsidiary is a validly existing corporation in good standing under the laws of its jurisdiction of incorporation, with full power and corporate authority to own, lease and operate its properties and conduct its business as described in the Offering Memorandum, and is duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, except where the failure to be so qualified or in good standing would not reasonably be expected to have a material adverse effect on the general affairs, business, prospects, management, financial position, stockholder's equity or results of operations of the Company and the Subsidiaries, taken as a whole (a "Material Adverse Effect"); (g) this Agreement has been duly authorized, executed and delivered by the Company; -5- (h) the Registration Rights Agreement has been duly authorized by the Company, and when executed and delivered by the Company (assuming due authorization, execution and delivery thereof by the Initial Purchasers), the Registration Rights Agreement will constitute a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought; (i) the execution and delivery of the Indenture has been duly and validly authorized by the Company and, when executed and delivered by the Company (assuming due authorization, execution and delivery thereof by the Trustee), the Indenture will constitute a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought; and the Securities and the Indenture conform in all material respects to the descriptions thereof in the Offering Memorandum; (j) the Securities have been duly and validly authorized by the Company for issuance and when executed by the Company and authenticated by the Trustee in accordance with the provisions of the Indenture, and delivered to and paid for by the Initial Purchasers in accordance with the terms hereof, will have been duly executed, authenticated, issued and delivered and will constitute legal, valid and binding obligations of the Company entitled to the benefits provided by the Indenture and enforceable against the Company in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought; (k) the execution and delivery by the Company of, and the performance by the Company of all of the provisions of its obligations under, this Agreement, the Indenture, the Registration Rights Agreement, the Securities and the consummation by the Company of the transactions herein and therein contemplated and as set forth in the Offering Memorandum, (i) have been duly authorized by all necessary corporate action on the part of the Company, (ii) do not and will not result in any violation of the Certificate of Incorporation or the By-laws of the Company and (iii) do -6- not and will not conflict with, or result in a breach or violation of any of the terms or provisions of, or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, or give rise to any right to accelerate the maturity or require the prepayment of any indebtedness or the purchase of any capital stock under, or result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of the Company or of any Subsidiary under, (A) any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, partnership agreement or other agreement or instrument to which the Company or any such Subsidiary is a party or by which any of them may be bound or to which any of their respective properties or assets may be subject, (B) (assuming compliance with the Securities Act with respect to the exchange of the Securities for the Exchange Securities (as defined in the Registration Rights Agreement) and the other obligations of the Company under the Registration Rights Agreement) any applicable law or statute, rule or regulation (other than the securities or Blue Sky laws of the various states of the United States of America) or (C) any judgment, order or decree of any government, governmental instrumentality, agency, body or court, domestic or foreign, having jurisdiction over the Company or any such Subsidiary or any of their respective properties or assets, except, with respect to clause (iii), any violation, conflict, or breach which would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; (l) neither the Company nor any agent acting on its behalf has taken or will take any action that will cause this Agreement or the sale, issuance, execution or delivery of the Securities to violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System, in each case as in effect, or as the same may hereafter be in effect, on the Closing Date; (m) the Company and each Subsidiary has good and marketable title to all real and personal property described in the Offering Memorandum as being owned by it and good and marketable title to a leasehold estate in the real and personal property described therein as being leased by it, free and clear of all liens, charges, encumbrances or restrictions, except, in each case, as described in the Offering Memorandum or to the extent the failure to have such title or the existence of such liens, charges, encumbrances or restrictions would not reasonably be expected to have a Material Adverse Effect; (n) no authorization, approval, consent, order, registration, qualification or license of, or filing with, any government, governmental instrumentality, agency, body or court, domestic or foreign or third party (other than as have been or will be prior to the Closing Date obtained under the securities or Blue Sky laws of the various states of the United States of America and assuming compliance with the Secu- -7- rities Act with respect to the exchange of the Securities for the Exchange Securities and the other obligations of the Company under the Registration Rights Agreement), is required for the valid authorization, issuance, sale and delivery of the Securities, or the performance by the Company of all of its obligations under this Agreement, the Indenture, the Registration Rights Agreement or the Securities, or the consummation by the Company of the transactions contemplated by this Agreement, the Indenture, the Registration Rights Agreement or the Offering Memorandum, except where the failure to obtain such authorization, approval, consent, order, registration, qualification or license or to make any such filing would not reasonably be expected, individually or in the aggregate, to have a material adverse effect on the consummation of the transactions contemplated in, or the fulfillment of the terms of, this Agreement, the Offering Memorandum, the Indenture or the Registration Rights Agreement; (o) neither the Company nor any of the Subsidiaries (i) is in violation of its Certificate of Incorporation or By-Laws or (ii) is in breach or violation of any of the terms or provisions of, or with the giving of notice or lapse of time, or both, would be in default under, any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, partnership agreement, or other agreement or instrument to which the Company or any Subsidiary is a party or by which any of them may be bound or to which any of their properties or assets may be subject, except for such violations or defaults that would not reasonably be expected to have a Material Adverse Effect; (p) except as described in the Offering Memorandum, there is no action, suit or proceeding before or by any government, governmental instrumentality, agency, body or court, domestic or foreign, now pending or, to the best knowledge of the Company after due inquiry, threatened against or affecting the Company or any of the Subsidiaries that could reasonably be expected to have a Material Adverse Effect or that could reasonably be expected to have a material adverse effect on the consummation of the transactions contemplated in, or the fulfillment of the terms of, this Agreement, the Offering Memorandum, the Indenture or the Registration Rights Agreement; there is no action, suit or proceeding before or by any government, governmental instrumentality, agency, body or court, now pending, or to the best knowledge of the Company, threatened against or affecting the Company or any of the Subsidiaries that would be required to be described in a registration statement pursuant to Item 103 of Regulation S-K filed pursuant to the Securities Act that is not described in the Offering Memorandum; (q) each of the Company and the Subsidiaries owns, possesses or has obtained all material licenses, permits, certificates, consents, orders, approvals and -8- other authorizations from, and has made all material declarations and filings with, all federal, state, local and other governmental authorities (including foreign regulatory agencies) and all courts and other tribunals, domestic or foreign, necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as conducted as of the date hereof, except in each case where the failure to obtain licenses, permits, certificates, consents, orders, approvals and other authorizations, or to make all declarations and filings, would not reasonably be expected to have a Material Adverse Effect, and none of the Company or any of the Subsidiaries has received any notice of any proceeding relating to revocation or modification of any such license, permit, certificate, consent, order, approval or other authorization, except as described in the Offering Memorandum and except, in each case, where such revocation or modification would not reasonably be expected to have a Material Adverse Effect; and the Company and each of the Subsidiaries are in material compliance with all laws and regulations relating to the conduct of their respective businesses as conducted as of the date hereof, except where noncompliance with such laws or regulations would not reasonably be expected to have a Material Adverse Effect; (r) neither the Company nor any affiliate (as defined in Rule 501(b) of Regulation D under the Securities Act ("Regulation D")) of the Company has directly, or through any agent, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the sale of the Securities in a manner that would require the registration under the Securities Act of the offering contemplated by the Offering Memorandum; (s) neither the Company nor, to the best of the Company's knowledge, any person acting on its behalf has offered or sold the Securities by means of any general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act or, with respect to Securities sold outside the United States to non-U.S. persons (as defined in Rule 902 under the Securities Act), by means of any directed selling efforts within the meaning of Rule 902 under the Securities Act and the Company and any of its affiliates and any person acting on their behalf has complied with and will implement the "offering restriction" within the meaning of such Rule 902; (t) it is not necessary in connection with the offer, sale and delivery of the Securities in the manner contemplated by this Agreement to register the Securities under the Securities Act or to qualify an indenture under the TIA; and -9- (u) the Securities satisfy the requirements set forth in Rule 144A(d)(3) under the Securities Act. 5. The Company covenants and agrees with each Initial Purchaser as follows: (a) before distributing any amendment or supplement to the Offering Memorandum, to furnish to the Initial Purchasers a copy of the proposed amendment or supplement for review and not to distribute any such proposed amendment or supplement to which the Initial Purchasers reasonably object; (b) if, at any time prior to the completion of the initial placement of the Securities, any event shall occur as a result of which it is necessary to amend or supplement the Offering Memorandum in order that the Offering Memorandum does not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances at the time the Offering Memorandum is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the Offering Memorandum to comply with law, forthwith to prepare and furnish, at the sole expense of the Company, to the Initial Purchasers and to the dealers (whose names and addresses the Initial Purchasers will furnish to the Company) to which Securities may have been sold by the Initial Purchasers on behalf of the Initial Purchasers and to any other dealers upon request, such amendments or supplements to the Offering Memorandum as may be necessary so that the Offering Memorandum as so amended or supplemented will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances at the time the Offering Memorandum is delivered to a purchaser, not misleading or so that the Offering Memorandum will comply with law; (c) to use its best efforts (i) to register or qualify the Securities for offering and sale by the Initial Purchasers and by dealers under the securities or Blue Sky laws of such jurisdictions as the Initial Purchasers shall reasonably request and to continue such qualifications in effect so long as reasonably required for distribution of the Securities and (ii) to pay all fees and expenses (including reasonable fees and disbursements of counsel for the Initial Purchasers) incurred in connection with the determination of the eligibility of the Securities for investment under the laws of such jurisdictions as the Initial Purchasers may designate; provided that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action that would subject it to taxation or service of process in suits, other than those arising out of the offering or sale of the Securities, in any jurisdiction where it is not now so subject; -10- (d) so long as the Securities are outstanding, to furnish to the Initial Purchasers copies of all reports or other communications (financial or other) required to be furnished to holders of the Securities, and copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange; (e) during the period beginning on the date hereof and continuing to and including the Business Day following the Closing Date, not to offer, sell, contract to sell, or otherwise dispose of any debt securities of or guaranteed by the Company which are substantially similar to the Securities except as otherwise contemplated by the Offering Memorandum; (f) to use the net proceeds of the offering of Securities as set forth in the Offering Memorandum under the caption "Use of Proceeds"; (g) if requested by you, to use its best efforts to cause such Securities to be eligible for trading in the PORTALSM Market ("PORTAL") of the Nasdaq Stock Market, Inc.; (h) to furnish to the registered holders of the Securities within a reasonable period of time after such information is filed with the Commission an annual report (including a balance sheet and statements of income, stockholder's equity and cash flows of the Company and its consolidated subsidiaries certified by independent public accountants) and, as soon as reasonably practicable after such information is filed with the Commission with respect to of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the date of the Offering Memorandum), consolidated summary financial information of the Company and its subsidiaries of such quarter in reasonable detail; (i) during the period of two years after the Closing Date, not to, and not to permit any of its "affiliates" (as defined in Rule 144 under the Securities Act) to, resell any of the Securities which constitute "restricted securities" under Rule 144 that have been reacquired by any of them; (j) to pay all costs and expenses incident to the performance of its obligations hereunder, including without limiting the generality of the foregoing, all costs and expenses (i) incident to the preparation, issuance, execution, authentication and delivery of the Securities (including any reasonable expenses of the Trustee and the Trustee's counsel), (ii) incident to the preparation and printing of the Offering Memorandum and any preliminary offering memorandum (including in each case all exhibits, amendments and supplements thereto), (iii) incurred in connection with the -11- registration or qualification of the Securities under the laws of such jurisdictions as the Initial Purchasers may designate (including fees and disbursements of Cahill Gordon & Reindel, counsel for the Initial Purchasers, in connection with such registration or qualification (not to exceed $10,000)), (iv) in connection with the printing (including word processing and duplication costs) and delivery of this Agreement, the Indenture and the Registration Rights Agreement, including mailing and shipping, as herein provided, (v) payable to rating agencies in connection with the rating of the Securities; and (vi) qualifying the Securities for trading in PORTAL; (k) to take all reasonable action that is appropriate or necessary to assure that its offerings of other securities will not be integrated for purposes of the Securities Act with the offerings contemplated hereby; (l) not to solicit any offer to buy or offer to sell Securities by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) of Regulation D under the Securities Act; (m) while the Securities remain outstanding and are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, during any period in which it is not subject to Section 13 or 15(d) under the Exchange Act, to make available to the Initial Purchasers and any holder of Securities in connection with any sale thereof and any prospective purchaser of Securities, in each case upon request and within a reasonable time period, the information specified in, and meeting the requirements of, Rule 144A(d)(4) ("Rule 144A(d)(4) Information") under the Securities Act (or any successor thereto); (n) not to take any action prohibited by Regulation M under the Exchange Act (or any successor provision), in connection with the distribution of the Securities contemplated hereby; (o) during the period of two years after the Closing Date, the Company will, upon request, furnish to each of the Initial Purchasers and any holder of Securities a copy of the restrictions on transfer applicable to the Securities; and (p) during the period of two years after the Closing Date, the Company will not be or become an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act. -12- 6. The several obligations of the Initial Purchasers hereunder to purchase the Securities on the Closing Date are subject to the performance by the Company of its obligations hereunder and to the following additional conditions: (a) each of the representations and warranties of the Company contained herein shall be true and correct on and as of the Closing Date as if made on and as of the Closing Date and the Company shall have complied, in all material respects, with all agreements and all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date; (b) subsequent to the execution and delivery of this Agreement and prior to the Closing Date, there shall not have occurred any downgrading, nor shall any notice have been given of (i) any intended or potential downgrading or (ii) any review or possible change that does not indicate an improvement, in the rating accorded any securities of or guaranteed by the Company by any "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Securities Act; (c) since the respective dates as of which information is given in the Offering Memorandum there shall not have been any Material Adverse Change, otherwise than as set forth in the Offering Memorandum, the effect of which in the sole judgment of the Initial Purchasers makes it impracticable or inadvisable to proceed with the offering or the delivery of the Securities on the terms and in the manner contemplated in the Offering Memorandum; (d) the Initial Purchasers shall have received on and as of the Closing Date a certificate, addressed to the Initial Purchasers and dated the Closing Date, of an executive officer of the Company satisfactory to the Initial Purchasers to the effect set forth in subsections (a) through (c) of this Section and to the further effect that since the respective dates as of which information is given in the Offering Memorandum there has not occurred any Material Adverse Change, otherwise than as set forth in the Offering Memorandum, provided that the officer making such certificate may rely upon his knowledge as to pending or threatened proceedings; (e) the Initial Purchasers shall have received on the Closing Date a signed opinion of Kirkland & Ellis, special counsel for the Company, in form and substance satisfactory to Cahill Gordon & Reindel, counsel to the Initial Purchasers, dated the Closing Date and addressed to the Initial Purchasers, to the effect as set forth in Annex III hereto. -13- (f) the Initial Purchasers shall have received on the Closing Date a signed opinion of Robert Boardman, General Counsel of the Company, in form and substance satisfactory to Cahill Gordon & Reindel, counsel to the Initial Purchasers, dated the Closing Date and addressed to the Initial Purchasers to the effect that: (i) the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware with full power and authority (corporate and other) to own, lease and operate its properties and to conduct its business as described in the Offering Memorandum; (ii) the Company has been duly qualified as a foreign corporation for the transaction of business and is in good standing in each jurisdiction in which it owns or leases properties, or conducts business, so as to require such qualification, except where the failure to be in good standing would not reasonably be expected to have a Material Adverse Effect; (iii) each Subsidiary has been duly incorporated and is validly existing as a corporation under the laws of its jurisdiction of incorporation with power and authority (corporate and other) to own, lease and operate its properties and to conduct its business, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing in each jurisdiction in which it owns or leases properties, or conducts business, so as to require such qualification, except where the failure to be in good standing would not reasonably be expected to have a Material Adverse Effect; (iv) the authorized capital stock of the Company is as set forth in the Offering Memorandum; (v) all the outstanding shares of capital stock of each Subsidiary have been duly authorized and validly issued and are fully paid and non-assessable, and, except as otherwise set forth in the Offering Memorandum, are directly or indirectly owned by the Company free and clear of any mortgage, pledge, security interest, lien, claim or other encumbrance or restriction on transferability or voting (other than as may be imposed by the Securities Act and the various state securities laws); (vi) all of the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; -14- (vii) except as described in the Offering Memorandum, there is no action, suit or proceeding before or by any government, governmental instrumentality, agency, body or court, domestic or foreign, now pending or, to the best knowledge of such counsel after reasonable investigation, threatened against or affecting the Company or any of the Subsidiaries that could reasonably be expected to have a Material Adverse Effect or that could reasonably be expected to have a material adverse effect on the consummation of the transactions contemplated in, or the fulfillment of the terms of, this Agreement, the Offering Memorandum, the Indenture or the Registration Rights Agreement; there is no action, suit or proceeding before or by any government, governmental instrumentality, agency, body or court, now pending, or to the best knowledge of such counsel after reasonable investigation, threatened against or affecting the Company or any Subsidiary that would be required to be described in a registration statement filed pursuant to the Securities Act that is not described in the Offering Memorandum; and (viii) the execution and delivery by the Company of, and the performance by the Company of all of the provisions of its obligations under, this Agreement, the Indenture, the Registration Rights Agreement, the Securities, and the consummation by the Company of the transactions contemplated therein and in the Offering Memorandum, do not and will not conflict with, or result in a breach or violation of any of the terms or provisions of, or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, or give rise to any right to accelerate the maturity or require the prepayment of any indebtedness or the purchase of any capital stock under, or result in the creation or imposition of any lien, charge or encumbrance upon any material properties or assets of the Company or of any Subsidiary under, (A) any material contract, indenture, mortgage, deed of trust, loan agreement note, lease, partnership agreement or other agreement or instrument known to such counsel after reasonable investigation to which the Company or any Subsidiary is a party or by which any of them may be bound or to which any of their respective properties or assets may be subject or (B) any judgment, order or decree of any government, governmental instrumentality, agency, body or court, domestic or foreign, having jurisdiction over the Company or any Subsidiary or any of their respective properties or assets known to such counsel after reasonable investigation except, with respect to clauses (A) and (B), any breach or violation that would not reasonably be expected to have a Material Adverse Effect. -15- Such counsel shall also advise, based on its participation in the preparation of the Offering Memorandum and conferences with officers and representatives of the Company, representatives of the independent public accountants for the Company, representatives of the Initial Purchasers and counsel to the Initial Purchasers, that nothing has come to its attention that leads it to believe that the Offering Memorandum (as supplemented, if applicable) (other than the financial statements, supporting schedules and other financial and statistical data set forth therein, as to which no advice need be given), as of its date or as of the Closing Date, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (g) on the date of the issuance of the Offering Memorandum and also on the Closing Date, Deloitte & Touche shall have furnished to the Initial Purchasers letters, dated the respective dates of delivery thereof, in form and substance satisfactory to the Initial Purchasers, containing statements and information of the type customarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information relating to the Company contained in the Offering Memorandum; (h) the Company shall have executed and delivered the Registration Rights Agreement substantially in the form attached hereto as Annex II; (i) the Initial Purchasers shall have received on and as of the Closing Date an opinion of Cahill Gordon & Reindel, counsel to the Initial Purchasers, with respect to the validity of the Indenture and the Securities, and such other related matters as the Initial Purchasers may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (j) the Initial Purchasers shall have received on and as of the Closing Date a certificate dated the Closing Date and addressed to the Initial Purchasers signed by the Executive Vice President - Chief Financial Officer, Vice President and Treasurer of the Company or the Vice President and Controller to the effect that neither the Company nor any of its Subsidiaries is in breach or violation of any of the terms or provisions of, or with the giving of notice or lapse of time, or both, would be in default under any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, partnership agreement, or other agreement or instrument to which the Company or any Subsidiary is a party or by which any of them may be bound or to which any of their respective properties or assets may be subject, except for any such breach or violation which would not have a Material Adverse Effect; -16- (k) on or prior to the Closing Date the Company shall have furnished to the Initial Purchasers such further certificates and documents as the Initial Purchasers or their counsel, Cahill Gordon & Reindel, shall reasonably request; and (l) on or prior to the Closing Date the Company shall have furnished to the Initial Purchasers a duly executed waiver and amendment to the Mexico Credit Agreement (as defined in the Offering Memorandum) in form and substance satisfactory to them. 7. The Company agrees to indemnify and hold harmless each Initial Purchaser, its officers and directors, and each person, if any, who controls any Initial Purchaser within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, the reasonable legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted) caused by any untrue statement or alleged untrue statement of a material fact contained in the Offering Memorandum (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary offering memorandum or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission (i) made in reliance upon and in conformity with information relating to the Initial Purchasers furnished to the Company in writing by the Initial Purchasers expressly for use therein or (ii) contained in the Preliminary Offering Memorandum if any Initial Purchaser failed to send or deliver a copy of the Offering Memorandum to a U.S. person (as defined in Regulation S) and who asserts such losses, claims, damages or liabilities on or prior to the delivery of written confirmation of sale of the Securities to such person and such Offering Memorandum would have corrected such untrue statement or omission and it shall have been determined that such losses, claims, damages or liabilities would not have arisen had the Offering Memorandum been delivered or sent. Each Initial Purchaser agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors and officers and each person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to each Initial Purchaser, but only with reference to information relating to such Initial Purchaser furnished to the Company in writing by such Initial Purchaser expressly for use in the Offering Memorandum, any amendment or supplement thereto, or any preliminary offering memorandum. For purposes of this Section 7 and paragraphs (a) and (b) of Section 4 hereof, the only written information furnished by the Initial Purchasers to the Company expressly for use in -17- the Offering Memorandum is the information in the last paragraph of the cover page of the Offering Memorandum, the fourth paragraph on page 2 of the Offering Memorandum and the first, third, fifth, eighth and ninth paragraphs under the caption in the "Plan of Distribution" section of the Offering Memorandum. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such person (the "Indemnified Person") shall promptly notify the person against whom such indemnity may be sought (the "Indemnifying Person") in writing, and the Indemnifying Person, upon request of the Indemnified Person, shall retain counsel satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Person has failed within a reasonable time to retain counsel satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such reasonable fees and expenses shall be reimbursed as they are incurred. Any such separate firm for the Initial Purchasers and such control persons of Initial Purchasers shall be designated in writing by J.P. Morgan Securities Inc. and any such separate firm for the Company, its directors and officers and such control persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested an Indemnifying Person to reimburse the Indemnified Person for fees and expenses of counsel as contemplated by the third sentence of this paragraph, the Indemnifying Person agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 60 days after receipt by such Indemnifying Person of the aforesaid request and (ii) such Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement (or delivered a notice to such Indem- -18- nified Person setting forth its good faith objection to such request's conformity to the provisions of this Section 7). No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional written release, in form and substance reasonably satisfactory to the Indemnified Person, of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. If the indemnification provided for in the first and second paragraphs of this Section 7 is for any reason unavailable to, or insufficient to hold harmless, an Indemnified Person in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchasers on the other hand from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Initial Purchasers on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Initial Purchasers on the other shall be deemed to be in the same respective proportions as the net proceeds from the offering (before deducting expenses) received by the Company and the total discounts and the commissions actually received by the Initial Purchasers, in each case as set forth in the table on the cover of the Offering Memorandum, bear to the aggregate offering price of the Securities. The relative fault of the Company on the one hand and the Initial Purchasers on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Initial Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding -19- paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall an Initial Purchaser be required to contribute any amount in excess of the amount by which the total price at which the Securities purchased by it were offered exceeds the amount of any damages that such Initial Purchaser has otherwise been required to pay or has paid by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Initial Purchasers' obligations to contribute pursuant to this Section 7 are several in proportion to the respective principal amounts of Securities set forth opposite their names in Schedule I hereto, and not joint. The indemnity and contribution agreements contained in this Section 7 are in addition to any liability which the Indemnifying Persons may otherwise have to the Indemnified Persons referred to above. The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Company as set forth in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Initial Purchaser or any person controlling any Initial Purchaser or by or on behalf of the Company, its officers or directors or any other person controlling the Company and (iii) acceptance of and payment for any of the Securities. 8. Notwithstanding anything herein contained, this Agreement may be terminated in the absolute discretion of the Initial Purchasers, by notice given to the Company, if after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange or the National Association of Securities Dealers, Inc., (ii) trading of any securities of or guaranteed by the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in the judgment of the Initial Purchasers, is material and adverse and which, in the judgment of the Initial Purchasers, makes it impracticable or inadvisable to market the Securities on the terms and in the manner contemplated in the Offering Memorandum. 9. This Agreement shall become effective upon the execution and delivery hereof by the parties hereto. -20- 10. If this Agreement shall be terminated by the Initial Purchasers because of any failure or refusal on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company shall be unable to perform its obligations under this Agreement, the Company agrees to reimburse the Initial Purchasers for all out-of-pocket expenses (including the reasonable fees and expenses of their counsel) reasonably incurred by the Initial Purchasers in connection with this Agreement or the offering contemplated hereunder. The Company shall not be obligated to reimburse the Initial Purchasers for any out-of-pocket expenses reasonably incurred by the Initial Purchasers if this Agreement is terminated by the Initial Purchasers pursuant to Section 8(i), (iii) and (iv) hereof. 11. This Agreement shall inure to the benefit of and be binding upon the Initial Purchasers and the Company, any controlling person referred to herein and their respective successors, heirs and legal representatives. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Initial Purchasers and the Company and their respective successors, heirs and legal representatives and the controlling persons and officers and directors referred to in Section 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. No purchaser of Securities from any Initial Purchaser shall be deemed to be a successor merely by reason of such purchase. 12. Any action by the Initial Purchasers hereunder may be taken by the Initial Purchasers jointly or by J.P. Morgan Securities Inc. alone or on behalf of the Initial Purchasers, and any such action taken by J.P. Morgan Securities Inc. alone shall be binding upon the Initial Purchasers. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Initial Purchasers shall be given to them at the following address: J.P. Morgan Securities Inc., 60 Wall Street, New York, New York 10260; Attention: Syndicate Department. Notices to the Company shall be given to it at 455 North Cityfront Plaza Drive, Chicago, Illinois 60611; Attention: Vice President and Treasurer (facsimile (312) 836-2573) with a copy to the Company's General Counsel at the same address. 13. This Agreement may be signed in counterparts, each of which shall be an original (or a facsimile copy thereof) and all of which together shall constitute one and the same instrument. 14. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PROVISIONS THEREOF. S-1 If the foregoing is in accordance with your understanding, please sign and return four counterparts hereof. Very truly yours, NAVISTAR INTERNATIONAL CORPORATION By: /s/ Thomas M. Hough ----------------------------- Name: Thomas M. Hough Title: Vice President & Treasurer Accepted: January 30, 1998 J.P. MORGAN SECURITIES INC. CREDIT SUISSE FIRST BOSTON CORPORATION CHASE SECURITIES INC. BANCAMERICA ROBERTSON STEPHENS NATIONSBANC MONTGOMERY SECURITIES LLC By: J.P. Morgan Securities Inc. By: /s/ Douglas A. Cruikshank ----------------------------- Name: Douglas A. Cruikshank Title: VP ANNEX I (A) In addition to offers pursuant to clause (B)(1) of paragraph 2(ii) of the Agreement, the Initial Purchasers intend to offer and sell the Securities in accordance with Regulation S under the Securities Act. Accordingly, each Initial Purchaser agrees that neither it, its affiliates nor any persons acting on its or their behalf has engaged or will engage in any directed selling efforts with respect to the Securities and it and they have complied and will comply with the offering restrictions requirement of Regulation S. Each Initial Purchaser agrees that, at or prior to confirmation of sale of Securities (other than a sale pursuant to and in accordance with paragraph 2(ii) of the Agreement to purchasers described in clause (B)(1) thereof), it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Securities from it during the restricted period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933 (the "Act") and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the closing date, except in either case in accordance with Regulation S (or Rule 144A if available) under the Act. Terms used above have the meaning given to them by Regulation S." Terms used in this paragraph have the meanings given to them by Regulation S. Each of the Initial Purchasers further agrees that it has not entered and will not enter into any contractual arrangement with respect to the distribution or delivery of the Securities in accordance with this paragraph (A), except with its affiliates or with the prior written consent of the Company. (B) Each of the Initial Purchasers severally represents and agrees that (i) it has not offered or sold and prior to the date six months after the date of issue of the Securities will not offer or sell any Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their business or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995, (ii) it has complied, and will comply with all applicable provisions of the Financial Services Act 1986 and any regulation promulgated thereto of Great Britain with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom, and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any AI-2 document received by it in connection with the issue of the Securities to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on. (C) Each of the Initial Purchasers agrees that it will not offer, sell or deliver any of the Securities in any jurisdiction outside the United States except under circumstances that will result in compliance with the applicable laws thereof, and that it will take at its own expense whatever action is required to permit its purchase and resale of the Securities in such jurisdictions. Each of the Initial Purchasers understands that no action has been taken to permit a public offering in any jurisdiction outside the United States where action would be required for such purposes. Each of the Initial Purchasers agrees not to cause any advertisement (other than an announcement of the consummation of the offer and sale of the Securities) of the Securities to be published in any newspaper or periodical or posted in any public place and not to issue any circular relating to the Securities (other than the Offering Memorandum). ANNEX II [Form of Registration Rights Agreement] ANNEX III [Form of Kirkland & Ellis Opinion] SCHEDULE I
Principal Amount of Securities Initial Purchaser to be Purchased - ----------------- ---------------- J.P. Morgan Securities Inc.......................... $ 87,375,000 Credit Suisse First Boston Corporation.............. 87,375,000 Chase Securities Inc................................ 50,000,000 BancAmerica Robertson Stephens...................... 12,625,000 NationsBanc Montgomery Securities LLC............... 12,625,000 ------------ Total.......................................... $250,000,000
EX-4.8 7 REGISTRATION RIGHTS AGREEMENT DATED 2/4/1998 EXHIBIT 4.8 REGISTRATION RIGHTS AGREEMENT Dated as of February 4, 1998 among NAVISTAR INTERNATIONAL CORPORATION and J.P. MORGAN SECURITIES INC., CREDIT SUISSE FIRST BOSTON CORPORATION, CHASE SECURITIES INC., BANCAMERICA ROBERTSON STEPHENS and NATIONSBANC MONTGOMERY SECURITIES LLC REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is dated as of February 4, 1998, by and among NAVISTAR INTERNATIONAL CORPORATION, a Delaware corporation (the "Company"), and J.P. MORGAN SECURITIES INC., CREDIT SUISSE FIRST BOSTON CORPORATION, CHASE SECURITIES INC., BANCAMERICA ROBERTSON STEPHENS and NATIONSBANC MONTGOMERY SECURITIES LLC (collectively, the "Initial Purchasers"). This Agreement is entered into in connection with the Purchase Agreement, dated as of January 30, 1998, among the Company and the Initial Purchasers (the "Purchase Agreement") relating to the sale by the Company to the Initial Purchasers, severally, of $250,000,000 aggregate principal amount of its 8% Senior Subordinated Notes due 2008 (the "Notes"). In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agreement for the equal benefit of the Initial Purchasers and their direct and indirect transferees. The execution and delivery of this Agreement is a condition to the Initial Purchasers' obligation to purchase the Notes under the Purchase Agreement. The parties hereby agree as follows: 1. Definitions ----------- As used in this Agreement, the following terms shall have the following meanings: Additional Interest: See Section 4. ------------------- Advice: See Section 5. ------ Applicable Period: See Section 2(b). ----------------- Closing Date: The Closing Date as defined in the Purchase Agreement. ------------ Company: See the introductory paragraph to this Agreement. ------- Consummation Date: The 180th day after the Closing Date. ----------------- Effectiveness Date: The 150th day after the Closing Date. ------------------ Effectiveness Period: See Section 3(a). -------------------- Event Date: See Section 4(b). ---------- -2- Exchange Act: The Securities Exchange Act of 1934, as amended, and ------------ the rules and regulations of the SEC promulgated thereunder. Exchange Offer: See Section 2(a). -------------- Exchange Registration Statement: See Section 2(a). ------------------------------- Exchange Securities: See Section 2(a). ------------------- Filing Date: The 60th day after the Closing Date. ----------- Holder: Any record holder of Registrable Securities. ------ Indemnified Person: See Section 7. ------------------ Indemnifying Person: See Section 7. ------------------- Indenture: The Indenture, dated as of February 4, 1998, between the --------- Company and Harris Trust and Savings Bank, as trustee, pursuant to which the Notes are being issued, as amended or supplemented from time to time in accordance with the terms thereof. Initial Purchasers: See the introductory paragraph to this Agreement. ------------------ Initial Shelf Registration: See Section 3(a). -------------------------- Inspectors: See Section 5(p). ---------- Issue Date: The original issue date of the Notes. ---------- NASD: See Section 5(t). ---- Notes: See the preamble to this Agreement. ----- Participant: See Section 7. ----------- Participating Broker-Dealer: See Section 2(b). --------------------------- Person: An individual, corporation, partnership, joint venture, ------ trust, estate, unincorporated organization or government or any agency or political subdivision thereof. Private Exchange: See Section 2(b). ---------------- -3- Private Exchange Securities: See Section 2(b). --------------------------- Prospectus: The prospectus included in any Registration Statement ---------- (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Records: See Section 5(p). ------- Registrable Securities: The Notes upon original issuance of the Notes ---------------------- and at all times subsequent thereto, each Exchange Security as to which Section 2(c)(1)(i) hereof is applicable upon original issuance and at all times subsequent thereto and, if issued, the Private Exchange Securities, until in the case of any such Notes, Exchange Securities or Private Exchange Securities, as the case may be, (i) a Registration Statement (other than, with respect to any Exchange Security as to which Section 2(c)(1)(i) hereof is applicable, the Exchange Registration Statement) covering such Notes, Exchange Securities or Private Exchange Securities has been declared effective by the SEC and such Notes, Exchange Securities or Private Exchange Securities, as the case may be, have been disposed of in accordance with such effective Registration Statement, (ii) such Notes, Exchange Securities or Private Exchange Securities, as the case may be, are sold in compliance with Rule 144, or (iii) such Notes, Exchange Securities or Private Exchange Securities, as the case may be, cease to be outstanding. Registration Statement: Any registration statement of the Company, ---------------------- including, but not limited to, the Exchange Registration Statement, that covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Rule 144: Rule 144 promulgated under the Securities Act, as such rule -------- may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. -4- Rule 144A: Rule 144A promulgated under the Securities Act, as such --------- rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC. Rule 415: Rule 415 promulgated under the Securities Act, as such rule -------- may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. --- Securities Act: The Securities Act of 1933, as amended, and the rules -------------- and regulations of the SEC promulgated thereunder. Shelf Notice: See Section 2(c). ------------ Shelf Registration: See Section 3(b). ------------------ Subsequent Shelf Registration: See Section 3(b). ----------------------------- TIA: The Trust Indenture Act of 1939, as amended. --- Trustee: The trustee as defined in the Indenture and, if existent, ------- the trustee under any indenture governing the Exchange Securities and Private Exchange Securities (if any). Underwritten registration or underwritten offering: A registration in -------------------------------------------------- which securities of the Company are sold to an underwriter for reoffering to the public. 2. Exchange Offer -------------- (a) The Company agrees to file with the SEC as soon as practicable after the Closing Date, but in no event later than the Filing Date, an offer to exchange (the "Exchange Offer") any and all of the Registrable Securities for a like aggregate principal amount of debt securities of the Company which are identical in all material respects to the Notes (the "Exchange Securities") (and which are entitled to the benefits of a trust indenture which is identical in all material respects to the Indenture (other than such changes as are necessary to comply with any requirements of the SEC to effect or maintain the qualification of such trust indenture under the TIA) and which has been qualified under the TIA), except that the Exchange Securities shall have been registered pursuant to an effective Registration Statement under the Securities Act and shall contain no restrictive legend thereon. The Company agrees to use its reasonable best efforts to keep the Exchange Offer open for at least 20 -5- business days (or longer if required by applicable law) after the date notice of the Exchange Offer is mailed to Holders and to consummate the Exchange Offer on or prior to the Effectiveness Date. The Exchange Offer will be registered under the Securities Act on the appropriate form (the "Exchange Registration Statement") and will comply with all applicable tender offer rules and regulations under the Exchange Act. If after such Exchange Registration Statement is initially declared effective by the SEC, the Exchange Offer or the issuance of the Exchange Securities thereunder is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court such Exchange Registration Statement shall be deemed not to have become effective for purposes of this Agreement. Each Holder who participates in the Exchange Offer will be deemed to represent that any Exchange Securities received by it will be acquired in the ordinary course of its business, that at the time of the consummation of the Exchange Offer such Holder will have no arrangement with any person to participate in the distribution of the Exchange Securities in violation of the provisions of the Securities Act, and that such Holder is not an affiliate of the Company within the meaning of the Securities Act. Upon consummation of the Exchange Offer in accordance with this Section 2, the provisions of this Agreement shall continue to apply, mutatis mutandis, solely with respect to Registrable ------- -------- Securities that are Private Exchange Securities and Exchange Securities held by Participating Broker-Dealers, and the Company shall have no further obligation to register Registrable Securities (other than Private Exchange Securities and other than Exchange Securities as to which clause (c)(1)(i) hereof applies) pursuant to Section 3 of this Agreement. No securities other than the Exchange Securities (and the Company's 7% Senior Notes due 2003) shall be included in the Exchange Registration Statement. (b) The Company shall include within the Prospectus contained in the Exchange Registration Statement one or more section(s) reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the Staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Securities received by such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"), whether such positions or policies have been publicly disseminated by the Staff of the SEC or such positions or policies, in the reasonable judgment of the Initial Purchasers, represent the prevailing views of the Staff of the SEC. Such section(s) shall also allow the use of the prospectus by all persons subject to the prospectus delivery requirements of the Securities Act, including all Participating Broker-Dealers, and include a statement describing the means by which Participating Broker-Dealers may resell the Exchange Securities. -6- The Company shall use its reasonable best efforts to keep the Exchange Registration Statement effective and to amend and supplement the Prospectus contained therein in order to permit such Prospectus to be lawfully delivered by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities, provided that -------- such period shall not exceed 180 days (or such longer period if extended pursuant to the last paragraph of Section 5) (the "Applicable Period"). Notwithstanding the foregoing, the Company shall have no obligation to keep the Exchange Registration Statement effective or to amend and supplement the Prospectus contained therein in the event that the Company has not received written notice within 30 days following the completion of the Exchange Offer that a participating Broker-Dealer received Exchange Securities in the Exchange Offer. If, prior to consummation of the Exchange Offer, an Initial Purchaser holds any Notes acquired by it and having the status of an unsold allotment in the initial distribution, the Company upon the request of such Initial Purchaser shall, simultaneously with the delivery of the Exchange Securities in the Exchange Offer, issue and deliver to each such Initial Purchaser, in exchange (the "Private Exchange") for the Notes held by such Initial Purchaser, a like principal amount of debt securities of the Company that are identical in all material respects to the Exchange Securities (the "Private Exchange Securities") (and which are issued pursuant to the same indenture as the Exchange Securities) except for the placement of a restrictive legend on such Private Exchange Securities. The Private Exchange Securities shall bear the same CUSIP number as the Exchange Securities. Interest on the Exchange Securities and Private Exchange Securities will accrue from the last interest payment date on which interest was paid on the Notes surrendered in exchange therefor or, if no interest has been paid on the Notes, from the Issue Date. Any indenture under which the Exchange Securities or the Private Exchange Securities will be issued shall provide that the holders of any of the Exchange Securities and the Private Exchange Securities will vote and consent together on all matters (to which such holders are entitled to vote or consent) as one class and that none of the holders of the Exchange Securities and the Private Exchange Securities will have the right to vote or consent as a separate class on any matter (to which such holders are entitled to vote or consent). (c) If (1) prior to the consummation of the Exchange Offer, the Company reasonably determines in good faith or Holders of at least a majority in aggregate principal amount of the Registrable Securities notify the Company that they have reasonably determined in good faith that (i) in the opinion of counsel, the Exchange -7- Securities would not, upon receipt, be tradeable by such Holders who are not affiliates of the Company without restriction under the Securities Act and without restrictions under applicable blue sky or state securities laws or (ii) in the opinion of counsel, the SEC is unlikely to permit the consummation of the Exchange Offer and/or (2) subsequent to the consummation of the Private Exchange, holders of at least a majority in aggregate principal amount of the Private Exchange Securities so request with respect to the Private Exchange Securities and/or (3) the Exchange Offer is commenced and not consummated prior to the 45th day following the Consummation Date for any reason, then the Company shall promptly deliver to the Holders and the Trustee notice thereof (the "Shelf Notice") and shall thereafter file an Initial Shelf Registration as set forth in Section 3 (which only in the circumstances contemplated by clause (2) of this sentence will relate solely to the Private Exchange Securities) pursuant to Section 3. The parties hereto agree that, following the delivery of a Shelf Notice to the Holders of Registrable Securities (only in the circumstances contemplated by clauses (1) and/or (3) of the preceding sentence), the Company shall not have any further obligation to conduct the Exchange Offer or the Private Exchange under this Section 2. 3. Shelf Registration ------------------ If a Shelf Notice is delivered as contemplated by Section 2(c), then: (a) Initial Shelf Registration. The Company shall as promptly as -------------------------- reasonably practicable prepare and file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Securities (the "Initial Shelf Registration"). If the Company shall have not yet filed an Exchange Registration Statement, the Company shall use its reasonable best efforts to file with the SEC the Initial Shelf Registration on or prior to the Filing Date. Otherwise, the Company shall use its reasonable best efforts to file with the SEC the Initial Shelf Registration within 60 days of the delivery of the Shelf Notice. The Initial Shelf Registration shall be on Form S-2 or S-3 or another appropriate form permitting registration of such Registrable Securities for resale by such holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Company shall not permit any securities other than the Registrable Securities to be included in the Initial Shelf Registration or any Subsequent Shelf Registration. The Company shall use its reasonable best efforts to cause the Initial Shelf Registration to be declared effective under the Securities Act on or prior to the 120th day after the filing thereof with the SEC and to keep the Initial Shelf Registration continuously effective under the Securities Act until the date which is 24 months from the Issue Date (subject to extension pursuant to the last paragraph of Section 5 hereof) (the "Effectiveness Period"), or such -8- shorter period ending when (i) all Registrable Securities covered by the Initial Shelf Registration have been sold in the manner set forth and as contemplated in the Initial Shelf Registration or (ii) a Subsequent Shelf Registration covering all of the Registrable Securities has been declared effective under the Securities Act. (b) Subsequent Shelf Registrations. If the Initial Shelf ------------------------------ Registration or any Subsequent Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the securities registered thereunder), the Company shall use its reasonable best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 45 days of such cessation of effectiveness amend the Shelf Registration in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional "shelf" Registration Statement pursuant to Rule 415 covering all of the Registrable Securities (a "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed, the Company shall use its reasonable best efforts to cause the Subsequent Shelf Registration to be declared effective as soon as practicable after such filing and to keep such Registration Statement continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration or any Subsequent Shelf Registration was previously continuously effective. As used herein the term "Shelf Registration" means the Initial Shelf Registration and any Subsequent Shelf Registration. (c) Supplements and Amendments. The Company shall promptly -------------------------- supplement and amend the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Holders of a majority in aggregate principal amount of the Registrable Securities covered by such Registration Statement or by any underwriter of such Registrable Securities. 4. Additional Interest ------------------- (a) The Company and the Initial Purchasers agree that the Holders of Registrable Securities will suffer damages if the Company fails to fulfill its obligations under Section 2 or Section 3 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Company agrees to pay, as liquidated damages, additional interest on the Registrable Securities ("Additional Interest") under the circumstances and to the extent set forth below (each of which shall be given independent effect and shall not be duplicative): -9- (i) if neither the Exchange Registration Statement nor the Initial Shelf Registration has been filed on or prior to the Filing Date, Additional Interest shall accrue on the Registrable Securities over and above the stated interest at a rate of .25% per annum for the first 90 days immediately following the Filing Date, such Additional Interest rate increasing by an additional .25% per annum at the beginning of each subsequent 90-day period; (ii) if neither the Exchange Registration Statement nor the Initial Shelf Registration is declared effective by the SEC on or prior to the Effectiveness Date, Additional Interest shall accrue on the Registrable Securities included or which should have been included in such Registration Statement over and above the stated interest at a rate of .25% per annum for the first 90 days immediately following the day after the Effectiveness Date, such Additional Interest rate increasing by an additional .25% per annum at the beginning of each subsequent 90-day period; and (iii) if (A) the Company has not exchanged Exchange Securities for all Notes validly tendered in accordance with the terms of the Exchange Offer on or prior to the Consummation Date or (B) the Exchange Registration Statement ceases to be effective at any time prior to the time that the Exchange Offer is consummated or (C) if applicable, the Shelf Registration has been declared effective and such Shelf Registration ceases to be effective at any time during the Effectiveness Period, then Additional Interest shall accrue on the Registrable Securities (over and above any interest otherwise payable on the Registrable Securities) at a rate of .25% per annum for the first 90 days commencing on the (x) 181st day after the Issue Date, in the case of (A) above, or (y) the day the Exchange Registration Statement ceases to be effective in the case of (B) above, or (z) the day such Shelf Registration ceases to be effective in the case of (C) above, such Additional Interest rate increasing by an additional .25% per annum at the beginning of each such subsequent 90-day period; provided, however, that the Additional Interest rate on the Registrable - -------- ------- Securities may not exceed at any one time in the aggregate 1.0% per annum; and provided, further, that (1) upon the filing of the Exchange Registration - -------- ------- Statement or a Shelf Registration as required hereunder (in the case of clause (i) of this Section 4), (2) upon the effectiveness of the Exchange Registration Statement or the Shelf Registration as required hereunder (in the case of clause (ii) of this Section 4), or (3) upon the exchange of Exchange Securities for all Notes tendered (in the case of clause (iii)(A) of this Section 4), or upon the effectiveness of the Exchange Registration Statement which had ceased to remain effective (in the case of (iii)(B) of this Section 4), or upon the effectiveness of the Shelf Registration which had ceased to remain effective (in the case of (iii)(C) of this Section 4), Additional Interest on the Registrable Securities as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. It being understood and agreed that, -10- notwithstanding any provision to the contrary, so long as any Registrable Security is then covered by an effective Shelf Registration Statement, no Additional Interest shall accrue on such Registrable Security. (b) The Company shall notify the Trustee within one business day after each and every date on which an event occurs in respect of which Additional Interest is required to be paid (an "Event Date"). The Company shall pay the Additional Interest due on the Registrable Securities by depositing with the Trustee, in trust, for the benefit of the Holders thereof, on or before the applicable semi-annual interest payment date, immediately available funds in sums sufficient to pay the Additional Interest then due to Holders of Registrable Securities. The Additional Interest due shall be payable on each interest payment date to the record Holder of Registrable Securities entitled to receive the interest payment to be made on such date as set forth in the Indenture. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest rate by the principal amount of the affected Registrable Securities of such Holders, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed), and the denominator of which is 360. Each obligation to pay Additional Interest shall be deemed to accrue immediately following the occurrence of the applicable Event Date. The parties hereto agree that the Additional Interest provided for in this Section 4 constitutes a reasonable estimate of the damages that may be incurred by Holders of Registrable Securities by reason of the failure of a Shelf Registration or Exchange Offer to be filed or declared effective, or a Shelf Registration to remain effective, as the case may be, in accordance with this Section 4. 5. Registration Procedures ----------------------- In connection with the registration of any Registrable Securities pursuant to Sections 2 or 3 hereof, the Company shall effect such registrations to permit the sale of such Registrable Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company shall: (a) Use its reasonable best efforts to prepare and file with the SEC, as soon as practicable after the date hereof but in any event prior to the Filing Date in the case of the Exchange Registration Statement and the 45th day following the Consummation Date in the case of the Shelf Registration Statement, a Registration Statement or Registration Statements as prescribed by Section 2 or 3, and to use its reasonable best efforts to cause each such Registration Statement to become effective and remain effective as provided herein, provided that, if (1) such filing is pursuant -------- -11- to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Company shall upon written request furnish to and afford the Holders of the Registrable Securities and each such Participating Broker- Dealer, as the case may be, covered by such Registration Statement, their counsel and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed. (b) Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration or Exchange Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period or the Applicable Period, as the case may be; cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and comply with the provisions of the Securities Act, the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to it with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented and with respect to the subsequent resale of any securities being sold by a Participating Broker-Dealer covered by any such Prospectus; the Company shall not be deemed to have used its reasonable best efforts to keep a Registration Statement effective during the Applicable Period if the Company voluntarily takes any action that would result in selling Holders of the Registrable Securities covered thereby or Participating Broker-Dealers seeking to sell Exchange Securities not being able to sell such Registrable Securities or such Exchange Securities during that period unless such action is in the best interest of the Company (as determined by its board of directors), required by applicable law or unless the Company complies with this Agreement, including without limitation, the provisions of paragraph 5(k) hereof and the last paragraph of this Section 5. (c) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, notify the selling Holders of Registrable Securities, or each such Participating Broker-Dealer, as the case may be, their counsel and the managing underwriters, if any, who have provided the Company with their names and addresses promptly (but in any event within two business days), and confirm such notice in writing, (i) when a -12- Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post- effective amendment, when the same has become effective under the Securities Act (including in such notice a written statement that any Holder may, upon request, obtain, without charge, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Securities or the Exchange Securities to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (iv) of the happening of any event or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (v) of the Company's reasonable determination that a post- effective amendment to a Registration Statement would be appropriate. (d) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, use its reasonable best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Securities or the Exchange Securities to be sold by any Participating Broker-Dealer, for sale in any jurisdiction, and, if any such order is issued, to use its reasonable best efforts to obtain the withdrawal of any such order at the earliest possible moment. -13- (e) If a Shelf Registration is filed pursuant to Section 3 and if requested by the managing underwriters, if any, or the Holders of a majority in aggregate principal amount of the Registrable Securities being sold in connection with an underwritten offering, (i) promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriters, if any, or such Holders or counsel reasonably request to be included therein, or (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment. (f) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, furnish to each selling Holder of Registrable Securities and to each such Participating Broker-Dealer who so requests and to counsel and each managing underwriter, if any, without charge, one conformed copy of the Registration Statement or Statements and each post- effective amendment thereto, including financial statements and schedules, and if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits. (g) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, deliver to each selling Holder of Registrable Securities, or each such Participating Broker-Dealer, as the case may be, their counsel, and the underwriters, if any, without charge, as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the last paragraph of this Section 5, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling holders of Registrable Securities or each such Participating Broker-Dealer, as the case may be, and the underwriters or agents, if any, and dealers (if any), in connection with the offering and sale of the Registrable Securities covered by or the sale by Participating Broker-Dealers of the Exchange Securities pursuant to such Prospectus and any amendment or supplement thereto. (h) Prior to any public offering of Registrable Securities or any delivery of a Prospectus contained in the Exchange Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Pe- -14- riod, to use its reasonable best efforts to register or qualify, and to cooperate with the selling Holders of Registrable Securities or each such Participating Broker-Dealer, as the case may be, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer, or the managing underwriters reasonably request in writing, provided that where Exchange Securities -------- held by Participating Broker-Dealers or Registrable Securities are offered other than through an underwritten offering, the Company agrees to cause its counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 5(h); keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other reasonable acts or things necessary or advisable to enable the disposition in such jurisdictions of the Exchange Securities held by Participating Broker-Dealers or the Registrable Securities covered by the applicable Registration Statement, provided that -------- the Company shall not be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) subject itself to taxation in any such jurisdiction. (i) If a Shelf Registration is filed pursuant to Section 3, reasonably cooperate with the selling Holders of Registrable Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company ("DTC"); and enable such Registrable Securities to be registered in such names as the managing underwriter or underwriters, if any, or Holders may request. (j) Use its reasonable best efforts to cause the Registrable Securities covered by the Registration Statement to be registered with or approved by such other United States governmental agencies or authorities of the United States as may be necessary to enable the seller or sellers thereof or the underwriters, if any, to consummate the disposition of such Registrable Securities, except as may be required solely as a consequence of the nature of such selling Holder's business, in which case the Company will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals. (k) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 -15- is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, upon the occurrence of any event contemplated by paragraph 5(c)(iv) or 5(c)(v) above, as promptly as practicable prepare and (subject to Section 5(a) above) file with the SEC, solely at the expense of the Company, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder or to the purchasers of the Exchange Securities to whom such Prospectus will be delivered by a Participating Broker-Dealer, any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (l) Use its reasonable best efforts to cause the Registrable Securities covered by a Registration Statement or the Exchange Securities, as the case may be, to be rated with the appropriate rating agencies, if so requested by the Holders of a majority in aggregate principal amount of Registrable Securities covered by such Registration Statement or the Exchange Securities, as the case may be, or the managing underwriters, if any. (m) Prior to the effective date of the first Registration Statement relating to the Registrable Securities, (i) provide the Trustee with printed certificates for the Registrable Securities in a form eligible for deposit with DTC and (ii) provide a CUSIP number for the Registrable Securities. (n) Use its best efforts to cause all Registrable Securities covered by such Registration Statement or the Exchange Securities, as the case may be, to be (i) listed on each securities exchange, if any, on which similar securities issued by the Company are then listed, or (ii) authorized to be quoted on the Nasdaq Stock Market's National Market if similar securities of the Company are so authorized. (n) Use its best efforts to cause all Registrable Securities covered by such Registration Statement or the Exchange Securities, as the case may be, to be (i) listed on each securities exchange, if any, on which similar securities issued by the Company are then listed, or (ii) authorized to be quoted on the Nasdaq Stock Market's National Market if similar securities of the Company are so authorized. (o) In connection with an underwritten offering of Registrable Securities pursuant to a Shelf Registration, enter into an underwriting agreement as is customary in underwritten offerings and take all such other actions as are reasonably requested by the managing underwriters in order to expedite or facilitate the registration or the disposition of such Registrable Securities, and in such connection, (i) make such representations and warranties to the underwriters, with respect to the business of the Company and its subsidiaries, if any, and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incor- -16- porated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when requested; (ii) obtain an opinion of counsel to the Company and updates thereof in form and substance reasonably satisfactory to the managing underwriters, addressed to the underwriters covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by underwriters; (iii) obtain "cold comfort" letters and updates thereof in form and substance reasonably satisfactory to the managing underwriters from the independent certified public accountant(s) of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings and such other matters as may be reasonably requested by underwriters; and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable than those set forth in Section 7 hereof (or such other provisions and procedures acceptable to Holders of a majority in aggregate principal amount of Registrable Securities covered by such Registration Statement and the managing underwriters or agents) with respect to all parties to be indemnified pursuant to said Section. The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder. (p) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, make available for inspection by any selling Holder of such Registrable Securities being sold, or each such Participating Broker-Dealer, as the case may be, any underwriter participating in any such disposition of Registrable Securities, if any, and any attorney, accountant or other agent retained by any such selling holder or each such Participating Broker-Dealer, as the case may be, or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries (collectively, the "Records"), as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Company to supply all information in each case reasonably requested by any such Inspector in connection with such Registration Statement. Records determined in good faith by the -17- Company to be confidential shall not be disclosed by any Inspector notified of such determination unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or (iii) the information in such Records has been made generally available to the public. Each selling Holder of such Registrable Securities and each such Participating Broker-Dealer will be required to agree that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Company unless and until such is made generally available to the public. Each selling Holder of such Registrable Securities and each such Participating Broker-Dealer will be required to further agree that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company at its expense to undertake appropriate action to prevent disclosure of the Records deemed confidential. (q) Provide an indenture trustee for the Registrable Securities or the Exchange Securities, as the case may be, and cause the Indenture or the trust indenture provided for in Section 2(a), as the case may be, to be qualified under the TIA not later than the effective date of the Exchange Offer or the first Registration Statement relating to the Registrable Securities; and in connection therewith, cooperate with the trustee under any such indenture and the holders of the Registrable Securities, to effect such changes to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its reasonable best efforts to cause such trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner. (r) Comply in all material respects with all applicable rules and regulations of the SEC and make generally available to its securityholders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 90 days after the end of any 12- month period (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Shelf Registration Statement, which statements shall cover said 12-month periods. (s) If an Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Registrable Securities by Holders to the Company (or to such -18- other Person as directed by the Company) in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be, the Company shall mark, or caused to be marked, on such Registrable Securities that such Registrable Securities are being cancelled in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be; in no event shall such Registrable Securities be marked as paid or otherwise satisfied. (t) Reasonably cooperate with each seller of Registrable Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"). (u) The Company will use its best efforts to (i) if the Registrable Securities have been rated prior to the initial sale of such Registrable Securities, confirm such ratings will apply to the Registrable Securities covered by a Registration Statement or (ii) if the Registrable Securities were not previously rated, cause the Registrable Securities covered by a Registration Statement to be rated with the appropriate rating agencies, if so requested by Holders of a majority in aggregate principal amount of the Registrable Securities covered by such Registration Statement, or by the managing underwriters, if any. (v) Use its reasonable best efforts to take all other steps necessary to effect the registration of the Registrable Securities covered by a Registration Statement contemplated hereby. The Company may require each seller of Registrable Securities or Participating Broker-Dealer as to which any registration is being effected to furnish to the Company such information regarding such seller or Participating Broker-Dealer and the distribution of such Registrable Securities or Exchange Securities to be sold by such Participating Broker-Dealer, as the case may be, as the Company may, from time to time, reasonably request. The Company may exclude from such registration the Registrable Securities of any seller or Participating Broker-Dealer who unreasonably fails to furnish such information within a reasonable time after receiving such request. Each seller as to which any Shelf Registration is being effected is deemed to agree to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such seller not materially misleading. Each Holder of Registrable Securities and each Participating Broker- Dealer agrees by acquisition of such Registrable Securities or Exchange Securities to be sold by such Participating Broker-Dealer, as the case may be, that, upon receipt of any notice from -19- the Company of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iii), 5(c)(iv), or 5(c)(v), such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus or Exchange Securities to be sold by such Participating Broker-Dealer, as the case may be, until such holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(k), or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. In the event the Company shall give any such notice, each of the Effectiveness Period and the Applicable Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement or Exchange Securities to be sold by such Participating Broker-Dealer, as the case may be, shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(k) or (y) the Advice. 6. Registration Expenses --------------------- (a) All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not the Exchange Offer or a Shelf Registration is filed or becomes effective, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Securities or Exchange Securities and determination of the eligibility of the Registrable Securities or Exchange Securities for investment under the laws of such jurisdictions in the United States (x) where the holders of Registrable Securities are located, in the case of the Exchange Securities, or (y) as provided in Section 5(h), in the case of Registrable Securities or Exchange Securities to be sold by a Participating Broker-Dealer during the Applicable Period)), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities or Exchange Securities in a form eligible for deposit with DTC and of printing prospectuses if the printing of prospectuses is requested by the managing underwriters, if any, or, in respect of Registrable Securities or Exchange Securities to be sold by any Participating Broker-Dealer during the Applicable Period, by the Holders of a majority in aggregate principal amount of the Registrable Securities included in any Registration Statement or of such Exchange Securities, as the case may be), (iii) messenger, telephone and delivery expenses, (iv) reasonable fees and disbursements of counsel for the Company and fees and disbursements of special counsel for the sellers of Registrable Securities (subject to the provisions of Section 6(b)), -20- (v) fees and disbursements of all independent certified public accountants referred to in Section 5(o)(iii) (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (vi) rating agency fees, (vii) Securities Act liability insurance, if the Company desires such insurance, (viii) fees and expenses of all other Persons retained by the Company, (ix) internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees of the Company performing legal or accounting duties), (x) the expense of any annual audit, (xi) the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, if applicable, and (xii) the expenses relating to printing, word processing and distributing all Registration Statements, underwriting agreements, securities sales agreements, indentures and any other documents necessary in order to comply with this Agreement. In the event of an underwritten offering of Registrable Securities the Company shall not be responsible for any "roadshow expenses" in connection therewith except for those of its officers and directors in attending roadshow presentations. (b) In connection with any Shelf Registration hereunder, the Company shall reimburse the Holders of the Registrable Securities being registered in such registration for the reasonable fees and disbursements of not more than one counsel (in addition to appropriate local counsel) chosen by the Holders of a majority in aggregate principal amount of the Registrable Securities to be included in such Registration Statement. Such Holders shall be responsible for any and all other out-of-pocket expenses of the Holders of Registrable Securities incurred in connection with the registration of the Registrable Securities. 7. Indemnification --------------- The Company agrees to indemnify and hold harmless each Holder of Registrable Securities if a Shelf Registration is filed pursuant to Section 3 and each Participating Broker-Dealer selling Exchange Securities during the Applicable Period, the officers and directors of each such person, and each person, if any, who controls any such person within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a "Participant"), from and against any and all losses, claims, damages and liabilities (including, without limitation, the legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted) caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances -21- under which they were made, not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Participant furnished to the Company in writing by such Participant expressly for use therein; provided that the foregoing -------- indemnity with respect to any preliminary prospectus shall not inure to the benefit of any Participant (or to the benefit of any person controlling such Participant) from whom the person asserting any such losses, claims, damages or liabilities purchased Registrable Securities or Exchange Securities if such untrue statement or omission or alleged untrue statement or omission made in such preliminary prospectus is completely remedied in the related Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) and a copy of the related Prospectus (as so amended or supplemented) shall not have been furnished to such person at or prior to the sale of such Registrable Securities or Exchange Securities, as the case may be, to such person, if required by law. Each Participant will be required to agree, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers and each person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to each Participant, but only with reference to information relating to such Participant furnished to the Company in writing by such Participant expressly for use in any Registration Statement or Prospectus, any amendment or supplement thereto, or any preliminary prospectus. The liability of any Participant under this paragraph shall in no event exceed the proceeds received by such Participant from sales of Registrable Securities giving rise to such obligations. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such person (the "Indemnified Person") shall promptly notify the person against whom such indemnity may be sought (the "Indemnifying Person") in writing, and the Indemnifying Person, upon request of the Indemnified Person, shall retain counsel satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Person has failed within a reasonable time to retain counsel satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the -22- same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred. Any such separate firm for the Participants and such control persons of Participants shall be designated in writing by Participants who sold a majority in interest of Registrable Securities sold by all such Participants and any such separate firm for the Company, its directors, officers and such control persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested an Indemnifying Person to reimburse the Indemnified Person for fees and expenses actually incurred by counsel as contemplated by the third sentence of this paragraph, the Indemnifying Person agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 60 days after receipt by such Indemnifying Person of the aforesaid request and (ii) such Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement (or delivered a notice to such Indemnified Person setting forth its good faith objection to such request's conformity to the provisions of this Section 7). No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional written release in form and substance satisfactory to the Indemnified Person, of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. If the Indemnification provided for in the first and second paragraphs of this Section 7 is unavailable to, or insufficient to hold harmless, an Indemnified Person in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Participants on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and the Participants on the other shall be determined by refer- -23- ence to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Participants and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties shall agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation --- ---- (even if the Participants were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall a Participant be required to contribute any amount in excess of the amount by which proceeds received by such Participant from sales of Registrable Securities exceeds the amount of any damages that such Participant has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The indemnity and contribution agreements contained in this Section 7 will be in addition to any liability which the Indemnifying Persons may otherwise have to the Indemnified Persons referred to above. 8. Rule 144 and Rule 144A ---------------------- The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Registrable Securities, within a reasonable time period make publicly available other information so long as necessary to permit sales pursuant to Rule 144 and Rule 144A under the Securities Act. The Company further covenants that it will take such further action as any Holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 and Rule 144A under the Securities Act, as such Rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. -24- 9. Underwritten Registrations -------------------------- Nothing in this Agreement shall be interpreted so as to obligate the Company to participate in an underwritten offering of the Registrable Securities covered by any Shelf Registration. The Company's decision as to whether to cooperate with a proposed underwritten offering shall be at its sole discretion. If any of the Registrable Securities covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount of such Registrable Securities included in such offering and be reasonably acceptable to the Company. No Holder of Registrable Securities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 10. Miscellaneous ------------- (a) Remedies. In the event of a breach by the Company of any of its -------- obligations under this Agreement, each Holder of Registrable Securities, in addition to being entitled to exercise all rights provided herein, in the Indenture or, in the case of the Initial Purchasers, in the Purchase Agreement or granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agree that, in the event of any action for specific performance in respect of such breach, the Company shall waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company has not, as of the date -------------------------- hereof, entered and shall not, after the date of this Agreement, enter into any agreement with respect to any of its securities that is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The Company has not entered and will not enter into any agreement with respect to any of its securities which will grant to any Person piggy-back rights with respect to a Registration Statement. -25- (c) Adjustments Affecting Registrable Securities. The Company shall -------------------------------------------- not, directly or indirectly, take any action with respect to the Registrable Securities as a class that would adversely affect the ability of the Holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Agreement. (d) Amendments and Waivers. The provisions of this Agreement, ---------------------- including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of at least a majority of the then outstanding aggregate principal amount of Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Securities may be given by Holders of at least a majority in aggregate principal amount of the Registrable Securities being sold by such Holders pursuant to such Registration Statement, provided that the provisions of this sentence may -------- not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. (e) Notices. All notices and other communications (including without ------- limitation any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier or telecopier: (i) if to a Holder of Registrable Securities, at the most current address given by the Trustee to the Company; and (ii) if to the Company, at 455 North Cityfront Plaza Drive, Chicago, Illinois, 60611, Attention: Vice President and Treasurer and General Counsel; with a copy to Kirkland & Ellis, 200 East Randolph Drive, Chicago, Illinois, 60601, Attention: Michael H. Kerr. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; one business day after being timely delivered to a next-day air courier; and when receipt is acknowledged by the addressee, if telecopied. -26- Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the trustee under the Indenture at the address specified in such Indenture. (f) Successors and Assigns. This Agreement shall inure to the ---------------------- benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Registrable Securities; provided, that, with respect to the indemnity and contribution agreements in Section 7, each Holder of Registrable Securities subsequent to the Initial Purchasers shall be bound by the terms thereof if such Holder elects to include Registrable Securities in a Shelf Registration; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign holds Registrable Securities. (g) Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND ------------- CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. (j) Severability. If any term, provision, covenant or restriction ------------ of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have ex -27- ecuted the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (k) Entire Agreement. This Agreement, together with the Purchase ---------------- Agreement, is intended by the parties as a final expression of their agreement, and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. (l) Securities Held by the Company or Its Affiliates. Whenever the ------------------------------------------------ consent or approval of holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or any of its affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. S-1 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. NAVISTAR INTERNATIONAL CORPORATION By: /s/ Thomas M. Hough ----------------------------------------------- Name: Thomas M. Hough Title: Vice President & Treasurer J.P. MORGAN SECURITIES INC. CREDIT SUISSE FIRST BOSTON CORPORATION CHASE SECURITIES INC. BANCAMERICA ROBERTSON STEPHENS NATIONSBANC MONTGOMERY SECURITIES, INC. By: J.P. Morgan Securities Inc. By: /s/ Douglas A. Cruikshank ----------------------------------------------- Name: Douglas A. Cruikshank Title: Vice President By: Credit Suisse First Boston Corporation By: /s/ Thomas W. S. Groves ----------------------------------------------- Name: Thomas W. S. Groves Title: Vice President EX-5.1 8 OPINION OF KIRKLAND & ELLIS KIRKLAND & ELLIS PARTNERSHIPS INCLUDING PROFESSIONAL CORPORATIONS 200 East Randolph Drive Chicago, Illinois 60601 To Call Writer Direct: 312 861-2000 Facsimile: 312 861-2000 312 861-2200 Exhibit 5.1 March 5, 1998 Navistar International Corporation 455 North Cityfront Plaza Chicago, Illinois 60611 Re: Series B 7% Senior Notes due 2003 Series B 8% Senior Subordinated Notes due 2008 ---------------------------------------------- Ladies and Gentlemen: We are acting as special counsel to Navistar International Corporation, a Delaware corporation (the "Company"), in connection with the proposed registration by the Company of up to $100,000,000 in aggregate principal amount of the Company's Series B 7% Senior Notes due 2003 (the "Senior Exchange Notes") and up to $250,000,000 in aggregate principal amount of the Company's Series B 8% Senior Subordinated Notes due 2008 (the "Senior Subordinated Exchange Notes" and together with the Senior Exchange Notes, the "Exchange Notes"), pursuant to a Registration Statement on Form S-4, filed with the Securities and Exchange Commission (the "Commission") on February 27, 1998 under the Securities Act of 1933, as amended (the "Securities Act") (such Registration Statement, as amended or supplemented, is hereinafter referred to as the "Registration Statement"), for the purpose of effecting an exchange offer (the "Exchange Offer") for the Company's 7% Senior Notes due 2003 and 8% Senior Subordinated Notes due 2008 (collectively, the "Old Notes"). The Senior Exchange Notes are to be issued pursuant to an Indenture (the "Senior Notes Indenture"), dated as of January 30, 1998, among the Company and Harris Trust and Savings Bank, as Trustee, and the Senior Subordinated Exchange Notes are to be issued pursuant to an Indenture (the "Senior Subordinated Notes Indenture" and together with the Senior Notes Indenture, the "Indentures") among the Company and Harris Trust and Saving Banks, as Trustee. In that connection, we have examined originals, or copies certified or otherwise identified to our satisfaction, of such documents, corporate records and other instruments as we have deemed necessary for the purposes of this opinion, including (i) the corporate and organizational documents of the Company, (ii) minutes and records of the corporate proceedings of the Company with respect to the issuance of the Exchange Notes, (iii) the Registration Statement and exhibits thereto and (iv) the Registration Rights Agreements, each date February 4, 1998, among the Company and the respective Initial Purchasers of the Old Notes as set forth therein. London Los Angeles New York Washington D.C. KIRKLAND & ELLIS Navistar International Corporation March 5, 1998 Page 2 For purposes of this opinion, we have assumed the authenticity of all documents submitted to us as originals, the conformity to the originals of all documents submitted to us as copies and the authenticity of the originals of all documents submitted to us as copies. We have also assumed the genuineness of the signatures of persons signing all documents in connection with which this opinion is rendered, the authority of such persons signing on behalf of the parties thereto other than the Company and the due authorization, execution and delivery of all documents by the parties thereto other than the Company. As to any facts material to the opinions expressed herein which we have not independently established or verified, we have relied upon statements and representations of officers and other representatives of the Company and others. Based upon and subject to the foregoing qualifications, assumptions and limitations and the further limitations set forth below, we are of the opinion that: (1) The Company is a corporation existing and in good standing under the General Corporation Law of the State of Delaware. (2) The sale and issuance of the Exchange Notes has been validly authorized by the Company. (3) When, as and if (i) the Registration Statement shall have become effective pursuant to the provisions of the Securities Act, (ii) the Indentures shall have been qualified pursuant to the provisions of the Trust Indenture Act of 1939, as amended, (iii) the Old Notes shall have been validly tendered to the Company, (iv) the Exchange Notes shall have been issued in the form and containing the terms described in the Registration Statement, the Indentures, the resolutions of the Company's Board of Directors (or authorized committee thereof) authorizing the foregoing and any legally required consents, approvals, authorizations and other order of the Commission and any other regulatory authorities to be obtained, and (v) the Exchange Notes have been authenticated by the respective Trustee, the Exchange Notes when issued pursuant to the Exchange Offer will be legally issued, fully paid and nonassessable and will constitute valid and binding obligations of the Company. Our opinions expressed above are subject to the qualifications that we express no opinion as to the applicability of, compliance with, or effect of (i) any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent conveyance, moratorium or other similar law affecting the enforcement of creditors' rights generally, (ii) general principles of equity (regardless of whether KIRKLAND & ELLIS Navistar International Corporation March 5, 1998 Page 3 enforcement is considered in a proceeding in equity or at law), (iii) public policy considerations which may limit the rights of parties to obtain certain remedies and (iv) any laws except the laws of the State of New York and the General Corporation Law of the State of Delaware. We advise you that issues addressed by this letter may be governed in whole or in part by other laws, but we express no opinion as to whether any relevant difference exists between the laws upon which our opinions are based and any other laws which may actually govern. For purposes of the opinion in paragraph 1, we have relied exclusively upon certificates issued by the Delaware Secretary of State and such opinions are not intended to provide any conclusion or assurance beyond that conveyed by such certificates. We have assumed without investigation that there has been no relevant change or development between the respective dates of such certificates and the date of this letter. We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement. We also consent to the reference to our firm under the heading "Legal Matters" in the Registration Statement. In giving this consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of the rules and regulations of the Commission. We do not find it necessary for the purposes of this opinion, and accordingly we do not purport to cover herein, the application of the securities or "Blue Sky" laws of the various states to the issuance of the Exchange Notes. This opinion is limited to the specific issues addressed herein, and no opinion may be inferred or implied beyond that expressly stated herein. We assume no obligation to revise or supplement this opinion should the present laws of the State of New York or the General Corporation Law of the State of Delaware be changed by legislative action, judicial decision or otherwise. This opinion is furnished to you in connection with the filing of the Registration Statement, and is not to be used, circulated, quoted or otherwise relied upon for any other purposes. Yours very truly, /s/ KIRKLAND & ELLIS -------------------- KIRKLAND & ELLIS EX-12.1 9 STATEMENT RE: COMPUTATION OF RATIOS Exhibit 12.1 Navistar International Corporation Computation of Ratio of Earnings to Fixed Charges
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (in million of dollars, except ratio data) Earnings - -------- Earnings from continuing operations before income taxes $242 $105 $262 $158 ($441) Fixed Charges against earnings 89 98 105 91 105 ------------------------------------------ Earnings before fixed charges $331 $203 $367 $249 ($336) ========================================== Fixed Charges - ------------- Interest Expense $74 $83 $87 $75 $91 Debt Expense Amortization 2 4 4 4 3 33% of rent expense 13 11 14 12 11 ------------------------------------------ Total Fixed Charges $89 $98 $105 $91 $105 ========================================== Ratio 3.7x 2.1x 3.5x 2.7x a) ========================================== Rent Expense $40 $35 $42 $38 $35 ==========================================
a) Earnings were insufficient to cover fixed charges by approximately $441 million in fiscal 1993.
Computation of Pro Forma Ratio of Earnings to Fixed Charges For the Year Ended October 31, 1997 Total earnings before fixed charges, as above $331 ==== Total fixed charges, as above $89 Pro forma net increase in interest expense 20 ---- Pro forma fixed charges $109 ==== Pro forma ratio of earnings to fixed charges 3.0x =====
Page 1 EX-23.1 10 CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Navistar International Corporation on Form S-4 of our report dated December 15, 1997, appearing in the Prospectus, which is part of this Registration Statement, and of our report also dated December 15, 1997 relating to the financial statement schedule incorporated by reference in this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. Deloitte & Touche LLP Chicago, Illinois March 5, 1998 EX-24.1 11 POWERS OF ATTORNEY EXHIBIT 24.1 NAVISTAR INTERNATIONAL CORPORATION POWER OF ATTORNEY REGISTRATION STATEMENT ON FORM S-4 KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and directors of the Navistar International Corporation ( the "Company "), hereby appoint John R. Horne, Robert C. Lannert, Robert A. Boardman and J. Steven Keate, and each of them, as attorneys-in-fact for the undersigned and for each of them (with full power of substitution and resubstitution), for and in the name, place and stead of each of undersigned officers and directors of the Company, to sign and file with the Securities and Exchange Commission under the Securities Act of 1933, a Registration Statement on Form S-4 (the "Registration Statement"), for the purpose of registering the Company's offer to exchange its Series B 7% Senior Notes due 2003 for all its outstanding 7% Senior Notes due 2003 and its Series B 8% Senior Subordinated Notes due 2008 for all of its outstanding 8% Senior Subordinated Notes due 2008, and any and all amendments, supplements and exhibits to any such Registration Statement, including post-effective amendments, and any and all documents required to be filed with any state securities regulating board or commission pertaining to such Registration Statement or securities covered thereby, hereby granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done in order to effectuate the same as fully and to all intents and purposes as each of the undersigned might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or any of their substitutes, may do or cause to be done by virtue hereof. SIGNATURE TITLE DATE /s/ John R. Horne Chairman, President and Chief Executive Officer and Director (Principal Executive Officer) February 27, - ------------------------------------- 1998 JOHN R. HORNE Executive Vice President and Chief Financial Officer and Director (Principal Financial Officer) February , - ------------------------------------- 1998 - ------------------------------------- ROBERT C. LANNERT /s/ J. Steven Keate Vice President and Controller (Principal Accounting Officer) February 27, - ------------------------------------- 1988 J. STEVEN KEATE /s/ William F. Andrews Director February 26, - ------------------------------------- 1998 WILLIAM F. ANDREWS /s/ Andrew F. Brimmer Director February 24, - ------------------------------------- 1998 ANDREW F. BRIMMER /s/ John D. Correnti Director February 25, - ------------------------------------- 1998 JOHN D. CORRENTI SIGNATURE TITLE DATE /s/ William C. Craig Director February 25, - ------------------------------------- 1998 WILLIAM C. CRAIG /s/ Jerry E. Dempsey Director February 25, - ------------------------------------- 1998 JERRY E. DEMPSEY /s/ John F. Fiedler Director February 27, - ------------------------------------- 1998 JOHN F. FIEDLER /s/ John T. Grigsby, Jr. Director February 24, - ------------------------------------- 1998 JOHN T. GRIGSBY, JR. /s/ Mary Garst Director February 24, - ------------------------------------- 1998 MARY GARST /s/ Michael N. Hammes Director February 24, - ------------------------------------- 1998 MICHAEL N. HAMMES /s/ Allen J. Krowe Director February 25, - ------------------------------------- 1998 ALLEN J. KROWE /s/ Walter J. Laskowski Director February 25, - ------------------------------------- 1998 WALTER J. LASKOWSKI /s/ William F. Patient Director February 27, - ------------------------------------- 1998 WILLIAM F. PATIENT EX-25.1 12 STATEMENT OF ELIGIBILITY OF TRUSTEE (FORM T-1) SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 Statement of Eligibility Under the Trust Indenture Act of 1939 of a Corporation Designated to Act as Trustee Check if an Application to Determine Eligibility of a Trustee Pursuant to Section 305(b)(2) _______________ HARRIS TRUST AND SAVINGS BANK (Name of Trustee) Illinois 23-1614034 (I.R.S. Employer (State of Incorporation) Identification No.) 111 West Monroe Street, Chicago, Illinois 60603 (Address of principal executive offices) Daniel G. Donovan, Harris Trust and Savings Bank, 111 West Monroe Street, Chicago, Illinois, 60603 312-461-2908 (Name, address and telephone number for agent for service) NAVISTAR INTERNATIONAL CORPORATION (Name of Obligor) Delaware 36-2992650 (I.R.S. Employer (State of Incorporation) Identification No.) 455 North Cityfront Plaza Drive Chicago, Illinois 60611 (Address of principal executive offices) 7% Senior Notes, Due 2003 and 8% Senior Subordinated Notes, Due 2008 (Title of indenture securities) 1. GENERAL INFORMATION. Furnish the following information as to the Trustee: (a) Name and address of each examining or supervising authority to which it is subject. Commissioner of Banks and Trust Companies, State of Illinois, Springfield, Illinois; Chicago Clearing House Association, 164 West Jackson Boulevard, Chicago, Illinois; Federal Deposit Insurance Corporation, Washington, D.C.; The Board of Governors of the Federal Reserve System, Washington, D.C. (b) Whether it is authorized to exercise corporate trust powers. Harris Trust and Savings Bank is authorized to exercise corporate trust powers. 2. AFFILIATIONS WITH OBLIGOR. If the Obligor is an affiliate of the Trustee, describe each such affiliation. The Obligor is not an affiliate of the Trustee. 3. thru 15. NO RESPONSE NECESSARY 16. LIST OF EXHIBITS. 1. A copy of the articles of association of the Trustee as now in effect which includes the authority of the trustee to commence business and to exercise corporate trust powers. A copy of the Certificate of Merger dated April 1, 1972 between Harris Trust and Savings Bank, HTS Bank and Harris Bankcorp, Inc. which constitutes the articles of association of the Trustee as now in effect and includes the authority of the Trustee to commence business and to exercise corporate trust powers was filed in connection with the Registration Statement of Louisville Gas and Electric Company, File No. 2-44295, and is incorporated herein by reference. 2. A copy of the existing by-laws of the Trustee. A copy of the existing by-laws of the Trustee was filed in connection with the Registration Statement of Commercial Federal Corporation, File No. 333-20711, and is incorporated herein by reference. 3. The consents of the Trustee required by Section 321(b) of the Act. (included as Exhibit A on page 2 of this statement) 4. A copy of the latest report of condition of the Trustee published pursuant to law or the requirements of its supervising or examining authority. (included as Exhibit B on page 3 of this statement) SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee, HARRIS TRUST AND SAVINGS BANK, a corporation organized and existing under the laws of the State of Illinois, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Chicago, and State of Illinois, on the 4th day of March 1998. Harris Trust and Savings Bank By: /s/ DGDonovan ---------------------------- D. G. Donovan Assistant Vice President EXHIBIT A The consents of the Trustee required by Section 321(b) of the Act. Harris Trust and Savings Bank, as the Trustee herein named, hereby consents that reports of examinations of said trustee by Federal and State authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. Harris Trust and Savings Bank By: /s/ DGDonovan ---------------------------- D.G. Donovan Assistant Vice President 2 EXHIBIT B Attached is a true and correct copy of the statement of condition of Harris Trust and Savings Bank as of December 31, 1997, as published in accordance with a call made by the State Banking Authority and by the Federal Reserve Bank of the Seventh Reserve District. [LOGO] HARRIS BANK Harris Trust and Savings Bank 111 West Monroe Street Chicago, Illinois 60603 of Chicago, Illinois, And Foreign and Domestic Subsidiaries, at the close of business on December 31, 1997, a state banking institution organized and operating under the banking laws of this State and a member of the Federal Reserve System. Published in accordance with a call made by the Commissioner of Banks and Trust Companies of the State of Illinois and by the Federal Reserve Bank of this District. Bank's Transit Number 71000288
THOUSANDS ASSETS OF DOLLARS Cash and balances due from depository institutions: Non-interest bearing balances and currency and coin..................... $ 1,252,381 Interest bearing balances............................................... $ 598,062 Securities:.................................................................... a. Held-to-maturity securities $ 0 b. Available-for-sale securities $ 3,879,399 Federal funds sold and securities purchased under agreements to resell i $ 71,725 Loans and lease financing receivables: Loans and leases, net of unearned income................................ $ 8,813,821 LESS: Allowance for loan and lease losses.............................. $ 99,678 ------------------ Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b).................................................... $ 8,714,143 Assets held in trading accounts................................................ $ 136,538 Premises and fixed assets (including capitalized leases)....................... $ 221,312 Other real estate owned........................................................ $ 642 Investments in unconsolidated subsidiaries and associated companies............ $ 103 Customer's liability to this bank on acceptances outstanding................... $ 46,480 Intangible assets.............................................................. $ 279,897 Other assets................................................................... $ 653,101 ------------------------- TOTAL ASSETS $15,853,783 =========================
3
LIABILITIES Deposits: In domestic offices.......................................................... $ 8,926,635 Non-interest bearing.................................................... $3,692,891 Interest bearing........................................................ $5,233,744 In foreign offices, Edge and Agreement subsidiaries, and IBF's............... $ 1,763,669 Non-interest bearing.................................................... $ 22,211 Interest bearing........................................................ $1,741,458 Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBF's: Federal funds purchased.& securites sold under agreements to repurchase...... $ 2,693,600 Trading Liabilities 82,861 Other borrowed money:.......................................................... a. With remaining maturity of one year or less $ 601,799 b. With remaining maturity of more than one year $ 0 Bank's liability on acceptances executed and outstanding $ 46,480 Subordinated notes and debentures.............................................. $ 325,000 Other liabilities.............................................................. $ 134,309 ------------------------- TOTAL LIABILITIES $14,574,353 ========================= EQUITY CAPITAL Common stock................................................................... $ 100,000 Surplus........................................................................ $ 601,026 a. Undivided profits and capital reserves..................................... $ 573,416 b. Net unrealized holding gains (losses) on available-for-sale securities $ 4,988 ------------------------- TOTAL EQUITY CAPITAL $ 1,279,430 ------------------------- Total liabilities, limited-life preferred stock, and equity capital............ $15,853,783 =========================
I, Pamela Piarowski, Vice President of the above-named bank, do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. PAMELA PIAROWSKI 1/30/98 We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and, to the best of our knowledge and belief, has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and the Commissioner of Banks and Trust Companies of the State of Illinois and is true and correct. EDWARD W. LYMAN, ALAN G. McNALLY, RICHARD E. TERRY Directors. 4 EX-99.1 13 FORM OF LETTER OF TRANSMITTAL LETTER OF TRANSMITTAL TO TENDER FOR EXCHANGE 7% SENIOR NOTES DUE 2003 OR 8% SENIOR SUBORDINATED NOTES DUE 2008 OF NAVISTAR INTERNATIONAL CORPORATION Pursuant to the Prospectus, dated March 5, 1998 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON APRIL 6, 1998 UNLESS EXTENDED (THE "EXPIRATION DATE"). PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS If you desire to accept the Exchange Offer, this Letter of Transmittal should be completed, signed, and submitted to the Exchange Agent: HARRIS TRUST AND SAVINGS BANK By Registered or By Hand/Overnight Facsimile Transmission Certified Mail: Delivery: Number: Harris Trust and Savings Harris Trust and Savings (for Eligible Bank Bank Institutions Only) c/o Harris Trust Company c/o Harris Trust Company (212) 701-7636 of New York of New York Confirm Receipt of P.O. Box 1010 88 Pine Street Facsimile by Telephone: Wall Street Station 19th Floor (212) 701-7624 New York, NY 10268-1010 New York, NY 10005 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION VIA FACSIMILE TO A NUMBER, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT. The undersigned hereby acknowledges receipt of the Prospectus, dated March 5, 1998 (as it may be supplemented and amended from time to time, the "Prospectus") of Navistar International Corporation, a Delaware corporation (the "Company"), and this Letter of Transmittal (the "Letter of Transmittal"), that together constitute the Company's offer to exchange (the "Exchange Offer"): (i) $1,000 principal amount of its Series B 7% Senior Notes due 2003 (the "Senior Exchange Notes"), which will have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for each $1,000 principal amount of its outstanding 7% Senior Notes due 2003 (the "Old Senior Notes"); and (ii) $1,000 principal amount of its Series B 8% Senior Subordinated Notes due 2008 (the "Senior Subordinated Exchange Notes" and, together with the Senior Exchange Notes, the "Exchange Notes"), which will have been registered under the Securities Act, for each $1,000 principal amount of its outstanding 8% Senior Subordinated Notes due 2008 (the "Old Senior Subordinated Notes" and, together with the Old Senior Notes, the "Old Notes"). Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus. The undersigned hereby tenders the Old Notes described in Box 1 below (the "Tendered Notes") pursuant to the terms and conditions described in the Prospectus and this Letter of Transmittal. The undersigned is the registered owner of all the Tendered Notes and the undersigned represents that it has received from each beneficial owner of the Tendered Notes ("Beneficial Owners") a duly completed and executed form of "Instruction to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner" accompanying this Letter of Transmittal, instructing the undersigned to take the action described in this Letter of Transmittal. Subject to, and effective upon, the acceptance for exchange of the Tendered Notes, the undersigned hereby exchanges, assigns and transfers to, or upon the order of, the Company all right, title, and interest in, to and under the Tendered Notes. Please issue the Exchange Notes exchanged for Tendered Notes in the name(s) of the undersigned. Similarly, unless otherwise indicated under "SPECIAL DELIVERY INSTRUCTIONS" below (see Box 3), please send or cause to be sent the certificates for the Exchange Notes (and accompanying documents, as appropriate) to the undersigned at the address shown below in Box 1. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the true and lawful agent and attorney in fact of the undersigned with respect to the Tendered Notes, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (i) deliver the Tendered Notes to the Company or cause ownership of the Tendered Notes to be transferred to, or upon the order of, the Company, on the books of the registrar for the Old Notes and deliver all accompanying evidences of transfer and authenticity to, or upon the order of, the Company upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Notes to which the undersigned is entitled upon acceptance by the Company of the Tendered Notes pursuant to the Exchange Offer, and (ii) receive all benefits and otherwise exercise all rights of beneficial ownership of the Tendered Notes, all in accordance with the terms of the Exchange Offer. The undersigned understands that tenders of the Old Notes pursuant to the procedures described under the caption "The Exchange Offer" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer, subject only to withdrawal of such tenders on the terms set forth in the Prospectus under the caption "The Exchange Offer--Withdrawal of Tenders." All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and any Beneficial Owner(s), and every obligation of the undersigned or any Beneficial Owner(s) hereunder shall be binding upon the heirs, representatives, successors, and assigns of the undersigned and such Beneficial Owner(s). The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, exchange, assign, and transfer the Tendered Notes and that the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, and adverse claims when the Tendered Notes are acquired by the Company as contemplated herein. The undersigned and each Beneficial Owner will, upon request, execute and deliver any additional documents reasonably requested by the Company or the Exchange Agent as necessary or desirable to complete and give effect to the transactions contemplated hereby. The undersigned hereby represents and warrants that the information set forth in Box 2 is true and correct. By accepting the Exchange Offer, the undersigned hereby represents and warrants that (i) the Exchange Notes to be acquired by the undersigned and any Beneficial Owner(s) in connection with the Exchange Offer are being acquired by the undersigned and any Beneficial Owner(s) in the ordinary course of business of the undersigned and any Beneficial Owner(s), (ii) the undersigned and each Beneficial Owner are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes, (iii) except as otherwise disclosed in writing herewith, neither the undersigned nor any Beneficial Owner is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company, and (iv) the undersigned and each Beneficial Owner acknowledge and agree that any person participating in the Exchange Offer with the intention or for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act, in connection with a secondary resale of the Exchange Notes acquired by such person and cannot rely on the position of the Staff of the Securities and Exchange Commission (the "Commission") set forth in the no-action letters that are discussed in the section of the Prospectus entitled "The Exchange Offer." In addition, by accepting the Exchange Offer, the undersigned hereby (i) represents and warrants that, if the undersigned or any Beneficial Owner of the Old 2 Notes is a Participating Broker-Dealer, such Participating Broker-Dealer acquired the Old Notes for its own account as a result of market-making activities or other trading activities and has not entered into any arrangement or understanding with the Company or any "affiliate" of the Company (within the meaning of Rule 405 under the Securities Act) to distribute the Exchange Notes to be received in the Exchange Offer, and (ii) acknowledges that, by receiving Exchange Notes for its own account in exchange for the Old Notes, where such Old Notes were acquired as a result of market- making activities or other trading activities, such Participating Broker- Dealer will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes. Holders of the Old Notes that are tendering by book-entry transfer to the Exchange Agent's account at DTC can execute the tender through the DTC Automated Tender Offer Program ("ATOP"), for which the transaction will be eligible. DTC participants that are accepting the Exchange Offer must transmit their acceptance to DTC, which will verify the acceptance and execute a book- entry delivery to the Exchange Agent's DTC account. DTC will then send an Agent's Message to the Exchange Agent for its acceptance. DTC participants may also accept the Exchange Offer prior to the Expiration Date by submitting a Notice of Guaranteed Delivery or Agent's Message relating thereto as described herein under Instruction 2, "Guaranteed Delivery Procedures." [_]CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED HEREWITH. [_]CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE "USE OF GUARANTEED DELIVERY" BELOW (Box 4). [_]CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE "USE OF BOOK-ENTRY TRANSFER" BELOW (Box 5). PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING THE BOXES BOX 1 DESCRIPTION OF THE OLD NOTES TENDERED (Attach additional signed pages, if necessary) - ------------------------------------------------------------------ Name(s) and Address(es) of Registered Note Holder(s), exactly as name(s) appear(s) on Note Aggregate Certificate(s) Certificate Principal Amount Aggregate (Please fill Number(s) of the Represented by Principal Amount in, if blank) Old Notes* Certificate(s) Tendered** - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TOTAL - ------------------------------------------------------------------------------- * Need not be completed by persons tendering by book-entry transfer. ** The minimum permitted tender is $1,000 in principal amount of the Old Notes. All other tenders must be in integral multiples of $1,000 of principal amount. Unless otherwise indicated in this column, the principal amount of all Old Note Certificates identified in this Box 1 or delivered to the Exchange Agent herewith shall be deemed tendered. See Instruction 4. 3 BOX 2 BENEFICIAL OWNER(S) - -------------------------------------------------------------------------------- STATE OF PRINCIPAL RESIDENCE OF EACH PRINCIPAL AMOUNT OF TENDERED NOTES BENEFICIAL OWNER OF TENDERED NOTES HELD FOR ACCOUNT OF BENEFICIAL OWNER - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- BOX 3 SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 5, 6 AND 7) TO BE COMPLETED ONLY IF EXCHANGE NOTES EXCHANGED FOR THE OLD NOTES AND UNTENDERED NOTES ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE UNDERSIGNED AT AN ADDRESS OTHER THAN THAT SHOWN ABOVE. Mail Exchange Note(s) and any untendered the Old Notes to: Name(s): --------------------------------------------------------------------------- (please print) Address: --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- (include Zip Code) Tax Identification or Social Security No.: 4 BOX 4 USE OF GUARANTEED DELIVERY (SEE INSTRUCTION 2) TO BE COMPLETED ONLY IF THE OLD NOTES ARE BEING TENDERED BY MEANS OF A NOTICE OF GUARANTEED DELIVERY. Name(s) of Registered Holder(s): __________________________________________ Window Ticket No. (if any): _______________________________________________ Date of Execution of Notice of Guaranteed Delivery: _______________________ Name of Institution that Guaranteed Delivery: _____________________________ If Delivered by Book-Entry Transfer: ______________________________________ Account Number with DTC: __________________________________________________ Transaction Code Number: __________________________________________________ BOX 5 USE OF BOOK-ENTRY TRANSFER (SEE INSTRUCTION 1) TO BE COMPLETED ONLY IF DELIVERY OF TENDERED NOTES IS TO BE MADE BY BOOK- ENTRY TRANSFER. Name of Tendering Institution: ____________________________________________ Account Number: ___________________________________________________________ Transaction Code Number: __________________________________________________ 5 BOX 6 TENDERING HOLDER SIGNATURE (SEE INSTRUCTIONS 1 AND 5) IN ADDITION, COMPLETE SUBSTITUTE FORM W-9 - -------------------------------------------------------------------------------- X ___________________________________ Signature Guarantee (If required by Instruction 5) X ___________________________________ (Signature of Registered Holder(s) Authorized Signature or Authorized Signatory) X ___________________________________ Note: The above lines must be signed by the registered holder(s) of the Old Notes as their name(s) appear(s) on the Old Notes or by persons(s) authorized to become registered holder(s) (evidence of such authorization must be transmitted with this Letter of Transmittal). If signature is by a trustee, executor, administrator, guardian, attorney- in-fact, officer, or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below. See Instruction 5. Name: _______________________________ (please print) Title: ______________________________ Name of Firm: _______________________ (Must be an Eligible Institution as defined in Instruction 2) Address: ____________________________ ------------------------------- ------------------------------- Name(s): ____________________________ (Zip Code) Capacity: ___________________________ Area Code and Telephone Number: ___________________ Street Address: _____________________ Dated: ______________________________ -------------------------- (Zip Code) Area Code and Telephone Number: ___________________ Tax Identification or Social Security Number: _____________ BOX 7 BROKER-DEALER STATUS - -------------------------------------------------------------------------------- [_] Check this box if the Beneficial Owner of the Old Notes is a Participating Broker-Dealer and such Participating Broker-Dealer acquired the Old Notes for its own account as a result of market- making activities or other trading activities. IF THIS BOX IS CHECKED, REGARDLESS OF WHETHER YOU ARE TENDERING BY BOOK-ENTRY TRANSFER THROUGH ATOP, AN EXECUTED COPY OF THIS LETTER OF TRANSMITTAL MUST BE RECEIVED WITHIN THIRTY DAYS AFTER THE EXPIRATION DATE BY NAVISTAR INTERNATIONAL CORPORATION, ATTENTION ROBERT J. PERNA, FACSIMILE (312) 836-3982. 6 PAYORS' NAME: HARRIS TRUST & SAVINGS BANK - -------------------------------------------------------------------------------- Name (if joint names, list first and circle the name of the person or entity whose number you enter in Part 1 below. See instructions if your name has changed.) ------------------------------------------------------------- Address SUBSTITUTE ------------------------------------------------------------- City, State and ZIP Code FORM W-9 ------------------------------------------------------------- List account number(s) here (optional) ------------------------------------------------------------- DEPARTMENT OF PART 1--PLEASE PROVIDE YOUR TAXPAYER Social THE TREASURY IDENTIFICATION NUMBER ("TIN") IN THE BOX Security AT RIGHT AND CERTIFY BY SIGNING AND DATING Number BELOW or TIN INTERNAL REVENUE ------------------------------------------------------------- SERVICE PART 2--Check the box if you are NOT subject to backup withholding under the provisions of section 3406(a)(1)(C) of the Internal Revenue Code because (1) you have not been notified that you are subject to backup withholding as a result of failure to report all interest or dividends or (2) the Internal Revenue Service has notified you that you are no longer subject to backup withholding. [_] - -------------------------------------------------------------------------------- PART 3-- CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE. AWAITING TIN [_] SIGNATURE DATE NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. 7 NAVISTAR INTERNATIONAL CORPORATION INSTRUCTIONS TO LETTER OF TRANSMITTAL FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND THE OLD NOTES. This Letter of Transmittal is to be completed by registered Holders of the Old Notes if certificates representing such Old Notes are to be forwarded herewith pursuant to the procedures set forth in the Prospectus under "The Exchange Offer-- Procedures for Tendering," unless delivery of such certificates is to be made by book-entry transfer to the Exchange Agent's account maintained by DTC through ATOP. For a holder to properly tender the Old Notes pursuant to the Exchange Offer, a properly completed and duly executed copy of this Letter of Transmittal, including Substitute Form W-9, and any other documents required by this Letter of Transmittal must be received by the Exchange Agent at its address set forth herein, and either (i) certificates for Tendered Notes must be received by the Exchange Agent at its address set forth herein, or (ii) such Tendered Notes must be transferred pursuant to the procedures for book- entry transfer described in the Prospectus under the caption "The Exchange Offer--Procedures for Tendering" (and a confirmation of such transfer received by the Exchange Agent), in each case prior to 5:00 p.m., New York City time, on the Expiration Date. The method of delivery of certificates for Tendered Notes, this Letter of Transmittal and all other required documents to the Exchange Agent is at the election and risk of the tendering holder and the delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. Instead of delivery by mail, it is recommended that the Holder use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. No Letter of Transmittal or Tendered Notes should be sent to the Company. Neither the Company nor the Exchange Agent is under any obligation to notify any tendering holder of the Company's acceptance of Tendered Notes prior to the closing of the Exchange Offer. 2. GUARANTEED DELIVERY PROCEDURES. If a registered Holder desires to tender the Old Notes pursuant to the Exchange Offer and (a) certificates representing such Tendered Notes are not immediately available, (b) time will not permit such Holder's Letter of Transmittal, certificates representing such Tendered Notes and all other required documents to reach the Exchange Agent on or prior to the Expiration Date, or (c) the procedures for book-entry transfer cannot be completed on or prior to the Expiration Date, such Holder may nevertheless tender such Tendered Notes with the effect that such tender will be deemed to have been received on or prior to the Expiration Date if the procedures set forth below and in the Statement under "The Exchange Offer--Guaranteed Delivery Procedures" (including the completion of Box 4 above) are followed. Pursuant to such procedures, (i) the tender must be made by or through an Eligible Institution (as defined), (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Company herewith, or an Agent's Message with respect to a guaranteed delivery that is accepted by the Company, must be received by the Exchange Agent on or prior to the Expiration Date, and (iii) the certificates for the Tendered Notes, in proper form for transfer (or a Book-Entry Confirmation of the transfer of such Tendered Notes to the Exchange Agent's account at DTC as described in the Prospectus), together with a Letter of Transmittal (or manually signed facsimile thereof) properly completed and duly executed, with any required signature guarantees and any other documents required by the Letter of Transmittal or a properly transmitted Agent's Message, must be received by the Exchange Agent within three New York Stock Exchange trading days after the date of execution of the Notice of Guaranteed Delivery. Any holder who wishes to tender the Old Notes pursuant to the guaranteed delivery procedures described above must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery relating to such Tendered Notes prior to 5:00 p.m., New York City time, on the Expiration Date. Failure to complete the guaranteed delivery procedures outlined above will not, of itself, affect the validity or effect a revocation of any Letter of Transmittal form properly completed and executed by an Eligible Holder who attempted to use the guaranteed delivery process. 8 3. BENEFICIAL OWNER INSTRUCTIONS TO REGISTERED HOLDERS. Only a holder in whose name Tendered Notes are registered on the books of the registrar (or the legal representative or attorney-in-fact of such registered holder) may execute and deliver this Letter of Transmittal. Any Beneficial Owner of Tendered Notes who is not the registered holder must arrange promptly with the registered holder to execute and deliver this Letter of Transmittal on his or her behalf through the execution and delivery to the registered holder of the "Instructions to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner" form accompanying this Letter of Transmittal. 4. PARTIAL TENDERS. Tenders of the Old Notes will be accepted only in integral multiples of $1,000 in principal amount. If less than the entire principal amount of the Old Notes held by the holder is tendered, the tendering holder should fill in the principal amount tendered in the column labeled "Aggregate Principal Amount Tendered" of the box entitled "Description of the Old Notes Tendered" (see Box 1) above. The entire principal amount of the Old Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. If the entire principal amount of all the Old Notes held by the holder is not tendered, then the Old Notes for the principal amount of the Old Notes not tendered and Exchange Notes issued in exchange for any Old Notes tendered and accepted will be sent to the Holder at his or her registered address, unless a different address is provided in the appropriate box on this Letter of Transmittal, as soon as practicable following the Expiration Date. 5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the registered holder(s) of the Tendered Notes, the signature must correspond with the name(s) as written on the face of the Tendered Notes without alteration, enlargement or any change whatsoever. If any of the Tendered Notes are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any Tendered Notes are held in different names, it will be necessary to complete, sign and submit as many separate copies of the Letter of Transmittal as there are different names in which Tendered Notes are held. If this Letter of Transmittal is signed by the registered holder(s) of Tendered Notes, and Exchange Notes issued in exchange therefor are to be issued (and any untendered principal amount of Old Notes is to be reissued) in the name of the registered holder(s), then such registered holder(s) need not and should not endorse any Tendered Notes, nor provide a separate bond power. In any other case, such registered holder(s) must either properly endorse the Tendered Notes or transmit a properly completed separate bond power with this Letter of Transmittal, with the signature(s) on the endorsement or bond power guaranteed by a Medallion Signature Guarantor (as defined below). If this Letter of Transmittal is signed by a person other than the registered holder(s) of any Tendered Notes, such Tendered Notes must be endorsed or accompanied by appropriate bond powers, in each case, signed as the name(s) of the registered holder(s) appear(s) on the Tendered Notes, with the signature(s) on the endorsement or bond power guaranteed by a Medallion Signature Guarantor. If this Letter of Transmittal or any Tendered Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and, unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with this Letter of Transmittal. Signatures on this Letter of Transmittal must be guaranteed by a recognized participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchange Medallion Program (each a "Medallion Signature Guarantor"), unless the Tendered Notes are tendered (i) by a registered Holder of Tendered Notes (or by a participant in DTC whose name appears on a security position listing as the owner of such Tendered Notes) who has not completed Box 3 ("Special Delivery 9 Instructions") on this Letter of Transmittal, or (ii) for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. ("NASD") or a commercial bank or trust company having an office or correspondent in the United States (each of the foregoing being referred to as an "Eligible Institution"). If the Tendered Notes are registered in the name of a person other than the signor of the Letter of Transmittal or if the Old Notes not tendered are to be returned to a person other than the registered Holder, then the signature on this Letter of Transmittal accompanying the Tendered Notes must be guaranteed by a Medallion Signature Guarantor as described above. Beneficial owners whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if they desire to tender such Old Notes. 6. SPECIAL DELIVERY INSTRUCTIONS. Tendering holders should indicate in Box 3 the name and address to which the Exchange Notes and/or substitute the Old Notes for principal amounts not tendered or not accepted for exchange are to be sent, if different from the name and address of the person signing this Letter of Transmittal. In the case of issuance in a different name, the taxpayer identification or social security number of the person named must also be indicated. 7. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the exchange of Tendered Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any reason other than the transfer and exchange of Tendered Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or on any other person) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with this Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. Except as provided in this Instruction 7, it will not be necessary for transfer tax stamps to be affixed to the Tendered Notes listed in this Letter of Transmittal. 8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that the holder(s) of any Tendered Notes which are accepted for exchange must provide the Exchange Agent (as payor) with its correct taxpayer identification number ("TIN"), which, in the case of a holder who is an individual, is his or her social security number. If the Exchange Agent is not provided with the correct TIN, the Holder may be subject to backup withholding and a $50 penalty imposed by the Internal Revenue Service. (If withholding results in an over-payment of taxes, a refund may be obtained.) Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. To prevent backup withholding, each holder of Tendered Notes must provide such holder's correct TIN by completing the Substitute Form W-9 set forth herein, certifying that the TIN provided is correct (or that such holder is awaiting a TIN), and that (i) the holder has not been notified by the Internal Revenue Service that such holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) if previously so notified, the Internal Revenue Service has notified the holder that such holder is no longer subject to backup withholding. If the Tendered Notes are registered in more than one name or are not in the name of the actual owner, consult the "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for information on which TIN to report. The Company reserves the right in its sole discretion to take whatever steps are necessary to comply with the Company's obligation regarding backup withholding. 9. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of Tendered Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the right to reject any and all Old Notes not validly tendered or any Old Notes the Company's acceptance of which would, in the opinion of the Company or its counsel, be unlawful. The Company also reserves the right to waive any conditions of the Exchange Offer or 10 defects or irregularities in tenders of the Old Notes as to any ineligibility of any holder who seeks to tender the Old Notes in the Exchange Offer. The interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of the Old Notes must be cured within such time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of the Old Notes, nor shall any of them incur any liability for failure to give such notification. Tenders of the Old Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in this Letter of Transmittal, as soon as practicable following the Expiration Date. 10. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend, waive or modify any of the conditions in the Exchange Offer in the case of any Tendered Notes. 11. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or contingent tender of the Old Notes or transmittal of this Letter of Transmittal will be accepted. 12. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any tendering Holder whose Old Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated herein for further instructions. 13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance and requests for additional copies of the Prospectus or this Letter of Transmittal may be directed to the Exchange Agent at the address indicated herein. Holders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer. 14. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF EXCHANGE NOTES; RETURN OF THE OLD NOTES. Subject to the terms and conditions of the Exchange Offer, the Company will accept for exchange all validly tendered Old Notes as soon as practicable after the Expiration Date and will issue Exchange Notes therefor as soon as practicable thereafter. For purposes of the Exchange Offer, the Company shall be deemed to have accepted Tendered Notes when, as and if the Company has given written or oral notice (immediately followed in writing) thereof to the Exchange Agent. If any Tendered Notes are not exchanged pursuant to the Exchange Offer for any reason, such unexchanged Old Notes will be returned, without expense, to the undersigned at the address shown in Box 1 or at a different address as may be indicated herein under "Special Delivery Instructions" (Box 3). 15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the procedures set forth in the Prospectus under the caption "The Exchange Offer--Withdrawal of Tenders." 11 EX-99.2 14 FORM OF NOTICE OF GUARANTEED DELIVERY NOTICE OF GUARANTEED DELIVERY IN RESPECT OF 7% SENIOR NOTES DUE 2003 OR 8% SENIOR SUBORDINATED NOTES DUE 2008 OF NAVISTAR INTERNATIONAL CORPORATION PURSUANT TO THE PROSPECTUS DATED MARCH 5, 1998 The Exchange Agent for the Exchange Offer is: HARRIS TRUST AND SAVINGS BANK By Registered or Certified Mail: By Hand/Overnight Delivery: Facsimile Transmission Number: Harris Trust and Savings Bank Harris Trust and Savings Bank (for Eligible Institutions Only) c/o Harris Trust Company of New York c/o Harris Trust Company of New York (212) 701-7636 P.O. Box 1010 88 Pine Street Confirm Receipt of Facsimile by Wall Street Station 19th Floor Telephone: New York, NY 10268-1010 New York, NY 10005 (212) 701-7624
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR TRANSMISSION VIA FACSIMILE TO A NUMBER, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE VALID DELIVERY. As set forth in the Prospectus, dated March 5, 1998 (as it may be supplemented and amended from time to time, the "Prospectus") of Navistar International Corporation (the "Company") under "The Exchange Offer-- Guaranteed Delivery Procedures," and in the Instructions to the related Letter of Transmittal (the "Letter of Transmittal"), this form, or one substantially equivalent hereto, or an Agent's Message relating to the guaranteed delivery procedures, must be used to accept the Company's offer to exchange (the "Exchange Offer"): (i) its Series B 7% Senior Notes due 2003 (the "Senior Exchange Notes"), which will have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for its outstanding 7% Senior Notes due 2003 (the "Old Senior Notes"); or (ii) its Series B 8% Senior Subordinated Notes due 2008 (the "Senior Subordinated Exchange Notes" and, together with the Senior Exchange Notes, the "Exchange Notes"), which will have been registered under the Securities Act, for its outstanding 8% Senior Subordinated Notes due 2008 (the "Old Senior Subordinated Notes" and, together with the Old Senior Notes, the "Old Notes"), if time will not permit the Letter of Transmittal, certificates representing the Old Notes, or other documents to reach the Exchange Agent, or the procedures for book-entry transfer cannot be completed, on or prior to the Expiration Date (as defined). This form must be delivered by an Eligible Institution (as defined herein) by mail or hand delivery or transmitted via facsimile to the Exchange Agent as set forth above. If a signature on the Letter of Transmittal is required to be guaranteed by a Medallion Signature Guarantor under the instructions thereto, such signature guarantee must appear in the applicable space provided in the Letter of Transmittal. This form is not to be used to guarantee signatures. Questions and requests for assistance and requests for additional copies of the Prospectus may be directed to the Exchange Agent at the address above. Holders may also contact their broker, dealer, commercial bank, trust company, or other nominee for assistance concerning the Exchange Offer. THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON APRIL 6, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). Ladies and Gentlemen: The undersigned hereby tender(s) to the Company, upon the terms and subject to the conditions set forth in the Prospectus and the related Letter of Transmittal (receipt of which is hereby acknowledged), the principal amount of the Old Notes specified below pursuant to the guaranteed delivery procedures set forth in the Prospectus under "The Exchange Offer--Guaranteed Delivery Procedures" and in Instruction 2 to the Letter of Transmittal. The undersigned hereby authorizes the Exchange Agent to deliver this Notice of Guaranteed Delivery to the Company with respect to the Old Notes tendered pursuant to the Exchange Offer. The undersigned understands that the Old Notes will be exchanged only after timely receipt by the Exchange Agent of (i) such Old Notes, or a Book-Entry Confirmation of the transfer of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility, and (ii) a Letter of Transmittal (or a manually signed facsimile thereof) properly completed and duly executed, with any signature guarantees and any other documents required by the Letter of Transmittal or an Agent's Message within three New York Stock Exchange, Inc. trading days after the execution hereof. The undersigned also understands that the method of delivery of this Notice of Guaranteed Delivery and any other required documents to the Exchange Agent is at the election and sole risk of the holder, and the delivery will be deemed made only when actually received by the Exchange Agent. The undersigned understands that tenders of the Old Notes will be accepted only in principal amounts equal to $1,000 or integral multiples thereof. The undersigned also understands that tenders of the Old Notes may be withdrawn at any time prior to the Expiration Date. All authority conferred or agreed to be conferred by this Notice of Guaranteed Delivery shall not be affected by, and shall survive, the death or incapacity of the undersigned, and every obligation of the undersigned under this Notice of Guaranteed Delivery shall be binding upon the heirs, executors, administrators, trustees in bankruptcy, personal and legal representatives, successors and assigns of the undersigned. All capitalized terms used herein but not defined herein shall have the meanings ascribed to them in the Prospectus. -2- PLEASE SIGN AND COMPLETE Signature(s) of Registered Holder(s) Date: _______________________________ or Authorized Signatory: _______________ Address: ____________________________ ------------------------------------- ------------------------------------- ------------------------------------- Area Code and Telephone No. _________ Name(s) of Registered Holder(s): ____ If the Old Notes will be delivered by book-entry transfer, check book- entry transfer facility below: ------------------------------------- ------------------------------------- [_] The Depository Trust Company Principal Amount of the Old Notes Depository Tendered: ___________________________ Account No. _________________________ ------------------------------------- Certificate No.(s) of the Old Notes (if available) ______________________ This Notice of Guaranteed Delivery must be signed by the holder(s) exactly as their name(s) appear(s) on certificate(s) for the Old Notes or on a security position listing as the owner of the Old Notes, or by person(s) authorized to become Holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery without alteration, enlargement or any change whatsoever. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information. Please print name(s) and address(es) Name(s): __________________________________________________________________ --------------------------------------------------------------------------- Capacity: _________________________________________________________________ Address(es): ______________________________________________________________ --------------------------------------------------------------------------- DO NOT SEND THE OLD NOTES WITH THIS FORM. THE OLD NOTES SHOULD BE SENT TO THE EXCHANGE AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL. -3- GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a member of the Securities Transfer Agents Medallion Program, the Stock Exchange Medallion Program or the New York Stock Exchange, Inc. Medallion Signature Program (each, an "Eligible Institution"), hereby (i) represents that the above-named persons are deemed to own the Old Notes tendered hereby within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended ("Rule 14e-4"), (ii) represents that such tender of the Old Notes complies with Rule 14e-4 and (iii) guarantees that the Old Notes tendered hereby are in proper form for transfer (pursuant to the procedures set forth in the Prospectus under "The Exchange Offer--Guaranteed Delivery Procedures"), and that the Exchange Agent will receive (a) such Old Notes, or a Book-Entry Confirmation of the transfer of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility, and (b) a properly completed and duly executed Letter of Transmittal or facsimile thereof (or Agent's Message) with any required signature guarantees and any other documents required by the Letter of Transmittal within three New York Stock Exchange, Inc. trading days after the date of execution hereof. The Eligible Institution that completes this form must communicate the guarantee to the Exchange Agent and must deliver the Letter of Transmittal and the Old Notes to the Exchange Agent within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution. Name of Firm: _____________________________________________________________ Authorized Signature: _____________________________________________________ Title: ____________________________________________________________________ Address: __________________________________________________________________ --------------------------------------------------------------------------- (Zip Code) Area Code and Telephone Number: ___________________________________________ Dated: ________________________, 1998 4 EX-99.3 15 FORM OF TENDER INSTRUCTIONS INSTRUCTIONS TO REGISTERED HOLDER AND/OR BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER OF NAVISTAR INTERNATIONAL CORPORATION 7% SENIOR NOTES DUE 2003 OR 8% SENIOR SUBORDINATED NOTES DUE 2008 To Registered Holder and/or Participant of the Book-Entry Transfer Facility: The undersigned hereby acknowledges receipt of the Prospectus, dated March 5, 1998 (as the same may be amended or supplemented from time to time, the "Prospectus") of Navistar International Corporation, a Delaware corporation (the "Company"), and the accompanying Letter of Transmittal (the "Letter of Transmittal"), that together constitute the Company's exchange offer (the "Exchange Offer"). Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus. This will instruct you, the registered holder and/or book-entry transfer facility participant, as to action to be taken by you relating to the Exchange Offer with respect to the 7% Senior Notes due 2003 or 8% Senior Subordinated Notes due 2008 (collectively, the "Old Notes") held by you for the account of the undersigned. The aggregate face amount of the Old Notes held by you for the account of the undersigned is (FILL IN AMOUNT): $ of the 7% Senior Notes due 2003 or $ of the 8% Senior Subordinated Notes due 2008 With respect to the Exchange Offer, the undersigned hereby instructs you (CHECK APPROPRIATE BOX): [_]To TENDER the following the Old Notes held by you for the account of the undersigned (INSERT PRINCIPAL AMOUNT OF THE OLD NOTES TO BE TENDERED, IF ANY): 7% Senior Notes due 2003--$ 8% Senior Subordinated Notes due 2008--$ [_]NOT TO TENDER any Old Notes held by you for the account of the undersigned If the undersigned instruct you to tender the Old Notes held by you for the account of the undersigned, it is understood that you are authorized (a) to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representation and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner, including but not limited to the representations that (i) the undersigned's principal residence is in the state of (FILL IN STATE) , (ii) the undersigned is acquiring the Exchange Notes in the ordinary course of business of the undersigned, (iii) the undersigned is not participating, does not participate, and has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes, (iv) the undersigned acknowledges that any person participating in the Exchange Offer for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the "Act"), in connection with a secondary resale transaction of the Exchange Notes acquired by such person and cannot rely on the position of the Staff of the Securities and Exchange Commission set forth in no-action letters that are discussed in the section of the Prospectus entitled "The Exchange Offer--Resale of the Exchange Notes," and (v) the undersigned is not an "affiliate," as defined in Rule 405 under the Act, of the Company; (b) to agree, on behalf of the undersigned, as set forth in the Letter of Transmittal; and (c) to take such other action as necessary under the Prospectus or the Letter of Transmittal to effect the valid tender of such Old Notes. [_]Check this box if the Beneficial Owner of the Old Notes is a Participating Broker-Dealer and such Participating Broker-Dealer acquired the Old Notes for its own account as a result of market-making activities or other trading activities. IF THIS BOX IS CHECKED, A COPY OF THESE INSTRUCTIONS MUST BE RECEIVED WITHIN THIRTY DAYS AFTER THE EXPIRATION DATE BY NAVISTAR INTERNATIONAL CORPORATION, ATTENTION ROBERT J. PERNA, FACSIMILE (312) 836-3982. -----END PRIVACY-ENHANCED MESSAGE-----