Meritor completes note offering

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Updated Dec 7, 2012

Meritor, Inc. this week announced the closing of its offering of $250 million aggregate principal amount at maturity of its 7.875 percent convertible senior notes due 2026 (the “7.875 percent notes”), which includes $25 million aggregate principal amount at maturity of 7.875 percent notes issued pursuant to the initial purchasers’ exercise in full of their option to purchase additional 7.875 percent notes.

The offering was made to qualified institutional buyers in a private placement. The 7.875 percent notes have an initial principal amount of $900 per note and will accrete to $1,000 per note on December 1, 2020. The 7.875 percent notes also bear interest at a rate of 7.875 percent per year on the principal amount at maturity of the 7.875 percent notes, rank equally in right of payment to all of Meritor’s existing and future senior unsecured indebtedness and mature on March 1, 2026.

The company used the net proceeds of approximately $218.1 million from the offering of the 7.875 percent notes (after discounts and estimated offering expenses) and additional cash to acquire a portion of its outstanding 4.625 percent convertible senior notes due 2026 (the “4.625 percent notes”) in transactions that settled concurrently with the closing of the 7.875 percent note offering.

Approximately $245 million of $300 million principal amount of the 4.625 percent notes were acquired for an aggregate purchase price of approximately $235.7 million (including accrued interest). On or after March 1, 2016, the company may redeem the remaining 4.625 percent notes at its option, in whole or in part, at a redemption price in cash equal to 100 percent of the accreted principal amount of the 4.625 percent notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.  Further, holders may require the company to purchase all or a portion of their 4.625 percent notes at a purchase price in cash equal to 100 percent of the accreted principal amount of the 4.625 percent notes to be purchased, plus accrued and unpaid interest, on specified dates beginning on March 1, 2016 or upon certain fundamental changes.

The 7.875 percent notes are convertible in certain circumstances into cash up to the principal amount at maturity of the note surrendered for conversion.  For the remainder of Meritor’s conversion obligation, if any, in excess of the principal amount at maturity, the 7.875 percent notes will be convertible into cash, shares of Meritor common stock or a combination of cash and common stock, at Meritor’s election, subject to certain limitations.

The initial conversion rate, subject to adjustment, is equivalent to 83.3333 shares of common stock per $1,000 principal amount at maturity of the 7.875 percent notes. This represents an initial conversion price of approximately $12.00 per share. On or after December 1, 2020, the company may redeem the 7.875 percent notes at its option, in whole or in part, at a redemption price in cash equal to 100% of the principal amount at maturity of the 7.875 percent notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.  Further, holders may require the company to purchase all or a portion of their 7.875 percent notes at a purchase price in cash equal to 100 percent of the principal amount at maturity of the 7.875 percent notes to be purchased, plus accrued and unpaid interest, on December 1, 2020 or upon certain fundamental changes.

The 7.875 percent notes have not been registered under the Securities Act of 1933, as amended, or applicable state securities laws, and unless so registered, may not be offered or sold in the United States except pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws.

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