<PAGE> 1
Filed Pursuant to Rule 424(B)(5)
File No. 33-48851
PROSPECTUS SUPPLEMENT
(To Prospectus dated March 28, 1994)
$100,000,000
EATON CORPORATION
6 3/8% NOTES DUE APRIL 1, 1999
---------------------------
Interest Payable April 1 and October 1
---------------------------
The 6 3/8% Notes due April 1, 1999 (the "Notes") may not be redeemed prior
to maturity by the Company and do not provide for any sinking fund. See
"Description of Notes."
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
Price to Underwriting Proceeds to
Public(1) Discount(2) Company(1)(3)
- ----------------------------------------------------------------------------------------------------
Per Note.......................................... 99.641% .235% 99.406%
- ----------------------------------------------------------------------------------------------------
Total............................................. $99,641,000 $235,000 $99,406,000
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<FN>
(1) Plus accrued interest, if any, from April 5, 1994 to date of delivery.
(2) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(3) Before deducting expenses payable by the Company estimated at $100,000.
</TABLE>
---------------------------
The Notes offered by this Prospectus Supplement are offered by the
Underwriter subject to prior sale, withdrawal, cancellation or modification of
the offer without notice, to delivery to and acceptance by the Underwriter and
to certain further conditions. It is expected that delivery of the Notes will be
made at the offices of Lehman Brothers Inc., New York, New York, on or about
April 5, 1994.
------------------------
LEHMAN BROTHERS
March 28, 1994.
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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<PAGE> 3
THE COMPANY
Eaton Corporation ("Eaton" or the "Company") is a leading global
manufacturer of vehicle powertrain components and a broad variety of controls
serving the transportation, industrial, commercial, aerospace and military
markets. The Company offers high-quality products worldwide and derives a
significant majority of its net sales from products that are number one or
number two in the markets that they serve. Principal products include truck
transmissions and axles, engine components, industrial and commercial controls,
automotive and appliance controls and specialty controls. Eaton's products are
often essential components of a variety of final products ranging from heavy
duty trucks and home appliances to the Space Shuttle. Eaton maintains and
expands its market positions by focusing on the development and production of
high-quality, higher value-added products and by investing in superior product
and process technologies. The Company currently has approximately 150
manufacturing facilities in 20 countries.
On January 31, 1994, the Company completed the acquisition of Westinghouse
Electric Corporation's Distribution and Control Business Unit ("DCBU") for $1.1
billion in cash plus the assumption of certain liabilities. DCBU is a leader in
the U.S. electrical distribution industry and in niche industrial control market
segments. Like Eaton, DCBU holds number one or number two market positions with
the majority of its core products. The combination of DCBU with the Company's
existing industrial control and power distribution business will strengthen
Eaton's competitive position and provide the opportunity for significant cost
savings resulting from the complementary fit of the two businesses. In 1993,
DCBU had total sales of $1.1 billion. This addition to the electrical and
electronic controls segment of Eaton's business is expected to increase that
segment's share to more than one-half of Eaton's consolidated net sales, thereby
expanding the end-market diversification of Eaton's sales and lessening its
dependence on the truck and automotive markets. See "Recent Developments --
Acquisition of DCBU".
VEHICLE COMPONENTS
Eaton occupies a strong competitive position in the vehicle components
market and is considered a market leader in many of its product lines. Eaton's
vehicle component product lines include truck components (34% of 1993 net
sales), passenger car components (12% of 1993 net sales) and off-highway vehicle
components (7% of 1993 net sales). Major customers for Eaton's vehicle
components are original equipment manufacturers ("OEMs") of trucks, passenger
cars and off-highway vehicles.
TRUCK COMPONENTS -- The Company manufactures over 100 models of medium-and
heavy-duty truck transmissions. The Company is the leading manufacturer of
transmissions for heavy-duty trucks. The market for heavy-duty truck
transmissions is affected significantly by the overall level of economic
activity. In 1993, North American factory sales of heavy-duty trucks totaled
188,000 units, which was up from 141,000 units in 1992. The Company also
manufactures axles, brakes and engine valves for trucks, leaf springs for light
trucks, sport utility vehicles and vans, and other truck components.
PASSENGER CAR COMPONENTS -- The Company manufactures engine valves,
hydraulic valve lifters, viscous fan drives, fans and fan shrouds, locking
differentials, superchargers, tire valves and other passenger car components.
OFF-HIGHWAY VEHICLE COMPONENTS -- Eaton products are also used on farm
tractors, backhoes, pavers, excavators, grain combines, drill rigs, garden
tractors and riding mowers. These products include low-speed, high-torque
motors, light-, medium-and heavy-duty hydrostatic transmissions, hydrostatic
power steering units, a variety of hydraulic pumps, motors, valves and cylinders
and a family of hydrostatic transaxles.
ELECTRICAL AND ELECTRONIC CONTROLS
Eaton is a market leader in the manufacture of electrical and electronic
controls, holding number one or number two domestic market positions with the
majority of its core products. The Company's product lines include industrial
and commercial controls (18% of 1993 net sales), automotive and appliance
controls (17% of 1993 net sales) and specialty controls (8% of 1993 net sales).
Eaton markets its electrical and electronic control products to commercial,
industrial, automotive, appliance, aerospace and government customers.
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<PAGE> 4
INDUSTRIAL AND COMMERCIAL CONTROLS -- Eaton offers a wide range of products
under the Cutler-Hammer, Westinghouse and Challenger brand names to control the
distribution of electric power and to protect and govern electric motors. As a
consequence of the DCBU acquisition, Eaton now holds a leadership position in
the power distribution industry. Eaton's power distribution products include
circuit breakers, loadcenters, safety switches, panelboards and switchboards.
These products serve residential, light commercial and industrial construction
markets. For industrial control markets, Eaton products include contactors,
overload relays, pushbuttons, sensors, variable speed drives, electronic
operator interface devices, industrial workstations, count controls and logic
products. Switches and controls are used on portable power tools, communication
equipment, medical tools, computer equipment and construction and agricultural
machinery. Eaton also supplies switches, controls and other products used on
commercial and military aircraft and ships.
These control products are sold through a network of over 1,500 independent
distributors. The acquisition of DCBU has broadened significantly Eaton's
electrical and electronic control product lines and distribution network. See
"Recent Developments -- Acquisition of DCBU".
AUTOMOTIVE AND APPLIANCE CONTROLS -- Eaton is a supplier of control
products for two large markets -- vehicle manufacturers and appliance makers.
Eaton has a comprehensive line of switches, including steering column control
switches, which are sold to major global automobile manufacturers. Other vehicle
products include speed controls and climate control components. Appliance
controls include electronic and electro-mechanical control products, including
timers, water valves and pressure switches. Timers control cycles on clothes
washers, dryers and dishwashers; water valves regulate flow into clothes
washers, dishwashers, refrigerator water dispensers and icemakers; and pressure
switches govern water levels in clothes washers. Eaton also offers controls for
ranges and other cooking appliances.
SPECIALTY CONTROLS -- The major products of this segment are Eaton-Kenway
automated materials handling systems and semiconductor manufacturing equipment,
primarily ion implanters. Eaton offers a complete line of ion implanters which
are used by major semiconductor manufacturers to make microprocessors for a wide
variety of products. Other products included within this segment are golf grips,
engineered fasteners and industrial clutches and brakes.
DEFENSE SYSTEMS
Eaton manufactures defense electronics systems (4% of 1993 net sales).
Eaton's defense product line includes strategic countermeasures, tactical
jamming systems, electronic intelligence systems and electronic support
measures.
The Company's principal executive office is located at Eaton Center, 1111
Superior Avenue, Cleveland, Ohio 44114-2584; telephone (216) 523-5000.
RECENT DEVELOPMENTS
ACQUISITION OF DCBU
On January 31, 1994, the Company completed the acquisition of DCBU, a
leader in the U.S. electrical distribution industry and in niche industrial
control market segments. In 1993, DCBU had total sales of $1.1 billion. Like
Eaton, DCBU holds number one or number two market positions with the majority of
its core products. In addition, DCBU is a specified and often sole-source
supplier to most major electrical OEMs. Its full line of products and over one
half of a century of operations have led to one of the largest installed product
bases in the industry.
The purchase price of DCBU was $1.1 billion in cash plus the assumption of
certain liabilities. The purchase price is subject to adjustment based upon
changes in DCBU's adjusted net assets. The purchase price of DCBU was initially
financed through the liquidation of $170 million of short-term investments and
the issuance of $930 million of commercial paper backed by the Company's
revolving credit facilities. See "Use of Proceeds". Simultaneously with the
closing, the Company sold certain DCBU and Eaton assets representing $41 million
of 1993 annual sales to satisfy government antitrust concerns.
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<PAGE> 5
The Company is combining DCBU with its Industrial Control and Power
Distribution Operations ("ICPDO") to create a business unit which would have had
1993 sales of approximately $1.6 billion and which is now called Cutler-Hammer.
As a result, this addition to the electrical and electronic controls segment of
Eaton's business is expected to increase that segment's share to more than
one-half of Eaton's consolidated net sales, thereby expanding the end-market
diversification of Eaton's sales and lessening its dependence on the truck and
automotive markets.
DCBU and its predecessor organizations have manufactured and marketed
electrical distribution equipment and industrial control products for over 60
years. Prior to the acquisition, DCBU was organized into four divisions:
- The Electrical Components Division ("ECD") manufactures a broad range of
circuit protection and motor control components for use in electrical
assemblies manufactured by other DCBU units as well as for sale to
electrical OEMs and construction, industrial and utility customers.
Principal electrical distribution products of ECD include circuit
breakers, vacuum interrupters, power fuses and automatic transfer
switches. Principal industrial control products include motor starters,
pilot and logic devices and solid-state motor controls. ECD comprised
approximately 25% of 1993 DCBU net sales.
- The Construction Equipment Division ("CED") manufactures electrical
distribution and control assemblies which incorporate DCBU's advanced
circuit breakers and control components for construction, industrial and
utility customers. Principal electrical distribution products of CED
include panelboards, switchboards, switchgear and busway. Principal
industrial control products include enclosed controls, motor control
centers and medium voltage control products. CED comprised approximately
39% of 1993 DCBU net sales.
- Challenger Electrical Equipment Corp. ("Challenger"), which was acquired
by Westinghouse in 1987, manufactures and markets electrical components
and assemblies for residential and light commercial markets.
Challenger's primary products include loadcenters, multiple metering
products, safety switches and outlet boxes. Challenger comprised
approximately 22% of 1993 DCBU net sales.
- The International Operations Division serves as a manufacturing or
marketing channel for DCBU products to the world market. Principal
international operations are located in Canada, Brazil, Venezuela and
the United Kingdom. This division comprised approximately 14% of 1993
DCBU net sales.
DCBU utilizes 75 plants and warehouses in the United States, Puerto Rico,
Central and South America, Canada, and the United Kingdom and has approximately
12,500 employees.
The combination of DCBU with the Company's existing ICPDO business will
strengthen Eaton's competitive position and provide the opportunity for
significant cost savings resulting from the complementary fit of the two
businesses. Management intends to achieve substantial efficiencies by combining
these two operations. The Company has a comprehensive integration plan which is
focused on the rationalization of product lines and manufacturing operations,
the integration of sales and distribution functions and the reduction of
administrative expenses. Significant duplication of capacity exists between DCBU
and ICPDO. The combined operations have a total of 97 plants and warehouses. The
Company has a substantial consolidation program which includes plant closures
over the next few years. In 1994, it intends to close eight facilities and to
relocate several product lines, affecting a total of approximately 1,200
employees. The cost of the consolidation program for ICPDO locations was
included in Eaton's $55 million pretax integration charge accrued in 1993. For
DCBU locations, such cost will be included in the allocation of the purchase
price.
PRIVATE PLACEMENTS OF COMMON SHARES
In private placements, the Company sold to a single purchaser, 1.3 million
Common Shares in 1993 for aggregate net proceeds of $62 million and an
additional 800,000 Common Shares in January, 1994 for aggregate net proceeds of
$38 million. Beginning in April 1995, the purchaser of these shares has the
right to require the Company to register these shares under the Federal
securities laws. See "Underwriting".
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<PAGE> 6
PUBLIC OFFERING OF COMMON SHARES
On March 17, 1994, the Company completed a public offering of 3,775,000
Common Shares for aggregate net proceeds to the Company of approximately
$214,000,000. The net proceeds from such offering were used to repay a portion
of the debt incurred to finance the DCBU acquisition.
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby (referred to in the accompanying Prospectus as the "Offered Debt
Securities") supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Debt Securities set forth
in the accompanying Prospectus, to which description reference is hereby made.
GENERAL
The Notes are Senior Securities, as that term is defined in the Prospectus.
The Notes will be limited to $100 million aggregate principal amount and will
mature on April 1, 1999, and will constitute a separate series for the purposes
of the Indenture dated as of August 1, 1992 between The First National Bank of
Chicago, Trustee, and the Company. The Notes are not redeemable prior to
maturity, and are not subject to any sinking fund or similar provision. Each
Note will bear interest at the rate per annum set forth on the cover page hereof
from April 5, 1994, payable semi-annually on April 1 and October 1 of each year,
commencing October 1, 1994, to the person, with certain exceptions, in whose
name the Note is registered at the close of business on March 15 or September
15, as the case may be, next preceding such Interest Payment Date. The Notes are
issued in fully registered form without coupons in denominations of $1,000 or
any integral multiple thereof.
CONCURRENT SALE OF DEBENTURES
The Company is offering, concurrently with the Notes offered hereby and
only by a separate prospectus, $100,000,000 aggregate principal amount of its
7 5/8% Debentures due April 1, 2024 (the "Debentures"). The Debentures are
Senior Securities, as that term is defined in the accompanying Prospectus, and
rank pari passu with the Notes. The Debentures will be issued as a separate
series of Securities pursuant to the Senior Indenture dated as of April 1, 1994
between Chemical Bank, as trustee, and the Company. The Debentures are not
redeemable prior to maturity. The consummation of the Notes offered hereby is
not conditioned upon the consummation of the concurrent offering of the
Debentures.
USE OF PROCEEDS
The net proceeds from the sale of the Notes of approximately $99.4 million,
and the net proceeds of approximately $99.1 million from the concurrent sale of
the Debentures, will be used by the Company to repay a portion of the debt
issued to finance the DCBU acquisition. See "Recent Developments". On March 28,
1994, the Company had approximately $711 million of such debt outstanding, after
application of the net proceeds from the recent offering of Common Shares and
certain other payments. See "Recent Developments -- Public Offering of Common
Shares." This debt is backed by the Company's revolving credit facilities and
bears interest on the date hereof at an average rate of 3.54% per annum with an
average maturity of 38 days.
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<TABLE>
CAPITALIZATION
The following table presents the historical capitalization of Eaton and its
consolidated subsidiaries at December 31, 1993, and as adjusted to reflect (1)
the $930 million of debt issued, and $6 million of short-term debt assumed,
related to Eaton's acquisition of DCBU in January 1994, (2) the private
placement of 800,000 Common Shares in January 1994 for net proceeds of $38
million, together with a portion of the proceeds of the private placement of
Common Shares in 1993, which were used to redeem the $89 million outstanding
balance of 8.5% debentures in January 1994, (3) the sale in March 1994 of
3,775,000 Common Shares for net proceeds of $214 million and (4) the sale of the
Notes offered hereby and the concurrent sale of the Debentures. The information
in the table should be read in conjunction with the historical financial
statements and related notes of Eaton incorporated by reference in the
Prospectus and the unaudited pro forma combined condensed financial statements
which reflect Eaton's acquisition of DCBU included in this Prospectus
Supplement.
<CAPTION>
AS FURTHER ADJUSTED FOR
------------------------------------------------
SALE OF
AS ADJUSTED 800,000
FOR COMMON SHARES
DEC. 31, ACQUISITION AND SALE OF
1993 OF REDEMPTION 3,775,000 SALE OF NOTES
HISTORICAL DCBU OF DEBENTURES COMMON SHARES AND DEBENTURES
---------- ----------- ------------- ------------- --------------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Short-term debt and
current portion of
long-term debt...... $ 124 $ 505 $ 416 $ 202 $ 40*
---------- ----------- ------------- ------------- -------
---------- ----------- ------------- ------------- -------
Long-term debt........ $ 649 $ 1,204 $ 1,204 $ 1,204 $1,368*
Shareholders' equity
Common Shares....... 36 36 36 38 38
Capital in excess of
par value........ 535 535 573 785 785
Retained earnings... 708 708 708 708 708
Foreign currency
translation
adjustments...... (78) (78) (78) (78) (78)
Unallocated ESOP
shares........... (96) (96) (96) (96) (96)
---------- ----------- ------------- ------------- -------
1,105 1,105 1,143 1,357 1,357
---------- ----------- ------------- ------------- -------
Total
capitalization...... $1,754 $ 2,309 $ 2,347 $ 2,561 $2,725
---------- ----------- ------------- ------------- -------
---------- ----------- ------------- ------------- -------
<FN>
- ---------------
*Reflects application of payment of $162 million in short-term debt and $36
million in long-term debt. See "Use of Proceeds."
</TABLE>
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<TABLE>
SELECTED HISTORICAL FINANCIAL INFORMATION
The following table presents historical financial information concerning
Eaton and its consolidated subsidiaries. The historical financial information in
the table and the related notes should be read in conjunction with the financial
statements and related notes contained in Eaton's Annual Report on Form 10-K for
the year ended December 31, 1993.
<CAPTION> YEAR ENDED DECEMBER 31
--------------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
- ---------------------
Net sales..................................... $4,401 $4,101 $3,659 $4,083 $4,228
Net sales by business segment
Vehicle Components.......................... 2,357 2,093 1,806 2,015 2,105
Electrical and Electronic Controls.......... 1,852 1,776 1,575 1,624 1,566
Defense Systems............................. 192 232 278 444 557
Operating profit.............................. 332 264 174 325 444
Operating profit by business segment
Vehicle Components.......................... 247 170 63 178 253
Electrical and Electronic Controls.......... 83 85 88 122 154
Defense Systems............................. 2 9 23 25 37
Income before extraordinary item and
cumulative effect of accounting changes..... 180(a) 140 74(c) 179 225
Extraordinary item............................ (7)(b)
Cumulative effect of accounting changes
Postretirement benefits other than
pensions.................................. (274)
Income taxes................................ 6
Net income (loss)............................. 173 (128) 74 179 225
INCOME PER COMMON SHARE
- -----------------------
Income before extraordinary item
and cumulative effect of accounting
changes..................................... $ 2.57(a) $ 2.03 $ 1.09(c) $ 2.53 $ 3.00
Extraordinary item............................ (.10)(b)
Cumulative effect of accounting changes
Postretirement benefits other than
pensions.................................. (3.97)
Income taxes................................ 0.09
Net income.................................... 2.47 (1.85) 1.09 2.53 3.00
BALANCE SHEET DATA
- ------------------
Working capital............................... $ 679 $ 751 $ 666 $ 669 $ 854
Total assets.................................. 3,268 3,220 3,184 3,140 3,189
Short-term debt and current portion of
long-term debt.............................. 124(b) 49 132 60 62
Long-term debt................................ 649 833 795 755 861
Shareholders' equity.......................... 1,105 948 1,153 1,140 1,145
OTHER DATA
- ----------
Depreciation and amortization................. $ 196 $ 200 $ 185 $ 181 $ 165
Capital expenditures.......................... 227 186 194 192 217
Cash dividends................................ 83 76 75 75 75
Ratio of earnings to fixed charges(d)......... 3.53 2.59 1.99 3.43 4.33
Pro forma ratio of earnings to fixed
charges(d).................................. 3.10
<FN>
- ---------------
(a) Results for 1993 include a charge of $55 million before income tax credits
($34 million after income tax credits, or $.49 per Common Share) for
acquisition integration related to the January 1994 acquisition of
Westinghouse Electric Corporation's Distribution and Control Business Unit.
See "Recent Developments -- Acquisition of DCBU".
(b) In March 1993, the Company called for redemption, in April 1993, the $74
million outstanding balance of its 9% debentures, and in December 1993, the
Company called for redemption, in January 1994, the $89 million outstanding
balance of its 8.5% debentures. The extraordinary loss on these redemptions,
including the write-off of debt issue costs, was $11 million before income
tax credits ($7 million after income tax credits, or $.10 per Common Share).
</TABLE>
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(c) In 1991, as a result of the review of operating strategies and in order to
improve competitiveness and future profitability, the Company recorded a
restructuring charge of $39 million before income tax credits ($25 million
after income tax credits, or $.38 per Common Share).
(d) For the purpose of computing the ratios described above, "earnings" consist
of consolidated income before income tax and minority interest in the income
(losses) of consolidated subsidiaries, less undistributed income (losses) of
20% to less than 50% owned associate companies and wholly-owned finance
subsidiaries held for sale (which were sold in 1989), plus 1) interest
expense capitalized in prior periods and amortized in the current period, 2)
the Company's proportionate share of income before income taxes of 50% owned
associated companies, and 3) fixed charges described below, excluding
capitalized interest. "Fixed charges" consist of 1) interest expensed and
capitalized on borrowed funds, excluding amounts related to wholly-owned
finance subsidiaries held for sale in 1989 and prior years only, 2)
amortization of debt issue costs, 3) that portion of rent expense
representing interest, and 4) the Company's proportionate share of the fixed
charges of 50% owned associate companies. The pro forma ratio of earnings to
fixed charges includes an adjustment for $14 million of additional interest
expense related to the issue of the Notes and the Debentures.
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
have been prepared by Eaton's management. These financial statements reflect
Eaton's acquisition of DCBU and combine for the periods or date indicated the
historical consolidated financial statements of Eaton and DCBU, using the
purchase method of accounting.
The unaudited pro forma combined condensed balance sheet reflects
adjustments as if the acquisition had occurred on September 30, 1993. The
unaudited pro forma combined statements of income reflect adjustments as if the
acquisition had occurred at the beginning of the year indicated. These pro forma
financial statements should be read in conjunction with the historical
consolidated financial statements and related notes of Eaton and DCBU. The pro
forma financial statements include preliminary estimates and assumptions which
Eaton's management believes are reasonable. The pro forma results are not
necessarily indicative of the results which would have occurred if the business
combination had been in effect on the dates indicated, or which may result in
the future and do not include any cost savings or other effects of the planned
integration of DCBU and ICPDO.
The pro forma results for 1993 do not reflect a $55 million integration
charge before income tax credits recorded by Eaton in the fourth quarter of 1993
related to the acquisition of DCBU and the integration of ICPDO's product lines
and operations with DCBU. The pro forma results for 1993 do not reflect a $3
million extraordinary loss related to the redemption of debentures and results
for 1992 do not reflect a $268 million net loss related to the cumulative effect
of the adoption of new accounting principles for postretirement benefits other
than pensions and income taxes.
The pro forma financial statements have been prepared using the following
facts and assumptions:
- Eaton acquires the assets and liabilities of DCBU in exchange for a total
cash payment of $1.1 billion.
- Eaton liquidates $170 million of short-term investments to fund a portion
of the $1.1 billion acquisition price.
- Eaton borrows $930 million to finance the remaining portion of the $1.1
billion acquisition price.
- Simultaneously with the acquisition of DCBU, Eaton divests a minor
portion of DCBU and ICPDO, having annual net sales of $41 million and net
assets of $14 million, in exchange for common stock of the buyer with an
estimated fair value of $14 million.
- The acquired assets and liabilities of DCBU are recorded at estimated
fair values as determined by Eaton's management based on information
currently available and on current tentative assumptions as to the future
operations of DCBU. No adjustment has been made to record the estimated
excess of the fair value over book value of DCBU's patents, trademarks
and licenses since such fair values have not yet been determined. Eaton
will be obtaining appraisals of the fair values and remaining useful
lives of the property, plant and equipment acquired and will be reviewing
the fair value of the other acquired assets and assumed liabilities.
Accordingly, the allocation of the purchase price to the acquired assets
and liabilities of DCBU is subject to revision as a result of the final
determination of appraised and other fair values.
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<PAGE> 11
<TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1993
(MILLIONS OF DOLLARS)
<CAPTION>
EATON OPERATIONS PRO PRO
CORPORATION DCBU SOLD BY FORMA FORMA
HISTORICAL HISTORICAL EATON(1) ADJUSTMENTS COMBINED
----------- ---------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash............................... $ 18 $ 2 $ 20
Short-term investments............. 227 $(170)(2) 57
Accounts receivable................ 599 154 753
Inventories........................ 439 187 $ (5) 10(4a) 631
Other current assets............... 198 39 11(4b) 248
----------- ---------- ---------- ----------- --------
1,481 382 (5) (149) 1,709
Property, plant and equipment-net.... 1,173 240 (9) (4)(4c)
175(4d) 1,575
Excess of cost over net assets of
businesses acquired-net............ 267 133 (133)(4e)
546(4k) 813
Other assets......................... 298 11 14 31(4b)
(19)(4f) 335
----------- ---------- ---------- ----------- --------
$ 3,219 $ 766 $ 0 $ 447 $4,432
----------- ---------- ---------- ----------- --------
----------- ---------- ---------- ----------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt and current portion
of long-term debt............... $ 42 $ 6 $ 375(3) $ 423
Other liabilities and accruals..... 690 118 31(4g) 839
----------- ---------- ---------- ----------- --------
732 124 406 1,262
Long-term debt....................... 746 555(3) 1,301
Postretirement benefits other than
pensions........................... 510 51(4h) 561
Other long-term liabilities.......... 189 58 48(4g)
(10)(4i)
(19)(4f) 266
Net assets of DCBU................... 584 (584)(4j)
Shareholders' equity................. 1,042 1,042
----------- ---------- ---------- ----------- --------
$ 3,219 $ 766 $ 0 $ 447 $4,432
----------- ---------- ---------- ----------- --------
----------- ---------- ---------- ----------- --------
</TABLE>
See accompanying notes.
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NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
The adjustments to give pro forma effect to reflect Eaton's acquisition of
DCBU and the estimated purchase price allocation at September 30, 1993 are as
follows:
1) The divestiture by Eaton of a portion of DCBU and ICPDO,
simultaneous with the acquisition of DCBU by Eaton, in exchange for
common stock in the buyer with an estimated fair value of $14
million.
2) The liquidation of $170 million of short-term investments to
partially fund the $1.1 billion acquisition price for DCBU.
3) The borrowing by Eaton of $930 million to finance the remaining
portion of the $1.1 billion acquisition price. Of these borrowings,
$555 million are classified on the balance sheet as long-term debt
because Eaton intends, and has the ability under a new five-year
$555 million revolving credit agreement entered into in January
1994, to refinance this amount on a long-term basis.
4) The allocation of the aggregate purchase price of DCBU, and the
recognition of the excess of aggregate purchase price over the
estimated fair value of net assets acquired, is as follows (in
millions):
<TABLE>
<S> <C>
a) Adjust inventories acquired to estimated fair value.............. $ 10
b) Establish deferred income taxes assuming an income tax rate of
35%............................................................ 42
c) Property, plant and equipment retained by Westinghouse........... (4)
d) Adjust property, plant and equipment acquired to estimated fair
value.......................................................... 175
e) Eliminate the excess of cost over net assets acquired related to
DCBU's acquisitions of businesses in prior years............... (133)
f) Reclassify deferred income tax liabilities to other assets....... 0
g) Adjust and provide for estimated accrued liabilities related to
post-acquisition integration................................... (79)
h) Recognize unfunded liability for postretirement benefits other
than pensions................................................... (51)
i) Liabilities retained by Westinghouse............................. 10
j) Eliminate net assets of DCBU, prior to pro forma adjustments..... 584
k) Adjust for excess of purchase price over estimated fair value of
net assets acquired, including intangible assets............... 546
------
Aggregate purchase price............................................. $1,100
------
------
</TABLE>
S-12
<PAGE> 13
<TABLE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993
(MILLIONS OF DOLLARS EXCEPT FOR PER SHARE AMOUNTS)
<CAPTION>
EATON OPERATIONS PRO PRO
CORPORATION DCBU SOLD BY FORMA FORMA
HISTORICAL HISTORICAL EATON(1) ADJUSTMENTS COMBINED
----------- ---------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 3,286 $ 795 $(30) $ (7)(2a) $4,044
Costs and expenses
Cost of products sold.............. 2,466 478 (18) (3)(2a)
22(2b)
15(2c)
16(2d)
(5)(2e) 2,971
Selling and administrative
expense......................... 439 214 (6) 3(2b) 650
Research and development expense... 115 28 (1) 1(2b) 143
Depreciation and amortization...... 29 0(2f)
(3)(2g)
(26)(2b)
----------- ---------- ---------- ----------- --------
3,020 749 (25) 20 3,764
----------- ---------- ---------- ----------- --------
Income from operations............... 266 46 (5) (27) 280
Other income and (expense)
Interest expense................... (61) (21) 18(2h)
(24)(2i) (88)
Interest income.................... 6 (4)(2j) 2
Other income-net................... 14 14
----------- ---------- ---------- ----------- --------
(41) (21) (10) (72)
----------- ---------- ---------- ----------- --------
Income before income taxes........... 225 25 (5) (37) 208
Income taxes......................... 75 4 (2) (13)(2k) 64
----------- ---------- ---------- ----------- --------
Income before extraordinary item..... $ 150 $ 21 $ (3) $ (24) $ 144
----------- ---------- ---------- ----------- --------
----------- ---------- ---------- ----------- --------
Average number of Common Shares
outstanding (in millions).......... 69.6 69.6
Income before extraordinary item per
Common Share (2l).................. $2.17 $2.07
</TABLE>
See accompanying notes.
S-13
<PAGE> 14
<TABLE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1992
(MILLIONS OF DOLLARS EXCEPT FOR PER SHARE AMOUNTS)
<CAPTION>
EATON OPERATIONS PRO PRO
CORPORATION DCBU SOLD BY FORMA FORMA
HISTORICAL HISTORICAL EATON(1) ADJUSTMENTS COMBINED
----------- ---------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 4,101 $1,087 $ (41) $ (9)(2a) $5,138
Costs and expenses
Cost of products sold.............. 3,134 660 (22) (4)(2a)
28(2b)
19(2c)
22(2d)
(9)(2e) 3,828
Selling and administrative
expense......................... 578 288 (8) 4(2b) 862
Research and development expense... 151 39 (1) 1(2b) 190
Depreciation and amortization...... 38 (1)(2f)
(4)(2g)
(33)(2b)
----------- ---------- ---------- ----------- --------
3,863 1,025 (31) 23 4,880
----------- ---------- ---------- ----------- --------
Income from operations............... 238 62 (10) (32) 258
Other income and (expense)
Interest expense................... (89) (28) 25(2h)
(36)(2i) (128)
Interest income.................... 9 (6)(2j) 3
Other income-net................... 23 (6) 2 19
----------- ---------- ---------- ----------- --------
(57) (34) 2 (17) (106)
----------- ---------- ---------- ----------- --------
Income before income taxes........... 181 28 (8) (49) 152
Income taxes......................... 41 8 (3) (17)(2k) 29
----------- ---------- ---------- ----------- --------
Income before cumulative effect of
accounting changes................. $ 140 $ 20 $ (5) $ (32) $ 123
----------- ---------- ---------- ----------- --------
----------- ---------- ---------- ----------- --------
Average number of Common Shares
outstanding (in millions).......... 68.9 68.9
Income before cumulative effect of
accounting changes (2l)............ $ 2.03 $ 1.78
</TABLE>
See accompanying notes.
S-14
<PAGE> 15
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
The adjustments to give pro forma effect to Eaton's acquisition of DCBU and
the estimated purchase price allocation are as follows:
<TABLE>
<S> <C>
1) To reflect the divestiture by Eaton of a portion of DCBU and ICPDO, simultaneous with
Eaton's acquisition of DCBU.
2) To reflect the purchase price allocation and other adjustments as follows:
a) Eliminate intercompany sales and cost of products sold.
b) Reclassify depreciation expense to cost of products sold, selling and
administrative expense, and research and development expense.
c) Recognize over nine years additional depreciation for write-up of property, plant
and equipment to fair value.
d) Amortize over an average period of twenty-five years the excess of purchase price
of DCBU over estimated fair value of net assets acquired, including intangible
assets.
e) Adjust expense for pensions and postretirement benefits other than pensions for
employee benefit liabilities retained by Westinghouse and to reflect Eaton's
current actuarial assumptions.
f) Eliminate depreciation expense related to property, plant and equipment of DCBU
retained by Westinghouse.
g) Eliminate amortization of the excess of cost over net assets acquired related to
DCBU's acquisitions of businesses in prior years.
h) Eliminate Westinghouse's interest expense allocated to DCBU.
i) Recognize additional interest expense due to $930 million increase in short-term
debt to fund the acquisition (assumed interest rate 3.85% in 1992 and 3.45% in
1993).
j) Reduce interest income to reflect the $170 million liquidation of short-term
investments to fund the acquisition (assumed interest rate 3.75% in 1992 and
3.20% in 1993).
k) Record the income tax effect of the above adjustments assuming a 35% income tax
rate in 1993 and 34% in 1992.
l) Pro forma net income per Common Share is computed by dividing net income by the
average month-end number of shares outstanding during each period.
</TABLE>
S-15
<PAGE> 16
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to Lehman Brothers Inc. (the
"Underwriter"), and the Underwriter has agreed to purchase, the entire principal
amount of the Notes.
Under the terms and conditions of the Underwriting Agreement, the
Underwriter is committed to take and pay for all of the Notes, if any are taken.
The Underwriter proposes to offer the Notes directly to the
public at the public offering price set forth on the cover page of this
Prospectus Supplement and to certain securities dealers at such price less a
concession of .200% of the principal amount of the Notes. The Underwriter may
allow, and such dealers may reallow, a concession not to exceed .125% of the
principal amount of the Notes to certain brokers and dealers. After the Notes
are released for sale to the public, the offering price and other selling terms
may from time to time be varied by the Underwriter.
The Notes are a new issue of securities with no established
trading market. The Company has been advised by the Underwriter that it intends
to make a market in the Notes but is not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes.
The Company has agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
The Underwriter and its affiliates have engaged from time to time
in investment banking business with the Company for which customary compensation
has been received. In private placements, the Company sold to an affiliate of
the Underwriter, an aggregate of 2,100,000 Common Shares in 1993 and 1994 for
aggregate proceeds of $100 million. See "Recent Developments -- Private
Placements of Common Shares".
S-16
<PAGE> 17
PROSPECTUS
Eaton Corporation
Debt Securities, Debt Warrants
and Preferred Shares
------------------
Eaton Corporation (the "Company") may offer from time to time its unsecured
debt securities, which may be either senior (the "Senior Securities") or
subordinated (the "Subordinated Securities") and, if subordinated, may be
convertible into common shares (the "Common Shares") of the Company (the
"Convertible Subordinated Securities", and together with the Senior Securities
and any other Subordinated Securities, the "Debt Securities"), warrants to
purchase the Senior Securities (the "Debt Warrants") or preferred shares (the
"Preferred Shares"), on terms to be determined at the time of offering, in an
aggregate amount of up to $200,000,000 (such amount being the aggregate issue
price of all Debt Warrants issued, the stated value of all Preferred Shares
issued, the principal face amount of all Debt Securities issued at their
principal face amount and the issue price rather than the principal amount of
any Debt Securities issued at original issue discount and the exercise price of
any Debt Securities issuable upon the exercise of a Debt Warrant). The Debt
Securities may be issued under this Prospectus in one or more series with the
same or varying maturities. The Debt Securities, Debt Warrants and Preferred
Shares (collectively, the "Securities") may be offered either together or
separately and in one or more series, in amounts, at prices and on terms to be
set forth at the time of the offering in one or more supplements to this
Prospectus (each a "Prospectus Supplement"). The Debt Securities of any series
may be in registered or bearer form and may be represented by a single global
security registered in the name of a securities depository. The specific terms
of the Securities in respect of which this Prospectus is being delivered,
including, where applicable, the designation, aggregate amount, form, authorized
denominations, initial public offering price, purchase price, currency or
currencies, currency unit or units or composite currency or currencies
("Currency" or "Currencies") of denomination and payment maturity, rate (or
manner of calculation thereof) and time of payment of any interest, any sinking
fund, any terms of redemption at the option of the Company or the holder, any
conversion terms and other terms with respect to Debt Securities, the duration,
offering price, exercise price, detachability and other terms with respect to
Debt Warrants, and the specific title and stated value, any dividend,
liquidation, redemption, conversion and other voting rights, the initial public
offering price and other terms with respect to Preferred Shares are set forth in
the accompanying Prospectus Supplement, together with a description of the terms
of offering of the Securities and the use of the net proceeds from such
offering.
The Senior Securities will rank equally with all other unsubordinated and
unsecured indebtedness of the Company. The Subordinated Securities will be
subordinated to all existing and future Senior Indebtedness of the Company, as
defined. See "Description of Debt Securities."
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
The Securities may be sold directly to purchasers, or through agents
designated from time to time, or through underwriters or dealers. If any agents
of the Company or any underwriters or dealers are involved in the sale of the
Securities, their names and any applicable fee, commission or discount
arrangements with them are set forth in the accompanying Prospectus Supplement.
See "Plan of Distribution."
------------------
The date of this Prospectus is March 28, 1994.
<PAGE> 18
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS OR THE ACCOMPANYING PROSPECTUS SUPPLEMENT, IN CONNECTION WITH THE
OFFERING CONTEMPLATED HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING PROSPECTUS SUPPLEMENT
CONSTITUTES AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR
THE ACCOMPANYING PROSPECTUS SUPPLEMENT, NOR ANY SALE MADE HEREUNDER OR
THEREUNDER, SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy material and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
material or other information concerning the Company and the Registration
Statement can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, Room 1024, and at the following Regional Offices of the
Commission: 7 World Trade Center, New York, New York 10048, 14th Floor and 500
West Madison Street, Chicago, Illinois 60661, 14th Floor. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
reports, proxy material and other information concerning the Company and the
Registration Statement can also be inspected at the offices of the New York
Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, the Chicago
Stock Exchange, Incorporated, 120 South LaSalle Street, Chicago, Illinois 60603
and the Pacific Stock Exchange, 301 Pine Street, San Francisco, California
94104.
The Company has filed with the Commission a registration statement on Form
S-3 (which together with the exhibits thereto is herein referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File No.
1-1396) are hereby incorporated by reference in this Prospectus:
1. Annual Report on Form 10-K for the year ended December 31, 1993.
2. Form 11-K Annual Report dated June 25, 1993 for the year ended December
31, 1992.
3. Current Report on Form 8-K dated February 14, 1994, amended February 18,
1994.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Securities shall be deemed to be incorporated
by reference in this Prospectus and to be a part of this Prospectus from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified and superseded, to constitute a part of
this Prospectus.
The Company undertakes to provide without charge to each person to whom a
copy of this Prospectus is delivered, upon the written or oral request of such
person, a copy of any or all of the documents incorporated herein by reference
(not including the exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to Eaton Corporation, Shareholder Relations, Eaton
Center, 1111 Superior Avenue, Cleveland, Ohio 44114 (telephone (216) 523-4350).
2
<PAGE> 19
THE COMPANY
The Company, an Ohio corporation established in 1916, is a leading
manufacturer of vehicle powertrain components and a broad variety of controls
serving transportation, industrial, commercial, aerospace and military markets.
Principal products include truck transmissions and axles, engine components,
electrical equipment and controls.
The Company's principal executive office is located at Eaton Center, 1111
Superior Avenue, Cleveland, Ohio 44114 and its telephone number is (216)
523-5000. As used in this Prospectus, the term "Company" means Eaton Corporation
and its consolidated subsidiaries, unless the context otherwise requires.
RISK FACTORS RELATING TO CURRENCIES
Debt Securities denominated or payable in foreign Currencies may entail
significant risks. These risks include, without limitation, the possibility of
significant fluctuations in the foreign currency markets, the imposition or
modification of foreign exchange controls and potential illiquidity in the
secondary market. These risks will vary depending upon the Currency or
Currencies involved. These risks will be more fully described in the applicable
Prospectus Supplement. See "Description of Debt Securities."
USE OF PROCEEDS
Unless otherwise provided in the Prospectus Supplement, the net proceeds
from the sale of the Securities will be added to the general funds of the
Company and will be used for working capital and general corporate purposes.
Such net proceeds also may be used in connection with possible future
acquisitions and repurchases by the Company of its Common Shares, although the
Company presently has no plans to use such net proceeds for either such purpose.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of
the Company for each of the five years in the period ended December 31, 1993(1):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1993 1992 1991 1990 1989
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges........... 3.53 2.59 1.99 3.43 4.33
</TABLE>
- ---------------
(1) For the purpose of computing the ratios described above, "earnings" consist
of consolidated income before income taxes and minority interest in the
income (losses) of consolidated subsidiaries, less undistributed income
(losses) of 20% to less than 50% owned associate companies and wholly-owned
finance subsidiaries held for sale (which were sold in 1989), plus 1)
interest expense capitalized in prior periods and amortized in the current
period, 2) the Company's proportionate share of income before income taxes
of 50% owned associate companies, and 3) fixed charges described below,
excluding capitalized interest. "Fixed charges" consist of 1) interest
expensed and capitalized on borrowed funds, excluding amounts related to
wholly-owned finance subsidiaries held for sale in 1989 and prior years
only, 2) amortization of debt issue costs, 3) that portion of rent expense
representing interest, and 4) the Company's proportionate share of the fixed
charges of 50% owned associate companies.
DESCRIPTION OF DEBT SECURITIES
The Senior Securities may be issued in one or more series under an
indenture (the "Senior Indenture"), dated as of August 1, 1992, between the
Company and The First National Bank of Chicago, trustee (the "Senior Trustee").
The Subordinated Securities may be issued in one or more series under an
indenture (the
3
<PAGE> 20
"Subordinated Indenture"), dated as of August 1, 1992, between the Company and
The First National Bank of Chicago, trustee (the "Subordinated Trustee"). The
Senior Indenture and Subordinated Indenture (collectively, the "Indentures") are
exhibits to the Registration Statement.
The statements under this caption relating to the Indentures and the Debt
Securities are summaries and do not purport to be complete. Such summaries are
qualified in their entirety by express reference to the Indentures, including
the definitions of certain terms. Whenever any particular provision of, or term
defined in, the Indentures is referred to, such provision or defined term is
incorporated herein by reference.
The Indentures are subject to and governed by the Trust Indenture Act of
1939, as amended (the "TIA"). Parenthetical references below are to the
Indentures or to the TIA, as applicable. Capitalized terms used under this
caption without definition have the meanings ascribed thereto in the Indentures.
The description below sets forth certain general terms and provisions of
the Debt Securities. The specific terms of the Debt Securities offered by any
Prospectus Supplement (the "Offered Debt Securities"), as well as any
modifications of or additions to the general terms of the Debt Securities set
forth below that may be applicable in the case of the Offered Debt Securities,
are described in the Prospectus Supplement relating to such Offered Debt
Securities. Accordingly, for a description of the terms of the Offered Debt
Securities, reference must be made to both the Prospectus Supplement relating
thereto and the description of Debt Securities set forth in this Prospectus.
Reference is made to the Prospectus Supplement for the following terms of
the Offered Debt Securities: (1) the title of the Offered Debt Securities and
whether such Debt Securities are Senior Securities or Subordinated Securities,
including whether Subordinated Securities are Convertible Subordinated
Securities; (2) the aggregate principal amount of the Offered Debt Securities
and any limit on the aggregate principal amount of Debt Securities of such
series and any limit on the aggregate principal amount of Debt Securities of
such series; (3) the date or dates, or the method by which such date or dates
shall be determined or extended, on which the principal (and premium, if any) of
the Offered Debt Securities is payable; (4) the rate or rates (which may be
fixed or variable), or the method of determination thereof, at which the Offered
Debt Securities shall bear interest, if any, the date or dates from which such
interest shall accrue or the method by which such date or dates shall be
determined, the date or dates on which such interest shall be payable and for
any Registered Securities the Regular Record Dates for such interest payment
dates, and the basis on which any interest shall be calculated if other than on
the basis of a 360-day year of twelve 30-day months; (5) the period or periods
within which, the price or prices at which, the Currency or Currencies in which
and the other terms and conditions upon which Offered Debt Securities may be
redeemed, in whole or in part, at the option of the Company, if the Company is
to have that option; (6) the obligation, if any, of the Company to redeem, repay
or purchase the Offered Debt Securities pursuant to any sinking fund or
analogous provisions or at the option of a holder thereof and the period or
periods within which or the date or dates on which, the price or prices at
which, the Currency or Currencies in which, and the other terms and conditions
upon which Offered Debt Securities shall be redeemed, repaid or purchased in
whole or in part pursuant to such obligation; (7) the Currency or Currencies in
which the Offered Debt Securities are to be issuable and in which payment of the
principal of, premium, if any, and interest on, the Offered Debt Securities will
be payable, if other than the coin or currency of the United States; (8) if
other than denominations of $1,000 and any integral multiple thereof, the
denominations in which the Offered Debt Securities shall be issuable; (9) the
percentage of the principal amount at which the Offered Debt Securities will be
issued and, if other than the principal amount thereof, the portion of the
principal amount of Offered Debt Securities which shall be payable upon
declaration of acceleration of maturity; (10) whether the Offered Debt
Securities are to be issuable as Registered Securities or Bearer Securities or
both, and whether the Offered Debt Securities are to be issued in the form of
one or more temporary or permanent global securities (each, a "Global Security")
registered in the name of a depository ("the Depository") identified in the
Prospectus Supplement related to such Offered Debt Securities; (11) any
additional means of satisfaction and discharge of the applicable Indenture with
respect to Offered Debt Securities, any additional conditions to defeasance or
covenant defeasance and the application, if any, of defeasance or covenant
defeasance; (12) any deletions or modifications of or additions to the Events of
Default or covenants of the Company pertaining to the Offered Debt Securities,
whether or not such Events of Default or covenants are consistent with the
Events of Default or covenants set forth in the applicable Indenture as
originally executed; (13) the place or places, if any, other than or in addition
to
4
<PAGE> 21
Chicago, Illinois and New York, New York, where the principal of (and premium,
if any) and any interest on such Debt Securities shall be payable; (14) the
place or places, if any, other than or in addition to Chicago, Illinois and New
York, New York, where any Registered Security may be surrendered for
registration of transfer, such Debt Securities may be surrendered for exchange,
and notices or demands to or upon the Company in respect of such Debt Securities
may be served; (15) whether the amount of payments of principal of (and premium,
if any) or interest on such Debt Securities may be determined with reference to
an index, formula or other method (which index, formula or method may, without
limitation, be based on one or more Currencies, commodities, equity indices or
other indices) and the manner in which such amounts shall be determined; (16)
whether the Company or a holder may elect payment of the principal of (and
premium, if any) or interest, if any, on such Debt Securities in one or more
Currencies other than that in which such Debt Securities are stated to be
payable, and the period or periods within which, and the terms and conditions
upon which, such election may be made, and the time and manner of determining
the exchange rate between the Currency or Currencies in which such Debt
Securities are stated to be payable and the Currency or Currencies in which such
Debt Securities are to be so payable; (17) if other than the applicable Trustee,
the identity of each Security Registrar and/or Paying Agent; (18) the Person to
whom any interest on any Registered Security of the series shall be payable, if
other than the Person in whose name such Registered Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, the manner in which, or the Person to whom any
interest on any Bearer Security of the series shall be payable, if otherwise
than upon presentation and surrender of the coupons appertaining thereto as they
severally mature, and the extent to which, or the manner in which, any interest
payable on a temporary Global Security on an Interest Payment Date will be paid
if other than in the manner provided in the applicable Indenture; (19) whether
and under what circumstances the Company will pay Additional Amounts as
contemplated by Section 1005 of the applicable Indenture on the Offered Debt
Securities to any holder who is not a United States person (including any
modification to the definition of such term as contained in the applicable
Indenture as originally executed) in respect of any tax, assessment or
governmental charge and, if so, whether the Company will have the option to
redeem the Offered Debt Securities rather than pay such Additional Amounts (and
the terms of any such option); (20) the provisions, if any, granting special
rights to the holders of the Offered Debt Securities upon the occurrence of such
events as may be specified; (21) in the case of Subordinated Securities, any
terms modifying the subordination provisions affecting such securities; (22) in
the case of Convertible Subordinated Securities, any terms by which such
securities may be convertible into Common Shares of the Company; (23) any other
terms, conditions, rights and preferences (or limitations on such rights and
preferences) of such Debt Securities not inconsistent with the provisions of the
applicable Indenture. In addition, principal, premium, if any, and interest, if
any, will be payable, and such Debt Securities will be transferable, in the
manner described in the accompanying Prospectus Supplement.
If any series of Debt Securities are sold for, are payable in or are
denominated in one or more foreign Currencies, applicable restrictions,
elections, tax consequences, specific terms and other information with respect
to such series of Debt Securities and such Currency or Currencies, shall be set
forth in the Prospectus Supplement relating thereto.
There is no requirement that future issues of debt securities of the
Company be issued under the Indentures, and the Company will be free to employ
other indentures or documentation, containing provisions different from those
included in the Indentures or applicable to one or more issues of Debt
Securities, in connection with future issues of such other debt securities.
GENERAL
Each Indenture provides that the Debt Securities referred to on the cover
page of this Prospectus and additional unsecured debt securities of the Company
unlimited as to aggregate principal amount may be issued in one or more series
thereunder, in each case in the aggregate principal amount established in,
pursuant to or in the manner provided in a resolution of the Board of Directors
of the Company, or established by supplemental indenture. The Debt Securities
referred to on the cover page of this Prospectus and any such additional debt
securities so issued under the applicable Indenture are herein collectively
referred to, when a single Trustee is acting for all debt securities issued
under such Indenture, as the "Indenture Securities". Under the Indentures, the
Company will have the ability, in addition to the ability to issue Debt
Securities
5
<PAGE> 22
with terms different from those of Debt Securities previously issued, without
the consent of the holders, to reopen a previous issue of a series of Debt
Securities and issue additional Debt Securities of such series (unless such
reopening was restricted when such series was created), in an aggregate
principal amount determined by the Company. (Section 301 of the Indentures) Each
Indenture also provides that there may be more than one trustee under such
Indenture, each with respect to one or more different series of Indenture
Securities as described below under "Concerning the Trustees." At a time when
two or more trustees are acting under either Indenture, each with respect to
only certain series, the term "Indenture Securities" as used herein shall mean
the one or more series with respect to which each trustee is acting. In the
event there shall be more than one trustee under an Indenture, the powers and
trust obligations of each trustee as described below shall extend only to the
one or more series of Indenture Securities for which it is trustee. The effect
of the provisions contemplating that at a particular time there might be more
than one trustee acting is that, in such event, those Indenture Securities
(whether or not more than one series) for which each trustee is acting would be
treated as if issued under a separate indenture.
Each series of Debt Securities will be unsecured obligations of the
Company. The Senior Securities will rank PARI PASSU with other unsecured and
unsubordinated indebtedness of the Company (as defined below). The Subordinated
Securities will be subordinated and junior in right of payment to the prior
payment in full of the Senior Indebtedness of the Company as described below
under "Subordination."
The Debt Securities may be issued as "Original Issue Discount Securities",
which is defined as Debt Securities, including any zero-coupon Debt Securities,
that are issued and sold at a discount from the stated principal amount thereof
and provide that upon acceleration of the maturity thereof an amount less than
the principal amount thereof shall become due and payable. United States federal
income tax consequences and other considerations applicable to such Original
Issue Discount Securities will be described in the Prospectus Supplement
relating thereto.
DENOMINATIONS, REGISTRATION AND TRANSFER
Debt Securities of a series may be issuable solely as Registered
Securities, solely as Bearer Securities or as both Registered Securities and
Bearer Securities. Registered Securities will be issuable in denominations of
$1,000 and integral multiples of $1,000 and Bearer Securities will be issuable
in the denomination of $5,000 or, in each case, in such other denominations as
may be in the terms of the Debt Securities of any particular series. The
Indentures also provide that Debt Securities of a series may be issuable in
global form. See "Global Securities." Unless otherwise indicated in the related
Prospectus Supplement, Bearer Securities will have interest coupons attached.
(Section 201 of the Indentures)
Registered Securities of any series will be exchangeable for other
Registered Securities of the same series and of a like aggregate principal
amount, tenor and rank, and of different authorized denominations. If (but only
if) provided in the related Prospectus Supplement, Bearer Securities (with all
unmatured coupons, except as provided below, and all matured coupons in default)
of any series may be exchanged for Registered Securities of the same series of
any authorized denominations and of a like aggregate principal amount and tenor.
In such event, Bearer Securities surrendered in a permitted exchange for
Registered Securities between a Regular Record Date or a Special Record Date and
the relevant date for payment of interest shall be surrendered without the
coupon relating to such date for payment of interest, and interest will not be
payable on such date for payment of interest in respect of the Registered
Security issued in exchange for such Bearer Security, but will be payable only
to the holder of such coupon when due in accordance with the terms of the
applicable Indenture. Unless otherwise specified in the related Prospectus
Supplement, Bearer Securities will not be issued in exchange for Registered
Securities. (Section 305 of the Indentures)
The Debt Securities may be presented for exchange as provided above, and
Registered Securities may be presented for registration of transfer (duly
endorsed or accompanied by a written instrument of transfer), initially at the
corporate trust office of the applicable Trustee or at the office of any
transfer agent designated by the Company for such purpose with respect to any
series of Debt Securities and referred to in the related Prospectus Supplement.
No service charge will be made for any transfer or exchange of Debt Securities,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith. (Section 305 of the
Indentures) If a Prospectus Supplement refers to any transfer
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agent (in addition to the applicable Trustee) initially designated by the
Company with respect to any series of Debt Securities, the Company may at any
time rescind the designation of any such transfer agent or approve a change in
the location through which any such transfer agent acts, except that, if Debt
Securities of a series are issuable solely as Registered Securities, the Company
will be required to maintain a transfer agent in each Place of Payment for such
series and, if Debt Securities of a series may be issuable both as Registered
Securities and as Bearer Securities, the Company will be required to maintain
(in addition to the applicable Trustee) a transfer agent in a Place of Payment
for such series located outside the United States. The Company may at any time
designate additional transfer agents with respect to any series of Debt
Securities. (Section 1002 of the Indentures)
In the event of any redemption, the Company shall not be required to (i)
issue, register the transfer of or exchange Debt Securities of any series during
a period beginning at the opening of business 15 days before any selection of
Debt Securities of that series to be redeemed and ending at the close of
business on (A) if Debt Securities of the series are issuable only as Registered
Securities, the day of mailing of the relevant notice of redemption and (B) if
Debt Securities of the series are issuable as Bearer Securities, the day of the
first publication of the relevant notice of redemption, or, if Debt Securities
of the series are also issuable as Registered Securities and there is no
publication, the mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Registered Security, or portion thereof, called for
redemption, except the unredeemed portion of any Registered Security being
redeemed in part; or (iii) exchange any Bearer Security called for redemption,
except to exchange such Bearer Security for a Registered Security of that series
and like tenor which is immediately surrendered for redemption. (Section 305 of
the Indentures)
PAYMENT AND PAYING AGENTS
Unless otherwise provided in the related Prospectus Supplement, principal,
premium, if any, and interest, if any, and Additional Amounts, if any, on Bearer
Securities will be payable, subject to any applicable laws and regulations, at
the offices of such Paying Agents outside the United States as the Company may
designate from time to time. (Section 1002 of the Indentures) Unless otherwise
provided in the Prospectus Supplement, payment of interest and certain
Additional Amounts on Bearer Securities on any Interest Payment Date will be
made only against surrender of the coupon relating to such Interest Payment
Date. (Section 1001 of the Indentures) Unless otherwise provided in the
Prospectus Supplement, no payment with respect to any Bearer Security will be
made at any office or agency of the Company in the United States or by check
mailed to any address in the United States or by transfer to an account
maintained with a bank located in the United States. Notwithstanding the
foregoing, payments of principal, interest, if any, and Additional Amounts, if
any, in respect of Bearer Securities payable in U.S. dollars will be made at the
office of the Company's Paying Agent in New York, New York, if (but only if)
payment of the full amount thereof in U.S. dollars at all offices or agencies
outside the United States is illegal or effectively precluded by exchange
controls or other similar restrictions. (Section 1002 of the Indentures)
Unless otherwise provided in the related Prospectus Supplement, principal,
premium, if any, and interest, if any, and Additional Amounts, if any, on
Registered Securities will be payable at any office or agency to be maintained
by the Company in New York, New York, except that at the option of the Company
interest (including Additional Amounts, if any) may be paid (i) by check mailed
to the address of the Person entitled thereto as such address shall appear in
the Security Register or (ii) by wire transfer to an account maintained by the
Person entitled thereto as specified in the Security Register. (Sections 301,
1001 and 1002 of the Indentures) Unless otherwise provided in the Prospectus
Supplement, payment of any installment of interest on Registered Securities will
be made to the Person in whose name such Registered Security is registered at
the close of business on the Regular Record Date for such interest. (Section 307
of the Indentures)
Any Paying Agents outside the United States and any other Paying Agents in
the United States initially designated by the Company for the Offered Debt
Securities will be named in the Prospectus Supplement. The Company may at any
time designate additional Paying Agents or rescind the designation of any Paying
Agent or approve a change in the office through which any Paying Agent acts,
except that, if Debt Securities of a series are issuable only as Registered
Securities, the Company will be required to maintain a Paying Agent in each
Place of Payment for such series and, if Debt Securities of a series are also
issuable as Bearer Securities, the Company will be required to maintain (i) a
Paying Agent in New York, New York for payments with
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<PAGE> 24
respect to any Registered Securities of the series (and for payments with
respect to Bearer Securities of the series in the circumstances described above,
but not otherwise), and (ii) a Paying Agent in a Place of Payment located
outside the United States where Debt Securities of such series and any coupons
appertaining thereto may be presented and surrendered for payment; PROVIDED
that, if the Debt Securities of such series are listed on any stock exchange
located outside the United States and such stock exchange shall so require, the
Company will maintain a Paying Agent in any required city located outside the
United States for the Debt Securities of such series. (Section 1002 of the
Indentures)
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with, or on behalf
of, a Depository identified in the Prospectus Supplement relating to such
series.
The Company anticipates that the following provisions will apply to all
depository arrangements. Additional or differing terms of the depository
arrangement with respect to a series of Debt Securities will be described in the
Prospectus Supplement relating to such series.
Global Securities will be deposited with, or on behalf of, the Depository
and registered in the name of the Depository's nominee. Except as set forth
below, a Global Security may not be transferred except as a whole among the
Depository and its nominees or by the Depository or any nominee to a successor
of the Depository or a nominee of such successor.
The Depository holds securities of its participants to facilitate the
clearance and settlement of securities transactions among its participants in
such securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. Upon the issuance of a Global Security, the Depository for such
Global Security will credit, on its book-entry registration and transfer system,
the respective principal amounts of the Debt Securities represented by such
Global Security. Such accounts shall be designated by the underwriters or agents
with respect to such Debt Securities or by the Company if such Debt Securities
are offered and sold directly by the Company. Ownership of beneficial interests
in a Global Security will be limited to persons that have accounts with the
Depository for such Global Security ("participants") or persons that may hold
interests through participants. Ownership of beneficial interests in such Global
Security will be shown on, and the transfer of that ownership will be effected
only through, records maintained by the Depository (with respect to interests of
participants) for such Global Security and on the records of participants (with
respect to interests of persons other than participants). The laws of some
states require that certain purchasers of securities take physical delivery of
such securities in definitive form. Such limits and such laws may impair the
ability to transfer beneficial interests in a Global Security.
So long as the Depository for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
applicable Indenture governing such Debt Securities. Except as provided below,
owners of beneficial interests in a Global Security will not be entitled to have
Debt Securities of the series represented by such Global Security registered in
their names, will not receive or be entitled to receive physical delivery of
Debt Securities of such series in definitive form and will not be considered the
owners or holders thereof under the Indenture governing such Debt Securities.
Accordingly, each person owning a beneficial interest in a Global Security must
rely on the procedures of the Depository and, if such person is not a
participant, on the procedures of the participant through which such person owns
its interests, to exercise any rights of a holder under the applicable Indenture
or such Global Security. The Company understands that, under existing industry
practice, in the event that the Company requests any action of holders
represented by a Global Security or an owner of a beneficial interest in a
Global Security desires to take any action that the holder of such Global
Security is entitled to take, the Depository would authorize the participants to
take such action and that the participants would authorize beneficial owners
owning through such participants to take such action or would otherwise act upon
the instructions of beneficial owners owning through them.
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Principal of, premium, if any, and interest payments on Debt Securities
represented by a Global Security registered in the name of a Depository or its
nominee will be made to the Depository or its nominee, as the case may be, as
the registered owner of the Global Security representing such Debt Securities.
Neither the Company, the Trustee for such Debt Securities, any Paying Agent nor
the Security Registrar for such Debt Securities will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests of the Global Security for such Debt
Securities or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
The Company expects that the Depository for a series of Debt Securities
represented by a Global Security or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of a Global Security, will
credit immediately participants' accounts with payments in amounts proportionate
to their respective beneficial interests in the principal amount of the Global
Security for such Debt Securities as shown on the records of such Depository or
its nominee. The Company also expects that payments by participants to owners of
beneficial interests in such Global Security 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 in bearer form or registered
in "street name", and will be the responsibility of such participants.
If the Depository for a series of Debt Securities is at any time unwilling
or unable to continue as depository and a successor depository is not appointed
by the Company within 90 days, the Company will issue Debt Securities of such
series in definitive form in exchange for each Global Security representing such
series of Debt Securities. In addition, the Company may at any time determine
not to have Debt Securities represented by a Global Security, and, in such
event, will issue Debt Securities in certificated form in exchange for the
Global Security representing such Debt Securities. In any such instance, an
owner of a beneficial interest in a Global Security will be entitled to physical
delivery in definitive form of Debt Securities of the series represented by such
Global Security equal in principal amount to such beneficial interest and to
have such Debt Securities registered in its name. Debt Securities of such series
so issued in definitive form will be issued in denominations, unless otherwise
specified by the Company, of U.S. $1,000 and integral multiples thereof.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
Under the terms of the Senior Indenture, the Company will not, and will not
permit any Restricted Subsidiary (as defined), to sell or transfer any
manufacturing plant owned by the Company or any Restricted Subsidiary with the
intention of taking back a lease on such property unless: (i) the sale or
transfer of property is made within 120 days after the later of the date of (a)
the acquisition of such property, (b) the completion of construction of such
property or (c) the commencement of full operation thereof; (ii) such lease has
a term, including permitted extensions and renewals, of not more than three
years, and it is intended that the use by the Company or the Restricted
Subsidiary of the manufacturing plant covered by such lease will be discontinued
on or before the expiration of such term; (iii) the amount realized from such
sale or transfer, together with the value (as defined) of then outstanding sale
and leaseback transactions not otherwise permitted by the Senior Indenture and
the outstanding aggregate principal amount of mortgage, pledge or lien
indebtedness not otherwise permitted by the Senior Indenture shall not exceed
10% of Consolidated Net Tangible Assets (as defined); or (iv) the Company shall
cause an amount equal to the value (as defined) of the manufacturing plant to be
sold or transferred and leased to be applied to the retirement (other than any
mandatory retirement) within 120 days of the effective date of such sale and
leaseback transaction of either the Indenture Securities or other funded
indebtedness of the Company which is equal in rank to the Indenture Securities,
or both. (Section 1010 of the Senior Indenture)
LIMITATION ON LIENS
Under the terms of the Senior Indenture, with certain exceptions, the
Company will not, directly or indirectly, and the Company will not permit any
Restricted Subsidiary to, create or assume any mortgage, pledge or other lien of
or upon any of its or their assets unless all of the outstanding Indenture
Securities of each series are secured by such mortgage, pledge or lien equally
and ratably with any and all other obligations and indebtedness thereby secured
for so long as any such other obligations and indebtedness shall be so
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secured. Among the exceptions is (i) the creation of any mortgage or other lien
on any property of the Company or any Restricted Subsidiary to secure
indebtedness incurred prior to, at the time of, or within 120 days after the
later of the acquisition, the completion of construction or the commencement of
full operation of such property and (ii) mortgages or liens on any property
acquired by the Company or any Restricted Subsidiary after the date of the
Senior Indenture existing at the time of such acquisition; provided that such
indebtedness so secured shall have been incurred for the purpose of financing
all or any part of the acquisition or construction of any such property. In
addition, the Company or any Restricted Subsidiary may create or assume any
mortgage, pledge or other lien not otherwise permitted by the Senior Indenture
for the purpose of securing indebtedness or other obligations so long as the
aggregate of all such indebtedness and other obligations then outstanding,
together with the value of all outstanding sale and leaseback transactions not
otherwise permitted, shall not exceed 10% of Consolidated Net Tangible Assets.
(Section 1009 of the Senior Indenture)
DEFINITIONS
The term "Consolidated Net Tangible Assets" is defined in the Senior
Indenture as total assets of the Company and its consolidated subsidiaries,
including the investment in (at equity) and the net amount of advances to and
accounts receivable from corporations which are not consolidated subsidiaries
less the following: (i) current liabilities of the Company and its consolidated
subsidiaries, including an amount equal to indebtedness required to be redeemed
by reason of any sinking fund payment due in 12 months or less from the date as
of which current liabilities are to be determined; (ii) all other liabilities of
the Company and its consolidated subsidiaries other than Funded Debt (as
defined), deferred income taxes and liabilities for employee post-retirement
health plans recognized in accordance with Statement of Financial Accounting
Standards No. 106; (iii) all depreciation and valuation reserves and all other
reserves (except for reserves for contingencies which have not been allocated to
any particular purpose) of the Company and its consolidated subsidiaries; (iv)
the book amount of all segregated intangible assets of the Company and its
consolidated subsidiaries, including, but without limitation, such items as
goodwill, trademarks, trade names, patents and unamortized debt discount and
expense less unamortized debt premium; and (v) appropriate adjustments on
account of minority interests of other persons holding stock in subsidiaries.
Consolidated Net Tangible Assets is to be determined on a consolidated basis in
accordance with generally accepted accounting principles and as provided in the
Senior Indenture. (Section 101 of the Senior Indenture)
The term "Restricted Subsidiary" is defined in the Senior Indenture as any
subsidiary of the Company except (i) any subsidiary substantially all the assets
of which are located, or substantially all of the business of which is carried
on, outside of the United States and Canada, or any subsidiary substantially all
the assets of which consist of stock or other securities of such a subsidiary,
(ii) any subsidiary principally engaged in the business of financing notes and
accounts receivable and any subsidiary substantially all the assets of which
consist of the stock or other securities of such subsidiary or (iii) any
subsidiary acquired or organized after the date of the Indenture, unless the
Board of Directors of the Company has designated it as a Restricted Subsidiary
and such designation will not result in the breach of any covenant or agreement
in the Senior Indenture. (Section 101 of the Senior Indenture)
The term "Funded Debt" is defined in the Senior Indenture as indebtedness
for borrowed money owed or guaranteed by the Company or any consolidated
subsidiary, and any other indebtedness which under generally accepted accounting
principles would appear as debt on the balance sheet of such corporation, which
matures by its terms more than twelve months from the date as of which Funded
Debt is to be determined or is extendible or renewable at the option of the
obligor to a date more than twelve months from the date as of which Funded Debt
is to be determined. (Section 101 of the Senior Indenture)
For purposes of the Limitation on Liens and Limitation on Sale and
Leaseback Transactions, the term "value" with respect to a manufacturing plant
is defined in the Senior Indenture as the amount equal to the greater of (i) the
net proceeds of the sale or transfer of such manufacturing plant or (ii) the
fair value of such manufacturing plant at the time of entering into such Sale
and Leaseback Transaction, as determined by the Board of Directors of the
Company, in either case divided first by the number of full years of the term of
the lease and then multiplied by the number of full years of such term remaining
at the time of determination, without regard to renewal or extension options
contained in such lease. (Section 1010 of the Senior Indenture)
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CONSOLIDATION, MERGER OR SALE OF ASSETS
Subject to the limitation set forth in the following paragraph, under each
Indenture, the Company may consolidate or merge with or into any other
corporation or sell or convey the property of the Company as an entirety, or
substantially as an entirety, to any other Person; provided that any such
consolidation, merger, sale or conveyance shall be upon the condition that (i)
immediately after such consolidation, merger, sale or conveyance the corporation
(whether the Company or such other corporation) formed by or surviving any such
consolidation or merger, or the Person to which such sale or conveyance shall
have been made, shall not be in default in the performance or observance of any
of the terms, covenants and conditions of the applicable Indenture to be kept or
performed by the Company; (ii) the corporation (if other than the Company)
formed by or surviving any such consolidation or merger, or the Person to which
such sale or conveyance shall have been made (if such Person is a Corporation),
shall be a corporation organized under the laws of the United States or any
State thereof; and (iii) the due and punctual payment of the principal of (and
premium, if any) and interest on all of the Indenture Securities of each series,
according to their tenor, and the due and punctual performance and observance of
all the covenants and conditions of the applicable Indenture to be performed or
observed by the Company, shall be expressly assumed, by supplemental indenture
complying with the requirements of such Indenture, satisfactory in form to the
Senior Trustee or Subordinated Trustee, as the case may be, executed and
delivered to such Trustee by the corporation formed by such consolidation, or
into which the Company shall have been merged, or by the Person which shall have
acquired such property. (Section 801 of the Indentures)
If, upon any consolidation or merger of the Company with or into any other
corporation, or upon any consolidation or merger of any other corporation with
or into the Company or upon any sale or conveyance of the properties and assets
of the Company as an entirety or substantially as an entirety to any other
Person, any of the properties or assets owned by the Company or any Restricted
Subsidiary immediately prior thereto would thereupon become subject to any
mortgage, pledge, encumbrance or lien not permitted by the provisions described
under "Limitation on Liens" above, the Company, prior to such consolidation,
merger, sale or conveyance, will secure, or cause to be secured, all of the
outstanding Indenture Securities of each series (equally and ratably with any
other indebtedness of the Company then entitled thereto) by a direct lien on all
such properties and assets of the Company prior to all liens other than any
theretofore existing thereon. (Section 803 of the Senior Indenture)
In the event a successor corporation assumes the obligations of the
Company, such successor corporation shall succeed to and be substituted for the
Company under the Indentures and under the Indenture Securities. (Section 802 of
the Indentures)
DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise provided in the related Prospectus Supplement, under each
Indenture the Company may elect either (i) to defease and be discharged from any
and all obligations with respect to the Debt Securities of any series (except
for the obligations to register the transfer or exchange of such Debt
Securities, to replace mutilated, destroyed, lost or stolen Debt Securities, to
maintain an office or agency in respect of the Debt Securities and to hold
moneys for payment in trust) ("defeasance") or (ii) in the case of the Senior
Indenture, to be released from its obligations with respect to such Debt
Securities under Sections 1009 and 1010 of the Senior Indenture (being the
restrictions described under "Limitation on Sale and Leaseback Transactions" and
"Limitation on Liens", respectively) and, in the case of each Indenture, if
provided pursuant to Section 301 of such Indenture, its obligations with respect
to any other covenant, and any omission to comply with such obligations
thereafter shall not constitute an Event of Default with respect to Debt
Securities of such series ("covenant defeasance"), in either case upon the
irrevocable deposit with the Senior Trustee or the Subordinated Trustee, as the
case may be (or other qualifying trustee), in trust, of money and/or U.S.
Government Obligations (as defined) which through the payment of principal and
interest in accordance with their terms will provide money in an amount
sufficient to pay the principal of (and premium, if any) and interest on such
Debt Securities, and any mandatory sinking fund or analogous payments thereon,
on the scheduled due dates therefor. Such a trust may only be established if,
among other things, the Company has delivered to the Senior Trustee or the
Subordinated Trustee, as the case may be, an Opinion of Counsel (as specified in
the Indentures) to the effect that the holders of such Debt Securities will not
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recognize income, gain or loss for United States federal income tax purposes as
a result of such defeasance or covenant defeasance and will be subject to United
States federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such defeasance or covenant defeasance
had not occurred. Such opinion, in the case of defeasance, must refer to and be
based upon a ruling of the Internal Revenue Service or a change in applicable
United States federal income tax law occurring after the date of the Indentures.
(Article Fourteen of the Indentures)
In the event the Company effects covenant defeasance with respect to Debt
Securities of any series and the Debt Securities of such series are declared due
and payable because of the occurrence of any Event of Default other than the
Event of Default described in clause (iv) under "Events of Default" with respect
to Sections 1009 and 1010 of the Senior Indenture (which Sections would no
longer be applicable to Debt Securities of that series), the amount of money and
U.S. Government Obligations on deposit with the Senior Trustee or the
Subordinated Trustee, as the case may be, will be sufficient to pay amounts due
on the Debt Securities of such series at the time of their Stated Maturity but
may not be sufficient to pay amounts due on the Debt Securities of such series
at the time of the acceleration resulting from such Event of Default. However,
the Company would remain liable to make payment of such amounts due at the time
of acceleration.
The Prospectus Supplement may further describe the provisions, if any,
permitting such defeasance or covenant defeasance with respect to the Debt
Securities of a particular series.
MODIFICATION OF THE INDENTURES
The Company and the Senior Trustee or the Subordinated Trustee, as the case
may be, with the consent of the holders of not less than a majority in aggregate
principal amount of the outstanding Debt Securities of each series to be
affected, may enter into supplemental indentures which modify the indenture
under which such Debt Securities were issued or any supplemental indenture or
the rights of the holders of the Debt Securities of such series; provided that
no such modification shall, without the consent of the holder of each Debt
Security so affected, (i) extend the fixed maturity of any Debt Securities, or
reduce the principal amount thereof, or reduce the rate or extend the time of
payment of interest thereon, or reduce any premium payable upon the redemption
thereof or change the currency of payment of principal or interest (or premium,
if any) or impair the right to institute suit for the enforcement of any such
payment, (ii) reduce the aforesaid percentage of the Debt Securities of any
series, the holders of which are required to consent to any such modification or
(iii) in the case of Convertible Subordinated Securities, impair any right to
convert such Debt Securities into Common Shares of the Company. (Section 902 of
the Indentures)
The holders of a majority in aggregate principal amount of Outstanding Debt
Securities of a series issued under either Indenture have the right to waive
compliance by the Company with certain covenants contained in such Indenture
applicable to such series. (Section 1011 of the Senior Indenture and Section
1008 of the Subordinated Indenture)
Modification and amendment of either Indenture may be made by the Company
and the applicable Trustee thereunder, without the consent of any holder, for
any of the following purposes: (i) to evidence the succession of another Person
to the Company as obligor under such Indenture; (ii) to add to the covenants of
the Company for the benefit of the holders of all or any series of Indenture
Securities issued under such Indenture; (iii) to add Events of Default for the
benefit of the holders of all or any series of such Indenture Securities; (iv)
to add to or change any of the provisions of the applicable Indenture to
facilitate the issuance of Bearer Securities; (v) to change or eliminate any
provisions of the applicable Indenture, provided that any such change or
elimination shall become effective only when there are no such Indenture
Securities Outstanding of any series created prior thereto which are entitled to
the benefit of such provision; (vi) to secure Senior Securities pursuant to the
requirements of Section 803 or Section 1009 of the Senior Indenture, or
otherwise; (vii) to establish the form or terms of such Indenture Securities of
any series and any related coupons; (viii) to provide for the acceptance of
appointment by a successor trustee or facilitate the administration of the
trusts under the applicable Indenture by more than one trustee; (ix) to close
the applicable Indenture with respect to the authentication and delivery of
additional series of Indenture Securities; (x) to cure any ambiguity, defect or
inconsistency in the applicable Indenture, provided such
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<PAGE> 29
action does not adversely affect the interests of holders of such Indenture
Securities of any series in any material respect; or (xi) to supplement any of
the provisions of the applicable Indenture to the extent necessary to permit or
facilitate defeasance and discharge of any series of such Indenture Securities,
provided that such action shall not adversely affect the interests of the
holders of any such Indenture Securities in any material respect. (Section 901
of the Indentures)
Each Indenture provides that in determining whether the holders of the
requisite principal amount of Indenture Securities of a series then Outstanding
have given any request, demand, authorization, direction, notice, consent or
waiver thereunder or whether a quorum is present at a meeting of holders of
Indenture Securities, (i) the principal amount of an Original Issue Discount
Security that shall be deemed to be outstanding shall be the amount of the
principal thereof that would be due and payable as of the date of such
determination upon acceleration of the Maturity thereof, (ii) the principal
amount of an Indenture Security denominated in one or more foreign Currencies
shall be deemed to be the U.S. dollar equivalent, determined on the date of
original issuance of such Indenture Security, of the principal amount (or, in
the case of an Original Issue Discount Security, the U.S. dollar equivalent on
the date of original issuance of such Original Issue Discount Security of the
amount determined as provided in (i) above) of such Indenture Security, and
(iii) the principal amount that shall be deemed outstanding of an Indenture
Security the terms of which provide that the principal amount thereof payable at
Stated Maturity may be more or less than the principal face amount thereof at
original issuance (an "Indexed Security") shall be deemed to be the principal
face amount of such Indenture Security at original issuance. (Section 101 of the
Indentures)
The Indentures contain provisions for convening meetings of the holders of
Indenture Securities of a series if Indenture Securities of that series are
issuable as Bearer Securities. (Section 1501 of the Senior Indenture and Section
1701 of the Subordinated Indenture) A meeting may be called at any time by the
applicable Trustee, and also, upon request, by the Company or the holders of at
least 10% in principal amount of the Indenture Securities of such series
Outstanding, in any such case upon notice given as provided in the applicable
Indenture. (Section 1502 of the Senior Indenture and Section 1702 of the
Subordinated Indenture) Except for any consent that must be given by the holder
of each Indenture Security affected thereby, as described above, any resolution
presented at a meeting or adjourned meeting at which a quorum is present may be
adopted by the affirmative vote of the holders of a majority in principal amount
of the Indenture Securities of that series; PROVIDED, HOWEVER, that any
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
holders of a specified percentage, which is less than a majority, in principal
amount of Indenture Securities of a series may be adopted at a meeting or
adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the holders of such specified percentage in principal amount
of the Indenture Securities of that series. Any resolution passed or decision
taken at any meeting of holders of Indenture Securities of any series duly held
in accordance with the applicable Indenture will be binding on all holders of
Indenture Securities of that series and the related coupons. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
persons holding or representing a majority in principal amount of the Indenture
Securities of a series; PROVIDED, HOWEVER, that if any action is to be taken at
such meeting with respect to a consent or waiver which may be given by the
holders of not less than a specified percentage in principal amount of the
Indenture Securities of a series, the persons holding or representing such
specified percentage in principal amount of the Indenture Securities of such
series will constitute a quorum.
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of holders of Indenture Securities of any series with respect to any
request, demand, authorization, direction, notice, consent, waiver or other
action that the applicable Indenture expressly provides may be made, given or
taken by the holders of a specified percentage in principal amount of all
Outstanding Indenture Securities affected thereby, or of the holders of such
series and one or more additional series: (i) there shall be no minimum quorum
requirement for such meeting and (ii) the principal amount of the Outstanding
Indenture Securities of such series that vote in favor of such request, demand,
authorization, direction, notice, consent, waiver or other action shall be taken
into account in determining whether such request, demand, authorization,
direction, notice, consent, waiver or other action has been made, given or taken
under such Indenture. (Section 1504 of the Senior Indenture and Section 1704 of
the Subordinated Indenture)
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EVENTS OF DEFAULT
The Indentures define an Event of Default with respect to any series of
Debt Securities as being any one of the following unless it is inapplicable or
is specifically deleted or modified in the supplemental indenture under which
such series is issued or in the form of Debt Securities of such series: (i)
failure to pay interest when due, continued for 30 days; (ii) failure to pay
principal when due and payable either at maturity, upon redemption, by
declaration or otherwise; (iii) failure to make or satisfy any sinking fund
payment or analogous obligation when due; (iv) failure to perform in any
material respect any other covenant or agreement contained in such Indenture for
60 days after written notice by the Trustee or the holders of at least 25% in
aggregate principal amount of the outstanding Debt Securities of such series;
(v) acceleration of any indebtedness of the Company upon an event of default
under the terms of the instrument under which such indebtedness is issued,
unless the Trustee has been notified by the Company that such acceleration has
been cured or annulled or is being contested as provided in such Indenture; (vi)
certain events of bankruptcy, insolvency or reorganization of the Company; and
(vii) any other Event of Default provided in the supplemental indenture under
which such series of Debt Securities is issued or in the form of Debt Security
for such series. No Event of Default with respect to a particular series of Debt
Securities necessarily constitutes an Event of Default with respect to any other
series of Debt Securities. (Section 501 of the Indentures)
Within 90 days after the occurrence of any default with respect to any
series of Debt Securities, the applicable Trustee must give the holders of such
series notice of all such defaults known to such Trustee, unless cured or waived
before the giving of such notice; provided that, except in the case of default
in the payment of principal of or interest on any of the Debt Securities of such
series, the applicable Trustee may withhold such notice. (Section 315 of the
Trust Indenture Act)
In case an Event of Default shall occur (which shall not have been cured or
waived), the applicable Trustee will be required to exercise such of its rights
and powers under the applicable Indenture and to use the degree of care and
skill in its exercise as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs. (Section 315 of the Trust
Indenture Act)
Subject to the foregoing, the Trustees are under no obligation to exercise
any of their rights or powers under the Indentures at the request of holders of
the Debt Securities, unless the holders shall have offered to the applicable
Trustee reasonable security or indemnity. (Section 602 of the Indentures)
RIGHTS UPON DEFAULT
No holder of Debt Securities of any series will have any right under either
Indenture to institute any suit, action or proceeding with respect to such
Indenture or for any remedy thereunder, unless such holder previously shall have
given to the applicable Trustee written notice of default and of the continuance
thereof and the holders of not less than 25% in aggregate principal amount of
the then outstanding Debt Securities of such series (or, in the case of an Event
of Default specified in clause (v) or (vi) under "Events of Default", the
holders of at least 25% in aggregate principal amount of the then Outstanding
Indenture Securities) shall have made written request upon such Trustee to
institute such action, suit or proceeding in its own name as Trustee thereunder
and shall have offered to such Trustee reasonable indemnity and the Trustee for
60 days after receipt of such notice shall have neglected or refused to
institute any such suit, action or proceeding. (Section 507 of the Indentures)
In case any Event of Default shall have occurred and shall be continuing
with respect to a particular series of the Debt Securities, the applicable
Trustee or the holders of at least 25% in aggregate principal amount of the then
outstanding Debt Securities of such series (or, in the case of an Event of
Default specified in clause (v) or (vi) under "Events of Default", the holders
of at least 25% in aggregate principal amount of the then Outstanding Indenture
Securities) may declare the principal of such series (or, in the case of
Original Issue Discount Securities, a portion of the principal) to be
immediately due and payable. Under certain circumstances, the holders of a
majority in aggregate principal amount of the Debt Securities of such series may
waive all defaults with respect to such series and may rescind and annul such
declaration and its consequences. (Section 502 of the Indentures)
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The holders of a majority in aggregate principal amount of the outstanding
Debt Securities of any series will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the applicable
Trustee, or exercising any trust or power conferred on such Trustee. (Section
512 of the Indentures) Prior to the declaration of the acceleration of the
maturity, the holders of a majority in aggregate principal amount of the
outstanding Debt Securities of any series may on behalf of all holders of the
Debt Securities of such series waive any past default and its consequences with
respect to such series, except a default in the payment of principal, premium or
interest. (Section 513 of the Indentures)
EVIDENCE AS TO COMPLIANCE
Each Indenture requires that the Company deliver to the applicable Trustee,
upon becoming aware of any default with respect to any covenant, agreement or
condition contained in such Indenture, a statement specifying such default and
that the Company deliver to the applicable Trustee each year a statement as to
whether or not, to the knowledge of the officers signing such statement, the
Company is in default with respect to any such covenant, agreement or condition.
(Section 1004 of the Indentures)
CONCERNING THE TRUSTEES
The Senior Trustee and the Subordinated Trustee may each resign or be
removed with respect to one or more series of Debt Securities and a successor
trustee may be appointed to act with respect to such series. (Section 608 of the
Indentures) In the event that two or more persons are acting as trustee with
respect to different series of Debt Securities under either one of the
Indentures, each such trustee shall be a trustee of a trust under such Indenture
separate and apart from the trust administered by any other such trustee.
(Section 609 of the Indentures) Any action described herein to be taken by the
"Trustee" may then be taken by each such trustee with respect to, and only with
respect to, the one or more series of Debt Securities for which it is trustee.
The First National Bank of Chicago ("First Chicago") has agreed to serve as
the Trustee under both Indentures. First Chicago is among the banks with which
the Company and certain of its subsidiaries maintain banking relationships in
the ordinary course of business, both in the United States and abroad. First
Chicago is trustee under the indenture under which the Company's 8.10%
Debentures due 2022 (the "8.10% Debentures") are outstanding.
In the event that a default occurs under either Indenture or under the
indenture which governs the 8.10% Debentures (the "8.10% Debentures Indenture")
at a time when Indenture Securities are outstanding under the Subordinated
Indenture, unless the default is cured or waived within 90 days, the provisions
of the TIA require that First Chicago resign as Trustee under either the
Subordinated Indenture or both the Senior Indenture and the 8.10% Debentures
Indenture. In such circumstance, the Company expects that First Chicago would
resign as Trustee under the Subordinated Indenture.
CONVERSION PROVISIONS OF CONVERTIBLE SUBORDINATED SECURITIES
The holder of Convertible Subordinated Securities of a specified series
will have the right, exercisable at any time up to and including the date
specified in the applicable Prospectus Supplement (except that, in the event
that such Securities or portion thereof shall be called for redemption, such
right shall terminate at the close of business on the day prior to the specified
redemption date) at such holder's option to convert such Securities at the
principal amount thereof (or any portion thereof that is an integral multiple of
$1,000) into Common Shares, at the conversion price set forth in the applicable
Prospectus Supplement. Conversions of the Convertible Subordinated Securities
may be effected by delivering them to the office or agency of the Company
maintained for such purpose. Except as described in the applicable Prospectus
Supplement, on conversion no adjustment for interest or dividends is to be made,
but if any holder surrenders a Convertible Subordinated Security for conversion
between the record date for the payment of an installment of interest and the
next interest payment date (unless called for redemption in whole or in part
during such period) such a Convertible Subordinated Security, when surrendered
for conversion, must be accompanied by payment of an amount equal to the
interest thereon which the registered holder on such record date is to receive
on such interest payment date. No fractional Common Shares will be issued upon
conversion, but an appropriate
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amount in cash will be paid in lieu of such fractional shares. The Subordinated
Indenture contains provisions requiring adjustment of the conversion price in
the event of (i) the subdivision, combination or reclassification of the
outstanding Common Shares, (ii) the declaration of any dividend on the Common
Shares in shares of the Company's capital stock, (iii) the issuance of certain
rights or warrants to all holders of Common Shares entitling them to acquire
Common Shares within 45 days after the record date for determining holders
entitled to receive such rights or warrants at less than the current market
price (as defined in the Subordinated Indenture) of the Common Shares and (iv)
the distribution to holders of Common Shares of evidence of indebtedness or
assets (excluding cash dividends or other distributions made out of earned
surplus) or rights or warrants to subscribe for or purchase Common Shares (other
than those referred to in clause (iii) above). No adjustment in the conversion
price will be made for regular quarterly or other periodic or recurring cash
dividends or distributions or for cash dividends or distributions to the extent
paid from retained earnings. The Company is not required to make adjustments in
the conversion price of less than 1% of such price, but any adjustment that
would otherwise be required to be made will be taken into account in the
computation of any subsequent adjustment. (Article 15 of the Subordinated
Indenture)
If at any time the Company makes a distribution of property to its
shareholders that would be taxable to such shareholders as a dividend for United
States federal income tax purposes (including, for example, a distribution of
evidences of indebtedness or assets of the Company, but generally not including
a stock dividend or a distribution of rights to subscribe for Common Shares)
and, pursuant to the anti-dilution provisions of the Subordinated Indenture, the
Conversion Rate is increased (or the Holders of the Convertible Subordinated
Securities otherwise participate in such distribution), such increase (or
participation) may be treated as a taxable dividend to holders of the
Convertible Subordinated Securities. In addition, if the Conversion Rate is
increased at the discretion of the Company, such increase may result in taxable
income for the holders of the Convertible Subordinated Securities.
SUBORDINATION PROVISIONS
Payment of the principal of (including any sinking fund payments), premium,
if any, and interest on the Convertible Subordinated Securities will be
subordinated in right of payment, as set forth in the Subordinated Indenture, to
the prior payment in full of Senior Indebtedness of the Company, and no payment
with respect to the Convertible Subordinated Securities can be made by the
Company while a default exists with respect to Senior Indebtedness of the
Company. Senior Indebtedness is defined in the Subordinated Indenture as (i)
indebtedness of the Company theretofore or thereafter created, incurred, assumed
or guaranteed for money borrowed from banks or other lending institutions and
any other indebtedness or obligation of the Company evidenced by a bond,
debenture, note or other similar instrument, including without limitation over-
drafts, letters of credit issued for the account of the Company and commercial
paper, (ii) any other indebtedness constituting purchase money indebtedness for
the payment of which the Company is directly or contingently liable (excluding
trade accounts payable), (iii) any direct or contingent indebtedness or
obligation represented by guarantees or instruments having a similar effect
entered into by the Company (whether prior to the date of the Subordinated
Indenture or thereafter) with reference to lease or purchase money obligations
of any Subsidiary or any affiliate of the Company or any other corporation as to
which the Company holds or has an option to purchase 50% or more of the
outstanding capital stock, and (iv) renewals, extensions and refundings of any
such indebtedness, unless in any such case it is provided by the terms of the
instrument creating or evidencing such indebtedness that such indebtedness is
made on a parity with or is junior in right of payment to the Subordinated
Securities. With respect to the Company, any indebtedness which becomes
indebtedness of the Company by operation of merger, consolidation or other
acquisition, shall constitute Senior Indebtedness if such indebtedness would
have been Senior Indebtedness had it been issued by the Company. By reason of
such subordination, in the event of insolvency, holders of Senior Indebtedness
of the Company may receive more, ratably, and holders of the Subordinated
Securities may receive less, ratably, than the other creditors of the Company.
At January 31, 1994, the outstanding amount of Senior Indebtedness of the
Company was approximately $1,609,473,000. There is no limitation on the issuance
of Senior Indebtedness in the Subordinated Indenture. (Article 16 of the
Subordinated Indenture)
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DESCRIPTION OF COMMON SHARES
The following is a summary of certain of the provisions concerning the
Common Shares contained in the Company's Amended Articles of Incorporation
("Articles") and its Amended Regulations ("Regulations"), as affected by debt
agreements with certain lenders. Reference is made to such Articles and
Regulations, which are exhibits to the Registration Statement, for a full and
complete statement of such provisions and rights, and the following statements
are qualified in their entirety by such reference.
AUTHORIZED NUMBER
The Articles authorize the issuance of up to 150,000,000 Common Shares. At
the close of business on February 28, 1994, there were 72,388,454 Common Shares
issued and outstanding. See "Recent Developments -- Public Offering of Common
Shares." The outstanding Common Shares are fully paid and non-assessable, and
shareholders are not subject to any liability for calls and assessments. The
Company intends to seek shareholder approval at the 1994 annual meeting of
shareholders to increase the total number of authorized Common Shares to
300,000,000. The Company does not have any current plans to issue any such
additional shares. The Articles also authorize the issuance of up to 14,106,394
shares of preferred stock ("Preferred Shares"). Currently, there are no
Preferred Shares issued and outstanding.
DIVIDEND RIGHTS
Holders of Common Shares are entitled to receive such dividends as may be
declared by the Company's Board of Directors subject to provisions of law.
VOTING RIGHTS
Each Common Share entitles the holder to one vote, with the right of
cumulative voting in the election of directors.
Notwithstanding any provision of law requiring for any action the vote of a
designated proportion of the voting power of the Company, the Articles provide
that such action may be taken by the vote of the holders of shares entitling
them to exercise a majority of the voting power of the Company, except in each
case as is otherwise provided in the Articles or Regulations. The Articles and
Regulations provide for a different proportion in order for shareholders to take
action in certain circumstances, including the following:
(1) Two-thirds vote required to fix or change the number of directors.
(2) Two-thirds vote required for removal of directors.
(3) Fifty percent of the outstanding shares required to call a special
meeting of shareholders.
(4) Two-thirds vote required to amend the Regulations without a
meeting.
(5) Two-thirds vote required to amend the provisions described in
items (1) through (4) above and this provision, unless such action is
recommended by two-thirds of the members of the Board of Directors.
(6) Two-thirds vote required to approve certain transactions, such as
the sale, exchange, lease, transfer or other disposition by the Company of
all, or substantially all, of its assets or business, or the consolidation
of the Company or its merger into another corporation, or certain other
mergers and majority share acquisitions.
(7) Two-thirds vote required to amend the provisions described in item
6, or this provision.
(8) If Preferred Shares are outstanding, two-thirds vote required by
the holders of Preferred Shares in certain circumstances relating to any
change in the Articles or Regulations adversely affecting the voting
powers, rights or preferences of the holders of such shares, relating to an
authorization of, or increase in the authorized number of, any shares of
any class ranking prior to the Preferred Shares or relating to the purchase
or redemption of less than all the then outstanding Preferred Shares, and a
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majority vote required by the holders of the Preferred Shares to authorize
any shares ranking on a parity with the Preferred Shares or an increase in
the authorized number of Preferred Shares.
(9) At all elections of directors the candidates receiving the
greatest number of votes shall be elected. See "Description of Preferred
Shares," below, for a discussion of the rights of the holders of such
shares to elect additional directors in certain circumstances.
The requirement of a two-thirds vote in certain circumstances may have the
effect of delaying, deferring or preventing a change in control of the Company.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, after the payment or provision for payment of the
debts and other liabilities of the Company and the preferential amounts to which
holders of the Company's Preferred Shares are entitled (if any such Preferred
Shares are then outstanding), the holders of the Common Shares are entitled to
share pro rata in the assets of the Company remaining for distribution to
shareholders.
MISCELLANEOUS RIGHTS, LISTING AND TRANSFER AGENTS
The Common Shares have no pre-emptive or conversion rights and there are no
redemption or sinking fund provisions applicable thereto.
The outstanding Common Shares are listed on the New York, Chicago, Pacific
and London Stock Exchanges. Application will be made for listing of such Common
Shares into which the Convertible Subordinated Securities or Preferred Shares
are convertible on such exchanges.
Society National Bank, headquartered in Cleveland, Ohio, is the transfer
agent and registrar for the Common Shares.
CLASSIFICATION OF BOARD OF DIRECTORS
The Board of Directors of the Company is divided into three approximately
equal classes, having staggered terms of office of three years each. The effect
of a classified Board of Directors, where cumulative voting is in effect, is to
require the votes of more shares to elect one or more members of the Board of
Directors than would be required if the Board of Directors were not classified.
Additionally, the effect of a classified Board of Directors may be to make it
more difficult to acquire control of the Company.
CERTAIN OHIO STATUTES
Various laws may affect the legal or practical ability of shareholders to
dispose of shares of the Company. Such laws include the Ohio statutory
provisions described below.
Chapter 1704 of the Ohio Revised Code prohibits an interested shareholder
(defined as a beneficial owner, directly or indirectly, of ten percent (10%) or
more of the voting power of any issuing public Ohio corporation) or any
affiliate or associate of an interested shareholder (as defined in Section
1704.01 of the Ohio Revised Code) from engaging in certain transactions with the
corporation during the three-year period after the interested shareholder's
share acquisition date. The prohibited transactions include mergers,
consolidations, majority share acquisitions, certain asset sales, loans, certain
sales of shares, dissolution, and certain reclassifications, recapitalizations,
or other transactions that would increase the proportion of shares held by the
interested shareholder. After expiration of the three-year period, the
corporation may participate in such a transaction with an interested shareholder
only if, among other things, (i) the transaction receives the approval of the
holders of two-thirds of all the voting shares and the approval of the holders
of a majority of the disinterested voting shares (shares not held by the
interested shareholder) or (ii) the transaction meets certain criteria designed
to ensure that the remaining shareholders receive fair consideration for their
shares. The prohibitions do not apply if, before the interested shareholder
becomes an interested shareholder, the board of directors of the corporation
approves either the interested shareholder's acquisition of shares or the
otherwise prohibited transaction. The restrictions also do not apply if a person
inadvertently becomes an
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interested shareholder or was an interested shareholder prior to the adoption of
the statute on April 11, 1990, unless, subject to certain exceptions, the
interested shareholder increases his, her or its proportionate share interest on
or after April 11, 1990.
Pursuant to Ohio Revised Code Section 1707.043, a public corporation formed
in Ohio may recover profits that a shareholder makes from the sale of the
corporation's securities within eighteen (18) months after making a proposal to
acquire control or publicly disclosing the possibility of a proposal to acquire
control. The corporation may not, however, recover from a person who proves in a
court of competent jurisdiction either (i) that his, her or its sole purpose in
making the proposal was to succeed in acquiring control of the corporation and
there were reasonable grounds to believe that such person would acquire control
of the corporation or (ii) such person's purpose was not to increase any profit
or decrease any loss in the stock and the proposal did not have a material
effect on the market price or trading volume of the stock. Also, before the
corporation may obtain any recovery, the aggregate amount of the profit realized
by such person must exceed $250,000. Any shareholder may bring an action on
behalf of the corporation if a corporation fails or refuses to bring an action
to recover these profits within sixty (60) days of a written request. The party
bringing such an action may recover his, her or its attorneys fees if the court
having jurisdiction over such action orders recovery of any profits.
The Company is also subject to Ohio's Control Share Acquisition Act (Ohio
Revised Code 1701.831). The Control Share Acquisition Act provides that, with
certain exceptions, a person may acquire beneficial ownership of shares in
certain ranges (one-fifth or more but less than one-third, one-third or more but
less than a majority, or a majority or more) of the voting power of the
outstanding shares of an Ohio corporation meeting certain criteria, which the
Company meets, only if such person has submitted an "acquiring person statement"
and the proposed acquisition has been approved by the vote of a majority of the
shares of the corporation represented at a special meeting called for such
purpose and by a majority of such shares of the corporation excluding
"interested shares," as defined in Section 1701.01 of the Ohio Revised Code.
DESCRIPTION OF DEBT WARRANTS
The Company may issue Debt Warrants in registered or bearer certificated
form for the purchase of Senior Securities. Debt Warrants may be issued together
with or separately from any Debt Securities or Preferred Shares offered by any
Prospectus Supplement and, if issued together with any Debt Securities or
Preferred Shares, may be attached to or separate from such Debt Securities. Debt
Warrants are to be issued under warrant agreements (each, a "Debt Warrant
Agreement") to be entered into between the Company and one or more banks or
trust companies, as debt warrant agent (each, a "Debt Warrant Agent"), all as
set forth in the Prospectus Supplement relating to the particular issue of Debt
Warrants. A copy of the form of Debt Warrant Agreement, including a form of debt
warrant certificate representing the Debt Warrants (a "Debt Warrant
Certificate") are filed as exhibits to the Registration Statement. The following
summaries of certain provisions of the Debt Warrant Agreement and Debt Warrant
Certificates do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all the provisions of the Debt Warrant
Agreement and the Debt Warrant Certificate. Capitalized terms used in this
description of Debt Warrants but not defined herein have the meanings ascribed
to such terms in the Debt Warrant Agreement.
The particular terms of each issue of Debt Warrants, as well as any
modifications or additions to the general terms of the Debt Warrant Agreement or
Debt Warrant Certificate which may be applicable in the case of such Debt
Warrants, will be described in the Prospectus Supplement relating to such Debt
Warrants. Accordingly, for a description of the terms of a particular issue of
Debt Warrants, reference must be made both to the Prospectus Supplement relating
thereto and to the following description.
GENERAL
The Prospectus Supplement will describe the terms of the Debt Warrants
offered thereby, the Debt Warrant Agreement relating to such Debt Warrants and
the Debt Warrant Certificate representing such Debt Warrants, including the
following: (1) the initial offering price; (2) the designation, aggregate
principal amount and other terms of the Senior Securities purchasable upon
exercise of the Debt Warrants; (3) if applicable, the designation and terms of
the Debt Securities or Preferred Shares with which the Debt
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Warrants are issued and the number of Debt Warrants issued with each such Debt
Security or Preferred Share; (4) if applicable, the date on and after which the
Debt Warrants and the related Debt Securities or Preferred Shares will be
separately transferable; (5) the principal amount of Senior Securities
purchasable upon exercise of one Debt Warrant and the price at which such
principal amount of Senior Securities may be purchased upon such exercise; (6)
the date on which the right to exercise the Debt Warrants shall commence and the
date (the "Debt Warrant Expiration Date") on which such right shall expire; (7)
if applicable, a discussion of United States federal income tax consequences;
(8) the identity of the Debt Warrant Agent; (9) whether the Debt Warrants
represented by the Debt Warrant Certificates will be issued in registered or
bearer form, and if registered, where they may be transferred or registered; and
(10) any other terms of the Debt Warrants.
Debt Warrant Certificates may be exchanged for new Debt Warrant
Certificates of different denominations and, if in registered form, may be
presented for registration of transfer, and may be exercised at the corporate
trust office of the Debt Warrant Agent or any other office indicated in the
Prospectus Supplement relating thereto. (Section 3.01 of the Debt Warrant
Agreement) Prior to exercise of Debt Warrants, holders of Debt Warrants will not
be entitled to payments of principal of (or premium, if any) or interest, if
any, on the Senior Securities purchasable upon such exercise or to enforce any
of the covenants in the Senior Indenture. (Section 4.01 of the Debt Warrant
Agreement)
EXERCISE OF DEBT WARRANTS
Unless otherwise provided in the Prospectus Supplement, each Debt Warrant
will entitle its holder to purchase such principal amount of Senior Securities
at such exercise price as shall in each case be set forth in, or calculated
from, the Prospectus Supplement relating to the Debt Warrants offered thereby.
(Sections 1.01 and 2.01 of the Debt Warrant Agreement.) Debt Warrants may be
exercised at any time up to the close of business on the Debt Warrant Expiration
Date set forth in the Prospectus Supplement relating to such Debt Warrants
offered thereby. After the close of business on the Debt Warrant Expiration Date
(or such later date to which such Debt Warrant Expiration Date may be extended
by the Company), unexercised Debt Warrants will be void. (Section 2.02 of the
Debt Warrant Agreement)
Debt Warrants may be exercised by delivery to the Debt Warrant Agent of
payment as provided in the Prospectus Supplement of the amount required to
purchase the Senior Securities purchasable upon such exercise together with the
purchase form in the Debt Warrant Certificate duly executed. Debt Warrants will
be deemed to have been exercised upon receipt of the exercise price and the duly
executed and completed Debt Warrant Certificate evidencing such Debt Warrants.
Upon receipt of such payment and the Debt Warrant Certificate duly executed and
completed at the corporate trust office of the Debt Warrant Agent or any other
office indicated in the Prospectus Supplement, the Company will, as soon as
practicable, issue and deliver the Debt Securities purchasable upon such
exercise. If fewer than all of the Debt Warrants represented by such Debt
Warrant Certificate are exercised, a new Debt Warrant Certificate will be issued
for the remaining amount of Debt Warrants. (Section 2.03 of the Debt Warrant
Agreement)
MODIFICATIONS
The Debt Warrant Agreement and the terms of the Debt Warrants may be
amended by the Company and the Debt Warrant Agent, without the consent of the
holders of any Debt Warrant Certificate, for the purpose of curing any
ambiguity, or curing, correcting or supplementing any defective provision
contained therein, or in any other manner which the Company and the Debt Warrant
Agent may deem necessary or desirable and which will not adversely affect the
interests of the holders of Debt Warrant Certificates. The Company and the Debt
Warrant Agent also may modify or amend the Debt Warrant Agreement and the terms
of the Debt Warrants, with the consent of the beneficial owners of not less than
a majority in number of the then outstanding unexercised Debt Warrants affected,
provided that no such modification or amendment that increases the exercise
price, shortens the period of time during which the Debt Warrants may be
exercised or otherwise materially and adversely affects the exercise rights of
the owners of the Debt Warrants or reduces the number of Debt Warrants the
consent of whose owners is required for modification or amendment of the Debt
Warrant Agreement or the terms of the Debt Warrants may be made without the
consent of the owners affected thereby. (Section 6.03 of the Debt Warrant
Agreement)
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<PAGE> 37
MERGER, CONSOLIDATION, SALE OR OTHER DISPOSITIONS
Under the Debt Warrant Agreement, the Company may, to the extent permitted
in the Senior Indenture, consolidate with, or sell or convey all or
substantially all of its assets to, or merge with or into, any other Person. If
at any time there shall be a merger, consolidation, sale, transfer, conveyance
or other disposition of substantially all of the assets of the Company, the
successor or assuming Person shall succeed to and be substituted for the
Company, with the same effect as if it had been named in the Debt Warrant
Agreement and in the Debt Warrants as the Company. The Company shall thereupon
be relieved of any further obligation under the Debt Warrant Agreement or under
the Debt Warrants. (Sections 6.01 and 6.02 of the Debt Warrant Agreement)
ENFORCEABILITY OF RIGHTS BY HOLDERS; GOVERNING LAW
The Debt Warrant Agent will act solely as an agent of the Company in
connection with the Debt Warrant Certificates and will not assume any obligation
or relationship of agency or trust for or with any holders of Debt Warrant
Certificates. (Section 5.02 of the Debt Warrant Agreement) Holders, without the
consent of the Debt Warrant Agent, the Senior Trustee, the holder of any Senior
Securities issued upon exercise of Debt Warrants or the holder of any other Debt
Warrant Certificates, may enforce by appropriate legal action, on their own
behalf, their right to exercise their Debt Warrants in the manner provided in
their Debt Warrant Certificates and the Debt Warrant Agreement. (Section 4.02 of
the Debt Warrant Agreement) Prior to the exercise of their Debt Warrants,
holders of Debt Warrants will not have any of the rights of holders of the
Senior Securities purchasable upon such exercise, including the right to receive
payments of principal of (and premium, if any) or interest, if any, on the
Senior Securities purchasable upon such exercise or to enforce covenants in the
Senior Indenture. (Section 4.01 of the Debt Warrant Agreement) Except as may
otherwise be provided in the Prospectus Supplement relating thereto, each issue
of Debt Warrants and the applicable Debt Warrant Agreement will be governed by
and construed in accordance with the laws of the State of New York. (Section
6.07 of the Debt Warrant Agreement)
DESCRIPTION OF PREFERRED SHARES
The description below sets forth certain general terms and provisions of
the Preferred Shares. The specific terms of the Preferred Shares offered by any
Prospectus Supplement (the "Offered Preferred Shares") will be described in the
Prospectus Supplement relating to such Offered Preferred Shares. The following
summaries of certain provisions of the Preferred Shares do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the Certificate of Designations relating to the particular series of
Preferred Shares, which will be filed with the Commission at or prior to the
time of the sale of such Preferred Shares.
If so indicated in the Prospectus Supplement, the terms of the Offered
Preferred Shares may differ from the terms set forth below.
GENERAL
Under the Articles, the Board of Directors of the Company is authorized
without further shareholder action to adopt resolutions providing for the
issuance, in one or more series, of up to 14,106,394 shares of preferred stock,
without par value and of equal rank (the "Serial Preferred Shares") with such
designations, number of shares, dividend rates, dividend payment dates, and
dates from which dividends shall be cumulative, redemption rights or prices,
sinking fund provisions, liquidation prices, conversion rights and restrictions
on the issuance of shares of the same series or any other class or series, as
may be determined by the Board of Directors. As of the date of this Prospectus,
the Company has no preferred shares outstanding.
The Preferred Shares shall have the dividend, liquidation, redemption,
voting rights and conversion rights set forth below unless otherwise provided in
the Prospectus Supplement relating to a particular series of Offered Preferred
Shares. The Prospectus Supplement will set forth the following terms of the
Offered Preferred Shares: (1) the title and stated value of the Offered
Preferred Shares and the number of shares offered; (2) the price at which the
Offered Preferred Shares will be issued; (3) the dividend rates and dates on
which dividends shall be payable, as well as the dates from which dividends
shall commence to cumulate;
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<PAGE> 38
(4) the period or periods within which, the price or prices at which and the
terms and conditions upon which the Offered Preferred Shares may be redeemed, in
whole or in part, at the option of the Company, if the Company is to have that
option; (5) the obligation, if any, of the Company to redeem or purchase the
Offered Preferred Shares pursuant to any sinking fund or analogous provisions or
at the option of a holder thereof and the period or periods within which, the
price or prices at which and the terms and conditions upon which the Offered
Preferred Shares shall be redeemed or purchased in whole or in part pursuant to
such obligation; (6) any rights on the part of the holder to convert the Offered
Preferred Shares into Common Shares of the Company; (7) any additional dividend,
liquidation, redemption, sinking fund, voting and other rights, preferences,
privileges, limitations and restrictions; (8) the terms of any Debt Warrants
being offered together with or separately from the Offered Preferred Shares; and
(9) any other terms of the Offered Preferred Shares.
The Preferred Shares will be fully paid and nonassessable, and for each
share issued, a sum equal to the stated value will be credited to the Company's
preferred stock account.
DIVIDENDS
Holders of the Offered Preferred Shares will be entitled to receive cash
dividends, when and as declared by the Board of Directors of the Company out of
assets of the Company legally available for payment, at such rate and on such
quarterly dates as will be set forth in the applicable Prospectus Supplement.
Each dividend will be payable to holders of record as they appear on the stock
books of the Company on the record dates fixed by the Board of Directors of the
Company. Dividends will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If, for any dividend period or periods, full
cumulative dividends on any Serial Preferred Shares have not been paid or
declared and set apart for payment or the Company is in default with respect to
the redemption of Serial Preferred Shares or any sinking fund for any Serial
Preferred Shares, the Company may not declare any dividends (except a dividend
payable in Common Shares or in any other shares of the Company ranking junior to
the Serial Preferred Shares) on, or make any distribution (except as aforesaid)
on the Common Shares or any other shares of the Company, or make any payment on
account of the purchase, redemption or other retirement of, its Common Shares or
any other shares of the Company (except out of the proceeds of the sale of
Common Shares or any other shares ranking junior to the Serial Preferred
Shares). If dividends on Serial Preferred Shares are in arrears, and there shall
be outstanding shares of any other series of Serial Preferred Shares ranking on
a parity as to dividends with the Serial Preferred Shares, the Company, in
making any dividend payment on account of such arrears, is required to make
payments ratably upon all outstanding Serial Preferred Shares and such other
series of Serial Preferred Shares in proportion to the respective amounts of
dividends in arrears on such Serial Preferred Shares and shares of such other
series.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the Offered Preferred Shares will be
entitled to receive out of assets of the Company available for distribution to
shareholders, before any distribution of assets is made to holders of Common
Shares, liquidating distributions in the amount set forth in the applicable
Prospectus Supplement plus all accrued and unpaid dividends. If, upon any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the amounts payable with respect to the Serial Preferred Shares and any other
shares of the Company ranking as to any such distribution on a parity with the
Serial Preferred Shares are not paid in full, the holders of the Serial
Preferred Shares and of such other shares will share ratably in any such
distribution of assets of the Company in proportion to the full respective
preferential amounts to which they are entitled. After payment of the full
amount of the liquidating distribution to which they are entitled, the holders
of Serial Preferred Shares will not be entitled to any further participation in
any distribution of assets by the Company. A consolidation or merger of the
Company with or into any other corporation or corporations or a sale of all or
substantially all of the assets of the Company shall not be deemed to be a
liquidation, dissolution or winding up of the Company.
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<PAGE> 39
REDEMPTION
The Offered Preferred Shares will be redeemable in whole or in part at the
option of the Company, at the times and at the redemption prices set forth in
the applicable Prospectus Supplement.
The Company may not redeem less than all the outstanding shares of any
series of Serial Preferred Shares unless full cumulative dividends have been
paid or declared and set apart for payment upon all outstanding shares of such
series of Serial Preferred Shares for all past dividend periods, and unless all
matured obligations of the Company with respect to all sinking funds, retirement
funds or purchase funds for all series of Serial Preferred Shares then
outstanding have been met.
VOTING RIGHTS
The holders of the Offered Preferred Shares are entitled to one vote per
share on all matters presented to shareholders of the Company.
If the equivalent of six quarterly dividends payable on any series of
Serial Preferred Shares are in default (whether or not declared or consecutive),
the holders of all outstanding series of Serial Preferred Shares, voting as a
single class without regard to series, will be entitled to elect two directors
until all dividends in default have been paid or declared and set apart for
payment. The holders of Serial Preferred Shares shall not have or exercise such
special class voting rights except at meetings of the shareholders for the
election of directors at which the holders of not less than a majority of the
outstanding Serial Preferred Shares of all series are present in person or by
proxy.
The affirmative vote of the holders of at least two-thirds of the
outstanding Serial Preferred Shares voting as a single class without regard to
series, will be required (i) for any amendment of the Articles or Regulations
that will adversely affect the preferences, rights or voting powers of the
Serial Preferred Shares, but, in any case in which one or more, but not all,
series of Serial Preferred Shares would be so affected as to their preferences,
rights or voting powers, only the consent of holders of at least two-thirds of
the shares of each series that would be so affected, voting separately as a
class, shall be required or (ii) to issue any class of stock that shall have
preference as to dividends or distribution of assets over any outstanding series
of Serial Preferred Shares.
The affirmative vote of the holders of a majority of the outstanding Serial
Preferred Shares shall be necessary to increase the authorized number of Serial
Preferred Shares or to authorize any shares ranking on a parity with the Serial
Preferred Shares. The Regulations may be amended to increase the number of
directors, without the vote of the holders of outstanding Serial Preferred
Shares.
CONVERSION RIGHTS
The Prospectus Supplement for any series of Offered Preferred Shares will
state whether shares in that series are convertible into Common Shares. Unless
otherwise provided in the applicable Prospectus Supplement, if a series of
Preferred Shares is convertible into Common Shares ("Convertible Preferred
Shares"), holders of such Convertible Preferred Shares will have the right, at
their option and at any time, to convert any of such Convertible Preferred
Shares, at the conversion rate set forth in the Prospectus Supplement relating
to such Convertible Preferred Shares, subject to adjustment as specified below,
provided that if such series of Convertible Preferred Shares is called for
redemption, the conversion rights pertaining thereto will terminate at the close
of business on the date before the redemption date.
Unless otherwise indicated in the applicable Prospectus Supplement, the
conversion rate is subject to adjustment in certain events, including the
following: (1) the issuance of Common Shares or capital shares of any other
class as a dividend or distribution on the Common Shares; (2) subdivisions and
combinations of the Common Shares; (3) the issuance to all holders of Common
Shares of certain rights or warrants entitling them to subscribe for or purchase
Common Shares (or securities convertible into Common Shares) within the period
specified in the Prospectus Supplement after the date fixed for the
determination of the shareholders entitled to receive such rights or warrants,
at less than the current market price (as defined in the Certificate of
Designations for such series of Convertible Preferred Shares); and (4) the
distribution to all holders of Common Shares of evidences of indebtedness or
assets of the Company (excluding certain cash dividends and
23
<PAGE> 40
distributions described above) or rights or warrants (excluding those referred
to above). In the event that the Company shall distribute any share purchase
rights ("Rights") pursuant to which separate certificates representing such
Rights will be distributed subsequent to the initial distribution of such
Rights, such subsequent distribution shall be deemed to be the distribution of
such Rights; provided that the Company may, in lieu of making any adjustment in
the conversion rate upon a distribution of separate certificates representing
such Rights, make proper provision so that each holder of such a Convertible
Preferred Share who converts such Convertible Preferred Share (or any portion
thereof) (i) before the record date for such distribution of separate
certificates shall be entitled to receive upon such conversion Common Shares
issued with Rights and (ii) after such record date and prior to the expiration,
redemption or termination of such Rights shall be entitled to receive upon such
conversion, in addition to the Common Shares issuable upon such conversion, the
same number of such Rights that such holder would have been entitled to acquire
as a holder of Common Shares in accordance with the terms and provisions
applicable to the Rights if such Convertible Preferred Shares were converted
immediately prior to the record date for such distribution. Common Shares owned
by or held for the account of the Company or any majority-owned subsidiary shall
not be deemed outstanding for the purpose of any adjustment. The Company has
Rights outstanding, but no separate certificates representing such rights have
been distributed. (See "Description of Common Shares -- Rights Plan," above).
No adjustments in the conversion rate will be made as a result of regular
quarterly or other periodic or recurring cash dividends or distributions or for
cash dividends or distributions to the extent paid from retained earnings. No
adjustment in the conversion price will be required unless such adjustment would
require a change of at least 1% in the conversion price then in effect or a
period of three years shall have elapsed from the date of occurrence of any
event requiring any such adjustment; provided that any adjustment that would
otherwise be required to be made shall be carried forward and taken into account
in any subsequent adjustment. The Company reserves the right to make such
increases in the conversion rate in addition to those required in the foregoing
provisions as the Company in its discretion shall determine to be advisable in
order that certain stock-related distributions or subdivisions of the Common
Shares hereafter made by the Company to its shareholders shall not be taxable.
Except as stated above, the conversion rate will not be adjusted for the
issuance of Common Shares or any securities convertible into or exchangeable for
Common Shares, or securities carrying the right to purchase any of the
foregoing.
In the case of (i) any reclassification or change of the Common Shares,
(ii) a consolidation or merger involving the Company or (iii) a sale or
conveyance to another corporation of the property and assets of the Company as
an entirety or substantially as an entirety, in each case as a result of which
holders of Common Shares shall be entitled to receive stock, securities, other
property or assets (including cash) with respect to or in exchange for such
Common Shares, the holders of the Convertible Preferred Shares then outstanding
will be entitled thereafter to convert such Convertible Preferred Shares into
the kind and amount of shares and other securities or property which they would
have received upon such reclassification, change, consolidation, merger,
combination, sale or conveyance had such Convertible Preferred Shares been
converted into Common Shares immediately prior to such reclassification, change,
consolidation, merger, combination, sale or conveyance.
In the event of a taxable distribution to holders of Common Shares (or
other transaction) which results in any adjustment of the conversion rate, the
holders of Convertible Preferred Shares may, in certain circumstances, be deemed
to have received a distribution subject to United States federal income tax as a
dividend; in certain other circumstances, the absence of such an adjustment may
result in a taxable dividend to the holders of Common Shares or the Convertible
Preferred Shares.
PLAN OF DISTRIBUTION
The Company may sell Securities in any of three ways: (i) directly to a
limited number of institutional purchasers or to a single purchaser; (ii) to or
through underwriters or dealers; or (iii) through agents. Any such underwriter
or underwriters, dealer or dealers or agent or agents involved in the offer and
sale of Securities in respect of which this Prospectus is delivered (the
"Offered Securities") will be named in the Prospectus Supplement. The Prospectus
Supplement relating to the Offered Securities will also set forth the
24
<PAGE> 41
terms of the offering of the Offered Securities, including the purchase price of
the Offered Securities and the proceeds to the Company from such sale, any
underwriting discounts and other items constituting underwriters' compensation,
any initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers and any securities exchanges on which the Offered
Securities may be listed.
If underwriters are used in an offering of Offered Securities, the name of
each managing underwriter and any other underwriters and the terms of the
transaction, including any underwriting discounts and other items constituting
compensation of the underwriters and dealers, if any, will be set forth in the
Prospectus Supplement relating to such offering, and the Offered Securities will
be acquired by the underwriters for their own accounts and may be resold from
time to time in one or more transactions, including negotiated transactions, at
a fixed public offering price or at varying prices determined at the time of
sale. Any initial public offering price and any discounts or concessions allowed
or reallowed or paid to dealers may be changed from time to time. It is
anticipated that any underwriting agreement pertaining to any Offered Securities
will (1) entitle the underwriters to indemnification by the Company against
certain civil liabilities under the Securities Act, or to contribution with
respect to payments which the underwriters may be required to make in respect
thereof, (2) provide that the obligations of the underwriters will be subject to
certain conditions precedent and (3) provide that the underwriters will be
obligated to purchase all Offered Securities if any are purchased.
If a dealer is used in an offering of Offered Securities, the Company will
sell such Offered Securities to the dealer, as principal. The dealer may then
resell such Offered Securities to the public at varying prices to be determined
by such dealer at the time of resale. The name of the dealer and the terms of
the transaction will be set forth in the Prospectus Supplement relating thereto.
If an agent is used in an offering of Offered Securities, the agent will be
named, and the terms of the agency will be set forth, in the Prospectus
Supplement relating thereto. Unless otherwise indicated in such Prospectus
Supplement, an agent will act on a best efforts basis for the period of its
appointment.
Dealers and agents named in a Prospectus Supplement may be deemed to be
underwriters (within the meaning of the Securities Act) of the Offered
Securities described therein and, under agreements which may be entered into
with the Company, may be entitled to indemnification by the Company against
certain civil liabilities under the Securities Act. Underwriters, dealers and
agents may be customers of, engage in transactions with or perform services for
the Company in the ordinary course of business.
Offers to purchase Offered Securities may be solicited, and sales thereof
may be made, by the Company directly to institutional investors or others, who
may be deemed to be underwriters within the meaning of the Securities Act with
respect to any resales thereof. The terms of any such offer will be set forth in
the Prospectus Supplement relating thereto.
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters or other agents of the Company to solicit offers by certain
institutional investors to purchase Offered Securities from the Company pursuant
to contracts providing for payment and delivery at a future date. Institutional
investors with which such contracts may be made include commercial and savings
banks, insurance companies, pension funds, investment companies, educational and
charitable institutions and others, but in all cases such purchasers must be
approved by the Company. The obligations of any purchaser under any such
contract will not be subject to any conditions except that (1) the purchase of
the Offered Securities shall not at the time of delivery be prohibited under the
laws of any jurisdiction to which such purchaser is subject and which govern
such investment and (2) if the Offered Securities are also being sold to
underwriters, the Company shall have sold to such underwriters the Offered
Securities not subject to delayed delivery. Underwriters and other agents will
not have any responsibility in respect of the validity or performance of such
contracts.
The anticipated date of delivery of Offered Securities will be set forth in
the Prospectus Supplement relating to each offering.
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<PAGE> 42
LEGAL OPINIONS
The validity of the Securities will be passed upon for the Company by G. L.
Gherlein, Executive Vice President and General Counsel of the Company, and for
the underwriters, if any, by Shearman & Sterling. Mr. Gherlein is paid a salary
by the Company and participates in the various employee benefit plans offered to
officers of the Company generally.
EXPERTS
The consolidated financial statements and schedules of the Company and its
subsidiaries appearing in the Company's Annual Report on Form 10-K for the year
ended December 31, 1993 have been audited by Ernst & Young, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements and schedules are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of DCBU as of December 31, 1992 and
1991 and for each of the two years in the period ended December 31, 1992
incorporated in this Prospectus by reference to the Company's Current Report on
Form 8-K dated February 14, 1994, as amended February 18, 1994, have been so
incorporated in reliance on the report (which contains an explanatory paragraph
relating to DCBU's engagement in various transactions and relationships with
other Westinghouse Electric Corporation entities) of Price Waterhouse,
independent accountants given on the authority of said firm as experts in
accounting and auditing.
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION 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>
<CAPTION>
TABLE OF CONTENTS
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
The Company............................. S-3
Recent Developments..................... S-4
Description of Notes.................... S-6
Concurrent Sale of Debentures........... S-6
Use of Proceeds......................... S-6
Capitalization.......................... S-7
Selected Historical Financial
Information........................... S-8
Unaudited Pro Forma Combined Condensed
Financial Statements.................. S-10
Underwriting............................ S-16
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS
Available Information................... 2
Incorporation of Certain Documents by
Reference............................. 2
The Company............................. 3
Risk Factors Relating to Currencies..... 3
Use of Proceeds......................... 3
Ratio of Earnings to Fixed Charges...... 3
Description of Debt Securities.......... 3
Description of Common Shares............ 17
Description of Debt Warrants............ 19
Description of Preferred Shares......... 21
Plan of Distribution.................... 24
Legal Opinions.......................... 26
Experts................................. 26
</TABLE>
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$100,000,000
EATON CORPORATION
6 3/8% NOTES DUE APRIL 1, 1999
---------------------------
PROSPECTUS SUPPLEMENT
March 28, 1994
---------------------------
LEHMAN BROTHERS
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