<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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THE B.F.GOODRICH COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEW YORK 3728 34-0252680
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>
4020 KINROSS LAKES PARKWAY
RICHFIELD, OHIO 44286-9368
(330) 659-7600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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NICHOLAS J. CALISE, SECRETARY
THE B.F.GOODRICH COMPANY
4020 KINROSS LAKES PARKWAY
RICHFIELD, OHIO 44286-9368
(330) 659-7600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
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<S> <C>
FRANK L. SCHIFF ROBERT H. CRAFT, JR.
WHITE & CASE LLP SULLIVAN & CROMWELL
1155 AVENUE OF THE AMERICAS 1701 PENNSYLVANIA AVENUE, N.W.
NEW YORK, NEW YORK 10036 WASHINGTON, D.C. 20006
(212) 819-8200 (202) 956-7500
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement number
of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt Securities....................... $500,000,000 100% $500,000,000 $147,500
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</TABLE>
(1) Or, if any Debt Securities are issued at an original issue discount or with
a principal amount denominated in a foreign currency or currency unit, such
principal amount as shall result in an aggregate initial offering price
equivalent to $500,000,000 at the time of the initial offering.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED , 1998
$200,000,000
THE B.F.GOODRICH COMPANY
MEDIUM-TERM NOTES, SERIES A
DUE MORE THAN NINE MONTHS FROM DATE OF ISSUE
------------------------
The B.F.Goodrich Company may offer from time to time its Medium-Term Notes,
Series A in an aggregate principal amount of up to $200,000,000. Each Note will
mature on a day more than nine months from its date of issue, as selected by the
purchaser and agreed to by the Company. Unless otherwise indicated herein or in
the applicable Pricing Supplement, the Notes will not be redeemable prior to
maturity by the Company and will not be subject to repayment prior to maturity
at the option of the holders thereof and will be issued in registered form in
denominations of $100,000 and any integral multiple of $1,000 in excess thereof.
Each Note will be represented either by a Global Note registered in the name of
The Depository Trust Company, as depositary, or a nominee thereof, or by a
certificate issued in definitive form, as set forth in the applicable Pricing
Supplement. Beneficial interests in Book-Entry Notes will be shown on, and
transfers thereof will be effected only through, records maintained by the
Depositary and its participants. Book-Entry Notes will not be exchangeable for
Certificated Notes except under the circumstances described under "Description
of Notes--Book-Entry System" herein.
Interest rates and interest rate formulae are subject to change by the
Company but no such change will affect any Note already issued or which the
Company has agreed to issue. Unless otherwise indicated in the applicable
Pricing Supplement, each Note will bear interest at a fixed rate or at a
floating rate determined by reference to the CD Rate, the Commercial Paper Rate,
the Federal Funds Rate, LIBOR, the Prime Rate or the Treasury Rate, as adjusted
by the Spread and/or Spread Multiplier, if any, applicable to such Note. Certain
Notes issued at a discount from the principal amount payable at maturity thereof
may provide that holders of such Notes will not receive periodic payments of
interest. See "Description of Notes--Original Issue Discount Notes."
Unless otherwise indicated in the applicable Pricing Supplement, interest on
Fixed Rate Notes will be payable each April 15 and October 15 and at maturity or
upon any earlier redemption or repayment and interest on Floating Rate Notes
will be payable on the dates indicated herein and in the applicable Pricing
Supplement. See "Description of Notes--Interest and Interest Rates."
------------------------
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, ANY PRICING SUPPLEMENT OR
THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<CAPTION>
PRICE TO AGENTS' PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(2)(3)
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<S> <C> <C> <C>
Per Note.................................. 100% .125-1.000% 99.875-99.000%
Total..................................... $200,000,000 $250,000-$2,000,000 $198,000,000-$199,750,000
</TABLE>
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(1) Unless otherwise indicated in a Pricing Supplement, Notes will be issued at
100% of their principal amount.
(2) The Company will pay a commission to the Agents from .125% to 1.000% of the
principal amount of any Note, depending upon its maturity, sold through such
Agents (or sold to such Agents as principal in circumstances in which no
other discount is agreed upon). The Company may also sell Notes to any Agent
at a discount for resale to one or more investors or other purchasers at
varying prices related to prevailing market prices at the time of resale or
otherwise, as determined by such Agent. Unless otherwise indicated in an
applicable Pricing Supplement, any Note sold to an Agent as principal shall
be purchased by such Agent at a price equal to 100% of the principal amount
thereof less a percentage equal to the commission applicable to any agency
sale of a Note of identical maturity. See "Supplemental Plan of
Distribution."
(3) Before deducting other expenses payable by the Company, estimated at
$800,000.
------------------------
The Notes are being offered on a continuing basis by the Company through the
Agents, each of which has agreed to use its reasonable best efforts to solicit
offers to purchase the Notes. The Company also may sell Notes to any Agent
acting as principal for resale to investors or other purchasers and may sell
Notes directly to investors on its own behalf in jurisdictions where it is
authorized to do so. No commission will be payable nor will a discount be
allowed on any direct sales by the Company. Unless otherwise specified in the
applicable Pricing Supplement, the Notes will not be listed on any securities
exchange. The Company reserves the right to withdraw, cancel or modify the offer
made hereby without notice. The Company or any Agent may reject any offer to
purchase Notes, in whole or in part. See "Supplemental Plan of Distribution."
------------------------
GOLDMAN, SACHS & CO.
CITICORP SECURITIES, INC.
J.P. MORGAN & CO.
MORGAN STANLEY DEAN WITTER
NATIONSBANC MONTGOMERY SECURITIES LLC
------------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS , 1998.
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE AGENTS MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING OVER-
ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH NOTES, AND THE
IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE OFFERING. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "SUPPLEMENTAL PLAN OF DISTRIBUTION."
THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA HAS NOT APPROVED OR
DISAPPROVED THIS OFFERING NOR HAS THE COMMISSIONER PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT OR THE PROSPECTUS
TO WHICH IT RELATES.
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby (referred to in the accompanying Prospectus as the "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
Prospectus, to which reference is hereby made. Unless otherwise specified in the
applicable Pricing Supplement, the Notes will have the terms described below,
except that references to interest payments and interest-related information do
not apply to certain Original Issue Discount Notes (as defined below).
GENERAL
The Pricing Supplement relating to a Note will describe the following
terms: (i) whether such Note is a Fixed Rate Note or a Floating Rate Note (each
as defined below); (ii) the price at which such Note will be issued (the "Issue
Price"); (iii) the date on which such Note will be issued (the "Original Issue
Date"); (iv) the date on which such Note will mature (the "Maturity Date"); (v)
if such Note is a Fixed Rate Note, the rate per annum at which such Note will
bear interest, if any; (vi) if such Note is a Floating Rate Note, the Base Rate,
the Initial Interest Rate, the Interest Payment Dates, the Index Maturity, the
Spread and/or Spread Multiplier, if any (each as defined below) and any other
terms relating to the particular method of calculating the interest rate for
such Note; (vii) whether such Note is an Original Issue Discount Note and
whether it has been issued with original issue discount for United States
Federal income tax purposes; (viii) whether such Note may be redeemed at the
option of the Company, or repaid at the option of the holder, prior to maturity
as described under "Optional Redemption" and "Repayment at the Noteholders'
Option; Repurchase" below and, if so, the provisions relating to such redemption
or repayment, including, in the case of any Original Issue Discount Notes, the
information necessary to determine the amount due upon redemption or repayment;
(ix) any relevant material tax consequences associated with the terms of such
Note which have not been described in "United States Tax Considerations" below;
and (x) any other terms of such Note not inconsistent with the provisions of the
Indenture.
The Notes will be issued under an Indenture, dated as of May 1, 1991,
between The B.F.Goodrich Company (the "Company") and Harris Trust and Savings
Bank (the "Trustee"), as the same may be amended or supplemented from time to
time (said Indenture, as so supplemented, referred to herein as the
"Indenture"). The following summaries of certain provisions of the Indenture do
not purport to be complete, and are subject to, and are qualified in their
entirety by reference to, all the provisions of the Indenture, including the
definitions therein of certain terms. The Notes are limited to an aggregate
principal amount of $200,000,000.
Each Fixed Rate Note will mature on a day more than nine months from the
date of issue, as specified in the applicable Pricing Supplement, as selected by
the initial purchaser and agreed to by the Company. In the event that such
maturity date of any Fixed Rate Note or any date fixed for redemption or
repayment of any Fixed Rate Note is not a Business Day (as defined below),
principal and interest payable at maturity or upon such redemption or repayment
will be paid on the next succeeding Business Day with the same effect as if such
Business Day were the maturity date
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or the date fixed for redemption or repayment and no interest shall accrue for
the period from and after the maturity date or date fixed for redemption or
repayment to such next succeeding Business Day.
Each Floating Rate Note will mature on an Interest Payment Date (as defined
below) more than nine months from the date of issue as specified in the
applicable Pricing Supplement, as selected by the initial purchaser and agreed
to by the Company. In the event that the Maturity Date of any Floating Rate Note
or any date fixed for redemption or repayment of any Floating Rate Note is not a
Business Day, the required payment of principal, premium, if any, or interest
otherwise payable on such date need not be made on such date, but may be made on
the next succeeding Business Day with the same force and effect as if made on
the date such payment was due, and no interest shall accrue for the period from
and after the Maturity Date (or any redemption or repayment date) to such next
succeeding Business Day.
Unless the applicable Pricing Supplement provides otherwise, the Notes will
be issuable only in registered form in denominations of $100,000 and integral
multiples of $1,000 in excess thereof.
The Notes will be offered on a continuing basis, and each Note will be
issued initially as either a global note (a "Book-Entry Note") registered in the
name of The Depository Trust Company, as depositary (the "Depositary") or a
nominee thereof, or a certificate issued in definitive form (a "Certificated
Note").
Principal of, premium, if any, and interest on the Notes will be payable,
the transfer of the Notes will be registrable, and Notes will be exchangeable
for Notes bearing identical terms and provisions at the offices of the Trustee,
currently located at 77 Water Street, New York, New York. Notwithstanding the
foregoing, payment of interest, other than interest at maturity or upon
redemption or repayment, may, at the option of the Company, be made by check
mailed to the address of the person entitled thereto as it appears on the
security register at the close of business on the Regular Record Date
corresponding to the relevant Interest Payment Date. Notwithstanding the
foregoing, the Depositary, as holder of Book-Entry Notes, shall be entitled to
receive payments of interest by wire transfer of immediately available funds.
Book-Entry Notes will be exchangeable only in the manner and to the extent set
forth under "Description of Notes--Book-Entry System" herein.
The principal and interest payable on each Note at maturity or upon
redemption or repayment will be paid by check mailed to the address of the
person entitled thereto against presentation of the Note at the office of the
Trustee, unless otherwise provided in the applicable Pricing Supplement.
INTEREST AND INTEREST RATES
Each Note will bear interest at either (a) a fixed rate (the "Fixed Rate
Notes") or (b) a floating rate determined by reference to an interest rate
formula (the "Floating Rate Notes"), which may be adjusted by a Spread and/or
Spread Multiplier (each as defined below). Any Floating Rate Note may also have
either or both of the following: (i) a maximum interest rate limitation, or
ceiling, on the rate at which interest may accrue during any interest period;
and (ii) a minimum interest rate limitation, or floor, on the rate at which
interest may accrue during any interest period. The applicable Pricing
Supplement will designate one of the following interest rate bases as applicable
to each Note: (a) a fixed rate per annum, in which case such Note will be a
"Fixed Rate Note"; (b) the CD Rate, in which case such Note will be a "CD Rate
Note"; (c) the Commercial Paper Rate, in which case such Note will be a
"Commercial Paper Rate Note"; (d) the Federal Funds Rate, in which case such
Note will be a "Federal Funds Rate Note"; (e) LIBOR, in which case such Note
will be a "LIBOR Note"; (f) the Prime Rate, in which case such Note will be a
"Prime Rate Note"; (g) the Treasury Rate, in which case such Note will be a
"Treasury Rate Note"; or (h) such other interest rate formula as is set forth in
such Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate on each Note will be equal to (a) in the case of a Fixed Rate
Note, a fixed rate; or (b) in the case of a Floating
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Rate Note, either (i) the interest rate determined by reference to the specified
interest rate formula (as specified in the applicable Pricing Supplement), plus
or minus the Spread, if any, and/or (ii) the interest rate determined by
reference to the specified interest rate formula, multiplied by the Spread
Multiplier, if any, plus or minus the Spread, if any. The "Spread" is the number
of basis points (one one-hundredth of a percentage point) specified in the
applicable Pricing Supplement to be added to or subtracted from the Base Rate of
such Floating Rate Note, and the "Spread Multiplier" is the percentage specified
in the applicable Pricing Supplement to be applied to the Base Rate for such
Floating Rate Note. The "Base Rate" is the rate specified, or determined
according to a formula specified, in the applicable Pricing Supplement.
Each Note will bear interest from its Original Issue Date or, except as
otherwise specified herein with respect to certain Floating Rate Notes, from the
most recent date to which interest on such Note has been paid or duly provided
for, at the annual rate, or at a rate determined pursuant to an interest rate
formula, stated therein, until the principal thereof is paid or made available
for payment. Interest will be payable on each Interest Payment Date (except for
certain Original Issue Discount Notes and except for Notes originally issued
between a Regular Record Date and an Interest Payment Date) and at maturity or
on redemption or repayment, if any.
Interest will be payable to the person in whose name a Note is registered
at the close of business on the Regular Record Date next preceding the Interest
Payment Date; provided, however, that (i) if the Company fails to pay such
interest on such Interest Payment Date, such defaulted interest will be paid to
the person in whose name such Note is registered at the close of business on the
record date to be established for the payment of defaulted interest and (ii)
interest payable at maturity, redemption or repayment will be payable to the
person to whom principal shall be payable. The first payment of interest on any
Note originally issued between a Regular Record Date and an Interest Payment
Date will be made on the Interest Payment Date following the next succeeding
Regular Record Date to the registered owner on such next Regular Record Date.
Interest rates and interest rate formulae are subject to change by the Company
from time to time but no such change will affect any Note theretofore issued or
which the Company has agreed to issue. Unless otherwise indicated in the
applicable Pricing Supplement, the Interest Payment Dates and the Regular Record
Dates for Fixed Rate Notes shall be as described below under "Fixed Rate Notes".
The Interest Payment Dates for Floating Rate Notes shall be as indicated in the
applicable Pricing Supplement and in such Note, and, unless otherwise specified
in the applicable Pricing Supplement, each Regular Record Date for a Floating
Rate Note will be the fifteenth day (whether or not a Business Day) next
preceding each Interest Payment Date.
Unless otherwise specified in a Pricing Supplement, all percentages
resulting from any calculation on Floating Rate Notes will be rounded, if
necessary, to the nearest one hundred-thousandth of a percentage point, with
five one-millionths of a percentage point rounded upward (e.g., 9.876545% (or
.09876545) being rounded to 9.87655% (or .0987655) and 9.876544% (or .09876544)
being rounded to 9.87654% (or .0987654)), and all dollar amounts used in or
resulting from such calculation on Floating Rate Notes will be rounded to the
nearest cent (with one-half cent being rounded upward).
The interest rate on the Notes will in no event be higher than the maximum
rate permitted by New York law as the same may be modified by United States
Federal law of general application.
FIXED RATE NOTES
Each Fixed Rate Note will bear interest at the annual rate specified
therein and in the applicable Pricing Supplement. Unless otherwise specified in
the applicable Pricing Supplement, the Interest Payment Dates for the Fixed Rate
Notes will be on April 15 and October 15 of each year and the Regular Record
Dates will be on the last day of March and September of each year. Unless
otherwise specified in the applicable Pricing Supplement, interest on Fixed Rate
Notes will be computed and paid on the basis of a 360-day year of twelve 30-day
months. In the event that any
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Interest Payment Date, the Maturity Date or redemption or repayment date is not
a Business Day (as defined below under "Floating Rate Notes"), payment of
interest, premium, if any, or principal payable on Fixed Rate Notes will be made
on the next succeeding Business Day and no interest shall accrue for the period
from and after such Interest Payment Date or the Maturity Date (or any
redemption or repayment date) to such next succeeding Business Day.
FLOATING RATE NOTES
Except as provided below and unless otherwise specified in the applicable
Pricing Supplement, interest on Floating Rate Notes will be payable (i) in the
case of Floating Rate Notes with a daily, weekly, or monthly Interest Reset Date
(as defined below) on (a) the third Wednesday of each month or (b) on the third
Wednesday of June and December of each year or (c) on the third Wednesday of
March, June, September and December of each year, as specified in the applicable
Pricing Supplement; (ii) in the case of Floating Rate Notes with a quarterly
Interest Reset Date, on the third Wednesday of March, June, September and
December of each year; (iii) in the case of Floating Rate Notes with a
semi-annual Interest Reset Date, on the third Wednesday of two months of each
year, as specified in the applicable Pricing Supplement; and (iv) in the case of
Floating Rate Notes with an annual Interest Reset Date, on the third Wednesday
of one month of each year, as specified in the applicable Pricing Supplement. If
any Interest Payment Date (other than the Maturity Date or any redemption or
repayment date) for any Floating Rate Note would otherwise be a day that is not
a Business Day, the Interest Payment Date for such Floating Rate Notes shall be
postponed to the next day that is a Business Day and interest shall accrue to
such next succeeding Business Day, except that in the case of a LIBOR Note, if
such Business Day is in the next succeeding calendar month, such Interest
Payment Date shall be the immediately preceding Business Day. If the Maturity
Date or any earlier redemption or repayment date of a Floating Rate Note falls
on a day that is not a Business Day, the required payment of principal, premium,
if any, or interest otherwise payable on such date need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the date such payment was due, and no interest shall
accrue for the period from and after the Maturity Date (or any redemption or
repayment date) to such next succeeding Business Day.
"Business Day" means any day that is not a Saturday or Sunday and that is
not a day on which banking institutions are generally authorized or obligated by
law to close in The City of New York and, with respect to LIBOR Notes, is also a
London Banking Day.
An "Interest Payment Date" with respect to any Note shall be a date on
which, under the terms of such Note, regularly scheduled interest shall be
payable.
"London Banking Day" means any day on which dealings in deposits in U.S.
dollars are transacted in the London interbank market.
The applicable Pricing Supplement will specify the issue price, the
interest rate basis, the interest payment period, the Spread or Spread
Multiplier, if any, and the maximum or minimum interest rate limitation, if any,
applicable to each Floating Rate Note. In addition, such Pricing Supplement will
define or particularize for each Floating Rate Note the following terms, if
applicable: the period to maturity of the instrument or obligation on which the
interest rate formula is based (the "Index Maturity"), Initial Interest Rate (as
defined below), Interest Payment Dates, Regular Record Dates and Interest Reset
Dates with respect to such Note.
The rate of interest on each Floating Rate Note will be reset daily,
weekly, monthly, quarterly, semi-annually or annually (each an "Interest Reset
Date"), as specified in the applicable Pricing Supplement. The Interest Reset
Date will be, in the case of Floating Rate Notes which are reset daily, each
Business Day; in the case of Floating Rate Notes which are reset weekly, the
Wednesday of each week; in the case of Floating Rate Notes which are reset
monthly, the third Wednesday of each month; in the case of Floating Rate Notes
which are reset quarterly, the third Wednesday of March, June, September and
December; in the case of Floating Rate Notes which are reset semi-
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annually, the third Wednesday of two months of each year, as specified in the
applicable Pricing Supplement; and in the case of Floating Rate Notes which are
reset annually, the third Wednesday of one month of each year, as specified in
the applicable Pricing Supplement; provided, however, that (i) the interest rate
in effect from the Original Issue Date to the first Interest Reset Date with
respect to a Floating Rate Note (the "Initial Interest Rate") will be as set
forth in the applicable Pricing Supplement, (ii) except in the case of Floating
Rate Notes which are reset daily or weekly, the interest rate in effect for the
ten calendar days immediately prior to maturity or redemption or repayment will
be that in effect on the tenth calendar day preceding such maturity, redemption
or repayment date and (iii) in the case of Floating Rate Notes which are reset
daily or weekly, the interest rate in effect for the period beginning on the
second Business Day immediately prior to maturity or redemption or repayment and
ending on such maturity, redemption or repayment date will be that in effect on
the second Business Day preceding such maturity, redemption or repayment date.
If the Interest Reset Date for any Floating Rate Note would otherwise be a day
that is not a Business Day, the Interest Reset Date for such Floating Rate Note
shall be postponed to the next day that is a Business Day, except that in the
case of a LIBOR Note, if such Business Day is in the next succeeding calendar
month, such Interest Reset Date shall be the immediately preceding Business Day.
Unless otherwise specified in the applicable Pricing Supplement, the
"Interest Determination Date" pertaining to an Interest Reset Date for a CD Rate
Note (the "CD Interest Determination Date"), a Commercial Paper Rate Note (the
"Commercial Paper Interest Determination Date"), a Federal Funds Rate Note (the
"Federal Funds Interest Determination Date") or a Prime Rate Note (the "Prime
Interest Determination Date") will be the second Business Day prior to the
Interest Reset Date. Unless otherwise specified in the applicable Pricing
Supplement, the Interest Determination Date pertaining to an Interest Reset Date
for a LIBOR Note (the "LIBOR Interest Determination Date") will be the second
London Banking Day next preceding such Interest Reset Date. Unless otherwise
specified in the applicable Pricing Supplement, the Interest Determination Date
pertaining to an Interest Reset Date for a Treasury Rate Note will be the day of
the week in which such Interest Reset Date falls on which Treasury bills would
normally be auctioned. Treasury bills are normally sold at auction on Monday of
each week, unless that day is a legal holiday, in which case the auction is
normally held on the following Tuesday, but such auction may be held on the
preceding Friday. If, as the result of a legal holiday, an auction is so held on
the preceding Friday, such Friday will be the Interest Determination Date
pertaining to the Interest Reset Date occurring in the next succeeding week. If
an auction falls on a day that is an Interest Reset Date, such Interest Reset
Date will be the next following Business Day.
Unless otherwise indicated in the applicable Pricing Supplement, interest
payments on an Interest Payment Date for a Floating Rate Note will include
interest accrued from, and including, the next preceding Interest Payment Date
in respect of which interest has been paid (or from, and including, the date of
original issue if no interest has been paid with respect to such Floating Rate
Note) to, but excluding, such Interest Payment Date. However, if the Interest
Reset Dates with respect to such Note are daily or weekly, interest payable on
any Interest Payment Date, other than interest payable on any date on which the
principal of such Note is payable, will include interest accrued only from, and
excluding, the next preceding Regular Record Date to which interest has been
paid (or from, and including, the Original Issue Date if no interest has been
paid with respect to such Floating Rate Note) to, and including, the Regular
Record Date preceding the next applicable Interest Payment Date, except that the
interest payment at maturity or upon redemption or repayment will include
interest accrued to, but excluding, such Maturity Date or redemption or
repayment date, as the case may be. Accrued interest from the date of issue or
from the last date to which interest has been paid is calculated by multiplying
the face amount of a Note by an accrued interest factor. The accrued interest
factor is computed by adding together the interest factors calculated for each
day from the Original Issue Date, or from the last date to which interest has
been paid, to the date for which accrued interest is being calculated. Unless
otherwise specified in the applicable Pricing Supplement, the interest factor
for each such day is computed by dividing the
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interest rate applicable to such day by 360, in the cases of CD Rate Notes,
Commercial Paper Rate Notes, Federal Funds Rate Notes and Prime Rate Notes or by
the actual number of days in the year, in the case of Treasury Rate Notes. The
interest rate in effect on each day will be (a) if such day is an Interest Reset
Date, the interest rate with respect to the Interest Determination Date
pertaining to such Interest Reset Date or (b) if such day is not an Interest
Reset Date, the interest rate with respect to the Interest Determination Date
pertaining to the immediately preceding Interest Reset Date, subject in either
case to any maximum or minimum interest rate limitation referred to above and to
any adjustment by a Spread or a Spread Multiplier referred to above.
Unless otherwise provided for in the applicable Pricing Supplement, Harris
Trust and Savings Bank will be the Calculation Agent (the "Calculation Agent",
which term includes any successor calculation agent appointed by the Company),
and for each Interest Reset Date will determine the interest rate as described
below. The Calculation Agent will notify the Trustee of each determination of
the interest rate applicable to any such Floating Rate Note promptly after such
determination is made. The Trustee will, upon the request of the holder of any
Floating Rate Note, provide the interest rate then in effect and, if applicable,
the interest rate which will become effective as a result of a determination
made with respect to the most recent Interest Determination Date relative to
such Note. Unless otherwise specified in the applicable Pricing Supplement, the
"Calculation Date", where applicable, pertaining to any Interest Determination
Date will be the earlier of (i) the tenth calendar day after such Interest
Determination Date (or, if such day is not a Business Day, the next succeeding
Business Day) or (ii) the Business Day immediately preceding the applicable
Interest Payment Date.
Interest Rates will be determined by the Calculation Agent as follows:
CD Rate Notes. CD Rate Notes will bear interest at the interest rate
(calculated with reference to the CD Rate and the Spread and/or Spread
Multiplier, if any) specified in the CD Rate Notes and in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CD Rate"
means, with respect to any Interest Determination Date, the rate on such date
for negotiable certificates of deposit having the Index Maturity designated in
the applicable Pricing Supplement as published by the Board of Governors of the
Federal Reserve System in "Statistical Release H.15(519), Selected Interest
Rates", or any successor publication of the Board of Governors of the Federal
Reserve System ("H.15(519)") under the heading "CDs (Secondary Market)", or, if
not so published by 9:00 a.m., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the CD Rate will be the rate on
such Interest Determination Date for negotiable certificates of deposit of the
Index Maturity designated in the applicable Pricing Supplement as published by
the Federal Reserve Bank of New York in its daily statistical release "Composite
3:30 p.m. Quotations for U.S. Government Securities" (the "Composite
Quotations") under the heading "Certificates of Deposit." If such rate is not
yet published in either H.15(519) or the Composite Quotations by 3:00 p.m., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the CD Rate on such Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the
secondary market offered rates as of 10:00 a.m., New York City time, on such
Interest Determination Date, for certificates of deposit in the denomination of
$5,000,000 with a remaining maturity closest to the Index Maturity designated in
the Pricing Supplement of three leading nonbank dealers in negotiable U.S.
dollar certificates of deposit in The City of New York selected by the
Calculation Agent for negotiable certificates of deposit of major U.S. money
center banks of the highest credit standing in the market for negotiable
certificates of deposit; provided, however, that if the dealers selected as
aforesaid by the Calculation Agent are not quoting as set forth above, the rate
of interest in effect for the applicable period will be the same as the CD Rate
for the immediately preceding Interest Reset Period (or, if there was no such
Interest Reset Period, the rate of interest payable on the CD Rate Notes for
which such CD Rate is being determined shall be the Initial Interest Rate).
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Commercial Paper Rate Notes. Commercial Paper Rate Notes will bear
interest at the interest rate (calculated with reference to the Commercial Paper
Rate and the Spread and/or Spread Multiplier, if any) specified in the
Commercial Paper Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Commercial Paper Rate" means, with respect to any Interest Determination Date,
the Money Market Yield (as defined below) of the rate on that date for
commercial paper having the Index Maturity designated in the applicable Pricing
Supplement, as such rate shall be published in H.15(519), under the heading
"Commercial Paper." In the event that such rate is not published prior to 9:00
a.m., New York City time, on the Calculation Date, then the Commercial Paper
Rate shall be the Money Market Yield of the rate on such Interest Determination
Date for commercial paper of the specified Index Maturity as published in
Composite Quotations under the heading "Commercial Paper--Nonfinancial." If by
3:00 p.m., New York City time, on such Calculation Date such rate is not yet
available in either H.15(519) or Composite Quotations, then the Commercial Paper
Rate shall be the Money Market Yield of the arithmetic mean of the offered rates
as of 11:00 a.m., New York City time, on such Interest Determination Date of
three leading dealers of commercial paper in The City of New York selected by
the Calculation Agent for commercial paper of the specified Index Maturity,
placed for an industrial issuer whose bond rating is "AA," or the equivalent,
from a nationally recognized rating agency; provided, however, that if the
dealers selected as aforesaid by the Calculation Agent are not quoting offered
rates as mentioned in the preceding sentence, the rate of interest in effect for
the applicable period will be the same as the Commercial Paper Rate for the
immediately preceding Interest Reset Period (or, if there was no such Interest
Reset Period, the rate of interest payable on the Commercial Paper Rate Notes
for which such Commercial Paper Rate is being determined shall be the Initial
Interest Rate).
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
<TABLE>
<S> <C> <C>
MONEY MARKET YIELD = D X 360 X 100
-----------------
360 -- (D X M)
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the Index Maturity.
Federal Funds Rate Notes. Federal Funds Rate Notes will bear interest at
the interest rate (calculated with reference to the Federal Funds Rate and the
Spread and/or Spread Multiplier, if any) specified in the Federal Funds Rate
Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Federal Funds Rate" means, with respect to any Interest Determination Date, the
rate on such date for Federal funds as published in H.15(519) under the heading
"Federal Funds (Effective)" or, if not so published by 9:00 a.m., New York City
time, on the Calculation Date pertaining to such Interest Determination Date,
the Federal Funds Rate will be the rate on such Interest Determination Date as
published in Composite Quotations under the heading "Federal Funds/Effective
Rate." If such rate is not yet published in either H.15(519) or the Composite
Quotations by 3:00 p.m., New York City time, on the Calculation Date pertaining
to such Interest Determination Date, the Federal Funds Rate for such Interest
Determination Date will be calculated by the Calculation Agent and will be the
arithmetic mean of the rates for the last transaction in overnight Federal funds
as of 11:00 a.m., New York City time, on such Interest Determination Date
arranged by three leading brokers of Federal funds transactions in The City of
New York selected by the Calculation Agent; provided, however, that if the
brokers selected as aforesaid by the Calculation Agent are not quoting as set
forth above, the rate of interest in effect for the applicable period will be
the same as the Federal Funds Rate for the immediately preceding Interest Reset
Period (or, if there was no such Interest Reset Period, the rate
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<PAGE> 10
of interest payable on the Federal Funds Rate Notes for which such Federal Funds
Rate is being determined shall be the Initial Interest Rate).
LIBOR Notes. LIBOR Notes will bear interest at the interest rate
(calculated with reference to LIBOR and the Spread and/or Spread Multiplier, if
any) specified in the LIBOR Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "LIBOR"
for each Interest Reset Date will be determined by the Calculation Agent as
follows:
(a) LIBOR will be, as specified in the applicable LIBOR Note, either
(i) the arithmetic mean of the offered rates for deposits in the Index
Currency (as defined below) having the Index Maturity designated in the
applicable Pricing Supplement, commencing on the second London Banking Day
immediately following that Interest Determination Date, that appear on the
Reuters Screen LIBO Page as of 11:00 a.m., London time, on that Interest
Determination Date, if at least two such offered rates appear on the
Reuters Screen LIBO Page ("LIBOR Reuters") or (ii) the rate for deposits in
the Index Currency having the Index Maturity designated in the applicable
Pricing Supplement, commencing on the second London Banking Day immediately
following that Interest Determination Date, that appears on the Telerate
Page 3750, as of 11:00 a.m., London time, on that Interest Determination
Date ("LIBOR Telerate"). "Reuters Screen LIBO Page" means the display
designated as page "LIBO" on the Reuters Monitor Money Rates Service (or
such other page as may replace the LIBO page on that service for the
purpose of displaying London interbank offered rates of major banks).
"Telerate Page 3750" means the display designated as page "3750" on the
Telerate Service (or such other page as may replace the 3750 page on that
service or such other service or services as may be nominated by the
British Bankers' Association for the purpose of displaying London interbank
offered rates for deposits in the Index Currency). If neither LIBOR Reuters
nor LIBOR Telerate is specified in such LIBOR Note, LIBOR will be
determined as if LIBOR Telerate had been specified. If fewer than two
offered rates appear on the Reuters Screen LIBO Page, or if no rate appears
on the Telerate Page 3750, as applicable, LIBOR in respect of that Interest
Determination Date will be determined as if the parties had specified the
rate described in (b) below.
(b) With respect to an Interest Determination Date on which fewer than
two offered rates appear on the Reuters Screen LIBO Page, as specified in
(a)(i) above, or on which no rate appears on Telerate Page 3750, as
specified in (a)(ii) above, as applicable, LIBOR will be determined on the
basis of the rates at which deposits in the Index Currency having the Index
Maturity designated in the applicable Pricing Supplement are offered at
approximately 11:00 a.m., London time, on that Interest Determination Date
by four major banks in the London interbank market selected by the
Calculation Agent ("LIBOR Reference Banks") to prime banks in the London
interbank market commencing on the second London Banking Day immediately
following that Interest Determination Date and in a principal amount that
is representative of a single transaction in such Index Currency in such
market at such time. The Calculation Agent will request the principal
London office of each of the LIBOR Reference Banks to provide a quotation
of its rate. If at least two such quotations are provided, LIBOR in respect
of that Interest Determination Date will be the arithmetic mean of such
quotations. If fewer than two quotations are provided, LIBOR in respect of
that Interest Determination Date will be the arithmetic mean of the rates
quoted at approximately 11:00 a.m., or such other time specified in the
applicable Pricing Supplement, in the applicable Principal Financial Center
(as defined below), on that Interest Determination Date by three major
banks in such Principal Financial Center selected by the Calculation Agent
for loans in the Index Currency to leading European banks having the Index
Maturity designated in the applicable pricing supplement, commencing on the
second London Banking Day immediately following that Interest Determination
Date and in a principal amount equal to an amount that is representative of
a single transaction in such Index Currency in such market at such time;
provided, however, that if the banks selected as aforesaid by the
Calculation Agent are not quoting as mentioned in this
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<PAGE> 11
sentence, LIBOR with respect to such Interest Determination Date will be
the rate of LIBOR in effect on such date.
"Index Currency" means the currency (including composite currencies)
specified in the applicable Pricing Supplement as the currency for which LIBOR
shall be calculated. If no such currency is specified in the applicable Pricing
Supplement, the Index Currency shall be United States dollars.
"Principal Financial Center" will generally be the capital city of the
country of the specified Index Currency, except that with respect to United
States dollars, Deutsche marks, Italian lira, Swiss francs, Dutch gilders and
ECUs, the Principal Financial Center shall be The City of New York, Frankfurt,
Milan, Zurich, Amsterdam and Luxembourg, respectively.
Prime Rate Notes. Prime Rate Notes will bear interest at the interest rate
(calculated with reference to the Prime Rate and the Spread and/or Spread
Multiplier, if any) specified in the Prime Rate Notes and in the applicable
Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Determination Date, the rate set forth
in H.15(519) for such date opposite the caption "Bank Prime Loan." If such rate
is not yet published by 9:00 a.m., New York City time, on the Calculation Date,
the Prime Rate for such Interest Determination Date will be the arithmetic mean
of the rates of interest publicly announced by each bank named on the display
designated as page "USPRIME1" on the Reuters Monitor Money Rate Service (or such
other page as may replace the USPRIME1 page on such service for the purpose of
displaying prime rates of major New York City banks (the "Reuters Screen
USPRIME1 Page")) as such bank's prime rate or base lending rate as in effect for
such Interest Determination Date as quoted on the Reuters Screen USPRIME1 Page
on such Interest Determination Date, or, if fewer than four such rates appear on
the Reuters Screen USPRIME1 Page for such Interest Determination Date, the rate
shall be the arithmetic mean of the prime rates quoted on the basis of the
actual number of days in the year divided by 360 as of the close of business on
such Interest Determination Date by at least two of the three major money center
banks in The City of New York selected by the Calculation Agent from which
quotations are requested. If fewer than two quotations are provided, the Prime
Rate shall be calculated by the Calculation Agent and shall be determined as the
arithmetic mean on the basis of the prime rates in The City of New York by the
appropriate number of substitute banks or trust companies organized and doing
business under the laws of the United States, or any State thereof, in each case
having total equity capital of at least $500 million and being subject to
supervision or examination by Federal or State authority, selected by the
Calculation Agent to quote such rate or rates.
If in any month or two consecutive months the Prime Rate is not published
in H.15(519) and the banks or trust companies selected as aforesaid are not
quoting as mentioned in the preceding paragraph, the "Prime Rate" for such
Interest Reset Period will be the same as the Prime Rate for the immediately
preceding Interest Reset Period (or, if there was no such Interest Reset Period,
the rate of interest payable on the Prime Rate Notes for which the Prime Rate is
being determined shall be the Initial Interest Rate). If this failure continues
over three or more consecutive months, the Prime Rate for each succeeding
Interest Determination Date until the maturity or redemption of such Prime Rate
Notes or, if earlier, until this failure ceases, shall be LIBOR determined as if
such Prime Rate Notes were LIBOR Notes, and the Spread, if any, shall be the
number of basis points specified in the applicable Pricing Supplement as the
"Alternate Rate Event Spread."
Treasury Rate Notes. Treasury Rate Notes will bear interest at the
interest rate (calculated with reference to the Treasury Rate and the Spread
and/or Spread Multiplier, if any) specified in the Treasury Rate Notes and in
the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Treasury Rate" means, with respect to any Interest Determination Date, the rate
for the auction held on such date of direct
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<PAGE> 12
obligations of the United States ("Treasury Bills") having the Index Maturity
designated in the applicable Pricing Supplement, as published in H.15(519) under
the heading "Treasury Bills--auction average (investment)" or, if not so
published by 9:00 a.m., New York City time, on the Calculation Date pertaining
to such Interest Determination Date, the auction average rate on such Interest
Determination Date (expressed as a bond equivalent, on the basis of a year of
365 or 366 days, as applicable, and applied on a daily basis) as otherwise
announced by the United States Department of the Treasury. In the event that the
results of the auction of Treasury Bills having the Index Maturity designated in
the applicable Pricing Supplement are not published or reported as provided
above by 3:00 p.m., New York City time, on such Calculation Date or if no such
auction is held on such Interest Determination Date, then the Treasury Rate
shall be calculated by the Calculation Agent and shall be a yield to maturity
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) of the arithmetic mean of the
secondary market bid rates, as of approximately 3:30 p.m., New York City time,
on such Interest Determination Date, of three leading primary U.S. government
securities dealers selected by the Calculation Agent for the issue of Treasury
Bills with a remaining maturity closest to the Index Maturity designated in the
applicable Pricing Supplement; provided, however, that if the dealers selected
as aforesaid by the Calculation Agent are not quoting bid rates as mentioned in
this sentence, the Treasury Rate for such Interest Reset Date will be the same
as the Treasury Rate for the immediately preceding Interest Reset Period (or, if
there was no such Interest Reset Period, the rate of interest payable on the
Treasury Rate Notes for which the Treasury Rate is being determined shall be the
Initial Interest Rate).
ORIGINAL ISSUE DISCOUNT NOTES
Original Issue Discount Notes are Notes issued at a discount from the
principal amount payable at maturity and which may be considered to be issued
with original issue discount which must be included in income for United States
Federal income tax purposes at a constant rate. Unless otherwise specified in
the applicable Pricing Supplement, if the principal of any Original Issue
Discount Note is declared to be due and payable immediately either (a) as
described under "Description of the Securities--Events of Default, Waiver and
Notice" in the accompanying Prospectus, or (b) pursuant to any redemption, in
either such case the amount of principal due and payable with respect to such
Note shall be limited to the Issue Price of such Note (plus, in the case of a
redemption, the premium to par, if any, specified in the applicable Pricing
Supplement), plus the original issue discount amortized with respect to such
Note from the Original Issue Date to the date of acceleration or redemption,
which amortization shall be calculated using the "constant yield method"
(computed in accordance with the rules under the Internal Revenue Code of 1986,
as amended (the "Code"), and the regulations thereunder, in effect on the date
of acceleration or redemption) plus, in the case of a redemption, the premium,
if any, specified in the applicable Pricing Supplement.
OPTIONAL REDEMPTION
The Pricing Supplement will indicate either that the Notes cannot be
redeemed prior to maturity or will indicate the terms on which the Notes will be
redeemable at the option of the Company. Notice of redemption shall be provided
by mailing a notice of such redemption to each holder by first class mail,
postage prepaid, at least 30 days and not more than 60 days prior to the date
fixed for redemption to the respective address of each holder as that address
appears upon the books of the Company.
REPAYMENT AT THE NOTEHOLDERS' OPTION; REPURCHASE
If applicable, the Pricing Supplement relating to each Note will indicate
that the Note will be repayable at the option of the holder on a date or dates
specified prior to its Maturity Date and,
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<PAGE> 13
unless otherwise specified in such Pricing Supplement, at a price equal to 100%
of the principal amount thereof, together with accrued interest to the date of
repayment.
In order for such a Note to be repaid, the Trustee must receive at least 30
days but not more than 60 days prior to the repayment, (i) the Note with the
form entitled "Option to Elect Repayment" on the reverse of the Note duly
completed or (ii) a telegram, facsimile transmission or a letter from a member
of a national securities exchange or a member of the National Association of
Securities Dealers, Inc. (the "NASD") or a commercial bank or trust company in
the United States which must set forth the name of the holder of the Note, the
principal amount of the Note, the principal amount of the Note to be repaid, the
certificate number or a description of the tenor and terms of the Note, a
statement that the option to elect repayment is being exercised thereby and a
guarantee that the Note to be repaid, together with the duly completed form
entitled "Option to Elect Repayment" on the reverse of the Note, will be
received by the Trustee not later than the fifth Business Day after the date of
such telegram, facsimile transmission or letter; provided, however, that such
telegram, facsimile transmission or letter from a member of a national
securities exchange or a member of the NASD, or a commercial bank or trust
company in the United States shall only be effective in such case, if such Note
and form duly completed are received by the Trustee by such fifth Business Day.
Exercise of the repayment option by the holder of a Note will be irrevocable.
The repayment option may be exercised by the holder of a Note for less than the
entire principal amount of the Note but, in that event, the principal amount of
the Note remaining outstanding after repayment must be an authorized
denomination.
The Company may at any time purchase Notes at any price in the open market
or otherwise. Notes purchased by the Company may, at its discretion, be held,
resold or surrendered to the registrar for cancellation.
BOOK-ENTRY SYSTEM
As set forth in the applicable Pricing Supplement, Notes may be issued in
the form of one or more fully registered Book-Entry Notes that will be deposited
with the Depositary or a nominee thereof. In such case, one or more Book-Entry
Notes will be issued in a denomination or aggregate denominations equal to the
portion of the aggregate principal amount of outstanding Notes to be represented
by such Book-Entry Note. Unless and until it is exchanged in whole or in part
for Notes in definitive form, a Book-Entry Note may not be transferred except as
a whole by the Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor of the Depositary or a nominee of
such successor.
Upon the issuance of a Book-Entry Note, the Depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the Notes represented by such Book-Entry Note to the accounts of persons that
have accounts with the Depositary ("participants"). The accounts to be credited
shall be designated by any underwriters or agents participating in the
distribution of such Notes. Ownership of beneficial interests in a Book-Entry
Note will be limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests in such Book-Entry Note will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by the Depositary for such Book-Entry Note (with respect to
interests of participants) or by participants or persons that hold through
participants (with respect to interests of persons other than participants).
So long as the Depositary, or its nominee, is the registered owner of such
Book-Entry Note, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the Notes represented by such Book-Entry
Note for all purposes under the Indenture. Except as set forth below, owners of
beneficial interests in a Book-Entry Note will not be entitled to have the Notes
represented by such Book-Entry Note registered in their names, will not receive
or be entitled to
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<PAGE> 14
receive physical delivery of such Notes in definitive form and will not be
considered the owners or holders thereof under the Indenture.
Principal, premium, if any, and interest payments on Notes represented by a
Book-Entry Note registered in the name of the Depositary or its nominee will be
made to the Depositary or its nominee, as the case may be, as the registered
owner of such Book-Entry Note. None of the Company, the Trustee or any paying
agent for such Notes will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in such Book-Entry Note or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interest.
The Company expects that the Depositary, with respect to any Notes
represented by a Book-Entry Note, upon receipt of any payment of principal,
premium or interest, will immediately credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Book-Entry Note as shown on the records of the
Depositary. The Company also expects that payments by participants to owners of
beneficial interest in such Book-Entry Note held through such participants will
be governed by standing instructions and customary practices, as is now the case
with the securities held for the accounts of customers registered in "street
names" and will be the responsibility of such participants.
If the Depositary is at any time unwilling or unable to continue as
Depositary and a successor Depositary is not appointed by the Company within 90
days, the Company will issue Notes in definitive form in exchange for each
Book-Entry Note. In addition, the Company may at any time and in its sole
discretion determine not to have any of the Notes represented by one or more
Book-Entry Notes and, in such event, will issue Notes in definitive form in
exchange for all of the Book-Entry Notes representing such Notes.
Upon issuance, all Fixed Rate Book-Entry Notes having the same Original
Issue Date, interest rate, if any, ranking and Maturity Date will be represented
by a single global Note, and all Floating Rate Book-Entry Notes having the same
Original Issue Date, Initial Interest Rate, Base Rate, Interest Period, Interest
Payment Dates, Interest Reset Dates, Index Maturity, Spread or Spread
Multiplier, if any, Minimum Interest Rate, if any, Maximum Interest Rate, if
any, and Maturity Date will be represented by a single global Note unless, in
each such case, such Notes are to be represented by a master Note. Certificated
Notes will not be exchangeable for Book-Entry Notes and, except under the
circumstances described above, Book-Entry Notes will not be exchangeable for
Certificated Notes and will not otherwise be issuable as Certificated Notes.
GOVERNING LAW AND JUDGMENTS
The Indenture and Notes will be governed by and construed in accordance
with the laws of the State of New York.
UNITED STATES TAX CONSIDERATIONS
The following summary describes certain United States Federal income tax
consequences relevant to a holder of a Note that is, for United States federal
income tax purposes: (i) a citizen or resident of the United States, (ii) a
corporation or partnership created in or organized under the laws of the United
States or any State thereof (including the District of Columbia), (iii) an
estate the income of which is subject to United States Federal income taxation
regardless of its source, (iv) a trust if (x) a court within the United States
is able to exercise primary supervision over its administration and (y) one or
more United States persons have the authority to control all of the substantial
decisions of such trust or (v) a person otherwise subject to United States
Federal income taxation on a net income basis in respect of a Note (a "United
States holder"). Notwithstanding the preceding sentence, to the extent provided
in United States Treasury Regulations ("Treasury Regulations"), certain trusts
in existence on August 20, 1996, and treated as United
S-13
<PAGE> 15
States persons prior to such date, that elect to continue to be treated as
United States persons also will be a United States holder. This summary is based
on the tax laws of the United States (including the Code), Treasury Regulations
and judicial and administrative interpretations thereof, in each case as in
effect and available on the date of this Registration Statement. All of the
foregoing are subject to change, which change could apply retroactively and
could affect the tax consequences described below. This summary deals only with
United States holders that will hold Notes as capital assets, and does not
address tax considerations applicable to holders that may be subject to special
tax rules, such as banks, insurance companies, tax-exempt organizations, dealers
or traders in securities or currencies, persons that will hold Notes as a
position in a "straddle" or as part of a "hedging", "conversion" or "integrated"
transaction for United States Federal income tax purposes, persons that have a
"functional currency" other than the U.S. dollar or persons that are not United
States holders. Moreover, this summary does not address tax considerations
applicable to Notes due more than 30 years from the Original Issue Date, the tax
consequences of which will be addressed in the applicable Pricing Supplement.
Investors should consult their own tax advisors in determining the tax
consequences to them of the acquisition, holding and sale of Notes, including
the application to their particular situation of the tax considerations
discussed below, as well as the application of state, local, foreign or other
tax laws.
PAYMENTS OF INTEREST
Payments of "qualified stated interest" (as defined under "Notes with
Original Issue Discount") on a Note generally will be taxable to a United States
holder as ordinary interest income at the time that such payments are accrued or
are received (in accordance with the United States holder's method of tax
accounting). A United States holder who uses the cash method of accounting and
who holds a Note denominated in a currency other than U.S. dollars (a "foreign
currency"), will be required to include in income the U.S. dollar value of the
amount of interest income received (determined as of the time that such payment
is received), regardless of whether such payment in fact is received in U.S.
dollars or converted into U.S. dollars. A United States holder that uses the
accrual method of accounting will be required to include in income the U.S.
dollar value of the amount of interest income that has accrued during an accrual
period. The U.S. dollar value of such accrued income will be determined by
translating such income at the average rate of exchange for the accrual period
(or, with respect to an accrual period that spans two taxable years, the part of
the period within the taxable year) or, at the United States holder's election,
at the spot rate of exchange on the last day of the accrual period (or, with
respect to an accrual period that spans two taxable years, the part of the
period within the taxable year). Additionally, if a payment of interest is
actually received within five business days of the last day of the accrual
period or taxable year, an electing accrual basis United States holder may
instead translate such accrued interest into U.S. dollars at the exchange rate
in effect on the day of actual receipt. The average rate of exchange for an
accrual period shall be a simple average of the spot exchange rates for each
business day of such period (or other average exchange rate for the period
reasonably derived and consistently applied by the holder). Such United States
holder will recognize foreign currency gain or loss, as the case may be, on the
receipt of an interest payment if the exchange rate in effect on the date the
payment is received differs from the rate applicable to a previous accrual of
that interest income. This foreign currency gain or loss will be treated as
ordinary income or loss.
PURCHASE, SALE AND RETIREMENT OF NOTES
A United States holder's tax basis in a Note generally will equal the cost
of such Note to such holder, increased by any amounts includible in income by
the holder as original issue discount or market discount (if the United States
holder elects to include such market discount in income on a current basis) and
reduced by any amortized premium (each as described below) and any payments
other than qualified stated interest (as defined below) made on such Note. In
the case of
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a Note denominated in a foreign currency, the cost of such Note to a United
States holder will be the U.S. dollar value of the foreign currency purchase
price determined on the date of purchase. In the case of a Note which is
denominated in a foreign currency and is traded on an established securities
market, a cash basis taxpayer (or, if it elects, an accrual basis taxpayer) will
determine the U.S. dollar value of the cost of such Note by translating the
amount paid at the spot rate of exchange on the settlement date of the purchase.
The amount of any subsequent adjustments to a United States holder's tax basis
in a Note in respect of foreign currency-denominated original issue discount,
market discount and premium will be determined in the manner described below for
such adjustments. The conversion of U.S. dollars to a foreign currency and the
immediate use of the currency to purchase a Note generally will not result in
taxable gain or loss for a United States holder.
Except as discussed below with respect to market discount, short-term OID
Notes and foreign currency gain or loss, or to the extent attributable to
accrued but unpaid interest, a United States holder generally will recognize
gain or loss on the sale, exchange or retirement of a Note equal to the
difference between the amount realized on such sale, exchange or retirement and
the United States holder's adjusted tax basis in the Note. Such gain or loss
will be capital gain or loss. In the case of a noncorporate United States
holder, the maximum marginal United States Federal income tax rate applicable to
such gain will be lower than the maximum marginal United States Federal income
tax rate applicable to ordinary income if such United States holder's holding
period for the Note exceeds one year and will be further reduced if such Note is
held for more than 18 months. The deductibility of capital losses is subject to
limitations.
With respect to the sale, exchange or retirement of a Note denominated in a
foreign currency, the amount realized generally will be the U.S. dollar value of
the payment received determined on (i) the date of receipt of payment in the
case of a cash basis taxpayer and (ii) the date of disposition in the case of an
accrual basis taxpayer. In the case of a Note which is denominated in a foreign
currency and is traded on an established securities market, a cash basis
taxpayer (or, if it elects, an accrual basis taxpayer) will determine the U.S.
dollar value of the amount realized by translating such amount at the spot rate
of exchange on the settlement date of the sale. Notwithstanding the foregoing,
gain or loss recognized by a United States holder on the sale, exchange or
retirement of a Note denominated in a foreign currency generally will be treated
as ordinary income or loss to the extent that the gain or loss is attributable
to changes in exchange rates during the period in which the holder held such
Note.
NOTES WITH ORIGINAL ISSUE DISCOUNT
Certain Notes, including Original Issue Discount Notes (collectively, "OID
Notes"), may be considered to be issued with original issue discount, as such
term is defined under the Code, and certain Treasury Regulations issued
thereunder. A Note will be considered to be issued with original issue discount
if such Note has a stated redemption price at maturity (as defined below) that
exceeds its issue price (as defined below) by at least 0.25% of its stated
redemption price at maturity multiplied by the number of complete years to the
maturity for such Note. If the stated redemption price at maturity of a Note
exceeds its issue price, but by less than this amount, such Note will be
considered to have de minimis original issue discount and will not be an OID
Note. United States holders of OID Notes generally will be subject to the
special tax accounting rules for original issue discount obligations provided by
the Code and the Treasury Regulations issued thereunder (the "OID Regulations").
United States holders of such Notes should be aware that, as described in
greater detail below, they generally must include original issue discount in
income for United States Federal income tax purposes as it accrues, in advance
of the receipt of cash attributable to that income.
In general, each United States holder of an OID Note which matures more
than one year from the issue date, whether such holder uses the cash or the
accrual method of tax accounting, will be required to include in ordinary gross
income the sum of the "daily portions" of original issue discount on that Note
calculated under a constant yield method for all days during the taxable year
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that the United States holder owns the Note. In addition, a United States holder
will be required to include any "qualified stated interest" (as defined below)
on such a Note in gross income (as interest) under the holder's regular method
of tax accounting. The daily portions of original issue discount on an OID Note
are determined by allocating to each day in any accrual period (generally any
period that is elected by a holder, provided that each accrual period is no
longer than one year and that each Interest Payment Date is the first or last
day of the accrual period) a ratable portion of the original issue discount
allocable to that accrual period. In the case of an initial holder, the amount
of original issue discount on an OID Note allocable to each accrual period is
generally determined by (i) multiplying the "adjusted issue price" (as defined
below) of the Note at the beginning of the accrual period by the yield to
maturity of the Note (adjusting the yield to take into account the length of the
particular accrual period) and (ii) subtracting from that product the amount (if
any) payable as "qualified stated interest" during that accrual period. The
"adjusted issue price" of an OID Note at the beginning of any accrual period
will be the sum of its issue price and the amount of original issue discount
allocable to all prior accrual periods, reduced by the amount of all payments
other than "qualified stated interest" payments (if any) made with respect to
such Note in all prior accrual periods. The "issue price" of a Note for this
purpose is generally the first price at which a substantial amount of the Notes
included in the particular issuance is sold to the public (excluding bond
houses, brokers or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers). "Qualified stated interest"
generally is stated interest that is unconditionally payable in cash or in
property (other than debt instruments of the issuer) at least annually at a
single fixed rate. The "stated redemption price at maturity" of a Note is the
sum of all payments provided by the Note other than qualified stated interest
payments.
Under the OID Regulations, interest payments on a "variable rate debt
instrument" will be considered qualified stated interest. For this purpose, a
Note is a "variable rate debt instrument" if it (x) has an issue price that does
not exceed the total noncontingent principal payments by more than an amount
equal to the lesser of (i) 0.015 multiplied by the product of such total
noncontingent principal payments and the number of complete years to maturity of
the Note and (ii) 15% of the total noncontingent principal payments; (y)
provides for stated interest (compounded or paid at least annually) at the
current value of (A) one or more qualified floating rates (as defined below),
(B) a single fixed rate followed by one or more qualified floating rates, (C) a
single objective rate (as defined below), or (D) a single fixed rate and a
single objective rate that is a qualified inverse floating rate (as defined
below); and (z) does not provide for any principal payments that are contingent.
If a Note that provides for a variable rate of interest does not qualify as a
variable rate debt instrument, such Note will be considered a "contingent
payment debt instrument" subject to rules set forth in the Treasury Regulations
that address the United States Federal income tax treatment of such instruments.
As noted below under the caption "Notes with Contingent Payments," a description
of any material United States Federal income tax considerations relevant to
United States holders of such Notes will be set forth in the applicable Pricing
Supplement. A "qualified floating rate" is a floating rate under which
variations in the rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the Note
is denominated. A multiple of a qualified floating rate is not a qualified
floating rate unless the relevant multiplier is (x) fixed at a number that is
greater than 0.65 but not more than 1.35 or (y) fixed at a number that is
greater than 0.65 but not more than 1.35, increased or decreased by a fixed
rate. An "objective rate" will be a rate "other than a qualified floating rate"
that is determined using a single fixed formula and that is based on objective
financial or economic information, provided, however, that an objective rate
would not include a rate based on information that is within the control of, or
unique to the circumstances of, the issuer (or related party within the meaning
of the applicable statutory provisions), such as dividends, profits or the value
of the issuer's stock. A variable rate is not an objective rate, however, if it
is reasonably expected that the average value of the rate during the first half
of the Note's term will be either significantly less than or significantly
greater than the average value of the rate during the final half of the Note's
term. A "qualified inverse floating rate" is an objective rate (1) that is equal
to a fixed rate minus a qualified
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floating rate and (2) the variations in which can reasonably be expected to
inversely reflect contemporaneous variations in the cost of newly borrowed
funds.
Under the OID Regulations, stated interest on a Note that is subject to a
maximum or minimum interest rate limitation (i.e., a cap or floor), a
restriction on the amount of increase or decrease in such rate (i.e., a
governor) or other similar restrictions generally will not be treated as a
qualified floating rate. However, a restriction will not cause a variable rate
to fail to be a qualified floating rate if it is a cap, floor or governor that
is fixed throughout the term of the Note or is a cap, floor, governor or similar
restriction that is not reasonably expected on the issue date to cause the yield
on the Note to be significantly less than (in the case of a cap), more than (in
the case of a floor), or different from (in the case of a governor), the
expected yield determined without such cap, floor or governor, as the case may
be. A Note under which interest is payable pursuant to a variable rate that
fails to qualify as a qualified floating rate or an objective rate will be
considered under the OID Regulations to have been issued with original issue
discount.
Generally, the rules for determining the amount and accrual of original
issue discount and qualified stated interest on a variable rate debt instrument
provide for the conversion of such debt instrument into a fixed rate debt
instrument and the application of the general rules regarding original issue
discount to such debt instrument. Under such rules, the qualified stated
interest allocable to an accrual period based on such assumed fixed rate is
increased or decreased, as the case may be, if the interest actually paid during
such accrual period exceeds, or is less than, the interest assumed to be paid
during the accrual period based on such assumed fixed rate. Certain variable
rate debt instruments, though, are subject to special rules. If such special
rules apply to Notes, any material United States Federal income tax consequences
to a United States holder of such Notes resulting therefrom will be discussed in
the applicable Pricing Supplement.
While each United States holder of an OID Note which matures more than one
year from the issue date will be required to accrue original issue discount
income under a constant yield method, as described above, a taxpayer may also
elect to include in gross income all interest that accrues on a debt instrument
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount (as defined below) and unstated
interest, as adjusted by any amortizable bond premium or acquisition premium (as
discussed below)) under a constant yield method.
As a result of this "constant yield" method of including original issue
discount income, the amounts so includible in income by a United States holder
in respect of an OID Note denominated in U.S. dollars are lesser in the early
years and greater in the later years than the amounts that would be includible
on a straight-line basis.
OID Notes which are subject to redemption prior to maturity may be subject
to rules that differ from the general rules discussed above. Holders who intend
to purchase OID Notes with such a feature should carefully examine the
applicable Pricing Supplement and should consult with their own tax advisors
with respect to such a feature since the tax consequences with respect to
original issue discount will depend, in part, on the particular terms and the
particular features of the purchased Note.
Under the OID Regulations, no payment of interest on a Note that matures
one year or less from the date of its issuance would be considered to be
qualified stated interest. Therefore, any such Note would be considered to be
issued with original issue discount. In general, a United States holder who uses
the cash method of tax accounting and who holds an OID Note that matures one
year or less from the date of its issuance (a "short-term OID Note") is not
required to accrue original issue discount for United States Federal income tax
purposes unless such holder elects to do so. United States holders who utilize
the accrual method of accounting and certain other holders, including banks and
dealers in securities, are required to include original issue discount (or
alternatively, acquisition discount) on such short-term OID Notes on a
straight-line basis, unless an election is made to accrue the original issue
discount according to a constant yield method based on
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daily compounding. In the case of a United States holder who is not required,
and does not elect, to include original issue discount in income currently, any
gain recognized on the sale, exchange or retirement of a short-term OID Note
will be ordinary income to the extent of the original issue discount accrued on
a straight-line basis (or alternatively under the constant yield method) through
the date of sale, exchange or retirement. In addition, such non-electing United
States holders who are not subject to the current inclusion requirement
described in the fourth sentence of this paragraph will be required to defer the
deduction of all or a portion of any interest paid on indebtedness incurred to
purchase short-term OID Notes until such original issue discount is included in
such holder's income.
In the case of an OID Note denominated in a foreign currency, a United
States holder should determine the U.S. dollar amount includible in income as
original issue discount for each accrual period by (i) calculating the amount of
original issue discount allocable to each accrual period in the foreign currency
using the constant yield method described above, and (ii) translating the
foreign currency amount so derived at the average exchange rate in effect during
that accrual period or, at the United States holder's election, at the spot rate
of exchange on the last day of the accrual period. Because exchange rates may
fluctuate, a United States holder of an OID Note denominated in a foreign
currency may recognize a different amount of original issue discount income in
each accrual period than would the holder of a similar OID Note denominated in
U.S. dollars.
A subsequent United States holder of an OID Note that purchases the Note at
a cost less than its remaining redemption amount also generally will be required
to include in gross income the daily portions of original issue discount,
calculated as described above. The remaining redemption amount is the total
amount of all future payments due under such Note other than qualified stated
interest. However, if the subsequent United States holder acquires the OID Note
at a lower yield to maturity than the yield of the Note for original issue
discount purposes with respect to the initial holder of the Note, the subsequent
United States holder may reduce its periodic inclusions of original issue
discount income to reflect the lower yield to maturity of the Note or elect to
compute original issue discount accruals by treating the purchase as a purchase
at original issue and applying the mechanics of the constant yield method.
PREMIUM AND MARKET DISCOUNT
A United States holder of a Note that purchases the Note at a cost greater
than its principal amount will be considered to have purchased the Note at a
premium, and may make an election, applicable to all notes purchased at a
premium and held by such holder, to amortize such premium, using a constant
yield method, over the remaining term of such notes. In the case of a Note
denominated in a foreign currency purchased at a premium, a United States holder
should calculate the amortization of the premium in the relevant foreign
currency and should reduce interest income by the amortizable bond premium in
units of such foreign currency. Exchange gain or loss is realized with respect
to such amortizable premium by treating such premium as a return of principal.
If a United States holder of a Note purchases the Note at a price that
produces a yield to maturity higher than the yield to maturity at which such
Note first was issued, the Note generally will be considered to bear "market
discount" in the hands of such United States holder unless such market discount
is "de minimis", as defined in the relevant Treasury Regulations. In such case,
gain realized by the United States holder on the sale, exchange or retirement of
the Note generally will be treated as ordinary income to the extent of the
market discount that accrued on the Note while held by such holder and such
holder could be required to defer the deduction of a portion of the interest
paid on any indebtedness incurred or continued to purchase or carry the Note
(unless the holder elects to include such market discount in income as it
accrues). In general terms, market discount on a Note will be treated as
accruing ratably over the term of such Note, or, at the election of the holder,
under a constant yield method. With respect to Notes which are denominated in a
foreign currency, the amount of market discount which accrues during any accrual
period will be determined in the foreign currency and translated into U.S.
dollars (i) at the spot rate of exchange on the date
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the Note is disposed of, or (ii), if the holder elects to include such market
discount in income as it accrues, at the average exchange rate for the accrual
period. A United States holder who elects to include market discount in income
as it accrues will recognize foreign currency gain or loss, as the case may be,
to the extent that the spot rate on the date the Note is disposed of differs
from the rate used to accrue such market discount.
NOTES WITH CONTINGENT PAYMENTS
The tax consequences to United States holders of Notes with contingent
payments will depend on factors including the specific index or indices used to
determine payments on such Notes and the amount and timing of any noncontingent
payments on such Notes. A description of any material United States Federal
income tax considerations relevant to United States holders of such Notes will
be set forth in the applicable Pricing Supplement.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
A 31% backup withholding tax and information reporting requirements apply
in the case of certain noncorporate United States holders to certain payments of
principal of, premium, if any, and interest on an obligation, and to the
proceeds of the sale or redemption of an obligation before maturity. The payor
will be required to withhold from any payment that is subject to backup
withholding a tax equal to 31% of such payment if the United States holder fails
to furnish his correct taxpayer identification number (social security number or
employer identification number), to certify that such holder is not subject to
backup withholding, or to otherwise comply with the applicable requirements of
the backup withholding rules. Certain holders (including, among others,
corporations and persons who are not United States persons (if such a holder
certifies as to its non-United States status and the payor does not have actual
knowledge that such certificate is false)) are not subject to the backup
withholding tax and information reporting requirements.
Treasury Regulations issued on October 6, 1997 would modify certain of the
rules discussed above generally with respect to certain payments made after
December 31, 1998. In particular, in the case of such payments by a payor to a
foreign partnership (other than payments to a foreign partnership that qualifies
as a "withholding foreign partnership" within the meaning of such Treasury
Regulations and payments to a foreign partnership that are effectively connected
with the conduct of a trade or business in the United States), the partners of
such partnership will be required to provide the certification discussed above
in order to establish an exemption from backup withholding tax and information
reporting requirements. Moreover, a payor may rely on a certification provided
by a holder that is not a United States holder only if such payor does not have
actual knowledge or a reason to know that any information or certification
stated in such certificate is unreliable.
SUPPLEMENTAL PLAN OF DISTRIBUTION
Under the terms of the Second Amended and Restated Distribution Agreement
dated , 1998 (the "Distribution Agreement"), the Notes are being
offered on a continuing basis by the Company through Goldman, Sachs & Co.,
Citicorp Securities, Inc., J.P. Morgan Securities Inc., Morgan Stanley & Co.
Incorporated and NationsBanc Montgomery Securities LLC (the "Agents"), each of
which has agreed to use its reasonable best efforts to solicit purchases of the
Notes. The Company will pay each Agent a commission ranging (except as otherwise
provided in a Pricing Supplement with respect to certain Original Issue Discount
Notes) from 0.125% to 1.000% of the principal amount of each Note, depending on
its maturity, sold through such Agent. The Company will have the sole right to
accept offers to purchase Notes and may reject any such offer, in whole or in
part. Each Agent shall have the right, in its discretion reasonably exercised,
to reject any offer to purchase Notes received by it, in whole or in part.
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The Company also may sell Notes to any Agent, acting as principal, for
resale to one or more investors or other purchasers at varying prices related to
prevailing market prices at the time of such resale or otherwise, as determined
by such Agent. The Agents may sell Notes to any dealer at a discount and, unless
otherwise indicated in the applicable Pricing Supplement, such discount allowed
to any dealer may include all or part of the discount to be received from the
Company. Unless otherwise indicated in the applicable Pricing Supplement, any
Note sold to an Agent as principal will be purchased by such Agent at a price
equal to 100% of the principal amount thereof less a percentage equal to the
commission applicable to any agency sale of a Note of identical maturity. After
the initial public offering of Notes to be resold to investors and other
purchasers on a fixed public offering price basis, the public offering price,
concession and discount may be changed.
The Notes may also be sold by the Company directly to investors (other than
broker-dealers) in those jurisdictions in which the Company is permitted to do
so. No commission will be paid on Notes sold directly by the Company.
The Company reserves the right to withdraw, cancel or modify the offer made
hereby without notice.
The Agents may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Act"). The Company has agreed to
indemnify the Agents against certain liabilities, including liabilities under
the Act. The Company has agreed to reimburse the Agents for certain expenses.
The Notes may also be sold at the price to the public set forth herein to
dealers who may resell to investors. Such dealers may be deemed to be
"underwriters" within the meaning of the Act.
Unless otherwise indicated in the applicable Pricing Supplement, payment of
the purchase price of the Notes will be required to be made in immediately
available funds.
Each Agent may from time to time purchase and sell Notes in the secondary
market, but is not obligated to do so, and there can be no assurance that there
will be a secondary market for the Notes or liquidity in such secondary market
if one develops.
In connection with this offering, the Agents may purchase and sell Notes in
the open market. These transactions may include over-allotment and stabilizing
transactions and purchases to cover syndicate short positions created in
connection with this offering. Stabilizing transactions consist of certain bids
or purchases for the purpose of preventing or retarding a decline in the market
price of Notes, and syndicate short positions involve the sale by the Agents of
a greater number of Notes than they are required to purchase from the Company in
this offering. The Agents also may impose a penalty bid by which selling
concessions allowed to syndicate members or certain dealers in respect of Notes
are sold in this offering for their account may be reclaimed by the syndicate if
such Notes are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of Notes, which may be higher than the price that might otherwise
prevail in the open market; and these activities, if commenced, may be
discontinued at any time. These transactions may be effected in the
over-the-counter market or otherwise.
The Agents do not intend to confirm sales to accounts over which they
exercise discretionary authority.
Each of the Agents has rendered financial advisory services to the Company
from time to time and has received customary fees for its services. From time to
time the Agents and certain of their affiliates have engaged, and may in the
future engage, in transactions with, and perform services for, the Company and
its affiliates in the ordinary course of business.
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VALIDITY OF THE NOTES
The validity of the Notes offered hereby will be passed upon for the
Company by Nicholas J. Calise, Vice President, Associate General Counsel and
Secretary of the Company, and for the Agents by Sullivan & Cromwell, New York,
New York. The opinions of Mr. Calise and Sullivan & Cromwell will be conditioned
upon, and subject to certain assumptions regarding, future action required to be
taken by the Company and the Trustee in connection with the issuance and sale of
a particular Note, the specific terms of Notes and other matters which may
affect the validity of Notes but which cannot be ascertained on the dates of
such opinions. As of March 18, 1998, Mr. Calise owned 17,792 shares of the
Company's Common Stock; has deferred receipt of 5,917 shares of the Company's
Common Stock under the Company's Long Term Incentive Plan; has contingently
credited to his account 2,600 phantom shares under the 1998-2000 Long Term
Incentive Plan, all of which are subject to forfeiture; held options to purchase
83,300 shares of Common Stock; and had credited to his account in the Company's
Retirement Plus Savings Plan approximately 5,107 shares of Common Stock.
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<PAGE> 23
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH JURISDICTION.
SUBJECT TO COMPLETION, DATED MARCH , 1998
THE B.F.GOODRICH COMPANY
DEBT SECURITIES
------------------------
The B.F.Goodrich Company may from time to time offer Debt Securities
consisting of debentures, notes and/or other unsecured evidences of indebtedness
in one or more series. The Debt Securities may be offered as separate series in
amounts, at prices and on terms to be determined at the time of sale. The
accompanying Prospectus Supplement sets forth with regard to the series of Debt
Securities in respect of which this Prospectus is being delivered the title,
aggregate principal amount, denominations (which may be in United States
dollars, in any other currency or in a composite currency), maturity, rate
(which may be fixed or variable), if any, and time of payment of any interest,
any terms for redemption at the option of the Company or the holder, any terms
for sinking fund payments, any listing on a securities exchange and the initial
public offering price, any intent of any underwriter or agent to make a market
in the Debt Securities and any other terms in connection with the offering and
sale of such Debt Securities.
The Company may sell Debt Securities to or through underwriters, and also
may sell Debt Securities directly to other purchasers or through agents. See
"Plan of Distribution". The accompanying Prospectus Supplement sets forth the
names of any underwriters or agents involved in the sale of the Debt Securities
in respect of which this Prospectus is being delivered, the principal amounts,
if any, to be purchased by underwriters and the compensation, if any, of such
underwriters or agents.
------------------------
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 DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 24
CERTAIN PERSONS PARTICIPATING IN AN OFFERING OF DEBT SECURITIES MAY ENGAGE
IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF SUCH
DEBT SECURITIES, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH DEBT SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN
CONNECTION WITH SUCH OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN
OF DISTRIBUTION."
FORWARD-LOOKING STATEMENTS
This document includes certain forward-looking statements, as defined in
the Private Securities Litigation Reform Act of 1995, that involve risk and
uncertainty. See "Management Discussion and Analysis of Financial Condition and
Results of Operations--Additional Discussion--Forward-Looking Information."
AVAILABLE INFORMATION
The B.F.Goodrich Company (including its subsidiaries unless the context
otherwise requires, the "Company" or "BFGoodrich") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information filed
by the Company may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such materials can be
obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
such material may also be inspected and copied at the offices of the New York
Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, on which
certain of the Company's securities are listed. The Commission also maintains a
site on the World Wide Web, the address of which is http://www.sec.gov, that
contains reports, proxy statements and other information regarding issuers, such
as the Company, that file electronically with the Commission.
The Company has filed with the Commission a registration statement on Form
S-1 (herein, together with all amendments and exhibits, collectively referred to
as the "Registration Statement") under the Securities Act of 1933, as amended
(the "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. For further information,
reference is hereby made to the Registration Statement.
THE COMPANY
The Company manufactures and supplies a wide variety of systems and
component parts for the aerospace industry and provides maintenance, repair and
overhaul services on commercial, regional, business and general aviation
aircraft. The Company also manufactures specialty plastics and specialty
additives products for a variety of end-user applications. The Company, with
1997 sales of $3.4 billion, is organized into two principal business segments:
BFGoodrich Aerospace ("Aerospace") and BFGoodrich Specialty Chemicals
("Specialty Chemicals"). The Company maintains patent and technical assistance
agreements, licenses and trademarks on its products, process technologies and
expertise in most of the countries in which it operates. The Company conducts
its business through numerous divisions and 82 wholly- and majority-owned
subsidiaries worldwide.
1
<PAGE> 25
The principal executive offices of the Company are located at 4020 Kinross
Lakes Parkway, Richfield, Ohio 44286-9368 (telephone (330) 659-7600). The
Company was incorporated under the laws of the State of New York on May 2, 1912
as the successor to a business founded in 1870.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
(A) 1.87 2.16 2.39 2.98
</TABLE>
- ---------------
(A) Earnings did not cover fixed charges in 1993 by $42.1 million.
For the purpose of computing the ratio of earnings to fixed charges,
"earnings" represent income from continuing operations before income taxes,
fixed charges (excluding capitalized interest and distributions on quarterly
income preferred securities), amortization of previously capitalized interest
and undistributed earnings (losses) of affiliated companies which are accounted
for on the equity method. "Fixed charges" consist of interest expense (including
capitalized interest and interest costs on company-owned life insurance
policies), amortization of debt discount or premium, the portion of rental
expense representative of an interest factor and distributions on quarterly
income preferred securities.
USE OF PROCEEDS
Except as may be set forth in the Prospectus Supplement accompanying this
Prospectus, the Company intends to use approximately $300 million of the net
proceeds from the sale of the Debt Securities to retire a similar amount of
indebtedness which is borrowed on a 7-day or 30-day revolving basis and which
expires in March 1999 and which bears interest at a floating rate equal to LIBOR
plus a margin of 30 basis points and which was incurred to acquire Freedom
Chemical (as defined below), and to use the balance of such proceeds for general
corporate purposes.
GENERAL BUSINESS DEVELOPMENTS
On December 22, 1997, BFGoodrich completed a merger with Rohr, Inc.
("Rohr") by exchanging 18,588,004 shares of BFGoodrich common stock for all of
the common stock of Rohr (unless the context otherwise requires, the terms
Company and BFGoodrich are used to refer to BFGoodrich including Rohr). Each
share of Rohr common stock was exchanged for .7 of one share of BFGoodrich
common stock. The merger was accounted for as a pooling of interests, and all
prior period financial statements have been restated to include the financial
information of Rohr as though Rohr had always been a part of BFGoodrich. For
further information concerning the merger with Rohr, see Note A of the Notes to
Consolidated Financial Statements.
On March 16, 1998, the Company acquired Freedom Chemical Company ("Freedom
Chemical") for $367.4 million in cash. The Company borrowed $300 million under a
newly created short-term borrowing facility with the Company's domestic
relationship banks to initially finance the majority of the purchase price.
Freedom Chemical had sales of $293.1 million in 1997, 42 percent of which were
outside the United States. Freedom Chemical is a leading global manufacturer of
specialty and fine chemicals that are sold to a variety of customers who use
them to enhance the performance of their finished products. Freedom Chemical has
leadership positions as a supplier of specialty chemical additives used in
personal care, food and beverage, pharmaceutical, textile, graphic arts, paints,
colorants and coatings applications and as chemical intermediates.
During 1997, the Company acquired five businesses (four of which were
acquired during the fourth quarter) for cash consideration of $133.4 million in
the aggregate, which includes $65.3 million of goodwill. The purchase price
allocations have been based on preliminary estimates. One of
2
<PAGE> 26
the acquired businesses is a manufacturer of data acquisition systems for
satellites and other aerospace applications. A second business manufactures
diverse aerospace products for commercial and military applications. A third
business is a manufacturer of dyes, chemical additives and durable press resins
for the textiles industry. A fourth business manufactures thermoplastic
polyurethanes and is located in the United Kingdom. The remaining acquisition is
a small specialty chemicals business.
On August 15, 1997, the Company sold its chlor-alkali and olefins ("CAO")
business to The Westlake Group for $92.7 million, resulting in an after-tax gain
of $14.5 million, or $.19 per diluted share. The disposition of the CAO business
represents the disposal of a segment of a business under APB Opinion No. 30
("APB 30"). Accordingly, the Consolidated Statement of Income reflects the CAO
business (previously reported as Other Operations) as a discontinued operation.
On February 3, 1997, the Company sold Tremco Incorporated to RPM, Inc. for
$230.7 million, resulting in an after-tax gain of $59.5 million, or $.80 per
diluted share. The sale of Tremco Incorporated completed the disposition of the
Company's Sealants, Coatings and Adhesives ("SC&A") Group, which also
represented a disposal of a segment of a business under APB 30. Accordingly, the
SC&A Group is also reflected as a discontinued operation in the Consolidated
Statement of Income.
Also during 1997, the Company completed the sale of its Engine Electrical
Systems Division, which was part of the Sensors and Integrated Systems Group in
Aerospace. The Company received cash proceeds of $72.5 million, which resulted
in a pretax gain of $26.4 million ($16.4 million after tax).
During 1996, the Company acquired five specialty chemicals businesses for
cash consideration of $107.9 million, which includes $80.0 million of goodwill.
Four of the acquisitions are part of the Specialty Additives Group. One of the
businesses acquired is a European-based supplier of emulsions and polymers for
use in paint and coatings for textiles, paper, graphic arts and industrial
applications. Two of the acquisitions represent product lines consisting of
water-borne acrylic resins and coatings and additives used in the graphic arts
industry. The fourth acquisition consists of water-based textile coatings
product lines. Specialty Plastics made the remaining acquisition, a small
supplier of anti-static compounds.
During 1995, the Company acquired four small aerospace businesses and two
small specialty chemicals businesses for an aggregate price of $15.4 million.
In 1995, the Company sold its wholly owned subsidiary, Arrowhead Industrial
Water, Inc., for $84.3 million, which resulted in a pretax gain of $3.6 million.
During 1994, the Company acquired two small specialty chemicals businesses
which manufacture coatings and products for the textile industry.
In 1993, the Company acquired certain assets and assumed certain
liabilities of eight businesses and acquired the minority interest in a
previously majority-owned subsidiary, for approximately $528.5 million.
Acquisitions of five aerospace businesses amounted to approximately $504.8
million. These acquisitions included the Cleveland Pneumatic Company Division
and Cleveland Pneumatic Product Service Division (collectively referred to as
"Cleveland Pneumatic") for approximately $193.4 million from Pneumo Abex
Corporation, a wholly-owned subsidiary of Abex Inc., and the aerospace business
("Rosemount Aerospace") of Rosemount Inc., a wholly-owned subsidiary of Emerson
Electric Company, for approximately $301.1 million. Cleveland Pneumatic designs,
develops and manufactures landing gear for commercial and military aircraft and
also provides overhaul service for commercial aircraft landing gear. Principal
manufacturing facilities are located in Cleveland, Ohio and Tullahoma,
Tennessee. The service facilities are located in Miami, Florida. Rosemount
Aerospace designs and manufactures aerospace sensors and related equipment in
facilities located in Burnsville and Eagan, Minnesota. The other Aerospace
acquisitions,
3
<PAGE> 27
which were, in the aggregate, not significant, include a specialty heating and
avionics power business and a manufacturer of automated test equipment for
aircraft.
In addition to the five aerospace business acquisitions, three specialty
chemicals businesses were acquired in 1993, which included a water management
business (which was subsequently included in and sold along with Arrowhead
Industrial Water, Inc.), a manufacturer of urethane polymer resins and a small
reaction-injection-molding business. These acquisitions in the aggregate were
not significant.
Also, in December 1993, the Company disposed of its remaining investment in
The Geon Company ("Geon"). Geon was formed in early 1993 from the business
(other than the chloralkali, ethylene and utilities operations primarily located
at Calvert City, Kentucky) that was previously included in the former Geon Vinyl
Division of the Company. The disposition of Geon through public offerings of
stock generated net cash proceeds of $470.4 million and a financial gain of
$110.9 million after tax. Prior to the sale of Geon, the Company received a
special distribution of $160.0 million from Geon. Net assets of Geon, including
equity in earnings of the business to the dates of disposition, were
approximately $247.0 million.
4
<PAGE> 28
SELECTED CONSOLIDATED FINANCIAL DATA
On December 22, 1997, BFGoodrich completed a merger with Rohr which was
accounted for as a pooling of interests. Accordingly, all prior period
Consolidated Financial Statements have been restated to include the results of
operations, financial position and cash flows of Rohr as through Rohr had always
been a part of BFGoodrich.
Prior to the merger, Rohr's fiscal year ended on July 31. For the purposes
of the combination, Rohr's financial results for its fiscal year ended July 31,
1997, have been restated to the year ended December 31, 1997, to conform with
BFGoodrich's calendar year end. Financial results for Rohr's fiscal years ended
July 31, 1996 and earlier have not been restated to conform to BFGoodrich's
calendar year end. For periods prior to 1997, Rohr's fiscal years ended July 31
have been combined with BFGoodrich's calendar years ended December 31. As a
result, Rohr's results of operations for the period August 1, 1996 to December
31, 1996 do not appear in the Consolidated Statement of Income and instead are
recorded as a direct adjustment to equity.
The following selected consolidated financial data of the Company is
qualified by reference to and should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. The Statement of Income Data set forth
below with respect to 1997, 1996 and 1995 and the Balance Sheet Data as of
December 31, 1997 and 1996 are derived from the audited financial statements
included elsewhere in this Prospectus which financial statements have been
audited by Ernst & Young LLP, except for the Consolidated Financial Statements
of Rohr, Inc. as of July 31, 1996 and for each of the two years in the period
ended July 31, 1996 (consolidated with those of The BFGoodrich Company and not
presented separately herein) which were audited by Deloitte & Touche LLP. The
Statement of Income Data for 1994 and 1993 and the Balance Sheet Data as of
December 31, 1995, 1994 and 1993 are derived from audited financial statements
of the previously independent companies.
5
<PAGE> 29
THE BFGOODRICH COMPANY AND SUBSIDIARIES SELECTED FIVE-YEAR FINANCIAL DATA
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS, 1997 1996 1995 1994 1993
EXCEPT PER SHARE AMOUNTS) -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales................................. $3,373.0 $2,845.8 $2,661.8 $2,601.4 $2,504.3
Operating income...................... 250.1 310.3 247.4 217.0 76.2
Income (loss) from continuing
operations......................... 113.2 115.5 94.8 66.4 (14.9)
BALANCE SHEET DATA:
Total assets.......................... $3,493.9 $3,579.8 $3,387.5 $3,435.4 $3,268.7
Non-current long-term debt and capital
lease obligations.................. 564.3 881.4 963.0 1,001.1 967.4
Mandatorily redeemable preferred
securities of Trust................ 123.1 122.6 122.2 -- --
Redeemable preferred stock............ -- -- -- -- 3.8
Total shareholders' equity............ 1,422.6 1,225.8 975.9 979.2 968.5
OTHER FINANCIAL DATA:
Total segment operating income........ $ 388.5 $ 363.1 $ 303.9 $ 270.0 $ 133.8
Capital expenditures.................. 159.9 197.1 155.8 136.1 173.7
Dividends (common and preferred)...... 59.5 58.8 61.6 64.6 64.6
Distributions on Trust preferred
securities......................... 10.5 10.5 5.1 -- --
PER SHARE OF COMMON STOCK:
Income (loss) from continuing
operations, diluted................ $ 1.53 $ 1.65 $ 1.34 $ .91 $ (.37)
Dividends declared.................... 1.10 1.10 1.10 1.10 1.10
Book value............................ 19.56 17.66 14.97 13.54 13.44
RATIOS:
Operating income as a percent
of sales (%)....................... 7.4 10.9 9.3 8.3 3.0
Return on common shareholders'
equity (%)......................... 13.5 15.8 14.7 10.8 (14.2)
Debt-to-capitalization ratio (%)...... 33.0 44.3 49.3 53.8 52.1
Dividend payout-common stock (%)...... 33.4 33.9 40.6 55.9 n/a
OTHER DATA:
Common shareholders of record at
end of year........................ 13,550 n/a n/a n/a n/a
Common shares outstanding at
end of year (millions)............. 72.7 69.4 65.2 64.2 63.9
Number of employees at end of year.... 16,838 17,960 17,275 18,292 19,916
</TABLE>
6
<PAGE> 30
SUPPLEMENTARY FINANCIAL INFORMATION
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
1997 QUARTERS 1996 QUARTERS
--------------------------------- ---------------------------------
(DOLLARS IN MILLIONS, FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
EXCEPT PER SHARE AMOUNTS) ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BUSINESS SEGMENT SALES:
Aerospace.................... $541.5 $618.1 $646.5 $662.2 $457.3 $482.8 $512.9 $568.4
Specialty Chemicals.......... 222.7 228.4 223.7 229.9 191.0 203.1 217.5 212.8
------ ------ ------ ------ ------ ------ ------ ------
Total Sales.................... $764.2 $846.5 $870.2 $892.1 $648.3 $685.9 $730.4 $781.2
====== ====== ====== ====== ====== ====== ====== ======
Gross Profit................... $203.0 $228.5 $253.7 $233.1 $179.4 $203.4 $197.8 $222.7
====== ====== ====== ====== ====== ====== ====== ======
BUSINESS SEGMENT OPERATING
INCOME:
Aerospace.................... $ 55.0 $73.3 $ 63.5 $ 68.5 $ 47.0 $70.5 $ 62.8 $ 73.3
Specialty Chemicals.......... 31.1 31.1 31.8 34.2 25.0 28.5 30.8 25.2
Corporate.................... (14.8) (15.2) (16.3) (92.1) (12.7) (11.5) (15.0) (13.6)
------ ------ ------ ------ ------ ------ ------ ------
Total Operating Income......... $ 71.3 $89.2 $ 79.0 $ 10.6 $ 59.3 $87.5 $ 78.6 $ 84.9
====== ====== ====== ====== ====== ====== ====== ======
INCOME (LOSS) FROM:
CONTINUING OPERATIONS.......... $ 29.8 $64.5 $ 37.4 $(18.5) $ 19.0 $33.9 $ 29.4 $ 33.2
DISCONTINUED OPERATIONS........ 64.1 3.4 16.8 -- (1.3) 12.9 43.7 3.1
EXTRAORDINARY ITEMS............ -- -- (2.6) (16.7) -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
NET INCOME (LOSS).............. $ 93.9 $67.9 $ 51.6 $(35.2) $ 17.7 $46.8 $ 73.1 $ 36.3
====== ====== ====== ====== ====== ====== ====== ======
BASIC EARNINGS
(LOSS) PER SHARE:
Continuing operations........ $ .42 $ .91 $ .53 $ (.26) $ .29 $ .52 $ .43 $ .49
Net income (loss)............ $ 1.33 $ .96 $ .73 $ (.49) $ .27 $ .71 $ 1.08 $ .53
DILUTED EARNINGS
(LOSS) PER SHARE:
Continuing operations........ $ .40 $ .87 $ .50 $ (.26) $ .28 $ .49 $ .41 $ .47
Net income (loss)............ $ 1.27 $ .91 $ .69 $ (.49) $ .27 $ .67 $ 1.02 $ .51
</TABLE>
The first quarter of 1997 includes a $59.5 million after-tax gain in
discontinued operations from the sale of the SC&A Group. The second quarter
includes a pretax gain of $26.4 million from the sale of the Company's engine
electrical business and a $13.7 million pretax gain on the issuance of a
subsidiary's stock. In the third quarter of 1997, the Company recognized a $35.2
million pretax loss to write off a portion of the MD-90 contract and recognized
a $2.6 million after-tax charge from the early extinguishment of certain Rohr
debt (reported as an extraordinary item). In the fourth quarter of 1997, the
Company recognized pretax charges of $77.0 million for merger costs and $10.9
million from the write-off of accounts receivable from a bankrupt customer. The
fourth quarter of 1997 also includes a $16.7 million after-tax charge for the
early extinguishment of certain Rohr debt refinanced in connection with the
merger, also reported as an extraordinary item.
In the first quarter of 1996, operating income included a $4.0 million
pretax charge for a voluntary early retirement program in Specialty Chemicals.
In the second quarter of 1996, income from discontinued operations included a
$6.4 million pretax gain on the sale of an SC&A business. In the third quarter
of 1996, income from continuing operations included a $5.3 million pretax loss
on the exchange of Rohr's convertible debt. Income from discontinued operations
in the 1996 third quarter included a $30.0 million non-cash adjustment to the
gain of a business previously accounted for as a discontinued operation. The
fourth quarter of 1996 included a $7.2 million pretax loss from the write-down
of an impaired asset and a $5.2 million pretax loss from the sale of a
subsidiary. This quarter also included a $1.6 million pretax gain from the sale
of the Company's airport lighting business.
7
<PAGE> 31
As a result of the pooling-of-interests merger with Rohr late in the fourth
quarter of 1997, the amounts reported above differ from those previously
reported in the applicable BFGoodrich quarterly reports on Form 10-Q. Quarterly
results for 1997 combine BFGoodrich and Rohr results for the same calendar
quarters. Quarterly results for 1996 combine BFGoodrich historical results for
each calendar quarter with Rohr historical results for each fiscal quarter
(i.e., BFGoodrich's first quarter ended March 31, 1996, is combined with Rohr's
first fiscal quarter ended October 31, 1995). A reconciliation of the amounts
previously reported in BFGoodrich's quarterly reports on Form 10-Q to combined
results reported above is as follows:
<TABLE>
<CAPTION>
1997 QUARTERS 1996 QUARTERS
--------------------------------- ---------------------------------
(DOLLARS IN MILLIONS, FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
EXCEPT PER SHARE AMOUNTS) ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SALES:
As previously reported....... $549.4 $578.1 $585.9 $592.6 $498.0 $506.1 $528.2 $545.9
Effect of Rohr merger........ 214.8 268.4 284.3 299.5 150.3 179.8 202.2 235.3
------ ------ ------ ------ ------ ------ ------ ------
As reported above.............. $764.2 $846.5 $870.2 $892.1 $648.3 $685.9 $730.4 $781.2
====== ====== ====== ====== ====== ====== ====== ======
GROSS PROFIT:
As previously reported....... $174.4 $191.0 $196.8 $192.3 $164.9 $167.4 $165.7 $178.6
Effect of Rohr merger........ 28.6 37.5 56.9 40.8 14.5 36.0 32.1 44.1
------ ------ ------ ------ ------ ------ ------ ------
As reported above.............. $203.0 $228.5 $253.7 $233.1 $179.4 $203.4 $197.8 $222.7
====== ====== ====== ====== ====== ====== ====== ======
INCOME (LOSS) FROM CONTINUING
OPERATIONS:
As previously reported....... $ 20.9 $52.4 $ 32.5 $ 26.7 $ 21.2 $25.0 $ 20.9 $ 26.1
Effect of Rohr merger........ 8.9 12.1 4.9 (45.2) (2.2) 8.9 8.5 7.1
------ ------ ------ ------ ------ ------ ------ ------
As reported above.............. $ 29.8 $64.5 $ 37.4 $(18.5) $ 19.0 $33.9 $ 29.4 $ 33.2
====== ====== ====== ====== ====== ====== ====== ======
NET INCOME (LOSS):
As previously reported....... $ 85.0 $55.8 $ 49.4 $ 26.7 $ 19.9 $37.9 $ 64.6 $ 29.3
Effect of Rohr merger........ 8.9 12.1 2.2 (61.9) (2.2) 8.9 8.5 7.0
------ ------ ------ ------ ------ ------ ------ ------
As reported above.............. $ 93.9 $67.9 $ 51.6 $(35.2) $ 17.7 $46.8 $ 73.1 $ 36.3
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements. See "--Additional
Discussion--Forward-Looking Information" for certain risks and uncertainties.
1997 COMPARED WITH 1996
General. BFGoodrich achieved the fourth year of solid sales and income
growth since the new company effectively came into being on January 1, 1994,
following the sale of the Geon Vinyl Products Segment in 1993. In addition, the
largest business combination in its 128-year history was accomplished at the end
of 1997.
Merger With Rohr. On December 22, 1997, BFGoodrich completed a merger with
Rohr by exchanging 18,588,004 shares of BFGoodrich common stock for all of the
common stock of Rohr. Each share of Rohr common stock was exchanged for .7 of
one share of BFGoodrich common stock. The merger was accounted for as a pooling
of interests, and all prior period financial statements have been restated to
include the financial information of Rohr as though Rohr had always been a part
of BFGoodrich.
Consolidated Operations. The Company achieved strong double-digit sales
and income growth from continuing operations in 1997. Income from continuing
operations climbed 58 percent,
8
<PAGE> 32
excluding the impact of merger-related costs. The Company experienced continued
strong demand in many markets in both the Aerospace and Specialty Chemicals
Segments.
Sales. The table below presents the sales of BFGoodrich and Rohr for each
of the last three fiscal years.
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996 1995
------------- -------- -------- --------
<S> <C> <C> <C>
Sales:
BFGoodrich................................... $2,306.0 $2,078.2 $1,860.5
Rohr......................................... 1,067.0 767.6 801.3
-------- -------- --------
$3,373.0 $2,845.8 $2,661.8
======== ======== ========
</TABLE>
Cost of sales was 73.8 percent of sales in 1997, compared with 71.8 percent
in 1996. Margin improvement in several businesses in 1997 was more than offset
by margin decline in others (see detailed group discussions below).
Selling and administrative costs were 16.5 percent of sales in 1997,
compared with 16.9 percent a year earlier. Each segment contributed to the
reduction, which was principally the result of higher sales. Additional leverage
was mitigated by higher variable selling-related costs in the Specialty
Chemicals Segment and increased original-equipment strategic sales incentives
and a large bad debt write-off in the Aerospace Segment.
Income from Continuing Operations. The table below presents income from
continuing operations for the previously separate companies and the combined
amounts presented in the Consolidated Statement of Income for each of the last
three fiscal years.
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996 1995
------------- ------ ------ -----
<S> <C> <C> <C>
Income from Continuing Operations:
BFGoodrich....................................... $140.5 $ 93.2 $74.6
Rohr............................................. 42.0 22.3 20.2
------ ------ -----
182.5 115.5 94.8
Merger-related costs (after tax)................. (69.3) -- --
------ ------ -----
$113.2 $115.5 $94.8
====== ====== =====
</TABLE>
Income from continuing operations included various charges or gains
(referred to as special items) which affected reported earnings. Excluding the
effects of special items, income from continuing operations in 1997 was $179.3
million, or $2.42 per diluted share, compared with $127.7 million, or $1.83 per
diluted share, in 1996. The following table presents the impact of special items
on 1997 and 1996 earnings per diluted share.
<TABLE>
<CAPTION>
EARNINGS PER DILUTED SHARE 1997 1996
-------------------------- ----- -----
<S> <C> <C>
Income from continuing operations........................... $1.53 $1.65
MD-90 write-off........................................... .28 --
Net (gain) loss on sold businesses........................ (.22) .03
Gain on issuance of subsidiary stock...................... (.10) --
Merger-related costs...................................... .93 --
Asset impairment and restructuring charges................ -- .10
Exchange of convertible debt.............................. -- .05
----- -----
Income from continuing operations, excluding special
items..................................................... $2.42 $1.83
===== =====
</TABLE>
Prior to the merger, Rohr's fiscal year ended on July 31. For purposes of
the combination, Rohr's financial results for its fiscal year ended July 31,
1997, have been restated to the year ended December 31, 1997, to conform with
BFGoodrich's calendar year end. Financial results for Rohr's fiscal years ended
July 31, 1996 and earlier have not been restated to conform to BFGoodrich's
9
<PAGE> 33
calendar year end. For periods prior to 1997, Rohr's fiscal years ended July 31
have been combined with BFGoodrich's calendar years ended December 31. As a
result, Rohr's results of operations for the period August 1, 1996 to December
31, 1996, do not appear in the Consolidated Statement of Income and instead are
recorded as a direct adjustment to equity. Rohr's revenues, expenses and net
loss for this five-month period were $341.3 million, $359.3 million and $18.0
million, respectively. Included in expenses during this period was a $49.3
million pretax charge ($29.5 million after tax) relating to the McDonnell
Douglas MD-90 program (see discussion under Aerostructures Group).
As a result of the Rohr merger occurring at the end of 1997, certain users
of financial statements may find it helpful, or be interested to know, what
BFGoodrich's 1997 earnings may have looked like without the merger. On this
basis, 1997 pro forma net income excluding special items was $116.3 million, or
$2.12 per diluted share on a pro forma basis. This compares with pro forma net
income of $94.8 million, or $1.76 per diluted share on a pro forma basis, for
1996 (excluding special items).
Outlook. For 1998 and beyond, the Company has established a financial
template which sets forth a series of specific financial goals that define
excellence in business and financial performance from the perspective of an
investor. The goals are: double-digit annual revenue growth; combined segment
operating margins of at least 15 percent; earnings-per-share growth of 15
percent on average; and return on equity of 15 percent. To attain these goals,
the Company will aggressively assimilate the more recent large acquisitions and
expand its previously existing businesses worldwide. The Company has the
financial strength needed to pursue this growth.
AEROSPACE
Market Overview. 1997 was a strong year for the aerospace industry.
Deliveries of large commercial transport aircraft, a key indicator of market
demand, surged 44 percent over 1996. A second key indicator, revenue passenger
miles-which reflects the number of passengers and the distance they travel on
the airlines-also rose during the year. For instance, world airline passenger
traffic increased an estimated 7.3 percent over 1996, including an increase of
revenue passenger miles in the U.S. market of 4.7 percent. Although market
conditions boosted commercial programs, military spending again declined from
the prior year. Total military spending in 1997 was approximately 6 percent less
than in 1996.
Segment Performance. Aerospace achieved sales growth of 22 percent over
1996. Sixty percent of Aerospace's 1997 sales were to original-equipment
manufacturers, up from 51 percent in 1996. The increase in original-equipment
sales was due to stronger demand for new commercial aircraft in the marketplace.
Sales to civil aviation customers were 86 percent of total Aerospace sales in
1997, compared with 87 percent in 1996. Military sales decreased to 9 percent of
Aerospace sales, from 12 percent a year earlier. Aerospace achieved a 3 percent
increase in operating income, despite a $35.2 million charge related to the
MD-90 program, a large increase in sales incentives related to wheels and
brakes, and an $11.8 million bad debt write-off due to a customer's bankruptcy
and productivity problems in the MRO Group.
<TABLE>
<CAPTION>
SALES BY GROUP (IN MILLIONS) 1997 1996 1995
---------------------------- -------- -------- --------
<S> <C> <C> <C>
Aerostructures............................... $1,039.7 $ 744.4 $ 783.8
Landing Systems.............................. 509.6 414.8 364.2
Sensors and Integrated Systems............... 550.7 493.2 475.8
MRO.......................................... 368.3 369.0 327.2
-------- -------- --------
Total...................................... $2,468.3 $2,021.4 $1,951.0
======== ======== ========
</TABLE>
Aerostructures Group (Rohr). The group achieved 40 percent sales growth in
1997. Contributing to increased sales were accelerated delivery rates on most
commercial programs, reflecting increased production rates of commercial
aircraft and increased deliveries of spare parts. The
10
<PAGE> 34
CFM56-5 and V2500 programs (which power the A320 family), A340, RR535-E4
(primarily for the Boeing 757), and MD-90 programs all reflected significant
volume increases.
The Aerostructures Group 1997 operating income of $102.6 million included a
$35.2 million pretax charge on the MD-90 contract. Operating income increased in
1997 primarily as a result of increased sales. Operating income of $89.8 million
in 1996 was adversely impacted by a $7.2 million pretax impairment charge on the
group's Arkadelphia, Arkansas, facility. Operating income in 1996 benefited from
the recognition of profit on the MD-90 program (1996 MD-90 sales were $68.8
million). In 1997, however, no profit was recognized on MD-90 sales (totaling
$109.9 million), adversely affecting margins, in addition to the $35.2 million
pretax charge recognized on that program in 1997, as discussed below.
In 1990, the Company entered into a contract with International Aero
Engines to produce nacelles for The Boeing Company's (formerly the McDonnell
Douglas Corporation's) MD-90 aircraft. Under the terms of the contract, the
Company agreed to recover its preproduction costs, and the higher-than-average
production costs associated with early production shipments, over a specified
number of deliveries. In light of the wide market acceptance of the MD-80
series, which was the predecessor aircraft, the Company believed sufficient
MD-90 aircraft would be sold to allow it to recover its costs.
Starting in 1996, a series of developments created market uncertainties
regarding future sales of the MD-90 aircraft. The most significant of these
developments included: McDonnell Douglas' termination of the MD-XX program and
the doubts this action raised regarding McDonnell Douglas' continued presence in
the commercial aircraft industry; the decision of several large airlines that
have traditionally operated McDonnell Douglas aircraft to order aircraft that
compete with the MD-90; the announced (and subsequently completed) acquisition
of McDonnell Douglas by Boeing, which produces a family of competing aircraft;
the announcement by Delta Air Lines (launch customer for the MD-90) of its
intent to replace its existing fleet of MD-90s and to seek a business resolution
with McDonnell Douglas with respect to its remaining orders for the aircraft;
and the lack of significant new MD-90 orders.
In recognition of these developments, the Company reduced its estimates of
future MD-90 aircraft deliveries in December 1996 to include only deliveries
which were supported by firm orders, options and letters of intent for the
aircraft. Based on its reduced estimate of future aircraft deliveries, the
Company believed that future MD-90 sales would not be sufficient to recover its
contract investment plus the costs it will be required to spend in the future to
complete the contract. As a result, the Company recorded a $49.3 million pretax
charge ($29.5 million after tax) in December of 1996 (this charge did not impact
the income statement; rather, it was recognized as a direct adjustment to equity
as a result of aligning Rohr's fiscal year with BFGoodrich's). During July 1997,
the Company further reduced its market estimate of future MD-90 sales to
existing firm aircraft orders (excluding firm orders from Delta Air Lines) and
recorded an additional $35.2 million pretax charge ($21.0 million after tax, or
$.28 per diluted share).
<TABLE>
<CAPTION>
OPERATING INCOME (LOSS) BY GROUP (IN MILLIONS) 1997 1996 1995
---------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Aerostructures.................................... $102.6 $ 89.8 $ 77.7
Landing Systems................................... 72.0 61.2 54.1
Sensors and Integrated Systems.................... 89.0 72.6 64.9
MRO............................................... (3.3) 30.0 32.8
------ ------ ------
Total........................................... $260.3 $253.6 $229.5
====== ====== ======
</TABLE>
The Boeing 717 program (previously termed the McDonnell Douglas MD-95
program) is a new 100-passenger aircraft currently under development. The
Company has invested $62.8 million for design and development costs on the
Boeing 717 program through December 31, 1997. The Company anticipates spending
approximately $23.0 million more for preproduction costs through mid-1999, the
aircraft's scheduled Federal Aviation Administration ("FAA") certification date.
If the
11
<PAGE> 35
contract is cancelled prior to FAA certification, the Company expects
substantial recovery of these costs. If the aircraft is certified and actively
marketed, the amount of these costs and initial production start-up costs
recovered by the Company will depend upon the number of aircraft delivered. To
date, Boeing has announced 50 firm orders and 50 options from the launch
customer, AirTran Airlines, formerly ValuJet. Boeing has indicated that it
intends to "embrace" the aircraft as a "strong addition to the Boeing product
line" and has indicated it expects future additional orders for this aircraft.
In 1993, the Company revised its contract with Pratt & Whitney on the
PW4000 for the A300/ A310 and MD-11 programs. The revised contract provides that
if Pratt & Whitney accepts delivery of less than 500 units from 1993 through
2003, an "equitable adjustment" will be made. Recent market projections on the
PW4000 contract indicate that less than 500 units will be delivered. The Company
has submitted a "request for equitable adjustment" to the customer and believes
it will achieve a recovery such that there should not be a material adverse
effect on the financial position, liquidity or results of operations of the
Company. If the Company does not receive the equitable adjustment it believes it
is entitled to, it is possible that there may be a material adverse effect on
earnings in a given period. At December 31, 1997, the Company had $64.0 million
of contract costs in inventory for the above PW4000 programs.
Landing Systems Group. The continued sales growth in 1997 primarily
reflected higher original-equipment volumes of landing gear and evacuation
products and higher wheel and brake replacement sales. Landing gear programs
providing the largest increased volume contribution included the B737 (nose
gear), B767 and MD-11. Key evacuation systems programs included the B747-400 and
the A330/340. Aftermarket demand for commercial wheels and brakes was also
strong, primarily for the B777, B737, B747-400 and A330/340 programs. In
addition, demand for regional, business, and military wheels and brakes
significantly improved during the year, particularly for the F-16 retrofit
program.
The Landing Systems Group achieved significantly higher operating income
during the year, due primarily to greater sales of landing gear and evacuation
slides to the original-equipment market and more aftermarket sales of wheels and
brakes. This result was achieved by the group despite a three-week strike at the
landing gear business in the second quarter and substantially higher strategic
sales incentive costs in the wheel and brake business. Operating margins
(operating income as a percent of sales) declined modestly, reflecting the lower
margins associated with original-equipment sales relative to aftermarket sales
and significantly higher strategic sales incentive costs.
Sensors and Integrated Systems Group. The increased sales volumes of the
Sensors and Integrated Systems Group reflected increased demand from commercial
original-equipment manufacturers for aircraft sensors, principally on the B777
and B747 commercial transport programs and the Embraer and Gulfstream GV
regional and business jet programs. Stronger demand for aftermarket spares also
boosted sales, particularly for aircraft sensors and aircraft fuel systems. In
addition, the group benefited from the March completion of the Gulton Data
Systems acquisition, a transaction which offset lost sales resulting from the
engine electrical systems business divestiture in June 1997. Gulton Data Systems
sells products primarily to the space industry.
Operating income for the group increased 23 percent over 1996 results.
Operating margins increased 10 percent, due to increased volumes of
higher-margin aftermarket spares that were sold to the commercial markets.
Operating income improvement also reflects productivity initiatives,
12
<PAGE> 36
including business and plant consolidations. In addition, the income
contribution of Gulton Data Systems more than offset the lost income from the
divested engine electrical systems business.
<TABLE>
<CAPTION>
OPERATING MARGIN BY GROUP 1997 1996 1995
------------------------- ---- ---- ----
<S> <C> <C> <C>
Aerostructures...................................... 9.9% 12.1% 9.9%
Landing Systems..................................... 14.1% 14.8% 14.9%
Sensors and Integrated Systems...................... 16.2% 14.7% 13.6%
MRO................................................. (1.0)% 8.1% 10.0%
Total Segment....................................... 10.5% 12.5% 11.8%
</TABLE>
Maintenance, Repair and Overhaul ("MRO") Group. Sales declined modestly
compared with 1996, largely reflecting decreased sales volume in the component
services business due to reduced demand from a major customer and, to a lesser
extent, the bankruptcy of two customers early in 1997. The group's airframe
business, however, posted higher sales during the year. Despite the negative
effects of the UPS strike during the summer of 1997 and productivity issues
throughout the year, the airframe business achieved a 5 percent sales growth.
This growth was due to increased demand for services from airline customers
throughout the year and the addition of two new customers-United and Northwest
Airlines.
The MRO Group, however, recorded an operating loss in 1997. The group
recognized an $11.8 million bad debt charge related to all amounts receivable
from Western Pacific Airlines ($10.9 million of which was recognized in the
fourth quarter). Western Pacific filed for Chapter 11 protection under the
Bankruptcy Code last October. On February 4, 1998, Western Pacific abruptly
ceased its operations, resulting in the bankruptcy court ordering liquidation of
the airline. The Company expects that 1998 MRO sales and operating income will
not be materially adversely impacted by lost Western Pacific business, due to
expected replacement business. In addition to the Western Pacific matter, the
airframe business continued to face challenges in retaining skilled technical
workers, as competition for skilled workers significantly increased due to
hiring at Boeing and the airlines. This resulted in higher costs for training
new workers, lower productivity and higher wage and benefit rates for retained
skilled workers. Although turnover of the labor force declined progressively
during 1997, turnover levels at year end were still higher than historical
levels. In addition, lower customer demand and higher operating costs in the
component services business contributed to the operating income decline.
Finally, the group's 1996 sales included approximately $7.0 million of
high-margin product sales by the component services business which are not
normally made by the service businesses and which are not expected to recur.
Outlook. Industry analysts predict that commercial transport aircraft
production will continue to be strong throughout 1998 and into future years,
with Boeing and Airbus deliveries forecasted to increase by more than 35 percent
over 1997 deliveries. Aerospace, with 60 percent of sales to original-equipment
manufacturers in 1997, is expected to benefit from the continued upswing in
production rates at Boeing, Airbus and the regional aircraft manufacturers. In
the longer term, projected worldwide airline traffic growth and enforcement of
federal noise regulations should continue to exert favorable pressure on the
original-equipment production cycle beyond 1998. In addition to the positive
commercial original-equipment sales outlook, aftermarket spares demand is also
anticipated to increase in 1998 as the average age of commercial fleets
continues to rise.
Because military procurement of new aircraft is expected to remain
relatively flat in 1998, the Company will continue its aggressive pursuit of
aircraft retrofit and life-extension programs for military customers to improve
longer-term sales of aftermarket products. Military spares sales are expected to
improve which would complement Aerospace's existing program sales and should
sustain military sales at approximately 10 percent of Aerospace's total sales.
The regional aircraft market is expected to continue its strong growth in
1998, with revenue passenger miles forecasted to increase by 7 percent. The
turbo-jet market should lead regional aircraft growth, while turbo-prop
production is expected to decline. The Company has products on
13
<PAGE> 37
most of the new models in production, including those manufactured by Embraer
and Canadair, and is well-positioned to benefit from further growth in this
market segment with new product lines. In addition, the Company expects
continued strong aftermarket sales from the components and systems that it
provides for older aircraft in service. The business jet market is forecasted to
grow by approximately 3 percent, and Aerospace has products on the latest models
from Cessna and Gulfstream.
Airlines are expected to continue to outsource traditionally retained
services in efforts to reduce operating costs. The Company, through its MRO
Group, is a leading provider of third-party airframe and component maintenance
services. Labor issues at the Seattle operations have begun to stabilize, and
the Company expects this to result in operating margin improvement during 1998
and 1999.
The addition of Rohr (Aerostructures Group) provides opportunities for the
Company to serve new business and markets with a broader line of products and
services. Rohr supplies either components or complete nacelle systems for
approximately 90 percent of the world's commercial transport aircraft fleet. As
a result, the Rohr nacelle business should continue to gain from commercial
aircraft production growth in 1998. Furthermore, Rohr expects to expand its
service capabilities in conjunction with the MRO Group and to increase its spare
parts sales to airlines and original-equipment manufacturers. The merger with
Rohr in 1997 will benefit Aerospace's position in an industry that continues to
consolidate and reward manufacturers offering a broad portfolio of product and
services.
The Company expects to continue to acquire and develop differentiated
systems capabilities, pursue process and quality improvements, and strive for
product and market leadership. As the industry continues to consolidate
domestically and internationally, the Company will be prepared to perform at the
highest levels and consistently offer the best products and services to our
aerospace customers.
SPECIALTY CHEMICALS
Segment Performance. 1997 represented another exceptional year for
Specialty Chemicals, with both sales and operating income exceeding the 1996
record levels. Sales increased 10 percent in 1997, to $904.7 million. Excluding
acquisitions, sales increased 7 percent. Segment operating income increased 17
percent, largely reflecting strong volume growth. Adverse foreign exchange
effects tempered the segment's income growth, which would have been 21 percent
excluding the impact of the stronger U.S. dollar.
<TABLE>
<CAPTION>
SALES BY GROUP (IN MILLIONS) 1997 1996 1995
---------------------------- ------ ------ ------
<S> <C> <C> <C>
Specialty Additives............................... $587.1 $532.0 $460.4
Specialty Plastics................................ 317.6 292.4 250.4
------ ------ ------
Total............................................. $904.7 $824.4 $710.8
====== ====== ======
</TABLE>
Specialty Additives Group. Strong volume growth and, to a lesser extent,
acquisitions drove a 10 percent sales increase in 1997. Excluding the negative
impact of the stronger U.S. dollar on European businesses, sales increased 12
percent. Volume gains were realized in most product lines and market segments.
Synthetic thickeners sales for industrial, personal-care, household and
pharmaceutical applications in Europe and Asia were particularly strong, as were
North American resins and emulsions sales in the paints and coatings and
electronics market segments. Selling prices were generally higher in all
Specialty Additives product lines. Excluding acquisitions, sales increased 7
percent.
Operating income in 1997 increased 28 percent, driven by volume and
productivity gains. The benefits of higher selling prices were mitigated by the
negative impact of the stronger U.S. dollar.
14
<PAGE> 38
Excluding the negative foreign exchange impact, the group's operating income
increased 34 percent over 1996. Group operating margins increased 17 percent as
a result of the above gains.
<TABLE>
<CAPTION>
OPERATING INCOME BY GROUP (IN MILLIONS) 1997 1996 1995
--------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Specialty Additives............................... $ 84.9 $ 66.1 $ 48.9
Specialty Plastics................................ 43.3 43.4 25.5
------ ------ ------
Total............................................. $128.2 $109.5 $ 74.4
====== ====== ======
</TABLE>
Specialty Plastics Group. Sales in 1997 rose 9 percent, despite the
stronger U.S. dollar effects during the year. Adjusted for exchange rate
changes, principally against European currencies, sales increased 12 percent
over 1996. Solid volume gains in the group's high-heat-resistant plastics were
achieved, most of which were in North America, while significantly higher
volumes for thermoplastic polyurethanes occurred in both North America and
Europe. Static-control polymer sales growth was achieved in North America and
Asia.
1997 was a transitional year for Specialty Plastics from an operating
income perspective. Income growth relating to volume gains was offset
principally by start-up costs in connection with investments in domestic and
global expansions in all divisions. Also, the negative foreign exchange impact
of the stronger U.S. dollar and higher raw material costs reduced operating
income. The group's operating income increased 3 percent over 1996 without the
foreign exchange impact. Operating income growth was achieved by the
thermoplastic polyurethane business. Significant operating margin erosion
occurred, however, in the high-heat-resistant plastics business, principally
caused by the significant start-up costs associated with the construction of two
new European plants. Operating margins in this business are expected to improve
during 1998 and 1999 as the two new plants become fully operational and volume
leverage is achieved.
<TABLE>
<CAPTION>
OPERATING MARGIN BY GROUP 1997 1996 1995
------------------------- ------ ------ ------
<S> <C> <C> <C>
Specialty Additives............................... 14.5% 12.4% 10.6%
Specialty plastics................................ 13.6% 14.8% 10.2%
------ ------ ------
Total segment..................................... 14.2% 13.3% 10.5%
====== ====== ======
</TABLE>
Outlook. Specialty Chemicals is committed to aggressive growth. The growth
strategy includes global expansion, extension of product breadth and entering
new markets. Consistent with that strategy, in late 1997 and early 1998, the
Company announced several initiatives, including the formation of a specialty
plastics joint venture in China, the acquisition of ICI's thermoplastic
polyurethane capacity in the United Kingdom, the acquisition of the C. H.
Patrick textile and coatings business and the signing of a definitive agreement
to acquire Freedom Chemical. Freedom Chemical had sales of $293.1 million in
1997, 42 percent of which were outside the U.S., including product lines in food
additives-representing a new market for Specialty Chemicals. Additionally, the
construction of a new high-heat-resistant plastic resin facility will be
completed in early 1998 in The Netherlands, which will provide additional sales
volume and strengthen the Company's competitive position in Europe. The segment
expects continued sales and operating income growth and improved operating
margins from its internal and external growth initiatives.
1996 COMPARED WITH 1995
CONSOLIDATED OPERATIONS.
1996 marked a year of continued growth and improved earnings performance.
Both Aerospace and Specialty Chemicals Segments achieved higher sales and
operating income in 1996 compared with 1995.
Income from continuing operations increased 22 percent over 1995. Results
in 1995 included (after tax) a $12.5 million insurance recovery, a $1.9 million
restructuring charge and a $2.2 million business sale gain. Excluding these
special items and the previously mentioned 1996 special items,
15
<PAGE> 39
1996 income from continuing operations was $127.7 million, or $1.83 per diluted
share, compared with $82.0 million, or $1.11 per diluted share in 1995.
AEROSPACE
General. The Aerospace Segment achieved higher sales and operating income
in 1996. Sales increased 4 percent over 1995, while operating income increased
11 percent.
Aerostructures Group. Sales declined 5 percent in 1996, to $744.4 million.
Sales in 1996 benefited from increased MD-90 deliveries and approximately $30.0
million of one-time sales related to Boeing and International Aero Engines
contracts. Overall, sales declined from 1995 levels primarily due to delivery
rate reductions on the PW4000, RB211-535 and CF6-80C programs. In addition,
government sales declined due to the near completion of the C-130 and the Titan
Space programs. Despite the sales decline, the group's 1996 operating income
increased 16 percent over 1995, reflecting a favorable sales mix and the
positive settlement of outstanding contract terms on the IL96 and the A340
contracts. The group's 1996 operating income was adversely impacted by a $7.2
million pretax impairment charge on its Arkadelphia, Arkansas, facility.
Landing Systems Group. Demand from airlines for several wheel and brake
programs increased, including the Boeing 747-400 and Airbus A320 and A330/340
programs. Strong commercial landing gear spares sales, particularly for the
Boeing 767 program, also contributed to the sales increase. Improving demand for
new aircraft landing gear, principally for the Boeing 747-400 program, also
added to the group's sales growth. Strong aftermarket demand for evacuation
products and evacuation repair services more than offset lower evacuation
products sales for new aircraft. Higher volumes, particularly in higher-margin
aftermarket sales, drove the group's operating income increase over 1995.
Sensors and Integrated Systems Group. The group's sales increase resulted
from strong aircraft sensors aftermarket demand. Demand increased for retrofit
products, particularly for Boeing 727 and 737 and Lockheed L1011 aircraft. The
increase in operating income over 1995 reflects the higher 1996 sales levels.
MRO Group. The MRO Group achieved significant sales growth compared to
1995 levels, reflecting the continuing trend by airlines toward outsourcing of
commercial airframes and components maintenance, principally landing gear and
wheels and brakes. The MRO Group also benefited from the full-year impact of
America West Airlines and Western Pacific Airlines contracts. Despite higher
1996 sales, operating income remained flat compared with 1995. This principally
reflected inefficiencies and higher labor costs at the group's airframe business
in Seattle, Washington. The higher costs and inefficiencies resulted from
significant labor turnover during 1996 due to increased demand by neighboring
Boeing and the airlines for skilled technicians.
SPECIALTY CHEMICALS
General. Segment sales and operating income in 1996 exceeded the 1995
record levels. Sales in 1996 increased 16 percent, to $824.4 million. Excluding
1996 acquisitions and a 1995 divestment, sales increased 10 percent. Segment
operating income increased 47 percent, to $109.5 million. Adjusted for 1996
acquisitions and the 1995 divestment, operating income increased 40 percent.
Specialty Additives Group. Sales increased 16 percent over the prior year.
Excluding four 1996 acquisitions, sales increased 7 percent, reflecting both
volume gains and price increases across most major product lines. Resins and
emulsions sales to the textile, electronics, adhesives, industrial coatings and
do-it-yourself markets were especially strong. Synthetic thickeners sales for
industrial, personal-care, household and pharmaceutical applications also
generated strong volume gains over 1995. The group's operating income
performance reflected the benefits of higher 1996 volumes and selling prices,
plus the contribution from acquisitions.
16
<PAGE> 40
Specialty Plastics Group. A 17 percent sales increase in 1996 reflected
strong high-heat-resistant plastics demand in North America, Europe and the
Middle East. In addition, higher thermoplastic polyurethane volumes in Europe
and in North American static-control polymers markets contributed to the group's
overall growth. Sales also benefited from higher prices in most major product
lines. 1996 operating income growth was largely driven by volume gains, assisted
by higher selling prices.
Impairment and Restructuring Charges. In 1997, the Company recognized a
$35.2 million pretax charge ($21.0 million after tax, or $.28 per diluted share)
to write off that portion of its McDonnell Douglas MD-90 aircraft contract
investment, plus the future costs it will be required to spend to complete the
contract, that the Company determined would not be recoverable from future MD-90
sales represented by firm aircraft orders. In addition, the Company recognized a
$49.3 million pretax charge ($29.5 million after tax) for this program in
December 1996 (this charge did not impact the income statement; rather, it was
recognized as a direct adjustment to equity as a result of aligning Rohr's
fiscal year with BFGoodrich's).
In 1996, the Company recognized a $7.2 million pretax impairment charge on
its Arkadelphia, Arkansas, facility. Also during 1996, the Company recognized a
$4.0 million pretax charge for a voluntary early retirement program for eligible
employees of the Specialty Plastics and Specialty Additives Groups.
In 1995, the Company recorded a $3.1 million pretax charge to reflect the
termination benefits paid under a voluntary early retirement program.
The Company continues to evaluate employment levels and facility cost
structures in relation to economic and competitive conditions.
ADDITIONAL DISCUSSION
Net Interest Expense. Net interest expense has declined significantly in
each of the last three years. This achievement principally reflects
progressively lower debt levels as a result of cash generated from operations
and proceeds from the sale of businesses. In addition, the Company has gradually
been refinancing its long-term debt with lower-cost funds.
Issuance of Subsidiary Stock. In May 1997, the Company's subsidiary, DTM
Corporation, issued 2,852,191 shares of its authorized but previously unissued
common stock in an initial public offering (the "IPO"). The shares were issued
at $8.00 per share ($7.44 per share net of the underwriting discount), resulting
in $21.2 million cash proceeds to DTM, net of the underwriting discount. DTM
develops, designs, manufactures, markets and supports, on an international
basis, rapid prototyping and rapid tooling systems, powdered material and
related services. The Company owned approximately 92 percent of DTM's
outstanding common stock immediately prior to the IPO. As a result of the IPO,
the Company's interest declined to approximately 50 percent (the Company did not
sell any of its interest in the IPO). The Company recognized a pretax gain of
$13.7 million ($8.0 million after tax, or $.10 per diluted share, including
provision for deferred income taxes) in accordance with the Commission's Staff
Accounting Bulletin 84. The Company does not expect public or private offerings
of any of its subsidiaries' previously unissued stock to occur in the
foreseeable future.
Other Income (Expense)-Net. For major components of Other Income
(Expense)-Net, see Note P to the Consolidated Financial Statements.
Discontinued Operations. On August 15, 1997, the Company sold its CAO
business to The Westlake Group for $92.7 million, resulting in a $14.5 million
after-tax gain, or $.19 per diluted share. The CAO business disposition
represents the disposal of a segment of a business under APB 30. Accordingly,
the Consolidated Statement of Income reflects the CAO business (previously
reported as Other Operations) as a discontinued operation. For further
information, see Note C to the Consolidated Financial Statements.
17
<PAGE> 41
On February 3, 1997, the Company sold Tremco Incorporated to RPM, Inc. for
$230.7 million, resulting in a $59.5 million after-tax gain, or $.80 per diluted
share. The sale of Tremco Incorporated completed the disposition of the
Company's SC&A Group, which also represented a disposal of a segment of a
business under APB 30.
In 1995, Rohr completed the disposition of its business jet line of nacelle
business, which represented the disposal of a business segment under APB 30.
Extraordinary Items. During 1997, the Company incurred $19.3 million of
costs (net of a $13.1 million income tax benefit), or $.25 per diluted share, to
extinguish certain indebtedness previously held by Rohr, which is reported as an
extraordinary item. Costs incurred include debt premiums and other direct costs
associated with the extinguishment of the related debt. The Company used a
combination of existing cash funds and proceeds from new lower-cost long-term
debt to extinguish the debt. Of the $19.3 million, $2.6 million (net of a $1.8
million income tax benefit) was incurred during the third quarter in connection
with prepaying Rohr's 9.33 percent Senior Notes and 9.35 percent Senior Notes.
The remaining $16.7 million (net of an $11.3 million income tax benefit) relates
to debt extinguishment costs incurred in connection with the Rohr merger during
the fourth quarter for refinancing Rohr's 11.625 percent Senior Notes, 9.25
percent Subordinated Debentures, 7.00 percent Convertible Subordinated
Debentures and 7.75 percent Convertible Subordinated Notes.
Return on Equity. The Company's objective is to achieve and maintain a
return on equity of 15 percent. In 1997, the Company achieved a return on equity
of 13.5 percent, compared with 15.8 percent in 1996 and 14.7 percent in 1995.
Adjusted for the special items previously mentioned, return on equity for 1997,
1996 and 1995 was 13.5 percent, 11.6 percent and 8.3 percent, respectively.
Capital Resources and Liquidity. Current assets less current liabilities
were $466.4 million at December 31, 1997, compared with $553.7 million a year
earlier-a decrease of $87.3 million. The Company's current ratio was 1.50x at
December 31, 1997, compared with 1.65x a year ago. In addition, the quick ratio
was .62x at the end of 1997, compared with .78x at the end of 1996. These
decreases principally reflect the impact of the Company's refinancing
activities. The Company's total debt less cash and cash equivalents was $713.3
million at December 31, 1997, compared with $937.0 million at December 31, 1996.
The Company has adequate cash flow from operations to satisfy its operating
requirements and capital spending programs. In addition, the Company has the
credit facilities described in the following paragraphs to finance growth
opportunities as they arise.
The Company maintains $410.0 million of uncommitted domestic money market
facilities with various banks to meet its short-term borrowing requirements. As
of December 31, 1997, $262.3 million of these facilities were unused and
available. The Company's uncommitted credit facilities are provided by a small
number of commercial banks that also provide the Company with all of its
domestic committed lines of credit and the majority of its cash management,
trust and investment management requirements. As a result of these established
relationships, the Company believes that its uncommitted facilities are a highly
reliable and cost-effective source of liquidity.
The Company also maintains $300.0 million of committed domestic revolving
credit agreements with various banks, expiring in the year 2000. At December 31,
1997, and throughout the year, these facilities were not in use.
In addition, at December 31, 1997, the Company had an effective shelf
registration statement with the Commission providing the ability to issue up to
$131.0 million of public debt securities (referred to as the MTN program). MTN
notes are fixed-rate non-callable debt securities. In January 1998, the Company
issued $130.0 million of 6.9 percent 20-year MTN notes, essentially exhausting
the Company's shelf registration. The notes were issued to finance partially the
acquisition of Freedom Chemical, the purchase of which the Company expects to
complete late in
18
<PAGE> 42
the first quarter of 1998 (see Note D to the Consolidated Financial Statements
for additional information).
The Company also has a $75.0 million committed multi-currency revolving
credit facility with various international banks, expiring in the year 2003. The
Company intends to use this facility for short- and long-term local currency
financing to support European operations growth. At December 31, 1997, the
Company had borrowed $69.7 million ($44.2 million on a short-term basis and
$25.5 million on a long-term basis) denominated in various European currencies
at floating rates. The Company has effectively converted the $25.5 million
long-term debt portion into fixed-rate debt with an interest rate swap.
The Company believes that its credit facilities are sufficient to meet
longer-term capital requirements, including normal maturities of long-term debt.
One of the Company's objectives is to achieve and maintain an "A" rating by
the leading credit rating agencies. Accomplishing this goal reduces the
Company's cost of debt capital and strengthens the Company's financial
flexibility to achieve its growth plans. During 1997, the Company made further
progress toward achieving this objective as Standard & Poor's Ratings Services
raised its rating on the Company's senior debt to A-. Duff & Phelps Credit
Rating Co. had previously upgraded the Company's rating to A-, while Moody's
Investors Service, Inc. currently maintains a Baa1 rating on the Company's
senior debt.
At December 31, 1997, the Company's debt-to-capitalization ratio was 33.0
percent. For purposes of this ratio, the QUIPS (see Note U to the Consolidated
Financial Statements) are treated as capital. The Company strives to maintain
its debt-to-capitalization ratio within the long-term target range of 35 to 40
percent.
Cash Flow. "Free cash flow" is cash from operations remaining after
satisfying capital expenditures and dividend payments. The Company's strategy is
to maximize free cash flow through profitable business growth and to reinvest in
opportunities that will build shareholder value after providing common
shareholders with appropriate dividend payments.
Free cash flow for the Company is summarized as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996 1995
------------- ------ ------ ------
<S> <C> <C> <C>
Cash flows from (used for):
Operations...................................... $209.6 $265.5 $221.0
Capital expenditures-net........................ (151.4) (188.3) (152.6)
------ ------ ------
58.2 77.2 68.4
Dividends and QUIPS distributions............... (70.0) (69.3) (66.7)
------ ------ ------
Free cash flow (deficiency)....................... $(11.8) $ 7.9 $ 1.7
====== ====== ======
</TABLE>
Cash flow from operations in 1997 declined $55.9 million compared with
1996. This decline largely reflects income tax payments of $54.7 million made by
the Company in 1997, relating to the gains on the sale of businesses. Excluding
the effect of these income tax payments, 1997 free cash flow improved
substantially compared with 1996.
Cash flow from operations has been more than adequate to finance capital
expenditures in each of the past three years. The Company expects to have
sufficient cash flow from operations to finance planned capital spending for
1998.
Environmental Matters. Federal, state and local statutes and regulations
relating to the protection of the environment and the health and safety of
employees and other individuals have resulted in higher operating costs and
capital investments by the industries in which the Company operates. Because of
a focus toward greater environmental awareness and increasingly stringent
environmental regulations, the Company believes that expenditures for compliance
with environmental,
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<PAGE> 43
health and safety regulations will continue to have a significant impact on the
conduct of its business. Although it cannot predict accurately how these
developments will affect future operations and earnings, the Company does not
believe its costs will vary significantly from those of its competitors.
The Company expects to incur capital expenditures and future costs for
environmental, health and safety improvement programs. These expenditures are
customary operational costs and are not expected to have a material adverse
effect on the financial position, liquidity or results of operations of the
Company.
BFGoodrich and its subsidiaries are generators of both hazardous and
non-hazardous wastes, the treatment, storage, transportation and disposal of
which are subject to various laws and governmental regulations. Although past
operations were in substantial compliance with the then-applicable regulations,
the Company has been designated as a potentially responsible party ("PRP") by
the U.S. Environmental Protection Agency (the "EPA") in connection with
approximately 38 sites, most of which related to businesses previously
discontinued. The Company believes it may have continuing liability with respect
to not more than 18 sites.
The Company initiates corrective and/or preventive environmental projects
of its own to ensure safe and lawful activities at its current operations. The
Company believes that compliance with current governmental regulations will not
have a material adverse effect on its capital expenditures, earnings or
competitive position. The Company's environmental engineers and consultants
review and monitor past and existing operating sites. This process includes
investigation of National Priority List sites where the Company is considered a
PRP, review of remediation methods and negotiation with other PRPs and
governmental agencies.
At December 31, 1997, the Company has recorded as Accrued Expenses and as
Other Non-Current Liabilities a total of $31.4 million to cover future
environmental expenditures, principally for remediation of the aforementioned
sites and other environmental matters. A significant portion of accrued
environmental liabilities is in connection with four sites which relate to
businesses previously discontinued and two sites that came with the Rohr merger.
Two of the most significant variables in determining the Company's ultimate
liability are the remediation method finally adopted for the site and the
Company's share of the total site remediation cost. With respect to three of the
four sites of previously discontinued businesses, the Company's maximum
percentage share of the ultimate remediation costs is fixed. The percentages
range from approximately 12 percent to approximately 41 percent, and appropriate
reserves have accordingly been established. At the fourth site, alternate
dispute resolution ("ADR") is underway to establish the various parties' share
of responsibility. The Company's interim share is 30 percent, which the Company
believes will likely decrease as a result of the ADR.
Of the four sites relating to discontinued businesses, two sites are in the
operation and maintenance phase for which costs are reasonably fixed.
Construction at a third site was begun in 1997, but problems with the remedial
design caused work to be discontinued. Modifications or other remedial
alternatives are being explored which could result in increases or decreases in
estimated costs. Until a decision on these remedy changes is made in 1998, an
accurate cost estimate for this site cannot be determined. Litigation on this
site with the government over the recovery of past government costs is ongoing.
Until a final decision on the remedy is made and the Company's percentage of
liability is determined through ADR, it is not possible to estimate the
Company's total cost of this site. However, total site costs are not expected to
exceed $15.0 million, of which the Company's share is 30 percent, which reflects
the basis for the amount accrued at December 31, 1997. The final site involving
discontinued businesses continues in litigation with no agreement with the
government over the remedy and government costs exceeding $22.0 million. This
site presents the greatest uncertainty both as to the nature and cost of the
final remedy and the percentage of the government's costs that are found to be
recoverable. However, the Company's share of this site is relatively small, at
less than 12 percent. The Company has accrued for costs it expects to incur.
20
<PAGE> 44
The Company also has two active Superfund sites relating to the
Aerostructures Group (Rohr). Of these, one is a multimillion dollar site that
has been in active investigation/remediation/litigation for over 15 years.
Depending on the outcome of recent settlement discussions, the Company may not
spend much more on this matter, but a reserve is being retained in the event the
settlement does not occur. An action against third-party defendants is being
pursued by the PRPs seeking contribution. No receivable has been reflected for
any potential contributions. The second Rohr site is in an earlier stage and the
Company's percentage share of the total site remediation cost has not been
determined. The estimated cost of this site to all parties is $70.0 million.
The Company believes that it has adequately reserved for all of the above
sites based on currently available information. Management believes that it is
reasonably possible that additional costs may be incurred beyond the amounts
accrued as a result of new information. However, the amounts, if any, cannot be
estimated and management believes that they would not be material to the
Company's financial condition, but could be material to the Company's results of
operations in a given period.
Year 2000 Computer Costs. The Company has been addressing the computer
system changes that will be required to ensure functionality of all the
Company's computer systems for the year 2000. The Company has completed, is
currently working on or soon will be engaged in the implementation of several
new business systems, replacing outdated systems. The new systems are already
designed to be year 2000 compliant. In other circumstances, the Company will be
required to make changes to existing systems. The Company currently estimates
that incremental costs (i.e., payments to third parties) to modify existing
software to become year 2000 compliant should be less than $5.0 million in the
aggregate for its existing businesses. Such costs are expected to be incurred
throughout 1998 and 1999 and will be expensed as incurred. The Company is also
in the process of reviewing the efforts being undertaken by its vendors and
customers to become year 2000 compliant to ensure that no business interruption
is experienced at the turn of the century. The Company is not currently aware of
vendor or customer circumstances that may have a material adverse impact on the
Company.
New Accounting Standards. During 1997, the Financial Accounting Standards
Board issued Statement 128, regarding earnings per share, and Statement 131,
which deals with segment reporting. The Company has restated all earnings per
share amounts in accordance with Statement 128. Statement 131, effective for the
Company's annual report for the year ending December 31, 1998, provides new
guidance on how an enterprise is to determine its segments in order to provide
segment disclosures for financial reporting purposes. The Company does not
expect Statement 131 to change its reportable segments as currently presented in
the Consolidated Financial Statements.
Forward-Looking Information. With respect to Aerospace, the expected
continuing recovery of the worldwide civil aviation market, including a more
than 35 percent increase in delivery of aircraft by Boeing and Airbus, could be
adversely affected if customers cancel or delay current orders or
original-equipment manufacturers reduce the rate they build or expect to build
products for such customers. Such cancellations, delays or reductions may occur
if there is a substantial change in the health of the airline industry or in the
general economy, or if a customer were to experience financial or operational
difficulties. There have been reports of weak new aircraft orders and actual
cancellation of orders from Asian carriers due to the Asian financial crisis. If
these developments should continue or accelerate, it could have an adverse
effect upon the Company. Even if orders remain strong, original-equipment
manufacturers could reduce the rate at which they build aircraft due to
inability to obtain adequate parts from suppliers and/or because of productivity
problems relating to a recent rapid build-up of the labor force to increase the
build rate of new aircraft. Boeing announced a temporary cessation of production
in the fall of 1997 for these reasons. A change in levels of defense spending
could curtail or enhance prospects in the Company's military business. If the
trend towards increased outsourcing or reduced number of suppliers in the
airline industry changes, it could affect the Company's business. If the Boeing
717 program is not as successful as
21
<PAGE> 45
anticipated, or the Company cannot work out an equitable adjustment on the
PW4000 program, it could adversely affect the Company's business. If the Company
is unable to continue to acquire and develop new systems and improvements, it
could affect future growth rates. There has been a higher-than-normal historical
turnover rate of technicians in the MRO business due to hiring by Boeing and the
airlines, although recently the turnover rate has been returning closer to
historical levels. If this trend were again to reverse, it could have an adverse
effect on the Company. If the Company is unable to replace the Western Pacific
MRO business with similar volumes at similar margins, it could adversely affect
the Company. Such events could be exacerbated if there is a substantial change
in the health of the airline industry, or in the general economy, or if a
customer were to experience major financial difficulties.
With respect to Specialty Chemicals, the expected growth in volume demand
could be adversely impacted by a lack of acceptance of new product offerings or
by a delay in capacity expansions in the United States and Europe. Expected
sales increases in the Far East could be adversely impacted by recent turmoil in
financial markets in that region. If operating margins in the specialty plastics
businesses do not improve or the Company is unable to achieve additional sales
of high-heat-resistant plastic resins at appropriate margins, it could adversely
affect the Company.
With respect to the entire Company, if outside vendors are unable to make
their computer systems year 2000 compliant in time, or if the magnitude of the
year 2000 issue is greater than presently anticipated, it could have a material
adverse impact on the Company. If there are unexpected developments with respect
to environmental matters involving the Company, it could have an adverse effect
upon the Company. The Company's financial template sets forth goals, but they
are not forecasts.
BUSINESS
DESCRIPTION OF BUSINESS
General
The Company manufactures and supplies a wide variety of systems and
component parts for the aerospace industry and provides maintenance, repair and
overhaul services on commercial, regional, business and general aviation
aircraft. The Company also manufactures specialty plastics and specialty
additives products for a variety of end-user applications. The Company, with
1997 sales of $3.4 billion, is organized into two principal business segments:
Aerospace and Specialty Chemicals. The Company maintains patent and technical
assistance agreements, licenses and trademarks on its products, process
technologies and expertise in most of the countries in which it operates. The
Company conducts its business through numerous divisions and 82 wholly and
majority-owned subsidiaries worldwide.
Aerospace
The Company's Aerospace Segment is conducted through four major business
groups.
The Aerostructures Group (Rohr) primarily designs, develops and integrates
aircraft engine nacelle and pylon systems and provides support services.
The Landing Systems Group manufactures aircraft landing gear; aircraft
wheels and brakes; high-temperature composites and manufactures aircraft
evacuation slides and rafts for commercial, military, regional and business
aviation customers, and space programs.
The Sensors and Integrated Systems Group manufactures sensors and
sensor-based systems; fuel measurement and management systems; electromechanical
actuators; aircraft windshield wiper systems; health and usage management
systems, electronic test equipment; ice protection systems; specialty heated
products; collision warning systems; weather detection systems; standby attitude
22
<PAGE> 46
indicators; aircraft lighting components; and polymer and composite products for
commercial, military, regional, business and general aviation customers, and for
aircraft engine and space programs.
The MRO Group provides maintenance, repair and overhaul of commercial
airframes, components, wheels and brakes, landing gear, instruments and avionics
for commercial, regional, business and general aviation customers.
The Company is among the largest suppliers of aircraft systems and
components and aircraft maintenance repair and overhaul service businesses in
the world. It competes with other aerospace industry manufacturers to supply
parts and provide service on specific fleets of aircraft, frequently on a
program-by-program bid basis. Competition is primarily based on product
performance, service capability and price. Contracts to supply systems and
components and provide service are generally with aircraft manufacturers,
airlines and airfreight businesses worldwide. The Company also competes on U.S.
government contracts, generally as a subcontractor. Competition is principally
based on product performance and price.
Specialty Chemicals
Specialty Chemicals is conducted through two major business groups.
The Specialty Additives Group manufactures synthetic thickeners and
emulsifiers; controlled release and suspension agents; polymer emulsions; rubber
and lubricant additives and plastic and adhesive modifiers. These products are
used by manufacturers of personal-care products; pharmaceuticals; liquid soaps
and detergents; water treatment products; electronics; tires and petroleum
products and molded plastics. Specialty additives are also used in textile
printing manufacturing; non-woven manufacturing; paper coating and saturation;
graphic arts; and paints and industrial coatings.
The Specialty Plastics Group manufactures thermoplastic polyurethane and
alloys; high-heat-resistant and low-combustibility plastics; static-dissipating
polymers; and reaction-injection molding resins. Products are marketed and sold
to manufacturers for film and sheet applications; wire and cable jacketing; and
magnetic media. Specialty plastics are also used in the manufacture of
automotive products; recreational vehicles and products; agricultural equipment;
industrial equipment; plumbing and industrial pipe; fire sprinkler systems and
building material components.
The Company competes with other major chemical manufacturers. Products are
sold primarily based on product performance. Frequently, products are
manufactured or formulated to order for specific customer applications and often
involve considerable technical assistance from the Company.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
In 1997, 1996 and 1995, sales to Boeing, solely by the Aerospace Segment,
totaled 11 percent, 9 percent and 9 percent, respectively, of consolidated
sales.
For financial information concerning the Company's sales, operating income,
identifiable assets, property additions, depreciation and amortization and
geographic information, see Note O of the Notes to Consolidated Financial
Statements.
BACKLOGS
At December 31, 1997, the Company had a backlog of approximately $2.4
billion, principally related to the Aerospace Segment, of which approximately 68
percent is expected to be filled during 1998. The amount of backlog at December
31, 1996 was approximately $2.3 billion. Backlogs in the Aerospace Segment are
subject to delivery delays or program cancellations, which are beyond the
Company's control.
23
<PAGE> 47
RAW MATERIALS
Raw materials used in the manufacture of Aerospace products, including
steel and carbon, are available from a number of manufacturers and are generally
in adequate supply.
Availability of all major monomers and chemicals used in the Specialty
Chemicals Segment is anticipated to be adequate for 1998. While chemical
feedstocks are currently in adequate supply, in past years, from time-to-time
for limited periods, various chemical feedstocks were in short supply. However,
the effect of any future shortages on the Company's operations will depend upon
the duration of any such shortages and possibly on future U.S. Government
policy, which cannot be determined at this time.
ENVIRONMENTAL
Federal, state and local statutes and regulations relating to the
protection of the environment and the health and safety of employees and other
individuals have resulted in higher operating costs and capital investments by
the industries in which the Company operates. Because of a focus toward greater
environmental awareness and increasingly stringent environmental regulations,
the Company believes that expenditures for compliance with environmental, health
and safety regulations will continue to have a significant impact on the conduct
of its business. Although it cannot predict accurately how these developments
will affect future operations and earnings, the Company does not believe these
costs will vary significantly from those of its competitors.
For additional information concerning environmental matters, see Note W of
the Notes to Consolidated Financial Statements.
RESEARCH AND DEVELOPMENT
The Company conducts research and development under Company-funded programs
for commercial products and under contracts with others. Research and
development expense amounted to $141.2 million in 1997, which includes amounts
funded by customers. For additional information concerning research and
development expense, see Note P of the Notes to Consolidated Financial
Statements.
PATENTS AND LICENSES
The Company has many patents of its own and has acquired licenses under
patents of others. While such patents in the aggregate are important to the
Company, neither the primary business of the Company nor any of its industry
segments is dependent on any single patent or group of related patents. The
Company uses a number of trademarks important either to its business as a whole
or to its industry segments considered separately. The Company believes that
these trademarks are adequately protected.
HUMAN RESOURCES
As of December 31, 1997, the Company had 15,809 employees in the United
States. An additional 1,029 people were employed overseas. Approximately 7,700
employees were hourly paid. The Company believes it has good relationships with
its employees.
The hourly employees who are unionized are covered by collective bargaining
agreements with a number of labor unions and with varying contract termination
dates ranging from May 1998 to October 2000. There were no material work
stoppages during 1997. The Company did, however, experience a three-week strike
during 1997 at its landing gear business.
24
<PAGE> 48
FOREIGN OPERATIONS
The Company is engaged in business in foreign markets. Manufacturing and
service facilities for Aerospace and Specialty Chemicals are located in Belgium,
Canada, England, France, Germany, Hong Kong, The Netherlands, Scotland,
Singapore and Spain. A plant in Korea manufactures specialty chemicals for the
Company. The Company also markets its products and services through sales
subsidiaries and distributors in a number of foreign countries. The Company also
has technical fee and patent royalty agreements with various foreign companies.
Outside North America, no single foreign geographic area is currently
significant, although the Company continues to expand its business in Europe.
Currency fluctuations, tariffs and similar import limitations, price controls
and labor regulations can affect the Company's foreign operations, including
foreign affiliates. Other potential limitations on the Company's foreign
operations include expropriation, nationalization, restrictions on foreign
investments or their transfers, and additional political and economic risks. In
addition, the transfer of funds from foreign operations could be impaired by the
unavailability of dollar exchange or other restrictive regulations that foreign
governments could enact. The Company does not believe that such restrictions or
regulations would have a materially adverse effect on its business, in the
aggregate.
For additional financial information about foreign and domestic operations
and export sales, see Note O of the Notes to Consolidated Financial Statements.
PROPERTIES
The manufacturing and service operations of the Company are carried on at
facilities, all of which are owned, unless otherwise indicated, at the following
locations:
Aerospace:
Albuquerque, New Mexico
Amelot, France*
Arkadelphia, Arkansas
Austin, Texas*
Basingstoke, England*
Bedford, Massachusetts
Burnsville, Minnesota
Cedar Knolls, New Jersey
Chula Vista, California**
Cleveland, Ohio**
Columbus, Ohio
Dallas, Texas*
East Brunswick, New Jersey*
Eagan, Minnesota
Everett, Washington**
Fairhope, Alabama*
Foley, Alabama*
Fort Lauderdale, Florida
Grand Rapids, Michigan
Green, Ohio**
Hagerstown, Maryland
Hamburg, Germany
Harrow, England*
Heber Springs, Arkansas*
Irvine, California*
Jacksonville, Florida
Louisville, Kentucky*
25
<PAGE> 49
Lynnwood, Washington*
Marlboro, Massachusetts*
Memphis, Tennessee
Miami, Florida*
Middletown, Connecticut*
New Century, Kansas**
Oldsmar, Florida
Ontario, California*
Paris, France
Phoenix, Arizona
Prestwick, Scotland*
Pueblo, Colorado
Riverside, California
San Marcos, Texas
Santa Fe Springs, California**
Sheridan, Arkansas*
Singapore*
Spencer, West Virginia
Taipo, Hong Kong*
Tempe, Arizona*
Toulouse, France**
Troy, Ohio
Tullallahoma, Tennessee
Union, West Virginia
Vergennes, Vermont
Wokingham, England
Zevenaar, The Netherlands
Speciality Chemicals:
Akron, Ohio
Antwerp, Belgium
Avon Lake, Ohio
Barcelona, Spain
Calvert City, Kentucky
Chagrin Falls, Ohio
Darien, Connecticut
Donaldson, South Carolina
Elyria, Ohio
Gastonia, North Carolina
Greenville, South Carolina
Henry, Illinois
Lawrence, Massachusetts
Leominster, Massachusetts
Louisville, Kentucky
Oevel, Belgium
Pedricktown, New Jersey
Shepton Mallet, England
Taylors, South Carolina
Twinsburg, Ohio
Williston, South Carolina
26
<PAGE> 50
Research Facilities and
Administrative Offices Other Than
Manufacturing Facility Offices:
Avon Lake, Ohio*
Brecksville, Ohio
Brussels, Belgium*
Chula Vista, California**
Cleveland, Ohio*
Hong Kong*
Montrose, Ohio
North Canton, Ohio*
Richfield, Ohio
Uniontown, Ohio*
Washington, D.C.*
Waterloo, Ontario, Canada*
* Leased
** Leased in part
The Company considers that its properties are well maintained and in good
operating condition.
The Company and its subsidiaries are lessees under a number of cancelable
and non-cancelable leases for certain real properties, used primarily for
administrative, retail, maintenance, repair and overhaul of aircraft, aircraft
wheels and brakes and evacuation systems and warehouse operations, and for
certain equipment.
LEGAL PROCEEDINGS
There are pending or threatened against BFGoodrich or its subsidiaries
various claims, lawsuits and administrative proceedings, all arising from the
ordinary course of business with respect to commercial, product liability and
environmental matters, which seek remedies or damages. BFGoodrich believes that
any liability that may finally be determined with respect to commercial and
product liability claims, should not have a material effect on the Company's
consolidated financial position or results of operations.
The Company has been named a PRP by the EPA in connection with 38 sites,
most of which relate to businesses that the Company has previously discontinued.
The Company believes it may have continuing liability with respect to not more
than 18 sites, most of which relate to previously discontinued businesses. Sites
for which successor companies have assumed liability are not included. Based on
information currently available, the Company believes it has adequately accrued
for future environmental expenditures. However, management believes that it is
reasonably possible that additional environmental costs may be incurred beyond
the amounts accrued as a result of new information. The amounts, if any,
however, cannot be estimated and management believes that they would not be
material to the Company's financial condition, but could be material to the
Company's results of operations in a given period.
In June 1987, the U.S. District Court of Los Angeles, in U.S. ET AL. VS.
STRINGFELLOW (United States District Court for the Central District of
California, Civil Action No. 83-2501 (JMI)), granted partial summary judgment
against the Company and 14 other defendants on the issue of liability under the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA").
This suit, along with related lawsuits, alleges that the defendants are jointly
and severally liable for all damage in connection with the Stringfellow
hazardous waste disposal site in Riverside County, California. In June 1989, a
federal jury and a special master appointed by the Federal court found the State
of California also liable for the cleanup costs. On November 30, 1993, the
special master released his "Findings of Fact, Conclusion of Law and Reporting
Recommendations of the
27
<PAGE> 51
Special Master Regarding the State Share Fact-Finding Hearing." In it, he
allocated liability between the State of California and other parties. As this
hearing did not involve the valuation of future tasks and responsibilities, the
order did not specify dollar amounts of liability. The order, phrased in
percentages of liability, recommended allocating liability on the CERCLA claims
as follows: 65 percent to the State of California and 10 percent to the
Stringfellow entities, leaving 25 percent to the generator/counterclaimants
(including the Company) and other users of the site (or a maximum of up to 28
percent depending on the allocation of any Stringfellow entity orphan share). On
the state law claims, the special master recommended a 95 percent share for the
State of California, and 5 percent for the Stringfellow entities, leaving 0
percent for the generator/counterclaimants. The special master's recommendation
was substantially approved by the federal judge but that decision has been
appealed. The Company and other generators of wastes disposed at the
Stringfellow site, which include numerous companies with assets and equity
significantly greater than the Company, are jointly and severally liable for the
share of cleanup costs for which the generators, as a group, ultimately are
found to be responsible. The Company is the second largest generator of wastes
disposed at the site by volume, although it and certain other generators have
argued the final allocation among generators of their shares of cleanup costs
should not be determined solely by volume. The largest generator of wastes
disposed at the Stringfellow site, by volume, has indicated it is significantly
dependent on insurance to fund its share of any cleanup costs, and that it is in
litigation with certain of its insurers. The Company intends to continue to
defend vigorously these matters and believes, based on currently available
information, that the ultimate resolution of these matters will not have a
material adverse effect on the financial position or results of operations of
the Company.
The Company has reached settlements with its primary comprehensive general
liability insurance carriers concerning the Stringfellow site and has retained
the right to file future claims against its excess carriers.
During fiscal 1993, Region IX of the EPA named the Company as a generator
of hazardous wastes that were transported to the Casmalia Resources Hazardous
Waste Management Facility (the "Casmalia Site") in Casmalia, California. In July
1996, the Company and approximately 50 other cooperating generators executed a
Consent Decree and an Administrative Order on Consent which obligated the
cooperating generators to perform, jointly and severally, certain response
actions at the Casmalia Site prior to the entry of the Consent Decree. Since the
entry of the Consent Decree, the cooperating generators (including the Company)
have agreed to perform certain remedial actions at the Casmalia Site. The
Company does not yet know the ability of all other PRPs at this site, which
include companies of substantial assets and equity, to fund their allocable
share. Some PRPs have made preliminary estimates of cleanup costs at this site
of approximately $60.0 to $70.0 million and the Company's share (based on
estimated, respective volumes of discharge into such site by all generators, all
of which cannot now be known with certainty) could approximate $2.0 million.
Based on currently available information, the Company believes that the
resolution of this matter will not have a material adverse effect on the
financial position or results of operations of the Company.
The EPA has asserted that the Company and others disposed of certain
hazardous substances at the Industrial Excess Landfill site in Uniontown, Ohio.
This site is on the National Priorities List. The Company and some of the other
PRPs have contributed to the cost of a public water supply system in the area.
The Government has filed a lawsuit against the Company and twelve other PRPs
seeking to recover past and future response and oversight costs of an
undetermined amount (but currently in excess of $22.0 million). The State of
Ohio has also sued to recover its oversight costs. The defendants are seeking
contribution, indemnity, and cost recovery under CERCLA, in third party claims
against 68 other PRPs. The Company is currently engaged in discussions with the
government to change the remedy. If successful, a settlement may result. The
Company's ultimate costs are uncertain but it is presently estimated that they
should not exceed approximately 11 percent of the total cost expended on the
site. Estimates of the total costs for the EPA selected remedy range
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<PAGE> 52
from $32.0-50.0 million. If an alternative remedy is accepted, these costs could
be cut by as much as one-half. The Company's aggregate liability is estimated to
be approximately $5.0 million.
The Company was identified as a PRP with respect to cleanup of the Vandale
Junkyard, Marietta Ohio, a National Priorities List Superfund Site. The Company,
along with other PRPs, was issued a unilateral order to design and construct a
remedy at this site. Construction began in 1997, but was halted when geological
conditions made construction of the remedy as designed ineffective. Additional
testing is being conducted to determine what modifications are necessary. The
participating PRPs hope to complete a remedy in 1999, but costs are likely to
increase. The suit against Lockheed Martin and Mobil Oil who were substantial
waste contributors at the site has resulted in an agreement which includes
interim participation by those parties at 25 percent of total site costs and a
course of binding alternative dispute resolution to determine final allocation
of liability and costs among the parties. The U.S. EPA has sued the six PRPs,
including the Company, for the government's oversight costs. The Company's total
costs at this site, including investigation, design, construction, transaction
costs and reimbursement of the government are not anticipated to exceed $4.3
million, subject to significant changes in the remedy.
The Oklahoma Department of Environmental Quality sued the Company and
others based on two different environmental issues at the former BFGoodrich Tire
plant in Miami, Oklahoma. The first issue involves the release of asbestos to
the environment as a result of demolition and/or deterioration of the plant
buildings. In this part of the case, the State filed a motion for mandatory
injunction against the Company and the not-for-profit company to which the plant
was donated in 1993, Save Our Children's Environment ("SOCE"). The motion sought
to have the defendants clean up and abate the alleged hazard posed by loose
asbestos at the site. The court ordered SOCE and the current owner of the
property, Ottawa Management Company, to prepare and implement a plan to abate
the asbestos hazard. The Court declined to enjoin the Company without a full
trial on all the issues. The defendants and Oklahoma engaged in mediated
settlement discussions in August and September 1997 and arrived at an agreement
contingent upon obtaining a performance bond to assure performance of the
asbestos clean-up by the current owner. The owner could not obtain the necessary
bond.
The second part of the suit involves soil and/or groundwater contamination
resulting from the operation of the plant prior to the donation. This issue is
covered by an indemnity from The Uniroyal-Goodrich Tire Company, who has agreed
to address this part of the State's concern and has signed an administrative
consent order to perform the necessary work.
A settlement is in the final stages of being completed. Under the
agreement, the Company will spend approximately $300,000 in costs, penalties and
remediation in exchange for a dismissal from the State.
COMMON STOCK PRICES AND DIVIDENDS
The table below lists dividends per share and quarterly price ranges for
the common stock of the Company based on New York Stock Exchange prices as
reported on the consolidated tape.
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------- ---------------------------------------
QUARTER HIGH LOW DIVIDEND QUARTER HIGH LOW DIVIDEND
- ------- ---- --- -------- ------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C> <C>
First $43 1/8 $36 1/2 $.275 First $40 1/4 $33 15/16 $.275
Second 48 1/4 35 1/8 .275 Second 41 7/8 35 3/8 .275
Third 47 1/4 41 5/8 .275 Third 45 1/8 33 3/8 .275
Fourth 46 40 3/4 .275 Fourth 45 7/8 38 1/8 .275
</TABLE>
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DESCRIPTION OF SECURITIES
GENERAL
The securities offered hereby (the "Debt Securities") will be issuable in
one or more series under an Indenture, dated as of May 1, 1991 (the
"Indenture"), between the Company and Harris Trust and Savings Bank, as Trustee
(the "Trustee"). The following statements are subject to the detailed provisions
of the Trust Indenture Act of 1939, as amended ("TIA"), and the Indenture, which
is filed as an exhibit to the Registration Statement of which this Prospectus
forms a part. Wherever references are made to particular provisions of the
Indenture or terms defined therein are referred to, such provisions or
definitions are incorporated by reference as a part of the statements made and
such statements are qualified in their entirety by such references.
The Debt Securities to be offered by this Prospectus are limited to
$500,000,000 in aggregate principal amount. The aggregate principal amount of
Debt Securities which can be issued under the Indenture is unlimited. Except as
otherwise provided in the Prospectus Supplement relating to a particular series
of Debt Securities, the Indenture does not limit the amount of other debt,
secured or unsecured, which may be issued by the Company. The Debt Securities
may be issued in one or more series, as may be authorized from time to time by
the Company. (Section 2.5)
Reference is made to the Prospectus Supplement relating to the particular
series of Debt Securities offered hereby (the "Offered Debt Securities") for the
following terms, where applicable, of the Offered Debt Securities: (1) the
designation, the aggregate principal amount and the authorized denominations of
the Offered Debt Securities; (2) the percentage of principal amount at which the
Offered Debt Securities will be issued; (3) the currency or currencies in which
the principal of and interest, if any, on the Offered Debt Securities will be
payable; (4) the date or dates on which the Offered Debt Securities will mature;
(5) the rate or rates at which the Offered Debt Securities will bear interest,
if any, or the method by which such rate or rates will be determined; (6) the
dates on which and places at which such interest, if any, will be payable; (7)
the terms of any mandatory or optional repayment or redemption (including any
sinking fund); and (8) any other terms of the Offered Debt Securities. The
Indenture provides that Debt Securities of a single series may be issued at
various times, with different maturity dates and redemption and repayment
provisions (if any) and may bear interest at different rates. (Section 2.5)
Interest, if any, on the Offered Debt Securities is to be payable to the
persons, and in the manner, specified in the Prospectus Supplement relating to
such Offered Debt Securities.
The Debt Securities will be unsecured, unsubordinated indebtedness of the
Company and will rank on a parity with all other unsecured and unsubordinated
indebtedness of the Company.
The Debt Securities will be issued in fully registered form, and, with
regard to each series of Debt Securities in respect of which this Prospectus is
being delivered, in the denominations set forth in the Prospectus Supplement
relating to such series. The Company will maintain in the place specified in the
Prospectus Supplement relating to a particular series of Debt Securities, an
office or agency where the Debt Securities of such series may be presented for
payment and may be transferred or exchanged. (Section 3.2) No service charge
will be made for any transfer or exchange of the 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 2.10)
Some of the Debt Securities may be issued as discounted Debt Securities
(bearing no interest or interest at a rate which at the time of issuance is
below market rates) to be sold at a substantial discount below their stated
principal amount. Federal income tax consequences and other special
considerations applicable to any such discounted Debt Securities will be
described in the Prospectus Supplement relating thereto.
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<PAGE> 54
GLOBAL NOTE, DELIVERY AND FORM
The Debt Securities may be issued in the form of one or more global
certificates (collectively, with respect to each series or issue of Debt
Securities, the "Global Security") registered in the name of a depositary or a
nominee of a depositary. Unless otherwise specified in the applicable Prospectus
Supplement, the depositary will be The Depository Trust Company ("DTC"). The
Company has been informed by DTC that its nominee will be Cede & Co. ("Cede").
Accordingly, Cede is expected to be the initial registered holder of any series
of Debt Securities that are issued in global form. No person that acquires an
interest in such Debt Securities will be entitled to receive a certificate
representing such person's interest in such Debt Securities except as set forth
herein or in the applicable Prospectus Supplement. Unless and until definitive
Debt Securities are issued under the limited circumstances described herein, all
references to actions by holders of Debt Securities issued in global form shall
refer to actions taken by DTC upon instructions from its Participants (as
defined below), and all references herein to payments and notices to such
holders shall refer to payments and notices to DTC or Cede, as the registered
holder of such Debt Securities.
DTC has informed the Company that it is a limited purpose trust company
organized under the New York Banking Law and a "banking organization" within the
meaning of the New York Banking Law, that it is a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code and a "clearing agency" registered pursuant to Section 17A of
the Exchange Act, and that it was created to hold securities for its
participating organizations ("Participants") and to facilitate the clearance and
settlement of securities transactions among Participants through electronic
book-entry, thereby eliminating the need for physical movement of certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations, and may include certain other organizations. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Holders that are not Participants or Indirect Participants but that desire
to purchase, sell or otherwise transfer ownership of, or other interests in,
Debt Securities may do so only through Participants and Indirect Participants.
Under a book-entry format, holders may experience some delay in their receipt of
payments, as such payments will be forwarded by the agent designated by the
Company to Cede, as nominee for DTC. DTC will forward such payments to its
Participants, which thereafter will forward them to Indirect Participants or
holders. Holders will not be recognized by the applicable Trustee or Depositary
or by the Company as registered holders of the Debt Securities entitled to the
benefits of the applicable Indenture or Deposit Agreement or the terms of the
Debt Securities. Holders that are not Participants will be permitted to exercise
their rights as such only indirectly through and subject to the procedures of
Participants and, if applicable, Indirect Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations as currently in effect (the "Rules"), DTC will be required to
make book-entry transfers of Debt Securities among Participants and to receive
and transmit payments to Participants. Participants and Indirect Participants
with which holders have accounts with respect to the Debt Securities similarly
are required by the Rules to make book-entry transfers and receive and transmit
such payments on behalf of their respective holders.
Because DTC can act only on behalf of Participants, which in turn act only
on behalf of holders or Indirect Participants, and on behalf of certain banks,
trust companies and other persons approved by it, the ability of a holder to
pledge Debt Securities to persons or entities that do not participate in the DTC
system, or to otherwise act with respect to such Debt Securities, may be limited
due to the absence of physical certificates for such Debt Securities.
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<PAGE> 55
DTC has advised the Company that DTC will take any action permitted to be
taken by a registered holder of any Debt Securities under the applicable
Indenture or Deposit Agreement or the terms of the Debt Securities only at the
direction of one or more Participants to whose accounts with DTC such Debt
Securities are credited.
A Global Security will be exchangeable for the relevant definitive Debt
Securities registered in the names of persons other than DTC or its nominee only
if (i) DTC notifies the Company that it is unwilling or unable to continue as
depositary for such Global Security or if at any time DTC ceases to be a
clearing agency registered under the Exchange Act at a time when DTC is required
to be so registered in order to act as such depository, (ii) the Company
determines that such Global Security shall be so exchangeable or (iii) in the
case of Debt Securities, an Event of Default has occurred and is continuing with
respect to such Debt Securities. Any Global Security that is exchangeable
pursuant to the preceding sentence will be exchangeable for definitive Debt
Securities registered in such names as DTC directs.
Upon the occurrence of any event described in the immediately preceding
paragraph, DTC is generally required to notify all Participants of the
availability of definitive Debt Securities. Upon surrender by DTC of the Global
Security representing the Debt Securities and delivery of instructions for
re-registration, the applicable Trustee or Depositary or the applicable
registrar, as the case may be, will reissue the Debt Securities as definitive
Debt Securities, and thereafter such Trustee, Depositary or registrar will
recognize the holders of such definitive Debt Securities as registered holders
of Debt Securities entitled to the benefits of the applicable Indenture or
Deposit Agreement or the Terms of the Debt Securities, as the case may be.
Except as described above, a Global Security may not be transferred except
as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another
nominee of DTC or to a successor depositary appointed by the Company. Except as
described above, DTC may not sell, assign, transfer or otherwise convey any
beneficial interest in a Global Security evidencing all or part of the Debt
Securities of any series unless such beneficial interest is in an amount equal
to an authorized denomination for such Debt Securities.
CERTAIN COVENANTS
Limitation on Liens. For the benefit of each series of Debt Securities
issued under the Indenture, the Company will not, nor will it permit any
Restricted Subsidiary to, incur, issue, assume or guarantee any indebtedness for
money borrowed or any other indebtedness evidenced by notes, bonds, debentures
or other similar evidences of indebtedness for money borrowed (hereinafter
called "Debt") other than guarantees arising in connection with the sale,
discount, guarantee or pledge of notes, chattel mortgages, leases, accounts
receivable, trade acceptances and other paper arising, in the ordinary course of
business, out of installment or conditional sales to or by, or transactions
involving title retention with, distributors, dealers or other customers, of
merchandise, equipment or services, secured by pledge of, or mortgage, deed of
trust or other lien on, any Principal Property owned by the Company or any
Restricted Subsidiary, or any shares of stock or Debt of any Restricted
Subsidiary (such pledges, mortgages, deeds of trust and other liens being
hereinafter called "Mortgage" or "Mortgages"), except with respect to each
series of Debt Securities any Debt so secured on the date of issuance of such
series, without effectively providing that the Debt Securities of all series
(together with, if the Company shall so determine, any other Debt of the Company
or such Restricted Subsidiary then existing or thereafter created which is not
subordinate to the Debt Securities) shall be secured equally and ratably with
(or prior to) such secured Debt, so long as such secured Debt shall be so
secured, unless, after giving effect thereto, the aggregate principal amount of
all such secured Debt which would otherwise be prohibited, plus all Attributable
Debt of the Company and its Restricted Subsidiaries in respect of sale and
leaseback transactions (as defined below) which would otherwise be prohibited by
the covenant limiting sale and leaseback transactions described below would not
exceed the sum of 10% of Consolidated Net Tangible Assets; provided, however,
that these restrictions shall not apply to, and there shall be
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<PAGE> 56
excluded from secured Debt in any computation under these restrictions, Debt
secured by: (i) Mortgages on property of, or on any shares of stock or Debt of,
any corporation existing at the time such corporation becomes a Restricted
Subsidiary; (ii) Mortgages to secure indebtedness of any Restricted Subsidiary
to the Company or to another Restricted Subsidiary; (iii) Mortgages for taxes,
assessments or governmental charges or levies in each case (a) not then due and
delinquent or (b) the validity of which is being contested in good faith by
appropriate proceedings, and materialmen's, mechanics', carriers', workmen's,
repairmen's, landlord's or other like Mortgages, or deposits to obtain the
release of such Mortgages; (iv) Mortgages arising under an order of attachment
or distraint or similar legal process so long as the execution or enforcement
thereof is effectively stayed and the claims secured thereby are being contested
in good faith; (v) Mortgages to secure public or statutory obligations or to
secure payment of workmen's compensation or to secure performance in connection
with tenders, leases of real property, bids or contracts or to secure (or in
lieu of) surety or appeal bonds and Mortgages made in the ordinary course of
business for similar purposes; (vi) Mortgages in favor of the United States of
America or any State thereof, or any department, agency or instrumentality or
political subdivision of the United States of America or any State thereof, or
in favor of any other country, or any political subdivision thereof, to secure
partial, progress, advance or other payments pursuant to any contract or statute
(including Debt of the Pollution Control or Industrial Revenue Bond type) or to
secure any indebtedness incurred for the purpose of financing all or any part of
the purchase price or the cost of construction of the property subject to such
Mortgages; (vii) Mortgages on property (including any lease which should be
capitalized on the lessee's balance sheet in accordance with generally accepted
accounting principles), shares of stock or Debt existing at the time of
acquisition thereof (including acquisition through merger or consolidation or
through purchase or transfer of the properties of a corporation as an entirety
or substantially as an entirety) or to secure the payment of all or any part of
the purchase price or construction cost or improvement cost thereof or to secure
any Debt incurred prior to, at the time of, or within one year after, the
acquisition of such property or shares or Debt or the completion of any such
construction (including any improvements on an existing property) or the
commencement of commercial operation of such property, whichever is later, for
the purpose of financing all or any part of the purchase price or construction
cost thereof; (viii) Mortgages existing at the date of the Indenture; and (ix)
any extension, renewal or replacement (or successive extensions, renewals or
replacements), as a whole or in part, of any Mortgage referred to in the
foregoing clauses (i) to (viii), inclusive; provided, however, that (a) such
extension, renewal or replacement Mortgage shall be limited to all or a part of
the same property, shares of stock or Debt that secured the Mortgage extended,
renewed or replaced (plus improvements on such property) and (b) the Debt
secured by such Mortgage at such time is not increased. (Section 3.4)
Limitation on Sales and Leasebacks. For the benefit of each series of Debt
Securities issued under the Indenture, the Company will not, nor will it permit
any Restricted Subsidiary to, enter into any arrangement with any bank,
insurance company or other lender or investor (not including the Company or any
Restricted Subsidiary) or to which any such lender or investor is a party,
providing for the leasing by the Company or any such Restricted Subsidiary for a
period, including renewals in excess of three years, of any Principal Property
owned by the Company or such Restricted Subsidiary which has been or is to be
sold or transferred more than one year after the acquisition thereof or after
the completion of construction and commencement of full operation thereof, by
the Company or any such Restricted Subsidiary to such lender or investor or to
any person to whom funds have been or are to be advanced by such lender or
investor on the security of such Principal Property (herein referred to as a
"sale and leaseback transaction") unless either: (i) the Company or such
Restricted Subsidiary could create Debt secured by a Mortgage on the Principal
Property to be leased back in an amount equal to the Attributable Debt with
respect to such sale and leaseback transaction without equally and ratably
securing the Debt Securities of all series pursuant to the provisions of the
covenant on limitation on liens described above (which provisions include the
exceptions set forth in clauses (i) through (ix) of such covenant) or (ii) the
Company within
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270 days after the sale or transfer shall have been made by the Company or by
any such Restricted Subsidiary, applies an amount equal to the greater of (a)
the net proceeds of the sale of the Principal Property sold and leased back
pursuant to such arrangement or (b) the fair market value of the Principal
Property so sold and leased back at the time of entering into such arrangement
(as determined by any two of the following: the chairman of the Board of
Directors of the Company, its president, any vice president, its treasurer and
its controller) to (x) the purchase of property, facilities or equipment (other
than the property, facilities or equipment involved in such sale) having a value
at least equal to the net proceeds of such sale or (y) the retirement of Funded
Debt of the Company (and any retirement of Debt Securities of any series
pursuant to this provision shall not be deemed to constitute a refunding
operation or anticipated refunding operation for the purposes of any provision
restricting any refunding operations with moneys borrowed having an interest
cost to the Company in excess of a certain amount with respect to the Debt
Securities of such series); provided, however, that the amount to be applied to
the retirement of Funded Debt of the Company shall be reduced by (a) the
principal amount of any Debt Securities of any series (or, if the Debt
Securities of any series are original issue discount Debt Securities, such
portion of the principal amount as may be due and payable with respect to such
series pursuant to a declaration in accordance with Section 5.1 of the
Indenture) delivered within 270 days after such sale to the Trustee for
retirement and cancellation and (b) the principal amount of Funded Debt, other
than the Debt Securities of any series, voluntarily retired by the Company
within 270 days after such sale. Notwithstanding the foregoing, no retirement
referred to in this clause (ii) may be effected by payment at maturity or
pursuant to any mandatory sinking fund payment or any mandatory prepayment
provision. (Section 3.5)
Absence of Other Restrictions. The Indenture does not contain (i) any
restrictions on the declaration of dividends; (ii) any requirements concerning
the maintenance of any asset ratio; or (iii) any requirement for the creation or
maintenance of reserves.
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
The Indenture permits the Company to consolidate or merge with or into any
other entity or entities, or to sell, convey or lease all or substantially all
of its property to any other entity authorized to acquire and operate the same;
provided, however, (i) that the Person (if other than the Company) formed by
such consolidation, or into which the Company is merged or which acquires or
leases substantially all of the property of the Company, expressly assumes the
Company's obligations on the Debt Securities and under the Indenture, (ii) that
the Company or such successor entity shall not immediately after such
consolidation or merger, or such sale, conveyance or lease, be in default in the
performance of any covenant or condition of the Indenture and (iii) that certain
other conditions are met. (Article Eight)
CERTAIN DEFINITIONS APPLICABLE TO COVENANTS
"Attributable Debt" shall mean, as to any particular lease under which the
Company is at the time liable, at any date as of which the amount thereof is to
be determined, the lesser of (i) the fair value of the property subject to such
lease (as determined by certain officers of the Company as set forth in the
Indenture) or (ii) the total net amount of rent required to be paid by the
Company under such lease during the remaining term thereof, discounted from the
respective due dates thereof to such date at the rate of interest per annum
implicit in the terms of such lease, as determined by certain officers of the
Company as set forth in the Indenture, compounded semiannually. The net amount
of rent required to be paid under any such lease for any such period shall be
the amount of the rent payable by the lessee with respect to such period, after
excluding amounts required to be paid on account of maintenance and repairs,
insurance, taxes, assessments, water rates and similar charges. In the case of
any lease which is terminable by the lessee upon the payment of a penalty, such
net amount shall also include the amount of such penalty, but no rent shall be
considered as
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<PAGE> 58
required to be paid under such lease subsequent to the first date upon which it
may be so terminated.
"Consolidated Net Tangible Assets" shall mean the aggregate amount of
assets (less applicable reserves and other properly deductible items) after
deducting therefrom (i) all current liabilities (excluding any thereof which are
by their terms extendible or renewable at the option of the obligor thereon to a
time more than 12 months after the time as of which the amount thereof is being
computed and excluding current maturities of long-term indebtedness and capital
lease obligations) and (ii) all goodwill, all as shown in the audited
consolidated balance sheet of the Company and its Subsidiaries contained in the
Company's then most recent annual report to stockholders.
"Funded Debt" shall mean all indebtedness for money borrowed having a
maturity of more than 12 months from the date as of which the amount thereof is
to be determined or having a maturity of less than 12 months but by its terms
being renewable or extendible beyond 12 months from such date at the option of
the borrower.
"Principal Property" shall mean any building, structure or other facility,
together with the land upon which it is erected and fixtures comprising a part
thereof, used primarily for manufacturing and located in the United States of
America, in each case the net book value of which on the date as of which the
determination is being made exceeds 3% of Consolidated Net Tangible Assets;
provided, however, that Principal Property shall not include (i) any building,
structure or facility which, in the opinion of the Board of Directors of the
Company, is not of material importance to the total business conducted by the
Company and its Subsidiaries as an entirety or (ii) any portion of a particular
building, structure or facility which, in the opinion of the Company, is not of
material importance to the use or operation of such building, structure or
facility.
"Restricted Subsidiary" shall mean any Subsidiary (i) substantially all of
the property of which is located, or substantially all of the business of which
is carried on, within the United States of America and (ii) which owns a
Principal Property; provided, however, that Restricted Subsidiary shall not
include any Subsidiary the primary business of which consists of financing
operations in connection with leasing and conditional sales transactions on
behalf of the Company and its Subsidiaries, and/or purchasing accounts
receivable and/or making loans secured by accounts receivable or inventory, or
which is otherwise primarily engaged in the business of a finance company. As of
the date of this Prospectus, there are no Restricted Subsidiaries.
"Subsidiary" shall mean any corporation of which at least a majority of the
outstanding stock having by the terms thereof ordinary voting power for the
election of directors of such corporation (irrespective of whether or not at the
time stock of any other class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned by the Company, or by one or more other
Subsidiaries, or by the Company and one or more other Subsidiaries. (Section
1.1)
EVENTS OF DEFAULT, WAIVER AND NOTICE
As to any series of Debt Securities, an Event of Default is defined in the
Indenture as (a) default in the payment of any installment of interest, if any,
on the Debt Securities of such series and the continuance of such default for a
period of 10 days; (b) default in the payment of the principal of (and premium,
if any, on) any of the Debt Securities of such series when due, whether at
maturity, upon redemption, by declaration or otherwise; (c) default in the
payment of a sinking fund installment, if any, on the Debt Securities of such
series; (d) default by the Company in the performance of any other covenant or
agreement contained in the Indenture for the benefit of such series and the
continuance of such default for a period of 90 days after written notice as
provided in the Indenture; (e) acceleration of any indebtedness for money
borrowed by the Company in excess of $50,000,000 under the terms of the
instrument under or by which such indebtedness is issued, evidenced or secured
if such acceleration is not rescinded or annulled within 10 days after written
notice as provided in the Indenture; (f) certain events of bankruptcy,
insolvency and reorganization
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<PAGE> 59
of the Company; and (g) any other Event of Default established with respect to
Debt Securities of that series. (Sections 2.5 and 4.1)
The Trustee shall, within 90 days after the occurrence of a default with
respect to Debt Securities of any series, give all holders of Debt Securities of
such series then outstanding notice of all uncured defaults known to it (the
term default to mean the events specified above without grace periods); provided
that, except in the case of a default in the payment of principal (and premium,
if any) or interest, if any, on any Debt Security of any series, or in the
payment of any sinking fund installment with respect to Debt Securities of any
series, the Trustee shall be protected in withholding such notice if it in good
faith determines that the withholding of such notice is in the interest of all
holders of Debt Securities of such series then outstanding. (TIA)
The Indenture provides that if an Event of Default with respect to Debt
Securities of any series at the time outstanding shall occur and be continuing,
either the Trustee or the holders of at least 25% in aggregate principal amount
(calculated as provided in the Indenture) of the Debt Securities of such series
then outstanding may declare the principal (or, in the case of original issue
discount Debt Securities, the portion thereof as may be specified in the
Prospectus Supplement relating to such series) of the Debt Securities of such
series and the interest accrued thereon, if any, to be due and payable
immediately. (Section 4.1)
Upon certain conditions such declarations may be annulled and past defaults
(except for defaults in the payment of principal (or premium, if any) or
interest, if any, on such Debt Securities not theretofore cured) may be waived
by the holders of not less than a majority in aggregate principal amount
(calculated as provided in the Indenture) of the Debt Securities of such series
then outstanding. (Section 4.9)
The TIA requires that the Company file with the Trustee annually a written
statement as to the presence or absence of certain defaults under the terms of
the Indenture. (TIA)
The Indenture provides that, if a default or an Event of Default shall have
occurred and be continuing, the holders of not less than a majority in aggregate
principal amount (calculated as provided in the Indenture) of the Debt
Securities of such affected series then outstanding (with each such series
voting separately as a class) shall have the right to direct the time, method
and place of conducting any proceeding or remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee by the Indenture with
respect to Debt Securities of such series. (Section 4.8)
The Indenture provides that the Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by the Indenture at the
direction of the holders of Debt Securities unless such holders shall have
offered to the Trustee reasonable security or indemnity against expenses and
liabilities. (Section 5.1(d))
DEFEASANCE
Defeasance and Discharge. The Indenture provides that the Company will be
discharged from any and all obligations in respect of the Debt Securities of any
series (except for certain obligations to register the transfer or exchange of
Debt Securities of such series, to replace stolen, lost or mutilated Debt
Securities of such series, to maintain paying agencies and to hold monies for
payment in trust), upon the deposit with the Trustee, in trust, of money and/or
U.S. Government Obligations (as defined in the Indenture) which through the
payment of interest and principal in respect thereof in accordance with their
terms will provide money in an amount sufficient to pay the principal of and
each installment of interest on the Debt Securities of such series on the stated
maturity of such payments in accordance with the terms of the Indenture and the
Debt Securities of such series. (Section 12.2) Such a trust may only be
established if, among other things, the Company delivers to the Trustee an
opinion of counsel (who may be counsel to the Company) stating that either (i)
the Company has received from, or there has been published by, the Internal
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<PAGE> 60
Revenue Service a ruling or (ii) since the date of the Indenture there has been
a change in the applicable Federal income tax law, to the effect that holders of
the Debt Securities of such series will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to Federal income tax on the same amount and in
the same manner and at the same times, as would have been the case if such
deposit, defeasance and discharge had not occurred. (Section 12.4)
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture provides that the Company may omit to comply with certain restrictive
covenants in Sections 3.4 and 3.5, and Section 4.1(d) (described in clause (d)
under the caption "Events of Default" above), which noncompliance shall not be
deemed to be an Event of Default under the Indenture and the Debt Securities of
a series, upon the deposit with the Trustee, in trust, of money and/or U.S.
Government Obligations (as defined in the Indenture) which through the payment
of interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of and each
installment of interest on the Debt Securities of such series on the stated
maturity of such payments in accordance with the terms of the Indenture and the
Debt Securities of such series. The obligations of the Company under the
Indenture and the Debt Securities of such series, other than with respect to the
covenants referred to above, and the Events of Default, other than the Event of
Default referred to above, shall remain in full force and effect. (Section 12.3)
Such a trust may only be established if, among other things, the Company has
delivered to the Trustee an opinion of counsel (who may be counsel to the
Company) to the effect that the holders of the Debt Securities of such series
will not recognize income, gain, or loss for Federal income tax purposes as a
result of such deposit and defeasance of certain covenants and Events of Default
and will be subject to Federal income tax on the same amounts and in the same
manner and at the same times, as would have been the case if such deposit and
defeasance had not occurred. (Section 12.4)
In the event the Company exercises its option to omit compliance with
certain covenants of the Indenture with respect to the Debt Securities of a
series as described in the preceding paragraph and the Debt Securities of such
series are declared due and payable because of the occurrence of any Event of
Default other than an Event of Default described in clause (d) under the caption
"Events of Default" above, the amount of money and U.S. Government Obligations
on deposit with the Trustee 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.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in aggregate
principal amount (calculated as provided in the Indenture) of the outstanding
Debt Securities of all series affected by such modification (all such series
voting as a single class), to modify the Indenture or any supplemental indenture
or the rights of the holders of the Debt Securities; provided that no such
modification shall (i) extend the fixed maturity of any Debt Security, or reduce
the principal or premium amount thereof, or reduce the rate or extend the time
of payment of interest thereon, or make the principal amount thereof or interest
or premium thereon payable in any coin or currency other than that provided in
the Debt Security, or reduce the portion of the principal amount of an original
issue discount Debt Security due and payable upon acceleration of the maturity
thereof or the portion of the principal amount thereof provable in bankruptcy,
or reduce any amount payable upon redemption of any Debt Security, or reduce the
overdue rate thereof, or impair, if the Debt Securities provide therefor, any
right of repayment at the option of the holder of a Debt Security, without the
consent of the holder of each Debt Security so affected or (ii) reduce the
aforesaid percentage of Debt Securities the consent of the holders of which is
required for any such modification, without the consent of the holder of each
Debt Security so affected. (Section 7.2)
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<PAGE> 61
The Indenture also permits the Company and the Trustee to amend the
Indenture in certain circumstances without the consent of the holders of any
Debt Securities to evidence the merger of the Company or the replacement of the
Trustee and for certain other purposes. (Section 7.1)
CONCERNING THE TRUSTEE
The Company maintains deposit accounts and conducts other banking
transactions with the Trustee in the ordinary course of the Company's business.
MANAGEMENT
DIRECTORS
JEANETTE GRASSELLI BROWN, AGE 69--DIRECTOR SINCE APRIL 15, 1991.
RETIRED DIRECTOR OF CORPORATE RESEARCH, BP AMERICA. Mrs. Brown is a graduate of
Ohio University, B.S. and Case Western Reserve University, M.S. She holds eight
D.Sc. (hon.) degrees. Mrs. Brown joined the Research Department of Standard Oil
Company of Ohio (now BP America) in 1950. At her retirement in January 1989 she
was Director of Corporate Research, Environmental and Analytical Sciences. She
has authored 9 books and over 70 publications in scientific journals. Mrs. Brown
is a director of AGA Gas, Inc., McDonald & Co. Investments and USX Corp. She is
past Chair of the Board of Trustees of Ohio University and was Distinguished
Visiting Professor and Director, Research Enhancement there from 1989-1995. She
was appointed to the Ohio Board of Regents in 1995. She is a member of the Board
of Trustees of the Great Lakes Science Center, Inventure Place, Holden
Arboretum, and the Musical Arts Association. She is Chair of the Board of
Trustees of The Cleveland Scholarship Programs Inc. She is past Chair of the
U.S. Committee for the International Union of Pure and Applied Chemistry, and
she serves on the White House Joint High Level Advisory Panel on US/Japan
Science and Technology Agreements.
DAVID L. BURNER, AGE 58--DIRECTOR SINCE DECEMBER 4, 1995.
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT, THE BFGOODRICH COMPANY. Mr.
Burner received his B.S.C. degree from Ohio University. He joined The BFGoodrich
Company in 1983 as the Financial Vice President of the Engineered Products
Group. Later that year he became Vice President and General Manager of the
Off-Highway Braking Systems Division and in 1985 became an Executive Vice
President of the Aerospace and Defense Division. In February 1987 Mr. Burner
became President of that Division, which is now BFGoodrich Aerospace. He was
elected a Senior Vice President of the Company in April 1990 and Executive Vice
President in October 1993. He joined the Office of the Chairman in July 1994,
was elected President of the Company in December 1995, Chief Executive Officer
in December 1996 and Chairman in 1997. Mr. Burner began his career with Arthur
Andersen & Co. Mr. Burner is a member of the Board of Directors of Brush Wellman
Inc. He is also Chairman of The Ohio Aerospace Institute, a member of The
Business Roundtable, The Greater Cleveland Growth Association, The Ohio Business
Roundtable and is a Trustee of The Ohio University Foundation.
DIANE C. CREEL, AGE 49--DIRECTOR SINCE DECEMBER 22, 1997.
CHIEF EXECUTIVE OFFICER AND PRESIDENT, EARTH TECH, an international consulting
engineering firm headquartered in Long Beach, California. Ms. Creel has served
as Chief Executive Officer and President of Earth Tech since January 1993. Prior
thereto, she served as Chief Operating Officer of Earth Tech since 1987 and Vice
President since 1984. Before joining Earth Tech, Ms. Creel was director of
business development and communications for CH2M Hill from 1978--1984. Prior to
that, Ms. Creel was manager of communications for Caudill Rowlett Scot, Houston,
Texas from 1976 to 1978, and director of public relations for LBC&W,
Architects-Engineers-Planners, Columbia, South Carolina from 1971--1976. Ms.
Creel currently serves on the Board of Directors of Allegheny Teledyne, Inc.,
the Corporations and Trusts which comprises the Fixed Income Fund of the
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<PAGE> 62
American Funds Group, Glendale Federal Bank and its holding company, Golden
State Bancorp Inc. She serves on the Board of Advisors of the Entrepreneurial
Studies Center at the Anderson Graduate School of Management, UCLA and the
Harvard University Environmental Health Council.
GEORGE A. DAVIDSON, JR., AGE 59--DIRECTOR SINCE APRIL 15, 1991.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER, CONSOLIDATED NATURAL GAS COMPANY, a
natural gas holding company. Mr. Davidson is a graduate of the University of
Pittsburgh with a degree in petroleum engineering. He has been associated with
Consolidated Natural Gas since 1966. He became Vice Chairman of Consolidated
Natural Gas in October 1985 and served in that position until January 1987, when
he assumed the additional responsibility of Chief Operating Officer. In May 1987
Mr. Davidson became Chairman and Chief Executive Officer. Mr. Davidson is a
director of Consolidated Natural Gas Company and PNC Bank Corp. He serves on the
National Petroleum Council, the Allegheny Conference on Community Development,
the Pittsburgh Foundation, is a director of the American Gas Association and
Chairman of the Board of The Pittsburgh Cultural Trust. Mr. Davidson is a
Trustee of the University of Pittsburgh and is the Chairman Emeritus of the
Pittsburgh Civic Light Opera Board.
RICHARD K. DAVIDSON, AGE 55--DIRECTOR SINCE OCTOBER 1, 1996.
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, UNION PACIFIC COMPANY, a
transportation company with interests in the railroad and trucking industries.
Mr. Davidson received his B.A. degree from Washburn University in Kansas and
completed the Advanced Management Program at Harvard University. He launched his
railroad career with the Missouri Pacific Railroad in 1960. In 1982 Mr. Davidson
became part of Union Pacific Railroad when the Missouri Pacific merged with
Union Pacific. He became Vice President-Operations in 1986 and Executive Vice
President three years later. In August of 1991 Mr. Davidson became President and
Chief Executive Officer and six weeks later was elected Chairman and Chief
Executive Officer of Union Pacific Railroad. In 1994, he became President and a
member of the Board of Directors of Union Pacific Company, Chief Operating
Officer in November of 1995 and remains Chairman and Chief Executive Officer of
Union Pacific Railroad. Mr. Davidson became Chairman and Chief Executive Officer
of Union Pacific Company on January 1, 1997. Currently he serves as a member of
the Board of CALEnergy Company, Inc. Mr. Davidson is not standing for reelection
as a director at the Company's Annual Meeting of Shareholders on April 20, 1998.
JAMES J. GLASSER, AGE 63--DIRECTOR SINCE APRIL 15, 1985.
CHAIRMAN EMERITUS, GATX CORPORATION, a transportation, storage, leasing and
financial services company. Mr. Glasser holds a B.A. degree from Yale University
and a J.D. degree from Harvard Law School. He joined GATX Corporation in 1961
and served in various executive capacities becoming President in 1974, Chairman
of the Board and Chief Executive Officer in 1978, and Chairman Emeritus in April
1996. He is a Director of Harris Bankcorp, Inc., Harris Trust and Savings Bank,
Mutual Trust Life Insurance Co. and Stone Container Corporation. Mr. Glasser is
also a Director of the Chicago Association of Commerce & Industry, Chicago
Central Area Committee, Chicago Music and Dance Theatre, Lake Forest Hospital,
Chicago Horticultural Society, Northwestern Memorial Corporation, Voices for
Illinois Children and a Trustee of Better Government Association, Chicago
Zoological Society and the University of Chicago and is Chairman of the
Executive Committee of the Chicago Community Trust.
JODIE K. GLORE, AGE 51--DIRECTOR SINCE SEPTEMBER 15, 1997.
PRESIDENT AND CHIEF OPERATING OFFICER, ROCKWELL AUTOMATION, a leader in
industrial automation and the largest business of Rockwell International. Mr.
Glore received his B.S. in engineering from the United States Military Academy
at West Point, N.Y. and a M.S. in industrial and labor relations from the
University of Oregon. He joined Allen-Bradley, now part of Rockwell Automation,
in 1979 and held several management positions in new product development and
marketing. In 1985 he left Allen-Bradley and joined Square D Company and held
various management positions, the most
39
<PAGE> 63
recent being Corporate Vice President of Sales and Marketing. In 1992 Mr. Glore
rejoined Allen-Bradley as Senior Vice President for the Automation Group. He was
appointed President of Allen-Bradley in 1994 and in 1995 he assumed the
additional title of Chief Operating Officer for Rockwell Automation. In 1995 he
was also elected Senior Vice President of Rockwell International and a member of
its Corporate Strategy Committee. Mr. Glore is a director of several non-profit
organizations, but not a director of any other public company.
DOUGLAS E. OLESEN, AGE 59--DIRECTOR SINCE OCTOBER 1, 1996.
PRESIDENT AND CHIEF EXECUTIVE OFFICER, BATTELLE MEMORIAL INSTITUTE, a research
and development organization for government and industry. Dr. Olesen earned his
B.S., M.S. and Ph.D. degrees in Civil Engineering at the University of
Washington. In 1963 Dr. Olesen joined Boeing Aircraft Company as a Research
Engineer and assisted in developing and testing closed life-support systems for
long-term space missions. He joined Battelle Memorial Institute, Northwest Labs,
in Richland, Washington in 1967 and served in a series of management positions.
Dr. Olesen was named Vice President and Director of the Northwest Division in
1979. In 1984 he became Executive Vice President and Chief Operating Officer of
the Battelle Memorial Institute in Columbus, Ohio. Three years later he was
elected President and Chief Executive Officer. Currently he serves as a Director
of Columbia Energy Group, Inc. and its subsidiary, Columbia Gas-Ohio. He is
active in numerous community organizations.
RICHARD DE J. OSBORNE, AGE 63-- DIRECTOR SINCE APRIL 15, 1996.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER, ASARCO INCORPORATED, a leading producer of
nonferrous metals. Mr. Osborne received an A.B. in economics from Princeton
University. He joined ASARCO in 1975 as Vice President of Finance and Chief
Financial Officer. He became an Executive Vice President in 1977 and President
in 1982. He became Chairman and Chief Executive Officer and relinquished the
position of President in 1998. Prior to that time, Mr. Osborne had been an
Executive Vice President of Finance and Business Development at Fairchild Camera
and Instrument Corporation and held various executive positions in finance,
planning and management at IBM Corporation. Mr. Osborne is also Chairman of the
Board (non executive) and a Director of Southern Peru Copper Corporation and a
Director of ASARCO Incorporated and Schering-Plough Corporation. Mr. Osborne is
a Director of The Tinker Foundation.
JOSEPH A. PICHLER, AGE 57--DIRECTOR SINCE SEPTEMBER 1, 1988.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER, THE KROGER CO., a retail food company. Mr.
Pichler is a magna cum laude graduate of Notre Dame University and has an M.B.A.
and a Ph.D. from the University of Chicago. He joined Dillon Companies, Inc. in
1980 and was elected President of Dillon in 1982. He was elected to the Board of
Directors of Kroger when Dillon became part of Kroger in January 1983. He was
elected President and Chief Operating Officer in October 1986, Chief Executive
Officer in June 1990 and Chairman in September 1990. Mr. Pichler served for six
years as Dean of the School of Business at the University of Kansas. Mr. Pichler
is a director of The Kroger Co. and Cincinnati Milacron, Inc. He serves on the
Advisory Board of Tougaloo College in Tougaloo, Mississippi and the Cincinnati
Chapter of The Salvation Army. He is a Board Member of the Salvation Army School
for Officer Training. Mr. Pichler is not standing for reelection as a director
at the Company's Annual Meeting of Shareholders on April 20, 1998.
ALFRED M. RANKIN, JR., AGE 56--DIRECTOR SINCE APRIL 18, 1988.
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NACCO INDUSTRIES, INC., a
holding company with interests in the mining and marketing of lignite,
manufacturing and marketing of forklift trucks, and the manufacturing and
marketing of small household electric appliances. Mr. Rankin holds a B.A. in
economics from Yale University, and a J.D. from the Yale Law School. He joined
NACCO Industries in February 1989 as President and Chief Operating Officer and
became President and Chief Executive Officer in May 1991. He assumed the
additional title of Chairman in May 1994. Previously, Mr. Rankin served in a
number of management positions with Eaton Corporation, with the most
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<PAGE> 64
recent being Vice Chairman and Chief Operating Officer from April 1986 to
February 1989. He is a director of NACCO Industries, Inc., The Standard Products
Company and The Vanguard Group. He is a trustee of The Cleveland Foundation,
Cleveland Tomorrow, the Cleveland Museum of Art, the Musical Arts Association
and University Hospitals of Cleveland.
ROBERT H. RAU, AGE 61--DIRECTOR SINCE DECEMBER 22, 1997.
PRESIDENT, AEROSTRUCTURES GROUP, BFGOODRICH AEROSPACE, THE BFGOODRICH COMPANY.
Mr. Rau received a B.A. in Business Administration from Whittier College. Prior
to the Company's merger with Rohr in December 1997, Mr. Rau was President and
Chief Executive Officer of Rohr from 1993-1997. Before joining Rohr, he was an
Executive Vice President of Parker Hannifin Corporation and, for the ten years
prior to 1993, had served as President of the Parker Bertea Aerospace segment of
Parker Hannifin. He joined Parker Hannifin in 1969 and held positions in
finance, program management and general management. Mr. Rau has extensive
experience in the aerospace industry. Mr. Rau is a member of the Board of
Directors of Primtex Technologies, Inc. In addition, Mr. Rau is a member of the
Board of Governors of the Aerospace Industries Association, a past Chairman of
the General Aviation Manufacturers Association and a member of the Board of
Trustees of Whittier College.
IAN M. ROSS, AGE 69--DIRECTOR SINCE MARCH 1, 1983.
PRESIDENT EMERITUS, AT&T BELL LABORATORIES, THE RESEARCH AND DEVELOPMENT
SUBSIDIARY OF AT&T. A native of Southport, England, Dr. Ross received his B.A.,
M.A. and Ph.D. degrees in electrical engineering from Cambridge University,
England. He joined AT&T Bell Laboratories in 1952 and has held a number of
positions with that company and its affiliates. He was named President in 1979
and President Emeritus in July 1991. Dr. Ross is a director of NACCO Industries,
Inc. and Thomas & Betts Corporation. He is also a member of the National Science
Board and the Board of Trustees of the Foundation of the University of Medicine
and Dentistry of New Jersey. Dr. Ross is not standing for reelection as a
director at the Company's Annual Meeting of Shareholders on April 20, 1998.
D. LEE TOBLER, AGE 64--DIRECTOR SINCE APRIL 18, 1988.
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, THE BFGOODRICH COMPANY.
Mr. Tobler received a B.A. in finance and economics from Brigham Young
University in 1957 and an M.B.A. from Northwestern University in 1958. In 1981
Mr. Tobler joined Zapata Corporation as Group Vice President, Chief
Administrative and Financial Officer, where he served until he assumed his
present position as of January 1, 1985. Mr. Tobler is a director of DTM
Corporation. Mr. Tobler is vice chairman of The University of Akron Board of
Trustees, President of the Ohio Ballet Board, Trustee of Inventure Place, past
Chairman and currently a trustee of the Akron Regional Development Board. Mr.
Tobler will reach mandatory retirement age as an employee on August 1, 1998, and
is expected to resign as a director at that time.
JAMES R. WILSON, AGE 57--DIRECTOR SINCE DECEMBER 22, 1997
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER, THIOKOL
CORPORATION, a leading producer of solid propellant rocket motors and high
performance fasteners used in commercial aircraft and industrial applications.
Thiokol also owns 62 percent of Howmet International Inc., a manufacturer of
components for aircraft and industrial gas turbine engines. Mr. Wilson holds a
B.A. degree from the College of Wooster and an M.B.A. degree from Harvard
University. Mr. Wilson assumed the position of Chairman of Thiokol Corporation
in October 1995 and the position of President and Chief Executive Officer in
October 1993. Mr. Wilson joined Thiokol in July 1989 as Vice President and Chief
Financial Officer and was named Executive Vice President in October 1992. Prior
to joining Thiokol in 1989, Mr. Wilson served as Chief Financial Officer for
Circuit City Stores from 1987--1988, and as Executive Vice President and Chief
Financial Officer for Fairchild Industries, Inc. from 1982--1987. Earlier, he
held various financial management positions at Textron Inc. He is also a
director of Cooper Industries, Inc., First Security Corporation, a director and
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<PAGE> 65
Chairman of the Board of Howmet International Inc., and a trustee of the College
of Wooster, Wooster, Ohio.
A THOMAS YOUNG, AGE 59--DIRECTOR SINCE APRIL 17, 1995.
RETIRED EXECUTIVE VICE PRESIDENT, LOCKHEED MARTIN CORPORATION, an aerospace and
defense company. Mr. Young is a graduate of the University of Virginia with
bachelor degrees in aeronautical engineering and mechanical engineering, and of
the Massachusetts Institute of Technology with a master's degree in management.
Mr. Young was with the National Aeronautics and Space Administration from 1961
to 1982, serving in a number of management positions including Mission Director
of the Project Viking Mars landing program and Director of the Goddard Space
Flight Center. In 1982 he joined Martin Marietta as Vice President of Aerospace
Research and Engineering, later became Senior Vice President and President of
Martin Marietta Electronics & Missiles Group and Executive Vice President. He
became President and Chief Operating Officer in January 1990, Executive Vice
President of Lockheed Martin Corporation in March 1995 and retired in July of
that year. Mr. Young is a director of Dial Corporation, Potomac Electric Power
Company, and Science Applications Informational Corp. Mr. Young is also a Fellow
of the American Astronautical Society, the American Institute of Aeronautics and
Astronautics, Chairman of the Executive Committee of the Business Committee for
the Arts and a member of the National Academy of Engineering.
EXECUTIVE OFFICERS
DAVID L. BURNER, AGE 58, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Mr. Burner's biographical information appears above under the caption
"Directors."
MARSHALL O. LARSEN, AGE 49, EXECUTIVE VICE PRESIDENT AND PRESIDENT AND
CHIEF OPERATING OFFICER, BFGOODRICH AEROSPACE
Mr. Larsen joined the Company in 1977 as an Operations Analyst. He served in
various management positions until 1986 when he became Assistant to the
President of the Company. He later served as General Manager of several
divisions of BFGoodrich Aerospace. In 1994, Mr. Larsen was elected a Vice
President of the Company and named Group Vice President, Safety Systems,
BFGoodrich Aerospace. In December 1995 he was elected Executive Vice President
of the Company and named President and Chief Operating Officer of BFGoodrich
Aerospace. Mr. Larsen has a B.S. in engineering from the U.S. Military Academy
and an M.S. in industrial administration from the Graduate School of Management
at Purdue University.
TERRENCE G. LINNERT, AGE 51, SENIOR VICE PRESIDENT AND GENERAL COUNSEL
Mr. Linnert joined BFGoodrich in November 1997. Prior to joining BFGoodrich, Mr.
Linnert was senior vice president of corporate administration, chief financial
officer and general counsel at Centerior Energy Corporation. At BFGoodrich, Mr.
Linnert has responsibilities for the Company's legal, auditing, environmental
and federal government relations organizations. Mr. Linnert joined The Cleveland
Electric Illuminating Company in 1968, holding various engineering, procurement
and legal positions until 1986, when CEI and The Toledo Edison Company became
affiliated as wholly owned subsidiaries of Centerior Energy Corporation.
Subsequently, Mr. Linnert had a variety of legal responsibilities until he was
named director of legal services in 1990. In 1992, he was appointed a vice
president, with responsibilities for legal, governmental and regulatory affairs.
Prior to joining the Company, his responsibilities at Centerior included
managing the legal, finance, human resources, regulatory and governmental
affairs, auditing and corporate secretary functions. Mr. Linnert received a B.S.
in electrical engineering from the University of Notre Dame in 1968 and a J.D.
from the Cleveland-Marshall School of Law at Cleveland State University in 1975.
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<PAGE> 66
DAVID B. PRICE, JR., AGE 52, EXECUTIVE VICE PRESIDENT AND PRESIDENT AND
CHIEF OPERATING OFFICER, BFGOODRICH SPECIALTY CHEMICALS
Mr. Price joined BFGoodrich in July 1997 in his present capacity. Prior to
joining BFGoodrich, he was President of Performance Materials of Monsanto
Company since 1995. Prior positions held by Mr. Price at Monsanto include Vice
President and General Manager of commercial operations for the Industrial
Products Group from 1993 to 1995, Vice President and General Manager of the
Performance Products Group from 1991 to 1993, and Vice President and General
Manager of Specialty Chemicals Division from 1987 to 1991. His association with
Monsanto spanned 25 years. Mr. Price has a B.S. in civil engineering from the
University of Missouri and an M.B.A. from Harvard University.
D. LEE TOBLER, AGE 64, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Mr. Tobler's biographical information appears above under the caption
"Directors."
NICHOLAS J. CALISE, AGE 56, VICE PRESIDENT, ASSOCIATE GENERAL COUNSEL AND
SECRETARY
Mr. Calise joined the Company in October 1984 as Secretary and was also
appointed Staff Vice President and Assistant General Counsel. In January 1989 he
was elected Vice President and Associate General Counsel. Prior to joining
BFGoodrich, he was with the Richardson-Vicks Inc. Home Care Products Division,
Memphis, Tennessee, where he was Division Counsel, Director--Planning and
Business Development and Marketing Director. Mr. Calise has an A.B. from
Middlebury College and an M.B.A. and LL.B. from Columbia University.
ROBERT H. RAU, AGE 61, PRESIDENT, BFGOODRICH AEROSTRUCTURES GROUP
Mr. Rau's biographical information appears above under the caption "Directors."
STEVEN G. ROLLS, AGE 43, VICE PRESIDENT AND CONTROLLER
Mr. Rolls joined the Company in September 1981 as a Financial Analyst. He
subsequently served in various capacities in the Treasury department, becoming
an Assistant Treasurer in 1985. In 1987 he joined BFGoodrich Canada as Vice
President, Finance and Treasurer. In 1989 he was appointed Vice
President--Finance for the Aerospace business. Mr. Rolls was elected Vice
President and Controller in 1993. He has a B.S. in business administration from
Miami University and an M.B.A. from Ohio State University.
GEORGE K. SHERWOOD, AGE 59, VICE PRESIDENT--TAX ADMINISTRATION
Mr. Sherwood joined the Company in July 1985 as Staff Vice President--Taxes and
was elected Vice President--Tax Administration in April 1986. Prior to joining
BFGoodrich, Mr. Sherwood was Vice President--Tax Administration for Zapata
Corporation. Mr. Sherwood has a B.S. in business administration from Kansas
State College and an M.B.A. in management from The University of Tulsa.
LES C. VINNEY, AGE 49, VICE PRESIDENT AND TREASURER
Mr. Vinney joined the Company in 1991 as Vice President of Finance and Chief
Financial Officer, Specialty Polymers and Chemicals Division. In 1993, he was
named Senior Vice President, Finance and Administration, BFGoodrich Specialty
Chemicals. In 1994, he was named Group Vice President, Sealants, Coatings and
Adhesives Group, and President, Tremco Incorporated, and elected a Vice
President of the Company. In January 1997, Mr. Vinney was elected Vice President
and Treasurer of the Company. Prior to joining the Company, he was with
Engelhard Corporation in a number of senior operating and financial management
positions, including Group Vice President of the Engineered Materials Division.
He also held various management positions with Exxon Corporation. Mr. Vinney has
a B.A. in economics and political science and an M.B.A. from Cornell University.
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<PAGE> 67
HOLDINGS OF COMPANY EQUITY SECURITIES BY DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth information with respect to the number of shares
of the Company's Common Stock beneficially owned by Directors and Officers of
the Company as of January 31, 1998.
<TABLE>
<CAPTION>
AMOUNT AS TO
WHICH THERE IS
---------------------
AMOUNT AND NATURE DIRECTORS' PERCENT SOLE SOLE
OF BENEFICIAL PHANTOM OF VOTING INVESTMENT
NAME OF BENEFICIAL OWNER OWNERSHIP(1) SHARES(3) CLASS (2) POWER POWER
------------------------ ------------------ ----------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
Jeanette Grasselli Brown..... 2,000 4,868 * 2,000 2,000
David L. Burner.............. 311,804 * 52,304 19,304
Diane C. Creel............... 56 * 56 56
George A. Davidson, Jr....... 3,000 4,868 * 3,000 3,000
Richard K. Davidson.......... 1,000 698 * 1,000 1,000
James J. Glasser............. 2,000 * 2,000 2,000
Jodie K. Glore............... 200 * 200 200
Jon V. Heider................ 189,694 * 66,694 43,694
Marshall O. Larsen........... 182,215 * 25,115 7,615
Douglas E. Olesen............ 887 698 * 887 887
Richard de J. Osborne........ 1,048 698 * 1,048(4) 1,048(4)
Joseph A. Pichler............ 1,600 1,367 * 1,600 1,600
Alfred M. Rankin, Jr......... 1,000 1,367 * 1,000 1,000
Robert H. Rau................ 289,744 * 3,500(5) 3,500(5)
Ian M. Ross.................. 1,000 * 1,000 1,000
D. Lee Tobler................ 192,897 * 42,333 16,333
James R. Wilson.............. 2,592 * 2,592 2,592
A. Thomas Young.............. 1,000 1,367 * 1,000 1,000
25 Directors and Officers as
a Group.................... 1,659,501 15,931 2.2% 330,157 170,557
</TABLE>
- ---------------
* Less than 1%.
(1) Includes the approximate number of shares credited to the individuals'
accounts in the Company's Retirement Plus Savings Plan, the Company's matching
portion of which is subject to vesting requirements. Includes shares not
presently owned by the individuals but which are subject to stock options
exercisable within sixty days as follows: D. L. Burner, 259,500 shares; R. H.
Rau, 219,100 shares; D. L. Tobler, 150,564 shares; M. O. Larsen, 157,100 shares;
J. V. Heider, 123,000 shares; and 25 Directors and Officers as a group,
1,262,200 shares. Executive officers have voting power but no investment power
with respect to Performance Shares and Restricted Shares contingently awarded to
them under the Company's Long-Term Incentive Plan. All ownership is direct.
(2) Does not include Directors' Phantom Shares.
(3) Number of shares awarded under Directors' Phantom Share Plan, see "Board of
Directors--Compensation of Directors."
(4) Shared voting and investment power.
(5) Shared voting and investment power as to 64,799 shares.
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<PAGE> 68
BENEFICIAL OWNERSHIP OF GREATER THAN 5% OF THE COMPANY'S EQUITY SECURITIES
The table below sets forth information known to the Company with respect to
persons who are the beneficial owner of more than 5% of the Company's Common
Stock as of December 31, 1997. The shares are directly owned except that the
shares in the Company's benefit plans are held of record, but not beneficially,
by the Plan's Trustee.
<TABLE>
<CAPTION>
NAME AND ADDRESS
OF BENEFICIAL OWNER AMOUNT PERCENT OF CLASS
------------------- ------ ----------------
<S> <C> <C>
Fidelity Management Trust Company, Trustee
82 Devonshire Street
Boston, MA 02109
The B.F.Goodrich Company Retirement.............. 5,626,925 7.6%
Plus Savings Plan and other
Company plans;(1).
</TABLE>
- ---------------
(1) Participants have voting rights; Trustee is to vote shares for which it does
not receive any voting instructions in the same ratio as shares as to which it
does receive voting instructions.
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION PHILOSOPHY
The Compensation Committee and the Company are committed to the philosophy
that pay should be linked to Company performance so that the interests of
executives are aligned with the interests of shareholders. This philosophy is
supported by the following guiding principles for the Company's compensation
programs:
- A significant portion of pay will be dependent on the Company's annual
and long-term performance including creation of shareholder value.
- To the degree possible, compensation programs will be designed to use
stock-based incentives in order to link shareholder and executive interests and
to encourage stock ownership by executives.
- A greater percentage of total compensation will be performance-based and
variable (versus fixed compensation) than competitive practices might suggest.
- Total cash compensation is to be above the median and nearing the 75th
percentile of major industrial companies when the variable compensation elements
are earned and be substantially below the median when the variable compensation
elements are not earned. The Company intends to provide total compensation
commensurate with performance--when there is good performance, compensation
levels will compare favorably with other companies, and when performance is
below expectations, compensation levels will be below the average of other
companies.
The Company's compensation program consists of three elements: annual base
salary, annual cash bonus incentive compensation and long-term incentives. To
assist it in performing its duties, the Committee meets periodically with
compensation consultants.
SURVEY DATA
The Compensation Committee establishes compensation programs, in part, on
the basis of competitive factors. It considers both broad-based surveys of large
industrial companies and industry-specific surveys. The principal broad-based
surveys relied upon include three nationally recognized surveys covering more
than 1,400 U.S. companies.
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<PAGE> 69
The principal industry-specific survey utilized is that of selected
aerospace and chemical companies, which the Committee has used for a number of
years. There is some overlap among the different survey groups. No separate
survey is constructed that includes only those companies comprising the
different indices used in the stock price performance graph, although some of
those companies are contained in the other surveys. The same surveys are used in
determining competitive levels of base salary as well as various forms of
incentive compensation.
The Committee has established the target level for long-term incentive
compensation to be approximately 110% of the survey data median when the Company
achieves its financial goals. The Committee established guidelines for long-term
compensation to achieve this target range a number of years ago, and will
periodically reevaluate the guidelines.
BASE SALARY
The Company's base salary policy is intended to insure that compensation
practices are competitive within relevant industries and with major industrial
companies. The Compensation Committee believes that the middle of the salary
range for B.F.Goodrich executives should be at the median base salary of
comparable industrial companies. The Compensation Committee establishes the
annual base salary for Company officers at the level of executive vice president
or higher and approves salary midpoint levels and percentage increases in those
levels for other executive positions in the Company. The salary range for each
position is from 25% below the midpoint to 25% above the midpoint.
INCENTIVE COMPENSATION
Incentive compensation is intended to motivate and retain qualified
individuals who have the opportunity to influence Company results significantly
and enhance shareholder value. The philosophy for incentive compensation plans
is to provide awards when financial objectives are achieved and provide reduced
or no awards when the objectives are not achieved. Incentive compensation
programs are divided into two types--annual cash bonus and long-term incentive
compensation. Generally speaking, the higher an individual's level within the
Company, the greater the percentage of his or her potential total compensation
is represented by incentive compensation.
ANNUAL INCENTIVE COMPENSATION
An individual's annual cash bonus target is expressed as a percentage of
his or her salary range midpoint, with the percentages of salary midpoint
increasing with the level of the job. A total target incentive pool is created
for the corporate staff, for each major business segment and for designated
groups or divisions within each segment. For 1997 the total target incentive
pools are further divided into two different financial performance pools for the
corporate staff and for each of the operating segments. Incentive payments can
range from 50% of the target amount when the threshold financial objective of
the corporate staff and major business segments is achieved, to a maximum of
150% of the target when the maximum financial objective is achieved. In 1997,
the threshold financial objective for the corporate staff and for each of the
operating segments ranged from 75% to 82.5% of target and the maximum financial
objective ranged from 110% to 125% of target. No bonus will be paid if a minimum
financial performance is not achieved.
In 1997 corporate staff financial goals were based upon net income and
return on equity. Operating segment financial goals were based upon segment
operating income and working capital as a percent of sales. Individual awards
are made based upon individual performance within a range established with
reference to achievement of the financial goals.
1997 RESULTS
The corporate staff achieved 113%, the Aerospace segment achieved 98% and
the Specialty Chemicals Segment achieved 93% of their respective goals.
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<PAGE> 70
LONG-TERM INCENTIVE COMPENSATION
Currently, long-term incentive compensation at the Company consists of a
performance-related plan based on a three-year measuring cycle and stock
options.
The Compensation Committee adopted the Long-Term Incentive Plan in 1992,
which is based on the Performance Share Plan and the Stock Option Plan, and made
awards of Restricted Shares and Performance Shares in 1995. There were 65
participants on December 31, 1997, and they become vested in the Restricted
Shares. The Restricted Shares less the number of shares to satisfy applicable
withholding taxes were distributed to these individuals in January 1998. The
Restricted Shares actually received are restricted from further sale for an
additional two years.
The Committee established performance objectives over the three-year plan
cycle when it awarded the Performance Shares in 1995. The recipient only is
entitled to retain these shares at the end of the plan cycle if the threshold
performance standard is met. The number of shares to be received free of further
restrictions can range from 50% to 150% of the original Performance Share award
depending on the level of attainment of financial objectives. In late February,
1998, the Performance Shares actually earned, less the number of shares to
satisfy applicable withholding taxes, were distributed. Corporate Staff
Participants earned 148.5%, Aerospace segment participants earned 95.6% and
Specialty Chemical participants earned 146.5% of their target.
In the past the Committee only made awards once every three years.
Beginning in 1998, the Committee decided to make awards every year, based on
overlapping three-year performance cycles. Naturally, the annual awards are
generally one-third as large as they would have been if the awards continued to
be made only every three years.
Guidelines establish a target award of Performance Shares with the
aggregate market value of the shares awarded based upon a percentage of salary
midpoint depending upon the individual's position level within the Company--the
higher the position level the greater the percentage. The determination of
whether to make an award and the amount of the award is dependent upon the
individual's past performance and expectations of future performance. The
Committee is no longer awarding Restricted Shares.
The performance objectives for the 1995 awards for the senior corporate
executives and corporate staff employees were dependent upon the three-year
average total Company return on equity. The performance objectives for operating
segment presidents at the time of the award were based one-half on total Company
performance measured as an average return on equity and one-half related to the
operating segment performance expressed as average operating income return on
net capital employed ("OIRONCE") for the three-year period. Other participants
within the operating segments had their awards based solely on the average
OIRONCE for their respective segment.
The Stock Option Plan is administered by the Compensation Committee. The
Plan provides that options may not be granted at less than 100% of fair market
value and that options may not be repriced. The Committee has established a
target award for individuals based upon the aggregate exercise price of the
options granted as a percentage of salary midpoint--the higher the salary
midpoint, the greater the percentage. The actual award is dependent upon the
individual's past performance and expectation of future performance. In 1997,
the Committee granted stock options to 122 executives.
With respect to the Executive Vice Presidents, the Committee considers the
recommendation of the Chief Executive Officer in determining the level of awards
of long-term incentive compensation. It also considers its own impression of the
individuals since the members have ample opportunity to observe their
performance. With respect to other executives who receive long-term incentive
compensation, the Committee makes the determination of the appropriate awards,
but generally considers the recommendation of management in making the specific
award within the established guidelines. The Committee has available information
as to the level of past awards and individual
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<PAGE> 71
stock ownership of the executive officers. During 1996 the Committee endorsed a
management recommendation establishing stock ownership guidelines for
participants in the Long-Term Incentive Plan at a multiple of their base salary.
The multiple varies from between .75 to 4 times salary, with the multiple
increasing with one's level within the Company. Individuals are given five years
to achieve the target ownership levels. The factors considered in making the
awards for the Chief Executive Officer are discussed below.
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
The Omnibus Budget Reconciliation Act of 1993 established a disallowance of
deductions for tax purposes for certain employee remuneration in excess of $1
million per year beginning in 1994. Under the Internal Revenue Service
regulations, the Company believes all compensation to be earned in 1997 and all
existing awards under the Company's long-term incentive plans will be fully
deductible for Federal income tax purposes.
CHIEF EXECUTIVE OFFICER
In determining the base salary established for David L. Burner, the Chief
Executive Officer, the Compensation Committee took into account surveys of base
compensation of chief executive officers of other major industrial companies.
The Committee considered his leadership and key contributions to the overall
financial performance of the Company, and the Company's progress towards
achieving important strategic objectives.
Messrs. Burner and Ong (former Chief Executive Officer who relinquished
that position in December 1996 and retired July 1, 1997) do not participate in
the Management Incentive Program. Instead, they participate in the Senior
Executive Management Incentive Plan, which is designed to meet the Federal
income tax deductibility rules of the Internal Revenue Code. As required by the
Code, the plan requires that any award be based upon an objective formula
established at the beginning of the year. A target award was established, based
60% on net income and 40% on return on equity. The threshold objective for net
income is 81% of the goal and the maximum is 110% of the goal. The threshold
objective for return on equity is 75% of the goal and the maximum is 125% of the
goal. The threshold results in an award of 50% of the target, while the maximum
award is 150% of the target. Attainment between the threshold and the maximum
goal results in a payment prorated on a straight line basis. For 1997 Mr. Burner
received $650,389, or 113% of his target amount.
In 1997, Mr. Burner received options to purchase 49,000 shares. During
1995, Mr. Ong was awarded 58,000 Performance Shares and 20,000 Restricted
Shares, while Mr. Burner was awarded 28,000 Performance Shares and 10,000
Restricted Shares. Mr. Burner was not elected Chief Executive Officer until
December, 1996. The guidelines for awards for the Chief Executive Officer and
the actual targets are the same as for other corporate officers. The Committee
used the same factors to make these awards as it did in determining the other
elements of Mr. Burner's compensation.
The Compensation Committee determines awards for the Chief Executive
Officer based on the same survey data and considerations it utilizes in making
awards for other executives.
COMPENSATION COMMITTEE MEMBERSHIP
The following are the members of the Compensation Committee:
James J. Glasser, Chairman
George A. Davidson, Jr., Vice Chairman
Jeanette Grasselli Brown
Richard K. Davidson
Ian M. Ross
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<PAGE> 72
SUMMARY COMPENSATION
The following Summary Compensation Table sets forth certain information
concerning the annual and long-term compensation for services in all capacities
to the Company in Fiscal 1995, 1996 and 1997 for those persons who were the
Chief Executive Officer and the other four most highly-compensated officers of
the Company (collectively, the "Named Executive Officers") during such periods.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------------- -------------------------------------
AWARDS
------------------------- PAYOUTS
OTHER OTHER SECURITIES ---------
NAME AND ANNUAL ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
PRINCIPAL COMPENSATION COMPENSATION STOCK OPTIONS/ PAYOUTS COMPENSATION
POSITION YEAR SALARY($) BONUS($) ($) AWARDS($)(1) SARS(#) ($) ($)(2)
-------- ----- ------------ -------- ------------ ------------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John D. Ong,(3)....... 1997 375,000 325,194 144,774 -0- 49,000 3,835,481 71,752
Chairman 1996 750,000 820,874 139,099 -0- 52,000 -0- 91,950
1995 750,000 782,496 100,892 443,750(1) 31,000 -0- 84,000
David L. Burner,(4)... 1997 625,000 650,389 81,926 -0- 49,000 1,741,708 66,823
Chairman, President
and 1996 487,500 487,046 62,511 -0- 52,000 -0- 48,750
Chief Executive
Officer 1995 362,500 325,000 46,581 221,875(1) 13,000 -0- 34,650
Robert H. Rau(5)...... 1997 624,738 873,489 10,948 223,793(7) -0- -0- 2,245,500(8)
President, BFGoodrich 1996 593,077 436,500 29,974 214,940(7) -0- -0- 4,500
Aerospace
Aerostructures 1995 540,000 132,300 18,550 -0- 149,100 -0- 4,500
Group
Marshall O. Larsen,... 1997 345,000 308,000 46,610 -0- 24,000 638,579 40,300
Executive Vice 1996 300,000 325,000 41,284 -0- 56,000 -0- 27,900
President 1995 240,417 165,000 21,567 110,938(1) 14,400 -0- 45,245
and President,
BFGoodrich Aerospace
D. Lee Tobler,........ 1997 415,000 264,000 72,315 -0- 22,000 1,454,838 44,500
Executive Vice 1996 407,000 325,000 65,073 -0- 22,000 -0- 41,100
President and 1995 395,000 278,000 49,630 177,500(1) 13,000 -0- 31,050
Chief Financial
Officer
Jon V. Heider,(6)..... 1997 329,750 210,000 62,707 -0- 17,000 1,322,580 34,785
Executive Vice 1996 320,000 250,000 58,807 -0- 18,000 -0- 32,700
President and 1995 307,000 225,000 46,179 133,125(1) 10,000 -0- 28,620
General Counsel
</TABLE>
- ---------------
(1) Restricted Shares awarded in 1995 vested on January 1, 1998; provided,
however, the shares awarded (less shares withheld to satisfy withholding tax
requirements) may not be sold for an additional two-year period. Dividends were
paid on these shares at the same rate as paid to all other shareholders. As of
December 31, 1997, the number of Restricted Shares and Performance Shares
contingently awarded under the Company's Long-Term Incentive Plan and the market
value of that number of shares, respectively, were as follows: J. D. Ong, 78,000
and $3,232,125; D. L. Burner, 38,000 and $1,574,625; R. H. Rau: 0; M. O. Larsen,
20,000 and $828,750; D. L. Tobler, 30,000 and $1,243,125 and J. V. Heider,
26,000 and $1,077,375.
(2) Of the amounts shown, $9,500 or $9,600 represents the Company's contribution
to the Retirement Plus Savings Plan, a tax-qualified defined contribution plan,
and the balance represents Company contributions to a benefit restoration plan
with respect to amounts in excess of the amount permitted to be contributed
under the tax-qualified plan.
(3) Mr. Ong retired July 1, 1997.
(4) Mr. Burner was elected to the additional position of Chairman effective July
1, 1997.
(5) Mr. Rau is also President and Chief Executive Officer of Rohr, which became
a wholly-owned subsidiary of BFGoodrich on December 22, 1997. Compensation prior
to December 22, 1997 was paid by Rohr, as an independent company.
(6) Mr. Heider resigned as General Counsel effective October 20, 1997.
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<PAGE> 73
(7) Mr. Rau elected to receive a portion of his annual bonus from Rohr in
restricted stock which vested in three yearly installments. All unvested shares
became vested upon September 22, 1997, the date of the change in control under
the terms of the plan.
(8) $2,240,700 as a result of a change in control payment under an agreement
with Rohr. An additional $1,654,918 was paid as a tax gross-up to offset
exercise taxes due upon these types of payments under the Internal Revenue Code.
$4,800 represents the Company's contribution to a 401(k) plan.
OPTION/SAR GRANTS
The following table sets forth certain information concerning grants of
options and stock appreciation rights ("SARs") to the Named Executive Officers
during Fiscal 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM
------------------------------------------------------ ---------------------------------------
% OF TOTAL
NUMBER OF OPTIONS/
SECURITIES SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES EXERCISE OR
GRANTED IN FISCAL BASE PRICE EXPIRATION
NAME (# OF SHARES) YEAR ($/SH) DATE 0%($) 5%($) 10%($)
---- ------------- ---------- ------------ ---------- ----- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. D. Ong........ 49,000 5.8% $40.125 1/2/07 -0- $ 1,236,466 $ 3,133,501
D. L. Burner..... 49,000 5.8 40.125 1/2/07 -0- 1,236,466 3,133,501
R. H. Rau........ -0- -0- N/A N/A N/A N/A N/A
D. L. Tobler..... 22,000 2.7 40.125 1/2/07 -0- 555,148 1,406,878
M. O. Larsen..... 24,000 2.8 40.125 1/2/07 -0- 605,616 1,534,776
J. V. Heider..... 17,000 2.0 40.125 1/2/07 -0- 428,978 1,087,133
All
Shareholders... N/A N/A N/A N/A -0- 1,865,957,401 4,728,782,985
All Optionees.... 846,674 100 40.515 1/2/07 -0- 21,569,020 54,669,994
11/2/97
Optionee Gain as
% of all
Shareholder
Gain........... N/A N/A N/A N/A N/A 1.2% 1.2%
</TABLE>
- ---------------
The dollar amounts under the potential realizable value column are the result of
calculations of assumed annual compound rates of appreciation over the ten-year
life of the options in accordance with the proxy regulations of the Securities
and Exchange Commission and are not intended to forecast possible future
appreciation, if any, of the Company's Common Stock. The actual value, if any,
an executive may realize will depend on the excess of the market price of the
shares over the exercise price on the date the option is exercised. The Company
did not use an alternative formula for a grant date valuation, as the Company is
not aware of any formula which will determine with reasonable accuracy a present
value based on future unknown or volatile factors. No SARs were attached to
these options. The options granted to the named individuals were immediately
exercisable and were granted with limited stock appreciation rights which
generally entitle the optionee to elect to receive the appreciation on the
option in cash for a 60-day period following a "change in control", as defined
under "--Management Continuity Agreements".
EXERCISE OF OPTIONS/SARS DURING FISCAL 1997; VALUE OF OPTIONS/SARS AT END OF
FISCAL 1997
The following table sets forth certain information regarding the number and
value of options and SARs exercised by the Named Executive Officers during
Fiscal 1997 an the value of all unexercised options and SARs belonging to the
Named Executive Officers at December 31, 1997.
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<PAGE> 74
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS/SARS IN-THE-MONEY
AT FY-END OPTIONS/SARS
SHARES VALUE (# OF SHARES) AT FY-END ($)
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ --------- ------------- ----------------
<S> <C> <C> <C> <C>
J. D. Ong...................... 73,678 1,100,085 305,582/-0- 4,547,987/-0-
D. L. Burner................... 6,000 75,921 195,600/-0- 2,342,335/-0-
R. H. Rau...................... -0- -0- 219,100/-0- 5,023,079/-0-
D. L. Tobler................... 15,000 363,358 128,764/-0- 1,936,153/-0-
M. O. Larsen................... 1,000 13,156 114,080/4,320 1,119,269/86,804
J. V. Heider................... 8,000 95,352 123,000/-0- 1,889,186/-0-
</TABLE>
RETIREMENT PENSIONS
The Company has in effect a pension plan for salaried employees which
provides pensions payable at retirement to each eligible employee. The plan
makes available a pension which is paid from funds provided through
contributions by the Company and contributions by the employee, if any, made
prior to 1972. The plan is not available to Directors other than those who are
employees. The amount of an employee's pension depends on a number of factors
including Final Average Earnings ("FAE") and years of credited service to the
Company. The following chart shows the annual pension amounts currently
available to employees who retire with the combinations of FAE and years of
credited service shown in the chart, which should be read in conjunction with
the notes following the chart. As of January 1, 1989 the plan generally provides
a benefit of 1.15% of FAE times all years of pension credit plus 0.45% of FAE in
excess of covered compensation times years of pension credit up to 35 years. In
addition employees hired prior to January 1, 1990, will receive an additional
pension credit of up to 4 years up to a maximum of 24 years of pension credit.
Benefits become vested after 5 years of service. The following table sets forth
certain information relating to the Company's pension plan.
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<PAGE> 75
PENSION PLAN TABLE
<TABLE>
<CAPTION>
FINAL YEARS OF BENEFIT SERVICE
AVERAGE -------------------------------------------------------------
EARNINGS 10 20 25 30 35 40
--------- ------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
100,000 14,650 29,300 36,625 43,950 51,275 57,025
150,000 22,650 45,300 56,625 67,950 79,275 87,900
200,000 30,650 61,300 76,625 91,950 107,275 118,775
250,000 38,650 77,300 96,625 115,950 135,275 149,650
300,000 46,560 93,300 116,625 139,950 163,275 180,525
350,000 54,650 109,300 136,625 163,950 191,175 211,400
400,000 62,650 125,300 156,625 187,950 219,275 242,275
450,000 70,650 141,300 176,625 211,950 247,275 273,150
500,000 78,650 157,300 196,625 235,950 275,275 304,025
600,000 94,650 189,300 236,625 283,950 331,275 365,775
700,000 110,650 221,300 276,625 331,950 387,275 427,525
800,000 126,650 253,300 316,625 379,950 443,275 489,275
900,000 142,650 285,300 356,625 427,950 499,275 551,025
1,000,000 158,650 317,300 396,625 475,950 555,275 612,775
1,100,000 174,650 349,300 436,625 523,950 611,275 674,525
1,200,000 190,650 381,300 476,625 571,950 667,275 736,275
1,300,000 206,650 413,300 516,625 619,950 723,275 798,025
1,400,000 222,650 445,300 556,625 667,950 779,275 859,775
1,500,000 238,650 477,300 596,625 715,950 835,275 921,525
1,600,000 254,650 509,300 636,625 763,950 891,275 983,275
1,700,000 270,650 541,300 676,625 811,950 947,275 1,045,025
1,800,000 286,650 573,300 716,625 859,950 1,003,275 1,106,775
1,900,000 302,650 605,300 756,625 907,950 1,059,275 1,168,525
2,000,000 318,650 637,300 796,625 955,950 1,115,275 1,230,275
</TABLE>
- ---------------
(1) The pension plan uses either a "final average earnings" formula or a
"service credit" formula to compute the amount of an employee's pension,
applying the formula which produces the higher amount. The above chart was
prepared using the FAE formula, since the service credit formula would produce
lower amounts than those shown. Under the FAE formula, a pension is based on the
highest 48 consecutive months of an employees' earnings. Earnings include
salary, certain incentive payments including annual cash bonuses, but excludes
awards under long-term incentive programs and the Company match in the Company
savings plans. For the Named Executive Officers, only the amounts shown in the
Summary Compensation Table as Salary and Bonus under Annual Compensation
constitute FAE. As of March 1, 1998, final average earnings for the Named
Executive Officers were as follows: J. D. Ong, $1,472,592; D. L. Burner,
$884,984; D. L. Tobler, $679,396; M. O. Larsen, $504,688; and J. V. Heider,
$528,688.
(2) In computing the pension amounts shown, it was assumed that an employee
would retire at age 65 and elect to receive a five year certain and continuous
annuity under the pension plan and that the employee would not elect any of the
available "survivor options," which would result in a lower annual pension.
Pensions are not subject to any deduction for Social Security or any other
offset amounts.
(3) As of January 31, 1998, the Named Executive Officers had the following
credited years of service under the pension plan (including, where appropriate,
up to the 4 additional years): J. D. Ong, 36 years, 4 months; D. L. Burner, 18
years, 9 months; D. L. Tobler, 17 years, 1 month; M. O. Larsen, 22 years, 9
months; and J. V. Heider, 17 years, 8 months.
(4) Certain recently hired executives, including D. L. Burner, D. L. Tobler and
J. V. Heider, became vested in benefits immediately and earn an additional
benefit equal to 1.6 percent for each of their
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<PAGE> 76
first 15 years with the Company. As of December 31, 1997, the accrued additional
benefits per year were as follows: D. L. Burner, $176,515; D. L. Tobler,
$139,422; and J. V. Heider, $112,157. These benefits are payable under a
non-qualified supplemental plan funded in part with life insurance policies.
(5) Any benefits shown in the chart which exceed the level of benefits permitted
to be paid from a tax-qualified pension plan under the Internal Revenue Code are
payable under a non-qualified supplemental pension plan, funded in part with
life insurance policies.
(6) R. H. Rau does not participate in the Company's pension plan noted above.
See "--Compensation Arrangements" for a description of Mr. Rau's compensation
and retirement benefits.
MANAGEMENT CONTINUITY AGREEMENTS
In 1984 the Company first entered into management continuity agreements
(the "Agreements") with certain employees, which now include all of the Named
Executive Officers other than Messrs. Ong, Rau and Heider. Presently there are
11 Agreements in effect. The purpose of the Agreements is to encourage the
individuals to carry out their duties in the event of the possibility of a
change in control of the Company. The Agreements are not ordinary employee
agreements and do not provide any assurance of continued employment unless there
is a "change in control." They generally provide for a two-year period of
employment commencing upon a change in control which generally is deemed to have
occurred if (i) any person becomes the beneficial owner of 20% or more of the
Common Stock or combined voting power of the Company's outstanding securities
(subject to certain exceptions), (ii) during any two-year period there generally
has been a change in the majority of the Directors of the Company, or (iii)
certain corporate reorganizations occur where the existing shareholders do not
retain at least 70% of the voting securities of the surviving entity. The
Agreements generally provide for the continuation of employment of the
individuals in the same positions and with the same responsibilities and
authorities that they possessed immediately prior to the change in control and
generally with the same benefits and level of compensation, including average
annual increases. The individuals have the right to terminate their employment
voluntarily during the 30 day period commencing one year following a change in
control for any reason and receive compensation. If the individual's employment
is terminated by the Company or its successor for reasons other than "cause" or
is terminated voluntarily by the individual for a "good reason" (in each case as
defined in the Agreements) the individual would be entitled to receive
compensation for up to three years at the individual's base salary rate in
effect at the time of the change in control, together with continuation of
employee benefits and incentive compensation payable each year equal to the
greater of that paid with respect to the most recent period prior to such
termination or the "target incentive amount" for the period in which the change
in control or termination occurs. The Agreements provide for a tax gross-up for
any excise tax due under the Internal Revenue Code for these types of
agreements.
RETIREMENT ARRANGEMENTS
The Board of Directors has agreed to certain arrangements for Mr. Ong
following his retirement on July 1, 1997 after more than 36 years of service
with the Company. Mr. Ong will receive a full payout under the Long-Term
Incentive Plan. If the payout were prorated for his service during the
three-year plan period, he would have received a pro-rata award equal to of the
full award. Mr. Ong's participation in the 1997 Senior Executive Management
Incentive Program, the Company's annual cash bonus program for certain senior
executive officers, was prorated (50%) in accordance with the plan. Similar to
past Company practices with respect to retiring chief executive officers, the
Company will provide office space and secretarial support as well as continue
certain other benefits generally until Mr. Ong's 70th birthday.
In 1995 the Company offered a Voluntary Retirement Program to corporate
staff employees who retired by January 1, 1997. Mr. Heider, who was eligible for
the program, expressed an interest in accepting it. The Company requested Mr.
Heider to delay his retirement. The Company has
53
<PAGE> 77
agreed to provide an additional three years for age and years of service under
the Company's Retirement Plan as it did for other eligible employees who
accepted the program. Mr. Heider resigned as General Counsel effective October
20, 1997 and retired March 1, 1998. Mr. Heider received a full payout of the
Long-Term Incentive Plan early in 1998 and an unreduced annual bonus for 1997.
COMPENSATION ARRANGEMENTS
Under Mr. Rau's employment agreement with Rohr, upon the execution of the
merger agreement with BFGoodrich on September 22, 1997, he was entitled to a
payment of $2,240,700 plus $1,654,918 as a tax gross-up to offset taxes due upon
these types of payments under the Internal Revenue Code. He is also entitled to
a retirement benefit if he retires at age 62 of $464,400 per year. The amount
will be reduced by the amount of any retirement benefit he may receive from
Parker Hannifin, his former employer. The benefit will continue as a 100% joint
and survivor benefit for his and his wife's lifetime, with a guaranteed payment
to the survivor's estate for at least 10 years. The amount of the retirement
benefit will increase by $2,322 per year for each month Mr. Rau works beyond his
62nd birthday. BFGoodrich has agreed to continue Mr. Rau as President and Chief
Executive Officer of Rohr, which is now the Aerostructures Group of BFGoodrich
Aerospace, until December 31, 1998, when he will retire. His compensation shall
continue at the existing level of $640,200 per year with a target annual bonus
of $384,120. On February 16, 1998, he received a Long Term Incentive Award of
12,700 Performance Shares. Based upon Mr. Rau's retirement on December 31, 1998,
he will only be entitled to a pro rata award of 1/3 the amount earned. He will
also be entitled to the continuation of certain other benefits until age 65
which is consistent with Company practice for retiring executives at this level.
For the three year period beginning January 1, 1999 and continuing through
December 31, 2001, Mr. Rau will serve as a consultant to BFGoodrich at a fee of
$28,000 per month. Mr. Rau will continue to be considered for renomination to
the Board of Directors in accordance with BFGoodrich Board's policies, but Mr.
Rau shall not be entitled to any additional compensation for serving as a
Director. Mr. Rau has agreed not to engage in any activity which competes with
BFGoodrich through December 31, 2001.
54
<PAGE> 78
CUMULATIVE TOTAL SHAREHOLDER PERFORMANCE
Set forth below is a line graph showing the yearly percentage change in the
cumulative total shareholder return for the Company's Common Stock with the
similar returns for the Standard & Poor's 500 Stock Index, the Standard & Poor's
Specialty Chemicals Index and the Standard & Poor's Aerospace/Defense Index.
Each of the returns is calculated assuming the investment of $100 in each of the
securities on December 31, 1992 and reinvestment of dividends into additional
shares of the respective equity securities when paid. The graph plots the
respective values on the five single days which are the last trading days of
calendar years 1992 through 1997. Past performance is not necessarily indicative
of future performance.
<TABLE>
<CAPTION>
The CHEMICALS
Measurement Period BFGoodrich S&P 500 AEROSPACE/DEFENSE- (SPECIALTY)-
(Fiscal Year Covered) Company INDEX 500 500
<S> <C> <C> <C> <C>
Dec92 100 100 100 100
Dec93 86.35 110.08 130.07 114.02
Dec94 97.76 111.53 140.69 99.54
Dec95 159.33 153.45 232.83 130.83
Dec96 195.00 188.68 311.43 134.19
Dec97 204.87 251.63 320.40 166.17
</TABLE>
<TABLE>
<CAPTION>
1993/1997
COMPANY/INDEX CUMULATIVE RETURN
------------- -----------------
<S> <C>
The BFGoodrich Company...................................... 90.00%
S&P 500 Index............................................... 105.30
Aerospace/Defense........................................... 140.37
Specialty Chemicals......................................... 59.15
</TABLE>
55
<PAGE> 79
In 1993, the Company sold Geon, which generally comprised its polyvinyl
chloride business. This completed a decade of change, during which BFGoodrich
divested its commodity type businesses and reinvested the proceeds in its two
specialty businesses, Aerospace and Specialty Chemicals. As a result, 1994
represents the first full year of operations under the Company's new strategic
focus. The chart below shows the 4 year cumulative percentage return since 1994
for the Company and the three indices reflected in the graph above.
<TABLE>
<CAPTION>
The CHEMICALS
Measurement Period BFGoodrich S&P 500 AEROSPACE/DEFENSE- (SPECIALTY)-
(Fiscal Year Covered) Company INDEX 500 500
<S> <C> <C> <C> <C>
Dec93 100.00 100.00 100.00 100.00
Dec94 113.21 101.32 108.17 87.30
Dec95 184.52 139.40 179.00 114.74
Dec96 225.83 171.40 239.44 117.69
Dec97 237.25 228.59 246.34 145.73
</TABLE>
<TABLE>
<CAPTION>
1993/1997
COMPANY/INDEX CUMULATIVE RETURN
------------- -----------------
<S> <C>
The BFGoodrich Company...................................... 103.65%
S&P 500 Index............................................... 95.24
Aerospace/Defense........................................... 110.30
Specialty Chemicals......................................... 45.13
</TABLE>
COMPENSATION OF DIRECTORS
During 1997 each non-employee Director of the Company received fixed
compensation for serving as a Director at the rate of $26,000 per year, plus
$1,000 for each Board and Board Committee meeting attended, except that the
chairperson of a Committee would receive $1,500 for each meeting of that
Committee attended. Effective January 1, 1998, each non-employee Director will
receive fixed compensation of $40,000 per year. One half of the fixed
compensation is deferred into a phantom BFGoodrich share account and is paid out
in shares of BFGoodrich stock following termination of service as a Director.
Dividends which would be earned on the phantom share account will be credited to
the account in additional phantom shares. Directors may elect to defer a portion
or all of the remaining fixed compensation into the phantom share account. The
Board believes that a portion of Director's compensation should be based on the
Company's Common Stock similar to executive compensation. This should more
closely align the financial interests of Directors with the financial interests
of shareholders. The Director's fixed compensation was last increased in 1995.
In September 1995, the Board of Directors replaced the existing cash
retirement plan for Directors with a new Directors' Phantom Share Plan. Under
the terms of the plan, outside Directors
56
<PAGE> 80
will receive annual grants of phantom shares equal in value to the current
annual cash retainer for up to ten years. Dividend equivalents will accrue on
all phantom shares credited to a Director's account. All phantom shares become
fully vested at the earlier of five years from the date of grant, the Director's
termination of Board service after age 55, or upon a change in control of the
Company as defined in the Company's Stock Option Plan. Following termination of
service as a Director, the vested number of phantom shares will be paid to each
Director in twelve monthly installments. The value of each phantom share is
determined on the relevant date by the fair market value of the Company's Common
Stock. The former cash retirement plan provided upon retirement from the Board
of Directors after reaching the age of 55 with at least ten years of service as
a Director, any non-employee Director would be entitled to receive an annual
amount equal to the fixed compensation level in effect at the time of
retirement. A retiring Director who has reached age 55 and has served for at
least five but less than ten years would be entitled to a reduced amount equal
to 50% of the fixed compensation level in effect at retirement, plus 10% of such
compensation level for each additional year of service (rounded to the nearest
whole year) up to ten. Transitional provisions have been provided between the
old cash retirement plan and the new Directors' Phantom Share Plan based on a
Director's years of service as of September 1995. Directors with more than ten
years of service will continue to be eligible under the old plan but will not
receive any phantom shares under the new plan. Outside Directors with at least
five but less than ten years service will continue to be eligible to receive
benefits under the old plan with respect to their accrued benefits through the
date of the adoption of the Directors' Phantom Share Plan and will receive
annual grants of phantom shares through their tenth year. Outside Directors with
less than five years of service will receive no benefits under the old plan, but
received initial grants of phantom shares equal to the current annual cash
retainer times the number of completed years of service and will thereafter
receive annual grants of phantom shares up to an aggregate of ten years. Retired
Directors will continue to receive their retirement benefits.
INSURANCE
As authorized by Section 726 of the Business Corporation Law of the State
of New York and the Company's By-Laws, the Company has purchased insurance
providing indemnification for the Company and its subsidiaries as well as their
directors and officers. The insurance coverage was written by Federal Insurance
Company and Reliance Insurance Company, commencing June 19, 1997, for a one-year
period, at a total premium cost of $459,000.
PLAN OF DISTRIBUTION
The Company may sell Debt Securities to or through underwriters and also
may sell Debt Securities directly to other purchasers or through agents.
The distribution of the Debt Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed, or
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Debt Securities, underwriters or agents may
receive compensation from the Company or from purchasers of Debt Securities for
whom they may act as agents in the form of discounts, concessions or
commissions. Underwriters may sell Debt Securities to or through dealers and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents. Underwriters, dealers and agents that participate
in the distribution of Debt Securities may be deemed to be underwriters, and any
discounts, concessions or commissions received by them from the Company and any
profit on the resale of Debt Securities by them may be deemed to be underwriting
discounts and commissions, under the Act. Any such underwriter or agent will be
identified, and any such compensation received from the Company will be
described, in the Prospectus Supplement accompanying this Prospectus.
57
<PAGE> 81
Under agreements which may be entered into by the Company, underwriters and
agents who participate in the distribution of Debt Securities may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Act.
The Debt Securities, when first issued, will have no established trading
market. Any underwriters or agents to or through whom Debt Securities are sold
by the Company for public offering and sale may make a market in such Debt
Securities, but such underwriters or agents will not be obligated to do so and
may discontinue any market making at any time without notice. No assurance can
be given as to the liquidity of the trading market for any Debt Securities.
In connection with an offering of Debt Securities, underwriters or agents
may purchase and sell such Debt Securities in the open market. These
transactions may include over-allotment and stabilizing transactions and
purchases to cover syndicate short positions created in connection with such
offering. Stabilizing transactions consist of certain bids or purchases for the
purpose of preventing or retarding a decline in the market price of Debt
Securities, and syndicate short positions involve the sale by the underwriters
or agents of a greater number of Debt Securities than they are required to
purchase from the Company in such offering. The underwriters or agents also may
impose a penalty bid by which selling concessions allowed to syndicate members
or certain dealers in respect of Debt Securities are sold in this offering for
their account may be reclaimed by the syndicate if such Debt Securities are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of Debt
Securities, which may be higher than the price that might otherwise prevail in
the open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected in the exchange, if any, on which such
Debt Securities are traded, in the over-the-counter market or otherwise.
If so indicated in the Prospectus Supplement accompanying this Prospectus,
the Company will authorize underwriters or other persons acting as the Company's
agents to solicit offers by certain institutions to purchase Debt Securities
from the Company pursuant to contracts providing for payment and delivery on a
future date. Institutions 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 institutions must be approved by the Company. The obligations of any
purchaser under any such contract will be subject to the condition that the
purchase of the offered Debt Securities shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which such purchaser is
subject. The underwriters and such other agents will not have any responsibility
in respect of the validity or performance of such contracts.
VALIDITY OF DEBT SECURITIES
The validity of the Debt Securities offered hereby will be passed upon for
the Company by Nicholas J. Calise, Vice President, Associate General Counsel and
Secretary of the Company, and for the underwriters or agents, as the case may
be, by Sullivan & Cromwell, New York, New York. As of March 18, 1998, Mr. Calise
owned 17,792 shares of the Company's Common Stock; has deferred receipt of 5,917
shares of the Company's Common Stock under the Company's Long Term Incentive
Plan; has contingently credited to his account 2,600 phantom shares under the
1998-2000 Long Term Incentive Plan, all of which are subject to forfeiture; held
options to purchase 83,300 shares of Common Stock; and had credited to his
account in the Company's Retirement Plus Savings Plan approximately 5,107 shares
of Common Stock.
58
<PAGE> 82
EXPERTS
The consolidated financial statements of The BFGoodrich Company at December
31, 1997 and 1996, and for each of the three years in the period ended December
31, 1997, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein which, as to the years 1996 and 1995, is
based in part on the report of Deloitte & Touche LLP, independent auditors. The
consolidated financial statements of Rohr, Inc. as of July 31, 1996 and for each
of the two years in the period ended July 31, 1996 (consolidated with those of
The BFGoodrich Company, and not presented separately herein) have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report
included herein. The financial statements referred to above are included in
reliance upon the respective reports of such firms given upon their authority as
experts in accounting and auditing.
59
<PAGE> 83
THE BFGOODRICH COMPANY AND SUBSIDIARIES
FINANCIALS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors--Ernst & Young LLP........... F-2
Report of Independent Auditors--Deloitte & Touche LLP....... F-3
Consolidated Statement of Income............................ F-4
Consolidated Balance Sheet.................................. F-5
Consolidated Statement of Cash Flows........................ F-6
Consolidated Statement of Shareholders' Equity.............. F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 84
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
of the BFGoodrich Company:
We have audited the accompanying Consolidated Balance Sheet of The
BFGoodrich Company and subsidiaries as of December 31, 1997 and 1996, and the
related Consolidated Statements of Income, Shareholders' Equity and Cash Flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements as of and for the years
ended July 31, 1996 and 1995 of Rohr, Inc., which statements reflect total
assets constituting 26 percent as of July 31, 1996, and total sales constituting
27 percent and 30 percent for the years ended July 31, 1996 and 1995,
respectively, of the related consolidated totals. Those financial statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to data included for Rohr, Inc. for 1996 and
1995, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and, for 1996 and 1995, the report of
other auditors, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The BFGoodrich
Company and subsidiaries at December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
February 16, 1998
F-2
<PAGE> 85
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of
Directors of Rohr, Inc.:
We have audited the consolidated balance sheet of Rohr, Inc. and its
subsidiaries as of July 31, 1996, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the two years in
the period ended July 31, 1996 (such statements are not separately presented).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material aspects, the financial position of Rohr, Inc. and its subsidiaries
as of July 31, 1996, and the results of its operations and its cash flows for
each of the two years in the period ended July 31, 1996, in conformity with
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
September 11, 1997
F-3
<PAGE> 86
THE BFGOODRICH COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
SALES..................................................... $3,373.0 $2,845.8 $2,661.8
Operating costs and expenses:
Cost of sales........................................... 2,454.7 2,042.5 1,973.3
Charge for MD-90 contract............................... 35.2 -- --
Selling and administrative costs........................ 556.0 481.8 438.0
Restructuring costs and asset impairment................ -- 11.2 3.1
Merger-related costs.................................... 77.0 -- --
-------- -------- --------
3,122.9 2,535.5 2,414.4
-------- -------- --------
OPERATING INCOME.......................................... 250.1 310.3 247.4
Interest expense.......................................... (73.0) (89.3) (98.6)
Interest income........................................... 12.0 4.2 6.5
Gain on issuance of subsidiary stock...................... 13.7 -- --
Other income (expense) -- net............................. 15.0 (30.8) 1.9
-------- -------- --------
Income from continuing operations before income taxes and
Trust distributions..................................... 217.8 194.4 157.2
Income tax expense........................................ (94.1) (68.4) (57.3)
Distributions on Trust preferred securities............... (10.5) (10.5) (5.1)
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS......................... 113.2 115.5 94.8
Income from discontinued operations-net of taxes.......... 84.3 58.4 47.3
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEMS......................... 197.5 173.9 142.1
Extraordinary losses on debt extinguishment -- net of
taxes................................................... (19.3) -- (1.2)
-------- -------- --------
NET INCOME................................................ $ 178.2 $ 173.9 $ 140.9
======== ======== ========
BASIC EARNINGS PER SHARE:
Continuing operations................................... $ 1.59 $ 1.74 $ 1.40
Discontinued operations................................. 1.19 .87 .74
Extraordinary losses.................................... (.27) -- (.02)
-------- -------- --------
Net income.............................................. $ 2.51 $ 2.61 $ 2.12
======== ======== ========
DILUTED EARNINGS PER SHARE:
Continuing operations................................... $ 1.53 $ 1.65 $ 1.34
Discontinued operations................................. 1.13 .83 .69
Extraordinary losses.................................... (.25) -- (.02)
-------- -------- --------
Net income.............................................. $ 2.41 $ 2.48 $ 2.01
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 87
THE BFGOODRICH COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 47.0 $ 137.1
Accounts and notes receivable............................. 532.6 527.5
Inventories............................................... 652.6 646.4
Deferred income taxes..................................... 132.4 51.8
Prepaid expenses and other assets......................... 36.7 45.1
-------- --------
Total Current Assets.............................. 1,401.3 1,407.9
Property.................................................... 1,065.1 1,142.0
Deferred income taxes....................................... 86.0 160.2
Prepaid pension............................................. 148.3 89.3
Goodwill.................................................... 546.2 544.3
Identifiable intangible assets.............................. 51.1 47.6
Other assets................................................ 195.9 188.5
-------- --------
Total Assets...................................... $3,493.9 $3,579.8
======== ========
CURRENT LIABILITIES
Short-term bank debt...................................... $ 192.8 $ 134.4
Accounts payable.......................................... 327.6 306.7
Accrued expenses.......................................... 411.3 344.4
Income taxes payable...................................... -- 10.4
Current maturities of long-term debt and capital lease
obligations............................................ 3.2 58.3
-------- --------
Total Current Liabilities......................... 934.9 854.2
Long-term debt and capital lease obligations................ 564.3 881.4
Pension obligations......................................... 39.6 56.8
Postretirement benefits other than pensions................. 343.7 352.4
Other non-current liabilities............................... 65.7 86.6
Commitments and contingent liabilities (Note W)............. -- --
Mandatorily redeemable preferred securities of trust........ 123.1 122.6
Shareholders' equity
Common stock -- $5 par value
Authorized, 100,000,000 shares; issued, 73,946,160
shares in 1997 and 70,530,178 shares in 1996.......... 369.7 352.7
Additional capital........................................ 500.7 444.0
Income retained in the business........................... 591.5 490.8
Cumulative unrealized translation adjustments............. (1.7) 5.9
Minimum pension liability adjustment...................... (1.8) (26.4)
Unearned portion of restricted stock awards............... (.7) (9.0)
Common stock held in treasury, at cost (1,204,022 shares
in 1997 and 1,135,985 shares in 1996).................. (35.1) (32.2)
-------- --------
Total Shareholders' Equity........................ 1,422.6 1,225.8
-------- --------
Total Liabilities and Shareholders' Equity........ $3,493.9 $3,579.8
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 88
THE BFGOODRICH COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 178.2 $ 173.9 $ 140.9
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary loss on debt extinguishment................. 19.3 -- 1.2
Depreciation and amortization............................. 138.8 139.8 136.0
Deferred income taxes..................................... 33.2 29.0 31.6
Net gains on sale of businesses........................... (138.8) (4.5) (3.6)
Charge for exchange of 7.75% Convertible Notes............ -- 5.3 --
Asset impairment write-down............................... -- 7.2 --
Change in assets and liabilities, net of effects of
acquisitions and dispositions of businesses:
Receivables............................................. (41.7) (36.9) 13.6
Inventories............................................. (53.3) (29.9) (64.4)
Other current assets.................................... 1.1 2.0 5.2
Accounts payable........................................ 26.0 7.2 (14.6)
Accrued expenses........................................ 86.2 6.2 (1.4)
Income taxes payable.................................... (11.2) (19.5) 9.1
Other non-current assets and liabilities................ (28.2) (14.3) (32.6)
------- ------- -------
Net cash provided by operating activities................... 209.6 265.5 221.0
------- ------- -------
INVESTING ACTIVITIES
Purchases of property....................................... (159.9) (197.1) (155.8)
Proceeds from sale of property.............................. 8.5 8.8 3.2
Proceeds from sale of businesses............................ 395.9 28.9 82.3
Repurchase of sale-leaseback transactions................... -- -- (21.8)
Sale of short-term investments.............................. 8.0 -- 17.6
Payments made in connection with acquisitions, net of cash
acquired.................................................. (133.4) (107.9) (15.4)
Other....................................................... -- -- (5.7)
------- ------- -------
Net cash provided (used) by investing activities............ 119.1 (267.3) (95.6)
------- ------- -------
FINANCING ACTIVITIES
Net (decrease) increase in short-term debt.................. 68.9 122.5 (59.2)
Proceeds from issuance of long-term debt.................... 150.0 71.1 80.8
Repayment of long-term debt and capital lease obligations... (543.0) (155.5) (99.3)
Cash collateral for receivable sales program................ 5.0 13.5 13.0
Reduction in sales of receivable sales program.............. -- -- (20.0)
Proceeds from issuance of capital stock..................... 14.8 11.2 16.6
Proceeds from issuance of Trust preferred securities, net of
issuance costs............................................ -- -- 122.1
Purchases of treasury stock................................. (9.7) (.1) (33.4)
Dividends................................................... (59.5) (58.8) (61.6)
Distributions on Trust preferred securities................. (10.5) (10.5) (5.1)
Retirements of preferred stock.............................. -- -- (88.3)
Other....................................................... 1.1 1.3 1.5
------- ------- -------
Net cash used by financing activities....................... (382.9) (5.3) (132.9)
------- ------- -------
Effect of exchange rate changes on cash and cash
equivalents............................................... (2.2) (.7) .6
------- ------- -------
Net decrease in cash and cash equivalents................... (56.4) (7.8) (6.9)
Cash and cash equivalents at beginning of year(1)........... 103.4 144.9 151.8
------- ------- -------
Cash and cash equivalents at end of year.................... $ 47.0 $ 137.1 $ 144.9
======= ======= =======
</TABLE>
- ---------------
(1) Cash and cash equivalents at the beginning of 1997 does not agree with the
amount at the end of 1996 due to the net cash transactions of Rohr from
August 1, 1996 to December 31, 1996, which are not reflected in the 1996
column above.
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 89
THE BFGOODRICH COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
COMMON STOCK -- $5 PAR VALUE
Balance at beginning of year.............................. $ 352.7 $ 197.2 $192.9
Adjustment to conform Rohr's fiscal year............... 10.3 -- --
Two-for-one common stock split......................... -- 134.7 --
Contribution to pension plans.......................... -- 3.8 --
Conversion of Series D Preferred Stock................. -- -- 2.0
Conversion of 7.75% Convertible Subordinated Notes..... .5 14.0 --
Employee award programs................................ 4.1 3.0 2.3
Exercise of warrants................................... 2.1 -- --
-------- -------- ------
Balance at end of year.................................... 369.7 352.7 197.2
-------- -------- ------
ADDITIONAL CAPITAL
Balance at beginning of year.............................. 444.0 505.2 459.3
Adjustment to conform Rohr's fiscal year............... 39.6 -- --
Two-for-one common stock split......................... -- (134.7) --
Contribution to pension plans.......................... -- 26.2 --
Conversion of Series D Preferred Stock................. -- -- 20.8
Conversion of 7.75% Convertible Subordinated Notes..... 1.0 28.3 --
Employee award programs................................ 12.8 19.0 25.1
Exercise of warrants................................... 3.3 -- --
-------- -------- ------
Balance at end of year.................................... 500.7 444.0 505.2
-------- -------- ------
INCOME RETAINED IN THE BUSINESS
Balance at beginning of year.............................. 490.8 375.7 297.6
Net income............................................. 178.2 173.9 140.9
Adjustment to conform Rohr's fiscal year............... (18.0) -- --
Premium on redemption of Series D Preferred Stock...... -- -- (1.2)
Dividends:
Series D Preferred Stock, $3.50 per share............ -- -- (4.4)
Common stock, $1.10 per share in each year........... (59.5) (58.8) (57.2)
-------- -------- ------
Total dividends................................... (59.5) (58.8) (61.6)
-------- -------- ------
Balance at end of year.................................... 591.5 490.8 375.7
-------- -------- ------
CUMULATIVE UNREALIZED TRANSLATION ADJUSTMENTS
Balance at beginning of year.............................. 5.9 9.6 4.9
Aggregate adjustments for the year..................... (7.6) (3.7) 4.7
-------- -------- ------
Balance at end of year.................................... (1.7) 5.9 9.6
-------- -------- ------
MINIMUM PENSION LIABILITY ADJUSTMENT
Balance at beginning of year.............................. (26.4) (67.2) (74.5)
Adjustment to conform Rohr's fiscal year............... 26.4 -- --
Aggregate adjustments for the year..................... (1.8) 40.8 7.3
-------- -------- ------
Balance at end of year.................................... (1.8) (26.4) (67.2)
-------- -------- ------
Unearned portion of restricted stock awards................. (.7) (9.0) (16.2)
-------- -------- ------
Common stock held in treasury, at cost...................... (35.1) (32.2) (28.3)
-------- -------- ------
Total shareholders' equity.................................. $1,422.6 $1,225.8 $976.0
======== ======== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE> 90
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A MERGER WITH ROHR
On December 22, 1997, BFGoodrich completed a merger with Rohr, Inc. by
exchanging 18,588,004 shares of BFGoodrich common stock for all of the common
stock of Rohr (the term Company is used to refer to BFGoodrich including Rohr).
Each share of Rohr common stock was exchanged for .7 of one share of BFGoodrich
common stock.
The merger was accounted for as a pooling of interests. Accordingly, all
prior period Consolidated Financial Statements and notes thereto have been
restated to include the results of operations, financial position and cash flows
of Rohr as though Rohr had always been a part of BFGoodrich.
Prior to the merger, Rohr's fiscal year ended on July 31. For purposes of
the combination, Rohr's financial results for its fiscal year ended July 31,
1997, have been restated to the year ended December 31, 1997, to conform with
BFGoodrich's calendar year end. Financial results for Rohr's fiscal years ended
July 31, 1996 and earlier have not been restated to conform to BFGoodrich's
calendar year end. For periods prior to 1997, Rohr's fiscal years ended July 31
have been combined with BFGoodrich's calendar years ended December 31. As a
result, Rohr's results of operations for the period August 1, 1996 to December
31, 1996 do not appear in the Consolidated Statement of Income and instead are
recorded as a direct adjustment to equity. Rohr's revenues, expenses and net
loss for this five-month period were $341.3 million, $359.3 million and $18.0
million, respectively. Included in expenses during this period was a $49.3
million pretax charge ($29.5 million after tax) relating to the McDonnell
Douglas MD-90 program (see Note E).
There were no transactions between BFGoodrich and Rohr prior to the
combination. Certain reclassifications were made to Rohr's financial statements
to conform to BFGoodrich's presentation.
The results of operations for the previously separate companies and the
combined amounts presented in the Consolidated Statement of Income for each of
the last three fiscal years are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Sales:
BFGoodrich.............................................. $2,306.0 $2,078.2 $1,860.5
Rohr.................................................... 1,067.0 767.6 801.3
-------- -------- --------
Combined................................................ $3,373.0 $2,845.8 $2,661.8
======== ======== ========
Extraordinary items:
BFGoodrich.............................................. $ -- $ -- $ --
Rohr.................................................... (19.3) -- (1.2)
-------- -------- --------
Combined................................................ $ (19.3) $ -- $ (1.2)
======== ======== ========
Net income:
BFGoodrich.............................................. $ 224.8 $ 151.7 $ 118.0
Rohr.................................................... 39.4 22.2 22.9
Merger-related costs (after tax)........................ (86.0) -- --
-------- -------- --------
Combined................................................ $ 178.2 $ 173.9 $ 140.9
======== ======== ========
</TABLE>
The Company recognized pretax merger-related costs of $105.0 million ($86.0
million after tax, or $1.15 per diluted share). Merger-related costs consisted
primarily of costs of investment
F-8
<PAGE> 91
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE A MERGER WITH ROHR (CONTINUED)
bankers, attorneys, accountants, financial printing, debt extinguishment and
payments due under contractual employee arrangements. Of the $105.0 million,
$28.0 million related to debt extinguishment costs ($16.7 million after tax, or
$.22 per diluted share) which have been reported as an extraordinary item (see
Note F). Of the $86.0 million after-tax merger-related costs above, $7.9 million
was recorded by BFGoodrich and $78.1 million was recorded by Rohr.
NOTE B SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The Consolidated Financial Statements reflect
the accounts of The BFGoodrich Company and its majority-owned subsidiaries.
Investments in 20- to 50-percent-owned affiliates and majority-owned companies
in which investment is considered temporary are accounted for using the equity
method. Equity in earnings (losses) from these businesses is included in Other
income (expense) -- net. Intercompany accounts and transactions have been
eliminated.
CASH EQUIVALENTS Cash equivalents consist of highly liquid investments
with a maturity of three months or less at the time of purchase.
INVENTORIES Inventories are stated at the lower of cost or market. Certain
domestic inventories are valued by the last-in, first-out ("LIFO") cost method.
Inventories not valued by the LIFO method are valued principally by the average
cost method.
Inventoried costs on long-term contracts include certain preproduction
costs, consisting primarily of tooling and design costs and production costs,
including applicable overhead. As the production costs for early units are
charged to in-process inventory at an actual unit cost in excess of the
estimated average cost for all units projected to be delivered over the entire
contract, a segment of inventory described as the excess of production costs
over estimated average unit cost (and referred to as excess-over-average
inventory) is created. Generally, excess-over-average inventory, which may
include production (but not preproduction) cost overruns, builds during the
early years of the contract when the efficiencies resulting from learning are
not yet fully realized and declines as the contract matures. Under the learning
curve concept, an estimated decrease in unit labor hours is assumed as tasks and
production techniques become more efficient through repetition of the same
manufacturing operation and through management action such as simplifying
product design, improving tooling, purchasing new capital equipment, improving
manufacturing techniques, etc. Inventoried costs are reduced by the estimated
average cost of deliveries.
In the event that in-process inventory plus estimated costs to complete a
specific contract exceeds the anticipated remaining sales value of such
contract, such excess is charged to current earnings, thus reducing inventory to
estimated realizable value.
In accordance with industry practice, costs in inventory include amounts
relating to contracts with long production cycles, some of which are not
expected to be realized within one year.
LONG-LIVED ASSETS Property, plant and equipment, including amounts
recorded under capital leases, are recorded at cost. Depreciation and
amortization is computed principally using the straight-line method over the
following estimated useful lives: buildings and improvements, 15 to 40 years;
machinery and equipment, 5 to 15 years. In the case of capitalized lease assets,
amortization is computed over the lease term if shorter. Repairs and maintenance
costs are expensed as incurred.
F-9
<PAGE> 92
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE B SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Goodwill represents the excess of the purchase price over the fair value of
the net assets of acquired businesses and is being amortized by the
straight-line method, in most cases over 20 to 40 years. Goodwill amortization
is recorded in cost of sales.
Identifiable intangible assets are recorded at cost, or when acquired as a
part of a business combination, at estimated fair value. These assets include
patents and other technology agreements, licenses and non-compete agreements.
They are amortized using the straight-line method over estimated useful lives of
5 to 25 years.
Impairment of long-lived assets and related goodwill is recognized when
events or changes in circumstances indicate that the carrying amount of the
asset, or related groups of assets, may not be recoverable. Measurement of the
amount of impairment may be based on appraisal, market values of similar assets
or estimated discounted future cash flows resulting from the use and ultimate
disposition of the asset.
REVENUE AND INCOME RECOGNITION For revenues not recognized under the
contract method of accounting, the Company recognizes revenues from the sale of
products at the point of passage of title, which is at the time of shipment.
Revenues earned from providing maintenance service are recognized when the
service is complete.
A significant portion of the Company's sales in the Aerostructures Group of
the Aerospace Segment are under long-term, fixed-priced contracts, many of which
contain escalation clauses, requiring delivery of products over several years
and frequently providing the buyer with option pricing on follow-on orders.
Sales and profits on each contract are recognized primarily in accordance with
the percentage-of-completion method of accounting, using the units-of-delivery
method. The Company follows the guidelines of Statement of Position 81-1 ("SOP
81-1"), "Accounting for Performance of Construction-Type and Certain
Production-Type Contracts" (the contract method of accounting) except that the
Company's contract accounting policies differ from the recommendations of SOP
81-1 in that revisions of estimated profits on contracts are included in
earnings under the reallocation method rather than the cumulative catch-up
method.
Profit is estimated based on the difference between total estimated revenue
and total estimated cost of a contract, excluding that reported in prior
periods, and is recognized evenly in the current and future periods as a uniform
percentage of sales value on all remaining units to be delivered. Current
revenue does not anticipate higher or lower future prices but includes units
delivered at actual sales prices. Cost includes the estimated cost of the
preproduction effort (primarily tooling and design), plus the estimated cost of
manufacturing a specified number of production units. The specified number of
production units used to establish the profit margin is predicated upon
contractual terms adjusted for market forecasts and does not exceed the lesser
of those quantities assumed in original contract pricing or those quantities
which the Company now expects to deliver in the periods assumed in the original
contract pricing. Option quantities are combined with prior orders when
follow-on orders are released.
The contract method of accounting involves the use of various estimating
techniques to project costs at completion and includes estimates of recoveries
asserted against the customer for changes in specifications. These estimates
involve various assumptions and projections relative to the outcome of future
events, including the quantity and timing of product deliveries. Also included
are assumptions relative to future labor performance and rates, and projections
relative to material and overhead costs. These assumptions involve various
levels of expected performance improvements. The Company reevaluates its
contract estimates periodically and reflects changes in estimates in the current
and future periods under the reallocation method.
F-10
<PAGE> 93
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE B SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Included in sales are amounts arising from contract terms that provide for
invoicing a portion of the contract price at a date after delivery. Also
included are negotiated values for units delivered and anticipated price
adjustments for contract changes, claims, escalation and estimated earnings in
excess of billing provisions, resulting from the percentage-of-completion method
of accounting. Certain contract costs are estimated based on the learning curve
concept discussed under Inventories above.
FINANCIAL INSTRUMENTS The Company's financial instruments recorded on the
balance sheet include cash and cash equivalents, accounts and notes receivable,
accounts payable and debt. Because of their short maturity, the carrying amount
of cash and cash equivalents, accounts and notes receivable, accounts payable
and short-term bank debt approximates fair value. Fair value of long-term debt
is based on rates available to the Company for debt with similar terms and
maturities.
Off balance sheet derivative financial instruments at December 31, 1997,
include an interest rate swap agreement, foreign currency forward contracts and
foreign currency swap agreements. Interest rate swap agreements are used by the
Company, from time to time, to manage interest rate risk on its floating rate
debt portfolio. Each interest rate swap is matched as a hedge against a specific
debt instrument and has the same notional amount and maturity as the related
debt instrument principal. Interest rate swap agreements are generally entered
into at the time the related floating rate debt is issued in order to convert
the floating rate to a fixed rate. The cost of interest rate swaps is recorded
as part of interest expense and accrued expenses. Fair value of these
instruments is based on estimated current settlement cost.
The Company enters into foreign currency forward contracts (principally
against the British pound, Italian lira, Spanish peseta, French franc, Dutch
gilder and U.S. dollar) to hedge the net receivable/payable position arising
from trade sales and purchases and intercompany transactions by its European
businesses. Foreign currency forward contracts reduce the Company's exposure to
the risk that the eventual net cash inflows and outflows resulting from the sale
of products and purchases from suppliers denominated in a currency other than
the functional currency of the respective businesses will be adversely affected
by changes in exchange rates. Foreign currency gains and losses under the above
arrangements are not deferred and are reported as part of cost of sales and
accrued expenses. Foreign currency forward contracts are entered into with major
commercial European banks that have high credit ratings. From time to time, the
Company uses foreign currency forward contracts to hedge purchases of capital
equipment. Foreign currency gains and losses for such purchases are deferred as
part of the basis of the asset. Also, the Company has used forward contracts, on
a limited basis, to manage its exchange risk on a portion of its purchase
commitments from vendors of aircraft components denominated in foreign
currencies and to manage its exchange risk for sums paid to a French subsidiary
for services. Forward gains and losses associated with contracts accounted for
under contract accounting are deferred as contract costs.
The Company also enters into foreign currency swap agreements (principally
for the Belgian franc, French franc and Dutch gilder) to eliminate foreign
exchange risk on intercompany loans between European businesses.
The fair value of foreign currency forward contracts and foreign currency
swap agreements is based on quoted market prices.
F-11
<PAGE> 94
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE B SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION The Company accounts for stock-based employee
compensation in accordance with the provisions of APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations.
ISSUANCE OF SUBSIDIARY STOCK The Company recognizes gains and losses on
the issuance of stock by a subsidiary in accordance with the U.S. Securities and
Exchange Commission's ("SEC") Staff Accounting Bulletin 84.
EARNINGS PER SHARE Earnings per share has been computed in accordance with
SFAS No. 128, "Earnings per Share." As required, all previously reported
earnings per share amounts have been restated using the computational
requirements of SFAS No. 128.
USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
NOTE C DISCONTINUED OPERATIONS
On August 15, 1997, the Company completed the disposition of its
chlor-alkali and olefins ("CAO") business to The Westlake Group for $92.7
million, resulting in an after-tax gain of $14.5 million, or $.19 per diluted
share. The disposition of the CAO business represents the disposal of a segment
of a business under APB Opinion No. 30 ("APB 30"). Accordingly, the Consolidated
Statement of Income reflects the CAO business (previously reported as Other
Operations) as a discontinued operation, in addition to the following
discontinued operations.
On February 3, 1997, the Company completed the sale of Tremco Incorporated
to RPM, Inc. for $230.7 million, resulting in an after-tax gain of $59.5
million, or $.80 per diluted share. The sale of Tremco Incorporated completed
the disposition of the Company's Sealants, Coatings and Adhesives ("SC&A") Group
which also represented a disposal of a segment of a business under APB 30.
F-12
<PAGE> 95
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE C DISCONTINUED OPERATIONS (CONTINUED)
In 1995, Rohr completed the disposition of its business jet line of nacelle
business, which represented a business segment under APB 30. A summary of the
results of discontinued operations is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Sales:
CAO....................................................... $ 98.0 $160.6 $188.9
SC&A...................................................... -- 316.8 359.5
Jet business.............................................. -- -- 22.3
------ ------ ------
$ 98.0 $477.4 $570.7
====== ====== ======
Pretax income from operations:
CAO....................................................... $ 16.1 $ 21.0 $ 57.5
SC&A(1)................................................... -- 27.0 17.8
Jet business.............................................. -- -- 6.5
------ ------ ------
16.1 48.0 81.8
Income tax expense.......................................... (5.8) (19.6) (34.5)
------ ------ ------
Net income from operations.................................. 10.3 28.4 47.3
Gains on sale of discontinued operations:
CAO(2).................................................... 14.5 -- --
SC&A(3)................................................... 59.5 -- --
Adjustment to gain of 1993 discontinued operation........... -- 30.0 --
------ ------ ------
Income from discontinued operations......................... $ 84.3 $ 58.4 $ 47.3
====== ====== ======
</TABLE>
- ---------------
(1) Includes $6.4 million gain on the sale of a business in 1996.
(2) Net of $7.8 million of income taxes.
(3) Net of $22.8 million of income taxes; includes provision of $7.9 million for
operating losses during the phase-out period.
NOTE D OTHER ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS The following acquisitions were recorded using the purchase
method of accounting. Their results of operations, which are not material, have
been included in the Consolidated Financial Statements since their respective
dates of acquisition.
During 1997, the Company acquired five businesses (four of which were
acquired during the fourth quarter) for cash consideration of $133.4 million in
the aggregate, which includes $65.3 million of goodwill. The purchase price
allocations have been based on preliminary estimates. One of the acquired
businesses is a manufacturer of data acquisition systems for satellites and
other aerospace applications. A second business manufactures diverse aerospace
products for commercial and military applications. A third business is a
manufacturer of dyes, chemical additives and durable press resins for the
textiles industry. A fourth business manufactures thermoplastic polyurethanes
and is located in the United Kingdom. The remaining acquisition is a small
specialty chemicals business.
F-13
<PAGE> 96
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE D OTHER ACQUISITIONS AND DISPOSITIONS (CONTINUED)
During 1996, the Company acquired five specialty chemicals businesses for
cash consideration of $107.9 million, which included $80.0 million of goodwill.
During 1995, the Company acquired four small aerospace businesses and two
small specialty chemicals businesses. The aggregate purchase price of these
businesses was $15.4 million.
In January 1998, the Company signed a definitive agreement to acquire
Freedom Chemical Company for $375.0 million in cash. Freedom Chemical had sales
of $293.1 million in 1997, 42 percent of which were outside the United States.
Freedom Chemical is a leading global manufacturer of specialty and fine
chemicals that are sold to a variety of customers who use them to enhance the
performance of their finished products. Freedom Chemical has leadership
positions as a supplier of specialty chemical additives used in personal-care,
food and beverage, pharmaceutical, textile, graphic arts, paints, colorants and
coatings applications and as chemical intermediates. The Company expects to
complete the transaction late in the first quarter of 1998.
DISPOSITIONS During 1997, the Company completed the sale of its Engine
Electrical Systems Division, which was part of the Sensors and Integrated
Systems Group in the Aerospace Segment. The Company received cash proceeds of
$72.5 million, which resulted in a pretax gain of $26.4 million ($16.4 million
after tax) reported in Other income (expense) -- net.
In May 1995, the Company sold its wholly owned subsidiary, Arrowhead
Industrial Water, Inc., for $84.3 million, resulting in a pretax gain of $3.6
million, which is included in Other income (expense) -- net.
NOTE E IMPAIRMENT AND RESTRUCTURING CHARGES
In 1997, the Company recognized a $35.2 million pretax charge ($21.0
million after tax, or $.28 per diluted share) to write off that portion of its
contract investment in the McDonnell Douglas MD-90 aircraft program, including
the costs it will be required to spend in the future to complete the contract,
that the Company determined would not be recoverable from future MD-90 sales
represented by firm aircraft orders. In addition, the Company recognized a $49.3
million pretax charge ($29.5 million after tax) in December 1996, related to the
MD-90 program. This charge did not impact the income statement; rather, it was
recognized as a direct adjustment to equity as a result of aligning Rohr's
fiscal year with BFGoodrich's.
In 1996, the Company recognized a $7.2 million pretax impairment charge on
its Arkadelphia, Arkansas, facility. Also during 1996, the Company recognized a
$4.0 million pretax charge for a voluntary early retirement program for eligible
employees of the Specialty Plastics and Specialty Additives Groups.
In 1995, the Company recorded a $3.1 million pretax charge for a voluntary
early retirement program for eligible salaried employees at the Company's
corporate headquarters, Advanced Technology Group research facilities and
Aerospace Segment headquarters.
NOTE F EXTRAORDINARY ITEMS
During 1997, the Company incurred a charge of $19.3 million (net of a $13.1
million income tax benefit), or $.25 per diluted share, to extinguish certain
indebtedness previously held by Rohr, which is reported as an extraordinary
item. Costs incurred include debt premiums and other direct costs associated
with the extinguishment of the related debt. The Company used a combination of
existing cash funds and proceeds from new lower-cost long-term debt to
extinguish the debt. Of the $19.3 million, $2.6 million (net of a $1.8 million
income tax benefit) was incurred during the third
F-14
<PAGE> 97
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE F EXTRAORDINARY ITEMS (CONTINUED)
quarter in connection with Rohr's 9.33 percent Senior Notes and 9.35 percent
Senior Notes. The remaining $16.7 million (net of an $11.3 million income tax
benefit) relates to debt extinguishment costs incurred in connection with the
Rohr merger during the fourth quarter for refinancing Rohr's 11.625 percent
Senior Notes, 9.25 percent Subordinated Debentures, 7.00 percent Convertible
Subordinated Debentures and 7.75 percent Convertible Subordinated Notes.
NOTE G EARNINGS PER SHARE
The computation of basic and diluted earnings per share for income from
continuing operations is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Numerator:
Income from continuing operations................. $113.2 $115.5 $94.8
Preferred stock dividends and call premium........ -- -- (5.6)
------ ------ -----
Numerator for basic earnings per share -- income
available to common stockholders............... 113.2 115.5 89.2
Effect of dilutive securities:
7.75% Convertible Notes........................ .9 1.9 2.7
------ ------ -----
Numerator for diluted earnings per share --
income available to common stockholders after
assumed conversions.......................... $114.1 $117.4 $91.9
====== ====== =====
Denominator:
Denominator for basic earnings per share --
weighted-average shares........................ 71.0 66.6 63.8
Effect of dilutive securities:
Stock options and warrants..................... 1.6 1.4 .8
Contingent shares.............................. .7 .5 .3
7.75% Convertible Notes........................ 1.3 2.4 3.9
------ ------ -----
Dilutive potential common shares.................. 3.6 4.3 5.0
------ ------ -----
Denominator for diluted earnings per share --
adjusted weighted-average shares and assumed
conversions.................................. 74.6 70.9 68.8
====== ====== =====
Per share income from continuing operations:
Basic............................................. $ 1.59 $ 1.74 $1.40
====== ====== =====
Diluted........................................... $ 1.53 $ 1.65 $1.34
====== ====== =====
</TABLE>
F-15
<PAGE> 98
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE H ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN MILLIONS)
<S> <C> <C>
Amounts billed........................................... $477.2 $454.6
Receivable from sale of aircraft leasing subsidiary...... -- 20.1
Recoverable costs and accrued profit on units delivered
but not billed......................................... 10.0 6.5
Recoverable costs and accrued profit on progress
completed but not billed............................... -- 8.3
Unrecovered costs and estimated profit subject to future
negotiations........................................... 11.3 13.9
Notes and other receivables.............................. 34.1 24.1
------ ------
Total.......................................... $532.6 $527.5
====== ======
</TABLE>
"Recoverable costs and accrued profit on units delivered but not billed"
represents revenue recognized on contracts for amounts not billable to customers
at the balance sheet date. This amount principally represents delayed payment
terms along with escalation and repricing predicated upon deliveries and final
payment after acceptance.
"Recoverable costs and accrued profit on progress completed but not billed"
represents revenue recognized on contracts based on the percentage-of-completion
method of accounting and is anticipated to be billed and collected in accordance
with contract terms.
"Unrecovered costs and estimated profit subject to future negotiations"
consists of contract tasks completed for which a final price has not been
negotiated with the customer. Amounts in excess of agreed-upon contract prices
are recognized when it is probable that the claim will result in additional
contract revenue and the amounts can be reliably estimated. Included in this
amount are estimated recoveries on constructive change claims related to
government-imposed redefined acceptance criteria on the Grumman F-14 contract,
which may not be collected within one year. Management believes that amounts
reflected in the financial statements are reasonable estimates of the ultimate
settlements.
The Company has a $40.0 million accounts receivable sales program under
which it sells qualified receivables through a subsidiary to a trust on an
ongoing basis. The investors' interests in the trust, net of the cash collateral
discussed below, are reported as a reduction to accounts receivable. The
Company's subsidiary holds the remaining interest in the trust which fluctuates
in value depending upon the amount of receivables owned by the trust from time
to time. The cost associated with the sale of receivables under the current
facility is 7.57 percent per year. These costs, which have been reflected as a
reduction in sales, were $3.0 million, $3.0 million and $3.6 million in 1997,
1996 and 1995, respectively. The Company expects to eliminate this program in
early 1998.
F-16
<PAGE> 99
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE I INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN MILLIONS)
<S> <C> <C>
FIFO or average cost (which approximates current costs):
Finished products......................................... $173.4 $202.0
In process................................................ 411.2 398.0
Raw materials and supplies................................ 161.4 178.3
Progress payments and advances............................ (35.9) (67.2)
------ ------
710.1 711.1
Reserve to reduce certain inventories to LIFO basis......... (57.5) (64.7)
------ ------
Total....................................................... $652.6 $646.4
====== ======
</TABLE>
At December 31, 1997 and 1996, approximately 27 percent and 28 percent,
respectively, of inventory was valued by the LIFO method.
In-process inventories as of December 31, 1997, which include significant
deferred costs for long-term contracts accounted for under contract accounting,
are summarized by contract as follows (in millions, except quantities which are
number of aircraft):
<TABLE>
<CAPTION>
AIRCRAFT ORDER STATUS(1) COMPANY ORDER STATUS
------------------------------- ------------------------------------------
DELIVERED (2) (3)FIRM
TO UNFILLED UNFILLED CONTRACT UNFILLED (5)YEAR
CONTRACT AIRLINES ORDERS OPTIONS QUANTITY DELIVERED ORDERS COMPLETE
- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
A340(4).............. 127 63 56 267 135 33 2003
PW4000 for the
A300/A310 and
MD-11(4)........... 276 15 9 308 291 17 2003
GE90(4).............. 25 73 19 55 43 12 1998
737-700.............. 4 703 1,065 1,000 45 205 2002
717-200 (formerly
MD-95)............. -- 50 50 TBD(6) -- 10 2007
Others...............
In-process inventory
related to
long-term
contracts..........
In-process inventory
not related to
long-term
contracts..........
Balance at December
31, 1997...........
<CAPTION>
IN-PROGRESS INVENTORY
------------------------------------------
EXCESS-
PRE- OVER-
CONTRACT PRODUCTION PRODUCTION AVERAGE TOTAL
- -------- ---------- ---------- ------- -----
<S> <C> <C> <C> <C>
A340(4).............. $ 11.6 $ 4.7 $ -- $ 16.3
PW4000 for the
A300/A310 and
MD-11(4)........... 21.9 11.7 30.4 64.0
GE90(4).............. 2.0 13.7 -- 15.7
737-700.............. 7.7 7.2 4.4 19.3
717-200 (formerly
MD-95)............. 15.0 62.8 -- 77.8
Others............... 65.0 2.3 -- 67.3
------ ------ ----- ------
In-process inventory
related to
long-term
contracts.......... $123.2 $102.4 $34.8 260.4
====== ====== =====
In-process inventory
not related to
long-term
contracts.......... 150.8
------
Balance at December
31, 1997........... $411.2
======
</TABLE>
- ---------------
(1) Represents the aircraft order status as reported by Airclaims and/or other
sources the Company believes to be reliable for the related aircraft and
engine option. The Company's orders frequently are less than the announced
orders shown above.
(2) Represents the number of aircraft used to obtain average unit cost.
(3) Represents the number of aircraft for which the Company has firm unfilled
orders.
(4) Contract quantity represents the lesser of those quantities assumed in
original contract pricing or those quantities which the Company now expects
to deliver in the periods assumed in original contract pricing.
F-17
<PAGE> 100
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE I INVENTORIES (CONTINUED)
(5) The year presented represents the year in which the final production units
included in the contract quantity are expected to be delivered. The contract
may continue in effect beyond this date.
(6) To Be Determined -- a new contract on which the amortization quantity is yet
to be determined.
In 1993, the Company revised its contract with Pratt & Whitney on the
PW4000 for the A300/A310 and MD-11 programs. The revised contract provides that
if Pratt & Whitney accepts delivery of less than 500 units between 1993 through
2003, an "equitable adjustment" will be made. Recent market projections on the
PW4000 contract indicate that less than 500 units will be delivered. The Company
has submitted a "request for equitable adjustment" to the customer and believes
it will achieve a recovery such that there should not be a material adverse
effect on the financial position, liquidity or results of operations of the
Company. If the Company does not receive the equitable adjustment it believes it
is entitled to, it is possible that there may be a material adverse effect on
earnings in a given period. At December 31, 1997, the Company had $64.0 million
of contract costs in inventory for the above PW4000 programs.
NOTE J FINANCING ARRANGEMENTS
SHORT-TERM BANK DEBT At December 31, 1997, the Company had separate
revolving credit agreements with certain banks providing for domestic lines of
credit aggregating $300.0 million. Borrowings under these agreements can be for
any period of time until the expiration date and bear interest, at the Company's
option, at rates tied to the banks' certificate of deposit, Eurodollar or prime
rates. The lines expire on June 30, 2000, unless extended by the banks at the
request of the Company. Under the agreements, the Company is required to pay a
commitment fee of 12 basis points per annum on the total $300.0 million
committed line. At December 31, 1997, no amounts were outstanding pursuant to
these agreements.
In addition, the Company had available formal foreign lines of credit and
overdraft facilities, including the European revolver, of $99.0 million at
December 31, 1997, of which $28.4 million was available.
The Company also maintains uncommitted domestic money market facilities
with various banks aggregating $410.0 million, of which $262.3 million of these
lines were unused and available at December 31, 1997. Weighted-average interest
rates on outstanding short-term borrowings were 6.4 percent and 6.6 percent at
December 31, 1997 and 1996, respectively. Weighted-average interest rates on
short-term borrowings were 5.0 percent, 5.9 percent and 6.5 percent during 1997,
1996 and 1995, respectively.
F-18
<PAGE> 101
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE J FINANCING ARRANGEMENTS (CONTINUED)
LONG-TERM DEBT At December 31, 1997 and 1996, long-term debt and capital
lease obligations payable after one year consisted of:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN MILLIONS)
<S> <C> <C>
9.625% Notes, maturing in 2001............................. $175.0 $175.0
MTN notes payable.......................................... 269.0 119.0
European revolver.......................................... 25.5 29.2
IDRBs, maturing in 2023, 6.0%.............................. 60.0 60.0
11.625% Senior Notes....................................... -- 100.0
9.25% Debentures........................................... -- 150.0
7.00% Convertible Debentures............................... -- 115.0
9.35% Senior Notes......................................... -- 27.7
9.33% Senior Notes......................................... -- 42.5
7.75% Convertible Notes.................................... -- 19.7
Other debt, maturing to 2015 (interest rates from 3.0% to
7.0%).................................................... 26.8 32.7
------ ------
556.3 870.8
Capital lease obligations (Note K)......................... 8.0 10.6
------ ------
Total...................................................... $564.3 $881.4
====== ======
</TABLE>
MTN NOTES PAYABLE The Company has issued long-term debt securities in the
public markets (referred to as the MTN program, which commenced in 1995). MTN
notes outstanding at December 31, 1997, were fixed-rate non-callable debt
securities. During 1997, and in connection with the refinancing of Rohr's debt,
the Company issued $150.0 million of 7.2 percent MTN notes, due in 2027. All
other MTN notes outstanding were issued during 1995 and 1996, with interest
rates ranging from 7.3 percent to 8.7 percent and maturity dates ranging from
2025 to 2046. In January 1998, the Company issued $130.0 million of 6.9 percent
20-year MTN notes as part of the financing for the acquisition of Freedom
Chemical (see Note D).
EUROPEAN REVOLVER The Company has a $75.0 million committed multi-currency
revolving credit facility with various international banks, expiring in the year
2003. The Company uses this facility for short- and long-term, local currency
financing to support the growth of its European operations. At December 31,
1997, the Company's long-term borrowings under this facility were $25.5 million
denominated in Spanish pesetas at a floating rate that is tied to Spanish LIBOR
(5.02 percent at December 31, 1997).
IDRBS The industrial development revenue bonds were issued to finance the
construction of a hangar facility in 1993. Property acquired through the
issuance of these bonds secures the repayment of the bonds.
Aggregate maturities of long-term debt, exclusive of capital lease
obligations, during the five years subsequent to December 31, 1997, are as
follows (in millions): 1998 -- $1.2; 1999 -- $.8; 2000 -- $.4; 2001 -- $200.7;
and 2002 -- $.5.
The Company's debt agreements contain various restrictive covenants that,
among other things, place limitations on the payment of cash dividends and the
repurchase of the Company's capital stock. Under the most restrictive of these
agreements, $799.1 of income retained in the business and additional capital was
free from such limitations at December 31, 1997.
F-19
<PAGE> 102
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE J FINANCING ARRANGEMENTS (CONTINUED)
During 1997, the 11.625% Senior Notes, 9.25% Debentures, 7.00% Convertible
Debentures, 9.35% Senior Notes, 9.33% Senior Notes and the 7.75% Convertible
Notes were extinguished. See Note F for further information on debt
extinguishments.
NOTE K LEASE COMMITMENTS
The Company leases certain of its office and manufacturing facilities as
well as machinery and equipment under various leasing arrangements. The future
minimum lease payments from continuing operations, by year and in the aggregate,
under capital leases and under noncancelable operating leases with initial or
remaining noncancelable lease terms in excess of one year, consisted of the
following at December 31, 1997:
<TABLE>
<CAPTION>
NONCANCELABLE
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
(IN MILLIONS)
<S> <C> <C>
1998......................................... $ 3.5 $ 23.8
1999......................................... 2.4 20.3
2000......................................... 1.9 17.1
2001......................................... 1.6 14.5
2002......................................... 1.4 12.1
Thereafter................................... 1.8 24.3
----- ------
Total minimum payments....................... 12.6 $112.1
----- ======
Amounts representing interest................ (2.6)
-----
Present value of net minimum lease payments.. 10.0
Current portion of capital lease
obligations................................ (2.0)
-----
Total........................................ $ 8.0
=====
</TABLE>
Net rent expense from continuing operations consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Minimum rentals.................................... $28.2 $26.0 $26.4
Contingent rentals................................. 3.9 2.9 2.4
Sublease rentals................................... (.1) (.1) (.1)
----- ----- -----
Total.............................................. $32.0 $28.8 $28.7
===== ===== =====
</TABLE>
NOTE L PENSIONS
The Company has several contributory and noncontributory defined benefit
pension plans covering substantially all employees. Plans covering salaried
employees generally provide benefit payments using a formula that is based on an
employee's compensation and length of service. Plans covering hourly employees
generally provide benefit payments of stated amounts for each year of service.
The Company's general funding policy for pension plans is to contribute
amounts at least sufficient to satisfy regulatory funding standards. The
Company's qualified pension plans were fully funded on an accumulated benefit
obligation basis at December 31, 1997. Assets for these plans
F-20
<PAGE> 103
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE L PENSIONS (CONTINUED)
consist principally of corporate and government obligations and commingled funds
invested in equities, debt and real estate. At December 31, 1997, the pension
plans held 2,761,585 shares of the Company's common stock with a fair value of
$114.4 million.
The components of net periodic pension cost are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost for benefits earned............ $ 21.0 $ 24.8 $ 20.9
Interest cost on projected benefit
obligation................................ 93.5 85.3 83.7
Actual return on plan assets................ (191.7) (155.1) (144.7)
Net amortization and deferral............... 107.9 82.1 74.2
------- ------- -------
Net pension cost............................ $ 30.7 $ 37.1 $ 34.1
======= ======= =======
</TABLE>
Amortization of unrecognized transition assets and liabilities, prior
service cost and gains and losses (if applicable) are recorded using the
straight-line method over the average remaining service period of active
employees, or approximately 12 years.
The following table sets forth the status of the Company's funded defined
benefit pension plans as of December 31, 1997 and 1996, and the amounts recorded
in the Consolidated Balance Sheet at those dates. This table excludes accrued
pension costs for unfunded, non-qualified pension plans of $73.2 million in 1997
and $25.5 million in 1996, and the related projected benefit obligations of
$82.2 million in 1997 and $36.7 million in 1996.
F-21
<PAGE> 104
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE L PENSIONS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1996
PLANS WITH PLANS WITH PLANS WITH
ASSETS ASSETS ACCUMULATED
EXCEEDING EXCEEDING BENEFIT OBLIGATION
ACCUMULATED ACCUMULATED EXCEEDING
BENEFIT OBLIGATION BENEFIT OBLIGATION ASSETS
------------------ ------------------ ------------------
(IN MILLIONS)
<S> <C> <C> <C>
Actuarial present value of accumulated
benefit obligation:
Vested................................. $1,097.8 $568.8 $507.7
Non-vested............................. 104.5 26.6 20.7
-------- ------ ------
Accumulated benefit obligation........... 1,202.3 595.4 528.4
Plan assets at fair value................ 1,263.1 646.5 475.3
-------- ------ ------
Plan assets in excess of (less than)
accumulated benefit obligation......... $ 60.8 $ 51.1 $(53.1)
======== ====== ======
Projected benefit obligation............. $1,251.9 $645.0 $533.9
Plan assets at fair value................ 1,263.1 646.5 475.3
-------- ------ ------
Plan assets in excess of (less than)
projected benefit obligation........... $ 11.2 $ 1.5 $(58.6)
======== ====== ======
Consisting of:
Unrecognized transition asset
(liability)......................... $ (9.6) $(20.2) $ 9.8
Unrecognized prior service cost........ (40.0) (19.0) (31.9)
Unrecognized net gain (loss)........... (101.6) (63.6) (52.9)
Adjustment required to recognize
minimum liability................... -- -- 72.7
Prepaid (accrued) pension cost
recognized in the balance sheet..... 162.4 104.3 (56.3)
-------- ------ ------
Total.................................... $ 11.2 $ 1.5 $(58.6)
======== ====== ======
</TABLE>
Major assumptions used in accounting for the Company's defined benefit
pension plans are presented below. The assumptions used for periods prior to
1997 were comparable for BFGoodrich's and Rohr's plans, except for the 1995
discount rate for obligations, which was 7.25 percent for BFGoodrich's plans and
8.25 percent for Rohr's plans.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate for obligations......................... 7.25% 7.75% 7.25%
Rate of increase in compensation levels............... 3.5% 4.0% 3.5%
Expected long-term rate of return on plan assets...... 9.0% 9.0% 9.0%
</TABLE>
The Company also maintains voluntary retirement savings plans for U.S.
salaried and wage employees. Under provisions of these plans, eligible employees
can receive Company matching contributions on up to the first 6 percent of their
eligible earnings. The Company matches 1 dollar for each 1 dollar of employee
contributions invested in BFGoodrich common stock, and 50 cents for each dollar
of eligible employee contributions invested in other available investment
options (up to 6 percent of eligible earnings). For 1997, 1996 and 1995, Company
contributions amounted to $15.3 million, $15.9 million and $14.6 million,
respectively.
F-22
<PAGE> 105
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE L PENSIONS (CONTINUED)
In addition, the Company contributed $8.9 million, $12.4 million and $12.8
million in 1997, 1996 and 1995, respectively, under other defined contribution
plans for employees not covered under the aforementioned defined benefit pension
and voluntary retirement savings plans. Contributions are determined based on
various percentages of eligible earnings and a profit sharing formula.
NOTE M POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors several unfunded defined benefit postretirement plans
that provide certain health-care and life insurance benefits to eligible
employees. The health-care plans are contributory, with retiree contributions
adjusted periodically, and contain other cost-sharing features, such as
deductibles and coinsurance. The life insurance plans are generally
noncontributory.
The following table sets forth the combined status of the plans as recorded
in the Consolidated Balance Sheet at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees............................................... $272.4 $257.1
Fully eligible active plan participants................ 21.7 23.4
Other active plan participants......................... 32.8 31.9
Unrecognized gain...................................... 42.9 66.3
------ ------
Accrued postretirement cost.............................. $369.8 $378.7
====== ======
</TABLE>
Net periodic postretirement benefit expense included the following
components:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost for benefits earned................... $ 2.2 $ 2.4 $ 1.8
Interest cost on APBO.............................. 23.7 22.7 25.7
Net amortization and deferral...................... (1.5) (2.3) (2.9)
----- ----- -----
Net periodic postretirement cost................... $24.4 $22.8 $24.6
===== ===== =====
</TABLE>
For measurement purposes, the annual rate of increase in the per capita
cost of covered health-care benefits of 7.5 percent was assumed for 1998,
decreasing gradually to 5.0 percent through the year 2002 and remaining at that
level thereafter. The health-care cost trend rate assumption has a significant
effect on the amount of the obligation and periodic cost reported. An increase
in the assumed health-care cost trend rate by one percentage point in each year
would increase the APBO as of December 31, 1997, by $21.2 million and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1997 by $1.6 million. The weighted-average
discount rates used in determining the APBO were 7.25 percent, 7.75 percent and
7.25 percent as of December 31, 1997, 1996 and 1995, respectively.
F-23
<PAGE> 106
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE N INCOME TAXES
Income from continuing operations before income taxes and Trust
distributions as shown in the Consolidated Statement of Income consists of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Domestic....................................... $199.9 $167.1 $135.4
Foreign........................................ 17.9 27.3 21.8
------ ------ ------
Total.......................................... $217.8 $194.4 $157.2
====== ====== ======
</TABLE>
A summary of income tax (expense) benefit from continuing operations in the
Consolidated Statement of Income is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Current:
Federal...................................... $(52.2) $(25.8) $(16.7)
Foreign...................................... (5.8) (9.0) (4.5)
State........................................ (2.9) (4.6) (4.5)
------ ------ ------
(60.9) (39.4) (25.7)
------ ------ ------
Deferred:
Federal...................................... (31.3) (27.6) (27.9)
Foreign...................................... (1.3) .8 .1
State........................................ (.6) (2.2) (3.8)
------ ------ ------
(33.2) (29.0) (31.6)
------ ------ ------
Total.......................................... $(94.1) $(68.4) $(57.3)
====== ====== ======
</TABLE>
Significant components of deferred income tax assets and liabilities at
December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN MILLIONS)
<S> <C> <C>
Deferred income tax assets:
Accrual for postretirement benefits other than pensions... $ 127.8 $ 129.6
Inventories............................................... 64.2 22.9
Other nondeductible accruals.............................. 59.3 58.7
Tax credit and net operating loss carryovers.............. 95.6 148.0
Other..................................................... 44.4 51.0
------- -------
Total deferred income tax assets.................. 391.3 410.2
------- -------
Deferred income tax liabilities:
Tax over book depreciation................................ (72.3) (90.0)
Tax over book intangible amortization..................... (17.2) (13.3)
Pensions.................................................. (47.7) (26.5)
Sales of investment leases................................ -- (27.8)
Other..................................................... (35.7) (48.0)
------- -------
Total deferred income tax liabilities............. (172.9) (205.6)
------- -------
Net deferred income taxes................................... $ 218.4 $ 204.6
======= =======
</TABLE>
F-24
<PAGE> 107
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE N INCOME TAXES (CONTINUED)
Management has determined, based on the Company's history of prior earnings
and its expectations for the future, that taxable income of the Company will
more likely than not be sufficient to recognize fully these net deferred tax
assets. In addition, management's analysis indicates that the turnaround periods
for certain of these assets are for long periods of time or are indefinite. In
particular, the turnaround of the largest deferred tax asset related to
accounting for postretirement benefits other than pensions will occur over an
extended period of time and, as a result, will be realized for tax purposes over
those future periods and beyond. The tax credit and net operating loss
carryovers, principally relating to Rohr, are primarily comprised of federal net
operating loss carryovers of $207.5 million which expire in the years 2005
through 2012, state net operating loss carryovers of $99.3 million which expire
in the years 2003 through 2014 and investment tax credit and other credits of
$11.4 million which expire in the years 2003 through 2013. The remaining
deferred tax assets and liabilities approximately match each other in terms of
timing and amounts and should be realizable in the future, given the Company's
operating history.
The effective income tax rate from continuing operations varied from the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
PERCENT OF PRETAX INCOME
Statutory federal income tax rate................... 35.0% 35.0% 35.0%
Corporate-owned life insurance investments.......... -- (1.0) (1.6)
Amortization of nondeductible goodwill.............. .9 1.0 1.1
Difference in rates on consolidated foreign
subsidiaries...................................... (.1) (.4) (1.6)
State and local taxes, net of federal benefit....... 1.3 2.5 2.9
Tax exempt income from foreign sales corporation.... (3.3) (.1) (.3)
QUIPS distributions................................. (1.7) (1.9) (1.2)
Nondeductible merger-related costs.................. 9.2 -- --
Other items......................................... 1.9 .1 2.2
---- ---- ----
Effective income tax rate........................... 43.2% 35.2% 36.5%
==== ==== ====
</TABLE>
The Company has not provided for U.S. federal and foreign withholding taxes
on $123.3 million of foreign subsidiaries' undistributed earnings as of December
31, 1997, because such earnings are intended to be reinvested indefinitely. It
is not practical to determine the amount of income tax liability that would
result had such earnings actually been repatriated. On repatriation, certain
foreign countries impose withholding taxes. The amount of withholding tax that
would be payable on remittance of the entire amount of undistributed earnings
would approximate $6.0 million.
NOTE O BUSINESS SEGMENT INFORMATION
The Company's operations are classified into two reportable business
segments: BFGoodrich Aerospace ("Aerospace") and BFGoodrich Specialty Chemicals
("Specialty Chemicals").
Aerospace consists of four business groups: Aerostructures; Landing
Systems; Sensors and Integrated Systems; and Maintenance, Repair and Overhaul.
They serve commercial, military, regional, business and general aviation
markets. Aerospace's major products are aircraft engine nacelle and pylon
systems; aircraft landing gear and wheels and brakes; sensors and sensor-based
systems; fuel measurement and management systems; aircraft evacuation slides and
rafts; ice
F-25
<PAGE> 108
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE O BUSINESS SEGMENT INFORMATION (CONTINUED)
protection systems, and collision warning systems. Aerospace also provides
maintenance, repair and overhaul services on commercial airframes and
components.
Specialty Chemicals consists of two business groups: Specialty Additives
and Specialty Plastics. They serve various markets such as personal-care,
pharmaceuticals, printing, textiles, industrial, construction and automotive.
Specialty Chemicals' major products are thermoplastic polyurethane;
high-heat-resistant plastics; synthetic thickeners and emulsifiers; polymer
emulsions, resins and additives, and textile thickeners, binders, emulsions and
compounds.
The Company's business is conducted on a global basis with manufacturing,
service and sales undertaken in various locations throughout the world.
Aerospace's products and services and Specialty Chemicals' products are
principally sold to customers in North America and Europe.
Segment operating income is total segment revenue reduced by operating
expenses directly identifiable with that business segment. Corporate includes
general corporate administrative costs and Advanced Technology Group research
expenses.
<TABLE>
<CAPTION>
SALES OPERATING INCOME
------------------------------ ------------------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Aerospace(1).................. $2,468.3 $2,021.4 $1,951.0 $260.3 $253.6 $229.5
Specialty Chemicals(2)........ 904.7 824.4 710.8 128.2 109.5 74.4
-------- -------- -------- ------ ------ ------
3,373.0 2,845.8 2,661.8 388.5 363.1 303.9
Corporate(3).................. -- -- -- (61.4) (52.8) (56.5)
Merger-related costs.......... -- -- -- (77.0) -- --
-------- -------- -------- ------ ------ ------
Total......................... $3,373.0 $2,845.8 $2,661.8 $250.1 $310.3 $247.4
======== ======== ======== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
DEPRECIATION AND
PROPERTY ADDITIONS AMORTIZATION EXPENSE IDENTIFIABLE ASSETS
------------------------ ------------------------ ------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aerospace.............. $ 81.9 $ 64.6 $ 46.4 $ 82.6 $ 79.3 $ 79.0 $2,347.0 $2,169.2 $2,147.5
Specialty Chemicals.... 73.2 97.5 86.4 48.2 39.0 35.3 877.3 784.6 602.7
------ ------ ------ ------ ------ ------ -------- -------- --------
155.1 162.1 132.8 130.8 118.3 114.3 3,224.3 2,953.8 2,750.2
Corporate(4)........... 4.8 35.0 23.0 8.0 21.5 21.7 269.6 626.0 637.3
------ ------ ------ ------ ------ ------ -------- -------- --------
Total.................. $159.9 $197.1 $155.8 $138.8 $139.8 $136.0 $3,493.9 $3,579.8 $3,387.5
====== ====== ====== ====== ====== ====== ======== ======== ========
</TABLE>
F-26
<PAGE> 109
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE O BUSINESS SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
SALES OPERATING INCOME IDENTIFIABLE ASSETS
------------------------------ ------------------------ ------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Geographic Areas:
United States...... $3,091.7 $2,604.1 $2,452.6 $369.3 $336.4 $281.6 $2,926.0 $2,651.4 $2,533.5
Other North
America.......... 26.9 21.4 19.5 1.2 1.3 .8 6.3 12.0 20.8
Europe............. 216.7 190.3 163.0 20.9 24.9 20.8 286.4 282.7 188.6
Other Foreign...... 37.7 30.0 26.7 1.3 .9 1.9 15.1 12.5 11.6
Inter-area......... -- -- -- (4.2) (.4) (1.2) (9.5) (4.8) (4.3)
-------- -------- -------- ------ ------ ------ -------- -------- --------
Total................ $3,373.0 $2,845.8 $2,661.8 $388.5 $363.1 $303.9 $3,224.3 $2,953.8 $2,750.2
======== ======== ======== ====== ====== ====== ======== ======== ========
</TABLE>
- ---------------
(1) Operating income in 1997 includes a $35.2 million charge for the McDonnell
Douglas MD-90 program, and in 1996 includes a $7.2 million asset impairment
charge.
(2) Operating income in 1996 includes a $4.0 million charge for a voluntary
early retirement program.
(3) Corporate operating expenses in 1995 include a $3.1 million charge for a
voluntary early retirement program.
(4) Includes amounts relating to the CAO business and the SC&A Group, which were
accounted for as discontinued operations (see Note C).
Sales are generally not concentrated in any one customer. Sales, solely in
the Aerospace Segment, represented 11 percent, 9 percent and 9 percent of
consolidated sales in 1997, 1996 and 1995, respectively, to Boeing.
At December 31, 1997, approximately 19 percent of the Company's labor force
was covered by various collective bargaining agreements. Approximately 2 percent
of the labor force was covered by a collective bargaining agreement that will
expire during 1998.
Net assets of consolidated foreign subsidiaries, principally in Europe,
amounted to $166.4 million, $219.1 million and $219.3 million in 1997, 1996 and
1995, respectively. The Company does not believe that business risks in
countries in which it operates, including currency restrictions, would have a
significant adverse effect on cash flow, liquidity or capital resources.
The Company also exports products manufactured in the United States to
affiliated and unaffiliated companies worldwide. Intercompany transfers made at
prevailing prices to foreign subsidiaries amounted to $99.0 million, $85.2
million and $81.1 million in 1997, 1996 and 1995, respectively. Export sales to
unaffiliated foreign customers amounted to $790.1 million, $620.6 million and
$537.2 million in 1997, 1996 and 1995, respectively.
F-27
<PAGE> 110
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE P SUPPLEMENTAL STATEMENT OF INCOME INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Other Income (Expense) -- Net
Cost of health-care benefits for retirees of
previously discontinued businesses........... $(11.5) $(10.5) $(12.1)
Net gains (losses) on sale of businesses....... 26.9 (3.5) 3.6
Equity in losses of unconsolidated
subsidiary................................... (3.0) (3.9) (4.4)
Exchange of convertible notes.................. (.2) (5.3) --
Interest on Company-owned life insurance....... -- (7.5) (10.0)
Environmental recoveries (costs) of previously
discontinued businesses...................... -- 1.6 19.1
Other -- net................................... 2.8 (1.7) 5.7
------ ------ ------
Total.......................................... $ 15.0 $(30.8) $ 1.9
====== ====== ======
</TABLE>
The Company's unconsolidated subsidiary, DTM Corporation ("DTM"), had
assets of $17.6 million and $17.9 million and liabilities of $7.5 million and
$21.8 million at December 31, 1997 and 1996, respectively, and revenues of $24.9
million, $24.4 million and $13.9 million in 1997, 1996 and 1995, respectively.
In May 1997, DTM issued 2,852,191 shares of its authorized but previously
unissued common stock in an initial public offering ("IPO"). The shares were
issued at $8.00 per share ($7.44 per share net of the underwriting discount),
resulting in cash proceeds of $21.2 million to DTM, net of the underwriting
discount. DTM develops, designs, manufactures, markets and supports, on an
international basis, rapid prototyping and rapid tooling systems, powdered
material and related services. The Company owned approximately 92 percent of
DTM's outstanding common stock immediately prior to the IPO. As a result of the
IPO, the Company's interest declined to approximately 50 percent (the Company
did not sell any of its interest in the IPO). The Company recognized a pretax
gain of $13.7 million ($8.0 million after tax, including provision for deferred
income taxes) in accordance with the SEC's Staff Accounting Bulletin 84.
In 1995, the Company recognized $19.1 million of income from the settlement
of certain insurance issues relating to past environmental claims of previously
discontinued businesses.
RESEARCH AND DEVELOPMENT EXPENSE The Company performs research and
development under Company-funded programs for commercial products, and under
contracts with others. Research and development under contracts with others is
performed by the Aerospace Segment for military and commercial products. Total
research and development expenditures from continuing operations in 1997, 1996
and 1995 were $141.2 million, $137.5 million and $127.0 million, respectively.
Of these amounts, $39.4 million, $29.4 million and $41.2 million, respectively,
were funded by customers.
NOTE Q SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN MILLIONS)
<S> <C> <C>
Allowance for Doubtful Accounts............................. $21.3 $26.2
===== =====
</TABLE>
Amounts charged to expense from continuing operations during 1997, 1996 and
1995 were $15.4 million, $2.8 million and $2.0 million, respectively. Of the
$15.4 million expense in 1997, $11.8 million related to the bankruptcy of one
customer.
F-28
<PAGE> 111
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE Q SUPPLEMENTAL BALANCE SHEET INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN MILLIONS)
<S> <C> <C>
PROPERTY
Land................................................. $ 41.8 $ 47.5
Buildings and improvements........................... 632.9 682.1
Machinery and equipment.............................. 1,215.7 1,328.9
Construction in progress............................. 125.0 124.2
-------- ---------
2,015.4 2,182.7
Less allowances for depreciation and amortization.... (950.3) (1,040.7)
-------- ---------
Total................................................ $1,065.1 $ 1,142.0
======== =========
</TABLE>
Property includes assets acquired under capital leases, principally
buildings and machinery and equipment, of $71.6 million and $70.9 million at
December 31, 1997 and 1996, respectively. Related allowances for depreciation
and amortization are $33.9 million and $28.9 million, respectively. Interest
costs capitalized from continuing operations were $5.3 million in 1997, $6.3
million in 1996 and $2.4 million in 1995. Amounts charged to expense for
depreciation and amortization from continuing operations during 1997, 1996 and
1995 were $111.3 million, $101.2 million and $98.7 million, respectively.
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN MILLIONS)
<S> <C> <C>
GOODWILL
Accumulated amortization.................................... $71.4 $75.5
===== =====
IDENTIFIABLE INTANGIBLE ASSETS
Accumulated amortization.................................... $26.0 $30.9
===== =====
</TABLE>
Amortization of goodwill and identifiable intangible assets from continuing
operations was $22.2 million, $20.1 million and $18.3 million in 1997, 1996 and
1995, respectively.
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN MILLIONS)
<S> <C> <C>
ACCRUED EXPENSES
Wages, vacations, pensions and other employment costs.... $164.9 $138.2
Postretirement benefits other than pensions.............. 26.1 26.3
Taxes, other than federal and foreign taxes on income.... 42.3 46.6
Accrued environmental liabilities........................ 18.0 23.5
Accrued interest......................................... 27.0 38.3
Other.................................................... 133.0 71.5
------ ------
Total.................................................... $411.3 $344.4
====== ======
</TABLE>
FAIR VALUES OF FINANCIAL INSTRUMENTS The Company's accounting policies
with respect to financial instruments are described in Note B.
F-29
<PAGE> 112
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE Q SUPPLEMENTAL BALANCE SHEET INFORMATION (CONTINUED)
The carrying amounts and fair values of the Company's significant on
balance sheet financial instruments at December 31, 1997 and 1996, are as
follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUES
-------- ------
(IN MILLIONS)
<S> <C> <C>
1997
Cash and cash equivalents................................... $ 47.0 $ 47.0
Accounts and notes receivable............................... 532.6 532.6
Accounts payable............................................ 327.6 327.6
Short-term bank debt........................................ 192.8 192.8
Long-term debt (including current portion).................. 567.5 605.6
1996
Cash and cash equivalents................................... $137.1 $137.1
Accounts and notes receivable............................... 527.5 527.5
Accounts payable............................................ 306.7 306.7
Short-term bank debt........................................ 134.4 134.4
Long-term debt (including current portion).................. 939.7 957.7
</TABLE>
Off balance sheet derivative financial instruments at December 31, 1997 and
1996, held for purposes other than trading, were as follows:
<TABLE>
<CAPTION>
1997 1996
CONTRACT/ CONTRACT/
NOTIONAL FAIR NOTIONAL FAIR
AMOUNT VALUE AMOUNT VALUE
--------- ----- --------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Interest rate swaps.................... $25.5 $(1.3) $15.0 $(.1)
Foreign currency forward contracts..... 12.2 (.1) 15.2 (.1)
Foreign currency swap agreements....... .7 -- 17.1 --
</TABLE>
At December 31, 1997, the Company had one interest rate swap agreement,
wherein the Company pays a fixed rate of interest and receives a LIBOR-based
floating rate.
Foreign currency forward contracts mature over the next four months
coincident with the anticipated settlement of accounts receivable and accounts
payable in Europe. No additional cash requirements are necessary with respect to
outstanding agreements.
The counterparties to each of these agreements are major commercial banks.
Management believes that losses related to credit risk are remote.
NOTE R SUPPLEMENTAL CASH FLOW INFORMATION
The following tables set forth non-cash financing and investing activities
and other cash flow information.
F-30
<PAGE> 113
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE R SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED)
Acquisitions accounted for under the purchase method are summarized as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Estimated fair value of tangible assets acquired......... $ 70.1 $ 46.4 $ 3.6
Goodwill and identifiable intangible assets.............. 75.8 81.7 12.7
Cash paid................................................ (133.4) (107.9) (15.4)
------- ------- ------
Liabilities assumed or created........................... $ 12.5 $ 20.2 $ .9
======= ======= ======
Liabilities disposed in connection with sales of
businesses............................................. $ 44.2 $ 1.5 $ 9.2
Assets acquired in connection with sale of business...... -- 27.6 --
Interest paid (net of amount capitalized)................ 81.5 88.6 95.3
Income taxes paid........................................ 145.9 34.8 30.2
Conversion of Series D Convertible Preferred Stock into
common stock........................................... -- -- 22.9
Contribution of common stock to pension trust............ -- 30.0 --
Exchange of 7.75% Convertible Notes...................... (1.3) (37.8) --
Change in equity due to exchange of 7.75% Convertible
Notes.................................................. 1.5 43.1 --
</TABLE>
NOTE S PREFERRED STOCK
There are 10,000,000 authorized shares of Series Preferred Stock -- $1 par
value. Shares of Series Preferred Stock that have been redeemed are deemed
retired and extinguished and may not be reissued. As of December 31, 1997,
2,401,673 shares of Series Preferred Stock have been redeemed, and no shares of
Series Preferred Stock were outstanding. The Board of Directors establishes and
designates the series and fixes the number of shares and the relative rights,
preferences and limitations of the respective series of the Series Preferred
Stock.
CUMULATIVE PARTICIPATING PREFERRED STOCK -- SERIES F In 1997, the Company
authorized 100,000 shares of Junior Participating Preferred Stock -- Series
F -- $1 par value. Series F shares have preferential voting, dividend and
liquidation rights over the Company's common stock. At December 31, 1997, no
Series F shares were issued or outstanding and 81,670 shares were reserved for
issuance.
On August 2, 1997, the Company made a dividend distribution of one
Preferred Share Purchase Right ("Right") on each share of the Company's common
stock. These Rights replace previous shareholder rights which expired on August
2, 1997. Each Right, when exercisable, entitles the registered holder thereof to
purchase from the Company one one-thousandth of a share of Series F Stock at a
price of $200 per one one-thousandth of a share (subject to adjustment). The one
one-thousandth of a share is intended to be the functional equivalent of one
share of the Company's common stock.
The Rights will not be exercisable or transferable apart from the common
stock until an Acquiring Person, as defined in the Rights Agreement without the
prior consent of the Company's Board of Directors, acquires 20 percent or more
of the voting power of the Company's common stock or announces a tender offer
that would result in 20 percent ownership. The Company is entitled to redeem the
Rights at 1 cent per Right any time before a 20 percent position has been
acquired or in connection with certain transactions thereafter announced. Under
certain circumstances, including the acquisition of 20 percent of the Company's
common stock, each Right not
F-31
<PAGE> 114
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE S PREFERRED STOCK (CONTINUED)
owned by a potential Acquiring Person will entitle its holder to purchase, at
the Right's then-current exercise price, shares of Series F Stock having a
market value of twice the Right's exercise price.
Holders of the Right will be entitled to buy stock of an Acquiring Person
at a similar discount if, after the acquisition of 20 percent or more of the
Company's voting power, the Company is involved in a merger or other business
combination transaction with another person in which its common shares are
changed or converted, or the Company sells 50 percent or more of its assets or
earnings power to another person. The Rights expire on August 2, 2007.
NOTE T COMMON STOCK
On December 22, 1997, 18,588,004 shares of common stock were issued in
connection with the merger with Rohr (see Note A).
During 1996, 754,717 shares ($30.0 million) of authorized but previously
unissued shares of common stock were issued and contributed to the Company's
defined benefit wage and salary pension plans. In addition, 2,006,868 shares
($48.0 million) of common stock related to Rohr's pension plans were contributed
during the period between August 1 and December 31, 1996 and, as a result, are
included in equity as part of the adjustment to conform Rohr's fiscal year.
During 1997, 1996 and 1995, 826,388; 600,057 and 441,209 shares,
respectively, of authorized but unissued shares were issued under the Stock
Option Plan and other employee stock ownership plans.
The Company acquired 53,137; 52,949 and 1,365,654 shares of treasury stock
in 1997, 1996 and 1995, respectively, and reissued 5,000; 22,500 and 775,900
shares, respectively, in connection with the Stock Option Plan and other
employee stock ownership plans. In 1997, 1996 and 1995, 19,900; 60,400 and
134,250 shares, respectively, of common stock previously awarded to employees
were forfeited and restored to treasury stock.
Shares reserved for future issuance at December 31, 1997, were as follows:
<TABLE>
<S> <C>
Stock options under Stock Option Plan.................... 6,488,531
Other.................................................... 1,235,070
---------
Total.......................................... 7,723,601
=========
</TABLE>
NOTE U PREFERRED SECURITIES OF TRUST
On July 6, 1995, BFGoodrich Capital, a wholly owned Delaware statutory
business trust (the "Trust") which is consolidated by the Company, received
$122.5 million, net of the underwriting commission, from the issuance of 8.3
percent Cumulative Quarterly Income Preferred Securities, Series A ("QUIPS").
The Trust invested the proceeds in 8.3 percent Junior Subordinated Debentures,
Series A, due 2025 ("Junior Subordinated Debentures") issued by the Company,
which represent approximately 97 percent of the total assets of the Trust. The
Company used the proceeds from the Junior Subordinated Debentures primarily to
redeem all of the outstanding shares of the $3.50 Cumulative Convertible
Preferred Stock, Series D.
The QUIPS have a liquidation value of $25 per Preferred Security, mature in
2025 and are subject to mandatory redemption upon repayment of the Junior
Subordinated Debentures. The Company has the option at any time on or after July
6, 2000, to redeem, in whole or in part, the
F-32
<PAGE> 115
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE U PREFERRED SECURITIES OF TRUST (CONTINUED)
Junior Subordinated Debentures with the proceeds from the issuance and sale of
the Company's common stock within two years preceding the date fixed for
redemption.
The Company has unconditionally guaranteed all distributions required to be
made by the Trust, but only to the extent the Trust has funds legally available
for such distributions. The only source of funds for the Trust to make
distributions to preferred security holders is the payment by the Company of
interest on the Junior Subordinated Debentures. The Company has the right to
defer such interest payments for up to five years. If the Company defers any
interest payments, the Company may not, among other things, pay any dividends on
its capital stock until all interest in arrears is paid to the Trust.
NOTE V STOCK OPTION PLAN
At December 31, 1997, the Company had stock-based compensation plans
described below that include the pre-merger plans of Rohr. Effective with the
merger, outstanding Rohr options were assumed by the Company and converted to
fully-vested options to purchase BFGoodrich common stock at a ratio of .7 of one
share of BFGoodrich common stock for each Rohr option.
The Stock Option Plan, which will expire on April 5, 2001, unless renewed,
provides for the awarding of or the granting of options to purchase 3,200,000
shares of common stock of the Company. Generally, options granted are
exercisable at the rate of 35 percent after one year, 70 percent after two years
and 100 percent after three years. Certain options are fully exercisable
immediately after grant. The term of each option cannot exceed 10 years from the
date of grant. All options granted under the Plan have been granted at not less
than 100 percent of market value (as defined) on the date of grant.
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions: risk-free
interest rates of 5.75 percent, 5.39 percent and 7.83 percent for 1997, 1996 and
1995, respectively; dividend yield of 2.7 percent for 1997, and 2.5 percent for
1996 and 1995; volatility factor of the expected market price of the Company's
common stock of 16.2 percent for 1997, and 19.0 percent for 1996 and 1995; and a
weighted-average expected life of the options of 5.2 years, 5.0 years and 4.9
years for 1997, 1996 and 1995, respectively. The assumptions used were
comparable for BFGoodrich's and Rohr's stock options, except that for the Rohr
options, the dividend yield assumption was zero and the volatility factor was
43.8 percent in 1997 and 43.1 percent in 1996. The option valuation model
requires the input of highly subjective assumptions, primarily stock price
volatility, changes in which can materially affect the fair value estimate. The
weighted-average fair values of stock options granted during 1997, 1996 and 1995
were $7.59, $7.28 and $5.31, respectively.
For purposes of the pro forma disclosures required by SFAS 123, the
estimated fair value of the options is amortized to expense over the options'
vesting period. In addition, the grant-date fair value of performance shares
(discussed below) is amortized to expense over the three-year plan
F-33
<PAGE> 116
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE V STOCK OPTION PLAN (CONTINUED)
cycle without adjustments for subsequent changes in the market price of the
Company's common stock. The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net income:
As reported............................................... $178.2 $173.9 $140.9
Pro forma................................................. 170.6 172.8 141.2
Earnings per share:
Basic
As reported............................................ $ 2.51 $ 2.61 $ 2.12
Pro forma.............................................. 2.40 2.59 2.12
Diluted
As reported............................................ $ 2.41 $ 2.48 $ 2.01
Pro forma.............................................. 2.30 2.45 2.01
</TABLE>
The pro forma effect on net income for 1996 and 1995 is not representative
of the pro forma effect on net income in future years because it does not take
into consideration pro forma compensation expense related to grants made prior
to 1995. In addition, the pro forma effect on net income in 1997 is not
representative of the pro forma effect on net income in future years because
1997 includes $4.5 million of after-tax compensation expense related to the Rohr
options which became fully vested upon the consummation of the merger.
A summary of the Company's stock option activity and related information
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
------- ----------------
(OPTIONS IN THOUSANDS)
<S> <C> <C>
Outstanding at beginning of year............................ 4,943.8 $25.16
Granted..................................................... 846.7 40.51
Exercised................................................... (1,661.1) 22.44
Forfeited................................................... (97.1) 33.96
Expired..................................................... (14.3) 43.64
--------
Outstanding at end of year.................................. 4,018.0 29.25
========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
------- ----------------
(OPTIONS IN THOUSANDS)
<S> <C> <C>
Outstanding at beginning of year............................ 4,212.6 $22.96
Granted..................................................... 1,612.2 28.85
Exercised................................................... (842.4) 21.33
Forfeited................................................... (96.4) 26.64
Expired..................................................... (54.2) 39.24
-------
Outstanding at end of year.................................. 4,831.8 24.96
=======
</TABLE>
F-34
<PAGE> 117
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE V STOCK OPTION PLAN (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
------- ----------------
(OPTIONS IN THOUSANDS)
<S> <C> <C>
Outstanding at beginning of year............................ 4,352.3 $23.05
Granted..................................................... 839.2 21.67
Exercised................................................... (870.4) 22.00
Forfeited................................................... (103.5) 23.44
Expired..................................................... (5.0) 36.87
--------
Outstanding at end of year.................................. 4,212.6 22.96
========
</TABLE>
The number of options outstanding at the end of 1996 does not agree with
the beginning amount for 1997 due to option activity for Rohr during the
five-month period ended December 31, 1996, not reflected in the 1996 activity
above.
The following table summarizes information about the Company's stock
options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
WEIGHTED- AVERAGE
AVERAGE REMAINING
OPTIONS OPTIONS EXERCISE CONTRACTUAL
GRANT DATE OUTSTANDING EXERCISABLE PRICE LIFE (YEARS)
---------- ----------- ----------- --------- ------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
1997............................... 811.0 395.5 $40.53 9.2
1996............................... 857.5 559.4 33.53 8.1
1995............................... 878.9 747.1 21.54 7.2
1994............................... 281.0 281.0 18.78 6.1
1993............................... 264.7 264.7 21.00 5.1
All other.......................... 924.9 924.9 28.24 2.4
------- -------
Total.................... 4,018.0 3,172.6
======= =======
</TABLE>
Stock options in the "All other" category were outstanding at prices
ranging from $15.00 to $45.18.
During 1997, 1996 and 1995, restricted stock awards for 9,761; 26,103 and
209,700 shares, respectively, were made under the Stock Option Plan. During
1997, 1996 and 1995, stock awards for 5,500; 25,400 and 1,200 restricted shares,
respectively, were forfeited. Restricted stock awards may be subject to
conditions established by the Board of Directors. Under the terms of the
restricted stock awards, the granted stock vests three years after the award
date. The cost of these awards, determined as the market value of the shares at
the date of grant, is being amortized over the three-year period. In 1997, 1996
and 1995, $1.8 million, $1.9 million and $2.1 million, respectively, were
charged to expense for restricted stock awards.
The Stock Option Plan also provides that shares of common stock may be
awarded as performance shares to certain key executives having a critical impact
on the long-term performance of the Company. In 1995, the Compensation Committee
of the Board of Directors awarded 566,200 shares and established performance
objectives that are based on attainment of an average return on equity over the
three-year plan cycle ending in 1997. In 1997 and 1996, 5,000 and 14,650
performance shares were granted to certain key executives that commenced
employment during
F-35
<PAGE> 118
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE V STOCK OPTION PLAN (CONTINUED)
those years. During 1997, 1996 and 1995, 14,400; 35,000 and 133,050 performance
shares, respectively, were forfeited.
The market value of performance shares awarded under the plan is recorded
as unearned restricted stock. The unearned amount is charged to compensation
expense based upon the extent performance objectives are expected to be met. In
1997, 1996 and 1995, $14.3 million, $8.3 million and $6.9 million, respectively,
were charged to expense for performance shares. If the provisions of SFAS 123
had been used to account for awards of performance shares, the weighted-average
grant-date fair value of performance shares granted in 1997, 1996 and 1995 would
have been $41.44, $38.54 and $22.37 per share, respectively.
NOTE W COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries have numerous purchase commitments for
materials, supplies and energy incident to the ordinary course of business.
There are pending or threatened against BFGoodrich or its subsidiaries
various claims, lawsuits and administrative proceedings, all arising from the
ordinary course of business with respect to commercial, product liability and
environmental matters, which seek remedies or damages. The Company believes that
any liability that may finally be determined with respect to commercial and
product liability claims, should not have a material effect on the Company's
consolidated financial position or results of operations. The Company is also
involved in legal proceedings as a plaintiff involving contract, patent
protection, environmental and other matters. Gain contingencies, if any, are
recognized when realized.
At December 31, 1997, the Company was a party to various obligations
assumed or issued by others, including guarantees of debt and lease obligations,
principally relating to businesses previously disposed. The aggregate contingent
liability, should the various third parties fail to perform, is approximately
$52.0 million. The Company has not previously been required to assume any
responsibility for these financial obligations as a result of defaults and is
not currently aware of any existing conditions which would cause a financial
loss. As a result, the Company believes that risk of loss relative to these
contingent obligations is remote.
The Company and its subsidiaries are generators of both hazardous and
non-hazardous wastes, the treatment, storage, transportation and disposal of
which are subject to various laws and governmental regulations. Although past
operations were in substantial compliance with the then-applicable regulations,
the Company has been designated as a potentially responsible party ("PRP") by
the U.S. Environmental Protection Agency ("EPA") in connection with
approximately 38 sites, most of which related to businesses previously
discontinued. The Company believes it may have continuing liability with respect
to not more than 18 sites.
The Company initiates corrective and/or preventive environmental projects
of its own to ensure safe and lawful activities at its current operations. The
Company believes that compliance with current governmental regulations will not
have a material adverse effect on its capital expenditures, earnings or
competitive position. The Company's environmental engineers and consultants
review and monitor past and existing operating sites. This process includes
investigation of National Priority List sites, where the Company is considered a
PRP, review of remediation methods and negotiation with other PRPs and
governmental agencies.
At December 31, 1997, the Company has recorded as Accrued expenses and as
Other Non-current Liabilities a total of $31.4 million to cover future
environmental expenditures, principally for
F-36
<PAGE> 119
THE BFGOODRICH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE W COMMITMENTS AND CONTINGENCIES (CONTINUED)
remediation of the aforementioned sites and other environmental matters. A
significant portion of accrued environmental liabilities is in connection with
four sites which relate to businesses previously discontinued and two sites that
came with the Rohr merger. Two of the most significant variables in determining
the Company's ultimate liability are the remediation method finally adopted for
the site and the Company's share of the total site remediation cost. With
respect to three of the four sites of previously discontinued businesses, the
Company's maximum percentage share of the ultimate remediation costs is fixed.
The percentages range from approximately 12 percent to approximately 41 percent,
and appropriate reserves have accordingly been established. At the fourth site,
alternate dispute resolution ("ADR") is under way to establish the various
parties' share of responsibility. The Company's interim share is 30 percent,
which the Company believes will likely decrease as a result of the ADR.
Of the four sites relating to discontinued businesses, two sites are in the
operation and maintenance phase for which costs are reasonably fixed.
Construction at a third site was begun in 1997, but problems with the remedial
design caused work to be discontinued. Modifications or other remedial
alternatives are being explored which could result in increases or decreases in
estimated costs. Until a decision on these remedy changes is made in 1998, an
accurate cost estimate for this site cannot be determined. Litigation on this
site with the government over the recovery of past government costs is ongoing.
Until a final decision on the remedy is made and the Company's percentage of
liability is determined through ADR, it is not possible to estimate the
Company's total cost of this site. However, total site costs are not expected to
exceed $15.0 million, of which the Company's share is 30 percent, which reflects
the basis for the amount accrued at December 31, 1997. The final site involving
discontinued businesses continues in litigation with no agreement with the
government over the remedy and government costs exceeding $22.0 million. This
site presents the greatest uncertainty both as to the nature and cost of the
final remedy and the percentage of the government's costs that are found to be
recoverable. However, the Company's share of this site is relatively small, at
less than 12 percent. The Company has accrued for costs it expects to incur.
The Company also has two active Superfund sites relating to the
Aerostructures Group (Rohr). Of these, one is a multimillion dollar site that
has been in active investigation/remediation/litigation for over 15 years.
Depending on the outcome of recent settlement discussions, the Company may not
spend much more on this matter, but a reserve is being retained in the event the
settlement does not occur. An action against third-party defendants is being
pursued by the PRPs seeking contribution. No receivable has been reflected for
any potential contributions. The second Rohr site is in an earlier stage, and
the Company's percentage share of the total site remediation cost has not been
determined. The estimated cost of this site to all parties is $70.0 million.
The Company believes that it has adequately reserved for all of the above
sites based on currently available information. Management believes that it is
reasonably possible that additional costs may be incurred beyond the amounts
accrued as a result of new information. However, the amounts, if any, cannot be
estimated and management believes that they would not be material to the
Company's financial condition but could be material to the Company's results of
operations in a given period.
In addition, the Company expects to incur capital expenditures and future
costs for environmental, health and safety improvement programs. These
expenditures relate to anticipated projects to change process systems or to
install new equipment to reduce ongoing emissions, improve efficiencies and
promote greater worker health and safety. These expenditures are customary
operational costs and are not expected to have a material adverse effect on the
financial position, liquidity or results of operations of the Company.
F-37
<PAGE> 120
============================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUPPLEMENT
Description of Notes...................... S-2
United States Tax Considerations.......... S-13
Supplemental Plan of Distribution......... S-19
Validity of the Notes..................... S-21
PROSPECTUS
Prospectus Summary........................ 1
Forward-Looking Statements................ 1
Available Information..................... 1
The Company............................... 1
Ratio of Earnings to Fixed Charges........ 2
Use of Proceeds........................... 2
General Business Developments............. 2
Selected Consolidated Financial Data...... 5
Supplementary Financial Information....... 7
Management Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 8
Business.................................. 22
Description of Securities................. 30
Management................................ 38
Executive Compensation.................... 45
Plan of Distribution...................... 57
Validity of Debt Securities............... 58
Experts................................... 59
Index to Consolidated Financial
Statements.............................. F-1
</TABLE>
============================================================
============================================================
$200,000,000
THE B.F.GOODRICH
COMPANY
MEDIUM-TERM NOTES,
SERIES A
------------------
B.F.GOODRICH LOGO
------------------
GOLDMAN, SACHS & CO.
CITICORP SECURITIES, INC.
J.P. MORGAN & CO.
MORGAN STANLEY DEAN WITTER
NATIONSBANC MONTGOMERY
SECURITIES LLC
============================================================
<PAGE> 121
THE INFORMATION CONTAINED HEREIN IS SUBJECT TO AMENDMENT AND COMPLETION. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE SECURITIES MAY NOT BE SOLD,
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE
ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION.
SUBJECT TO COMPLETION, DATED , 1997
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED , 1998
THE B.F.GOODRICH COMPANY
$200,000,000 % NOTES DUE 2038
$100,000,000 % NOTES DUE 2008
------------------------
Interest on each series of Notes (collectively, the "Offered Securities")
is payable on and of each year, commencing
, 1998. Each series of Offered Securities is hereby offered
separately and not as a unit. The Offered Securities are not redeemable prior to
maturity and will not be subject to any sinking fund.
The Offered Securities will be represented by one or more global securities
registered in the name of a nominee of The Depository Trust Company ("DTC").
Beneficial interests in such global securities will be shown on, and transfers
thereof will be effected only through, records maintained by DTC and its
participants. Except as described herein, the Offered Securities will not be
issued in definitive form. The Offered Securities will be issued only in
denominations of $1,000 and integral multiples thereof. See "Description of
Offered Securities -- General" and "-- Book-Entry System".
------------------------
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 TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(2)(3)
--------- ------------ -------------
<S> <C> <C> <C>
Per 2008 Note................................ 100% .650% 99.350%
Total........................................ $100,000,000 $650,000 $99,350,000
Per 2038 Note................................ 100% .875% 99.125%
Total........................................ $200,000,000 $1,750,000 $198,250,000
</TABLE>
- ---------------
(1) Plus accrued interest, if any, from , 1998.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting".
(3) Before deducting other expenses payable by the Company, estimated at
$800,000.
------------------------
The Offered Securities are being offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part and to certain other conditions.
It is expected that the Offered Securities will be ready for delivery in
book-entry form only through the book-entry facilities of DTC in New York, New
York on or about , 1998 against payment therefor in immediately
available funds.
------------------------
GOLDMAN, SACHS & CO.
CITICORP SECURITIES, INC.
J.P. MORGAN & CO.
MORGAN STANLEY DEAN WITTER
NATIONSBANC MONTGOMERY SECURITIES LLC
------------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS , 1998.
<PAGE> 122
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE OFFERED
SECURITIES, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH OFFERED SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN
CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING".
THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA HAS NOT
APPROVED OR DISAPPROVED THIS OFFERING NOR HAS THE COMMISSIONER PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES.
------------------
THE COMPANY
The Company manufactures and supplies a wide variety of systems and
component parts for the aerospace industry and provides maintenance, repair and
overhaul services on commercial, regional, business and general aviation
aircraft. The Company also manufactures specialty plastics and specialty
additives products for a variety of end-user applications. The Company, with
1997 sales of $3.4 billion, is organized into two principal business segments:
BFGoodrich Aerospace and BFGoodrich Specialty Chemicals. The Company maintains
patent and technical assistance agreements, licenses and trademarks on its
products, process technologies and expertise in most of the countries in which
it operates. The Company conducts its business through numerous divisions and 82
wholly and majority-owned subsidiaries worldwide.
The principal executive offices of the Company are located at 4020 Kinross
Lakes Parkway, Richfield, Ohio 44286-9368 (telephone (330) 659-7600). The
Company was incorporated under the laws of the State of New York on May 2, 1912
as the successor to a business founded in 1870.
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Offered
Securities to retire a similar amount of indebtedness which is borrowed on a
7-day or 30-day revolving basis and which expires in March 1999 and which bears
interest at a rate equal to LIBOR plus 30 basis points and which was incurred by
the Company to acquire Freedom Chemical Company.
DESCRIPTION OF THE OFFERED SECURITIES
The % Notes due 2008 (the "2008 Notes") and the % Notes due 2038
(the "2038 Notes") are each a series of the Offered Securities (referred to in
the accompanying Prospectus as the "Debt Securities"). The following description
of the particular terms of the Offered Securities offered hereby supplements,
and to the extent inconsistent therewith replaces, the description of the
general terms and provisions of the Debt Securities set forth in the Prospectus,
to which reference is hereby made.
GENERAL
The Offered Securities will be issued under an Indenture, dated as of May
1, 1991, between the Company and Harris Trust and Savings Bank (the "Trustee"),
as the same may be amended or supplemented from time to time (said Indenture, as
so supplemented, referred to herein as the "Indenture"). The 2008 Notes are
limited to an aggregate principal amount of $100,000,000, and the 2038 Notes are
limited to an aggregate principal amount of $200,000,000. The 2008 Notes and the
2038 Notes will mature on , 2008, and , 2038,
respectively. The Offered Securities will be issued only in registered form in
denominations of $1,000 and integral multiples thereof. The Offered Securities
will not be subject to any sinking fund.
S-2
<PAGE> 123
The Offered Securities will bear interest at the respective rates set forth
on the cover page of this Prospectus Supplement from , 1998, or the
most recent date to which interest has been paid or provided for, payable
semiannually on and of each year, commencing
, 1998 to the persons in whose names the Offered Securities are
registered as of the close of business on the next preceding
or , respectively, as applicable. Any payment required to be made with
respect to the Offered Securities on a day that is not a Business Day will be
made on the next succeeding Business Day with the same force and effect as if
made on such day, and no interest shall accrue from and after such day to the
date of payment.
"Business Day" means any day that is not a Saturday or Sunday and that is
not a day on which banking institutions are generally authorized or obligated by
law to close in The City of New York.
So long as each series of Offered Securities is represented by one or more
global certificates, the interest payable on the Offered Securities will be paid
to Cede & Co., the nominee of DTC, as Depositary (the "Depositary"), or its
registered assigns as the registered owner of the global certificates, by wire
transfer of immediately available funds on each of the applicable interest
payment dates, not later than 2:30 p.m. (New York City time). If any series of
the Offered Securities is no longer represented by global certificates, payment
of interest may, at the option of the Company, be made by check mailed to the
address of the person entitled thereto. No service charge will be made for any
transfer or exchange of Offered Securities, but the Company may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
BOOK-ENTRY SYSTEM
Each series of Offered Securities will be issued in the form of one or more
fully registered global certificates (each, a "Book-Entry Note") that will be
deposited with the Depositary or a nominee thereof. Unless and until it is
exchanged in whole or in part for Offered Securities in definitive form, a
Book-Entry Note may not be transferred except as a whole by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary or by the Depositary or any such nominee to a
successor of the Depositary or a nominee of such successor.
Upon the issuance of a Book-Entry Note, the Depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the Offered Securities represented by such Book-Entry Note to the accounts of
persons that have accounts with the Depositary ("participants"). The accounts to
be credited shall be designated by any underwriters or agents participating in
the distribution of such Offered Securities. Ownership of beneficial interests
in a Book-Entry Note will be limited to participants or persons that may hold
interests through participants. Ownership of beneficial interests in such
Book-Entry Note will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depositary for such Book-Entry
Note (with respect to interests of participants) or by participants or persons
that hold through participants (with respect to interests of persons other than
participants).
So long as the Depositary, or its nominee, is the registered owner of such
Book-Entry Note, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the Offered Securities represented by
such Book-Entry Note for all purposes under the Indenture. Except as set forth
below, owners of beneficial interests in a Book-Entry Note will not be entitled
to have the Offered Securities represented by such Book-Entry Note registered in
their names, will not receive or be entitled to receive physical delivery of
such Offered Securities in definitive form and will not be considered the owners
or holders thereof under the Indenture.
Principal, premium, if any, and interest payments on Offered Securities
represented by a Book-Entry Note registered in the name of the Depositary or its
nominee will be made to the Depositary or its nominee, as the case may be, as
the registered owner of such Book-Entry Note. None of the
S-3
<PAGE> 124
Company, the Trustee or any paying agent for such Offered Securities will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in such Book-Entry
Note or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
The Company expects that the Depositary, with respect to any Offered
Securities represented by a Book-Entry Note, upon receipt of any payment of
principal, premium or interest, will immediately credit participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of such Book-Entry Note as shown on the records of the
Depositary. The Company also expects that payments by participants to owners of
beneficial interest in such Book-Entry Note held through such participants will
be governed by standing instructions and customary practices, as is now the case
with the securities held for the accounts of customers registered in "street
names" and will be the responsibility of such participants.
If the Depositary is at any time unwilling or unable to continue as
Depositary and a successor Depositary is not appointed by the Company within 90
days, the Company will issue Offered Securities in definitive form in exchange
for each Book-Entry Note. In addition, the Company may at any time and in its
sole discretion determine not to have any of the Offered Securities represented
by one or more Book-Entry Offered Securities and, in such event, will issue
Offered Securities in definitive form in exchange for all of the Book-Entry
Offered Securities representing such Offered Securities.
GOVERNING LAW
The Indenture and the Offered Securities will be governed by and construed
in accordance with the laws of the State of New York.
UNDERWRITING
Subject to the terms of the Underwriting Agreement and the Pricing
Agreement between the Underwriters and the Company, the Company has agreed to
sell to each of the several Underwriters, and each Underwriter has severally
agreed to purchase from the Company the principal amount of 2008 Notes and 2038
Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
UNDERWRITER OF 2008 NOTES OF 2038 NOTES
----------- ---------------- ----------------
<S> <C> <C>
Goldman, Sachs & Co.
Citicorp Securities, Inc.
J.P. Morgan Securities, Inc.
Morgan Stanley & Co. Incorporated
Nationsbank Montgomery Securities LLC
</TABLE>
Under the terms of the Underwriting Agreement and the Pricing Agreement,
the Underwriters are committed to take and pay for all of each series of Offered
Securities if any of such series is taken. Each series of Offered Securities is
hereby offered separately, and not as a unit. The sale of any series of Offered
Securities is not conditioned upon the sale of any other series of Offered
Securities.
The Underwriters propose to offer the Offered Securities directly to the
public at the initial public offering price set forth on the cover page hereof
and in part to certain securities dealers at such price less a concession of
. % of the principal amount of the 2008 Notes and . % of the principal
amount of the 2038 Notes. The Underwriters may allow, and such dealers may
reallow, a concession of not more than . % of the principal amount of the
Offered Securities to certain
S-4
<PAGE> 125
brokers and dealers. After the Offered Securities are released for sale to the
public, the offering price and other selling terms may from time to time be
varied by the Underwriters.
Each series of Offered Securities is a new issue of securities with no
established trading market. The Company has been advised by the Underwriters
that the Underwriters intend to make a market in each series of Offered
Securities but are not obligated to do so and may discontinue market making in
respect of any series of Offered Securities at any time without notice. No
assurance can be given as to the liquidity of the trading market for any series
of Offered Securities.
In connection with this offering, the Underwriters may purchase and sell
any series of Offered Securities in the open market. These transactions may
include over-allotment and stabilizing transactions and purchases to cover
syndicate short positions created in connection with this offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of Offered Securities, and syndicate
short positions involve the sale by the Underwriters of a greater number of
Offered Securities than they are required to purchase from the Company in this
offering. The Underwriters also may impose a penalty bid by which selling
concessions allowed to syndicate members or certain dealers in respect of
Offered Securities are sold in this offering for their account may be reclaimed
by the syndicate if such Offered Securities are repurchased by the syndicate in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of Offered Securities, which may be higher
than the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected in the over-the-counter market or otherwise.
The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
Settlement for the Offered Securities will be made in immediately available
funds and all secondary trading in the Offered Securities will settle in
immediately available funds.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
Each of the Underwriters has rendered financial advisory services to the
Company from time to time and has received customary fees for its services. From
time to time the Underwriters and certain of their affiliates have engaged, and
may in the future engage, in transactions with, and perform services for, the
Company and its affiliates in the ordinary course of business.
VALIDITY OF THE OFFERED SECURITIES
The validity of the Offered Securities offered hereby will be passed upon
for the Company by Nicholas J. Calise, Vice President, Associate General Counsel
and Secretary of the Company, and for the Underwriters by Sullivan & Cromwell,
New York, New York. As of March 18, 1998, Mr. Calise owned 17,792 shares of the
Company's Common Stock; has deferred receipt of 5,917 shares of the Company's
Common Stock under the Company's Long Term Incentive Plan; has contingently
credited to his account 2,600 phantom shares under the 1998-2000 Long Term
Incentive Plan, all of which are subject to forfeiture; held options to purchase
83,300 shares of Common Stock; and had credited to his account in the Company's
Retirement Plus Savings Plan approximately 5,107 shares of Common Stock.
S-5
<PAGE> 126
============================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUPPLEMENT
The Company............................... S-2
Use of Proceeds........................... S-2
Description of the Offered Securities..... S-2
Underwriting.............................. S-4
Validity of Offered Securities............ S-5
PROSPECTUS
Prospectus Summary........................ 1
Forward-Looking Statements................ 1
Available Information..................... 1
The Company............................... 1
Ratio of Earnings to Fixed Charges........ 2
Use of Proceeds........................... 2
General Business Developments............. 2
Selected Consolidated Financial Data...... 5
Supplementary Financial Information....... 7
Management Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 8
Business.................................. 22
Description of Securities................. 30
Management................................ 38
Executive Compensation.................... 45
Plan of Distribution...................... 57
Validity of Debt Securities............... 58
Experts................................... 59
Index to Consolidated Financial
Statements.............................. F-1
</TABLE>
============================================================
============================================================
$300,000,000
THE B.F.GOODRICH
COMPANY
$100,000,000 % NOTES
DUE 2008
$200,000,000 % NOTES
DUE 2038
------------------
B.F.GOODRICH LOGO
------------------
GOLDMAN, SACHS & CO.
CITICORP SECURITIES, INC.
J.P. MORGAN & CO.
MORGAN STANLEY DEAN WITTER
NATIONSBANC MONTGOMERY
SECURITIES LLC
============================================================
<PAGE> 127
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....... $147,500
Printing and engraving expenses........................... 50,000
Rating agency fees........................................ 475,000
Trustee's fees............................................ 30,000
Legal fees................................................ 50,000
Accounting expenses....................................... 20,000
Blue Sky fees and expenses................................ 10,000
Other..................................................... 17,500
--------
Total.................................................. $800,000
========
</TABLE>
- ---------
* All amounts other than the registration fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Company's Restated Certificate of Incorporation no member of the
Board of Directors shall have any personal liability to the company or its
shareholders for damages for any breach of duty in such capacity, provided that
such liability shall not be limited if a judgment or other final adjudication
adverse to the Director establishes that his or her acts or omissions were in
bad faith or involved intentional misconduct or a knowing violation of law or
that the Director personally gained in fact a financial profit or other
advantage to which he or she was not legally entitled or that the Director's
acts violated section 719 of the New York Business Corporation Law ("B.C.L.")
(generally relating to the improper declaration of dividends, improper purchases
of shares, improper distribution of assets after dissolution, or making improper
loans to directors contrary to specified statutory provisions). Reference is
made to Article TWELVE of the company's Restated Certificate of Incorporation
filed as Exhibit 3(a) to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1988.
Under the Company's By-Laws, any person made, or threatened to be made, a
party to an action or proceeding by reason of the fact that the, his testator or
intestate is or was a director or officer of the Company or served any other
corporation in any capacity at the request of the Company shall be indemnified
by the Company to the extent and in a manner permissible under the laws of the
State of New York.
In addition, the Company's By-Laws provide indemnification for directors
and officers where they are acting on behalf of the Company where the final
judgment does not establish that the director or officer acted in bad faith or
was deliberately dishonest, or gained a financial profit or other advantage to
which he was not legally entitled. The By-Laws provide that the indemnification
rights shall be deemed to be "contract rights" and continue after a person
ceases to be a director or officer or after rescission or modification of the
By-Laws with respect to prior occurring events. They also provide directors and
officers with the benefit of any additional indemnification which may be
permitted by later amendment to the B.C.L. The By-Laws further provide for
advancement of expenses and specify procedures in seeking and obtaining
indemnification. Reference is made to Article VI of the Company's By-Laws filed
as Exhibit 3(B) to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1988.
II-1
<PAGE> 128
The Company has insurance to indemnify its directors and officers, within
the limits of the Company's insurance policies, for those liabilities with in
respect of which such indemnification insurance is permitted under the laws of
the State of New York.
Reference is made to Sections 721-726 of the B.C.L., which are summarize
below.
Section 721 of the B.C.L. provides that indemnification pursuant to the
B.C.L. shall not be deemed exclusive of their indemnification rights to which a
director or officer may be entitled, provided that no indemnification may be
made if a judgment or other final adjudication adverse to the director or
officer establishes that (i) his acts were committed in bad faith or were the
result of active and deliberate dishonesty, and, in either case, were material
to the cause of action so adjudicated, or (ii) he personally gained in fact a
financial profit or other advantage to which he was not legally entitled.
Section 722(a) of the B.C.L. provides that a corporation may indemnify a
director or officer made, or threatened to be made, a party to any civil or
criminal action, other than a derivative action, against judgments, fines,
amounts paid in settlement and reasonable expenses actually and necessarily
incurred as a result of such action or proceeding, or any appeal therein, if
such director or officer acted in good faith, for a purpose which he reasonably
believed to be in the best interests of the corporation and, in criminal actions
or proceedings, in addition, had no reasonable cause to believe that his conduct
was unlawful. With respect to derivative actions, Section 722(c) of the B.C.L.
provides that a director or officer may be indemnified only against amounts paid
in settlement and reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense or settlement of such
action, or any appeal therein, if such director or officer acted in good faith,
for a purpose which he reasonably believed to be in the best interests of the
corporation and that no indemnification shall be made in respect of (1) a
threatened action, or a pending action which is settled or otherwise disposed
of, or (2) any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and to the extent an appropriate
court determines that the person is fairly and reasonably entitled to partial or
full indemnification.
Section 723 of the B.C.L. specifies the manner in which payment of such
indemnification may be authorized by the corporation. It provides that
indemnification by a corporation is mandatory in any case in which the director
or officer has been successful, whether on the merits or otherwise, in defending
an action. In the vent that the director or officer has not been successful or
the action is settled, indemnification may be made by the corporation only if
authorized by any of the corporate actions set forth in such Section 723 (unless
the corporation has provided for indemnification in some other manner as
otherwise permitted by Section 721 of the B.C.L.).
Section 724 of the B.C.L. provides that upon proper application by a
director or officer, indemnification shall be awarded by a court to the extent
authorized under Sections 722 and 723 of the B.C.L. Section 725 of the B.C.L.
contains certain other miscellaneous provisions affecting the indemnification of
directors and officers, including provision for the return of amounts paid as
indemnification if any such person is ultimately found not to be entitled
thereto.
Section 726 of the B.C.L. authorizes the purchase and maintenance of
insurance to indemnify (1) a corporation for any obligation which it incurs as a
result of the indemnification of directors and officers under the above
sections, (2) directors and officers in instances in which they may be
indemnified by a corporation under such sections, and (3) directors and officers
in instances in which they may not otherwise be indemnified by a corporation
under such sections, provided the contract of insurance covering such directors
and officers provides, in a manner acceptable to the New York State
Superintendent of Insurance, for a retention amount and for co-insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
II-2
<PAGE> 129
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
UMBER -
<S> <C>
1(A). Form of Underwriting Agreement.
1(B). Form of Distribution Agreement.
3(A). The Company's Restated Certificate of Incorporation, as
amended through August 5, 1988. This exhibit was filed with
the same designation as an exhibit to the Company's Form
10-Q for the quarter ended September 30, 1988, and is
incorporated herein by reference.
3(B). The Company's By-Laws, as amended, through February 18,
1991. This exhibit was filed with the same designation as an
exhibit to the Company's Form 10-K Annual Report for the
year ended December 31, 1990, and is incorporated herein by
reference.
4(A). Indenture dated as of May 1, 1991 between the Company and
the Trustee. This exhibit was filed as an exhibit to the
Registrant's Registration Statement on Form S-3 (File No.
33-65658) and is incorporated herein by reference.
4(B). Form of Fixed Rate Note. This exhibit was filed as an
exhibit to the Registrant's Registration Statement on Form
S-3 (File No. 333-03341) and is incorporated herein by
reference.
4(C). Form of Floating Rate Note. This exhibit was filed as an
exhibit to the Registrant's Registration Statement on Form
S-3 (File No. 333-03341) and is incorporated herein by
reference.
5. Opinion re validity of Debt Securities of Nicholas J.
Calise, Esq., Vice President, Associate General Counsel and
Secretary (including consent).
10(A). Stock Option Plan. This exhibit was filed with the same
designation as an exhibit to the Company's Form 10-Q for the
quarter ended June 30, 1997, and is incorporated herein by
reference.
Form of Disability Income Agreement. This exhibit was filed
10(B)(4). with the same designation as an exhibit to the Company's
Form 10-K Annual Report for the year ended December 31,
1988, and is incorporated herein by reference.
Form of Supplemental Executive Retirement Plan Agreement.
10(B)(5). This exhibit was filed with the same designation as an
exhibit to the Company's Form 10-K Annual Report for the
year ended December 31, 1989 and is incorporated herein by
reference.
10(E). Management Incentive Program. This exhibit was filed with
the same designation as an exhibit to the Company's Form
10-Q for the quarter ended September 30, 1989, and is
incorporated herein by reference.
10(F). Form of Management Continuity Agreement entered into by The
B.F.Goodrich Company and certain of its employees. This
exhibit was filed with the same designation as an exhibit to
the Company's Form 10-K Annual Report for the year ended
December 31, 1992, and is incorporated herein by reference.
10(G). Senior Executive Management Incentive Plan. This exhibit was
filed as Appendix B to the Company's 1995 Proxy Statement
dated March 2, 1995 and is incorporated herein by reference.
</TABLE>
II-3
<PAGE> 130
<TABLE>
<CAPTION>
EXHIBIT
UMBER -
<S> <C>
10(H). Rights Agreement, dated as of June 2, 1997, between The
B.F.Goodrich Company and The Bank of New York which includes
the form of Certificate of Amendment setting forth the terms
of the Junior Participating Preferred Stock, Series F, par
value $1 per share, as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary of Rights to
Purchase Preferred Shares as Exhibit C which was filed as
Exhibit 1 to Form 8-A filed June 19, 1997 is incorporated
herein by reference.
10(I). Employee Protection Plan. This exhibit was filed with the
same designation as an exhibit to the Company's Form 10-Q
for the quarter ended June 30, 1997, and is incorporated
herein by reference.
Benefit Restoration Plan. This exhibit was filed as Exhibit
10(J)(1). 10(J) to the Company's Form 10-K Annual Report for the year
ended December 31, 1992, and is incorporated herein by
reference.
The B.F.Goodrich Company Savings Benefit Restoration Plan
10(J)(2). was filed as Exhibit 4(b) to the Company's Registration
Statement No. 333-19697 on Form S-8 and is incorporated
herein by reference.
10(K). Long-Term Incentive Plan and form of award. This exhibit was
filed as Exhibit 10(K) to the Company's Form 10-K Annual
Report for the year ended December 31, 1995, and is
incorporated herein by reference.
10(L). Amended and Restated Assumption of Liabilities and
Indemnification Agreement between the Company and The Geon
Company, which was filed as exhibit 10.3 to Registration
Statement No. 33-70998 on Form S-1 of The Geon Company, is
incorporated herein by reference.
10(M). Outside Directors' Phantom Share Plan. This exhibit was
filed as Exhibit 10(M) to the Company's form 10-K Annual
Report for the year ended December 31, 1997, and is
incorporated herein by reference.
10(N). Directors Deferred Compensation Plan. This exhibit was filed
with the same designation as an exhibit to the Company's
Form 10-K Annual Report for the year ended December 31, 1997
and is incorporated herein by reference.
10(O). Rohr, Inc. Supplemental Retirement Plan (Restated 1997)
which was filed as an exhibit to Rohr, Inc.'s Form 10-Q for
the quarterly period ended May 4, 1997, is incorporated
herein by reference.
10(Q). Rohr Industries, Inc., Management Incentive Plan (Restated
1982), as amended through the Fifteenth Amendment, as set
forth in Rohr, Inc.'s Form 10-K for fiscal year ended July
31, 1994, is incorporated herein by reference.
10(R). Sixteenth Amendment to Rohr, Inc. Management Incentive Plan
(Restated 1982), dated June 7, 1996, which was filed as an
exhibit to Rohr, Inc.'s Form 10-K for the fiscal year ended
July 31, 1996, is incorporated herein by reference.
10(S). Seventeenth Amendment to Rohr Industries, Inc. Management
Incentive Plan (Restated 1982), dated September 13, 1996,
which was filed as an exhibit to Rohr, Inc.'s Form 10-K for
the fiscal year ended July 31, 1996, is incorporated herein
by reference.
10(T). Employment Agreement with Robert H. Rau, which was filed as
an exhibit to Rohr, Inc.'s Form 10-Q for the period ended
May 2, 1993, is incorporated herein by reference.
10(U). First Amendment to Employment Agreement with Robert H. Rau,
which was filed as an exhibit to Rohr, Inc.'s Form 10-K for
fiscal year ended July 31, 1996, is incorporated herein by
reference.
</TABLE>
II-4
<PAGE> 131
<TABLE>
<CAPTION>
EXHIBIT
UMBER -
<S> <C>
10(V). Rohr, Inc. 1989 Stock Option Plan filed as exhibit 10.18 to
the Rohr Industries, Inc. Form 10-K for the fiscal year
ended July 31, 1990, is incorporated herein by reference.
10(W). Rohr, Inc. 1995 Stock Incentive Plan filed as exhibit 4.1 to
Rohr, Inc. Registration Statement No. 33-65447 filed on
December 28, 1995, is incorporated herein by reference.
10(X). Employment Agreement with Robert H. Rau. This exhibit was
filed with the same designation as an exhibit to the
Company's Form 10-K Annual Report for the year ended
December 31, 1997 and is incorporated herein by reference.
12. Computation of Ratio of Earnings to Fixed Charges.
21. Subsidiaries. This exhibit was filed with the same
designation as an exhibit to the Company's Form 10-K Annual
Report for the year ended December 31, 1997 and is
incorporated herein by reference.
23(A). Consent of Independent Auditors -- Ernst & Young LLP.
23(B). Consent of Independent Auditors -- Deloitte & Touche LLP.
23(C). Consent of Counsel (contained in opinion filed as Exhibit
5).
24. Powers of Attorney.
25. Form T-1 Statement of Eligibility and Qualification of the
Trustee.
27. Financial Data Schedule. This exhibit was filed with the
same designation as an exhibit to the Company's Form 10-K
Annual Report for the year ended December 31, 1997 and is
incorporated herein by reference.
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registrations statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering;
(4) That, for purposes of determining any liability under the Act, each
filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of
the 1934 Act that is incorporated by reference in this registration statement
shall be deemed to be a new registration statement relating to the
II-5
<PAGE> 132
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof; and
(5) That, for purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus, filed by the Registrant pursuant to Rule 424(b)(1) or (4) under the
Act shall be deemed to be part of this registration statement as of the time it
was declared effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of an action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the questions whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-6
<PAGE> 133
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Township of Bath, State of Ohio,
on March 27, 1998.
THE B.F.GOODRICH COMPANY
By: /s/ NICHOLAS J. CALISE
-----------------------------------
Nicholas J. Calise
Vice President, Associate General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on March 27, 1998 by the following
majority of the Board of Directors of the Registrant in the capacities
indicated.
/s/ DAVID L. BURNER*
- ---------------------------------------------------
(David L. Burner)
Chairman and Chief Executive Officer and
Director (Principal Executive Officer)
/s/ D. LEE TOBLER*
- ---------------------------------------------------
(D. Lee Tobler)
Executive Vice President and Chief
Financial Officer and Director
(Principal Financial Officer)
/s/ STEVEN G. ROLLS*
- ---------------------------------------------------
(Steven G. Rolls)
Vice President and Controller
(Principal Accounting Officer)
/s/ JEANNETTE GRASSELLI BROWN*
- ---------------------------------------------------
(Jeannette Grasselli Brown)
Director
/s/ DIANE C. CREEL*
- ---------------------------------------------------
(Diane C. Creel)
Director
/s/ GEORGE A. DAVIDSON, JR.*
- ---------------------------------------------------
(George A. Davidson, Jr.)
Director
- ---------------------------------------------------
(Richard K. Davidson)
Director
/s/ JAMES J. GLASSER
- ---------------------------------------------------
(James J. Glasser)
Director
/s/ JODIE K. GLORE*
- ---------------------------------------------------
(Jodie K. Glore)
Director
/s/ DOUGLAS E. OLESEN*
- ---------------------------------------------------
(Douglas E. Olesen)
Director
/s/ RICHARD DE J. OSBORNE*
- ---------------------------------------------------
(Richard de J. Osborne)
Director
/s/ JOSEPH A. PICHLER*
- ---------------------------------------------------
(Joseph A. Pichler)
Director
II-7
<PAGE> 134
/s/ ALFRED M. RANKIN, JR.*
- ---------------------------------------------------
(Alfred M. Rankin, Jr.)
Director
- ---------------------------------------------------
(Robert H. Rau)
Director
/s/ IAN M. ROSS*
- ---------------------------------------------------
(Ian M. Ross)
Director
/s/ JAMES R. WILSON*
- ---------------------------------------------------
(James R. Wilson)
Director
/s/ A. THOMAS YOUNG*
- ---------------------------------------------------
(A. Thomas Young)
Director
* The undersigned, as attorney-in-fact, does hereby sign this Registration
Statement on behalf of each of the officers and directors indicated above.
/s/ NICHOLAS J. CALISE
-----------------------------------
Nicholas J. Calise
II-8
<PAGE> 1
Exhibit 1A
THE B.F.GOODRICH COMPANY
Debt Securities
UNDERWRITING AGREEMENT
----------------------
. . . . . . . . . . . . . , 1998
Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Dear Sirs:
From time to time The B.F.Goodrich Company, a New York
corporation (the "Company"), proposes to enter into one or more Pricing
Agreements (each, a "Pricing Agreement") in the form of Annex I hereto, with
such additions and deletions as the parties thereto may determine, and, subject
to the terms and conditions stated herein and therein, to issue and sell to the
firms named in Schedule I to the applicable Pricing Agreement (such firms
constituting the "Underwriters" with respect to such Pricing Agreement and the
securities specified therein) certain of its debt securities (the "Securities")
specified in Schedule II to such Pricing Agreement (with respect to such Pricing
Agreement, the "Designated Securities").
The terms and rights of any particular issuance of Designated
Securities shall be as specified in the Pricing Agreement relating thereto and
in or pursuant to the indenture (the "Indenture") identified in such Pricing
Agreement.
1. Particular sales of Designated Securities may be made from
time to time to the Underwriters of such Securities, for whom the firms
designated as representatives of the Underwriters of such Securities in the
Pricing Agreement relating thereto will act as representatives (the
"Representatives"). The term "Representatives" also refers to a single firm
acting as sole representative of the Underwriters and to Underwriters who act
without any firm being designated as their representative. This Underwriting
Agreement shall not be construed as an obligation of the Company to sell any of
the Securities or as an obligation of any of the Underwriters to purchase the
Securities. The obligation of the Company to issue and sell any of the
Securities and the obligation of any of the Underwriters to purchase any of the
Securities shall be evidenced by the Pricing Agreement with respect to the
Designated Securities specified therein. Each Pricing Agreement shall specify
the aggregate principal amount of such Designated Securities, the initial public
offering price of such Designated Securities, the purchase price to the
Underwriters of such Designated Securities, the names of the Underwriters of
such Designated Securities, the names of the Representatives of such
Underwriters and the principal amount of such Designated Securities to be
purchased by each Underwriter and shall set forth the date, time and manner of
delivery of such Designated Securities and payment therefor. The Pricing
Agreement shall also specify (to the extent not set forth in the Indenture and
the registration statement and prospectus with respect thereto)
<PAGE> 2
the terms of such Designated Securities. A Pricing Agreement shall be in the
form of an executed writing (which may be in counterparts), and may be evidenced
by an exchange of telegraphic communications or any other rapid transmission
device designed to produce a written record of communications transmitted. The
obligations of the Underwriters under this Agreement and each Pricing Agreement
shall be several and not joint.
2. The Company represents and warrants to, and agrees with,
each of the Underwriters that:
(a) A registration statement in respect of the Securities has
been filed with the Securities and Exchange Commission (the
"Commission"); such registration statement and any post-effective
amendment thereto, each in the form heretofore delivered or to be
delivered to the Representatives and, excluding exhibits to such
registration statement, to the Representatives for each of the other
Underwriters, have been declared effective by the Commission in such
form; no other document with respect to such registration statement has
heretofore been filed or transmitted for filing with the Commission;
and no stop order suspending the effectiveness of such registration
statement has been issued and no proceeding for that purpose has been
initiated or threatened by the Commission; such registration statement,
including all exhibits thereto but excluding Form T-1, as amended at
the time such registration statement became effective, being
hereinafter collectively called the "Registration Statement"; the
prospectus relating to the Securities, in the form in which it has most
recently been filed, or transmitted for filing, with the Commission on
or prior to the date of this Agreement, being hereinafter called the
"Prospectus" and any preliminary prospectus included in such
registration statement or filed with the Commission pursuant to Rule
424(a) of the rules and regulations of the Commission under the
Securities Act of 1933, as amended (the "Act"), being hereinafter
called a "Preliminary Prospectus"; and any reference to the Prospectus
as amended or supplemented shall be deemed to refer to the Prospectus
as amended or supplemented in relation to the applicable Designated
Securities in the form in which it is filed with the Commission
pursuant to Rule 424(b) under the Act in accordance with Section 5(a)
hereof;
(b) [RESERVED];
(c) The Registration Statement and the Prospectus conform, and
any further amendments or supplements to the Registration Statement or
the Prospectus will conform, in all material respects to the
requirements of the Act and the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act") and the rules and regulations of the
Commission thereunder and do not and will not, as of the applicable
effective date as to the Registration Statement and any amendment
thereto and as of the applicable filing date as to the Prospectus and
any amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter of Designated Securities through the Representatives
expressly for use in the Prospectus as amended or supplemented relating
to such Securities;
(d) The Company and its subsidiaries considered as a whole
have not, since the date of the latest audited financial statements
included in the Prospectus, sustained any material loss or interference
with its business from fire, explosion, flood or other
2
<PAGE> 3
calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and, since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any change in the
capital stock or long-term debt of the Company and its subsidiaries
considered as a whole or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries considered as a whole, otherwise than as set forth or
contemplated in the Prospectus;
(e) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of New York and has been duly qualified as a foreign corporation for
the transaction of business and is in good standing under the laws of
each other jurisdiction in which it owns or leases properties, or
conducts any business in an amount that is material to the business of
the Company and its consolidated subsidiaries considered as a whole so
as to require such qualification; each Material Subsidiary (as defined
below) of the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and is duly qualified as a foreign
corporation for the transaction of business and in good standing under
the laws of each other jurisdiction in which it owns or leases
properties, or conducts any business, so as to require such
qualification (as used in this agreement, the term "Material
Subsidiary" means a subsidiary of the Company which is a significant
subsidiary under Rule 1-02 of Regulation S-X of the Commission);
(f) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued and are fully
paid and non-assessable;
(g) The Securities have been duly authorized, and, when
Designated Securities are issued and delivered pursuant to this
Agreement and the Pricing Agreement with respect to such Designated
Securities, such Designated Securities will have been duly executed,
authenticated, issued and delivered and will constitute valid and
legally binding obligations of the Company entitled to the benefits
provided by the Indenture, which will be substantially in the form
filed as an exhibit to the Registration Statement; the Indenture has
been duly authorized and duly qualified under the Trust Indenture Act
and, at the Time of Delivery for such Designated Securities (as defined
in Section 4 hereof), the Indenture will constitute a valid and legally
binding instrument, enforceable in accordance with its terms, subject,
as to enforcement, to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting creditors'
rights and to general equity principles; and the Indenture conforms,
and the Designated Securities will conform, in all material respects,
to the descriptions thereof contained in the Prospectus as amended or
supplemented with respect to such Designated Securities;
(h) The issue and sale of the Securities, and the compliance
by the Company with all of the provisions of the Securities, the
Indenture, this Agreement and any Pricing Agreement, and the
consummation of the transactions herein and therein contemplated will
not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its Material Subsidiaries is
a party or by which the Company or any of its Material
3
<PAGE> 4
Subsidiaries is bound or to which any of the property or assets of the
Company or any of its Material Subsidiaries is subject, nor will such
action result in any violation of the provisions of the Company's
Certificate of Incorporation or By-laws or any statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its Material Subsidiaries or
any of their properties; and no consent, approval, authorization,
order, registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the
Securities or the consummation by the Company of the transactions
contemplated by this Agreement or any Pricing Agreement or the
Indenture, except such as have been, or will have been prior to the
Time of Delivery, obtained under the Act and the Trust Indenture Act
and such consents, approvals, authorizations, registrations or
qualifications as may be required under the state securities or Blue
Sky laws in connection with the purchase and distribution of the
Securities by the Underwriters;
(i) Neither the Company nor any of its Material Subsidiaries
is in violation of its Certificate of Incorporation or By-Laws or in
default in the performance or observance of any material obligation,
covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, material lease or other material agreement or
instrument to which it is a party or by which it or any of its
properties may be bound;
(j) The statements set forth in the Prospectus under the
captions "Description of Debt Securities" and "Description of the
Offered Securities", insofar as they purport to constitute a summary of
the terms of the Securities, and under the captions "Plan of
Distribution" and "Underwriting", insofar as they purport to describe
the provisions of the laws and documents referred to therein, are
accurate, complete and fair, and, if the Prospectus includes a caption
"United States Tax Considerations", the statements set forth in the
Prospectus under such caption, insofar as they purport to constitute a
summary of the laws referred to therein, are both accurate and complete
in all material respects;
(k) Other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any
of its subsidiaries is a party or of which any property of the Company
or any of its subsidiaries is the subject, other than litigation which,
in the opinion of the Company, will not individually or in the
aggregate have a material adverse effect on the current or future
consolidated financial position, shareholders' equity or results of
operations of the Company and its subsidiaries considered as a whole;
and, to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others;
(l) The Company is not and, after giving effect to each
offering and sale of the Securities, will not be an "investment
company" or an entity "controlled" by an "investment company", as such
terms are defined in the Investment Company Act of 1940, as amended
(the "Investment Company Act");
(m) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida
Statutes;
(n) Immediately after any sale of Designated Securities by the
Company under any Pricing Agreement, the aggregate amount of Securities
which shall have been
4
<PAGE> 5
issued and sold by the Company under any Pricing Agreement and of any
debt securities of the Company (other than such Securities) that shall
have been issued and sold pursuant to the Registration Statement will
not exceed the amount of debt securities registered under the
Registration Statement; and
(o) Ernst & Young LLP, who have certified certain financial
statements of the Company and its subsidiaries, are, to the best
knowledge of the Company, independent public accountants as required by
the Act and the rules and regulations of the Commission thereunder.
3. Upon the execution of the Pricing Agreement applicable to
any Designated Securities and authorization by the Representatives of the
release of such Designated Securities, the several Underwriters propose to offer
such Designated Securities for sale upon the terms and conditions set forth in
the Prospectus as amended or supplemented.
4. Designated Securities to be purchased by each Underwriter
pursuant to the Pricing Agreement relating thereto, in the form specified in
such Pricing Agreement, and in such authorized denominations and registered in
such names as the Representatives may request upon at least forty-eight hours'
prior notice to the Company, shall be delivered by or on behalf of the Company
to the Representatives for the account of such Underwriter, against payment by
such Underwriter or on its behalf of the purchase price therefor by wire
transfer or certified or official bank check or checks, payable to the order of
the Company in the funds specified in such Pricing Agreement, all at the place
and time and date specified in such Pricing Agreement or at such other place and
time and date as the Representatives and the Company may agree upon in writing,
such time and date being herein called the "Time of Delivery" for such
Securities.
5. The Company agrees with each of the Underwriters of any
Designated Securities:
(a) To prepare the Prospectus as amended and supplemented in
relation to the applicable Designated Securities in a form approved by
the Representatives and to file such Prospectus pursuant to Rule 424(b)
under the Act not later than the Commission's close of business on the
second business day following the execution and delivery of the Pricing
Agreement relating to the applicable Designated Securities or, if
applicable, such earlier time as may be required by Rule 424(b); to
make no further amendment or any supplement to the Registration
Statement or Prospectus as amended or supplemented after the date of
the Pricing Agreement relating to such Securities and prior to the Time
of Delivery for such Securities which shall be disapproved by the
Representatives for such Securities promptly after reasonable notice
thereof; to advise the Representatives promptly of any such amendment
or supplement after such Time of Delivery and furnish the
Representatives with copies thereof; to file promptly all reports and
any definitive proxy or information statements required to be filed by
the Company with the Commission pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") for so long as the delivery of a prospectus is required in
connection with the offering or sale of such Securities, and during
such same period to advise the Representatives, promptly after it
receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed
with the Commission, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any
prospectus relating to the Securities, of the suspension of the
qualification of such
5
<PAGE> 6
Securities for offering or sale in any jurisdiction, of the initiation
or threatening of any proceeding for any such purpose, or of any
request by the Commission for the amending or supplementing of the
Registration Statement or Prospectus or for additional information;
and, in the event of the issuance of any such stop order or of any such
order preventing or suspending the use of any prospectus relating to
the Securities or suspending any such qualification, to use promptly
its best efforts to obtain its withdrawal;
(b) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify such Securities for
offering and sale under the securities laws of such jurisdictions as
the Representatives may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the
distribution of such Securities, provided that in connection therewith
the Company shall not be required to qualify as a foreign corporation
or to file a general consent to service of process in any jurisdiction;
(c) To furnish the Underwriters with copies of the Prospectus
as amended or supplemented in such quantities as the Representatives
may from time to time reasonably request, and, if the delivery of a
prospectus is required at any time in connection with the offering or
sale of any Designated Securities and if at such time any event shall
have occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made when such Prospectus is delivered, not misleading, or, if for
any other reason it shall be necessary during such same period to amend
or supplement the Prospectus in order to comply with the Act or the
Trust Indenture Act, to notify the Representatives and upon their
request to file such document and to prepare and furnish without charge
to each Underwriter and to any dealer in securities as many copies as
the Representatives may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which will correct
such statement or omission or effect such compliance;
(d) To make generally available to its securityholders as soon
as practicable, but in any event not later than eighteen months after
the effective date of the Registration Statement (as defined in Rule
158(c) under the Act), an earning statement of the Company and its
consolidated subsidiaries (which need not be audited) complying with
Section 11(a) of the Act and the rules and regulations of the
Commission thereunder (including at the option of the Company Rule 158
under the Act); and
(e) During the period beginning from the date of the Pricing
Agreement for such Designated Securities and continuing to and
including the earlier of (i) the termination of trading restrictions
for such Designated Securities, as notified to the Company by the
Representatives and (ii) the Time of Delivery for such Designated
Securities, not to offer, sell, contract to sell or otherwise dispose
of any debt securities of the Company which mature more than one year
after such Time of Delivery and which are substantially similar to such
Designated Securities, without the prior written consent of the
Representatives.
6. The Company covenants and agrees with the several
Underwriters that the Company will pay or cause to be paid the following: (i)
the fees, disbursements and expenses
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<PAGE> 7
of the Company's counsel and accountants in connection with the registration of
the Securities under the Act and all other expenses in connection with the
preparation, printing and filing of the Registration Statement, any Preliminary
Prospectus and the Prospectus and amendments and supplements thereto and the
mailing and delivering of copies thereof to the Underwriters and dealers; (ii)
the cost of printing or producing any Agreement among Underwriters, this
Agreement, any Pricing Agreement, any indenture, any Blue Sky and Legal
Investment memoranda, closing documents (including any compilations thereof) and
any other documents in connection with the offering, purchase, sale and delivery
of the Securities; (iii) all expenses in connection with the qualification of
the Securities for offering and sale under state securities laws as provided in
Section 5(b) hereof, including the reasonable fees and disbursements of counsel
for the Underwriters in connection with such qualification and in connection
with the Blue Sky and legal investment surveys; (iv) any fees charged by
securities rating services for rating the Securities; (v) any filing fees
incident to any required review by the National Association of Securities
Dealers, Inc. of the terms of the sale of the Securities; (vi) the cost of
preparing the Securities; (vii) the fees and expenses of any Trustee and any
agent of any Trustee and the fees and disbursements of counsel for any Trustee
in connection with any Indenture and the Securities; and (viii) all other costs
and expenses incident to the performance of its obligations hereunder which are
not otherwise specifically provided for in this Section. It is understood,
however, that, except as provided in this Section, Section 8 and Section 11
hereof, the Underwriters will pay all of their own costs and expenses, including
the fees of their counsel, transfer taxes on resale of any of the Securities by
them, and any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters of any Designated
Securities under the Pricing Agreement relating to such Designated Securities
shall be subject, in the discretion of the Representatives, to the condition
that all representations and warranties and other statements of the Company in
or incorporated by reference in the Pricing Agreement relating to such
Designated Securities are, at and as of the Time of Delivery for such Designated
Securities, true and correct, the condition that the Company shall have
performed all of its obligations hereunder theretofore to be performed, and the
following additional conditions:
(a) The Prospectus as amended or supplemented in relation to
the applicable Designated Securities shall have been filed with the
Commission pursuant to Rule 424(b) within the applicable time period
prescribed for such filing by the rules and regulations under the Act
and in accordance with Section 5(a) hereof; no stop order suspending
the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall have
been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to the Representatives' reasonable satisfaction;
(b) Sullivan & Cromwell, counsel for the Underwriters, shall
have furnished to the Representatives such opinion or opinions, dated
the Time of Delivery for such Designated Securities, with respect to
the incorporation of the Company, the validity of the Indenture, the
Designated Securities, the Registration Statement, the Prospectus as
amended or supplemented and other related matters as the
Representatives may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to
enable them to pass upon such matters;
(c) Nicholas J. Calise, Vice President, Associate General
Counsel and Secretary of the Company, shall have furnished to the
Representatives his written opinion, dated
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<PAGE> 8
the Time of Delivery for such Designated Securities, in form and
substance satisfactory to the Representatives, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of New York, with corporate power and
authority to own its properties and conduct its business as
described in the Prospectus as amended or supplemented;
(ii) The Company has an authorized capitalization as
set forth in the Prospectus as amended or supplemented and all
of the issued shares of capital stock of the Company have been
duly and validly authorized and issued and are fully paid and
non-assessable;
(iii) The Company has been duly qualified as a
foreign corporation for the transaction of business and is in
good standing under the laws of each jurisdiction in the
United States other than New York in which it owns or leases
plants or other major real property (such counsel being
entitled to rely in respect of the opinion in this clause upon
opinions of local counsel and in respect of matters of fact
upon certificates of officers of the Company, provided that
such counsel shall state that he believes that both you and he
are justified in relying on such opinions and certificates);
(iv) Each Material Subsidiary of the Company has been
duly incorporated and is validly existing as a corporation in
good standing under the laws of its jurisdiction of
incorporation; all of the issued shares of capital stock of
each such Material Subsidiary have been duly and validly
authorized and issued, are fully paid and non-assessable, and
(except for directors' qualifying shares) are owned directly
or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims;
(v) To the best of such counsel's knowledge, there
are no legal or governmental proceedings pending to which the
Company or any of its sub sidiaries is a party or of which any
property of the Company or any of its subsidiaries is the
subject, other than as set forth in the Prospectus and other
than litigation which in the aggregate is not material to the
Company and its subsidiaries considered as a whole; and, to
the best of such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or
threatened by others;
(vi) This Agreement and the Pricing Agreement with
respect to the Designated Securities have been duly
authorized, executed and delivered by the Company;
(vii) The Designated Securities have been duly
authorized, executed, authenticated, issued and delivered and
constitute valid and legally binding obligations of the
Company entitled to the benefits provided by the Indenture;
and the Designated Securities and the Indenture conform in all
material respects to the descriptions thereof in the
Prospectus as amended or supplemented;
(viii) The Indenture has been duly authorized,
executed and delivered by the Company and, assuming due
authorization, execution and delivery by the Trustee,
constitutes a valid and legally binding instrument,
enforceable in
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<PAGE> 9
accordance with its terms, subject, as to enforcement, to
bankruptcy, insol vency, reorganization and other laws of
general applicability relating to or affecting creditors'
rights and to general equity principles; and the Indenture has
been duly qualified under the Trust Indenture Act;
(ix) The issue and sale of the Designated Securities
and the compliance by the Company with all of the provisions
of the Designated Securities, the Indenture, this Agreement
and the Pricing Agreement with respect to the Designated
Securities and the consummation of the transactions herein and
therein contemplated will not in any material respect conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument known to such counsel to which the Company or any
of its Material Subsidiaries is a party or by which the
Company or any of its Material Subsidiaries is bound or to
which any of the property or assets of the Company or any of
its Material Subsidiaries is subject, nor will such actions
result in any violation of the provisions of the Company's
Certificate of Incorporation or By-laws or any statute or any
order, rule or regulation known to such counsel of any court
or governmental agency or body having jurisdiction over the
Company or any of its Material Subsidiaries or any of their
properties;
(x) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale
of the Designated Securities or the consummation by the
Company of the transactions contemplated by this Agreement or
such Pricing Agreement or the Indenture, except such as have
been obtained under the Act and the Trust Indenture Act and
such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or
Blue Sky laws in connection with the purchase and distribution
of the Designated Securities by the Underwriters;
(xi) Neither the Company nor any of its Material
Subsidiaries is in violation of its Certificate of
Incorporation of By-laws or in default in the performance or
observance of any material obligation, covenant or condition
contained in any indenture, mortgage, deed of trust, loan
agreement, material lease or other material agreement or
instrument to which it is a party or by which it or any of its
properties may be bound;
(xii) The statements set forth in the Prospectus
under the caption "Description of Debt Securities" and
"Description of the Offered Securities", insofar as they
purport to constitute a summary of the terms of the
Securities, and under the caption "Plan of Distribution" and
"Underwriting", insofar as they purport to describe the
provisions of the laws and documents referred to therein, are
accurate and fair, and complete in all material respects;
(xiii) The Company is not and, after giving effect to
each offering and sale of the Securities, will not be an
"investment company" or an entity "controlled" by an
"investment company", as such terms are defined in the
Investment Company Act; and
(xiv) [RESERVED];
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<PAGE> 10
In rendering such opinion, such counsel may state that his
opinion is limited to the laws of the States of Ohio and New York and
the federal laws of the United States;
(d) White & Case LLP, or other counsel for the Company
satisfactory to the Representatives, shall have furnished to the
Representatives their written opinion, dated the Time of Delivery for
such Designated Securities, in form and substance satisfactory to the
Representatives, to the effect that:
(i) If the Prospectus includes a caption "United
States Tax Considerations", the statements set forth in the
Prospectus under such caption, insofar as they purport to
constitute a summary of the laws referred to therein, are both
accurate and complete in all material respects; and
(ii) The Registration Statement and the Prospectus as
amended or supplemented and any further amendments and
supplements thereto made by the Company prior to the Time of
Delivery for the Designated Securities (other than the
financial statements and related schedules and other financial
data included therein or omitted therefrom, and other than the
Trustee's Statement of Eligibility on Form T-1, as to which
such counsel need express no belief) comply as to form in all
material respects with the requirements of the Act and the
Trust Indenture Act and the rules and regulations thereunder;
although they do not assume any responsibility for the
accuracy, completeness or fairness of the statements contained
in the Registration Statement or the Prospectus, nothing has
come to such counsel's attention which causes them to believe
that, as of its effective date, the Registration Statement or
any further amendment thereto made by the Company prior to the
Time of Delivery (other than the financial statements and
related schedules and other financial data included therein or
omitted therefrom, and other than the Trustee's Statement of
Eligibility on Form T-1, as to which such counsel need express
no belief) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or
that, as of its date, the Prospectus as amended or
supplemented or any further amendment or supplement thereto
made by the Company prior to the Time of Delivery (other than
the financial statements and related schedules and other
financial data included therein or omitted therefrom, and
other than the Trustee's Statement of Eligibility on Form T-1,
as to which such counsel need express no belief) contained an
untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading or that, as of the Time of Delivery, either the
Registration Statement or the Prospectus as amended or
supplemented or any further amendment or supplement thereto
made by the Company prior to the Time of Delivery (other than
the financial statements and related schedules and other
financial data included therein or omitted therefrom, and
other than the Trustee's Statement of Eligibility on Form T-1,
as to which such counsel need express no belief) contains an
untrue statement of a material fact or omits to state a
material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading; and such counsel does not know of any amendment to
the Registration Statement required to be filed or any
contracts or other documents of a character required to be
filed as an exhibit to the Registration Statement or required
to be described in the
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<PAGE> 11
Registration Statement or the Prospectus as amended or
supplemented which are not filed or described as required;
(e) On the date of the Pricing Agreement for such Designated
Securities and at the Time of Delivery for such Designated Securities,
Ernst & Young LLP, the independent accountants of the Company who have
certified the financial statements of the Company and its subsidiaries
included in the Registration Statement, shall have furnished to the
Representatives a letter, dated the effective date of the Registration
Statement, and a letter dated such Time of Delivery, respectively, to
the effect set forth in Annex II hereto, and with respect to such
letter dated at such Time of Delivery, as to such other matters as the
Representatives may reasonably request and in form and substance
satisfactory to the Representatives;
(f) (i) The Company and its subsidiaries considered as a whole
shall not, since the date of the latest audited financial statements
included in the Prospectus as amended or supplemented, have sustained
any loss or interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus as
amended or supplemented, and (ii) since the respective dates as of
which information is given in the Prospectus as amended or supplemented
there shall not have been any change in the capital stock or long-term
debt of the Company and its subsidiaries considered as a whole or any
change, or any development involving a prospective change, in or
affecting the general affairs, management, financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries considered as a whole, otherwise than as set forth or
contemplated in the Prospectus as amended or supplemented, the effect
of which, in any such case described in Clause (i) or (ii), is in the
judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Designated Securities on the terms and in the manner
contemplated in the Prospectus as amended or supplemented;
(g) On or after the date of the Pricing Agreement relating to
the Designated Securities (i) no downgrading shall have occurred in the
rating accorded the Company's debt securities by any "nationally
recognized statistical rating organization," as that term is defined by
the Commission for purposes of Rule 436(g)(2) under the Act and (ii) no
such organization shall have publicly announced that it has under
surveillance or review, with possible negative implications, its rating
of any of the Company's debt securities;
(h) On or after the date of the Pricing Agreement relating to
the Designated Securities there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange; (ii) a suspension
or material limitation in trading in the Company's securities on the
New York Stock Exchange; (iii) a general moratorium on commercial
banking activities in New York declared by either Federal or New York
State authorities; or (iv) the outbreak or escalation of hostilities
involving the United States or the declaration by the United States of
a national emergency or war, if the effect of any such event specified
in this clause (iv) in the judgment of the Representatives makes it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Designated Securities on the terms and in the manner
contemplated in the Prospectus as amended or supplemented; and
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<PAGE> 12
(i) The Company shall have furnished or caused to be furnished
to the Representatives at the Time of Delivery for the Designated
Securities a certificate or certificates of officers of the Company
satisfactory to the Representatives as to the accuracy of the
representations and warranties of the Company herein at and as of such
Time of Delivery, as to the performance by the Company of all of its
obligations hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in subsections (a) and (f) of
this Section and as to such other matters as the Representatives may
reasonably request.
8. (a) The Company will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, any
preliminary prospectus supplement, the Registration Statement, the Prospectus as
amended or supplemented and any other prospectus relating to the Securities, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any Preliminary
Prospectus, any preliminary prospectus supplement, the Registration Statement,
the Prospectus as amended or supplemented and any other prospectus relating to
the Securities, or any such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
of Designated Securities through the Representatives expressly for use in the
Prospectus as amended or supplemented relating to such Securities.
(b) Each Underwriter will indemnify and hold harmless the
Company against any losses, claims, damages or liabilities to which the Company
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, any preliminary prospectus supplement,
the Registration Statement, the Prospectus as amended or supplemented and any
other prospectus relating to the Securities, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus, any preliminary
prospectus supplement, the Registration Statement, the Prospectus as amended or
supple mented and any other prospectus relating to the Securities, or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through the
Representatives expressly for use therein; and will reimburse the Company for
any legal or other expenses reasonably incurred by the Company in connection
with investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify
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<PAGE> 13
the indemnifying party in writing of the commencement thereof; but the omission
so to notify the indemnifying party shall not relieve it from any liability
which it may have to any indemnified party otherwise than under such subsection.
In case any such action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and, after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without giving prior written notice
to the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability
arising out of such action or claim and (ii) does not include a statement as to,
or an admission of, fault, culpability or a failure to act, by or on behalf of
any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
of the Designated Securities on the other from the offering of the Designated
Securities to which such loss, claim, damage or liability (or action in respect
thereof) relates. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the indemnified
party failed to give the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
the Underwriters of the Designated Securities on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and such Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from such offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by such Underwriters. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or such Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this subsection (d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in
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<PAGE> 14
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the applicable Designated Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The obligations of the Underwriters
of Designated Securities in this subsection (d) to contribute are several in
proportion to their respective underwriting obligations with respect to such
Securities and not joint.
(e) The obligations of the Company under this Section 8 shall
be in addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who controls
any Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to
purchase the Designated Securities which it has agreed to purchase under the
Pricing Agreement relating to such Designated Securities, the Representatives
may in their discretion arrange for themselves or another party or other parties
to purchase such Designated Securities on the terms contained herein. If within
thirty-six hours after such default by any Underwriter the Representatives do
not arrange for the purchase of such Designated Securities, then the Company
shall be entitled to a further period of thirty-six hours within which to
procure another party or other parties satisfactory to the Representatives to
purchase such Designated Securities on such terms. In the event that, within the
respective prescribed period, the Representatives notify the Company that they
have so arranged for the purchase of such Designated Securities, or the Company
notifies the Representatives that it has so arranged for the purchase of such
Designated Securities, the Representatives or the Company shall have the right
to postpone the Time of Delivery for such Designated Securities for a period of
not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus as amended or
supplemented, or in any other documents or arrangements, and the Company agrees
to file promptly any amendments or supplements to the Registration Statement or
the Prospectus which in the opinion of the Representatives may thereby be made
necessary. The term "Underwriter" as used in this Agreement shall include any
person substituted under this Section with like effect as if such person had
originally been a party to the Pricing Agreement with respect to such Designated
Securities.
(b) If, after giving effect to any arrangements for the
purchase of the Designated Securities of a defaulting Underwriter or
Underwriters by the Representatives and the Company as provided in subsection
(a) above, the aggregate principal amount of such Designated Securities which
remains unpurchased does not exceed one-eleventh of the aggregate principal
amount of the Designated Securities, then the Company shall have the right to
require each non-defaulting Underwriter to purchase the principal amount of
Designated Securities which such Underwriter agreed to purchase under the
Pricing Agreement relating to such Designated Securities and, in addition, to
require each non-defaulting Underwriter to purchase its pro rata share (based on
the principal amount of the Designated Securities which such Underwriter agreed
to purchase under such Pricing Agreement) of the Designated Securities of such
defaulting Underwriter or Underwriters for which such arrangements have
14
<PAGE> 15
not been made; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
(c) If, after giving effect to any arrangements for the
purchase of the Designated Securities of a defaulting Underwriter or
Underwriters by the Representatives and the Company as provided in subsection
(a) above, the aggregate principal amount of Designated Securities which remains
unpurchased exceeds one-eleventh of the aggregate principal amount of the
Designated Securities, as referred to in subsection (b) above, or if the Company
shall not exercise the right described in subsection (b) above to require
non-defaulting Underwriters to purchase Designated Securities of a defaulting
Underwriter or Underwriters, then the Pricing Agreement relating to such
Designated Securities shall thereupon terminate, without liability on the part
of any non-defaulting Underwriter or the Company, except for the expenses to be
borne by the Company and the Underwriters as provided in Section 6 hereof and
the indemnity and contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Company and the several Underwriters, as
set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation (or any statement as to the results thereof) made by or on
behalf of any Underwriter or any controlling person of any Underwriter, or the
Company, or any officer or director or controlling person of the Company, and
shall survive delivery of and payment for the Securities.
11. If any Pricing Agreement shall be terminated pursuant to
Section 9 hereof, the Company shall not then be under any liability to any
Underwriter with respect to the Designated Securities covered by such Pricing
Agreement except as provided in Section 6 and Section 8 hereof; but, if for any
other reason Designated Securities are not delivered by or on behalf of the
Company as provided herein, the Company will reimburse the Underwriters through
the Representatives for all out-of-pocket expenses approved in writing by the
Representatives, including fees and disbursements of counsel, reasonably
incurred by the Underwriters in making preparations for the purchase, sale and
delivery of such Designated Securities, but the Company shall then be under no
further liability to any Underwriter with respect to such Designated Securities
except as provided in Section 6 and Section 8 hereof.
12. In all dealings hereunder, the Representatives of the
Underwriters of Designated Securities shall act on behalf of each of such
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by such Representatives jointly or by such of the Representatives, if any,
as may be designated for such purpose in the Pricing Agreement.
All statements, requests, notices and agreements hereunder
shall be in writing, and if to the Underwriters shall be delivered or sent by
mail, telex or facsimile transmission to the address of the Representatives as
set forth in the Pricing Agreement; and if to the Company shall be delivered or
sent by mail, telex or facsimile transmission to the address of the Company set
forth in the Registration Statement: Attention: Secretary; provided, however,
that any notice to an Underwriter pursuant to Section 8(c) hereof shall be
delivered or sent by mail, telex or facsimile transmission to such Underwriter
at its address set forth in its Underwriters' Questionnaire, or telex
constituting such Questionnaire, which address will be supplied to the Company
by the Representatives upon request. Any such statements, requests, notices or
agreements shall take effect upon receipt thereof.
15
<PAGE> 16
13. This Agreement and each Pricing Agreement shall be binding
upon, and inure solely to the benefit of, the Underwriters, the Company and, to
the extent provided in Section 8 and Section 10 hereof, the officers and
directors of the Company and each person who controls the Company or any
Underwriter, and their respective heirs, executors, administrators, successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement or any such Pricing Agreement. No purchaser of any of
the Securities from any Underwriter shall be deemed a successor or assign by
reason merely of such purchase.
14. Time shall be of the essence of each Pricing Agreement. As
used herein, "business day" shall mean any day when the Commission's office in
Washington, D.C.
is open for business.
15. THIS AGREEMENT AND EACH PRICING AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement and each Pricing Agreement may be executed
by any one or more of the parties hereto and thereto in any number of
counterparts, each of which shall be deemed to be an original, but all such
respective counterparts shall together constitute one and the same instrument.
16
<PAGE> 17
If the foregoing is in accordance with your understanding,
please sign and return to us four counterparts hereof.
Very truly yours,
THE B.F.GOODRICH COMPANY
By:.................................
Name:
Title:
Accepted as of the date hereof:
............................................
(Goldman, Sachs & Co.)
17
<PAGE> 18
ANNEX I
PRICING AGREEMENT
Goldman, Sachs & Co.,
[Names of Co-Representative(s)]
As Representatives of the several
Underwriters named in Schedule I hereto,
85 Broad Street,
New York, New York 10004.
. . . . . . . . . . . . . ., 19..
Dear Sirs:
The B.F.Goodrich Company, a New York corporation (the
"Company"), proposes, subject to the terms and conditions stated herein and in
the Underwriting Agreement, dated ........, 1998 (the "Underwriting Agreement"),
between the Company on the one hand and Goldman, Sachs & Co. on the other hand,
to issue and sell to the Underwriters named in Schedule I hereto (the
"Underwriters") the Securities specified in Schedule II hereto (the "Designated
Securities"). Each of the provisions of the Underwriting Agreement is
incorporated herein by reference in its entirety, and shall be deemed to be a
part of this Agreement to the same extent as if such provisions had been set
forth in full herein; and each of the representations and warranties set forth
therein shall be deemed to have been made at and as of the date of this Pricing
Agreement, except that each representation and warranty which refers to the
Prospectus in Section 2 of the Underwriting Agreement shall be deemed to be a
representation or warranty as of the date of the Underwriting Agreement in
relation to the Prospectus (as therein defined), and also a representation and
warranty as of the date of this Pricing Agreement in relation to the Prospectus
as amended or supplemented relating to the Designated Securities which are the
subject of this Pricing Agreement. Each reference to the Representatives herein
and in the provisions of the Underwriting Agreement so incorporated by reference
shall be deemed to refer to you. Unless otherwise defined herein, terms defined
in the Underwriting Agreement are used herein as therein defined. The
Representatives designated to act on behalf of the Representatives and on behalf
of each of the Underwriters of the Designated Securities pursuant to Section 12
of the Underwriting Agreement and the address of the Representatives referred to
in such Section 12 are set forth at the end of Schedule II hereto.
An amendment to the Registration Statement, or a supplement to
the Prospectus, as the case may be, relating to the Designated Securities, in
the form heretofore delivered to you is now proposed to be filed with the
Commission.
Subject to the terms and conditions set forth herein and in
the Underwriting Agreement incorporated herein by reference, the Company agrees
to issue and sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company, at the time and
place and at the purchase price to the Underwriters set forth in Schedule II
hereto, the principal amount of Designated Securities set forth opposite the
name of such Underwriter in Schedule I hereto.
<PAGE> 19
If the foregoing is in accordance with your understanding,
please sign and return to us ........ counterparts hereof, and upon acceptance
hereof by you, on behalf of each of the Underwriters, this letter and such
acceptance hereof, including the provisions of the Under writing Agreement
incorporated herein by reference, shall constitute a binding agreement between
each of the Underwriters and the Company. It is understood that your acceptance
of this letter on behalf of each of the Underwriters is or will be pursuant to
the authority set forth in a form of Agreement among Underwriters, the form of
which shall be submitted to the Company for examination upon request, but
without warranty on the part of the Representa tives as to the authority of the
signers thereof.
Very truly yours,
The B.F.Goodrich Company
By:....................................
Name:
Title:
Accepted as of the date hereof:
[Goldman, Sachs & Co.
Names of Co-Representative(s)]
[By:]........................................
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
-2-
<PAGE> 20
SCHEDULE I
PRINCIPAL
AMOUNT OF
DESIGNATED
SECURITIES
TO BE
UNDERWRITER PURCHASED
Goldman, Sachs & Co. ...................................... $
[Names of Co-Representative(s)]............................
[Names of other Underwiters]. .............................
-------------
Total.................................. $
=============
-3-
<PAGE> 21
SCHEDULE II
TITLE OF DESIGNATED SECURITIES:
[ %] [Floating Rate] [Zero Coupon] [Notes]
[Debentures] due
AGGREGATE PRINCIPAL AMOUNT:
[$]
PRICE TO PUBLIC:
__% of the principal amount of the Designated
Securities, plus accrued interest from to
[and accrued amortization, if any, from to ]
PURCHASE PRICE BY UNDERWRITERS:
__% of the principal amount of the Designated
Securities, plus accrued interest from to
[and accrued amortization, if any, from to ]
SPECIFIED FUNDS FOR PAYMENT OF PURCHASE PRICE:
[New York] Clearing House funds
INDENTURE:
Indenture dated , 19 , between the Company
and , as Trustee
MATURITY:
INTEREST RATE:
[ %] [Zero Coupon] [See Floating Rate Provisions]
INTEREST PAYMENT DATES:
[months and dates]
REDEMPTION PROVISIONS:
[No provisions for redemption]
[The Designated Securities may be redeemed, otherwise
than through the sinking fund, in whole or in part at the option of the
Company, in the amount of [$] or an integral multiple thereof,
[on or after , at the following redemption prices
(expressed in percentages of principal amount). If [redeemed on or
before , %, and if] redeemed during the 12-
month period beginning ,
-4-
<PAGE> 22
REDEMPTION
YEAR PRICE
and thereafter at 100% of their principal amount, together in each case
with accrued interest to the redemption date.]
[on any interest payment date falling in or after , , at the election
of the Company, at a redemption price equal to the principal amount thereof,
plus accrued interest to the date of redemption.]
[Other possible redemption provisions, such as mandatory redemption upon
occurrence of certain events or redemption for changes in tax law]
[Restriction on refunding]
SINKING FUND PROVISIONS:
[No sinking fund provisions]
[The Designated Securities are entitled to the benefit of a sinking fund to
retire [$] principal amount of Designated Securities on in each of
the years through at 100% of their principal amount plus accrued
interest][,together with [cumulative] [noncumulative] redemptions at the
option of the Company to retire an additional [$] principal amount of
Designated Securities in the years through at 100% of their
principal amount plus accrued interest].
[If Securities are extendable debt Securities, insert--
EXTENDABLE PROVISIONS:
Securities are repayable on , [insert date and years], at the option
of the holder, at their principal amount with accrued interest. Initial
annual interest rate will be %, and thereafter annual interest rate will be
adjusted on , and to a rate not less than % of the effective
annual interest rate on U.S. Treasury obligations with -year
maturities as of the [insert date 15 days prior to maturity date] prior to
such [insert maturity date].]
[If Securities are Floating Rate debt Securities, insert--
FLOATING RATE PROVISIONS:
Initial annual interest rate will be % through and thereafter will be
adjusted [monthly] [on each , , ________________ and ] [to an
annual rate of % above the average rate for -year [month] [securities]
[certificates of deposit] issued by and [insert names of banks].]
[and the annual interest rate [thereafter] [from through ] will be
the interest yield equivalent of the weekly average per annum market
discount rate for -month Treasury bills plus % of Interest Differential
(the excess, if any, of (i) then current weekly average per annum secondary
market yield for -month certificates of deposit over (ii) then current
interest yield equivalent of the weekly
-5-
<PAGE> 23
average per annum market discount rate for -month Treasury bills);
[from and thereafter the rate will be the then current interest yield
equivalent plus % of Interest Differential].]
DEFEASANCE PROVISIONS:
TIME OF DELIVERY:
CLOSING LOCATION:
NAMES AND ADDRESSES OF REPRESENTATIVES:
Designated Representatives:
Address for Notices, etc.:
[OTHER TERMS]*:
- --------
* A description of particular tax, accounting or other unusual features (such
as the addition of event risk provisions) of the Securities should be set
forth, or referenced to an attached and accompanying description, if
necessary to ensure agreement as to the terms of the Securities to be
purchased and sold. Such a description might appropriately be in the form in
which such features will be described in the Prospectus Supplement for the
offering.
-6-
<PAGE> 24
ANNEX II
Pursuant to Section 7(e) of the Underwriting Agreement, Ernst & Young
LLP shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, prospective
financial statements and/or pro forma financial information) examined by
them and included in the Registration Statement or the Prospectus comply as
to form in all material respects with the applicable accounting requirements
of the Act, and the related published rules and regulations thereunder; and,
if applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of the
consolidated interim financial statements, selected financial data, pro
forma financial information and/or condensed financial statement derived
from audited financial statements of the Company for the periods specified
in such letter, as indicated in their reports thereon, copies of which have
been separately furnished to the Representatives;
(iii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the Prospectus as
indicated in their reports thereon copies of which have been separately
furnished to the Representatives; and on the basis of specified procedures
including inquiries of officials of the Company who have responsibility for
financial and accounting matters regarding whether the unaudited condensed
consolidated financial statement referred to in paragraph (vi)(A)(i) below
comply as to form in all material respects with the applicable accounting
requirements of the Act and the Exchange Act and the related published rules
and regulations, nothing came to their attention that caused them to believe
that the unaudited condensed consolidated financial statements do not comply
as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations;
(iv) Subject to the introductory paragraphs appearing under the caption
"Selected Consolidated Financial Data" in the Registration Statement, the
unaudited selected financial information with respect to the consolidated
results of operations and financial position of the Company for the five
most recent fiscal years included in the Prospectus and included or
incorporated by reference in Item 6 of the Company's Annual Report on Form
10-K for the most recent fiscal year agrees with the corresponding amounts
(after restatement where applicable) in the audited consolidated financial
statements for the five such fiscal years which were included or
incorporated by reference in the Company's Annual Reports on Form 10-K for
such fiscal years;
(v) They have compared the information in the Prospectus under the
selected captions with the disclosure requirements of Regulation S-K and on
the basis of limited procedures specified in such letter nothing came to
their attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects with
the disclosure requirements of Items 301, 302, 402 and 503(d), respectively,
of Regulation S-K;
F-1
<PAGE> 25
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included in the Prospectus, inquiries of
officials of the Company and its subsidiaries respon sible for financial and
accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A)(i) the unaudited condensed consolidated statements of
income, consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Exchange Act and the related published rules and regulations, or (ii)
any material modifications should be made to the unaudited condensed
consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the Prospectus for
them to be in conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial statements
from which such data and items were derived, and any such unaudited
data and items were not determined on a basis substantially consistent
with the basis for the corresponding amounts in the audited
consolidated financial statements included or incorporated by reference
in the Company's Annual Report on Form 10-K for the most recent fiscal
year;
(C) the unaudited financial statements which were not included
in the Prospectus but from which were derived the unaudited condensed
financial statements referred to in Clause (A) and any unaudited income
statement data and balance sheet items included in the Prospectus and
referred to in Clause (B) were not determined on a basis substantially
consistent with the basis for the audited financial statements included
or incorporated by reference in the Company's Annual Report on Form
10-K for the most recent fiscal year;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical amounts in
the compilation of those statements;
(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock upon
exercise of options and stock appreciation rights, upon earn-outs of
performance shares and upon conversions of convertible securities, in
each case which were outstanding on the date of the latest balance
sheet included in the Prospectus) or any increases in consolidated
long-term debt of the Company and its subsidiaries, or any decreases in
consolidated net current assets or net assets or other items specified
by the Representatives, or any increases in any items specified by the
Representatives, in each case as compared with amounts shown in the
latest balance sheet included in the Prospectus, except in each case
for changes, increases or
F-2
<PAGE> 26
decreases which the Prospectus discloses have occurred or may occur
or which are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred to
in Clause (E) there were any decreases in consolidated net revenues or
operating profit or the total or per share amounts of consolidated net
income or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case
as compared with the comparable period of the preceding year and with
any other period of corresponding length specified by the
Representatives, except in each case for increases or decreases which
the Prospectus discloses have occurred or may occur or which are
described in such letter; and
(vii) In addition to the audit referred to in their report(s) included
in the Prospectus and the limited procedures, inspection of minute books,
inquiries and other procedures referred to in paragraphs (iii) and (iv)
above, they have carried out certain specified procedures, not constituting
an examination in accordance with generally accepted auditing standards,
with respect to certain amounts, percentages and financial information
specified by the Representatives which are derived from the general
accounting records of the Company and its subsidiaries, which appear in the
Prospectus, or in Part II of, or in exhibits and schedules to, the
Registration Statement specified by the Representatives, and have compared
certain of such amounts, percentages and financial information with the
accounting records of the Company and its subsidiaries and have found them
to be in agreement.
All references in this Annex II to the Prospectus shall be deemed to
refer to the Prospectus as defined in the Underwriting Agreement as of the date
of the letter delivered on the date of the Pricing Agreement for purposes of
such letter and to the Prospectus as amended or supplemented in relation to the
applicable Designated Securities for purposes of the letter delivered at the
Time of Delivery for such Designated Securities.
F-3
<PAGE> 1
Exhibit 1B
THE B.F.GOODRICH COMPANY
$200,000,000
Medium-Term Notes, Series A
SECOND AMENDED AND RESTATED DISTRIBUTION AGREEMENT
--------------------------------------------------
, 1998
-----------
Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Citicorp Securities, Inc.,
399 Park Avenue,
New York, New York 10043.
J.P. Morgan Securities Inc.,
60 Wall Street,
New York, New York 10260.
Morgan Stanley & Co. Incorporated,
1585 Broadway,
New York, New York 10036.
NationsBanc Montgomery Securities LLC,
NationsBank Corporate Center,
Charlotte, North Carolina 28255.
Ladies and Gentlemen:
The B.F.Goodrich Company, a New York corporation (the
"Company"), proposes to issue and sell from time to time its Medium-Term Notes,
Series A (the "Securities") in an aggregate amount up to $200,000,000 and agrees
with each of you (individually, an "Agent", and collectively, the "Agents") as
set forth in this Agreement.
Subject to the terms and conditions stated herein and to the
reservation by the Company of the right to sell Securities directly on its own
behalf, the Company hereby (i) appoints each Agent as an agent of the Company
for the purpose of soliciting and receiving offers to purchase Securities from
the Company pursuant to Section 2(a) hereof and (ii) agrees that, except as
otherwise contemplated herein, whenever it determines to sell Securities
directly to any Agent as principal, it will enter
<PAGE> 2
into a separate agreement (each a "Terms Agreement"), substantially in the form
of Annex I hereto, relating to such sale in accordance with Section 2(b) hereof.
This Agreement shall not be construed to create either an obligation on the part
of the Company to sell any Securities or an obligation of any of the Agents to
purchase any Securities as principal.
The Securities will be issued under an indenture, dated as of
May 1, 1991 (the "Indenture"), between the Company and Harris Trust and Savings
Bank, as Trustee (the "Trustee"). The Securities shall have the maturity ranges,
interest rates, if any, redemption provisions and other terms set forth in the
Prospectus referred to below as it may be amended or supplemented from time to
time. The Securities will be issued, and the terms and rights thereof
established, from time to time by the Company in accordance with the Indenture.
1. The Company represents and warrants to, and agrees with,
each Agent that:
(a) A registration statement on Form S-1 (File No.
333-_______) in respect of debt securities of the Company, including
the Securities, has been filed with the Securities and Exchange
Commission (the "Commission"); such registration statement and any
post-effective amendment thereto, each in the form heretofore delivered
or to be delivered to such Agent, excluding exhibits to such
registration statement, have been declared effective by the Commission
in such form; no other document with respect to such registration
statement has heretofore been filed or transmitted for filing with the
Commission (other than the prospectuses filed pursuant to Rule 424(b)
of the rules and regulations of the Commission under the Securities Act
of 1933, as amended (the "Act"), each in the form heretofore delivered
to the Agents); and no stop order suspending the effectiveness of such
registration statement has been issued and no proceeding for that
purpose has been initiated or threatened by the Commission; such
registration statement, including all exhibits thereto at the time such
registration statement became effective but excluding Form T-1, as
amended at the time such registration statement became effective, is
hereinafter collectively called the "Registration Statement"; the
prospectus (including, if applicable, any prospectus supplement)
relating to the Securities, in the form in which it has most recently
been filed, or transmitted for filing, with the Commission on or prior
to the date of this Agreement, is hereinafter called the "Prospectus"
and any preliminary prospectus included in such registration statement
or filed with the Commission pursuant to Rule 424(a) of the rules and
regulations of the Commission under the Act, is hereinafter called a
"Preliminary Prospectus"; and any reference to the Prospectus as
amended or supplemented shall be deemed to refer to and include the
Prospectus as amended or supplemented (including by the applicable
Pricing Supplement (as defined below) filed in accordance with Section
4(a) hereof) in relation to Securities sold pursuant to this Agreement,
in the form filed or transmitted for
-2-
<PAGE> 3
filing with the Commission pursuant to Rule 424(b) under the Act
and in accordance with Section 4(a) hereof);
(b) [RESERVED]
(c) The Registration Statement and the Prospectus conform, and
any further amendments or supplements to the Registration Statement or
the Prospectus will conform, in all material respects, to the
requirements of the Act and the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), and the rules and regulations of the
Commission thereunder and do not and will not, as of the applicable
effective date as to the Registration Statement and any amendment
thereto and as of the applicable filing date as to the Prospectus and
any amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
PROVIDED, HOWEVER, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by any
Agent expressly for use in the Prospectus as amended or supplemented to
relate to a particular issuance of Securities;
(d) The Company and its subsidiaries considered as a whole
have not, since the date of the latest audited financial statements
included in the Prospectus, sustained any material loss or interference
with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court
or governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock or
long-term debt of the Company and its subsidiaries considered as a
whole or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general
affairs, management, financial position, shareholders' equity or
results of operations of the Company and its subsidiaries considered as
a whole, otherwise than as set forth or contemplated in the Prospectus;
(e) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of New York and has been duly qualified as a foreign corporation for
the transaction of business and is in good standing under the laws of
each other jurisdiction in which it owns or leases properties, or
conducts any business in an amount that is material to the business of
the Company and its consolidated subsidiaries considered as a whole so
as to require such qualification; each Material Subsidiary (as defined
below) of the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and is duly qualified as a foreign
corporation for the transaction of business and in good standing under
the laws of each other jurisdiction in which it owns or
-3-
<PAGE> 4
leases properties, or conducts any business, so as to require such
qualification (as used in this agreement, the term "Material
Subsidiary" means a subsidiary of the Company which is a significant
subsidiary under Rule 1-02 of Regulation S-X of the Commission);
(f) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued and are fully
paid and non-assessable;
(g) The Securities have been duly authorized, and, when
executed, authenticated, issued and delivered pursuant to this
Agreement and any Terms Agreement, will have been duly executed,
authenticated, issued and delivered and will constitute valid and
legally binding obligations of the Company entitled to the benefits
provided by the Indenture, which will be substantially in the form
filed as an exhibit to the Registration Statement; the Indenture has
been duly authorized and duly qualified under the Trust Indenture Act
and constitutes a valid and legally binding instrument, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles; and the Indenture conforms, and the Securities of any
particular issuance of Securities will conform, in all material
respects, to the descriptions thereof in the Prospectus as amended or
supplemented to relate to such issuance of Securities;
(h) The issue and sale of the Securities, the compliance by
the Company with the provisions of the Securities, the Indenture, this
Agreement and any Terms Agreement, and the consummation of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of,
or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or
any of its Material Subsidiaries is a party or by which the Company or
any of its Material Subsidiaries is bound or to which any of the
property or assets of the Company or any of its Material Subsidiaries
is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation, as amended, or the
By-Laws of the Company or any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over
the Company or any of its Material Subsidiaries or any of their
properties; and no consent, approval, authorization, order,
registration or qualification of or with any court or governmental
agency or body is required for the solicitation of offers to purchase
Securities, the issue and sale of the Securities or the consummation by
the Company of the other transactions contemplated by this Agreement,
any Terms Agreement or the Indenture, except such as have been, or will
have been prior to the Commencement Date (as defined in Section 3
hereof), obtained under the Act or the Trust Indenture Act and such
consents, approvals, authorizations, registrations or qualifications
-4-
<PAGE> 5
as may be required under state securities or Blue Sky laws in
connection with the solicitation by the Agents of offers to purchase
Securities from the Company and with purchases of Securities by any
Agent as principal, as the case may be, in each case in the manner
contemplated hereby;
(i) Neither the Company nor any of its Material Subsidiaries
is in violation of its Certificate of Incorporation or By-Laws or in
default in the performance or observance of any material obligation,
covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, material lease or other material agreement or
instrument to which it is a party or by which it or any of its
properties may be bound;
(j) The statements set forth in the Prospectus under the
caption "Description of Debt Securities" and "Description of Notes",
insofar as they purport to constitute a summary of the terms of the
Securities, and under the caption "Plan of Distribution", insofar as
they purport to describe the provisions of the laws and documents
referred to therein, are accurate, complete and fair, and the
statements set forth in the Prospectus under the caption "United States
Tax Considerations", insofar as they purport to constitute a summary of
the laws referred to therein, are both accurate and complete in all
material respects;
(k) Other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any
of its subsidiaries is a party or to which any property of the Company
or any of its subsidiaries is subject, other than litigation which, in
the opinion of the Company, will not individually or in the aggregate
have a material adverse effect on the current or future consolidated
financial position, shareholders' equity or results of operations of
the Company and its subsidiaries considered as a whole, and, to the
best of the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(l) The Company is not and, after giving effect to each
offering and sale of the Securities, will not be an "investment
company" or an entity "controlled" by an "investment company", as such
terms are defined in the Investment Company Act of 1940, as amended
(the "Investment Company Act");
(m) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida
Statutes;
(n) Immediately after any sale of Securities by the Company
hereunder or under any Terms Agreement, the aggregate amount of
Securities which shall have been issued and sold by the Company
hereunder or under any Terms Agreement and of any debt securities of
the Company (other than such
-5-
<PAGE> 6
Securities) that shall have been issued and sold pursuant to the
Registration Statement will not exceed the amount of debt securities
registered under the Registration Statement; and
(o) Ernst & Young LLP, who have certified certain financial
statements of the Company and its subsidiaries, are, to the best
knowledge of the Company, independent public accountants as required by
the Act and the rules and regulations of the Commissions thereunder.
2. (a) On the basis of the representations and warranties, and
subject to the terms and conditions herein set forth, each of the Agents hereby
severally and not jointly agrees, as agent of the Company, to use its reasonable
best efforts to solicit and receive offers to purchase the Securities from the
Company upon the terms and conditions set forth in the Prospectus as amended or
supplemented from time to time. So long as this Agreement shall remain in effect
with respect to any Agent, the Company shall not, without the consent of such
Agent, solicit or accept offers to purchase, or sell, any debt securities with a
maturity at the time of original issuance of more than 9 months except pursuant
to this Agreement, any Terms Agreement or except pursuant to a private placement
not constituting a public offering under the Act or except in connection with a
firm commitment underwriting pursuant to an underwriting agreement that does not
provide for a continuous offering of medium-term debt securities. However, the
Company reserves the right to sell, and may solicit and accept offers to
purchase, Securities directly on its own behalf in transactions with persons
other than broker-dealers, and, in the case of any such sale not resulting from
a solicitation made by any Agent, no commission will be payable with respect to
such sale. These provisions shall not limit Section 4(f) hereof or any similar
provision included in any Terms Agreement.
Procedural details relating to the issue and delivery of
Securities, the solicitation of offers to purchase Securities and the payment in
each case therefor shall be as set forth in the Administrative Procedure
attached hereto as Annex II as it may be amended from time to time by written
agreement between the Agents and the Company (the "Administrative Procedure").
The provisions of the Administrative Procedure shall apply to all transactions
contemplated hereunder other than those made pursuant to a Terms Agreement. Each
Agent and the Company agree to perform the respective duties and obligations
specifically provided to be performed by each of them in the Administrative
Procedure. The Company will furnish to the Trustee a copy of the Administrative
Procedure as from time to time in effect.
The Company reserves the right, in its sole discretion, to
instruct the Agents to suspend at any time, for any period of time or
permanently, the solicitation of offers to purchase the Securities. As soon as
practical, but in any event not later than one business day in New York City,
after receipt of notice from the Company, the Agents will suspend solicitation
of offers to purchase Securities from the Company until such time as the Company
has advised the Agents that such solicitation may be resumed. During such
period, the Company shall not be required to comply with the
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<PAGE> 7
provisions of Sections 4(h), 4(i), 4(j) and 4(k). Upon advising the Agents that
such solicitation may be resumed, however, the Company shall simultaneously
provide the documents required to be delivered by Sections 4(h), 4(i), 4(j) and
4(k), and the Agents shall have no obligation to solicit offers to purchase the
Securities until such documents have been received by the Agents. In addition,
any failure by the Company to comply with its obligations hereunder, including
without limitation its obligations to deliver the documents required by Sections
4(h), 4(i), 4(j) and 4(k), shall automatically terminate the Agents' obligations
hereunder, including without limitation their obligations to solicit offers to
purchase the Securities hereunder as agent or to purchase Securities hereunder
as principal.
The Company may authorize any other firm (an "Additional
Agent") to act as its agent to solicit offers for the purchase of Securities
upon 24 hours' prior notice to such Agents as are at the time parties to this
Agreement. Each Additional Agent shall execute a copy of this Agreement and
become a party hereto. From and after the time such Additional Agent shall have
executed a copy of this Agreement, the term "Agent" as used in this Agreement
shall mean the Agent and Additional Agent.
The Company agrees to pay each Agent a commission, at the time
of settlement of any sale of a Security by the Company as a result of a
solicitation made by such Agent, in an amount equal to the following applicable
percentage of the principal amount of such Security sold:
<TABLE>
<CAPTION>
Commission
(percentage of
aggregate
principal amount
Range of Maturities of Securities sold)
------------------- -------------------
<S> <C>
From 9 months to less than 1 year .125%
From 1 year to less than 18 months .150%
From 18 months to less than 2 years .200%
From 2 years to less than 3 years .250%
From 3 years to less than 4 years .350%
From 4 years to less than 5 years .450%
From 5 years to less than 6 years .500%
From 6 years to less than 7 years .550%
From 7 years to less than 10 years .600%
From 10 years to less than 15 years .625%
From 15 years to less than 20 years .675%
From 20 years to 30 years .750%
From more than 30 years to less than 50 years .875%
50 years and more 1.000%
</TABLE>
-7-
<PAGE> 8
(b) Each sale of Securities to any Agent as principal shall be
made in accordance with the terms of this Agreement and (unless the Company and
such Agent shall otherwise agree) a Terms Agreement which will provide for the
sale of such Securities to, and the purchase thereof by, such Agent; a Terms
Agreement may also specify certain provisions relating to the reoffering of such
Securities by such Agent; the commitment of any Agent to purchase Securities as
principal, whether pursuant to any Terms Agreement or otherwise, shall be deemed
to have been made on the basis of the representations and warranties of the
Company herein contained and shall be subject to the terms and conditions herein
set forth; each Terms Agreement shall specify the principal amount of Securities
to be purchased by any Agent pursuant thereto, the price to be paid to the
Company for such Securities, any provisions relating to rights of, and default
by, underwriters acting together with such Agent in the reoffering of the
Securities and the time and date and place of delivery of and payment for such
Securities; and such Terms Agreement shall also specify any requirements for
opinions of counsel, accountants' letters and officers' certificates pursuant to
Section 4 hereof. Each Agent proposes to offer the Securities purchased by it as
principal for sale at prevailing market prices or prices related thereto at the
time of sale, which may be equal to, greater than or less than the price at
which such Securities are purchased by such Agent from the Company.
For each sale of Securities to an Agent as principal that is
not made pursuant to a Terms Agreement, the procedural details relating to the
issue and delivery of such Securities and payment therefor shall be as set forth
in the Administrative Procedure. For each such sale of Securities to an Agent as
principal that is not made pursuant to a Terms Agreement, the Company agrees to
pay such Agent a commission (or grant an equivalent discount) as provided in
Section 2(a) hereof and in accordance with the schedule set forth therein.
Each time and date of delivery of and payment for Securities
to be purchased by an Agent as principal, whether set forth in a Terms Agreement
or in accordance with the Administrative Procedure, is referred to herein as a
"Time of Delivery".
3. The documents required to be delivered pursuant to Section
6 hereof on the Commencement Date (as defined below) shall be delivered to the
Agents at the offices of Sullivan & Cromwell, 1701 Pennsylvania Ave., N.W.,
Washington, D.C., at 11:00 a.m., Washington, D.C. time, on the date of this
Agreement, which date and time of such delivery may be postponed by agreement
between the Agents and the Company but in no event shall be later than the day
prior to the date on which solicitation of offers to purchase Securities is
commenced or on which any Terms Agreement is executed (such time and date being
referred to herein as the "Commencement Date").
-8-
<PAGE> 9
4. The Company covenants and agrees with each Agent:
(a) (i) To make no amendment or supplement to the Registration
Statement or the Prospectus (A) prior to the Commencement Date which
shall be disapproved by any Agent promptly after reasonable notice
thereof or (B) after the date of any Terms Agreement or other agreement
by an Agent to purchase Securities as principal and prior to the
related Time of Delivery which shall be disapproved by any Agent party
to such Terms Agreement or so purchasing as principal promptly after
reasonable notice thereof; (ii) to prepare, with respect to any
Securities to be sold through or to such Agent pursuant to this
Agreement, a supplement to the Prospectus setting forth only the terms
of a particular issue of the Securities (a "Pricing Supplement") with
respect to such Securities in a form previously approved by such Agent
and to file such Pricing Supplement pursuant to Rule 424(b)(3) under
the Act not later than the close of business of the Commission on the
fifth business day after the date on which such Pricing Supplement is
first used; (iii) to make no amendment or supplement to the
Registration Statement or Prospectus, other than any Pricing Supplement
and other than any prospectus supplement relating solely to securities
other than the Securities, at any time prior to having afforded each
Agent a reasonable opportunity to review and comment thereon; (iv) to
file promptly all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") for so long as
the delivery of a prospectus is required in connection with the
offering or sale of the Securities, and during such same period to
advise such Agent, promptly after the Company receives notice thereof,
of the time when any amendment to the Registration Statement has been
filed or has become effective or any supplement to the Prospectus or
any amended Prospectus (other than any Pricing Supplement that relates
to Securities not purchased through or by such Agent and other than any
prospectus supplement relating solely to securities other than the
Securities) has been filed with the Commission, of the issuance by the
Commission of any stop order or of any order preventing or suspending
the use of any prospectus relating to the Securities, of the suspension
of the qualification of the Securities for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for
any such purpose, or of any request by the Commission for the amendment
or supplement of the Registration Statement or Prospectus or for
additional information; and (v) in the event of the issuance of any
such stop order or of any such order preventing or suspending the use
of any such prospectus or suspending any such qualification, to use
promptly its best efforts to obtain its withdrawal;
(b) Promptly from time to time to take such action as such
Agent reasonably may request to qualify the Securities for offering and
sale under the securities laws of such jurisdictions in the United
States as such Agent may request and to comply with such laws so as to
permit the continuance of sales
-9-
<PAGE> 10
and dealings therein for as long as may be necessary to complete the
distribution or sale of the Securities; PROVIDED, HOWEVER, that in
connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process
in any jurisdiction;
(c) To furnish such Agent with copies of the Registration
Statement and each amendment thereto, with copies of the Prospectus as
each time amended or supplemented, other than any Pricing Supplement
(except as provided in the Administrative Procedure), in the form in
which it is filed with the Commission pursuant to Rule 424 under the
Act, all in such quantities as such Agent may reasonably request from
time to time; and, if the delivery of a prospectus is required at any
time in connection with the offering or sale of the Securities
(including Securities purchased from the Company by such Agent as
principal) and if at such time any event shall have occurred as a
result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such
Prospectus is delivered, not misleading, or, if for any other reason it
shall be necessary during such same period to amend or supplement the
Prospectus in order to comply with the Act or the Trust Indenture Act,
to notify such Agent and request such Agent, in its capacity as agent
of the Company, to suspend solicitation of offers to purchase
Securities from the Company (and, if so notified, such Agent shall
cease such solicitations as soon as practicable, but in any event not
later than one business later); and if the Company shall decide to
amend or supplement the Registration Statement or the Prospectus as
then amended or supplemented, to so advise such Agent promptly by
telephone (with confirmation in writing) and to prepare and cause to be
filed promptly with the Commission an amendment or supplement to the
Registration Statement or the Prospectus as then amended or
supplemented that will correct such statement or omission or effect
such compliance; PROVIDED, HOWEVER, that if during such same period
such Agent continues to own Securities purchased from the Company by
such Agent as principal or such Agent is otherwise required to deliver
a prospectus in respect of transactions in the Securities, the Company
shall promptly prepare and file with the Commission such an amendment
or supplement;
(d) To make generally available to its security holders as
soon as practicable, but in any event not later than eighteen months
after the effective date of the Registration Statement (as defined in
Rule 158(c) under the Act), an earning statement of the Company and its
consolidated subsidiaries (which need not be audited) complying with
Section 11(a) of the Act and the rules and regulations of the
Commission thereunder (including, at the option of the Company, Rule
158);
(e) So long as Securities are outstanding, to furnish to such
Agent copies of all reports or other communications (financial or
other) furnished to
-10-
<PAGE> 11
shareholders, and deliver to such Agent (i) as soon as they are
available, copies of any reports and financial statements furnished to
or filed with the Commission or any national securities exchange on
which any class of securities of the Company is listed; and (ii) such
additional information concerning the business and financial condition
of the Company as such Agent may from time to time reasonably request
(such financial statements to be on a consolidated basis to the extent
the accounts of the Company and its subsidiaries are consolidated in
reports furnished to its shareholders generally or to the Commission);
(f) That, from the date of any Terms Agreement with such Agent
or other agreement by such Agent to purchase Securities as principal
and continuing to and including the earlier of (i) the termination of
the trading restrictions for the Securities purchased thereunder, as
notified to the Company by such Agent and (ii) the related Time of
Delivery, not to offer, sell, contract to sell or otherwise dispose of
any debt securities of the Company which both mature more than 9 months
after such Time of Delivery and are substantially similar to the
Securities, without the prior consent of such Agent;
(g) That each acceptance by the Company of an offer to
purchase Securities hereunder (including any purchase by such Agent as
principal not pursuant to a Terms Agreement), and each execution and
delivery by the Company of a Terms Agreement with such Agent, shall be
deemed to be an affirmation to such Agent that the representations and
warranties of the Company contained in or made pursuant to this
Agreement are true and correct as of the date of such acceptance or of
such Terms Agreement, as the case may be, as though made at and as of
such date, and an undertaking that such representations and warranties
will be true and correct as of the settlement date for the Securities
relating to such acceptance or as of the Time of Delivery relating to
such sale, as the case may be, as though made at and as of such date
(except that such representations and warranties shall be deemed to
relate to the Registration Statement and the Prospectus as amended and
supplemented relating to such Securities);
(h) That reasonably in advance of each time the Registration
Statement or the Prospectus shall be amended or supplemented (other
than by a Pricing Supplement or by an amendment or supplement which
relates exclusively to an offering of debt securities other than the
Securities) and each time the Company sells Securities to such Agent as
principal pursuant to a Terms Agreement and such Terms Agreement
specifies the delivery of an opinion or opinions by Sullivan &
Cromwell, counsel to the Agents, as a condition to the purchase of
Securities pursuant to such Terms Agreement, the Company shall furnish
to such counsel such papers and information as they may reasonably
request to enable them to furnish to such Agent the opinion or opinions
referred to in Section 6(b) hereof;
-11-
<PAGE> 12
(i) That each time the Registration Statement or the
Prospectus shall be amended or supplemented (other than by a Pricing
Supplement or by an amendment or supplement which relates exclusively
to an offering of debt securities other than the Securities), and each
time the Company sells Securities to such Agent as principal pursuant
to a Terms Agreement and such Terms Agreement specifies the delivery of
an opinion under this Section 4(i) as a condition to the purchase of
Securities pursuant to such Terms Agreement, the Company shall furnish
or cause to be furnished forthwith to such Agent the written opinion of
Nicholas J. Calise, counsel for the Company, or other counsel for the
Company satisfactory to such Agent, dated the date of such amendment,
supplement or Time of Delivery relating to such sale, as the case may
be, covering the matters referred to in Section 6(c)(I) and Section
6(c)(II) hereof, provided, that in each case, the opinion shall be
modified to relate to the Registration Statement and the Prospectus as
amended and supplemented to such date or, in lieu of such opinion, such
counsel may furnish an opinion to the effect that such Agent may rely
on the opinion of such counsel covering the matters referred to in
Section 6(c)(I) and 6(c)(II) hereof, which was last furnished to such
Agent to the same extent as though it were dated the date of such
letter authorizing reliance (except that the statements in such last
opinion shall be deemed to relate to the Registration Statement and the
Prospectus as amended and supplemented to such date); provided however,
if specified in the applicable Terms Agreement as a condition to the
purchase of Securities pursuant to such Terms Agreement, the opinion as
set forth in Section 6(c)(II) hereof, shall be given by White & Case
LLP, or other outside counsel for the Company satisfactory to such
Agent;
(j) That each time the Registration Statement or the
Prospectus shall be amended or supplemented (i) to set forth amended or
supplemental financial information consisting of financial information
as of and for a fiscal quarter or year ("Regular Financial
Information") contained in a Quarterly Report on Form 10-Q or Annual
Report on Form 10-K, respectively, or (ii) to set forth amended or
supplemental financial statements, other than Regular Financial
Information, which in the judgment of an Agent is material to the offer
and sale of the Securities ("Extraordinary Financial Information"),
and, in the case of this subparagraph (ii), upon request of such Agent,
and each time the Company sells Securities to such Agent as principal
pursuant to a Terms Agreement and such Terms Agreement specifies the
delivery of a letter under this Section 4(j) as a condition to the
purchase of Securities pursuant to such Terms Agreement, the Company
shall cause the independent certified public accountants who have
certified the financial statements of the Company and its subsidiaries
included in the Registration Statement to furnish such Agent a letter
as soon as practicable and in no event later than ten days following
such amendment or supplement, or on such Time of Delivery, as the case
may be, dated the date of such amendment, supplement or Time of
Delivery relating to such sale, as the case may be, in form
satisfactory to such Agent, of the same tenor as the letter referred to
in Section 6(d) hereof but modified to relate to the Registration
-12-
<PAGE> 13
Statement and the Prospectus as amended or supplemented to the date of
such letter, with such changes as may be necessary to reflect changes
in the financial statements and other information derived from the
accounting records of the Company, to the extent such financial
statements and other information are available as of a date not more
than five business days prior to the date of such letter; PROVIDED,
HOWEVER, that, with respect to any financial information or other
matter, such letter may reconfirm as true and correct at such date as
though made at and as of such date, rather than repeat, statements with
respect to such financial information or other matter made in the
letter referred to in Section 6(d) hereof which was last furnished to
such Agent;
(k) That each time the Registration Statement or the
Prospectus shall be amended or supplemented (other than by a Pricing
Supplement or by an amendment or supplement which relates exclusively
to an offering of debt securities other than the Securities), and each
time the Company sells Securities to such Agent as principal and the
applicable Terms Agreement specifies the delivery of a certificate
under this Section 4(k) as a condition to the purchase of Securities
pursuant to such Terms Agreement, the Company shall furnish or cause to
be furnished forthwith to such Agent a certificate, dated the date of
such supplement, amendment or Time of Delivery relating to such sale,
as the case may be, in such form and executed by such officers of the
Company as shall be reasonably satisfactory to such Agent, to the
effect that the statements contained in the certificate referred to in
Section 6(h) hereof which was last furnished to such Agent are true and
correct at such date as though made at and as of such date (except that
such statements shall be deemed to relate to the Registration Statement
and the Prospectus as amended and supplemented to such date), or, in
lieu of such certificate, certificates of the same tenor as the
certificates referred to in said Section 6(h) but modified to relate to
the Registration Statement and the Prospectus as amended and
supplemented to such date; and
(l) To offer to any person who has agreed to purchase
Securities from the Company as the result of an offer to purchase
solicited by such Agent the right to refuse to purchase and pay for
such Securities if, on the related settlement date fixed pursuant to
the Administrative Procedure, any condition set forth in Section 6(a),
6(e), 6(f) or 6(g) hereof shall not have been satisfied (it being
understood that the judgment of such person with respect to the
impracticability or inadvisability of such purchase of Securities shall
be substituted, for purposes of this Section 4(l), for the respective
judgments of an Agent with respect to certain matters referred to in
such Sections 6(e) and 6(g), and that such Agent shall have no duty or
obligation whatsoever to exercise the judgment permitted under such
Sections 6(e) and 6(g) on behalf of any such person).
5. The Company covenants and agrees with each Agent that the
Company will pay or cause to be paid the following: (i) the fees, disbursements
and
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<PAGE> 14
expenses of the Company's counsel and accountants in connection with the
registration of the Securities under the Act and all other expenses in
connection with the registration of the Securities under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus, the Prospectus and any
Pricing Supplements and all other amendments and supplements thereto and the
mailing and delivering of copies thereof to such Agent; (ii) the reasonable
fees, disbursements and expenses of counsel for the Agents in connection with
the establishment of the program contemplated hereby, any opinions to be
rendered by such counsel hereunder and under any Terms Agreement and the
transactions contemplated hereunder and under any Terms Agreement; (iii) the
cost of printing, producing or reproducing this Agreement, any Terms Agreement,
any Indenture, any Blue Sky and Legal Investment Memoranda, closing documents
(including any compilations thereof) and any other documents in connection with
the offering, purchase, sale and delivery of the Securities; (iv) all expenses
in connection with the qualification of the Securities for offering and sale
under state securities laws as provided in Section 4(b) hereof, including
reasonable fees and disbursements of counsel for the Agents in connection with
such qualification and in connection with the Blue Sky and legal investment
surveys; (v) any fees charged by securities rating services for rating the
Securities; (vi) any filing fees incident to, and the reasonable fees and
disbursements of counsel for the Agents in connection with, any required review
by the National Association of Securities Dealers, Inc. of the terms of the sale
of the Securities; (vii) the cost of preparing the Securities; (viii) the fees
and expenses of any Trustee and any agent of any Trustee and any transfer or
paying agent of the Company and the reasonable fees and disbursements of counsel
for any Trustee or such agent in connection with any Indenture and the
Securities; (ix) any advertising expenses connected with the solicitation of
offers to purchase and the sale of Securities so long as such advertising
expenses have been approved by the Company; and (x) all other costs and expenses
incident to the performance by the Company of its obligations hereunder which
are not otherwise specifically provided for in this Section. Except as provided
in Sections 7 and 8 hereof, each Agent shall pay all other expenses it incurs.
6. The obligation of any Agent, as agent of the Company, at
any time ("Solicitation Time") to solicit offers to purchase the Securities and
the obligation of any Agent to purchase Securities as principal, pursuant to any
Terms Agreement or otherwise, shall in each case be subject, in such Agent's
discretion, to the condition that all representations and warranties and other
statements of the Company herein (and, in the case of an obligation of an Agent
under a Terms Agreement, in or incorporated by reference in such Terms
Agreement) are true and correct at and as of the Commencement Date and any
applicable date referred to in Section 4(k) hereof that is prior to such
Solicitation Time or Time of Delivery, as the case may be, and at and as of such
Solicitation Time or Time of Delivery, as the case may be, the condition that
prior to such Solicitation Time or Time of Delivery, as the case may be, the
Company shall have performed all of its obligations hereunder theretofore to be
performed, and the following additional conditions:
-14-
<PAGE> 15
(a)(i) With respect to any Securities sold at or prior to
such Solicitation Time or Time of Delivery, as the case may be, the
Prospectus as amended or supplemented (including the Pricing
Supplement) with respect to such Securities shall have been filed with
the Commission pursuant to Rule 424(b) under the Act within the
applicable time period prescribed for such filing by the rules and
regulations under the Act and in accordance with Section 4(a) hereof;
(ii) no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose
shall have been initiated or threatened by the Commission; and (iii)
all requests for additional information on the part of the Commission
shall have been complied with to the reasonable satisfaction of such
Agent;
(b) Sullivan & Cromwell, counsel to the Agents, shall have
furnished to such Agent (i) such opinion or opinions, dated the
Commencement Date, with respect to the incorporation of the Company,
the validity of the Indenture, the Securities, the Registration
Statement, the Prospectus as amended or supplemented and other related
matters as such Agent may reasonably request, and (ii) if and to the
extent reasonably requested by such Agent, with respect to each
applicable date referred to in Section 4(h) hereof that is on or prior
to such Solicitation Time or Time of Delivery, as the case may be, an
opinion or opinions, dated such applicable date, to the effect that
such Agent may rely on the opinion or opinions which were last
furnished to such Agent pursuant to this Section 6(b) to the same
extent as though it or they were dated the date of such letter
authorizing reliance (except that the statements in such last opinion
or opinions shall be deemed to relate to the Registration Statement and
the Prospectus as amended and supplemented to such date) or, in any
case, in lieu of such an opinion or opinions, an opinion or opinions of
the same tenor as the opinion or opinions referred to in clause (i) but
modified to relate to the Registration Statement and the Prospectus as
amended and supplemented to such date; and in each case such counsel
shall have received such papers and information as they may reasonably
request to enable them to pass upon such matters;
(c)(I) Nicholas J. Calise, Vice President, Associate General
Counsel and Secretary of the Company, or other counsel satisfactory to
such Agent, shall have furnished to such Agent his (or their) written
opinions (i) dated the Commencement Date to the effect set forth below
and (ii) dated each applicable date referred to in Section 4(i) hereof
that is on or prior to such Solicitation Time or Time of Delivery, as
the case may be, to the effect set forth below and as set forth in
Section 6(c)(II) hereof, in each case in form and substance
satisfactory to such Agent. Such counsel shall opine that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of New York, with corporate power and authority to own its properties
and conduct its business as described in the Prospectus as amended or
supplemented;
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<PAGE> 16
(ii) The Company has an authorized capitalization as set forth
in the Prospectus as amended or supplemented and all of the issued
shares of capital stock of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each jurisdiction in the United States other than New
York in which it owns or leases plants or other major real property
(such counsel being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in respect of matters of fact
upon certificates of officers of the Company, provided that such
counsel shall state that he believes that both you and he are justified
in relying on such opinions and certificates);
(iv) Each Material Subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation; all of the issued
shares of capital stock of each such Material Subsidiary have been duly
and validly authorized and issued, are fully paid and non-assessable,
and (except for directors' qualifying shares and as otherwise set forth
in the Company's most recent annual report on Form 10-K) are owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims;
(v) To the best of such counsel's knowledge, there are no
legal or governmental proceedings pending to which the Company or any
of its subsidiaries is a party or of which any property of the Company
or any of its subsidiaries is the subject, other than as set forth in
the Prospectus and other than litigation which in the aggregate is not
material to the Company and its subsidiaries considered as a whole;
and, to the best of such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others;
(vi) This Agreement and any applicable Terms Agreement have
been duly authorized, executed and delivered by the Company;
(vii) The Securities have been duly authorized and, when duly
executed, issued and delivered by the Company and authenticated by the
Trustee, will constitute valid and legally binding obligations of the
Company entitled to the benefits provided by the Indenture; and the
Indenture conforms and the Securities will conform in all material
respects to the descriptions thereof in the Prospectus as amended or
supplemented;
(viii) The Indenture has been duly authorized, executed and
delivered by the Company and, assuming due authorization, execution and
delivery by the Trustee, constitutes a valid and legally binding
instrument, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insol-
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<PAGE> 17
vency, reorganization and other laws of general applicability relating
to or affecting creditors' rights and to general equity principles; and
the Indenture has been duly qualified under the Trust Indenture Act;
(ix) The issue and sale of the Securities and the compliance
by the Company with all of the provisions of the Securities, the
Indenture, this Agreement and any applicable Terms Agreement and the
consummation of the transactions herein and therein contemplated will
not in any material respect conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which the Company or
any of its Material Subsidiaries is a party or by which the Company or
any of its Material Subsidiaries is bound or to which any of the
property or assets of the Company or any of its Material Subsidiaries
is subject, nor will such actions result in any violation of the
provisions of the Company's Certificate of Incorporation or By-laws or
any statute or any order, rule or regulation known to such counsel of
any court or governmental agency or body having jurisdiction over the
Company or any of its Material Subsidiaries or any of their properties;
(x) No consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or
body is required for the solicitation of offers to purchase Securities,
the issue and sale of the Securities or the consummation by the Company
of the other transactions contemplated by this Agreement, any
applicable Terms Agreement or the Indenture, except such as have been
obtained under the Act and the Trust Indenture Act and such consents,
approvals, authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws in connection with the
solicitation by the Agents of offers to purchase Securities from the
Company and with purchases of Securities by an Agent as principal, as
the case may be, in each case in the manner contemplated hereby;
(xi) Neither the Company nor any of its Material Subsidiaries
is in violation of its Certificate of Incorporation of By-laws or in
default in the performance or observance of any material obligation,
covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, material lease or other material agreement or
instrument to which it is a party or by which it or any of its
properties may be bound;
(xii) The statements set forth in the Prospectus under the
caption "Description of Debt Securities" and "Description of Notes",
insofar as they purport to constitute a summary of the terms of the
Securities, and under the caption "Plan of Distribution", insofar as
they purport to describe the provisions of the laws and documents
referred to therein, are accurate and fair, and complete in all
material respects;
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<PAGE> 18
(xiii) The Company is not and, after giving effect to each
offering and sale of the Securities, will not be an "investment
company" or an entity "controlled" by an "investment company", as such
terms are defined in the Investment Company Act; and
(xiv) [RESERVED]
In rendering such opinion, such counsel may state that his
opinion is limited to the laws of the States of Ohio and New York and
the federal laws of the United States;
(c)(II) White & Case LLP, or other counsel for the Company
satisfactory to such Agent, shall have furnished to such Agent their
written opinion, dated the Commencement Date and, if specified in a
Terms Agreement, dated the Time of Delivery with respect to such Terms
Agreement, in form and substance satisfactory to such Agent, to the
effect that:
(i) The statements set forth in the Prospectus under the
caption "United States Tax Considerations", insofar as they purport to
constitute a summary of the laws referred to therein, are both accurate
and complete in all material respects; and
(ii) Each of the Registration Statement and the Prospectus as
amended or supplemented and any further amendments and supplements
thereto made by the Company on or prior to the date of such opinion
(other than the financial statements and related schedules and other
financial data included therein or omitted therefrom, and other than
the Trustee's Statement of Eligibility on Form T-1, as to which such
counsel need express no belief) appears on its face to comply as to
form in all material respects with the requirements of the Act and the
rules and regulations thereunder; although they do not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus,
nothing has come to such counsel's attention which causes them to
believe that, as of its effective date, the Registration Statement or
any further amendment thereto made by the Company on or prior to the
date of such opinion (other than the financial statements and related
schedules and other financial data included therein or omitted
therefrom, and other than the Trustee's Statement of Eligibility on
Form T-1, as to which such counsel need express no belief) contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that, as of the date of such opinion, the
Prospectus as amended or supplemented or any further amendment or
supplement thereto made by the Company on or prior to the date of such
opinion (other than the financial statements and related schedules and
other financial data included therein or omitted therefrom, as to which
such counsel need express no belief) contained an untrue statement of a
material fact or omitted to state a material
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<PAGE> 19
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and such
counsel does not know of any amendment to the Registration Statement
required to be filed or any contracts or other documents of a character
required to be filed as an exhibit to the Registration Statement or
required to be described in the Registration Statement or the
Prospectus as amended or supplemented which have not been filed or
described as required;
(d) Not later than 10:00 a.m., New York City time, on the
Commencement Date and with respect to each applicable date referred to
in Section 4(j) hereof that is on or prior to such Solicitation Time or
Time of Delivery, as the case may be, the independent certified public
accountants who have certified the financial statements of the Company
and its subsidiaries included in the Registration Statement shall have
furnished to such Agent a letter, dated the Commencement Date or such
applicable date, as the case may be, in form and substance satisfactory
to such Agent, to the effect set forth in Annex III hereto;
(e) (i) The Company and its subsidiaries considered as a whole
shall not, since the date of the latest financial statements included
in the Prospectus as amended or supplemented prior to the date of the
Pricing Supplement relating to the Securities to be delivered at the
relevant Time of Delivery, have sustained any loss or interference with
its business from fire, explosion, flood or other calamity, whether or
not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus as amended or supplemented prior to the
date of the Pricing Supplement relating to the Securities to be
delivered at the relevant Time of Delivery and (ii) since the
respective dates as of which information is given in the Prospectus as
amended or supplemented prior to the date of the Pricing Supplement
relating to the Securities to be delivered at the relevant Time of
Delivery there shall not have been any change in the capital stock or
long-term debt of the Company and its subsidiaries considered as a
whole or any change, or any development involving a prospective change,
in or affecting the general affairs, management, financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries considered as a whole, otherwise than as set forth or
contemplated in the Prospectus as amended or supplemented prior to the
date of the Pricing Supplement relating to the Securities to be
delivered at the relevant Time of Delivery, the effect of which, in any
such case described in Clause (i) or (ii), is in the judgment of such
Agent so material and adverse as to make it impracticable or
inadvisable to proceed with the solicitation by such Agent of offers to
purchase Securities from the Company or the purchase by such Agent of
Securities from the Company as principal, as the case may be, on the
terms and in the manner contemplated in the Prospectus as amended or
supplemented prior to the date of the Pricing Supplement relating to
the Securities to be delivered at the relevant Time of Delivery;
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<PAGE> 20
(f) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities by any
"nationally recognized statistical rating organization", as that term
is defined by the Commission for purposes of Rule 436(g)(2) under the
Act, and (ii) no such organization shall have publicly announced that
it has under surveillance or review, with possible negative
implications, its rating of any of the Company's debt securities;
(g) On or after the date hereof there shall not have occurred
any of the following: (i) a suspension or material limitation in
trading in securities generally on the New York Stock Exchange; (ii) a
suspension or material limitation in trading in the Company's
securities on the New York Stock Exchange; (iii) a general moratorium
on commercial banking activities in New York declared by either Federal
or New York State authorities; or (iv) the outbreak or escalation of
hostilities involving the United States or the declaration by the
United States of a national emergency or war, if the effect of any such
event specified in this clause (iv) in the judgment of such Agent makes
it impracticable or inadvisable to proceed with the solicitation of
offers to purchase Securities or the purchase of the Securities from
the Company as principal pursuant to the applicable Terms Agreement or
otherwise, as the case may be, on the terms contemplated in the
Prospectus; and
(h) The Company shall have furnished or caused to be furnished
to such Agent certificates of officers of the Company dated the
Commencement Date and each applicable date referred to in Section 4(k)
hereof that is on or prior to such Solicitation Time or Time of
Delivery, as the case may be, in such form and executed by such
officers of the Company as shall be satisfactory to such Agent, as to
the accuracy of the representations and warranties of the Company
herein at and as of the Commencement Date or such applicable date, as
the case may be, as to the performance by the Company of all of its
obligations hereunder to be performed at or prior to the Commencement
Date or such applicable date, as the case may be, as to matters set
forth in subsections (a) and (e) of this Section 6, and as to such
other matters as such Agent may reasonably request.
7. (a) The Company will indemnify and hold harmless each Agent
against any losses, claims, damages or liabilities, joint or several, to which
such Agent may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement, the Prospectus, the Prospectus as amended or supplemented or any
other prospectus relating to the Securities, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse such Agent for any
legal or other expenses reasonably incurred by it in connection with
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<PAGE> 21
investigating or defending any such action or claim as such expenses are
incurred; PROVIDED, HOWEVER, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement,
the Prospectus, the Prospectus as amended or supplemented or any other
prospectus relating to the Securities, or any such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by such Agent expressly for use therein.
(b) Each Agent will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement, the
Prospectus, the Prospectus as amended or supplemented or any other prospectus
relating to the Securities or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in any Preliminary Prospectus, the Registration Statement, the
Prospectus, the Prospectus as amended or supplemented or any other prospectus
relating to the Securities, or any such amendment or supplement, in reliance
upon and in conformity with written information furnished to the Company by such
Agent expressly for use therein; and will reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without
giving prior written notice to the indemnified party,
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<PAGE> 22
effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to, or an admission of, fault,
culpability or a failure to act, by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 7 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and each Agent on the
other from the offering of the Securities to which such loss, claim, damage or
liability (or action in respect thereof) relates. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and each Agent on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and each Agent on the other shall be deemed to be in the same
proportion as the total net proceeds from the sale of Securities (before
deducting expenses) received by the Company bear to the total commissions or
discounts received by such Agent in respect thereof. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading relates to information supplied by the Company
on the one hand or by any Agent on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and each Agent agree that it would not be
just and equitable if contribution pursuant to this subsection (d) were
determined by per capita allocation (even if all Agents were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), an Agent shall not be required to contribute
any amount in excess of the amount by which the total public offering
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<PAGE> 23
price at which the Securities purchased by or through it were sold exceeds the
amount of any damages which such Agent has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The obligations of each
of the Agents under this subsection (d) to contribute are several in proportion
to the respective purchases made by or through it to which such loss, claim,
damage or liability (or action in respect thereof) relates and are not joint.
(e) The obligations of the Company under this Section 7 shall
be in addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who controls
any Agent within the meaning of the Act; and the obligations of each Agent under
this Section 7 shall be in addition to any liability which such Agent may
otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company and to each person, if any, who controls the
Company within the meaning of the Act.
8. Each Agent, in soliciting offers to purchase Securities
from the Company and in performing the other obligations of such Agent hereunder
(other than in respect to any purchase by an Agent as principal, pursuant to a
Terms Agreement or otherwise), is acting solely as agent for the Company and not
as principal. Each Agent will make reasonable efforts to assist the Company in
obtaining performance by each purchaser whose offer to purchase Securities from
the Company was solicited by such Agent and has been accepted by the Company,
but such Agent shall not have any liability to the Company in the event such
purchase is not consummated for any reason. If the Company shall default on its
obligation to deliver Securities to a purchaser whose offer it has accepted, the
Company shall (i) hold each Agent harmless against any loss, claim or damage
arising from or as a result of such default by the Company and (ii)
notwithstanding such default, pay to the Agent that solicited such offer any
commission to which it would be entitled in connection with such sale.
9. The respective indemnities, agreements, representations,
warranties and other statements by any Agent and the Company set forth in or
made pursuant to this Agreement shall remain in full force and effect regardless
of any investigation (or any statement as to the results thereof) made by or on
behalf of any Agent or any controlling person of any Agent, or the Company, or
any officer or director or any controlling person of the Company, and shall
survive each delivery of and payment for any of the Securities.
10. The provisions of this Agreement relating to the
solicitation of offers to purchase Securities from the Company may be suspended
or terminated at any time by the Company as to any Agent or by any Agent as to
such Agent upon the giving of written notice of such suspension or termination
to such Agent or the Company, as the case may be. In the event of such
suspension or termination with respect to any Agent, (x) this Agreement shall
remain in full force and effect with respect to any
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<PAGE> 24
Agent as to which such suspension or termination has not occurred, (y) this
Agreement shall remain in full force and effect with respect to the rights and
obligations of any party which have previously accrued or which relate to
Securities which are already issued, agreed to be issued or the subject of a
pending offer at the time of such suspension or termination and (z) in any
event, this Agreement shall remain in full force and effect insofar as the fifth
paragraph of Section 2(a), and Sections 4(d), 4(e), 5, 7, 8 and 9 hereof are
concerned.
11. Except as otherwise specifically provided herein or in the
Administrative Procedure, all statements, requests, notices and advises
hereunder shall be in writing, or by telephone if promptly confirmed in writing,
and (i) if to Goldman, Sachs & Co. shall be sufficient in all respects when
delivered or sent by facsimile transmission or registered mail to 85 Broad
Street, New York, New York 10004, Facsimile Transmission No. (212) 363-7609,
Attention: Credit Department, (ii) if to Citicorp Securities, Inc., shall be
sufficient in all respects when delivered or sent by facsimile transmission or
registered mail to 399 Park Avenue, New York, New York 10043, Facsimile
Transmission No. (212) 291-3910, Attention: Capital Markets, (iii) if to J.P.
Morgan Securities Inc., shall be sufficient in all respects when delivered or
sent by facsimile transmission or registered mail to 60 Wall Street, New York,
New York 10260, Facsimile Transmission No. (212) 648-5907, Attention: Medium
Term Note Desk, (iv) if to Morgan Stanley & Co. Incorporated, shall be
sufficient in all respects when delivered or sent by facsimile transmission or
registered mail to Morgan Stanley & Co. Incorporated, 1585 Broadway, New York,
New York 10036, Facsimile Transmission No. (212) 761-0780, Attention: Manager -
Continuously Offered Products, with a copy to Morgan Stanley & Co. Incorporated,
1585 Broadway, New York, New York 10036, Facsimile Transmission No. (212)
761-0260, Attention: Peter Cooper, Investment Banking Information Center, (v) if
to NationsBanc Montgomery Securities LLC, shall be sufficient in all respects
when delivered or sent by facsimile transmission or registered mail to
NationsBank Corporate Center, Charlotte, North Carolina 28255-0120, Facsimile
Transmission No. (704) 388-9212, Attention: Tom Mooney, Syndicate Operations,
and (vi) if to the Company shall be sufficient in all respects when delivered or
sent by facsimile transmission or registered mail to 3925 Embassy Parkway,
Akron, Ohio 44333-1799, Facsimile Transmission No. (330) 374-3456, Attention:
Secretary and Facsimile Transmission No. (330) 374-4087, Attention: Treasurer.
12. This Agreement and any Terms Agreement shall be binding
upon, and inure solely to the benefit of, each Agent and the Company, and to the
extent provided in Sections 7, 8 and 9 hereof, the officers and directors of the
Company and any person who controls any Agent or the Company, and their
respective personal representatives, successors and assigns, and no other person
shall acquire or have any right under or by virtue of this Agreement or any
Terms Agreement. No purchaser of any of the Securities through or from any Agent
hereunder shall be deemed a successor or assign by reason merely of such
purchase.
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<PAGE> 25
13. Time shall be of the essence in this Agreement and any
Terms Agreement. As used herein, the term "business day" shall mean any day when
the Commission's office in Washington, D.C. is open for business.
14. THIS AGREEMENT AND ANY TERMS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
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<PAGE> 26
15. This Agreement and any Terms Agreement may be executed by
any one or more of the parties hereto and thereto in any number of counterparts,
each of which shall be an original, but all of such respective counterparts
shall together constitute one and the same instrument.
If the foregoing is in accordance with your understanding,
please sign and return to us eight counterparts hereof, whereupon this letter
and the acceptance by each of you thereof shall constitute a binding agreement
between the Company and each of you in accordance with its terms.
Very truly yours,
THE B.F.GOODRICH COMPANY
By:___________________________
Name:
Title:
Accepted in New York, New York, as of the date hereof:
________________________________
(Goldman, Sachs & Co.)
CITICORP SECURITIES, INC.
By:____________________________
Name:
Title:
J.P. MORGAN SECURITIES INC.
By:____________________________
Name:
Title:
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<PAGE> 27
MORGAN STANLEY & CO. INCORPORATED
By:____________________________
Name:
Title:
NATIONSBANC MONTGOMERY SECURITIES LLC
By:____________________________
Name:
Title:
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<PAGE> 28
ANNEX I
THE B.F.GOODRICH COMPANY
[TITLE OF SECURITY]
TERMS AGREEMENT
---------------
----------, ----
[Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.]
[Citicorp Securities, Inc.,
399 Park Avenue,
New York, New York 10043.]
[J.P. Morgan Securities Inc.,
60 Wall Street,
New York, New York 10260.]
[Morgan Stanley & Co. Incorporated,
1585 Broadway,
New York, New York 10036.]
[NationsBanc Montgomery Securities LLC,
NationsBank Corporate Center,
Charlotte, North Carolina 28255.]
Ladies and Gentlemen:
The B.F.Goodrich Company (the "Company"), proposes, subject to the
terms and conditions stated herein and in the Second Amended and Restated
Distribution Agreement, dated _______, 1998 (the "Distribution Agreement),
between the Company on the one hand and Goldman, Sachs & Co., Citicorp
Securities, Inc., J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated
and NationsBanc Montgomery Securities LLC (the "Agents") on the other, to issue
and sell to [NAME(S) OF AGENT(S)] the securities specified in Schedule hereto
(the "Purchased Securities"). Each of the provisions of the Distribution
Agreement not specifically related to the solicitation by the Agents, as agents
of the Company, of offers to purchase Securities is incorporated herein by
reference in its entirety, and shall be deemed to be part of this Terms
Agreement to the same extent as if such provisions had been set forth in full
herein. Nothing contained herein or in the Distribution Agreement shall make any
party hereto an agent of the Company or make such party subject to the
provisions therein relating to the solicitation of offers to purchase Securities
from the Company, solely by virtue of its execution of this Terms Agreement.
Each of the representations and warranties set forth therein shall be deemed to
have been made at and as of the date of this Terms Agreement, except that each
representation and warranty in Section 1 of the
<PAGE> 29
Distribution Agreement which makes reference to the Prospectus shall be deemed
to be a representation and warranty as of the date of the Distribution Agreement
in relation to the Prospectus (as therein defined), and also a representation
and warranty as of the date of this Terms Agreement in relation to the
Prospectus as amended and supplemented to relate to the Purchased Securities.
An amendment to the Registration Statement, or a supplement to the
Prospectus, as the case may be, relating to the Purchased Securities, in the
form heretofore delivered to you is now proposed to be filed with the
Commission.
Subject to the terms and conditions set forth herein and in the
Distribution Agreement incorporated herein by reference, the Company agrees to
issue and sell to [NAME(S) OF AGENT(S)] and [NAME(S) OF AGENT(S)] agree to
purchase from the Company the Purchased Securities, at the time and place, in
the principal amount and at the purchase price set forth in the Schedule hereto.
If the foregoing is in accordance with your understanding, please sign
and return to us ____ counterparts hereof, and upon acceptance hereof by you
this letter and such acceptance hereof, including those provisions of the
Distribution Agreement incorporated herein by reference, shall constitute a
binding agreement between you and the Company.
Very truly yours,
THE B.F.GOODRICH COMPANY
By:___________________________
Name:
Title:
Accepted:
[______________________________
(Goldman, Sachs & Co.) ]
[CITICORP SECURITIES, INC.
By:____________________________
Name:
Title:]
-I-2-
<PAGE> 30
[J.P. MORGAN SECURITIES INC.
By:____________________________
Name:
Title:]
[MORGAN STANLEY & CO. INCORPORATED
By:____________________________
Name:
Title:]
[NATIONSBANC MONTGOMERY SECURITIES LLC
By:____________________________
Name:
Title:]
-I-3-
<PAGE> 31
SCHEDULE TO ANNEX I
Title of Purchased Securities:
[ %] Medium-Term Notes, Series A
Aggregate Principal Amount:
[$__________]
[Price to Public:]
Purchase Price by [NAME(S) OF AGENT(S)]:
% of the principal amount of the Purchased Securities [, PLUS
ACCRUED INTEREST FROM _____ TO _____] [AND ACCRUED AMORTIZATION, IF ANY, FROM
______ TO ______]
Method of and Specified Funds for Payment of Purchase Price:
[BY CERTIFIED OR OFFICIAL BANK CHECK OR CHECKS, PAYABLE TO THE ORDER OF
THE COMPANY, IN IMMEDIATELY AVAILABLE FUNDS]
[BY WIRE TRANSFER TO A BANK ACCOUNT SPECIFIED BY THE COMPANY IN
IMMEDIATELY AVAILABLE FUNDS]
Indenture:
Indenture, dated as of May 1, 1991, between the Company and Harris
Trust and Savings Bank, as Trustee
Time of Delivery:
Closing Location for Delivery of Securities:
Maturity:
Interest Rate:
[ %]
Interest Payment Dates:
[MONTHS AND DATES]
-I-4-
<PAGE> 32
Documents to be Delivered:
The following documents referred to in the Distribution Agreement shall
be delivered as a condition to the Closing:
[(1) THE OPINION OR OPINIONS OF COUNSEL TO THE AGENTS REFERRED TO IN
SECTION 4(h).]
[(2) THE OPINION OF [INSIDE] COUNSEL TO THE COMPANY [AND OUTSIDE
COUNSEL TO THE COMPANY] REFERRED TO IN SECTION 4(i).]
[(3) THE ACCOUNTANTS' LETTER REFERRED TO IN SECTION 4(j).]
[(4) THE OFFICERS' CERTIFICATE REFERRED TO IN SECTION 4(k).]
Other Provisions (including Syndicate Provisions, if applicable):
-I-5-
<PAGE> 33
ANNEX II
THE B.F.GOODRICH COMPANY
Administrative Procedure
------------------------
This Administrative Procedure relates to the Securities
defined in the Second Amended and Restated Distribution Agreement, dated
_________, 1998 (the "Distribution Agreement"), between the Company on the one
hand and Goldman, Sachs & Co., Citicorp Securities, Inc., J.P. Morgan Securities
Inc., Morgan Stanley & Co. Incorporated and NationsBanc Montgomery Securities
LLC (together, the "Agents"), to which this Administrative Procedure is attached
as Annex II. Defined terms used herein and not defined herein shall have the
meanings given such terms in the Distribution Agreement, the Prospectus as
amended or supplemented or the Indenture.
The procedures to be followed with respect to the settlement
of sales of Securities directly by the Company to purchasers solicited by an
Agent, as agent, are set forth below. The terms and settlement details related
to a purchase of Securities by an Agent, as principal, from the Company will be
set forth in a Terms Agreement pursuant to the Distribution Agreement, unless
the Company and such Agent otherwise agree as provided in Section 2(b) of the
Distribution Agreement, in which case the procedures to be followed in respect
of the settlement of such sale will be as set forth below. An Agent, in relation
to a purchase of a Security by a purchaser solicited by such Agent, is referred
to herein as the "Selling Agent" and, in relation to a purchase of a Security by
such Agent as principal other than pursuant to a Terms Agreement, as the
"Purchasing Agent".
The Company will advise each Agent in writing of those persons
with whom such Agent is to communicate regarding offers to purchase Securities
and the related settlement details.
Each Security will be issued only in fully registered form and
will be represented by either a global security (a "Global Security") delivered
to the Trustee, as agent for The Depository Trust Company (the "Depositary") and
recorded in the book-entry system maintained by the Depositary (a "Book-Entry
Security") or a certificate issued in definitive form (a "Certificated
Security") delivered to a person designated by an Agent, as set forth in the
applicable Pricing Supplement. An owner of a Book-Entry Security will not be
entitled to receive a certificate representing such Security, except as provided
in the prospectus supplement relating to the Securities.
Book-Entry Securities will be issued in accordance with the
Administrative Procedure set forth in Part I hereof, and Certificated Securities
will be issued in accordance with the Administrative Procedure set forth in Part
II hereof.
<PAGE> 34
PART I: ADMINISTRATIVE PROCEDURE FOR BOOK-ENTRY SECURITIES
In connection with the qualification of the Book-Entry
Securities for eligibility in the book-entry system maintained by the
Depositary, the Trustee will perform the custodial, document control and
administrative functions described below, in accordance with its respective
obligations under a Letter of Representation from the Company and the Trustee to
the Depositary, dated the date hereof, and a Medium-Term Note Certificate
Agreement between the Trustee and the Depositary (the "Certificate Agreement"),
and the Trustee's obligations as a participant in the Depositary, including the
Depositary's Same-Day Funds Settlement System ("SDFS").
Posting Rates by the Company:
- -----------------------------
The Company and the Agents will discuss from time to time the
rates of interest per annum to be borne by and the maturity of Book-Entry
Securities that may be sold as a result of the solicitation of offers by an
Agent. The Company may establish a fixed set of interest rates and maturities
for an offering period ("posting"). If the Company decides to change already
posted rates, it will promptly advise the Agents to suspend solicitation of
offers until the new posted rates have been established with the Agents.
Acceptance of Offers by the Company:
- ------------------------------------
Each Agent will promptly advise the Company by telephone or
other appropriate means of all reasonable offers to purchase Book-Entry
Securities, other than those rejected by such Agent. Each Agent may, in its
discretion reasonably exercised, reject any offer received by it in whole or in
part. Each Agent also may make offers to the Company to purchase Book-Entry
Securities as a Purchasing Agent. The Company will have the sole right to accept
offers to purchase Book-Entry Securities and may reject any such offer in whole
or in part.
The Company will promptly notify the Selling Agent or
Purchasing Agent, as the case may be, of its acceptance or rejection of an offer
to purchase Book-Entry Securities. If the Company accepts an offer to purchase
Book-Entry Securities, it will confirm such acceptance in writing to the Selling
Agent or Purchasing Agent, as the case may be, and the Trustee.
Communication of Sale Information to the Company by Selling Agent and Settlement
- --------------------------------------------------------------------------------
Procedures:
- -----------
A. After the acceptance of an offer by the Company, the
Selling Agent or Purchasing Agent, as the case may be, will communicate promptly
but in no event later than the time set forth under "Settlement Procedure
Timetable" below, the following details of the terms of such offer (the "Sale
Information") to the Company by telephone (confirmed in writing) or by facsimile
transmission or other acceptable written means:
-II-2-
<PAGE> 35
(1) Principal amount of Book-Entry Securities to be
purchased;
(2) If a Fixed Rate Book-Entry Security, the interest
rate and initial interest payment date;
(3) Trade Date;
(4) Settlement Date;
(5) Maturity Date;
(6) Issue Price;
(7) Selling Agent's commission or Purchasing Agent's
discount or commission, as the case may be;
(8) Net Proceeds to the Company;
(9) If a redeemable Book-Entry Security, such of the
following are as applicable:
(i) Redemption Commencement Date,
(ii) Initial Redemption Price (% of par),
and
(iii) Amount (% of par) that the
Redemption Price shall decline (but
not below par) on each anniversary
of the Redemption Commencement Date;
(10) If a Floating Rate Book-Entry Security, such of the
following as are applicable:
(i) Interest Rate Basis,
(ii) Index Maturity,
(iii) Spread or Spread Multiplier,
(iv) Maximum Rate,
(v) Minimum Rate,
(vi) Initial Interest Rate,
(vii) Interest Reset Dates,
(viii) Calculation Dates,
-II-3-
<PAGE> 36
(ix) Interest Determination Dates,
(x) Interest Payment Dates,
(xi) Regular Record Dates, and
(xii) Calculation Agent;
(11) Name, address and taxpayer identification number of
the registered owner(s);
(12) Denomination of certificates to be delivered at
settlement;
(13) Book-Entry Security or Certificated Security; and
(14) Selling Agent or Purchasing Agent.
B. After receiving the Sale Information from the Selling Agent
or Purchasing Agent, as the case may be, the Company will communicate such Sale
Information to the Trustee by facsimile transmission or other acceptable written
means. The Trustee will assign a CUSIP number to the Global Security from a list
of CUSIP numbers previously delivered to the Trustee by the Company representing
such Book-Entry Security and then advise the Company and the Selling Agent or
Purchasing Agent, as the case may be, of such CUSIP number.
C. The Trustee will enter a pending deposit message through
the Depositary's Participant Terminal System, providing the following settlement
information to the Depositary, and the Depositary shall forward such information
to such Agent and Standard & Poor's Corporation:
(1) The applicable Sale Information;
(2) CUSIP number of the Global Security representing such
Book-Entry Security;
(3) Whether such Global Security will represent any other
Book-Entry Security (to the extent known at such
time);
(4) Number of the participant account maintained by the
Depositary on behalf of the Selling Agent or
Purchasing Agent, as the case may be;
(5) The interest payment period; and
(6) Initial Interest Payment Date for such Book-Entry
Security, number of days by which such date succeeds
the record date for the Depositary's purposes (which,
in the case of Floating Rate
-II-4-
<PAGE> 37
Securities which reset weekly shall be the date five
calendar days immediately preceding the applicable
interest Payment Date and in the case of all other
Book-Entry Securities shall be the Regular Record
Date as defined in the Security) and, if calculable
at that time, the amount of interest payable on such
Initial Interest Payment Date.
D. The Trustee will complete and authenticate the Global
Security previously delivered by the Company representing such Book-Entry
Security.
E. The Depositary will credit such Book-Entry Security to the
Trustee's participant account at the Depositary.
F. The Trustee will enter an SDFS deliver order through the
Depositary's Participant Terminal System instructing the Depositary to (i) debit
such Book-Entry Security to the Trustee's participant account and credit such
Book-Entry Security to such Agent's participant account and (ii) debit such
Agent's settlement account and credit the Trustee's settlement account for an
amount equal to the price of such Book-Entry Security less such Agent's
commission. The entry of such a deliver order shall constitute a representation
and warranty by the Trustee to the Depositary that (a) the Global Security
representing such Book-Entry Security has been issued and authenticated and (b)
the Trustee is holding such Global Security pursuant to the Certificate
Agreement.
G. Such Agent will enter an SDFS deliver order through the
Depositary's Participant Terminal System instructing the Depositary (i) to debit
such Book-Entry Security to such Agent's participant account and credit such
Book-Entry Security to the participant accounts of the Participants with respect
to such Book-Entry Security and (ii) to debit the settlement accounts of such
Participants and credit the settlement account of such Agent for an amount equal
to the price of such Book-Entry Security.
H. Transfers of funds in accordance with SDFS deliver orders
described in Settlement Procedures "F" and "G" will be settled in accordance
with SDFS operating procedures in effect on the settlement date.
I. Upon confirmation of receipt of funds, the Trustee will
transfer, to the account of the Company previously specified by the Company to
the Trustee, funds available for immediate use in the amount transferred to the
Trustee in accordance with Settlement Procedure "F".
J. Upon request, the Trustee will send to the Company a
statement setting forth the principal amount of Book-Entry Securities
outstanding as of that date under the Indenture.
K. Such Agent will confirm the purchase of such Book-Entry
Security to the purchaser either by transmitting to the Participants with
respect to such Book-
-II-5-
<PAGE> 38
Entry Security a confirmation order or orders through the Depositary's
institutional delivery system or by mailing a written confirmation to such
purchaser.
L. The Depositary will, at any time, upon request of the
Company or the Trustee, promptly furnish to the Company or the Trustee a list of
the names and addresses of the participants for whom the Depositary has credited
Book-Entry Securities.
Preparation of Pricing Supplement:
- ----------------------------------
If the Company accepts an offer to purchase a Book-Entry
Security, it will prepare a Pricing Supplement reflecting the terms of such
Book-Entry Security and arrange to have delivered to the Selling Agent or
Purchasing Agent, as the case may be, at least ten copies of such Pricing
Supplement, not later than 5:00 p.m., New York City time, on the Business Day
following the Trade Date (as defined below), or if the Company and the purchaser
agree to settlement on the Business Day following the date of acceptance, not
later than noon, New York City time, on such date of settlement. The Company
will arrange to have ten Pricing Supplements filed with the Commission not later
than the close of business of the Commission on the fifth Business Day following
the date on which such Pricing Supplement is first used.
Delivery of Confirmation and Prospectus to Purchaser by Selling Agent:
- ----------------------------------------------------------------------
The Selling Agent will deliver to the purchaser of a
Book-Entry Security a written confirmation of the sale and delivery and payment
instructions. In addition, the Selling Agent will deliver to such purchaser or
its agent the Prospectus as amended or supplemented (including the Pricing
Supplement) in relation to such Book-Entry Security prior to or together with
the earlier of the delivery to such purchaser or its agent of (a) the
confirmation of sale or (b) the Book-Entry Security.
Date of Settlement:
- -------------------
The receipt by the Company of immediately available funds in
payment for a Book-Entry Security and the authentication and issuance of the
Global Security representing such Book-Entry Security shall constitute
"settlement" with respect to such Book-Entry Security. All orders of Book-Entry
Securities solicited by a Selling Agent or made by a Purchasing Agent and
accepted by the Company on a particular date (the "Trade Date") will be settled
on a date (the "Settlement Date") which is the third Business Day after the
Trade Date pursuant to the "Settlement Procedure Timetable" set forth below,
unless the Company and the purchaser agree to settlement on another day which
shall be no earlier than the next Business Day after the Trade Date.
Settlement Procedure Timetable:
- -------------------------------
For orders of Book-Entry Securities solicited by a Selling
Agent and accepted by the Company for settlement on the third Business Day after
the Trade
-II-6-
<PAGE> 39
Date, Settlement Procedures "A" through "I" set forth above shall be completed
as soon as possible but not later than the respective times (New York City time)
set forth below:
Settlement
Procedure Time
--------- ----
A 5:00 p.m. on the Business Day following the
Trade Date or 10:00 a.m. on the
Business Day prior to the Settlement
Date, whichever is earlier
B 12:00 noon on the second Business Day immediately
preceding the Settlement Date
C 2:00 p.m. on the second Business Day immediately
preceding the Settlement Date
D 9:00 a.m. on the Settlement Date
E 10:00 a.m. on the Settlement Date
F-G 2:00 p.m. on the Settlement Date
H 4:45 p.m. on the Settlement Date
I 5:00 p.m. on the Settlement Date
If the initial interest rate for a Floating Rate Book-Entry
Security has not been determined at the time that Settlement Procedure "A" is
completed, Settlement Procedures "B" and "C" shall be completed as soon as such
rate has been determined but no later than 2:00 p.m. on the second Business Day
immediately preceding the Settlement Date. Settlement Procedure "H" is subject
to extension in accordance with any extension of Fedwire closing deadlines and
in the other events specified in the SDFS operating procedures in effect on the
Settlement Date.
If settlement of a Book-Entry Security is rescheduled or
canceled, the Trustee, upon obtaining knowledge thereof, will deliver to the
Depositary, through the Depositary's Participant Terminal System, a cancellation
message to such effect by no later than 2:00 p.m. on the Business Day
immediately preceding the scheduled Settlement Date.
Failure to Settle:
- ------------------
If the Trustee fails to enter an SDFS deliver order with
respect to a Book-Entry Security pursuant to Settlement Procedure "F", the
Trustee may deliver to the Depositary, through the Depositary's Participant
Terminal System, as soon as practicable a withdrawal message instructing the
Depositary to debit such Book-Entry
-II-7-
<PAGE> 40
Security to the Trustee's participant account, provided that the Trustee's
participant account contains a principal amount of the Global Security
representing such Book-Entry Security that is at least equal to the principal
amount to be debited. If a withdrawal message is processed with respect to all
the Book-Entry Securities represented by a Global Security, the Trustee will
mark such Global Security "canceled", make appropriate entries in the Trustee's
records and send such canceled Global Security to the Company. The CUSIP number
assigned to such Global Security shall, in accordance with CUSIP Service Bureau
procedures, be canceled and not immediately reassigned. If a withdrawal message
is processed with respect to one or more, but not all, of the Book-Entry
Securities represented by a Global Security, the Trustee will exchange such
Global Security for two Global Securities, one of which shall represent such
Book-Entry Security or Securities and shall be canceled immediately after
issuance and the other of which shall represent the remaining Book-Entry
Securities previously represented by the surrendered Global Security and shall
bear the CUSIP number of the surrendered Global Security.
If the purchase price for any Book-Entry Security is not
timely paid to the participants with respect to such Book-Entry Security by the
beneficial purchaser thereof (or a person, including an indirect participant in
the Depositary, acting on behalf of such purchaser), such participants and, in
turn, the Agent for such Book-Entry Security may enter deliver orders through
the Depositary's Participant Terminal System debiting such Book-Entry Security
to such participant's account and crediting such Book-Entry Security to such
Agent's account and then debiting such Book-Entry Security to such Agent's
participant account and crediting such Book-Entry Security to the Trustee's
participant account and shall notify the Company and the Trustee thereof.
Thereafter, the Trustee will (i) immediately notify the Company of such order
and the Company shall transfer to such Agent funds available for immediate use
in an amount equal to the price of such Book-Entry Security which was credited
to the account of the Company maintained at the Trustee in accordance with
Settlement Procedure "I" and (ii) deliver the withdrawal message and take the
related actions described in the preceding paragraph. If such failure shall have
occurred for any reason other than default by the applicable Agent to perform
its obligations hereunder or under the Distribution Agreement, the Company will
reimburse such Agent on an equitable basis for the loss of its use of funds
during the period when the funds were credited to the account of the Company.
Notwithstanding the foregoing, upon any failure to settle with
respect to a Book-Entry Security, the Depositary may take any actions in
accordance with its SDFS operating procedures then in effect. In the event of a
failure to settle with respect to one or more, but not all, of the Book-Entry
Securities to have been represented by a Global Security, the Trustee will
provide, in accordance with Settlement Procedure "D", for the authentication and
issuance of a Global Security representing the other Book-Entry Securities to
have been represented by such Global Security and will make appropriate entries
in its records. The Company will, from time to time, furnish the Trustee with a
sufficient quantity of Securities.
-II-8-
<PAGE> 41
PART II: ADMINISTRATIVE PROCEDURE FOR CERTIFICATED SECURITIES
----------------------------------------------------
Posting Rates by Company:
- -------------------------
The Company and the Agents will discuss from time to time the
rates of interest per annum to be borne by and the maturity of Certificated
Securities that may be sold as a result of the solicitation of offers by an
Agent. The Company may establish a fixed set of interest rates and maturities
for an offering period ("posting"). If the Company decides to change already
posted rates, it will promptly advise the Agents to suspend solicitation of
offers until the new posted rates have been established with the Agents.
Acceptance of Offers by Company:
- --------------------------------
Each Agent will promptly advise the Company by telephone or
other appropriate means of all reasonable offers to purchase Certificated
Securities, other than those rejected by such Agent. Each Agent may, in its
discretion reasonably exercised, reject any offer received by it in whole or in
part. Each Agent also may make offers to the Company to purchase Certificated
Securities as a Purchasing Agent. The Company will have the sole right to accept
offers to purchase Certificated Securities and may reject any such offer in
whole or in part.
The Company will promptly notify the Selling Agent or
Purchasing Agent, as the case may be, of its acceptance or rejection of an offer
to purchase Certificated Securities. If the Company accepts an offer to purchase
Certificated Securities, it will confirm such acceptance in writing to the
Selling Agent or Purchasing Agent, as the case may be, and the Trustee.
Communication of Sale Information to Company by Selling Agent:
- --------------------------------------------------------------
After the acceptance of an offer by the Company, the Selling
Agent or Purchasing Agent, as the case may be, will communicate promptly the
following details of the terms of such offer (the "Sale Information") to the
Company by telephone (confirmed in writing) or by facsimile transmission or
other acceptable written means:
(1) Principal amount of Certificated Securities to be
purchased;
(2) If a Fixed Rate Certificated Security, the interest
rate and the initial interest payment date;
(3) Trade Date;
(4) Settlement Date;
(5) Maturity Date;
-II-9-
<PAGE> 42
(6) Issue Price;
(7) Selling Agent's commission or Purchasing Agent's
discount, as the case may be;
(8) Net Proceeds to the Company;
(9) If a redeemable Certificated Security, such of the
following as are applicable:
(i) Redemption Commencement Date,
(ii) Initial Redemption Price (% of
par), and
(iii) Amount (% of par) that the
Redemption Price shall decline (but
not below par) on each anniversary
of the Redemption Commencement Date;
(10) If a Floating Rate Certificated Security, such of the
following as are applicable:
(i) Interest Rate Basis,
(ii) Index Maturity,
(iii) Spread or Spread Multiplier,
(iv) Maximum Rate,
(v) Minimum Rate,
(vi) Initial Interest Rate,
(vii) Interest Reset Dates,
(viii) Calculation Dates,
(ix) Interest Determination Dates,
(x) Interest Payment Dates,
(xi) Regular Record Dates, and
(xii) Calculation Agent;
-II-10-
<PAGE> 43
(11) Name, address and taxpayer identification number of
the registered owner(s);
(12) Denomination of certificates to be delivered at
settlement;
(13) Book-Entry Security or Certificated Security; and
(14) Selling Agent or Purchasing Agent.
Preparation of Pricing Supplement by Company:
- ---------------------------------------------
If the Company accepts an offer to purchase a Certificated
Security, it will prepare a Pricing Supplement reflecting the terms of such
Certificated Security and arrange to have delivered to the Selling Agent or
Purchasing Agent, as the case may be, at least ten copies of such Pricing
Supplement, not later than 5:00 p.m., New York City time, on the Business Day
following the Trade Date, or if the Company and the purchaser agree to
settlement on the date of acceptance of such offer, not later than noon, New
York City time, on such date. The Company will arrange to have ten Pricing
Supplements filed with the Commission not later than the close of business of
the Commission on the fifth Business Day following the date on which such
Pricing Supplement is first used.
Delivery of Confirmation and Prospectus to Purchaser by Selling Agent:
- ----------------------------------------------------------------------
The Selling Agent will deliver to the purchaser of a
Certificated Security a written confirmation of the sale and delivery and
payment instructions. In addition, the Selling Agent will deliver to such
purchaser or its agent the Prospectus as amended or supplemented (including the
Pricing Supplement) in relation to such Certificated Security prior to or
together with the earlier of the delivery to such purchaser or its agent of (a)
the confirmation of sale or (b) the Certificated Security.
Date of Settlement:
- -------------------
All offers of Certificated Securities solicited by a Selling
Agent or made by a Purchasing Agent and accepted by the Company will be settled
on a date (the "Settlement Date") which is the third Business Day after the date
of acceptance of such offer, unless the Company and the purchaser agree to
settlement (a) on any other Business Day after the date of acceptance of such
offer or (b) with respect to an offer accepted by the Company prior to 10:00
a.m., New York City time, on the date of such acceptance.
Instruction from Company to Trustee for Preparation of Certificated Securities:
- -------------------------------------------------------------------------------
After receiving the Sale Information from the Selling Agent or
Purchasing Agent, as the case may be, the Company will communicate such Sale
Information to
-II-11-
<PAGE> 44
the Trustee by telephone (confirmed in writing) or by facsimile transmission or
other acceptable written means.
The Company will instruct the Trustee by facsimile
transmission or other acceptable written means to authenticate and deliver the
Certificated Securities no later than 2:15 p.m., New York City time, on the
Settlement Date. Such instruction will be given by the Company prior to 3:00
p.m., New York City time, on the Business Day immediately preceding the
Settlement Date unless the Settlement Date is the date of acceptance by the
Company of the offer to purchase Certificated Securities in which case such
instruction will be given by the Company by 11:00 a.m., New York City time.
Preparation and Delivery of Certificated Securities by Trustee and Receipt of
- -----------------------------------------------------------------------------
Payment Therefor:
- -----------------
The Trustee will prepare each Certificated Security and
appropriate receipts that will serve as the documentary control of the
transaction.
In the case of a sale of Certificated Securities to a
purchaser solicited by a Selling Agent, the Trustee will, by 2:15 p.m., New York
City time, on the Settlement Date, deliver the Certificated Securities to the
Selling Agent for the benefit of the purchaser of such Certificated Securities
against delivery by the Selling Agent of a receipt therefor. On the Settlement
Date, the Selling Agent will deliver payment for such Certificated Securities in
immediately available funds to the Company in an amount equal to the issue price
of the Certificated Securities less the Selling Agent's commission; provided
that the Selling Agent reserves the right to withhold payment for which it has
not received funds from the purchaser. The Company shall not use any proceeds
advanced by a Selling Agent to acquire securities.
In the case of a sale of Certificated Securities to a
Purchasing Agent, the Trustee will, by 2:15 p.m., New York City time, on the
Settlement Date, deliver the Certificated Securities to the Purchasing Agent
against delivery of payment for such Certificated Securities in immediately
available funds to the Company in an amount equal to the issue price of the
Certificated Securities less the Purchasing Agent's discount.
Failure of Purchaser to Pay Selling Agent:
- ------------------------------------------
If a purchaser (other than a Purchasing Agent) fails to make
payment to the Selling Agent for a Certificated Security, the Selling Agent will
promptly notify the Trustee and the Company thereof by telephone (confirmed in
writing) or by facsimile transmission or other acceptable written means. The
Selling Agent will immediately return the Certificated Security to the Trustee.
Immediately upon receipt of such Certificated Security by the Trustee, the
Company will return to the Selling Agent an amount equal to the amount
previously paid to the Company in respect of such Certificated Security. The
Company will reimburse the Selling Agent on an equitable
-II-12-
<PAGE> 45
basis for its loss of the use of funds during the period when they were credited
to the account of the Company.
The Trustee will cancel the Certificated Security in respect
of which the failure occurred, make appropriate entries in its records and,
unless otherwise instructed by the Company, destroy the Certificated Security.
-II-13-
<PAGE> 46
ANNEX III
Accountants' Letter
Pursuant to Section 4(j) and Section 6(d), as the case may be,
of the Distribution Agreement, the Company's independent certified public
accountants shall furnish letters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
prospective financial statements and/or pro forma financial
information) examined by them and included in the Registration
Statement or the Prospectus comply as to form in all material respects
with the applicable accounting requirements of the Act, and the related
published rules and regulations thereunder; and, if applicable, they
have made a review in accordance with standards established by the
American Institute of Certified Public Accountants of the consolidated
interim financial statements, selected financial data, pro forma
financial information and/or condensed financial statement derived from
audited financial statements of the Company for the periods specified
in such letter, as indicated in their reports thereon, copies of which
have been separately furnished to the Agents;
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus as indicated in their reports thereon copies
of which have been separately furnished to the Agents; and on the basis
of specified procedures including inquiries of officials of the Company
who have responsibility for financial and accounting matters regarding
whether the unaudited condensed consolidated financial statement
referred to in paragraph (vi)(A)(i) below comply as to form in all
material respects with the applicable accounting requirements of the
Act and the Exchange Act and the related published rules and
regulations, nothing came to their attention that caused them to
believe that the unaudited condensed consolidated financial statements
do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations;
(iv) Subject to the introductory paragraphs appearing under
the caption "Selected Consolidated Financial Data" in the Registration
Statement, the unaudited selected financial information with respect
to the consolidated results of operations and financial position of
the Company for the five most recent fiscal years included in the
Prospectus and included or incorporated by reference in Item 6 of the
Company's Annual Report on Form 10-K for the most recent fiscal year
agrees with the corresponding
<PAGE> 47
amounts (after restatement where applicable) in the audited
consolidated financial statements for the five such fiscal years which
were included or incorporated by reference in the Company's Annual
Reports on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
the selected captions with the disclosure requirements of Regulation
S-K and on the basis of limited procedures specified in such letter
nothing came to their attention as a result of the foregoing procedures
that caused them to believe that this information does not conform in
all material respects with the disclosure requirements of Items 301,
302, 402 and 503(d), respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available
interim financial statements of the Company and its subsidiaries,
inspection of the minute books of the Company and its subsidiaries
since the date of the latest audited financial statements included in
the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A)(i) the unaudited condensed consolidated
statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the
Prospectus do not comply as to form in all material respects
with the applicable accounting requirements of the Exchange
Act and the related published rules and regulations, or (ii)
any material modifications should be made to the unaudited
condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows
included in the Prospectus for them to be in conformity with
generally accepted accounting principles;
(B) any other unaudited income statement data and
balance sheet items included in the Prospectus do not agree
with the corresponding items in the unaudited consolidated
financial statements from which such data and items were
derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis
for the corresponding amounts in the audited consolidated
financial statements included or incorporated by reference in
the Company's Annual Report on Form 10-K for the most recent
fiscal year;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived the
unaudited condensed financial statements referred to in Clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and
-III-2-
<PAGE> 48
referred to in Clause (B) were not determined on a basis
substantially consistent with the basis for the audited
financial statements included or incorporated by reference in
the Company's Annual Report on Form 10-K for the most recent
fiscal year;
(D) any unaudited pro forma consolidated condensed
financial statements included in the Prospectus do not comply
as to form in all material respects with the applicable
accounting requirements of the Act and the published rules and
regulations thereunder or the pro forma adjustments have not
been properly applied to the historical amounts in the
compilation of those statements;
(E) as of a specified date not more than five days
prior to the date of such letter, there have been any changes
in the consolidated capital stock (other than issuances of
capital stock upon exercise of options and stock appreciation
rights, upon earn-outs of performance shares and upon
conversions of convertible securities, in each case which were
outstanding on the date of the latest balance sheet included
in the Prospectus) or any increases in consolidated long-term
debt of the Company and its subsidiaries, or any decreases in
consolidated net current assets or net assets or other items
specified by the Agents, or any increases in any items
specified by the Agents, in each case as compared with amounts
shown in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which
the Prospectus discloses have occurred or may occur or which
are described in such letter; and
(F) for the period from the date of the latest
financial statements included in the Prospectus to the
specified date referred to in Clause (E) there were any
decreases in consolidated net revenues or operating profit or
the total or per share amounts of consolidated net income or
other items specified by the Agents, or any increases in any
items specified by the Agents, in each case as compared with
the comparable period of the preceding year and with any other
period of corresponding length specified by the Agents, except
in each case for increases or decreases which the Prospectus
discloses have occurred or may occur or which are described in
such letter; and
(vii) In addition to the audit referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in paragraphs
(iii) and (iv) above, they have carried out certain specified
procedures, not constituting an examination in accordance with
generally accepted auditing standards, with respect to certain amounts,
percentages and financial information specified by the Agents which are
derived from the general accounting records of the Company and its
subsidiaries, which appear in the Prospectus, or in Part II of, or in
exhibits and schedules to, the Registration Statement specified by the
Agents, and have
-III-3-
<PAGE> 49
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and
have found them to be in agreement.
All references in this Annex III to the Prospectus shall be
deemed to refer to the Prospectus as defined in the Distribution Agreement as of
the Commencement Date referred to in Section 6(d) thereof and to the Prospectus
as amended or supplemented as of the date of the amendment, supplement or the
Time of Delivery relating to the Terms Agreement requiring the delivery of such
letter under Section 4(j) thereof.
-III-4-
<PAGE> 1
Exhibit 5
[logo] Nicholas J. Calise
The BFGoodrich Company Vice President
4020 Kinross Lakes Parkway Associate General Counsel
Richfield, Ohio 44286-9368 and Secretary
Tele: (330) 659-7711
Fax: (330) 659-7727
e-mail:[email protected]
March 24, 1998
The B.F.Goodrich Company
4020 Kinross Lakes Parkway
Richfield, Ohio 44286-9368
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
I have examined the Registration Statement on Form S-1 (the "Registration
Statement"), filed by The B.F.Goodrich Company (the "Company") with the
Securities and Exchange Commission (the "Commission"), pursuant to the
Securities Act of 1933, as amended (the "Act"), for the registration of
$500,000,000 aggregate principal amount of the Company's Debt Securities (the
"Securities") to be issued under an indenture (the "Indenture") dated as of May
1, 1991 between the Company and Harris Trust and Savings Bank (the "Trustee").
It is my opinion that when the Registration Statement has become effective under
the terms of the Act, the terms of any Securities and of their issuance and sale
have been duly established in conformity with the terms of Indenture so as not
to violate any applicable law or result in a default under or breach of any
agreement or instrument binding upon the Company and so as to comply with any
requirement or restriction imposed by any court
<PAGE> 2
or governmental body having jurisdiction over the Company, and such Securities
have been duly executed and authenticated in accordance with the Indenture and
issued and sold as described in the Registration Statement (including any
prospectus and prospectus supplement relating to such Securities), such
Securities will constitute the valid and legally binding obligations of the
Company, subject to bankruptcy, insolvency, and similar laws affecting the
enforcement of creditors' rights generally and to general principles of equity
(regardless of whether endorsement is sought in a proceeding in equity or at
law).
The opinions expressed herein are limited to matters of the laws of the States
of Ohio and New York and the federal laws of the United States. I express no
opinion as to the effect of any applicable law of any other jurisdiction.
In rendering such opinions, I have relied as to certain matters on information
obtained from public officials, officers of the Company and other sources I
believe to be responsible, and I have assumed that the Indenture has been duly
authorized, executed and delivered by the Trustee, an assumption that I have not
independently verified.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to me under the caption "Validity of Debt
Securities" in the prospectus forming a part of the Registration Statement.
Very truly yours,
Nicholas J. Calise
Vice President, Associate General Counsel
and Secretary
NJC/l
<PAGE> 1
EXHIBIT 12
THE B.F. GOODRICH COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions, except for ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
COMPUTATION OF EARNINGS:
Income (loss) from continuing operations
before income taxes, QUIP distributions
and cum. eff. of change in accounting method $217.8 $194.4 $157.2 $102.9 ($36.2)
Add (Deduct):
Interest expense, net of capitalized
interest 77.0 101.2 111.5 106.9 99.5
Amortization of interest previously
capitalized 1.5 1.3 1.4 1.3 1.0
Portion of rent expense representative
of an interest factor 10.0 10.4 10.5 10.1 11.5
------ ------ ------ ------ ------
EARNINGS $306.3 $307.3 $280.6 $221.2 $75.8
====== ====== ====== ====== ======
COMPUTATION OF FIXED CHARGES:
Interest expense, net of capitalized
interest $77.0 $101.2 $111.5 $106.9 $99.5
Distributions on quarterly income
preferred securities 10.5 10.5 5.1
Portion of rent expense representative
of an interest factor 10.0 10.4 10.5 10.1 11.5
Capitalized interest 5.3 6.7 2.7 1.0 6.9
------ ------ ------ ------ ------
FIXED CHARGES $102.8 $128.8 $129.8 $118.0 $117.9
====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES 2.98 2.39 2.16 1.87 (A)
------ ------ ------ ------
</TABLE>
(A) Earnings did not cover fixed charges in 1993 by $42.1 million.
<PAGE> 1
EXHIBIT 23(A)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated
February 16, 1998, in the Registration Statement (Form S-1) and related
Prospectus of The BFGoodrich Company for the registration of $500,000,000 of
debt securities.
ERNST & YOUNG LLP
Cleveland, Ohio
March 24, 1998
<PAGE> 1
Exhibit 23(B)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of The BFGoodrich
Company on Form S-1 of our report dated September 11, 1997, on our audits of
Rohr, Inc. as of July 31, 1996 and for each of the two years in the period then
ended, appearing in the Prospectus, which is part of the Registration
Statement, and to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
San Diego, California
March 24, 1998
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints D. Lee Tobler, Terrence G. Linnert and
Nicholas J. Calise, and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and revocation, in
his or her name and on his or her behalf, to do any and all acts and things and
to execute any and all instruments which they may deem necessary or advisable to
enable The B.F.Goodrich Company (the "Company") to comply with the Securities
Act of 1933 (the "Act") and any rules, regulations and requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
registration under the Act of Debt Securities including Medium Term Notes in an
aggregate principal amount not to exceed $500 million, and up to 2,761,585
shares of the Company's Common Stock held by the Master Trust for the Company's
salary and wage defined benefit plans, including power and authority to sign his
or her name in any and all capacities (including his or her capacity as a
Director and/or Officer of the Company) to one or more registration statements
on Form S-1, or such other available form as may be approved by officers of the
Company, and to any and all amendments, including post-effective amendments, to
such registration statements; and the undersigned hereby ratifies and confirms
all that said attorneys-in-fact and agents, or any of them, shall lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these presents this
23rd day of March, 1998.
/s/Jeanette Grasselli Brown /s/David L. Burner
- ------------------------------------- -------------------------------------
(Jeanette Grasselli Brown) (David L. Burner)
Director Chairman of the Board, President and
Chief Executive Officer, and Director
(Principal Executive Officer)
/s/Diane C. Creel /s/George A. Davidson, Jr.
- ------------------------------------- -------------------------------------
(Diane C. Creel) (George A. Davidson, Jr.)
Director Director
/s/James J. Glasser
- ------------------------------------- -------------------------------------
(Richard K. Davidson) (James J. Glasser)
<PAGE> 2
Director Director
/s/Jodie K. Glore /s/Douglas E. Olesen
- ------------------------------------- -------------------------------------
(Jodie K. Glore) (Douglas E. Olesen)
Director Director
/s/Richard de J. Osborne /s/Joseph A. Pichler
- ------------------------------------- -------------------------------------
(Richard de J. Osborne) (Joseph A. Pichler)
Director Director
/s/Alfred M. Rankin, Jr.
- ------------------------------------- -------------------------------------
(Alfred M. Rankin, Jr.) (Robert H. Rau)
Director Director
/s/Steven G. Rolls /s/Ian M. Ross
- ------------------------------------- -------------------------------------
(Steven G. Rolls) (Ian M. Ross)
Vice President and Controller Director
(Principal Accounting Officer)
/s/D. Lee Tobler /s/James R. Wilson
- ------------------------------------- -------------------------------------
(D. Lee Tobler) (James R. Wilson)
Executive Vice President Director
and Director
(Principal Financial Officer)
/s/A. Thomas Young
--------------------------------
(A. Thomas Young)
Director
<PAGE> 3
<TABLE>
<S> <C>
/s/Jodie K. Glore /s/Douglas E. Olesen
- ------------------------------------ --------------------------------------------
(Jodie K. Glore) (Douglas E. Olesen)
Director Director
/s/Richard de J. Osborne /s/Joseph A. Pichler
- ------------------------------------ --------------------------------------------
(Richard de J. Osborne) (Joseph A. Pichler)
Director Director
/s/Alfred M. Rankin, Jr.
- ------------------------------------ --------------------------------------------
(Alfred M. Rankin, Jr.) (Robert H. Rau)
Director Director
/s/Steven G. Rolls /s/Ian M. Ross
- ------------------------------------ --------------------------------------------
(Steven G. Rolls) (Ian M. Ross)
Vice President and Controller Director
(Principal Accounting Officer)
/s/D. Lee Tobler /s/James R. Wilson
- ------------------------------------ --------------------------------------------
(D. Lee Tobler) (James R. Wilson)
Executive Vice President Director
and Director
(Principal Financial Officer)
--------------------------------------------
/s/A. Thomas Young
(A. Thomas Young)
Director
</TABLE>
<PAGE> 1
Exhibit 25
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
Statement of Eligibility
Under the Trust Indenture Act of 1939
of a Corporation Designated to Act as
Trustee
Check if an Application to Determine
Eligibility of a Trustee Pursuant to Section
305(b)(2) _______________
HARRIS TRUST AND SAVINGS BANK
(Name of Trustee)
<TABLE>
<S> <C>
Illinois 36-1194448
(State of Incorporation) (I.R.S. Employer Identification No.)
</TABLE>
111 West Monroe Street; Chicago, Illinois 60603
(Address of principal executive offices)
Daryl L. Pomykala; Harris Trust and Savings Bank;
311 West Monroe Street; Chicago, Illinois, 60606
312/461-7458
(Name, address and telephone number for agent for service)
The B.F.Goodrich Company
(Name of obligor)
New York
(State of Incorporation)
34-0252680
(I.R.S. Employer Identification Number)
4020 Kinross Lakes Parkway Richfield, Ohio 44286-9368, (330) 659-7600
(Address of principal executive offices)
Debt Securities
(Title of Indenture Securities)
<PAGE> 2
1. GENERAL INFORMATION. Furnish the following information as to the
Trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Commissioner of Banks and Trust Companies, State of Illinois,
Springfield, Illinois; Chicago Clearing House Association, 164
West Jackson Boulevard, Chicago, Illinois; Federal Deposit
Insurance Corporation, Washington, D.C.; The Board of
Governors of the Federal Reserve System,Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Harris Trust and Savings Bank is authorized to exercise
corporate trust powers.
2. AFFILIATIONS WITH OBLIGOR. If the Obligor is an affiliate of the
Trustee, describe each such affiliation.
The Obligor is not an affiliate of the Trustee.
3. thru 15.
NO RESPONSE NECESSARY
16. LIST OF EXHIBITS.
1. A copy of the articles of association of the Trustee is now in
effect which includes the authority of the trustee to commence
business and to exercise corporate trust powers.
A copy of the Certificate of Merger dated April 1, 1972 between
Harris Trust and Savings Bank, HTS Bank and Harris Bankcorp, Inc.
which constitutes the articles of association of the Trustee as now
in effect and includes the authority of the Trustee to commence
business and to exercise corporate trust powers was filed in
connection with the Registration Statement of Louisville Gas and
Electric Company, File No. 2-44295, and is incorporated herein by
reference.
2. A copy of the existing by-laws of the Trustee.
A copy of the existing by-laws of the Trustee was filed in
connection with the Registration Statement of C-Cube Microsystems,
Inc.; File No. 33-97166, and is incorporated herein by reference.
3. The consents of the Trustee required by Section 321(b) of the Act.
(included as Exhibit A on page 2 of this statement)
4. A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority.
(included as Exhibit B on page 3 of this statement)
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
HARRIS TRUST AND SAVINGS BANK, a corporation organized and existing under the
laws of the State of Illinois, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Chicago, and State of Illinois, on the 27th day of March, 1998.
HARRIS TRUST AND SAVINGS BANK
By: /s/ Daryl L. Pomykala
---------------------------
Daryl L. Pomykala
Assistant Vice President
EXHIBIT A
The consents of the Trustee required by Section 321(b) of the Act.
Harris Trust and Savings Bank, as the Trustee herein named, hereby consents that
reports of examinations of said trustee by Federal and State authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
HARRIS TRUST AND SAVINGS BANK
By: /s/ Daryl L. Pomykala
---------------------------
Daryl L. Pomykala
Assitant Vice President
March 27, 1998
<PAGE> 4
EXHIBIT B
Attached is a true and correct copy of the statement of condition of Harris
Trust and Savings Bank as of December 31, 1997, as published in accordance with
a call made by the State Banking Authority and by the Federal Reserve Bank of
the Seventh Reserve District.
[LOGO] HARRIS BANK
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
of Chicago, Illinois, And Foreign and Domestic Subsidiaries, at the close of
business on December 31, 1997, a state banking institution organized and
operating under the banking laws of this State and a member of the Federal
Reserve System. Published in accordance with a call made by the Commissioner of
Banks and Trust Companies of the State of Illinois and by the Federal Reserve
Bank of this District.
Bank's Transit Number 71000288
<TABLE>
<CAPTION>
THOUSANDS
ASSETS OF DOLLARS
<S> <C> <C>
Cash and balances due from depository institutions:
Non-interest bearing balances and currency and coin ................... $ 1,252,381
Interest bearing balances ............................................. $ 598,062
Securities: .........................................................................
a. Held-to-maturity securities $ 0
b. Available-for-sale securities $ 3,879,399
Federal funds sold and securities purchased under agreements to resell $ 71,725
Loans and lease financing receivables:
Loans and leases, net of unearned income ..............................
LESS: Allowance for loan and lease losses ............................ $ 8,813,821
$ 99,678
Loans and leases, net of unearned income, allowance, and reserve ---------------
(item 4.a minus 4.b) .................................................. $ 8,714,143
Assets held in trading accounts ..................................................... $ 136,538
Premises and fixed assets (including capitalized leases) ............................ $ 221,312
Other real estate owned ............................................................. $ 642
Investments in unconsolidated subsidiaries and associated companies ................. $ 103
Customer's liability to this bank on acceptances outstanding ........................ $ 46,480
Intangible assets ................................................................... $ 279,897
Other assets ........................................................................ $ 653,101
-------------------------------
TOTAL ASSETS ........................................................................ $ 15,853,783
===============================
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
Deposits:
In domestic offices ....................................................................... $ 8,926,635
Non-interest bearing ............................................................. $ 3,692,891
Interest bearing ................................................................. $ 5,233,744
In foreign offices, Edge and Agreement subsidiaries, and IBF's ............................ $ 1,763,669
Non-interest bearing ............................................................. $ 22,211
Interest bearing ................................................................. $ 1,741,458
Federal funds purchased and securities sold under agreements to repurchase in domestic offices
of the bank and of its Edge and Agreement subsidiaries, and in IBF's:
Federal funds purchased & securities sold under agreements to repurchase .................. $ 2,693,600
Trading Liabilities ............................................................................ 82,861
Other borrowed money: ..........................................................................
a. With remaining maturity of one year or less $ 601,799
b. With remaining maturity of more than one year $ 0
Bank's liability on acceptances executed and outstanding ....................................... $ 46,480
Subordinated notes and debentures .............................................................. $ 325,000
Other liabilities .............................................................................. $ 134,309
------------------------
TOTAL LIABILITIES .............................................................................. $ 14,574,353
========================
EQUITY CAPITAL
Common stock.................................................................................... $ 100,000
Surplus......................................................................................... $ 601,026
a. Undivided profits and capital reserves.............................................. $ 573,416
b. Net unrealized holding gains (losses) on available-for-sale securities $ 4,988
------------------------
TOTAL EQUITY CAPITAL $ 1,279,430
========================
Total liabilities, limited-life preferred stock, and equity capital............................. $ 15,853,783
========================
</TABLE>
I, Pamela Piarowski, Vice President of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System and
is true to the best of my knowledge and belief.
PAMELA PIAROWSKI
1/30/98
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and, to the best of our
knowledge and belief, has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and the
Commissioner of Banks and Trust Companies of the State of Illinois and is true
and correct.
EDWARD W. LYMAN,
ALAN G. McNALLY,
RICHARD E. TERRY
Directors.
4
