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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the transition period from ..... to .....
Commission file number 1-5263
THE LUBRIZOL CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 34-0367600
(State of incorporation) (I.R.S. Employer Identification No.)
29400 Lakeland Boulevard
Wickliffe, Ohio 44092-2298
(Address of principal executive officers, including zip code)
Registrant's telephone number, including area code: (440) 943-4200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------------------- ------------------------
Common Shares without par value New York Stock Exchange
Common Share purchase rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value (on basis of closing sale price) of voting stock
held by nonaffiliates as of March 5, 1999 $1,058,178,345
Number of the registrant's Common Shares, without par value,
outstanding as of March 5, 1999 55,548,676
Documents Incorporated By Reference
-----------------------------------
Portions of the registrant's 1998 Annual Report to its shareholders
(Incorporated into Part I and II of this Form 10-K)
Portions of the registrant's Proxy Statement dated March 17, 1999
(Incorporated into Part III of this Form 10-K)
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PART I
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ITEM 1. BUSINESS
The Lubrizol Corporation was organized under the laws of Ohio
in 1928. The company began business as a compounder of special-purpose
lubricants, and in the early 1930's was among the first to commence research in
the field of lubricant additives. Today, the company is a full-service supplier
of performance chemicals to diverse markets worldwide. The company develops,
produces and sells specialty additive packages used in transportation and
industrial finished lubricants. The company's products are created through the
application of advanced chemical and mechanical technologies to enhance the
performance, quality and value of the customer products in which they are used.
The company groups its product lines into two operating segments: chemicals for
transportation and chemicals for industry.
PRINCIPAL PRODUCTS. Chemicals for transportation is comprised
of additives for lubricating engine oils, such as those used in gasoline,
diesel, marine and stationary gas engines; additives for driveline oils, such as
automatic transmission fluids, gear oils and tractor lubricants; and additives
for fuel products and refinery and oil field chemicals. In addition, the company
sells additive components to its larger customers and viscosity improvers within
its lubricant and fuel additives product lines. Chemicals for industry includes
industrial additives, such as additives for hydraulic fluids, metalworking
fluids, and compressor lubricants; performance chemicals, such as additives for
coatings and inks and process chemicals; and performance systems, comprised
principally of fluid metering devices and particulate emission trap devices.
Revenues within the chemicals for transportation segment
comprised 84%, 86% and 86% of consolidated revenues in 1998, 1997 and 1996,
respectively. Additives for lubricating engine oils comprised 49%, 51% and 50%
of consolidated revenues in 1998, 1997 and 1996, respectively. Additives for
driveline oils comprised 24%, 24% and 25% of consolidated revenues for these
same respective periods. Further financial information for the company's
operating segments is contained in Note 13 to the Financial Statements, which is
included in the company's 1998 Annual Report to its shareholder's and is
incorporated herein by reference.
Additives improve the lubricants and fuels used in cars,
trucks, buses, off-highway equipment, marine engines and industrial
applications. In lubricants, additives enable oil to withstand a broader range
of temperatures, limit the buildup of sludge and varnish deposits, reduce wear,
inhibit the formation of foam, rust and corrosion, and retard oxidation. In
fuels, additives help maintain efficient operation of the fuel delivery system,
help control deposits and corrosion, improve combustion and assist in preventing
decomposition during storage.
Due to the variety of oil properties and applications, a
number of different chemicals are used to formulate the company's products. Each
additive combination is designed to fit the characteristics of the customer's
base oil and the level of performance specified. Engine oils for passenger cars
contain a combination of chemical additives which usually includes one or more
detergents, dispersants, oxidation inhibitors and wear inhibitors, pour point
depressants and viscosity improvers. Other chemical combinations are used in
specialty additive systems for heavy duty engine oils used by trucks and
off-highway equipment and in formulations for gear oils, automatic transmission
fluids, industrial oils, metalworking fluids, and gasoline, diesel and residual
fuels.
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The company's performance systems products principally involve
products used in emission controls, such as catalyst, exhaust and filter systems
and precision metering devices used in blending and additive injection
operations.
COMPETITION. The company's chemicals for transportation
segment and chemicals for industry segment are highly competitive in terms of
price, technology development, product performance and customer service. The
company's principal competitors within its chemicals for transportation segment,
both in the United States and overseas, are three major petroleum companies, and
one chemical company. Two of the major petroleum companies, which previously
participated in the lubricant additive industry through separate divisions, have
combined their efforts by forming a separate joint venture company that began
commercial operations in 1999. The petroleum companies produce lubricant and
fuel additives for their own use, and also sell additives to others. These
competing petroleum companies are also customers of the company and may also
sell base oil to the company. Excluding viscosity improvers, the company
believes, based on volume sold, that it is the largest supplier to the petroleum
industry of performance additive packages for lubricants.
CUSTOMERS. In the United States, the company markets its
chemicals for transportation and chemicals for industry products through its own
sales organization. The company's additive customers consist primarily of oil
refiners and independent oil blenders and are located in more than 100
countries. In 1998, approximately 40% of the company's consolidated sales were
made to customers in North America, 32% to customers in Europe and 28% to
customers in Asia-Pacific, the Middle East and Latin America. Mobil Corporation
and its affiliates ("Mobil") is the company's largest customer within its
chemicals for transportation segment. Revenues from Mobil comprised 9% of
consolidated sales in 1998 and comprised 10% of consolidated sales in both 1997
and 1996. The company's ten largest customers, most of which are international
oil companies and a number of which are groups of affiliated entities, accounted
for approximately 42% of consolidated sales in 1998. The loss of one or more of
these customers could have a material adverse effect on the company's business.
The company's chemicals for industry segment is not materially dependent on a
single customer or on a few customers.
Raw Materials. The company utilizes a broad variety of
chemical raw materials in the manufacture of its additives and uses oil in
processing and blending additives. These materials are obtainable from several
sources, and for the most part are derived from petroleum. Unstable political
and economic conditions in the Middle East have, in the past, caused and may
continue to cause the cost of raw materials to fluctuate significantly; however,
the availability of raw materials to the company has not been significantly
affected when these conditions occurred. The company expects raw materials to be
available in adequate quantities during 1999.
Research, Testing And Development. The company has
historically emphasized research and has developed a large percentage of the
additives it manufactures and sells. Technological developments in the design of
engines and other automotive equipment, combined with rising demands for
environmental protection and fuel economy, require increasingly sophisticated
chemical additives to meet industry performance standards. The frequency of
changes in industry performance standards compresses time cycles for new product
development and affects the company's technical spending patterns.
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Consolidated research and development expenditures were $78.3
million in 1998, $88.4 million in 1997 and $93.4 million in 1996. These amounts
were equivalent to 4.8%, 5.3% and 5.8% of the respective revenues for such
years. These amounts include expenditures for the performance evaluation of
additive developments in engines and other types of mechanical equipment as well
as expenditures for the development of specialty chemicals for industrial
applications. In addition, $72.7 million, $58.2 million and $67.6 million was
spent in 1998, 1997 and 1996, respectively, for technical service (testing)
activities, principally for evaluation in mechanical equipment of specific
lubricant formulations designed for the needs of petroleum industry customers
throughout the world.
Research, testing and development expenditures by operating
segment were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Research and development expenditures:
Chemicals for transportation $67,018 $76,259 $79,301
Chemicals for industry 11,265 12,185 14,135
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Total $78,283 $88,444 $93,436
======= ======= =======
Testing expenditures:
Chemicals for transportation $64,641 $51,260 $60,723
Chemicals for industry 8,056 6,974 6,819
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Total $72,697 $58,234 $67,542
======= ======= =======
</TABLE>
The company has two research facilities at Wickliffe, Ohio,
one of which is principally for lubricant additive research and the other for
research in the field of other specialty chemicals. The company also maintains a
mechanical testing laboratory at Wickliffe, equipped with a variety of gasoline
and diesel engines and other mechanical equipment to evaluate the performance of
additives for lubricants and fuels. The company has similar mechanical testing
laboratories in England and Japan and, in addition, makes extensive use of
independent contract research firms. Extensive field testing is also conducted
through various arrangements with fleet operators and others.
Liaison offices in Detroit, Michigan; Hazelwood, England;
Hamburg, Germany; Tokyo, Japan; and Paris, France, maintain close contact with
the principal automotive and equipment manufacturers of the world and keep the
company abreast of the performance requirements for its products in the face of
changing technologies. These liaison activities also serve as contacts for
cooperative development and evaluation of products for future applications.
Contacts with the automotive and equipment industry are important so the company
may have the necessary direction and lead time to develop products for use in
engines, transmissions, gear sets, and other areas of equipment that require
lubricants of advanced design.
Patents. The company owns a variety of United States and
foreign patents relating to lubricant and fuel additives, lubricants, chemical
compositions and processes, and protective coating materials and processes.
While such domestic and foreign patents expire from time to time, the company
continues to apply for and obtain patent protection on an ongoing basis.
Although the company believes that, in the aggregate, its patents constitute an
important asset, it does not regard its business as being materially dependent
upon any single patent or any group of related patents.
The company has filed claims against Exxon Corporation and its
affiliates ("Exxon") relating to various commercial matters, including alleged
infringements by Exxon of certain of the company's patents. These suits are
pending in the United States (in Ohio) and Canada and are at various stages. In
the suit in Canada, the company is alleging infringement of a patent that
corresponds to a United States patent admitted as valid by Exxon in a settlement
in 1988. A determination of liability has been made by the Canadian courts
against Exxon in favor of the company, and the case has been returned to
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the trial court for an assessment of damages, but no date has been set for a
determination of such damages. Further information regarding litigation with
Exxon is contained in Note 17 to the Financial Statements, which is included in
the company's 1998 Annual Report to its shareholders.
Environmental Matters. The company is subject to federal,
state and local laws and regulations designed to protect the environment and
limit manufacturing wastes and emissions. The company believes that as a general
matter its policies, practices and procedures are properly designed to prevent
unreasonable risk of environmental damage and the consequent financial liability
to the company. Compliance with the environmental laws and regulations requires
continuing management effort and expenditures by the company. The company
believes that the cost of complying with environmental laws and regulations,
including capital expenditures, will not have a material affect on the earnings,
liquidity or competitive position of the company.
The company is engaged in the handling, manufacture, use,
transportation and disposal of substances that are classified as hazardous or
toxic by one or more regulatory agencies. The company believes that its
handling, manufacture, use, transportation and disposal of such substances
generally have been in accord with environmental laws and regulations.
Among other environmental laws, the company is subject to the
federal "Superfund" law, under which the company has been designated as a
"potentially responsible party" that may be liable for cleanup costs associated
with various waste sites, some of which are on the U.S. Environmental Protection
Agency Superfund priority list. The company's experience, consistent with what
it believes to be the experience of others in similar cases, is that Superfund
site liability tends to be apportioned among parties based upon contribution of
materials to the Superfund site. Accordingly, the company measures its liability
and carries out its financial reporting responsibilities with respect to
Superfund sites based upon this standard, even though Superfund site liability
is technically joint and several in nature. The company views the expense of
remedial cleanup as a part of its product cost, and accrues for estimated
environmental liabilities with charges to cost of sales. The company considers
its environmental accrual to be adequate to provide for its portion of costs for
all known environmental matters, including Superfund sites. Based upon
consideration of currently available information, the company believes
liabilities for environmental matters will not have a material adverse affect on
the company's financial position, operating results or liquidity.
General
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Employees. At December 31, 1998, the company and its
wholly-owned subsidiaries had 4,324 employees of which approximately 60% were in
the U.S.
International Operations. Financial information with respect
to domestic and foreign operations is contained in Note 13 to the Financial
Statements which is included in the company's 1998 Annual Report to its
shareholders and is incorporated herein by reference.
The company supplies its additive customers abroad through
export from the United States and from overseas manufacturing plants. Sales and
technical service offices are maintained in more than 30 countries outside the
United States. As a result, the company is subject to business risks inherent in
non-U.S. activities, including political and economic uncertainty, import and
export limitations, exchange controls and currency fluctuations. The company
believes risks related to its foreign operations are mitigated due to the
political and economic stability of the countries in which its largest foreign
operations are located.
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While changes in the U.S. dollar value of foreign currencies
will affect earnings from time to time, the longer-term economic effect of these
changes should not be significant given the company's net asset exposure and
currency mix, including its use of U.S. dollar based pricing in certain
countries, relative to its revenues and expenses. The company's consolidated net
income will generally benefit as foreign currencies increase in value compared
to the U.S. dollar and will generally decline as foreign currencies decrease in
value.
ITEM 2. PROPERTIES
The general offices of the company are located in Wickliffe,
Ohio. The company has various leases for general office space primarily located
in Houston, Texas; and London, England. The company owns three additive
manufacturing plants in the United States; one located in the Cleveland, Ohio
area, at Painesville, and two near Houston, Texas, at Deer Park and Bayport.
Outside the United States, the company owns additive manufacturing/blending
plants in Australia, Brazil, Canada, England, France (three locations), Japan,
South Africa and Singapore. All of these plants, other than Singapore, are owned
in fee. In Singapore, the company owns the plant but leases the land on which
the plant is located. The company owns in fee research, development and testing
facilities in Wickliffe, Ohio; Hazelwood, England; and Atsugi, Japan. The
company also owns in fee a facility in Midland, Michigan, at which air and
refrigeration compressor lubricants are developed and marketed; manufacturing
plants in Countryside, Illinois; Mountaintop, Pennsylvania; and Germany that
manufacture performance chemical additives for the coatings industry and
specialty additives for the metalworking fluid and industrial lubricant markets;
a manufacturing plant in Atlanta, Georgia, that manufactures fluid metering
devices; manufacturing plants in Newmarket and London, Ontario, Canada, and
Reno, Nevada, that manufacture particulate emission control devices; and a
manufacturing plant in Fareham, Hampshire, England, that manufactures additive
injection equipment.
Additive manufacturing/blending plants in India, Saudi Arabia,
and China are owned and operated by joint venture companies licensed by
Lubrizol. Lubrizol's ownership of each of these companies ranges from 40% to
50%.
The company has entered into long-term contracts for its
exclusive use of major marine terminal facilities at the Port of Houston, Texas.
In addition, Lubrizol has leases for storage facilities in Australia, Chile,
Denmark, Ecuador, England, Finland, France, Holland, Singapore, Spain, South
Africa, Sweden, and Turkey; Los Angeles, California; St. Paul, Minnesota;
Bayonne, New Jersey; and Tacoma, Washington. In some cases, the ownership or
leasing of such facilities is through certain of its subsidiaries or affiliates.
The company maintains a capital expenditure program to support
its operations and believes its facilities are adequate for its present
operations and for the foreseeable future.
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ITEM 3. LEGAL PROCEEDINGS
The company is a party in a case brought by Exxon Corporation
and its affiliates, Exxon Chemical Patents, Inc. and Exxon Research &
Engineering Company, in the Southern District of Texas, Houston Division, on
September 19, 1989. The plaintiffs alleged that the company willfully infringed
an Exxon patent pertaining to an oil soluble copper additive component and
requested monetary damages and injunctive relief. On June 24, 1996, the U.S.
Supreme Court denied Exxon's request to review a September 1995 decision of the
United States Court of Appeals for the Federal Circuit in Washington, D.C.,
regarding this case. The Court of Appeals' decision overturned a December 1992
jury verdict that the company had infringed an Exxon patent and entered judgment
in favor of the company as a matter of law. The ruling of the Court of Appeals
also vacated an injunction and a significant monetary judgment against the
company. The Supreme Court decision finalized the Court of Appeals' judgment.
Notwithstanding the Supreme Court decision, Exxon filed a motion in the original
trial court seeking a new trial in order to assert an allegedly different theory
of infringement under the same patent. The motion was denied by the trial judge
on the ground that he lacked the authority to consider any request for a new
trial in view of the reversal of the prior trial verdict by the Appellate Court.
Acting upon an appeal by Exxon, the Court of Appeals in Washington, D.C.,
without deciding the merits of whether Exxon was entitled to a second trial,
ruled that the trial court does have the authority to consider Exxon's motion
and remanded the issue to the trial court.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the vote of the security holders
during the three months ended December 31, 1998.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth the name, age, recent business experience and
certain other information relative to each person who is an executive officer of
the company as of March 1, 1999.
Name Business Experience
---- -------------------
W. G. Bares Mr. Bares, age 57, became Chairman of
the Board on April 22, 1996, and Chief
Executive Officer on January 1, 1996. He
has been President since 1982. From 1987
through 1995, he was also Chief
Operating Officer.
R. A. Andreas Mr. Andreas, age 54, has been Vice
President since June 1990. He is
responsible for Special Projects. From
June 1990 to April 1998, he was also
Chief Financial Officer.
J. W. Bauer Mr. Bauer, age 45, has been Vice
President and General Counsel since
April 1992.
C. P. Cooley Mr. Cooley, age 43, joined the company
and became Vice President, Treasurer and
Chief Financial Officer in April 1998.
In June 1998 he also became responsible
for Corporate Strategic Planning. Prior
to joining the company, he was Assistant
Treasurer - Corporate Finance at
Atlantic Richfield Company.
S. A. Di Biase Dr. Di Biase, age 46, has been Vice
President since September 1993. He is
responsible for Research and
Development.
G. R. Hill Dr. Hill, age 57, has been Senior Vice
President since 1988. He has been
responsible for Business Development
since October 1993. From 1996 to June
1998 he was also responsible for
Corporate Strategic Planning.
J. E. Hodge Mr. Hodge, age 56, has been Vice
President since September 1993. He is
responsible for Operations.
K. H. Hopping Mr. Hopping, age 52, has been Vice
President and Secretary of the
Corporation since April 1991.
S. F. Kirk Mr. Kirk, age 49, has been Vice
President since September 1993. On
January 1, 1999, he became responsible
for Sales and Marketing. From April 1996
to January 1, 1999, he was responsible
for Sales. From 1993 to April 1996, he
was responsible for Segment Management.
Y. Le Couedic Mr. Le Couedic, age 51, has been Vice
President since September 1993. He is
responsible for Management Information
Systems.
G. P. Lieb Mr. Lieb, age 46, has been Controller -
Accounting and Financial Reporting since
November 1993, and was named Principal
Accounting Officer in January 1994.
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Name Business Experience
---- -------------------
M. W. Meister Mr. Meister, age 44, has been Vice
President since April 1993, and was
named Chief Ethics Officer in April
1998. He is responsible for Human
Resources.
L. M. Reynolds Ms. Reynolds, age 38, was named
Assistant Secretary in April 1995, and
has been Counsel since February 1991.
R. D. Robins Dr. Robins, age 56, became Vice
President in April 1996. Since January
1, 1999, he has been responsible for
Performance Systems functions. From
April 1996 to January 1999, he was
responsible for Segment Management. From
October 1993 to April 1996 he was
Passenger Car Segment Manager.
J. A. Thomas Mr. Thomas, age 60, has been Vice
President since April 1994. In 1996, he
became responsible for managing
Corporate Strategies in the Asia Pacific
Region. From April 1994 through April
1996, he was responsible for Corporate
Planning and Development. From December
1990 to April 1994, he was General
Manager-Sales for Asia Pacific, Latin
America and the Middle East.
All executive officers serve at the pleasure of the Board.
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PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The common shares of the company are listed on the New York
Stock Exchange under the symbol LZ. The number of shareholders of record of
common shares was 5,615 as of March 5, 1999.
Information relating to the recent price and dividend history
of the company's common shares follows:
<TABLE>
<CAPTION>
Common Share Price History
-------------------------- Dividends
1998 1997 Per Common Share
---- ---- ----------------
High Low High Low 1998 1997
---- --- ---- --- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1st quarter $40 3/16 $33 1/4 $36 $30 1/2 $ .26 $ .25
2nd quarter 38 3/4 30 1/4 42 1/8 30 3/8 .26 .25
3rd quarter 32 3/8 22 3/8 44 7/8 41 15/16 .26 25
4th quarter 29 9/16 23 1/2 46 15/16 34 7/8 .26 .26
----- -----
$1.04 $1.01
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</TABLE>
On December 9, 1998, the company issued 89,806 of its common
shares to two individuals in connection with an acquisition of a company owned
by them. The shares were valued at $2,389,970. Securities issued in this
transaction were exempt from registration under the Securities Act of 1933 by
virtue of Section 4(2) of such Act.
ITEM 6. SELECTED FINANCIAL DATA.
The summary of selected financial data for each of the last
five years included in the Historical Summary contained on pages 38 and 39 of
the company's 1998 Annual Report to its shareholders is incorporated herein by
reference. Other income (charges) for 1998 includes a litigation settlement gain
of $16.2 million and special charges of $23.3 million for the first phase of the
company's cost reduction program and of $13.6 million for the write-off of
purchased technology under development resulting from the acquisition of Adibis.
Other income (charges) for 1996, 1995 and 1994 includes $53.3 million, $38.5
million and $41.2 million, respectively, for gains on sale of investments.
Total debt reported in the Historical Summary includes the
following amounts classified as long-term at December 31: $390.4 in 1998, $182.2
in 1997, $157.6 million in 1996, $194.4 million in 1995 and $114.2 million in
1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Management's Discussion and Analysis of Financial Condition
and Results of Operations, including the company's cautionary statement for
"safe harbor" purposes under the Private Securities Litigation Reform Act of
1995, contained on pages 10 through 19, inclusive, of the company's 1998 Annual
Report to its shareholders is incorporated herein by reference.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information appearing under the caption "Quantitative and
Qualitative Disclosures about Market Risk" contained on page 19 of the company's
1998 Annual Report to its shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the company and its
subsidiaries, together with the independent auditors' report relating thereto,
contained on pages 20 through 37, inclusive, of the company's 1998 Annual Report
to its shareholders, and the Quarterly Financial Data (Unaudited) contained on
page 37 of such 1998 Annual Report, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under the heading "Election of
Directors" on pages 2 to 6, inclusive, of the company's Proxy Statement dated
March 17, 1999, is incorporated herein by reference. Information relative to
executive officers of the company is contained under "Executive Officers of the
Registrant" in Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information relating to executive compensation contained
under the headings "Committees and Compensation of the Board of Directors" on
pages 6 and 7, "Executive Compensation" on pages 10 through 12, inclusive, and
under "Employee and Executive Officer Benefit Plans - Pension Plans" and "-
Executive Agreements" on pages 17 through 19, inclusive, of the company's Proxy
Statement dated March 17, 1999, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information relating to security ownership set forth under
the heading "Security Ownership of Directors, Executive Officers and Certain
Beneficial Owners" on pages 8 and 9 of the company's Proxy Statement dated March
17, 1999, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained in footnote (1) under the heading
"Security Ownership of Directors, Executive Officers and Certain Beneficial
Owners - Five Percent Beneficial Owners" on page 9 of the company's Proxy
Statement dated March 17, 1999, is incorporated herein by reference.
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PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Annual Report:
1. The following consolidated financial statements
of The Lubrizol Corporation and its
subsidiaries, together with the independent
auditors' report relating thereto, contained on
pages 20 through 37, inclusive, of Lubrizol's
1998 Annual Report to its shareholders and
incorporated herein by reference:
Independent Auditors' Report
Consolidated Statements of Income for the years
ended December 31, 1998, 1997 and 1996
Consolidated Balance Sheets at December 31, 1998
and 1997
Consolidated Statements of Cash Flows for the
years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1998, 1997 and
1996
Notes to Financial Statements
Quarterly Financial Data (Unaudited)
2. Schedules
No financial statement schedules are required to
be filed as part of this Annual Report.
3. Exhibits
(3)(a) Amended Articles of Incorporation of
The Lubrizol Corporation, as adopted
September 23, 1991. (Reference is made
to Exhibit (3)(a) to The Lubrizol
Corporation's Annual Report on Form
10-K for the year ended December 31,
1993, which Exhibit is incorporated
herein by reference.)
(3)(b) Regulations of The Lubrizol
Corporation, as amended effective April
27, 1992. (Reference is made to Exhibit
(3)(b) to The Lubrizol Corporation's
Annual Report on Form 10-K for the year
ended December 31, 1993, which Exhibit
is incorporated herein by reference.)
(4)(a) Amendment to Article Fourth of Amended
Articles of Incorporation. (Reference
is made to Exhibits (3)(a) and (4)(a)
to The Lubrizol Corporation's Annual
Report on Form 10-K for the year ended
December 31, 1993, which Exhibits are
incorporated herein by reference.)
(4)(b) Indenture dated as of November 25,
1998, between The Lubrizol Corporation
and The First National Bank of Chicago
as Trustee.
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The company agrees, upon request, to
furnish to the Securities and Exchange
Commission a copy of any instrument
authorizing long-term debt that does
not authorize debt in excess of 10% of
the total assets of the company and its
subsidiaries on a consolidated basis.
(4)(c) Rights Agreement between The Lubrizol
Corporation and American Stock Transfer
& Trust Company dated as of October 13,
1997. (Reference is made to Exhibit 4.l
to The Lubrizol Corporation's
Registration Statement on Form 8-A
dated October 1, 1997, which Exhibit is
incorporated herein by reference.)
(10)(a)* The Lubrizol Corporation 1985 Employee
Stock Option Plan, as amended.
(10)(b)* The Lubrizol Corporation Amended
Deferred Compensation Plan for
Directors. (Reference is made to
Exhibit (10)(b) to The Lubrizol
Corporation's Annual Report on Form
10-K for the year ended December 31,
1994, which Exhibit is incorporated
herein by reference.)
(10)(c)* Form of Employment Agreement between
The Lubrizol Corporation and certain of
its senior executive officers.
(Reference is made to Exhibit (10)(e)
to The Lubrizol Corporation's Annual
Report on Form 10-K for the year ended
December 31, 1993, which Exhibit is
incorporated herein by reference.)
(10)(d)* The Lubrizol Corporation Excess Defined
Benefit Plan, as amended. (Reference is
made to Exhibit (10)(d) to The Lubrizol
Corporation's Quarterly Report on Form
10-Q for the quarterly period ended
September 30, 1997, which Exhibit is
incorporated herein by reference.)
(10)(e)* The Lubrizol Corporation Excess Defined
Contribution Plan, as amended.
(Reference is made to Exhibit (10)(e)
to The Lubrizol Corporation's Quarterly
Report on Form 10-Q for the quarterly
period ended September 30, 1997, which
Exhibit is incorporated herein by
reference.)
(10)(f)* The Lubrizol Corporation Performance
Pay Plan (formerly Variable Award
Plan), as amended.
(10)(g)* The Lubrizol Corporation Executive
Death Benefit Plan, as amended.
(Reference is made to Exhibit (10)(g)
to The Lubrizol Corporation's Quarterly
Report on Form 10-Q for the quarterly
period ended September 30, 1997, which
Exhibit is incorporated herein by
reference.)
(10)(h)* The Lubrizol Corporation 1991 Stock
Incentive Plan, as amended. (Reference
is made to Exhibit (10)(h) to The
Lubrizol Corporation's Annual Report on
Form 10-K for the year ended December
31, 1996, which Exhibit is incorporated
herein by reference.)
-13-
<PAGE> 14
(10)(i)* The Lubrizol Corporation Deferred Stock
Compensation Plan for Outside
Directors, as amended. (Reference is
made to Exhibit (10)(i) to The Lubrizol
Corporation's Annual Report on Form
10-K for the year ended December 31,
1995, which Exhibit is incorporated
herein by reference.)
(10)(j)* The Lubrizol Corporation Officers'
Supplemental Retirement Plan, as
amended.
(10)(k)* The Lubrizol Corporation Deferred
Compensation Plan for Officers, as
amended. (Reference is made to Exhibit
(10)(k) to The Lubrizol Corporation's
Quarterly Report on Form 10-Q for the
quarterly period ended September 30,
1997, which Exhibit is incorporated
herein by reference.)
(10)(l)* The Lubrizol Corporation Executive
Council Deferred Compensation Plan, as
amended.
(12) Computation of Ratio of Earnings to
Fixed Charges.
(13) The following portions of The Lubrizol
Corporation 1998 Annual Report to its
shareholders:
Pages 10-19 Management's
Discussion and
Analysis of
Financial Condition
and Results of
Operations
Page 20 Independent Auditors'
Report
Page 21 Consolidated
Statements of Income
for the years ended
December 31, 1998,
1997 and 1996
Page 22 Consolidated Balance
Sheets at December
31, 1998 and 1997
Page 23 Consolidated
Statements of Cash
Flows for the years
ended December 31,
1998, 1997 and 1996
Page 24 Consolidated
Statements of
Shareholders' Equity
for the years ended
December 31, 1998,
1997 and 1996
Pages 25-37 Notes to Financial
Statements
Page 37 Quarterly Financial
Data (Unaudited)
Pages 38-39 Historical Summary
(21) List of Subsidiaries of The Lubrizol
Corporation
(23) Consent of Independent Auditors
(27) Financial Data Schedule for the year
ended December 31, 1998
*Indicates management contract or compensatory plan or arrangement.
-14-
<PAGE> 15
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three
months ended December 31, 1998.
-15-
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
March 22, 1999, on its behalf by the undersigned, thereunto duly authorized.
THE LUBRIZOL CORPORATION
BY /s/ W. G. Bares
------------------------------------------
W. G. Bares, Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below on March 22, 1999, by the following
persons on behalf of the Registrant and in the capacities indicated.
/s/ W. G. Bares Chairman of the Board, President and Chief
- --------------------------- Executive Officer
W. G. Bares (Principal Executive Officer)
/s/ C. P. Cooley Vice President, Treasurer and Chief
- --------------------------- Financial Officer
C. P. Cooley (Principal Financial Officer)
/s/ G. P. Lieb Controller, Accounting and Financial
- --------------------------- Reporting
G. P. Lieb (Principal Accounting Officer)
/s/ Edward F. Bell Director
- ---------------------------
Edward F. Bell
/s/ L. E. Coleman Director
- ---------------------------
L. E. Coleman
/s/ Peggy G. Elliott Director
- ---------------------------
Peggy G. Elliott
/s/ Forest J. Farmer, Sr. Director
- ---------------------------
Forest J. Farmer, Sr.
/s/ Gordon D. Harnett Director
- ---------------------------
Gordon D. Harnett
/s/ Victoria F. Haynes Director
- ---------------------------
Victoria F. Haynes
/s/ David H. Hoag Director
- ---------------------------
David H. Hoag
/s/ William P. Madar Director
- ---------------------------
William P. Madar
/s/ Ronald A. Mitsch Director
- ---------------------------
Ronald A. Mitsch
/s/ M. Thomas Moore Director
- ---------------------------
M. Thomas Moore
<PAGE> 17
EXHIBIT INDEX
-------------
Exhibits
(3)(a) Amended Articles of Incorporation of
The Lubrizol Corporation, as adopted
September 23, 1991. (Reference is made
to Exhibit (3)(a) to The Lubrizol
Corporation's Annual Report on Form
10-K for the year ended December 31,
1993, which Exhibit is incorporated
herein by reference.)
(3)(b) Regulations of The Lubrizol
Corporation, as amended effective April
27, 1992. (Reference is made to Exhibit
(3)(b) to The Lubrizol Corporation's
Annual Report on Form 10-K for the year
ended December 31, 1993, which Exhibit
is incorporated herein by reference.)
(4)(a) Amendment to Article Fourth of Amended
Articles of Incorporation. (Reference
is made to Exhibits (3)(a) and (4)(a)
to The Lubrizol Corporation's Annual
Report on Form 10-K for the year ended
December 31, 1993, which Exhibits are
incorporated herein by reference.)
(4)(b) Indenture dated as of November 25,
1998, between The Lubrizol Corporation
and The First National Bank of Chicago
as Trustee.
The company agrees, upon request, to
furnish to the Securities and Exchange
Commission a copy of any instrument
authorizing long-term debt that does
not authorize debt in excess of 10% of
the total assets of the company and its
subsidiaries on a consolidated basis.
(4)(c) Rights Agreement between The Lubrizol
Corporation and American Stock Transfer
& Trust Company dated as of October 13,
1997. (Reference is made to Exhibit 4.l
to The Lubrizol Corporation's
Registration Statement on Form 8-A
dated October 1, 1997, which Exhibit is
incorporated herein by reference.)
(10)(a)* The Lubrizol Corporation 1985 Employee
Stock Option Plan, as amended.
(10)(b)* The Lubrizol Corporation Amended
Deferred Compensation Plan for
Directors. (Reference is made to
Exhibit (10)(b) to The Lubrizol
Corporation's Annual Report on Form
10-K for the year ended December 31,
1994, which Exhibit is incorporated
herein by reference.)
(10)(c)* Form of Employment Agreement between
The Lubrizol Corporation and certain of
its senior executive officers.
(Reference is made to Exhibit (10)(e)
to The Lubrizol Corporation's Annual
Report on Form 10-K for the year ended
December 31, 1993, which Exhibit is
incorporated herein by reference.)
<PAGE> 18
(10)(d)* The Lubrizol Corporation Excess Defined
Benefit Plan, as amended. (Reference is
made to Exhibit (10)(d) to The Lubrizol
Corporation's Quarterly Report on Form
10-Q for the quarterly period ended
September 30, 1997, which Exhibit is
incorporated herein by reference.)
(10)(e)* The Lubrizol Corporation Excess Defined
Contribution Plan, as amended.
(Reference is made to Exhibit (10)(e)
to The Lubrizol Corporation's Quarterly
Report on Form 10-Q for the quarterly
period ended September 30, 1997, which
Exhibit is incorporated herein by
reference.)
(10)(f)* The Lubrizol Corporation Performance
Pay Plan (formerly Variable Award
Plan), as amended.
(10)(g)* The Lubrizol Corporation Executive
Death Benefit Plan, as amended.
(Reference is made to Exhibit (10)(g)
to The Lubrizol Corporation's Quarterly
Report on Form 10-Q for the quarterly
period ended September 30, 1997, which
Exhibit is incorporated herein by
reference.)
(10)(h)* The Lubrizol Corporation 1991 Stock
Incentive Plan, as amended. (Reference
is made to Exhibit (10)(h) to The
Lubrizol Corporation's Annual Report on
Form 10-K for the year ended December
31, 1996, which Exhibit is incorporated
herein by reference.)
(10)(i)* The Lubrizol Corporation Deferred Stock
Compensation Plan for Outside
Directors, as amended. (Reference is
made to Exhibit (10)(i) to The Lubrizol
Corporation's Annual Report on Form
10-K for the year ended December 31,
1995, which Exhibit is incorporated
herein by reference.)
(10)(j)* The Lubrizol Corporation Officers'
Supplemental Retirement Plan, as
amended.
(10)(k)* The Lubrizol Corporation Deferred
Compensation Plan for Officers, as
amended. (Reference is made to Exhibit
(10)(k) to The Lubrizol Corporation's
Quarterly Report on Form 10-Q for the
quarterly period ended September 30,
1997, which Exhibit is incorporated
herein by reference.)
(10)(l)* The Lubrizol Corporation Executive
Council Deferred Compensation Plan, as
amended.
(12) Computation of Ratio of Earnings to
Fixed Charges.
(13) The following portions of The Lubrizol
Corporation 1998 Annual Report to its
shareholders:
Pages 10-19 Management's
Discussion and
Analysis of
Financial Condition
and Results of
Operations
<PAGE> 19
Page 20 Independent
Auditors' Report
Page 21 Consolidated
Statements of Income
for the years ended
December 31, 1998,
1997 and 1996
Page 22 Consolidated Balance
Sheets at December
31, 1998 and 1997
Page 23 Consolidated
Statements of Cash
Flows for the years
ended December 31,
1998, 1997 and 1996
Page 24 Consolidated
Statements of
Shareholders' Equity
for the years ended
December 31, 1998,
1997 and 1996
Pages 25-37 Notes to Financial
Statements
Page 37 Quarterly Financial
Data
(Unaudited)
Pages 38-39 Historical Summary
(21) List of Subsidiaries of The Lubrizol
Corporation
(23) Consent of Independent Auditors
(27) Financial Data Schedule for the year
ended December 31, 1998
*Indicates management contract or compensatory plan or arrangement.
<PAGE> 1
Exhibit 4(b)
===============================================================================
THE LUBRIZOL CORPORATION
And
The First National Bank of Chicago, Trustee
Indenture
Dated as of November 25, 1998
===============================================================================
<PAGE> 2
CROSS REFERENCE SHEET(1)
------------------
Between
Provisions of Trust Indenture Act of 1939 and Indenture to be dated as
of November 25, 1998 between THE LUBRIZOL CORPORATION and The First National
Bank of Chicago, Trustee:
<TABLE>
<CAPTION>
Section of the Act Section of Indenture
- ------------------ --------------------
<S> <C>
310(a) (1) and (2).................................... 6.9
310(a) (3) and (4).................................... Inapplicable
310(b)................................................ 6.8 and 6.10(a), (b) and (d)
310(c)................................................ Inapplicable
311(a)................................................ 6.13(a) and (c) (1) and (2)
311(b)................................................ 6.13(b)
311(c)................................................ Inapplicable
312(a)................................................ 4.1 and 4.2(a)
312(b)................................................ 4.2(a) and (b) (i) and (ii)
312(c)................................................ 4.2(c)
313(a)................................................ 4.4(a) (i), (ii), (iii)
(iv), (v) and (vi)
313(b) (1)............................................ Inapplicable
313(b) (2)............................................ 4.4
313(c)................................................ 4.4
313(d)................................................ 4.4
314(a)................................................ 4.3
314(b)................................................ Inapplicable
314(c) (1) and (2).................................... 11.5
314(c) (3)............................................ Inapplicable
314(d)................................................ Inapplicable
314(e)................................................ 11.5
314(f)................................................ Inapplicable
315(a), (c) and (d)................................... 6.1
315(b)................................................ 5.11
315(e)................................................ 5.12
316(a) (1)............................................ 5.9
316(a) (2)............................................ Not required
316(a) (last sentence)................................ 7.4
316(b)................................................ 5.7
316(c)................................................ 7.2
317(a)................................................ 5.2
317(b)................................................ 3.4(a) and (b)
318(a)................................................ 11.7
</TABLE>
- ------------------------------
(1) This Cross Reference Sheet is not part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PARTIES...........................................................................................................1
RECITALS
Authorization of Indenture...............................................................................1
Compliance with Legal Requirements.......................................................................1
Purpose of and Consideration for Indenture...............................................................1
</TABLE>
ARTICLE ONE
DEFINITIONS
<TABLE>
<S> <C> <C>
SECTION 1.1 Certain Terms Defined............................................................................1
Attributable Debt................................................................................2
Authenticating Agent.............................................................................2
Authorized Newspaper.............................................................................2
Board of Directors...............................................................................2
Board Resolution.................................................................................2
Business Day.....................................................................................2
Commission.......................................................................................2
Composite Rate...................................................................................3
Consolidated Net Tangible Assets.................................................................3
Corporate Trust Office...........................................................................3
Coupon...........................................................................................3
covenant defeasance..............................................................................3
Debt.............................................................................................3
Depositary.......................................................................................3
Dollar...........................................................................................4
ECU..............................................................................................4
Event of Default.................................................................................4
Exempted Debt....................................................................................4
Foreign Currency.................................................................................4
Holder, Holder of Securities, Securityholder.....................................................4
Indenture........................................................................................4
Interest.........................................................................................4
Issuer...........................................................................................4
Issuer Order.....................................................................................4
Judgment Currency................................................................................4
Mortgage.........................................................................................4
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C> <C>
Net Rental Payments..............................................................................5
Officer's Certificate............................................................................5
Opinion of Counsel...............................................................................5
original issue date..............................................................................5
Original Issue Discount Security.................................................................5
Outstanding......................................................................................5
Periodic Offering................................................................................6
Person...........................................................................................6
principal........................................................................................6
Principal Manufacturing Property.................................................................6
record date......................................................................................6
Registered Global Security.......................................................................6
Registered Security..............................................................................6
Required Currency................................................................................6
Responsible Officer..............................................................................6
Restricted Subsidiary............................................................................7
Security or Securities...........................................................................7
Subsidiary.......................................................................................7
Trust Indenture Act of 1939......................................................................7
Trustee..........................................................................................7
Unregistered Security............................................................................7
U.S. Government Obligations......................................................................7
Yield to Maturity................................................................................7
</TABLE>
ARTICLE TWO
SECURITIES
<TABLE>
<S> <C> <C>
SECTION 2.1 Forms Generally..................................................................................7
SECTION 2.2 Form of Trustee's Certificate of Authentication..................................................8
SECTION 2.3 Amount Unlimited; Issuable in Series.............................................................8
SECTION 2.4 Authentication and Delivery of Securities.......................................................11
SECTION 2.5 Execution of Securities.........................................................................13
SECTION 2.6 Certificate of Authentication...................................................................14
SECTION 2.7 Denomination and Date of Securities; Payments of Interest.......................................14
SECTION 2.8 Registration, Transfer and Exchange.............................................................15
SECTION 2.9 Mutilated, Defaced, Destroyed, Lost and Stolen Securities.......................................18
SECTION 2.10 Cancellation of Securities; Destruction Thereof.................................................19
SECTION 2.11 Temporary Securities............................................................................19
</TABLE>
ARTICLE THREE
COVENANTS OF THE ISSUER
<TABLE>
<S> <C> <C>
SECTION 3.1 Payment of Principal and Interest...............................................................20
</TABLE>
ii
<PAGE> 5
<TABLE>
<S> <C> <C>
SECTION 3.2 Offices for Payments, etc.......................................................................20
SECTION 3.3 Appointment to Fill a Vacancy in Office of Trustee..............................................21
SECTION 3.4 Paying Agents...................................................................................21
SECTION 3.5 Written Statement to Trustee....................................................................22
SECTION 3.6 Negative Pledge; Limitation on Sale and Leaseback Transactions..................................22
SECTION 3.7 Luxembourg Publications.........................................................................25
</TABLE>
ARTICLE FOUR
SECURITYHOLDERS LISTS AND REPORTS BY THE
ISSUER AND THE TRUSTEE
<TABLE>
<S> <C> <C>
SECTION 4.1 Issuer to Furnish Trustee Information as to Names and
Addresses of Securityholders..................................................................25
SECTION 4.2 Preservation and Disclosure of Securityholders Lists............................................26
SECTION 4.3 Reports by the Issuer...........................................................................26
SECTION 4.4 Reports by the Trustee..........................................................................26
</TABLE>
ARTICLE FIVE
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT
<TABLE>
<S> <C> <C>
SECTION 5.1 Event of Default Defined; Acceleration of Maturity; Waiver of Default...........................26
SECTION 5.2 Collection of Indebtedness by Trustee; Trustee May Prove Debt...................................28
SECTION 5.3 Application of Proceeds.........................................................................30
SECTION 5.4 Suits for Enforcement...........................................................................31
SECTION 5.5 Restoration of Rights on Abandonment of Proceedings.............................................31
SECTION 5.6 Limitations on Suits by Securityholders.........................................................32
SECTION 5.7 Unconditional Right of Securityholders to Institute Certain Suits...............................32
SECTION 5.8 Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default.........................32
SECTION 5.9 Control by Holders of Securities................................................................33
SECTION 5.10 Waiver of Past Defaults.........................................................................33
SECTION 5.11 Trustee to Give Notice of Default, But May Withhold in Certain Circumstances....................34
SECTION 5.12 Right of Court to Require Filing of Undertaking to Pay Costs....................................34
</TABLE>
ARTICLE SIX
CONCERNING THE TRUSTEE
<TABLE>
<S> <C> <C>
SECTION 6.1 Duties and Responsibilities of the Trustee; During Default; Prior to Default....................34
</TABLE>
iii
<PAGE> 6
<TABLE>
<S> <C> <C>
SECTION 6.2 Certain Rights of the Trustee...................................................................36
SECTION 6.3 Trustee Not Responsible for Recitals, Disposition of Securities or
Application of Proceeds Thereof...............................................................37
SECTION 6.4 Trustee and Agents May Hold Securities or Coupons; Collections, etc.............................37
SECTION 6.5 Moneys Held by Trustee..........................................................................37
SECTION 6.6 Compensation and Indemnification of Trustee and Its Prior Claim.................................37
SECTION 6.7 Right of Trustee to Rely on Officer's Certificate, etc..........................................38
SECTION 6.8 Indentures Not Creating Potential Conflicting Interests for the Trustee.........................38
SECTION 6.9 Persons Eligible for Appointment as Trustee.....................................................38
SECTION 6.10 Resignation and Removal; Appointment of Successor Trustee.......................................38
SECTION 6.11 Acceptance of Appointment by Successor Trustee..................................................40
SECTION 6.12 Merger, Conversion, Consolidation or Succession to Business of Trustee..........................41
SECTION 6.13 Preferential Collection of Claims Against the Issuer............................................41
SECTION 6.14 Appointment of Authenticating Agent.............................................................41
</TABLE>
ARTICLE SEVEN
CONCERNING THE SECURITYHOLDERS
<TABLE>
<S> <C> <C>
SECTION 7.1 Evidence of Action Taken by Securityholders.....................................................42
SECTION 7.2 Proof of Execution of Instruments and of Holding of Securities..................................43
SECTION 7.3 Holders to be Treated as Owners.................................................................44
SECTION 7.4 Securities Owned by Issuer Deemed Not Outstanding...............................................44
SECTION 7.5 Right of Revocation of Action Taken.............................................................44
</TABLE>
ARTICLE EIGHT
SUPPLEMENTAL INDENTURES
<TABLE>
<S> <C> <C>
SECTION 8.1 Supplemental Indentures Without Consent of Securityholders......................................45
SECTION 8.2 Supplemental Indentures With Consent of Securityholders.........................................46
SECTION 8.3 Effect of Supplemental Indenture................................................................47
SECTION 8.4 Documents to Be Given to Trustee................................................................48
SECTION 8.5 Notation on Securities in Respect of Supplemental Indentures....................................48
</TABLE>
ARTICLE NINE
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
<TABLE>
<S> <C> <C>
SECTION 9.1 Covenant Not to Merge, Consolidate, Sell or Convey Property
Except Under Certain Conditions...............................................................48
</TABLE>
iv
<PAGE> 7
<TABLE>
<S> <C> <C>
SECTION 9.2 Successor Corporation Substituted...............................................................48
SECTION 9.3 Opinion of Counsel Delivered to Trustee.........................................................49
</TABLE>
ARTICLE TEN
SATISFACTION AND DISCHARGE OF INDENTURE;
UNCLAIMED MONEYS
<TABLE>
<S> <C> <C>
SECTION 10.1 Satisfaction and Discharge of Indenture.........................................................49
SECTION 10.2 Application by Trustee of Funds Deposited for Payment of Securities.............................53
SECTION 10.3 Repayment of Moneys Held by Paying Agent........................................................53
SECTION 10.4 Return of Moneys Held by Trustee and Paying Agent Unclaimed for Two Years.......................53
SECTION 10.5 Indemnity for U.S. Government Obligations.......................................................54
</TABLE>
ARTICLE ELEVEN
MISCELLANEOUS PROVISIONS
<TABLE>
<S> <C> <C>
SECTION 11.1 Incorporators, Shareholders, Officers and Directors of Issuer Exempt
from Individual Liability.....................................................................54
SECTION 11.2 Provisions of Indenture for the Sole Benefit of Parties and Holders of
Securities and Coupons........................................................................54
SECTION 11.3 Successors and Assigns of Issuer Bound by Indenture.............................................54
SECTION 11.4 Notices and Demands on Issuer, Trustee and Holders of Securities
and Coupons...................................................................................54
SECTION 11.5 Officer's Certificates and Opinions of Counsel; Statements to Be
Contained Therein.............................................................................55
SECTION 11.6 Payments Due on Saturdays, Sundays and Holidays.................................................56
SECTION 11.7 Conflict of Any Provision of Indenture with Trust Indenture Act of 1939.........................56
SECTION 11.8 New York Law to Govern..........................................................................56
SECTION 11.9 Counterparts....................................................................................56
SECTION 11.10 Effect of Headings............................................................................56
SECTION 11.11 Securities in a Foreign Currency or in ECU....................................................57
SECTION 11.12 Judgment Currency.............................................................................57
</TABLE>
ARTICLE TWELVE
REDEMPTION OF SECURITIES AND SINKING FUNDS
<TABLE>
<S> <C> <C>
SECTION 12.1 Applicability of Article......................................................................58
</TABLE>
v
<PAGE> 8
<TABLE>
<S> <C> <C>
SECTION 12.2 Notice of Redemption; Partial Redemptions.....................................................58
SECTION 12.3 Payment of Securities Called for Redemption...................................................59
SECTION 12.4 Exclusion of Certain Securities from Eligibility for Selection
for Redemption..............................................................................60
SECTION 12.5 Mandatory and Optional Sinking Funds..........................................................60
TESTIMONIUM.........................................................................................................63
SIGNATURES..........................................................................................................63
</TABLE>
vi
<PAGE> 9
THIS INDENTURE, dated as of November 25, 1998 between THE
LUBRIZOL CORPORATION, an Ohio corporation (the "Issuer"), and The First National
Bank of Chicago, as trustee (the "Trustee"),
W I T N E S S E T H:
WHEREAS, the Issuer has duly authorized the issue from time to
time of its unsecured debentures, notes or other evidences of indebtedness to be
issued in one or more series (the "Securities") up to such principal amount or
amounts as may from time to time be authorized in accordance with the terms of
this Indenture;
WHEREAS, the Issuer has duly authorized the execution and
delivery of this Indenture to provide, among other things, for the
authentication, delivery and administration of the Securities; and
WHEREAS, all things necessary to make this Indenture a valid
indenture and agreement according to its terms have been done;
NOW, THEREFORE:
In consideration of the premises and the purchases of the
Securities by the holders thereof, the Issuer and the Trustee mutually covenant
and agree for the equal and proportionate benefit of the respective holders from
time to time of the Securities and of the coupons, if any, appertaining thereto
as follows:
ARTICLE ONE
DEFINITIONS
-----------
SECTION 1.1 CERTAIN TERMS DEFINED. The following terms (except
as otherwise expressly provided herein, in any indenture supplemental thereto
or, as to any Security, in such Security or unless the context otherwise clearly
requires) for all purposes of this Indenture and of any indenture supplemental
hereto shall have the respective meanings specified in this Section. All other
terms used in this Indenture that are defined in the Trust Indenture Act of 1939
or the definitions of which in the Securities Act of 1933 are referred to in the
Trust Indenture Act of 1939, including terms defined therein by reference to the
Securities Act of 1933 (except as herein otherwise expressly provided or unless
the context otherwise requires), shall have the meanings assigned to such terms
in said Trust Indenture Act and in said Securities Act as in force at the date
of this Indenture. All accounting terms used herein and not expressly defined
shall have the meanings assigned to such terms in accordance with generally
accepted accounting principles, and the term "GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES" means such accounting principles as are generally accepted in the
United States at the time of any computation. The words "HEREIN," "HEREOF" and
"HEREUNDER" and other words of similar import refer to this Indenture as a whole
1
<PAGE> 10
and not to any particular Article, Section or other subdivision. The terms
defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular.
"ATTRIBUTABLE DEBT" means, as to any particular lease under
which any Person is at the time liable, at any date as of which the amount
thereof is to be determined, the total net amount of rent required to be paid by
such Person under such lease during the remaining term thereof, discounted from
the respective due dates thereof to such date at the Composite Rate. The net
amount of rent required to be paid under any such lease for any such period
shall be the aggregate 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, contingent
rents (such as those based on sales) 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 required to be paid under such lease subsequent to the first date
upon which it may be so terminated.
"AUTHENTICATING AGENT" shall have the meaning set forth in
Section 6.14.
"AUTHORIZED NEWSPAPER" means a newspaper (which, in the case
of The City of New York, will, if practicable, be The Wall Street Journal
(Eastern Edition), in the case of the United Kingdom, will, if practicable, be
the Financial Times (London Edition) and, in the case of Luxembourg, will, if
practicable, be the Luxemburger Wort) published in an official language of the
country of publication customarily published at least once a day for at least
five days in each calendar week and of general circulation in The City of New
York, the United Kingdom or in Luxembourg, as applicable. If it shall be
impractical in the opinion of the Trustee to make any publication of any notice
required hereby in an Authorized Newspaper, any publication or other notice in
lieu thereof which is made or given with the approval of the Trustee shall
constitute a sufficient publication of such notice.
"BOARD OF DIRECTORS" means either the Board of Directors of
the Issuer or any committee or other designees of such Board duly authorized to
act on its behalf.
"BOARD RESOLUTION" means a copy of one or more resolutions,
certified by the secretary or an assistant secretary of the Issuer to have been
duly adopted or consented to by the Board of Directors and to be in full force
and effect, and delivered to the Trustee.
"BUSINESS DAY" means, with respect to any Security, a day that
in the city (or in any of the cities, if more than one) in which amounts are
payable, as specified in the form of such Security, is not a day on which
banking institutions are authorized or required by law or regulation to close.
"COMMISSION" means the Securities and Exchange Commission, as
from time to time constituted, created under the Securities Exchange Act of
1934, or if at any time after the execution and delivery of this Indenture such
Commission is not existing and performing the duties now assigned to it under
the Trust Indenture Act, then the body performing such duties on such date.
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<PAGE> 11
"COMPOSITE RATE" means, at any time, the rate of interest, per
annum, compounded semiannually, equal to the sum of the rates of interest borne
by the Securities of each series (as specified on the face of the Securities of
each series, PROVIDED, that, in the case of the Securities with variable rates
of interest, the interest rate to be used in calculating the Composite Rate
shall be the interest rate applicable to such Securities at the beginning of the
year in which the Composite Rate is being determined and, PROVIDED, further,
that, in the case of Original Issue Discount Securities, the interest rate to be
used in calculating the Composite Rate shall be a rate equal to the yield to
maturity on such Securities, calculated at the time of issuance of such
Securities) multiplied, in the case of each series of Securities, by the
percentage of the aggregate principal amount of the Securities of all series
Outstanding represented by the Outstanding Securities of such series. For the
purposes of this calculation, the aggregate principal amount of Outstanding
Securities that are denominated in a foreign currency shall be calculated in the
manner set forth in Section 11.11, and the aggregate principal amount of
Original Issue Discount Securities shall be the aggregate amount then payable
upon the declaration of acceleration of the maturity thereof pursuant to Section
5.1.
"CONSOLIDATED NET TANGIBLE ASSETS" shall mean, at any date,
the total assets appearing on the audited annual consolidated balance sheet of
the Issuer and its consolidated Subsidiaries for the Issuer's most recently
completed fiscal year, prepared in accordance with generally accepted accounting
principles less (a) all current liabilities shown on such balance sheet and (b)
Intangible Assets. "Intangible Assets" means the value (net of applicable
reserves), as shown on or reflected in such balance sheet, of: (i) all trade
names, trademarks, licenses, patents, copyrights and goodwill; (ii)
organizational or development costs; (iii) deferred charges (other than prepaid
items such as insurance, taxes, interest, commissions, rents and similar items
and tangible assets being amortized); and (iv) unamortized debt discount and
expense, less premium.
"CORPORATE TRUST OFFICE" means the office of the Trustee at
which the corporate trust business of the Trustee shall, at any particular time,
be principally administered, which office is, at the date as of which this
Indenture is dated, located in One First National Plaza, Suite 0126, Chicago,
Illinois 60670-0126, Attention: Corporate Trust Services Division, except that
for purposes of Section 3.2, such term shall mean the office or agency of the
Trustee in the Borough of Manhattan, The City of New York, which office, at the
date as of which this Indenture is dated is located at 14 Wall Street, Eighth
Floor, 10005.
"COUPON" means any interest coupon appertaining to a Security.
"COVENANT DEFEASANCE" shall have the meaning set forth in
Section 10.1(C).
"DEBT" of any Person shall mean any debt for money borrowed
which is issued, assumed, incurred or guaranteed in any manner by such Person.
"DEPOSITARY" means, with respect to the Securities of any
series issuable or issued in the form of one or more Registered Global
Securities, the Person designated as Depositary by the Issuer pursuant to
Section 2.3 until a successor Depositary shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Depositary" shall mean
or include each Person who is then a Depositary hereunder, and if at any time
there is more than one such
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<PAGE> 12
Person, "Depositary" as used with respect to the Securities of any such series
shall mean the Depositary with respect to the Registered Global Securities of
that series.
"DOLLAR" means the coin or currency of the United States of
America as at the time of payment is legal tender for the payment of public and
private debts.
"ECU" means the European Currency Unit as defined and revised
from time to time by the Council of European Communities.
"EVENT OF DEFAULT" means any event or condition specified as
such in Section 5.1.
"EXEMPTED DEBT" shall mean the sum of (a) Debt of the Issuer
and its Subsidiaries incurred after the date as of which this Indenture is dated
and secured by liens created, assumed or permitted to exist pursuant to Section
3.6(b) and (b) Attributable Debt of the Issuer and its Subsidiaries in respect
of all sale and leaseback transactions entered into pursuant to Section 3.6(d).
"FOREIGN CURRENCY" means a currency issued by the government
of a country other than the United States.
"HOLDER", "HOLDER OF SECURITIES", "SECURITYHOLDER" or other
similar terms mean (a) in the case of any Registered Security, the person in
whose name such Security is registered in the security register kept by the
Issuer for that purpose in accordance with the terms hereof, and (b) in the case
of any Unregistered Security, the bearer of such Security, or any Coupon
appertaining thereto, as the case may be.
"INDENTURE" means this instrument as originally executed and
delivered or, if amended or supplemented as herein provided, as so amended or
supplemented or both, and shall include the forms and terms of particular series
of Securities established as contemplated hereunder.
"INTEREST" means, when used with respect to non-interest
bearing Securities, interest payable after maturity.
"ISSUER" means The Lubrizol Corporation, an Ohio corporation
and, subject to Article Nine, its successors and assigns.
"ISSUER ORDER" means a written statement, request or order of
the Issuer signed in its name by the chairman of the Board of Directors, the
chief executive officer, the president, the chief financial officer, the
treasurer, the controller or any other officer designated by the Board of
Directors or any of the foregoing officers of the Issuer.
"JUDGMENT CURRENCY" shall have the meaning set forth in
Section 11.12.
"MORTGAGE" shall have the meaning set forth in Section 3.6.
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<PAGE> 13
"NET RENTAL PAYMENTS" under any lease for any period shall
mean the sum of monies and other payments required to be paid by the lessee
under such lease as rent thereunder, not including, by way of example, amounts
payable by the lessee for maintenance and repairs, financing services,
insurance, taxes, assessments and similar charges and for contingent rents (such
as those based on sales).
"OFFICER'S CERTIFICATE" means a certificate signed by the
chairman of the Board of Directors, the chief executive officer, the president,
the chief financial officer, the treasurer, the controller or any other officer
designated by the Board of Directors or any of the foregoing officers of the
Issuer and delivered to the Trustee. Each such certificate shall comply with
Section 314 of the Trust Indenture Act of 1939 and include the statements
provided for in Section 11.5.
"OPINION OF COUNSEL" means an opinion in writing signed by the
General Counsel of the Issuer or by such other legal counsel who may be an
employee of or counsel to the Issuer and who shall be satisfactory to the
Trustee. Each such opinion shall comply with Section 314 of the Trust Indenture
Act of 1939 and include the statements provided for in Section 11.5.
"ORIGINAL ISSUE DATE" of any Security (or portion thereof)
means the earlier of (a) the date of such Security or (b) the date of any
Security (or portion thereof) for which such Security was issued (directly or
indirectly) on registration of transfer, exchange or substitution.
"ORIGINAL ISSUE DISCOUNT SECURITY" means any Security that
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration of the maturity thereof pursuant to
Section 5.1.
"OUTSTANDING," when used with reference to Securities, shall,
subject to the provisions of Section 7.4, mean, as of any particular time, all
Securities authenticated and delivered by the Trustee under this Indenture,
except
(a) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(b) Securities, or portions thereof, for the payment or
redemption of which moneys or U.S. Government Obligations (as provided
for in Section 10.1) in the necessary amount shall have been deposited
in trust with the Trustee or with any paying agent (other than the
Issuer) or shall have been set aside, segregated and held in trust by
the Issuer for the Holders of such Securities (if the Issuer shall act
as its own paying agent), PROVIDED that if such Securities, or portions
thereof, are to be redeemed prior to the maturity thereof, notice of
such redemption shall have been given as herein provided, or provision
satisfactory to the Trustee shall have been made for giving such
notice; and
(c) Securities which shall have been paid or in substitution
for which other Securities shall have been authenticated and delivered
pursuant to the terms of Section 2.9 (except with respect to any such
Security as to which proof satisfactory to the Trustee is presented
that such Security is held by a person in whose hands such Security is
a legal, valid and binding obligation of the Issuer).
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<PAGE> 14
In determining whether the Holders of the requisite principal
amount of Outstanding Securities of any or all series have given any request,
demand, authorization, direction, notice, consent or waiver hereunder, the
principal amount of an Original Issue Discount Security that shall be deemed to
be Outstanding for such purposes shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon a
declaration of acceleration of the maturity thereof pursuant to Section 5.1.
"PERIODIC OFFERING" means an offering of Securities of a
series from time to time, the specific terms of which Securities, including,
without limitation, the rate or rates of interest, if any, thereon, the stated
maturity or maturities thereof and the redemption provisions, if any, with
respect thereto, are to be determined by the Issuer or its agents upon the
issuance of such Securities.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"PRINCIPAL" whenever used with reference to the Securities or
any Security or any portion thereof, shall be deemed to include "and premium, if
any."
"PRINCIPAL MANUFACTURING PROPERTY" shall mean any
manufacturing plant or any testing or research and development facility of the
Issuer or a Subsidiary unless, in the reasonable opinion of the Board of
Directors, such plant or facility is not of material importance to the total
business conducted by the Issuer and its consolidated Subsidiaries.
"RECORD DATE" shall have the meaning set forth in Section 2.7.
"REGISTERED GLOBAL SECURITY" means a Security evidencing all
or part of a series of Registered Securities, issued to the Depositary for such
series in accordance with Section 2.4, and bearing the legend prescribed in
Section 2.4.
"REGISTERED SECURITY" means any Security registered on the
Security register of the Issuer.
"REQUIRED CURRENCY" shall have the meaning set forth in
Section 11.12.
"RESPONSIBLE OFFICER" when used with respect to the Trustee
means the chairman of the Board of Directors, any vice chairman of the board of
directors, the chairman of the trust committee, the chairman of the executive
committee, any vice chairman of the executive committee, the president, any vice
president (whether or not designated by numbers or words added before or after
the title "vice president"), the cashier, the secretary, the treasurer, any
trust officer, any assistant trust officer, any assistant vice president, any
assistant cashier, any assistant secretary, any assistant treasurer, or any
other officer or assistant officer of the Trustee customarily performing
functions similar to those performed by the persons who at the time shall be
such officers, respectively, or to whom any corporate trust matter is referred
because of his knowledge of and familiarity with the particular subject.
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<PAGE> 15
"RESTRICTED SUBSIDIARY" shall mean any Subsidiary which owns
or is the lessee of any Principal Manufacturing Property or is otherwise
designated by the Board of Directors as a Restricted Subsidiary.
"SECURITY" or "SECURITIES" (except as otherwise provided in
Section 6.8) has the meaning stated in the first recital of this Indenture, or,
as the case may be, Securities that have been authenticated and delivered under
this Indenture.
"SUBSIDIARY" means any corporation, partnership or other
entity of which at the time of determination the Issuer owns or controls
directly or indirectly more than 50% of the shares of voting stock or equivalent
interest.
"TRUST INDENTURE ACT OF 1939" (except as otherwise required by
applicable law or as provided in Sections 8.1 and 8.2) means the Trust Indenture
Act of 1939 as in force at the date as of which this Indenture was originally
executed.
"TRUSTEE" means the Person identified as "Trustee" in the
first paragraph hereof and, subject to the provisions of Article Six, shall also
include any successor trustee. "Trustee" shall also mean or include each Person
who is then a trustee hereunder and if at any time there is more than one such
Person, "Trustee" as used with respect to the Securities of any series shall
mean the trustee with respect to the Securities of such series.
"UNREGISTERED SECURITY" means any Security other than a
Registered Security.
"U.S. GOVERNMENT OBLIGATIONS" shall have the meaning set forth
in Section 10.1(A).
"YIELD TO MATURITY" means the yield to maturity on a series of
Securities, calculated at the time of issuance of such series, or, if
applicable, at the most recent redetermination of interest on such series, and
calculated in accordance with accepted financial practice.
ARTICLE TWO
SECURITIES
----------
SECTION 2.1 FORMS GENERALLY. The Securities of each series and
the Coupons, if any, to be attached thereto shall be substantially in such form
(not inconsistent with this Indenture) as shall be established by or pursuant to
one or more Board Resolutions (as set forth in a Board Resolution or, to the
extent established pursuant to rather than set forth in a Board Resolution, an
Officer's Certificate detailing such establishment) or in one or more indentures
supplemental hereto, in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture and may have imprinted or otherwise reproduced thereon such legend or
legends or endorsements, not inconsistent with the provisions of this Indenture,
as may be required to comply with any law or with any rules or
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<PAGE> 16
regulations pursuant thereto, or with any rules of any securities exchange or to
conform to general usage, all as may be determined by the officers executing
such Securities and Coupons, if any, as evidenced by their execution of such
Securities and Coupons.
The definitive Securities and Coupons, if any, shall be
printed, lithographed or engraved on steel engraved borders or may be produced
in any other manner, all as determined by the officers executing such Securities
and Coupons, if any, as evidenced by their execution of such Securities and
Coupons, if any.
SECTION 2.2 FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
The Trustee's certificate of authentication on all Securities shall be in
substantially the following form:
"This is one of the Securities referred to in the
within-mentioned Indenture.
,
-------------------------------------
as Trustee
By
------------------------------------
Authorized Officer"
If at any time there shall be an Authenticating Agent
appointed with respect to any series of Securities, then the Trustee's
Certificate of Authentication to be borne by the Securities of each such series
shall be substantially as follows:
"This is one of the Securities referred to in the
within-mentioned Indenture.
,
-------------------------------------
as Trustee
By
------------------------------------
Authorized Officer"
SECTION 2.3 AMOUNT UNLIMITED; ISSUABLE IN SERIES. The
aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is unlimited.
The Securities may be issued in one or more series and each
such series shall rank equally and pari passu with all other unsecured and
unsubordinated debt of the Issuer. There shall be established in or pursuant to
one or more Board Resolutions (and to the extent established pursuant to rather
than set forth in a Board Resolution, in an Officer's Certificate detailing such
establishment) or established in one or more indentures supplemental hereto,
prior to the initial issuance of Securities of a series,
(1) the designation of the Securities of the series, which
shall distinguish the Securities of the series from the Securities of
all other series;
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<PAGE> 17
(2) any limit upon the aggregate principal amount of the
Securities of the series that may be authenticated and delivered under
this Indenture (except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other
Securities of the series pursuant to Section 2.8, 2.9, 2.11, 8.5 or
12.3);
(3) if other than Dollars, the coin or currency in which the
Securities of that series are denominated (including, but not limited
to, any Foreign Currency or ECU);
(4) the date or dates on which the principal of the Securities
of the series is payable;
(5) the rate or rates at which the Securities of the series
shall bear interest, if any, the date or dates from which such interest
shall accrue, on which such interest shall be payable and (in the case
of Registered Securities) on which a record shall be taken for the
determination of Holders to whom interest is payable and/or the method
by which such rate or rates or date or dates shall be determined;
(6) the place or places where the principal of and any
interest on Securities of the series shall be payable (if other than as
provided in Section 3.2);
(7) the right, if any, of the Issuer to redeem Securities of
the series, in whole or in part, at its option and the period or
periods within which, the price or prices at which and any terms and
conditions upon which Securities of the series may be so redeemed,
pursuant to any sinking fund or otherwise;
(8) the obligation, if any, of the Issuer to redeem, purchase
or repay Securities of the series pursuant to any mandatory redemption,
sinking fund or analogous provisions or at the option of a Holder
thereof and the price or prices at which and the period or periods
within which and any terms and conditions upon which Securities of the
series shall be redeemed, purchased or repaid, in whole or in part,
pursuant to such obligation;
(9) if other than denominations of $1,000 and any integral
multiple thereof in the case of Registered Securities, or $1,000 and
$5,000 in the case of Unregistered Securities, the denominations in
which Securities of the series shall be issuable;
(10) if other than the principal amount thereof, the portion
of the principal amount of Securities of the series which shall be
payable upon declaration of acceleration of the maturity thereof;
(11) if other than the coin or currency in which the
Securities of that series are denominated, the coin or currency in
which payment of the principal of or interest on the Securities of such
series shall be payable;
(12) if the principal of or interest on the Securities of such
series are to be payable, at the election of the Issuer or a Holder
thereof, in a coin or currency other than that in which the Securities
are denominated, the period or periods within which, and the terms and
conditions upon which, such election may be made;
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<PAGE> 18
(13) if the amount of payments of principal of and interest on
the Securities of the series may be determined with reference to an
index based on a coin or currency other than that in which the
Securities of the series are denominated, the manner in which such
amounts shall be determined;
(14) whether the Securities of the series will be issuable as
Registered Securities (and if so, whether such Securities will be
issuable as Registered Global Securities) or Unregistered Securities
(with or without Coupons), or any combination of the foregoing, any
restrictions applicable to the offer, sale or delivery of Unregistered
Securities or the payment of interest thereon and, if other than as
provided in Section 2.8, the terms upon which Unregistered Securities
of any series may be exchanged for Registered Securities of such series
and vice versa;
(15) whether and under what circumstances the Issuer will pay
additional amounts on the Securities of the series held by a person who
is not a U.S. person in respect of any tax, assessment or governmental
charge withheld or deducted and, if so, whether the Issuer will have
the option to redeem such Securities rather than pay such additional
amounts;
(16) if the Securities of such series are to be issuable in
definitive form (whether upon original issue or upon exchange of a
temporary Security of such series) only upon receipt of certain
certificates or other documents or satisfaction of other conditions,
the form and terms of such certificates, documents or conditions;
(17) any trustees, depositaries, authenticating or paying
agents, transfer agents or registrars or any other agents with respect
to the Securities of such series;
(18) any other events of default or covenants with respect to
the Securities of such series;
(19) whether the Securities of the series shall be issued in
the form of one or more Registered Global Securities and, in such case,
the Depositary for such Registered Global Security or Securities; and
(20) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture).
All Securities of any one series and Coupons, if any,
appertaining thereto, shall be substantially identical, except in the case of
Registered Securities as to denomination and except as may otherwise be provided
by or pursuant to the Board Resolution or Officer's Certificate referred to
above or as set forth in any such indenture supplemental hereto. All Securities
of any one series need not be issued at the same time and may be issued from
time to time, consistent with the terms of this Indenture, if so provided by or
pursuant to such Board Resolution, such Officer's Certificate or in any such
indenture supplemental hereto.
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<PAGE> 19
SECTION 2.4 AUTHENTICATION AND DELIVERY OF SECURITIES. The Issuer may
deliver Securities of any series having attached thereto appropriate Coupons, if
any, executed by the Issuer to the Trustee for authentication together with the
applicable documents referred to below in this Section, and the Trustee shall
thereupon authenticate and deliver such Securities to or upon the order of the
Issuer (contained in the Issuer Order referred to below in this Section) or
pursuant to such procedures acceptable to the Trustee and to such recipients as
may be specified from time to time by an Issuer Order. The maturity date,
original issue date, interest rate and any other terms of the Securities of such
series and Coupons, if any, appertaining thereto shall be determined by or
pursuant to such Issuer Order and procedures. If provided for in such
procedures, such Issuer Order may authorize authentication and delivery pursuant
to oral instructions from the Issuer or its duly authorized agent, which
instructions shall be promptly confirmed in writing. In authenticating such
Securities and accepting the additional responsibilities under this Indenture in
relation to such Securities, the Trustee shall be entitled to receive (in the
case of subparagraphs 2, 3 and 4 below only at or before the time of the first
request of the Issuer to the Trustee to authenticate Securities of such series)
and (subject to Section 6.1) shall be fully protected in relying upon, unless
and until such documents have been superseded or revoked:
(1) an Issuer Order requesting such authentication and setting
forth delivery instructions if the Securities and Coupons, if any, are
not to be delivered to the Issuer, provided that, with respect to
Securities of a series subject to a Periodic Offering, (a) such Issuer
Order may be delivered by the Issuer to the Trustee prior to the
delivery to the Trustee of such Securities for authentication and
delivery, (b) the Trustee shall authenticate and deliver Securities of
such series for original issue from time to time, in an aggregate
principal amount not exceeding the aggregate principal amount
established for such series, pursuant to an Issuer Order or pursuant to
procedures acceptable to the Trustee as may be specified from time to
time by an Issuer Order, (c) the maturity date or dates, original issue
date or dates, interest rate or rates and any other terms of Securities
of such series shall be determined by an Issuer Order or pursuant to
such procedures and (d) if provided for in such procedures, such Issuer
Order may authorize authentication and delivery pursuant to oral or
electronic instructions from the Issuer or its duly authorized agent or
agents, which oral instructions shall be promptly confirmed in writing;
(2) any Board Resolution, Officer's Certificate and/or
executed supplemental indenture referred to in Sections 2.1 and 2.3 by
or pursuant to which the forms and terms of the Securities and Coupons,
if any, were established;
(3) an Officer's Certificate setting forth the form or forms
and terms of the Securities and Coupons, if any, stating that the form
or forms and terms of the Securities and Coupons, if any, have been
established pursuant to Sections 2.1 and 2.3 and comply with this
Indenture, and covering such other matters as the Trustee may
reasonably request; and
(4) At the option of the Issuer, either Opinions of Counsel,
or letters addressed to the Trustee permitting it to rely on Opinions
of Counsel, substantially to the effect that:
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<PAGE> 20
(a) the forms of the Securities and Coupons, if any,
have been duly authorized and established in conformity with
the provisions of this Indenture;
(b) in the case of an underwritten offering, the
terms of the Securities have been duly authorized and
established in conformity with the provisions of this
Indenture, and, in the case of an offering that is not
underwritten, certain terms of the Securities have been
established pursuant to a Board Resolution, an Officer's
Certificate or a supplemental indenture in accordance with
this Indenture, and when such other terms as are to be
established pursuant to procedures set forth in an Issuer
Order shall have been established, all such terms will have
been duly authorized by the Issuer and will have been
established in conformity with the provisions of this
Indenture;
(c) when the Securities and Coupons, if any, have
been executed by the Issuer and authenticated by the Trustee
in accordance with the provisions of this Indenture and
delivered to and duly paid for by the purchasers thereof, they
will have been duly issued under this Indenture and will be
valid and legally binding obligations of the Issuer,
enforceable in accordance with their respective terms, and
will be entitled to the benefits of this Indenture; and
(d) the execution and delivery by the Issuer of, and
the performance by the Issuer of its obligations under, the
Securities and Coupons, if any, will not contravene any
provision of applicable law or the articles of incorporation
or regulations of the Issuer or any agreement or other
instrument binding upon the Issuer or any of its Subsidiaries
that is material to the Issuer and its Subsidiaries,
considered as one enterprise, or, to the best of such
counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over
the Issuer or any Subsidiary, and no consent, approval or
authorization of any governmental body or agency is required
for the performance by the Issuer of its obligations under the
Securities and Coupons, if any, except such as are specified
and have been obtained and such as may be required by the
securities or blue sky laws of the various states in
connection with the offer and sale of the Securities and
Coupons, if any.
In rendering such opinions, such counsel may qualify any
opinions as to enforceability by stating that such enforceability may be limited
by bankruptcy, insolvency, reorganization, liquidation, moratorium and other
similar laws affecting the rights and remedies of creditors and is subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law). Such counsel may rely, as to
all matters governed by the laws of jurisdictions other than the State of New
York and the State of Ohio and the Federal law of the United States, upon the
opinions of other counsel (copies of which shall be furnished to, and which
counsel shall be reasonably satisfactory to, the Trustee) in which case the
opinion shall state that such counsel believes he and the Trustee are entitled
so to rely. Such counsel may also state that, insofar as such opinion involves
factual matters, he has relied, to the extent he deems proper, upon certificates
of officers of the Issuer and its Subsidiaries and certificates of public
officials.
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<PAGE> 21
The Trustee shall have the right to decline to authenticate
and deliver any Securities under this Section if the Trustee, being advised by
counsel, determines that such action may not lawfully be taken by the Issuer or
if the Trustee in good faith by its board of directors or board of trustees,
executive committee, or a trust committee of directors or trustees or
Responsible Officers shall determine that such action would expose the Trustee
to personal liability to existing Holders or would affect the Trustee's own
rights, duties or immunities under the Securities, this Indenture or otherwise.
If the Issuer shall establish pursuant to Section 2.3 that the
Securities of a series are to be issued in the form of one or more Registered
Global Securities, then the Issuer shall execute and the Trustee shall, in
accordance with this Section and the Issuer Order with respect to such series,
authenticate and deliver one or more Registered Global Securities that (i) shall
represent and shall be denominated in an amount equal to the aggregate principal
amount of all of the Securities of such series to be represented by such
Registered Global Security or Securities, (ii) shall be registered in the name
of the Depositary for such Registered Global Security or Securities or the
nominee of such Depositary, (iii) shall be delivered by the Trustee to such
Depositary or pursuant to such Depositary's instructions and (iv) shall bear a
legend substantially to the following effect: "Unless this certificate is
presented by an authorized representative of a Depositary to the Issuer or its
agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of the nominee of such Depositary or such other
name as requested by an authorized representative of such Depositary and any
payment is made to the nominee of such Depositary, ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the
registered owner hereof, the nominee, has an interest herein."
Each Depositary designated pursuant to Section 2.3 must, at
the time of its designation and at all times while it serves as Depositary, be a
clearing agency registered under the Securities Exchange Act of 1934 and any
other applicable statute or regulation.
SECTION 2.5 EXECUTION OF SECURITIES. The Securities and, if
applicable, each Coupon appertaining thereto shall be signed on behalf of the
Issuer by any two of the chairman of its Board of Directors or its chief
executive officer or its president or its chief financial officer or its
treasurer or its controller or any other officer designated by the Board of
Directors, under its corporate seal (except in the case of Coupons) which may,
but need not, be attested. Such signatures may be the manual or facsimile
signatures of the present or any future such officers. The seal of the Issuer
may be in the form of a facsimile thereof and may be impressed, affixed,
imprinted or otherwise reproduced on the Securities. Typographical and other
minor errors or defects in any such reproduction of the seal or any such
signature shall not affect the validity or enforceability of any Security that
has been duly authenticated and delivered by the Trustee.
In case any officer of the Issuer who shall have signed any of
the Securities or Coupons, if any, shall cease to be such officer before the
Security or coupon so signed (or the Security to which the Coupon so signed
appertains) shall be authenticated and delivered by the Trustee or disposed of
by the Issuer, such Security or Coupon nevertheless may be authenticated and
delivered or disposed of as though the person who signed such Security or Coupon
had not ceased to be such officer of the Issuer; and any Security or Coupon may
be signed on behalf of the Issuer by such persons as, at the actual date of the
execution of such Security or Coupon,
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shall be the proper officers of the Issuer, although at the date of the
execution and delivery of this Indenture any such person was not such an
officer.
SECTION 2.6 CERTIFICATE OF AUTHENTICATION. Only such
Securities as shall bear thereon a certificate of authentication substantially
in the form hereinbefore recited, executed by the Trustee by the manual
signature of one of its authorized officers, shall be entitled to the benefits
of this Indenture or be valid or obligatory for any purpose. No Coupon shall be
entitled to the benefits of this Indenture or shall be valid and obligatory for
any purpose until the certificate of authentication on the Security to which
such Coupon appertains shall have been duly executed by the Trustee. The
execution of such certificate by the Trustee upon any Security executed by the
Issuer shall be conclusive evidence that the Security so authenticated has been
duly authenticated and delivered hereunder and that the Holder is entitled to
the benefits of this Indenture.
SECTION 2.7 DENOMINATION AND DATE OF SECURITIES; PAYMENTS OF
INTEREST. The Securities of each series shall be issuable as Registered
Securities or Unregistered Securities in denominations established as
contemplated by Section 2.3 or, with respect to the Registered Securities of any
series, if not so established, in denominations of $1,000 and any integral
multiple thereof. If denominations of Unregistered Securities of any series are
not so established, such Securities shall be issuable in denominations of $1,000
and $5,000. The Securities of each series shall be numbered, lettered or
otherwise distinguished in such manner or in accordance with such plan as the
officers of the Issuer executing the same may determine with the approval of the
Trustee, as evidenced by the execution and authentication thereof.
Each Registered Security shall be dated the date of its
authentication. Each Unregistered Security shall be dated as provided in the
resolution or resolutions of the Board of Directors of the Issuer referred to in
Section 2.3. The Securities of each series shall bear interest, if any, from the
date, and such interest shall be payable on the dates, established as
contemplated by Section 2.3.
Unless otherwise provided in the Registered Securities of any
series, the person in whose name any Registered Security of any series is
registered at the close of business on any record date applicable to a
particular series with respect to any interest payment date for such series
shall be entitled to receive the interest, if any, payable on such interest
payment date notwithstanding any transfer or exchange of such Registered
Security subsequent to the record date and prior to such interest payment date,
except if and to the extent the Issuer shall default in the payment of the
interest due on such interest payment date for such series, in which case such
defaulted interest shall be paid to the persons in whose names Outstanding
Registered Securities for such series are registered at the close of business on
a subsequent record date (which shall be not less than five Business Days prior
to the date of payment of such defaulted interest) established by notice given
by mail by or on behalf of the Issuer to the Holders of Registered Securities
not less than 15 days preceding such subsequent record date. The term "record
date" as used with respect to any interest payment date (except a date for
payment of defaulted interest) for the Securities of any series shall mean the
date specified as such in the terms of the Registered Securities of such series
established as contemplated by Section 2.3, or, if no such date is so
established, if such interest payment date is the first day of a calendar month,
the fifteenth day of the next preceding calendar month or, if such interest
payment date is the
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fifteenth day of a calendar month, the first day of such calendar month, whether
or not such record date is a Business Day.
SECTION 2.8 REGISTRATION, TRANSFER AND EXCHANGE. The Issuer
will keep at each office or agency to be maintained for the purpose as provided
in Section 3.2 for each series of Securities a register or registers in which,
subject to such reasonable regulations as it may prescribe, it will provide for
the registration of Registered Securities of such series and the registration of
transfer of Registered Securities of such series. Such register shall be in
written form in the English language or in any other form capable of being
converted into such form within a reasonable time. At all reasonable times such
register or registers shall be open for inspection by the Trustee.
Upon due presentation for registration of transfer of any
Registered Security of any series at any such office or agency to be maintained
for the purpose as provided in Section 3.2, the Issuer shall execute and the
Trustee shall authenticate and deliver in the name of the transferee or
transferees a new Registered Security or Registered Securities of the same
series, maturity date, interest rate and original issue date in authorized
denominations for a like aggregate principal amount.
Unregistered Securities (except for any temporary global
Unregistered Securities) and Coupons (except for Coupons attached to any
temporary global Unregistered Securities) shall be transferable by delivery.
At the option of the Holder thereof, Registered Securities of
any series (other than a Registered Global Security, except as set forth below)
may be exchanged for a Registered Security or Registered Securities of such
series having authorized denominations and an equal aggregate principal amount,
upon surrender of such Registered Securities to be exchanged at the agency of
the Issuer that shall be maintained for such purpose in accordance with Section
3.2 and upon payment, if the Issuer shall so require, of the charges hereinafter
provided. If the Securities of any series are issued in both registered and
unregistered form, except as otherwise specified pursuant to Section 2.3, at the
option of the Holder thereof, Unregistered Securities of any series may be
exchanged for Registered Securities of such series having other authorized
denominations and an equal aggregate principal amount, upon surrender of such
Unregistered Securities to be exchanged at the agency of the Issuer that shall
be maintained for such purpose in accordance with Section 3.2, with, in the case
of Unregistered Securities that have Coupons attached, all unmatured Coupons and
all matured Coupons in default thereto appertaining, and upon payment, if the
Issuer shall so require, of the charges hereinafter provided. At the option of
the Holder thereof, if Unregistered Securities of any series, maturity date,
interest rate and original issue date are issued in more than one authorized
denomination, except as otherwise specified pursuant to Section 2.3, such
Unregistered Securities may be exchanged for Unregistered Securities of such
series having authorized denominations and an equal aggregate principal amount,
upon surrender of such Unregistered Securities to be exchanged at the agency of
the Issuer that shall be maintained for such purpose in accordance with Section
3.2 or as specified pursuant to Section 2.3, with, in the case of Unregistered
Securities that have Coupons attached, all unmatured Coupons and all matured
Coupons in default thereto appertaining, and upon payment, if the Issuer shall
so require, of the charges hereinafter provided. Unless otherwise specified
pursuant to Section 2.3(14), Registered Securities of any series may not be
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exchanged for Unregistered Securities of such series. Whenever any Securities
are so surrendered for exchange, the Issuer shall execute, and the Trustee shall
authenticate and deliver, the Securities which the Holder making the exchange is
entitled to receive. All Securities and Coupons surrendered upon any exchange or
transfer provided for in this Indenture shall be promptly cancelled and disposed
of by the Trustee and the Trustee will deliver a certificate of disposition
thereof to the Issuer.
All Registered Securities presented for registration of
transfer, exchange, redemption or payment shall (if so required by the Issuer or
the Trustee) be duly endorsed by, or be accompanied by a written instrument or
instruments of transfer in form satisfactory to the Issuer and the Trustee duly
executed by the Holder or his attorney duly authorized in writing.
The Issuer may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection with any
exchange or registration of transfer of Securities. No service charge shall be
made for any such transaction.
The Issuer shall not be required to exchange or register a
transfer of (a) any Securities of any series for a period of 15 days next
preceding the first mailing of notice of redemption of Securities of such series
to be redeemed or (b) any Securities selected, called or being called for
redemption, in whole or in part, except, in the case of any Security to be
redeemed in part, the portion thereof not so to be redeemed.
Notwithstanding any other provision of this Section 2.8,
unless and until it is exchanged in whole or in part for Securities in
definitive registered form, a Registered Global Security representing all or a
portion of the Securities of a series may not be transferred except as a whole
by the Depositary for such series to a nominee of such Depositary or by a
nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any such nominee to a successor Depositary
for such series or a nominee of such successor Depositary.
If at any time the Depositary for any Registered Securities of
a series represented by one or more Registered Global Securities notifies the
Issuer that it is unwilling or unable to continue as Depositary for such
Registered Securities or if at any time the Depositary for such Registered
Securities shall no longer be eligible under Section 2.4, the Issuer shall
appoint a successor Depositary eligible under Section 2.4 with respect to such
Registered Securities. If a successor Depositary eligible under Section 2.4 for
such Registered Securities is not appointed by the Issuer within 90 days after
the Issuer receives such notice or becomes aware of such ineligibility, the
Issuer's election pursuant to Section 2.3 that such Registered securities be
represented by one or more Registered Global Securities shall no longer be
effective and the Issuer will execute, and the Trustee, upon receipt of an
Officer's Certificate for the authentication and delivery of definitive
Securities of such series, will authenticate and deliver, Securities of such
series in definitive registered form without coupons, in any authorized
denominations, in an aggregate principal amount equal to the principal amount of
the Registered Global Security or Securities representing such Registered
Securities in exchange for such Registered Global Security or Securities.
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The Issuer may at any time and in its sole discretion
determine that the Registered Securities of any series issued in the form of one
or more Registered Global Securities shall no longer be represented by a
Registered Global Security or Securities. In such event the Issuer will execute,
and the Trustee, upon receipt of an Officer's Certificate for the authentication
and delivery of definitive Securities of such series, will authenticate and
deliver, Securities of such series in definitive registered form without
coupons, in any authorized denominations, in an aggregate principal amount equal
to the principal amount of the Registered Global Security or Securities
representing such Registered Securities, in exchange for such Registered Global
Security or Securities.
If specified by the Issuer pursuant to Section 2.3 with
respect to Securities represented by a Registered Global Security, the
Depositary for such Registered Global Security may surrender such Registered
Global Security in exchange in whole or in part for Securities of the same
series in definitive registered form on such terms as are acceptable to the
Issuer and such Depositary. Thereupon, the Issuer shall execute, and the Trustee
shall authenticate and deliver, without service charge,
(i) to the Person specified by such Depositary a new
Registered Security or Securities of the same series, of any authorized
denominations as requested by such Person, in an aggregate principal
amount equal to and in exchange for such Person's beneficial interest
in the Registered Global Security; and
(ii) to such Depositary a new Registered Global Security in a
denomination equal to the difference, if any, between the principal
amount of the surrendered Registered Global Security and the aggregate
principal amount of Registered Securities authenticated and delivered
pursuant to clause (i) above.
Upon the exchange of a Registered Global Security for
Securities in definitive registered form without coupons, in authorized
denominations, such Registered Global Security shall be cancelled by the Trustee
or an agent of the Issuer or the Trustee. Securities in definitive registered
form without coupons issued in exchange for a Registered Global Security
pursuant to this Section 2.8 shall be registered in such names and in such
authorized denominations as the Depositary for such Registered Global Security,
pursuant to instructions from its direct or indirect participants or otherwise,
shall instruct the Trustee or an agent of the Issuer or the Trustee. The Trustee
or such agent shall deliver such Securities to or as directed by the Persons in
whose names such Securities are so registered.
All Securities issued upon any transfer or exchange of
Securities shall be valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such transfer or exchange.
Notwithstanding anything herein or in the terms of any series
of Securities to the contrary, none of the Issuer, the Trustee or any agent of
the Issuer or the Trustee (any of which, other than the Issuer, shall rely on an
Officer's Certificate and an Opinion of Counsel) shall be required to exchange
any Unregistered Security for a Registered Security if such exchange would
result in adverse Federal income tax consequences to the Issuer (such as, for
example, the inability of the Issuer to deduct from its income, as computed for
Federal income tax purposes,
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the interest payable on the Unregistered Securities) under then applicable
United States Federal income tax laws.
SECTION 2.9 MUTILATED, DEFACED, DESTROYED, LOST AND STOLEN
SECURITIES. In case any temporary or definitive Security or any Coupon
appertaining to any Security shall become mutilated, defaced or be destroyed,
lost or stolen, the Issuer in its discretion may execute, and upon the written
request of any officer of the Issuer, the Trustee shall authenticate and deliver
a new Security of the same series, maturity date, interest rate and original
issue date, bearing a number or other distinguishing symbol not
contemporaneously outstanding, in exchange and substitution for the mutilated or
defaced Security, or in lieu of and in substitution for the Security so
destroyed, lost or stolen with Coupons corresponding to the Coupons appertaining
to the Securities so mutilated, defaced, destroyed, lost or stolen, or in
exchange or substitution for the Security to which such mutilated, defaced,
destroyed, lost or stolen Coupon appertained, with Coupons appertaining thereto
corresponding to the Coupons so mutilated, defaced, destroyed, lost or stolen.
In every case the applicant for a substitute Security or Coupon shall furnish to
the Issuer and to the Trustee and any agent of the Issuer or the Trustee such
security or indemnity as may be required by them to indemnify and defend and to
save each of them harmless and, in every case of destruction, loss or theft,
evidence to their satisfaction of the destruction, loss or theft of such
Security or Coupon and of the ownership thereof and in the case of mutilation or
defacement shall surrender the Security and related Coupons to the Trustee or
such agent.
Upon the issuance of any substitute Security or Coupon, the
Issuer may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) or its agent connected
therewith. In case any Security or Coupon which has matured or is about to
mature or has been called for redemption in full shall become mutilated or
defaced or be destroyed, lost or stolen, the Issuer may instead of issuing a
substitute Security, pay or authorize the payment of the same or the relevant
Coupon (without surrender thereof except in the case of a mutilated or defaced
Security or Coupon), if the applicant for such payment shall furnish to the
Issuer and to the Trustee and any agent of the Issuer or the Trustee such
security or indemnity as any of them may require to save each of them harmless,
and, in every case of destruction, loss or theft, the applicant shall also
furnish to the Issuer and the Trustee and any agent of the Issuer or the Trustee
evidence to their satisfaction of the destruction, loss or theft of such
Security or Coupon and of the ownership thereof.
Every substitute Security or Coupon of any series issued
pursuant to the provisions of this Section by virtue of the fact that any such
Security or Coupon is destroyed, lost or stolen shall constitute an additional
contractual obligation of the Issuer, whether or not the destroyed, lost or
stolen Security or Coupon shall be at any time enforceable by anyone and shall
be entitled to all the benefits of (but shall be subject to all the limitations
of rights set forth in) this Indenture equally and proportionately with any and
all other Securities or Coupons of such series duly authenticated and delivered
hereunder. All Securities and Coupons shall be held and owned upon the express
condition that, to the extent permitted by law, the foregoing provisions are
exclusive with respect to the replacement or payment of mutilated, defaced,
destroyed, lost or stolen Securities and Coupons and shall preclude any and all
other rights or remedies
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notwithstanding any law or statute existing or hereafter enacted to the contrary
with respect to the replacement or payment of negotiable instruments or other
securities without their surrender.
SECTION 2.10 CANCELLATION OF SECURITIES; DESTRUCTION THEREOF.
All Securities and Coupons surrendered for payment, redemption, registration of
transfer or exchange, or for credit against any payment in respect of a sinking
or analogous fund, if surrendered to the Issuer or any agent of the Issuer or
the Trustee or any agent of the Trustee, shall be delivered to the Trustee or
its agent for cancellation or, if surrendered to the Trustee, shall be cancelled
by it; and no Securities or Coupons shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Indenture. The Trustee or
its agent shall dispose of cancelled Securities and Coupons held by it and
deliver a certificate of disposition to the Issuer. If the Issuer or its agent
shall acquire any of the Securities or Coupons, such acquisition shall not
operate as a redemption or satisfaction of the indebtedness represented by such
Securities or Coupons unless and until the same are delivered to the Trustee or
its agent for cancellation.
SECTION 2.11 TEMPORARY SECURITIES. Pending the preparation of
definitive Securities for any series, the Issuer may execute and the Trustee
shall authenticate and deliver temporary Securities for such series (printed,
lithographed, typewritten or otherwise reproduced, in each case in form
satisfactory to the Trustee). Temporary Securities of any series shall be
issuable as Registered Securities without Coupons, or as Unregistered Securities
with or without Coupons attached thereto, of any authorized denomination, and
substantially in the form of the definitive Securities of such series but with
such omissions, insertions and variations as may be appropriate for temporary
Securities, all as may be determined by the Issuer with the concurrence of the
Trustee as evidenced by the execution and authentication thereof. Temporary
Securities may contain such references to any provisions of this Indenture as
may be appropriate. Every temporary Security shall be executed by the Issuer and
be authenticated by the Trustee upon the same conditions and in substantially
the same manner, and with like effect, as the definite Securities. Without
reasonable delay the Issuer shall execute and shall furnish definitive
Securities of such series and thereupon temporary Registered Securities of such
series may be surrendered in exchange therefor without charge at each office or
agency to be maintained by the Issuer for that purpose pursuant to Section 3.2
and, in the case of Unregistered Securities, at any agency maintained by the
Issuer for such purpose as specified pursuant to Section 2.3, and the Trustee
shall authenticate and deliver in exchange for such temporary Securities of such
series an equal aggregate principal amount of definitive Securities of the same
series having authorized denominations and, in the case of Unregistered
Securities, having attached thereto any appropriate Coupons. Until so exchanged,
the temporary Securities of any series shall be entitled to the same benefits
under this Indenture as definitive Securities of such series, unless otherwise
established pursuant to Section 2.3. The provisions of this Section are subject
to any restrictions or limitations on the issue and delivery of temporary
Unregistered Securities of any series that may be established pursuant to
Section 2.3 (including any provision that Unregistered Securities of such series
initially be issued in the form of a single global Unregistered Security to be
delivered to a depositary or agency located outside the United States and the
procedures pursuant to which definitive or global Unregistered Securities of
such series would be issued in exchange for such temporary global Unregistered
Security).
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ARTICLE THREE
COVENANTS OF THE ISSUER
-----------------------
SECTION 3.1 PAYMENT OF PRINCIPAL AND INTEREST. The Issuer
covenants and agrees for the benefit of each series of Securities that it will
duly and punctually pay or cause to be paid the principal of, and interest on,
each of the Securities of such series (together with any additional amounts
payable pursuant to the terms of such Securities) at the place or places, at the
respective times and in the manner provided in such Securities and in the
Coupons, if any, appertaining thereto and in this Indenture. The interest on
Securities with Coupons attached (together with any additional amounts payable
pursuant to the terms of such Securities) shall be payable only upon
presentation and surrender of the several Coupons for such interest installments
as are evidenced thereby as they severally mature. If any temporary Unregistered
Security provides that interest thereon may be paid while such Security is in
temporary form, the interest on any such temporary Unregistered Security
(together with any additional amounts payable pursuant to the terms of such
Security) shall be paid, as to the installments of interest evidenced by Coupons
attached thereto, if any, only upon presentation and surrender thereof, and, as
to the other installments of interest, if any, only upon presentation of such
Securities for notation thereon of the payment of such interest, in each case
subject to any restrictions that may be established pursuant to Section 2.3. The
interest on Registered Securities (together with any additional amounts payable
pursuant to the terms of such Securities) shall be payable only to or upon the
written order of the Holders thereof and, at the option of the Issuer, may be
paid by wire transfer or by mailing checks for such interest payable to or upon
the written order of such Holders at their last addresses as they appear on the
registry books of the Issuer, unless otherwise provided in such Securities.
SECTION 3.2 OFFICES FOR PAYMENTS, ETC. So long as any
Registered Securities are authorized for issuance pursuant to this Indenture or
are outstanding hereunder, the Issuer will maintain in the Borough of Manhattan,
The City of New York, an office or agency where the Registered Securities of
each series may be presented for payment, where the Securities of each series
may be presented for exchange as is provided in this Indenture and, if
applicable, pursuant to Section 2.3 and where the Registered Securities of each
series may be presented for registration of transfer as in this Indenture
provided.
The Issuer will maintain one or more offices or agencies in a
city or cities located outside the United States (including any city in which
such an agency is required to be maintained under the rules of any stock
exchange on which the Securities of such series are listed) where the
Unregistered Securities, if any, of each series and Coupons, if any,
appertaining thereto may be presented for payment. No payment on any
Unregistered Security or Coupon will be made upon presentation of such
Unregistered Security or Coupon at an agency of the Issuer within the United
States nor will any payment be made by transfer to an account in, or by mail to
an address in, the United States unless pursuant to applicable United States
laws and regulations then in effect such payment can be made without adverse tax
consequences to the Issuer. Notwithstanding the foregoing, payments in Dollars
of Unregistered Securities of any series and Coupons appertaining thereto which
are payable in Dollars may be made at an agency of the Issuer maintained in the
Borough of Manhattan, The City of New York if such payment in Dollars at each
agency maintained by the Issuer outside the United States for payment on such
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Unregistered Securities is illegal or effectively precluded by exchange controls
or other similar restrictions.
The Issuer will maintain in the Borough of Manhattan, The City
of New York, an office or agency where notices and demands to or upon the Issuer
in respect of the Securities of any series, the Coupons appertaining thereto or
this Indenture may be served.
The Issuer will give to the Trustee written notice of the
location of each such office or agency and of any change of location thereof. In
case the Issuer shall fail to maintain any agency required by this Section to be
located in the Borough of Manhattan, The City of New York, or shall fail to give
such notice of the location or of any change in the location of any of the above
agencies, presentations and demands may be made and notices may be served at the
Corporate Trust Office of the Trustee.
The Issuer may from time to time designate one or more
additional offices or agencies where the Securities of a series and any Coupons
appertaining thereto may be presented for payment, where the Securities of that
series may be presented for exchange as provided in this Indenture and pursuant
to Section 2.3 and where the Registered Securities of that series may be
presented for registration of transfer as in this Indenture provided, and the
Issuer may from time to time rescind any such designation, as the Issuer may
deem desirable or expedient; PROVIDED, HOWEVER, that no such designation or
rescission shall in any manner relieve the Issuer of its obligation to maintain
the agencies provided for in this Section. The Issuer will give to the Trustee
prompt written notice of any such designation or rescission thereof.
SECTION 3.3 APPOINTMENT TO FILL A VACANCY IN OFFICE OF
TRUSTEE. The Issuer, whenever necessary to avoid or fill a vacancy in the
office of Trustee, will appoint, in the manner provided in Section 6.10, a
Trustee, so that there shall at all times be a Trustee with respect to each
series of Securities hereunder.
SECTION 3.4 PAYING AGENTS. Whenever the Issuer shall appoint
a paying agent other than the Trustee with respect to the Securities of any
series, it will cause such paying agent to execute and deliver to the Trustee
an instrument in which such agent shall agree with the Trustee, subject to the
provisions of this Section,
(a) that it will hold all sums received by it as such agent
for the payment of the principal of or interest on the Securities of
such series (whether such sums have been paid to it by the Issuer or by
any other obligor on the Securities of such series) in trust for the
benefit of the Holders of the Securities of such series, or Coupons
appertaining thereto, if any, or of the Trustee,
(b) that it will give the Trustee notice of any failure by the
Issuer (or by any other obligor on the Securities of such series) to
make any payment of the principal of or interest on the Securities of
such series when the same shall be due and payable, and
(c) that it will pay any such sums so held in trust by it to
the Trustee upon the Trustee's written request at any time during the
continuance of the failure referred to in clause (b) above.
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The Issuer will, on or prior to each due date of the principal
of or interest on the Securities of such series, deposit with the paying agent a
sum sufficient to pay such principal or interest so becoming due, and (unless
such paying agent is the Trustee) the Issuer will promptly notify the Trustee of
any failure to take such action.
If the Issuer shall act as its own paying agent with respect
to the Securities of any series, it will, on or before each due date of the
principal of or interest on the Securities of such series, set aside, segregate
and hold in trust for the benefit of the Holders of the Securities of such
series or the Coupons appertaining thereto a sum sufficient to pay such
principal or interest so becoming due. The Issuer will promptly notify the
Trustee of any failure to take such action.
Anything in this Section to the contrary notwithstanding, but
subject to Section 10.1, the Issuer may at any time, for the purpose of
obtaining a satisfaction and discharge with respect to one or more or all series
of Securities hereunder, or for any other reason, pay or cause to be paid to the
Trustee all sums held in trust for any such series by the Issuer or any paying
agent hereunder, as required by this Section, such sums to be held by the
Trustee upon the trusts herein contained.
Anything in this Section to the contrary notwithstanding, the
agreement to hold sums in trust as provided in this Section is subject to the
provisions of Sections 10.3 and 10.4.
SECTION 3.5 WRITTEN STATEMENT TO TRUSTEE. The Issuer will
furnish to the Trustee on or before April 30 in each year (beginning with
April 30, 1999) a brief certificate (which need not comply with Section 11.5)
from the principal executive, financial or accounting officer of the Issuer
stating that in the course of the performance by the signer of his duties as an
officer of the Issuer he would normally have knowledge of any default or
non-compliance by the Issuer in the performance of any covenants or conditions
contained in this Indenture, stating whether or not he has knowledge of any
such default or non-compliance and, if so, specifying each such default or
non-compliance of which the signer has knowledge and the nature thereof.
SECTION 3.6 NEGATIVE PLEDGE; LIMITATION ON SALE AND LEASEBACK
TRANSACTIONS
(a) The Issuer will not issue, assume, incur or guarantee, and
will not permit any Restricted Subsidiary to issue, assume, incur or
guarantee, any Debt secured by any mortgage, pledge, lien or other
encumbrance (any such mortgage, pledge, lien and other encumbrance
being hereinafter called a "Mortgage"), upon any Principal
Manufacturing Property of the Issuer or any Restricted Subsidiary, or
upon shares of capital stock or Debt of any Restricted Subsidiary
(whether such Principal Manufacturing Property or shares of stock are
now owned or hereafter acquired or such Debt is now existing or
hereafter incurred or assumed) without in any such case effectively
providing, concurrently with the issuance or assumption of such Debt,
that the Securities (together with, if the Issuer shall so determine,
any other Debt of the Issuer or such Restricted Subsidiary ranking
equally with the Securities and then existing or thereafter created)
shall be secured equally and ratably with such Debt; PROVIDED, HOWEVER,
that the foregoing restrictions shall not apply to:
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(i) (A) the creation of Mortgages on any Principal
Manufacturing Property (including any improvements on an
existing property, as to which the Mortgage may include such
underlying real property as the Issuer may deem necessary for
such improvement and unnecessary for the operation of any
theretofore existing Principal Manufacturing Property on
adjoining real property) hereafter acquired by the Issuer or a
Restricted Subsidiary prior to, at the time of, or within 120
days after the latest of the acquisition, completion of
construction or commencement of commercial operation of such
property, to secure or provide for the payment of financing of
all or any part of the purchase price thereof or construction
of fixed improvements thereon, or (B) in addition to
assumptions in transactions contemplated by subparagraph (ii)
below, the assumption of any Mortgage upon any Principal
Manufacturing Property hereafter acquired existing at the time
of such acquisitions, or the acquisition of any Principal
Manufacturing Property subject to any Mortgage without the
assumption thereof; PROVIDED that (x) with respect to (A) and
(B) above, the aggregate principal amount of Debt secured by
any such Mortgage so issued, assumed or existing shall not
exceed 100% of the cost of such Principal Manufacturing
Property to the corporation acquiring the same or of the fair
value thereof (as determined by resolution adopted by the
Board of Directors) at the time of such acquisition, whichever
is less, (y) with respect to (A) and (B) above, in the case of
any such acquisition, construction or improvement the Mortgage
shall not apply to any property theretofore owned by the
Issuer or a Restricted Subsidiary, other than, in the case of
any such construction or improvement, any theretofore
unimproved real property on which the property so constructed,
or the improvement, is located (which unimproved real property
may at the option of the Issuer be segregated by legal
description from other real property of the Issuer appurtenant
to such Principal Manufacturing Property and subjected to the
Mortgage related to such construction or improvement) and (z)
with respect to (B) above, such Mortgage was not created in
contemplation of such acquisition;
(ii) the assumption of any Mortgages on any Principal
Manufacturing Property of a corporation which is merged into
or consolidated with the Issuer or a Restricted Subsidiary or
substantially all of the assets of which are acquired by the
Issuer or a Restricted Subsidiary; PROVIDED that such
Mortgages were not created in contemplation of such merger,
consolidation or acquisition;
(iii) Mortgages on any Principal Manufacturing
Property of the Issuer or a Restricted Subsidiary 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 or to secure any
Debt incurred or guaranteed for the purpose of financing all
or any part of the cost of acquiring, constructing or
improving the property subject to such Mortgages (including
Mortgages incurred in connection with financings of the type
contemplated by Section 103 of the Internal Revenue Code,
maritime financings under Title XI of the United States Code
or similar financings);
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(iv) Mortgages securing Debt of a Restricted
Subsidiary owing to the Issuer or another Restricted
Subsidiary; and
(v) any extension, renewal or replacement (or
successive extensions, renewals or replacements) in whole or
in part, of any Mortgage referred to in the foregoing clauses
(i) through (iv); PROVIDED, HOWEVER, that the principal amount
of Debt so secured thereby shall not exceed the principal
amount of Debt so secured at the time of such extension,
renewal or replacement, and that such extension, renewal or
replacement shall be limited to all or a part of the property
which secured the Mortgage so extended, renewed or replaced
(plus improvements and construction on such property).
(b) Notwithstanding the provisions of subsection (a) of this
Section, the Issuer or any one or more Restricted Subsidiaries may
issue or assume Debt secured by a Mortgage on a Principal Manufacturing
Property in addition to those permitted by subsection (a) of this
Section and renew, extend or replace such Mortgages; PROVIDED that at
the time of such creation, assumption, renewal, extension or
replacement, and after giving effect thereto, Exempted Debt does not
exceed 15% of Consolidated Net Tangible Assets.
(c) The Issuer will not, nor will it permit any Restricted
Subsidiary to, enter into any arrangement with any Person providing for
the leasing by the Issuer or any Restricted Subsidiary of any Principal
Manufacturing Property, whether such Principal Manufacturing Property
is now owned or hereafter acquired (except for temporary leases for a
term, including renewals at the option of the lessee, of not more than
three years and except for leases between the Issuer and a Restricted
Subsidiary or between Restricted Subsidiaries), which property has been
or is to be sold or transferred by the Issuer or such Restricted
Subsidiary to such Person with the intention of taking back a lease on
such property (a "sale and leaseback transaction") unless the net
proceeds of such sale or transfer shall be at least equal to the fair
value of such property as determined by resolution adopted by the Board
of Directors and either:
(i) the Issuer or such Restricted Subsidiary would be
entitled, pursuant to the provisions of subsection (a) of this
Section, to issue or assume Debt secured by a Mortgage on such
property at least equal in amount to the Attributable Debt in
respect of such sale and leaseback transaction without equally
and ratably securing the Securities; or
(ii) since the date hereof and within a period
commencing twelve months prior to the consummation of such
sale and leaseback transaction and ending twelve months after
the consummation of such sale and leaseback transaction the
Issuer or such Restricted Subsidiary, as the case may be, has
expended or will expend, or a combination of both, for
facilities comprising all or a part of a Principal
Manufacturing Property an amount equal to (A) the net proceeds
of such sale and leaseback transaction and the Issuer elects
to designate such amount as a credit against such sale and
leaseback transaction or (B) a part
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of the net proceeds of such sale and leaseback transaction and
the Issuer elects to designate such amount as a credit against
such sale and leaseback transaction and applies an amount
equal to the remainder of the net proceeds as provided in
clause (iii) hereof; or
(iii) such sale and leaseback transaction does not
come within the exceptions provided in clause (i) hereof and
the Issuer does not make the election permitted by clause (ii)
hereof or makes such election only as to part of such net
proceeds, in either which event the Issuer will, within 120
days after such sale and leaseback transaction, apply an
amount equal to the Attributable Debt in respect of such sale
and leaseback transaction (less an amount equal to the amount,
if any, elected under clause (ii) hereof) to the retirement
(other than any mandatory retirement or by way of payment at
maturity) of Debt with a maturity of greater than one year of
the Issuer or any Restricted Subsidiary (other than Debt of
the Issuer to any Restricted Subsidiary or of any Restricted
Subsidiary to the Issuer or another Restricted Subsidiary).
(d) Notwithstanding the provisions of paragraph (c) of this
Section, the Issuer and any Restricted Subsidiary may enter into sale
and leaseback transactions in addition to those permitted by paragraph
(c) of this Section and without any obligation to make expenditures for
facilities comprising a part or all of a Principal Manufacturing
Property or to retire any Debt, provided that at the time of entering
into such sale and leaseback transaction and after giving effect
thereto, Exempted Debt does not exceed 10% of Consolidated Net Tangible
Assets.
SECTION 3.7 LUXEMBOURG PUBLICATIONS. In the event of the
publication of any notice pursuant to Section 5.11, 6.8, 6.10(a), 6.11, 8.2,
10.4, 12.2 or 12.5, the party making such publication in the Borough of
Manhattan, The City of New York and London shall also, to the extent that notice
is required to be given to Holders of Securities of any series by applicable
Luxembourg law or stock exchange regulation, as evidenced by an Officer's
Certificate delivered to such party, make a similar publication in Luxembourg.
ARTICLE FOUR
SECURITYHOLDERS LISTS AND REPORTS BY THE
ISSUER AND THE TRUSTEE
----------------------
SECTION 4.1 ISSUER TO FURNISH TRUSTEE INFORMATION AS TO NAMES
AND ADDRESSES OF SECURITYHOLDERS. If and so long as the Trustee shall not be
the Security registrar for the Securities of any series, the Issuer and any
other obligor on the Securities will furnish or cause to be furnished to the
Trustee a list in such form as the Trustee may reasonably require of the names
and addresses of the Holders of the Registered Securities of such series
pursuant to Section 312 of the Trust Indenture Act of 1939 (a) semi-annually not
more than 15 days after each record date for the payment of interest on such
Registered Securities, as hereinabove specified, as of such record date and on
dates to be determined pursuant to Section 2.3 for non-interest bearing
Registered Securities in each year, and (b) at such other times as the Trustee
may request in
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writing, within thirty days after receipt by the Issuer of any such request as
of a date not more than 15 days prior to the time such information is furnished.
SECTION 4.2 PRESERVATION AND DISCLOSURE OF SECURITYHOLDERS
LISTS.
This Section intentionally left blank.
SECTION 4.3 REPORTS BY THE ISSUER. The Issuer covenants to
file with the Trustee, within 30 days after the Issuer is required to file the
same with the Commission, copies of the annual reports and of the information,
documents, and other reports that the Issuer may be required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 or pursuant to Section 314 of the Trust Indenture Act of 1939.
SECTION 4.4 REPORTS BY THE TRUSTEE. Any Trustee's report
required under Section 313(a) of the Trust Indenture Act of 1939 shall be
transmitted on or before January 15 in each year beginning January 15, 1999, as
provided in section 313(c) of the Trust Indenture Act of 1939, so long as any
Securities are Outstanding hereunder, and shall be dated as of a date convenient
to the Trustee no more than 60 days prior thereto.
ARTICLE FIVE
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT
-------------------
SECTION 5.1 EVENT OF DEFAULT DEFINED; ACCELERATION OF
MATURITY; WAIVER OF DEFAULT. "Event of Default" with respect to Securities of
any series wherever used herein, means each one of the following events which
shall have occurred and be continuing (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) default in the payment of any installment of interest upon
any of the Securities of such series as and when the same shall become
due and payable, and continuance of such default for a period of 30
days; or
(b) default in the payment of all or any part of the principal
of any of the Securities of such series as and when the same shall
become due and payable either at maturity, upon any redemption, by
declaration or otherwise; or
(c) failure on the part of the Issuer duly to observe or
perform any other of the covenants or agreements on the part of the
Issuer in the Securities of such series (other than a covenant or
warranty in respect of the Securities of such series a default in the
performance or breach of which is elsewhere in this Section
specifically dealt with) or in this Indenture contained for a period of
60 days after the date on which written notice specifying such failure,
stating that such notice is a "Notice of Default" hereunder and
demanding that the Issuer remedy the same, shall have been given by
registered or
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certified mail, return receipt requested, to the Issuer by the Trustee,
or to the Issuer and the Trustee by the holders of at least 25% in
aggregate principal amount of the Outstanding Securities of all series
affected thereby; or
(d) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Issuer in an involuntary
case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of the
Issuer or for any substantial part of its property or ordering the
winding up or liquidation of its affairs, and such decree or order
shall remain unstayed and in effect for a period of 60 consecutive
days; or
(e) the Issuer shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or consent to the entry of an order for relief in an
involuntary case under any such law, or consent to the appointment or
taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of the Issuer or for any
substantial part of its property, or make any general assignment for
the benefit of creditors; or
(f) any other Event of Default provided in the supplemental
indenture under which such series of Securities is issued or in the
form of Security for such series.
If an Event of Default described in clauses (a), (b), (c) or
(f) (if the Event of Default under clause (c) or (f), as the case may be, is
with respect to less than all series of Securities then Outstanding) occurs and
is continuing, then, and in each and every such case, except for any series of
Securities the principal of which shall have already become due and payable,
either the Trustee or the Holders of not less than 25% in aggregate principal
amount of the Securities of each such affected series then Outstanding hereunder
(each series voting as a separate class) by notice in writing to the Issuer (and
to the Trustee if given by Securityholders), may declare the entire principal
(or, if the Securities of any such affected series are Original Issue Discount
Securities, such portion of the principal amount as may be specified in the
terms of such series) of all Securities of all such affected series, and the
interest accrued thereon, if any, to be due and payable immediately, and upon
any such declaration the same shall become immediately due and payable. If an
Event of Default described in clause (c) or (f) (if the Event of Default under
clause (c) or (f), as the case may be, is with respect to all series of
Securities then Outstanding), (d) or (e) occurs and is continuing, then and in
each and every such case, unless the principal of all the Securities shall have
already become due and payable, either the Trustee or the Holders of not less
than 25% in aggregate principal amount of all the Securities then Outstanding
hereunder (treated as one class), by notice in writing to the Issuer (and to the
Trustee if given by Securityholders), may declare the entire principal (or, if
any Securities are Original Issue Discount Securities, such portion of the
principal amount as may be specified in the terms thereof) of all the Securities
then Outstanding, and interest accrued thereon, if any, to be due and payable
immediately, and upon any such declaration the same shall become immediately due
and payable.
The foregoing provisions, however, are subject to the
condition that if, at any time after the principal (or, if the Securities are
Original Issue Discount Securities, such portion of the
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<PAGE> 36
principal as may be specified in the terms thereof) of the Securities of any
series (or of all the Securities, as the case may be) shall have been so
declared due and payable, and before any judgment or decree for the payment of
the moneys due shall have been obtained or entered as hereinafter provided, the
Issuer shall pay or shall deposit with the Trustee a sum sufficient to pay all
matured installments of interest upon all the Securities of such series (or of
all the Securities, as the case may be) and the principal of any and all
Securities of each such series (or of all the Securities, as the case may be)
which shall have become due otherwise than by acceleration (with interest upon
such principal and, to the extent that payment of such interest is enforceable
under applicable law, on overdue installments of interest, at the same rate as
the rate of interest or Yield to Maturity (in the case of Original Issue
Discount Securities) specified in the Securities of each such series (or at the
respective rates of interest or Yields to Maturity of all the Securities, as the
case may be) to the date of such payment or deposit) and such amount as shall be
sufficient to cover reasonable compensation to the Trustee and each predecessor
Trustee, its agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Trustee and each predecessor
Trustee except as a result of negligence or bad faith, and if any and all Events
of Default under the Indenture, other than the non-payment of the principal of
Securities which shall have become due by acceleration, shall have been cured,
waived or otherwise remedied as provided herein -- then and in every such case
the Holders of a majority in aggregate principal amount of all the Securities of
each such series, or of all the Securities, as the case may be, in each case
with each series voting as a separate class, then Outstanding, by written notice
to the Issuer and to the Trustee, may waive all defaults with respect to each
such series (or with respect to all the Securities, as the case may be) and
rescind and annul such declaration and its consequences, but no such waiver or
rescission and annulment shall extend to or shall affect any subsequent default
or shall impair any right consequent thereon.
For all purposes under this Indenture, if a portion of the
principal of any Original Issue Discount Securities shall have been accelerated
and declared due and payable pursuant to the provisions hereof, then, from and
after such declaration, unless such declaration has been rescinded and annulled,
the principal amount of such Original Issue Discount Securities shall be deemed,
for all purposes hereunder, to be such portion of the principal thereof as shall
be due and payable as a result of such acceleration, and payment of such portion
of the principal thereof as shall be due and payable as a result of such
acceleration, together with interest, if any, thereon and all other amounts
owing thereunder, shall constitute payment in full of such Original Issue
Discount Securities.
SECTION 5.2 COLLECTION OF INDEBTEDNESS BY TRUSTEE; TRUSTEE MAY PROVE
DEBT. The Issuer covenants that (a) in case default shall be made in the payment
of any installment of interest on any of the Securities of any series when such
interest shall have become due and payable, and such default shall have
continued for a period of 30 days or (b) in case default shall be made in the
payment of all or any part of the principal of any of the Securities of any
series when the same shall have become due and payable, whether upon maturity of
the Securities of such series or upon any redemption or by declaration or
otherwise -- then upon demand of the Trustee, the Issuer will pay to the Trustee
for the benefit of the Holders of the Securities of such series the whole amount
that then shall have become due and payable on all Securities of such series,
and such Coupons, for principal or interest, as the case may be (with interest
to the date of such payment upon the overdue principal and, to the extent that
payment of such interest is
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enforceable under applicable law, on overdue installments of interest at the
same rate as the rate of interest or Yield to Maturity (in the case of Original
Issue Discount Securities) specified in the Securities of such series); and in
addition thereto, such further amount as shall be sufficient to cover the costs
and expenses of collection, including reasonable compensation to the Trustee and
each predecessor Trustee, their respective agents, attorneys and counsel, and
any expenses and liabilities incurred, and all advances made, by the Trustee and
each predecessor Trustee except as a result of its negligence or bad faith.
Until such demand is made by the Trustee, the Issuer may pay
the principal of and interest on the Securities of any series to the registered
holders, whether or not the Securities of such Series be overdue.
In case the Issuer shall fail forthwith to pay such amounts
upon such demand, the Trustee, in its own name and as trustee of an express
trust, shall be entitled and empowered to institute any action or proceedings at
law or in equity for the collection of the sums so due and unpaid, and may
prosecute any such action or proceedings to judgment or final decree, and may
enforce any such judgment or final decree against the Issuer or other obligor
upon the Securities and collect in the manner provided by law out of the
property of the Issuer or other obligor upon the Securities, wherever situated,
the moneys adjudged or decreed to be payable.
In case there shall be pending proceedings relative to the
Issuer or any other obligor upon the Securities under Title 11 of the United
States Code or any other applicable Federal or state bankruptcy, insolvency or
other similar law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the Issuer or its property or such other
obligor, or in case of any other comparable judicial proceedings relative to the
Issuer or other obligor upon the Securities, or to the creditors or property of
the Issuer or such other obligor, the Trustee, irrespective of whether the
principal of the Securities shall then be due and payable as therein expressed
or by declaration or otherwise and irrespective of whether the Trustee shall
have made any demand pursuant to the provisions of this Section, shall be
entitled and empowered, by intervention in such proceedings or otherwise:
(a) to file and prove a claim or claims for the whole amount
of principal and interest (or, if the Securities of any series are
Original Issue Discount Securities, such portion of the principal
amount as may be specified in the terms of such series) owing and
unpaid in respect of the Securities of any series, and to file such
other papers or documents as may be necessary or advisable in order to
have the claims of the Trustee (including any claim for reasonable
compensation to the Trustee and each predecessor Trustee, and their
respective agents, attorneys and counsel, and for reimbursement of all
expenses and liabilities incurred, and all advances made, by the
Trustee and each predecessor Trustee, except as a result of negligence
or bad faith) and of the Securityholders allowed in any judicial
proceedings relative to the Issuer or other obligor upon the
Securities, or to the creditors or property of the Issuer or such other
obligor,
(b) unless prohibited by applicable law and regulations, to
vote on behalf of the holders of the Securities of any series in any
election of a trustee or a standby trustee
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<PAGE> 38
in arrangement, reorganization, liquidation or other bankruptcy or
insolvency proceedings or person performing similar functions in
comparable proceedings, and
(c) to collect and receive any moneys or other property
payable or deliverable on any such claims, and to distribute all
amounts received with respect to the claims of the Securityholders and
of the Trustee on their behalf; and any trustee, receiver, or
liquidator, custodian or other similar official is hereby authorized by
each of the Securityholders to make payments to the Trustee, and, in
the event that the Trustee shall consent to the making of payments
directly to the Securityholders, to pay to the Trustee such amounts as
shall be sufficient to cover reasonable compensation to the Trustee,
each predecessor Trustee and their respective agents, attorneys and
counsel, and all other expenses and liabilities incurred, and all
advances made, by the Trustee and each predecessor Trustee except as a
result of negligence or bad faith.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Securityholder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities of any series or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Securityholder in any such proceeding except, as aforesaid, to vote for the
election of a trustee in bankruptcy or similar person.
All rights of action and of asserting claims under this
Indenture, or under any of the Securities of any series or Coupons appertaining
to such Securities, may be enforced by the Trustee without the possession of any
of the Securities of such series or Coupons appertaining to such Securities or
the production thereof on any trial or other proceedings relative thereto, and
any such action or proceedings instituted by the Trustee shall be brought in its
own name as trustee of an express trust, and any recovery of judgment, subject
to the payment of the expenses, disbursements and compensation of the Trustee,
each predecessor Trustee and their respective agents and attorneys, shall be for
the ratable benefit of the Holders of the Securities or Coupons appertaining to
such Securities in respect of which such action was taken.
In any proceedings brought by the Trustee (and also any
proceedings involving the interpretation of any provision of this Indenture to
which the Trustee shall be a party) the Trustee shall be held to represent all
the Holders of the Securities or Coupons appertaining to such Securities in
respect to which such action was taken, and it shall not be necessary to make
any Holders of such Securities or Coupons appertaining to such Securities
parties to any such proceedings.
SECTION 5.3 APPLICATION OF PROCEEDS. Any moneys collected by
the Trustee pursuant to this Article in respect of any series shall be applied
in the following order at the date or dates fixed by the Trustee and, in case of
the distribution of such moneys on account of principal or interest, upon
presentation of the several Securities and Coupons appertaining to such
Securities in respect of which monies have been collected and stamping (or
otherwise noting) thereon the payment, or issuing Securities of such series in
reduced principal amounts in exchange for the presented Securities of like
series if only partially paid, or upon surrender thereof if fully paid:
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FIRST: To the payment of costs and expenses applicable to such
series in respect of which monies have been collected, including
reasonable compensation to the Trustee and each predecessor Trustee and
their respective agents and attorneys and of all expenses and
liabilities incurred, and all advances made, by the Trustee and each
predecessor Trustee except as a result of negligence or bad faith;
SECOND: In case the principal of the Securities of such series
in respect of which moneys have been collected shall not have become
and be then due and payable, to the payment of interest on the
Securities of such series in default in the order of the maturity of
the installments of such interest, with interest (to the extent that
such interest has been collected by the Trustee) upon the overdue
installments of interest at the same rate as the rate of interest or
Yield to Maturity (in the case of Original Issue Discount Securities)
specified in such Securities, such payments to be made ratably to the
persons entitled thereto, without discrimination or preference;
THIRD: In case the principal of the Securities of such series
in respect of which moneys have been collected shall have become and
shall be then due and payable, to the payment of the whole amount then
owing and unpaid upon all the Securities of such series for principal
and interest, with interest upon the overdue principal, and (to the
extent that such interest has been collected by the Trustee) upon
overdue installments of interest at the same rate as the rate of
interest or Yield to Maturity (in the case of Original Issue Discount
Securities) specified in the Securities of such series; and in case
such moneys shall be insufficient to pay in full the whole amount so
due and unpaid upon the Securities of such series, then to the payment
of such principal and interest or Yield to Maturity, without preference
or priority of principal over interest or Yield to Maturity, or of
interest or Yield to Maturity over principal, or of any installment of
interest over any other installment of interest, or of any Security of
such series over any other Security of such series, ratably to the
aggregate of such principal and accrued and unpaid interest or Yield to
Maturity; and
FOURTH: To the payment of the remainder, if any, to the Issuer
or any other person lawfully entitled thereto.
SECTION 5.4 SUITS FOR ENFORCEMENT. In case an Event of Default
has occurred, has not been waived and is continuing, the Trustee may in its
discretion proceed to protect and enforce the rights vested in it by this
Indenture by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any of such rights, either at law or in
equity or in bankruptcy or otherwise, whether for the specific enforcement of
any covenant or agreement contained in this Indenture or in aid of the exercise
of any power granted in this Indenture or to enforce any other legal or
equitable right vested in the Trustee by this Indenture or by law.
SECTION 5.5 RESTORATION OF RIGHTS ON ABANDONMENT OF
PROCEEDINGS. In case the Trustee shall have proceeded to enforce any right under
this Indenture and such proceedings shall have been discontinued or abandoned
for any reason, or shall have been determined adversely to the Trustee, then and
in every such case the Issuer and the Trustee shall be restored respectively to
their former positions and rights hereunder, and all rights, remedies and powers
of
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the Issuer, the Trustee and the Securityholders shall continue as though no such
proceedings had been taken.
SECTION 5.6 LIMITATIONS ON SUITS BY SECURITYHOLDERS. No Holder
of any Security of any series or of any Coupon appertaining thereto shall have
any right by virtue or by availing of any provision of this Indenture to
institute any action or proceeding at law or in equity or in bankruptcy or
otherwise upon or under or with respect to this Indenture, or for the
appointment of a trustee, receiver, liquidator, custodian or other similar
official or for any other remedy hereunder, unless such Holder previously shall
have given to the Trustee written notice of default and of the continuance
thereof, as hereinbefore provided, and unless also the Holders of not less than
25% in aggregate principal amount of the Securities of each affected series then
Outstanding (each series treated as a separate class) shall have made written
request upon the Trustee to institute such action or proceedings in its own name
as trustee hereunder and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby and the Trustee for 60 days after its receipt of
such notice, request and offer of indemnity shall have failed to institute any
such action or proceeding and no direction inconsistent with such written
request shall have been given to the Trustee pursuant to Section 5.9; it being
understood and intended, and being expressly covenanted by the taker and Holder
of every Security or Coupon with every other taker and Holder and the Trustee,
that no one or more Holders of Securities of any series or Coupons appertaining
to such Securities shall have any right in any manner whatever by virtue or by
availing of any provision of this Indenture to affect, disturb or prejudice the
rights of any other such Holder of Securities or Coupons appertaining to such
Securities, or to obtain or seek to obtain priority over or preference to any
other such Holder or to enforce any right under this Indenture, except in the
manner herein provided and for the equal, ratable and common benefit of all
Holders of Securities of the applicable series and Coupons appertaining to such
Securities. For the protection and enforcement of the provisions of this
Section, each and every Securityholder and the Trustee shall be entitled to such
relief as can be given either at law or in equity.
SECTION 5.7 UNCONDITIONAL RIGHT OF SECURITYHOLDERS TO
INSTITUTE CERTAIN SUITS. Notwithstanding any other provision in this Indenture
and any provision of any Security, the right of any Holder of any Security or
Coupon to receive payment of the principal of and interest on such Security or
Coupon on or after the respective due dates expressed in such Security or
Coupon, or to institute suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
such Holder.
SECTION 5.8 POWERS AND REMEDIES CUMULATIVE; DELAY OR OMISSION
NOT WAIVER OF DEFAULT. Except as provided in Section 5.6, no right or remedy
herein conferred upon or reserved to the Trustee or to the Holders of Securities
or Coupons is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
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No delay or omission of the Trustee or of any Holder of
Securities or Coupons to exercise any right or power accruing upon any Event of
Default occurring and continuing as aforesaid shall impair any such right or
power or shall be construed to be a waiver of any such Event of Default or an
acquiescence therein; and, subject to Section 5.6, every power and remedy given
by this Indenture or by law to the Trustee or to the Holders of Securities or
Coupons may be exercised from time to time, and as often as shall be deemed
expedient, by the Trustee or by the Holders of Securities or Coupons.
SECTION 5.9 CONTROL BY HOLDERS OF SECURITIES. The Holders of a
majority in aggregate principal amount of the Securities of each series affected
(with each such series voting as a separate class) at the time Outstanding shall
have the right to direct the time, method, and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee with respect to the Securities of such series by
this Indenture; PROVIDED that such direction shall not be otherwise than in
accordance with law and the provisions of this Indenture and PROVIDED FURTHER
that (subject to the provisions of Section 6.1) the Trustee shall have the right
to decline to follow any such direction if the Trustee, being advised by
counsel, shall determine that the action or proceeding so directed may not
lawfully be taken or if the Trustee in good faith by its board of directors, the
executive committee, or a trust committee of directors or Responsible Officers
of the Trustee shall determine that the action or proceedings so directed would
involve the Trustee in personal liability or if the Trustee in good faith shall
so determine that the actions or forbearances specified in or pursuant to such
direction would be unduly prejudicial to the interests of Holders of the
Securities of all series so affected not joining in the giving of said
direction, it being understood that (subject to Section 6.1) the Trustee shall
have no duty to ascertain whether or not such actions or forbearances are unduly
prejudicial to such Holders.
Nothing in this Indenture shall impair the right of the
Trustee in its discretion to take any action deemed proper by the Trustee and
which is not inconsistent with such direction or directions by Securityholders.
SECTION 5.10 WAIVER OF PAST DEFAULTS. Prior to the
acceleration of the maturity of any Securities as provided in Section 5.1, the
Holders of a majority in aggregate principal amount of the Securities of all
series at the time Outstanding with respect to which an Event of Default shall
have occurred and be continuing (each series voting as a separate class) may on
behalf of the Holders of all such Securities waive any past default or Event of
Default described in Section 5.1 and its consequences, except a default in
respect of a covenant or provision hereof which cannot be modified or amended
without the consent of the Holder of each Security affected. In the case of any
such waiver, the Issuer, the Trustee and the Holders of all such Securities
shall be restored to their former positions and rights hereunder, respectively;
but no such waiver shall extend to any subsequent or other default or impair any
right consequent thereon.
Upon any such waiver, such default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured, and not to have occurred
for every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
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SECTION 5.11 TRUSTEE TO GIVE NOTICE OF DEFAULT, BUT MAY
WITHHOLD IN CERTAIN CIRCUMSTANCES. The Trustee shall, within ninety days after
the occurrence of a default with respect to the Securities of any series, give
notice of all defaults with respect to that series known to the Trustee (i) if
any Unregistered Securities of that series are then Outstanding, to the Holders
thereof, by publication at least once in an Authorized Newspaper in the Borough
of Manhattan, The City of New York and at least once in an Authorized Newspaper
in London (and, if required by Section 3.7, at least once in an Authorized
Newspaper in Luxembourg) and (ii) to all Holders of Securities of such series in
the manner and to the extent provided in Section 11.4, unless in each case such
defaults shall have been cured before the mailing or publication of such notice
(the term "defaults" for the purpose of this Section being hereby defined to
mean any event or condition which is, or with notice or lapse of time or both
would become, an Event of Default); PROVIDED that, except in the case of default
in the payment of the principal of or interest on any of the Securities of such
series, or in the payment of any sinking fund installment on such series, the
Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee, or a trust committee of directors
or trustees and/or Responsible Officers of the Trustee in good faith determines
that the withholding of such notice is in the interests of the Securityholders
of such series.
SECTION 5.12 RIGHT OF COURT TO REQUIRE FILING OF UNDERTAKING
TO PAY COSTS. All parties to this Indenture agree, and each Holder of any
Security or Coupon by his acceptance thereof shall be deemed to have agreed,
that any court may in its discretion require, in any suit for the enforcement of
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken, suffered or omitted by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Securityholder or group of
Securityholders of any series holding in the aggregate more than 10% in
aggregate principal amount of the Securities of such series, or, in the case of
any suit relating to or arising under clause (c) or (f) of Section 5.1 (if the
suit relates to Securities of more than one but less than all series), 10% in
aggregate principal amount of each series of Securities then Outstanding and
affected thereby, or in the case of any suit relating to or arising under clause
(c) or (f) (if the suit under clause (c) or (f) relates to each series of the
Securities then Outstanding), (d) or (e) of Section 5.1, 10% in aggregate
principal amount of each series of Securities then Outstanding, or to any suit
instituted by any Securityholder for the enforcement of the payment of the
principal of or interest on any Security on or after the due date expressed in
such Security or any date fixed for redemption.
ARTICLE SIX
CONCERNING THE TRUSTEE
----------------------
SECTION 6.1 DUTIES AND RESPONSIBILITIES OF THE TRUSTEE; DURING
DEFAULT; PRIOR TO DEFAULT. With respect to the Holders of any series of
Securities issued hereunder, the Trustee, prior to the occurrence of an Event of
Default with respect to the Securities of a particular series and after the
curing or waiving of all Events of Default which may have occurred with respect
to
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such series, undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture. In case an Event of Default with
respect to the Securities of a series has occurred (which has not been cured or
waived) the Trustee shall exercise with respect to such series of Securities
such of the rights and powers vested in it by this Indenture, and use the same
degree of care and skill in their exercise, as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.
No provision of this Indenture shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct, except that
(a) prior to the occurrence of an Event of Default with
respect to the Securities of any series and after the curing or waiving
of all such Events of Default with respect to such series which may
have occurred:
(i) the duties and obligations of the Trustee with
respect to the Securities of any series shall be determined
solely by the express provisions of this Indenture, and the
Trustee shall not be liable except for the performance of such
duties and obligations as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be
read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on the part of the
Trustee, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed
therein, upon any statements, certificates or opinions
furnished to the Trustee and conforming to the requirements of
this Indenture; but in the case of any such statements,
certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this
Indenture;
(b) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer or Responsible Officers of
the Trustee, unless it shall be proved that the Trustee was negligent
in ascertaining the pertinent facts; and
(c) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders pursuant to Section 5.9 relating to the time,
method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Indenture.
None of the provisions contained in this Indenture shall
require the Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers, if there shall be reasonable ground for
believing that the repayment of such funds or adequate indemnity against such
liability is not reasonably assured to it.
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The provisions of this Section 6.1 are in furtherance of and
subject to Section 315 of the Trust Indenture Act of 1939.
SECTION 6.2 CERTAIN RIGHTS OF THE TRUSTEE. In furtherance of
and subject to the Trust Indenture Act of 1939, and subject to Section 6.1:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officer's Certificate or
any other certificate, statement, instrument, opinion, report, notice,
request, consent, order, bond, debenture, note, coupon, security or
other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request, direction, order or demand of the Issuer
mentioned herein shall be sufficiently evidenced by an Officer's
Certificate (unless other evidence in respect thereof be herein
specifically prescribed); and any resolution of the Board of Directors
may be evidenced to the Trustee by a copy thereof certified by the
secretary or an assistant secretary of the Issuer;
(c) the Trustee may consult with counsel and any written
advice or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted to be taken by it hereunder in good faith and in reliance
thereon in accordance with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any
of the trusts or powers vested in it by this Indenture at the request,
order or direction of any of the Securityholders pursuant to the
provisions of this Indenture, unless such Securityholders shall have
offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred therein or
thereby;
(e) the Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or
within the discretion, rights or powers conferred upon it by this
Indenture;
(f) prior to the occurrence of an Event of Default hereunder
and after the curing or waiving of all Events of Default, the Trustee
shall not be bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, appraisal, bond,
debenture, note, coupon, security, or other paper or document unless
requested in writing so to do by the Holders of a majority in aggregate
principal amount of the Securities of all series affected then
Outstanding; PROVIDED that, if the payment within a reasonable time to
the Trustee of the costs, expenses or liabilities likely to be incurred
by it in the making of such investigation is, in the opinion of the
Trustee, not reasonably assured to the Trustee by the security afforded
to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such expenses or liabilities as a
condition to proceeding; the reasonable expenses of every such
investigation shall be paid by the Issuer or, if paid by the Trustee or
any predecessor Trustee, shall be repaid by the Issuer upon demand; and
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(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys not regularly in its employ and the Trustee
shall not be responsible for any misconduct or negligence on the part
of any such agent or attorney appointed with due care by it hereunder.
SECTION 6.3 TRUSTEE NOT RESPONSIBLE FOR RECITALS, DISPOSITION
OF SECURITIES OR APPLICATION OF PROCEEDS THEREOF. The recitals contained herein
and in the Securities, except the Trustee's certificates of authentication,
shall be taken as the statements of the Issuer, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representation as to the validity or sufficiency of this Indenture or of the
Securities or Coupons. The Trustee shall not be accountable for the use or
application by the Issuer of any of the Securities or of the proceeds thereof.
SECTION 6.4 TRUSTEE AND AGENTS MAY HOLD SECURITIES OR COUPONS;
COLLECTIONS, ETC. The Trustee or any agent of the Issuer or the Trustee, in its
individual or any other capacity, may become the owner or pledgee of Securities
or Coupons with the same rights it would have if it were not the Trustee or such
agent and may otherwise deal with the Issuer and receive, collect, hold and
retain collections from the Issuer with the same rights it would have if it were
not the Trustee or such agent.
SECTION 6.5 MONEYS HELD BY TRUSTEE. Subject to the provisions
of Section 10.4 hereof, all moneys received by the Trustee shall, until used or
applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated from other funds except to the extent
required by mandatory provisions of law. Neither the Trustee nor any agent of
the Issuer or the Trustee shall be under any liability for interest on any
moneys received by it hereunder.
SECTION 6.6 COMPENSATION AND INDEMNIFICATION OF TRUSTEE AND
ITS PRIOR CLAIM. The Issuer covenants and agrees to pay to the Trustee from time
to time, and the Trustee shall be entitled to, reasonable compensation (which
shall not be limited by any provision of law in regard to the compensation of a
trustee of an express trust) and the Issuer covenants and agrees to pay or
reimburse the Trustee and each predecessor Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by or on behalf
of it in accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all agents and other persons not regularly in its employ) except any such
expense, disbursement or advance as may arise from its negligence or bad faith.
Any such payments and reimbursements not made in a timely fashion shall be made
with interest at the Trustee's corporate base rate. The Issuer also covenants to
indemnify the Trustee and each predecessor Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or bad faith
on its part, arising out of or in connection with the acceptance or
administration of this Indenture or the trusts hereunder and its duties
hereunder, including the costs and expenses of defending itself against or
investigating any claim of liability in the premises. The obligations of the
Issuer under this Section to compensate and indemnify the Trustee and each
predecessor Trustee and to pay or reimburse the Trustee and each predecessor
Trustee for expenses, disbursements and advances shall constitute additional
indebtedness hereunder and shall survive the satisfaction and discharge of this
Indenture. Such additional
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indebtedness shall be a senior claim to that of the
Securities upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the benefit of the Holders of particular
Securities or Coupons, and the Securities are hereby subordinated to such senior
claim.
SECTION 6.7 RIGHT OF TRUSTEE TO RELY ON OFFICER'S CERTIFICATE,
ETC. Subject to Sections 6.1 and 6.2, whenever in the administration of the
trusts of this Indenture the Trustee shall deem it necessary or desirable that a
matter be proved or established prior to taking or suffering or omitting any
action hereunder, such matter (unless other evidence in respect thereof be
herein specifically prescribed) may, in the absence of negligence or bad faith
on the part of the Trustee, be deemed to be conclusively proved and established
by an Officer's Certificate delivered to the Trustee, and such certificate, in
the absence of negligence or bad faith on the part of the Trustee, shall be full
warrant to the Trustee for any action taken, suffered or omitted by it under the
provisions of this Indenture upon the faith thereof.
SECTION 6.8 INDENTURES NOT CREATING POTENTIAL CONFLICTING
INTERESTS FOR THE TRUSTEE.
This Section intentionally left blank.
SECTION 6.9 PERSONS ELIGIBLE FOR APPOINTMENT AS TRUSTEE. The
Trustee for each series of Securities hereunder shall at all times be a
corporation organized and doing business under the laws of the United States of
America or of any State or the District of Columbia having a combined capital
and surplus of at least $5,000,000, and which is authorized under such laws to
exercise corporate trust powers and is subject to supervision or examination by
Federal, State or District of Columbia authority. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then for the purposes of
this Section, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. In case at any time the Trustee shall cease to
be eligible in accordance with the provisions of this Section, the Trustee shall
resign immediately in the manner and with the effect specified in Section 6.10.
The provisions of this Section 6.9 are in furtherance of and
subject to Section 310(a) of the Trust Indenture Act of 1939.
SECTION 6.10 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR
TRUSTEE. (a) The Trustee, or any trustee or trustees hereafter appointed, may at
any time resign with respect to one or more or all series of Securities by
giving written notice of resignation to the Issuer and (i) if any Unregistered
Securities of a series affected are then Outstanding, by giving notice of such
resignation to the Holders thereof, by publication at least once in an
Authorized Newspaper in the Borough of Manhattan, The City of New York, and at
least once in an Authorized Newspaper in London (and, if required by Section
3.7, at least once in an Authorized Newspaper in Luxembourg), (ii) if any
Unregistered Securities of a series affected are then Outstanding, by mailing
notice of such resignation to the Holders thereof whose names and addresses have
been furnished to the Trustee, at such addresses as were so furnished to the
Trustee and (iii) by mailing notice of such resignation to the Holders of then
Outstanding Registered Securities of each series affected at their addresses as
they shall appear on the registry
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books. Upon receiving such notice of resignation, the Issuer shall promptly
appoint a successor trustee or trustees with respect to the applicable series by
written instrument in duplicate, executed by authority of the Board of
Directors, one copy of which instrument shall be delivered to the resigning
Trustee and one copy to the successor trustee or trustees. If no successor
trustee shall have been so appointed with respect to any series and have
accepted appointment within 30 days after the mailing of such notice of
resignation, the resigning trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee, or any Securityholder
who has been a bona fide Holder of a Security or Securities of the applicable
series for at least six months may, subject to the provisions of Section 5.12,
on behalf of himself and all others similarly situated, petition any such court
for the appointment of a successor trustee. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribe, appoint a successor
trustee.
(b) In case at any time any of the following shall occur:
(i) the Trustee shall fail to comply with the
provisions of Section 310(b) of the Trust Indenture Act of
1939 with respect to any series of Securities after written
request therefor by the Issuer or by any Securityholder who
has been a bona fide Holder of a Security or Securities of
such series for at least six months; or
(ii) the Trustee shall cease to be eligible in
accordance with the provisions of Section 6.9 and Section
310(a) of the Trust Indenture Act of 1939 and shall fail to
resign after written request therefor by the Issuer or by any
Securityholder; or
(iii) the Trustee shall become incapable of acting
with respect to any series of Securities, or shall be adjudged
a bankrupt or insolvent, or a receiver or liquidator of the
Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation,
conservation or liquidation;
then, in any such case, the Issuer may remove the Trustee with respect
to the applicable series of Securities and appoint a successor trustee
for such series by written instrument, in duplicate, executed by order
of the Board of Directors of the Issuer, one copy of which instrument
shall be delivered to the Trustee so removed and one copy to the
successor trustee, or, subject to the provisions of Section 315(e) of
the Trust Indenture Act of 1939, any Securityholder who has been a bona
fide Holder of a Security or Securities of such series for at least six
months may on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor trustee with respect to such
series. Such court may thereupon, after such notice, if any, as it may
deem proper and prescribe, remove the Trustee and appoint a successor
trustee.
(c) The Holders of a majority in aggregate principal amount of
the Securities of each series at the time outstanding may at any item
remove the Trustee with respect to Securities of
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such series and appoint a successor trustee with respect to the
Securities of such series by delivering to the Trustee so removed, to
the successor trustee so appointed and to the Issuer the evidence
provided for in Section 7.1 of the action in that regard taken by the
Securityholders.
(d) Any resignation or removal of the Trustee with respect to
any series and any appointment of a successor trustee with respect to
such series pursuant to any of the provisions of this Section 6.10
shall become effective upon acceptance of appointment by the successor
trustee as provided in Section 6.11.
SECTION 6.11 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR TRUSTEE.
Any successor trustee appointed as provided in Section 6.10 shall execute and
deliver to the Issuer and to its predecessor trustee an instrument accepting
such appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee with respect to all or any applicable series shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become vested with all rights, powers, duties and obligations
with respect to such series of its predecessor hereunder, with like effect as if
originally named as trustee for such series hereunder; but, nevertheless, on the
written request of the Issuer or of the successor trustee, upon payment of its
charges then unpaid, the trustee ceasing to act shall, subject to Section 10.4,
pay over to the successor trustee all moneys at the time held by it hereunder
and shall execute and deliver an instrument transferring to such successor
trustee all such rights, powers, duties and obligations. Upon request of any
such successor trustee, the Issuer shall execute any and all instruments in
writing for more fully and certainly vesting in and confirming to such successor
trustee all such rights and powers. Any trustee ceasing to act shall,
nevertheless, retain a prior claim upon all property or funds held or collected
by such trustee to secure any amounts then due it pursuant to the provisions of
Section 6.6.
If a successor trustee is appointed with respect to the
Securities of one or more (but not all) series, the Issuer, the predecessor
Trustee and each successor trustee with respect to the Securities of any
applicable series shall execute and deliver an indenture supplemental hereto
which shall contain such provisions as shall be deemed necessary or desirable to
confirm that all the rights, powers, trusts and duties of the predecessor
Trustee with respect to the Securities of any series as to which the predecessor
Trustee is not retiring shall continue to be vested in the predecessor Trustee,
and shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one trustee, it being understood that nothing herein or
in such supplemental indenture shall constitute such trustees co-trustees of the
same trust and that each such trustee shall be trustee of a trust or trusts
under separate indentures.
No successor trustee with respect to any series of Securities
shall accept appointment as provided in this Section 6.11 unless at the time of
such acceptance such successor trustee shall be qualified under Section 310(b)
of the Trust Indenture Act of 1939 and eligible under the provisions of Section
6.9.
Upon acceptance of appointment by any successor trustee as
provided in this Section 6.11, the Issuer shall give notice thereof (a) if any
Unregistered Securities of a series affected are then Outstanding, to the
Holders thereof, by publication of such notice at least once in an Authorized
Newspaper in the Borough of Manhattan, The City of New York and at least
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once in an Authorized Newspaper in London (and, if required by Section 3.7, at
least once in an Authorized Newspaper in London (and, if required by Section
3.7, at least once in an Authorized Newspaper in Luxembourg), (b) if any
Unregistered Securities of a series affected are then Outstanding, to the
Holders thereof whose names and addresses have been furnished to the Trustee, by
mailing such notice to such Holders at such addressees as were so furnished to
the Trustee (and the Trustee shall make such information available to the Issuer
for such purpose) and (c) to the Holders of Registered Securities of each series
affected, by mailing such notice to such Holders at their addresses as they
shall appear on the registry books. If the acceptance of appointment is
substantially contemporaneous with the resignation, then the notice called for
by the preceding sentence may be combined with the notice called for by Section
6.10. If the Issuer fails to give such notice within ten days after acceptance
of appointment by the successor trustee, the successor trustee shall cause such
notice to be given at the expense of the Issuer.
SECTION 6.12 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION
TO BUSINESS OF TRUSTEE. Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to the corporate trustee business of the
Trustee, shall be the successor of the Trustee hereunder, PROVIDED that such
corporation shall be qualified under Section 310(b) of the Trust Indenture Act
of 1939 and eligible under the provisions of Section 6.9, without the execution
or filing of any paper or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding.
In case at the time such successor to the Trustee shall
succeed to the trusts created by this Indenture any of the Securities of any
series shall have been authenticated but not delivered, any such successor to
the Trustee may adopt the certificate of authentication of any predecessor
Trustee and deliver such Securities so authenticated; and, in case at that time
any of the Securities of any series shall not have been authenticated, any
successor to the Trustee may authenticate such Securities either in the name of
any predecessor hereunder or in the name of the successor Trustee; and in all
such cases such certificate shall have the full force which it is anywhere in
the Securities of such series or in this Indenture provided that the certificate
of the Trustee shall have; PROVIDED, that the right to adopt the certificate of
authentication of any predecessor Trustee or to authenticate Securities of any
series in the name of any predecessor Trustee shall apply only to its successor
or successors by merger, conversion or consolidation.
SECTION 6.13 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE
ISSUER.
This Section intentionally left blank.
SECTION 6.14 APPOINTMENT OF AUTHENTICATING AGENT. As long as
any Securities of a series remain Outstanding, the Trustee may, by an instrument
in writing, appoint with the approval of the Issuer an authenticating agent (the
"Authenticating Agent") which shall be authorized to act on behalf of the
Trustee to authenticate Securities, including Securities issued upon exchange,
registration of transfer, partial redemption or pursuant to Section 2.9.
Securities of each such series authenticated by such Authenticating Agent shall
be entitled to the benefits of this Indenture and shall be valid and obligatory
for all purposes as if authenticated by the Trustee. Whenever reference is made
in this Indenture to the authentication and delivery of
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Securities of any series by the Trustee or to the Trustee's Certificate of
Authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent for such series and
a Certificate of Authentication executed on behalf of the Trustee by such
Authenticating Agent. Such Authenticating Agent shall at all times be a
corporation organized and doing business under the laws of the United States of
America or of any State, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $5,000,000 (determined
as provided in Section 6.9 with respect to the Trustee) and subject to
supervision or examination by Federal or State authority.
Any corporation into which any Authenticating Agent may be
merged or converted, or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which any
Authenticating Agent shall be a party, or any corporation succeeding to the
corporate agency business of any Authenticating Agent, shall continue to be the
Authenticating Agent with respect to all series of Securities for which it
served as Authenticating Agent without the execution or filing of any paper or
any further act on the part of the Trustee or such Authenticating Agent. Any
Authenticating Agent may at any time, and if it shall cease to be eligible
shall, resign by giving written notice of resignation to the Trustee and to the
Issuer.
Upon receiving such a notice of resignation or upon such a
termination, or in case at any time any Authenticating Agent shall cease to be
eligible in accordance with the provisions of this Section 6.14 with respect to
one or more series of Securities, the Trustee shall upon receipt of an Issuer
Order appoint a successor Authenticating Agent and the Issuer shall provide
notice of such appointment to all Holders of Securities of such series in the
manner and to the extent provided in Section 11.4. Any successor Authenticating
Agent upon acceptance of its appointment hereunder shall become vested with all
rights, powers, duties and responsibilities of its predecessor hereunder, with
like effect as if originally named as Authenticating Agent. The Issuer agrees to
pay to the Authenticating Agent for such series from time to time reasonable
compensation. The Authenticating Agent for the Securities of any series shall
have no responsibility or liability for any action taken by it as such at the
direction of the Trustee.
Sections 6.2, 6.3, 6.4, 6.6, 6.9 and 7.3 shall be applicable
to any Authenticating Agent.
ARTICLE SEVEN
CONCERNING THE SECURITYHOLDERS
------------------------------
SECTION 7.1 EVIDENCE OF ACTION TAKEN BY SECURITYHOLDERS. Any
request, demand, authorization, direction, notice, consent, waiver or other
action provided by this Indenture to be given or taken by a specified percentage
in principal amount of the Securityholders of any or all series may be embodied
in and evidenced by one or more instruments of substantially similar tenor
signed by such specified percentage of Securityholders in person or by agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee. Proof of execution of any instrument or of a writing
appointing any such agent
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shall be sufficient for any purpose of this Indenture and (subject to Sections
6.1 and 6.2) conclusive in favor of the Trustee and the Issuer, if made in the
manner provided in this Article.
SECTION 7.2 PROOF OF EXECUTION OF INSTRUMENTS AND OF HOLDING
OF SECURITIES. Subject to Sections 6.1 and 6.2, the execution of any instrument
by a Securityholder or his agent or proxy may be proved in the following manner:
(a) The fact and date of the execution by any Holder of any
instrument may be proved by the certificate of any notary public or
other officer of any jurisdiction authorized to take acknowledgments of
deeds or administer oaths that the person executing such instruments
acknowledged to him the execution thereof, or by an affidavit of a
witness to such execution sworn to before any such notary or other such
officer. Where such execution is by or on behalf of any legal entity
other than an individual, such certificate or affidavit shall also
constitute sufficient proof of the authority of the person executing
the same. The fact of the holding by any Holder of an Unregistered
Security of any series, and the identifying number of such Security and
the date of his holding the same, may be proved by the production of
such Security or by a certificate executed by any trust company, bank,
banker or recognized securities dealer wherever situated satisfactory
to the Trustee, if such certificate shall be deemed by the Trustee to
be satisfactory. Each such certificate shall be dated and shall state
that on the date thereof a Security of such series bearing a specified
identifying number was deposited with or exhibited to such trust
company, bank, banker or recognized securities dealer by the person
named in such certificate. Any such certificate may be issued in
respect of one or more Unregistered Securities of one or more series
specified therein. The holding by the person named in any such
certificate of any Unregistered Securities of any series specified
therein shall be presumed to continue for a period of one year from the
date of such certificate unless at the time of any determination of
such holding (1) another certificate bearing a later date issued in
respect of the same Securities shall be produced, or (2) the Security
of such series specified in such certificate shall be produced by some
other person, or (3) the Security of such series specified in such
certificate shall have ceased to be Outstanding. Subject to Sections
6.1 and 6.2, the fact and date of the execution of any such instrument
and the amount and numbers of Securities of any series held by the
person so executing such instrument and the amount and numbers of any
Security or Securities for such series may also be proven in accordance
with such reasonable rules and regulations as may be prescribed by the
Trustee for such series or in any other manner which the Trustee for
such series may deem sufficient.
(b) In the case of Registered Securities, the ownership of
such Securities shall be proved by the Security register or by a
certificate of the Security registrar.
The Issuer may set a record date for purposes of determining
the identity of Holders of Registered Securities of any series entitled to vote
or consent to any action referred to in Section 7.1, which record date may be
set at any time or from time to time by notice to the Trustee, for any date or
dates (in the case of any adjournment or reconsideration) not more than 60 days
nor less than five days prior to the proposed date of such vote or consent, and
thereafter, notwithstanding any other provisions hereof, with respect to
Registered Securities of any series,
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only Holders of Registered Securities of such series of record on such record
date shall be entitled to so vote or give such consent or revoke such vote or
consent.
SECTION 7.3 HOLDERS TO BE TREATED AS OWNERS. The Issuer, the
Trustee and any agent of the Issuer or the Trustee may deem and treat the person
in whose name any Security shall be registered upon the Security register for
such series as the absolute owner of such Security (whether or not such Security
shall be overdue and notwithstanding any notation of ownership or other writing
thereon) for the purpose of receiving payment of or on account of the principal
of and, subject to the provisions of this Indenture, interest on such Security
and for all other purposes; and neither the Issuer nor the Trustee nor any agent
of the Issuer or the Trustee shall be affected by any notice to the contrary.
The Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Holder of any Unregistered Security and the Holder of any Coupon as the absolute
owner of such Unregistered Security or Coupon (whether or not such Unregistered
Security or Coupon shall be overdue) for the purpose of receiving payment
thereof or on account thereof and for all other purposes and neither the Issuer,
the Trustee, nor any agent of the Issuer or the Trustee shall be affected by any
notice to the contrary. All such payments so made to any such person, or upon
his order, shall be valid, and, to the extent of the sum or sums so paid,
effectual to satisfy and discharge the liability for moneys payable upon any
such Unregistered Security or Coupon.
SECTION 7.4 SECURITIES OWNED BY ISSUER DEEMED NOT OUTSTANDING.
In determining whether the Holders of the requisite aggregate principal amount
of Outstanding Securities of any or all series have concurred in any direction,
consent or waiver under this Indenture, Securities which are owned by the Issuer
or any other obligor on the Securities with respect to which such determination
is being made or by any person directly or indirectly controlling or controlled
by or under direct or indirect common control with the Issuer or any other
obligor on the Securities with respect to which such determination is being made
shall be disregarded and deemed not to be Outstanding for the purpose of any
such determination, except that for the purpose of determining whether the
Trustee shall be protected in relying on any such direction, consent or waiver
only Securities which the Trustee knows are so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Issuer or any other obligor upon the Securities or any person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Issuer or any other obligor on the Securities. In case
of a dispute as to such right, the advice of counsel shall be full protection in
respect of any decision made by the Trustee in accordance with such advice. Upon
request of the Trustee, the Issuer shall furnish to the Trustee promptly an
Officer's Certificate listing and identifying all Securities, if any, known by
the Issuer to be owned or held by or for the account of any of the
above-described persons; and, subject to Sections 6.1 and 6.2, the Trustee shall
be entitled to accept such Officer's Certificate as conclusive evidence of the
facts therein set forth and of the fact that all Securities not listed therein
are Outstanding for the purpose of any such determination.
SECTION 7.5 RIGHT OF REVOCATION OF ACTION TAKEN. At any time
prior to (but not after) the evidencing to the Trustee, as provided in Section
7.1, of the taking of any action by the Holders of the percentage in aggregate
principal amount of the Securities of any or all series,
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as the case may be, specified in this Indenture in connection with such action,
any Holder of a Security the serial number of which is shown by the evidence to
be included among the serial numbers of the Securities the Holders of which have
consented to such action may, by filing written notice at the Corporate Trust
Office and upon proof of holding as provided in this Article, revoke such action
so far as concerns such Security. Except as aforesaid any such action taken by
the Holder of any Security shall be conclusive and binding upon such Holder and
upon all future Holders and owners of such Security and of any Securities issued
in exchange or substitution therefor or on registration of transfer thereof,
irrespective of whether or not any notation in regard thereto is made upon any
such Security. Any action taken by the Holders of the percentage in aggregate
principal amount of the Securities of any or all series, as the case may be,
specified in this Indenture in connection with such action shall be conclusively
binding upon the Issuer, the Trustee and the Holders of all the Securities
affected by such action.
ARTICLE EIGHT
SUPPLEMENTAL INDENTURES
-----------------------
SECTION 8.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
SECURITYHOLDERS. The Issuer, when authorized by a resolution of its Board of
Directors (which resolution may provide general terms or parameters for such
action and may provide that the specific terms of such action may be determined
in accordance with or pursuant to an Issuer Order), and the Trustee may from
time to time and at any time enter into an indenture or indentures supplemental
hereto for one or more of the following purposes:
(a) to convey, transfer, assign, mortgage or pledge to the
Trustee as security for the Securities of one or more series any
property or assets;
(b) to evidence the succession of another corporation to the
Issuer, or successive successions, and the assumption by the successor
corporation of the covenants, agreements and obligations of the Issuer
pursuant to Article Nine;
(c) to add to the covenants of the Issuer such further
covenants, restrictions, conditions or provisions as the Issuer and the
Trustee shall consider to be for the protection of the Holders of
Securities or Coupons, and to make the occurrence, or the occurrence
and continuance, of a default in any such additional covenants,
restrictions, conditions or provisions an Event of Default permitting
the enforcement of all or any of the several remedies provided in this
Indenture as herein set forth; PROVIDED, that in respect of any such
additional covenant, restriction, condition or provision such
supplemental indenture may provide for a particular period of grace
after default (which period may be shorter or longer than that allowed
in the case of other defaults) or may provide for an immediate
enforcement upon such an Event of Default or may limit the remedies
available to the Trustee upon such an Event of Default or may limit the
right of the Holders of a majority in aggregate principal amount of the
Securities of such series to waive such an Event of Default;
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(d) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture which may
be defective or inconsistent with any other provision contained herein
or in any supplemental indenture, or to make any other provisions as
the Issuer may deem necessary or desirable, PROVIDED that no such
action shall adversely affect the interests of the Holders of the
Securities or Coupons;
(e) to establish the forms or terms of Securities of any
series or of the Coupons appertaining to such Securities as permitted
by Sections 2.1 and 2.3; and
(f) to evidence and provide for the acceptance of appointment
hereunder by a successor trustee with respect to the Securities of one
or more series and to add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one trustee,
pursuant to the requirements of Section 6.11.
The Trustee is hereby authorized to join with the Issuer in
the execution of any such supplemental indenture, to make any further
appropriate agreements and stipulations which may be therein contained and to
accept the conveyance, transfer, assignment, mortgage or pledge of any property
thereunder, but the Trustee shall not be obligated to enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of
this Section may be executed without the consent of the Holders of any of the
Securities at the time outstanding, notwithstanding any of the provisions of
Section 8.2.
SECTION 8.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF
SECURITYHOLDERS. With the consent (evidenced as provided in Article Seven) of
the Holders of a majority in aggregate principal amount of the Securities at the
time Outstanding of all series affected by such supplemental indenture (each
such series voting as a separate class), the Issuer, when authorized by a
resolution of its Board of Directors (which resolution may provide general terms
or parameters for such action and may provide that the specific terms of such
action may be determined in accordance with or pursuant to an Issuer Order), and
the Trustee may, from time to time and at any time, enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of any supplemental indenture or of modifying in any manner the rights of the
Holders of the Securities of each such series or of the Coupons appertaining to
such Securities; PROVIDED, that no such supplemental indenture shall (a) extend
the final maturity of any Security, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon, or reduce any
amount payable on redemption thereof, or make the principal thereof (including
any amount in respect of original issue discount), or interest thereon payable
in any coin or currency other than that provided in the Securities and Coupons
or in accordance with the terms thereof, or reduce the amount of the principal
of an Original Issue Discount Security that would be due and payable upon an
acceleration of the maturity thereof pursuant to Section 5.1 or the amount
thereof provable in bankruptcy pursuant to Section 5.2, or alter the provisions
of Section 11.11 or 11.12 or impair or affect the right of any Securityholder to
institute suit for the payment thereof or, if the Securities provide therefor,
any right of repayment
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at the option of the Securityholder, in each case without the consent of the
Holder of each Security so affected, or (b) reduce the aforesaid percentage of
Securities of any series, the consent of the Holders of which is required for
any such supplemental indenture, without the consent of the Holders of each
Security so affected.
A supplemental indenture which changes or eliminates any
covenant or other provision of this Indenture which has expressly been included
solely for the benefit of one or more particular series of Securities, or which
modifies the rights of Holders of Securities of such series, or of Coupons
appertaining to such Securities, with respect to such covenant or provision,
shall be deemed not to affect the rights under this Indenture of the Holders of
Securities of any other series or of the Coupons appertaining to such
Securities.
Upon the request of the Issuer, accompanied by a copy of a
resolution of the Board of Directors (which resolution may provide general terms
or parameters for such action and may provide that the specific terms of such
action may be determined in accordance with or pursuant to an Issuer Order)
certified by the secretary or an assistant secretary of the Issuer authorizing
the execution of any such supplemental indenture, and upon the filing with the
Trustee of evidence of the consent of the Holders of the Securities as aforesaid
and other documents, if any, required by Section 7.1, the Trustee shall join
with the Issuer in the execution of such supplemental indenture unless such
supplemental indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its
discretion, but shall not be obligated to, enter into such supplemental
indenture.
It shall not be necessary for the consent of the
Securityholders under this Section to approve the particular form of any
proposed supplemental indenture, but it shall be sufficient if such consent
shall approve the substance thereof.
Promptly after the execution by the Issuer and the Trustee of
any supplemental indenture pursuant to the provisions of this Section, the
Trustee shall give notice thereof (i) to the Holders of then Outstanding
Registered Securities of each series affected thereby, by mailing a notice
thereof by first-class mail to such Holders at their addresses as they shall
appear on the Security register, (ii) if any unregistered Securities of a series
affected thereby are then Outstanding, to the Holders thereof whose names and
addresses have been furnished to the Trustee, by mailing a notice thereof by
first-class mail to such Holders at such addresses as were so furnished to the
Trustee and (iii) if any Unregistered Securities of a series affected thereby
are then Outstanding, to all Holders thereof, by publication of a notice thereof
at least once in an Authorized Newspaper in the Borough of Manhattan, The City
of New York and at least once in an Authorized Newspaper in London (and, if
required by Section 3.7, at least once in an Authorized Newspaper in
Luxembourg), and in each case such notice shall set forth in general terms the
substance of such supplemental indenture. Any failure of the Issuer to give such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
SECTION 8.3 EFFECT OF SUPPLEMENTAL INDENTURE. Upon the
execution of any supplemental indenture pursuant to the provisions hereof, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitations of rights, obligations, duties
and immunities under this Indenture of the Trustee, the Issuer and the
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Holders of Securities of each series affected thereby shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 8.4 DOCUMENTS TO BE GIVEN TO TRUSTEE. The Trustee,
subject to the provisions of Sections 6.1 and 6.2, may receive an Officer's
Certificate and an Opinion of Counsel as conclusive evidence that any
supplemental indenture executed pursuant to this Article 8 complies with the
applicable provisions of this Indenture.
SECTION 8.5 NOTATION ON SECURITIES IN RESPECT OF SUPPLEMENTAL
INDENTURES. Securities of any series authenticated and delivered after the
execution of any supplemental indenture pursuant to the provisions of this
Article may bear a notation in form approved by the Trustee for such series as
to any matter provided for by such supplemental indenture or as to any action
taken by Securityholders. If the Issuer or the Trustee shall so determine, new
Securities of any series so modified as to conform, in the opinion of the
Trustee and the Board of Directors, to any modification of this Indenture
contained in any such supplemental indenture may be prepared by the Issuer,
authenticated by the Trustee and delivered in exchange for the Securities of
such series then Outstanding.
ARTICLE NINE
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
-----------------------------------------
SECTION 9.1 COVENANT NOT TO MERGE, CONSOLIDATE, SELL OR CONVEY
PROPERTY EXCEPT UNDER CERTAIN CONDITIONS. The Issuer covenants that it will
not merge or consolidate with any other Person or sell, lease or convey all or
substantially all of its assets to any other Person, unless (i) either the
Issuer shall be the continuing corporation, or the successor corporation or the
Person which acquires by sale, lease or conveyance substantially all the assets
of the Issuer (if other than the Issuer) shall be a corporation organized
under the laws of the United States of America or any State thereof or the
District of Columbia and shall expressly assume the due and punctual payment of
the principal of and interest on all the Securities and Coupons, if any,
according to their tenor, and the due and punctual performance and observance
of all of the covenants and conditions of this Indenture to be performed or
observed by the Issuer, by supplemental indenture satisfactory to the Trustee,
executed and delivered to the Trustee by such corporation, and (ii) the Issuer,
such Person or such successor corporation, as the case may be, shall not,
immediately after such merger or consolidation, or such sale, lease or
conveyance, be in default in the performance of any such covenant or condition.
SECTION 9.2 SUCCESSOR CORPORATION SUBSTITUTED. In case of any
such consolidation, merger, sale, lease or conveyance, and following such an
assumption by the successor corporation, such successor corporation shall
succeed to and be substituted for the Issuer, with the same effect as if it had
been named herein; PROVIDED that, in the case of the sale of all or
substantially all the assets of the Issuer, the corporation so succeeding shall
not be so
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substituted unless the succeeding corporation acquires such assets in their
entirety or virtually in their entirety from the Issuer (or from any successor
corporation that shall have previously been substituted for the Issuer in the
manner described herein). Such successor corporation may cause to be signed, and
may issue either in its own name or in the name of the Issuer prior to such
succession any or all of the Securities issuable hereunder which together with
any Coupons appertaining thereto theretofore shall not have been signed by the
Issuer and delivered to the Trustee; and, upon the order of such successor
corporation, instead of the Issuer, and subject to all the terms, conditions and
limitations in this Indenture prescribed, the Trustee shall authenticate and
shall deliver any Securities together with any Coupons appertaining thereto
which previously shall have been signed and delivered by the officers of the
Issuer to the Trustee for authentication, and any Securities which such
successor corporation thereafter shall cause to be signed and delivered to the
Trustee for that purpose. All of the Securities so issued together with any
Coupons appertaining thereto shall in all respects have the same legal rank and
benefit under this Indenture as the Securities theretofore or thereafter issued
in accordance with the terms of this Indenture as though all of such Securities
had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, lease or
conveyance such changes in phrasing and form (but not in substance) may be made
in the Securities and Coupons thereafter to be issued as may be appropriate.
In the event of any such sale or conveyance (other than a
conveyance by way of lease) the Issuer or any successor corporation which shall
theretofore have become such in the manner described in this Article shall be
discharged from all obligations and covenants under this Indenture and the
Securities and may be liquidated and dissolved.
SECTION 9.3 OPINION OF COUNSEL DELIVERED TO TRUSTEE. The
Trustee, subject to the provisions of Sections 6.1 and 6.2, may receive an
Opinion of Counsel as conclusive evidence that any such consolidation, merger,
sale, lease or conveyance, and any such assumption, and any such liquidation or
dissolution, complies with the applicable provisions of this Indenture.
ARTICLE TEN
SATISFACTION AND DISCHARGE OF INDENTURE;
UNCLAIMED MONEYS
----------------
SECTION 10.1 SATISFACTION AND DISCHARGE OF INDENTURE. (A) If
at any time (a) the Issuer shall have paid or caused to be paid the principal of
and interest on all the Securities of any series Outstanding hereunder and all
unmatured Coupons appertaining thereto (other than Securities of such series and
Coupons appertaining thereto which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 2.9) as and when the same
shall have become due and payable, or (b) the Issuer shall have delivered to the
Trustee for cancellation all Securities of any series theretofore authenticated
and all unmatured Coupons appertaining thereto (other than any Securities of
such series and Coupons appertaining thereto which shall have been destroyed,
lost or stolen and which shall have been replaced or paid as
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provided in Section 2.9) or (c) in the case of any series of Securities where
the exact amount (including the currency of payment) of principal of and
interest due on which can be determined at the time of making the deposit
referred to in clause (ii) below, (i) all the Securities of such series and all
unmatured Coupons appertaining thereto not theretofore delivered to the Trustee
for cancellation shall have become due and payable, or are by their terms to
become due and payable within one year or are to be called for redemption within
one year under arrangements satisfactory to the Trustee for the giving of notice
of redemption, and (ii) the Issuer shall have irrevocably deposited or caused to
be deposited with the Trustee as trust funds the entire amount in cash (other
than moneys repaid by the Trustee or any paying agent to the Issuer in
accordance with Section 10.4) or, in the case of any series of Securities the
payments on which may only be made in Dollars, obligations issued or guaranteed
as to principal and interest by the United States or by a Person controlled or
supervised by and acting as an instrumentality of the government of the United
States pursuant to authority granted by the Congress of the United States ("U.S.
Government Obligations"), maturing as to principal and interest at such times
and in such amounts as will insure the availability of cash, or a combination
thereof, sufficient in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay (A) the principal and interest on all
Securities of such series and Coupons appertaining thereto on each date that
such principal or interest is due and payable and (B) any mandatory sinking fund
payments on the dates on which such payments are due and payable in accordance
with the terms of the Indenture and the Securities of such series; and if, in
any such case, the Issuer shall also pay or cause to be paid all other sums
payable hereunder by the Issuer, then this Indenture shall cease to be of
further effect (except as to (i) rights of registration of transfer and exchange
of Securities of such Series and of Coupons appertaining thereto and the
Issuer's right of optional redemption, if any, (ii) substitution of mutilated,
defaced, destroyed, lost or stolen Securities or Coupons, (iii) rights of
holders of Securities and Coupons appertaining thereto to receive payments of
principal thereof and interest thereon, upon the original stated due dates
therefor (but not upon acceleration), and remaining rights of the Holders to
receive mandatory sinking fund payments, if any, (iv) the rights, obligations,
duties and immunities of the Trustee hereunder, (v) the rights of the Holders of
Securities of such series and Coupons appertaining thereto as beneficiaries
hereof with respect to the property so deposited with the Trustee payable to all
or any of them, and (vi) the obligations of the Issuer under Section 3.2) and
the Trustee, on demand of the Issuer accompanied by an Officer's Certificate and
an Opinion of Counsel and at the cost and expense of the Issuer, shall execute
proper instruments acknowledging such satisfaction of and discharging this
Indenture; PROVIDED, that the rights of Holders of the Securities and Coupons to
receive amounts in respect of principal of and interest on the Securities and
Coupons held by them shall not be delayed longer than required by
then-applicable mandatory rules or policies of any securities exchange upon
which the Securities are listed. The Issuer agrees to reimburse the Trustee for
any costs or expenses thereafter reasonably and properly incurred and to
compensate the Trustee for any services thereafter reasonably and properly
rendered by the Trustee in connection with this Indenture or the securities of
such series.
(B) The following provisions shall apply to the Securities of
each series unless specifically otherwise provided in a Board Resolution,
Officer's Certificate or indenture supplemental hereto provided pursuant to
Section 2.3. In addition to discharge of the Indenture pursuant to the next
preceding paragraph, in the case of any series of Securities the exact amounts
(including the currency of payment) of principal of and interest due on which
can be
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determined at the time of making the deposit referred to in clause (a) below,
the Issuer shall be deemed to have paid and discharged the entire indebtedness
on all the Securities of such a series and the Coupons appertaining thereto on
the 91st day after the date of the deposit referred to in subparagraph (a)
below, and the provisions of this Indenture with respect to the Securities of
such series and Coupons appertaining thereto shall no longer be in effect
(except as to (i) rights of registration of transfer and exchange of Securities
of such series and of Coupons appertaining thereto and the Issuer's right of
optional redemption, if any, (ii) substitution of mutilated, defaced, destroyed,
lost or stolen Securities or Coupons, (iii) rights of Holders of Securities and
Coupons appertaining thereto to receive payments of principal thereof and
interest thereon, upon the original stated due dates therefor (but not upon
acceleration), and remaining rights of the Holders to receive mandatory sinking
fund payments, if any, (iv) the rights, obligations, duties and immunities of
the Trustee hereunder, (v) the rights of the Holders of Securities of such
series and Coupons appertaining thereto as beneficiaries hereof with respect to
the property so deposited with the Trustee payable to all or any of them and
(vi) the obligations of the Issuer under Section 3.2) and the Trustee, at the
expense of the Issuer, shall at the Issuer's request, execute proper instruments
acknowledging the same, if
(a) with reference to this provision the Issuer has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee as trust funds in trust, specifically pledged as security for,
and dedicated solely to, the benefit of the Holders of the Securities
of such series and Coupons appertaining thereto (i) cash in an amount,
or (ii) in the case of any series of Securities the payments on which
may only be made in Dollars, U.S. Government Obligations, maturing as
to principal and interest at such times and in such amounts as will
insure the availability of cash or (iii) a combination thereof,
sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay (A) the principal and interest
on all Securities of such series and Coupons appertaining thereto on
each date that such principal or interest is due and payable and (B)
any mandatory sinking fund payments on the dates on which such payments
are due and payable in accordance with the terms of the Indenture and
the Securities of such series;
(b) such deposit will not result in a breach or violation of,
or constitute a default under, any agreement or instrument to which the
Issuer is a party or by which it is bound;
(c) the Issuer has delivered to the Trustee an Opinion of
Counsel based on the fact that (x) the Issuer has received from, or
there has been published by, the Internal Revenue Service a ruling or
(y) since the date hereof, there has been a change in the applicable
Federal income tax law, in either case to the effect that, and such
opinion shall confirm that, the Holders of the Securities of such
series and Coupons appertaining thereto 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; and
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(d) the Issuer has delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to the defeasance contemplated by this
provision have been complied with.
(C) The Issuer shall be released from its obligations under
Sections 3.6 and 9.1 with respect to the Securities of any Series, and any
Coupons appertaining thereto, Outstanding on and after the date the conditions
set forth below are satisfied (hereinafter, "covenant defeasance"). For this
purpose, such covenant defeasance means that, with respect to the Outstanding
Securities of any Series, the Issuer may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in such
Section, whether directly or indirectly by reason of any reference elsewhere
herein to such Section or by reason of any reference in such Section to any
other provision herein or in any other document and such omission to comply
shall not constitute an Event of Default under Section 5.1, but the remainder of
this Indenture and such Securities and Coupons shall be unaffected thereby. The
following shall be the conditions to application of this subsection C of this
Section 10.1:
(a) The Issuer has irrevocably deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for,
and dedicated solely to, the benefit of the holders of the Securities
of such series and coupons appertaining thereto, (i) cash in an amount,
or (ii) in the case of any series of Securities the payments on which
may only be made in Dollars, U.S. Government Obligations maturing as to
principal and interest at such times and in such amounts as will insure
the availability of cash or (iii) a combination thereof, sufficient, in
the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to
the Trustee, to pay (A) the principal and interest on all Securities of
such series and Coupons appertaining thereto and (B) any mandatory
sinking fund payments on the day on which such payments are due and
payable in accordance with the terms of the Indenture and the
Securities of such series.
(b) No Event of Default or event which with notice or lapse of
time or both would become an Event of Default with respect to the
Securities shall have occurred and be continuing on the date of such
deposit or, insofar as subsections 5.1(d) and (e) are concerned, at any
time during the period ending on the 91st day after the date of such
deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period).
(c) Such covenant defeasance shall not cause the Trustee to
have a conflicting interest as defined in Section 6.8 and for purposes
of the Trust Indenture Act of 1939 with respect to any securities of
the Issuer.
(d) Such covenant defeasance shall not result in a breach or
violation of, or constitute a default under, this Indenture or any
other agreement or instrument to which the Issuer is a party or by
which it is bound.
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(e) Such covenant defeasance shall not cause any Securities
then listed on any registered national securities exchange under the
Securities Exchange Act of 1934, as amended, to be delisted.
(f) The Issuer shall have delivered to the Trustee an
Officer's Certificate and Opinion of Counsel to the effect that the
Holders of the Securities of such series and Coupons appertaining
thereto will not recognize income, gain or loss for Federal income tax
purposes as a result of such covenant defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had
not occurred.
(g) The Issuer shall have delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to the covenant defeasance
contemplated by this provision have been complied with.
SECTION 10.2 APPLICATION BY TRUSTEE OF FUNDS DEPOSITED FOR
PAYMENT OF SECURITIES. Subject to Section 10.4, all moneys deposited with the
Trustee (or other trustee) pursuant to Section 10.1 shall be held in trust and
applied by it to the payment, either directly or through any paying agent
(including the Issuer acting as its own paying agent), to the Holders of the
particular Securities of such series and of Coupons appertaining thereto for the
payment or redemption of which such moneys have been deposited with the Trustee,
of all sums due and to become due thereon for principal and interest; but such
money need not be segregated from other funds except to the extent required by
law.
SECTION 10.3 REPAYMENT OF MONEYS HELD BY PAYING AGENT. In
connection with the satisfaction and discharge of this Indenture with respect to
Securities of any series, all moneys then held by any paying agent under the
provisions of this Indenture with respect to such series of Securities shall,
upon demand of the Issuer, be repaid to it or paid to the Trustee and thereupon
such paying agent shall be released from all further liability with respect to
such moneys.
SECTION 10.4 RETURN OF MONEYS HELD BY TRUSTEE AND PAYING AGENT
UNCLAIMED FOR TWO YEARS. Any moneys deposited with or paid to the Trustee or any
paying agent for the payment of the principal of or interest on any Security of
any series or Coupons attached thereto and not applied but remaining unclaimed
for two years after the date upon which such principal or interest shall have
become due and payable, shall, upon the written request of the Issuer and unless
otherwise required by mandatory provisions of applicable escheat or abandoned or
unclaimed property law, be repaid to the Issuer by the Trustee for such series
or such paying agent, and the Holder of the Securities of such series and of any
Coupons appertaining thereto shall, unless otherwise required by mandatory
provisions of applicable escheat or abandoned or unclaimed property laws,
thereafter look only to the Issuer for any payment which such Holder may be
entitled to collect, and all liability of the Trustee or any paying agent with
respect to such moneys shall thereupon cease; PROVIDED, HOWEVER, that the
Trustee or such paying agent, before being required to make any such repayment
with respect to moneys deposited with it for any payment (a) in respect of
Registered Securities of any series, shall at the expense of the Issuer, mail by
first-class mail to Holders of such Securities at their addresses as they shall
appear on the Security register, and (b) in respect of Unregistered Securities
of any series, shall at the expense
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of the Issuer cause to be published once, in an Authorized Newspaper in the
Borough of Manhattan, The City of New York and once in an Authorized Newspaper
in London (and if required by Section 3.7, once in an Authorized Newspaper in
Luxembourg), notice, that such moneys remain and that, after a date specified
therein, which shall not be less than thirty days from the date of such mailing
or publication, any unclaimed balance of such money then remaining will be
repaid to the Issuer.
SECTION 10.5 INDEMNITY FOR U.S. GOVERNMENT OBLIGATIONS. The
Issuer shall pay and indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against the U.S. Government Obligations deposited
pursuant to Section 10.1 or the principal or interest received in respect of
such obligations.
ARTICLE ELEVEN
MISCELLANEOUS PROVISIONS
------------------------
SECTION 11.1 INCORPORATORS, SHAREHOLDERS, OFFICERS AND
DIRECTORS OF ISSUER EXEMPT FROM INDIVIDUAL LIABILITY. No recourse under or upon
any obligation, covenant or agreement contained in this Indenture, or in any
Security, or because of any indebtedness evidenced thereby, shall be had against
any incorporator, as such or against any past, present or future shareholder,
officer or director, as such, of the Issuer or of any successor, either directly
or through the Issuer or any successor, under any rule of law, statute or
constitutional provision or by the enforcement of any assessment or by any legal
or equitable proceeding or otherwise, all such liability being expressly waived
and released by the acceptance of the Securities and the Coupons appertaining
thereto by the Holders thereof and as part of the consideration for the issue of
the Securities and the Coupons appertaining thereto.
SECTION 11.2 PROVISIONS OF INDENTURE FOR THE SOLE BENEFIT OF
PARTIES AND HOLDERS OF SECURITIES AND COUPONS. Nothing in this Indenture, in the
Securities or in the Coupons appertaining thereto, expressed or implied, shall
give or be construed to give to any person, firm or corporation, other than the
parties hereto and their successors and the Holders of the Securities or
Coupons, if any, any legal or equitable right, remedy or claim under this
Indenture or under any covenant or provision herein contained, all such
covenants and provisions being for the sole benefit of the parties hereto and
their successors and of the Holders of the Securities or Coupons, if any.
SECTION 11.3 SUCCESSORS AND ASSIGNS OF ISSUER BOUND BY
INDENTURE. All the covenants, stipulations, promises and agreements in this
Indenture contained by or in behalf of the Issuer shall bind its successors and
assigns, whether so expressed or not.
SECTION 11.4 NOTICES AND DEMANDS ON ISSUER, TRUSTEE AND
HOLDERS OF SECURITIES AND COUPONS. Any notice or demand which by any provision
of this Indenture is required or permitted to be given or served by the Trustee
or by the Holders of Securities or Coupons to or on the Issuer may be given or
served by being deposited postage prepaid, first-class mail (except as otherwise
specifically provided herein) addressed (until another address of the Issuer is
filed by the Issuer with the Trustee) to THE LUBRIZOL
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CORPORATION, 29400 Lakeland Boulevard, Wickliffe, Ohio 44092, Attention: Chief
Financial Officer. Any notice, direction, request or demand by the Issuer or any
Holder of Securities or Coupons to or upon the Trustee shall be deemed to have
been sufficiently given or served by being deposited postage prepaid,
first-class mail (except as otherwise specifically provided herein) addressed
(until another address of the Trustee is filed by the Trustee with the Issuer)
to One First National Plaza, Suite 0126, Chicago, Illinois 60670-0216,
Attention: Corporate Trust Services Division.
Where this Indenture provides for notice to Holders of
Registered Securities, such notice shall be sufficiently given (unless otherwise
herein expressly provided) if in writing and mailed, first-class postage
prepaid, to each Holder entitled thereto, at his last address as it appears in
the Security register. In any case where notice to such Holders is given by
mail, neither the failure to mail such notice, nor any defect in any notice so
mailed, to any particular Holder shall affect the sufficiency of such notice
with respect to other Holders. Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case, by reason of the suspension of or irregularities in
regular mail service, it shall be impracticable to mail notice to the Issuer
when such notice is required to be given pursuant to any provision of this
Indenture, then any manner of giving such notice as shall be reasonably
satisfactory to the Trustee shall be deemed to be a sufficient giving of such
notice.
SECTION 11.5 OFFICER'S CERTIFICATES AND OPINIONS OF COUNSEL;
STATEMENTS TO BE CONTAINED THEREIN. Upon any application or demand by the Issuer
to the Trustee to take any action under any of the provisions of this Indenture,
the Issuer shall furnish to the Trustee an Officer's Certificate stating that
all conditions precedent provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent have been complied with,
except that in the case of any such application or demand as to which the
furnishing of such documents is specifically required by any provision of this
Indenture relating to such particular application or demand, no additional
certificate or opinion need be furnished.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture shall include (a) a statement that the person
making such certificate or opinion has read such covenant or condition, (b) a
brief statement as to the nature and scope of the examination or investigation
upon which the statements or opinions contained in such certificate or opinion
are based, (c) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with and (d) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Any certificate, statement or opinion of an officer of the
Issuer may be based, insofar as it relates to legal matters, upon a certificate
or opinion of or representations by
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counsel, unless such officer knows that the certificate or opinion or
representations with respect to the matters upon which his certificate,
statement or opinion may be based as aforesaid are erroneous, or in the exercise
of reasonable care should know that the same are erroneous. Any certificate,
statement or opinion of counsel may be based, insofar as it relates to factual
matters, information with respect to which is in the possession of the Issuer,
upon the certificate, statement or opinion of or representations by an officer
or officers of the Issuer, unless such counsel knows that the certificate,
statement or opinion or representations with respect to the matters upon which
his certificate, statement or opinion may be based as aforesaid are erroneous,
or in the exercise of reasonable care should know that the same are erroneous.
Any certificate, statement or opinion of an officer of the
Issuer or of counsel may be based, insofar as it relates to accounting matters,
upon a certificate or opinion of or representations by an accountant or firm of
accountants in the employ of the Issuer, unless such officer or counsel, as the
case may be, knows that the certificate or opinion or representations with
respect to the accounting matters upon which his certificate, statement or
opinion may be based as aforesaid are erroneous, or in the exercise of
reasonable care should know that the same are erroneous.
Any certificate or opinion of any independent firm of public
accountants filed with and directed to the Trustee shall contain a statement
that such firm is independent.
SECTION 11.6 PAYMENTS DUE ON SATURDAYS, SUNDAYS AND HOLIDAYS.
If the date of maturity of interest on or principal of the Securities of any
series or any Coupons appertaining thereto or the date fixed for redemption or
repayment of any such Security or Coupon shall not be a Business Day, then
payment of interest or principal 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 of maturity or the date fixed for redemption, and no interest shall
accrue for the period after such date.
SECTION 11.7 CONFLICT OF ANY PROVISION OF INDENTURE WITH TRUST
INDENTURE ACT OF 1939. If and to the extent that any provision of this Indenture
limits, qualifies or conflicts with the duties imposed by, or with another
provision (an "incorporated provision") included in this Indenture by operation
of, Sections 310 to 318, inclusive, of the Trust Indenture Act of 1939, such
imposed duties or incorporated provision shall control.
SECTION 11.8 NEW YORK LAW TO GOVERN. This Indenture and each
Security and Coupon shall be deemed to be a contract under the internal laws of
the State of New York, and for all purposes shall be construed in accordance
with the internal laws of such State, without regard to conflicts of law
principles thereof and except as may otherwise be required by mandatory
provisions of law.
SECTION 11.9 COUNTERPARTS. This Indenture may be executed in
any number of counterparts, each of which shall be an original; but such
counterparts shall together constitute but one and the same instrument.
SECTION 11.10 EFFECT OF HEADINGS. The Article and Section
headings herein and the Table of Contents are for convenience only and shall not
affect the construction hereof.
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SECTION 11.11 SECURITIES IN A FOREIGN CURRENCY OR IN ECU.
Unless otherwise specified in an Officer's Certificate delivered pursuant to
Section 2.3 of this Indenture with respect to a particular series of Securities,
whenever for purposes of this Indenture any action may be taken by the Holders
of a specified percentage in aggregate principal amount of Securities of all
series or all series affected by a particular action at the time Outstanding
and, at such time, there are Outstanding Securities of any series which are
denominated in a coin or currency other than Dollars (including ECUs), then the
principal amount of Securities of such series which shall be deemed to be
Outstanding for the purpose of taking such action shall be that amount of
Dollars that could be obtained for such amount at the Market Exchange Rate. For
purposes of this Section 11.11, Market Exchange Rate shall mean the noon Dollar
buying rate in New York City for cable transfers of that currency as published
by the Federal Reserve Bank of New York; PROVIDED, HOWEVER, in the case of ECUs,
Market Exchange Rate shall mean the rate of exchange determined by the
Commission of the European Communities (or any successor thereto) as published
in the Official Journal of the European Communities (such publication or any
successor publication, the "Journal"). If such Market Exchange Rate is not
available for any reason with respect to such currency, the Trustee shall use,
in its sole discretion and without liability on its part, such quotation of the
Federal Reserve Bank of New York or, in the case of ECUs, the rate of exchange
as published in the Journal, as of the most recent available date, or quotations
or, in the case of ECUs, rates of exchange from one or more major banks in The
City of New York or in the country of issue of the currency in question, which
for purposes of the ECU shall be Brussels, Belgium, or such other quotations or,
in the case of ECU, rates of exchange as the Trustee shall deem appropriate. The
provisions of this paragraph shall apply in determining the equivalent principal
amount in respect of Securities of a series denominated in a currency other than
Dollars in connection with any action taken by Holders of Securities pursuant to
the terms of this Indenture.
All decisions and determinations of the Trustee regarding the
Market Exchange Rate or any alternative determination provided for in the
preceding paragraph shall be in its sole discretion and shall, in the absence of
manifest error, be conclusive to the extent permitted by law for all purposes
and irrevocably binding upon the Issuer and all Holders.
SECTION 11.12 JUDGMENT CURRENCY. The Issuer agrees, to the
fullest extent that it may effectively do so under applicable law, that (a) if
for the purpose of obtaining judgment in any court it is necessary to convert
the sum due in respect of the principal of or interest on the Securities of any
series (the "Required Currency") into a currency in which a judgment will be
rendered (the "Judgment Currency"), the rate of exchange used shall be the rate
at which in accordance with normal banking procedures the Trustee could purchase
in The City of New York the Required Currency with the Judgment Currency on the
day on which final unappealable judgment is entered, unless such day is not a
New York Banking Day, then, to the extent permitted by applicable law, the rate
of exchange used shall be the rate at which in accordance with normal banking
procedures the Trustee could purchase in The City of New York the Required
Currency with the Judgment Currency on the New York Banking Day preceding the
day on which final unappealable judgment is entered and (b) its obligations
under this Indenture to make payments in the Required Currency (i) shall not be
discharged or satisfied by any tender, or any recovery pursuant to any judgment
(whether or not entered in accordance with subsection (a)), in any currency
other than the Required Currency, except to the extent that such tender or
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recovery shall result in the actual receipt, by the payee, of the full amount of
the Required Currency expressed to be payable in respect of such payments, (ii)
shall be enforceable as an alternative or additional cause of action for the
purpose of recovering in the Required Currency the amount, if any, by which such
actual receipt shall fall short of the full amount of the Required Currency so
expressed to be payable and (iii) shall not be affected by judgment being
obtained for any other sum due under this Indenture. For purposes of the
foregoing, "New York Banking Day" means any day except a Saturday, Sunday or a
legal holiday in The City of New York or a day on which banking institutions in
The City of New York are authorized or required by law or executive order to
close.
ARTICLE TWELVE
REDEMPTION OF SECURITIES AND SINKING FUNDS
------------------------------------------
SECTION 12.1 APPLICABILITY OF ARTICLE. The provisions of this
Article shall be applicable to the Securities of any series which are redeemable
before their maturity or to any sinking fund for the retirement of Securities of
a series except as otherwise specified as contemplated by Section 2.3 for
Securities of such series.
SECTION 12.2 NOTICE OF REDEMPTION; PARTIAL REDEMPTIONS. Notice
of redemption to the Holders of Registered Securities of any series to be
redeemed as a whole or in part at the option of the Issuer shall be given by
mailing notice of such redemption by first-class mail, postage prepaid, at least
30 days and not more than 60 days prior to the date fixed for redemption to such
Holders of Securities of such series at their last addresses as they shall
appear upon the registry books. Notice of redemption to the Holders of
Unregistered Securities to be redeemed as a whole or in part, whose names and
addresses have been furnished to the Trustee, shall be given by mailing notice
of such redemption, by first-class mail, postage prepaid, at least 30 days and
not more than 60 prior to the date fixed for redemption, to such Holders at such
addresses as were so furnished to the Trustee (and, in the case of any such
notice given by the Issuer, the Trustee shall make such information available to
the Issuer for such purpose). Notice of redemption to all other Holders of
Unregistered Securities shall be published in an Authorized Newspaper in the
Borough of Manhattan, The City of New York and in an Authorized Newspaper in
London (and, if required by Section 3.7, in an Authorized Newspaper in
Luxembourg), in each case, once in each of three successive calendar weeks, the
first publication to be not less than 30 nor more than 60 days prior to the date
fixed for redemption. Any notice which is mailed in the manner herein provided
shall be conclusively presumed to have been duly given, whether or not the
Holder receives the notice. Failure to give notice by mail, or any defect in the
notice to the Holder of any Security of a series designated for redemption as a
whole or in part shall not affect the validity of the proceedings for the
redemption of any other Security of such series.
The notice of redemption to each such Holder shall specify,
the principal amount of each Security of such series held by such Holder to be
redeemed, the date fixed for redemption, the redemption price, the place or
places of payment, that payment will be made upon presentation and surrender of
such Securities and, in the case of Securities with Coupons attached thereto, of
all Coupons appertaining thereto maturing after the date fixed for
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redemption, that such redemption is pursuant to the mandatory or optional
sinking fund, or both, if such be the case, that interest accrued to the date
fixed for redemption will be paid as specified in such notice and that on and
after said date interest thereon or on the portions thereof to be redeemed will
cease to accrue. In case any Security of a series is to be redeemed in part only
the notice of redemption shall state the portion of the principal amount thereof
to be redeemed and shall state that on and after the date fixed for redemption,
upon surrender of such Security, a new Security or Securities of such series in
principal amount equal to the unredeemed portion thereof will be issued.
The notice of redemption of Securities of any series to be
redeemed at the option of the Issuer shall be given by the Issuer or, at the
Issuer's request, by the Trustee in the name and at the expense of the Issuer.
On or before the redemption date specified in the notice of
redemption given as provided in this Section, the Issuer will deposit with the
Trustee or with one or more paying agents (or, if the Issuer is acting as its
own paying agent, set aside, segregate and hold in trust as provided in Section
3.4) an amount of money sufficient to redeem on the redemption date all the
Securities of such series so called for redemption at the appropriate redemption
price, together with accrued interest to the date fixed for redemption. The
Issuer will deliver to the Trustee at least 70 days prior to the date fixed for
redemption an Officer's Certificate stating the aggregate principal amount of
Securities to be redeemed. In case of a redemption at the election of the Issuer
prior to the expiration of any restriction on such redemption, the Issuer shall
deliver to the Trustee, prior to the giving of any notice of redemption to
Holders pursuant to this Section, an Officer's Certificate stating that such
restriction has been complied with.
If less than all the Securities of a series are to be
redeemed, the Trustee shall select, in such manner as it shall deem appropriate
and fair, Securities of such Series to be redeemed in whole or in part.
Securities may be redeemed in part in multiples equal to the minimum authorized
denomination for Securities of such series or any multiple thereof. The Trustee
shall promptly notify the Issuer in writing of the Securities of such series
selected for redemption and, in the case of any Securities of such series
selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires, all
provisions relating to the redemption of Securities of any series shall relate,
in the case of any Security redeemed or to be redeemed only in part, to the
portion of the principal amount of such Security which has been or is to be
redeemed.
SECTION 12.3 PAYMENT OF SECURITIES CALLED FOR REDEMPTION. If
notice of redemption has been given as above provided, the Securities or
portions of Securities specified in such notice shall become due and payable on
the date and at the place stated in such notice at the applicable redemption
price, together with interest accrued to the date fixed for redemption, and on
and after said date (unless the Issuer shall default in the payment of such
Securities at the redemption price, together with interest accrued to said date)
interest on the Securities or portions of Securities so called for redemption
shall cease to accrue, and the unmatured Coupons, if any, appertaining thereto
shall be void, and, except as provided in Sections 6.5 and 10.4, such Securities
shall cease from and after the date fixed for redemption to be entitled to any
benefit or security under this Indenture, and the Holders thereof shall have no
right in respect of such Securities except the right to receive the redemption
price thereof and unpaid interest to the date
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fixed for redemption. On presentation and surrender of such Securities at a
place of payment specified in said notice, together with all Coupons, if any,
appertaining thereto maturing after the date fixed for redemption, said
Securities or the specified portions thereof shall be paid and redeemed by the
Issuer at the applicable redemption price, together with interest accrued
thereon to the date fixed for redemption; PROVIDED that payment of interest
becoming due on or prior to the date fixed for redemption shall be payable in
the case of Securities with Coupons attached thereto, to the Holders of the
Coupons for such interest upon surrender thereof, and in the case of Registered
Securities, to the Holders of such Registered Securities registered as such on
the relevant record date subject to the terms and provisions of Sections 2.3 and
2.7 hereof.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal shall, until paid or duly
provided for, bear interest from the date fixed for redemption at the rate of
interest or Yield to Maturity (in the case of an Original Issue Discount
Security) borne by such Security.
If any Security with Coupons attached thereto is surrendered
for redemption and is not accompanied by all appurtenant Coupons maturing after
the date fixed for redemption, the surrender of such missing Coupon or Coupons
may be waived by the Issuer and the Trustee, if there be furnished to each of
them such security or indemnity as they may require to save each of them
harmless.
Upon presentation of any Security redeemed in part only, the
Issuer shall execute and the Trustee shall authenticate and deliver to or on the
order of the Holder thereof, at the expense of the Issuer, a new Security or
Securities of such series, of authorized denominations, in principal amount
equal to the unredeemed portion of the Security so presented.
SECTION 12.4 EXCLUSION OF CERTAIN SECURITIES FROM ELIGIBILITY
FOR SELECTION FOR REDEMPTION. Securities shall be excluded from eligibility for
selection for redemption if they are identified by registration and certificate
number in an Officer's Certificate delivered to the Trustee at least 40 days
prior to the last date on which notice of redemption may be given as being owned
of record and beneficially by, and not pledged or hypothecated by either (a) the
Issuer or (b) an entity specifically identified in such written statement as
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Issuer.
SECTION 12.5 MANDATORY AND OPTIONAL SINKING FUNDS. The minimum
amount of any sinking fund payment provided for by the terms of the Securities
of any series is herein referred to as a "mandatory sinking fund payment," and
any payment in excess of such minimum amount provided for by the terms of the
Securities of any series is herein referred to as an "optional sinking fund
payment." The date on which a sinking fund payment is to be made is herein
referred to as the "sinking fund payment date."
In lieu of making all or any part of any mandatory sinking
fund payment with respect to any series of Securities in cash, the Issuer may at
its option (a) deliver to the Trustee Securities of such series theretofore
purchased or otherwise acquired (except upon redemption pursuant to the
mandatory sinking fund) by the Issuer or receive credit for Securities of such
series (not previously so credited) theretofore purchased or otherwise acquired
(except as aforesaid) by the Issuer and delivered to the Trustee for
cancellation pursuant to Section 2.10, (b)
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receive credit for optional sinking fund payments (not previously so credited)
made pursuant to this Section, or (c) receive credit for Securities of such
series (not previously so credited) redeemed by the Issuer through any optional
redemption provision contained in the terms of such series. Securities so
delivered or credited shall be received or credited by the Trustee at the
sinking fund redemption price specified in such Securities.
On or before the 60th day next preceding each sinking fund
payment date for any series, the Issuer will deliver to the Trustee an Officer's
Certificate (which need not contain the statements required by Section 11.5) (a)
specifying the portion of the mandatory sinking fund payment to be satisfied by
payment of cash and the portion to be satisfied by credit of Securities of such
series and the basis for such credit, (b) stating that none of the Securities of
such series has theretofore been so credited, (c) stating that no defaults in
the payment of interest or Events of Default with respect to such series have
occurred (which have not been waived or cured) and are continuing and (d)
stating whether or not the Issuer intends to exercise its right to make an
optional sinking fund payment with respect to such series and, if so, specifying
the amount of such optional sinking fund payment which the Issuer intends to pay
on or before the next succeeding sinking fund payment date. Any Securities of
such series to be credited and required to be delivered to the Trustee in order
for the Issuer to be entitled to credit therefor as aforesaid which have not
theretofore been delivered to the Trustee shall be delivered for cancellation
pursuant to Section 2.10 to the Trustee with such Officer's Certificate (or
reasonably promptly thereafter if acceptable to the Trustee). Such Officer's
Certificate shall be irrevocable and upon its receipt by the Trustee the Issuer
shall become unconditionally obligated to make all the cash payments or payments
therein referred to, if any, on or before the next succeeding sinking fund
payment date. Failure of the Issuer, on or before any such 60th day, to deliver
such Officer's Certificate and Securities specified in this paragraph, if any,
shall not constitute a default but shall constitute, on and as of such date, the
irrevocable election of the Issuer (i) that the mandatory sinking fund payment
for such series due on the next succeeding sinking fund payment date shall be
paid entirely in cash without the option to deliver or credit Securities of such
series in respect thereof and (ii) that the Issuer will make no optional sinking
fund payment with respect to such series as provided in this Section.
If the sinking fund payment or payments (mandatory or optional
or both) to be made in cash on the next succeeding sinking fund payment date
plus any unused balance of any preceding sinking fund payments made in cash
shall exceed $50,000 (or the equivalent thereof in any Foreign Currency or ECU)
or a lesser sum in Dollars (or the equivalent thereof in any Foreign Currency or
ECU) if the Issuer shall so request with respect to the Securities of any
particular series, such cash shall be applied on the next succeeding sinking
fund payment date to the redemption of Securities of such series at the sinking
fund redemption price together with accrued interest to the date fixed for
redemption. If such amount shall be $50,000 (or the equivalent thereof in any
Foreign Currency or ECU) or less and the Issuer makes no such request then it
shall be carried over until a sum in excess of $50,000 (or the equivalent
thereof in any Foreign Currency or ECU) is available. The Trustee shall select,
in the manner provided in Section 12.2, for redemption on such sinking fund
payment date a sufficient principal amount of Securities of such series to
absorb said cash, as nearly as may be, and shall (if requested in writing by the
Issuer) inform the Issuer of the serial numbers of the Securities of such series
(or portions thereof) so selected. Securities shall be excluded from eligibility
for redemption under this Section if they are identified by registration and
certificate number in an Officer's Certificate
61
<PAGE> 70
delivered to the Trustee at least 60 days prior to the sinking fund payment date
as being owned of record and beneficially by, and not pledged or hypothecated by
either (a) the Issuer or (b) an entity specifically identified in such Officer's
Certificate as directly or indirectly controlling or controlled by or under
direct or indirect common control with the Issuer. The Trustee, in the name and
at the expense of the Issuer (or the Issuer, if it shall so request the Trustee
in writing) shall cause notice of redemption of the Securities of such series to
be given in substantially the manner provided in Section 12.2 (and with the
effect provided in Section 12.3) for the redemption of Securities of such series
in part at the option of the Issuer. The amount of any sinking fund payments not
so applied or allocated to the redemption of Securities of such series shall be
added to the next cash sinking fund payment for such series and, together with
such payment, shall be applied in accordance with the provisions of this
Section. Any and all sinking fund moneys held on the stated maturity date of the
Securities of any particular series (or earlier, if such maturity is
accelerated), which are not held for the payment or redemption of particular
Securities of such series shall be applied, together with other moneys, if
necessary, sufficient for the purpose, to the payment of the principal of, and
interest on, the Securities of such series at maturity.
On or before each sinking fund payment date, the Issuer shall
pay to the Trustee in cash or shall otherwise provide for the payment of all
interest accrued to the date fixed for redemption on Securities to be redeemed
on the next following sinking fund payment date.
The Trustee shall not redeem or cause to be redeemed any
Securities of a series with sinking fund moneys or give any notice of redemption
of Securities for such series by operation of the sinking fund during the
continuance of a default in payment of interest on such Securities or of any
Event of Default except that, where the giving of notice of redemption of any
Securities shall theretofore have been made, the Trustee shall redeem or cause
to be redeemed such Securities, provided that it shall have received from the
Issuer a sum sufficient for such redemption. Except as aforesaid, any moneys in
the sinking fund for such series at the time when any such default or Event of
Default shall occur, and any moneys thereafter paid into the sinking fund,
shall, during the continuance of such default or Event of Default, be deemed to
have been collected under Article Five and held for the payment of all such
Securities. In case such Event of Default shall have been waived as provided in
Section 5.10 or the default cured on or before the sixtieth day preceding the
sinking fund payment date in any year, such moneys shall thereafter be applied
on the next succeeding sinking fund payment date in accordance with this Section
to the redemption of such Securities.
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<PAGE> 71
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed all as of November 25, 1998.
THE LUBRIZOL CORPORATION
By /s/ W.G. Bares
-------------------------------------------
Name: W.G. Bares
Title: Chairman, President and Chief
Executive Officer
By /s/ C.P. Cooley
-------------------------------------------
Name: Charles P. Cooley
Title: Vice President, Treasurer and Chief
Financial Officer
THE FIRST NATIONAL BANK
OF CHICAGO, TRUSTEE
By /s/ Janice Ott Rotunno
-------------------------------------------
Name: Janice Ott Rotunno
Title: Vice President
63
<PAGE> 72
STATE OF OHIO )
) SS:
COUNTY OF LAKE )
Before me, a notary public, in and for said county, personally
appeared W.G. Bares and Charles P. Cooley, known to me to be the persons who, as
Chairman, President and Chief Executive Officer and Vice President, Treasurer
and Chief Financial Officer, respectively, of The Lubrizol Corporation, the
corporation which executed the foregoing instrument, signed the same, and
acknowledged to me that they did so sign said instrument in the name and on
behalf of said corporation, as such officers, respectively; that the same is
their free act and deed as such officers, respectively, and the free and
corporate act and deed of said corporation; and that they were duly authorized
thereunto by its board of directors.
In testimony whereof, I have hereunto subscribed my name, and
affixed my official seal, at Wickliffe, Ohio, this 23rd day of November, 1998.
/s/ Leslie M. Reynolds
---------------------------------
Notary Public
[Notarial Seal]
64
<PAGE> 73
STATE OF ILLINOIS )
) SS.:
COUNTY OF COOK )
On this 25th of November, 1998 before me personally came Janice Ott
Rotunno, to me personally known, who, being by me duly sworn, did depose and say
that she resides at 1155 Sterling Avenue, Palentine, Illinois; that she is
a Vice President of The First National Bank of Chicago, one of the corporations
described in and which executed the above instrument; and that she signed
her name thereto by authority of the Board of Directors of said corporation.
/s/ Darla R. Coulson
----------------------------
Notary Public
[Notarial Seal]
<PAGE> 1
Exhibit (10)(a)
The Lubrizol Corporation
1985 Employee Stock Option Plan
(As Amended)
1. PURPOSE OF PLAN. The purpose of this Plan is to advance the interests of The
Lubrizol Corporation (hereinafter called the "Corporation") and its subsidiaries
by providing a means whereby employees of the Corporation and its subsidiaries
may be given an opportunity to purchase Common Shares (hereinafter called
"shares") of the Corporation under options and stock appreciation rights granted
under the Plan, to the end that the Corporation may retain present personnel
upon whose judgment, initiative and efforts the successful conduct of the
business of the Corporation largely depends, and may attract new personnel. Some
of the options granted under this Plan may be options which are intended to
qualify as "incentive stock options" under Section 422A of the Internal Revenue
Code of 1954, as amended (the "Code"), or any successor provision and are
hereinafter sometimes called "incentive stock options".
2. SHARES SUBJECT TO THE PLAN. The aggregate number of shares of the Corporation
for which options may be granted under this Plan shall be 1,500,000; provided,
however, that whatever number of said shares shall remain reserved for issuance
pursuant to this Plan at the time of any stock split, stock dividend or other
change in the Corporation's capitalization shall be appropriately and
proportionately adjusted to reflect such stock dividend, stock split or other
change in capitalization. Shares issued pursuant to the exercise of options
granted hereunder shall be made available from authorized but unissued shares of
the Corporation or shares held by the Corporation as treasury shares. Any shares
for which an option is granted hereunder that are released from such option for
any reason other than the exercise of stock appreciation rights granted
hereunder shall become available for other options to be granted under this
Plan.
3. ADMINISTRATION OF THE PLAN. This Plan shall be administered under the
supervision of a committee (hereinafter called the "Committee") composed of not
less than three directors of the Corporation appointed by the Board of
Directors. The members of the Committee shall not be eligible, and shall not
have been eligible for a period of at least one year period to their
appointment, to participate in this Plan or any other plan of the Corporation or
any affiliate (as defined under the Securities Exchange Act of 1934) of the
Corporation entitling the participants therein to acquire stock, stock options
or stock appreciation rights of the Corporation or any affiliate of the
Corporation. Members of the Committee shall serve at the pleasure of the Board
of Directors, and may resign by written notice filed with the Chairman of the
Board of the Secretary of the Corporation. A vacancy in the membership of the
Committee shall be filled by the appointment of a successor member by the Board
of Directors. Until such vacancy is filled, the remaining members shall
constitute a quorum and the action at any meeting of a majority of the entire
Committee, or an action unanimously approved in writing, shall constitute action
of the Committee. Subject to the express provisions of this Plan, the Committee
shall have conclusive authority to construe and interpret the Plan, any stock
option agreement entered into hereunder, and any stock appreciation right
granted hereunder and to establish, amend, and rescind rules and regulations for
the administration of this Plan and shall have such additional authority as the
Board of Directors may from time to time determine to be necessary or desirable.
<PAGE> 2
4. GRANTING OF OPTIONS. The Committee from time to time shall designate from
among the full-time employees of the Corporation and its subsidiaries those
employees to whom options to purchase shares shall be granted under this Plan,
the type of option to be granted and the number of shares which shall be subject
to each option so granted. The Committee shall direct an appropriate officer of
the Corporation to execute and deliver Option Agreements to employees reflecting
the grant of options. All actions of the Committee under this Paragraph shall be
conclusive; provided, however, that the aggregate fair market value (determined
as of the date the option is granted) of the stock with respect to which
incentive stock options are exercisable for the first time by any individual
during any calendar year (under this Plan or any other plan of the Corporation
or any of its subsidiaries) may not exceed $100,000. Any incentive stock option
that is granted to any employee who is, at the time the option is granted,
deemed for purposes of Section 422A of the Code, or any successor provision, to
own shares of the Corporation possessing more than ten percent (10%) of the
total combined voting power of all classes of shares of the Corporation or of a
parent or subsidiary of the Corporation, shall have an option price that is at
least 110 percent (110%) of the fair market value of the shares and shall not be
exercisable after the expiration of 5 years from the date it is granted.
5. GRANTING OF STOCK APPRECIATION RIGHTS. The Committee shall have the
discretion to grant to optionees stock appreciation rights in connection with
options to purchase shares on such terms and conditions as it deems appropriate.
The Committee shall direct an appropriate officer of the Corporation to execute
and deliver a Grant of Stock Appreciation Rights to optionees reflecting the
grant of stock appreciation rights. A stock appreciation right will allow an
optionee to surrender an option or portion thereof and to receive payment from
the Corporation in an amount equal to the excess of the aggregate fair market
value of the shares with respect to which options are surrendered over the
aggregate option price of such shares. A stock appreciation right shall be
exercisable no sooner than six months after it is granted and thereafter at any
time prior to its stated expiration date, but only to the extent the related
stock option right may be exercised. Payment shall be made in shares, cash or a
combination of shares and cash, as provided in the Grant of Stock Appreciation
Rights. Shares as to which any option is so surrendered shall not be available
for future option grants hereunder. The Committee may grant stock appreciation
rights concurrently with the grant of an option or, in the case of an option
which is not an incentive stock option, with respect to an outstanding option.
6. OPTION PERIOD. No option granted under this Plan may be exercised later than
ten years from the date of grant.
7. OPTION PRICE. The option price shall be fixed by the Committee and set forth
in the Option Agreement, which price in no case shall be less than the per share
fair market value of the outstanding shares of the Corporation on the date that
the option is granted, as determined by the Committee. The Committee may fix
such option price in terms of a formula and authorize one or more officers of
the Corporation to compute the price in accordance with that formula. Payment of
the option price may be made in cash, shares, or a combination of cash and
shares, as provided in the Option Agreement in effect from time to time. The
date on which the Committee approved the granting of an option shall be deemed
the date on which the option is granted.
<PAGE> 3
8. OPTION AGREEMENT. The Option Agreement pursuant to which option rights are
granted to an employee shall be in the applicable form (consistent with this
Plan) from time to time approved by the Committee and shall be signed on behalf
of the Corporation by the Chairman of the Board, the President or any Vice
President of the Corporation, other than the employee who is a party thereto.
The Option Agreement shall set forth the number of shares which are subject to
the option to purchase, the type of option granted, the option price to be paid
upon exercise, the manner in which the option is to be exercised and the option
price is to be paid, and the option period, and may include such other terms not
inconsistent with this Plan as are from time to time approved by the Committee.
9. GRANT OF STOCK APPRECIATION RIGHTS. The Grant of Stock Appreciation Rights
pursuant to which stock appreciation rights are granted shall be in the
applicable form (consistent with this Plan) from time to time approved by the
Committee and shall be signed on behalf of the Corporation by the Chairman of
the Board, the President or any Vice President of the Corporation, other than
the employee to whom the grant is made. The Grant of Stock Appreciation Rights
shall set forth the option or options to which the grant relates, the manner in
which exercise and payment shall be made and the period during which the stock
appreciation rights are exercisable, and may include such other terms not
inconsistent with this Plan as are from time to time approved by the Committee.
10. TRANSFERABILITY. No option or stock appreciation right shall be transferable
by the optionee except by will or the laws of descent and distribution, and
options and stock appreciation rights may be exercised during the employee's
lifetime only by him or his guardian or legal representative.
11. AMENDMENT AND TERMINATION OF THE PLAN. The Corporation by action of its
Board of Directors, reserves the right to amend, modify or terminate at any time
this Plan, or, by action of the Committee with the consent of the optionee, to
amend, modify or terminate any outstanding Option Agreement or Grant of Stock
Appreciation Rights, except that the Corporation may not, without further
shareholder approval, increase the total number of shares as to which options
may be granted under this Plan (except increases attributable to the adjustments
authorized in Paragraph 2 hereof), change the employees or class of employees
eligible to receive options or materially increase the benefits accruing to
participants under this Plan. Moreover, no action may be taken by the
Corporation which will impair the validity of any option or stock appreciation
right then outstanding, or which will prevent the options issued and stock
appreciation rights granted pursuant to this Plan from meeting the requirements
for exemption from Section 16(b) of the Securities Exchange Act of 1934, or
subsequent comparable statute, as set forth in Rule 16b-3 under said Act or
subsequent comparable rule, or which will prevent any incentive stock option
issued or to be issued under this Plan from being an "incentive stock option"
under Section 422A of the Code, or any successor provision.
12. SUBSIDIARY. The term "subsidiary" as used herein shall mean any corporation
in an unbroken chain of corporations beginning with the Corporation and ending
with the employer corporation if, at the time of the granting of the option,
each of the corporations other than the employer corporation owns stock
possessing 50 percent or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
<PAGE> 4
13. EFFECTIVE DATE OF PLAN. The Plan shall be effective upon adoption of the
Plan by the Board of Directors of the Corporation. The Plan shall be submitted
to the shareholders of the Corporation for approval within one year after its
adoption by the Board of Directors, and if the Plan shall not be approved by the
shareholder within said period, the Plan shall be void and of no effect. Any
options granted under the Plan prior to the date of approval by the shareholders
shall be void if such shareholders' approval is not obtained.
14. EXPIRATION OF PLAN. Options may be granted under this Plan at any time prior
to January 27, 2000, on which date the Plan shall expire but without affecting
any options then outstanding; provided, however, that, from and after January
27, 1985, no Incentive Stock Options shall be granted under the Plan.
<PAGE> 1
Exhibit (10)(f)
THE LUBRIZOL CORPORATION
PERFORMANCE PAY PLAN
(Formerly Variable Award Plan)
(As Amended)
INTRODUCTION
The Lubrizol Corporation (hereinafter referred to as the "Corporation")
hereby amends, effective as of January 1, 1998, The Lubrizol Corporation
Performance Pay Plan (formerly The Lubrizol Corporation Variable Award Plan)
(hereinafter referred to as the "Plan") in order to provide an award for
employees which reflects the pursuit of superior performance, increased customer
satisfaction and enhancement of shareholder value. Awards for participating
employees under the Plan shall depend upon corporate performance measures as
determined by the Committee for the Plan Year.
Except as otherwise provided, the Plan shall be administered by the
Organization and Compensation Committee (hereinafter referred to as the
"Committee") of the Board of Directors of the Corporation. The Committee shall
have conclusive authority to construe and interpret the Plan and any agreements
entered into under the Plan and to establish, amend, and rescind rules and
regulations for its administration. The Committee shall also have any additional
authority as the Board may from time to time determine to be necessary or
desirable.
ARTICLE I
DEFINITIONS
1.01 DEFINITIONS. The following terms shall have the indicated meanings
for purposes of the Plan:
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Chief Executive Officer" shall mean the chief executive
officer of the Corporation.
(c) "Committee" shall mean the Organization and Compensation
Committee of the Board, or other designated committee of the
Board, consisting of persons who are not Employees or Foreign
Employees.
(d) "Corporation" shall mean The Lubrizol Corporation, a
corporation organized under the laws of the State of Ohio.
(e) "Director" shall mean a member of the Board.
(f) '"Employee" shall mean any person other than an Officer, who
is employed for a wage or salary by the Corporation or a
domestic Subsidiary.
(g) "Foreign Employee" shall mean any person who is employed for a
wage or salary by an international Subsidiary of the
Corporation.
1
<PAGE> 2
(h) "Foreign Participant" shall mean any Foreign Employee who has
been selected by the Committee pursuant to Article VI of the
Plan, and who has not for any reason become ineligible to
participate in the Plan.
(i) "Individual Award" shall mean the amount paid (or to be paid)
to a Participant or Foreign Participant, as the case may be,
by the Corporation pursuant to the Plan.
(j) "Individual Performance Shares" shall have the definition, and
shall be determined, as set forth in Section 3.02 herein.
(k) "Officer shall mean an employee of the Corporation or a
Subsidiary who is a member of the Executive Council of the
Corporation.
(l) "Participant" shall mean all Officers, and any Employee who
has been selected by the Committee pursuant to Article II
herein to participate in the Plan, and have not for any reason
become ineligible to participate in the Plan.
(m) "Pay" shall be determined at the time of calculating the
Individual Performance Shares and shall be determined for each
Participant as follows:
(i) Add 1.0 to the decimal rate that applies in computing
his quarterly pay;
(ii) Multiply his current bi-weekly base pay by the sum
determined in (ii); and
(iii) Multiply the product determined in (ii) by 26.
(n) "Plan" shall mean The Lubrizol Corporation Performance Pay
Plan (formerly The Lubrizol Corporation Variable Award Plan),
effective January 1, 1990, as amended effective January 1,
1996, as further amended effective January 1, 1997, and as
further amended effective January 1, 1999, as herein set
forth.
(o) "Plan Year" shall mean each twelve-month period commencing
January 1 and ending December 31.
(p) "Subsidiary" shall mean any corporation, foreign or domestic,
that is wholly or partially (but not less than 50%) owned
directly or indirectly by the Corporation.
1.02 CONSTRUCTION. Where necessary or appropriate to the meaning of a
word, the singular shall be deemed to include the plural, the plural to include
the singular, the masculine to include the feminine, and the feminine to include
the masculine.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.01 ELIGIBILITY. All Employees and Officers shall be eligible to
participate in the Plan. .
2.02 PARTICIPATION. All Officers shall participate in the Plan. In
addition, the Committee shall determine which Employees shall participate in the
Plan for each Plan Year. The Committee may also determine which Employees hired
during the Plan Year shall participate in the Plan for such Plan Year. The
Committee's selection of Participants shall be after considering recommendations
presented to it by the Chief Executive Officer.
2
<PAGE> 3
ARTICLE III
INDIVIDUAL PERFORMANCE SHARES
3.01 IN GENERAL. At the time the Committee selects Participants for any
Plan Year, the Committee shall, after consideration of the recommendations of
the Chief Executive Officer, establish, for each Plan Year, Individual
Performance Shares for each Participant.
3.02 CALCULATION OF INDIVIDUAL PERFORMANCE SHARES. Individual
Performance Shares shall be calculated in the following manner:
(a) The Pay of each Participant shall be multiplied by a
designated percentage which shall take into account the
Participant's position in the Corporation. Such designated
percentage shall be determined by the Committee.
(b) The product for each Participant, determined pursuant to the
calculation in paragraph (a) above, shall be divided by the
sum of all such amounts produced for all Participants
calculated in accordance with paragraph (a) above.
(c) The quotient determined for each Participant, calculated
pursuant to paragraph (b) above, shall be multiplied by 100
and rounded, up or down, to the nearer whole number to produce
the number of each Participant's Individual Performance
Shares.
Individual Performance Shares may be either increased or decreased, at
any time, or from time to time, during a Plan Year, for any Participant at the
sole discretion of the Committee in order to reflect any change in the
individual contribution under the formula set forth in this Section 3.02.
ARTICLE IV
DETERMINATION OF FUND
4.01 FUND. A fund shall be accrued on a monthly basis during each Plan
Year, based upon a fixed percentage of the Corporation's monthly consolidated
net income during such Plan Year (the "Fund"), as established by the Committee,
which percentage may be increased or decreased at any time, and from time to
time, prior to the end of the Plan Year at the discretion of the Committee. The
Fund shall consist of bookkeeping accruals on the books of the Corporation and
no cash or other property shall be set aside by the Corporation for these
purposes.
4.02 POST-PLAN YEAR FUND ADJUSTMENT. At the beginning of each Plan
Year, corporate initiatives for the Plan Year will be categorized into corporate
performance measures and shall be presented to the Committee by the Chief
Executive Officer. In January following the Plan Year, the Chief Executive
Officer shall evaluate the outcome of the performance measures for the Plan Year
just concluded and shall present his evaluation to the Committee which the
Committee may, at its discretion, increase or decrease the amount of the Fund.
ARTICLE V
INDIVIDUAL AWARDS
3
<PAGE> 4
5.01 ALLOCATION. Each Participant's Individual Award for a Plan Year
shall be calculated in January following the close of the Plan Year and shall be
an amount determined as follows:
(a) Divide the total Fund, as finally approved by the Committee,
by the total Individual Performance Shares of all
Participants;
(b) For each Participant, multiply the amount determined in
paragraph (a) by such Participant's Individual Performance
Shares; and
(c) The product determined in paragraph (b) shall be the tentative
amount of the Participant's Individual Award which may be
increased or decreased in the sole discretion of the
Committee.
The Committee may also in its sole and unrestricted discretion
determine Individual Awards for Participants who were hired during the Plan
Year. No Participant shall have any vested interest in, or be entitled to, any
Individual Award unless and until payment is authorized by the Committee.
5.02 TIME AND METHOD OF PAYMENT OF INDIVIDUAL AWARDS. In the event the
Committee determines that a Participant is entitled to an Individual Award, the
Corporation shall pay such Individual Award to that Participant as soon after
the close of the Plan Year as may be feasible, but in no event later than thirty
30 days after the date that the Corporation releases its public announcement of
the Corporation's earnings for such Plan Year. A Participant, who leaves the
Corporation's employ after the Plan Year but prior to the payment of an
Individual Award, except in the case of retirement under the provisions of a
qualified defined benefit plan maintained by the Corporation, disability or
death, will not be eligible to receive any payment under this Plan. However, an
Individual Award may be made to such a Participant in those instances where
recommendation for such a payment has been made by the Chief Executive Officer
and approved by the Committee.
In the event a Participant dies after the Plan Year but prior to the
payment of any Individual Award with respect to the Plan Year, any Individual
Award determined to be payable by the Committee shall be paid by the Corporation
to the Participant's estate.
5.03 CONDITIONS. Anything contained herein to the contrary
notwithstanding, the payment of Individual Awards to Participants with respect
to any Plan Year is conditioned upon the availability of adequate corporate
profits for the Corporation's fiscal year coinciding with any Plan Year. The
determination of whether adequate corporate profits exist shall be made by the
Board in its sole and unrestricted judgment and discretion and such
determination shall be conclusive and binding.
ARTICLE VI
AWARDS FOR FOREIGN EMPLOYEES
6.01 PARTICIPATION. The Committee shall determine which Foreign
Employees shall participate in the Plan for each Plan Year. The Committee's
selection of Foreign Participants shall be made after considering
recommendations presented to it by the Chief Executive Officer.
6.02 INDIVIDUAL AWARDS. At the time the Individual Awards are
determined for Participants, the Committee shall, in its discretion, after
consideration of the recommendations
4
<PAGE> 5
of the Chief Executive Officer, establish for each Plan Year Individual Awards
for each Foreign Participant.
6.03 PAYMENT OF AWARDS. Individual Awards to each Foreign Participant
shall be paid by the international Subsidiary that is the employer of such
Foreign Participant at the same time as payment is made to Participants under
Section 5.02. All payments shall be converted from the U.S. dollar measurement
under the Plan to the currency of the country of the such Subsidiary at the
currency exchange rate in effect at the time the Individual Award is determined.
All applicable withholding taxes shall be withheld from the distribution and
remitted by the international subsidiary to the appropriate taxing authority.
6.04 CONDITIONS.
(a) A Foreign Employee who leaves the international Subsidiary's
employ after the end of the Plan Year but prior to the payment
of an Individual Award, except in the case of retirement in
accordance with the customary practice of such Subsidiary,
disability or death, will not be eligible to receive any
payment under this Plan. However, an Individual Award may be
made to such a Foreign Participant in those instances where
recommendation for such a payment has been made by the Chief
Executive Officer and approved by the Committee.
(b) In the event a Foreign Participant dies after the Plan year
but prior to the payment of any Individual Award with respect
to the Plan Year, any Individual Award determined by the
Committee to be payable, shall be paid by the international
Subsidiary to the Foreign Participant's estate or in
accordance with local laws.
ARTICLE VII
CHANGE OF CONTROL
7.01 EFFECT OF CHANGE IN CONTROL. In the event a Change in Control of
the Corporation (as defined in Section 7.02) occurs prior to final determination
by the Committee of the amounts of Individual Awards to be paid under the Plan
with respect to any Plan Year, the Committee shall calculate such Individual
Awards as soon as practicable after such Change in Control. The Fund from which
Individual Awards are to be made shall be based upon accruals by the Corporation
up to the time of such Change in Control and Individual Awards shall be
calculated in accordance with Sections 5.01 and 6.02 herein. Payment of such
Individual Awards shall be made within thirty (30) days of the date on which the
determination is made to compute the payments according to the terms of this
Section 7.01.
7.02 For all purposes of the Plan, a "Change in Control of the
Corporation" shall have occurred if any of the following events shall occur:
(a) The Corporation is merged, consolidated or reorganized into or
with another corporation or other legal person, and, as a
result of such merger, consolidation or reorganization, less
than a majority of the combined voting power of the
then-outstanding securities of such surviving corporation or
person entitled to vote, immediately after such transaction,
is held in the aggregate by the holders of Voting Stock (as
hereinafter defined) of the Corporation immediately prior to
such transaction;
5
<PAGE> 6
(b) The Corporation sells all or substantially all of its assets
to any other corporation or other legal person, and less than
a majority of the combined voting power of the
then-outstanding securities of such corporation or person,
immediately after such sale, is held in the aggregate by the
holders of Voting Stock of the Corporation immediately prior
to such sale;
(c) There is a report filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report), each as promulgated
pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), disclosing that any person (as the term
"person" is used in Section 13(d)(3) or Section 14(d)(2) of
the Exchange Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13(d)(3) or any
successor rule or regulation promulgated under the Exchange
Act) of securities representing 20% or more of the combined
voting power of the then-outstanding securities entitled to
vote generally in the election of directors of the Corporation
("Voting Stock");
(d) The Corporation files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange
Act disclosing in response to Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) that a
change in control of the Corporation has or may have occurred
or will or may occur in the future pursuant to any
then-existing contract or transaction; or
(e) If during any period of two consecutive years, individuals
who, at the beginning of any such period constitute the
Directors of the Corporation, cease for any reason to
constitute at least a majority thereof, unless the election,
or the nomination for election by the Corporation's
stockholders, of each Director of the Corporation first
elected during such period was approved by a vote of at least
two-thirds of the Directors of the Corporation then still in
office who were Directors of the Corporation at the beginning
of any such period.
Notwithstanding the foregoing provisions, a "Change in Control" shall
not be deemed to have occurred for purposes of the Plan solely because (i) the
Corporation, (ii) an entity in which the Corporation directly or indirectly
beneficially owns 50% or more of the voting securities or (iii) any
Corporation-sponsored employee stock ownership plan or any other employee
benefit plan of the Corporation, either files or becomes obligated to file a
report or a proxy statement under or in response to Schedule 13D, Schedule
14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report or
item therein) under the Exchange Act, disclosing beneficial ownership by it of
shares of Voting Stock, whether in excess of 20% or otherwise, or because the
Corporation reports that a change in control of the Corporation has or may have
occurred or will or may occur in the future by reason of such beneficial
ownership.
ARTICLE VIII
ADMINISTRATION
8.01 PLAN ADMINISTRATOR. The Committee shall be the Plan administrator.
8.02 DUTIES OF PLAN ADMINISTRATOR.
6
<PAGE> 7
(a) The Committee shall administer the Plan in accordance with its
terms and shall have all powers necessary to carry out the
provisions of the Plan including, but not limited to, the
following:
(1) Determination of Employees and Foreign Employees who
are eligible for Plan participation;
(2) Determination of the amount of the Fund to be
distributed to Participants and Foreign Participants
for each Plan Year; and
(3) Determination of each Officer's actual Individual
Award.
(b) The Committee shall interpret the Plan and shall resolve all
questions arising in the administration, interpretation, and
application of the Plan. Any such determination of the
Committee shall be conclusive and binding on all persons.
(c) The Committee shall establish such procedures and keep such
records or other data as the Committee in its discretion
determines necessary or proper for the administration of the
Plan.
(d) The Committee may delegate administrative responsibilities to
such person or persons as the Committee deems necessary or
desirable in connection with the administration of the Plan.
ARTICLE IX
MISCELLANEOUS
9.01 UNFUNDED PLAN. The Corporation shall be under no obligation to
segregate or reserve any funds or other assets for purposes relating to this
Plan and no Participant or Foreign Participant shall have any rights whatsoever
in or with respect to any funds or assets of the Corporation.
9.02 NON-ALIENATION. Since a Participant or Foreign Participant does
not have any rights to any Individual Award under the Plan until the time that
payment of such Individual Award is made, no anticipated payment of any
Individual Award shall be subject in any manner to alienation, sale, transfer,
assignment, pledge, attachment, garnishment or encumbrance of any kind. If a
Participant or Foreign Participant attempts to alienate, sell, transfer, assign,
pledge or otherwise encumber any such anticipated Individual Award, or if he has
filed or will be filing for bankruptcy, the Committee in its discretion may
cause such amounts as would otherwise become payable to such Participant or
Foreign Participant at such time or times to be paid to or applied for the
benefit of such one or more of the following as the Committee in its sole and
unrestricted judgment and discretion may designate: the Participant or Foreign
Participant, his spouse, child or children, or other dependents.
9.03 UNCLAIMED PAYMENTS. Should the whereabouts of any Participant or
Foreign Participant entitled to receive any Individual Award be unknown to the
Corporation, and unascertainable after reasonable inquiry by the Corporation,
for a period of two years from the date of scheduled payment of the Individual
Award, the right of such person to receive payments hereunder shall be
terminated, and the amounts which would otherwise have been payable to such
person shall be forfeited.
9.04 ACTIONS OR DECISIONS WITH RESPECT TO THE PLAN. Any decision or
action of the Corporation, the Board, or the Committee, arising out of or in
connection with the administration
7
<PAGE> 8
and operation of this Plan, may be made or taken in their sole and unrestricted
judgment and discretion, and such decision or action shall be conclusive and
binding upon all Participants and Foreign Participants.
9.05 NO EMPLOYMENT RIGHTS. Nothing herein contained shall be construed
as a commitment or agreement upon the part of any Participant, Foreign
Participant, Employee or Foreign Employee hereunder to continue his employment
with the Corporation or a Subsidiary, and nothing herein contained shall be
construed as a commitment on the part of the Corporation or any Subsidiary to
continue the employment or rate of compensation of any Participant or Foreign
Participant hereunder or any Employee or Foreign Employee for any period.
9.06 AMENDMENT OF THE PLAN. The Corporation reserves the right, to be
exercised by instruction from the Committee, to modify or amend this Plan at any
time.
9.07 DURATION AND TERMINATION OF THE PLAN. The Corporation also
reserves the right, to be exercised by action of the Board, to discontinue or
terminate the Plan; provided that, and subject to all the provisions of this
plan, any termination shall be effective only for all Plan Years following
December 31 of the plan Year in which the decision to terminate occurs.
<PAGE> 1
Exhibit (10)(j)
THE LUBRIZOL CORPORATION
OFFICERS' SUPPLEMENTAL
RETIREMENT PLAN
(As Amended)
The Lubrizol Corporation hereby establishes, effective as of January 1,
1993, The Lubrizol Corporation Officers' Supplemental Retirement Plan (the
"Plan") for the purpose of providing deferred compensation benefits to a select
group of management or highly compensated employees.
Section 1. DEFINITIONS. For the purposes hereof, the following words
and phrases shall have the meanings indicated, unless a different meaning is
plainly required by the context:
(a) BENEFICIARY. The term "Beneficiary" shall mean a person
who is designated by a Participant to receive benefits payable upon his
death pursuant to the provisions of Section 6.
(b) CODE. The term "Code" shall mean the Internal Revenue Code
as amended from time to time. Reference to a section of the Code shall
include such section and any comparable section or sections of any
future legislation that amends, supplements, or supersedes such
section.
(c) COMPANY. The term "Company" shall mean The Lubrizol
Corporation, an Ohio corporation, its corporate successors and the
surviving corporation resulting from any merger of The Lubrizol
Corporation with any other corporation or corporations.
(d) CREDITED SERVICE. The term "Credited Service" shall mean a
Participant's years of service with the Company equal to the number of
full and fractional years of service (to the nearest twelfth of a year)
beginning on the date the Participant first performed an hour of
service for the Company and ending on the date he is no longer employed
by the Company.
(e) FINAL AVERAGE PAY. Effective, January 1, 1997, the term
"Final Average Pay" shall mean the aggregated amount of Basic
Compensation (as that term is defined in the Lubrizol Pension Plan
modified to add cash (but not shares), if any, which the Participant
has elected to defer under The Lubrizol Corporation Deferred
Compensation Plan for Officers (which was adopted effective July 25,
1994) or under The Lubrizol Corporation Executive Council Deferred
Compensation Plan (which was adopted effective January 1, 1997),
received by the Participant during the three consecutive calendar years
during which such Participant received the greatest aggregate amount of
Basic Compensation, as defined above, within the most recent ten years
of employment, divided by 36.
<PAGE> 2
(f) LUBRIZOL PENSION PLAN. The term "Lubrizol Pension Plan"
shall mean The Lubrizol Corporation Pension Plan as the same shall be
in effect on the date of a Participant's retirement, death, or other
termination of employment.
(g) NORMAL RETIREMENT DATE. The term "Normal Retirement Date"
shall mean the first day of the month following the date on which a
Participant attains age sixty-five (65).
(h) PARTICIPANT. The term "Participant" shall mean the Chief
Executive Officer, the Chief Operating Officer and any other officer of
the Company who is designated by the Board of Directors of the Company
and the Chief Executive Officer to participate in the Plan, and who has
not waived participation in the Plan.
(i) PLAN. The term "Plan" shall mean a deferred compensation
plan set forth herein, together with all amendments hereto, which Plan
shall be called "The Lubrizol Corporation Officers' Supplemental
Retirement Plan."
Section 2. VESTING. The Participant shall be 100 percent vested in his
accrued supplemental retirement benefit hereunder.
Section 3. NORMAL RETIREMENT BENEFIT. Each Participant who retires from
employment with the Company on or after his Normal Retirement Date shall
receive, subject to the provisions of Sections 6 and 7, a monthly supplemental
retirement benefit which shall be equal to two percent (2%) of his Final Average
Pay multiplied by his Credited Service (up to 30 years) offset by the following
amounts:
(a) Benefits payable to the Participant under the Lubrizol
Pension Plan;
(b) Benefits payable to the Participant under The Lubrizol
Corporation Employees' Stock Purchase and Savings Plan, including
benefits attributable to Matching Contributions, but excluding benefits
attributable to CODA Contributions, Supplemental Contributions,
Rollover Contributions or Transferred Contributions, as defined
thereunder;
(c) Benefits payable to the Participant under The Lubrizol
Corporation Employees' Profit-Sharing Plan;
(d) Benefits payable to the Participant under The Lubrizol
Corporation Excess Defined Contribution Plan;
(e) Benefits payable to the Participant under The Lubrizol
Corporation Excess Defined Benefit Plan;
(f) The Participant's Social Security benefits;
(g) Any other employer-provided benefits not specifically
excluded herein which are payable to the Participant pursuant to any
qualified or nonqualified retirement plan maintained by the Company.
<PAGE> 3
Such offsets shall be determined using the actuarial factors provided
in the Lubrizol Pension Plan.
Section 4. EARLY RETIREMENT ELIGIBILITY AND DETERMINATION OF BENEFIT.
Each Participant who retires from employment with the Company at or after age
55, but prior to his Normal Retirement Date, shall receive a percentage of his
supplemental retirement benefit determined under Section 3, in accordance with
the early retirement schedule provided in the Lubrizol Pension Plan.
Section 5. TERMINATION OF EMPLOYMENT. If a Participant terminates
employment prior to age 55, he shall receive the actuarial equivalent of his
supplemental retirement benefit determined under Section 3 in a single lump-sum
payment; such actuarial equivalent of which shall be calculated using the same
actuarial factors and interest rates used in the Lubrizol Pension Plan as in
effect on the date the Participant terminates employment in accordance with this
Section 5.
Section 6. PAYMENT TO PARTICIPANT. (Effective November 27, 1995)
(a) Each Participant who retires in accordance with Sections 3
or 4 shall receive payment of his supplemental pension benefit under
the Plan determined as of his date of retirement in the standard form
of benefit of a monthly retirement benefit commencing within 30 days
following retirement and payable to such Participant for his lifetime
following such retirement, with the continuance to his Beneficiary of
such amount after his death for the remainder, if any, of the 120-month
term that commenced with the date as of which the first payment of such
monthly benefit is made, and with any such monthly benefits remaining
unpaid upon the death of the survivor of the Participant and his
Beneficiary to be made to the estate of such survivor.
(b) Participants may instead elect within a 60 day period
commencing 90 days prior to retirement to receive the actuarial
equivalent of the standard form of benefit determined under paragraph
a, on the date of retirement, in accordance with any one of the
following options:
(i) a single lump-sum payment payable within 30 days
following retirement;
(ii) a single lump-sum payment payable within 30 days
following the end of calendar year in which the Participant
retired. Interest on the lump-sum deferral shall accrue and be
paid with the lump-sum; such interest to be computed at the
PBGC interest rate in effect of the date of retirement.
(iii) a reduced monthly retirement benefit commencing
within 30 days following retirement and payable to such
Participant for his lifetime following his retirement, with
the continuance of a monthly benefit equal to fifty percent
(50%) of such reduced amount after his death to his
Beneficiary during the lifetime of the Beneficiary, provided
that such Beneficiary is living at the time of such
Participant's retirement and survives him;
<PAGE> 4
(iv) a reduced monthly retirement benefit commencing
within 30 days following retirement and payable to such
Participant for his lifetime following his retirement, with
the continuance of a monthly benefit equal to one hundred
percent (100%) of such reduced amount after his death to his
Beneficiary during the lifetime of the Beneficiary, provided
such Beneficiary is living at the time of such Participant's
retirement and survives him.
(v) annual installments of up to ten payments, the
first of which shall be paid within 30 days following
retirement, and subsequent installments of which shall be paid
on the anniversary date of the payment of the first
installment. Such installments shall be determined by dividing
the commuted lump-sum equivalent of the supplemental
retirement benefit (determined in the same manner as under the
Lubrizol Pension Plan) by the number of installments to be
paid and adjusting for interest based on the interest rate
used to determine the commuted lump-sum payment. Installments
after the first installment shall include such interest which
accrues during the 12-month period occurring since the date
the prior installment was paid.
Notwithstanding the foregoing provisions of the Plan to the contrary,
if the present actuarial value of any retirement benefit or survivor benefit
under the Plan to any person, determined as described above, is less than
$25,000, such benefit shall be paid in a single lump-sum payment to such person
within 30 days following retirement.
Section 7. PAYMENT IN THE EVENT OF DEATH PRIOR TO COMMENCEMENT OF
DISTRIBUTION. If a Participant dies prior to commencement of benefits under the
Plan, his surviving spouse, if any, shall be eligible for a survivor benefit
which is equal to one-half of the reduced monthly benefit the Participant would
have received under the Plan if the Participant had terminated employment on the
day before his death and had elected to receive his benefit hereunder in the
form of a 50 percent joint and survivor annuity. In making the determinations
and reductions required in this Section 7, the Company shall apply the
assumptions then in use under the Lubrizol Pension Plan. For purposes hereof, a
surviving spouse shall only be eligible for a benefit under this Section 7, if
such spouse had been married to the deceased Participant for at least one year
as of the date of the Participant's death.
Section 8. ACTUARIAL FACTORS. All actuarial assumptions and factors
used in this Plan shall be the same as those used in the Lubrizol Pension Plan.
Section 9. FUNDING. The obligation of the Company to pay benefits
provided hereunder shall be unfunded and unsecured and such benefits shall be
paid by the Company out of its general funds. In order to provide a source of
payment for its obligations under the Plan, the Company may cause a trust fund
to be maintained and/or arrange for insurance contracts. Subject to the
provisions of the trust agreement governing any such trust fund or the insurance
contract, the obligation of the Company under the Plan to provide a Participant
with a benefit shall nonetheless constitute the unsecured promise of the Company
to make payments as provided herein, and no person shall have any interest in,
or a lien or prior claim upon, any property of the Company.
<PAGE> 5
Section 10. PLAN ADMINISTRATOR. The Company shall be the plan
administrator of the Plan. The plan administrator shall perform all ministerial
functions with respect to the Plan. Further, the plan administrator shall have
full power and authority to interpret and construe the Plan and shall determine
all questions arising in the administration, interpretation, and application of
the Plan. Any such determination shall be conclusive and binding on all persons.
The plan administrator shall employ such advisors or agents as it may deem
necessary or advisable to assist it in carrying out its duties hereunder.
Section 11. NOT A CONTRACT OF CONTINUING EMPLOYMENT. Nothing herein
contained shall be construed as a commitment or agreement on the part of the
Participant to continue his employment with the Company, and nothing herein
contained shall be construed as a commitment or agreement on the part of the
Company to continue the employment or the annual rate of compensation of the
Participant for any period, and the Participant shall remain subject to
discharge to the same extent as if this Plan had never been put into effect.
Section 12. RIGHT OF AMENDMENT AND TERMINATION. Effective October 1,
1994, the Company reserves the right to amend or terminate the Plan in whole or
in part at any time and to suspend operation of the Plan, in whole or in part,
at any time, by resolution or written action of its Board of Directors or by
action of a committee to which such authority has been delegated by the Board of
Directors; provided, however, that no amendment shall result in the forfeiture
or reduction of the interest of any Participant or person claiming under or
through any one or more of them pursuant to the Plan. Any amendment of the Plan
shall be in writing and signed by authorized individuals.
Section 13. TERMINATION AND DISTRIBUTION OF ACCRUED BENEFITS. The Plan
may be terminated at any time by the Company, and in that event the amount of
the accrued benefits as of the date of such termination shall remain an
obligation of the Company and shall be payable as if the Plan had not been
terminated.
Section 14. CONSTRUCTION. Where necessary or appropriate to the meaning
hereof, the singular shall be deemed to include the plural, the plural to
include the singular, the masculine to include the feminine, and the feminine to
include the masculine.
Section 15. SEVERABILITY. In the event any provision of the Plan is
deemed invalid, such provision shall be deemed to be severed from the Plan, and
the remainder of the Plan shall continue to be in full force and effect.
Section 16. GOVERNING LAW. Except as otherwise provided, the provisions
of the Plan shall be construed and enforced in accordance with the laws of the
State of Ohio.
<PAGE> 1
Exhibit (10)(l)
THE LUBRIZOL CORPORATION
EXECUTIVE COUNCIL
DEFERRED COMPENSATION PLAN
As Amended
1. PURPOSE. The purpose of this Executive Council Deferred Compensation Plan
(the "Plan") is to permit a member of the Executive Council (sometimes
hereinafter referred to as the "Member" or as the "Participant") who is employed
by The Lubrizol Corporation (the "Company"), to defer a portion of such Member's
compensation as provided in this Plan.
2. ADMINISTRATION. The Plan shall be administered by the Organization and
Compensation Committee of the Board of Directors of the Company (the
"Committee"). The Committee's interpretation and construction of all provisions
of the Plan shall be binding and conclusive upon all Participants and their
heirs and/or successors.
3. RIGHT TO DEFER COMPENSATION.
(a) A Member may, at any time prior to January 1 of a given calendar
year, elect, for one or more future successive calendar years commencing with
the calendar year immediately following the election (each a "Participation
Year"), to defer under the Plan a pre-selected fixed dollar amount or percentage
of such Member's variable compensation, if any (the "deferred compensation"),
under The Lubrizol Corporation Performance Pay Plan ("Performance Pay Plan"),
which such Participant may thereafter be entitled to receive for services
performed during each elected Participation Year.
(b) The election under this Section 3 shall take effect on the first
day of the first elected Participation Year and such election shall be
irrevocable for any elected Participation Year once such Participation Year
shall have commenced.
(c) Notwithstanding paragraphs (a) and (b), when an individual Member
first becomes eligible to participate in the Plan, the newly eligible Member may
make the election under this Section 3 to defer the specified compensation for
services to be performed subsequent to the date specified in the election and
for the remainder of the calendar year in which the election under this Section
3 is made, provided that such election is made within 30 days after the date
that the Member is notified of the Member's eligibility.
(d) All elections under this Plan shall be made by written notice (on a
form provided by the Company) specifying (i) the number of calendar years, one
or more, during which the election shall apply, and (ii) the deferred
compensation, if any, determined under paragraph (a).
(e) A Participant may designate that the election under this Section 3
shall remain in effect until the Participant, on a prospective basis, withdraws
the election or changes the amount to be deferred. Any notice of the withdrawal
or change in the amount of the election shall be effective on the first day of
the calendar year next following the year on which such notice is given;
provided that, such notice shall not
1
<PAGE> 2
change, alter or terminate the deferral of the Member's participation in the
Performance Pay Plan for the year in which such notice of withdrawal or change
is given which, except for the deferral, would be payable in the calendar year
next following the year in which such notice of withdrawal or change is given.
Notwithstanding paragraph (b) and the first sentence of this paragraph (e), any
variable compensation earned after the end of the first month in which a
Participant under this Plan ceases to be a Member, as defined in Section 1, but
continues to be employed by the Company, shall not be deferred, provided
however, the balance in the Participant's Stock Deferral Accounts shall continue
to be held and administered pursuant to the Plan.
(f) All notices by a Participant under the Plan shall be in writing and
shall be given to the Company's Vice President, Human Resources.
4. STOCK DEFERRAL ACCOUNTS.
(a) At the close of business of the day on which the Performance Pay
Plan deferred compensation would have been payable to the Participant in the
absence of the election under the Plan to defer payment thereof, there shall be
credited to a separate Stock Deferral Account for each Participant full and
fractional stock equivalent units ("Units") which shall be established as
hereinafter provided and shall be maintained for each Participant on the
Company's records.
(b) The number of full and fractional Units that shall be credited to a
separate Stock Deferral Account for a Participant shall be equal to an amount
determined by:
(i) Dividing the Participant's deferred compensation for the
applicable Participation Year by the average of the closing
price for Lubrizol Common Shares ("Shares") on the New York
Stock Exchange ("NYSE") composite transactions reporting
system ("composite tape") for each of the ten (10) consecutive
trading days commencing on the fourth business day following
the release of earnings for such Participation Year; and
(ii) multiplying the quotient determined in subparagraph (i) by
1.25.
(c) To the extent that, at the time Units are credited to a Stock
Deferral Account of a Participant, any federal, state or local payroll
withholding tax applies (e.g., Medicare withholding tax), the Participant shall
be responsible for the payment of such amount to the Company and the Company
shall promptly remit such amount to the proper taxing authority.
(d) The amount of deferred compensation used in the formula set forth
in paragraph (b) shall not constitute a sum due and owing to Participant. Such
amount shall be used solely as part of the formula to determine the number of
full and fractional Units.
(e) As of each dividend record date established by the Company for the
payment of cash dividends with respect to its Shares, the Company shall credit
each separate Stock Deferral Account of a Participant with an additional number
of whole and/or fractional Units equal to:
2
<PAGE> 3
(i) the product of (x) the dividend per Share which is
payable with respect to such dividend record date,
multiplied by (y) the number of whole and fractional
Units credited to the separate Stock Deferral Account
of the Participant as of such record date;
DIVIDED BY
(ii) the closing price of a Share on the dividend record
date (or if Shares were not traded on that date, on
the next preceding day on which Shares were so
traded), as reported on the NYSE- composite tape.
(f) At no time prior to actual delivery of Shares pursuant to the Plan
shall the Company be obligated to purchase or reserve Shares for delivery to any
Participant and a Participant shall not be a shareholder or have any of the
rights of a shareholder with respect to the Units credited to each separate
Stock Deferral Account of a Participant.
5. PAYMENT OF DEFERRED COMPENSATION.
(a) All Units credited to a separate Stock Deferral Account of
Participant, including dividend equivalents thereon, shall be payable to the
Participant at the end of three years from the first date Units were credited to
such separate Stock Deferral Account of the Participant under Section 4(a);
provided, however, that if a Participant's employment is terminated for any
reason other than retirement or death, the Units credited to each separate Stock
Deferral Account of a Participant as of the Participant's termination of
employment date, including all dividend equivalents thereon, shall be payable to
the Participant within 30 days of such termination of employment.
(b) All distributions or payments of Units to a Participant shall be
made in Shares equal to the number of whole Units credited to the separate Stock
Deferral Account(s) of the Participant which become payable in accordance with
Section 5(a). Any fractional number of Units shall be paid in cash in lieu of
Shares.
(c) To the extent that, at the time Shares are distributed to a
Participant, any federal, state or local payroll withholding tax applies, the
Participant shall be responsible for the payment of such amount to the Company
and the Company shall promptly remit such amount to the proper taxing authority.
Such payment may be made in cash, in Shares, or in any combination of cash and
Shares, at the election of the Participant. All elections must be made in
writing and be submitted to the Vice President - Human Resources. If no election
is made prior to the first distribution of Shares, the Company shall withhold a
sufficient number of Shares to pay the withholding taxes at the highest marginal
tax rate in effect for such Participant. In no event shall the withholding be
less than the statutory minimum for tax withholding.
(d) In the event a Participant dies prior to receiving payment of the
entire amount in each separate Stock Deferral Account of the Participant, the
unpaid balance shall be paid to such beneficiary as the Participant may have
designated in writing to the Vice President, Human Resources, of the Company as
the beneficiary to receive any such post-death distribution under the Plan or,
in the absence of such written
3
<PAGE> 4
designation, to the Participant's legal representative or to the beneficiary
designated in the Participant's last will as the one to receive such
distributions. Distributions subsequent to the death of a Participant may be
made either in accordance with Section 5(a) and (b) or earlier, as determined by
the Committee.
(e) To the extent the Committee deems necessary, the Shares distributed
to a Participant pursuant to Section 5(a) and (b) or 6(a) or to a successor
pursuant to Section 5(d) may contain such restrictions on the right of immediate
transfer as the Committee may reasonably determine.
6. ACCELERATION OF PAYMENTS.
(a) The Committee may accelerate the distribution of part or all of one
or more of a Participant's separate Stock Deferral Accounts for reasons of
severe financial hardship. For purposes of the Plan, severe financial hardship
shall be deemed to exist in the event the Committee determines that a
Participant needs a distribution to meet immediate and heavy financial needs
resulting from a sudden or unexpected illness or accident of the Participant or
a member of the Participant's family, loss of the Participant's property due to
casualty, or other similar extraordinary and unforeseeable circumstance arising
as a result of events beyond the control of the Participant. A distribution
based on financial hardship shall not exceed the amount required to meet the
immediate financial need created by the hardship.
7. NON-ASSIGNABILITY. None of the rights or interests in any of the
Participant's separate Stock Deferral Accounts shall, at any time prior to
actual payment or distribution pursuant to the Plan, be assignable or
transferable in whole or in part, either voluntarily or by operation of law or
otherwise, and such rights and interest shall not be subject to payment of debts
by execution, levy, garnishment, attachment, pledge, bankruptcy or in any other
manner; provided that, upon the occurrence of any such assignment or transfer or
the attempted assignment or transfer, all payments under Section 5 shall be
payable in the sole and unrestricted judgment and discretion of the Committee,
as to time and amount, and shall be distributable to the person who would have
received the payment but for this Section 7 only at such time or times and in
such amounts as the Committee, from time to time, and in its sole and
unrestricted judgment and discretion, shall determine. Should an event covered
by this Section 7 occur prior to the death of a Participant, the balance, if
any, in each of the Participant's Stock Deferral Accounts shall, after such
death, be thereafter distributed as provided in Section 5(d) subject to the
provisions of this Section 7.
8. PLAN TO BE UNFUNDED. The Company shall be under no obligation to segregate or
reserve any funds or other assets for purposes relating to the Plan and, except
as set forth in this Plan, no Participant shall have any rights whatsoever in or
with respect to any funds or other assets held by the Company for purposes of
the Plan or otherwise. Each Participant's separate Stock Deferral Accounts
maintained for purposes of the Plan merely constitutes a bookkeeping entry on
records of the Company, constitutes the unsecured promise and obligation of the
Company to make payments as provided herein, and shall not constitute any
allocation whatsoever of any cash or other assets of the Company or be deemed to
create any trust or special deposit with respect to any of the Company's assets.
4
<PAGE> 5
9. MISCELLANEOUS. In the event of any change in the number of outstanding Shares
by reason of any stock dividend, stock split up, recapitalization, merger,
consolidation, exchange of shares or other similar corporate change, the number
of Units credited to each separate Stock Deferral Account of a Participant shall
be appropriately adjusted to take into account any such event.
10. AMENDMENT. The Board of Directors of the Company, or the Organization and
Compensation Committee, may, from time to time, amend or terminate the Plan,
provided that no such amendment or termination of the Plan shall adversely
affect any Stock Deferral Account of a Participant as it existed immediately
before such amendment or termination or the manner of distribution thereof,
unless such Participant shall have consented thereto in writing. Notice of any
amendment or termination of the Plan shall be given promptly to all
Participants.
11. PLAN IMPLEMENTATION. This Plan is adopted and effective as of the 1st day of
January, 1997, and amended effective November 23, 1998.
<PAGE> 1
EXHIBIT 12
THE LUBRIZOL CORPORATION AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(all amounts except ratios are shown in thousands)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Pretax income $118,814 $231,147 $250,608 $225,574 $251,459
Deduct earnings of less
than 50% owned affiliates
(net of distributed
earnings) included in
pretax income (1,470) (3,018) (48) (1,384) (871)
Add losses of less than 50%
owned affiliates included
in pretax income 888 66 56 1,808 490
Add fixed charges net of
capitalized interest 18,976 10,803 10,955 10,376 3,149
Add previously capitalized
interest amortized during
period 1,191 1,118 968 1,096 452
-------- -------- -------- -------- ---------
"Earnings" $138,399 $240,116 $262,539 $237,470 $254,679
======== ======== ======== ======== ========
Gross interest expense
including capitalized
interest ("Fixed Charges") $ 20,743 $ 13,194 $ 14,010 $ 14,693 $ 6,922
Ratio of earnings to
fixed charges 6.67 18.2 18.7 16.2 36.8
Special adjustments:
- -------------------
"Earnings" $138,399 $240,116 $262,539 $237,470 $254,679
Plus asset impairment
and special charges 36,892 9,489
Less gains on investments (16,201) (53,280) (38,459) (41,235)
-------- -------- -------- -------- --------
Adjusted "Earnings" $159,090 $240,116 $209,259 $208,500 $213,444
======== ======== ======== ======== ========
Ratio of adjusted earnings
to fixed charges 7.67 18.2 14.9 14.2 30.8
</TABLE>
<PAGE> 1
Exhibit 13
THE LUBRIZOL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Lubrizol Corporation is a full-service supplier of performance chemicals to
diverse markets worldwide. The company develops, produces and sells specialty
additive packages used in transportation and industrial finished lubricants. The
company's products are created through the application of advanced chemical and
mechanical technologies to enhance the performance, quality and value of the
customer products in which they are used. The company groups its product lines
into two operating segments: chemicals for transportation and chemicals for
industry. Chemicals for transportation comprised approximately 85% of the
company's consolidated revenues and segment pretax operating profit in 1998.
This discussion and analysis of the company's financial condition and results of
operations is focused upon the company as a whole, rather than the individual
segments, since the company believes this provides the most appropriate
understanding of its business. Note 13 to the financial statements contains a
further description of the nature of the company's operations, the product lines
within each of the operating segments and related financial disclosures.
Over the past three years, the company has made progress on its strategies to
grow its revenues, improve its cost structure and expand into new market areas.
During this period, market share has been increased, costs have been lowered,
acquisitions to broaden business areas have been completed and, during the
fourth quarter of 1998, the company took steps to increase the selling prices of
its products. However, these actions have not been sufficient to meet the
company's financial objectives given the present conditions within the lubricant
additives industry.
The global market growth rate for lubricant additives is a significant factor
affecting the company's performance. In recent years, as the North American and
European markets matured, the global growth rate for lubricant additives began
to slow. Asia-Pacific and Latin America were two of the fastest growing markets
for lubricant additives. In 1997, before the Asia-Pacific and Latin American
economies began to weaken, the company estimated the global growth rate as
approximately 1% per year. In 1998, the poor economic environments of
Asia-Pacific and Latin America caused the global market growth rate to contract.
However, even when these economies strengthen, industry market forces, such as
improved engine design and longer drain intervals, suggest that global lubricant
additives growth rates in excess of 1% are not likely to return. The effects
from these conditions have been declining shipment volumes, industry
overcapacity, a very competitive pricing environment, reduced financial returns
on the capital invested and increased consolidation among both customers and
additive producers.
One example of this consolidation among customers and additive producers is the
publicly announced pending merger between Exxon Corporation and Mobil
Corporation. Each of these companies is an important customer of the company,
and Exxon, through a joint venture, is a competitor in the lubricant additive
industry. The company currently is not able to predict whether consolidation
among customers or additive producers, including the proposed transaction
between Exxon and Mobil, would have any material positive or negative effect on
the company.
The company has been implementing various short- and long-term initiatives
relating to its cost structure, such as further consolidation of component
production and continuing simplification of its product lines, to further
enhance its competitiveness and market leadership position. Also, in response to
market and industry conditions, the company initiated in November 1998 a series
of steps to be implemented over the next two years that will reduce its costs
and improve its worldwide operating structure. These steps, which will occur in
two phases, include reorganization of the company's commercial structure,
changes in work processes using the company's new globally integrated management
information system, the shutdown of production units and consolidation of
facilities and offices. These actions are discussed below under the caption
entitled "Special Charges and Adibis Assimilation."
Acquisitions continue to be an important part of the company's strategy to
strengthen its business position and expand into new markets. In 1998, the
company made seven acquisitions for an aggregate of approximately $158 million
in cash and common shares. The largest acquisition was Adibis, formerly the
lubricant and fuel additives group of British Petroleum Group P.L.C., which had
annualized 1998 revenues of approximately $100 million and is within the
company's chemicals for transportation segment. The other six acquisitions were
"building block" acquisitions within the company's chemicals for industry
segment and had annualized 1998 revenues of approximately $62 million. Further
information regarding these acquisitions is contained in Note 12 to the
financial statements.
1998 RESULTS OF OPERATIONS
[GRAPHIC]
- -----------
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
REVENUES (millions) $1,599.0 $1,663.6 $1,597.6 $1,673.8 $1,617.9
</TABLE>
In 1998, the continuing weak business environment of the lubricant additives
industry and poor economic conditions in Asia-Pacific and Latin America
negatively impacted the financial results for the year, particularly during the
second half of the year. Despite acquisitions contributing 5% to consolidated
revenues during 1998, annual revenues declined 3% as compared with 1997. Lower
average selling prices combined with relatively level material costs have
compressed profit margins. In addition, higher interest expense and a higher
effective tax rate each contributed to 1998 earnings being significantly lower
than 1997 earnings.
10
<PAGE> 2
THE LUBRIZOL CORPORATION
Consolidated revenues for 1998 of $1.62 billion decreased $55.9 million, or 3%,
as compared with the record 1997 annual revenues of $1.67 billion. The primary
factors causing the decline in revenues from the prior year were lower average
selling prices and lower pre-acquisition volume, which more than offset the
year-over-year incremental revenues from acquisitions. Excluding acquisitions,
sales volume declined by 4% for 1998 and by 10% for the second half of 1998 as
compared with the comparable 1997 periods. The 1998 average selling price
declined 5% as compared with 1997, of which 75% was due to lower product pricing
and changing product mix and 25% was due to currency. The year-over-year
increase in revenues from acquisitions was $81.2 million, of which $38.0 million
pertained to chemicals for transportation and $43.2 million pertained to
chemicals for industry.
The slowing of lubricant additive demand in virtually all geographic areas
during 1998 and the current economic conditions in Asia-Pacific caused difficult
comparisons against 1997, a year in which the company achieved record revenues
and sales volume. Although sales volume in 1998 was flat with 1997, excluding
acquisitions, sales volume declined 4%. On this same basis, sales volume to
customers in North America during 1998 was level with 1997, but declined 7% to
international customers. For the 1998 second half compared with the same period
of 1997, sales volume (excluding acquisitions) decreased 3% to customers in
North America and decreased 15% to international customers.
The continuing economic difficulties in the Asia-Pacific region had an
accelerating, unfavorable effect on the company's 1998 results. Products shipped
to customers in Asia-Pacific are manufactured primarily in production facilities
in the United States and comprised approximately 16% and 19% of the company's
revenues in 1998 and 1997, respectively. Sales volume to customers in
Asia-Pacific during the first half of 1998 declined by only 1% as compared with
the first half of 1997, but declined by 21% in the 1998 second half as compared
with the 1997 second half. Lower sales volume into Asia-Pacific was the primary
reason that overall sales volume declined in 1998. Asia-Pacific revenues
declined by $53 million, or 17% for the year 1998 and by $40 million, or 24% for
the second half of 1998 as compared with the respective 1997 periods. Some
forward buying during the second half of 1997 by customers in Asia-Pacific in a
reaction to worsening economic conditions exacerbated the comparison with the
current year.
Cost of sales for the full year 1998, including acquisitions, increased only 1%
over 1997 as sales volume, average material unit costs and manufacturing costs,
remained relatively constant between the comparable periods. Average material
unit costs declined less than 1% from 1997. The company's manufacturing costs do
not fluctuate significantly with changes in production volume. The effects of
the company's ongoing manufacturing rationalization program and other cost
management initiatives, for the second consecutive year, helped keep
manufacturing costs level as compared with the prior year, despite a $12.2
million increase from acquisitions.
Gross profit (net sales less cost of sales) decreased $64.4 million,
or 12%, in 1998 compared with 1997. Excluding acquisitions, gross profit
declined $82.3 million, or 15%, in 1998 compared with 1997. Gross profit
decreased $30.2 million, or 11%, ($35.3 million, or 13%, excluding acquisitions)
in the first half of 1998 and decreased $34.2 million, or 13%, ($47.0 million,
or 18%, excluding acquisitions) in the second half of 1998 compared with the
same 1997 periods. The decrease in gross profit for each of the respective
periods was primarily due to the decline in selling prices and, in the second
half of 1998, also due to the lower sales volume. The $17.9 million increase in
gross profit contributed from acquisitions made over the past year was partially
offset by unfavorable currency effects of $7.4 million for 1998.
[GRAPHIC]
- -----------
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
GROSS PROFIT (millions) $520.7 $522.9 $509.5 $545.6 $481.2
</TABLE>
The gross profit percentage (gross profit divided by net sales) was 29.8% for
1998 as compared with 32.7% for 1997. This decrease in gross profit percentage
was attributable to the lower average selling price as well as the unfavorable
effect on per unit manufacturing costs resulting from lower production levels,
particularly in the fourth quarter of 1998. In addition, the gross profit
percentage of 27.6% in the fourth quarter of 1998 reflected a $4.3 million
inventory write-down primarily due to a change in a customer product
specification.
Selling and administrative expenses increased by $8.5 million, or 5%, in 1998
compared with 1997. Excluding acquisitions, selling and administrative expenses
were $1.5 million, or 1%, lower compared with 1997. Selling and administrative
expenses in 1998 reflect increased spending of $11.3 million related to the
implementation of the new, enterprise-wide, management information system, but
this was more than offset by lower variable pay expense, lower litigation
expense and other cost reductions.
[GRAPHIC]
- -----------
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
RESEARCH TESTING & DEVELOPMENT
(millions) $165.5 $179.6 $161.0 $146.7 $151.0
</TABLE>
Research, testing and development expenses (technology expenses) increased $4.3
million, or 3%, in 1998 compared with 1997. Excluding acquisitions, technology
expenses declined $1.9 million, or 1%, from 1997. Product standards change
periodically to meet new emissions, efficiency, durability and other performance
factors as engine and transmission designs are improved by the equipment
manufacturers. These changes influence the timing and amount of the technology
expense. Approximately 80% of the company's technology cost is incurred in
company-owned facilities and 20% is incurred at third-party testing facilities.
Testing expenses incurred at third-party testing facilities increased $5.5
million in 1998
11
<PAGE> 3
THE LUBRIZOL CORPORATION
over 1997 primarily due to a new performance specification for heavy-duty engine
oils. The company's technology expense in 1998, as well as in 1997, included
costs related to new performance specifications for heavy-duty engine oils,
which were introduced into the market in late 1998, and new performance
specifications for passenger car engine oils expected to become effective during
2000.
Primarily as a result of the factors previously discussed, the change in
revenues together with the change in total costs and expenses unfavorably
affected the company's pretax profits by $78.4 million for the full year 1998
and by $45.3 million for the second half of 1998 as compared with respective
1997 periods.
In the fourth quarter of 1998, the company recorded special charges aggregating
$36.9 million. These special charges related to the first phase of the company's
cost reduction program, which amounted to $23.3 million, and the write-off of
$13.6 million of purchased technology under development originating from the
Adibis acquisition. After-tax, these special charges reduced 1998 net income by
$25.8 million, or $.47 per share. For further information see the caption
"Special Charges and Adibis Assimilation" below.
On April 23, 1998, the company reached a settlement with Exxon Corporation of a
lawsuit pending in federal court in Ohio and the company received cash of $19
million from Exxon. The pretax gain from this litigation settlement, net of
related expenses, was $16.2 million. After-tax, the litigation settlement
increased net income by $10.5 million or $.19 per share. Further information
regarding the company's litigation with Exxon is contained in Note 17 to the
financial statements.
The change in other income (expense) unfavorably affected 1998 pre-tax income by
$6.3 million compared with 1997. This change mostly occurred during the second
half of the year and resulted primarily from higher goodwill amortization,
higher currency exchange transaction losses, and lower equity earnings from
joint venture companies.
Interest expense increased $8.2 million in 1998 compared with 1997, reflecting
significantly higher borrowings that were incurred primarily to finance
acquisitions during the year.
While changes in the dollar value of foreign currencies will affect earnings
from time to time, the longer-term economic effect of these changes should not
be significant given the company's net asset exposure, currency mix and use of
U.S. dollar-based pricing in certain countries. As the U.S. dollar strengthens
or weakens against other international currencies in which the company transacts
business, the financial results of the company will be affected. During 1998,
the U.S. dollar strengthened and the change in currency exchange rates had an
unfavorable effect on net income per share of $.07 for the year 1998 as compared
with exchange rates in effect during 1997.
As a result of the factors discussed above, income before income taxes decreased
by $112.3 million for the full year 1998 and by $93.8 million for the second
half of 1998 as compared with the respective periods of 1997. Excluding from
1998 the litigation gain and special charges, income before income taxes
decreased by $91.6 million or 40% for the full year 1998 and by $56.9 million
for the second half of 1998 as compared with the respective periods of 1997.
The current year effective tax rate on income, before the litigation gain and
special charges, increased to 38% as compared with 33% in 1997. This increase,
which lowered 1998 earnings before these items by $.12 per share, was primarily
a result of lower 1998 operating earnings and increased non-tax deductible 1998
translation losses incurred by the company's foreign subsidiaries using a U.S.
dollar functional currency. Other reasons for the change in the effective tax
rate included shifts in earnings between the various countries in which the
company operates and the tax benefits recognized during the second half of 1997
resulting from favorable tax law changes enacted by France, the United States
and the United Kingdom. Taking into account the litigation gain and the fourth
quarter special charges, the overall effective tax rate for 1998 was 40%.
Net income in 1998 was $71.2 million, or $1.27 per share. In 1997, net income
was $154.9 million, or $2.68 per share. After excluding from 1998 the litigation
gain and the special charges, net income in 1998 was $86.5 million, a decrease
of 44% from 1997. On this same basis, 1998 net income per share was $1.55, a
decline of 42% from the $2.68 per share earned in 1997.
SPECIAL CHARGES AND ADIBIS ASSIMILATION
The company initiated a series of steps in 1998 to reduce costs and improve its
worldwide operating structure and will execute these steps in two phases over a
period approximating two years. The first phase, which began in the fourth
quarter of 1998, will result in employee reductions of approximately 6%, or 250
employees at both domestic and international locations. Approximately 55% of the
employee reductions occurred by December 31, 1998, and the remaining 45% will
occur during the first half of 1999. Of the 250 employees, approximately 40%
were in the manufacturing area and 60% were in the selling, administrative,
research and testing areas. In addition, the company will permanently remove
several component production units from service during this first phase.
The second phase of the company's cost reduction program will focus on lowering
costs and improving efficiency in production and distribution activities. The
company will continue to reduce its number of intermediate components, which
will enable the number of its production units to be reduced by approximately
20% over the next two years. This will occur through the shutdown of certain
production units and facilities worldwide. The company believes employee levels
will be reduced a further 5% during this second phase. Definitive plans must be
completed before the company is able to reasonably
12
<PAGE> 4
THE LUBRIZOL CORPORATION
estimate and recognize the costs of facility write-downs and employee reductions
anticipated during this second phase of the cost reduction program. Such charges
may be material to the operating results of the company for the period(s) in
which they are recognized.
The company recorded a special charge of $23.3 million in the fourth quarter of
1998 for the cost directly associated with the first phase of the cost reduction
program. Employee severance costs approximate $20.0 million and other exit costs
approximate $3.3 million, including $2.8 million related to asset impairments
for component production units to be taken out of service. Cash expenditures of
approximately $5.0 million were made in 1998 related to the cost reduction
program. Approximately $15.5 million remains as an accrued liability at December
31, 1998, most of which represents cash to be expended in 1999. The company
estimates annual savings of $26 million from the first phase of the cost
reduction program.
For financial reporting purposes, the company engaged an independent appraiser
to provide a basis for allocating the purchase price of Adibis to the acquired
intangible assets. The valuation included the amount to be assigned to
technology under development which, under purchase accounting, is to be written
off against income in the period of acquisition. Technology under development
comprises on-going research and development projects which may form the basis
for new products or replacements for existing products. The fair value assigned
to the Adibis technology under development was determined by the independent
appraiser applying the income approach and a valuation model, incorporating
among other assumptions revenue and expense projections, probability of success
and present value factors. The resulting value allocated to each of the
technology projects under development represents the product of the present
value of debt-free cash flows and the percent of research and development
completed. The fair value of technology under development was comprised of three
projects within engine oil additives aggregating $7.1 million; six projects
within fuel additives aggregating $3.4 million; and two projects within marine
diesel additives aggregating $3.1 million. The amount of the purchase price
allocated to technology under development was $13.6 million and was charged
against income in the fourth quarter of 1998.
The company is in the process of assimilating the Adibis additives business,
which it acquired effective August 1, 1998. The company's assimilation plan
includes separation of a number of Adibis employees at an estimated cost of $3.9
million and terminating certain Adibis contracts for tolling arrangements,
office leases and sales agents at an estimated cost of $2.7 million. These
activities are planned for completion by the end of 1999, with the employee
separations completed by the end of the first half of 1999. The aggregate cost
of $6.6 million represents cash expenditures expected to be made in 1999. The
cost of these activities was included in the allocation of the acquisition costs
to the net assets acquired.
1997 RESULTS OF OPERATIONS
IN 1997, the company made significant progress with each of its strategies to
grow its business, improve its cost structure and build its franchise. During
1997, revenues increased 5% as product shipments increased 17% over 1996 and the
company's market share grew. The company continued its focus to improve its cost
structure as operating expenses were flat versus 1996, even with significantly
higher production throughput. Net income per share in 1997 increased 20%, after
excluding from 1996 the gain on investments. This record performance was
achieved despite the unfavorable effect on earnings of the stronger U.S. dollar.
In 1997, the company had record revenues of $1.67 billion, an increase of $76.2
million over 1996. Increased revenues resulted from a 17% increase in specialty
chemical shipment volumes (contributing a 15% increase in consolidated
revenues), partially offset by a 10% decline in the average selling price.
Although the average selling price stabilized during the second half of the
year, the full-year decline for 1997 was attributable approximately 50% to
changing product mix, 30% to unfavorable currency effects and 20% to lower
product pricing. The unfavorable product mix effect resulted from volume gains
in product lines having lower than the overall average selling price. On
balance, the company's acquisition/divestiture activity did not significantly
affect 1997 annual revenues as recent acquisitions offset a prior year
disposition. However, acquisitions contributed one-fourth, or $11.4 million, of
the 13% increase in consolidated revenues for the fourth quarter of 1997
compared with the fourth quarter of 1996.
A primary strategy of the company in 1997 was to grow its business. The company
had success building global and regional alliances with targeted customers and
continued actively pursuing additional strategic relationships with finished
lubricant suppliers. As compared with 1996, sales volume increased throughout
the year. Higher sales volumes were realized in all geographic zones and across
a broad customer base. In 1997, sales volume increased 14% to North American
customers and 18% to international customers, primarily in Asia-Pacific, Western
Europe and Latin America. The growth in sales volume was derived principally
from market share gains within established markets rather than overall industry
growth.
Cost of sales reflected the higher sales volume as well as lower average raw
material costs and level manufacturing costs. Compared with the respective prior
year periods, average material costs, including favorable currency effects and
the impact of less expensive product mix, were 10% lower in the first half of
1997, 6% lower in the second half of 1997 and 8% lower for the year. The
company's manufacturing costs do not fluctuate significantly with changes in
production volume. The effects of the company's ongoing manufacturing
13
<PAGE> 5
THE LUBRIZOL CORPORATION
rationalization program and other cost management initiatives have improved
manufacturing efficiency as the company is operating fewer manufacturing units
at higher capacity levels. Manufacturing costs, aided by currency effects, were
flat in 1997 compared with 1996, even though production activity was
significantly higher in 1997 and the company resumed pay increases following the
salary freeze in effect during 1996.
Gross profit increased $36.2 million, or 7%, in 1997 compared with 1996. This
improvement in gross profit amount was after unfavorable currency effects of
$20.0 million, which occurred evenly over the four quarters.
Acquisition/divestiture activity contributed $13.0 million to the increase in
gross profit for 1997. Gross profit improved to 32.7% of sales in 1997 compared
with 32.0% in 1996 as manufacturing efficiencies, lower material costs and the
effect of acquisition/divestiture activities more than offset the effect of
lower average selling price. Gross profit was 31.4% during the second half of
1997 due to sequentially lower average selling price, higher material costs and
the effect of asset impairment losses of $4.4 million principally in the fourth
quarter.
Selling and administrative expenses increased $12.6 million, or 8%, in 1997
compared with 1996. These expenses, which were higher in the second half of the
year compared with the first half, increased primarily due to higher
patent-related litigation expenses, the effect of acquisitions, incremental
expenses related to the implementation of the new enterprise-wide management
information system and increased variable compensation as a result of higher
earnings.
During 1997, research, testing and development expense (technology expense)
decreased $14.3 million, or 9%, from 1996. The lower spending level in 1997 was
due to the timing of testing programs particularly within the engine oil and
gear oil product lines, greater internalization of testing activity that reduced
outside testing requirements and workforce reductions. The company's technology
expense in 1997 includes some costs related to new performance specifications
for heavy-duty engine oils which are expected to become effective during 1998
and new performance specifications for passenger car engine oils expected to
become effective during 2000.
As discussed in Note 16 to the financial statements, in 1997, the company
provided $9.4 million for the impairment of long-lived assets. These charges
related to a shutdown of an intermediate manufacturing system and the write-off
of certain computer equipment and legacy software systems that will be disposed
of due to the computer equipment standardization project and the new
enterprise-wide management information system being implemented.
Primarily as a result of these factors, consolidated revenues increased $37.7
million more than the increase in total costs and expenses in 1997.
Interest income in 1997 was lower than in 1996 as proceeds from the 1996 sale of
investments (discussed below) were temporarily invested in interest-bearing
instruments until used in the company's share repurchase program. Interest
expense in 1997 was level with 1996. The average daily balance of total debt
outstanding during 1997 was $195 million as compared with $188 million in 1996.
The company conducts a significant amount of its business outside of the United
States and is subject to certain related risks including currency fluctuations.
The U.S. dollar continued to strengthen during 1997, causing an unfavorable
effect on net income of approximately $10.0 million, or $.17 per share.
As a result of the factors discussed above and after excluding from 1996 the
gain on investments, income before income taxes increased 17%, or $33.8 million,
from 1996. The company adjusted its tax provision in the third quarter of 1997
to reflect a legislated increase in the statutory tax rate applicable to its
earnings in France, where the company has significant operations. This
adjustment resulted in an effective tax rate of 33.0% for the full year 1997 as
compared with 31.5% in 1996, after excluding the 1996 gain on investments on
which a 35% tax rate applied. The higher effective tax rate reduced net income
by $3.5 million, or $.06 per share in 1997.
Net income in 1997 was $154.9 million, or $2.68 per share. In 1996, net income
was $169.8 million, or $2.80 per share, which included investment gains. After
excluding from 1996 the non-recurring gains, net income in 1997 was 15% higher
than the $135.2 million for 1996. On this same basis, net income per share was
20% higher than the $2.23 per share for 1996, reflecting the company's share
repurchase program.
1996 RESULTS OF OPERATIONS
IN 1996, management of the company took action early in the year to improve its
cost structure as part of its continuing efforts to enhance its efficiency as an
additive supplier. Although revenues in 1996 declined 4% from 1995, this was
offset by the effects of aggressive cost management and management's focus on
strengthening of customer and supplier relationships. In addition, lower working
capital, significantly reduced capital expenditures and the sale of nonstrategic
investments resulted in improved cash flow and enabled the company to repurchase
7% of its common shares outstanding during 1996. As a result, the company was
able to grow net income and net income per share, despite unfavorable currency
effects.
Consolidated revenues were $1.60 billion in 1996, a decrease of $66 million, or
4%, from 1995 levels. Volume in 1996 was equal with 1995 despite the
introduction of a new industry specification discussed below. Revenues decreased
2% due to price/mix effects and 1% due to unfavorable currency effects. In
addition, the sale of the specialty vegetable oil business in September 1996
reduced consolidated revenues by 1% as compared with 1995.
14
<PAGE> 6
THE LUBRIZOL CORPORATION
During 1996, new passenger car engine oil additives were introduced to meet a
new U.S. industry specification. Most of the company's customers converted to
this new specification by September 1996. This new specification required
approximately 10% less additive than the prior specification, and the company
estimates that it negatively impacted annual sales volume in North America by 2%
in 1996 (1% worldwide). However, other volume gains, primarily in heavy-duty
engine oils, more than offset the impact from the new specification and overall
volume in North America increased 1% over 1995. Internationally, volume declined
1%, as growth in Asia-Pacific was offset by lower volume in Western Europe.
Gross profit of $509.5 million was $13.5 million, or 3%, lower in 1996 compared
with 1995. Excluding the effects of the $9.5 million asset impairment in 1995
(discussed below), gross profit in 1996 was $23.0 million lower than in 1995.
Unfavorable currency effects accounted for one-half of this decline with the
balance attributable to lower revenues. However, the company aggressively
managed its procurement costs of raw materials and continued its cost management
efforts under its manufacturing rationalization initiative. These efforts
lowered the cost of production to maintain 1996 gross profit as a percent of
sales at 32.0%, compared with 32.1% in 1995 (excluding asset impairment).
The company continued to lower its operating costs through aggressive cost
management. This included a worldwide freeze on salary increases and hiring
throughout all of 1996 and the manufacturing rationalization and organizational
realignment initiatives that began in 1993. Employee levels, excluding
acquisitions and divestitures during the year, were reduced by nearly 6% at
December 31, 1996, compared with December 31, 1995, as retiring or departing
employees were not replaced. The company's manufacturing costs and selling,
administrative and technology expenses in 1996 were each lower than in 1995 and,
in the aggregate, declined nearly 6%, or $40 million (excluding the effects of
the 1995 asset impairment). Currency had a favorable effect on costs and
accounted for approximately 25% of this reduction.
Technology expense decreased 10% in 1996 compared with 1995. In addition to the
effects of cost management strategies discussed above, the decrease was due to
reduced testing requirements for product specifications primarily within
driveline and engine oils. The effect of currency on technology expenses was not
significant.
Primarily as a result of the above factors, total costs and expenses declined
$75.0 million in 1996 from 1995 ($65.5 million excluding the asset impairment),
offsetting the revenue decline for the year.
During 1996, the company completed the divestiture of substantially all of its
agribusiness assets comprised of its equity investment in Mycogen Corporation
and the assets of the company's wholly-owned subsidiary, SVO Specialty Products,
Inc. (SVO). These transactions generated cash proceeds of $149.0 million and,
after losses on other investment activity, resulted in the $53.3 million ($34.6
million, or $.57 per share after taxes) gain on investments. (See Note 7 to the
financial statements.) The company has substantially liquidated its nonstrategic
investments.
The U.S. dollar strengthened during 1996 as compared with exchange rates in
effect during 1995, particularly against the French franc, German mark and
Japanese yen, causing an unfavorable effect on 1996 net income of $4.9 million,
or $.08 per share.
Interest expense, net of interest income, declined $2.4 million in 1996 compared
with 1995. Proceeds collected from the sale of investments were used to
temporarily reduce commercial paper borrowings and acquire short-term
investments until used in the company's share repurchase program. The average
daily balance of total debt outstanding during 1996 was $188 million as compared
with $203 million in 1995.
As a result of the factors discussed above, 1996 net income was $169.8 million,
an increase of 12%, or $18.2 million from 1995. Net income per share for 1996
was $2.80, or 18% higher than in 1995 and reflected the impact of the company's
share repurchase program. Excluding the gain on investments from each year, net
income increased to $135.2 million from $126.6 million in 1995, a 7% increase.
The corresponding net income per share of $2.23 in 1996 was a 13% increase from
the $1.98 earnings per share in 1995.
RETURN ON AVERAGE SHAREHOLDERS' EQUITY
Return on average shareholders' equity was 9% in 1998 (11% excluding the
litigation gain and the special charges), 19% in 1997 and 20% in 1996 (16%
excluding gain on investments).
[GRAPHIC]
- -----------
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
RETURN ON EQUITY*(percent) 19% 15% 16% 19% 11%
(Before investment gains, litigation gain and special charges.)
</TABLE>
WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
The company's cash flows for the years 1996 through 1998 are presented in the
consolidated statements of cash flows. Cash provided from operating activities
was $155.2 million in 1998 as compared with $234.4 million in 1997. This
decrease of $79.2 million in cash flow from operations was primarily due to the
lower net income earned in 1998 as compared with 1997. Operating cash was used
to reduce accounts payable and accrued expenses, before the effect of the
special charge for the cost reduction program. This use of cash reflects the
timing of payments principally for inventory purchases and the payments for
income taxes. The use of cash to increase other current assets reflects payments
of estimated income taxes in excess of the company's obligation.
15
<PAGE> 7
THE LUBRIZOL CORPORATION
During 1996, the company initiated a four-year project to implement a global
enterprise-wide management information system and standardize its computer
equipment among all of its major facilities. This project supports the company's
strategy to improve its cost structure by reducing complexity and increasing
efficiency and is a critical component in the company's "Year 2000" compliance
plan for its business information systems. When fully implemented, this system
will provide access to information within the company so that resources will be
shared and processes will be standardized and integrated worldwide. The company
implemented the new enterprise-wide management information system in the United
States during April 1998, anticipates completing the European implementation in
April 1999, and will continue to implement this system globally over the next
two years.
[GRAPHIC]
- -----------
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CASH PROVIDED FROM OPERATING
ACTIVITIES (MILLIONS)
CASH PROVIDED $156.8 $187.4 $231.0 $234.4 $155.2
</TABLE>
Capital expenditures in 1998 were $93.4 million compared with $100.7 million in
1997. Capital expenditures include $17.6 million and $26.3 million in 1998 and
1997, respectively, related to the company's multi-year project to implement an
enterprise-wide management information system. Capital expenditures for 1999 are
estimated to be $85 million, including $6 million related to the continued
implementation of the management information system.
In years prior to 1998, the company divested its marketable securities and
nonstrategic assets, primarily its former agribusiness assets. The after-tax
proceeds from these activities generally were used in the company's share
repurchase program. Proceeds received from the sale of investments in the
amounts of $3.5 million and $2.5 million in 1998 and 1997, respectively, reflect
collections on a promissory note from the 1996 sale of certain technology rights
related to the company's former specialty vegetable business (SVO). Also,
proceeds from the sale of investments received during 1997 reflect $9.6 million
from the sale of a nonstrategic investment. Proceeds from the sale of
investments during 1996 were principally comprised of $126.2 million from the
sale of Mycogen and $22.8 million from the sale of SVO assets.
In 1998, the company made six acquisitions for cash of $155.4 million and one
acquisition for 89,806 of the company's common shares valued at $2.4 million.
These acquisitions were in the areas of lubricant additives, metalworking
additives and coating additives and broaden the company's base in performance
chemicals. During 1997, the company invested $21.5 million in several
acquisitions in the areas of metalworking additives and performance systems. In
December 1996, the company acquired a formulator of specialty synthetic
lubricants used by original equipment manufacturers in air and refrigeration
compressors, for $24.6 million. In addition, the company invested $2.1 million
and $2.7 million in 1997 and 1996, respectively, in joint ventures in China.
The company maintained an active share repurchase program in each of the past
three years. During 1998, the company repurchased approximately 2.6 million
common shares, or 4.6% of its common shares outstanding at the beginning of the
year, for $80 million. During 1997, the company repurchased 1.8 million common
shares, or 3.1% of its common shares outstanding at the beginning of 1997, for
$70.1 million. In 1996, the share repurchase program was increased to utilize
the after-tax proceeds from the sale of investments as the company repurchased
4.5 million, or 7.1%, of its outstanding shares for $135.2 million. Under
current circumstances, including the company's desire to maintain borrowing
capacity to finance future acquisitions, the company does not anticipate making
share repurchases during 1999.
[GRAPHIC]
- -----------
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CAPITALIZATION (MILLIONS)
EQUITY $832.0 $849.0 $819.4 $815.4 $769.1
TOTAL DEBT $167.9 $247.1 $198.5 $220.3 $429.3
</TABLE>
The company's net borrowings during 1998 totaled $201.7 million. These
borrowings were used primarily to finance $155 million of cash expended for
acquisitions, most of which occurred in the third quarter, and the company's
share repurchase program. As discussed in Note 4 to the financial statements,
the company replaced a significant portion of the outstanding commercial paper
borrowings by issuing $200 million of long-term debt in November 1998. The
company incurred debt issuance costs of $10.5 million in 1998, including a $6.5
million loss related to a hedge against changes in interest rates relative to
the anticipated issuance of this debt. Debt increased during 1997 primarily to
finance several acquisitions and the increase in working capital. During 1996,
improved cash flow and lower capital expenditures enabled the company to have
net repayments of short- and long-term debt of $43.6 million. The company's debt
as a percent of total capitalization (shareholders' equity plus short- and
long-term debt) increased to 36% at December 31, 1998, as compared with 21% at
December 31, 1997.
Primarily as a result of these activities and the payment of dividends, the
balance of cash and short-term investments decreased $32.9 million at December
31, 1998, compared with December 31, 1997.
The company's financial position remains strong with a ratio of current assets
to current liabilities of 2.5:1 at December 31, 1998, and at December 31, 1997.
Effective July 1, 1998, the company increased its committed revolving credit
facilities from $75 million to $300 million. One-half of the aggregate amount of
these facilities expires on June 30, 1999, and the remainder expires on June 30,
2003, subject in each case to annual extension provisions. These facilities,
which were unused at December 31, 1998, permit the company to borrow at or below
the U.S. prime rate. The company believes that its existing credit facilities,
internally generated funds and ability to obtain additional financing, if
desired, will be sufficient to meet its future capital needs.
16
<PAGE> 8
THE LUBRIZOL CORPORATION
YEAR 2000 MATTERS
THIS IS A YEAR 2000 READINESS DISCLOSURE UNDER THE YEAR 2000 INFORMATION AND
READINESS DISCLOSURE ACT, P.L. 105-271
The company relies on its computer-based management information systems, as well
as computer-based systems used for other purposes, in conducting its normal
business activities. Certain of these computer-based programs may not have been
designed to function properly with respect to the application of dating systems
relating to the Year 2000 and beyond.
The company has developed a global Year 2000 strategy covering each of its
facilities designed to minimize Year 2000 disruptions to its computer-based
systems, including business information systems and process control, testing and
laboratory equipment and embedded systems. The Year 2000 project manager
regularly updates the company's senior management as to the implementation
status of the Year 2000 strategy, and periodic reviews are conducted with the
company's Audit Committee and Board of Directors. The company believes that its
computer-based systems will be functional and operate without significant
disruption both before and after January 1, 2000.
The company's Year 2000 compliance strategy incorporates the conversion of most
of its business information systems from mainframe systems to compliant,
client/server systems. The company believes that implementation of such systems
permits it to avoid approximately 80% of the effort that otherwise would have
been required to make these legacy systems Year 2000 compliant. This conversion
process is part of the company's global enterprise-wide management information
system, which was implemented in the United States during 1998 and is scheduled
for implementation in Europe in April 1999. Although the implementation date for
the global enterprise-wide management system at a number of company facilities
outside of the United States and Europe is anticipated to be after January 1,
2000, the company has developed Year 2000 compliance plans to address business
information systems at each of those facilities.
The company estimates approximately 20% of the total remediation effort is
attributable to activities not related to the global enterprise-wide management
information system discussed above. Based upon the effort expended through
December 31, 1998, the company believes it has completed approximately 30% of
the desired remediation activities that are in addition to its progress on the
enterprise-wide management information systems. The company has substantially
completed its assessment of the actions necessary with respect to all of its
other date-based computer systems in order to minimize Year 2000-related
disruptions. The company has completed compiling, categorizing as to
criticality, and prioritizing all of its date-based computer systems at each of
its facilities. Plans for remediation, testing and certification of such systems
have been developed for each site and are aggressively being implemented. The
company has targeted completion of all remedial activities, including testing
and certification, and final contingency plans by July 1, 1999.
Through December 31, 1998, the company incurred costs of approximately $61
million in connection with the implementation of its global enterprise-wide
management information systems, of which approximately $46 million was
capitalized and $15 million expensed. The company estimates additional costs in
1999 of approximately $18 million, of which approximately $6 million is expected
to be capitalized. In addition, the company estimates the total costs for
conducting its Year 2000 remedial activities not addressed by the global
enterprise-wide management information system at approximately $10 million. The
company has expended approximately $2.0 million for these activities, most of
which was spent in 1998.
The company has also surveyed suppliers critical to its business for the purpose
of obtaining assurance regarding their ability to properly operate their systems
in the Year 2000. Based on this process, the company believes its ability to
obtain critical materials will not be significantly affected by its suppliers'
Year 2000 situations. The company has been surveying significant customers for
this same purpose in the first quarter of 1999 and expects to complete this
process early in the second quarter. However, the company has no contractual or
other right to compel its suppliers or customers to be Year 2000 compliant.
The company has developed high-level contingency plans in the event any of its
critical suppliers or significant customers should incur Year 2000 failures in
their systems that would cause a disruption in the company's ability to conduct
business. More detailed contingency plans are in the process of being developed
for each facility. Some of the areas addressed in these plans include increased
staffing, higher carrying levels of inventory for critical materials, components
and finished goods and alternate suppliers for critical raw materials. The
company's view of a "reasonably likely worst case scenario" would entail the
temporary shutdown of a production unit at one or more of the company's major
manufacturing sites. Although the company does not anticipate such a scenario
will occur, if it were to occur, the company believes it would be able to
correct the problem in a timely fashion, alternatively source the production or
satisfy the customer demand from existing inventory. If the company's
contingency plans are not adequate or its suppliers or customers fail to remedy
their own Year 2000 matters, the company's results of operations and financial
condition may be materially adversely affected.
17
<PAGE> 9
THE LUBRIZOL CORPORATION
EURO
In anticipation of the introduction of the Euro, the company initiated steps in
1998 to: (i) conduct business using the Euro on January 1, 1999; (ii) integrate
the Euro into its business, with full integration targeted for January 1, 2002;
and (iii) meet the Euro needs of customers, including assisting them in their
Euro integration. As a result of this effort, the company expects minimal impact
from pricing transparency beyond that which already exists with major
international accounts and large European regional customers. Contract
continuity disputes with customers and vendors are not anticipated given the
company's long-standing relationships and European Council regulations
precluding using Euro conversion as a reason to invalidate contracts.
The new enterprise software system being installed at the company's European
sites is fully Euro compliant and no additional system enhancements are
expected. Other conversion costs have been minor and absorbed in normal
operating expense. Euro adoption also will consolidate a portion of the
company's foreign currency exposures and reduce the number and cost of currency
transactions. Although final tax guidance on all aspects of the Euro conversion
has yet to be released, the company has no reason to believe that the conversion
will have significant tax effects for the company.
CAUTIONARY STATEMENT FOR "SAFE HARBOR" PURPOSES UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and the letter "To Our Shareholders" from W. G. Bares, Chairman,
President and Chief Executive Officer of the company, contain forward-looking
statements within the meaning of the federal securities laws. As a general
matter, forward-looking statements are those focused upon future plans,
objectives or performance as opposed to historical items and include statements
of anticipated events or trends and expectations and beliefs relating to matters
not historical in nature. Such forward-looking statements are subject to
uncertainties and factors relating to the company's operations and business
environment, all of which are difficult to predict and many of which are beyond
the control of the company. Such uncertainties and factors could cause actual
results of the company to differ materially from those matters expressed in or
implied by such forward-looking statements.
The company believes that the following factors, among others, could affect its
future performance and cause actual results of the company to differ materially
from those expressed or implied by forward-looking statements made in this
annual report:
* the overall demand for lubricant additives on a worldwide basis, which has a
slow growth rate in mature markets such as North America and Europe;
* the effect on the company's business resulting from economic uncertainty
within the Asia-Pacific and Latin American regions;
* the lubricant additive demand in developing regions such as China and India,
which geographic areas are an announced focus of the company's activities;
* technology developments that affect longer-term trends for lubricant
additives, such as: improved engine design, fuel economy, longer oil drain
intervals, alternative fuel powered engines and emission system
compatibility;
* the company's success at continuing to develop proprietary technology to meet
or exceed new industry performance standards and individual customer
expectations;
* the frequency of change in industry performance standards, which affects the
level and timing of the company's technology costs, the product life cycles
and the relative quantity of additives required for new specifications;
* the rate of progress in continuing to reduce complexities and conversion
costs and in modifying the company's cost structure to maintain and enhance
its competitiveness;
* the success of the company in strengthening and retaining relationships with
lubricant additive customers, growing sales at targeted accounts, and
expanding geographically;
* the extent to which the company is successful in expanding beyond its core
chemicals for transportation business and into new areas for its chemicals
for industry businesses;
* the recoveries, judgments, costs and future impact of legal proceedings,
including those relating to intellectual property litigation with Exxon
Corporation and its affiliates;
* the potential impact of consolidation among lubricant additive manufacturers
and finished lubricant marketers, including the pending merger between Exxon
and Mobil, two of the company's larger customers;
* the relative degree of competitive and customer price pressure on lubricant
additives;
* the cost, availability and quality of raw materials, including
petroleum-based products, required for the manufacture of lubricant
additives;
* the effects of fluctuations in currency exchange rates upon the company's
reported results from its international operations, together with
non-currency risks of investing in and conducting significant operations in
foreign countries, including those relating to political, social, economic
and regulatory factors;
* the ability to achieve and timing of cost efficiencies resulting from the
multi-year program to implement the new enterprise-wide management
information system;
18
<PAGE> 10
THE LUBRIZOL CORPORATION
* the ability of the company to operate its computer-based systems without
significant disruption due to dating systems application in the Year 2000;
and
* changes in significant government regulations affecting environmental
compliance.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company operates manufacturing and blending facilities, laboratories and
offices around the world and utilizes fixed and floating rate debt to finance
its global operations. As a result, the company is subject to business risks
inherent in non-U.S. activities, including political and economic uncertainty,
import and export limitations, and market risk related to changes in interest
rates and foreign currency exchange rates. The company believes the political
and economic risks related to its foreign operations are mitigated due to the
stability of the countries in which its largest foreign operations are located.
In the normal course of business, the company uses derivative financial
instruments including interest rate swaps and foreign currency forward exchange
contracts to manage its market risks. Additional information regarding the
company's financial instruments is contained in Notes 4 and 14 to the financial
statements. The company's objective in managing its exposure to changes in
interest rates is to limit the impact of such changes on earnings and cash flow
and to lower its overall borrowing costs. The company's objective in managing
its exposure to changes in foreign currency exchange rates is to reduce
volatility on earnings and cash flow associated with such changes. The company's
principal currency exposures are in the major European currencies, the Japanese
yen and certain Latin American currencies. The company does not hold derivatives
for trading purposes.
The company measures its market risk, related to its holdings of financial
instruments based on changes in interest rates and foreign currency rates
utilizing a sensitivity analysis. The sensitivity analysis measures the
potential loss in fair values, cash flows and earnings based on a hypothetical
10% change (increase and decrease) in interest and currency exchange rates. The
company used current market rates on its debt and derivative portfolio to
perform the sensitivity analysis. Certain items such as lease contracts,
insurance contracts, and obligations for pension and other post-retirement
benefits were not included in the analysis.
The company's primary interest rate exposures relate to its cash and short-term
investments, fixed and variable rate debt and interest rate swaps. The potential
loss in fair values is based on an immediate change in the net present values of
the company's interest rate-sensitive exposures resulting from a 10% change in
interest rates. The potential loss in cash flows and earnings is based on the
change in the net interest income/expense over a one-year period due to an
immediate 10% change in rates. A hypothetical 10% change in interest rates does
not have a material impact on the fair values, cash flows or earnings of the
company.
The company's primary currency rate exposures are to its foreign denominated
debt, intercompany debt, cash and short-term investments and foreign currency
forward exchange contracts. The potential loss in fair values is based on an
immediate change in the U.S. dollar equivalent balances of the company's
currency exposures due to a 10% shift in exchange rates. The potential loss in
cash flows and earnings is based on the change in cash flow and earnings over a
one-year period resulting from an immediate 10% change in currency exchange
rates. A hypothetical 10% change in currency exchange rates does not have a
material impact on its fair values, cash flows or earnings of the company.
19
<PAGE> 11
[Deloitte & Touche LLP LOGO]
THE LUBRIZOL CORPORATION
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF THE LUBRIZOL CORPORATION
We have audited the accompanying consolidated balance sheets of The Lubrizol
Corporation and its subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1998. 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. 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 provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Lubrizol Corporation and its
subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
February 4, 1999
20
<PAGE> 12
THE LUBRIZOL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
(In Thousands of Dollars Except Per Share Data) 1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales ................................ $ 1,614,558 $ 1,669,251 $ 1,592,877
Royalties and other revenues ............. 3,361 4,531 4,685
----------- ----------- -----------
Total revenues .................... 1,617,919 1,673,782 1,597,562
Cost of sales ............................ 1,133,327 1,123,602 1,083,394
Selling and administrative expenses ...... 179,759 171,244 158,633
Research, testing and development expenses 150,980 146,678 160,978
----------- ----------- -----------
Total cost and expenses ........... 1,464,066 1,441,524 1,403,005
Special charges .......................... (36,892)
Gain from litigation settlement .......... 16,201
Gain on investments ...................... 53,280
Other income (expense) - net ............. (1,152) 5,104 6,012
Interest income .......................... 5,780 4,588 7,714
Interest expense ......................... (18,976) (10,803) (10,955)
----------- ----------- -----------
Income before income taxes ............... 118,814 231,147 250,608
Provision for income taxes ............... 47,614 76,278 80,806
----------- ----------- -----------
Net income ............................... $ 71,200 $ 154,869 $ 169,802
=========== =========== ===========
Net income per share ..................... $ 1.27 $ 2.68 $ 2.80
=========== =========== ===========
Net income per share, diluted ............ $ 1.27 $ 2.66 $ 2.79
=========== =========== ===========
Dividends per share ...................... $ 1.04 $ 1.01 $ .97
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
21
<PAGE> 13
THE LUBRIZOL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
--------------------------
(In Thousands of Dollars) 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and short-term investments ............................... $ 53,639 $ 86,504
Receivables ................................................... 301,644 273,505
Inventories ................................................... 277,612 260,118
Other current assets .......................................... 54,575 36,949
----------- -----------
Total current assets ................................... 687,470 657,076
----------- -----------
Property and equipment - at cost .............................. 1,608,500 1,513,824
Less accumulated depreciation ................................. 889,650 821,147
----------- -----------
Property and equipment - net ........................... 718,850 692,677
----------- -----------
Goodwill and intangible assets - net .......................... 166,957 58,066
Investments in nonconsolidated companies ...................... 26,490 25,904
Other assets .................................................. 43,470 28,569
----------- -----------
TOTAL ........................................... $ 1,643,237 $ 1,462,292
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt and current portion of long-term debt ......... $ 38,926 $ 38,095
Accounts payable .............................................. 112,832 127,347
Accrued expenses and other current liabilities ................ 118,270 96,488
----------- -----------
Total current liabilities .............................. 270,028 261,930
----------- -----------
Long-term debt ................................................ 390,394 182,165
Postretirement health care obligation ......................... 106,641 105,962
Noncurrent liabilities ........................................ 48,950 42,878
Deferred income taxes ......................................... 58,106 53,909
----------- -----------
Total liabilities ...................................... 874,119 646,844
----------- -----------
Contingencies and commitments
Preferred stock without par value - unissued
Common shares without par value - outstanding 54,548,110 shares
in 1998 and 56,966,894 shares in 1997 ...................... 84,651 82,669
Retained earnings ............................................. 709,994 773,184
Accumulated other comprehensive income (loss) ................. (25,527) (40,405)
----------- -----------
Total shareholders' equity ............................. 769,118 815,448
----------- -----------
TOTAL ........................................... $ 1,643,237 $ 1,462,292
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
22
<PAGE> 14
THE LUBRIZOL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------
(In Thousands of Dollars) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH PROVIDED FROM (USED FOR):
OPERATING ACTIVITIES:
Net income .......................................................... $ 71,200 $ 154,869 $ 169,802
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization .................................. 88,047 87,217 80,964
Deferred income taxes .......................................... 5,732 8,585 23,074
Special charges and asset impairments .......................... 36,892 9,360
Gain on investments ............................................ (53,280)
Change in current assets and liabilities net of acquisitions and
dispositions:
Receivables ................................................ 3,870 (47,313) 9,834
Inventories ................................................ 9,839 (16,919) 46,658
Accounts payable and accrued expenses ...................... (41,749) 46,524 (38,693)
Other current assets ....................................... (17,012) 4,101 (1,610)
Change in noncurrent liabilities ............................... 5,357 (169) (1,317)
Other items - net .............................................. (6,985) (11,889) (4,430)
---------- ---------- ----------
Total operating activities ............................ 155,191 234,366 231,002
INVESTING ACTIVITIES:
Proceeds from sale of investments ................................... 3,500 12,117 149,603
Capital expenditures ................................................ (93,421) (100,700) (94,297)
Acquisitions and investments in nonconsolidated companies ........... (155,418) (23,636) (27,309)
Other - net ......................................................... 749 5,164 4,357
---------- ---------- ----------
Total investing activities ............................ (244,590) (107,055) 32,354
FINANCING ACTIVITIES:
Short-term borrowing (repayment) .................................... 4,175 26,772 (52,890)
Long-term borrowing ................................................. 203,059 5,572 28,425
Long-term repayment ................................................. (5,515) (4,159) (19,141)
Debt issuance costs ................................................. (10,523)
Dividends paid ...................................................... (58,256) (58,469) (59,033)
Common shares purchased, net of options exercised .................. (76,542) (63,391) (133,926)
---------- ---------- ----------
Total financing activities ............................ 56,398 (93,675) (236,565)
Effect of exchange rate changes on cash ............................. 136 (2,205) (2,297)
---------- ---------- ----------
Net increase (decrease) in cash and short-term investments ......... (32,865) 31,431 24,494
Cash and short-term investments at the beginning of year ............ 86,504 55,073 30,579
---------- ---------- ----------
Cash and short-term investments at the end of year .................. $ 53,639 $ 86,504 $ 55,073
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
23
<PAGE> 15
THE LUBRIZOL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Shareholders' Equity
----------------------------------------------
Number of Accumulated Other
Shares Common Retained Comprehensive
(Dollars in Thousands) Outstanding Shares Earnings Income (Loss) Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 .............................. 62,951,288 $83,254 $762,747 $ 2,982 $848,983
--------
Comprehensive income:
Net income 1996 ...................................... 169,802 169,802
Other comprehensive income (loss) .................... (6,450) (6,450)
--------
Comprehensive income .................................... 163,352
Cash dividends .......................................... (59,033) (59,033)
Common shares - treasury:
Shares purchased ..................................... (4,496,427) (5,982) (129,206) (135,188)
Shares issued upon exercise of stock options ......... 67,815 1,262 1,262
---------- ------ -------- --------- --------
BALANCE, DECEMBER 31, 1996 .............................. 58,522,676 78,534 744,310 (3,468) 819,376
--------
Comprehensive income:
Net income 1997 ...................................... 154,869 154,869
Other comprehensive income (loss) .................... (36,937) (36,937)
--------
Comprehensive income .................................... 117,932
Cash dividends .......................................... (58,469) (58,469)
Common shares - treasury:
Shares purchased ..................................... (1,812,841) (2,538) (67,526) (70,064)
Shares issued upon exercise of stock options ......... 257,059 6,673 6,673
---------- ------ -------- --------- --------
BALANCE, DECEMBER 31, 1997 .............................. 56,966,894 82,669 773,184 (40,405) 815,448
--------
Comprehensive income:
Net income 1998 ...................................... 71,200 71,200
Other comprehensive income (loss) .................... 14,878 14,878
--------
Comprehensive income .................................... 86,078
Cash dividends .......................................... (58,256) (58,256)
Common shares issued for subsidiary acquisition ......... 89,806 2,390 2,390
Common shares - treasury:
Shares purchased ..................................... (2,621,173) (3,944) (76,134) (80,078)
Shares issued upon exercise of stock options ......... 112,583 3,536 3,536
---------- ------ -------- --------- --------
BALANCE, DECEMBER 31, 1998 .............................. 54,548,110 $84,651 $709,994 $(25,527) $769,118
========== ======= ======== ======== ========
</TABLE>
24
<PAGE> 16
THE LUBRIZOL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(In Thousands of Dollars Unless Otherwise Indicated)
NOTE 1 - NATURE OF OPERATIONS
The Lubrizol Corporation is a full-service supplier of performance chemicals and
products to diverse markets worldwide. The company develops, produces and sells
specialty additive packages used in transportation and industrial finished
lubricants. The company's products are created through the application of
advanced chemical and mechanical technologies to enhance the performance,
quality and value of the products in which they are used. The company groups its
product lines into two operating segments: chemicals for transportation and
chemicals for industry. Chemicals for transportation comprise approximately 85%
of the company's consolidated revenues and segment pretax operating profit in
1998. Refer to Note 13 for a further description of the nature of the company's
operations, the product lines within chemicals for transportation and chemicals
for industry and related financial disclosures.
NOTE 2 - ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements include the accounts of
The Lubrizol Corporation and its subsidiaries where ownership is greater than
50% and the company has effective controlling financial interest. For
nonconsolidated companies (affiliates), the equity method of accounting is used
when ownership, unless temporary, exceeds 20% and when the company has the
ability to exercise significant influence over the policies of the investee. The
book value of investments carried at equity was $25.8 million and $25.0 million
and of investments carried at cost was $.7 million and $.9 million at December
31, 1998 and 1997, respectively.
ESTIMATES - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions pending completion of related events. These estimates and
assumptions affect the amounts reported at the date of the financial statements
for assets, liabilities, revenues and expenses and the disclosure of
contingencies. Actual results could differ from those estimates.
CASH EQUIVALENTS - The company generally invests any of its excess cash in
short-term investments with various banks and financial institutions. Short-term
investments are cash equivalents, as they are part of the cash management
activities of the company and are comprised primarily of investments having
maturities of three months or less when purchased.
INVENTORIES - Inventories are stated at the lower of cost or market value. Cost
of inventories is determined by the first-in, first-out (FIFO) method except for
chemical inventories within the United States, which are valued using the
last-in, first-out (LIFO) method.
PROPERTY AND EQUIPMENT - Property and equipment are carried at cost. Repair and
maintenance costs are charged against income while renewals and betterments are
capitalized as additions to the related assets. Costs incurred for computer
software developed or obtained for internal use are capitalized for application
development activities and immediately expensed for preliminary project
activities or post-implementation activities. Accelerated depreciation methods
are used in computing depreciation on certain machinery and equipment, which
comprise approximately 23% of the depreciable assets. The remaining assets are
depreciated using the straight-line method. The estimated useful lives are 10 to
40 years for buildings and land improvements and range from 3 to 20 years for
machinery and equipment.
GOODWILL AND INTANGIBLE ASSETS - Intangibles resulting from business
acquisitions including costs in excess of net assets of businesses acquired
(goodwill), purchased technology and trademarks are being amortized on a
straight-line method over years ranging from 5 to 25 years. Periodically, the
company evaluates the recoverability of goodwill and intangible assets and
measures the amount of impairment, if any, by assessing current and future
levels of cash flows as well as other factors, such as business trends or market
and economic conditions.
RESEARCH, TESTING AND DEVELOPMENT - Research, testing and development costs are
expensed as incurred. Research and development expenses, excluding testing, were
$78.3 million, $88.4 million and $93.4 million in 1998, 1997 and 1996,
respectively.
FOREIGN CURRENCY TRANSLATION - The assets and liabilities of the company's
international subsidiaries are translated into U.S.
dollars at exchange rates in effect at the balance sheet date, and
revenues and expenses are translated at weighted average exchange rates in
effect during the period. Unrealized translation adjustments are recorded as a
component of other comprehensive income in shareholders' equity. Transaction
gains or losses that arise from exchange rate changes on transactions
denominated in a currency other than the functional currency, except those
transactions that function as a hedge of an identifiable foreign currency
commitment or as a hedge of a foreign currency investment, are included in
income as incurred.
SHARE REPURCHASES - The company utilizes the par value method of accounting for
its treasury shares. Under this method, the cost to reacquire shares in excess
of paid-in capital related to those shares is charged against retained earnings.
25
<PAGE> 17
THE LUBRIZOL CORPORATION
PER SHARE AMOUNTS - Net income per share is computed by dividing net income by
average common shares outstanding during the period. Net income per diluted
share includes the dilution effect resulting from outstanding stock options and
stock awards. Per share amounts are computed as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Numerator:
Net income available to
common shareholders .. $ 71,200 $154,869 $169,802
======== ======== ========
Denominator:
Weighted average common
shares outstanding ... 55,939 57,843 60,694
Dilutive effect of stock
options and awards ... 183 386 109
-------- -------- --------
Denominator for net income
per share, diluted ..... 56,122 58,229 60,803
======== ======== ========
Net income per share ...... $ 1.27 $ 2.68 $ 2.80
======== ======== ========
Net income per share,
diluted ................ $ 1.27 $ 2.66 $ 2.79
======== ======== ========
</TABLE>
ACCOUNTING FOR DERIVATIVE INSTRUMENTS - In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Standards (SFAS) 133,
"Accounting for Derivative Instruments and Hedging Activities," which becomes
effective for the company no later than January 1, 2000. SFAS 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that all derivatives be measured at fair value and
recognized as either assets or liabilities in the balance sheet. The accounting
for changes in the fair value of a derivative (that is, gains or losses) depends
on the intended use of the derivative and its resulting hedge designation. The
company uses derivative financial instruments only to manage well-defined
foreign currency and interest rate risks. The company does not use derivative
financial instruments for trading purposes. The company is currently evaluating
the requirements of SFAS 133 but, based on its limited use of derivative
financial instruments, believes SFAS 133 will not have a significant effect on
the company's reported financial position or results of operations when adopted.
NOTE 3 - INVENTORIES
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Finished products ............ $112,060 $ 94,010
Products in process .......... 66,485 67,246
Raw materials ................ 80,134 81,079
Supplies and engine test parts 18,933 17,783
-------- --------
$277,612 $260,118
======== ========
</TABLE>
Inventories on the LIFO method were 27% and 29% of consolidated inventories at
December 31, 1998 and 1997, respectively. The current replacement cost of these
inventories exceeded the LIFO cost at December 31, 1998 and 1997, by $41.1
million and $43.7 million, respectively.
NOTE 4 - SHORT-TERM AND LONG-TERM DEBT
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Long-term debt consists of:
5.875% notes, due 2008 .................. $ 200,000
7.25% debentures, due 2025 .............. 100,000 $ 100,000
Debt supported by long-term
banking arrangements:
Commercial paper at weighted average
rates of 5.6% and 6.4% ............. 50,000 35,000
6.5% Marine terminal refunding
revenue bonds, due 2000 ............ 18,375 18,375
Term loans:
Dollar denominated, at 5.0% to 9.0%,
due 2000 - 2003 .................... 4,204 5,544
Yen denominated, at 2.0% to 3.8%,
due 1999 - 2003 .................... 18,656 19,450
Deutsche mark denominated,
at 4.1% to 6.0%, due 1999 - 2004 ... 19,648 14,460
French franc denominated,
at 3.5% to 5.0%, due 1999 - 2008 ... 645 366
---------- ----------
411,528 193,195
Less current portion .................... (21,134) (11,030)
---------- ----------
$ 390,394 $ 182,165
========== ==========
Short-term debt consists of:
Commercial paper at weighted average
rates of 5.6% and 6.4% ............... $ 5,300 $ 18,900
Other short-term debt at weighted average
rates of 2.8% and 1.4% ............... 12,492 8,165
Current portion of long-term debt ....... 21,134 11,030
---------- ----------
$ 38,926 $ 38,095
========== ==========
</TABLE>
In November 1998, the company issued notes having an aggregate principal amount
of $200 million. The notes are unsecured, senior obligations of the company that
mature on December 1, 2008, and bear interest at 5.875% per annum, payable
semi-annually on June 1 and December 1 of each year, commencing June 1, 1999.
The notes have no sinking fund requirement but are redeemable, in whole or in
part, at the option of the company. The company incurred debt issuance costs
aggregating $10.5 million, including a loss of $6.5 million related to closed
Treasury rate lock agreements originally entered into as a hedge against changes
in interest rates relative to the anticipated issuance of these notes. Debt
issuance costs are deferred and then amortized as a component of interest
expense over the term of the notes. Including debt issuance costs, these notes
have an effective annualized interest rate of 6.6% to the company.
26
<PAGE> 18
THE LUBRIZOL CORPORATION
The company issued debentures in June 1995 having an aggregate principal amount
of $100 million. These debentures are unsecured, senior obligations of the
company that mature on June 15, 2025, and bear interest at an annualized rate of
7.25% payable semi-annually on June 15 and December 15 of each year. The
debentures are not redeemable prior to maturity and are not subject to any
sinking fund requirements.
Effective July 1, 1998, the company increased its committed revolving credit
facilities from $75 million to $300 million. One-half of the aggregate amount of
these facilities expires on June 30, 1999, and the remainder expires on June 30,
2003, subject in each case to annual extension provisions. These facilities,
which were unused at December 31, 1998, permit the company to borrow at or below
the U.S. prime rate. These facilities also permit the company to refinance
beyond one year $150 million of debt, which by its terms is due within one year.
As permitted by these and previously existing credit facilities, the company
classified as long-term at each balance sheet date the portion of commercial
paper borrowings expected to remain outstanding throughout the following year
and the amount due under the Marine Terminal Refunding Revenue Bonds, whose
bondholders have the right to put the bonds back to the company.
Amounts due on long-term debt are $21.1 million in 1999, $25.3
million in 2000, $1.7 million in 2001, $.7 million in 2002, $62.0 million in
2003 and $300.7 million thereafter.
The company has an interest rate swap agreement that effectively converts
variable rate interest payable on $18.4 million of Marine Terminal Refunding
Revenue Bonds due July 1, 2000, to a fixed rate of 6.5%. The company also has
interest rate swap agreements, which expire in March 2005, that exchange
variable rate interest obligations on a notional principal amount of $50 million
for a fixed payment obligation of 7.6% (see Note 14).
Interest paid, net of amounts capitalized, amounted to $18.3 million, $10.9
million and $10.4 million during 1998, 1997 and 1996, respectively. The company
capitalizes interest on qualifying capital projects. The amount of interest
capitalized during 1998, 1997 and 1996 amounted to $1.2 million, $2.1 million
and $3.0 million, respectively.
NOTE 5 - OTHER BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
Receivables: 1998 1997
-------- --------
<S> <C> <C>
Customers $269,264 $243,232
Affiliates 8,976 7,727
Other .... 23,404 22,546
-------- --------
$301,644 $273,505
======== ========
</TABLE>
Receivables are net of allowance for doubtful accounts of $2.2 million in 1998
and $1.4 million in 1997.
<TABLE>
<CAPTION>
Property and Equipment: 1998 1997
---------- ----------
<S> <C> <C>
Land and improvements .... $ 107,712 $ 102,831
Buildings and improvements 299,024 270,237
Machinery and equipment .. 1,145,471 1,059,575
Construction in progress . 56,293 81,181
---------- ----------
$1,608,500 $1,513,824
========== ==========
</TABLE>
Depreciation and amortization of property and equipment was $79.7 million in
1998, $82.7 million in 1997 and $78.7 million in 1996.
<TABLE>
<CAPTION>
Goodwill and Intangible Assets: 1998 1997
-------- --------
<S> <C> <C>
Goodwill ...................... $157,380 $ 58,026
Intangible assets ............. 34,271 16,356
-------- --------
191,651 74,382
Less accumulated amortization . 24,694 16,316
-------- --------
$166,957 $ 58,066
======== ========
</TABLE>
<TABLE>
<CAPTION>
Accrued Expenses and Other
Current Liabilities: 1998 1997
-------- --------
<S> <C> <C>
Employee compensation ......... $ 36,094 $ 34,757
Income taxes .................. 16,910 25,509
Taxes other than income ....... 20,675 12,105
Special charges and acquisition
assimilation costs ......... 18,738
Other ......................... 25,853 24,117
-------- --------
$118,270 $ 96,488
======== ========
Noncurrent Liabilities: ....... 1998 1997
-------- --------
Employee benefits ............. $ 33,976 $ 27,867
Other ......................... 14,974 15,011
-------- --------
$ 48,950 $ 42,878
======== ========
</TABLE>
NOTE 6 - SHAREHOLDERS' EQUITY
The company has 147 million authorized shares consisting of 2 million shares of
serial preferred stock, 25 million shares of serial preference shares and 120
million common shares, each of which is without par value. Common shares
outstanding exclude common shares held in treasury of 31,648,000 and 29,229,000
at December 31, 1998 and 1997, respectively.
The company has a shareholder rights plan under which one right to buy one-half
common share has been distributed for each common share held. The rights may
become exercisable under certain circumstances involving actual or potential
acquisitions of 20% or more of the common shares by a person or affiliated
persons who acquire such stock without complying with the requirements of the
company's articles of incorporation. The rights would entitle shareholders,
27
<PAGE> 19
THE LUBRIZOL CORPORATION
other than such person or affiliated persons, to purchase common shares of the
company or of certain acquiring persons at 50% of then current market value. At
the option of the directors, the rights may be exchanged for common shares, and
may be redeemed in cash, securities or other consideration. The rights will
expire in 2007 unless earlier redeemed.
Accumulated other comprehensive income or loss shown in the consolidated
statements of shareholders' equity at December 31, 1998, 1997 and 1996 is solely
comprised of the accumulated foreign currency translation adjustment, net of tax
effects.
Components of other comprehensive income (loss) consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Foreign currency translation
adjustments ............. $ 14,840 $(36,941) $ (6,663)
Income tax benefit ......... 38 4 213
-------- -------- --------
Other comprehensive
income (loss) ........... $ 14,878 $(36,937) $ (6,450)
======== ======== ========
</TABLE>
NOTE 7 - GAIN ON INVESTMENTS
In 1996, the company sold its investments in Mycogen Corporation and
Agrigenetics, Inc., for cash of $126.2 million. The company also sold certain
rights to its SVO oilseed technology for $8.0 million, of which $2.0 million was
collected in 1996, $2.5 million collected in 1997 and $3.5 million collected in
1998. Also, in 1996, the company sold substantially all the remaining assets of
SVO for cash of $20.8 million. These transactions resulted in pretax gains of
$57.3 million, but losses on other investment activity resulted in an overall
gain of $53.3 million in 1996. After-tax, these gains contributed $.57 to 1996
net income per share.
NOTE 8 - OTHER INCOME (EXPENSE)
Other income (expense) - net consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Equity earnings of
nonconsolidated
companies ............. $ 2,602 $ 4,804 $ 4,350
Amortization of goodwill
and intangible assets . (7,512) (3,764) (1,629)
Currency exchange/
transaction gain (loss) (1,260) 2,398 11
Other - net .............. 5,018 1,666 3,280
-------- -------- --------
$ (1,152) $ 5,104 $ 6,012
======== ======== ========
</TABLE>
NOTE 9 - INCOME TAXES
The provision for income taxes is based upon income before tax for financial
reporting purposes. Deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the tax bases
of assets and liabilities and their carrying values for financial reporting
purposes. In estimating future tax consequences, the company considers
anticipated future events, except changes in tax laws or rates, which are
recognized when enacted.
Income before income taxes consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
United States $ 78,305 $154,589 $196,390
Foreign ..... 40,509 76,558 54,218
-------- -------- --------
Total ....... $118,814 $231,147 $250,608
======== ======== ========
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
United States $ 16,649 $ 35,556 $ 39,688
Foreign ..... 25,233 32,137 18,044
-------- -------- --------
41,882 67,693 57,732
-------- -------- --------
Deferred:
United States 3,385 8,784 16,842
Foreign ..... 2,347 (199) 6,232
-------- -------- --------
5,732 8,585 23,074
-------- -------- --------
Total ....... $ 47,614 $ 76,278 $ 80,806
======== ======== ========
</TABLE>
The United States tax provision includes the U.S. tax on foreign income
distributed to the company. The portion of the tax provision for taxes outside
the United States includes withholding taxes.
The differences between the provision for income taxes at the U.S. statutory
rate and the tax shown in the consolidated statements of income are summarized
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Tax at statutory rate of 35% $ 41,585 $ 80,901 $ 87,713
Foreign sales corporation
earnings ................. (3,152) (4,704) (3,477)
Equity income ............... (859) (2,775) (1,324)
Foreign deferred tax
valuation allowance ...... 4,878 (60) 674
Other foreign tax differences 5,995 3,523 1,866
Other - net ................. (833) (607) (4,646)
-------- -------- --------
Provision for income taxes .. $ 47,614 $ 76,278 $ 80,806
======== ======== ========
</TABLE>
The company increased its 1997 tax provision by approximately $3.5 million
primarily to reflect a legislated increase in the statutory tax rate applicable
to its earnings in France, where the company has significant operations.
28
<PAGE> 20
THE LUBRIZOL CORPORATION
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at December 31 are
as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accrued compensation and benefits .. $ 48,178 $ 43,251
Intercompany profit in inventory ... 11,131 13,223
Net operating losses carried forward 18,284 15,217
Other .............................. 8,574 7,100
---------- ----------
Total gross deferred tax assets ....... 86,167 78,791
Less valuation allowance .............. (9,057) (4,179)
---------- ----------
Net deferred tax assets ............... 77,110 74,612
---------- ----------
Deferred tax liabilities:
Depreciation and other
basis differences ................ 101,658 93,206
Undistributed foreign equity income 3,894 3,626
Inventory basis differences ........ 3,706 2,588
Other .............................. 2,986 4,657
---------- ----------
Total gross deferred tax liabilities .. 112,244 104,077
---------- ----------
Net deferred tax liabilities .......... $ (35,134) $ (29,465)
========== ==========
</TABLE>
At December 31, 1998, certain foreign subsidiaries have net operating loss
carryforwards of $51.5 million for income tax purposes, of which $11.2 million
expire in years 2000 through 2004 and $40.3 million has no expiration. After
evaluating tax planning strategies and historical and projected profitability, a
valuation allowance has been recognized to reduce the deferred tax assets
related to those carryforwards to the amount expected to be realized. The net
change in the total valuation allowance for the years ended December 31, 1998,
1997 and 1996, was an increase of $4.9 million, a decrease of $.1 million and an
increase of $.7 million, respectively.
U.S. income taxes or foreign withholding taxes are not provided on undistributed
earnings of foreign subsidiaries, which are considered to be indefinitely
reinvested in the operations of such subsidiaries. The amount of such earnings
was approximately $386.6 million at December 31, 1998. Determination of the net
amount of unrecognized U.S. income tax with respect to these earnings is not
practicable.
Income taxes paid during 1998, 1997 and 1996 amounted to $52.0 million, $53.0
million and $55.0 million, respectively.
NOTE 10 - PENSION, PROFIT SHARING AND OTHER POSTRETIREMENT BENEFIT PLANS
At December 31, 1998, the company adopted SFAS 132, "Employers' Disclosure about
Pensions and Other Postretirement Benefits." This statement revises the
disclosures about pension and other postretirement benefit plans but does not
change the way obligations or expense are measured or recognized in the
financial statements. Disclosures for prior periods have been restated to
conform to the requirements of SFAS 132.
The company has noncontributory defined benefit pension plans covering most
employees. Pension benefits under these plans are based on years of service and
the employee's compensation. The company's funding policy in the United States
is to contribute amounts to satisfy the Internal Revenue Service funding
standards and elsewhere to fund amounts in accordance with local regulations.
Several of the company's defined benefit plans are not funded. Plan assets are
invested principally in marketable equity securities and fixed income
instruments.
The company also provides certain non-pension postretirement benefits, primarily
health care and life insurance benefits, for retired employees. Substantially
all of the company's full-time employees in the U.S. become eligible for these
benefits after attaining specified years of service and age 55 at retirement.
Participants contribute a portion of the cost of such benefits. The company's
non-pension postretirement benefit plans are not funded.
Net periodic pension cost of the company's defined benefit pension plans
consists of:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Service cost - benefits earned
during period ............. $ 11,142 $ 10,269 $ 11,097
Interest cost on projected
benefit obligation ........ 17,519 17,704 17,690
Expected return on
plan assets ............... (23,818) (21,976) (19,935)
Amortization of prior
service costs ............. 1,718 1,827 2,045
Amortization of initial net
(asset) obligation ........ (753) (1,295) (1,260)
Recognized net actuarial
(gain) loss ............... (381) (127) (206)
-------- -------- --------
Net periodic pension cost .... $ 5,427 $ 6,402 $ 9,431
======== ======== ========
</TABLE>
The company also has defined contribution plans, principally involving profit
sharing plans and a 401(k) savings plan, covering most employees in the United
States and at certain non-U.S. subsidiaries. Expense for all defined
contribution retirement plans was $8.1 million in 1998, $9.9 million in 1997 and
$10.2 million in 1996.
As discussed in Note 16, the company initiated a cost reduction program and
recognized special termination benefits of $18.3 million in 1998, which were
included in the special charge recognized in the fourth quarter.
29
<PAGE> 21
THE LUBRIZOL CORPORATION
Net non-pension postretirement benefit cost consists of:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service cost - benefits earned during period .. $ 1,250 $ 1,465 $ 1,609
Interest cost on accumulated benefit obligation 4,415 4,989 4,987
Amortization of prior service costs ........... (3,218) (3,218) (3,218)
Recognized net actuarial (gain) loss .......... (252)
------- ------- -------
Net non-pension postretirement benefits cost .. $ 2,195 $ 3,236 $ 3,378
======= ======= =======
</TABLE>
The change in benefit obligation, change in plan assets of the company's defined
benefit pension and non-pension postretirement plans and the amounts recognized
in the consolidated balance sheets at December 31 are as follows:
<TABLE>
<CAPTION>
Pension Plans Other Benefits
----------------------- -----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year ................................... $ 254,263 $ 248,719 $ 61,460 $ 66,547
Service cost ........................................................... 11,142 10,269 1,250 1,465
Interest cost .......................................................... 17,519 17,704 4,415 4,989
Actuarial (gain) loss .................................................. 27,096 8,827 8,352 (9,055)
Currency exchange rate change .......................................... 2,834 (4,793) (80) (1)
Amendments ............................................................. 709 (146)
Curtailments ........................................................... (195)
Special termination benefits ........................................... 4,684 974
Benefits paid .......................................................... (20,569) (27,291) (3,350) (2,485)
--------- --------- --------- ---------
Benefit obligation at end of year ......................................... 297,483 254,263 72,047 61,460
--------- --------- --------- ---------
Change in plan assets:
Fair value of plan assets at beginning of year ......................... 298,130 271,887
Actual return on plan assets ......................................... 16,786 45,479
Employer contributions ............................................... 4,719 4,739 3,350 2,485
Currency exchange rate change ........................................ 896 (3,331)
Benefits paid ........................................................ (19,958) (20,644) (3,350) (2,485)
--------- --------- --------- ---------
Fair value of plan assets at end of year ............................... 300,573 298,130
--------- --------- --------- ---------
Plan assets greater (less) than the benefit obligation .................... 3,090 43,867 (72,047) (61,460)
Unrecognized net loss (gain) ........................................... (7,981) (42,550) (1,225) (9,819)
Unrecognized net transition obligation (asset) ......................... (5,571) (6,851)
Unrecognized prior service cost ........................................ 9,785 10,813 (30,620) (33,838)
--------- --------- --------- ---------
Net amount recognized ..................................................... $ (677) $ 5,279 $(103,892) $(105,117)
========= ========= ========= =========
Amount recognized in the statement of financial position consist of:
Prepaid benefit cost ................................................... $ 15,885 $ 17,534
Accrued benefit liability .............................................. (20,120) (14,315) $(103,892) $(105,117)
Intangible asset ....................................................... 3,558 2,060
--------- --------- --------- ---------
Net amount recognized ..................................................... $ (677) $ 5,279 $(103,892) $(105,117)
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Pension Plans Other Benefits
----------------------- -----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
The weighted average assumptions as of December 31:
Discount rate for determining funded status ............................ 6.08% 6.92% 6.71% 7.21%
Expected return on plan assets ......................................... 9.01% 9.00%
Rate of compensation increase .......................................... 3.78% 4.01%
</TABLE>
30
<PAGE> 22
THE LUBRIZOL CORPORATION
The projected benefit obligation and fair value of plan assets for
pension plans with projected benefit obligations in excess of plan assets were
$123.1 million and $97.2 million, respectively, as of December 31, 1998, and
$25.5 million and $6.2 million, respectively, as of December 31, 1997. The
accumulated benefit obligation and fair value of plan assets for pension plans
with accumulated benefit obligations in excess of plan assets were $31.6 million
and $13.9 million, respectively, as of December 31, 1998, and $19.2 million and
$6.2 million, respectively, as of December 31, 1997.
For the company's postretirement health care plan in the United States, the
company revised its assumed ultimate health care cost trend rate from 6% to 5%
during 1997. This revision reduced the accumulated postretirement benefit
obligation at December 31, 1997, by $8.9 million. Beginning in 1998, this gain
is being amortized over the average remaining service period of participants.
The weighted average of the assumed health care cost trend rates used in
measuring the accumulated postretirement benefit obligation for the company's
postretirement benefit plans at December 31, 1998, was 7.45% (8.00% at December
31, 1997), with subsequent annual decrements to an ultimate trend rate of 5.00%.
The assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage-point change in the
assumed health care cost trend rate would have the following effects as of and
for the year ended December 31, 1998:
<TABLE>
<CAPTION>
One Percentage Point
--------------------
Increase Decrease
-------- --------
<S> <C> <C>
Effect on postretirement
benefit obligation .............. $ 8,810 $(7,157)
Effect on total service and interest
cost components ................. $ 961 $ (764)
</TABLE>
NOTE 11 - LEASES
The company has commitments under operating leases primarily for office space,
terminal facilities, land, railroad tank cars and various computer and office
equipment. Rental expense was $18.7 million in 1998, $13.8 million in 1997 and
$16.9 million in 1996. Future minimum rental commitments under operating leases
having initial or remaining noncancelable lease terms exceeding one year are
$13.2 million in 1999, $10.2 million in 2000, $6.9 million in 2001, $5.5 million
in 2002, $5.4 million in 2003 and $17.6 million thereafter.
NOTE 12 - ACQUISITIONS
In 1998, the company completed six acquisitions for cash of $155.4 million and
one acquisition for 89,806 of the company's common shares valued at $2.4
million. These acquisitions were in the company's existing business areas of
lubricant and fuel additives, metalworking additives and coating additives and
broaden the company's base in performance chemicals. These acquisitions were
accounted for using the purchase method of accounting.
The fair value of assets acquired and liabilities assumed in these acquisitions
is as follows:
<TABLE>
<S> <C>
Inventories .................................. $ 20,713
Receivables .................................. 26,424
Property and equipment ....................... 8,502
Other tangible assets ........................ 2,986
Goodwill ..................................... 97,882
Technology and other intangibles ............. 16,173
Technology under development ................. 13,598
Accounts payable and other liabilities assumed (28,470)
---------
Fair value of net assets acquired, less $2,165
of cash received .......................... $ 157,808
=========
</TABLE>
These acquisitions were made at various times throughout the year; however, the
two largest acquisitions were Adibis, formerly the lubricants and fuel additives
business of British Petroleum Company P.L.C., which was acquired effective
August 1, 1998, and Carroll Scientific, Inc., (Carroll), which was acquired in
July 1998. Carroll specializes in the development and supply of varnish and
wax-based performance additives to the ink market. The aggregate purchase price
of these two acquisitions was $134 million, of which $111 million was assigned
to goodwill and intangible assets. During 1997, the annual revenues of Carroll
were approximately $30 million and of Adibis were approximately $150 million.
31
<PAGE> 23
THE LUBRIZOL CORPORATION
The impact of the acquisitions made in 1998 was not material in relation to the
company's results of operations; consequently, pro forma information is not
presented. However, these acquisitions had the following impact on revenues and
expenses for 1998:
<TABLE>
<S> <C>
Revenues .............................................. $ 71,662
Gross profit .......................................... $ 15,267
Selling and administration expenses ................... $ 7,397
Research, testing and development ..................... $ 5,591
After-tax loss, excluding write-off of technology under
development and interest on acquisition debt ....... $ (1,844)
</TABLE>
The company is in the process of assimilating the Adibis additives business. The
company's assimilation plan includes separation of a number of Adibis employees
at an estimated cost of $3.9 million and terminating certain Adibis contracts
for tolling arrangements, office leases and sales agents at an estimated cost of
$2.7 million. These activities are planned for completion by the end of 1999,
with the employee separations completed by the end of the first half of 1999.
The aggregate cost of $6.6 million represents cash expenditures expected to be
made in 1999. The cost of these activities was included in the allocation of the
acquisition costs to the net assets acquired.
The company engaged an independent appraiser to provide a basis for allocating
the purchase price of Adibis to the acquired intangible assets for financial
reporting purposes. The appraisal included the determination of the amount to be
assigned to technology under development which, under purchase accounting, is
written off against income in the period of acquisition. Technology under
development comprises ongoing research and development projects that may form
the basis for new products or replacements for existing products. The fair value
assigned to the Adibis technology under development was determined by the
independent appraiser applying the income approach and a valuation model,
incorporating among other assumptions revenue and expense projections,
probability of success and present value factors. The resulting value allocated
to each of the technology projects under development represents the product of
the present value of debt-free cash flows and the percent of research and
development completed. The fair value of technology under development was
comprised of three projects within engine oil additives aggregating $7.1
million; six projects within fuel additives aggregating $3.4 million; and two
projects within marine diesel additives aggregating $3.1 million. The amount of
the purchase price allocated to technology under development was $13.6 million
and was charged against income in the fourth quarter of 1998 upon completion of
the appraisal.
NOTE 13 - BUSINESS SEGMENTS AND GEOGRAPHIC REPORTING
At December 31, 1998, the company adopted SFAS 131, "Disclosures about Segments
of an Enterprise and Related Information." This statement establishes standards
for reporting information about operating segments and related disclosures about
products and services, geographic areas and major customers. Prior year
financial data by geographic area has been restated to conform to the current
year's presentation. The company aggregates its product lines into two principal
operating segments: chemicals for transportation and chemicals for industry.
Chemicals for transportation is comprised of additives for lubricating engine
oils, such as for gasoline, diesel, marine and stationary gas engines; additives
for driveline oils, such as automatic transmission fluids, gear oils and tractor
lubricants; and additives for fuel products and refinery and oil field
chemicals. In addition, the company sells additive components to its larger
customers and viscosity improvers within its lubricant and fuel additives
product lines. The company's chemicals for transportation product lines are
generally produced in shared manufacturing facilities and sold largely to a
common customer base. Chemicals for industry includes industrial additives, such
as additives for hydraulic fluids, metalworking fluids, and compressor
lubricants; performance chemicals, such as additives for coatings and inks and
process chemicals; and performance systems, comprised principally of fluid
metering devices and particulate emission trap devices.
The company's accounting policies for its operating segments are the same as
those described in Note 1. The company evaluates performance and allocates
resources based on segment contribution income, which is revenues less expenses
directly identifiable to the product lines aggregated within each segment. In
addition, the company allocates corporate research, testing, selling and
administrative expenses in arriving at segment operating profit before tax.
32
<PAGE> 24
THE LUBRIZOL CORPORATION
The following table presents a summary of the company's reportable segments for
the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Chemicals for transportation:
Revenues from external
customers ............... $ 1,361,306 $ 1,446,342 $ 1,375,759
Equity earnings ........... 2,434 4,540 4,063
Goodwill and intangibles
amortization ............ 2,964 1,239 1,207
Segment contribution
income ................. 238,076 322,377 286,620
Operating profit before tax 130,149 213,184 185,068
Segment total assets ...... 1,191,175 1,076,153 1,057,959
Capital expenditures ...... 90,369 98,482 91,340
Chemicals for industry:
Revenues from external
customers ............... $ 256,613 $ 227,440 $ 221,803
Equity earnings ........... 168 264 287
Goodwill and intangibles
amortization ............ 5,414 3,274 1,083
Segment contribution
income .................. 33,959 37,302 27,330
Operating profit before tax 22,552 24,178 15,501
Segment total assets ...... 256,905 194,492 179,675
Capital expenditures ...... 3,052 2,218 2,957
Reconciliation to consolidated
income before tax:
Segment operating profit
before tax .............. $ 152,701 $ 237,362 $ 200,569
Gain from litigation
settlement .............. 16,201
Gain on investments ....... 53,280
Special charges ........... (36,892)
Interest expense - net .... (13,196) (6,215) (3,241)
----------- ----------- -----------
Consolidated income
before tax .............. $ 118,814 $ 231,147 $ 250,608
=========== =========== ===========
Revenues from external
customers by product group:
Engine oil additives ...... $ 799,795 $ 862,488 $ 805,683
Driveline oil additives ... 384,880 400,154 397,475
Fuel additives and refinery
oil additives ........... 78,023 69,904 73,425
Additive components ....... 98,608 113,796 99,176
----------- ----------- -----------
Chemicals for
transportation ........ 1,361,306 1,446,342 1,375,759
----------- ----------- -----------
Industrial additives ...... 149,087 133,200 103,881
Performance chemicals ..... 84,478 73,702 68,559
Performance systems ....... 23,048 20,538 15,986
Specialty vegetable oils .. 33,377
----------- ----------- -----------
Chemicals for industry .. 256,613 227,440 221,803
----------- ----------- -----------
Total revenues from
external customers ........ $ 1,617,919 $ 1,673,782 $ 1,597,562
=========== =========== ===========
</TABLE>
Revenues are attributable to countries based on the location of the customer.
The United States is the only country where sales to external customers comprise
in excess of 10% of the company's consolidated revenues. Revenues from external
customers by geographic area are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
United States ............. $ 605,145 $ 602,918 $ 565,516
Other North American ...... 50,685 53,030 57,647
Europe .................... 509,728 498,852 529,006
Asia-Pacific .............. 262,341 315,426 272,551
Latin America, Middle East,
other .................. 190,020 203,556 172,842
---------- ---------- ----------
Total revenues from
external customers ..... $1,617,919 $1,673,782 $1,597,562
========== ========== ==========
</TABLE>
The company's sales and receivables are concentrated in the oil and chemical
industries. The company's lubricant and fuel additive customers consist
primarily of oil refiners and independent oil blenders and are located in more
than 100 countries. The ten largest customers, most of which are international
oil companies and a number of which are groups of affiliated entities, comprised
approximately 42% of consolidated sales in 1998, and 44% of consolidated sales
in 1997 and 1996. The company's largest single customer, including its
affiliated entities, accounted for less than 10% of consolidated revenues in
1998, but in each of 1997 and 1996 accounted for revenues of $161.2 million and
$163.7 million, respectively, predominately within chemicals for transportation
segment.
The table below presents a reconciliation of segment total assets to
consolidated total assets for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Total segment assets .... $1,448,080 $1,270,645 $1,237,634
Corporate assets ........ 195,157 191,647 164,481
---------- ---------- ----------
Total consolidated assets $1,643,237 $1,462,292 $1,402,115
========== ========== ==========
</TABLE>
Segment assets include recievables, inventories, and long-lived assets including
good will and intangible assets. Corporate assets include cash and short-term
investments accounted for on the cost basis, and other current and noncurrent
assets.
The company's principal long-lived assets are located in the following countries
at December 31:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
United States ......... $554,983 $503,589
France ................ 109,990 105,777
England ............... 134,127 72,001
All other ............. 86,707 69,376
-------- --------
Total long-lived assets $885,807 $750,743
======== ========
</TABLE>
Net income of non-U.S. subsidiaries was $13 million in 1998, $43 million in 1997
and $29 million in 1996; and dividends received from these subsidiaries were $15
million, $7 million and $18 million, respectively.
33
<PAGE> 25
THE LUBRIZOL CORPORATION
NOTE 14 - FINANCIAL INSTRUMENTS
The company has various financial instruments, including cash and short-term
investments, investments in nonconsolidated companies, foreign currency forward
contracts, interest rate swaps and short- and long-term debt. The company has
determined the estimated fair value of these financial instruments by using
available market information and generally accepted valuation methodologies. The
use of different market assumptions or estimation methodologies could have a
material effect on the estimated fair value amounts. The estimated fair value of
the company's debt instruments at December 31, 1998, approximates $437.1 million
compared with the carrying value of $429.3 million. The company believes the
carrying values of its other financial instruments approximate their fair
values, except for certain interest rate swap agreements discussed below. The
company uses derivative financial instruments only to manage well-defined
foreign currency and interest rate risks. The company does not use derivative
financial instruments for trading purposes.
The company is exposed to the effect of changes in foreign currency rates on its
earnings and cash flow as a result of doing business internationally. In
addition to working capital management, pricing and sourcing, the company
selectively uses foreign currency forward contracts to lessen the potential
effect of currency changes. Such contracts are generally in connection with
transactions with maturities of less than one year. The maximum amount of
foreign currency forward contracts outstanding at any one time was $65.0 million
in 1998, $58.4 million in 1997 and $41.2 million in 1996. At December 31, 1998,
the company had short-term forward contracts to sell currencies at various dates
during 1999 for $4.2 million. Realized and unrealized gains or losses on these
contracts are recorded in the statement of income, or in the case of
transactions designated as hedges of net foreign investments, in the foreign
currency translation adjustment account in other comprehensive income.
Additionally, foreign currency forward contract gains and losses on certain
future transactions may be deferred until the future transaction is recorded.
Deferred currency losses on foreign exchange contracts at December 31, 1998,
were not significant.
The company is exposed to market risk from changes in interest rates. The
company's policy is to manage interest rate cost using a mix of fixed and
variable rate debt. To manage this mix in a cost- efficient manner, the company
may enter into interest rate swaps, in which the company agrees to exchange, at
specified intervals, the difference between fixed and variable interest amounts
calculated by reference to an agreed upon notional principal amount. The company
has entered into interest rate swap agreements to convert variable rate debt to
fixed rates (see Note 4). Interest payments receivable and payable under the
terms of the interest rate swap agreements are accrued over the period to which
the payment relates and the net difference is treated as an adjustment of
interest expense related to the underlying liability. Changes in the underlying
market value of the remaining swap payments are recognized in income when the
underlying liability being hedged is extinguished or partially extinguished to a
level less than the notional amount of the interest rate swaps. Consequently,
market value losses of $1.0 million and $1.1 million were accrued in 1997 and
1996, respectively, and no amount was accrued in 1998. The company would have
paid approximately $7.7 million, including accrued interest of $.9 million, if
it had terminated these interest rate swap agreements at December 31, 1998.
NOTE 15 - STOCK COMPENSATION PLANS
The 1991 Stock Incentive Plan provides for granting of restricted and
unrestricted shares and options to buy common shares up to an amount equal to 1%
of the outstanding common shares at the beginning of any year, plus any unused
amount from prior years. Options are intended either to qualify as "incentive
stock options" under the Internal Revenue Code or "non-statutory stock options"
not intended to so qualify. Under the 1991 Plan, options generally become
exercisable 50% one year after grant, 75% after two years, 100% after three
years, and expire up to ten years after grant. "Reload options," which are
options to purchase additional shares if a grantee uses already-owned shares to
pay for an option exercise, are granted automatically under the 1991 Plan and
may be granted at the discretion of the administering committee under the 1985
Employee Stock Option Plan. The 1991 Plan generally supersedes the 1985 Plan,
although options outstanding under the 1985 Plan remain exercisable until the
expiration dates. The option price under both plans is the fair market value of
the shares on the date of grant. Both plans permit or permitted the granting of
stock appreciation rights in connection with the grant of options. In addition,
the 1991 Plan provides to each outside director of the company an automatic
annual grant of an option to purchase 2,000 common shares, with terms generally
comparable to employee stock options.
Under the 1991 Stock Incentive Plan, the company granted to certain executive
officers 3,000 and 65,000 performance share stock awards in 1998 and 1997,
respectively. Common shares equal to the number of performance share stock
awards granted will be issued if the market price of the company's common stock
reaches $45. per common share for ten consecutive trading days or after six
years from date of grant, whichever occurs first. Under certain conditions such
as retirement, a grantee of performance share stock awards may be issued a
pro-rata number of common shares. The market value of the company's common
shares at date of grant of the performance share stock awards was $38.25 per
share in 1998 and $33.75 per share in 1997. The company recognizes compensation
expense related to performance share stock awards ratably over the estimated
period of vesting. Compensation costs recognized for
34
<PAGE> 26
THE LUBRIZOL CORPORATION
performance share stock awards was $.8 million in 1998 and $.5 million in 1997.
At December 31, 1998, 67,166 performance share stock awards were outstanding.
Generally accepted accounting principles encourage the fair-value based method
of accounting for stock compensation plans under which the value of stock-based
compensation is estimated at the date of grant using valuation formulas, but
permit the continuance of intrinsic-value accounting. The company accounts for
its stock compensation plans using the intrinsic-value accounting method
(measured as the difference between the exercise price and the market value of
the stock at date of grant). If the fair value method to measure compensation
cost for the company's stock compensation plans had been used, the company's net
income would have been reduced by $1.6 million in 1998, $2.6 million in 1997 and
$2.0 million in 1996 with a corresponding reduction in net income per share of
$.03 in 1998, $.05 in 1997 and $.03 in 1996.
Disclosures under the fair value method are estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions for grants
of stock options in the following years:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
1985 Plan:
Risk-free interest rate 4.6% 5.7% 6.6%
Dividend yield ........ 4.0% 2.7% 3.4%
Volatility ............ 21% 20% 23%
Expected life (years) . 2.8 3.1 3.7
1991 Plan:
Risk-free interest rate 4.7% 5.8% 6.3%
Dividend yield ........ 4.0% 2.7% 3.4%
Volatility ............ 23% 22% 23%
Expected life (years) . 9.5 9.9 8.8
</TABLE>
The fair value per share of the performance share stock awards granted in 1998
and 1997 was $38.16 and $31.80, respectively, using the following assumptions in
1998 and 1997, respectively: risk-free interest rate of 4.58% and 5.7%;
volatility of 21% and 20%; and an expected life of three years. Dividends do not
accumulate on performance share stock awards.
Information regarding these option plans, excluding the performance share stock
awards, follows:
<TABLE>
<CAPTION>
Weighted-
Average
Exercise
Shares Price
------ -----
<S> <C> <C>
Outstanding, January 1, 1998 ......... 3,212,157 $ 31.88
Granted .............................. 410,248 37.69
Exercised ............................ (125,463) 29.38
Forfeited ............................ (13,626) 31.23
---------
Outstanding, December 31, 1998 ....... 3,483,316 $ 32.64
========= ===========
Options exercisable, December 31, 1998 2,842,719 $ 31.97
========= ===========
Weighted-average fair value of options
granted during the year ........... $ 7.74
===========
Outstanding, January 1, 1997 ......... 3,248,113 $ 30.93
Granted .............................. 417,561 35.07
Exercised ............................ (361,179) 25.85
Forfeited ............................ (92,338) 35.88
---------
Outstanding, December 31, 1997 ....... 3,212,157 $ 31.88
========= ===========
Options exercisable, December 31, 1997 2,590,556 $ 31.67
========= ===========
Weighted-average fair value of options
granted during the year ........... $ 9.37
===========
Outstanding, January 1, 1996 ......... 2,958,416 $ 30.70
Granted .............................. 497,566 29.96
Exercised ............................ (99,427) 18.25
Forfeited ............................ (108,442) 31.86
---------
Outstanding, December 31, 1996 ....... 3,248,113 $ 30.93
========= ===========
Options exercisable, December 31, 1996 2,574,762 $ 30.57
========= ===========
Weighted-average fair value of options
granted during the year ........... $ 8.05
===========
</TABLE>
The following table summarizes information about stock options outstanding,
excluding the performance share stock awards, at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ -------------------------------
Number Weighted-Average Weighted- Number Weighted-
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/98 Contractual Life Exercise Price at 12/31/97 Exercise Price
----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$13 - $19 73,160 1.1 Years $16.66 73,160 $16.66
19 - 25 81,875 1.0 21.94 81,875 21.94
25 - 31 1,125,982 4.9 28.88 1,035,313 28.78
31 - 38 2,129,965 6.0 35.28 1,586,037 34.85
38 - 45 72,334 2.4 41.77 66,334 42.09
--------- ---------
3,483,316 5.4 $32.64 2,842,719 $31.97
========= === ====== ========= =======
</TABLE>
35
<PAGE> 27
THE LUBRIZOL CORPORATION
NOTE 16 - SPECIAL CHARGES AND ASSET IMPAIRMENTS
In the fourth quarter of 1998, the company recognized special charges of $36.9
million comprised of $23.3 million related to the first phase of the company's
cost reduction program and $13.6 million for the write-off of purchased
technology under development resulting from the acquisition of Adibis (see Note
12). After-tax, these charges reduced net income by $25.8 million, or by $.47
per share in the fourth quarter. These special charges related predominately to
the company's chemicals for transportation segment.
The company initiated a series of steps to reduce costs and improve its
worldwide operating structure and will execute these steps in two phases over a
period of approximately two years. The first phase, which began in the fourth
quarter of 1998, will result in employee reductions of approximately 6%, or 250
employees worldwide. Approximately 55% of these employee reductions occurred
prior to December 31, 1998, and the remaining 45% will occur during the first
half of 1999. Of the 250 employees, approximately 40% were in the manufacturing
area and 60% were in the selling, administrative, research and testing areas. In
addition, the company will permanently remove several component production units
from service during this first phase.
The first phase of the company's cost reduction program included employee
reduction cost estimated at $20.0 million and other exit costs estimated at $3.3
million, including $2.8 million related to asset impairments for production
units to be taken out of service. Cash expenditures of approximately $5.0
million were made in 1998 related to the cost reduction program. Approximately
$15.5 million remains as an accrued liability at December 31, 1998, most of
which represents cash to be expended in 1999.
The second phase of the company's cost reduction program will be focused on
lowering costs and improving efficiency in production and distribution
activities. The company will continue to reduce its number of intermediate
components, which will enable the number of its production units to be reduced
by approximately 20% in the next two years. This will occur through the shutdown
of certain production units and facilities worldwide. The company believes
employee levels will be reduced a further 5% from these steps. Definitive plans
must be completed before the company is able to reasonably estimate and
recognize the costs of facility write-downs and employee separations anticipated
during this second phase of the cost reduction program.
In 1997, the company provided $9.4 million for the impairment of long-lived
assets. This included $6.3 million to reduce the carrying value of certain
computer equipment and software made obsolete prior to expiration of their
original estimated useful lives due to new systems being implemented. Also,
during the fourth quarter the company decided to utilize a toll processor,
beginning in 1998, rather than to produce an intermediate internally. This
decision resulted in the permanent impairment of certain manufacturing
equipment, and a provision of $3.1 million was recorded to reduce the asset
carrying value to its estimated fair value. Fair value was determined by
estimating the present value of future cash flows. These impairment losses are
reflected in the consolidated statements of income for the year ended December
31, 1997, as follows: cost of sales - $4.4 million; research, testing and
development expenses - $.9 million; selling and administrative expenses - $1.8
million and other income (net) - $2.3 million.
NOTE 17 - LITIGATION
The company has filed claims against Exxon Corporation and/or its affiliates
relating to various commercial matters, including alleged infringements by Exxon
of certain of the company's patents. These suits are pending in the United
States (in Ohio) and Canada.
On April 23, 1998, the company reached a settlement with Exxon of a lawsuit
pending in federal court in Ohio and received cash of $19 million. After
deducting related expenses, this settlement increased pretax income by $16.2
million in 1998. Other lawsuits then pending between the company and Exxon in
the United States, Canada and the United Kingdom were not settled by this
agreement.
The company has prevailed in a case brought in Canada against Exxon's Canadian
affiliate, Imperial Oil, Ltd., for infringement of the company's patent
pertaining to dispersants, the largest additive component used in motor oils. A
1990 trial court verdict in favor of the company regarding the issue of
liability was upheld by the Federal Court of Appeals of Canada in December 1992,
and in October 1993, the Supreme Court of Canada dismissed Imperial Oil's appeal
of the Court of Appeals' decision. The case has been returned to the trial court
for an assessment of compensation damages, but no date has been set for a
determination of such damages. In October 1994, the trial court judge determined
that Imperial Oil had violated an earlier injunction for the manufacture or sale
of the dispersant that is the subject of this case. The determination of penalty
damages, if any, on account of this violation will be made after the court has
determined the compensation damages for patent infringement.
36
<PAGE> 28
THE LUBRIZOL CORPORATION
In November 1996, a patent trial court in London declared a Lubrizol United
Kingdom patent invalid, which patent was the subject of litigation brought by
the company against Exxon in that country. Although the trial court decision did
not involve any damage payments, the court awarded Exxon its recoverable legal
costs in the case, as is customary under U.K. practice. Exxon originally filed
with the court a request for legal costs of approximately $12.0 million. The
company made a $3.0 million contingent payment to Exxon in July 1997, which was
fully expensed in that year. On April 30, 1998, some, but not all, of the
findings against the company were reversed and the percentage of Exxon's legal
costs which are recoverable was reduced from 90% to 25%. The proceedings in this
case are completed except for the final determination of Exxon's recoverable
legal costs. The company presently believes it will not be required to make any
further payments to Exxon for this matter.
A reasonable estimation of the company's potential recovery relating to the
Exxon litigation referenced above cannot be made at this time, and no amounts
that may be recovered in the future have been recorded in the company's
financial statements as of December 31, 1998.
- --------------------------------------------------------------------------------
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
- -----------------------------------------------------------------------------------------
(In Thousands of Dollars Except Per Share Data)
<S> <C> <C> <C> <C>
1998
Net sales ........................... $ 399,900 $ 405,160 $ 403,262 $ 406,236
Gross profit ........................ 122,865 126,143 120,252 111,971
Net income (loss) ................... 29,668 39,963 16,614 (15,045)
Net income (loss) per share ........ $ .52 $ .71 $ .30 $ (.27)
Net income (loss) per share, diluted $ .52 $ .71 $ .30 $ (.27)
1997
Net sales ........................... $ 387,749 $ 432,556 $ 426,824 $ 422,122
Gross profit ........................ 129,642 149,543 136,540 129,924
Net income .......................... 38,861 46,900 38,652 30,456
Net income per share ................ $ .66 $ .81 $ .67 $ .53
Net income per share, diluted ....... $ .66 $ .80 $ .66 $ .53
</TABLE>
In the second quarter of 1998, the company recorded a pretax gain from
litigation settlement of $16.2 million ($.19 per share).
In the fourth quarter of 1998, the company recorded pretax special charges of
$23.3 million ($.30 per share) related to a cost reduction program and $13.6
million ($.17 per share) related to the write-off of purchased technology under
development resulting from the company's acquisition of Adibis.
37
<PAGE> 29
THE LUBRIZOL CORPORATION
HISTORICAL SUMMARY
<TABLE>
<CAPTION>
(In Millions, Except Shareholders, Employees and Per Share Data) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING RESULTS:
Revenues ....................................................... $ 1,617.9 $ 1,673.8 $ 1,597.6
Total cost and expenses ........................................ 1,464.1 1,441.5 1,403.0
Other income (charges) ......................................... (35.0) (1.1) 56.1
Net income ..................................................... 71.2 154.9 169.8
- Before unusual items and accounting changes ............... 86.5 154.9 135.2
Net income per share ........................................... 1.27 2.68 2.80
- Before unusual items and accounting changes ............... 1.55 2.68 2.23
FINANCIAL RATIOS:
Gross profit percentage ........................................ 29.8 32.7 32.0
Percent of revenues:
Selling and administrative expenses ......................... 11.1 10.2 9.9
Research and testing expenses ............................... 9.3 8.8 10.1
Return on average shareholders' equity (%) ..................... 9.0 19.0 20.4
- Before unusual items and accounting changes (%) ........... 10.9 19.0 16.2
Debt to capitalization (%) ..................................... 35.8 21.3 19.5
Current ratio .................................................. 2.5 2.5 2.6
OTHER INFORMATION:
Dividends declared per share ................................... $ 1.04 $ 1.01 $ .97
Average common shares outstanding .............................. 55.9 57.8 60.7
Capital expenditures ........................................... $ 93.4 $ 100.7 $ 94.3
Depreciation expense ........................................... 79.7 82.7 78.7
At Year End:
Total assets ................................................ $ 1,643.2 $ 1,462.3 $ 1,402.1
Total debt .................................................. 429.3 220.3 198.5
Total shareholders' equity .................................. 769.1 815.4 819.4
Shareholders' equity per share .............................. 14.10 14.31 14.00
Common share price .......................................... 25.69 36.88 31.00
Number of shareholders ...................................... 5,609 5,661 5,764
Number of employees ......................................... 4,324 4,291 4,358
</TABLE>
38
<PAGE> 30
THE LUBRIZOL CORPORATION
<TABLE>
<CAPTION>
(In Millions, Except Shareholders, Employees and Per Share Data) 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues ....................................................... $ 1,663.6 $ 1,599.0 $ 1,525.5 $ 1,552.2
Total cost and expenses ........................................ 1,478.0 1,397.0 1,362.2 1,390.5
Other income (charges) ......................................... 40.0 49.4 (43.6) 15.4
Net income ..................................................... 151.6 175.6 45.6 124.6
- Before unusual items and accounting changes ............... 126.6 148.8 113.5 124.6
Net income per share ........................................... 2.37 2.67 .67 1.81
- Before unusual items and accounting changes ............... 1.98 2.26 1.67 1.81
FINANCIAL RATIOS:
Gross profit percentage ........................................ 31.5 32.7 32.0 31.7
Percent of revenues:
Selling and administrative expenses ......................... 9.8 10.0 10.4 11.7
Research and testing expenses ............................... 10.8 10.3 11.2 10.0
Return on average shareholders' equity (%) ..................... 18.0 22.5 5.9 15.4
- Before unusual items and accounting changes (%) ........... 15.1 19.0 14.6 15.4
Debt to capitalization (%) ..................................... 22.5 16.8 8.7 5.6
Current ratio .................................................. 2.4 2.5 2.5 2.9
OTHER INFORMATION:
Dividends declared per share ................................... $ .93 $ .89 $ .85 $ .81
Average common shares outstanding .............................. 63.8 65.7 67.7 69.0
Capital expenditures ........................................... $ 189.3 $ 160.5 $ 127.9 $ 95.8
Depreciation expense ........................................... 71.8 63.9 59.6 58.4
At Year End:
Total assets ................................................ $ 1,492.0 $ 1,394.4 $ 1,182.6 $ 1,127.1
Total debt .................................................. 247.1 167.9 69.6 48.4
Total shareholders' equity .................................. 849.0 832.0 732.2 819.4
Shareholders' equity per share .............................. 13.48 12.83 11.00 11.97
Common share price .......................................... 27.75 33.88 34.13 27.25
Number of shareholders ...................................... 6,304 6,494 6,616 6,822
Number of employees ......................................... 4,601 4,520 4,613 4,609
</TABLE>
<TABLE>
<CAPTION>
(In Millions, Except Shareholders, Employees and Per Share Data) 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues ....................................................... $ 1,476.3 $ 1,452.7 $ 1,227.9 $ 1,125.7
Total cost and expenses ........................................ 1,308.7 1,288.4 1,109.7 1,009.9
Other income (charges) ......................................... 10.5 106.9 19.5 69.9
Net income ..................................................... 123.7 190.0 94.0 140.0
- Before unusual items and accounting changes ............... 123.7 133.5 94.0 88.4
Net income per share ........................................... 1.79 2.67 1.26 1.81
- Before unusual items and accounting changes ............... 1.79 1.87 1.26 1.14
FINANCIAL RATIOS:
Gross profit percentage ........................................ 32.4 30.3 29.2 29.9
Percent of revenues:
Selling and administrative expenses ......................... 11.7 10.9 10.8 10.5
Research and testing expenses ............................... 9.8 8.5 9.2 9.6
Return on average shareholders' equity (%) ..................... 16.2 27.2 14.2 21.8
- Before unusual items and accounting changes (%) ........... 16.2 18.0 14.2 13.7
Debt to capitalization (%) ..................................... 7.9 8.3 8.5 8.4
Current ratio .................................................. 2.7 2.7 3.0 3.1
OTHER INFORMATION:
Dividends declared per share ................................... $ .77 $ .73 $ .69 $ .65
Average common shares outstanding .............................. 69.3 71.1 74.7 77.4
Capital expenditures ........................................... $ 82.4 $ 77.4 $ 64.7 $ 54.6
Depreciation expense ........................................... 54.6 54.0 48.7 46.6
At Year End:
Total assets ................................................ $ 1,171.7 $ 1,114.6 $ 960.2 $ 970.7
Total debt .................................................. 67.8 66.6 61.2 60.8
Total shareholders' equity .................................. 794.5 736.2 663.3 664.3
Shareholders' equity per share .............................. 11.51 10.61 8.96 8.74
Common share price .......................................... 28.25 23.63 18.75 17.75
Number of shareholders ...................................... 6,767 6,692 7,370 7,782
Number of employees ......................................... 5,299 5,169 5,030 4,781
</TABLE>
39
<PAGE> 1
EXHIBIT 21
THE LUBRIZOL CORPORATION
<TABLE>
<CAPTION>
% OF STATE/COUNTRY
PRINCIPAL SUBSIDIARIES OWNERSHIP OF INCORPORATION
<S> <C> <C>
Lubrizol Adibis (UK) Limited 100% United Kingdom
Lubrizol do Brasil Aditivos, Ltda. 100% Brazil
Lubrizol Canada Limited 100% Canada
Lubrizol de Chile Limitada 100% Chile
Lubrizol China, Inc. 100% Ohio
Lubrizol Coating Additives Company
G.m.b.H. 100% Germany
Lubrizol Espanola, S.A. 100% Spain
Lubrizol Europe B.V. 100% The Netherlands
Lubrizol France S.A. 99.995% France
Lubrizol Gesellschaft m.b.H. 100% Austria
Lubrizol G.m.b.H. 100% Germany
Lubrizol International Inc. 100% Cayman Islands
Lubrizol International Management
Corporation 100% Nevada
Lubrizol Italiana, S.p.A. 100% Italy
Lubrizol Japan Limited 100% Japan
Lubrizol Limited 100% United Kingdom
Lubrizol Metalworking Additives
Company, Inc. 100% Nevada
Lubrizol de Mexico, S. de R.L. 100% Mexico
Lubrizol de Mexico Comercial S. de R.L.
de C.V. 100% Mexico
Lubrizol Overseas Trading Corporation 100% Delaware
Lubrizol Scandinavia AB 100% Sweden
Lubrizol Servicios Tecnicos S. de R.L. 100% Mexico
Lubrizol South Africa (Pty.) Limited 100% South Africa
Lubrizol Southeast Asia (Pte.) Ltd. 100% Singapore
Lubrizol de Venezuela C.A. 99.9% Venezuela
Carroll Scientific, Inc. 100% Illinois
CPI Engineering Services, Inc. 100% Michigan
Engine Control Systems, Ltd. 100% Canada
Gate City Equipment Company, Inc. 100% Georgia
Gateway Additive Company 100% Pennsylvania
Hyrolec Technical Services Limited 100% United Kingdom
AFFILIATES
Industrias Lubrizol S.A. de C.V. 40% Mexico
Lanzhou Lubrizol - Lanlian Additive
Co., Ltd. 50.05% China
Lubrizol India Limited 40% India
Lubrizol Transarabian Company Limited 49% Saudi Arabia
Tianjin Lubrizol - Lanlian Additive
Co., Ltd. 50.05% China
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
=============================
THE LUBRIZOL CORPORATION
We consent to the incorporation by reference in Registration Statement
No. 2-99983 on Form S-8, in Registration Statement No. 33-61091 on Form S-8 and
in Registration Statement No. 33-42211 on Form S-8 of our report dated February
4, 1999, incorporated by reference in this Annual Report on Form 10-K of The
Lubrizol Corporation for the year ended December 31, 1998.
/s/Deloitte & Touche LLP
- ---------------------------------
DELOITTE & TOUCHE LLP
Cleveland, Ohio
March 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from consolidated
balance sheet and consolidated statements of income and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000060751
<NAME> THE LUBRIZOL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.0
<CASH> 53,639
<SECURITIES> 0
<RECEIVABLES> 271,460
<ALLOWANCES> 2,196
<INVENTORY> 277,612
<CURRENT-ASSETS> 687,470
<PP&E> 1,608,500
<DEPRECIATION> 889,650
<TOTAL-ASSETS> 1,643,237
<CURRENT-LIABILITIES> 270,028
<BONDS> 390,394
0
0
<COMMON> 84,651
<OTHER-SE> 684,467
<TOTAL-LIABILITY-AND-EQUITY> 1,643,237
<SALES> 1,614,558
<TOTAL-REVENUES> 1,617,919
<CGS> 1,133,327
<TOTAL-COSTS> 1,133,327
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,207
<INTEREST-EXPENSE> 18,976
<INCOME-PRETAX> 118,814
<INCOME-TAX> 47,614
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,200
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.27
</TABLE>
