PROSPECTUS SUPPLEMENT
(To Prospectus dated May 3, 1996)
$100,000,000
Parker-Hannifin Corporation
7.30% NOTES DUE 2011
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Interest payable May 15 and November 15
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THE NOTES WILL NOT BE REDEEMABLE PRIOR TO MATURITY AND WILL NOT BE SUBJECT
TO ANY SINKING FUND. THE NOTES WILL BE REPRESENTED BY A REGISTERED GLOBAL
SECURITY REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (THE
"DEPOSITARY") OR ITS NOMINEE. BENEFICIAL INTERESTS IN THE REGISTERED GLOBAL
SECURITY WILL BE SHOWN ON, AND TRANSFERS THEREAFTER WILL BE EFFECTED THROUGH,
RECORDS MAINTAINED BY THE DEPOSITARY OR ITS PARTICIPANTS. SEE "DESCRIPTION OF
THE NOTES."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE 99.73% AND ACCRUED INTEREST
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY (1)(3)
---------------- ---------------- ----------------
Per Note..................................... 99.73% .75% 98.98%
Total........................................ $99,730,000 $750,000 $98,980,000
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(1) Plus accrued interest from May 15, 1996.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting estimated expenses of $106,250 payable by the Company.
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The Notes are offered, subject to prior sale, when, as and if accepted by
the Underwriters and subject to receipt by the Underwriters of an opinion of
counsel for the Underwriters. It is expected that delivery of the Notes will be
made on or about May 17, 1996 through the book-entry facilities of the
Depositary against payment therefor in immediately available funds.
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MORGAN STANLEY & CO. SALOMON BROTHERS INC
Incorporated
May 14, 1996
NO PERSON HAS BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER OR
DEALER TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN SO AUTHORIZED. NEITHER THIS PROSPECTUS SUPPLEMENT
NOR THE PROSPECTUS CONSTITUTES AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
-----
The Company.......................................................................... S-3
Recent Developments.................................................................. S-3
Use of Proceeds...................................................................... S-3
Capitalization....................................................................... S-4
Selected Financial Information....................................................... S-5
Management's Discussion and Analysis of Financial Condition and Results of
Operations......................................................................... S-6
Description of the Notes............................................................. S-11
Underwriters......................................................................... S-12
PROSPECTUS
PAGE
-----
Available Information................................................................ 2
Incorporation of Certain Documents by Reference...................................... 2
The Company.......................................................................... 3
Ratios of Earnings to Fixed Charges.................................................. 4
Use of Proceeds...................................................................... 4
Description of Senior Debt Securities................................................ 4
Plan of Distribution................................................................. 12
Legal Matters........................................................................ 14
Experts.............................................................................. 14
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
THE COMPANY
Parker-Hannifin Corporation (the "Company") is a leading worldwide
full-line manufacturer of motion control products, including fluid power
systems, electromechanical controls and related components. Fluid power involves
the transfer and control of power through the medium of liquid, gas or air, in
both hydraulic and pneumatic applications. Fluid power systems move and position
materials, control machines, vehicles and equipment and improve industrial
efficiency and productivity. Components of a simple fluid power system include a
pump which generates pressure, valves which control the fluid's flow, an
actuator which translates the pressure in the fluid into mechanical energy, a
filter to remove contaminants and numerous hoses, couplings, fittings and seals.
Electromechanical control involves the use of electronic components and systems
to control motion and precisely locate or vary speed in automation applications.
The Company's manufacturing, service, distribution and administrative
facilities are located in 34 states, Puerto Rico and worldwide in 30 foreign
countries. Its motion control technology is used in the products of its two
business Segments: Industrial and Aerospace. The products are sold as original
and replacement equipment through product and distribution centers worldwide.
The Company markets its products through its direct-sales employees and more
than 6,000 independent distributors. The Company's products are supplied to over
a quarter million customer outlets in virtually every major manufacturing,
transportation and processing industry.
RECENT DEVELOPMENTS
On January 15, 1996, the Company entered into an agreement with Power
Control Technologies, Inc. and Pneumo Abex Corporation to purchase the aerospace
assets of the Abex/NWL division ("Abex/NWL") of Pneumo Abex Corporation for
approximately $201 million in cash. The transaction closed on April 15, 1996.
Abex/NWL is a major international producer of aerospace hydraulic actuation
equipment, engine thrust-reverser actuators, hydraulic pumps, electrohydraulic
servovalves, hydraulic systems and electromechanical actuation equipment.
Abex/NWL became a division of Parker Bertea Aerospace Group, which offers a
broad line of hydraulic, pneumatic and fuel systems and components.
On February 29, 1996, the Company, through its subsidiary Parker Pneumatic
AB, acquired all of the outstanding shares of VOAC Hydraulics AB ("VOAC") from
AVC Intressenter AB, which is a holding company owned jointly by Atlas Copco AB
and Volvo Aero Corporation, for approximately $163 million in cash. VOAC
produces hydraulic components and systems, including pumps, cylinders, valves
and motors, for mobile equipment in construction, forestry and other industries.
USE OF PROCEEDS
The net proceeds from the sale of the Notes offered hereby are estimated at
$98.9 million. The Company intends to use the net proceeds for the settlement of
a portion of its outstanding commercial paper borrowings due May 17, 1996 with
an interest rate of 5.38%. These borrowings were used to partially finance
recent acquisition activity. See "Use of Proceeds" in the accompanying
Prospectus.
S-3
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company and its subsidiaries as of March 31, 1996, adjusted to reflect (i)
approximately $192.1 million in commercial paper and bank borrowings and
approximately $6.0 million in foreign currency denominated bank loans, including
revolving credit, assumed or incurred by the Company in connection with its
acquisition of Abex/NWL on April 15, 1996 and (ii) the issuance and sale of the
Notes offered hereby and the application of the estimated proceeds of $98.9
million as described under "Use of Proceeds."
MARCH 31,
1996
ACTUAL ADJUSTED
---------- ----------
(DOLLARS IN THOUSANDS)
SHORT-TERM DEBT
Commercial paper and bank borrowings............................ $ 157,560 $ 250,777
========= =========
LONG-TERM DEBT
Debentures and notes 9.6%, due 1996-1999........................ $ 7,428 $ 7,428
10.375%, due 1999-2018....................................... 100,000 100,000
9.75%, due 2002-2021......................................... 100,000 100,000
7.30% Notes, due 2011........................................ 100,000
Variable rate debentures 3.45%, due 2010-2025................... 15,535 15,535
Industrial revenue bonds 2.05% to 8.0%, due 2002-2015........... 4,420 4,420
ESOP loan guarantee 8.41%, due 1996............................. 6,895 6,895
Foreign:
Bank loans, including revolving credit 1.75% to 13.20%, due
1996-2007................................................... 81,637 87,661
Other long-term debt, including capitalized leases.............. 921 921
---------- ----------
Total Long-term debt......................................... 316,836 422,860
Less Long-term debt payable within one year.................. 14,274 14,274
---------- ----------
Long-term debt, net.......................................... $ 302,562 $ 408,586
========= =========
SHAREHOLDERS' EQUITY
Serial preferred stock, $.50 par value, authorized 3,000,000
shares; none issued.......................................... $ -- $ --
Common stock, $.50 par value, authorized 300,000,000 shares;
issued 74,222,670 shares at par value........................ 37,111 37,111
Additional capital.............................................. 161,353 161,353
Retained earnings............................................... 1,109,356 1,109,356
Deferred compensation related to guarantee of ESOP debt......... (6,895) (6,895)
Foreign currency translation adjustments........................ 24,426 24,426
---------- ----------
Total Shareholders' Equity................................... $1,325,351 $1,325,351
========= =========
Total Long-term debt and Shareholders' Equity................... $1,627,913 $1,733,937
========= =========
S-4
SELECTED FINANCIAL INFORMATION
The selected financial information presented below for and as of the end of
each of the fiscal years in the five-year period ended June 30, 1995 and for and
as of the end of the nine-month periods ended March 31, 1995 and March 31, 1996
is derived from the Company's Annual Report on Form 10-K for the year ended June
30, 1995 and the Company's Quarterly Reports on Form 10-Q for the periods ended
March 31, 1995 and 1996, respectively, and is qualified in its entirety by the
information in such reports incorporated herein by reference. In the opinion of
management of the Company, all adjustments (which consist only of normal
recurring accruals) necessary for a fair summary of the results for the
nine-month periods ended March 31, 1995 and 1996 have been included. Interim
results are not necessarily indicative of the results to be expected for the
fiscal year ending June 30, 1996. This information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained herein and incorporated by reference into the accompanying
Prospectus and the consolidated financial statements of the Company and related
notes incorporated by reference into the accompanying Prospectus.
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
-------------------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
INCOME STATEMENT DATA
Net sales......................... $2,440,815 $2,375,808 $2,489,323 $2,576,337 $3,214,370 $2,330,361 $2,594,786
Income before income taxes........ 103,468 105,391 108,066 112,449 348,407 244,858 277,618
Income before extraordinary item
and cumulative effect of changes
in accounting principles........ 59,168 63,479 65,056 52,175 218,238 150,588 174,899
Net income........................ 59,168 11,218 65,056 47,652 218,238 150,588 174,899
Earnings per share before
extraordinary item and
cumulative effect of changes in
accounting principles........... .82 .88 .89 .71 2.96 2.04 2.36
Earnings per share................ .82 .15 .89 .65 2.96 2.04 2.36
BALANCE SHEET DATA
Working capital................... 649,474 672,173 588,189 526,864 593,761 565,621 613,618
Total assets...................... 1,920,697 1,958,120 1,963,590 1,925,744 2,302,209 2,211,623 2,583,603
Long-term debt.................... 476,586 446,974 378,476 257,259 237,157 250,903 302,562
Shareholders' equity.............. 943,475 934,019 932,900 966,351 1,191,514 1,125,336 1,325,351
RATIO OF EARNINGS TO FIXED
CHARGES(1)........................ 2.54 2.81 3.05 3.68 10.16 9.76 10.59
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(1) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" consist of income before income taxes and fixed charges
(excluding capitalized interest). "Fixed charges" consist of (i) interest on
indebtedness, whether expensed or capitalized, and (ii) that portion of
rental expense the Company believes to be representative of interest.
S-5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Selected
Financial Information, the consolidated financial statements of the Company and
related notes incorporated by reference into the accompanying Prospectus and the
other information included elsewhere in this Prospectus. The Company's fiscal
year ends June 30 of each year.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1996 AND COMPARABLE PERIODS
ENDED MARCH 31, 1995
Net Sales. Net sales increased 5.9 percent for the third quarter of 1996
and 11.3 percent for the nine-month period ended March 31, 1996. Approximately
one-half of these increases were due to acquisitions in the Industrial Segment.
Market conditions for the Industrial Segment have been uneven with downturns in
some markets being offset by gains in others.
Operating Income; Gross Profit. Income from operations was $116.9 million
for the third quarter of 1996 and $294.4 million for the nine months ended March
31, 1996, an increase of 2.7 percent for the quarter and 9.7 percent for the
nine months. Significant increases within the Aerospace Segment were offset by
decreases in operating income in the International operations of the Industrial
Segment. As a percent of sales, Income from operations decreased to 12.6 percent
from 12.9 percent for the quarter and to 11.3 percent from 11.5 percent for the
nine months. Cost of sales as a percent of sales increased to 76.0 percent from
75.8 percent for the quarter and to 76.9 percent from 76.8 percent for the
nine-month period. Selling, general and administrative expenses, as a percent of
sales, increased to 11.4 percent from 11.2 percent for the quarter and to 11.8
percent from 11.7 percent for the nine-month period.
Income Taxes. The effective income tax rate for the quarter and nine-month
period ended March 31, 1996 was 37.0 percent compared to fiscal 1995 rates of
37.2 percent for the quarter and 38.5 percent for the nine-month period. The
lower rate in fiscal 1996 is due to the continuing benefit realized from the use
of net operating loss carry-forwards and a change in the geographic mix of
earnings.
Net Income. Net income increased 5.0 percent for the quarter and 16.1
percent for the nine-month period ended March 31, 1996 as compared to the prior
year. As a percent of sales, Net income decreased to 7.4 percent from 7.5
percent for the quarter but increased to 6.7 percent from 6.5 percent for the
nine months.
Backlog. Backlog increased to $1,068.2 million at March 31, 1996 as
compared to $998.1 million the prior year and $1,025.7 million at June 30, 1995.
The increase in backlog was partially due to acquisitions, but was primarily due
to increased volume for both the Aerospace and Industrial Segments.
FOR THE FISCAL YEARS ENDED JUNE 30, 1994 AND 1995
Net Sales. Net sales of $3.21 billion for fiscal 1995 were 24.8 percent
higher than $2.58 billion in 1994. Acquisitions contributed nearly one-fourth of
this increase. North American Industrial operations experienced continuing
strong demand in the heavy-duty truck, industrial machinery, construction and
farm equipment, semi-conductor, mobile and telecommunications markets. In
addition, these operations captured additional market share from competitors
that have not been able to meet customer demands. International Industrial
operations experienced significant growth, as much of Europe and Latin America
recovered from recessions. Aerospace markets remained flat compared to the prior
year as lower spending for military aircraft and a slumping commercial airline
industry continued.
Net Income. Net income of $218.2 million for 1995 was 358.0 percent higher
than income of $47.7 million in 1994. Income for 1994 was reduced by $56.5
million, primarily for the reduction in book value of certain long-term assets,
downsizing and relocation activities. Extraordinary item -- extinguishment of
debt of $4.5 million in 1994 is due to the redemption premiums and deferred
issuance costs related to the early-
S-6
retirement of $100.0 million of 9.45 percent debentures and $3.5 million of
Australian long-term bearer bonds. Income before extraordinary item as a
percentage of sales was 6.8 percent in 1995, up from 2.0 percent in 1994. A
summary of the changes follows:
% TO SALES CHANGE
-----------------
INCREASE (DECREASE) IN INCOME 1995-94
----------------------------- -------
Gross profit...................................................... 3.5%
Selling, general & admin. expenses................................ (.3)
Provision for business restructuring activities................... .7
Impairment of long-term operating assets.......................... 1.4
Interest expense.................................................. .5
Loss on disposal of assets........................................ .7
Other
Income taxes...................................................... (1.7)
-----
Income before extraordinary item.................................. 4.8
=====
Gross Profit Margin. Gross profit margin increased to 23.8 percent in 1995
from 20.3 percent in 1994. Increased production levels in North American and
International Industrial operations provided increased margins and better
absorption of fixed costs. Despite level sales volume, the Aerospace operations
were able to improve margins by taking advantage of efficiencies as a result of
previous reorganizations. The benefits of restructuring activities performed in
prior years are being realized in the margin returns of all operations and are
expected to benefit future years as well.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percent of sales increased to 12.0 percent, from
11.7 percent in 1994. Acquisitions contributed to the increase with an average
selling, general and administrative expense rate of 17.1 percent of sales. In
addition, the Company incurred larger sales-promotion expenses and larger
incentive compensation based on increased sales and earnings.
Provision for Business Restructuring Activities. Provision for business
restructuring activities in 1994 was the result of continued actions aimed at
reducing costs and included downsizing, plant closings and relocations, and
write-offs of related capital assets. The actions taken have resulted in reduced
overhead charges, benefiting 1995 and 1994, and should continue to benefit
future periods. The remaining accruals from these actions are expected to be
utilized by the end of 1996.
The Industrial Segment incurred restructuring charges of $12.3 million in
1994. The North American Industrial operations incurred restructuring charges of
$5.4 million in 1994, which primarily involved the relocation or consolidation
of higher-cost and under-utilized facilities. Severance charges of $1.2 million
were recorded for the reduction of 51 employees in 1994 and the reduction of 107
employees in 1995. Due to a management decision to sell a facility rather than
relocate it, 44 of the employees were not terminated and a portion of the
previous provision was reversed to income. International's restructuring charges
of $6.9 million in 1994 were primarily for severance costs for 159 employees
(106 employees in 1994 and the remainder in 1995) and the consolidation of
underutilized facilities.
The Aerospace operations incurred restructuring costs of $6.5 million in
1994. Management took action to adjust to the changing market by reducing
factory and office floor space and organizing into customer-focused teams to
more effectively serve the customer. These charges included a workforce
reduction of 597 employees (296 in 1994 and 301 in 1995) and relocation costs
for three facilities which resulted in lower costs and enhanced capacity
utilization. Due to a change in the outlook for several product lines, of the
301 employees to be terminated in 1995 only 159 were terminated. The effect on
income for the reversal of this accrual was immaterial. Net cash outflow for the
remaining restructuring activities is estimated to be $2.1 million in 1996.
S-7
Impairment of Long-term Operating Assets. Impairment of long-term
operating assets of $35.5 million in 1994 includes $28.9 million related to the
write-down of goodwill and certain permanently impaired assets of the continuing
operations of the Aerospace heat-transfer components product line. This product
line was purchased during a period of heavy defense spending in 1987 and the
related goodwill was being amortized over 40 years. However, with the completion
of major contracts and the decline of aerospace markets, future cash flows are
now estimated to be less than the carrying value of the related assets.
Accordingly, the assets were written down to their recoverable value. While the
effect of this charge had no cash impact, it reduced amortization and
depreciation expenses $1.6 million per year. The remaining impairment charges
related primarily to certain machinery and equipment used in operations in
unprofitable product lines in Brazil and Germany. Since the future cash flows of
these product lines were anticipated to be less than the carrying value of the
related assets, the machinery and equipment for these product lines were written
down to their estimated recoverable value. The effect of these charges had no
cash impact but reduced depreciation expense $.7 million per year.
Interest Expense. Interest expense decreased by $6.9 million in 1995
principally due to reductions in debt.
Loss on Disposal of Assets. Loss on disposal of assets was $4.5 million in
1995, compared to $19.6 million in 1994. In 1994 $14.7 million related to the
impairment of idle properties. These properties became idle due to downsizing
activities and the assets were written down to their estimated recoverable value
based on current markets. The 1994 loss on disposal of assets was also affected
by a charge of $1.3 million for the estimated net loss on the sale of the Metal
Bellows operations. Losses on the disposal of assets from plant consolidations
are included in the Provision for business restructuring activities in 1994.
Income Taxes. Income taxes decreased to an effective rate of 37.4 percent
in 1995 as compared to 53.6 percent in 1994. The decrease was primarily due to
the unusually high effective rate in 1994 from receiving no federal or state tax
benefit for the charge taken to write down goodwill, and due to the use of net
operating loss carryforwards in the U.K. and Brazil. Profits were higher than
expected in these countries because of the International industrial recovery.
LIQUIDITY AND CAPITAL RESOURCES
FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1996 AND COMPARABLE PERIODS
ENDED MARCH 31, 1995
Working Capital. Working capital increased to $613.6 million at March 31,
1996 from $593.8 million at June 30, 1995 with the ratio of current assets to
current liabilities remaining level at 1.9 to 1. Accounts receivable were $36.8
million higher on March 31, 1996 than on June 30, 1995 primarily due to
acquisitions. Inventory levels were $37.7 million higher at March 31, 1996 due
to acquisitions and also due to increases in the Aerospace segment as a result
of higher volume. Accounts payable, trade decreased $30.6 million since June 30,
1995 primarily as a result of the timing of payments for raw material purchases.
Plant and equipment, net increased $104.7 million since June 30, 1995 with
$68.8 million of the increase the result of acquisitions. Other assets increased
$94.7 million since June 30, 1995 primarily as a result of increased goodwill.
Notes payable increased $74.5 million and Long-term debt increased $65.4
million since June 30, 1995 primarily to provide cash for acquisitions. The debt
to debt-equity ratio, excluding the effect of the Employee Stock Ownership Plan
(ESOP) loan guarantee on both Long-term debt and Shareholders' equity, increased
to 26.0 percent at March 31, 1996 from 21.0 percent at June 30, 1995.
Cash Flows From Operating Activities. Net cash provided by operating
activities was $209.4 million for the nine months ended March 31, 1996, as
compared to $139.6 million for the same nine months in 1995. Net income
contributed an additional $24.3 million in fiscal 1996 as compared to fiscal
1995. Changes in the principal working capital items (Accounts receivable,
Inventories, and Accounts payable, trade) resulted in the use of less
cash -- $65.9 million in fiscal 1996 as compared to $96.0 million in fiscal
1995. The change in
S-8
Accrued domestic and foreign taxes provided $11.0 million cash in fiscal 1996 as
compared to using cash of $9.9 million in fiscal 1995.
Cash Flows From Investing Activities. Net cash used in investing
activities increased to $309.0 million from $208.9 million for the nine months
ended March 31, 1996 and 1995 as a result of more cash used for acquisitions and
higher Capital expenditures in fiscal 1996.
Cash Flows From Financing Activities. Financing activities provided cash
of $100.9 million for the nine months ended March 31, 1996 and $31.2 million for
the same period in 1995. Fiscal 1996 acquisition activity caused the need for a
higher level of borrowings.
FOR THE FISCAL YEARS ENDED JUNE 30, 1994 AND 1995
Working Capital. Working capital increased to $593,761 at June 30, 1995
from $526,864 at June 30, 1994, with the ratio of current assets to current
liabilities decreasing slightly to 1.9 to 1 from 2.0 to 1. Accounts receivable
are primarily due from customers for sales of product ($426.3 million at June
30, 1995, compared to $347.4 million at June 30, 1994). The current year
increase in accounts receivable is due to increased sales volume, acquisitions
and the effects of currency rate changes. All of the increase was within the
Industrial Segment as the Aerospace Segment slightly decreased accounts
receivable on relatively level year-to-year sales. Days sales outstanding for
the Company did not change from 1994. Inventories were $625.9 million at June
30, 1995, compared to $492.9 million a year ago. This increase is due to
increased volume, acquisitions and the effects of currency rate changes. In
addition, there were increased purchases of certain raw materials made late in
the year for materials that had been in short supply. The increase is within the
Industrial Segment, as the Aerospace Segment inventories decreased. Months
supply of inventory on hand at June 30, 1995 remained level with the prior year.
Excess cost of investments over net assets acquired increased $57.8 million in
1995 from acquisitions.
Accounts payable, trade increased $46.3 million in 1995 due to higher
volume and current year acquisitions. The majority of the increase was within
the Industrial Segment. Accrued payrolls and other compensation increased $30.7
million in 1995 primarily as a result of incentive plans based on sales and
earnings. Accrued domestic and foreign taxes decreased $10.8 million in 1995
primarily as a result of payments made to the IRS to settle audit issues,
partially offset by an increase in foreign taxes payable. Other accrued
liabilities increased $11.5 million in 1995 primarily due to acquisitions.
Accruals related to restructuring decreased during the year, but were offset by
increases in pension and workers' compensation accruals.
Notes payable and Long-term debt increased a total of $50.3 million
primarily due to cash needed for acquisitions, debt acquired as part of the
acquisitions, and cash needed for foreign working capital, offset by a reduction
of $12.2 million of the ESOP debt guarantee. Pensions and other postretirement
benefits increased $19.2 million to $188.3 million in 1995.
Deferred income taxes included in current assets increased by $2.7 million
due largely to increases in state income taxes that are not currently
deductible. Non-current deferred income tax assets decreased by $.4 million due
to the reduction of the net operating loss carryovers of $4.6 million for the
Company's German operations. That reduction, however, was almost entirely offset
by the foreign currency translation adjustments resulting from the strengthening
Mark. Non-current deferred income tax liabilities increased $2.5 million
primarily due to increases in tax over book depreciation deductions and the
deferred income taxes arising from current year acquisitions.
At June 30, 1995, non-current deferred income tax assets include a $22.4
million tax benefit for the net operating loss carryforwards of the Company's
German operations. The Company has not provided a valuation allowance that would
be required under Statement of Financial Accounting Standards (SFAS) No. 109 if
it is more likely that these benefits would not be realized. Although future
events cannot be predicted with certainty, management continues to believe these
benefits will be realized because: the tax loss carryforward period is
unlimited; there are several tax planning strategies that can be used to reduce
the carryforward; 26 percent of the losses were due to non-recurring
restructuring charges and the remainder primarily the result of
S-9
the recession in Europe; and the Company expects its German operations will
continue their return to pre-1991 profitability levels.
It is the Company's goal to maintain no less than an "A" rating on senior
debt to ensure availability and reasonable cost of external funds. To meet this
objective, the Company has established a financial goal of maintaining a
normalized ratio of debt to debt-equity in the range of 30 to 33 percent. The
calculation of the debt to debt-equity ratio at June 30, 1995 and 1994 includes
the Company's loan guarantee to the trust established by the Company for the
ESOP.
DEBT TO DEBT-EQUITY RATIO (MILLIONS) 1995 1994
------------------------------------ ----- -----
Debt............................................................... $ 335 $ 284
Debt & Equity...................................................... 1,526 1,251
Ratio.............................................................. 21.9% 22.7%
===== =====
Excluding the effect of the ESOP loan guarantee on Long-term debt and
Shareholders' equity, the debt to debt-equity ratio at June 30, 1995 and 1994
was 21.0 percent and 20.7 percent, respectively.
Cash Flows From Operating Activities. The Company's largest source of cash
continues to be net cash provided by operating activities. The most significant
contribution to operating cash in 1995 was Net income. Changes in the principal
working capital items -- Accounts receivable, Inventories and Accounts payable,
trade -- required $109.2 million cash in 1995, and contributed $24.4 million
cash in 1994. Accounts receivable and Inventories increased significantly in
1995 as a result of increased volume (without the effect of acquisitions), using
cash of $138.8 million. The charge for the impairment of long-term assets in
1994 ($52.4 million) did not require the use of cash and therefore is a
reconciling item added to Net income. Cash paid for income taxes was $123,590 in
1995 and $71,375 in 1994.
Cash Flows From Investing Activities. Capital expenditures, a principal
use of long-term funds, increased to $152.0 million in 1995 from $99.9 million
in 1994, and are expected to increase again in 1996. Cash used for acquisitions
was $126.7 million in 1995 and $39.4 million in 1994. Financing for future
capital expenditures and acquisitions are expected to come primarily from
internally generated cash flows. Proceeds from dispositions of business provided
$13.7 million cash in 1994.
Cash Flows From Financing Activities. In 1995, the Company increased its
outstanding borrowings by a net total of $43.3 million compared to reducing its
outstanding borrowings by a net total of $172.3 million in 1994. In 1995 Notes
payable were utilized to provide cash for acquisitions. In 1994 payments of
long-term borrowings were primarily the early-retirement of $100.0 million of
debentures, the retirement of $35.1 million in foreign bearer bonds and the
elimination of certain foreign bank loans.
Proceeds from common share activity is primarily from the exercise of stock
options and common shares issued for a 1995 acquisition. Dividends have been
paid for 180 consecutive quarters, including a yearly increase in dividends for
the last 39 fiscal years. The current annual dividend rate is $.72 per share.
Cash paid for interest, net of capitalized interest, was $28,944 in 1995
and $34,221 in 1994. Noncash financing activities included the reduction in
principal of the ESOP debt guarantee, which amounted to $12,229 in 1995 and
$11,067 in 1994.
In summary, based upon the Company's past performance and current
expectations, management believes that the cash flows generated from future
operating activities, combined with the Company's worldwide financial
capabilities, will provide adequate funds to support planned growth and
continued improvements in the Company's manufacturing facilities and equipment.
S-10
DESCRIPTION OF THE NOTES
The Notes offered hereby will be issued under an Indenture, dated as of May
3, 1996, between the Company and National City Bank, as Trustee, as supplemented
from time to time (the "Indenture"). The form of the Indenture was filed as an
exhibit to the Registration Statement of which the accompanying Prospectus is a
part. The following summary of certain provisions of the Indenture and of the
Notes (referred to in the accompanying Prospectus as the "Offered Debt
Securities") supplements, and to the extent inconsistent therewith replaces, the
summaries of certain provisions of the Offered Debt Securities set forth in the
accompanying Prospectus, to which reference is hereby made. Such summary does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all provisions of the Indenture, including the definitions
therein of certain terms.
The Notes offered hereby will be limited to $100.0 million aggregate
principal amount and will mature on May 15, 2011. Each Note will bear interest
at the rate of 7.30% per annum, computed on the basis of a 360-day year of
twelve 30-day months, from May 15, 1996 or from the most recent interest payment
date to which interest has been paid or provided for, payable semiannually on
May 15 and November 15 of each year commencing on November 15, 1996. Interest
payable on any Note which is punctually paid or duly provided for on any
interest payment date shall be paid to the person in whose name such Note is
registered at the close of business on the May 1, or November 1, respectively,
preceding such interest payment date.
The Notes are to be issued only in registered form without coupons in
denominations of $1,000 and any multiple of $1,000. The Notes will not be
redeemable prior to maturity and will not be entitled to any sinking fund. The
Indenture contains covenants limiting certain liens and sale and leaseback
transactions. In addition, the Notes will be subject to defeasance and covenant
defeasance as described under the caption "Description of Senior Debt
Securities -- Defeasance and Discharge, Covenant Defeasance" in the accompanying
Prospectus.
BOOK-ENTRY PROCEDURES
Upon issuance, all Notes will be represented by a fully registered global
note (the "Global Note"). The Global Note will be deposited with, or on behalf
of, The Depository Trust Company, as Depositary (the "Depositary"), and
registered in the name of the Depositary or a nominee thereof. Unless and until
it is exchanged in whole or in part for Notes in definitive form, the Global
Note may not be transferred except as a whole by the Depositary to a nominee of
such Depositary or by a nominee of such Depositary to such Depositary. A further
description of the Depositary's procedures with respect to the Global Note is
set forth in the accompanying Prospectus under "Description of Senior Debt
Securities -- Book-Entry System."
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters in immediately
available funds. All payments of principal and interest on the Global Note will
be made by the Company in immediately available funds to the Trustee and then by
the Trustee to the Depositary or its nominee, as the case may be, as the
registered holder thereof.
S-11
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof, the Underwriters named below have severally
agreed to purchase, and the Company has agreed to sell to them, severally, the
respective principal amounts of Notes set forth opposite their respective names
below:
PRINCIPAL
AMOUNT
NAME OF NOTES
---- --------
Morgan Stanley & Co. Incorporated.................................... $ 50,000,000
Salomon Brothers Inc................................................. 50,000,000
------------
Total................................................................ $100,000,000
===========
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Notes are subject to receipt
of an opinion of counsel and to certain other conditions. The Underwriters are
obligated to take and pay for all the Notes if any are taken.
The Underwriters propose initially to offer part of the Notes directly to
the public at the public offering price set forth on the cover page hereof and
part to certain dealers at a price that represents a concession not in excess of
.45% of the principal amount of the Notes. Any Underwriter may allow, and such
dealers may reallow, a concession not in excess of .25% of the principal amount
of the Notes to certain other dealers. After the initial offering of the Notes,
the offering price and other selling terms may from time to time be varied by
the Underwriters.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
The Company does not intend to apply for listing of the Notes on a national
securities exchange but has been advised by the Underwriters that they currently
intend to make a market in the Notes as permitted by applicable laws and
regulations. The Underwriters are not obligated, however, to make a market on
the Notes and any such market making may be discontinued at any time at the sole
discretion of the Underwriters. Accordingly, no assurance can be given as to the
liquidity of, or trading markets for, the Notes.
Morgan Stanley & Co. Incorporated and Salomon Brothers Inc have provided
and will in the future continue to provide investment banking and other
financial services for the Company and certain of its affiliates in the ordinary
course of business for which they have received and will receive customary
compensation.
S-12
PROSPECTUS
$400,000,000
PARKER-HANNIFIN CORPORATION
SENIOR DEBT SECURITIES
------------------
Parker-Hannifin Corporation (the "Company") intends to issue from time to
time in one or more series its senior unsecured debt securities (the "Senior
Debt Securities"), consisting of debentures, notes, bonds and/or other unsecured
evidences of indebtedness, at an aggregate initial offering price not to exceed
U.S. $400,000,000, or the equivalent thereof if Senior Debt Securities are
denominated in one or more foreign currencies or foreign currency units, at
prices and on terms to be determined at or prior to the time of sale.
Specific terms of the Senior Debt Securities in respect of which this
Prospectus is being delivered (the "Offered Securities") will be set forth in an
accompanying supplement to this Prospectus (each, a "Prospectus Supplement"),
together with the terms of the offering of the Offered Securities, the initial
offering price and the net proceeds to the Company from the sale thereof. The
accompanying Prospectus Supplement will set forth, among other items, the
following with respect to the Offered Securities: the specific designation,
aggregate principal amount, authorized denominations, maturity, rate or method
of calculation of interest, if any, and dates for payment thereof, any
redemption, prepayment or sinking fund provisions, any exchange rights, and the
currency, currencies or currency units in which principal, premium, if any, or
interest, if any, is payable.
The Offered Securities may be sold through underwriters, dealers or agents
or may be sold directly to purchasers. If any underwriters, dealers or agents
are involved in the sale of any Offered Securities, their names and any
applicable fee, commission or discount arrangements will be set forth in the
accompanying Prospectus Supplement. The net proceeds to the Company of the sale
of Offered Securities will be the purchase price of such Offered Securities less
attributable issuance expenses, including underwriters', dealers' or agents'
compensation. See "Plan of Distribution" for indemnification arrangements for
underwriters, dealers and agents.
This Prospectus may not be used to consummate sales of Senior Debt
Securities unless accompanied by a Prospectus Supplement.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS OR ANY SUPPLEMENT HERETO.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------
The date of this Prospectus is May 3, 1996.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR
THE ACCOMPANYING PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY AGENT, DEALER OR UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR THE ACCOMPANYING PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER
OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN OR IN THE ACCOMPANYING PROSPECTUS SUPPLEMENT IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF OR THEREOF OR THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THEREOF. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING PROSPECTUS SUPPLEMENT
CONSTITUTES AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY SENIOR DEBT
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at
the following regional offices of the Commission: New York Regional Office,
Seven World Trade Center, Suite 1300, New York, New York 10048, and Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained by mail at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. The Company's Common Stock is listed on the New
York Stock Exchange, and such reports, proxy and information statements and
other information concerning the Company may also be inspected at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act of 1933 (the "Securities Act"). This Prospectus and the
accompanying Prospectus Supplement omit certain of the information contained in
the Registration Statement in accordance with the rules and regulations of the
Commission. Reference is hereby made to the Registration Statement and related
exhibits for further information with respect to the Company and the Senior Debt
Securities. Statements contained herein concerning the provisions of any
document are not necessarily complete and, in each instance, reference is made
to the copy of such document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
are incorporated by reference in this Prospectus:
(i) The Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1995; and
(ii) The Company's Quarterly Reports on Form 10-Q for the quarters
ended September 30, 1995 and December 31, 1995.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering hereunder shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of the filing of such documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of the
Registration Statement and this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein or in the
2
accompanying Prospectus Supplement modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of the Registration Statement or
this Prospectus.
The Company will provide, without charge, to each person to whom this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents which have been incorporated herein by
reference, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Requests should be
directed to Parker-Hannifin Corporation, 17325 Euclid Avenue, Cleveland, Ohio
44112-1290, Attention: Joseph D. Whiteman, Esq., Vice President, General Counsel
and Secretary, telephone (216) 531-3000.
THE COMPANY
Parker-Hannifin Corporation (the "Company") is a leading worldwide
full-line manufacturer of motion control products, including fluid power
systems, electromechanical controls and related components. Fluid power involves
the transfer and control of power through the medium of liquid, gas or air, in
both hydraulic and pneumatic applications. Fluid power systems move and position
materials, control machines, vehicles and equipment and improve industrial
efficiency and productivity. Components of a simple fluid power system include a
pump which generates pressure, valves which control the fluid's flow, an
actuator which translates the pressure in the fluid into mechanical energy, a
filter to remove contaminants and numerous hoses, couplings, fittings and seals.
Electromechanical control involves the use of electronic components and systems
to control motion and precisely locate or vary speed in automation applications.
The Company's manufacturing, service, distribution and administrative
facilities are located in 34 states, Puerto Rico and worldwide in 30 foreign
countries. Its motion control technology is used in products of its two business
segments: Industrial and Aerospace. The products are sold as original and
replacement equipment through product and distribution centers worldwide. The
Company markets its products through its direct-sales employees and more than
6,000 independent distributors. The Company's products are supplied to over a
quarter million customer outlets in virtually every major manufacturing,
transportation and processing industry.
The Company was incorporated in Ohio in 1938. Its principal executive
offices are located at 17325 Euclid Avenue, Cleveland, Ohio 44112-1290,
telephone (216) 531-3000.
3
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company for each of the last five fiscal years ended June 30, 1995 and for
the six months ended December 31, 1995 and December 31, 1994. For the purpose of
calculating the ratio of earnings to fixed charges, "earnings" consist of income
from continuing operations before income taxes and fixed charges (excluding
capitalized interest). "Fixed charges" consist of (i) interest on indebtedness,
whether expensed or capitalized, and (ii) that portion of rental expense the
Company believes to be representative of interest.
FISCAL YEAR ENDED
SIX MONTHS ENDED ---------------------------------
---------------------------
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1994 1995 1994 1993 1992 1991
------------ ------------ ----- ---- ---- ---- ----
Ratio of earnings to fixed
charges......................... 10.09 8.64 10.16 3.68 3.05 2.81 2.54
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Senior
Debt Securities for general corporate purposes, which may include refinancing or
repayment of indebtedness, financing acquisitions as they may arise,
repurchasing the Company's equity securities, and financing of capital
expenditures and working capital. Further details relating to the uses of the
net proceeds of any such offering will be set forth in the applicable Prospectus
Supplement.
DESCRIPTION OF SENIOR DEBT SECURITIES
The following description of the Senior Debt Securities sets forth certain
general terms and provisions of the Senior Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Senior Debt
Securities offered by any Prospectus Supplement (the "Offered Securities") and
the extent, if any, to which such general provisions may apply to the Senior
Debt Securities so offered will be described in the Prospectus Supplement or
Prospectus Supplements relating to such Offered Securities.
The Offered Securities are to be issued under an Indenture (the
"Indenture") between the Company and National City Bank, as Trustee (the
"Trustee"). A form of the Indenture is filed as an exhibit to the Registration
Statement. The following summaries of certain provisions of the Senior Debt
Securities and the Indenture do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all the provisions of the
Indenture, including the definitions therein of certain terms, and, with respect
to any particular Offered Securities, to the description of the terms thereof
included in the Prospectus Supplement relating thereto. Section numbers below
refer to provisions of the Indenture.
GENERAL
The Senior Debt Securities will be unsecured obligations of the Company and
will rank on a parity with all other unsecured unsubordinated indebtedness of
the Company. The Indenture does not limit the amount of Senior Debt Securities
that may be issued thereunder and provides that Senior Debt Securities may be
issued from time to time in one or more series. (Section 301)
The Prospectus Supplement or Prospectus Supplements relating to the
particular series of Senior Debt Securities offered thereby will describe the
following terms of the Offered Securities or the series of which they are a
part: (i) the title of the Offered Securities; (ii) any limit on the aggregate
principal amount of the Offered Securities; (iii) the Person to whom any
interest on the Offered Securities shall be payable, if other than the Person in
whose name that Offered Security is registered on the Regular Record Date for
such interest; (iv) the date or dates on which the principal of any Offered
Security is payable; (v) the rate or rates at which the Offered Securities will
bear interest, if any, and the date or dates from which such interest will
accrue and the dates on which such interest will be payable and the Regular
Record Dates for such Interest Payment Dates; (vi) the place or places where the
principal of and any premium and interest on any Offered Securities is payable;
(vii) the period or periods within which, the price or prices at which and the
terms and
4
conditions upon which the Offered Securities may be redeemed in whole or in part
at the option of the Company; (viii) any mandatory or optional sinking fund or
analogous provisions; (ix) if other than denominations of $1,000 and any
integral multiple thereof, the denominations in which any securities will be
issuable; (x) if the amount of payments of principal of and any premium or the
interest on the Offered Securities may be determined with reference to an index
or pursuant to a formula, the manner in which such amounts shall be determined;
(xi) if other than the currency of the United States of America, the currency,
currencies or currency units in which the principal of or any premium or
interest on any Offered Securities is payable and the manner of determining the
equivalent thereof in the currency of the United States of America under the
Indenture; (xii) if the principal of or any premium or interest on any Offered
Securities is to be payable, at the election of the Company or the Holder
thereof, in one or more currencies or currency units other than that or those in
which such Offered Securities are stated to be payable, the currency, currencies
or currency units in which the principal of or any premium or interest on such
Securities as to which such election is made shall be payable, the periods
within which and the terms and conditions upon which such election is to be made
and the amount so payable (or the manner in which such amount shall be
determined); (xiii) if other than the entire principal amount thereof, the
portion of the principal amount of any Offered Securities which will be payable
upon declaration of acceleration of the Maturity thereof; (xiv) if the principal
amount payable at the Stated Maturity of any Offered Securities will not be
determinable as of any one or more dates prior to the Stated Maturity, the
amount which shall be deemed to be the principal amount of such Offered
Securities as of any such date for any purpose under the Indenture; (xv) if
applicable, that the Offered Securities, in whole or any specified part, shall
be defeasible pursuant to the Indenture; (xvi) if applicable, that any Offered
Securities will be issuable in whole or in part in the form of one or more
Global Securities and, if so, the respective Depositaries for such Global
Securities, the form of any legend or legends to be borne by any such Global
Security in addition to or in lieu of the legend referred to under "Book-Entry
System" and, if different from those described under such caption, any
circumstances under which any such Global Security may be exchanged in whole or
in part for Senior Debt Securities registered, and any transfer of such Global
Security in whole or in part may be registered, in the names of persons other
than the Depositary for such Global Security or its nominee; (xvii) any addition
to or change in the Events of Default applicable to any Offered Securities and
any change in the right of the Trustee or the requisite Holders of such Offered
Securities to declare the principal amount thereof due and payable pursuant to
the Indenture; (xviii) any addition to or change in the covenants set forth in
Article Ten of the Indenture (including, without limitation, those described in
"Certain Covenants of Senior Debt Securities") which apply to such Offered
Securities; and (xix) any other terms of the Offered Securities not inconsistent
with the provisions of the Indenture. (Section 301)
DENOMINATIONS, REGISTRATION OF TRANSFER AND EXCHANGE
Unless otherwise indicated in the Prospectus Supplement or Prospectus
Supplements relating thereto, the Senior Debt Securities will be issued only in
registered form, without coupons and only in denominations of $1,000 or any
integral multiple thereof. (Section 302)
Senior Debt Securities may be issued under the Indenture as Original Issue
Discount Securities to be offered and sold at a substantial discount below their
stated principal amount. Certain United States federal income tax consequences
(if any) and other special considerations applicable to any such Original Issue
Discount Securities will be described in the Prospectus Supplement or Prospectus
Supplements relating thereto. "Original Issue Discount Security" means any
Senior Debt Security which provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration of the Maturity
thereof upon the occurrence of an Event of Default and the continuation thereof.
(Section 101) In addition, certain United States federal income tax or other
considerations (if any) applicable to any Senior Debt Securities which are
denominated in a currency or currency unit other than United States dollars may
be described in the applicable Prospectus Supplement.
Subject to the terms of the Indenture and the limitations applicable to
Global Securities, upon surrender for registration of transfer of any Senior
Debt Security of a series at the office or agency of the Company in the Place of
Payment for that series, the Company will execute, and the Trustee will
authenticate and deliver, in
5
the name of the designated transferee or transferees, one or more new Senior
Debt Securities of the same series, of any authorized denominations and of like
tenor and aggregate principal amount. At the option of the Holder, subject to
the terms of the Indenture and the limitations applicable to Global Securities,
Senior Debt Securities of any series may be exchanged for other Senior Debt
Securities of the same series, of any authorized denominations and of like tenor
and aggregate principal amount, upon surrender of the Senior Debt Securities to
be exchanged at such office or agency. No service charge will be made for any
registration of transfer or exchange of the Offered Securities, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. (Section 305)
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms.
"Subsidiary" is defined as a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company and/or
one or more Subsidiaries of the Company.
"Restricted Subsidiary" is defined as a Subsidiary of the Company
substantially all the property of which is located, or substantially all of the
business of which is carried on, within the United States and which owns a
Principal Property.
"Principal Property" is defined to mean any manufacturing or processing
plant or warehouse owned by the Company or any Restricted Subsidiary which is
located within the United States and the gross book value of which (including
related land, improvements, machinery and equipment without deduction of any
depreciation reserves) on the date as of which the determination is being made,
exceeds 1% of Consolidated Net Tangible Assets, other than properties or any
portion of a particular property which in the opinion of the Company's Board of
Directors are not of material importance to the Company's business or to the use
or operation of such property.
"Attributable Debt" is defined to mean the total net amount of rent
required to be paid during the remaining primary term of certain leases,
discounted at a rate per annum equal to the weighted average yield to maturity
of the Senior Debt Securities calculated in accordance with generally accepted
financial practices.
"Consolidated Net Tangible Assets" is defined to mean the aggregate amount
of assets (less applicable reserves and other properly deductible items) after
deducting (i) all liabilities other than deferred income taxes, Funded Debt and
shareholders' equity, and (ii) all goodwill and other intangibles of the Company
and its consolidated Subsidiaries.
"Funded Debt" is defined to mean (i) all indebtedness for money borrowed
having a maturity of more than 12 months from the date as of which the
determination is made or having a maturity of 12 months or less but by its terms
being renewable or extendible beyond 12 months from such date at the option of
the borrower and (ii) rental obligations payable more than 12 months from such
date under leases which are capitalized in accordance with generally accepted
accounting principles (such rental obligations to be included as Funded Debt at
the amount so capitalized at the date of such computation and to be included for
the purposes of the definition of Consolidated Net Tangible Assets both as an
asset and as Funded Debt at the respective amounts so capitalized).
CERTAIN COVENANTS OF SENIOR DEBT SECURITIES
The Indenture contains, among other things, the following covenants:
Restrictions of Secured Debt. The Company will not itself, and will not
permit any Restricted Subsidiary to, incur, issue, assume or guarantee any
evidence of indebtedness for money borrowed ("Debt") secured by a mortgage,
pledge or lien ("Mortgage") on any Principal Property of the Company or any
Restricted Subsidiary, or on any shares of stock of or Debt of any Restricted
Subsidiary, without effectively providing that the Senior Debt Securities are
secured equally and ratably with (or, at the Company's option, prior to) such
secured Debt, unless the aggregate amount of all such secured Debt, together
with all
6
Attributable Debt of the Company and its Restricted Subsidiaries with respect to
sale and leaseback transactions involving Principal Properties (with the
exception of such transactions which are excluded as described in "Restrictions
on Sales and Leasebacks" below), would not exceed 10% of Consolidated Net
Tangible Assets.
The above restriction does not apply to, and there will be excluded from
Debt in any computation under such restriction, (i) Debt secured by Mortgages on
property of, or on any shares of stock of or Debt of, any corporation existing
at the time such corporation becomes a Restricted Subsidiary, (ii) Debt secured
by Mortgages in favor of the Company or a Restricted Subsidiary, (iii) Debt
secured by Mortgages in favor of governmental bodies to secure progress or
advance payments or payments pursuant to contracts or statute, (iv) Debt secured
by Mortgages on property, shares of stock or Debt existing at the time of
acquisition thereof (including acquisition through merger or consolidation) and
Debt secured by Mortgages to finance the acquisition of property, shares of
stock or Debt or to finance construction on property which is incurred within
180 days of such acquisition or completion of construction, (v) Debt secured by
Mortgages securing industrial revenue or pollution control bonds, or (vi) any
extension, renewal or replacement of any Debt referred to in the foregoing
clauses (i) through (v) inclusive, provided, however, that such extension,
renewal or replacement Mortgage shall be limited to all or part of the same
property, shares of stock or Debt that secured the Mortgage extended, renewed or
replaced (plus improvements on such property). (Section 1007)
Restrictions on Sales and Leasebacks. Neither the Company nor any
Restricted Subsidiary may enter into any sale and leaseback transaction
involving any Principal Property, unless the aggregate amount of all
Attributable Debt of the Company and its Restricted Subsidiaries with respect to
such transaction plus all secured Debt to which the restrictions described under
"Restrictions on Secured Debt" above apply would not exceed 10% of Consolidated
Net Tangible Assets.
This restriction does not apply to, and there shall be excluded from
Attributable Debt in any computation under such restriction, any sale and
leaseback transaction if (i) the lease is for a period of not in excess of three
years, including renewal rights, (ii) the sale or transfer of the Principal
Property is made within 180 days after the later of its acquisition or
completion of construction, (iii) the lease secures or relates to industrial
revenue or pollution control bonds, (iv) the transaction is between the Company
and a Restricted Subsidiary or between Restricted Subsidiaries, or (v) the
Company or such Restricted Subsidiary, within 180 days after the sale is
completed, applies (A) to the retirement of the Senior Debt Securities, other
Funded Debt of the Company ranking on a parity with or senior to the Senior Debt
Securities, or Funded Debt of a Restricted Subsidiary, or (B) to the purchase of
other property which will constitute a Principal Property having a value at
least equal to the value of the Principal Property leased, an amount equal to
the greater of (i) the net proceeds of the sale of the Principal Property
leased, or (ii) the fair market value of the Principal Property leased. In lieu
of applying proceeds to the retirement of Funded Debt, the Company may surrender
debentures or notes (including the Senior Debt Securities) to the Trustee for
retirement and cancellation, or the Company or a Restricted Subsidiary may
receive credit for the principal amount of Funded Debt voluntarily retired
within 180 days after such sale. (Section 1008)
EVENTS OF DEFAULT
The Indenture defines an Event of Default with respect to Senior Debt
Securities of any series as being any one of the following events and such other
events as may be established for the Senior Debt Securities of a particular
series: (i) default for 30 days in any payment of interest on any Senior Debt
Security of such series; (ii) default in any payment of principal of or any
premium on any Senior Debt Security of such series when due; (iii) default in
the payment of any sinking fund installment with respect to such series when
due; (iv) default for 60 days after appropriate notice in performance of any
other covenant or warranty included in the Indenture (other than those covenants
or warranties included solely for the benefit of series of Senior Debt
Securities other than that series); (v) default under any evidence of
indebtedness of the Company or any Restricted Subsidiary exceeding $10,000,000
in aggregate principal amount (including a default with respect to Senior Debt
Securities of series other than that series) or under any mortgage, indenture or
instrument under which any such indebtedness is issued or secured (including the
Indenture), which default results in
7
acceleration of the maturity of such indebtedness, if such acceleration is not
rescinded or annulled or if such indebtedness is not discharged within 10 days
after written notice as provided in the Indenture; (vi) certain events in
bankruptcy, insolvency or reorganization; or (vii) any other Event of Default
provided with respect to Senior Debt Securities of that series. (Section 501) If
an Event of Default with respect to Senior Debt Securities of any series at the
time Outstanding occurs and is continuing, either the Trustee or the Holders of
at least 25% in principal amount of the Outstanding Senior Debt Securities of
that series may declare the principal of such series (or, if the Senior Debt
Securities of that series are Original Issue Discount Securities, such portion
of the principal as may be specified by the terms of that series) to be due and
payable immediately. At any time after a declaration of acceleration with
respect to Senior Debt Securities of any series has been made, but before a
judgment or decree based on acceleration has been obtained, the Holders of a
majority in principal amount of the Outstanding Senior Debt Securities of that
series may, under certain circumstances, rescind and annul such acceleration.
(Section 502)
Reference is made to the Prospectus Supplement or Prospectus Supplements
relating to each series of Offered Securities which are Original Issue Discount
Securities for the particular provisions relating to acceleration of the
Maturity of a portion of the principal amount of such Original Issue Discount
Securities upon the occurrence of an Event of Default and the continuation
thereof.
The Indenture requires the Company to file annually with the Trustee an
Officers' Certificate as to the absence of certain defaults under the terms of
the Indenture. (Section 1009) The Indenture provides that if a default occurs
with respect to Senior Debt Securities of any series, the Trustee will give the
Holders of such series notice of such default when, as and to the extent
provided by the Trust Indenture Act, provided, however, that in the case of any
default under any covenant referenced in clause (iv) above with respect to such
series, no such notice to Holders will be given until at least thirty days after
the occurrence thereof. (Section 602)
The Indenture provides that the Trustee will be under no obligation,
subject to the duty of the Trustee during default to act with the required
standard of care, to exercise any of its rights or powers under the Indenture at
the request or direction of any of the Holders, unless such Holders shall have
offered to the Trustee reasonable indemnity. (Section 603) Subject to such
provisions for indemnification of the Trustee, the Holders of a majority in
principal amount of the Outstanding Senior Debt Securities of any series will
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee, with respect to the Senior Debt Securities of that
series. (Section 512)
MODIFICATION AND WAIVER
Without the consent of any Holders, the Company and the Trustee, at any
time from time to time, may modify or amend the Indenture to (i) evidence the
succession of another Person to the Company and such Person's assumption of any
covenants of the Company under the Indenture and any Senior Debt Securities;
(ii) add covenants of the Company for the benefit of Holders of all or any
series of Senior Debt Securities or to surrender any right or power conferred
upon the Company; (iii) add any additional Events of Default for the benefit of
the Holders of all or any series of Senior Debt Securities; (iv) add to or
change any provisions of the Indenture to the extent necessary to permit or
facilitate the issuance of Senior Debt Securities in bearer form, registrable or
not registrable as to principal, and with or without interest coupons, or to
permit or facilitate the issuance of Senior Debt Securities in uncertificated
form; (v) add to, change or eliminate any of the provisions of the Indenture in
respect of one or more series of Senior Debt Securities, subject to certain
limitations; (vi) secure the Senior Debt Securities; (vii) establish the form or
terms of Senior Debt Securities of any series; (viii) evidence and provide for
the acceptance of appointment by a successor Trustee with respect to one or more
series of Senior Debt Securities; or (ix) to cure any ambiguity, to correct or
supplement any provision in the Indenture which may be defective or inconsistent
with any other provision of the Indenture, provided that such action will not
adversely affect the interests of Holders of Senior Debt Securities of any
series in any material respect. (Section 901)
8
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of 66 2/3% in principal amount
of the Outstanding Senior Debt Securities of each series affected by such
modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the Holder of each outstanding Senior Debt
Security affected thereby, (i) change the stated maturity date of the principal
of, or any installment of principal of or interest on, any Senior Debt Security,
(ii) reduce the principal amount of, or any premium or interest on, any Senior
Debt Security, (iii) reduce the amount of principal of an Original Issue
Discount Security or any other Senior Debt Security payable upon acceleration of
the Maturity thereof, (iv) change the place or currency of payment of principal
of, or any premium or interest on, any Senior Debt Security, (v) impair the
right to institute suit for the enforcement of any payment on or with respect to
any Senior Debt Security or (vi) reduce the percentage in principal amount of
Outstanding Senior Debt Securities of any series, the consent of whose Holders
is required for modification or amendment of the Indenture or for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults. (Section 902)
The Holders of 66 2/3% in principal amount of the Outstanding Senior Debt
Securities of any series may on behalf of the Holders of all Senior Debt
Securities of that series waive, insofar as that series is concerned, compliance
by the Company with certain restrictive provisions of the Indenture. (Section
1010) The Holders of a majority in principal amount of the Outstanding Senior
Debt Securities of any series may on behalf of the Holders of all Senior Debt
Securities of that series waive any past default under the Indenture with
respect to that series, except a default in the payment of the principal of, or
any premium or interest on, any Senior Debt Security of that series or in
respect of a provision which under the Indenture cannot be modified or amended
without the consent of the Holder of each Outstanding Senior Debt Security of
that series affected. (Section 513)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate with or merge into or convey, transfer or
lease its property and assets substantially as an entirety to any person (a
"successor Person") unless (i) that person is a corporation, partnership or
trust organized and validly existing under the laws of the United States of
America or any State or the District of Columbia, (ii) the successor Person
assumes by supplemental indenture all of the Company's obligations on the Senior
Debt Securities outstanding at that time, (iii) after giving effect thereto, no
Event of Default, and no event which, after notice or lapse of time, would
become an Event of Default, shall have occurred and be continuing and (iv)
certain other conditions are met. The Indenture further provides that no
consolidation or merger of the Company with or into any other corporation and no
conveyance, transfer or lease of its property substantially as an entirety to
another corporation may be made if, as a result thereof, any Principal Property
of the Company or any Restricted Subsidiary or any shares of Capital Stock or
Debt of a Restricted Subsidiary would become subject to a Mortgage which is not
expressly excluded from the restrictions or permitted by the provisions of
Section 1008 (see "Restrictions on Secured Debt"), unless the Senior Debt
Securities are secured equally and ratably with (or prior to) all indebtedness
secured thereby. (Section 801)
DEFEASANCE AND DISCHARGE, COVENANT DEFEASANCE
The Company may elect, at its option at any time, to effect a defeasance
and discharge (a "Defeasance") or a covenant defeasance (a "Covenant
Defeasance") in respect of the Senior Debt Securities or any series thereof
designated as being defeasible pursuant to its terms.
Upon the Company's exercise of its option to effect a Defeasance, the
Company will be deemed to have been discharged from its obligations with respect
to such Senior Debt Securities on and after the date the conditions to
Defeasance described below are satisfied. For purposes of the Indenture,
Defeasance means the Company will be deemed to have paid and discharged the
entire indebtedness represented by such Senior Debt Securities and to have
satisfied all of its other obligations under or with respect to such Senior Debt
Securities and under the Indenture, except for the following (i) the rights of
Holders of such Senior Debt Securities to receive, solely from the trust fund
described in the Indenture, payments in respect of principal of, and any premium
and interest on, such Senior Debt Securities when due, (ii) certain of the
Company's
9
obligations under the Indenture with respect to temporary securities;
registration, registration of transfer and exchange; mutilated, destroyed, lost
or stolen securities; maintenance of an office or agency; and money held in
trust for the benefit of Holders of Senior Debt Securities, (iii) the rights,
powers, trusts, duties and immunities of the Trustee and (iv) the foregoing
provisions. (Section 1302)
Upon the Company's exercise of its option to effect a Covenant Defeasance
with respect to any Senior Debt Securities or any series thereof, (i) the
Company will be released from its obligations with respect to liens resulting
from consolidations or mergers and its covenants relating to existence,
maintenance of properties, payment of taxes and other claims as well as any
additional covenants specified in the terms of such series of Senior Debt
Securities or any supplemental indenture related thereto, and (ii) the
occurrence of certain events of default related to the foregoing covenants will
be deemed not to be or result in an Event of Default, in each case after the
date that the conditions to Covenant Defeasance described below are satisfied.
(Section 1303)
The conditions that the Company must satisfy in order to effect a
Defeasance or a Covenant Defeasance in respect of the Senior Debt Securities or
any series thereof are as follows: (i) the Company will irrevocably deposit or
cause to be deposited with the Trustee as trust funds for the purpose of making
payments when due under the Indenture money or U.S. Government Obligations or a
combination thereof in an amount sufficient to pay and discharge the principal
of and any premium and interest on such Senior Debt Securities on the respective
Stated Maturities in accordance with the terms of such Senior Debt Securities
and the Indenture; (ii) delivery by the Company of an Opinion of Counsel
regarding the tax effects of such action on the Holders of Senior Debt
Securities; (iii) delivery of an Officer's Certificate to the effect that no
listed Senior Debt Securities will be delisted; (iv) no Event of Default shall
have occurred and be continuing at the time of the deposit or, regarding
bankruptcy-related events, at any time on or prior to the 90th day after such
deposit; (v) such deposit will not cause the Trustee to have a conflicting
interest under the Trust Indenture Act; (vi) such Defeasance or Covenant
Defeasance will not result in a breach of or default under any other agreement
to which the Company is a party or by which it is bound; (vii) such Defeasance
or Covenant Defeasance will not result in the trust arising from such deposit
constituting an investment company within the meaning of the Investment Company
Act unless the trust is registered or exempted thereunder; and (viii) delivery
by the Company to the Trustee of any Officer's Certificate and Opinion of
Counsel, each stating that all conditions precedent with respect to such
Defeasance or Covenant Defeasance have been complied with. (Section 1304)
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of interest on a Senior Debt Security on any Interest Payment Date will be made
to the person in whose name such Senior Debt Security (or one or more
Predecessor Senior Debt Securities) is registered at the close of business on
the Regular Record Date for such interest. (Section 307)
The Company will maintain in each Place of Payment for any series of Senior
Debt Securities an office or agency where Senior Debt Securities of that series
may be presented or surrendered for payment, where Senior Debt Securities of
that series may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Company in respect of the Senior Debt
Securities of that series and the Indenture may be served. (Section 1002)
If the Company acts as its own Paying Agent with respect to any series of
Senior Debt Securities, it will, on or before each due date of the principal of,
or any premium or interest on, any securities of such series, segregate and hold
in trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the principal and any premium and interest so becoming due until such sums are
paid to such Persons or otherwise disposed of and will promptly notify the
Trustee of its action or failure to so act. Whenever the Company will have one
or more Paying Agents for any series of Senior Debt Securities, it will, prior
to each due date of the principal of, or any premium or interest on, any Senior
Debt Securities of that series, deposit with the Paying Agent a sum sufficient
to pay such amount, such sum to be held as provided by the Trust Indenture Act,
and (unless
10
such Paying Agent is the Trustee) the Company will promptly notify the Trustee
of its action or failure to so act.
The Company will cause each Paying Agent for any series of Senior Debt
Securities other than the Trustee to execute and deliver to the Trustee an
instrument in which such Paying Agent agrees with the Trustee, subject to the
Indenture, that such Paying Agent will (i) comply with the provisions of the
Trust Indenture Act applicable to it as a Paying Agent and (ii) during the
continuance of any default by the Company (or any other obligor upon the Senior
Debt Securities of that series) in the making of any payment in respect of the
Senior Debt Securities of that series, upon the written request of the Trustee,
pay to the Trustee all sums held in trust by such Paying Agent for payment in
respect of the Senior Debt Securities of that series. (Section 1003)
REGARDING THE TRUSTEE
National City Bank is the Trustee under the Indenture. National City Bank
is currently committed to provide loans to the Company under (i) a $100,000,000
unsecured revolving credit facility, which expires October 31, 2000, and (ii) a
$3,000,000 line of credit for the leasing of manufacturing equipment, which
expires October 31, 1999. National City Bank also provides the Company with a
$10,000,000 unsecured discretionary foreign exchange guideline, which expires
October 31, 1996. Duane E. Collins, President, Chief Executive Officer and
Director of the Company, and John G. Breen, a Director of the Company, are each
directors of National City Bank.
BOOK-ENTRY SYSTEM
If so specified in the Prospectus Supplement or Prospectus Supplements,
Senior Debt Securities of any series may be issued under a book-entry system in
the form of one or more global securities (each a "Global Security"). Each
Global Security will be deposited with, or on behalf of, a depositary, which,
unless otherwise specified in the Prospectus Supplement or Prospectus
Supplements, will be The Depository Trust Company, New York, New York (the
"Depositary"). The Global Securities will be registered in the name of the
Depositary or its nominee and will bear a legend regarding the restrictions on
exchanges and registration of transfers thereof referred to below and any other
matters as may be provided for pursuant to the Indenture.
The Depositary has advised the Company that the Depositary is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. The Depositary
was created to hold securities of its participants and to facilitate the
clearance and settlement of securities transactions among its participants
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations, some of whom
(and/or their representatives) own the Depositary. Access to the Depositary's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly.
Upon the issuance of a Global Security in registered form, the Depositary
will credit, on its book-entry registration and transfer system, the respective
principal amounts of the Senior Debt Securities represented by such Global
Security to the accounts of participants. The accounts to be credited will be
designated by the underwriters, dealers or agents, if any, or by the Company, if
such Senior Debt Securities are offered and sold directly by the Company.
Ownership of beneficial interests in the Global Security will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests by participants in the Global Security will be shown on,
and the transfer of that ownership interest will be effected only through,
records maintained by such participants. The laws of some jurisdictions may
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such laws may impair the ability to transfer
beneficial interest in a Global Security.
11
So long as the Depositary or its nominee is the registered owner of a
Global Security, it will be considered the sole owner or holder of the Senior
Debt Securities represented by such Global Security for all purposes under the
Indenture. Except as set forth below, owners of beneficial interests in such
Global Security will not be entitled to have the Senior Debt Securities
represented thereby registered in their names, will not receive or be entitled
to receive physical delivery of certificates representing the Senior Debt
Securities and will not be considered the owners or holders thereof under the
Indenture. Accordingly, each person owning a beneficial interest in such Global
Security must rely on the procedures of the Depositary and, if such person is
not a participant, on the procedures of the participant through which such
person owns its interest, to exercise any rights of a holder under the
Indenture. The Company understands that under existing practice, in the event
that the Company requests any action of the holders or a beneficial owner
desires to take any action a holder is entitled to take, the Depositary would
act upon the instructions of, or authorize, the participant to take such action.
Payment of principal of, and any premium and interest on, Senior Debt
Securities represented by a Global Security will be made to the Depositary or
its nominee, as the case may be, as the registered owner and holder of the
Global Security representing such Senior Debt Securities. None of the Company,
the Trustee, any paying agent or registrar for such Senior Debt Securities will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the Global
Security or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
The Company has been advised by the Depositary that the Depositary will
credit participants' accounts with payments of principal and any premium or
interest on the payment date thereof in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Security
as shown on the records of the Depositary. The Company expects that payments by
participants to owners of beneficial interests in the Global Security held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers registered in "street name," and will be the responsibility of such
participants.
A Global Security may not be exchanged or transferred except as a whole by
the Depositary to a nominee or successor of the Depositary or by a nominee of
the Depositary to another nominee of the Depositary. A Global Security
representing all but not part of the Senior Debt Securities being offered hereby
is exchangeable or transferable for Senior Debt Securities in definitive form of
like tenor and terms if (i) the Depositary notifies the Company that it is
unwilling or unable to continue as depositary for such Global Security or if at
any time the Depositary is no longer eligible to be or in good standing as a
clearing agency registered under the Exchange Act, and in either case, a
successor depositary is not appointed by the Company within 90 days of receipt
by the Company of such notice or of the Company becoming aware of such
ineligibility, or (ii) the Company in its sole discretion at any time determines
not to have all of the Senior Debt Securities represented by a Global Security
and notifies the Trustee thereof. A Global Security exchangeable pursuant to the
preceding sentence shall be exchangeable for Senior Debt Securities registered
in such names and in such authorized denominations as the Depositary for such
Global Security shall direct. (Section 305)
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities in four ways: (i) directly to
purchasers, (ii) through agents, (iii) to or through underwriters and (iv) to
dealers.
The distribution of Senior Debt Securities may be effected from time to
time in one or more transactions at a fixed price or prices, which may be
changed, or at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices.
In connection with the sale of Senior Debt Securities, underwriters or
agents may receive compensation from the Company or from purchasers of Senior
Debt Securities for whom they may act as agents in the form of discounts,
concessions or commissions. Underwriters may sell Senior Debt Securities to or
through dealers,
12
and such dealers may receive compensation in the form of discounts, concessions
or commissions from the underwriters and/or commission from the purchasers from
whom they may act as agents. Any underwriters or agents participating in the
distribution of Senior Debt Securities may be deemed to be underwriters, and any
discounts or commissions received by them from the Company and any profit on the
resale of Senior Debt Securities may be deemed to be underwriting discounts and
commission under the Securities Act.
Offers to purchase Offered Securities may be solicited directly by the
Company and sales thereof may be made by the Company directly to institutional
investors or others. The terms of any such sales will be set forth in the
accompanying Prospectus Supplement.
Offers to purchase Offered Securities may be solicited by agents designated
by the Company from time to time. Any such agent, who may be deemed to be an
underwriter as that term is defined in the Securities Act, involved in the offer
or sale of the Offered Securities in respect of which this Prospectus is
delivered will be named, and any commissions payable by the Company to such
agent set forth, in the accompanying Prospectus Supplement. Unless otherwise
indicated in the accompanying Prospectus Supplement, any such agent will be
acting on a reasonable efforts basis for the period of its appointment. Agents
may be entitled under agreements which may be entered into with the Company to
indemnification by the Company against certain civil liabilities, including
liabilities under the Securities Act, and may be customers of, engage in
transactions with or perform services for the Company in the ordinary course of
business.
If any underwriters are utilized in the sale of the Offered Securities in
respect of which this Prospectus is delivered, the Company will enter into an
underwriting agreement with such underwriters at the time of sale to them and
the names of the specific managing underwriter or underwriters, as well as any
other underwriters and the terms of the transaction will be set forth in the
accompanying Prospectus Supplement, which will be used by the underwriters to
make resales of the Offered Securities in respect of which this Prospectus is
delivered to the public. The underwriters may be entitled, under the relevant
underwriting agreement, to indemnification by the Company against certain
liabilities, including liabilities under the Securities Act, and may be
customers of, engage in transactions with, or perform services for, the Company
in the ordinary course of business.
If a dealer is utilized in the sale of the Offered Securities in respect of
which this Prospectus is delivered, the Company will sell such Offered
Securities to the dealer, as principal. The dealer may then resell such Offered
Securities to the public at varying prices to be determined by such dealer at
the time of resale. Dealers may be entitled to indemnification by the Company
against certain liabilities, including liabilities under the Securities Act, and
may be customers of, engaged in transactions with, or perform services of, the
Company in the ordinary course of business.
Offered Securities may also be offered or sold, if so indicated in the
accompanying Prospectus Supplement, in connection with a remarketing upon their
purchase, in accordance with their terms, by one or more firms ("remarketing
firms"), acting as principals for their own accounts or as agents for the
Company. Any remarketing firm will be identified and the terms of its agreement,
if any, with the Company and its compensation will be described in the
accompanying Prospectus Supplement. Remarketing firms may be entitled under
agreements which may be entered into with the Company to indemnification by the
Company against certain civil liabilities, including liabilities under the
Securities Act, and may be customers of, engage in transactions with, or perform
services for, the Company in the ordinary course of business.
If so indicated in the accompanying Prospectus Supplement, the Company will
authorize agents and underwriters or dealers to solicit offers by certain
purchasers to purchase Offered Securities from the Company at the public
offering price set forth in the accompanying Prospectus Supplement pursuant to
delayed delivery contracts providing for payments and delivery on a specified
date in the future. Such contracts will be subject to only those conditions set
forth in the accompanying Prospectus Supplement, and the accompanying Prospectus
Supplement will set forth the commission payable for solicitation of such
offers. The obligations of any purchaser under any such contract will be subject
to the condition that the purchase of such Senior Debt Securities shall not at
the time of delivery be prohibited under the laws of the jurisdiction to which
such purchaser is subject. The underwriters and such other agents will not have
any responsibility in respect of the validity or performance of such contracts.
13
Any underwriters, agents or dealers utilized in the sale of Offered
Securities will not confirm sales to accounts over which they exercise
discretionary authority.
LEGAL MATTERS
The validity of the Senior Debt Securities offered hereby will be passed
upon for the Company by Jones, Day, Reavis & Pogue, Cleveland, Ohio, and for any
underwriters or agents by Sullivan & Cromwell, New York, New York. Sullivan &
Cromwell has on occasion been retained to perform legal services for the
Company.
EXPERTS
The consolidated financial statements of the Company contained in its
Annual Report on Form 10-K for the fiscal year ended June 30, 1995, filed with
the Commission and incorporated in this Prospectus have been examined by Coopers
& Lybrand L.L.P., independent accountants, to the extent and for the periods set
forth in their report dated August 3, 1995, incorporated in this Prospectus by
reference, and are incorporated by reference in reliance upon the report and the
authority of said firm as experts in accounting and auditing.
14