-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NbrID1bb+Thpfgn5ziIREMbuO/N5aij/KYW6XCczw7vsicNXZ9QYP8AVG3qvoSrj QjuZYMtCUjyMzUCqgo1caw== 0000950152-03-006635.txt : 20030702 0000950152-03-006635.hdr.sgml : 20030702 20030702172136 ACCESSION NUMBER: 0000950152-03-006635 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20030702 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EATON CORP CENTRAL INDEX KEY: 0000031277 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 340196300 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-106764 FILM NUMBER: 03772933 BUSINESS ADDRESS: STREET 1: EATON CTR STREET 2: 1111 SUPERIOR AVE CITY: CLEVELAND STATE: OH ZIP: 44114-2584 BUSINESS PHONE: 2165235000 MAIL ADDRESS: STREET 1: 1111 SUPERIOR AVENUE CITY: CLEVELAND STATE: OH ZIP: 44114 FORMER COMPANY: FORMER CONFORMED NAME: EATON YALE & TOWNE INC DATE OF NAME CHANGE: 19710822 S-3 1 l00571asv3.txt EATON CORPORATION | FORM S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 2003 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------ EATON CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Ohio (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) 34-0196300 (IRS Employer Identification No.) Eaton Center, 1111 Superior Avenue, Cleveland, Ohio 44114-2584, (216) 523-5000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------ E. R. FRANKLIN, Vice President and Secretary Eaton Corporation, Eaton Center, 1111 Superior Avenue, Cleveland, Ohio 44114-2584, (216) 523-4103 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) Copies to: JONATHAN JEWETT Shearman & Sterling LLP, 599 Lexington Avenue, New York, New York 10022 ------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: From time to time after the effective date of this Registration Statement. ------------------ If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF TO BE OFFERING AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED REGISTERED(1)(2) PRICE PER UNIT(2) OFFERING PRICE(2) FEE - --------------------------------------------------------------------------------------------------------------------------------- Debt Securities(3)..................... | 100% | - --------------------------------------- | ----------------------- | Debt Warrants(4)....................... | -- | - --------------------------------------- |> $250,000,000 ----------------------- |> $250,000,000 $20,225 Preferred Shares(5).................... | -- | - --------------------------------------- | ----------------------- | Common Shares, par value 50c per | | share(6)............................. | -- |
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) In U.S. dollars or the equivalent thereof in any other currency or currencies, currency unit or units or composite currency or currencies. (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457. (3) Or, in the event of the issuance of original issue discount debt securities, such higher principal amount as may be sold for an initial public offering price of up to $250,000,000. (4) Debt Warrants entitling the holder to purchase Debt Securities may be sold separately or with Debt Securities as units. It is not practicable to determine the number of Debt Warrants and proposed maximum offering price per Debt Warrant at this time as they will depend, among other things, on the denominations or stated values of the Debt Securities covered by the Debt Warrants, the duration of the Debt Warrants and prevailing interest rates at the time of the offering. (5) Such indeterminate number of Preferred Shares as may, from time to time, be issued at indeterminate prices. (6) Such indeterminate number of Common Shares as may, from time to time, be issued at indeterminate prices, including Common Shares issuable upon conversion of any Debt Securities and Preferred Shares that are convertible into Common Shares. Such number of Common Shares also includes shares initially offered or sold outside the United States that are sold or resold in the United States. Offers and sales of such shares outside the United States are not registered under this Registration Statement. Pursuant to Rule 429 under the Securities Act of 1933, the prospectus included in this Registration Statement is a combined prospectus also relating to $120,837,500 of securities previously registered under the Registration Statement No. 33-64201, which was filed by the Registrant on Form S-3 and declared effective on December 7, 1995 and $129,162,500 of securities previously registered under the Registration Statement No. 33-52333, which was filed by the Registrant on Form S-3 and declared effective on March 9, 1994. This Registration Statement, which is a new Registration Statement, also constitutes post-effective amendment No. 1 to Registration Statement No. 33-64201 and post-effective amendment No. 1 to Registration Statement No. 33-52333, and each post-effective amendment No. 1 shall hereafter become effective concurrently with the effectiveness of this Registration Statement and in accordance with section 8(c) of the Securities Act of 1933. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED JULY 2, 2003 PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED , 2003. $500,000,000 EATON CORPORATION Medium-Term Notes ------------------------ TERMS OF SALE The following terms may apply to the Notes that Eaton may sell at one or more times. The final terms for each Note will be included in a pricing supplement. Unless otherwise stated in a pricing supplement, Eaton will receive between $496 million and $499 million of the proceeds from the sale of the Notes, after paying the Agents commissions of between $1 million and $4 million. - - Ranking as senior indebtedness of Eaton - - Mature 9 months to 30 years from issue date - - Fixed or floating interest rate or indexed Notes or zero-coupon or other original issue discount Notes. The floating interest rate may be based on: - the CD Rate - the Commercial Paper Rate - LIBOR - the Federal Funds Rate - the Prime Rate - the Treasury Rate - the CMT Rate - any other rate, or combination of rates, specified by Eaton in the pricing supplement - - Certificated or book-entry form - - Subject to repurchase and may be subject to redemption at the option of Eaton or the holder - - Interest paid on Fixed Rate Notes semi-annually - - Interest paid on Floating Rate Notes monthly, quarterly, semiannually or annually - - Minimum denominations of $1,000 increased in multiples of $1,000, unless otherwise specified - - May be foreign currency or composite currency denominated - - Same day settlement and payment in immediately available funds Investing in the Notes involves certain risks. See "Risk Factors" on page S-3. The aggregate initial public offering price of the Notes that Eaton offers will be limited to $500,000,000 or its equivalent in one or more foreign currencies or composite currencies, but this limit will decrease if Eaton sells other securities that are described in the attached prospectus. ------------------------ NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS SUPPLEMENT, THE ATTACHED PROSPECTUS OR ANY PRICING SUPPLEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ Eaton may sell the Notes directly or through one or more agents or dealers, including the Agents listed below. The Agents are not required to sell any specific number or amounts of the Notes. They will use their reasonable best efforts to sell the Notes offered. GOLDMAN, SACHS & CO. JPMORGAN CITIGROUP MCDONALD INVESTMENTS, INC. ------------------------ Prospectus Supplement dated , 2003. TABLE OF CONTENTS PROSPECTUS SUPPLEMENT Risk Factors................................................ S-3 About this Prospectus Supplement and the Pricing Supplements............................................... S-4 Description of Notes........................................ S-5 United States Federal Income Taxation....................... S-20 Supplemental Plan of Distribution........................... S-30 Legal Opinions.............................................. S-31 PROSPECTUS Where You Can Find More Information......................... 2 The Company................................................. 3 Use of Proceeds............................................. 3 Ratio of Earnings to Fixed Charges.......................... 3 Prospectus.................................................. 3 Prospectus Supplement....................................... 4 Description of Debt Securities.............................. 4 Description of Debt Warrants................................ 20 Description of Preferred Shares............................. 22 Description of Common Shares................................ 26 Plan of Distribution........................................ 29 Legal Opinions.............................................. 30 Experts..................................................... 30
------------------------ You should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. We have not, and the Agents have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the Agents are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus supplement, the accompanying prospectus and the documents incorporated herein by reference is accurate only as of their respective dates. Our business, financial condition, results of operations and prospectus may have changed since those dates. S-2 RISK FACTORS Your investment in the Notes is subject to certain risks, especially if the Notes involve in some way a foreign currency. This prospectus supplement does not describe all of the risks of an investment in the Notes, whether arising because the Notes are denominated in a currency other than U.S. dollars or because the return on the Notes is linked to one or more interest rates or currency indices or formulas. You should consult your own financial and legal advisors about the risks entailed by an investment in the Notes and the suitability of your investment in the Notes in light of your particular circumstances. The Notes may not be an appropriate investment for investors who are unsophisticated with respect to foreign currency transactions or transactions involving the type of index or formula used to determine amounts payable. Before investing in the Notes, you should consider carefully, among other factors, the matters described below. EXCHANGE RATES AND EXCHANGE CONTROLS MAY ADVERSELY AFFECT OUR FOREIGN CURRENCY NOTES OR CURRENCY INDEXED NOTES If you invest in Foreign Currency Notes and currency Indexed Notes, your investment will be subject to significant risks not associated with investments in debt instruments denominated in U.S. dollars or U.S. dollar-based indices. Such risks include the possibility of significant changes in the rate of exchange between the U.S. dollar and your payment currency and the imposition or modification of foreign exchange controls by either the United States or the applicable foreign governments. We have no control over the factors that generally affect these risks, such as economic, financial and political events and the supply and demand for the applicable currencies. In recent years, rates of exchange between the U.S. dollar and certain foreign currencies have been volatile, and such volatility may continue in the future. Past fluctuations in any particular exchange rate are not necessarily indicative, however, of fluctuations that may occur in the future. Fluctuations in exchange rates against the U.S. dollar could result in a decrease in the U.S. dollar- equivalent yield of your Foreign Currency Notes or currency Indexed Notes, in the U.S. dollar-equivalent value of the principal and premium, if any, payable at maturity of your Notes and, generally, in the U.S. dollar-equivalent market value of your Notes. We may further describe the currency risks with respect to your Foreign Currency Notes or currency Indexed Notes in the applicable pricing supplement. Foreign exchange rates can either float or be fixed by sovereign governments. Governments, however, often do not voluntarily allow their currencies to float freely in response to economic forces. Instead, governments use a variety of techniques, such as intervention by a country's central bank or the imposition of regulatory controls or taxes, to affect the exchange rate of their currencies. Governments may also issue a new currency to replace an existing currency or alter the exchange rate or relative exchange characteristics by the devaluation or revaluation of a currency. Thus, an important risk in purchasing Foreign Currency Notes or currency Indexed Notes for U.S. dollar-based investors is that the U.S. dollar-equivalent yield of the Notes could be affected by, among other things, governmental actions that could change or interfere with a currency valuation that was previously freely determined, fluctuations in response to other market forces, and the movement of currencies across borders. We will make no adjustments or changes in the terms of the Foreign Currency Notes or currency Indexed Notes if exchange rates become fixed, if any devaluation or revaluation or imposition of exchange or other regulatory controls or taxes occurs, or if other developments affecting the U.S. dollar or any applicable currency occur. The calculation agent, the paying agent and the exchange rate agent will make calculations relating to your Foreign Currency Notes or currency Indexed Notes. All such determinations will, in the absence of clear error, be binding on beneficial owners of the Notes. For Notes with a specified currency other than U.S. dollars, we will include in the applicable pricing supplement information concerning historical exchange rates for that currency against the U.S. dollar and a brief description of any relevant exchange controls. S-3 THERE MAY BE RISKS ASSOCIATED WITH FOREIGN CURRENCY JUDGMENTS The Senior Indenture and the Notes, except to the extent that we specify otherwise in a pricing supplement, will be governed by, and construed in accordance with, the laws of the State of New York. As a holder of Notes, you may bring an action based upon an obligation payable in a currency other than U.S. dollars in courts in the United States. However, courts in the United States have not customarily rendered judgments for money damages denominated in any currency other than U.S. dollars. In addition, it is not clear whether, in granting such judgment, a court would determine the rate of conversion with reference to the date of default, the date judgment is rendered or any other date. The Judiciary Law of the State of New York provides, however, that an action based upon an obligation payable in a currency other than U.S. dollars will be rendered in the currency of the underlying obligation and converted into U.S. dollars at a rate of exchange prevailing on the date the judgment or decree is entered. In these cases, holders of Foreign Currency Notes would bear the risk of exchange rate fluctuations between the time the dollar amount of the judgment is calculated and the time U.S. dollars were paid to the holders. NOTES INDEXED TO INTEREST RATE, CURRENCY OR OTHER INDICES OR FORMULAS MAY HAVE RISKS NOT ASSOCIATED WITH A CONVENTIONAL DEBT SECURITY If you invest in Indexed Notes, your investment will be subject to significant risks that are not associated with an investment in a conventional debt security. Indexation of the interest rate of a Note may result in lower interest compared to a conventional fixed rate debt security issued at the same time, or no interest. Indexation of the principal and premium, if any, on a Note may result in the payment of a lower amount of principal and/or premium (or no principal and/or premium) compared to the original purchase price of the Note. The value of an index can fluctuate based on a number of interrelated factors, including economic, financial and political events over which we have no control. Additionally, if any formula that we specify to determine the amount of principal, premium, and/or interest payable with respect to Indexed Notes contains a multiple or leverage factor, that feature will magnify the effect of any change in the index. You should not take the historical experience of an index as an indication of its future performance. CREDIT RATINGS MAY NOT REFLECT ALL RISKS OF AN INVESTMENT IN THE NOTES The credit ratings on the Notes may not reflect the potential impact of all risks related to structure and other factors on the value of the Notes. In addition, real or anticipated changes in our credit ratings will generally affect the market value of the Notes. ABOUT THIS PROSPECTUS SUPPLEMENT AND THE PRICING SUPPLEMENTS We intend to use this prospectus supplement, the attached prospectus and a related pricing supplement to offer our Notes from time to time. This prospectus supplement provides you with certain terms of the Notes and supplements the description of the Debt Securities contained in the attached prospectus. If information in this prospectus supplement is inconsistent with the prospectus, this prospectus supplement will replace the inconsistent information in the prospectus. Each time we issue Notes, we will prepare a pricing supplement that will contain additional terms of the offering and the specific description of the Notes offered. The pricing supplement may also add, update or change information in this prospectus supplement or the attached prospectus, including provisions describing the calculation of interest and the method of making payments under the terms of a Note. The flexibility available to us to set or negotiate individualized terms for Notes means that there may be transactions, particularly with Indexed S-4 Notes, that are quite complex. Frequently, the terms of the Notes may differ from the terms that we describe in this prospectus supplement. Any information in a pricing supplement that is inconsistent with this prospectus supplement will replace the inconsistent information in this prospectus supplement. DESCRIPTION OF NOTES The following summary of certain terms of the Notes is not complete. For additional terms of the Notes, you should also read the Senior Indenture under which the Notes will be issued, which is an exhibit to our shelf registration statement. The following description of the Notes supplements, to the extent the descriptions are inconsistent, replaces the description of the general terms and provisions of the Debt Securities that is found under the heading "Description of Debt Securities" in the attached prospectus. The following descriptions will apply to each Note unless we specify otherwise in the pricing supplement. When we refer to you, we mean those who invest in the Notes being offered by this prospectus supplement and the attached prospectus, whether they are the holders or only indirect holders of those debt securities. When we refer to your Notes, we mean the Notes in which you hold a direct or indirect interest. GENERAL We will offer Notes on a continuous basis. The aggregate initial public offering price of the Notes that we offer will be limited to $500,000,000 or its equivalent in one or more foreign currencies or composite currencies, but this limit will decrease if we sell other securities that are described in the attached prospectus. The Notes are "Senior Securities", as described in the attached prospectus, and rank equally with all of our unsecured senior debt. The Notes offered by this prospectus supplement will form a part of the medium-term notes due from 9 months to 30 years from date of issue under the Senior Indenture. At May 31, 2003, we and our consolidated subsidiaries had total consolidated senior indebtedness of $2,171 million and we had no subordinated indebtedness outstanding. The Senior Indenture does not limit the amount of our Notes or other debt obligations that we may issue thereunder. The defeasance and covenant defeasance provisions of the Senior Indenture described under "Description of Debt Securities--Provisions Applicable to Both the Senior and Subordinated Indentures--Defeasance" in the attached prospectus will apply to the Notes. Unless we specify otherwise in the applicable pricing supplement, we will denominate the Notes in U.S. dollars and will make all payments on the Notes in U.S. dollars. For further information regarding Foreign Currency Notes, see "Risk Factors" and "Special Provisions Relating to Foreign Currency Notes". You must pay the purchase price of the Notes in immediately available funds. As used in this prospectus supplement, "Business Day" means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which commercial banks are authorized or required by law, regulation or executive order to close in The City of New York; provided, however, that with respect to Foreign Currency Notes, such day is also not a day on which commercial banks are authorized or required by law, regulation or executive order to close in the Principal Financial Center (as defined below) of the country issuing the specified currency (or, if the specified currency is the euro, such day is also a day on which the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) System is open); provided further that with respect to Notes as to which LIBOR is an applicable interest rate basis, such day is also a London Business Day. "London Business Day" means a day on which commercial banks are open for business (including dealings in the designated LIBOR Currency) in London. "Principal Financial Center" means S-5 - - the capital city of the country issuing the specified currency; or - - the capital city of the country to which the designated LIBOR Currency relates, as applicable, except that, with respect to U.S. dollars, Australian dollars, Canadian dollars, South African rand and Swiss francs, the "Principal Financial Center" will be The City of New York, Sydney, Toronto, Johannesburg and Zurich, respectively, and London (solely in the case of the designated LIBOR currency). The authorized denominations of Notes denominated in U.S. dollars will be integral multiples of $1,000. We will designate the authorized denominations of Foreign Currency Notes in the applicable pricing supplement. BOOK-ENTRY DEBT SECURITIES Except under certain circumstances, we will issue Notes in book-entry form only. This means that we will not issue actual Notes or certificates to you. Instead, we will issue a Global Security representing Notes with similar terms, and such Global Security will be held by The Depository Trust Company ("DTC") or its nominee. In order to own a beneficial interest in a Note, you must be an institution that has an account with DTC or have an account with an institution, such as a brokerage firm, that has an account with DTC. For a more complete description of Book-Entry Debt Securities, see "Description of Debt Securities--Book-Entry Debt Securities" in the prospectus. Payments of principal and premium, if any, and interest on Notes represented by a Global Security will be made in same-day funds to DTC in accordance with arrangements then in effect between the Trustee and DTC. INTEREST AND INTEREST RATES General Each Note will begin to accrue interest, if any, from the date it is originally issued. In the related pricing supplement, we will designate each Note as a Fixed Rate Note, a Floating Rate Note, an Amortizing Note or an Indexed Note and describe the method of determining the interest rate, including any spread and/or spread multiplier. For an Indexed Note, we will describe in the related pricing supplement the method for the calculation and payment of principal and interest. We also may specify a maximum and a minimum interest rate in the pricing supplement for a Floating Rate Note or Indexed Note. We may issue a Note as a Fixed Rate Note or a Floating Rate Note, or as a Note that combines fixed and floating rate terms. Interest rates that we offer with respect to Notes may differ depending upon, among other things, the aggregate principal amount of Notes purchased in any single transaction. We may offer Notes with similar variable terms but different interest rates, as well as Notes with different variable terms, concurrently to different investors. We may, from time to time, change the interest rates or formulae and other terms of Notes, but no such change will affect any Note that we already have issued or as to which we already have accepted an offer to purchase. Fixed Rate Notes In the pricing supplement for Fixed Rate Notes, we will specify a fixed interest rate payable semiannually in arrears on each April 15 and October 15 (each an "Interest Payment Date"), or such other dates specified in the applicable pricing supplement, to holders of record on the corresponding Regular Record Date. If a Fixed Rate Note is issued between a Regular Record Date and the corresponding date which would otherwise be the initial Interest Payment Date, we will make our first payment of interest, if any, on the Interest Payment Date following the next Regular Record Date. The "Regular Record Date", as referred to in this paragraph, is the close of business on the fifteenth day (whether or not a Business Day) prior to an Interest Payment Date. We will compute interest on Fixed Rate Notes on the basis of a 360-day year of twelve 30-day months. If the maturity date or an Interest Payment Date for any Fixed Rate Note is not a Business Day, we will pay principal of and premium, if any, and interest for that Note, as applicable, on the next Business Day, and no interest will accrue from and after the maturity date or Interest Payment Date. S-6 Original Issue Discount Notes We may issue original issue discount Notes (including zero-coupon Notes) ("OID Notes"), which are Notes issued at a discount from the principal amount payable at the maturity date. An OID Note might not have periodic interest payments. For these Notes, interest normally accrues during the life of the Note, and you receive it at the maturity date or upon earlier redemption. Upon a redemption, repayment or acceleration of the maturity of an OID Note, we will determine the amount payable to you as set forth under "--Optional Redemption, Repayment and Repurchase". Normally, this amount is less than the amount that we would otherwise pay at the maturity date. Amortizing Notes We may issue amortizing Notes, which are Fixed Rate Notes for which combined principal and interest payments are made in installments over the life of each Note ("Amortizing Notes"). We apply payments on Amortizing Notes first to pay interest due and then to reduce the unpaid principal amount. We will include a table setting forth repayment information in the related pricing supplement for an Amortizing Note. Floating Rate Notes Each Floating Rate Note will have an interest rate basis or formula. We may base that formula on - the CD Rate; - the Commercial Paper Rate; - LIBOR; - the Federal Funds Rate; - the Prime Rate; - the Treasury Rate; - the CMT Rate; or - any other rate, or combination of rates, specified in the pricing supplement. In the pricing supplement, we also will indicate any spread and/or spread multiplier, which would be applied to the interest rate formula to determine the interest rate. Any Floating Rate Note may have a maximum or minimum interest rate limitation. In addition to any maximum interest rate limitation, the interest rate on the Floating Rate Notes will in no event be higher than the maximum rate permitted by New York law, as the same may be modified by United States law for general application. We will appoint a calculation agent to calculate interest rates on the Floating Rate Notes. Unless we identify a different party in the pricing supplement, the paying agent will be the calculation agent for each Note. In most cases, a Floating Rate Note will have a specified "Interest Reset Date", "Interest Determination Date" and "Calculation Date" associated with it. An Interest Reset Date is the date on which the interest rate on the Note changes. An Interest Determination Date is the date as of which the new interest rate is determined for a particular Interest Reset Date, based on the interest rate basis or formula as of that Interest Determination Date. The Calculation Date is the date by which the calculation agent will determine the new interest rate that became effective on a particular Interest Reset Date, based on the interest rate basis or formula as of the applicable Interest Determination Date. CHANGE OF INTEREST RATE We may set the interest rate on each Floating Rate Note daily, weekly, monthly, quarterly, semiannually, annually or on some other basis that we specify (each, an "Interest Reset Date"). Unless otherwise stated in the pricing supplement, the Interest Reset Date will be - for Notes with interest that resets daily, each Business Day; - for Notes (other than Treasury Rate Notes) with interest that resets weekly, Wednesday of each week; - for Treasury Rate Notes with interest that resets weekly, Tuesday of each week; - for Notes with interest that resets monthly, the third Wednesday of each month; - for Notes with interest that resets quarterly, the third Wednesday of each of the four months of each year indicated in the applicable pricing supplement; - for Notes with interest that resets semiannually, the third Wednesday of each of the two months of each year indicated in the applicable pricing supplement; and S-7 - for Notes with interest that resets annually, the third Wednesday of the month of each year indicated in the applicable pricing supplement. The related pricing supplement will describe the initial interest rate or interest rate formula on each Note. That rate is effective until the following Interest Reset Date. Thereafter, the interest rate will be the rate determined on each Interest Determination Date. Each time a new interest rate is determined, it becomes effective on the subsequent Interest Reset Date. If any Interest Reset Date is not a Business Day, then the Interest Reset Date is postponed to the next Business Day, except, in the case of a LIBOR Note, if the next Business Day is in the next calendar month, the Interest Reset Date is the immediately preceding Business Day. DATE INTEREST RATE IS DETERMINED The Interest Determination Date for all Floating Rate Notes (except LIBOR Notes and Treasury Rate Notes) will be the second Business Day before the Interest Reset Date. The Interest Determination Date in the case of LIBOR Notes will be the second London Business Day immediately preceding the applicable Interest Reset Date. The Interest Determination Date for Treasury Rate Notes will be the day of the week in which the Interest Reset Date falls on which Treasury bills of the same Index Maturity are normally auctioned. Treasury bills usually are sold at auction on Monday of each week, unless that day is a legal holiday, in which case the auction usually is held on Tuesday. Sometimes, the auction is held on the preceding Friday. If an auction is held on the preceding Friday, that day will be the Interest Determination Date relating to the Interest Reset Date occurring in the next week. If an auction date falls on a day that would otherwise be an Interest Reset Date, then the Interest Reset Date will instead be the first Business Day immediately following the auction date. CALCULATION DATE Unless we specify a different date in a pricing supplement, the "Calculation Date", if applicable, relating to an Interest Determination Date will be the earlier of, - the tenth calendar day after such Interest Determination Date or, if that day is not a Business Day, the next succeeding Business Day; or - the Business Day immediately preceding the relevant Interest Payment Date or the maturity date, as the case may be. Upon the request of the beneficial holder of any Floating Rate Note, the calculation agent will provide the interest rate then in effect and, if different, the interest rate that will become effective on the next Interest Reset Date for the Floating Rate Note. PAYMENT OF INTEREST Unless otherwise stated in the pricing supplement, we will pay installments of interest on Floating Rate Notes as follows: - for Notes with interest payable monthly, on the third Wednesday of each month; - for Notes with interest payable quarterly, on the third Wednesday of each of the four months of each year indicated in the applicable pricing supplement; - for Notes with interest payable semiannually, on the third Wednesday of each of the two months specified in the applicable pricing supplement; - for Notes with interest payable annually, on the third Wednesday of the month specified in the applicable pricing supplement (each of the above, an "Interest Payment Date"); and - at maturity, redemption or repurchase. Each interest payment on a Floating Rate Note will include interest accrued from, and including, the issue date or the last Interest Payment Date, as the case may be, to, but excluding, the following Interest Payment Date or the maturity or redemption date, as the case may be. We will pay installments of interest on Floating Rate Notes beginning on the first Interest Payment Date after its issue date to the holders of record on the corresponding Regular Record Date. If a Floating Rate Note is issued between a Regular Record Date and the corresponding S-8 date, which would otherwise be the initial Interest Payment Date, we will make our first payment of interest, if any, on the Interest Payment Date following the next Regular Record Date. The "Regular Record Date", as referred to in this paragraph, is the close of business on the fifteenth day (whether or not a Business Day) prior to an Interest Payment Date. If an Interest Payment Date (but not the maturity date) is not a Business Day, the Interest Payment Date will be deferred until the next Business Day; however, in the case of LIBOR Notes, the Interest Payment Date will be the preceding Business Day if the next Business Day is in the next calendar month. If the maturity date of any Floating Rate Note is not a Business Day, we will pay principal of and premium, if any, and interest for that Note on the next Business Day, and no interest will accrue from and after the maturity date. We and the calculation agent will calculate accrued interest on a Floating Rate Note by multiplying the principal amount of a Note by an accrued interest factor. The accrued interest factor is the sum of the interest factors calculated for each day in the period for which accrued interest is being calculated. The interest factor for each day is computed by dividing the interest rate in effect on that day by - 360, in the case of CD Rate Notes, Commercial Paper Rate Notes, LIBOR Notes (except where a 360-day convention is not customary, e.g., for LIBOR Notes denominated in pounds sterling), Federal Funds Rate Notes and Prime Rate Notes; - 365, in the case of other LIBOR Notes (e.g., LIBOR Notes denominated in pounds sterling); or - the actual number of days in the year, in the case of Treasury Rate Notes and CMT Rate Notes. All percentages resulting from any calculation will be rounded to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upward. For example, 4.567895% (or 0.04567895) will be rounded to 4.5679% (or 0.0456790). Dollar amounts used in the calculation will be rounded to the nearest cent (with one-half cent being rounded upward). CALCULATION OF INTEREST In this section, we will explain how we and the calculation agent will calculate the interest rate on different Floating Rate Notes. CD Rate Notes The "CD Rate" for any Interest Determination Date is the rate on that date for negotiable certificates of deposit having the Index Maturity described in the related pricing supplement, as published in H.15(519) prior to 3:00 P.M., New York City time, on the Calculation Date, for that Interest Determination Date under the heading "CDs (secondary market)". The "Index Maturity" is the period to maturity of the instrument or obligation with respect to which the related interest rate basis or formula will be calculated. We and the calculation agent will observe the following procedures if the CD Rate cannot be determined as described above: - If the above rate is not published in H.15(519) by 3:00 P.M., New York City time, on the Calculation Date, the CD Rate will be the rate on that Interest Determination Date for negotiable certificates of deposit of the Index Maturity described in the related pricing supplement as published in H.15 Daily Update, or such other recognized electronic source used for the purpose of displaying such rate, under the caption "CDs (secondary market)". - If that rate is not published in H.15(519), H.15 Daily Update or another recognized electronic source by 3:00 P.M., New York City time, on the Calculation Date, then the calculation agent will determine the CD Rate to be the average of the secondary market offered rates as of 10:00 A.M., New York City time, on that Interest Determination Date, quoted by three leading non-bank dealers of negotiable U.S. dollar certificates of deposit of major United States money market banks in The City of New York of the highest credit standing (in the market for negotiable certificates of deposit) for negotiable certificates of deposit in a denomination of $5,000,000 with a remaining maturity closest to the Index Maturity described in the related pricing S-9 supplement. The calculation agent, after consultation with us, will select the three dealers referred to above. - If fewer than three dealers are quoting as mentioned above, the CD Rate will remain the CD Rate then in effect on that Interest Determination Date. "H.15(519)" means the weekly statistical release designated as such, or any successor publication, published by the Board of Governors of the Federal Reserve System. "H.15 Daily Update" means the daily update of H.15(519), available through the worldwide web site of the Board of Governors of the Federal Reserve System at http://www.federalreserve.gov/releases/h15/update, or any successor site or publication. Commercial Paper Rate Notes The "Commercial Paper Rate" for any Interest Determination Date is the Money Market Yield of the rate on that date for commercial paper having the Index Maturity described in the related pricing supplement, as published in H.15(519) prior to 3:00 P.M., New York City time, on the Calculation Date for that Interest Determination Date under the heading "Commercial Paper--Nonfinancial". We and the calculation agent will observe the following procedures if the Commercial Paper Rate cannot be determined as described above: - If the above rate is not published in H.15(519) by 3:00 P.M., New York City time, on the Calculation Date, the Commercial Paper Rate will be the Money Market Yield of the rate on that Interest Determination Date for commercial paper having the Index Maturity described in the related pricing supplement, as published in H.15 Daily Update, or such other recognized electronic source used for the purpose of displaying such rate, under the caption "Commercial Paper -- Nonfinancial". - If that rate is not published in H.15(519), H.15 Daily Update or another recognized electronic source by 3:00 P.M., New York City time, on the Calculation Date, then the calculation agent will determine the Commercial Paper Rate to be the Money Market Yield of the average of the offered rates of three leading dealers of U.S. dollar commercial paper in The City of New York as of 11:00 A.M., New York City time, on that Interest Determination Date for commercial paper having the Index Maturity described in the related pricing supplement placed for an industrial issuer whose bond rating is "Aa", or the equivalent, from a nationally recognized securities rating organization. The calculation agent, after consultation with us, will select the three dealers referred to above. - If fewer than three dealers selected by the calculation agent are quoting as mentioned above, the Commercial Paper Rate will remain the Commercial Paper Rate then in effect on that Interest Determination Date. "Money Market Yield" means a yield (expressed as a percentage) calculated in accordance with the following formula: Money Market Yield = D x 360 ------------- X 100 360 - (D X M)
Where "D" refers to the applicable per annum rate for commercial paper quoted on a bank discount basis and expressed as a decimal, and "M" refers to the actual number of days in the interest period for which interest is being calculated. LIBOR Notes On each Interest Determination Date, the calculation agent will determine LIBOR as follows: - If the pricing supplement specifies "LIBOR Telerate", LIBOR on any Interest Determination Date will be the rate for deposits in the LIBOR Currency having the Index Maturity described in the related pricing supplement on the applicable Interest Reset Date, as such rate appears on the Designated LIBOR Page as of 11:00 A.M., London time, on that Interest Determination Date. - If the pricing supplement specifies "LIBOR Reuters", LIBOR on any Interest Determination Date will be the average of the offered rates for deposits in the LIBOR Currency having the Index Maturity described in the related pricing supplement on the applicable Interest Reset S-10 Date, as such rates appear on the Designated LIBOR Page as of 11:00 A.M., London time, on that Interest Determination Date, if at least two such offered rates appear on the Designated LIBOR Page. If the pricing supplement does not specify "LIBOR Telerate" or "LIBOR Reuters", the LIBOR Rate will be LIBOR Telerate. In addition, if the Designated LIBOR Page by its terms provides only for a single rate, that single rate will be used regardless of the foregoing provisions requiring more than one rate. On any Interest Determination Date on which fewer than the required number of applicable rates appear or no rate appears on the applicable Designated LIBOR Page, the calculation agent will determine LIBOR as follows: - The calculation agent will determine LIBOR on the basis of the offered rates at which deposits in the LIBOR Currency having the Index Maturity described in the related pricing supplement on the Interest Determination Date and in a principal amount that is representative of a single transaction in that market at that time are offered by four major banks in the London interbank market at approximately 11:00 A.M., London time, for the period commencing on the Interest Reset Date to prime banks in the London interbank market. The calculation agent will select the four banks and request the principal London office of each of those banks to provide a quotation of its rate for deposits in the LIBOR Currency. If the banks provide at least two quotations, LIBOR for that Interest Determination Date will be the average of those quotations. - If the banks provide fewer than two quotations as mentioned above, LIBOR will be the average of the rates quoted by three major banks in the Principal Financial Center selected by the calculation agent at approximately 11:00 A.M. in the Principal Financial Center, on the Interest Determination Date for loans to leading European banks in the LIBOR Currency having the Index Maturity designated in the related pricing supplement for the period commencing on the Interest Reset Date and in a principal amount that is representative of a single transaction in the LIBOR Currency in that market at that time. The calculation agent will select the three banks referred to above. - If fewer than three banks selected by the calculation agent are quoting as mentioned above, LIBOR will remain the LIBOR then in effect on that Interest Determination Date. "LIBOR Currency" means the currency specified in the applicable pricing supplement as to which LIBOR will be calculated or, if no such currency is specified in the applicable pricing supplement, U.S. dollars. "Designated LIBOR Page" means: - if the related pricing supplement specifies "LIBOR Reuters", the display on the Reuters Monitor Money Rates Service (or any successor service) on the page specified in such pricing supplement (or any other page as may replace such page on such service) for the purpose of displaying the London interbank rates of major banks for the LIBOR Currency; or - if the related pricing supplement specifies "LIBOR Telerate" or it specifies neither "LIBOR Reuters" nor "LIBOR Telerate" as the method of calculating LIBOR, the display on Bridge Telerate, Inc. or any successor service ("Telerate") on the page specified in such pricing supplement (or any other page that may replace such page on such service) for the purpose of displaying the London interbank rates of major banks for the LIBOR Currency. Federal Funds Rate Notes The "Federal Funds Rate" for any Interest Determination Date is the rate on that date for Federal Funds, as published in H.15(519) prior to 3:00 P.M., New York City time, on the Calculation Date for that Interest Determination Date under the heading "Federal Funds (Effective)", as such rate is displayed on Telerate on page 120 (or any other page that may replace such page) ("Telerate Page 120"). S-11 We and the calculation agent will observe the following procedures if the Federal Funds Rate cannot be determined as described above: - If the above rate does not appear on Telerate Page 120 or is not published in H.15(519) by 3:00 P.M., New York City time, on the Calculation Date, the Federal Funds Rate will be the rate on that Interest Determination Date, as published in H.15 Daily Update, or such other recognized electronic source used for the purpose of displaying such rate, under the caption "Federal Funds (Effective)". - If the above rate does not appear on Telerate Page 120 or is not published in H.15(519) or H.15 Daily Update or such other recognized electronic source as described above by 3:00 P.M., New York City time, on the Calculation Date, then the calculation agent will determine the Federal Funds Rate to be the average of the rates for the last transaction in overnight Federal Funds arranged by three leading dealers of Federal Funds transactions in The City of New York as of 9:00 A.M., New York City time, on that Interest Determination Date. The calculation agent, after consultation with us, will select the three dealers referred to above. - If fewer than three brokers selected by the calculation agent are quoting as mentioned above, the Federal Funds Rate will be the Federal Funds Rate then in effect on that Interest Determination Date. Prime Rate Notes The "Prime Rate" for any Interest Determination Date is the prime rate or base lending rate on that date, as published in H.15(519) by 3:00 P.M., New York City time, on the Calculation Date for that Interest Determination Date under the heading "Bank Prime Loan" or, if not published by 3:00 P.M., New York City time, on the related Calculation Date, the rate on such Interest Determination Date as published in H.15 Daily Update, or such other recognized electronic source used for the purpose of displaying such rate, under the caption "Bank Prime Loan". We and the calculation agent will observe the following procedures if the Prime Rate cannot be determined as described above: - If the rate is not published in H.15(519), H.15 Daily Update or another recognized electronic source by 3:00 P.M., New York City time, on the Calculation Date, then the calculation agent will determine the Prime Rate to be the average of the rates of interest publicly announced by each bank that appears on the Reuters screen designated as "USPRIME1" as that bank's prime rate or base lending rate as in effect for that Interest Determination Date. - If at least one rate but fewer than four rates appear on the Reuters screen USPRIME1 on the Interest Determination Date, then the Prime Rate will be the average of the prime rates or base lending rates quoted (on the basis of the actual number of days in the year divided by a 360-day year) as of the close of business on the Interest Determination Date by three major money center banks in The City of New York selected by the calculation agent. - If the banks selected by the calculation agent are not quoting as mentioned above, the Prime Rate will remain the Prime Rate then in effect on the Interest Determination Date. Treasury Rate Notes The "Treasury Rate" for any Interest Determination Date is the rate set at the auction of direct obligations of the United States ("Treasury bills") having the Index Maturity described in the related pricing supplement under the caption "INVESTMENT RATE" on the display on Telerate on page 56 (or any other page that may replace such page) ("Telerate Page 56") or page 57 (or any other page that may replace such page) ("Telerate Page 57") by 3:00 P.M., New York City time, on the Calculation Date for that Interest Determination Date. We and the calculation agent will observe the following procedures if the Treasury Rate cannot be determined as described above: - If the rate is not published by 3:00 P.M., New York City time, on the Calculation S-12 Date, the Treasury Rate will be the auction rate of such Treasury bills (expressed as a bond equivalent on the basis of a year of 365 or 366 days, as applicable, and applied on a daily basis) as published in H.15 Daily Update, or such recognized electronic source used for the purpose of displaying such rate, under the caption "U.S. Government securities Treasury bills/Auction high". - If the rate is not published by 3:00 P.M., New York City time, on the Calculation Date and cannot be determined as described in the immediately preceding paragraph, the Treasury Rate will be the average auction rate of such Treasury bills (expressed as a bond equivalent on the basis of a year of 365 or 366 days, as applicable, and applied on a daily basis) as otherwise announced by the United States Department of the Treasury on the Calculation Date. - If the results of the most recent auction of Treasury bills having the Index Maturity described in the related pricing supplement are not published or announced as described above by 3:00 P.M., New York City time, on the Calculation Date, or if no auction is held on the Interest Determination Date, then the Treasury Rate will be the rate (expressed as a bond equivalent on the basis of a year of 365 or 366 days, as applicable, and applied on a daily basis) on such Interest Determination Date of Treasury bills having the Index Maturity specified in the applicable pricing supplement as published in H.15(519) under the caption "U.S. Government securities/Treasury bills/ Secondary market" or, if not published by 3:00 P.M., New York City time, on the related Calculation Date, the rate on such Interest Determination Date of such Treasury bills as published in H.15 Daily Update, or such other recognized electronic source used for the purpose of displaying such rate, under the caption "U.S. Government securities/Treasury bills/Secondary market". - If such rate is not yet published in H.15(519), H.15 Daily Update or another recognized electronic source by 3:00 P.M., New York City time, on the related Calculation Date, then the calculation agent will determine the Treasury Rate to be the Bond Equivalent Yield of the average of the secondary market bid rates, as of approximately 3:30 P.M., New York City time, on the Interest Determination Date of three leading primary U.S. government securities dealers (which may include the Agents or their affiliates) for the issue of Treasury bills with a remaining maturity closest to the Index Maturity described in the related pricing supplement. The calculation agent will select the three dealers referred to above. - If fewer than three dealers selected by the calculation agent are quoting as mentioned above, the Treasury Rate will remain the Treasury Rate then in effect on that Interest Determination Date. "Bond Equivalent Yield" means a yield (expressed as a percentage) calculated in accordance with the following formula: Bond Equivalent Yield = D x N ------------- X 100 360 - (D X M)
where "D" refers to the applicable per annum rate for Treasury Bills quoted on a bank discount basis, "N" refers to 365 or 366 days, as applicable, and "M" refers to the actual number of days in the applicable Interest Reset Period. CMT Rate Notes The "CMT Rate" for any Interest Determination Date is the rate displayed on the Designated CMT Telerate Page by 3:00 P.M., New York City time, on the Calculation Date for that Interest Determination Date under the caption "-- Treasury Constant Maturities -- Federal Reserve Board Release H.15 -- Mondays Approximately 3:45 P.M.", under the column for the Designated CMT Maturity Index described in the related pricing supplement for: - if the Designated CMT Telerate Page is 7051 or any successor page, the rate on such Interest Determination Date; or - if the Designated CMT Telerate Page is 7052 or any successor page, the weekly or monthly average for the week or the month, as specified in the related pricing supplement, ended immediately preced- S-13 ing the week or the month in which the related Interest Determination Date occurs. The following procedures will be used if the CMT Rate cannot be determined as described above: - If the relevant page does not display the rate by 3:00 P.M., New York City time, on the Calculation Date, then the CMT Rate will be the Treasury constant maturity rate for the Designated CMT Maturity Index, as published in H.15(519). - If that rate is not published in H.15(519) by 3:00 P.M., New York City time, on the Calculation Date, then the CMT Rate will be the Treasury constant maturity rate (or other United States Treasury rate) for the Designated CMT Maturity Index for the Interest Determination Date as may then be published by either the Board of Governors of the Federal Reserve System or the United States Department of the Treasury that the calculation agent determines (with our concurrence) to be comparable to the rate formerly displayed on the Designated CMT Telerate Page and published in H.15(519). - If that information is not provided by 3:00 P.M., New York City time, on the Calculation Date, then the calculation agent will determine the CMT Rate to be a yield to maturity based on the arithmetic average of the secondary market closing offered rates, as of approximately 3:30 P.M., New York City time, on the Interest Determination Date reported, according to their written records, by three leading primary United States government securities dealers (each, a "Reference Dealer") in The City of New York. The calculation agent will select five Reference Dealers and will eliminate the highest quotation (or, in the event of equality, one of the highest quotations) and the lowest quotation (or, in the event of equality, one of the lowest quotations), for the most recently issued, direct, noncallable fixed rate obligations of the United States ("Treasury Notes") with an original maturity approximately equivalent to that of the Designated CMT Maturity Index, and a remaining term to maturity not less than that of the Designated CMT Maturity Index minus one year. - If the calculation agent cannot obtain three Treasury Note quotations, the calculation agent will determine the CMT Rate to be a yield to maturity based on the arithmetic average of the secondary market offered rates as of approximately 3:30 P.M., New York City time, on the Interest Determination Date of three Reference Dealers in The City of New York (selected using the same method described above) for Treasury Notes with an original maturity of the number of years that is the next highest to that of the Designated CMT Maturity Index, and with a remaining term to maturity closest to that of the Designated CMT Maturity Index, which has an outstanding balance of at least $100,000,000. If two such Treasury Notes with an original maturity have remaining terms to maturity equally close to that of the Designated CMT Maturity Index, the calculation agent will obtain quotations for the Treasury Note with the shorter remaining term to maturity. - If three or four (but not five) Reference Dealers are quoting as mentioned above, then the CMT Rate will be based on the arithmetic average of the offered rates obtained, and neither the highest nor the lowest of those quotations will be eliminated. - If fewer than three Reference Dealers selected by the calculation agent are quoting as mentioned above, the CMT Rate will remain the CMT Rate then in effect on the Interest Determination Date. "Designated CMT Telerate Page" means the display on Telerate, on the page specified in the applicable pricing supplement (or any other page as may replace such page), for the purpose of displaying Treasury Constant Maturities as reported in H.15(519) or, if no such page is specified in the applicable pricing supplement, page 7052 (or any other page that may replace such page). "Designated CMT Maturity Index" means the original period to maturity of the U.S. Treasury S-14 securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years) specified in the applicable pricing supplement with respect to which the CMT Rate will be calculated or, if no such maturity is specified in the applicable pricing supplement, two years. INDEXED NOTES We may issue Notes for which the amount of interest or principal that you will receive will not be known on your date of purchase. We will specify the formula for computation of principal and premium, if any, and interest payments for these types of Notes, which we call "Indexed Notes", by reference to securities, financial or non-financial indices, currencies, commodities, interest rates, or composites or baskets of any or all of the above. Examples of indexed items that we may use include a published stock index, the common stock price of a publicly traded company, the value of the U.S. dollar versus the Japanese yen, or the price in a particular market of a particular commodity. If you purchase an Indexed Note, you may receive a principal amount at maturity that is greater than or less than the Note's face amount, and an interest rate that is greater than or less than the interest rate that you would have earned if you had instead purchased a conventional debt security issued by us at the same time with the same maturity. The amount of principal and premium, if any, and interest that you will receive will depend on the structure of the Indexed Note and the level of the specified indexed item throughout the term of the Indexed Note and at maturity. Specific information pertaining to the method of determining the interest payments, principal amounts and/or premium amounts, as well as additional risk factors unique to the Indexed Note, certain historical information for the specified indexed item and certain additional United States federal tax considerations will be described in the related pricing supplement. RENEWABLE NOTES We may issue Renewable Notes ("Renewable Notes"), which are Notes that will automatically renew at their maturity date unless the holder of the Renewable Note elects to terminate the automatic extension feature by giving notice in the manner described in the related pricing supplement. The holder of a Renewable Note must give notice of termination at least 15, but not more than 30 days, prior to the Renewal Date. The holder of a Renewable Note may terminate the automatic extension for less than all of their Renewable Notes only if the terms of the Note specifically permit partial termination. An election to terminate the automatic extension of any portion of the Renewable Note is irrevocable and will be binding on the holder of the Note. If the holder elects to terminate the automatic extension of the maturity of the Note, the holder will become entitled to the principal and interest accrued up to the Renewal Date. The related pricing supplement will identify a final maturity date beyond which the maturity date cannot be renewed. If a Note is represented by a Global Security, DTC or its nominee will be the holder of the Note and, therefore, will be the only entity that can exercise a right to terminate the automatic extension of a Note. In order to ensure that DTC or its nominee will exercise a right to terminate the automatic extension provisions of a particular Note, the beneficial owner of the Note must instruct the broker or other DTC participant through which it holds an interest in the Note to notify DTC of its desire to terminate the automatic extension of the Note. Different firms have different cutoff times for accepting instructions from their customers, and accordingly, each beneficial owner should consult the broker or other participant through which it holds an interest in a Renewable Note to ascertain the cutoff time by which an instruction must be given for delivery of timely notice to DTC or its nominee. EXTENDIBLE NOTES We may issue Notes whose stated maturity date may be extended at our option (an "Extendible Note") for one or more whole year periods (each, an "Extension Period"), up to but not beyond a final maturity date described in the related pricing supplement (but not to exceed 30 years from the date of issue). We may exercise our option to extend an Extendible Note by notifying the Trustee (or any duly appointed paying agent) at least 50 but not S-15 more than 60 days prior to the then effective maturity date. If we elect to extend an Extendible Note, the Trustee (or paying agent) will mail, at least 40 days prior to the maturity date, to the registered holder of an Extendible Note a notice (the "Extension Notice") informing the holder of our election, the new maturity date and any updated terms. Upon the mailing of an Extension Notice, the maturity of such Note will be extended automatically as set forth in the Extension Notice. However, we may, not later than 20 days prior to the maturity date of an Extendible Note (or, if such date is not a Business Day, on the immediately succeeding Business Day), at our option, establish a higher interest rate, in the case of a Fixed Rate Note, or a higher spread and/or spread multiplier, in the case of a Floating Rate Note, for the Extension Period by mailing or causing the Trustee (or paying agent) to mail notice of such higher interest rate or higher spread and/or spread multiplier to the holder of an Extendible Note. The notice will be irrevocable. If we elect to extend the maturity of an Extendible Note, the holder of the Note will have the option to instead elect repayment of the Note by us on the then effective maturity date. In order for an Extendible Note to be so repaid on the maturity date, we must receive, at least 15 days but not more than 30 days prior to the maturity date, - the Note with the form "Option to Elect Repayment" on the reverse of the Note duly completed; or - a facsimile transmission, telex or letter from a member of a national securities exchange or the National Association of Securities Dealers, Inc. or a commercial bank or trust company in the United States setting forth the name of the holder of the Note, the principal amount of the Note, the principal amount of the Note to be repaid, the certificate number or a description of the tenor and terms of the Note, a statement that the option to elect repayment is being exercised thereby and a guarantee that the Note to be repaid, together with the duly completed form entitled "Option to Elect Repayment" on the reverse of the Note, will be received by the Trustee (or paying agent) not later than the fifth Business Day after the date of the facsimile transmission, telex or letter; provided, however, that the facsimile transmission, telex or letter will only be effective if the Trustee or paying agent receives the Note and form duly completed by that fifth Business Day. A holder of an Extendible Note may exercise this option for less than the aggregate principal amount of the Note then outstanding if the principal amount of the Note remaining outstanding after repayment is an authorized denomination. If a Note is represented by a Global Security, DTC or its nominee will be the holder of that Note and, therefore, will be the only entity that can exercise a right to repayment. To ensure that DTC or its nominee timely exercises a right to repayment with respect to a particular Note, the beneficial owner of that Note must instruct the broker or other participant through which it holds an interest in the Note to notify DTC of its desire to exercise a right of repayment. Different firms have different cutoff times for accepting instructions from their customers and, accordingly, each beneficial owner should consult the broker or other participant through which it holds an interest in a Note to determine the cutoff time by which an instruction must be given for timely notice to be delivered to DTC or its nominee. DEBT WARRANTS We may issue Notes paired with Debt Warrants. In that case, the related pricing supplement will include a description of the Debt Warrants that we determine to issue with the Notes. OPTIONAL REDEMPTION, REPAYMENT AND REPURCHASE We will indicate in the pricing supplement for a Note whether we will have the option to redeem the Note before the stated maturity and the price or prices at which, and date or dates on which, redemption may occur. If we are allowed to redeem a Note, we may exercise the option by notifying the Trustee at least 60 days prior to the redemption date. At least 30 but not more than 60 days before the redemption date, the S-16 Trustee will mail notice or cause the paying agent to mail notice of redemption to the holders. If we redeem a Note in part, we will issue a new Note or Notes for the unredeemed portion. We also will indicate in the pricing supplement for a Note whether you will have the option to elect repayment by us prior to the stated maturity and the price or prices at which, and the date or dates on which, repayment may occur. For a Note to be repaid at your option, the paying agent must receive, at least 30 but not more than 60 days prior to an optional repayment date, such Note with the form entitled "Option to Elect Repayment" on the reverse of the Note duly completed. If you present a Note for repayment, such act will be irrevocable. You may exercise the repayment option for less than the entire principal of the Note, provided the remaining principal outstanding is an authorized denomination. If you elect partial repayment, your Note will be canceled, and we will issue a new Note or Notes for the remaining amount. DTC or its nominee will be the holder of each Global Security and will be the only party that can exercise a right of repayment. If you are a beneficial owner of a Global Security and you want to exercise your right of repayment, you must instruct your broker or indirect participant through which you hold an interest in the Note to notify DTC. You should consult your broker or such indirect participant to discuss the appropriate cutoff times and any other requirements for giving this instruction. The giving of any such instruction will be irrevocable. If a Note is an OID Note (other than an Indexed Note), the amount payable in the event of redemption or repayment prior to its stated maturity will be the amortized face amount on the redemption or repayment date, as the case may be. The amortized face amount of an OID Note will be equal to - - the issue price, plus - - that portion of the difference between the issue price and the principal amount of the Note that has accrued at the yield to maturity described in the pricing supplement (computed in accordance with generally accepted U.S. bond yield computation principles) by the redemption or repayment date. However, in no case will the amortized face amount of an OID Note exceed its principal amount. We may purchase Notes at any time and at any price, in the open market or otherwise. We may hold, resell or surrender for cancellation any Notes that we purchase. SPECIAL PROVISIONS RELATING TO FOREIGN CURRENCY NOTES GENERAL Unless we indicate otherwise in the applicable pricing supplement, we will denominate the Notes in U.S. dollars, we will pay the principal of and premium, if any, and interest on the Notes in U.S. dollars, and you must pay the purchase price of the Notes in immediately available U.S. dollar funds. If any of the Notes ("Foreign Currency Notes") are to be denominated or payable in a currency other than U.S. dollars, the following provisions will apply in addition to, and, to the extent inconsistent therewith, will replace, the description of general terms and provisions of Notes set forth in the attached prospectus and elsewhere in this prospectus supplement. A pricing supplement with respect to any Foreign Currency Note (which may include information with respect to applicable current foreign exchange controls) is a part of this prospectus and prospectus supplement. If we furnish you any information concerning exchange rates, we do so as a matter of information only, and you should not regard it as indicative of the range of or trends in fluctuations in currency exchange rates that may occur in the future. CURRENCIES We may offer Foreign Currency Notes denominated and/or payable in a specified currency or specified currencies. Unless we indicate otherwise in the applicable pricing supplement, you are required to pay for Foreign Currency Notes S-17 in the specified currency. At the present time, there are limited facilities in the United States for conversion of U.S. dollars into specified currencies and vice versa, and banks may elect not to offer non-U.S. dollar checking or savings account facilities in the United States. However, at your request, on or prior to the third Business Day preceding the date of delivery of the Foreign Currency Notes, or by such other day as determined by the Agent who presents such offer to purchase Foreign Currency Notes to us, such Agent may be prepared to arrange for the conversion of U.S. dollars into the applicable specified currency set forth in the applicable pricing supplement to enable the purchasers to pay for the Foreign Currency Notes. Each such conversion will be made by the Agent or Agents on terms and subject to conditions, limitations and charges as the Agents may from time to time establish in accordance with their regular foreign exchange practices. If you purchase Foreign Currency Notes, you will bear all costs of exchange which are related to your purchase. The applicable pricing supplement will set forth information about the specified currency in which a particular Foreign Currency Note is denominated and/or payable, including historical exchange rates and a description of the currency and any exchange controls and, in the case of a currency unit, will include a description thereof and a description of provisions for payment in the event the currency unit is no longer used for the purposes for which it was established. PAYMENT OF PRINCIPAL AND INTEREST If you are a holder of Foreign Currency Notes, we will pay you in U.S. dollars converted from the specified currency unless you elect to be paid in the specified currency or unless the applicable pricing supplement provides otherwise. Currently, banks do not generally offer non-U.S. dollar-denominated account facilities in their offices in the United States, although they are permitted to do so for most foreign currencies. If you hold Foreign Currency Notes, we will base any U.S. dollar amount that you receive on the highest bid quotation in The City of New York received by the exchange rate agent that we have specified in the applicable pricing supplement at approximately 11:00 A.M., New York City time, on the second Business Day preceding the applicable payment date from three recognized foreign exchange dealers (one of whom may be the exchange rate agent) for the purchase by the quoting dealer of the specified currency for U.S. dollars for settlement on such payment date in the aggregate amount of the specified currency payable to all holders of Foreign Currency Notes scheduled to receive U.S. dollar payments and at which the applicable dealer commits to execute a contract. The exchange rate agent will select, and we may approve, the recognized foreign dealers who provide the bid quotations. If three bid quotations are not available, we will make payments in the specified currency. All currency exchange costs relating to the payment will be borne by the holders of the Foreign Currency Note by deductions from such payments. Unless we indicate otherwise in the applicable pricing supplement, as a holder of Foreign Currency Notes, you may elect to receive payment of the principal of and premium, if any, and interest on the Foreign Currency Notes in the specified currency by transmitting a written request for such payment to the corporate trust office of the Trustee in The City of New York on or prior to the Regular Record Date or at least 15 calendar days prior to maturity, as the case may be. You may make this request in writing (mailed or hand delivered) or by facsimile transmission or telex. As a holder of a Foreign Currency Note, you may elect to receive payment in the specified currency for all principal and interest payments and need not file a separate election for each payment. Your election will remain in effect until revoked by written notice to the Trustee, but written notice of any such revocation must be received by the Trustee on or prior to the Regular Record Date or at least 15 calendar days prior to the maturity date, as the case may be. If a Note is represented by a Global Security, DTC or its nominee will be the holder of the Note and will be entitled to all payments on the Note. Although DTC can hold Notes denominated in foreign currencies, DTC currently will only accept payments in U.S. dollars. As a result, if the specified currency of S-18 a Note is other than U.S. dollars, a beneficial owner of the related Global Security who elects to receive payments in the specified currency must notify the participant through which it owns its interest on or prior to the applicable Record Date or at least 15 calendar days prior to the maturity date, as the case may be, of such beneficial owner's election. The participant must notify DTC of such election on or prior to the third Business Day after such Record Date or at least 12 calendar days prior to the maturity date, as the case may be, and DTC will notify the Trustee of such election on or prior to the fifth Business Day after such Record Date or at least ten calendar days prior to the maturity date, as the case may be. If the participant receives complete instructions from the beneficial owner that are forwarded by the participant to DTC, and by DTC to the Trustee, on or prior to such dates, then the beneficial owner will receive payments in the specified currency. See "Description of Debt Securities -- Book-Entry Debt Securities". We will pay principal and premium, if any, and interest on Foreign Currency Notes to be paid in U.S. dollars in the manner specified in the attached prospectus and this prospectus supplement with respect to Notes denominated in U.S. dollars. See "Description of Notes--General". We will pay interest on Foreign Currency Notes to be paid in the specified currency by wire transfer to a bank account maintained by the holder in the country of the specified currency or, in the case of euros, a bank account maintained by the holder in any of the participating states, or, if appropriate wire transfer instructions are not received by the Trustee on or prior to the applicable Regular Record Date, by check mailed on the relevant Interest Payment Date, made payable to the persons entitled thereto, to the address of such holders as they appear in the Security Register. The principal of Foreign Currency Notes, together with interest accrued and unpaid thereon, due at the maturity date will be paid in immediately available funds upon surrender of such Notes at the corporate trust office of the Trustee in The City of New York, or, at our option, by wire transfer to such bank account. PAYMENT CURRENCY If a specified currency is not available for the payment of principal and premium, if any, or interest with respect to a Foreign Currency Note due to the imposition of exchange controls or other circumstances beyond our control, we will be entitled to satisfy our obligations to holders of Foreign Currency Notes by making such payment in U.S. dollars on the basis of the noon buying rate in The City of New York for cable transfers of the specified currency as certified for customs purposes (or, if not so certified, as otherwise determined) by the Federal Reserve Bank of New York (the "Market Exchange Rate") as computed by the exchange rate agent on the second Business Day prior to such payment or, if not then available, on the basis of the most recently available Market Exchange Rate or as otherwise indicated in an applicable pricing supplement. Any payment made in U.S. dollars under such circumstances where the required payment is in a specified currency will not constitute a default under the Senior Indenture with respect to the Notes. All determinations referred to above which are made by the exchange rate agent will be at its sole discretion and will, in the absence of clear error, be conclusive for all purposes and binding on the holders of the Foreign Currency Notes. AS INDICATED ABOVE, IF YOU INVEST IN FOREIGN CURRENCY NOTES OR CURRENCY INDEXED NOTES, YOUR INVESTMENT WILL BE SUBJECT TO SUBSTANTIAL RISKS, THE EXTENT AND NATURE OF WHICH CHANGE CONTINUOUSLY. AS WITH ANY INVESTMENT THAT YOU MAKE IN A SECURITY, YOU SHOULD CONSULT YOUR OWN FINANCIAL AND LEGAL ADVISORS AS TO THE RISKS ENTAILED IN AN INVESTMENT IN FOREIGN CURRENCY NOTES OR CURRENCY INDEXED NOTES. SUCH NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR YOU IF YOU ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY MATTERS. S-19 UNITED STATES FEDERAL INCOME TAXATION In the opinion of Shearman & Sterling LLP, our special U.S. federal income tax counsel, the following summary accurately describes the material U.S. federal income tax consequences of the purchase, ownership, and disposition of a Note, subject to the limitations stated below. This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations (including proposed Regulations and temporary Regulations) promulgated thereunder, rulings, official pronouncements and judicial decisions, all as in effect on the date of this prospectus supplement and all of which are subject to change, possibly with retroactive effect, or to different interpretations. This summary provides general information only and does not address all of the U.S. federal income tax consequences that may be applicable to a holder of a Note. It does not address all of the tax consequences that may be relevant to certain types of holders subject to special treatment under the U.S. federal income tax law, such as individual retirement and other tax-deferred accounts, dealers in securities or currencies, financial institutions, life insurance companies, tax-exempt organizations, persons holding Notes as a hedge or hedged against currency risk, as a position in a straddle for tax purposes, as part of a "synthetic security" or other integrated investment comprised of a Note and one or more other investments, United States persons (as defined below) whose functional currency is other than the U.S. dollar, or to certain U.S. expatriates. It also does not discuss the tax consequences to subsequent purchasers of Notes and is limited to investors who hold Notes as a capital asset within the meaning of Section 1221 of the Code. The U.S. federal income tax consequences of purchasing, holding or disposing of a particular Note will depend, in part, on the particular terms of such Note as set forth in the applicable pricing supplement. The federal income tax consequences of purchasing, holding or disposing of certain Floating Rate Notes, Foreign Currency Notes (other than Single Foreign Currency Notes, as defined below), Amortizing Notes, Floating Rate/Fixed Rate Notes, Indexed Notes, Renewable Notes, Extendible Notes, Notes paired with Debt Warrants and Bearer Securities will be set out in the applicable pricing supplement. Persons considering the purchase of Notes should consult their own tax advisors concerning the application of the U.S. federal income tax law to their particular situations, as well as any tax consequences arising under the law of any state, local or foreign tax jurisdiction. "Single Foreign Currency Note" means a Note on which all payments a holder is entitled to receive are denominated in or determined by reference to the value of a single Foreign Currency. "Foreign Currency" means a currency or currency unit, other than a hyperinflationary currency, as defined in the Code, or the U.S. dollar. UNITED STATES PERSONS For purposes of the following discussion, "United States person" means an individual who is a citizen or resident of the United States, an estate subject to U.S. federal income taxation without regard to the source of its income, a corporation or other business entity treated as a corporation for U.S. federal income tax purposes created or organized in or under the laws of the United States, any state thereof or the District of Columbia, or a trust if a valid election to be treated as a United States person, as defined in the Code, is in effect with respect to such trust or both: - - a court within the United States is able to exercise primary supervision over the administration of the trust, and - - one or more United States persons have the authority to control all substantial decisions of the trust If a partnership (including for this purpose any entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of the Notes, the treatment of a partner in the partnership will generally depend upon the status of the partner and upon the activities of the partnership. A holder of Notes that is a partnership and partners in such partnership should consult their tax advisors. The following discussion pertains only to a holder of a Note who is a beneficial owner of such Note and who is a United States person. Payments of Interest on Notes that are not Discount Notes Except as discussed below under "Discount Notes" and "Short-Term Notes", payment of S-20 interest on a Note will be taxable to a holder as ordinary interest income at the time it is accrued or received in accordance with the holder's method of tax accounting. If the payment is denominated in or determined with reference to a single Foreign Currency, the amount required to be included in income by a cash basis holder will be the U.S. dollar value of the amount paid (determined on the basis of the "spot rate" on the date such payment is received), regardless of whether the payment is in fact converted into U.S. dollars. No exchange gain or loss will be recognized with respect to the receipt of such payment. Except in the case of a Spot Rate Convention Election (as defined below), a holder of a Single Foreign Currency Note who uses the accrual method of accounting or is otherwise required to accrue interest income prior to receipt will be required to include in income for each taxable year the U.S. dollar value of the interest that has accrued during such year, determined by translating such interest at the average rate of exchange for the period or periods during which such interest has accrued. The average rate of exchange for an interest accrual period (or partial period) is the simple average of the spot exchange rates for each Business Day of such period (or such other average that is reasonably derived and consistently applied by the holder). Upon receipt of an interest payment, such holder will recognize ordinary gain or loss in an amount equal to the difference between the U.S. dollar value of the Foreign Currency received (determined on the basis of the "spot rate" on the date such payment is received) or, in the case of interest received in U.S. dollars rather than in Foreign Currency, the amount so received and the U.S. dollar value of the interest income that such holder has previously included in income with respect to such payment. Any such gain or loss generally will not be treated as interest income or expense, except to the extent provided by administrative pronouncements of the Internal Revenue Service (the "Service"). A holder may elect (a "Spot Rate Convention Election") to translate accrued interest into U.S. dollars at the "spot rate" on the last day of an accrual period for the interest, or, in the case of an accrual period that spans two taxable years, at the "spot rate" on the last day of the taxable year. Additionally, if a payment of interest is received within five Business Days of the last day of the accrual period, an electing holder may instead translate such accrued interest into U.S. dollars at the "spot rate" on the day of receipt. Any such election will apply to all debt instruments held by the United States person at the beginning of the first taxable year to which the election applies or thereafter acquired by the United States person and cannot be revoked without the consent of the Service. For purposes of this discussion, the "spot rate" generally means a rate that reflects a fair market rate of exchange available to the public for currency under a "spot contract" in a free market and involving representative amounts. A "spot contract" is a contract to buy or sell a currency on the nearest conventional settlement date, generally two Business Days following the date of the execution of the contract. If such a spot rate cannot be demonstrated, the Service has the authority to determine the spot rate. Purchase, Sale, Exchange or Retirement of Notes A holder's tax basis in a Note generally will be the U.S. dollar cost of the Note to such holder (which, in the case of a Note purchased with Foreign Currency, will be determined by translating the purchase price at the spot rate on the date of purchase or, in the case of a Note that is traded on an established securities market as defined in applicable Treasury Regulations, on the settlement date if the holder is a cash basis taxpayer or an accrual basis taxpayer that so elects), increased by any original issue discount, market discount or acquisition discount (all as defined below) previously included in the holder's gross income (as described below), and reduced by any amortized premium (as described below) taken into account by the holder and any principal payments and payments of stated interest that are not payments of qualified stated interest (as defined below) received by the holder. Upon the sale, exchange or retirement of a Note, a holder generally will recognize gain or loss equal to the difference between the amount realized on the sale, exchange or retirement (or the U.S. dollar value of the S-21 amount realized in a Foreign Currency at the spot rate on the date of the sale, exchange or retirement or, in the case of a Note that is traded on an established securities market as defined in applicable Treasury Regulations, on the settlement date if the holder is a cash basis taxpayer or an accrual basis taxpayer that so elects), except to the extent such amount is attributable to accrued but unpaid interest, and the holder's tax basis in the Note. Except with respect to: - - gains or losses attributable to changes in exchange rates (as described in the next paragraph); - - gains attributable to market discount (as described below); and - - gains on the disposition of a Short-Term Note (as described below); gain or loss so recognized will be capital gain or loss and will be long-term capital gain or loss, if, at the time of the sale, exchange or retirement, the Note was held for more than one year. Under current law, long-term capital gains of individuals are, under certain circumstances, taxed at lower rates than items of ordinary income. The deductibility of capital losses is subject to limitations. Gain or loss recognized by a holder on the sale, exchange or retirement of a Single Foreign Currency Note that is attributable to changes in exchange rates will be treated as ordinary income or loss and generally will not be treated as interest income or expense except to the extent provided by administrative pronouncements of the Service. Gain or loss attributable to changes in exchange rates is recognized on the sale, exchange or retirement of a Single Foreign Currency Note only to the extent of the total gain or loss recognized on such sale, exchange or retirement. Exchange of Foreign Currency A holder's tax basis in Foreign Currency purchased by the holder generally will be the U.S. dollar value thereof at the spot rate on the date such Foreign Currency is purchased. A holder's tax basis in Foreign Currency received as interest on, or on the sale, exchange or retirement of, a Single Foreign Currency Note will be the U.S. dollar value thereof at the spot rate at the time such Foreign Currency is received. The amount of gain or loss recognized by a holder on a sale, exchange or other disposition of Foreign Currency will be equal to the difference between: - - the amount of U.S. dollars, the U.S. dollar value at the spot rate of the Foreign Currency, or the fair market value in U.S. dollars of the property received by the holder in the sale, exchange or other disposition; and - - the holder's tax basis in the Foreign Currency. Accordingly, a holder that purchases a Note with Foreign Currency will recognize gain or loss in an amount equal to the difference, if any, between such holder's tax basis in the Foreign Currency and the U.S. dollar value at the spot rate of the Foreign Currency on the date of purchase. Generally, any such gain or loss will be ordinary income or loss and will not be treated as interest income or expense, except to the extent provided by administrative pronouncements of the Service. Subsequent Interest Periods and Extension of Maturity If so specified in the pricing supplement relating to a Note, we may have the option: - - to reset the interest rate, in the case of a Fixed Rate Note, or to reset the spread, the spread multiplier or other formulae by which the interest rate basis is adjusted, in the case of a Floating Rate Note; and/or - - to extend the maturity of such Note. See "Description of Notes -- Interest and Interest Rates" and "Description of Notes -- Extendible Notes". The treatment of a holder of Notes with respect to which such an option has been exercised who does not elect to have us repay such Notes will depend on the terms established for such Notes by us pursuant to the exercise of such option (the "revised terms"). Depending on the particular circumstances, such holder may be treated as having surrendered such Notes for new Notes with the revised terms in either a taxable exchange or a recapitalization qualifying for nonrecognition of gain or loss. S-22 Discount Notes The following summary is a general description of U.S. federal income tax consequences to holders of Notes issued with original issue discount ("Discount Notes") and is based on the provisions of the Code as in effect on the date hereof and on certain Treasury Regulations promulgated thereunder relating to original issue discount (the "OID Regulations"). For U.S. federal income tax purposes, "original issue discount" is the excess of the stated redemption price at maturity of each Discount Note over its issue price, if such excess is greater than or equal to a de minimis amount (generally 1/4 of 1% of the Discount Note's stated redemption price at maturity multiplied by the number of complete years to maturity from the issue date). The issue price of an issue of Discount Notes that are issued for cash will be equal to the first price at which a substantial amount of such Notes is sold for money. For this purpose, sales to bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers are ignored. The stated redemption price at maturity of a Discount Note is the sum of all payments provided by the Discount Note, other than payments of qualified stated interest. Under the OID Regulations, "qualified stated interest" includes stated interest that is unconditionally payable in cash or property (other than debt instruments of the issuer) at least annually at a single fixed rate (with certain exceptions for lower rates paid during some periods) or certain variable rates as described below. Interest is payable at a single fixed rate only if the rate appropriately takes into account the length of the interval between payments. Except as described below with respect to Short-Term Notes, a holder of a Discount Note will be required to include original issue discount in taxable income as it accrues before the receipt of cash attributable to such income, regardless of such holder's method of accounting for tax purposes. Special rules for Variable Rate Notes (as defined below under "Variable Rate Notes") are described below under "Variable Rate Notes". The amount of original issue discount includible in taxable income by the initial holder of a Discount Note is the sum of the daily portions of original issue discount with respect to such Note for each day during the taxable year on which such holder held such Note ("accrued original issue discount"). Generally, the daily portion of the original issue discount is determined by allocating to each day in any "accrual period" a ratable portion of the original issue discount allocable to such accrual period. Under the OID Regulations, the "accrual periods" for a Discount Note may be selected by each holder, may be of any length, and may vary in length over the term of a Discount Note, provided that each accrual period is no longer than one year and each scheduled payment of principal or interest occurs either on the first day or final day of an accrual period. The amount of original issue discount allocable to each accrual period is equal to the excess, if any, of: - - the product of a Discount Note's adjusted issue price at the beginning of such accrual period and its yield to maturity (determined on the basis of compounding at the close of each accrual period and adjusted for the length of such accrual period) over - - the amount of qualified stated interest, if any, payable on such Discount Note and allocable to such accrual period. The "adjusted issue price" of a Discount Note at the beginning of any accrual period generally is the sum of the issue price of a Discount Note plus the accrued original issue discount allocable for all prior accrual periods, reduced by any prior payment on the Discount Note other than a payment of qualified stated interest. Under these rules, a holder of a Discount Note generally will have to include in taxable income increasingly greater amounts of original issue discount in successive accrual periods. Original issue discount on a Discount Note that is also a Single Foreign Currency Note will be determined for any accrual period in the applicable Foreign Currency and then translated into U.S. dollars in the same manner as interest income accrued by a holder on the accrual basis, including the application of a Spot Rate Convention Election. See "Payments of Interest on Notes that are not Discount Notes". Likewise, upon receipt of payment attributable to original issue discount (whether in connection with a payment of interest or the sale, ex- S-23 change or retirement of a Discount Note), a holder will recognize exchange gain or loss to the extent of the difference between such holder's basis in the accrued original issue discount (determined in the same manner as for accrued interest) and the U.S. dollar value of such payment (determined by translating any Foreign Currency received at the spot rate on the date of payment). Generally, any such exchange gain or loss will be ordinary income or loss and will not be treated as interest income or expense, except to the extent provided in administrative pronouncements of the Service. For this purpose, all payments on a Note will be viewed first as the payment of qualified stated interest (determined under the original issue discount rules), second as the payment of previously accrued original issue discount (to the extent thereof), with payments considered made for the earliest accrual periods first, and thereafter as the payment of principal. If a holder's tax basis in a Discount Note immediately after purchase exceeds the adjusted issue price of the Discount Note (the amount of such excess is considered "acquisition premium") but is not greater than the stated redemption price at maturity of such Discount Note, the amount includible in income in each taxable year as original issue discount is reduced (but not below zero) by that portion of the excess properly allocable to such year. If a holder purchases a Discount Note for an amount in excess of the stated redemption price at maturity, the holder does not include any original issue discount in income and generally may be subject to the "bond premium" rules discussed below. See "Amortizable Bond Premium". If a holder has a tax basis in a Discount Note that is less than the adjusted issue price of such Discount Note, the difference may be subject to the market discount provisions discussed below. See "Market Discount". Under the OID Regulations, a holder of a Note may elect to include in gross income all interest that accrues on such Note using the constant yield method. For this purpose, interest includes stated interest, acquisition discount, original issue discount, de minimis original issue discount, market discount, de minimis market discount, and unstated interest, as adjusted by any amortizable bond premium or acquisition premium. Special rules apply to elections made with respect to Notes issued with amortizable bond premium or market discount. Once made with respect to a Note, the election cannot be revoked without the consent of the Service. A holder considering an election under these rules should consult a tax advisor. Market Discount If a holder purchases a Note (other than a Discount Note or a Short-Term Note) for an amount that is less than its stated redemption price at maturity, or purchases a Discount Note for less than its "revised issue price" (as defined under the Code) as of the purchase date, the amount of the difference will be treated as "market discount" unless such difference is less than a specified de minimis amount. Under the market discount rules of the Code, a holder will be required to treat any partial principal payment (or, in the case of a Discount Note, any payment that does not constitute qualified stated interest) on, or any gain realized on the sale, exchange or retirement of, a Note as ordinary income to the extent of the market discount which has not previously been included in income and is treated as having accrued on such Note at the time of such payment or disposition. Further, a disposition of a Note by gift (and in certain other circumstances) could result in the recognition of market discount income, computed as if such Note had been sold at its then fair market value. In addition, a holder who purchases a Note with market discount may be required to defer the deduction of all, or a portion, of the interest paid or accrued on any indebtedness incurred or maintained to purchase or carry such Note until the maturity of the Note, or its earlier disposition in a taxable transaction. Market discount is considered to accrue ratably during the period from the date of acquisition to the maturity date of a Note, unless the holder elects to accrue market discount under the rules applicable to original issue discount. A holder may elect to include market discount in income (generally as ordinary income) currently as it accrues, in which case the rules described above regarding the deferral of interest deduc- S-24 tions and ordinary income treatment upon disposition or partial principal payment will not apply. Such election will apply to all debt instruments acquired by the holder on or after the first day of the first taxable year to which such election applies and may be revoked only with the consent of the Service. With respect to a Single Foreign Currency Note, market discount is determined in the applicable Foreign Currency. In the case of a holder who does not elect current inclusion, accrued market discount is translated into U.S. dollars at the spot rate on the date of disposition. No part of such accrued market discount is treated as exchange gain or loss. In the case of a holder who elects current inclusion, the amount currently includible in income for a taxable year is the U.S. dollar value of the market discount that has accrued during such year, determined by translating such market discount at the average rate of exchange for the period or periods during which it accrued. Such an electing holder will recognize exchange gain or loss with respect to accrued market discount under the same rules that apply to accrued interest on a Single Foreign Currency Note received by a holder on the accrual basis. See "Payments of Interest on Notes that are not Discount Notes". Amortizable Bond Premium Generally, if a holder's tax basis in a Note held as a capital asset exceeds the stated redemption price at maturity of such Note, such excess may constitute amortizable bond premium that the holder may elect to amortize as an offset to interest income on the Note under the constant interest rate method over the period from the holder's acquisition date to the Note's maturity date. Any such election will apply to all debt instruments acquired by the holder on or after the first day of the first taxable year to which such election applies and may be revoked only with the consent of the Service. Under certain circumstances, amortizable bond premium may be determined by reference to an early call date. Special rules apply with respect to Single Foreign Currency Notes. Variable Rate Notes A "Variable Rate Note" is a Note that (1) has an issue price that does not exceed the total noncontingent principal payments by more than the lesser of: (a) the product of: - the total noncontingent principal payments; - the number of complete years to maturity from the issue date; and - .015; or (b) 15 percent of the total noncontingent principal payments; and (2) does not provide for stated interest other than stated interest compounded or paid at least annually at: (a) one or more "qualified floating rates"; (b) a single fixed rate and one or more qualified floating rates; (c) a single "objective rate"; or (d) a single fixed rate and a single objective rate that is a "qualified inverse floating rate". A qualified floating rate or objective rate in effect at any time during the term of the instrument must be set at a "current value" of that rate. A "current value" of a rate is the value of the rate on any day that is no earlier than three months prior to the first day on which that value is in effect and no later than one year following that first day. A variable rate is a "qualified floating rate" if (1) variations in the value of the rate can reasonably be expected to measure contemporaneous variations in the cost of newly borrowed funds in the currency in which the Note is denominated; or (2) it is equal to the product of such a rate and either: (a) a fixed multiple that is greater than .65 but not more than 1.35; or (b) a fixed multiple greater than .65 but not more than 1.35, increased or decreased by a fixed rate. S-25 If a Note provides for two or more qualified floating rates that - - are within 0.25 percent of each other on the issue date; or - - can reasonably be expected to have approximately the same values throughout the term of the Note, the qualified floating rates together constitute a single qualified floating rate. A rate is not a qualified floating rate, however, if the rate is subject to certain restrictions (including caps, floors, governors, or other similar restrictions) unless such restrictions are fixed throughout the term of the Note or are not reasonably expected to significantly affect the yield on the Note. An "objective rate" is a rate, other than a qualified floating rate, that is determined using a single, fixed formula and that is based on objective financial or economic information. A rate will not qualify as an objective rate if it is based on information that is within the control of the issuer (or a related party) or that is unique to the circumstances of the issuer (or a related party), such as dividends, profits, or the value of the issuer's stock (although a rate does not fail to be an objective rate merely because it is based on the credit quality of the issuer). A variable rate is not an objective rate, however, if it is reasonably expected that the average value of the rate during the first half of the Note's term will be either significantly less than or significantly greater than the average value of the rate during the final half of the Note's term. An objective rate is a "qualified inverse floating rate" if - - the rate is equal to a fixed rate minus a qualified floating rate; and - - the variations in the rate can reasonably be expected to inversely reflect contemporaneous variations in the qualified floating rate. If interest on a Note is stated at a fixed rate for an initial period of one year or less followed by either a qualified floating rate or an objective rate for a subsequent period, and - - the fixed rate and the qualified floating rate or objective rate have values on the issue date of the Note that do not differ by more than 0.25 percent; or - - the value of the qualified floating rate or objective rate is intended to approximate the fixed rate, then the fixed rate and the qualified floating rate or the objective rate constitute a single qualified floating rate or objective rate. Under these rules, CD Rate Notes, Commercial Paper Rate Notes, LIBOR Notes, Federal Funds Rate Notes, Prime Rate Notes, Treasury Rate Notes, and CMT Rate Notes generally will be treated as Variable Rate Notes. In general, if a Variable Rate Note provides for stated interest at a single qualified floating rate or objective rate and the interest is unconditionally payable in cash at least annually, all stated interest on the Note is qualified stated interest, and the amount of original issue discount, if any, is determined by using, in the case of a qualified floating rate or qualified inverse floating rate, the value as of the issue date of the qualified floating rate or qualified inverse floating rate, or, in the case of any other objective rate, a fixed rate that reflects the yield reasonably expected for the Note. If a Variable Rate Note does not provide for stated interest at a single qualified floating rate or a single objective rate, or at a single fixed rate (other than at a single fixed rate for an initial period), the amount of interest and original issue discount accruals on the Note are generally determined by - - determining a fixed rate substitute for each variable rate provided under the Variable Rate Note (generally the value of each variable rate as of the issue date or, in the case of an objective rate that is not a qualified inverse floating rate, a rate that reflects the reasonably expected yield on the Note); - - constructing the equivalent fixed rate debt instrument (using the fixed rate substitute described above); - - determining the amount of qualified stated interest and original issue discount with respect to the equivalent fixed rate debt instrument; and - - making the appropriate adjustments for actual variable rates during the applicable accrual period. S-26 If a Variable Rate Note provides for stated interest, either at one or more qualified floating rates or at a qualified inverse floating rate, and in addition provides for stated interest at a single fixed rate (other than at a single fixed rate for an initial period), the amount of interest and original issue discount accruals are determined as in the immediately preceding paragraph with the modification that the Variable Rate Note is treated, for purposes of the first three steps of the determination, as if it provided for a qualified floating rate (or a qualified inverse floating rate, as the case may be) rather than the fixed rate. The qualified floating rate (or qualified inverse floating rate) replacing the fixed rate must be such that the fair market value of the Variable Rate Note, as of the issue date, would be approximately the same as the fair market value of an otherwise identical debt instrument that provides for the qualified floating rate (or qualified inverse floating rate) rather than the fixed rate. Short-Term Notes In general, an individual or other cash method holder of a Note that matures one year or less from the date of its issuance (a "Short-Term Note") is not required to accrue original issue discount on such Note unless it has elected to do so. Holders who report income for U.S. federal income tax purposes under the accrual method, however, and certain other holders, including banks, dealers in securities and electing holders, are required to accrue original issue discount (unless the holder elects to accrue "acquisition discount" in lieu of original issue discount) on such Note. "Acquisition discount" is the excess of the remaining stated redemption price at maturity of the Short-Term Note over the holder's tax basis in the Short-Term Note at the time of the acquisition. In the case of a holder who is not required, and does not elect, to accrue original issue discount or acquisition discount on a Short-Term Note, any gain realized on the sale, exchange or retirement of such Short-Term Note will be ordinary income to the extent of the original issue discount accrued through the date of such sale, exchange or retirement. Such a holder will be required to defer, until such Short-Term Note is sold or otherwise disposed of, the deduction of a portion of the interest expense on any indebtedness incurred or continued to purchase or carry such Short-Term Note. Original issue discount or acquisition discount on a Short-Term Note accrues on a straight-line basis unless an election is made to use the constant yield method (based on daily compounding). In the case of a Short-Term Note that is also a Single Foreign Currency Note, the amount of original issue discount or acquisition discount subject to current accrual and the amount of any exchange gain or loss on a sale, exchange or retirement are determined under the same rules that apply to accrued interest on a Single Foreign Currency Note held by a holder on the accrual basis. See "Payments of Interest on Notes that are not Discount Notes". A holder which is not required to, and which does not elect to, accrue original issue discount, or acquisition discount, will determine exchange gain or loss with respect to accrued original issue (or acquisition) discount on a sale, exchange, retirement or on maturity of a Short-Term Note in the same manner that a cash basis holder would account for interest income on a Single Foreign Currency Note. The market discount rules will not apply to a Short-Term Note. Notes Subject to Contingencies Including Optional Redemption In general, the following rules apply if a Note provides for an alternative payment schedule applicable upon the occurrence of a contingency or contingencies and the timing and amounts of the payments that comprise each payment schedule are known as of the issue date, and one of such payment schedules is more likely than not to occur or the Note provides us or the holder with an unconditional option or options exercisable on one or more dates during the term of the Note. If based on all the facts and circumstances as of the issue date a single payment schedule for a debt instrument, including the stated payment schedule, is significantly more likely than not to occur, then, in general, the yield and maturity of the Note are computed based on this payment schedule. Notwithstanding the general rules for determining yield and maturity in the case of Notes subject to contingencies, if we have or the S-27 holder has an unconditional option or options that, if exercised, would require payments to be made on the Notes under an alternative payment schedule or schedules, then (i) in the case of an option or options exercisable by us, we will be deemed to exercise or not exercise an option or combination of options in the manner that minimizes the yield on the Note and (ii) in the case of an option or options of the holder, the holder will be deemed to exercise or not exercise an option or combination of options in the manner that maximizes the yield on the Note. For purposes of those calculations, the yield on the Note is determined by using any date on which the Note may be redeemed or repurchased as the maturity date and the amount payable on such date in accordance with the terms of the Note as the principal amount at maturity. If a contingency (including the exercise of an option) actually occurs or does not occur contrary to an assumption made according to the above rules (a "change in circumstances") then, except to the extent that a portion of the Note is repaid as a result of a change in circumstances and solely for purposes of the accrual of original issue discount, the Note is treated as retired and then reissued on the date of the change in circumstances for an amount equal to the Note's adjusted issue price on that date. NON-UNITED STATES PERSONS Subject to the discussion of backup withholding below, payments of principal, premium, if any, and interest (including original issue discount) by us or our agent (in its capacity as such) to any holder who is a beneficial owner of a Note but is not a United States person will generally not be subject to U.S. federal withholding tax, provided that, in the case of premium, if any, and interest (including original issue discount) (1) such holder does not actually or constructively own 10% or more of the total combined voting power of all classes of our stock entitled to vote; (2) such holder is not a controlled foreign corporation for United States tax purposes that is related to us through stock ownership; (3) such holder is not a bank receiving interest described in Code Section 881(c)(3)(A); and (4) either (a) the beneficial owner of the Note certifies to us or our agent, under penalties of perjury, that such owner is not a United States person and provides its name and address (which certification can be made on IRS Form W-8BEN or a suitable substitute); or (b) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business (a "financial institution") certifies to us or our agent, under penalties of perjury, that the certification described in clause (4)(a) above has been received from the beneficial owner by it or by another financial institution acting for the beneficial owner and delivers to us or our agent a copy of the certification described in clause (4)(a) above. In the case of Notes held by a foreign partnership or foreign trust: - - the certification described in clause (4)(a) above must be provided by the partners or beneficiaries rather than by the foreign partnership or foreign trust; and - - the partnership or trust must provide certain information, including a United States taxpayer identification number. A look-through rule would apply in the case of tiered partnerships. If a holder of a Note who is not a United States person cannot satisfy the requirements of the "portfolio interest" exception described above, payments of interest (including original issue discount) made to such holder generally will be subject to a 30% withholding tax (or such lower rate as may be provided by an applicable income tax treaty between the United States and a foreign country) unless another exemption applies and such holder complies with Internal Revenue Service certification requirements. Any prospective investor who could not satisfy the portfolio interest requirements described above should consult its tax advisor prior to making an investment in the Notes. If a holder of a Note who is not a United States person is engaged in a trade or business in the United States and premium, if any, or interest (including original issue discount) on the Note S-28 is effectively connected with the conduct of such trade or business, such holder, although exempt from U.S. federal withholding tax (by reason of the delivery of a properly completed Form W-8ECI or suitable substitute), will be subject to U.S. federal income tax on such premium, if any, and interest (including original issue discount) in the same manner as if it were a United States person. In addition, if such holder is a foreign corporation, it may be subject to a branch profits tax equal to 30% of its effectively connected earnings and profits, as defined in the Code, for the taxable year, subject to adjustments. Subject to the discussion of "backup" withholding below, any capital gain realized upon the sale, exchange or retirement of a Note by a holder who is not a United States person will not be subject to United States federal income or withholding taxes unless - such gain is effectively connected with a United States trade or business of the holder; or - in the case of an individual, such holder is present in the United States for 183 days or more in the taxable year of the retirement or disposition and certain other conditions are met. Notes held by an individual, who at the time of death is neither a citizen nor a resident of the United States for U.S. federal estate tax purposes, will not be subject to U.S. federal estate tax, provided that the income from the Notes was not or would not have been effectively connected with a U.S. trade or business of such individual and that such individual qualified for the exemption from U.S. federal withholding tax (without regard to the certification requirements) that is described above. BACKUP WITHHOLDING AND INFORMATION REPORTING The "backup" withholding and information reporting requirements may apply to certain payments of principal of and premium, if any, and interest (including original issue discount) on a Note and to certain payments of proceeds of the sale or retirement of a Note. We, our agent, a broker, the Trustee or any paying agent, as the case may be, will be required to withhold tax from any payment that is subject to backup withholding at a rate of 28% of such payment if the holder fails to furnish his taxpayer identification number (social security number or employer identification number), to certify that such holder is not subject to backup withholding, or to otherwise comply with the applicable requirements of the backup withholding rules. Certain holders (including, among others, corporations) are not subject to the backup withholding and reporting requirements. Backup withholding and information reporting generally will not apply to payments made by us or our agent (in its capacity as such) to a holder of a Note who has provided the required certification under penalties of perjury that such holder is not a United States person as set forth in clause (4) under "Non-United States Persons" or has otherwise established an exemption (provided that neither we nor such agent has actual knowledge or reason to know that the holder is a United States person or that the conditions of any other exemption are not in fact satisfied). However, we and other payors may be required to report payments of interest on your Notes on IRS Form 1042-S even if the payments are not otherwise subject to information reporting requirements. Any amounts withheld under the backup withholding rules from a payment to a holder may be claimed as a credit against such holder's U.S. federal income tax liability, provided required information is furnished to the Service. Holders should consult their own tax advisors regarding the filing of a U.S. tax return and the claiming of a credit or refund of such backup withholding. WE HAVE INCLUDED THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE FOR YOUR GENERAL INFORMATION. IT MAY NOT BE APPLICABLE DEPENDING UPON YOUR PARTICULAR SITUATION. YOU SHOULD CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS. S-29 SUPPLEMENTAL PLAN OF DISTRIBUTION Eaton and Goldman, Sachs & Co., J.P. Morgan Securities Inc., Citigroup Global Markets Inc. and McDonald Investments (the "Agents") have entered into a distribution agreement with respect to the Notes. Subject to certain conditions, the Agents have agreed to use their reasonable best efforts to solicit purchases of the Notes. Eaton has the right to accept offers to purchase Notes and may reject any proposed purchase of the Notes. The Agents may also reject any offer to purchase Notes. Eaton will pay the Agents a commission on any Notes sold through the Agents. Unless otherwise specified in the pricing supplement, the commission will range from 0.125% to 0.750% of the principal amount of the Notes, depending on the maturity of the Notes. Eaton may also sell Notes to the Agents who purchase the Notes as principals for their own accounts. If no other discount is agreed upon and disclosed in the pricing supplement, any such sale will be made at a discount equal to the discount set forth on the cover page hereof. Any Notes the Agents purchase as principal may be resold at the market price or at other prices determined by the Agents at the time of resale. Eaton may also sell Notes directly on its own behalf. No commissions will be paid on Notes sold directly by Eaton. The Agents may resell any Notes they purchase to other brokers or dealers at a discount, which may include all or part of the discount the Agents received from Eaton. Unless otherwise stated, this discount will equal the applicable commission on an agency sale of Notes of the same maturity. If all the Notes are not sold at the initial offering price, the Agents may change the offering price and the other selling terms. In connection with an offering, the Agents may purchase and sell Notes in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the Agents of a greater number of Notes than they are required to purchase in the offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of the Notes while the offering is in progress. The Agents also may impose a penalty bid. This occurs when a particular Agent repays to the Agents a portion of the underwriting discount received by it because the Agents have repurchased Notes sold by or for the account of such Agent in stabilizing or short covering transactions. These activities by the Agents may stabilize, maintain or otherwise affect the market price of the Notes. As a result, the price of the Notes may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the Agents at any time. These transactions may be effected in the over-the-counter market or otherwise. The Agents, whether acting as agents or principals, may be deemed to be "underwriters" within the meaning of the Securities Act of 1933 (the "Act"). Eaton has agreed to indemnify the several Agents against certain liabilities, including liabilities under the Act. The Agents may sell to dealers, who may resell to investors, and the Agents may pay all or part of the discount or commission they receive from Eaton to the dealers. Such dealers may be deemed to be "underwriters" within the meaning of the Act. The Notes are a new issue of securities with no established trading market and are not expected to be listed on a securities exchange. No assurance can be given as to the liquidity of the trading market for the Notes. Eaton estimates that its share of the total expenses of the offering, excluding discounts and commissions, will be approximately $500,000. Unless otherwise indicated in the applicable pricing supplement, the purchase price of the Notes will be required to be paid in immediately available funds in The City of New York. The Agents and their affiliates have engaged, and may in the future engage, in commercial and/or investment banking transactions with us and our affiliates. They have received customary fees and commissions for these transactions. JPMorgan Chase Bank (formerly known as Chemical Bank), an affiliate of JPMorgan, is Trustee under the Senior Indenture under which the Notes will be issued. S-30 LEGAL OPINIONS The validity of the Notes will be passed upon for us by J. Robert Horst, Vice President and General Counsel, and for any underwriters, dealers or agents by Shearman & Sterling LLP, 599 Lexington Avenue, New York, New York 10022. Mr. Horst is paid a salary by Eaton and participates in various employee benefit plans offered to officers of Eaton generally. S-31 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED JULY 2, 2003 EATON LOGO EATON CORPORATION By this prospectus, we offer up to $500,000,000 of the following: DEBT SECURITIES DEBT WARRANTS WITH PREFERRED SHARES DEBT SECURITIES AS UNITS COMMON SHARES DEBT WARRANTS WITH DEBT WARRANTS PREFERRED SHARES AS UNITS
We will provide the specific terms and the public offering prices of these securities in supplements to this prospectus. This prospectus may not be used to sell securities unless accompanied by a prospectus supplement. You should read this prospectus and the prospectus supplements carefully before you invest. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this prospectus is , 2003. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any document we file at the SEC's public reference room at 450 Fifth Street, N.W., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on its public reference room. Our SEC filings are also available to the public from the SEC's web site at http://www.sec.gov. Our common shares are listed on the New York Stock Exchange, the Chicago Stock Exchange, the Pacific Exchange and the London Stock Exchange, and information about us also is available there. This prospectus is part of a registration statement that we have filed with the SEC. The SEC allows us to "incorporate by reference" the information we file with it, which means that we can disclose important information to you by referring you to other documents that we identify as part of this prospectus. Our subsequent filings of similar documents with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings we make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (1) after the date of the filing of this registration statement and before its effectiveness and (2) until our offering of securities has been completed. - Annual Report on Form 10-K for the year ended December 31, 2002. - Quarterly Report on Form 10-Q for the quarter ended March 31, 2003. - Current Report on Form 8-K dated January 21, 2003. You may obtain a copy of these filings, at no cost, by writing to or telephoning us at the following address: Eaton Corporation Eaton Center 1111 Superior Avenue Cleveland, Ohio 44114-2584 Attn: Shareholder Relations (216) 523-5000 You should rely only on the information incorporated by reference or provided in this prospectus or any supplement. We have not authorized anyone else to provide you with different information. This prospectus is an offer to sell or buy only the securities described in this document, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of the date of this prospectus. 2 THE COMPANY We are a global diversified industrial manufacturer of highly engineered products which serve the industrial, vehicle, construction, commercial and aerospace markets. Our principal products include fluid power systems, electrical power quality, distribution and control products, automotive engine air management and fuel economy products and intelligent truck systems for fuel economy and safety. We sell our products in more than 50 countries. Our operations are categorized into these four business segments: - Fluid Power - Industrial and Commercial Controls - Automotive - Truck Our principal executive office is located at Eaton Center, 1111 Superior Avenue, Cleveland, Ohio 44114-2584, and our telephone number is (216) 523-5000. USE OF PROCEEDS Except as may be described otherwise in a prospectus supplement, we will use the net proceeds from the sale of the securities under this prospectus for general corporate purposes, which may include additions to working capital, acquisitions, or the retirement of existing indebtedness via repayment, redemption or exchange. RATIO OF EARNINGS TO FIXED CHARGES The following table shows our ratio of earnings to fixed charges for the three months ended March 31, 2003 and for each of the five years in the period ended December 31, 2002.
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED -------------------------------- MARCH 31, 2003 2002 2001 2000 1999 1998 ------------------ ---- ---- ---- ---- ---- Ratio of Earnings to Fixed Charges..... 3.83 3.71 2.44 3.25 5.31 5.42
For the purpose of computing the ratio of earnings to fixed charges, "earnings" consist of consolidated pretax income before adjustment for minority interests in consolidated subsidiaries or income (loss) of equity investees, plus (1) amortization of capitalized interest, (2) distributed income of equity investees and (3) fixed charges described below, excluding capitalized interest. "Fixed charges" consist of (1) interest expensed, (2) interest capitalized, (3) amortization of debt issue costs and (4) that portion of rent expense estimated to represent interest. Because we have not had any Preferred Shares outstanding during the last five years and have, therefore, not paid any dividends on Preferred Shares, our ratio of earnings to combined fixed charges and Preferred Share dividends has been the same as the ratio of earnings to fixed charges for each of the above periods. PROSPECTUS This prospectus is part of a registration statement that we filed with the SEC utilizing a "shelf" registration process. Under this shelf process, we may sell any combination of debt securities, warrants to purchase debt securities, preferred shares and common shares with a par value of $.50 per share in one or more offerings up to a total dollar amount of $500 million or the equivalent if any of the securities are denominated in a currency, currency unit or composite currency other than the U.S. dollar. 3 PROSPECTUS SUPPLEMENT This prospectus provides you with a general description of the debt securities, debt warrants, preferred shares and common shares we may offer. Each time we sell securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add to or change information contained in this prospectus. If so, the prospectus supplement should be read as superseding this prospectus. You should read both this prospectus and any prospectus supplement, together with additional information described under the heading "Where You Can Find More Information". The prospectus supplement to be attached to the front of this prospectus will describe: - the terms of any debt securities that we offer, including the terms under the caption "Provisions Applicable to Both the Senior and Subordinated Indentures -- General"; - the terms of any debt warrants that we offer, including the exercise price, detachability, expiration date and other terms; - the terms of any preferred shares that we offer, including the specific designations and dividend, redemption, liquidation, voting and other rights not described in this prospectus and any terms for conversion or exchange; - the terms of any common shares that we offer; and - any initial public offering price, the purchase price and net proceeds to our company and the other specific terms related to our offering of such Securities. For more details on the terms of the Securities, you should read the exhibits filed with our registration statements. DESCRIPTION OF DEBT SECURITIES We may issue debt securities from time to time in one or more distinct series. This section summarizes the material terms of the debt securities that are common to all series. Most of the financial and other terms of any series of debt securities that we offer will be described in a prospectus supplement to be attached to the front of this prospectus. Since the terms of specific debt securities may differ from the general information we have provided below, you should rely on information in the prospectus supplement that is inconsistent with the information below. As used in this section, "we", "us", "our" and "our company" refer to Eaton Corporation and not to its subsidiaries, unless the context otherwise requires. The debt securities are governed by a document called an "Indenture." An Indenture is a contract between us and a financial institution acting as Trustee on your behalf. The Trustee has two main roles. First, the Trustee can enforce your rights against us if we default. There are some limitations on the extent to which the Trustee acts on your behalf, described later beginning on page 10 of this prospectus. Second, the Trustee performs certain administrative duties for us. Senior securities will be issued under an Indenture dated as of April 1, 1994, as supplemented from time to time (the "Senior Indenture"), which we entered into with Chemical Bank, as trustee (the "Senior Trustee"), and subordinated securities will be issued under a separate indenture (the "Subordinated Indenture"), which we will enter into with a trustee (the "Subordinated Trustee") if we decide to issue any subordinated securities. JPMorgan Chase Bank (formerly known as Chemical Bank), is acting as Senior Trustee. The term "Trustee" refers to either the Senior Trustee or the Subordinated Trustee, as appropriate. We will refer to the Senior Indenture and the Subordinated Indenture, as executed, together as the "Indentures" and each as an "Indenture". The Indentures are subject to and governed by the Trust Indenture Act of 1939. 4 The Indentures and associated documents contain the full legal text of the matters described in this section. We have filed the form of each Indenture as an exhibit to a registration statement that we have filed with the SEC. See "Where You Can Find More Information" on page 2 of this prospectus for information on how to obtain copies of the Indentures. Because this section is a summary of the material terms of the Indentures, it does not describe every aspect of the debt securities. This summary is qualified in its entirety by the provisions of the Indentures, including definitions of certain terms used in the Indentures. For example, in this section, we use capitalized words to signify terms that are specifically defined in the Indentures. Some of the definitions are repeated in this prospectus, but for the rest you will need to read the Indentures. We also include references in parentheses to certain sections of the Indentures or the Trust Indenture Act. Whenever we refer to particular sections or defined terms of the Indentures, those sections or defined terms are incorporated by reference in this prospectus or in the prospectus supplement. Unless otherwise noted, the section numbers refer to the applicable section for both Indentures. PROVISIONS APPLICABLE TO BOTH THE SENIOR AND SUBORDINATED INDENTURES GENERAL The debt securities will be our unsecured obligations. The senior securities will rank equally with all of our other unsecured and unsubordinated indebtedness. The subordinated securities will be subordinated in right of payment to the prior payment in full of our Senior Indebtedness as described below under "--Subordinated Indenture Provisions--Subordination". Under the Indentures, we may issue any debt securities offered under this prospectus and the attached prospectus supplement and any debt securities issuable upon the exercise of debt warrants or upon conversion or exchange of other offered securities, as well as other unsecured debt securities. With respect to the offered debt securities and any underlying debt securities, you should read the prospectus supplement for the following and other terms, which will be established by authority of our Board of Directors before the issuance of the debt securities: - the title of the debt securities and whether they will be senior securities or subordinated securities, including whether subordinated securities are convertible subordinated securities; - the total principal amount of the debt securities and any limit on the total principal amount of debt securities of each series; - the date or dates when the principal of the debt securities will be payable or how those dates will be determined; - the interest rate or rates which the debt securities will bear, if any, or how such rate or rates will be determined, the date or dates from which interest will accrue, if any, or how such date or dates will be determined, the interest payment dates, the record dates for such payments, if any, or how such date or dates will be determined and the basis upon which interest will be calculated, if other than that of a 360-day year of twelve 30-day months; - whether the amount of payments of principal of (or premium, if any) or interest on the debt securities will be determined with reference to an index, formula or other method (which could be based on one or more Currencies, commodities, equity indices or other indices) and how such amounts will be determined; - any optional redemption provisions; - any sinking fund or other provisions that would obligate us to repurchase or redeem the debt securities; 5 - if other than U.S. dollars, the Currency or Currencies of the debt securities; - if other than denominations of $1,000 in the case of Registered Securities and $5,000 in the case of Bearer Securities, the denominations in which the offered debt securities will be issued; - if not the principal amount of the debt securities, the portion of the principal amount at which the debt securities will be issued and, if not the principal amount of the debt securities, the portion of the principal amount payable upon acceleration of the maturity of the debt securities or how that portion will be determined; - the form of the debt securities, including whether the debt securities are to be issuable in permanent or temporary global form, as Registered Securities, Bearer Securities or both, any restrictions on the offer, sale or delivery of Bearer Securities, and the terms, if any, upon which you may exchange Bearer Securities for Registered Securities and vice versa (if permitted by applicable laws and regulations); - any modifications or additions to the provisions of Article Fourteen of the applicable Indenture described under "Defeasance and Covenant Defeasance" if that Article is applicable to the debt securities; - any changes or additions to the Events of Default or our covenants with respect to the debt securities; - the place or places, if any, other than or in addition to The City of New York, of payment, transfer, conversion and/or exchange of the debt securities, and where notices or demands to or upon us in respect of the debt securities may be served; - whether we or a holder may elect payment of the principal or interest in one or more Currencies other than that in which such debt securities are stated to be payable, and the period or periods within which, and the terms and conditions upon which, that election may be made, and the time and manner of determining the exchange rate between the Currency or Currencies in which they are stated to be payable and the Currency or Currencies in which they are to be so payable; - if other than the Trustee, the identity of each Security Registrar and/or Paying Agent; - the designation of the Exchange Rate Agent, if applicable; - the Person to whom any interest on any Registered Security of the series will be payable, if other than the registered holder at the close of business on the record date, the manner in which, or the Person to whom any interest on any Bearer Security of the series will be payable, if not upon presentation and surrender of the coupons relating to the Bearer Security as they mature, and the extent to which, or the manner in which, any interest payable on a temporary Global Security on an Interest Payment Date will be paid if not in the manner provided in the applicable Indenture; - whether and under what circumstances we will pay additional amounts as contemplated by Section 1005 of the applicable Indenture ("Additional Amounts") in respect of any tax, assessment or governmental charge and, if so, whether we will have the option to redeem the debt securities rather than pay the Additional Amounts (and the terms of any such option); - any provisions granting special rights to the holders of the debt securities upon the occurrence of specified events; - in the case of subordinated securities, any terms modifying the subordination provisions; - in the case of convertible subordinated securities, any terms by which they may be convertible into common shares; 6 - if we issue the debt securities in definitive form, the terms and conditions under which definitive securities will be issued; - if we issue the debt securities upon the exercise of debt warrants, the time, manner and place for them to be authenticated and delivered; - the manner for paying principal and interest and the manner for transferring the debt securities; and - any other terms of the debt securities that are consistent with the requirements of the Trust Indenture Act. For purposes of this prospectus, any reference to the payment of principal of (or premium, if any) or interest on debt securities will include Additional Amounts if required by the terms of the debt securities. The Indentures do not limit the amount of debt securities that we are authorized to issue from time to time. (Section 301) When a single Trustee is acting for all debt securities issued under an Indenture, those Securities are called the "Indenture Securities." Each Indenture also provides that there may be more than one Trustee thereunder, each for a series of Indenture Securities. See "Resignation of Trustee" on page 16 of this prospectus. At a time when two or more Trustees are acting under either Indenture, each with respect to only certain series, the term "Indenture Securities" means the series of debt securities for which each respective Trustee is acting. If there is more than one Trustee under either Indenture, the powers and trust obligations of each Trustee will apply only to the Indenture Securities for which it is Trustee. If two or more Trustees are acting under either Indenture, then the Indenture Securities for which each Trustee is acting would be treated as if issued under separate indentures. We may issue Indenture Securities with terms different from those of Indenture Securities already issued. Without the consent of the holders thereof, we may reopen a previous issue of a series of Indenture Securities and issue additional Indenture Securities of that series unless the reopening was restricted when that series was created. If any series of debt securities are sold for, payable in or denominated in one or more foreign Currencies, we will specify applicable restrictions, elections, tax consequences, specific terms and other information in the applicable prospectus supplement. There is no requirement that we issue debt securities in the future under the Indentures, and we may use other indentures or documentation, containing different provisions in connection with future issues of such other debt securities. We may issue the debt securities as "original issue discount securities," which are debt securities, including any zero-coupon debt securities, that are issued and sold at a discount from their stated principal amount. Original issue discount securities provide that, upon acceleration of their maturity, an amount less than their principal amount will become due and payable. We will describe United States federal income tax consequences and other considerations applicable to original issue discount securities in any prospectus supplement relating to them. CONVERSION AND EXCHANGE If you may convert or exchange debt securities for other Securities, the prospectus supplement will explain terms and conditions of such conversion or exchange, including: - the conversion price or exchange ratio (or the calculation method); - the conversion or exchange period (or how such period will be determined); - if conversion or exchange will be mandatory, at your option or at our option; 7 - provisions for adjustment of the conversion price or the exchange ratio; and - provisions affecting conversion or exchange in the event of the redemption of the debt securities. The terms may also include provisions under which the number or amount of other Securities to be received by the holders of such debt securities upon conversion or exchange would be calculated according to the market price of such other Securities as of a time stated in the prospectus supplement. ADDITIONAL MECHANICS Form, Exchange and Transfer We may issue debt securities as follows: - as Registered Securities; - as Bearer Securities (with interest coupons attached unless otherwise stated in the prospectus supplement) (Section 201); - as both Registered Securities and Bearer Securities; - in denominations that are even multiples of $1,000 for Registered Securities and even multiples of $5,000 for Bearer Securities (Section 302); or - in global form. See "--Book-Entry Debt Securities". You may have your Registered Securities separated into smaller denominations or combined into larger denominations, as long as the total principal amount is not changed. (Section 305) This is called an "exchange." If provided in the prospectus supplement, you may exchange your Bearer Securities with all unmatured coupons, except as provided below, and all matured coupons which are in default for Registered Securities of the same series as long as the total principal amount is not changed. Bearer Securities surrendered in exchange for Registered Securities between a Regular Record Date or a Special Record Date and the relevant interest payment dates will be surrendered without the coupon relating to such interest payment dates. Interest will not be payable in respect of the Registered Security issued in exchange for that Bearer Security, but will be payable only to the holder of such coupon when due in accordance with the terms of the applicable Indenture. Unless we specify otherwise in the prospectus supplement, we will not issue Bearer Securities in exchange for Registered Securities. (Section 305) You may transfer Registered Securities of a series and you may exchange debt securities of a series at the office of the Trustee. The Trustee will act as our agent for registering Registered Securities in the names of holders and transferring debt securities. We may designate someone else to perform this function. Whoever maintains the list of registered holders is called the "Security Registrar". The Security Registrar also will perform transfers. (Section 305) You will not be required to pay a service charge to transfer or exchange debt securities, but you may be required to pay for any tax or other governmental charge associated with the exchange or transfer. The transfer or exchange will be made only if the Security Registrar is satisfied with your proof of ownership. (Section 305) If we designate additional transfer agents, we will name them in the accompanying prospectus supplement. We may cancel the designation of any particular transfer agent. We may also approve a change in the office through which any transfer agent acts. If we redeem less than all of the Securities of a redeemable series, we may block the transfer or exchange of Securities during the period beginning 15 days before the day we mail the notice of redemption or publish the notice (in the case of Bearer Securities) and ending on the day of that 8 mailing or publication, as the case may be, in order to freeze the list of holders to prepare the mailing. We may also decline to register transfers or exchanges of debt securities selected for redemption, except that we will continue to permit transfers and exchanges of the unredeemed portion of any debt security being partially redeemed. (Section 305) If the offered debt securities are redeemable, we will describe the procedures for redemption in the accompanying prospectus supplement. IN THIS "ADDITIONAL MECHANICS" SECTION OF THIS PROSPECTUS, "YOU" MEANS DIRECT HOLDERS AND NOT INDIRECT HOLDERS OF DEBT SECURITIES. PAYMENT AND PAYING AGENTS We will pay interest to you, if you are listed in the Trustee's records as the owner of your debt security at the close of business on a particular day in advance of each due date for interest on your debt security. Interest will be paid to you if you are listed as the owner even if you no longer own the debt security on the interest due date. That particular day, usually about two weeks in advance of the interest due date, is called the "Regular Record Date" and is defined in the prospectus supplement. Persons who are listed in the Trustee's records as the owners of debt securities at the close of business on a particular day are referred to as "holders". (Section 307) Holders buying and selling debt securities must work out between themselves the appropriate purchase price since we will pay all the interest for an interest period to the holders on the Regular Record Date. The most common manner is to adjust the sales price of the debt securities to prorate interest fairly between buyer and seller based on their respective ownership periods within the particular interest period. We will deposit interest, principal and any other money due on the debt securities with the Paying Agent that we name in the prospectus supplement. IF YOU PLAN TO HAVE A BANK OR BROKERAGE FIRM HOLD YOUR SECURITIES, YOU SHOULD ASK THEM FOR INFORMATION ON HOW YOU WILL RECEIVE PAYMENTS. (Section 305) If we issue Bearer Securities, unless we provide otherwise in the prospectus supplement, we will maintain an office or agency outside the United States for the payment of all amounts due on the Bearer Securities. If we list the debt securities on any stock exchange located outside the United States, we will maintain an office or agency for those debt securities in any city located outside the United States required by that stock exchange. (Section 1002) We will specify the initial locations of such offices and agencies in the prospectus supplement. Unless otherwise provided in the prospectus supplement, we will make payment of interest on any Bearer Securities on or before Maturity only against surrender of coupons for such interest installments as they mature. (Section 1001) Unless otherwise provided in the prospectus supplement, we will not make payment with respect to any Bearer Security at any of our offices or agencies in the United States or by check mailed to any address in the United States or by transfer to an account maintained with a bank located in the United States. Notwithstanding the foregoing, we will make payments of principal of (and premium, if any) and interest on Bearer Securities payable in U.S. dollars at the office of our Paying Agent in The City of New York if (but only if) payment of the full amount in U.S. dollars at all offices or agencies outside the United States is illegal or effectively precluded by exchange controls or other similar restrictions. (Section 1002) We may from time to time designate additional offices or agencies, approve a change in the location of any office or agency and, except as provided above, rescind the designation of any office or agency. (Section 1002) EVENTS OF DEFAULT You will have special rights if an Event of Default occurs as to the debt securities of your series which is not cured, as described later in this subsection. (Section 501) Please refer to the prospectus supplement for information about any changes to the Events of Default or our covenants 9 that are described below, including any addition of a covenant or other provision providing event risk or similar protection. What Is an Event of Default? The term "Event of Default" as to the debt securities of your series means any of the following: - we do not pay the principal of (or premium, if any) on a debt security of such series on its due date; - we do not pay interest on a debt security of such series within 30 days of its due date; - we do not make or satisfy any sinking fund payment in respect of debt securities of such series within 30 days of its due date; - we remain in breach of a covenant in respect of debt securities of such series for 60 days after we receive a written notice of default stating we are in breach. The notice must be sent by either the Trustee or holders of 25% of the principal amount of debt securities of such series; - we file for bankruptcy, or certain other events in bankruptcy, insolvency or reorganization occur; or - there occurs any other Event of Default as to debt securities of the series described in the prospectus supplement. (Section 501) An Event of Default for a particular series of debt securities does not necessarily constitute an Event of Default for any other series of debt securities issued under an Indenture. The Trustee may withhold notice to the holders of debt securities of a particular series of any default if it considers its withholding of notice to be in the interest of the holders of that series, except that the Trustee may not withhold notice if the default is in the payment of principal of (or premium, if any) or interest on the debt securities. (Section 601) Remedies if an Event of Default Occurs. If an Event of Default has occurred and we have not cured it, the Trustee or the holders of 25% in principal amount of the debt securities of the affected series may declare the entire principal amount of all the debt securities of that series to be due and immediately payable by notifying us (or the Trustee, if the holders give notice) in writing. This is called a declaration of acceleration of maturity. A declaration of acceleration of maturity may be canceled by the holders of at least a majority in principal amount of the debt securities of the affected series by notifying us (or the Trustee, if the holders give notice) in writing. (Section 502) Except in cases of default, where the Trustee has some special duties, the Trustee is not required to take any action under the Indenture at the request of any holders unless the holders offer the Trustee reasonable protection from expenses and liability (called an "indemnity"). (Section 602 and Trust Indenture Act Section 315) If reasonable indemnity is provided, the holders of a majority in principal amount of the Outstanding debt securities of the relevant series may direct the time, method and place of conducting any lawsuit or other formal legal action seeking any remedy available to the Trustee. The Trustee may refuse to follow those directions in certain circumstances. (Section 512) No delay or omission in exercising any right or remedy will be treated as a waiver of that right, remedy or Event of Default. (Section 511) Before you are allowed to bypass the Trustee and bring your own lawsuit or other formal legal action or take other steps to enforce your rights or protect your interest relating to the debt securities, the following must occur: - you must give the Trustee written notice that an Event of Default has occurred and remains uncured (Section 507); 10 - the holders of 25% in principal amount of all outstanding debt securities of the relevant series must make a written request that the Trustee take action because of the default (Section 507) and must offer reasonable indemnity to the Trustee against the cost and other liabilities of taking that action (Section 602); - the Trustee must not have instituted a proceeding for 60 days after receipt of the above notice and offer of indemnity (Section 507); and - the holders of a majority in principal amount of the debt securities must not have given the Trustee a direction inconsistent with the above notice during such 60-day period. (Section 507) However, you are entitled at any time to bring a lawsuit for the payment of money due on your debt securities on or after the due date. (Section 508) Holders of a majority in principal amount of the debt securities of the affected series may waive any past defaults other than the following: - the payment of principal, any premium, interest or Additional Amounts on any debt security or related coupon; or - in respect of a covenant that under Article Ten of the applicable Indenture cannot be modified or amended without the consent of each holder. (Section 513) IF YOUR SECURITIES ARE HELD FOR YOU BY A BANK OR BROKERAGE FIRM, YOU SHOULD CONSULT THEM FOR INFORMATION ON HOW TO GIVE NOTICE OR DIRECTION TO THE TRUSTEE OR MAKE A REQUEST OF THE TRUSTEE AND HOW TO MAKE OR CANCEL A DECLARATION OF ACCELERATION. Each year, we will furnish the Trustee with a written statement of certain of our officers certifying that, to their knowledge, we are in compliance with the Indenture and the debt securities, or else specifying any default. (Section 1004) MERGER, CONSOLIDATION OR SALE OF ASSETS Under the terms of the Indentures, we are generally permitted to consolidate or merge with another firm. We are also permitted to sell or transfer our assets substantially as an entirety to another firm (Section 801). However, we may not take any of these actions unless all of the following conditions are met: - where we merge or consolidate out of existence or sell or transfer our assets substantially as an entirety, the resulting firm must agree to be legally responsible for all obligations under the debt securities and the applicable Indenture (Section 801); - the merger, consolidation or sale or transfer of assets substantially as an entirety must not cause a default on the debt securities. For purposes of this no-default test, a default would include an Event of Default that has occurred and not been cured, as described on page 10 of this prospectus under "--What Is an Event of Default?" (Section 801); - where we merge or consolidate out of existence or sell or transfer our assets substantially as an entirety, the resulting firm (if a corporation) must be a corporation organized under the laws of the United States or any state thereof or the District of Columbia (Section 801); - under the Senior Indenture, we may not merge, consolidate or sell or transfer our assets substantially as an entirety if, as a result, any of our property or assets or any property or assets of a Restricted Subsidiary (as defined) would become subject to any mortgage, lien or other encumbrance unless either: 11 - the mortgage, lien or other encumbrance could be created pursuant to Section 1009 of such Indenture (see "--Senior Indenture Provisions--Limitation on Liens" on page 17) without equally and ratably securing the Indenture Securities; or - the Indenture Securities are secured equally and ratably with or prior to the debt secured by the mortgage, lien or other encumbrance (Section 803); - we must deliver certain certificates and documents to the Trustee (Section 801); and - we must satisfy any other requirements specified in the prospectus supplement. MODIFICATION OR WAIVER There are three types of changes we can make to the Indentures and the debt securities. Changes Requiring Your Approval. First, there are changes that cannot be made to your debt securities without your specific approval. (Section 902) Following is a list of those types of changes: - a change of the Stated Maturity of the principal of or interest on a debt security; - a reduction of any amounts due on a debt security; - a reduction of the amount of principal payable upon acceleration of the Maturity of a Security following a default; - an adverse effect on any right of repayment at your option; - a change of the place (except as otherwise described in this prospectus) or Currency of payment on a debt security; - impairment of your right to sue for payment; - with respect to debt securities issued under the Subordinated Indenture, an adverse effect on the right to convert any debt securities as provided in Article 15 of the Subordinated Indenture; - a modification of the subordination provisions in the Subordinated Indenture in a manner that is adverse to you as a holder of the Subordinated Securities; - a reduction of the percentage of holders of debt securities whose consent is needed to modify or amend the Indenture; - a reduction of the percentage of holders of debt securities whose consent is needed to waive compliance with certain provisions of the Indenture or to waive certain defaults; - a modification of any other aspect of the provisions of the Indenture dealing with modification and waiver of past defaults (Section 513), the quorum or voting requirements of the debt securities (Section 1504 of the Senior Indenture and Section 1704 of the Subordinated Indenture) or provisions relating to the waiver of certain covenants (Section 1011 of the Senior Indenture and Section 1008 of the Subordinated Indenture), except to increase any percentage of consents required to amend an Indenture or for any waiver or to add certain provisions that cannot be modified without the approval of each holder under Section 902; or - a change of any of our obligations to pay Additional Amounts. Changes Requiring a Majority Vote. The second type of change to the Indenture and the Outstanding debt securities is the kind that requires a vote in favor by holders of Outstanding debt securities owning a majority of the principal amount of the particular series affected. Most changes fall into this category, except for clarifying changes and certain other changes that would not adversely affect holders of the Outstanding debt securities in any material respect. The same vote 12 would be required for us to obtain a waiver of all or part of certain covenants in the applicable Indenture (Section 1011 of the Senior Indenture and Section 1008 of the Subordinated Indenture) or a waiver of a past default. However, we cannot obtain a waiver of a payment default or any other aspect of the Indentures or the Outstanding debt securities listed in the first category described previously under "--Changes Requiring Your Approval" unless we obtain your individual consent to the waiver. (Section 902) Changes Not Requiring Approval. The third type of change does not require any vote by you as holders of Outstanding debt securities. This type is limited to clarifications and certain other changes that would not adversely affect holders of the Outstanding debt securities in any material respect. (Section 901) Further Details Concerning Voting. When taking a vote, we will use the following rules to decide how much principal amount to attribute to a debt security: - for original issue discount securities, we will use the principal amount that would be due and payable on the voting date if the Maturity of the debt securities were accelerated to that date because of a default; - for debt securities whose principal amount is not known (for example, because it is based on an index), we will use a special rule for that debt security described in the prospectus supplement; and - for debt securities denominated in one or more foreign Currencies or Currency units, we will use the U.S. dollar equivalent. Debt securities will not be considered Outstanding, and therefore not eligible to vote, if we have deposited or set aside in trust for you money for their payment or redemption. Debt securities will also not be eligible to vote if they have been fully defeased as described later under "Defeasance and Covenant Defeasance". (Section 101) We will generally be entitled to set any day as a record date for the purpose of determining the holders of debt securities that are entitled to vote or take other action under the applicable Indenture. If we set a record date for a vote or other action to be taken by holders of a particular series, that vote or action may be taken only by persons who are holders of debt securities of that series on the record date. (Section 104) IF YOUR SECURITIES ARE HELD BY A BANK OR BROKERAGE FIRM, YOU SHOULD CONSULT THEM FOR INFORMATION ON HOW APPROVAL MAY BE GRANTED OR DENIED IF WE SEEK TO CHANGE THE APPLICABLE INDENTURE OR THE DEBT SECURITIES OR REQUEST A WAIVER. Each Indenture contains provisions for convening meetings of the holders of debt securities issued as Bearer Securities. (Section 1501 of the Senior Indenture and Section 1701 of the Subordinated Indenture) A meeting may be called at any time by the applicable Trustee, and also, upon request, by us or by the holders of at least 10% in principal amount of the Outstanding debt securities of that series, upon notice given as provided in the applicable Indenture. (Section 1502 of the Senior Indenture and Section 1702 of the Subordinated Indenture) Except for any consent that must be given by the holder of each debt security affected thereby, as described above, the holders of a majority in principal amount of the Outstanding debt securities of a series may adopt any resolution presented at a meeting at which a quorum is present. However, any resolution with respect to any action which the Indenture expressly provides may be taken by a specified percentage less than a majority in principal amount of the Outstanding debt securities of a series may be adopted at a meeting at which a quorum is present by vote of that specified percentage. Any resolution passed or decision taken at any meeting of holders of debt securities of a series in accordance with the applicable Indenture will be binding on all holders of debt securities of that series and any related coupons. The quorum at any meeting called to adopt a resolution will 13 be persons holding or representing a majority in principal amount of the Outstanding debt securities of a series, except that if any action is to be taken at such meeting which may be given by the holders of not less than a specified percentage in principal amount of the Outstanding debt securities of a series, the persons holding or representing such specified percentage in principal amount of the Outstanding debt securities of that series will constitute a quorum. (Section 1504 of the Senior Indenture and Section 1704 of the Subordinated Indenture) Notwithstanding the above, if any action is to be taken at a meeting of holders of debt securities of a series that the applicable Indenture expressly provides may be taken by the holders of a specified percentage in principal amount of all Outstanding debt securities affected thereby or of the holders of such series and one or more additional series: - there will be no minimum quorum requirement for that meeting; and - the principal amount of the Outstanding debt securities of that series that vote in favor of such action will be taken into account in determining whether that action has been taken under such Indenture. (Section 1504 of the Senior Indenture and Section 1704 of the Subordinated Indenture) DEFEASANCE AND COVENANT DEFEASANCE The following discussion of defeasance and covenant defeasance will be applicable to your series of debt securities only if we choose to have them apply to that series. If we do so choose, we will specify the choice in the prospectus supplement. (Section 1401) Defeasance. If there is a change in U.S. federal tax law, as described below, we can legally release ourselves from all payment and other obligations on the debt securities (called "defeasance") if we put in place the following other arrangements for you to be repaid: - We must deposit in trust for your benefit and the benefit of all other direct holders of the debt securities a combination of money and U.S. government or U.S. government agency obligations that will generate enough cash to make interest, principal and any other payments on the debt securities on their various due dates. - We must deliver to the Trustee a legal opinion confirming that there has been a change in current federal tax law or an IRS ruling that lets us make the above deposit without causing you to be taxed on the debt securities any differently than if we did not make the deposit and just repaid the debt securities ourselves. (Sections 1402 and 1404) Under current federal tax law, the deposit and our legal release from the debt securities would be treated as though we paid you your share of the cash and notes or bonds at the time the cash and notes or bonds are deposited in trust in exchange for your debt securities, and you would recognize gain or loss on the debt securities at the time of the deposit. If we ever did accomplish defeasance, as described above, you would have to rely solely on the trust deposit for repayment of the debt securities. You could not look to us for repayment in the event of any shortfall. Conversely, the trust deposit would most likely be protected from claims of our lenders and other creditors if we ever become bankrupt or insolvent. You would also be released from the subordination provisions on the subordinated debt securities described later under "Subordination" on page 19 of this prospectus. If we accomplish a defeasance, we would retain only the obligations to register the transfer or exchange of the debt securities, to maintain an office or agency in respect of the debt securities and to hold moneys for payment in trust. Covenant Defeasance. Under current federal tax law, we can make the same type of deposit described above and be released from some of the restrictive covenants in the Indentures. These covenants relate to "Limitation on Liens" and "Limitation on Sale and Leaseback Transactions" described in Sections 1009 and 1010 respectively of the Senior Indenture and are summarized 14 beginning on page 17 of this prospectus. We can also be released from any other covenant in the Indentures which may be specified in the prospectus supplement if we make the same type of deposit described above. This is called "covenant defeasance". In that event, you would lose the protection of those covenants but would gain the protection of having money and debt securities set aside in trust to repay the debt securities. You also would be released from the subordination provisions on the subordinated securities described under "Subordination" on page 19 of this prospectus. In order to achieve covenant defeasance, we must do the following: - deposit in trust for your benefit and the benefit of all other direct holders of the debt securities a combination of money and U.S. government or U.S. government agency obligations that will generate enough cash to make interest, principal and any other payments on the debt securities on their various due dates; and - deliver to the Trustee a legal opinion of our counsel confirming that, under current federal income tax law, we may make the above deposit without causing you to be taxed on the debt securities any differently than if we did not make the deposit and just repaid the debt securities ourselves. If we accomplish covenant defeasance, you can still look to us for repayment of the debt securities if there were a shortfall in the trust deposit or the Trustee is prevented from making payment. In fact, if one of the remaining Events of Default occurred, such as our bankruptcy, and the debt securities become immediately due and payable, there may be such a shortfall. Depending on the event causing the default, you may not be able to obtain payment of the shortfall. BOOK-ENTRY DEBT SECURITIES We may issue debt securities of a series in whole or in part in global form that we will deposit with, or on behalf of, a depositary that we identify in a prospectus supplement. Global securities may be issued in either registered or bearer form and in either temporary or permanent form (each, a "Global Security"). Global Securities will be registered in the name of a financial institution we select, and the debt securities included in the Global Securities may not be transferred to the name of any other direct holder unless the special circumstances described below occur. The financial institution that acts as the sole direct holder of the Global Security is called the "Depositary". Any person wishing to own a debt security must do so indirectly by virtue of an account with a broker, bank or other financial institution that, in turn, has an account with the Depositary. Special Investor Considerations for Global Securities. Our obligations, as well as the obligations of the Trustee and those of any third parties employed by us or the Trustee, run only to Persons who are registered as holders of debt securities. For example, once we make payment to the registered holder, we have no further responsibility for the payment even if that holder is legally required to pass the payment along to you but does not do so. As an indirect holder, an investor's rights relating to a Global Security will be governed by the account rules of the investor's financial institution and of the Depositary, as well as general laws relating to debt securities transfers. You should be aware that when we issue debt securities in the form of Global Securities: - you cannot get debt securities registered in your own name; - you cannot receive physical certificates for your interest in the debt securities; - you must look to your own bank or brokerage firm for payments on the debt securities and protection of your legal rights relating to the debt securities; - you may not be able to sell interests in the debt securities to some insurance companies and other institutions that are required by law to hold the physical certificates of debt securities that they own; 15 - the Depositary's policies will govern payments, transfers, exchanges and other matters relating to your interest in the Global Security. We and the Trustee have no responsibility for any aspect of the Depositary's actions or for its records of ownership interests in the Global Security. We and the Trustee also do not supervise the Depositary in any way; and - the Depositary will usually require that interests in a Global Security be purchased or sold within its system using same-day funds. Special Situations when Global Security Will be Terminated. In a few special situations described later, a Global Security will terminate and interests in it will be exchanged for physical certificates representing debt securities. After that exchange, the choice of whether to hold debt securities directly or indirectly through an account at your bank or brokerage firm will be up to you. You must consult your own bank or broker to find out how to have interests in debt securities transferred to your own name, so that they will be direct holders. The special situations for termination of a Global Security are: - when the Depositary notifies us that it is unwilling, unable or no longer qualified to continue as Depositary (unless a replacement Depositary is named); - when an Event of Default on the debt securities has occurred and has not been cured; and - when and if we decide to terminate a Global Security. The prospectus supplement may list situations for terminating a Global Security that would apply only to the particular series of debt securities covered by the prospectus supplement. When a Global Security terminates, the Depositary (and neither we nor the Trustee) is responsible for deciding the names of the institutions that will be the initial direct holders. (Section 302) Unless otherwise provided in the prospectus supplement, debt securities that are represented by a Global Security will be issued in denominations of $1,000 and any integral multiple thereof and will be issued in registered form only, without coupons. RESIGNATION OF TRUSTEE Each Trustee may resign or be removed with respect to one or more series of Indenture Securities, and a successor Trustee may be appointed to act with respect to such series. (Section 608) In the event that two or more persons are acting as Trustee with respect to different series of Indenture Securities under one of the Indentures, each such Trustee will be a Trustee of a trust separate and apart from the trust administered by any other such Trustee (Section 609), and any action described herein to be taken by the "Trustee" may then be taken by each such Trustee with respect to, and only with respect to, the one or more series of Indenture Securities for which it is Trustee. SENIOR INDENTURE PROVISIONS LIMITATION ON SALE AND LEASEBACK TRANSACTIONS Under the terms of the Senior Indenture, we will not, and will not permit any Restricted Subsidiary (as defined) to, sell or transfer any manufacturing plant owned by us or any Restricted Subsidiary with the intention of taking back a lease on such property unless: - the sale or transfer of property is made within 120 days after the later of the date of - the acquisition of such property, - the completion of construction of such property, or 16 - the commencement of full operation thereof; - such lease has a term, including permitted extensions and renewals, of not more than three years, and it is intended that the use by us or the Restricted Subsidiary of the manufacturing plant covered by such lease will be discontinued on or before the expiration of such term; - the amount that we realize from such sale or transfer, together with the value (as defined) of then outstanding Sale and Leaseback Transactions not otherwise permitted by the Senior Indenture and the outstanding aggregate principal amount of mortgage, pledge or lien indebtedness not otherwise permitted by the Senior Indenture will not exceed 10% of our Consolidated Net Tangible Assets (as defined); or - we will cause an amount equal to the value (as defined) of the manufacturing plant to be sold or transferred and leased to be applied to the retirement (other than any mandatory retirement) within 120 days of the effective date of such Sale and Leaseback Transaction of either the Indenture Securities or other funded indebtedness which is equal in rank to the Indenture Securities, or both. (Section 1010 of the Senior Indenture) These provisions are intended to preserve our assets and to limit our ability to incur leases which effectively constitute indebtedness. LIMITATION ON LIENS Under the terms of the Senior Indenture, with certain exceptions, we will not, directly or indirectly, and we will not permit any Restricted Subsidiary to, create or assume any mortgage, pledge or other lien of or upon any of our or their assets unless all of the outstanding Indenture Securities of each series are secured by such mortgage, pledge or lien equally and ratably with any and all other obligations and indebtedness thereby secured for so long as any such other obligations and indebtedness will be so secured. Among the exceptions are: - the creation of any mortgage or other lien on any of our property or property of any Restricted Subsidiary to secure indebtedness incurred prior to, at the time of, or within 120 days after the later of, the acquisition, the completion of construction or the commencement of full operation of such property; and - mortgages or liens on any property that we or any Restricted Subsidiary acquire after the date of the Senior Indenture existing at the time of such acquisition; provided that we incur the secured indebtedness for the purpose of financing all or any part of the acquisition or construction of any such property. In addition, we or any Restricted Subsidiary may create or assume any mortgage, pledge or other lien not otherwise permitted by the Senior Indenture for the purpose of securing indebtedness or other obligations so long as the aggregate of all such indebtedness and other obligations then outstanding, together with the value of all outstanding Sale and Leaseback Transactions not otherwise permitted, will not exceed 10% of Consolidated Net Tangible Assets. (Section 1009 of the Senior Indenture) DEFINITIONS The Senior Indenture defines the term "Consolidated Net Tangible Assets" as our total assets and those of our consolidated subsidiaries, including the investment in (at equity) and the net amount of advances to and accounts receivable from corporations which are not consolidated subsidiaries, less the following: - our current liabilities and those of our consolidated subsidiaries, including an amount equal to indebtedness required to be redeemed by reason of any sinking fund payment 17 due in 12 months or less from the date as of which current liabilities are to be determined; - all of our other liabilities and those of our consolidated subsidiaries other than Funded Debt (as defined), deferred income taxes and liabilities for employee post-retirement health plans recognized in accordance with Statement of Financial Accounting Standards No. 106; - all of our and our consolidated subsidiaries' depreciation and valuation reserves and all other reserves (except for reserves for contingencies which have not been allocated to any particular purpose); - the book amount of all our and our consolidated subsidiaries' segregated intangible assets, including, but without limitation, such items as goodwill, trademarks, trade names, patents and unamortized debt discount and expense, less unamortized debt premium; and - appropriate adjustments on account of minority interests of other persons holding stock in subsidiaries. Consolidated Net Tangible Assets is to be determined on a consolidated basis in accordance with generally accepted accounting principles and as provided in the Senior Indenture. (Section 101 of the Senior Indenture) The Senior Indenture defines the term "Restricted Subsidiary" as any of our subsidiaries except: - any subsidiary substantially all the assets of which are located, or substantially all of the business of which is carried on, outside of the United States and Canada, or any subsidiary substantially all the assets of which consist of stock or other securities of such a subsidiary; - any subsidiary principally engaged in the business of financing notes and accounts receivable and any subsidiary substantially all the assets of which consist of the stock or other securities of such subsidiary; or - any subsidiary acquired or organized after the date of the Indenture, unless our Board of Directors has designated it as a Restricted Subsidiary and such designation will not result in the breach of any covenant or agreement in the Senior Indenture. (Section 101 of the Senior Indenture) The Senior Indenture defines the term "Funded Debt" as indebtedness for borrowed money owed or guaranteed by us or any of our consolidated subsidiaries, and any other indebtedness which under generally accepted accounting principles would appear as debt on the balance sheet of such corporation, which matures by its terms more than twelve months from the date as of which Funded Debt is to be determined or is extendible or renewable at the option of the obligor to a date more than twelve months from the date as of which Funded Debt is to be determined. (Section 101 of the Senior Indenture) For purposes of the Limitation on Liens and Limitation on Sale and Leaseback Transactions, the Senior Indenture defines the term "value" with respect to a manufacturing plant as the amount equal to the greater of: - the net proceeds of the sale or transfer of such manufacturing plant; or - the fair value of such manufacturing plant at the time of entering into such Sale and Leaseback Transaction, as determined by our Board of Directors. This amount is divided first by the number of full years of the term of the lease and then multiplied by the number of full years of such term remaining at the time of determination, without 18 regard to renewal or extension options contained in such lease. (Section 1010 of the Senior Indenture) SUBORDINATED INDENTURE PROVISIONS SUBORDINATION Article 16 of the Subordinated Indenture provides that the payment of principal of (premium, if any) and interest on subordinated securities will be subordinated in right of payment to the prior payment in full of Senior Indebtedness. We may make no payment with respect to subordinated securities while a default exists with respect to our Senior Indebtedness. The Subordinated Indenture defines "Senior Indebtedness" as: - indebtedness of our company, whether outstanding on the date of the Subordinated Indenture or thereafter created, incurred, assumed or guaranteed for money borrowed from banks or other lending institutions and any other indebtedness or obligations of our company evidenced by a bond, debenture, note or other similar instrument, including without limitation, overdrafts, letters of credit issued for our account and commercial paper; - any other indebtedness that constitutes purchase money indebtedness for payment of which we are directly or contingently liable (excluding trade accounts payable); - any direct or contingent indebtedness or obligation represented by guarantees or instruments having a similar effect that we enter into (whether prior to the date of the Subordinated Indenture or thereafter) with reference to lease or purchase money obligations of a subsidiary or affiliate of our company or any other corporation in which we hold or have an option to purchase 50% or more of the outstanding capital stock; and - renewals, extensions and refundings of any indebtedness described in the three bullet points above, unless in any case the terms of the instrument creating or evidencing such indebtedness provide that the indebtedness is on a parity with or is junior to the Subordinated Indebtedness. Any indebtedness that becomes indebtedness of our company by operation of merger, consolidation or other acquisition will constitute Senior Indebtedness if that indebtedness would have been Senior Indebtedness had it been issued by us. By reason of this subordination, in the event that we become insolvent, holders of our Senior Indebtedness may receive more, ratably, and holders of Subordinated Indebtedness may receive less, ratably, than our other creditors. The Subordinated Indenture does not limit our ability to issue Senior Indebtedness. If this prospectus is being delivered in connection with a series of subordinated debt, the accompanying prospectus supplement or the information incorporated by reference will set forth the approximate amount of Senior Indebtedness outstanding as of a recent date. THE TRUSTEES UNDER THE INDENTURES JPMorgan Chase Bank is the Trustee under the Senior Indenture. We may appoint JPMorgan Chase Bank as trustee under the Subordinated Indenture. JPMorgan Chase Bank is among the banks with which we maintain ordinary banking relationships. JPMorgan Chase Bank also serves as trustee under other indentures under which our 7.65% Debentures due 2029 ("7.65% Debentures"), 6 1/2% Debentures due 2025 ("6 1/2% Debentures"), 7 5/8% Debentures due 2024 ("7 5/8% Debentures"), 5.75% Notes due 2012 ("5.75% Notes"), 8% Debentures due 2006 ("8% Debentures") and 6.95% Notes due 2004 ("6.95% Notes") are outstanding. In the event that a default occurs under either Indenture or under the indentures which govern the 7.65% Debentures, the 6 1/2% Debentures, the 7 5/8% Debentures, the 5.75% Notes, the 8% 19 Debentures or the 6.95% Notes at a time when Indenture Securities are outstanding under the Subordinated Indenture, unless the default is cured or waived within 90 days, the provisions of the Trust Indenture Act require that, if JPMorgan Chase Bank is Subordinated Trustee, it must resign as Trustee under either the Subordinated Indenture or each of the Senior Indenture, the 7.65% Debentures indenture, the 6 1/2% Debentures indenture, the 7 5/8% Debentures indenture, the 5.75% Notes indenture, the 8% Debentures indenture and the 6.95% Notes indenture. In such circumstance, we expect that JPMorgan Chase Bank would resign as Trustee under the Subordinated Indenture. FOREIGN CURRENCY RISKS--FLUCTUATIONS AND CONTROLS Debt securities denominated or payable in foreign currencies may entail significant risks. For example, the value of the currencies, in comparison to United States dollars, may decline, or foreign governments may impose or modify controls regarding the payment of foreign currency obligations. These events may cause the value of debt securities denominated or payable in those foreign currencies to fall substantially. These risks will vary depending upon the foreign currency or currencies involved and will be more fully described in the applicable prospectus supplement. DESCRIPTION OF DEBT WARRANTS We may issue, either together with other debt securities or preferred shares or separately, debt warrants to purchase underlying debt securities. We will issue debt warrants, if any, under warrant agreements (each, a "debt warrant agreement") that would be between us and a bank or trust company, as warrant agent (the "debt warrant agent"), that we will describe in a prospectus supplement. The form of the debt warrant agreement is contained in a registration statement that we have filed with the SEC. See "Where You Can Find More Information" on page 2 of this prospectus for information on how to obtain a copy of the debt warrant agreement. The following is a summary of the material terms of the debt warrant agreement. This summary is not complete and is qualified in its entirety by reference to all the provisions of the debt warrant agreement and the accompanying debt warrant certificates, including the definitions therein of certain terms. GENERAL You should read the prospectus supplement for the terms of the offered debt warrants, including the following: - the initial offering price; - the title and aggregate number of such debt warrants; - the designation, aggregate principal amount and other terms of the senior securities purchasable upon exercise of the debt warrants; - if applicable, the designation and terms of the debt securities or preferred shares with which the debt warrants are issued and the number of debt warrants issued with each debt security or preferred share; - if applicable, the date on and after which the debt warrants and the related debt securities or preferred shares will be separately transferable; - the principal amount of senior securities purchasable upon exercise of one debt warrant and the price at which such principal amount of senior securities may be purchased upon such exercise; - the date on which the right to exercise the debt warrants will commence and the date on which such right will expire; 20 - if applicable, a discussion of United States federal income tax consequences applicable to the exercise of the debt warrants and to the senior securities purchasable upon the exercise of the debt warrants; - the identity of the debt warrant agent; - whether the debt warrants represented by the debt warrant certificates will be issued in registered or bearer form, and, if registered, where they may be transferred or registered; and - any other terms of the debt warrants. Debt warrant certificates may be exchanged for new debt warrant certificates of different denominations and, if in registered form, may be presented for registration of transfer, and may be exercised at the corporate trust office of the debt warrant agent or any other office indicated in the prospectus supplement relating thereto. (Section 3.01 of the debt warrant agreement) EXERCISE OF DEBT WARRANTS Each offered debt warrant will entitle the holder thereof to purchase such amount of underlying debt securities at the exercise price set forth in, or calculable from, the prospectus supplement relating to such offered debt warrants. After the close of business on the expiration date, unexercised debt warrants will become void. You may exercise debt warrants by payment to the debt warrant agent of the applicable exercise price and by delivery to the debt warrant agent of the related debt warrant certificate, properly completed. Debt warrants will be deemed to have been exercised upon receipt of the exercise price, subject to the receipt by the debt warrant agent, within five business days thereafter, of the debt warrant certificate or certificates evidencing the debt warrants. Upon receipt of such payment and the properly completed debt warrant certificates at the corporate trust office of the debt warrant agent or any other office indicated in the prospectus supplement, we will, as soon as practicable, deliver the amount of the underlying debt securities purchased upon such exercise. If fewer than all of the debt warrants represented by any debt warrant certificate are exercised, a new debt warrant certificate will be issued for the unexercised debt warrants. If you hold a debt warrant, you must pay any tax or other governmental charge that may be imposed in connection with any transfer involved in the issuance of underlying debt securities purchased upon such exercise. MODIFICATIONS There are three types of changes we can make to the debt warrant agreement and the offered debt warrants. Changes Requiring Your Approval. First, there are changes that cannot be made to your debt warrants without your specific approval. Those types of changes include modifications and amendments that: - accelerate the expiration date; - increase the exercise price; - reduce the number of outstanding debt warrants, the consent of the holders of which is required for any such modification or amendment; or - otherwise materially and adversely affect the rights of the holders of the debt warrants. Changes Requiring a Majority Vote. The second type of change to the debt warrant agreement and the offered debt warrants is the kind that requires a vote in favor by holders of debt warrants 21 owning a majority of the principal amount of the particular series affected. Most changes fall into this category. Changes Not Requiring Approval. The third type of change does not require any vote by holders of debt warrants. This type of change is limited to clarifications and other changes that would not adversely affect holders of the debt warrants. NO RIGHTS AS HOLDERS OF UNDERLYING DEBT SECURITIES Before you exercise the warrants, you are not entitled to payments of principal of (or premium, if any) or interest on the related underlying debt securities or to exercise any other rights whatsoever as a holder of the underlying debt securities. DESCRIPTION OF PREFERRED SHARES The following description sets forth the general terms and provisions of the preferred shares. If we offer preferred shares, we will describe the specific designation and rights in a prospectus supplement, and we will file a description with the SEC. GENERAL Our Board of Directors is authorized without further shareholder action to issue one or more series of up to 14,106,394 preferred shares. The Board of Directors can also determine the number of shares, dividend rates, dividend payment dates, and dates from which dividends will be cumulative, redemption rights or prices, sinking fund provisions, liquidation prices, conversion rights and restrictions on the issuance of shares of the same series or any other class or series. As of the date of this prospectus, no preferred shares are issued or outstanding. The preferred shares will have the dividend, liquidation, redemption, voting rights and conversion rights set forth below unless otherwise provided in the prospectus supplement relating to a particular series of offered preferred shares. We will set forth the following terms of the offered preferred shares in the prospectus supplement: - the title and stated value of the offered preferred shares, the liquidation preference per share and the number of shares offered; - the price at which we will issue the offered preferred shares; - the dividend rates and dates on which dividends will be payable, as well as the dates from which dividends will commence to cumulate or the method(s) of calculation thereof; - the period or periods within which, the price or prices at which, and the terms and conditions upon which the offered preferred shares may be redeemed, in whole or in part, at our option, if we are to have that option; - our obligation, if any, to redeem or purchase the offered preferred shares pursuant to any sinking fund or analogous provisions or at the option of a holder thereof, and the period or periods within which, the price or prices at which, and the terms and conditions upon which the offered preferred shares will be redeemed or purchased in whole or in part pursuant to such obligation; - any rights on the part of the holder to convert the offered preferred shares into our common shares; - any additional dividend, liquidation, redemption, sinking fund, voting and other rights, preferences, privileges, limitations and restrictions; 22 - the terms of any debt warrants that we will offer together with or separately from the offered preferred shares; - the national securities exchanges, if any, upon which the offered preferred shares will be listed; - the procedures for any auction or remarketing, if any, of the offered preferred shares; and - any other terms of the offered preferred shares. The preferred shares will be fully paid and nonassessable, and for each share issued a sum equal to the stated value will be credited to our preferred stock account. We have adopted a rights plan and are subject to certain provisions of Ohio law, each of which may have the effect of delaying, deferring or preventing a change in control of our company. See "Description of Common Shares--Rights Plan" and "--Certain Ohio Statutes". DIVIDENDS As a holder of offered preferred shares, you will be entitled to receive cash dividends, when and as declared by the Board of Directors out of our assets legally available for payment, at such rate and on such quarterly dates as will be set forth in the applicable prospectus supplement. Each dividend will be payable to holders of record as they appear on our stock books on the record dates fixed by the Board of Directors. Dividends will be cumulative from and after the date set forth in the applicable prospectus supplement. If we have not paid or declared and set apart for payment full cumulative dividends on any preferred shares for any dividend period or we are in default with respect to the redemption of preferred shares or any sinking fund for any preferred shares, we may not do the following: - declare any dividends (except a dividend payable in shares ranking junior to the preferred shares) on, or make any distribution (except as aforesaid) on, the common shares or any of our other shares; or - make any payment on account of the purchase, redemption or other retirement of our common shares or any of our other shares except out of the proceeds of the sale of common shares or any other shares ranking junior to the preferred shares. If dividends on preferred shares are in arrears, and there will be outstanding shares of any other series of preferred shares ranking on a parity as to dividends with the preferred shares, we, in making any dividend payment on account of such arrears, are required to make payments ratably upon all outstanding preferred shares and such other series of preferred shares in proportion to the respective amounts of dividends in arrears on such preferred shares and shares of such other series. LIQUIDATION RIGHTS In the event of any voluntary or involuntary liquidation, dissolution or winding up of our company, the holders of the offered preferred shares will be entitled to receive liquidating distributions in the amount set forth in the applicable prospectus supplement plus all accrued and unpaid dividends. This distribution will be made out of our assets available for distribution to shareholders and will be made before any distribution is made to holders of our common shares. If, upon any voluntary or involuntary liquidation, dissolution or winding up of our company, the amounts payable with respect to the preferred shares and any of our other shares ranking on a parity with the preferred shares are not paid in full, the holders of those shares will share ratably in any such distribution of our assets in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of preferred shares will not be entitled to any further participation in any distribution of our assets. A consolidation or 23 merger of our company with or into any other corporation or corporations or a sale of all or substantially all of our assets will not be deemed to be a liquidation, dissolution or winding up of our company. REDEMPTION The offered preferred shares will be redeemable in whole or in part at our option, at the times and at the redemption prices that we set forth in the applicable prospectus supplement. We may not redeem less than all the outstanding shares of any series of preferred shares unless full cumulative dividends have been paid or declared and set apart for payment upon all outstanding shares of such series of preferred shares for all past dividend periods. In addition, all of our matured obligations with respect to all sinking funds, retirement funds or purchase funds for all series of preferred shares then outstanding must have been met. VOTING RIGHTS The holders of the offered preferred shares are entitled to one vote per share on all matters presented to our shareholders. If the equivalent of six quarterly dividends payable on any series of preferred shares are in default, whether or not declared or consecutive, the holders of all outstanding series of preferred shares, voting as a single class without regard to series, will be entitled to elect two directors until all dividends in default have been paid or declared and set apart for payment. The holders of preferred shares will not have or exercise such special class voting rights except at meetings of the shareholders for the election of directors at which the holders of not less than a majority of the outstanding preferred shares of all series are present in person or by proxy. The affirmative vote of the holders of at least two-thirds of the outstanding preferred shares, voting as a single class without regard to series, will be required for any amendment of our Amended Articles of Incorporation or Amended Regulations that will adversely affect the preferences, rights or voting powers of the preferred shares. If not all series of preferred shares would be affected as to their preferences, rights or voting powers, only the consent of holders of at least two-thirds of the shares of each series that would be affected, voting separately as a class, will be required. A two-thirds vote is also required to issue any class of stock that will have preference as to dividends or distribution of assets over any outstanding series of preferred shares. The affirmative vote of the holders of a majority of the outstanding preferred shares will be necessary to increase the authorized number of preferred shares or to authorize any shares ranking on a parity with the preferred shares. The Regulations may be amended to increase the number of directors, without the vote of the holders of outstanding preferred shares. CONVERSION RIGHTS We will state in the prospectus supplement for any series of offered preferred shares whether shares in that series are convertible into common shares. Unless otherwise provided in the applicable prospectus supplement, if a series of preferred shares is convertible into common shares, holders of convertible preferred shares of that series will have the right, at their option and at any time, to convert any of those convertible preferred shares in accordance with their terms. However, if that series of convertible preferred shares is called for redemption, the conversion rights pertaining to them will terminate at the close of business on the date before the redemption date. Unless we specify otherwise in the applicable prospectus supplement, the conversion rate is subject to adjustment in certain events, including the following: - the issuance of common shares or capital shares of any other class as a dividend or distribution on the common shares; 24 - subdivisions and combinations of the common shares; - the issuance of certain rights or warrants to all holders of common shares entitling those holders to subscribe for or purchase common shares, or securities convertible into common shares, within the period specified in the prospectus supplement at less than the current market price as defined in the Certificate of Designations for such series of convertible preferred shares; and - the distribution of evidences of indebtedness or assets or rights or warrants to all holders of common shares (excluding cash dividends, distributions, rights or warrants, referred to above). No adjustments in the conversion rate will be made as a result of regular quarterly or other periodic or recurrent cash dividends or distributions or for cash dividends or distributions to the extent paid from retained earnings. No adjustment in the conversion price will be required unless such adjustment would require a change of at least 1% in the conversion price then in effect or a period of three years will have elapsed from the date of occurrence of any event requiring any such adjustment; provided that any adjustment that would otherwise be required to be made will be carried forward and taken into account in any subsequent adjustment. We reserve the right to make such increases in the conversion rate in addition to those required in the foregoing provisions as we, in our discretion, determine to be advisable in order that certain stock-related distributions or subdivisions of the common shares hereafter made by us to our shareholders will not be taxable. Except as stated above, the conversion rate will not be adjusted for the issuance of common shares or any securities convertible into or exchangeable for common shares, or securities carrying the right to purchase any of the foregoing. In the case of: - any reclassification or change of the common shares; - a consolidation or merger involving our company; or - a sale or conveyance to another corporation of the property and assets of our company as an entirety or substantially as an entirety, in each case as a result of which holders of common shares will be entitled to receive stock, securities, or other property or assets, including cash, with respect to or in exchange for such common shares, the holders of the convertible preferred shares then outstanding will be entitled thereafter to convert those convertible preferred shares into the kind and amount of shares and other securities or property which they would have received upon such reclassification, change, consolidation, merger, combination, sale or conveyance had those convertible preferred shares been converted into common shares immediately prior to the reclassification, change, consolidation, merger, combination, sale or conveyance. In the event of a taxable distribution to holders of common shares or other transaction which results in any adjustment of the conversion rate, the holders of convertible preferred shares may, in certain circumstances, be deemed to have received a distribution subject to United States federal income tax as a dividend; in certain other circumstances, the absence of such an adjustment may result in a taxable dividend to the holders of common shares or the convertible preferred shares. DESCRIPTION OF COMMON SHARES The following is a summary of the material provisions concerning the common shares contained in our Amended Articles of Incorporation ("Articles") and our Amended Regulations ("Regulations"), as affected by debt agreements. Reference is made to such Articles and Regulations, which we 25 have filed with the SEC. See "Where You Can Find More Information" on page 2 of this prospectus for information on how to obtain a copy of the Articles and Regulations. AUTHORIZED NUMBER The Articles authorize the issuance of up to 300,000,000 common shares. Common shares issued and outstanding totaled 71,114,820 on May 31, 2003 and 74,858,997 on June 6, 2003, immediately after a public offering of 3,700,000 common shares. The outstanding common shares are fully paid and non-assessable, and shareholders are not subject to any liability for calls and assessments. The Articles also authorize the issuance of up to 14,106,394 preferred shares. Currently, there are no preferred shares issued and outstanding. DIVIDENDS Holders of common shares may receive dividends that our Board of Directors declares. VOTING RIGHTS Each common share entitles the holder to one vote. Directors are elected by cumulative voting, which means that each common share entitles the holder to the number of votes equal to the number of directors to be elected. All votes in respect of such share may be cast for one or more of the directors to be elected. Cumulative voting may have the effect of increasing minority shareholders' representation on the Board of Directors. The Articles provide that action may be taken by the vote of the holders of shares entitling them to exercise a majority of the voting power of the Company, except in each case as is otherwise provided in the Articles or Regulations. The Articles and Regulations provide for a voting proportion, which is different from that provided by statutory law, in order for shareholders to take action in certain circumstances, including the following: (1) two-thirds vote required to fix or change the number of directors; (2) two-thirds vote required for removal of directors; (3) fifty percent of the outstanding shares required to call a special meeting of shareholders; (4) two-thirds vote required to amend the Regulations without a meeting; (5) two-thirds vote required to amend the provisions described in items (1) and (4) above and this provision, unless such action is recommended by two-thirds of the members of the Board of Directors; (6) two-thirds vote required to approve certain transactions, such as the sale, exchange, lease, transfer or other disposition by the Company of all, or substantially all, of its assets or business, or the consolidation of the Company or its merger into another corporation, or certain other mergers and majority share acquisitions; and (7) two-thirds vote required to amend the provisions described in item (6) above, or this provision. The requirement of a two-thirds vote in certain circumstances may have the effect of delaying, deferring or preventing a change in control of our company. RIGHTS PLAN We have adopted a rights plan, which may have the effect of delaying or preventing a change in control of our company. This plan attached to each common share one right (a "Right") that, when exercisable, entitles the holder of the Right to purchase one one-hundredth of a share of Series A 26 Participating Preferred Stock at a purchase price of $250, subject to adjustment. If certain takeover events occur, exercise of the Rights would entitle the holders thereof (other than the acquiring person or group) to receive common shares or common stock of a surviving corporation, or cash, property or other securities, with a market value equal to twice the purchase price. Those takeover events include a person or group becoming the owner of 20% or more of the common shares or the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 20% or more of the outstanding common shares. Accordingly, exercise of the Rights may cause substantial dilution to a person who attempts to acquire our company. The Rights automatically attach to each outstanding common share, including any shares offered pursuant to the applicable prospectus supplement. There is no monetary value presently assigned to the Rights, and they will not trade separately from the common shares unless and until they become exercisable. The Rights, which expire on July 12, 2005, may be redeemed, at the option of our Board of Directors, at a price of $.01 per Right at any time prior to a group or person acquiring ownership of 20% or more of the outstanding common shares. The Rights Agreement may have certain antitakeover effects, although it is not intended to preclude any acquisition or business combination that is at a fair price and otherwise in the best interests of our company and our shareholders as determined by our Board of Directors. However, a shareholder could potentially disagree with the Board's determination of what constitutes a fair price or the best interests of our company and our shareholders. The description and terms of the Rights are set forth in a Rights Agreement (the "Rights Agreement") between us and Equiserve Trust Company N.A. (formerly known as First Chicago Trust Company of New York), as Rights Agent. We have filed a copy of the Rights Agreement as an exhibit to the registration statement of which this prospectus forms a part. See "Where You Can Find More Information" on page 2 of this prospectus for information on how to obtain a copy of the Rights Agreement. The above description of the Rights is a summary of the material terms of the Rights, does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement. LIQUIDATION RIGHTS In the event of any voluntary or involuntary liquidation, dissolution or winding up of our company, after the payment or provision for payment of our debts and other liabilities and the preferential amounts to which holders of our preferred shares are entitled, if any such preferred shares are then outstanding, the holders of the common shares are entitled to share pro rata in our assets remaining for distribution to shareholders. MISCELLANEOUS RIGHTS, LISTING AND TRANSFER AGENTS Our common shares have no preemptive or conversion rights and there are no redemption or sinking fund provisions applicable thereto. Our outstanding common shares are listed on the New York Stock Exchange, the Chicago Stock Exchange, the Pacific Exchange and the London Stock Exchange. Equiserve Trust Company N.A. is the transfer agent and registrar for our common shares. CLASSIFICATION OF BOARD OF DIRECTORS Our Board of Directors is divided into three approximately equal classes, having staggered terms of office of three years each. The effect of a classified Board of Directors, where cumulative voting is in effect, is to require the votes of more shares to elect one or more members of the Board of Directors than would be required if the Board of Directors were not classified. Additionally, the effect of a classified Board of Directors may be to make it more difficult to acquire control of our company. 27 CERTAIN OHIO STATUTES Various laws may affect the legal or practical ability of shareholders to dispose of shares of our company. Such laws include the Ohio statutory provisions described below. Chapter 1704 of the Ohio Revised Code prohibits an interested shareholder (defined as a beneficial owner, directly or indirectly, of ten percent (10%) or more of the voting power of any issuing public Ohio corporation) or any affiliate or associate of an interested shareholder (as defined in Section 1704.01 of the Ohio Revised Code) from engaging in certain transactions with the corporation during the three-year period after the interested shareholder's share acquisition date. The prohibited transactions include mergers, consolidations, majority share acquisitions, certain asset sales, loans, certain sales of shares, dissolution, and certain reclassifications, recapitalizations, or other transactions that would increase the proportion of shares held by the interested shareholder. After expiration of the three-year period, the corporation may participate in such a transaction with an interested shareholder only if, among other things: - the transaction receives the approval of the holders of two-thirds of all the voting shares and the approval of the holders of a majority of the disinterested voting shares (shares not held by the interested shareholder); or - the transaction meets certain criteria designed to ensure that the remaining shareholders receive fair consideration for their shares. The prohibitions do not apply if, before the interested shareholder becomes an interested shareholder, the board of directors of the corporation approves either the interested shareholder's acquisition of shares or the otherwise prohibited transaction. The restrictions also do not apply if a person inadvertently becomes an interested shareholder or was an interested shareholder prior to the adoption of the statute on April 11, 1990, unless, subject to certain exceptions, the interested shareholder increases his, her or its proportionate share interest on or after April 11, 1990. Pursuant to Ohio Revised Code Section 1707.043, a public corporation formed in Ohio may recover profits that a shareholder makes from the sale of the corporation's securities within eighteen (18) months after making a proposal to acquire control or publicly disclosing the possibility of a proposal to acquire control. The corporation may not, however, recover from a person who proves in a court of competent jurisdiction either of the following: - that his, her or its sole purpose in making the proposal was to succeed in acquiring control of the corporation and there were reasonable grounds to believe that such person would acquire control of the corporation; or - such person's purpose was not to increase any profit or decrease any loss in the stock, and the proposal did not have a material effect on the market price or trading volume of the stock. Also, before the corporation may obtain any recovery, the aggregate amount of the profit realized by such person must exceed $250,000. Any shareholder may bring an action on behalf of the corporation if a corporation fails or refuses to bring an action to recover these profits within sixty (60) days of a written request. The party bringing such an action may recover attorneys' fees if the court having jurisdiction over such action orders recovery of any profits. CONTROL SHARE ACQUISITION ACT We are also subject to Ohio's Control Share Acquisition Act (Ohio Revised Code 1701.831). The Control Share Acquisition Act provides that, with certain exceptions, a person may acquire beneficial ownership of shares in certain ranges (one-fifth or more but less than one-third, one-third or more but less than a majority, or a majority or more) of the voting power of the outstanding shares of an Ohio corporation meeting certain criteria, which our company meets, only if such person has 28 submitted an "acquiring person statement" and the proposed acquisition has been approved by the vote of a majority of the shares of the corporation represented at a special meeting called for such purpose and by a majority of such shares of the corporation excluding "interested shares," as defined in Section 1701.01 of the Ohio Revised Code. PLAN OF DISTRIBUTION We may sell the offered securities as follows: - through agents; - to or through underwriters; or - directly to other purchasers. We will identify any underwriters or agents and describe their compensation in a prospectus supplement. We, directly or through agents, may sell, and the underwriters may resell, the offered securities in one or more transactions, including negotiated transactions. These transactions may be: - at a fixed public offering price or prices, which may be changed; - 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 offered securities, the underwriters or agents may receive compensation from us or from purchasers of the offered securities for whom they may act as agents. The underwriters may sell offered securities to or through dealers, who may also receive compensation from purchasers of the offered securities for whom they may act as agents. Compensation may be in the form of discounts, concessions or commissions. Underwriters, dealers and agents that participate in the distribution of the offered securities may be underwriters as defined in the Securities Act of 1933, and any discounts or commissions received by them from us and any profit on the resale of the offered securities by them may be treated as underwriting discounts and commissions under the Securities Act of 1933. We will indemnify the underwriters and agents against certain civil liabilities, including liabilities under the Securities Act of 1933. Underwriters, dealers and agents may engage in transactions with, or perform services for, us or our affiliates in the ordinary course of their business. If we indicate in the prospectus supplement relating to a particular series or issue of offered securities, we will authorize underwriters, dealers or agents to solicit offers by certain institutions to purchase such offered securities from us pursuant to delayed delivery contracts providing for payment and delivery at a future date. Such contracts will be subject only to those conditions that we specify in the prospectus supplement, and we will specify in the prospectus supplement the commission payable for solicitation of such contracts. LEGAL OPINIONS The validity of the offered securities will be passed upon for us by J. Robert Horst, Vice President and General Counsel, and for any underwriters, dealers or agents by Shearman & Sterling LLP, 599 Lexington Avenue, New York, New York 10022. Mr. Horst is paid a salary by our company and participates in various employee benefit plans offered to officers of our company generally. 29 EXPERTS Ernst & Young LLP, independent auditors, have audited our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2002, as set forth in their report, which is incorporated by reference in this prospectus and elsewhere in the registration statement. Our financial statements are incorporated by reference in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. 30 PART II. INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 14. OTHER EXPENSE OF ISSUANCE AND DISTRIBUTION
Filing fee for Registration Statement....................... $ 20,225 Legal Fees and Expenses..................................... 100,000 Rating Agency Fees.......................................... 140,000 Blue Sky Fees and Expenses.................................. 5,000 Printing and Engraving Fees................................. 75,000 Accounting Fees and Expenses................................ 135,000 Trustee's and Depositary's Fees and Expenses................ 12,700 Miscellaneous Expenses...................................... 10,000 -------- Total............................................. $497,925 ========
The foregoing expenses, except for the filing fee for the Registration Statement, are estimated. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Paragraph (E) of Section 1701.13 of the Ohio Revised Code grants each corporation organized under the laws of the State of Ohio, such as Eaton Corporation, power to indemnify its directors, officers and other specified persons. Provisions relating to indemnification of directors and officers of Eaton Corporation and other specified persons have been adopted pursuant to the Ohio law and are contained in Article IV, Section 2 of Eaton Corporation's Amended Regulations. Under the Amended Regulations, Eaton Corporation shall indemnify any director, officer of other specified person against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement, actually and reasonably incurred by him by reason of the fact that he is or was such director, officer or other specified person, to the full extent permitted by applicable law. The foregoing statement is subject to, and only part of, the detailed provisions of the Ohio Revised Code and Eaton Corporation's Amended Regulations referred to herein. Eaton Corporation has entered into Indemnification Agreements with all of its officers and directors. The Agreements provide the Eaton Corporation shall indemnify such directors of officers to the full extent permitted by law against expenses actually and reasonably incurred by them in connection with any claim filed against them by reason of anything done or not done by them in such capacity. The Agreements also require Eaton Corporation to maintain director and officer insurance which is no less favorable to the director and officer than the insurance in effect on the date of the Agreements, and to establish and maintain an escrow account of up to $10 million to fund Eaton Corporation's obligations under the Agreements, except that Eaton Corporation is required to fund the escrow only upon the occurrence of a change of control of Eaton Corporation, as defined under the Agreements. Eaton Corporation also maintains insurance coverage for the benefit of directors and officers with respect to many types of claims that may be made against them, some of which claims may be in addition to those described in Section 2 of Article IV of the Amended Regulations. Eaton Corporation and its officers, directors and controlling persons may receive indemnification against certain liabilities pursuant to the terms of any underwriting agreement or similar agreement entered into with respect to the Securities registered hereunder. ITEM 16. EXHIBITS See the index to exhibits that appears immediately following the signature pages to this registration statement. 31 ITEM 17. UNDERTAKINGS (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to the registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of any employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. 32 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF OHIO, ON JULY 2, 2003. EATON CORPORATION By /s/ RICHARD H. FEARON Richard H. Fearon Executive Vice President -- Chief Financial and Planning Officer By /s/ EARL R. FRANKLIN Earl R. Franklin Vice President and Secretary PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATE INDICATED.
NAME TITLE DATE ---- ----- ---- * Chairman and Chief Executive Officer; --------------------------------------- President; (Principal Executive Alexander M. Cutler Officer); Director * Executive Vice President -- Chief --------------------------------------- Financial and Planning Officer; Richard H. Fearon (Principal Financial Officer) * Vice President and Controller; --------------------------------------- (Principal Accounting Officer) Billie K. Rawot * Director --------------------------------------- Michael J. Critelli * Director --------------------------------------- Ernie Green * Director --------------------------------------- Ned C. Lautenbach * Director --------------------------------------- Deborah L. McCoy * Director --------------------------------------- John R. Miller * Director --------------------------------------- Victor A. Pelson * Director --------------------------------------- Gary L. Tooker
*By /s/ DAVID M. O'LOUGHLIN ------------------------------- David M. O'Loughlin, Attorney-in-Fact for the officers and directors signing in the capacities indicated July 2, 2003 EXHIBIT INDEX
EXHIBIT EXHIBIT NUMBER DESCRIPTION ------- ----------- ***1(a) -- Form of Underwriting Agreement (or similar agreement) and Underwriting Agreement Basic Provisions. *1(b) Form of Distribution Agreement among Eaton Corporation, Goldman Sachs & Co., J.P. Morgan Securities Inc., Citigroup Global Markets Inc. and McDonald Investments Inc. 4(a) -- Form of Senior Indenture between the Company and JPMorgan Chase Bank (formerly known as Chemical Bank), filed as Exhibit 4(a) to Registration Statement No. 33-52333 and incorporated herein by reference. 4(b) -- Form of Fixed Rate Senior Note, filed as Exhibit 4(b) to Registration Statement No. 33-52333 and incorporated herein by reference. 4(c) -- Form of Subordinated Indenture between the Company and JPMorgan Chase Bank (formerly known as Chemical Bank), filed as Exhibit 4(c) to Registration Statement No. 33-52333 and incorporated herein by reference. 4(d) -- Form of Fixed Rate Subordinated Note, filed as Exhibit 4(d) to Registration Statement No. 33-52333 and incorporated herein by reference. 4(e) -- Form of Debt Warrant Agreement between the Company and the Debt Warrant Agent, including a form of Debt Warrant Certificate, filed as Exhibit 4(c) to Registration Statement No. 33-48851 and incorporated herein by reference. 4(f) -- Amended Articles of Incorporation, adopted on April 27, 1994, filed as Exhibit 3(a) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-1396 and incorporated herein by reference. 4(g) -- Amended Regulations, adopted on April 26, 2000, filed as Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002, File No. 1-1396 and incorporated herein by reference. **4(h) -- Rights Agreement dated as of June 1, 1997, filed as Exhibit 4(h) to Registration Statement No. 333-74355 and incorporated herein by reference. 4(i) -- Form of Medium-Term Note (Fixed Rate), filed as Exhibit 4(i) to the Registrant's Current Report on Form 8-K dated February 2, 2000 and incorporated by reference herein. 4(j) -- Form of Medium-Term Note (Floating Rate), filed as Exhibit 4(j) to the Registrant's Current Report on Form 8-K dated February 2, 2000 and incorporated by reference herein. 4(k) -- Form of Medium-Term Note (Single Indexed Note--Fixed Rate), filed as Exhibit 4(k) to the Registrant's Current Report on Form 8-K dated February 2, 2000 and incorporated by reference herein. 4(l) -- Form of Medium-Term Note (Single Indexed Note--Floating Rate), filed as Exhibit 4(l) to the Registrant's Current Report on Form 8-K dated February 2, 2000 and incorporated by reference herein. ***5 -- Opinion of J. R. Horst, Vice President and General Counsel, as to validity of the Securities. ***8 -- Tax opinion of Shearman & Sterling LLP with respect to medium-term note program. **12 -- Computation of Ratio of Earnings to Fixed Charges filed as Exhibit 12 to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 2003 and incorporated herein by reference. ***23(a) -- Consent of Ernst & Young LLP. ***23(b) -- Consent of J. R. Horst, Vice President and General Counsel, contained in his opinion filed as Exhibit 5 to this Registration Statement. ***23(c) -- Consent of Shearman & Sterling LLP, contained in their opinion filed as Exhibit 8 to this Registration Statement. **24 -- Power of Attorney filed as Exhibit 24 to Registration Statement No. 333-105786 and incorporated herein by reference.
EXHIBIT EXHIBIT NUMBER DESCRIPTION ------- ----------- ***25 -- Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of JPMorgan Chase Bank (formerly known as Chemical Bank) with respect to the Senior Indenture and Subordinated Indenture.
- --------------- * To be filed as an exhibit to a Current Report on Form 8-K. ** Filed previously. *** Filed herewith. EX-1.A 3 l00571aexv1wa.txt EX-1(A) FORM OF UNDERWRITING AGREEMENT Exhibit 1(a) EATON CORPORATION DEBT SECURITIES - PREFERRED SHARES COMMON SHARES - WARRANT SECURITIES UNDERWRITING AGREEMENT ---------------------- 1. Introductory. Eaton Corporation, an Ohio corporation ("Company"), proposes to issue and sell from time to time: (a) certain of its debt securities registered under one of the registration statements referred to in Section 2(a) ("Registered Debt Securities"). The Registered Debt Securities will be issued under an indenture dated as of April 1, 1994 ("Senior Indenture") for the issuance of the Company's senior debt securities ("Senior Debt Securities"), between the Company and JPMorgan Chase Bank, as Trustee ("Senior Trustee"), or an indenture ("Subordinated Indenture") for the issuance of the Company's subordinated debt securities ("Subordinated Debt Securities"), between the Company and JPMorgan Chase Bank, as Trustee ("Subordinated Trustee"), each in one or more series, each of which such series may vary as to interest rates, maturities, redemption provisions, selling prices, terms of conversion, in the case of Subordinated Debt Securities, if any ("Convertible Subordinated Debt Securities"), and other terms, with all such terms for any particular series of the Registered Debt Securities being determined at the time of sale. Particular series of the Registered Debt Securities will be sold pursuant to a Terms Agreement referred to in Section 3, for resale in accordance with terms of offering determined at the time of sale; (b) certain of its shares of its preferred stock registered under one of the registration statements referred to in Section 2(a) ("Registered Preferred Shares"). The Registered Preferred Shares may be issued in one or more series, which series may vary as to dividend rates, redemption provisions, selling prices and other terms, with all such terms for any particular series of the Registered Preferred Shares being determined at the time of sale. Particular series of the Registered Preferred Shares will be sold pursuant to a Terms Agreement referred to in Section 3, for resale in accordance with terms of offering determined at the time of sale; (c) certain of its common shares ("Common Shares") registered under one of the registration statements referred to in Section 2(a) ("Registered Common Shares"). Particular offerings of the Registered Common Shares will be sold pursuant to a Terms Agreement referred to in Section 3, for resale in accordance with terms of offering determined at the time of sale; and 2 (d) certain of its warrant securities registered under one of the registration statements referred to in Section 2(a) ("Registered Warrant Securities"). The Registered Warrant Securities will be issued under a warrant agreement, ("Warrant Agreement") between the Company and the organization to be named therein upon the execution thereof, as Warrant Agent, in one or more series, which series may vary as to expiration date, conversion terms, premium price, if any, and other terms, with all such terms for any particular series of the Registered Warrant Securities being determined at the time of sale. Particular series of the Registered Warrant Securities will be sold pursuant to a Terms Agreement referred to in Section 3, for resale in accordance with terms of offering determined at the time of sale. The Registered Debt Securities, Registered Preferred Shares, Registered Common Shares and Registered Warrant Securities are collectively referred to herein as the "Registered Securities". The Registered Securities (including any combination of such securities) involved in any such offering are hereinafter referred to as the "Securities". The firm or firms which agree to purchase the Securities are hereinafter referred to as the "Underwriter" or "Underwriters" of such Securities, and the representative or representatives of the Underwriters, if any, specified in a Terms Agreement referred to in Section 3 are hereinafter referred to as the "Representatives"; provided, however, that if the Terms Agreement does not specify any representative of the Underwriters, the term "Representatives", as used in this Agreement (other than in Sections 2(b), 5(c) and 6 and the second sentence of Section 3), shall mean the Underwriters. It is understood that the Company may from time to time agree to sell Securities to a certain firm or firms ("Manager" or "Managers") outside the United States and Canada, such Manager or Managers to be specified in, and said Securities to be sold pursuant to, a Terms Agreement (such Terms Agreement being referred to therein by such Managers as a Subscription Agreement). As used herein, the terms Underwriter and Underwriters are deemed to include, unless the context otherwise specifies or requires, the Manager or Managers. The Underwriters and Managers (or Underwriter and Manager) may provide for the coordination of their activities by entering into an Agreement between U.S. Underwriters and Managers which may permit them, among other things, to sell Securities to each other for purposes of resale. As used herein the term "United States" shall mean the United States of America (including the States and the District of Columbia), its territories and possessions and other areas subject to its jurisdiction and "Canada" means Canada, its provinces, territories and possessions and other areas subject to its jurisdiction. 2. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, each Underwriter and each Manager that: (a) A registration statement (No. 333- ), including a prospectus, relating to the Registered Securities has been filed with the Securities and Exchange Commission ("Commission") and has become effective. Such registration statement, as amended at the time of any Terms Agreement referred to in Section 3, is hereinafter referred to as the "Registration Statement", and the prospectus included in such Registration Statement, as supplemented as contemplated by Section 3 to reflect (i) if Registered Debt Securities, Registered Preferred Shares or Registered Warrant Securities are offered, the terms of the 3 Securities and the terms of offering thereof and (ii) if Registered Common Share Securities are offered, the terms of offering of the Securities, as first filed with the Commission pursuant to and in accordance with Rule 424(b) ("Rule 424(b)") under the Securities Act of 1933 (the "Act"), including all material incorporated by reference therein, is hereinafter referred to as the "U.S. Prospectus". The prospectus relating to the Securities to be sold by the Company to the Manager or Managers, as supplemented by a prospectus supplement as of the time of the applicable Terms Agreement, which will be identical to the U.S. Prospectus except as provided in such Terms Agreement, is hereinafter referred to as the "International Prospectus" (collectively the U.S. Prospectus and the International Prospectus are hereinafter referred to as the "Prospectuses"). (b) On the effective date of the registration statement relating to the Registered Securities, such registration statement conformed in all respects to the requirements of the Act, the Trust Indenture Act of 1939, as amended ("Trust Indenture Act") and the rules and regulations of the Commission ("Rules and Regulations") and did not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. Each preliminary prospectus, as of the date thereof, and the Registration Statement and the U.S. Prospectus and International Prospectus, as the case may be, on the date of each Terms Agreement referred to in Section 3, will conform in all material respects to the requirements of the Act and the Rules and Regulations and, if Registered Debt Securities are offered by the U.S. Prospectus or the International Prospectus, the Trust Indenture Act, and none of such documents will include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, except that the foregoing does not apply to statements in or omissions from any of such documents based upon written information furnished to the Company by (i) the Trustee in its Form T-1 (Statement of Eligibility of Trustee) filed with the Registration Statement, (ii) any Underwriter through the Representatives, if any, specifically for use in the U.S. Prospectus or (iii) any Manager specifically for use in the International Prospectus. (c) To the best knowledge of the Company, there is no existing or imminent labor dispute or organizational effort by the employees of the Company or any of its Subsidiaries (as defined in subsection (e)) or any existing or imminent labor disturbance by the employees of any of its or any Subsidiary's principal suppliers, contractors or customers that is reasonably expected to have a material adverse effect upon the business, properties, financial condition, results of operations or prospects of the Company and its Subsidiaries taken as a whole. (d) Except as disclosed in the Registration Statement and except as is not reasonably expected to have a material adverse effect upon the business, properties, financial condition, results of operations or prospects of the Company and its Subsidiaries taken as a whole, each of the Company and its Subsidiaries is in compliance with all applicable Environmental Laws. As used herein, 4 "Environmental Laws" means any United States or Canadian, federal, state, local or municipal statute, law, rule, regulation, ordinance, judicial or administrative order, consent decree or judgment, relating to the protection of the environment, the protection of public health and safety from environmental concerns or the protection of worker health and safety. (e) Neither the Company nor any of its subsidiaries (as defined in Rule 1.02(x) of Regulation S-X) (each a "Subsidiary" and, collectively, the "Subsidiaries") is in violation of its articles or certificate of incorporation or regulations or bylaws or in default under any agreement, indenture or instrument, the effect of which violation or default would be material to the Company and its Subsidiaries taken as a whole. (f) Except as described in (or incorporated by reference in) the Registration Statement and each U.S. Prospectus or International Prospectus, there has not been any material adverse change in, or any adverse development which materially affects, the business, properties, financial condition, results of operations or prospects of the Company and its Subsidiaries taken as a whole from the dates as of which information is given in the Registration Statement and each U.S. Prospectus and International Prospectus. (g) Ernst & Young LLP, whose report appears in the Company's most recent Annual Report on Form 10-K which is incorporated by reference in the Registration Statement and each U.S. Prospectus and International Prospectus and who have examined certain financial statements of the Company and its subsidiaries, are independent public accountants as required by the Act and the Rules and Regulations. (h) The Company and Cutler-Hammer Co. (C.I.), Cutler-Hammer, Inc., Eaton Administration Corp., Eaton MDH Co., Inc., Eaton Aeroquip, Inc., and Eaton Yale Ltd. (each a "Significant Subsidiary", which together constitute all of the significant subsidiaries (as defined in Rule 1.02(w) of Regulation S-X) of the Company) have each been duly incorporated, are validly existing and in good standing under the laws of their respective jurisdictions of incorporation, are duly qualified to do business and are in good standing as foreign corporations in each jurisdiction in which their respective ownership of property or the conduct of their respective businesses requires such qualification (except where the failure to so qualify would not have a material adverse effect upon the Company and its Subsidiaries taken as a whole), and have power and authority necessary to own or hold their respective properties and to conduct the businesses in which they are engaged. All of the issued and outstanding stock of each Significant Subsidiary has been duly authorized and validly issued and is fully paid and nonassessable. The Company owns all of the issued and outstanding shares of each Significant Subsidiary, directly or through one or more Subsidiaries, except to the extent of shares owned of record by directors for the purpose of qualification as such, free and clear of any pledges, liens, encumbrances, claims or equities. 5 (i) Except as described in (or incorporated by reference in) each U.S. Prospectus and International Prospectus, there is no material litigation or governmental proceeding pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries which is reasonably expected by the Company to result in any material adverse change in the business, properties, financial condition, results of operations or prospects of the Company and its Subsidiaries taken as a whole or which is required to be disclosed in (or incorporated by reference in) the Registration Statement. (j) The financial statements filed as part of, or incorporated by reference in, the Registration Statement or included in, or incorporated by reference in, any preliminary prospectus, U.S. Prospectus or International Prospectus present, or (in the case of any amendment or supplement to any such document, or any material incorporated by reference in any such document, filed with the Commission after the date as of which this representation is being made) will present, at all times during the period specified in Section 4(b) hereof, fairly, the financial condition and results of operations of the entities purported to be shown thereby, at the dates and for the periods indicated, and have been and (in the case of any amendment or supplement to any such document, or any material incorporated by reference in any such document, filed with the Commission after the date as of which this representation is being made) will be, at all times during the period specified in Section 4(b) hereof, prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved, except as otherwise disclosed in such financial statements. The unaudited pro forma financial information, if any, filed as a part of, or incorporated by reference in, the Registration Statement or included in, or incorporated by reference in, any preliminary prospectus, U.S. Prospectus or International Prospectus present, or (in the case of any amendment or supplement to any such document, or any material incorporated by reference in any such document, filed with the Commission after the date as of which this representation is made) will present, at all times during the period specified in Section 4(b) hereof, fairly, on the basis set forth in any such document, the information set forth therein, has been prepared in accordance with the Rules and Regulations and the guidelines of the Commission with respect to pro forma financial information, has been properly compiled on the pro forma bases set forth therein, the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. (k) The documents incorporated by reference into the Registration Statement, and each preliminary prospectus, U.S. Prospectus and International Prospectus conformed on the respective dates such documents were filed with the Commission (or, if the International Prospectus and each related preliminary prospectus is not filed with the Commission, first used by the Managers) and (in the case of any amendment or supplement to any such document, or any material incorporated by reference in any such document, filed with the Commission after 6 the date as of which this representation is being made) will conform at all times in all material respects during the period specified in Section 4(b) hereof, with the applicable requirements of the Act and the Rules and Regulations and the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act") and the rules and regulations of the Commission thereunder and such documents have been, or (in the case of any amendment or supplement to any such document, or any material incorporated by reference in any such document, filed with the Commission after the date as of which this representation is being made) will be at all times during the period specified in Section 4(b) hereof timely filed as required thereby. (l) There are no contracts or other documents which are required to be filed as exhibits to the Registration Statement by the Act or by the Rules and Regulations, or which were required to be filed as exhibits to any document incorporated by reference in any U.S. Prospectus or International Prospectus by the Securities Exchange Act or the rules and regulations of the Commission thereunder, which have not been filed as exhibits to the Registration Statement or to such document or incorporated therein by reference as permitted by the Rules and Regulations or the rules and regulations of the Commission under the Securities Exchange Act as required. (m) The Company is not, and after giving effect to the offering and sale of the Securities, will not be an "investment company", as such term is defined in the United States Investment Company act of 1940, as amended (the "Investment Company Act"). (n) with respect to all Securities which are Senior Debt Securities -- (i) The Senior Indenture, including any amendments and supplements thereto, pursuant to which the Senior Debt Securities will be issued, will conform with the requirements of the Trust Indenture Act on the Closing Date (as defined in Section 3 hereof). (ii) The execution, delivery and performance by the Company of this Agreement and any Delayed Delivery Contracts (as defined in Section 3 hereof) and compliance by the Company with the provisions contained herein, in the Senior Debt Securities and in the Senior Indenture will not conflict with, result in the creation or imposition of any lien, charge or encumbrance upon any of the respective assets of the Company or any of its Subsidiaries pursuant to the terms of, or constitute a default under, any material agreement, indenture or instrument, or result in a violation of the articles or certificate of incorporation or regulations, as amended, of the Company or any of its Subsidiaries or any law, order, rule or regulation of any court or governmental agency having jurisdiction over the Company, any of its Subsidiaries or their respective properties; and, except as required by the Act, the Trust Indenture Act, the Securities Exchange Act and applicable state securities laws or foreign laws, no 7 consent, authorization or order of, or filing or registration with, any court or governmental agency is required for the issuance and sale of the Senior Debt Securities or the execution, delivery and performance of this Agreement, the Delayed Delivery Contracts, if any, and the Senior Indenture. (iii) On the Closing Date, (A) the Senior Indenture will have been duly authorized, executed and delivered by the Company and will constitute the legally binding obligation of the Company, except as enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), (B) the Senior Debt Securities will have been validly authorized and, when duly executed, authenticated and delivered in accordance with the Senior Indenture, upon payment thereof as provided in this Agreement, will be validly issued and outstanding, and will constitute legally binding obligations of the Company entitled to the benefits of the Senior Indenture, except as enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law) and (C) the Senior Debt Securities and the Senior Indenture will conform in all material respects to the descriptions thereof contained in the U.S. Prospectus and International Prospectus. (o) with respect to all Securities which are Subordinated Debt Securities -- (i) The Subordinated Indenture, including any amendments and supplements thereto, pursuant to which the Subordinated Debt Securities will be issued, will conform with the requirements of the Trust Indenture Act on the Closing Date. (ii) The execution, delivery and performance by the Company of this Agreement and any Delayed Delivery Contracts and compliance by the Company with the provisions contained herein, in the Subordinated Debt Securities and in the Subordinated Indenture will not conflict with, result in the creation or imposition of any lien, charge or encumbrance upon any of the respective assets of the Company or any of its Subsidiaries pursuant to the terms of, or constitute a default under, any material agreement, indenture or instrument, or result in a violation of the articles or certificate of incorporation or amended regulations of the 8 Company or any of its Subsidiaries or any law, order, rule or regulation of any court or governmental agency having jurisdiction over the Company, any of its Subsidiaries or their respective properties; and, except as required by the Act, the Trust Indenture Act, the Securities Exchange Act and applicable state securities laws or foreign laws, no consent, authorization or order of, or filing or registration with, any court or governmental agency is required for the issuance and sale of the Subordinated Debt Securities or the execution, delivery and performance of this Agreement, the Delayed Delivery Contracts, if any, and the Subordinated Indenture. (iii) On the Closing Date, (A) the Subordinated Indenture will have been validly authorized, executed and delivered by the Company and will constitute the legally binding obligation of the Company, except as enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), (B) the Subordinated Debt Securities will have been validly authorized and, when duly executed, authenticated and delivered in accordance with the Subordinated Indenture, upon payment therefor as provided in this Agreement, will be validly issued and outstanding, and will constitute legally binding obligations of the Company entitled to the benefits of the Subordinated Indenture, except as enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law) and (C) the Subordinated Debt Securities and the Subordinated Indenture will conform in all material respects to the descriptions thereof contained in the U.S. Prospectus and International Prospectus. (p) with respect to all Securities which are Convertible Subordinated Debt Securities -- (i) On the Closing Date, the Company will have reserved and will, at all times, keep available for issuance upon the conversion of the Convertible Subordinated Debt Securities such number of its authorized but unissued Common Shares deliverable upon conversion of the Convertible Subordinated Debt Securities as will be sufficient to permit the conversion in full of all outstanding Convertible Subordinated Debt Securities. 9 (ii) On the Closing Date, the Common Shares will conform in all material respects to the description thereof contained in the U.S. Prospectus and International Prospectus. (iii) All corporate action required to be taken for the authorization, issuance and delivery of the Common Shares issuable upon conversion of the Convertible Subordinated Debt Securities has been validly taken; when issued and delivered in accordance with the terms of the Convertible Subordinated Indenture, such Common Shares will be validly issued, fully paid and nonassessable; and the issuance of the Convertible Subordinated Debt Securities is not, and the issuance of any such Common Shares will not be, subject to the preemptive rights of any stockholder of the Company. (q) with respect to all Securities which are Registered Warrant Securities -- (i) The Senior Indenture, including any amendments and supplements thereto, pursuant to which the Senior Debt Securities will be issued upon exercise of the Registered Warrant Securities, will conform with the requirements of the Trust Indenture Act on the Closing Date. (ii) The execution, delivery and performance by the Company of this Agreement and any Delayed Delivery Contracts and compliance by the Company with the provisions contained herein, in the Registered Warrant Securities, in the Senior Debt Securities issuable upon exercise of the Registered Warrant Securities, in the Warrant Agreement and in the Senior Indenture will not conflict with, result in the creation or imposition of any lien, charge or encumbrance upon any of the respective assets of the Company or any of its Subsidiaries pursuant to the terms of, or constitute a default under, any material agreement, indenture or instrument, or result in a violation of the articles or certificate of incorporation or amended regulations of the Company or any of its Subsidiaries or any law, order, rule or regulation of any court or governmental agency having jurisdiction over the Company, any of its Subsidiaries or their respective properties; and, except as required by the Act, the Trust Indenture Act, the Securities Exchange Act and applicable state securities laws, no consent, authorization or order of, or filing or registration with, any court or governmental agency is required for the issuance and sale of the Registered Warrant Securities and the Senior Debt Securities issuable upon exercise of the Registered Warrant Securities or the execution, delivery and performance of this Agreement, the Delayed Delivery Contracts, if any, the Warrant Agreement and the Senior Indenture. (iii) On the Closing Date, (A) the Warrant Agreement and the Senior Indenture will have been validly authorized, executed and delivered 10 by the Company and will constitute the legally binding obligation of the Company, except as enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), (B) the Registered Warrant Securities will have been validly authorized and, when duly executed, authenticated and delivered in accordance with the Subordinated Indenture, upon payment therefor as provided in this Agreement, will be validly issued and outstanding, and will constitute legally binding obligations of the Company, except as enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), (C) the Registered Warrant Securities, the Warrant Agreement, the Senior Debt Securities issuable upon the exercise of the Registered Warrant Securities and the Senior Indenture will conform in all material respects to the descriptions thereof contained in the U.S. Prospectus and International Prospectus and (D) the Senior Debt Securities issuable upon the exercise of the Registered Warrant Securities will have been validly authorized and, when issued and delivered in accordance with the terms of the Registered Warrant Securities and the Senior Indenture, will be validly issued and outstanding, and will constitute legally binding obligations of the Company entitled to the benefits of the Senior Indenture, except as enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). (r) with respect to all Securities which are Registered Preferred Shares -- (i) The execution, delivery and performance by the Company of this Agreement and any Delayed Delivery Contracts and compliance by the Company with the provisions contained herein, in the Registered Preferred Shares and in the Certificate of Designations will not conflict with, result in the creation or imposition of any lien, charge or encumbrance upon any of the respective assets of the Company or any of its Subsidiaries pursuant to the terms of, or constitute a default under, any material agreement, indenture or instrument, or result in a violation of the articles or certificate of incorporation or amended regulations of the Company or any of its Subsidiaries or any law, order, rule or regulation of 11 any court or governmental agency having jurisdiction over the Company, any of its Subsidiaries or their respective properties, and, except as required by the Act, the Securities Exchange Act and applicable state securities laws or foreign laws, no consent, authorization or order of, or filing or registration with, any court or governmental agency is required for the issuance and sale of the Registered Preferred Shares, or the execution, delivery and performance of this Agreement or the Delayed Delivery Contracts, if any. (ii) The authorization, creation, issuance and sale of the Registered Preferred Shares and compliance by the Company with all of the provisions of the Certificate of Designations are within the corporate powers of the Company. (iii) On the Closing Date, the Registered Preferred Shares will have been validly authorized and, when duly executed, authenticated and delivered, upon payment therefor as provided in this Agreement, will be validly issued, fully paid and nonassessable. (iv) If the Registered Preferred Shares are convertible into Common Shares, on the Closing Date any Common Shares issuable upon conversion of the Registered Preferred Shares will have been duly authorized by the Company and, when issued and delivered in accordance with the Registered Preferred Shares and the Certificate of Designations, will be validly issued, fully paid and nonassessable. (v) If the Registered Preferred Shares are convertible into Common Shares, on the Closing Date the Company will have reserved and will, at all times, keep available for issuance upon the conversion of the Registered Preferred Shares such number of its authorized but unissued Common Shares deliverable upon conversion of the Registered Preferred Shares as will be sufficient to permit the conversion in full of all outstanding Registered Preferred Shares. (vi) All corporate action required to be taken for the authorization, issuance and delivery of any shares of Common Shares issuable upon conversion of the Registered Preferred Shares has been validly taken, and the issuance of the Registered Preferred Shares is not, and the issuance of any such shares of Common Shares will not be, subject to any preemptive rights of any stockholder of the Company. (s) with respect to all Securities which are Registered Common Shares -- (i) The execution, delivery and performance by the Company of this Agreement and compliance by the Company with the provisions contained herein, will not conflict with, result in the creation or imposition 12 of any lien, charge or encumbrance upon any of the respective assets of the Company or any of its Subsidiaries pursuant to the terms of, or constitute a default under, any material agreement, indenture or instrument, or result in a violation of the articles or certificate of incorporation or amended regulations of the Company or any of its Subsidiaries or any law, order, rule or regulation of any court or governmental agency having jurisdiction over the Company, any of its Subsidiaries or their respective properties, and, except as required by the Act, the Securities Exchange Act and applicable state securities laws or foreign laws, no consent, authorization or order of, or filing or registration with, any court or governmental agency is required for the issuance and sale of the Registered Common Shares, or the execution, delivery and performance of this Agreement. (ii) All corporate action required to be taken for the authorization, issuance and delivery of the Registered Common Shares has been validly taken, and the issuance of the Registered Common Shares is not, and will not be, subject to any preemptive rights of any stockholder of the Company. (iii) There is and has been no failure on the part of the Company or any of the Company's directors or officers, in their capacities as such, to comply with any provision of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith (the "Sarbanes-Oxley Act"), including Section 402 related to loans and Sections 302 and 906 related to certifications. Any certificate signed by any officer of the Company and delivered to the Representatives, the Managers or to counsel for the Underwriters pursuant to this Agreement shall be deemed to be a representation and warranty by the Company to each Underwriter (or each Manager) as to the matters covered thereby. 3. Purchase and Offering of Securities. The obligation of the Underwriters, if any, and the obligation of the Managers, if any, to purchase the Securities will be evidenced by an exchange of facsimile or other written communications ("Terms Agreement") at the time the Company determines to sell the Securities. All references herein to this Agreement include the applicable Terms Agreement. The Terms Agreement will incorporate by reference the provisions of this Agreement, except as otherwise provided therein, and will specify the firm or firms which will be Underwriters or Managers, the names of any Representatives, the principal amount or number of shares to be purchased by each Underwriter and Manager, and the purchase price to be paid by the Underwriters and Managers and, if the Securities include Registered Debt Securities, Registered Preferred Shares or Registered Warrant Securities, the terms of such Securities not already specified in the Indenture, Certificate of Designations or Warrant Agreement, respectively, including, but not limited to, interest or dividend rate, maturity, redemption provisions and sinking fund requirements, whether any of the Securities may be sold to institutional investors pursuant to Delayed Delivery Contracts (as defined below), expiration date and conversion terms (if any such terms are to be applicable). If the Company grants the 13 Underwriters (or Managers) an option to purchase additional Securities to cover over-allotments, the terms of such option (or options) will be specified in the Terms Agreement. The Terms Agreement will also specify the time and date of delivery and payment (such time and date, or such other time not later than seven full business days thereafter as the Representatives (and the Managers) and the Company agree as the time for payment and delivery, being herein and in the Terms Agreement referred to as the "Closing Date"), the place of delivery and payment and any details of the terms of offering that should be reflected in the prospectus supplement (or prospectus supplements) relating to the offering of the Securities. The obligations of the Underwriters and Managers to purchase the Securities will be several and not joint. It is understood that the Underwriters and Managers propose to offer the Securities for sale as set forth in the U.S. Prospectus and International Prospectus, respectively. The certificates for the Securities delivered to the Underwriters and Managers on the Closing Date will be in definitive form and, if applicable, fully registered form and in such denominations, and will be registered in such names, as the Underwriters and Managers may reasonably request. If the Terms Agreement provides for sales of Securities pursuant to delayed delivery contracts, the Company authorizes the Underwriters (and the Managers) to solicit offers to purchase Securities pursuant to delayed delivery contracts substantially in the form of Annex I attached hereto ("Delayed Delivery Contracts") with such changes therein as the Company may authorize or approve. Delayed Delivery Contracts are to be with institutional investors, including commercial and savings banks, insurance companies, pension funds, investment companies and educational and charitable institutions. On the Closing Date the Company will pay, as compensation, to the Representatives for the accounts of the Underwriters (and to the Managers, if applicable), the fee set forth in such Terms Agreement in respect of the principal amount or number of shares of Securities to be sold pursuant to Delayed Delivery Contracts ("Contract Securities"). The Underwriters (and Managers) will not have any responsibility in respect of the validity or the performance of Delayed Delivery Contracts. If the Company executes and delivers Delayed Delivery Contracts, the Contract Securities will be deducted from the Securities to be purchased by the several Underwriters (and Managers) and the aggregate principal amount or number of shares of Securities to be purchased will be reduced pro rata in proportion of the aggregate principal amount or number of shares of Securities set forth opposite each Underwriter's (and Manager's) name in such Terms Agreement, except to the extent that the Representatives (or Managers) determine and agree that such reduction shall be otherwise than pro rata and so advise the Company. The Company will advise the Representatives (and Managers) not later than the business day prior to the Closing Date of the principal amount or number of shares of Contract Securities. 4. Certain Agreements of the Company. The Company agrees with the several Underwriters that it will furnish to Shearman & Sterling LLP, counsel for the Underwriters, as many signed copies of the registration statement as they may reasonably request relating to the Registered Securities, including all exhibits, in the form in which it became effective and of all amendments thereto and that, in connection with each offering of Securities: (a) The Company will prepare the U.S. Prospectus and the International Prospectus each in a form to which the Underwriters shall not 14 reasonably object. The Company will file the U.S. Prospectus with the Commission pursuant to and in accordance with Rule 424(b)(1) or Rule 424(b)(2) (or, if applicable and if consented to by the Representatives, subparagraph (5), which consent will not be unreasonably withheld) not later than the second business day following the execution and delivery of the Terms Agreement; if the Securities to be purchased by the Managers are to be registered under the Registration Statement, the Company will file the International Prospectus with the Commission pursuant to and in accordance with Rule 424(b)(1) or Rule 424(b)(2) (or, if applicable and if consented to by the Managers, subparagraph (5), which consent will not be unreasonably withheld) not later than the second business day following the execution and delivery of the Subscription Agreement. (b) The Company will, during the period following the date of the Terms Agreement as, in the opinion of counsel for the Underwriters, any U.S. Prospectus or International Prospectus is required by law to be delivered, advise the Representatives (and Managers) promptly of any proposal to amend or supplement the Registration Statement or the U.S. Prospectus or International Prospectus, will furnish the Representatives (and Managers) with copies of any such amendment or supplement or other documents proposed to be filed within a reasonable time in advance of filing, and will afford the Representatives (and Managers) a reasonable opportunity to comment upon any such proposed amendment or supplement or other documents; and the Company will also advise the Representatives (and Managers) promptly of the filing of any such amendment or supplement. (c) The Company will advise the Representatives (and Managers) (i) of the institution by the Commission of any stop order proceedings in respect of the Registration Statement or of any part thereof and will use its best efforts to prevent the issuance of any such stop order and to obtain as soon as possible its lifting, if issued, (ii) when any post-effective amendment to the Registration Statement relating to or covering the Securities becomes effective, (iii) of any request or proposed request by the Commission for (A) an amendment or supplement to the Registration Statement (insofar as the amendment or supplement relates to or covers the Securities), the U.S. Prospectus or International Prospectus or any document incorporated by reference in any of the foregoing or (B) any additional information and (iv) of receipt by the Company of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threat of any proceeding for that purpose. (d) If, at any time when a prospectus relating to the Securities is required to be delivered under the Act, any event occurs as a result of which the U.S. Prospectus or International Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if in the reasonable judgment of 15 the Underwriters (reasonably concurred in by the Company) it shall be necessary or desirable during such period to amend or supplement the U.S. Prospectus or International Prospectus, the Company promptly will prepare and file with the Commission, subject to subsection 4(b) hereof, an amendment or supplement which will correct such statement or omission or otherwise amend or supplement the U.S. Prospectus and International Prospectus. Neither the Representatives' (or Managers') consent to, nor the Underwriters' (or Managers') delivery of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 5. (e) As soon as practicable after the date of each Terms Agreement, the Company will make generally available to its securityholders an earnings statement covering a period of at least 12 months beginning after the later of (i) the effective date of the registration statement relating to the Registered Securities, (ii) the effective date of the most recent post-effective amendment to the Registration Statement to become effective prior to the date of such Terms Agreement and (iii) the date of the Company's most recent Annual Report on Form 10-K filed with the Commission prior to the date of such Terms Agreement, which will satisfy the provisions of Section 11(a) of the Act. (f) The Company will furnish to the Representatives (and Managers) copies of the Registration Statement (including all exhibits, the form of Senior Indenture, the form of Subordinated Indenture, the form of Warrant Agreement, the form of Certificate of Designations and this Agreement), any related preliminary prospectus, any related preliminary prospectus supplement, the U.S. Prospectus and International Prospectus and all amendments and supplements to such documents, in each case, in such quantities as are reasonably requested and as soon as available, and, in the case of the U.S. Prospectus and the International Prospectus, to use its best efforts to make available copies thereof not later than 12:00 noon, New York City time, on the business day next succeeding the date of the applicable Terms Agreement. (g) The Company will arrange for the qualification of the Securities for sale under the securities laws of such jurisdictions in the United States and Canada as the Representatives may reasonably designate and will continue such qualifications in effect so long as required for the distribution. (h) During the period of five years after the date of any Terms Agreement, the Company will furnish to the Representatives and, upon request, to each of the other Underwriters, as soon as practicable after the end of each fiscal year, a copy of its annual report to stockholders for such year; and the Company will furnish to the Representatives (and Managers) (i) as soon as publicly available, a copy of each report or definitive proxy statement of the Company filed with the Commission under the Securities Exchange Act, or mailed to stockholders and (ii) from time to time, such other publicly available information concerning the Company as the Representatives (and Managers) may reasonably request. 16 (i) The Company will pay all expenses incident to the performance of its obligations under this Agreement and will reimburse the Underwriters for any expenses (including reasonable fees and disbursements of counsel) incurred by them in connection with qualification of the Securities for sale under the laws of such jurisdictions as the Representatives (and Managers) may reasonably designate and the printing of memoranda relating thereto, for the cost of the preparation, printing and filing under the Act of the Registration Statement, any preliminary Prospectuses and the final Prospectuses, for any fees paid to any Trustee, for any fees charged by investment rating agencies for the rating of the Securities (if applicable), for the filing fees of the National Association of Securities Dealers, Inc. and any state relating to the Securities, for the fees and expenses of listing the Securities on any securities exchange or market, if the Securities are to be listed on any securities exchange or market, for expenses incurred in distributing the U.S. Prospectus and International Prospectus, any preliminary prospectuses and any preliminary prospectus supplements to Underwriters (or Managers), for the fees and expenses of the Company's counsel and independent accountants, and all expenses incurred by the Company in connection with any "road show" presentation to potential investors. (j) If and to the extent specified in the Terms Agreement, for a period beginning at the time of execution of the Terms Agreement and ending such numbers of days after the Closing Date as specified in the Terms Agreement, without the prior consent of the Representatives (and Managers), the Company will not offer, sell, contract to sell or otherwise dispose of any securities that are similar in terms to the Securities other than in those circumstances specified in the Terms Agreement. (k) Until the termination of the offering of the Securities, to timely file all documents, and any amendments to previously filed documents, required to be filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act. (l) If the Terms Agreement specifies that the Securities are to be listed on any stock exchange or exchanges or market, to apply prior to the Closing Date, unless otherwise agreed to by the Representatives, for the listing of the Securities on such exchange or exchanges or market, and to use its reasonable best efforts to complete such listings. (m) The Company will not be or become, at any time prior to the expiration of one year after the date of the applicable Terms Agreement, an open-end investment company, unit investment trust, closed-end investment company or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act. 5. Conditions of the Obligations of the Underwriters and Managers. The obligations of the several Underwriters (and Managers) to purchase and pay for the Securities will be subject to the accuracy of the representations and warranties on the part of the Company 17 herein, to the accuracy of the written statements of Company officers made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions precedent: (a) On or prior to the date of the Terms Agreement, the Representatives (and Managers) shall have received a letter, dated the date of delivery thereof and reasonably satisfactory to the Representatives, of Ernst & Young LLP (the Company's independent accountants) confirming that they are independent public accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder and stating in effect that: (i) In their opinion, the financial statements and schedules examined by them and included in the prospectus or prospectuses contained in the Registration Statement relating to the Registered Securities, as amended at the date of such letter, comply in form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations. (ii) They have, as indicated in their report or reports attached to such letter, made a review of any unaudited financial statements included in such prospectus in accordance with standards established by the American Institute of Certified Public Accountants. (iii) On the basis of the review referred to in (ii) above, a reading of the latest available interim financial statements of the Company, and inquiries of officials of the Company who have responsibility for financial and accounting matters and other specified procedures, nothing came to their attention that caused them to believe that the unaudited financial statements, if any, included in such prospectus or prospectuses do not comply in form in all material respects with the applicable accounting requirements of the Act, the Securities Exchange Act and the related published Rules and Regulations or are not in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements included in such U.S. Prospectus and International Prospectus. (iv) They have compared specified dollar amounts (or percentages derived from such dollar amounts) and other financial information contained in such prospectus or prospectuses (in each case to the extent that such dollar amounts, percentages and other financial information are derived from the general accounting records of the Company and its Subsidiaries subject to the internal controls of the Company's accounting system or are derived directly from such records by analysis or computation) with the results obtained from inquiries, a reading of such general accounting records and other procedures specified in such letter and have found such dollar amounts, percentages and other 18 financial information to be in agreement with such results, except as otherwise specified in such letter. (v) From the date of the latest balance sheet of the Company and its Subsidiaries included or incorporated by reference in the Prospectuses to a specified date not more than five days from the date of such letter, there was not any change in the capital stock of the Company (other than by reason of shares issued pursuant to the Company's employee or director stock option plans, or stock ownership plans, stock bonus plans, stock compensation plans or dividend reinvestment plans or upon conversion of convertible securities or in connection with acquisitions or distributions previously disclosed to the Representatives and Managers), any increase in the long-term debt or short-term debt of the Company and its consolidated Subsidiaries or any decrease in consolidated net assets of the Company and its consolidated Subsidiaries, in each case as compared with amounts shown in such latest balance sheet or any decrease in consolidated net sales or the total or per share amounts of consolidated net income, in each case as compared with the comparable period in the preceding year, except in each case for changes, increases or decreases which the Prospectuses disclose have occurred or may occur or which are described in such letter or letters. (vi) They have read the unaudited pro forma financial information, if any, contained in the U.S. Prospectus and the International Prospectus and nothing came to their attention that caused them to believe that the unaudited pro forma financial information does not comply in all material respects with the applicable requirements of Rule 11.02 of Regulation S-X or that the pro forma adjustments have not been properly applied to the historical amounts in the compilation of the unaudited pro forma financial information. All financial statements and schedules included in material incorporated by reference into such Prospectuses shall be deemed included in such Prospectuses for purposes of this subsection. On or prior to the date of the Terms Agreement, the Representatives (and Managers) shall have received a letter from an accounting firm acceptable to the Underwriters (and Managers), dated the date thereof, with respect to any financial statements of an entity other than the Company which are included in the U.S. Prospectus and the International Prospectus and not covered by the letter required to be delivered by Ernst & Young LLP, covering substantially the same required statements described above. (b) The U.S. Prospectus, and, if applicable, the International Prospectus shall have been filed with the Commission in accordance with the Rules and Regulations and Section 4(a) of this Agreement. No stop order suspending the effectiveness of the Registration Statement or of any part thereof shall have been issued and no proceedings for that purpose shall have been 19 instituted or, to the knowledge of the Company or any Underwriter, shall be contemplated by the Commission. (c) (i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited statements included in the U.S. Prospectus and the International Prospectus any loss or interference with its business from fire, explosion, flood or other calamity whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the U.S. Prospectus and the International Prospectus (excluding any amendment or supplement thereto filed after the date hereof), and (ii) since the respective dates as of which information is given in the U.S. Prospectus and the International Prospectus there shall not have been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, shareholders' equity or results of operations of the Company and its subsidiaries, taken as a whole, otherwise than as set forth or contemplated in the U.S. Prospectus and the International Prospectus (excluding any amendment or supplement thereto filed after the date hereof), the effect of which, in any such case described in clause (i) or (ii), is reasonably expected to have a material adverse effect upon the business, properties, financial condition, results of operations or prospects of the Company and its subsidiaries, taken as a whole; (d) Subsequent to the execution of the Terms Agreement (i) no downgrading shall have occurred in the rating accorded the Company's debt securities or preferred stock by Fitch IBCA Investors Service L.P., Moody's Investors Service, Inc. or Standard & Poor's Ratings Group, and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company's debt securities or preferred stock; (e) Subsequent to the execution of the Terms Agreement, there shall not have occurred (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange; (ii) a suspension or material limitation in trading in any of the Company's securities on the New York Stock Exchange; (iii) a general moratorium on commercial banking activities declared by either Federal or New York State authorities; or (iv) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war, if the effect of any such event specified in this clause (iv) in the reasonable judgment of the Underwriters (or Managers) makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Securities on the terms and in the manner contemplated in the U.S. Prospectus and the International Prospectus; (f) The Representatives (and Managers) shall have received an opinion, dated the Closing Date, of J. Robert Horst, Vice President and General Counsel of the Company: 20 (i) with respect to all Securities, to the effect stated in Annex II-A. (ii) with respect to all Securities which are Senior Debt Securities, to the effect stated in Annex II-B. (iii) with respect to all Securities which are Subordinated Debt Securities, to the effect stated in Annex II-C. (iv) with respect to all Securities which are Registered Warrant Securities, to the effect stated in Annex II-D. (v) with respect to all Securities which are Registered Preferred Shares, to the effect stated in Annex II-E. (vi) with respect to Securities that are Registered Common Shares, to the effect stated in Annex II-F. Such counsel shall further state in that opinion that he has participated in the preparation of the Registration Statement and the Prospectuses, and no facts have come to his attention that lead him to believe that (i) the Registration Statement (except for the financial statements, supporting schedules or other financial data and the Form T-1 included or incorporated therein, or omitted therefrom, as to which such counsel need express no opinion), at the time the Registration Statement became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) the Prospectuses, on the date of this Agreement or at the Closing Date (except for the financial statements, supporting schedules or other financial data and the Form T-1 included or incorporated therein, or omitted therefrom, as to which such counsel need express no opinion), contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Insofar as such opinion relates to or involves matters of law of any jurisdiction other than Ohio, the opinion may be given in reliance on an opinion of counsel of that jurisdiction, a copy of which opinion shall be furnished to each Representative (and Manager), in which case the opinion shall state that he believes that each Representative (and Manager) and he are entitled to so rely. (g) The Representatives (and the Managers) shall have received from Shearman & Sterling LLP, counsel for the Underwriters, such opinion or opinions, dated the Closing Date, with respect to the incorporation of the Company, the validity of the Securities, the Registration Statement, the Prospectuses, the Indentures, Warrant Agreement or Certificate of Designations and other related matters as they are prepared to opine, and the Company shall have furnished to such counsel such documents as they may reasonably request for the purpose of enabling them to pass upon such matters. In rendering such opinion, Shearman & 21 Sterling LLP may rely as to the incorporation of the Company and all other matters governed by the law of the State of Ohio upon the opinion of J. Robert Horst referred to above. (h) The Representatives (and Managers) shall have received a certificate, dated the Closing Date, of the President or any Vice-President and a principal financial or accounting officer of the Company in which such officers, to the best of their knowledge after reasonable investigation, shall state that the representations and warranties of the Company in this Agreement are true and correct, that the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date, that no stop order suspending the effectiveness of the Registration Statement or of any part thereof has been issued and no proceedings for that purpose have been instituted or are contemplated by the Commission and certifying as to the matters in subsections (c) and (d) of this Section 5 and such other matters as the Underwriter may reasonably request. (i) The Representatives (and Managers) shall have received a separate letter ("bring-down letter"), dated the Closing Date, of Ernst & Young LLP, if applicable, and any other accounting firm with respect to the financial statements, if any contemplated by the last paragraph of subsection (a) of this Section 5 which state in effect that they are independent public accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder and stating, as of the date of the bringdown letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the U.S. Prospectus and the International Prospectus, as of a date not more than five days prior to the date of the bring-down letter), the conclusions and findings of such firm with respect to the financial information and other matters covered by the initial letter and confirming the conclusions and findings set forth in their original letter contemplated in subsection (a) of this Section 5. The Company will furnish the Representatives (and Managers) with such conformed copies of such opinions, certificates, letters and documents as they reasonably request. (j) Payment for and delivery of the Securities to be purchased by the Underwriters will occur simultaneously with the payment for and delivery of the Securities, if any, to be purchased by the Managers. 6. Indemnification and Contribution. (a) The Company will indemnify and hold harmless each Underwriter and each Manager against any losses, claims, damages or liabilities, joint or several, to which such Underwriter and such Manager may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, the U.S. Prospectus and International Prospectus, or any amendment or supplement thereto, or any related preliminary 22 prospectus or preliminary prospectus supplement, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter and each Manager for any legal or other expenses reasonably incurred by such Underwriter and such Manager in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives, if any, specifically for use in the U.S. Prospectus or by any Manager specifically for use in the International Prospectus. (b) Each Underwriter and each Manager, severally and not jointly, will indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, the U.S. Prospectus and International Prospectus, or any amendment or supplement thereto, or any related preliminary prospectus or preliminary prospectus supplement, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Underwriter through the Representatives, if any, specifically for use in the U.S. Prospectus, or by any Manager specifically for use in the International Prospectus, and will reimburse any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred. (c) Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under subsection (a) or (b) above, notify the indemnifying party (absent material prejudice) of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under subsection (a) or (b) above. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof the indemnifying party will not be liable to such indemnified party under this Section 6 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such 23 settlement (i) includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act, by or on behalf of any indemnified party. (d) If the indemnification provided for in this Section 6 is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters and Managers on the other from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters and Managers on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters and Managers on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters and Managers. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and Managers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Underwriters and Managers agree that it would not be just and equitable if contribution pursuant to this subsection (d) were determined by pro rata allocation (even if the Underwriters and Managers were treated as one entity for such purpose) or by any other method which does not take account of the equitable contributions referred to above in this subsection (d). The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), no Underwriter or Manager shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter or Manager has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The obligations of the Underwriters and Managers in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) The obligations of the Company under this Section 6 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter or any Manager within the meaning of the Act; and the obligations of the Underwriters and Managers under this Section 6 24 shall be in addition to any liability which the respective Underwriters and Managers may otherwise have and shall extend, upon the same terms and conditions, to each director of the Company, to each officer of the Company who has signed the Registration Statement and to each person, if any, who controls the Company within the meaning of the Act. 7. Default of Underwriters or Managers. If any Underwriter or Underwriters (or Manager or Managers) default in their obligations to purchase Securities under the Terms Agreement and the aggregate principal amount or number of shares, as the case may be, of the Securities that such defaulting Underwriter or Underwriters (or Manager or Managers) agreed but failed to purchase does not exceed 10% of the total principal amount or number of shares, as the case may be, of the Securities, the Representatives (and the Managers) may make arrangements satisfactory to the Company for the purchase of such Securities by other persons, including any of the Underwriters (or Managers), but if no such arrangements are made by the Closing Date, the non-defaulting Underwriters (or non-defaulting Manager or Managers) shall be obligated severally, in proportion to their respective commitments under this Agreement and the Terms Agreement, to purchase the Securities that such defaulting Underwriters (or such defaulting Manager or Managers) agreed but failed to purchase. If any Underwriter or Underwriters (or Manager or Managers) so default and the aggregate principal amount or number of shares, as the case may be, of the Securities with respect to which such default or defaults occur exceeds 10% of the total principal amount or number of shares, as the case may be, of the Securities to be purchased by the Underwriters or Managers, as the case may be, and arrangements satisfactory to the Representatives and the Managers, and the Company for the purchase of such Securities by other persons are not made within 36 hours after such default, such Terms Agreement or Terms Agreements will terminate without liability on the part of any non-defaulting Underwriter and any non-defaulting Manager, or the Company, except as provided in Section 8 herein. As used in this Agreement, the term "Underwriter" and "Manager" includes any person substituted for an Underwriter or a Manager, respectively, under this Section 7. Nothing herein will relieve a defaulting Underwriter or defaulting Manager from liability for its default. The respective commitments of the several Underwriters and Managers, for the purposes of this Section 7, shall be determined without regard to any reduction in the respective Underwriters' obligations to purchase the principal amounts or numbers of shares, as the case may be, of the Securities set forth opposite their names in the Terms Agreement as a result of Delayed Delivery Contracts entered into by the Company. The foregoing obligations and agreements set forth in this Section will not apply if the Terms Agreement specifies that such obligations and agreements will not apply. 8. Survival of Certain Representations and Obligations. The respective indemnities, agreements, representations, warranties and other statements of the Company or its officers and of the several Underwriters and Managers set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Underwriter or Manager, the Company or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Securities. If the Terms Agreement is terminated pursuant to Section 7 herein or if for any reason the purchase of the Securities by the Underwriters or Managers under the Terms Agreement is not consummated, the Company and the Underwriters (and Managers) shall remain responsible for the expenses to be paid or reimbursed by each of 25 them pursuant to Section 4 herein, and the respective obligations of the Company and the Underwriters and the Managers pursuant to Section 6 herein shall remain in effect. If the purchase of the Securities by the Underwriters and the Managers is not consummated for any reason other than solely because of the termination of this Agreement pursuant to Section 7, the Company will reimburse the Underwriters and the Managers for all out-of-pocket expenses (including fees and disbursements of counsel) reasonably incurred by them in connection with the offering of the Securities. 9. Notices. All communications hereunder will be in writing and, if sent to the Underwriters and the Managers, will be mailed, delivered or telegraphed and confirmed to them at their addresses furnished to the Company in writing for the purpose of communications hereunder or, if sent to the Company, will be mailed, delivered or telegraphed and confirmed to it at Eaton Center, 1111 Superior Avenue, Cleveland, Ohio 44114-2584, Attention: Secretary. 10. Successors. This Agreement will inure to the benefit of and be binding upon the Company and such Underwriters and Managers, if any, as are identified in the corresponding Terms Agreements and their respective successors and the officers and directors and controlling persons referred to in Section 6 herein, and no other person will have any right or obligation hereunder. 11. Applicable Law. THIS AGREEMENT AND THE TERMS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. [The following form of Delayed Delivery Contract will be attached as an annex to the related Underwriting Agreement and will also be printed separately for execution purposes. (Omit "Annex I" in execution copies.)] ANNEX I (Three copies of this Delayed Delivery Contract should be signed and returned to the address shown below so as to arrive not later than 9:00 A.M., New York time, on____________ __, __***.) DELAYED DELIVERY CONTRACT ------------------------- [Insert date of initial public offering] EATON CORPORATION c/o [REPRESENTATIVE] [Address] [Address] Attention: _________________________ Gentlemen: The undersigned hereby agrees to purchase from Eaton Corporation, an Ohio corporation ("Company"), and the Company agrees to sell to the undersigned, [If one delayed closing, insert--as of the date hereof, for delivery on _________, __ ("Delivery Date"),] [$]__________________ [shares] - --principal amount--of the Company's [Insert title of securities] ("Securities"), offered by the Company's Prospectus dated ___________, __ and a Prospectus Supplement dated _______, __ relating thereto, receipt of copies of which is hereby acknowledged, at [__% of the principal amount thereof plus accrued interest, if any,] [$_______ per share plus accrued dividends, if any,] and on the further terms and conditions set forth in this Delayed Delivery Contract ("Contract"). *** Insert date which is third full business day prior to Closing Date under the Terms Agreement. 2 [If two or more delayed closings, insert the following: The undersigned will purchase from the Company as of the date hereof, for delivery on the dates set forth below, Securities in the--principal--amounts set forth below: [Principal Amount] Delivery Date [Number of Shares] ------------- ------------------ ------------- ------------------ Each of such delivery dates is hereinafter referred to as a Delivery Date.] Payment for the Securities that the undersigned has agreed to purchase for delivery on--the--each--Delivery Date shall be made to the Company or its order by wire transfer, payable to the order of the Company in Federal (same day) funds at the office of ___________________ at ___.M. on--the--such--Delivery Date upon delivery to the undersigned of the Securities to be purchased by the undersigned--for delivery on such Delivery Date--in definitive [If debt issue, insert--fully registered] form and in such denominations and registered in such names as the undersigned may designate by written or telegraphic communication addressed to the Company not less than five full business days prior to [the][such] Delivery Date. It is expressly agreed that the provisions for delayed delivery and payment are for the sole convenience of the undersigned; that the purchase hereunder of Securities is to be regarded in all respects as a purchase as of the date of this Contract; that the obligation of the Company to make delivery of and accept payment for, and the obligation of the undersigned to take delivery of and make payment for, Securities on [the][each] Delivery Date shall be subject only to the conditions that (1) investment in the Securities shall not at [the][such] Delivery Date be prohibited under the laws of any jurisdiction in the United States to which the undersigned is subject and (2) the Company shall have sold to the Underwriters the total [principal amount][number of shares] of the Securities less the [principal amount][number of shares] thereof covered by this and other similar Contracts. The undersigned represents that its investment in the Securities is not, as of the date hereof, prohibited under the laws of any jurisdiction to which the undersigned is subject and which governs such investment. Promptly after completion of the sale to the Underwriters, the Company will mail or deliver to the undersigned at its address set forth below notice to such effect, accompanied by copies of the opinion of counsel for the Company delivered to the Underwriters in connection therewith. This Contract will inure to the benefit of and be binding upon the parties hereto and their respective successors, but will not be assignable by either party hereto without the written consent of the other. It is understood that the acceptance of any such Contract is in the Company's sole discretion and, without limiting the foregoing, need not be on a first-come, first-served basis. If 3 this Contract is acceptable to the Company, it is requested that the Company sign the form of acceptance below and mail or deliver one of the counterparts hereof to the undersigned at its address set forth below. This will become a binding contract between the Company and the undersigned when such counterpart is so mailed or delivered. Yours very truly, -------------------------------------- (Name of Purchaser) By ------------------------------------ (Title of Signatory) -------------------------------------- -------------------------------------- (Address of Purchaser) Accepted, as of the above date. EATON CORPORATION By ----------------------------- Title: By ----------------------------- Title: EATON CORPORATION ("COMPANY") DEBT SECURITIES TERMS AGREEMENT --------------- EATON CORPORATION Eaton Center 1111 Superior Avenue Cleveland, Ohio 44114-2584 Attention: Dear Sirs: [On behalf of the several Underwriters named in Schedule A hereto and for their respective accounts, we--We] offer to purchase, on and subject to the terms and conditions of the Underwriting Agreement filed as an exhibit to the Company's registration statement on Form S-3 (No. ) ("Underwriting Agreement"), the following securities ("Securities") on the following terms: TITLE: [ %] [Floating Rate]--Notes--Debentures--Bonds--Due PRINCIPAL AMOUNT: $ INTEREST: [___% per annum, from ______________, payable semiannually on _____________ and ______________, commencing ______________, to holders of record on the preceding _______________ or _______________, as the case may be.] [Zero coupon.] 2 MATURITY: ___________________, 20__. OPTIONAL REDEMPTION: SINKING FUND: OTHER TERMS: DELAYED DELIVERY CONTRACTS: [None.] [Delivery Date[s] shall be ______________. Underwriters' fee is ___% of the principal amount of the Contract Securities.] PURCHASE PRICE: ___% of principal amount, plus accrued interest[, if any,] from ______________________. EXPECTED REOFFERING PRICE: ___% of principal amount, subject to change by the undersigned. CLOSING: _____ A.M. on _________________, at _____________, by wire transfer, payable to the order of the Company in Federal (same day) funds. [NAME[S] AND ADDRESS[ES] OF REPRESENTATIVE[S]:] The respective principal amounts of the Securities to be purchased by each of the Underwriters are set forth opposite their names in Schedule A hereto. [If appropriate, insert--It is understood that we may, with your consent, amend this offer to add additional Underwriters and reduce the aggregate principal amount to be purchased by the Underwriters listed in Schedule A hereto by the aggregate principal amount to be purchased by such additional Underwriters.] The provisions of the Underwriting Agreement are incorporated herein by reference. The Securities will be made available for checking and packaging at the office of ___________________ at least 24 hours prior to the Closing Date. [Please signify your acceptance of our offer by signing the enclosed response to us in the space provided and returning it to us.] 3 [Please signify your acceptance in writing of the foregoing not later than _____ P.M. today.] Very truly yours, [REPRESENTATIVE] [Insert name(s) of other Representatives or Underwriters] [On behalf of--themselves-- itself--and as Representative[s] of the Several] [As] Underwriter[s] By [REPRESENTATIVE] By -------------------------------- [Insert Title] 4 SCHEDULE A UNDERWRITER PRINCIPAL AMOUNT - ----------- ---------------- [UNDERWRITER] $ Total $ =========== To: [REPRESENTATIVE] [Insert name(s) of other Representatives or Underwriters] As [Representative[s] of the Several] Underwriter[s], c/o [REPRESENTATIVE] [Address] [Address] We accept the offer contained in your [letter] [wire], dated ______________, relating to $______ million principal amount of our [Insert title of Securities]. We also confirm that, to the best of our knowledge after reasonable investigation, the representations and warranties of the undersigned in the Underwriting Agreement filed as an exhibit to the undersigned's registration statement on Form S-3 (No.__________) ("Underwriting Agreement") are true and correct, no stop order suspending the effectiveness of the Registration Statement (as defined in the Underwriting Agreement) or of any part thereof has been issued and no proceedings for that purpose have been instituted or, to the knowledge of the undersigned, are contemplated by the Securities and Exchange Commission and, subsequent to the respective dates of the most recent financial statements in the Prospectus (as defined in the Underwriting Agreement), there has been no material adverse change in the financial position or results of operations of the undersigned and its Subsidiaries except as set forth in or contemplated by the Prospectus. Very truly yours, Eaton Corporation By ------------------------------ [Insert Title] By ------------------------------ [Insert Title] EATON CORPORATION ("COMPANY") PREFERRED--COMMON--STOCK TERMS AGREEMENT --------------- EATON CORPORATION Eaton Center 1111 Superior Avenue Cleveland, Ohio 44114-2584 Attention: Dear Sirs: [On behalf of the several Underwriters named in Schedule A hereto and for their respective accounts, we--We] offer to purchase, on and subject to the terms and conditions of the Underwriting Agreement filed as an exhibit to the Company's registration statement on Form S-3 (No. ) ("Underwriting Agreement"), the following securities ("Securities") on the following terms: TITLE: NUMBER OF SHARES: _______ [("Firm Securities")] [In addition, the Company hereby grants the Underwriters [and the Managers] an option, exercisable from time to time by the Representatives (as defined below), to purchase upon written notice from the Representatives given to the Company not more than 30 days subsequent to the First Closing Date an aggregate of not more than ___________ additional shares of Securities ("Option Securities") to cover over-allotments at the same price per share as the Firm Securities and on the same terms, including the terms specified in Section 5 of the Underwriting Agreement (other than the time for delivery of and payment for the Option Securities). [Unless otherwise agreed between the Representatives and [Lead Manager] on behalf of itself and the other Managers, (i) Option Securities to be so purchased by the Underwriters shall be in the same proportion as the aggregate amount of Firm Securities to be purchased by the Underwriters bear to the aggregate amount of Firm Securities to be purchased by the Underwriters and Managers and (ii) Option Securities to be so purchased by the Managers shall be in the same proportion as the aggregate amount of Firm Securities to be purchased by the Managers bear to the aggregate amount of Firm Securities to be purchased by the Underwriters and Managers.] The Company agrees to sell to the Underwriters [Managers] such Option Securities and the Underwriters [Managers] agree, severally and not jointly, to purchase such Option Securities. Such Option Securities shall be purchased for the account of each Underwriter 2 [Manager] in the same proportion as the number of shares of Firm Securities set forth opposite such Underwriter's [Manager's] name in Schedule A hereto bears to the total number of shares of Firm Securities (subject to adjustment by the Representatives to eliminate fractions) and may be purchased by the Underwriters [Managers] only for the purpose of covering over-allotments made in connection with the sale of the Firm Securities. No Option Securities shall be sold or delivered unless the Firm Securities previously have been, or simultaneously are, sold and delivered. The right to purchase the Option Securities or any portion thereof may be surrendered and terminated at any time upon notice by the Representatives to the Company.] (1) DIVIDEND RATE: (1) OPTIONAL REDEMPTION: (1) SINKING FUND: (1) CONVERSION RIGHTS: (1) DELAYED DELIVERY CONTRACTS: [None.] [Delivery Date[s] shall be ______________. Underwriters' fee is $ _______ per share of the Contract Securities.] PURCHASE PRICE: $________ per share [If preferred stock issue, insert--plus accrued dividends[, if any,] from ____________]. EXPECTED REOFFERING PRICE: $_______ per share, subject to change by the undersigned. - ---------- (1) To be included only if Terms Agreement relates to preferred stock. CLOSING: _____ A.M. on _________________, at _____________, by wire transfer, payable to the order of the Company in Federal (same day) funds [("First Closing Date)]. [The time for the delivery of and payment for the Option Securities, being herein referred to as the "Second Closing Date", which may be the First Closing Date, shall be determined by the Representatives but shall be not earlier than three nor later than seven business days after written notice of election to purchase the Option Securities is given. The Company will deliver the Option Securities to the Representatives [Lead Manager] for the accounts of the several Underwriters [Managers] against payment of the purchase price therefor by wire transfer, payable to the order of the Company in Federal (same day) funds, at the offices of Shearman & Sterling. Payment shall be made in U.S. dollars. The certificates for the Option Securities will be in definitive form, in such denominations and registered in such names as the Representatives [Lead Manager] requests upon reasonable notice prior to the Second Closing Date and will be made available for checking and packaging at the above office of [Lead Manager], or, at the option of [Lead Manager], at the office of The Depository Trust Company, at a reasonable time in advance of the Second Closing Date.] 3 2 UNDERWRITER[S'][`S] COMPENSATION: $______________, payable to the [Representative[s] [Lead Manager] for the proportionate accounts of the] Underwriter[s] [Manager[s]] on the Closing Date. OTHER TERMS: [NAME[S] AND ADDRESS[ES] OF REPRESENTATIVE[S]]: The respective numbers of shares of the Firm Securities to be purchased by each of the Underwriters [Managers] are set forth opposite their names in Schedule A hereto. [If appropriate, insert--It is understood that we may, with your consent, amend this offer to add additional Underwriters [Managers] and reduce the number of shares to be purchased by the Underwriters [Managers] listed in Schedule A hereto by the number of shares to be purchased by such additional Underwriters [Managers].] - ------------- (2) Include if purchase is at public offering price and compensation payable separately. The Securities will be made available for checking and packaging at the office of ___________________, or at the option of ______________________, at the office of The Depository Trust Company, at least 24 hours prior to the Closing Date. [Please signify your acceptance of our offer by signing the enclosed response to us in the space provided and returning it to us.] [Please signify your acceptance in writing of the foregoing not later than _____ P.M. today.] Very truly yours, [REPRESENTATIVE] [Insert name(s) of other Representatives or Underwriters] [On behalf of--themselves-- itself--and as Representative[s] of the Several] [As] Underwriter[s] [By REPRESENTATIVE] By ------------------------------ [Insert Title] [LEAD MANAGER] [Insert name(s) of other Managers] By ------------------------------ 4 By ------------------------------ [Attorney-in-Fact] 5 SCHEDULE A UNDERWRITER[MANAGER] NUMBER OF - -------------------- SHARES ------ [Underwriter].................................. Total....................................... ============ 6 To: [REPRESENTATIVES] [Insert name(s) of other Representatives or Underwriters] As [Representative[s] of the Several] Underwriter[s], c/o [REPRESENTATIVE] [Address] [Address] [LEAD MANAGER] [Insert name(s) of other Managers c/o [LEAD MANAGER] [Address] [Address] We accept the offer contained in your [letter] [wire], dated ______________, relating to ______ shares(1) of our [Insert title of Securities]. We also confirm that, to the best of our knowledge after reasonable investigation, the representations and warranties of the undersigned in the Underwriting Agreement filed as an exhibit to the undersigned's registration statement on Form S-3 (No. ) ("Underwriting Agreement") are true and correct, no stop order suspending the effectiveness of the Registration Statement (as defined in the Underwriting Agreement) or of any part thereof has been issued and no proceedings for that purpose have been instituted or, to the knowledge of the undersigned, are contemplated by the Securities and Exchange Commission and, subsequent to the respective dates of the most recent financial statements in the Prospectus (as defined in the Underwriting Agreement), there has been no material adverse change in the financial position or results of operations of the undersigned and its Subsidiaries taken as a whole except as set forth in or contemplated by the Prospectus. Very truly yours, Eaton Corporation By ----------------------------------- [Insert Title] By ----------------------------------- [Insert Title] - ------------------ (1) and up to an additional ______ Option Securities pursuant to the option described therein. EATON CORPORATION ("COMPANY") WARRANT SECURITIES TERMS AGREEMENT --------------- EATON CORPORATION Eaton Center 1111 Superior Avenue Cleveland, Ohio 44114-2584 Attention: Dear Sirs: [On behalf of the several Underwriters named in Schedule A hereto and for their respective accounts, we--We] offer to purchase, on and subject to the terms and conditions of the Underwriting Agreement filed as an exhibit to the Company's registration statement on Form S-3 (No. ) ("Underwriting Agreement"), the following securities ("Securities") on the following terms: NUMBER TO BE ISSUED: DEBT WARRANT AGENT: ISSUABLE JOINTLY WITH DEBT SECURITIES: DATE FROM WHICH WARRANT SECURITY IS EXERCISABLE: DATE ON WHICH WARRANT SECURITY EXPIRES: EXERCISE PRICE(S): INITIAL PUBLIC OFFERING PRICE: PURCHASE PRICE: TITLE OF WARRANT SECURITIES: OTHER TERMS: 2 DELAYED DELIVERY CONTRACTS: [None.] [Delivery Date[s] shall be ______________. Underwriters' fee is ___% of the principal amount of the Contract Securities.] PURCHASE PRICE: ___% of principal amount, plus accrued interest[, if any,] from ___________________. EXPECTED REOFFERING PRICE: ___% of principal amount, subject to change by the undersigned. CLOSING: _____ A.M. on _________________, at _____________, by wire transfer, payable to the order of the Company in Federal (same day) funds. [NAME[S] AND ADDRESS[ES] OF REPRESENTATIVE[S]:] The respective number of the Securities to be purchased by each of the Underwriters are set forth opposite their names in Schedule A hereto. [If appropriate, insert--It is understood that we may, with your consent, amend this offer to add additional Underwriters and reduce the number to be purchased by the Underwriters listed in Schedule A hereto by the number to be purchased by such additional Underwriters.] The provisions of the Underwriting Agreement are incorporated herein by reference. The Securities will be made available for checking and packaging at the office of ___________________ at least 24 hours prior to the Closing Date. [Please signify your acceptance of our offer by signing the enclosed response to us in the space provided and returning it to us.] 3 [Please signify your acceptance in writing of the foregoing not later than _____ P.M. today.] Very truly yours, [REPRESENTATIVE] [Insert name(s) of other Representatives or Underwriters] [On behalf of--themselves-- itself--and as Representative[s] of the Several] [As] Underwriter[s] By [REPRESENTATIVE] By --------------------------------------- [Insert Title] 4 SCHEDULE A UNDERWRITER NUMBER - ----------- ------ [Underwriter]................................ Total.................................... ============ 5 To: [REPRESENTATIVE] [Insert name(s) of other Representatives or Underwriters] As [Representative[s] of the Several] Underwriter[s], c/o [REPRESENTATIVE] [Address] [Address] We accept the offer contained in your [letter] [wire], dated ______________, relating to ______ number of our [Insert title of Securities]. We also confirm that, to the best of our knowledge after reasonable investigation, the representations and warranties of the undersigned in the Underwriting Agreement filed as an exhibit to the undersigned's registration statement on Form S-3 (No. ) ("Underwriting Agreement") are true and correct, no stop order suspending the effectiveness of the Registration Statement (as defined in the Underwriting Agreement) or of any part thereof has been issued and no proceedings for that purpose have been instituted or, to the knowledge of the undersigned, are contemplated by the Securities and Exchange Commission and, subsequent to the respective dates of the most recent financial statements in the Prospectus (as defined in the Underwriting Agreement), there has been no material adverse change in the financial position or results of operations of the undersigned and its Subsidiaries except as set forth in or contemplated by the Prospectus. Very truly yours, Eaton Corporation By --------------------------- [Insert Title] By --------------------------- [Insert Title] 5 ANNEX II-A FORM OF OPINION FROM GENERAL COUNSEL OF COMPANY TO BE DELIVERED PURSUANT TO SECTION 5(f)(i) (A) The Company and the Significant Subsidiaries have been duly incorporated and are validly existing and in good standing under the laws of their respective jurisdictions of incorporation, are duly qualified to do business and in good standing as foreign corporations in all jurisdictions in which their respective ownership of property or the conduct of their respective businesses requires such qualification (except where the failure to so qualify would not have a material adverse effect upon the business, properties, financial condition, results of operations or prospects of the Company and its Subsidiaries taken as a whole), and have all power and authority necessary to own their respective properties and conduct the businesses in which they are engaged and, except as may be disclosed in the Registration Statement and except to the extent of shares owned of record by directors for the purpose of qualifying as such, all outstanding shares of capital stock of the Significant Subsidiaries are owned by the Company directly, or indirectly through wholly owned Subsidiaries, free and clear of any lien, pledge and encumbrance or any claim of any third party. (B) The Delayed Delivery Contracts, if any, have been duly authorized, executed and delivered by the Company and, assuming due authorization, execution and delivery by the purchasers thereunder, are valid and legally binding obligations of the Company; (C) The Registration Statement is effective under the Act, no stop order suspending its effectiveness has been issued, and no proceeding for that purpose is pending or, to the knowledge of such counsel, threatened by the Commission; (D) No order directed to any document incorporated by reference in the Prospectuses has been issued and, to the knowledge of such counsel, no challenge has been made to the accuracy or adequacy of any such document; (E) The documents incorporated by reference in the Registration Statement and the Prospectuses (except for the financial statements, supporting schedules and other financial data included or incorporated therein, or omitted therefrom, as to which such counsel need express no opinion), when they were filed with the Commission, complied as to form in all material respects with the requirements of the Securities Exchange Act and the rules and regulations thereunder; (F) The Registration Statement and the Prospectuses (except that no opinion need be expressed as to the financial statements, supporting schedules and other financial data contained or incorporated therein, or omitted therefrom) comply as to form in all material respects with the requirements of the Act and the Rules and Regulations; (G) The statements made in the Prospectuses under the following (or comparable) captions: "Description of Debt Securities," "Description of Common Shares," "Description of Debt Warrants," and "Description of Preferred Shares", insofar as they purport to summarize the provisions of documents or agreements specifically referred to therein, fairly present the information called for with respect thereto by Form S-3 under the Act; (H) Such counsel does not know of any litigation or any governmental proceeding pending or threatened against the Company or any of its Subsidiaries which is required to be disclosed in the Prospectuses which is not disclosed and correctly summarized therein; (I) Such counsel does not know of any contracts or other documents which are required to be filed as exhibits to the Registration Statement by the Act or by the Rules and Regulations, or which are required to be filed as exhibits to any document incorporated by reference in the Prospectuses by the Securities Exchange Act or the rules and regulations thereunder, which have not been filed as exhibits to the Registration Statement or to such document or incorporated therein by reference as permitted by the Rules and Regulations or the rules and regulations of the Commission under the Securities Exchange Act; (J) To the best of such counsel's knowledge, neither the Company nor any Significant Subsidiary is in violation of its articles or certificate of incorporation or in default under any material agreement, indenture or instrument; and (K) The Company is not, and after giving effect to the offering and sale of the Securities, will not be an "investment company", as such term is defined in the Investment Company Act of 1940. ANNEX II-B FORM OF OPINION FROM GENERAL COUNSEL OF COMPANY TO BE DELIVERED PURSUANT TO SECTION 5(f)(ii) (A) The Senior Indenture has been validly authorized by the Company, duly executed and delivered by the Company and the Senior Trustee and duly qualified under the Trust Indenture Act and is a valid and legally binding instrument of the Company, except as enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); (B) The Senior Debt Securities not subject to Delayed Delivery Contracts have been validly authorized, duly executed by authorized officers of the Company, duly authenticated by the Senior Trustee or the authenticating agent and delivered, and are the validly issued, outstanding and legally binding obligations of the Company, entitled to the benefits of the Senior Indenture, except as enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); (C) The Senior Debt Securities subject to a Delayed Delivery Contract, if any, have been validly authorized and, when duly executed, authenticated, issued and delivered to, and paid for by, the respective purchasers thereof under the related Delayed Delivery Contracts, such Senior Debt Securities will be validly issued, outstanding and legally binding obligations of the Company, entitled to the benefits of the Senior Indenture, except as enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); (D) The Senior Debt Securities and the Senior Indenture conform in all material respects to the statements concerning them in the Registration Statement and the Prospectuses; and (E) This Agreement has been duly authorized, executed and delivered by the Company; the execution, delivery and performance of this Agreement and the Delayed Delivery Contracts, if any, and compliance by the Company with the provisions contained herein and in the Senior Debt Securities and the Senior Indenture will not, in any way that would have a material adverse effect upon the Company and its Subsidiaries taken as a whole, conflict with, or result in the creation or imposition of, any lien, charge or encumbrance upon any of the assets of the Company or any of its Subsidiaries pursuant to the terms of, or constitute a default under, any agreement, indenture or instrument known to such counsel, or result in a violation of the articles or certificate of incorporation of the Company or any Significant Subsidiary or any law, order, rule or regulation of any court or governmental agency having jurisdiction over the Company, and any of its Subsidiaries or their property; and no consent, authorization or order of, or filing or registration with, any court or governmental agency is required for the execution, delivery and performance by the Company of this Agreement and the Delayed Delivery Contracts, if any, except such as may be required by the Act, the Trust Indenture Act, the Securities Exchange Act, state securities laws or foreign laws. ANNEX II-C FORM OF OPINION FROM GENERAL COUNSEL OF COMPANY TO BE DELIVERED PURSUANT TO SECTION 5(f)(iii) (A) The Subordinated Indenture has been validly authorized by the Company, duly executed and delivered by the Company and the Subordinated Trustee and duly qualified under the Trust Indenture Act and is a valid and legally binding instrument of the Company, except as enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); (B) The Subordinated Debt Securities not subject to Delayed Delivery Contracts have been validly authorized, duly executed by authorized officers of the Company, duly authenticated by the Subordinated Trustee or the authenticating agent and delivered, and are the validly issued, outstanding and legally binding obligations of the Company, entitled to the benefits of the Subordinated Indenture, except as enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); (C) The Subordinated Debt Securities subject to a Delayed Delivery Contract, if any, have been validly authorized and, when duly executed, authenticated, issued and delivered to, and paid for by, the respective purchasers thereof under the related Delayed Delivery Contracts, such Subordinated Debt Securities subject to a Delayed Delivery Contract will be validly issued, outstanding and legally binding obligations of the Company, entitled to the benefits of the Subordinated Indenture, except as enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); (D) The Subordinated Debt Securities, the Subordinated Indenture and, in the case of Subordinated Debt Securities that are convertible into Registered Common Shares ("Convertible Subordinated Debt Securities"), the Registered Common Shares conform in all material respects to the statements concerning them in the Registration Statement and the Prospectuses; (E) In the case of Convertible Subordinated Debt Securities, the Registered Common Shares issuable upon the conversion of the Convertible Subordinated Debt Securities have been duly authorized and validly reserved for issuance by the Company and, when issued and delivered in accordance with the terms of the Convertible Subordinated Indenture, will be validly issued, fully paid and nonassessable; (F) In the case of Convertible Subordinated Debt Securities, all corporate action required to be taken for the authorization, issuance and delivery of the Registered Common Shares issuable upon conversion of the Convertible Subordinated Debt Securities has been validly taken, and the issuance of the Convertible Subordinated Debt Securities is not, and the issuance of any such Registered Common Shares will not be, subject to the preemptive rights of any stockholder of the Company; and (G) This Agreement has been duly authorized, executed and delivered by the Company; the execution, delivery and performance of this Agreement and the Delayed Delivery Contracts, if any, and compliance by the Company with the provisions contained herein and in the Subordinated Debt Securities and the Subordinated Indenture will not, in any way that would have a material adverse effect upon the Company and its Subsidiaries taken as a whole, conflict with, or result in the creation or imposition of, any lien, charge or encumbrance upon any of the assets of the Company or any of its Subsidiaries pursuant to the terms of, or constitute a default under, any agreement, indenture or instrument known to such counsel, or result in a violation of the articles or certificate of incorporation of the Company or any Significant Subsidiary or any law, order, rule or regulation of any court or governmental agency having jurisdiction over the Company, any of its Subsidiaries or their property; and no consent, authorization or order of, or filing or registration with, any court or governmental agency is required for the execution, delivery and performance by the Company of this Agreement and the Delayed Delivery Contracts, if any, except such as may be required by the Act, the Trust Indenture Act, the Securities Exchange Act, state securities laws or foreign laws. ANNEX II-D FORM OF OPINION FROM GENERAL COUNSEL OF COMPANY TO BE DELIVERED PURSUANT TO SECTION 5(f)(iv) (A) The Warrant Agreement has been validly authorized by the Company, and duly executed and delivered by the Company and the Warrant Agent and is a valid and legally binding instrument of the Company, except as enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); (B) The Registered Warrant Securities not subject to a Delayed Delivery Contract have been validly authorized, duly executed by authorized officers of the Company, duly authenticated by the Warrant Agent and delivered, and are the validly issued, outstanding and legally binding obligations of the Company, entitled to the benefits of the Warrant Agreement, except as enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); (C) The Registered Warrant Securities subject to a Delayed Delivery Contract, if any, have been validly authorized and, when duly executed, authenticated, issued and delivered to, and paid for by, the respective purchasers thereof under the related Delayed Delivery Contracts, such Registered Warrant Securities will be validly issued, outstanding and legally binding obligations of the Company, entitled to the benefits of the Warrant Agreement, except as enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); (D) The Senior Indenture has been validly authorized by the Company, duly executed and delivered by the Company and the Senior Trustee and duly qualified under the Trust Indenture Act and is a valid and legally binding instrument of the Company, except as enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); (E) The Senior Debt Securities issuable upon exercise of the Registered Warrant Securities have been validly authorized and, when executed, authenticated, issued and delivered in accordance with the terms of the Registered Warrant Securities and the Senior Indenture, will be the validly issued, outstanding and legally binding obligations of the Company, entitled to the benefits of the Senior Indenture, except as enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); (F) The Registered Warrant Securities, the Warrant Agreement, the Senior Debt Securities issuable upon the exercise of the Registered Warrant Securities and the Senior Indenture conform in all material respects to the statements concerning them in the Registration Statement and the Prospectuses; and (G) This Agreement has been duly authorized, executed and delivered by the Company; the execution, delivery and performance of this Agreement and the Delayed Delivery Contracts, if any, and compliance by the Company with the provisions contained herein and in the Registered Warrant Securities, in the Warrant Agreement, in the Senior Debt Securities and in the Senior Indenture, if applicable, will not, in any way that would have a material adverse effect upon the Company and its subsidiaries taken as a whole, conflict with, or result in the creation or imposition of, any lien, charge or encumbrance upon any of the assets of the Company or any of its Subsidiaries pursuant to the terms of, or constitute a default under, any agreement, indenture or instrument known to such counsel, or result in a violation of the articles or certificate of incorporation of the Company or any Significant Subsidiary or any law, order, rule or regulation of any court or governmental agency having jurisdiction over the Company, any of its Subsidiaries or their property; and no consent, authorization or order of, or filing or registration with, any court or governmental agency is required for the execution, delivery and performance by the Company of this Agreement and the Delayed Delivery Contracts, if any, except such as may be required by the Act, the Trust Indenture Act, the Securities Exchange Act, state securities laws or foreign laws. ANNEX II-E FORM OF OPINION FROM GENERAL COUNSEL OF COMPANY TO BE DELIVERED PURSUANT TO SECTION 5(f)(v) (A) The Registered Preferred Shares not subject to a Delayed Delivery Contract have been duly and validly authorized and issued and are fully paid and nonassessable; (B) The Registered Preferred Shares subject to a Delayed Delivery Contract, if any, have been validly authorized and, when duly executed, issued and delivered to, and paid for by, the respective purchasers thereof under the related Delayed Delivery Contracts, such Registered Preferred Shares will be duly and validly issued and fully paid and nonassessable; (C) If the Registered Preferred Shares are convertible into Registered Common Shares, the Registered Common Shares issuable upon conversion of the Registered Preferred Shares have been duly authorized and validly reserved for issuance by the Company and, when issued and delivered in accordance with the terms of the Registered Preferred Shares and the Certificate of Designations, will be validly issued, fully paid and nonassessable; (D) The Registered Preferred Shares and the Registered Common Shares conform in all material respects to the statements concerning them in the Registration Statement and the Prospectuses; (E) This Agreement has been duly authorized, executed and delivered by the Company; the execution, delivery and performance of this Agreement and the Delayed Delivery Contracts, if any, and compliance by the Company with the provisions contained herein and in the Registered Preferred Shares and the Certificate of Designations will not, in any way that would have a material adverse effect upon the Company and its Subsidiaries taken as a whole, conflict with, or result in the creation or imposition of, any lien, charge or encumbrance upon any of the assets of the Company or any of its Subsidiaries pursuant to the terms of, or constitute a default under, any agreement, indenture or instrument known to such counsel, or result in a violation of the articles or certificate of incorporation of the Company or any Significant Subsidiary or any law, order, rule or regulation of any court or governmental agency having jurisdiction over the Company, any of its Subsidiaries or their property; and no consent, authorization or order of, or filing or registration with, any court or governmental agency is required for the execution, delivery and performance by the Company of this Agreement and the Delayed Delivery Contracts, if any, except such as may be required by the Act, the Securities Exchange Act, state securities laws or foreign laws; and (F) All corporate action required to be taken for the authorization, issuance and delivery of any Registered Common Shares issuable upon conversion of the Registered Preferred Shares has been validly taken, and the issuance of the Registered Preferred Shares is not, and the issuance of any such Registered Common Shares will not be, subject to any preemptive rights of any stockholder of the Company. ANNEX II-F FORM OF OPINION FROM GENERAL COUNSEL OF COMPANY TO BE DELIVERED PURSUANT TO SECTION 5(f)(vi) (A) The Registered Common Shares have been duly and validly authorized and issued and are fully paid and nonassessable; (B) The Registered Common Shares conform in all material respects to the statements concerning them in the Registration Statement and the Prospectuses; (C) This Agreement has been duly authorized, executed and delivered by the Company; the execution, delivery and performance of this Agreement and compliance by the Company with the provisions contained herein will not, in any way that would have a material adverse effect upon the Company and its Subsidiaries taken as a whole, conflict with, or result in the creation or imposition of, any lien, charge or encumbrance upon any of the assets of the Company or any of its Subsidiaries pursuant to the terms of, or constitute a default under, any agreement, indenture or instrument known to such counsel, or result in a violation of the articles or certificate of incorporation of the Company or any Significant Subsidiary or any law, order, rule or regulation of any court or governmental agency having jurisdiction over the Company, any of its Subsidiaries or their property; and no consent, authorization or order of, or filing or registration with, any court or governmental agency is required for the execution, delivery and performance by the Company of this Agreement, except such as may be required by the Act, the Securities Exchange Act, state securities laws or foreign laws; and (D) The issuance of any such Registered Common Shares will not be subject to any preemptive rights of any stockholder of the Company. EX-5 4 l00571aexv5.txt EX-5 OPINION OF J.R. HORST EXHIBIT 5 July 2, 2003 Board of Directors Eaton Corporation Ladies and Gentlemen: I am furnishing this opinion for Eaton Corporation (the "Company") in connection with the Registration Statement (the "Registration Statement") on Form S-3 being filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended, relating to the offering from time to time, as set forth in the prospectus contained in the Registration Statement (the "Prospectus") and as to be set forth in one or more supplements to the Prospectus (each such supplement, a "Prospectus Supplement"), of up to $250,000,000 aggregate amount of the Company's (i) debt securities (the "Debt Securities"), (ii) warrants to purchase Debt Securities (the "Debt Warrants"), (iii) preferred shares (the "Preferred Shares") and (iv) common shares (the "Common Shares"). The Debt Warrants, the Debt Securities, the Preferred Shares and the Common Shares are collectively referred to as the "Securities". Any Debt Securities and Preferred Shares may be convertible into or exchangeable for Common Shares or other Securities. The Debt Securities will be issued in one or more series and may be either senior debt securities (the "Senior Securities") issued pursuant to an Indenture (the "Senior Indenture") dated as of April 1, 1994 between the Company and JPMorgan Chase Bank (formerly known as Chemical Bank), trustee (the "Senior Trustee"), or subordinated debt securities (the "Subordinated Securities") issued pursuant to an Indenture (the "Subordinated Indenture") to be entered into between the Company and an institution identified therein as trustee (the "Subordinated Trustee"). The Debt Warrants will be issued under one or more debt warrant agreements (each, a "Debt Warrant Agreement") to be entered into between the Company and a financial institution identified therein as warrant agent (each, a "Warrant Agent"). I have examined the resolutions of the Board of Directors of the Company (the "Resolutions") authorizing the Indentures and the issuance, offering and sale of the Securities, and I have examined such corporate records of the Company and such other documents and certificates as I have deemed necessary as a basis for the opinions hereinafter expressed. Based on the foregoing, and having regard for such legal considerations as I have deemed relevant, I am of the opinion that, under the laws of the State of New York (which governs the Senior Indenture and the Subordinated Indenture) where appropriate and otherwise under the laws of the State of Ohio: 1. The Senior Indenture has been duly authorized, executed and delivered by the Company and constitutes a legally binding instrument of the Company enforceable against the Company in accordance with its terms. Board of Directors Eaton Corporation Page 2 2. The Senior Securities (including Senior Securities issuable upon conversion of or exchange for any Security or upon exercise of any Debt Warrant) have been duly authorized and, when the final terms thereof have been duly established and approved and when duly executed by the Company, in each case pursuant to the authority granted in the Resolutions, and authenticated by the Senior Trustee in accordance with the Senior Indenture and delivered to and paid for by the purchasers thereof, will constitute legally binding obligations of the Company entitled to the benefits of the Senior Indenture. 3. The Subordinated Indenture has been duly authorized and, when executed and delivered by the Company pursuant to the authority granted in the Resolutions, and assuming due authorization, execution and delivery thereof by the Subordinated Trustee, will constitute a legally binding instrument of the Company enforceable against the Company in accordance with its terms. 4. The Subordinated Securities (including Subordinated Securities issuable upon conversion of or exchange for any Security or upon exercise of any Debt Warrant) have been duly authorized and, when the final terms thereof have been duly established and approved and when duly executed by the Company, in each case pursuant to the authority granted in the Resolutions, and authenticated by the Subordinated Trustee in accordance with the Subordinated Indenture and delivered to and paid for by the purchasers thereof, will constitute legally binding obligations of the Company entitled to the benefits of the Subordinated Indenture. 5. The Warrant Agreements have been duly authorized and, when executed and delivered by the Company pursuant to the authority granted in the Resolutions, and assuming due authorization, execution and delivery thereof by the applicable Warrant Agent, will constitute legally binding instruments of the Company enforceable against the Company in accordance with their respective terms. 6. The Warrants have been duly authorized and, when the final terms thereof have been duly established and approved and when certificates representing such Warrants have been duly executed by the Company, in each case pursuant to the authority granted in the Resolutions, and when such certificates have been countersigned by the applicable Warrant Agent in accordance with the applicable Warrant Agreement and delivered to and paid for by the purchasers thereof, such Warrants will constitute legally binding obligations of the Company entitled to the benefits of the applicable Warrant Agreement. 7. The Preferred Shares (including Preferred Shares issuable upon conversion of or exchange for any Security) have been duly authorized and, when the final terms thereof have been duly established and approved and certificates representing such Preferred Shares have been duly executed by the Company, in each case pursuant to the authority granted in the Resolutions, and when such certificates have been delivered to and paid for by the purchasers thereof, and when all corporate action necessary for issuance of such Preferred Shares has been taken, including the adoption of a Certificate of Designations relating thereto, such shares will be validly issued, fully paid and non-assessable. 8. The Common Shares (including Common Shares issuable upon conversion of or exchange for any Security) have been duly authorized and, when issued and delivered pursuant to the authority granted in the Resolutions and against payment therefor, will be validly issued, fully paid and non-assessable. Board of Directors Eaton Corporation Page 3 The opinions set forth above are subject, as to enforcement, to (i) bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws relating to or affecting the enforcement of creditors' rights generally, (ii) general equitable principles (regardless of whether enforcement is considered in a proceeding in equity or at law) and (iii) provisions of law that require that a judgment for money damages rendered by a court in the United States be expressed only in United States dollars. I hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the use of my name under the heading "Legal Opinions" in the Prospectus. Very truly yours, /s/ J. Robert Horst J. Robert Horst Vice President and General Counsel EX-8 5 l00571aexv8.txt EX-8 TAX OPINION OF STEARMAN & STERLING LLP Exhibit 8 [Shearman & Sterling LLP Letterhead] July 2, 2003 Eaton Corporation Eaton Center 1111 Superior Avenue Cleveland, Ohio 44114-2584 Ladies and Gentlemen: We are acting as special United States federal income tax counsel to Eaton Corporation, an Ohio corporation (the "Company"), in connection with the filing by the Company of a registration statement on Form S-3 (the "Registration Statement") with the Securities and Exchange Commission (the "Commission") relating to various securities, including the Company's issuance of its Medium-Term Notes, Due from 9 Months to 30 Years from Date of Issue (such notes referred to herein as the "Notes"), as set forth in the prospectus supplement contained in the Registration Statement (the "Prospectus Supplement"), with an aggregate principal amount up to the amount set forth in the Registration Statement. In our opinion, the summary under the heading "United States Federal Income Taxation" in the Prospectus Supplement accurately describes, subject to the limitations stated therein, the material United States federal income tax consequences of the purchase, ownership and disposition of the Notes. The foregoing opinion is based upon the Internal Revenue Code of 1986, as amended, Treasury Regulations (including proposed Regulations and temporary Regulations) promulgated thereunder, rulings, official pronouncements and judicial decisions, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect. We hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement and to the reference to us under the heading "United States Federal Income Taxation" in the Prospectus Supplement. Very truly yours, /s/ SHEARMAN & STERLING LLP LMB/MLP/EDH EX-23.A 6 l00571aexv23wa.txt EX-23(A) CONSENT OF ERNST & YOUNG Exhibit 23(a) CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3) and related Prospectus of Eaton Corporation for the registration of $250,000,000 of debt and equity securities and to the incorporation by reference therein of our report dated January 20, 2003, with respect to the consolidated financial statements of Eaton Corporation included in its Annual Report (Form 10-K) for the year ended December 31, 2002, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Cleveland, Ohio June 27, 2003 EX-25 7 l00571aexv25.txt EX-25 FORM T-1 STATEMENT OF ELIGIBILITY Exhibit 25 ------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ------------------------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ------------------------------------------- CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________ ---------------------------------------- JPMORGAN CHASE BANK (Exact name of trustee as specified in its charter) NEW YORK 13-4994650 (State of incorporation (I.R.S. employer if not a national bank) identification No.) 270 PARK AVENUE NEW YORK, NEW YORK 10017 (Address of principal executive offices) (Zip Code) William H. McDavid General Counsel 270 Park Avenue New York, New York 10017 Tel: (212) 270-2611 (Name, address and telephone number of agent for service) -------------------------------------------- EATON CORPORATION (Exact name of obligor as specified in its charter) OHIO 34-0196300 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) 1111 SUPERIOR AVENUE CLEVELAND, OHIO 44114-2584 (Address of principal executive offices) (Zip Code) -------------------------------------------- DEBT SECURITIES (Title of the indenture securities) ---------------------------------------------------- GENERAL Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. New York State Banking Department, State House, Albany, New York 12110. Board of Governors of the Federal Reserve System, Washington, D.C., 20551 Federal Reserve Bank of New York, District No. 2, 33 Liberty Street, New York, N.Y. Federal Deposit Insurance Corporation, Washington, D.C., 20429. (b) Whether it is authorized to exercise corporate trust powers. Yes. Item 2. Affiliations with the Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. -1- Item 16. List of Exhibits List below all exhibits filed as a part of this Statement of Eligibility. 1. A copy of the Restated Organization Certificate of the Trustee and the Certificate of Amendment dated November 9, 2001 (see Exhibit 1 to Form T-1 filed in connection with Registration Statement No. 333-73746 which is incorporated by reference). 2. A copy of the Certificate of Authority of the Trustee to Commence Business (see Exhibit 2 to Form T-1 filed in connection with Registration Statement No. 33-50010, which is incorporated by reference). On November 11, 2001, in connection with the merger of The Chase Manhattan Bank and Morgan Guaranty Trust Company of New York, the surviving corporation was renamed JPMorgan Chase Bank. 3. None, authorization to exercise corporate trust powers being contained in the documents identified above as Exhibits 1 and 2. 4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to Form T-1 filed in connection with Registration Statement No. 333-73746, which is incorporated by reference). 5. Not applicable. 6. The consent of the Trustee required by Section 321(b) of the Act (see Exhibit 6 to Form T-1 filed in connection with Registration Statement No. 33-50010, which is incorporated by reference). On November 11, 2001, in connection with the merger of The Chase Manhattan Bank and Morgan Guaranty Trust Company of New York, the surviving corporation, was renamed JPMorgan Chase Bank. 7. A copy of the latest report of condition of the Trustee, published pursuant to law or the requirements of its supervising or examining authority. 8. Not applicable. 9. Not applicable. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee, JPMorgan Chase Bank, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York and State of New York, on the 1st day of July 2003. JPMORGAN CHASE BANK By /s/ N. Moran ------------------- /s/ N. Moran Vice President -2- Exhibit 7 to Form T-1 Bank Call Notice RESERVE DISTRICT NO. 2 CONSOLIDATED REPORT OF CONDITION OF JPMorgan Chase Bank of 270 Park Avenue, New York, New York 10017 and Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business March 31, 2003, in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.
DOLLAR AMOUNTS ASSETS IN MILLIONS Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin ..............................................................$ 21,415 Interest-bearing balances ....................................................... 6,882 Securities: Held to maturity securities .......................................................... 334 Available for sale securities ........................................................ 80,076 Federal funds sold and securities purchased under agreements to resell Federal funds sold in domestic offices .......................................... 14,044 Securities purchased under agreements to resell ................................. 73,060 Loans and lease financing receivables: Loans and leases held for sale .................................................. 25,832 Loans and leases, net of unearned income ........................................ $161,345 Less: Allowance for loan and lease losses ....................................... 3,823 Loans and leases, net of unearned income and allowance ....................................................................... 157,522 Trading Assets........................................................................ 189,427 Premises and fixed assets (including capitalized leases) ............................. 6,186 Other real estate owned............................................................... 131 Investments in unconsolidated subsidiaries and associated companies ............................................................ 691 Customers' liability to this bank on acceptances outstanding ..................................................................... 225 Intangible assets Goodwill ..................................................................... 2,180 Other Intangible assets ...................................................... 3,314 Other assets ......................................................................... 40,377 TOTAL ASSETS ......................................................................... $621,696 ========
LIABILITIES Deposits In domestic offices ............................................................................. $174,351 Noninterest-bearing .........................................................$ 70,991 Interest-bearing ............................................................ 103,360 In foreign offices, Edge and Agreement subsidiaries and IBF's ........................................................................... 125,789 Noninterest-bearing ...........................................................$ 7,531 Interest-bearing ............................................................ 118,258 Federal funds purchased and securities sold under agreements to repurchase: Federal funds purchased in domestic offices ...................................................... 5,929 Securities sold under agreements to repurchase ................................................... 113,903 Trading liabilities ................................................................................... 116,329 Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases) ........................................................ 10,758 Bank's liability on acceptances executed and outstanding .............................................. 225 Subordinated notes and debentures ..................................................................... 8,306 Other liabilities ..................................................................................... 29,735 TOTAL LIABILITIES ..................................................................................... 585,325 Minority Interest in consolidated subsidiaries ........................................................ 97 EQUITY CAPITAL Perpetual preferred stock and related surplus ......................................................... 0 Common stock .......................................................................................... 1,785 Surplus (exclude all surplus related to preferred stock) ............................................. 16,304 Retained earnings ..................................................................................... 17,228 Accumulated other comprehensive income ................................................................ 957 Other equity capital components ....................................................................... 0 TOTAL EQUITY CAPITAL .................................................................................. 36,274 -------- TOTAL LIABILITIES, MINORITY INTEREST, AND EQUITY CAPITAL .............................................. $621,696 ========
I, Joseph L. Sclafani, E.V.P. & Controller of the above-named bank, do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true to the best of my knowledge and belief. JOSEPH L. SCLAFANI We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us, and to the best of our knowledge and belief has been prepared in conformance with the in- structions issued by the appropriate Federal regulatory authority and is true and correct. WILLIAM B. HARRISON, JR. ) HELENE L. KAPLAN ) DIRECTORS WILLIAM H. GRAY, III ) -----END PRIVACY-ENHANCED MESSAGE-----