-----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, Rbvkr7ZCZEItda0ut/+ZuRQBiJpGQPioaaLGIQWLsJcUjy54hg6Hl293bFV5HXls +jzZEUE0SdZwwgeMnN5FVg== 0000950152-99-001873.txt : 19990315 0000950152-99-001873.hdr.sgml : 19990315 ACCESSION NUMBER: 0000950152-99-001873 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19990312 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EATON CORP CENTRAL INDEX KEY: 0000031277 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC & OTHER ELECTRICAL EQUIPMENT (NO COMPUTER EQUIP) [3600] IRS NUMBER: 340196300 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-74355 FILM NUMBER: 99564371 BUSINESS ADDRESS: STREET 1: EATON CTR STREET 2: 1111 SUPERIOR AVE CITY: CLEVELAND STATE: OH ZIP: 44114-2584 BUSINESS PHONE: 2165235000 FORMER COMPANY: FORMER CONFORMED NAME: EATON YALE & TOWNE INC DATE OF NAME CHANGE: 19710822 S-3 1 EATON CORPORATION S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 12, 1999 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, 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, 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........................ | 100% | - --------------------------------------- | -------------------- | Debt Warrants(3)....................... | -- | - --------------------------------------- -->$1,400,000,000 -------------------- -->$1,400,000,000 $389,200 Preferred Shares(4).................... | -- | - --------------------------------------- | -------------------- | Common Shares, par value 50c per | | share(5)............................. | -- | ===========================================================================================================================
================================================================================ (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) 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. (4) Such indeterminate number of Preferred Shares as may, from time to time, be issued at indeterminate prices. (5) 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 Subordinated 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. ------------------ 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 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 IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED MARCH 12, 1999 [LOGO] EATON CORPORATION --------------------------------------------------- By this prospectus, we offer up to $1,400,000,000 of the following: DEBT SECURITIES PREFERRED SHARES DEBT WARRANTS COMMON SHARES
We will provide the specific terms and the initial 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 if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The date of this prospectus is , 1999. 3 TABLE OF CONTENTS
PAGE ---- 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................................ 25 Plan of Distribution........................................ 28 Legal Opinions.............................................. 28 Experts..................................................... 29
4 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 rooms at 450 Fifth Street, N.W., Washington D.C. 20549, and in New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. 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 Sections 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, 1997. - Definitive proxy statement dated March 13, 1998 concerning our Annual Meeting of Shareholders on April 22, 1998. - Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998. - Current Reports on Form 8-K dated February 3, 1998, April 2, 1998 and October 8, 1998. 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 5 THE COMPANY We are a global manufacturer of highly-engineered products which serve the industrial, vehicle, construction, commercial and semiconductor markets, with operations in 25 countries. Our operations are categorized into these five business segments: - Automotive Components - Hydraulics and Other Components - Industrial and Commercial Controls - Semiconductor Equipment - Truck Components 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, the net proceeds from the sale of the securities under this prospectus will be added to our general funds and will be available for general corporate purposes, including investments and acquisitions and refinancing of indebtedness. RATIO OF EARNINGS TO FIXED CHARGES The following table shows our ratio of earnings to fixed charges for the nine months ended September 30, 1998 and for each of the five years in the period ended December 31, 1997.
NINE MONTHS YEAR ENDED DECEMBER 31, ENDED ------------------------------------ SEPTEMBER 30, 1998 1997 1996 1995 1994 1993 ------------------ ---- ---- ---- ---- ---- Ratio of Earnings to Fixed Charges..... 4.78 6.30 5.04 5.96 5.19 3.76
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 the following securities in one or more offerings up to a total dollar amount of $1,400,000,000 (or the equivalent thereof if any of the securities are denominated in a currency, currency unit or composite currency ("Currency") other than the U.S. dollar): - Unsecured debt securities which may be either senior (the "Senior Securities") or subordinated (the "Subordinated Securities"). Subordinated Securities may be convertible into our common shares ("Convertible Subordinated Securities"). In this prospectus, we will refer to Senior 3 6 Securities, Subordinated Securities and Convertible Subordinated Securities together as the "Debt Securities." - Warrants to purchase Debt Securities ("Debt Warrants"). - Preferred shares ("Preferred Shares"). - Common shares with a par value of $0.50 per share ("Common Shares"). We will refer to the above securities that we may offer or sell under this prospectus as the "Offered Securities." The Offered Securities, together with any Debt Securities issuable upon exercise of Debt Warrants, or other securities issuable upon conversion or exchange of other Offered Securities, will be referred to as the "Securities." 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, update or change information contained in this prospectus and, accordingly, to the extent inconsistent, such information will be superseded by the information in the prospectus supplement. 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 their title, ranking, aggregate principal amount, maturity, rate of any interest (or manner of calculation) and time of payment of principal and/or interest, any redemption or repayment terms, the Currency or Currencies in which such Debt Securities will be denominated or payable, any index, formula, or other method pursuant to which principal, premium, or interest may be determined, any terms for conversion or exchange and the form of such Debt Securities (registered, bearer, global and/or certificate); - 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 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. 4 7 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 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. The Chase Manhattan Bank, as successor by merger to 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, as amended (the "TIA"). 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, it does not describe every aspect of the Debt Securities. This summary is subject to and qualified in its entirety by reference to all 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 TIA. Whenever we refer to particular sections or defined terms of the Indentures in this prospectus or in the prospectus supplement, such 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 ("Offered Debt Securities") and any Debt Securities issuable upon the exercise of Debt Warrants or upon conversion or exchange of other Offered Securities ("Underlying Debt Securities"), as well as other of our unsecured debt securities, in one or more series. 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 pursuant to authority granted by one or more resolutions of our Board of Directors before the issuance of the Debt Securities: (1) The title of the Debt Securities and whether they will be Senior Securities or Subordinated Securities, including whether Subordinated Securities are Convertible Subordinated Securities; (2) The total principal amount of the Debt Securities and any limit on the total principal amount of Debt Securities of each series; (3) The date or dates, or how the date or dates will be determined or extended, when the principal of the Debt Securities will be payable; 5 8 (4) 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; (5) 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; (6) Any optional redemption provisions; (7) Any sinking fund or other provisions that would obligate us to repurchase or redeem the Debt Securities; (8) If other than U.S. dollars, the Currency or Currencies of the Debt Securities; (9) 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; (10) 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; (11) 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 of the series for Registered Securities of the series and vice versa (if permitted by applicable laws and regulations); (12) 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; (13) Any changes or additions to the Events of Default or our covenants with respect to the Debt Securities; (14) 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; (15) Whether we or a holder may elect payment of the principal of or interest, if any, on the Debt Securities in one or more Currencies other than that in which such Debt Securities are stated to be payable, and the period or periods within which, and the terms and conditions upon which, 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; (16) If other than the Trustee, the identity of each Security Registrar and/or Paying Agent; (17) The designation of the Exchange Rate Agent, if applicable; (18) The Person to whom any interest on any Registered Security of the series will be payable, if other than the Person in whose name such Registered Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, the manner in which, or the Person to whom any interest on any Bearer Security of the series will be payable, if not upon presentation and surrender of the coupons relating to the Bearer Security as they mature, and the extent 6 9 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; (19) 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); (20) Any provisions granting special rights to the holders of the Debt Securities upon the occurrence of specified events; (21) In the case of Subordinated Securities, any terms modifying the subordination provisions affecting such securities; (22) In the case of Convertible Subordinated Securities, any terms by which they may be convertible into Common Shares; (23) If we issue the Debt Securities in definitive form (whether upon original issue or upon exchange of temporary Debt Securities of such series), the terms and conditions under which definitive securities will be issued; (24) If we issue the Debt Securities upon the exercise of Debt Warrants, the time, manner and place for them to be authenticated and delivered; (25) The manner for paying principal and interest and the manner for transferring the Debt Securities; and (26) Any other terms of the Debt Securities that are consistent with the requirements of the TIA. 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. Please refer to the prospectus supplement for information about any changes to the Events of Default or our covenants that are described below, including any addition of a covenant or other provision providing event risk or similar protection. We may issue Indenture Securities with terms different from those of Indenture Securities already issued and, 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, are payable in or are denominated in one or more foreign Currencies, we will specify applicable restrictions, elections, tax consequences, specific terms and other information with respect to that series of Debt Securities and such Currency or Currencies 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 provisions different from those included in the Indentures or 7 10 applicable to one or more issues of Debt Securities, 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 and 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 Original Issue Discount Securities. ADDITIONAL MECHANICS Form, Exchange and Transfer We may issue Debt Securities as follows: - As Registered Securities. - As Bearer Securities (unless otherwise stated in the prospectus supplement with interest coupons attached). (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) - 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, and interest will not be payable in respect of the Registered Security issued in exchange for such Bearer Security, but will be payable only to the holder of such coupon when due in accordance with the terms of the applicable Indenture. Unless 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 the Securities are redeemable and we redeem less than all of the Securities of a particular 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 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 8 11 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, 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 them 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) 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. 9 12 - 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. - 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 (except in the payment of principal of (or premium, if any) or interest on the Debt Securities) if it considers its withholding of notice to be in the interest of the holders of that series. (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 TIA 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) - 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) - 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) 10 13 Holders of a majority in principal amount of the Debt Securities of the affected series may waive any past defaults other than (1) the payment of principal, any premium, interest or Additional Amounts on any Debt Security or related coupon or (2) 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 to the Trustee 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 Colombia. (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 (1) the mortgage, lien or other encumbrance could be created pursuant to Section 1009 of such Indenture (see "-- Senior Indenture Provisions -- Limitation on Liens" below) without equally and ratably securing the Indenture Securities or (2) 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) - 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 Indenture 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: - Change the Stated Maturity of the principal of or interest on a Debt Security. - Reduce any amounts due on a Debt Security. - Reduce the amount of principal payable upon acceleration of the Maturity of a Security following a default. 11 14 - Adversely affect any right of repayment at your option. - Change the place (except as otherwise described in this prospectus) or Currency of payment on a Debt Security. - Impair your right to sue for payment. - With respect to Debt Securities issued under the Subordinated Indenture, adversely affect the right to convert any Debt Securities as provided in Article 15 of the Subordinated Indenture. - Modify the subordination provisions in the Subordinated Indenture in a manner that is adverse to you as a holder of the Subordinated Securities. - Reduce the percentage of holders of Debt Securities whose consent is needed to modify or amend the Indenture. - Reduce 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. - Modify 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. - Change 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 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; 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. - 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 12 15 eligible to vote if they have been fully defeased as described later under "Defeasance -- Full 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 Indentures. 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 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 (or adjourned meeting duly reconvened) at which a quorum is present, except that any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action which the Indenture expressly provides may be made, given or 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 (or an adjourned meeting duly reconvened) at which a quorum is present by vote of the specified percentage of holders of the Outstanding Debt Securities of that series. 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 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 made, given or 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) 13 16 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 at Maturity. (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 18 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 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 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 18 of this prospectus. In order to achieve covenant defeasance, we must do the following: - 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 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. 14 17 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. - The Depositary's policies will govern payments, transfers, exchange 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. - The Depositary will usually require that interests in a Global Security be purchased or sold within its system using same-day funds. Management of the Depository Trust Company ("DTC") is aware that some computer applications, systems, and the like for processing data that are dependent upon calendar dates, including dates before, on, and after January 1, 2000, may encounter "Year 2000 problems." DTC has informed its participants and other members of the financial community that it has developed and is implementing a program so that its applications and systems, as the same relate to the timely payment of distributions (including principal and income payments) to securityholders, book-entry deliveries, and settlement of trades within DTC, continue to function appropriately. This program includes a technical assessment and a remediation plan, each of which DTC has indicated is complete. Additionally, DTC's plan includes a testing phase, which DTC expects to be completed within appropriate time frames. However, DTC's ability to perform properly its services is also dependent upon other parties, including but not limited to issuers and their agents, as well as DTC's direct and indirect participants and third party vendors to whom DTC licenses software and hardware, and third party vendors upon whom DTC relies for information or the provision of services, including telecommunication and electrical utility service providers, 15 18 among others. DTC has informed its participants and other members of the financial community that it is contacting (and will continue to contact) third party vendors from whom DTC acquires services to: (1) impress upon them the importance of such services being Year 2000 compliant; and (2) determine the extent of their efforts for Year 2000 remediation (and, as appropriate, testing) of their services. In addition, DTC is in the process of developing such contingency plans as it deems appropriate. According to DTC, the foregoing information with respect to DTC has been provided for informational purposes only and is not intended to serve as a representation, warranty, or contract modification of any kind. 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. - 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: (1) the sale or transfer of property is made within 120 days after the later of the date of (a) the acquisition of such property, (b) the completion of construction of such property, or (c) the commencement of full operation thereof; 16 19 (2) 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; (3) 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 (4) 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) 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: (1) 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 (2) 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: (1) 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 due in 12 months or less from the date as of which current liabilities are to be determined; (2) 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; (3) 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); 17 20 (4) 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 (5) 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: (1) 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; (2) 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 (3) 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 (1) the net proceeds of the sale or transfer of such manufacturing plant or (2) 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, in either case divided first by the number of full years of the term of the lease and then multiplied by the number of full years of such term remaining at the time of determination, without regard to renewal or extension options contained in such lease. (Section 1010 of the Senior Indenture) 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: (1) 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; 18 21 (2) any other indebtedness that constitutes purchase money indebtedness for payment of which we are directly or contingently liable (excluding trade accounts payable); (3) 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 (4) renewals, extensions and refundings of any indebtedness described in clauses (1), (2) and (3) 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. 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, 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. THE TRUSTEES UNDER THE INDENTURE The Chase Manhattan Bank, as successor by merger to Chemical Bank, is the Trustee under the Senior Indenture. We may appoint The Chase Manhattan Bank as trustee under the Subordinated Indenture. The Chase Manhattan Bank is among the banks with which we maintain ordinary banking relationships. The Chase Manhattan Bank, as successor by merger to Chemical Bank, also serves as trustee under other indentures under which the 6 1/2% Debentures due 2025 ("6 1/2% Debentures"), 7 5/8% Debentures due 2024 ("7 5/8% Debentures"), 8% Debentures due 2006 ("8% Debentures") and the 9% Notes of Eaton ETN Offshore Ltd. due 2001 ("9% Notes") are outstanding. In the event that a default occurs under either Indenture or under the indentures which govern the 6 1/2% Debentures, the 7 5/8% Debentures, the 8% Debentures or the 9% 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 TIA require that, if The Chase Manhattan Bank is Subordinated Trustee, it must resign as Trustee under either the Subordinated Indenture or each of the Senior Indenture, the 6 1/2% Debentures Indenture, the 7 5/8% Debentures Indenture, the 8% Debentures Indenture and the 9% Notes Indenture. In such circumstance, we expect that The Chase Manhattan Bank would resign as Trustee under the Subordinated Indenture. 19 22 CERTAIN CONSIDERATIONS RELATING TO FOREIGN CURRENCIES Debt Securities denominated or payable in foreign Currencies may entail significant risks. These risks include, without limitation, the possibility of significant fluctuations in the foreign currency markets, the imposition or modification of foreign exchange controls and potential illiquidity in the secondary market. These risks will vary depending upon the Currency or Currencies involved 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 ("Offered Debt Warrants"). 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 Obtain More Information" on page 2 of this prospectus for information on how to obtain a copy of the Debt Warrant Agreement. The following summary of the Debt Warrant Agreement is not complete and is subject to, 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: (1) The initial offering price; (2) The title and aggregate number of such Debt Warrants; (3) The designation, aggregate principal amount and other terms of the Senior Securities purchasable upon exercise of the Debt Warrants; (4) 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; (5) If applicable, the date on and after which the Debt Warrants and the related Debt Securities or Preferred Shares will be separately transferable; (6) 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; (7) The date on which the right to exercise the Debt Warrants will commence and the date (the "Debt Warrant Expiration Date") on which such right will expire; (8) 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; (9) The identity of the Debt Warrant Agent; (10) 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 (11) 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 20 23 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 such 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. - 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 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. 21 24 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: (1) the title and stated value of the Offered Preferred Shares, the liquidation preference per share and the number of shares offered; (2) the price at which we will issue the Offered Preferred Shares; (3) 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; (4) the period or periods within which, the price or prices at which, and the terms and conditions upon which the Offered Preferred Shares may be redeemed, in whole or in part, at our option, if we are to have that option; (5) 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; (6) any rights on the part of the holder to convert the Offered Preferred Shares into our Common Shares; (7) any additional dividend, liquidation, redemption, sinking fund, voting and other rights, preferences, privileges, limitations and restrictions; (8) the terms of any Debt Warrants that we will offer together with or separately from the Offered Preferred Shares; (9) the national securities exchanges, if any, upon which the Offered Preferred Shares will be listed; (10) the procedures for any auction or remarketing, if any, of the Offered Preferred Shares; and (11) 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." 22 25 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, for any dividend period or periods, we have not paid or declared and set apart for payment full cumulative dividends on any Preferred Shares or we are in default with respect to the redemption of Preferred Shares or any sinking fund for any Preferred Shares, we may not declare any dividends (except a dividend payable in Common Shares or in any of our other 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 out of our assets available for distribution to shareholders, before any distribution of assets is made to holders of Common Shares, liquidating distributions in the amount set forth in the applicable prospectus supplement plus all accrued and unpaid dividends. If, upon any voluntary or involuntary liquidation, dissolution or winding up of our company, the amounts payable with respect to the Preferred Shares and any of our other shares ranking as to any such distribution on a parity with the Preferred Shares are not paid in full, the holders of the Preferred Shares and of such other 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 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, and unless all of our matured obligations with respect to all sinking funds, retirement funds or purchase funds for all series of Preferred Shares then outstanding have been met. VOTING RIGHTS The holders of the Offered Preferred Shares are entitled to one vote per share on all matters presented to 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 23 26 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 (1) for any amendment of the Articles of Regulations that will adversely affect the preferences, rights or voting powers of the Preferred Shares, but, in any case in which one or more, but not all, series of Preferred Shares would be so affected as to their preferences, rights or voting powers, only the consent of holders of at least two-thirds of the shares of each series that would be so affected, voting separately as a class, will be required or (2) 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 ("Convertible Preferred Shares"), holders of such Convertible Preferred Shares will have the right, at their option and at any time, to convert any of such Convertible Preferred Shares, at the conversion rate set forth in the prospectus supplement relating to such Convertible Preferred Shares, subject to adjustment as specified below, provided that if such series of Convertible Preferred Shares is called for redemption, the conversion rights pertaining thereto will terminate at the close of business on the date before the redemption date. Unless we specify otherwise in the applicable prospectus supplement, the conversion rate is subject to adjustment in certain events, including the following: (1) the issuance of Common Shares or capital shares of any other class as a dividend or distribution on the Common Shares; (2) subdivisions and combinations of the Common Shares; (3) the issuance to all holders of Common Shares of certain rights or warrants entitling them to subscribe for or purchase Common Shares (or securities convertible into Common Shares) within the period specified in the prospectus supplement after the date fixed for the determination of the shareholders entitled to receive such rights or warrants, at less than the current market price (as defined in the Certificate of Designations for such series of Convertible Preferred Shares); and (4) the distribution to all holders of Common Shares of evidences of indebtedness or assets (excluding certain cash dividends and distributions described above) or rights or warrants (excluding those 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 24 27 any securities convertible into or exchangeable for Common Shares, or securities carrying the right to purchase any of the foregoing. In the case of: (1) any reclassification or change of the Common Shares, (2) a consolidation or merger involving our company, or (3) 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 such Convertible Preferred Shares into the kind and amount of shares and other securities or property which they would have received upon such reclassification, change, consolidation, merger, combination, sale or conveyance had such Convertible Preferred Shares been converted into Common Shares immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance. In the event of a taxable distribution to holders of Common Shares (or other transaction) which results in any adjustment of the conversion rate, the holders of Convertible Preferred Shares may, in certain circumstances, be deemed to have received a distribution subject to United States federal income tax as a dividend; in certain other circumstances, the absence of such an adjustment may result in a taxable dividend to the holders of Common Shares or the Convertible Preferred Shares. DESCRIPTION OF COMMON SHARES The following is a summary of the 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 have filed with the SEC. See "Where You Can Obtain 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. On March 1, 1999, there were 71,756,637 Common Shares issued and outstanding. 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 25 28 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, deferring 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 Participating Preferred Stock, without par value, at a purchase price (the "Purchase Price") of $250, subject to adjustment. In certain events (such as 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), 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. 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 First Chicago Trust Company of New York, as Rights Agent (the "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. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, which is hereby incorporated herein by reference. 26 29 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 pre-emptive or conversion rights and there are no redemption or sinking fund provisions applicable thereto. Our outstanding Common Shares are listed on the New York, Chicago, Pacific and London Stock Exchanges. The First Chicago Trust Company of New York 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. 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 (1) 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 (2) 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 (1) 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 27 30 corporation or (2) such person's purpose was not to increase any profit or decrease any loss in the stock and the proposal did not have a material effect on the market price or trading volume of the stock. Also, before the corporation may obtain any recovery, the aggregate amount of the profit realized by such person must exceed $250,000. Any shareholder may bring an action on behalf of the corporation if a corporation fails or refuses to bring an action to recover these profits within sixty (60) days of a written request. The party bringing such an action may recover his, her or its attorneys' fees if the court having jurisdiction over such action orders recovery of any profits. 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 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 (a) through agents; (b) to or through underwriters; or (c) 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, at a fixed public offering price or prices, which may be changed, or at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. In connection with the sale of 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 (the "Act"), 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 Act. We will indemnify the underwriters and agents against certain civil liabilities, including liabilities under the Act. 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 G. L. Gherlein, Executive Vice President and General Counsel, and for any underwriters, dealers or agents by Shearman & Sterling, 599 28 31 Lexington Avenue, New York, New York 10022. Mr. Gherlein is paid a salary by our company and participates in various employee benefit plans offered to officers of our company generally. 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, 1997, 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. 29 32 PART II. INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Filing Fee for Registration Statement....................... $ 389,200 Legal Fees and Expenses..................................... 200,000 Rating Agency Fees.......................................... 650,000 Blue Sky Fees and Expenses.................................. 5,000 Printing and Engraving Fees................................. 100,000 Accounting Fees and Expenses................................ 120,000 Trustee's and Depositary's Fees and Expenses................ 30,000 Miscellaneous Expenses...................................... 50,800 ---------- TOTAL.................................................. $1,545,000 ==========
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 or 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 that Eaton Corporation shall indemnify such directors or 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 This Registration Statement includes the following exhibits: *1(a) -- Form of Underwriting Agreement (or similar agreement) and Underwriting Agreement Basic Provisions. 4(a) -- Form of Senior Indenture between the Company and Chemical Bank filed as Exhibit 4(a) to Registration Statement No. 33-52333 and incorporated herein by reference.
II-1 33 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 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 and filed as Exhibit 3(i) to the Registrant's Current Report on Form 8-K dated May 19, 1994, File No. 1-1396, and incorporated herein by reference. 4(g) -- Amended Regulations, adopted on April 27, 1988 and filed as Exhibit 3 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 1-1396, and incorporated herein by reference. 4(h) -- Rights Agreement dated as of June 1, 1997. 5 -- Opinion of G. L. Gherlein, Executive Vice President and General Counsel, as to validity of the Securities. 12 -- Computation of Ratio of Earnings to Fixed Charges. 23(a) -- Consent of Ernst & Young LLP. 23(b) -- Consent of G. L. Gherlein, Executive Vice President and General Counsel, contained in his opinion filed as Exhibit 5 to this Registration Statement. 24 -- Power of Attorney. 25 -- Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Chase Manhattan Bank (as successor by merger to 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. 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 II-2 34 (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 an 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. * * * II-3 35 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 THE 12TH DAY OF MARCH, 1999. EATON CORPORATION By /s/ G. L. GHERLEIN G. L. Gherlein Executive Vice President and General Counsel 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; --------------------------------------- Principal Executive Officer; Director Stephen R. Hardis * President and Chief Operating Officer; --------------------------------------- Director Alexander M. Cutler * Executive Vice President -- Chief --------------------------------------- Financial and Planning Officer; Adrian T. Dillon Principal Financial Officer * Vice President and Controller; --------------------------------------- Principal Accounting Officer Billie K. Rawot * Director --------------------------------------- Neil A. Armstrong * Director --------------------------------------- Michael J. Critelli Director --------------------------------------- Phyllis B. Davis * Director --------------------------------------- Ernie Green * Director --------------------------------------- Ned C. Lautenbach * Director --------------------------------------- John R. Miller * Director --------------------------------------- Furman C. Moseley * Director --------------------------------------- Victor A. Pelson * Director --------------------------------------- A. William Reynolds * Director --------------------------------------- Gary L. Tooker
March 12, 1999 *By /s/ JANE W. GRISWOLD ------------------------------- Jane W. Griswold, Attorney-in-Fact for the officers and directors signing in the capacities indicated 36 EXHIBIT INDEX
EXHIBIT EXHIBIT NUMBER DESCRIPTION ------- ----------- *1(a) -- Form of Underwriting Agreement (or similar agreement) and Underwriting Agreement Basic Provisions. 4(a) -- Form of Senior Indenture between the Company and 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 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 and filed as Exhibit 3(i) to the Registrant's Current Report on Form 8-K dated May 19, 1994, File No. 1-1396, and incorporated herein by reference. 4(g) -- Amended Regulations, adopted on April 27, 1988 and filed as Exhibit 3 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 1-1396, and incorporated herein by reference. 4(h) -- Rights Agreement dated as of June 1, 1997. 5 -- Opinion of G. L. Gherlein, Executive Vice President and General Counsel, as to validity of the Securities. 12 -- Computation of Ratio of Earnings to Fixed Charges. 23(a) -- Consent of Ernst & Young LLP. 23(b) -- Consent of G. L. Gherlein, Executive Vice President and General Counsel, contained in his opinion filed as Exhibit 5 to this Registration Statement. 24 -- Power of Attorney. 25 -- Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Chase Manhattan Bank with respect to the Senior Indenture and Subordinated Indenture.
- --------------- * To be filed as an exhibit to a Current Report on Form 8-K. EX-4.H 2 EXHIBIT 4(H) 1 Exhibit 4(h) REFERENCE DOCUMENT NO. 3225 - -------------------------------------------------------------------------------- EATON CORPORATION and FIRST CHICAGO TRUST COMPANY OF NEW YORK Amended and Restated Rights Agreement Dated as of June 1, 1997 - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS Page ---- Section 1. Certain Definitions...................... 1 Section 2. Appointment of Rights Agent ............. 7 Section 3. Issue of Right Certificates ............. 7 Section 4. Form of Right Certificates .............. 11 Section 5. Countersignature and Registration ....... 12 Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates ........ 13 Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights .............. 14 Section 8. Cancellation and Destruction of Right Certificates ..................... 17 Section 9. Availability of Preferred Shares ........ 17 Section 10. Preferred Shares Record Date ............ 19 Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights ............. 20 Section 12. Certificate of Adjusted Purchase Price or Number of Shares 34 Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power ............. 35 Section 14. Fractional Rights and Fractional Shares.. 37 Section 15. Rights of Action ........................ 40 Section 16. Agreement of Right Holders .............. 40 Section 17. Right Certificate Holder Not Deemed a Stockholder ............................ 41 -i- 3 Section 18. Concerning the Rights Agent ........... 42 Section 19. Merger or Consolidation or Change of Name of Rights Agent ................. 43 Section 20. Rights and Duties of Rights Agent ..... 45 Section 21. Change of Rights Agent ................ 48 Section 22. Issuance of New Right Certificates .... 50 Section 23. Redemption ............................ 51 Section 24. Exchange .............................. 52 Section 25. Notice of Certain Events .............. 55 Section 26. Notices ............................... 57 Section 27. Supplements and Amendments ............ 58 Section 28. Successors ............................ 59 Section 29. Benefits of this Agreement ............ 59 Section 30. Severability .......................... 59 Section 31. Governing Law ......................... 60 Section 32. Counterparts .......................... 60 Section 33. Descriptive Headings .................. 60 Signatures ................................................ 61 Exhibit A - Form of Certificate of Amendment Exhibit B - Form of Right Certificate Exhibit C - Summary of Rights to Purchase Preferred Shares -ii 4 Agreement, dated as of June 1, 1997, between Eaton Corporation, an Ohio corporation (the "Company"), and First Chicago Trust Company of New York, a national banking association (the "Rights Agent"). The Board of Directors of the Company has authorized and declared a dividend of one preferred share purchase right (a "Right") for each Common Share (as hereinafter defined) of the Company outstanding on July 12, 1995 (the "Record Date"), each Right representing the right to purchase one one-hundredth of a Preferred Share (as hereinafter defined), upon the terms and subject to the conditions herein set forth, and has further authorized and directed the issuance of one Right with respect to each Common Share that shall become outstanding between the Record Date and the earliest of the Distribution Date, the Redemption Date and the Final Expiration Date (as such terms are hereinafter defined). Accordingly, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following terms have the meanings indicated: 5 (a) "Acquiring Person" shall mean any Person (as such term is hereinafter defined) who or which, together with all Affiliates and Associates (as such terms are hereinafter defined) of such Person, shall be the Beneficial Owner (as such term is hereinafter defined) of 20% or more of the Common Shares of the Company then outstanding, but shall not include the Company, any Subsidiary (as such term is hereinafter defined) of the Company, any employee benefit plan of the Company or any Subsidiary of the Company, or any entity holding Common Shares for or pursuant to the terms of any such plan. Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as the result of an acquisition of Common Shares by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 20% or more of the Common Shares of the Company then outstanding; PROVIDED, HOWEVER, that if a Person shall become the Beneficial Owner of 20% or more of the Common Shares of the Company then outstanding by reason of share purchases by the Company and shall, after such share purchases by the Company, become the Beneficial Owner of any additional Common Shares of the Company, then such Person shall be deemed to be an "Acquiring Person". Notwithstanding the foregoing, if the Board of Directors of the Company determines in good faith that a Person who would otherwise be an "Acquiring Person", as defined pursuant to the foregoing provisions of this paragraph (a), -2- 6 has become such inadvertently, and such Person divests as promptly as practicable a sufficient number of Common Shares so that such Person would no longer be an "Acquiring Person," as defined pursuant to the foregoing provisions of this paragraph (a), then such Person shall not be deemed to be or have ever been an "Acquiring Person" for any purposes of this Agreement. (b) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the date of this Agreement. (c) A Person shall be deemed the "Beneficial Owner" of and shall be deemed to "beneficially own" any securities: (i) which such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly; (ii) which such Person or any of such Person's Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling -3- 7 group members with respect to a bona fide public offering of securities), or upon the exercise of conversion rights, exchange rights, rights (other than these Rights), warrants or options, or otherwise; PROVIDED, HOWEVER, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (B) the right to vote pursuant to any agreement, arrangement or understanding; PROVIDED, HOWEVER, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations promulgated under the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding (other than -4- 8 customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to Section 1(c)(ii)(B)) or disposing of any securities of the Company. Notwithstanding anything in this definition of Beneficial Ownership to the contrary, the phrase "then outstanding," when used with reference to a Person's Beneficial Ownership of securities of the Company, shall mean the number of such securities then issued and outstanding together with the number of such securities not then actually issued and outstanding which such Person would be deemed to own beneficially hereunder. (d) "Business Day" shall mean any day other than a Saturday, a Sunday, or a day on which banking institutions in [Ohio] are authorized or obligated by law or executive order to close. (e) "Close of business" on any given date shall mean 5:00 P.M., Cleveland, Ohio time, on such date; PROVIDED, HOWEVER, that if such date is not a Business Day it shall mean 5:00 P.M., Cleveland, Ohio time, on the next succeeding Business Day. -5- 9 (f) "Common Shares" when used with reference to the Company shall mean the shares of common stock, par value $.50 per share, of the Company. "Common Shares" when used with reference to any Person other than the Company shall mean the capital stock (or equity interest) with the greatest voting power of such other Person or, if such other Person is a Subsidiary of another Person, the Person or Persons which ultimately control such first-mentioned Person. (g) "Distribution Date" shall have the meaning set forth in Section 3 hereof. (h) "Final Expiration Date" shall have the meaning set forth in Section 7 hereof. (i) "Person" shall mean any individual, firm, corporation or other entity, and shall include any successor (by merger or otherwise) of such entity. (j) "Preferred Shares" shall mean shares of Series A Participating Preferred Stock, without par value, of the Company having the rights and preferences set forth in the Form of Certificate of Amendment attached to this Agreement as Exhibit A. (k) "Redemption Date" shall have the meaning set forth in Section 7 hereof. -6- 10 (1) "Shares Acquisition Date" shall mean the first date of public announcement by the Company or an Acquiring Person that an Acquiring Person has become such. (m) "Subsidiary" of any Person shall mean any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by such Person. Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date also be the holders of the Common Shares) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-Rights Agents as it may deem necessary or desirable. Section 3. ISSUE OF RIGHT CERTIFICATES. (a) Until the earlier of (i) the tenth day after the Shares Acquisition Date or (ii) the tenth business day (or such later date as may be determined by action of the Board of Directors prior to such time as any Person becomes an Acquiring Person) after the date of the commencement by any Person (other than the Company, any subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company or any entity holding Common Shares for or pursuant to -7- 11 the terms of any such plan) of, or of the first public announcement of the intention of any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company or any entity holding Common Shares for or pursuant to the terms of any such plan) to commence, a tender or exchange offer the consummation of which would result in any Person becoming the Beneficial Owner of Common Shares aggregating 20% or more of the then outstanding Common Shares (including any such date which is after the date of this Agreement and prior to the issuance of the Rights; the earlier of such dates being herein referred to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of Section 3(b) hereof) by the certificates for Common Shares registered in the names of the holders thereof (which certificates shall also be deemed to be Right Certificates) and not by separate Right Certificates, and (y) the right to receive Right Certificates will be transferable only in connection with the transfer of Common Shares. As soon as practicable after the Distribution Date, the Company will prepare and execute, the Rights Agent will countersign, and the Company will send or cause to be sent (and the Rights Agent will, if requested, send) by first-class, insured, postage-prepaid mail, to each record holder of Common Shares as of the close of business on the Distribution Date, at the address of such -8- 12 holder shown on the records of the Company, a Right Certificate, in substantially the form of Exhibit B hereto (a "Right Certificate"), evidencing one Right for each Common Share so held. As of the Distribution Date, the Rights will be evidenced solely by such Right Certificates. The Company shall notify the Rights Agent in writing immediately upon the occurrence of the Distribution Date and, if such notification is given orally, the Company shall confirm same in writing on or prior to the Business Day next following. Until such notice is received by the Rights Agent, the Rights Agent may presume conclusively for all purposes that the Distribution Date has not occurred. (b) On the Record Date, or as soon as practicable thereafter, the Company will send a copy of a Summary of Rights to Purchase Preferred Shares, in substantially the form of Exhibit C hereto (the "Summary of Rights"), by first-class, postage-prepaid mail, to each record holder of Common Shares as of the close of business on the Record Date, at the address of such holder shown on the records of the Company. With respect to certificates for Common Shares outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by such certificates registered in the names of the holders thereof together with a copy of the Summary of Rights attached thereto. Until the Distribution Date (or the earlier of the Redemption Date or -9- 13 the Final Expiration Date), the surrender for transfer of any certificate for Common Shares outstanding on the Record Date, with or without a copy of the Summary of Rights attached thereto, shall also constitute the transfer of the Rights associated with the Common Shares represented thereby. (c) Certificates for Common Shares which become outstanding (including, without limitation, reacquired Common Shares referred to in the last sentence of this paragraph (c)) after the Record Date but prior to the earliest of the Distribution Date, the Redemption Date or the Final Expiration Date shall have impressed on, printed on, written on or otherwise affixed to them the following legend: This certificate also evidences and entitles the holder hereof to certain rights as set forth in an Amended and Restated Rights Agreement between Eaton Corporation and First Chicago Trust Company of New York, dated as of June 1, 1997 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of Eaton Corporation. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. Eaton Corporation will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances, as set forth in the Rights Agreement, Rights issued to any Person who becomes an Acquiring Person (as defined in the Rights Agreement) may become null and void. With respect to such certificates containing the foregoing legend, until the Distribution Date, the Rights associated with the Common Shares represented by such certificates shall be evidenced by such certificates alone, and the surrender -10- 14 for transfer of any such certificate shall also constitute the transfer of the Rights associated with the Common Shares represented thereby. In the event that the Company purchases or acquires any Common Shares after the Record Date but prior to the Distribution Date, any Rights associated with such Common Shares shall be deemed cancelled and retired so that the Company shall not be entitled to exercise any Rights associated with the Common Shares which are no longer outstanding. Section 4. FORM OF RIGHT CERTIFICATES. The Right Certificates (and the forms of election to purchase preferred Shares and of assignment to be printed on the reverse thereof) shall be substantially the same as Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Section 22 hereof, the Right Certificates shall entitle the holders thereof to purchase such number of one one-hundredths of a preferred Share as shall be set forth therein at the price per one one-hundredth of a preferred Share set forth therein (the "Purchase Price"), but the number of such -11- 15 one one-hundredths of a Preferred Share and the Purchase Price shall be subject to adjustment as provided herein. Section 5. COUNTERSIGNATURE AND REGISTRATION. The Right Certificates shall be executed on behalf of the Company by its Chairman of the Board, its Chief Executive Officer, its President, any of its Vice Presidents, or its Treasurer, either manually or by facsimile signature, shall have affixed thereto the Company's seal or a facsimile thereof, and shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The Right Certificates shall be manually countersigned by the Rights Agent and shall not be valid for any purpose unless countersigned. In case any officer of the Company who shall have signed any of the Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Right Certificates had not ceased to be such officer of the Company; and any Right Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Right Certificate, shall be a proper officer of the Company to sign such Right Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer. -12- 16 Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its principal office, books for registration and transfer of the Right Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each of the Right Certificates and the date of each of the Right Certificates. Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES. Subject to the provisions of Section 14 hereof, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the earlier of the Redemption Date or the Final Expiration Date, any Right Certificate or Right Certificates (other than Right Certificates representing Rights that have become void pursuant to Section 11(a)(ii) hereof or that have been exchanged pursuant to Section 24 hereof) may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates, entitling the registered holder to purchase a like number of one one-hundredths of a Preferred Share as the Right Certificate or Right Certificates surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate or Right Certificates shall -13- 17 make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the principal office of the Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Right Certificates. Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and, at the Company's request, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Right Certificate if mutilated, the Company will make and deliver a new Right Certificate of like tenor to the Rights Agent for delivery to the registered holder in lieu of the Right Certificate so lost, stolen, destroyed or mutilated. Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS. (a) The registered holder of any Right Certificate may exercise the Rights evidenced thereby -14- 18 (except as otherwise provided herein) in whole or in part at any time after the Distribution Date upon surrender of the Right Certificate, with the form of election to purchase on the reverse side thereof duly executed, to the Rights Agent at the principal office of the Rights Agent, together with payment of the Purchase Price for each one one-hundredth of a Preferred Share as to which the Rights are exercised, at or prior to the earliest of (i) the close of business on July 12, 2005 (.the "Final Expiration Date"), (ii) the time at which the Rights are redeemed as provided in Section 23 hereof (the "Redemption Date"), or (iii) the time at which such Rights are exchanged as provided in Section 24 hereof. (b) The Purchase Price for each one one-hundredth of a Preferred Share purchasable pursuant to the exercise of a Right shall initially be $250, and shall be subject to adjustment from time to time as provided in Section 11 or 13 hereof and shall be payable in lawful money of the United States of America in accordance with paragraph (c) below. (c) Upon receipt of a Right Certificate representing exercisable Rights, with the form of election to purchase duly executed, accompanied by payment of the Purchase Price for the shares to be purchased and an amount equal to any applicable transfer tax required to be paid by the holder of such Right Certificate in accordance with Section 9 hereof by certified check, cashier's check or money order payable to -15- 19 the order of the Company, the Rights Agent shall thereupon promptly (i) (A) requisition from any transfer agent of the Preferred Shares certificates for the number of Preferred Shares to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) requisition from the depositary agent depositary receipts representing such number of one one-hundredths of a Preferred Share as are to be purchased (in which case certificates for the Preferred Shares represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company hereby directs the depositary agent to comply with such request, (ii) when appropriate, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional shares in accordance with Section 14 hereof, (iii) after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder and (iv) when appropriate, after receipt, deliver such cash to or upon the order of the registered holder of such Right Certificate. (d) In case the registered holder of any Right Certificate shall exercise less than all the Rights evidenced thereby, a new Right Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the -16- 20 Rights Agent to the registered holder of such Right Certificate or to his duly authorized assigns, subject to the provisions of Section 14 hereof. Section 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All Right Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Rights Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Right Certificates to the Company, or shall, at the written request of the Company, destroy such cancelled Right Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. Section 9. AVAILABILITY OF PREFERRED SHARES. The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued -17- 21 Preferred Shares or any Preferred Shares held in its treasury, the number of Preferred Shares that will be sufficient to permit the exercise in full of all outstanding Rights in accordance with Section 7. The Company covenants and agrees that it will take all such action as may be necessary to ensure that all Preferred Shares delivered upon exercise of Rights shall, at the time of delivery of the certificates for such Preferred Shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable shares. The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Right Certificates or of any Preferred Shares upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Right Certificates to a person other than, or the issuance or delivery of certificates or depositary receipts for the Preferred Shares in a name other than that of, the registered holder of the Right Certificate evidencing Rights surrendered for exercise or to issue or to deliver any certificates or depositary receipts for Preferred Shares upon the exercise of any Rights until any such tax shall have been paid (any such tax being payable by the holder of such Right Certificate at the time of surrender) or until it has been established to -18- 22 the Company's reasonable satisfaction that no such tax is due. Section 10. PREFERRED SHARES RECORD DATE. Each person in whose name any certificate for Preferred Shares is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Preferred Shares represented thereby on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes) was made; PROVIDED, HOWEVER, that if the date of such surrender and payment is a date upon which the Preferred Shares transfer books of the Company are closed, such person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Shares transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Right Certificate shall not be entitled to any rights of a holder of Preferred Shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. -19- 23 Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER OF RIGHTS. The Purchase Price, the number of Preferred Shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a) (i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Preferred Shares payable in Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine the outstanding Preferred Shares into a smaller number of Preferred Shares or (D) issue any shares of its capital stock in a reclassification of the Preferred Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a), the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of capital stock issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive the aggregate number and kind of shares of capital stock which, if such Right had been exercised immediately prior to such date and at a time when the Preferred Shares transfer books -20- 24 of the Company were open, he would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification; PROVIDED, HOWEVER, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. (ii) Subject to Section 24 of this Agreement, in the event any Person becomes an Acquiring Person, each holder of a Right shall thereafter have a right to receive, upon exercise thereof at a price equal to the then current Purchase Price multiplied by the number of one one-hundredths of a Preferred Share for which a Right is then exercisable, in accordance with the terms of this Agreement and in lieu of Preferred Shares, such number of Common Shares of the Company as shall equal the result obtained by (x) multiplying the then current Purchase Price by the number of one one-hundredths of a Preferred Share for which a Right is then exercisable and dividing that product by (y) 50% of the then current per share market price of the Company's Common Shares (determined pursuant to Section 11(d) hereof) on the date of the occurrence of such event. In the event that any Person shall become an Acquiring Person and the Rights shall then be outstanding, the Company shall not take any action which would eliminate or diminish the benefits intended to be afforded by the Rights. -21- 25 From and after the occurrence of such event, any Rights that are or were acquired or beneficially owned by any Acquiring Person (or any Associate or Affiliate of such Acquiring Person) shall be void and any holder of such Rights shall thereafter have no right to exercise such Rights under any provision of this Agreement. No Right Certificate shall be issued pursuant to Section 3 that represents Rights beneficially owned by an Acquiring Person whose Rights would be void pursuant to the preceding sentence or any Associate or Affiliate thereof; no Right Certificate shall be issued at any time upon the transfer of any Rights to an Acquiring Person whose Rights would be void pursuant to the preceding sentence or any Associate or Affiliate thereof or to any nominee of such Acquiring Person, Associate or Affiliate; and any Right Certificate delivered to the Rights Agent for transfer to an Acquiring Person whose Rights would be void pursuant to the preceding sentence shall be cancelled. (iii) In the event that there shall not be sufficient Common Shares issued but not outstanding or authorized but unissued to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii), the Company shall take all such action as may be necessary to authorize additional Common Shares for issuance upon exercise of the Rights. In the event the Company shall, after good faith effort, be unable to take all such action as may be -22- 26 necessary to authorize such additional Common Shares, the Company shall substitute, for each Common Share that would otherwise be issuable upon exercise of a Right, a number of Preferred Shares or fraction thereof such that the current per share market price of one Preferred Share multiplied by such number or fraction is equal to the current per share market price of one Common Share as of the date of issuance of such Preferred Shares or fraction thereof. (b) In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Shares entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Preferred Shares (or shares having the same rights, privileges and preferences as the Preferred Shares ("equivalent preferred shares")) or securities convertible into Preferred Shares or equivalent preferred shares at a price per Preferred Share or equivalent preferred share (or having a conversion price per share, if a security convertible into Preferred Shares or equivalent preferred shares) less than the then current per share market price of the Preferred Shares (as defined in Section 11(d)) on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of preferred Shares outstanding on such record date plus the number of -23- 27 Preferred Shares which the aggregate offering price of the total number of Preferred Shares and/or equivalent preferred shares so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price and the denominator of which shall be the number of Preferred Shares outstanding on such record date plus the number of additional Preferred Shares and/or equivalent preferred shares to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible); PROVIDED, HOWEVER, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. Preferred Shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such rights, options or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase -24- 28 Price which would then be in effect if such record date had not been fixed. (c) In case the Company shall fix a record date for the making of a distribution to all holders of the Preferred Shares (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation) of evidences of indebtedness or assets (other than a regular quarterly cash dividend or a dividend payable in Preferred Shares) or subscription rights or warrants (excluding those referred to in Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the then current per share market price of the Preferred Shares on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to one Preferred Share and the denominator of which shall be such current per share market price of the Preferred Shares; PROVIDED, HOWEVER, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company to be issued upon exercise of -25- 29 one Right. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (d) (i) For the purpose of any computation hereunder, the "current per share market price" of any security (a "Security" for the purpose of this Section 11(d)(i)) on any date shall be deemed to be the average of the daily closing prices per share of such Security for the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; PROVIDED, HOWEVER, that in the event that the current per share market price of the Security is determined during a period following the announcement by the issuer of such Security of (A) a dividend or distribution on such Security payable in shares of such Security or securities convertible into such shares, or (B) any subdivision, combination or reclassification of such Security and prior to the expiration of 30 Trading Days after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the current per share market price shall be appropriately adjusted to reflect the current market price per share equivalent of such Security. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on -26- 30 such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Security is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Security is listed or admitted to trading or, if the Security is not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then in use, or, if on any such date the Security is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Security selected by the Board of Directors of the Company. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the Security is listed or admitted to trading is open for the transaction of business or, if the Security is not listed or admitted to trading on any national securities exchange, a Business Day. -27- 31 (ii) For the purpose of any computation hereunder, the "current per share market price" of the Preferred Shares shall be determined in accordance with the method set forth in Section 11(d)(i). If the Preferred Shares are not publicly traded, the "current per share market price" of the Preferred Shares shall be conclusively deemed to be the current per share market price of the Common Shares as determined pursuant to Section 11(d)(i) (appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof), multiplied by one hundred. If neither the Common Shares nor the Preferred Shares are publicly held or so listed or traded, "current per share market price" shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. (e) No adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Purchase Price; PROVIDED, HOWEVER, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest one one-millionth of a Preferred Share or one ten-thousandth of any other share or security as the case may be. Notwithstanding the first sentence of this -28- 32 Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three years from the date of the transaction which requires such adjustment or (ii) the date of the expiration of the right to exercise any Rights. (f) If as a result of an adjustment made pursuant to Section 11(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than Preferred Shares, thereafter the number of such other shares so receivable upon exercise of any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Shares contained in Section 11(a) through (c), inclusive, and the provisions of Sections 7, 9, 10 and 13 with respect to the Preferred Shares shall apply on like terms to any such other shares. (g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of one one-hundredths of a Preferred Share purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. -29- 33 (h) Unless the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Sections 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-hundredths of a Preferred Share (calculated to the nearest one one-millionth of a Preferred Share) obtained by (i) multiplying (x) the number of one one-hundredths of a share covered by a Right immediately prior to this adjustment by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in substitution for any adjustment in the number of one one-hundredths of a Preferred Share purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be exercisable for the number of one one-hundredths of a preferred Share for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one ten-thousandth) obtained by -30- 34 dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Right Certificates have been issued, shall be at least 10 days later than the date of the public announcement. If Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Right Certificates on such record date Right Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Right Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Right Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein and shall be registered in the names of -31- 35 the holders of record of Right Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the Purchase Price or the number of one one-hundredths of a Preferred Share issuable upon the exercise of the Rights, the Right Certificates theretofore and thereafter issued may continue to express the Purchase Price and the number of one one-hundredths of a Preferred Share which were expressed in the initial Right Certificates issued hereunder. (k) Before taking any action that would cause an adjustment reducing the Purchase Price below one one-hundredth of the then par value, if any, of the Preferred Shares issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable Preferred Shares at such adjusted Purchase Price. (1) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuing to the holder of any Right exercised after such record date of the Preferred Shares and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the Preferred Shares and other capital -32- 36 stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; PROVIDED, HOWEVER, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. (m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that it in its sole discretion shall determine to be advisable in order that any consolidation or subdivision of the preferred Shares, issuance wholly for cash of any Preferred Shares at less than the current market price, issuance wholly for cash of preferred Shares or securities which by their terms are convertible into or exchangeable for Preferred Shares, dividends on Preferred Shares payable in Preferred Shares or issuance of rights, options or warrants referred to hereinabove in Section 11(b), hereafter made by the Company to holders of its Preferred Shares shall not be taxable to such stockholders. (n) In the event that at any time after the date of this Agreement and prior to the Distribution Date, the Company shall (i) declare or pay any dividend on the Common -33- 37 Shares payable in Common Shares or (ii) effect a subdivision, combination or consolidation of the Common Shares (by reclassification or otherwise than by payment of dividends in Common Shares) into a greater or lesser number of Common Shares, then in any such case (A) the number of one one-hundredths of a Preferred Share purchasable after such event upon proper exercise of each Right shall be determined by multiplying the number of one one-hundredths of a Preferred Share so purchasable immediately prior to such event by a fraction, the numerator of which is the number of Common Shares outstanding immediately before such event and the denominator of which is the number of Common Shares outstanding immediately after such event, and (B) each Common Share outstanding immediately after such event shall have issued with respect to it that number of Rights which each Common Share outstanding immediately prior to such event had issued with respect to it. The adjustments provided for in this Section 11(n) shall be made successively whenever such a dividend is declared or paid or such a subdivision, combination or consolidation is effected. Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES. Whenever an adjustment is made as provided in Section 11 or 13 hereof, the Company shall promptly (a) prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) file with the Rights Agent and with each transfer -34- 38 agent for the Common Shares or the preferred Shares a copy of such certificate and (c) mail a brief summary thereof to each holder of a Right Certificate in accordance with Section 25 hereof. Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING POWER. In the event, directly or indirectly, at any time after a Person has become an Acquiring Person, (a) the Company shall consolidate with, or merge with and into, any other Person, (b) any Person shall consolidate with the Company, or merge with and into the Company and the Company shall be the continuing or surviving corporation of such merger and, in connection with such merger, all or part of the Common Shares shall be changed into or exchanged for stock or other securities of any other Person (or the Company) or cash or any other property, or (c) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one or more transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person other than the Company or one or more of its wholly-owned Subsidiaries, then, and in each such case, proper provision shall be made so that (i) each holder of a Right (except as otherwise provided herein) shall thereafter have the right to receive, upon the exercise thereof at a price equal to the then -35- 39 current Purchase Price multiplied by the number of one one-hundredths of a Preferred Share for which a Right is then exercisable, in accordance with the terms of this Agreement and in lieu of Preferred Shares, such number of Common Shares of such other Person (including the Company as successor thereto or as the surviving corporation) as shall equal the result obtained by (A) multiplying the then current Purchase Price by the number of one one-hundredths of a Preferred Share for which a Right is then exercisable and dividing that product by (B) 50% of the then current per share market price of the Common Shares of such other Person (determined pursuant to Section 11(d) hereof) on the date of consummation of such consolidation, merger, sale or transfer; (ii) the issuer of such Common Shares shall thereafter be liable for, and shall assume, by virtue of such consolidation, merger, sale or transfer, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be deemed to refer to such issuer; and (iv) such issuer shall take such steps (including, but not limited to, the reservation of a sufficient number of its Common Shares in accordance with Section 9 hereof) in connection with such consummation as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to the Common Shares thereafter deliverable upon the exercise of the Rights. The Company shall not consummate any such consolidation, merger, sale or -36- 40 transfer unless prior thereto the Company and such issuer shall have executed and delivered to the Rights Agent a supplemental agreement so providing. The Company shall not enter into any transaction of the kind referred to in this Section 13 if at the time of such transaction there are any rights, warrants, instruments or securities outstanding or any agreements or arrangements which, as a result of the consummation of such transaction, would eliminate or substantially diminish the benefits intended to be afforded by the Rights. The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers. Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES. (a) The Company shall not be required to issue fractions of Rights or to distribute Right Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Right Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For the purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place -37- 41 on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading or, if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights, the fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used. (b) The Company shall not be required to issue fractions of preferred Shares (other than fractions which are integral multiples of one one-hundredth of a preferred Share) upon exercise of the Rights or to distribute certificates -38- 42 which evidence fractional Preferred Shares (other than fractions which are integral multiples of one one-hundredth of a Preferred Share). Fractions of Preferred Shares in integral multiples of one one-hundredth of a Preferred Share may, at the election of the Company, be evidenced by depositary receipts, pursuant to an appropriate agreement between the Company and a depositary selected by it; PROVIDED, that such agreement shall provide that the holders of such depositary receipts shall have all the rights, privileges and preferences to which they are entitled as beneficial owners of the Preferred Shares represented by such depositary receipts. In lieu of fractional Preferred Shares that are not integral multiples of one one-hundredth of a Preferred Share, the Company shall pay to the registered holders of Right Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one Preferred Share. For the purposes of this Section 14(b), the current market value of a Preferred Share shall be the closing price of a Preferred Share (as determined pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of such exercise. (c) The holder of a Right by the acceptance of the Right expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right (except as provided above). -39- 43 Section 15. RIGHTS OF ACTION. All rights of action in respect of this Agreement, excepting the rights of action given to the Rights Agent under Section 18 hereof, are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of the Common Shares); and any registered holder of any Right Certificate (or, prior to the Distribution Date, of the Common Shares), without the consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution Date, of the Common Shares), may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Right Certificate in the manner provided in such Right Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against, actual or threatened violations of the obligations of any Person subject to, this Agreement. Section 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right, by accepting the same, consents and agrees -40- 44 with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of the Common Shares; (b) after the Distribution Date, the Right Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office of the Rights Agent, duly endorsed or accompanied by a proper instrument of transfer; and (c) the Company and the Rights Agent may deem and treat the person in whose name the Right Certificate (or, prior to the Distribution Date, the associated Common Shares certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right Certificates or the associated Common Shares certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary. Section 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No holder, as such, of any Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the Preferred Shares or any other -41- 45 securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 25 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Right Certificate shall have been exercised in accordance with the provisions hereof. Section 18. CONCERNING THE RIGHTS AGENT. The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense (including, without limitation, the reasonable expenses of legal counsel), incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with -42- 46 the acceptance and administration of its duties under this Agreement . The Rights Agent shall be protected and shall incur no liability for, or in respect of any action taken, suffered or omitted by it in connection with, its administration of this Agreement, in reliance upon any Right Certificate or certificate for the Preferred Shares or Common Shares or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper person or persons, or otherwise upon the advice of counsel as set forth in Section 20 hereof. Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT. Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the stock transfer business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; PROVIDED, that such corporation -43- 47 would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. In case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. -44- 48 Section 20. RIGHTS AND DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Right Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by any one of the Chairman of the Board, the Chief Executive Officer, the President, any Vice president, the Treasurer or the Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. -45- 49 (c) The Rights Agent shall be liable hereunder to the Company and any other Person only for its own negligence, bad faith or willful misconduct. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Right Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Right Certificate; nor shall it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to Section 11(a)(ii) hereof) or any adjustment in the terms of the Rights (including the manner, method or amount thereof) provided for in Section 3, 11, 13, 23 or 24, or the ascertaining of the existence of facts that would require any such change or adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after actual notice that such -46- 50 change or adjustment is required); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any Preferred Shares to be issued pursuant to this Agreement or any Right Certificate or as to whether any Preferred Shares will, when issued, be validly authorized and issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any one of the Chairman of the Board, the Chief Executive Officer, the president, any Vice President, the Secretary or the Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in accordance with instructions of any such officer or for any delay in acting while waiting for those instructions. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or -47- 51 deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days' notice in writing mailed to the Company and to each transfer agent of the Common Shares or Preferred Shares by registered or certified mail, and to the holders of the Right Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights -48- 52 Agent, as the case may be, and to each transfer agent of the Common Shares or Preferred Shares by registered or certified mail, and to the holders of the Right Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit his Right Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be a corporation organized and doing business under the laws of the United States or of the States of Ohio or New York (or of any other state of the United States so long as such corporation is authorized to do business as a banking institution in the States of Ohio or New York), in good standing, having an office in the States of Ohio or New York, which is authorized under such laws to exercise corporate trust or stock transfer powers and is subject to supervision or examination by federal or state authority and which has at the time of -49- 53 its appointment as Rights Agent a combined capital and surplus of at least $50 million. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Shares or Preferred Shares, and mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price and the number or -50- 54 kind or class of shares or other securities or property purchasable under the Right Certificates made in accordance with the provisions of this Agreement. Section 23. REDEMPTION. (a) The Board of Directors of the Company may, at its option, at any time prior to such time as any Person becomes an Acquiring Person, redeem all but not less than all the then outstanding Rights at a redemption price of $.01 per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price"). The redemption of the Rights by the Board of Directors may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. (b) Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights pursuant to paragraph (a) of this Section 23, and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. The Company shall promptly give public notice of any such redemption; PROVIDED, HOWEVER, that the failure to give, or any defect in, any such notice shall not affect the validity of such redemption. Within 10 days after -51- 55 such action of the Board of Directors ordering the redemption of the Rights, the Company shall mail a notice of redemption to all the holders of the then outstanding Rights at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Shares. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. Neither the Company nor any of its Affiliates or Associates may redeem, acquire or purchase for value any Rights at any time in any manner other than that specifically set forth in this Section 23 or in Section 24 hereof, and other than in connection with the purchase of Common Shares prior to the Distribution Date. Section 24. EXCHANGE. (a) The Board of Directors of the Company may, at its option, at any time after any Person becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to the provisions of Section 11 (a) (ii) hereof) for Common Shares at an exchange ratio of one Common Share per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such exchange ratio being hereinafter referred to as the "Exchange -52- 56 Ratio"). Notwithstanding the foregoing, the Board of Directors shall not be empowered to effect such exchange at any time after any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or any such Subsidiary, or any entity holding Common Shares for or pursuant to the terms of any such plan), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more of the Common Shares then outstanding. (b) Immediately upon the action of the Board of Directors of the Company ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24 and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive that number of Common Shares equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The Company shall promptly give public notice of any such exchange; PROVIDED, HOWEVER, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which -53- 57 the exchange of the Common Shares for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights which have become void pursuant to the provisions of Section 11(a) (ii) hereof) held by each holder of Rights. (c) In the event that there shall not be sufficient Common Shares issued but not outstanding or authorized but unissued to permit any exchange of Rights as contemplated in accordance with this Section 24, the Company shall take all such action as may be necessary to authorize additional Common Shares for issuance upon exchange of the Rights. In the event the Company shall, after good faith effort, be unable to take all such action as may be necessary to authorize such additional Common Shares, the Company shall substitute, for each Common Share that would otherwise be issuable upon exchange of a Right, a number of Preferred Shares or fraction thereof such that the current per share market price of one Preferred Share multiplied by such number or fraction is equal to the current per share market price of one Common Share as of the date of issuance of such Preferred Shares or fraction thereof. (d) The Company shall not be required to issue fractions of Common Shares or to distribute certificates which evidence fractional Common Shares. In lieu of such -54- 58 fractional Common Shares, the Company shall pay to the registered holders of the Right Certificates with regard to which such fractional Common Shares would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole Common Share. For the purposes of this paragraph (d), the current market value of a whole Common Share shall be the closing price of a Common Share (as determined pursuant to the second sentence of Section 11(d) (i) hereof) for the Trading Day immediately prior to the date of exchange pursuant to this Section 24. Section 25. NOTICE OF CERTAIN EVENTS. (a) In case the Company shall propose (i) to pay any dividend payable in stock of any class to the holders of its Preferred Shares or to make any other distribution to the holders of its Preferred Shares (other than a regular quarterly cash dividend), (ii) to offer to the holders of its Preferred Shares rights or warrants to subscribe for or to purchase any additional Preferred Shares or shares of stock of any class or any other securities, rights or options, (iii) to effect any reclassification of its Preferred Shares (other than a reclassification involving only the subdivision of outstanding Preferred Shares), (iv) to effect any consolidation or merger into or with, or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one or more transactions, of 50% or more -55- 59 of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the liquidation, dissolution or winding up of the Company, or (vi) to declare or pay any dividend on the Common Shares payable in Common Shares or to effect a subdivision, combination or consolidation of the Common Shares (by reclassification or otherwise than by payment of dividends in Common Shares), then, in each such case, the Company shall give to each holder of a Right Certificate, in accordance with Section 26 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, or distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the Common Shares and/or Preferred Shares, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least 10 days prior to the record date for determining holders of the Preferred Shares for purposes of such action, and in the case of any such other action, at least 10 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the Common Shares and/or Preferred Shares, whichever shall be the earlier. (b) In case the event set forth in Section 11 (a) (ii) hereof shall occur, then the Company shall as soon -56- 60 as practicable thereafter give to each holder of a Right Certificate, in accordance with Section 26 hereof, a notice of the occurrence of such event, which notice shall describe such event and the consequences of such event to holders of Rights under Section 11 (a) (ii) hereof. Section 26. NOTICES. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: Eaton Corporation Eaton Center Cleveland, Ohio 44114 Attention: Office of the Secretary Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: First Chicago Trust Company of New York 525 Washington Boulevard Suite 4660 Jersey City, New Jersey 07310 Attention: Tenders and Exchanges -57- 61 Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. Section 27. SUPPLEMENTS AND AMENDMENTS. The Company may from time to time supplement or amend this Agreement without the approval of any holders of Right Certificates in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, or to make any other provisions with respect to the Rights which the Company may deem necessary or desirable, any such supplement or amendment to be evidenced by a writing signed by the Company and the Rights Agent; PROVIDED, HOWEVER, that from and after such time as any Person becomes an Acquiring Person, this Agreement shall not be amended in any manner which would adversely affect the interests of the holders of Rights. Without limiting the foregoing, the Board of Directors of the Company may at any time prior to such time as any Person becomes an Acquiring Person amend this Agreement to lower the thresholds set forth in Sections 1(a) and 3(a) to not less than the greater of (i) the sum of .001% and the largest percentage of the outstanding Common Shares then known by the Company to be beneficially owned by any Person (other than -58- 62 the Company, any Subsidiary of the Company, any employee benefit plan of the Company or any Subsidiary of the Company, or any entity holding Common Shares for or pursuant to the terms of any such plan) and (ii) 10%. Section 28. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 29. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Shares) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the solec and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Shares) . Section 30. SEVERABILTY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. -59- 63 Section 31. GOVERNING LAW. This Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Ohio, except that Sections 18-21 hereof shall be deemed to be a contract made in accordance with the laws of the State of New York. For all purposes this Agreement and those sections hereof shall be governed by and construed in accordance with the laws of such States applicable to contracts to be made and performed entirely within such States. Section 32. COUNTERPARTS. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 33. DESCRIPTIVE HEADINGS. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. -60- 64 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and attested, all as of the day and year first above written. EATON CORPORATION Attest: By /s/ E.R. Franklin By /s/ R.E. Paimenter --------------------------------- --------------------------------- Title: Secretary Title: Vice President & Treasurer FIRST CHICAGO TRUST COMPANY Attest: OF NEW YORK as Rights Agent By /s/ George Dalt By /s/ [ILLEGIBLE] --------------------------------- --------------------------------- Title:Assistant Vice President Title: Assistant Vice President -61- 65 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and attested, all as of the day and year first above written. EATON CORPORATION Attest: By /s/ E.R. Franklin By /s/ J. M. Carmont - ----------------------- -------------------- Title: Secretary Title: Vice President and Treasurer Attest: SOCIETY NATIONAL BANK, as Rights Agent By /s/ Laura Thoms By /s/ B. William Bedy - ------------------------ ---------------------- Title: Assistant Vice President Title: Vice President -61- 66 Exhibit A --------- FORM of CERTIFICATE OF AMENDMENT by DIRECTORS of EATON CORPORATION ------------------------------------------------------ William E. Butler, Chairman of the Board and Chief Executive Officer, and Earl R. Franklin, Secretary of Eaton Corporation, an Ohio corporation for profit with its principal place of business at Cleveland, Ohio (hereinafter called the "Corporation"), hereby certify that at a meeting of the Board of Directors called and held on the 28th day of June, 1995 the following resolution was adopted pursuant to Section 1701.70(B)(1) of the Ohio General Corporation Law: RESOLVED, that pursuant to the authority vested in the Board of Directors (hereinafter called the "Board of Directors"or the "Board") in accordance with the provisions of the Ohio General Corporation Law, as amended, and by Article FOURTH of the Corporation's Amended Articles of Incorporation, such Article FOURTH is amended to add a new paragraph 9 to Division A providing for a series of Serial Preferred Shares, without par value, of the Corporation and that the designation and the authorized number of shares of, and the relative rights, preferences, and limitations of, such series are as follows: Series A Participating Preferred Stock: Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series A Participating Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A preferred Stock shall be 900,000. A-1 67 Section 2. DIVIDENDS AND DISTRIBUTIONS. (A) Subject to the rights of the holders of any shares of any class of preferred stock ranking prior and superior to the Series A preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock, par value $.50 per share (the "Common Stock"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the A-2 68 next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. VOTING RIGHTS. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Each share of Series A Preferred Stock shall entitle the holder thereof to 1 vote on all matters submitted to a vote of the stockholders of the Corporation. The holders of fractional Series A Preferred Stock shall not be entitled to any vote on any matter submitted to a vote of the shareholders of the Corporation. (B) Subject to the provisions of Paragraph 6 of Division A of this Article FOURTH, the holders of Serial Preferred Shares shall be entitled to elect two directors of the Corporation whenever dividends payable on any series of Serial Preferred Shares shall be in default as qualified therein. For purposes of the holders of Serial Preferred Shares exercising such right, the provisions of the Corporation's Code of Regulations and other provisions of law shall apply, as if the Serial Preferred Shares were the only class of shares of the Corporation outstanding. A-3 69 (C) Except as otherwise provided herein, in the Amended Articles of Incorporation of the Corporation, in any other Certificate of Amendment creating a series of Serial Preferred Shares or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (D) Except as set forth herein, in the Amended Articles of Incorporation of the Corporation, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. CERTAIN RESTRICTIONS. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or A-4 70 (iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued Serial Preferred Shares and may be reissued as part of a new series of Serial Preferred Shares subject to the conditions and restrictions on issuance set forth herein, in the Amended Articles of Incorporation, or in any other Certificate of Amendment creating a series of Serial Preferred Shares or any similar stock or as otherwise required by law. Section 6. LIQUIDATION, DISSOLUTION or WINDING UP. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or A-5 71 winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation. shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. NO REDEMPTION. The shares of Series A Preferred Stock shall not be redeemable. Section 9. RANK. The Series A preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, on a parity with any other series of Serial Preferred Shares and shall rank junior to any series of any other class of preferred stock of the Corporation which by its terms is senior to the Serial Preferred Shares. Section 10. AMENDMENT. Subject to the provisions of Article FOURTH of the Corporation's Amended Articles of A-6 72 Incorporation, the Amended Articles of Incorporation and the Code of Regulations of the Corporation shall not be amended, altered or repealed in any manner which would affect adversely the voting powers, rights or preferences of the holders of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class. IN WITNESS WHEREOF, this Certificate of Amendment is executed on behalf of the Corporation by its Chairman of the Board and Chief Executive Officer and attested by its Secretary this _____ day of ___________, 1995. --------------------------- Chairman of the Board and Chief Executive Officer Attest: - --------------------- Secretary A-7 73 Exhibit B --------- Form of Right Certificate Certificate No. R- _____ Rights NOT EXERCISABLE AFTER JULY 12, 2005 OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. Right Certificate EATON CORPORATION This certifies that _____________________, or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of June 28, 1995 (the "Rights Agreement"), between Eaton Corporation, an Ohio corporation (the "Company"), and Society National Bank (the "Rights Agent"), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M., Cleveland, Ohio time, on July 12, 2005 at the principal office of the Rights Agent, or at the office of its successor as Rights Agent, one one-hundredth of a fully paid non-assessable share of Series A Participating Preferred Stock, without par value (the "Preferred Shares"), of the Company, at a purchase price of $250 per one one-hundredth of a Preferred Share (the "Purchase Price"), upon presentation and surrender of this Right Certificate with the Form of Election to Purchase duly executed. The number of Rights evidenced by this Right Certificate (and the number of one one-hundredths of a Preferred Share which may be purchased upon exercise hereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of June 28, 1995, based on the Preferred Shares as constituted at such date. As provided in the Rights Agreement, the Purchase Price and the number of one one-hundredths of a Preferred Share which may be purchased upon the exercise of the Rights evidenced by this Right Certificate are subject to modification and adjustment upon the happening of certain events. This Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, B-1 74 which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates. Copies of the Rights Agreement are on file at the principal executive offices of the Company and the above-mentioned offices of the Rights Agent. This Right Certificate, with or without other Right Certificates, upon surrender at the principal office of the Rights Agent, may be exchanged for another Right Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of Preferred Shares as the Rights evidenced by the Right Certificate or Right Certificates surrendered shall have entitled such holder to purchase. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Right Certificate or Right Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate (i) may be redeemed by the Company at a redemption price of $.01 per Right or (ii) may be exchanged in whole or in part for Preferred Shares or shares of the Company's Common Stock, par value $.50 per share. No fractional preferred Shares will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions which are integral multiples of one one-hundredth of a Preferred Share, which may, at the election of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. No holder of this Right Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Preferred Shares or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the B-2 75 Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in the Rights Agreement. This Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of ____________, 199_. ATTEST: EATON CORPORATION _______________________ By _________________________ Countersigned: Society National Bank By________________________________ Authorized Signature B-3 76 Form of Reverse Side of Right Certificate FORM OF ASSIGNMENT ------------------ (To be executed by the registered holder if such holder desires to transfer the Right Certificate.) FOR VALUE RECEIVED ______________________________ hereby sells, assigns and transfers unto ____________________ - ------------------------------------------------------------------------------- (Please print name and address of transferee) - ------------------------------------------------------------------------------- this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ____________________ Attorney, to transfer the within Right Certificate on the books of the within-named Company, with full power of substitution. Dated: _______________________, 199 ----------------------------------------------- Signature Signature Guaranteed: Signatures must be guaranteed by a participant in the Securities Transfer Agent Medallion Program, the Stock Exchanges Medallion Program or the New York Stock Exchange, Inc. Medallion Signature Program. - ------------------------------------------------------------------------------- The undersigned hereby certifies that the Rights evidenced by this Right Certificate are not beneficially owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) . ----------------------------------------------- Signature - ------------------------------------------------------------------------------- B-4 77 Form of Reverse Side of Right Certificate -- continued FORM OF ELECTION TO PURCHASE ---------------------------- (To be executed if holder desires to exercise Rights represented by the Right Certificate.) To: EATON CORPORATION The undersigned hereby irrevocably elects to exercise ____________________________ Rights represented by this Right Certificate to purchase the Preferred Shares issuable upon the exercise of such Rights and requests that certificates for such Preferred Shares be issued in the name of: Please insert social security or other identifying number - -------------------------------------------------------------------------------- (Please print name and address) - -------------------------------------------------------------------------------- If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to: Please insert social security or other identifying number - -------------------------------------------------------------------------------- (Please print name and address) - -------------------------------------------------------------------------------- Dated: __________________, 199_ ----------------------------------------------- Signature B-5 78 Signature Guaranteed: Signatures must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. B-6 79 Form of Reverse Side of Right Certificate -- continued - ------------------------------------------------------------------------------- The undersigned hereby certifies that the Rights evidenced by this Right Certificate are not beneficially owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). --------------------------------------- Signature - ------------------------------------------------------------------------------- NOTICE ------ The signature in the Form of Assignment or Form of Election to purchase, as the case may be, must conform to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever. In the event the certification set forth above in the Form of Assignment or the Form of Election to Purchase, as the case may be, is not completed, the Company and the Rights Agent will deem the beneficial owner of the Rights evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) and such Assignment or Election to Purchase will not be honored. B-7 80 Exhibit C --------- SUMMARY OF RIGHTS TO PURCHASE PREFERRED SHARES Introduction - ------------ On June 28, 1995, the Board of Directors of Eaton Corporation (the "Company") declared a dividend of one preferred share purchase right (a "Right") for each outstanding common share, par value $.50 per share (the "Common Shares"), of the Company. The dividend is payable on July 12, 1995 (the "Record Date") to the shareholders of record on that date. The description and terms of the Rights are set forth in a Rights Agreement (the "Rights Agreement") between the Company and Society National Bank, as Rights Agent (the "Rights Agent") . The Rights contain important "flip-over" and "flip-in" features designed to protect the Company from unfair takeovers. Purchase Price - -------------- Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series A Participating preferred Stock, without par value (the "preferred Shares") , of the Company at a price of $250 per one one-hundredth of a Preferred Share (the "Purchase Price"), subject to adjustment. Flip-Over - --------- If the Company is acquired in a merger or other business combination or 50% or more of its consolidated assets or earning power are sold after a person or group has become an Acquiring Person (as defined below) , each holder of a Right will thereafter have the right to receive, upon exercise, that number of shares of common stock of the acquiring company which then will have a market value of two times the exercise price of the Right. Flip-In - ------- If any person or group of affiliated or associated persons becomes an Acquiring Person, each holder of a Right, other than Rights beneficially owned by the Acquiring Person (which will thereafter be void), will thereafter have 81 the right to receive upon exercise that number of Common Shares having a market value of two times the exercise price of the Right . Transfer and Detachment - ----------------------- Until the Distribution Date, the Rights will be evidenced, with respect to any of the Common Share certificates outstanding as of the Record Date, by such Common Share certificate with a copy of this Summary of Rights attached thereto. Until the Distribution Date (or earlier redemption or expiration of the Rights) , the Rights will be transferred with and only with the Common Shares, and transfer of those certificates will also constitute transfer of those Rights. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights ("Right Certificates") will be mailed to holders of record of the Common Shares as of the close of business on the Distribution Date and such separate Right Certificates alone will thereafter evidence the Rights. Distribution Date - ----------------- The "Distribution Date" is the earlier of: (i) 10 days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") have acquired beneficial ownership of 20% or more of the outstanding Common Shares; or (ii) 10 business days (or such later date as may be determined by action of the Board of Directors before any person or group becomes an Acquiring Person) following 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. Exercisability - -------------- The Rights are not exercisable until the Distribution Date. The Rights will expire on July 12, 2005 (the "Final Expiration Date") , unless the Final Expiration Date is extended or unless the Rights are earlier redeemed or exchanged by the Company, as described below. C-2 82 Adjustments - ----------- The Purchase Price, and the number of Preferred Shares or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution, in the event of: (i) a stock dividend on, or a subdivision, combi- nation or reclassification of, the Preferred Shares, (ii) the grant to holders of the Preferred Shares of certain rights to subscribe for or purchase Preferred Shares at a price, or securities convertible into Preferred Shares with a conversion price, less than the then-current market price of the Preferred Shares, or (iii) the distribution to holders of the Preferred Shares of evidences of indebtedness or assets (excluding regular periodic cash dividends paid out of earnings or retained earnings or dividends payable in Preferred Shares) or of subscription rights or warrants (other than those referred to above). The number of outstanding Rights is also subject to adjustment upon certain occurrences prior to the Distribution Date . With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such purchase Price. No fractional Preferred Shares will be issued (other than fractions which are integral multiples of one one-hundredth of a Preferred Share, which may, at the election of the Company, be evidenced by depositary receipts) and in lieu thereof, an adjustment in cash will be made based on the market price of the Preferred Shares on the last trading day prior to the date of exercise. Preferred Shares - ---------------- Preferred Shares purchasable upon exercise of the Rights will not be redeemable. Each Preferred Share will be entitled to a minimum preferential quarterly dividend payment of $1 per share but will be entitled to an aggregate dividend of 100 times the dividend declared per Common Share. In the event of liquidation, the holders of the Preferred Shares will be entitled to a minimum preferential liquidation payment of $100 per share but will be entitled to an aggregate payment of 100 times the payment made per Common Share. Each Preferred Share will have 1 vote, voting together with the C-3 83 Common Shares. Finally, in the event of any merger, consolidation or other transaction in which Common Shares are exchanged, each Preferred Share will be entitled to receive 100 times the amount received per Common Share. The dividend and liquidation rights and rights upon a merger, consolidation or other transaction are protected by customary antidilution provisions. The value of the one one-hundredth interest in a Preferred Share purchasable upon exercise of each Right should, because of the nature of the Preferred Shares' dividend and liquidation rights, approximate the value of one Common Share. Exchange - -------- At any time after any person or group becomes an Acquiring Person, and prior to the acquisition by that person or group of 50% or more of the outstanding Common Shares, the Board of Directors of the Company may exchange the Rights (other than Rights owned by the Acquiring Person, which will have become void), in whole or in part, at an exchange ratio of one Common Share, or one one-hundredth of a Preferred Share (or of a share of a class or series of the Company's preferred stock having equivalent rights, preferences and privileges), per Right (subject to adjustment). Redemption - ---------- At any time prior to any person or group becoming an Acquiring Person, the Board of Directors of the Company may redeem all the Rights at a price of $.01 per Right (the "Redemption Price") . The redemption may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. Immediately upon any redemption, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. Amendments - ---------- The terms of the Rights may be amended by the Board of Directors of the Company without the consent of the holders of the Rights, including an amendment to lower the 20% threshold described above to not less than the greater of (i) the sum of .001% and the largest percentage of the outstanding Common Shares then known to the Company to be beneficially owned by any person or group of affiliated or associated persons and (ii) 10%, except that after any person or C-4 84 group becomes an Acquiring Person no such amendment may adversely affect the interests of the holders of the Rights. Rights as Holders - ----------------- Until a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of the Company, including, without limitation, the right to vote or to receive dividends. Further Information - ------------------- A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated _______, 1995. A copy of the Rights Agreement is available free of charge from the Company's Shareholder Relations Department. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, which is hereby incorporated herein by reference. C-5 EX-5 3 EXHIBIT 5 1 Exhibit 5 [LETTERHEAD] March 12, 1999 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 $1,400,000,000 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 The Chase Manhattan Bank (as successor to 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. 2 2 Based on the foregoing, and having regard for such legal considerations as I have deemed relevant, I am of the opinion that: 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. 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. 3 3 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. 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, Gerald L. Gherlein Executive Vice President and General Counsel EX-12 4 EXHIBIT 12 1 Exhibit 12 EATON CORPORATION RATIO OF EARNINGS TO FIXED CHARGES
Nine months ended Year ended December 31 Sept. 30, ---------------------------------------------------------- (Millions of dollars) 1998 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- ---- Income before income taxes & extraordinary item $395 $668 $485 $592 $488 $262 Adjustments Minority interests in consolidated subsidiaries (1) 1 1 0 (2) (3) Income of equity investees 3 (7) (14) (9) (3) (3) Amortization of capitalized interest 5 8 8 7 6 5 Distributed income of equity investees 2 4 5 5 3 2 Interest expensed 70 86 85 86 83 65 Amortization of debt issue costs 0 1 1 0 0 0 Estimated portion of rent expense representing interest 23 26 24 22 22 14 ------------------------------------------------------------------- Adjusted income before income taxes $497 $787 $595 $703 $597 $342 =================================================================== Fixed charges Interest expensed $70 $86 $85 $86 $83 $65 Interest capitalized 11 12 8 10 10 12 Amortization of debt issue costs 0 1 1 0 0 0 Estimated portion of rent expense representing interest 23 26 24 22 22 14 ------------------------------------------------------------------- Total fixed charges $104 $125 $118 $118 $115 $91 =================================================================== Ratio of earnings to fixed charges 4.78 6.30 5.04 5.96 5.19 3.76
EX-23.A 5 EXHIBIT 23(A) 1 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 $1,400,000,000 of debt and equity securities, and to the incorporation by reference therein of our report dated January 19, 1998, with respect to the consolidated financial statements of Eaton Corporation included in its Annual Report (Form 10-K) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. ERNST & YOUNG LLP Cleveland, Ohio March 10, 1999 EX-24 6 EXHIBIT 24 1 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That each person whose name is signed hereto has made, constituted and appointed, and does hereby make, constitute and appoint, GERALD L. GHERLEIN, EARL R. FRANKLIN, MARK HENNESSEY, DAVID M. O'LOUGHLIN OR JANE W. GRISWOLD his or her true and lawful attorney, for him or her and in his or her name, place and stead to affix, as attorney-in-fact, his or her signature as director or officer or both, as the case may be, of Eaton Corporation, an Ohio corporation (the "Corporation"), to any and all registration statements and amendments filed with the Securities and Exchange Commission with respect to an aggregate amount of up to $1.5 billion of debt securities, warrants to purchase debt securities, preferred shares, common shares or any combination thereof, giving and granting unto each such attorney-in-fact full power and authority to do and perform every act and thing whatsoever necessary to be done in the premises, as fully as he or she might or could do if personally present, hereby ratifying and confirming all that each such attorney-in-fact shall lawfully do or cause to be done by virtue hereof. This Power of Attorney shall not apply to any registration statement or amendment filed after December 31, 1999. IN WITNESS WHEREOF, this Power of Attorney has been signed at Cleveland, Ohio, this 24th day of February, 1999. /s/ Stephen R. Hardis /s/ Alexander M. Cutler - --------------------------------- ----------------------------------- Stephen R. Hardis, Chairman Alexander M. Cutler, President and and Chief Operating Officer; Chief Executive Officer; Principal Executive Officer; Director Director /s/ Adrian T. Dillon /s/ Billie K. Rawot - --------------------------------- ----------------------------------- Adrian T. Dillon, Billie K. Rawot, Executive Vice President-- Vice President and Controller; Chief Financial and Principal Accounting Officer Planning Officer; Principal Financial Officer /s/ Neil A. Armstrong /s/ Michael J. Critelli - --------------------------------- ----------------------------------- Neil A. Armstrong, Director Michael J. Critelli, Director /s/ Ernie Green - --------------------------------- ----------------------------------- Phyllis B. Davis, Director Ernie Green, Director Page 1 of 2 Pages 2 /s/ Ned C. Lautenbach /s/ John R. Miller - --------------------------------- ----------------------------------- Ned C. Lautenbach, Director John R. Miller, Director /s/ Furman C. Moseley /s/ Victor A. Pelson - --------------------------------- ----------------------------------- Furman C. Moseley, Director Victor A. Pelson, Director /s/ A. William Reynolds /s/ Gary L. Tooker - --------------------------------- ----------------------------------- A. William Reynolds, Director Gary L. Tooker, Director Page 2 of 2 Pages EX-25 7 EXHIBIT 25 1 Exhibit 25 ---------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ------------------------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ------------------------------------------- CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________ ---------------------------------------- THE CHASE MANHATTAN 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.) EATON CENTER 1111 SUPERIOR AVENUE CLEVELAND, OH 44114-2584 (Address of principal executive offices) (Zip Code) -------------------------------------------------- DEBT SECURITIES (Title of the indenture securities) 2 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. 3 Item 16. List of Exhibits List below all exhibits filed as a part of this Statement of Eligibility. 1. A copy of the Articles of Association of the Trustee as now in effect, including the Organization Certificate and the Certificates of Amendment dated February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982, February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1 filed in connection with Registration Statement No. 333-06249, 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 July 14, 1996, in connection with the merger of Chemical Bank and The Chase Manhattan Bank (National Association), Chemical Bank, the surviving corporation, was renamed The Chase Manhattan 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. 333-06249, 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 July 14, 1996, in connection with the merger of Chemical Bank and The Chase Manhattan Bank (National Association), Chemical Bank, the surviving corporation, was renamed The Chase Manhattan 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, The Chase Manhattan 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 3rd day of March, 1999. THE CHASE MANHATTAN BANK By /s/ P. Kelly ----------------- /s/ P. Kelly Vice President - 3 - 4
Exhibit 7 to Form T-1 Bank Call Notice RESERVE DISTRICT NO. 2 CONSOLIDATED REPORT OF CONDITION OF The Chase Manhattan 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 September 30, 1998, 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 ..................................................... $ 11,951 Interest-bearing balances ............................................. 4,551 Securities: ............................................................... Held to maturity securities................................................. 1,740 Available for sale securities............................................... 48,537 Federal funds sold and securities purchased under agreements to resell .................................................. 29,730 Loans and lease financing receivables: Loans and leases, net of unearned income ....... $127,379 Less: Allowance for loan and lease losses ...... 2,719 Less: Allocated transfer risk reserve .......... 0 Loans and leases, net of unearned income, -------- allowance, and reserve ................................................. 124,660 Trading Assets .............................................................. 51,549 Premises and fixed assets (including capitalized leases)................................................................. 3,009 Other real estate owned ..................................................... 272 Investments in unconsolidated subsidiaries and associated companies.................................................... 300 Customers' liability to this bank on acceptances outstanding ............................................................ 1,329 Intangible assets ........................................................... 1,429 Other assets ................................................................ 13,563 TOTAL ASSETS ................................................................ $292,620 =========
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LIABILITIES Deposits In domestic offices ..................................... $98,760 Noninterest-bearing ..................................... $39,071 Interest-bearing ........................................ 59,689 In foreign offices, Edge and Agreement, ------ subsidiaries and IBF's .................................. 75,403 Noninterest-bearing ..................................... $ 3,877 Interest-bearing ........................................ 71,526 Federal funds purchased and securities sold under agree- ments to repurchase ........................................... 34,471 Demand notes issued to the U.S. Treasury ...................... 1,000 Trading liabilities ........................................... 41,589 Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases): With a remaining maturity of one year or less ...... 3,781 With a remaining maturity of more than one year through three years............................ 213 With a remaining maturity of more than three years.. 104 Bank's liability on acceptances executed and outstanding 1,329 Subordinated notes and debentures ............................ 5,408 Other liabilities ............................................ 12,041 TOTAL LIABILITIES ............................................ 274,099 ------- EQUITY CAPITAL Perpetual preferred stock and related surplus 0 Common stock ................................................. 1,211 Surplus (exclude all surplus related to preferred stock)... 10,441 Undivided profits and capital reserves ....................... 6,287 Net unrealized holding gains (losses) on available-for-sale securities ............................... 566 Cumulative foreign currency translation adjustments ......... 16 TOTAL EQUITY CAPITAL ......................................... 18,521 ------ TOTAL LIABILITIES AND EQUITY CAPITAL ......................... $292,620 ==========
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 instructions issued by the appropriate Federal regulatory authority and is true and correct. WALTER V. SHIPLEY ) THOMAS G. LABRECQUE ) DIRECTORS WILLIAM B. HARRISON, JR. ) -5- -----END PRIVACY-ENHANCED MESSAGE-----