-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, OdTjJmPINfJi/rKkFhEORezvV+oOeRl1w8GNWMXrczLMbe7fStLsnXspbZMNOIMP Wv0J/xgfbdXyzp8Wv3nX5w== 0000950152-95-001269.txt : 19950616 0000950152-95-001269.hdr.sgml : 19950616 ACCESSION NUMBER: 0000950152-95-001269 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19950615 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LUBRIZOL CORP CENTRAL INDEX KEY: 0000060751 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS CHEMICAL PRODUCTS [2890] IRS NUMBER: 340367600 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-68246 FILM NUMBER: 95547226 BUSINESS ADDRESS: STREET 1: 29400 LAKELAND BLVD CITY: WICKLIFFE STATE: OH ZIP: 44092 BUSINESS PHONE: 2169434200 MAIL ADDRESS: STREET 1: 29400 LAKELAND BLVD CITY: WICKLIFFE STATE: OH ZIP: 44092 424B3 1 THE LUBRIZOL CORP 424(B)(3) 1 This filing is made pursuant to Rule 424(b)(3) under the Securities Act of 1933 in connection with Registration No. 33-68246. INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THAT A FINAL PROSPECTUS SUPPLEMENT IS DELIVERED. THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS SUPPLEMENT (Subject to Completion, Issued June 15, 1995) (To Prospectus dated January 12, 1994) $100,000,000 The Lubrizol Corporation % DEBENTURES DUE 2025 ------------------------ Interest payable and ------------------------ THE DEBENTURES WILL NOT BE REDEEMABLE PRIOR TO MATURITY AND WILL NOT BE SUBJECT TO ANY SINKING FUND. THE DEBENTURES WILL BE REPRESENTED BY A REGISTERED GLOBAL SECURITY REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (THE "DEPOSITARY") OR ITS NOMINEE. BENEFICIAL INTERESTS IN THE REGISTERED GLOBAL SECURITY WILL BE SHOWN ON, AND TRANSFERS THEREOF WILL BE EFFECTED THROUGH, RECORDS MAINTAINED BY THE DEPOSITARY OR ITS PARTICIPANTS. EXCEPT AS DESCRIBED HEREIN, DEBENTURES IN DEFINITIVE FORM WILL NOT BE ISSUED. SEE "DESCRIPTION OF DEBENTURES." ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ PRICE % AND ACCRUED INTEREST ------------------------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3) ------------------- ------------------- ------------------- Per Debenture...................... % % % Total.............................. $ $ $ - --------------- (1) Plus accrued interest from , 1995. (2) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. (3) Before deducting expenses payable by the Company estimated at $ .
------------------------ The Debentures are offered, subject to prior sale, when, as and if accepted by the Underwriters and subject to approval of certain legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that delivery of the Debentures will be made on or about , 1995 through the book-entry facilities of the Depositary against payment therefor in immediately available funds. ------------------------ MORGAN STANLEY & CO. J.P. MORGAN SECURITIES INC. Incorporated June , 1995 2 NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY DEBENTURES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. TABLE OF CONTENTS PROSPECTUS SUPPLEMENT
PAGE ----- The Company........................................................................... S-3 Use of Proceeds....................................................................... S-3 Business.............................................................................. S-3 Capitalization........................................................................ S-5 Selected Financial Data............................................................... S-6 Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................................... S-7 Description of Debentures............................................................. S-15 Underwriters.......................................................................... S-16
PROSPECTUS Available Information................................................................. 2 Incorporation of Certain Information by Reference..................................... 2 The Company........................................................................... 3 Use of Proceeds....................................................................... 3 Ratio of Earnings to Fixed Charges.................................................... 3 Description of Debt Securities........................................................ 4 Plan of Distribution.................................................................. 10 Legal Matters......................................................................... 12 Experts............................................................................... 12
------------------ IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DEBENTURES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. S-2 3 THE COMPANY The Company began business as a compounder of special-purpose lubricants and in the early 1930's was among the first to commence research in the field of lubricant additives. Today, the Company is a full service supplier of performance chemicals to diverse markets worldwide. These specialty chemical products are created through the application of advanced chemical, mechanical and biological technologies to enhance the performance and quality of the customer products in which they are used. The Company develops, produces and sells specialty additive systems for gasoline and diesel engine lubricating oils, for automatic transmission fluids and for gear oils, and marine and tractor lubricants. The Company also supplies specialty products for industrial lubricants and functional fluids, fuel additives and diversified specialty chemical products. In addition, the Company sells specialty vegetable oils, primarily high oleic sunflower oil and safflower oil, and operates an oilseed crushing and refining facility. USE OF PROCEEDS The net proceeds received by the Company from the sale of the Debentures, estimated at $ million, will be used to repay outstanding commercial paper of various maturities and with interest rates ranging from 5.8% to 6.1%. As of June 13, 1995, the Company had approximately $130 million of outstanding commercial paper borrowings. BUSINESS The Company is a full service supplier of performance chemicals to diverse markets worldwide. The Company's principal products are additive systems for gasoline and diesel engine oils, automatic transmission fluids, gear oils, industrial fluids, metalworking compounds and fuels. Additives for engine oils accounted for 51% of consolidated revenues in 1994, 50% in 1993, and 48% in 1992. Additives for driveline oils accounted for 24%, 19% and 18% of consolidated revenues for these respective periods. Additives improve the lubricants and fuels used in cars, trucks, buses, off-highway equipment, marine engines and industrial applications. In lubricants, additives enable oil to withstand a broader range of temperatures, limit the buildup of sludge and varnish deposits, reduce wear, inhibit the formation of foam, rust and corrosion, and retard oxidation. In fuels, additives help maintain efficient operation of the fuel delivery system, help control deposits and corrosion, improve combustion and assist in preventing decomposition during storage. Due to the variety in the properties and applications of oils, a number of different chemicals are used to formulate the Company's products. Each additive combination is designed to fit the characteristics of the customer's base oil and the level of performance specified. Engine oils for passenger cars contain a combination of chemical additives which usually includes one or more detergents, dispersants, oxidation inhibitors and wear inhibitors, pour point depressants and viscosity improvers. Other chemical combinations are used in heavy duty engine oils for trucks and off-highway equipment and in formulations for gear oils, automatic transmission fluids, industrial oils, metalworking fluids, and gasoline, diesel and residual fuels. The Company utilizes a broad variety of chemical raw materials in the manufacture of its additives and uses oil in processing and blending additives. These materials are obtainable from several sources, and for the most part are derived from petroleum. The Company's additive customers consist primarily of oil refiners and independent oil blenders and are located in more than 100 countries. Approximately 60% of the Company's sales are made to customers outside of North America. The Company supplies its additive customers abroad from overseas manufacturing plants and through export from the United States. The Company owns three additive manufacturing plants in the United States; one located in the Cleveland, Ohio area, at Painesville, and two near Houston, Texas, at Deer Park and Bayport. Outside the United States, the Company owns additive manufacturing plants in Australia, Brazil, Canada, England, France (three locations), Japan, South Africa and Singapore. Additive manufacturing plants in India, Mexico, Saudi Arabia and Venezuela are owned and operated by joint venture companies licensed by the Company. S-3 4 The Company historically has emphasized research and has developed a large percentage of the additives it manufactures and sells. Technological developments in the design of engines and other automotive equipment, combined with rising demands for environmental protection and fuel economy, require increasingly sophisticated chemical additives to meet industry performance standards. These standards change periodically and the frequency of these performance upgrades compresses the time cycles for new product development and affects the Company's technical spending patterns. Research and development expenditures were $90.7 in 1994, $88.5 million in 1993 and $76.2 million for 1992. These amounts were equivalent to 5.7%, 5.8% and 5.3% of the respective revenues for such years. These amounts include expenditures for the performance evaluation of additive developments in engines and other types of mechanical equipment as well as expenditures for the development of specialty chemicals for industrial applications. In addition, $74.8 million, $83.0 million and $63.6 million was spent in 1994, 1993 and 1992, respectively, for technical service activities, principally for evaluation in mechanical equipment of specific lubricant formulations designed for the needs of petroleum industry customers throughout the world. In addition to its internal technical facilities, the Company makes extensive use of independent contract research firms and conducts extensive field testing through various arrangements with fleet operators and others. The Company's principal competitors, both in the United States and overseas, are four major petroleum companies and one chemical company. The petroleum companies produce lubricant and fuel additives for their own use, and also sell additives to others. These competing companies are also customers of the Company. Excluding viscosity improvers, management believes, based on volume sold, that the Company is the largest supplier to the petroleum industry of performance chemicals for lubricants. The Company owns certain United States patents relating to lubricant and fuel additives, lubricants, chemical compositions and processes, and protective coating materials and processes. It also owns similar patents in foreign countries. Although the Company believes that, in the aggregate, its patents constitute an important asset, it does not regard its business as being materially dependent upon any single patent or any group of related patents. The Company has filed claims against Exxon Corporation and its affiliates ("Exxon") alleging infringements by Exxon of certain of the Company's patents. These suits are pending in the United States and Canada, France and the United Kingdom, and are at various stages. The international suits allege infringement of patents that correspond to United States patents admitted as valid by Exxon in a settlement in 1988. In a suit in Canada, a determination of liability has been made by the courts against Exxon and in favor of the Company, has been upheld on appeal, and the case has been returned to the trial court for an assessment of damages. On October 4, 1994, the trial court judge awarded the Company $15 million (Canadian) in special penalty damages, plus attorneys' fees, against Imperial Oil, Exxon's Canadian affiliate, for disregarding an earlier injunction concerning infringement. The penalty damages, which remain subject to appeal, are in addition to compensation damages, as to which no date has been set for a determination. In another patent infringement suit, instituted by Exxon in the United States, liability and damages determinations (which are currently in the appeal process) have been made against the Company and in favor of Exxon. In 1993, the jury in that case awarded Exxon $48 million in damages. The trial court judge doubled the damages amount and awarded prejudgment interest, court costs and additional attorneys' fees to Exxon. The total amount of the judgment, including previously awarded attorneys' fees, is $129 million. The Company has obtained a bond to stay enforcement of the judgment pending the Company's appeal of both the liability findings and the award of damages. Based on the advice of counsel, management believes that the trial court judgment will not be upheld on appeal. S-4 5 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company as of March 31, 1995, and as adjusted to reflect the sale of the Debentures offered hereby and the application of the estimated proceeds (without giving effect to the underwriting discount and the Company's estimated offering expenses) to repay a portion of outstanding commercial paper borrowings.
MARCH 31, 1995 (UNAUDITED) -------------------------------------- ACTUAL ADJUSTMENTS AS ADJUSTED ------ ----------- ----------- (IN MILLIONS) Short-term debt (a) Commercial paper.................................. $ 64 $ (64) $ 0 Other............................................. 11 0 11 Long-term debt (a) Commercial paper reclassified..................... 57 (36) 21 Other............................................. 61 0 61 Debentures offered hereby.............................. -- 100 100 ------ ----------- ----------- Total debt........................................ 193 0 193 Shareholders' equity................................... 867 0 867 ------ ----------- ----------- Total capitalization.............................. $1,060 $ 0 $ 1,060 ====== =========== =========== - --------------- (a) At March 31, 1995, the Company had $121 million of outstanding commercial paper borrowings. The Company has $75 million in committed revolving credit facilities, which permit the Company to refinance beyond one year debt which by its terms is due within one year. Accordingly, at March 31, 1995, the Company had classified $57 million of commercial paper and $18 million of other debt as long-term that otherwise would be classified as short-term.
S-5 6 SELECTED FINANCIAL DATA The following table sets forth selected financial data relating to the Company. The data relating to each of the years in the five-year period ended December 31, 1994 is derived from the audited consolidated financial statements of the Company and its subsidiaries. The data should be read in conjunction with the consolidated financial statements and notes thereto of the Company incorporated by reference into the Prospectus.
THREE MONTHS ENDED MARCH 31, (UNAUDITED) YEAR ENDED DECEMBER 31, --------------- ------------------------------------------ 1995 1994 1994 1993 1992(a) 1991(a) 1990(a) ------ ------ ------ ------ ------ ------ ------ (IN MILLIONS, EXCEPT RATIOS) FROM THE STATEMENTS OF INCOME (FOR PERIOD INDICATED) Revenues............................... $ 417 $ 400 $1,599 $1,526 $1,552 $1,476 $1,453 Cost of sales.......................... 278 273 1,072 1,032 1,054 992 1,006 Selling and administrative expenses.... 41 39 159 158 181 173 158 Research, testing and development expenses............................. 41 40 166 172 155 144 124 Net income before accounting changes... 49 43 176 85(e) 125 124 190(f) Cumulative effect of accounting changes.............................. (39) Net income............................. 49 43 176 46 125 124 190 FROM THE BALANCE SHEETS (AT END OF PERIOD) Total assets........................... 1,491 1,301 1,394 1,183 1,127 1,172 1,115 Total debt............................. 193 103 168 70 48 68 67 Shareholders' equity................... 867 797 832 732 819 794 736 OTHER DATA Capital expenditures................... 55 34 161 128 96 82 77 Common share repurchases............... 16 19 68 67 23 13 89 Ratio of earnings to fixed charges (unaudited).......................... 25.2(b) 38.4(c) 36.8(d) 22.6(e) 36.9 20.1 38.8(f) - --------------- Notes to Selected Financial Data: (a) In December, 1992, the Company transferred substantially all of its Agribusiness segment, other than the specialty vegetable operations, to Mycogen Corporation and to a joint venture formed with Mycogen. Further information is contained in Notes 14 and 16 to the financial statements of the Company as incorporated by reference in the Company's Annual Report on Form 10-K for the year ended December 31, 1994. (b) Included in the three months ended March 31, 1995 is a $13.1 million gain on the sale of Genentech, Inc. stock held by the Company. Excluding the gain, the ratio would have been 20.6. (c) Included in the three months ended March 31, 1994 is a $11.5 million gain on the sale of Genentech, Inc. stock held by the Company. Excluding the gain, the ratio would have been 31.1. (d) Included in 1994 is a $41.2 million gain on the sale of Genentech, Inc. stock held by the Company. Excluding the gain, the ratio would have been 30.8. (e) Included in 1993 is (i) a special charge of $86.3 million related to manufacturing rationalization and organizational realignment initiatives, and (ii) a $42.2 million gain on the sale of Genentech, Inc. stock held by the Company. Excluding the special charge and the gain, the ratio would have been 29.6. (f) Included in 1990 is (i) a special charge of $9.7 million for the write-off of the assets in the Company's former agricultural business, and (ii) a $101.9 million gain on the sale of Genentech, Inc. stock held by the Company. Excluding the special charge and the gain, the ratio would have been 25.7.
S-6 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth below consists of the management's discussion and analysis contained or incorporated by reference in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 and the Company's Annual Report on Form 10-K for the year ended December 31, 1994. Such information is presented in this Prospectus Supplement for convenience of reference and has not been substantively updated since the date of each respective document. References in the following discussion to specific notes to the financial statements are references to notes contained in the identified Form 10-Q, as relates to the discussion for the three months ended March 31, 1995, and to notes incorporated by reference in the identified Form 10-K, as relates to the discussion for the annual periods. The Company is a full service supplier of performance chemicals to diverse markets worldwide. These specialty chemical products are created through the application of advanced chemical, mechanical and biological technologies to enhance the performance, quality and value of the products in which they are used. The Company develops, produces and sells specialty additive systems for gasoline and diesel engine lubricating oils, for automatic transmission fluids and for gear oils, and marine and tractor lubricants. The Company also supplies specialty products for industrial lubricants and functional fluids, fuel additives and diversified specialty chemical products. Prior to December 1, 1992, the Company had a separately reportable Agribusiness segment. That segment developed, produced and marketed planting seeds and specialty vegetable oils, and also conducted strategic biotechnology research and development. As described in Note 16 to the financial statements, the Company transferred substantially all of its Agribusiness segment, other than the specialty vegetable oil operations, to Mycogen Corporation and to a joint venture formed with Mycogen. The transferred assets are referred to in the following discussion as "Agrigenetics." The agribusiness assets and operations retained by the Company are not reportable as a separate industry segment after 1992. In 1993, the Company began initiatives to eliminate its separate business unit structure and realign activities into one combined organization, consolidate intermediate production activities, improve the timeliness of product development, simplify its product offerings and continued the restructuring of its agribusiness investments. As discussed in Note 17 to the financial statements, the Company recorded a special pretax charge of $86.3 million in the third quarter of 1993 primarily for the manufacturing rationalization and organizational realignment initiatives. When substantially complete in 1996, the number of intermediate production units will have been reduced by one-third, and the number of employees will have been reduced by approximately 5%. Through December 31, 1994, the Company has completed approximately one-half of the production unit reductions and two-thirds of the employee reductions. Approximately $22 million has been expended since the third quarter of 1993 implementing the initiatives, primarily for employee reductions. Future cash expenditures of $24 million are estimated to be necessary to complete implementation of the initiatives. These initiatives reduced the rate of increase in 1994 costs, as compared to historical trends, which resulted in estimated annual savings in 1994 of $20 to $25 million. These savings resulted from fewer employees, lower operating costs and reductions in the number of manufacturing units. When fully implemented, annual savings are expected to approximate $50 million of which $40 million will represent cash savings. THREE MONTHS ENDED MARCH 31, 1995 Results of Operations Revenue increased 4% in the first quarter of 1995 compared to the first quarter of 1994. Price increases implemented in the first quarter of 1995 and a more favorable product mix accounted for a 5% increase in revenues, and the impact of translating various international currencies into a weakened U.S. dollar accounted for a 2% increase in revenues. Overall volume in the first quarter of 1995 declined 3% as compared to the first quarter of 1994. Volume declined 8% internationally due to unusually high 1994 spot business in the Middle East that did not recur in 1995, but volume increased 5% in North America. Management expects volumes to increase during the remainder of 1995 and, for the year, to exceed 1994 levels. S-7 8 Gross profit (sales less cost of sales) increased $12.2 million to $137.4 million in the first quarter of 1995 compared to the same period in 1994. Gross profit as a percentage of sales, increased from 31.5% in the first quarter of 1994 to 33.1% in 1995. This improvement was a result of higher revenues more than offsetting an 8% increase in average material costs per metric ton and reflects the absence of the 1994 spot business to the Middle East which had a relatively low gross profit. The Company's organizational realignment initiatives, which began in 1993, have slowed the rate of increase in its cost and expenses. Selling and administrative expenses increased $1.9 million or 5% compared to the first quarter of 1994. Research, testing and development expenses (technology expenses) increased $1.1 million or 3% compared to the first quarter of 1994. The Company's manufacturing, technology and selling and administrative expenses increased a total of 4% over the first quarter of 1994. However, excluding the affects of currency, such expenses increased less than 2%. During the first quarter of 1995, the Company sold 278,200 shares of Genentech, Inc. common stock resulting in a pretax gain of $13.1 million which contributed 13 cents to earnings per share. This compares to a gain of $11.5 million pretax or 11 cents per share in the first quarter of 1994. Interest expense increased $1.2 million as a result of the higher average borrowings outstanding. The Company's financial position and results of operation are affected by the strengthening or weakening of the U.S. dollar against other currencies in which the Company transacts business. In the quarter ended March 31, 1995, the U.S. dollar weakened as compared to the exchange rates in effect at December 31, 1994 and during the first quarter of 1994. The weaker U.S. dollar resulted in the change in the accumulated translation adjustment amount, a component of shareholders' equity, and favorably impacted earnings per share in the first quarter of 1995 by 4 cents. Excluding gains on sale of Genentech common stock, net income was $40.6 million in the first quarter of 1995 compared to $35.8 million in the first quarter of 1994 and the related earnings per share amounts improved by 17% to 63 cents from 54 cents, respectively. Primarily as a result of selling price increases, a weaker U.S. dollar and a lower rate of spending, consolidated net income increased over the first quarter of 1994 by $5.8 million, or 13%, to $49.1 million resulting in earnings per share of 76 cents in the first quarter of 1995. Working Capital, Liquidity and Capital Resources Cash provided from operating activities during the first quarter of 1995 was $57.7 million, an increase of $30.2 million over the comparable prior year quarter. This increase was attributable to higher earnings, and changing working capital requirements, including an $11.8 million refund of 1994 estimated income tax payments. Total debt increased $25.5 million from the prior year end and, as a percent of capitalization (shareholders' equity plus short-term and long-term debt), was 18% at March 31, 1995 versus 17% at December 31, 1994. Borrowings, net of debt repayments, were $20.1 million during the first quarter of 1995 and were used to help finance capital expenditures and an acquisition. In addition, translating debt denominated in foreign currencies into U.S. dollars at March 31, 1995 contributed $5.4 million to the increase in debt. Capital expenditures were $55.3 million in the first quarter of 1995, up 13% over the fourth quarter of 1994 and 64% higher than the first quarter of 1994. These expenditures were primarily in the United States and France, of which 70% pertained to capital additions at manufacturing plants to enhance or maintain production capabilities, including maintaining facilities in compliance with environmental and safety regulations, and the remaining 30% was principally for construction of new administrative and technical facilities at the Company's headquarters. Capital expenditures for the 1995 year may exceed the amount spent in 1994 of $160.5 million as the Company continues with its capital spending program. At March 31, 1995, the Company acquired Engine Control Systems, Ltd., a Canadian company for $3.5 million. S-8 9 During the first quarter, the Company repurchased 462,000 of its common shares for $15.7 million. At March 31, 1995, there was authorization remaining to repurchase .5 million common shares. On April 24, 1995, the Company's board of directors authorized an additional 4.0 million shares to be repurchased. The Company intends to continue its share repurchase program during 1995. As a result of these activities, cash and short-term investments increased $4.5 million to $40.9 million at March 31, 1995. The Company's financial position continues to be strong with a ratio of current assets to current liabilities of 2.1 to 1 at March 31, 1995, and 2.5 to 1 at December 31, 1994. Management believes the Company's internally generated funds as well as its credit facilities and proceeds available from debt issuable under its shelf registration will be sufficient to meet its capital needs. Subsequent to March 31, 1995, the Company sold its remaining shares of Genentech common stock and realized proceeds of $26.5 million. The Company used the after-tax proceeds to repurchase its shares. As discussed in Note 4 to the financial statements, the Company is involved in patent litigation with Exxon Corporation in various countries. Determinations of liability against the Company in the U.S., which is subject to appeal, and against Exxon in Canada have been made by the courts. Management is unable to predict the eventual outcomes of this litigation and, therefore, the impact on future cash flows is not known. If Exxon prevails in the U.S., management believes the Company has sufficient financial resources to meet any resulting obligation and, other than a potential one-time charge against income, the litigation would not have a material adverse effect on future results of operations. 1994 RESULTS OF OPERATIONS In 1994, the Company achieved record revenues and results of operations. As discussed below, the primary factors contributing to 1994 results were higher average selling prices, lower research, testing and development expenses and better results from agribusiness investments. In 1994, consolidated revenues were $1.6 billion, an increase of $73.5 million or 5% from 1993. This increase was comprised of 4% higher average selling prices, including currency, and 1% volume increases. Average selling prices increased primarily as a result of price increases and new product introductions. The Company implemented price increases in the first quarter of 1994 to more fully recover the costs of product technology and the costs resulting from increased requirements of environmental, health and safety regulations at the Company's facilities. Higher performing products, which carry higher selling prices, were introduced late in 1993 to meet new passenger car motor oil standards in the U.S. markets. Gross profit (sales less cost of sales) increased 7% to $520.7 million in 1994 from $485.4 million in 1993. The improvement in gross profit was primarily attributable to the positive effects of implementing selling price increases, new product introductions and growth from business development activities. These improvements were partially offset by higher material costs in the second half of the year and higher manufacturing costs. Gross profit as a percentage of sales increased to 32.7% in 1994 from 32.0% in 1993. Raw material prices increased during the last half of 1994, and at year-end were approximately 7% higher than the prior year. Additionally, plant operating costs to comply with changing environmental, health and safety regulations have continued to increase. The Company was able to manage the near-term impact of the higher raw material costs through operating expense control. However, these higher material costs will impact future earnings if not recovered through higher prices; therefore, the Company is implementing worldwide price increases of 5% to 7% in the first quarter of 1995. Selling and administrative expenses increased less than 1% to $159.5 million in 1994. This increase is significantly lower than the Company's previous historical cost trend because of lower legal expenses and a decline in the number of employees as a result of early retirements related to the Company's realignment initiative. S-9 10 Research, testing and development expenses (technology expenses) decreased $6.1 million or 4% to $165.5 million in 1994. This decrease is primarily attributable to completion in early 1994 of testing required for passenger car motor oil specification upgrades, the decline in the number of employees resulting from realignment and increased efficiencies in the product development process. Primarily as a result of the above factors, consolidated revenues increased $38.8 million more than the increase in total costs and expenses in 1994. The Company continued its program of selling its investment in Genentech common stock. During 1994 and 1993, respectively, the Company sold 869,100 and 1,001,776 shares of Genentech common stock resulting in pretax gains of $41.2 million and $42.4 million. The net proceeds of these sales were used to repurchase common shares of the Company. Other income-net increased $6.8 million primarily due to improved equity earnings from the Company's investment in Mycogen, including its agribusiness joint venture, net of a gain on the sale of an agribusiness investment in 1993. The Company conducts a significant amount of its business and has a number of operating facilities in countries outside the United States. As a result, the Company is subject to business risks inherent in non-U.S. activities, including political uncertainty, import and export limitations, exchange controls and currency fluctuations. The Company believes risks related to its foreign operations are mitigated due to the political and economic stability of the countries in which its largest foreign operations are located. While changes in the dollar value of foreign currencies will affect earnings from time to time, the longer term economic effect of these changes should not be significant given the Company's net asset exposure, currency mix and pricing flexibility. Generally, the income statement effect of changes in the dollar value of foreign currencies is partially or wholly offset by the Company's ability to make corresponding price changes in local currency. The Company's consolidated net income will generally benefit as foreign currencies increase in value compared to the U.S. dollar and will generally decline as foreign currencies decrease in value. In 1994, there was not a significant net earnings effect due to foreign currency fluctuations. As a result of the above factors and a decrease in interest expense, consolidated income before taxes increased $131.8 million from 1993. Excluding the gain on the sales of Genentech stock and the 1993 special charge, income before taxes increased $46.7 million or 29% from 1993. The Company made donations of Genentech common stock during 1994 (see Note 7 to the financial statements) which reduced the Company's 1994 effective tax rate by 2%. This benefit is nonrecurring. The Company anticipates its 1995 effective tax rate will approximate 33%. Excluding gains on the sales of Genentech common stock and the 1993 special charge and accounting changes (discussed below), net income was $148.8 million in 1994 compared to $113.5 million in 1993, and the related earnings per share amounts improved by 35% to $2.26 in 1994 from $1.67 in 1993. Return on Average Shareholders' Equity Return on average shareholders' equity was 22% in 1994, 6% in 1993 and 15% in 1992. Excluding Genentech gains and the 1993 accounting changes and special charge, return on average shareholders' equity was 19% in 1994 and 14% in 1993. 1993 RESULTS OF OPERATIONS In 1993, consolidated revenues increased $61.9 million or 4% from 1992 after excluding $88.6 million of Agrigenetics revenue in 1992. Selling prices increased 4% as a result of price increases implemented in the fourth quarter of 1992 and the introduction late in 1993 of higher performing products to meet new passenger car motor oil standards in the U.S. market. Favorable product mix (including sales by Langer & Company acquired early in 1993) of 3% was offset by unfavorable currency effects of 2% and volume decreases of 1%. North American volume decreased 9% in 1993 from the record levels of volume in 1992 as a result of a decrease in market share. The revenue impact of this volume decrease was offset by an increase in sales of S-10 11 more profitable products. International volume increased 6% over 1992 and accounts for approximately 60% of revenues. Gross profit increased $30.4 million or 7% from $455.0 million in 1992 (excluding $35.3 million of Agrigenetics gross profit in 1992) primarily as a result of the higher average selling prices. Gross profit as a percentage of sales was 32.0% in 1993 compared to 31.2% (excluding Agrigenetics) in 1992. Excluding Agrigenetics expenses of $29.1 million in 1992, selling and administrative expenses increased $6.3 million or 4% in 1993 primarily because of the acquisition of Langer. Technology expenses increased $30.3 million or 21% in 1993 after excluding Agrigenetics expenses of $13.5 million from 1992. This increase was a result of higher testing costs associated with customer test programs to meet new industry performance standards for passenger car and diesel engine oils and automatic transmission fluids. These standards change periodically as engine and transmission designs are improved by the equipment manufacturers to meet new emissions, efficiency, durability and other performance factors. The frequency of these performance upgrades compressed the time cycles for new product development and resulted in an increase in the Company's technology expenses. As a result of the above factors and increased royalties, after excluding Agrigenetics from 1992, total cost and expenses increased $5.9 million more than revenues increased in 1993. During 1993, the Company recorded a special pretax charge of $86.3 million and pretax gains of $42.4 million on the sale of Genentech common stock as discussed above. Other income-net was $.5 million in 1993 compared to $11.9 million in 1992. Other income includes the Company's share of equity losses in Mycogen and the agribusiness joint venture. Mycogen recorded restructuring charges and incurred weather-related problems in the Midwest which adversely affected agribusiness results. The reduction in other income was attributable to increased equity losses of $18.3 million in Mycogen and the agribusiness joint venture, partially offset by increased gains on the sale of investments, excluding Genentech, of $6.7 million. The equity losses related to Mycogen and the agribusiness joint venture, net of preferred stock dividends and a gain on the sale of investment, were $4.1 million less in 1993 than the Agrigenetics operating loss and equity losses recorded in 1992. Interest income decreased $3.2 million due to lower average balances of cash and short-term investments. An increase in borrowings resulted in slightly higher interest expense in 1993. As discussed previously, the Company conducts a significant amount of its business outside of the United States and is therefore subject to risks including currency fluctuations. In 1993, European currencies weakened and the Japanese yen strengthened resulting in an insignificant net earnings effect. As a result of the above factors, income before income taxes decreased $57.5 million in 1993 compared to 1992. Net income in 1993, excluding the special charge, Genentech gain and the accounting changes discussed below, decreased 9% to $113.5 million or $1.67 per share, from $124.6 million or $1.81 per share in 1992. As described in Note 10 to the financial statements, effective January 1, 1993, the Company adopted SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The Company recorded the cumulative effect of this accounting change of $79.9 million before taxes ($51.5 million or $.76 per common share after taxes) in the first quarter of 1993. As a result of this accounting change, postretirement health care and life insurance costs increased $8.1 million ($.08 per share after taxes) in 1993. This expense is allocated among the various cost and expense categories in the consolidated statements of income. SFAS 106 has no effect on cash flows since the Company continues to pay claims as incurred. As described in Note 8 to the financial statements, effective January 1, 1993, the Company also adopted SFAS 109, "Accounting for Income Taxes." The cumulative effect of this accounting change reduced net deferred tax liabilities and increased net income in 1993 by $12.1 million or $.18 per share. The positive effect of adopting SFAS 109 was primarily attributable to more favorable treatment of the deferred income taxes on intercompany profit in inventory. SFAS 109 has no effect on cash flows. S-11 12 1992 RESULTS OF OPERATIONS Following is a discussion of the results of operations for 1992. The discussion is presented first on a summary consolidated basis and then on a historical business segment basis. In 1992, consolidated revenues increased $75.9 million or 5% compared to 1991 primarily as a result of record volume in the Specialty Chemicals segment. The increased revenues were partially offset by increased manufacturing costs in Specialty Chemicals, and higher specialty vegetable oil production costs, with the result that gross profit increased $14.7 million or 3%. Gross profit as a percentage of sales was 31.7% in 1992, compared to 32.4% in 1991. Selling, administrative and technology expenses increased $19.7 million or 6% (all in the Specialty Chemicals segment), more than offsetting the higher gross profit. As a result of these factors and reduced royalties, total cost and expenses increased $5.8 million more than revenues. Other income-net increased $2.4 million in 1992, primarily as a result of a gain on sales of investments of $6.5 million, partially offset by the Company's share of losses related to the agribusiness joint venture formed in December 1992, and expenses related to closing facilities in the mining chemicals market. Accordingly, combined segment income was $3.4 million lower in 1992 than in 1991. As explained in the segment discussions, this consisted of a $6.0 million increase in Specialty Chemicals and a $9.4 million decrease in Agribusiness. Net interest income increased $2.4 million primarily as a result of the repayment of debt early in the year. As a result of the above factors, income before income taxes was $1.0 million or 1% lower than 1991. However, due principally to increased tax benefits from foreign dividends, net income in 1992 increased $1.0 million or 1% over 1991. Specialty Chemicals Segment: In 1992, the Specialty Chemicals segment accounted for 92% of consolidated revenues. The segment's revenues increased $84.6 million or 6% in 1992 as a volume increase of 8% and favorable currency effects of 2% were partially offset by unfavorable product and geographic mix of 4%. Volume was at a record level for the year. North American volume was up 21% for the year as a result of market share gains and a comparatively weak first half of 1991. International volume was flat for the year. Average selling prices declined slightly during the first three quarters. In the fourth quarter, the Company announced price increases which increased revenues for part of the period. Gross profit increased $21.1 million or 5% compared to 1991. The increase in gross profit resulting from higher revenues was partially offset by higher manufacturing costs that primarily reflected the effects of higher volume, increased pension and health care costs and environmental costs. As a percentage of sales, gross profit decreased in 1992 to 31.6% from 32.1% in 1991. Selling and administrative expenses increased $7.7 million or 6% primarily due to higher international selling expenses and higher pension and health care costs. Technology expenses increased $12.1 million or 10% as a result of increased operating and staffing levels necessary to meet customer and product development needs relating to new performance standards for gasoline engine oil effective in July 1993, and diesel engine oils in 1994. In 1992, the U.S. dollar weakened against other currencies, resulting in a net favorable effect on the Company when international transactions were translated into U.S. dollars. The increase in gross profit was greater than the increase in expenses, and when combined with a $5.6 million increase in other income-net, Specialty Chemicals segment income was $6 million or 3% higher than in 1991. Agribusiness Segment: In 1992, Agribusiness revenues decreased $8.6 million or 7% as a result of lower specialty vegetable oil volume due to more competition in international markets and a fire at a customer's plant in Asia. Gross profit decreased $6.4 million or 14% as a result of the lower sales, costs associated with inventory market adjustments and higher storage costs, all of which related to specialty vegetable oil operations. Gross profit as a percent of sales decreased in 1992 to 33.1% compared to 35.9% in 1991. S-12 13 Selling, administrative and research expenses were approximately the same as 1991. Lower specialty vegetable oil selling expenses and lower research expenses offset costs associated with the Company's partnership with Mycogen. Agribusiness segment loss increased $9.4 million due to the lower gross profit and the Company's share of losses in Mycogen and the agribusiness joint venture. WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES The Company's cash flows for the years 1992 through 1994 are presented in the consolidated statements of cash flows. Cash provided from operating activities during 1994 was $156.8 million, a decrease of $5.7 million compared to 1993. Cash received from customers increased $69.0 million or 5% due to higher revenues. However, this increase was more than offset by amounts paid to suppliers and employees, including payments of $18 million for costs which had been accrued in the 1993 special charge, and higher income tax payments. Net cash outflows from investing activities were $117.2 million in 1994 compared to $106.8 million in 1993. Capital expenditures increased $32.7 million or 26% in 1994, of which one-half was attributable to increases at manufacturing facilities, and the balance was primarily due to improvements and additions at the Company's Wickliffe facilities. During 1993, the Company expended $40.3 million to acquire Langer and certain commercial and technology assets of Great Lakes Chemical, S.A. Cash proceeds from the sale of Genentech common stock were $43.6 million in 1994 compared to $44.5 million in 1993. In 1993, investment proceeds also included amounts aggregating $17.0 million from the sale and redemption of portions of the Company's agribusiness investments. Throughout 1994, the Company continued its share repurchase program. In 1994 and 1993, the net proceeds from the sale of Genentech common stock as well as cash generated from operations were used to repurchase common shares of the company. The Company repurchased 2,007,721, or 3%, of its common shares for $68.3 million during 1994 compared to the repurchase of 2,075,645 common shares for $67.1 million in 1993. At December 31, 1994, there was Board authorization remaining for the repurchase of 1,031,234 million common shares. As a result of the activities discussed above and the increase in debt discussed below, cash and short-term investments at December 31, 1994, increased by $12.2 million compared to December 31, 1993. As described in Note 3 to the financial statements, effective January 1, 1994, the Company adopted SFAS 115 "Accounting for Certain Investments in Debt and Equity Securities." SFAS 115 requires that certain of the Company's marketable equity securities, included in investments in consolidated companies, be reported at fair value rather than historical cost. The effect at December 31, 1994, of adopting SFAS 115 was to increase investments in nonconsolidated companies by $35.6 million, increase shareholders' equity by $23.2 million and increase deferred tax liabilities by $12.4 million. SFAS 115 had no effect on 1994 net income or cash flows. The Company held 830,900 shares of Genentech common stock as of December 31, 1994. The Company has continued to sell Genentech stock during the first quarter of 1995 and expects to sell its remaining shares throughout 1995. The Company's financial position continues to be strong. The ratio of current assets to current liabilities was 2.5:1 at both December 31, 1994 and 1993. The level of capital spending and the continuation of the Company's share repurchase program were principal factors in the Company incurring net borrowings of $92.7 million in 1994. Total debt as a percent of capitalization (shareholders' equity plus short-term and long-term debt) increased to 17% at the end of 1994 compared to 9% at the end of 1993. The Company anticipates that, during 1995, its capital expenditures, primarily for manufacturing, technical and administrative support, and its share repurchase program will continue at approximately the same levels as 1994. Total debt is therefore expected to continue at or above the December 31, 1994 levels throughout 1995. The Company's strategy of using additional debt to finance capital requirements reflects management's continuing efforts to enhance shareholder value. S-13 14 At December 31, 1994, the Company had unused revolving credit agreements and other credit lines aggregating $95 million. As described in Note 4 to the financial statements, the Company has the ability to refinance on a long-term basis $56.6 million of outstanding commercial paper under its revolving credit agreements. Management believes the Company's internally generated funds as well as its credit facilities and shelf registration will be sufficient to meet its cash requirements. Implementation of the remaining special charge activities is estimated to involve future cash outlays aggregating $24 million, primarily in 1995 and 1996. Offsetting the cash outlays will be cash savings which are expected to grow to approximately $40 million annually after the plans are fully implemented. The impact of the special charge on the balance sheet at December 31, 1994, after recognition of deferred taxes, was to reduce working capital by $6.9 million, reduce noncurrent assets by $5.9 million and increase noncurrent liabilities by $13.5 million. The Company is involved in patent litigation with Exxon Corporation in various countries. Determinations of liability against the Company in the U.S., which is being heard on appeal, and against Exxon in Canada have been made by the courts. Management is unable to predict the eventual outcomes of this litigation and, therefore, their impact on future cash flows is not known. If Exxon prevails in the U.S. case, management believes the Company has sufficient financial resources to meet any resulting obligation and, other than a potential one-time charge against income, the litigation would not have a material adverse effect on future results of operations. Refer to Note 18 for further information regarding this litigation. S-14 15 DESCRIPTION OF DEBENTURES The following description of the particular terms of the Debentures offered hereby supplements and, to the extent inconsistent therewith, replaces the description of the general terms and provisions of Debt Securities set forth in the accompanying Prospectus, to which description reference is hereby made. The Debentures will be issued under an Indenture dated as of , 1995 between the Company and The First National Bank of Chicago. The Debentures will be limited to $100,000,000 aggregate principal amount and will be unsecured, senior obligations of the Company. The Debentures will mature on , 2025. The Debentures will not be redeemable prior to maturity and will not be entitled to the benefit of any sinking fund. The Debentures will bear interest from , 1995 at the rate of % per annum, payable semi-annually on and of each year, commencing on , 199 . Interest on the Debentures will be payable to the persons in whose names the Debentures are registered at the close of business on the preceding and , respectively. The Debentures will be issued in the form of and be represented by a fully registered global security (a "Registered Global Security") registered in the name of the Depositary or its nominee. The Depositary or nominee will credit, on its book entry registration and transfer system, participant accounts with the respective principal amounts of Debentures that are beneficially owned by such participants and represented by the Registered Global Security. A description of the depositary arrangements generally applicable to the Debentures is set forth in the Prospectus under the caption "Description of Debt Securities -- Registered Global Securities." The Debentures will not be issued in definitive form except in the circumstances described under such caption in the Prospectus. Settlement for the Debentures will be made by the Underwriters in immediately available or same-day funds. Secondary trading on long-term debentures of corporate issuers is generally settled in clearinghouse or next-day funds. In contrast, the Debentures will trade in the Depositary's Same-Day Funds Settlement System until maturity, and secondary market trading activity in the Debentures will therefore be required by the Depositary to settle in same-day funds. No assurance can be given as to the effect, if any, of settlement in same-day funds on trading activity in the Debentures. S-15 16 UNDERWRITERS Subject to the terms and conditions contained in an Underwriting Agreement dated the date hereof, the Company has agreed to sell to each of the Underwriters named below, severally, and each of the Underwriters has severally agreed to purchase, the respective principal amount of Debentures set forth below.
PRINCIPAL AMOUNT OF NAME DEBENTURES ---- ------------ Morgan Stanley & Co. Incorporated.............................................. $ J.P. Morgan Securities Inc..................................................... ------------ Total................................................................ $100,000,000 ===========
Under the terms and conditions of the Underwriting Agreement, the Underwriters are obligated to take and pay for all of the Debentures if any are taken. The Underwriters initially propose to offer the Debentures directly to the public at the public offering price set forth on the cover page of this Prospectus Supplement and to certain dealers at such price less a concession not in excess of % of the principal amount of the Debentures. The Underwriters may allow, and such dealers may reallow, a concession not in excess of % of the principal amount of the Debentures to certain other dealers. After the initial public offering, the public offering price and such concessions may be changed by the Underwriters. The Company does not intend to apply for listing of the Debentures on a national securities exchange. The Underwriters presently intend to make a market in the Debentures in the secondary trading market. However, the Underwriters are not obligated to make a market in the Debentures and any such market making may be discontinued at any time at the sole discretion of the Underwriters. No assurance can be given as to the liquidity of, or the trading markets for, the Debentures. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. The Underwriters and certain of their affiliates have from time to time performed various investment banking and commercial banking services for the Company and its subsidiaries, for which compensation has been received. S-16 17 PROSPECTUS The Lubrizol Corporation DEBT SECURITIES ------------------------ The Lubrizol Corporation (the "Company") may offer from time to time in one or more series its debt securities (the "Debt Securities") in amounts, at prices and on terms to be determined at the time of offering. The aggregate initial offering price of the Debt Securities to be offered will be limited to $100,000,000 (or the equivalent if Debt Securities are denominated in foreign currency or currency units) or, if Debt Securities are issued at an original issue discount, such greater amount as shall result in aggregate proceeds of $100,000,000 to the Company. The Debt Securities will be unsecured senior securities ranking pari passu with all other unsecured senior securities of the Company. The general terms and conditions of the Debt Securities are described under "Description of Debt Securities" in this Prospectus. The accompanying Prospectus Supplement sets forth the specific designation, aggregate principal amount, designated currency (or currency unit), purchase price, maturity, interest rate (or manner of calculation thereof), time of payment of interest (if any), and any other specific terms of the Debt Securities. The Prospectus Supplement also sets forth the name of and compensation to each underwriter, dealer or agent (if any) involved in the offer of the Debt Securities, the other terms and manner of the offer and distribution of the Debt Securities and the net proceeds to the Company from such offering. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Debt Securities may be offered to or through underwriters, dealers or agents designated from time to time, as set forth in the Prospectus Supplement, and may be offered to other purchasers directly by the Company. See "Plan of Distribution" for possible indemnification arrangements for underwriters, dealers and agents. ------------------------ MORGAN STANLEY & CO. Incorporated January 12, 1994 18 No dealer, salesman or any other person has been authorized to give any information or to make any representation other than those contained or incorporated by reference in this Prospectus and any accompanying Prospectus Supplement in connection with the offering described herein and therein, and, if given or made, such other information or representation must not be relied upon as having been authorized by the Company or by any underwriter, dealer or agent. Neither this Prospectus nor any Prospectus Supplement shall constitute an offer to sell or a solicitation of an offer to buy Debt Securities in any jurisdiction in which such offer or solicitation is not authorized, or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other information, including the documents incorporated by reference herein, can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's regional offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such material may also be inspected and copied at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005, on which Exchange the common shares of the Company are listed. The Company has filed a registration statement on Form S-3 (herein, together with all amendments and exhibits, the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the securities offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement, certain portions of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the Debt Securities, reference is made to the Registration Statement and the exhibits filed as a part thereof. Statements contained herein concerning any document filed as an exhibit are not necessarily complete and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement. Each such statement is qualified in its entirety by such reference. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The following documents filed by the Company (Commission File No. 1-5263) with the Commission are incorporated herein by reference: (a) the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992; (b) the Company's Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1993 (as amended by Form 10-Q/A filed on November 30, 1993), June 30, 1993 and September 30, 1993; and (c) the Company's Current Report on Form 8-K dated November 18, 1993, as amended. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the Debt Securities shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the date of filing such documents. Any statement contained herein, or in a document all or a portion of which is incorporated or deemed to be incorporated by reference herein, shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. 2 19 The Company will provide without charge to each person to whom a copy of this Prospectus has been delivered, upon written or oral request of such person, a copy of any or all of the documents incorporated herein by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference to such documents). Requests for such copies should be directed to The Lubrizol Corporation, 29400 Lakeland Boulevard, Wickliffe, Ohio 44092, Attention: Chief Financial Officer (telephone: 216/943-4200). THE COMPANY The Company is a full-service supplier of specialty chemicals to diverse markets worldwide. These specialty chemical products are created through the application of advanced chemical, mechanical and biological technologies to enhance the performance and quality of the customer products in which they are used. The Company is a leader in the worldwide markets of additive systems for oils used in gasoline and diesel engines, automatic transmission fluids, gear oils, and marine and tractor lubricants. The Company also develops and markets specialty products for industrial fluids, fuel additives and diversified specialty chemical products. The Company was incorporated under the laws of the State of Ohio in 1928. Its principal executive office is located at 29400 Lakeland Boulevard, Wickliffe, Ohio 44092 and its telephone number is (216) 943-4200. Unless the context otherwise requires, as used in this Prospectus, "Company" includes The Lubrizol Corporation and its consolidated subsidiaries. USE OF PROCEEDS Except as otherwise set forth in the applicable Prospectus Supplement, the Company intends to use the net proceeds from the sale of the Debt Securities for general corporate purposes, which may include potential acquisitions, capital expenditures, the repurchase by the Company of its common shares, additions to working capital and reduction of other indebtedness of the Company. Funds not required immediately for such purposes may be invested temporarily in short-term marketable securities. RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth the consolidated ratio of earnings to fixed charges for the Company for the periods indicated:
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ---------------------------------- 1993 1992 1991 1990 1989 1988 ------------- ---- ---- ---- ---- ---- Ratio of earnings to fixed charges (unaudited).............................. 13.6(1) 36.9 20.1 38.7(2) 26.5 30.3(2) - --------------- (1) Included in the nine months ended September 30, 1993 is (i) a special charge of $86.3 million in connection with manufacturing rationalization and organizational realignment initiatives, and (ii) a $20.1 million gain on the sale of Genentech, Inc. stock held by the Company. Excluding this special charge and gain, the ratio would have been 26.2. (2) Included in 1990 is a $101.9 million gain on the sale of Genentech, Inc. stock held by the Company and a $9.7 million special charge for the write-off of assets in the Company's former agricultural business. Included in 1988 is a patent litigation settlement of $81.2 million received by the Company, as well as a $31.2 million special charge for write-downs of investments in the venture development area and the discontinuance of certain agricultural biotechnology research programs. Excluding these items, the ratios for 1990 and 1988 would have been 25.7 and 22.2 respectively.
3 20 For the purposes of computing the ratio of earnings to fixed charges, "earnings" consist of income before income taxes and fixed charges (adjusted for capitalized interest), and after certain adjustments relating to earnings, losses and distributions of minority-owned affiliates. "Fixed charges" consist of interest on all indebtedness, including both amounts expensed and amounts capitalized. A statement setting forth the computation of the unaudited ratio of earnings to fixed charges is filed as an exhibit to the Registration Statement of which this Prospectus is a part. DESCRIPTION OF DEBT SECURITIES The Debt Securities are to be issued under an Indenture (the "Indenture") between the Company and The First National Bank of Chicago, as Trustee (the "Trustee"), a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. The following summaries of certain provisions of the Indenture do not purport to be complete and are subject to, and qualified in their entirety by reference to, the detailed provisions of the Indenture, including the definitions of certain terms contained in the Indenture and capitalized in this Prospectus. Wherever particular sections or defined terms of the Indenture are referred to in this Prospectus, such sections or defined terms are incorporated herein by reference. The following sets forth certain general terms and provisions of the Debt Securities offered hereby. The particular terms of the Debt Securities offered by any Prospectus Supplement (the "Offered Debt Securities") will be described in the Prospectus Supplement relating to such Offered Debt Securities (the "Applicable Prospectus Supplement"). As used under this caption, the term "Company" means The Lubrizol Corporation. GENERAL The Debt Securities offered hereby will be limited to $100 million (or the equivalent thereof in foreign currencies or currency units) aggregate principal amount or, if issued at an original issue discount, such greater amount as shall result in aggregate proceeds of $100 million to the Company. The Indenture does not limit the amount of Debt Securities that may be issued thereunder and provides that Debt Securities may be issued thereunder from time to time in one or more series as from time to time authorized by the Company. The Debt Securities will be unsecured senior obligations of the Company and will rank pari passu with other unsecured senior obligations of the Company. As of September 30, 1993, approximately $56.1 million of debt ($12.4 million of short-term and $43.7 million of long-term) would rank pari passu with the Debt Securities. The Applicable Prospectus Supplement will describe the following terms of the Offered Debt Securities: (1) the specific designation of the Offered Debt Securities; (2) any limit on the aggregate principal amount of the Offered Debt Securities; (3) the price or prices (generally expressed as a percentage of the aggregate principal amount thereof) at which the Offered Debt Securities will be issued; (4) the date or dates on which the principal of the Offered Debt Securities will be payable; (5) the rate or rates at which the Offered Debt Securities will bear interest, if any (or the method of calculating such rate or rates), the date or dates from which any such interest will accrue (or the method by which such date or dates will be determined), the date or dates on which any such interest will be payable and the record date or dates therefor; (6) the place or places where the principal of and any premium and interest on the Offered Debt Securities will be payable; (7) the period or periods within which, the price or prices at which and the terms and conditions upon which the Offered Debt Securities may be redeemed, in whole or in part, at the option of the Company; (8) the obligation, if any, of the Company to redeem, purchase or repay the Offered Debt Securities pursuant to any mandatory redemption, 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 Debt Securities shall be redeemed, purchased or repaid, in whole or in part, pursuant to such obligation; (9) the denominations in which the Offered Debt Securities will be issuable; (10) if other than the principal amount thereof, the portion of the principal amount of the Offered Debt Securities which shall be payable upon declaration of acceleration of the maturity thereof; (11) the currency, currencies or currency units in which payment of the principal of and any premium and interest on any Offered Debt Securities will be payable if other than the currency of the United States of America, and if the principal of or any premium or 4 21 interest on any Offered Debt Securities is to be payable, at the election of the Company or a holder thereof, in one or more currencies or currency units other than that or those in which such securities are stated to be payable, the currency, currencies or currency units in which payment of the principal of and any premium and interest on the Offered Debt Securities as to which such election is made will be payable, and the periods within which and the terms and conditions upon which such election is to be made; (12) whether the Offered Debt Securities will be issuable in registered form or unregistered form or both and, if Offered Debt Securities are issuable in unregistered form, any restrictions applicable to the exchange of one form for another and to the offer, sale and delivery of such Debt Securities; (13) the person to whom any interest on the Offered Debt Securities shall be payable, if other than the person in whose name such security is registered on the applicable record date; (14) whether the Offered Debt Securities are to be issued in the form of one or more Registered Global Securities as described under "Registered Global Securities" below and the identity of any Depositary with respect to such Debt Securities; and (15) any other terms of the Offered Debt Securities. (Section 2.3 of the Indenture.) Unless otherwise indicated in the Applicable Prospectus Supplement, the Debt Securities will be issued only in fully registered form without coupons in denominations of $1,000 or integral multiples thereof. The Debt Securities may be issued as Original Issue Discount Securities to be offered and sold at a substantial discount below their stated principal amount. Original Issue Discount Securities provide for an amount less than the principal amount thereof to be due and payable upon the declaration of acceleration of the maturity thereof pursuant to the terms of the Indenture. Federal income tax consequences and other special considerations applicable to any such Original Issue Discount Securities will be described in the Applicable Prospectus Supplement. Unless otherwise provided in the Applicable Prospectus Supplement, payments in respect of the Debt Securities will be made at the office or agency maintained by the Company for that purpose as designated by the Company from time to time, except that at the option of the Company, interest payments, if any, on Debt Securities in registered form may be made by wire transfer or by checks mailed to the holders of Debt Securities entitled thereto at their registered addresses. (Section 3.1 of the Indenture.) Unless otherwise indicated in an Applicable Prospectus Supplement, payment of any installment of interest on Debt Securities in registered form will be made to the person in whose name such Debt Security is registered at the close of business on the regular record date for such interest payment. (Section 2.7 of the Indenture.) Unless otherwise provided in the Applicable Prospectus Supplement, Debt Securities in registered form will be transferable or exchangeable at the agency maintained by the Company for such purpose as designated by the Company from time to time. (Section 2.8 of the Indenture.) Debt Securities may be transferred or exchanged without service charge, other than any tax or other governmental charge imposed in connection therewith. (Section 2.8 of the Indenture.) Payment in respect of Debt Securities in unregistered form will be made in the currency and in the manner designated in the Applicable Prospectus Supplement, subject to any applicable laws and regulations, including at such paying agencies outside the United States as the Company may appoint from time to time. The paying agents outside the United States initially appointed by the Company for a series of Debt Securities will be named in the Applicable Prospectus Supplement. Where Debt Securities of any series are issued in unregistered form, the special restrictions and considerations, including special offering restrictions and special Federal income tax considerations, applicable to any such Debt Securities and to payment on and transfer and exchange of such Debt Securities, will be described in the Applicable Prospectus Supplement. Unregistered Debt Securities will be transferable by delivery. (Section 2.8 of the Indenture.) REGISTERED GLOBAL SECURITIES The registered Debt Securities of a series may be issued in the form of one or more Registered Global Securities that will be deposited with and registered in the name of a Depositary or its nominee identified in the Applicable Prospectus Supplement. In such case, one or more Registered Global Securities will be issued in a denomination or aggregate denominations equal to the portion of the aggregate principal amount of outstanding registered Debt Securities of the series to be represented by such Registered Global Security or 5 22 Securities. Unless and until it is exchanged in whole or in part for Debt Securities in definitive registered form, a Registered Global Security may not be transferred except as a whole by the Depositary for such Registered Global Security to a nominee of such Depositary, or by such a nominee to such Depositary or to another nominee of such Depositary, or by such Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. (Section 2.8 of the Indenture.) The specific terms of the depositary arrangement with respect to any portion of a series of Debt Securities to be represented by a Registered Global Security will be described in the Applicable Prospectus Supplement. The Company anticipates that the following provisions will apply to all depositary arrangements. Ownership of beneficial interests in a Registered Global Security will be limited to persons that have accounts with the Depositary for such Registered Global Security ("participants") or persons holding interests through participants. Upon the issuance of a Registered Global Security, the Depositary for such Registered Global Security will credit, on its book-entry registration and transfer system, the participants' accounts with the respective principal amounts of the Debt Securities represented by such Registered Global Security beneficially owned by such participants. The accounts to be credited shall be designated by any dealers, underwriters or agents participating in the distribution of such Debt Securities. Ownership of beneficial interests in such Registered Global Security will be shown on, and the transfer of such ownership interests will be effected only through, records maintained by the Depositary for such Registered Global Security (with respect to interests of participants) and on the records of participants (with respect to interests of persons holding through participants). The laws of some states may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and such laws may impair the ability to own, transfer or pledge beneficial interests in Registered Global Securities. So long as the Depositary for a Registered Global Security, or its nominee, is the registered owner of such Registered Global Security, such Depositary or such nominee, as the case may be, will be considered the sole owner or holder of the Debt Securities represented by such Registered Global Security for all purposes under the Indenture. Except as set forth below, owners of beneficial interests in a Registered Global Security will not be entitled to have the Debt Securities represented by such Registered Global Security registered in their names, will not receive or be entitled to receive physical delivery of such Debt Securities in definitive form and will not be considered the owners or holders thereof under the Indenture. Accordingly, each person owning a beneficial interest in a Registered Global Security must rely on the procedures of the Depositary for such Registered Global Security and, if such person is not a participant, on the procedures of the participant through which such person owns its interests, to exercise any rights of a holder under the Indenture. The Company understands that under existing industry practices, if the Company requests any action of holders or if an owner of a beneficial interest in a Registered Global Security desires to give or take any action which a holder is entitled to give or take under the applicable Indenture, the Depositary for such Registered Global Security would authorize the participants holding the relevant beneficial interests to give or take such action, and such participants would authorize beneficial owners owning through such participants to give or take such action or would otherwise act upon the instructions of beneficial owners holding through them. Principal, premium, if any, and interest payments on Debt Securities represented by a Registered Global Security registered in the name of a Depositary or its nominee will be made to such Depositary or its nominee, as the case may be, as the registered owner of such Registered Global Security. None of the Company, the Trustee or any other agent of the Company or agent of the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in such Registered Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The Company expects that the Depositary for any Debt Securities represented by a Registered Global Security, upon receipt of any payment of principal, premium or interest in respect of such Registered Global Security, will immediately credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in such Registered Global Security as shown on the records of such Depositary. The Company also expects that payments by participants to owners of beneficial interests in such Registered Global Security held through such participants will be governed by standing customer instructions and 6 23 customary practices, as is now the case with the securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such participants. If the Depositary for any Debt Securities represented by a Registered Global Security is at any time unwilling or unable to continue as Depositary or ceases to be a clearing agency registered under the Exchange Act, and a successor Depositary registered as a clearing agency under the Exchange Act is not appointed by the Company within 90 days, the Company will issue such Debt Securities in definitive form in exchange for such Registered Global Security. In addition, the Company may at any time and in its sole discretion determine not to have any of the Debt Securities of a series represented by one or more Registered Global Securities and, in such event, will issue Debt Securities of such series in definitive form in exchange for all of the Registered Global Security or Securities representing such Debt Securities. Any Debt Securities issued in definitive form in exchange for a Registered Global Security will be registered in such name or names as the Depositary shall instruct the Trustee. It is expected that such instructions will be based upon directions received by the Depositary from participants with respect to ownership of beneficial interests in such Registered Global Security. CERTAIN COVENANTS OF THE COMPANY Negative Pledge. If the Company or any Restricted Subsidiary (as defined below) shall issue, assume, incur or guarantee any debt secured by a Mortgage on any Principal Manufacturing Property (as defined below) of the Company or any Restricted Subsidiary or on any shares of capital stock or debt of any Restricted Subsidiary, the Company will secure, or cause such Restricted Subsidiary to secure, the outstanding Debt Securities equally and ratably with such secured debt, unless after giving effect thereto the aggregate amount of all such secured debt together with all Attributable Debt (as defined below) of the Company and its Subsidiaries in respect of sale and leaseback transactions involving Principal Manufacturing Properties would not exceed 10% of the Consolidated Net Tangible Assets (as defined below) of the Company and its consolidated Subsidiaries. This restriction will not apply in the case of (a) the creation of Mortgages on any Principal Manufacturing Property acquired by the Company or a Restricted Subsidiary after the date of the Indenture to secure or provide for the payment of financing of all or any part of the purchase price thereof or construction of fixed improvements thereon (prior to, at the time of or within 120 days after the latest of the acquisition, completion of construction or commencement of commercial operation thereof), or existing Mortgages upon any Principal Manufacturing Property acquired by the Company or a Restricted Subsidiary (whether or not such Mortgages are assumed), provided the Mortgage shall not apply to any property theretofore owned by the Company or a Restricted Subsidiary, other than any theretofore unimproved real property; (b) the assumption of any Mortgages on any Principal Manufacturing Property of a corporation which is merged into or consolidated with the Company or a Restricted Subsidiary or substantially all of the assets of which are acquired by the Company or a Restricted Subsidiary; (c) Mortgages in favor of governmental bodies of the United States or any State thereof or any other country or any political subdivision thereof to secure partial, progress or advance payments pursuant to any contract or statute, or to secure any debt incurred or guaranteed for the purpose of financing all or any part of the cost of acquiring, constructing or improving the property subject to such Mortgages; (d) Mortgages on particular property (or any proceeds of the sale thereof) to secure all or any part of the cost of exploration, drilling, mining or development thereof intended to obtain or materially increase the production and sale or other disposition of oil, gas, coal, uranium, copper or other minerals therefrom, or any debt created, issued, assumed or guaranteed to provide funds for any or all such purposes; (e) Mortgages securing debt of a Restricted Subsidiary owing to the Company or another Restricted Subsidiary; and (f) certain extensions, renewals or replacements of Mortgages referred to in the foregoing clauses. (Section 3.6 of the Indenture.) The Indenture will not restrict the incurrence of unsecured debt by the Company or its Subsidiaries. Restrictions on Sale and Leaseback Transactions. Neither the Company nor any Restricted Subsidiary may, after the effective date of the Indenture, enter into any sale and leaseback transaction involving any Principal Manufacturing Property which has been or is to be sold or transferred by the Company or any Restricted Subsidiary, unless (a) the Company or such Restricted Subsidiary would be entitled to create debt secured by a Mortgage on such property as described in clauses (a)-(f) under "Negative Pledge" in an 7 24 amount equal to the Attributable Debt with respect to the sale and leaseback transaction without equally and ratably securing the outstanding Debt Securities; (b) during the period commencing 12 months prior to and ending 12 months after a sale and leaseback transaction, the Company or a Restricted Subsidiary expends for facilities comprising a Principal Manufacturing Property (or part thereof) all or a part of the net proceeds of such sale and leaseback transaction and elects to designate such amount as a credit against such sale and leaseback transaction; or (c) to the extent not credited as described above, the Company applies to the retirement of long-term indebtedness of the Company or any Restricted Subsidiary an amount equal to the Attributable Debt with respect to such sale and leaseback transaction. (Section 3.6 of the Indenture.) This restriction will not apply to any sale and leaseback transaction (a) between the Company and a Restricted Subsidiary or between Restricted Subsidiaries, (b) involving the taking back of a lease for a period of three years or less, or (c) if after giving effect to a sale and leaseback transaction, permitted secured debt plus Attributable Debt of the Company and its Subsidiaries in respect of sale and leaseback transactions involving Principal Manufacturing Properties would not exceed 10% of the Consolidated Net Tangible Assets of the Company and its consolidated Subsidiaries. Except as may be described in a Prospectus Supplement applicable to a particular series of Debt Securities, there are no covenants or other provisions in the Indenture providing for a put or increased interest or otherwise that would afford holders of Debt Securities additional protection in the event of a recapitalization transaction, a change of control of the Company or a highly leveraged transaction. "Principal Manufacturing Property" means any manufacturing plant or any testing or research and development facility of the Company or a Subsidiary located in the United States or Puerto Rico unless the Board of Directors of the Company determines that such plant or facility is not of material importance to the total business conducted by the Company and its consolidated Subsidiaries. (Section 1.1 of the Indenture.) "Attributable Debt" means the total net amount of rent required to be paid during the remaining term of any lease, discounted at the weighted average rate per annum then borne by the outstanding Debt Securities. (Section 1.1 of the Indenture.) "Consolidated Net Tangible Assets" means the total assets shown on the most recent audited annual consolidated balance sheet of the Company and its consolidated Subsidiaries, after deducting the amount of all current liabilities and intangible assets. (Section 1.1 of the Indenture.) "Subsidiary" means any corporation, partnership or other entity of which more than 50% of the outstanding voting stock or interests is directly or indirectly owned or controlled by the Company. (Section 1.1 of the Indenture.) "Restricted Subsidiary" means any Subsidiary owning or leasing any Principal Manufacturing Property or otherwise designated by the Board of Directors of the Company to be a Restricted Subsidiary. (Section 1.1 of the Indenture.) As of the date of this Prospectus, no Subsidiary of the Company is a "Restricted Subsidiary." CONSOLIDATION, MERGER AND SALE OF ASSETS The Company may not consolidate with or merge into any other person or transfer or lease substantially all of its assets to any person and may not permit any person to merge into or consolidate with the Company, unless (i) either the Company is the continuing entity or the successor or purchaser is a corporation organized under the laws of the United States, any State thereof or the District of Columbia and expressly assumes the Company's obligations under the Debt Securities and the Indenture, and (ii) immediately after giving effect to the transaction no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, exists. (Section 9.1 of the Indenture.) Upon any such consolidation, merger or sale, the successor corporation formed by such consolidation, or into which the Company is merged or to which such sale is made, shall succeed to, and be substituted for the Company under the Indenture and under the Debt Securities. (Section 9.2 of the Indenture.) 8 25 EVENTS OF DEFAULT Any one of the following events will constitute an Event of Default under the Indenture with respect to Debt Securities of any series: (i) failure to pay any interest on any Debt Security of that series when due and continuance of such default for 30 days; (ii) failure to pay principal of or any premium on any Debt Security of that series when due, either at maturity, upon any redemption, by declaration or otherwise; (iii) failure to observe or perform any other of the covenants or agreements of the Company in the Indenture (other than a covenant the default or breach of which is otherwise specifically dealt with in the Indenture) continued for 60 days after written notice as provided in the Indenture; (iv) certain events of bankruptcy, insolvency or reorganization of the Company; or (v) any other Event of Default provided in a supplemental indenture with respect to Debt Securities of that series. (Section 5.1 of the Indenture.) If any Event of Default with respect to the Debt Securities of any series occurs and is continuing, either the Trustee or the holders of at least 25% in aggregate principal amount of the outstanding Debt Securities of that series, by written notice to the Company (and to the Trustee if given by such holders of Debt Securities), may declare the principal amount (or, if the Debt Securities of that series are Original Issue Discount Debt Securities, such portion of the principal amount as may be specified in the Applicable Prospectus Supplement) and accrued interest of all the Debt Securities of that series to be due and payable immediately. At any time after a declaration of acceleration with respect to Debt Securities of any series has been made, but before a judgment or decree based on such acceleration has been obtained, the holders of a majority in aggregate principal amount of outstanding Debt Securities of that series may, under certain circumstances, rescind and annul such acceleration. (Section 5.01 of the Indenture.) The Indenture provides that the Trustee will, within 90 days after the occurrence of a default with respect to the Debt Securities of any series, give to the holders of the Debt Securities of that series notice of all defaults known to it unless such default shall have been cured or waived; provided that except in the case of a default in payment on the Debt Securities of that series, the Trustee may withhold the notice if and so long as it in good faith determines that withholding such notice is in the interests of the holders of the Debt Securities of that series. (Section 5.11 of the Indenture.) The Indenture provides that the holders of a majority in aggregate principal amount of the outstanding Debt Securities of each series affected (with each such series voting as a class) may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee for such series, or exercising any trust or power conferred on such Trustee. (Section 5.9 of the Indenture.) The holders of a majority in aggregate principal amount outstanding of any series of Debt Securities by notice to the Trustee may waive, on behalf of the holders of all Debt Securities of such series, any past default or Event of Default with respect to that series and its consequences except in respect of a covenant or provision of the Indenture which cannot under the terms of the Indenture be amended or modified without the consent of the holder of each outstanding Debt Security affected. (Section 5.10 of the Indenture.) The Indenture includes a covenant that the Company will file annually with the Trustee a certificate as to the Company's compliance with all conditions and covenants of the Indenture. (Section 3.5 of the Indenture.) MODIFICATION OF THE INDENTURE The Indenture contains provisions permitting the Company and the Trustee to enter into one or more supplemental indentures without the consent of the holders of any of the Debt Securities in order (i) to transfer or pledge any property to the Trustee as security for the Debt Securities of any series; (ii) to evidence the succession of another corporation to the Company and the assumption of the covenants of the Company by a successor to the Company; (iii) to add to the covenants of the Company such further covenants or provisions so as to further protect the holders of Debt Securities; (iv) to establish the form or terms of Debt Securities; (v) to evidence and provide for successor Trustees; or (vi) to cure any ambiguity or correct or supplement any defective provisions or to make any other provisions as the Company deems necessary or desirable, provided such action does not adversely affect the interests of any holder of Debt Securities of any series. (Section 8.1 of the Indenture.) 9 26 The Indenture also contains provisions permitting the Company and the Trustee, with the consent of the holders of a majority in aggregate principal amount of the outstanding Debt Securities affected by such supplemental indenture (voting as one class), to execute supplemental indentures adding any provisions to or changing or eliminating any of the provisions of the Indenture or any supplemental indenture or modifying the rights of the holders of Debt Securities of such series, except that no such supplemental indenture may, without the consent of the holder of each Debt Security so affected, (i) extend the time for payment of principal or premium, if any, or interest on any Debt Security; (ii) reduce the principal of, or the rate of interest on, any Debt Security; (iii) reduce the amount of premium, if any, payable upon the redemption of any Debt Security; (iv) reduce the amount of principal payable upon acceleration of the maturity of any Original Issue Discount Security; (v) change the currency or currency unit in which any Debt Security or any premium or interest thereon is payable; (vi) impair the right to institute suit for the enforcement of any payment on or with respect to any Debt Security; or (vii) reduce the percentage in principal amount of the outstanding Debt Securities affected thereby the consent of whose holders is required for modification or amendment of the Indenture. (Section 8.2 of the Indenture.) DEFEASANCE AND COVENANT DEFEASANCE The Indenture provides that the Company, at its option, (a) will be discharged from any and all obligations in respect of the Debt Securities of any series (except for certain obligations to register the transfer or exchange of Debt Securities of such series, replace stolen, lost or mutilated Debt Securities of such series, maintain paying agencies and hold moneys for payment in trust) ("defeasance") or (b) need not comply with certain covenants of the Indenture, including those described under "Certain Covenants of the Company" and "Consolidation, Merger and Sale of Assets," and the occurrence of an event described in clause (iii) under "Events of Default" shall no longer be an Event of Default ("covenant defeasance"), in each case, if the Company deposits, in trust, with the Trustee money or U.S. Government Obligations (as defined below) which through the payment of interest and principal in accordance with their terms will provide money, in an amount sufficient to pay all the principal of (and premium, if any) and interest on the Debt Securities of such series, and any mandatory sinking fund or analogous payments, on the dates such payments are due in accordance with the terms of the Debt Securities of such series. Such defeasance or covenant defeasance may only be established if, among other things, (i) no Event of Default or event which with the giving of notice or lapse of time, or both, would become an Event of Default under the Indenture shall have occurred and be continuing on the date of such deposit, and (ii) the Company shall have delivered an opinion of counsel to the effect that the holders of Debt Securities will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit or defeasance and will be subject to Federal income tax on the same amount, in the same manner and at the same times as if such defeasance had not occurred. In the case of defeasance as described in clause (a) above, such opinion of counsel must be based upon a ruling of the Internal Revenue Service or a change in applicable Federal income tax law occurring after the date of the Indenture. "U.S. Government Obligations" means obligations issued or guaranteed as to principal and interest by the United States or by an entity controlled or supervised by or acting as an instrumentality of the United States Government. (Article Ten) THE TRUSTEE The First National Bank of Chicago is the Trustee under the Indenture. The Company may also maintain banking and other commercial relationships with the Trustee in the ordinary course of business. PLAN OF DISTRIBUTION The Company may sell the Debt Securities being offered hereby through agents, underwriters and dealers and may sell Debt Securities to other purchasers directly. The distribution of the Debt Securities may be effected from time to time in one or more transactions at a fixed price or prices, which may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. 10 27 Offers to purchase Debt Securities may be solicited by agents designated by the Company from time to time. Any such agent (who may be deemed to be an underwriter, as that term is defined in the Securities Act) involved in the offer or sale of the Debt Securities in respect of which this Prospectus is delivered will be named, and any commissions payable by the Company to such agent set forth, in the Applicable Prospectus Supplement. Unless otherwise indicated in the Applicable Prospectus Supplement, any such agent will be acting on a reasonable efforts basis for the period of its appointment. If any underwriters are utilized in the sale of the Debt Securities in respect of which this Prospectus is delivered, the Company will enter into an underwriting agreement with such underwriters at the time of sale to them, and the names of the underwriters and the terms of the transaction, including commissions, discounts or other compensation to the underwriters, will be set forth in the Applicable Prospectus Supplement used by the underwriters to make resales of the Debt Securities. If underwriters are utilized in the sale of the Debt Securities in respect of which this Prospectus is delivered, the Debt Securities will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions at fixed public offering prices, at varying prices determined by the underwriter at the time of sale, or in negotiated transactions. Unless otherwise indicated in the Prospectus Supplement, the underwriting agreement will provide that the obligations of the underwriters are subject to certain conditions precedent and that the underwriters with respect to a sale of Debt Securities will be obligated to purchase all such Debt Securities if any are purchased. If dealers are utilized in the sale of the Debt Securities in respect of which this Prospectus is delivered, the Company will sell such Debt Securities to such dealers as principal. The dealers may then resell such Debt Securities to the public at varying prices to be determined by such dealers at the time of resale. Any such dealer may be deemed to be an underwriter, as such term is defined in the Securities Act, of the Debt Securities so offered and sold. The name of any dealer and the terms of the transaction will be set forth in the Applicable Prospectus Supplement. Agents, underwriters and dealers may be entitled under relevant agreements that may be entered into with the Company to indemnification or contribution by the Company against certain civil liabilities, including liabilities under the Securities Act. Such agents, underwriters and dealers (or their affiliates) may be customers of, engage in transactions with or perform services for the Company in the ordinary course of business. Debt Securities may also be offered and sold, if so indicated in the Applicable Prospectus Supplement, in connection with a remarketing upon their purchase, in accordance with a redemption or repayment pursuant to their terms, or otherwise, by one or more firms ("remarketing firms"), acting as principals for their own accounts or as agents for the Company. Any remarketing firm will be identified and the terms of its agreement, if any, with the Company and its compensation will be described in the Applicable Prospectus Supplement. Remarketing firms may be deemed to be underwriters, as such term is defined in the Securities Act, in connection with the Debt Securities remarketed. Remarketing firms may be entitled under agreements which may be entered into with the Company to indemnification or contribution by the Company against certain civil liabilities, including liabilities under the Securities Act, and may be customers of, engage in transactions with or perform services for the Company in the ordinary course of business. If so indicated in the Applicable Prospectus Supplement, the Company may authorize agents, underwriters or dealers to solicit offers by certain institutions to purchase Debt Securities from the Company at the public offering prices set forth in the Applicable Prospectus Supplement pursuant to delayed delivery contracts providing for payment and delivery on a specified date or dates. A commission indicated in the Applicable Prospectus Supplement will be paid to underwriters, dealers and agents soliciting purchases of Debt Securities pursuant to delayed delivery contracts accepted by the Company. The Debt Securities are not proposed to be listed on a securities exchange, and no underwriters or dealers will be obligated to make a market in the Debt Securities. The Company cannot predict the activity or liquidity of any trading in the Debt Securities. 11 28 LEGAL MATTERS Certain legal matters in connection with the Debt Securities to be offered hereby, including their validity, will be passed upon for the Company by Squire, Sanders & Dempsey, Cleveland, Ohio. Unless otherwise specified in the Prospectus Supplement, certain legal matters in connection with the Debt Securities to be offered hereby will be passed upon for the underwriters by Davis Polk & Wardwell, New York, New York. EXPERTS The consolidated financial statements and the related consolidated financial statement schedules incorporated in this prospectus by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1992 have been audited by Deloitte & Touche, independent auditors, as stated in their reports, which are incorporated herein by reference, and have been so incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. 12 -----END PRIVACY-ENHANCED MESSAGE-----