-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KSmlPWdoxgoL1TXe3qGX83qY9Lmnr8qq3bk+f3v1VyQAVtg0hURkVRYAERVq3MvX VbxasBoSKl4MhIg8+c4Ctg== 0000950124-99-001006.txt : 19990215 0000950124-99-001006.hdr.sgml : 19990215 ACCESSION NUMBER: 0000950124-99-001006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STANDARD PRODUCTS CO CENTRAL INDEX KEY: 0000093448 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 340549970 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-02917 FILM NUMBER: 99533347 BUSINESS ADDRESS: STREET 1: 2401 S GULLEY ROAD CITY: DEARBORN STATE: MI ZIP: 48124 BUSINESS PHONE: 2162818300 MAIL ADDRESS: STREET 1: 2401 S GULLEY RD CITY: DEARBORN STATE: MI ZIP: 48124 10-Q 1 FORM 10-Q 1 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended DECEMBER 31, 1998 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to __________________ Commission file number: 1-2917 THE STANDARD PRODUCTS COMPANY (Exact Name of Registrant as Specified in Its Charter) OHIO 34-0549970 (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 2401 SOUTH GULLEY ROAD DEARBORN, MICHIGAN 48124 (Address of Principal Executive Offices)(Zip Code) Registrant's telephone number, including area code: (313) 561-1100 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes. |X| No. |_| THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF FEBRUARY 5, 1999 WAS 16,078,842 SHARES. - -------------------------------------------------------------------------------- This report consists of 14 pages. 2 THE STANDARD PRODUCTS COMPANY QUARTERLY REPORT ON FORM 10-Q TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Statements of Operations.............................................................. 3 Consolidated Balance Sheets........................................................................ 4 Consolidated Statements of Cash Flows.............................................................. 5 Notes to Consolidated Financial Statements......................................................... 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings.................................................................................. 12 Item 2. Changes in Securities.............................................................................. 12 Item 3. Defaults upon Senior Securities.................................................................... 12 Item 4. Submission of Matters to a Vote of Security-Holders................................................ 12 Item 5. Other Information.................................................................................. 12 Item 6. Exhibits and Reports on Form 8-K................................................................... 13 SIGNATURES ............................................................................................... 14
Unless otherwise indicated, references to "Company" mean The Standard Products Company and its subsidiaries and reference to a fiscal year means the Company's year ended June 30 of the same year (e.g., "fiscal 1999" refers to the period beginning July 1, 1998 and ending June 30, 1999). 2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE STANDARD PRODUCTS COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE PERIODS ENDED DECEMBER 31, (UNAUDITED) (THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
THREE MONTHS SIX MONTHS ----------------------------- ------------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Net Sales............................................... $ 276,237 $ 282,544 $ 508,053 $ 528,717 Cost of Goods Sold: Materials, wages and other manufacturing costs....... 233,894 232,200 432,725 440,712 Research, engineering and development expenses....... 11,921 11,040 22,518 21,464 ----------- ----------- ----------- ----------- 245,815 243,240 455,243 462,176 ----------- ----------- ----------- ----------- Gross income........................................ 30,422 39,304 52,810 66,541 Selling, General and Administrative Expenses ............ 19,909 19,832 38,082 37,156 ----------- ----------- ----------- ----------- Operating Income..................................... 10,513 19,472 14,728 29,385 ----------- ----------- ----------- ----------- Other (Income) Expense: Royalty and dividend income.......................... (132) (42) (421) (260) Interest expense..................................... 3,588 3,202 6,561 6,158 Other, net........................................... (402) 1,463 452 4,066 ----------- ----------- ----------- ----------- 3,054 4,623 6,592 9,964 ----------- ----------- ----------- ----------- Income before Taxes on Income........................... 7,459 14,849 8,136 19,421 Provision for Taxes on Income........................... 2,604 6,088 2,848 7,849 ----------- ----------- ----------- ----------- Net Income........................................... $ 4,855 $ 8,761 $ 5,288 $ 11,572 =========== =========== =========== =========== Earnings Per Common Share: Basic................................................ $ 0.30 $ 0.52 $ 0.32 $ 0.69 =========== =========== =========== =========== Diluted.............................................. $ 0.30 $ 0.52 $ 0.32 $ 0.68 =========== =========== =========== =========== Weighted average shares outstanding (in thousands): Basic................................................ 16,083 16,849 16,387 16,838 =========== =========== =========== =========== Diluted.............................................. 16,087 16,926 16,397 16,907 =========== =========== =========== =========== Dividends declared per share............................ $ 0.18 $ 0.17 $ 0.35 $ 0.34 =========== =========== =========== ===========
The accompanying notes are an integral part of these statements. 3 4 THE STANDARD PRODUCTS COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (THOUSANDS OF DOLLARS)
(UNAUDITED) DECEMBER 31, JUNE 30, 1998 1998 ----------------- ----------------- ASSETS Current Assets: Cash and cash equivalents............................................... $ -- $ 1,625 Receivables, less allowances of $3,813 at December 31 and $3,949 at June 30 (Note 4)............................................ 141,227 151,535 Inventories (Note 2).................................................... 61,727 61,139 Prepaid insurance, taxes, etc........................................... 32,727 25,319 -------------- ------------- Total current assets................................................. 235,681 239,618 Property, Plant and Equipment, at cost..................................... 664,672 624,188 Less - Accumulated depreciation.......................................... (314,853) (293,836) -------------- ------------- 349,819 330,352 Goodwill, net.............................................................. 78,995 63,617 Other Assets............................................................... 58,905 50,659 -------------- ------------- $ 723,400 $ 684,246 ============== ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Short-term notes payable................................................. $ 21,871 $ 14,994 Current maturities of long-term debt..................................... 38,831 14,031 Accounts payable and accrued expenses.................................... 152,912 183,646 Dividend payable......................................................... 2,894 2,869 -------------- ------------- Total current liabilities............................................... 216,508 215,540 Long-term Debt, net of current maturities.................................. 142,941 92,457 Other Postretirement Benefits.............................................. 25,531 24,362 Deferred Income Taxes and Other Credits.................................... 57,590 51,715 Commitments and Contingent Liabilities (Note 3) Shareholders' Equity: Serial preferred shares, without par value, authorized 6,000,000 voting And 6,000,000 non-voting shares, none issued.......................... -- -- Common shares, par value $1 per share; authorized 50,000,000 shares, 16,921,892 shares issued and 16,078,842 shares outstanding at December 31 and 16,877,693 shares issued and outstanding At June 30............................................................ 16,922 16,878 Paid-in capital......................................................... 100,033 99,462 Common stock held in Treasury, 843,050 shares at cost................... (20,141) -- Retained earnings....................................................... 202,260 202,599 Accumulated other comprehensive income.................................. (18,244) (18,767) -------------- ------------- Total shareholders' equity............................................. 280,830 300,172 -------------- ------------- $ 723,400 $ 684,246 ============== =============
The accompanying notes are an integral part of these statements. 4 5 THE STANDARD PRODUCTS COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (THOUSANDS OF DOLLARS)
SIX MONTHS ENDED DECEMBER 31, --------------------------------------- 1998 1997 ----------------- ----------------- Cash Flows from Operating Activities: Net income ................................................................ $ 5,288 $ 11,572 Adjustments to reconcile net income to net cash provided by (used for) Operating activities: Depreciation and amortization........................................... 27,366 29,882 Deferred taxes and other credits........................................ 878 1,177 Effect of changes in foreign currency................................... (166) 1,680 Other .................................................................. (2,265) (1,447) Net changes in assets and liabilities: Receivables......................................................... 13,201 23,923 Inventories......................................................... (47) 2,681 Accounts payable and accrued expenses............................... (33,145) (29,309) Other current assets and liabilities................................ (8,833) 438 ------------- ------------- Net cash provided by operating activities...................... 2,277 40,597 Cash Flows from Investing Activities: Purchase of property, plant and equipment, net.......................... (37,329) (32,281) Investment in affiliates and nonconsolidated entities.................. (2,469) (107) Cash paid for acquisitions.............................................. (19,450) -- ------------- ------------- Net cash used by investing activities............................. (59,248) (32,388) Cash Flows from Financing Activities: Proceeds of long-term borrowings........................................ 88,415 127 Repayment of long-term borrowings ...................................... (13,865) (1,474) Net increase (decrease) in short-term borrowings........................ 7,371 (5,676) Stock repurchase........................................................ (20,141) -- Cash dividends.......................................................... (5,628) (5,729) ------------- -------------- Net cash provided by (used by) financing activities............... 56,152 (12,752) Effect of exchange rate changes on cash.................................... (806) 345 ------------- ------------- Net decrease in cash and cash equivalents.................................. (1,625) (4,198) Cash and cash equivalents at the beginning of the period................... 1,625 6,972 ------------- ------------- Cash and cash equivalents at the end of the period......................... $ -- $ 2,774 ============= =============
The accompanying notes are an integral part of these statements. 5 6 THE STANDARD PRODUCTS COMPANY AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) ----------------------------------------- (1) BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared by management and, in the opinion of management, contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of the Company as of December 31, 1998 and June 30, 1998, and the results of its operations for the six months ended December 31, 1998 and 1997 and cash flows for the six months ended December 31, 1998 and 1997. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998. Results for interim periods are not necessarily indicative of those to be expected for the year. (2) INVENTORIES Inventories are stated at the lower of cost or market. The majority of domestic inventories are valued using the last-in, first-out (LIFO) method and the remaining inventories are valued using the first-in, first-out (FIFO) method. The major components of inventory are as follows:
December 31, 1998 June 30, 1998 ----------------- ------------- Raw materials............................................. $ 25,387 $ 24,898 Work-in-process and finished goods........................ 36,340 36,241 ------------- ------------- Totals................................................ $ 61,727 $ 61,139 ============= =============
(3) COMMITMENTS AND CONTINGENCIES At December 31, 1998, the Company was in compliance with these various financial covenants. Under the most restrictive of the revised covenants of the Company's various loan agreements, principally the Nationwide Senior Notes, $34,555 of retained earnings were not restricted at December 31, 1998 for the payment of dividends. Management expects that the Company will remain in compliance with these financial covenants through the period ending December 31, 1999. The Company and its subsidiaries are involved in certain legal actions and claims. In the opinion of management, any liability that may ultimately be incurred would not materially affect the financial position or results of operations of the Company. (4) ACCOUNTS RECEIVABLE SECURITIZATION In September 1995, the Company and certain of its U.S. subsidiaries entered into an agreement to sell, on an ongoing basis, all of their accounts receivable to The Standard Products Funding Corporation (Funding Co.), a wholly owned subsidiary of the Company. Accordingly, the Company and those subsidiaries, irrevocably and without recourse, transferred all of their U.S. dollar denominated trade accounts receivable (principally representing amounts owed by original equipment customers in the U.S. automotive and related industries) to the Funding Co. The Funding Co. has sold and, subject to certain conditions, may from time to time sell an undivided interest in those receivables to the Clipper Receivables Corporation. The Funding Co. is permitted to receive advances of up to $50,000 for the sale of such undivided interest. At December 31, 1998, $50,000 had been advanced to the Funding Company. This agreement has been extended to November 2000. 6 7 Proceeds from the sales of receivables have been used to reduce outstanding borrowings under the Company's Revolving Credit Agreement and are reflected as operating cash flows in the accompanying consolidated statement of cash flows. Costs of the program, which primarily consist of the purchasers' financing and administrative costs, have been classified as Selling, General and Administrative Expenses in the accompanying consolidated statement of income. The Company maintains an allowance for accounts receivable ($3,813 and $3,949 at December 31, 1998 and June 30, 1998, respectively) based on the expected collectibility of all trade accounts receivable, including receivables sold. (5) NEW ACCOUNTING STANDARDS The FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." This standard requires extensive disclosure of operating segments based on the "management approach." This approach organizes segments within a company for making operating decisions and assessing performance. Reportable segments can be based on products and services, geography, legal structure or any other manner in which management disaggregates the company. This Statement requires reporting segment profit or loss, certain specific revenue and expense items and segment assets. It also requires reconciliations of total segment revenues, total segment profit or loss, total segment assets and other amounts disclosed for segments to corresponding amounts reported in the Consolidated Financial Statements. Restatement of comparative information for earlier periods presented is required in the initial year of application. Interim information is not required until the second year of application, at which time comparative information is required. The FASB has also issued SFAS No. 132, "Employer's Disclosures about Pensions and Other Postretirement Benefits." This standard revises employers' disclosures on pension and other postretirement benefit plans. The objective of the statement is to standardize the disclosure requirements and report additional information on changes in the benefit obligations and fair value of plan assets. SFAS Nos. 131 and 132 are effective for fiscal years beginning after December 15, 1997. The FASB also issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This standard provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. This standard is effective for fiscal years beginning after June 15, 1999. The Company has not determined the impact that the adoption of these new standards will have on its Consolidated Financial Statements or disclosures. (6) EARNINGS PER SHARE The Company has adopted the provisions of SFAS No. 128, "Earnings per Share." The information required by this pronouncement is presented on the face of the Company's "Consolidated Statements of Operations" found on page 3 of this document. A reconciliation of the numerators and denominators of the basic and diluted earnings per share are as follows:
THREE MONTHS ENDED DEC. 31, SIX MONTHS ENDED DEC. 31, ----------------------------------- ---------------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Net Income $ 4,855 $ 8,761 $ 5,288 $ 11,572 ------------- ------------- ------------- ------------- Basic: Basic Shares 16,083 16,849 16,387 16,838 ------------- ------------- ------------- ------------- Basic EPS $ 0.30 $ 0.52 $ 0.32 $ 0.69 ============= ============= ============= ============= Diluted: Basic Shares 16,083 16,849 16,387 16,838 Stock Options 4 77 10 69 ------------- ------------- ------------- ------------- 16,087 16,926 16,397 16,907 ------------- ------------- ------------- ------------- Diluted EPS $ 0.30 $ 0.52 $ 0.32 $ 0.68 ============= ============= ============= =============
7 8 (7) COMPREHENSIVE INCOME Effective July 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for the display of comprehensive income for financial statement purposes. Comprehensive income is defined as all changes in a company's net assets except changes resulting from transactions with shareholders. It differs from traditionally defined net income in that certain items recorded in shareholders' equity become part of comprehensive income. Comprehensive income consists of the following:
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, --------------------------- --------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Net Income..................................... $ 4,855 $ 8,761 $ 5,288 $ 11,572 ---------- ---------- ---------- ---------- Other comprehensive income: Foreign currency translation (1,940) (547) 524 (145) adjustment.......................... Minimum pension liability adjustment...... -- -- -- -- ---------- ---------- ---------- ---------- Other comprehensive income..................... (1,940) (547) 524 (145) ---------- ---------- ---------- ---------- Comprehensive income........................... $ 2,915 $ 8,214 $ 5,812 $ 11,427 ========== ========== ========== ==========
8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (1) RESULTS OF OPERATIONS The Company's net sales for the second quarter of fiscal 1999 were $276.2 million, a decrease of $6.3 million, or 2.2% compared to the record levels of a year ago. Sales for the Company's Transportation Equipment segment totaled $242.0 million for the second quarter of fiscal 1999 compared with $248.7 million for the same period last year, a decrease of $6.7 million, or 2.7%. The overall reduction was primarily attributable to deteriorating economic conditions in Brazil and lower volumes in North American automotive operations. Sales for the Company's Tread Rubber segment increased 1.2% to $34.2 million. This is attributable to additional revenue of $1.6 million from Oliver Rubber's agreement with Michelin North America, Inc. to provide for the extrusion and pressing of tread rubber for resale. This increase in sales was partially offset by lower volumes for moldcure and custom mix rubber products totaling $1.3 million. Sales for the Company's North American automotive operations decreased to $139.3 million, a reduction of 6.7% or $10.1 million, from the same period last year. The reduction was primarily attributable to volume decreases on key platforms on which the Company had substantial content, including the Jeep(R) Grand Cherokee and Plymouth/Dodge Neon and Dodge Stratus platforms. Volume decreases on these vehicles totaled $10.8 million from prior year levels. Translation losses related to a weaker Canadian dollar accounted for an additional $5.3 million of the decrease. This was partially offset by volume increases of $5.8 million on Ford's Cougar and Crown Victoria models and General Motor's Silverado light truck platform. The Company's Brazilian subsidiary reported a sales decrease of $13.0 million, or 62.4% over the prior year. The decrease is a result of the downturn in the Brazilian economy that has resulted in significantly reduced production by South American automobile manufacturers. The production decline was caused by continuing deterioration in Brazilian economic conditions, including extremely high interest rates, which has reduced demand for high price items such as automobiles. These conditions appear likely to continue for the remainder of fiscal year 1999 and the Company presently anticipates a continuation of lower sales volumes and reduced earnings from its Brazilian subsidiary for the remainder of the fiscal year. Automotive sales in Europe increased $5.9 million, or 10.2% to $64.1 million, due primarily to increased sales volumes in the United Kingdom, principally on the Opel Astra and Honda Accord, totaling $4.5 million. The Company also benefited from currency translations as a stronger French franc and British pound resulted in increased sales of $2.6 million. These increases were partially offset by price reductions of $0.6 million. Sales at the Company's Holm Industries subsidiary were up 43.5% to $33.5 million, from the same period last year. This is primarily due to the addition of OEM/Miller, which increased sales by $5.7 million, and strong volumes for appliance sealing products, which reported increased revenues of $2.7 million. Based on published industry data, management believes that car and light truck production in the United States and Canada increased by approximately 3.2% during the quarter when compared to the same period in the prior year. Car production increased by 3.9%, while light truck production increased by approximately 2.5%. Certain key vehicles for which the Company supplies components, such as the Chrysler Neon and Ford Escort, had significantly reduced build rates during the quarter. This was only partially offset by others such as the Ford Grand Marquis and Mustang, which experienced substantial increases. Year-to-date car and light truck production in the United States and Canada was flat compared to prior year levels with a 1.9% increase in car production being offset by a 1.3% decline in light truck production. For the first half of fiscal 1999, sales of the Transportation Equipment segment were down $22.2 million to $439.9 million, or 4.8% below prior year levels. Sales for the Company's North American automotive operations decreased to $247.8 million, a reduction of 9.6% or $26.3 million. The reduction was the result of volume decreases on platforms on which the Company had significant content, including, the Jeep(R) Grand Cherokee, Plymouth/Dodge Neon and General Motors Lumina/Monte Carlo. Translation losses related to a weaker Canadian dollar accounted for $9.8 million of the decrease while price reductions accounted for an additional $1.1 million of the decline. Volume increases of $6.5 million on the Ford Cougar and Crown Victoria models partially offset the above declines. Year-to-date, South American sales have decreased $19.3 million to $21.2 million due to the Brazilian economic problems noted above. These reductions were partially offset by increases in European automotive operations and Holm Industries. Sales in Europe were up $8.5 million to $113.9 million, an increase of 9 10 8.0% from prior year levels. The improvement was due to new business totaling $8.1 million and currency exchange gains of $3.5 million resulting from a strengthened French franc and British pound. These gains were partially offset by volume declines and price reductions on existing business. Holm Industries sales grew 33.1% to $63.2 million as a result of the OEM/Miller acquisition and strong demand from existing customers in the appliance industry. Gross income for the Company's second quarter of fiscal 1999 decreased $8.9 million to $30.4 million, or 11.0% of net sales, from $39.3 million, or 13.9% of net sales for the same period in fiscal 1998. Several factors led to the decline in operating margins. These include the impact of the severe decline of the Brazilian economy and launch costs on new platforms. In Brazil, the Company took immediate and drastic cost-cutting measures, including reducing staffing levels by 55 percent. While management believes its measures will help its Brazilian operations achieve breakeven results in the second half of the year, they did not take effect soon enough to have a significant impact on results in this quarter. Reduced revenues for the quarter were not at a level sufficient to enable the Company to recover the substantial fixed costs of the Brazilian facility. The Company has also incurred approximately $5.1 million in increased launch and other related costs on new product lines in the United Kingdom and, to a lesser extent, several new platforms in North America. As in the United States, European automakers have continued to seek ongoing price givebacks on existing business. While the Company's low cost producer initiatives have helped to improve efficiencies in Europe, social regulations there have made it difficult for the Company to react quickly as it needs to adapt it cost structures to current pricing requirements. Year-to-date gross income is $52.8 million, a decrease of $13.7 million from fiscal 1998. This represents 10.4% of net sales compared to 12.6% a year earlier. The Brazilian economic downturn and European operating difficulties related to product launches and manufacturing inefficiencies are the primary factors in the decline. The Company does not expect the current environment in Brazil to improve for the rest of the fiscal year, and it does not expect pricing pressure to ease in either its North American or European markets. As a result, the Company must take further steps to bring its cost structure in line with anticipated operating performance. In addition to continuing its low cost producer initiatives, the Company is currently taking steps to reduce the level of selling, general and administrative expenses, including the offering of a voluntary early retirement program to certain qualified employees in the United States, and is currently reviewing its capacity requirements on a global basis. Research, engineering and development expenses for the second quarter increased $0.9 million, or 8.0% to $11.9 million from the same period in fiscal 1998. The increase is primarily attributable to increased personnel costs related to development programs targeted to enhance the Company's sealing system production methods. Year-to-date expenses have increased by $1.1 million over the prior year to $22.5 million, or 4.4% of net sales. Selling, general and administrative expenses for the second quarter were flat when compared to the same period a year ago, at $19.9 million. Additional costs associated with the acquisition of OEM/Miller of $0.6 million and depreciation charges of $0.3 million were offset by reduced personnel costs of $0.8 million. Year-to-date costs have increased $0.9 million, to $38.1 million related primarily to an increased provision for doubtful accounts and the addition of OEM/Miller. These charges were partially offset by lower personnel costs. Other income and expense totaled $6.6 million in expense for the first half of fiscal 1998, a decrease of $3.4 million over the same period a year ago. Approximately $2.6 million of this improvement is attributable to earnings at NISCO, the Company's joint venture with Nishikawa Rubber Company of Japan. NISCO returned to profitability in the second quarter earning $0.5 million. The year-to-date loss at NISCO has narrowed to $0.4 million from $3.0 million a year ago. The remainder of the increase is primarily due to gains on the disposition of fixed assets. These improvements were partially offset by increased interest expense as year-to-date costs have increased by $0.4 million due to increased borrowing levels in North America and Europe. The increased borrowing results largely from the Company's acquisition of OEM/Miller and its stock repurchase program. The Company's tax provision for the second quarter of fiscal 1999 reflects tax rate of 34.9%. This compares favorably with the prior year's effective tax rate of 41.0%. This reduction is primarily attributable to the utilization of U.S. tax credits. The year-to-date effective tax provision reflects an expected rate of 35.0%. 10 11 (2) FINANCIAL CONDITION Cash provided by operations for the first half of fiscal 1999 totaled $2.3 million. This represents a decrease from the same period in fiscal 1998 of $38.3 million. The decrease is the result of several factors including accounts receivable, prepaid items, accounts payable, and reduced net income. The change in accounts receivable is directly attributable to the decline in sales levels and associated collections when compared to prior year levels, while the change in prepaids and accounts payable was due to timing of payments with suppliers. Capital spending for the first six months of fiscal 1999 totaled $37.3 million, an increase of $5.0 million over the same period last year. The Company expects capital spending in fiscal 1999 to approximate $65.0 million. This includes capital required in connection with the addition of equipment at its Mexican facility as it ramps up to full production, expenditures required in support of the new General Motors Silverado and Sierra truck platforms, and the upgrade of facilities in England related to the introduction of various new platforms. The Company has also invested $19.5 million for acquisitions in the first half of the current year and $2.5 million to its nonconsolidated affiliates. Cash generated from financing activities resulted in a net inflow of $56.2 million for the first half of the fiscal year. The funds came from borrowings under the Company's Revolving Credit Agreement and other short-term credit lines. These funds were used to fund an acquisition, reacquire shares of the Company's stock, provide for working capital, and pay dividends. At December 31, 1998, debt represented 42.0% of total capitalization compared with 28.8% at June 30, 1998. The Company has determined that the functional currency of its Brazilian and Mexican subsidiaries is the U.S. dollar. Accordingly, the results for these operations have been translated utilizing a remeasurement process prescribed by Statement of Financial Accounting Standard ("SFAS") No. 52. The criteria for determining highly inflationary status and the functional currency of an operation are detailed in SFAS No. 52. The Company will continue to translate its results using the remeasurement process until the criteria supporting an U.S. dollar functional currency are no longer met. (3) YEAR 2000 The "Year 2000" problem relates to computer systems that have time and date-sensitive programs that were designed to read years beginning with "19," but may not properly recognize the year 2000. If a computer system or software application used by the Company or a third party dealing with the Company fails because of the inability of the system or application to properly read the year "2000," the results could conceivably have a material adverse effect on the Company. The Company provided an extensive description of its Year 2000 plans and progress to date as part of its Management Discussion and Analysis ("MD&A") in its Form 10-K for the fiscal year ended June 30, 1998, which was filed in September 1998. The Company continues to make progress on its plan in accordance with the timetable described in that MD&A. Based on this progress, management believes that a comprehensive contingency plan with respect to all of its information technology and production processes is not necessary at this time. However, as specific issues arise or fall slightly behind schedule, contingency plans are being developed to solve these particular areas. Examples of potential solutions include: stockpiling or re-sourcing of components and materials, manual work arounds or flexible staffing arrangements. In addition, the Company has not encountered any specific problems with any of its suppliers that would require development of a contingency plan. The Company believes that its program to monitor the compliance of its suppliers with Year 2000 requirements will minimize the risks associated with noncompliance. Management believes that the cost of Year 2000 compliance for its information and production systems will not be material to its consolidated results of operations and financial position. Although the Company has made progress in identifying its Year 2000 problems, and believes this issue is not likely to pose a significant problem for it, there can be no absolute assurance that the Company and all of its vendors and suppliers will identify and remediate in a timely fashion all potential Year 2000 issues. 11 12 (4) CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR" UNDER THE PRIVATE SECURITIES REFORM ACT OF 1995 Certain statements in this Management's Discussion and Analysis, the attached Consolidated Financial Statements, in the Company's press releases and in oral statements made by or with the approval of an authorized executive officer of the Company, constitute "forward-looking statements," as that term is defined under the Private Securities Litigation Reform Act of 1995. These may include statements projecting, forecasting or estimating Company performance and industry trends. The achievement of the projections, forecasts or estimates is subject to certain risks and uncertainties. Actual results and events may differ materially from those projected, forecasted or estimated. The applicable risks and uncertainties include general economic and industry conditions that affect all international businesses, as well as matters that are specific to the Company and the markets it serves. In addition, please see the "Year 2000" section for a description of the risks and uncertainties associated with this issue. General risks that may impact the achievement of such forecasts include compliance with new laws and regulations; significant raw material price fluctuations; currency exchange rate fluctuations; limits on repatriation of funds; and political uncertainties. Specific risks to the Company include risk of recession in the economies in which its products are sold, especially in emerging markets where recent currency weakness may lead to recessionary conditions; the concentration of a substantial percentage of the Company's sales with a few major OEM customers; labor relations at the Company, its customers and its suppliers; competition in pricing and new product development from larger companies with substantial resources; and continued globalization of the automotive supply base resulting in new competition in certain locations. PART II. OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities None. Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. 12 13 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits If incorporated by Exhibit No. reference, documents Under Reg. S-K Form 10-Q with which Exhibit Item 601 Exhibit No. Description was previously filed --------------- ---------- ------------------------ ---------------------- 3 3a Second Amended and Restated Articles of Incorporation of The Standard Products Company 4 4a First Amendment Agreement among The Standard Products Company, Comerica Bank, NBD Bank, KeyBank National Association, The Bank of New York, Harris Trust and Savings Bank, N.A., and National City Bank, as Agent, Dated December 10, 1998. 4 4b Rights Agreement (Filed with the SEC on February 3, 1999 on Form 8-A File Number 001-02917; See Exhibit 1 therein) 4 4c Form of Right Certificate (Filed with the SEC on February 3, 1999 on Form 8-A File Number 001-02917; See Exhibit 3 therein) 4 4d Summary of Rights to Purchase (Filed with the SEC Preferred Shares on February 3, 1999 on Form 8-A File Number 001-02917; See Exhibit 4 therein) 27 27 Financial Data Schedule
(b) Reports on Form 8-K None. 13 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE STANDARD PRODUCTS COMPANY Dated: February 12, 1999 by /s/ Donald R. Sheley, Jr. -------------------------------- Donald R. Sheley, Jr. Vice President, Finance Chief Financial Officer /s/ Bernard J. Theisen -------------------------------- Bernard J. Theisen Corporate Controller Principal Accounting Officer 14 15
If incorporated by Exhibit No. reference, documents Under Reg. S-K Form 10-Q with which Exhibit Item 601 Exhibit No. Description was previously filed --------------- ---------- ------------------------ ---------------------- 3 3a Second Amended and Restated Articles of Incorporation of The Standard Products Company 4 4a First Amendment Agreement among The Standard Products Company, Comerica Bank, NBD Bank, KeyBank National Association, The Bank of New York, Harris Trust and Savings Bank, N.A., and National City Bank, as Agent, Dated December 10, 1998. 4 4b Rights Agreement (Filed with the SEC on February 3, 1999 on Form 8-A File Number 001-02917; See Exhibit 1 therein) 4 4c Form of Right Certificate (Filed with the SEC on February 3, 1999 on Form 8-A File Number 001-02917; See Exhibit 3 therein) 4 4d Summary of Rights to Purchase (Filed with the SEC Preferred Shares on February 3, 1999 on Form 8-A File Number 001-02917; See Exhibit 4 therein) 27 27 Financial Data Schedule
EX-3.A 2 SECOND AMENDED & RESTATED ARTICLE OF INCORPORATION 1 EXHIBIT 3A SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION OF THE STANDARD PRODUCTS COMPANY FIRST: The name of said corporation shall be THE STANDARD PRODUCTS COMPANY. SECOND: The place in the State of Ohio where the principal office of the corporation is to be located is in the City of Cleveland, Cuyahoga County. THIRD: The purpose or purposes for which the corporation is formed are: (a) To produce, manufacture, buy, sell and otherwise deal in automobile specialties, parts and accessories, or any of them. (b) To manufacture, fabricate, process, buy, sell, and otherwise deal in all kinds, forms, combinations and products of iron, steel, wood and other metals and materials, or any of them, and all or any articles consisting, or partly consisting, of iron, steel, wood and other metals or materials, or either, or any of them. (c) To undertake, conduct, assist, promote and participate in every kind of commercial, industrial, manufacturing, mercantile or mining enterprise, business, undertaking, venture, or operation in any state, territory, dependency or colony of the United States, or its insular possessions, or in the District of Columbia, or in any foreign country. (d) To acquire by purchase or otherwise, and to own, hold, improve, develop, maintain, use, lease, sell, convey, transfer, mortgage, guarantee, pledge, exchange or otherwise deal in or dispose of real and personal property, tangible or intangible, of any character whatsoever, including but not by way of limitation, letters patent, patent rights, copyrights, licenses and franchises, and any or all interests or rights therein, without any limitation, to the extent that the same may be permitted by law. (e) To purchase, apply for, register, obtain or otherwise acquire, and to hold, own, use, operate, develop and introduce and sell, lease, assign, pledge or in any manner dispose of and in any manner deal with and contract with reference to applications for letters patent, patents, 2 patent rights, patented processes, designs and similar rights, copyrights, trade-marks, trade-names and similar rights granted by the United States or any other Government or country, or any interest therein, or any inventions, and to acquire, own, use, or in any manner dispose of any and all inventions, improvements and processes, labels, designs, marks, brands or other rights, and to work, operate or develop the same. (f) To acquire by purchase, subscription or otherwise, and to own, hold, invest in, sell, negotiate, assign, exchange, dispose of, transfer, pledge, hypothecate, mortgage, guarantee, deal in, lend or borrow money upon all forms and kinds of securities, shares of stock, scrip, bonds, coupons, debentures, mortgages, notes, commercial paper, trust certificates, land trust certificates, certificates of interest, certificates of deposit, certificates of indebtedness, bills receivable, accounts receivable, contract obligations, investments, warrants, and interim receipts and certificates, issued or created by, or claims against any person, firm, corporation, joint stock company, trust or association, public or private, wherever or however organized or created, or any nation, state, municipality or political subdivision thereof, and to issue in exchange therefor in any manner permitted by law, shares of the capital stock, bonds or other obligations of this corporation; and while the holder or owner of any of such securities or property, to possess and exercise in respect thereof any and all rights, powers and privileges of ownership, including all voting, consenting or other rights in or in respect thereof. (g) To promote, carry on or participate with others in the organization, merger, consolidation, financing, liquidation, realization or reorganization of corporations, partnerships or associations engaged in any lawful business enterprise; to become interested in or participate with others, in any subscription, underwriting or syndicate, and to enter into contracts, whether alone or with others, for the purchase, issuance and sale of any securities, property or rights. (h) To make, enter into, perform and carry out any arrangements, contracts and/or agreements of every kind, for any lawful purpose, without limit as to amount or otherwise, with any corporation, association, partnership, firm, trustee, syndicate, individual and/or any political or governmental division or subdivision, domestic or foreign; to obtain therefrom or otherwise to acquire by purchase, lease, assignment or otherwise, any powers, -2- 3 rights, privileges, immunities, franchises, guaranties, grants and concessions; to hold, own, exercise, exploit, dispose of and realize upon the same and to undertake, conduct, operate or participate in any business dependent thereon. (i) To borrow or acquire in any manner permitted by law, money for any of the purposes of this corporation, with or without security, and to mortgage, pledge, hypothecate, encumber in any manner and/or place in the hands of trustees as security for the payment of money borrowed, or the fulfillment of any obligation of this corporation, any or all property and assets which this corporation may own or acquire; to draw, make, accept, endorse, discount and have discounted, execute, issue and deal in every lawful manner in promissory notes, bills of exchange, debentures, bonds, warrants, scrip, drafts and other negotiable or non-negotiable instruments and evidences of indebtedness, and to secure the payment of any thereof together with interest thereon by pledge, mortgage, conveyance or assignment of the whole or any part of the property and assets of this corporation, whether at the time owned or thereafter acquired. (j) To lend money on time or call and with or without collateral security, and to give credit to individuals, firms, corporations, associations, or co-partnerships, and to municipalities, states, nations or any political subdivisions thereof, and to realize upon any property taken by the corporation as collateral security for any loans. (k) To cause or allow the legal title and/or any estate, right or interest in any property, whether real, personal, or mixed, owned, acquired, controlled or operated by the corporation, to remain or to be vested or registered in the name of or operated by any person, firm, association or corporation, domestic or foreign, formed or to be formed, either upon trust for or as agent or nominee of this corporation or upon any other proper terms or conditions which the Board of Directors may consider for the benefit of the corporation. (l) To purchase, hold, sell and transfer the shares of its own capital stock, provided it shall not use its funds or property for the purchase of its own shares of capital stock when such use would cause any impairment of its capital stock except as otherwise permitted in law, and provided further that its own shares of capital stock belonging to it shall not be voted upon, directly or indirectly. -3- 4 (m) To have one or more offices or plants, to carry on and conduct all or any part of its operations and business, without restriction or limitation as to amount, both within and without the State of Ohio; and this corporation may qualify under the laws of, be domiciled in, and conduct any or all of its business in any City, State, Commonwealth, District, Territory or Colony of the United States, and in any or all foreign countries. (n) To do any one or more of the acts and things expressed in this Article THIRD either as principal or as agent or representative for any other person, firm, association, corporation, Municipality, County, State, body politic, government or dependency thereof. (o) In general to do any and all things herein set forth, and in addition such other acts and things as are incident or conducive to the attainment of the purposes of this corporation, or any of them, to the same extent that natural persons lawfully might or could do in any part of the world, in so far as such acts and things are not inconsistent with the provision of the laws of the State of Ohio; provided, however, that nothing herein contained shall be construed as including in the business and purposes of this corporation, (1) the transacting of the business of banking or the receiving of money on deposit except as agent pending investment thereof for or on account of the principal, or (2) the transaction or conduction of the business of a public utility. The objects and purposes specified in the foregoing clauses of this Article THIRD shall be construed both as objects and powers, and the foregoing enumeration of specified powers shall not be held to limit or restrict the powers of the corporation, and are in furtherance of and in addition to, and not in limitation of, the general powers conferred by the statutes of the State of Ohio. FOURTH: The authorized number of shares of the corporation is 37,000,000 consisting of 25,000,000 Common Shares, $1.00 par value (hereinafter called "Common Shares"), 6,000,000 Voting Serial Preferred Shares, without par value (hereinafter called "Voting Serial Preferred Shares"), and 6,000,000 Non-Voting Serial Preferred Shares, without par value (hereinafter called "Non-Voting Serial Preferred Shares"). -4- 5 DIVISION A The Voting Serial Preferred Shares shall have the following express terms: SECTION 1. SERIES. The Voting Serial Preferred Shares may be issued from time to time in one or more series. All shares of Voting Serial Preferred Shares shall be of equal rank and shall be identical, except in respect of the matters that may be fixed by the Board of Directors as hereinafter provided, and each share of a series shall be identical with all other shares of such series, except as to the dates from which dividends shall accrue and be cumulative. All Voting Serial Preferred Shares shall rank on a parity with and be identical to all Non-Voting Serial Preferred Shares except in respect of (i) the matters that may be fixed by the Board of Directors as provided in clauses (a) through (i), both inclusive, of this Section and (ii) the voting rights and provisions for consents relating to Voting Serial Preferred Shares as fixed and determined by Section 5 of this Division. Subject to the provisions of Sections 2 through 6, both inclusive, of this Division, which provisions shall apply to all Voting Serial Preferred Shares, the Board of Directors hereby is authorized to cause such shares to be issued in one or more series and with respect to each such series to determine and fix prior to the issuance thereof (and thereafter, to the extent provided in clause (b) of this Section) the following: (a) The designation of the series, which may be by distinguishing number, letter or title; (b) The authorized number of shares of the series, which number the Board of Directors may (except where otherwise provided in the creation of the series) increase or decrease from time to time before or after the issuance thereof (but not below the number of shares thereof then outstanding); (c) The dividend rate or rates of the series, including the means by which such rates may be established; (d) The date or dates from which dividends shall accrue and be cumulative and the dates on which and the period or periods for which dividends, if declared, shall be payable, including the means by which such dates and periods may be established; (e) The redemption rights and price or prices, if any, for shares of the series; -5- 6 (f) The terms and amount of the sinking fund, if any, for the purchase or redemption of shares of the series; (g) The amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the corporation; (h) Whether the shares of the series shall be convertible into Common Shares or shares of any other class and, if so, the conversion rate or rates or price or prices, any adjustments thereof and all other terms and conditions upon which such conversion may be made; and (i) Restrictions (in addition to those set forth in Subsection 5(c) of this Division) on the issuance of shares of the same series or of any other class or series. The Board of Directors is authorized to adopt from time to time amendments to the Amended Articles of Incorporation fixing, with respect to each such series, the matters described in clauses (a) through (i), both inclusive, of this Section and is authorized to take such actions with respect thereto as may be required by law in order to effect such amendments. SECTION 2. DIVIDENDS. (a) The holders of Voting Serial Preferred Shares of each series, in preference to the holders of Common Shares and of any other class of shares ranking junior to the Voting Serial Preferred Shares, shall be entitled to receive out of any funds legally available for Voting Serial Preferred Shares and Non-Voting Serial Preferred Shares, and when and as declared by the Board of Directors, dividends in cash at the rate or rates for such series fixed in accordance with the provisions of Section 1 of this Division and no more, payable on the dates fixed for such series. Such dividends shall accrue and be cumulative, in the case of shares of each particular series, from and after the date or dates fixed with respect to such series. No dividends shall be paid upon or declared or set apart for any series of the Voting Serial Preferred Shares for any dividend period unless at the same time (1) a like proportionate dividend for the dividend periods terminating on the same or any earlier date, ratably in proportion to the respective dividend rates fixed therefor, shall have been paid upon or declared or set apart for all Voting Serial Preferred Shares of all series then issued and outstanding and entitled to receive such dividend and (2) the dividends payable for the dividend periods terminating on the same or any earlier -6- 7 date, ratably in proportion to the respective dividend rates fixed therefor, shall have been paid upon or declared or set apart for all Non-Voting Serial Preferred Shares of all series then issued and outstanding and entitled to receive such dividend. (b) So long as any Voting Serial Preferred Shares shall be outstanding no dividend, except a dividend payable in Common Shares or other shares ranking junior to the Voting Serial Preferred Shares, shall be paid or declared or any distribution be made, except as aforesaid, in respect of the Common Shares or any other shares ranking junior to the Voting Serial Preferred Shares, nor shall any Common Shares or any other shares ranking junior to the Voting Serial Preferred Shares be purchased, retired or otherwise acquired by the corporation, except out of the proceeds of the sale of Common Shares or other shares of the corporation ranking junior to the Voting Serial Preferred Shares received by the corporation subsequent to the date of first issuance of Voting Serial Preferred Shares of any series, unless: (1) All accrued and unpaid dividends on Voting Serial Preferred Shares, including the full dividends for all current dividend periods, shall have been declared and paid or a sum sufficient for payment thereof set apart; and (2) There shall be no arrearages with respect to the redemption of Voting Serial Preferred Shares of any series from any sinking fund provided for shares of such series in accordance with the provisions of Section 1 of this Division. SECTION 3. REDEMPTION. (a) Subject to the express terms of each series and to the provisions of Subsection 5(c)(6) of this Division, the corporation: (1) May, from time to time at the option of the Board of Directors, redeem all or any part of any redeemable series of Voting Serial Preferred Shares at the time outstanding at the applicable redemption price for such series fixed in accordance with the provisions of Section 1 of this Division; and (2) Shall, from time to time, make such redemptions of each series of Voting Serial Preferred Shares as may be required to fulfill the requirements of any sinking fund provided for shares of such series -7- 8 at the applicable sinking fund redemption price fixed in accordance with the provisions of Section 1 of this Division; and shall in each case pay all accrued and unpaid dividends to the redemption date. (b) (1) Notice of every such redemption shall be mailed, postage prepaid, to the holders of record of the Voting Serial Preferred Shares to be redeemed at their respective addresses then appearing on the books of the corporation, not less than 30 days nor more than 60 days prior to the date fixed for such redemption, or such other time prior thereto as the Board of Directors shall fix for any series pursuant to Section 1 of this Division prior to the issuance thereof. At any time after notice as provided above has been deposited in the mail, the corporation may deposit the aggregate redemption price of Voting Serial Preferred Shares to be redeemed, together with accrued and unpaid dividends thereon to the redemption date, with any bank or trust company in Cleveland, Ohio, or New York, New York, having capital and surplus of not less than $100,000,000, named in such notice and direct that there be paid to the respective holders of the Voting Serial Preferred Shares so to be redeemed amounts equal to the redemption price of the Voting Serial Preferred Shares so to be redeemed, together with such accrued and unpaid dividends thereon, on surrender of the share certificate or certificates held by such holders; and upon the deposit of such notice in the mail and the making of such deposit of money with such bank or trust company, such holders shall cease to be shareholders with respect to such shares; and from and after the time such notice shall have been so deposited and such deposit of money shall have been so made, such holders shall have no rights or claim against the corporation with respect to such shares, except only the right to receive such money from such bank or trust company without interest or to exercise before the redemption date any unexpired privileges of conversion. In the event less than all of the outstanding Voting Serial Preferred Shares are to be redeemed, the corporation shall select by lot the shares so to be redeemed in such manner as shall be prescribed by the Board of Directors. (2) If the holders of Voting Serial Preferred Shares which have been called for redemption shall not within six years after such deposit claim the amount -8- 9 deposited for the redemption thereof, any such bank or trust company shall, upon demand, pay over to the corporation such unclaimed amounts and thereupon such bank or trust company and the corporation shall be relieved of all responsibility in respect thereof and to such holders. (c) Any Voting Serial Preferred Shares which are (1) redeemed by the corporation pursuant to the provisions of this Section, (2) purchased and delivered in satisfaction of any sinking fund requirements provided for shares of such series, (3) converted in accordance with the express terms thereof, or (4) otherwise acquired by the corporation, shall resume the status of authorized but unissued Voting Serial Preferred Shares without serial designation. SECTION 4. LIQUIDATION. (a) (1) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the corporation, the holders of Voting Serial Preferred Shares of any series shall be entitled to receive in full out of the assets of the corporation, including its capital, before any amount shall be paid or distributed among the holders of the Common Shares or any other shares ranking junior to the Voting Serial Preferred Shares, the amounts fixed with respect to shares of such series in accordance with Section 1 of this Division, plus an amount equal to all dividends accrued and unpaid thereon to the date of payment of the amount due pursuant to such liquidation, dissolution or winding up of the affairs of the corporation. In the event the net assets of the corporation legally available therefor are insufficient to permit the payment upon all outstanding Voting Serial Preferred Shares and Non-Voting Serial Preferred Shares of the full preferential amount to which they are respectively entitled, then such net assets shall be distributed ratably upon all outstanding Voting Serial Preferred Shares and Non-Voting Serial Preferred Shares in proportion to the full preferential amount to which each such share is entitled. (2) After payment to the holders of Voting Serial Preferred Shares of the full preferential amounts as aforesaid, the holders of Voting Serial Preferred Shares, as such, shall have no right or claim to any of the remaining assets of the corporation. -9- 10 (b) The merger or consolidation of the corporation into or with any other corporation, the merger of any other corporation into it, or the sale, lease or conveyance of all or substantially all the assets of the corporation, shall not be deemed to be a dissolution, liquidation or winding up for the purposes of this Section. SECTION 5. VOTING. (a) The holders of Voting Serial Preferred Shares shall be entitled at all times to one vote for each share and, except as otherwise provided in this Section or required by law, the holders of Voting Serial Preferred Shares and the holders of Common Shares shall vote together as a class on all matters presented, subject, however, to the special voting rights of the holders of Non-Voting Serial Preferred Shares as provided in Section 5 of Division B hereof. (b) (1) If, and so often as, the corporation shall be in default in the payment of the equivalent of the full dividends on any series of Voting Serial Preferred Shares at the time outstanding, whether or not earned or declared, for a number of dividend payment periods (whether or not consecutive) which in the aggregate contain at least 540 days, the holders of Voting Serial Preferred Shares of all series, voting separately as a class, shall be entitled to elect, as herein provided, two members of the Board of Directors of the corporation; provided, however, that the holders of Voting Serial Preferred Shares shall not have or exercise such special class voting rights except at meetings of such shareholders for the election of directors at which the holders of not less than 50% of the outstanding Voting Serial Preferred Shares of all series then outstanding are present in person or by proxy; and provided further that the special class voting rights provided for in this paragraph when the same shall have become vested shall remain so vested until all accrued and unpaid dividends on the Voting Serial Preferred Shares of all series then outstanding shall have been paid, whereupon the holders of Voting Serial Preferred Shares shall be divested of their special class voting rights in respect of subsequent elections of directors, subject to the revesting of such special class voting rights in the event above specified in this paragraph. (2) In the event of default entitling the holders of Voting Serial Preferred Shares to elect two -10- 11 directors as specified in paragraph (1) of this Subsection, a special meeting of such holders for the purpose of electing such directors shall be called by the Secretary of the corporation upon written request of, or may be called by, the holders of record of at least 10% of the Voting Serial Preferred Shares of all series at the time outstanding, and notice thereof shall be given in the same manner as that required for the annual meeting of shareholders; provided, however, that the corporation shall not be required to call such special meeting if the annual meeting of shareholders shall be called to be held within 120 days after the date of receipt of the foregoing written request from the holders of Voting Serial Preferred Shares. At any meeting at which the holders of Voting Serial Preferred Shares shall be entitled to elect directors, the holders of 50% of the Voting Serial Preferred Shares of all series at the time outstanding, present in person or by proxy, shall be sufficient to constitute a quorum, and the vote of the holders of a majority of such shares so present at any such meeting at which there shall be such a quorum shall be sufficient to elect the members of the Board of Directors which the holders of Voting Serial Preferred Shares are entitled to elect as herein provided. Notwithstanding any provision of these Amended Articles of Incorporation or the Code of Regulations of the corporation or any action taken by the holders of any class of shares fixing the number of directors of the corporation, the two directors who may be elected by the holders of Voting Serial Preferred Shares pursuant to this Subsection shall serve in addition to any other directors then in office or proposed to be elected otherwise than pursuant to this Subsection. Nothing in this Subsection shall prevent any change otherwise permitted in the total number or classifications of directors of the corporation nor require the resignation of any director elected otherwise than pursuant to this Subsection. Notwithstanding any classification of the other directors of the corporation, the two directors elected by the holders of Voting Serial Preferred Shares shall be elected annually for terms expiring at the next succeeding annual meeting of shareholders. (3) Upon any divesting of the special class voting rights of the holders of the Voting Serial Preferred Shares in respect of elections of directors as provided in this Subsection, the terms of office of all directors then in office elected by such holders -11- 12 shall terminate immediately thereupon. If the office of any director elected by such holders voting as a class becomes vacant by reason of death, resignation, removal from office or otherwise, the remaining director elected by such holders voting as a class may elect a successor who shall hold office for the unexpired term in respect of which such vacancy occurred. (c) The affirmative vote or consent of the holders of at least two-thirds of the Voting Serial Preferred Shares at the time outstanding, voting or consenting separately as a class, given in person or by proxy either in writing or at a meeting called for the purpose, shall be necessary to effect any one or more of the following (but so far as the holders of Voting Serial Preferred Shares are concerned, such action may be effected with such vote or consent): (1) The sale, lease or conveyance by the corporation of all or substantially all of its assets; (2) The merger or consolidation of the corporation into or with any other corporation or the merger of any other corporation into it; (3) The voluntary liquidation, dissolution or winding up of the affairs of the corporation; (4) Any amendment, alteration or repeal, whether by merger, consolidation or otherwise, of any of the provisions of the Amended Articles of Incorporation or of the Code of Regulations of the corporation which affects adversely the preferences or voting or other rights of the holders of Voting Serial Preferred Shares; provided, however, that for the purpose of this paragraph only, neither the amendment of the Amended Articles of Incorporation so as to authorize, create or change the authorized or outstanding number of Voting Serial Preferred Shares or of any shares ranking on a parity with or junior to the Voting Serial Preferred Shares nor the amendment of the provisions of the Code of Regulations so as to change the number or classification of directors of the corporation shall be deemed to affect adversely the preferences or voting or other rights of the holders of Voting Serial Preferred Shares; and provided further, that if such amendment, alteration or repeal affects adversely the preferences or voting or other rights of one or more but not all series of Voting Serial Preferred Shares at the time outstanding, only the affirmative vote or consent of -12- 13 the holders of at least two-thirds of the number of the shares at the time outstanding of the series so affected shall be required; (5) The authorization, creation or the increase in the authorized number of any shares, or any security convertible into shares, in either case ranking prior to the Voting Serial Preferred Shares; or (6) The purchase or redemption (for sinking fund purposes or otherwise) of less than all of the Voting Serial Preferred Shares then outstanding except in accordance with a stock purchase offer made to all holders of record of Voting Serial Preferred Shares, unless all dividends on all Voting Serial Preferred Shares then outstanding for all previous dividend periods shall have been declared and paid or funds therefor set apart and all accrued sinking fund obligations applicable thereto shall have been complied with. SECTION 6. DEFINITIONS. For the purposes of this Division: (a) Whenever reference is made to shares "ranking prior to the Voting Serial Preferred Shares," such reference shall mean and include all shares of the corporation in respect of which the rights of the holders thereof as to the payment of dividends or as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the corporation are given preference over the rights of the holders of Voting Serial Preferred Shares; (b) Whenever reference is made to shares "on a parity with the Voting Serial Preferred Shares," such reference shall mean and include all Non-Voting Serial Preferred Shares and all other shares of the corporation in respect of which the rights of the holders thereof as to the payment of dividends or as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the corporation rank equally (except as to the amounts fixed therefor) with the rights of the holders of Voting Serial Preferred Shares; and (c) Whenever reference is made to shares "ranking junior to the Voting Serial Preferred Shares," such reference shall mean and include all shares of the corporation other than those defined under Subsections (a) -13- 14 and (b) of this Section as shares "ranking prior to" or "on a parity with" the Voting Serial Preferred Shares. DIVISION B The Non-Voting Serial Preferred Shares shall have the following express terms: SECTION 1. SERIES. The Non-Voting Serial Preferred Shares may be issued from time to time in one or more series. All shares of Non-Voting Serial Preferred Shares shall be of equal rank and shall be identical, except in respect of the matters that may be fixed by the Board of Directors as hereinafter provided, and each share of a series shall be identical with all other shares of such series, except as to the dates from which dividends shall accrue and be cumulative. All Non-Voting Serial Preferred Shares shall rank on a parity with and be identical to all Voting Serial Preferred Shares except in respect of (i) the matters that may be fixed by the Board of Directors as provided in clauses (a) through (i), both inclusive, of this Section and (ii) the voting rights and provisions for consents relating to Non-Voting Serial Preferred Shares as fixed and determined by Section 5 of this Division. Subject to the provisions of Sections 2 through 6, both inclusive, of this Division, which provisions shall apply to all Non-Voting Serial Preferred Shares, the Board of Directors hereby is authorized to cause such shares to be issued in one or more series and with respect to each such series to determine and fix prior to the issuance thereof (and thereafter, to the extent provided in clause (b) of this Section) the following: (a) The designation of the series, which may be by distinguishing number, letter or title; (b) The authorized number of shares of the series, which number the Board of Directors may (except where otherwise provided in the creation of the series) increase or decrease from time to time before or after the issuance thereof (but not below the number of shares thereof then outstanding); (c) The dividend rate or rates of the series, including the means by which such rates may be established; (d) The date or dates from which dividends shall accrue and be cumulative and the dates on which and the period or periods for which dividends, if declared, shall be payable, including the means by which such dates and periods may be established; -14- 15 (e) The redemption rights and price or prices, if any, for shares of the series; (f) The terms and amount of the sinking fund, if any, for the purchase or redemption of shares of the series; (g) The amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the corporation; (h) Whether the shares of the series shall be convertible into Common Shares or shares of any other class and, if so, the conversion rate or rates or price or prices, any adjustments thereof and all other terms and conditions upon which such conversion may be made; and (i) Restrictions (in addition to those set forth in Subsection 5(c) of this Division) on the issuance of shares of the same series or of any other class or series. The Board of Directors is authorized to adopt from time to time amendments to the Amended Articles of Incorporation fixing, with respect to each such series, the matters described in clauses (a) through (i), both inclusive, of this Section and is authorized to take such actions with respect thereto as may be required by law in order to effect such amendments. SECTION 2. DIVIDENDS. (a) The holders of Non-Voting Serial Preferred Shares of each series, in preference to the holders of Common Shares and of any other class of shares ranking junior to the Non-Voting Serial Preferred Shares, shall be entitled to receive out of any funds legally available for Non-Voting Serial Preferred Shares and Voting Serial Preferred Shares, and when and as declared by the Board of Directors, dividends in cash at the rate or rates for such series fixed in accordance with the provisions of Section 1 of this Division and no more, payable on the dates fixed for such series. Such dividends shall accrue and be cumulative, in the case of shares of each particular series, from and after the date or dates fixed with respect to such series. No dividends shall be paid upon or declared or set apart for any series of the Non-Voting Serial Preferred Shares for any dividend period unless at the same time (1) a like proportionate dividend for the dividend periods terminating on the same or any earlier date, ratably in proportion to the respective annual dividend rates fixed therefor, shall have been paid upon or declared or set apart for all Non-Voting Serial Preferred -15- 16 Shares of all series then issued and outstanding and entitled to receive such dividend and (2) the dividends payable for the dividend periods terminating on the same or any earlier date, ratably in proportion to the respective dividend rates fixed therefor, shall have been paid upon or declared or set apart for all Voting Serial Preferred Shares of all series then issued and outstanding and entitled to receive such dividend. (b) So long as any Non-Voting Serial Preferred Shares shall be outstanding no dividend, except a dividend payable in Common Shares or other shares ranking junior to the Non-Voting Serial Preferred Shares, shall be paid or declared or any distribution be made, except as aforesaid, in respect of the Common Shares or any other shares ranking junior to the Non-Voting Serial Preferred Shares, nor shall any Common Shares or any other shares ranking junior to the Non-Voting Serial Preferred Shares be purchased, retired or otherwise acquired by the corporation, except out of the proceeds of the sale of Common Shares or other shares of the corporation ranking junior to the Non-Voting Serial Preferred Shares received by the corporation subsequent to the date of first issuance of Non-Voting Serial Preferred Shares of any series, unless: (1) All accrued and unpaid dividends on Non-Voting Serial Preferred Shares, including the full dividends for all current dividend periods, shall have been declared and paid or a sum sufficient for payment thereof set apart; and (2) There shall be no arrearages with respect to the redemption of Non-Voting Serial Preferred Shares of any series from any sinking fund provided for shares of such series in accordance with the provisions of Section 1 of this Division. SECTION 3. REDEMPTION. (a) Subject to the express terms of each series and the provisions of Subsection 5(c)(3) of this Division, the corporation: (1) May, from time to time at the option of the Board of Directors, redeem all or any part of any redeemable series of Non-Voting Serial Preferred Shares at the time outstanding at the applicable redemption price for such series fixed in accordance with the provisions of Section 1 of this Division; and -16- 17 (2) Shall, from time to time, make such redemptions of each series of Non-Voting Serial Preferred Shares as may be required to fulfill the requirements of any sinking fund provided for shares of such series at the applicable sinking fund redemption price fixed in accordance with the provisions of Section 1 of this Division; and shall in each case pay all accrued and unpaid dividends to the redemption date. (b) (1) Notice of every such redemption shall be mailed, postage prepaid, to the holders of record of the Non-Voting Serial Preferred Shares to be redeemed at their respective addresses then appearing on the books of the corporation, not less than 30 days nor more than 60 days prior to the date fixed for such redemption, or such other time prior thereto as the Board of Directors shall fix for any series pursuant to Section 1 of this Division prior to the issuance thereof. At any time after notice as provided above has been deposited in the mail, the corporation may deposit the aggregate redemption price of Non-Voting Serial Preferred Shares to be redeemed, together with accrued and unpaid dividends thereon to the redemption date, with any bank or trust company in Cleveland, Ohio, or New York, New York, having capital and surplus of not less than $100,000,000, named in such notice and direct that there be paid to the respective holders of the Non-Voting Serial Preferred Shares so to be redeemed amounts equal to the redemption price of the Non-Voting Serial Preferred Shares so to be redeemed, together with such accrued and unpaid dividends thereon, on surrender of the share certificate or certificates held by such holders; and upon the deposit of such notice in the mail and the making of such deposit of money with such bank or trust company, such holders shall cease to be shareholders with respect to such shares; and from and after the time such notice shall have been so deposited and such deposit of money shall have been so made, such holders shall have no rights or claim against the corporation with respect to such shares, except only the right to receive such money from such bank or trust company without interest or to exercise before the redemption date any unexpired privileges of conversion. In the event less than all of the outstanding Non-Voting Serial Preferred Shares are to be redeemed, the corporation shall select by lot the shares so to be redeemed in such manner as shall be prescribed by the Board of Directors. -17- 18 (2) If the holders of Non-Voting Serial Preferred Shares which have been called for redemption shall not within six years after such deposit claim the amount deposited for the redemption thereof, any such bank or trust company shall, upon demand, pay over to the corporation such unclaimed amounts and thereupon such bank or trust company and the corporation shall be relieved of all responsibility in respect thereof and to such holders. (c) Any Non-Voting Serial Preferred Shares which are (1) redeemed by the corporation pursuant to the provisions of this Section, (2) purchased and delivered in satisfaction of any sinking fund requirements provided for shares of such series, (3) converted in accordance with the express terms thereof, or (4) otherwise acquired by the corporation, shall resume the status of authorized but unissued Non-Voting Serial Preferred Shares without serial designation. SECTION 4. LIQUIDATION. (a) (1) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the corporation, the holders of Non-Voting Serial Preferred Shares of any series shall be entitled to receive in full out of the assets of the corporation, including its capital, before any amount shall be paid or distributed among the holders of the Common Shares or any other shares ranking junior to the Non-Voting Serial Preferred Shares, the amounts fixed with respect to shares of such series in accordance with Section 1 of this Division, plus an amount equal to all dividends accrued and unpaid thereon to the date of payment of the amount due pursuant to such liquidation, dissolution or winding up of the affairs of the corporation. In the event the net assets of the corporation legally available therefor are insufficient to permit the payment upon all outstanding Non-Voting Serial Preferred Shares and Voting Serial Preferred Shares of the full preferential amount to which they are respectively entitled, then such net assets shall be distributed ratably upon all outstanding Non-Voting Serial Preferred Shares and Voting Serial Preferred Shares in proportion to the full preferential amount to which each such share is entitled. (2) After payment to the holders of Non-Voting Serial Preferred Shares of the full preferential amounts as aforesaid, the holders of Non-Voting Serial -18- 19 Preferred Shares, as such, shall have no right or claim to any of the remaining assets of the corporation. (b) The merger or consolidation of the corporation into or with any other corporation, the merger of any other corporation into it, or the sale, lease or conveyance of all or substantially all the assets of the corporation, shall not be deemed to be a dissolution, liquidation or winding up for the purposes of this Section. SECTION 5. VOTING. (a) The holders of Non-Voting Serial Preferred Shares shall have no voting rights, except as provided in this Section or required by law. (b) (1) If, and so often as, the corporation shall be in default in the payment of the equivalent of the full dividends on any series of Non-Voting Serial Preferred Shares at the time outstanding, whether or not earned or declared, for a number of dividend payment periods (whether or not consecutive) which in the aggregate contain at least 540 days, the holders of Non-Voting Serial Preferred Shares of all series, voting separately as a class, shall be entitled to elect, as herein provided, two members of the Board of Directors of the corporation; provided, however, that the holders of Non-Voting Serial Preferred Shares shall not have or exercise such special class voting rights except at meetings of such shareholders for the election of directors at which the holders of not less than 50% of the outstanding Non-Voting Serial Preferred Shares of all series then outstanding are present in person or by proxy; and provided further that the special class voting rights provided for in this paragraph when the same shall have become vested shall remain so vested until all accrued and unpaid dividends on the Non-Voting Serial Preferred Shares of all series then outstanding shall have been paid, whereupon the holders of Non-Voting Serial Preferred Shares shall be divested of their special class voting rights in respect of subsequent elections of directors, subject to the revesting of such special class voting rights in the event above specified in this paragraph. (2) In the event of default entitling the holders of Non-Voting Serial Preferred Shares to elect two directors as specified in paragraph (1) of this Subsection, a special meeting of such holders for the -19- 20 purpose of electing such directors shall be called by the Secretary of the corporation upon written request of, or may be called by, the holders of record of at least 10% of the Non-Voting Serial Preferred Shares of all series at the time outstanding, and notice thereof shall be given in the same manner as that required for the annual meeting of shareholders; provided, however, that the corporation shall not be required to call such special meeting if the annual meeting of shareholders shall be called to be held within 120 days after the date of receipt of the foregoing written request from the holders of Non-Voting Serial Preferred Shares. At any meeting at which the holders of Non-Voting Serial Preferred Shares shall be entitled to elect directors, the holders of 50% of the Non-Voting Serial Preferred Shares of all series at the time outstanding, present in person or by proxy, shall be sufficient to constitute a quorum, and the vote of the holders of a majority of such shares so present at any such meeting at which there shall be such a quorum shall be sufficient to elect the members of the Board of Directors which the holders of Non-Voting Serial Preferred Shares are entitled to elect as herein provided. Notwithstanding any provision of these Amended Articles of Incorporation or the Code of Regulations of the corporation or any action taken by the holders of any class of shares fixing the number of directors of the corporation, the two directors who may be elected by the holders of Non-Voting Serial Preferred Shares pursuant to this Subsection shall serve in addition to any other directors then in office or proposed to be elected otherwise than pursuant to this Subsection. Nothing in this Subsection shall prevent any change otherwise permitted in the total number of or classifications of directors of the corporation nor require the resignation of any director elected otherwise than pursuant to this Subsection. Notwithstanding any classification of the other directors of the corporation, the two directors elected by the holders of Non-Voting Serial Preferred Shares shall be elected annually for terms expiring at the next succeeding annual meeting of shareholders. (3) Upon any divesting of the special class voting rights of the holders of the Non-Voting Serial Preferred Shares in respect of elections of directors as provided in this Subsection, the terms of office of all directors then in office elected by such holders shall terminate immediately thereupon. If the office of any director elected by such holders voting as a class becomes vacant by reason of death, resignation, removal from office or otherwise, the remaining director elected by such holders voting as a -20- 21 class may elect a successor who shall hold office for the unexpired term in respect of which such vacancy occurred. (c) The affirmative vote or consent of the holders of at least two-thirds of the Non-Voting Serial Preferred Shares at the time outstanding, voting or consenting separately as a class, given in person or by proxy either in writing or at a meeting called for the purpose, shall be necessary to effect any one or more of the following (but so far as the holders of Non-Voting Serial Preferred Shares are concerned, such action may be effected with such vote or consent): (1) Any amendment, alteration or repeal, whether by merger, consolidation or otherwise, of any of the provisions of the Amended Articles of Incorporation or of the Code of Regulations of the corporation which affects adversely the preferences or voting or other rights of the holders of Non-Voting Serial Preferred Shares; provided, however, neither the amendment of the Amended Articles of Incorporation so as to authorize, create or change the authorized or outstanding number of Non-Voting Serial Preferred Shares or of any shares ranking on a parity with or junior to the Non-Voting Serial Preferred Shares nor the amendment of the provisions of the Code of Regulations so as to change the number or classification of directors of the corporation shall be deemed to affect adversely the preferences or voting or other rights of the holders of Non-Voting Serial Preferred Shares; and provided further, that if such amendment, alteration or repeal affects adversely the preferences or voting or other rights of one or more but not all series of Non-Voting Serial Preferred Shares at the time outstanding, only the affirmative vote or consent of the holders of at least two-thirds of the number of the shares at the time outstanding of the series so affected shall be required; (2) The authorization, creation or the increase in the authorized number of any shares, or any security convertible into shares, in either case ranking prior to the Non-Voting Serial Preferred Shares; or (3) The purchase or redemption (for sinking fund purposes or otherwise) of less than all of the -21- 22 Non-Voting Serial Preferred Shares then outstanding except in accordance with a stock purchase offer made to all holders of record of Non-Voting Serial Preferred Shares, unless all dividends on all Non-Voting Serial Preferred Shares then outstanding for all previous dividend periods shall have been declared and paid or funds therefor set apart and all accrued sinking fund obligations applicable thereto shall have been complied with. SECTION 6. DEFINITIONS. For the purposes of this Division: (a) Whenever reference is made to shares "ranking prior to the Non-Voting Serial Preferred Shares," such reference shall mean and include all shares of the corporation in respect of which the rights of the holders thereof as to the payment of dividends or as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the corporation are given preference over the rights of the holders of Non-Voting Serial Preferred Shares; (b) Whenever reference is made to shares "on a parity with the Non-Voting Serial Preferred Shares," such reference shall mean and include all Voting Serial Preferred Shares and all other shares of the corporation in respect of which the rights of the holders thereof as to the payment of dividends or as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the corporation rank equally (except as to the amounts fixed therefor) with the rights of the holders of Non-Voting Serial Preferred Shares; and (c) Whenever reference is made to shares "ranking junior to the Non-Voting Serial Preferred Shares," such reference shall mean and include all shares of the corporation other than those defined under Subsections (a) and (b) of this Section as shares "ranking prior to" or "on a parity with" the Non-Voting Serial Preferred Shares. -22- 23 DIVISION C The Common Shares shall have the following express terms: The Common Shares shall be subject to the express terms of the Voting Serial Preferred Shares and any series thereof and to the express terms of the Non-Voting Serial Preferred Shares and any series thereof. Each Common Share shall be equal to every other Common Share and the holders thereof shall be entitled to one vote for each Common Share on all matters presented. FIFTH: In furtherance and not in limitation of the general powers conferred by the laws of Ohio and the purposes herein set forth, and only for the purpose of defining, limiting and regulating the exercise of authority of the corporation and of the directors and shareholders and creating and defining rights and privileges of the shareholders among themselves, it is expressly provided: (a) The purpose for which the corporation is formed may be substantially changed in the manner provided by law. (b) The Articles of Incorporation of the corporation may be amended at any time after subscriptions to shares have been received, by the affirmative vote of the holders of shares entitling them to exercise a majority of the voting power of the corporation on such proposal. (c) Upon any reduction of the stated capital of the corporation, and upon any distribution to shareholders of excess assets remaining after any such reduction of stated capital, any action required or permitted by the shareholders shall be on affirmative vote of the holders of a majority of such shares. (d) The corporation may purchase its own shares to the extent of the surplus of the aggregate of its assets over the aggregate of its liabilities plus stated capital when authorized by the Board of Directors without further corporate action. (e) The corporation may, by action taken at any meeting of its Board of Directors, sell, lease, exchange or otherwise dispose of all or substantially all of its property and assets, including its good will, in any lawful manner, as the Board of Directors may deem expedient, when and as authorized by the affirmative vote of holders of shares entitling them to exercise a majority of the voting power on any such proposal. (f) The corporation may wind up its affairs and dissolve by resolution adopted by the vote cast in person -23- 24 or by proxy by the holders of shares entitling them to exercise a majority of the voting power upon such proposal. (g) Unless these Amended Articles of Incorporation otherwise provide, the affirmative vote or consent of the holders of shares entitling them to exercise a majority of the voting power of the corporation shall determine any matter or proposal in each case in which the statutes of the State of Ohio provide that the vote or consent of holders of shares entitling them to exercise a designated proportion more than a majority of the voting power of the corporation be required on any such matter or proposal, except that in order to amend, alter, change or repeal Article SEVENTH of these Amended Articles of Incorporation or the provisions of this paragraph (g) of Article FIFTH dealing with the amendment, alteration, change or repeal of Article SEVENTH, the affirmative vote of the holders of record of 75 percent of the shares having voting power with respect to any such proposal shall be required. (h) No holder of shares of the corporation of any class shall be entitled as such, as a matter of right, to subscribe for or purchase shares of any class, now or hereafter authorized or to purchase or subscribe for securities convertible into or exchangeable for shares of the corporation or to which shall be attached or appertain any warrants or rights entitling the holder thereof to subscribe for or purchase shares except such rights of subscription or purchase, if any, at such price or prices and upon such terms and conditions as the Board of Directors in its discretion from time to time may determine. SIXTH: These Second Amended and Restated Articles of Incorporation shall supersede and take the place of the heretofore existing Amended and Restated Articles of Incorporation and all amendments thereto. SEVENTH: (a) If any person, together with its affiliates and associates as defined from time to time under the Rules of the Securities and Exchange Commission, beneficially owns (as so defined) in the aggregate 20% or more of the outstanding Common Shares of the corporation and attempts to effect or effects: (i) any merger or consolidation of the corporation or subsidiary with or into such person, -24- 25 (ii) any sale, lease, exchange, transfer or other disposition, including without limitation, a mortgage or any other security device, of all or substantially all the assets of the corporation (including any voting securities of a subsidiary), or of a subsidiary, to such person, (iii) any merger or consolidation of such person with or into the corporation or a subsidiary, (iv) any sale, lease, exchange, transfer or other disposition of all or substantially all of the assets of such person to the corporation or a subsidiary, (v) the issuance of any securities of the corporation or a subsidiary to such person, (vi) any recapitalization that would have the effect of increasing the voting power of such person, or (vii) any agreement, contract or other arrangement providing for any of the transactions described herein, the consideration per share to be received by holders of Common Shares of the corporation as a result of such transaction shall not be less than the highest per share price, adjusted for any share split, share dividend or recapitalization or other capital distribution, paid by such person in obtaining any of its holdings of the corporation's Common Shares unless 1. a majority of the directors of the corporation who were directors immediately prior to the time that such person acquired 20% or more of the Company's outstanding Common Shares approves such transaction, or 2. the proposed transaction receives the affirmative vote of the holders of record of 75% of the voting power including shares held by such person and the affirmative vote of the holders of a majority of the voting power excluding shares held by such person. (b) For the purpose of this Article SEVENTH: (i) a person shall be any individual or any corporation, partnership or other entity. (ii) beneficial ownership shall include any Common Shares of the corporation a person, or affiliate or associate thereof, has the right to acquire pursuant to any -25- 26 agreement, or upon exercise of conversion rights, warrants or options or otherwise. EIGHTH: No shareholder of the corporation may cumulate his voting power in the election of directors. -26- 27 AMENDMENT TO SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION OF THE STANDARD PRODUCTS COMPANY The first paragraph of Article FOURTH of the Company's Second Amended and Restated Articles of Incorporation is deleted in its entirety and the following substituted therefor: FOURTH: The authorized number of shares of the corporation is 62,000,000, consisting of 50,000,000 Common Shares, $1.00 par value (hereinafter called "Common Shares"), 6,000,000 Voting Serial Preferred Shares, without par value (hereinafter called "Voting Serial Preferred Shares"), and 6,000,000 Non-Voting Serial Preferred Shares, without par value (hereinafter called "Non-Voting Serial Preferred Shares."). -27- 28 CERTIFICATE OF AMENDMENT TO THE SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION OF THE STANDARD PRODUCTS COMPANY Theodore K. Zampetis, President, and Richard N. Jacobson, Secretary, of The Standard Products Company, an Ohio corporation (the "Company"), do hereby certify that at a meeting of the Board of Directors of the Company held on January 26, 1999, the following resolution to amend the Second Amended and Restated Articles of Incorporation, as amended, of the Company was adopted pursuant to the authority granted by Section 1701.70(B)(1) of the Ohio Revised Code: RESOLVED, that the Second Amended and Restated Articles of Incorporation, as amended, of the Company be, and they hereby are, amended by adding at the end of Division B of Article FOURTH a new Section 7 that reads as follows: SECTION 7. SERIES A NON-VOTING SERIAL PREFERRED SHARES. (a) Designation and Amount. Of the 6,000,000 authorized Non-Voting Serial Preferred Shares, 1,000,000 are designated as a series designated as "Series A Non-Voting Serial Preferred Shares" (the "Series A Preferred Shares"). The Series A Preferred Shares have the express terms set forth in this Division as being applicable to all Non-Voting Serial Preferred Shares as a class and, in addition, the following express terms applicable to all Series A Preferred Shares as a series of Preferred Shares. The number of Series A Preferred Shares may be increased or decreased by resolution of the Board of Directors and by the filing of a certificate of amendment pursuant to the provisions of the General Corporation Law of the State of Ohio stating that such increase or reduction has been so authorized; however, no decrease shall reduce the number of Series A Preferred Shares to a number less than that of the Series A Preferred Shares then outstanding plus the number of Series A Preferred Shares issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Company. (b) Dividends and Distributions. (1)(i) Subject to the rights of the holders of any series of preferred shares (or any similar shares) ranking prior to the Series A Preferred Shares with respect to dividends, the holders of Series A Preferred Shares, in preference to the holders of Common Shares and of any other junior shares, will be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the fifteenth day of -28- 29 March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a Series A Preferred Share or fraction thereof, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provisions for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all noncash dividends or other distributions other than a dividend payable in Common Shares or a subdivision of the outstanding Common Shares (by reclassification or otherwise), declared on the Common Shares after the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, after the first issuance of any Series A Preferred Share or fraction thereof. The multiple of cash and noncash dividends declared on the Common Shares to which holders of the Series A Preferred Shares are entitled, which is 1,000 initially but which will be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Dividend Multiple." If the Company at any time after January 26, 1999 (the "Rights Declaration Date"): (i) declares or pays any dividend on the Common Shares payable in Common Shares, or (ii) effects a subdivision or combination or consolidation of the outstanding Common Shares (by reclassification or otherwise than by payment of a dividend in Common Shares) into a greater or lesser number of Common Shares, then in each such case the Dividend Multiple thereafter applicable to the determination of the amount of dividends that holders of Series A Preferred Shares are entitled to receive will be the Dividend Multiple applicable immediately prior to that event multiplied by a fraction, the numerator of which is the number of Common Shares outstanding immediately after that event and the denominator of which is the number of Common Shares that were outstanding immediately prior to that event. (ii) Notwithstanding anything else contained in this paragraph (1), the Company shall, out of funds legally available for that purpose, declare a dividend or distribution on the Series A Preferred Shares as provided in this paragraph (1) immediately after it declares a dividend or distribution on the Common Shares (other than a dividend payable in Common Shares); but if no dividend or distribution has been declared on the Common Shares during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series A Preferred Shares shall nevertheless accrue on such subsequent Quarterly Dividend Payment Date. (2) Dividends will begin to accrue and be cumulative on outstanding Series A Preferred Shares from the Quarterly Dividend -29- 30 Payment Date next preceding the date of issue of such Series A Preferred Shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares will begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of Series A Preferred Shares entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends will begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends will not bear interest. Dividends paid on the Series A Preferred Shares in an amount less than the total amount of such dividends at the time accrued and payable on such shares will be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix in accordance with applicable law a record date for the determination of holders of Series A Preferred Shares entitled to receive payment of a dividend or distribution declared thereon, which record date will be not more than such number of days prior to the date fixed for the payment thereof as may be allowed by applicable law. (c) Reacquired Shares. Any Series A Preferred Shares purchased or otherwise acquired by the Company in any manner whatsoever will be retired and canceled promptly after the acquisition thereof. All such shares will upon their cancellation become authorized but unissued preferred shares and may be reissued as part of a new series of Series A Non-Voting Serial Preferred Shares to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. (d) Liquidation, Dissolution or Winding Up. Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Company, no distribution may be made (x) to the holders of shares ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Shares unless, prior thereto, the holders of Series A Preferred Shares shall have received an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, plus an amount equal to the greater of (1) $1,000.00 per share or (2) an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of Common Shares, or (y) to the holders of shares ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Shares, except distributions made ratably on the Series A Preferred Shares and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. If the Company at any time after the Rights Declaration Date (i) declares or pays any dividend on Common Shares payable in Common -30- 31 Shares, or (ii) effects a subdivision or combination or consolidation of the outstanding Common Shares (by reclassification or otherwise than by payment of a dividend in Common Shares) into a greater or lesser number of Common Shares, then in each such case the aggregate amount per share to which holders of Series A Preferred Shares were entitled immediately prior to such event under clause (x) of the preceding sentence will be adjusted by multiplying such amount by a fraction, the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event. Neither the consolidation of nor merging of the Company with or into any other corporation or corporations, nor the sale or other transfer of all or substantially all of the assets of the Company, will be considered to be a liquidation, dissolution or winding up of the Company within the meaning of this paragraph (d). (e) Consolidation, Merger, etc. If the Company shall enter into any consolidation, merger, combination or other transaction in which the Common Shares are exchanged for or changed into other shares, stock or securities, cash or any other property, then in any such case the Series A Preferred Shares will at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of shares, stock, securities, or other property, as the case may be, into which or for which each Common Share is changed or exchanged, plus accrued and unpaid dividends, if any, payable with respect to the Series A Preferred Shares. If the Company at any time after the Rights Declaration Date (i) declares or pays any dividend on Common Shares payable in Common Shares, or (ii) effects a subdivision or combination or consolidation of the outstanding Common Shares (by reclassification or otherwise than by payment of a dividend in Common Shares) into a greater or lesser number of Common Shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of Series A Preferred Shares will be adjusted by multiplying such amount by a fraction, the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event. (f) Redemption. The Series A Preferred Shares are not redeemable, but the foregoing does not limit the ability of the Company to purchase or otherwise deal in the Series A Preferred Shares to the extent otherwise permitted hereby and by law. (g) Amendment. The Second Amended Articles of Incorporation of the Company, as amended, may not be amended in any manner that would materially alter or change the powers, preferences or special rights of the Series A Preferred Shares so as to affect -31- 32 them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding Series A Preferred Shares, voting separately as a class. (h) Fractional Shares. Series A Preferred Shares may be issued in whole shares or in any fraction of a share that is one one-thousandth (1/1,000th) of a share or any integral multiple of such fraction, which will entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and have the benefit of all other rights of holders of Series A Preferred Shares. In lieu of fractional shares, the Company may elect to make a cash payment as provided in that certain Rights Agreement dated as of January 26, 1999, between the Company and National City Bank, a national banking association, as rights agent, for fractions of a share smaller than one one-thousandth (1/1,000th) of a share or any integral multiple thereof. IN WITNESS WHEREOF, we have executed this instrument in one or more counterparts as of January 28, 1999. THE STANDARD PRODUCTS COMPANY, an Ohio corporation /s/ Theodore K. Zampetis ------------------------------- Theodore K. Zampetis, President /s/ Richard N. Jacobson ------------------------------- Richard N. Jacobson, Secretary Articles of Incorporation -32- EX-4.A 3 FIRST AMENDMENT AGREEMENT DATED DECEMBER 10, 1998 1 EXHIBIT 4a FIRST AMENDMENT AGREEMENT This First Amendment Agreement is made as of the 10th day of December, 1998, by and among THE STANDARD PRODUCTS COMPANY, an Ohio corporation ("Borrower"), NATIONAL CITY BANK, as agent ("Agent"), and the banking institutions named in Schedule 1 to the Credit Agreement, as defined herein (the "Banks"): WHEREAS, Borrower, Agent and the Banks are parties to a certain Credit Agreement dated as of September 26, 1997, as it may from time to time be amended, restated or otherwise modified (the "Credit Agreement"); WHEREAS, Borrower, Agent and the Banks desire to amend the Credit Agreement to modify the net worth financial covenant and by modifying certain other provisions thereof; and WHEREAS, each term used herein shall be defined in accordance with the Credit Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein and for other valuable considerations, Borrower, Agent and the Banks agree as follows: 1. The Credit Agreement is hereby amended by deleting Section 5.7(a) in its entirety and by inserting in place thereof the following: (a) NET WORTH. Borrower shall not suffer or permit its Consolidated Net Worth at any time, based upon Borrower's financial statements for the most recent fiscal quarter, to fall below the minimum amount required, which minimum amount required shall be One Hundred Sixty Million Dollars ($160,000,000) on the Closing Date through June 29, 1998, with such minimum amount required to be positively increased by the Increase Amount on June 30, 1998, and by an additional Increase Amount on each successive June 30 thereafter; provided, however, for purposes of calculating Consolidated Net Worth for this Subsection 5.7(a), the following shall be added to such calculation: (i) Fifteen Million Dollars ($15,000,000) of goodwill reported by Borrower in connection with the acquisition by Borrower of the assets of OEM/Miller Corporation, and (ii) an amount equal to the actual amount paid by Borrower in connection with the repurchase by Borrower from time to time from and after September 26, 1997, of Borrower's common shares, in an amount not to exceed Thirty-Five Million Dollars ($35,000,000). As used herein, the term "Increase Amount" shall mean an amount equal to fifty percent (50%) of Borrower's Consolidated Net Earnings (with no deduction for losses) for the fiscal year then ended. 2. Borrower hereby represents and warrants to Agent and the Banks that (a) Borrower has the corporate power and authority to execute and deliver this First Amendment Agreement; (b) the official executing this First Amendment Agreement has been duly authorized to execute and deliver the same and bind Borrower with respect to the provisions hereof; (c) the 2 execution and delivery hereof by Borrower and the performance and observance by Borrower of the provisions hereof do not violate or conflict with the organizational documents of Borrower or any law applicable to Borrower or result in a breach of any provision of or constitute a default under any other agreement, instrument or document binding upon or enforceable against Borrower; (d) no Event of Default exists under the Credit Agreement, nor will any occur immediately after the execution and delivery of the First Amendment Agreement or by the performance or observance of any provision hereof; (e) Borrower does not have any claim or offset against, or defense or counterclaim to, any of Borrower's obligations or liabilities under the Credit Agreement or any Related Writing, and Borrower and each Subsidiary hereby waives and releases Agent and each of the Banks, and their respective directors, officers, employees, attorneys, affiliates and subsidiaries, from any and all such claims, offsets, defenses and counterclaims of which Borrower is aware, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto; and (f) this First Amendment Agreement constitutes a valid and binding obligation of Borrower in every respect, enforceable in accordance with its terms. 3. Each reference that is made in the Credit Agreement or any other writing shall hereafter be construed as a reference to the Credit Agreement as amended hereby. Except as herein otherwise specifically provided, all provisions of the Credit Agreement shall remain in full force and effect and be unaffected hereby. 4. This First Amendment Agreement may be executed in any number of counterparts by different parties hereto in separate counterparts and by facsimile signature, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. 5. The rights and obligations of all parties hereto shall be governed by the laws of the State of Ohio. [The remainder of this page is intentionally blank.] 2 3 6. JURY TRIAL WAIVER. BORROWER, AGENT AND EACH OF THE BANKS WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, BETWEEN BORROWER, AGENT AND THE BANKS, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO. Address: 2401 South Gulley Road THE STANDARD PRODUCTS COMPANY Dearborn, Michigan 48124 Attention: Mr. Charles Nagy By: /s/ Charles Nagy Treasurer --------------------------- Treasurer --------------------- Address: National City Bank Building NATIONAL CITY BANK 1900 East Ninth Street, 10th Floor As a Bank and as Agent Cleveland, Ohio 44114-3484 Attention: Ms. Marybeth S. Howe By: /s/ Marybeth S. Howe Senior Vice President --------------------------- Senior Vice President --------------------- Address: 500 Woodward Ave. COMERICA BANK Detroit, Michigan 48226-3265 Attention: Mr. Michael Shea By: /s/ Michael T. Shea Vice President --------------------------- Vice President --------------------- Address: 611 Woodward Ave., 2nd Floor NBD BANK Detroit, Michigan 48226 Attention: Ms. Tess Kalil By: /s/ Mary Lu D. Cramer Vice President --------------------------- Vice President --------------------- [Signatures continued on next page] 3 4 Address: 127 Public Square KEYBANK NATIONAL ASSOCIATION Cleveland, Ohio 44114 Attn: Mr. J.T. Taylor By: /s/ J. T. Taylor Vice President --------------------------- Vice President --------------------- Address: One Wall Street, 22nd Floor THE BANK OF NEW YORK New York, New York 10286 Attn: Mr. William M. Barnum, Jr. By: /s/ William Barnum Vice President --------------------------- Vice President --------------------- Address: 111 West Monroe Street HARRIS TRUST AND SAVINGS BANK 10th Floor, West Chicago, Illinois 60603 Attn: Mr. Kirby Law By: /s/ Kirby M. Law Vice President --------------------------- Vice President --------------------- Address: 100 Federal Street BANKBOSTON, N.A. Boston, Massachusetts 02110 Attn: Mr. Rob MacElhiney By: /s/ Robert W. MacElhiney Vice President --------------------------- Vice President --------------------- 4 5 GUARANTOR ACKNOWLEDGMENT Each of the undersigned acknowledges and agrees (i) to remain bound by the terms and conditions of the Guaranty of Payment of Debt and the other Loan Documents executed and delivered by each of the undersigned to Agent for the benefit of the Banks, and (ii) that the liability of each of the undersigned pursuant to such Guaranty of Payment of Debt or other Loan Documents shall continue and remain in full force and effect. Each of the undersigned hereby consents to Borrower's execution of the First Amendment Agreement and further agrees that Agent and the Banks may rely on this acknowledgment in entering into the First Amendment Agreement. IN WITNESS WHEREOF, the foregoing acknowledgment has been executed and delivered as of December 10, 1998. Address: 215 Oneta Street OLIVER RUBBER CORPORATION Athens, Georgia 30613 By: /s/ Donald R. Sheley, Jr. --------------------------- Assistant Treasurer -------------------- Address: 995 South Gardner Street HOLM INDUSTRIES, INC. Scottsburg, Indiana 47170 By: /s/ Charles Nagy --------------------------- Assistant Treasurer --------------------- 5 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS JUN-30-1999 OCT-01-1998 DEC-31-1998 0 0 145,040 3,813 61,727 235,681 664,672 314,853 723,400 216,508 142,941 0 0 16,922 263,908 723,400 276,237 276,237 245,815 265,724 (534) 0 3,588 7,459 2,604 4,855 0 0 0 4,855 0.30 0.30
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