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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1998
[ ] 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 1-584
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FERRO CORPORATION
(Exact Name of Registrant as specified in its charter)
An Ohio Corporation 1000 LAKESIDE AVENUE CLEVELAND, OH 44114 IRS No. 34-0217820
(Address of principal executive offices)
Registrant's telephone number including area code: 216/641-8580
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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
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At July 31, 1998, there were 36,269,258 shares of Ferro common stock, par value
$1.00, outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS.
The Condensed Consolidated Balance Sheets as of June 30, 1998 (unaudited) and
December 31, 1997, and the Condensed Consolidated Statements of Income and
Condensed Consolidated Statements of Cash Flows for the three and six months
ended June 30, 1998 and 1997 (unaudited) of Ferro Corporation and Subsidiaries
are set forth in Exhibit 99, which is incorporated by reference herein.
Those consolidated interim financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's annual report for the fiscal year ended December 31, 1997. In the
opinion of the management of the Company, the information furnished here,
includes all the adjustments necessary for fair presentation of the results for
the interim periods, and all such adjustments of a normal recurring nature have
been made.
The results of the three months ended June 30, 1998 are not necessarily
indicative of the results expected in subsequent quarters.
Cash dividends of $0.12 per common share were paid in the second quarter of 1998
and cash dividends of $0.103 per common share were paid in the second quarter of
1997. Cash dividends of $0.81 per preferred share were paid in the second
quarter of 1998 and 1997.
Net sales and net income for the three months ended June 30, 1998 were $348.0
million and $18.4 million ($0.47 basic and $0.44 diluted earnings per common
share), respectively, as compared with net sales of $363.0 million and a net
loss of $83.9 million ($2.21 basic and diluted loss per common share) for the
corresponding 1997 period. Included in the 1997 quarter was a $152.8 million
pre-tax charge associated with a realignment program for the consolidation of
manufacturing facilities announced in May 1997. Excluding the realignment
charge, net income for the second quarter of 1997 would have been approximately
$16.1 million ($0.39 basic and $0.37 diluted earnings per common share).
Effective, January 1, 1998, the Company adopted Statement of Financial
Accounting Standards, No.130, "Reporting Comprehensive Income". This Statement
establishes standards for reporting and display of comprehensive income and its
components. Comprehensive income reflects the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. For Ferro, comprehensive income represents net income
adjusted for items such as foreign currency translation adjustments and pension
liability adjustments. Comprehensive income (loss) was approximately $21.9
million and ($89.1) million for the three months ended June 30, 1998 and 1997,
respectively and $33.7 million and ($87.6) million for the six months ended June
30, 1998 and 1997, respectively. Accumulated other comprehensive (loss) at June
30, 1998 and December 31, 1997 was approximately ($54.2) million and ($54.4)
million, respectively.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
COMPARISON BETWEEN THREE MONTHS ENDED JUNE 30, 1998 AND 1997.
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Net Sales. Second quarter 1998 net sales of $348.0 million were 4.2% less than
the $363.0 million of the comparable 1997 period.
Sales declined 1.6% in the Coatings, Colors and Ceramics group and 13.7% in the
Chemicals group but increased 1.1% in the Plastics group. The decrease in
Coatings, Colors and Ceramics was mainly due to the negative impact of currency
translation. The decrease in Chemicals is primarily attributable lower volumes,
which, in turn, was caused by two factors that are not expected to continue for
the remainder of the year. Plastics sales were higher primarily due to an
increase in volumes.
The variety of products sold by the Company makes it difficult to determine with
certainty the increases or decreases in sales resulting from changes in physical
volume of products sold and selling prices. Management's best estimate is that
the 4.2% decrease in sales is comprised of: volume, -3.4%; price/mix, 2.2%;
currency, -2.1%; acquisitions, 0.2%; and divestitures -1.1%.
Cost of Sales. Gross profit as a percent of sales was 26.6% as compared to the
25.6% for the comparable 1997 period. This improvement was driven by a shift in
the mix of products sold toward higher margins and by improved manufacturing
efficiencies.
Selling, administrative and general expenses. Such expenses decreased 1.9% and,
as a percent of sales, were 17.0% in the second quarter of 1998 compared to
16.6% in the second quarter of 1997.
Interest expense. Interest expense of $3.8 million increased from the $3.0
million of the second quarter of last year and is primarily attributable to a
higher level of debt associated with the issuance of $55 million in 7 1/8%
debentures during the first quarter of 1998.
Net foreign currency gain. The net foreign currency gain is primarily
attributable to gains on foreign currency option contracts purchased by the
parent company to hedge firm commitments or anticipated transactions of various
foreign subsidiaries.
Other expense. Net other expense increased to $0.9 million compared to the 1997
second quarter expense of $0.4 million.
Taxes on income. The effective tax rate decreased to 36.8% for the second
quarter of 1998 from 37.8% for the second quarter of 1997, excluding the impact
of the second quarter 1997 realignment charge. The reduction in the effective
tax rate reflects worldwide tax planning and a favorable mix of income from
international subsidiaries with lower tax rates.
Geographic discussion. Sales declined in all regions. United States sales were
impacted by the
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decline in chemicals volumes. European sales were impacted by negative currency
translation and an ongoing plan to exit low-margin product sales. Continued
economic downturn in Asia affected volumes in that region and, combined with a
1997 divestiture, led to the sales decline. Latin American sales were impacted
by divestitures.
United States operating profit was flat with the second quarter of 1997. Europe
overcame the negative effects of currency translations to produce an increase in
operating profit of more than 15%, reflecting a better mix of products sold and
manufacturing efficiencies. Latin American operating profit was up approximately
30% as the Company continues to reduce costs in the region and exit low-margin
product sales. Asia-Pacific operating profit was flat against a difficult
comparison from the second quarter of 1997, which had produced a 20% increase
over 1996.
COMPARISON BETWEEN SIX MONTHS ENDED JUNE 30, 1998 AND 1997.
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Net Sales. Sales of $687.8 million for the first six months of 1998 were 2.5%
less than the $705.2 million of the comparable 1997 period.
Sales declined 1.6% in the Coatings, Colors and Ceramics group and 7.7% in the
Chemicals group but increased 1.9% in the Plastics group. The decrease in
Coatings, Colors and Ceramics was mainly due to the negative impact of currency
exchange and an ongoing plan to exit low-margin product sales. The decrease in
Chemicals is primarily attributable lower volumes that were impacted by two
factors that occurred in the second quarter and are not expected to continue for
the remainder of the year. Plastics sales were higher primarily due to an
increase in volumes associated with strong demand in consumer durables and
packaging.
The variety of products sold by the Company makes it difficult to determine with
certainty the increases or decreases in sales resulting from changes in physical
volume of products sold and selling prices. Management's best estimate is that
the 2.5% decrease in sales is comprised of: volume, -0.4%; price/mix, 1.3%;
currency, -2.6%; acquisitions, 0.1%; and divestitures -0.9%.
Cost of Sales. Gross profit as a percent of sales was 26.6% as compared to the
25.4% for the comparable 1997 period. This improvement was driven by improved
manufacturing efficiencies and a shift in the mix of products sold toward higher
margins.
Selling, administrative and general expenses. Such expenses increased 0.3% and,
as a percent of sales, were 17.2% in the first six months of 1998 compared to
16.7% in the first six months of 1997.
Interest expense. Interest expense of $6.9 million increased from the $6.1
million of the first six months of last year and is primarily attributable to a
higher level of debt associated with the issuance of $55 million in 7 1/8%
debentures during the first quarter of 1998.
Net foreign currency gain. The net foreign currency gain is primarily
attributable to gains on foreign currency option contracts purchased by the
parent company to hedge firm commitments or anticipated transactions of various
foreign subsidiaries.
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Other expense. Net other expense decreased to $2.0 million compared to the 1997
first six months expense of $2.9 million.
Taxes on income. The effective tax rate decreased to 37.2% for the first six
months of 1998 from 37.9% for the first six months of 1997, excluding the impact
of the charge associated with the realignment plan in the second quarter of
1997. The reduction in the effective tax rate, excluding the realignment charge,
reflects worldwide tax planning and a favorable mix of income from international
subsidiaries with lower tax rates.
Geographic discussion. Sales declined in all regions, except Latin America.
United States sales were impacted by the decline in chemicals volumes during the
second quarter of 1998. European sales were impacted by negative currency
translation and an ongoing plan to exit low-margin product sales. The continued
economic downturn in Asia affected volumes in that region and, combined with a
1997 divestiture, led to the sales decline. Latin American sales were helped by
the continued strength of the Mexican economy.
United States operating profit increased just over 5% from the first six months
of 1997, driven by improvements in the Plastics group. Europe overcame the
negative effects of currency translations to produce an increase in operating
profit of more than 8%, reflecting a better mix of products sold and
manufacturing efficiencies. Latin America operating profit was up more than 20%
as the Company continues to reduce costs in the region and exit low-margin
business. Asia-Pacific operating profit increased more than 10%. As a local
supplier in the Asian market, the Company continues to hold a competitive
advantage over more costly imports.
Forward Looking Statements
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Certain statements contained in this release reflect the Company's current
expectations with respect to the future performance of the Company and may
constitute "forward-looking statements" within the meaning of the federal
securities laws. These statements are subject to a variety of uncertainties,
unknown risks and other factors concerning the Company's operations and business
environment, including, but not limited to: changes in customer requirements,
markets or industries served; changing economic conditions, particularly in
Europe or Latin America; foreign exchange rates, especially in Europe or
Asia-Pacific; changes in the prices of major raw materials; significant
technological or competitive developments; and disruption of operations
associated with certain computer-based systems that rely on date routines in
connection with the year 2000.
Liquidity and Capital Resources
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Working capital. Working capital increased to $192.5 million compared to $179.3
million in the first six months of 1997. The increase in working capital is
primarily attributable to the proceeds from the issuance of $55 million in
7 1/8% debentures during the first quarter of 1998.
Cash flow. Net cash provided from operating activities for the six months ended
June 30, 1998 was $28.5 million compared to the $62.5 million recorded in the
first six months of 1997. The change in net cash provided from operations is
primarily due to an increase in the amount of income taxes paid during the
second quarter of 1998 and with costs paid in association with the realignment
plan announced in May of 1997. The increase in net cash used for investing
activities, for the first six months of 1998, is associated with a higher level
of capital expenditures for plant and equipment and an increase in net cash used
for acquisitions. The change in net cash from financing activities is primarily
associated with the issuance of $55 million in 7 1/8% debentures during the
first quarter of 1998 and from an increase in the amount of Ferro Common Shares
repurchased.
Financing requirements and resources. The long-term debt to equity ratio was
56.9% at June 30, 1998, excluding the loan guarantee of the Employee Stock
Ownership Plan adopted in April 1989, as compared to the 37.3% ratio at December
31, 1997. The increase is primarily attributable to the
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issuance of $55 million in 7 1/8% debentures during the first quarter of 1998.
The Company expects to be able to meet the financial requirements of its
existing businesses from existing cash and cash equivalents and future cash flow
from operations. The Company has available to it a $150.0 million five-year
revolving credit facility with four domestic banks. There were no borrowings
under this facility as of June 30, 1998. The Company also has $245.0 million of
availability under a Universal Shelf Registration that was filed with the
Securities and Exchange Commission on October 31, 1995 and declared effective
January 4, 1996, pursuant to which various types of securities may be issued.
Year 2000 Issues
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The Company is aware of the implications and issues associated with certain
computer-based systems which are dependent upon date routines that may cause
errors in computer processing in connection with the year 2000. The Company
could be faced with disruption of operations and a corresponding impact on the
Company's results of operations if the year 2000 issues are not resolved in a
timely manner.
The Company believes it has identified issues that affect global computer
operations and has or will implement appropriate remediation plans. Local area
networks, telephone systems, business systems, financial systems, and other
systems are being addressed globally. In order to fully determine the
readiness of its production and other equipment with the year 2000 issue, the
Company has substantially completed a comprehensive inventory of operations
systems that it believes may be impacted.
The Company is using multiple strategies to address the year 2000 issues; new
software is being purchased and installed, current software is being rewritten,
and non-compliant hardware is being replaced. The Company has contracted with a
third party consultant with special expertise in this area.
The Company is assessing the plans and progress of key suppliers and customers
in addressing the year 2000 problem. To the extent that these key suppliers and
customers are impacted by their failure to address the year 2000 problem, such
disruption could have a direct impact on the Company. The Company is exploring
a variety of alternatives to minimize the impact of third party failures on
the Company.
The Company expects that all remediation and testing will be complete by the
end of the second quarter of 1999. Based upon findings to date, the Company
does not now anticipate that the total cost of being in compliance with year
2000 needs will have a material effect on the Company's financial position or
results of operations.
OTHER DEVELOPMENTS
In June 1998, Statement of Financial Accounting Standards (FAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities", was issued. FAS
No. 133 requires companies to record derivatives on the balance sheet as assets
or liabilities measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualified under standard hedging accounting. The
Company is currently assessing the effect of this standard, but does not
anticipate a material impact on the results of operations.
In the first quarter of 1998, Statement of Position (SOP) No. 98-1, "Accounting
for Costs of Computer Software Developed or Obtained for Internal Use", was
issued. SOP 98-1 will require that certain internal and external costs to
develop or obtain software for internal use, be expensed or capitalized when
incurred. Generally, costs incurred during the preliminary project stage and
post-implementation/operation stages must be expensed. The SOP will be effective
for fiscal years beginning after December 15, 1998 and can be early adopted for
1998 as of January 1, 1998. The Company is currently assessing the effect of
this statement, but does not anticipate a material impact on the results of
operations.
In the first quarter of 1998, Statement of Position (SOP) No. 98-5, "Reporting
on the Costs of Startup Activities", was issued. SOP 98-5 will require that the
cost of startup activities be expensed as incurred. The SOP will amend
provisions of a number of existing SOPs and audit and accounting guides. The SOP
will be effective for fiscal years beginning after December 15, 1998. The
Company is currently assessing the effect of this statement, but does not
anticipate a material impact on the results of operations.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FACTORS.
There have been no material changes in market risk exposures during the
first six months of 1998 that effect the disclosures presented in the Company's
Annual Report to Shareholders for the year ended December 31, 1997.
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS.
No change
ITEM 2 - CHANGE IN SECURITIES.
No change.
ITEM 3 - DEFAULT UPON SENIOR SECURITIES.
No change.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5 - OTHER INFORMATION.
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
(a) The exhibits listed in the attached Exhibit Index are filed
pursuant to Item 6(a) of the Form 10-Q.
(b) The Company has not filed any reports on Form 8-K for the quarter
ended June 30, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FERRO CORPORATION
(Registrant)
Date: August 14, 1998
/s/ Hector R. Ortino
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Hector R. Ortino
President and Chief Operating Officer
Date: August 14, 1998
/s/ Gary H. Ritondaro
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Gary H. Ritondaro
Vice President and Chief Financial Officer
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EXHIBIT INDEX
The following exhibits are filed with this report or are incorporated here by
reference to a prior filing in accordance with Rule 12b-32 under the Securities
and Exchange Act of 1934. (Asterisk denotes exhibits filed with this report).
Exhibit:
(3) Articles of Incorporation and by-laws
*(a) Eleventh Amended Articles of Incorporation.
*(b) Certificate of Amendment to the Eleventh Amended Articles of
Incorporation of Ferro Corporation filed December 28, 1994.
*(c) Certificate of Amendment to the Eleventh Amended Articles of
incorporation of Ferro Corporation filed June 19, 1998.
*(d) Amended Code of Regulations.
(4) Instruments defining rights of security holders, including indentures
(a) Shareholder Rights Agreement between Ferro Corporation and National
City Bank, Cleveland, Ohio, as Rights Agent, dated as of March 22,
1996. (Reference is made to the Exhibit to the Registration Statement
on Form 8-A dated May 15, 1996, which Exhibit is incorporated here by
reference.)
(b) The rights of the holders of Ferro's Debt Securities issued and to be
issued pursuant to an Indenture between Ferro and Society National
Bank, as Trustee, are described in the form of Indenture dated May 1,
1993. (Reference is made to Exhibit 4(j) to Ferro Corporation's Form
1O-Q for the three months ended June 30, 1993, which Exhibit is
incorporated here by reference.)
(c) The rights of the holders of Ferro's Debt Securities issued and to be
issued pursuant to a Senior Indenture between Ferro and Chase
Manhattan Trust Company, National Association, as Trustee, are
described in the Senior Indenture, dated March 25, 1998. (Reference is
made to Exhibit 4(c) to Ferro Corporation's Form 10-Q for the three
months ended March 31, 1998, which Exhibit is incorporated here by
reference.)
(d) Form of Security (7 1/8% Debentures due 2028). (Reference is made to
Exhibit 4(a-1) to Ferro Corporation's Form 8-K filed March 31, 1998,
which Exhibit is incorporated here by reference.)
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(10) Form of Executive Employment Agreement between Ferro Corporation and
Millicent W. Pitts dated May 4, 1998.
(11) Statement Regarding Computation of Earnings per Share.
(12) Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule for the Quarter Ended June 30, 1998
(27)(a) Restated Financial Data Schedules for the periods ended March 31, 1997,
June 30, 1997 and September 30, 1997
(27)(b) Restated Financial Data Schedules for the periods ended March 31, 1996,
June 30, 1996 and September 30, 1996
(99) The Condensed Consolidated Balance Sheets as of June 30, 1998
(Unaudited) and December 31, 1997, and the Condensed Consolidated
Statements of Income and Condensed Consolidated Statements of Cash
Flows for the three and six months ended June 30, 1998 and 1997
(Unaudited) of Ferro Corporation and Subsidiaries.
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Exhibit 3(a)
CERTIFICATE
OF
AMENDED ARTICLES OF INCORPORATION
OF
FERRO CORPORATION
Adolph Posnick, who is Chairman of the Board of Directors and Paul B.
Campbell, who is Secretary, of the above-named Ohio corporation for profit with
its principal location at Cleveland, Ohio, do hereby certify that a meeting of
the Board of Directors was duly called on April 28, 1989, at which meeting the
following Eleventh Amended Articles of Incorporation were adopted in accordance
with Section 1701.72(B) of the Ohio Revised Code to supersede and take the place
of the existing Tenth Amended Articles of Incorporation and all amendments
thereto, including the amendment thereto approved by the requisite vote of the
shareholders on that date.
ELEVENTH AMENDED ARTICLES OF INCORPORATION
OF FERRO CORPORATION
FIRST: The name of the corporation shall be Ferro Corporation.
SECOND: The place in the State of Ohio where its principal office is to
be located is the City of Cleveland, Cuyahoga County.
THIRD: The purpose or purposes for which it is formed are:
(1) Manufacturing, buying, selling, and dealing in enamels and
enameled wares and products of all kinds; applying enamel to
metals and other materials.
(2) Developing, manufacturing, buying, selling, and dealing in
paints, lacquers, and other coatings or finishes or
constituents thereof; chemicals and other products, natural or
synthetic, of all kinds.
(3) Designing, manufacturing, erecting, installing, equipping,
buying, selling, and dealing in furnaces, smelters, kilns,
ovens, and all manner of articles, devices, appliances,
machinery, tools, materials and equipment for industrial,
commercial or domestic use, and parts or elements thereof.
(4) The doing of all such further acts and things as are
necessary, convenient or expedient to accomplish the purposes
aforesaid and as otherwise permitted by law.
FOURTH: The number of shares which the Corporation is authorized to
have outstanding is 77,000,000, consisting of 2,000,000 shares of Serial
Preferred Stock without Par
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Value (hereinafter called "Serial Preferred Stock") and 75,000,000 shares of
Common Stock of the Par Value of $1.00 each (hereinafter called "Common Stock").
No holder of any class of shares of the Corporation shall, as such
holder, have any preemptive or preferential right to purchase or subscribe to
any shares of any class of stock of the Corporation, whether now or hereafter
authorized, whether unissued or in the treasury, or to purchase any obligations
convertible into shares of any class of stock of the Corporation, which at any
time may be proposed to be issued by the Corporation or subjected to rights or
options to purchase granted by the Corporation.
The shares of such classes shall have the following express terms:
DIVISION A
EXPRESS TERMS OF THE SERIAL PREFERRED STOCK
SECTION 1. The Serial Preferred Stock may be issued from time to time
in one or more series. All shares of Serial Preferred Stock 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 each series
shall be identical with all other shares of such series, except as to the date
from which dividends are cumulative. Subject to the provisions of Sections 2 to
7, both inclusive, of this Division, which provisions shall apply to all Serial
Preferred Stock, 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
prior to the issuance thereof to fix:
(a) The designation of the series, which may be by
distinguishing number, letter, or title.
(b) The 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 (but not below the number of shares thereof then
outstanding).
(c) The annual dividend rate of the series.
(d) The dates at which dividends, if declared, shall be
payable, and the dates from which dividends shall be cumulative.
(e) The redemption rights and price or prices, if any, for
shares of the series.
(f) The terms and amount of any sinking fund provided 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 liquidation, dissolution, or winding up of the affairs of the
Corporation.
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(h) Whether the shares of the series shall be convertible into
Common Stock, and, if so, the conversion price or prices, any adjustments
thereof, and all other terms and conditions upon which conversion may be made;
provided, however, that in no event shall the number of shares of Common Stock
issuable upon conversion of the Serial Preferred Stock exceed 2,000,000 shares
plus such additional shares as may be required to be issued pursuant to
anti-dilution provisions of any Serial Preferred Stock.
(i) Restrictions (in addition to those set forth in Sections
5(b) and 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 Articles of Incorporation fixing, with respect to each such
series, the matters described in clauses (a) to (i), both inclusive, of this
Section 1.
SECTION 2. The holders of Serial Preferred Stock of each series, in
preference to the holders of Common Stock and of any other class of shares
ranking junior to the Serial Preferred Stock, shall be entitled to receive out
of any funds legally available and when and as declared by the Board of
Directors dividends in cash at the rate for such series fixed in accordance with
the provisions of Section 1 of this Division and no more, payable quarterly on
the dates fixed for such series. Such dividends shall 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 may be paid upon or declared or set apart
for any of the Serial Preferred Stock for any quarterly dividend period unless
at the same time a like proportionate dividend for the same quarterly dividend
period, ratably in proportion to the respective annual dividend rates fixed
therefor, shall be paid upon or declared or set apart for all Serial Preferred
Stock of all series then issued and outstanding and entitled to receive such
dividend.
SECTION 3. In no event so long as any Serial Preferred Stock shall be
outstanding shall any dividends, except a dividend payable in Common Stock or
other shares ranking junior to the Serial Preferred Stock, be paid or declared
or any distribution be made except as aforesaid on the Common Stock or any other
shares ranking junior to the Serial Preferred Stock, nor shall any Common Stock
or any other shares ranking junior to the Serial Preferred Stock be purchased,
retired, or otherwise acquired by the Corporation (except out of the proceeds of
the sale of Common Stock or other shares ranking junior to the Serial Preferred
Stock received by the Corporation subsequent to January 1, 1984):
(a) Unless all accrued and unpaid dividends on Serial
Preferred Stock, including the full dividends for the current quarterly dividend
period, shall have been declared and paid or a sum sufficient for payment
thereof set apart; and
(b) Unless there shall be no arrearages with respect to the
redemption of Serial Preferred Stock 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 4. (a) The holders of Serial Preferred Stock of any series
shall, in case of liquidation, dissolution, or winding up of the affairs of the
Corporation, be entitled to receive in full out of the assets of the
Corporation, including its capital, before any amount shall be paid or
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distributed among the holders of the Common Stock or any other shares ranking
junior to the Serial Preferred Stock:
(i) in the event of any voluntary liquidation, dissolution, or
winding up of the affairs of the Corporation, the amounts fixed with
respect to shares of such series in accordance with Section 1 of this
Division; or
(ii) in the event of any involuntary liquidation, dissolution,
or winding up of the affairs of the Corporation, $25 per share;
plus in either event 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 case the net
assets of the Corporation legally available therefor are insufficient to permit
the payment upon all outstanding shares of Serial Preferred Stock of the full
preferential amount to which they are respectively entitled, then such net
assets shall be distributed ratably upon outstanding shares of Serial Preferred
Stock in proportion to the full preferential amount to which each such share is
entitled.
After payment to holders of Serial Preferred Stock of the full
preferential amounts as aforesaid, holders of Serial Preferred Stock 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, or the merger of any other corporation into it, or
the sale, lease or conveyance of all or substantially all the property or
business of the Corporation, shall not be deemed to be a dissolution,
liquidation, or winding up, voluntary or involuntary, for the purposes of this
Section 4.
SECTION 5. (a) The holders of Serial Preferred Stock shall be entitled
to one vote for each share of such stock upon all matters presented to the
shareholders; and, except as otherwise provided herein or required by law, the
holders of Serial Preferred Stock and the holders of Common Stock shall vote
together as one class on all matters.
If, and so often as, the Corporation shall be in default in the payment
of six (6) full quarterly dividends (whether or not consecutive) on any series
of Serial Preferred Stock at the time outstanding, whether or not earned or
declared, the holders of Serial Preferred Stock of all series, voting separately
as a class and in addition to all other rights to vote for Directors, shall be
entitled to elect, as herein provided, two (2) members of the Board of Directors
of the Corporation; provided, however, that the holders of shares of Serial
Preferred Stock shall not have or exercise such special class voting rights
except at meetings of the shareholders for the election of Directors at which
the holders of not less than thirty-five percent (35%) of the outstanding shares
of Serial Preferred Stock of all series then outstanding are present in person
or by proxy; and provided further that the special class voting rights provided
for herein when the same shall have become vested shall remain so vested until
all accrued and unpaid dividends on the Serial Preferred Stock of all series
then outstanding shall have been paid, whereupon the holders of Serial Preferred
Stock shall be divested of their special class voting rights in respect of
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subsequent elections of Directors, subject to the revesting of such special
class voting rights in the event hereinabove specified in this paragraph.
In the event of default entitling the holders of Serial Preferred Stock
to elect two (2) Directors as above specified, a special meeting of the
shareholders 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 ten percent (10%) of the shares of Serial
Preferred Stock 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 held
within ninety (90) days after the date of receipt of the foregoing written
request from the holders of Serial Preferred Stock. At any meeting at which the
holders of Serial Preferred Stock shall be entitled to elect Directors, the
holders of thirty-five percent (35%) of the then outstanding shares of Serial
Preferred Stock of all series, 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 Serial Preferred Stock are entitled to elect as hereinabove provided.
The two directors who may be elected by the holders of Serial Preferred Stock
pursuant to the foregoing provisions shall be in addition to any other directors
then in office or proposed to be elected otherwise than pursuant to such
provisions, and nothing in such provisions shall prevent any change otherwise
permitted in the total number of directors of the Corporation or require the
resignation of any director elected otherwise than pursuant to such provisions.
Notwithstanding any classification of the other directors of the Corporation,
the two directors elected by the holders of Serial Preferred Stock shall be
elected annually for terms expiring at the next succeeding annual meeting of
shareholders.
(b) The affirmative vote of the holders of at least two-thirds
of the shares of Serial Preferred Stock at the time outstanding, given in person
or by proxy at a meeting called for the purpose at which the holders of Serial
Preferred Stock shall vote separately as a class, shall be necessary to effect
any one or more of the following (but so far as the holders of Serial Preferred
Stock are concerned, such action may be effected with such vote):
(i) Any amendment, alteration, or repeal of any of the
provisions of the Articles of Incorporation or of the Regulations of
the Corporation which affects adversely the voting powers, rights or
preferences of the holders of Serial Preferred Stock; provided,
however, that, for the purpose of this clause (i) only, neither the
amendment of the Articles of Incorporation so as to authorize or
create, or to increase the authorized or outstanding amount of, Serial
Preferred Stock or of any shares of any class ranking on a parity with
or junior to the Serial Preferred Stock, nor the amendment of the
provisions of the Regulations so as to increase the number of Directors
of the Corporation shall be deemed to affect adversely the voting
powers, rights or preferences of the holders of Serial Preferred Stock;
and provided further, that if such amendment, alteration, or repeal
affects adversely the rights or preferences of one or more but not all
series of Serial Preferred Stock at the time outstanding, only the
affirmative vote of the
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<PAGE> 6
holders of at least two-thirds of the number of shares at the time
outstanding of the series so affected shall be required;
(ii) The authorization or creation of, or the increase in the
authorized amount of, any shares of any class, or any security
convertible into shares of any class, ranking prior to the Serial
Preferred Stock; or
(iii) The purchase or redemption (for sinking fund purposes or
otherwise) of less than all of the Serial Preferred Stock then
outstanding except in accordance with a stock purchase offer made to
all holders of record of Serial Preferred Stock, unless all dividends
upon all Serial Preferred Stock then outstanding for all previous
quarterly 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.
(c) The affirmative vote of the holders of at least a majority
of the shares of Serial Preferred Stock at the time outstanding, given in person
or by proxy at a meeting called for the purpose at which the holders of Serial
Preferred Stock shall vote separately as a class, shall be necessary to effect
any one or more of the following (but so far as the holders of Serial Preferred
Stock are concerned, such action may be effected with such vote):
(i) The sale, lease or conveyance by the Corporation of all or
substantially all of its property or business, or its consolidation
with or merger into any other corporation unless the corporation
resulting from such consolidation or merger will have after such
consolidation or merger no class of shares either authorized or
outstanding ranking prior to or on a parity with the Serial Preferred
Stock except the same number of shares ranking prior to or on a parity
with the Serial Preferred Stock and having the same rights and
preferences as the shares of the Corporation authorized and outstanding
immediately preceding such consolidation or merger, and each holder of
Serial Preferred Stock immediately preceding such consolidation or
merger shall receive the same number of shares, with the same rights
and preferences, of the resulting corporation; or
(ii) The authorization of any shares ranking on a parity with
the Serial Preferred Stock or an increase in the authorized number of
shares of Serial Preferred Stock.
SECTION 6. For the purpose of this Division A: Whenever reference is
made to shares "ranking prior to the Serial Preferred Stock" or "on a parity
with the Serial Preferred Stock," 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, or rank on an equality with (as
the case may be) the rights of holders of Serial Preferred Stock; and whenever
reference is made to shares "ranking junior to the Serial Preferred Stock," 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 and as to
distributions in
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the event of a voluntary or involuntary liquidation, dissolution, or winding up
of the affairs of the Corporation are junior and subordinate to the rights of
the holders of Serial Preferred Stock.
DIVISION A-1
EXPRESS TERMS OF THE SERIES A ESOP
CONVERTIBLE PREFERRED STOCK
There is hereby established, in accordance with and subject to the
provisions of Division A of the Corporation's Amended Articles of Incorporation,
a first series of the Serial Preferred Stock to which Sections 2 through 6, both
inclusive, of such Division A and the following provisions shall be applicable:
SECTION 1. Designation of Series; Restrictions on Issuance.
(a) The series shall be designated "Series A ESOP Convertible Preferred
Stock" (hereinafter called the "Series A Preferred Stock").
(b) The shares of the Series A Preferred Stock shall be issued only to
National City Bank, as trustee, or any successor trustee (the "trustee") of the
Ferro Corporation Savings and Stock Ownership Plan, as the same may be amended,
or any successor plan (the "Plan") or the trustee's pledgee holding such shares
as security for loans made to such trustee on behalf of an employee stock
ownership plan or other employee benefit plan of the Corporation. All references
to the holder of the shares of the Series A Preferred Stock shall mean the
trustee or such trustee's pledgee. In the event of any transfer of any shares of
Series A Preferred Stock to any person other than any such Plan trustee or
pledgee, the shares of Series A Preferred Stock so transferred upon such
transfer and without any further action by the Corporation or the holder, shall
automatically be converted into shares of Common Stock on the terms otherwise
provided for the conversion of shares of the Series A Preferred Stock into
shares of Common Stock pursuant to Section 8 of Division A-1 and no such
transferee shall have any of the voting powers, preferences and any relative,
participating, optional or special rights ascribed to shares of the Series A
Preferred Stock hereunder but, rather, only the powers and rights pertaining to
the Common Stock into which such shares of the Series A Preferred Stock shall be
so converted. Certificates representing shares of the Series A Preferred Stock
shall be legended to reflect such restrictions on transfer. Notwithstanding the
foregoing provisions of this Section 1(b) of Division A-1, shares of the Series
A Preferred Stock (i) may be converted into shares of Common Stock pursuant to
Section 8 of Division A-1 and the shares of Common Stock issued upon such
conversion may be transferred by the holder thereof as permitted by law and (ii)
shall be redeemable by the Corporation upon the terms and conditions provided by
Sections 5 and 8 of this Division A-1.
SECTION 2. Number of Shares. The number of shares of the Series A
Preferred Stock is 1,762,500 which number from time to time may be increased or
decreased (but not below the number of shares of the series then outstanding) by
the Board of Directors.
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SECTION 3. Dividend Rate. Subject to any provisions for adjustment
hereinafter set forth, the holders of shares of the Series A Preferred Stock
shall be entitled to receive cash dividends ("Preferred Dividends") in an amount
equal to seven percent (7%) of the Redemption Price per share per annum. If the
Redemption Price is adjusted in accordance with Section 5(d) of this Division
A-1, Preferred Dividends shall accrue from the date of initial issuance of the
Series A Preferred Stock based upon the Redemption Price as so adjusted.
SECTION 4. Dividend Payment Dates; Cumulation Date. Preferred Dividends
shall be payable in equal installments quarterly in arrears, on the last day of
March, June, September and December of each year commencing June 30, 1989 to
holders of record at the beginning of business on such dividend payment date,
except that the Preferred Dividends payable on June 30, 1989, for the period
from the date of issuance of the Series A Preferred Stock until such date, shall
be based upon the rate set forth in Section 3 of this Division A-1 and the
number of days elapsed from the date of issuance of such stock. Preferred
Dividends on outstanding shares of Series A Preferred Stock shall be cumulative
from the date of the issuance of such shares. Preferred Dividends shall accrue
on a daily basis whether or not the Corporation shall have earnings or surplus
at the time. Preferred Dividends accrued on the shares of Series A Preferred
Stock for any period less than a full quarterly period between dividend payment
dates shall be computed on the basis of a 360-day year of 30-day months. In the
event that any dividend payment date shall occur on any day other than a
"Business Day" (as defined in Section 8(n)(vii) of Division A-1), the dividend
payment due on such dividend payment date shall be paid on the Business Day
immediately preceding such dividend payment date. Accrued but unpaid Preferred
Dividends shall cumulate as of the dividend payment date on which they first
become payable, but no interest shall be payable on accrued but unpaid Preferred
Dividends.
SECTION 5. Redemption.
(a) The shares of the Series A Preferred Stock shall be subject to
mandatory redemption by the Corporation upon the occurrence of the following
event:
(i) If the affirmative vote of the holders of at least a
majority of the shares of all Serial Preferred Stock at the time
outstanding and voting separately as a class is not obtained at any
meeting called pursuant to Section 5(c)(i) of Division A of the Amended
Articles of Incorporation with respect to any matters that are
described therein and if, in the absence of such Section 5(c)(i), the
holders of the Serial Preferred Stock would not have had the right as a
matter of law to vote separately as a class on such matters, and if all
required voting approvals with respect to such matters have been
obtained from the holders of the Common Stock and, in the judgment of
the Board of Directors, all other material conditions to the
consummation of such matters are likely to be satisfied.
(b) The shares of the Series A Preferred Stock shall be redeemable, in
whole or in part, at the option of the holder, at any time or from time to time
upon notice to the Corporation given not less than five (5) Business Days prior
to the date fixed by the holder in such notice for such redemption:
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<PAGE> 9
(i) When, to the extent and in the number of shares necessary
for such holder to provide for distributions required to be made to
participants under, or to satisfy an investment election provided to
participants in accordance with, or to provide for loans to or
withdrawals by participants under, the Plan; or
(ii) When, to the extent and in the number of shares necessary
for such holder to make payment of principal, interest or premium due
and payable (whether as scheduled or upon acceleration) on any
promissory note of the trustee under the Plan or any indebtedness
incurred by the holder for the benefit of the Plan.
(c) The shares of the Series A Preferred Stock shall be redeemable, in
whole or in part, at the option of the Corporation:
(i) At any time after July 1, 1999; or
(ii) If the exclusion of interest received by any lender on
any borrowings by the trustee of the Plan (or any indebtedness incurred
by the holder for the benefit of the Plan) from the lender's income
pursuant to Section 133 or any successor provision of the Internal
Revenue Code of 1986, as the same may be amended and in effect from
time to time (the "Code") is reduced to a percentage amount less than
fifty percent (50%); or
(iii) If the Corporation terminates the Plan or terminates
future contributions to the Plan.
(d) In any redemption of the Series A Preferred Stock other than under
Section 5(c)(iii) of this Division A-1, the redemption price per share initially
shall be $46.375, adjusted as provided in the next succeeding sentence (as so
adjusted, the "Redemption Price"), plus, in each case, an amount equal to all
accrued and unpaid dividends thereon to the date fixed for redemption. The
initial Redemption Price of $46.375 per share shall be adjusted to the average
of the Current Market Price of the Common Stock on each of the third, fourth and
fifth full Unaffected Trading Days after the initial issuance of Series A
Preferred Stock; provided, however, that (i) the initial Redemption Price may be
reduced, but not increased, and (ii) the initial Redemption Price may not be
reduced below $40 per share. If an adjustment to the initial Redemption Price is
required pursuant to the next preceding sentence, the Corporation shall
forthwith place on file with the Secretary of the Corporation and deliver to the
holders of the Series A Preferred Stock a statement signed by two officers of
the Corporation stating the adjusted Redemption Price and setting forth in
reasonable detail such facts as shall be necessary to show the determination of
the adjusted Redemption Price.
(e) In the event of a redemption of any shares of the Series A
Preferred Stock under Section 5(c)(iii) of this Division A-1, the Corporation
shall pay the Redemption Price plus an additional amount as follows:
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During the Twelve-
Month Period Beginning Percentage of
April 24 Redemption Price
---------------------- ----------------
1989.....................................7.0%
1990.....................................6.3
1991.....................................5.6
1992.....................................4.9
1993.....................................4.2
1994.....................................3.5
1995.....................................2.8
1996.....................................2.1
1997.....................................1.4
1998.......................................7
and thereafter the Redemption Price, and no additional amount, plus, in each
case, an amount equal to all accrued and unpaid dividends thereon to the date
fixed for redemption.
(f) Payment of the Redemption Price shall be made by the Corporation in
cash or shares of Common Stock, or a combination thereof, as permitted by
paragraph (i) of this Section 5 of Division A-1. From and after the date fixed
for redemption, dividends on shares of the Series A Preferred Stock called for
redemption will cease to accrue, such shares will no longer be deemed to be
outstanding and all rights in respect of such shares shall cease, except the
right to receive the Redemption Price. If less than all of the outstanding
shares of the Series A Preferred Stock are to be redeemed, then except in the
case of a redemption under Section 5(b) or 5(c)(ii) above of Division A-1, the
Corporation shall either redeem a portion of the shares of each holder
determined pro rata based on the number of shares held by each holder or shall
select the shares to be redeemed by lot, as may be determined by the Board of
Directors of the Corporation.
(g) In the event (i) there is a change in the federal tax law of the
United States of America which has the effect of precluding the Corporation from
claiming any of the tax deductions for dividends paid on the Series A Preferred
Stock when such dividends are used as provided under Section 404(k)(2) of the
Code as in effect on the date of the initial issuance of the Series A Preferred
Stock, or (ii) the Plan, as the same may be amended, or any successor plan is
determined by the Internal Revenue Service not to be qualified within the
meaning of Sections 401(a) or 4975(e)(7) of the Code, the Corporation may, in
its sole discretion and notwithstanding anything to the contrary in this Section
5 of Division A-1, elect to redeem such shares for the Redemption Price.
(h) Unless otherwise required by law, notice of redemption will be sent
to the holders of the Series A Preferred Stock at the address shown on the books
of the Corporation or any transfer agent for the Series A Preferred Stock by
first class mail, postage prepaid, mailed not less than twenty (20) days nor
more than sixty (60) days prior to the redemption date. Each such notice shall
state: (i) the redemption date; (ii) the total number of shares of the Series A
Preferred Stock to be redeemed and, if fewer than all the shares held by such
holder are to be redeemed, the number of such shares to be redeemed from such
holder; (iii) the Redemption
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Price; (iv) the place or places where certificates for such shares are to be
surrendered for payment of the Redemption Price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
conversion rights of the shares to be redeemed, the period within which
conversion rights may be exercised, and the Conversion Ratio and number of
shares of Common Stock issuable upon conversion of a share of the Series A
Preferred Stock at the time. Upon surrender of the certificates for any shares
so called for redemption and not previously converted (properly endorsed or
assigned for transfer, if the Board of Directors of the Corporation shall so
require and the notice shall so state), such shares shall be redeemed by the
Corporation at the date fixed for redemption and for the Redemption Price.
(i) The Corporation, at its option, may make payment of the Redemption
Price required upon redemption of shares of the Series A Preferred Stock in cash
or in shares of Common Stock, or in a combination of such shares and cash, any
such shares to be valued for such purpose at their Fair Market Value (as defined
in paragraph (n) of Section 8 of Division A-1).
SECTION 6. Sinking Fund. There shall be no sinking fund established or
provided by the Corporation for the purchase or redemption of shares of the
Series A Preferred Stock.
SECTION 7. Voluntary Liquidation. The amount payable on shares of the
Series A Preferred Stock in the event of any voluntary liquidation, dissolution,
or winding up of the affairs of the Corporation shall be the Redemption Price
plus all accrued and unpaid dividends thereon to the date fixed for
distribution, and no more.
SECTION 8. Conversion Rights.
(a) A holder of shares of the Series A Preferred Stock shall be
entitled, at any time (or in the case of shares called for redemption, then
until the close of business on the Business Day before the date fixed for
redemption of such shares pursuant to Section 5 or this Section 8 of Division
A-1) to cause any or all of such shares to be converted into shares of Common
Stock, initially at a conversion rate equal to the ratio of .77 of a share of
Common Stock for each one share of Series A Preferred Stock, and which shall be
adjusted as hereinafter provided (and, as so adjusted, rounded to the nearest
ten-thousandth, is hereinafter sometimes referred to as the "Conversion Ratio").
(b) Any holder of shares of the Series A Preferred Stock desiring to
convert such shares into shares of Common Stock shall surrender the certificate
or certificates representing the shares of the Series A Preferred Stock being
converted, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto), at the principal
executive office of the Corporation or the offices of the transfer agent for the
Series A Preferred Stock or such office or offices in the continental United
States of an agent for conversion as may from time to time be designated by
notice to the holders of the Series A Preferred Stock by the Corporation or the
transfer agent for the Series A Preferred Stock, accompanied by written notice
of conversion. Such notice of conversion shall specify (i) the number of shares
of the Series A Preferred Stock to be converted and the name or names in which
such holder wishes the certificate or certificates for Common Stock and for any
shares of the Series A Preferred Stock
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not to be so converted to be issued, and (ii) the address to which such holder
wishes delivery to be made of such new certificates to be issued upon such
conversion.
(c) Upon surrender of a certificate representing a share or shares of
the Series A Preferred Stock for conversion, the Corporation shall issue and
send by hand delivery (with receipt to be acknowledged) or by first class mail,
postage prepaid, to the holder thereof or to such holder's designee, at the
address designated by such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled upon
conversion. In the event that there shall have been surrendered a certificate or
certificates representing shares of the Series A Preferred Stock, only part of
which are to be converted, the Corporation shall issue and deliver to such
holder or such holder's designee a new certificate or certificates representing
the number of shares of the Series A Preferred Stock which shall not have been
converted.
(d) The Issuance by the Corporation of shares of Common Stock upon a
conversion of shares of the Series A Preferred Stock into shares of Common Stock
shall be effective as of the earlier of (i) the delivery to such holder or such
holder's designee of the certificates representing the shares of Common Stock
issued upon conversion thereof or (ii) the commencement of business on the
second Business Day after the surrender of the certificate or certificates for
the shares of the Series A Preferred Stock to be converted, duly assigned or
endorsed for transfer to the Corporation (or accompanied by duly executed stock
powers relating thereto) as provided herein. On and after the effective date of
conversion, the person or persons entitled to receive the Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock, but no allowance or adjustment shall be
made in respect of dividends payable to holders of Common Stock in respect of
any period prior to such effective date. The Corporation shall not be obligated
to pay any dividends which shall have been declared and shall be payable to
holders of shares of the Series A Preferred Stock on a dividend payment date if
such dividend payment date for such dividend shall be subsequent to the
effective date of conversion of such shares. The stated capital of each share of
Common Stock issued upon a conversion of shares of the Series A Preferred Stock
shall be the par value of such Common Stock.
(e) The Corporation shall not be obligated to deliver to holders of the
Series A Preferred Stock any fractional share or shares of Common Stock issuable
upon any conversion of such shares of the Series A Preferred Stock, but in lieu
thereof may make a cash payment in respect thereof in any manner permitted by
law.
(f) Whenever the Corporation shall issue shares of Common Stock upon
conversion of shares of the Series A Preferred Stock as contemplated by this
Section 8 of Division A-1, the Corporation shall issue together with each share
of Common Stock a right to purchase Common Stock of the Corporation (or other
securities in lieu thereof) pursuant to the Rights Agreement between the
Corporation and National City Bank dated as of March 21, 1986, as amended March
31, 1989, and as the same may be further amended from time to time thereafter
and any successor agreement thereto (the "Rights Agreement"), or any rights
issued to holders of the Common Stock in addition thereto or in replacement
therefor, whether or not such rights shall be exercisable or tradeable
separately from the Common Stock at such time, but only if such rights are
outstanding and have not expired or been redeemed or exchanged.
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(g) The Corporation shall at all times reserve and keep available out
of its authorized and unissued Common Stock and/or Common Stock held in its
treasury, solely for issuance upon the conversion of shares of the Series A
Preferred Stock as herein provided, such number of shares of Common Stock as
shall from time to time be issuable upon the conversion of all the shares of the
Series A Preferred Stock then outstanding. The Corporation shall prepare and
shall use its best efforts to obtain and keep in force such governmental or
regulatory permits or other authorizations as may be required by law, and shall
comply with all requirements as to registration or qualification of the Common
Stock, in order to enable the Corporation lawfully to issue and deliver to each
holder of record of the Series A Preferred Stock such number of shares of its
Common Stock as shall from time to time be sufficient to effect the conversion
of all shares of the Series A Preferred Stock then outstanding and convertible
into shares of Common Stock.
(h) In the event the Corporation shall, at any time or from time to
time while any of the shares of the Series A Preferred Stock are outstanding,
(i) pay a dividend or make a distribution in respect of the Common Stock in
shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock,
or (iii) combine the outstanding shares of Common Stock into a smaller number of
shares, in each case whether by reclassification of shares, recapitalization of
the Corporation (including a recapitalization effected by a merger or
consolidation to which paragraphs (p), (q) and (r) of this Section 8 of Division
A-1 do not apply) or otherwise, the Conversion Ratio in effect immediately prior
to such action shall be adjusted by multiplying such Conversion Ratio by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event, and the denominator of which is the
number of shares of Common Stock outstanding immediately before such event. An
adjustment made pursuant to this paragraph 8(h) shall be given effect, upon
payment of such a dividend or distribution, as of the record date for the
determination of shareholders entitled to receive such dividend or distribution
(on a retroactive basis) and in the case of a subdivision or combination shall
become effective immediately as of the effective date thereof.
(i) In the event that the Corporation shall, at any time or from time
to time while any of the shares of the Series A Preferred Stock are outstanding,
issue to holders of shares of Common Stock as a dividend or distribution,
including by way of a reclassification of shares or a recapitalization of the
Corporation, any right or warrant to purchase shares of Common Stock (but not
including as such a right or warrant any security convertible into or
exchangeable for shares of Common Stock or any right or warrant issued pursuant
to the Rights Agreement) at a purchase price per share less than the Fair Market
Value (as hereinafter defined) of a share of Common Stock on the date of
issuance of such right or warrant, then, subject to the provisions of paragraphs
(l) and (m) of this Section 8 of Division A-1, the Conversion Ratio in effect
immediately prior to such issuance shall be adjusted by multiplying such
Conversion Ratio by a fraction, the numerator of which shall be the sum of (i)
the number of shares of Common Stock outstanding immediately before such
issuance of rights or warrants and (ii) the maximum number of shares of Common
Stock that could be acquired upon exercise in full of all such rights and
warrants, and the denominator of which shall be the sum of (i) number of shares
of Common Stock outstanding immediately before such issuance of rights or
warrants and (ii) the number of shares of Common Stock which could be purchased
at the Fair Market Value of a share of Common Stock at the time of such issuance
for the maximum aggregate consideration payable upon exercise in full of all
such rights or warrants.
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(j) In the event the Corporation shall, at any time or from time to
time while any of the shares of the Series A Preferred Stock are outstanding,
issue, sell or exchange shares of Common Stock (other than pursuant to (i) any
right or warrant to purchase or acquire shares of Common Stock (including as
such a right or warrant any security convertible into or exchangeable for shares
of Common Stock), (ii) the Rights Agreement and (iii) any employee or director
incentive, compensation or benefit plan or arrangement (including any
employment, severance or consulting agreement) of the Corporation or any
subsidiary of the Corporation heretofore or hereafter adopted) for a
consideration having a Fair Market Value on the date of issuance, sale or
exchange less than the Fair Market Value of such shares on the date of issuance,
sale or exchange, then, subject to the provisions of paragraphs (l) and (m) of
this Section 8, the Conversion Ratio in effect immediately prior to such
issuance, sale or exchange shall be adjusted by multiplying such Conversion
Ratio by a fraction, the numerator of which shall be the product of (i) the Fair
Market Value of a share of Common Stock on the day immediately preceding the
first public announcement of such issuance, sale or exchange and (ii) the sum of
the number of shares of Common Stock outstanding on such day plus the number of
shares of Common Stock so issued, sold or exchanged by the Corporation, and the
denominator of which shall be the sum of (i) the Fair Market Value of all the
shares of Common Stock outstanding on the day immediately preceding the first
public announcement of such issuance, sale or exchange and (ii) the Fair Market
Value of the consideration on the date received by the Corporation in respect of
such issuance, sale or exchange of shares of Common Stock. In the event the
Corporation shall, at any time or from time to time while any shares of the
Series A Preferred Stock are outstanding, issue, sell or exchange any right or
warrant to purchase or acquire shares of Common Stock (including as such a right
or warrant any security convertible into or exchangeable for shares of Common
Stock), other than any such issuance to holders of shares of Common Stock as a
dividend or distribution (including by way of a reclassification of shares or a
recapitalization of the Corporation) and other than pursuant to (i) the Rights
Agreement or (ii) any employee or director incentive, compensation or benefit
plan or arrangement (including any employment, severance or consulting
agreement) of the Corporation or any subsidiary of the Corporation heretofore or
hereafter adopted, for a consideration having a Fair Market Value on the date of
such issuance, sale or exchange less than the Non-Dilutive Amount (as
hereinafter defined), then, subject to the provisions of paragraphs (l) and (m)
of this Section 8 of Division A-1, the Conversion Ratio shall be adjusted by
multiplying such Conversion Ratio by a fraction, the numerator of which shall be
the product of (i) the Fair Market Value of a share of Common Stock on the day
immediately preceding the first public announcement of such issuance, sale or
exchange and (ii) the sum of the number of shares of Common Stock outstanding on
such day plus the maximum number of shares of Common Stock which could be
acquired pursuant to such right or warrant at the time of the issuance, sale or
exchange of such right or warrant (assuming shares of Common Stock could be
acquired pursuant to such right or warrant at such time), and the denominator of
which shall be the sum of (i) the Fair Market Value of all the shares of Common
Stock outstanding on the day immediately preceding the first public announcement
of such issuance, sale or exchange, (ii) the Fair Market Value of the
consideration received by the Corporation in respect of such issuance, sale or
exchange of such right or warrant and (iii) the Fair Market Value at the time of
such issuance of the consideration which the Corporation would receive upon
exercise in full of all such rights or warrants.
(k) In the event the Corporation shall, at any time or from time to
time while any of the shares of the Series A Preferred Stock are outstanding,
make an Extraordinary Distribution
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<PAGE> 15
(as hereinafter defined) in respect of the Common Stock, whether by dividend,
distribution, reclassification of shares or recapitalization of the Corporation
(including a recapitalization or reclassification effected by a merger,
combination or consolidation to which paragraphs (p), (q) and (r) of this
Section 8 of Division A-1 do not apply) or effect a Pro Rata Repurchase (as
hereinafter defined) of Common Stock, the Conversion Ratio in effect immediately
prior to such Extraordinary Distribution on Pro Rata Repurchase shall, subject
to paragraphs (l) and (m) of this Section 8, be adjusted by multiplying such
Conversion Ratio by a fraction, the numerator of which shall be the product of
(i) the number of shares of Common Stock outstanding immediately before such
Extraordinary Distribution or Pro Rata Repurchase minus, in the case of a Pro
Rata Repurchase, the number of shares of Common Stock repurchased by the
Corporation and (ii) the Fair Market Value (as herein defined) of a share of
Common Stock on the record date with respect to an Extraordinary Distribution or
on the Effective Date (as hereinafter defined) of a Pro Rata Repurchase, as the
case may be, and the denominator of which shall be (i) the product of (x) the
number of shares of Common Stock outstanding immediately before such
Extraordinary Distribution or Pro Rata Repurchase and (y) the Fair Market Value
of a share of Common Stock on the record date with respect to an Extraordinary
Distribution, or on the Effective Date of a Pro Rata Repurchase, as the case may
be, minus (ii) the Fair Market Value of the Extraordinary Distribution or the
aggregate purchase price of the Pro Rata Repurchase, as the case may be;
provided, however, that no Pro Rata Repurchase shall cause an adjustment to the
Conversion Ratio unless the amount of all cash dividends and distributions made
during the period of twelve months preceding the Effective Date of such Pro Rata
Repurchase, when combined with the aggregate amount of all Pro Rata Repurchases
including such Pro Rata Repurchase (for this purpose, including only that
portion of the aggregate purchase price of each Pro Rata Repurchase which is in
excess of the Fair Market Value of the Common Stock repurchased as determined on
the Effective Date of each such Pro Rata Repurchase), the Effective Dates of
which fall within such twelve month period, exceeds ten percent (10%) of the
aggregate Fair Market Value of all shares of Common Stock outstanding on the
Effective Date of such Pro Rata Repurchase. The Corporation shall send each
holder of the Series A Preferred Stock (i) notice of its intent to make any
Extraordinary Distribution and (ii) notice of any offer by the Corporation to
make a Pro Rata Repurchase, in each case at the same time as, or as soon as
practicable after, such offer is first communicated (including by announcement
of a record date in accordance with the rules of any stock exchange on which the
Common Stock is listed or admitted to trading) to holders of Common Stock. Such
notice shall indicate the intended record date and the amount and nature of such
dividend or distribution, or the number of shares subject to such offer for a
Pro Rata Repurchase and the purchase price payable by the Corporation pursuant
to such offer, and the Conversion Ratio in effect at such time.
(l) Notwithstanding any other provisions of this Section 8 of Division
A-1, the Corporation shall not be required to make any adjustment of the
Conversion Ratio unless such adjustment would require an increase or decrease of
at least one percent (1%) in the Conversion Ratio. Any lesser adjustment shall
be carried forward and shall be made no later than the time of, and together
with, the next subsequent adjustment which, together with any adjustment or
adjustments so carried forward, shall amount to an increase or decrease of at
least one percent (1%) in the Conversion Ratio.
(m) If the Corporation shall make any dividend or distribution on the
Common Stock or issue any Common Stock, other capital stock or other security of
the Corporation or any rights
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<PAGE> 16
or warrants to purchase or acquire any such security, which transaction does not
result in an adjustment to the Conversion Ratio pursuant to the foregoing
provisions of this Section 8 of Division A-1, the Board of Directors of the
Corporation shall in its sole discretion consider whether such action is of such
a nature that it adversely affects the holders of the Series A Preferred Stock
and that an adjustment to the Conversion Ratio should equitably be made in
respect of such transaction. If in such case the Board of Directors of the
Corporation determines that an adjustment to the Conversion Ratio should be
made, an adjustment shall be made effective as of such date, as determined by
the Board of Directors of the Corporation. The determination of the Board of
Directors of the Corporation as to whether an adjustment to the Conversion Ratio
should be made pursuant to the foregoing provisions of this paragraph 8(m), and,
if so, as to what adjustment should be made and when, shall be final and binding
on the Corporation and all stockholders of the Corporation. The Corporation
shall be entitled to make such additional adjustments in the Conversion Ratio,
in addition to those required by the foregoing provisions of this Section 8 of
Division A-1 as shall be necessary in order that any dividend or distribution in
shares of capital stock of the Corporation, subdivision, reclassification or
combination of shares of stock of the Corporation or any recapitalization of the
Corporation shall not be taxable to holders of the Common Stock.
(n) For purposes hereof, the following definitions shall apply:
(i) "Extraordinary Distribution" shall mean any dividend or
other distribution (effected while any of the shares of the Series A
Preferred Stock are outstanding) of (x) cash, where the aggregate
amount of such cash dividend or distribution together with the amount
of all cash dividends and distributions made during the preceding
period of twelve months, when combined with the aggregate amount of all
Pro Rata Repurchases (for this purpose, including only that portion of
the aggregate purchase price of such Pro Rata Repurchase which is in
excess of the Fair Market Value of the Common Stock repurchased as
determined on the Effective Date of such Pro Rata Repurchases, the
Effective Date of which fall within such twelve month period, exceeds
ten percent (10%) of the aggregate Fair Market Value of all shares of
Common Stock outstanding on the record date for determining the
shareholders entitled to receive such Extraordinary Distribution and/or
(y) of any shares of capital stock of the Corporation (other than
shares of Common Stock), other securities of the Corporation (other
than securities of the type referred to in paragraph (i) of this
Section 8), evidences of indebtedness of the Corporation or any other
person or any other property (including shares of any subsidiary of the
Corporation), or any combination thereof. The Fair Market Value of an
Extraordinary Distribution for purposes of paragraph (k) of this
Section 8 shall be equal to the sum of the Fair Market Value of such
Extraordinary Distribution as of the date made plus the amount of any
cash dividends which are not Extraordinary Distributions made during
such twelve month period and not previously included in the calculation
of an adjustment pursuant to paragraph (k) of this Section 8.
(ii) "Fair Market Value" shall mean, as to shares of Common
Stock or any other class of capital stock or securities of the
Corporation or any other issuer which are publicly traded, the average
of the Current Market Prices (as hereinafter
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<PAGE> 17
defined) of such shares or securities for each day of the Adjustment
Period (as hereinafter defined). The "Fair Market Value" of any
security which is not publicly traded or of any other property shall
mean the fair value thereof as determined by an independent investment
banking or appraisal firm experienced in the valuation of such
securities or property selected in good faith by the Board of Directors
of the Corporation or a committee thereof, or, if no such investment
banking or appraisal firm is in the good faith judgment of the Board of
Directors or such committee available to make such determination, as
determined in good faith by the Board of Directors of the Corporation
or such committee.
(iii) "Current Market Price" of publicly traded shares of
Common Stock or any other class of capital stock or other security of
the Corporation or any other issuer for a day shall mean the last
reported sales price, regular way, or, if no sale takes place on such
day, the average of the reported closing bid and asked prices, regular
way, in either case as reported on the Composite Tape for New York
Stock Exchange ("NYSE") transactions (the "Composite Tape") or, if such
security is not listed or admitted to trading on the NYSE, on the
principal national securities exchange on which such security is listed
or admitted to trading or, if not listed or admitted to trading on any
national securities exchange, on the NASDAQ National Market System or,
if such security is not quoted on such National Market System, the
average of the closing bid and asked prices on each such day in the
over-the-counter market as reported by NASDAQ or, if bid and asked
prices for such security on each such day shall not have been reported
through NASDAQ, the average of the bid and asked prices for such day as
furnished by any NYSE member firm regularly making a market in such
security selected for such purpose by the Board of Directors of the
Corporation or a committee thereof, in each case, on each trading day
during the Adjustment Period.
(iv) "Adjustment Period" shall mean the period of five (5)
consecutive trading days preceding the date as of which the Fair Market
Value of a security is to be determined.
(v) "Non-Dilutive Amount" in respect of an issuance, sale or
exchange by the Corporation of any right or warrant to purchase or
acquire shares of Common Stock (including any security convertible into
or exchangeable for shares of Common Stock) shall mean (x) the product
of (A) the Fair Market Value of a share of Common Stock on the trading
day immediately preceding the first public announcement of such
issuance, sale or exchange and (B) the maximum number of shares of
Common Stock which could be acquired on such date upon the exercise in
full of such rights and warrants (including upon the conversion or
exchange of all such convertible or exchangeable securities), whether
or not exercisable (or convertible or exchangeable) at such date, minus
(y) the aggregate amount payable pursuant to such right or warrant to
purchase or acquire such maximum number of shares of Common Stock;
provided, however, that in no event shall the Non-Dilutive Amount be
less than zero. For purposes of the foregoing sentence, in the case of
a security convertible into or exchangeable for
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<PAGE> 18
shares of Common Stock, the amount payable pursuant to a right or
warrant to purchase or acquire shares of Common Stock shall be the Fair
Market Value of such security on the date of the issuance, sale or
exchange of such security by the Corporation.
(vi) "Pro Rata Repurchase" shall mean any purchase of shares
of Common Stock by the Corporation or any subsidiary thereof, whether
for cash, shares of capital stock of the Corporation, other securities
of the Corporation, evidences of indebtedness of the Corporation or any
other person or any other property (including shares of a subsidiary of
the Corporation), or any combination thereof, effected while any of the
shares of the Series A Preferred Stock are outstanding, pursuant to any
tender offer or exchange offer subject to Section 13(e) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision of law, or pursuant to any other offer
available to substantially all holders of Common Stock; PROVIDED,
HOWEVER, that no purchase of shares of the Corporation or any
subsidiary thereof made in open market transactions shall be deemed a
Pro Rata Repurchase. For purposes of this paragraph 8(n) of Division
A-1, shares shall be deemed to have been purchased by the Corporation
or any subsidiary thereof "in open market transactions" if they have
been purchased substantially in accordance with the requirements of
Rule 10b-18 as in effect under the Exchange Act on the date shares of
the Series A Preferred Stock are initially issued by the Corporation or
on such other terms and conditions as the Board of Directors of the
Corporation or a committee thereof shall have determined are reasonably
designed to prevent such purchases from having a material effect on the
trading market for the Common Stock. The "Effective Date" of a Pro Rata
Repurchase shall mean the applicable expiration date (including all
extensions thereof) of any tender offer or exchange offer which is a
Pro Rata Repurchase, or the date of purchase with respect to any Pro
Rata Repurchase which is not a tender offer or exchange offer.
(vii) "Business Day" shall mean each day that is not a
Saturday, Sunday or a day on which state or federally chartered banking
institutions in Cleveland, Ohio are required or authorized to be
closed.
(viii) "Unaffected Trading Day" shall mean each day on which
the NYSE is open for business if the Corporation, its agents and others
acting in concert do not purchase shares of Common Stock on such day
and have not purchased shares of Common Stock after noon, New York
time, on the previous day on which the NYSE was open for business.
(o) Whenever an adjustment to the Conversion Ratio of the Series A
Preferred Stock is required pursuant to this Section 8 of Division A-1, the
Corporation shall forthwith place on file with the transfer agent for the Common
Stock and the Series A Preferred Stock if there be one, and with the Secretary
of the Corporation, a statement signed by two officers of the Corporation
stating the adjusted Conversion Ratio determined as provided herein, of the
Series A Preferred Stock. Such statement shall set forth in reasonable detail
such facts as shall be necessary to show the reason and the manner of computing
such adjustment, including any
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<PAGE> 19
determination of Fair Market Value involved in such computation. Promptly after
each adjustment to the Conversion Ratio of the Series A Preferred Stock, the
Corporation shall mail a notice thereof and of the then prevailing Conversion
Ratio to each holder of shares of the Series A Preferred Stock.
(p) In the event that the Corporation shall consummate any
consolidation, combination or merger or similar business combination transaction
pursuant to which the outstanding shares of Common Stock are by operation of law
exchanged solely for or changed, reclassified or converted solely into stock of
any successor or resulting company (including the Corporation) that constitutes
"qualifying employer securities" with respect to a holder of the Series A
Preferred Stock within the meaning of Section 409(e) of the Code and Section
407(d)(5) of the Employee Retirement Income Security Act of 1974, as amended, or
any successor provisions of law, and, if applicable, for a cash payment in lieu
of fractional shares, if any, then subject to the Corporation's right to redeem
the Series A Preferred Stock under Section 5(a)(i) of this Division A-1, the
shares of the Series A Preferred Stock of such holder shall in connection
therewith be assumed by and shall become preferred stock of such successor or
resulting company, having in respect of such company insofar as possible the
same powers, preferences and relative, participating, optional or other special
rights (including the redemption rights provided by Section 5 of this Division
A-1 and this Section 8 of Division A-1), and the qualifications, limitations or
restrictions thereon, that the Series A Preferred Stock had immediately prior to
such transaction, except that after such transaction each share of the Series A
Preferred Stock shall be convertible, otherwise on the terms and conditions
provided by this Section 8 of Division A-1, into the number and kind of
qualifying employer securities so receivable by a holder of the number of shares
of Common Stock into which such shares of the Series A Preferred Stock could
have been converted immediately prior to such transaction; PROVIDED, HOWEVER,
that if by virtue of the structure of such transaction, a holder of Common Stock
is required to make an election with respect to the nature and kind of
consideration to be received in such transaction, which election cannot
practicably be made by the holders of the Series A Preferred Stock, then the
shares of Series A Preferred Stock shall, by virtue of such transaction and on
the same terms as apply to the holders of Common Stock, be converted into or
exchanged for the aggregate amount of stock, securities, cash or other property
(payable in kind) receivable by a holder of the number of shares of Common Stock
into which such shares of Series A Preferred Stock could have been converted
immediately prior to such transaction if such holder of Common Stock failed to
exercise any rights of election to receive any kind or amount of stock,
securities, cash or other property (other than such qualifying employer
securities and a cash payment, if applicable, in lieu of fractional shares)
receivable upon such transaction (provided that, if the kind or amount of
qualifying employer securities receivable upon such transaction is not the same
for each non-electing share, then the kind and amount of qualifying employer
securities receivable upon such transaction for each non-electing share shall be
the kind and amount so receivable per share by a plurality of the non-electing
shares). The rights of the Series A Preferred Stock as preferred stock of such
successor or resulting company shall successively be subject to adjustments
pursuant to this Section 8 of Division A-1 after any such transaction as nearly
equivalent to the adjustments provided for by such Section prior to such
transaction. The Corporation shall not consummate any such merger, consolidation
or similar transaction unless all then outstanding shares of the Series A
Preferred Stock shall be assumed and authorized by the successor or resulting
company as aforesaid.
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<PAGE> 20
(q) In the event that the Corporation shall consummate any
consolidation, combination or merger or similar business combination transaction
pursuant to which the outstanding shares of Common Stock are by operation of law
exchanged for or changed, reclassified or converted into other stock or
securities or cash or any other property, or any combination thereof, other than
any such consideration which is constituted solely of qualifying employer
securities (as referred to in paragraph (p) of this Section 8 of Division A-1)
and cash payments, if applicable, in lieu of fractional shares, outstanding
shares of the Series A Preferred Stock shall, without any action on the part of
the Corporation or any holder thereof (but subject to paragraph (r) of this
Section 8 of Division A-1), be automatically converted by virtue of such merger,
combination, consolidation or similar transaction immediately prior to its
consummation into the number of shares of Common Stock into which such shares of
the Series A Preferred Stock could have been converted at such time so that each
share of the Series A Preferred Stock shall, by virtue of such transaction and
on the same terms as apply to the holders of Common Stock, be converted into or
exchanged for the aggregate amount of stock, securities, cash or other property
(payable in like kind) receivable by a holder of the number of shares of Common
Stock into which such shares of the Series A Preferred Stock could have been
converted immediately prior to such transaction; PROVIDED, HOWEVER, that if by
virtue of the structure or such transaction, a holder of Common Stock is
required to make an election with respect to the nature and kind of
consideration to be received in such transaction, which election cannot
practicably be made by the holders of the Series A Preferred Stock, then the
shares of the Series A Preferred Stock shall, by virtue of such transaction and
on the same terms as apply to the holders of Common Stock, be converted into or
exchanged for the aggregate amount of stock, securities, cash or other property
(payable in kind) receivable by a holder of the number of shares of Common Stock
into which such shares of the Series A Preferred Stock could have been converted
immediately prior to such transaction if such holder of Common Stock failed to
exercise any rights of election as to the kind or amount of stock, securities,
cash or other property receivable upon such transaction (provided that, if the
kind or amount of stock, securities, cash or other property receivable upon such
transaction is not the same for each non-electing share, then the kind and
amount of stock, securities, cash or other property receivable upon such
transaction for each non-electing share shall be the kind and amount so
receivable per share by a plurality of the non-electing shares.)
(r) In the event the Corporation shall enter into any agreement
providing for any consolidation, combination or merger or similar business
combination transaction described in paragraph (q) of this Section 8 of Division
A-1, then the Corporation shall as soon as practicable thereafter (and in any
event at least ten (10) Business Days before consummation of such transaction)
give notice of such agreement and the material terms thereof to each holder of
the Series A Preferred Stock and each such holder shall have the right to elect,
by written notice to the Corporation, to receive, upon consummation of such
transaction (if and when such transaction is consummated), from the Corporation
or the successor of the Corporation, in redemption and retirement of the Series
A Preferred Stock, a cash payment equal to the amount payable in respect of
shares of the Series A Preferred Stock upon redemption pursuant to Section 5 of
Division A-1. No such notice of redemption shall be effective unless given to
the Corporation prior to the close of business on the fifth Business Day prior
to consummation of such transaction, unless the Corporation or the successor of
the Corporation shall waive such prior notice, but any notice of redemption so
given prior to such time may be withdrawn by notice of withdrawal given to the
Corporation prior to the close of business on the fifth Business Day prior to
consummation of such transaction.
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<PAGE> 21
(s) Any shares of the Series A Preferred Stock acquired by the
Corporation by reason of the conversion or redemption of such shares as provided
hereby, or otherwise so acquired, shall except for shares of the Series A
Preferred Stock that have been redeemed pursuant to Section 5(b) of this
Division A-1, which shares may be reissued to the trustee of the Plan, be
cancelled as shares of Series A Preferred Stock and restored to the status of
authorized but unissued shares of the Serial Preferred Stock, without par
value, of the Corporation, undesignated as to series, and may thereafter be
reissued as part of a new series of such preferred stock as permitted by law.
(t) All notices referred to herein shall be in writing, and all notices
hereunder shall be deemed to have been given upon the earlier of receipt thereof
or three (3) Business Days after the mailing thereof if sent by registered mail
(unless first-class mail shall be specifically permitted for such notice under
the terms hereof) with postage prepaid, addressed: (i) if to the Corporation, to
its office at 1000 Lakeside Avenue, Cleveland, Ohio 44114 (Attention: Secretary)
or to the transfer agent for the Series A Preferred Stock, or other agent of the
Corporation designated as permitted herein or (ii) if to any holder of the
Series A Preferred Stock or Common Stock, as the case may be, to such holder at
the address of such holder as listed in the stock record books of the
Corporation (which may include the records of any transfer agent for the Series
A Preferred Stock or Common Stock, as the case may be) or (iii) to such other
address as the Corporation or any such holder, as the case may be, shall have
designated by notice similarly given.
(u) In the event that, at any time as a result of an adjustment made
pursuant to Section 8 of Division A-1, the holder of any share of the Series A
Preferred Stock upon thereafter surrendering such shares for conversion shall
become entitled to receive any shares or other securities of the Corporation
other than shares of Common Stock, the Conversion Ratio in respect of such other
shares or securities so receivable upon conversion of shares of Series A
Preferred Stock shall thereafter be adjusted, and shall be subject to further
adjustment from time to time, in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to Common Stock contained in Section
8 of Division A-1, and the provisions of each of the other Sections hereof with
respect to the Common Stock shall apply on like or similar terms to any such
other shares or securities.
(v) The Corporation shall pay any and all stock transfer and
documentary stamp taxes that may be payable in respect of any issuance or
delivery of shares of the Series A Preferred Stock or shares of Common Stock or
other securities issued on account of the Series A Preferred Stock pursuant
hereto or certificates representing such shares or securities. The Corporation
shall not, however, be required to pay any such tax which may be payable in
respect of any transfer involved in the issuance or delivery of shares of the
Series A Preferred Stock or Common Stock or other securities in a name other
than that in which the shares of the Series A Preferred Stock with respect to
which such shares or other securities are issued or delivered were registered,
or in respect of any payment to any person with respect to any such shares or
securities other than a payment to the registered holder thereof, and shall not
be required to make any such issuance, delivery or payment unless and until the
person otherwise entitled to such issuance, delivery or payment has paid to the
Corporation the amount of any such tax or has established, to the satisfaction
of the Corporation, that such tax has been paid or is not payable.
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<PAGE> 22
(w) In the event that a holder of shares of the Series A Preferred
Stock shall not by written notice designate the name in which shares of Common
Stock to be issued upon conversion of such shares should be registered or to
whom payment upon redemption of shares of the Series A Preferred Stock should be
made or the address to which the certificate or certificates representing such
shares, or such payment, should be sent, the Corporation shall be entitled to
register such shares and make such payment, in the name of the holder of such
Series A Preferred Stock as shown on the records of the Corporation and to send
the certificate or certificates representing such shares, or such payment, to
the address of such holder shown on the records of the Corporation.
(x) The Corporation may appoint, and from time to time discharge and
change, a transfer agent for the Series A Preferred Stock. Upon any such
appointment or discharge of a transfer agent, the Corporation shall send notice
thereof by first-class mail, postage prepaid, to each holder of record of the
Series A Preferred Stock.
DIVISION B
EXPRESS TERMS OF THE COMMON STOCK
The Common Stock shall be subject to the express terms of the Serial
Preferred Stock and any series thereof. Each share of Common Stock shall be
equal to every other share of Common Stock. The holders of shares of Common
Stock shall be entitled to one vote for each share of such stock upon all
matters presented to the shareholders.
FIFTH: The Corporation, by action of its board of directors, may
purchase any issued shares of the Corporation.
SIXTH: These Eleventh Amended Articles of Incorporation supersede the
heretofore existing Tenth Amended Articles of Incorporation and all amendments
thereto.
IN WITNESS WHEREOF, the above-named officers, acting for and on behalf
of the Corporation, have subscribed their names this 28th day of April, 1989.
/s/ Adolph Posnick
-------------------------------------
Chairman of the Board of Directors
/s/ Paul B. Campbell
-------------------------------------
Secretary
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<PAGE> 1
Exhibit 3(b)
CERTIFICATE OF AMENDMENT TO
AMENDED ARTICLES OF INCORPORATION OF
FERRO CORPORATION
Albert C. Bersticker, President and Paul B. Campbell, Secretary of
Ferro Corporation (the "Corporation"), an Ohio corporation for profit with its
principal location at Cleveland, Ohio, do hereby certify that a meeting of the
shareholders of the Corporation entitling them to vote on the proposal to amend
the Amended Articles of Incorporation thereof, as contained in the following
resolutions, was duly called and held on April 22, 1994, at which meeting a
quorum of such shareholders was present in person or in proxy, and that by the
affirmative vote of the shareholders entitling them to exercise at least
two-thirds of the voting power of the Corporation on such proposal the following
resolution was adopted to amend the Amended Articles of Incorporation:
RESOLVED, by the shareholders of Ferro Corporation that the
first paragraph of Article Fourth of the Amended Articles of
Incorporation of the Corporation be and the same is hereby
amended so that, as amended, such Article shall be and read as
follows:
"FOURTH: The number of shares which the
Corporation is authorized to have outstanding is
152,000,000, consisting of 2,000,000 shares of Serial
Preferred Stock without Par Value (hereinafter called
"Serial Preferred Stock") and 150,000,000 shares of
Common Stock of the Par Value of $1.00 each
(hereinafter called "Common Stock")."
<PAGE> 2
IN WITNESS WHEREOF, the above-named officers, acting for and on behalf
of the Corporation, have subscribed their names this 21st day of December, 1994.
/s/ Albert C. Bersticker
----------------------------
Albert C. Bersticker
President
/s/ Paul B. Campbell
----------------------------
Paul B. Campbell
Secretary
2
<PAGE> 1
Exhibit 3(c)
CERTIFICATE OF AMENDMENT TO
AMENDED ARTICLES OF INCORPORATION OF
FERRO CORPORATION
Albert C. Bersticker, Chairman and Chief Executive Officer, and Mark A.
Cusick, Secretary of Ferro Corporation (the "Corporation"), an Ohio corporation
for profit with its principal location at Cleveland, Ohio, do hereby certify
that a meeting of the shareholders of the Corporation entitling them to vote on
the proposal to amend the Amended Articles of Incorporation of the Corporation,
was duly called and held on April 24, 1998, at which meeting a quorum of such
shareholders was present in person or in proxy, and that by the affirmative vote
of the shareholders entitling them to exercise at least two-thirds of the voting
power of the Corporation on such proposal, the following amendment to the
Amended Articles of Incorporation was adopted:
"FOURTH: The number of shares which the Corporation
is authorized to have outstanding is 302,000,000 consisting of
2,000,000 shares of Serial Preferred Stock without Par Value
(hereinafter called "Serial Preferred Stock") and 300,000,000
shares of Common Stock of the Par Value of $1.00 each
(hereinafter called "Common Stock")."
IN WITNESS WHEREOF, the above-named officers, acting for and on behalf
of the Corporation, have subscribed their names this 17th day of June, 1998.
/s/ Albert C. Bersticker
--------------------------------------
Albert C. Bersticker
Chairman & Chief Executive Officer
/s/ Mark A. Cusick
--------------------------------------
Mark A. Cusick
Secretary
<PAGE> 1
Exhibit 3(d)
FERRO CORPORATION
CODE OF REGULATIONS
As Amended on April 24, 1987
ARTICLE I.
Meetings of Shareholders
Section 1. ANNUAL MEETING. The annual meeting of the shareholders
of the Corporation shall be held at the principal office in the City of
Cleveland, Ohio, at 10:00 A.M. or at such other time and such other place within
or without the State of Ohio as the directors may determine on such date as the
Board of Directors may determine. The directors shall be elected thereat and
such other business transacted as may be specified in the notice of the meeting.
Section 2. SPECIAL MEETINGS. Special meetings of the shareholders
may be called at any time by the Chairman of the Board, the President, or a
majority of the directors acting with or without a meeting, or by shareholders
holding twenty-five percent or more of the outstanding shares entitled to vote
thereat. Such meetings may be held within or without the State of Ohio at such
time and place as may be specified in the notice thereof.
Section 3. NOTICE OF MEETINGS. A written or printed notice of
every annual or special meeting of the shareholders, stating the time and place
and the purposes thereof, shall be given to each shareholder entitled to notice
as provided by law, which notice may be served upon a shareholder in person or
may be mailed to his last address appearing on the books of the Corporation, at
least ten days before any such meeting.
Section 4. PERSONS BECOMING ENTITLED BY OPERATION OF LAW. Every
person who by operation of law, by transfer, or by any other means whatsoever,
shall become entitled to any share, or right or interest therein, shall be bound
by every notice in respect of such share, which, prior to the entering of his
name and address upon the books of the Corporation, shall have been duly given
to the record holder from whom he derived his title to such share.
Section 5. QUORUM AND ADJOURNMENTS. Except as may be otherwise
required by law or by the Amended Articles of Incorporation, as amended from
time to time, the holders of shares entitling them to exercise a majority of the
voting power of the Corporation shall constitute a quorum to hold a
shareholders' meeting. Any meeting, whether or not a quorum is present, may be
adjourned from time to time and from place to place by vote of the holders of a
majority of the voting shares represented thereat, without notice other than by
announcement at such meeting.
<PAGE> 2
-2-
ARTICLE II.
Directors
Section 1. NUMBER. The number of directors shall be not less than
nine nor more than fifteen as may be determined by the vote of the shareholders
entitling them to exercise a majority of the voting power of the Company at any
annual meeting or special meeting called for the purpose of electing directors,
and when so fixed such number shall continue to be the authorized number of
directors until changed by the shareholders by vote as aforesaid or by the
directors as hereinafter provided. In addition to the authority of the
shareholders to fix or change the number of directors, the directors, by
majority vote of the directors in office, may change the number of directors and
may fill any director's office that is created by an increase in the number of
directors. In exercising the foregoing authority, the directors may not change
the number of directors by more than two (2) from the number authorized by the
shareholders at the last annual or special meeting of the shareholders at which
the number of directors was fixed and in no event may the directors fix the
number of directors at less than nine nor more than fifteen.
Section 2. CLASSIFICATION AND ELECTION OF DIRECTORS. The directors
shall be divided into three classes each consisting of not less than three nor
more than five directors. At the annual meeting of shareholders in 1969, one
class of directors shall be elected for a one year term, one class for a two
year term and one class for a three year term. At each succeeding annual meeting
of shareholders successors to the class of directors whose term expires in that
year will be elected for a three year term. At such time as shareholders or
directors fix or change the total number of directors comprising the Board, they
shall also fix, or determine the adjustment to be made to, the number of
directors comprising the three classes of directors, provided, however, that no
reduction in the number of directors shall of itself result in the removal of or
shorten the term of any incumbent director. In case of any increase in the
number of directors of any class, any additional directors elected to such class
shall hold office for a term which shall coincide with the term of such class. A
separate election shall be held for each class of directors and for any director
or directors added to an existing class as hereinabove provided. Election of
directors at a meeting of the shareholders shall be by ballot whenever requested
by any person entitled to vote at the meeting; but unless so requested, such
election may be conducted in any way approved at such meeting.
Section 3. TENURE OF OFFICE. A director shall hold office until
the annual meeting for the year in which his term expires or until his successor
is elected and qualified; subject, however, to prior resignation, death or
removal as provided by law. A director may be elected to succeed himself.
Section 4. VACANCIES. Whenever any vacancy shall occur among the
directors, the remaining directors shall constitute the directors of the Company
until such vacancy is filled or until the number of directors is changed as
above provided. The remaining directors, though less than a majority of the
whole authorized number of directors, may, by a vote of a majority of their
number, fill any vacancy for the unexpired term.
<PAGE> 3
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Section 5. ORGANIZATION MEETING. After each annual meeting of the
shareholders, or special meeting held in lieu thereof, the newly elected
directors, if a quorum thereof be present, shall hold an organization meeting at
the same place or at such other time and place as may be fixed by the
shareholders at their meeting, for the purpose of electing officers and
transacting any other business. Notice of such meeting need not be given. If for
any reason said organization meeting is not held at such time, a special meeting
for such purpose shall be held as soon thereafter as practicable.
Section 6. REGULAR MEETINGS. Regular meetings of the directors may
be held at such time and places within or without the State of Ohio as may be
provided for in by-laws or resolutions adopted by the directors, and upon such
notice, if any, as shall be so provided for.
Section 7. SPECIAL MEETINGS. Special meetings of the directors may
be held at any time within or without the State of Ohio, upon call by the
Chairman of the Board, the President, or any two directors. Notice of each such
meeting shall be given to each director by letter or telegram or telephone, or
in person, not less than twenty-four hours prior to such meeting. Unless
otherwise indicated in the notice thereof, any business may be transacted at any
organization, regular, or special meeting.
Section 8. QUORUM AND ADJOURNMENTS. A majority of the directors in
office at the time shall constitute a quorum. Any meeting, whether or not a
quorum is present, may be adjourned from time to time and place to place within
or without the State of Ohio by vote of a majority of the directors present
without notice other than by announcement at the meeting. At any meeting at
which a quorum is present, all questions and business shall be determined by the
affirmative vote of not less than a majority of the directors present.
Section 9. COMPENSATION. The directors are authorized to fix a
reasonable retainer for directors or a reasonable fee for attendance at any
meeting of the directors, the Executive Committee, or other committees elected
under Article III hereof, or any combination of retainer and attendance fee,
provided that no compensation as director shall be paid to any director who is
an employee of the Corporation or of a subsidiary. In addition to such
compensation or fees provided for directors, they shall be reimbursed for any
expenses incurred by them in traveling to and from such meetings.
Section 10. EMERGENCY BY-LAWS. The directors are authorized to
adopt emergency by-laws, subject to repeal or change by action of the
shareholders, which shall be operative only during an emergency as defined in
Section 1701.01(U) of the Ohio Revised Code. Such emergency by-laws may make
such provisions and have such effect as are permitted by Section 1701.111 of the
Ohio Revised Code.
<PAGE> 4
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ARTICLE III.
Committees.
Section 1. MEMBERSHIP AND ORGANIZATION OF EXECUTIVE COMMITTEE.
(a) The directors may, at any time, elect from their number an
Executive Committee which shall consist of not less than three members and which
shall include in any event the President, each of whom shall hold office during
the pleasure of the directors and may be removed at any time, with or without
cause, by vote thereof. The directors may elect one or more directors as
alternate members of the Committee, who may take the place of any absent member
or members at any meeting of the Committee.
(b) Vacancies occurring in the Committee may be filled by the
directors.
(c) The Committee may appoint one of its own number as Chairman
who shall preside at all meetings and may also appoint a Secretary (who need not
be a member of the Committee) who shall keep its records and who shall hold
office during the pleasure of the Committee.
Section 2. MEETINGS OF EXECUTIVE COMMITTEE.
(a) Stated meetings of the Committee may be held without notice of
the time, place, or objects thereof and shall be held at such times and places
within or without the State of Ohio as the Committee may from time to time
determine.
(b) Special meetings may be held at any place within or without
the State of Ohio and until otherwise ordered by the Committee shall be held at
any time and place at the call of the Chairman or any two members thereof, upon
such notice as the Committee may from time to time determine.
(c) The Committee may act without a meeting, by writing or
writings signed by all its members.
(d) A majority of the members of the Committee shall be necessary
for the transaction of any business, and at any meeting the Committee may
exercise any or all of its powers and any business which shall come before any
meeting may be transacted thereat, provided a majority of the Committee is
present, but in every case the affirmative vote of a majority of all of the
members of the Committee shall be necessary to any action by it taken.
Section 3. POWERS OF EXECUTIVE COMMITTEE. Except as its powers,
duties, and functions may be limited or prescribed by the directors, during the
intervals between the meetings of the directors the Committee shall possess and
may exercise all the powers of the directors in the management and control of
the business of the Corporation; provided, that the Committee shall not be
empowered to declare dividends, elect officers, or fill vacancies among
<PAGE> 5
-5-
the directors or Executive Committee. All actions of the Committee shall be
reported to the directors at their meeting next succeeding such action and shall
be subject to revision or alteration by the directors, provided that rights of
any third person shall be affected thereby.
Section 4. OTHER COMMITTEES. The directors may elect other
committees from among the directors in addition to or in lieu of the Executive
Committee and give to them any of the powers that under the foregoing provisions
could be vested in an Executive Committee. Sections 1 and 2 of this Article and
the reporting requirements of Section 3 of this Article shall be applicable to
such other committees, except that the President need not be a member of any
such committee.
ARTICLE IV.
Officers
Section 1. OFFICERS DESIGNATED. The directors at their
organization meeting or special meeting held in lieu thereof shall elect a
President, one or more Vice Presidents, a Secretary, and a Treasurer, and, in
their discretion, a Chairman of the Board and such other officers as the
directors may deem necessary. The Chairman of the Board and the President shall,
and the other officers may, but need not, be chosen from among the directors.
Any two or more of such offices, other than that of President and Vice
President, Secretary and Assistant Secretary, or Treasurer and Assistant
Treasurer, may be held by the same person, but no officer shall execute,
acknowledge, or verify any instrument in more than one capacity.
Section 2. TENURE OF OFFICE. The officers of the Corporation shall
hold office until the next annual meeting of the directors and until their
successors are chosen and qualified, except in case of resignation, death, or
removal. The directors may remove any officer at any time with or without cause
by a majority vote of the directors in office at the time. A vacancy, however
created, in any office may be filled by election by the directors.
Section 3. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
any, shall preside at meetings of the shareholders and of the directors, and
shall have such other powers and duties as from time to time may be prescribed
by the directors.
Section 4. PRESIDENT. In the absence of the Chairman of the Board,
the President shall preside at meetings of the shareholders and of the
directors. He may execute all authorized deeds, mortgages, bonds, contracts, and
other obligations in the name of the Corporation and shall have such other
powers and duties as may be prescribed by the directors.
Section 5. CHIEF EXECUTIVE OFFICER. Either the Chairman of the
Board or the President shall be designated by the directors as the chief
executive officer of the Corporation and the one so designated shall have
general supervision over its property, business, and affairs and shall perform
all duties incident to such office, subject to the directions of the directors.
<PAGE> 6
-6-
Section 6. VICE PRESIDENTS. The Vice Presidents shall have such
powers and duties as may be prescribed by the directors or as may be delegated
by the President. In the case of absence or disability of the President or when
circumstances prevent the President from acting, the Vice Presidents, in the
order designated by the directors, shall perform the President's duties. In case
the President and the Vice President or Vice Presidents are absent or unable to
perform their duties, the directors may appoint a President pro tempore.
Section 7. SECRETARY. The Secretary shall keep the minutes of all
meetings of the shareholders and of the directors. He shall keep such records as
may be required by the directors, shall have charge of the seal of the
Corporation, shall give all notices of shareholders' and directors' meetings
required by law or by these Regulations or otherwise, provided that any person
or persons entitled to call a shareholders' or directors' meeting may give such
notice. The Secretary shall have such other powers and duties as the directors
may prescribe.
Section 8. TREASURER. The Treasurer shall receive and have in
charge all moneys, bills, notes, bonds, stocks and securities in other
corporations, and similar property belonging to the Corporation and shall do
with the same as may be ordered by the directors. He shall keep accurate
financial accounts and hold the same open for inspection and examination of the
directors. On the expiration of his term of office, he shall turn over to his
successor or to the directors all property, books, papers, and moneys of the
Corporation in his hands. The Treasurer shall have such other powers and duties
as the directors may prescribe.
Section 9. OTHER OFFICERS. Any Assistant Secretary or Assistant
Treasurer and any other officer the directors may elect shall have such powers
and duties as the directors may prescribe.
Section 10. AUTHORITY TO EXECUTE DOCUMENTS. The authority of each
Vice President, the Secretary, and the Treasurer to execute all authorized
deeds, mortgages, bonds, contracts, and other obligations in the name of the
Corporation shall be coordinate with the like powers of the President, and any
such instrument so executed by any Vice President, the Secretary, or the
Treasurer shall be as valid and binding as though executed by the President.
Section 11. DELEGATION OF DUTIES. The directors are authorized to
delegate the duties of any officer to any other officer and generally to control
the action of the officers and to require the performance of duties in addition
to those mentioned herein.
Section 12. COMPENSATION. The directors are authorized to
determine or to provide the method of determining the compensation of all
officers.
Section 13. BOND. Any officer or employee, if required by the
directors, shall give bond in such sum and with such security as the directors
may require for the faithful performance of his duties.
<PAGE> 7
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Section 14. SIGNING CHECKS AND OTHER INSTRUMENTS. The directors
are authorized to determine or provide the method of determining the manner in
which checks, notes, bills of exchange, and other obligations and instruments of
the Corporation shall be signed, countersigned, or endorsed.
ARTICLE V.
Indemnification
The Corporation shall indemnify any director or officer and any
former director or officer of the Corporation and any such director or officer
who is or has served at the request of the Corporation as a director, officer or
trustee of another corporation, partnership, joint venture, trust or other
enterprise (and his heirs, executors and administrators) against expenses,
including attorney's fees, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by him by reason of the fact that he is or was
such director, officer or trustee in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative to the full extent permitted by applicable law. The
indemnification provided for herein shall not be deemed to restrict the power of
the Corporation (i) to indemnify employees, agents and others to the extent not
prohibited by law, (ii) to purchase and maintain insurance or furnish similar
protection on behalf of or for any person who is or was a director, officer or
employee of the Corporation, or any person who is or was serving at the request
of the Corporation as a director, officer, trustee, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him or incurred by him in any such capacity or
arising out of his status as such and (iii) to enter into agreements with
persons of the class identified in clause (ii) above indemnifying them against
any and all liabilities (or such lesser indemnification as may be provided in
such agreements) asserted against or incurred by them in such capacities.
ARTICLE VI.
Corporate Seal
The corporate seal of the Corporation shall be circular in form
and contain the name of the Corporation.
<PAGE> 8
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ARTICLE VII.
Amendments
These regulations may be altered, changed, or amended in any
respect or superseded by new regulations in whole or in part by the affirmative
vote of the holders of record of shares entitling them to exercise a majority of
the voting power of the Corporation at any annual or special meeting called for
such purpose, or without a meeting by the written consent of the holders of
record of shares entitling them to exercise two-thirds of the voting power of
the Corporation. In case of adoption of any regulation or amendment by such
written consent, the Secretary shall enter the same in his records and mail a
copy thereof to each shareholder entitled to vote who did not participate in the
adoption thereof.
<PAGE> 1
Exhibit 10
FERRO CORPORATION
Executive Employment Contract
-----------------------------
I. Recitals
--------
(A) This Executive Employment Contract (this "Agreement") is between
Ferro Corporation (the "Company") and Millicent W. Pitts (the "Executive")
and is effective as of March__, 1998.
(B) The address of the Company is 1000 Lakeside Avenue, Cleveland, Ohio
44114. The address of the Executive is _________________________.
(C) The Executive is currently employed by the Company in the capacity
of Vice President, Administration and the Executive is one of the key
executives of the Company.
(D) In consideration of the mutual promises contained herein and
other good and valuable consideration, the Executive and the Company have
entered into this Agreement.
II. Definitions
-----------
As used in this Agreement, the following terms shall have the meanings
set forth below:
"Agreement" means this Agreement.
"Bank" has the meaning set forth in Section VI.
"Base Salary" has the meaning set forth in Section III.D.(1).
<PAGE> 2
"Benefit Plans" has the meaning set forth in Section
III.E.(2).
"Board" means the Board of Directors of the Company.
"Cause" has the meaning set forth in Section IV.B(1).
"change in control of the Company" has the meaning set forth
in Section VI.
"Company" means Ferro Corporation, as modified by Section
VIII.A.
"Contract Term" has the meaning set forth in Section III.A.
"Date of Termination" has the meaning set forth in Section
IV.A.(2).
"Disabled" has the meaning set forth in Section IV.C.(1).
"Excise Tax" has the meaning set forth in Section V.A.(1).
"Escrow Account" has the meaning set forth in Section VI.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Executive" means the executive named in this Agreement.
"Firm" has the meaning set forth in Section V.A.(2) and refers
to certain Excise Tax matters.
"Good Reason" has the meaning set forth in Section IV.E.
"Gross-Up Payment" has the meaning set forth in Section
V.A.(1) and refers to certain Excise Tax matters.
"Incentive Compensation Plan" has the meaning set forth in
Section III.E.(1).
-2-
<PAGE> 3
"Normal Retirement Age" means the normal retirement age
provided for in the Company's Pension Plan.
"Notice of Termination" has the meaning set forth in Section
IV.A.(1).
"Payment" has the meaning set forth in Section V.A.(1) and
refers to certain Excise Tax matters.
"Pension Plan" means the Company's salaried employees'
retirement plan, or any successor plan thereto.
"Retirement" has the meaning set forth in Section IV.D.(1).
"Total Disability" means total disability as defined in the
Company's Pension Plan.
"Underpayment" has the meaning set forth in Section V.A.(2)
and refers to certain Excise Tax matters.
III. Provisions Applicable to the Contract Term
------------------------------------------
A. Contract Term
-------------
Except as otherwise provided in this Agreement, the Company and the
Executive agree that the Executive will remain in the employ of the Company for
a primary term ending on May __, 2000 and that this Agreement will
automatically continue after such primary term unless and until either party
shall have given the other at least 24 months prior written Notice of
Termination or, if earlier, until expiration of the Contract Term. The "Contract
Term" shall refer to the period commencing on the date hereof and ending on
May __, 2000 (or any continuation
-3-
<PAGE> 4
thereof pursuant to the preceding sentence); provided, however, that in no event
shall the Contract Term extend beyond the earliest to occur of (A) the
Executive's attaining Normal Retirement Age, (B) the date of death of the
Executive, and (C) the Date of Termination resulting from the termination of
this Agreement for Disability (as defined in Section IV.C.(1) hereof); and
provided, further, however, that, if a change in control of the Company (as
defined in Section VI hereof) occurs during the Contract Term, then, subject to
the preceding proviso in this sentence, the Contract Term shall not expire prior
to the second anniversary of the date of such change in control of the Company.
Nothing contained in this Agreement shall prevent the Company at any time
from terminating the Executive's right and obligation to perform service for the
Company or prevent the Company from removing the Executive from any position
which the Executive holds in the Company, subject to the obligation of the
Company to make payments and provide benefits if and to the extent required
under this Agreement, which payments and benefits shall be full and complete
liquidated damages for any such action taken by the Company. The Executive
specifically acknowledges that, except for this Agreement, his employment by the
Company is employment-at-will, subject to termination by the Executive, or by
the Company, at any time with or without cause. The Executive acknowledges that
such employment-at-will status cannot be modified except in a specific writing
which has been authorized or ratified by the Board.
-4-
<PAGE> 5
B. Nature of Duties
----------------
(1) The Executive agrees to serve the Company during the
Contract Term. The Executive agrees to devote his full business time during
normal business hours to the business and affairs of the Company (except as
otherwise provided herein) and to use his best efforts to promote the interests
of the Company and to perform faithfully and efficiently the responsibilities
assigned to him in accordance with the terms of this Agreement to the extent
necessary to discharge such responsibilities, except for (i) service on
corporate, civic or charitable boards or committees not significantly
interfering with the performance of such responsibilities, and (ii) periods of
vacation and sick leave or other legitimate absences under Company benefit plans
and established practices.
(2) The Company agrees that, on or after a change in control
of the Company (as defined in Section VI hereof), it will not, without the
Executive's express written consent, (a) assign to the Executive duties
inconsistent with his current positions, duties, responsibilities and status
with the Company, or (b) change his titles as currently in effect, or (c) remove
him from, or fail to re-elect him to, any of such positions, except in
connection with the termination of his employment for Cause, Disability or
Retirement or as a result of his death or voluntary termination. Except as so
limited, the powers and duties of the Executive are to be more specifically
determined and set by the Company from time to time.
-5-
<PAGE> 6
C. Place of Employment
-------------------
The Executive's initial place of employment is at the Company's
principal executive offices in Cleveland, Ohio. The Company agrees that it will
not, without the Executive's express written consent, require the Executive to
be based anywhere other than Cuyahoga County, Ohio, or a county contiguous
thereto, except for required travel on the Company's business to an extent
substantially consistent with present business travel obligations.
D. Compensation
------------
(1) BASE SALARY. During the Contract Term, the Executive shall
receive an annual base salary (the "Base Salary"), payable in installments,
substantially in accordance with current practice, at an annual rate at least
equal to the aggregate annual Base Salary payable to the Executive as of the
date hereof. The Base Salary may be increased (but may not be decreased) at any
time and from time to time by action of the Board, and, if so increased, such
increased Base Salary shall thereafter be the Base Salary for the purposes of
this Agreement.
(2) INCENTIVE COMPENSATION. During the Contract Term, the
Company agrees to pay annual incentive compensation to the Executive in an
amount at least equal to the annual incentive compensation that would have been
payable to the Executive for such year in question under the Company's Incentive
Compensation Plan as in effect for such applicable year, and giving effect to
the highest position in the Company held by the Executive during the Contract
Term.
-6-
<PAGE> 7
E. Benefit Plans
-------------
(1) During the Contract Term, the Company agrees to continue
the Company's Annual Incentive Compensation Plan as the same may be modified
from time to time but substantially in the form presently in effect (the
"Incentive Compensation Plan"). The Company agrees to continue the Executive as
a participant in the Incentive Compensation Plan on a basis at least equivalent
to the present basis of his participation for the calendar year in which the
effective date of this Agreement occurs.
(2) During the Contract Term, the Company agrees to continue
in effect any perquisite, benefit or compensation plan (in addition to the
Incentive Compensation Plan) including its pension plan, excess benefits plans,
supplemental retirement program for short service executives, dental plan, life
insurance plan, health and accident plan or disability plan in which the
Executive is currently participating (but excluding the Company's stock option
plan and performance share plan, participation in which shall be at the sole
discretion of the Company's Board of Directors, or any applicable committee
thereof) (such plans are collectively referred to with the Incentive
Compensation Plan as the "Benefit Plans"), or to maintain plans providing
substantially similar benefits; provided, however, that the Company may make
modifications in such Benefit Plans so long as such modifications (a) are
generally applicable to all salaried employees of the Company and (b) do not
discriminate against highly-paid employees of the Company.
-7-
<PAGE> 8
(3) During the Contract Term, except as permitted in the
proviso contained in paragraph (2) above, the Company agrees not to take any
action that would adversely affect the Executive's participation in, or
materially reduce the benefits under, any of the Benefit Plans.
(4) Benefits herein provided are in lieu of any severance
payment benefit otherwise provided under any other agreement, policy, or
practice provided by the Company and, in the event of an effective Notice of
Termination hereunder, are also in lieu of any obligations of the Company in
favor of the Executive with respect to vacation or vacation pay. The Executive
waives all rights to such payments under any such agreement, policy or practice
provided, however, that this waiver shall not extend to entitlements provided
under any disability insurance plan, retirement plan, excess benefit plan, or
applicable supplemental pension plan or agreement for short service executives
and any related Benefit Plans (including health and insurance plans), other than
those relating to severance or vacation.
F. Conflicting Interests
---------------------
Prior to the Date of Termination, the Executive agrees not to accept
any other employment or engage in any outside business or enterprise without the
Company's written consent. It is understood, however, that outside activities
are not prohibited provided they are legal; do not impair or interfere with the
conscientious performance of Company duties and responsibilities; do not involve
the misuse of the Company's
-8-
<PAGE> 9
influence, facilities or other resources; and do not reflect discredit upon the
good name and reputation of the Company.
G. Disclosure of Information
-------------------------
During the Contract Term and thereafter, the Executive shall not reveal
any confidential information of the Company to anyone except those employees of
the Company entitled to receive such information, or as otherwise permitted
under any contract or commitment of the Company, or as otherwise authorized.
H. Certain Payments Upon the Occurrence of a Change in Control of
--------------------------------------------------------------
the Company
-----------
In the event a change in control of the Company (as defined in
Section VI hereof) occurs during the Contract Term, the Company shall pay to the
Executive, within five days thereafter, an amount in cash, with respect to each
grant of Performance Shares (as defined in the Company's Amended and Restated
1997 Performance Share Plan, as amended (the "Performance Share Plan"))
previously awarded to the Executive under the Performance Share Plan (or any
predecessor thereto) in respect of a Performance Period (as defined in the
Performance Share Plan) which had not expired immediately prior to such change
in control of the Company (Performance Shares awarded in respect of any such
Performance Period being referred to as "Outstanding Performance Shares"), which
amount shall be equal to the excess (but not less than zero) of (a) over (b),
where (a) equals the product of (1) the number of Outstanding Performance Shares
awarded to the Executive in respect of the applicable Performance Period, (2)
the "fair market value of the Common Stock" (as
-9-
<PAGE> 10
defined in the Performance Share Plan) and (3) a fraction (not to exceed one)
the numerator of which is the sum of (x) the number of days which had elapsed in
the applicable Performance Period as of the date of such change in control of
the Company plus (y) 730, and the denominator of which is the number of days in
such applicable Performance Period, and where (b) equals the value payable to
the Executive under the Performance Share Plan (or any predecessor thereto) in
respect of such Outstanding Performance Shares in connection with such change in
control of the Company. The provisions of this Section III.H. shall not affect
in any manner the determination of amounts payable to the Executive under the
Performance Share Plan (or any predecessor thereto).
IV. Provisions Applicable to Termination of Employment
--------------------------------------------------
A. Notice of Termination; Date of Termination
------------------------------------------
(1) Any termination of the Executive's employment by the
Company or the Executive shall be communicated by written Notice of Termination
to the other party thereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination under the
provision so indicated. Furthermore, either the Executive or the Company may
give a Notice of Termination to the other party for the purpose of terminating
this Agreement, as such, without terminating the Executive's employment with the
Company, which Notice of Termination shall have
-10-
<PAGE> 11
the effect of terminating this Agreement at the expiration of the Contract Term
as in effect on the date of giving such Notice of Termination.
(2) "Date of Termination" shall mean the date on which the
Executive's right and obligation to perform employment services for the Company
shall terminate (subject to the right of the Company to accelerate such date
pursuant to Section III.A.) and shall be:
(a) If the Agreement is terminated for Disability, thirty (30)
days after Notice of Termination is given (provided that the
Executive shall not have returned to the performance of his
duties on a full-time basis during such thirty (30) day
period),
(b) If the Executive's employment is terminated by the Executive
for Good Reason, pursuant to Section IV.E., the date specified
in the Notice of Termination, which date (except with the
written consent of the Company to the contrary) shall not be
more than sixty (60) days after the date that the Notice of
Termination is given,
(c) The expiration or termination of the Contract Term, and
(d) If the Executive's employment is terminated by the Company for
Cause pursuant to Section IV.B.(1), the date on which a Notice
of Termination is given.
B. Termination for Cause
---------------------
(1) The Company may terminate the Executive's employment and
the Contract Term for Cause. For the purposes of this Agreement, the Company
shall have "Cause" to terminate employment hereunder only (a) if termination
shall have been the result of an act or acts by the Executive which have been
found in an applicable court to constitute a felony; or (b) if termination shall
have been the result of an act or acts of dishonesty by the Executive resulting
or intended to result directly
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<PAGE> 12
or indirectly in significant gain or personal enrichment to the Executive at the
expense of the Company; or (c) upon the wilful and continued failure by the
Executive substantially to perform his duties with the Company (other than any
such failure resulting from incapacity due to mental or physical illness) after
a demand in writing for substantial performance is delivered by the Board, which
demand specifically identifies the manner in which the Board believes that the
Executive has not substantially performed his duties, and such failure results
in demonstrably material injury to the Company. The Executive's employment shall
in no event be considered to have been terminated by the Company for Cause if
such termination took place as the result of (a) bad judgment or negligence, or
(b) any act or omission believed in good faith to have been in or not opposed to
the interest of the Company. The Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
(after reasonable notice to the Executive and an opportunity for him, together
with his counsel, to be heard before the Board), finding that in the good faith
opinion of the Board the Executive was guilty of conduct set forth above in
clauses (a), (b) or (c) of the second sentence of this paragraph and specifying
the particulars thereof in detail.
(2) If the Executive's employment shall be terminated for
Cause, the Company shall pay the Executive his full Base Salary through the Date
of Termination
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<PAGE> 13
at the rate in effect at the time Notice of Termination is given
and the Company shall have no further obligations to the Executive under this
Agreement.
C. Termination for Disability
--------------------------
(1) The Company may terminate this Agreement on account of the
Executive's "Disability" if the Executive is "Disabled." For purposes of this
Agreement, the Executive shall be considered Disabled only if, as a result of
his incapacity due to physical or mental illness, he shall have been absent from
his duties with the Company on a full-time basis for a period of six months and
within thirty (30) days after written Notice of Termination is given, he shall
not have returned to the full-time performance of his duties.
(2) If the Company terminates this Agreement because the
Executive is Disabled, the Company shall provide to the Executive (or his
successors) the benefits specified in Paragraph (3) (continued participation in
benefit plans) of Section IV.F. of this Agreement; provided, however, that for
this purpose the Contract Term shall be determined as of the Date of
Termination, but without regard to the termination of this Agreement by reason
of the Executive's Disability.
D. Termination Upon Retirement
---------------------------
(1) This Agreement will terminate upon the Executive's
Retirement. For purposes of this Agreement, "Retirement" shall mean termination
of the Executive's employment at or after attaining Normal Retirement Age or
early retirement if effected
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in accordance with any retirement arrangement established with the Executive's
consent with respect to him.
(2) In the event this Agreement terminates by reason of the
Executive's Retirement, the Company shall pay to the Executive the amounts, and
provide to the Executive the benefits, specified in Paragraph (3) (continued
participation in benefit plans) of Section IV.F. of this Agreement.
(3) Notwithstanding the preceding provisions of this Section
IV.D., unless the Executive otherwise consents in writing, a termination of the
Executive's employment which occurs on or after the date of a change in control
of the Company (as defined in Section VI hereof) shall not be deemed to be a
termination of employment for Retirement.
E. Termination of Employment by the Executive for Good Reason
----------------------------------------------------------
(1) The Executive may terminate his employment for Good
Reason. For purposes of this Agreement, Good Reason will exist if any one or
more of the following occur:
(a) Failure by the Company to honor any of its
obligations under Sections III.B.2. (assignment of
duties, responsibilities, etc., election to
positions), III.C. (place of employment), III.D.
(compensation), III.E. (benefit plans), VI
(security) or VIII.A. (successors); or
(b) Any purported termination by the Company of the
Executive's employment that is not effected pursuant
to a Notice of Termination satisfying the
requirements of Section IV.A. above and, for purposes
of this Agreement, no such purported termination
shall be effective; or
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<PAGE> 15
(c) The issuance by or on behalf of the Company,
on or after a change in control of the
Company (as defined in Section VI hereof),
of a Notice of Termination described in the
third sentence of Section IV.A.(1) hereof
which specifies that such Notice of
Termination is given for the purpose of
terminating this Agreement and which does
not serve to terminate the Executive's
employment with the Company substantially
concurrently therewith; or
(d) Voluntary resignation by the Executive at
any time during the ninety-day period
commencing on the first anniversary of a
change in control of the Company (as defined
in Section VI hereof).
F. Compensation Upon Termination Other Than for Cause
--------------------------------------------------
(1) If the Company shall terminate the Executive's employment
other than pursuant to Sections IV.B. (Cause), IV.C. (Disability) or IV.D.
(Retirement) hereof or if the Executive shall terminate his employment for Good
Reason pursuant to Section IV.E. hereof, then the Company shall pay to the
Executive the following amounts:
(a) The Executive's Base Salary through the Date
of Termination at the rate in effect at the
time Notice of Termination is given;
(b) In a lump sum (in lieu of the installment
payments otherwise payable under this
Agreement), payable on or before the fifth
(5th) day following the Date of Termination,
an amount equal to the Executive's Base
Salary through the conclusion of the
Contract Term;
(c) In a lump sum (in lieu of the installment
payments otherwise payable under this
Agreement), payable on or before the fifth
(5th) day following the Date of Termination,
an amount equal to the Executive's annual
incentive compensation payments, applicable
to periods through the conclusion of the
Contract Term. For this purpose, the annual
incentive compensation amounts payable shall
be deemed to be thirty percent (30%) of the
Base Salary, or such greater percentage
thereof, as may be applicable to the
Executive, at target levels, under the
Incentive Compensation Plan as in effect (i)
immediately prior to the Notice of
Termination or (ii) immediately prior to a
change in control of the Company (as defined
in Section VI hereof), whichever is more
favorable to the Executive;
(d) In a lump sum, payable on or before the
fifth (5th) day following the Date of
Termination, an amount equal to the pro rata
portion of the Executive's annual incentive
compensation for the calendar year in which
the Date of Termination occurs, such amount
to be determined by multiplying the
Executive's annual incentive compensation
amount (as described below) by a fraction,
the numerator of which is the number of days
in such calendar year which had elapsed as
of the Date of Termination and the
denominator of which is 365; provided,
however, that this Section IV.F.(1)(d) shall
have effect only if the Date of Termination
occurs in a calendar year following the
calendar year in which occurs a change in
control of the Company (as defined in
Section VI hereof). For purposes of this
paragraph, the Executive's annual incentive
compensation amount shall be equal to the
amount determined pursuant to the second
sentence of Section IV.F.(1)(c) above; and
(e) The Company shall also pay all legal fees
and expenses incurred as a result of such
termination (including all such fees and
expenses, if any, incurred in seeking to
obtain or enforce any right or benefit
provided by this Agreement, or in
interpreting this Agreement).
(2) If the Company shall terminate the Executive's employment
other than pursuant to Sections IV.B. (Cause), IV.C. (Disability) or IV.D.
(Retirement) hereof or if the Executive shall terminate his employment for Good
Reason pursuant to Section IV.E. hereof, then the Company shall pay him in one
sum in cash, payable on or before the fifth (5th) day following the Date of
Termination, an amount equal to the present value as of the Date of Termination
(calculated at a discount rate equal to the discount rate used at the Date of
Termination for computing the present value of commuted payments under the
Pension Plan) of (a) the lump sum value (determined
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<PAGE> 16
as of the Executive's Normal Retirement Age, using the same methods and
assumptions used at the Date of Termination for purposes of the Pension Plan, of
the retirement pension to which the Executive would have been entitled under the
terms of the Pension Plan, excess benefits plan and supplemental retirement
program for short service executives in which he participates (as in effect on
the date of this Agreement) if the Executive's employment had continued through
the conclusion of the Contract Term, at compensation levels consistent with
those set forth in paragraphs (1)(b) (Base Salary) and (c) (Incentive
Compensation) above (and including any other compensation, if any, which is to
be considered under the formulas applicable to such plans), assuming
commencement of payment of the Executive's pension at Normal Retirement Age,
reduced by (b) the lump sum value (determined as of the Executive's Normal
Retirement Age using the methods and assumptions hereinabove specified) of the
retirement pension, if any, to which the Executive will be entitled under the
terms of the Pension Plan, excess benefits plan and supplemental retirement
program for short service executives in which the Executive participates (as in
effect on the Date of Termination), based upon termination of the Executive's
employment as of the Date of Termination and assuming commencement of payment of
the Executive's pension benefits at his Normal Retirement Age. The lump sum
value to be calculated under clause (a) of the immediately preceding sentence
shall be determined (y) under the assumption that the Executive is fully vested
in his retirement pension under the Pension Plan, excess benefits plan and
supplemental retirement
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<PAGE> 17
program for short service executives; and (z) without
regard to any amendments to any of such plans, which amendments are adopted on
or after the date of a change in control of the Company (as defined in Section
VI hereof), to the extent any such amendments adversely affect in any manner the
computation of benefits thereunder or are otherwise adverse to the Executive.
(3) Unless the Executive is terminated for Cause, the Company
shall maintain in full force and effect, for the Executive's continued benefit
throughout the Contract Term, all active and retired employee Benefit Plans in
which he was entitled to participate immediately prior to the Date of
Termination (except as specified in paragraphs (2) (right of Company to make
non-discriminatory changes in plans) and (4) (this Agreement in lieu of other
plans as to severance and vacation) of Section III.E. of this Agreement),
provided that continued participation is possible under the general terms and
provisions of such plans and programs. In the event that participation in any
such plan or program is barred, the Company shall arrange to provide him with
benefits substantially similar to those which he is entitled to receive under
such Benefit Plans. Unless the Executive is terminated for Cause, if prior to
the expiration of the Contract Term the Executive attains Normal Retirement Age
(or earlier retirement age should he so elect) as defined in the Pension Plan in
effect on the Date of Termination hereunder, he shall have the right at any time
prior to the expiration of the Contract Term to so retire and the Company shall
thereafter maintain in full force and effect, for the Executive's continued
benefit, all retired employee Benefit Plans applicable to him,
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<PAGE> 18
as in effect immediately prior to the Date of Termination (except as specified
in paragraphs (2) (right of Company to make non-discriminatory changes in plans)
and (4) (this Agreement in lieu of other plans as to severance and vacation) of
Section III.E. of this Agreement). If the termination of the Executive's
employment occurs on or after a change in control of the Company (as defined in
Section VI hereof), (a) the Company's obligation to maintain Benefit Plans
pursuant to this Section IV.F.(3) shall be determined, on a plan-by-plan basis,
based on the terms of the applicable Benefit Plan as in effect (i) immediately
prior to such change in control of the Company or (ii) immediately prior to the
Date of Termination, whichever is more favorable to the Executive, and (b) the
Executive shall be treated as having remained in employment throughout the
remainder of the Contract Term for purposes of determining his rights under any
such Benefit Plans applicable to retired employees.
(4) Upon termination of employment for any reason other than
pursuant to Sections IV.B. (Cause), IV.C. (Disability) or IV.D. (Retirement), or
by reason of the Executive's death, the Company will provide to the Executive,
at the cost and expense of the Company, the services of an outplacement firm to
be mutually agreed upon between the Company and the Executive.
G. Compensation Upon Disability
-------------------------------
During any period that the Executive fails to perform his duties
hereunder as a result of incapacity due to physical or mental illness, he shall
continue to receive his full Base Salary and incentive compensation at the rate
then in effect until this
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<PAGE> 19
Agreement is terminated pursuant to Section IV.C. hereof. Thereafter, his
benefits shall be determined in accordance with the Company's Pension Plan,
excess benefits plan, supplemental retirement program for short service
executives and disability insurance plans in which the Executive participates,
or a substitute plan then in effect; provided, however, that if the Executive's
employment is terminated pursuant to Section IV.C. hereof following a change in
control of the Company (as defined in Section VI hereof), the Company shall pay
to the Executive (a) in a cash lump sum on or before the fifth (5th) day
following the Date of Termination, the amounts described in Sections IV.F(1)(a)
and (d) hereof, and (b) during each month commencing with the month in which
occurs the Date of Termination and through and including the month in which
occurs the expiration of the Contract Term (for this purpose the Contract Term
shall be determined as of the Date of Termination, but without regard to the
Executive's termination for Disability), an aggregate amount in cash equal to
the excess (but not less than zero) of (i) one-twenty-fourth of the aggregate
amount determined under Sections IV.F.(1)(b) and (c) hereof over (ii) the
aggregate amount received by the Executive during such month under the Company's
long-term disability plans.
H. Compensation Upon Death
-----------------------
In the event this Agreement terminates by reason of the Executive's
death following a change in control of the Company (as defined in Section VI
hereof), the Company shall pay to the Executive's legal representatives or
estate or as may be
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<PAGE> 20
directed by the legal representatives of his estate, as the
case may be, in a lump sum payable on or before the fifth (5th) day following
the Executive's death, an amount in cash equal to the amounts determined under
Sections IV.F.(1)(a), (b), (c) and (d) hereof (and for the purpose of
determining such amounts payable under Sections IV.F.(1)(b) and (c), the
Contract Term shall be determined as of the date of the Executive's death, but
without regard to such death).
I. Restrictions on Competition.
(1) The Executive will not, at any time during the
Restricted Period (as defined in Section IV.I.(2)
below), accept employment with, own an interest in,
form a partnership or joint venture with, consult
with or otherwise assist any person or enterprise
that manufactures or sells products ("Competitive
Products") similar to, or competitive with, the
products manufactured or sold by the Company on the
Date of Termination.
(2) The "Restricted Period" means:
(a) 24 months after the Date of Termination; and
(b) an additional 12 months thereafter (the
"Additional Period") if:
(i) the Company has not terminated the
Executive's employment in accordance
with Section IV.C. (Disability);
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<PAGE> 21
(ii) the Company elects to impose the
Additional Period by providing to
the Executive written notice of such
election not later than two months
after the termination of the
Executive's employment; and
(iii) the Company pays the Executive, in
twelve (12) monthly installments
during the Additional Period, an
aggregate amount equal to the
Executive's Base Salary for the
calendar year in which the
Executive's employment terminated;
and
(c) in addition to the time period(s) set
forth in (a) and, if applicable, (b)
above, the remaining period of time, if
any, until the Executive is 60 years old
if:
(i) this Agreement has terminated by
reason of the Executive's
Retirement before the Normal
Retirement Age;
(ii) the Executive is an officer of the
Company;
(iii) the Executive has elected to receive
his or her early retirement benefit
on the basis of the increased
"Post-1995 Factors" set forth in
Section 4 of the Company's Excess
Benefits Plan, as such provision may
be amended from time to time.
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<PAGE> 22
(3) Section IV.I.(1) above will not apply if the relevant
person or enterprise acquires a business or product
line that manufactures or sells Competitive Products
after the commencement of the Executive's employment
or other relationship with such person or enterprise
and the Executive does not participate in any way in
the business of the Competitive Products for 24
months after the termination of the Executive's
employment and, at the request of the Company, the
Executive and the relevant person or enterprise
certify to the Company in writing that the Executive
has and will comply with the restrictions of this
Section IV.I.(3).
(4) Nothing in this Section IV.I. eliminates or affects
any right to payments or benefits that the Executive
otherwise has under other provisions of this Article
IV; and nothing in this Section IV.I. gives the
Executive the right to any payment or benefit under
other provisions of this Article IV that he or she
does not otherwise have.
J. Mitigation
----------
The Executive shall not be required to mitigate the amount of any
payment or benefit provided for in this Agreement by seeking other employment
or otherwise, nor shall the amount of any payment or benefit provided for
herein be reduced by any
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<PAGE> 23
compensation earned by the Executive as the result of employment by another
employer after the Date of Termination, or otherwise.
V. Certain Tax Matters
-------------------
A. Additional Payments
-------------------
(1) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined (as hereafter provided)
that any payment or distribution to or for the Executive's benefit, whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise pursuant to or by reason of any other agreement, policy,
plan, program or arrangement (including without limitation any stock option
agreement or Performance Share Plan Participant agreement), or similar right (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986 (or any successor provision thereto), or any
interest or penalties with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereafter collectively referred to as
the "Excise Tax"), then the Executive shall be entitled to receive an additional
payment or payments (a "Gross-Up Payment") in an amount such that, after payment
by the Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax, imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments.
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<PAGE> 24
(2) Subject to the provisions of Section V.A.(5), all
determinations required to be made under this Section V.A., including whether an
Excise Tax is payable by the Executive, the amount of such Excise Tax, whether a
Gross-Up Payment is required, and the amount of such Gross-Up Payment, shall be
made by a nationally-recognized legal or accounting firm (the "Firm") selected
by the Executive in the Executive's sole discretion. The Executive agrees to
direct the Firm to submit its determination and detailed supporting calculations
to both the Executive and the Company as promptly as practicable. If the Firm
determines that any Excise Tax is payable by the Executive and that a Gross-Up
Payment is required, the Company shall pay the Executive the required Gross-Up
Payment within ten business days after receipt of such determination and
calculations. If the Firm determines that no Excise Tax is payable by the
Executive, it shall, at the same time as it makes such determination, furnish
the Executive with an opinion that the Executive has substantial authority not
to report any Excise Tax on the Executive's federal income tax return. Any
determination by the Firm as to the amount of the Gross-Up Payment shall be
binding upon the Executive and the Company. As a result of the uncertainty in
the application of Section 4999 of the Internal Revenue Code of 1986 (or any
successor provision thereto) at the time of the initial determination by the
Firm hereunder, it is possible that Gross-Up Payments which will not have been
made by the Company should have been made (an "Underpayment"). In the event that
the Company exhausts its remedies pursuant to Section V.A.(5) hereof and the
Executive thereafter
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<PAGE> 25
is required to make a payment of any Excise Tax, the Executive may direct the
Firm to determine the amount of the Underpayment (if any) that has occurred and
to submit its determination and detailed supporting calculations to both the
Executive and the Company as promptly as possible. Any such Underpayment shall
be promptly paid by the Company to the Executive, or for the Executive's
benefit, within ten business days after receipt of such determination and
calculations.
(3) The Executive and the Company shall each provide the Firm
access to and copies of any books, records and documents in the possession of
the Company or the Executive, as the case may be, reasonably requested by the
Firm, and otherwise cooperate with the Firm in connection with the preparation
and issuance of the determination contemplated by Section V.A.(2) hereof.
(4) The fees and expenses of the Firm for its services in
connection with the determinations and calculations contemplated by Section
V.A.(2) hereof shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive the
full amount of such fees and expenses within ten business days after receipt
from the Executive of a statement therefor and reasonable evidence of the
Executive's payment thereof.
(5) The Executive agrees to notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of a Gross-Up Payment. Such notification shall be given
as promptly as practicable but no later than ten (10) business days after the
Executive actually
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<PAGE> 26
receives notice of such claim. The Executive agrees to further apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid (in each case, to the extent known by the Executive). The
Executive agrees not to pay such claim prior to the earlier of (a) the
expiration of the 30-calendar-day period following the date on which the
Executive gives such notice to the Company and (b) the date that any payment
with respect to such claim is due. If the Company notifies the Executive in
writing at least five business days prior to the expiration of such period that
it desires to contest such claim, the Executive agrees to:
(a) provide the Company with any written records or documents
in the Executive's possession relating to such claim reasonably
requested by the Company;
(b) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including without limitation accepting legal representation with
respect to such claim by an attorney competent in respect of the
subject matter and reasonably selected by the Company;
(c) cooperate with the Company in good faith in order
effectively to contest such claim; and
(d) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold the Executive harmless, on an after-tax
basis, from and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and
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<PAGE> 27
expenses. Without limiting the foregoing provisions of this Section V.A.(5), the
Company shall control all proceedings taken in connection with the contest of
any claim contemplated by this Section V.A.(5) and, at its sole option, may
pursue or forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim (provided,
however, that the Executive may participate therein at the Executive's own cost
and expense) and may, at its option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner, and
the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax, including interest or
penalties with respect thereto, imposed with respect to such advance; and
provided further, however, that any extension of the statute of limitations
relating to payment of taxes for the Executive's taxable year with respect to
which the contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of any such contested claim
shall be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be
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<PAGE> 28
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(6) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section V.A.(5) hereof, the Executive
receives any refund with respect to such claim, the Executive agrees (subject to
the Company's complying with the requirements of Section V.A.(5) hereof) to
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after any taxes applicable thereto). If, after
the Executive's receipt of an amount advanced by the Company pursuant to Section
V.A.(5) hereof, a determination is made that the Executive is not entitled to
any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of thirty (30) calendar days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid pursuant to this Section V.A.
VI. Security
--------
To secure payment of the benefits provided for in this
Agreement, the Company agrees forthwith to establish an irrevocable escrow
account (the "Escrow Account") at National City Bank (the "Escrow Agent"),
Cleveland, Ohio, or, in the event that National City Bank shall resign, any
other financial institution satisfactory to the Company and the Executive (or
the Executive's executor or other personal
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<PAGE> 29
representative) or appointed by a court of competent jurisdiction and to keep on
deposit in the Escrow Account such amount, if any, as shall at all times be at
least equal to the required security hereinafter provided for. The maximum
amount of required security to be kept on deposit at any time shall be (A) the
sum of $657,800 (the "Maximum Amount") or (B) if there has been determination
with the Executive's written consent or by a final arbitral award rendered in
accordance with this Agreement that a specific lesser amount fully secures the
Company's obligations under this Agreement, then such specific lesser amount or,
in the case that the Company has fully performed its obligations under this
Agreement, nothing. Subject to the provisions hereof, the Maximum Amount of
required security shall be kept on deposit at all times after (i) the expiration
of five days following the occurrence of a "potential change in control of the
Company" or (ii) a "change in control of the Company" (as such terms are
hereinafter defined), whichever occurs earlier. For purposes of this Agreement,
a "change in control of the Company" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied:
(1) Any "person" (as that term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing twenty-five percent (25%)
or more of the combined voting power of the Company's then outstanding voting
securities; or
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<PAGE> 30
(2) During any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors of the
Company and any new director (other than a director designated by a person who
has entered into an agreement or arrangement with the Company to effect a
transaction described in clause (1) or (3) of this sentence) whose appointment,
election, or nomination for election by the Company's shareholders, was approved
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose appointment,
election or nomination for election was previously so approved, cease for any
reason to constitute a majority of the Board of Directors of the Company; or
(3) There is consummated a merger or consolidation of the
Company or a subsidiary thereof with or into any other corporation, other than a
merger or consolidation which would result in the holders of the voting
securities of the Company outstanding immediately prior thereto holding
securities which represent immediately after such merger or consolidation more
than fifty (50%) of the combined voting power of the voting securities of either
the Company or the other entity which survives such merger or consolidation or
the parent of the entity which survives such merger or consolidation; or
(4) There is consummated a sale or disposition by the Company
of all or substantially all the Company's assets.
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<PAGE> 31
For purposes of this Agreement, a "potential change in control of the Company"
shall be deemed to have occurred if the conditions set forth in any one of the
following paragraphs shall have been satisfied:
(a) any person is or becomes the beneficial owner,
directly or indirectly, of securities of the Company
representing twenty percent (20%) or more of the
combined voting power of the Company's then
outstanding voting securities; or
(b) the Company enters into an agreement, the
consummation of which would result in the occurrence
of a change in control of the Company; or
(c) any person publicly announces an intention to take or
to consider taking actions which, if consummated,
would constitute or result in a change in control of
the Company; or
(d) any person commences a solicitation (as defined in
Rule 14a-1 of the General Rules and Regulations under
the Exchange Act) of proxies or consents which has
the purpose of effecting or would (if successful)
result in a change in control of the Company; or
(e) a tender or exchange offer for voting securities of
the Company, made by a person (other than the
Company, any subsidiary thereof, any employee benefit
plan of the Company or any person organized,
appointed or established by the Company for or
pursuant to the terms of any such plan), is first
published or sent or given (within the meaning of
Rule 14d-2(a) of the General Rules and Regulations
under the Exchange Act).
Until the Maximum Amount of required security is required to be kept on
deposit, the Company shall only be obliged to maintain on deposit in the Escrow
Account an amount (the "Required Security") at least equal to sixty percent
(60%) of the Maximum Amount of required security; provided, however, that if a
potential change in control of the Company shall occur prior to a change in
control of the
-32-
<PAGE> 32
Company and if a change in control of the Company does not occur within twelve
months after the most recent occurrence of a potential change in control of the
Company, the Escrow Agent shall be entitled, upon receipt of a written request
by the Company, to return to the Company any amounts in excess of the Required
Security (or reduce the amount of any letter of credit to an amount equal to the
Required Security). Except as provided in the immediately preceding sentence and
in the penultimate paragraph of this Section VI, amounts deposited in the Escrow
Account shall be paid out by the Escrow Agent only to the Executive, in such
amounts as the Executive shall certify to the Escrow Agent as amounts that the
Company is in default in paying the Executive under this Agreement, or to the
Company, to the extent that the amount on deposit exceeds the maximum amount of
required security as specified in joint written instructions from the Executive
and the Company to the Escrow Agent or in a final arbitral award rendered
pursuant to Section VII hereof.
The Company shall have the right, at any time and from time to time, to
instruct the Escrow Agent to invest all or any or any part of the funds in the
Escrow Account in time deposits or certificates of deposit with, or repurchase
or other obligations of, National City Bank, in its individual corporate
capacity, or any of its domestic or foreign branches, or any other "bank" (as
determined by the Company), or obligations issued or guaranteed by the United
States or any of its agencies or instrumentalities, provided that no such
investment shall be for a period in excess of ninety (90) days. The Escrow Agent
shall have no liability whatsoever for following the instructions of
-33-
<PAGE> 33
the Company regarding any such investment, or for any loss in value of the
Escrow Account as a consequence of any such investment or the liquidation
thereof.
The Company may meet its obligation to keep amounts on deposit in the
Escrow Account through (a) deposits of assets; (b) one or more letters of credit
deposited in escrow; or (c) any combination of the foregoing. The Company shall
have right, at any time and from time to time, to substitute one form of
permitted deposit in the Escrow Account for another form of permitted deposit in
the Escrow Account.
Intending that the Escrow Agent and its successors and assigns shall
have the right to rely hereon, the Executive consents to the agreement
pertaining to the Escrow Account to be maintained pursuant to this Section VI
(the "Escrow Agreement") substantially in the form attached hereto as Exhibit A,
and consents to the amendment and restatement, pursuant to the Escrow Agreement,
of all prior escrow agreements which have been made between the Company and
National City Bank (in any capacity) and of which the Executive is a
beneficiary. The Executive further consents to amendments, modifications,
restatements and clarifications of the Escrow Agreement from time to time, so
long as, after giving effect to each such amendment, modification, restatement
or clarification, the then aggregate amount (whether in the form of cash,
investments which the Company has instructed the Escrow Agent to make as
hereinbefore provided (the amount of which shall be determined, in each case, at
the time of the investment), amounts available to be drawn by the Escrow Agent
under one or more letters of credit, or any combination of the foregoing)
credited to
-34-
<PAGE> 34
the Escrow Account by the Escrow Agent would not be less than the
required security provided for in this Section VI. The Escrow Agent and its
successors and assigns shall have the right to rely upon such consent of the
Executive.
VII. Intellectual Property
---------------------
A. Inventions
----------
Executive shall disclose promptly to the Company or its nominee any and
all inventions, discoveries, ideas, and improvements (whether patentable or
unpatentable) conceived, or reduced to practice by Executive, or made by
Executive (either solely or jointly with others) during the period of employment
(whether or not during regular working hours) and related to the business or
activities of the Company, and assigns and agrees to assign all his/her right,
title and interest therein to the Company or its nominee; whenever requested to
do so by the Company, Executive shall execute any and all applications,
assignments or other instruments which Executive shall deem necessary to apply
for and obtain Letters Patent of the United States or any foreign country or to
protect otherwise the Company's interest therein. Executive further agrees, upon
the Company's request and without additional compensation therefor, to cooperate
in offering testimony on behalf of the Company in any inter partes proceedings
involving any issued or pending patents or trademarks of the Company in the U.S.
or abroad and for perfecting, affirming, maintaining and recording the Company's
complete ownership and title thereto, and to otherwise cooperate in all
proceedings and matters relating thereto. These obligations shall continue
beyond the termination of employment with respect to inventions, discoveries and
improvements conceived or made by Executive, during the period of employment,
and shall be binding upon Executive's assigns, executors, administrators and
other legal representatives. Executive further agrees that title to any and all
copyrights, copyright registrations and copyrightable subject matter which
occurs as a result of employment by the Company shall be the sole and exclusive
property of the Company, and that such comprise works made for hire. Executive
hereby assigns and agrees to assign all of said copyrights to the Company and
agrees that the Company may exploit said copyrights in its absolute discretion
and need not account to Executive for any proceeds derived from such
exploitation.
B. Technical Information
---------------------
Executive expressly covenants and agrees that he or she will not at any
time during, or after the termination of, employment use for his or her own
benefit or for the benefit of others, or reveal, divulge or in any way make
known to any other person, firm or corporation any physical or chemical formula,
composition, admixture or blend of components owned by the Company, or the
method, process, technique, or manner of manufacturing, compounding or preparing
any of the products manufactured by the Company from any such formula,
composition, admixture or blend; or sell, exchange or give away, or otherwise
disclose any formula, composition, admixture or blend, now or hereafter owned by
the Company, whether the same shall or may have been originated, discovered or
invented by the Executive or otherwise; or use for Executive's own benefit or
for the benefit of others, or reveal, divulge, publish or make known to any
person, firm or corporation any secret or confidential information (including,
without limitation, business and financial data and information) whatsoever used
by the Company in connection with its business and the Company may apply for and
have an injunction restraining the breach or the threatened breach of any of
these covenants, and further pursue its remedy at law in this regard.
C. Documentation
-------------
During or subsequent to the course of employment, Executive will not
copy, duplicate or otherwise reproduce, or permit copying, duplicating or
otherwise reproducing any drawings, blueprints, manuals, computer software,
letters, notes, notebooks, reports, specifications, formulas, admixtures, or
blends, or any other documentation owned by the Company and relating to the
Company's business which, from time to time, may have come into the custody,
control or temporary possession of Executive, except at the express direction of
his/her immediate superior. And, the Executive expressly covenants and warrants,
upon termination of his/her employment for any reason, that he/she shall
promptly deliver to the Company any and all copies in Executive's custody,
control or possession of any and all said drawings, blueprints, manuals,
computer software, letters, notes, notebooks, reports, formulas, compositions,
admixtures or blends. And upon said termination, by signing the Release and
Reaffirmation referenced in Section IX.D below, Executive warrants that no
duplicates, copies or reproductions as set forth in this Paragraph C, which were
ever under Executive's control or temporary possession, are in existence, save
those he/she has returned to the Company hereunder. Further, upon signing the
Release and Reaffirmation referenced in Section IX.D below, Executive warrants
that no originals, duplicates, copies or reproductions as set forth in this
Paragraph C, which were ever under Executive's control or temporary possession,
were ever, nor will they ever be, displayed, disclosed or revealed in any way by
Executive to any third party, at any time, nor to any unauthorized Executive of
the Company without the express prior written approval of Executive's immediate
superior.
D. Business Information
--------------------
Executive agrees that all information relating to the Company's
customers, vendors, and suppliers (including, without limitation, the names,
addresses, telephone numbers, price lists, requirements and preferences of
customers, vendors and suppliers of the Company) is confidential and proprietary
information of the Company and that Executive will not, either directly or
indirectly, use or disclose to any person, firm, or corporation such information
about any of the present customers, vendors or suppliers of the Company or any
other customers, vendors or suppliers of the Company with whom Executive has
become acquainted during Executive's employment with the Company, and that,
during the period of three (3) years immediately after Executive's termination
of employment with the Company, for whatsoever reason, Executive will not
directly or indirectly, either on Executive's behalf or for any other person,
firm or corporation, solicit, divert or otherwise attempt to take away any of
the customers, vendors or suppliers of the Company.
VIII. Arbitration
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Cleveland, Ohio in
accordance with the rules of the American Arbitration Association then in
effect; provided that all arbitration expenses shall be borne by the Company.
Judgment may be entered on the arbitrators' award in any court having
jurisdiction; provided, however, that the Executive shall be entitled to seek
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.
IX. Miscellaneous
-------------
A. Successors, Binding Agreement
-----------------------------
The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement
-35-
<PAGE> 35
and shall entitle the Executive to compensation from the Company in the same
amount and on the same terms as would apply if the Executive terminated his
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid that executes and delivers the agreement provided for in
this section or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law. This Agreement shall inure to the benefit of
and be enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amount payable hereunder remains
unpaid, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's devisee, legatee,
or other designee or, if there be no such designee, to his estate.
B. Notice
------
Notices and all other communications provided for in this Agreement
shall be in writing and shall be deemed to have been duly given when delivered
by United States registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Company shall be directed to the
attention of the Secretary of the Company, or to
-36-
<PAGE> 36
such other address as either party may have furnished to the other in writing in
accordance herewith.
C. Waiver and Amendment; Governing Law
-----------------------------------
No provisions of this Agreement may be modified, waived or discharged
unless such modification, waiver or discharge is agreed to in writing signed by
the Executive and such officer as may be specifically designated by the Board
(which shall in any event include the Company's Chief Executive Officer). No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No agreement or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not set forth expressly in this Agreement, and this Agreement constitutes
the entire agreement between the parties with respect to the subject matter
hereof. Without limiting the generality of the foregoing, this Agreement
supersedes and replaces in its entirety any prior agreement relating to the
subject matter hereof (other than agreements between the Executive and the
Company which constitute Benefit Plans). The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Ohio.
D. Release and Reaffirmation
-------------------------
-37-
<PAGE> 37
In connection with any termination of the Executive's employment prior
to a change in control of the Company (as defined in Section VI hereof), the
Company may, as a condition to the payment by the Company to the Executive of
any post-employment benefits under this Agreement, condition such payment upon
the execution and delivery by the Executive to the Company of:
(1) A release, in form reasonably acceptable to the Company,
releasing the Company from any further obligations to the Executive, except for
obligations under Benefit Plans which remain in favor of the Executive and any
other remaining obligations under the specific terms of this Agreement or any
other written agreement in effect between the Company and the Executive; and
(2) A reaffirmation by the Executive of his obligations under
this Agreement and any other agreement theretofore in effect between the
Executive and the Company relating to confidentiality, restrictions on
competition or intellectual property rights.
This Section IX.D shall not apply in connection with any termination
of the Executive's employment on or after the date on which a change in control
of the Company (as defined in Section VI hereof) shall have occurred.
E. Validity
--------
The invalidity or unenforceability of any one or more provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
-38-
<PAGE> 38
F. Certain Obligations of the Company
----------------------------------
All obligations of the Company to make payments and provide benefits
under this Agreement shall survive the expiration of the Contract Term.
G. Counterparts
------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
FERRO CORPORATION
BY:
---------------------------------
------------------------------------
-39-
<PAGE> 1
EXHIBIT 11
FERRO CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
6 Months 6 Months
(Dollars in thousands, except per share data) June June
1998 1997
------------ ------------
<S> <C> <C>
BASIC:
Weighted Average Common shares Outstanding 37,171,745 38,418,254
Net Income 35,457 (68,752)
Less Preferred Stock Dividend, Net of Tax (1,892) (1,881)
------------ ------------
Net Income Available to Common Shareholders $ 33,565 ($70,633)
BASIC EARNINGS PER COMMON SHARE $0.90 ($1.84)
DILUTED:
Weighted Average Common Shares Outstanding 37,171,745 38,418,254
Adjustments for assumed conversion of convertible
preferred stock and common stock options 4,317,437 4,110,418
------------ ------------
41,489,182 42,528,672
Net Income $ 35,457 ($68,752)
Additional ESOP Contribution, Net of Tax (818) (932)
Adjusted Net Income $ 34,639 ($69,684)
DILUTED EARNINGS PER SHARE $0.83 ($1.64)
</TABLE>
Note: Due to the anti-dilutive effect of the net loss in 1997, basic earnings
per share is reported for both basic and diluted earnings per share.
<PAGE> 1
EXHIBIT 12
FERRO CORPORATION AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
JUNE JUNE
(DOLLARS IN THOUSANDS) 1998 1997
------- -------
<S> <C> <C>
EARNINGS:
PRE-TAX INCOME 56,441 (98,180)
ADD: FIXED CHARGES 8,642 7,552
LESS: INTEREST CAPITALIZATION (283) (230)
------- -------
TOTAL EARNINGS 64,800 (90,858)
======= =======
FIXED CHARGES:
INTEREST EXPENSE 6,939 6,070
INTEREST CAPITALIZATION 283 230
INTEREST PORTION OF RENTAL EXPENSE 1,420 1,252
------- -------
TOTAL FIXED CHARGES 8,642 7,552
======= =======
TOTAL EARNINGS 64,800 (90,858)
DIVIDED BY:
TOTAL FIXED CHARGES 8,642 7,552
------- -------
RATIO 7.50 (12.03)
</TABLE>
NOTE: PREFERRED DIVIDENDS ARE EXCLUDED. AMORTIZATION OF DEBT EXPENSE AND
DISCOUNTS AND PREMIUMS WERE DEEMED IMMATERIAL TO THE ABOVE CALCULATION.
INTEREST PORTION OF RENTAL EXPENSE INCLUDES CONSERVATIVE ESTIMATES
BASED ON CALCULATIONS FROM PRIOR YEARS.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000035214
<NAME> FERRO CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 36,016
<SECURITIES> 0
<RECEIVABLES> 267,755
<ALLOWANCES> 0
<INVENTORY> 134,091
<CURRENT-ASSETS> 490,371
<PP&E> 584,283
<DEPRECIATION> 335,768
<TOTAL-ASSETS> 859,274
<CURRENT-LIABILITIES> 297,861
<BONDS> 157,008
0
0
<COMMON> 47,323
<OTHER-SE> 228,604
<TOTAL-LIABILITY-AND-EQUITY> 859,274
<SALES> 687,767
<TOTAL-REVENUES> 687,767
<CGS> 505,075
<TOTAL-COSTS> 623,536
<OTHER-EXPENSES> 7,790
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,939
<INCOME-PRETAX> 56,441
<INCOME-TAX> 20,984
<INCOME-CONTINUING> 35,457
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,457
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0.83
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000035214
<NAME> FERRO CORPORATION
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 16,891 22,202 41,705
<SECURITIES> 0 0 0
<RECEIVABLES> 243,647 257,522 246,709
<ALLOWANCES> 0 0 0
<INVENTORY> 145,008 130,665 120,961
<CURRENT-ASSETS> 447,078 451,781 454,823
<PP&E> 0 607,759 595,471
<DEPRECIATION> 0 363,625 354,869
<TOTAL-ASSETS> 889,439 820,480 809,124
<CURRENT-LIABILITIES> 276,781 272,450 285,226
<BONDS> 104,867 103,386 103,417
0 0 0
0 0 0
<COMMON> 31,549 31,549 31,549
<OTHER-SE> 348,005 255,841 254,210
<TOTAL-LIABILITY-AND-EQUITY> 889,439 820,480 809,124
<SALES> 342,197 705,242 1,044,199
<TOTAL-REVENUES> 342,197 705,242 1,044,199
<CGS> 255,770 525,934 778,113
<TOTAL-COSTS> 313,615 644,004 954,506
<OTHER-EXPENSES> 4,096 159,418 163,519
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 3,030 6,070 9,021
<INCOME-PRETAX> 24,486 (98,180) (73,826)
<INCOME-TAX> 9,292 (29,428) (20,438)
<INCOME-CONTINUING> 15,194 (68,752) (53,388)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 15,194 (68,752) (53,388)
<EPS-PRIMARY> .37 (1.84) (1.46)
<EPS-DILUTED> .35 (1.84) (1.46)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000035214
<NAME> FERRO CORPORATION
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 7,558 11,133 22,227
<SECURITIES> 0 0 0
<RECEIVABLES> 239,951 243,152 235,546
<ALLOWANCES> 0 0 0
<INVENTORY> 157,874 154,279 146,848
<CURRENT-ASSETS> 440,663 442,008 437,200
<PP&E> 653,087 661,019 672,615
<DEPRECIATION> 352,130 360,064 370,060
<TOTAL-ASSETS> 876,709 879,942 878,084
<CURRENT-LIABILITIES> 264,483 263,785 263,021
<BONDS> 105,218 105,084 105,043
0 0 0
0 0 0
<COMMON> 31,549 31,549 31,549
<OTHER-SE> 350,884 355,919 354,269
<TOTAL-LIABILITY-AND-EQUITY> 876,709 879,942 878,084
<SALES> 348,184 692,899 1,022,111
<TOTAL-REVENUES> 348,184 692,899 1,022,111
<CGS> 262,295 523,133 773,630
<TOTAL-COSTS> 321,693 639,680 944,347
<OTHER-EXPENSES> 5,107 8,724 12,181
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 3,322 6,414 9,861
<INCOME-PRETAX> 21,384 44,495 65,583
<INCOME-TAX> 8,233 17,029 24,890
<INCOME-CONTINUING> 13,151 27,466 40,693
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 13,151 27,466 40,693
<EPS-PRIMARY> .30 .64 .95
<EPS-DILUTED> .29 .61 .91
</TABLE>
<PAGE> 1
Exhibit 99
CONDENSED CONSOLIDATED BALANCE SHEET
FERRO CORPORATION AND SUBSIDIARIES
JUNE 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
(Dollars in Thousands)
(Unaudited) (Audited)
1998 1997
-------- --------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and Cash Equivalents $36,016 $16,337
Net Receivables 267,755 232,927
Inventories 134,091 127,175
Other Current Assets 52,509 50,591
-------- --------
Total Current Assets $490,371 $427,030
Unamortized Excess of Cost Over Net Assets Acquired 52,421 54,355
Other Assets 67,967 64,114
Net Plant & Equipment 248,515 240,180
-------- --------
$859,274 $785,679
======== ========
LIABILITIES
- -----------
Current Liabilities:
Notes and Loans Payable $25,390 $23,269
Accounts Payable, Trade 121,737 109,958
Income Taxes 5,017 6,563
Accrued Payrolls 20,533 17,501
Accrued Expenses and Other Current Liabilities 125,184 120,416
-------- --------
Total Current Liabilities $297,861 $277,707
Long-Term Debt 157,008 102,020
ESOP Loan Guarantee 8,934 13,815
Postretirement Liabilities 46,367 45,643
Other Liabilities 73,177 73,343
Shareholders' Equity 275,927 273,151
-------- --------
$859,274 $785,679
======== ========
</TABLE>
<PAGE> 2
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FERRO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Dollars in Thousands) 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Segment Sales
Coatings, Colors, and Ceramics $208,490 $211,848 $407,821 $414,393
Plastics 61,914 61,251 122,763 120,492
Chemicals 77,600 89,946 157,183 170,357
---------- ---------- ---------- ----------
Total Net Sales $348,004 $363,045 $687,767 $705,242
Cost of Sales 255,453 270,164 505,075 525,934
Selling, Administrative and General Expenses 59,086 60,225 118,461 118,070
Realignment Expense 0 152,790 0 152,790
Other Charges (Credits):
Interest Expense 3,833 3,040 6,939 6,070
Net Foreign Currency (Gain) (439) (903) (1,119) (2,300)
Other Expense - Net 947 395 1,970 2,858
---------- ---------- ---------- ----------
Income (Loss) Before Taxes 29,124 (122,666) 56,441 (98,180)
Taxes on Income 10,722 (38,720) 20,984 (29,428)
Net Income (Loss) 18,402 (83,946) 35,457 (68,752)
Dividend on Preferred Stock, Net of Tax 948 940 1,892 1,881
Net Income (Loss) Available to Common Shareholders $ 17,454 ($ 84,886) $ 33,565 ($ 70,633)
========== ========== ========== ==========
Per Common Share Data:
Basic Earnings (Loss) $0.47 ($2.21) $0.90 ($1.84)
Diluted Earnings (Loss) $0.44 ($2.21) $0.83 ($1.84)
Shares Outstanding:
Average Outstanding 36,955,301 38,451,827 37,171,745 38,418,254
Average Diluted 41,186,318 42,692,641 41,489,182 42,528,672
Actual End of Period 36,596,683 38,484,144 36,596,683 38,484,144
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FERRO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Dollars in Thousands) 1998 1997 1998 1997
======================================================================================== ==============================
<S> <C> <C> <C> <C>
Net Cash Provided from Operating Activities $3,656 $34,074 $28,511 $62,508
Cash Flow from Investing Activities:
Capital Expenditures for Plant and Equipment (10,255) (11,648) (23,799) (20,696)
Other Investing Activities (1,144) 2,759 (1,524) 3,275
- ---------------------------------------------------------------------------------------- ------------------------------
Net Cash (Used for) Provided by Investing Activities (11,399) (8,889) (25,323) (17,421)
Cash Flow from Financing Activities:
Net Borrowings (Payments) Under Short-Term Lines 4,005 (11,665) 2,122 (17,899)
Proceeds from Long-Term Debt 382 0 54,270
Purchase of Treasury Stock (26,664) (3,963) (30,696) (9,714)
Cash Dividend Paid (6,507) (5,039) (11,001) (10,092)
Other Financing Activities 1,061 1,272 2,739 2,079
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Net Cash (Used for) Provided by Financing Activities (27,723) (19,395) 17,434 (35,626)
Effect of Exchange Rate Changes on Cash 541 (479) (943) (1,285)
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Increase (Decrease) in Cash and Cash Equivalents (34,925) 5,311 19,679 8,176
Cash and Cash Equivalents at Beginning of Period 70,941 16,891 16,337 14,026
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Cash and Cash Equivalents at End of Period $36,016 $22,202 $36,016 $22,202
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Cash Paid During the Period for:
Interest, net of amounts capitalized $4,695 $5,042 $5,894 $6,546
Income Taxes $17,579 $12,011 $20,856 $14,488
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