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FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from................TO...................
Commission File Number 1-584
FERRO CORPORATION
(Exact name of registrant as specified in its charter)
An Ohio Corporation 1000 LAKESIDE AVENUE, CLEVELAND, OH 44114 I.R.S.
No. 34-0217820
(Address of principal executive offices)
Registrant's telephone number, including area code: 216-641-8580
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Class Name of Exchange on which registered
-------------- ------------------------------------
Common Stock, par value $1.00 New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
7 5/8% Debentures due May 1, 2013
7 3/8% Debentures due November 1, 2015
8% Debentures due June 15, 2025
7 1/8% Debentures due April 1, 2028
Series A ESOP Convertible Preferred Stock, without Par Value
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
On, January 31, 2000 there were 35,063,669 shares of Ferro Common Stock, par
value $1.00 outstanding. As of the same date, the aggregate market value (based
on closing sale price) of Ferro's Common Stock held by non-affiliates was
$683,741,546
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of Annual Report to Shareholders for the year ended December 31, 1999
(Incorporated into Parts I, II and IV of this Form 10-K).
Portions of Ferro Corporation's Proxy Statement for the Annual Meeting of
Shareholders on April 28, 2000
(Incorporated into Part III of this Form 10-K).
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TABLE OF CONTENTS
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PART I
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Item 1. Business.......................................................................................... Page 3
Item 2. Properties........................................................................................ Page 5
Item 3. Legal Proceedings................................................................................. Page 6
Item 4. Submission of Matters to a Vote of Security Holders............................................... Page 7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............................. Page 8
Item 6. Selected Financial Data........................................................................... Page 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............. Page 8
Item 7.A. Quantitative and Qualitative Disclosures About Market Risk...................................... Page 8
Item 8. Financial Statements and Supplementary Data....................................................... Page 8
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.............. Page 9
PART III
Item 10. Directors and Executive Officers of the Registrant............................................... Page 9
Item 11. Executive Compensation........................................................................... Page 9
Item 12. Security Ownership of Certain Beneficial Owners and Management................................... Page 9
Item 13. Certain Relationships and Related Transactions................................................... Page 9
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................. Page 9
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PART I
ITEM 1- BUSINESS
Ferro Corporation ("Ferro" or "the Company"), which was incorporated under
the laws of Ohio in 1919, is a worldwide producer of performance materials for
manufacturers. It operates (either directly or through subsidiaries and
affiliates) in 18 countries worldwide. Ferro produces a variety of coatings,
chemicals and plastics by utilizing organic and inorganic chemistry. The
Company's materials are used extensively in the markets of building and
renovation, major appliances, household furnishings, transportation and
industrial products. Ferro's products are sold principally in the United States
and Europe; however, operations extend to the Latin America and Asia-Pacific
regions.
Most of the products produced by Ferro are classified as performance
materials, rather than commodities, because they are formulated or designed to
perform a specific and important function both in the manufacturing processes
and in the finished products of Ferro customers. These materials are not sold in
the high volume normally associated with commodity businesses.
Ferro's materials require a high degree of technical service on an
individual customer basis. The value of these performance materials stems from
the result and performance they achieve in actual use.
A further description of Ferro's business, its principal products, their
markets and applications, is contained under all headings on pages 12 through 17
of its 1999 Annual Report to Shareholders (the "Annual Report"), which is
attached hereto as Exhibit 13. The information contained under the headings on
pages 12 through 17 of the Annual Report is incorporated herein by reference.
Information concerning Ferro's business during 1999, 1998 and 1997 is included
under the heading "Management's Discussion and Analysis" on pages 19 through 22
of the Annual Report and in Note 7 to Ferro's Consolidated Financial Statements,
appearing on page 31 of the Annual Report. Such information is incorporated
herein by reference. Additional information about Ferro's reportable operating
segments, including financial information relating thereto, is set forth in Note
12 to Ferro's Consolidated Financial Statements, which appears on pages 35 and
36 of the Annual Report and is incorporated herein by reference.
Certain statements contained herein and in future filings with the
Securities and Exchange Commission reflect the Company's current expectations
with respect to the future performance of the Company and may constitute
"Forward-Looking Statements." Because they are based on current expectations,
actual results may differ materially. Please refer to the "Cautionary Note on
Forward-Looking Statements" section of "Management's Discussion and Analysis"
contained on page 22 of the Annual Report for additional information, which
information is incorporated herein by reference.
RAW MATERIALS
The raw materials essential to Ferro's operations both in the United
States and overseas are obtainable from multiple sources worldwide. Ferro did
not encounter significant raw material shortages in 1999 and does not anticipate
such shortages in 2000.
PATENTS AND LICENSES
Ferro owns a substantial number of patents relating to its various
products and their uses. While these patents are of importance to Ferro, it does
not believe that the invalidity or expiration of any single patent or group of
patents would have a material adverse effect on its business. Ferro patents
expire at various dates through the year 2020.
Ferro does not hold any licenses, franchises or concessions that it
considers to be material to its future.
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CUSTOMERS
Ferro does not consider that a material part of its coatings or its
plastics businesses is dependent on any single customer or group of customers.
In the chemicals segment however, the loss of two or three of the largest
customers could have a material adverse effect on that segment.
BACKLOG OF ORDERS
In general, no significant lead time between order and delivery exists in
any of Ferro's business segments. As a result, Ferro does not consider that the
dollar amount of backlog orders believed to be firm as of any particular date is
material for an understanding of its business. Ferro does not regard any
material part of its business to be seasonal.
COMPETITION
In most of its products, Ferro competes with a substantial number of
competitors, none of which is dominant. However, Ferro is the largest worldwide
supplier of ceramic glaze and porcelain enamel coatings. Competition varies by
product and by region. Due to the diverse nature of Ferro's product lines no
single company competes across all product lines in any of the Company's
segments.
In the coatings group worldwide, the Company is the largest producer of
porcelain enamel and ceramic glaze coatings. Strong local competition for
ceramic glaze exists in the markets of Italy and Spain. In powder coatings,
Ferro is one of the top five producers in the world. The top five producers of
powder coatings represent approximately 60% of the market. In the chemicals
group , the Company is one of the largest producers of polymer additives in the
United States and has several large competitors. The plastics group has a large
number of competitors in all businesses.
Product performance characteristics, customer and technical service, and
price are the most important components of the competition that Ferro encounters
in the sale of nearly all of its products.
RESEARCH AND DEVELOPMENT
A substantial number of Ferro's employees are involved in research and
development activities relating to new and existing products, services and
techniques required by the ever-changing markets of its customers. Laboratories
are located at each of Ferro's major subsidiaries around the world where
technical efforts are applied to meet customer and market needs of the
particular geographical area. In the United States, laboratories are maintained
in each of its divisions. In addition, corporate research and development
activity is located in the Cleveland area. The research staff is organized by
major business group. The Company also operates central design and development
labs in Italy and Spain to serve the tile market worldwide.
Expenditures for research and development activities relating to the
development or significant improvement of new and/or existing products, services
and techniques were approximately $30.9 million in 1999, $29.4 million in 1998,
and $26.6 million in 1997. Expenditures for individual customer requests for
research and development were not material.
ENVIRONMENTAL MATTERS
Ferro's manufacturing facilities, like those of its industry generally,
are subject to numerous laws and regulations implemented to protect the
environment, particularly with respect to plant wastes and emissions. Ferro
believes that it is in compliance with the environmental regulations to which
its operations are subject and that, to the extent Ferro may not be in
compliance with such regulations, non-compliance has not had a materially
adverse effect on Ferro's operations. The Company's compliance has required a
continuous management effort and significant expenditures.
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Ferro and its international subsidiaries authorized $6.8 million in capital
expenditures for environmental control in 1999 and the Company's best estimate
of what it expects capital expenditures for environmental control to be in 2000
and 2001 is $4.5 million and $4.6 million. The Company does not consider these
capital expenditures to be material.
For additional information on other environmental matters see Item 3 of this
Annual Report on Form 10-K and information included under the heading
"Management's Discussion and Analysis" in the Annual Report and information
contained in Note 8 on page 32 of the Annual Report.
EMPLOYEES
At December 31, 1999, Ferro employed approximately 6,881 full-time employees,
including 3,831 employees in its foreign subsidiaries and affiliates and 3,050
in the United States.
Approximately 33% of the domestic workforce is covered by labor agreements,
and approximately 13% is affected by labor agreements that expire in 2000.
FOREIGN OPERATIONS
Financial information about Ferro's domestic and foreign operations is set
forth in footnote 12 to the consolidated financial statements of the Annual
Report and is incorporated herein by reference.
Ferro's products are produced and distributed in foreign as well as domestic
markets. Ferro commenced its international operations in 1927.
Wholly-owned subsidiaries operate manufacturing facilities in Argentina,
Australia, Brazil, England, France, Germany, Holland, Italy, Mexico, Portugal
and Spain. Partially-owned subsidiaries manufacture in China, Indonesia, Taiwan,
Thailand, Turkey and Venezuela.
Foreign operations accounted for 44% of the consolidated net sales for the
year 1999 and 46% of consolidated net sales for 1998 and 1997.
The sales of Ege-Ferro Kimya A.S. (Turkey), Ferro Enamel do Brasil,
I.C.L.(Brazil), Ferro de Venezuela C.A.(Venezuela), Ferro Corporation Australia
Pty. Ltd.(Australia) and Ferro (Ningbo) Peoples Republic of China, are
principally for delivery of products inside the country in which the subsidiary
is located. The sales of each of Ferro's other subsidiaries are for delivery of
products both domestically and outside the country through exports. Ferro's
European Community subsidiaries continue to reduce and eliminate, to the extent
practical, duplication of product lines with the intended result being that only
one subsidiary will be the primary provider of each line of Ferro products to
the entire European Community market. A similar process is occurring within the
MERCOSUR economic union in Latin America.
Ferro receives technical service fees and/or royalties from many of its
foreign subsidiaries. Historically, as a matter of corporate policy, the foreign
subsidiaries have been expected to remit a portion of their annual earnings to
the parent as dividends. To the extent earnings of foreign subsidiaries are not
remitted to Ferro, such earnings are intended to be indefinitely invested in
those subsidiaries.
ITEM 2 - PROPERTIES
The Company's corporate headquarters office at 1000 Lakeside Avenue,
Cleveland, Ohio and other corporate facilities located in Independence, Ohio are
owned by the Company. The business segments in which manufacturing plants are
used and the locations of the principal manufacturing plants owned by Ferro in
the United States are as follows:
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COATINGS -- Cleveland, Ohio; Nashville, Tennessee; Pittsburgh, Pennsylvania;
Toccoa, Georgia; Orrville, Ohio; Shreve, Ohio; Penn Yan, New York; East
Liverpool, Ohio; Crooksville, Ohio and Niagra Falls, New York.
PLASTICS -- Carpentersville, Illinois; Plymouth, Indiana; Evansville, Indiana;
Stryker, Ohio; Edison, New Jersey and South Plainfield, New Jersey.
CHEMICALS -- Bedford, Ohio; Hammond, Indiana and Baton Rouge, Louisiana.
In addition, Ferro leases manufacturing facilities in Cleveland, Ohio
(Chemicals); Fort Worth, Texas (Chemicals); and Vista, California (Coatings).
Outside the United States, Ferro or its subsidiaries own manufacturing
plants in Argentina, Australia, Brazil, France, Germany, Indonesia, Italy,
Mexico, the Netherlands, Spain, Taiwan, Thailand, Turkey and the United Kingdom.
Ferro or its subsidiaries lease manufacturing plants in Italy, Portugal, Germany
and the Netherlands. In many instances, the manufacturing facilities outside of
the United States are used in multiple business segments of Ferro.
Ferro believes that its facilities are generally well maintained and
adequate for their present use. During the past year, several of Ferro's plants
have been operating near capacity.
ITEM 3 - LEGAL PROCEEDINGS
In 1994, the Company's Keil Chemical Division (Keil) settled an
enforcement proceeding brought by the Indiana Department of Environmental
Management (IDEM) concerning air emissions from Keil's Pryo-Chek(R) process. The
settlement was in the form of an Agreed Order with IDEM. The Agreed Order
confirmed the Company's plans to install additional controls and imposed certain
aggregate limitations on air emissions from the Pyro-Chek(R) production process
while the Company applied for and obtained a construction and operating permit
for the existing air source. The control equipment was installed, but the
Company has had a continuing disagreement with the agency over whether it has
been in compliance with the Agreed Order, including which methods should be used
to demonstrate compliance.
In November 1998, IDEM filed suit in Indiana state court seeking to shut
down operation of the Pyro-Chek(R) process. At a hearing held on December 4,
1998, the court denied IDEM's request for a preliminary injunction, and later
dismissed the claim for a permanent injunction on grounds that the dispute
arising out of the Agreed Order should be addressed before the Indiana Office of
Environmental Adjudication. The day before this hearing, IDEM denied Keil's
application for a permit for air emissions for the Pyro-Chek(R) process. The
Company appealed IDEM's denial of Keil's permit application to the Indiana
Office of Environmental Adjudication. On October 26, 1999, the Company and IDEM
entered into a Joint Stipulation of Dismissal whereby IDEM withdrew its denial
of Keil's permit application and agreed to proceed with its consideration of
Keil's revised permit application.
On December 29, 1998, IDEM wrote to the Company alleging that because Keil
is in violation of the Agreed Order, operation of the Pyro-Chek(R) process is
prohibited, and that the Company will be subject to fines of up to $25,000 for
each day of continued operation. The Company filed a petition for review before
the Indiana Office of Environmental Adjudication seeking to confirm that
operation of the Pyro-Chek(R) process has been and remains in compliance with
the Agreed Order. On February 24, 1999, IDEM withdrew its December 29, 1998
letter. On March 15, 1999, the Company's petition for review was dismissed
without objection.
On May 4, 1999, and December 16, 1999, the United States Environmental
Protection Agency (U.S.EPA) issued "Notices of Violation" (NOVs) alleging that
the Company violated various requirements of the Clean Air Act and related State
laws in modifying and operating the Pyro-Chek(R) process at its facility in
Hammond, Indiana. The Company has met with U.S.EPA and entered into negotiations
intended to resolve the issues raised in the NOVs. If the matter cannot be
resolved through negotiation, and the United States pursues and recovers the
maximum potential penalties on all of its claims, it could have a material
adverse affect on the Company. However, the Company believes that it will
resolve this matter in a manner that will not have a material adverse effect.
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There are also pending against the Company and its consolidated
subsidiaries various other lawsuits and claims beyond those mentioned above. In
the opinion of management, the ultimate liabilities resulting from such other
lawsuits and claims will not materially affect the consolidated financial
position or results of operations or liquidity of the Company.
The law firm of Squire, Sanders & Dempsey, of which Mark A. Cusick is a
partner, provided legal services to Ferro in 1999 and Ferro plans to retain
Squire, Sanders & Dempsey in 2000. Mr. Cusick is the Secretary of Ferro.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Ferro's security holders during the
fourth quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
There is set forth below the name, age, positions and offices held by each
individual serving as executive officer as of March 16, 2000 as well as their
business experience during the past five years. Years indicate the year the
individual was named to the indicated position. There is no family relationship
between any of Ferro's executive officers.
David G. Campopiano - 50
Vice President, Mergers and Acquisitions, 1998
Vice President, Corporate Development, 1989
R. Jay Finch - 58
Senior Vice President, Specialty Plastics, 1999
Vice President, Specialty Plastics, 1991
J. Larry Jameson - 62
Senior Vice President, Industrial Coatings, 1999
Vice President, Industrial Coatings, 1998
Vice President, Powder Coatings, 1996
Self Employed, Coatings Consultant, 1993
Kent H. Lee - 58
Senior Vice President, Specialty Chemicals, 1999
Vice President, Specialty Chemicals, 1998
Director, United States Operations, Chemicals, 1998
General Manager Polymer Additives, 1996
Private Consultant to The BF Goodrich Company, 1994
Hector R. Ortino - 57
Chairman and Chief Executive Officer, 1999
President and Chief Executive Officer, 1999
President and Chief Operating Officer, 1996
President, 1996
Executive Vice President and Chief Financial-Administrative
Officer, 1993
Millicent W. Pitts - 45
Vice President, Global Support Operations, 1998
Director, Corporate Development, Rohm & Haas Company, 1996
Director, Corporate Planning, Rohm and Haas Company, 1994
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Paul V. Richard - 40
Vice President, Human Resources, 1998
Director, Human Resources, 1993
Robert A. Rieger - 49
Vice President, Ceramics, Colorants and Electronic Materials, 1999
Worldwide Business Director, Electronic Materials, 1998
President and Chief Executive Officer, Exolon-ESK 1997
Managing Director, Zircon Worldwide, Cookson Matthey Ceramics, 1994
Bret W. Wise - 39
Senior Vice President and Chief Financial Officer, 1999
Vice President and Chief Financial Officer, WCI Steel, 1994
Partner, KPMG LLP, 1993
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information regarding the recent price and dividend history of Ferro's
Common Stock, the principal market for its Common Stock and the number of
holders of Common Stock is set forth under the heading "Quarterly Data
(unaudited)" in the Annual Report. This information is incorporated herein by
reference. Information concerning dividend restrictions is contained in Note 3
to Ferro's Consolidated Financial Statements in the Annual Report and this
information is incorporated here by reference.
ITEM 6 - SELECTED FINANCIAL DATA
The summary of selected financial data for each of the last five years set
forth under the heading "Selected Financial Data " in the Annual Report is
incorporated here by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
The information contained under the heading "Management's Discussion and
Analysis" in the Annual Report is incorporated here by reference.
ITEM 7. A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained under the heading "Management's Discussion and
Analysis" in the Annual Report is incorporated here by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of Ferro and its subsidiaries
contained on pages 23 through 37, inclusive, including the Notes to Consolidated
Financial Statements, and the quarterly data (unaudited) on page 40 of the
Annual Report, are incorporated here by reference.
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ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There are no such changes or disagreements.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors of Ferro contained under the headings
"Election of Directors" and "Stock Ownership of Management and Certain
Beneficial Owners"in Ferro's Proxy Statement for the Annual Meeting of
Shareholders on April 28, 2000, is incorporated here by reference. Information
regarding executive officers of Ferro is contained under Part I of this Annual
Report on Form 10-K.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this Item 11 is set forth under the heading
"Information Concerning Executive Officers" in Ferro's Proxy Statement for the
Annual Meeting of Shareholders on April 28, 2000 and is incorporated here by
reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is set forth under the headings
"Election of Directors" and "Security Ownership of Directors, Officers and
Certain Beneficial Owners" in Ferro's Proxy Statement for the Annual Meeting of
Shareholders on April 28, 2000 and is incorporated here by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no relationships or transactions that are required to be
reported.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
1. DOCUMENTS FILED AS PART OF THIS ANNUAL REPORT ON FORM 10-K:
(a) THE FOLLOWING CONSOLIDATED FINANCIAL STATEMENTS OF FERRO CORPORATION
AND ITS SUBSIDIARIES, CONTAINED ON PAGES 23 THROUGH 40 INCLUSIVE, OF
THE ANNUAL REPORT ARE INCORPORATED HERE BY REFERENCE:
Consolidated Statements of Income for the years ended December 31,
1999, 1998 and 1997
Consolidated Balance Sheets at December 31, 1999 and 1998
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997
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Notes to Consolidated Financial Statements
(b) THE FOLLOWING ADDITIONAL INFORMATION FOR THE YEARS 1999, 1998 AND
1997, IS SUBMITTED HEREWITH:
Independent Auditors' Report on Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves
All other schedules have been omitted because the material is not
applicable or is not required as permitted by the rules and regulations
of the Securities and Exchange Commission, or the required information
is included in notes to consolidated financial statements.
Financial Statement Schedule II, together with the independent
Auditors' Report, are contained on pages F-1 and F-2 of this Annual
Report on Form 10-K.
(c) EXHIBITS:
The exhibits listed in the attached Exhibit Index are filed pursuant to
Item 14 (c) of the Form 10-K.
2. REPORTS ON FORM 8-K:
No reports on Form 8-K were filed for the three months ended December 31,
1999
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
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FERRO CORPORATION
By /s/Hector R. Ortino
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Hector R. Ortino
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has
been signed below by the following persons on behalf of the Registrant and in their indicated capacities as of the 25th
day of February, 2000.
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/s/Hector R. Ortino Chairman and Chief Executive Officer
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Hector R. Ortino
/s/Bret W. Wise Senior Vice President and Chief Financial Officer
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Bret W. Wise
/s/Sandra Austin Crayton Director
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Sandra Austin Crayton
/s/Albert C. Bersticker Director
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Albert C. Bersticker
/s/Michael H. Bulkin Director
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Michael H. Bulkin
/s/Glenn R. Brown Director
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Glenn R. Brown
/s/William E. Butler Director
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William E. Butler
/s/William B. Lawrence Director
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William B. Lawrence
/s/John C. Morley Director
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John C. Morley
/s/Rex A. Sebastian Director
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Rex A. Sebastian
/s/William J. Sharp Director
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William J. Sharp
/s/Dennis W. Sullivan Director
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Dennis W. Sullivan
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INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
To The Shareholders and Board of Directors Ferro Corporation:
Under date of January 25, 2000, we reported on the consolidated balance sheets
of Ferro Corporation and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1999, as
contained in the 1999 Annual Report to Shareholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
Annual Report on Form 10-K for the year 1999. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related financial statement Schedule II-Valuation and Qualifying Accounts and
Reserves. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
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KPMG LLP
Cleveland, Ohio
January 25, 2000
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FERRO CORPORATION AND SUBSIDIARIES
Schedule II -Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1999, 1998, and 1997
(thousands of dollars)
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Additions
---------------------------------
Balance at Charged to Charged Balance
Beginning Costs and to Other at End of
of Period Expenses Accounts Deductions Period
=============== ============== ================ ========== ==========
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Year ended December 31, 1999
Valuation and qualifying accounts which
are deducted on consolidated balance
sheet from the assets to which they apply
Possible losses in collection of notes 457 (B)
and accounts receivable - trade $ 9,737 857 65 (C) 1,401 (A) 8,801
=============== ============== ================ ========== ==========
Year ended December 31, 1998
Valuation and qualifying accounts which
are deducted on consolidated balance
sheet from the assets to which they apply
Possible losses in collection of notes (181)(B)
and accounts receivable - trade $ 8,280 3,185 (63)(C) 1,846 (A) 9,737
=============== ============== ================ ========== ==========
Year ended December 31, 1997
Valuation and qualifying accounts which
are deducted on consolidated balance
sheet from the assets to which they apply
Possible losses in collection of notes 1,367 (B)
and accounts receivable - trade $ 9,497 2,630 15 (C) 2,495 (A) 8,280
=============== ============== ================ ========== ==========
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Notes:
(A) Accounts written off, less recoveries
(B) Adjustment in respect of differences in rates of exchange
(C) Acquisitions and divestitures
F-2
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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. (Reference is made to
Exhibit (3)(a) to Ferro Corporation's Quarterly Report on Form 10-Q
for the three months ended June 30, 1998 which Exhibit is incorporated
here by reference.)
(b) Certificate of Amendment to the Eleventh Amended Articles of
Incorporation of Ferro Corporation filed December 28, 1994. (Reference
is made to Exhibit (3)(b) to Ferro Corporation's Quarterly Report on
Form 10-Q for the three months ended June 30, 1998 which Exhibit is
incorporated here by reference.)
(c) Certificate of Amendment to the Eleventh Amended Articles of
Incorporation of Ferro Corporation filed January 19, 1998. (Reference
is made to Exhibit (3)(c) to Ferro Corporation's Quarterly Report on
Form 10-Q for the three months ended June 30, 1998, which Exhibit is
incorporated here by reference.)
(d) Amended Code of Regulations. (Reference is made to Exhibit (3)(d)
to Ferro Corporation's Quarterly Report on Form 10-Q for the three
months ended June 30, 1998, which Exhibit is incorporated here by
reference.)
(4) Instruments defining rights of security holders, including indentures
(a) Revolving Credit Agreement by and between Ferro and four commercial
banks dated August 22, 1990. (Reference is made to Exhibit 10 to Ferro
Corporation's Form 10-Q for the three months ended September 30, 1990,
which Exhibit is incorporated here by reference.)
(b) Amendment Number 1 dated May 31, 1991, to the Revolving Credit
Agreement by and between Ferro and four commercial banks. (Reference
is made to Exhibit 4(b)(1) to Ferro Corporation's Quarterly Report on
Form 10-Q for the three months ended June 30, 1991, which Exhibit is
incorporated here by reference.)
(c) Amendment Number 2 dated July 30, 1991, to the Revolving Credit
Agreement by and between Ferro and four commercial banks. (Reference
is made to Exhibit 4(b)(2) to Ferro Corporation's Form 10-Q for the
three months ended June 30, 1991, which Exhibit is incorporated here
by reference.)
(d) Amendment Number 3 dated December 31, 1991, to the Revolving Credit
Agreement by and between Ferro and four commercial banks. (Reference
is made to Exhibit 4 to Ferro Corporation's Form 10-K for the year
ended December 31, 1991, which Exhibit is incorporated here by
reference.)
(e) Amendment Number 4 dated July 21, 1992, to the Revolving Credit
Agreement by and between Ferro and four commercial banks. (Reference
is made to Exhibit 4 to Ferro Corporation's Form 10-Q for the three
months ended June 30, 1992, which Exhibit is incorporated here by
reference.)
<PAGE> 15
(f) Amendment Number 5 dated April 20, 1993, to the Revolving Credit
Agreement by and between Ferro and four commercial banks. (Reference
is made to Exhibit 4(b)(4) to Ferro Corporation's Form 10-Q for the
three months ended June 30, 1993, which Exhibit is incorporated here
by reference.)
(g) Amendment Number 6 dated June 22, 1995, to the Revolving Credit
Agreement by and between Ferro and four commercial banks. (Reference
is made to Exhibit 4(b)(4) to Ferro Corporation's Form 10-Q for the
three months ended June 30, 1995, which Exhibit is incorporated here
by reference.)
(h) Amendment Number 7 dated October 25, 1995 to the Revolving Credit
Agreement by and between Ferro Corporation and four commercial
banks.(Reference is made to Exhibit 4(b)(4) to Ferro Corporation's
Form 10-Q for the three months ended September 30, 1995, which Exhibit
is incorporated here by reference.)
(i) Amendment Number 8 dated July 24, 1997 to the Revolving Credit
Agreement by and between Ferro Corporation and four commercial
banks.(Reference is made to Exhibit 4(k) to Ferro Corporation's
Form10-Q for the three months ended June 30, 1997, which Exhibit is
incorporated here by reference.)
*(j) Amendment Number 9 dated June 30, 1999 to the Revolving Credit
Agreement by and between Ferro Corporation and four commercial banks.
*(k) Amended and Restated Shareholder Rights Agreement between Ferro
Corporation and National City Bank, Cleveland, Ohio, as Rights Agent,
dated as of December 10, 1999.
(l) 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 filed as exhibit 4(j) to Ferro Corporation's Form 10-Q for the
three months ended June 30, 1993. Said Exhibit is incorporated here by
reference.
(m) 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 Quarterly Report on Form
10-Q for the three months ended March 31,1998.)
(n) Form of Security (7 1/8% Debentures due 2028). (Reference is made
toExhibit 4(a-1) to Ferro Corporation's Form 8-K filed March 31, 1998,
which Exhibit is incorporated here by reference.)
(10) Material Contracts
(a) Key elements of Ferro's Incentive Compensation Plan are set forth
under the heading "Report of the Compensation and Organization
Committee" on pages 15 through 18 of the Proxy Statement dated March
21, 2000. Said description is incorporated here by reference.
(b) Ferro's Performance Share Plan (Reference is made to Exhibit B of
Ferro Corporation's Proxy Statement dated March 20, 2000, which
exhibit is incorporated here by reference).
(c) Ferro Corporation Savings and Stock Ownership Plan. (Reference is
made to Exhibit 4.3 to Ferro Corporation's Quarterly Report on Form
10-Q for the three months ended March 31, 1989, which Exhibit is
incorporated here by reference.)
(d) Ferro's Employee Stock Option Plan (Reference is made to Exhibit A
to Ferro Corporation's Proxy Statement dated March 20, 2000 which
Exhibit is incorporated by reference.)
<PAGE> 16
(e) Form of Indemnification Agreement (adopted January 25, 1991 for use
from and after that date). (Reference is made to Exhibit 10 to Ferro
Corporation's Form 10-K for the year ended December 31, 1990, which
Exhibit is incorporated here by reference.)
(f) Amended and Restated Executive Employment Agreement (Reference is made
to Exhibit 10 (a) of Ferro Corporation's Form 10-Q for the three
months ended March 31, 1998, which Exhibit is incorporated here by
reference.)
*(g) Schedule I listing the officers with whom Ferro has entered into
currently effective executive employment agreements and change in
control agreements. A copy of such Schedule I is attached hereto as
Exhibit 10.
(h) Various agreements relating to an Asset Defeasance Financing
including a Participation Agreement dated as of October 31, 1995 among
Ferro Corporation, State Street Bank and Trust Company (not in its
individual capacity but solely as Trustee), the financial institutions
named as Purchasers, and Citibank N.A, as Agent, and a Lease dated
October 31, 1995 between State Street Bank and Trust Company (not in
its individual capacity but solely as Trustee) as Lessor and Ferro
Corporation as Lessee. The additional agreements are available upon
request. Reference is made to Exhibit 10(a) of Ferro Corporation's
Form 10-Q for the three months ended September 30, 1995, which Exhibit
is incorporated here by reference. Reference is also made to Exhibit
10 of Ferro Corporation's 10-Q for the three months ended June 30,
1997 for an amendment to the agreements, which exhibit is incorporated
here by reference.
(i) Ferro's Supplemental Executive Defined Contribution Plan .
(Reference is made to Exhibit 10.1 to Ferro Corporation's Form 10-K
for the year ended December 31, 1996, which Exhibit is incorporated
here by reference).
*(j) Form of Change in Control Agreement.
*(11) Statement Regarding Computation of Earnings per Share.
*(12) Ratio of Earnings to Fixed Charges.
*(13) Annual Report to Shareholders for the year ended December 31, 1999
*(21) List of Subsidiaries
*(23) Consent of Independent Auditors
*(27) Financial Data Schedule for the Year Ended December 31, 1999
(Electronic Filing Only)
<PAGE> 1
EXHIBIT 4 (j)
NINTH AMENDMENT TO CREDIT AGREEMENT
This Ninth Amendment to Credit Agreement (this "AMENDMENT") is made as of June
30, 1999 by and among FERRO CORPORATION (the "BORROWER"), the four banks
(collectively the "BANKS" and each a "BANK") executing and delivering this
Amendment and NATIONAL CITY BANK as the agent (in that capacity the "AGENT") of
the Banks for purposes of the Credit Agreement referred to below, as that Credit
Agreement may be amended from time to time:
WHEREAS:
I. The Borrower, the Banks and the Agent are parties to a
Credit Agreement dated as of August 22, 1990, as amended by an Amendment
Agreement made as of May 31, 1991, as further amended by a Second Amendment to
Credit Agreement made as of July 30, 1991, as further amended by a Third
Amendment to Credit Agreement made as of December 31, 1991, as further amended
by a Fourth Amendment to Credit Agreement made as of July 21, 1992, as further
amended by a Fifth Amendment to Credit Agreement made as of August 20, 1993, as
further amended by a Sixth Amendment to Credit Agreement made as of June 22,
1995, and as further amended by a Seventh Amendment to Credit Agreement made as
of October 25, 1995 and as further amended by an Eighth Amendment to Credit
Agreement made as of July 24, 1997 (that Credit Agreement as so amended the
"EXISTING CREDIT AGREEMENT") providing for, among other things, Commitments
pursuant to which Advances in the aggregate unpaid principal sum of not more
that one hundred fifty million dollars ($150,000,000) are available to the
Borrower upon certain terms and conditions until the Termination Date;
II. The Borrower has requested the Banks and the Agent to
agree to amend Section 5.01(c) (captioned "Tangible Net Worth") of the Existing
Credit Agreement, and Section 5.01(d) (captioned "Tangible Net Worth Ratio") of
the Existing Credit Agreement, and
III. The Banks and the Agent are willing to so agree, subject
to the terms and conditions of this Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and (in the case of the Banks and the Agent), in
reliance upon the representations and warranties of the Borrower herein
contained, the Borrower, the Banks and the Agent hereby agree as follows:
A. Section 5.01(c) (captioned "Tangible Net Worth") of the Existing Credit
Agreement is amended and restated, effective as of June 30, 1999, as follows:
"(c) TANGIBLE NET WORTH. Maintain an excess of (i) the sum of
consolidated total tangible assets plus an amount equal to the
After-Tax Realignment Expense plus, from the date of this
Amendment through December 31, 1999, an amount [in no case
greater than fifty-five million dollars ($55,000,000)] equal
<PAGE> 2
to the goodwill acquired by Borrower from Synthetic Products
Company ("SYNPRO"), a Delaware corporation, as a part of
Borrower's acquisition of all or substantially all of the
asset of Synpro over (ii) consolidated total liabilities
(including Guaranties) of the Borrower and its subsidiaries of
not less than the Required Net Worth. The "Required Net Worth"
shall initially be two hundred sixty-eight million dollars
($268,000,000) , and shall increase as of December 31 of each
year, commencing December 31, 1999, by an amount equal to
twenty-five percent (25%) of the consolidated net income (if
any) of the Borrower and its subsidiaries for the fiscal year
ending on such December 31."
B. Section 5.01(d) (captioned "Tangible Net Worth Ratio") of the Existing Credit
Agreement is amended and restated, effective as of June 30, 1999, as follows:
"(d) TANGIBLE NET WORTH RATIO." Maintain a ratio (expressed as
a decimal fraction) of
(i) consolidated total liabilities (including
Guaranties but excluding the Transition Obligation) to
(ii) the aggregate of consolidated tangible net
worth, plus an amount [in no case greater than fifty-five
million dollars ($55,000,000)] equal to the goodwill acquired
by Borrower from Synthetic Products Company ("SYNPRO"), a
Delaware corporation, as a part of Borrower's acquisition of
all or substantially all of the assets of Synpro, plus an
amount equal to the After-Tax Realignment Expense,
of not more than 2.50 from the date of this Amendment through December
31, 1999 nor more than 1.85 thereafter."
C. The Borrower hereby represents and warrants to each Bank and the Agent that
no event, condition or other thing has occurred and is continuing, or will occur
after giving effect to this Amendment, which constitutes, or which with the
giving of notice or the lapse of any grace period or both would constitute, an
Event of Default. All representations are true and correct as of the date of
this Amendment. The representation and warranty made pursuant to this paragraph
C shall survive the execution and delivery of this Amendment.
D. The Borrower, the Banks and the Agent do hereby ratify and confirm all of the
terms and conditions of the Existing Credit Agreement not specifically amended
by this Amendment and all such terms and conditions remain in full force and
effect.
E. This Amendment may be executed in one or more counterparts, each counterpart
to be executed by the Borrower, by the Agent and by one or more or all of the
Banks. Any party to the Existing Credit Agreement may deliver an executed
signature page to this Amendment by telecopy to the Agent at the telecopier
number set forth below the Agent's signature, and that party shall be deemed to
have executed and delivered that signature page with the intent to be bound by
this Amendment,
-2-
<PAGE> 3
PROVIDED, that each party to this Amendment shall, on the Agent's request,
deliver to the Agent such number of counterparts bearing the original signature
of that party as the Agent may request in order that each party may ultimately
have a counterpart bearing the original signature of each party to this
Amendment. Each party to this Amendment hereby assents to the foregoing
procedure for executing and delivering this Amendment and agrees that all such
counterparts taken together shall constitute but one agreement, which agreement
constitutes the entire agreement between the parties to this Amendment in
respect of its subject matter.
FERRO CORPORATION CITIBANK, N.A.
By: _____________________________ By: _____________________________
NATIONAL CITY BANK, AGENT THE FIRST NATIONAL BANK
OF BOSTON
By: _____________________________ By: _____________________________
NATIONAL CITY BANK KEYBANK NATIONAL ASSOCIATION
By: _____________________________ By: _____________________________
-3-
<PAGE> 1
Exhibit 4(k)
FERRO CORPORATION
and
NATIONAL CITY BANK
Rights Agent
Amended and Restated
Shareholder Rights Agreement
Dated as of December 10, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
Section 1. Certain Definitions.................................................................1
Section 2. Appointment of Rights Agent.........................................................4
Section 3. Issue of Rights Certificates........................................................4
Section 4. Form of Rights Certificates.........................................................5
Section 5. Countersignature and Registration...................................................6
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen
Rights Certificates..............................................................6
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.......................7
Section 8. Cancellation and Destruction of Rights Certificates.................................9
Section 9. Reservation and Availability of Capital Stock.......................................9
Section 10. Common Stock Record Date..........................................................10
Section 11. Adjustment of Purchase Price, Number and Kind of Shares
or Number of Rights.............................................................11
Section 12. Certificate of Adjusted Purchase Price or Number of Shares........................18
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power..............18
Section 14. Fractional Rights and Fractional Shares...........................................20
Section 15. Rights of Action..................................................................21
Section 16. Agreement of Rights Holders.......................................................21
Section 17. Rights Certificate Holder Not Deemed a Shareholder................................22
Section 18. Concerning the Rights Agent.......................................................22
Section 19. Merger or Consolidation or Change of Name of Rights Agent.........................22
Section 20. Duties of Rights Agent............................................................23
Section 21. Change of Rights Agent............................................................25
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
Page
Section 22. Issuance of New Rights Certificates...............................................25
Section 23. Redemption and Termination........................................................26
Section 24. Notice of Certain Events..........................................................26
Section 25. Notices...........................................................................27
Section 26. Supplements and Amendments........................................................27
Section 27. Successors........................................................................28
Section 28. Determination and Actions by the Board of Directors, Etc..........................28
Section 29. Exchange..........................................................................29
Section 30. Benefits of this Agreement........................................................30
Section 31. Severability......................................................................30
Section 32. Governing Law.....................................................................30
Section 33. Counterparts......................................................................30
Section 34. Descriptive Headings..............................................................30
Exhibit A - Form of Rights Certificate........................................................A-1
Exhibit B - Summary of Rights to Purchase Common Stock........................................B-1
</TABLE>
-ii-
<PAGE> 4
AMENDED AND RESTATED
SHAREHOLDER RIGHTS AGREEMENT
----------------------------
AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT, dated as of
December 10, 1999 (the "Agreement"), between FERRO CORPORATION, an Ohio
corporation (the "Company"), and NATIONAL CITY BANK, a national banking
association (the "Rights Agent").
W I T N E S S E T H
WHEREAS, on March 26, 1996, the Board of Directors adopted a
shareholder rights agreement (the "1996 Agreement"); and
WHEREAS, on March 22, 1996 (the "Rights Dividend Declaration
Date"), pursuant to the 1996 Agreement, the Board of Directors of the Company
also authorized and declared a dividend distribution of one Right for each share
of common stock, par value $1 per share, of the Company (the "Common Stock")
outstanding at the close of business on April 9, 1996 (the "Record Date"), and
has authorized the issuance of one Right (as such number may hereinafter be
adjusted pursuant to Section 11 hereof) for each share of Common Stock of the
Company issued between the Record Date (whether originally issued or delivered
from the Company's treasury) and the Distribution Date, each Right initially
representing the right to purchase one share of Common Stock upon the terms and
subject to the conditions hereinafter set forth (the "Rights"); and
WHEREAS, the Board of Directors of the Company determined that it
was in the best interests of the Company and its Shareholders to amend the 1996
Agreement in the form set forth herein and authorized the Company to enter into
this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement,
the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or
which, together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 20% or more of the shares of Common Stock then outstanding,
but shall not include the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company, or any Person
or entity organized, appointed or established by the Company for or pursuant to
the terms of any such plan. Notwithstanding the foregoing, no person shall
become an "Acquiring Person" as the result of an acquisition of shares of Common
Stock by the Company which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by such Person
to 20% or more of the shares of Common Stock of the Company then outstanding;
provided, however, that if a Person shall become the Beneficial Owner of 20% or
more of the shares of Common Stock of the Company then outstanding by reason of
share purchases by the Company and shall, after such share purchases by the
Company, become the Beneficial Owner of any additional share of Common Stock of
the Company, then such Person shall be deemed to be an "Acquiring Person".
Notwithstanding the foregoing, if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an "Acquiring
Person", as defined pursuant to the foregoing provisions of this paragraph (a),
has become such inadvertently, and such Person divests as promptly as
<PAGE> 5
practicable a sufficient number of shares of Common Stock so that such Person
would no longer be an "Acquiring Person," as defined pursuant to the foregoing
provisions of this paragraph (a), then such Person shall not be deemed to be or
have ever been an "Acquiring Person" for any purposes of this Agreement.
(b) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
(c) A Person shall be deemed the "Beneficial Owner"
of, and shall be deemed to "beneficially own," any securities:
(i) which such Person or any of
such Person's Affiliates or Associates, directly or indirectly,
has the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (whether or not in
writing) or upon the exercise of conversion rights, exchange
rights, rights, warrants or options, or otherwise; PROVIDED,
HOWEVER, that a Person shall not be deemed the "Beneficial Owner"
of, or to "beneficially own," (A) securities tendered pursuant to
a tender or exchange offer made by such Person or any of such
Person's Affiliates or Associates until such tendered securities
are accepted for purchase or exchange, or (B) securities issuable
upon exercise of Rights at any time prior to the occurrence of a
Triggering Event, or (C) securities issuable upon exercise of
Rights from and after the occurrence of a Triggering Event which
Rights were acquired by such Person or any of such Person's
Affiliates or Associates prior to the Distribution Date or
pursuant to Section 3(a) hereof or Section 22 hereof (the
"Original Rights") or pursuant to Section 11(i) hereof in
connection with an adjustment made with respect to any Original
Rights;
(ii) which such Person or any of
such Person's Affiliates or Associates, directly or indirectly,
has the right to vote or dispose of or has "beneficial ownership"
of (as determined pursuant to Rule 13d-3 of the General Rules and
Regulations under the Exchange Act), including pursuant to any
agreement, arrangement or understanding, whether or not in
writing; PROVIDED, HOWEVER, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security
under this subparagraph (ii) as a result of an agreement,
arrangement or understanding to vote such security if such
agreement, arrangement or understanding: (A) arises solely from a
revocable proxy given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the
applicable provisions of the General Rules and Regulations under
the Exchange Act, and (B) is not also then reportable by such
Person on Schedule 13D under the Exchange Act (or any comparable
or successor report); or
(iii) which are beneficially owned,
directly or indirectly, by any other Person (or any Affiliate or
Associate thereof) with which such Person (or any of such Person's
Affiliates or Associates) has any agreement, arrangement or
understanding (whether or not in writing), for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy
as described in the proviso to subparagraph (ii) of this
2
<PAGE> 6
paragraph (c)) or disposing of any voting securities of the
Company; PROVIDED, HOWEVER, that nothing in this paragraph (c)
shall cause a person engaged in business as an underwriter of
securities to be the "Beneficial Owner" of, or to "beneficially
own," any securities acquired through such person's participation
in good faith in a firm commitment underwriting until the
expiration of forty days after the date of such acquisition.
Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, the phrase "then outstanding," when used with
reference to a Person's Beneficial Ownership of securities of the Company, shall
mean the number of such securities then issued and outstanding together with the
number of such securities not then actually issued and outstanding which such
Person would be deemed to own beneficially hereunder.
(d) "Business Day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in the State of Ohio are
authorized or obligated by law or executive order to close.
(e) "Close of business" on any given date shall mean
5:00 P.M., Cleveland, Ohio time, on such date; provided, however, that if such
date is not a Business Day it shall mean 5:00 P.M., Cleveland, Ohio time, on the
next succeeding Business Day.
(f) "Common Stock" shall mean the common stock, par
value $1 per share, of the Company, except that "Common Stock" when used with
reference to any Person other than the Company shall mean the capital stock (or
equity security) of such Person with the greatest voting power, or, if such
Person is a Subsidiary of another Person, the Person or Persons which ultimately
control such first-mentioned Person.
(g) "Person" shall mean any individual, firm,
corporation, partnership or other entity.
(h) "Section 11(a)(ii) Event" shall mean any event
described in Section 11(a)(ii)(A) or (B) hereof.
(i) "Section 13 Event" shall mean any event described
in clauses (x), (y) or (z) of Section 13(a) hereof.
(j) "Stock Acquisition Date" shall mean the first
date of public announcement (which, for purposes of this definition, shall
include, without limitation, a report filed pursuant to Section 13(d) under the
Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has
become such.
(k) "Subsidiary" shall mean, with reference to any
Person, any corporation or other entity of which voting power sufficient to
elect at least a majority of the directors (or other governing body) of such
corporation or other entity is beneficially owned, directly or indirectly, by
such Person, or otherwise controlled by such Person.
(l) "Triggering Event" shall mean any Section
11(a)(ii) Event or any Section 13 Event.
(m) "Adverse Person" shall mean any Person declared
to be an Adverse Person by the Board of Directors upon determination that the
criteria set forth in Section 11(a)(ii)(B) hereof apply to such Person.
3
<PAGE> 7
Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date also be the holders of the Common Stock) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such Co-Rights Agents as
it may deem necessary or desirable.
Section 3. ISSUE OF RIGHTS CERTIFICATES.
(a) Until the earliest of (i) the close of business
on the tenth day after the Stock Acquisition Date, (ii) the close of business on
the tenth business day after the date that a tender offer or exchange offer by
any Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any Person or
entity 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, if
upon consummation thereof, such Person would be the Beneficial Owner of 20% or
more of the shares of Common Stock then outstanding, or (iii) the close of
business on the tenth day after the Board of Directors of the Company
determines, pursuant to the criteria set forth in Section 11(a)(ii)(B) hereof,
that a Person is an Adverse Person (or such later date under clause (i), (ii)
and (iii) as may be determined by the Board of Directors of the Company (the
earliest of (i), (ii) and (iii) being herein referred to as the "Distribution
Date"), (x) the Rights will be evidenced (subject to the provisions of
paragraphs (b) and (c) of this Section 3) by the certificates for the Common
Stock registered in the names of the holders of the Common Stock (which
certificates for Common Stock shall be deemed also to be certificates for
Rights) and not by separate certificates, and (y) the Rights will be
transferable only in connection with the transfer of the underlying shares of
Common Stock (including a transfer to the Company). Upon the occurrence of an
event described in clauses (i), (ii) or (iii) above, the Company shall give
prompt notice thereof to the Rights Agent. As soon as practicable after the
Distribution Date, the Rights Agent will send by first-class, insured, postage
prepaid mail, to each record holder of the Common Stock as of the close of
business on the Distribution Date, at the address of such holder shown on the
records of the Company, one or more rights certificates, in substantially the
form of Exhibit A hereto (the "Rights Certificates"), evidencing one Right for
each share of Common Stock so held, subject to adjustment as provided herein. In
the event that an adjustment in the number of Rights per share of Common Stock
has been made, at the time of distribution of the Rights Certificates, the
Company shall make the necessary and appropriate rounding adjustments (in
accordance with Section 14(a) hereof) so that Rights Certificates representing
only whole numbers of Rights are distributed and cash is paid in lieu of any
fractional Rights. As of and after the Distribution Date, the Rights will be
evidenced solely by such Rights Certificates.
(b) As promptly as practicable following the Record
Date, the Company will send a copy of a Summary of Rights, in substantially the
form attached hereto as Exhibit B (the "Summary of Rights") by first-class,
postage prepaid mail, to each record holder of the Common Stock as of the close
of business on the Record Date, at the address of such holder shown on the
records of the Company. With respect to certificates for the Common Stock
outstanding as of the Record Date, until the Distribution Date, the Rights will
be evidenced by such certificates for the Common Stock and the registered
holders of the Common Stock shall also be the registered holders of the
associated Rights. Until the earlier of the Distribution Date or the Expiration
Date (as such term is defined in Section 7 hereof), the transfer or surrender
for transfer of any certificates representing shares of Common Stock in respect
of which Rights have
4
<PAGE> 8
been issued shall also constitute the transfer or surrender for transfer of the
Rights associated with such shares of Common Stock.
(c) Rights shall be issued in respect of all shares
of Common Stock which are issued after the Record Date but prior to the earlier
of the Distribution Date or the Expiration Date. Certificates representing such
shares of Common Stock shall also be deemed to be certificates for Rights. All
certificates issued after the Record Date, whether with respect to new or to
transferred shares, shall bear the following legend:
This certificate also evidences and entitles the holder
hereof to certain Rights as set forth in the Amended and Restated
Rights Agreement between Ferro Corporation (the "Company") and
National City Bank (the "Rights Agent") dated as of December 10,
1999 (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at
the principal offices of the Company. Under certain circumstances,
as set forth in the Rights Agreement, such Rights will be
evidenced by separate certificates and will no longer be evidenced
by this certificate. The Company will mail to the holder of this
certificate a copy of the Rights Agreement, as in effect on the
date of mailing, without charge promptly after receipt of a
written request therefor. Under certain circumstances set forth in
the Rights Agreement, Rights issued to, or held by, any Person who
is, was or becomes an Acquiring Person, an Adverse Person or any
Affiliates or Associates thereof (as such terms are defined in the
Rights Agreement), whether currently held by or on behalf of such
Person or by any subsequent holder, may become null and void.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of Common Stock
shall also be the registered holders of the associated Rights, and the transfer
or surrender for transfer of any of such certificates shall also constitute the
transfer or surrender for transfer of the Rights associated with the Common
Stock represented by such certificates.
Section 4. FORM OF RIGHTS CERTIFICATES.
(a) The Rights Certificates (and the forms of
election to purchase and of assignment to be printed on the reverse thereof)
shall each be substantially in the form set forth in Exhibit A hereto and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 11 and Section 22 hereof, the Rights Certificates,
whenever distributed, shall be dated as of the Record Date and on their face
shall entitle the holders thereof to purchase such number of shares of Common
Stock as shall be set forth therein at the price set forth therein (the
"Purchase Price"), but the amount and type of securities purchasable upon the
exercise of each Right and the Purchase Price thereof shall be subject to
adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section
3(a) or Section 22 hereof that represents Rights beneficially owned by (i) an
Acquiring Person or an Adverse
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Person or any Associate or Affiliate of any such Person, (ii) a transferee of an
Acquiring Person or any such Adverse Person (or of any such Associate or
Affiliate) who becomes a transferee after the Acquiring Person or an Adverse
Person becomes such, or (iii) a transferee of an Acquiring Person or an Adverse
Person (or of any such Associate or Affiliate) who becomes a transferee prior to
or concurrently with the Acquiring Person or Adverse Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person or Adverse Person to holders of equity
interests in such Acquiring Person or Adverse Person or to any Person with whom
such Acquiring Person or Adverse Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
which the Board of Directors of the Company has determined is part of a plan,
arrangement or understanding which has as a primary purpose or effect avoidance
of Section 7(e) hereof, and any Rights Certificate issued pursuant to Section 6
or Section 11 hereof upon transfer, exchange, replacement or adjustment of any
other Rights Certificate referred to in this sentence, shall contain (to the
extent feasible) the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an [Acquiring]
[Adverse] Person or an Affiliate or Associate thereof (as such
terms are defined in the Rights Agreement). Accordingly, this
Rights Certificate and the Rights represented hereby may become
null and void in the circumstances specified in Section 7(e) of
such Agreement.
Section 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Rights Certificates shall be executed on
behalf of the Company by its President or any Vice President, either manually or
by facsimile signature, and shall have affixed thereto the Company's seal or a
facsimile thereof which shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile signature. The Rights
Certificates shall be manually countersigned by the Rights Agent and shall not
be valid for any purpose unless so countersigned. In case any officer of the
Company who shall have signed any of the Rights Certificates shall cease to be
such officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Rights Certificates, nevertheless,
may be countersigned by the Rights Agent, and issued and delivered by the
Company with the same force and effect as though the person who signed such
Rights Certificates had not ceased to be such officer of the Company; and any
Rights Certificates may be signed on behalf of the Company by any person who, at
the actual date of the execution of such Rights Certificate, shall be a proper
officer of the Company to sign such Rights Certificate, although at the date of
the execution of this Rights Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent
will keep or cause to be kept, at its principal office or offices designated as
the appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates and the date of each of the Rights
Certificates.
Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES. (a)
Subject to the provisions of Section 4(b), Section 7(e) and Section 14 hereof,
at any time after the close of business on the Distribution Date, and at or
prior to the close of business on the Expiration Date, any Rights
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Certificate or Certificates may be transferred, split up, combined or exchanged
for another Rights Certificate or Certificates, entitling the registered holder
to purchase a like number of shares of Common Stock (or, following a Triggering
Event, Common Stock, other securities, cash and/or other assets, as the case may
be) as the Rights Certificate or Certificates surrendered then entitled such
holder (or former holder in the case of a transfer) to purchase. Any registered
holder desiring to transfer, split up, combine or exchange any Rights
Certificate or Certificates shall make such request in writing delivered to the
Rights Agent, and shall surrender the Rights Certificate or Certificates to be
transferred, split up, combined or exchanged at the principal office or offices
of the Rights Agent designated for such purpose. Neither the Rights Agent nor
the Company shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Rights Certificate until the registered holder
shall have completed and signed the certificate contained in the form of
assignment on the reverse side of such Rights Certificate and shall have
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request. Thereupon, the Rights Agent shall, subject to Section
4(b), Section 7(e) and Section 14 hereof, countersign and deliver to the Person
entitled thereto a Rights Certificate or Rights Certificates, as the case may
be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent
of evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and reimbursement to
the Company and the Rights Agent of all reasonable expenses incidental thereto,
and upon surrender to the Rights Agent and cancellation of the Rights
Certificate if mutilated, the Company will execute and deliver a new Rights
Certificate of like tenor to the Rights Agent for countersignature and delivery
to the registered owner in lieu of the Rights Certificate so lost, stolen,
destroyed or mutilated.
Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF
RIGHTS. (a) Subject to Section 7(e) hereof, the registered holder of any Rights
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase and
the certificate on the reverse side thereof duly executed, to the Rights Agent
at the principal office or offices of the Rights Agent designated for such
purpose, together with payment of the aggregate Purchase Price with respect to
the total number of shares (or other securities, cash or other assets, as the
case may be) as to which such surrendered Rights are then exercisable, at or
prior to the earlier of (i) the close of business on April 8, 2006 (the "Final
Expiration Date"), or (ii) the time at which the Rights are redeemed as provided
in Section 23 hereof (the earlier of (i) and (ii) being herein referred to as
the "Expiration Date").
(b) The Purchase Price for each share of Common Stock
pursuant to the exercise of a Right shall initially be $110 and shall be subject
to adjustment from time to time as provided in Sections 11 and 13(a) hereof and
shall be payable in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase and the certificate
duly executed, accompanied by payment, with respect to each Right so exercised,
of the Purchase Price per share of Common Stock (or other shares, securities,
cash or other assets, as the case may be) to be purchased as set forth below and
an amount equal to any applicable transfer tax, the Rights Agent shall, subject
to
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Section 20(k) hereof, thereupon promptly (i) (A) requisition from any transfer
agent of the Common Stock (or make available, if the Rights Agent is the
transfer agent for such shares) certificates for the total number of shares of
Common Stock to be purchased and the Company hereby irrevocably authorizes its
transfer agent to comply with all such requests, or (B) if the Company shall
have elected to deposit the total number of shares of Common Stock issuable upon
exercise of the Rights hereunder with a depositary agent, requisition from the
depositary agent depositary receipts representing such number of shares of
Common Stock as are to be purchased (in which case certificates for the shares
of Common Stock represented by such receipts shall be deposited by the transfer
agent with the depositary agent) and the Company will direct the depositary
agent to comply with such request, (ii) requisition from the Company the amount
of cash, if any, to be paid in lieu of fractional shares in accordance with
Section 14 hereof, (iii) after receipt of such certificates or depositary
receipts, cause the same to be delivered to or upon the order of the registered
holder of such Rights Certificate, registered in such name or names as may be
designated by such holder, and (iv) after receipt thereof, deliver such cash, if
any, to or upon the order of the registered holder of such Rights Certificate.
The payment of the Purchase Price (as such amount may be reduced pursuant to
Section 11(a)(iii) hereof) shall be made in cash or by certified bank check or
bank draft payable to the order of the Company. In the event that the Company is
obligated to issue other securities of the Company, pay cash and/or distribute
other property pursuant to Section 11(a) hereof, the Company will make all
arrangements necessary so that such other securities, cash and/or other property
are available for distribution by the Rights Agent, if and when appropriate.
(d) In case the registered holder of any Rights
Certificate shall exercise less than all the Rights evidenced thereby, a new
Rights Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent and delivered to, or upon the
order of, the registered holder of such Rights Certificate, registered in such
name or names as may be designated by such holder, subject to the provisions of
Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any
Rights beneficially owned by (i) an Acquiring Person, an Adverse Person or an
Associate or Affiliate of an Acquiring Person or Adverse Person, (ii) a
transferee of an Acquiring Person or Adverse Person (or of any such Associate or
Affiliate) who becomes a transferee after the Acquiring Person or Adverse Person
becomes such, or (iii) a transferee of an Acquiring Person or an Adverse Person
(or of any such Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person or Adverse Person to holders of equity interests in such
Acquiring Person or Adverse Person or to any Person with whom the Acquiring
Person or Adverse Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which the Board
of Directors of the Company has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of this
Section 7(e), shall become null and void without any further action and no
holder of such Rights shall have any rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or otherwise. The Company
shall use all reasonable efforts to insure that the provisions of this Section
7(e) and Section 4(b) hereof are complied with, but shall have no liability to
any holder of Rights Certificates or other Person as a result of its failure to
make any determinations with respect to an Acquiring Person or an Adverse Person
or any of their respective Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7
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unless such registered holder shall have (i) completed and signed the
certificate contained in the form of election to purchase set forth on the
reverse side of the Rights Certificate surrendered for such exercise, and (ii)
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request.
Section 8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES.
All Rights Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Rights Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Rights Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK. (a) The
Company covenants and agrees that it will cause to be reserved and kept
available out of its authorized and unissued shares of Common Stock (and,
following the occurrence of a Triggering Event, out of its authorized and
unissued shares of Common Stock and/or other securities or out of any authorized
and issued shares held in its treasury), the number of shares of Common Stock
(and, following the occurrence of a Triggering Event, Common Stock and/or other
securities) that, as provided in this Agreement including Section 11(a)(iii)
hereof, will be sufficient to permit the exercise in full of all outstanding
Rights.
(b) So long as the shares of Common Stock (and,
following the occurrence of a Triggering Event, Common Stock and/or other
securities) issuable and deliverable upon the exercise of the Rights may be
listed on any national securities exchange, the Company shall use its best
efforts to cause, from and after such time as the Rights become exercisable, all
shares reserved for such issuance to be listed on such exchange upon official
notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i)
file, as soon as practicable following the earliest date after the first
occurrence of a Section 11(a)(ii) Event on which the consideration to be
delivered upon exercise of the Rights has been determined in accordance with
Section 11(a)(iii) hereof, or as soon as is required by law following the
Distribution Date, as the case may be, a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to the securities
purchasable upon exercise of the Rights on an appropriate form, (ii) cause such
registration statement to become effective as soon as practicable after such
filing, and (iii) cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Act) until the earlier
of (A) the date as of which the Rights are no longer exercisable for such
securities, and (B) the Expiration Date of the Rights. The Company will also
take such action as may be appropriate under, or to ensure compliance with, the
securities or "blue sky" laws of the various states in connection with the
exercisability of the Rights. The Company may temporarily suspend, for a period
of time not to exceed ninety (90) days after the date set forth in clause (i) of
the first sentence of this Section 9(c), the exercisability of the Rights in
order to prepare and file such registration statement and permit it to become
effective. Upon any such suspension, the Company shall issue a public
announcement stating that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as the suspension is no
longer in effect. In addition,
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if the Company shall determine that a registration statement is required
following a Distribution Date, the Company may temporarily suspend the
exerciseability of the Rights until such time as a registration statement has
been declared effective. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction if the
requisite qualification in such jurisdiction shall not have been obtained, the
exercise thereof shall not be permitted under applicable law or a registration
statement shall not have been declared effective.
(d) The Company covenants and agrees that it will
take all such action as may be necessary to ensure that all shares of Common
Stock (and, following the occurrence of a Triggering Event, Common Stock and/or
other securities) delivered upon exercise of Rights shall, at the time of
delivery of the certificates for such shares (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that it
will pay when due and payable any and all federal and state transfer taxes and
charges which may be payable in respect of the issuance or delivery of the
Rights Certificates and of any certificates for shares of Common Stock (or
Common Stock and/or other securities, as the case may be) upon the exercise of
Rights. The Company shall not, however, be required to pay any transfer tax
which may be payable in respect of any transfer or delivery of Rights
Certificates to a Person other than, or the issuance or delivery of the shares
of Common Stock (or Common Stock and/or other securities, as the case may be) in
respect of a name other than that of, the registered holder of the Rights
Certificates evidencing Rights surrendered for exercise or to issue or deliver
any certificates for shares of Common Stock (or Common Stock and/or other
securities, as the case may be) in a name other than that of the registered
holder upon the exercise of any Rights until such tax shall have been paid (any
such tax being payable by the holder of such Rights Certificate at the time of
surrender) or until it has been established to the Company's satisfaction that
no such tax is due.
Section 10. COMMON STOCK RECORD DATE. Each person in whose name
any certificate for shares of Common Stock (or Common Stock and/or other
securities, as the case may be) is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the shares of
Common Stock (or Common Stock and/or other securities, as the case may be)
represented thereby on, and such certificate shall be dated, the date upon which
the Rights Certificate evidencing such Rights was duly surrendered and payment
of the Purchase Price (and all applicable transfer taxes) was made; PROVIDED,
HOWEVER, that if the date of such surrender and payment is a date upon which the
Common Stock (or Common Stock and/or other securities, as the case may be)
transfer books of the Company are closed, such Person shall be deemed to have
become the record holder of such shares on, and such certificate shall be dated,
the next succeeding Business Day on which the Common Stock (or Common Stock
and/or other securities, as the case may be) transfer books of the Company are
open. Prior to the exercise of the Rights evidenced thereby, the holder of a
Rights Certificate shall not be entitled to any rights of a shareholder of the
Company with respect to shares for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF
SHARES OR NUMBER OF RIGHTS. The Purchase Price, the number and kind of shares
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
(a)(i) In the event the Company shall at any time
after the date of this Agreement (A) declare a dividend on the
Common Stock payable
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in shares of Common Stock, (B) subdivide the outstanding Common
Stock, (C) combine the outstanding Common Stock into a smaller
number of shares, or (D) issue any shares of its capital stock in
a reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in
which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a) and Section
7(e) hereof, the Purchase Price in effect at the time of the
record date for such dividend or of the effective date of such
subdivision, combination or reclassification, and the number and
kind of shares of Common Stock or capital stock, as the case may
be, issuable on such date, shall be proportionately adjusted so
that the holder of any Right exercised after such time shall be
entitled to receive, upon payment of the Purchase Price then in
effect, the aggregate number and kind of shares of Common Stock or
capital stock, as the case may be, which, if such Right had been
exercised immediately prior to such date and at a time when the
Common Stock transfer books of the Company were open, he would
have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or
reclassification. If an event occurs which would require an
adjustment under both this Section 11(a)(i) and Section 11(a)(ii)
hereof, the adjustment provided for in this Section 11(a)(i) shall
be in addition to, and shall be made prior to, any adjustment
required pursuant to Section 11(a)(ii) hereof.
(ii) In the event:
(A) Any person (other than the
Company, any Subsidiary of the Company, any employee benefit plan
of the Company or of any Subsidiary of the company, or any Person
or entity organized, appointed or established by the Company for
or pursuant to the terms of any such plan), alone or together with
its Affiliates and Associates, shall, at any time after the Rights
Dividend Declaration Date, become the Beneficial Owner of 20% or
more of the shares of Common Stock then outstanding, unless the
event causing the 20% threshold to be crossed is (1) a transaction
set forth in Section 13(a) hereof or (2) approved in advance by
the Board of Directors, or
(B) the Board of Directors of the
Company shall declare any Person to be an Adverse Person, upon a
determination that such Person, alone or together with its
Affiliates and Associates, has at any time after the Rights
Dividend Declaration Date, become the Beneficial Owner of an
amount of Common Stock which the Board of Directors determines to
be substantial (which amount shall in no event be less than 10% of
the shares of Common Stock then outstanding) and a determination
by the Board of Directors, after reasonable inquiry and
investigation, including consultation with such persons as the
Board of Directors shall deem appropriate, that (1) such
Beneficial ownership by such Person is intended to cause the
Company to repurchase the Common Stock beneficially owned by such
Person or to cause pressure on the Company to take action or enter
into a transaction or series of transactions intended to provide
such Person with short-term financial gain under circumstances
where the Board of Directors determines that the best long-term
interests of the Company and its shareholders would not be served
by
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taking such action or entering into such transactions or series of
transactions at that time or (2) such Beneficial Ownership is
causing or reasonably likely to cause a material adverse impact
(including but not limited to, impairment of relationships with
customers, impairment of the Company's business reputation or
impairment of the Company's ability to maintain its competitive
position) on the business or prospects of the Company,
then, promptly following the first occurrence of a Section
11(a)(ii) Event, proper provision shall be made so that each
holder of a Right (except as provided below and in Section 7(e)
hereof) shall thereafter have the right to receive, in lieu of the
number of shares of Common Stock for which a Right was theretofore
exercisable, such number of shares Common Stock as shall equal the
result obtained by (x) multiplying the then current Purchase Price
by the number of shares of Common Stock for which a Right was
exercisable immediately prior to the first occurrence of the
Section 11(a)(ii) Event and (y) dividing that product (which,
following such first occurrence, shall thereafter be referred to
as the "Purchase Price" for each Right and for all purposes of
this Agreement) by 50% of the current per share market price of
the Common Stock (determined pursuant to Section 11(d)) on the
date of the occurrence of the Section 11(a)(ii) Event (such number
of shares is herein called the "Adjustment Shares"); provided,
however, that the Purchase Price and number of Adjustment Shares
shall be further adjusted as provided in this Agreement to reflect
any event occurring after the date of such first occurrence.
(iii) In the event that the number of
shares of Common Stock which are authorized by the Company's
certificate of incorporation but not outstanding or reserved for
issuance for purposes other than upon exercise of the Rights are
not sufficient to permit the exercise in full of the Rights in
accordance with the foregoing subparagraph (ii) of this Section
11(a), the Company shall (A) determine the excess of (1) the value
of the Adjustment Shares issuable upon the exercise of a Right
(the "Current Value") over (2) the Purchase Price (such excess,
the "Spread"), and (B) with respect to each Right, make adequate
provision to substitute for the Adjustment Shares, upon payment of
the applicable Purchase Price, (1) cash, (2) a reduction in the
Purchase Price, (3) Common Stock or other equity securities of the
Company (including, without limitation, shares, or units of
shares, of preferred stock which the Board of Directors of the
Company has deemed to have the same value as shares of Common
Stock (such shares of preferred stock, "common stock
equivalents")), (4) debt securities of the Company, (5) other
assets, or (6) any combination of the foregoing, having an
aggregate value equal to the Current Value, where such aggregate
value has been determined by the Board of Directors of the Company
based upon the advice of a nationally recognized investment
banking firm selected by the Board of Directors of the Company;
provided, however, if the Company shall not have made adequate
provision to deliver value pursuant to clause (B) above within
thirty (30) days following the later of (x) the first occurrence
of a Section 11(a)(ii) Event and (y) the date on which the
Company's right of redemption pursuant to Section 23(a) expires
(the later of (x) and (y) being referred to herein as the "Section
11(a)(ii) Trigger Date"), then the Company shall be obligated to
deliver, upon the surrender for exercise of a Right and without
requiring payment of the Purchase Price, shares of
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Common Stock (to the extent available) and then, if necessary,
cash, which shares and/or cash have an aggregate value equal to
the Spread. If the Board of Directors of the Company shall
determine in good faith that it is likely that sufficient
additional shares of Common Stock could be authorized for issuance
upon exercise in full of the Rights, the thirty (30) day period
set forth above may be extended to the extent necessary, but not
more than ninety (90) days after the Section 11(a)(ii) Trigger
Date, in order that the Company may seek shareholder approval for
the authorization of such additional shares (such period, as it
may be extended, the "Substitution Period"). To the extent that
the Company determines that some action need be taken pursuant to
the first and/or second sentences of this Section 11(a)(iii), the
Company (x) shall provide, subject to Section 7(e) hereof, that
such action shall apply uniformly to all outstanding Rights, and
(y) may suspend the exercisability of the Rights until the
expiration of the Substitution Period in order to seek any
authorization of additional shares and/or to decide the
appropriate form of distribution to be made pursuant to such first
sentence and to determine the value thereof. In the event of any
such suspension, the Company shall issue a public announcement
stating that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as the
suspension is no longer in effect. For purposes of this Section
11(a)(iii), the value of the Common Stock shall be the current
market price (as determined pursuant to Section 11(d) hereof) per
share of the Common Stock on the Section 11(a)(ii) Trigger Date
and the value of any "common stock equivalent" shall be deemed to
have the same value as the Common Stock on such date.
(b) In case the Company shall fix a record date for
the issuance of rights, options or warrants to holders of Common Stock entitling
them to subscribe for or purchase (for a period expiring within forty-five (45)
calendar days after such record date) Common Stock (or shares having the same
rights, privileges and preferences as the shares of Common Stock ("equivalent
common stock")) or securities convertible into Common Stock or equivalent common
stock at a price per share of Common Stock or per share of equivalent common
stock (or having a conversion price per share, if a security convertible into
Common Stock or equivalent common stock) less than the current market price (as
determined pursuant to Section 11(d) hereof) per share of Common Stock on such
record date, the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding on such record date, plus the number of shares of
Common Stock which the aggregate offering price of the total number of shares of
Common Stock and/or equivalent common stock so to be offered (and/or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price, and the denominator of
which shall be the number of shares of Common Stock outstanding on such record
date, plus the number of additional shares of Common Stock and/or equivalent
common stock to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible). In case such
subscription price may be paid by delivery of consideration part or all of which
may be in a form other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent and the holders of the Rights. Shares of
Common Stock owned by or held for the account of the Company shall not be deemed
outstanding for the purpose of any such computation. Such adjustment shall be
made successively whenever such a record date is
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<PAGE> 17
fixed, and in the event that such rights or warrants are not so issued, the
Purchase Price shall be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness, cash (other than a regular
quarterly cash dividend out of the earnings or retained earnings of the
Company), assets (other than a dividend payable in Common Stock, but including
any dividend payable in stock other than Common Stock) or subscription rights or
warrants (excluding those referred to in Section 11(b) hereof), the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the current market price (as
determined pursuant to Section 11(d) hereof) per share of Common Stock on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the cash, assets or
evidences of indebtedness so to be distributed or of such subscription rights of
warrants applicable to a share of Common Stock and the denominator of which
shall be such current market price (as determined pursuant to Section 11(d)
hereof) per share of Common Stock. Such adjustments shall be made successively
whenever such a record date is fixed, and in the event that such distribution is
not so made, the Purchase Price shall be adjusted to be the Purchase Price which
would have been in effect if such record dace had not been fixed.
(d) For the purpose of any computation hereunder,
other than computations made pursuant to Section 11(a)(iii) hereof, the "current
market price" per share of Common Stock on any date shall be deemed to be the
average of the daily closing prices per share of such Common Stock for the
thirty (30) consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date, and for purposes of computations made pursuant
to Section 11(a)(iii) hereof, the "current market price" per share of Common
Stock on any date shall be deemed to be the average of the daily closing prices
per share of such Common Stock for the ten (10) consecutive Trading Days
immediately following such date; provided, however, that in the event that the
current market price per share of the Common Stock is determined during a period
following the announcement by the issuer of such Common Stock of (A) a dividend
or distribution on such Common Stock payable in shares of such Common Stock or
securities convertible into shares of such Common Stock (other than the Rights),
or (B) any subdivision, combination or reclassification of such Common Stock,
and prior to the expiration of the requisite thirty (30) Trading Day period or
ten (10) Trading Day period, as set forth above, after the ex-dividend date for
such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the "current
market price" shall be properly adjusted to take into account ex-dividend
trading. The closing price for each day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the shares
of Common Stock are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the shares of Common Stock are listed or admitted to trading or, if the
shares of Common Stock are not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") or such other system then in use, or, if on any such date the shares
of Common Stock are not quoted by any such organization, the average of the
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<PAGE> 18
closing bid and asked prices as furnished by a professional market maker making
a market in the Common Stock selected by the Board of Directors of the Company.
If on any such date no market maker is making a market in the Common Stock, the
fair value of such shares on such date as determined in good faith by the Board
of Directors of the Company shall be used. The term "Trading Day" shall mean a
day on which the principal national securities exchange on which the shares of
Common Stock are listed or admitted to trading in open for the transaction of
business or, if the shares of Common Stock are not listed or admitted to trading
on any national securities exchange, a Business Day. If the Common Stock is not
publicly held or not so listed or traded, "current market price" per share shall
mean the fair value per share as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent and shall be conclusive for all purposes.
(e) Anything herein to the contrary notwithstanding,
no adjustment in the Purchase Price shall be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in the
Purchase Price; provided, however, that any adjustments which by reason of this
Section 11(e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section
11 shall be made to the nearest cent or to the nearest ten-thousandth of a share
of Common Stock, as the case may be. Notwithstanding the first sentence of this
Section 11(e), an adjustment required by this Section 11 shall be made no later
than the earlier of (i) three (3) years from the date of the transaction which
mandates such adjustment, or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to
Section 11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter
exercised shall become entitled to receive any shares of capital stock of the
Company other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of any Right and the Purchase Price thereof shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m), and
the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Common
Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company
subsequent to any adjustment made to the Purchase Price hereunder shall evidence
the right to purchase, at the adjusted Purchase Price, the number of shares of
Common Stock purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercise its
election as provided in Section 11(i), upon each adjustment of the Purchase
Price as a result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
shares of Common Stock (calculated to the nearest one-thousandth) obtained by
(i) multiplying (x) the number of shares covered by a Right immediately prior to
this adjustment, by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price, and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in lieu of any
adjustment in the number of shares of Common Stock purchasable upon the exercise
of a Right. Each of the Rights outstanding after the adjustment in the number of
Rights shall be exercisable for the number of shares of Common Stock for which a
Right was exercisable immediately prior to such adjustment. Each Right held of
record prior to such adjustment of the number of Rights shall become that number
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<PAGE> 19
of Rights (calculated to the nearest one-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This record date may
be the date on which the Purchase Price is adjusted or any day thereafter, but,
if the Rights Certificates have been issued, shall be at least ten (10) days
later than the date of the public announcement. If Rights Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11(i), the Company shall, as promptly as practicable, cause to be distributed to
holders of record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Purchase
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the
Purchase Price or the number of shares of Common Stock issuable upon the
exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the Purchase Price per share and the number of
shares which were expressed in the initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an
adjustment reducing the Purchase Price below the then stated value, if any, of
the shares of Common Stock issuable upon exercise of the Rights, the Company
shall take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock at such adjusted Purchase Price.
(1) In any case in which this Section 11 shall
require that an adjustment in the Purchase Price be made effective as of a
record date for a specified event, the Company may elect to defer until the
occurrence of such event the issuance to the holder of any Right exercised after
such record date the shares of Common Stock and other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the shares of Common Stock and other capital stock or securities of the Company,
if any, issuable upon such exercise on the basis of the Purchase Price in effect
prior to such adjustment; provided, however, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares or securities upon the occurrence of the
event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that in their good faith judgment the Board of
Directors of the Company shall determine to be advisable in order that any (i)
consolidation or subdivision of the Common Stock, (ii) issuance wholly for cash
of any shares of Common Stock at less than the current market price, (iii)
issuance wholly for cash of shares of Common Stock or securities which by their
terms are convertible into or exchangeable for shares of Common Stock, (iv)
stock dividends or (v) issuance of rights, options or warrants
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<PAGE> 20
referred to in this Section 11, hereafter made by the Company to holders of its
Common Stock shall not be taxable to such shareholders.
(n) The Company covenants and agrees that it shall
not, at any time after the Distribution Date, (i) consolidate with any other
Person (other than a Subsidiary of the Company in a transaction which complies
with Section 11(o) hereof), (ii) merge with or into any other Person (other than
a Subsidiary of the Company in a transaction which complies with Section 11(o)
hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or
transfer), in one transaction or a series of related transactions, assets or
earning power aggregating more than 50% of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to, any other Person or Persons
(other than the Company and/or any of its Subsidiaries in one or more
transactions each of which complies with Section 11(o) hereof), if (x) at the
time of or immediately after such consolidation, merger or sale there are any
rights, warrants or other instruments or securities outstanding or agreements in
effect which would substantially diminish or otherwise eliminate the benefits
intended to be afforded by the Rights or (y) prior to, simultaneously with or
immediately after such consolidation, merger or sale, the shareholders of the
Person who constituted, or would constitute, the "Principal Party" for purposes
of Section 13(a) hereof have received a distribution, directly or indirectly, of
Rights previously owned by such Person or any of its Affiliates or Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23 or Section 26
hereof, take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded by the
Rights.
(p) Anything in this Agreement to the contrary
notwithstanding, in the event that the Company shall at any time after the date
of this Agreement and prior to the Distribution Date consolidate with, or merge
with or into, any other Person for the primary purpose of a change of domicile
of the Company, and, in connection with such consolidation or merger, all of the
outstanding shares of Common Stock shall be changed into or exchanged for shares
of Common Stock of the surviving corporation of such consolidation or merger
(the "Surviving Corporation"), then proper provision shall be made so that
Rights shall be associated with each share of Common Stock of the Surviving
Corporation, except as provided in Section 7(e) hereof, such that the number of
Rights associated with each share of Common Stock of the Surviving Corporation
following any such event shall equal the result obtained by multiplying the
number of Rights associated with each share of Common Stock immediately prior to
such event by a fraction the numerator of which shall be the total number of
shares of Common Stock outstanding immediately prior to the occurrence of the
event and the denominator of which shall be the total number of shares of Common
Stock of the Surviving Corporation which the shares of Common Stock were changed
into or exchanged for pursuant to the consolidation or merger. Following such a
consolidation or merger, this Agreement shall remain in effect and all
references to the Company shall be deemed to be references to the Surviving
Corporation.
(q) The failure by the Board of Directors to declare
a Person to be an Adverse Person following such Person becoming the Beneficial
Owner of 10% or more of the outstanding Common Stock shall not imply that such
Person is not an Adverse Person or limit the Board of Directors' right at any
time in the future to declare such Person to be an Adverse Person.
Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF
SHARES. Whenever an adjustment is made as provided in Section 11 and Section 13
hereof, the Company shall (a)
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<PAGE> 21
promptly prepare a certificate setting forth such adjustment and a brief
statement of the facts accounting for such adjustment, (b) promptly file with
the Rights Agent, and with each transfer agent for the Common Stock, a copy of
such certificate, and (c) mail a brief summary thereof to each holder of a
Rights Certificate (or, if prior to the Distribution Date, to each holder of a
certificate representing shares of Common Stock) in accordance with Section 25
hereof. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained. Notwithstanding the
foregoing, the failure of the Company to take any of the actions set forth in
this Section 12 will not affect the validity of the Rights or the adjustments
made pursuant to Section 11 or 13 hereof.
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS
OR EARNING POWER.
(a) In the event that, following the Stock
Acquisition Date, directly or indirectly, (x) the Company shall consolidate
with, or merge with and into, any other Person (other than a Subsidiary of the
Company in a transaction which complies with Section 11(o) hereof), and the
Company shall not be the continuing or surviving corporation of such
consolidation or merger, (y) any Person (other than a Subsidiary of the Company
in a transaction which complies with Section 11(o) hereof) shall consolidate
with, or merge with or into, the Company, and the Company shall be the
continuing or surviving corporation of such consolidation or merger and, in
connection with such consolidation or merger, all or part of the outstanding
shares of Common Stock shall be changed into or exchanged for stock or other
securities of any other Person or cash or any other property, or (z) the Company
shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell
or otherwise transfer), in one transaction or a series of related transactions,
assets or earning power aggregating more than 50% of the assets or earning power
of the Company and its Subsidiaries (taken as a whole) to any Person or Persons
(other than the Company or any Subsidiary of the Company in one or more
transactions each of which complies with Section 11(o) hereof), then, and in
each such case (except as may be contemplated by Section 13(d) hereof), proper
provision shall be made so that (i) each holder of a Right, except as provided
in Section 7(e) hereof, shall thereafter have the right to receive, upon the
exercise thereof at the then current Purchase Price (disregarding any adjustment
of the Purchase Price pursuant to Section 11(a)(ii) hereof) in accordance with
the terms of this Agreement, such number of validly authorized and issued, fully
paid, nonassessable and freely traceable shares of Common Stock of the Principal
Party (as such term is hereinafter defined), not subject to any liens,
encumbrances, rights of first refusal or other adverse claims, as shall be equal
to the result obtained by (1) multiplying the then current Purchase Price by the
number of shares of Common Stock for which a Right is exercisable immediately
prior to the first occurrence of a Section 13 Event (or if a Section 11(a)(ii)
Event has occurred prior to the first occurrence of a Section 13 Event,
multiplying the number of such shares for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii) Event by the
Purchase Price in effect immediately prior to such first occurrence), and
dividing that product (which, following the first occurrence of a Section 13
Event, shall be referred to as the "Purchase Price" for each Right and for all
purposes of this Agreement) by (2) 50% of the current market price (as
determined pursuant to Section 11(d) hereof) per share of the Common Stock of
such Principal Party on the date of consummation of such Section 13 Event, (ii)
such Principal Party shall thereafter be liable for, and shall assume, by virtue
of such Section 13 Event, all the obligations and duties of the Company pursuant
to this Agreement; (iii) the term "Company" shall thereafter be deemed to refer
to such Principal Party, it being specifically intended that the provisions of
Section 11 hereof shall apply only to such Principal Party following the first
occurrence of a Section 13 Event; (iv) such Principal Party shall take such
steps (including, but not limited to, the reservation of a sufficient number of
shares of its Common Stock) in connection with the consummation of any such
transaction as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to its
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<PAGE> 22
shares of Common Stock thereafter deliverable upon the exercise of the Rights;
and (v) the provisions of Section 11(a)(ii) hereof shall be of no effect
following the first occurrence of any Section 13 Event.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in
clause (x) or (y) of the first sentence of Section 13(a), the
Person that is the issuer of any securities into which shares of
Common Stock of the Company are converted in such merger or
consolidation, and if no securities are so issued, the Person that
is the other party to such merger or consolidation; and
(ii) in the case of any transaction described in
clause (z) of the first sentence of Section 13(a), the Person that
is the party receiving the greatest portion of the assets or
earning power transferred pursuant to such transaction or
transactions;
PROVIDED, HOWEVER, that in any such case, (1) if the Common Stock of such Person
is not at such time and has not been continuously over the preceding twelve (12)
month period registered under Section 12 of the Exchange Act, and such Person is
a direct or indirect Subsidiary of another Person the Common Stock of which is
and has been so registered, "Principal Party" shall refer to such other Person;
and (2) in case such Person is a Subsidiary, directly or indirectly, of more
than one Person, the Common Stocks of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Stock having the greatest aggregate market value.
(c) The Company shall not consummate any such
consolidation, merger, sale or transfer unless the Principal Party shall have a
sufficient number of authorized shares of its Common Stock which have not been
issued or reserved for issuance to permit the exercise in full of the Rights in
accordance with this Section 13 and unless prior thereto the Company and such
Principal Party shall have executed and delivered to the Rights Agent a
supplemental agreement providing for the terms set forth in paragraphs (a) and
(b) of this Section 13 and further providing that, as soon as practicable after
the date of any consolidation, merger or sale of assets mentioned in paragraph
(a) of this Section 13, the Principal Party will
(i) prepare and file a registration statement
under the Act, with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form,
and will use its best efforts to cause such registration statement
to (A) become effective as soon as practicable after such filing
and (B) remain effective (with a prospectus at all times meeting
the requirements of the Act) until the Expiration Date; and
(ii) will deliver to holders of the Rights
historical financial statements for the Principal Party and each
of its Affiliates which comply in all respects with the
requirements for registration on Form 10 (or any successor form)
under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive merges or
consolidations or sales or other transfers. In the event that a Section 13 Event
shall occur at any time after the first
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<PAGE> 23
occurrence of a Section 11(a)(ii) Event, the Rights which have not theretofore
been exercised shall thereafter become exercisable in the manner described in
Section 13(a).
(d) Notwithstanding anything in this Agreement to the
contrary, Section 13 shall not be applicable to a transaction described in
subparagraphs (x) and (y) of Section 13(a) if (i) such transaction is
consummated with a Person or Persons who acquired shares of Common Stock
pursuant to a tender offer or exchange offer for all outstanding shares of
Common Stock which was carried out pursuant to the exception contained in clause
(2) of Section 11(a)(ii)(A) hereof (or a wholly owned subsidiary of any such
Person or Persons), (ii) the price per share of Common Stock offered in such
transaction is not less than the price per share of Common Stock paid to all
holders of shares of Common Stock whose shares were purchased pursuant to such
tender offer or exchange offer, and (iii) the form of consideration being
offered to the remaining holders of shares of Common Stock pursuant to such
transaction is the same as the form of consideration paid pursuant to such
tender offer or exchange offer. Upon consummation of any such transaction
contemplated by this Section 13(d), all Rights hereunder shall expire.
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue
fractions of Rights, except, prior to the Distribution Date as provided in
Section 11(i) hereof, or to distribute Rights Certificates which evidence
fractional Rights. In lieu of such fractional Rights, there shall be paid to the
registered holders of the Rights Certificates with regard to which such
fractional Rights would otherwise be issuable, an amount in cash equal to the
same fraction of the current market value of a whole Right. For purposes of this
Section 14(a), the current market value of a whole Right shall be the closing
price of the Rights for the Trading Day immediately prior to the date on which
such fractional Rights would have been otherwise issuable. The closing price of
the Rights for any day shall be the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights are listed or
admitted to trading, or if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by NASDAQ or such other system then in use or, if on any such date
the Rights are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Rights selected by the Board of Directors of the Company. If on any such
date no such market maker is making a market in the Rights the fair value of the
Rights on such date as determined in good faith by the Board of Directors of the
Company shall be used.
(b) The Company shall not be required to issue
fractions of shares of Common Stock upon exercise of the Rights or to distribute
certificates which evidence fractional shares of Common Stock. In lieu of
fractional shares of Common Stock, the Company may pay to the registered holders
of Rights Certificates at the time such Rights are exercised as herein provided
an amount in cash equal to the same fraction of the current market value of a
share of Common Stock. For purposes of this Section 14(b), the current market
value of a share of Common Stock shall be the closing price of one (1) share of
Common Stock (as determined pursuant to Section 11(d) hereof) for the Trading
Day immediately prior to the date of such exercise.
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<PAGE> 24
(c) The holder of a Right by the acceptance of the
Rights expressly waives his right to receive any fractional Rights or any
fractional shares upon exercise of a Right, except as permitted by this Section
14.
Section 15. RIGHTS OF ACTION. All rights of action in respect of
this Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Rights Certificate in the manner provided
in such Rights Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and shall be entitled to specific performance
of the obligations hereunder and injunctive relief against actual or threatened
violations of the obligations hereunder of any Person subject to this Agreement.
Section 16. AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right
by accepting the same consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will
be transferable only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights
Certificates are transferable only on the registry books of the Rights Agent if
surrendered at the principal office or offices of the Rights Agent designated
for such purposes, duly endorsed or accompanied by a proper instrument of
transfer and with the appropriate forms and certificates fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof,
the Company and the Rights Agent may deem and treat the person in whose name a
Rights Certificate (or, prior to the Distribution Date, the associated Common
Stock certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Stock certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be required to be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; PROVIDED, HOWEVER, that the Company must use its
best efforts to have any such order, decree or ruling lifted or otherwise
overturned as soon as possible.
Section 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any
21
<PAGE> 25
purpose the holder of the shares of Common Stock or any other securities of the
Company which may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in any Rights
Certificate be construed to confer upon the holder of any Rights Certificate, as
such, any of the rights of a shareholder of the Company or any right to vote for
the election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except as
provided in Section 24 hereof), or to receive dividends or subscription rights,
or otherwise, until the Right or Rights evidenced by such Rights Certificate
shall have been exercised in accordance with the provisions hereof.
Section 18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent
reasonable compensation for all services rendered by it hereunder and, from time
to time, on demand of the Rights Agent, its reasonable expenses and counsel fees
and disbursements and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
(b) The Rights Agent shall be protected and shall
incur no liability for or in respect of any action taken, suffered or omitted by
it in connection with its administration of this Agreement in reliance upon any
Rights Certificate or certificate for Common Stock or for other securities of
the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
Person or Persons.
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS
AGENT.
(a) Any corporation into which the Rights Agent or
any successor Rights Agent may be merged or with which it may be consolidated,
or any corporation resulting from any merger or consolidation to which the
Rights Agent of any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; PROVIDED, HOWEVER, that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall succeed
to the agency created by this Agreement, any of the Rights Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of a predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
(b) In case at any time the name of the Rights Agent
shall be changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the
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<PAGE> 26
Rights Agent may adopt the countersignature under its prior name and deliver
Rights Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, the Rights Agent may countersign
such Rights Certificates either in its prior name or in its changed name; and in
all such cases such Rights Certificates shall have the full force provided in
the Rights Certificates and in this Agreement.
Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes
the duties and obligations imposed by this Agreement upon the following terms
and conditions, by all of which the Company and the holders of Rights
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel
(who may be legal counsel for the Company), and the opinion of such counsel
shall be full and complete authorization and protection to the Rights Agent as
to any action taken or omitted by it in good faith and in accordance with such
opinion.
(b) Whenever in the performance of its duties under
this Agreement the Rights Agent shall deem it necessary or desirable that any
fact or matter (including, without limitation, the identity of any Acquiring
Person and the determination of "current market price") be proved or established
by the Company prior to taking or suffering any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company and delivered to the
Rights Agent; and such certificate shall be full authorization to the Rights
Agent for any action taken or suffered in good faith by it under the provisions
of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only
for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by
reason of any of the statements of fact or recitals contained in this Agreement
or in the Rights Certificates or be required to verify the same (except as to
its countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any
responsibility in respect of the validity of this Agreement or the execution and
delivery hereof (except the due execution hereof by the Rights Agent) or in
respect of the validity or execution of any Rights Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Rights Certificate; nor shall it be responsible for any adjustment required
under the provisions of Section 11 or Section 13 hereof or responsible for the
manner, method or amount of any such adjustment or the ascertaining of the
existence of facts that would require any such adjustment (except with respect
to the exercise of Rights evidenced by Rights Certificates after actual notice
of any such adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any shares
of Common Stock or other securities to be issued pursuant to this Agreement or
any Rights Certificate or as to whether any shares of Common Stock or other
securities will, when so issued, be validly authorized and issued, fully paid
and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and
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<PAGE> 27
other acts, instruments and assurances as may reasonably be required by the
Rights Agent for the carrying out or performing by the Rights Agent of the
provisions of this Agreement.
(g) The Rights Agent is hereby authorized and
directed to accept instructions with respect to the performance of its duties
hereunder from the Chairman of the Board, the President, any Executive Vice
President, the Vice President-Finance, the Secretary or the Treasurer of the
Company, and to apply to such officers for advice or instructions in connection
with its duties, and it shall not be liable for any action taken or suffered to
be taken by it in good faith in accordance with instructions of any such
officer.
(h) The Rights Agent and any shareholder, director,
officer or employee of the Rights Agent may buy, sell or deal in any of the
Rights or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Rights Agent under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other legal
entity.
(i) The Rights Agent may execute and exercise any of
the rights or powers hereby vested in it or perform any duty hereunder either
itself or by or through its attorneys or agents, and the Rights Agent shall not
be answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct; PROVIDED, HOWEVER, reasonable care was
exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the
Rights Agent to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the exercise
of its rights if there shall be reasonable grounds for believing that repayment
of such funds or adequate identification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Rights Certificate
surrendered to the Rights Agent for exercise transfer, the certificate attached
to the form of assignment or form of election to purchase, as the case may be,
has either not been completed or indicates an affirmative response to clause 1
and/or 2 thereof, the Rights Agent shall not take any further action with
respect to such requested exercise of transfer without first consulting with the
Company.
Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon thirty (30) days' notice in writing mailed to the Company, and to
each transfer agent of the Common Stock, by registered or certified mail, and to
the holders of the Rights Certificates by first-class mail. The Company may
remove the Rights Agent or any successor Rights Agent upon thirty (30) days'
notice in writing, mailed to the Rights Agent or successor Rights Agent, as the
case may be, and to each transfer agent of the Common Stock, by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. If the Rights Agent shall resign or be removed or shall otherwise become
incapable or acting, the Company shall appoint a successor to the Rights Agent.
If the Company shall fail to make such appointment within a period of thirty
(30) days after giving notice of such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of a Rights Certificate (who shall, with such
notice, submit his Rights Certificate for inspection by the Company), then any
registered holder of any Rights Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the
24
<PAGE> 28
laws of the United States or of the State of Ohio (or of any other state of the
United States so long as such corporation is authorized in the State of Ohio to
perform all of the duties of the Rights Agent hereunder), in good standing,
having a principal office in the State of Ohio, which is authorized under such
laws to exercise corporate trust powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$100,000,000. After appointment, the successor Rights Agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock, and mail a notice thereof in writing to the registered holders
of the Rights Certificates. Failure to give any notice provided for in this
Section 21, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Rights Agent or the appointment of
the successor Rights Agent, as the case may be.
Section 22. ISSUANCE OF NEW RIGHTS CERTIFICATES. Notwithstanding
any of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Rights Certificate. evidencing Rights in
such form as may be approved by its Board of Directors to reflect any adjustment
or change in the Purchase Price and the number or kind or class of shares or
other securities or property purchasable under the Rights Certificates made in
accordance with the provision of this Agreement. In addition, in connection with
the issuance or sale of shares of Common Stock following the Distribution Date
and prier to the redemption or expiration of the Rights, the Company (a) shall,
with respect to shares of Common Stock so issued or sold pursuant to the
exercise of stock options or under any employee plan or arrangement, or upon the
exercise, conversion or exchange of securities hereinafter issued by the
Company, and (b) may, in any other case, if deemed necessary or appropriate by
the Board of Directors of the Company, issue Rights Certificates representing
the appropriate number of Rights in connection with such issuance or sale;
provided, however, that (i) no such Rights Certificate shall be issued if, and
to the extent that, the Company shall be advised by counsel that such issuance
would create a significant risk of material adverse tax consequences to the
Company or the Person to whom such Rights Certificate would be issued, and (ii)
no such Rights Certificate shall be issued if, and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.
Section 23. REDEMPTION AND TERMINATION.
(a) The Board of Directors of the Company may, at its
option, at any time prior to the earlier of (i) the close of business on the
fifteenth day following the Stock Acquisition Date (or if the Stock Acquisition
Date shall have occurred prior to the Record Date, the close of business on the
fifteenth day following the Record Date), or (ii) the Final Expiration Date,
redeem all but not less than all the then outstanding Rights at a redemption
price of $.05 per Right, as such amount may be appropriately adjusted to reflect
any stock split, stock dividend or similar transaction occurring after the date
hereof (such redemption price being hereinafter referred to as the "Redemption
Price"). Notwithstanding the foregoing, the Board of Directors may not redeem
any Rights following a determination pursuant to Section 11(a)(ii)(B) hereof
that any Person is an Adverse Person. Notwithstanding anything contained in this
Agreement to the contrary, the Rights shall not be exercisable after the first
occurrence of a Section 11(a)(ii) Event until such time as the Company's right
of redemption hereunder has expired. The Company may, at its option, pay the
Redemption Price in cash, shares of Common Stock (based on the "current market
price," as defined in Section 11(d) hereof, of the Common Stock at the
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<PAGE> 29
time of redemption) or any other form of consideration deemed appropriate by the
Board of Directors.
(b) Immediately upon the action of the Board of
Directors of the Company ordering the redemption of the Rights, evidence of
which shall have been filed with the Rights Agent and without any further action
and without any notice, the right to exercise the Rights will terminate and the
only right thereafter of the holders of Rights shall be to receive the
Redemption Price for each Right so held. Promptly after the action of the Board
of Directors ordering the redemption of the Rights, the Company shall give
notice of such redemption to the Rights Agent and the holders of the then
outstanding Rights by mailing such notice to all such holders at each holder's
last address as it appears upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the Transfer Agent for the
Common Stock. Any notice that is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption Price
will be made.
Section 24. NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall propose, at any time
after the Distribution Date, (i) to pay any dividend payable in stock of any
class to the holders of Common Stock or to make any other distribution to the
holders of Common Stock (other than a regular quarterly cash dividend out of
earnings or retained earnings of the Company), or (ii) to offer to the holders
of Common Stock rights or warrants to subscribe for or to purchase any
additional shares of Common Stock or shares of stock of any class or any other
securities, rights or options, or (iii) to effect any reclassification of its
Common Stock (other than a reclassification involving only the subdivision of
outstanding shares of Common Stock), or (iv) to effect any consolidation or
merger into or with any other Person (other than a Subsidiary of the Company in
a transaction which complies with Section 11(o) hereof), or to effect any sale
or other transfer (or to permit one or more of its Subsidiaries to effect any
sale or other transfer), in one transaction or a series of related transactions,
of assets or earning power aggregating more than 50% of the assets or earning
power of the Company and its Subsidiaries (taken as a whole) to any other Person
or Persons (other than the Company and/or any of its Subsidiaries in one or more
transactions each of which complies with Section 11(o) hereof), or (v) to effect
the liquidation. dissolution or winding up of the Company, then, in each such
case, the Company shall give to each holder of a Rights Certificate, to the
extent feasible and in accordance with Section 25 hereof, a notice of such
proposed action, which shall specify the record date for the purposes of such
stock dividend, distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the shares of Common Stock, if any such date is to be
fixed, and such notice shall be so given in the case of any action covered by
clause (i) or (ii) above at least twenty (20) days prior to the record date for
determining holders of the shares of Common Stock for purposes of such action,
and in the case of any such other action, at least twenty (20) days prior to the
date of the taking of such proposed action or the date of participation therein
by the holders of the shares of Common Stock whichever shall be the earlier.
(b) In case any of the events set forth in Section
11(a)(ii) hereof shall occur, then, in any such case, (i) the Company shall as
soon as practicable thereafter give to each holder of a Rights Certificate, to
the extent feasible and in accordance with Section 25 hereof, a notice of the
occurrence of such event, which shall specify the event and the consequences of
the event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all
references in the preceding
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<PAGE> 30
paragraph to Common Stock shall be deemed thereafter to refer to Common Stock
and/or other securities, if appropriate.
Section 25. NOTICES. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Ferro Corporation
1000 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
National City Bank
1900 East Ninth Street
Cleveland, Ohio 44114-3484
Attention: Corporate Trust Department
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
Section 26. SUPPLEMENTS AND AMENDMENTS. Prior to the Distribution
Date and subject to the penultimate sentence of this Section 26, the Company and
the Rights Agent shall, if the Company so directs, supplement or amend any
provision of this Agreement without the approval of any holders of certificates
representing shares of Common Stock. From and after the Distribution Date and
subject to the penultimate sentence of this Section 26, the Company and the
Rights Agent shall, if the Company shall so direct, supplement or amend this
Agreement without the approval of any holders of Rights Certificates in order
(i) to cure any ambiguity, (ii) to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provisions herein,
(iii) to shorten or lengthen any time period hereunder, or (iv) to change or
supplement the provisions hereunder in any manner which the Company may deem
necessary or desirable and which shall not adversely affect the interests of the
holders of Rights Certificates (other than an Acquiring Person, an Adverse
Person or an Affiliate or Associate of an Acquiring Person or Adverse Person);
PROVIDED, HOWEVER, that this Agreement may not be supplemented or amended to
lengthen, pursuant to clause (iii) of this sentence, (A) a time period relating
to when the Rights may be redeemed at such time as the Rights are not then
redeemable, or (B) any other time period unless such lengthening is for the
purpose of protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights. Upon the delivery of a certificate from an
appropriate officer of the Company which states that the proposed supplement or
amendment is in compliance with the terms of this Section 26, the Rights Agent
shall execute such supplement or amendment. Notwithstanding anything contained
in this Agreement to the contrary, no supplement or amendment shall be made
which changes the Redemption Price, the Final Expiration Date, the Purchase
Price or the number of shares of Common Stock for which a Right is exercisable.
Prior to the Distribution Date, the interests of the holders of Rights shall be
27
<PAGE> 31
deemed coincident with the interests of the holders of Common Stock. Without
limiting the foregoing, the Board of Directors of the Company may at any time
prior to such time as any Person becomes an Acquiring Person amend this
Agreement to lower the thresholds set forth in Section 1(a) and 3(a) to not less
than the greater of (i) the sum of .001% plus the largest percentage of the
outstanding shares of Common Stock then known by the Company to be beneficially
owned by any Person (other than the Company, any Subsidiary of the Company, any
employee benefit plan of the Company or any Subsidiary of the Company, or any
entity holding shares of Common Stock for or pursuant to the terms of any such
plan) and (ii) 10%. Notwithstanding anything contained in this Agreement to the
contrary, this Agreement may be amended or supplemented as the Board of
Directors shall deem necessary or advisable, without the approval of any holders
of Right Certificates, to provide for the issuance of shares (or fractional
shares) of preferred stock of the Company in place of Common Stock which may be
received upon exercise of Rights hereunder prior to the occurrence of any
Triggering Event, and to modify or amend this Agreement in any respect to take
into account the use of such preferred stock (or fractional shares of preferred
stock) in place of such Common Stock.
Section 27. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 28. DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS,
ETC. For all purposes of this Agreement, any calculation of the number of shares
of Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common Stock
of which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations
under the Exchange Act. The Board of Directors of the Company shall have the
exclusive power and authority to administer this Agreement and to exercise all
rights and powers specifically granted to the Board, or to the Company, or as
may be necessary or advisable in the administration of this Agreement,
including, without limitation, the right and power to (i) interpret the
provisions of this Agreement, and (ii) make all determinations deemed necessary
or advisable for the administration of this Agreement (including a determination
to redeem or not redeem the Rights or to attend the Agreement). All such
actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) which
are done or made by the Board of Directors of the Company, in good faith, shall
(x) be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Rights Certificates and all other parties, and (y) not subject
the Board to any liability to the holders of the Rights.
Section 29. EXCHANGE.
(a) The Board of Directors of the Company may, at its
option, at any time and from time to time after the first occurrence of a
Section 11(a)(ii) Event, exchange all or part of the then outstanding and
exercisable Rights (which shall not include rights that become void pursuant to
the provisions of the Section 7(e) hereof) for shares of Common Stock or common
stock equivalents, or any combination thereof, at an exchange ratio of one share
of Common Stock per Right, appropriately adjusted as determined by the Board to
reflect any stock split, stock combination, stock dividend, or other similar
event after the date hereof (such exchange ratio being hereinafter referred to
as the "Exchange Ratio").
(b) Immediately upon the action of the Board of
Directors of the Company ordering the exchange of any Rights pursuant to
subsection (a) of this Section 29 and without any further action and without any
notice, the right to exercise such Rights shall terminate and
28
<PAGE> 32
the only right thereafter of a holder of such Rights shall be to receive that
number of shares of Common Stock and/or common stock equivalents equal to the
number of such rights held by such holder multiplied by the Exchange Ratio. The
Company shall promptly give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company shall promptly mail a notice
of any such exchange to all of the holders of such Rights at their latest
addresses as they appear upon the registry books of the Rights Agent. Any notice
that is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of exchange will state the
method by which the exchange of the shares of Common Stock for Rights will be
effected and, in the event of any partial exchange. Any partial exchange shall
be effected pro rata based on the number of Rights (other than Rights which have
become void pursuant to the provisions of Section 7(e) hereof) held by each
holder of Rights.
(c) In the event that the number of shares of Common
Stock which are authorized by the Company's Articles of Incorporation but not
outstanding or reserved for issuance for purposes other than upon exercise of
the Rights are not sufficient to permit any exchange of Rights as contemplated
in accordance with this Section 29, the Company may, at its option, take all
such action as may be necessary to authorize additional shares of Common Stock
for issuance upon exchange of the Rights.
(d) The Company shall not be required to issue
fractions of shares of Common Stock or to distribute certificates which evidence
fractional shares of Common Stock. In lieu of such fractional shares of Common
Stock, the Company shall pay to the registered holders of Rights with regard to
which such fractional shares of Common Stock would otherwise be issuable an
amount in cash equal to the same fraction of the value of a whole share of
Common Stock. For purposes of this Section 29, the value of a whole share of
Common Stock shall be the "current market price" (as determined pursuant to
Section 11(d) hereof) for the Trading Day immediately prior to the date of
exchange pursuant to this Section 29, and the value of any common stock
equivalent shall be deemed to have the same value as the Common Stock on such
date.
Section 30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 31. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
PROVIDED, HOWEVER, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the close of business on the
tenth day following the date of such determination by the Board of Directors.
29
<PAGE> 33
Section 32. GOVERNING LAW. This Agreement, each Right and each
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the state of Ohio and for all purposes shall be governed by and
construed in accordance with the laws of such state applicable to contract made
and to be performed entirely within such state.
Section 33. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 34. DESCRIPTIVE HEADINGS. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
Attest: FERRO CORPORATION
By /s/ D. Thomas George By /s/ Hector R. Ortino
-------------------------------- --------------------------------
Name: D. Thomas George Name: Hector R. Ortino
Title: Treasurer Title: Chief Executive Officer
Attest: NATIONAL CITY BANK
By /s/ J. Dean Presson By /s/ Marlayna J. Jeanclerc
-------------------------------- --------------------------------
Name: J. Dean Presson Name: Marlayna J. Jeanclerc
Title: Vice President Title: Vice President
30
<PAGE> 34
Exhibit A
---------
[Form of Rights Certificate]
Certificate No. R- _________________ Rights
NOT EXERCISABLE AFTER APRIL 8, 2006 OR EARLIER IF REDEEMED BY THE COMPANY. THE
RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.05 PER
RIGHTS ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN ADVERSE
PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT
HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS
RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME
AN [ACQUIRING] [ADVERSE] PERSON OR AN AFFILIATE OR ASSOCIATE OF AN [ACQUIRING]
[ADVERSE] PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY
BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH
AGREEMENT.]*
Rights Certificate
FERRO CORPORATION
This certifies that ____________________________, or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Amended and Restated Shareholder Rights Agreement, dated as of
______, 2000 (the "Rights Agreement"), between Ferro Corporation, an Ohio
corporation (the "Company"), and National City Bank, a national banking
corporation (the "Rights Agent"), to purchase from the Company at any time prior
to 5:00 P.M. (Cleveland time) on April 8, 2006 at the office or offices of the
Rights Agent designated for such purpose, or its successors as Rights Agent, one
fully paid, nonassessable share of the Common Stock (the "Common Stock") of the
Company, at a purchase price of $110 per share (the "Purchase Price"), upon
presentation and surrender of this Rights Certificate with the Form of Election
to Purchase and related Certificate duly executed. The Purchase Price shall be
paid in cash. The number of Rights evidenced by this Rights Certificate (and the
number of shares which may be purchased upon exercise thereof) set forth above,
and the Purchase Price per share set forth above, are the number and Purchase
Price as of April 9, 1996, based on the Common Stock as constituted at such
date.
Upon the occurrence of a Section 11 (a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by
- -------------
*The portion of the legend in brackets shall be inserted only, if applicable and
shall replace the preceding sentence.
A-1
<PAGE> 35
(i) an Acquiring Person, an Adverse Person or an Affiliate or Associate of any
such Acquiring Person or Adverse Person (as such terms are defined in the Rights
Agreement), (ii) a transferee of any such Acquiring Person, Adverse Person,
Associate or Affiliate, or (iii) under certain circumstances specified in the
Rights Agreement, a transferee of a person who, after such transfer, became an
Acquiring Person, an Adverse Person or an Affiliate or Associate of any such
Person, such Rights shall become null and void and no holder hereof shall have
any Rights with respect to such Rights from and after the occurrence of such
Section 11 (a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the
number and kind of shares of Common Stock or other securities which may be
purchased upon the exercise of the Rights evidenced by this Rights Certificate
are subject to notification and adjustment upon the happening of certain events,
including Triggering Events (as such term is defined in the Rights Agreement).
This Rights Certificate is subject to all of the terms, provisions
and conditions of the Rights Agreement, which terms, provisions and conditions
are hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the Company.
This Rights Certificate, with or without other Rights
Certificates, upon surrender at the principal office or offices of the Rights
Agent designated for such purpose, may be exchanged for another Rights
Certificate or Rights Certificates of like tenor and date evidencing Rights
entitling the holder to purchase a like aggregate number of shares of Common
Stock as the Rights evidenced by the Rights Certificate or Rights Certificates
surrendered shall have entitled such holder to purchase. If this Rights
Certificate shall be exercised in part, the holder shall be entitled to receive
upon surrender hereof another Rights Certificate or Rights Certificates for the
number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company, at its option, at
a redemption price of $.05 per Right at any time prior to the earlier of the
close of business on (i) the fifteenth day following the Stock Acquisition Date
(as such time period may be extended pursuant to the Rights Agreement), and (ii)
the Final Expiration Date. Notwithstanding the foregoing, the Rights evidenced
by this Rights Certificate may not be redeemed following a determination
pursuant to Section 11(a)(ii)(B) of the Rights Agreement that any Person is an
Adverse Person.
No fractional shares of Common Stock will be issued upon the
exercise of any Right or Rights evidenced hereby, but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Rights Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of Common
Stock or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a shareholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders
A-2
<PAGE> 36
(except as provided in the Rights Agreement), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights evidenced by this
Rights Certificate shall have been exercised as provided in the Rights
Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until the Rights Agent shall have countersigned it.
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal.
Dated as of ________________ __, ____
ATTEST:
-------------------------------------
By
- ----------------------------------- -----------------------------------
Secretary Title:
Countersigned:
- -----------------------------------
By
--------------------------------
Authorized Signature
A-3
<PAGE> 37
[Form of Reverse Side of Rights Certificate)
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED ____________________________________________________________
hereby sells, assigns and transfers unto_______________________________________
_______________________________________________________________________________
(Please print name and address of transferee)
_______________________________________________________________________________
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ________________ Attorney, to
transfer the within Rights Certificate on the books of the within-named Company,
with full power of substitution.
Dated: _______________, ____
__________________________________
Signature
Signature Guaranteed:
Certificate
-----------
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned
and transferred by or on behalf of a Person who is or was an Acquiring Person,
an Adverse Person or an Affiliate or Associate of any such Person (as such terms
are defined pursuant to the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or subsequently became an Acquiring
Person, an Adverse Person or an Affiliate or Associate of any such Person.
Dated: _____________________ __, ____
__________________________________
Signature
Signature Guaranteed:
A-4
<PAGE> 38
NOTICE
------
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
A-5
<PAGE> 39
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to
exercise Rights represented by the
Rights Certificate.)
To: FERRO CORPORATION:
The undersigned hereby irrevocably elects to exercise ________________
Rights represented by this Rights Certificate to purchase the shares of Common
Stock issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of the
Rights) and requests that certificates for such shares be issued in the name of
and delivered to:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
Dated: ,
---------------- -------
--------------------------------------
Signature
Signature Guaranteed:
A-6
<PAGE> 40
Certificate
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ]
are not being exercised by or on behalf of a Person who is or was an Acquiring
Person, an Adverse Person or an Affiliate or Associate of any such Person (as
such terms are defined pursuant to the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or became an Acquiring Person, an
Adverse Person or an Affiliate or Associate of an Acquiring Person.
Dated: ,
---------------- ------- --------------------------------------
Signature
Signature Guaranteed
A-7
<PAGE> 41
NOTICE
------
The signature to the foregoing Election to Purchase and
Certificate must correspond to the name as written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
A-8
<PAGE> 42
EXHIBIT B
SUMMARY OF RIGHTS TO PURCHASE
COMMON STOCK
On March 22, 1996, pursuant to a rights agreement of even date
(the "1996 Agreement"), the Board of Directors of Ferro Corporation (the
"Company") declared a dividend distribution of one Right for each outstanding
share of common stock, par value $1 per share (the "Common Stock"), of the
Company to stockholders of record at the close of business on April 9, 1996 (the
"Record Date"). Each Right entitles the registered holder to purchase from the
Company one share of Common Stock at a price of $110 per share (the "Purchase
Price"), subject to adjustment. The Purchase Price shall be paid in cash. On
_____, 2000, the Company amended and restated the 1996 Agreement. The
description and terms of the Rights are set forth in the Amended and Restated
Rights Agreement dated ________, 2000 (the "Rights Agreement") between the
Company and National City Bank, as Rights Agent.
Initially, the Rights will be attached to all Common Stock
certificates representing shares then outstanding, and no separate certificates
evidencing the Rights (the "Rights Certificates") will be distributed. Until the
earliest to occur of (i) 10 days following a public announcement that a person
or group of affiliated or associated persons (an "Acquiring Person") has
acquired, or obtained the right to acquire, beneficial ownership of 20% or more
of the outstanding shares of Common Stock (the "Stock Acquisition Date"), (ii)
10 business days following the commencement of a tender offer or exchange offer
if, upon consummation thereof, such person or group would be the beneficial
owner of 20% or more of such outstanding shares of Common Stock, or (iii) the
close of business on the tenth day after the Board of Directors of the Company
determines that a person, who alone or together with affiliates or associates
has beneficial ownership of at least 10% of the Common Stock then outstanding,
is an Adverse Person (the earliest of such dates being called the "Distribution
Date"), the Rights will be evidenced only by Common Stock certificates and will
be transferred with and only with Common Stock certificates. The Board of
Directors, after reasonable inquiry and investigation, may determine that a
person is an Adverse Person if the Board finds that (i) such person intends to
cause the Company to repurchase such person's shares or intends to attempt to
pressure the Company to take actions which will result in that person's
short-term financial gain under circumstances which would not be in the best
interest of the Company and the shareholders or (ii) ownership of the Common
Stock by such person is causing or is reasonably likely to cause a material
adverse impact on the business or prospects of the Company.
Until the Distribution Date (or earlier redemption or expiration
of the Rights), new Common Stock certificates issued after the Record Date upon
transfer or new issuance of the Common Stock will contain a notation
incorporating the Rights Agreement by reference. Until the Distribution Date (or
earlier redemption or expiration of the Rights), the surrender for transfer of
any certificates for Common Stock outstanding as of the Record Date will also
constitute the transfer of the Rights associated with the Common Stock
represented by such certificate. As soon as practicable following the
Distribution Date, Rights Certificates will be mailed to holders of record of
the Common Stock as of the close of business on the Distribution Date and,
thereafter, such separate Rights Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date and
will expire at the close of business on April 8, 2006, unless earlier redeemed
by the Company as described below.
B-1
<PAGE> 43
In the event that (i) a Person (other than the Company and its
affiliates) becomes the beneficial owner of 20% or more of the then outstanding
shares of Common Stock or (ii) the Board determines that a person is an Adverse
Person, the Rights Agreement provides that proper provision shall be made so
that each holder of a Right (except for any Acquiring Person or Adverse Person
and certain Affiliates, Associates and transferees of such person) will
thereafter have the right to receive, upon exercise, Common Stock (or in certain
circumstances, cash, other securities or property) having a value equal to two
(2) times the Purchase Price of the Right. Notwithstanding the above, the
acquisition of beneficial ownership of 20% or more of the Common Stock under
(ii) above shall not permit the holder of a Right to purchase Common Stock at
such discounted purchase price if such acquisition of beneficial ownership is
approved in advance by the Board of Directors of the Company.
In the event that, at any time following the Stock Acquisition
Date, (i) the Company engages in a merger or other business combination
transaction in which the Company is not the surviving corporation, (ii) the
Company engages in a merger or other business combination transaction with
another person in which the Company is the surviving corporation, but in which
its Common Stock is changed or exchanged, or (iii) 50% or more of the Company's
assets or earning power is sold or transferred, the Rights Agreement provides
that proper provision shall be made so that each holder of a Right shall
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Right, common stock of the acquiring company
having a value equal to two (2) times the exercise price of the Right.
The Purchase Price payable, and the number of shares of Common
Stock issuable, upon exercise of the Rights are subject to adjustment from time
to time to prevent dilution (i) in the event of a stock dividend on, or a
subdivision, combination or reclassification of, the Common Stock, (ii) upon the
grant to holders of the Common Stock of certain rights or warrants to subscribe
for Common Stock or convertible securities at less than the current market price
of the Common Stock, or (iii) upon the distribution to holders of the Common
Stock of evidences of indebtedness or assets (excluding regular quarterly cash
dividends) or of subscription rights or warrants (other than those referred to
above).
With certain exceptions, no adjustment in the Purchase Price will
be required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares will be issued and, in lieu thereof,
an adjustment in cash will be made based on the market price of the Common Stock
on the last trading date prior to the date of exercise.
The Rights may be redeemed by the Board in whole, but not in part,
at a price of $.05 per Right (the "Redemption Price") at any time prior to
fifteen (15) days (plus such extensions as the Board, in its discretion,
specifies) after the Stock Acquisition Date. However, the Board of Directors may
not redeem any Rights following a determination that a person is an Adverse
Person. Immediately upon the action of the Board of Directors of the Company,
ordering redemption of the Rights, the Rights will terminate and the only right
of the holders of Rights will be to receive the Redemption Price. The Company
may, at its option, pay the Redemption Price in cash, shares of Common Stock, or
any other form of considerations deemed appropriate by the Board of Directors.
Until a Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends.
Other than those provisions relating to the Redemption Price,
final expiration date and number of shares of Common Stock (and/or other
securities or property, if applicable)
B-2
<PAGE> 44
issuable upon exercise of the Rights, any of the provisions of the Rights
Agreement may be amended by the Board of Directors of the Company prior to the
Distribution Date; and, thereafter, the provisions of the Rights Agreement may
be amended by the Board only in order to cure any ambiguity, to correct or
supplement any provision contained in the Rights Agreement which may be
defective or inconsistent with any other provision, to shorten or lengthen any
time period or to make such other changes as do not adversely affect the
interests of holders of Rights (excluding the interests of any Acquiring
Person); PROVIDED, however, that no amendment shall be made after the
Distribution Date (a) to lengthen any time period unless such lengthening is for
the purpose of protecting, enhancing or clarifying the rights of, or benefits
to, holders of Rights or (b) to lengthen the redemption period at a time when
the Rights are not then redeemable.
A copy of the Rights Agreement has been filed with the Securities
and Exchange Commission as an Exhibit to the Company's Annual Report on Form
10-K dated ________, 2000. A copy of the Rights Agreement is available free of
charge from the Rights Agent. This summary description of the Rights does not
purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, which is incorporated herein by reference.
B-3
<PAGE> 1
EXHIBIT 10(g)
SCHEDULE I
Ferro Corporation has entered into executive employment agreements with
its officers listed below substantially identical in all material respects to
the Form of Amended and Restated Executive Employment Agreement (Exhibit 10(a)
to Ferro Corporation's Form 10-Q for the three months ended March 31, 1998,
which Exhibit is incorporated here by reference), except the lump sum severance
payment is equal to a full year's compensation (base salary and incentive
compensation) multiplied by three in the case of Hector R. Ortino and multiplied
by two in the case of all other officers.
In the case of Robert A. Rieger and Bret W. Wise, the Company has entered
into change in control agreements, the form of which is attached hereto as
Exhibit 10 (j). The change in control agreements with Mr. Rieger and Mr. Wise
are substantially indentical in all material respects to the form of change in
control agreement filed with this Form 10-K.
Executive Employment Agreement
------------------------------
David G. Campopiano
R. Jay Finch
J. Larry Jameson
Kent H. Lee
Hector R. Ortino
Millicent W. Pitts
Paul V. Richard
Change in Control Agreement
---------------------------
Robert A. Rieger
Bret W. Wise
<PAGE> 1
Exhibit 10(j)
CHANGE IN CONTROL AGREEMENT
---------------------------
THIS AGREEMENT, dated as of _________, 1999 (the "Effective Date"), is
made by and between Ferro Corporation, an Ohio corporation (the "Company"), and
____________ (the "Executive").
WHEREAS, the Company considers it essential to the best interests of
its shareholders to foster the continued employment of key management personnel;
and
WHEREAS, the Board recognizes that, as is the case with many publicly
held corporations, the possibility of a Change in Control exists and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its shareholders; and
WHEREAS, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows.
1. DEFINED TERMS. The definitions of certain capitalized terms used in
this Agreement are provided in the last Section hereof.
2. TERM OF AGREEMENT. The Term of this Agreement shall commence on the
Effective Date and shall continue in effect through December 31, 2000; PROVIDED,
HOWEVER, that commencing on January 1, 2000 and each January 1 thereafter, the
Term shall automatically be extended for one additional year unless, not later
than September 30 of the preceding year, the Company or the Executive shall have
given notice not to extend the Term; and FURTHER PROVIDED, HOWEVER, that if a
Change in Control shall have occurred during the Term, the Term shall expire no
earlier than the last day of the [twelfth (12th)][twenty-fourth (24th)]
[thirty-sixth (36th)] month following the month in which such Change in
Control occurred. Notwithstanding any other provision hereof, (a) except as
provided in Section 6.1 hereof, the Term shall expire upon any termination of
the Executive's employment prior to a Change in Control and (b) the Term shall
expire (and for purposes of the application of the provisions of the Agreement,
shall be deemed to have expired) on the date of the Executive's Retirement.
Except as provided in Section 7A.1, the expiration of the Term shall have no
effect on the terms of the restrictive covenants set forth in Section 7A.
3. COMPANY'S COVENANTS SUMMARIZED. In order to induce the Executive to
remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Payments and the
other payments and benefits described herein. No Severance Payments shall be
payable under this Agreement unless there shall have been (or,
<PAGE> 2
under the terms of the second sentence of Section 6.1 hereof, there shall be
deemed to have been) a termination of the Executive's employment with the
Company following a Change in Control and during the Term. This Agreement shall
not be construed as creating an express or implied contract of employment and
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 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. CERTAIN EXECUTIVE COVENANTS. The Executive agrees that, subject to
the terms and conditions of this Agreement, in the event of a Potential Change
in Control during the Term, the Executive intends to remain in the employ of the
Company until there occurs a Change in Control.
5. COMPENSATION OTHER THAN SEVERANCE PAYMENTS.
5.1 Following a Change in Control and during the Term, during any
period that the Executive fails to perform the Executive's full-time duties with
the Company as a result of incapacity due to physical or mental illness, the
Company shall pay the Executive's full salary to the Executive at the rate in
effect at the commencement of any such period, together with all compensation
and benefits payable to the Executive under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period, until the Executive's employment is terminated by the Company for
Disability.
5.2 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay the
Executive's full salary to the Executive through the Date of Termination at the
rate in effect immediately prior to the Date of Termination (without giving
effect to any reduction in base salary, which reduction constitutes an event of
Good Reason) or, if higher, the highest base salary rate in effect with respect
to the Executive at any time during the calendar year immediately preceding the
Change in Control, together with all compensation and benefits payable to the
Executive through the Date of Termination under the terms of the applicable
compensation and benefit plans, programs or arrangements of the Company or any
Affiliate thereof as in effect immediately prior to the Date of Termination
(without giving effect to any reduction in compensation or benefits, which
reduction constitutes an event of Good Reason) or, if more favorable to the
Executive, as in effect immediately prior to the Change in Control.
5.3 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay to the
Executive the Executive's normal post-termination compensation and benefits as
such payments become due. Such post-termination compensation and benefits shall
be determined under, and paid in accordance with,
-2-
<PAGE> 3
the applicable retirement, insurance and other compensation or benefit plans,
programs and arrangements of the Company or any Affiliate thereof as in effect
immediately prior to the Date of Termination (without giving effect to any
adverse change in such plans, programs and arrangements, which adverse change
constitutes an event of Good Reason) or, if more favorable to the Executive, as
in effect immediately prior to the Change in Control.
5.4 In the event a Change in Control of the Company occurs during the
Term, whether or not the Executive's employment thereafter terminates, 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 (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 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 plus (y) [365][730][1095], 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. Notwithstanding the preceding sentence, to the extent
that implementation of such sentence would preclude a Change in Control
transaction intended to qualify for "pooling of interests" accounting treatment
from so qualifying, the cash value otherwise payable to the Executive under this
Section 5.4 shall be payable in shares of stock of the Company or the
corporation resulting from such transaction so as not to preclude such
transaction from so qualifying. Such shares shall have an initial value equal to
the cash amount otherwise payable to the Executive hereunder. For purposes of
this Section 5.4, in the event Executive's employment terminate under
circumstances described in the second sentence of Section 6.1, the determination
of the number of Outstanding Performance Shares which had not expired
immediately prior to the Change in Control shall, instead, be determined as of
the date which is immediately prior to the date of occurrence of the Potential
Change in Control. The provisions of this Section 5.4 shall not affect in any
manner the determination of amounts payable to the Executive under the
Performance Share Plan (or any predecessor thereto).
6. SEVERANCE PAYMENTS
6.1 If (i) the Executive's employment is terminated following a Change
in Control and during the Term, other than (A) by the Company for Cause, (B) by
reason of death, Disability or Retirement, or (C) by the Executive without Good
Reason, then the Company shall pay the Executive the amounts, and provide the
Executive the benefits, described in this Section 6.1 ("Severance Payments") and
Section 6.4, in addition to any payments and benefits to which the Executive is
entitled under Section 5 hereof. For purposes of this Agreement, the
-3-
<PAGE> 4
Executive's employment shall be deemed to have been terminated following a
Change in Control by the Company without Cause or by the Executive with Good
Reason, if, during the Term, (i) the Executive's employment is terminated by the
Company without Cause after the occurrence of a Potential Change in Control and
prior to a Change in Control (whether or not a Change in Control ever occurs)
and such termination was at the request or direction of a Person who has entered
into an agreement with the Company the consummation of which would constitute a
Change in Control or (ii) the Executive terminates his employment for Good
Reason after the occurrence of a Potential Change in Control and prior to a
Change in Control (whether or not a Change in Control ever occurs) and the
circumstance or event which constitutes Good Reason occurs at the request or
direction of such Person.
(1) In lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination and in lieu of any severance
benefit otherwise payable to the Executive, the Company shall pay to the
Executive a lump sum severance payment, in cash, equal to [1][2][3] (or, if
less, the number of full and partial years between the Date of Termination and
the Executive's scheduled date of Retirement) times the sum of (i) the
Executive's base salary as in effect immediately prior to the Date of
Termination (without giving effect to any reduction in base salary, which
reduction constitutes an event of Good Reason) or, if higher, the highest base
salary rate in effect with respect to the Executive at any time during the
calendar year immediately preceding the Change in Control (the applicable amount
being referred to herein as the "Base Salary"), and (ii) the Executive's target
annual incentive compensation amount under the Company's Annual Incentive
Compensation Plan or any successor thereto (the "Incentive Compensation Plan")
for the fiscal year in which occurs the Date of Termination (without giving
effect to any reduction in targeted annual incentive compensation caused by an
adverse change in the Executive's Incentive Compensation Plan participation,
which adverse change constitutes an event of Good Reason) or, if higher, for the
fiscal year in which occurs the Change in Control. For this purpose, the
targeted annual incentive compensation amount shall be deemed to be [ ] percent
[( )] of Base Salary, or such greater percentage thereof as may be applicable to
the Executive at targeted levels, under the Incentive Compensation Plan.
(2) For the [ ] month period immediately following the Date of
Termination (or, if less, the number of months between the Date of Termination
and the Executive's scheduled date of Retirement) (the "Continuation Period"),
the Company shall arrange to provide the Executive (and, if applicable, his
dependents) with benefits substantially similar to those provided to the
Executive (and, if applicable, his dependents) under the Benefit Plans
immediately prior to the Date of Termination (without giving effect to any
reduction in benefits, which reduction constitutes an event of Good Reason) or,
if more favorable to the Executive, those provided to the Executive (and, if
applicable, his dependents) under the Benefit Plans immediately prior to the
Change in Control, at no greater cost to the Executive than the cost to the
Executive immediately prior to such date. For purposes of determining
Executive's rights under any such Benefit Plans applicable to retired employees,
the Executive shall be treated as having remained in employment through the
Continuation Period.
(3) The Company shall pay to the Executive a lump sum amount,
in cash, equal to the pro rata portion of the Executive's annual incentive
compensation for the calendar
-4-
<PAGE> 5
year in which the Date of Termination occurs, such amount to be determined by
multiplying the Executive's annual incentive compensation amount (determined
pursuant to Section 6.1(1)(ii) above) 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 6.1(3) 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.
(4) In addition to the retirement benefits to which the
Executive is entitled under the Pension Plans or any successor plans thereto,
the Company shall pay the Executive a lump sum amount, in cash, 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 (or, if more favorable to
the Executive, immediately prior to the Change in Control) for computing the
present value of commuted payments under the Qualified Plan) of (a) the lump sum
value (determined as of the Executive's Normal Retirement Age, using the same
methods and assumptions used at the Date of Termination (or, if more favorable
to the Executive, immediately prior to the Change in Control) for purposes of
the Qualified Plan) of the retirement pension to which the Executive would have
been entitled under the terms of the Pension Plans (as in effect on the Date of
Termination) as if the Executive's employment had continued through the
Continuation Period at Base Salary and incentive compensation levels equal to
those set forth in Section 6.1(1) 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 Plans (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
Executive's 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 each Pension Plan and (z) without regard to any termination of or
amendments to any of such plans, which termination or amendments are adopted on
or after the date of a Change in Control, to the extent any such termination or
amendments adversely affect in any manner the computation of benefits thereunder
or are otherwise adverse to the Executive.
(5) The Company shall provide the Executive, at the Company's
sole cost and expense, with the services of an outplacement firm mutually agreed
upon between the Company and the Executive and suitable to the Executive's
position until the first acceptance by the Executive of an offer of employment.
(6) The Company shall continue to maintain officers'
indemnification insurance for the Executive for a period of not less than four
(4) years following the Date of Termination, the terms and conditions of which
shall be no less favorable than the terms and conditions of the officers'
indemnification insurance maintained by the Company for the Executive
immediately prior to the date on which the Change in Control occurs.
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<PAGE> 6
6.2 If the Executive's employment is terminated following a Change in
Control and during the Term by reason of Disability, the Company shall pay to
the Executive, in addition to any payments and benefits to which the Executive
is entitled under Section 5 hereof, (A) a cash lump sum, the amount of which
shall be determined under Section 6.1(3) hereof, (B) for the [12][24][36] month
period immediately following the Date of Termination, on a monthly basis, an
aggregate amount in cash equal to the excess (but not less than zero) of (i)
[one twelfth][one twenty-fourth][one thirty-sixth] ([ ]) of the aggregate amount
determined under Section 6.1(1) hereof over (ii) the aggregate amount received
by the Executive during such month under the Company's long-term disability
plans and (C) the continuation of benefits under the Benefit Plans for the
Executive (and, if applicable, his dependents), as determined under Section
6.1(2) hereof.
6.3 If the Executive's employment is terminated following a Change in
Control and during the Term by reason of his death, the Company shall pay to the
Executive's legal representatives or estate, or as may be directed by the legal
representatives of his estate, as the case may be, in addition to any payments
and benefits to which the Executive is entitled under Section 5 hereof, a cash
lump sum equal to the amounts determined under Sections 6.1(1) and (3) above.
6.4 Whether or not the Executive becomes entitled to the Severance
Payments, if any payment or benefit received or to be received by the Executive
in connection with a Change in Control or the termination of the Executive's
employment (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any Person whose actions result in a
Change in Control or any Person affiliated with the Company or such Person) (all
such payments and benefits, including the Severance Payments, being hereinafter
called "Total Payments") will be subject (in whole or part) to the Excise Tax,
then the Company shall pay to the Executive an additional amount (the "Gross-Up
Payment") such that the net amount retained by the Executive, after deduction of
any Excise Tax on the Total Payments and any federal, state and local income and
employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the
Total Payments. For purposes of determining the amount of the Gross-Up Payment,
the Executive shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of the Executive's residence
on the Date of Termination (or if there is no Date of Termination, then the date
on which the Gross-up Payment is calculated for purposes of this Section 6.4),
net of the maximum reduction in federal income tax which could be obtained from
deduction of such state and local taxes.
(1) For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such Excise Tax,
(i) all of the Total Payments shall be treated as "parachute payments" within
the meaning of section 280G(b)(2) of the Code, unless in the opinion of a
nationally recognized legal or accounting firm selected by the Executive ("Tax
Counsel"), such other payments or benefits (in whole or in part) do not
constitute parachute payments, including by reason of section 280G(b)(4)(A) of
the Code, (ii) all "excess parachute payments" within the meaning of section
280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in
the opinion of Tax Counsel, such excess parachute payments
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<PAGE> 7
(in whole or in part) represent reasonable compensation for services actually
rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of
the Base Amount allocable to such reasonable compensation, or are otherwise not
subject to the Excise Tax, and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the accounting firm which
was, immediately prior to the Change in Control, the Company's independent
auditor (the "Auditor") in accordance with the principles of sections 280G(d)(3)
and (4) of the Code. The Executive agrees to direct Tax Counsel to submit its
determination and detailed supporting calculations to both the Executive and the
Company as promptly as practicable. If Tax Counsel 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 five (5)
business days after receipt of such determination and calculations. If Tax
Counsel 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 Tax
Counsel as to the amount of the Gross-Up Payment shall be binding upon the
Executive and the Company.
(2) As a result of the uncertainty in the application of
Section 4999 of the Code (or any successor provision thereto) at the time of the
initial determination by Tax Counsel 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
paragraph (5) below and the Executive thereafter is required to make a payment
of any Excise Tax, the Executive may direct Tax Counsel 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 (plus any interest and penalties
attributable thereto) shall be paid by the Company to the Executive, or for the
Executive's benefit, within five (5) business days after receipt of such
determination and calculations. In the event that (i) amounts are paid to the
Executive pursuant to subsection (A) of this Section 6.4 and (ii) the Excise Tax
is finally determined to be less than the amount taken into account hereunder in
calculating the Gross-Up Payment, the Executive shall repay to the Company,
within five (5) business days following the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income and
employment taxes imposed on the Gross-Up Payment being repaid by the Executive),
to the extent that such repayment results in a dollar-for-dollar reduction in
the Executive's taxable income and wages for purposes of federal, state and
local income and employment taxes, plus interest on the amount of such repayment
at the rate provided in section 1274(b)(2)(B) of the Code.
(3) The Executive and the Company shall each provide Tax
Counsel 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 Tax Counsel, and otherwise cooperate with Tax Counsel in connection
with the preparation and issuance of the determination contemplated by
paragraphs (1) and (2) above.
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<PAGE> 8
(4) The fees and expense of Tax Counsel for its services in
connection with the determinations and calculations contemplated by this Section
6.4 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 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 expenses. Without limiting the foregoing provisions of this
paragraph (5), the Company shall control all proceedings taken in connection
with the contest of any claim contemplated by this paragraph (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
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<PAGE> 9
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 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 paragraph (5) above, the Executive receives
any refund with respect to such claim, the Executive agrees (subject to the
Company's complying with the requirements of paragraph (5) above) 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 paragraph (5) above, 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 6.4.
6.5 The payments provided in subsections (1), (3) and (4) of Section
6.1 hereof shall be made not later than the fifth day following the Date of
Termination.
6.6 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, in seeking
in good faith to obtain or enforce any benefit or right provided by this
Agreement or, except as otherwise provided in Section 6.4 hereof, in connection
with any tax audit or proceeding to the extent attributable to the application
of section 4999 of the Code to any payment or benefit provided hereunder. Such
payments shall be made within five (5) business days after delivery of the
Executive's written requests for payment accompanied with such evidence of fees
and expenses incurred as the Company reasonably may require.
7. 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 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) an amount
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<PAGE> 10
equal to [eighteen (18)][twelve (12)][six (6)] times the Executive's base salary
in effect from time to time (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 or (ii) a Change in Control, whichever occurs earlier.
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 shall occur prior to a Change in Control and if a
Change in Control does not occur within twelve months after the most recent
occurrence of a Potential Change in Control, 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 7, 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 in accordance with this Agreement.
Prior to the occurrence of a Change in Control, unless the Executive becomes
entitled to receive severance payments and benefits in accordance with the terms
of the second sentence of Section 6.1 hereof, the Executive shall have no right
to receive, and shall have no right to have any access to, any portion of the
assets held in the Escrow Account.
The Company shall have the right, at any time and from time to time, to
instruct the Escrow Agent to invest all 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 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 the 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.
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<PAGE> 11
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 7
(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 the Escrow Account by the Escrow Agent would not be less than the
required security provided for in this Section 7. The Escrow Agent and its
successors and assigns shall have the right to rely upon such consent of the
Executive.
7A. RESTRICTIVE COVENANTS OF EXECUTIVE.
7A.1 RESTRICTIONS ON COMPETITION. Whether or not a Change in Control
shall have occurred, the Executive shall be subject to the restrictive covenants
set forth in this Section 7A.1; PROVIDED, HOWEVER, that such restrictions shall
cease to apply and shall be of no further force and effect from and after any
termination of Executive's employment for which he is entitled to receive
Severance Payments under Section 6.1 hereof.
(a) The Executive shall not, at any time during the Restricted Period
(as defined 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.
(b) The "Restricted Period" means:
(i) Twenty-four (24) months after the Date of Termination; and
(ii) An additional twelve (12) months thereafter (the "Additional
Period") if:
(1) the Company has not terminated the Executive's
employment because of Disability;
(2) the Company elects to impose the Additional
Period by providing to the Executive written notice of such
election not later than two (2) months after the termination
of the Executive's employment; and
(3) the Company pays the Executive, in twelve (12)
monthly installments during the Additional Period, an
aggregate
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<PAGE> 12
amount equal to the Executive's Base Salary for the calendar
year in which the Executive's employment terminated; and
(4) in addition to the time period(s) set forth in
(i) and, if applicable, (ii) above, the remaining period of
time, if any, until the Executive is 60 years old if:
(A) this Agreement has terminated by reason
of the Executive's retirement before the Normal
Retirement Age;
(B) the Executive is an officer of the
Company; and
(C) 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.
(c) Section 7A.1(a) 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
twenty-four 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 7A.1.
7A.2 NON-DISPARAGEMENT. The Executive agrees that during his employment
and at all times thereafter, he will not, unless compelled by a court or
governmental agency, make, or cause to be made, any statement, observation or
opinion, or communicate any information (whether oral or written) regarding the
Company, or its Affiliates, together with their respective directors, partners,
officers or employees (such entities, collectively, the "Ferro Related
Persons"), which disparages the reputation or business of the Company or the
Ferro Related Persons; PROVIDED, HOWEVER, that such restriction shall not apply
to statements, observations, opinions or communications made in good faith in
the fulfillment of the Executive's duties with the Company and PROVIDED FURTHER
that such restriction shall cease to apply and shall be of no further force and
effect from and after the occurrence of a Change in Control.
7A.3 Nothing in this Section 7A eliminates or affects any right to
payments or benefits that the Executive otherwise has under other provisions of
this Agreement and nothing in this Section 7A gives the Executive the right to
any payment or benefit under other provisions of this Agreement that he does not
otherwise have.
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8. TERMINATION PROCEDURES AND COMPENSATION DURING DISPUTE.
8.1 NOTICE OF TERMINATION. After a Change in Control and during the
Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from one
party hereto to the other party hereto in accordance with Section 11 hereof. 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 of the Executive's employment under the
provision so indicated. Further, a Notice of Termination for Cause is required
to include a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board which was called and held for the purpose of considering
such termination (after reasonable notice to the Executive and an opportunity
for the Executive, together with the Executive's 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 in clause (i) or (ii) of the definition of Cause
herein, and specifying the particulars thereof in detail.
8.2 DATE OF TERMINATION. "Date of Termination," with respect to any
purported termination of the Executive's employment after a Change in Control
and during the Term, shall mean (i) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of Termination is given (provided
that the Executive shall not have returned to the full-time performance of the
Executive's duties during such thirty (30) day period), and (ii) if the
Executive's employment is terminated for any other reason, the date specified in
the Notice of Termination (which, in the case of a termination by the Company,
shall not be less than thirty (30) days (except in the case of a termination for
Cause) and, in the case of a termination by the Executive, shall not be less
than fifteen (15) days nor more than sixty (60) days, respectively, from the
date such Notice of Termination is given).
8.3 DISPUTE CONCERNING TERMINATION. If within fifteen (15) days after
any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 8.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of an arbitrator or a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
PROVIDED, HOWEVER, that the Date of Termination shall be extended by a notice of
dispute given by the Executive only if such notice is given in good faith and
the Executive pursues the resolution of such dispute with reasonable diligence.
8.4 COMPENSATION DURING DISPUTE. If a purported termination occurs
following a Change in Control and during the Term and the Date of Termination is
extended in accordance with Section 8.3 hereof, the Company shall continue to
pay the Executive the full compensation in effect when the notice giving rise to
the dispute was given (including, but not limited to, salary) and continue the
Executive as a participant in all compensation, benefit and insurance plans in
which the Executive was participating when the notice giving rise to the dispute
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<PAGE> 14
was given, until the Date of Termination, as determined in accordance with
Section 8.3 hereof. Amounts paid under this Section 8.4 are in addition to
all other amounts due under this Agreement (other than those due under
Section 5.2 hereof) and shall not be offset against or reduce any other amounts
due under this Agreement.
9. NO MITIGATION. The Company agrees that, if the Executive's
employment with the Company terminates during the Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to Section 6 hereof or Section
8.4 hereof. Further, the amount of any payment or benefit provided for in this
Agreement shall not be reduced by any compensation earned by the Executive as
the result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Executive to the Company, or
otherwise.
10. SUCCESSORS; BINDING AGREEMENT.
10.1 In addition to any obligations imposed by law upon any successor
to the Company, 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 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 assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's employment for Good
Reason after a Change in Control, except that, for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
10.2 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 shall
die while any amount would still be payable to the Executive hereunder (other
than amounts which, by their terms, terminate upon the death of the Executive)
if the Executive had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators of the Executive's
estate.
11. NOTICES. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed, if to the
Executive, to the address inserted below the Executive's signature on the final
page hereof and, if to the Company, to the address set forth below, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon actual receipt:
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<PAGE> 15
To the Company:
Ferro Corporation
1000 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Chief Executive Officer
12. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of 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. This Agreement supersedes any other
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof which have been made by either party. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of Ohio. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections. Any payments provided for hereunder shall be
reduced to the extent necessary so that the Company may satisfy any applicable
withholding required under federal, state or local law and any additional
withholding to which the Executive has agreed. The obligations of the Company
and the Executive under this Agreement which by their nature may require either
partial or total performance after the expiration of the Term (including,
without limitation, those under Section 6 hereof) shall survive such expiration.
13. [Intentionally left blank.]
14. VALIDITY. The invalidity or unenforceability of any provision 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.
15. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
16. SETTLEMENT OF DISPUTES; ARBITRATION.
16.1 Any further 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, HOWEVER, that all arbitration expenses shall be borne by
the Company and the evidentiary standards set forth in this Agreement shall
apply. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. Notwithstanding any provision of this Agreement to the contrary,
the Executive shall be entitled to seek specific performance of the Executive's
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.
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<PAGE> 16
16.2 Notwithstanding the provisions of Section 16.1 above, the Company
shall be entitled, in addition to any other remedy or remedies available to the
Company at law or in equity, to injunctive relief, without the necessity of
proving the inadequacy of monetary damages or the posting of any bond or
security, enjoining or restraining Executive from any violation of threatened
violation of the covenants contained in Section 7A hereof.
Moreover, in the event that the Executive breaches Section 7A.2 of this
Agreement, the Executive shall pay to the Company an amount in cash equal to
fifty percent (50%) of the value of (i) if the Executive is employed by the
Company at the time of such violation, the aggregate severance payments and
benefits that would have been paid to the Executive had his employment been
terminated on the date on which the Executive violated such Section 7A.2 under
circumstances entitling the Executive to the severance payments and benefits
provided under Section 6.1 hereof, (ii) if, prior to the date on which the
Executive violates such Section 7A.2, the Executive's employment with the
Company shall have been terminated under circumstances that do not entitle the
Executive to the severance payments and benefits provided under Section 6.1
hereof, the aggregate severance payments and benefits that would have been paid
to the Executive had his employment been terminated under circumstances
entitling him to severance payments and benefits under Section 6.1 hereof,
calculated as of the effective date of his actual termination of employment or
(ii) if the Executive's employment with the Company shall have been terminated
prior to the date on which he violates such Section 7A.2 under circumstances
entitling him to severance payments and benefits under Section 6.1 hereto, the
aggregate severance payments and benefits he is entitled to receive thereunder.
The provisions of this Section 16.2 shall not constitute a waiver by
the Company of any rights to damages or other remedies which it may have
pursuant to this Agreement or otherwise. Executive further acknowledges and
agrees that due to the uniqueness of Executive's services and confidential
nature of the information Executive will possess the covenants set forth herein
are reasonable and necessary for the protection of the business and good will of
the Companies.
17. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the meanings indicated below:
(a) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(b) "Auditor" shall have the meaning set forth in Section 6.4
hereof.
(c) "Base Amount" shall have the meaning set forth in section
280G(b)(3) of the Code.
(d) "Beneficial Owner" shall have the meaning set forth in Rule
13d-3 under the Exchange Act.
(e) "Benefit Plan" shall mean each perquisite, benefit or
compensation plan (in addition to the Incentive Compensation Plan),
including the Pension Plans, dental
-16-
<PAGE> 17
plan, life insurance plan, health and accident plan or disability plan
of the Company (but excluding the Company's stock option plan and
Performance Share Plan, participation in which shall be at the sole
discretion of the Board or any applicable committee thereof).
(f) "Board" shall mean the Board of Directors of the Company.
(g) The Company shall have "Cause" for termination of the
Executive's employment only (i) if such 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 (ii) if such
termination shall have been the result of an act or acts of dishonesty
by the Executive resulting or intended to result directly or
indirectly in significant gain or personal enrichment to the Executive
at the expense of the Company; or (iii) upon the willful 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
(x) 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 (i), (ii) or (iii) and
specifying the particulars thereof in detail. Further, in the event of
a dispute concerning the application of this provision, no claim by
the Company that Cause exists shall be given effect unless the Company
establishes to the Board by clear and convincing evidence that Cause
exists.
(h) A "Change in Control" shall be deemed to have occurred if the
event set forth in any one of the following paragraphs shall have
occurred:
(i) any Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company representing 25% or
more of the combined voting power of the Company's then
outstanding securities; or
(ii) during any period of two consecutive years, the
following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals
who, on the Effective Date, constitute the Board 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 (i) or (iii) of this
sentence) whose appointment or election by the Board or
nomination for
-17-
<PAGE> 18
election by the Company's shareholders was approved or
recommended by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors on the
date hereof or whose appointment, election or nomination for
election was previously so approved or recommended; or
(iii) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with
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 percent (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
(iv) there is consummated an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
(i) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(j) "Company" shall mean Ferro Corporation and, except in
determining under Section 16(g) hereof whether or not any Change in
Control of the Company has occurred, shall include any successor to
its business and/or assets which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
(k) "Date of Termination" shall have the meaning set forth in
Section 8.2 hereof.
(l) "Disability" shall be deemed the reason for the termination
by the Company of the Executive's employment, if, as a result of the
Executive's incapacity due to physical or mental illness, the
Executive shall have been absent from the full-time performance of the
Executive's duties with the Company for a period of six (6)
consecutive months, the Company shall have given the Executive a
Notice of Termination for Disability, and, within thirty (30) days
after such Notice of Termination is given, the Executive shall not
have returned to the full-time performance of the Executive's duties.
(m) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(n) "Excise Tax" shall mean any excise tax imposed under Section
4999 of the Code.
-18-
<PAGE> 19
(o) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(p) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the
Executive's express written consent) after any Change in Control, or
prior to a Change in Control under the circumstances described in the
second sentence of Section 6.1 hereof (treating all references in
paragraphs (i) through (vii) below to a "Change in Control" as
references to a "Potential Change in Control"), of any one of the
following acts by the Company, or failures by the Company to act,
unless, in the case of any act or failure to act described in
paragraph (i), (v), (vi) or (vii) below, such act or failure to act is
corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
(i) the assignment to the Executive of any duties
inconsistent with the Executive's status as a senior executive
officer of the Company, a change in Executive's title or a
substantial adverse alteration in the nature or status of the
Executive's responsibilities or reporting relationship, in each
case from those in effect immediately prior to the Change in
Control, or the removal of Executive from or failure to re-elect
Executive to positions held by Executive immediately prior to the
Change in Control (except in connection with termination of
Executive's employment for Cause, Disability or Retirement or as
a result of Executive's death or voluntary termination without
Good Reason);
(ii) a reduction by the Company in the Executive's annual
base salary as in effect immediately prior to the Change in
Control or as the same may be increased from time to time;
(iii) the relocation of the Executive's principal place of
employment to a location which increases the Executive's one-way
commuting distance by more than twenty-five (25) miles over his
one-way commuting distance immediately prior to the Change in
Control, except for required travel on the Company's business to
an extent substantially consistent with the Executive's business
travel obligations immediately prior to the Change in Control;
(iv) the failure by the Company to pay to the Executive any
portion of the Executive's current compensation, or to pay to the
Executive any portion of an installment of deferred compensation
under any deferred compensation program of the Company, within
seven (7) days of the date such compensation is due;
(v) the failure by the Company to continue in effect any
Benefit Plan in which the Executive participates immediately
prior to the Change in Control unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been
made with respect to such
-19-
<PAGE> 20
Benefit Plan, or the failure by the Company to continue the
Executive's participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both
in terms of the amount or timing of payment of benefits provided
and the level of the Executive's participation relative to other
participants, as existed immediately prior to the Change in
Control; 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 any Person in control of the Company and (b) do not
discriminate against highly-paid employees of the Company.
(vi) the failure by the Company to provide the Executive
with the number of paid vacation days to which the Executive is
entitled in accordance with the Company's normal vacation policy
in effect immediately prior to the Change in Control (or pursuant
to a special vacation agreement or arrangement then in effect
with respect to the Executive);
(vii) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 8.1 hereof;
for purposes of this Agreement, no such purported termination
shall be effective; or
(viii) any failure of the Company to obtain assumption of
this Agreements, as set forth in Section 9.1 hereof;
PROVIDED, HOWEVER, that a voluntary resignation by the Executive
at any time during the ninety-day period commencing on the first
anniversary of the Change in Control shall conclusively
constitute Good Reason. For purposes of any determination
regarding the existence of Good Reason, any claim by the
Executive that Good Reason exists shall be presumed to be correct
unless the Company establishes to the Board by clear and
convincing evidence that Good Reason does not exist. The
Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity
due to physical or mental illness. The Executive's continued
employment shall not constitute consent to, or a waiver of rights
with respect to, any act or failure to act constituting Good
Reason hereunder.
(q) "Gross-Up Payment" shall have the meaning set forth in
Section 6.4 hereof.
(r) "Normal Retirement Age" shall have the meaning provided
for in the Qualified Plan.
(s) "Notice of Termination" shall have the meaning set forth
in Section 8.1 hereof.
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<PAGE> 21
(t) "Pension Plans" shall mean, collectively, the
tax-qualified, supplemental and excess benefit pension plan
maintained by the Company and any other plan or agreement entered
into between the Executive and the Company which is designed to
provide the Executive with supplemental retirement benefits.
(u) "Person" shall have the meaning given in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections 13(d) and
14(d) thereof, except that such term shall not include (i) the
Company or any of its subsidiaries, (ii) a trustee or other
fiduciary holding securities under an employee benefit plan of
the Company or any of its Affiliates, (iii) an underwriter
temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly,
by the shareholders of the Company in substantially the same
proportions as their ownership of stock of the Company.
(v) "Potential Change in Control" shall be deemed to have
occurred if the event set forth in any one of the following
paragraphs shall have occurred:
(i) the Company enters into an agreement, the
consummation of which would result in the occurrence of a
Change in Control;
(ii) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control;
(iii) any Person becomes the Beneficial Owner, directly
or indirectly, of securities of the Company representing 20%
or more of either the then outstanding shares of common
stock of the Company or the combined voting power of the
Company's then outstanding securities;
(iv) 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;
(v) a tender or exchange offer for voting securities of
the Company, made by a Person, 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); or
(vi) the Board adopts a resolution to the effect that,
for purposes of this Agreement, a Potential Change in
Control has occurred.
(w) "Qualified Plan" shall mean the Ferro Corporation
Retirement Plan (001).
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<PAGE> 22
(x) "Retirement" shall mean the termination of the
Executive's employment in accordance with the Company's mandatory
retirement policy as in effect immediately prior to the Change in
Control.
(y) "Severance Payments" shall have the meaning set forth in
Section 6.1 herezof.
(z) "Tax Counsel" shall have the meaning set forth in
Section 6.4 hereof.
(aa) "Term" shall mean the period of time described in
Section 2 hereof (including any extension, continuation or
termination described therein).
(bb) "Total Payments" shall mean those payments so described
in Section 6.4 hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
FERRO CORPORATION
By:
-------------------------------
Name:
Title:
-------------------------------
EXECUTIVE
Address:
-------------------------------
-------------------------------
-------------------------------
(Please print carefully)
-22-
<PAGE> 1
EXHIBIT 11
FERRO CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
---------------------------------------------------------------------
DECEMBER DECEMBER
(Dollars in thousands, except per share data) 1999 1998
3 Months 12 Months 3 Months 12 Months
-------- --------- -------- ---------
BASIC:
<S> <C> <C> <C> <C>
Weighted Average Common Shares Outstanding 35,177,564 35,197,243 35,410,987 36,419,090
Net Income $18,674 $73,015 $17,063 $69,282
Less Preferred Stock Dividend, Net of Tax (906) (3,747) (949) (3,789)
-------------------------------- ----------------------------------
Net Income Available to Common Shareholders $17,768 $69,268 $16,114 $65,493
BASIC EARNINGS PER COMMON SHARE $0.51 $1.97 $0.46 $1.80
DILUTED:
Weighted Average Common Shares Outstanding 35,177,564 35,197,243 35,410,987 36,419,090
Adjustments for assumed conversion of convertible
preferred stock and common stock options 3,215,606 3,609,870 3,948,759 4,060,051
-------------------------------- ----------------------------------
38,393,170 38,807,113 39,359,746 40,479,141
Net Income $18,674 $73,015 $17,063 $69,282
Additional ESOP Contribution, Net of Tax (315) (1,376) (365) (1,585)
-------------------------------- ----------------------------------
Adjusted Net Income $18,359 $71,639 $16,698 $67,697
DILUTED EARNINGS PER SHARE $0.48 $1.85 $0.42 $1.67
================================ ==================================
</TABLE>
<PAGE> 1
EXHIBIT 12
FERRO CORPORATION AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
DECEMBER DECEMBER
(DOLLARS IN THOUSANDS) 1999 1998
--------- ---------
EARNINGS:
PRE-TAX INCOME $ 116,114 $ 110,481
ADD: FIXED CHARGES 22,206 18,761
LESS: INTEREST CAPITALIZATION (1,312) (637)
--------- ---------
TOTAL EARNINGS $ 137,008 $ 128,605
========= =========
FIXED CHARGES:
INTEREST EXPENSE $ 18,343 $ 15,284
INTEREST CAPITALIZATION 1,312 637
INTEREST PORTION OF RENTAL EXPENSE 2,551 2,840
--------- ---------
TOTAL FIXED CHARGES $ 22,206 $ 18,761
========= =========
TOTAL EARNINGS $ 137,008 $ 128,605
DIVIDED BY:
TOTAL FIXED CHARGES $ 22,206 $ 18,761
--------- ---------
RATIO 6.17 6.85
NOTE: PREFERRED DIVIDENDS ARE EXCLUDED. AMORTIZATION OF DEBT EXPENSE AND
DISCOUNTS AND PREMIUMS WERE DEEMED IMMATERIAL TO THE ABOVE
CALCULATION.
<PAGE> 1
Exhibit 13
what's next [GRAPHIC]
[LOGO] FERRO
1999 Annual Report
<PAGE> 2
A whole new approach
<PAGE> 3
to managing our portfolio for profitable growth.
[GRAPHIC]
Ferro Corporation is a major global producer of performance materials for
manufacturers. We are building on leading market positions as a supplier of
coatings for ceramics and metal, electronic materials, pigments, specialty
plastic compounds and colors, and polymer additives to create a portfolio of
business lines offering outstanding profitable growth potential. We are
targeting growth in performance and fine chemicals and electronic materials. Our
materials are used traditionally in the markets of building and renovation,
major appliances, household furnishings, transportation and industrial products.
Headquartered in Cleveland, Ohio, Ferro has operations in 18 countries.
<PAGE> 4
Financial Highlights
Ferro Corporation and subsidiaries
<TABLE>
<CAPTION>
(dollars in thousands except per share data)
1999 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating results
Net sales $ 1,355,283 1,361,844 1,381,280
Net income (loss) (a) $ 73,015 69,282 (37,277)
Per common share data (a)(b)
Basic earnings (loss) $ 1.97 1.80 (1.08)
Diluted earnings (loss) $ 1.85 1.67 (1.08)
Cash dividends $ 0.55 0.495 0.43
Other
Average shares outstanding (b) 35,197,243 36,419,090 38,131,631
Net cash provided by operations $ 127,155 80,031 130,283
Return on average shareholders' equity (a) 25% 25% --
Number of holders of common stock (year-end) 2,329 2,257 2,945
Number of employees (year-end) 6,881 6,693 6,851
</TABLE>
(a) Included in 1997 results is a pre-tax realignment charge of $152.8 million,
or $2.52 per common share after taxes. Excluding the realignment charge,
the Company recorded net income for 1997 of $62.7 million, or $1.44 per
diluted common share.
(b) Basic earnings (loss) per share are based on a weighted average of common
shares outstanding. Diluted earnings per share reflect the potential
dilution of earnings per share assuming that certain stock options whose
exercise price is less than the average market price of the stock are
exercised and that convertible preferred shares are converted into common
shares. Outstanding shares and per share data are adjusted to reflect a
3-for-2 stock split in November 1997.
Contents
2 Financial Highlights
4 Letter to Shareholders
10 Ferro's Portfolio at a Glance
12 Improving the Mix
14 Growing Globally
16 Making Acquisitions
18 Financial Section
42 Directors and Officers
44 Corporate Information
45 Worldwide Operating Units
2/3
<PAGE> 5
Ferro is changing. We are reshaping ourselves into a Company with a
higher-growth profile by offering a broader range of products and technologies
to serve rapidly growing markets. In 1999, we developed ambitious new plans to
better manage our portfolio of businesses, increase our geographic presence and
seek acquisitions - all aimed at nurturing growth opportunities that will define
a new future for Ferro.
<PAGE> 6
To Our Shareholders
[picture]
Hector R. Ortino,
Chairman and Chief Executive Officer
The question on the cover of this annual report is one we ask ourselves
continually - what's next? We fully realize that to stay competitive we need to
constantly respond to that question and position ourselves for the future.
Accordingly, this letter and annual report focus on how we see Ferro's future.
But first, it is important to look at what we have accomplished in the four
years since we established some aggressive growth goals for ourselves. This look
back puts our plans for the future in context and should give you confidence in
our ability to achieve our new goals. It is also a source of personal pride for
me and the thousands of Ferro employees worldwide who have made our success
possible.
In 1996, our response to the "what's next" question was to concentrate our
efforts on improving our margins and cost structure, to lay the foundation for
growth and to position our businesses for the future. In 1999, we continued the
process of improving our performance by finishing another record year, setting
new goals for revenue growth and outlining our detailed plans for accomplishing
those goals.
<PAGE> 7
A TRACK RECORD OF SUCCESS
1999 was the target year for achieving two challenging goals for gross
margin improvement and earnings per share growth. In 1995, we had gross margins
of 24 percent, and in 1999 we reached our three-year goal to achieve 28 percent
gross margins, a significant accomplishment. We also set a goal to improve
earnings per share at an annual growth rate of 12 percent. With the all-time
record performance of $1.85 in 1999, we capped four record years and exceeded
our goal by achieving a compound annual growth rate in earnings per share of
15.5 percent.
These accomplishments are remarkable in the context of some very difficult
business conditions. We overcame soft economies in Europe, Asia-Pacific and
Latin America, where almost half of our sales are derived. We were able to
mitigate the significant negative impact of foreign currency translation, and we
continued to report record years despite a deflationary price environment. Our
track record has been called one of the best in the specialty chemical industry
over this time frame, and we are proud that we measure up so well against some
very good, well-managed companies.
The actions that drove that performance are what you've heard here before.
We lowered our cost structure by implementing a major plan to reduce the number
of facilities we operate worldwide, and we pruned low-margin product lines,
reorganized our marketing and R&D functions and upgraded our organizational
talent and incentive systems.
With the foundation for growth in place, in 1999 we continued to take
actions to improve. So let's review how we did in more detail.
1999 HIGHLIGHTS
For the year, we reached a new level of performance with record net income
of $73.0 million. Earnings per share of $1.85 also were an all-time record and
represented an 11 percent increase over the $1.67 achieved in 1998. Gross margin
improved to 28 percent, versus 27 percent in the prior year, and propelled our
earnings improvement.
[graph]
DILUTED EARNINGS PER SHARE
4-year CAGR = 15.5%
99 1.85
98 1.67
97 1.44*
96 1.21
95 1.04
*excludes realignment charge
[graph]
GROSS MARGIN
99 27.9
98 26.7
97 25.6
96 24.5
95 24.1
4/5
<PAGE> 8
Consolidated sales for the year were $1.36 billion, compared with $1.36
billion in 1998. Improved volumes and the contribution of acquisitions made
during 1999 were offset by lower selling prices, which were driven down by lower
raw material costs and the effects of a strong U.S. dollar. Currency translation
and lower prices due to raw materials have been recurring negative influences on
our revenues for several years now. In fact, we estimate that negative currency
translation has reduced our revenues by more than $100 million on an annualized
basis over the past four years. In addition, the deflationary price environment
for raw materials has had a significant negative impact on revenues over this
period.
We overcame most of these negative factors with our sales performance in
1999. We continued to lay the foundation for future growth. Most notable were
the acquisitions we made in our plastic compounding and electronic materials
businesses, the divestiture of our porous ceramics business and the announcement
of our intention to sell our flame retardants businesses.
In March, we acquired Advanced Polymer Compounding (APC) based in
Carpentersville, Illinois. APC produces a patented thermoplastic elastomer
called Alcryn(R). This acquisition broadened our product line in our already
successful plastic compounding business.
In July, we completed the acquisition of TAM Ceramics Incorporated (TAM).
TAM, based in Niagara Falls, New York, is a leading producer of dielectric
ceramic powders for electronic applications. This acquisition solidified our
position as the world leader in materials for the multi-layer ceramic capacitor
industry.
In March 1999, we sold our Filtros porous ceramics business, and in January
2000, we announced our intention to sell our Pyro-Chek(R) flame retardant
business. We will continue to divest selectively and concentrate our efforts on
what we consider to be core assets.
Our overall performance in 1999 was supported by solid results in each
group. Our plastics business recorded significant improvement for the year, with
sales up 6.8 percent and segment income up 13.5 percent. Our most international
segment, coatings, experienced sales declines due to the effects of currency and
raw material costs but made a strong contribution to our profitability with
segment income up 5.5 percent. Chemicals' results were mostly impacted by a
significant decline in sales and profits in our petroleum additives business.
However, we were encouraged by the improved performance in 1999 of polymer
additives, our main growth platform in chemicals.
Another positive sign for the future was our performance in Asia. We have
targeted this region as a significant growth area for our product lines, and in
1999 we saw the economy rebound. More importantly, though, we grew much faster
than the economy as a result of our continued investment in the region during
the down period of late 1997 and all of 1998. Today, we are positioned very well
for growth in Asia and we continue to invest there.
<PAGE> 9
We will remember 1999 as a year in which we cemented a solid foundation for
our growth plans to succeed.
However, the biggest frustration of 1999 - and one I am sure you share - was
the performance of our stock price, which closed the year down 15 percent. This
performance is inconsistent with a company that has generated four years of
record earnings performance. However, we were not alone. As the Standard and
Poor's Mid-Cap Chemical Index indicates, the stock actually performed in line
with our peers, with the index down 15 percent for the year. Many of the
companies in our industry are plagued by a market that appears to favor
large-cap companies and has not shown interest in specialty chemical companies.
Although the performance of the stock price is frustrating, we believe it is
a short-term setback, and we remain focused on driving improved performance in
the years ahead.
STRATEGIC DIRECTION
Our strong performance of the past several years will not stop here. We have
laid the foundation and have begun to take actions to drive further improvement.
Our focus has shifted, however. As a result, we have set demanding objectives
and goals to drive revenue growth of 6 to 8 percent over the next three years
and to maintain our earnings-per-share goal of at least 12 percent growth over
the long term.
We see growth coming from three main drivers - portfolio management,
geographic expansion and acquisitions - all of which overlap. I'll offer a brief
overview of these strategies here, and you will read more about them throughout
this report.
PORTFOLIO MANAGEMENT
For almost a year and a half now, we have been developing a new brand of
thinking among our management team about how we should run our businesses. We
call this new approach the Leadership Agenda. It helps us move away from being
fixated on current businesses and forces us to concentrate on the pipeline of
opportunities for future success. This approach also drives our investment of
capital.
New Goals
OVER THE NEXT THREE YEARS, WE ARE AIMING TO ACHIEVE:
1- Sales growth of 6 to 8 percent compounded annually long-term
(excluding large acquisitions and divestitures).
2- EPS growth of 12 percent compounded
annually long-term.
3- A shift in our portfolio so that we are more heavily weighted in springboard
businesses. The result will be a portfolio of businesses with greater growth and
profit potential.
Currently the mix is as follows:
- Foundation businesses, about 35 to 40 percent. These are mature
businesses that typically grow at about the rate of the economy.
- Platform businesses, 50 to 55 percent. These businesses grow at 1.5 to
two times the rate of the economy.
- Springboard businesses, almost 15 percent. Springboard businesses grow
at multiples of the rate of the economy.
[graph]
CURRENT
Springboard
Platform
Foundation
[graph]
GOAL
Springboard
Platform
Foundation
<PAGE> 10
We have categorized our businesses according to their stage in the life
cycle into what we call foundation, platform and springboard businesses (see
sidebar, page 7). For example, the operative philosophy for mature foundation
businesses will be to run efficiently and generate cash, while we will measure
the success of faster-growing or springboard businesses by their ability to
build larger core businesses. Platform businesses represent the largest portion
of our current portfolio, and they will be expected to achieve a balance of
profit and sales growth.
Our overall goal is to change the mix of businesses we have from being too
heavily weighted in foundation and platform businesses to being more evenly
weighted among all three categories. If we succeed, our businesses will be
capable of generating a higher growth rate.
To drive the desired performance in each business, we have also matched our
incentive system to this approach. Managers of foundation businesses will be
rewarded for generating cash, managers of platform businesses will be rewarded
for a balance of sales and profit growth and managers of springboard businesses
will be rewarded for growth. We have also added rewards for success in
acquisitions.
GEOGRAPHIC EXPANSION
Ferro's geographic breadth has long been a strength of the Company. In fact,
we've had international operations for most of our 80-year history. Our global
presence gives us balanced performance and a worldwide infrastructure to
leverage growth in several of our key businesses. Our chemicals and plastics
businesses have built leading positions in the United States for polymer
additives, plastic compounds and colorants. We believe we can repeat their
success internationally. In May 2000, we will open a new production facility for
plastic colorants in Asia. In businesses that have long been international, we
also see opportunities. Several of our businesses in Asia are running at full
capacity, and we are installing additional capacity to keep pace with demand for
our products in that region.
ACQUISITIONS
Part of our success in achieving our goals will depend on our ability to
acquire businesses that broaden our product offering to high-growth markets. We
are much more proactive today in aggressively pursuing our acquisition targets
and 1999 provided an early indication of how successful our strategy can be. We
are pursuing both large and small transactions.
<PAGE> 11
[photo]
Small or add-on acquisitions will play a role in broadening the product
offerings or technologies of our existing businesses, entering new markets and
geographies and in speeding the development of new products. We will also
consider larger, company-transforming acquisitions, which will only be
considered if they can help us accelerate our growth plans and reshape our
portfolio.
We have the appetite and the capacity to pursue our acquisition plans. We
generate strong cash flows, our balance sheet can handle more leverage and we
have supplemental plans for divestitures as a source of funds.
MANAGEMENT AND BOARD CHANGES
Although we continued to add to our management strengths in 1999, we also
lost a key member of our team to retirement. After 40 remarkable years of
service, Jim Fisher, Senior Vice President, Ceramics and Colorants, retired from
Ferro. Jim spent his whole professional life with the Company. Jim's kindness,
leadership and counsel will be missed by all Ferro employees but perhaps by no
one more than me.
We are also losing a key member of the Board this year. Rex Sebastian will
no longer serve on the board following the annual meeting in April. Rex has
served on the Board since 1986. He has overseen many changes in the Company in
this time and has been instrumental in our success. The value of his
contributions will be missed. In July 1999, we elected William B. Lawrence,
Executive Vice President, Law, Corporate Development and Government Affairs for
TRW, Incorporated of Cleveland, Ohio, to our Board of Directors. We are excited
to add Bill's experience and skills, notably in the area of acquisitions.
A LOOK AHEAD
So what is next for Ferro? Hopefully what I have said here and the details
that fill the pages of our annual report will go a long way to answering that
question for you. We believe it's a bright future with continued strong
performance. We'll keep asking this question of ourselves to stay ahead of the
changing tides of our markets and our competitive environment. With the
dedication of all of our employees, I look forward to next year when I can
report on our progress. My personal thanks go to our employees for their
continuing contributions to our success, and to you, our shareholders, for your
confidence in Ferro.
/s/ Hector R. Ortino
Hector R. Ortino
Chairman and Chief Executive Officer
<PAGE> 12
Ferro's portfolio at a glance
[graph]
1999 SALES BY SEGMENT
Coatings 60%
Chemicals 21%
Plastics 19%
[graph]
1999 SALES BY REGION
Asia-Pacific 7%
Latin America 7%
Europe 32%
United States and 54%
Canada
[photo]
Business Units
- --------------------------------------------------------------------------------
Coatings Tile, Specialty Glazes and Specialty Ceramics
Specialty Colors
Electronic Materials
Industrial Coatings
- --------------------------------------------------------------------------------
Chemicals Polymer Additives
Performance and Fine Chemicals
- --------------------------------------------------------------------------------
Plastics Plastic Colorants
Liquid Coatings and Dispersions
Filled and Reinforced Plastics
[photo]
<PAGE> 13
[photo]
<TABLE>
<CAPTION>
Products Key Markets Locations
- ------------------------------------------ ---------------------------------------------- ----------------------
<S> <C> <C>
Ceramic glaze coatings, ceramic colors, Tile, sanitaryware, fine china, industrial and North America,
decorative materials, kiln furniture, commercial machinery, electronics, Europe, Latin
grinding media, structural ceramics, wear- transportation equipment, telecommunications America, Asia-Pacific
resistant monolithics
Inorganic pigments, forehearth color, Paint and plastics, glass packaging, table- North America,
glass decorating enamels ware, appliances, automotive, architectural Europe, Latin
America, Asia-Pacific
Electronic and specialty glasses, ceramic Consumer electronics, telecommunications, North America,
dielectric powders, thick film pastes and computers, automotive, ophthalmic lenses/ Europe, Asia-Pacific
tapes, surface finishing compounds precision optics, military and defense, aerospace
Powder coatings, porcelain enamel coatings Appliances, cookware, sanitaryware, North America,
architectural, automotive, industrial Europe, Latin
America, Asia-Pacific
Heat and light stabilizers, epoxy plasticizers, Household furnishings, automotive, industrial, North America,
lubricant additives architectural, construction Europe, Asia-Pacific
Performance and fine chemicals, lubricant Electronics, automotive, petrochemicals, North America,
additives and petroleum additives pharmaceutical, agriculture, polymers Europe
Color concentrates/masterbatch Appliances, automotive, packaging, recreation North America,
Europe
Gel coats, liquid and paste color dispersions Boats, RVs and trucks, sanitaryware, North America,
swimming pools, architectural, industrial Europe
Filled and reinforced thermoplastic Appliances, automotive, household North America,
compounds, polyolefin alloys, thermoplastic furnishings, recreation, industrial, lawn and Europe
elastomers/melt processable rubber garden equipment
</TABLE>
Sanders and other tools rely on Ferro's novel plastic compounds
and colorants for enhanced appearance and durability. Automobiles are often
equipped with an array of Ferro materials, from industrial coatings on the
outside to polymer additives on the inside. Silicon wafers are polished during
the fabrication of integrated circuits using Ferro's precision surface finishing
materials.
[photo]
<PAGE> 14
improving the mix
Many of the changes at Ferro will come from elevating
our portfolio to a faster-growing, higher-margin mix of businesses. We are
seizing opportunities in everything from our foundation businesses - traditional
businesses on which we've built our success, to our platform businesses -
steadily growing businesses which will drive our near-term performance, to our
springboard businesses - fast-growing business lines which are currently small
but offer the greatest potential to transform Ferro for the future.
Our new approach improves the way we manage operations and allocate
resources among businesses. Overall, we are maximizing efficiencies in
foundation businesses to generate excess cash and investing that cash in
high-growth opportunities in existing and new businesses - through R&D,
marketing initiatives, strategic acquisitions and geographic expansion.
For example, in our longest-running businesses, such as tile and color, we
are aggressively pursuing process improvements to enhance productivity. What's
more, we are identifying new ways to expand our market leadership, including new
products and growth in new regions.
In many of our platform businesses, we will spur growth through creative
product line extensions that enable us to participate in higher-potential
markets. In 1999, we continued to expand our popular line of plastic compounds
that offer customers high performance at lower cost than standard materials. In
addition, we added a new technology with the acquisition of Advanced Polymer
Compounding (APC), a supplier of high-performance thermoplastic elastomers
(TPEs).
We are also investing in newer springboard businesses that serve rapidly
growing markets, such as electronic materials and performance and fine
chemicals, with significant future sales and profit potential for Ferro. For
example, because of our synthesis capabilities and proprietary compounds, we
expect our chemicals business to benefit from the trend in the high-growth
pharmaceutical market toward outsourcing production of key fine organic
chemicals. We plan on being a strong niche player in certain key technologies
within this market.
<PAGE> 15
Building on our strengths, Ferro is increasingly targeting
value-added chemical intermediates and services used in the production of
pharmaceuticals.
[photo]
<PAGE> 16
[photo]
growing globally
Ferro also expects to grow by broadening its geographic
presence. We are exploring new plant locations, capacity expansions and export
activity, as well as acquisitions, to develop new markets in virtually all of
our businesses.
We are already one of the most geographically diverse specialty chemical
companies, with approximately half of our sales coming from outside the United
States. However, we still have strong opportunities to grow beyond our current
markets. For example, two of our core businesses, plastics and chemicals, have
very little presence in Europe and almost none in Asia - two markets with strong
demand for these products.
Our 1999 acquisition of APC brought increased international scope to our
plastics business. Through Alcryn(R), a patented TPE product, we now have
extended our export business to Mexico, Europe, China and Australia. We are
currently expanding capacity for this product, which enjoys one of the highest
growth rates in the plastics industry.
This year, we will begin production of plastic colorants in a new facility
in Asia, giving that line entry in the large and growing Asian marketplace. We
are also expanding our sales force and successful operations for our industrial
coatings in Asia, building off our existing base in Ningbo, China.
Even businesses considered relatively mature in traditional markets offer
significant growth potential in other geographies, which we intend to pursue. In
tile, Ferro's most global business, we are increasing capacity in Asia, to
solidify our solid market position and capitalize on double-digit volume growth
in that region.
<PAGE> 17
Our Alcryn(R) TPE product, which is experiencing double-digit
growth rates, gives plastic appliance handles a rubber-like feel and soft grip.
It also offers the performance advantages and ease of processing of a plastic
material.
[photo]
<PAGE> 18
[photo]
making acquisitions
Ferro has the financial capacity, the appetite and a very focused strategy
for acquisitions. We are looking for both small and large acquisitions to meet
our growth goals and speed the process of reshaping our portfolio. For example,
we are intent on making acquisitions that will help turn our electronic
materials business into a core business serving rapidly growing markets. In
1999, we acquired TAM Ceramics Incorporated (TAM), a supplier of dielectric
powders for the electronics industry. TAM strengthened our leading position in
dielectric ceramic powders for the passive and discrete component market,
expanded our geographic presence and broadened our technology in electronic
materials. Further acquisitions will enable us to offer full solutions for our
customers and increase our position in other markets such as semiconductors.
Another major target for acquisitions is performance and fine chemicals, as
we seek to build a much larger presence as a producer of value-added fine
organic chemicals and custom synthesis for the high-growth pharmaceutical
industry. Here our approach will focus on being a niche provider and
differentiating ourselves by offering proprietary technologies rather than being
a full solution provider.
Smaller, bolt-on acquisitions will help us gain a foothold in new markets.
For example, our plan is for small acquisitions to play an important role in
growing our polymer additives business in the European market.
Smaller acquisitions will also be used to complement or broaden existing
product lines. For instance, acquisitions in specialty plastics - similar to our
APC acquisition - should bolster our strategy to form unique alloys with
superior performance characteristics and extend our technology.
We plan to accomplish our acquisition plans while maintaining the strong
financial discipline for which Ferro is known. The acquisitions we made in 1999
are already performing to our expectations and making a solid
contribution.
<PAGE> 19
[photo]
Ferro is the world's largest manufacturer of thick film electrode
materials for polycrystalline silicon photovoltaic cells in an industry expected
to enjoy rapid growth through 2010.
<PAGE> 20
[picture]
Bret W. Wise, Senior Vice President and
Chief Financial Officer
Financials
19 Management's Discussion and Analysis
23 Financial Statements
27 Notes to Financial Statements
38 11-Year Summary of Financial Data
41 Independent Auditors' Report
<PAGE> 21
Management's Discussion and Analysis
Ferro Corporation and subsidiaries
Ferro Corporation is a worldwide producer of performance materials for
manufacturers. Ferro produces a variety of coatings, chemicals and plastics by
utilizing organic and inorganic chemistry. The Company's materials are used
extensively in the markets of building and renovation, major appliances,
household furnishings, transportation and industrial products. Ferro's products
are sold principally in the United States and Europe; however, operations
extend to Latin America and are increasingly focused on Asia-Pacific. See Note
12 to the consolidated financial statements for segment operating data.
1999 RESULTS OF OPERATIONS
Consolidated net sales of $1.36 billion for 1999 were 0.5% lower than
1998 net sales. Sales declined 0.9% in the Coatings segment and 5.0% in the
Chemicals segment, while the Plastics segment increased sales by 6.8%.
The increase in sales volume for the Company was led by the Plastics
segment and strong improvement in the tile and electronic materials businesses.
Acquisitions made during 1999 also contributed strongly to sales. Increased
volumes and acquisitions together added 5.5% to sales, offset by a decline in
sales attributable to lower selling prices in correlation with a decline in raw
material costs. The strengthening of the U.S. dollar against foreign currencies
also reduced sales by 2.0% during 1999. Divestitures also had a modest impact in
reducing sales.
Coatings segment sales were $810.4 million, 0.9% lower than in 1998.
Volume improvement for the segment was driven by improved performance in the
tile and electronic materials businesses. Acquisitions also made a strong
contribution to sales, in particular the TAM Ceramics Incorporated (TAM)
acquisition in electronic materials, which was completed in July. Offsetting
these improvements were lower selling prices, which correlated with a decline in
the underlying price of major raw materials, and the effect of the stronger U.S.
dollar. The Coatings segment is the Company's most international segment.
Negative foreign currency translation and price/mix, combined, reduced sales by
just over $50.0 million for the segment.
Chemicals segment sales were $290.0 million, down 5.0% compared with
1998. Sales were negatively impacted by volume declines in the United States,
particularly in the petroleum additives business, and lower selling prices
related to raw material price declines. Sales also were impacted negatively by
currency translation.
For the Plastics segment, sales improved 6.8% over 1998, reaching $254.9
million for the year. Strong domestic volume improvement was most evident in the
filled and reinforced plastics business. The Advanced Polymer Compounding (APC)
acquisition, completed in March 1999, also made a positive contribution to
sales. Overall, increased volume, and the acquisition, added 12.4% and were
partially offset by lower selling prices driven by a decline in raw material
costs.
Gross margins improved from 26.7% in 1998 to 27.9% in 1999. The major
contributions to gross margin expansion came from a better mix of products sold
and manufacturing efficiencies from productivity improvement initiatives. Lower
raw material costs and acquisitions also contributed to margin improvement.
Sales, administrative and general expenses increased to $241.8 million
compared with $235.2 million in 1998, primarily due to acquisitions completed in
1999.
Segment income improved to $153.6 million compared with $147.9 million in
1998. A reconciliation of segment income to income before taxes is shown in Note
12 to the consolidated financial statements, "Reporting for segments."
Coatings segment income increased 5.5% to $94.2 million. Significant
gross margin improvement, driven by a combination of manufacturing efficiencies
and improvement in the mix of products sold, was the main factor contributing to
the improvement in segment income. The electronic materials business was
particularly strong and included the contribution of the TAM acquisition. The
Coatings segment has benefited the most from plant consolidation and has
increased sales of higher-margin products by concentrating on new product
development.
Chemicals segment income of $34.2 million declined 6.0% compared with
1998. The decline in segment income was driven by reduced sales, particularly in
the petroleum additives business.
Plastics segment income of $25.2 million set a record and represented a
13.5% improvement over the previous record established in 1998. The Plastics
segment has improved margins through the introduction of new products and the
contribution of the APC acquisition. Additionally, improved manufacturing
efficiencies and lower costs for raw materials had a positive impact on margins
for the segment.
18/19
<PAGE> 22
The increase in interest expense from $15.3 million in 1998 to $18.3
million in 1999 is primarily attributable to the funding of two acquisitions
made in 1999.
Foreign currency gains, which vary depending on relative changes in
exchange rates, were $1.6 million in 1999, representing gains on option
contracts used to hedge the earnings of selected foreign subsidiaries. For
further information, see Note 13 to the consolidated financial statements.
The Company's performance in 1999 set new
all-time records for net income and earnings per
share. Net income increased to $73.0 million compared with $69.3 million
recorded in 1998. Diluted earnings per share increased by 10.8% to $1.85
compared with $1.67 in 1998.
1998 RESULTS OF OPERATIONS
Consolidated net sales of $1.36 billion for 1998 were 1.4% lower than
1997 net sales. Sales increased 0.3% in both the Coatings segment and in the
Plastics segment, while the Chemicals segment declined by 6.9%.
The strengthening of the U.S. dollar against foreign currencies and
divestitures were the main factors contributing to the sales decline. Combined,
negative foreign currency translation and divestitures reduced sales by $24.1
million.
In addition, sales volumes were lower than the prior year, particularly
in the Chemicals segment. Partially offsetting these declines were positive
price/mix and the contribution of an acquisition.
Coatings segment sales were $817.8 million, 0.3% greater than 1997 sales.
The slight improvement in sales was largely due to improved performance in the
powder coatings business worldwide and the electronics business domestically.
Additionally, continued improvement in European results had a positive impact on
sales. The effect of the stronger U.S. dollar had a major negative impact on
sales.
Chemicals segment sales were $305.3 million, down 6.9% compared with
1997. Sales were negatively impacted by volume declines in the United States,
particularly in the petroleum additives business. Additionally, sales were
impacted negatively by currency translation and the divestiture of a joint
venture operation in Asia.
For the Plastics segment, sales improved 0.3% over 1997, reaching $238.7
million for the year. Strong domestic volume improvement was evident in the
plastic colorants and filled and reinforced plastics businesses. However, this
was offset by a weak domestic price environment impacted by declining raw
material costs.
Gross margins improved from 25.6% to 26.7%. Gross margin improvement was
broad-based across all segments and regions. The major contributions to gross
margin expansion came from a better mix of products sold and manufacturing
efficiencies from continuous productivity improvement initiatives, including
benefits from the Company's previously announced plant consolidation plan. New
product introductions in the Plastics and Coatings segments, particularly in the
ceramic tile and powder coatings businesses, helped improve sales of
higher-margin products and develop business in new markets.
Sales, administrative and general expenses increased to $235.2 million
compared with $233.7 million in 1997.
Segment income improved 9.8% to $147.9 million compared with $134.7
million in 1997. A reconciliation of segment income to income before taxes is
shown in Note 12 to the consolidated financial statements, "Reporting for
segments."
Coatings segment income increased 6.1% to $89.3 million. Improvements
were led by strong European results for the ceramic tile business and by the
powder coatings business worldwide. A combination of manufacturing efficiencies
and improvement in the mix of products sold were the main factors contributing
to the improvements in ceramic tile. New product introductions for the tile
market have broadened the product line in this business and generated additional
high-margin business.
Income for the Chemicals segment improved 12.3% to establish a new record
of $36.4 million. The improvement was largely due to outstanding performance in
the domestic industrial chemicals business and continued improvement in polymer
additives. Overall, the Chemicals segment has benefited from productivity
improvements and an improvement in the mix of products sold through careful key
account management and improved sales of higher-margin products.
Plastics segment income of $22.2 million set a new record, 22.7% above
the previous record established in 1997. Margin improvement resulted from
excellent performance in both the plastic colorants business and the filled and
reinforced plastics busi-
<PAGE> 23
ness. The Plastics segment improved margins through the introduction of new
products for new applications at several key accounts. Additionally, improved
manufacturing efficiencies and lower costs for raw materials had a positive
impact on margins.
The increase in interest expense from $12.2 million to $15.3 million in
1998 is primarily attributable to the issuance of $55.0 million 71/8% debentures
in March 1998.
Foreign currency gains amounted to $0.9 million in 1998, largely
attributable to the strengthening of the U.S. dollar versus foreign currencies.
Foreign currency gains accrue from option contracts purchased to hedge the
earnings of selected foreign subsidiaries. For further information, see Note 13
to the consolidated financial statements.
Net income and diluted earnings per share for 1998 were records of $69.3
million and $1.67, respectively, compared with a net loss of $37.3 million and a
loss of $1.08 in 1997. The 1997 loss was due to a second-quarter pre-tax
realignment charge of $152.8 million. Excluding the effects of this charge, net
income and diluted earnings per share for 1997 would have been $62.7 million and
$1.44, respectively. Thus, excluding the charge, net income was up 10.5% and
earnings per share were up 16.0% for 1998.
Other Items
IMPACT OF THE EURO CONVERSION
On January 1, 1999, 11 of 15 member countries of the European Economic
and Monetary Union (the "EMU") established fixed conversion rates between their
existing legacy currencies and the European Union's common currency, the Euro.
Since that date, the Euro has traded on currency exchanges and been used in
business transactions. The legacy currencies remain legal tender in the
participating countries for a transition period up to January 1, 2002, when new
Euro-denominated bills and coins will be issued. Legacy currencies will be
withdrawn from circulation during the first six months of 2002.
In each of its affected businesses, the Company is able to process and
has processed transactions in both the Euro and local currencies. Plans are well
advanced in Europe to adapt computer and financial systems which do not
currently accommodate the Euro as the standard reporting currency. The Company
does not anticipate that remaining system conversion costs to allow the use of
the Euro as the reporting currency will be material.
ENVIRONMENTAL
The Company has received "Notices of Violation" from the United States
Environmental Protection Agency in 1999 alleging that the Company violated
various requirements of the Clean Air Act and related State laws in modifying
and operating the Pyro-Chek(R) process at its facility in Hammond, Indiana. See
the description in Note 8 to the consolidated financial statements. The Company
has announced its intention to sell the assets relating to the Pyro-Chek(R)
process and cease production of Pyro-Chek(R) at Hammond. Following the sale of
the assets and cessation of Pyro-Chek(R) production, the Company will continue
to be responsible for any claims relating to all past operations at Hammond,
including Pyro-Chek(R) production. The Company is vigorously contesting these
claims. If the matter cannot be resolved through negotiation, and the United
States pursues and recovers the maximum potential penalties on all of its
claims, it could have a material adverse affect on the Company. However, the
Company believes that it will resolve this matter in a manner that will not have
a material adverse affect.
Additionally, governmental agencies have identified several disposal
sites for clean-up under the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA," or the Superfund) and similar laws to which the
Company has been named a "potentially responsible party." The Company is
participating in the cost of certain clean-up efforts. However, the Company's
share of such costs has not been material and is not expected to have a material
adverse impact on the Company's financial condition or results of operations.
ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and for hedging activities. This Statement,
as amended by Financial Accounting Standards No. 137, is effective for all
quarters of fiscal years beginning after June 15, 2000, or the Company's fiscal
year 2001. While the Company has not yet determined the effects the Statement
will have on its financial position or results of operations, it does not
anticipate a material impact.
20/21
<PAGE> 24
MARKET RISK MANAGEMENT
The Company's consolidated cash flows and earnings are subject to
fluctuations due to changes in foreign currency exchange rates. The Company
attempts to limit its exposure to changing foreign currency exchange rates
through operational and financial market actions.
Exposures to changing foreign currency exchange rates in selective
currencies are managed by financial market transactions, principally through the
purchase of put options on currencies and forward foreign exchange contracts.
Put options are purchased to offset the exposure of foreign currency-denominated
earnings to a depreciation in the value of the local currency versus the U.S.
dollar. The Company's primary foreign currency put option market exposure is the
Euro. Foreign subsidiaries also hedge their exposure to the cost of raw
materials denominated in U.S. dollars through the forward purchase of dollars to
cover the future payable.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow provided by operations increased to $127.2 million compared
with $80.0 in 1998 and $130.3 million in 1997. The improvement in operating cash
flows in 1999 is primarily due to a net working capital reduction of $9.9
million (excluding acquisitions) compared with a net working capital increase in
1998. Cash provided by operations was more than sufficient to enable the Company
to meet its liquidity requirements, which include working capital requirements,
capital investments and interest expense in 1999.
The increase in net cash used for investing activities in 1999 is
associated with a higher level of capital expenditures and acquisitions. Capital
expenditures were $76.2 million in 1999, $60.3 million in 1998 and $45.1 million
in 1997. Capital expenditures for 2000 are estimated to be $70.0 million to
$75.0 million.
The higher level of capital expenditures in 1999 and 2000 includes some
of the expenditures for the ongoing implementation of a global enterprise-wide
management information system, capacity increases in several product lines to
support geographic expansion and investments in new product lines.
The change in net cash flow from financing activities was driven by
long-term borrowings to fund acquisitions and a lower level of share repurchases
in 1999.
In October 1995, the Company filed a $300.0 million Shelf Registration
with the Securities and Exchange Commission. This registration will enable the
Company to offer, either separately or together, debt securities, common stock
and/or preferred stock, warrants, stock purchase contracts, depositary shares
and stock purchase units. Proceeds may be used for general corporate purposes.
In March 1998, the Company issued $55.0 million 71/8% debentures under
this registration. The debentures have a 30-year maturity.
The Company expects to be able to meet its working capital requirements
and capital investment needs from cash and cash equivalents, cash flow from
operations and, if necessary, use of its revolving credit facility or long-term
borrowings. The Company has available to it a $150.0 million five-year revolving
credit facility with four domestic banks. The Company has borrowed $80.0 million
under this facility as of December 31, 1999 pursuant to acquisitions made during
the year. The Company is actively pursuing its acquisition strategy and may,
from time to time, use its revolving credit facility or alternate financing
arrangements, including divestitures, to fund acquisitions. The Company also has
$245.0 million of availability under the previously mentioned shelf
registration.
CAUTIONARY NOTE ON FORWARD-LOOKING
STATEMENTS
Certain statements contained in this Management's Discussion and Analysis
and elsewhere in this report 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, and
actual events or results may differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to: the level of the Company's success
with its acquisition program; changes in customer requirements, markets or
industries served; changing economic conditions globally; foreign exchange
rates, especially in Europe; changes in the prices of major raw materials; and
significant technological or competitive developments.
<PAGE> 25
Consolidated Statements of Income
Ferro Corporation and subsidiaries
<TABLE>
<CAPTION>
(dollars in thousands except per share data)
Years ended Decmeber 31 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,355,283 1,361,844 1,381,280
Cost of sales 976,877 997,583 1,028,069
Selling, administrative and general expense 241,830 235,155 233,674
Realignment charge -- -- 152,790
Other charges (income):
Interest expense 18,343 15,284 12,163
Interest earned (1,554) (2,936) (2,286)
Foreign currency transactions (1,561) (944) (2,246)
Miscellaneous - net 5,234 7,221 7,586
- ---------------------------------------------------------------------------------------------------------------------------
20,462 18,625 15,217
Income (loss) before taxes 116,114 110,481 (48,470)
Income tax expense (benefit) 43,099 41,199 (11,193)
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) 73,015 69,282 (37,277)
Dividend on preferred stock, net of tax 3,747 3,789 3,757
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) available to common shareholders $ 69,268 65,493 (41,034)
Per common share data
Basic earnings (loss) $ 1.97 1.80 (1.08)
Diluted earnings (loss) 1.85 1.67 (1.08)
===========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
22/23
<PAGE> 26
Consolidated Balance Sheets
Ferro Corporation and subsidiaries
<TABLE>
<CAPTION>
(dollars in thousands)
December 31 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 7,114 12,185
Accounts and trade notes receivable after deduction of
$8,801 in 1999 and $9,737 in 1998 for possible losses 261,501 249,771
Inventories 170,663 140,970
Other current assets 51,251 48,202
- ----------------------------------------------------------------------------------------------------
Total current assets 490,529 451,128
Property, plant and equipment
Land 21,055 14,583
Buildings 151,355 140,117
Machinery and equipment 543,317 485,627
- ----------------------------------------------------------------------------------------------------
715,727 640,327
Less accumulated depreciation and amortization 385,334 367,592
- ----------------------------------------------------------------------------------------------------
Net property, plant and equipment 330,393 272,735
Other assets
Unamortized intangibles 93,412 50,617
Miscellaneous other assets 57,416 74,685
- ----------------------------------------------------------------------------------------------------
Total assets $971,750 849,165
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes and loans payable $ 45,939 30,987
Accounts payable 131,923 105,932
Income taxes 6,777 4,006
Accrued payroll 19,246 19,762
Accrued expenses/other current liabilities 133,748 121,869
Total current liabilities 337,633 282,556
Other liabilities
Long-term debt, less current portion 236,794 156,283
Postretirement liabilities 49,712 45,426
Other non-current liabilities 50,616 81,639
Shareholders' equity
Serial convertible preferred stock, without par value.
Authorized 2,000,000 shares; 1,520,215 shares issued 70,500 70,500
Guaranteed ESOP obligation -- (4,067)
Common stock, par value $1 per share.
Authorized 300,000,000 shares; 47,323,053 shares issued 47,323 47,323
Paid-in capital 17,482 7,954
Retained earnings 503,309 453,265
Accumulated other comprehensive income (74,459) (44,927)
Other (8,714) (6,758)
- ----------------------------------------------------------------------------------------------------
555,441 523,290
Less cost of treasury stock:
Common-12,153,584 shares-1999 and 11,995,955 shares-1998 240,506 226,076
Preferred-386,860 shares-1999 and 300,881 shares-1998 17,940 13,953
- ----------------------------------------------------------------------------------------------------
Total shareholders' equity 296,995 283,261
Commitments and contingencies
- ----------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $971,750 849,165
====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 27
Consolidated Statements of Shareholders' Equity
Ferro Corporation and subsidiaries
<TABLE>
<CAPTION>
Years ended December 31 (dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------------
Accumulated
other com- Common Preferred Total
Guaranteed prehensive stock stock share-
Preferred ESOP Common Paid-in Retained income (loss) held in held in holders'
stock obligation stock capital earnings (a)(b) treasury treasury Other equity
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 $70,500 (22,592) 31,549 14,107 463,177 (27,804)(132,595) (8,408) (3,730) 384,204
Comprehensive income (loss)
Net income (loss) (37,277) (37,277)
Other comprehensive income
(loss), net of tax(a)
- ---------------------------------------------------------------------------------------------------------------------------
Foreign currency
translation adjustment (27,467) (27,467)
Minimum pension
liability adjustment 868 868
Other comprehensive income (loss) (26,599)
Comprehensive income (loss) (63,876)
Cash dividends:
Common (16,428) (16,428)
Preferred (4,229) (4,229)
Federal tax benefits 525 525
Transactions involving benefit plans 8,777 3,589 7,871 (2,750) (1,268) 16,219
Three-for-two stock split 15,774(15,788) (14)
Purchase of treasury stock (43,250) (43,250)
- ---------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1997 $70,500 (13,815) 47,323 1,908 405,768 (54,403)(167,974) (11,158) (4,998) 273,151
Comprehensive income
Net income 69,282 69,282
Other comprehensive income
(loss), net of tax(a)
Foreign currency
translation adjustment 11,005 11,005
Minimum pension
liability adjustment (1,529) (1,529)
Other comprehensive income 9,476
Comprehensive income 78,758
Cash dividends:
Common (18,072) (18,072)
Preferred (4,038) (4,038)
Federal tax benefits 325 325
Transactions involving benefit plans 9,748 6,046 6,082 (2,795) (1,760) 17,321
- ---------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (64,184) (64,184)
- ---------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1998 $70,500 (4,067) 47,323 7,954 453,265 (44,927)(226,076) (13,953) (6,758) 283,261
Comprehensive income
Net income 73,015 73,015
Other comprehensive income
(loss), net of tax(a)
Foreign currency
translation adjustment (30,161) (30,161)
Minimum pension
liability adjustment 629 629
Other comprehensive income (loss) (29,532)
Comprehensive income 43,483
Cash dividends:
Common (19,383) (19,383)
Preferred (3,779) (3,779)
Federal tax benefits 191 191
Transactions involving benefit plans 4,067 9,528 5,626 (3,987) (1,956) 13,278
Purchase of treasury stock (20,056) (20,056)
- ---------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1999 $70,500 -- 47,323 17,482 503,309 (74,459)(240,506) (17,940) (8,714) 296,995
===========================================================================================================================
</TABLE>
(a) Income tax (expense) benefits related to the components of other
comprehensive income (loss) were $(729), $679 and $340 in 1999, 1998 and
1997, respectively.
(b) Accumulated translation adjustments were $(70,927), $(40,766), $(51,771)
and $(24,304) and accumulated minimum pension liability adjustments were
$(3,532), $(4,161), $(2,632) and $(3,500) at December 31, 1999, 1998,
1997 and 1996, respectively.
See accompanying notes to consolidated financial statements.
24/25
<PAGE> 28
Consolidated Statements of Cash Flows
Ferro Corporation and subsidiaries
<TABLE>
<CAPTION>
(dollars in thousands)
Years ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 73,015 69,282 (37,277)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization 48,501 43,122 44,975
Change in deferred income taxes 5,078 4,652 (48,823)
Realignment charge -- -- 152,790
Changes in current assets and liabilities,
net of effects of acquisitions
Accounts and trade notes receivable 603 (14,687) (1,119)
Inventories (4,126) (13,357) 23,544
Other current assets 5,520 (902) (10,939)
Accounts payable 20,408 (5,290) (2,238)
Accrued expenses and other current liabilities (12,459) (3,037) 11,414
Other operating activities (9,385) 248 (2,044)
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 127,155 80,031 130,283
Cash flow from investing activities
Capital expenditures for plant and equipment (76,244) (60,274) (45,129)
Acquisition of companies, net of cash acquired (119,477) (4,146) --
- -----------------------------------------------------------------------------------------------------
Proceeds from sale of assets 8,966 2,860 7,332
Other investing activities (4,798) (12) 1,250
- -----------------------------------------------------------------------------------------------------
Net cash used by investing activities (191,553) (61,572) (36,547)
Cash flow from financing activities
Net borrowings (payments) under short-term lines 14,952 7,718 (25,290)
Proceeds from long-term debt 117,207 54,297 760
Principal payments on long-term debt (36,464) (1,254) (1,938)
Proceeds from sale of stock 7,162 5,084 4,801
Purchase of treasury stock (20,056) (64,184) (43,250)
Cash dividends paid (23,162) (22,110) (20,657)
Other financing activities (223) (590) (1,560)
- -----------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 59,416 (21,039) (87,134)
Effect of exchange rate changes on cash (89) (1,572) (4,291)
- -----------------------------------------------------------------------------------------------------
Increase (Decrease) in cash and cash equivalents (5,071) (4,152) 2,311
Cash and cash equivalents at beginning of period 12,185 16,337 14,026
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 7,114 12,185 16,337
====================================================================================================
Cash paid during the period for
Interest $ 14,795 13,879 8,473
Income taxes $ 23,200 40,909 36,917
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 29
Notes to Consolidated Financial Statements
Ferro Corporation and subsidiaries
Years ended December 31, 1999, 1998 and 1997
1. Summary of significant accounting policies
NATURE OF OPERATIONS
Ferro Corporation is a worldwide producer of performance materials for
manufacturers. Ferro produces a variety of coatings, chemicals and plastics by
utilizing organic and inorganic chemistry. The Company's materials are used
extensively in the markets of building and renovation, major appliances,
household furnishings, transportation, and industrial products. Ferro's products
are sold principally in the United States and Europe; however, operations extend
to the Latin America and Asia-Pacific regions.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all of its subsidiaries after elimination of significant intercompany
accounts, transactions and profits.
Certain amounts in the 1998 and 1997 financial statements and the
accompanying notes have been reclassified to conform to the 1999 presentation.
Financial results for acquisitions are included in the consolidated
financial statements from the date of acquisition.
TRANSLATION OF FOREIGN CURRENCIES
Except for international companies whose functional currency is the U.S.
dollar, financial statements of international companies are translated to U.S.
dollar equivalents at the following exchange rates: (1) balance sheet accounts
at year-end rates; (2) income statement accounts at exchange rates weighted by
the monthly volume of transactions occurring during the year. Translation gains
or losses are recorded in shareholders' equity as a component of accumulated
other comprehensive income, and transaction gains and losses are reflected in
net income.
For countries where the U.S. dollar is the functional currency,
remeasurement and transaction gains or losses are reflected in net income.
CASH EQUIVALENTS
Cash Equivalents Consist of Highly Liquid Instruments With a Maturity of
Three Months or Less and are Carried At Cost, Which Approximates Market Value.
RISK MANAGEMENT DERIVATIVES
Derivatives primarily consist of foreign currency forward exchange
contracts and foreign currency options. Gains and losses related to qualifying
hedges of firm commitments are deferred and are recognized as adjustments of
carrying amounts when the hedged transaction occurs. Gains and losses on
derivative financial instruments that do not qualify as hedges are recognized as
foreign currency transaction gains or losses. Premiums paid on purchased options
are deferred and amortized over the life of the option.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
utilizing the first-in, first-out (FIFO) method, except for selected domestic
inventories where the last-in, first-out (LIFO) method is used.
LONG-LIVED ASSETS
In the case of goodwill and other intangibles, the excess cost over
equity in net assets of acquired companies is being amortized over periods
benefited, ranging from 15 to 40 years. Accumulated amortization was $32.0
million and $25.9 million at December 31, 1999 and 1998, respectively.
Property, plant and equipment is carried at cost. Depreciation of plant
and equipment is provided on a straight-line basis for financial reporting
purposes. The annual depreciation provision is based on the following estimated
useful lives:
Buildings 20 to 40 years
Machinery and equipment 5 to 15 years
26/27
<PAGE> 30
Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. In
the event of impairment, a loss is recognized for the excess of the carrying
amount over fair value.
ENVIRONMENTAL COSTS
The Company expenses recurring costs associated with control and disposal
of hazardous materials in current operations. Costs associated with the
remediation of environmental pollution are accrued when it becomes probable that
a liability has been incurred and the costs can be reasonably estimated.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.
EARNINGS PER SHARE
Basic earnings per share are based on a weighted average of common shares
outstanding. Diluted earnings per share reflect the potential dilution of
earnings per share assuming that certain stock options whose exercise price is
less than the average market price of the stock are exercised and that
convertible preferred shares are converted into common shares.
2. Inventories
The portion of inventories valued by the LIFO method at December 31, 1999
and 1998 is as follows:
1999 1998
- ----------------------------------------------------------------
United States 40% 52%
Consolidated 20% 22%
================================================================
If the Fifo Method of Inventory Valuation Had Been Used Exclusively by
the Company, Inventories Would Have Been $11.7 Million and $14.5 Million Higher
Than Reported At December 31, 1999 and 1998, Respectively.
Since certain of the inventory costs are determined by use of the LIFO
dollar value method (under which the raw materials, work in process and finished
goods are included in one pool), it is not practicable to separate LIFO
inventory values among raw materials, work in process and finished goods.
3. Financing and long-term debt
Long-term debt at December 31, 1999 and 1998 are as follows:
(dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------
Debentures, 7.125%,
due 2028 $ 54,406 54,385
Debentures, 7.625%,
due 2013 24,816 24,808
Debentures, 8.0%,
due 2025 49,411 49,388
Debentures, 7.375%,
due 2015 24,943 24,939
Revolving credit agreement 80,000 --
Other 3,965 3,873
- --------------------------------------------------------------------------------
237,541 157,393
Less current portion(a) 747 1,110
- --------------------------------------------------------------------------------
Total $236,794 156,283
================================================================================
(a)Included in notes and loans payable.
The aggregate principal payments on long-term indebtedness for the next
five years are as follows:
(dollars in thousands)
- --------------------------------------------------------------------------------
2000 2001 2002 2003 2004
- --------------------------------------------------------------------------------
$747 2,133 542 80,260 283
================================================================================
At December 31, 1999, $1.8 million of long-term indebtedness was secured
by property, equipment and certain other assets with a net book value
approximating $2.5 million. At December 31, 1999, the Company had $155.0 million
principal amount outstanding under debentures which had an estimated fair market
value of $145.1 million.
<PAGE> 31
In 1995, the Company filed a $300.0 million Shelf Registration with the
Securities and Exchange Commission. This registration will enable the Company to
offer, separately or together, debt securities, common stock and/or preferred
stock, warrants, stock purchase contracts, depositary shares and stock purchase
units. Proceeds from securities issued under the Shelf Registration may be used
for general corporate purposes.
In 1998, the Company issued $55.0 million 71/8% debentures due 2028 under
the 1995 Shelf Registration.
The Company has a five-year revolving credit agreement in the amount of
$150.0 million, which matures on August 1, 2003. The agreement permits the
maturity date to be extended for one year with the consent of the parties.
Interest on revolving credit borrowings is payable at floating prime or lower
rates based on Company options. There is a commitment fee of 3/16% per year. At
December 31, 1999, the Company had borrowed $80.0 million under this agreement.
There are no covenants in the revolving credit agreement which
significantly limit the dividend payment capability of the Company, and the
Company does not expect to include any such covenants in future offerings under
the Shelf Registration. In addition, there are no significant restrictions on
the payment of dividends by the subsidiaries and affiliates of the Company.
In 1989, the Company created an Employee Stock Ownership Plan (ESOP). The
ESOP borrowed $63.5 million at an interest rate of 8.5% and $7.0 million at an
adjustable interest rate in 10-year loans guaranteed by the Company. On June 30,
1999, the final principal payments on these obligations were made, repaying the
borrowings in full. Prior to 1999 the Company reflected the guaranteed ESOP
borrowings as a loan guarantee on its balance sheet with a like amount of
"Guaranteed ESOP Obligation" recorded as a reduction of shareholders' equity.
Capitalized interest was $1.3 million, $0.6 million and $0.5 million in
1999, 1998 and 1997, respectively.
The maintenance of minimum cash balances is informally agreed to with
certain banks as a result of loans, commitments and services rendered. Cash
balances maintained to meet operating needs on a daily basis are sufficient to
satisfy these informal agreements. These balances are available for use by the
Company and its subsidiaries at all times and do not contain legal restrictions.
Cash in excess of such operating requirements is invested in short-term
securities.
4. Stock plans
The Company maintains a stock option plan, a performance share plan and a
savings and stock ownership plan which includes an investment savings plan and
an ESOP for the benefit of its employees.
The stock option plan provides for the issuance of stock options at no
less than the then current market price. Stock options have a maximum term of 10
years and vest evenly over four years.
Information pertaining to these stock options is shown below:
1999 1998 1997
- --------------------------------------------------------------------------------
Options granted 648,557 642,935 682,942
Average option price $ 22.36 23.58 19.56
Options exercised 350,862 277,139 379,149
Average option price $ 16.05 12.96 11.18
Options which became
exercisable 520,263 461,739 363,454
Average option price $ 19.31 18.29 17.85
Options unexercised
at year-end 3,021,144 2,820,764 2,478,641
Option price range
per share $ 8.89 8.89 8.89
to $29.25 to 29.25 to 22.67
Options cancelled 89,409 23,673 25,304
Options available
for granting
future options 818,125 1,377,273 1,996,535
================================================================================
Significant option groups outstanding at December 31, 1999 and the
related weighted-average price for the exercisable options and remaining life
information are as follows:
Options Outstanding Options Exercisable
- -------------------------------------------------------
Range of Average Remaining Average
exercise exercise Life average exercise
prices Shares price (years) shares price
- -------------------------------------------------------
$26-30 142,017 $28.46 9.2 6,875 $28.66
22-26 694,445 22.98 6.9 347,828 22.88
18-22 1,376,410 20.29 6.9 633,839 19.96
10-18 764,715 15.79 4.6 669,735 15.79
8-10 43,557 8.89 1.0 43,557 8.89
- -------------------------------------------------------
$ 8-30 3,021,144 $19.99 6.3 1,701,834 $18.67
- -------------------------------------------------------
All options were granted at an exercise price equal to the fair market
value of the Company's common stock at the date of grant. The weighted-average
fair market value at date of grant for options granted during 1999, 1998 and
1997 was $8.39, $8.16 and $6.89 per
28/29
<PAGE> 32
option, respectively. The fair value of options at date of grant was estimated
using the Black-Scholes model with the following weighted-average assumptions:
1999 1998 1997
- -------------------------------------------------------------------------------
Expected life (years) 8.1 8.5 8.5
Interest rate 5.42% 5.85 5.84
Volatility 33.50 25.25 25.25
Dividend yield 2.22 1.88 1.88
================================================================================
On a pro forma basis, had compensation cost for the Company's stock
option plan been determined based on the fair value at the grant date, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts shown below:
1999 1998 1997
- -------------------------------------------------------------------------------
Net income (loss)
as reported $73,015 69,282 (37,277)
Net income (loss)
pro forma 69,958 67,013 (39,138)
Income (loss) per share
(diluted) as reported $ 1.85 1.67 (1.08)
Income (loss) per share
(diluted) pro forma $ 1.76 1.61 (1.13)
================================================================================
The pro forma effects on net income (loss) are not representative of the
pro forma effects on net income in future years because they do not take into
consideration pro forma compensation expense related to grants made prior to
1996.
The Company maintains a performance share plan whereby awards,
expressed as shares of common stock of the Company, are earned only if the
Company meets specific performance targets over a three-year period. The plan
pays 50% cash and 50% common stock for the value of any earned performance
shares. Performance share awards in the amount of 769,337 shares, 832,007 shares
and 601,802 shares were outstanding at the end of 1999, 1998 and 1997,
respectively. The Company accrues amounts based on performance reflecting the
value of cash and common stock, which is anticipated to be earned. The effect of
the plan was to reduce income by $2.1 million, $3.5 million and $2.7 million in
1999, 1998 and 1997, respectively.
The ESOP provides for the Company to match eligible employee pre-tax
savings. Amounts expensed under the ESOP were $3.5 million, $3.5 million and
$3.3 million in 1999, 1998 and 1997, respectively.
5. Capital stock
In 1989, Ferro issued 1,520,215 shares of 7% Series A ESOP Convertible
Preferred Stock to National City Bank, trustee for the Ferro ESOP. The shares
were issued at a price of $46.375 per share for a total consideration of $70.5
million. Each share of ESOP convertible preferred stock is convertible into
2.5988 shares of common stock. As the loans are repaid by the trustee, preferred
shares are allocated to participating individual employee accounts. The Company
is required to repurchase at the original issue price, for cash or common stock
at the Company's option, the preferred shares allocated to an employee's ESOP
account upon distribution of such account to the employee unless such shares
have been converted to common stock. Each preferred share carries one vote,
voting together with the common stock on most matters.
The Company purchased 892,779 shares of common stock in 1999 at an
aggregate cost of $20.1 million; 2,595,482 shares of common stock in 1998 at an
aggregate cost of $64.2 million; and 1,346,627 shares of common stock in 1997 at
an aggregate cost of $43.3 million. At December 31, 1999, the Company had
remaining authorization to acquire 2,075,133 shares under the then current
treasury stock purchase program.
The Company maintains a Shareholder Rights Plan ("the Plan") whereby,
until the occurrence of certain events, each share of the outstanding common
stock represents ownership of one right (Right). The Rights become exercisable
only if a person or group acquires 20% or more of the Company's common stock
(10% under certain circumstances) or commences a tender or exchange offer upon
consummation of which such person or group would control 20% or more of the
common shares or is declared an Adverse Person (as defined in the Plan) by the
Board of Directors. The Rights, which do not have the right to vote or receive
dividends, expire on April 8, 2006. Rights may be redeemed by the Company at
$0.031/3 per Right at any time until the 15th day following public announcement
that a person or group has acquired 20% or more of the voting power, unless such
period is extended by the Board of Directors while the Rights are redeemable.
If any person becomes the owner of 20% or more of the common stock (10%
under certain circumstances), or if the Company is the surviving corporation in
a merger with a 20% or more stockholder and its common shares are not changed or
converted, or if a
<PAGE> 33
20% or more stockholder engages in certain self-dealing transactions with the
Company, then each Right not owned by such person or related parties will
entitle its holder to purchase shares of common stock at a purchase price of 50%
of the then current market price of the common stock up to a value of $73.33 per
Right.
In the event the Company engages in a merger or other business
combination transaction in which the Company is not the surviving corporation or
the Company is the surviving corporation but its common stock is changed or
exchanged or 50% or more of the Company's assets or earning power is sold or
transferred, each holder of a Right shall have the right to receive, upon
exercise thereof at the then current exercise price of the Right, that number of
shares of common stock of the surviving company which at the time of the
transaction would have a market value of two times the exercise price of the
Right.
6. Earnings per share computation
Information concerning the calculation of basic and diluted earnings per
share (EPS) is shown below:
(in thousands, except EPS) 1999 1998 1997
- --------------------------------------------------------------------------------
Basic EPS Computation
Numerator:
Net income (loss)
available $69,268 65,493 (41,034)
Denominator:
Weighted-average
common shares
outstanding 35,197 36,419 38,132
- --------------------------------------------------------------------------------
Basic EPS $ 1.97 1.80 (1.08)
- --------------------------------------------------------------------------------
Diluted EPS Computation
Numerator:
Net income (loss)
available $69,268 65,493 (41,034)
Convertible
preferred stock 2,371 2,205 (a)
Net income (loss)
assuming
conversion $71,639 67,698 (41,034)
Denominator:
Weighted-average
common shares
outstanding 35,197 36,419 38,132
Convertible
preferred stock 3,043 3,247 (a)
Options 567 813 (a)
Total shares 38,807 40,479 38,132
- --------------------------------------------------------------------------------
Diluted EPS $ 1.85 1.67 (1.08)
================================================================================
(a) Use basic EPS since conversion of preferred shares and options would be
anti-dilutive.
7. Acquisitions, divestitures and realignment
In July 1999, the Company purchased TAM Ceramics Incorporated (TAM),
based in Niagara Falls, New York. TAM is a leading supplier of dielectric
powders for the electronics industry and zircon-based ceramics powders for a
variety of uses.
In March 1999, the Company acquired Advanced Polymer Compounding Company
(APC), a supplier of high-performance thermoplastic elastomers and engineering
plastic compounds. APC is headquartered in Carpentersville, Illinois.
The aggregate cash purchase price for the above two acquisitions was
approximately $109.2 million. The purchase price was allocated based on the fair
value of assets and liabilities at the dates of acquisition, with approximately
$44.1 million being assigned to goodwill which is being amortized over 15 to 20
years.
In January 2000, the Company announced that it had reached an agreement
in principle to sell its Pyro-Chek(R) flame retardant business. The Company
expects to complete this transaction in the first half of 2000.
In March 1999, the Company sold its Filtros porous ceramics business,
based in East Rochester, New York.
In May 1998, the Company acquired the assets of Ningbo Powder Coatings
Company Ltd., located in the People's Republic of China.
In March 1998, the Company sold a majority of its shares in Ferro
Ecuatoriana S.A., located in Ecuador.
In July 1997, the Company sold the remaining interest in Nissan-Ferro
Organic Chemical Company, Ltd., located in Japan.
The Company sold or closed operations representing annual sales of $0.7
million, $5.1 million and $20.5 million in 1999, 1998 and 1997, respectively.
The above acquisitions and divestitures were not material to Ferro.
In the second quarter of 1997, the Company announced a program to
consolidate manufacturing facilities and reduce headcount worldwide. At that
time, the Company recorded a pre-tax charge of $152.8 million to recognize
impairment of assets, expected severance related to headcount reduction and
other related costs. In connection with this plan, the Company has closed, sold
or consolidated more than 20 facilities worldwide through December 1999 and
asset impairment charges have amounted to $94.7 million. In addition, the
Company has paid, or accrued, severance
30/31
<PAGE> 34
and related costs of approximately $24.0 million to date under the program.
Other costs incurred amount to $16.0 million through December 1999, of which
$6.2 million was cash payments. The Company expects to complete the program in
the year 2000 and has $15.3 million remaining of the original reserve reflected
in other accrued liabilities. During 1999, the Company sold facilities provided
for under the realignment program and adjusted the reserves established on these
facilities to reflect the actual gain or loss on the sale.
8. Contingent liabilities
In 1994, the Company's Keil Chemical Division (Keil), located in Hammond,
Indiana, settled an enforcement proceeding brought by the Indiana Department of
Environmental Management (IDEM) concerning air emissions from Keil's
Pyro-Chek(R) process. The settlement was in the form of an Agreed Order with
IDEM. The Agreed Order confirmed the Company's plans to install additional
controls and imposed certain aggregate limitations on air emissions from the
Pyro-Chek(R) production process while the Company applied for and obtained a
construction and operating permit for the existing air source. The control
equipment was installed, but the Company has had a continuing disagreement with
the agency over whether it has been in compliance with the Agreed Order,
including which methods should be used to demonstrate compliance.
In November 1998, IDEM filed suit in Indiana state court seeking to shut
down Keil's operation of the Pyro-Chek(R) process. At a hearing held on December
4, 1998, the court denied IDEM's request for a preliminary injunction, and later
dismissed the claim for a permanent injunction on grounds that the dispute
arising out of the Agreed Order should be addressed before the Indiana Office of
Environmental Adjudication. The day before this hearing, IDEM denied Keil's
application for a permit for air emissions for the Pyro-Chek(R) process. The
Company appealed IDEM's denial of Keil's permit application to the Indiana
Office of Environmental Adjudication.
On December 29, 1998, IDEM wrote to the Company alleging that because
Keil is in violation of the Agreed Order, operation of the Pyro-Chek(R) process
is prohibited, and that the Company will be subject to fines of up to $25,000
for each day of continued operation. The Company filed a petition for review
before the Indiana Office of Environmental Adjudication seeking to confirm that
operation of the Pyro-Chek(R) process has been and remains in compliance with
the Agreed Order. On February 24, 1999, IDEM withdrew its December 29, 1998
letter alleging that Keil was in violation of the Agreed Order and that the
Pyro-Chek(R) process is prohibited. On March 15, 1999, the Company's petition
for review was dismissed without objection.
On May 4, 1999, and December 16, 1999, the United States Environmental
Protection Agency (U.S. EPA) issued "Notices of Violation"(NOVs) alleging that
Keil violated various requirements of the Clean Air Act and related State laws
in modifying and operating the Pyro-Chek(R) process. The Company has met with
U.S. EPA and entered into negotiations intended to resolve the issues raised in
the NOVs. If the matter cannot be resolved through negotiation, and the United
States pursues and recovers the maximum potential penalties on all of its
claims, it could have a material adverse effect on the Company. However, the
Company believes that it will resolve this matter in a manner that will not have
a material adverse effect.
There are also pending against the Company and its consolidated
subsidiaries various other lawsuits and claims beyond those mentioned above. In
the opinion of management, the ultimate liabilities resulting from such other
lawsuits and claims will not materially affect the consolidated financial
position or results of operations or liquidity of the Company.
9. Research and development expense
Amounts expended for development or significant improvement of new and/or
existing products, services and techniques approximated $30.9 million, $29.4
million and $26.6 million in 1999, 1998 and 1997, respectively.
<PAGE> 35
10. Retirement benefits
Information concerning the pension and other postretirement benefit plans
of the Company and consolidated subsidiaries is as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $267,148 231,547 $ 38,470 35,253
Service cost 8,489 7,199 971 777
Interest cost 16,683 15,996 2,569 2,515
Amendments 369 347 -- --
Effect of curtailment gain (loss) 12 (737) -- --
Plan participants' contributions 399 468 -- --
Benefits paid (11,297) (11,014) (2,148) (1,822)
Acquisitions 13,249 -- 3,240 --
Actuarial loss (gain) (30,788) 20,669 (1,098) 1,747
Exchange rate effect (8,366) 2,673 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year 255,898 267,148 42,004 38,470
Change in plan assets:
Fair value of plan assets at beginning of year 238,036 220,575 -- --
Actual return on plan assets 26,805 21,702 -- --
Employer contribution 4,020 3,339 2,148 1,822
Plan participants' contributions 399 468 -- --
Benefits paid (11,297) (11,014) (2,148) (1,822)
Acquisitions 17,634 -- -- --
Exchange rate effect (8,953) 2,966 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year 266,644 238,036 -- --
Funded status 10,746 (29,112) (42,004) (38,470)
Unrecognized net actuarial loss (gain) (33,337) 4,864 (7,185) (6,255)
Unrecognized prior service cost 4,355 4,703 (523) (701)
- ---------------------------------------------------------------------------------------------------------------------------
Net amount recognized $ (18,236) (19,545) $(49,712) (45,426)
Amounts recognized in the statement of financial
position consist of:
Prepaid benefit cost $ 4,604 3,099 $ -- --
Accrued benefit liability (24,725) (28,070) (49,712) (45,426)
Intangible asset 938 1,620 -- --
Accumulated other comprehensive income 947 3,806 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net amount recognized $ (18,236) (19,545) $(49,712) (45,426)
Weighted-average assumptions as of December 31
Discount rate 7.43% 6.50 7.93 6.84
Expected return on plan assets 8.20% 8.10 N/A N/A
Rate of compensation increase 3.9% 4.1 N/A N/A
===========================================================================================================================
</TABLE>
32/33
<PAGE> 36
For measurement purposes, a 9.0% increase in the cost of covered health
care benefits was assumed for 2000, gradually decreasing to 5.0% for 2008 and
later years.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
(dollars in thousands) 1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic cost
Service cost $ 8,489 7,199 6,484 $ 971 777 671
Interest cost 16,683 15,996 15,198 2,569 2,515 2,479
Expected return on plan assets (18,626) (18,208) (16,513) -- -- --
Amortization of prior service cost 976 935 962 (177) (177) (177)
Net amortization and deferral 100 (425) (685) (169) (330) (507)
Curtailment effect 46 (609) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 7,668 4,888 5,446 $3,194 2,785 2,466
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $21.9 million, $21.7 million and $13.0 million,
respectively, as of December 31, 1999 and $29.1 million, $28.8 million and $16.2
million, respectively, as of December 31, 1998.
A one-percentage point change in the assumed health care cost trend rates
would have the following effect:
1-Percentage 1-Percentage
(dollars in thousands) Point Increase Point Decrease
- --------------------------------------------------------------------------------
Effect on total of
service and interest
cost component $ 273 (250)
Effect on postretirement
benefit obligation $1,306 (2,396)
================================================================================
Costs for defined contribution pension plans were $0.6 million in 1999,
1998 and 1997.
The Company also maintains other supplemental retirement plans under
which it expensed $4.7 million, including $3.1 million settlement cost, $1.4
million and $1.7 million in the years ended December 31, 1999, 1998 and 1997,
respectively.
11. Income tax expense
INCOME TAX EXPENSE (BENEFIT) IS COMPRISED OF THE FOLLOWING COMPONENTS:
(dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Current:
U.S. federal $13,708 19,583 21,958
Foreign 20,493 20,753 14,354
State and local 1,055 3,416 3,758
- --------------------------------------------------------------------------------
35,256 43,752 40,070
Deferred:
U.S. federal 6,565 (1,381) (25,173)
Foreign 212 (774) (21,908)
State and local 1,066 (398) (4,182)
- --------------------------------------------------------------------------------
7,843 (2,553) (51,263)
Total income tax $43,099 41,199 (11,193)
================================================================================
In addition to the 1999 income tax expense of $43,099, certain tax
benefits of $0.6 million were allocated directly to shareholders' equity.
The above taxes are based on earnings before income taxes. These
earnings (losses) aggregated $59.5 million, $60.7 million and $(14.5) million
for domestic operations and $56.6 million, $49.8 million and $(34.0) million for
foreign operations in 1999, 1998 and 1997, respectively.
<PAGE> 37
A reconciliation of the statutory federal income tax rate and the
effective tax rate follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Statutory federal income
tax rate 35.0% 35.0 (35.0)
Foreign tax rate difference 0.8 2.3 1.6
U.S. taxes on dividends
from subsidiaries (0.7) 0.4 1.4
Foreign sales corporation (0.9) (1.0) (0.3)
State and local taxes
net of federal 1.5 1.8 3.9
Realignment charge -- -- 7.2
Miscellaneous 1.4 (1.2) (1.9)
- --------------------------------------------------------------------------------
Effective tax rate 37.1% 37.3 (23.1)
================================================================================
The components of deferred tax assets and liabilities at December 31
were:
(dollars in thousands) 1999 1998
Deferred tax assets:
Pension and other
benefit programs 28,824 29,502
Accrued liabilities 22,459 30,114
Net operating loss carryforwards 8,220 8,342
Inventories 2,446 3,730
Other 10,401 12,582
- --------------------------------------------------------------------
Total deferred tax assets $72,350 84,270
Deferred tax liabilities:
Property and equipment -
depreciation and amortization 22,948 14,211
Other 1,454 1,173
- --------------------------------------------------------------------
Total deferred tax liabilities $24,402 15,384
Net deferred tax asset before
valuation allowance 47,948 68,886
Valuation allowance (6,448) (6,475)
- --------------------------------------------------------------------
Net deferred tax assets $41,500 62,411
====================================================================
At December 31, 1999, the Company's foreign subsidiaries had deferred tax
assets relating to net operating loss carryforwards for income tax purposes of
$8.2 million that expire in years 2000 through 2004, and in two instances have
no expiration period. For financial reporting purposes, a valuation allowance of
$6.1 million has been recognized to offset the deferred tax assets relating to
the net operating loss carryforwards.
Of the total deferred tax assets, $29.2 million and $26.5 million were
classified as current at December 31, 1999 and 1998, respectively.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $113.4 million. Deferred income taxes are not provided on these
earnings as it is intended that the majority of these earnings are indefinitely
invested in these entities.
12. Reporting for segments
In determining reportable segments, the Company considered its operating
and management structure and the types of information subject to regular review
by its "chief operating decision maker." On this basis, the Company's reportable
segments include Coatings, Chemicals and Plastics.
Principal products from which the Coatings segment derives its revenues
are ceramic glaze coatings, inorganic color, and powder and porcelain enamel
coatings and electronic materials. The Chemicals segment's principal products
include polymer additives as well as performance and fine chemicals. Revenues
for the Plastics segment result primarily from the sale of plastic colorants and
filled and reinforced plastics.
The accounting policies of the segments are consistent with those
described for the consolidated financial statements in the summary of
significant accounting policies (see Note 1). The Company measures segment
profit for internal reporting purposes as net operating profit before interest
and tax. Excluded from net operating profit are such items as realignment
charges and unallocated corporate expenses. A complete reconciliation of segment
income to consolidated income before tax is presented below.
Sales to external customers are presented in the following chart.
Intersegment sales are not material.
(dollars in millions) 1999 1998 1997
- ------------------------------------------------------------------------
Net sales
Coatings $ 810.4 817.8 815.4
Chemicals 290.0 305.3 328.0
Plastics 254.9 238.7 237.9
- ------------------------------------------------------------------------
Total $1,355.3 1,361.8 1,381.3
========================================================================
34/35
<PAGE> 38
Income and reconciliation to income (loss) before taxes follows:
(dollars in millions) 1999 1998 1997
- ------------------------------------------------------------------------
Coatings $ 94.2 89.3 84.2
Chemicals 34.2 36.4 32.4
Plastics 25.2 22.2 18.1
- ------------------------------------------------------------------------
Segment income 153.6 147.9 134.7
Unallocated expenses 17.2 18.7 15.1
Realignment charge -- -- 152.8
Interest expense 18.3 15.3 12.2
Interest earned (1.6) (2.9) (2.3)
Foreign currency (1.6) (0.9) (2.2)
Miscellaneous-net 5.2 7.2 7.6
- ------------------------------------------------------------------------
Income (loss)
before taxes $116.1 110.5 (48.5)
===============================================================================
Unallocated expenses consist primarily of corporate costs.
Depreciation and amortization
(dollars in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Coatings $ 29.4 25.7 25.8
Chemicals 11.0 10.8 12.2
Plastics 6.2 4.6 5.2
- --------------------------------------------------------------------------------
Segment
depreciation and
amortization 46.6 41.1 43.2
Other 1.9 2.0 1.8
- --------------------------------------------------------------------------------
Total consolidated $ 48.5 43.1 45.0
===============================================================================
Assets
(dollars in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Coatings $557.2 452.4 403.9
Chemicals 157.1 163.2 163.5
Plastics 114.5 83.1 75.4
- --------------------------------------------------------------------------------
Segment assets 828.8 698.7 642.8
Other assets 143.0 150.5 142.9
- --------------------------------------------------------------------------------
Total consolidated $971.8 849.2 785.7
===============================================================================
Segment assets consist of trade receivables, inventories, intangibles,
and property, plant and equipment net of applicable reserves. Other assets
include cash, deferred taxes and other items.
Expenditures for long-lived assets (including acquisitions)
(dollars in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Coatings $108.9 38.7 29.0
Chemicals 10.9 9.0 11.2
Plastics 33.5 6.8 3.7
- --------------------------------------------------------------------------------
Total $153.3 54.5 43.9
===============================================================================
Geographic information follows:
Net sales
(dollars in millions) 1999 1998 1997
United States
and Canada $ 756.7 737.3 748.6
International 598.6 624.5 632.7
- --------------------------------------------------------------------------------
Total $1,355.3 1,361.8 1,381.3
===============================================================================
Geographic revenues are based on the region in which the customer invoice
is generated. The United States of America is the single largest country for
customer sales. No other single country represents greater than 10% of
consolidated sales.
Long-lived assets
(dollars in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
United States
and Canada $303.0 218.4 207.0
International 120.8 106.3 87.5
- --------------------------------------------------------------------------------
Total $423.8 324.7 294.5
===============================================================================
Except for the United States of America, no single country has greater
than 10% of consolidated long-lived assets.
13. Financial instruments
The carrying amounts of cash and cash equivalents, trade receivables,
other current assets, accounts payable and amounts included in investments and
accruals meeting the definition of a financial instrument approximate fair
value.
It is the Company's hedging policy to neutralize or mitigate the
potentially negative effects of currency movements and raw material prices. The
Company's use of derivative financial instruments is limited to the hedging of
underlying exposures. The Company does not engage in speculative transactions
for trading purposes.
<PAGE> 39
The Company uses forward exchange contracts and currency options to hedge
its exposure to foreign currency fluctuations. Several of the Company's foreign
subsidiaries enter into forward contracts to protect against the risk of
increased cost of non-local currency-denominated raw materials. The most
prevalent transactions involve the purchase of U.S. dollars against the Euro.
The maturity of the hedge instruments is consistent with the underlying
exposure, generally not beyond one year. At December 31, 1999, the market value
of such forward contracts was $9.9 million, compared with a contract value of
$10.2 million.
The Company enters into foreign currency options to protect the U.S.
dollar value of profits generated by certain European operations. Such activity
involves the purchase of put options for the Euro against the U.S. dollar. The
maturity of the options is generally under one year. At December 31, 1999, the
face value or notional amount of all outstanding currency options was $11.1
million. If liquidated at year-end 1999, these options would have produced a
cash amount of $0.5 million versus an unamortized cost of $0.2 million.
The Company enters into selective foreign currency forward contracts to
protect the U.S. dollar value of certain intercompany loans or subsidiary
currency exposures. Such activities involve the forward sale of foreign
currencies against the U.S. dollar. The maturity date of the forward contract is
usually under one year. At December 31, 1999, the contract value of all
outstanding forward contracts was $22.3 million. If liquidated at year-end 1999,
these forward contracts would have produced a cash gain amount of $0.1 million.
All forward contract, option and hedging activity is executed with major
reputable multinational financial institutions. Accordingly, the Company does
not anticipate counterparty default.
14. Lease commitment
In 1995, in conjunction with an acquisition, the Company entered into a
five-year operating lease agreement for certain land, buildings, machinery and
equipment. The Company has the option to purchase the assets at the end of the
lease term for a price of $29.6 million. In the event the Company chooses not to
exercise this option, the Company is obligated to pay, or is entitled to receive
from the lessor, the difference between the net sales proceeds and the
outstanding lease balance.
Rentals are based on floating rates, and the total annual lease payments,
based on the amount outstanding as of December 31, 1999, are estimated to be
$1.8 million annually.
36/37
<PAGE> 40
Selected Financial Data
Ferro Corporation and subsidiaries
<TABLE>
<CAPTION>
Years ended December 31, 1989 through 1999
(dollars in thousands except per share data
and employee data) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating results(a)
Net sales $ 1,355,283 1,361,844 1,381,280 1,355,685 1,322,954
Income (loss) before taxes and cumulative
effect of changes in accounting principles 116,114 110,481 (48,470) 88,207 80,159
Income tax expense (benefit) $ 43,099 41,199 (11,193) 33,621 30,905
Net income (loss) $ 73,015 69,282 (37,277) 54,586 49,254
Income as a percent of sales before
cumulative effect of changes in
accounting principles 5.4% 5.1% -- 4.0% 3.7%
Return on average shareholders' equity 25.2% 24.9% -- 14.2% 13.2%
Per common share data(a,b)
Average shares outstanding 35,197,243 36,419,090 38,131,631 39,506,572 41,419,578
Basic earnings $ 1.97 1.80 (1.08) 1.29 1.10
Diluted earnings 1.85 1.67 (1.08) 1.21 1.04
Cash dividends 0.55 0.495 0.43 0.39 0.36
Book value 8.44 8.02 7.32 9.99 9.49
Financial condition at year-end
Current assets $ 490,529 451,128 427,030 416,522 433,530
Current liabilities 337,633 282,556 277,707 252,333 258,472
- -----------------------------------------------------------------------------------------------------------------------------------
Working capital 152,896 168,572 149,323 164,189 175,058
- -----------------------------------------------------------------------------------------------------------------------------------
Plant and equipment 715,727 640,327 561,181 683,129 653,352
Accumulated depreciation and amortization 385,334 367,592 321,001 375,746 364,064
- -----------------------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 330,393 272,735 240,180 307,383 307,288
- -----------------------------------------------------------------------------------------------------------------------------------
Other assets 150,828 125,302 118,469 146,563 136,294
Total assets 971,750 849,165 785,679 870,468 872,112
Long-term debt 236,794 156,283 102,020 105,308 104,910
ESOP loan guarantee -- 4,067 13,815 22,592 30,470
Postretirement liabilities 49,712 45,426 44,462 44,846 43,570
Other non-current liabilities 50,616 77,572 74,524 61,185 57,540
Shareholders' equity 296,995 283,261 273,151 384,204 382,150
Plant and equipment
Capital expenditures and acquisitions 118,670 64,420 45,129 50,592 60,733
Depreciation 42,417 38,650 39,421 42,283 40,233
Employees
Number (year-end) 6,881 6,693 6,851 6,912 6,914
Sales per employee $ 196,960 203,473 201,617 196,135 191,344
===================================================================================================================================
</TABLE>
<PAGE> 41
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
1,194,247 1,065,748 1,097,793 1,056,940 1,124,833 1,083,573
74,306 89,289 97,689 20,349 43,509 83,764
26,912 31,784 38,861 15,532 24,090 34,016
47,394 36,955 58,828 4,817 19,419 49,748
4.0% 5.4% 5.4% 0.5% 1.7% 4.6%
13.1% 16.3% 18.1% 1.6% 6.4% 16.8%
42,745,959 43,601,090 43,301,822 42,689,787 43,074,468 45,695,063
1.02 0.77 1.29 0.04 0.38 1.04
0.97 0.73 1.18 0.04 0.35 0.97
0.36 0.34 0.30 0.29 0.29 0.27
8.79 8.21 7.95 7.11 7.18 6.80
415,415 411,253 414,927 405,740 386,704 408,692
228,336 198,958 205,043 212,575 221,155 210,059
187,079 212,295 209,884 193,165 165,549 198,633
601,594 538,188 497,561 511,605 519,044 446,290
313,005 280,367 269,998 276,885 263,114 226,268
288,589 257,821 227,563 234,720 255,930 220,022
97,372 98,820 54,055 31,465 43,029 40,417
801,376 767,894 696,545 671,925 685,663 669,131
77,611 79,349 53,210 55,658 58,047 60,764
37,503 44,076 50,897 57,229 62,649 68,020
42,076 40,096 -- -- -- --
49,106 46,618 42,422 41,176 38,210 33,219
366,744 358,797 344,973 305,287 305,602 297,069
63,404 75,037 48,761 39,005 61,408 53,471
37,076 33,812 33,451 32,686 30,389 27,574
6,817 6,627 6,535 7,266 8,205 8,045
175,187 160,820 167,990 145,460 137,090 134,690
====================================================================================================
</TABLE>
(a) Included in 1997 is a pre-tax realignment charge of $152.8
million, which on an after-tax basis is $100.0 million, or $2.52 per common
share. Excluding the realignment charge, net income for 1997 would have been
$62.7 million, or $1.44 per common share. Included in 1993 is a pre-tax charge
of $3.0 million, which on an after-tax basis is $1.8 million, or $0.04 per
common share. Also included in 1993 is the cumulative effect of accounting
changes of $20.6 million, which on an after-tax basis is $0.47 per common share.
Included in 1991 is a pre-tax restructuring charge of $45.3 million, which on an
after-tax basis is $31.7 million, or $0.74 per common share. A litigation charge
of $12.0 million is included in 1990, which on an after-tax basis $7.9 million,
or $0.18 per common share. Excluding the charges in 1991 and 1990, net income
for 1991 would have been $36.5 million, or $0.78 per common share, and net
income for 1990 would have been $27.3 million, or $0.56 per common share.
(b) Basic earnings per share are based on a weighted average of common shares
outstanding. Diluted earnings per share further reflect the potential dilution
of earnings per share, assuming that certain stock options whose exercise price
is less than the average market price for the stock are exercised and that
convertible preferred shares are converted into common shares. Book value is
based on outstanding common shares and net worth at the end of the year.
Outstanding common shares and per share data are adjusted to reflect the 3-for-2
stock split in August 1989, 3-for-2 stock split in August 1992 and 3-for-2 stock
split in November 1997.
38/39
<PAGE> 42
Quarterly Data (Unaudited)
Ferro Corporation and subsidiaries
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
Per common share
- ---------------------------------------------------------------------------------------------------------------------------
Gross Net Basic Diluted Cash Common stock
Quarter Net sales profit income earnings earnings dividends price range
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 1 $ 331,481 92,216 17,101 0.46 0.43 0.135 $28.000-20.125
2 337,035 96,459 19,174 0.52 0.48 0.135 30.938-23.750
3 338,035 93,329 18,066 0.48 0.45 0.135 28.375-20.563
4 348,732 96,402 18,674 0.51 0.48 0.145 22.250-19.188
- ---------------------------------------------------------------------------------------------------------------------------
Total $1,355,283 378,406 73,015 1.97 1.85 0.550
- ---------------------------------------------------------------------------------------------------------------------------
1998 1 $ 339,763 90,141 17,055 0.43 0.40 0.120 $30.125-22.438
2 348,004 92,551 18,402 0.47 0.44 0.120 29.750-23.875
3 334,388 89,965 16,762 0.44 0.41 0.120 25.875-18.000
4 339,689 91,604 17,063 0.46 0.42 0.135 29.250-18.563
- ---------------------------------------------------------------------------------------------------------------------------
Total $1,361,844 364,261 69,282 1.80 1.67 0.495
===========================================================================================================================
</TABLE>
The common stock of the Company is listed on the New York Stock Exchange. Ticker
Symbol: FOE
At January 31, 2000, the Company had 2,315 holders of its common stock.
<PAGE> 43
Independent Auditors' Report
Ferro Corporation and subsidiaries
To the Shareholders and Board of Directors of Ferro Corporation
We have audited the accompanying consolidated balance sheets of Ferro
Corporation and subsidiaries as of December 31, 1999 and 1998 and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ferro
Corporation and subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
KPMG LLP
Cleveland, Ohio
January 25, 2000
40/41
<PAGE> 44
board of directors
[photos 1-5]
1 Hector R. Ortino
(1993) Chairman and Chief Executive Officer of Ferro, Age 57 [3]
2 Michael H. Bulkin
(1998) Private investor; Retired Director, McKinsey & Company, a management
consulting firm, Age 61 [2, 3]
3 John C. Morley
(1987) President, Evergreen Ventures, Ltd.; Retired Director, President and
Chief Executive Officer, Reliance Electric Company, a manufacturer of
industrial motors and controls, mechanical power transmission products and
specialty telecommunication systems and products, Age 68 [1, 3, 4]
4 William J. Sharp
(1998) President, North American Tire, The Goodyear Tire & Rubber Company, a
worldwide manufacturer of tires, chemicals and engineered products, Age 58
[1, 4]
5 Sandra Austin Crayton
(1994) President, PhyServ Solutions, Inc., a wholly owned subsidiary of
National Data Corporation; also President and CEO of Austin Associates, a
management consulting firm, Age 52 [2, 3, 4]
6 Albert C. Bersticker
(1978) Retired Chairman of Ferro. Age 65
7 William E. Butler
(1992) Retired Chairman and Chief Executive Officer, Eaton Corporation, a
manufacturer of engineered products for automotive, industrial, commercial
and military markets, Age 68 [2, 3]
8 Dr. Glenn R. Brown
(1988) Science advisor to the Governor of the State of Ohio; Retired Senior
Vice President and Director, Standard Oil Company, Age 69 [1, 2]
9 Dennis W. Sullivan
(1992) Executive Vice President, Parker Hannifin Corporation, a manufacturer
of fluid power products, Age 61 [1, 4]
10 Rex A. Sebastian
(1986) Private investor; Retired Senior Vice President, Operations, Dresser
Industries, a producer of energy and industrial-related products and
services, Age 70
11 William B. Lawrence
(1999) Executive Vice President, Law, Corporate Development and Government
Affairs, TRW Inc., a global provider of products and services for the
automotive, aerospace and information systems markets, Age 55
Note: Figures in parentheses indicate the year the Director was elected to the
Board. Figures in brackets indicate the Committee(s) on which a Director serves.
[1] Audit
[2] Compensation & Organization
[3] Executive
[4] Finance
42/43
<PAGE> 45
[photos 6-11]
Corporate Officers
David G. Campopiano
(1989) Vice President,
Mergers and Acquisitions, Age 50
Mark A. Cusick
(1995) Secretary
Principal Occupation:
Partner, Squire, Sanders & Dempsey
LLP, Attorneys at Law, Age 51
R. Jay Finch
(1991) Senior Vice President,
Specialty Plastics, Age 58
J. Larry Jameson
(1996) Senior Vice President,
Industrial Coatings, Age 62
Kent H. Lee, Jr.
(1996) Senior Vice President,
Specialty Chemicals, Age 58
Hector R. Ortino
(1971) Chairman and
Chief Executive Officer, Age 57
Millicent W. Pitts
(1998) Vice President,
Global Operations Support, Age 45
Paul V. Richard
(1983) Vice President,
Human Resources, Age 40
Robert A. Rieger
(1998) Vice President, Ceramics, Colors
and Electronic Materials, Age 49
Bret W. Wise
(1999) Senior Vice President and
Chief Financial Officer, Age 39
Note: Figures in parentheses indicate the year the Officer joined the
Corporation.
<PAGE> 46
Corporate Information
Automatic Dividend Reinvestment and Stock Purchase Plan
This Plan provides an opportunity for shareholders to purchase additional
shares of Ferro common stock by automatic reinvestment of dividends and by
optional additional periodic cash payments, without paying service charges or
brokerage commissions. These costs will be paid by Ferro.
The Plan is administered by National City Bank.
Any questions or correspondence about the Plan should be addressed to:
National City Bank Corporate
Trust Department
P.O. Box 92301
Cleveland, Ohio 44193-0900
216-476-8573
Toll free: 800-622-6757
Brokerage Accounts
To reduce communication delays that exist for some Ferro shareholders who
hold their stock in brokerage accounts, the Company will send its various
printed communications directly to these shareholders. If you would like to take
advantage of this service, please write to: Treasury Department, Ferro
Corporation, 1000 Lakeside Avenue, P.O. Box 147000, Cleveland, Ohio 44114-7000,
U.S.A., indicating the number of Ferro shares owned and the name and address of
the brokerage firm that administers your account.
Stock Transfer Agent/Registrar
and Dividend Disbursing Agent
National City Bank
P. O. Box 5756
Cleveland, Ohio 44101-0756
Trustee 7 3/8%, 7 5/8%, 7 1/8% and
8% Debentures
Chase Manhattan Trust Company
National Association
Chase Financial Tower
250 West Huron Road, Suite 220
Cleveland, Ohio 44113
Independent Auditors
KPMG LLP
1500 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114
Exchange Listing
New York Stock Exchange
Common Stock
Stock symbol: FOE
Form 10-K
Ferro Corporation's Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1999 is available to shareholders
upon written request to:
Investor Relations
Ferro Corporation
1000 Lakeside Avenue
P.O. Box 147000
Cleveland, Ohio 44114-7000
call 216-641-8585 ext. 2100
or email: [email protected]
Investor Contact
Aidan Gormley, Manager
Investor Relations
216-875-7155
email: [email protected]
Annual Meeting
April 28, 2000, 9:00 a.m.
Great Lakes Science Center
Auditorium
601 Erieside Avenue
Cleveland, Ohio 44114
Executive Offices
Ferro Corporation
1000 Lakeside Avenue
P.O. Box 147000
Cleveland, Ohio 44114-7000
216-641-8580
For more information, visit the
Company's Web site at www.ferro.com
44/45
<PAGE> 47
Worldwide Operating Units
United States
Coatings
California, Georgia, New York, Ohio, Pennsylvania, Tennessee
Plastics
Illinois, Indiana, New Jersey, Ohio
Chemicals
Indiana, Louisiana, Ohio, Texas
Europe
France
Ferro France S.a.R.L.
Ferro Chemicals S.A.
Germany
Ferro (Deutschland) GmbH.
Ruhr-Pulverlack GmbH
Great Britain
Ferro (Great Britain) Ltd.
Holland
Ferro (Holland) B.V.
Italy
Ferro (Italia) S.R.L.
Portugal
Ferro Industries Quimicas, S.A.
Spain
Ferro Enamel Espanola, S.A.
Turkey
Ege-Ferro Kimya A.S. (49.9%)
Latin America
Argentina
Ferro Enamel Argentina, S.A.I.C.y.M.
Minera Loma Blanca, S.A.
Procesadara de Boratos Argentinos, S.A. (50%)
Brazil
Ferro Enamel do Brasil I.C.L.
Mexico
Ferro Mexicana S.A. de C.V.
Venezuela
Ferro de Venezuela, C.A. (51%)
Asia-Pacific
Australia
Ferro Corporation (Australia) Pty. Ltd.
Indonesia
P.T. Ferro Mas Dinamika (95%)
People's Republic of China
Ferro (Ningbo) Powder Coatings, Ltd.
Taiwan, Republic of China
Ferro Industrial Products Limited
Ferro Toyo Co., Ltd. (60%)
Thailand
Ferro (Thailand) Co. Ltd. (49%)
Note: Percentages in parentheses indicate Ferro's ownership.
[LOGO]FERRO, Alcryn and Pyro-Chek are registered trademarks of Ferro
Corporation.
Design: Dix & Eaton Incorporated, Photography: The Reuben Group
<PAGE> 48
Ferro Corporation 1000 Lakeside Avenue Cleveland Ohio 44114 www.ferro.com
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Sovereign power under
Name of Subsidiary* the laws of which organized
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Ferro Electronic Materials, Inc. USA
Ferro Industrial Products Ltd. Canada
Ferro B.V. The Netherlands
Ferro (Holland) B.V. The Netherlands
Ferro France S.a.R.L. France
Ferro Chemicals S.A. France
Ruhr-Pulverlack G.m.b.H. Germany
Ferro (Deutschland) G.m.b.H. Germany
Ferro (Italia) S.R.L. Italy
Ferro Industrias Quimicas S.A. Portugal
Ferro Toyo Co., Ltd. (60%) Taiwan, Republic of China
Ferro Enamel Espanola S.A. Spain
Ege-Ferro Kimya A.S. (49.9%) Turkey
Ferro (Great Britain) Ltd. United Kingdom
Ferro Enamel Argentina S.A.I.C.y.M. Argentina
Minera Loma Blanca S.A. Argentina
Procesadora de Boratos Argentinos S.A. (50%) Argentina
Ferro Enamel do Brasil, I.C.L. Brazil
Ferro Mexicana S.A. de C.V. Mexico
Ferro de Venezuela C.A. ( 51%) Venezuela
Ferro Corporation (Australia) Pty. Ltd. Australia
Ferro Far East, Ltd. Peoples Republic of China
Ferro (Ningbo) Powder Coatings, Ltd. Peoples Republic of China
Ferro Industrial Products Limited (Taiwan) Taiwan, Republic of China
Ferro (Thailand) Co., Ltd. (49%) Thailand
Ferro Japan K.K. Japan
PT Ferro Mas Dinamika (95%) Indonesia
</TABLE>
- --------------------------------------------------------------------------------
* Percentages in parentheses indicate Ferro's ownership.
Ferro has a number of sales and warehousing subsidiaries throughout the
world which are omitted from the foregoing list because they are considered
in the aggregate or individually not to constitute a significant subsidiary.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
To The Shareholders and The Board of Directors Ferro Corporation:
We consent to incorporation by reference in the Registration Statements (File
Nos. 2-61407, 33-28520, and 33-45582) on Form S-8 and in the Registration
Statements (File Nos. 33-51284 and 33-63855) on Form S-3 of Ferro Corporation of
our report dated January 25, 2000 relating to the consolidated balance sheets of
Ferro Corporation and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1999, which
report appears in the December 31, 1999 Annual Report on Form 10-K of Ferro
Corporation.
/s/ KPMG LLP
- ------------
KPMG LLP
Cleveland, Ohio
March 31, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000035214
<NAME> FERRO CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,114
<SECURITIES> 0
<RECEIVABLES> 261,501
<ALLOWANCES> 0
<INVENTORY> 170,663
<CURRENT-ASSETS> 490,529
<PP&E> 715,727
<DEPRECIATION> 385,334
<TOTAL-ASSETS> 971,750
<CURRENT-LIABILITIES> 337,633
<BONDS> 236,794
0
0
<COMMON> 47,323
<OTHER-SE> 249,672
<TOTAL-LIABILITY-AND-EQUITY> 971,750
<SALES> 1,355,283
<TOTAL-REVENUES> 1,355,283
<CGS> 976,877
<TOTAL-COSTS> 1,218,707
<OTHER-EXPENSES> 20,462
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,343
<INCOME-PRETAX> 116,114
<INCOME-TAX> 43,099
<INCOME-CONTINUING> 73,015
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,015
<EPS-BASIC> $1.97
<EPS-DILUTED> $1.85
</TABLE>
