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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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PH GROUP, INC.
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(Exact name of Small Business Issuer as specified in its charter)
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<CAPTION>
<S> <C> <C>
Ohio Commission File No. 0-8115 31-0737351
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(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
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2365 Scioto Harper Drive, Columbus, Ohio 43204
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(Address of principal executive offices)
Registrant's telephone number, including area code: (614) 279-8877
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Not Applicable
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(Former name or former address, if changed since last report.)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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.
(1) YES X NO (2) YES X NO
--- --- --- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the last practicable date: 1,677,386 common shares, without par
value, outstanding as of April 30, 1999.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PH GROUP INC.
BALANCE SHEET
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<CAPTION>
1999 1998
MARCH 31 DEC. 31
ASSETS (UNAUDITED)
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Current Assets
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Cash $ 3,104 $ 5,862
Accounts Receivable $ 2,674,898 $ 3,974,134
Federal and State Income Tax Receivables $ 86,914 $ 157,646
Inventories $ 3,195,629 $ 2,942,799
Deferred Income Taxes $ 186,300 $ 186,300
Other Current Assets $ 156,220 $ 85,260
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Total Current Assets $ 6,303,065 $ 7,352,001
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Property and Equipment, at cost
- -------------------------------
Office Equipment $ 765,274 $ 756,890
Manufacturing Equipment $ 1,110,802 $ 1,090,015
Leasehold Improvements $ 281,821 $ 281,821
Vehicles $ 140,271 $ 140,271
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$ 2,298,168 $ 2,268,997
Less: Accumulated Depreciation & Amortization $(1,397,153) $(1,329,574)
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Net Property and Equipment $ 901,015 $ 939,423
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Other Non-Current Assets
- ------------------------
Land Held for Investment $ 20,570 $ 20,570
Goodwill, net $ 692,767 $ 698,030
Deferred Income Taxes, Net $ 287,500 $ 287,500
Other Noncurrent Assets, Net $ 261,499 $ 285,261
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Total Other Non-Current Assets $ 1,262,336 $ 1,291,361
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TOTAL ASSETS $ 8,466,416 $ 9,582,785
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</TABLE>
See notes to the financial statements.
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PH GROUP INC.
BALANCE SHEET
<TABLE>
<CAPTION>
1999 1998
MARCH 31 DEC. 31
LIABILITIES (UNAUDITED)
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<S> <C> <C>
Current Liabilities
- -------------------
Accounts Payable $ 2,142,896 $ 2,285,591
Current Portion of Debt $ 2,728,288 $ 3,281,539
Accrued Expenses $ 413,813 $ 460,257
Customer Deposits $ 814,285 $ 924,949
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Total Current Liabilities $ 6,099,282 $ 6,952,336
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Noncurrent Liabilities
- ----------------------
Long-Term Debt (less current portion) $ 676,518 $ 951,068
Deferred Compensation $ 14,289 $ 12,083
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Total Noncurrent Liabilities $ 690,807 $ 963,151
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Total Liabilities $ 6,790,089 $ 7,915,487
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Common Stock Subject To Repurchase, 125,000
shares issued, 93,750 shares outstanding $ 262,500 $ 262,500
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Shareholders' Equity
- --------------------
Common Stock, with no par value, authorized 10,000,000
shares; issued and outstanding at stated value
(1999 - 1,526,636; 1998 - 1,519,846) $ 12,211 $ 12,157
Additional Paid- In Capital $ 1,412,199 $ 1,403,321
Retained Earnings (accumulated deficit) $ (10,583) $ (10,680)
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Total Shareholders' Equity $ 1,413,827 $ 1,404,798
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TOTAL LIABILITIES AND EQUITY $ 8,466,416 $ 9,582,785
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</TABLE>
See notes to the financial statements.
<PAGE> 4
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PH GROUP INC.
STATEMENT OF INCOME
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED MARCH 31
1999 1998
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NET SALES $ 2,831,953 $ 4,200,528
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Cost of Goods Sold $ 2,031,211 $ 2,951,433
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Gross Margin $ 800,742 $ 1,249,095
Selling, General and
and Administrative Expense $ 731,951 $ 974,327
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Income From Operations $ 68,791 $ 274,768
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Other Income (Expense)
Interest Expense $ (73,278) $ (78,368)
Other, net $ 4,728 $ 10,235
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Total Other (Expense) $ (68,550) $ (68,133)
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Income Before Income Taxes $ 241 $ 206,635
Provision for Income Taxes $ 0 $ 73,000
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NET INCOME $ 241 $ 133,635
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PER SHARE DATA:
Basic Earnings per Share $ 0.00 $ 0.09
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Diluted Earnings per Share $ 0.00 $ 0.09
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Weighted Average Shares Outstanding
Basic 1,525,694 1,438,079
Diluted 1,647,774 1,536,539
</TABLE>
See notes to the financial statements.
<PAGE> 5
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PH GROUP INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1999 1998
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Cash Flow From Operating Activities
Net Income $ 241 $ 133,635
Adjustments to Reconcile Net Income to
Net Cash Provided:
Depreciation and Amortization $ 96,607 $ 74,969
Loss on Sale of Property and Equipment $ 3,667
Changes in Assets and Liabilities Affecting Cash
Flows from Operating Activities:
Accounts Receivable $ 1,299,236 $ (986,621)
Inventory $ (252,830) $ 139,487
Other Current Assets $ (70,960) $ 26,247
Other Non Current Assets $ (618) $ 70,621
Accounts Payable $ (142,695) $ 665,860
Income Taxes $ 70,732 $ (316,987)
Accrued Expenses $ (46,444) $ (256,035)
Customer Deposits $ (110,664) $ (363,483)
Deferred Compensation $ 2,206 $ 2,501
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Net Cash (Used) Provided By Operating Activities $ 844,811 $ (806,139)
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Cash Flows from Investing Activities
Capital Expenditures for Property and Equipment $ (29,171) $ (66,050)
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Net Cash Used In Investing Activities $ (29,171) $ (66,050)
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Cash Flows from Financing Activities
Payments of Debt Obligations $(2,522,801) $(2,142,386)
Proceeds from Debt Obligations $ 1,695,000 $ 2,976,300
Proceeds from issuance of Common Stock $ 9,403 $ 35,530
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Net Cash Provided by (Used In) Financing Activities $ (818,398) $ 869,444
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Net Decrease in Cash $ (2,758) $ (2,745)
Cash, Beginning of Period $ 5,862 $ 7,789
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CASH, END OF PERIOD $ 3,104 $ 5,044
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</TABLE>
PH Group Inc. paid $ 73,278 in cash for interest in the first quarter 1999 and
$78,368 in 1998.
See notes to the financial statements.
<PAGE> 6
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial statements of the Company, and related notes dated March 31, 1999,
are set forth at pages F-1 through F-4 attached hereto.
NOTES TO THE FINANCIAL STATEMENTS.
Note 1. Basis of Financial Presentation
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The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The accounting policies followed by PH Group Inc. (the Company), are set forth
in Note 1 of the Notes to financial statements in the Company's Form 10-KSB for
the fiscal year ended December 31, 1998.
In the opinion of management, the accompanying unaudited financial statements
reflect all adjustments which are necessary for a fair presentation of the
result of operations and financial position for such periods. All such
adjustments reflected in the interim financial statements are considered to be
of a normal and recurring nature. The results of the operations for the three
month periods ended March 31, 1999 and 1998 are not necessarily indicative of
the results to be expected for the whole year. Accordingly, these financial
statements should be read in conjunction with the financial statements and notes
thereto contained in the Company's annual report on Form 10-KSB for fiscal year
ended December 31, 1998.
Note 2. Per Share Information
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The Company presents earnings per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." Net
income per common share is computed based on the weighted average number of
common shares and common share equivalents (stock options) outstanding during
each period. Basic earnings per share excludes dilution and is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding during the period. Diluted earnings per share is
computed by dividing income available to common shareholders by the diluted
weighted average number of common shares outstanding during the period, which
includes the dilutive potential common shares associated with outstanding stock
options. There are no adjustments to net income necessary in the calculation of
basic and diluted earnings per share. On January 2, 1998, a five-for-four stock
split was affected whereby one additional common share was issued for each four
common shares outstanding to shareholders of record on December 15, 1997.
Accordingly, per share data and weighted average common shares outstanding for
all periods presented in the accompanying financial statements are reflective of
this split.
Note 3. Vertech Acquisition
- ---------------------------
Effective April 1, 1999 (the "closing Date"), PH Group Inc. purchased
substantially all of the assets of Vertech Systems, LLC, a Delaware limited
liability company with operation based at 6125 West Sam Houston Parkway, North,
Suite 406, Houston, Texas ("Seller"), pursuant to an Amended and Restated Asset
Purchase Agreement between the Seller, and PH Group Inc. dated April 1, 1999
(the "Agreement"). Prior to the Closing Date, the Seller was engaged in the
design, manufacture and sale of small insert injection molding machines (the
"Business").
<PAGE> 7
PH Group Inc. purchased, among other things, all of the Seller's
licenses and permits, deposits, inventory, equipment, accounts receivable and
purchase orders including all work in progress. Under the Agreement, Seller
licensed to PH Group Inc. certain intangible assets, relating to the Business
including all of Seller's trademarks, trade names, trade secrets, corporate
names, designs, patents and other intellectual property related to the Business.
Upon payment in full of the promissory notes described below, title to the
intangible assets transfers to PH Group Inc.
As consideration for the sale and purchase of the assets and the
license of the intangible assets, PH Group Inc.:
(i) delivered a promissory note in the principal amount of
$650,000 payable over approximately four years,
(ii) assumed certain contractual obligations of the Seller
including certain trade payables not exceeding $100,000 in the
aggregate,
(iii) delivered a promissory notes in the principal amount of
$350,000 payable over two years,
(iv) paid the Seller $25,000 at closing in addition to the $25,000
already paid the Seller,
(v) issued 50,000 shares of common stock of PH Group Inc. to the
members of the Seller,
(vi) agreed under Section 3.2 of the Agreement to make certain
contingent payments to the Seller in the future based on a
certain percentage of the gross revenue (less deductions)
derived from the sale of Vertech machines (as defined in the
Agreement), and
(vii) agreed under Section 3.3 of the Agreement to make certain
royalty payments to the Seller in the future based on a
certain percentage of the gross revenue (less deductions)
derived from the sale of Vertech machines (as defined in the
Agreement).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Results of Operations
Three months ended March 31, 1999 as Compared to Three months ended March 31,
1998
Net Sales
Net sales for the first quarter of 1999 totaled $2.8 million, a 32.6% decrease
from the same period in 1998. Hydraulic press sales decreased 28% in the first
quarter 1999 compared with the first quarter 1998, while injection molding
equipment sales decreased 49% in the same period. The volume of orders was
comparable in both quarters, but there was a significant difference in product
size and type. This impacted selling prices of the machinery delivered. Sales
were also negatively impacted by timing of receipts of key component parts in
the quarter, forcing deliveries into the next quarter.
New machinery orders decreased 68.0% in the first quarter of 1999 compared to
the first quarter 1998. The machine tool industry as a whole has seen a slow
down in capital spending in the first quarter of 1999. Despite this, quoting
activity remains strong with record levels of hydraulic press quotations for the
first quarter. Parts and service orders increased by 239% or $82,000 during the
first quarter of 1999.
<PAGE> 8
Gross Margin
Gross margins in the first quarter 1999 on our core press business have been
meeting or exceeding historical levels. Gross margins on injection molding
equipment were below comparable margins in the first quarter of 1998. In the
first quarter of 1998 a large, multiple injection molding machine order was
shipped. This allowed quantity purchase discounts and repetition in
manufacturing processes. We were not able to duplicate this type of order in
1999.
Labor as a percent of sales increased to 10.7% versus 8.7% in the first quarter
1999. This increase is, in part, due to a wage rate increase.
Selling, General and Administrative
Selling, General and Administrative ("SG & A") expenses for the 1999 quarterly
period have decreased $242,000 or 24.9% over the comparable 1998 amount.
Personnel reductions decreased salary cost $134,000. This is primarily due to
the elimination of duplicated services at the Company's Romulus, MI facility.
Reductions in accrued bonuses and payroll related expenses accounted for an
additional $44,000 of the decrease.
As a percent of sales, SG&A represented 25.8% in the first quarter 1999 compared
to 23.2% in the first quarter 1998. The savings of reduced expenses were off-set
by lower sales levels in the comparative quarters.
Interest Expense
Interest expense to date in the first quarter 1999 was 6.5% less than the same
period in 1998. Cash received for the sale of land held for investment allowed a
large prepayment on the term debt. Cash collections on two long-term press
receivables allowed a paydown on the credit line. Both favorably impacted
interest paid on debt.
Income Taxes
For the year 1999 no tax provision has been accrued due to minimal amounts of
taxable income in the period. In the comparable period of 1998, $73,000 was
accrued based on the earnings before taxes of the period and the effective tax
rate.
Liquidity and Capital Resources
The Company's primary cash requirements are for operating expenses and capital
expenditures. These cash requirements have historically been met through a
combination of cash flow from operations and bank lines of credit.
The Company has hired an investment bank to raise up to $3.0 million in
long-term capitalization. The increased capitalization will be used to reduce
bank debt, provide working capital and provide funds for acquisitions.
Cash provided by operations in 1999 totaled $854,000, resulting mainly from a
decrease in accounts receivable of $1,299,000 and an increases in inventory of
$253,000. The decrease in accounts receivable was due to strong collection of
accounts in the first quarter 1999, combined with reduced sales levels in the
period. The increase in inventory is the result of delayed shipment of large
jobs until the second quarter of the year.
As part of the Vertech acquisition, the Company made a cash payment of $25,000
towards the purchase of Vertech assets. A payment of $25,000 towards the assumed
accounts payable of Vertech was also made.
<PAGE> 9
Year 2000 Readiness
The Year 2000 ("Y2K") issue refers to a condition in computer software where a
two-digit field rather than a four-digit field is used to distinguish a calendar
year. Unless corrected, date-sensitive software may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in system failures
or miscalculations causing disruptions to various activities and operations.
Such uncorrected condition could significantly interfere with the conduct of the
Company's business, could result in disruption of its operations and could
subject it to potentially significant legal liabilities.
The Company has conducted an assessment of the Y2K issue and the potential
effect it will have on the Company and its business. The Company has prepared a
plan for dealing with the Y2K issue. The Company has taken initiatives in three
general areas: information technology and communication systems, non-information
technology systems, and third party issues.
Information Technology and Communication Systems
In 1998, the Company upgraded the computer network used throughout the
organization. This included a new client server, new desktop computers, and
upgrades and enhancements to those machines not replaced. Upgraded, Y2K
compliant versions of most software packages have been obtained. These include
the Visual Manufacturing, the Company's application system, Novell network
software, Microsoft Office, Auto CAD, and Parametric Technology Corp.'s Pro E.
In addition, the outside payroll provider and mailing system have been upgraded
to be in compliance.
Current areas of potential noncompliance include the Company's fixed asset
system software, the banking communication system software, and potentially the
network router. Other equipment such as fax machines and copy machines may not
be in compliance. The Company expects to have these systems in compliance by the
end of the second quarter of 1999. An outside consultant has been hired to test
the entire system. This testing will completed by the end of the third quarter,
1999.
Non-Information Technologies Systems
The Company has internal non-information technology systems comprised primarily
of a building security systems. The Company is scheduled to move to a new
facility in August, 1999. The Company will ascertain at that time the status of
the new security system.
Third Parties
The Company has third party relationships with key raw materials suppliers and
outside processors. The Company is engaged in an ongoing effort with these and
key suppliers of outsource services including, but not limited to stock
transfer, debt servicing, payroll, banking, and benefit programs. The Company is
engaged in ongoing evaluations of these third parties' Y2K readiness; while
simultaneously advising them of the Company's readiness.
Because the Company's Y2K compliance is dependent upon key third parties also
being Y2K compliant on a timely basis, there can be no guarantee that the
Company's efforts will prevent a material adverse impact on its results of
operations, financial condition and cash flows. The possible consequences to the
Company of not being fully Y2K compliant include temporary plant closings,
delays in the delivery of finished products, delays in the receipt of key
ingredients and supplies, invoice and collection errors, and financing issues,
including payroll. These consequences could have a material adverse impact on
the Company's results of operations, financial condition and cash flows if the
Company is unable to conduct its business in the ordinary course.
The Company currently estimates that the aggregate cost of its Y2K efforts
should not exceed $80,000, of which $45,000 has already been expended for
hardware and software upgrades. The Company believes that such costs will not
have a material impact on results of operations, financial condition or cash
flows.
<PAGE> 10
Due to the nature of the Company's efforts, actual costs may vary from these
estimates and there are no guarantees regarding the timing or efficiency of
completion.
Contingency Plans
The Company has engaged a system consultant to review all system needs and to
deal with contingency planning. This will be completed in the third fiscal
quarter of 1999, after results of the assessment and remediation in progress
have been ascertained. The Company cannot currently estimate the cost, if any,
associated with contingency planning efforts that may be necessary to complete
the Y2K efforts.
Regarding "Forward-Looking" Statements
The foregoing outlook contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 that are based on current
expectations and are subject to a number of risks and uncertainties. Actual
results could differ materially from current expectations due to a number of
factors, including general economics; competitive factors and pricing pressures;
shifts in market demand; the performance and needs of industries served by the
Company's business; actual future costs of operating expenses such as material,
wages and benefits; actual cost of continuing investments in technology; the
availability of capital to finance possible growth; the ability of management to
implement Company strategy of acquisitions and process improvements; and the
risks described from time to time in the Company's SEC reports.
PART II - OTHER INFORMATION
ITEM 5. Other Information
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
At December 31, 1998, the Company had a line of credit agreement with a
bank to borrow up to $3,500,000, subject to certain borrowing base
restrictions. At December 31, 1998, the Company was in violation of
certain debt covenants regarding the following: tangible net worth,
debt to tangible net worth ratio, defined cash flow coverage ratio and
annual capital expenditures. On March 30, 1999 the Company obtained a
waiver from the bank with respect of noncompliance. A new loan
agreement has been created between the Company and the bank, but at
this time has not been signed by both parties. All borrowings under the
bank line of credit are classified as a current liability.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
<PAGE> 11
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Exhibit Index
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended March 31, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PH Group Inc.,
an Ohio Corporation
Date: May 12, 1999 By: /s/ Charles T. Sherman
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Charles T. Sherman
President
<PAGE> 12
EXHIBIT INDEX
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Exhibit No Description Location
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3.1 Amended and Restated Code of Regulations of PH Group *
Inc. (incorporated herein by reference to Exhibit 3.2
of the Company's Quarterly Report on Form 10-QSB for
the quarterly period ended March 31, 1997; Commission
File No. 0-8115)
3.2 Certificate of Inspector of Election as to Approval *
of the Proposal to Amend Sections 2 and 5 of
Article I of the Amended Code of Regulations of PH
Group Inc. to Delete References Therein to "Common"
Shares and to Substitute Therefor "Voting" Shares,
dated April 30, 1998 (incorporated herein by
reference to Exhibit 3.3 of the Company's Annual
Report on Form 10-KSB for the fiscal year ended
December 31, 1998; Commission File No. 0-8115)
3.3 Amended Code of Regulations of PH Group Inc. Filed electronically herewith
(reflecting amendments through April 30, 1998) [For
SEC reporting compliance purposes only]
27 Financial Data Schedule Filed electronically
</TABLE>
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*Incorporated herein by reference.
<PAGE> 1
Exhibit 3.3
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Amended Code of Regulations
of PH Group Inc.
(reflects amendments through April 30, 1998)
[For SEC reporting compliance purposes only]
<PAGE> 2
AMENDED CODE OF REGULATIONS
OF
PH GROUP INC.
(reflects amendments through April 30, 1998)
[For SEC reporting compliance purposes only]
ARTICLE I Meetings of Shareholders
Section 1. Annual Meetings. The annual meeting of the
shareholders for the election of directors, for the consideration of the reports
to be laid before such meeting, and for the transaction of such other business
as may properly come before such meeting, shall be held on the first Thursday in
May or on such other date as may be fixed by the Board of Directors.
Section 2. Special Meetings. Special meetings of the
shareholders shall be held whenever called by any of the following: President,
Chairman of the Board, a majority of the directors, and persons who hold at
least one-quarter of the outstanding voting shares of the Company.
Section 3. Place of Meetings. All meetings of shareholders
shall be held at the principal office of the Company in Ohio, unless otherwise
provided by a majority of the directors. Meetings of the shareholders may be
held outside of the State of Ohio.
Section 4. Notice of Meetings.
(A) A written notice stating the time, place and purpose of
every meeting of the shareholders shall be given either by personal delivery or
by mail, not less than seven nor more than sixty days before the date of the
meeting to each shareholder of record entitled to notice of the meeting by, or
at the direction of the President or the Secretary of the Company. If mailed,
such notice shall be addressed to the shareholder at his address as it appears
on the records of the Company. If any meeting is adjourned to another time or
place, no further notice as to such adjourned meeting need be given other than
by announcement at the meeting at which such adjournment is taken.
(B) Upon request in writing delivered either in person or by
registered mail to the President or the Secretary by any persons entitled to
call a meeting of shareholders, such officer shall forthwith cause to be given
to the shareholders entitled thereto notice of a meeting to be held on a date
not less than seven nor more than sixty days after the receipt of such request,
as such officer may fix. If such notice is not given within fifteen days after
the delivery or mailing of such request, the persons calling the meeting may fix
the time of meeting and give notice thereof as provided in Division (A) of this
section or cause such notice by any designated representative.
(C) Any shareholder, either before or after any meeting, may
waive any notice required to be given by law or under these regulations; and
whenever all of the shareholders entitled to vote shall meet in person or by
proxy and consent to holding a meeting, it shall be valid for all purposes
without call or notice, and at such meeting any action may be taken.
Section 5. Quorum. At any meeting of shareholders, the holders
of a majority of the shares of the Company then outstanding and entitled to vote
who are present in person or represented by proxy, shall constitute a quorum for
all purposes, but no action required by law or
<PAGE> 3
by the Articles of Incorporation to be authorized or taken by the holders of a
designated proportion of the shares of any particular class or of each class may
be authorized or taken by a lesser proportion. The holders of a majority of the
voting shares represented at a meeting, whether or not a quorum is present, may
adjourn such meeting from time to time.
Section 6. Shareholders Entitled to Vote. At each meeting of
shareholders, every shareholder of record of shares entitled to vote shall be
entitled to such number of votes with respect to each share standing in his name
on the books of the Company on each matter properly submitted to the
shareholders for their vote as the Articles of Incorporation provide.
Section 7. Votes Necessary. At all elections of directors, the
candidates receiving the greatest number of votes shall be elected. All other
questions shall be determined by a majority vote of the shares entitled to vote
except where a greater number or proportion is required by the Ohio Revised
Code.
Section 8. Proxies. At meetings of the shareholders, any
record holder of shares as to which he is entitled to vote may be represented
and may vote by a proxy or proxies appointed by an instrument in writing if such
instrument is filed with the Secretary before the person holding such proxy
votes thereunder. No proxy shall be valid after the expiration of eleven months
after the date of its execution, unless the shareholder executing it shall have
specified thereon the length of time it is to continue in force.
Section 9. Order of Business. The order of business at all
meetings of shareholders shall be determined by the presiding officer unless
otherwise determined by a vote of a majority in interest of shareholders
entitled to vote who are present in person or represented by proxy at such
meeting.
Section 10. Action Without Meeting. Any action which may be
taken at any meeting of shareholders may be taken without a meeting if
authorized by a writing signed by all of the holders of shares who would be
entitled to notice of a meeting for such purpose and who would be entitled to
vote thereat.
ARTICLE II Directors
Section 1. Powers. Except where the law, the Articles, or
these Regulations require action to be authorized or taken by shareholders, all
of the authority of the Company shall be exercised by, or as directed by the
Board of Directors. Without prejudice to the general powers conferred by or
implied in the preceding section, the Directors, acting as a Board, shall have
power.
(A) To fix, define and limit the powers and duties of all
officers and to fix the salaries of all officers;
(B) To appoint, and at their discretion, with or without
cause, to remove, or suspend, such subordinate officers, assistants, managers,
agents and employees as the Directors may from time to time deem advisable, and
to determine their duties and fix their compensation;
(C) To require any officer, agent or employee of the Company
to furnish a bond for faithful performance in such amount and with such sureties
as the Board may approve;
(D) To designate a depository or depositories of the funds of
the Company and the officer or officers or other persons who shall be authorized
to sign notes, checks, drafts, contracts, deeds, mortgages, and other
instruments on behalf of the Company;
<PAGE> 4
(E) To appoint and remove transfer agents and/or registrars
for the Company's shares;
(F) To establish such rules and regulations respecting the
issuance and transfer of shares and certificates for shares as the Board of
Directors may consider reasonable.
Section 2. Number of Directors. The Board of Directors shall
be divided into two classes; the initial term of office of those of the first
class to expire at the annual meeting next ensuing; of the second class one year
thereafter; and at each annual election held after the initial adoption of this
regulation by the shareholders and the election of Directors held at the meeting
at which this regulation is adopted, directors shall be chosen for a full term
of two years to succeed those whose terms expire. When this regulation is
initially adopted, the Board of Directors shall consist of seven members and the
first class shall consist of three members and the second class shall consist of
four members. Thereafter, the Board of Directors may fix the total number of
Directors constituting the full Board of Directors and the number of Directors
in each class, but the total number of Directors shall not exceed nine nor shall
the number of Directors in any class exceed five. Subject to the foregoing, the
classes of Directors need not have the same number of members. No reduction in
the total number of Directors or in the number of Directors in any class shall
be effective to remove any Director or to reduce the term of any Director.
Notwithstanding any other provision set forth in the Regulations of the Company,
if the Board of Directors increases the number of Directors in a class, it may
fill the vacancy created thereby for the full remaining term of a Director in
that class even though such term may extend beyond the next annual election. The
Board of Directors may fill any vacancy occurring for any other reason for the
full remaining term of the Director whose death, resignation or removal caused
the vacancy, even though such term may extend beyond the next annual election. A
director who reaches the age of 67 shall thereafter no longer be eligible for
reelection to the Board of Directors. Directors need not be either residents of
the State of Ohio or shareholders of the Company.
Section 3. Removal of Directors. All the Directors, or all the
Directors of a particular class, or any individual Director may be removed from
office, without assigning any cause, by the vote of the holders of shares
entitling them to exercise a majority of the voting power for the election of
directors; provided, that unless all the Directors, or all the Directors of a
particular class, are removed, no individual Director shall be removed in case
the votes of a sufficient number of shares are cast against his removal which,
if cumulatively voted at an election of all the Directors, or all the Directors
of a particular class, as the case may be, would be sufficient to elect at least
one Director.
Section 4. Vacancies. In case of any vacancy among the
Directors, including a vacancy caused by an increase in the number of Directors
at a time other than at the annual meeting, the remaining Directors, though less
than a majority of the whole authorized number of Directors by an affirmative
vote of the majority thereof, may elect a Director to fill such vacancy to hold
office until the next annual election and until his successor shall be elected.
Section 5. Power to Adopt By-Laws. The Board of Directors may
adopt and amend from time to time, By-Laws for its government, consistent with
this Code of Regulations, the Articles of Incorporation, and the laws of Ohio.
Section 6. Meetings. After each annual election of Directors,
the Directors shall meet as soon as practicable for the purpose of organization,
the election and appointment of officers and the transaction of other business.
The Directors shall hold such other meetings from time to time as the Directors
may deem necessary, and such meetings as may from time to time be called by the
Chairman of the Board, President, Vice President or any two Directors. Meetings
may be held at the principal office of the Company or at such other place within
or outside the State of Ohio as a majority of the Directors may, from time to
time, determine. The President or
<PAGE> 5
Secretary shall give each Director notice of each meeting of the Directors
either by personal delivery or by mail, telegram, or cablegram at least two days
before the meeting. Notice of the time, place and purpose of any meeting of the
directors may be waived by any Director.
Section 7. Committees. The Directors may, from time to time,
appoint an Executive Committee or any other committee of the Directors, to
consist of not less than three Directors, and may delegate to any other
committee any of the authority of the Directors, however conferred, other than
that of filling vacancies among the Directors, or in any committee of the
Directors. Any such committee shall at all times act under the direction and
control of the Directors and shall make reports to the Directors of its acts,
which reports shall form a part of the records of the Company.
Section 8. Quorum. At all meetings of the Directors, a
majority of all the Directors then in office shall constitute a quorum, but less
than such majority may adjourn the meeting of the Directors from time to time,
and at any adjourned meeting any business may be transacted as if the meeting
had been held as originally called. The action of a majority of Directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors except as otherwise may be provided by law, the Articles, or in
this Code of Regulations.
Section 9. Compensation of Directors. By the affirmative vote
of a majority of those in office, and irrespective of any financial or personal
interest of any of them, the Directors shall have authority to establish
reasonable compensation, which may include pension, disability and death
benefits, for services to the Company by Directors and officers, or to delegate
such authority to one or more officers or Directors.
Section 10. Indemnification. Each Director, officer and
employee, whether or not then in office (and his heirs, executors and
administrators) shall be indemnified by the Company against costs and expenses
(including counsel fees) reasonably incurred by him, and shall be reimbursed by
the Company for any such costs or expenses paid by him, in connection with any
action, suit or proceeding to which he may be made a party by reason of his
being or having been a Director, officer or employee of the Company or by reason
of having served at the request of the Company as a Director, officer or
employee of the Company or by reason of his having served at the request of the
Company as a Director or officer of another company, except in relation to
matters as to which he shall be finally adjudged in such action, suit or
proceeding to have been derelict in the performance of his duty as such
director, officer or employee. The foregoing qualification shall not prevent a
settlement by the Company prior to final adjudication when such settlement
appears to be in the interest of the Company. The foregoing right of
indemnification shall also cover amounts paid by any director, officer or
employee (or his heirs, executors, or administrators) in settlement of any such
action, suit or proceeding if the Company shall have previously given its
written approval thereof, and shall not be exclusive of other rights to which,
any director, officer or employee may be entitled as a matter of law.
Section 11. Action of Directors Without a Meeting. Any action
which may be authorized or taken at a meeting of the Board of Directors may be
authorized or taken without a meeting in a writing or writings signed by all of
the Directors.
ARTICLE III Officers
Section 1. Executive Officers. The executive officers of the
Company shall be a Chairman of the Board, President, one or more Vice
Presidents, a Secretary and a Treasurer, and such other officers and assistant
officers as the Directors may, in their judgment, consider necessary. The same
person may hold any two or more offices of the Company. Officers may be elected
at any time, but as soon as is convenient after a meeting of shareholders at
which a
<PAGE> 6
majority of Directors are elected, the Directors shall hold a meeting at which
they shall consider the election of officers.
Section 2. Tenure of Officers. Any officer may be removed,
either with or without cause, at any time, by the affirmative vote of a majority
of all the Directors then in office; such removal, however, shall be without
prejudice to the contract rights of the person so removed, if any.
Section 3. Chairman of the Board and/or President. The
Chairman of the Board and/or President shall be the active executive officer of
the Company and shall exercise supervision over the business of the Company and
over its several officers, subject, however, to the control of the Board of
Directors. He shall preside at all meetings of shareholders and, in the absence
of, or if a Chairman of the Board shall not have been elected, the President
shall preside at meetings of the Board of Directors. He shall have authority to
sign all certificates for shares and all deeds, mortgages, bonds, contracts,
notes and other instruments requiring his signature; and shall have all the
powers and duties prescribed by the General Corporation Act and such others as
the Board of Directors may from time to time assign him.
Section 4. Secretary. The Secretary shall: keep books for the
transfer of shares and keep the share certificate book, the stock register and
such other books and records as may be necessary in order to keep an accurate
record of shareholders; keep minutes of all proceedings of the shareholders and
Directors; give notices for the Company; issue and attest all certificates of
shares; and in general perform all the duties usually incident to such office or
which may be assigned by the shareholders or Directors.
Section 5. Treasurer. The Treasurer shall: have the custody
and control of all funds and securities belonging to the Company, except as
otherwise provided by the Directors, and shall be responsible for all monies and
other property of the Company in his custody; keep accurate accounts of the
finances of the Company and hold the books and records open for inspection and
examination of the Directors and any committee of shareholders appointed for
such inspection, and shall present abstracts of said books and records at annual
meetings of shareholders, or any other meetings requested; and perform all the
duties usually incident to such office or which may be assigned by the
shareholders or Directors. He shall give bond in such sum with such security as
the Directors may require, if any, for the faithful performance of his duties.
Section 6. Assistant and Subordinate Officers. The Board of
Directors may appoint such assistant and subordinate officers as it may deem
desirable. Each such officer shall hold office during the pleasure of the Board
of Directors, and perform such duties as the Board of directors may prescribe.
The Board of Directors may, from time to time, authorize any
officer to appoint and remove subordinate officers, to prescribe their authority
and duties, and to fix their compensation.
Section 7. Duties of Officers May be Delegated. In the absence
of any officer of the Company, or for any other reason the Board of Directors
may deem sufficient, the Board of Directors may delegate, for the time being,
the powers or duties, or any of them of such officer to any other officer, or to
any Director.
Section 8. Contracts. Checks. Notes and Other Instruments. All
contracts, agreements and notes authorized by the Board of Directors shall,
unless otherwise directed by the Board of Directors or unless otherwise required
by law, be signed by the President or Secretary. All checks shall be signed by
at least two authorized persons. The Board of Directors may,
<PAGE> 7
however, authorize other officers to sign checks, drafts and orders for the
payment of money, and may designate different combinations of officers and
employees who may, in the name of the Company, execute checks, drafts,
contracts, agreements and other instruments in its behalf.
ARTICLE IV Capital Stock
Section 1. Share Certificates. Certificates for shares,
certifying the number of fully-paid shares owned, shall be issued to each
shareholder in such form as shall be approved by the Board of Directors. Such
certificates shall be signed by the President or a Vice President and by the
Secretary or an Assistant Secretary. Such certificates or shares shall be
transferable in person or by attorney, but, except as hereinafter provided and
in the case of lost, stolen, mutilated or destroyed certificates, no transfer of
shares shall be entered upon the records of the Company until the previous
certificate, if any, given for the same, shall have been surrendered and
canceled.
Section 2. Lost, Mutilated or Destroyed Certificates. If any
certificate for shares is lost, stolen, mutilated or destroyed, the Board of
Directors may authorize the issue of a new certificate in place thereof upon
such terms and conditions as it may deem advisable. The Board of Directors in
its discretion may refuse to issue such new certificates until the Company has
been indemnified to its satisfaction and until it is protected to its
satisfaction by a final order or decree of a court of competent jurisdiction.
Section 3. Registered Shareholders. A person in whose name
shares are of record on the books of the Company shall conclusively be deemed
the unqualified owner thereof for all purposes and to have capacity to exercise
all rights of ownership. Neither the Company nor any transfer agent of the
Company shall be bound to recognize any equitable interest in or claim to such
shares on the part of any other person, whether disclosed upon such certificate
or otherwise, nor shall they be obliged to see the execution of any trust or
obligation.
ARTICLE V Miscellaneous
Section 1. Record Date. The Directors may fix a date not
exceeding sixty days preceding the date of any meeting of shareholders, the date
for the payment of any dividend or the date for any other corporate action for
which a record date is authorized by law, as record date for the determination
of the shareholders entitled to notice of, and to vote at, any such meetings and
any adjournment thereof, or entitled to receive payment of any such dividend or
to participate in any such other corporate action, and in such case the
shareholders of record on said date and only such shareholders shall be entitled
to such notice of, and to vote any such meeting and any adjournment thereof, or
to be entitled to receive payment of any such dividend or be entitled to
participate in any such other corporate action.
Section 2. Fiscal Year. The fiscal year of the company shall
end on December 31 of each year, or on such other days as may be fixed from time
to time by the Board of Directors.
Section 3. Amendments. This Code of Regulations or any Article
or Section hereof may be adopted, changed, repealed, or amended without a
meeting by the written consent of the holders of two-thirds of the shares
entitled to vote upon such proposal or by the holders of a majority of the
shares entitled to vote upon such proposal at a meeting held for that purpose.
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