<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 1996
COMMISSION FILE NUMBER 1-8803
MATERIAL SCIENCES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 95-2673173
(State or other jurisdiction (IRS employer identification
of incorporation or organization) number)
2300 East Pratt Boulevard
Elk Grove Village, Illinois 60007
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (847) 439-8270
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
--------------- --------------
As of July 9, 1996, there were outstanding 15,420,233 shares of common stock,
$.02 par value.
<PAGE>
MATERIAL SCIENCES CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MAY 31, 1996
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
(a) Financial statements of Material Sciences Corporation and Subsidiaries
(b) Summarized income statement information for Walbridge Coatings, An
Illinois Partnership
2
<PAGE>
Consolidated Statements of Income (Unaudited)
Material Sciences Corporation and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended
May 31,
(In thousands, except per share data) 1996 1995
- ----------------------------------------- ---------- ----------
<S> <C> <C>
Net Sales (1) $68,884 $60,406
Cost of Sales 50,315 43,869
---------- ----------
Gross Profit $18,569 $16,537
Selling, General and Administrative
Expenses 11,464 8,934
---------- ----------
Income from Operations $ 7,105 $ 7,603
---------- ----------
Other (Income) and Expense:
Interest Income $ (66) $ (93)
Interest Expense - 46
Equity in Results of Partnership (114) (100)
Other, Net (229) (160)
---------- ----------
Total Other (Income) and Expense, Net $ (409) $ (307)
---------- ----------
Income Before Income Taxes $ 7,514 $ 7,910
Income Taxes 2,893 3,044
---------- ----------
Net Income $ 4,621 $ 4,866
========== ==========
Net Income Per Common and Common
Equivalent Share $ 0.30 $ 0.32
========== ==========
Weighted Average Number of Common and
Common Equivalent Shares Outstanding 15,545 15,407
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
Consolidated Balance Sheets
Material Sciences Corporation and Subsidiaries
<TABLE>
<CAPTION>
May 31, February 29,
1996 1996
(In thousands) Unaudited Audited
- ---------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Assets:
Current Assets:
Cash and Cash Equivalents $ 3,912 $ 3,379
Receivables:
Trade, Less Reserves of $4,585 and $4,407, Respectively (2) 30,623 25,836
Current Portion of Partnership Note 828 781
Prepaid Expenses 3,408 3,069
Inventories 34,715 32,647
Prepaid Taxes 3,074 3,074
-------- --------
Total Current Assets $ 76,560 $ 68,786
-------- --------
Gross Property, Plant and Equipment $198,094 $185,453
Accumulated Depreciation and Amortization (78,077) (74,571)
-------- --------
Net Property, Plant and Equipment $120,017 $110,882
-------- --------
Other Assets:
Investment in Partnership $ 11,046 $ 10,727
Partnership Note Receivable, Less Current Portion 1,123 1,123
Intangible Assets, Net (6) 12,774 9,556
Other 871 1,041
-------- --------
Total Other Assets $ 25,814 $ 22,447
-------- --------
Total Assets $222,391 $202,115
======== ========
Liabilities:
Current Liabilities:
Current Portion of Long-Term Debt $ 3,313 $ 3,014
Accounts Payable 21,721 23,950
Accrued Payroll Related Expenses 6,107 8,036
Accrued Expenses 7,540 6,588
-------- --------
Total Current Liabilities $ 38,681 $ 41,588
-------- --------
Long-Term Liabilities:
Deferred Income Taxes $ 11,377 $ 11,451
Long-Term Debt, Less Current Portion 34,776 16,815
Accrued Superfund Liability 4,177 4,177
Other 6,325 6,376
-------- --------
Total Long-Term Liabilities $ 56,655 $ 38,819
-------- --------
Shareowners' Equity:
Preferred Stock (3) $ - $ -
Common Stock (4) 322 321
Additional Paid-In Capital 47,822 47,097
Treasury Stock at Cost (5) (3,380) (3,380)
Retained Earnings 82,291 77,670
-------- --------
Total Shareowners' Equity $127,055 $121,708
-------- --------
Total Liabilities and Shareowners' Equity $222,391 $202,115
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Consolidated Statements of Cash Flows (Unaudited)
Material Sciences Corporation and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended
May 31,
(In thousands) 1996 1995
- ------------------------------------------------------------------ -----------------------
<S> <C>
Cash Flows From:
Operating Activities:
Net Income $ 4,621 $ 4,866
Adjustments to Reconcile Net Income to Net Cash Used in
Operating Activities:
Depreciation and Amortization 3,663 3,004
Benefit for Deferred Income Taxes (74) (79)
Compensatory Effect of Stock Plans 150 162
Other, Net (114) (100)
--------- ---------
Operating Cash Flow Prior to Changes in Assets and Liabilities $ 8,246 $ 7,853
--------- ---------
Changes in Assets and Liabilities:
Receivables $ (3,734) $ (2,587)
Income Taxes Receivable - 2,319
Prepaid Expenses (339) (1,435)
Inventories (2,068) (2,309)
Accounts Payable (2,229) (4,844)
Accrued Expenses (1,470) (2,682)
Other, Net (244) 71
--------- ---------
Cash Flow from Changes in Assets and Liabilities $(10,084) $(11,467)
--------- ---------
Net Cash Used in Operating Activities $ (1,838) $ (3,614)
--------- ---------
Investing Activities:
Capital Expenditures, Net $(12,441) $ (4,780)
Acquisitions, Net of Cash Acquired (2,489) -
Investment in Partnership (205) (258)
Other Long-Term Assets 170 15
--------- ---------
Net Cash Used in Investing Activities $(14,965) $ (5,023)
--------- ---------
Financing Activities:
Proceeds of Debt $ 35,535 $ 20,241
Payments to Settle Debt (18,775) (14,411)
Sale of Common Stock 576 907
--------- ---------
Net Cash Provided by Financing Activities $ 17,336 $ 6,737
--------- ---------
Net Increase (Decrease) in Cash $ 533 $ (1,900)
Cash and Cash Equivalents at Beginning of Period 3,379 5,816
--------- ---------
Cash and Cash Equivalents at End of Period $ 3,912 $ 3,916
========= =========
Supplemental Cash Flow Disclosures:
Subordinated Convertible Notes Issued for Acquisition $ 1,500 $ -
Cash Portion of Acquisition and Related Costs 2,489 -
--------- ---------
Total Consideration Paid for Acquisition $ 3,989 $ -
========= =========
The Changes in Assets and Liabilities above for the quarter ended May 31, 1996, are net of assets
and liabilities acquired.
The accompanying notes are an integral part of these statements.
5
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MATERIAL SCIENCES CORPORATION
The data for the three months ended May 31, 1996 and 1995 have not been audited
by independent public accountants but, in the opinion of the Company, reflect
all adjustments (consisting of only normal, recurring adjustments) necessary for
a fair presentation of the information at those dates and for those periods. The
financial information contained in this report should be read in conjunction
with the Company's 1996 Annual Report to Shareowners and Annual Report on Form
10-K. Certain prior year amounts have been reclassified to conform with the
fiscal 1997 presentation.
(1) During the three month periods ending May 31, 1996 and 1995, the Company
derived approximately 22.0% and 23.7%, respectively, of its sales from fees
billed to the Partnership by a subsidiary of the Company for operating the
Walbridge, Ohio facility.
(2) Includes trade receivables due from the Partnership of $580 at May 31, 1996
and $1,752 at February 29, 1996.
(3) Preferred Stock, $1.00 Par Value; 10,000,000 Shares Authorized; 7,500,000
Designated Series A Junior Participating Preferred; None Issued.
(4) Common Stock, $.02 Par Value; 20,000,000 Shares Authorized; 16,102,018
Shares Issued and 15,413,370 Shares Outstanding at May 31, 1996 and
16,046,398 Shares Issued and 15,357,750 Shares Outstanding at February 29,
1996.
(5) Treasury Stock at Cost; 688,648 Shares at May 31, 1996 and February 29,
1996.
(6) During the first quarter of fiscal 1997, the Company purchased certain
assets of a distributor of solar control and safety window film in the
Western U.S. and internationally. Consideration for the purchase,
including transaction costs, was $1,500 in subordinated convertible notes
("Notes") and $2,489 in cash. The Notes bear interest at a rate of 7% per
annum. The Notes are convertible into shares of the Company's Common Stock
at a conversion price of $20.80 per share. The Notes mature in five equal
installments with one series of notes becoming due annually beginning on
June 1, 1997. The acquisition has been accounted for under the purchase
method of accounting.
6
<PAGE>
(7) On June 25, 1996, the Company filed a Form 8-K regarding the adoption of a
new rights agreement. The Company issued a dividend to shareowners of
record on July 2, 1996, of one right ("Right") for each outstanding share
of the Company's Common Stock. Each Right entitles shareowners to buy
1/100th of a share of Series B Junior Participating Preferred Stock at an
initial exercise price of $70.00. The Rights will be exercisable only if a
person or group acquires, or announces a tender offer, for 20 percent or
more of MSC's Common Stock. Upon an acquisition of 20 percent or more of
MSC's Common Stock by a person or group, the Rights (other than those held
by such person or group) "flip in" to the right to buy the number of shares
of MSC's Common Stock valued at two-times the exercise price of the Rights.
Additionally, if MSC enters into a merger or other business combination
with a person or group owning 20 percent or more of MSC's outstanding
Common Stock, the Rights (other than those held by such person or group)
"flip over" into the right to buy that number of shares of common stock of
the acquiring company valued at two-times the exercise price of the Rights.
MSC may exchange the Rights for its Common Stock on a one-for-one basis at
any time after a person or group has acquired 20 percent or more of its
outstanding Common Stock. MSC will be entitled to redeem the Rights at one
cent per Right (payable in Common Stock of the Company, cash or other
consideration, at MSC's option) at any time before public disclosure that a
20 percent position has been acquired. The Rights will expire on July 1,
2006, unless previously redeemed or exercised.
7
<PAGE>
Summarized Income Statement Information (Unaudited)
Walbridge Coatings, An Illinois Partnership
<TABLE>
<CAPTION>
Three Months Ended
May 31,
(In thousands) 1996 1995
- ---------------------------------- --------- ---------
<S> <C> <C>
Net Revenues $18,066 $17,256
Gross Profit $ 817 $ 969
Income from Operations $ 187 $ 363
Net Loss $ (169) $ (127)
</TABLE>
NOTE: The Net Loss shown above does not directly correlate to the Equity in
Results of Partnership shown in the Company's Statement of Income due to
certain contractual allocation requirements of the Partnership. The
Company's primary financial benefit from participation in the
Partnership is in the form of revenues from operating the Walbridge,
Ohio facility. These revenues are included in the Company's net sales.
8
<PAGE>
MATERIAL SCIENCES CORPORATION
FORM 10-Q
For the Quarter Ended May 31, 1996
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Material Sciences Corporation ("MSC" or "Company") operates in one business
segment comprised of the following four product groups: laminates and
composites, specialty films, coil coating and electrogalvanizing. The following
table provides a summary of net sales and the percent of net sales of MSC's
product groups.
<TABLE>
<CAPTION>
Net Sales Summary Quarter Ended May 31,
- ----------------- ---------------------------------------------------
1996 1995
--------------------- ----------------------
Product Group: Dollars Percent Dollars Percent
------------ -------- ------------ ---------
<S> <C> <C> <C> <C>
Laminates and Composites $ 15,458 22.5% $ 13,930 23.1%
Specialty Films 10,149 14.7% 5,760 9.5%
Coil Coating 28,114 40.8% 26,394 43.7%
Electrogalvanizing 15,163 22.0% 14,322 23.7%
------------ ------- ----------- --------
$ 68,884 100.0% $ 60,406 100.0%
============ ======= =========== ========
</TABLE>
9
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
NET SALES
Net sales in the first quarter of fiscal 1997 increased 14.0% over the first
quarter of fiscal 1996. Sales of laminates and composites increased by 11.0%;
specialty films 76.2%; coil coating 6.5%; and electrogalvanizing 5.9%.
LAMINATES AND COMPOSITES
During the first quarter of fiscal 1997, laminates and composites sales grew
11.0% over the same period last year. All major products contributed to the
increase, which was led by disc brake noise damper materials.
SPECIALTY FILMS
Sales of specialty films products increased 76.2% in the first quarter of fiscal
1997, as compared to the same quarter last year. The increase is attributable to
the acquisition of Solar Gard International, Inc. ("SGI") during the third
quarter of last year and gains across all major product lines. In addition, at
May 31, 1996, the Company completed the acquisition of a West Coast distributor,
further strengthening its position in this market.
COIL COATING
Coil coating sales for the three months ended May 31, 1996, were 6.5% higher
than the same period in fiscal 1996. Increased sales of building products,
clutch plates and automotive trim were partially offset by a decline in truck
trailer and fuel tank sales.
ELECTROGALVANIZING
MSC participates in the electrogalvanizing market through Walbridge Coatings
(the "Partnership"), a partnership among subsidiaries of MSC, Bethlehem Steel
Corporation ("Bethlehem") and Inland Steel Industries, Inc. ("Inland"). MSC's
net sales for electrogalvanizing consists of various fees charged to the
Partnership for operating the facility. Bethlehem and Inland are primarily
responsible for the sales and marketing activities of the Partnership. The
Company's primary financial benefits from the Partnership are the revenues
billed to Walbridge Coatings for operating the facility. These revenues
represent 22.0% and 23.7% of the Company's net sales in the first three months
of fiscal 1997 and 1996, respectively. The profitability for operating the
facility is comparable to the Company's overall operating results. Under the
equity method of accounting, the Company includes its portion of the Partnership
shown in the Consolidated Statements of Income. The amounts do not directly
correlate to the Company's 50% ownership interest due to contractual allocation
requirements of the Partnership agreement.
MSC's electrogalvanizing sales increased 5.9% and electrogalvanizing volume
increased 4.6% to 126,186 tons in the first quarter of fiscal 1997 from 120,623
tons in the prior fiscal year
10
<PAGE>
period. The increase in sales and volume over the previous first quarter
resulted from improved yields and higher line utilization.
The sales and marketing responsibilities of the Partnership are split between
Bethlehem and Inland at 77% and 23%, respectively. During the first three months
of fiscal 1997, Inland utilized only 7% of available production line time rather
than its full 23% share. Bethlehem and other customers utilized this additional
available line time. Inland is reviewing its future involvement in the
Partnership, and therefore, there is no assurance that Inland will utilize its
full 23% of available line time on a long-term basis. The Company believes that
any short-term disruption in volume that might be caused by a reduction in
Inland's line time requirements could eventually be replaced by additional
volume from Bethlehem and other customers.
GROSS PROFIT
MSC's gross profit margin was 27.0% for the first quarter of fiscal 1997 in
comparison to 27.4% for the same period last year. The slight decline was
related to changes in the product mix, a more competitive pricing environment
and lower productivity at our Middletown, Ohio operation, due to an unusually
large number of new business qualification trials, offset, in part, by
incremental gross profit margin related to the SGI acquisition.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses increased to 16.6% of
sales in the first quarter of fiscal 1997 from 14.8% of sales for the same
period last fiscal year. This increase in SG&A was largely due to additional
ongoing expenses related to SGI. SG&A was also affected by the Company's
continued strategic plan for growth utilizing effective product marketing,
research and development and international marketing efforts.
TOTAL OTHER (INCOME) AND EXPENSE, NET AND INCOME TAXES
Total other (income) and expense, net was income of $.4 million for the first
three months of fiscal 1997 as compared to income of $.3 million for the first
quarter of fiscal 1996. During the first quarter of fiscal 1997, the Company
capitalized interest expense of $.3 million, compared to $.1 million in the same
period last year. MSC's effective income tax rate was approximately 38.5% during
the first quarter of fiscal 1997 and fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the first quarter of fiscal 1997, MSC utilized $1.8 million of cash from
operating activities compared to $3.6 million in the first quarter last year.
The decrease in cash utilization is due mainly to the timing of vendor payments
of accounts payable and accrued expenses, offset, in part by higher receivables.
For the three months ended May 31, 1996, MSC invested $12.4 million in capital
improvement projects compared with $4.8 million in the same period last year.
The increase in capital expenditures is due to the construction in process of a
new coil coating facility in Elk Grove Village, Illinois. In addition, the
Company purchased certain assets of a West Coast distributor
11
<PAGE>
of solar control and safety window film for approximately $4.0 million payable
in cash and convertible notes.
MSC's long-term debt, less current portion, increased at May 31, 1996, to $34.8
million from $16.8 million at fiscal year end due mainly to increased capital
expenditures and the acquisition of the West Coast distributor of solar control
and safety window film. The Company maintains two unsecured lines of credit
totaling $50.0 million. There was $22.0 million outstanding under these lines of
credit as of May 31, 1996, versus $4.8 million as of February 29, 1996. The
Company has executed letters of credit totaling $4.9 million against these lines
leaving available lines of credit of $23.1 million at May 31, 1996. The Company
believes that its cash flow from operations, together with available financing
(including an increase in a line of credit if required), and cash on hand will
be sufficient to fund its working capital needs, capital expenditure program and
debt amortization.
The Company has a capital lease obligation, which was $6.5 million as of May 31,
1996, relating to a facility which the Company subleases to the Partnership. In
addition, throughout the term of the Partnership, the Company is contingently
responsible for 50% of the Partnership's financing requirements, including the
Company's share (approximately $3.4 million) of $6.8 million in Partnership
financing loans from third parties at May 31, 1996.
MSC continues to participate in the implementation of settlements with the
government for the clean-up of various Superfund sites. For additional
information, refer to MSC's Form 10-K for the fiscal year ended February 29,
1996.
12
<PAGE>
MATERIAL SCIENCES CORPORATION
FORM 10-Q
For the Quarter Ended May 31, 1996
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a)(3)(i)(a) Certificate of Designation, Preferences and Rights of Series
B Junior Participating Preferred Stock.
(a)(3)(i)(b) Certificate of Elimination of the Designation of the Series
A Preferred Stock of Material Sciences Corporation.
(a)(27) Financial Data Schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter for
which this report is filed. On June 25, 1996, the Company
filed a Form 8-K regarding the adoption of a new rights
agreement.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the under-
signed, thereunto duly authorized, in Elk Grove Village, State of Illinois, on
the 9th day of July, 1996.
MATERIAL SCIENCES CORPORATION
By: /s/ G. Robert Evans
-------------------------
G. Robert Evans
Chairman and
Chief Executive Officer
By: /s/ William H. Vrba
-------------------------
William H. Vrba
Senior Vice President,
Chief Financial Officer,
and Secretary
14
<PAGE>
MATERIAL SCIENCES CORPORATION
Quarterly Report on Form 10-Q
Index to Exhibits
Sequentially
Exhibit Number Description of Exhibit Numbered Page
- -------------- ---------------------- -------------
(3)(i)(a) Certificate of Designation,
Preferences and Rights of
Series B Junior Participating
Preferred Stock.
(3)(i)(b) Certificate of Elimination of
the Designation of the Series
A Preferred Stock of Material
Sciences Corporation.
(4) Rights Agreement, dated as of *
June 20, 1996, between Material
Sciences Corporation and
ChaseMellon Shareholder
Services, L.L.C., as Rights Agent,
including the form of Certificate
of Designation, Preferences and
Rights of Series B Junior
Participating Preferred Stock
attached thereto as Exhibit A, the
form of Rights Certificate attached
thereto as Exhibit B and the
Summary of Rights attached thereto
as Exhibit C.
(27) Financial Data Schedule
* Incorporated by reference to the Company's Registration Statement on
Form 8-A, filed with the Commission on June 20, 1996.
<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RIGHTS OF SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
of
MATERIAL SCIENCES CORPORATION
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
Material Sciences Corporation, a corporation organized and existing under
the General Corporation Law of the State of Delaware, in accordance with the
provisions of Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation of the said Corporation, as amended, the said Board
of Directors on June 20, 1996, adopted a resolution creating a series of
1,000,000 shares of Preferred Stock designated as "Series B Junior Participating
Preferred Stock";
RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of its Certificate of
Incorporation, as amended, a series of Preferred Stock of this Corporation is
hereby created and that the designation and amount thereof and the voting
powers, preferences and relative participating, optional and other special
rights of the shares of such series, and the qualifications, limitations or
restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series B Junior Participating Preferred Stock" (the "Series B
Preferred Stock"), and the number of shares constituting such series shall be
1,000,000. Such number of shares may be increased by resolution of the Board of
Directors.
Section 2. Dividends and Distributions.
(A)(i) Subject to the prior rights of any other series of Preferred Stock
ranking prior to the Series B Preferred Stock as to dividends, the holders of
shares of Series B Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the last day of May, August,
November, and February in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series B Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $10.00 or (b) the Adjustment Number (as defined
below) times the aggregate per share amount of all cash
<PAGE>
dividends, and the Adjustment Number times the aggregate per share amount
(payable in kind), of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock, par value $0.02 per share, of the Corporation (the "Common Stock")
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series B Preferred Stock. The
"Adjustment Number" shall initially be 100. In the event the Corporation shall
at any time on or after July 2, 1996 (i) declare or pay any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding shares
of Common Stock (by reclassification or otherwise) into a greater number of
shares of Common Stock or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the Adjustment Number in effect
to which holders of shares of Series B Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such Adjustment Number in
effect by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(ii) The Corporation shall declare a dividend or distribution on the Series
B Preferred Stock as provided in this paragraph (A) immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock during the period
between any Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $10.00 per share on the Series B Preferred
Stock shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
(B) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series B Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series B Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series B Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series B Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series B Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 60 days prior to the date fixed
for the payment thereof.
<PAGE>
Section 3. Voting Rights. The holders of shares of Series B Preferred
Stock shall have the following voting rights:
(A) Each share of Series B Preferred Stock shall entitle the holder
thereof to a number of votes equal to the Adjustment Number on all matters
submitted to a vote of the stockholders of the Corporation.
(B) Except as otherwise provided herein, in the Corporation's
Certificate of Incorporation, as amended, or by-laws, as amended, or by
law, the holders of shares of Series B Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(C)(i) If at any time dividends on any shares of Series B Preferred
Stock shall be in arrears in an amount equal to at least six quarterly
dividends thereon, the occurrence of such contingency shall mark the
beginning of a period (herein called a "default period") which shall extend
until such time when all accrued and unpaid dividends for all previous
quarterly dividend periods and for the current quarterly dividend period on
all shares of Series B Preferred Stock then outstanding shall have been
declared and paid or set apart for payment. During each default period,
the holders of Preferred Stock (including holders of the Series B Preferred
Stock) upon which these or like voting rights have been conferred and are
exercisable (the "Voting Preferred Stock") with dividends in arrears in an
amount equal to six quarterly dividends thereon, voting as a class,
irrespective of series, shall have the right to elect two Directors.
(ii) During any default period, such voting right of the holders of
Series B Preferred Stock may be exercised initially at a special meeting
called pursuant to subparagraph (iii) of this Section 3(C) or at any annual
meeting of stockholders, and thereafter at annual meetings of stockholders,
provided that neither such voting right nor the right of the holders of
Series B Preferred Stock as hereinafter provided to increase in certain
cases the authorized number of Directors shall be exercised unless the
holders of one-third in number of shares of Voting Preferred Stock
outstanding shall be present in person or by proxy. The absence of a
quorum of the holders of Common Stock shall not affect the exercise by the
holders of Voting Preferred Stock of such voting right. At any meeting at
which the holders of Voting Preferred Stock shall initially exercise such
voting right during an existing default period, they shall have the right,
voting separately as a class, to elect Directors to fill such vacancies, if
any, in the Board of Directors as may then exist up to two Directors or, if
such voting right is exercised at an annual meeting, to elect two
Directors. If the number of Directors which may be otherwise elected at
any annual meeting or a special meeting does not permit the holders of the
Voting Preferred Stock to elect two Directors as provided herein, the
holders of Voting Preferred Stock, voting separately as a class, shall have
the right to make such increase in the number of Directors as shall be
necessary to permit the election by them of the required number. After
<PAGE>
the holders of Voting Preferred Stock shall have exercised their right to
elect Directors in any default period and during the continuance of such
default period, the number of Directors shall not be increased or decreased
except with the approval of the holders of Voting Preferred Stock voting
separately as a class.
(iii) Unless the holders of Voting Preferred Stock shall, during an
existing default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any stockholder or
stockholders owning in the aggregate not less than 10% of the total number
of shares of Voting Preferred Stock then outstanding may request, the
calling of a special meeting of the holders of Voting Preferred Stock,
which meeting shall thereupon be called by the Chairman and Chief Executive
Officer, any Vice President or the Secretary of the Corporation. Notice of
any such meeting and of any annual meeting at which holders of Voting
Preferred Stock are entitled to specially elect Directors pursuant to this
paragraph (C) shall be given to each holder of record of Voting Preferred
Stock by mailing a copy of such notice to him at his last address as the
same appears on the books of the Corporation. Such meeting shall be called
for a time not earlier than 20 days and not later than 60 days after such
request, or in default of the calling of such meeting within 60 days after
such order or request, such meeting may be called on similar notice by any
stockholder or stockholders owning in the aggregate not less than 10% of
the total number of shares of Voting Preferred Stock then outstanding.
Notwithstanding the provisions of this paragraph (C)(iii), no such special
meeting shall be called during the period within 60 days immediately
preceding the date fixed for the next annual meeting of the stockholders.
(iv) During any default period after the holders of Voting Preferred
Stock shall have exercised their rights to elect Directors voting as a
class, (x) the Directors so elected by the holders of Voting Preferred
Stock shall continue in office until their successors shall have been
elected by such holders or until the expiration of the default period, and
(y) any vacancy in the Board of Directors may be filled by vote of a
majority of the remaining Directors theretofore elected by the holders of
the class or classes of stock which elected the Director whose office shall
have become vacant. References in this paragraph (C) to Directors elected
by the holders of a particular class or classes of stock shall include
Directors elected by such Directors to fill vacancies as provided in clause
(y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the right
of the holders of Voting Preferred Stock as a class to elect two Directors
shall cease, (y) the term of any Directors so elected by the holders of
Voting Preferred Stock as a class shall terminate and (z) the number of
Directors shall be such number as may be provided for in the Corporation's
by-laws, as amended, or the Certificate of Incorporation, as amended,
without regard to any increase made pursuant to the provisions of paragraph
(C) of this Section 3 (such number being subject, how ever, to change
thereafter in any manner provided by law or in the Certificate of
<PAGE>
Incorporation or the by-laws). Any vacancies in the Board of Directors
effected by the provisions of clauses (y) and (z) in the preceding sentence
may be filled by a majority of the remaining Directors.
(D) Except as set forth herein, holders of Series B Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series B Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series B Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration, any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series B Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series B Preferred Stock,
except dividends paid ratably on the Series B Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration any
shares of any stock ranking on junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series B Preferred Stock,
except the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (both as to dividends and upon
dissolution, liquidation or winding up) to the Series B Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series B Preferred Stock, or any shares of stock ranking on a parity with
the Series B Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of Directors)
to all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the
<PAGE>
Corporation could, under paragraph (A) of this Section 4, purchase or otherwise
acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series B Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
preferred stock and may be reissued as part of a new series of preferred stock
to be created by resolution or resolutions of the Board of Directors subject to
the conditions and restrictions on issuance set forth in the Certificate of
Incorporation.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (A) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series B
Preferred Stock unless, prior thereto, the holders of shares of Series B
Preferred Stock shall have received the greater of (i) $100 per share, plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment, and (ii) an aggregate amount per
share equal to the Adjustment Number (as adjusted from time to time pursuant to
Section 2(A) hereof) times the aggregate amount to be distributed per share to
holders of Common Stock, or (B) to the holders of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series B Preferred Stock, except distributions made ratably on the Series B
Preferred Stock and all other such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock,
securities, cash or other property, then in any such case the shares of Series B
Preferred Stock then outstanding shall at the same time be similarly exchanged
or changed in an amount per share equal to the Adjustment Number (as adjusted
from time to time pursuant to Section 2(A) hereof) times the aggregate amount of
stock, securities, cash or other property (payable in kind), as the case may be,
into which or for which each share of Common Stock is changed or exchanged.
Section 8. No Redemption. The shares of Series B Preferred Stock
shall not be redeemable.
Section 9. Ranking. The Series B Preferred Stock shall rank junior
to, or pari passu with, all other series of the Corporation's Preferred Stock
subsequently issued, with respect to the payment of dividends and the
distribution of assets, unless the terms of any such series shall provide
otherwise, and shall rank senior to the Common Stock as to such matters.
Section 10. Amendment. The Certificate of Incorporation of the
Corporation, as heretofore amended, shall not be amended in any manner which
would materially alter or change the powers, preferences or special rights of
the Series B Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of Series B Preferred Stock, voting together as a single class.
<PAGE>
IN WITNESS WHEREOF, Material Sciences Corporation has caused this
Certificate to be duly executed in its corporate name on this 20th day of June,
1996.
ATTEST: MATERIAL SCIENCES CORPORATION
By: /s/ William H. Vrba By: /s/ G. Robert Evans
----------------------- -------------------------
Name: William H. Vrba Name: G. Robert Evans
Title: Senior Vice President, Chief Title: Chairman and Chief
Financial Officer and Secretary Executive Officer
<PAGE>
CERTIFICATE OF ELIMINATION OF THE
DESIGNATION OF THE
SERIES A PREFERRED STOCK
OF MATERIAL SCIENCES CORPORATION
Pursuant to Section 151(g)
of the General Corporation Law
of the State of Delaware
Material Sciences Corporation, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), in accordance with the
provisions of Section 151(g) of the General Corporation Law of the State of
Delaware, hereby certifies as follows:
1. That, pursuant to Section 151 of the General Corporation Law of the
State of Delaware and authority granted in the Certificate of Incorporation of
the Corporation, as amended, the Board of Directors of the Corporation, by
resolution duly adopted, authorized the issuance of a series of 7,500,000 shares
of Series A Junior Participating Preferred Stock, par value $1.00 per share (the
"Series A Stock"), and established the voting powers, designations, preferences
and relative, participating and other rights, and the qualifications,
limitations or restrictions thereof, and, on July 2, 1986, filed a Certificate
of Designation Preferences, and Rights with respect to such Series A Stock in
the office of the Secretary of State of Delaware.
2. That no shares of said Series A Stock are outstanding and no shares
thereof will be issued.
<PAGE>
3. That, at a duly called meeting of the Board of Directors of the
Corporation, a resolution in the form set forth below was duly adopted:
WHEREAS, by resolution of the Board of Directors of the Corporation on
June 17, 1986, in connection with the adoption of the Expiring Rights
Agreement, and by Certificate of Designation filed in the office of the
Secretary of State of Delaware on July 2, 1986, this Corporation authorized
the issuance of 7,500,000 shares of Preferred Stock designated Series A
Junior Participating Preferred Stock (the "Series A Preferred Stock") and
established the voting powers, designations, preferences and relative,
participating and other rights, and the qualifications, limitations or
restrictions thereof.
WHEREAS, as of the date hereof, no shares of such Series A Preferred
Stock are issued or outstanding and none of which is anticipated to be
issued subject to the Certificate of Designations previously filed with
respect to such Series A Preferred Stock unless required under the Expiring
Rights Agreement; and
WHEREAS, it is desirable that all references to such Series A Preferred
Stock be eliminated from the Certificate of Incorporation, as amended, of
the Corporation;
RESOLVED, that unless shares of Series A Preferred Stock are issued on
or prior to July 2, 1996, the Proper Officer of the Corporation be, and
each of them hereby are, authorized and any of them are directed to execute
and file a certificate with the Delaware Secretary of State (the
"Certificate of Elimination") setting forth a copy of this resolution
whereupon all reference to the Series A Preferred Stock shall be eliminated
from the Certificate of Incorporation, as amended, of the Corporation.
<PAGE>
FURTHER RESOLVED, that the Proper Officers of the Corporation be, and
each hereby is, authorized and empowered to take all such further actions
including, without limitation, to arrange for and enter into supplemental
agreements, instruments, certificates or documents relating to the
Certificate of Elimination and any transactions contemplated therein or
thereby, and to execute and deliver all such supplemental agreements,
instruments, certificates or documents in the name and on behalf of the
Corporation and under its corporate seal or otherwise, which shall upon
each such executing officer's sole discretion be deemed necessary, proper
or advisable in order to perform the Corporation's obligations under or in
connection with the aforementioned Certificate of Elimination and the
transactions contemplated therein, and to carry out fully the intent and
effectuate the purposes of this and the foregoing resolutions.
4. That, accordingly, all references to the Series A Preferred Stock, par
value $1.00 per share, of the Corporation be, and hereby are, eliminated from
the Certificate of Incorporation, as amended, of the Corporation.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by William H. Vrba, its Senior Vice President, Chief Financial Officer
and Secretary, as of this 3rd day of July, 1996.
MATERIAL SCIENCES CORPORATION
By: /s/ William H. Vrba
---------------------------
William H. Vrba
Senior Vice President,
Chief Financial Officer and
Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Consolidated Statements of Income and Consolidated Balance Sheets and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> MAY-31-1996
<CASH> 3,912
<SECURITIES> 0
<RECEIVABLES> 35,208
<ALLOWANCES> 4,585
<INVENTORY> 34,715
<CURRENT-ASSETS> 76,560
<PP&E> 198,094
<DEPRECIATION> 78,077
<TOTAL-ASSETS> 222,391
<CURRENT-LIABILITIES> 38,681
<BONDS> 34,776
<COMMON> 322
0
0
<OTHER-SE> 126,733
<TOTAL-LIABILITY-AND-EQUITY> 222,391
<SALES> 68,884
<TOTAL-REVENUES> 68,884
<CGS> 50,315
<TOTAL-COSTS> 50,315
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,514
<INCOME-TAX> 2,893
<INCOME-CONTINUING> 4,621
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,621
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
