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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 1997 Commission File Number: 1-2917
THE STANDARD PRODUCTS COMPANY
(Exact Name of Registrant as Specified in its Charter)
OHIO
(State or Other Jurisdiction of
Incorporation or Organization)
34-0549970
(IRS Employer
Identification No.)
2401 SOUTH GULLEY ROAD
DEARBORN, MICHIGAN 48124
(Address of Principal Executive Offices)(Zip Code)
Registrant's telephone number, including area code: (313) 561-1100
Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
Common Shares, $1 Par Value New York Stock Exchange
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of September 8, 1997 (based on the closing price of the
Registrant's Common Stock reported on the New York Stock Exchange Composite Tape
on such date), was approximately $452.8 million.
The number of shares of Common Stock outstanding as of September 8, 1997, was
16,846,738 shares.
Documents incorporated by reference
Portions of the Registrant's Proxy Statement related to the 1997 Annual Meeting
of Shareholders are incorporated by reference in Part III.
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PART I
ITEM 1. BUSINESS
General and Industry Segments
The Standard Products Company (the "Company") was incorporated in the State
of Ohio in 1927 and is engaged primarily in the manufacture of rubber and
plastic parts requiring a substantial degree of product engineering and
high-volume production processes for automotive original equipment manufacturers
("OEMs") in North America, Europe and Brazil. Through its Holm Industries, Inc.
subsidiary, the Company is the largest supplier of rubber and plastic sealing
components for the refrigeration industry in the North America. These two
businesses form the Company's Transportation Equipment Segment. The Company also
manufactures precure and mold cure tread rubber for the truck tire retreading
industry. This business, which operates through the Company's subsidiary, Oliver
Rubber Company, constitutes the Tread Rubber Segment.
Additional financial information concerning the Company's reportable
business segments and geographic areas for the years ended June 30, 1997, 1996
and 1995 is included in Note 15 of the Consolidated Financial Statements found
on page F-20.
The Company has expanded its operations into Brazil and Mexico over the
past two years. In May 1995, the Company increased its ownership in Itatiaia
Standard, a Brazilian company, from 20% to 100%. This was done in connection
with its construction of a new production facility in Brazil. As part of the new
construction, the Company formed a new entity, Standard Products Brasil
Industria E Comercio LTDA. ("SPB"). During fiscal 1997, the Company ceased
production at all Itatiaia Standard locations and consolidated all manufacturing
operations at SPB which operates the new plant in Varginha.
In 1995, the Company formed Standard Products de Mexico, S.A. de C.V.
("SPM") In 1996, the Company sold a 30% interest in this entity to Nishikawa
Rubber Company, of Hiroshima, Japan ("Nishikawa"). Construction of a new plant
in Mexico began during fiscal 1997 with completion scheduled by the end of
calendar 1997. This facility will manufacture automotive parts for the North
American automotive original equipment market.
The Company also has a 50% ownership interest in Nishikawa Standard Company
("NSC"), a North American joint venture with Nishikawa.
TRANSPORTATION EQUIPMENT SEGMENT
Automotive Original Equipment
Products. Rubber products supplied to the automotive manufacturing industry
include flocked rubber and steel weatherstrip assemblies to seal vehicle
windows; flocked rubber window channel assemblies and rubber window gaskets; and
vehicle body and door dynamic sealing systems. These products form the sealing
system of automotive vehicles, preventing water leakage and inhibiting wind
noise from entering the vehicle. Attractiveness of design is an important
feature of the sealing system. An increasing number of the Company's parts are
sold to automotive original equipment manufacturers as complete sealing systems.
This is a departure from former practices which involved more suppliers who
supplied individual parts, not complete systems. The Company also supplies
molded rubber engine mounts and body cushions, which comprise a vehicle's
vibration control system.
Plastic products made by the Company include metallized, multicolored and
embossed exterior and interior vinyl trim, painted vinyl trim and flocked vinyl
and steel weatherstrip assemblies. The plastic exterior products serve as
protective barriers preventing damage to the vehicle's sheet metal and can be an
integral part of the vehicle's overall styling and appearance.
Markets and Customers. The Company manufactures parts and accessories for
automotive and truck OEMs in the United States, Brazil, Canada, and Europe.
Manufacturing operations for the automotive original equipment market of this
segment are conducted by the Company, SPB, Standard Products (Canada) Limited,
Standard Products Limited (SPL) and Standard Products Industriel (SPI). This
segment is highly dependent on the success of OEMs worldwide and on three
customers in particular (Ford, General
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Motors and Chrysler), the loss of one or more of which would have a material
adverse effect on this segment (See Note 15 of the Consolidated Financial
Statements found on page F-20 for the percentage of sales to its three largest
customers). As the Company continues to expand its global position, it also
spreads the risk over those additional countries and develops stronger
relationships with other major OEMs, such as Fiat in South America.
The general economic climate in the various geographic areas in which the
Company produces and ships parts is presently good. In particular, the Brazilian
economy continues to show increasing stability with only modest inflation over
the last year, while North America and Europe remain in modest growth patterns
that are typical of mature markets. Foreign exchange rates could affect the
Company as Brazil continues a steady devaluation of its currency in support of
lower inflation and various European countries adopt measures to ensure their
inclusion in the European Economic Community in the year 2000. In the coming
year, the Company will commence operations at its 70% owned facility at
Aquascalientes, Mexico, a country emerging from considerable economic
uncertainty.
In addition to the factors noted above, the globalization of the economy is
bringing new competition for customers in North America. Management views the
Company's extensive worldwide experience as a major asset in retaining and
generating new business; however, this trend has only added to the pressure from
our major customers to reduce prices.
Sales and Distribution. The market for new automobiles in any country is
highly dependent on the general economic conditions in that country. Since most
of the Company's rubber and plastic automotive products are sold as original
equipment, sales of such products are directly affected by the annual car
production of OEMs. The Company does not have a backlog of orders at any point
in time. Instead, original equipment sales are based upon purchase orders issued
annually by automobile manufacturers for each part which the Company
manufactures. The purchase orders are for all or a percentage of the customers'
estimated requirements and are binding, subject to the annual car production. As
the year evolves, customers issue releases under those purchase orders,
specifying quantities of the parts which the assembly plants require. The
Company's sales and product development personnel work directly with the
engineering and styling departments of the automotive OEMs in the engineering
and development of its various products. The Company maintains sales offices
strategically located to provide support and service to its customers.
While the Company's business is not seasonal in the traditional sense,
July, August and December are generally lower volume months. OEMs typically
perform model changeovers and have plant shutdowns during July, European
operations are closed for vacations in August and assembly plants are usually
closed for a period from shortly before Christmas until after New Year's Day.
The Company utilizes, as a distribution center for some of its automotive
finished products, approximately 142,000 square feet of a 283,000 square foot
public warehouse which it operates in Dearborn, Michigan. The balance of the
warehouse space is allocated to commercial customers' use. In 1997, the Company
acquired a 207,000 square foot warehouse in Goldsboro, North Carolina for use by
two plants located in the surrounding area for raw materials and finished goods.
The Company also distributes automotive finished products from a leased
warehouse in Charlotte, North Carolina, central to the Company's other southern
plants. Most of the Company's nondomestic customers are supplied directly by
foreign manufacturing plants of subsidiaries of the Company.
Competition. Each aspect of the Company's business in automotive products
is highly competitive. No single firm competes with the Company in all aspects
of this business, however, major competitors would include Gencorp, Inc., the
Schlegel group of British Tire & Rubber, Harvard Industries' Kingston-Warren
subsidiary and Cooper Tire and Rubber. In its international markets, the Company
also competes with several other manufacturers in Europe and South America who
are large and have substantial resources. There can be no assurance that
competitors will not be able to take actions, including developing new
technology or products, or offering prolonged reduced pricing, which could
adversely affect the Company.
In addition to the competitors noted above, the continued globalization of
the automotive industry has brought new competition to North America. In
particular, Draftex GmbH, a subsidiary of London-based
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Laird Group PLC has built a new production facility in North America. While the
Company competes with Draftex in Europe this has added another supplier to the
field in North America at a time when customers are trying to reduce their
supplier base. Although reliable industry statistics are not available, the
Company believes that it is one of the leading manufacturers of rubber window
and door weather sealing products and plastic trim for the worldwide automotive
industry.
Although each customer may emphasize a different component as its primary
criteria, the automotive industry has historically competed in three areas in
providing customer service: quality, cost and time. Time in this sense relates
to on-time delivery, time to bring new products to market, manufacturing cycle
time, etc. The Company also believes that engineering and design capabilities
now play a greater role in the competitive process. Management believes the
Company's investment in engineering and design capabilities is a requirement to
achieving future business. The Company has historically met the customers'
requirements in these areas.
Other
The Company, through its subsidiary, Holm Industries, Inc., manufactures a
variety of custom-designed extruded plastic (primarily polyvinyl chloride and
PVC compounds) gaskets and seals sold as original equipment to manufacturers of
residential and commercial refrigerators, dishwashers and air conditioners.
These products are custom designed to enhance energy control and, in the case of
dishwashers, to prevent water leakage. Holm also produces extruded plastic parts
for the residential exterior door and window industries and extruded rubber
products for the automobile restoration and truck manufacturing industries. Holm
is the largest supplier of extruded plastic gaskets and seals to the North
American refrigeration and freezer market. Holm manufactures and sells its
products in the United States and, through a Mexican joint venture and license
agreements in Brazil, Argentina, and India.
Working Capital
The Transportation Equipment segment typically maintains a strong working
capital position which provides adequate cash flow. Accounts receivable are
promptly paid and inventories turn over rapidly. The Company entered into an
agreement in 1995 to sell $50,000,000 of accounts receivable (See Note 4 to the
Consolidated Financial Statements found on page F-15). The Company maintains
sufficient credit lines under borrowing arrangements to meet the Company's cash
requirements.
Joint Ventures
Through its North American joint venture, NSC, a general partnership owned
50% by the Company and 50% by Nishikawa, the Company manufactures vehicle body
and door sealing systems for sale to North American automotive original
equipment manufacturers and Japanese transplants. Major customers include Honda,
Ford Motor Company and Automotive Alliance International (formerly Mazda).
Manufacturing operations are conducted at plants located in Bremen, New Haven,
and Topeka, Indiana. Currently, the chief operating officer of The Standard
Products Company is the chief executive officer of NSC and chairman of its
Policy Committee.
In 1996, the Company sold 30% of its ownership interest in SPM to
Nishikawa. The Company retained a 70% interest. The venture will manufacture
automotive parts for the North American automotive original equipment market
once construction of a new facility is completed in late 1997.
TREAD RUBBER SEGMENT
Products. The Company's wholly owned subsidiary, Oliver Rubber Company
("Oliver"), manufactures and markets precure and mold cure tread rubber, bonding
gum, cement, repair materials and equipment for the tire retreading industry.
Oliver also supplies custom mixed rubber to the Company for use in
automotive original equipment products and to NSC for the manufacture of door
seals for automotive original equipment. Oliver also custom mixes rubber
compounds for selected customers throughout the United States.
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Oliver supplies both precure and mold cure tread rubber. Precure tread
rubber is shipped to a retreader partially cured and with a specially designed
tread imprinted. The retreader cements the precure tread to a tire casing using
heat and pressure to complete a permanent bond. Mold cure tread rubber is
applied by a retread dealer to the tire casing in a pressure mold which cures
the rubber and at the same time imprints into it the tread design.
Markets. Oliver serves the trucking industry in North America through its
licensed dealer network for precure retreading and through dealers who sell mold
cure rubber. Oliver also serves markets in other areas of the world, such as
India, through license arrangements and export sales. Truck mileage, and
therefore demand for tread rubber, correlate with general economic conditions of
the market served.
Oliver also supplies mold cure tread rubber for off-the-road (OTR)
construction equipment.
Sales and Distribution. In North America, tread rubber products are
marketed by Oliver's sales force to retread dealers, some of which are licensed
by Oliver. Licensed dealers use Oliver's patented precure system and market
tread rubber under the name Tuff-Cure.
Competition. The tread rubber industry is very competitive with more than
ten suppliers, of which three are significant. Competition is based upon the
price and quality of the products supplied. While exact market share information
is not available, it is estimated that based on pounds shipped, the largest
supplier of precure tread rubber is Bandag, Incorporated ("Bandag"). Unlike
Bandag, Oliver sells both precure and mold cure tread rubber. Management
believes Oliver is currently the largest supplier of mold cure rubber in North
America and the second largest supplier of tread rubber.
Working Capital
The Tread Rubber Segment sells to many small independent customers.
Accounts receivable and the extension of credit must be monitored closely to
reduce the risk of losses in collection. Inventories include a supply of
finished goods on hand to fill customer orders from stock. Working capital
requires careful management but has generally been sufficient to fund operating
needs.
RAW MATERIALS
The principal materials used by the Company and its subsidiaries in its
Transportation Equipment and Tread Rubber segments are synthetic rubber and
rubber chemicals. In addition, other significant materials used by the Company
in its Transportation Equipment segment include plastic resins, woven fabrics,
flock fibers, coil steel, aluminum and adhesives. The majority of these
materials are purchased on the open market from domestic suppliers.
The Company believes that it has adequate supplies of raw materials
available from reliable sources for the levels of production presently
anticipated.
ENGINEERING AND DEVELOPMENT
Although the Company operates in mature industries, it continues to spend
significant amounts for engineering and development of new products, processes
and applications. These amounts are disclosed on the Consolidated Statements of
Income found on page F-8 included herein. Product development is an essential
part of the market strength of the Company. The Company's sales and product
development personnel work directly with the engineering and styling departments
of its major customers in the development of new products. In recent years, the
Company's involvement with its automotive customers has begun at the earlier
model design stage, with the Company assuming an increasing share of engineering
and design capability and responsibility. The Company's main sales and product
development group is located in Dearborn, Michigan, close to the purchasing and
engineering groups of its largest customers. The Company also has significant
product development facilities at Stratford, Ontario, Huntingdon, England and
Bezons, France.
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PATENTS AND LICENSES
The Company holds numerous patents covering various manufacturing processes
and products of the Transportation Equipment Segment and several patents
relating to application processes used by its tread rubber customers. The
Company has licensed certain of the patents. The Company has a license agreement
with Nishikawa for sales, marketing and engineering services on certain products
sold by the Company. While the Company considers some of its patents and
licenses to be important in certain aspects of its business, the Company does
not believe that the loss or expiration of any particular patent or license
would have an adverse effect on either segment of its business. The Company
actively pursues the application for patents on new products and processes.
EMPLOYEES
As of June 30, 1997, the Company employed approximately 10,350 persons, of
whom approximately 7,600 were hourly employees. Employee relations at the
Company's plants generally have been good. Approximately 50% of the Company's
employees were represented by labor unions as of June 30, 1997.
ENVIRONMENTAL MATTERS
The Company believes that it is in substantial compliance with federal,
state and local provisions regulating the discharge of materials into the
environment or otherwise relating to the protection of the environment. The
Company maintains personnel whose function is to monitor compliance with
environmental protection regulations.
At its Gaylord, Michigan plant, the Company is correcting a previously
defined condition of groundwater located under its plant by injecting such water
to underground depths well below and separate from the drinking water aquifer.
To the extent necessary, permits for all corrective activities have been
obtained from the Michigan Department of Environmental Quality and the United
States Environmental Protection Agency. Chemicals in addition to those
previously defined have also been identified in the groundwater. The Company is
investigating whether the source of the additional chemicals is on-site or
off-site.
The Company has been previously designated as a potentially responsible
party in connection with several disposal sites. Settlements with payment of an
immaterial amount or no amount at all have been obtained for all except two
sites, one located in Jamestown, North Carolina and the other in Zionsville,
Indiana. Management believes that it was an insignificant contributor at these
sites and believes that these matters will be resolved without material adverse
affect to the Company's financial statements.
The Company has been notified by the State of New York that the property
occupied by its Schenectady plant, which is expected to be closed by the end of
1997, is being investigated due to allegations concerning possible contamination
resulting from the operations of the previous property owner. The State has
reclassified the site based on the presence of several contaminants and has
requested the Company to perform certain actions. The Company voluntarily
completed interim actions and is continuing site investigations to define the
extent and source of the contaminants. The Company has petitioned the State of
New York to reclassify this site as one not needing further action.
Where appropriate, the Company has accrued for the above mentioned items in
accordance with its accounting policies. See Note 1, "Environmental Compliance
and Remediation" of the Consolidated Financial Statements found on page F-13.
Management believes, on the basis of presently available information, that
resolution of these matters will not materially affect liquidity, capital
resources or the consolidated financial condition of the Company.
FOREIGN OPERATIONS
The Company owns all of the outstanding shares of Standard Products
(Canada) Limited, a Canadian corporation which is engaged primarily in the
manufacture of rubber and plastic parts and accessories for United States and
Canadian automotive OEMs. The Company also serves the automotive replacement
parts market and distributes products for the truck tire retreading industry.
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The Company all of the outstanding shares (except for qualifying shares
held by nominees) of Standard Products Limited, an English corporation which is
engaged primarily in the manufacture of rubber and plastics parts and
accessories for the North American, United Kingdom and European automotive
original equipment manufacturers and for the automotive replacement parts
market.
The Company acquired all of the issued and outstanding shares of capital
stock of Standard Products Industriel ("SPI"), a corporation organized under
French law in December 1992. SPI is engaged in the business of designing,
developing, manufacturing and distributing rubber and plastic parts and
accessories principally for the European automotive OEMs and for the automotive
replacement parts market.
In March 1996, the Company commenced production at a newly-constructed
plant located in Varginha, Brazil. This 236,000 square foot facility
manufactures plastic and rubber sealing components for the automotive original
equipment industry in South America. A substantial portion of the plant's
business is the production of parts for Fiat's world car, the Palio. During
1995, the Company had increased its presence in Brazil by incorporating Standard
Products Brazil (SPB) and by purchasing the 80% of Itatiaia Standard not then
owned by it. During 1996 and 1997 the Company consolidated all Itatiaia
Standard's manufacturing operations into the new facility in Varginha. In
addition to Fiat, customers of SPB include Ford, General Motors and Volkswagen.
In 1995, the Company formed Standard Products de Mexico, S.A. de C.V.
During 1996, the Company sold a 30% interest in this entity to Nishikawa.
Construction of a new plant in Aguascalientes began during fiscal 1997. This
plant is expected to begin production by the end of calendar 1997. When
complete, the 76,000 square foot plant will manufacture rubber and plastic
automotive parts for the North American OEMs.
The Company also has minority equity interests in and licensing
arrangements with firms in Japan, Korea, India, Mexico and other countries
throughout the world.
The Company's United States export sales in the aggregate for the three
fiscal years ended June 30, 1997, 1996 and 1995, were $111,017,000, $95,793,000
and $71,749,000, respectively, of which a substantial portion is represented by
sales to automotive original equipment manufacturers in Canada.
The Company's experience has been that its significant foreign businesses
in Canada and Western Europe do not present materially different risks or
problems from those encountered in its United States markets. The risks of the
Company, Standard Products (Canada) Limited, Standard Products Limited, Standard
Products Brazil, and Standard Products Industriel involve meeting the customers'
expectations as to the timely delivery of parts which meet their specifications.
The automotive business is directly affected by the annual car production of
original equipment manufacturers. Standard Products (Canada) Limited, Standard
Products Limited, Standard Products Brazil and Standard Products Industriel
participate in the risk of varying car builds similar to any of the Company's
other automotive plants which supply domestic assembly plants.
The Company expects that the risks of conducting business in the Brazilian
automotive original equipment market will be greater than the North American and
European automotive markets. The Company must deal with several new issues
including but not limited to more stringent governmental regulation, potential
high inflation, and the general economic instability associated with emerging
markets.
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ITEM 2. PROPERTIES
The Company operates the properties for the Transportation Equipment
segment as follows:
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<CAPTION>
LAND PLANT
LOCATION (ACREAGE) (SQUARE FEET)
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Aguascalientes, Mexico...................................... 15.9 76,000
Bezons, France.............................................. 4.3 140,000
Bolbec, France (1).......................................... 24.3 276,000
Cleveland, Ohio............................................. 12.0 157,000
Dearborn, Michigan (Warehouse and Offices).................. 13.9 358,000
Etobicoke, Ontario, Canada (1).............................. .8 33,000
Gaylord, Michigan........................................... 96.2 92,000
Georgetown, Ontario, Canada................................. 5.7 89,000
Goldsboro, North Carolina................................... 6.6 140,000
Goldsboro, North Carolina................................... 27.3 207,000
Greenville, Michigan........................................ 1.0 10,000
Griffin, Georgia............................................ 17.5 190,000
Hartselle, Alabama (1)...................................... 11.1 72,000
Huntingdon, England......................................... 11.1 175,000
Itaquaquecetuba, Brazil (2)................................. 11.9 54,000
Kittanning, Pennsylvania.................................... 6.1 80,000
Lexington, Kentucky (2)..................................... 5.9 115,000
Lillebonne, France.......................................... 9.1 100,000
Maesteg, Wales.............................................. 8.4 102,000
Mississauga, Ontario, Canada (1)............................ 5.0 97,000
Mitchell, Ontario, Canada................................... 10.5 88,000
New Ulm, Minnesota.......................................... 3.5 46,000
Plymouth, England (1)....................................... 9.0 127,000
Rocky Mount, North Carolina................................. 24.2 222,000
St. Charles, Illinois....................................... 2.3 47,000
Schenectady, New York (2)................................... 22.5 224,000
Scottsburg, Indiana......................................... 8.5 192,000
Spartanburg, South Carolina................................. 30.1 85,000
Stratford, Ontario, Canada.................................. 20.0 80,000
Stratford, Ontario, Canada.................................. 26.8 107,000
Stratford, Ontario, Canada.................................. 5.4 94,000
Tijuana, Mexico (1)......................................... -- 10,000
Varginha, Brazil............................................ 38.3 236,000
Vitre, France (1)........................................... 16.6 207,000
Winnsboro, South Carolina................................... 26.4 175,000
</TABLE>
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The Company operates the properties for the Tread Rubber segment as
follows:
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LAND PLANT
LOCATION (ACREAGE) (SQUARE FEET)
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Asheboro, North Carolina.................................... 16.4 161,000
Athens, Georgia............................................. 32.0 109,000
Athens, Georgia (1)......................................... 3.3 37,000
Dallas, Texas (1)........................................... 6.0 96,000
Export, Pennsylvania (1).................................... 2.0 40,500
Oakland, California......................................... 4.2 112,000
Paris, Texas................................................ 28.5 31,000
Salisbury, NC............................................... 2.7 37,200
Stratford, Ontario, Canada.................................. 5.4 94,000
Wadsworth, Ohio............................................. 2.0 28,000
</TABLE>
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(1) Leased from others. The leases are short to medium term operating leases,
some of which have options to renew for additional periods. Rental rates are
competitive for the market in which the property is located. The Company
believes that all of these leased facilities could be replaced for
comparable terms.
(2) Location closed in late fiscal 1997 or is scheduled for closure in fiscal
1998. Land and buildings will be held for sale.
The Company operates a 283,000 square foot public warehouse in Dearborn,
Michigan of which the Company utilizes approximately 142,000 square feet for its
own products. The Company has its corporate headquarters (including engineering
and product development) at this location. In addition to the 283,000 square
feet of office space, the Company also utilizes approximately 44,000 square feet
of space for offices.
The Company believes that all of its properties, machinery and equipment
are in good operating condition and suitable and adequate for the business of
the Company as presently conducted. The utilization of the Company's
Transportation Equipment facilities varies with the production of passenger cars
and light trucks in various countries. The utilization of the Tread Rubber
facilities varies with demand for tread rubber product. Capacities of each
facility are adequate to meet current demands. Management believes capacity is
adequate to meet the demands of each segment's business, however, it continues
to evaluate its position in each geographic area of the world and will expand or
reduce capacity accordingly.
ITEM 3. LEGAL PROCEEDINGS
The Company was not a party to any pending legal proceedings other than
ordinary routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF THE REGISTRANT
The information below is included in this report pursuant to instruction 3
to Item 401(b) of Regulation S-K.
The Executive Officers of the Company are elected annually to serve for
one-year terms or until their successors are elected and qualified. The
Executive Officers listed below were elected on October 22, 1996, except for Mr.
Roudebush who was elected on July 24, 1997 and Mr. Jacobson who was elected on
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January 27, 1997. The business experience, principal occupations and employment
during the last five years of the individuals holding the office are indicated
in the table below.
<TABLE>
<CAPTION>
SERVED IN
PRESENT
OFFICE
NAME AGE POSITION WITH REGISTRANT SINCE
---- --- ------------------------ ---------
<S> <C> <C> <C>
James S. Reid, Jr. ............ 71 Chairman of the Board of Directors 1981
Mr. Reid resigned from his position as Chief Executive
Officer, which he held since 1962, effective July 24,
1997.
Ronald L. Roudebush............ 50 Vice Chairman and Chief Executive Officer 1997
Formerly, Mr. Roudebush was part owner and an officer of
Milford Dodge, Inc. from 1995 and President of Rockwell
Automotive from 1991 to 1994.
Theodore K. Zampetis........... 52 President and Chief Operating Officer 1991
Formerly, Mr. Zampetis was Executive Vice President --
President Standard Products Automotive Operations from
1990.
Donald R. Sheley, Jr. ......... 55 Vice President, Finance and Chief Financial Officer 1995
Formerly, Mr. Sheley was Vice President and Corporate
Controller, Cooper Industries, Inc. from 1988 until
joining the Company in July, 1995.
Larry J. Enders................ 55 Vice President of the Company and President and Chief 1993
Executive Officer, Oliver Rubber Company
Formerly, Mr. Enders was Vice President -- Purchasing
and Worldwide Supply from 1991.
James F. Keys.................. 43 Executive Vice President -- International Operations 1996
Formerly, Mr. Keys was Vice President of the Company and
Managing Director of Standard Products Limited from 1991
to 1996.
Stephan J. Mack................ 60 President, Holm Industries, Inc. 1986
Ted M. McQuade................. 43 Executive Vice President, North American Automotive
Operations
Formerly, Mr. McQuade was Manager of Production Support
and Global Integration, Appliance Business, General
Electric from 1990.
Gerard Mesnel.................. 58 Executive Vice President -- Advanced Technology 1995
Worldwide and President and Directeur General, Standard
Products Industriel
Formerly, Mr. Mesnel was President/Consultant, GSF Cie.
since 1990.
Richard N. Jacobson............ 47 General Counsel and Secretary 1997
Formerly, Mr. Jacobson was Senior Corporate Counsel for
The B. F.Goodrich Company from 1987.
John C. Brandmahl.............. 58 Vice President -- Human Resources 1991
Wayne E. Hodges................ 47 Vice President -- Sales and Marketing 1995
Formerly, Mr. Hodges was Senior Vice President and
Corporate Secretary of Toyoda Gosei Company Ltd.
Charles F. Nagy................ 45 Treasurer 1992
Bernard J. Theisen............. 38 Corporate Controller and Assistant Secretary 1995
Formerly, Mr. Theisen was Corporate Controller for Hayes
Wheels International, Inc. from 1993 and Business Unit
Controller of its Fabricated Wheel Group from 1991.
</TABLE>
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
On August 1, 1997, the Company had 16,810,238 share of its Common Shares $1
par value outstanding, which were owned by 975 shareholders of record.
During 1997 and 1996, the Company paid quarterly cash dividends on its
Common Shares of $.17 per share. Information concerning long-term debt,
including restrictions and provisions relating to distributions and cash
dividends on the Company's Common Shares, appears on Note 8 which appears on
page F-16 of this report.
The Company's Common Shares are traded on the New York Stock Exchange under
the symbol SPD. Market data as shown in the following table:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
FISCAL QUARTER HIGH LOW HIGH LOW
-------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
1st.............................................. $25.75 $18.50 $24.00 $17.00
2nd.............................................. $26.25 $22.75 $18.75 $13.50
3rd.............................................. $26.50 $22.00 $25.00 $16.38
4th.............................................. $26.88 $21.38 $28.25 $23.00
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The information required by the Item is on page F-1 included herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is on pages F-2 through F-6 included
herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data are as set forth in the "Index
to Consolidated Financial Statements, Supporting Schedules and Supplemental
Data" on page 19 included herein.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
11
<PAGE> 12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As to Executive Officers, the information required is included in Part I of
this report on Form 10-K. The information required by Item 10 as to directors of
the Registrant is incorporated herein by reference to the information set forth
under the caption "Election of Directors" on pages 4 through 6 of the definitive
Proxy Statement for the Annual Meeting of Shareholders to be held October 21,
1997 ("1997 Proxy Statement"). The information required concerning Section 16
compliance is incorporated herein by reference to the information set forth
under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" on
page 19 of the 1997 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
the material under the caption "Executive Compensation" on pages 7 through 14 of
the 1997 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to
the information set forth under the captions "Security Ownership of Certain
Beneficial Owners and Management" on pages 1 through 3 of the 1997 Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to
the information set forth under the caption "Compensation Committee Interlocks
and Insider Participation" on page 12 of the 1997 Proxy Statement.
12
<PAGE> 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
See Index to Consolidated Financial Statements, Supporting Schedules
and Supplemental Data on page 20 included herein.
(a) (2) Financial Statement Schedule:
See Index to Consolidated Financial Statements, Supporting Schedules
and Supplemental Data on page 20 included herein.
13
<PAGE> 14
(a)(3) Exhibits:
<TABLE>
<CAPTION>
IF INCORPORATED BY
EXHIBIT NO. REFERENCE, DOCUMENTS
UNDER REG. S-K FORM 10-K WITH WHICH EXHIBIT
ITEM 601 EXHIBIT NO. DESCRIPTION WAS PREVIOUSLY FILED
- -------------- ----------- ----------- ---------------------------------
<C> <C> <S> <C>
2 2a Stock Sale Agreement, Dated Form 8-K, Dated January 26, 1993
December 19, 1992 with respect to (Filed with the SEC on February
the acquisition of the Standard 9, 1993; see Exhibit 2 therein)
Products Industriel Group.
3 3a Second Amended and Restated Quarterly Report Form 10-Q (Filed
Articles of Incorporation with the SEC on November 1, 1993;
see Exhibit 3a therein)
3 3b Amended and Restated Code of Form S-3 Registration No.
Regulations 33-62054 (Filed with the SEC on
May 5, 1993; see Exhibit 3.2
therein)
4 4a Senior Notes Agreement -- Quarterly Report Form 10-Q (Filed
$75,000,000 6.55% Senior Notes with the SEC on February 11,
due December 16, 2003, by and 1994; see Exhibit 4 therein)
among The Standard Products
Company and Metropolitan Life
Insurance Company and certain of
its Affiliates
4 4b First Amendment to Senior Notes
Agreement -- $75,000,000 6.55%
Senior Notes due December 16,
2003 by and among The Standard
Products Company and Metropolitan
Life Insurance Company and
certain of its Affiliates dated
September 22, 1995
4 4c Second Amendment to Senior Notes Quarterly Report on Form 10Q
Agreement -- $75,000,000 6.55% (Filed with the SEC on February
Senior Notes due December 16, 10, 1997; see Exhibit 10c
2003 by and among The Standard therein)
Products Company and Metropolitan
Life Insurance Company and
certain of its Affiliates dated
December 9, 1996
4 4d Senior Notes Agreement -- Annual Report Form 10-K (Filed
$25,000,000 aggregate principal with the SEC on September 25,
amount 9.56% Senior Notes due 1989; see Exhibit 4b therein)
July 1, 1999 by and between the
Company and Nationwide Life
Insurance Company ($12,000,000),
Aid Association for Lutherans
($10,000,000) and Employers Life
Insurance Company of Wausau
($3,000,000) dated as of June 30,
1989
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
IF INCORPORATED BY
EXHIBIT NO. REFERENCE, DOCUMENTS
UNDER REG. S-K FORM 10-K WITH WHICH EXHIBIT
ITEM 601 EXHIBIT NO. DESCRIPTION WAS PREVIOUSLY FILED
- -------------- ----------- ----------- ---------------------------------
<C> <C> <S> <C>
4 4e First and Second Amendments to Annual Report Form 10-K (Filed
the Senior Notes Agreement -- with the SEC on September 15,
$25,000,000 aggregate principal 1992; see Exhibit 4f therein)
amount, dated February 22, 1991
(First Amendment) and, June 30,
1991 (Second Amendment), between
the Company and Nationwide Life
Insurance Company, Aid
Association for Lutherans and
Employers Life Insurance Company
of Wausau
4 4f Third Amendment to Senior Notes
Agreement aggregate principal
amount $25,000,000 dated January
19, 1993, between the Company and
Nationwide Life Insurance
Company, and Aid Association for
Lutherans and Employers Life
Insurance Company of Wausau
4 4g Fourth Amendment to Senior Note Annual Report Form 10-K (Filed
Agreement principal amount with the SEC on September 13,
$3,000,000, dated as of January 1995)
31, 1995 by and between the
Company and Employers Life
Insurance Company of Wausau
Fourth Amendment to Senior Note
Agreement principal amount
$12,000,000 dated as of January
31, 1995 by and between the
Company and Nationwide Life
Insurance Company
Fourth Amendment to Senior Note
Agreement principal amount
$10,000,000 dated as of January
31, 1995 by and between the
Company and Aid Association for
Lutherans
4 4h Fifth Amendment to Senior Note
Agreement dated September 22,
1995, aggregate principal amount
$25,000,000 between the Company
and Nationwide Life Insurance
Company, Aid Association for
Lutherans and Employers Life
Insurance Company of Wausau
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
IF INCORPORATED BY
EXHIBIT NO. REFERENCE, DOCUMENTS
UNDER REG. S-K FORM 10-K WITH WHICH EXHIBIT
ITEM 601 EXHIBIT NO. DESCRIPTION WAS PREVIOUSLY FILED
- -------------- ----------- ----------- ---------------------------------
<C> <C> <S> <C>
4 4i Credit Agreement, dated as of Annual Report Form 10-K (Filed
January 19, 1993, among The with the SEC on September 14,
Standard Products Company, as 1993; see Exhibit 4c therein)
Borrower, and National City Bank,
Society National Bank, Comerica
Bank and NBD Bank, N.A. and
National City, as Agent.
4 4j First Amendment to Credit Quarterly Report 10-Q (Filed with
Agreement, dated as of April 30, the SEC on May 9, 1997)
1994, among The Standard Products
Company, as Borrower, and
National City Bank, Society
National Bank, Comerica Bank and
NBD Bank, N.A. and National City,
as Agent.
4 4k Second Agreement of Amendment to
the Credit Agreement, dated as of
August 25, 1995, among The
Standard Products Company, as
borrower, and National City Bank
as agent and for itself, Society
National Bank, Comerica Bank and
NBD Bank
4 4l Third Agreement of Amendment to Quarterly Report 10-Q (Filed with
the Credit Agreement, dated as of the SEC on November 14, 1997; see
October 25, 1996, among The Exhibit 4 therein)
Standard Products Company, as
borrower, and National City Bank
as agent and for itself, KeyBank
National Association, Comerica
Bank and NBD Bank.
4 4m Confirmation and Interest Rate Annual Report Form 10-K (Filed
and Currency Exchange Agreement, with the SEC on September 13,
dated November 12, 1993, between 1995)
the Company and National City
Bank
4 4n Interest Rate and Currency Annual Report Form 10-K (Filed
Exchange Agreement, Termination with the SEC on September 13,
of $7 million in principal 1995)
amount, dated June 16, 1995
between the Company and National
City Bank
10 10a Supplemental Salaried Pension Annual Report Form 10-K (Filed
Plan with the SEC on September 29,
1986; see Exhibit 10a therein)
10 10b The Standard Products Company Form S-8 Registration No.
1985 Employee Incentive Stock 33-01558 (Filed with the SEC on
Option Plan November 15, 1985; see Exhibit 4a
therein)
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
IF INCORPORATED BY
EXHIBIT NO. REFERENCE, DOCUMENTS
UNDER REG. S-K FORM 10-K WITH WHICH EXHIBIT
ITEM 601 EXHIBIT NO. DESCRIPTION WAS PREVIOUSLY FILED
- -------------- ----------- ----------- ---------------------------------
<C> <C> <S> <C>
10 10c The Standard Products Company Form S-8 Registration No.
1989 Employee Incentive Stock 33-33612 (Filed with the SEC on
Option Plan February 28, 1990; see Exhibit 4a
therein)
10 10d The Standard Products Company Form S-8 Registration No.
1991 Employee Stock Option Plan 33-51556 (Filed with the SEC on
September 2, 1992; see Exhibit 4c
therein)
10 10e The Standard Products Company Form S-8 Registration No.
1991 Restricted Stock Plan 33-51554 (Filed with the SEC on
September 2, 1992; see Exhibit 4c
therein)
10 10f The Standard Products Company Annual Report Form 10-K (Filed
Restricted Stock Agreement with the SEC on September 15,
between the Company and the 1992; see Exhibit 10h therein)
Chairman and Chief Executive
Officer
10 10g The Standard Products Company Annual Report Form 10-K (Filed
Restricted Stock Agreement with the SEC on September 15,
between the Company and the 1992; see Exhibit 10i therein)
President and Chief Operating
Officer
10 10h The Standard Products Company Annual Report Form 10-K (Filed
Restricted Stock Agreement with the SEC on September 27,
between the Company and the 1996; see Exhibit 10h therein)
Executive Vice
President-International
Operations
10 10i The Standard Products Company Form S-8 Registration No.
1993 Employee Stock Option Plan 33-53989 (Filed with the SEC on
June 6, 1994; see Exhibit 4
therein)
10 10j Receivables Purchase Agreement Quarterly Report Form 10-Q (Filed
dated as of September 22, 1995 with the SEC on February 13,
among The Standard Products 1996; see Exhibit 10 therein)
Funding Corporation as seller and
The Standard Products Company as
initial Master Servicer and
Clipper Receivables Corporation
as Purchaser and State Street
Boston Capital Corporation as
Administrator and National City
Bank as Relationship Bank
10 10k Amendment to Receivables Purchase
Agreement
10 10l Purchase and Sale Agreement dated Quarterly Report Form 10-Q (Filed
as of September 22, 1995 among with the SEC on February 13,
The Standard Products Company, as 1996; see Exhibit 10 therein)
Originator and Master Servicer, 5
Rubber Corporation, Oliver Rubber
Company, and Holm Industries,
Inc., as Originators and
Servicers, and The Standard
Products Funding Corporation, as
the Initial Purchaser
10 10m Standard Products Individual Form S-8 Registration No.
Retirement and Investment Trust 333-01923 (Filed with SEC on
Plan March 22, 1996; see Exhibit 4a
therein)
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
IF INCORPORATED BY
EXHIBIT NO. REFERENCE, DOCUMENTS
UNDER REG. S-K FORM 10-K WITH WHICH EXHIBIT
ITEM 601 EXHIBIT NO. DESCRIPTION WAS PREVIOUSLY FILED
- -------------- ----------- ----------- ---------------------------------
<C> <C> <S> <C>
10 10n The Standard Products Company Form S-8 Registration No.
Collectively Bargained Savings 333-01921 (Filed with SEC on
and Retirement Plan March 22, 1996; see Exhibit 4a
therein)
10 10o Second Amendment to Receivables Quarterly Report 10-Q (Filed with
Purchase Agreement the SEC on February 10, 1997; see
Exhibit 10a therein)
10 10p The Standard Products Company
Restricted Stock Agreement
between the Company and the
Executive Vice President-Advanced
Technology Worldwide
10 10q The Standard Products Company Form S-8 Registration Statement
1996 Employee Stock Option Plan No. 333-21225 (Filed with SEC on
February 6, 1997; see Exhibit
4(a) therein)
10 10r Letter Re: Employment of J.S.
Reid, Jr., dated July 24, 1997.
10 10s Employment Agreement between the
Standard Products Company and
Ronald L. Roudebush dated July 1,
1997.
10 10t Employment Agreement between the
Standard Products Company and
Theodore K. Zampetis dated
September 1, 1997.
10 10u The Standard Products Company
Restricted Stock Agreement
between the Company and the
Chairman of the Board of
Directors dated July 1, 1997.
13 13 Proxy Statement for the Annual
Meeting of Shareholders to be
held on October 21, 1997
21 21 Subsidiaries of Registrant
23 23 Consent of Independent
Accountants
24 24 Power of Attorney
27 27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K: No reports have been filed during the last quarter
of the fiscal year covered by this report on Form 10-K.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this the 16th day
of September 1997.
THE STANDARD PRODUCTS COMPANY
By: /s/ DONALD R. SHELEY, JR.
------------------------------------
Donald R. Sheley, Jr.
Vice President, Finance and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ RONALD L. ROUDEBUSH Vice Chairman and Chief Executive September 16, 1997
- ------------------------------------------ Officer; Director
Ronald L. Roudebush
/s/ THEODORE K. ZAMPETIS President and Chief Operating September 16, 1997
- ------------------------------------------ Officer; Director
Theodore K. Zampetis
/s/ DONALD R. SHELEY, JR. Vice President, Finance and Chief September 16, 1997
- ------------------------------------------ Financial Officer
Donald R. Sheley, Jr. Principal Financial Officer
/s/ BERNARD J. THEISEN Corporate Controller September 16, 1997
- ------------------------------------------ Principal Accounting Officer
Bernard J. Theisen
/s/ JAMES S. REID, JR.* Chairman of the Board of Directors, September 16, 1997
- ------------------------------------------ Director
James S. Reid, Jr.
/s/ JAMES C. BAILLIE* Director September 16, 1997
- ------------------------------------------
James C. Baillie
/s/ EDWARD B. BRANDON* Director September 16, 1997
- ------------------------------------------
Edward B. Brandon
/s/ JOHN DODDRIDGE* Director September 16, 1997
- ------------------------------------------
John Doddridge
/s/ JOHN D. DRINKO* Director September 16, 1997
- ------------------------------------------
John D. Drinko
/s/ CURTIS E. MOLL* Director September 16, 1997
- ------------------------------------------
Curtis E. Moll
/s/ MALCOLM R. MYERS* Director September 16, 1997
- ------------------------------------------
Malcolm R. Myers
/s/ LEIGH H. PERKINS, SR.* Director September 16, 1997
- ------------------------------------------
Leigh H. Perkins, Sr.
/s/ ALFRED M. RANKIN, JR.* Director September 16, 1997
- ------------------------------------------
Alfred M. Rankin, Jr.
/s/ ALAN E. RIEDEL * Director September 16, 1997
- ------------------------------------------
Alan E. Riedel
/s/ JOHN D. SIGEL* Director September 16, 1997
- ------------------------------------------
John D. Sigel
/s/ W. HAYDEN THOMPSON* Director September 16, 1997
W. Hayden Thompson
*By: /s/ RICHARD N. JACOBSON
-------------------------------------
Richard N. Jacobson
Attorney-in-Fact
</TABLE>
19
<PAGE> 20
THE STANDARD PRODUCTS COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS,
SUPPORTING SCHEDULES AND SUPPLEMENTAL DATA
<TABLE>
<S> <C>
Selected Financial Data..................................... F-1
Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ F-2
Consolidated Financial Statements and Supplemental Data
Management's Responsibility for Financial Statements...... F-7
Report of Independent Accountants......................... F-7
Consolidated Statements of Income for the Years ended June
30, 1997, 1996 and 1995................................ F-8
Consolidated Balance Sheets, June 30, 1997 and 1996....... F-9
Consolidated Statements of Cash Flows for the Years ended
June 30, 1997, 1996 and 1995........................... F-10
Consolidated Statements of Shareholders' Equity for the
Years ended June 30, 1997, 1996 and 1995............... F-11
Notes to the Consolidated Financial Statements............ F-12
Financial Statement Schedules:
Report of Independent Accountants on the Financial
Statement Schedule..................................... S-1
Schedule II Valuation and Qualifying Accounts for the
Years Ended June 30, 1997, 1996 and 1995..... S-2
</TABLE>
All schedules, other than Schedule II, are omitted since the information is
not required or is otherwise furnished.
Separate financial statements of the Registrant have been omitted since
restricted net assets of consolidated subsidiaries and unconsolidated investees
and the Company's share of the unconsolidated subsidiaries' equity is less than
25% of the Company's net assets at June 30, 1997.
20
<PAGE> 21
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net Sales......................... $1,108,268 $1,083,920 $995,926 $872,367 $763,796 $657,036
Gross Income...................... 145,456 108,482 99,455 119,427.. 108,607 94,253
Selling, General & Administrative
Expenses......................... 68,559 69,616 60,121 57,787 49,768 41,760
Non-Recurring Charge.............. 17,661 -- 8,832 4,424 -- --
Interest (Income) Expense, net.... 11,859 12,779 13,010 9,093 8,214 13,659
Other (Income) Expense, net....... 918 (2,437) 233 (2,092) 399 54
Provision for Taxes on Income..... 18,929 13,947 (2,807) 17,183 16,803 15,475
Income (Loss) from Continuing
Operations and Before
Extraordinary Item and Cumulative
Effect on Prior Years of Change
in Accounting Principle.......... 27,530 14,577 20,066 33,032.. 33,423 23,305
Income (Loss) from Operations and
Disposal of Discontinued
Division, Net of Tax............. -- -- -- -- -- --
Income (Loss) Before Extraordinary
Item and Cumulative Effect on
Prior Years of Change in
Accounting Principle............. 27,530 14,577 20,066 33,032 33,423 23,305
Extraordinary Item, Net of Tax.... -- -- -- -- (2,559) --
Cumulative Effect on Prior Years
of Change in Accounting
Principle, Net of Tax............ -- -- -- -- (8,301) --
Net Income (Loss)................. $ 27,530 $ 14,577 $20,066.. $ 33,032 $ 22,563 $ 23,305
Percent Net Income to Sales....... 2.5 1.3 2.0 3.8..... 3.0 3.5
Percent Net Income to Average
Shareholders' Equity............. 10.4 5.6 8.0 14.5 12.1 19.5
PER SHARE
Income (Loss) from Continuing
Operations and Before
Extraordinary Item and Cumulative
Effect on Prior Years of Change
in Accounting Principle.......... $ 1.64 $ .87 $ 1.20 $ 1.99 $ 2.21 $ 1.79
Income (Loss) from Discontinued
Operations....................... -- -- -- -- -- --
Extraordinary Item, Net of Tax.... -- -- -- -- $ (.17) --
Cumulative Effect on Prior Years
of Change in Accounting
Principle, Net of Tax............ -- -- -- -- $ (.55) --
Net Income (Loss)................. $ 1.64 $ .87 $ 1.20 $ 1.99 $ 1.49 $ 1.79
Cash Dividends Declared........... $ .68 $ .68 $ .68 $ .65 $ .54 $ .38
Book Value........................ $ 15.96 $ 15.42 $ 15.56 $ 14.55 $ 13.56 $ 11.82
BALANCE SHEET
Property, Plant & Equipment....... $ 583,614 $ 548,816 $489,534 $422,576 $377,564 $279,830
Accumulated Depreciation.......... 280,608 250,278 220,095 180,567 153,137 130,410
Total Assets...................... 691,859 684,695 701,889 624,314 564,850.. 398,793..
Working Capital................... 46,565 53,455 127,498 87,922 79,396 97,303
Long-term Debt.................... 121,804 143,041 190,522 135,381 115,607 69,289
Shareholders' Equity.............. 268,357 258,765 260,495 242,677 224,436 177,753
Cash Dividends Declared........... $ 11,579 $ 11,400 $ 11,445 $ 10,821 $ 8,450 $ 5,103
OTHER
Additions to Property, Plant &
Equipment, net................... $ 59,004 $ 79,684 $ 54,671 $ 59,120 $ 38,000 $ 18,367
Depreciation & Amortization....... $ 53,130 $ 52,545 $ 46,839 $ 40,495 $ 29,887 $ 26,228
Shares Outstanding................ 16,810 16,785 16,736 16,674 16,552 15,044
Average Shares Outstanding........ 16,804 16,758 16,711 16,627 15,114 13,010
<CAPTION>
1991 1990 1989 1988
---- ---- ---- ----
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT
Net Sales......................... $592,090 $590,699 $527,896 $473,035
Gross Income...................... 38,946 65,316 81,452 83,878
Selling, General & Administrative
Expenses......................... 40,073 35,011 27,111 23,694
Non-Recurring Charge.............. -- -- -- --
Interest (Income) Expense, net.... 11,663 8,608 3,125 1,430
Other (Income) Expense, net....... 285 1,846 2,062 1,612
Provision for Taxes on Income..... 7,879 8,060 18,333 20,373
Income (Loss) from Continuing
Operations and Before
Extraordinary Item and Cumulative
Effect on Prior Years of Change
in Accounting Principle.......... (20,954) 11,791 30,821 36,769
Income (Loss) from Operations and
Disposal of Discontinued
Division, Net of Tax............. (24,655) -- (2,132) (2,712)
Income (Loss) Before Extraordinary
Item and Cumulative Effect on
Prior Years of Change in
Accounting Principle............. (45,609) 11,791 28,689 34,057
Extraordinary Item, Net of Tax.... -- -- -- --
Cumulative Effect on Prior Years
of Change in Accounting
Principle, Net of Tax............ -- -- -- --
Net Income (Loss)................. $(45,609) $ 11,791 $28,689.. $ 34,057
Percent Net Income to Sales....... -- 2.0 5.4 7.2
Percent Net Income to Average
Shareholders' Equity............. -- 7.7 18.8 25.5
PER SHARE
Income (Loss) from Continuing
Operations and Before
Extraordinary Item and Cumulative
Effect on Prior Years of Change
in Accounting Principle.......... $ (1.65) $ .93 $ 2.33 $ 2.71
Income (Loss) from Discontinued
Operations....................... $ (1.94) -- $ (.16) $ (.20)
Extraordinary Item, Net of Tax.... -- -- -- --
Cumulative Effect on Prior Years
of Change in Accounting
Principle, Net of Tax............ -- -- -- --
Net Income (Loss)................. $ (3.59) $ .93 $ 2.17 $ 2.51
Cash Dividends Declared........... $ .47 $ .74 $ .69 $ .61
Book Value........................ $ 8.06 $ 12.05 $ 12.05 $ 10.96
BALANCE SHEET
Property, Plant & Equipment....... $251,151 $239,773 $200,801 $154,623
Accumulated Depreciation.......... 102,553 91,739 76,591 65,922
Total Assets...................... 369,272 362,399 333,741 255,211
Working Capital................... 61,594 90,014 88,937 74,759
Long-term Debt.................... 113,298 99,480 75,213 16,577
Shareholders' Equity.............. 102,366 152,829 156,348 145,800
Cash Dividends Declared........... $ 5,992 $ 9,365 $ 9,084 $ 8,194
OTHER
Additions to Property, Plant &
Equipment, net................... $ 21,179 $ 39,230 $ 32,506 $ 21,345
Depreciation & Amortization....... $ 24,747 $ 19,975 $ 14,196 $ 11,078
Shares Outstanding................ 12,695 12,689 12,975 13,293
Average Shares Outstanding........ 12,694 12,753 13,250 13,571
</TABLE>
F-1
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
(ALL AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
OVERVIEW
The Standard Products Company (the "Company") is recognized as one of the
world's leading suppliers of sealing, trim and vibration-control systems to
original equipment manufacturers ("OEMs") of passenger cars and light trucks.
The Company also maintains a leading position in providing sealing solutions for
the refrigeration industry. These operations comprise the Company's
Transportation Equipment Segment.
The Company's truck tire retreading business is reported as the Tread
Rubber Segment. This business also has a significant position in its industry.
Net income of the Company and its consolidated subsidiaries was $27,530 in
fiscal 1997, or $1.64 per common share compared with $14,577, or $0.87 per share
in fiscal 1996. Results in 1997 included a non-recurring charge of $17,661, or
$0.63 per share net of tax, for the closure of manufacturing facilities in
Lexington, Kentucky and Schenectady, New York. The Company also incurred costs
related to the closures of approximately $1,665, or $0.06 per share net of tax,
in the second half of fiscal 1997 which did not qualify for immediate accrual.
The Company's Financial Statements and Notes to Financial Statements on
Pages F-7 through F-22, including the Report of Independent Accountants (the
"Financial Statements"), should be read as an integral part of this discussion
and analysis.
TRANSPORTATION EQUIPMENT SEGMENT
Sales by geographic location in this segment were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
North America........ $682,817 $687,009 $626,152
Europe............... 234,504 241,617 240,100
South America........ 58,680 29,479 2,640
-------- -------- --------
Total............ $976,001 $958,105 $868,892
======== ======== ========
</TABLE>
SALES PERFORMANCE - 1997 VERSUS 1996
Fiscal 1997 sales for the Transportation Equipment Segment were $976,001,
an increase of $17,896, or 1.9% over the prior year.
The overall sales increase was primarily attributable to the fact that the
Company's new plant in Brazil was operational for the entire year. The new plant
shipped products for only the final four months of fiscal 1996.
The sales reduction in North America resulted primarily from decreases in
sales of the Ford Taurus/Sable and Escort, Chevrolet Lumina and Plymouth/Dodge
Neon. These reductions were not offset by increases in sales of the Jeep(R)
Grand Cherokee and Chrysler minivan and by increased participation in various
General Motors programs. In fiscal 1997, automotive production in North America
was essentially flat compared to 1996, and trended downward in the fourth
quarter of fiscal 1997, when car production by General Motors, Ford and Chrysler
combined was more than 10% lower than in the same period of fiscal 1996. The
Company is also under continued pressure from the OEMs to reduce the unit price
of its products. The appliance sealing business experienced a $2,099 increase in
sales over 1996 levels due to continued strong appliance demand in the United
States.
European sales decreased $7,113, or 2.9%, primarily as a result of currency
translation related to the French franc. This was partially offset by currency
translation gains arising from a stronger British pound. Volumes in Europe were
up slightly over 1996 levels, principally as a result of sales to Toyota,
Renault and Volvo.
SALES PERFORMANCE - 1996 VERSUS 1995
Fiscal 1996 sales for the Transportation Equipment Segment were $958,105,
an increase of $89,213, or 10.3%, over the prior year.
The sales increase in North America was entirely related to automotive
operations, and occurred despite flat year-over-year production of passenger
cars and light trucks in the North American auto market. Strong sales
performance by individual platforms within the industry accounted for the
increased sales volume. The Chrysler minivan and Jeep(R) Grand Cherokee showed
strong sales gains. Year-over-year performance was helped by the fact that this
was the Company's first full year of production on the Chrysler minivan. The
Ford Taurus/Sable, while declining slightly in sales, showed
F-2
<PAGE> 23
stronger volumes as the year progressed. This helped support the Company's
strong fourth quarter performance. The new Ford F-150 truck also boosted sales.
Sales in the appliance sealing business were essentially flat year-over-year,
although strong fourth quarter production helped to offset previous quarterly
declines in sales from the same periods in the prior year.
In Europe, volumes increased in the United Kingdom, principally on Ford
platforms, while in France volume declined, primarily due to reduced sales to
Renault and Fiat. Foreign currency translations in France almost entirely offset
the volume declines, while in the United Kingdom they reduced the volume gains
by over 40%.
In South America, results for fiscal 1995 reflect one month's revenue,
while fiscal 1996 reflects a full twelve months of sales. Our new plant in
Varginha, Brazil, came on-line in the last month of the third quarter of this
year, adding solidly to the revenue base.
OPERATING PERFORMANCE - 1997 VERSUS 1996
Despite only modest sales growth from 1996 to 1997, the Transportation
Equipment segment experienced strong improvements in operating results.
Operating income after charges for the plant closings in Lexington, Kentucky,
and Schenectady, New York, was $55,439, an increase of $15,603 or 39.2% over
fiscal 1996 levels. This improvement is attributable to the success of ongoing
process improvement and cost reduction initiatives, including a focused effort
on lowering raw material costs. Gross margin on sales showed continued
improvement throughout the year. Operating income in Brazil also improved by
over $8,500 as this operation moved from start-up toward full production.
Research and development costs increased substantially due in large part to
an investment by the Company in vehicle sealing systems that will have cosmetic,
weight and performance characteristics superior to current products, as well as
allow for cycle time improvements when placed in production. This investment
totaled approximately $1,500 in fiscal 1997. Development is expected to continue
into next year. The positive impact to the Company from these products and
processes will be dependent on customers' acceptance of their benefits. The
Company also incurred increased costs totaling $972 from the addition of
engineering staff for its Brazilian operation.
Selling, general and administrative expenses decreased from prior year
levels due to the absence of start-up costs related to the Brazilian plant of
$6,100. This decrease was substantially offset by increased personnel costs for
areas targeted to improve customer service.
As mentioned above and discussed in Note 3 to the attached financial
statements, the Company incurred a charge of $17,661, before tax, for the
closure of two North American manufacturing facilities. These closures were
deemed necessary by management to consolidate operations and reduce overcapacity
in this geographic area. Ongoing production programs at these sites were
transferred to existing locations in the United States. The closures are
expected to be completed by December 1997 and enhance Company profitability in
future years. The Company continually reviews capacity as part of its business
planning.
OPERATING PERFORMANCE - 1996 VERSUS 1995
Fiscal 1996 began poorly but finished on a high note. First quarter gross
margins were affected by high start-up costs on several significant new launches
and high raw material costs. Beginning in the second quarter of fiscal 1996,
costs related to these product launches and raw material costs began to decline.
Cost reductions and process improvement programs also helped to generate
significant margin improvements as the year unfolded.
Selling, general and administrative expenses increased substantially in
this segment over the prior year. This increase was the result of start-up costs
in Brazil of approximately $9,100, as well as the expenses related to the sale
of receivables explained further in Note 4 to the financial statements.
The Company completed the closure of its Canadian plastics plant previously
accrued for in 1995. Additional costs were incurred of approximately $1,000 and
were charged to normal operations in fiscal 1996.
TREAD RUBBER SEGMENT
GENERAL
Oliver Rubber Company ("Oliver") manufactures and markets precure and mold
cure tread rubber, bonding gum, cement, repair materials and equipment for use
in the tire retreading industry. In addition, Oliver supplies custom-mixed
rubber to the Company and certain affiliates for use in the automotive original
equipment business.
F-3
<PAGE> 24
SALES PERFORMANCE - 1997 VERSUS 1996
Fiscal 1997 sales for the North American based Tread Rubber segment totaled
$145,497, an increase of 7.1% over fiscal 1996 sales of $135,869. Included in
this amount were $13,230 of intersegment sales, an increase of 31.6% over prior
year levels. The increase in intersegment sales resulted from investments made
by Oliver to upgrade the capacity and quality of rubber mixing operations at its
Asheboro, North Carolina plant. Increased sales to third parties were primarily
the result of Oliver's agreement with Treadco, Inc., the largest independent
truck tire retreader in the United States, which was signed in 1996.
SALES PERFORMANCE -- 1996 VERSUS 1995
Sales for fiscal 1996 were $135,869, including intersegment sales of
$10,054. This was an increase of 1.7%, or $2,213 over fiscal 1995.
In fiscal 1995, Oliver closed its European operations. Accordingly, there
were no sales in Europe in fiscal 1996. During fiscal 1995, sales in Europe were
$5,239. Sales in North America increased by $7,452 in fiscal 1996. Roughly 46%
of this increase came from additional intersegment sales to the Transportation
Equipment segment. During fiscal 1996, Oliver made a significant investment in
its mixing plant in Asheboro, North Carolina, resulting in improved quality and
increased sales to the Transportation Equipment segment's automotive parts
plants. The remainder of the increase in sales is primarily attributable to the
new agreement Oliver signed in fiscal 1996 to supply Treadco, Inc. with precure
tread rubber, retread equipment and related items at all of its truck tire
precure retreading locations.
OPERATING PERFORMANCE -- 1997 VERSUS 1996
Operating income in the Tread Rubber segment for fiscal 1997 was $9,128, an
increase of $5,050, over the same period in the prior year. Approximately $2,300
of this increase is the result of the sales increases noted above. In addition,
improved operating efficiencies due to the upgrade of manufacturing facilities,
and an emphasis on improving product mix contributed to increased operating
income. These increases were partially offset by increased administrative costs
related to enhancing the information systems and selling capabilities of this
segment.
OPERATING PERFORMANCE -- 1996 VERSUS 1995
Operating income for the Tread Rubber Segment increased from $1,727 in
fiscal 1995 to $4,078 in fiscal 1996. While this segment has made several
improvements in its operating performance, particularly the quality of its
mixing capabilities, the primary source of its improved profitability came from
supply chain management. This resulted in savings on raw material costs that
translated to improved operating income.
OTHER (INCOME) EXPENSE
Interest expense was $12,914 for 1997, compared to $14,944 for 1996, a
decrease of $2,030. The decrease is primarily attributable to lower borrowings
under the Company's revolving credit agreement during 1997. This is a result of
reduced capital expenditures with the completion of the Brazilian plant and
favorable cash flow from improved operations. The improvement was partially
offset by increased interest from short-term borrowings, primarily in South
America.
Interest expense in fiscal 1996 was $14,944, an increase of $859 from 1995
levels. During the year the Company increased its borrowings to fund investments
in Brazil and other capital programs. This increase was partially offset by
proceeds from the sale of accounts receivable (see Note 4 to the Financial
Statements), which were used to reduce outstanding debt.
Royalty and dividend income have been comparable for each of the last three
years. "Other, net" was an expense in fiscal 1997 of $521, a reduction of $4,450
over the 1996 income amount of $3,929. This reduction is primarily attributable
to: (i) reduced interest income ($1,059), (ii) increased losses on fixed asset
dispositions ($885), and (iii) reduced operating profit at the Company's joint
venture, Nishikawa Standard Company ("NSC"). As explained in Note 1 of the
Financial Statements, the Company's share of NSC's earnings decreased by $1,535.
Other, net in fiscal 1996 exceeded the prior year level by $3,901, principally
due to increased earnings at NSC.
The Company's effective tax rate for fiscal 1997 was 40.7%. The reduction
from the prior year relates primarily to improved operating results in Brazil.
While Brazil lost money in both 1996 and 1997, reduced losses in the current
year resulted in a lower effective tax rate because the Company has not
recognized these benefits in either year. Implementation of royalty agreements
between the Company and certain of its foreign subsidiaries also served to lower
the effective tax rate between 1996 and 1997.
F-4
<PAGE> 25
The Company's effective tax rate for fiscal 1996 was 48.9%, as a result of
the Company's inability to utilize net operating losses generated in its
Brazilian operations. Recognition of tax benefits related to those losses will
be reported in future periods as opportunities to utilize these carryforwards
become more certain.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $80,045 of net cash from operating activities in
fiscal 1997. The major sources were net income and non-cash items such as
depreciation and amortization. Inventory increased by $3,733 from the prior year
due to increased volume in Brazil. Inventory builds at Lexington and Schenectady
related to the closure of those locations also increased inventory balances from
the prior year.
During fiscal 1997, the Company's net capital spending totaled $59,004, a
decrease of $20,680 from the prior year when most of the expenditures to
construct the Company's plant in Varginha, Brazil, were incurred. Fiscal 1997
capital spending did, however, include approximately $10,300 for the completion
of the Brazilian plant as well as approximately $13,400 in Canada which included
expansion of an existing plant to accommodate future General Motors demand for
vibration control systems. Additional significant expenditures were also made in
the United Kingdom to upgrade mixing facilities and in construction of a new
plant in Mexico which is 70% owned by the Company as part of a joint venture
with the Nishikawa Rubber Company of Hiroshima, Japan. Capital spending for
fiscal 1998 is expected to be approximately $65,000 and will include the cost of
completing the Mexican facility, which is anticipated to commence operations in
the second quarter of the year.
The Company utilized improved cash flow from operations and reduced levels
of capital spending in the fiscal year to reduce long-term debt obligations
under the Company's revolving credit agreement. This reduction in outstanding
debt was partially offset by increased short-term borrowing, principally in
Brazil, to fund working capital requirements. The Company also paid quarterly
dividends throughout fiscal 1997 of $0.17 per share. Dividends are expected to
continue throughout fiscal 1998.
In September 1995, the Company generated $50,000 through the sale of
accounts receivable in the United States. Proceeds from the sale were used to
reduce outstanding borrowings under the Company's Revolving Credit Agreement.
See Note 4 to the Consolidated Financial Statements found on page F-15 for a
more detailed description of this transaction.
During the three-year period ended June 30, 1997, inflation has been
relatively moderate, and operating costs reflect current costs for raw materials
and inventory, operating expenses and depreciation. It is important to
understand that inflation, as reported on a consumer price index basis, may not
bear a direct relationship to the Company's costs. Although inflation on the
whole was stable during the period, as mentioned above, fiscal 1995 saw
significant price increases in the raw materials used in operations. This was
the result of increases in the costs of petroleum, polymers and chemicals used
in the Company's business at a rate greater than the general inflation rate. The
Company does not expect inflation to have any near-term material effect on the
costs of its products, although there can be no assurance that such an effect
will not occur in the future.
Except for Brazil and Mexico, the value of the Company's consolidated
assets and liabilities located outside the United States (which are translated
at period-end exchange rates) and income and expenses (which are translated
using rates prevailing during the fiscal year) have been affected by the
translation values of the Canadian dollar, French franc and British pound. Such
translation adjustments are reported as a separate component of shareholders'
equity. While exchange rate fluctuations have historically not had a significant
impact on the Company's reported operating results, changes in the values of the
currencies noted above will impact the translation adjustments in the future.
The Company's operations in Brazil and Mexico use the U.S. dollar as their
functional currency. Translation adjustments for these operations are included
in the determination of income.
At June 30, 1997, the Company was in compliance with the various covenants
under the agreements pursuant to which it may borrow money. Management expects
that it will remain in compliance with these covenants through the year ending
June 30, 1998.
During the next year, the Company believes that its cash requirements for
working capital, capital expenditures, dividends, interest and debt repayments
will be met through internally generated funds and utilization of available
borrowing sources. For a description of the Company's financing arrangements at
June 30, 1997, see Note 8 to the Financial Statements.
F-5
<PAGE> 26
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
This standard establishes guidelines for the display of comprehensive income for
financial statement purposes. The objective of the statement is to report a
measure of all changes in equity of an enterprise that result from transactions
and other economic events of the period other than transactions with owners.
The FASB also issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This standard requires extensive disclosure
of operating segments based on the "management approach." This approach
organizes segments within a company for making operating decisions and assessing
performance. Reportable segments can be based on products and services,
geography, legal structure or any other manner in which management disaggregates
the company. Both standards are effective for fiscal years beginning after
December 15, 1997.
PROSPECTIVE INFORMATION
The Company expects sales in its North American automotive operations to
decline by approximately 10% in fiscal 1998. The sales decline is due to several
factors, the most significant of which is the absence of business on certain
vehicle platforms for which the Company provided products in 1997, including the
Ford F-150 pickup truck and the Ford Thunderbird. Production of the Thunderbird
has been discontinued. Another significant factor is price concessions granted
to customers under long-term contracts.
The sales decline projected in North America is expected to be partially
offset by significant increases in sales in Brazil and Europe. The increase in
Brazil is attributable to expected higher levels of production of the Fiat
Palio. The Company provides complete sealing systems for the Palio in Brazil. As
production increases, management expects continued improvement in the
profitability of the Brazilian operations. The increase in Europe is due to a
number of new launches in both the United Kingdom and France. New business
beginning in fiscal 1999 is likely to more than offset the decline in sales that
will be experienced in 1998.
Despite a projected decline in sales in North America, the Company expects
that the positive future impact of having closed two plants in 1997 and
continued cost reduction measures, centering around manufacturing process
improvements, will prevent a significant decline in earnings in North America.
As mentioned above and like most automotive suppliers, the Company has agreed to
reduce prices annually on many of the products that it provides, both in North
America and elsewhere in the world. As a result, the Company is making an
aggressive and continuing effort to reduce costs in all aspects of its
operations. The Company's future success is partly dependent on the
implementation of these initiatives. Management's expectations for fiscal 1998
also depend upon improved profitability of the Brazilian subsidiary, and
successful launches of new programs in Europe and in the Company's NSC joint
venture.
CAUTIONARY STATEMENTS FOR PURPOSES OF "SAFE HARBOR" UNDER THE PRIVATE SECURITIES
REFORM ACT OF 1995
Certain statements in this Management's Discussion and Analysis, the
attached Financial Statements, in the Company's press releases and in oral
statements made by or with the approval of an authorized executive officer of
the Company constitute "forward-looking statements" as that term is defined
under the Private Securities Litigation Reform Act of 1995. These may include
statements projecting, forecasting or estimating Company performance and
industry trends. The achievement of the projections, forecasts or estimates is
subject to certain risks and uncertainties. Actual results and events may differ
materially from those projected, forecasted or estimated. The applicable risks
and uncertainties include general economic and industry conditions that affect
all international businesses, as well as matters that are specific to the
Company and the markets it serves.
General risks that may impact the achievement of such forecasts include
compliance with new laws and regulations; significant raw material price
fluctuations; currency exchange rate fluctuations; limits on repatriation of
funds; and political uncertainties. Specific risks to the Company include risk
of recession in the economies in which its products are sold; the concentration
of a substantial percentage of the Company's sales with a few major OEM
customers; labor relations at the Company, its customers and its suppliers;
competition in pricing and new product development from larger companies with
substantial resources; and continued globalization of the automotive supply base
resulting in new competition in certain locations.
F-6
<PAGE> 27
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The Standard Products Company
and Consolidated Subsidiaries
Management is responsible for the preparation, integrity and objectivity of
the consolidated financial statements and other financial information presented
in this report. The accompanying consolidated financial statements were prepared
in accordance with generally accepted accounting principles, applying certain
estimates and judgments as required.
Standard Products' internal controls are designed to provide reasonable
assurance as to the integrity and reliability of the financial statements and to
adequately safeguard, verify and maintain accountability of assets. Such
controls are based on established written policies and procedures, are
implemented by trained, skilled personnel with an appropriate segregation of
duties and are monitored through a comprehensive internal audit program. These
policies and procedures prescribe that the Company and all its employees are to
maintain the highest ethical standards and that its business practices
throughout the world are to be conducted in a manner which is above reproach.
Arthur Andersen LLP, independent auditors, are retained to audit the
Company's financial statements. Their accompanying report is based on audits
conducted in accordance with generally accepted auditing standards, which
include the consideration of the Company's internal controls to establish a
basis for reliance thereon in determining the nature, timing and extent of
audits tests to be applied.
The Board of Directors exercises its responsibility for these financial
statements through its Audit Committee, which consists entirely of independent
non-management Board members. The audit committee meets periodically with the
independent auditors and with the Company's internal auditors, both privately
and with management present, to review accounting, auditing, internal controls
and financial reporting matters.
LOGO LOGO
Ronald L. Roudebush Donald R. Sheley, Jr.
Vice Chairman and Chief Vice President, Finance
Executive Officer* and Chief Financial
Officer
*effective July 24, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND THE BOARD OF DIRECTORS, THE STANDARD PRODUCTS COMPANY:
We have audited the accompanying consolidated balance sheets of The
Standard Products Company (an Ohio corporation) and Consolidated Subsidiaries as
of June 30, 1997 and 1996, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended June 30, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Standard
Products Company and Consolidated Subsidiaries as of June 30, 1997 and 1996, and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended June 30, 1997 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP LOGO
July 24, 1997
Cleveland, Ohio
Arthur Andersen LLP
F-7
<PAGE> 28
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THE STANDARD PRODUCTS COMPANY
AND CONSOLIDATED SUBSIDIARIES
FOR THE YEARS ENDED JUNE 30,
-----------------------------------------
1997 1996 1995
---- ---- ----
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<S> <C> <C> <C>
Net Sales................................................ $1,108,268 $1,083,920 $ 995,926
Cost of Goods Sold:
Materials, wages and other manufacturing costs......... 916,821 934,504 863,260
Research, engineering and development expenses......... 45,991 40,934 33,211
---------- ---------- ----------
962,812 975,438 896,471
---------- ---------- ----------
Gross Income............................................. 145,456 108,482 99,455
Selling, General and Administrative Expenses............. 68,559 69,616 60,121
Non-recurring Charge (Note 3)............................ 17,661 -- 8,832
---------- ---------- ----------
59,236 38,866 30,502
---------- ---------- ----------
Other (Income) Expense:
Royalty and dividend income............................ (658) (673) (814)
Interest expense....................................... 12,914 14,944 14,085
Other, net............................................. 521 (3,929) (28)
---------- ---------- ----------
12,777 10,342 13,243
---------- ---------- ----------
Income before Taxes on Income............................ 46,459 28,524 17,259
Provision for Taxes on Income............................ 18,929 13,947 (2,807)
---------- ---------- ----------
Net Income.......................................... $ 27,530 $ 14,577 $ 20,066
========== ========== ==========
Earnings Per Common Share:
Primary................................................ $ 1.64 $ 0.87 $ 1.20
---------- ---------- ----------
Fully Diluted.......................................... $ 1.64 $ 0.87 $ 1.20
---------- ---------- ----------
Weighted average shares outstanding.................... 16,803,849 16,757,767 16,711,451
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE> 29
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
THE STANDARD PRODUCTS
COMPANY AND
CONSOLIDATED
SUBSIDIARIES, JUNE 30,
-----------------------
1997 1996
---- ----
(THOUSANDS OF DOLLARS
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 6,972 $ --
Receivables, less allowances of $2,863 in 1997 and $2,958
in 1996................................................ 174,696 181,001
Inventories (Note 5)...................................... 66,633 60,377
Prepaid insurance, taxes, etc. ........................... 23,685 19,680
-------- --------
Total current assets................................. 271,986 261,058
-------- --------
Property, Plant and Equipment, at cost:
Land and buildings........................................ 123,103 115,707
Machinery and equipment................................... 460,511 433,109
-------- --------
583,614 548,816
Less -- Accumulated depreciation.......................... (280,608) (250,278)
-------- --------
Net property, plant and equipment.................... 303,006 298,538
Goodwill, net............................................... 66,169 71,653
Other Assets, net (Note 6).................................. 50,698 53,446
-------- --------
$691,859 $684,695
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term notes payable.................................. $ 19,645 $ 1,198
Current maturities of long-term debt...................... 1,289 2,050
Accounts payable and accrued expenses (Note 7)............ 201,629 201,502
Dividend payable.......................................... 2,858 2,853
-------- --------
Total current liabilities............................ 225,421 207,603
Long-term Debt, net of current maturities................... 121,804 143,041
Other Postretirement Benefits............................... 24,953 25,230
Deferred Income Taxes and Other Credits..................... 51,324 50,056
Commitments and Contingent Liabilities (Note 13)
Shareholders' Equity:
Serial preferred shares, without par value, authorized
6,000,000 voting shares and 6,000,000 non-voting
shares, none issued.................................... -- --
Common shares, par value $1 per share; authorized
50,000,000 shares, issued and outstanding 16,809,723 in
1997 and 16,784,867 in 1996............................ 16,810 16,785
Paid-in capital........................................... 98,066 96,906
Retained earnings......................................... 170,620 154,669
Foreign currency translation adjustments.................. (12,870) (6,318)
Minimum pension liability................................. (4,269) (3,277)
-------- --------
Total shareholders' equity........................... 268,357 258,765
-------- --------
$691,859 $684,695
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE> 30
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THE STANDARD PRODUCTS COMPANY
AND CONSOLIDATED SUBSIDIARIES
FOR THE YEARS ENDED JUNE 30,
------------------------------
1997 1996 1995
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income................................................ $ 27,530 $ 14,577 $ 20,066
Adjustments to reconcile net income to net cash provided
by (used by) operating activities:
Depreciation and amortization.......................... 53,130 52,545 46,839
Deferred taxes and other credits....................... (974) 265 (2,631)
Equity in income of non-consolidated affiliates........ (1,103) (2,436) (786)
Effect of changes in foreign currency.................. 929 192 (2,834)
Other.................................................. 2,763 1,216 (2,151)
Net changes in assets and liabilities:
Receivables (Note 4)................................. 5,877 18,160 9,436
Inventories.......................................... (6,079) 9,081 (14,790)
Accounts payable and accrued expenses................ (2,028) 29,140 (40)
-------- -------- --------
Net cash provided by operating activities....... 80,045 122,740 53,109
-------- -------- --------
Cash Flows from Investing Activities:
Purchase of property, plant and equipment, net............ (59,004) (79,684) (54,671)
Investments in affiliates and non-consolidated entities... (264) (199) (8,679)
Assets acquired by purchase of businesses................. -- (1,581) (840)
-------- -------- --------
Net cash used by investing activities........... (59,268) (81,464) (64,190)
-------- -------- --------
Cash Flows from Financing Activities:
Proceeds of long-term borrowings.......................... 18,076 37,791 55,929
Net increase (decrease) in short-term borrowings.......... 18,447 (3,561) (11,740)
Repayment of long-term borrowings......................... (39,586) (84,659) (1,914)
Cash dividends............................................ (11,579) (11,400) (11,445)
Proceeds from exercise of stock options................... 134 299 477
-------- -------- --------
Net cash provided by (used by) financing
activities................................... (14,508) (61,530) 31,307
-------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... 703 708 (680)
-------- -------- --------
Increase (decrease) in cash and cash equivalents............ 6,972 (19,546) 19,546
Cash and cash equivalents at the beginning of the year...... -- 19,546 --
-------- -------- --------
Cash and cash equivalents at the end of the year............ $ 6,972 $ -- $ 19,546
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-10
<PAGE> 31
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
THE STANDARD PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
-----------------------------------------------------------------------
FOREIGN
CURRENCY MINIMUM TOTAL
COMMON PAID-IN RETAINED TRANSLATION PENSION SHAREHOLDERS'
SHARES CAPITAL EARNINGS ADJUSTMENTS LIABILITY EQUITY
------ ------- -------- ----------- --------- -------------
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1994............. $16,674 $95,614 $ 142,871 $(10,359) $(2,123) $242,677
Net income....................... -- -- 20,066 -- -- 20,066
Cash dividends ($.68 per
share)........................ -- -- (11,445) -- -- (11,445)
Foreign currency translation
adjustments................... -- -- -- 9,863 -- 9,863
Restricted stock awards.......... -- 208 -- -- -- 208
Sale of 61,894 shares to option
holders....................... 62 415 -- -- -- 477
Minimum pension liability........ -- -- -- -- (1,351) (1,351)
------- ------- --------- -------- ------- --------
BALANCE, JUNE 30, 1995............. $16,736 $96,237 $ 151,492 $ (496) $(3,474) $260,495
Net income....................... -- -- 14,577 -- -- 14,577
Cash dividends ($.68 per
share)........................ -- -- (11,400) -- -- (11,400)
Foreign currency translation
adjustments................... -- -- -- (5,822) -- (5,822)
Restricted stock awards.......... -- 419 -- -- -- 419
Sale of 48,712 shares to option
holders....................... 49 250 -- -- -- 299
Minimum pension liability........ -- -- -- -- 197 197
------- ------- --------- -------- ------- --------
BALANCE, JUNE 30, 1996............. $16,785 $96,906 $ 154,669 $ (6,318) $(3,277) $258,765
Net income....................... -- -- 27,530 -- -- 27,530
Cash dividends ($.68 per
share)........................ -- -- (11,579) -- -- (11,579)
Foreign currency translation
adjustments................... -- -- -- (6,552) -- (6,552)
Restricted stock awards.......... -- 1,051 -- -- -- 1,051
Sale of 24,856 shares to option
holders....................... 25 109 -- -- -- 134
Minimum pension liability........ -- -- -- -- (992) (992)
------- ------- --------- -------- ------- --------
BALANCE, JUNE 30, 1997............. $16,810 $98,066 $ 170,620 $(12,870) $(4,269) $268,357
======= ======= ========= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-11
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. Major intercompany items have
been eliminated.
The Company's investments in affiliate operations are accounted for by both
the equity and cost methods of accounting. The cost method is followed in those
situations where the Company's ownership is less than 20% and operations are
conducted by management of the affiliate. Income is recorded as received. The
equity method of accounting is followed in those situations of larger ownership
interests but less than 51%, and the Company's results of operations include
those of the affiliate to the extent of its ownership interest.
The Company's investment in Nishikawa Standard Company (NSC), a 50% owned
joint venture in the United States, is accounted for under the equity method.
The Company's investment in NSC at June 30, 1997 and 1996 was $19,609 and
$18,644 respectively and is included in Other Assets in the accompanying
consolidated balance sheets. The Company's share of NSC's operating income was
$969, $2,504 and $431 in fiscal 1997, 1996 and 1995, respectively.
Under the terms of NSC's revolving credit and term loan facility, the joint
venture partners are required to guarantee a portion of NSC's borrowings. The
Company's share of these guarantees at June 30, 1997 was $8,650.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits and repurchase agreements
at varying rates of interest and with original maturities less than thirty days.
These investments are carried at cost which approximates market value.
The following is additional information related to the accompanying
consolidated statements of cash flows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash paid for
interest........... $12,314 $14,962 $13,935
Cash paid for income
taxes.............. $18,819 $ 6,206 $ 3,600
</TABLE>
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiaries have been
translated in accordance with Statement of Financial Accounting Standards (SFAS)
No. 52. Except for the Brazilian and Mexican subsidiaries, current rates of
exchange are used to translate the balance sheets of these entities, while the
average exchange rate of each fiscal year is used for the translation of income
and expense accounts. The resulting unrealized gains and losses are recorded as
a component of shareholders' equity. Because the Company's Brazilian and Mexican
subsidiaries operate in highly inflationary economies, the U.S. dollar has been
used as the functional currency in the translation of the Brazilian and Mexican
financial statements. Accordingly, foreign currency gains or losses of the
Brazilian and Mexican subsidiaries have been reflected in income currently.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. The Company provides
for depreciation of plant and equipment using the straight-line and
sum-of-years' digits methods at annual rates based on the following estimated
service lives of the property:
<TABLE>
<S> <C>
Buildings.................... 15 to 25 years
Machinery and Equipment...... 10 to 14 years
Furniture and Fixtures....... 7 to 10 years
</TABLE>
Maintenance and repair expenditures are charged to income as incurred.
Expenditures for improvements and major renewals are capitalized. When assets
are retired, the related cost and accumulated depreciation are removed from the
accounts, and any gain or loss on the disposition is credited or charged to
income.
INVENTORIES
Inventories are stated at the lower of cost or market. The majority of
domestic inventories are valued using the last-in, first-out (LIFO) method, and
the remaining inventories are valued using the first-in, first-out (FIFO)
method. Cost includes the cost of materials, direct labor and the applicable
share of manufacturing overhead.
F-12
<PAGE> 33
GOODWILL
Goodwill, which represents the excess of purchase price over the fair value
of assets acquired, is amortized on a straight-line basis over the estimated
useful life but not in excess of 40 years. Recoverability is reviewed annually
or sooner if events or changes in circumstances indicate that the carrying
amount may exceed fair value. Recoverability is then determined by comparing the
undiscounted net cash flows of the net assets on which the goodwill applies to
the net book value, including goodwill, of those assets.
TAXES ON INCOME
The Company has determined tax expense and other deferred tax information
using the liability method, which recognizes the differences in financial
reporting bases and tax bases of assets and liabilities at tax rates currently
in effect. Income tax expense includes United States, foreign and state income
taxes, exclusive of taxes on the undistributed income of foreign subsidiaries
where it is the intention of the Company to have those subsidiaries reinvest the
income locally.
RETIREMENT PLANS
The Company's policy is to fund the pension costs of defined benefit plans
in accordance with the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). Defined contribution and multi-employer plans are funded as
accrued, and the accrual is based upon hourly rates, or a percentage of the
unit's performance.
POSTRETIREMENT MEDICAL BENEFITS
The Company provides postretirement health and life insurance benefits for
retired salaried and certain retired hourly employees. Benefits provided under
various plans, individually arranged by business unit, include health and life
insurance. The plans generally provide for a means to limit the cost of the
plans to the Company through cost-sharing or spending limitations.
FINANCIAL INSTRUMENTS
The Company's financial instruments recorded on the balance sheet include
cash and cash equivalents, trade receivables and payables and debt obligations.
The book value of cash and cash equivalents, trade receivables and payables and
short-term debt are considered to be representative of fair value because of the
short maturity of these instruments. The fair value of long-term debt is based
on rates available to the Company for debt with comparable terms and maturities.
Off balance sheet derivative financial instruments include a currency and
interest rate swap transaction, an interest rate swap contract and foreign
exchange contracts. The currency and interest rate swap transaction protects the
Company from fluctuations in the value of the U.S. dollar in relation to the
French franc and establishes a fixed U.S. dollar rate of return on a loan from
the Company to its French subsidiary. The interest rate swap transaction
converts floating rate debt under its Revolving Credit Agreement to fixed rate
debt.
The Company and its subsidiaries enter into foreign exchange contracts to
manage exposure to foreign exchange fluctuations related to sales to foreign
customers or purchases of equipment or inventory from foreign suppliers. These
contracts hedge firm commitments to pay or receive foreign currency within a
one-year period. The Company does not engage in speculation and does not hedge
foreign currency positions which are not related to specific transactions. The
gains and losses on the contracts offset losses and gains of the transactions
being hedged, resulting in protection from the risks of foreign exchange
movement for those transactions and avoiding losses affecting results of
operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ENVIRONMENTAL COMPLIANCE AND REMEDIATION
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations and do not contribute to current or future revenue
generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are
F-13
<PAGE> 34
probable and the costs can be reasonably estimated. Estimated costs are based
upon enacted laws and regulations, existing technology and the most probable
method of remediation. The costs determined are not discounted and exclude the
effects of inflation and other societal and economic factors. Where the cost
estimates result in a range of equally probable amounts, the lower end of the
range is accrued.
REVENUE RECOGNITION
The Company recognizes revenues as products are shipped to its customers.
CONCENTRATION OF CREDIT RISK
The Company designs and manufactures rubber and plastic components for
automotive original equipment manufacturers. Financial instruments which
potentially subject the Company to concentrations of credit risk are primarily
accounts receivable. The Company performs ongoing credit evaluations of its
customers' financial condition. The allowance for non-collection of accounts
receivable is based on the expected collectibility of all accounts receivable.
IMPAIRMENT OF ASSETS
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" on July 1, 1996. This Statement
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The adoption of SFAS No. 121
did not have a material effect on the Company's consolidated financial
statements.
STOCK-BASED COMPENSATION
Prior to July 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
July 1, 1996, the Company adopted SFAS No. 123 Accounting for Stock-Based
Compensation, which allows entities to continue to apply the provisions of APB
Opinion No. 25, and provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants made in fiscal 1997 and
future years as if the fair-value based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to their 1997
presentation in the financial statements.
2. ACQUISITIONS
In May 1995, the Company acquired the 80% of Itatiaia Standard not
previously owned by it for total consideration of $4,040. The acquisition was
accounted for under the purchase method of accounting and the financial
statements of the Company include the acquired assets, assumed liabilities and
results of operations for June 1995. Pro forma sales and operating results are
not material. Valuation of the assets acquired and liabilities assumed in
accordance with Accounting Principles Board Opinion No. 16 was finalized during
fiscal 1996 and resulted in recording goodwill of approximately $10,800.
3. NON-RECURRING CHARGE
In 1997, the Company announced it would permanently close two automotive
parts plants in Schenectady, New York and Lexington, Kentucky, and recorded a
non-recurring charge of $17,661 or $0.63 per share of common stock, after tax.
The closures are being undertaken to reduce overcapacity, which will allow the
Company to improve customer service, reduce operating costs, and improve
productivity and asset utilization. The closures, which are expected to be
completed by December 1997, will result in the reduction of approximately 500
employees.
The Company's provision consists of a $12,485 to recognize severance and
benefits for the employees to be terminated and $5,176 for asset writedowns and
building razing costs. At June 30, 1997, approximately $5,116 in costs have been
charged against these accruals. The remaining amounts are
F-14
<PAGE> 35
included in Accounts payable and accrued expenses in the accompanying
consolidated balance sheet.
During fiscal 1997, the Company also incurred $1,665 in expenses related to
the transfer of business from the closed facilities to those that will remain in
operations. Since these costs are expected to benefit future operations they
were not included in the non-recurring charge. Examples include, costs to move
machinery, equipment and inventory, equipment set-up and relocation of employees
retained by the Company.
In 1995, the Company provided $8,832 to rationalize two business units. The
Company has submitted the remaining assets of Oliver Rubber's European
subsidiary for formal liquidation proceedings in the United Kingdom. As a
result, a provision of $5,347 was recorded to reduce asset values to net
realizable amounts, to accrue expenses of liquidation including severance for
several employees, and to recognize foreign currency losses which were formerly
deferred in the Company's foreign currency translation account. Of the amount
provided, $2,309 was recorded in the first quarter of fiscal 1995 with the
balance recorded in the fourth quarter. The Company attempted to realize as much
asset value as possible before beginning formal liquidation. The liquidation was
substantially completed in fiscal 1996.
The second 1995 business unit rationalization involved the Company's
plastic plant in Canada. As part of its formal plan, in fiscal 1995, the Company
recorded $3,485 to provide for a work force reduction of 328 employees at this
plant. Costs included in this provision in the fourth quarter were pension
curtailment, severance as required by Canadian law, lease obligations for the
idled portion of the leased facility, removal costs of the Company-owned
equipment and reduction of idled assets to net realizable value. At June 30,
1996 the business was closed, and all production was moved to other locations.
Additional costs incurred to close this business were charged to normal
operations as incurred.
4. ACCOUNTS RECEIVABLE SECURITIZATION
In September 1995, the Company and certain of its U.S. subsidiaries entered
into an agreement to sell, on an ongoing basis, all of their accounts receivable
to The Standard Products Funding Corporation (Funding Co.), a wholly owned
subsidiary of the Company. Accordingly, the Company and those subsidiaries,
irrevocably and without recourse, transfer all of their U.S. dollar denominated
trade accounts receivable (principally representing amounts owed by original
equipment customers in the U.S. automotive and related industries) to the
Funding Co. The Funding Co. has sold and, subject to certain conditions, may
from time to time sell an undivided interest in those receivables to the Clipper
Receivables Corporation. The Funding Co. is permitted to receive advances of up
to $50,000 for the sale of such undivided interest. At June 30, 1997, $50,000
has been advanced. Unless extended by amendment, the agreement expires in
September 1998.
Proceeds from the sale were used to reduce outstanding borrowings under the
Company's Revolving Credit Agreement and are reflected as operating cash flows
in the accompanying consolidated statement of cash flows. Costs of the program,
which primarily consist of the purchasers' financing and administrative costs,
totaled $3,104 and $2,603 in fiscal 1997 and 1996 and have been classified as
Selling, General and Administrative Expenses in the accompanying consolidated
statement income. The Company maintains an allowance for doubtful accounts
receivable ($2,863 and $2,958 at June 30, 1997 and 1996, respectively) based on
the expected collectibility of all trade accounts receivable, including
receivables sold.
5. INVENTORY
The major components of inventory are as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1997 1996
---------------------- ---- ----
<S> <C> <C>
Raw materials............. $29,069 $27,186
Work-in-process and
finished goods.......... 37,564 33,191
------- -------
Total, at both FIFO and
LIFO cost............... $66,633 $60,377
Excess of FIFO cost over
LIFO cost............... $14,019 $13,719
</TABLE>
Approximately 50% of the Company's inventories are valued at LIFO cost.
F-15
<PAGE> 36
6. OTHER ASSETS, NET
Other assets consist of the following:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1997 1996
---------------------- ---- ----
<S> <C> <C>
Investments................. $22,508 $21,195
Tooling..................... 3,450 5,912
Patents and other
intangibles............... 5,834 8,602
Deferred taxes.............. 9,401 10,300
Other....................... 9,505 7,437
------- -------
Total................... $50,698 $53,446
</TABLE>
Where applicable, amounts are presented net of accumulated amortization.
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1997 1996
---------------------- ---- ----
<S> <C> <C>
Accounts payable........... $ 81,214 $ 99,093
Accrued payrolls........... 34,451 26,651
Accrued other taxes........ 5,035 4,489
Federal income tax......... 3,681 --
Other accrued expenses..... 77,248 71,269
-------- --------
Total.................. $201,629 $201,502
</TABLE>
8. FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1997 1996
---------------------- ---- ----
<S> <C> <C>
Senior notes.............. $100,000 $100,000
Revolving credit
agreement............... 20,000 40,000
Other debt................ 3,093 5,091
-------- --------
Total..................... 123,093 145,091
Less - current
maturities.............. 1,289 2,050
-------- --------
$121,804 $143,041
</TABLE>
At June 30, 1997, Senior Notes outstanding of $100,000 include two issues,
$75,000 and $25,000. The $75,000 Senior Notes, placed directly with three
affiliated insurance companies, are unsecured and accrue interest at 6.55%.
Interest payments are payable semiannually, and annual principal payments of
$12,500 begin in December 1998 through December 2002, with the balance due on
maturity in December 2003. The $25,000 Senior Notes are also unsecured notes
placed directly with the holders. The interest rate is 9.81%, interest is paid
semiannually and the notes are payable July 1, 1999.
Each of the Senior Note agreements requires the Company to maintain certain
financial covenants as to net worth, leverage and working capital.
The Revolving Credit Agreement (Credit Agreement) represents unsecured
borrowings from a group of banks that have committed to make available for
borrowing up to $125,000 until January 1999 with provisions for extending the
agreement beyond that date upon satisfaction of certain requirements. The loans
may be denominated in either U.S. dollars or certain other currencies based upon
Eurodollar interest rates or the agent bank's base rate. At June 30, 1997,
borrowings under the Credit Agreement bear interest at 6.28%. A commitment fee
of 0.19% is due on the unused portion of the agreement. The Company has the
right to convert up to $50,000 of revolving loans into a five-year term loan
with quarterly repayments thereafter. The terms of the Credit Agreement also
require the Company to maintain certain financial covenants as to net worth,
leverage and working capital.
Under the most restrictive covenants of the Company's various loan
agreements, $66,464 of retained earnings were not restricted at June 30, 1997
for the payment of dividends, and the ratio of current assets liabilities was
1.21 to 1, in excess of the minimum requirement of 1.00 to 1.
The maturities of long-term debt for the five years subsequent to June 30,
1997 are:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
- ----------------------
<S> <C>
1998 $ 1,289
1999 33,854
2000 37,500
2001 12,500
2002 12,950
Thereafter 25,000
</TABLE>
The Company and its subsidiaries also have, from various banking sources,
approximately $65,700 of unused short-term lines of credit at rates of interest
approximating Eurodollar interest rates. These funds are available subject to
satisfying covenant restrictions as to funded debt limitations. In 1997, the
average month-end lines were $20,200, and the highest month-end balance was
$38,000. Comparable amounts for 1996 were $9,000 and $17,400 and $17,800 and
$23,000 for 1995. The effective annual borrowing rate was 7.3% in 1997, 6.8% in
1996 and 6.8% in 1995. At year end, the weighted interest rate was 8.1%.
F-16
<PAGE> 37
9. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's significant balance
sheet financial instruments at June 30, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997 CARRYING FAIR
(THOUSANDS OF DOLLARS) AMOUNT VALUES
---------------------- -------- ------
<S> <C> <C>
Cash and cash
equivalents........... $ 6,972 $ 6,972
Short-term bank debt.... 19,645 19,645
Long-term bank debt
(including current
portion).............. 123,093 121,793
</TABLE>
<TABLE>
<CAPTION>
1996
(THOUSANDS OF DOLLARS)
----------------------
<S> <C> <C>
Cash and cash
equivalents........... $ -- $ --
Short-term bank debt.... 1,198 1,198
Long-term bank debt
(including current
portion).............. 145,091 143,889
</TABLE>
Off balance sheet derivative financial instruments at June 30, 1997 and
1996, held for purposes other than trading, were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
CONTRACT/ CONTRACT/
NOTIONAL FAIR NOTIONAL FAIR
AMOUNT VALUES AMOUNT VALUES
--------- ------ --------- ------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Currency and interest
rate swaps......... $34,680 $ (509) $38,350 $ (431)
Foreign currency
exchange
agreements......... 41,388 1,844 35,673 505
</TABLE>
With regard to the combined currency and interest rate swap agreement, the
nominal amount of 86,864 French francs is payable by the Company to a bank,
while the amount due from the bank to the Company is $14,680. Periodic payments
are made by the Company and the bank until maturity in November 2000. Interest
rates are fixed with a rate of 6.5% on payments to the bank and 5.8% on payments
from the bank. Exchange rate fluctuations of the French franc payable to the
bank are offset by the French franc receivable from the French subsidiary.
The interest rate swap contract matures in March 1999. The Company pays a
fixed interest rate of 5.18% to the bank and receives a floating rate LIBOR
payment from the bank on the $20,000 notional amount of the swap contract.
Foreign exchange contracts hedging trade transactions mature over the next
twelve months. Exchange contracts hedging foreign denominated intercompany loans
mature no later than the maturity of the loan.
The counterparties to each of these agreements are major commercial banks.
Management believes that losses related to credit risk are remote.
10. RETIREMENT PLANS
The Company and its consolidated subsidiaries have a number of plans
providing pension, retirement or profit-sharing benefits for substantially all
employees. These plans include defined benefit, defined contribution and
multi-employer plans. For defined benefit plans, those covering salaried
employees provide pension benefits based upon the individual employee's average
compensation over the last five years, while hourly plans provide benefits of
stated amounts for each year of service. The assets of the plans consist of
listed bonds, stocks, mutual investment funds and cash securities.
Pension expense is determined using assumptions at the beginning of the
year. The projected benefit obligation (PBO) is determined using the assumptions
at the end of the year. Assumptions used to determine pension expense and the
PBO were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate................ 7.75% 7.75% 8.50%
Long-term rate of return on
plan assets................ 9.50% 9.50% 10.00%
Rate of increase in future
compensation levels........ 5.00% 5.00% 5.00%
</TABLE>
The cost of providing pension, retirement and profit-sharing benefits
charged to operations amounted to $7,295 in 1997, $6,999 in 1996 and $5,444 in
1995. For 1997, the expense of defined contribution plans was $5,033 and
multi-employer plan expense was $486. Comparable figures for 1996 were $4,102
and $449, and for 1995, $3,683 and $508. The expense of defined benefit plans
increased during 1995 as a result of including employees of subsidiary companies
in the Company's salaried pension plan. Components of pension
F-17
<PAGE> 38
expense for defined benefit plans included the following items:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost......... $ 2,435 $ 2,737 $ 2,753
Interest cost on
PBO................ 6,262 6,265 5,868
Actual loss (gain) on
plan assets........ (6,163) (12,654) 457
Net amortization and
deferral........... (1,361) 6,100 (7,871)
Loss due to
curtailment........ 602 -- --
------- -------- -------
Net pension
expense............ $ 1,775 $ 2,448 $ 1,207
</TABLE>
The funded status of the foreign and domestic defined benefit plans is
displayed below and is based on information supplied by the Company's actuary as
of March 31 of each year. In connection with the recognition of the minimum
liability as required by SFAS No. 87, as of June 30, 1997, the Company has
recorded an intangible asset of $1,036 included in Other Assets, net in the
accompanying consolidated balance sheet, and an equity reduction of $4,269.
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
LESS GREATER LESS GREATER
THAN THAN THAN THAN
PLAN PLAN PLAN PLAN
ASSETS ASSETS ASSETS ASSETS
------ ------- ------ -------
ACCUMULATED BENEFITS ARE: (THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Vested benefits.......... $49,540 $27,046 $46,166 $25,278
Non-vested benefits...... 2,576 423 2,230 530
------- ------- ------- -------
Accumulated benefit
obligation............. 52,116 27,469 48,396 25,808
Projected future
compensation
increases.............. 6,166 735 5,719 642
------- ------- ------- -------
PBO...................... 58,282 28,204 54,115 26,450
Plan assets at fair
market value........... 62,772 20,702 60,413 21,056
------- ------- ------- -------
PBO (in excess of) or
less than plan
assets................. 4,490 (7,502) 6,298 (5,394)
Unrecognized transition
asset.................. (4,998) (263) (5,634) (256)
Unrecognized loss........ 3,416 5,061 2,054 3,696
Adjustment required to
recognize minimum
liability.............. -- (5,304) -- (4,362)
Unrecognized prior
service cost........... 2,443 1,241 2,247 1,526
------- ------- ------- -------
Prepaid pension cost,
(liability)............ $ 5,351 $(6,767) $ 4,965 $(4,790)
</TABLE>
The Company has accrued $11,434 and $13,289 for Workers' Compensation
claims as of June 30, 1997 and 1996, respectively.
11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The cost of providing health and life insurance benefits for certain
retired employees has been accrued based on the employees' active service lives.
The expense for postretirement benefits other than pensions is detailed below.
All plans under which these benefits are provided are unfunded.
The Company continues to fund these benefits as claims are incurred.
Spending limitations per annum are in effect for several plans and future
retirees of other plans will pay a portion of these costs.
A summary of plan information is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Accumulated
postretirement benefit
obligation (APBO):
Retirees.............. $22,196 $20,989 $19,874
Active participants
eligible to receive
benefits............ 2,442 2,177 1,872
Other active plan
participants........ 3,174 2,516 2,558
---------- --------- ---------
27,812 25,682 24,304
Unrecognized gain
(loss).............. (438) 2,048 3,689
---------- --------- ---------
$27,374 $27,730 $27,993
---------- --------- ---------
Periodic postretirement
benefit cost:
Current service
cost................ $ 271 $ 286 $ 248
Interest on
postretirement
benefit
obligation.......... 1,922 1,990 2,033
Net amortization...... (11) (74) --
---------- --------- ---------
$ 2,182 $ 2,202 $ 2,281
---------- --------- ---------
Actuarial assumptions:
Discount rate......... 7.75% 7.75% 8.50%
1997 to 2004 -- health
care cost trend
rate................ 10.75%-5.5% 11.5%-5.5% 13.9%-5.5%
Effect of a 1% increase
in health care cost
trend rate:
Increase year end
APBO................ 7.0% 6.6% 6.3%
Increase expense...... 9.2% 9.5% 7.3%
</TABLE>
12. LEASES
The Company and its subsidiaries have operating leases covering
manufacturing facilities, transportation and material handling equipment, and
computer hardware and software expiring at various dates through 2006.
The following is a schedule of future minimum rental payments required
under operating leases
F-18
<PAGE> 39
that have initial or remaining noncancelable lease terms in excess of one year
as of June 30, 1997:
<TABLE>
<S> <C>
1998............................... $ 8,847
1999............................... 5,388
2000............................... 2,901
2001............................... 1,625
2002 and later years............... 3,302
-------
Total minimum payments required.... $22,063
</TABLE>
Rent expense was $14,372, $14,627 and $14,209 for the years ended June 30,
1997, 1996 and 1995, respectively.
13. COMMITMENTS AND CONTINGENT LIABILITIES
The Company and its subsidiaries are involved in certain legal actions and
claims. In the opinion of management, any liability which may ultimately be
incurred would not materially affect the financial position or results of
operations of the Company.
14. COMMON SHARES
Options to purchase common shares have been granted under various employee
stock option plans adopted by shareholders. For each plan, options are
exercisable over periods of five or ten years. The option price is either the
fair market value at the time the option is granted or 110% of the fair market
value at the time the option is granted for those individuals owning more than
ten percent of the common shares of the Company. Generally, options become
exercisable one year from the date of grant and annually thereafter. No more
than 40% of the grant can be exercised in any one plan year. Summarized below is
stock option activity for 1996 and 1997.
<TABLE>
<CAPTION>
RANGE OF
SHARES OPTION PRICES
------ -------------
<S> <C> <C>
Stock options
outstanding at June
30, 1995.............. 333,571 $13.50 - $36.99
Options granted......... 156,000 17.88 - 23.50
Options exercised....... (44,056) 13.50 - 15.84
Options cancelled....... (57,875) 21.63 - 33.63
-------
Stock options
outstanding at June
30, 1996.............. 387,640 $17.88 - $36.99
Options granted......... 233,450 25.25 - 26.25
Options exercised....... (6,400) 19.25 - 21.63
Options cancelled....... (65,986) 29.13 - 36.99
-------
Stock options
outstanding at June
30, 1997.............. 548,704
=======
</TABLE>
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," effective with the 1997 financial statements, but elected to
continue to measure compensation cost using the intrinsic value method, in
accordance with APB Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees." Accordingly, no compensation cost for stock options has been
recognized. If compensation cost had been determined based on the estimated fair
value of options previously granted, consistent with the methodology in SFAS
123, the pro forma effects on the Company's net income and income per share
would have been:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net Earnings
As reported............. $27,530 $14,577
Pro forma............... 26,836 14,313
Primary and Fully Diluted
Earnings per Share
As reported............. $1.64 $0.87
Pro forma............... 1.60 0.85
</TABLE>
The estimated fair value as of date of grant of options granted in 1997 and
1996, using the Black-Scholes option-pricing model, was as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Estimated fair value per share
of options granted during
the year.................... $8.38 $7.99
Assumptions:
Annualized dividend yield... 2.7% 2.7%
Common Stock price
volatility............... 30.5% 30.8%
Risk-free rate of return.... 6.5% 6.8%
Expected option term (in
years)................... 7 7
</TABLE>
At June 30, 1997, options for 162,806 shares were exercisable at an average
exercise price of $26.98 a share. Shares reserved for the future granting of
options were 410,629 at year end; 245,193 were reserved a year ago. In July
1997, stock options for 200,000 shares were awarded to the Company's new Chief
Executive Officer. These are not reflected in the tables above. After this
award, 210,629 shares remain reserved for future awards.
Under The Standard Products Company 1991 Restricted Stock Plan, 375,000
common shares were reserved for restricted stock awards. Shares awarded are
earned ratably over the term of the restricted stock agreement, based upon
achieving
F-19
<PAGE> 40
specified performance goals. Generally, transferability of shares earned is
restricted for a specified number of years following the year in which they were
earned. Until the restrictions lapse, the recipient of earned restricted shares
is entitled to all of the rights of a shareholder, including the right to vote
the shares, but the shares are restricted as to transferability and subject to
forfeiture to the Company during the restricted period. Shares awarded were
75,000 in 1995 and 187,500 in 1992. Of the shares awarded, 35,000 shares were
earned in 1997, 18,400 shares in 1996 and 16,800 shares in 1995. In 1997, $1,051
was charged to operations as compensation expense based upon the market value of
the earned shares. The similar charge to operations in 1996 and 1995 was $419
and $208, respectively. At year end, 112,500 shares remain available for future
awards. In July 1997, the Company awarded 50,000 shares of restricted stock to
its new Chief Executive Officer and 12,500 shares to the Chairman of the Board
of Directors. After this award, 50,000 shares remain available for future
awards.
15. SEGMENT INFORMATION
The Company's operations are in two industry segments. The Transportation
Equipment Segment includes extruded and molded rubber and plastic products for
automotive, building and marine industries and plastic and magnetic door seals
for home appliances. The Tread Rubber Segment produces tread rubber for the
truck tire retreading industry. Net sales by segment include both sales to
unaffiliated customers, as reported in the Company's consolidated statements of
income, and intersegment sales. Operating income consists of net sales less
applicable operating costs and expenses related to those sales. In computing
operating income, general corporate expenses are excluded. Identifiable assets
by segment are those assets that are used in the operations of each segment.
General corporate assets are those not identifiable with the operations of a
segment.
The Company's major customers include automotive original equipment
manufacturers. The percentage of sales of each of these major customers to total
consolidated sales for the three-year periods 1997, 1996 and 1995, respectively,
has been as follows: Chrysler - 18%, 17% and 15%; Ford - 24%, 26% and 23%;
General Motors - 13%, 14% and 18%. Sales to the automotive original equipment
customers include a number of different products and types of the same product,
the sales of which are not interdependent.
BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net Sales:
Transportation
equipment............ $ 976,001 $ 958,105 $868,892
Tread rubber........... 145,497 135,869 133,656
Less -- intersegment
sales................ (13,230) (10,054) (6,622)
---------- ---------- --------
Net sales................ $1,108,268 $1,083,920 $995,926
Operating Income:
Transportation
equipment............ $ 73,100 $ 39,836 $ 41,882
Tread rubber........... 9,128 4,078 1,727
Non-recurring charge... (17,661) -- (8,832)
General corporate
expenses............. (5,331) (5,048) (4,275)
---------- ---------- --------
Total operating
income........... $ 59,236 $ 38,866 $ 30,502
---------- ---------- --------
Other expense, net..... (12,777) (10,342) (13,243)
---------- ---------- --------
Income from
operations before
taxes.............. $ 46,459 $ 28,524 $ 17,259
Identifiable Assets:
Transportation
equipment............ $ 590,579 $ 585,274 $595,109
Tread rubber........... 72,483 70,788 74,229
General corporate
assets............... 28,797 28,633 32,551
---------- ---------- --------
Total identifiable
assets........... $ 691,859 $ 684,695 $701,889
Capital Additions,
net:(1)
Transportation
equipment............ $ 53,683 $ 74,456 $ 48,904
Tread rubber........... 5,321 5,228 5,767
---------- ---------- --------
Total capital
additions........ $ 59,004 $ 79,684 $ 54,671
Depreciation and
Amortization:
Transportation
equipment............ $ 48,571 $ 48,328 $ 42,951
Tread rubber........... 4,559 4,217 3,888
---------- ---------- --------
Total depreciation
and
amortization..... $ 53,130 $ 52,545 $ 46,839
</TABLE>
- -------------------------
(1) Includes assets acquired by purchase of businesses in 1995.
F-20
<PAGE> 41
GEOGRAPHIC AREA
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net Sales:
United States.......... $ 619,068 $ 618,491 $574,064
Canada................. 218,427 212,046 203,265
Europe................. 234,504 242,977 245,362
Brazil................. 58,680 29,479 2,640
Less -- inter-area
sales................ (22,411) (19,073) (29,405)
---------- ---------- --------
Net sales.......... $1,108,268 $1,083,920 $995,926
Net Income:
United States.......... $ 16,415 $ 8,248 $ 12,821
Canada................. 10,928 8,785 1,946
Europe................. 9,180 10,732 7,915
Brazil................. (5,642) (10,345) (51)
General corporate
expenses, net of
tax.................. (3,351) (2,843) (2,565)
---------- ---------- --------
Net income......... $ 27,530 $ 14,577 $ 20,066
Identifiable Assets:
United States.......... $ 270,036 $ 297,744 $340,235
Canada................. 95,362 79,845 81,979
Europe................. 202,358 210,215 234,918
Brazil................. 90,114 68,258 12,206
Mexico................. 5,192 -- --
General corporate
assets............... 28,797 28,633 32,551
---------- ---------- --------
Total identifiable
assets........... $ 691,859 $ 684,695 $701,889
</TABLE>
16. INCOME TAXES
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Income before taxes:
United States........... $17,016 $10,626 $ 1,265
Foreign................. 29,443 17,898 15,994
------- ------- -------
$46,459 $28,524 $17,259
Amounts currently payable:
Federal................. $ 8,887 $ 3,822 $(3,174)
Foreign................. 11,030 3,585 5,779
State and local......... 1,882 1,304 1,038
------- ------- -------
$21,799 $ 8,711 $ 3,643
Deferred taxes:
Federal................. $(3,111) $ 2,656 $ (233)
Foreign................. 321 2,536 (6,101)
State and local......... (80) 44 (116)
------- ------- -------
(2,870) 5,236 (6,450)
------- ------- -------
Total provision..... $18,929 $13,947 $(2,807)
</TABLE>
A reconciliation of income tax expense to the U.S. statutory rate is as
follows:
<TABLE>
<S> <C> <C> <C>
Tax at U.S. statutory rate... 35.0% 35.0% 35.0%
Difference in effective rate
of international
operations................. 2.2 10.6 (34.3)
Write-off of investment...... -- -- (25.7)
State and local income tax... 2.5 3.1 3.4
Permanent book to tax
differences not
deductible................. 2.7 2.9 6.0
Tax credits.................. (1.4) -- --
Other, net................... (0.3) (2.7) (0.7)
---- ---- -----
Effective tax rate........... 40.7% 48.9% (16.3)%
</TABLE>
Deferred tax assets (liabilities) result from differences in the basis of
assets and liabilities for tax and financial statement purposes. The cumulative
effect of the major items follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred tax assets:
Nondeductible accrued
expenses............... $ 8,200 $ 3,000
Employee benefits........ 16,000 16,600
Net operating loss and
tax credit
carryforwards.......... 14,700 14,400
All other items.......... 1,700 4,300
-------- --------
Total deferred tax
assets............ $ 40,600 $ 38,300
Valuation allowance...... (14,700) (14,400)
-------- --------
Net deferred tax
assets............ $ 25,900 $ 23,900
Deferred tax liabilities:
Depreciation and
amortization........... $(24,600) $(28,300)
All other items.......... (5,400) (6,000)
-------- --------
Total deferred tax
liabilities....... $(30,000) $(34,300)
-------- --------
Net deferred tax
liabilities.......... $ (4,100) $(10,400)
======== ========
</TABLE>
In accordance with the Company's policy, as of June 30, 1997, federal
income taxes have not been provided on the undistributed earnings of foreign
subsidiaries. If these earnings were distributed, approximately $6,000 of tax
would be payable.
The Company has recorded a valuation allowance to reflect the estimated
amount of deferred tax assets which may not be realized principally due to the
inability of its Brazilian subsidiaries to fully utilize available net operating
loss carryforwards. The subsequent recognition of tax benefits relating to the
valuation allowance will be reported in the consolidated statement of income as
opportunities to utilize these carryforwards become more certain.
Deferred tax assets are included in Prepaid insurance, taxes, etc. and
Other Assets, net in the accompanying consolidated balance sheets.
F-21
<PAGE> 42
17. QUARTERLY AND OTHER FINANCIAL DATA (UNAUDITED)
The following tables set forth a summary of the quarterly results of
operations for the years ended June 30, 1997 and 1996;
<TABLE>
<CAPTION>
1997
THREE MONTHS ENDED
-----------------------------------------
SEPT. 30 DEC. 31 MARCH 31 JUNE 30
-------- ------- -------- -------
(THOUSANDS OF DOLLARS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Net sales............ $265,611 $266,620 $281,774 $294,263
Gross income......... 25,292 31,696 38,761 49,708
Net income........... 1,397 6,344 515 19,275
Earnings per common
share.............. $ 0.08 $ 0.38 $ 0.03 $ 1.15
</TABLE>
<TABLE>
<CAPTION>
1996
THREE MONTHS ENDED
-----------------------------------------
SEPT. 30 DEC. 31 MARCH 31 JUNE 30
-------- ------- -------- -------
(THOUSANDS OF DOLLARS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Net Sales............ $238,760 $264,747 $277,274 $303,139
Gross income......... 9,405 21,769 33,879 43,429
Net income........... (9,784) 1,545 7,283 15,533
Earnings per common
share.............. $ (0.58) $ 0.09 $ 0.43 $ 0.93
</TABLE>
The Company's common shares are listed on the New York Stock Exchange.
Quarterly market and dividend data are shown in the following tables.
<TABLE>
<CAPTION>
PRICE RANGE
------------------------------------
1997 1996
---------------- ----------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
Quarter
1st................ $25.75 $18.50 $24.00 $17.00
2nd................ $26.25 $22.75 $18.75 $13.50
3rd................ $26.50 $22.00 $25.00 $16.38
4th................ $26.88 $21.38 $28.25 $23.00
</TABLE>
<TABLE>
<CAPTION>
CASH DIVIDENDS
DECLARED
--------------
1997 1996
---- ----
<S> <C> <C>
Quarter
1st.................................. $0.17 $0.17
2nd.................................. $0.17 $0.17
3rd.................................. $0.17 $0.17
4th.................................. $0.17 $0.17
----- -----
$0.68 $0.68
</TABLE>
There were approximately 975 shareholders as of August 1, 1997.
18. NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
This standard establishes guidelines for the display of comprehensive income for
financial statement purposes. The objective of the statement is to report a
measure of all changes in equity of an enterprise that result from transactions
and other economic events of the period other than transactions with owners.
The FASB also issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This standard requires extensive disclosure
of operating segments based on the "management approach." This approach
organizes segments within a company for making operating decisions and assessing
performance. Reportable segments can be based on products and services,
geography, legal structure or any other manner in which management disaggregates
the company. Both standards are effective for fiscal years beginning after
December 15, 1997.
F-22
<PAGE> 43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON THE FINANCIAL STATEMENT SCHEDULE
To: The Standard Products Company
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in The Standard Products Company
and Consolidated Subsidiaries 1997 Annual Report to Shareholders and have issued
our report thereon dated July 24, 1997. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed in
Capital Item 14(a)(2) of this Form 10-K is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
ARTHUR ANDERSEN LLP
ARTHUR ANDERSON LLP SIG.
Cleveland, Ohio
July 24, 1997.
S-1
<PAGE> 44
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- ---------- ---------- ---------- ---------- -------------
BALANCE ADDITIONS
AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES RECOVERIES DEDUCTIONS OF PERIOD
----------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1997
Reserve for Plant Closings(1)........... $ -- $17,661 $ -- $5,116 $12,545
====== ======= ==== ====== =======
Allowance for doubtful accounts......... $2,958 $ 543 $ 96 $ 734 $ 2,863
====== ======= ==== ====== =======
Year Ended June 30, 1996
Reserve for Plant Closings.............. $6,235 $ -- $ -- $6,235 $ --
====== ======= ==== ====== =======
Allowance for doubtful accounts......... $4,978 $ 8 $113 $2,141 $ 2,958(2)
====== ======= ==== ====== =======
Year Ended June 30, 1995
Reserve for Plant Closings.............. $3,975 $ 3,485 $ -- $1,225 $ 6,235
====== ======= ==== ====== =======
Allowance for doubtful accounts......... $3,627 $ 4,074 $230 $2,953 $ 4,978(2)
====== ======= ==== ====== =======
</TABLE>
- -------------------------
(1) Additions are related to the closure of the Lexington, Kentucky and
Schenectady, New York plants. These operations are still open at June 30,
1997. They are expected to be closed by December 31, 1997.
(2) Material changes in the allowances for doubtful accounts are due to
additional doubtful account reserve established in 1995 for a subsidiary
plant closing and write off of these receivables during 1996.
S-2
<PAGE> 1
EXHIBIT 4(b)
FIRST AMENDMENT TO SENIOR NOTES
FIRST AMENDMENT TO SENIOR NOTES, dated as of September 22, 1995, by and
between THE STANDARD PRODUCTS COMPANY, an Ohio corporation (the "Company"), and
METROPOLITAN LIFE INSURANCE COMPANY, METROPOLITAN PROPERTY AND CASUALTY
COMPANY, and METROPOLITAN INSURANCE AND ANNUITY COMPANY (collectively, the
"Lenders" and individually, a "Lender").
WITNESSETH THAT:
WHEREAS, the Company and each of the Lenders entered into an Agreement,
dated as of December 16, 1993 (the "Agreement"), pursuant to which the Lenders
agreed to loan to the Company (the "Loan") the aggregate principal amount of
Seventy-Five Million Dollars ($75,000,000); and
WHEREAS, the Loan is evidenced by the Company's 6.55% Senior Notes due
December 16, 2003 issued to the Lenders, dated December 16, 1993 and being
Registered No. R-1, R-2 and R-3 in the aggregate principal amount of
Seventy-Five Million Dollars ($75,000,000) (collectively, the "Notes" and
individually, a "Note"); and
WHEREAS, the Company, Oliver Rubber Company ("Oliver"), Holm
Industries, Inc. ("Holm"), 5 Rubber Corporation ("5 Rubber"), and The Standard
Products Funding Corporation, a Delaware corporation and a wholly owned
subsidiary of the Company (the "Receivables Subsidiary"), desire to enter into
a Purchase and Sale Agreement that will provide, among other matters, for: the
sale by the Company, Oliver, Holm and 5 Rubber (each an "Originator"), and the
purchase by the Receivables Subsidiary, of all the receivables and related
assets ("Receivables") then and thereafter owned by the Originators at a
purchase price equal to the face amount thereof less certain discounts
(including program and other expenses); a portion of the purchase price owed by
the Receivables Subsidiary for the Receivables purchased from the Originators
to be payable in the form of a promissory note; and the Originators to borrow
money from time to time from the Receivables Subsidiary; and
WHEREAS, the Company and the Receivables Subsidiary desire to enter
into a Receivables Purchase Agreement among the Receivables Subsidiary, the
Company, Clipper Receivables Corporation, State Street Boston Capital
Corporation and National City Bank that will provide, among other matters, for:
the sale by the Receivables Subsidiary, and the purchase by Clipper Receivables
Corporation, of interests in the Receivables purchased from the Originators at
a purchase price equal to the face amount thereof less certain discounts
(including reserves), representations and warranties by the Company and the
Receivables Subsidiary; affirmative and negative covenants of the Company and
the Receivables Subsidiary, including certain reporting requirements and
financial covenants of the Receivables Subsidiary and of the Company and its
subsidiaries; the appointment of the Company as
<PAGE> 2
Master Servicer to collect the Receivables; the grant of a security
interest in the Receivables; liquidation events; and indemnification
obligations of the Company and the Receivables Subsidiary; and
WHEREAS, the parties desire to amend the Notes;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Effect of Amendment; Definitions.
Each Note shall be and hereby is amended as provided in Section 2
hereof. Except as expressly amended in Section 2 hereof, each Note shall
continue in full force and effect in accordance with the provisions thereof on
the date hereof. As used therein, the terms "Note", "this Note", "herein",
"hereinafter", "hereto", "hereof", and words of similar import shall, unless
the context otherwise requires, mean each Note as amended and modified by this
Amendment. Capitalized terms used but not defined in this Amendment (including
the recitals hereto) shall have the meanings given to them in the Notes.
2. Amendment.
(A) Section 8.4 of each Note is hereby amended by inserting the
following at the end of the first paragraph thereof:
"; provided, however, that at any time that the Company or any
Subsidiary has outstanding any Receivables Obligations the foregoing
aggregate principal amount of Priority Indebtedness shall not exceed
16% of Stockholders' Equity; and provided, further, in the event that
the most recent consolidated balance sheet of the Company and its
Subsidiaries provided hereunder reflect amounts due as a receivable
from the Person that is owed such Receivables Obligations in an amount
in excess of $10,000,000, such excess amount shall be treated as
Priority Indebtedness for purposes of this Section 8.4 and shall be
subject to the foregoing proviso."
(B) Section 8.6(A)(i) of each Note is hereby deleted and the following
is substituted therefor:
"(i) if such sale or disposition is (a) in the ordinary course
of business, (b) a sale or disposition of Receivables by the Company to
a Subsidiary or by any Subsidiary to another Subsidiary, or (c) a sale
or disposition of Receivables by a Subsidiary to any Person, whether
such sale is with or without recourse, if the obligations of such
Subsidiary to the purchaser thereof in respect of such sale or
disposition are Receivables Obligations of that
-2-
<PAGE> 3
Subsidiary, but only to the extent those Receivables
Obligations do not exceed the Receivables obligations Cap or"
(C) Section 8.6(A)(x) of each Note is hereby deleted and the following
is substituted, therefor:
"(x) the aggregate book value of all such sales or dispositions (on a
consolidated basis) (1) during the most recent 12-month accounting period
would exceed (iii) 15% of Total Assets or (iv) if during that 12-month
accounting period the Company or any Subsidiary has outstanding any Receivables
Obligations, 10% of Total Assets, in either case as computed at the end of the
most recent quarter preceding such sale or (2) since the Closing Date would
exceed (v) 25% of Total Assets or (vi) if the Company or any Subsidiary has
outstanding any Receivables Obligations, 20% of Total Assets, in either case as
computed at the end of the most recent fiscal year preceding such sale or".
(D) Section 8.7 of each Note is hereby deleted and the following is
substituted therefor:
"8.7. Intercompany Indebtedness. The Company will not create,
incur, assume or guarantee, or otherwise become or be liable in respect
of, any Indebtedness in an aggregate principal amount in excess of
Seven Million Five Hundred Thousand Dollars ($7,500,000) owing to any
Subsidiary or Affiliate, unless such Indebtedness in excess of that
amount is unsecured and is subordinated and junior in right of payment
to the Notes on substantially the terms set forth in Exhibit 8.7
attached hereto."
(E) Section 10 of each Note is hereby amended as follows:
1. The definition of Leverage is amended by deleting the following
phrase on the tenth and eleventh lines thereof: "for Borrowed Money to the
extent specified in clause (a) above plus the Stockholder's Equity, all".
2. The definition of Indebtedness is amended by inserting the
following at the end of that definition:
"provided, however, that there shall be excluded from the
definition of Indebtedness any Receivables Obligations."
3. The definition of Priority Indebtedness is amended by inserting
the following at the end of that definition:
", other than any Indebtedness of any Subsidiary to another
Subsidiary."
-3-
<PAGE> 4
4. The following definitions are inserted in alphabetical order:
"Receivables" means any right to payment from a Person, whether
constituting an account, chattel paper, instrument or general intangible,
arising from the sale of merchandise or provision of services by the Company or
any Subsidiary, and includes the right to payment of any interest or finance
charges and other obligations of such Person with respect thereto, together
with the following: (a) all rights to, but not any obligations under, all
related contracts or agreements pursuant to or under which such Person is
obligated to make payments with respect to the sale of goods or provision of
services; (b) all security interests, liens, guarantees, and other agreements
or arrangements of any nature whatsoever from time to time supporting or
securing any such right to payment; (c) all books and records evidencing or
otherwise relating to the foregoing; and (d) all collections and other
proceeds, including insurance policies, relating to any of the foregoing.
"Receivables Obligations Cap" means, with respect to the portion of
the Receivables Obligations that would correspond to principal if those
Receivables Obligations were treated as indebtedness for purposes of generally
accepted accounting principles, an amount equal to Fifty Million Dollars
($50,000,000), which amount may be increased by Five Million Dollars
($5,000,000) during each fiscal year of the Company commencing July 1, 1996 and
July 1, 1997 so long as no Event of Default has occurred and is continuing at
the time of that increase.
"Receivables Obligations" means any obligation of a Subsidiary
arising from the sale by that Subsidiary of Receivables to any other Person,
whether on a recourse or nonrecourse basis, that for purposes of GAAP is not
classified upon the balance sheet of that Subsidiary as a liability of that
Subsidiary.
3. Miscellaneous.
(a) This Amendment shall he construed in accordance with and
governed by the laws of the State of Ohio, without reference to principles of
conflicts of law.
(b) This Amendment may be executed in two or more counterparts, each
of which shall constitute an original, but all of which, when taken together,
shall constitute but one instrument.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed by their respective duly authorized officers as of the day and year
first above written.
THE STANDARD PRODUCTS COMPANY
By: /s/ Charles F. Nagy
------------------------------
Title:
---------------------------
METROPOLITAN LIFE INSURANCE COMPANY
By: /s/ Robert Bodett
------------------------------
Title: Assistant Vice President
---------------------------
METROPOLITAN PROPERTY AND CASUALTY
INSURANCE COMPANY
By: /s/ Robert J. Noll
------------------------------
Title:
---------------------------
METROPOLITAN INSURANCE AND ANNUITY
COMPANY
By: /s/ Anthony J. Williamson
------------------------------
Title:
---------------------------
-5-
<PAGE> 1
EXHIBIT 4(f)
THIRD AMENDMENT TO NOTE AGREEMENT
THIRD AMENDMENT TO NOTE AGREEMENT, dated as of January 19, 1993, by and
between THE STANDARD PRODUCTS COMPANY, an Ohio corporation (the "Company"), and
NATIONWIDE LIFE INSURANCE COMPANY (the "Purchaser").
WITNESSETH THAT:
WHEREAS, the Company and the Purchaser entered into a Note Agreement
dated as of June 30, 1989, as amended by the First Amendment to Note Agreement
dated as of February 22, 1991 and the Second Amendment to Note Agreement dated
as of June 30, 1991 (collectively, the "Note Agreement"), and under and subject
to the terms and provisions of the Note Agreement, the Company issued its
Senior Note payable to the Purchaser (the "Note"); and
WHEREAS, the parties desire to amend the Note Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Effect of Amendment; Definitions.
The Note Agreement shall be and hereby is amended as provided in
Section 2 hereof. Except as expressly amended in Section 2 hereof, the Note
Agreement shall continue in full force and effect in accordance with the
provisions thereof on the date hereof. As used therein, the terms "Note
Agreement", "Agreement", "this Agreement", "herein", "hereinafter", "hereto",
"hereof", and words of similar import shall, unless the context otherwise
requires, mean the Note Agreement as amended and modified by this Amendment.
Capitalized terms used but not defined in this Amendment (including the
recitals hereto) shall have the meanings given to them in the Note Agreement.
2. Amendment.
(a) Section 5.7(a)(2) of the Note Agreement is hereby deleted and the
following is substituted therefor:
"2) Funded Debt of the Company and its Subsidiaries outstanding as of
the date that the closing of the purchase and sale of certain
shares of capital stock takes place as contemplated under the Stock
Sale Agreement, dated December 19, 1992, among the Company, Mr.
Jean-Claude Smadja, acting on his own behalf and on behalf of certain
other individuals and entities, and Panane Holding B.V., and reflected
on Exhibit G hereto,"
<PAGE> 2
(b) Exhibit G to this Amendment shall be added to the Note Agreement as
Exhibit G thereto.
(c) The definition of "Tangible Assets" in Section 8.1 of the Note
Agreement is hereby deleted and the following is substituted therefor:
"Tangible Assets shall mean as of the date of any determination
thereof, the total amount of all assets of the Company and its
Subsidiaries (less depreciation, depletion and other properly
deductible valuation reserves) after deducting the following, except
that no such deduction shall be made in respect of the assets of
Standard Products Industriel SA and its Subsidiaries existing on the
date that such entities become Subsidiaries of the Company: good will,
patents, trade names, trade marks, copyrights, franchises, experimental
expense, organization expense, unamortized debt discount and expense,
deferred assets other than prepaid insurance and prepaid taxes, the
excess of cost of shares acquired over book value of related assets and
such other assets as are properly classified as "intangible assets" in
accordance with generally accepted accounting principles."
3. Miscellaneous.
(a) This Amendment shall be construed in accordance with and governed
by the laws of the State of Ohio, without reference to principles of conflicts
of law.
(b) This Amendment may be executed in two or more counterparts, each of
which shall constitute an original, but all of which, when taken together,
shall constitute but one instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed by their respective duly authorized officers as of the day and year
first above written.
THE STANDARD PRODUCTS COMPANY
By: /s/ Charles F. Nagy
-------------------------------------
Title: Treasurer
----------------------------------
NATIONWIDE LIFE INSURANCE COMPANY
By: /s/ Jeffrey G. Milburn
-------------------------------------
Vice President
Title: Corporate Fixed-Income Securities
----------------------------------
SIMILAR AGREEMENTS HAVE BEEN EXECUTED
WITH EMPLOYER'S LIFE INSURANCE COMPANY OF
WAUSAU AND THE AID ASSOCIATION FOR LUTHERANS
<PAGE> 3
NOTE AGREEMENT DATED
JUNE 30, 1989
RE: $25,000,000 OF 9.81% SENIOR NOTE DUE JULY 1, 1999
SCHEDULE OF DEBT AS OF JANUARY 20, 1993*
EXHIBIT G
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
DESCRIPTION (000'S OMITTED) TERMS COLLATERAL
- ----------- --------------- ----- ----------
<S> <C> <C> <C>
THE STANDARD PRODUCTS COMPANY
Credit Agreement with National
City Bank as Agent $175,000 Expires 1/19/96 None
Senior Notes $ 60,000 Annual None
installments of
$5,500 for $35,000;
$25,000 repayable
July 1, 1999
Fairfield County IRB $ 4,445 Bi-annual Winnsboro land,
payments from building and
April 1993 to equipment
April 2003
NISCO $ 4,400 Short term loan None
OLIVER RUBBER COMPANY
Athens IRB $ 981 Quarterly Athens land,
payments through building and
November 1994 equipment
Asheboro IRB $ 1,013 Quarterly Asheboro land,
payments through building and
December 1994 equipment
Oakland IRB $ 1,750 Monthly payments Oakland land,
through October building and
1997 equipment
</TABLE>
* This schedule does not list guarantees of indebtness that relate to
indebtedness scheduled herein.
<PAGE> 4
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT TERMS COLLATERAL
- ----------- --------- ----- ----------
<S> <C> <C> <C>
HOLM INDUSTRIES, INC.
1983 IRB $ 292 Monthly payments Holm Industries
through October assets
1993
1986 IRB $ 860 Bi-Annual Second position
payment through on capital
December 1996 improvements
Mortgage Loan $ 175 Lump Sum Building
payment due
August 1993
Small business loans with the $ 78 Annual payments None
City of Scottsburg through August
1993
Capital lease for
DEC Computer $ 28 Monthly payments Equipment
through August
1993
Capital lease for
Cadcam Equipment $ 3 Monthly payments Equipment
through August
1993
Promissory Notes to Dorrie $1,275 Balloon payment None
and Jay Thompson May 1994
SILENT CHANNEL PRODUCTS LIMITED
Secured Bank Overdraft $ 990 Open Silent Channel
Facility with National assets
Westminster Bank
Capitalized lease with $ 917 Monthly payments Millroom
Lombard Leasing through 1993 equipment
</TABLE>
<PAGE> 5
SCHEDULE OF ADDITIONAL INDEBTEDNESS
UPON CONSUMATION OF ACQUISITION OF STANDARD
PRODUCTS INDUSTRIEL AND SUBSIDIARIES
AS OF JANUARY 3, 1993
(FRENCH FRANCS CONVERTED AT 12/31/92 RATE OF 5.52)
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT TERMS COLLATERAL
- ----------- --------- ----- ----------
<S> <C> <C> <C>
STANDARD PRODUCTS INDUSTRIAL SA
Banque Generale $ 362 Expires 1993 None
de Commerce
Banque de Phenix $ 362 Expires 1993 None
Credit Lyonnais $ 725 Expires 1994 None
Banque Nationale $ 705 Expires 1997 None
de Paris
Banque Nationale $1,581 Expires 2000 Bezons land and building
de Paris
Credit Commercial $1,087 Expires 1995 None
de France
STANDARD PRODUCTS ATLANTIC SA
Banque National $ 217 Expires 1994 None
de Paris
Capital lease for $1,268 Expires 2001 Building and Land
Vitre Factory
SOCIETY LILLIBONNAISE DE CAUTCHOUCS SA
Banque Nationale $ 652 Expires 1995 None
de Paris
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
DESCRIPTION PRINCIPAL
- ----------- AMOUNT TERMS COLLATERAL
--------- ----- ----------
<S> <C> <C> <C>
LA RIVIERE INC.
Pennsylvania Industrial $ 145 Expires 5/1/97 Mortgage
Development Authority
Merchants National Bank $ 79 Expires 6/8/02 Mortgage
Merchants National Bank $ 274 Expires 1/28/11 Mortgage
"5" RUBBER CORPORATION, INC.
Pennsylvania Captial $ 77 Expires 8/1/96 Equipment
Loan Fund
Georgia Industrial $6,100 Expires 12/1/07 None
Revenue Bond
(Variable rate)
</TABLE>
<PAGE> 1
EXHIBIT 4(h)
FIFTH AMENDMENT TO NOTE AGREEMENTS
FIFTH AMENDMENT TO NOTE AGREEMENTS, dated as of September 22, 1995,
by and between THE STANDARD PRODUCTS COMPANY, an Ohio corporation (the
"Company"), and NATIONWIDE LIFE INSURANCE COMPANY and EMPLOYERS LIFE INSURANCE
COMPANY OF WAUSAU (collectively, the "Purchasers").
WITNESSETH THAT:
WHEREAS, the Company and each of the Purchasers entered into a
separate Note Agreement dated as of June 30, 1989, as amended by the
First Amendment to Note Agreement dated as of February 22, 1991, the Second
Amendment to Note Agreement dated as of June 30, 1991, the Third Amendment to
Note Agreement dated as of January 19, 1993, and the Fourth Amendment to Note
Agreement dated as of January 31, 1995 (collectively, the "Note Agreements"),
and under and subject to the terms and provisions of the Note Agreements, the
Company has issued its Senior Notes payable to the Purchasers; and
WHEREAS, the Company, Oliver Rubber Company ("Oliver"), Holm
Industries, Inc. ("Holm"), 5 Rubber Corporation ("5 Rubber"), and The
Standard Products Funding Corporation, a Delaware corporation and a wholly
owned subsidiary of the Company (the "Receivables Subsidiary"), desire to enter
into a Purchase and Sale Agreement that will provide, among other matters: for
the sale by the Company, Oliver, Holm and 5 Rubber (each an "Originator"), and
the purchase by the Receivables Subsidiary, of all the receivables and related
assets ("Receivables") then and thereafter owned by the Originators at a
purchase price equal to the face amount thereof less certain discounts
(including program and other expenses); for a portion of the purchase price
owed by the Receivables Subsidiary for the Receivables purchased from the
Originators to be payable in the form of a promissory note; and for the
Originators to borrow money from time to time from the Receivables Subsidiary;
and
WHEREAS, the Company and the Receivables Subsidiary desire to enter
into a Receivables Purchase Agreement among the Receivables Subsidiary,
the Company, Clipper Receivables Corporation, State Street Boston Capital
Corporation and National City Bank that will provide, among other matters: for
the sale by the Receivables Subsidiary, and the purchase by Clipper Receivables
Corporation, of interests in the Receivables purchased from the Originators at
a purchase price equal to the face amount thereof less certain discounts
(including reserves); representations and warranties by the Company and the
Receivables Subsidiary; affirmative and negative covenants of the Company and
the Receivables Subsidiary, including certain reporting requirements and
financial covenants of the Receivables Subsidiary and of the Company and its
subsidiaries; the appointment of the Company as Master Servicer to collect the
Receivables; the grant of a security interest in the Receivables; liquidation
events; and
<PAGE> 2
indemnification obligations of the Company and the Receivables Subsidiary; and
WHEREAS, the parties desire to amend the Note Agreements;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Effect of Amendments; Definitions.
Each of the Note Agreements shall be and hereby is amended as
provided in Section 2 hereof. Except as expressly amended in Section 2
hereof, the Note Agreements shall continue in full force and effect in
accordance with the provisions thereof on the date hereof. As used in each of
the Note Agreements, the terms "Note Agreement", "Agreement", "this Agreement",
"herein", "hereinafter", "hereto", "hereof", and words of similar import shall,
unless the context otherwise requires, mean that Note Agreement as amended and
modified by this Amendment. Capitalized terms used but not defined in this
Amendment (including the recitals hereto) shall have the meanings given to them
in the respective Note Agreements.
2. Amendments.
(a) Section 5.7(a)(3)(ii) of the Note Agreements is hereby deleted
and the following is substituted therefor:
"(ii) in the case of the issuance of any Debt of a Subsidiary
or any Funded Debt of the Company secured by liens permitted by
Section 5.8(i), the aggregate amount of (x) all Debt of Subsidiaries
plus (y) the aggregate amount of all Debt of the Company secured by
liens permitted by Section 5.8(i), shall not exceed 20% of
Consolidated Net Stockholder's Equity; provided, however, that at any
time that the Company or any Subsidiary has outstanding any
Receivables Obligations (as that term is defined in the definition of
Indebtedness), the foregoing aggregate amount shall not exceed 16% of
the Consolidated Net Stockholders Equity."
(b) Section 5.8(e) of the Note Agreements is hereby deleted and the
following is substituted therefor:
"(e) mortgages, liens or security interests (i) securing
Indebtedness of a Subsidiary to the Company or to another Subsidiary
or (ii) on or in any Receivables of a Subsidiary that secure or
purport to secure or otherwise relate to any Receivables Obligations
(as that term is
-2-
<PAGE> 3
defined in the definition of Indebtedness) of that Subsidiary,
but only to the extent those Receivables Obligations do not exceed
the Receivables Obligations Cap;"
(c) Section 5.8(i) of the Note Agreements is hereby amended by
deleting the phrase "(other than (A) Debt of a Subsidiary outstanding
as of July 2, 1989 and described on Annex B to Exhibit B hereto and (B) Silent
Channel Debt to the extent Silent Channel Debt does not exceed 12,500,000
pounds), shall not exceed an amount equal to 10% of Consolidated Tangible Net
Worth" and inserting in lieu thereof the following "shall not exceed an amount
equal to 20% of Consolidated Net Stockholder's Equity; provided, however, that
at any time that the Company or any Subsidiary has outstanding any Receivables
Obligations (as that term is defined in the definition of Indebtedness), the
foregoing aggregate amount shall not exceed 16% of the Consolidated Net
Stockholders Equity."
(d) Section 5.9(a)(3) of the Note Agreements is hereby deleted and
the following is substituted therefor:
"(3) any Subsidiary may sell, transfer or otherwise dispose of
all or any substantial part of its assets to the Company or any
Subsidiary, the Company may sell, transfer or otherwise dispose of
all or any part of its Receivables to any Subsidiary, and any
Subsidiary may sell, transfer or otherwise dispose of Receivables to
any Person, whether such sale is with or without recourse, if the
obligations of such Subsidiary to the purchaser thereof in respect of
such sale, transfer or disposition are Receivables Obligations (as
that term is defined in the definition of Indebtedness) of that
Subsidiary, but only to the extent those Receivables Obligations do
not exceed the Receivables Obligations Cap."
(e) Clauses (i) and (ii) of the last paragraph in Section 5.9 of the
Note Agreements is hereby deleted and the following is substituted therefor:
"(i) during the same fiscal year, exceeds (a) 15% of the
Consolidated Total Assets or (b) if during that fiscal year the Company
or any Subsidiary has outstanding any Receivables Obligations (as that term is
defined in the definition of Indebtedness), 10% of the Consolidated Total
Assets or (ii) since the date of this Agreement exceeds (a) 25% of Consolidated
Total Assets or (b) if the Company or any Subsidiary has outstanding any
Receivables Obligations (as that term is defined in the definition of
Indebtedness), 20% of the Consolidated Total Assets, determined, in each case,
as of the end of the immediately preceding fiscal year."
-3-
<PAGE> 4
(f) Section 8.1 of the Note Agreements is hereby amended as follows:
1. The definition of Indebtedness is amended by inserting the
following at the end of that definition:
"In addition, there shall be excluded from the definition of
Indebtedness any obligation of a Subsidiary arising from the sale by
that Subsidiary of Receivables to any other Person, whether on a recourse or
nonrecourse basis, that for purposes of generally accepted accounting
principles is not classified upon the balance sheet of that Subsidiary as a
liability of that Subsidiary (such obligations hereinafter referred to as
"Receivables Obligations")."
2. The following definitions are inserted in alphabetical
order:
"Receivables" means any right to payment from a Person, whether
constituting an account, chattel paper, instrument or general
intangible, arising from the sale of merchandise or provision of services by
the Company or any Subsidiary, and includes the right to payment of any
interest or finance charges and other obligations of such Person with respect
thereto, together with the following: (a) all rights to, but not any
obligations under, all related contracts or agreements pursuant to or under
which such Person is obligated to make payments with respect to the sale of
goods or provision of services; (b) all security interests, liens, guarantees,
and other agreements or arrangements of any nature whatsoever from time to time
supporting or securing any such right to payment; (c) all books and records
evidencing or otherwise relating to the foregoing; and (d) all collections and
other proceeds, including insurance policies, relating to any of the foregoing.
"Receivables Obligations Cap means, with respect to the portion of
the Receivables Obligations that would correspond to principal if those
Receivables Obligations were treated as indebtedness for purposes of generally
accepted accounting principles, an amount equal to Fifty Million Dollars
($50,000,000), which amount may be increased by Five Million Dollars
($5,000,000) during each fiscal year of the Company commencing July 1, 1996 and
July 1, 1997 so long as no Event of Default has occurred and is continuing at
the time of that increase."
3. Miscellaneous.
(a) This Amendment shall be construed in accordance with and
governed by the laws of the State of Ohio, without reference to
principles of conflicts of law.
(b) This Amendment may be executed in two or more counterparts, each
of which shall constitute an original, but all of which, when taken
together, shall constitute but one instrument.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties have caused this Amendment to be
duly executed by their respective duly authorized officers as of the
day and year first above written.
THE STANDARD PRODUCTS COMPANY
By: /s/ Charles F. Nagy
------------------------------
Title: Treasurer
--------------------------
NATIONWIDE LIFE INSURANCE COMPANY
By: /s/ Jeffrey G. Milburn
-------------------------------------
Title: Jeffrey G. Milburn
----------------------------------
Vice President
Corporate Fixed-Income Securities
EMPLOYERS LIFE INSURANCE COMPANY OF
WAUSAU
By:/s/ Jeffrey G. Milburn
-------------------------------------
Title: Jeffrey G. Milburn
----------------------------------
Attorney-in-fact
A SIMILAR AGREEMENT HAS BEEN EXECUTED WITH
THE AID ASSOCIATION FOR LUTHERANS
-5-
<PAGE> 1
EXHIBIT 4(k)
AGREEMENT OF AMENDMENT
This Agreement of Amendment ("Amendment") is executed at Dearborn,
Michigan as of August 25, 1995 by and among THE STANDARD PRODUCTS COMPANY (the
"Borrower") and NATIONAL CITY BANK ("NCB"), as agent (the "Agent") for itself,
SOCIETY NATIONAL BANK ("Society"), COMERICA BANK ("Comerica"), and NBD BANK
("NBD") (hereafter collectively refered to as "Banks").
WHEREAS, Borrower, Banks and Agent entered into a credit agreement
dated as of January 19, 1993, as amended by an Agreement of Amendment dated
April 30, 1994 (the "Agreement") wherein Banks agreed to make revolving loans
to Borrower, under certain terms and conditions, aggregating not more than the
principal amount of One Hundred Seventy-Five Million Dollars ($175,000,000),
which amount was reduced on June 30, 1993 to One Hundred Twenty-Five Million
Dollars ($125,000,000) and which may be reduced from time to time under the
Agreement; and
WHEREAS, Borrower, Banks and Agent want to extend the Termination Date
of the Agreement;
NOW, THEREFORE, Borrower, Banks and Agent agree as follows:
1. Pursuant to subsection 2.02(k) (captioned "EXTENSION OF REVOLVING
CREDIT TERMINATION DATE") the Revolving Credit Termination Date is
hereby extended one year from January 19, 1997 to January 19, 1998.
2. In all other respects the credit agreement shall remain in full
effect.
3. Upon the execution and delivery of this Amendment, the Borrower will
not be in default under the Agreement as so Amended.
IN WITNESS WHEREOF, borrowers, Banks and Agent have executed this
Agreement of Amendment at the time and place first above mentioned.
THE STANDARD PRODUCTS COMPANY NATIONAL CITY BANK, AS AGENT
By: /s/ Charles F. Nagy By: /s/ Mary Beth S. Howe
-------------------------- ------------------------------
Title: Treasurer Title: Vice President
----------------------- ---------------------------
NATIONAL CITY BANK SOCIETY NATIONAL BANK
By: /s/ Mary Beth S. Howe By: /s/ Richard A. Pohle
-------------------------- ------------------------------
Title: Vice President Title: Vice President
----------------------- ---------------------------
COMERICA BANK NBD BANK
By: /s/ Michael T. Shea By: /s/ Teresa A. Kalil
-------------------------- ------------------------------
Title: Vice President Title:
----------------------- ---------------------------
<PAGE> 1
EXHIBIT 10(k)
AMENDMENT
TO
RECEIVABLES PURCHASE AGREEMENT
This Amendment to Receivables Purchase Agreement, dated as of December 29,
1995 (this "Amendment") is among the THE STANDARD PRODUCTS FUNDING
CORPORATION, a Delaware corporation ("Seller"), THE STANDARD PRODUCTS COMPANY,
an Ohio corporation ("Standard"), CLIPPER RECEIVABLES CORPORATION, a Delaware
corporation ("Purchaser"), STATE STREET BOSTON CAPITAL CORPORATION, a
Massachusetts corporation ("Administrator") and NATIONAL CITY BANK a national
bank ("NCB"). Unless otherwise indicated, terms defined in Appendix A to the
Receivables Purchase Agreement have the same meanings when used herein.
SECTION 1 AMENDMENTS. The following amendments to the Receivables
Purchase Agreement shall be effective upon satisfaction of the conditions in
Section 3 of this Amendment.
SECTION 1.1 Amendments to Section 7.02. In subsections (a) and (b)
of Section 7.02 the reference to "Section 10.01(p)" is hereby changed to
"Section 10.01(o)".
SECTION 1.2 Amendments to Appendix A: Definitions.
(a) Definition of Total Capitalization. In Appendix A to the
Receivables Purchase Agreement, the definition of "Total Capitalization"
is hereby amended and restated in its entirety to read as follows:
"`Total Capitalization' means, as of any date, the sum of (i)
an amount equal to Net Worth as of such date, plus (ii) an amount
equal to Total Debt as of such date."
(b) Definition of Net Worth. In Appendix A to the Receivables
Purchase Agreement, the following definition is hereby inserted in the
proper alphabetical order:
"`Net Worth' means, with respect to any Person and as of any
date, the consolidated net worth of such Person and its
consolidated subsidiaries (excluding any "foreign currency
translation adjustments" as reflected in the applicable financial
statements) calculated in accordance with GAAP."
SECTION 2 REPRESENTATIONS AND WARRANTIES. Seller and Standard hereby
represent and warrant to the Purchaser, Administrator and NCB that:
(a) The execution and delivery by them of this Amendment and the
performance of their obligations under the Receivables Purchase Agreement
as amended by this Amendment (as amended, the "Amended Agreement"), are
within their corporate powers, have been duly authorized by all necessary
corporate action, have received all necessary governmental and other
consents and approvals (if any shall be required) and do not and will not
contravene or conflict with, or create a lien under, (i) any provision of
law, (ii) their constituent documents, (iii) any court or administrative
decree applicable to them, or (iv) any contractual restriction binding
upon them or their property.
<PAGE> 2
(b) The representations and warranties of Seller contained in
Section 6.01 of the Receivables Purchase Agreement are true and correct
as of the date of Seller's execution and delivery of this Amendment and
after giving effect hereto (except for those representations and
warranties that relate solely to an earlier date).
(c) This Amendment has been duly executed and delivered by them, and
the Amended Agreement is their legal, valid and binding obligation,
enforceable against them in accordance with its terms.
(d) After giving effect to this Amendment, no Liquidation Event or
Unmatured Liquidation Event shall have occurred and be continuing.
SECTION 3 CONDITIONS TO EFFECTIVENESS. This Amendment shall be effective
as of December 29, 1995 when the following conditions shall have been satisfied
(the "Condition Satisfaction Date"):
SECTION 3.1 Delivery of Counterparts. The Administrator shall
have received (by telecopy or otherwise) counterparts of this Amendment
or the signature pages hereto, executed by each of Seller, Standard,
Purchaser, Administrator and NCB.
SECTION 3.2 Other Conditions. The conditions set forth in Section
5.02 of the Receivables Purchase Agreement shall be satisfied with the
same effect as if a Purchase were to be made on the Condition
Satisfaction Date.
SECTION 4 MISCELLANEOUS PROVISIONS.
SECTION 4.1 Reaffirmation. As hereby amended, the Receivables
Purchase Agreement is hereby ratified and reaffirmed by Seller and
Standard.
SECTION 4.2 Costs and Expenses. Seller and Standard, jointly and
severally, hereby agree to pay on demand all costs and expenses
incurred by the Administrator and NCB (including legal fees and other
charges of counsel to the Administrator and NCB) in connection with the
preparation, execution and delivery of this Amendment.
SECTION 4.3 Captions. The various captions in this Amendment are
included for convenience only and shall not affect the meaning or
interpretation of any provision of this Amendment.
SECTION 4.4 GOVERNING LAW. THIS AGREEMENT, INCLUDING THE RIGHTS
AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW, EXCEPT TO THE EXTENT THAT
THE PERFECTION OF THE INTERESTS OF PURCHASER IN THE RECEIVABLES OR
RELATED PROPERTY IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK.
SECTION 4.5 Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by the different parties
hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which when taken together shall
constitute one and the same Amendment.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their respective officers thereunto duly authorized.
THE STANDARD PRODUCTS FUNDING CORPORATION
By: /s/ Charles F. Nagy
----------------------------------------
Title: Treasurer
-------------------------------------
THE STANDARD PRODUCTS COMPANY
By: /s/ Donald R. Sheley, Jr.
----------------------------------------
Title: VP Finance and CFO
-------------------------------------
CLIPPER RECEIVABLES CORPORATION
By: /s/ Tiffany Percival
----------------------------------------
Title: Vice President
-------------------------------------
STATE STREET BOSTON CAPITAL CORPORATION
By: /s/ Jeffrey N. Noordhock
----------------------------------------
Title: Senior Adjuster
-------------------------------------
NATIONAL CITY BANK
By: /s/ Marybeth S. Howe
----------------------------------------
Title: Vice President
-------------------------------------
3
<PAGE> 1
EXHIBIT 10(p)
THE STANDARD PRODUCTS COMPANY
RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement (this "Agreement"), is made as of this
1st day of July, 1995, by and between The Standard Products Company, an Ohio
corporation (the "Company"), and Gerard Mesnel ("Executive") under the The
Standard Products Company 1991 Restricted Plan (the "Plan");
1. The Company hereby awards to Executive up to Twenty-Five Thousand
(25,000) Common Shares, $1.00 par value, of the Company ("Common Shares"),
which may be earned at a rate of up to 5,000 shares per year in the current
fiscal year and each of the four succeeding fiscal years, in all respects
subject to the terms, conditions and provisions of this Agreement and the Plan,
a copy of which is attached to this Agreement and incorporated herein by
reference.
2. Common Shares awarded to Executive hereunder are subject to restriction
and may not be sold, transferred or otherwise assigned until such shares are
earned in accordance with paragraph 3 hereof and have vested in accordance with
paragraph 4 hereof. Notwithstanding the foregoing, however, Common Shares
awarded to Executive hereunder which are earned but non-vested or awarded
Common Shares that remain available to Executive but are unearned shall
immediately vest in Executive upon a Change in Control of the Company (as
defined in the Plan). In the event of Executive's death, all earned but
non-vested Common Shares and one-half of awarded Common Shares that remain
available to Executive but are unearned shall vest in Executive's designated
beneficiary.
3. The number of awarded Common Shares which may be earned with respect to
each fiscal year at a rate of up to 5,000 shares per year in the current fiscal
year and each of the succeeding four fiscal years equals the product of 5,000
multiplied by the ratio of the cash bonus earned by Executive under the
Company's Officers' Bonus Plan over the maximum possible cash bonus which
Executive could have earned under such Plan with respect to each such fiscal
year. No more than 5,000 Common Shares may be earned in any one fiscal year
and no Common Shares may be earned with respect to any fiscal year after the
fiscal year ending June 30, 1999.
4. Common Shares awarded hereunder and earned by Executive in accordance
with paragraph 3 above shall become vested in Executive at the end of the third
fiscal year following the end of the fiscal year with respect to which such
Common Shares are earned.
5. Common Shares awarded hereunder and earned in accordance with paragraph
3 above shall be issued in the name of Executive, and the Company's transfer
agent will show Executive as the owner of record of such Common Shares.
Executive will have all rights of a shareholder with respect to awarded and
earned Common Shares, including the right to vote such shares, subject to the
limitations imposed by this Agreement and the Plan. The certificates
representing awarded and earned Common Shares shall not be delivered to
Executive until such Common Shares become vested. If Executive shall
voluntarily cease to be an employee of the Company prior to vesting of Common
Shares (whether such Common Shares are earned or unearned), Executive shall
forfeit to the Company all Common Shares not then vested in Executive;
provided, that if Executive desires to retire as an active employee of the
Company, the Compensation Committee shall have the authority to waive such
forfeiture under such terms and conditions as said Committee deems appropriate.
In this regard, simultaneously with the issuance of certificates representing
awarded and earned Common Shares, Executive shall execute and deliver stock
powers forfeiting to the Company Common Shares awarded and earned hereunder but
not vested in the event Executive voluntarily ceases to be an employee of the
Company prior to any vesting
<PAGE> 2
date. Executive acknowledges that Common Shares awarded hereunder shall be
subject to the restrictions and risks of forfeiture contained herein and in
Section 8 of the Plan.
6. Executive hereby agrees that he shall pay to the Company, in cash, any
foreign, United States federal, state or local taxes of any kind required by
law to be withheld with respect to the Common Shares awarded to him hereunder.
If executive does not make such payment to the company, the Company shall have
the right to deduct from any payment of any kind otherwise due to Executive
from the Company (or from any subsidiary of the Company), any federal, state or
local taxes of any kind required by law to be withheld with respect to Common
Shares awarded to Executive under this Agreement.
7. Executive represents that Common Shares awarded hereunder are being
acquired by Executive not with a view toward resale or distribution an
Executive will not sell or otherwise transfer such Common Shares except in
compliance with the Securities Act of 1933 and the rules and regulations
promulgated thereunder. Executive hereby acknowledges that Common Stares
awarded hereunder shall bear legends and statements evidencing such
restrictions and other restrictions contained in Section 8 of the Plan.
THE STANDARD PRODUCTS COMPANY
By /s/ John C. Brandmahl
------------------------------
Title Vice President Human Resources
------------------------------
Date 8/22/1995
------------------------------
2
<PAGE> 3
Executive acknowledges receipt of the Plan, a copy of which is attached
hereto, and represents that he is familiar with the terms and provisions
thereof, and hereby agrees that Common Shares granted under this Agreement are
subject to all terms and provisions of this Agreement. Executive hereby agrees
to accept as binding, conclusive and firm all decisions and interpretations of
the Compensation Committee of the Board of Directors of the Company.
EXECUTIVE
/s/ Gerard Mesnel
-------------------------------
Date , 1995
3
<PAGE> 1
EXHIBIT 10(r)
July 24, 1997
Mr. James S. Reid, Jr.
Chairman and Chief Executive Officer
The Standard Products Company
2401 South Gulley Road
Dearborn MI 48124
Dear Jim:
This letter is written to confirm the arrangements we have
discussed regarding your compensation after you relinquish your position as
Chief Executive Officer of The Standard Products Company (the "Company"). I am
writing on behalf of the Company in my capacity as Chairman of the Compensation
Committee of the Board of Directors, which Committee approved the terms of this
letter at its meeting on June 23, 1997. We have agreed:
1. Effective September 1, 1997 you will begin to receive
benefits to which you are entitled under the Company's Supplemental Pension
Plan. In addition, effective September 1, 1997, your salary from the Company
will be $200,000 per annum. You will be paid at that rate through October
1999, at which time it is anticipated that you will relinquish your position as
Chairman of the Board at the Annual Meeting held in October 1999.
2. During the period described above, you will continue
as an employee of the Company to serve as Chairman of the Board and as a
Director of the Company and you will also be advising and assisting the
Company's new Chief Executive Officer. However, you will not be expected to
devote your full business time and attention to the affairs of the Company.
3. During the period described in paragraph 1 above, you
will continue as an employee of the Company for all purposes, including,
without limitation:
a. Your right to exercise previously awarded
stock options;
b. Vesting of the Restricted Stock you have
previously earned;
<PAGE> 2
Mr. James S. Reid, Jr.
July 24, 1997
Page 2
c. Participation in all applicable benefit and
welfare plans of the Company;
d. Participation in fringe benefits enjoyed by
top executives of the Company, including use
of an automobile;
e. Reimbursement of all business-related
expenses;
f. An office and secretarial support in the
Company's Cleveland office.
In addition, you will continue to participate in the Company's Executive
Incentive Bonus Plan and your Salaried Pension Plan and Supplemental Pension
Plan benefits shall be included as part of your base salary when computing the
bonus to which you are entitled under that Plan.
4. The Company will also continue to pay for your
apartment in the Detroit area for such period as you deem to be in the best
interests of the Company.
If the foregoing meets with your approval, please sign and
return the enclosed duplicate copy of this letter.
Very truly yours,
THE STANDARD PRODUCTS COMPANY
/s/ Alan E. Riedel
By ----------------------------
Alan E. Riedel, Chairman,
Compensation Committee
Acknowledged and agreed to
this 24th day of July 1997
/s/ James S. Reid, Jr.
- -----------------------------
James S. Reid, Jr.
<PAGE> 1
EXHIBIT 10(s)
EMPLOYMENT AGREEMENT
Between
THE STANDARD PRODUCTS COMPANY
And
RONALD L. ROUDEBUSH
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Employment As Chief Executive Officer . . . . . . . . . . . . . . . . . . . . 1
1.02 Election as Director and Vice Chairman . . . . . . . . . . . . . . . . . . . . 1
1.03 Other Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
Term of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.01 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.01 Base Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.02 Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE IV
Other Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.01 Incentive, Savings and Retirement Plans . . . . . . . . . . . . . . . . . . . 2
4.02 Welfare Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.03 Fringe Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.04 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.05 Automobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.06 Office and Support Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.07 Vacation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.08 Relocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.09 Country Club . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE V
Termination of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.01 Termination of Employment for Cause or Other Than for Good Reason . . . . . . 4
5.02 Termination of Employment for Death or Disability . . . . . . . . . . . . . . 4
5.03 Termination of Employment By The Company Without Cause Or By the
Executive for Good Reason . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.04 Other Termination Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE VI
Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.01 "Disability" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.02 "Cause" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.03 "Change in Control" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.04 "Good Reason" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.05 "Date of Termination" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VII
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.01 Noncompetition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.02 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.03 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.04 Nonalienation of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.05 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.06 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.07 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.08 Counterpart Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.09 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.10 Effect on Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.11 Filing with SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.12 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 4
EMPLOYMENT AGREEMENT
THIS AGREEMENT, executed this 1st day of July 1997, is made by and
between THE STANDARD PRODUCTS COMPANY, an Ohio corporation having its principal
place of business in Dearborn, Michigan (the "Company"), and RONALD L.
ROUDEBUSH, a resident of Cincinnati, Ohio (the "Executive").
The Company desires to obtain the services of the Executive, and the
Executive is willing to render such services, in accordance with the terms
hereinafter set forth.
Accordingly, the Company and the Executive agree as follows:
ARTICLE I
Duties
1.01 Employment As Chief Executive Officer. On July 1, 1997,
Executive shall become an employee of the Company and on July 24, 1997,
Executive shall become the Chief Executive Officer of the Company, at which
time he shall assume the duties and responsibilities commensurate with that
position. The Executive will report to the Board of Directors of the Company
(the "Board"). During the Contract Term, and excluding any periods of
vacation, sick leave or disability to which the Executive is entitled, the
Executive agrees to devote the Executive's full attention and time to the
business and affairs of the Company and to use the Executive's best efforts to
perform faithfully and efficiently the duties and responsibilities of the
Executive's positions as described herein.
1.02 Election as Director and Vice Chairman. On July 24, 1997, a
special meeting of the Board shall be held to increase the number of the Board
by one and to name Executive as a member of the Board with a term expiring in
1999. At the same meeting, Executive will be elected as Vice Chairman of the
Board. It is planned that James S. Reid, Jr. will remain as Chairman of the
Board until the Annual Meeting in October 1999, at which time Executive will be
proposed to the Board as Chairman of the Board.
1.03 Other Activities. During the Contract Term (as defined in
Section 2.01), it shall not be a violation of this Agreement for the Executive
to serve on civic, charitable or not-for-profit boards or committees
(including, without limitation, General Motors Institute), so long as such
activities do not significantly interfere with the performance of the
Executive's duties in accordance with this Agreement. Executive is also
authorized, subject to the same limitation, to serve on the Board of Directors
of Simpson Industries. Executive shall not serve on the Board of Directors of
any other for-profit corporation without prior approval of the Compensation
Committee of the Board. Executive shall relinquish any day-to-day
<PAGE> 5
responsibilities relating to Milford Dodge, Inc., Milford, Ohio, but shall be
permitted to remain as an investor, director, officer and employee and to own
the real estate of the dealership.
ARTICLE II
Term of Agreement
2.01 Term. Subject to the termination provisions hereinafter
provided, the term ("Contract Term") of this Agreement shall commence on July
1, 1997 and end on June 30, 1999; provided, however, that the Contract Term
shall be automatically extended each day commencing with July 1, 1997 for an
additional day so that this Agreement shall at all times have an unexpired term
of two (2) years until the date written notice is provided by either the
Company or the Executive that this Agreement is not to be further extended or
until ten (10) years from the date hereof, whichever shall first occur.
ARTICLE III
Compensation
3.01 Base Salary. During the Contract Term, the Company shall pay
or cause to be paid to the Executive in cash, in accordance with the normal
payroll practices of the Company for senior executives, in installments not
less frequently than monthly, an annual base salary ("Annual Base Salary")
equal to $500,000 during each year of the Contract Term. The Company may from
time to time increase the Executive's Annual Base Salary, provided that it
shall not be reduced after any such increase, and the term Annual Base Salary
as used in this Agreement shall refer to the Annual Base Salary as so
increased.
3.02 Bonus. The Company shall pay or cause to be paid to the
Executive a bonus in accordance with the Company's Officers Incentive Bonus
Plan, as the same may be amended or modified from time to time, provided, that
for the period ending June 30, 1998, Executive shall be paid the greater of
$200,000 or the amount to which he would be entitled under said Plan, and
further provided that the six (6) months waiting period for eligibility under
said Plan is hereby waived.
ARTICLE IV
Other Benefits
4.01 Incentive, Savings and Retirement Plans. In addition to
Annual Base Salary and Annual Bonus, the Executive shall be
-2-
<PAGE> 6
entitled to participate during the Contract Term in all incentive savings and
retirement plans, practices, policies and programs applicable to other senior
executives of the Company as the same may be amended or modified from time to
time, and, in addition:
(a) Stock Options: The Company through its Compensation
Committee hereby agrees to grant to the Executive options to purchase
200,000 Common Shares of the Company pursuant to the terms of the
Company's 1996 Stock Option Plan at an exercise price equal to the
fair market price of such stock on the day Executive commences
employment with the Company. Executive acknowledges that under the
Internal Revenue Code of 1986 the amount of incentive stock options
which may be first exercised in any calendar year must be limited to
$100,000 and that the balance of the options he will receive each year
will be "nonqualified." The options shall be exercisable in
accordance with and subject to the terms of the Stock Option
Agreements which are attached hereto as Exhibits A (Incentive) and B
(Nonqualified), and
(b) Restricted Stock: The Company through its
Compensation Committee hereby agrees to grant to the Executive as of
July 24, 1997, an opportunity to earn 50,000 Common Shares under the
Company's 1991 Restricted Stock Plan in accordance with the terms and
conditions of and subject to the vesting provisions set forth in the
Restricted Stock Agreement which is attached hereto as Exhibit C.
4.02 Welfare Benefits. During the Contract Term, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company (including, and
without limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, dependent life, accidental death and
travel accident insurance plans and programs) applicable to other senior
executives of the Company, as the same may be amended or modified from time to
time.
4.03 Fringe Benefits. During the Contract Term, the Executive
shall be entitled to other fringe benefits applicable to other senior
executives of the Company.
4.04 Expenses. During the Contract Term, the Executive shall be
entitled to receive prompt reimbursement for all reasonable employment-related
expenses incurred by the Executive upon the Company's receipt of accountings in
accordance with practices, policies and procedures applicable to other senior
executives of the Company.
4.05 Automobile. During the Contract Term and in accordance with
its applicable policies, the Company shall furnish to the
-3-
<PAGE> 7
Executive an automobile of his choice in accordance with the Company's current
executive automobile plan.
4.06 Office and Support Staff. During the Contract Term, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to personal secretarial and other
assistance provided to other senior executives of the Company but which is
consistent with his position as Chief Executive Officer.
4.07 Vacation. During the Contract Term, the Executive shall be
entitled to paid vacation time in accordance with the plans, practices,
policies, and programs applicable to other senior executives of the Company,
but not less than four weeks in each calendar year.
4.08 Relocation. Executive will be reimbursed by the Company for
his temporary living expenses and the cost of relocation from Cincinnati to the
Detroit metropolitan area in accordance with the Company's relocation policy.
4.09 Country Club. During the Contract Term, the Company will
reimburse Executive for entrance or admission fees and/or the cost of purchase
of stock for a full resident membership in a country club in the Detroit
metropolitan area, with Executive making all efforts to be reinstated at
Bloomfield Hills Country Club, as well as the monthly dues and any assessments
which are levied from time to time by such club.
ARTICLE V
Termination of Employment
5.01 Termination of Employment for Cause or Other Than for Good
Reason. If, before the end of the Contract Term, the Company terminates the
Executive's employment for Cause or the Executive terminates employment other
than for Good Reason, then the Company shall pay to the Executive in a lump sum
immediately after the Date of Termination that portion of the Executive's
Annual Base Salary and full-year Bonus which is accrued but unpaid as of such
Date of Termination, but the Executive shall not be entitled to receive any pro
rata bonus for the year in which termination occurs nor any other compensation
or benefits under this Agreement.
5.02 Termination of Employment for Death or Disability. If, before
the end of the Contract Term, the Executive's employment terminates due to
death or Disability, the Company shall pay to the Executive (or to the
Executive's Beneficiary, as defined in Section 7.03) in a lump sum payable
immediately after the Date of Termination an amount which is equal to the sum
of the following:
-4-
<PAGE> 8
(a) that portion of the Executive's Annual Base Salary
and any Annual Bonus which is accrued but unpaid as of the Date of
Termination,
(b) the Executive's pro rata bonus ("Pro Rata Bonus") for
any period that has not ended prior to Date of Termination
("Termination Performance Period"), which shall be equal to the
product of the Annual Bonus (the Executive's Annual Bonus for the
fiscal year immediately preceding the Date of Termination or, if the
Date of Termination occurs prior to the end of the first full fiscal
year of the Contract Term, equal to $200,000), multiplied by a
fraction, the numerator of which is the number of days in the
Termination Performance Period which elapsed prior to the Date of
Termination, and the denominator of which is the total number of days
in the Termination Performance Period, and
(c) an amount equal to the product of two times the
Executive's Annual Base Salary and Annual Bonus for the fiscal year
immediately preceding the Date of Termination (or $200,000 if the Date
of Termination occurs prior to the end of the first full fiscal year
of the Contract Term).
5.03 Termination of Employment By The Company Without Cause Or By
the Executive for Good Reason. If, before the end of the Contract Term, the
Executive's employment is terminated by the Company without Cause or by the
Executive for Good Reason, the Executive shall receive, in a lump sum payable
immediately after the Date of Termination, an amount which is equal to the sum
of the following:
(a) that portion of the Executive's Annual Base Salary
and any Annual Bonus which is accrued but unpaid as of the Date of
Termination,
(b) the Executive's Pro Rata Bonus for the Termination
Performance Period calculated in accordance with Section 5.02(b),
(c) an amount equal to the Executive's Annual Base Salary
which would be payable for the period beginning on the Date of
Termination and ending on the last day of the Contract Term, and
(d) an amount equal to the Executive's Annual Bonus for
the remainder of the Contract Term, equal to the Executive's Annual
Bonus for the fiscal year immediately preceding the Date of
Termination (or, if the Date of Termination occurs prior to the end of
the first full fiscal year of the Contract Term, equal to $200,000),
multiplied by the number of full years and portions of years between
the Termination Date and the last day of the Contract Term.
-5-
<PAGE> 9
In addition, Executive shall be entitled to:
(e) the exercise and vesting rights set forth in Exhibits
A, B and C,
(f) the benefits to which the Executive was entitled
during the Contract Term under Section 4.02 hereof for the remainder
of the Contract Term. Notwithstanding the foregoing, the amount of
any benefits provided under Section 4.02 shall be reduced or
eliminated to the extent the Executive becomes entitled to duplicative
benefits by virtue of his subsequent employment after the Date of
Termination, and
(g) a continuation of pension benefits under the
Company's Salaried Employee's Pension Plan and the Company's
Supplemental Salaried Pension Plan for the remainder of the Contract
Term.
5.04 Other Termination Benefits. In addition to any amounts or
benefits payable upon termination of employment hereunder as provided herein,
the Executive shall be entitled to any payments or benefits required by
applicable law.
ARTICLE VI
Certain Definitions
6.01 "Disability" means any medically determinable physical or
mental impairment that can be expected to last for a continuous period of not
less than six (6) months, and that renders the Executive unable to perform the
duties required under this Agreement. The date of the determination of
Disability is the date on which the Executive is certified as having incurred a
Disability by a physician mutually acceptable to the Company and the Executive.
6.02 "Cause" means (a) the Executive's conviction of or plea of
guilty or nolo contendere to any felony or other crime involving dishonesty or
moral turpitude; (b) any serious misconduct in the course of the Executive's
employment; and (c) the Executive's habitual neglect of the Executive's duties
(other than on account of Disability) or the violation of a material Company
policy after notice thereof, except that Cause shall not mean:
(1) an isolated instance of bad judgment or
negligence;
(2) any act or omission believed by the Executive
in good faith to have been in or not opposed to the best
interest of the Company (without intent of the
-6-
<PAGE> 10
Executive to gain therefrom, directly or indirectly, a profit
to which the Executive was not legally entitled); or
(3) any act or omission with respect to which a
determination could properly have been made by the Board that
the Executive met the applicable standard of conduct for
indemnification or reimbursement under the Code of Regulations
of the Company, any applicable indemnification agreement or
the laws and regulations under which the Company is governed,
in each case in effect at the time of such act or omission.
6.03 "Change in Control" means the occurrence of any of the
following events:
(1) When any "person" as defined in Section 3(a)(9) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")
and as used in Sections 13(d) and 14(d) thereof, including a "group"
as defined in Section 13(d) of the Exchange Act, but excluding the
Company and any Subsidiary and any employee benefit plan sponsored or
maintained by the Company or any Subsidiary (including any trustee of
such plan acting as trustee), directly or indirectly, becomes the
"beneficial owner" (as defined in Rule 13d- 3 under the Exchange Act,
as amended from time to time), of securities of the Company
representing 20 percent or more of the combined voting power of the
Company's then outstanding capital stock; provided, however, that with
respect to any director who on the effective date of this Agreement is
the beneficial owner or has the option to acquire 5% or more of such
capital stock outstanding on such effective date, capital stock so
owned or acquired pursuant to any such options shall not be counted in
determining such 20% or more combined voting power;
(2) When, during any period of 24 consecutive months
during the existence of this Agreement, the individuals who, at the
beginning of such period, constitute the Board of Directors of the
Company (the "Incumbent Directors") cease for any reason other than
death to constitute at least a majority thereof; provided, however,
that a director who was not a director at the beginning of such 24-
month period shall be deemed to have satisfied such 24-month
requirement (and be an Incumbent Director) if such director was
elected by, or on the recommendation of or with the approval of, at
least two-thirds of the directors who then qualified as Incumbent
Directors either actually (because they were directors at the
beginning of such 24-month period) or by prior operation of this
Section 6.03(2); or
(3) The completion of a transaction requiring shareholder
approval for the acquisition of the Company by
-7-
<PAGE> 11
an entity other than the Company or a Subsidiary through purchase of
assets or otherwise or any merger of the Company into another Company
(unless the persons who were shareholders of the Company immediately
prior to such transaction own more than 70% of the voting stock and
value of the surviving company immediately following such merger in
substantially the same proportions as they owned immediately prior to
the merger).
Provided, however, that if Executive, in his individual capacity, is a party to
an agreement under which Executive agrees to the consummation of a transaction
which is a Change of Control as described in subparagraphs (1) or (3) above and
if Executive pursuant to that agreement becomes an equity holder in the Company
or any entity which acquires the Company, then notwithstanding the foregoing
provisions of Section 6.03 of this Agreement, unless the Company and Executive
shall in writing otherwise agree, such transaction shall not be deemed to be a
Change of Control.
6.04 "Good Reason" means the occurrence of any one of the following
events:
(a) the failure of the shareholders and the Directors of
the Company to elect and re-elect the Executive to be Chief Executive
Officer and a member and the Vice Chairman of the Board;
(b) assignment to the Executive of any duties materially
and adversely inconsistent with the Executive's position as specified
in Article I hereof (or such other position to which he may be
promoted), including status, offices, or responsibilities as
contemplated under Article I of this Agreement or any other action by
the Company which results in a material and adverse change in such
position, status, offices, titles or responsibilities;
(c) the failure of the Company to assign this Agreement
to a successor to the Company; or
(d) any failure by the Company to comply with any
material provision of this Agreement;
if the Company fails to cure such event within 30 days after written notice
from the Executive.
Notwithstanding any other provision in this Section 6.04, the
Executive shall have Good Reason to terminate employment with the Company for
any or no reason during the six-month period following the date on which a
Change in Control occurs, unless the Executive in writing waives such right.
-8-
<PAGE> 12
6.05 "Date of Termination" means the date as of which the
Executive's employment with the Company is terminated by the Company or by the
Executive for any reason including, but not limited to, death or Disability.
ARTICLE VII
Miscellaneous
7.01 Noncompetition Agreement. Executive agrees to execute at the
beginning of the Contract Term the Company's Noncompetition, Nondisclosure and
Patent Assignment Agreement attached hereto as Exhibit D.
7.02 Successors. This Agreement shall be binding upon and
inure to the benefit of the Executive and the Executive's estate and shall be
binding on the Company or any successor to the Company.
7.03 Beneficiary. If the Executive dies prior to receiving all of
the salary and bonus and any other amounts payable hereunder, such salary,
bonus and other amounts shall be paid in a lump sum payment to the beneficiary
designated in writing by the Executive ("Beneficiary") and if no such
Beneficiary is designated, to the Executive's estate.
7.04 Nonalienation of Benefits. Benefits payable under this
Agreement shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, charge, garnishment, execution or
levy of any kind, either voluntary or involuntary, prior to actually being
received by the Executive, and, except as provided in Section 7.03, any such
attempt to dispose of any right to benefits payable hereunder shall be void.
7.05 Severability. If all or any part of this Agreement is
declared by any court or governmental authority to be unlawful or invalid, such
unlawfulness or invalidity shall not serve to invalidate any portion of this
Agreement not declared to be unlawful or invalid. Any paragraph or part of a
paragraph so declared to be unlawful or invalid shall, if possible, be
construed in a manner which will give effect to the terms of such paragraph or
part of a paragraph to the fullest extent possible while remaining lawful and
valid.
7.06 Amendment and Waiver. This Agreement shall not be altered,
amended or modified except by written instrument executed by the Company and
Executive. A waiver of any term, covenant, agreement or condition contained in
this Agreement shall not be deemed a waiver of any other term, covenant,
agreement or condition, and any waiver of any default in any such term,
covenant, agreement or condition shall not be deemed a
-9-
<PAGE> 13
waiver of any later default thereof or of any other term, covenant, agreement
or condition.
7.07 Notices. All notices and other communications hereunder shall
be in writing and delivered by hand or by first class registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company: The Standard Products Company
2401 South Gulley Road
Dearborn, Michigan 48124
Attn: Vice President, Finance
and
Baker & Hostetler
3200 National City Center
1900 East 9th Street
Cleveland, Ohio 44114
Attn: John D. Drinko
If to the Executive: Mr. Ronald L. Roudebush
7386 Riverpoint Lane
Cincinnati, Ohio 45255
with a copy to: Sotiroff & Abramczyk
30400 Telegraph Road
Bingham Farms, Michigan 48025
Attn: Philip Sotiroff
Either party may from time to time designate a new address by notice given in
accordance with this Section. Notice and communications shall be effective
when actually received by the addressee.
7.08 Counterpart Originals. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original but all
of which together will constitute one and the same instrument.
7.09 Entire Agreement. This Agreement forms the entire agreement
between the parties hereto with respect to any severance payment and with
respect to the subject matter contained in the Agreement.
7.10 Effect on Other Agreements. This Agreement shall supersede
all prior agreements, promises and representations regarding severance or other
payments contingent upon termination of employment.
7.11 Filing with SEC. Executive acknowledges that the Company
expects to file this Agreement as an exhibit to one of
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<PAGE> 14
the Company's periodic filings with the Securities and Exchange Commission, and
Executive consents to such action.
7.12 Applicable Law. The provisions of this Agreement shall be
interpreted and construed in accordance with the laws of the State of Ohio,
without regard to its choice of law principles.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
THE STANDARD PRODUCTS COMPANY
By:/s/ James S. Reid, Jr.
--------------------------------
James S. Reid, Jr.,
Chairman
EXECUTIVE
/s/ Ronald L. Roudebush
-----------------------------------
Ronald L. Roudebush
-11-
<PAGE> 15
EXHIBIT A
THE STANDARD PRODUCTS COMPANY
1996 EMPLOYEE STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
THE STANDARD PRODUCTS COMPANY (the "Company"), for One Dollar
($1.00) and other valuable consideration, the receipt of which is hereby
acknowledged, hereby grants to RONALD L. ROUDEBUSH (the "Holder") the right to
purchase, at the option of the Holder, an aggregate of 15,840 Common Shares, $1
par value, of the Company (the "Shares"), at $25.25 per Share, upon the
following terms and conditions:
1. None of the Shares subject hereto may be purchased
during the first twelve-month period from and after the date hereof, except as
provided in Section 3. Thereafter, shares subject hereto may be purchased in
the amounts and subject to the vesting schedule set forth below and the
provisions of Section 3:
VESTING SCHEDULE
----------------
<TABLE>
<CAPTION>
Vesting Date Number of Shares
------------ ----------------
<S> <C>
July 2, 1998 3,960
July 2, 1999 3,960
July 2, 2000 3,960
July 2, 2001 3,960
</TABLE>
Not more than forty percent (40%) of the number of Shares
subject hereto may be purchased during any one-year period. Subject to the
foregoing restrictions and vesting schedule, this option may be exercised in
blocks of 50 or more Shares after July 2, 1998, and prior to a date ten (10)
years from the date hereof, but not thereafter, by (i) the giving by the Holder
to the Company, at its principal office in Dearborn, Michigan, of a written
notice of such election, specifying the number of Shares then being purchased,
(ii) the payment by the Holder to the Company of the purchase price of the
Shares so specified and (iii) the giving by the Holder to the Company of the
Holder's written representation that the Shares being purchased are being
acquired not with a view to resale or distribution and that such Shares will
not be sold or otherwise transferred except in compliance with the Securities
Act of 1933 (the "1933 Act") and applicable state securities laws and
authorizing the Company to imprint the certificates evidencing such Shares with
a legend to that effect; provided that if, either before or after the issuance
of this option, a registration is effected under the 1933 Act and applicable
state securities laws with respect to the Shares subject to the Company's 1996
Employee Stock Option Plan (the "Plan") which are the subject of this option,
then, in that event, any restrictions in this subparagraph (iii) or in any
undertaking made pursuant hereto shall become inoperative. Upon receipt of
such notice,
<PAGE> 16
payment and any required representation, the Company will promptly cause
certificates for such number of Shares so purchased to be issued and delivered
to the Holder; provided, however, no Shares shall be issued and delivered upon
any exercise of this option unless and until, in the opinion of counsel for the
Company, any and all applicable federal and state securities laws pertaining to
the issuance and delivery of such Shares have been complied with in full.
2. Payment of the purchase price may be made in cash or
in Shares of the Company valued at the closing sales price per Share (or in the
event there are not sales then the average of the closing bid and asked price
per Share) on the New York Stock Exchange on the last trading day preceding the
date on which the option is exercised.
3. This option may not be exercised unless the Holder is
at the time of exercise in the employ of the Company and shall have been
continuously so employed since the option was granted; provided, however:
(i) In the event of a Change of Control (as that term is
defined in Section 6.03 of the Agreement between the Holder and the
Company dated July 1, 1997), all unvested Shares shall immediately
become vested and in the event the employment of the Holder is
terminated by the Company without Cause or by the Holder for Good
Reason (as those terms are defined in said Agreement) within three (3)
months next succeeding such termination, the Holder may exercise the
option to purchase all vested Shares plus all unvested Shares, and
(ii) In the event of death or Disability (as defined in
said Agreement) of the Holder while in the employ of the Company, this
option may be exercised within one year of said death or Disability
with respect to all vested shares plus all unvested Shares by the
Holder and, in the case of death, only by the executor or
administrator of his estate, and
(iii) In the event of the termination of the Holder's
employment for any reason other than as specified in (i) or (ii)
above, the Holder may exercise this option within three (3) months
next succeeding such termination of employment, or within the balance
of the period of this option if less than three (3) months, to the
extent that he was entitled to exercise it at the date of such
termination.
4. The rights hereby granted are non-transferable and
non-assignable and may be exercised, during his lifetime, only by the Holder
(or in the case of the permanent and total disability of the Holder, by his
duly authorized legal representative but
-2-
<PAGE> 17
only if, and to the extent, permitted by Section 422 of the Code) and, after
his death, only by the executor or administrator of the estate of the Holder as
and to the extent provided in Paragraph 1 and 3 hereof.
5. In the event of any change in the number or kind of
outstanding Shares of the Company by reason of a recapitalization, merger,
consolidation, reorganization, separation, liquidation, stock split, stock
dividend, combination of shares or any other change in the corporate structure
or shares of stock of the Company, then, in each such event, the Company, by
action of its Compensation Committee (the "Committee"), shall make such
adjustment, if any, in the number and kind of Shares subject to this option and
in the price per Share to be paid upon such subsequent exercise of this option
as shall be necessary to preserve the economic value of the Option for the
Holder.
6. This option is granted under and pursuant to the 1996
Employee Stock Option Plan (the "Plan") of the Company.
7. No later than the date as of which an amount first
becomes includable in the gross income of the Holder for federal income tax
purposes with respect to the option granted hereunder, the Holder shall pay to
the Company, or make arrangements satisfactory to the Committee regarding the
payment of, any federal, state or local taxes of any kind required by law to be
withheld with respect to such amount. Withholding obligations may be settled
with shares, including Shares that are part of the option that gives rise to
the withholding requirement. The obligations of the Company under the Plan
shall be conditional on such payment or arrangements and the Company shall, to
the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the optionee.
8. This option may not be exercised unless and until the
Shares subject hereto have been listed on the New York Stock Exchange.
9. The option granted hereunder is intended to be an
incentive stock option under the Code. This option shall be construed and
exercised consistent with the intention that it be an incentive stock option
and its terms may be changed by action of the Board of Directors of the Company
to the extent necessary to meet the requirements of an incentive stock option
and in accordance with the Plan.
10. The Plan and the option granted hereunder shall be
governed by and construed in accordance with the laws of the State of Ohio.
-3-
<PAGE> 18
IN WITNESS WHEREOF, the Company has caused its corporate name
to be subscribed and its corporate seal to be affixed hereto by its duly
authorized officers as of the 1st day of July 1997.
THE STANDARD PRODUCTS COMPANY
By /s/ J.S. Reid, Jr.
---------------------------------
Attest:
/s/ Richard N. Jacobson
- ------------------------------------
The foregoing option is hereby accepted.
/s/ Ronald L. Roudebush
- ------------------------------------
(Signature)
-4-
<PAGE> 19
EXHIBIT B
THE STANDARD PRODUCTS COMPANY
1996 EMPLOYEE STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
THE STANDARD PRODUCTS COMPANY (the "Company"), for One Dollar
($1.00) and other valuable consideration, the receipt of which is hereby
acknowledged, hereby grants to RONALD L. ROUDEBRUSH (the "Holder") the right to
purchase, at the option of the Holder, an aggregate of 184,160 Common Shares,
$1 par value, of the Company (the "Shares"), at $25.25 per Share, upon the
following terms and conditions:
1. None of the Shares subject hereto may be purchased
during the first twelve-month period from and after the date hereof, except as
provided in Section 3. Thereafter, shares subject hereto may be purchased in
the amounts and subject to the vesting schedule set forth below and the
provisions of Section 3:
VESTING SCHEDULE
<TABLE>
<CAPTION>
Vesting Date Number of Shares
------------ ----------------
<S> <C>
July 2, 1998 46,040
July 2, 1999 46,040
July 2, 2000 46,040
July 2, 2001 46,040
</TABLE>
Not more than forty percent (40%) of the number of Shares
subject hereto may be purchased during any one-year period. Subject to the
foregoing restrictions and vesting schedule, this option may be exercised in
blocks of 50 or more Shares after July 2, 1998, and prior to a date ten (10)
years from the date hereof, but not thereafter, by (i) the giving by the Holder
to the Company, at its principal office in Dearborn, Michigan, of a written
notice of such election, specifying the number of Shares then being purchased,
(ii) the payment by the Holder to the Company of the purchase price of the
Shares so specified and (iii) the giving by the Holder to the Company of the
Holder's written representation that the Shares being purchased are being
acquired not with a view to resale or distribution and that such Shares will
not be sold or otherwise transferred except in compliance with the Securities
Act of 1933 (the "1933 Act") and applicable state securities laws and
authorizing the Company to imprint the certificates evidencing such Shares with
a legend to that effect; provided that if, either before or after the issuance
of this option, a registration is effected under the 1933 Act and applicable
state securities laws with respect to the Shares subject to the Company's 1996
Employee Stock Option Plan (the "Plan") which are the subject of this option,
then, in that event, any restrictions in this subparagraph (iii) or in any
undertaking made pursuant hereto shall become inoperative. Upon receipt of
such notice,
<PAGE> 20
payment and any required representation, the Company will promptly cause
certificates for such number of Shares so purchased to be issued and delivered
to the Holder; provided, however, no Shares shall be issued and delivered upon
any exercise of this option unless and until, in the opinion of counsel for the
Company, any and all applicable federal or state securities laws pertaining to
the issuance and delivery of such Shares have been complied with in full.
2. Payment of the purchase price may be made in cash or
in Shares of the Company valued at the closing sales price per Share (or in the
event there are not sales then the average of the closing bid and asked price
per Share) on the New York Stock Exchange on the last trading day preceding the
date on which the option is exercised.
3. This option may not be exercised unless the Holder is
at the time of exercise in the employ of the Company and shall have been
continuously so employed since the option was granted; provided, however:
(i) In the event of a Change of Control (as that term is
defined in Section 6.03 of the Agreement between the Holder and the
Company dated July 1, 1997), all unvested Shares shall immediately
become vested and in the event the employment of the Holder is
terminated by the Company without Cause or by the Holder for Good
Reason (as those terms are defined in said Agreement) within three (3)
months next succeeding such termination, the Holder may exercise the
option to purchase all vested Shares plus all unvested Shares, and
(ii) In the event of the death or Disability (as defined
in said Agreement) of the Holder while in the employ of the Company,
this option may be exercised within one year of said death or
Disability with respect to all vested Shares plus all unvested Shares
by the Holder and, in the case of death, only by the executor or
administrator of his estate, and
(iii) In the event of the termination of the Holder's
employment for any reason other than as specified in (i) or (ii)
above, the Holder may exercise this option within three (3) months
next succeeding such termination of employment, or within the balance
of the period of this option if less than three (3) months, to the
extent that he was entitled to exercise it at the date of such
termination.
4. The rights hereby granted are non-transferable and
non-assignable and may be exercised, during his lifetime, only by the Holder
(or in the case of the permanent and total disability of the Holder, by his
duly authorized legal representative but
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<PAGE> 21
only if, and to the extent, permitted by Section 422 of the Code) and, after
his death, only by the executor or administrator of the estate of the Holder as
and to the extent provided in Paragraph 1 and 3 hereof.
5. In the event of any change in the number or kind of
outstanding Shares of the Company by reason of a recapitalization, merger,
consolidation, reorganization, separation, liquidation, stock split, stock
dividend, combination of shares or any other change in the corporate structure
or shares of stock of the Company, then, in each such event, the Company, by
action of its Compensation Committee (the "Committee"), shall make such
adjustment, if any, in the number and kind of Shares subject to this option and
in the price per Share to be paid upon such subsequent exercise of this option
as shall be necessary to preserve the economic value of the Option for the
Holder.
6. This option is granted under and pursuant to the 1996
Employee Stock Option Plan (the Plan") of the Company.
7. No later than the date as of which an amount first
becomes includable in the gross income of the Holder for federal income tax
purposes with respect to the option granted hereunder, the Holder shall pay to
the Company, or make arrangements satisfactory to the Committee regarding the
payment of, any federal, state or local taxes of any kind required by law to be
withheld with respect to such amount. Withholding obligations may be settled
with shares, including Shares that are part of the option that gives rise to
the withholding requirement. The obligations of the Company under the Plan
shall be conditional on such payment or arrangements and the Company shall, to
the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the optionee.
8. This option may not be exercised unless and until the
Shares subject hereto have been listed on the New York Stock Exchange.
9. The option granted hereunder shall not be treated as
an incentive stock option under the Code.
10. The Plan and the option granted hereunder shall be
governed by and construed in accordance with the laws of the State of Ohio.
-3-
<PAGE> 22
IN WITNESS WHEREOF, the Company has caused its corporate name
to be subscribed and its corporate seal to be affixed hereto by its duly
authorized officers as of the 1st day of July 1997.
THE STANDARD PRODUCTS COMPANY
By /s/ J.S. Reid, Jr.
-------------------------
Attest:
/s/ Richard N. Jacobson
- ----------------------------------
The foregoing option is hereby accepted.
/s/ Ronald L. Roudebush
- ----------------------------------
(Signature)
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<PAGE> 23
THE STANDARD PRODUCTS COMPANY
RESTRICTED STOCK AGREEMENT
EXHIBIT C
This Restricted Stock Agreement (this "Agreement"), made as of this 1st day
of July 1997, by and between The Standard Products Company, an Ohio corporation
(the "Company"), and RONALD L. ROUDEBUSH ("Executive") under The Standard
Products Company 1991 Restricted Plan (the "Plan");
1. The Company hereby awards to Executive up to Fifty Thousand (50,000)
Common Shares, $1.00 par value, of the Company ("Common Shares"), which may be
earned at a rate of up to 12,500 Common Shares per year in the current fiscal
year and each of the three succeeding fiscal years, in all respects subject to
the terms, conditions and provisions of this Agreement and the Plan, a copy of
which is attached to this Agreement and incorporated herein by reference.
2. Common Shares awarded to Executive hereunder are subject to restriction
and may not be sold, transferred or otherwise assigned until such shares are
earned in accordance with paragraph 3 hereof and have vested in accordance with
paragraph 4 hereof. Notwithstanding the foregoing, however, Common Shares
awarded to Executive hereunder which are earned but non-vested or awarded
Common Shares that remain available to Executive but are unearned shall
immediately vest in Executive upon a Change in Control of the Company (as
defined in the Plan). In the event of Executive's death, all earned but
non-vested Common Shares and one-half of all awarded Common Shares that remain
available to Executive, but are unearned, shall vest in Executive's designated
beneficiary.
3. The number of awarded Common Shares which may be earned with respect to
each fiscal year at a rate of up to 12,500 Common Shares per year in the
current fiscal year and each of the succeeding three fiscal years equals the
product of 12,500 multiplied by the ratio of the cash bonus earned by Executive
under the Company's Officers Bonus Plan over the maximum possible cash bonus
which Executive could have earned under such Plan with respect to each such
fiscal year. No more than 12,500 Common Shares may be earned in any one fiscal
year and no Common Shares may be earned with respect to any fiscal year after
the fiscal year ending June 30, 2001.
4. Common Shares awarded hereunder and earned by Executive in accordance
with paragraph 3 above shall become vested in Executive at the end of the third
fiscal year following the end of the fiscal year in which such Common Shares
are earned.
5. Common Shares awarded hereunder and earned in accordance with paragraph
3 above shall be issued in the name of Executive, and the Company's transfer
agent will show Executive as the owner of record of such Common Shares.
Executive will
<PAGE> 24
have all rights of a shareholder with respect to awarded and earned Common
Shares, including the right to vote such shares, subject to the limitations
imposed by this Agreement and the Plan. The certificates representing awarded
and earned Common Shares shall not be delivered to Executive until such Common
Shares become vested. If Executive shall voluntarily cease to be an employee
of the Company prior to vesting of Common Shares (whether such Common Shares
are earned or unearned), Executive shall forfeit to the Company all Common
Shares not then vested in Executive. In this regard, simultaneously with the
issuance of certificates representing awarded and earned Common Shares,
Executive shall execute and deliver stock powers forfeiting to the Company
Common Shares awarded and earned hereunder but not vested in the event
Executive voluntarily ceases to be an employee of the Company prior to any
vesting date. Executive acknowledges that Common Shares awarded hereunder
shall be subject to the restrictions and risks of forfeiture contained herein
and in Section 8 of the Plan.
6. Executive hereby agrees that he shall pay to the Company, in cash, any
United States federal, state or local taxes of any kind required by law to be
withheld with respect to the Common Shares awarded to him hereunder. If
Executive does not make such payment to the Company, the Company shall have the
right to deduct from any payment of any kind otherwise due to Executive from
the Company (or from any subsidiary of the Company), any federal, state or
local taxes of any kind required by law to be withheld with respect to Common
Shares awarded to Executive under this Agreement.
7. Executive represents that Common Shares awarded hereunder are being
acquired by Executive not with a view toward resale or distribution and
Executive will not sell or otherwise transfer such Common Shares except in
compliance with the Securities Act of 1933 and the rules and regulations
promulgated thereunder. Executive hereby acknowledges that Common Shares
awarded hereunder shall bear legends and statements evidencing such
restrictions and other restrictions contained in Section 8 of the Plan.
THE STANDARD PRODUCTS COMPANY
By /s/ Richard N. Jacobson
--------------------------------
Title General Counsel and Secretary
-----------------------------
Date July 1, 1997
------
Executive acknowledges receipt of the Plan, a copy of which is attached
hereto, and represents that he is familiar with the terms and provisions
thereof, and hereby agrees that Common Shares granted under this Agreement are
subject to all terms and provisions of this Agreement. Executive hereby agrees
to accept
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<PAGE> 25
as binding, conclusive and firm all decisions and interpretations of the
Compensation Committee of the Board of Directors of the Company.
EXECUTIVE
/s/ Ronald L. Roudebush
-----------------------------
Date July 1, 1997
------
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<PAGE> 26
EXHIBIT D
Revised New Hire: April 17, 1997
THE STANDARD PRODUCTS COMPANY
NONCOMPETITION, NONDISCLOSURE AND
PATENT ASSIGNMENT AGREEMENT
This Noncompetition, Nondisclosure and Patent Assignment Agreement (this
"Agreement") is entered into this 1st day of July, 1997, by and between Ronald
L. Roudebush("Employee") and The Standard Products Company, an Ohio corporation.
WHEREAS, The Standard Products Company, or one of its subsidiaries or
affiliates (The Standard Products Company and its subsidiaries and affiliates
are collectively referred to herein as the "Company"), has agreed to employ
Employee pursuant to the Employment Agreement dated July 1, 1997 (the
"Employment Agreement").
WHEREAS, the Company is unwilling to employ Employee without Employee
agreeing to be bound by the covenants and agreements of Employee set forth in
this Agreement;
WHEREAS, during the course of Employee's employment with the Company,
Employee may gain access to or knowledge of, or work on the development or
creation of, confidential and proprietary information, including: (a) supplier
and customer lists and supplier and customer-specific information; (b)
marketing plans and proposals; (c) product and process designs, formulas,
processes, plans, drawings and concepts; (d) research and development data and
materials, including those relating to the research and development of
products, materials or manufacturing and other processes; (e) financial and
accounting records; and (f) other information with respect to the Company which
if divulged to the Company's competitors would impair the Company's ability to
compete in the marketplace (such information is collectively referred to as
"Proprietary Information"); and
WHEREAS, the Company is now selling products throughout the United States
and in Brazil, Canada, France, Germany, Italy, Korea, Mexico, Spain, Sweden,
the United Kingdom and other members of the European Economic Community (such
countries, together with any other countries in which the Company is currently
conducting, or conducts business at any time during the course of Employee's
employment with the Company, are hereinafter collectively referred to as the
"Foreign countries");
NOW, THEREFORE, in consideration of Employee's employment with the
Company, the salary or wages to be paid and benefits to be provided by the
Company, and other consideration, the sufficiency of which is hereby expressly
acknowledged, Employee agrees as follows:
1. During the term of Employee's employment with the Company and for a
period of twelve (12) months after termination of Employee's employment with
the Company for any reason, or for such shorter period as the Company may agree
in writing, Employee shall not directly or indirectly engage in any activity,
whether on Employee's own behalf or as an employee, consultant or independent
contractor of any other person or entity which competes with the Company within
the United States or any of the Foreign countries, for the development,
production or sale of any product, material or process to be sold, produced or
used by the Company during the course of Employee's employment with the
Company, including any product, material or process which may be under
development by the Company during the course of Employee's employment with the
Company and of which Employee has, or hereafter gains, knowledge.
2. The noncompetition covenant set forth above will not impose undue
hardship on Employee and is reasonable in both geographic scope and duration in
view of: (a) the Company's legitimate interest in protecting its Proprietary
Information, the disclosure of which to the Company's competitors would
substantially and unfairly impair the Company's ability to compete in the
marketplace or substantially and unfairly benefit the Company's competitors;
(b) the specialized training to be provided to Employee by the Company and the
experience to be gained by Employee during the course of Employee's employment
with the Company; (c) the fact that the services to be rendered by Employee on
behalf of the Company will be specialized, unique and extraordinary; (d) the
fact that the Company directly competes within the United States and the
Foreign countries in the sale, production and development of products,
materials or processes; and (e) the consideration provided by the Company.
3. Employee shall not disclose or divulge Proprietary Information to any
person or entity at any time during the course of Employee's employment with
the Company or at any time thereafter, except as may be required in the
ordinary course and good-faith performance of Employee's employment with the
Company. At the time of termination of Employee's employment with the Company
for any reason, or at such time as the Company may request, Employee shall
promptly deliver or return, without retaining any copies, all Proprietary
Information in Employee's possession or control, whether in the form of
computer-generated documents or otherwise, and, pursuant to the Company's
instructions, shall erase, destroy or return all stored data, whether stored on
computer or otherwise, and shall not attempt to use or restore any such data.
1
<PAGE> 27
4. During the term of Employee's employment with the Company and for a
period of twenty-four (24) months after termination of the Employee's
employment with the Company for any reason, Employee will not employ, hire,
solicit, induce or identify for employment or attempt to employ, hire, solicit,
induce or identify for employment, directly or indirectly, any employee(s) of
the Company to leave his or her employment and become an employee, consultant
or representative of any other entity, including but not limited to Employee's
new employer, if any.
5. The noncompetition and nondisclosure covenants set forth above are of a
special, unique, extraordinary and intellectual character, which gives them a
peculiar value, the loss of which cannot be reasonably or adequately
compensated for in damages in an action at law. A breach by Employee of this
Agreement will cause the Company great and irreparable injury and damage.
Therefore, the Company shall be entitled to the remedies of injunction,
specific performance and other equitable relief to prevent a breach of this
Agreement by Employee. This paragraph shall not, however, be construed as a
waiver of any of the rights which the Company may have for damages or
otherwise.
6. Employee shall promptly and fully disclose in writing to the Company
any inventions, improvements, discoveries, operating techniques, or "know-how",
whether patentable or not (hereinafter referred to as the "Inventions"),
conceived or discovered by Employee, either solely or jointly with others,
during the course of Employee's employment with the Company, or within six (6)
months thereafter.
7. Employee shall on the request of the Company, and hereby does, assign
to the Company all of Employee's right, title and interest in any of the
Inventions which relate to, or are useful in connection with, any aspect of the
business of the Company as carried on or contemplated at the time the Invention
is made, whether or not Employee's duties are directly related thereto, and the
Company shall be the sole and absolute owner of any of the Inventions so
assigned; Employee shall perform any further acts or execute any papers at the
expense of the Company which it may consider necessary to secure for the
Company or its successors or assigns any and all rights relating to the
Inventions, including patents in the United States and Foreign countries.
8. The Company shall be the sole judge as to whether the Inventions are
related to or useful in connection with any aspect of the business of the
Company as carried on or contemplated at the time the Invention is made and as
to whether patent applications should be filed in the United States or in
Foreign countries.
9. The Company shall have the option of taking a permanent, royalty-free
license to manufacture, use, and sell any of the Inventions conceived or
discovered by Employee during the course of Employee's employment with the
Company, or within six (6) months thereafter, that are not assigned to the
Company under paragraph 7.
10. Attached hereto as Schedule 1 is a complete list of all patented and
unpatented Inventions conceived or discovered by Employee, either solely or
jointly with others, prior to the commencement of Employee's employment with
the Company and which are to be excluded from the provisions of this Agreement.
11. In the event that Employee conceives or discovers any Invention during
the course of Employee's employment with the Company, or within six (6) months
thereafter, which does not relate to, and is not useful in connection with, any
aspect of the business of the Company as carried on or contemplated at the time
the Invention is made or discovered, the Company shall, upon the written
request of Employee and within ninety (90) days of the receipt thereof, notify
Employee whether or not it desires to retain ownership of such invention. If
the Company elects not to retain such ownership, it shall accompany such notice
with a reassignment of its interest in such Invention to Employee. If, at any
time after the filing of a patent application for any such Invention, the
Company elects to retain only license rights therein, the Company shall convey
to Employee ownership therein subject to such license rights and shall
prosecute such application to final allowance or rejection.
12. Employee agrees to give an exit interview to the Company upon
termination of his employment for any reason. Employee further agrees that the
Company may notify anyone employing him or evidencing an intention to employ
him of the existence of this Agreement.
13. Upon the execution of this Agreement by Employee and the Company, any
and all previous agreements between Employee and the Company relating
specifically to the subject matter of this Agreement shall be null and void and
this Agreement shall constitute the sole agreement between the parties with
respect to the subject matter hereof.
14. This Agreement shall inure to the benefit of the Company and any
successors and assigns of the Company.
15. Any waiver of a right under this Agreement shall not be deemed or
interpreted as a waiver of any other rights under this Agreement.
2
<PAGE> 28
16. This Agreement does not and shall not be construed to create any
contract or term of employment or create any Employee rights regarding terms
and conditions of employment, and employee shall at all times remain and be
deemed an employee at will.
17. Any alteration, modification or waiver of any of the terms of this
Agreement must be made or approved by the Company in writing.
18. With respect to any provision of this Agreement finally determined by
a court of competent jurisdiction to be unenforceable, Employee acknowledges
and agrees that such court shall have jurisdiction to reform this Agreement so
that it is enforceable to the maximum extent permitted by law, and Employee and
the Company agree to abide by such court's determination. If such
unenforceable provision cannot be reformed, such provision shall be severed,
but every other provision of this Agreement shall remain in full force and
effect.
19. This Agreement shall be governed by and construed in accordance with
the laws of the State of Ohio.
IN WITNESS WHEREOF, this Agreement has been executed by Employee and on
behalf of The Standard Products Company, by its duly authorized officer, as of
the day and year first above written.
WITNESSES:EMPLOYEE:
/s/ Gloria J. Toth /s/ Ronald L. Roudebush
- --------------------------- ----------------------------
/s/ F. Sudres - Kovac
- ---------------------------
THE STANDARD PRODUCTS COMPANY
By: /s/ J. S. Reid, Jr.
----------------------------------
Title: Chairman and Chief Executive Officer
----------------------------------------
cc: Corporate Human Resources
3
<PAGE> 29
SCHEDULE 1
LIST OF INVENTIONS EXCLUDED FROM AGREEMENT
4
<PAGE> 1
EXHIBIT 10(t)
EMPLOYMENT AGREEMENT
Between
THE STANDARD PRODUCTS COMPANY
And
THEODORE K. ZAMPETIS
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Duties as President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Efforts of Executive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.03 Other Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
Term of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.01 Initial Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.02 Renewal Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.03 Failure to Renew . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.01 Base Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.02 Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE IV
Other Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.01 Incentive, Savings and Retirement Plans . . . . . . . . . . . . . . . . . . . . 3
4.02 Welfare Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.03 Fringe Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.04 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.05 Automobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.06 Office and Support Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.07 Vacation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE V
Termination of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.01 Termination of Employment for Cause or Other Than for Good Reason . . . . . . . 5
5.02 Termination of Employment During or at End of Initial Term . . . . . . . . . . . 5
5.03 Termination of Employment for Death or Disability . . . . . . . . . . . . . . . 6
5.04 Termination of Employment by the Company without Cause or by the
Executive for Good Reason During Renewal Term . . . . . . . . . . . . . . . . . 7
5.05 Other Termination Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI
Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.01 "Disability" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.02 "Cause" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.03 "Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.04 "Good Reason" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.05 "Date of Termination" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VII
Restrictive Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.01 Noncompetition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE VIII
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.01 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.02 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.03 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.04 Nonalienation of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.05 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.06 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.07 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.08 Full Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.09 Counterpart Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.11 Effect on Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.12 Filing with SEC/Shareholder Submission . . . . . . . . . . . . . . . . . . . . . 13
8.13 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.14 Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
ii
<PAGE> 4
EMPLOYMENT AGREEMENT
DRAFT-9/4/97
THIS AGREEMENT, dated as of the 1st day of September 1997, is made by
and between THE STANDARD PRODUCTS COMPANY, an Ohio corporation having its
principal place of business in Dearborn, Michigan (the "Company"), and THEODORE
K. ZAMPETIS, a resident of West Bloomfield, Michigan (the "Executive").
The Company desires to continue the services of the Executive, and the
Executive is willing to render such services, in accordance with the terms
hereinafter set forth.
Accordingly, the Company and the Executive agree as follows:
ARTICLE I
Duties
1.01 Duties as President. Executive is now the President and Chief
Operating Officer of the Company and is on its Board of Directors (the
"Board"). During the term of this Agreement, (as defined in Article II)
Executive shall continue to serve as President and Chief Operating Officer of
the Company and as a member of its Board. During the term of this Agreement
Executive's duties and the officers reporting to Executive will be determined
by the Chief Executive Officer after consultation with the Executive consistent
with the provisions of Section 6.04 of this Agreement.
1.02 Efforts of Executive. During the term of this Agreement, and
excluding any periods of vacation, sick leave or disability to which the
Executive is entitled, the Executive agrees to devote the Executive's full
attention and time to the business and affairs of the Company and to use the
Executive's best efforts to perform faithfully and efficiently the duties and
responsibilities of the Executive's position as described herein.
1.03 Other Activities. During the term of this Agreement, it shall
not be a violation of this Agreement for the Executive to (a) serve on
corporate, civic or charitable boards or committees, (b) deliver lectures,
fulfill speaking engagements or teach at educational institutions or (c) manage
personal investments so long as such activities do not significantly interfere
with the performance of the Executive's duties in accordance with this
Agreement. In the event Executive desires to join any additional corporate
for-profit board, he shall obtain the approval of the Compensation Committee.
<PAGE> 5
ARTICLE II
Term of Agreement
2.01 Initial Term. Subject to the termination provisions
hereinafter provided, the initial term of this Agreement shall be September 1,
1997 through August 31, 1999 (the "Initial Term").
2.02 Renewal Term. If, no less than sixty (60) days before the end
of the Initial Term, Executive and the Company mutually agree in writing to
continuation of this Agreement, then, subject to the termination provisions
hereinafter provided, the term ("Renewal Term") of this Agreement shall at all
times be three (3) years, that is, the term of this Agreement shall be
automatically extended each day for an additional day such that this Agreement
shall continually have an unexpired term of three (3) years until the date
three (3) years after the date written notice is provided by either the Company
or the Executive that this Agreement is not to be further extended or until the
date Executive reaches his Normal Retirement Date (as defined in the Company's
Salaried Employees' Retirement Plan), whichever shall first occur.
2.03 Failure to Renew. If at the end of the Initial Term the
parties do not mutually agree to its continuation, Executive shall have the
right to elect to terminate this Agreement and receive the benefits set forth
in paragraph 5.02 below.
ARTICLE III
Compensation
3.01 Base Salary. During the term of this Agreement, the Company
shall pay or cause to be paid to the Executive in cash, in accordance with the
normal payroll practices of the Company for senior executives, in installments
not less frequently than monthly, an annual base salary ("Annual Base Salary")
equal to no less than $440,000 each year. The Company may from time to time
increase the Executive's Annual Base Salary, provided that it shall not be
reduced after any such increase, and the term Annual Base Salary as used in
this Agreement shall refer to the Annual Base Salary as so increased.
3.02 Bonus. The Company shall continue to pay or cause to be paid
to the Executive the bonus ("Annual Bonus") to which he is entitled under the
Company's Officers' Incentive Bonus Plan as a senior executive officer of the
Company, subject to amendment of such Plan from time to time.
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<PAGE> 6
ARTICLE IV
Other Benefits
4.01 Incentive, Savings and Retirement Plans. In addition to
Annual Base Salary and Annual Bonus, the Executive shall be entitled to
participate in all incentive, savings and retirement plans, practices, policies
and programs applicable to other senior executives of the Company, as such
plans and programs may be amended from time to time, and in addition:
(a) Restricted Stock: Executive's Restricted Stock
Agreement dated December 9, 1991 shall be amended as set forth in
Exhibit A attached hereto so as to provide:
(i) that all previously earned Restricted Stock
will become immediately vested in the event
Executive's employment is terminated by the
Company without Cause or by the Executive for
Good Reason or if at the end of the Initial
Term the parties are unable mutually to agree
on its continuation into the Renewal Term,
and
(ii) that if Executive's Annual Base Salary is
continued pursuant to the provisions of
paragraph 5.02 or 5.04 below, Executive shall
be deemed to continue to be actively employed
and therefore eligible to earn Restricted
Stock for the period described in paragraph
5.02(b) in the event of termination during or
at the end of the Initial Term or for the
period described in paragraph 5.04(b) in the
event of termination during the Renewal Term,
and any Restricted Stock so earned shall
become immediately vested in Executive.
(b) Pension Benefits: In the event (i) this Agreement is
terminated as a consequence of Change in Control as defined under
Section 6.03 or (ii) Executive's Annual Base Salary is continued
pursuant to the provisions of paragraph 5.02 or 5.04 below, Executive
will receive additional service credit for purposes of computing his
retirement benefits under the Company's Salaried Employees' Pension
Plan ("Salaried Plan") as if he had continued to be actively employed
by the Company for the period described in paragraph 5.02(b) in the
event of termination during or at the end of the Initial Term or for
the period described in paragraph 5.04(b) in the event of termination
during the Renewal Term. The increased benefit, if any, attributable
to the additional service credit will be provided by the Company
through the Company's Supplemental Salaried Pension Plan
("Supplemental Plan") or a comparable, nonqualified
-3-
<PAGE> 7
employee benefit plan and shall be paid in the same manner as the
retirement benefit to which Executive is entitled under the Company's
Salaried Plan subject to any appropriate adjustments for form of
payments and the like. Under no circumstances shall any benefit
computed under this provision, or under the Supplemental Plan, use
more than the maximum number of years of service credit that can be
used under the Salaried Plan, and any supplemental benefit to which
Executive is otherwise entitled under this provision or the
Supplemental Plan shall only be payable if and when Executive is
entitled to and receives a retirement benefit under the Salaried Plan.
4.02 Welfare Benefits. During the period of his active employment
the Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company
(including, and without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, dependent life, accidental death
and travel accident insurance plans and programs) and applicable to other
senior executives of the Company, as such plans and programs may be amended
from time to time.
4.03 Fringe Benefits. During the period of his active employment
the Executive shall be entitled to other fringe benefits applicable to other
senior executives of the Company.
4.04 Expenses. During the period of his active employment the
Executive shall be entitled to receive prompt reimbursement for all reasonable
employment-related expenses incurred by the Executive upon the Company's
receipt of accountings in accordance with practices, policies and procedures
applicable to other senior executives of the Company.
4.05 Automobile. During the period of his active employment and in
accordance with its applicable policies, the Company shall furnish to the
Executive an automobile in accordance with the Company's current executive
plan.
4.06 Office and Support Staff. During the period of his active
employment the Executive shall be entitled to an office or offices of a size
and with furnishings and other appointments, and to personal secretarial and
other assistance provided with respect to other senior executives of the
Company but which is consistent with and appropriate to his position as
President and Chief Operating Officer.
4.07 Vacation. During the period of his active employment the
Executive shall be entitled to paid vacation time in accordance with the plans,
practices, policies, and programs applicable to other senior executives of the
Company and at the
-4-
<PAGE> 8
end of the period of Executive's active employment compensation for any
vacation earned, not taken and not compensated for, attributable to the year in
which that active employment ends.
ARTICLE V
Termination of Employment
5.01 Termination of Employment for Cause or Other Than for Good
Reason. If, before the end of the Initial or Renewal Term, the Company
terminates the Executive's employment for Cause or the Executive terminates
employment other than for Good Reason, then the Company shall pay to the
Executive in a lump sum immediately after the Date of Termination that portion
of the Executive's Annual Base Salary which is accrued but unpaid as of such
Date of Termination, but the Executive shall not be entitled to receive any
additional compensation or benefits under this Agreement. In the event that
the Executive so terminates the Executive's employment other than for Good
Reason, the Executive shall have no further obligation or liability under this
Agreement other than any obligation arising under any applicable provision of
Article VII.
5.02 Termination of Employment During or at End of Initial Term.
If (i) Executive's employment is terminated during the Initial Term without
Cause or by the Employee for Good Reason, or (ii) at the end of the Initial
Term the parties are unable mutually to agree on its continuation into the
Renewal Term, then Executive shall be entitled to the following:
(a) that portion of the Executive's Annual Base Salary
and any Annual Bonus which is accrued but unpaid as of the Date of
Termination,
(b) continuation of the Executive's Annual Base Salary as
follows:
(i) if the Executive's employment is terminated
during the Initial Term by the Company
without Cause or by the Executive for Good
Reason, Executive's Annual Base Salary shall
continue for the period beginning on the Date
of Termination and ending on the last day of
the Initial Term, plus a period of one (1)
month (counting from the Date of Termination)
for each year or partial year of service with
the Company, payable no less frequently than
monthly in accordance with the Company's
normal payroll policy for senior executives,
or
(ii) if at the end of the Initial Term the parties
are unable mutually to agree on its
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<PAGE> 9
continuation into the Renewal Term,
Executive's Annual Base Salary shall continue
for a term of one (1) month (counting from
the Date of Termination) for each year or
partial year of service with the Company,
payable no less frequently than monthly in
accordance with the Company's normal payroll
policy for senior executives.
(c) the Executive's pro rata bonus ("Pro Rata Bonus") for
any fiscal year that has not ended prior to the Date of Termination
("Termination Performance Period"), which shall be equal to the
product of the Annual Bonus for the fiscal year immediately preceding
the Date of Termination multiplied by a fraction, the numerator of
which is the number of days in the Termination Performance Period
which elapsed prior to the Date of Termination, and the denominator of
which is the total number of days in the Termination Performance
Period,
(d) the early vesting of Restricted Stock as provided in
Exhibit A, and
(e) additional service credit for purposes of computing
Executive's retirement benefit under the Company's Salaried Plan for
the period specified in paragraph 4.01(b) in the event of termination
for the reasons there stated and for the period described in
subparagraph (b) (ii) above if at the end of the Initial Term the
parties are unable mutually to agree on its continuation into the
Renewal Term, to be implemented in the manner described in paragraph
4.01(b) above.
In addition, Executive and his family shall be entitled to
continuation of his medical benefits for an additional year after the Date of
Termination, provided that the amount of such benefits shall be reduced or
eliminated to the extent the Executive becomes entitled to duplicative benefits
by virtue of his subsequent employment after the Date of Termination.
5.03 Termination of Employment for Death or Disability. If, before
the end of the Initial or Renewal Term, the Executive's employment terminates
due to death or Disability, the Company shall pay to the Executive (or to the
Executive's Beneficiary, as defined in Section 8.03) in a lump sum immediately
after the Date of Termination an amount which is equal to the sum of the
following:
(a) that portion of the Executive's Annual Base Salary
and any annual bonus which is accrued but unpaid as of the Date of
Termination,
-6-
<PAGE> 10
(b) an amount equal to the discounted value (using a
discount rate of 7 3/4%) of three (3) times the Executive's Annual
Base Salary, and
(c) the Executive's Pro Rata Bonus for the Termination
Performance Period calculated in accordance with Section 5.02(c).
5.04 Termination of Employment by the Company without Cause or by
the Executive for Good Reason During Renewal Term. If, before the end of the
Renewal Term, the Executive's employment is terminated by the Company without
Cause or by the Executive for Good Reason, the Executive shall receive the
following:
(a) that portion of the Executive's Annual Base Salary
and any Annual Bonus which is accrued but unpaid as of the Date of
Termination,
(b) the amount of the Executive's Annual Base Salary for
the period beginning on the Date of Termination and ending on the last
day of the Renewal Term, payable no less frequently than monthly in
accordance with the Company's normal payroll policy for senior
executives,
(c) the Executive's Pro Rata Bonus for the Termination
Performance Period calculated in accordance with Section 5.02(c),
(d) the early vesting of Restricted Stock as provided in
Exhibit A, and
(e) additional service credit for purposes of computing
Executive's retirement benefit as provided in paragraph 4.01(b) above.
In addition, Executive and his family shall be entitled to
continuation of his medical benefits during the remainder of the Renewal Term,
provided that the amount of such benefits shall be reduced or eliminated to the
extent the Executive becomes entitled to duplicative benefits by virtue of his
subsequent employment after the Date of Termination.
Provided, however, that if the Date of Termination is at a time in
which the Executive's normal retirement date would be reached in less than
three (3) years, the benefits provided in this Section 5.04 shall nevertheless
cease on the Executive's normal retirement date.
5.05 Other Termination Benefits. In addition to any amounts or
benefits payable upon termination of employment hereunder and except as
otherwise provided herein, the Executive shall be entitled to any payments or
benefits required by applicable law or expressly provided under the terms of
any loan, policy or
-7-
<PAGE> 11
program of the Company as the same may exist on the Date of Termination not
specifically addressed in this Agreement.
ARTICLE VI
Certain Definitions
6.01 "Disability" means any medically determinable physical or
mental impairment that can be expected to last for a continuous period of not
less than six (6) months, and that renders the Executive unable to perform the
duties required under this Agreement. The date of the determination of
Disability is the date on which the Executive is certified as having incurred a
Disability by a physician mutually acceptable to the Company and the Executive.
6.02 "Cause" means (a) the Executive's conviction of or plea of
guilty or nolo contendere to any felony or other crime involving dishonesty or
moral turpitude; (b) any serious misconduct in the course of the Executive's
employment; or (c) the Executive's habitual neglect of the Executive's duties
(other than on account of Disability) or the violation of a material Company
policy after notice thereof, except that Cause shall not mean:
(1) an isolated instance or isolated instances of
bad judgment or negligence;
(2) any act or omission believed by the Executive
in good faith to have been in or not opposed to the interest
of the Company (without intent of the Executive to gain
therefrom, directly or indirectly, a profit to which the
Executive was not legally entitled);
(3) any act or omission with respect to which a
determination could properly have been made by the Board that
the Executive met the applicable standard of conduct for
indemnification or reimbursement under the Code of Regulations
of the Company, any applicable indemnification agreement or
the laws and regulations under which the Company is governed,
in each case in effect at the time of such act or omission; or
(4) any act or omission which occurred, and was
also widely known among the senior executives of the Company to
have occurred, more than twelve months before the Date of
Termination.
6.03 "Change in Control" means the occurrence of any of the
following events:
-8-
<PAGE> 12
(1) When any "person" as defined in Section 3(a)(9) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")
and as used in Sections 13(d) and 14(d) thereof, including a "group"
as defined in Section 13(d) of the Exchange Act, but excluding the
Company and any Subsidiary and any employee benefit plan sponsored or
maintained by the Company or any Subsidiary (including any trustee of
such plan acting as trustee), directly or indirectly, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act,
as amended from time to time), of securities of the Company
representing 20 percent or more of the combined voting power of the
Company's then outstanding capital stock; provided, however, that with
respect to any director who on the effective date of this Agreement is
the beneficial owner or has the right to acquire 5% or more of such
capital stock outstanding on such effective date, capital stock so
owned or acquired pursuant to any such options shall not be counted in
determining such 20% or more combined voting power;
(2) When, during any period of 24 consecutive months
during the existence of this Agreement, the individuals who, at the
beginning of such period, constitute the Board of Directors of the
Company (the "Incumbent Directors") cease for any reason other than
death to constitute at least a majority thereof; provided, however,
that a director who was not a director at the beginning of such 24-
month period shall be deemed to have satisfied such 24-month
requirement (and be an Incumbent Director) if such director was
elected by, or on the recommendation of or with the approval of, at
least two-thirds of the directors who then qualified as Incumbent
Directors either actually (because they were directors at the
beginning of such 24-month period) or by prior operation of this
Section 6.03 (2); or
(3) The completion of a transaction requiring shareholder
approval for the acquisition of the Company by an entity other than
the Company or a Subsidiary through purchase of assets or otherwise or
any merger of the Company with or into another company (unless the
persons who were shareholders of the Company immediately prior to such
transaction own more than 70% of the voting stock and value of the
surviving company immediately following such merger in substantially
the same proportions as they owned immediately prior to the merger).
Provided, however, that if Executive, in his individual capacity, is a party to
an agreement under which Executive agrees to the consummation of a transaction
which is a Change of Control as described in subparagraphs (1) or (3) above and
if Executive pursuant to that agreement becomes an equity holder in the Company
or any entity which acquires the Company, then notwithstanding the foregoing
provisions of Section 6.03 of this
-9-
<PAGE> 13
Agreement, unless the Company and Executive shall in writing otherwise agree,
such transaction shall not be deemed to be a Change of Control.
6.04 "Good Reason" means the occurrence of any one of the following
events:
(a) the failure of the shareholders of the Company to
reelect the Executive as a member of the Board or the failure of the
directors to reelect the Executive as President or Chief Operating
Officer,
(b) a change in the duties of Executive or personnel
reporting to Executive materially and adversely inconsistent with or
inappropriate to the Executive's position as specified in Article I
hereof or as subsequently agreed by Executive, including status,
offices, or responsibilities as contemplated under Article I of this
Agreement or any other action by the Company which results in a
material and adverse change in such position, status, offices, titles
or responsibilities made without Executive's advice and consent,
(c) the failure of the Company to assign this Agreement
to a successor to the Company,
(d) any failure by the Company to comply with any
material provision of this Agreement, or
(e) change in the principal location at which the
Executive is to perform his duties to a location more than fifty (50)
miles from the City of Detroit without the Executive's consent,
if the Company fails to cure such event within 30 days after written notice
from the Executive; provided, however, that if the event is knowing or
repeated, the Executive shall not be required to provide written notice or an
opportunity to cure.
Notwithstanding any other provision in this Section 6.04, the
Executive shall have Good Reason to terminate employment with the Company for
any or no reason during the six-month period following the date on which a
Change in Control occurs, unless the Executive in writing waives such right.
6.05 "Date of Termination" means the date as of which the
Executive's active employment with the Company is terminated by the Company or
by the Executive for any reason including, but not limited to, death or
Disability.
-10-
<PAGE> 14
ARTICLE VII
Restrictive Covenants
7.01 Noncompetition Agreement. Executive agrees to execute at the
time of execution of this Agreement the Company's Noncompetition, Nondisclosure
and Patent Assignment Agreement attached hereto as Exhibit B. Notwithstanding
any provisions of Exhibit B, Executive acknowledges and agrees that he will
continue to be bound by that Agreement for one (1) year after the date he
ceases receiving payments of Annual Base Salary pursuant to this Agreement.
ARTICLE VIII
Miscellaneous
8.01 Expenses.
(a) If the Executive incurs reasonable legal or other
fees and expenses in an effort to establish entitlement to benefits under this
Agreement, unless a court of competent jurisdiction determines that such effort
was brought without a reasonable basis or has been conducted in bad faith, the
Company shall reimburse the Executive for such reasonable fees and expenses.
(b) The Company shall provide reimbursement of reasonable
fees and expenses, as described in paragraph (a) above, to the Executive on a
monthly basis upon the Executive's written submission of a request for
reimbursement together with proof that the fees and expenses were incurred.
8.02 Successors. This Agreement shall be binding upon and
inure to the benefit of the Executive and the Executive's estate and shall be
binding on the Company or any successor to the Company.
8.03 Beneficiary. If the Executive dies prior to receiving all of
the salary and bonus and any other amounts payable hereunder, such salary,
bonus and other amounts shall be paid in a lump sum payment to the beneficiary
designated in writing by the Executive ("Beneficiary") and if no such
Beneficiary is designated, to the Executive's estate.
8.04 Nonalienation of Benefits. Benefits payable under this
Agreement shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, charge, garnishment, execution or
levy of any kind, either voluntary or involuntary, prior to actually being
received by the Executive, and, except as provided in Section 8.03, any such
-11-
<PAGE> 15
attempt to dispose of any right to benefits payable hereunder shall be void.
8.05 Severability. If all or any part of this Agreement is
declared by any court or governmental authority to be unlawful or invalid, such
unlawfulness or invalidity shall not serve to invalidate any portion of this
Agreement not declared to be unlawful or invalid. Any paragraph or part of a
paragraph so declared to be unlawful or invalid shall, if possible, be
construed in a manner which will give effect to the terms of such paragraph or
part of a paragraph to the fullest extent possible while remaining lawful and
valid.
8.06 Amendment and Waiver. This Agreement shall not be altered,
amended or modified except by written instrument executed by the Company and
Executive. A waiver of any term, covenant, agreement or condition contained in
this Agreement shall not be deemed a waiver of any other term, covenant,
agreement or condition, and any waiver of any default in any such term,
covenant, agreement or condition shall not be deemed a waiver of any later
default thereof or of any other term, covenant, agreement or condition.
8.07 Notices. All notices and other communications hereunder shall
be in writing and delivered by hand or by first class registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company: The Standard Products Company
2401 South Gulley Road
Dearborn, Michigan 48124
Attn: Vice President, Finance
and
Baker & Hostetler LLP
3200 National City Center
1900 East 9th Street
Cleveland, Ohio 44114
Attn: John D. Drinko
If to the Executive: Mr. Theodore K. Zampetis
4525 Strandwyck Road
W. Bloomfield, Michigan 48322-2233
with a copy to: Dickinson, Wright, Moon, Van Dusen
& Freeman
500 Woodward Ave., Suite 4000
Detroit, Michigan 48226-3425
Attn: Patrick J. Ledwidge
-12-
<PAGE> 16
Either party may from time to time designate a new address by notice given in
accordance with this Section. Notice and communications shall be effective
when actually received by the addressee.
8.08 Full Settlement. In no event shall the Executive be obligated
to seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement,
nor shall the amount of any payment hereunder be reduced, except as otherwise
specifically provided herein, by any compensation earned by the Executive as a
result of employment by another employer.
8.09 Counterpart Originals. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original but all
of which together will constitute one and the same instrument.
8.10 Entire Agreement. This Agreement forms the entire agreement
between the parties hereto with respect to any severance payment and with
respect to the subject matter contained in the Agreement.
8.11 Effect on Other Agreements. This Agreement shall supersede
all prior agreements, promises and representations regarding severance or other
payments contingent upon termination of employment.
8.12 Filing with SEC/Shareholder Submission. Executive
acknowledges that the Company expects to file this Agreement as an exhibit to
one of the Company's periodic filings with the Securities and Exchange
Commission, and Executive consents to such action.
8.13 Applicable Law. The provisions of this Agreement shall be
interpreted and construed in accordance with the laws of the State of Ohio,
without regard to its choice of law principles.
-13-
<PAGE> 17
8.14 Legal Fees. The Company agrees to pay Executive's reasonable
legal fees in connection with this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
THE STANDARD PRODUCTS COMPANY
By: /s/ Ronald L. Roudebush
-------------------------------
Ronald L. Roudebush
Chief Executive Officer
EXECUTIVE
/s/ Theodore K. Zampetis
----------------------------------
Theodore K. Zampetis
-14-
<PAGE> 18
EXHIBIT A
9/4/97
AMENDMENT TO RESTRICTED STOCK AGREEMENT
This Amendment to the Restricted Stock Agreement (the "Agreement") dated
December 9, 1991, by and between THE STANDARD PRODUCTS COMPANY (the "Company")
and THEODORE K. ZAMPETIS (the "Executive") is made in connection with the
execution of an Employment Agreement between the Company and the Executive
dated September 1, 1997. The Company and Executive agree that:
1. The Agreement is hereby amended by adding the
following to paragraph 2:
In the event:
(i) the employment of the Executive is terminated by the Company without
"Cause" or by Executive for "Good Reason," as those terms are defined
in the Employment Agreement between the Company and the Executive
dated September 1, 1997 (the "Employment Agreement"), or
(ii) at the end of the Initial Term of the Employment Agreement the parties
are unable mutually to agree on its continuation into the Renewal
Term,
all earned but unvested common shares shall immediately vest. In addition,
if Executive's Annual Base Salary is continued pursuant to the provisions of
paragraph 5.02 or 5.04 of the Employment Agreement, Executive shall be
deemed to continue to be actively employed and therefore eligible to earn
Restricted Stock for the period described in paragraph 5.02(b) in the event
of termination during or at the end of the Initial Term or for the period
described in paragraph 5.04(b) in the event of termination during the
Renewal Term, and any Restricted Stock so earned shall become immediately
vested in Executive.
2. In all other respects, said Agreement remains unchanged and in full
force and effect.
Executed effective September 1, 1997.
THE STANDARD PRODUCTS COMPANY
By /s/ Ronald L. Roudebush
-----------------------------------
Ronald L. Roudebush
Chief Executive Officer
By /s/ Theodore K. Zampetis
-----------------------------------
Theodore K. Zampetis
<PAGE> 19
EXHIBIT B
Revised New Hire: April 17, 1997
THE STANDARD PRODUCTS COMPANY
NONCOMPETITION, NONDISCLOSURE AND
PATENT ASSIGNMENT AGREEMENT
This Noncompetition, Nondisclosure and Patent Assignment Agreement (this
"Agreement") is entered into this 1st day of September, 1997, by and between
Ted Zampetis ("Employee") and The Standard Products Company, an Ohio
corporation.
WHEREAS, during the course of Employee's employment with the Company,
Employee may gain access to or knowledge of, or work on the development or
creation of, confidential and proprietary information, including: (a) supplier
and customer lists and supplier and customer-specific information; (b)
marketing plans and proposals; (c) product and process designs, formulas,
processes, plans, drawings and concepts; (d) research and development data and
materials, including those relating to the research and development of
products, materials or manufacturing and other processes; (e) financial and
accounting records; and (f) other information with respect to the Company which
if divulged to the Company's competitors would impair the Company's ability to
compete in the marketplace (such information is collectively referred to as
"Proprietary Information"); and
WHEREAS, the Company is now selling products throughout the United States
and in Brazil, Canada, France, Germany, Italy, Korea, Mexico, Spain, Sweden,
the United Kingdom and other members of the European Economic Community (such
countries, together with any other countries in which the Company is currently
conducting, or conducts business at any time during the course of Employee's
employment with the Company, are hereinafter collectively referred to as the
"Foreign countries");
NOW, THEREFORE, in consideration of Employee's employment with the
Company, the salary or wages to be paid and benefits to be provided by the
Company, and other consideration, the sufficiency of which is hereby expressly
acknowledged, Employee agrees as follows:
1. During the term of Employee's employment with the Company and for a
period of twelve (12) months after termination of Employee's employment with
the Company for any reason, or for such shorter period as the Company may agree
in writing, Employee shall not directly or indirectly engage in any activity,
whether on Employee's own behalf or as an employee, consultant or independent
contractor of any other person or entity which competes with the Company within
the United States or any of the Foreign countries, for the development,
production or sale of any product, material or process to be sold, produced or
used by the Company during the course of Employee's employment with the
Company, including any product, material or process which may be under
development by the Company during the course of Employee's employment with the
Company and of which Employee has, or hereafter gains, knowledge.
2. The noncompetition covenant set forth above will not impose undue
hardship on Employee and is reasonable in both geographic scope and duration in
view of: (a) the Company's legitimate interest in protecting its Proprietary
Information, the disclosure of which to the Company's competitors would
substantially and unfairly impair the Company's ability to compete in the
marketplace or substantially and unfairly benefit the Company's competitors;
(b) the specialized training to be provided to Employee by the Company and the
experience to be gained by Employee during the course of Employee's employment
with the Company; (c) the fact that the services to be rendered by Employee on
behalf of the Company will be specialized, unique and extraordinary; (d) the
fact that the Company directly competes within the United States and the
Foreign countries in the sale, production and development of products,
materials or processes; and (e) the consideration provided by the Company.
3. Employee shall not disclose or divulge Proprietary Information to any
person or entity at any time during the course of Employee's employment with
the Company or at any time thereafter, except as may be required in the
ordinary course and good-faith performance of Employee's employment with the
Company. At the time of termination of Employee's employment with the Company
for any reason, or at such time as the Company may request, Employee shall
promptly deliver or return, without retaining any copies, all Proprietary
Information in Employee's possession or control, whether in the form of
computer-generated documents or otherwise, and, pursuant to the Company's
instructions, shall erase, destroy or return all stored data, whether stored on
computer or otherwise, and shall not attempt to use or restore any such data.
1
<PAGE> 20
4. During the term of Employee's employment with the Company and for a
period of twenty-four (24) months after termination of the Employee's
employment with the Company for any reason, Employee will not employ, hire,
solicit, induce or identify for employment or attempt to employ, hire, solicit,
induce or identify for employment, directly or indirectly, any employee(s) of
the Company to leave his or her employment and become an employee, consultant
or representative of any other entity, including but not limited to Employee's
new employer, if any.
5. The noncompetition and nondisclosure covenants set forth above are of a
special, unique, extraordinary and intellectual character, which gives them a
peculiar value, the loss of which cannot be reasonably or adequately
compensated for in damages in an action at law. A breach by Employee of this
Agreement will cause the Company great and irreparable injury and damage.
Therefore, the Company shall be entitled to the remedies of injunction,
specific performance and other equitable relief to prevent a breach of this
Agreement by Employee. This paragraph shall not, however, be construed as a
waiver of any of the rights which the Company may have for damages or
otherwise.
6. Employee shall promptly and fully disclose in writing to the Company
any inventions, improvements, discoveries, operating techniques, or "know-how",
whether patentable or not (hereinafter referred to as the "Inventions"),
conceived or discovered by Employee, either solely or jointly with others,
during the course of Employee's employment with the Company, or within six (6)
months thereafter.
7. Employee shall on the request of the Company, and hereby does, assign
to the Company all of Employee's right, title and interest in any of the
Inventions which relate to, or are useful in connection with, any aspect of the
business of the Company as carried on or contemplated at the time the Invention
is made, whether or not Employee's duties are directly related thereto, and the
Company shall be the sole and absolute owner of any of the Inventions so
assigned; Employee shall perform any further acts or execute any papers at the
expense of the Company which it may consider necessary to secure for the
Company or its successors or assigns any and all rights relating to the
Inventions, including patents in the United States and Foreign countries.
8. The Company shall be the sole judge as to whether the Inventions are
related to or useful in connection with any aspect of the business of the
Company as carried on or contemplated at the time the Invention is made and as
to whether patent applications should be filed in the United States or in
Foreign countries.
9. The Company shall have the option of taking a permanent, royalty-free
license to manufacture, use, and sell any of the Inventions conceived or
discovered by Employee during the course of Employee's employment with the
Company, or within six (6) months thereafter, that are not assigned to the
Company under paragraph 7.
10. Attached hereto as Schedule 1 is a complete list of all patented and
unpatented Inventions conceived or discovered by Employee, either solely or
jointly with others, prior to the commencement of Employee's employment with
the Company and which are to be excluded from the provisions of this Agreement.
11. In the event that Employee conceives or discovers any Invention during
the course of Employee's employment with the Company, or within six (6) months
thereafter, which does not relate to, and is not useful in connection with, any
aspect of the business of the Company as carried on or contemplated at the time
the Invention is made or discovered, the Company shall, upon the written
request of Employee and within ninety (90) days of the receipt thereof, notify
Employee whether or not it desires to retain ownership of such invention. If
the Company elects not to retain such ownership, it shall accompany such notice
with a reassignment of its interest in such Invention to Employee. If, at any
time after the filing of a patent application for any such Invention, the
Company elects to retain only license rights therein, the Company shall convey
to Employee ownership therein subject to such license rights and shall
prosecute such application to final allowance or rejection.
12. Employee agrees to give an exit interview to the Company upon
termination of his employment for any reason. Employee further agrees that the
Company may notify anyone employing him or evidencing an intention to employ
him of the existence of this Agreement.
13. Upon the execution of this Agreement by Employee and the Company, any
and all previous agreements between Employee and the Company relating
specifically to the subject matter of this Agreement shall be null and void and
this Agreement shall constitute the sole agreement between the parties with
respect to the subject matter hereof.
14. This Agreement shall inure to the benefit of the Company and any
successors and assigns of the Company.
15. Any waiver of a right under this Agreement shall not be deemed or
interpreted as a waiver of any other rights under this Agreement.
2
<PAGE> 21
17. Any alteration, modification or waiver of any of the terms of this
Agreement must be made or approved by the Company in writing.
18. With respect to any provision of this Agreement finally determined by
a court of competent jurisdiction to be unenforceable, Employee acknowledges
and agrees that such court shall have jurisdiction to reform this Agreement so
that it is enforceable to the maximum extent permitted by law, and Employee and
the Company agree to abide by such court's determination. If such
unenforceable provision cannot be reformed, such provision shall be severed,
but every other provision of this Agreement shall remain in full force and
effect.
19. This Agreement shall be governed by and construed in accordance with
the laws of the State of Ohio.
IN WITNESS WHEREOF, this Agreement has been executed by Employee and on
behalf of The Standard Products Company, by its duly authorized officer, as of
the day and year first above written.
WITNESSES:EMPLOYEE:
/s/ Carol Dwyer /s/ Theodore K. Zampetis
- --------------------------- ----------------------------
/s/ Gloria Toth
- ---------------------------
THE STANDARD PRODUCTS COMPANY
By: /s/ Ronald L. Roudebush
----------------------------------
Title: VICE CHAIRMAN & CEO
----------------------------------------
cc: Corporate Human Resources
3
<PAGE> 22
SCHEDULE 1
LIST OF INVENTIONS EXCLUDED FROM AGREEMENT
4
<PAGE> 1
EXHIBIT 10(u)
THE STANDARD PRODUCTS COMPANY
RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement (this "Agreement"), is made as of this
1st day of July, 1997, by and between The Standard Products Company, an Ohio
corporation (the "Company"), and James S. Reid, Jr. ("Executive") under The
Standard Products Company 1991 Restricted Plan (the "Plan"):
1. The Company hereby awards to Executive Twelve Thousand Five Hundred
(12,500) Common Shares, $1.00 par value, of the Company ("Common Shares"), in
all respects subject to the terms, conditions and provisions of this Agreement
and the Plan, a copy of which is attached to this Agreement and incorporated
herein by reference.
2. Common Shares awarded to Executive hereunder are subject to
restriction and may not be sold, transferred or otherwise assigned until such
shares have vested in accordance with paragraph 3 hereof. Notwithstanding the
foregoing, however, Common Shares immediately vest in Executive upon a Change
in Control of the Company (as defined in the Plan). In the event of Executive's
death or disability all unvested Common Shares shall vest in Executive or his
designated beneficiary, as the case may be.
3. Subject to earlier vesting pursuant to the provisions of paragraph
2, the Common Shares awarded hereunder shall become vested in Executive on July
1, 1999 or upon Executive's retirement as Chairman of the Board of the Company,
whichever first occurs.
4. Common Shares awarded hereunder shall be issued in the name of
Executive, and the Company's transfer agent will show Executive as the owner of
record of such Common Shares. Executive will have all rights of a shareholder
with respect to awarded Common Shares, including the right to vote such shares,
subject to the limitations imposed by this Agreement and the Plan. The
certificates representing awarded Common Shares shall not be delivered to
Executive until such Common Shares become vested. If Executive shall
voluntarily cease to be an employee of the Company prior to vesting of Common
Shares (other than by reason of retirement as Chairman of the Company)
Executive shall forfeit to the Company all Common Shares not then vested in
Executive. In this regard, simultaneously with the issuance of certificates
representing awarded Common Shares, Executive shall execute and deliver stock
powers forfeiting to the Company Common Shares awarded hereunder but not
vested in the event Executive voluntarily ceases to be an employee of the
Company prior to any vesting date. Executive acknowledges that Common Shares
awarded hereunder shall be subject to the restrictions and risks of forfeiture
contained herein and in Section 8 of the Plan.
5. Executive hereby agrees that he shall pay to the Company, in cash,
any federal, state or local taxes of any kind required by law to be withheld
with respect to the Common Shares awarded to him hereunder. If Executive does
not make such payment to the Company, the Company shall have the right to
deduct from any payment of any kind otherwise due to Executive from the Company
(or from any subsidiary of the Company), any
<PAGE> 2
federal, state or local taxes of any kind required by law to be withheld with
respect to Common Shares awarded to Executive under this Agreement.
6. Executive represents that Common Shares awarded hereunder are being
acquired by Executive not with a view toward resale or distribution and
Executive will not sell or otherwise transfer such Common Shares except in
compliance with the Securities Act of 1933 and the rules and regulations
promulgated thereunder. Executive hereby acknowledges that Common Shares
awarded hereunder shall bear legends and statements evidencing such
restrictions and other restrictions contained in Section 8 of the Plan.
THE STANDARD PRODUCTS COMPANY
By Donald R. Sheley, Jr.
------------------------------------------------------
Title Vice President, Finance and Chief Financial Officer
---------------------------------------------------
Date July 1, 1997
Executive acknowledges receipt of the Plan, a copy of which is attached
hereto, and represents that he is familiar with the terms and provisions
thereof, and hereby agrees that Common Shares granted under this Agreement are
subject to all terms and provisions of this Agreement. Executive hereby agrees
to accept as binding, conclusive and firm all decisions and interpretations of
the Salary and Stock Option Committee of the Board of Directors of the Company.
EXECUTIVE
James S. Reid, Jr.
----------------------------------------------------------
Date July 1, 1997
<PAGE> 1
PROXY STATEMENT
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION
AND ANALYSIS
1997 CONSOLIDATED
[THE STANDARD PRODUCTS COMPANY LOGO] FINANCIAL STATEMENTS
AND NOTES
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------
Notice is hereby given that the annual meeting of shareholders of The
Standard Products Company, an Ohio corporation (the "Company"), will be held at
the Company's Reid Division offices located at 2130 West 110th Street,
Cleveland, Ohio 44102, on Tuesday, October 21, 1997, at 9:00 a.m., Cleveland
time, for the following purposes:
1. To receive reports at the meeting. No action constituting approval
or disapproval of the matters referred to in said reports is contemplated.
2. To elect five directors, each to serve for a term of three years.
3. To consider a proposal to approve the Company's 1997 Employee Stock
Option Plan and to reserve 350,000 authorized but unissued Common Shares,
$1 par value, for purposes of such plan.
4. To consider a proposal to approve the Company's 1997 Restricted
Stock Plan and to reserve 150,000 authorized but unissued Common Shares, $1
par value, for purposes of such plan.
5. To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on September 8, 1997,
will be entitled to notice of and to vote at said meeting or any adjournment
thereof. Shareholders are urged to complete, date and sign the enclosed proxy
and return it in the enclosed envelope.
By order of the Board of Directors,
Richard N. Jacobson
RICHARD N. JACOBSON
General Counsel and Secretary
Dated: September 16, 1997
<PAGE> 2
THE STANDARD PRODUCTS COMPANY
PROXY STATEMENT
------------------
This proxy statement is furnished in connection with the solicitation of
proxies to be used at the annual meeting of shareholders of The Standard
Products Company, an Ohio corporation (the "Company"), to be held at the
Company's Reid Division offices located at 2130 West 110th Street, Cleveland,
Ohio 44102, on Tuesday, October 21, 1997 at 9:00 a.m., Cleveland time. This
proxy statement and the accompanying notice and proxy will first be sent to
shareholders by mail on or about September 16, 1997.
Annual Report. A copy of the Company's Summary Annual Report to
Shareholders for the fiscal year ended June 30, 1997 is enclosed with this proxy
statement. The Company's audited consolidated financial statements and certain
other financial information for its fiscal year ended June 30, 1997, are
included as pages F-1 to F-22, inclusive, annexed to this proxy statement.
Solicitation and Revocation of Proxies. This solicitation of proxies is
made by and on behalf of the Board of Directors. The cost of the solicitation of
proxies will be borne by the Company. The Company has retained Georgeson &
Company, at an estimated cost of $8,500 plus reimbursement of expenses, to
assist in the solicitation of proxies from brokers, nominees, institutions and
individuals. In addition to solicitation of proxies by mail, Georgeson & Company
and regular employees of the Company may solicit proxies by telephone or
facsimile.
If the enclosed proxy is returned, the shares represented thereby will be
voted in accordance with any specifications made therein by the shareholder. In
the absence of any such specifications, they will be voted to elect the
directors set forth under "Election of Directors" below and FOR Proposal One and
Proposal Two set forth herein. A shareholder's presence alone at the meeting
will not operate to revoke his or her proxy. The proxy is revocable by a
shareholder at any time insofar as it has not been exercised by giving notice to
the Company in writing at its address indicated above or in open meeting.
Outstanding Shares. The close of business on September 8, 1997 has been
fixed as the record date for the determination of shareholders entitled to
notice of and to vote at the meeting. On such date, the Company's voting
securities outstanding consisted of 16,846,738 Common Shares, $1 par value, each
of which is entitled to one vote at the meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to persons
known to management to be the beneficial owners as of June 30, 1997, of more
than five percent of the Company's Common Shares:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------------------------ -------------------- --------
<S> <C> <C>
James S. Reid, Jr.(1)....................................... 1,333,393(2) 7.9%
2401 South Gulley Road
Dearborn, MI 48124
The Capital Group Companies, Inc............................ 1,138,600(3) 6.8%
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
- -------------------------
(1) Mr. Reid is Chairman of the Board of Directors of the Company and was its
Chief Executive Officer until July 24, 1997.
(2) Includes 846,814 shares owned by Mr. Reid (which amount includes 6,591
restricted shares earned in fiscal 1996 but subject to forfeiture); 139,196
shares owned by his wife, Donna S. Reid; 10,220 shares
1
<PAGE> 3
which Mr. Reid has the right to acquire pursuant to stock options currently
exercisable or exercisable within 60 days; 71,987 shares held by a life
trust in which Mr. Reid has a remainder interest; 1,636 shares held for his
account under the Company's Employee Stock Purchase Plan and 14,109 shares
held for his account under the Company's Individual Retirement and
Investment Trust Plan; and 249,431 shares held by The Standard Products
Foundation, of which Mr. Reid is President and a trustee. The number of
shares shown above does not include shares owned by Mr. Reid's children or
grandchildren, and 210,345 shares held by two trusts as to which Mr. Reid is
an income beneficiary and John D. Drinko, a member of the Board of Directors
is trust advisor, which shares are included in the number of shares reported
by Mr. Drinko. The number shown also does not include 12,500 restricted
shares awarded to Mr. Reid effective July 1, 1997.
(3) The information contained herein is based upon a Schedule 13G filing made by
The Capital Group Companies, Inc. ("Capital Group"), for its fiscal year
ended December 31, 1996. Capital Group is the parent holding company of a
group of investment management companies that hold sole dispositive power
over 1,138,600 Common Shares and sole voting power over 611,000 Common
Shares. No dispositive or voting power is shared with respect to any Common
Shares. Capital Group has disclaimed beneficial ownership of such
securities; however, it may be deemed to "beneficially own" such securities
by virtue of Rule 13d-3 under the Securities Exchange Act of 1934.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of Common Shares of the Company as of June 30, 1997, by (a)
the Company's directors (including nominees for director); (b) the Company's
Chief Executive Officer during fiscal 1997 and the other four most highly
compensated executive officers named in the Summary Compensation Table; and (c)
the Company's executive officers and directors as a group. Except as otherwise
described in the notes below, the following beneficial owners have sole voting
power and sole investment power with respect to all Common Shares set forth
opposite their names.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
------------------------ ------------------ --------
<S> <C> <C>
James S. Reid, Jr........................................... 1,333,393(1) 7.9%
John D. Drinko.............................................. 787,035(2) 4.7%
John D. Sigel............................................... 303,540(3) 1.8%
Leigh H. Perkins............................................ 243,772(4) 1.4%
Theodore K. Zampetis........................................ 169,653(5) 1.0
Malcolm R. Myers............................................ 87,125(6) (7)
Curtis E. Moll.............................................. 52,185(8) (7)
Alan E. Riedel.............................................. 25,012 (7)
W. Hayden Thompson.......................................... 20,000 (7)
John Doddridge.............................................. 10,000 (7)
Edward B. Brandon........................................... 6,000(9) (7)
Alfred M. Rankin, Jr........................................ 2,500 (7)
James C. Baillie............................................ 2,000 (7)
James F. Keys............................................... 40,048(10) (7)
Donald R. Sheley, Jr........................................ 6,334(11) (7)
Gerard Mesnel............................................... 12,037(12) (7)
Ronald L. Roudebush......................................... (13) (7)
All Executive Officers and Directors as a Group............. 3,184,825 18.9%
</TABLE>
- -------------------------
(1) A description of the Common Shares beneficially owned by Mr. Reid is set
forth in Note 2 under "Security Ownership of Certain Beneficial Owners"
above.
(2) Includes 47,010 shares owned by Mr. Drinko; 22,143 shares held in an
individual retirement account of which Mr. Drinko is the beneficiary;
36,175 shares owned by his wife, Elizabeth G. Drinko; 1,000 shares
2
<PAGE> 4
held in a trust account of which Mrs. Drinko is the beneficiary; 165,076
shares owned by a corporation of which Mr. Drinko is a shareholder, officer
and director; 51,218 shares owned by a charitable foundation established by
Mr. Drinko and his wife; 210,345 shares held by two trusts as to which Mr.
Drinko is a trust advisor and of which Mr. Reid is an income beneficiary;
129,062 shares owned by a foundation of which Mr. Drinko is President and a
trustee; and 125,006 shares held by a charitable lead trust of which Mr.
Drinko is a co-trustee. The number of shares shown in the table above does
not include 80,700 shares held by a charitable lead trust in which Mr.
Drinko and Mr. Sigel are co-trustees; 78,125 shares owned by Cloyes Gear &
Products, Inc. of which Mr. Drinko and Mr. Myers are directors; 3,000
shares owned by a foundation of which Mr. Drinko and Mr. Myers are
trustees; and 29,752 shares owned by a foundation of which Mr. Drinko and
Mr. Perkins are trustees.
(3) Includes 17,278 shares owned by Mr. Sigel; 179,156 shares owned by his
wife, Sally C. Reid; 26,406 shares held by trusts of which his wife is a
trustee; 80,700 shares owned by a charitable lead trust of which Mr. Sigel
and Mr. Drinko are co-trustees. In addition, Mr. Sigel is a trustee of The
Standard Products Foundation, which owns 249,431 shares, which shares are
included in the number of shares reported by Mr. Reid, and are not included
in the number reported by Mr. Sigel. Mr. Sigel is the son-in-law of Mr.
Reid, Chairman of the Board of Directors of the Company.
(4) Includes 125,873 shares owned by Mr. Perkins; 88,147 shares held by his
wife, Romi Perkins; and 29,752 shares owned by a foundation of which he and
Mr. Drinko are trustees.
(5) Includes 106,544 shares owned by Mr. Zampetis (which amount includes 25,091
restricted shares earned in fiscal 1995, 1996, and 1997 but subject to
forfeiture); 24,833 shares owned by his wife, Ann J. Zampetis; 648 shares
held for his account under the Company's Employee Stock Purchase Plan;
11,176 shares held for his account under the Company's Individual
Retirement and Investment Trust Plan; and 26,452 shares which Mr. Zampetis
has the right to acquire pursuant to stock options currently exercisable or
exercisable within 60 days.
(6) Includes 6,000 shares owned by Mr. Myers; 78,125 shares owned by Cloyes
Gear & Products, Inc.; and 3,000 shares owned by a foundation of which Mr.
Myers and Mr. Drinko are Trustees.
(7) Represents less than one percent.
(8) Includes 210 shares owned by his wife, Sara Moll; 45,725 shares owned by
the pension fund of MTD Products, Inc.; and 6,250 shares owned by a
charitable foundation of which he is a trustee.
(9) In addition, Mr. Brandon is a trustee of The Standard Products Foundation,
which owned 249,431 shares as of June 30, 1997, which shares are included
in the number of shares reported by Mr. Reid.
(10) Includes 31,812 shares owned by Mr. Keys (which amount includes 10,037
restricted shares earned in fiscal 1995, 1996, and 1997 but subject to
forfeiture); 2,306 shares held for Mr. Keys in his account under the
Company's Individual Retirement and Investment Trust Plan; 5,930 shares
which Mr. Keys has the right to acquire pursuant to stock options currently
exercisable or exercisable within 60 days.
(11) Includes 2,334 shares owned by Mr. Sheley; and 4,000 shares which Mr.
Sheley has the right to acquire pursuant to stock options currently
exercisable or exercisable within 60 days.
(12) Includes 10,037 restricted shares earned in fiscal 1995, 1996, and 1997,
but subject to forfeiture; and 2,000 shares which Mr. Mesnel has the right
to acquire pursuant to stock options currently exercisable or exercisable
within 60 days.
(13) Mr. Roudebush's employment with the Company commenced on July 1, 1997. See
"Executive Compensation -- Certain Employment Agreements" for a description
of the restricted stock and stock options granted to Mr. Roudebush.
The persons named in the table above disclaim any beneficial ownership with
respect to shares owned by their spouses and children or by any trust, estate,
foundation, custody account or other entity of which they are a trustee, trust
advisor or custodian.
3
<PAGE> 5
ELECTION OF DIRECTORS
In accordance with the Company's Amended Code of Regulations, the Board of
Directors has fixed the number of directors at fourteen, divided into two
classes of five and one class of four. The number of directors had been fixed at
thirteen until July 24, 1997, when the Board, acting under its authority as set
forth in the Company's Amended Code of Regulations, voted to increase the number
of directors to fourteen. At the Annual Meeting, the shares represented by
proxies, unless otherwise specified, will be voted for the election of the five
nominees hereinafter named, each to serve for a term of three years and until
his successor is duly elected and qualified.
The nominees for director are James C. Baillie, Edward B. Brandon, James S.
Reid, Jr., Alan E. Riedel, and Ronald L. Roudebush, all of whom are presently
directors of the Company. Messrs. Baillie, Brandon, Reid, and Riedel were each
elected at the 1994 Annual Meeting of the Company's Shareholders. Mr. Roudebush
was elected by the Board on July 24, 1997 to fill the seat created when the
Board voted to increase the number of directors to fourteen. Proxies cannot be
voted at the Annual Meeting for a greater number of persons than the five
persons hereinafter named, although persons in addition to those nominees named
herein may be nominated by the shareholders at the meeting.
If for any reason any of the nominees is not a candidate (which is not
expected) when the election occurs, it is intended that proxies will be voted
for the election of a substitute nominee designated by management. The following
information is furnished with respect to each person nominated for election as a
director.
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
<TABLE>
<CAPTION>
EXPIRATION
PERIOD OF TERM
OF SERVICE FOR WHICH
NAME AND AGE PRINCIPAL OCCUPATION AS DIRECTOR PROPOSED
------------ -------------------- ----------- ----------
<S> <C> <C> <C>
James C. Baillie Partner, Tory Tory DesLauriers & Binnington, 1994 to date 2000
59 Barristers & Solicitors, Toronto, Ontario,
Canada
Edward B. Brandon Retired Chairman, President and Chief Executive 1976 to date 2000
65 Officer, National City Corporation (bank holding
company)
James S. Reid, Jr. Chairman of the Company 1959 to date 2000
71
Alan E. Riedel Retired Vice Chairman, Cooper Industries, Inc. 1976 to date 2000
67 (worldwide diversified manufacturer of
electrical products, electric power equipment,
tools and hardware, and automotive products)
Ronald L. Roudebush Vice Chairman and Chief Executive Officer of the 1997 to date 2000
50 Company
</TABLE>
4
<PAGE> 6
DIRECTORS WHOSE TERMS WILL CONTINUE AFTER THE ANNUAL MEETING
The following information is furnished with respect to each person
continuing as a director.
<TABLE>
<CAPTION>
PERIOD EXPIRATION
OF SERVICE OF CURRENT
NAME AND AGE PRINCIPAL OCCUPATION AS DIRECTOR TERM
------------ -------------------- ----------- ----------
<S> <C> <C> <C>
John Doddridge Chairman and Chief Executive Officer, Intermet 1995 to date 1998
57 Corporation (manufacturer of precision ductile
and gray iron castings for the automotive and
truck industries)
Leigh H. Perkins Chairman, The Orvis Company, Inc. (manufacturer 1969 to date 1998
69 and distributor of fishing tackle and sporting
goods)
Alfred M. Rankin, Chairman, President and Chief Executive 1989 to date 1998
Jr. Officer, NACCO Industries, Inc. (holding
55 company with operations in mining and
manufacturing of small electrical appliances
and forklift trucks service parts)
John D. Sigel Senior Partner, Hale and Dorr, Boston, 1991 to date 1998
44 Massachusetts
(law firm)
W. Hayden Thompson Chairman and Chief Executive Officer, Solarflo 1982 to date 1998
70 Corporation (manufacturer of gas and electric
heating equipment)
John D. Drinko Senior Partner, Baker & Hostetler LLP, 1957-1958 1999
76 Cleveland, Ohio (law firm) 1967-1968
1969 to date
Curtis E. Moll Chairman and Chief Executive Officer, MTD 1991 to date 1999
58 Products, Inc. (manufacturer of outdoor power
equipment and tools, dies and stampings for the
automotive industry)
Malcolm R. Myers Chairman, Cloyes Gear & Products, Inc. 1984 to date 1999
63 (manufacturer of automotive timing components)
Theodore K. President and Chief Operating Officer of the 1991 to date 1999
Zampetis Company
52
</TABLE>
Each of the above directors and nominees for election as a director has had
the principal occupation indicated for at least five years, except Messrs.
Doddridge, Brandon, and Roudebush. Mr. Doddridge served as Vice Chairman and
Chief Executive Officer of Magna International, Inc., from November 1992 to
November 1994, and President of North American operations of Dana Corporation
from mid-1989 to 1992. Mr. Brandon served as Chairman, President, and Chief
Executive Officer of National City Corporation until his retirement on September
30, 1995. Mr. Roudebush was part owner and an officer of Milford Dodge, Inc.,
Milford, Ohio, an auto dealership, from August 1995 through May 1997. Prior to
that, he had been employed in the automotive business of Rockwell International
Corporation since 1973. From 1991 through November 1994, he served as President,
Rockwell Automotive, the operating unit of Rockwell International Corporation
which included all of Rockwell's worldwide automotive businesses.
Mr. Brandon is a director of National City Corporation and RPM, Inc. Mr.
Doddridge is a director of Detroit Diesel Corporation. Mr. Moll is a director of
Shiloh Industries, Inc. Mr. Rankin is a director of The B.F.Goodrich Company and
The Vanguard Group. Mr. Riedel is a director of Belden Inc., Arkwright Mutual
Insurance Company and Chairman of Gardner Denver Machinery, Inc. Mr. Roudebush
is a director of Simpson Industries, Inc. Mr. Zampetis is a director of Shiloh
Industries, Inc. and National City Bank.
During the fiscal year ended June 30, 1997, the Board of Directors held
seven meetings. During the last fiscal year the Board of Directors appointed an
Audit Committee, a Finance Committee and a Compensation Committee. The Board of
Directors does not have a Nominating Committee. With the exception of Mr. Sigel,
each member of the Board of Directors attended at least 75% of the meetings of
the Board of Directors and of
5
<PAGE> 7
the committees on which he served. Mr. Sigel attended five of the seven meetings
of the Board, and two of the three meetings of the Audit Committee.
The Audit Committee of the Board of Directors of the Company (the "Audit
Committee"), of which Mr. Brandon was Chairman and Messrs. Baillie, Moll, Myers,
Rankin, Sigel and Thompson were members, held three meetings and consulted
informally on other occasions during the last fiscal year. The Audit Committee
recommends annually to the Board of Directors the independent public accountants
for the Company, reviews with the independent public accountants the
arrangements for and scope of the audits to be conducted by them and the results
of those audits, and reviews various financial and accounting matters affecting
the Company.
The Compensation Committee of the Board of Directors of the Company (the
"Compensation Committee"), of which Mr. Riedel was chairman and Messrs. Brandon,
Myers and Perkins were members, held six meetings and consulted informally on
other occasions during the last fiscal year. The Compensation Committee
periodically reviews and determines the compensation, including fringe benefits
and incentive compensation, of officers and management personnel of the Company
and administers the Company's restricted stock and stock option plans. The
Compensation Committee also determines the officers and key employees of the
Company who participate in those plans and the stock options and restricted
stock awards to be granted.
The Finance Committee, of which Mr. Drinko was chairman and Messrs.
Doddridge, Moll, Perkins, Riedel and Thompson were members, held two meetings
and consulted informally during the last fiscal year. The Finance Committee
administers the investments of the Company's retirement funds and renders advice
and counsel to management on financial matters affecting the Company.
Director's Compensation. Each director who is not an officer of the Company
or a subsidiary of the Company is compensated at the rate of $23,000 per year.
Each director also receives $1,000 for attendance at each meeting of the Board
of Directors and for each meeting of any committee not held in conjunction with
a meeting of the Board of Directors. Committee Chairmen receive an additional
$1,000 per year.
6
<PAGE> 8
EXECUTIVE COMPENSATION
The following information is set forth with respect to the Company's Chief
Executive Officer and each of the Company's four other most highly compensated
executive officers for fiscal year 1997.
I. SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- --------------------
AWARDS
--------------------
RESTRICTED
OTHER ANNUAL STOCK STOCK ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($) (#) ($)(3)
------------------ ------ ------ ------ ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
James S. Reid, Jr. 1997 $600,000 $300,000 -- (4) -- $3,454
Chairman and Chief 1996 600,000 158,190 -- -- -- 3,594
Executive Officer 1995 600,000 144,000 -- -- -- 1,957
Theodore K. Zampetis 1997 $440,000 $220,000 -- (5) -- $3,454
President and Chief 1996 410,000 108,096 -- -- 50,000 3,594
Operating Officer 1995 400,000 96,000 -- -- -- 1,957
James F. Keys 1997 $289,750 $144,875 -- (6) 5,000 $3,094
Executive Vice 1996 241,074 63,559 -- -- 15,000 3,734
President-International 1995 168,220 33,430 -- -- -- 3,038
Donald R. Sheley, Jr.(7) 1997 $238,125 $119,063 -- -- 10,000 $ 360
Vice President-Finance 1996 215,625 56,849 -- -- 10,000 240
and Chief Financial Officer 1995 -- -- -- -- -- --
Gerard Mesnel(8) 1997 $224,250 $112,125 -- (9) 15,000 --
Executive Vice President -- 1996 207,000 54,576 -- -- 5,000 --
Advanced Technology Worldwide 1995 191,250 45,900 -- -- -- --
</TABLE>
- -------------------------
(1) Amounts shown represent bonuses earned pursuant to the Company's Officers
Incentive Compensation Plan.
(2) Total perquisites and other personal benefits for each of the named
executive officers do not exceed the threshold amounts specified in the
regulations promulgated by the Securities and Exchange Commission.
(3) Amounts shown represent the Company's contributions on behalf of Messrs.
Reid, Zampetis and Keys under the Individual Retirement and Investment Trust
Plan and, in the case of Messrs. Reid, Zampetis and Sheley, under the
Employee Stock Purchase Plan. During fiscal year 1997, the Company's
contributions on behalf of both Mr. Reid and Mr. Zampetis under each of the
Individual Retirement and Investment Trust Plan and the Employee Stock
Purchase Plan were $3,094 and $360, respectively.
(4) Mr. Reid was awarded 62,500 restricted Common Shares (adjusted to reflect a
5-for-4 stock split of the Company's Common Shares effected in the form of a
stock dividend paid on June 3, 1993, to shareholders of record on May 20,
1993) in fiscal 1992. Under the terms of the award, up to 12,500 of the
awarded Common Shares could be earned in each of five consecutive fiscal
years beginning in fiscal 1992, based on the percentage of bonus earned
during such fiscal year. Awarded Common Shares earned by Mr. Reid are
subject to forfeiture until the end of the second fiscal year following the
fiscal year in which such awarded Common Shares are earned. Mr. Reid earned
6,000 of the awarded Common Shares in fiscal year 1995 and 6,591 in fiscal
year 1996, 6,000 of which shares vested on June 30, 1997, and 6,591 of which
shares will vest on June 30, 1998. On June 23, 1997, the Compensation
Committee awarded Mr. Reid an additional 12,500 restricted Common Shares,
effective July 1, 1997. Under the terms of the award, all of the shares were
considered earned on the effective date of the award. The shares are subject
to forfeiture until the earlier of July 1, 1999 or the date on which Mr.
Reid retires from his position as Chairman of the Board of the Company. In
the event of Mr. Reid's death, all earned but unvested awarded Common Shares
shall vest in his designated beneficiary. Based on the last reported sale
price of the Company's Common Shares on the New York Stock Exchange on June
30, 1997, the total Common Shares earned during the past three years under
the 1992 award and the 1997 award had a fair market value of $633,548. No
more shares can be earned by Mr. Reid under either award. Dividends are paid
7
<PAGE> 9
only with respect to the awarded Common Shares which are earned. For a
discussion of the bonuses payable to the Company's officers, see "Executive
Compensation -- Compensation Committee Report."
(5) Mr. Zampetis was awarded 125,000 restricted Common Shares (adjusted to
reflect a 5-for-4 stock split of the Company's Common Shares effected in the
form of a stock dividend paid on June 3, 1993 to shareholders of record on
May 20, 1993) in fiscal 1992. Under the terms of the award, up to 12,500 of
the awarded Common Shares may be earned in each of ten consecutive fiscal
years beginning in fiscal 1992, based on the percentage of bonus earned
during such fiscal year. Awarded Common Shares earned by Mr. Zampetis are
subject to forfeiture until the end of the third fiscal year following the
fiscal year in which such awarded Common Shares are earned, except that if
his employment is terminated by the Company without "cause" or if he
terminates his employment for "good reason," as defined in his employment
agreement (see "Certain Employment Agreements") or if his employment is not
continued beyond August 31, 1999, all Common Shares then earned by him which
are subject to forfeiture will become immediately vested. In addition, he
will continue to be eligible to earn additional Common Shares, which will
not be subject to forfeiture, during any period when his base salary is
continued after his employment ends. Mr. Zampetis earned 6,000 of the
awarded Common Shares in fiscal year 1995, 6,591 Common Shares in fiscal
year 1996, and 12,500 in fiscal year 1997. 10,400 shares earned by Mr.
Zampetis in fiscal year 1994 vested on June 30, 1997. The shares earned in
fiscal years 1995, 1996, and 1997 will vest on the last day of fiscal 1998,
1999, and 2000, respectively. In the event of Mr. Zampetis' death, all
earned but unvested awarded Common Shares and one-half of awarded but
unearned Common Shares will vest in his designated beneficiary. Based on the
last reported sale price of the Company's Common Shares on the New York
Stock Exchange on June 30, 1997, the total Common Shares earned during the
past three years under the 1992 award had a fair market value of $633,548.
Dividends are paid only with respect to the awarded Common Shares which have
been earned. For a discussion of the bonuses payable to the Company's
officers, see "Executive Compensation -- Compensation Committee Report."
(6) Mr. Keys was awarded 50,000 restricted Common Shares in fiscal 1995. Under
the terms of the award, up to 5,000 of the awarded Common Shares may be
earned in each of ten consecutive fiscal years beginning in fiscal 1995,
based on the percentage of bonus earned during such fiscal year. Awarded
Common Shares earned by Mr. Keys are subject to forfeiture until the end of
the third fiscal year following the fiscal year in which such awarded Common
Shares are earned. Mr. Keys earned 2,400 of the awarded Common Shares in
fiscal year 1995, 2,637 Common Shares in fiscal 1996, and 5,000 shares in
fiscal 1997. These shares will vest on the last day of fiscal 1998, 1999,
and 2000, respectively. In the event of Mr. Keys' death, all earned but
unvested awarded Common Shares and one-half of awarded but unearned Common
Shares will vest in his designated beneficiary. Based on the last reported
sale price of the Company's Common Shares on the New York Stock Exchange on
June 30, 1997, the total Common Shares earned during the past three years
under the 1995 award had a fair market value of $253,434. Dividends are paid
only with respect to the awarded Common Shares which have been earned. For a
discussion of the bonuses payable to the Company's officers, see "Executive
Compensation -- Compensation Committee Report."
(7) Mr. Sheley commenced employment with the Company on July 17, 1995.
(8) In addition to serving as Executive Vice President -- Advanced Technology
Worldwide, Mr. Mesnel also serves as President and Directeur General,
Standard Products Industriel, the Company's subsidiary in France.
(9) Mr. Mesnel was awarded 25,000 restricted Common Shares in fiscal 1995. Under
the terms of the award, up to 5,000 of the awarded Common Shares may be
earned in each of five consecutive fiscal years beginning in fiscal 1995,
based on the percentage of bonus earned during such fiscal year. Awarded
Common Shares earned by Mr. Mesnel are subject to forfeiture until the end
of the third fiscal year following the fiscal year in which such awarded
Common Shares are earned. Mr. Mesnel earned 2,400 of the awarded Common
Shares in fiscal year 1995, 2,637 Common Shares in fiscal 1996, and 5,000
shares in fiscal 1997. These shares will vest on the last day of fiscal
1998, 1999, and 2000, respectively. In the event of Mr. Mesnel's death, all
earned but unvested awarded Common Shares and one-half of awarded but
unearned Common Shares will vest in his designated beneficiary. Based on the
last reported sale price of the Company's Common Shares on the New York
Stock Exchange on June 30, 1997, the total Common Shares earned during the
past three years under the 1995 award had a fair market value of $253,434.
Dividends are paid only with respect to the awarded Common Shares which have
been earned. For a discussion of the bonuses payable to the Company's
officers, see "Executive Compensation -- Compensation Committee Report."
8
<PAGE> 10
II. OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------- POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENTAGE OF ANNUAL RATES OF
TOTAL OPTIONS STOCK
GRANTED TO PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE FOR OPTION TERM(3)
GRANTED IN FISCAL PRICE EXPIRATION --------------------
NAME #(1) YEAR(2) ($/SHARE) DATE 5%($) 10%($)
---- ------- ------------- --------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
James S. Reid, Jr................ -- -- -- -- -- --
Theodore K. Zampetis............. -- -- -- -- -- --
James F. Keys.................... 5,000 2.14 25.25 June 2007 $ 67,832 $166,569
Donald R. Sheley, Jr............. 10,000 4.28 25.25 June 2007 135,664 333,138
Gerard Mesnel.................... 15,000 6.42 25.25 June 2007 203,496 499,707
</TABLE>
- -------------------------
(1) Options are not exercisable for the one-year period from the date of grant,
then no more than 40% of such options may be exercised in any succeeding
one-year period.
(2) Based on 233,450 options granted to all employees during the fiscal year.
(3) These amounts are based on hypothetical appreciation rates of 5% and 10% and
are not intended to forecast the actual future appreciation of the Company's
stock price. No gain to optionees is possible without an actual increase in
the price of the Company's shares, which increase will benefit all of the
Company's shareholders. All calculations are based on a ten-year option
period, and upon the assumption that 40% of each option grant will be
exercised at the end of the eighth and ninth years after the date of the
grant, and 20% will be exercised at the end of the ten-year term.
III. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL FISCAL
YEAR-END(#) YEAR-END($)
SHARES VALUE ------------- ---------------
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) ($) UNEXERCISABLE UNEXERCISABLE
---- ----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
James S. Reid, Jr..................... -- -- 10,220/ 1,200 $ --
Theodore K. Zampetis.................. -- -- 26,452/34,188 $29,771/$57,729
James F. Keys......................... -- -- 5,930/16,070 $ 7,228/$19,023
Donald R. Sheley, Jr.................. -- -- 4,000/16,000 $12,500/$18,750
Gerard Mesnel......................... -- -- 2,000/18,000 $ 3,500/$ 5,250
</TABLE>
CERTAIN EMPLOYMENT AGREEMENTS
The Company entered into a letter agreement with James S. Reid, Jr., dated
July 24, 1997, with respect to Mr. Reid's continuing employment arrangements.
The letter confirmed that Mr. Reid would resign his position as Chief Executive
Officer of the Company, effective July 24, 1997, but will remain as Chairman of
the Board. The letter provides that effective September 1, 1997, Mr. Reid's
annual salary will be $200,000 per year. That rate of compensation will continue
until the Company's Annual Meeting of Shareholders in October 1999, when it is
anticipated that Mr. Reid will resign from his position as Chairman of the
Board. In addition to receiving his pension under the Company's Salaried
Employees' Retirement Plan (under federal law, payment of his pension commenced
on April 1, 1997, after he reached age 70 1/2), he will begin receiving payments
on September 1, 1997 from the Company's supplemental pension plan. Mr. Reid will
also continue to participate in all other executive and employee benefit plans
of the Company. For purposes of calculating
9
<PAGE> 11
Mr. Reid's annual bonus under the Company's Officers Incentive Bonus Plan, his
pension and supplemental pension payments will be considered part of his base
salary.
Ronald L. Roudebush was employed by the Company on July 1, 1997, and was
elected by the Board of Directors as a member of the Board and Vice Chairman and
Chief Executive Officer, effective July 24, 1997. He has entered into a two-year
"evergreen" employment agreement with the Company, expiring on June 30, 2007.
Under the agreement, Mr. Roudebush will receive a base salary of $500,000 per
year, and will participate in the Company's Officers Incentive Bonus Plan. His
bonus under the Plan will not be less than $200,000 for fiscal year 1998. He
will also participate in all executive and employee benefit plans of the
Company. In the event of his termination without "cause," or if he resigns his
employment for "good reason" or within six months after a "change in control,"
Mr. Roudebush will be entitled to a lump sum equal to two years of base salary
and bonus payments, and a continuation of benefits during the two-year period.
Mr. Roudebush has also executed a non-compete agreement with the Company.
Mr. Roudebush was awarded stock options to purchase 200,000 shares of the
Company's Common Shares under its 1996 Stock Option Plan, at a price equal to
the fair market value of the Company's Common Shares on July 1, 1997. Those
options will vest in four equal annual installments, commencing on July 2, 1998.
After vesting, all options will remain exercisable until June 30, 2007, provided
that Mr. Roudebush remains employed until that date. In the event of a change in
control of the Company, as defined in the option agreements, all nonvested
options will immediately become vested and to the extent not then exercisable,
will become exercisable upon the termination, or in certain cases, the
resignation of Mr. Roudebush.
Mr. Roudebush was also awarded 50,000 shares of restricted stock under the
Company's 1991 Restricted Stock Plan. Pursuant to the terms of his award, Mr.
Roudebush will have an opportunity to earn up to 12,500 shares of the Company's
Common Shares in each of fiscal years 1998 through 2001. The number earned in
each of those years will be the percentage of 12,500 which equals the percentage
of the Company's earnings per share target for that year which is achieved by
the Company. Shares earned will become vested at the end of the third fiscal
year following the fiscal year in which they were earned, except that in the
event of a change in control of the Company, as defined in the Plan, all shares
granted to Mr. Roudebush will immediately vest. In the event of Mr. Roudebush's
death, all earned but unvested awarded Common Shares and one-half of awarded but
unearned Common Shares will vest in his designated beneficiary.
The Company has also entered into an employment agreement with Theodore K.
Zampetis, pursuant to which he will continue to serve as President and Chief
Operating Officer. The agreement provides an incentive for Mr. Zampetis to
remain in his present position at least through August 31, 1999, by providing
for his base salary to continue for one month for each year of service if he
serves through that date. Mr. Zampetis had 24 years of service as of June 30,
1997. He will also be entitled to the same salary continuation if, prior to
August 31, 1999, his employment is terminated without "cause," or if he resigns
his employment for "good reason" or within six months after a "change in
control". In addition, he will receive pension service credit for the same
period his base salary continues. See also footnote 5 under "Executive
Compensation -- 1. Summary Compensation Table" regarding the restricted stock
previously awarded to him.
If Mr. Zampetis and the Company agree to continue his employment after
August 31, 1999, the employment term will convert to a three-year "evergreen"
arrangement, under which he will be entitled to a continuation of his base
salary and the benefits described in the previous paragraph for a three-year
period following the occurrence of any of the events described in the previous
paragraph. In no event will payments under his agreement continue beyond his
65th birthday. Mr. Zampetis has also signed a non-compete agreement.
PENSION PLAN AND SUPPLEMENTAL PLAN
Salaried employees of the Company with one year of full-time service are
eligible to participate in The Standard Products Company Salaried Employees'
Pension Plan (the "Pension Plan") and The Standard Products Company Supplemental
Salaried Employees' Pension Plan (the "Supplemental Plan"). Except as
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<PAGE> 12
otherwise noted in "Table I. Summary Compensation Table," the amounts shown
therein exclude amounts, if any, expended for financial reporting purposes by
the Company as contributions, reserves or benefits paid under the Pension Plan
and the Supplemental Plan.
The Pension Plan provides for normal retirement benefits based on the
highest average monthly compensation for 60 consecutive months within the last
120 months prior to retirement (final average compensation). The basic formula
is 1 1/15% times final average compensation (up to but not exceeding Social
Security-covered compensation), plus 1 2/3% of the amount (if any) of final
average compensation in excess of Social Security-covered compensation, all
multiplied by the participant's years of pension service under the Plan (up to a
maximum of 30 years). Employees who were hired prior to July 1, 1976, may have
their normal retirement benefit calculated under an alternative formula as
follows: final average compensation multiplied by a percentage equal to the sum
of (i) 21.25%, plus (ii) 0.75% for each year of pension service up to a maximum
of 25 years (that is, a maximum of 40%). In addition, the Plan provides that the
minimum normal retirement benefit shall in all events be no less than $13
multiplied by a participant's years of pension service. Certain of these benefit
formulas were adopted effective July 1, 1989, to comply with the Tax Reform Act
of 1986. Notwithstanding any new benefit formulas, each participant is entitled
to a benefit no less than his or her accrued benefit as of June 30, 1989.
Participants may elect that retirement benefits be paid in the form of a life
annuity, a ten-year or five-year sum certain annuity, or various joint and
surviving spouse options; the Plan's normal retirement benefit amount is payable
monthly, based on a single-life annuity with five years certain.
Compensation covered under the Pension Plan includes (i) base salary, (ii)
bonuses, (iii) payments for overtime, (iv) salary deferred under the Company's
Individual Retirement Plan, and (v) the taxable amount value of Restricted Stock
that vests in any Plan Year under the Restricted Stock Plan. Extraordinary
payments and Company contributions to the Company's Individual Retirement Plan
are not included in compensation. Additionally, the collective value of the
taxable amount of vested Restricted Stock and bonuses received in any Plan Year
in excess of 50% of base salary in that Plan Year is not included in
compensation.
The Supplemental Plan is a nonqualified plan which provides a supplemental
benefit for eligible salaried employees under terms and conditions similar to
those under the Pension Plan. The supplemental benefit is equal to the excess of
(i) the benefit that would have been payable to the employee under the Pension
Plan without regard to certain annual retirement income and benefit limitations
imposed by federal law over (ii) the benefit payable to the employee under the
Pension Plan.
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<PAGE> 13
The table below shows estimated annual benefits payable (assuming payments
made in the normal retirement form, and not under any of the various survivor
forms of benefit payments) under the Pension Plan and the Supplemental Plan to
any salaried employee upon retirement in the 1997 Plan Year at age 65 after
selected periods of service.
<TABLE>
<CAPTION>
AVERAGE ANNUAL ESTIMATED ANNUAL BENEFITS UPON RETIREMENT IN 1997 PLAN YEAR
SALARY USED WITH YEARS OF SERVICE INDICATED
TO DETERMINE --------------------------------------------------------------
BENEFITS 15 YEARS 20 YEARS 25 YEARS 30 YEARS AND OVER
- -------------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C>
$125,000 ............................ $ 28,613 $ 45,313 $ 50,000 $ 57,225
150,000 ............................ 34,863 54,375 60,000 69,725
175,000 ............................ 41,113 63,438 70,000 82,225
200,000 ............................ 47,363 72,500 80,000 94,725
225,000 ............................ 53,613 81,563 90,000 107,225
250,000 ............................ 59,863 90,625 100,000 119,725
300,000 ............................ 72,363 108,750 120,604 144,725
350,000 ............................ 84,863 126,875 141,438 169,725
400,000 ............................ 97,363 145,000 162,271 194,725
450,000 ............................ 109,863 163,125 183,104 219,725
500,000 ............................ 122,363 181,250 203,938 244,725
550,000 ............................ 134,863 199,375 224,771 269,725
600,000 ............................ 147,363 217,500 245,604 294,725
650,000 ............................ 159,863 235,625 266,438 319,725
700,000 ............................ 172,363 253,750 287,271 344,725
750,000 ............................ 184,863 271,875 308,104 369,725
800,000 ............................ 197,363 290,000 328,938 394,725
850,000 ............................ 209,863 308,125 349,771 419,725
900,000 ............................ 222,363 326,250 370,604 444,725
</TABLE>
As of June 30, 1997, the credited years of service for retirement purposes
were as follows: Mr. Reid -- 41; Mr. Zampetis -- 24; Mr. Keys -- 25; and Mr.
Sheley -- 1. Mr. Mesnel does not participate in the Plan.
On August 18, 1997, the Board of Directors authorized the establishment of
two non-qualified deferred compensation plans, to be effective November 1, 1997.
Under the first of the plans, management and executive-level employees of the
Company, including the named executive officers, will be permitted to defer
compensation that could have been deferred under the Company's 401(k) plan but
for the limitations placed on "highly-compensated" employees under the Internal
Revenue Code, and but for the dollar limit that can be contributed annually to
such a plan under Section 402(g) of the Internal Revenue Code. The second plan
permits additional amounts of compensation to be deferred by the same
individuals, regardless of any limitation placed on their ability to contribute
to the 401(k) plan.
Under both plans, compensation deferred by eligible participants will be
credited to an unfunded account established for each participant. No funds will
be set aside to satisfy the obligation owed under the plans. Amounts deferred
will be credited with interest at the Moody's Long-Term Baa Corporate Bond Index
rate, which approximates the Company's long-term borrowing rate. Participants
will receive payment of the amounts owed to them from the general assets of the
Company. Those amounts will generally not be payable until after the participant
terminates employment. In the event of a change in control of the Company, as
such term is defined in the plans, cash equal to the amounts credited to the
accounts of participants will be funded in a "rabbi trust," which will exist
solely to pay benefits to participants, except that such funds will be available
to creditors of the Company in the event of the insolvency of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Brandon, Myers, Perkins and Riedel are the members of the Company's
Compensation Committee. There are no Compensation Committee interlocks.
12
<PAGE> 14
Transactions with Management. Edward B. Brandon, a director of the Company,
is a director and the retired Chairman, President and Chief Executive Officer of
National City Corporation. The Company has a $125,000,000 revolving credit
agreement with National City Bank, Cleveland, Ohio ("National City"), a wholly
owned subsidiary of National City Corporation, and three other banks, until
January 1999. National City has a 31.4% participation in such credit agreement.
The Company borrowed from National City during the 1997 fiscal year on a
short-term uncommitted line of credit at prevailing market rates.
John D. Drinko, a director of the Company, is senior advisor to the policy
committee of Baker & Hostetler LLP, which law firm acts as principal outside
counsel for the Company.
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total return of a
hypothetical investment in the Common Shares with the cumulative total return of
a hypothetical investment in each of the Standard & Poor's Composite -- 500
Index and the Dow Jones Auto Parts Index based on the respective market price of
each such investment at the end of each of the Company's fiscal years shown
below, assuming in each case an initial investment of $100 on July 1, 1992, and
reinvestment of dividends.
<TABLE>
<CAPTION>
MEASUREMENT PERIOD STANDARD DOW JONES STANDARD &
(FISCAL YEAR COVERED) PRODUCTS CO. AUTO PARTS POOR'S
INDEX COMPOSITE -
500 INDEX
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 134.61 124.04 113.65
1994 115.88 121.53 115.25
1995 88.66 135.44 145.30
1996 98.09 150.50 183.08
1997 109.73 185.90 246.61
</TABLE>
COMPENSATION COMMITTEE REPORT
The Company's executive compensation program is administered by the
Compensation Committee, which has responsibility for reviewing all aspects of
the compensation program for the executive officers of the Company. The
Compensation Committee is comprised of the four directors listed at the end of
this report, none of whom is an employee of the Company.
The Compensation Committee's primary objective with respect to executive
compensation is to establish programs which attract and retain key managers and
align their compensation with the Company's overall business strategies, values,
and performance. To this end, the Compensation Committee has established, and
the Board of Directors has endorsed, an executive compensation philosophy to
compensate executive officers based on their responsibilities, achievement of
annual established goals and the Company's overall annual and longer-term
performance.
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<PAGE> 15
The primary components of the Company's executive compensation program are:
(i) base salaries, (ii) annual cash incentive opportunities, and (iii) long-term
incentive opportunities in the form of stock-based awards. Each of these primary
components of compensation is discussed below.
Base Salaries. Base salaries for each of the Company's executive officers
are generally established annually by the Compensation Committee using as a
guide one or more widely accepted salary evaluation systems -- taking into
account individual and Company performance and competitive, inflationary, and
internal equity considerations.
With respect to the $600,000 base salary established for Mr. Reid in June
1996 for fiscal 1997, which is the same base salary as paid to Mr. Reid in
fiscal 1996, the Compensation Committee took into account Mr. Reid's overall
responsibilities, as well as a review of the compensation paid to chief
executive officers of comparable companies.
Annual Cash Incentives. All executives of the Company are eligible to
receive annual cash bonus awards based on a set percentage of base salary with a
maximum bonus attainable equal to 50% of base salary. Each year the Company's
Board of Directors, usually at the Board meeting held in August, sets a target
goal for maximum bonus awards based on the Company's earnings per common share.
Actual bonus awards paid are proportional to the percentage of the target goal
actually attained. The bonus target in fiscal year 1997 was $2.25 (exclusive of
the charge taken by the Company in the third quarter of fiscal 1997 in respect
of the closure of two automotive parts plants) per common share. Since earnings
per common share, as adjusted for the bonus awards, for fiscal 1997 were $2.33
(exclusive of special charges), the bonus award for fiscal 1997 to each
executive officer of the Company, including Mr. Reid, was equal to 50% of base
salary.
Long-Term Stock Incentives. The Company's restricted stock plan permits the
Compensation Committee to award restricted shares, which awards are designed to
attract and retain well-qualified personnel for positions of substantial
responsibility with the Company and its subsidiaries. Awards of restricted
Common Shares may be made by the Compensation Committee in its sole discretion.
Awards of 62,500 and 125,000 restricted Common Shares (adjusted to reflect a
5-for-4 stock split of the Company's Common Shares effected in the form of a
stock dividend paid on June 3, 1993 to shareholders of record on May 20, 1993)
were made in fiscal 1992 to Messrs. Reid and Zampetis, respectively. An
additional award of 12,500 shares was made to Mr. Reid on July 1, 1997. In
fiscal 1995, Mr. Keys was awarded 50,000 restricted Common Shares, and Mr.
Mesnel was awarded 25,000 restricted Common Shares. See "Table I -- Summary
Compensation Table" set forth on page 7 of this proxy statement for a discussion
of the terms pursuant to which the restricted Common Shares awarded to Messrs.
Reid, Zampetis, Keys, and Mesnel are earned and subject to forfeiture. Other
than the foregoing awards, the only award made under the Plan was made to Mr.
Roudebush, who became employed by the Company on July 1, 1997, and was elected
Vice Chairman and Chief Executive Officer of the Company on July 24, 1997. The
award to Mr. Roudebush is described in this proxy statement under "Certain
Employment Agreements" on page 9.
The Company's stock option plans permit the Compensation Committee, in its
sole discretion, to grant stock option awards which are designed to encourage
and enable key management employees of the Company to acquire a larger stock
ownership and personal financial interest in the Company. The Compensation
Committee believes that stock option awards subject to periodic vesting enable
the Company to attract and retain qualified individuals for service with the
Company. Individual option grants, with exercise prices at least equal to the
fair market value of the Company's Common Shares on the date of grant, are
determined by the Compensation Committee based on the executive's current
performance, potential for future responsibility, and the impact of the
particular executive officer's performance on the operational results of the
Company. Stock option awards during the last fiscal year to each of the Chief
Executive Officer and the other four most highly compensated executive officers
of the Company are set forth in "Table II -- Option Grants in Last Fiscal Year"
on page 9 of this proxy statement. The award to Mr. Roudebush is described in
this proxy statement under "Certain Employment Agreements" on page 9.
Alan E. Riedel, Chairman
Edward B. Brandon
Malcolm R. Myers
Leigh H. Perkins
14
<PAGE> 16
PROPOSAL ONE: 1997 EMPLOYEE STOCK OPTION PLAN
The Board of Directors of the Company, at a meeting of the Board on August
18, 1997, approved The Standard Products Company 1997 Employee Stock Option Plan
(the "1997 Stock Option Plan") and directed that the 1997 Stock Option Plan be
submitted to the shareholders for approval at the annual meeting. The primary
purpose of the 1997 Stock Option Plan is to encourage and enable key management
employees of the Company and its subsidiaries to acquire a larger stock
ownership and personal financial interest in the Company and thereby provide
additional incentive for the promotion of the welfare of the Company and for the
continued service of the participants with the Company. A copy of the 1997 Stock
Option Plan is attached to this proxy statement as Exhibit A.
THE FOLLOWING DESCRIPTION OF THE 1997 STOCK OPTION PLAN IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO EXHIBIT A.
Description of the Plan
Shareholder approval of the 1997 Stock Option Plan is being sought to
qualify the 1997 Stock Option Plan as an incentive stock option plan under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), in
order for awards of options to be eligible for exemption from the dollar
limitation on deductions imposed by Section 162(m) of the Code and to satisfy a
condition of the Plan requiring shareholder approval of the Plan.
Under the 1997 Stock Option Plan, awards of options to purchase Common
Shares may be made to key employees of the Company or its subsidiaries. The
options provided for under the 1997 Stock Option Plan may be either incentive
stock options intended to qualify for favorable tax treatment under Section 422
of the Code or nonqualified stock options which do not qualify for such
treatment.
The aggregate number of Common Shares with respect to which awards may be
made under the 1997 Stock Option Plan is 350,000. Such maximum number of Common
Shares is subject to appropriate adjustment upon the occurrence of certain
events, including stock dividends, recapitalizations, mergers, reorganizations,
consolidations, stock splits, stock consolidations or certain other changes in
the Common Shares. Common Shares which are not purchased under an option which
has terminated or lapsed may be used for the further grant of options under the
1997 Stock Option Plan.
The 1997 Stock Option Plan is administered by the Compensation Committee,
each member of which is a "Non-Employee Director" (as defined in Rule 16b-3
promulgated under Section 16(b) of the Securities Exchange Act of 1934 (the
"Exchange Act")) and an "outside director" within the meaning of Section 162(m)
of the Code. Subject to the terms of the 1997 Stock Option Plan, the
Compensation Committee has sole authority to determine and designate persons to
whom awards are to be made under the 1997 Stock Option Plan and the nature and
terms, including vesting schedules, of such awards.
Options granted under the 1997 Stock Option Plan may not be exercised more
than ten years after the date of grant. The aggregate fair market value
(determined on the date of grant) of the Common Shares subject to incentive
stock options under all option plans of an employer corporation (and its parent
and subsidiary corporations) which are exercisable for the first time by an
employee in any calendar year may not exceed $100,000. In no event shall there
be granted under the 1997 Stock Option Plan to any employee options to purchase
more than 250,000 Common Shares. The Compensation Committee, in its sole
discretion, will determine the vesting schedule of each option granted under the
1997 Stock Option Plan; provided, however, that options may not be exercised
during the first year after they are granted. The 1997 Stock Option Plan
provides that the option price shall not be less than 100% of the fair market
value of the Common Shares on the date such option is granted or 110% of such
fair market value in the case of an incentive stock option granted to an
employee holding more than 10% of the Company's outstanding Common Shares on the
date of grant. The purchase price of the Common Shares subject to options must
be paid in full by an optionee at the time of exercise of such option in either
cash or Common Shares.
15
<PAGE> 17
No cash consideration will be received by the Company for granting options
under the 1997 Stock Option Plan. Options will be granted in consideration of
the services rendered or to be rendered to the Company by the employees
receiving the options.
Options will be granted to key management employees of the Company or its
subsidiaries who are in a position to contribute substantially to the growth and
success of the Company and its subsidiaries. No director who is not an employee
of the Company or one of its subsidiaries will be eligible to receive options.
TAX CONSEQUENCES
With respect to nonqualified stock options, in general, for federal income
tax purposes under present law:
(i) The grant of a nonqualified stock option, by itself, will not
result in income to the optionee.
(ii) Except as provided in (v) below, the exercise of a nonqualified
stock option (in whole or in part, according to its terms) will result in
ordinary income to the optionee at that time in an amount equal to the
excess (if any) of the fair market value of the shares on the date of
exercise over the option price.
(iii) Except as provided in (v) below, the tax basis of the shares
acquired upon exercise of a nonqualified stock option, which will be used
to determine the amount of any capital gain or loss on a future taxable
disposition of such shares, will be the fair market value of the shares on
the date of exercise.
(iv) No deduction will be allowable to the employer corporation upon
the grant of a nonqualified stock option, but upon the exercise of a
nonqualified stock option, a deduction will in general be allowable to the
employer corporation at that time in an amount equal to the amount of
ordinary income realized by the optionee exercising such option, provided
withholding and/or reporting requirements are satisfied.
(v) With respect to the exercise of a nonqualified stock option and
the payment of the option price by the delivery of Common Shares, to the
extent that the number of shares received does not exceed the number of
shares surrendered, no taxable income will be realized by the optionee at
that time, the tax basis of the shares received will be the same as the tax
basis of the shares surrendered, and the holding period of the optionee in
the shares received will include his holding period in the shares
surrendered. To the extent that the number of shares received exceeds the
number of shares surrendered, ordinary income will be realized by the
optionee at the time in the amount of the fair market value of such excess
shares, the tax basis of such excess shares will be equal to the fair
market value of such shares at the time of exercise, and the holding period
of the optionee in such shares will begin on the date such shares are
transferred to the optionee.
With respect to incentive stock options, in general, for federal income tax
purposes under present law:
(i) Neither the grant nor the exercise of an incentive stock option,
by itself, will result in income to the optionee; however, the excess of
the fair market value of the shares at the time of exercise over the option
price is (unless there is a disposition of the shares acquired upon
exercise of an incentive stock option in the taxable year of exercise)
includable in alternative minimum taxable income which may, under certain
circumstances, result in alternative minimum tax liability to the optionee.
(ii) If the shares acquired upon exercise of an incentive stock
option are disposed of in a taxable transaction after the later of two
years from the date on which the option is granted or one year from the
date on which such shares are transferred to the optionee, long-term
capital gain or loss will be realized by the optionee in an amount equal to
the difference between the amount realized by the optionee and the
optionee's basis which, except as provided in (v) below, is the option
price.
(iii) Except as provided in (v) below, if the shares acquired upon the
exercise of an incentive stock option are disposed of within the two-year
period from the date of grant or the one-year period after the transfer of
the shares to the optionee (a "disqualifying disposition"):
(a) Ordinary income will be realized by the optionee at the time of
such disqualifying disposition in the amount of the excess, if any, of
the fair market value of the shares at the time of
16
<PAGE> 18
such exercise over the option price, but not in an amount exceeding the
excess, if any, of the amount realized by the optionee over the option
price.
(b) Short-term or long-term capital gain will be realized by the
optionee at the time of any such disqualifying disposition in an amount
equal to the excess, if any, of the amount realized over the fair market
value of the shares at the time of such exercise.
(c) Short-term or long-term capital loss will be realized by the
optionee at the time of any such disqualifying disposition in an amount
equal to the excess, if any, of the option price over the amount
realized.
(iv) No deduction will be allowed to the employer corporation with
respect to incentive stock options granted or shares transferred upon
exercise thereof, except that if a disqualifying disposition is made by the
optionee, the employer corporation will in general be entitled to a
deduction in the taxable year in which the disqualifying disposition
occurred in an amount equal to the amount of ordinary income realized by
the optionee making such disposition, provided withholding and/or reporting
requirements are satisfied.
(v) With respect to the exercise of an incentive stock option and the
payment of the option price by the delivery of Common Shares, to the extent
that the number of shares received does not exceed the number of shares
surrendered, no taxable income will be realized by the optionee at that
time, the tax basis of the shares received will be the same as the tax
basis of the shares surrendered, and the holding period (except for
purposes of the one-year period referred to in (iii) above) of the optionee
in shares received will include this holding period in the shares
surrendered. To the extent that the number of shares received exceeds the
number of shares surrendered, no taxable income will be realized by the
optionee at that time, such excess shares will be considered incentive
stock option stock with a zero basis, and the holding period of the
optionee in such shares will begin on the date such shares are transferred
to the optionee. If the shares surrendered were acquired as the result of
the exercise of an incentive stock option and the surrender takes place
within two years from the date the option relating to the surrendered
shares was granted or within one year from the date of such exercise, the
surrender will result in a disqualifying disposition and the optionee will
realize ordinary income at that time in the amount of the excess, if any,
of the fair market value at the time of exercise of the shares surrendered
over the basis of such shares. If any of the shares received are disposed
of in a disqualifying disposition, the optionee will be treated as first
disposing of the shares with a zero basis.
The Board of Directors may at any time amend the 1997 Stock Option Plan or
any part thereof as it shall deem advisable; provided, however, that the Board
of Directors shall obtain any approval by shareholders which is necessary
pursuant to Sections 422 and 162(m) of the Code. No amendment may be made in any
option then outstanding under the 1997 Stock Option Plan, however, which would
impair the rights of the optionee without the consent of such optionee.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of the holders of a majority of the Common Shares
present at the annual meeting is required to adopt this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE 1997 STOCK OPTION PLAN.
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<PAGE> 19
PROPOSAL TWO: 1997 RESTRICTED STOCK PLAN
The Board of Directors of the Company, at a meeting of the Board on August
18, 1997, approved The Standard Products Company 1997 Restricted Stock Plan (the
"Restricted Stock Plan") and directed that the Restricted Stock Plan be
submitted to the shareholders for approval at the annual meeting. The primary
purposes of the Restricted Stock Plan are to attract and retain well-qualified
personnel for positions of substantial responsibility with the Company and to
provide incentives to such persons to enhance the long-term welfare of the
Company and to continue in its service, through the award of Common Shares over
an extended period of time, the number of which Common Shares shall generally
depend on the earnings performance of the Company over a period of years. A copy
of the Restricted Stock Plan is attached to this proxy statement as Exhibit B.
THE FOLLOWING DESCRIPTION OF THE RESTRICTED STOCK PLAN IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO EXHIBIT B.
DESCRIPTION OF THE PLAN
The Plan provides for the grant of awards of Common Shares to select
officers and key employees of the Company. An award of Common Shares to an
employee is evidenced by a written agreement between the Company and the
employee. Such agreement, subject to the provisions of the Restricted Stock
Plan, will specify the performance goals and other conditions to which an award
of Common Shares is subject, and the period of time that awarded shares will be
subject to forfeiture. Awarded Common Shares will be issued in the name of the
employee, delivered to the employee and held by the Company subject to
forfeiture. The award of Common Shares to an employee under the Restricted Stock
Plan does not entitle such employee to, or disqualify him from, a further award
of Common Shares at a later date.
The aggregate number of Common Shares that may be awarded under the
Restricted Stock Plan is 150,000. In no event will there be awarded under the
Restricted Stock Plan any more than an aggregate number of 100,000 Common Shares
to any one individual. The Committee may adjust the number and kind of Common
Shares available for distribution and subject to forfeiture to prevent dilution
or enlargement of rights in the event of a change in the number or kind of
outstanding shares of the Company by reason of recapitalization, merger,
consolidation, reorganization, separation, liquidation, stock split, stock
dividend, combination of shares or any other change in the corporate structure
or shares of capital stock in the Company.
Common Shares issued under the Restricted Stock Plan which are subject to
forfeiture are non-transferable but holders of such shares have all other rights
of a shareholder, including the right to vote such shares and to receive
dividends. The Committee may provide in the written agreement with the employee
that the forfeiture period with respect to awarded Common Shares may lapse upon
an employee's death or disability or upon a "Change in Control" of the Company
(as such term is defined in the Restricted Stock Plan). Any Common Shares
awarded under the Restricted Stock Plan which are subject to forfeiture (i) may
not be sold, transferred, assigned, pledged, hypothecated, anticipated,
alienated, encumbered or changed, whether voluntarily, involuntarily or by
operation of law, and (ii) shall be forfeited to the Company in the event the
employee to whom such Common Shares were awarded voluntarily terminates his
employment with the Company during the period of time, if any, specified by the
Committee. Absence or leave approved by the Committee is not considered an
interruption of service or employment for purposes of the Restricted Stock Plan.
At the time the award is made and the certificates representing the Common
Shares are delivered to the employee and held by the Company, the employee shall
execute one or more blank stock powers and deliver the same to the Company so
that shares which are forfeited may be cancelled.
TAX CONSEQUENCES
An employee is deemed to have ordinary income in an amount equal to the
fair market value of the awarded Common Shares in the taxable year in which the
awarded Common Shares are no longer subject to forfeiture unless, within 30 days
of when such Common Shares are awarded, an employee makes an election
18
<PAGE> 20
under Section 83(b) of the Code to include in income the fair market value
(determined without regard to any restrictions other than those which by their
terms will never lapse) of the shares on the date of award. The employer
corporation is entitled to deductions for federal income tax purposes in the
same amount in the employer corporation's taxable year in which the employee has
income if the employer corporation deducts and withholds appropriate federal
withholding tax.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of the holders of Common Shares entitling such holders
to exercise a majority of the voting power of the Company is required to adopt
this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE RESTRICTED STOCK PLAN.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any shareholder proposals intended to be presented at the Company's 1998
Annual Meeting of Shareholders must be received by the Company at 2401 South
Gulley Road, Dearborn, Michigan 48124, Attention: Corporate Secretary, on or
before May 16, 1998, for inclusion in the Company's proxy statement and form of
proxy relating to the 1998 Annual Meeting of Shareholders.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and owners of more than 10% of the Company's
Common Shares, to file with the Securities and Exchange Commission (the "SEC")
and the New York Stock Exchange initial reports of ownership and reports of
changes in ownership of Common Shares and other equity securities of the
Company. Executive officers, directors and owners of more than 10% of the Common
Shares are required by SEC regulations to furnish the Company with copies of all
forms they file pursuant to Section 16(a).
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended June 30, 1997, all Section
16(a) filing requirements applicable to its executive officers, directors and
greater-than-10% beneficial owners were complied with.
OTHER MATTERS
Copies of the Company's Annual Report on Form 10-K as submitted to the
Securities and Exchange Commission are available to shareholders without charge
upon written request. Please address your request to Mr. Donald R. Sheley, Jr.,
Vice President, Finance at the Company's Corporate Headquarters, 2401 South
Gulley Road, Dearborn, Michigan 48124.
The Company has not selected its independent public accountants for the
current fiscal year. This selection will be made later in the year by the Board
of Directors. Representatives of Arthur Andersen LLP, which served as the
Company's independent public accountants during the fiscal year ended June 30,
1997, are expected to be present at the annual meeting with the opportunity to
make a statement if they so desire and to be available to respond to appropriate
questions.
If the enclosed proxy is executed and returned to the Company, the persons
named in it will vote the shares represented by such proxy at the meeting. The
form of proxy permits specification of a vote for the election of directors as
set forth under "Election of Directors" above, the withholding of authority to
vote in the election of directors, or the withholding of authority to vote for
one or more specified nominees.
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<PAGE> 21
Where a choice has been specified in the proxy, the shares represented will
be voted in accordance with such specification. If no specification is made,
such shares will be voted at the meeting to elect directors as set forth under
"Election of Directors" above and FOR Proposals One and Two above. Under Ohio
law and the Company's Second Amended and Restated Articles of Incorporation, as
amended, broker non-votes and abstaining votes will not be counted in favor of
or against any nominee. Under Ohio law and the Company's Second Amended and
Restated Articles of Incorporation, as amended, broker non-votes and abstaining
votes with respect to Proposals One and Two will in effect be votes against such
proposal. If any other matters shall properly come before the meeting, the
persons named in the proxy will vote thereon in accordance with their judgment.
Management does not know of any other matters which will be presented for action
at the meeting.
By order of the Board of Directors,
Richard N. Jacobson
RICHARD N. JACOBSON
General Counsel and Secretary
Dated: September 16, 1997
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<PAGE> 22
EXHIBIT A
THE STANDARD PRODUCTS COMPANY
1997 EMPLOYEE STOCK OPTION PLAN
1. INCENTIVE PURPOSE. The purpose of The Standard Products Company 1997
Employee Stock Option Plan (the "Plan") is to encourage and enable key
management employees of The Standard Products Company, an Ohio corporation (the
"Company"), and its subsidiaries to acquire a larger stock ownership and
personal financial interest in the Company and thereby provide additional
incentive for the promotion of the welfare of the Company and for the continued
service of the participants with the Company.
2. AMOUNT OF STOCK. Upon the approval of the Plan by the shareholders,
there shall be reserved, allotted and set aside for issuance under the Plan
350,000 of the presently authorized but unissued Common Shares, $1.00 par value,
of the Company (the "Common Shares"), subject to Paragraph 13. As set forth in
Paragraph 19 of the Plan, all of such options may be granted as incentive stock
options, all of such options may be granted as nonqualified stock options, or
such options may be granted as both incentive stock options and nonqualified
stock options.
3. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee (the "Committee") of the Board of Directors which shall consist of not
less than three members, none of whom are employees of the Company or its
subsidiaries or are eligible to receive an incentive or nonqualified stock
option while serving as a member of the Committee, and each of whom shall be a
"Non-Employee Director" within the meaning of Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, or
any successor definition adopted by the Securities and Exchange Commission, and
an "outside director" within the meaning of Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"). The Board may also select one or
more qualified Directors to serve as alternate members of the Committee, who may
take the place of any absent member or members at any meeting of the Committee.
The Committee shall be authorized to administer the Plan in accordance with its
terms and may adopt, amend or repeal such rules and regulations as the Committee
may desire concerning the conduct of its affairs. The interpretation and
construction by the Committee of any provision of the Plan or of any stock
option granted under it and the administration of the Plan by the Committee
shall be final. No member of the Board of Directors or the Committee shall be
liable for any action taken or omitted or any determination made in good faith
in connection with the Plan.
4. PARTICIPATION. Subject to the limitations herein set forth, the
Committee may grant incentive or nonqualified stock options from time to time
during the period ending August 17, 2007, to such key management employees of
the Company or any subsidiary thereof as in the opinion of the Committee will
best further the interests of the Company and achieve the purposes of the Plan.
No option shall be granted to any individual who, at the time the option is
granted:
(i) Shall not be an employee of the Company or a subsidiary (as
defined in Section 424(f) of the Code) thereof, or
(ii) Shall be a member of the Committee.
5. THE OPTION PRICE. Except as provided in Paragraph 7, the option price
per Common Share to be paid upon the exercise of any stock option, as determined
by the Committee, shall be not less than the fair market value per Common Share
at the time the option is granted. Such fair market value shall be the first
sale price per Common Share (or in the event there are no sales, then the
average of the opening bid and asked prices per Common Share) on the New York
Stock Exchange on the date on which the option is granted.
6. LENGTH OF OPTION. Except as otherwise provided, each option shall be
exercisable no later than ten (10) years from the date it is granted. Each
option granted to an employee, who at the time the incentive stock option is
granted to him, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the employee corporation or of its parent or
subsidiary corporation under the attribution rules set forth in Section 424(d)
of the Code, shall be exercisable no later than five (5) years from the date it
is granted. The Committee, in its sole discretion, will determine the vesting
schedule of each option granted
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under this Plan; provided, however, that no option may be exercised prior to one
year from the date it is granted. Except as provided in Paragraphs 8, 9 and 10
hereof, no option may be exercised unless the optionee is at the time of such
exercise in the employ of the Company or of a subsidiary thereof and shall have
been continuously so employed since the granting of his option. Absence or leave
approved by the Committee in accordance with applicable provisions of the Code
and the regulations promulgated thereunder shall not be considered an
interruption of employment for purposes of the Plan.
7. LIMITATION ON GRANTING OF OPTIONS. The Committee shall not grant
incentive stock options if the aggregate fair market value (determined at the
time the option is granted) of Common Shares with respect to which incentive
stock options are exercisable for the first time by an employee during any
calendar year (under all option plans of his employer corporation and its parent
and subsidiary corporations) shall exceed $100,000. In no event shall there be
granted under the 1997 Stock Option Plan or any other stock option plan of the
Company to any employee in any calendar year options to purchase more than
250,000 Common Shares. If any employee, at the time an incentive stock option is
granted to him, owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the employer corporation or its
parent or subsidiary corporations (taking into account the attribution of stock
ownership rules set forth in Section 424(d) of the Code), the option price per
Common Share to be paid upon the exercise of such incentive stock option shall
not be less than one hundred and ten percent (110%) of the fair market value per
Common Share at the time the incentive stock option is granted, as determined in
accordance with Paragraph 5.
8. TERMINATION OF EMPLOYMENT. If an optionee shall cease to be employed by
the Company or a subsidiary thereof on account of normal retirement, early
retirement, or disability, either physical or mental, he may exercise his option
to the extent that he was entitled to exercise it at the date of such cessation
or for such greater number of shares subject to the option as to which the
Committee may authorize an acceleration of time of exercise under the option. If
such cessation of employment is for any reason other than death or permanent and
total disability (within the meaning of Section 22 (e)(3) of the Code), said
optionee may exercise his option to the same extent, but only within the three
months next succeeding such cessation of employment; provided, however, that in
the event of an uninterrupted transfer of employment to or between the Company
and/or any parent or subsidiary corporation of the Company, such option shall
continue in effect until the employee ceases to be employed by all such
affiliated corporations. Neither the Plan, nor the granting of any option
thereunder, will confer upon any optionee any right with respect to continuance
of employment by the Company, or any subsidiary thereof, nor will it interfere
in any way with his right, or the employer's right, to terminate his employment
at any time.
9. DEATH OF OPTIONEE. In the event of the death of an optionee while in the
employ of the Company or a subsidiary thereof, the options theretofore granted
to him shall be exercisable only within one year next succeeding such death, or
within the balance of the period of the option if less than one year, and then
only by the administrator or executor of his estate and to the extent that the
deceased optionee was entitled to exercise it at the date of his death.
10. DISABILITY OF OPTIONEE. In the event of the permanent and total
disability (within the meaning of Section 22(e)(3) of the Code) of the optionee
while in the employ of the Company or a subsidiary thereof, the options
theretofore granted to him shall be exercisable only within the one-year period
next succeeding his cessation of employment or within the balance of the period
of the option if less than one year.
11. NONASSIGNABILITY. Each option shall by its terms provide that it is not
transferable by the optionee other than by will or the laws of descent and
distribution and that it is exercisable during his lifetime, only by the
optionee or by the optionee's duly authorized legal representative if the
optionee is unable to exercise his option as a result of the optionee's
disability, but only if, and to the extent, permitted by Section 422 of the
Code, and after his death, only by his administrator or executor, as above
permitted; provided, however, that if so provided in the instrument evidencing
the Option, the Compensation Committee may permit any optionee to transfer the
Option during his lifetime to one or more members of his family or to one or
more trusts for the benefit of one or more members of his family, provided that
no consideration is paid for the transfer and that such transfer would not
result in the loss of any exemption under Rule 16b-3 for any Option that the
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<PAGE> 24
Compensation Committee does not permit to be so transferred. The transferee of
an Option shall be subject to all restrictions, terms, and conditions applicable
to the Option prior to its transfer, except that the Option shall not be further
transferable inter vivos by the transferee. The Compensation Committee may
impose on any transferable Option and on the Common Shares to be issued upon the
exercise of the Option such limitations and conditions as the Committee deems
appropriate.
12. METHOD OF EXERCISE. Options shall be exercised in blocks of fifty (50)
or more shares. Exercise of options shall be by the execution by the person
entitled at the time to exercise the options of a written notice of such
exercise and delivery thereof to the Company at its principal office in
Dearborn, Michigan, which notice shall specify the number of shares being
purchased. In the case of Common Shares purchased under options (unless such
Common Shares have in either case been registered under the Securities Act of
1933 (the "1933 Act")), the written notice shall contain a representation in
form approved by the Company that such Common Shares are being acquired not with
a view to resale or distribution and will not be sold or otherwise transferred
except upon compliance with the 1933 Act and the Rules and Regulations issued
thereunder. In the case of the exercise of an option, such notice shall be
accompanied by payment in full of the option price of the Common Shares. Payment
of the option price with respect to any stock option may be made in cash or in
Common Shares valued at the closing sale price per Common Share (or in the event
there are no sales, then the average of the closing bid and asked prices per
Common Share) on the New York Stock Exchange on the last trading day preceding
the date on which the option is exercised. Upon receipt of such notice and
payment, the Company will promptly issue and deliver its certificate for the
number of Common Shares being purchased under options. No person, estate or
other entity shall have any of the rights of a shareholder with reference to
Common Shares subject to an option until a certificate or certificates for the
shares have been delivered. An option granted under this Plan may be exercised
for any lesser number of Common Shares than the full amount for which it could
be exercised subject to the first two sentences of this Paragraph. Such a
partial exercise of an option shall not affect the right to exercise the option
from time to time in accordance with this Plan for the remaining Common Shares
subject to the option.
13. ADJUSTMENTS. In the event of any change in the number or kind of
outstanding shares of the Company by reason of recapitalization, merger,
consolidation, reorganization, separation, liquidation, stock split, stock
dividend, combination of shares or any other change in the corporate structure
or shares of stock of the Company, the Committee in its discretion shall make an
appropriate adjustment in the number and kind of shares for which options may
thereafter be granted both in the aggregate and as to each optionee, as well as
in the number and kind of shares subject to options theretofore granted and the
option price payable upon exercise of such options.
14. REALLOCATION OF UNUSED SHARES. Shares which are not purchased under
options which terminate or lapse may be used for the further grant of options
under the Plan.
15. EXPIRATION AND TERMINATION OF THE PLAN. Options may be granted under
the Plan at any time up to and including August 17, 2007, on which date the Plan
will expire, except as to options then outstanding under the Plan, which options
shall remain in effect until they have been exercised or have expired.
16. AMENDMENT AND REVOCATION. The Board of Directors shall have the right
to alter, amend or revoke the Plan or any part thereof at any time and from time
to time; provided, however, that the Board of Directors shall obtain any
approval by shareholders which is necessary for continued applicability of Rule
16b-3 of the Securities and Exchange Commission; and provided, further, that,
without the consent of the optionees, no change may be made in any option
theretofore granted which will impair the rights of such optionees.
17. COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES.
a. No option shall be exercisable and no Common Shares will be delivered
under this Plan except in compliance with all applicable federal and state laws
and regulations including, without limitation, compliance with the rules of all
domestic stock exchanges on which the Company's Common Shares may be listed. Any
share certificate issued to evidence Common Shares may bear legends and
statements the Committee shall deem advisable to assure compliance with federal
and state laws and regulations. No option shall be exercisable, and no Common
Shares will be delivered under this Plan, until the Company has obtained
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consent or approval from regulatory bodies, federal or state, having
jurisdiction over such matters as the Committee may deem advisable.
b. In the case of the exercise of an option by a person or estate acquiring
the right to exercise the option by bequest or inheritance, the Committee may
require reasonable evidence as to the ownership of the option and may require
such consents and releases of taxing authorities as it may deem advisable.
18. WITHHOLDING OF TAXES. No later than the date as of which an amount
first becomes includable in the gross income of an optionee for federal income
tax purposes with respect to any option granted under the Plan, the optionee
shall pay to the Company, or make arrangements satisfactory to the Committee
regarding the payment of, any federal, state or local taxes of any kind required
by law to be withheld with respect to such amount. Unless otherwise determined
by the Committee, withholding obligations may be settled with Common Shares,
including Common Shares that are a part of the option that gives rise to the
withholding requirement. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company and its subsidiaries
and affiliates shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due the optionee.
19. TYPES OF OPTIONS. Options granted under the Plan may be: (i) options
which are intended to qualify and are identified as incentive stock options
under Section 422 of the Code; (ii) options which are not intended clearly to
qualify under Section 422 of the Code and are clearly identified as options
which are not to be treated as incentive stock options under Section 422 of the
Code; or (iii) both of the foregoing.
20. GOVERNING LAW. The Plan, all options and action taken thereunder and
any agreements relating thereto, shall be governed by and construed in
accordance with the laws of the State of Ohio.
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EXHIBIT B
THE STANDARD PRODUCTS COMPANY
1997 RESTRICTED STOCK PLAN
1. INCENTIVE PURPOSE. The purposes of The Standard Products Company 1997
Restricted Stock Plan (the "Plan") are to attract and retain well qualified
personnel for positions of substantial responsibility with the Company and its
subsidiaries and to provide incentives to such persons to enhance the long-term
welfare of the Company and to continue in its service through the award of
Common Shares which are generally earned over an extended period of time.
2. DEFINITIONS. For purposes hereof, the following words and phrases shall
have the meanings indicated.
(a) "Change in Control" means the occurrence of any of the following
events:
(1) When any "person," as defined in Section 3(a)(9) of the Exchange
Act and as used in Sections 13(d) and 14(d) thereof, including a "group" as
defined in Section 13(d) of the Exchange Act, but excluding the Company and
any Subsidiary and any employee benefit plan sponsored or maintained by the
Company or any Subsidiary (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act, as amended from time to
time), of securities of the Company representing 20 percent or more of the
combined voting power of the Company's then outstanding capital stock;
provided, however, that with respect to any director who, on the effective
date of this Plan, is the beneficial owner or has the option to acquire
five percent or more of such capital stock outstanding on such effective
date, capital stock so owned or acquired pursuant to any such options shall
not be counted in determining such 20% or more combined voting power;
(2) when, during any period of 24 consecutive months during the
existence of the Plan, the individuals who, at the beginning of such
period, constitute the Board of Directors of the Company (the "Incumbent
Directors") cease for any reason other than death to constitute at least a
majority thereof; provided, however, that a director who was not a director
at the beginning of such 24-month period shall be deemed to have satisfied
such 24-month requirement (and be an Incumbent Director) if such director
was elected by, or on the recommendation of or with the approval of, at
least two-thirds of the directors who then qualified as Incumbent Directors
either actually (because they were directors at the beginning of such
24-month period) or by prior operation of this Section 2(a)(2); or
(3) the completion of a transaction requiring shareholder approval for
the acquisition of the Company by an entity other than the Company or a
Subsidiary through purchase of assets, or any merger of the Company into
another company (unless the persons who were shareholders of the Company
immediately prior to such transaction own more than 70% of the voting stock
and value of the surviving company immediately following such merger in
substantially the same proportions as they owned immediately prior to the
merger).
(b) "Committee" means the Compensation Committee of the Board of Directors
of the Company.
(c) "Common Shares" means Common Shares, $1 par value per share, of the
Company.
(d) "Company" means The Standard Products Company.
(e) "Disability" means disability as determined under procedure established
by the Committee for purposes of the Plan.
(f) "Employee" means any employee of the Company or a Subsidiary who is an
officer or other key employee thereof.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(h) "Plan" means The Standard Products Company 1997 Restricted Stock Plan,
as set forth herein and as the same subsequently may be amended or modified.
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(i) "Subsidiary" means a corporation which is a wholly-owned subsidiary,
directly or indirectly, of the Company.
(j) Whenever appropriate, words used herein in the singular may be read as
the plural and the plural may be read as the singular.
(k) Masculine pronouns used herein shall be deemed to refer both to women
and men.
3. AMOUNT OF STOCK. Upon the approval of the Plan by the shareholders,
there shall be reserved, allotted or set aside for issuance under the Plan
150,000 of the presently authorized but unissued Common Shares of the Company,
subject to paragraph 13. Any Common Shares issued hereunder may consist, in
whole or in part, of authorized and unissued Common Shares or treasury shares.
4. ADMINISTRATION. The Plan shall be administered by the Committee, each
member of which is a "Non-Employee Director," as defined in Rule 16b-3
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934 (the "Exchange Act"), and an "outside director" within the
meaning of Section 162(m) of the Code. The Board may also select one or more
Non-Employee Directors to serve as alternate members of the Committee, who may
take the place of any absent member or members at any meeting of the Committee.
The Committee shall administer the Plan in accordance with its terms and may
adopt, amend and repeal such rules and regulations as the Committee may desire
concerning the conduct of its affairs. The interpretation and construction by
the Committee of any provision of the Plan or of any stock award granted under
it and the administration of the Plan by the Committee shall be final. No member
of the Board of Directors or the Committee shall be liable for any action taken
or omitted or determination made in good faith in connection with the Plan.
Subject to the terms of the Plan, the Committee shall determine the Employees to
whom Common Shares shall be awarded under the Plan, the number of Common Shares
to be awarded to Employees under the Plan (which number shall not exceed 100,000
Common Shares over the term of the Plan), the performance goals, terms and other
conditions, if any, of the award, the period of time that awarded shares are
subject to forfeiture as provided in paragraph 8 below and the statements or
legends to be placed on certificates representing the Common Shares issued under
the Plan.
5. ELIGIBILITY. Common Shares may be awarded under the Plan to Employees
subject to the attainment of such performance goals or fulfillment of such other
conditions, if any, as the Committee in its sole discretion shall determine. No
member of the Committee shall be eligible for an award of Common Shares under
the Plan while serving as a Committee member.
6. TERMS AND CONDITIONS OF AWARD. An award of Common Shares to an Employee
shall be evidenced by a written agreement between the Company and the Employee.
Such agreement shall specify the performance criteria, such as earnings per
share, stock price, or return on equity, terms and other conditions to which an
award of Common Shares is subject, if any, and the period of time, if any, that
awarded shares are subject to forfeiture, subject in any event to the provisions
of this Plan. The award of Common Shares to an Employee under the Plan shall not
entitle such employee to, or disqualify him from, a further award of Common
Shares at a later date.
7. SECURITIES LAWS AND SECURITIES EXCHANGE RESTRICTIONS ON COMMON SHARES
AWARDED UNDER THE PLAN. In the case of all Common Shares awarded under the Plan
(unless such Common Shares have been registered under the Securities Act of 1933
(the "1933 Act"), the written agreement evidencing the award of Common Shares
shall contain a representation in form approved by the Committee and the Company
that such Common Shares are being acquired not with a view to resale or
distribution and will not be sold or otherwise transferred by the employee to
whom the award is made, except in compliance with the 1933 Act and the rules and
regulations thereunder. The Committee may impose such other restrictions on the
Common Shares as it may deem advisable, including, without limitation, any
restrictions necessary to meet the requirements of the New York Stock Exchange
or any other stock exchange or quotation system of a national securities
association under which the Common Shares or shares of the same class are then
listed and traded, and any Blue Sky or state securities laws applicable to the
Common Shares. Share certificates issued in connection with awards of Common
Shares under the Plan shall bear such legends and statements as the Committee
shall deem advisable to assure compliance with federal and state securities laws
and regulations.
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8. FORFEITURE OF COMMON SHARES. Common Shares awarded to an Employee under
the Plan shall be subject to forfeiture for such period of time as shall be
determined by the Committee and set forth in the written agreement evidencing
the award. The Committee may provide in the written agreement that the
forfeiture period with respect to awarded Common Shares may lapse upon an
Employee's death, Disability, Change in Control of the Company, or such other
event as determined by the Compensation Committee. Any Common Shares awarded
under the Plan which are subject to forfeiture (a) shall not be sold,
transferred, assigned, pledged, hypothecated, anticipated, alienated, encumbered
or charged, whether voluntarily, involuntarily, or by operation of law, and (b)
shall be forfeited to the Company in the event an Employee to whom such Common
Shares were awarded voluntarily ceases to be an Employee during the period of
time, if any, specified by the Committee. Absence or leave approved by the
Committee shall not be considered an interruption of service or employment for
purposes of the Plan. Common Shares awarded under the Plan will be issued in the
name of Employee to whom awarded and held by the Company for the Employee
subject to forfeiture for such period of time as the Committee may determine. At
the time the award is made and the certificates representing the Common Shares
delivered to the Employee and held by the Company, the Employee shall execute
one or more blank stock powers and deliver the same to the Company so that any
shares which are forfeited may be cancelled.
9. TERM OF PLAN. This Plan shall continue until terminated by the
Committee. The Committee shall have the unrestricted right to amend, modify,
suspend or terminate the Plan at any time.
10. SHAREHOLDER RIGHTS. Employees to whom awards of Common Shares have been
granted under the Plan shall have all rights of shareholders with respect to the
Common Shares which are the subject of such awards, subject to the provisions of
paragraph 8 hereof.
11. NO ENLARGEMENT OF EMPLOYEE RIGHTS. The award of Common Shares under the
Plan to an Employee shall not confer any right to the Employee to continue in
the employ of the Company or of a Subsidiary and shall not restrict or interfere
in any way with the right of his employer to terminate his employment, with or
without cause, at any time.
12. WITHHOLDING OF TAXES. The Committee may require, as a condition to the
award of Common Shares to an Employee under the Plan, that such Employee pay to
the Company, in cash, any federal, state or local taxes of any kind required by
law to be withheld with respect to the award to such Employee of Common Shares.
The Company, to the extent permitted or required by law, shall have the right to
deduct, from any payment of any kind otherwise due to such Employee, any
federal, state or local taxes of any kind required by law to be withheld with
respect to the award of Common Shares under the Plan to such Employee. In order
to facilitate payment of applicable withholding taxes, an employee to whom an
award of Common Shares has been granted may request, subject to the Committee's
sole discretion, the Company to purchase an amount of Common Shares equal to the
federal and state withholding tax, if any, payable in the taxable year in which
the awarded Common Shares are no longer subject to forfeiture; provided that the
proceeds of the Company's purchase shall be used to pay such withholding taxes
and that no purchase shall be made if such purchase would violate a rule or
regulation promulgated under the 1934 Act or the 1933 Act.
13. ADJUSTMENT OF SHARES. The Committee may adjust the number and kind of
Common Shares, both in the aggregate and as to each grantee, available for
distribution and subject to forfeiture to prevent dilution or enlargement of
rights in the event of a change in the number or kind of outstanding shares of
the Company by reason of recapitalization, merger, consolidation,
reorganization, separation, liquidation, stock splits, stock dividend,
combination of shares or any other change in the corporate structure or Common
Shares of the Company.
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THE STANDARD PRODUCTS COMPANY
INDEX TO SELECTED FINANCIAL DATA, MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AND CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Selected Financial Data..................................... F-1
Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ F-2
Consolidated Financial Statements and Supplemental Data
Management's Responsibility for Financial Statements...... F-7
Report of Independent Accountants......................... F-7
Consolidated Statements of Income for the Years ended June
30, 1997, 1996 and 1995................................ F-8
Consolidated Balance Sheets, June 30, 1997 and 1996....... F-9
Consolidated Statements of Cash Flows for the Years ended
June 30, 1997, 1996 and 1995........................... F-10
Consolidated Statements of Shareholders' Equity for the
Years ended June 30, 1997, 1996 and 1995............... F-11
Notes to Consolidated Financial Statements................ F-12
</TABLE>
<PAGE> 30
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net Sales......................... $1,108,268 $1,083,920 $995,926 $872,367 $763,796 $657,036
Gross Income...................... 145,456 108,482 99,455 119,427 108,607 94,253
Selling, General & Administrative
Expenses......................... 68,559 69,616 60,121 57,787 49,768 41,760
Non-Recurring Charge.............. 17,661 -- 8,832 4,424 -- --
Interest (Income) Expense, net.... 11,859 12,779 13,010 9,093 8,214 13,659
Other (Income) Expense, net....... 918 (2,437) 233 (2,092) 399 54
Provision for Taxes on Income..... 18,929 13,947 (2,807) 17,183 16,803 15,475
Income (Loss) from Continuing
Operations and Before
Extraordinary Item and Cumulative
Effect on Prior Years of Change
in Accounting Principle.......... 27,530 14,577 20,066 33,032 33,423 23,305
Income (Loss) from Operations and
Disposal of Discontinued
Division, Net of Tax............. -- -- -- -- -- --
Income (Loss) Before Extraordinary
Item and Cumulative Effect on
Prior Years of Change in
Accounting Principle............. 27,530 14,577 20,066 33,032 33,423 23,305
Extraordinary Item, Net of Tax.... -- -- -- -- (2,559) --
Cumulative Effect on Prior Years
of Change in Accounting
Principle, Net of Tax............ -- -- -- -- (8,301) --
Net Income (Loss)................. $ 27,530 $ 14,577 $20,066 $ 33,032 $ 22,563 $ 23,305
Percent Net Income to Sales....... 2.5 1.3 2.0 3.8 3.0 3.5
Percent Net Income to Average
Shareholders' Equity............. 10.4 5.6 8.0 14.5 12.1 19.5
PER SHARE
Income (Loss) from Continuing
Operations and Before
Extraordinary Item and Cumulative
Effect on Prior Years of Change
in Accounting Principle.......... $ 1.64 $ .87 $ 1.20 $ 1.99 $ 2.21 $ 1.79
Income (Loss) from Discontinued
Operations....................... -- -- -- -- -- --
Extraordinary Item, Net of Tax.... -- -- -- -- $ (.17) --
Cumulative Effect on Prior Years
of Change in Accounting
Principle, Net of Tax............ -- -- -- -- $ (.55) --
Net Income (Loss)................. $ 1.64 $ .87 $ 1.20 $ 1.99 $ 1.49 $ 1.79
Cash Dividends Declared........... $ .68 $ .68 $ .68 $ .65 $ .54 $ .38
Book Value........................ $ 15.96 $ 15.42 $ 15.56 $ 14.55 $ 13.56 $ 11.82
BALANCE SHEET
Property, Plant & Equipment....... $ 583,614 $ 548,816 $489,534 $422,576 $377,564 $279,830
Accumulated Depreciation.......... 280,608 250,278 220,095 180,567 153,137 130,410
Total Assets...................... 691,859 684,695 701,889 624,314 564,850 398,793
Working Capital................... 46,565 53,455 127,498 87,922 79,396 97,303
Long-term Debt.................... 121,804 143,041 190,522 135,381 115,607 69,289
Shareholders' Equity.............. 268,357 258,765 260,495 242,677 224,436 177,753
Cash Dividends Declared........... $ 11,579 $ 11,400 $ 11,445 $ 10,821 $ 8,450 $ 5,103
OTHER
Additions to Property, Plant &
Equipment, net................... $ 59,004 $ 79,684 $ 54,671 $ 59,120 $ 38,000 $ 18,367
Depreciation & Amortization....... $ 53,130 $ 52,545 $ 46,839 $ 40,495 $ 29,887 $ 26,228
Shares Outstanding................ 16,810 16,785 16,736 16,674 16,552 15,044
Average Shares Outstanding........ 16,804 16,758 16,711 16,627 15,114 13,010
<CAPTION>
1991 1990 1989 1988
---- ---- ---- ----
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT
Net Sales......................... $592,090 $590,699 $527,896 $473,035
Gross Income...................... 38,946 65,316 81,452 83,878
Selling, General & Administrative
Expenses......................... 40,073 35,011 27,111 23,694
Non-Recurring Charge.............. -- -- -- --
Interest (Income) Expense, net.... 11,663 8,608 3,125 1,430
Other (Income) Expense, net....... 285 1,846 2,062 1,612
Provision for Taxes on Income..... 7,879 8,060 18,333 20,373
Income (Loss) from Continuing
Operations and Before
Extraordinary Item and Cumulative
Effect on Prior Years of Change
in Accounting Principle.......... (20,954) 11,791 30,821 36,769
Income (Loss) from Operations and
Disposal of Discontinued
Division, Net of Tax............. (24,655) -- (2,132) (2,712)
Income (Loss) Before Extraordinary
Item and Cumulative Effect on
Prior Years of Change in
Accounting Principle............. (45,609) 11,791 28,689 34,057
Extraordinary Item, Net of Tax.... -- -- -- --
Cumulative Effect on Prior Years
of Change in Accounting
Principle, Net of Tax............ -- -- -- --
Net Income (Loss)................. $(45,609) $ 11,791 $28,689 $ 34,057
Percent Net Income to Sales....... -- 2.0 5.4 7.2
Percent Net Income to Average
Shareholders' Equity............. -- 7.7 18.8 25.5
PER SHARE
Income (Loss) from Continuing
Operations and Before
Extraordinary Item and Cumulative
Effect on Prior Years of Change
in Accounting Principle.......... $ (1.65) $ .93 $ 2.33 $ 2.71
Income (Loss) from Discontinued
Operations....................... $ (1.94) -- $ (.16) $ (.20)
Extraordinary Item, Net of Tax.... -- -- -- --
Cumulative Effect on Prior Years
of Change in Accounting
Principle, Net of Tax............ -- -- -- --
Net Income (Loss)................. $ (3.59) $ .93 $ 2.17 $ 2.51
Cash Dividends Declared........... $ .47 $ .74 $ .69 $ .61
Book Value........................ $ 8.06 $ 12.05 $ 12.05 $ 10.96
BALANCE SHEET
Property, Plant & Equipment....... $251,151 $239,773 $200,801 $154,623
Accumulated Depreciation.......... 102,553 91,739 76,591 65,922
Total Assets...................... 369,272 362,399 333,741 255,211
Working Capital................... 61,594 90,014 88,937 74,759
Long-term Debt.................... 113,298 99,480 75,213 16,577
Shareholders' Equity.............. 102,366 152,829 156,348 145,800
Cash Dividends Declared........... $ 5,992 $ 9,365 $ 9,084 $ 8,194
OTHER
Additions to Property, Plant &
Equipment, net................... $ 21,179 $ 39,230 $ 32,506 $ 21,345
Depreciation & Amortization....... $ 24,747 $ 19,975 $ 14,196 $ 11,078
Shares Outstanding................ 12,695 12,689 12,975 13,293
Average Shares Outstanding........ 12,694 12,753 13,250 13,571
</TABLE>
F-1
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
(ALL AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
OVERVIEW
The Standard Products Company (the "Company") is recognized as one of the
world's leading suppliers of sealing, trim and vibration-control systems to
original equipment manufacturers ("OEMs") of passenger cars and light trucks.
The Company also maintains a leading position in providing sealing solutions for
the refrigeration industry. These operations comprise the Company's
Transportation Equipment Segment.
The Company's truck tire retreading business is reported as the Tread
Rubber Segment. This business also has a significant position in its industry.
Net income of the Company and its consolidated subsidiaries was $27,530 in
fiscal 1997, or $1.64 per common share compared with $14,577, or $0.87 per share
in fiscal 1996. Results in 1997 included a non-recurring charge of $17,661, or
$0.63 per share net of tax, for the closure of manufacturing facilities in
Lexington, Kentucky and Schenectady, New York. The Company also incurred costs
related to the closures of approximately $1,665, or $0.06 per share net of tax,
in the second half of fiscal 1997 which did not qualify for immediate accrual.
The Company's Financial Statements and Notes to Financial Statements on
Pages F-7 through F-22, including the Report of Independent Accountants (the
"Financial Statements"), should be read as an integral part of this discussion
and analysis.
TRANSPORTATION EQUIPMENT SEGMENT
Sales by geographic location in this segment were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
North America........ $682,817 $687,009 $626,152
Europe............... 234,504 241,617 240,100
South America........ 58,680 29,479 2,640
-------- -------- --------
Total............ $976,001 $958,105 $868,892
======== ======== ========
</TABLE>
SALES PERFORMANCE - 1997 VERSUS 1996
Fiscal 1997 sales for the Transportation Equipment Segment were $976,001,
an increase of $17,896, or 1.9% over the prior year.
The overall sales increase was primarily attributable to the fact that the
Company's new plant in Brazil was operational for the entire year. The new plant
shipped products for only the final four months of fiscal 1996.
The sales reduction in North America resulted primarily from decreases in
sales of the Ford Taurus/Sable and Escort, Chevrolet Lumina and Plymouth/Dodge
Neon. These reductions were not offset by increases in sales of the Jeep(R)
Grand Cherokee and Chrysler minivan and by increased participation in various
General Motors programs. In fiscal 1997, automotive production in North America
was essentially flat compared to 1996, and trended downward in the fourth
quarter of fiscal 1997, when car production by General Motors, Ford and Chrysler
combined was more than 10% lower than in the same period of fiscal 1996. The
Company is also under continued pressure from the OEMs to reduce the unit price
of its products. The appliance sealing business experienced a $2,099 increase in
sales over 1996 levels due to continued strong appliance demand in the United
States.
European sales decreased $7,113, or 2.9%, primarily as a result of currency
translation related to the French franc. This was partially offset by currency
translation gains arising from a stronger British pound. Volumes in Europe were
up slightly over 1996 levels, principally as a result of sales to Toyota,
Renault and Volvo.
SALES PERFORMANCE - 1996 VERSUS 1995
Fiscal 1996 sales for the Transportation Equipment Segment were $958,105,
an increase of $89,213, or 10.3%, over the prior year.
The sales increase in North America was entirely related to automotive
operations, and occurred despite flat year-over-year production of passenger
cars and light trucks in the North American auto market. Strong sales
performance by individual platforms within the industry accounted for the
increased sales volume. The Chrysler minivan and Jeep(R) Grand Cherokee showed
strong sales gains. Year-over-year performance was helped by the fact that this
was the Company's first full year of production on the Chrysler minivan. The
Ford Taurus/Sable, while declining slightly in sales, showed
F-2
<PAGE> 32
stronger volumes as the year progressed. This helped support the Company's
strong fourth quarter performance. The new Ford F-150 truck also boosted sales.
Sales in the appliance sealing business were essentially flat year-over-year,
although strong fourth quarter production helped to offset previous quarterly
declines in sales from the same periods in the prior year.
In Europe, volumes increased in the United Kingdom, principally on Ford
platforms, while in France volume declined, primarily due to reduced sales to
Renault and Fiat. Foreign currency translations in France almost entirely offset
the volume declines, while in the United Kingdom they reduced the volume gains
by over 40%.
In South America, results for fiscal 1995 reflect one month's revenue,
while fiscal 1996 reflects a full twelve months of sales. Our new plant in
Varginha, Brazil, came on-line in the last month of the third quarter of this
year, adding solidly to the revenue base.
OPERATING PERFORMANCE - 1997 VERSUS 1996
Despite only modest sales growth from 1996 to 1997, the Transportation
Equipment segment experienced strong improvements in operating results.
Operating income after charges for the plant closings in Lexington, Kentucky,
and Schenectady, New York, was $55,439, an increase of $15,603 or 39.2% over
fiscal 1996 levels. This improvement is attributable to the success of ongoing
process improvement and cost reduction initiatives, including a focused effort
on lowering raw material costs. Gross margin on sales showed continued
improvement throughout the year. Operating income in Brazil also improved by
over $8,500 as this operation moved from start-up toward full production.
Research and development costs increased substantially due in large part to
an investment by the Company in vehicle sealing systems that will have cosmetic,
weight and performance characteristics superior to current products, as well as
allow for cycle time improvements when placed in production. This investment
totaled approximately $1,500 in fiscal 1997. Development is expected to continue
into next year. The positive impact to the Company from these products and
processes will be dependent on customers' acceptance of their benefits. The
Company also incurred increased costs totaling $972 from the addition of
engineering staff for its Brazilian operation.
Selling, general and administrative expenses decreased from prior year
levels due to the absence of start-up costs related to the Brazilian plant of
$6,100. This decrease was substantially offset by increased personnel costs for
areas targeted to improve customer service.
As mentioned above and discussed in Note 3 to the attached financial
statements, the Company incurred a charge of $17,661, before tax, for the
closure of two North American manufacturing facilities. These closures were
deemed necessary by management to consolidate operations and reduce overcapacity
in this geographic area. Ongoing production programs at these sites were
transferred to existing locations in the United States. The closures are
expected to be completed by December 1997 and enhance Company profitability in
future years. The Company continually reviews capacity as part of its business
planning.
OPERATING PERFORMANCE - 1996 VERSUS 1995
Fiscal 1996 began poorly but finished on a high note. First quarter gross
margins were affected by high start-up costs on several significant new launches
and high raw material costs. Beginning in the second quarter of fiscal 1996,
costs related to these product launches and raw material costs began to decline.
Cost reductions and process improvement programs also helped to generate
significant margin improvements as the year unfolded.
Selling, general and administrative expenses increased substantially in
this segment over the prior year. This increase was the result of start-up costs
in Brazil of approximately $9,100, as well as the expenses related to the sale
of receivables explained further in Note 4 to the financial statements.
The Company completed the closure of its Canadian plastics plant previously
accrued for in 1995. Additional costs were incurred of approximately $1,000 and
were charged to normal operations in fiscal 1996.
TREAD RUBBER SEGMENT
GENERAL
Oliver Rubber Company ("Oliver") manufactures and markets precure and mold
cure tread rubber, bonding gum, cement, repair materials and equipment for use
in the tire retreading industry. In addition, Oliver supplies custom-mixed
rubber to the Company and certain affiliates for use in the automotive original
equipment business.
F-3
<PAGE> 33
SALES PERFORMANCE - 1997 VERSUS 1996
Fiscal 1997 sales for the North American based Tread Rubber segment totaled
$145,497, an increase of 7.1% over fiscal 1996 sales of $135,869. Included in
this amount were $13,230 of intersegment sales, an increase of 31.6% over prior
year levels. The increase in intersegment sales resulted from investments made
by Oliver to upgrade the capacity and quality of rubber mixing operations at its
Asheboro, North Carolina plant. Increased sales to third parties were primarily
the result of Oliver's agreement with Treadco, Inc., the largest independent
truck tire retreader in the United States, which was signed in 1996.
SALES PERFORMANCE -- 1996 VERSUS 1995
Sales for fiscal 1996 were $135,869, including intersegment sales of
$10,054. This was an increase of 1.7%, or $2,213 over fiscal 1995.
In fiscal 1995, Oliver closed its European operations. Accordingly, there
were no sales in Europe in fiscal 1996. During fiscal 1995, sales in Europe were
$5,239. Sales in North America increased by $7,452 in fiscal 1996. Roughly 46%
of this increase came from additional intersegment sales to the Transportation
Equipment segment. During fiscal 1996, Oliver made a significant investment in
its mixing plant in Asheboro, North Carolina, resulting in improved quality and
increased sales to the Transportation Equipment segment's automotive parts
plants. The remainder of the increase in sales is primarily attributable to the
new agreement Oliver signed in fiscal 1996 to supply Treadco, Inc. with precure
tread rubber, retread equipment and related items at all of its truck tire
precure retreading locations.
OPERATING PERFORMANCE -- 1997 VERSUS 1996
Operating income in the Tread Rubber segment for fiscal 1997 was $9,128, an
increase of $5,050, over the same period in the prior year. Approximately $2,300
of this increase is the result of the sales increases noted above. In addition,
improved operating efficiencies due to the upgrade of manufacturing facilities,
and an emphasis on improving product mix contributed to increased operating
income. These increases were partially offset by increased administrative costs
related to enhancing the information systems and selling capabilities of this
segment.
OPERATING PERFORMANCE -- 1996 VERSUS 1995
Operating income for the Tread Rubber Segment increased from $1,727 in
fiscal 1995 to $4,078 in fiscal 1996. While this segment has made several
improvements in its operating performance, particularly the quality of its
mixing capabilities, the primary source of its improved profitability came from
supply chain management. This resulted in savings on raw material costs that
translated to improved operating income.
OTHER (INCOME) EXPENSE
Interest expense was $12,914 for 1997, compared to $14,944 for 1996, a
decrease of $2,030. The decrease is primarily attributable to lower borrowings
under the Company's revolving credit agreement during 1997. This is a result of
reduced capital expenditures with the completion of the Brazilian plant and
favorable cash flow from improved operations. The improvement was partially
offset by increased interest from short-term borrowings, primarily in South
America.
Interest expense in fiscal 1996 was $14,944, an increase of $859 from 1995
levels. During the year the Company increased its borrowings to fund investments
in Brazil and other capital programs. This increase was partially offset by
proceeds from the sale of accounts receivable (see Note 4 to the Financial
Statements), which were used to reduce outstanding debt.
Royalty and dividend income have been comparable for each of the last three
years. "Other, net" was an expense in fiscal 1997 of $521, a reduction of $4,450
over the 1996 income amount of $3,929. This reduction is primarily attributable
to: (i) reduced interest income ($1,059), (ii) increased losses on fixed asset
dispositions ($885), and (iii) reduced operating profit at the Company's joint
venture, Nishikawa Standard Company ("NSC"). As explained in Note 1 of the
Financial Statements, the Company's share of NSC's earnings decreased by $1,535.
Other, net in fiscal 1996 exceeded the prior year level by $3,901, principally
due to increased earnings at NSC.
The Company's effective tax rate for fiscal 1997 was 40.7%. The reduction
from the prior year relates primarily to improved operating results in Brazil.
While Brazil lost money in both 1996 and 1997, reduced losses in the current
year resulted in a lower effective tax rate because the Company has not
recognized these benefits in either year. Implementation of royalty agreements
between the Company and certain of its foreign subsidiaries also served to lower
the effective tax rate between 1996 and 1997.
F-4
<PAGE> 34
The Company's effective tax rate for fiscal 1996 was 48.9%, as a result of
the Company's inability to utilize net operating losses generated in its
Brazilian operations. Recognition of tax benefits related to those losses will
be reported in future periods as opportunities to utilize these carryforwards
become more certain.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $80,045 of net cash from operating activities in
fiscal 1997. The major sources were net income and non-cash items such as
depreciation and amortization. Inventory increased by $3,733 from the prior year
due to increased volume in Brazil. Inventory builds at Lexington and Schenectady
related to the closure of those locations also increased inventory balances from
the prior year.
During fiscal 1997, the Company's net capital spending totaled $59,004, a
decrease of $20,680 from the prior year when most of the expenditures to
construct the Company's plant in Varginha, Brazil, were incurred. Fiscal 1997
capital spending did, however, include approximately $10,300 for the completion
of the Brazilian plant as well as approximately $13,400 in Canada which included
expansion of an existing plant to accommodate future General Motors demand for
vibration control systems. Additional significant expenditures were also made in
the United Kingdom to upgrade mixing facilities and in construction of a new
plant in Mexico which is 70% owned by the Company as part of a joint venture
with the Nishikawa Rubber Company of Hiroshima, Japan. Capital spending for
fiscal 1998 is expected to be approximately $65,000 and will include the cost of
completing the Mexican facility, which is anticipated to commence operations in
the second quarter of the year.
The Company utilized improved cash flow from operations and reduced levels
of capital spending in the fiscal year to reduce long-term debt obligations
under the Company's revolving credit agreement. This reduction in outstanding
debt was partially offset by increased short-term borrowing, principally in
Brazil, to fund working capital requirements. The Company also paid quarterly
dividends throughout fiscal 1997 of $0.17 per share. Dividends are expected to
continue throughout fiscal 1998.
In September 1995, the Company generated $50,000 through the sale of
accounts receivable in the United States. Proceeds from the sale were used to
reduce outstanding borrowings under the Company's Revolving Credit Agreement.
See Note 4 to the Consolidated Financial Statements found on page F-15 for a
more detailed description of this transaction.
During the three-year period ended June 30, 1997, inflation has been
relatively moderate, and operating costs reflect current costs for raw materials
and inventory, operating expenses and depreciation. It is important to
understand that inflation, as reported on a consumer price index basis, may not
bear a direct relationship to the Company's costs. Although inflation on the
whole was stable during the period, as mentioned above, fiscal 1995 saw
significant price increases in the raw materials used in operations. This was
the result of increases in the costs of petroleum, polymers and chemicals used
in the Company's business at a rate greater than the general inflation rate. The
Company does not expect inflation to have any near-term material effect on the
costs of its products, although there can be no assurance that such an effect
will not occur in the future.
Except for Brazil and Mexico, the value of the Company's consolidated
assets and liabilities located outside the United States (which are translated
at period-end exchange rates) and income and expenses (which are translated
using rates prevailing during the fiscal year) have been affected by the
translation values of the Canadian dollar, French franc and British pound. Such
translation adjustments are reported as a separate component of shareholders'
equity. While exchange rate fluctuations have historically not had a significant
impact on the Company's reported operating results, changes in the values of the
currencies noted above will impact the translation adjustments in the future.
The Company's operations in Brazil and Mexico use the U.S. dollar as their
functional currency. Translation adjustments for these operations are included
in the determination of income.
At June 30, 1997, the Company was in compliance with the various covenants
under the agreements pursuant to which it may borrow money. Management expects
that it will remain in compliance with these covenants through the year ending
June 30, 1998.
During the next year, the Company believes that its cash requirements for
working capital, capital expenditures, dividends, interest and debt repayments
will be met through internally generated funds and utilization of available
borrowing sources. For a description of the Company's financing arrangements at
June 30, 1997, see Note 8 to the Financial Statements.
F-5
<PAGE> 35
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
This standard establishes guidelines for the display of comprehensive income for
financial statement purposes. The objective of the statement is to report a
measure of all changes in equity of an enterprise that result from transactions
and other economic events of the period other than transactions with owners.
The FASB also issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This standard requires extensive disclosure
of operating segments based on the "management approach." This approach
organizes segments within a company for making operating decisions and assessing
performance. Reportable segments can be based on products and services,
geography, legal structure or any other manner in which management disaggregates
the company. Both standards are effective for fiscal years beginning after
December 15, 1997.
PROSPECTIVE INFORMATION
The Company expects sales in its North American automotive operations to
decline by approximately 10% in fiscal 1998. The sales decline is due to several
factors, the most significant of which is the absence of business on certain
vehicle platforms for which the Company provided products in 1997, including the
Ford F-150 pickup truck and the Ford Thunderbird. Production of the Thunderbird
has been discontinued. Another significant factor is price concessions granted
to customers under long-term contracts.
The sales decline projected in North America is expected to be partially
offset by significant increases in sales in Brazil and Europe. The increase in
Brazil is attributable to expected higher levels of production of the Fiat
Palio. The Company provides complete sealing systems for the Palio in Brazil. As
production increases, management expects continued improvement in the
profitability of the Brazilian operations. The increase in Europe is due to a
number of new launches in both the United Kingdom and France. New business
beginning in fiscal 1999 is likely to more than offset the decline in sales that
will be experienced in 1998.
Despite a projected decline in sales in North America, the Company expects
that the positive future impact of having closed two plants in 1997 and
continued cost reduction measures, centering around manufacturing process
improvements, will prevent a significant decline in earnings in North America.
As mentioned above and like most automotive suppliers, the Company has agreed to
reduce prices annually on many of the products that it provides, both in North
America and elsewhere in the world. As a result, the Company is making an
aggressive and continuing effort to reduce costs in all aspects of its
operations. The Company's future success is partly dependent on the
implementation of these initiatives. Management's expectations for fiscal 1998
also depend upon improved profitability of the Brazilian subsidiary, and
successful launches of new programs in Europe and in the Company's NSC joint
venture.
CAUTIONARY STATEMENTS FOR PURPOSES OF "SAFE HARBOR" UNDER THE PRIVATE SECURITIES
REFORM ACT OF 1995
Certain statements in this Management's Discussion and Analysis, the
attached Financial Statements, in the Company's press releases and in oral
statements made by or with the approval of an authorized executive officer of
the Company constitute "forward-looking statements" as that term is defined
under the Private Securities Litigation Reform Act of 1995. These may include
statements projecting, forecasting or estimating Company performance and
industry trends. The achievement of the projections, forecasts or estimates is
subject to certain risks and uncertainties. Actual results and events may differ
materially from those projected, forecasted or estimated. The applicable risks
and uncertainties include general economic and industry conditions that affect
all international businesses, as well as matters that are specific to the
Company and the markets it serves.
General risks that may impact the achievement of such forecasts include
compliance with new laws and regulations; significant raw material price
fluctuations; currency exchange rate fluctuations; limits on repatriation of
funds; and political uncertainties. Specific risks to the Company include risk
of recession in the economies in which its products are sold; the concentration
of a substantial percentage of the Company's sales with a few major OEM
customers; labor relations at the Company, its customers and its suppliers;
competition in pricing and new product development from larger companies with
substantial resources; and continued globalization of the automotive supply base
resulting in new competition in certain locations.
F-6
<PAGE> 36
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The Standard Products Company
and Consolidated Subsidiaries
Management is responsible for the preparation, integrity and objectivity of
the consolidated financial statements and other financial information presented
in this report. The accompanying consolidated financial statements were prepared
in accordance with generally accepted accounting principles, applying certain
estimates and judgments as required.
Standard Products' internal controls are designed to provide reasonable
assurance as to the integrity and reliability of the financial statements and to
adequately safeguard, verify and maintain accountability of assets. Such
controls are based on established written policies and procedures, are
implemented by trained, skilled personnel with an appropriate segregation of
duties and are monitored through a comprehensive internal audit program. These
policies and procedures prescribe that the Company and all its employees are to
maintain the highest ethical standards and that its business practices
throughout the world are to be conducted in a manner which is above reproach.
Arthur Andersen LLP, independent auditors, are retained to audit the
Company's financial statements. Their accompanying report is based on audits
conducted in accordance with generally accepted auditing standards, which
include the consideration of the Company's internal controls to establish a
basis for reliance thereon in determining the nature, timing and extent of
audits tests to be applied.
The Board of Directors exercises its responsibility for these financial
statements through its Audit Committee, which consists entirely of independent
non-management Board members. The audit committee meets periodically with the
independent auditors and with the Company's internal auditors, both privately
and with management present, to review accounting, auditing, internal controls
and financial reporting matters.
Ronald L. Roudebush Donald R. Sheley, Jr.
Ronald L. Roudebush Donald R. Sheley, Jr.
Vice Chairman and Chief Vice President, Finance
Executive Officer* and Chief Financial
Officer
*effective July 24, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND THE BOARD OF DIRECTORS, THE STANDARD PRODUCTS COMPANY:
We have audited the accompanying consolidated balance sheets of The
Standard Products Company (an Ohio corporation) and Consolidated Subsidiaries as
of June 30, 1997 and 1996, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended June 30, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Standard
Products Company and Consolidated Subsidiaries as of June 30, 1997 and 1996, and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended June 30, 1997 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
July 24, 1997
Cleveland, Ohio
Arthur Andersen LLP
F-7
<PAGE> 37
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THE STANDARD PRODUCTS COMPANY
AND CONSOLIDATED SUBSIDIARIES
FOR THE YEARS ENDED JUNE 30,
-----------------------------------------
1997 1996 1995
---- ---- ----
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<S> <C> <C> <C>
Net Sales................................................ $1,108,268 $1,083,920 $ 995,926
Cost of Goods Sold:
Materials, wages and other manufacturing costs......... 916,821 934,504 863,260
Research, engineering and development expenses......... 45,991 40,934 33,211
---------- ---------- ----------
962,812 975,438 896,471
---------- ---------- ----------
Gross Income............................................. 145,456 108,482 99,455
Selling, General and Administrative Expenses............. 68,559 69,616 60,121
Non-recurring Charge (Note 3)............................ 17,661 -- 8,832
---------- ---------- ----------
59,236 38,866 30,502
---------- ---------- ----------
Other (Income) Expense:
Royalty and dividend income............................ (658) (673) (814)
Interest expense....................................... 12,914 14,944 14,085
Other, net............................................. 521 (3,929) (28)
---------- ---------- ----------
12,777 10,342 13,243
---------- ---------- ----------
Income before Taxes on Income............................ 46,459 28,524 17,259
Provision for Taxes on Income............................ 18,929 13,947 (2,807)
---------- ---------- ----------
Net Income.......................................... $ 27,530 $ 14,577 $ 20,066
========== ========== ==========
Earnings Per Common Share:
Primary................................................ $ 1.64 $ 0.87 $ 1.20
---------- ---------- ----------
Fully Diluted.......................................... $ 1.64 $ 0.87 $ 1.20
---------- ---------- ----------
Weighted average shares outstanding.................... 16,803,849 16,757,767 16,711,451
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE> 38
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
THE STANDARD PRODUCTS
COMPANY AND
CONSOLIDATED
SUBSIDIARIES, JUNE 30,
-----------------------
1997 1996
---- ----
(THOUSANDS OF DOLLARS
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 6,972 $ --
Receivables, less allowances of $2,863 in 1997 and $2,958
in 1996................................................ 174,696 181,001
Inventories (Note 5)...................................... 66,633 60,377
Prepaid insurance, taxes, etc. ........................... 23,685 19,680
-------- --------
Total current assets................................. 271,986 261,058
-------- --------
Property, Plant and Equipment, at cost:
Land and buildings........................................ 123,103 115,707
Machinery and equipment................................... 460,511 433,109
-------- --------
583,614 548,816
Less -- Accumulated depreciation.......................... (280,608) (250,278)
-------- --------
Net property, plant and equipment.................... 303,006 298,538
Goodwill, net............................................... 66,169 71,653
Other Assets, net (Note 6).................................. 50,698 53,446
-------- --------
$691,859 $684,695
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term notes payable.................................. $ 19,645 $ 1,198
Current maturities of long-term debt...................... 1,289 2,050
Accounts payable and accrued expenses (Note 7)............ 201,629 201,502
Dividend payable.......................................... 2,858 2,853
-------- --------
Total current liabilities............................ 225,421 207,603
Long-term Debt, net of current maturities................... 121,804 143,041
Other Postretirement Benefits............................... 24,953 25,230
Deferred Income Taxes and Other Credits..................... 51,324 50,056
Commitments and Contingent Liabilities (Note 13)
Shareholders' Equity:
Serial preferred shares, without par value, authorized
6,000,000 voting shares and 6,000,000 non-voting
shares, none issued.................................... -- --
Common shares, par value $1 per share; authorized
50,000,000 shares, issued and outstanding 16,809,723 in
1997 and 16,784,867 in 1996............................ 16,810 16,785
Paid-in capital........................................... 98,066 96,906
Retained earnings......................................... 170,620 154,669
Foreign currency translation adjustments.................. (12,870) (6,318)
Minimum pension liability................................. (4,269) (3,277)
-------- --------
Total shareholders' equity........................... 268,357 258,765
-------- --------
$691,859 $684,695
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE> 39
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THE STANDARD PRODUCTS COMPANY
AND CONSOLIDATED SUBSIDIARIES
FOR THE YEARS ENDED JUNE 30,
------------------------------
1997 1996 1995
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income................................................ $ 27,530 $ 14,577 $ 20,066
Adjustments to reconcile net income to net cash provided
by (used by) operating activities:
Depreciation and amortization.......................... 53,130 52,545 46,839
Deferred taxes and other credits....................... (974) 265 (2,631)
Equity in income of non-consolidated affiliates........ (1,103) (2,436) (786)
Effect of changes in foreign currency.................. 929 192 (2,834)
Other.................................................. 2,763 1,216 (2,151)
Net changes in assets and liabilities:
Receivables (Note 4)................................. 5,877 18,160 9,436
Inventories.......................................... (6,079) 9,081 (14,790)
Accounts payable and accrued expenses................ (2,028) 29,140 (40)
-------- -------- --------
Net cash provided by operating activities....... 80,045 122,740 53,109
-------- -------- --------
Cash Flows from Investing Activities:
Purchase of property, plant and equipment, net............ (59,004) (79,684) (54,671)
Investments in affiliates and non-consolidated entities... (264) (199) (8,679)
Assets acquired by purchase of businesses................. -- (1,581) (840)
-------- -------- --------
Net cash used by investing activities........... (59,268) (81,464) (64,190)
-------- -------- --------
Cash Flows from Financing Activities:
Proceeds of long-term borrowings.......................... 18,076 37,791 55,929
Net increase (decrease) in short-term borrowings.......... 18,447 (3,561) (11,740)
Repayment of long-term borrowings......................... (39,586) (84,659) (1,914)
Cash dividends............................................ (11,579) (11,400) (11,445)
Proceeds from exercise of stock options................... 134 299 477
-------- -------- --------
Net cash provided by (used by) financing
activities................................... (14,508) (61,530) 31,307
-------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... 703 708 (680)
-------- -------- --------
Increase (decrease) in cash and cash equivalents............ 6,972 (19,546) 19,546
Cash and cash equivalents at the beginning of the year...... -- 19,546 --
-------- -------- --------
Cash and cash equivalents at the end of the year............ $ 6,972 $ -- $ 19,546
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-10
<PAGE> 40
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
THE STANDARD PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
-----------------------------------------------------------------------
FOREIGN
CURRENCY MINIMUM TOTAL
COMMON PAID-IN RETAINED TRANSLATION PENSION SHAREHOLDERS'
SHARES CAPITAL EARNINGS ADJUSTMENTS LIABILITY EQUITY
------ ------- -------- ----------- --------- -------------
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1994............. $16,674 $95,614 $ 142,871 $(10,359) $(2,123) $242,677
Net income....................... -- -- 20,066 -- -- 20,066
Cash dividends ($.68 per
share)........................ -- -- (11,445) -- -- (11,445)
Foreign currency translation
adjustments................... -- -- -- 9,863 -- 9,863
Restricted stock awards.......... -- 208 -- -- -- 208
Sale of 61,894 shares to option
holders....................... 62 415 -- -- -- 477
Minimum pension liability........ -- -- -- -- (1,351) (1,351)
------- ------- --------- -------- ------- --------
BALANCE, JUNE 30, 1995............. $16,736 $96,237 $ 151,492 $ (496) $(3,474) $260,495
Net income....................... -- -- 14,577 -- -- 14,577
Cash dividends ($.68 per
share)........................ -- -- (11,400) -- -- (11,400)
Foreign currency translation
adjustments................... -- -- -- (5,822) -- (5,822)
Restricted stock awards.......... -- 419 -- -- -- 419
Sale of 48,712 shares to option
holders....................... 49 250 -- -- -- 299
Minimum pension liability........ --..... -- -- -- 197 197
------- ------- --------- -------- ------- --------
BALANCE, JUNE 30, 1996............. $16,785 $96,906 $ 154,669 $ (6,318) $(3,277) $258,765
Net income....................... -- -- 27,530 -- -- 27,530
Cash dividends ($.68 per
share)........................ -- -- (11,579) -- -- (11,579)
Foreign currency translation
adjustments................... -- -- -- (6,552) -- (6,552)
Restricted stock awards.......... -- 1,051 -- -- -- 1,051
Sale of 24,856 shares to option
holders....................... 25 109 -- -- -- 134
Minimum pension liability........ -- -- -- -- (992) (992)
------- ------- --------- -------- ------- --------
BALANCE, JUNE 30, 1997............. $16,810 $98,066 $ 170,620 $(12,870) $(4,269) $268,357
======= ======= ========= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-11
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. Major intercompany items have
been eliminated.
The Company's investments in affiliate operations are accounted for by both
the equity and cost methods of accounting. The cost method is followed in those
situations where the Company's ownership is less than 20% and operations are
conducted by management of the affiliate. Income is recorded as received. The
equity method of accounting is followed in those situations of larger ownership
interests but less than 51%, and the Company's results of operations include
those of the affiliate to the extent of its ownership interest.
The Company's investment in Nishikawa Standard Company (NSC), a 50% owned
joint venture in the United States, is accounted for under the equity method.
The Company's investment in NSC at June 30, 1997 and 1996 was $19,609 and
$18,644 respectively and is included in Other Assets in the accompanying
consolidated balance sheets. The Company's share of NSC's operating income was
$969, $2,504 and $431 in fiscal 1997, 1996 and 1995, respectively.
Under the terms of NSC's revolving credit and term loan facility, the joint
venture partners are required to guarantee a portion of NSC's borrowings. The
Company's share of these guarantees at June 30, 1997 was $8,650.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits and repurchase agreements
at varying rates of interest and with original maturities less than thirty days.
These investments are carried at cost which approximates market value.
The following is additional information related to the accompanying
consolidated statements of cash flows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash paid for
interest........... $12,314 $14,962 $13,935
Cash paid for income
taxes.............. $18,819 $ 6,206 $ 3,600
</TABLE>
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiaries have been
translated in accordance with Statement of Financial Accounting Standards (SFAS)
No. 52. Except for the Brazilian and Mexican subsidiaries, current rates of
exchange are used to translate the balance sheets of these entities, while the
average exchange rate of each fiscal year is used for the translation of income
and expense accounts. The resulting unrealized gains and losses are recorded as
a component of shareholders' equity. Because the Company's Brazilian and Mexican
subsidiaries operate in highly inflationary economies, the U.S. dollar has been
used as the functional currency in the translation of the Brazilian and Mexican
financial statements. Accordingly, foreign currency gains or losses of the
Brazilian and Mexican subsidiaries have been reflected in income currently.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. The Company provides
for depreciation of plant and equipment using the straight-line and
sum-of-years' digits methods at annual rates based on the following estimated
service lives of the property:
<TABLE>
<S> <C>
Buildings.................... 15 to 25 years
Machinery and Equipment...... 10 to 14 years
Furniture and Fixtures....... 7 to 10 years
</TABLE>
Maintenance and repair expenditures are charged to income as incurred.
Expenditures for improvements and major renewals are capitalized. When assets
are retired, the related cost and accumulated depreciation are removed from the
accounts, and any gain or loss on the disposition is credited or charged to
income.
INVENTORIES
Inventories are stated at the lower of cost or market. The majority of
domestic inventories are valued using the last-in, first-out (LIFO) method, and
the remaining inventories are valued using the first-in, first-out (FIFO)
method. Cost includes the cost of materials, direct labor and the applicable
share of manufacturing overhead.
F-12
<PAGE> 42
GOODWILL
Goodwill, which represents the excess of purchase price over the fair value
of assets acquired, is amortized on a straight-line basis over the estimated
useful life but not in excess of 40 years. Recoverability is reviewed annually
or sooner if events or changes in circumstances indicate that the carrying
amount may exceed fair value. Recoverability is then determined by comparing the
undiscounted net cash flows of the net assets on which the goodwill applies to
the net book value, including goodwill, of those assets.
TAXES ON INCOME
The Company has determined tax expense and other deferred tax information
using the liability method, which recognizes the differences in financial
reporting bases and tax bases of assets and liabilities at tax rates currently
in effect. Income tax expense includes United States, foreign and state income
taxes, exclusive of taxes on the undistributed income of foreign subsidiaries
where it is the intention of the Company to have those subsidiaries reinvest the
income locally.
RETIREMENT PLANS
The Company's policy is to fund the pension costs of defined benefit plans
in accordance with the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). Defined contribution and multi-employer plans are funded as
accrued, and the accrual is based upon hourly rates, or a percentage of the
unit's performance.
POSTRETIREMENT MEDICAL BENEFITS
The Company provides postretirement health and life insurance benefits for
retired salaried and certain retired hourly employees. Benefits provided under
various plans, individually arranged by business unit, include health and life
insurance. The plans generally provide for a means to limit the cost of the
plans to the Company through cost-sharing or spending limitations.
FINANCIAL INSTRUMENTS
The Company's financial instruments recorded on the balance sheet include
cash and cash equivalents, trade receivables and payables and debt obligations.
The book value of cash and cash equivalents, trade receivables and payables and
short-term debt are considered to be representative of fair value because of the
short maturity of these instruments. The fair value of long-term debt is based
on rates available to the Company for debt with comparable terms and maturities.
Off balance sheet derivative financial instruments include a currency and
interest rate swap transaction, an interest rate swap contract and foreign
exchange contracts. The currency and interest rate swap transaction protects the
Company from fluctuations in the value of the U.S. dollar in relation to the
French franc and establishes a fixed U.S. dollar rate of return on a loan from
the Company to its French subsidiary. The interest rate swap transaction
converts floating rate debt under its Revolving Credit Agreement to fixed rate
debt.
The Company and its subsidiaries enter into foreign exchange contracts to
manage exposure to foreign exchange fluctuations related to sales to foreign
customers or purchases of equipment or inventory from foreign suppliers. These
contracts hedge firm commitments to pay or receive foreign currency within a
one-year period. The Company does not engage in speculation and does not hedge
foreign currency positions which are not related to specific transactions. The
gains and losses on the contracts offset losses and gains of the transactions
being hedged, resulting in protection from the risks of foreign exchange
movement for those transactions and avoiding losses affecting results of
operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ENVIRONMENTAL COMPLIANCE AND REMEDIATION
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations and do not contribute to current or future revenue
generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are
F-13
<PAGE> 43
probable and the costs can be reasonably estimated. Estimated costs are based
upon enacted laws and regulations, existing technology and the most probable
method of remediation. The costs determined are not discounted and exclude the
effects of inflation and other societal and economic factors. Where the cost
estimates result in a range of equally probable amounts, the lower end of the
range is accrued.
REVENUE RECOGNITION
The Company recognizes revenues as products are shipped to its customers.
CONCENTRATION OF CREDIT RISK
The Company designs and manufactures rubber and plastic components for
automotive original equipment manufacturers. Financial instruments which
potentially subject the Company to concentrations of credit risk are primarily
accounts receivable. The Company performs ongoing credit evaluations of its
customers' financial condition. The allowance for non-collection of accounts
receivable is based on the expected collectibility of all accounts receivable.
IMPAIRMENT OF ASSETS
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" on July 1, 1996. This Statement
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The adoption of SFAS No. 121
did not have a material effect on the Company's consolidated financial
statements.
STOCK-BASED COMPENSATION
Prior to July 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
July 1, 1996, the Company adopted SFAS No. 123 Accounting for Stock-Based
Compensation, which allows entities to continue to apply the provisions of APB
Opinion No. 25, and provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants made in fiscal 1997 and
future years as if the fair-value based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to their 1997
presentation in the financial statements.
2. ACQUISITIONS
In May 1995, the Company acquired the 80% of Itatiaia Standard not
previously owned by it for total consideration of $4,040. The acquisition was
accounted for under the purchase method of accounting and the financial
statements of the Company include the acquired assets, assumed liabilities and
results of operations for June 1995. Pro forma sales and operating results are
not material. Valuation of the assets acquired and liabilities assumed in
accordance with Accounting Principles Board Opinion No. 16 was finalized during
fiscal 1996 and resulted in recording goodwill of approximately $10,800.
3. NON-RECURRING CHARGE
In 1997, the Company announced it would permanently close two automotive
parts plants in Schenectady, New York and Lexington, Kentucky, and recorded a
non-recurring charge of $17,661 or $0.63 per share of common stock, after tax.
The closures are being undertaken to reduce overcapacity, which will allow the
Company to improve customer service, reduce operating costs, and improve
productivity and asset utilization. The closures, which are expected to be
completed by December 1997, will result in the reduction of approximately 500
employees.
The Company's provision consists of a $12,485 to recognize severance and
benefits for the employees to be terminated and $5,176 for asset writedowns and
building razing costs. At June 30, 1997, approximately $5,116 in costs have been
charged against these accruals. The remaining amounts are
F-14
<PAGE> 44
included in Accounts payable and accrued expenses in the accompanying
consolidated balance sheet.
During fiscal 1997, the Company also incurred $1,665 in expenses related to
the transfer of business from the closed facilities to those that will remain in
operations. Since these costs are expected to benefit future operations they
were not included in the non-recurring charge. Examples include, costs to move
machinery, equipment and inventory, equipment set-up and relocation of employees
retained by the Company.
In 1995, the Company provided $8,832 to rationalize two business units. The
Company has submitted the remaining assets of Oliver Rubber's European
subsidiary for formal liquidation proceedings in the United Kingdom. As a
result, a provision of $5,347 was recorded to reduce asset values to net
realizable amounts, to accrue expenses of liquidation including severance for
several employees, and to recognize foreign currency losses which were formerly
deferred in the Company's foreign currency translation account. Of the amount
provided, $2,309 was recorded in the first quarter of fiscal 1995 with the
balance recorded in the fourth quarter. The Company attempted to realize as much
asset value as possible before beginning formal liquidation. The liquidation was
substantially completed in fiscal 1996.
The second 1995 business unit rationalization involved the Company's
plastic plant in Canada. As part of its formal plan, in fiscal 1995, the Company
recorded $3,485 to provide for a work force reduction of 328 employees at this
plant. Costs included in this provision in the fourth quarter were pension
curtailment, severance as required by Canadian law, lease obligations for the
idled portion of the leased facility, removal costs of the Company-owned
equipment and reduction of idled assets to net realizable value. At June 30,
1996 the business was closed, and all production was moved to other locations.
Additional costs incurred to close this business were charged to normal
operations as incurred.
4. ACCOUNTS RECEIVABLE SECURITIZATION
In September 1995, the Company and certain of its U.S. subsidiaries entered
into an agreement to sell, on an ongoing basis, all of their accounts receivable
to The Standard Products Funding Corporation (Funding Co.), a wholly owned
subsidiary of the Company. Accordingly, the Company and those subsidiaries,
irrevocably and without recourse, transfer all of their U.S. dollar denominated
trade accounts receivable (principally representing amounts owed by original
equipment customers in the U.S. automotive and related industries) to the
Funding Co. The Funding Co. has sold and, subject to certain conditions, may
from time to time sell an undivided interest in those receivables to the Clipper
Receivables Corporation. The Funding Co. is permitted to receive advances of up
to $50,000 for the sale of such undivided interest. At June 30, 1997, $50,000
has been advanced. Unless extended by amendment, the agreement expires in
September 1998.
Proceeds from the sale were used to reduce outstanding borrowings under the
Company's Revolving Credit Agreement and are reflected as operating cash flows
in the accompanying consolidated statement of cash flows. Costs of the program,
which primarily consist of the purchasers' financing and administrative costs,
totaled $3,104 and $2,603 in fiscal 1997 and 1996 and have been classified as
Selling, General and Administrative Expenses in the accompanying consolidated
statement income. The Company maintains an allowance for doubtful accounts
receivable ($2,863 and $2,958 at June 30, 1997 and 1996, respectively) based on
the expected collectibility of all trade accounts receivable, including
receivables sold.
5. INVENTORY
The major components of inventory are as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1997 1996
---------------------- ---- ----
<S> <C> <C>
Raw materials............. $29,069 $27,186
Work-in-process and
finished goods.......... 37,564 33,191
------- -------
Total, at both FIFO and
LIFO cost............... $66,633 $60,377
Excess of FIFO cost over
LIFO cost............... $14,019 $13,719
</TABLE>
Approximately 50% of the Company's inventories are valued at LIFO cost.
F-15
<PAGE> 45
6. OTHER ASSETS, NET
Other assets consist of the following:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1997 1996
---------------------- ---- ----
<S> <C> <C>
Investments................. $22,508 $21,195
Tooling..................... 3,450 5,912
Patents and other
intangibles............... 5,834 8,602
Deferred taxes.............. 9,401 10,300
Other....................... 9,505 7,437
------- -------
Total................... $50,698 $53,446
</TABLE>
Where applicable, amounts are presented net of accumulated amortization.
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1997 1996
---------------------- ---- ----
<S> <C> <C>
Accounts payable........... $ 81,214 $ 99,093
Accrued payrolls........... 34,451 26,651
Accrued other taxes........ 5,035 4,489
Federal income tax......... 3,681 --
Other accrued expenses..... 77,248 71,269
-------- --------
Total.................. $201,629 $201,502
</TABLE>
8. FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1997 1996
---------------------- ---- ----
<S> <C> <C>
Senior notes.............. $100,000 $100,000
Revolving credit
agreement............... 20,000 40,000
Other debt................ 3,093 5,091
-------- --------
Total..................... 123,093 145,091
Less - current
maturities.............. 1,289 2,050
-------- --------
$121,804 $143,041
</TABLE>
At June 30, 1997, Senior Notes outstanding of $100,000 include two issues,
$75,000 and $25,000. The $75,000 Senior Notes, placed directly with three
affiliated insurance companies, are unsecured and accrue interest at 6.55%.
Interest payments are payable semiannually, and annual principal payments of
$12,500 begin in December 1998 through December 2002, with the balance due on
maturity in December 2003. The $25,000 Senior Notes are also unsecured notes
placed directly with the holders. The interest rate is 9.81%, interest is paid
semiannually and the notes are payable July 1, 1999.
Each of the Senior Note agreements requires the Company to maintain certain
financial covenants as to net worth, leverage and working capital.
The Revolving Credit Agreement (Credit Agreement) represents unsecured
borrowings from a group of banks that have committed to make available for
borrowing up to $125,000 until January 1999 with provisions for extending the
agreement beyond that date upon satisfaction of certain requirements. The loans
may be denominated in either U.S. dollars or certain other currencies based upon
Eurodollar interest rates or the agent bank's base rate. At June 30, 1997,
borrowings under the Credit Agreement bear interest at 6.28%. A commitment fee
of 0.19% is due on the unused portion of the agreement. The Company has the
right to convert up to $50,000 of revolving loans into a five-year term loan
with quarterly repayments thereafter. The terms of the Credit Agreement also
require the Company to maintain certain financial covenants as to net worth,
leverage and working capital.
Under the most restrictive covenants of the Company's various loan
agreements, $66,464 of retained earnings were not restricted at June 30, 1997
for the payment of dividends, and the ratio of current assets liabilities was
1.21 to 1, in excess of the minimum requirement of 1.00 to 1.
The maturities of long-term debt for the five years subsequent to June 30,
1997 are:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
- ----------------------
<S> <C>
1998 $ 1,289
1999 33,854
2000 37,500
2001 12,500
2002 12,950
Thereafter 25,000
</TABLE>
The Company and its subsidiaries also have, from various banking sources,
approximately $65,700 of unused short-term lines of credit at rates of interest
approximating Eurodollar interest rates. These funds are available subject to
satisfying covenant restrictions as to funded debt limitations. In 1997, the
average month-end lines were $20,200, and the highest month-end balance was
$38,000. Comparable amounts for 1996 were $9,000 and $17,400 and $17,800 and
$23,000 for 1995. The effective annual borrowing rate was 7.3% in 1997, 6.8% in
1996 and 6.8% in 1995. At year end, the weighted interest rate was 8.1%.
F-16
<PAGE> 46
9. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's significant balance
sheet financial instruments at June 30, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997 CARRYING FAIR
(THOUSANDS OF DOLLARS) AMOUNT VALUES
---------------------- -------- ------
<S> <C> <C>
Cash and cash
equivalents........... $ 6,972 $ 6,972
Short-term bank debt.... 19,645 19,645
Long-term bank debt
(including current
portion).............. 123,093 121,793
</TABLE>
<TABLE>
<CAPTION>
1996
(THOUSANDS OF DOLLARS)
----------------------
<S> <C> <C>
Cash and cash
equivalents........... $ -- $ --
Short-term bank debt.... 1,198 1,198
Long-term bank debt
(including current
portion).............. 145,091 143,889
</TABLE>
Off balance sheet derivative financial instruments at June 30, 1997 and
1996, held for purposes other than trading, were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
CONTRACT/ CONTRACT/
NOTIONAL FAIR NOTIONAL FAIR
AMOUNT VALUES AMOUNT VALUES
--------- ------ --------- ------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Currency and interest
rate swaps......... $34,680 $ (509) $38,350 $ (431)
Foreign currency
exchange
agreements......... 41,388 1,844 35,673 505
</TABLE>
With regard to the combined currency and interest rate swap agreement, the
nominal amount of 86,864 French francs is payable by the Company to a bank,
while the amount due from the bank to the Company is $14,680. Periodic payments
are made by the Company and the bank until maturity in November 2000. Interest
rates are fixed with a rate of 6.5% on payments to the bank and 5.8% on payments
from the bank. Exchange rate fluctuations of the French franc payable to the
bank are offset by the French franc receivable from the French subsidiary.
The interest rate swap contract matures in March 1999. The Company pays a
fixed interest rate of 5.18% to the bank and receives a floating rate LIBOR
payment from the bank on the $20,000 notional amount of the swap contract.
Foreign exchange contracts hedging trade transactions mature over the next
twelve months. Exchange contracts hedging foreign denominated intercompany loans
mature no later than the maturity of the loan.
The counterparties to each of these agreements are major commercial banks.
Management believes that losses related to credit risk are remote.
10. RETIREMENT PLANS
The Company and its consolidated subsidiaries have a number of plans
providing pension, retirement or profit-sharing benefits for substantially all
employees. These plans include defined benefit, defined contribution and
multi-employer plans. For defined benefit plans, those covering salaried
employees provide pension benefits based upon the individual employee's average
compensation over the last five years, while hourly plans provide benefits of
stated amounts for each year of service. The assets of the plans consist of
listed bonds, stocks, mutual investment funds and cash securities.
Pension expense is determined using assumptions at the beginning of the
year. The projected benefit obligation (PBO) is determined using the assumptions
at the end of the year. Assumptions used to determine pension expense and the
PBO were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate................ 7.75% 7.75% 8.50%
Long-term rate of return on
plan assets................ 9.50% 9.50% 10.00%
Rate of increase in future
compensation levels........ 5.00% 5.00% 5.00%
</TABLE>
The cost of providing pension, retirement and profit-sharing benefits
charged to operations amounted to $7,295 in 1997, $6,999 in 1996 and $5,444 in
1995. For 1997, the expense of defined contribution plans was $5,033 and
multi-employer plan expense was $486. Comparable figures for 1996 were $4,102
and $449, and for 1995, $3,683 and $508. The expense of defined benefit plans
increased during 1995 as a result of including employees of subsidiary companies
in the Company's salaried pension plan. Components of pension
F-17
<PAGE> 47
expense for defined benefit plans included the following items:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost......... $ 2,435 $ 2,737 $ 2,753
Interest cost on
PBO................ 6,262 6,265 5,868
Actual loss (gain) on
plan assets........ (6,163) (12,654) 457
Net amortization and
deferral........... (1,361) 6,100 (7,871)
Loss due to
curtailment........ 602 -- --
------- -------- -------
Net pension
expense............ $ 1,775 $ 2,448 $ 1,207
</TABLE>
The funded status of the foreign and domestic defined benefit plans is
displayed below and is based on information supplied by the Company's actuary as
of March 31 of each year. In connection with the recognition of the minimum
liability as required by SFAS No. 87, as of June 30, 1997, the Company has
recorded an intangible asset of $1,036 included in Other Assets, net in the
accompanying consolidated balance sheet, and an equity reduction of $4,269.
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
LESS GREATER LESS GREATER
THAN THAN THAN THAN
PLAN PLAN PLAN PLAN
ASSETS ASSETS ASSETS ASSETS
------ ------- ------ -------
ACCUMULATED BENEFITS ARE: (THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Vested benefits.......... $49,540 $27,046 $46,166 $25,278
Non-vested benefits...... 2,576 423 2,230 530
------- ------- ------- -------
Accumulated benefit
obligation............. 52,116 27,469 48,396 25,808
Projected future
compensation
increases.............. 6,166 735 5,719 642
------- ------- ------- -------
PBO...................... 58,282 28,204 54,115 26,450
Plan assets at fair
market value........... 62,772 20,702 60,413 21,056
------- ------- ------- -------
PBO (in excess of) or
less than plan
assets................. 4,490 (7,502) 6,298 (5,394)
Unrecognized transition
asset.................. (4,998) (263) (5,634) (256)
Unrecognized loss........ 3,416 5,061 2,054 3,696
Adjustment required to
recognize minimum
liability.............. -- (5,304) -- (4,362)
Unrecognized prior
service cost........... 2,443 1,241 2,247 1,526
------- ------- ------- -------
Prepaid pension cost,
(liability)............ $ 5,351 $(6,767) $ 4,965 $(4,790)
</TABLE>
The Company has accrued $11,434 and $13,289 for Workers' Compensation
claims as of June 30, 1997 and 1996, respectively.
11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The cost of providing health and life insurance benefits for certain
retired employees has been accrued based on the employees' active service lives.
The expense for postretirement benefits other than pensions is detailed below.
All plans under which these benefits are provided are unfunded.
The Company continues to fund these benefits as claims are incurred.
Spending limitations per annum are in effect for several plans and future
retirees of other plans will pay a portion of these costs.
A summary of plan information is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Accumulated
postretirement benefit
obligation (APBO):
Retirees.............. $22,196 $20,989 $19,874
Active participants
eligible to receive
benefits............ 2,442 2,177 1,872
Other active plan
participants........ 3,174 2,516 2,558
---------- --------- ---------
27,812 25,682 24,304
Unrecognized gain
(loss).............. (438) 2,048 3,689
---------- --------- ---------
$27,374 $27,730 $27,993
---------- --------- ---------
Periodic postretirement
benefit cost:
Current service
cost................ $ 271 $ 286 $ 248
Interest on
postretirement
benefit
obligation.......... 1,922 1,990 2,033
Net amortization...... (11) (74) --
---------- --------- ---------
$ 2,182 $ 2,202 $ 2,281
---------- --------- ---------
Actuarial assumptions:
Discount rate......... 7.75% 7.75% 8.50%
1997 to 2004 -- health
care cost trend
rate................ 10.75%-5.5% 11.5%-5.5% 13.9%-5.5%
Effect of a 1% increase
in health care cost
trend rate:
Increase year end
APBO................ 7.0% 6.6% 6.3%
Increase expense...... 9.2% 9.5% 7.3%
</TABLE>
12. LEASES
The Company and its subsidiaries have operating leases covering
manufacturing facilities, transportation and material handling equipment, and
computer hardware and software expiring at various dates through 2006.
The following is a schedule of future minimum rental payments required
under operating leases
F-18
<PAGE> 48
that have initial or remaining noncancelable lease terms in excess of one year
as of June 30, 1997:
<TABLE>
<S> <C>
1998............................... $ 8,847
1999............................... 5,388
2000............................... 2,901
2001............................... 1,625
2002 and later years............... 3,302
-------
Total minimum payments required.... $22,063
</TABLE>
Rent expense was $14,372, $14,627 and $14,209 for the years ended June 30,
1997, 1996 and 1995, respectively.
13. COMMITMENTS AND CONTINGENT LIABILITIES
The Company and its subsidiaries are involved in certain legal actions and
claims. In the opinion of management, any liability which may ultimately be
incurred would not materially affect the financial position or results of
operations of the Company.
14. COMMON SHARES
Options to purchase common shares have been granted under various employee
stock option plans adopted by shareholders. For each plan, options are
exercisable over periods of five or ten years. The option price is either the
fair market value at the time the option is granted or 110% of the fair market
value at the time the option is granted for those individuals owning more than
ten percent of the common shares of the Company. Generally, options become
exercisable one year from the date of grant and annually thereafter. No more
than 40% of the grant can be exercised in any one plan year. Summarized below is
stock option activity for 1996 and 1997.
<TABLE>
<CAPTION>
RANGE OF
SHARES OPTION PRICES
------ -------------
<S> <C> <C>
Stock options
outstanding at June
30, 1995.............. 333,571 $13.50 - $36.99
Options granted......... 156,000 17.88 - 23.50
Options exercised....... (44,056) 13.50 - 15.84
Options cancelled....... (57,875) 21.63 - 33.63
-------
Stock options
outstanding at June
30, 1996.............. 387,640 $17.88 - $36.99
Options granted......... 233,450 25.25 - 26.25
Options exercised....... (6,400) 19.25 - 21.63
Options cancelled....... (65,986) 29.13 - 36.99
-------
Stock options
outstanding at June
30, 1997.............. 548,704
=======
</TABLE>
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," effective with the 1997 financial statements, but elected to
continue to measure compensation cost using the intrinsic value method, in
accordance with APB Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees." Accordingly, no compensation cost for stock options has been
recognized. If compensation cost had been determined based on the estimated fair
value of options previously granted, consistent with the methodology in SFAS
123, the pro forma effects on the Company's net income and income per share
would have been:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net Earnings
As reported............. $27,530 $14,577
Pro forma............... 26,836 14,313
Primary and Fully Diluted
Earnings per Share
As reported............. $1.64 $0.87
Pro forma............... 1.60 0.85
</TABLE>
The estimated fair value as of date of grant of options granted in 1997 and
1996, using the Black-Scholes option-pricing model, was as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Estimated fair value per share
of options granted during
the year.................... $8.38 $7.99
Assumptions:
Annualized dividend yield... 2.7% 2.7%
Common Stock price
volatility............... 30.5% 30.8%
Risk-free rate of return.... 6.5% 6.8%
Expected option term (in
years)................... 7 7
</TABLE>
At June 30, 1997, options for 162,806 shares were exercisable at an average
exercise price of $26.98 a share. Shares reserved for the future granting of
options were 410,629 at year end; 245,193 were reserved a year ago. In July
1997, stock options for 200,000 shares were awarded to the Company's new Chief
Executive Officer. These are not reflected in the tables above. After this
award, 210,629 shares remain reserved for future awards.
Under The Standard Products Company 1991 Restricted Stock Plan, 375,000
common shares were reserved for restricted stock awards. Shares awarded are
earned ratably over the term of the restricted stock agreement, based upon
achieving
F-19
<PAGE> 49
specified performance goals. Generally, transferability of shares earned is
restricted for a specified number of years following the year in which they were
earned. Until the restrictions lapse, the recipient of earned restricted shares
is entitled to all of the rights of a shareholder, including the right to vote
the shares, but the shares are restricted as to transferability and subject to
forfeiture to the Company during the restricted period. Shares awarded were
75,000 in 1995 and 187,500 in 1992. Of the shares awarded, 35,000 shares were
earned in 1997, 18,400 shares in 1996 and 16,800 shares in 1995. In 1997, $1,051
was charged to operations as compensation expense based upon the market value of
the earned shares. The similar charge to operations in 1996 and 1995 was $419
and $208, respectively. At year end, 112,500 shares remain available for future
awards. In July 1997, the Company awarded 50,000 shares of restricted stock to
its new Chief Executive Officer and 12,500 shares to the Chairman of the Board
of Directors. After this award, 50,000 shares remain available for future
awards.
15. SEGMENT INFORMATION
The Company's operations are in two industry segments. The Transportation
Equipment Segment includes extruded and molded rubber and plastic products for
automotive, building and marine industries and plastic and magnetic door seals
for home appliances. The Tread Rubber Segment produces tread rubber for the
truck tire retreading industry. Net sales by segment include both sales to
unaffiliated customers, as reported in the Company's consolidated statements of
income, and intersegment sales. Operating income consists of net sales less
applicable operating costs and expenses related to those sales. In computing
operating income, general corporate expenses are excluded. Identifiable assets
by segment are those assets that are used in the operations of each segment.
General corporate assets are those not identifiable with the operations of a
segment.
The Company's major customers include automotive original equipment
manufacturers. The percentage of sales of each of these major customers to total
consolidated sales for the three-year periods 1997, 1996 and 1995, respectively,
has been as follows: Chrysler - 18%, 17% and 15%; Ford - 24%, 26% and 23%;
General Motors - 13%, 14% and 18%. Sales to the automotive original equipment
customers include a number of different products and types of the same product,
the sales of which are not interdependent.
BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net Sales:
Transportation
equipment............ $ 976,001 $ 958,105 $868,892
Tread rubber........... 145,497 135,869 133,656
Less -- intersegment
sales................ (13,230) (10,054) (6,622)
---------- ---------- --------
Net sales................ $1,108,268 $1,083,920 $995,926
Operating Income:
Transportation
equipment............ $ 73,100 $ 39,836 $ 41,882
Tread rubber........... 9,128 4,078 1,727
Non-recurring charge... (17,661) -- (8,832)
General corporate
expenses............. (5,331) (5,048) (4,275)
---------- ---------- --------
Total operating
income........... $ 59,236 $ 38,866 $ 30,502
---------- ---------- --------
Other expense, net..... (12,777) (10,342) (13,243)
---------- ---------- --------
Income from
operations before
taxes.............. $ 46,459 $ 28,524 $ 17,259
Identifiable Assets:
Transportation
equipment............ $ 590,579 $ 585,274 $595,109
Tread rubber........... 72,483 70,788 74,229
General corporate
assets............... 28,797 28,633 32,551
---------- ---------- --------
Total identifiable
assets........... $ 691,859 $ 684,695 $701,889
Capital Additions,
net:(1)
Transportation
equipment............ $ 53,683 $ 74,456 $ 48,904
Tread rubber........... 5,321 5,228 5,767
---------- ---------- --------
Total capital
additions........ $ 59,004 $ 79,684 $ 54,671
Depreciation and
Amortization:
Transportation
equipment............ $ 48,571 $ 48,328 $ 42,951
Tread rubber........... 4,559 4,217 3,888
---------- ---------- --------
Total depreciation
and
amortization..... $ 53,130 $ 52,545 $ 46,839
</TABLE>
- -------------------------
(1) Includes assets acquired by purchase of businesses in 1995.
F-20
<PAGE> 50
GEOGRAPHIC AREA
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net Sales:
United States.......... $ 619,068 $ 618,491 $574,064
Canada................. 218,427 212,046 203,265
Europe................. 234,504 242,977 245,362
Brazil................. 58,680 29,479 2,640
Less -- inter-area
sales................ (22,411) (19,073) (29,405)
---------- ---------- --------
Net sales.......... $1,108,268 $1,083,920 $995,926
Net Income:
United States.......... $ 16,415 $ 8,248 $ 12,821
Canada................. 10,928 8,785 1,946
Europe................. 9,180 10,732 7,915
Brazil................. (5,642) (10,345) (51)
General corporate
expenses, net of
tax.................. (3,351) (2,843) (2,565)
---------- ---------- --------
Net income......... $ 27,530 $ 14,577 $ 20,066
Identifiable Assets:
United States.......... $ 270,036 $ 297,744 $340,235
Canada................. 95,362 79,845 81,979
Europe................. 202,358 210,215 234,918
Brazil................. 90,114 68,258 12,206
Mexico................. 5,192 -- --
General corporate
assets............... 28,797 28,633 32,551
---------- ---------- --------
Total identifiable
assets........... $ 691,859 $ 684,695 $701,889
</TABLE>
16. INCOME TAXES
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Income before taxes:
United States........... $17,016 $10,626 $ 1,265
Foreign................. 29,443 17,898 15,994
------- ------- -------
$46,459 $28,524 $17,259
Amounts currently payable:
Federal................. $ 8,887 $ 3,822 $(3,174)
Foreign................. 11,030 3,585 5,779
State and local......... 1,882 1,304 1,038
------- ------- -------
$21,799 $ 8,711 $ 3,643
Deferred taxes:
Federal................. $(3,111) $ 2,656 $ (233)
Foreign................. 321 2,536 (6,101)
State and local......... (80) 44 (116)
------- ------- -------
(2,870) 5,236 (6,450)
------- ------- -------
Total provision..... $18,929 $13,947 $(2,807)
</TABLE>
A reconciliation of income tax expense to the U.S. statutory rate is as
follows:
<TABLE>
<S> <C> <C> <C>
Tax at U.S. statutory rate... 35.0% 35.0% 35.0%
Difference in effective rate
of international
operations................. 2.2 10.6 (34.3)
Write-off of investment...... -- -- (25.7)
State and local income tax... 2.5 3.1 3.4
Permanent book to tax
differences not
deductible................. 2.7 2.9 6.0
Tax credits.................. (1.4) -- --
Other, net................... (0.3) (2.7) (0.7)
---- ---- -----
Effective tax rate........... 40.7% 48.9% (16.3)%
</TABLE>
Deferred tax assets (liabilities) result from differences in the basis of
assets and liabilities for tax and financial statement purposes. The cumulative
effect of the major items follows (millions of dollars):
<TABLE>
<CAPTION>
1997 1996
---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred tax assets:
Nondeductible accrued
expenses............... $ 8,200 $ 3,000
Employee benefits........ 16,000 16,600
Net operating loss and
tax credit
carryforwards.......... 14,700 14,400
All other items.......... 1,700 4,300
-------- --------
Total deferred tax
assets............ $ 40,600 $ 38,300
Valuation allowance...... (14,700) (14,400)
-------- --------
Net deferred tax
assets............ $ 25,900 $ 23,900
Deferred tax liabilities:
Depreciation and
amortization........... $(24,600) $(28,300)
All other items.......... (5,400) (6,000)
-------- --------
Total deferred tax
liabilities....... $(30,000) $(34,300)
-------- --------
Net deferred tax
liabilities.......... $ (4,100) $(10,400)
======== ========
</TABLE>
In accordance with the Company's policy, as of June 30, 1997, federal
income taxes have not been provided on the undistributed earnings of foreign
subsidiaries. If these earnings were distributed, approximately $6,000 of tax
would be payable.
The Company has recorded a valuation allowance to reflect the estimated
amount of deferred tax assets which may not be realized principally due to the
inability of its Brazilian subsidiaries to fully utilize available net operating
loss carryforwards. The subsequent recognition of tax benefits relating to the
valuation allowance will be reported in the consolidated statement of income as
opportunities to utilize these carryforwards become more certain.
Deferred tax assets are included in Prepaid insurance, taxes, etc. and
Other Assets, net in the accompanying consolidated balance sheets.
F-21
<PAGE> 51
17. QUARTERLY AND OTHER FINANCIAL DATA (UNAUDITED)
The following tables set forth a summary of the quarterly results of
operations for the years ended June 30, 1997 and 1996;
<TABLE>
<CAPTION>
1997
THREE MONTHS ENDED
-----------------------------------------
SEPT. 30 DEC. 31 MARCH 31 JUNE 30
-------- ------- -------- -------
(THOUSANDS OF DOLLARS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Net sales............ $265,611 $266,620 $281,774 $294,263
Gross income......... 25,292 31,696 38,761 49,708
Net income........... 1,397 6,344 515 19,275
Earnings per common
share.............. $ 0.08 $ 0.38 $ 0.03 $ 1.15
</TABLE>
<TABLE>
<CAPTION>
1996
THREE MONTHS ENDED
-----------------------------------------
SEPT. 30 DEC. 31 MARCH 31 JUNE 30
-------- ------- -------- -------
(THOUSANDS OF DOLLARS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Net Sales............ $238,760 $264,747 $277,274 $303,139
Gross income......... 9,405 21,769 33,879 43,429
Net income........... (9,784) 1,545 7,283 15,533
Earnings per common
share.............. $ (0.58) $ 0.09 $ 0.43 $ 0.93
</TABLE>
The Company's common shares are listed on the New York Stock Exchange.
Quarterly market and dividend data are shown in the following tables.
<TABLE>
<CAPTION>
PRICE RANGE
------------------------------------
1997 1996
---------------- ----------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
Quarter
1st................ $25.75 $18.50 $24.00 $17.00
2nd................ $26.25 $22.75 $18.75 $13.50
3rd................ $26.50 $22.00 $25.00 $16.38
4th................ $26.88 $21.38 $28.25 $23.00
</TABLE>
<TABLE>
<CAPTION>
CASH DIVIDENDS
DECLARED
--------------
1997 1996
---- ----
<S> <C> <C>
Quarter
1st.................................. $0.17 $0.17
2nd.................................. $0.17 $0.17
3rd.................................. $0.17 $0.17
4th.................................. $0.17 $0.17
----- -----
$0.68 $0.68
</TABLE>
There were approximately 975 shareholders as of August 1, 1997.
18. NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
This standard establishes guidelines for the display of comprehensive income for
financial statement purposes. The objective of the statement is to report a
measure of all changes in equity of an enterprise that result from transactions
and other economic events of the period other than transactions with owners.
The FASB also issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This standard requires extensive disclosure
of operating segments based on the "management approach." This approach
organizes segments within a company for making operating decisions and assessing
performance. Reportable segments can be based on products and services,
geography, legal structure or any other manner in which management disaggregates
the company. Both standards are effective for fiscal years beginning after
December 15, 1997.
F-22
<PAGE> 52
- --------------------------------------------------------------------------------
THE STANDARD PRODUCTS COMPANY
PROXY
------------------------------
The undersigned hereby appoints JAMES S. REID, JR., DONALD R. SHELEY, JR.
and RICHARD N. JACOBSON, and each of them, attorneys and proxies of the
undersigned, with full power of substitution, to attend the annual meeting of
shareholders of The Standard Products Company to be held at the Company's Reid
Division offices located at 2130 West 110th Street, Cleveland, Ohio, on Tuesday,
October 21, 1997 at 9:00 a.m., Eastern Daylight Time, or any adjournment
thereof, and to vote the number of shares of said Company which the undersigned
would be entitled to vote, and with all the power the undersigned would possess,
if personally present, as follows:
1. [ ] FOR, or [ ] WITHHOLD AUTHORITY to vote for, the following nominees
for election as directors of the class the term of which will expire
in 2000: James C. Baillie, Edward B. Brandon, James S. Reid, Jr., Alan
E. Riedel, and Ronald L. Roudebush.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME ON THE LINE PROVIDED BELOW.)
-----------------------------------------------------------
2. [ ] FOR, [ ] ABSTAIN, or [ ] AGAINST the proposal to approve The
Standard Products Company 1997 Employee Stock Option Plan and to reserve
350,000 authorized but unissued Common Shares, $1 par value, for
purposes of such Plan.
3. [ ] FOR, [ ] ABSTAIN, or [ ] AGAINST the proposal to approve The
Standard Products Company 1997 Restricted Stock Plan and to reserve
150,000 authorized but unissued Common Shares, $1 par value, for
purposes of such Plan.
4. On such other business as may properly come before the meeting.
- --------------------------------------------------------------------------------
THE PROXIES WILL VOTE AS SPECIFIED ABOVE, OR IF A CHOICE IS NOT SPECIFIED,
THEY WILL VOTE FOR THE NOMINEES LISTED IN ITEM 1 AND FOR ITEMS 2 AND 3.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY.
Receipt of the Notice of Annual
Meeting of Shareholders and
Proxy Statement dated September
16, 1997 is hereby acknowledged.
Dated:
---------------------, 1997
-----------------------------
-----------------------------
-----------------------------
Signature(s)
(Please sign exactly as your
name or names appear hereon,
indicating, where proper,
official position or
representative capacity.)
<PAGE> 1
EXHIBIT NO. 21
SUBSIDIARIES OF THE STANDARD PRODUCTS COMPANY
The following is a list of all subsidiaries of the Registrant as of June
30, 1997.
<TABLE>
<CAPTION>
JURISDICTION
IN WHICH
NAME INCORPORATED
---- ------------
<S> <C>
Admiral Retread Equipment, Inc.............................. Ohio
5 Rubber Corporation........................................ Pennsylvania
Holm Industries, Inc........................................ Indiana
Itatiaia Standard LTDA...................................... Brazil
Nisco Holding Company....................................... Delaware
Nishikawa Standard Company.................................. (1)
Oliver Rubber Company....................................... California
Standard Products Brasil Industria E Comercio LTDA.......... Brazil
SPB Comercio E Participoes LTDA............................. Brazil
Standard Products Funding Corporation....................... Delaware
Standard Products Industriel................................ France
Standard Products Limited................................... United Kingdom
Standard Products (Canada) Limited.......................... Dominion of Canada
Standard Products International, Inc........................ Delaware
Standard Products de Mexico, S.A. de C.V.................... Mexico(2)
Stantech, Inc............................................... Delaware
Westborn Service Center, Inc................................ Michigan
Union Trucking Company...................................... Michigan
</TABLE>
- -------------------------
(1) A Delaware General Partnership of which the Registrant is a 50% partner.
This entity is not a consolidated subsidiary.
(2) 70% owned by the Registrant.
<PAGE> 1
EXHIBIT NO. 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports dated July 24, 1997, included and incorporated by reference in
this Form 10-K, into the Company's previously filed Registration Statements on
Form S-8 File Numbers 333-01923, 333-01921, 33-53989, 33-51554, 33-51556,
33-34437, 33-33612, 33-38348, 33-01558, 2-63498, 2-91928 and 2-86957.
ARTHUR ANDERSEN LLP
ARTHUR ANDERSON LLP
Cleveland, Ohio
September 15, 1997.
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
The undersigned directors of The Standard Products Company, an Ohio
corporation (the "Company"), for purposes of fulfilling the annual reporting
requirements of the Securities and Exchange Act, as amended, and the rules and
regulations promulgated thereunder, hereby constitute and appoint Donald R.
Sheley, Jr., and Richard N. Jacobson, and each of them, severally, as their
attorney-in-fact and agent, with full power of substitution and
resubstitution, in their names and on their behalf, to sign in their capacities
as such attorney-in-fact the Company's Annual Report on Form 10-K, for the
fiscal year ended June 30, 1997, and any and all amendments, attachments, and
addendums thereto, with full power and authority to perform and do any and all
acts and things whatsoever which any such attorney or substitute may deem
necessary or advisable to be performed or done in connection with any or all of
the above-described matters, as fully as each of the undersigned could do if
personally present and acting, hereby ratifying and approving all acts of any
such attorney or substitute.
IN WITNESS WHEREOF, the undersigned have executed this Power of
attorney as the 18th day of August, 1997.
/s/ James S. Reid, Jr. /s/ Malcolm R. Myers
- --------------------------------- -------------------------------
James S. Reid, Jr. Chairman Malcolm R. Myers
/s/ James C. Baillie /s/ Leigh H. Perkins
- --------------------------------- -------------------------------
James C. Baillie Leigh H. Perkins
/s/ Edward B. Brandon /s/ Alfred M. Rankin, Jr.
- --------------------------------- -------------------------------
Edward B. Brandon Alfred M. Rankin, Jr.
/s/ John Doddridge /s/ Alan E. Riedel
- --------------------------------- -------------------------------
John Doddridge Alan E. Riedel
/s/ John D. Drinko /s/ John D. Sigel
- --------------------------------- -------------------------------
John D. Drinko John D. Sigel
/s/ Curtis E. Moll /s/ W. Hayden Thompson
- --------------------------------- -------------------------------
Curtis E. Moll W. Hayden Thompson
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 6,972
<SECURITIES> 0
<RECEIVABLES> 177,559
<ALLOWANCES> 2,863
<INVENTORY> 66,633
<CURRENT-ASSETS> 271,986
<PP&E> 583,614
<DEPRECIATION> 280,608
<TOTAL-ASSETS> 691,859
<CURRENT-LIABILITIES> 225,421
<BONDS> 121,804
0
0
<COMMON> 16,810
<OTHER-SE> 251,547
<TOTAL-LIABILITY-AND-EQUITY> 691,859
<SALES> 1,108,268
<TOTAL-REVENUES> 1,108,268
<CGS> 962,812
<TOTAL-COSTS> 1,049,032
<OTHER-EXPENSES> (137)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,914
<INCOME-PRETAX> 46,459
<INCOME-TAX> 18,929
<INCOME-CONTINUING> 27,530
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,530
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 1.64
</TABLE>
