SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2003, OR
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________TO_________.
COMMISSION FILE NO. 1-14187
DELAWARE 02-0642224
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(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
P.O. BOX 777; 2628 PEARL ROAD; MEDINA, OHIO 44258
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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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 THE FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ].
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12b-2 OF THE EXCHANGE ACT).
YES [X] NO [ ].
AS OF APRIL 10, 2003
115,593,666 SHARES OF RPM INTERNATIONAL INC. COMMON STOCK WERE OUTSTANDING.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
INDEX
PAGE NO.
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PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS (UNAUDITED):
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED STATEMENTS OF INCOME 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 20
ITEM 4. CONTROLS AND PROCEDURES 20
PART II. OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS 21
ITEM 5. OTHER INFORMATION 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 24
SIGNATURES 25
CERTIFICATION OF CHIEF EXECUTIVE OFFICER 26
CERTIFICATION OF CHIEF FINANCIAL OFFICER 27
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PART I. -- FINANCIAL INFORMATION
ITEM 1. -- FINANCIAL STATEMENTS
RPM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FEBRUARY 28, 2003 MAY 31, 2002
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ASSETS
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CURRENT ASSETS
CASH AND SHORT-TERM INVESTMENTS $ 62,156 $ 42,172
TRADE ACCOUNTS RECEIVABLE (LESS ALLOWANCES OF
$18,054 AND $15,884, RESPECTIVELY) 319,218 397,659
INVENTORIES 262,883 251,446
PREPAID EXPENSES AND OTHER CURRENT ASSETS 121,939 110,037
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TOTAL CURRENT ASSETS 766,196 801,314
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PROPERTY, PLANT AND EQUIPMENT, AT COST 690,564 655,841
LESS: ACCUMULATED DEPRECIATION AND AMORTIZATION (333,400) (300,044)
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PROPERTY, PLANT AND EQUIPMENT, NET 357,164 355,797
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OTHER ASSETS
GOODWILL 601,998 592,329
OTHER INTANGIBLE ASSETS, NET OF AMORTIZATION 259,876 264,530
OTHER 32,549 22,433
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TOTAL OTHER ASSETS 894,423 879,292
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TOTAL ASSETS $ 2,017,783 $ 2,036,403
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 117,004 $ 160,767
CURRENT PORTION OF LONG-TERM DEBT 4,800 5,876
ACCRUED COMPENSATION AND BENEFITS 63,332 80,530
ACCRUED LOSS RESERVES 63,121 51,914
OTHER ACCRUED LIABILITIES 53,341 58,144
INCOME TAXES PAYABLE 716 7,483
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TOTAL CURRENT LIABILITIES 302,314 364,714
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LONG-TERM LIABILITIES
LONG-TERM DEBT, LESS CURRENT MATURITIES 694,774 707,921
OTHER LONG-TERM LIABILITIES 54,355 55,458
DEFERRED INCOME TAXES 46,886 50,204
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TOTAL LONG-TERM LIABILITIES 796,015 813,583
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STOCKHOLDERS' EQUITY
PREFERRED STOCK, $0.01 PAR VALUE; AUTHORIZED
50,000 SHARES; NONE ISSUED - -
COMMON STOCK, PAR VALUE $0.01 AND WITHOUT PAR VALUE WITH A STATED
VALUE OF $.015 PER SHARE AS OF FEBRUARY 2003 AND MAY 2002,
RESPECTIVELY; AUTHORIZED 300,000 AND 200,000 SHARES, RESPECTIVELY;
OUTSTANDING 115,594 SHARES AND 114,696 SHARES, RESPECTIVELY 1,156 1,786
PAID-IN CAPITAL 508,397 585,566
TREASURY STOCK, AT COST - (88,364)
ACCUMULATED OTHER COMPREHENSIVE LOSS (34,275) (50,485)
RETAINED EARNINGS 444,176 409,603
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TOTAL STOCKHOLDERS' EQUITY 919,454 858,106
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,017,783 $ 2,036,403
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THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED THREE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
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2003 2002 2003 2002
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NET SALES $ 1,493,943 $ 1,428,693 $ 433,562 $ 407,538
COST OF SALES 813,639 777,415 246,610 228,902
----------- ----------- --------- ---------
GROSS PROFIT 680,304 651,278 186,952 178,636
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 538,944 521,720 173,338 166,025
INTEREST EXPENSE, NET 20,290 32,083 6,102 7,660
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INCOME BEFORE INCOME TAXES 121,070 97,475 7,512 4,951
PROVISION FOR INCOME TAXES 42,374 33,142 2,629 1,677
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NET INCOME $ 78,696 $ 64,333 $ 4,883 $ 3,274
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AVERAGE NUMBER OF SHARES OF COMMON
STOCK OUTSTANDING:
BASIC 115,193 102,346 115,583 102,508
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DILUTED 116,022 102,857 116,121 103,720
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BASIC AND DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 0.68 $ 0.63 $ 0.04 $ 0.03
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CASH DIVIDENDS PER SHARE OF COMMON STOCK $ 0.3850 $ 0.3750 $ 0.1300 $ 0.1250
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THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED FEBRUARY 28,
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2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 78,696 $ 64,333
DEPRECIATION AND AMORTIZATION 42,285 41,785
ITEMS NOT AFFECTING CASH AND OTHER 563 (8,716)
CHANGES IN OPERATING WORKING CAPITAL (4,237) 34,037
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117,307 131,439
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CASH FLOWS FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (22,017) (16,241)
ACQUISITION OF NEW BUSINESSES, NET OF CASH ACQUIRED (19,547)
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(41,564) (16,241)
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CASH FLOWS FROM FINANCING ACTIVITIES:
(DECREASE) IN DEBT (14,922) (63,033)
CASH DIVIDENDS (44,123) (38,167)
EXERCISE OF STOCK OPTIONS 3,286 4,932
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(55,759) (96,268)
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NET INCREASE IN CASH AND SHORT-TERM INVESTMENTS 19,984 18,930
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 42,172 23,926
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CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 62,156 $ 42,856
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THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2003
(UNAUDITED)
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation have been included for the three and nine month periods ended February 28, 2003 and 2002. For further information, refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended May 31, 2002.
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
Inventories were composed of the following major classes:
FEBRUARY 28, 2003 MAY 31, 2002
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(IN THOUSANDS)
Raw materials and supplies $ 91,576 $ 75,080
Finished goods 171,307 176,366
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$262,883 $251,446
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Other comprehensive income includes foreign currency translation adjustments, minimum pension liability adjustments and unrealized gains or losses on securities. Total comprehensive income, comprised of net income and other comprehensive income, amounted to $19,031,000 and $(4,327,000) during the third quarter of fiscal years 2003 and 2002, respectively, and $94,906,000 and $56,930,000 for the nine months ended February 28, 2003 and 2002, respectively.
At the annual shareholders meeting on October 11, 2002, RPM shareholders approved a plan to change RPM's legal place of incorporation from Ohio to Delaware. Under the plan, a new legal entity, RPM International Inc., was incorporated in Delaware and became the parent holding company of Ohio-based RPM, Inc. and several other intermediate holding companies and wholly owned subsidiaries. In addition to the creation of a newly formed Delaware legal entity, the legal structure of various operating companies were realigned in consistency with their respective business objectives. All of the outstanding treasury shares of RPM, Inc. were cancelled and retired without any consideration. In addition, each common share of RPM, Inc. issued and outstanding on October 15, 2002 was converted into one share of the Company, with a $0.01 par value per share. This transaction did not have any effect on the book value per share, post-reincorporation.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 28, 2003
Our consolidated financial statements include the accounts of RPM International Inc. and its majority-owned subsidiaries. Preparation of our financial statements requires the use of estimates and assumptions that affect the reported amounts of our assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We continually evaluate these estimates, including those related to allowances for doubtful accounts, inventories, allowances for recoverable taxes, useful lives of property, plant and equipment, goodwill, environmental and other contingent liabilities, income tax valuation allowances, pension plans and the fair value of financial instruments. We base our estimates on historical experience and other assumptions, which we believe to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying value of our assets and liabilities. Actual results may differ from these estimates under different assumptions and conditions.
We have identified below the accounting policies that are critical to our financial statements.
REVENUE RECOGNITION
Revenues are recognized when title and risk of loss passes to customers. The Securities and Exchange Commission's Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition," provides guidance on the application of Generally Accepted Accounting Principles (GAAP) in the U.S. to selected revenue recognition issues. We have concluded that our revenue recognition policy is appropriate and in accordance with GAAP and SAB No. 101.
TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS AND FOREIGN CURRENCY TRANSACTIONS
Our reporting currency is the U.S. dollar. However, the functional currency of all of our foreign subsidiaries is their local currency. We translate the amounts included in our consolidated statements of income from our foreign subsidiaries into U.S. dollars at year-to-date average exchange rates, which we believe are fairly representative of the actual exchange rates on the dates of the transactions. Our foreign subsidiaries' assets and liabilities are translated into U.S. dollars from local currency at the actual exchange rates as of the end of each reporting date, and we record the resulting foreign exchange translation adjustments in our consolidated balance sheets as a component of accumulated other comprehensive income (loss). If we determine that the functional currency of any of our foreign subsidiaries should be the U.S. dollar, our financial statements would be affected. Should this occur, we would adjust our reporting to appropriately account for such change(s).
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 28, 2003
As appropriate, we use permanently invested intercompany loans as a source of capital to reduce exposure to foreign currency fluctuations at our foreign subsidiaries. These loans are treated as analogous to equity for accounting purposes. Therefore, foreign exchange gains or losses on these intercompany loans are recorded in other comprehensive income (loss). If we were to determine that the functional currency of any of our subsidiaries should be the U.S. dollar, we would no longer record foreign exchange gains or losses on such intercompany loans.
GOODWILL
We adopted two new accounting standards issued by the Financial Accounting Standards Board in June 2001. Statement of Financial Accounting Standards, or SFAS, No. 141, "Business Combinations," eliminates the pooling method of accounting for all business combinations initiated after June 30, 2001, and addresses the initial recognition and measurement of goodwill and intangible assets acquired in a business combination. Accordingly, we apply the provisions of SFAS No. 141 to all business combinations initiated after its effective date. We also adopted SFAS No. 142, "Goodwill and Other Intangible Assets," effective June 1, 2001. Goodwill amortization ceased upon adoption of the standard, and the required initial impairment tests were performed. Results of these impairment tests have not generated any impairment loss to date.
Prospectively, goodwill will be tested on an annual basis, or more frequently as impairment indicators arise. Impairment tests, which involve the use of estimates related to the fair market values of the business operations with which goodwill is associated, are performed at the end of our first quarter. Losses, if any, resulting from impairment tests will be reflected in operating income in our income statement.
OTHER LONG-LIVED ASSETS
We assess for impairment of identifiable non-goodwill intangibles and other long-lived assets whenever events or changes in facts and circumstances indicate the possibility that the carrying value may not be recoverable. Factors considered important which might trigger an impairment evaluation, include the following:
- significant under-performance relative to historical or projected future operating results;
- significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and
- significant negative industry or economic trends.
When we determine that the carrying value of non-goodwill intangibles and other long-lived assets may not be recoverable based upon the existence of one or more of the above described indicators, any impairment would be measured based on projected net cash flows expected from the asset(s), including eventual disposition.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 28, 2003
CONTINGENCIES
We are party to claims and lawsuits arising in the normal course of business. Although we cannot precisely predict the amount of any liability that may ultimately arise with respect to any of these matters, we record provisions when we consider the liability probable and reasonably estimable. The provisions are based on historical experience and legal advice, are reviewed quarterly and are adjusted according to developments. Changes in the amount of the provisions affect our consolidated statements of income. Due to the inherent uncertainties in the loss reserve estimation process, actual results may differ.
Computing our net liability for open asbestos claims requires making judgments regarding the most likely outcome of litigation, future settlements and judgments to be paid for those open claims and estimating amounts we will recover from insurance companies. As a result of anticipated increasing cases and settlement costs, the Company expects that its remaining third party insurer's available coverage will be depleted in the coming months. For asbestos related costs through the end of the current fiscal year associated with the portion of its known claims which is not covered by insurance, the Company has established a financial reserve in an amount which it deems to be adequate through the end of the current fiscal year. The Company's current insurance and financial reserves may not, however, be adequate to cover the costs associated with its claims in future periods which has resulted in the Company's decision to undertake a process of estimating the costs of its future asbestos liabilities. While the timing and outcome of this process is uncertain, the Company expects to complete this process with the reporting of its 2003 year-end results. At the conclusion of this process, the Company expects to accrue a material liability sufficient to cover the estimate of its potential future asbestos related claims. (Additionally, refer to Item 1. Legal Proceedings, Part II - Other Information contained elsewhere in this report.)
Our environmental-related accruals are similarly established and/or adjusted as information becomes available upon which costs can be reasonably estimated. Here again, actual costs may vary from these estimates because of the inherent uncertainties involved, including the identification of new sites and the development of new information about contamination. Certain sites are still being investigated and therefore we have been unable to fully evaluate the ultimate cost for those sites. As a result, reserves have not been taken for certain of these sites and costs may ultimately exceed existing reserves for other sites. We have received indemnities for potential environmental issues from purchasers of certain of our properties and businesses and from sellers of properties or businesses we have acquired. We have also purchased insurance to cover potential environmental liabilities at certain sites. If the indemnifying or insuring party fails to, or becomes unable to, fulfill its obligations under those agreements or policies, we may incur additional environmental costs in addition to any amounts reserved, which could have a material adverse effect on our financial condition, results of operations or cash flows.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 28, 2003
The Company has determined that it has two operating segments -- Industrial and Consumer -- based on the nature of business activities, products and services; the structure of management; and the structure of information as presented to the Board of Directors. Within each segment, individual operating companies or groups of companies generally address common markets, utilize similar technologies, and can share manufacturing or distribution capabilities. The Company evaluates the profit performance of its two operating segments based on earnings before interest and taxes since interest expense is essentially related to corporate acquisitions, as opposed to segment operations. In addition to the two operating segments, there are certain business activities, referred to as corporate/other, that do not constitute an operating segment, including corporate headquarters and related administrative expenses, results of our captive insurance company, gains or losses on the sales of certain assets and other expenses not directly associated with either operating segment. Related assets consist primarily of investments, prepaid expenses, deferred pension assets, and headquarters property and equipment. Comparative nine-month and third quarter results on this basis are as follows:
NINE MONTHS ENDED FEBRUARY 28, QUARTER ENDED FEBRUARY 28,
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(In thousands) 2003 2002 2003 2002
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NET SALES:
Industrial Segment $ 813,755 $ 771,564 $ 235,193 $ 211,682
Consumer Segment 680,188 657,129 198,369 195,856
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TOTAL $ 1,493,943 $ 1,428,693 $ 433,562 $ 407,538
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INCOME BEFORE INCOME TAXES:
Earnings Before Interest and Taxes (EBIT) (a)
Industrial Segment $ 88,160 $ 76,897 $ 8,580 $ 6,960
Consumer Segment 85,102 72,393 16,663 13,874
Corporate/Other (31,902) (19,732) (11,629) (8,223)
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Total EBIT 141,360 129,558 13,614 $ 12,611
Consolidated Interest Expense, Net (20,290) (32,083) (6,102) (7,660)
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TOTAL $ 121,070 $ 97,475 $ 7,512 $ 4,951
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IDENTIFIABLE ASSETS: FEBRUARY 28, 2003 MAY 31, 2002
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Industrial Segment $ 970,714 $ 962,742
Consumer Segment 970,954 1,000,928
Corporate/Other 76,115 72,733
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TOTAL $ 2,017,783 $ 2,036,403
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(a) EBIT is defined as earnings before interest and taxes. EBIT is presented because it is a widely accepted financial indicator used by certain investors and analysts to analyze and compare companies on the basis of operating performance. EBIT is not intended to represent cash flows for the period, nor is it presented as an alternative to operating income or as an indicator of operating performance. EBIT should not be considered in isolation, but with Generally Accepted Accounting Principles in the U.S., and it is not indicative of operating income or cash flow from operations as determined by those principles. Our method of computation may or may not be comparable to other similarly titled measures of other companies. EBIT may not be indicative of historical operating results nor is it meant to be predictive of potential future results.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 28, 2003
NET SALES
Consolidated third quarter net sales of $433.6 million increased $26.0 million over last year's third quarter sales of $407.5 million, or 6.4 percent. The overall net increase is primarily attributable to increased demand for maintenance and installation services, in particular, in the industrial segment, combined with slight gains experienced by our consumer segment, despite declining demand in a soft retail environment. Favorable foreign exchange differences, resulting primarily from the Euro, along with current year acquisitions, provided approximately 3.0 percent of the growth this quarter on a consolidated basis. Industrial segment sales grew to $235.2 million from $211.7 million during last year's third quarter, an improvement of 11.1 percent. Excluding the impact of favorable foreign exchange and current year acquisitions, the industrial segment experienced growth of 7.9% over last year's third quarter, which resulted from the increased demand for maintenance and installation services. Consumer segment sales grew by 1.3 percent to $198.4 million over last year's third quarter, despite soft retail sales, as a result of favorable foreign exchange and current year acquisitions. Comparable consumer net sales, adjusted for the effect of foreign exchange and current year acquisitions, declined by 1.4 percent this quarter, but this decline is viewed as temporary.
GROSS PROFIT MARGIN
Consolidated gross profit as a percent of sales declined slightly to 43.1 percent in the third quarter from last year's 43.8 percent. By segment, industrial margins declined to 43.0 percent from 44.8 percent, while consumer margins improved to 43.3 percent from 42.8 percent. As previously discussed, the higher volume sales of maintenance and installation services experienced by the industrial segment provided significantly lower margins, while the consumer segment's margin improvement reflects reduced conversion costs from ongoing Class A manufacturing initiatives. Material cost for both segments are showing improvements from last year; continuation of these improvements will come under pressure prospectively given the current volatility of oil prices.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)
Consolidated SG&A expenses overall improved slightly to 40.0 percent of sales in the third quarter compared to last year's 40.7 percent. During the prior year the Company was negatively impacted by the Argentinean peso devaluation. Additionally, significant sales growth in the relatively newer but lower margin services areas referred to above drove this change. The Industrial segment SG&A improved to 39.3 percent from 41.5 percent, an improvement of 2.2 percent of sales. The growth in industrial sales volume, particularly maintenance and installation services, was the main factor driving that segment's lower SG&A percentage this quarter, along with cost savings initiatives made during fiscal 2002 which continued in the current fiscal year. Consumer SG&A improved
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 28, 2003
to 34.9 percent from 35.7 percent, as a result of similar cost-containment efforts. Included in these improvements were some reduced freight and distribution costs.
Consolidated SG&A also includes corporate/other costs, which increased by $3.4 million to $11.6 million in comparison to the $8.2 million recorded in the third quarter last year. This change reflects the increase in product liability costs of approximately $2.4 million this quarter, as well as a change in export sales incentive tax legislation that went into effect this fiscal year, causing another $1.0 million of the increase in corporate/other costs. Consolidated SG&A is not affected by this tax law change, however, since this increase in corporate/other expense is offset by corresponding reductions of expense in the industrial and consumer operating segments. This approximate difference will continue through the end of this fiscal year, as a result of the change in tax legislation. License fees and royalty income approximating $243,000 and $405,000 for the three month periods ended February 28, 2003 and 2002, respectively, are reflected as credits to consolidated SG&A expenses.
EARNINGS BEFORE INTEREST AND TAXES (EBIT)
We believe that EBIT best reflects the performance of our operating segments, as interest expense and income taxes are not consistently allocated to operating segments by the various constituencies utilizing our financial statements. Requests for operating performance measures received from research analysts, financial institutions and rating agencies typically focus on EBIT, and we believe EBIT disclosure is responsive to our investors.
Consolidated EBIT improved by $1.0 million, or 8.0 percent on a 6.4 percent increase in sales, to $13.6 million during the third quarter of fiscal 2003. Industrial EBIT improved 23.3 percent on growth of 11.1 percent in sales, to $8.6 million, or 3.6 percent of sales, compared to the prior year third quarter EBIT of $7.0 million, or 3.3 percent of sales. Consumer EBIT improved 20.1 percent on a 1.3 percent growth in sales, to $16.7 million, or 8.4 percent of sales, compared to the prior year third quarter EBIT of $13.9 million, or 7.1 percent of sales. Generally, these EBIT improvements reflect the combination of the benefits from higher sales levels, the previously discussed charge taken for the devaluation in the Argentinean peso last year, improvements in material cost, and continued cost-containment efforts throughout both operating segments. Offsetting the EBIT improvements achieved at both operating segments were the additional corporate/other expenses previously discussed.
NET INTEREST EXPENSE
Net interest expense was $1.6 million lower than the same quarter a year ago, mainly as a result of a combination of lower interest rates on the portion of debt carrying variable rates, as well as reduced debt levels during the past year. Approximately 70 percent of the current debt structure is subject to variable interest rates. The average effective interest rate declined to 3.7 percent for the three months ended February 28, 2003 from 4.0 percent during the same period last year, accounting for approximately $0.4 million of the interest savings quarter over quarter. Additionally, debt
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 28, 2003
levels averaged approximately $217.4 million lower this quarter compared to last year's third quarter, accounting for approximately $2.2 million of the interest savings this year. Offsetting interest expense in the prior year were approximately $1.0 million of gains realized on the sale of marketable securities that were not realized again this year.
INCOME TAX RATE
The effective income tax rate this third quarter of 35 percent compares to last year's 34 percent. The effective income tax rate will tend to increase as our earnings grow and the one-time static benefit from the June 1, 2001 adoption of Statement of Financial Accounting Standards No. 142, related to the elimination of non-tax deductible goodwill amortization, becomes less and less significant.
NET INCOME
This year's third quarter net income of $4.9 million increased $1.6 million, or 49.1 percent, from last year's third quarter result of $3.3 million. Earnings per share of common stock improved $.01, or 33.3 percent, to $.04 from $.03 for last year's third quarter.
During March 2002, RPM sold 11.5 million common shares (see Financing Activities below) through a follow-on public equity offering. This transaction had no dilutive effect per share on this year's third quarter earnings.
NET SALES
The first nine months consolidated net sales of $1,493.9 million were $65.2 million, or 4.6 percent, higher than last year's sales of $1,428.7 million for the comparable period. This growth in sales primarily results from higher unit volume across both segments, as pricing adjustments have remained negligible. Favorable foreign exchange, resulting primarily from the Euro, along with current year acquisitions, provided only 1.0 percent of the growth experienced these past nine months on a consolidated basis. For the balance of fiscal 2003, we continue to anticipate modest growth in industrial volume, and some challenge to the growth rates experienced earlier this year in our consumer segment. Industrial segment sales grew 5.5 percent to $813.8 million, from $771.6 million during this period last year, while consumer sales grew to $680.2 million from $657.1 million during the same period last year. Comparable industrial net sales, adjusted for foreign exchange and current year acquisitions, were ahead 4.4 percent, while comparable consumer net sales, excluding the impact of current year acquisitions and foreign exchange, were ahead 2.5 percent. The growth in industrial segment sales results primarily from the increased demand for lower margin maintenance and installation products and services, as discussed previously for the third quarter. The increase in consumer segment sales these first nine months reflects the growth in demand for our main consumer/do-it-yourself product lines. Excluding the effect of
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 28, 2003
acquisitions and foreign exchange, consolidated net sales were ahead year over year by 3.5 percent.
GROSS PROFIT MARGIN
Consolidated gross profit increased $29.0 million to $680.3 million this first nine months compared to $651.3 million from the same period last year, while consolidated gross margin has held fairly steady at 45.5 percent of sales from 45.6 percent a year ago. Higher sales volume along with a number of favorable raw material costs were the primary factors contributing to the gross profit growth. By segment, the industrial gross profit margin declined to 45.8 percent from 46.7 percent a year ago, as the benefits from improved sales levels and a number of lower raw material costs were more than offset by the lower-margin sales mix previously discussed. The consumer segment gross margin improved to 45.2 percent from 44.3 percent last year, reflecting continued improvements in efficiency and cost savings initiatives, as well as a number of favorable raw material costs. Additionally, manufacturing efficiencies from expanded Class A manufacturing initiatives are being realized in both operating segments, and these efforts will continue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)
Consolidated SG&A expense as a percentage of sales improved to 36.1 percent from 36.5 percent during the first nine months last year, which is largely attributable to the significant sales growth in the relatively newer but lower margin services areas referred to above. By segment, industrial SG&A of 35.0 percent compares favorably against 36.7 percent from the prior year. This improvement reflects the benefits of higher sales volume this year, cost savings initiatives made during fiscal 2002, and continued cost-containment efforts throughout the segment in the current fiscal year. Consumer segment SG&A of 32.7 percent this year also compares favorably against 33.3 percent a year ago, as a result of higher sales volume and continued cost-containment efforts throughout this segment.
Corporate/Other costs, another component of SG&A expense, amounted to $31.9 million this year compared with $19.7 million during the first nine months last year. This change includes increased product liability costs of $5.4 million and a change in export sales incentive tax legislation that went into effect this fiscal year, causing another $3.2 million of the increase in corporate/other costs. Consolidated SG&A is not affected by this tax law change, however, since this increase in corporate/other expense is offset by corresponding reductions of expense in the industrial and consumer operating segments. This approximate difference will continue through the end of this fiscal year, as a result of the change in tax legislation. The remainder of the increase in corporate SG&A expense resulted from costs related to the company's reincorporation into Delaware from Ohio ($1.1 million), rising health care and other employee benefit costs, and increases in certain professional service costs. License fee and joint venture income of $0.8 million and $1.3 million during the nine month periods ended February 28, 2003 and 2002, respectively, are reflected as credits to consolidated SG&A expenses.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 28, 2003
EARNINGS BEFORE INTEREST AND TAXES (EBIT)
We believe that EBIT best reflects the performance of our operating segments, as interest expense and income taxes are not consistently allocated to operating segments by the various constituencies utilizing our financial statements. Requests for operating performance measures received from research analysts, financial institutions and rating agencies typically focus on EBIT, and we believe EBIT disclosure is responsive to investors.
Consolidated EBIT improved by $11.8 million on a 4.6 percent increase in sales, or 9.1 percent, to $141.4 million during the first nine months of fiscal 2003. Industrial EBIT improved 14.6 percent on a 5.5 percent growth in sales, to $88.2 million, or 10.8 percent of sales, compared to the prior year EBIT of $76.9 million, or 10.0 percent of sales. Consumer EBIT improved 17.6 percent on a 3.5 percent growth in sales, to $85.1 million, or 12.5 percent of sales, from $72.4 million, or 11.0 percent of sales for the same period a year ago. Generally, these EBIT improvements reflect the combination of the benefits from higher sales levels, certain lower raw material costs and continued cost-containment efforts throughout both operating segments. Offsetting the EBIT improvements achieved at both operating segments were the additional corporate/other SG&A expenses discussed above.
NET INTEREST EXPENSE
Net interest expense was $11.8 million lower than the same period a year ago as a result of a combination of lower interest rates on the portion of debt carrying variable rates, and much lower debt levels year over year. Approximately 70 percent of the current debt structure is subject to variable interest rates. The average effective interest rate during this first nine months was 3.9 percent compared with 4.7 percent a year ago, accounting for approximately $4.2 million of the interest savings these first nine months. Additionally, debt levels averaged $232.5 million lower this year than during last year's first nine months, accounting for approximately $8.6 million of the interest savings this year. Offsetting interest expense in the prior year were approximately $1.0 million of gains realized on the sale of marketable securities that were not realized again this year.
INCOME TAX RATE
The effective income tax rate provision this year of 35.0 percent compares with 34.0 percent a year ago. The effective income tax rate will tend to increase as our earnings grow and the one-time static benefit from the June 1, 2001 adoption of Statement of Financial Accounting Standards No. 142, related to the elimination of non-tax deductible goodwill amortization, becomes less and less significant.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 28, 2003
NET INCOME
Net income of $78.7 million for the first nine months this year and earnings per share of common stock of $0.68 increased 22.3 percent and 7.9 percent, respectively, from the same period a year ago.
During March 2002, we sold 11.5 million common shares (see Financing Activities below) through a follow-on public equity offering, and this transaction had a dilutive effect of $.05 per share on this year's first nine months' earnings. For all of fiscal 2003, this transaction is expected to have a dilutive effect on earnings of approximately $.07 per share, based on fiscal 2002 average interest rates.
CASH FLOWS FROM:
OPERATING ACTIVITIES
There was $117.3 million of cash generated from operations during the first nine months of fiscal 2003 compared with $131.4 million during the same period a year ago. This difference mainly resides in the $38.3 million change in working capital year over year, offset by the $14.4 million improvement in net income during the same period and a $9.3 million positive change in, "items not affecting cash and other." The majority of the change associated with this latter item is mostly a result of the positive changes in other comprehensive income caused by the dollar weakening against most other major currencies. Additionally, at May 31, 2001 as we completed our restructuring program, there was a build-up in accounts receivable and inventory, which was worked down during the first nine months a year ago, generating an abnormally high amount of cash flow from operations. This fiscal year, we are back to a more normal relationship pattern of working capital relative to sales growth. Lastly, there was a higher payout of accrued incentives during the past nine months, as the fiscal year 2002 performance significantly surpassed that of the year ended May 31, 2001, and accounts payable have been negatively affected year over year as a result of the timing of quarter-end payments to vendors, and a reduction in purchases as inventories have been accumulated to satisfactory levels.
As disclosed in the Company's "Critical Accounting Policies and Estimates" and its discussion on "Asbestos Litigation" in the "Legal Proceedings, Part II - Other Information" Section, as a result of anticipated increasing cases and settlement costs, the Company expects that its remaining third party insurer's available coverage will be depleted in the coming months and, as a result, the Company will then be required to fund costs presently covered by insurance with its then-existing cash from operations.
Cash provided from operations remains our primary source of financing internal growth, with limited use of short-term credit.
INVESTING ACTIVITIES
Capital expenditures, other than for ordinary repairs and replacements, are made to accommodate our continued growth through improved production and distribution efficiencies and capacity and to enhance administration. Capital expenditures during the first nine months of fiscal 2003 of $22.0 million compare with depreciation of $33.1 million, well within the maintenance level
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 28, 2003
of spending. We are not capital intensive and capital expenditures generally do not exceed depreciation in a given year. Capital spending is expected to hold at approximately the maintenance level of between $40 and $50 million annually for the next several years, as many larger spending needs have been accomplished in recent years, accommodating the restructuring program and upgrading several major information technology platforms. We believe there is adequate production capacity to meet our needs for the next several years at normal growth rates.
During the first nine months of fiscal 2003, the Company had investments totaling $19.5 million for several minor product line and minority interest acquisitions.
FINANCING ACTIVITIES
During the first quarter of fiscal 2002, our $200 million revolving credit facility was refinanced with a one-year term loan due July 12, 2002. During March 2002, we sold 11.5 million common shares through a follow-on public offering at $14.25 per share, closing on April 2, 2002. The entire proceeds of the offering, $156 million, were used to permanently pay down the outstanding balance under this $200 million term loan facility, which was then retired.
On November 27, 2001, we issued and sold $30 million aggregate principal amount of 7.3 percent senior unsecured notes due 2008, $10 million aggregate principal amount of 6.61 percent senior unsecured notes due 2006, and $15 million aggregate principal amount of 6.12 percent senior unsecured notes due 2004 to various insurance companies. The proceeds from these notes were used to reduce the outstanding balance under the $500 million revolving credit agreement.
On June 6, 2002, we entered into a securitization transaction with several banks for certain of our subsidiaries, providing for a wholly-owned special purpose entity (SPE) to receive investments of up to $125 million. This securitization is being accomplished by having certain subsidiaries sell various of their accounts receivable to the SPE, and by having the SPE then transfer those receivables to a conduit administered by the banks. This securitization transaction did not constitute a form of off-balance sheet financing, and is fully reflected in our financial statements. This transaction increases our liquidity and reduces our financing costs by replacing up to $125 million of existing borrowings at lower interest rates. As of February 28, 2003, $61 million was securitized under this agreement, which was used to reduce the outstanding balance of the $500 million revolver to $310 million, leaving $190 million of liquidity then available under that facility.
On February 13, 2003, the Company announced the authorization of a share repurchase program allowing the repurchase of up to 10 million shares of the Company's common stock over a period of 12 months. As of February 28, 2003, the Company had not repurchased any shares.
Our debt-to-capital ratio improved to 43 percent at February 28, 2003 compared with 45 percent at year-end May 31, 2002.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 28, 2003
The following summarizes our financial obligations and their expected maturities at February 28, 2003 and the effect such obligations are expected to have on our liquidity and cash flow in the periods indicated.
Less than After
Total 1 year 1-3 years 3 years
----- --------- --------- -------
($ in millions)
Current portion of long-term debt $ 4.8 $ 4.8 $ - $ -
Long-term debt 694.8 - 554.6 140.2
Non-cancelable operating lease obligations(1) 62.2 16.4 19.3 26.5
------- ----- ------- ------
$ 761.8 $21.2 $ 573.9 $166.7
======= ===== ======= ======
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(1) We calculate non-cancelable operating lease obligations on an annual basis and consequently such information is not available at February 28, 2003. The amounts shown above are for the fiscal year end May 31, 2002.
The strength of the U.S. dollar has fluctuated against various foreign currencies, as mentioned above, with the net effect causing foreign net assets to slightly increase stockholders' equity compared to this past year end, May 31, 2002. This trend could continue if the dollar continues to weaken against, principally, the Canadian dollar or the Euro.
We maintain excellent relations with our banks and other financial institutions to provide continual access to financing for future growth opportunities.
Effective October 15, 2002, the Company changed its legal place of incorporation from Ohio to Delaware, following approval by its shareholders of a plan of reincorporation at its annual meeting on October 11, 2002. Under the plan, RPM International Inc. became the parent holding company of Ohio-based RPM, Inc. and several other intermediate holding companies and wholly-owned subsidiaries. In addition to the creation of a newly formed Delaware legal entity, the legal structure of various operating companies were realigned in consistency with their respective business objectives. In connection with the reincorporation, shareholders approved and adopted the Company's amended and restated certificate of incorporation, which authorizes the issuance of up to 300,000,000 shares of Common Stock and 50,000,000 shares of Preferred Stock, both at a par value of $0.01 per share. In conjunction with reincorporation, all of the outstanding treasury shares of RPM, Inc. were cancelled and retired without any consideration. In addition, each common share of RPM, Inc. issued and outstanding on October 15, 2002 was converted into one share of the Company, with a $0.01 par value per share. This transaction did not have any effect on the book value per share, post-reincorporation.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 28, 2003
We do not have any off-balance sheet financings. We have no subsidiaries that are not included in our financial statements, nor do we have any interests in or relationships with any special purpose entities that are not reflected in our financial statements.
Environmental obligations continue to be appropriately addressed and, based upon the latest available information, it is not anticipated that the outcome of such matters will materially affect the Company's results of operations or financial condition. Our critical accounting policies and estimates set forth above describe our method of establishing and adjusting environmental-related accruals and should be read in conjunction with this disclosure. (Additionally refer to Note H to the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended May 31, 2002).
The foregoing discussion includes forward-looking statements relating to the
business of the Company. These forward-looking statements, or other statements
made by the Company, are made based on management's expectations and beliefs
concerning future events impacting the Company and are subject to uncertainties
and factors (including those specified below) which are difficult to predict
and, in many instances, are beyond the control of the Company. As a result,
actual results of the Company could differ materially from those expressed in or
implied by any such forward-looking statements. These uncertainties and factors
include (a) general economic conditions; (b) the price and supply of raw
materials, particularly titanium dioxide, certain resins, aerosols and solvents;
(c) continued growth in demand for the Company's products; (d) legal,
environmental and litigation risks inherent in the Company's construction and
chemicals businesses and risks related to the adequacy of insurance and reserves
for such matters; (e) the effect of changes in interest rates; (f) the effect of
fluctuations in currency exchange rates upon the Company's foreign operations;
(g) the effect of non-currency risks of investing in and conducting operations
in foreign countries, including those relating to domestic and international
political, social, economic and regulatory factors; (h) risks and uncertainties
associated with the Company's ongoing acquisition and divestiture activities;
and other risks detailed in the Company's other reports and statements filed
with the Securities and Exchange Commission, including the risk factors set
forth in the Company's prospectus and prospectus supplement included as part of
the Company's Registration Statement on Form S-3 (File No. 333-77028), as the
same may be amended from time to time.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 28, 2003
The Company is exposed to market risk from changes in interest rates and foreign exchange rates since it funds its operations through long- and short-term borrowings and denominates its business transactions in a variety of foreign currencies. There were no material changes in the Company's exposure to market risk from May 31, 2002.
The Company's Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-14) as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"), have concluded that as of the Evaluation Date, the Company's disclosure controls and procedures were effective in ensuring that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms.
There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
As previously reported, Dryvit is a defendant or co-defendant in numerous exterior insulated finish systems ("EIFS") related lawsuits. As of February 28, 2003, Dryvit was a defendant or co-defendant in approximately 650 single family residential EIFS cases, the vast majority of which are pending in North Carolina, South Carolina and Alabama. Dryvit is also defending EIFS lawsuits involving commercial structures and condominiums. The vast majority of Dryvit's EIFS lawsuits seek monetary relief for water intrusion related property damages, although some claims in certain lawsuits allege personal injuries from exposure to mold.
As previously reported, Dryvit settled the North Carolina class action styled Ruff, et al. v. Parex, Inc., et al. ("Ruff"). As of March 26, 2003, a cumulative total of 724 claims had been submitted to the Ruff claims administrator for verification and validation since the January 17, 2000 notice to the Ruff class. Of these 724 claims, 151 claims were rejected and 327 claims were paid in the aggregate amount of approximately $5.4 million pursuant to funding arrangements with Dryvit's insurers. The claim period for filing claims in the Ruff class action expired on January 17, 2003. The remaining submitted claims are at various stages of investigation, review and validation by the Ruff claims administrator. Based on the funding commitments in place to cover the Ruff claims, Dryvit does not expect the costs of resolving the residual claims to be material.
As previously reported, Dryvit is a defendant in an attempted state class action filed on November 14, 2000 in Jefferson County, Tennessee styled Bobby R. Posey, et al. v. Dryvit Systems, Inc. (formerly styled William J. Humphrey, et al. v. Dryvit Systems, Inc.) (Case No. 17,715-IV) ("Posey"). As previously reported, a preliminary approval order was entered on April 8, 2002 in the Posey case for a proposed nationwide class action settlement covering, "All Persons who, as of June 5, 2002, in any State other than North Carolina, in whole or in part, with Dryvit EIFS installed after January 1, 1989, except persons who (1) prior to June 5, 2002, have settled with Dryvit, providing a release of claims relating to Dryvit EIFS; or (2) have not obtained a judgment against Settling Defendant for a Dryvit EIFS claim, or had a judgment entered against them on such a claim in Settling Defendants' favor; and (3) any employees of Dryvit." Nationwide notice to all eligible class members began on or about June 13, 2002. Any person who wished to be excluded from the Posey settlement were provided an opportunity to individually "opt out" and thus not be bound by the final Posey order.
A fairness hearing was held on October 1, 2002 (which continued on December 16, 2002), for the court to determine whether the proposed settlement is fair, reasonable and adequate. An order and judgment granting final approval of the settlement was entered on January 14, 2003. Subsequent to the Final Order, two class members filed motions to amend or alter the Final Order. These motions were denied by the Posey trial court on March 7, 2003. By virtue of the filing of these motions, the time period for filing any notices of appeal was extended until April 8, 2003. Several notices of appeal have been filed by class members and/or persons seeking to intervene including a group of builders and general contractors whom the trial court found had
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
no standing to complain about the settlement. Dryvit intends to vigorously challenge any appeals and expects that the Final Order will be upheld.
Certain of Dryvit's insurers have paid or are currently paying a portion of Dryvit's defense costs in the class actions, and individual commercial and residential EIFS lawsuits. Dryvit, the Company's wholly-owned captive insurer, First Colonial Insurance Company, and certain of Dryvit's umbrella insurers have been parties to cost-sharing agreements the terms of which have been subject to periodic renegotiation. Under the current cost-sharing agreements and funding obtained from one of Dryvit's historical carriers, Dryvit's insurers have covered a substantial portion of Dryvit's indemnity and defense costs and Dryvit expects that its future EIFS litigation costs will continue to be substantially covered by insurance. Dryvit has secured sufficient funding commitments to cover a substantial portion of the anticipated costs of the Posey settlement. Based on consultation with its legal counsel, management believes that to the extent some of the Posey settlement costs are not covered by insurance commitments, such amounts will not have a material adverse effect on the Company's consolidated financial condition, results of operations or cash flows.
ASBESTOS LITIGATION
As previously reported, certain of the Company's wholly-owned subsidiaries, principally Bondex International, Inc. (collectively referred to as "the Subsidiaries"), are defendants in various asbestos-related bodily injury lawsuits. These cases generally seek unspecified damages for asbestos-related diseases based on alleged exposures to asbestos-containing products previously manufactured by the Subsidiaries.
The Company continues to vigorously defend these asbestos-related lawsuits. In many cases, the plaintiffs are unable to demonstrate that any injuries they have incurred, in fact, resulted from exposure to one of the Subsidiaries' products. In such cases, the Subsidiary is generally dismissed without payment. With respect to those cases where compensable disease, exposure and causation are established with respect to one of the Subsidiaries' products, the Subsidiary generally settles for amounts that reflect the confirmed disease, the seriousness of the case, the particular jurisdiction and the number and solvency of other parties in the case.
As of February 28, 2003, the Company had a total of 1,767 active asbestos cases compared to 1,490 cases at November 30, 2002, the end of the last fiscal quarter. The Company had a total of 1,865 cases as of February 28, 2002.
For the quarter ended February 28, 2003, the Company secured dismissals and/or settlements of 364 plaintiffs (125 cases), the total cost of which collectively to the Company, net of insurer payments and defense costs, amounted to $630,031. The Company secured dismissals and/or settlements of 1,090 plaintiffs (1,086 cases) for $1,342,250 for the last fiscal quarter ended November 30,2002. The Company secured dismissals and/or settlements of 71 plaintiffs (68 cases) for $396,000 for the quarter ended February 28, 2002.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
During the past fiscal year, the Company has incurred higher settlement and defense costs resulting from higher settlement demands in certain jurisdictions due primarily to the insolvency of other co-defendants in the asbestos litigation which has, in many cases, disproportionately increased the Company's exposure. Based on trial settings in many of these same jurisdictions, and recent settlement demands in many of its current cases, the Company expects that it will experience higher settlement and defense costs in the coming months, some of which may also be caused by the anticipation of potential federal and/or state legislative changes.
The Company's third party insurers have historically been responsible, under various cost sharing arrangements, for the payment of approximately 90% of the indemnity and defense costs associated with the Company's asbestos litigation. At the present time, there is only one third party insurer currently covering the Company's asbestos litigation costs under the foregoing cost sharing arrangement. As a result of an anticipated increase in cases and settlement costs, the Company expects that its remaining third party insurer's available coverage will be depleted in the coming months. The Company has reserved its rights with respect to various of its third party insurers' claims of exhaustion and is in the process of reviewing its known (and is searching for any additional) insurance policies to determine whether or not other insurance limits may be available to cover its asbestos liabilities. The Company is unable at the present time to predict whether or to what extent any additional insurance may cover its asbestos liabilities.
For asbestos related costs through the end of the current fiscal year associated with the portion of its known claims which is not covered by insurance, the Company has established a financial reserve in an amount which it deems to be adequate. The Company's current insurance and financial reserves may not, however, be adequate to cover the costs associated with its asbestos claims in future periods which has resulted in the Company's decision to undertake a process of estimating the costs of its future asbestos liabilities.
In view of the anticipated depletion of its remaining insurance, and subject to the Company's continuing efforts to secure additional insurance, the Company expects to be funding all of its asbestos related costs after this fiscal year. Evaluating the future cost of the Company's asbestos related contingent liabilities is subject to many uncertainties, including (i) the ultimate number of claims filed against the Subsidiaries, (ii) the cost of resolving both its current known and future unknown claims, (iii) the amount of insurance available to cover such claims as discussed above, (iv) future earnings and cash flow of the Company, (v) the impact of bankruptcies of other companies whose share of liability may be imposed on the Company under certain state liability laws, (vi) the unpredictable aspects of the litigation process including the scheduling of trial dates and the jurisdictions in which trials are scheduled, (vii) the lack of specific information in many cases concerning exposure to the Subsidiaries' products and the claimants' diseases, and (viii) potential federal and/or state legislative changes. Accordingly, the Company has decided to engage in a formal process to develop an estimate of its potential future asbestos related contingent liabilities. While the timing and outcome of this process is uncertain, the Company expects to complete this process with the reporting of its 2003 year-end results. At the conclusion of this process, the Company expects to accrue a material liability sufficient to cover the estimate of its potential future asbestos related claims.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
As previously reported, various of the Company's subsidiaries are, from time to time, identified as a "potentially responsible party" under the Comprehensive Environmental Response, Compensation and Liability Act and similar state environmental statutes. In some cases, the Company's subsidiaries are participating in the cost of certain clean-up efforts or other remedial actions. The Company's share of such costs, however, has not been material and management believes that these environmental proceedings will not have a material adverse effect on the Company's consolidated financial condition or results of operations. See "Business-Environmental Matters," in the Company's Annual Report on Form 10-K for the year ended May 31, 2002.
The information under this Item is being provided as required by Item 11 of Form 8-K. Participants in the RPM International Inc. 401(k) Trust and Plan and the RPM International Inc. Union 401(k) Retirement Savings Trust and Plan were subject to a "blackout period," as defined in Regulation BTR (Blackout Trading Restriction) as a result of the transition of the plan administrator under each of the plans from Key Bank to Wachovia Corporation. The blackout period commenced on February 21, 2003 and ended on March 11, 2003.
During the blackout period, the ability of all participants in the affected plans to purchase, sell, or otherwise acquire or transfer an interest in plan assets, to make changes in investment options and to initiate distributions or loans was suspended. The ability of the Company's Directors and officers to purchase, sell, or otherwise transfer (with the exception of transfers involving bona fide gifts) any equity securities of the Company (or derivative securities of those equity securities) was also suspended. All of the Company's equity securities, namely, the Company's Common Stock, were subject to the blackout period. The person designated by the Company to respond to inquiries about the blackout period was P. Kelly Tompkins, 2628 Pearl Road, P.O. Box 777, Medina, Ohio 44258, (330) 273-8883.
EXHIBIT NUMBER EXHIBIT DESCRIPTION
-------------- -------------------
*10.1 Employment Agreement between the Company and Dennis F. Finn - Vice President -
Environmental & Regulatory Affairs. (x)
*10.2 RPM International Inc. 2002 Performance Accelerated Restricted Stock Plan (f/k/a the RPM,
Inc. 2002 Performance Accelerated Restricted Stock Plan). (x)
*10.3 Amendment No. 1 to the RPM International Inc. 2002 Performance Accelerated Restricted
Stock Plan. (x)
*10.4 Amendment No. 1 to the RPM International Inc. Benefit Restoration Plan (f/k/a the RPM,
Inc. Benefit Restoration Plan). (x)
*10.5 Fourth Amendment to the 1997 RPM International Inc. Restricted Stock Plan. (x)
11.1 Computation of Net Income per share of Common Stock. (x)
|
(x) Filed herewith.
* Management contract or compensatory plan or arrangement.
There were no Current Reports on Form 8-K filed during the three months ended February 28, 2003.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
RPM INTERNATIONAL INC.
BY /s/ Frank C. Sullivan
------------------------------------
FRANK C. SULLIVAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BY /s/ Robert L. Matejka
------------------------------------
ROBERT L. MATEJKA
VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND CONTROLLER
DATED: APRIL 14, 2003
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CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Frank C. Sullivan, President and Chief Executive Officer of RPM International Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of RPM International Inc. (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
/s/ Frank C. Sullivan Frank C. Sullivan President and Chief Executive Officer April 14, 2003 |
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Robert L. Matejka, Vice President, Chief Financial Officer and Controller of RPM International Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of RPM International Inc. (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
/s/ Robert L. Matejka Robert L. Matejka Vice President, Chief Financial Officer and Controller April 14, 2003 |
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of the 1st day of January, 2003, between RPM International Inc., a Delaware corporation (the "Company"), and Dennis F. Finn ("Executive").
WHEREAS, Executive is currently Vice President - Environmental and Regulatory Affairs of the Company; and
WHEREAS, the Board of Directors of the Company recognizes the importance of Executive's continuing contribution to the future growth and success of the Company and desires to assure the Company and its shareholders of Executive's continued employment in an executive capacity and to compensate him therefor; and
WHEREAS, Executive is desirous of committing himself to continue to serve the Company on the terms herein provided.
NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein contained, the parties hereto agree as follows:
1. Term of Employment. The Company hereby agrees to continue to employ Executive, and Executive hereby agrees to continue to serve the Company, on the terms and conditions set forth herein for the period commencing as of the date hereof and expiring on May 31, 2003 (the "Employment Period"). The Employment Period shall automatically be extended on May 31 of each year for a period of one year from such date unless, not later than March 31 of such year, the Company or Executive has given notice to the other party that it or he, as the case may be, does not wish to have the Employment Period extended. In addition, in the event of a Change in Control, the Employment Period shall automatically be extended for a period of three years beginning on the date of the Change in Control and ending on the third anniversary of the date of such Change in Control (unless further extended under the immediately preceding sentence). In any case, the Employment Period may be terminated earlier under the terms and conditions set forth herein.
2. Position and Duties. Executive shall serve as Vice President - Environmental and Regulatory Affairs reporting to the Senior Vice President, General Counsel of the Company (or his designee) and shall have responsibility for the environmental and health and safety regulatory matters of the Company and shall have such other titles, powers and duties as may from time to time be assigned by the Senior Vice President, General Counsel (or his designee) or the Board of Directors of the Company; provided, however, that such duties are consistent with his present duties and his position with the Company. Executive shall devote substantially all his working time and efforts to the continued success of the business and affairs of the Company.
3. Place of Employment. In connection with his employment by the Company, Executive shall not be required to relocate or move from his existing principal residence in Brecksville, Ohio, and shall not be required to perform services which would make the continuance of his principal residence in Brecksville, Ohio, unreasonably difficult or inconvenient for him. The Company shall give Executive at least six months' advance notice of any proposed relocation of its
Medina, Ohio offices to a location more than 50 miles from Medina, Ohio and, if Executive in his sole discretion chooses to relocate his principal residence, the Company shall promptly pay (or reimburse him for) all reasonable relocation expenses (consistent with the Company's past practice for similarly situated senior executive officers) incurred by him relating to a change of his principal residence in connection with any such relocation of the Company's offices from Medina, Ohio.
4. Compensation.
(a) Base Salary. During the Employment Period, Executive shall receive a base salary at the rate of not less than One Hundred Five Thousand Dollars ($105,000) per annum ("Base Salary"), payable in substantially equal monthly installments at the end of each month during the Employment Period hereunder. It is contemplated that annually in the first quarter of each fiscal year of the Company the Compensation Committee of the Board of Directors (the "Compensation Committee") will review Executive's Base Salary and other compensation during the Employment Period and, at the discretion of the Compensation Committee, it may increase his Base Salary and other compensation, effective as of June 1 of such fiscal year, based upon his performance, then generally prevailing industry salary scales, the Company's results of operations, and other relevant factors. Any increase in Base Salary or other compensation shall in no way limit or reduce any other obligation of the Company hereunder and, once established at an increased specified rate, Executive's Base Salary hereunder shall not be reduced without his written consent.
(b) Incentive Compensation. In addition to his Base Salary, Executive shall be entitled to receive such annual cash incentive compensation ("Incentive Compensation") during the Employment Period as the Compensation Committee may determine in its sole discretion based upon the Company's results of operation and other relevant factors. At the election of Executive, such annual Incentive Compensation may be received by Executive as soon as possible, but no later than 90 days after the close of the Company's fiscal year for which such Incentive Compensation is granted, or the payment may be deferred provided Executive gives written notice no later than May 31 of the current fiscal year to the Chairman of the Compensation Committee that he elects to defer payment, which notice shall also state the date(s) on which he desires to be paid.
(c) Expenses. During the Employment Period, Executive shall be entitled to receive prompt reimbursement for all reasonable business expenses incurred by him (in accordance with Company practice) in performing services hereunder, provided that Executive properly accounts therefor in accordance with either Company policies or guidelines established by the Internal Revenue Service if such are less burdensome.
(d) Participation in Benefit Plans. During the Employment Period, but subject to the terms of this Subsection 4(d), Executive shall be entitled to continue to participate in or receive benefits under the Benefit Plans, subject to and on a basis consistent with the terms, conditions and overall administration of the Benefit Plans. Except with respect to any benefits related to salary reductions authorized by Executive, nothing paid or awarded to Executive under any Benefit Plan presently in effect or made available in the future shall reduce or be deemed to be in lieu of compensation to Executive pursuant to any other provision of this Section 4. Executive shall not be eligible to participate in the Split Dollar Life Insurance or the Restricted Stock Plan before June 1, 2003 and participation in such arrangement and plan after such time shall be subject
to and on a basis consistent with the terms, conditions and overall administration of such arrangement and plan, including the requirement that participation in the Restricted Stock Plan be approved by the Compensation Committee and other applicable eligibility criteria. In addition, Executive's right to participate in any Benefit Plan shall be subject to the applicable eligibility criteria for participation and Executive shall not be entitled to any benefits under, or based on, any Benefit Plan for any purposes of this Agreement if Executive does not during the Employment Period satisfy the eligibility criteria for participation in such plan.
(e) Vacations. During the Employment Period, Executive shall be entitled to the same number of paid vacation days in each fiscal year determined by the Company from time to time for its other senior executive officers, but not less than four weeks in any fiscal year, to be taken at such time or times as is desired by Executive after consultation with Executive's direct report (or the designated vacation coordinator) to avoid scheduling conflicts (prorated in any fiscal year during which Executive is employed hereunder for less than the entire such year in accordance with the number of days in such fiscal year during which he is so employed). Executive also shall be entitled to all paid holidays given by the Company to its other salaried employees.
(f) Other Benefits. During the Employment Period, Executive shall be entitled to continue to receive the fringe benefits appertaining to his position with the Company in accordance with present practice, including the use of the most recent model of a full-sized automobile. During the Employment Period, Executive shall be entitled to the full-time use of an office and furniture at the Company's offices in Medina, Ohio, and shall be entitled to the full-time use of a secretary paid by the Company.
5. Termination Outside of Protected Period.
(a) Events of Termination. At any time other than during the Protected Period, the Employment Period shall terminate immediately upon the occurrence of any of the following events: (i) expiration of the Employment Period; (ii) the death of Executive; (iii) the expiration of 30 days after the Company gives Executive written notice of its election to terminate the Employment Period upon the Disability of Executive, if before the expiration of such 30-day period Executive has not returned to the performance of his duties hereunder on a full-time basis; (iv) the resignation of Executive; (v) the Company's termination of the Employment Period for Cause; or (vi) the Company's termination of the Employment Period at any time, without Cause, for any reason or no reason. For purposes of Subsections 5(b) and 5(c), expiration of the Employment Period upon a notice of the Company under Section 1 that it does not wish to have the Employment Period extended shall be deemed a termination without Cause pursuant to Subsection 5(a)(vi) and expiration of the Employment Period upon a notice of Executive under Section 1 that he does not wish to have the Employment Period extended shall be deemed a resignation of Executive pursuant to Subsection 5(a)(iv).
(b) Compensation Upon Termination. This Subsection 5(b) sets forth the payments and benefits to which Executive is entitled under any termination of employment pursuant to Subsection 5(a).
(i) Death; Disability. During any period in which Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness, Executive shall continue to receive his full Base Salary only until his employment is terminated pursuant to Subsection 5(a)(ii) or (iii). Upon termination of the Employment Period under Subsection 5(a)(ii) or (iii), Executive shall no longer be entitled to participate in the Benefit Plans, except as required by applicable law or as governed by the Benefit Plans including the Group Long Term Disability Insurance in which Executive participates immediately prior to such termination, but Executive shall be entitled to receive his Earned Incentive Compensation, if any, promptly after the Termination Date.
(ii) Resignation or Cause. If Executive's employment is terminated pursuant to Subsection 5(a)(iv) or (v), the Company shall pay Executive his full Base Salary through the Termination Date at the rate in effect at such time. The Company shall then have no further obligations to Executive under this Agreement and Executive shall no longer be entitled to participate in the Benefit Plans, except as required by applicable law.
(iii) Termination Without Cause. If Executive's employment is terminated without Cause pursuant to Subsection 5(a)(vi), then in lieu of any further salary payments to Executive for periods subsequent to the Termination Date, the Company shall pay to Executive no later than 30 calendar days following such date, a lump sum amount equal to the sum of (A) 150% of Executive's Base Salary in effect as of such date and (B) the amount of Executive's Earned Incentive Compensation. Executive also shall be entitled to certain continuing benefits under the terms of Subsection 5(c). Notwithstanding any other provision of this Subsection 5(b)(iii), Subsection 5(c) or this Agreement, the Company shall have no obligation to make the lump-sum payment referred to in this Subsection 5(b)(iii) or provide any continuing benefits or payment referred to in Subsection 5(c) unless (X) Executive executes and delivers to the Company a Release and Waiver of Claims and (Y) Executive refrains from revoking, rescinding or otherwise repudiating such Release and Waiver of Claims for all applicable periods during which Executive may revoke it.
(c) Additional Benefits Following Termination under
Subsection 5(a)(vi). This Subsection 5(c) sets forth the benefits to which
Executive shall be entitled, in addition to those set forth in Subsection
5(b)(iii), following a termination of the Employment Period under Subsection
5(a)(vi). Executive shall not be entitled to the benefit of any provision of
this Subsection 5(c) following a termination of the Employment Period under any
other provision hereof.
(i) Continuing Benefit Plans. For a period of 18 months following such a Termination Date, Executive shall also be entitled to continue to participate, on the same terms and conditions as active employees, in the Continuing Benefit Plans in which Executive participated immediately prior to the Termination Date, except that (A) Executive shall be entitled to Estate/Financial Planning Benefits for a period of only six months following the Termination Date and (B) if Executive's continued participation is not possible and Executive does not continue to participate under the terms of any such Continuing Benefit Plan, the Company shall instead pay to Executive, promptly upon presentation to the Company of an invoice or receipt for payment, the amount Executive spends to receive comparable coverage
under such a comparable plan for such 18-month period. Notwithstanding the foregoing sentence, the Company's obligations to Executive with respect to continued benefits under the Continuing Benefit Plans shall be deemed satisfied to the extent of any such comparable benefits which are provided to Executive by another employer. During such continuation period, Executive shall be responsible for paying the normal employee share of the applicable premiums for coverage under the Continuing Benefit Plans. The Company shall have the right to modify, amend or terminate the Continuing Benefit Plans (other than the Estate/Financial Planning Benefits) following the Termination Date and Executive's continued participation therein shall be subject to such modification, amendment or termination if such modification, amendment or termination applies generally to the then-current participants in such plan. Upon completion of the 18-month period following such a Termination Date, the Company shall afford Executive the opportunity to continue Executive's coverage under the Continuing Benefit Plans (other than the Estate/Financial Planning Benefits), at Executive's expense, for an additional period under COBRA Continuation Coverage, so long as Executive timely elects to receive COBRA Continuation Coverage under the terms thereof and otherwise complies with the conditions of continuation of benefits under COBRA Continuation Coverage.
(ii) Limited Benefit Plans. After such a Termination Date, Executive shall no longer be entitled to participate as an active employee in, or receive any additional or new benefits under, the Limited Benefit Plans, except as set forth in this Subsection 5(c)(ii) and except for such benefits, if any, available under such plans to former employees. If such Termination Date occurs on or after June 1, 2003, Executive shall be entitled to the following additional benefits:
(A) Continued coverage, for a period of 18 months after the Termination Date, under the Split Dollar Life Insurance, with the Company paying such expenses as it otherwise would have paid thereunder if Executive had continued to be employed, all on the terms of the Split Dollar Life Insurance;
(B) A lump-sum payment to be paid under the Restricted Stock Plan equal to the cash value of the benefits Executive would have received (if any) had he continued to participate in and receive annual awards under the Restricted Stock Plan on a basis consistent with his past practice for a period of 18 months after the Termination Date, determined and payable in accordance with the terms of the Restricted Stock Plan and the Company's past practice; and
(C) The lapse of all restrictions on transfer and forfeiture provisions to which Executive's awards under the Restricted Stock Plan (if any) are subject, so that any restricted shares previously awarded to Executive under such plan shall be nonforfeitable and freely transferable thereafter, all on the terms of the Restricted Stock Plan or the agreements thereunder.
(d) Notice of Termination. Any termination by the Company pursuant to Subsection 5(a)(iii), (v) or (vi) or by Executive pursuant to Subsection 5(a)(iv) shall be communicated to the other party hereto by written notice of termination, which shall state in reasonable detail the facts upon which the termination has occurred.
6. Termination During Protected Period.
(a) Events of Termination. During the Protected Period, the Employment Period shall terminate immediately upon the occurrence of any of the following events: (i) the death of Executive; (ii) the expiration of 30 days after the Company gives Executive written notice of its election to terminate the Employment Period upon the Disability of Executive, if before the expiration of such 30-day period Executive has not returned to the performance of his duties hereunder on a full-time basis; (iii) the resignation of Executive without delivering Notice of Termination for Good Reason; (iv) the Company's termination of the Employment Period for Cause; (v) the Company's termination of the Employment Period at any time, without Cause, for any reason or no reason; or (vi) Executive's termination of the Employment Period for Good Reason by delivery of Notice of Termination for Good Reason to the Company during the Protected Period indicating that an event constituting Good Reason has occurred, provided that Executive's failure to object in writing to an event alleged to constitute Good Reason within six months of the date of occurrence of such event shall be deemed a waiver of such event by Executive and Executive thereafter may not terminate the Employment Period under this Subsection 6(a)(vi) based on such event.
(b) Compensation Upon Termination. This Subsection 6(b) sets forth the payments and benefits to which Executive is entitled under any termination of employment pursuant to Subsection 6(a).
(i) Death; Disability. During any period in which Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness, Executive shall continue to receive his full Base Salary only until his employment is terminated pursuant to Subsection 6(a)(i) or (ii). Upon termination of the Employment Period under Subsection 6(a)(i) or (ii), Executive shall no longer be entitled to participate in the Benefit Plans, except as required by applicable law or as governed by the Benefit Plans including the Group Long Term Disability Insurance in which Executive participates immediately prior to such termination, but Executive shall be entitled to receive his Earned Incentive Compensation, if any, promptly after the Termination Date.
(ii) Resignation or Cause. If Executive's employment is terminated pursuant to Subsection 6(a)(iii) or (iv), the Company shall pay Executive his full Base Salary through the Termination Date at the rate in effect at such time. The Company shall then have no further obligations to Executive under this Agreement and Executive shall no longer be entitled to participate in the Benefit Plans, except as required by applicable law.
(iii) Termination Without Cause or for Good Reason. If Executive's employment is terminated by the Company without Cause pursuant to Subsection 6(a)(v) or by Executive for Good Reason pursuant to Subsection 6(a)(vi), then in lieu of any further salary payments to Executive for periods subsequent to the Termination Date, the Company shall pay to Executive no later than 30 calendar days following such date, a lump sum amount equal to the sum of (A) 150% of Executive's Base Salary in effect as of such date and (B) the amount of Executive's Earned Incentive Compensation. Executive also shall be entitled to certain continuing benefits
under the terms of Subsection 6(c). Notwithstanding any other provision of this Subsection 6(b)(iii), Subsection 6(c), Section 7 or this Agreement, the Company shall have no obligation to make the lump-sum payment referred to in this Subsection 6(b)(iii), to provide any continuing benefits or payment referred to in Subsection 6(c), or to make any Gross-Up Payment unless (X) Executive executes and delivers to the Company a Release and Waiver of Claims and (Y) Executive refrains from revoking, rescinding or otherwise repudiating such Release and Waiver of Claims for all applicable periods during which Executive may revoke it.
(c) Additional Benefits Following Termination under
Subsections 6(a)(v) or (vi). This Subsection 6(c) sets forth the benefits to
which Executive shall be entitled, in addition to those set forth in Subsection
6(b)(iii), following a termination of the Employment Period under Subsection
6(a)(v) or (vi). Executive shall not be entitled to the benefit of any provision
of this Subsection 6(c) following a termination of the Employment Period under
any other provision hereof.
(i) Continuing Benefit Plans. For a period of 18 months following such a Termination Date, Executive shall also be entitled to continue to participate, on the same terms and conditions as active employees, in the Continuing Benefit Plans in which Executive participated immediately prior to the Termination Date, except that (A) Executive shall be entitled to Estate/Financial Planning Benefits for a period of only six months following the Termination Date and (B) if Executive's continued participation is not possible and Executive does not continue to participate under the terms of any such Continuing Benefit Plan, the Company shall instead pay to Executive, promptly upon presentation to the Company of an invoice or receipt for payment, the amount Executive spends to receive comparable coverage under such a comparable plan for such 18-month period. Notwithstanding the foregoing sentence, the Company's obligations to Executive with respect to continued benefits under the Continuing Benefit Plans shall be deemed satisfied to the extent of any such comparable benefits which are provided to Executive by another employer. During such continuation period, Executive shall be responsible for paying the normal employee share of the applicable premiums for coverage under the Continuing Benefit Plans. The Company shall have the right to modify, amend or terminate the Continuing Benefit Plans (other than the Estate/Financial Planning Benefits) following the Termination Date and Executive's continued participation therein shall be subject to such modification, amendment or termination if such modification, amendment or termination applies generally to the then-current participants in such plan. Upon completion of the 18-month period following such a Termination Date, the Company shall afford Executive the opportunity to continue Executive's coverage under the Continuing Benefit Plans (other than the Estate/Financial Planning Benefits), at Executive's expense, for an additional period under COBRA Continuation Coverage, so long as Executive timely elects to receive COBRA Continuation Coverage under the terms thereof and otherwise complies with the conditions of continuation of benefits under COBRA Continuation Coverage.
(ii) Limited Benefit Plans. After such a Termination Date, Executive shall no longer be entitled to participate as an active employee in, or receive any additional or new benefits under, the Limited Benefit Plans, except as set forth in this Subsection 6(c)(ii) and except for such benefits, if any, available under such plans to former employees. If such
Termination Date occurs on or after June 1, 2003, Executive shall be entitled to the following additional benefits:
(A) The Company shall make a lump sum 18-month premium payment to the carrier equal to the premiums that the Company would have paid under the Split Dollar Life Insurance if Executive had continued to be employed for 18 months following the Termination Date, all on the terms of the Split Dollar Life Insurance. In addition, immediately following such premium payment, the Company shall execute such documents as necessary to cause the full ownership of the Split Dollar Life Insurance policy related to Executive and all of its values to transfer to Executive. The Company shall be responsible for the payment of all costs imposed by the carrier to carry out such transfer;
(B) A lump-sum payment to be paid under the Restricted Stock Plan equal to the cash value of the benefits Executive would have received (if any) had he continued to participate in and receive annual awards under the Restricted Stock Plan on a basis consistent with his past practice for a period of 18 months after the Termination Date, determined and payable in accordance with the terms of the Restricted Stock Plan and the Company's past practice; and
(C) The lapse of all restrictions on transfer and forfeiture provisions to which Executive's awards under the Restricted Stock Plan (if any) are subject, so that any restricted shares previously awarded to Executive under such plan shall be nonforfeitable and freely transferable thereafter, all on the terms of the Restricted Stock Plan or the agreements thereunder.
(d) Notice of Termination. Any termination by the Company pursuant to Subsection 6(a)(ii), (iv) or (v) or by Executive pursuant to Subsection 6(a)(iii) shall be communicated to the other party hereto by written notice of termination, which shall state in reasonable detail the facts upon which the termination has occurred. A termination pursuant to Subsection 6(a)(vi) shall be communicated by Notice of Termination for Good Reason.
(e) Notice of Change in Control. The Company shall give Executive written notice of the occurrence of any event constituting a Change in Control as promptly as practical, and in no case later than 10 calendar days, after the occurrence of such event.
(f) Deemed Termination After Change in Control. Any termination of the employment of Executive by the Company without Cause or the removal of Executive as an elected officer or Director of the Company or a Subsidiary following the commencement of any discussion with or communication from a third party that ultimately results in a Change in Control shall be deemed to be a termination or removal, respectively, of Executive after a Change in Control for purposes of this Agreement. In the event Executive is entitled to the benefits under this Agreement as contemplated by the preceding sentence, then for purposes of Subsections 6(b)(iii) and 6(c) and Section 7, the Termination Date shall be deemed to be the date of the Change in Control if the employment of Executive was terminated before such date.
(g) Set-Off. There shall be no right of set-off or counterclaim against, or delay in, any payment by the Company to Executive of the Lump-Sum Payment or any Gross-Up Payment in respect of any claim against or debt or obligation of Executive, whether arising hereunder or otherwise.
(h) Interest on Overdue Payments. Without limiting the rights of Executive at law or in equity, if the Company fails to make the Lump-Sum Payment or any Gross-Up Payment on a timely basis, the Company shall pay interest on the amount thereof at an annualized rate equal to the rate in effect, at the time such payment should have been made, under the 401(k) Plan for loans to participants in such plan.
(i) Outplacement Assistance. Promptly after a request in writing from Executive following a termination of the Employment Period under Subsection 6(a)(v) or (vi), the Company shall retain a professional outplacement assistance service firm reasonably acceptable to Executive, at the Company's expense, to provide outplacement assistance to Executive during the Protected Period. Such services shall be appropriate to Executive's position with the Company. Executive shall not be entitled to such services, however, following a termination of the Employment Period under Subsection 6(a)(i), (ii), (iii) or (iv).
(j) PARS Plan. If Executive participates in the PARS Plan and a Change in Control occurs as determined under the PARS Plan, then Executive shall be entitled to the lapse of transfer restrictions imposed on any grant of restricted stock to Executive under the PARS Plan, all as determined under and subject to the terms of the PARS Plan.
7. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined (as hereafter provided) that any payment or distribution by the Company or any of its Affiliates to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, performance share, performance unit, restricted stock, stock appreciation right or similar right, or the lapse or termination of any restriction on, or the vesting or exercisability of, any of the foregoing (individually and collectively, a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision thereto) by reason of being considered "contingent on a change in ownership or control" of the Company, within the meaning of Section 280G of the Code (or any successor provision thereto), or to any similar tax imposed by state or local law, or to any interest or penalties with respect to such taxes (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the "Excise Tax"), then Executive shall be entitled to receive an additional payment or payments (individually and collectively, a "Gross-Up Payment"). The Gross-Up Payment shall be in an amount such that, after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Subsection 7(f), all determinations required to be made under this Section 7, including whether an Excise Tax is payable by Executive and the amount of such Excise Tax and whether a Gross-Up Payment is required to be paid by the Company to Executive and the amount of such Gross-Up Payment, if any, shall be made (i) by PricewaterhouseCoopers (or its successor) (the "Accounting Firm"), regardless of any services that PricewaterhouseCoopers (or its successor) has performed or may be performing for the Company, or (ii) if PricewaterhouseCoopers (or its successor) is serving as accountant or auditor for the individual, entity or group effecting a Change in Control, or cannot (because of limitations under applicable law or otherwise) make the determinations required to be made under this Section 7, then by another nationally recognized accounting firm selected by Executive and reasonably acceptable to the Company (which accounting firm shall then be the "Accounting Firm" hereunder). The Company, or Executive if he selects the Accounting Firm, shall direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Company and Executive within 30 calendar days after the Termination Date, if applicable, and any such other time or times as may be requested by the Company or Executive. If the Accounting Firm determines that any Excise Tax is payable by Executive, the Company shall pay the required Gross-Up Payment to Executive within five business days after the Company's receipt of such determination and calculations with respect to any Payment to Executive. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall, at the same time as it makes such determination, furnish the Company and Executive an opinion that Executive has substantial authority not to report any Excise Tax on his federal, state or local income or other tax return. As a result of the uncertainty in the application of Section 4999 of the Code (or any successor provision thereto) and the possibility of similar uncertainty regarding applicable state or local tax law at the time of any determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts or fails to pursue its remedies pursuant to Subsection 7(f) and Executive thereafter is required to make a payment of any Excise Tax, Executive shall direct the Accounting Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and Executive as promptly as possible. Any such Underpayment shall be promptly paid by the Company to, or for the benefit of, Executive as a Gross-Up Payment within five business days after the Company's receipt of such determination and calculations.
(c) The Company and Executive shall each provide the Accounting Firm access to and copies of any books, records and documents in the possession of the Company or Executive, as the case may be, reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Subsection 7(b). Any determination by the Accounting Firm as to the amount of any Gross-Up Payment or Underpayment shall be binding upon the Company and Executive.
(d) The federal, state and local income or other tax returns filed by Executive shall be prepared and filed on a consistent basis with the determination of the Accounting Firm with respect to the Excise Tax payable by Executive. Executive shall make proper payment of
the amount of any Excise Tax, and at the request of the Company, provide to the Company true and correct copies (with any amendments) of his federal income tax return as filed with the Internal Revenue Service and corresponding state and local tax returns, if relevant, as filed with the applicable taxing authority, and such other documents reasonably requested by the Company, evidencing such payment. If prior to the filing of Executive's federal income tax return, or corresponding state or local tax return, if relevant, the Accounting Firm determines that the amount of the Gross-Up Payment should be reduced, Executive shall within five business days pay to the Company the amount of such reduction.
(e) The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations contemplated by Subsection 7(b) shall be borne by the Company.
(f) Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as promptly as practicable but no later than 10
business days after Executive actually receives notice of such claim and
Executive shall further apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid (in each case, to the extent
known by Executive). Executive shall not pay such claim prior to the earlier of
(x) the expiration of the 30-calendar-day period following the date on which he
gives such notice to the Company and (y) the date that any payment of an amount
with respect to such claim is due. If the Company notifies Executive in writing
prior to the expiration of such period that it desires to contest such claim,
Executive shall:
(i) provide the Company with any written records or documents in his possession relating to such claim reasonably requested by the Company;
(ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order effectively to contest such claim; and
(iv) permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless Executive, on an after-tax basis,
for and against any Excise Tax or income tax, including interest and penalties
with respect thereto, imposed as a result of such representation and payment of
costs and expenses. Without limiting the foregoing provisions of this Subsection
7(f), the Company shall control all proceedings taken in connection with the
contest of any claim contemplated by this Subsection 7(f) and, at its sole
option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided, however, that Executive may participate therein at his own cost and expense) and may, at its option, either direct Executive to pay the tax claimed and file for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs Executive to pay the tax claimed and file for a refund, the Company shall advance the amount of such payment to Executive on an interest-free basis and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income or other tax, including interest or penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of any such contested claim shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
(g) If, after the receipt by Executive of an amount advanced by the Company pursuant to Subsection 7(f), Executive receives any refund with respect to such claim, Executive shall (subject to the Company's complying with the requirements of Subsection 7(f)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Subsection 7(f), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 calendar days after the Company is notified of such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of any such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid by the Company to Executive pursuant to this Section 7.
8. Binding Agreement; Successors. This Agreement shall inure to the benefit of and be binding upon Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other designee or, if there be no such designee, to Executive's estate. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company, including, without limitation, any person acquiring directly or indirectly all or substantially all of the assets of the Company, whether by merger, consolidation, sale or otherwise (and such successor shall thereafter be deemed the "Company" for the purposes of this Agreement). The Company shall require any such successor to assume and agree to perform this Agreement.
9. Restrictive Covenants.
(a) Non-Competition. During the Employment Period and for a period of 18 months following the Termination Date, Executive shall not, directly or indirectly, own, manage,
operate, control or participate in the ownership, management, operation or control of, or be connected as an officer, employee, partner or director with, or have any financial interest in, any business which is in substantial competition with any business conducted by the Company or by any group, division or Subsidiary of the Company, in any area where such business is being conducted at the time of such termination. Ownership of 5% or less of the voting stock of any corporation which is required to file periodic reports with the Securities and Exchange Commission under the Exchange Act shall not constitute a violation hereof.
(b) Non-Solicitation. Executive shall not directly or indirectly, at any time during the Employment Period and for 18 months thereafter, solicit or induce or attempt to solicit or induce any employee, sales representative or other representative, agent or consultant of the Company or any group, division or Subsidiary of the Company (collectively, the "RPM Group") to terminate his, her or its employment, representation or other relationship with the RPM Group or in any way directly or indirectly interfere with such a relationship.
(c) Confidentiality.
(i) Executive shall keep in strict confidence, and shall not, directly or indirectly, at any time during or after the Employment Period, disclose, furnish, publish, disseminate, make available or, except in the course of performing his duties of employment hereunder, use any Confidential Information. Executive specifically acknowledges that all Confidential Information, whether reduced to writing, maintained on any form of electronic media, or maintained in the mind or memory of Executive and whether compiled by the RPM Group, and/or Executive, derives independent economic value from not being readily known to or ascertainable by proper means by others who can obtain economic value from its disclosure or use, that reasonable efforts have been made by the RPM Group to maintain the secrecy of such information, that such information is the sole property of the RPM Group and that any disclosure or use of such information by Executive during the Employment Period (except in the course of performing his duties and obligations hereunder) or after the termination of the Employment Period shall constitute a misappropriation of the RPM Group's trade secrets.
(ii) Executive agrees that upon termination of the Employment Period, for any reason, Executive shall return to the Company, in good condition, all property of the RPM Group, including, without limitation, the originals and all copies of any materials, whether in paper, electronic or other media, that contain, reflect, summarize, describe, analyze or refer or relate to any items of Confidential Information.
10. Notice. All notices, requests and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (a) when hand delivered, (b) when dispatched by electronic facsimile transmission (with receipt electronically confirmed), (c) one business day after being sent by recognized overnight delivery service, or (d) three business days after being sent by registered or certified mail, return receipt requested, postage prepaid, and in each case addressed as follows (or addressed as otherwise specified by notice under this Section):
If to Executive:
Dennis F. Finn
10169 Old Orchard Drive
Brecksville, Ohio 44141
Facsimile: Not applicable
If to the Company:
RPM International Inc.
2628 Pearl Road
P.O. Box 777
Medina, Ohio 44258
Facsimile: 330-225-6574
Attn: Secretary
11. Withholding. The Company may withhold from any amounts payable under or in connection with this Agreement all federal, state, local and other taxes as may be required to be withheld by the Company under applicable law or governmental regulation or ruling.
12. Amendments; Waivers. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing, and is signed by Executive and by another executive officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.
13. Jurisdiction. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Ohio, without giving effect to the conflict of law principles of such State. Executive and the Company each agree that the state and federal courts located in the State of Ohio shall have jurisdiction in any action, suit or proceeding against Executive or the Company based on or arising out of this Agreement and each of Executive and the Company hereby (a) submits to the personal jurisdiction of such courts, (b) consents to service of process in connection with any such action, suit or proceeding and (c) waives any other requirement (whether imposed by statute, rule of court or otherwise) with respect to personal jurisdiction, venue or service of process.
14. Equitable Relief. Executive and the Company
acknowledge and agree that the covenants contained in Section 9 are of a special
nature and that any breach, violation or evasion by Executive of the terms of
Section 9 will result in immediate and irreparable injury and harm to the
Company, for which there is no adequate remedy at law, and will cause damage to
the Company in amounts difficult to ascertain. Accordingly, the Company shall be
entitled to the remedy of injunction, as well as to all other legal or equitable
remedies to which the
Company may be entitled (including, without limitation, the right to seek monetary damages), for any breach, violation or evasion by Executive of the terms of Section 9.
15. Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. In the event that any provision of Section 9 is found by a court of competent jurisdiction to be invalid or unenforceable as against public policy, such court shall exercise its discretion in reforming such provision to the end that Executive shall be subject to such restrictions and obligations as are reasonable under the circumstances and enforceable by the Company.
16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.
17. Headings; Definitions. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. Certain capitalized terms used in this Agreement are defined on Schedule A attached hereto.
18. No Assignment. This Agreement may not be assigned by either party without the prior written consent of the other party, except as provided in Section 8.
19. Entire Agreement. This Agreement contains the entire agreement between the parties with respect to the employment of Executive and supersedes any and all other agreements, either oral or in writing, with respect to the employment of Executive.
20. Enforcement Costs. The Company is aware that upon the occurrence of a Change in Control the Board of Directors or a shareholder of the Company may then cause or attempt to cause the Company to refuse to comply with its obligations under this Agreement, or may cause or attempt to cause the Company to institute, or may institute, litigation seeking to have this Agreement declared unenforceable, or may take, or attempt to take, other action to deny Executive the benefits intended under this Agreement. In these circumstances, the purpose of this Agreement could be frustrated. It is the intent of the Company that Executive not be required to incur the expenses associated with the enforcement of his rights under this Agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to Executive hereunder, nor be bound to negotiate any settlement of his rights hereunder under threat of incurring such expenses. Accordingly, if, following a Change in Control, it should appear to Executive that the Company has failed to comply with any of its obligations under this Agreement or the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation or other legal action designed to deny, diminish or recover from Executive the benefits intended to be provided to Executive hereunder, and Executive has complied with all of his obligations under Section 9, then the Company irrevocably authorizes Executive from time to time to retain counsel of his choice at the expense of the Company as provided in this Section 20 to represent Executive in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company or any Director, officer, shareholder or other person affiliated with the Company, in any jurisdiction.
The Company's obligations under this Section 20 shall not be conditioned on Executive's success in the prosecution or defense of any such litigation or other legal action. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to Executive entering into an attorney-client relationship with such counsel, and in that connection the Company and Executive agree that a confidential relationship shall exist between Executive and such counsel. The reasonable fees and expenses of counsel selected from time to time by Executive as hereinabove provided shall be paid or reimbursed to Executive by the Company on a regular, periodic basis upon presentation by Executive of a statement or statements prepared by such counsel in accordance with its customary practices, up to a maximum aggregate amount of $500,000. Notwithstanding the foregoing, this Section 20 shall not apply at any time unless a Change in Control has occurred.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written.
IN THE PRESENCE OF: RPM INTERNATIONAL INC.
/s/ Karin J. Owen By: /s/ Frank C. Sullivan
--------------------------- ----------------------------------
Frank C. Sullivan, President and
Chief Executive Officer
/s/ J.R. Hassett And: /s/ P. Kelly Tompkins
--------------------------- ---------------------------------
P. Kelly Tompkins, Secretary
The "Company"
/s/ Keith R. Smiley /s/ Dennis F. Finn
----------------------------- --------------------------------
Dennis F. Finn
"Executive"
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Schedule A
Certain Definitions
As used in this Agreement, the following capitalized terms shall have the following meanings:
"401(k) Plan" means the RPM International Inc. 401(k) Plan and any successor plan or arrangement.
"Affiliate" of a specified entity means an entity that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the entity specified.
"Average Incentive Compensation" means an amount equal to the average amount of the annual Incentive Compensation payable to Executive (without regard to any reduction thereof elected by Executive pursuant to any qualified or non-qualified compensation reduction arrangement maintained by the Company, including, without limitation, the Deferred Compensation Plan) for the three most recent completed fiscal years (or for such shorter period during which Executive has been employed by the Company) preceding the Termination Date in which the Company paid Incentive Compensation to executive officers of the Company or in which the Company considered and declined to pay Incentive Compensation to executive officers of the Company.
"Benefit Plans" means the Continuing Benefit Plans and the Limited Benefit Plans.
"Cause" means a determination of the Board of Directors (without the
participation of Executive) of the Company pursuant to the exercise of
its business judgment, that either of the following events has
occurred: (a) Executive has engaged in willful and intentional acts of
dishonesty or gross neglect of duty or (b) Executive has breached
Section 9.
"Change in Control" shall mean the occurrence at any time of any of the following events:
(a) The Company is merged or consolidated or reorganized into or with another corporation or other legal person or entity, and as a result of such merger, consolidation or reorganization less than a majority of the combined voting power of the then-outstanding securities of such corporation, person or entity immediately after such transaction are held in the aggregate by the holders of Voting Stock immediately prior to such transaction;
(b) The Company sells or otherwise transfers all or substantially all of its assets to any other corporation or other legal person or entity, and less than a majority of the combined voting power of the then-outstanding securities of such corporation, person or entity immediately after such sale or transfer is held in the aggregate by the holders of Voting Stock immediately prior to such sale or transfer;
(c) There is a report filed on Schedule 13D or
Schedule TO (or any successor schedule, form or report), each as
promulgated pursuant to the Exchange Act, disclosing that any person
(as the term "person" is used in Section 13(d)(3) or Section 14(d)(2)
of the Exchange Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule l3d-3 or any successor rule or
regulation promulgated under the Exchange Act) of securities
representing 15% or more of the Voting Power;
(d) The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of the Company has or may have occurred or will or may occur in the future pursuant to any then-existing contract or transaction; or
(e) If during any period of two consecutive years, individuals, who at the beginning of any such period, constitute the Directors cease for any reason to constitute at least a majority thereof, unless the nomination for election by the Company's shareholders of each new Director was approved by a vote of at least two-thirds of the Directors then in office who were Directors at the beginning of any such period.
Notwithstanding the foregoing provisions of paragraphs (c) and (d) of this definition, a "Change in Control" shall not be deemed to have occurred for purposes of this Agreement (i) solely because (A) the Company, (B) a Subsidiary, or (C) any Company-sponsored employee stock ownership plan or other employee benefit plan of the Company or any Subsidiary, or any entity holding shares of Voting Stock for or pursuant to the terms of any such plan, either files or becomes obligated to file a report or proxy statement under or in response to Schedule 13D, Schedule TO, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by it of shares of Voting Stock or because the Company reports that a change in control of the Company has or may have occurred or will or may occur in the future by reason of such beneficial ownership, (ii) solely because any other person or entity either files or becomes obligated to file a report on Schedule 13D or Schedule TO (or any successor schedule, form or report) under the Exchange Act, disclosing beneficial ownership by it of shares of Voting Stock, but only if both (A) the transaction giving rise to such filing or obligation is approved in advance of consummation thereof by the Company's Board of Directors and (B) at least a majority of the Voting Power immediately after such transaction is held in the aggregate by the holders of Voting Stock immediately prior to such transaction, or (iii) solely because of a change in control of any Subsidiary.
Notwithstanding the foregoing definition or anything contained in this Agreement, a "Change in Control" shall not be deemed to have occurred as a result of (i) RPM, Inc., an Ohio corporation, or the Company entering into the Merger Agreement or the Reorganization Agreement or (ii) the consummation by RPM, Inc., an Ohio corporation, or the Company of any of the transactions contemplated by the Merger
Agreement or the Reorganization Agreement. As used herein, "Merger Agreement" shall mean the Agreement and Plan of Merger, dated as of August 29, 2002, among RPM, Inc., an Ohio corporation, the Company, and RPM Merger Company, an Ohio corporation and wholly-owned subsidiary of the Company, and "Reorganization Agreement" shall mean the Reorganization Agreement, dated as of October 15, 2002, by and between RPM, Inc., an Ohio corporation, and the Company.
"COBRA Continuation Coverage" means the health care continuation
requirements under the federal Consolidated Omnibus Budget
Reconciliation Act, as amended, Part VI of Subtitle B of Title I of the
Employee Retirement Income Security Act of 1974, as amended, and Code
Section 4980B(f), or any successor provisions thereto.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Confidential Information" means trade secrets and confidential business and technical information of the RPM Group and its customers and vendors, without limitation as to when or how Executive may have acquired such information. Such Confidential Information shall include, without limitation, the RPM Group's manufacturing, selling and servicing methods and business techniques, training, service and business manuals, promotional materials, vendor and product information, product development plans, internal financial statements, sales and distribution information, business plans, marketing strategies, pricing policies, corporate alliances, business opportunities, the lists of actual and potential customers as well as other customer information, technology, know-how, processes, data, ideas, techniques, inventions (whether patentable or not), formulas, terms of compensation and performance levels of RPM Group employees, and other information concerning the RPM Group's actual or anticipated business, research or development, or which is received in confidence by or for the RPM Group from any other person and all other confidential information to the extent that such information is not intended by the RPM Group for public dissemination.
"Continuing Benefit Plans" means only the following employee benefit plans and arrangements of the Company in effect on the date hereof, or any successor plan or arrangement in which Executive is eligible to participate immediately before the Termination Date:
(a) The RPM International Inc. Health and Welfare Plan (including medical, dental and prescription drug benefits); and
(b) Estate/Financial Planning Benefits.
"Deferred Compensation Plan" means the RPM International Inc. Deferred Compensation Plan, as amended from time to time, in which executive officers of the Company are eligible to participate and any such successor plan or arrangement.
"Director" means a member of the Board of Directors of the Company.
"Disability," when determined at any time other than during the Protected Period, means the inability of Executive for a continuous period in excess of 150 days to perform the essential functions of his position on an active full-time basis with or without reasonable accommodations by reason of a disability condition; a certificate from a physician acceptable to both the Company and Executive to the effect that Executive is or has been disabled and incapable of performing the essential functions of his position with or without reasonable accommodations as previously performed shall be conclusive of the fact that Executive is incapable of performing such services and is, or has been, disabled for the purposes of this Agreement. "Disability," when determined at any time during the Protected Period, means a "Total Disability" (as defined and determined under the Group Long Term Disability Insurance) that entitles Executive to receive the "Total Disability Benefit" under the Group Long Term Disability Insurance. Whether determined during or outside of the Protected Period, the Company and Executive acknowledge and agree that the essential functions of Executive's position are unique and critical to the Company and that a disability condition that causes Executive to be unable to perform the essential functions of his position under the circumstances described above will constitute an undue hardship on the Company.
"Earned Incentive Compensation" means the sum of:
(a) The amount of any Incentive Compensation payable but not yet paid for the fiscal year preceding the fiscal year in which the Termination Date occurs. If the Compensation Committee has determined such amount prior to the Termination Date, then such amount shall be the amount so determined by the Compensation Committee. If the Compensation Committee has not determined such amount prior to the Termination Date, then such amount shall equal the amount of the Average Incentive Compensation. For purposes of this paragraph (a), any Incentive Compensation deferred by Executive pursuant to any qualified or non-qualified compensation reduction arrangement maintained by the Company, including, without limitation, the Deferred Compensation Plan, shall be deemed to have been paid on the date of deferral; and
(b) An amount equal to the Average Incentive Compensation multiplied by a fraction, the numerator of which is the number of days in the current fiscal year of the Company that have expired before the Termination Date and the denominator of which is 365.
"Estate/Financial Planning Benefits" means those estate and financial planning services (a) in effect on the date hereof in which Executive is eligible to participate or (b) that the Company makes available at any time before the Termination Date to the executives and key management employees of the Company and in which Executive is then eligible to participate.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, as such law, rules and regulations may be amended from time to time.
"Good Reason" means a determination by Executive made in good faith that, upon or after the occurrence of a Change in Control, any of the following events has occurred without Executive's express written consent: (a) a significant reduction in the nature or scope of the title, authority or responsibilities of Executive from those held by Executive immediately prior to the Change in Control; (b) a reduction in Executive's Base Salary from the amount in effect on the date of the Change in Control; (c) a reduction in Executive's Incentive Compensation from the amount of Executive's Average Incentive Compensation, unless such reduction results solely from the Company's results of operations; (d) the failure by the Company to offer to Executive an economic value of benefits reasonably comparable to the economic value of benefits under the Benefit Plans in which Executive participates at the time of the Change in Control; or (e) a material breach by the Company of the terms of Section 3.
"Gross-Up Payment" shall have the meaning given such term in Section 7.
"Group Long Term Disability Insurance" means the Group Long Term Disability Insurance sponsored by the Company and provided by the Continental Casualty Company, Chicago, Illinois, as currently in effect and as the same may be amended from time to time, and any successor long-term disability insurance sponsored by the Company in which the executives and key management employees of the Company are eligible to participate.
"Limited Benefit Plans" means all the Company's employee benefit plans and arrangements in effect at any time and in which the executives and key management employees of the Company are eligible to participate, excluding the Continuing Benefit Plans, but including, without limitation, the following employee benefit plans and arrangements or any successor or new plan or arrangement made available in the future to the executives and key management employees of the Company and in which Executive is eligible to participate before the Termination Date:
(a) The 401(k) Plan;
(b) The RPM International Inc. Retirement Plan;
(c) The Supplemental Executive Retirement Plan;
(d) Stock option plans and other equity-based incentive plans, including the RPM International Inc. 1996 Stock Option Plan and the Restricted Stock Plan;
(e) The Split Dollar Life Insurance;
(f) The RPM International Inc. Incentive Compensation Plan;
(g) The Deferred Compensation Plan;
(h) The RPM International Inc. Employee Stock Purchase Plan;
(i) The Group Long Term Disability Insurance;
(j) RPM International Inc. Group Life Insurance;
(k) RPM International Inc. Group Accidental Death & Dismemberment Insurance;
(l) The RPM International Inc. Group Carve Out Plan (also known as GRIP);
(m) The RPM International Inc. Business Travel Insurance Plan;
(n) The fringe benefits appertaining to Executive's
position with the Company referred to in Subsection
4(f), including the use of an automobile;
(o) Health Care Reimbursement Account; and
(p) Dependent Care Reimbursement Account.
"Lump-Sum Payment" means, collectively, the lump-sum payments that may be payable to Executive pursuant to the first sentence of Subsection 6(b)(iii) and pursuant to Subsection 6(c)(ii)(B).
"Notice of Termination for Good Reason" means a written notice delivered by Executive in good faith to the Company under Subsection 6(a)(vi) setting forth in reasonable detail the facts and circumstances that have occurred and that Executive claims in good faith to be an event constituting Good Reason.
"PARS Plan" means the RPM International Inc. 2002 Performance Accelerated Restricted Stock Plan and any successor plan or arrangement thereto.
"Protected Period" means that period of time commencing on the date of a Change in Control and ending two years after such date.
"Release and Waiver of Claims" means a written release and waiver by Executive, to the fullest extent allowable under applicable law and in form reasonably acceptable to the Company, of all claims, demands, suits, actions, causes of action, damages and rights against the Company and its Affiliates whatsoever which he may have had on account of the termination of his employment, including, without limitation, claims of discrimination, including on the basis of sex, race, age, national origin, religion, or handicapped status, and any and all claims, demands and causes of action for severance or other termination pay. Such Release and Waiver of Claims shall not, however, apply to the obligations of the Company arising under this Agreement, any indemnification agreement between Executive and the Company, any retirement plans, any stock option agreements, COBRA Continuation Coverage or rights of indemnification Executive may
have under the Company's Certificate of Incorporation or By-laws (or comparable charter document) or by statute.
"Restricted Stock Plan" means the RPM International Inc. 1997 Restricted Stock Plan and any successor plan or arrangement thereto, but shall not be deemed to mean or include the PARS Plan.
"Split Dollar Life Insurance" means the Company's Split Dollar Life Insurance arrangements in effect on the date hereof or any successor arrangement that the Company makes available at any time before the Termination Date to the executives and key management employees of the Company and in which Executive is then eligible to participate.
"Subsidiary" means a corporation, company or other entity (a) more than 50 percent of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, or (b) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture or unincorporated association), but more than 50 percent of whose ownership interest representing the right generally to make decisions for such other entity is, now or hereafter, owned or controlled, directly or indirectly, by the Company.
"Supplemental Executive Retirement Plan" means the RPM International Inc. Benefit Restoration Plan in effect on the date hereof or any successor plan that the Company makes available at any time before the Termination Date to the executives and key management employees of the Company and in which Executive is then eligible to participate.
"Termination Date" means the effective date of the termination of the Employment Period.
"Voting Power" means, at any time, the total votes relating to the then-outstanding securities entitled to vote generally in the election of Directors.
"Voting Stock" means, at any time, the then-outstanding securities entitled to vote generally in the election of Directors.
EXHIBIT 10.2
RPM, INC.
2002 PERFORMANCE ACCELERATED
RESTRICTED STOCK PLAN
Effective Date: June 1, 2002
TABLE OF CONTENTS
ARTICLE I - NAME AND PURPOSE............................................................................ 1 1.1. NAME........................................................................................... 1 1.2 PURPOSE........................................................................................ 1 ARTICLE II - DEFINITIONS................................................................................ 1 2.1 BENEFICIARY.................................................................................... 1 2.2 BOARD OF DIRECTORS............................................................................. 1 2.3 CODE........................................................................................... 1 2.4 COMMITTEE...................................................................................... 1 2.5 COMMON SHARES.................................................................................. 2 2.6 COMPANY........................................................................................ 2 2.7 CONTINUOUS EMPLOYMENT.......................................................................... 2 2.8 DEFERRED COMPENSATION PLAN..................................................................... 2 2.11 ELIGIBLE EMPLOYEE.............................................................................. 2 2.12 FAIR MARKET VALUE.............................................................................. 2 2.13 GRANT.......................................................................................... 3 2.14 GRANTEE........................................................................................ 3 2.15 PARENT......................................................................................... 3 2.16 PLAN........................................................................................... 3 2.17 PLAN YEAR...................................................................................... 3 2.18 RESTRICTED STOCK............................................................................... 3 2.19 RESTRICTED STOCK AGREEMENT..................................................................... 4 2.20 RULE 16b-3..................................................................................... 4 2.21 SHAREHOLDERS................................................................................... 4 2.22 STOCK POWER.................................................................................... 4 2.23 SUBSIDIARY..................................................................................... 4 |
2.24 TERMINATION OF EMPLOYMENT...................................................................... 4 ARTICLE III - ADMINISTRATION............................................................................ 5 3.1 PLAN ADMINISTRATION............................................................................ 5 3.2 POWERS AND DUTIES OF THE COMMITTEE............................................................. 5 3.3 GOVERNANCE OF THE COMMITTEE.................................................................... 6 3.4 LIMITATION OF LIABILITY........................................................................ 6 3.5 ADMINISTRATIVE PLAN YEARS...................................................................... 6 ARTICLE IV - ELIGIBILITY AND PARTICIPATION.............................................................. 6 4.1 ELIGIBLE EMPLOYEES............................................................................. 6 4.2 PROHIBITION ON PARTICIPATION................................................................... 6 4.3 ENTRY DATE..................................................................................... 6 ARTICLE V - STOCK AVAILABLE FOR GRANTS.................................................................. 7 5.1 AVAILABLE SHARES............................................................................... 7 5.2 SOURCE OF SHARES............................................................................... 7 ARTICLE VI - RESTRICTED STOCK AGREEMENTS................................................................ 7 6.1 GRANTING OF RESTRICTED STOCK................................................................... 8 6.2 RESTRICTED STOCK AGREEMENTS.................................................................... 8 6.3 STOCK POWER.................................................................................... 8 6.4 RIGHTS OF GRANTEES............................................................................. 8 ARTICLE VII - STOCK RESTRICTIONS........................................................................ 9 7.1 TRANSFER RESTRICTIONS.......................................................................... 9 7.2 OTHER RESTRICTIONS............................................................................. 9 ARTICLE VIII - LAPSE OF RESTRICTIONS.................................................................... 10 8.1 LAPSE OF RESTRICTIONS AFTER TEN YEARS OF CONTINUOUS EMPLOYMENT................................. 10 8.2 PERFORMANCE ACCELERATED LAPSE OF RESTRICTIONS.................................................. 10 |
8.3 DETERMINATION OF ACHIEVEMENT OF PERFORMANCE GOALS.............................................. 10 8.4 DELIVERY OF RESTRICTED STOCK UPON LAPSE OF RESTRICTIONS........................................ 11 ARTICLE IX - TERMINATION OF EMPLOYMENT.................................................................. 11 9.1 TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN CHANGE OF CONTROL, DEATH OR DISABILITY........ 11 9.2 TERMINATION OF EMPLOYMENT DUE TO DEATH OR DISABILITY........................................... 11 9.3 TERMINATION OF EMPLOYMENT DUE TO CHANGE IN CONTROL............................................. 11 9.4 DEFINITION OF "CHANGE IN CONTROL".............................................................. 12 9.5 DELIVERY OF RESTRICTED STOCK................................................................... 14 ARTICLE X - ESCROW AGREEMENT AND LEGENDS................................................................ 14 10.1 ESCROW AGREEMENTS.............................................................................. 14 10.2 LEGENDS........................................................................................ 14 ARTICLE XI - BENEFICIARY DESIGNATION.................................................................... 15 11.1 PROCEDURES FOR BENEFICIARY DESIGNATION......................................................... 15 11.2 DEFAULT BENEFICIARIES.......................................................................... 15 ARTICLE XII - AMENDMENTS................................................................................ 15 12.1 PLAN MAY BE AMENDED............................................................................ 15 12.2 LIMITATIONS ON PLAN AMENDMENT.................................................................. 15 ARTICLE XIII - EFFECTIVE DATE AND TERMINATION........................................................... 16 13.1 EFFECTIVE DATE................................................................................. 16 13.2 PLAN MAY BE TERMINATED......................................................................... 16 13.3 TERMINATION.................................................................................... 16 ARTICLE XIV - COORDINATION WITH DEFERRED COMPENSATION PLAN.............................................. 16 14.1. CREDIT TO DEFERRED COMPENSATION PLAN DETERMINED BY COMMITTEE................................... 16 14.2. CREDIT TO DEFERRED COMPENSATION PLAN DETERMINED BY GRANTEE..................................... 17 14.3 VESTING OF CANCELED OR SURRENDERED RESTRICTED STOCK............................................ 18 |
ARTICLE XV - MISCELLANEOUS.............................................................................. 18 15.1 CONSENTS....................................................................................... 18 15.2 RIGHT OF DISCHARGE RESERVED.................................................................... 19 15.3 NATURE OF GRANTS............................................................................... 19 15.4 NON-UNIFORM DETERMINATIONS AND RESTRICTED STOCK AGREEMENTS..................................... 19 15.5 OTHER PAYMENTS OR AWARDS....................................................................... 19 15.6 SECTION HEADINGS............................................................................... 20 15.7 NUMBER......................................................................................... 20 15.8 GENDER......................................................................................... 20 15.9 WITHHOLDING.................................................................................... 20 15.10 WAIVER......................................................................................... 20 15.11 GOVERNING LAW.................................................................................. 20 |
ARTICLE I
NAME AND PURPOSE
1.1 Name. The name of this Plan shall be: RPM, Inc. 2002 Performance Accelerated Restricted Stock Plan.
1.2 Purpose. The Plan will be maintained to provide certain key executive employees with (i) an incentive to remain in the service of RPM, Inc., Parent and their Subsidiaries, (ii) an incentive to exert their best efforts on behalf of RPM, Inc., Parent and their Subsidiaries and to maintain and enhance the long-term performance and profitability of RPM, Inc., Parent and their Subsidiaries and (iii) an opportunity to acquire a proprietary interest in the success of RPM, Inc., Parent and their Subsidiaries.
ARTICLE II
DEFINITIONS
2.1 Beneficiary. The word "Beneficiary" shall mean the person, persons, entity or entities so designated, or deemed to be designated, by a Grantee pursuant to Article XI.
2.2 Board of Directors. The words "Board of Directors" shall mean the Board of Directors of the Company, as constituted from time to time.
2.3 Code. The word "Code" shall mean the Internal Revenue Code of 1986, as amended, and any lawful regulations or pronouncements thereunder. Whenever reference is made to a specific Code Section, such reference shall be deemed to be a reference to any successor Code Sections with the same or similar purpose.
2.4 Committee. The word "Committee" shall mean the Compensation Committee of the Board of Directors, as constituted from time to time, which shall:
(a) consist of at least three Directors, each of whom shall be a "non-employee director" within the meaning of Rule 16b-3; and
(b) be authorized by the Board to exercise all authority granted to it under this Plan and any Board actions.
2.5 Common Shares. The words "Common Shares" shall mean common shares of RPM, Inc., without par value. Once applicable, the words "Common Shares" shall mean common stock of the Parent, with par value of one cent ($.01) per share.
2.6 Company. The word "Company" shall mean RPM, Inc., an Ohio corporation, or any corporation or other entity which assumes the obligations of RPM, Inc. by operation of law or otherwise under the Plan. Once applicable, the word "Company" shall mean Parent or any other corporation or entity which assumes the obligations of Parent by operation of law or otherwise under the Plan.
2.7 Continuous Employment. The words "Continuous Employment" shall mean employment for an uninterrupted period during which a Grantee is an employee of the Company and/or any Subsidiary, and shall include any authorized leaves of absence.
2.8 Deferred Compensation Plan. The words "Deferred Compensation Plan" shall mean the RPM, Inc. Deferred Compensation Plan, any similar deferred compensation plan of Parent, or their successors.
2.9 Eligible Employee. The words "Eligible Employee" shall mean an officer of the Company or a Subsidiary entitled to participate in the Plan pursuant to Section 4.1.
2.10 Fair Market Value. The words "Fair Market Value" shall mean the fair market value of a Common Share or share of Restricted Stock (for purposes of this Section, "Share"), as the context may require, as of the date it is determined, and shall be deemed to be the closing price of such Share on such date on the Nasdaq or New York Stock Exchange; or if the Share is not listed on the Nasdaq or New York Stock Exchange as of such date, the closing price of
the Share on such date on such national securities exchange or transaction reporting system on which the Share is then listed or quoted; or if the Share is not then so listed or quoted, the fair market value of the Share on such date as determined in good faith by the Board of Directors.
2.11 Grant. The word "Grant" shall mean a grant of Restricted Stock subject to the terms and conditions of this Plan and any related Restricted Stock Agreement.
2.12 Grantee. The word "Grantee" shall mean an Eligible Employee to whom a Grant has been made in accordance with Article VI of this Plan.
2.13 Parent. The word "Parent" means any publicly-held
corporation, limited liability company or partnership that (a) is formed for the
sole purpose of acquiring, directly or indirectly (whether by distribution or
otherwise), substantially all of the outstanding voting stock of all classes of
RPM, Inc., (b) is owned immediately after the acquisition described in clause
(a) of this definition by the same shareholders as were shareholders of RPM,
Inc. immediately prior to the acquisition described in clause (a) of this
definition, and (c) hereafter owns, directly or indirectly, all of the
outstanding voting stock of all classes of RPM, Inc.
2.14 Plan. The word "Plan" shall mean the RPM, Inc. 2002 Performance Accelerated Restricted Stock Plan, as originally executed and as it may be amended.
2.15 Plan Year. The words "Plan Year" shall mean the Company's annual accounting period, which is presently the twelve (12) month period ending on May 31.
2.16 Restricted Stock. The words "Restricted Stock" shall mean Common Shares which have been granted to a Grantee in accordance with, and subject to, the terms and conditions of this Plan.
2.17 Restricted Stock Agreement. The words "Restricted Stock Agreement" shall mean a written agreement executed by the Company and a Grantee containing the terms and conditions of the granting of Restricted Stock to such Grantee under this Plan.
2.18 Rule 16b-3. The term "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Securities Exchange Act of 1934 and any successor to such rule with the same or similar purpose.
2.19 Shareholders. The word "Shareholders" shall mean the individuals or entities that own one or more Common Shares.
2.20 Stock Power. The words "Stock Power" shall mean a power of attorney executed by an Eligible Employee and delivered to the Company which authorizes the Company to transfer ownership of such Restricted Stock from the Grantee to the Company in the event of forfeiture.
2.21 Subsidiary. The word "Subsidiary" shall mean any corporation in which the Company owns, directly or indirectly, stock possessing at least eighty percent (80%) or more of the total combined voting power of all classes of stock entitled to vote or at least eighty percent (80%) of the total value of shares of all classes of stock of such corporation as determined pursuant to Section 1563(a)(1) of the Code, but only during the period any such corporation would be so defined.
2.22 Termination of Employment. The words "Termination of Employment" shall mean the severance of an individual's employment relationship with the Company or a Subsidiary for any reason whatsoever, whether voluntarily or involuntarily, including by reason of retirement, death or disability.
ARTICLE III
ADMINISTRATION
3.1 Plan Administration. Unless otherwise specified by the Board, this Plan shall be administered by the Committee. The Board may, in its sole discretion, at any time and from time to time, by an official action, resolve to administer the Plan effective as of a date specified in such action. In the event that the Board exercises its discretion to administer the Plan, all references to the "Committee" herein shall be deemed to be references to the "Board."
3.2 Powers and Duties of the Committee. The Committee shall have the sole and exclusive authority to: (i) exercise all powers granted to it under the Plan and any Board actions; (ii) construe, interpret, and implement the Plan and any Restricted Stock Agreements executed pursuant to Article VI; (iii) cause the Company to enter into Restricted Stock Agreements with Eligible Employees (including, but not limited to, the authority to determine the number of shares of Restricted Stock awarded to each Eligible Employee, the price or prices at which shares shall be awarded to each Eligible Employee, the time or times when such shares may be awarded and to prescribe the form of such Restricted Stock Agreements and the legend, if any, to be affixed to the certificates representing such shares issued under this Plan); (iv) prescribe, amend and rescind rules and interpretations relating to the Plan; (v) make all determinations necessary or advisable in administering the Plan; (vi) correct any defect, supply any omission and reconcile any inconsistency in the Plan; and (vii) designate one or more persons or agents to carry out any or all of its administrative duties hereunder (provided that none of the duties required to be performed by the Committee under Rule 16b-3 or Article VI of the Plan may be delegated to any other person).
3.3 Governance of the Committee. All actions of the Committee shall require the affirmative vote of a majority of its members present at a meeting at which a quorum is present (in person, telephonically, electronically, by proxy or its equivalent or as otherwise permitted by the Company's governing documents). The determination of the Committee on all matters relating to the Plan or any Restricted Stock Agreement shall be conclusive.
3.4 Limitation of Liability. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Restricted Stock Agreement.
3.5 Administrative Plan Years. The Plan shall be administered and operated on the basis of the Plan Year. In the event that the Company changes its annual accounting period, the Plan Year shall automatically change and the Committee may make such adjustments to the operation of the Plan as appropriate to reflect any short Plan Years, adjustments to the dates that shares of Restricted Stock are awarded or that restrictions lapse hereunder or any other adjustments that may be appropriate to reflect the change in the Plan Year.
ARTICLE IV
ELIGIBILITY AND PARTICIPATION
4.1 Eligible Employees. The Committee shall determine, from time to time and in its sole and exclusive discretion, which officers of the Company or its Subsidiaries shall be Eligible Employees hereunder.
4.2 Prohibition on Participation. Non-employee members of the Board of Directors and members of the Committee shall not be eligible to participate in the Plan.
4.3 Entry Date. An Eligible Employee designated pursuant to Section 4.1 shall be deemed to be a "Grantee" upon execution of a Restricted Stock Agreement between
such Eligible Employee and the Company in accordance with Article VI. An Eligible Employee shall remain a "Grantee" until such time as he no longer has any Restricted Stock subject to the terms of this Plan or any Restricted Stock Agreement, including, but not limited to, the terms of Articles VIII or IX which result in either the lapse of restrictions on Restricted Stock or the forfeiture of Restricted Stock.
ARTICLE V
STOCK AVAILABLE FOR GRANTS
5.1 Available Shares. The total number of Common Shares with respect to which Grants may be made under this Plan shall be equal to one million (1,000,000). In the event that the number or kind of outstanding Common Shares of the Company shall be changed by reason of recapitalization, reorganization, redesignation, merger, consolidation, stock split, stock dividend, combination or exchange of shares, exchange for other securities, or the like, the number and kind of Common Shares which may thereafter be issued under this Plan may be appropriately adjusted as determined by the Committee so as to reflect such change. In accordance with (and without limitation upon) the foregoing, Common Shares available under this Plan and covered by Grants which expire, terminate, are forfeited or are canceled for any reason whatsoever shall again become available for Grants under this Plan.
5.2 Source of Shares. The Restricted Stock which may be granted under this Plan shall be made available from authorized and unissued or treasury Common Shares of the Company.
ARTICLE VI
RESTRICTED STOCK AGREEMENTS
6.1 Granting of Restricted Stock. The Committee is authorized to make Grants of Restricted Stock to Eligible Employees in such amounts, and subject to such terms and conditions, as the Committee shall from time to time determine in its sole discretion, subject to the terms of this Plan.
6.2 Restricted Stock Agreements. The granting of Restricted Stock to an Eligible Employee under this Plan shall be contingent on such Eligible Employee executing a Restricted Stock Agreement in the form prescribed by the Committee. Each Restricted Stock Agreement shall: (i) indicate the number of shares of Restricted Stock which will be granted to the Eligible Employee; (ii) include provisions reflecting the transfer restrictions imposed upon Restricted Stock under this Plan and the provisions for lapse of those restrictions under this Plan; and (iii) include any other terms, conditions or restrictions the Committee deems necessary or appropriate. The Committee may solicit the recommendation of the Company's Chief Executive Officer in determining the number of shares of Restricted Stock which shall be allocated to an Eligible Employee.
6.3 Stock Power. The Committee shall require Eligible Employees to execute and deliver to the Company a Stock Power in blank with respect to Restricted Stock granted to such Eligible Employees. The Committee may, in its sole discretion, deposit Restricted Stock certificates with an escrow agent in accordance with Article X. Alternatively, the Company may retain possession of the Restricted Stock certificates.
6.4 Rights of Grantees. Subject to the terms, conditions and restrictions specified under this Plan and applicable Restricted Stock Agreements, the Restricted Stock granted under this Plan shall be considered as issued and outstanding and fully paid and non-assessable for all purposes. Notwithstanding retention of Restricted Stock certificates by the
Company or an escrow agent, Grantees shall have all rights with respect to their Restricted Stock (subject to the terms, conditions and restrictions specified under this Plan and any applicable Restricted Stock Agreement) including:
(a) Title. Subject to the Grantee's execution of a Stock Power, any Restricted Stock granted under this Plan shall be held by the Company or in escrow under the Grantee's name.
(b) Voting Rights. Subject to the Grantee's execution of a Stock Power, a Grantee shall be entitled to vote any Restricted Stock granted to him under this Plan.
(c) Dividends. As of the date any dividend is paid on any Restricted Shares under this Plan, the Grantee having title to such Restricted Stock shall be credited with a dividend equivalent credit under the Deferred Compensation Plan in such manner, and in such amount, as is provided in the Deferred Compensation Plan for dividends paid on Restricted Shares thereunder.
ARTICLE VII
STOCK RESTRICTIONS
7.1 Transfer Restrictions. Restricted Stock shall not be
sold, transferred or otherwise disposed of and shall not be pledged or otherwise
hypothecated (and any such sale, transfer or other disposition, pledge or other
hypothecation being hereinafter referred to as "to dispose of" or a
"disposition") until the earliest of: (i) a Change in Control (as described in
Sections 9.3 & 9.4); (ii) a Grantee experiencing a Termination of Employment due
to death or total disability (as described in Section 9.2); (iii) the
restrictions on such Restricted Stock lapse in accordance with Article VIII; or
(iv) termination of the Plan.
7.2 Other Restrictions. The Committee may impose restrictions on Restricted Stock in addition to, or different from, those described in this Plan, as it deems necessary or appropriate. Grants are not required to be made with the same terms, conditions or restrictions. Grants may vary from time to time and from Grantee to Grantee.
ARTICLE VIII
LAPSE OF RESTRICTIONS
8.1 Lapse of Restrictions After Ten Years of Continuous Employment. If a Grantee remains in Continuous Employment from June 1, 2002 until May 31, 2012, subject to all of the other provisions of this Plan, all restrictions imposed upon Restricted Stock awarded to him pursuant to this Plan shall lapse and be of no further force and effect. In the event of Termination of Employment prior to May 31, 2012, the status of the restrictions imposed upon such Grantee's Restricted Stock upon Termination of Employment shall be governed by Article IX.
8.2 Performance Accelerated Lapse of Restrictions. All restrictions on the Restricted Stock granted pursuant to this Plan, whether contained in this Plan or a Restricted Stock Agreement, shall lapse upon attainment of all Performance Goals during any Plan Year beginning prior to June 1, 2011, as determined in accordance with Section 8.3. The term "Performance Goals" shall mean such financial or other goals as determined by the Committee and set forth in a Restricted Stock Agreement.
8.3 Determination of Achievement of Performance Goals. Notwithstanding anything contained in this Plan to the contrary, the Committee shall have sole and exclusive authority to determine whether Performance Goals have been satisfied. The Committee may, in its sole and exclusive discretion, adjust any criteria or measure used to determine satisfaction of Performance Goals for any Plan Year, solely for purposes of this Plan, to account for the effect of acquisitions, divestitures, substantial asset sales, the payment of debt, the classification of normal operating expenses as "unusual charges" for accounting purposes, the use of non-standard accounting methodologies, changes in accounting principles, or other extraordinary or
non-recurring events. In making any such adjustment, the Committee may rely upon the opinion of outside service providers to the extent it deems necessary or appropriate.
8.4 Delivery of Restricted Stock Upon Lapse of Restrictions. As promptly as practicable following a determination by the Committee that Performance Goals have been satisfied, the Committee shall cause certificates for all Restricted Stock, which certificates have been in the physical custody of the Company or an escrow agent, to be issued to the appropriate Grantees, with any legend making reference to the various restrictions imposed hereunder removed.
ARTICLE IX
TERMINATION OF EMPLOYMENT
9.1 Termination of Employment for Reasons Other Than Change of Control, Death or Disability. Except as otherwise provided in Sections 9.2 through 9.4, in the event a Grantee experiences a Termination of Employment, any Restricted Stock granted hereunder which is not unrestricted upon Termination of Employment shall be forfeited and returned to the Company pursuant to a Stock Power.
9.2 Termination of Employment Due to Death or Disability. Notwithstanding Section 9.1 to the contrary, in the event a Grantee experiences a Termination of Employment by reason of death or total disability (as defined under the Company's group long-term disability plan), any Restricted Stock granted hereunder shall be deemed to be unrestricted, meaning that all restrictions imposed on such Restricted Stock shall lapse and be of no further force and effect. The Committee has the authority to determine whether a Grantee is totally disabled.
9.3 Termination of Employment Due to Change in Control. Notwithstanding Section 9.1 to the contrary, in the event of a Change in Control as described in Sections 9.3 and
9.4, any Restricted Stock granted hereunder shall be deemed to be unrestricted, meaning that all restrictions imposed on such Restricted Stock shall lapse and be of no further force and effect. The Committee has the authority to determine whether a Change in Control has occurred.
9.4 Definition of "Change in Control" A "Change in Control" shall be deemed to have occurred upon the occurrence of any of the following events:
(a) The Company is merged or consolidated or reorganized into or with another corporation or other legal person or entity (other than Parent or any Subsidiary of Parent), and as a result of such merger, consolidation or reorganization less than a majority of the combined voting power of the then-outstanding securities of such corporation, person or entity immediately after such transaction are held in the aggregate by the holders of the then-outstanding securities entitled to vote generally in the election of Directors (the "Voting Stock") immediately prior to such transaction;
(b) The Company sells or otherwise transfers all or substantially all of its assets to any other corporation or other legal person or entity (other than Parent or any Subsidiary of Parent), and less than a majority of the combined voting power of the then-outstanding securities of such corporation, person or entity immediately after such sale or transfer is held in the aggregate by the holders of Voting Stock immediately prior to such sale or transfer;
(c) There is a report filed on Schedule 13D or Schedule TO (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act but excluding Parent and any Subsidiary of Parent) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 15% or more of the total votes relating to the then-outstanding securities entitled to vote generally in the election of Directors (the "Voting Power");
(d) The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of the Company has or may have occurred or will or may occur in the future pursuant to any then-existing contract or transaction (excluding any change in control in favor of Parent or any Subsidiary of Parent);
(e) During any period of two consecutive years, individuals, who at the beginning of any such period, constitute the Directors cease for any reason to constitute at least a majority thereof, unless the nomination for election by the Company's Shareholders of each new Director was approved by a vote of at least two-thirds of the Directors then in office who were Directors at the beginning of any such period; or
(f) Such event as the Board of Directors, in the good faith exercise of its discretion, shall determine to be a "Change in Control."
Notwithstanding the foregoing provisions of paragraphs (c) and (d) of this definition, a "Change in Control" shall not be deemed to have occurred for purposes of this Plan (i) solely because (A) the Company, (B) a Subsidiary of the Company, or (C) any Company-sponsored employee stock ownership plan or other employee benefit plan of the Company or any Subsidiary, or any entity holding shares of Voting Stock for or pursuant to the terms of any such plan, either files or becomes obligated to file a report or proxy statement under or in response to Schedule 13D, Schedule TO, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by it of shares of Voting Stock or because the Company reports that a change in control of the Company has or may have occurred or will or may occur in the future by reason of such beneficial ownership, (ii) solely because any other person or entity either files or becomes obligated to file a report on Schedule 13D or Schedule TO (or any successor schedule, form or report) under the Exchange Act, disclosing beneficial ownership by it of shares of Voting Stock, but only if both (A) the transaction giving rise to such filing or obligation is approved in advance of consummation thereof by the Company's Board of Directors and (B) at least a majority of the Voting Power immediately after such transaction is held in the aggregate by the holders of Voting Stock immediately prior to such transaction, or (iii) solely because of a change in control of any Subsidiary of the Company.
9.5 Delivery of Restricted Stock. As promptly as practicable following the occurrence of any of the events described in Sections 9.2 through 9.4, the Committee shall cause certificates for all Restricted Stock which has become unrestricted as a result of such events, which certificates have been in the physical custody of the Company or an escrow agent, to be issued to the appropriate Grantees, with any legend making reference to the various restrictions imposed hereunder removed. In the event of a Grantee's Termination of Employment by reason of death, certificates shall be delivered to the Grantee's Beneficiary, determined in accordance with Article XI.
ARTICLE X
ESCROW AGREEMENT AND LEGENDS
10.1 Escrow Agreements. In order to enforce the restrictions imposed upon Restricted Stock issued hereunder, the Committee may require any Grantee to enter into an escrow agreement providing that the certificates representing Restricted Stock issued pursuant to this Plan shall remain in the physical custody of an escrow agent until any or all of the restrictions imposed upon such Restricted Stock pursuant to this Plan have terminated. The Committee may impose such additional restrictions on any Restricted Stock awarded pursuant to the Plan as it may deem necessary or appropriate including, without limitation, restrictions under the Securities Act of 1933, as amended, or other securities the requirements of Nasdaq, the New York Stock Exchange or any other stock exchange or transaction reporting system upon which such Restricted Stock is then listed or quoted and any state blue sky laws applicable to such Restricted Stock.
10.2 Legends. The Committee may cause a legend or legends to be placed on any certificates representing Restricted Stock issued pursuant to this Plan, which legend or
legends shall make appropriate reference to the various restrictions imposed hereunder and any other limitations or restrictions deemed necessary or advisable by the Committee.
ARTICLE XI
BENEFICIARY DESIGNATION
11.1 Procedures for Beneficiary Designation. A Grantee may designate a Beneficiary or Beneficiaries to receive Restricted Stock that becomes payable on account of the Grantee's death, in such manner as the Committee may require.
11.2 Default Beneficiaries. If a Grantee has not designated a Beneficiary or Beneficiaries in accordance with Section 11.1, any shares of Restricted Stock that become unrestricted on account of the death of the Grantee shall be distributed to the person or persons in the first of the following classes in which there are any survivors of such Grantee, which person or persons shall be deemed to have been designated a Beneficiary or Beneficiaries by the Grantee:
(a) his spouse at the time of death;
(b) his issue per stirpes;
(c) his parents; and
(d) the executor or administrator of his estate.
ARTICLE XII
AMENDMENTS
12.1 Plan May Be Amended. Subject to Section 12.2, this Plan may be amended at any time by the Board of Directors.
12.2 Limitations on Plan Amendment. If this Plan shall have been approved by the Shareholders of the Company, no amendment shall increase the maximum number of Common Shares that may be issued pursuant to this Plan, except pursuant to Section 5.1, without
the further approval of such Shareholders. No amendment to this Plan shall materially modify or impair the rights of Eligible Employees who have been granted Restricted Stock, or who have the right to a grant of Restricted Stock hereunder prior to any such amendment without such Eligible Employees' prior written consent.
ARTICLE XIII
EFFECTIVE DATE AND TERMINATION
13.1 Effective Date. This Plan became effective upon its adoption by the Board of Directors for the Plan Year beginning June 1, 2002.
13.2 Plan May Be Terminated. This Plan may be terminated at any time by the Board of Directors.
13.3 Termination. This Plan shall terminate on the earliest of:
(a) May 31, 2012;
(b) such other date indicated in a resolution of the Board of Directors; or
(c) anytime within twelve (12) months of the date of the Plan's adoption by the Board of Directors, if the Plan does not receive the approval of a majority of the outstanding Common Shares present (in person, telephonically, electronically, by proxy or its equivalent or as otherwise permitted by the Company's governing documents) and entitled to vote at a meeting of Shareholders of the Company.
In the event the Plan is terminated pursuant to Section 13.2(c), all Grants of Restricted Stock under the Plan shall be revoked and the Company and its Subsidiaries shall not be liable for any such Grants under this Plan, notwithstanding any other provision in the Plan to the contrary.
ARTICLE XIV
COORDINATION WITH DEFERRED COMPENSATION PLAN
14.1 Credit to Deferred Compensation Plan Determined by Committee. In the event that an Eligible Employee receives a Grant of Restricted Stock, has not made an election
under Section 83(b) of the Code and will be in receipt of an amount of compensation in excess of the amount that may be deducted under Section 162(m) of the Code upon lapse of the restrictions, the Committee shall have the right and authority to cancel such number of shares of Restricted Stock as is necessary so that the compensation amount attributable to the remaining Restricted Stock that will become unrestricted on or before the next immediate May 31 will be deductible by the Company after taking into account Section 162(m) of the Code, and the Eligible Employee shall automatically have the same number of shares of Restricted Stock credited to his Restricted Stock Account under the Deferred Compensation Plan. The Committee may determine to make such a cancellation at any time, but not later than ten (10) days prior to the date the restrictions for such Restricted Stock lapse. The Eligible Employee shall be notified in writing of any such cancellation and shall be subject to such further requirements as determined by the Committee in its sole discretion.
14.2 Credit to Deferred Compensation Plan Determined by Grantee. In the event that an Eligible Employee receives a Grant of Restricted Stock, has not made an election under Section 83(b) of the Code and will be in receipt of an amount of compensation upon lapse of such restrictions, the Grantee may elect to surrender, as of a date specified in his election, any of the Restricted Stock awarded under this Plan and the Grantee shall automatically have the same number of shares of Restricted Stock credited to his Restricted Stock Account under the Deferred Compensation Plan. For an election to be valid, it must be made in accordance with the terms and conditions imposed by the Committee and the requirements of the Deferred Compensation Plan. The surrender election with respect to the Restricted Stock must be delivered to and accepted by the Committee at least six (6) months prior to the date all restrictions with respect to the Restricted Stock lapse.
14.3 Vesting of Canceled or Surrendered Restricted Stock. An employee shall be vested in shares of Restricted Stock or amounts credited to his Account Balance under the Deferred Compensation Plan as a result of cancellation or surrender of Restricted Stock under this Plan when restrictions on the cancelled or surrendered Restricted Stock would have lapsed under this Plan.
ARTICLE XV
MISCELLANEOUS
15.1 Consents. If the Committee shall at any time determine that any Consent (as defined below) is necessary or desirable as a condition to, or in connection with, any Grant under the Plan, the issuance of Common Shares or other rights thereunder or the taking of any other action thereunder (each such action being hereinafter referred to as a "Plan Action"), then such Plan Action shall not be taken, in whole or in part, unless and until such Consent shall have been effected or obtained to the full satisfaction of the Committee, or the Committee may require that such Plan Action be taken only in such manner as to make such Consent unnecessary.
The term "Consent" as used herein with respect to any Plan Action means (i) any and all listings, registrations or qualifications in respect thereof upon any securities exchange or under any federal, state or local law, rule or regulation, (ii) any and all written agreements and representations by the Grantee with respect to the acquisition or disposition of Common Shares, or with respect to any other matter, which the Committee shall deem necessary or desirable to comply with the terms of any such listing, registration or qualification or to obtain an exemption from the requirement that any such listing, qualification or registration be made and (iii) any and all consents, clearances and approvals by any governmental or other regulatory bodies.
15.2 Right of Discharge Reserved. Nothing in the Plan or in any Restricted Stock Agreement shall be construed to confer upon any Eligible Employee the right to continue in the employment or service of the Company or any Subsidiary, or to be employed or serve in any particular position therewith, or affect any right which the Company or any Subsidiary may have to terminate the employment or service of such Eligible Employee.
15.3 Nature of Grants.
(a) Any and all Grants and issuances of Restricted Stock hereunder shall be in consideration of services performed for the Company or for a Subsidiary by the Grantee.
(b) All Grants hereunder shall constitute a special incentive to the Grantee and shall not be taken into account in computing the amount of salary or compensation of the Grantee for purposes of determining any pension, retirement, death or other benefits under (i) any pension, retirement, profit-sharing, bonus, life insurance or other benefit plan of the Company or any Subsidiary or (ii) any agreement between the Company or any Subsidiary, on the one hand, and the Grantee, on the other hand, except as such plan or agreement shall otherwise expressly provide.
15.4 Non-Uniform Determinations and Restricted Stock Agreements. The Company's, Board's or Committee's determinations under the Plan need not be uniform and may be made selectively among Eligible Employees who receive, or are eligible to receive, Grants under the Plan (whether or not such persons are similarly situated). Without limiting the generality of the foregoing, the Company, Board and Committee shall be entitled, among other things, to make non-uniform and selective determinations, and to enter into non-uniform and selective Restricted Stock Agreements as to (i) the persons to receive Grants under the Plan, and (ii) the terms, conditions and restrictions of Grants under the Plan.
15.5 Other Payments or Awards. Nothing contained in the Plan shall be deemed to in any way limit or restrict the Company, any Subsidiary, the Board or the Committee
from making any award or payment to any person under any other plan, arrangement or understanding, whether now existing or hereafter in effect.
15.6 Section Headings. The section headings contained herein are for purposes of convenience only and are not intended to define or limit the contents of said sections.
15.7 Number. The singular herein shall include the plural, or vice versa, wherever the context so requires.
15.8 Gender. A pronoun in the masculine, feminine, or neuter gender shall be deemed, where appropriate, to include also the masculine, feminine or neuter gender.
15.9 Withholding. The Company may withhold, or require a Grantee to remit to the Company, an amount sufficient to satisfy any applicable federal, state or local withholding tax requirement.
15.10 Waiver. No waiver of any term or provision of this Plan by the Company, any Subsidiary, Board or Committee will constitute a waiver of the same term or provision in any subsequent case.
15.11 Governing Law. This Plan shall be governed by, construed and enforced in accordance with the internal laws of the State of Ohio, without reference to principles of conflict of laws.
EXHIBIT 10.3
AMENDMENT NO. 1
TO THE RPM INTERNATIONAL INC.
2002 PERFORMANCE ACCELERATED RESTRICTED STOCK PLAN
THIS AMENDMENT NO. 1 to the RPM International Inc. 2002 Performance Accelerated Restricted Stock Plan is executed by RPM International Inc. (hereinafter known as the "Company") as of the date set forth below.
WITNESSETH:
WHEREAS, RPM, Inc. maintained the RPM, Inc. 2002 Performance Accelerated Restricted Stock Plan (hereinafter known as the "Plan) for the benefit of certain of its employees and certain employees of affiliated companies; and
WHEREAS, in connection with the reincorporation of RPM, Inc. as a Delaware corporation, RPM, Inc. assigned, and the Company assumed, all of the powers, authorities, duties, responsibilities and obligations of RPM, Inc. with respect to the Plan in accordance with an Agreement and Plan of Merger, dated August 29, 2002 (the "Merger Agreement"); and
WHEREAS, it is the desire of the Company to amend the Plan in order to reflect the assumption of the Plan by the Company, the new name of the Plan, and such other changes that are necessary or appropriate upon the reincorporation of RPM, Inc.; and
WHEREAS, it is also the desire of the Company to amend the Plan so that the payment of dividends on shares awarded under the Plan to employees who are citizens of the United States of America will be made to the employee and that dividends on shares awarded under the Plan to all other employees will be retained by the Company with a credit of like amount of money to be paid to the account of the employee under the RPM International Inc. Deferred Compensation Plan; and
WHEREAS, the Company has the right, pursuant to Section 12.1 of the Plan, to make certain amendments thereto;
NOW, THEREFORE, pursuant to Section 12.1 of the Plan, the Company hereby amends the Plan as follows:
1. Effective October 15, 2002, Section 1.1 of the Plan is hereby amended by the deletion of said section in its entirety and the substitution in lieu thereof of a new Section 1.1 to read as follows:
"1.1 Name. The name of this Plan shall be: RPM International Inc. 2002 Performance Accelerated Restricted Stock Plan."
2. Effective October 15, 2002, Section 1.2 of the Plan is hereby amended by the deletion of said section in its entirety and the substitution in lieu thereof of a new Section 1.2 to read as follows:
"1.2 Purpose. The Plan will be maintained to provide certain key executive employees with (i) an incentive to remain in the service of the Company or a Subsidiary, (ii) an incentive to exert their best efforts on behalf of the Company or a Subsidiary, and (iii) an opportunity to acquire a proprietary interest in the success of the Company and the Subsidiaries."
3. Effective October 15, 2002, Section 2.5 of the Plan is hereby amended by the deletion of said section in its entirety and the substitution in lieu thereof of a new Section 2.5 to read as follows:
"2.5 Common Shares. The words `Common Shares' shall mean common shares of RPM International Inc., with par value of one cent ($0.01) per share."
4. Effective October 15, 2002, Section 2.6 of the Plan is hereby amended by the deletion of said section in its entirety and the substitution in lieu thereof of a new Section 2.6 to read as follows:
"2.6 Company. The word `Company' shall mean RPM International Inc., a Delaware corporation, or any corporation or entity that is a successor to RPM International Inc. or substantially all of the assets of RPM International Inc., or any
corporation or entity that assumes the obligation of RPM International Inc. by operation of law or otherwise under this Plan."
5. Effective October 15, 2002, Section 2.8 of the Plan is hereby amended by the deletion of said section in its entirety and the substitution in lieu thereof of a new Section 2.8 to read as follows:
"2.8 Deferred Compensation Plan. The words `Deferred Compensation Plan' shall mean the RPM International Inc. Deferred Compensation Plan or any similar deferred compensation plan of the Company or its successor."
6. Effective October 15, 2002, Section 2.13 of the Plan is hereby amended by the deletion of said section in its entirety and the substitution in lieu thereof of a new Section 2.13 to read as follows:
"2.13 Parent. The word "Parent" means any publicly-held corporation, limited liability company or partnership that (a) is formed for the sole purpose of acquiring, directly or indirectly (whether by distribution or otherwise), substantially all of the outstanding voting stock of all classes of RPM International Inc., (b) is owned immediately after the acquisition described in clause (a) of this definition by the same shareholders as were shareholders of RPM International Inc. immediately prior to the acquisition described in clause (a) of this definition, and (c) hereafter owns, directly or indirectly, all of the outstanding voting stock of all classes of RPM International Inc."
7. Effective January 13, 2003, Subsection (c) of Section 6.4 of the Plan is hereby amended by the deletion of said Subsection in its entirety and the substitution in lieu thereof of a new Subsection (c) to read as follows:
"(c) Dividends paid on any shares of Restricted Stock awarded under this Plan to Eligible Employees who are citizens of the United States of America, shall be paid to the participant in whose name the certificates are issued. Notwithstanding any other provision of this Plan, any dividends paid on any shares of Restricted Stock awarded under this Plan to Eligible Employees who are not citizens of the United States of America shall be retained by the Company. As of the date of any dividend paid on any shares awarded to Eligible Employees who are not citizens of the United States of America, the Eligible Employee shall be credited with a dividend equivalent credit to the Deferred Compensation Plan equal to either:
(i) the amount of any cash dividend; or
(ii) if the dividend is paid in Common Shares, an amount equal to the number of Common Shares and factions thereof multiplied by the closing price of a Common Share on the date the dividend is paid."
IN WITNESS WHEREOF, RPM International Inc., by its duly authorized officer, has caused this Amendment No. 1 to the RPM International Inc. 2002 Performance Accelerated Restricted Stock Plan to be signed this 20th day of January, 2003.
RPM INTERNATIONAL INC.
By: /s/ Frank C. Sullivan
------------------------------
Its: CEO
------------------------------
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EXHIBIT 10.4
AMENDMENT NO. 1
TO THE
RPM, INC. BENEFIT RESTORATION PLAN
THIS AMENDMENT NO. 1 to the RPM, Inc. Benefit Restoration Plan (hereinafter known as the "Plan") is executed as of the date set forth below by RPM, Inc. (hereinafter known as the "Company").
WITNESSETH:
WHEREAS, the Company maintains the Plan for the benefit of certain of its employees and certain employees of affiliated companies; and
WHEREAS, the Company reserved the right, pursuant to Section 4.5 of the Plan, for the Board of Directors to make certain amendments thereto; and
WHEREAS, it is the desire of the Company to amend the Plan in order to reflect the freeze of benefit accruals under the Plan, effective June 1, 1997 and to make other desirable changes to the Plan;
NOW, THEREFORE, pursuant to Section 4.5 of the Plan, the Board of Directors hereby amends the Plan as follows, effective as of June 1, 1997:
1. Article 1 of the Plan is hereby amended by the addition of a new Section 1.7A to read as follows:
"1.7A Common Shares. `Common Shares' means the common shares, without par value, of the Company."
2. Article 1 of the Plan is hereby amended by the addition of a new Section 1.10A to read as follows:
"1.10A Restricted Stock Plan. `Restricted Stock Plan' means the RPM, Inc. 1997 Restricted Stock Plan, as the same may be amended form time to time."
3. Article 1 of the Plan is hereby amended by the addition of a new Section 1.11A to read as follows:
"1.11A Supplemental Restoration Benefit. `Supplemental Restoration Benefit' means a Supplemental Retirement Restoration Benefit or a Supplemental Death Restoration Benefit."
4. Section 3.3 of the Plan is hereby amended by the deletion of
said section in its entirety and the substitution in lieu thereof of a new
Section 3.3 to read as follows:
"3.3 Lump Sum Payment. The Supplemental Restoration Benefit shall be paid in a lump sum which shall be determined by using the actuarial assumptions set forth in the Basic Retirement Plan; provided, however, that if the Participant has been issued restricted Common Shares under the Restricted Stock Plan for the purpose of replacing all or a portion of the Supplemental Restoration Benefit which the Participant had accrued hereunder prior to June 1, 1997, the lump sum payable hereunder with respect to such Supplemental Restoration Benefit shall be reduced by the aggregate dollar amount attributable to such shares as set forth in the agreement(s) pursuant to which such Common Shares were acquired by the Participant."
5. Section 4.2 of the Plan is hereby amended by the deletion of
said section in its entirety and the substitution in lieu thereof of a new
Section 4.2 to read as follows:
"4.2 Termination. This Plan may be terminated at any time by the Board of Directors of the Company, in which event the rights of Participants to their accrued Supplemental Restoration Benefits established under this Plan shall become nonforfeitable. In the event of termination of this Plan, the Company shall remain obligated to pay Supplemental Restoration Benefits in respect of those employees who are Participants on the date of such termination to the extent and on the same date as such benefits would otherwise be payable under this Plan as if it
had not been terminated; provided, however, that solely for the purpose of determining the amount of the benefit payable to such Participants upon actual retirement, such Participants shall be deemed to have retired on the date of such termination of this Plan. Notwithstanding the above, the Company, in its sole discretion, may, in lieu of making a future benefit payment, make payment to any Participant on any date before the payment date otherwise provided for under the Plan."
6. The Plan is hereby amended by the addition of a new Section 4.12 to read as follows:
"4.12 Termination of Accruals. As of June 1, 1997, Participants
shall cease to accrue any further Supplemental Restoration Benefit hereunder.
Notwithstanding the foregoing, any Participant who had accrued a Supplemental
Restoration Benefit prior to June 1, 1997 shall remain entitled to such benefit,
provided that the dollar amount of such benefit shall be equal to the dollar
amount that would have been payable to the Participant if the Participant had
retired on May 31, 1997. Nothing in this Section 4.12 shall be construed as
precluding any reduction in the Supplemental Restoration Benefit as provided in
Section 3.3 hereof."
IN WITNESS WHEREOF, RPM., Inc., by officers duly authorized by its Board of Directors, has caused this Amendment No. 1 to the RPM, Inc. Benefit Restoration Plan to be signed effective June 1, 1997.
RPM, INC.
By: /s/ THOMAS C. SULLIVAN
-------------------------------
And: /s/ RONALD RICE
-------------------------------
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EXHIBIT 10.5
FOURTH AMENDMENT TO THE
RPM INTERNATIONAL INC. 1997 RESTRICTED STOCK PLAN
THIS FOURTH AMENDMENT to the RPM International Inc. 1997 Restricted Stock Plan is executed by RPM International Inc. (hereinafter referred to as the "Company") as of the date set forth below.
WITNESSETH:
WHEREAS, the Company adopted and maintains the RPM International Inc. 1997 Restricted Stock Plan (hereinafter referred to as the "Plan") for the benefit of certain of its employees and certain employees of the Company's subsidiaries; and
WHEREAS, the Company reserved the right, pursuant to Section 8 of the Plan, to make certain amendments thereto; and
WHEREAS, it is the desire of the Company to amend the Plan so that the payment of dividends on Shares awarded under the Plan to employees who are citizens of the United States of America will be made to the employee, and that dividends on shares awarded under the Plan to all other employees will be retained by the Company with a credit of like amount of money to be paid to the account of the employee under the RPM International Inc. Deferred Compensation Plan;
NOW, THEREFORE, pursuant to Section 8 of the Plan, the Company hereby amends the Plan as follows, effective on January 13, 2003 as set forth below:
1. Article 4 of the Plan is here by amended by the deletion of Section 4.5 in its entirety and the substitution in lieu thereof of a new Section 4.5 to read as follows:
"4.5 Dividends paid on any Shares awarded under this Plan to employees who are citizens of the United States of America, shall be paid to the participant in whose name the certificates are issued. Notwithstanding any other provision of this Plan, any dividends paid on any Shares awarded under this Plan to employees who are not citizens of the United States of America shall be retained by the Company. As of the date of any dividend paid on any shares awarded to employees who are not citizens of the United States of America, the employee shall be credited with a dividend equivalent credit to the RPM International Inc. Deferred Compensation Plan equal to either:
(a) the amount of any cash dividend; or
(b) if the dividend is paid in Shares, an amount equal to the number of Shares and fractions thereof multiplied by the Share's closing price on the date the dividend is paid."
IN WITNESS WHEREOF, RPM International Inc., by its officer duly authorized, has caused this Fourth Amendment to the RPM International Inc. 1997 Restricted Stock Plan to be signed this 20th day of January, 2003.
RPM INTERNATIONAL INC.
By: /s/ Frank C. Sullivan
------------------------------
Its: President and Chief Executive Officer
-------------------------------------
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RPM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPUTATIONS OF EARNINGS
PER SHARE AND SHARE EQUIVALENTS
(UNAUDITED)
EXHIBIT 11.1
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED THREE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
--------------------------- ---------------------
2003 2002 2003 2002
----------- ---------- --------- --------
SHARES OUTSTANDING
FOR COMPUTATION OF BASIC EARNINGS PER
SHARE OF COMMON STOCK
WEIGHTED AVERAGE SHARES 115,193 102,346 115,583 102,508
----------- ---------- --------- --------
TOTAL SHARES FOR BASIC EARNINGS
PER SHARE 115,193 102,346 115,583 102,508
FOR COMPUTATION OF DILUTED EARNINGS
PER SHARE OF COMMON STOCK
NET ISSUABLE COMMON SHARE EQUIVALENTS 829 511 538 1,212
----------- ---------- --------- --------
TOTAL SHARES FOR DILUTED EARNINGS
PER SHARE 116,022 102,857 116,121 103,720
=========== ========== ========= ========
NET INCOME
NET INCOME APPLICABLE TO SHARES OF COMMON
STOCK FOR BASIC EARNINGS PER SHARE $ 78,696 $ 64,333 $ 4,883 $ 3,274
----------- ---------- --------- --------
NET INCOME APPLICABLE TO SHARES OF COMMON
STOCK FOR DILUTED EARNINGS PER SHARE $ 78,696 $ 64,333 $ 4,883 $ 3,274
=========== ========== ========= ========
BASIC EARNINGS PER SHARE $ 0.68 $ 0.63 $ 0.04 $ 0.03
=========== ========== ========= ========
DILUTED EARNINGS PER SHARE $ 0.68 $ 0.63 $ 0.04 $ 0.03
=========== ========== ========= ========
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THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.